Sunday, August 14, 2011

The crisis of the global economy. Was it a planned disintegration?

“The biggest propaganda story this decade is the fiction of the Japanese and now Chinese workers are thrifty folks who want to desperately save money and they want this so badly, they will happily toil away in order to hand over this loot to the American consumer who will then spend it for them! And everyone lives happily after living off the blood and sweat of those foolish Asian workers who don't know how to have fun, hahaha."
So penned Elaine Meinel Supkis in her 2007 article exploring the reasons for the existence of the global money glut. [1]

Russian writers Vasily Koltashov, Boris Kagarlitsky, Yuri Romanenko and Igor Gerasimov provide a wider (and clearer) context for the imbalance between the world's monetary base and its real economy. "The world economic crisis ... is systemic in nature" they wrote and comes about through the "contradictions of the neoliberal model of capitalism" - an economic model, they say, that is based on the "exploitation of cheap labor power in the Third world", the systematic lowering of real wages whilst stimulating consumption in the rich nations.
"...The scope for intensifying this exploitation has been almost exhausted."[2]
Not surprisingly, given the way that consumption was expanded by whatever means available, including through the ballooning of debt and the stepped up, extremely modern, efficient (and mostly institutional) environmental pillage.

John Bellamy Foster provides his own elaboration of the contradictions in today's global capitalist economy:
"Three critical contradictions make up the contemporary world crisis emanating from capitalist development: (1) the current Great Financial Crisis and stagnation/depression; (2) the growing threat of planetary ecological collapse; and (3) the emergence of global imperial instability associated with shifting world hegemony and the struggle for resources. Such structural weaknesses of the system, as Joseph Schumpeter might have said, are the product of capitalism’s past successes, but they raise catastrophic problems and failures in the present nonetheless."[3]

It certainly feels to me like we're all now (metaphorically) standing at the pinnacle of a 'contradiction mountain' built up over the last two hundred years; with a cliff edge descent into some oddly familiar future existence.

The historical evolution to present day seems to have gone something like this:

The industrial revolution created humans as factory commodities during work time and as consumers the rest of our waking time. Small businesses and 'the market' were either killed off or transformed into giant corporations and then into corporate conglomerates forming global and state-sponsored cartels. Processes of 'exchange' became extremely distorted as giant firms traded with themselves[4]. Values were thus able to be set by the manipulations involved in international 'transfer pricing' where parent firms overprice the products it 'sells' to its subsidiary and underpays for the products it 'buys' from that same subsidiary.[5]

The economic base of nation after nation became overly-dependent on TNC-controlled export markets and foreign sources of supply. Giant global trading cartels enlarged their power and economic base by siphoning off scarce local resources cheaply and by killing off as many avenues as they could find where local 'self sufficiency' might take hold. The world's largest and best known transnational corporations implemented scheme after scheme to control world trade. "They all share one simple purpose: to reduce competition and thereby increase profit."[6] The governments of the world's wealthiest nations worked closely with their TNCs to increase their dominance in world 'trade'. Capitalism, once examined closely enough, can be seen as 'statist' from its very beginnings, but that is another story.

The early 1970s heralded a 'strange new economic epoch' "which might best be called the Age of Stagflation." This triple whammy of high global unemployment, with inflation and slow growth has continued to present day. Orthodox economic dogma pushed the notion that inflation was very sensitive to high levels of employment in the general economy. Yet it turned out to be "morbidly sensitive to the growth rate." Energy prices skyrocketed in that decade as global oil production per capita began to stabilise and then peak in 1979. It was a convenient time for a failing American global hegemon to take advantage of petrodollars to provide the foundation for its future economic growth and unending wars.

