[Marxism] Why is world economy more dollar-centered despite huge trade, govt deficits (and euro)

robert montgomery ilyenkova at gmail.com
Sat Dec 2 20:56:07 MST 2006


Fred: Feldman writes:
>>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
while...

Marvin Gandall (I think) responds:
>>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.<<

Back a ways, economist Henry H.K. Liu wrote re this:

>>...There was no productivity boom in the US in the last two decades
of the 20th century; there was an import boom. What's more, this boom
was driven not by the spectacular growth of the American economy; it
was driven by debt borrowed from the low-wage countries producing this
wealth. Or, to put it a tad less technically, the economic boom that
made possible the current US political hegemony was fueled by payments
of tribute from vassal states kept perpetually at the level of
subsistence poverty by their own addiction to exports. Call it the New
Rome theory of US economic performance.

True, exports can be beneficial to an economy if they enable that
economy to import needed goods and services in return. Under
mercantilism and a gold standard, for example, an economy that
incurred recurring trade surpluses was essentially accumulating gold
which could reliably be used for paying for imports in the future.

In the current international trade system, however, trade surpluses
accumulate dollars, a fiat currency of uncertain value in the future.
Furthermore, these dollar-denominated trade surpluses cannot be
converted into the exporter's own currency because they are needed to
ward off speculative attacks on the exporter's currency in global
financial markets.

Aside from distorting domestic policy, the export sector of the
Chinese economy has been exerting disproportionate influence on
Chinese foreign policy for more than a decade. China has been making
political concessions on all fronts to the US for fear of losing the
US market from whence it earns most of its foreign reserves, which it
is compelled to invest in US government debt. This is ironic because
according to trade theory, a perpetual trade surplus accompanied with
a perpetual capital account deficit is not in the economic interest of
the exporting nation. China is not unique in this dilemma. Most of the
world's export economies face similar problems. This is the economic
basis of US unilateralism in foreign affairs.

When Chinese exporters invest China's current account surplus in
dollar financial assets, the Chinese economy will see no benefit from
exports as more goods leave China than come in to offset the trade
imbalance. True wealth is given away by Chinese exporters for paper,
at least until a future trade deficit allows China to import an
equivalent amount of goods in the future. But China cannot afford a
balanced trade, let alone a trade deficit, because trade surpluses are
necessary to keep the export sector growing and for maintaining the
long-term value of its currency in relation to the dollar. The bulk of
China's trade surpluses, then, must be invested in US securities. This
is the economic reality of US-China trade.

The gap between the perceived value of the accumulated fiat currency
(US) of the importing economy (US) and the value of that currency when
dollar-denonimated investments are finally cashed in at market price
represents the ultimate difference in the quantity of goods and
services eventually received between the trading economies. Since the
drivers of trade imbalances are overvalued currencies of the importer
or undervalued currencies of exporters, obviously the one-sided trade
can only end when the exporter has wasted away all its expandable
wealth, or the importer has run deficits to levels that exceed the
willingness of the exporter to accept more of the importer's debt.
Interest rate policies of central banks are usually the culprit in
this matter as they drive investment flows in the direction of a high
interest economy, making necessary the perpetual trade imbalance.
Other forms of waste of wealth, such as pollution, low wages and
worker benefits, neglect of domestic development and rising poverty in
both export and non-export sectors, are penalties assumed by the
exporter.<<
For entire:
http://www.henryckliu.com/page36.html




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