Near-panic atmosphere as US Federal Reserve chairman testifies before Congress

On Thursday, one day after American stock markets plummeted in the face of mounting bank losses, soaring oil prices and record lows for the US dollar, Federal Reserve Board Chairman Ben Bernanke gave a gloomy economic forecast in testimony before Congress' Joint Economic Committee.

Bernanke admitted that the US housing slump and the credit crisis resulting from soaring defaults of subprime mortages had worsened since credit markets froze last August, and predicted that US economic growth would fall sharply in the fourth quarter of 2007 and the beginning of 2008.

He said the housing crisis would worsen in the coming months, as millions of homeowners with adjustable rate mortgages faced sharply higher interest payments when new rates kicked in, and hinted that the crisis on Wall Street could spiral into a full-blown recession.

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He concluded with his standard statement that the Fed would "continue to carefully assess the implications for the outlook of the incoming economic data and financial market developments and act as needed to foster price stability and sustainable economic growth."

The initial response on Wall Street to Bernanke's testimony was a sharp fall in stock prices, with the Dow Jones index slumping more than 200 points. However, by the end of Thursday the Dow had recovered most of its losses, closing down 33.7 points. However, the technology-laden Nasdaq fell 52.76, or 1.9 percent. This was largely due to a negative projection from the networking giant Cisco, whose shares fell 10 percent, sparking a broader sell-off of hi-tech stocks.

The recovery, particularly in banking and financial stocks, may have reflected a consensus that Bernanke's report was so dismal as to suggest a third successive interest rate cut when the central bank's Federal Open Market Committee meets next on December 11. While many on Wall Street continue to clamor for rate cuts, in the hope that an expanded flow of cheap credit will save them from the consequences of years of financial manipulations and outright swindling, such an action can in no way resolve the mounting crisis of US and global capitalism.

In the short term, it will only intensify the crisis of the dollar and fuel the conditions for rampant inflation. More fundamentally, such policies compound the underlying instability and insolvency of the financial system.

Bernanke's own testimony points to an inevitable reckoning, in which the vast global economic imbalances, the inherent anarchy of the capitalist market, and the rampant parasitism, of American capitalism in particular, produce an economic and social disaster.

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