Bond with the wind
Like I’ve said before, I’m an education researcher. Why would I be compulsively blogging about the capitalist mode of production in this moment (other than to sublimate my anxiety about the pandemic)? The connection isn’t so difficult.
As a marxist, I tend to think about who stands to gain from education. I like to follow the money. And when it comes to schools, 90% of which are public schools, following the money led me directly to finance.
Just before the crisis hit I was getting deep into how public schools finance their budgets, but from a socialist perspective. How do they actually pay for the things they need to pay for year to year? In addition to local property taxes, school districts sell bonds.
Bonds are a main character in the story of what’s happening right now with our wretched dominant mode of production, so I thought I’d give them the spotlight.
Bond, Debt Security Bond
Not James Bond. Not the bonds of slavery and oppression (although maybe these bonds are that kind of bond). A bond is a ‘debt security’. It’s a loan. It’s an obligation for someone to pay someone else back with interest at a later point.
When school districts sell bonds, they go into a kind of business. They hoist themselves up on a little wooden box in a big crowded room of people with lots of money and they say:
“Hey everyone! I’m a school district and I need to pay teachers and infrastructure costs, etc. If you give me money right now I promise I’ll pay you back in a year with interest!”
Certain fat (and also thin) capitalists put their monocles up to their wet eyes, zip up their Patagonia vests, wipe their noses to make sure there isn’t any white powder on their nostrils, and waddle over.
They check out the school district and murmur to themselves and each other, wondering if they should buy. Ratings agencies have graded the district according to whether buying these bonds is a safe bet or not (they literally give grades like AAA, AA, etc. The Philly school district got upgraded to Baa3 last year, hurray…). The capitalists take that into consideration.
They think: “Well, if I give the school district this money now, I’ll get it back in a year plus whatever the interest rate is.”
The ‘interest rate’ remember is the cost of buying and selling money, which is pretty weird when you think about it. Marx in Capital, Vol. 3 explained it by saying that the interest rate is the price of money when you treat money itself like a commodity in the process of borrowing and lending.
If you buy and sell stuff like computers or lip balm they have a certain price. So does borrowing and lending money. One of the great contradictions of capitalism is that money is both an object and a means of exchange: both what we pay with and that we pay for. Karl Polanyi inThe Great Transformation (a book you should definitely read) called money one of the fictitious commodities that make capitalism go, along with land and labor.
Okay back to our school district and capitalists. Some of the capitalists write checks and give them to the school district, who happily uses the money to pay their budget. If you ever wanted a great example of the old base-superstructure model, this is it: the state relies for its immediate funding on capitalists lending it money.
But now the school district is bonded to the capitalists. It’s in debt. It has to pay the capitalist back with interest at a rate determined by the Federal Reserve among other things.
Bond with the Wind
Okay now to our current moment. There are all kinds of bonds. One kind of bond is a Treasury bond, which the federal government sells to fund itself. In that case, it’s the federal government that gets on the little box and goes into debt and then pays out to people at a certain rate. There are 10-year bonds that pay out fully in 10 years, 1 month bonds that pay in a month, and 30 year bonds that pay out in 30 years. Etc.
Usually bonds in the United States government are considered ‘safe’ because the United States is an imperial hegemon at the center of the global capitalist order. The government’s got all kinds of power, stability, etc. So people buy bonds. Particularly when things in other areas of finance look scary. They put their money somewhere reliable and steady.
The weird thing though is that, since last September, the value of US bonds has been going down.
People usually talk about the 10 year bond. In September 2019, it was trading at a yield of %3.23. Pretty good deal. You could get your money back plus that much more. But just before the pandemic hit in January 2020 that bond was trading at 1.62%.
And today its trading at an entirely fucked up .59%! Where’d those bonds go? Supposedly, bond yield rates are inverse to interest rates: when the Fed makes it cheaper to buy money, then people buy more bonds.
But the opposite’s happening! Wonder why. I feel like it has something to do with the repurchase market crisis that peaked right there around September and is actually ongoing. But I’m not sure.
Coda
In the last two days, the Fed has gone on a buying spree. It’s buying everything, giving loans to corporations and even small businesses. Capitalist are calling it bazookas, lol. Others call it the kitchen sink. (The Fed is actually doing stuff commensurate with the production crisis, I’d say.)
One interesting thing for example is The Fed created the Money Market Mutual Fund Liquidity Facility (MMLF) to um create liquidity in money market mutual funds. These are low-risk sets of stocks and bonds that people and groups invest in to make money and credit. They're not part of the formal banking system but they're more steady and reliable than other kinds of trading and act sort of like banks: low volatility, low return, safe.
I’ll write about this in a future post, but I wanted to mention it here: there are also corporate bonds. That’s when corporations in the private sector get up on the little box and do the same thing to fund their operations. Shorter term corporate bonds are called commercial paper.
The Fed isn’t supposed to buy corporate bonds. But they’re doing it anyway!