The Bottom Dollar (part 1)
part (2)
The Bottom Dollar
Looks like the UK Govt. will shelve plans for a referendum on the EURO,
since its highly unpopular, but anyone agree with Monbiot's arguments below?
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The Bottom Dollar
The way to check American power is to support the euro
By George Monbiot. Published in the Guardian 22nd April 2003
The problem with American power is not that it's American. Most states with
the resources and opportunities the US possesses would have done far worse.
The problem is that one nation, effectively unchecked by any other, can, if
it chooses, now determine how the rest of the world shall live. Eventually,
unless we stop it, it will use this power. So far, it has merely tested its
new muscles.
The presidential elections next year might prevent an immediate entanglement
with another nation, but there is little doubt about the scope of the US
government's ambitions. Already, it has begun to execute a slow but
comprehensive coup against the international order, destroying or
undermining the institutions which might have sought to restrain it. On
these pages two weeks ago, James Woolsey, an influentiual hawk and formerly
the director of the CIA, argued for a war lasting for decades, "to extend
democracy" to the entire Arab and Muslim world.1
Men who think like him - and there are plenty in Washington - are not
monsters. They are simply responding to the opportunities which power
presents, just as British politicians once responded to the vulnerability of
non-European states and the weakness of their colonial competitors.
America's threat to the peace and stability of the rest of the world is
likely to persist, whether George Bush wins the next election or not. The
critical question is how we stop it.
Military means, of course, are useless. An economic boycott, of the kind
suggested by many of the opponents of the war with Iraq, can never be more
than symbolic: US trade has penetrated the economies of almost all other
nations to such an extent that to boycott its goods and services would be to
boycott our own. Until recently, as Bush's government sought international
approval for its illegal war, there appeared to be some opportunities for
restraint by diplomatic means. But now it has discovered that the United
Nations is unnecessary: most of its electors will approve its acts of
aggression with or without a prior diplomatic mandate. Only one means of
containing the US remains. It is deadly and, if correctly deployed,
insuperable. It rests within the hands of the people of the United Kingdom.
Were it not for a monumental economic distortion, the US economy would, by
now, have all but collapsed. It is not quite a West African basket case, but
the size of the deficits and debts incurred by its profligacy would, by any
conventional measure, suggest that it was in serious trouble. It survives
only because conventional measures do not apply: the rest of the world has
granted it an unnatural lease of life.
Almost 70% of the world's currency reserves - the money which nations use to
finance international trade and protect themselves against financial
speculators - takes the form of US dollars. The dollar is used for this
purpose because it is relatively stable, it is produced by a nation with a
major share of world trade, and certain commodities, in particular oil, are
denominated in it, which means that dollars are required to buy them.
The United States does very well from this arrangement. In order to earn
dollars, other nations must provide goods and services to the US. When
commodities are valued in dollars, the US needs do no more than print pieces
of green paper to obtain them: it acquires them, in effect, for free. Once
earned, other nations' dollar reserves must be invested back into the
American economy. This inflow of money helps the US to finance its massive
deficit.2
The only serious threat to the dollar's international dominance at the
moment is the euro. Next year, when the European Union acquires ten new
members, its gross domestic product will be roughly the same as that of the
US, and its population 60% bigger. If the euro is adopted by all the members
of the union, which suffers from none of the major underlying crises
afflicting the US economy, it will begin to look like a more stable and more
attractive investment than the dollar. Only one further development would
then be required to unseat the dollar as the pre-eminent global currency:
nations would need to start trading oil in euros.
Until last week, this was already beginning to happen. In November 2000,
Saddam Hussein insisted that Iraq's oil be bought in euros.3 When the value
of the euro rose, the country's revenues increased accordingly. As the
analyst William Clark has suggested, the economic threat this represented
might have been one of the reasons why the US government was so anxious to
evict Saddam.4 But it may be unable to resist the greater danger.
Last year, Javad Yarjani, a senior official at OPEC, the oil producers'
cartel, put forward several compelling reasons why his members might one day
start selling their produce in euros.5 Europe is the Middle East's biggest
trading partner; it imports more oil and petrol products than the US; it has
a bigger share of global trade; and its external accounts are better
balanced. One key tipping point, he suggested, could be the adoption of the
euro by Europe's two principal oil producers: Norway and the United Kingdom,
whose Brent crude is one of the "markers" for international oil prices.
