[Marxism] Why is world economy more dollar-centered despite huge trade, govt deficits (and euro)
marvgandall at videotron.ca
Sat Dec 2 19:57:28 MST 2006
Fred Feldman wrote on Friday, December 01, 2006 9:09 AM:
I notice on the left-liberal websites another wave of panic/hope re the huge
holdings of US dollars by Japan/China, and the latest decline of dollar on
the speculation markets. Surely they will soon pull the plug. The failure
of these seeming or real weaknesses to produce a crash tends to simply lead
to putting off the catastrophe to the next round of selling?
* * *
A crash isn't inevitable - of either the currency or economy, which are
closely linked. The growth rate and exchange rate can both be brought down
slowly to produce the hoped-for soft landing. That's already started. The
dollar is declining on evidence the US economy is weakening and that the
Federal Reserve interest rate rise over the past two years has probably run
But no one can predict if the outcome will be successful or not. Whether
overheated capitalist markets crash or cool slowly depends on events as much
or more as careful management. A dollar crash could be precipitated by a
deeper than expected decline in residential real estate and its knock-on
effect on the US economy, an oil spike resulting from a wider Mideast war,
the collapse of a large hedge fund or other financial institution, a flu
pandemic, etc. - any of which could cause a cascading global financial panic
resulting in a worldwide depression.
To reduce the possibility of a crash, the international bourgeoisie is
trying to engineer a coordinated "rebalancing" of the the world economy.
This requires a gradual unwinding of both the "unsustainable" US current
account deficit and the record level of American consumer debt, both of
which could create the conditions for an economic depression. The purpose of
incrementally tightening credit and devaluing the USD is to slow American
spending and increase the savings rate, while exporting nations like China
compensate for the expected slowdown in the US market by strengthening mass
spending power at home. The Chinese are revaluing the yuan and moving to
improve Chinese wages and social benefits at their end.
US manufacturers obviously have an interest in a devalued USD which would
allow them to sell more abroad, especially to the fastest-growing mass
markets in China and India, but the US banks also want to encourage foreign
consumer spending. The latter want to place the same profitable debt collar
on foreign workers - in the form of mortgages and credit cards - that they
have placed on the American working class. China, with its relatively
undeveloped financial markets, is seen as a particularly big prize, which is
why the US financial industry is leading the push to open up the big Chinese
banks to foreign shareholders. Wall Street hopes that will eventually give
it a controlling stake in that key sector.
Fred: My issue is this: why does it seem that more and more of the world's
surplus value flows to the US DESPITE the evident weaknesses ...Are the
Japanese and Chinese holdings really a weakness of US imperialism, or do
they reflect a strength? I have tended toward the latter view for quite a
* * *
I think they reflect the strength of the US consumer market and the USD's
status as the world's reserve currency. So long as that remains the case,
the Japanese, Chinese, and Mideast producers will want to recycle their
export earnings into US Treasuries, corporate bonds, stocks, and other
securities. In so doing, the exporting nations are able to place a ceiling
on US interest rates and a floor under the dollar, allowing them to sell
their products at affordable prices to indebted US consumers.
As the US economy shows signs of slowing, however, they have been reportedly
diversifying into euros and gold as a hedge against their mammoth dollar
reserves. As long as there is no dollar collapse, though, they can afford to
see an erosion in their dollar holdings and a slowdown in exports in order
to restore equilibrium to the world economy.
In the longer term, as the emerging economies narrow the gap with and even
overtake the advanced capitalist countries, this will be reflected in their
attracting a greater share of direct and portfolio investment and finished
goods to meet the demands of their expanding consumer markets.
Fred: I, of course, am no expert on economic questions...
* * *
Neither am I, although I think we tend to defer too much to those who
proclaim themselves to be experts, especially in economics. I'm still
interested in hearing from the list's Marxist economists on this issue,
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