From: "chris wright" <cwright-AT-21stcentury.net>
Subject: AUT: Re: Re: Kevin on Iraq
Date: Tue, 1 Apr 2003 21:24:35 -0600


Some thoughts on Harald's points...

>
> Now, if what Daniel T. Griswold writes below as regards
> Australia is true, this begs some questions.
>
>
>     << Australia, a country similar to the United
>     States in its level of economic development, has
>     run current account deficits every year since 1973.
>     Those deficits have been larger  than America's
>     as a percentage of GDP, averaging 4.6 percent
>     since 1983 and reaching 5.7 percent in 1999.  (31)
>     By the end of 1999 Australia's negative net
>     international investment position (that is, its
>     "foreign debt") reached 57 percent of GDP, (32) more
>     than three times the ratio in the United States. And
>     like the United States, Australia is enjoying a long
>     expansion fueled and prolonged in significant
>     measure by a large annual net inflow of foreign
>     investment.
>         [...]

The main thing I would note in this above quote is that to say that
Australia has the same level of development of the United States is simply
fictitious or being dazzled by purely quantitative correlations of
percentages, rather than reality.  If we stop and think about the levels of
production, investment, international engagement and the relative sizes of
the domestic markets, Australia and the US look nothing alike.  Australia
has not the been the dumping ground for the world's commodities for the last
10 years, thereby in part keeping the world afloat.  That means that he is
comparing apples and oranges to some degree.

Of course, in all of this I have played the role of promoting the idea that
the currency conflict is a central point, a bit of a devil's advocate
position, really.  I agree with Harald that no one cause is sufficient to
grasp the whole crisis.

I read the Wildcat article and they basically argue that the US is trying
desperately to maintain its role as world hegemon, and that this is a gambit
to do so in the face of a rather dire domestic and geostrategic situation.

For my part, my biggest concern with the validity of the dollar vs. euro
argument rests on the idea that at $1.2 in transaction a day on the world's
money markets, how relevant is the control over the currency in which oil is
valued?  Certainly, there is no situation in which a central bank can
meaningfully intervene in the currency market and hope to effect it for more
than a few days at best, except to precipitate a crisis.  And oil is quite
'fungible' (the currently fashionable term meaning effectively capable of
being gotten elswhere/interchangeable.)

Besides which, there is no certainty that a strong dollar is good for the US
right now, since it makes US commodities less competitive on the world
market and one thing that US capital has desperately sought to do is to
increase the rate of exploitation so that US goods might be more competitive
on the world market because producitivity has not increased enough to make
up for the higher cost of labor in the US (at one time, the US could out-do
places like Mexico because even though Mexican labor might be 3-4 times
cheaper, US labor would be 5-6 times more productive, which is not
necessarily any longer so.)

What sticks in my head, however, is that the fungibility of oil will take
time, years and years to replace or substantially undercut Middle Eastern
oil production with the development of resources elsewhere and with other
energy sources, as well.  In the meantime, the valuation of the dollar in
oil does provide a certain leverage, and right now the question is "Who pays
for the crisis?"  Is Bush ready and willing to let the rest of the world,
including Europe and Japan, so that a full-blown crisis can be avoided in
the US?  It would seem so and it would seem that the rest of the world (ie
the other capitalists competing for the share of world capital) knows it.

And it seems to me that while a strong dollar in general may not be what the
US capitalists need right now, that does not mean a desire for the end of
the valuation of oil in dollars is a comparable matter.  Is it possible that
a weak dollar and the ability to sustain a weak dollar by the dollar's
domination of the main fuel source for capital go hand-in-hand?

If the flight to money capital really does represent capital in its most
brazen, but also most desperate, form (John Holloway uses the analogy of a
hive of bees of of honey), then the currency situation would seem to take on
a more important moment than might otherwise be expected.  So we know that
credit and debt have been used to transfer massive quantities of wealth from
labor to capital and as a means of disciplining labor through debt (no one
works harder than someone so in debt that they fear losing everything.)  But
this has also been the means of disciplining the less developed regions of
the world, where the capital-labor relation was softened by state
intervention and state managment, creating barriers to the flow of capital.
Maybe now this has come back to bite the US in the ass.

If the US is losing in terms of production to Europe and other parts of the
world, even if only on very specific commodities, and this money flight is
premised on the idea that when the Pied Piper comes to collect, capital will
have to pony up (sorry for the US slang), or in conventional terms, credit
and speculation assumes that capital will valorize itself some time in the
future and until then, this is a way of avoiding the resolution at the point
of production, or of trying to whittle labor down through monetary
discipline rather than direct social confrontation.  If this is the case,
then the control over oil as a means of managing the crisis and the control
over the Middle East as the current center-point of production and strong
pressure over the development of Russian reserves may in fact go hand in
hand with the control over the currency which determines the valuation of
that oil.

Not sure if that makes sense, and I cannot edit my own stuff, so please tell
me if I drifted off completely.


>
> There is another general remark that must be made in
> this context. Whether or not the theory is correct in
> strictly economical terms is irrelevant to the question of
> whether or not the Bush administration, and/or powerful
> intererests able to put pressure on it, are convinced
> that it is so.
>         Of the later I know very little. But to again quote
> from Griswold's paper : "America's Record Trade
> Deficit A Symbol of Economic Strength":
>
> << In 1998 those and other concerns prompted Congress
> to appropriate $2 million to establish and fund the Trade
> Deficit Review Commission with a mandate "to study
> the nature, causes, and consequences of the United
> States merchandise trade and current account deficits."
> The 12-member panel of private citizens, half appointed
> by the Democratic leadership and half by the Republican
> leadership in Congress, heard testimony in Washington
> and around the country from economic experts, business
> and labor leaders, and other witnesses on the alleged
> causes and consequences of the deficit. The commission
> issued its final report on November 14, 2000. The Trade
> Deficit Review Commission's report was really two
> starkly contrasting documents beneath one cover-one
> authored by the Republican-appointed members, the other
> by the Democratic-appointed members of the commission.
> The Democratic side concluded that the trade deficit
> poses a threat to the U.S. economy, both immediately and
> in the long run. The Republican side, while agreeing that
> large and growing deficits cannot continue indefinitely,
> concluded that the deficit reflects more benign
> developments in the U.S. economy such as relatively
> strong growth and rising levels of investment. >>
>
This is very interesting.  I am working my way through Doug Henwood's "Wall
Street" with the intention of getting a grasp on some of the dynamics of
international capital flows better set in my mind, and one thing he raised
tackled this directly.

On p. 23 he says that "Public paper is a nice mechanism for profit making
and income redistribution.  It provides rich underwriting and trading
profits for investment bankers and interest income for individual and
institutional rentiers, courtesy of non-rich taxpayers.  Wall Street,
despite its ideological fealty to balanced budgets, has made a fortune
distributing and trading Reagan-Bush-early Clinton deficits... If the U.S.
budget deficit stays close to zero for years, Wall Street will have to make
some very sharp adjustments, though bonds could acquire a scarcity value."

Now look at the situation which Bush is creating:  massive tax cuts for the
rich, a massive increase in arms expenditure and a massive increase in state
debt.  If Henwood is right, this really is a stimulus package for capital,
but one which transfers massive quantitites of wealth from non-rich
taxpayers to the rich via the juggling of the bond markets.  Not
surprisingly, the speculators have a much higher proportion of Republicans
in their midst and it may be that the Republicans understand the value of
the debt to their constituency among the speculators.

Them's my thoughts.

Cheers,
Chris




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