Bernie Sanders’ editorial in today’s New York Times is fairly representative of liberals’ general remarks on the Fed raising the federal funds rate. It notes the dangers of it causing a recession by making investment more expensive, and this just for the benefit of combating nearly non-existent inflation. Missing from his editorial and pieces like it is an assessment of the drastic change that has taken place in the implementation of the fed funds rate. In the past, the rate was the amount it cost banks to borrow money from other banks in the reserve system at closing time, as they would need to borrow money to met reserve requirements at the end of the business day. The Fed funds rate being “high” made end of day borrowing costly, indirectly causing banks to loan out less money during the day. The Fed would use this method and others to cut the money supply, and thereby increase rates for bank lending.
But because the markets are so flush with money from the Fed buying bank assets (the miracle of qualitative easing), the Fed has decided that draining the money supply will not raise rates, and so, rather than making it expensive for banks to make cheap loans, the Fed will pay the banks to keep their money in the Fed and out of the economy. Taken as an argument, the move makes sense, but we must not be timid in acknowledging how astounding this is. The transfer of money from workers to the economic elite created conditions that seem to be best remedied by transferring more money from the workers to the elite. It does not necessarily follow that this policy will have consequences that will likewise be resolved with more cash transfers from the people to the elite. But the material of history would suggest it is quite reasonable to expect this.
Sanders laments the Fed’s paying banks in order to raise lending rates, but he seems to imply that these policies are incidental and not the actual mechanism of raising the fed funds rate now. Noting that these payoffs have been going on for years obfuscates the point that we are seeing a new justification for cash transfers to banks. It is unclear why Sanders disconnects these policies, but that he does so is troubling, as it limits his editorial to a critique of the coextensiveness of the economic elite and the political elite as the power elite, without articulating what this power is used for, crippling neoliberal, austerity policies of capital accumulation, and which in being so labeled, would link up the struggle of working Americans to other workers around the world, doing much to mend the fractures of the global Left.
In a huge result for the Left, Podemos exploded the two party system in parliamentary elections in Spain this Sunday, and did so by articulating a critique of austerity and an analysis of how it grounded common experiences in the Spanish polis. Sanders would do well to consider the methods employed by Podemos; Sanders needs to tap into and expand on the ideals of Occupy, just as Podemos expressed politically the social currents behind the 15-m movement, the Spanish anti-austerity mass demonstrations that inspired the first Occupiers. While Podemos’ leaders, Iglesias and Errejon, were incorrect that the demonstrations would be best mirrored by a post-political Laclaun populism, this sort of non-participationism would seem to describe what was Occupy, such that the Americans Sanders is trying to rally might respond to just the sort of post-political structures Podemos has developed. But first, Sanders needs to expand his analysis of austerity and its many forms.