The biggest threat to the stability of the capitalist economy right now is not inflation, as it was fifteen or twenty years ago, but the possibility of accelerating deflation. Many prices are actually going down, and the overall inflation rate-some 3 percent annually (or lower) in much of the imperialist world-is the lowest for any extended period of time since the 1950s through the early 1960s.

The prices of what Wall Street calls commodities-oil, farm products, base metals and other raw materials for industry -have been at very low levels, dropping by more than half since 1980. Despite an increase during the opening months of 1994, these prices are still in the low range historically.

Commercial real estate prices plummeted by half in the late 1980s and early 1990s, too. Capitalists who couldn't make what they considered satisfactory profits by investing in expansion of manufacturing capacity poured their excess capital, among other places, into a massive overbuilding of skyscrapers, shopping centers, and office complexes.

By the opening of the 1990s, however, vacancy rates in downtown areas of major cities were at extraordinarily high levels. Big commercial landlords stopped demanding rent payments from hard-pressed business tenants, competing to hold onto lessees until conditions turned up. I'm not talking about your landlord or mine; our landlords will bounce us out if we don't pay the rent. But that's not what businesses face. This collapse in real estate prices is true not just here in the United States, but in Britain and Japan as well.

Deflationary trends
Economic collapse lurks behind such deflationary trends. This is what a business cycle upturn is like in a depression - high levels of unemployment and of part-time and temporary work, even in periods of renewed hiring; downward pressures on prices.

The deflation affects our class in a particular way. Our real wages and family income have been declining since the opening of the 1970s, as our take-home pay failed to keep up with rising prices, even as inflation slowed after 1982. In recent years, however, employers have often simply been freezing our wages or cutting our hourly wage rates outright. They can't use inflation to rob us these days as easily as they did in the earlier period; that's not what's happening.

What is happening? Banks aren't very interested in your or my money right now. Have you tried to open up a bank account lately? What do they offer on an interest-bearing checking account-one and a half percent or something? Or on a savings account-two to two and a half percent? Less than the rate of inflation. They don't want our money. They've even begun closing more and more neighborhood branches.

Banks these days aren't much interested in banking-that is, what we think of as normal banking business, attracting deposits and making loans. There are some 2,500 fewer banks in the United States today than there were in the middle of the 1980s. And the trend continues toward bigger and fewer. Banks grow wealthier by borrowing cheap from the government and then buying bonds from the same government that pay them a higher interest rate. (Talk about welfare queens!) And they engage in the ever-expanding international currency speculation.

That's what your friendly local bankers have been doing. And that's what they will keep doing so long as the dollar remains strong, inflation and long-term interests rates stay down, and there's not a political explosion somewhere in the world that upsets the apple cart.

But if not much money has been created by banks loaning money in recent years, it has been created in another, hidden way -by the massive floating of securities. Up until February of this year, when the stock market began another slide, the 1990s had witnessed an explosion of stock prices in the United States. Stock markets in most other advanced capitalist countries soared in 1993 as well. The notable exception was the three-year-long collapse of the stock market in Japan, which has turned back up a bit for the first time this year...

Holders of capital even start buying up paper claims on future business activity-not ownership of stocks or bonds themselves, but claims on what might happen to the price of these pieces of paper in the future. And capitalists borrow massively to do all this, on the premise that the market value of this paper can only go up.

So, on the one hand, a massive bubble grows on the stock market-a hidden form of inflation embedded in enormous amounts of money tied up in stocks held by the bourgeoisie and better-off middle classes, and more and more leveraged by gigantic borrowing. On the other hand, disinflation threatens to turn into a deflationary collapse. This explosive contradiction builds up.

Stock market bubble
Peasants throughout the history of commodity circulation have developed a social intuition that senses these speculative bubbles and the dangers of their collapse. They take what small savings they have out of currencies and start buying up gold jewelry, pieces of jade, hunks of valuable metal-anything they might be able to sell someday-and stash it away. A similar mentality may soon start growing among many owners of capital in imperialist countries, with special urgency among relatively smaller and more vulnerable holders: "Should I get my money out of stocks and riskier bonds right now and put it into `things'?" The danger is that instead of just shuffling borrowed money among various hands, a large-scale sell-off and implosion of paper securities can coincide with rising paper values of commodities, threatening a collapse of production and trade.

Of course, this is their problem, not ours. But workers shouldn't forget one thing that is our problem: that also floating inside the credit bubble are all the promises to working people about "guaranteed" pensions upon retirement, about "secure" medical plans. Billions of dollars in all these "fringe benefit" funds have been poured into the stock market too. Our futures are suspended inside the bubble! Never think that you have a pension, that you have a medical plan. What you have is the capitalists' promise of a pension, the promise of a medical plan. You have a promise based on the "value" of the paper holdings in a "trust." And trust it you should not!

We make no prediction about how big that bubble can grow or about when it will explode. But that growing contradiction, that impending catastrophe built right into this stage in the longer-term rhythms of the declining capitalist system, is what the 1987 collapse of the world's stock markets pointed to as a coming attraction.  
 
 
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