"This might", Yarjani said, "create a momentum to shift the oil pricing
system to euros."6
If this happens, then oil importing nations will no longer need dollar
reserves in order to buy oil. The demand for the dollar will fall, and its
value is likely to decline. As the dollar slips, central banks will start to
move their reserves into safer currencies, such as the euro and possibly the
yen and the yuan, precipitating further slippage. The US economy, followed
rapidly by US power, could then be expected to falter or collapse.
The global justice movement, of which I consider myself a member, has, by
and large, opposed accession to the euro, arguing, correctly, that it
accelerates the concentration of economic and political power, reduces
people's ability to influence monetary policy and threatens employment in
the poorest nations and regions.7 Much of the movement will have drawn
comfort from the new opinion polls suggesting that almost 70% of British
voters now oppose the single currency,8 and from the hints dropped by the
Treasury last week that British accession may now be delayed until 2010.
But it seems to me that the costs of integration are merely a new
representation of the paradox of sovereignty. Small states or unaffiliated
tribes have, throughout history, found that the only way to prevent
themselves from being overrun by foreign powers was to surrender their
autonomy and unite to fight their common enemy. To defend our sovereignty -
and that of the rest of the world - from the US, we must yield some of our
sovereignty to Europe.
That we have a moral duty to contest the developing power of the United
States is surely evident. That we can contest it by no other means is
equally obvious. Those of us who are concerned about American power must
abandon our opposition to the euro.
www.monbiot.com
References:
1. James Woolsey, 8 April 2003. Welcome to the Fourth World War. The
Guardian.
2. For some interesting discussions of this issue, see Henry K Liu, 11 April
2002. US Dollar hegemony has got to go. Asia Times; Henry K.Liu, 23 July
2002. China vs the Almighty Dollar. Asia Times; Romilly Greenhill and Ann
Pettifor, April 2002. The United States as a HIPC (Highly Indebted
Prosperous Country) - how the poor are financing the rich. Jubilee Research
at the New Economics Foundation, London.
3. Eg Faisal Islam 23 February 2003 When will we buy oil in euros? The
Observer.
4. WR Clark, 2003 The Real But Unspoken Reasons For The Iraq War: A
Macroeconomic and Geostrategic Analysis of the Unspoken Truth.
http://www.evworld.com
5. Javad Yarjani, Head of the Petroleum Market Analysis Department, OPEC, 14
April 2002. The Choice of Currency for the Denomination of the Oil Bill.
Speech given at Oviedo in Spain.
http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueSpainApr14.htm
6. ibid
7. These arguments are presented in a concise and compelling form in James
Robertson, 2002. Forward with the Euro AND the Pound. Research Study No 17,
the Economic Research Council, London.
8. Eg The Economist, April 19th-25th 2003.
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22nd April 2003
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Strikes me that Monbiot is asking us to choose between the lesser of two
evils and in a kind of strange way is his position similar to the idea
(and much lamented still on sections of the left) that the USSR
imperialism was a progressive counter-weight to US Imperialism.
Replace USSR for EU and hey presto! But the EU is a wholly neo-liberal
project and apart from it being a band of waring brothers and sisters
the EU stability pact means attacking working class living standards
across Europe. Hence the huge public sector strike in France the other
day against atatcks on social welfare-he he seriosuly expecting us to line
up with the EU? Can't the left develop a thrid position here-what about
the great protests across Europe the last few years that have slogans like
'Against a Europe of the bosses-for a Europe of the people' or as in the
huge demos in Spain last year at EU summitts under the banner 'Against
a Europe of capital'. I see the seeds of an alternative emerging there
not through the EU.
Peter
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This debate went on in a very intense way in Havana, especially between
Samir Amin and Simon Clarke. Clarke called Amin's vision of an int'l pop
front -- anchored by the EU -- against the US 'nazi-fascists' (Amin and
Castro terminology) a 'fantasy'. Meszaros predicted US-catalysed
barbarism...
Though not as extreme, I think Monbiot goes down that slippery slope with
the focus on the dollar v. Euro. However, the dollar is the achilles heel of
US power, since it *must* keep dropping and dropping... but that probably
just means a return to more intense inter-imperialist rivalries. Clarke
cited Marx to close: the task of each proletariat is to deal with their
bourgeoisie at home, and then the world can be won. I think that's probably
right.
Patrick
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Comrades!
I'm missing something here, and perhaps someone can explain. I'm not
convinced by Monbiot's analysis.