Recessions around the world have became more severe and last longer since the 1970s. Recoveries are "shorter and less complete."[7]

In the 1980s saw a rapid consolidation of TNC power and an almost complete abandonment of all forms of social and environmental regulation over the activities of these giant state-sponsored institutions.[8]

By the 1990s world GDP had slowed dramatically and people in the 'developed' nations relied on consumer credit to retain living standards. [9] In 1994 Third World Debt was reported to be compounding by 20 percent per year [10] Corporatist world governance, at the same time, "allowed China and its multinational capitalist friends to game the system" through a process of 'currency mercantilism' whereby "China ...devalue[d] its currency...against the world's reserve currency, and thereby set up a set of artificial import barriers and export subsidies, simply by manipulating their currency." [11] Japan, however and according to research by economist Lester Thurow, was "the major fault line across world trade and the pacific rim".“
The American current account deficit ($145 billion on 1994) and the Japanese current account surplus ($130 billion in 1994) are essentially mirror images of each other. Neither could exist without the other. To talk about either is to talk about the other... The problem is that no one outside of a few raw material producers (or those who restrict Japanese imports) runs trade surpluses with Japan. Everyone else runs large trade deficits with Japan, which they finance by running even larger trade surpluses with the United States.[12]
” Why is this?
"Japan for the last 18 years is in the grip of deflation and to kick-start the economy and to make its economy and exports competitive, Bank of Japan (BoJ) has resorted to three-pronged policy of (i) Quantitative Easement (ii) Zero Interest Rate Policy (ZIRP) and (iii) Weak Yen. Policies of QE, ZIRP and Weak Yen has offered Hedge Funds great opportunity to avail Credit in Japan at a Zero Cost and to utilise the proceeds in other markets and thereby making handsome returns in the process."[13]
America's trade deficit, then, is tied intimately to our failed global monetary system! Take the cheap Japanese credit back to the US, flog consumer and housing loans to the unwary citizens and charge them much higher interest rates. Instant monetary returns until some distant future when the game finally collapses; as it began to in 2007.

In the first decade of the new millenium the global inflation that had been (deliberately) hidden in rising asset price bubbles came into the full view of the public. Money lost appeared to have very little backing in the real world as the share and property markets plunged in America and other industrial nations. There was a limit to the amount of debt that people can sustain, afterall.

When the monetary value of the assets that support consumer and household debt plummeted "Consumption [began] to decline, and demand [became] concentrated on goods of primary necessity." [14]

It could be a happy coincidence that the trade and monetary ponzi game has finally played out at the very time the world reaches peak oil production. But I doubt it. Paul Volcker, the former head of the Federal Reserve Bank, said in 1979 when he was recently named chairman:
"We have argued here that asymmetric prudential oversight tends to follow asymmetric hegemonic power, in a world in which recurring financial crises set up market-entry and wealth-enhancing opportunities for financial firms headquartered in nations with hegemonic capacity. And recurrent financial crises combined with a loss of regulatory discipline lead, in the end, to a systemic breakdown beyond the rescue capacity of even the greatest monetary hegemon."[15]
He seemed to know what was slowly panning out. In fact, the year before Paul Volcker delivered the Fred Hirsch Memorial Lecture at Warwich University in England entitled ‘The Political Economy of the Dollar’. He stated:
"A controlled disintegration in the world economy is a legitimate object for the 1980s."[16]
What did he mean by that? Almost a year later the world economy did start to go into freefall when Mr Volcker, starting the week of Oct. 6-12, 1979, "began raising interest rates, by raising the federal funds rate and increasing certain categories of reserve requirements for commercial banks. He kept pushing rates upward, until, by December 1980, the prime lending rate of U.S. commercial banks reached 21.5%."[17] Bang went the sustainable indigenous economies of the Third World as peasant were subject to forced urbanisation and their land acquired for giant export agribusinesses to pay off this zapped-up national debt.

"...oil shocks, credit cut-offs (to mainly already struggling poorer nations) interest rate shocks, IMF austerity measures, etc., forcing the world economy to go to zero, and eventually negative growth.[18]"
have certainly destroyed the prospect of a strong, healthy human economy. Pity the ecological basis for our future prospects went with it.

