Nettime mailing list archives

Re: <nettime>the dollar's demise (and the rise of Asia)
Benedict Seymour on Sun, 5 Dec 2004 06:59:08 +0100 (CET)

[Date Prev] [Date Next] [Thread Prev] [Thread Next] [Date Index] [Thread Index]

Re: <nettime>the dollar's demise (and the rise of Asia)


> Anyway, read on, nettimers, and contemplate the end of the world as
> we know it. Or at least get out while you can.
> Keith Hart

Below, a very strong analysis by Loren Goldner of the newly discovered
- but clearly rather well established - dollar crisis.
if he's right, it doesnt sound like those who will be most affected
will have the option of getting out.

Ben Seymour


The "Dollar" Crisis, and Us

By Loren Goldner

  Incredible as it may sound, ever since the late 1950's, the world
economy has been tossing around a "hot potato" of an ever-increasing
mass of "nomad dollars" (dollars held outside the U.S.) whose actual
conversion into tangible wealth would plunge the world into a
deflationary crash. Even now, few people are aware of the extent to
which this "technical" question of "economics" (and in reality a
profoundly social question) has in fact cadenced 45 years of world
history, erupting into view in key years such as 1968 (dollar
convertibility crisis), 1973 (end of the Bretton Woods System), 1979
(runaway global inflation, gold at $850 an ounce) 1990 (Japanese
deflation) or 1997-98 (Asia crisis, Russian default, "hedge fund"
crisis). We are clearly today at another key turning point, and perhaps
(over the next few years) at the long-delayed culmination of the whole
story, when that mass of dollars, now grown to gargantuan proportions
(the $30 billion of 1958 have become at least $11 trillion today) will
be deflated, one way or another.

  With the election safely behind it, the Bush administration in the
U.S. can now get on with the world economic crisis that has been
stalking it ever since it came to power, in the wake of the stock market
crash of spring 2000. Bush and his people must move as quickly as
possible to get the "worst" over with, in their own terms (terms
distorted by their own illusions of being in control of events).before
they have to face new elections or other political challenges. (Had
Kerry won, his incoming government might well be facing a worse
crisis, compounded by international "uncertainty" over various
policies.) In recent weeks, the "dollar" crisis, which is merely
the immediate visible face of a profound social and economic crisis in
progress for decades, has moved (once again) from technical discussions
of a marginal coterie of specialists to center stage in the media.
Prominent pro-capitalist economists such as Steve Roach and Paul
Krugman are now saying that a major crisis is almost inevitable, more a
question of when than if. This is particularly revealing in light of
the fact that in eight or nine months of almost constant media huffing
and puffing about the election, this reality and the issues it raises
were precisely nowhere in the discussion. Ever since the 1960's, when
the problematic international status of the dollar became an ongoing
"policy" question (with its ebbs and flows) no mainstream American
politician has ever gone anywhere near it. It is more of a political
"third rail" than Social Security or Medicare (1)

  Unfortunately, the same thing can be said, with some honorable
exceptions, about the radical left.in the U.S.

  A capitalist crisis like the current one resembles a poker game where
the table is swept clean and all cards and chips must be redistributed
for the game to continue at all. This could happen as an "orderly
bankruptcy proceeding" but it will most likely happen (as it has always
happened in the past) chaotically, through economic blowout, class
confrontation, and war. (Only the latter options create the momentum
and the "constituency" for the necessary changes.) This crisis will in
all likelihood not come in a "pure", 1929-style form of abrupt
deflation, stock market crash, and sudden mass unemployment (though some
combination of these is a distinct possibility). What somehow has to
happen, from a capitalist point of view, is a serious devaluation of the
approximately $11 trillion dollars currently held by foreigners, and a
simultaneous adjustment of major currencies to reflect new world
economic realities. The dollar must be dethroned from its global reserve
currency status (about 63% of all central bank reserves are currently
denominated in dollars, down from 69% a year ago), or reduced to one
among many alongside the euro, the yen, or possibly some "basket" of
major currencies. The U.S. must stop running $600 billion in annual
balance-of-payments deficits, drawing in 80% of the world's savings to
finance them. It must deflate the approximately (outstanding) $33
trillion of Federal, state, municipal, corporate and personal debt (3
times the dubious "GDP" figure) that has kept the economy going for
decades. This will entail, among other things, a collapse of the huge
mortgage bubble and the subsequent bankruptcy of untold millions of
families and individuals. The U.S. must figure out a way to balance
imports and exports, which, given the vast hollowing out of U.S.
industry over the past 35 years, will above all entail a vast reduction
of imports, and hence stringent austerity for American working people.