So *what* if the dollar nose-dives? The important thing for a reserve
currency is that there be investor confidence in it. Denominating oil in
Euros is a big deal, but not *that* big. As another posting on Debate
reminds us, in Mao's sage words, power grows out of a barrel of a gun. And
investor confidence likes the guarantees that military dominance can
provide (c.f. Thomas Friedman's admission that McDonalds needs McDonnell
Douglas). Euro'd-up barrels of oil pale by comparison to the US arsenal.
To put it cheekily - would it have made a difference if it were billions of
Euros worth rather than billions of dollars worth of oil that the US has
stolen from Iraq?
Seem less like a choice between two evils than like a choice between an
evil and a wanna-be evil.
And, no, that's not to excuse the EU - they're up to plenty of mischief.
Just much less than the US.
Onward!
Raj
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Lots of things could happen:
* massive capital outflow to Europe and Asia can be expected once a run gets
going;
* the various financial bubbles (real estate, credit) still growing suddenly
burst, and major financial institutions start going under;
* interest rates would be pushed up high (probably) to attract capital back,
sending the economy into recession;
* fiscal cuts become extreme, and the already serious US municipal/state
crises get so severe that people start rebelling;
* geopolitical tensions rise but the US army is overextended and can't put
out all the fires;
* Bush loses his reelection bid ... try rolling around your mouth the phrase
'President Kucinich' !;
* gold prices soar and hence the leftist post-nationalist government that
replaces Mbeki in 2004 suddenly has a sufficient windfall to build
socialism.
> The important thing for a reserve currency is that there be investor
confidence in it. Denominating oil in Euros is a big deal, but not
*that* big.
Sure, but it's a big straw to add to the weight on that tired camel.
Patrick
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Just a few things here:
As one who spent a good deal of years in the economic sanctions
campaign against Apartheid, I have never ceased to wonder why we missed out
on a fundamental analysis on the financial flows implications of what we
were doing. True, in my outfit (the early Dutch AAM which had quite a
catalyst effect on the international AAM), we linked economic sanctions to
building trade union solidarity. One of course always learns in hindsight,
but for years in the doldrums, late 1970's - to early 1990's the debt issue
became important in and of itself - I would say that as grass roots
activists we should have been on the ball much earlier in handling the
nascence of the neoliberal order. For one, in my view the fate of the
Allende government had the first comprehensive hallmarks of being inspired
by Milton Friedman-type financial agenda. As this was in the early
seventies, the lesson passed us by in the heydays of economic sanctions
campaigning. Further more, we seemed to have missed the boat entirely with
regard to discourse when the debt standstill of the Apartheid regime came
about in the mid 80's. On the vother hand, probably there were researches in
the incubation period to lend discourse to action later down the line. Point
is there was a disconnect, the AAM's flaked out as it was thought that the
ANC and its ideological flagship the SACP would have the action front in
hand - but fortuntately also a reconnect as the AAM tradtion resurrected
itself to on the action against full-blown neoliberal disorders.
As one now reads the indicators made by Raj Patel we have merely
scratched the surface. How does discourse on this expand our understanding
below, above and beyond these indicators? So far I have read a lot about how
ML and 4th Internationalist people come along with ideas taken from classic
times, but it stays at that. We are not greasing our hands to really get
an idea of the current machinery, gears and gear boxes, political driving
engines and all that. On the other hand there are some new conceptualizations
arising which could be really constructive in building the discourse. I like
what Patrick has written in his Cuba paper - the idea, for example of
"space/time" fixes - where basically the "space fix" is the focus for
production and anchor points for capital like property values and the rest
of it, and the "temporal" being the function performed by financial
capital which seems to have an over extended time parameter. In this the
question of derivatives is interesting to understand. On this my own view is
that of an organic transformation of large sums of oil money of the mid
1970's going "lumpen", simple to find a place outside of the main banking
centers on some account in the peripheries. This led to a first type of debt
crisis. The transformation of the "lumpen" character of funds then got
rationalized as most of international flow of capital became anchored in a
"creditors cartel" protecting themselves against risks of default by
bundling together all other forms of risk, like stock exchange fortunes,
changing exchange rates, inflation, deflation, even calamities like drought,
earthquakes etc. This creditors cartel is well organized, found its
expression and anchors in outfits like the IMF and WTO - as against the
debtors at large having no counter protection.