[1] The Global Money Glut Starts In US Treasury
Elaine Meinel Supkis

[2] Russia and the Crisis of the Global Economy
Vasily Koltashov, Boris Kagarlitsky, Yuri Romanenko, Igor Gerasimov
Institute of Globalisation and Social Movements, 14 July 2008

[3] A Failed System
The World Crisis of Capitalist Globalization and its Impact on China
John Bellamy Foster

[4] It's NOT international trade. Don't be fooled.
Brenda Rosser, Thursday, July 24, 2008

[5] Kurt Rudolf Mirow and Harry Maurer. 'Webs of Power - International Cartels and the World Economy'. Houghton Mifflin Company, Boston. 1982. page 205

[6] Kurt Rudolf Mirow and Harry Maurer. 'Webs of Power - International Cartels and the World Economy'. Houghton Mifflin Company, Boston. 1982. page 185

[7] Kurt Rudolf Mirow and Harry Maurer. 'Webs of Power - International Cartels and the World Economy'. Houghton Mifflin Company, Boston. 1982. page 185 and 186.

[8] What really happened in the 1980s and where are we now?
Brenda Rosser. 22nd June 2011

[9] Reader Juan – ‘Hoisted From Comments: Has Neo-Liberalism Failed to Deliver the Goods?’
Naked Capitalism. Saturday, July 5, 2008

[10] — J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 143.

[11] The Great Flaw in the Free Trade Theory And Other Vain Beliefs, Hoaxes, and Follies
ilene's picture
Submitted by ilene on 08/12/2011 12:30 -0400

[12] The Future of Capitalism – How today’s economic forces will shape tomorrow’s world’ Lester Thurow. . ISBN 1 86448 429 2. Allen & Unwin Pty Ltd, Australia. 1997. Chapter 10. Page 194.

Bal Thakur

[14] Russia and the Crisis of the Global Economy
Vasily Koltashov, Boris Kagarlitsky, Yuri Romanenko, Igor Gerasimov
Institute of Globalisation and Social Movements, 14 July 2008

[15] As quoted in:
The Sky did not “Fall” in 2008: Hegemonic Transition & the Subprime Crisis
Gary A. Dymski Gary A. Dymski
Executive Director, University of California Center Executive Director, University of California Center
Sacramento Sacramento
Professor of Economics, UC Riverside (on leave) Professor of Economics, UC Riverside (on leave)
URPE@ASSA 2009 URPE@ASSA 2009 – – San Francisco

[16] Volcker’s speech at:

By Angie Carlson
August 8, 2001

By Angie Carlson
August 8, 2001


Myrtle Blackwood said...

The first quote in this article was misattributed. I've now corrected the error. Sorry for any inconvenience.

Anonymous said...

The evolution of the postmodern economy. Couldn't I write a similar history with Nixon delinking the dollar 40 years ago as the linchpin, the invention of the derivative shortly after that? But it would be polemical to imagine the previous 40 years didn't lead right to the Nixon Shock.

The rise of totalitarian solutions and the result in culture of Modernism was exploded by the rise of neoliberalism and Postmodernism. Your analysis is flat though because the elite has been thriving harder than ever in the Postmodern age that was superficially about equality and ecology etc.

TheTrucker said...

Causality is often confuse with correlation. And while the monetary system most certainly allows the financiers to rape the citizenry it is not always the cause of what we see. In the case of Japan we see a nation of limited natural resources and a highly productive and innovative society. There is no way that Japan can ever avoid a trade surplus in real terms unless its population decreases dramatically. Until that time, the people must subsist upon their productive labors in manufacturing. The cost of inputs as compared to the price of outputs is the mainstay of that economy no matter what you would use as "money". They "make money" the old fashion way: They earn it.

Yet they are not saddled with a huge expense of property rights enforcement. They send the Toyota's across pirate infested seas to America under the protection of a force for which they do not pay. They would be a Russian state if not for the US military. This same US handout holds true for all property rights enforcement in the entire world. Without the enforcement of property rights (most especially intellectual rights) there would be no corporate profits.

It's the tax system, stupid. The common people need highly progressive income taxation or flat asset taxation along with sovereign tariffs. There are no other real solutions. Money is what the shysters say it is or it is what the governments say it is. At present, the shysters are winning.