  The basic problem of every major crisis in capitalism's history has
been (as rapidly sketched here) that of destroying or deflating a
"bubble" of fictitious or speculative claims on wealth (stocks, bonds,
property titles) and bringing those claims back into rough
correspondence with the "real" rate of profit available in production
(speaking very schematically) and from "free inputs" available elsewhere
(such as the looting of peasant labor and nature). Unfortunately,
seeing this process at work today is greatly complicated by decades in
which the U.S. has been fashioned into a rentier economy far beyond
anything achieved by its predecessor, the British empire of 1815-1945.
While the "story" of how that came about cannot meaningfully be sketched
here (2), what has differentiated American world empire from the British
since World War II has been America's ability to force the rest of the
world to hold its own debts as the major portion of international
reserves in central banks (whereas the British, who could do this with
their colonial empire, were globally constrained by serious rivals and
the gold standard). Particularly after 1973, the U.S. succeeded in
placing the rest of the world on a fiat dollar standard based on nothing
but the financial credibility of the U.S.  government. At the same time,
the U.S. was dramatically de-industrializing, while pundits of the
status quo hailed the proliferation of the "FIRE" (finance, insurance,
real estate) economy as the coming of a new "service" "post-industrial"
economy that would replace the old "smokestack" economy and the jobs
lost through plant closings, restructuring, and down-sizing. (They did
not then foresee the out-sourcing of such service jobs to such places as
China and India.) Because the domestic U.S. economy depends less on
international trade than that of most other major capitalist countries,
scant attention was paid, outside the same marginal coterie of
specialists, to the fact that already by the 1960's the U.S. was
dependent on the largesse of foreigners willing to recycle American
balance-of-payment deficits back into U.S. government paper (e.g.
Treasury bills) and capital markets (stocks, bonds) to permit this
"service" economy to function. Foreign governments and private
capitalists had to tolerate this situation because the alternative--the
collapse of the huge American market for their exports--would have
pulled them into the abyss as well. (During the Cold War, military
pressure on Europe and Japan also helped make foreigners more pliable.)
With the Cold War over, nothing in this economic arrangement has
changed, and things have only gotten far worse, like a small tumor
turning into elephantiasis. As U.S. Treasury Secretary John Connally
in 1971 told Europe and Japan "it's our currency, but it's your
problem". Without the recycling of dollars by foreigners with (to date)
little alternative back into the U.S., the driving pillars of the U.S.
domestic economy, the consumer financing of auto and housing
sales, would collapse overnight.

  Worse still, the apparent (and very relative, compared to world
population) booms in such places as China and Latin America (currently
led by Brazil) are directly dependent on the global circulation of the
"dollar bubble". Without massive Chinese exports to the U.S., made
possible by China's (and Japan's) willingness to hold hundreds of
billions of dollar reserves, the Chinese boom would collapse, as would
the current Latin American expansion made possible by the export of raw
materials to China to produce consumer goods for the U.S. While there is
no question that the swelling of the mass of "nomad dollars" has led to
some real economic development in Asia (the World Bank and the IMF like
to trumpet the fact that the percentage of people living on $1 a day or
less has fallen below 20%), it is necessary to locate the "demand"
driving that development in the global dollar debt pyramid.