Just touching on a few things where I feel a lot more discourse could
prove useful and build out indicators like Raj is able to make. Or, for that
matter, the line that Manbiot comes along with - makes sense, but do we have
a more general understanding of the heart of contradiction in the financial
Empire to speak not simply of good plans to consider, but a comprehensive
understanding lending itself for developing a strategy, tactics and plan of
action to spark eruption in these contradictions?
Berend
17.05.2003
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Handling the market
by Daniel Ben-Ami
The increasingly bad-tempered political rows between 'old
Europe' and America over the Iraq war have attracted widespread attention.
But the impact of the growing rift on an already unbalanced world economy is
less well understood.
Discussions about the economic implications of the transatlantic
split tend to focus on the issue of consumer boycotts - the campaign in
America to rename 'French fries' to 'freedom fries', or the attempt in Paris
to boycott McDonald's.
But the stakes are much higher than these consumer boycotts. The
system of economic cooperation that has been painstakingly developed since
the 1970s looks like it could be undermined. Increasingly intemperate
relations between the Western powers threaten to make it more difficult to
operate.
No country is deliberately out to destroy a network of
institutions that has given the world economy far more resilience than it
would otherwise have had. It is more the case that the countries involved
are so preoccupied with their political disputes that they risk losing sight
of the benefits of economic cooperation.
Although it is rarely discussed or understood outside of
specialist circles, the system of international cooperation is extremely
elaborate. There are numerous ways in which Western countries are prepared
to sacrifice their short-term economic interests in exchange for longer
terms benefits.
One of the most important areas is monetary policy. The central
banks of the world's largest economies are in constant contact with each
other. If a problem emerges in one country the others are normally quick to
lend support.
This was most strikingly illustrated after the terrorist attacks
on 11 September 2001. Soon afterwards, the world's main central banks all
cut interest rates at the same time. This coordinated action meant in effect
that a huge amount of cheap money was pumped into the world economy. One
result was that the world's stockmarkets recovered after several days of
steep falls.
Coordinated monetary policy can also have other short-term and
long-term benefits. For example, if one currency suffers a sudden and
unexpected fall, the other central banks will normally move to prop it up.
Alternatively, during the 1980s the Japanese authorities kept interest rates
artificially low to help bolster a sluggish world economy. At the time,
Japan was the most dynamic of the large economies and so in a position to
try to promote global growth.
There is also an understanding between the world's main
economies to keep trade barriers in check. Although there is not 'free
trade' in the way it is often understood - keeping protectionism to a
minimum - the big powers have managed to avoid the bitter trade wars that
characterised the 1930s.
Such collaborative mechanisms are the result of painstaking work
by several generations of the world's top economic policymakers. They have
not arisen naturally from the operation of the market.
Many of the key institutions, such as the International Monetary
Fund (IMF), were founded at the end of the Second World War. But it was
really in the 1970s, with the onset of the first serious post-war economic
crisis, that cooperation took off. The regular G7 summits of the world's top
leaders, one of the most visible forms of collaboration, started at that
time.
Yet it is far easier to undermine this system of collaboration
than it was to create it. The resentment that has recently come to the fore
with the Iraq war is already making it harder to operate. For example, it
was striking that on the weekend of 12 April, just days after US forces
marched into Baghdad, that the European Central Bank (ECB) - that operates
monetary policy for the 12 euro-zone countries - publicly rejected calls
from America and the IMF to cut interest rates. The gist of the ECB response
was that it knew what it was doing so America should stop trying to boss it
around (1).
In some circumstances the weakening of international economic
cooperation would not matter too much. If the world economy were running
smoothly then it would not be a serious problem.
But at present there are huge 'imbalances' between the world's
main economic blocs. Basically what is happening is that Asia, and to a
lesser extent Europe, are providing huge subsidies to keep the American
economy going.
In more technical language the USA is running a current account
deficit - importing more than it is exporting - of an unprecedented five
percent of gross domestic product (GDP). The only reason it can afford to do
this is that other countries are willing to invest in the USA and so
effectively lend it the money to suck up imports.
Most of this money comes from Asian governments. According to a
recent estimate in the Financial Times, the central banks of China, Hong
Kong, Japan, Taiwan and Singapore alone have accumulated $1100billion
(?703billion) of official reserves, most of which is in American government
debt (2). The author goes on to argue, with some justification, that in
effect it was Asian governments that paid for the war against Iraq.
Naturally, Asian governments are not acting out of pure
altruism - even though in many cases they could get a better return on their
investment at home. They understand that without their support the dollar is
likely to weaken considerably. And if it does it will make Asian exports
less competitive relative to their American counterparts.