  But enough of this "technical" "economic" discussion, which causes
most people's eyes to glaze over. The truly interesting question behind
all this is its meaning for a radical anti-capitalist left. The simple
fact of the matter is that neither we, nor the vast majority of American
working people, are prepared for the depths of the catastrophe now
unfolding. The levels of austerity the capitalists will demand have been
unknown since the 1930's,(and in the 1930's the U.S. was becoming the
uncontested hegemon of world credit and industrial production, not
the world's biggest debtor nation and industrial has-been it is now).

  Obscure as the above economic dynamic is, both in the mainstream and
in the radical left, it will be even more obscured by the clear
capitalist determination to avoid a "purely economic crisis", much as
Adolf Hitler chose to go to war in 1938 when his Finance Minister,
Schacht, told him that the German debt pyramid and war production was on
the verge of complete bankruptcy. The post-1979 U.S. strategy on the
perimeter of Russia and China, as illustrated in Afghanistan,
Yugoslavia, Iraq, most recently in Ukraine (3), and tomorrow most
probably in Iran and North Korea, aims at preventing any serious
challenge (economic and military) from coalescing on the Eurasian land
mass. Europe, Russia, China, Japan and India must all be kept at
loggerheads and on the defensive, and hence incapable of challenging the
increasingly obvious bankruptcy of the U.S. dominated system. This
American offensive (there are as many U.S. armaments today in the Gulf
state of Qatar as in Germany), not to mention further brewing crises
(Sudan, Venezuela, Columbia) and "perennials" (e.g. Palestine) will
never lack fires to put out, if and when the "war on terror" loses its
mobilizing edge. The American capitalists understand that their decline
requires keeping not only all potential rivals but American working
people themselves, permanently off balance. Everything will be done
to make the consequences of decades of American decline appear instead
as the work of terrorists, or China, or (as in the unbelievable
French-bashing in the run-up to the Iraq war) even of Europe. 

  Remote as the prospect of political and social power for a radical
anti-capitalist left might seem today, we must begin to popularize an
understanding of the real forces at work in shaping today's political
agenda. It is imperative to cut through the weight of ideology that is
fueling the current U.S. isolationism and might soon fuel a large
protectionist backlash as another mass diversionary response to the
crisis. No less a figure than Warren Buffett has been saying for
years that America's vast, highly paid army of "financial engineers",
media CEOs, lawyers, HMO bureaucrats and myriad others populating the
"FIRE" economy is collectively "kicking society in the shins". There
is no lack of "disconnect" between ordinary working people and the
spectacle of business-as-usual politics and the media promoting them;
our problem is rather to relocate the populist (of the right or of the
left) impulse articulated by Buffett, or Nader, or Buchanan, or Tom
Frank away from the widely despised "elites" to a truly radical, Marxist
analysis of the dynamic of a global system of social relations.


  l) Who can seriously imagine a mainstream politician saying the "we
must abolish the global dollar standard and accept a major devaluation
of our currency, in light of new world economic realities; recognize
our declining status as the world's largest debtor nation; accept a
further major fall in our living standards on top of the 20% fall since
1973; cut social services to the bone, and bring exports into surplus
over exports to begin repaying our huge outstanding debts"? 

  2)The masterpiece on the subject is Michael Hudson, Super-Imperialism
(1972; reprint 2002).

  3) As Emmanuel Todd pointed out in his excellent After Empire (English
translation Columbia UP 2003) the aim of U.S. foreign policy since 1991
has been to roll Russian influence back to its 17th century borders. A
successful, U.S.-financed "democratic revolution" in Ukraine, following
the dress rehearsals in Serbia and Georgia, will be a giant step in that
direction, as Putin is all too aware.

  This article is from the Break Their Haughty Power web site at

#  distributed via <nettime>: no commercial use without permission
#  <nettime> is a moderated mailing list for net criticism,
#  collaborative text filtering and cultural politics of the nets
#  more info: majordomo {AT} bbs.thing.net and "info nettime-l" in the msg body
#  archive: http://www.nettime.org contact: nettime {AT} bbs.thing.net