But the huge American current account deficit is ultimately
likely to prove unsustainable. Asia and Europe are unlikely to be willing to
prop up the American economy for ever; particularly if they believe it is at
their expense.
The real question is whether the deficit will unwind in a slow
smooth process or in a sharper reversal. Optimists are hoping that it will
happen gradually, in a similar way to the late 1980s - although America's
deficit was not as high then as it is now. Concerted policy cooperation
between the main powers would certainly make such a benign outcome more
likely.
But the greater the tensions between the main economic powers
the more likely such cooperation is to be undermined. As a result, the
adjustment process could be far more painful: with a sharp fall in the
dollar and higher interest rates in America. Within the USA this would mean
a painful restructuring, with weaker businesses struggling and consumers
finding it harder to repay debt.
Outside America there would also be problems, as firms from
other countries would find it hard to compete with more competitive US
products. Overall, global economic growth would probably be even more
sluggish than it is now.
The system of international economic cooperation that evolved in
recent decades was far from perfect. But the consequences of its demise are
likely to be felt way beyond the confines of the small number of people
involved in the process.
Russell Grinker
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Daniel Ben-Ami is author of Cowardly Capitalism: The Myth of the
Global Financial Casino (published by John Wiley, 2001).
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> No country is deliberately out to destroy a network of
institutions that has given the world economy far more resilience than it
would otherwise have had.
Not yet, anyhow. But the case for 'nixing' the financial brain of Empire --
the Bretton Woods Institutions, plus the WTO -- is still, in my view,
overwhelming. I'm now updating *Against Global Apartheid* and challenge you,
Russell, or anyone else to dispute! (Need some new rebuttal material to keep
it fresh-sounding.) Even Stiglitz agrees on a rethinking of the very
existence of the IMF...
> One of the most important areas is monetary policy. The
central banks of the world's largest economies are in constant contact with
each other. If a problem emerges in one country the others are normally quick
to lend support.
Those were the good old days of what Stan Goff terms 'multilateral
gluttony' -- the era of coordinated neoliberalism. Now we face more
interesting times...
> This was most strikingly illustrated after the terrorist attacks
on 11 September 2001. Soon afterwards, the world's main central banks all
cut interest rates at the same time.
Ah, but would/could they do that if a serious run on the dollar got going?
How much further can the Fed cut? Didn't Japan show us the expansionary
limits of 0% interest rates?
> There is also an understanding between the world's main economies to keep
trade barriers in check.
Depends on the balance of forces in each economy. Otherwise how to explain
the Bush protectionism in the immediate wake of Doha? Strong ag and steel
lobbies that have bought a good many Washington politicians.
> the big powers have managed to avoid the bitter trade wars that
characterised the 1930s.
Can they do that in future, when things get nastier?
> Yet it is far easier to undermine this system of collaboration
than it was to create it.
As they said outside the ROTC office at Berkeley, Burn baby burn. (Maybe
I've just had too much coffee this morning.)
> But the greater the tensions between the main economic powers
the more likely such cooperation is to be undermined. As a result, the
adjustment process could be far more painful: with a sharp fall in the
dollar and higher interest rates in America. Within the USA this would
mean a painful restructuring, with weaker businesses struggling and
consumers finding it harder to repay debt.
> Outside America there would also be problems, as firms from other
countries would find it hard to compete with more competitive US
products.
Or alternatively, smart and progressive policy wonks help politicians
understand the merits of deglobalisation and especially delinking from
debilitating, race-to-the-bottom, ecologically-devastating trading circuits.
Maybe here in South Africa, as in the Great Depression (notwithstanding
worsening racial discrimination and superexploitation of labour power via
rural women's surpluses), the economy would experience a much more balanced
period of rapid growth, with black wages rising relative to white and
industry revitalising thanks to the partial delinking from int'l trade.
(Maybe it could also be made more gender-balanced and ecologically-sound,
though that would require enormous mobilisation and conscientisation, to
undo so much of Alec Erwin's pernicious industrial policy.)
> Daniel Ben-Ami is author of Cowardly Capitalism: The Myth of the
Global Financial Casino (published by John Wiley, 2001).
Russell, I don't know this book. Is the 'myth' that there's not a casino? Or
that the casino is good for everyone??
Patrick Bond
Mon, 19 May 2003
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debate continues ------>> part (2)
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