Date: Tue, 18 Nov 1997 18:24:45 -0800 From: bhandari-AT-phoenix.princeton.edu (Rakesh Bhandari) Subject: M-I: Vortex of the World Market Mark Jones had recently written: "And Burford is right: Iraq could be the trigger. Iraq is the swing-producer: its oil is critical as even Saudi oil is not. They have to have Iraq oil, in 1998, the US/UK have to end the embargo, or the oil-price can go thru the roof, proving the final banruptcy of the whole longterm deflation strategy. If not Iraq, plenty of other occasions for world-crisis are in the wings." Mark's analysis would seem to be confirmed by the US offer to allow Iraq to sell more oil if it complies with "UN" demands. I would like to suggest another scenario in which oil prices could go through the roof (just posted it to the progressive economists). As the world's largest creditor nation, Japan holds some $800 billion in foreign assets net; Japan is a huge owner of US Treasury bonds of course. Now, as George Melloan asked in the WSJ last week, what happens to the international bond market if Japan starts cashing in huge chunks of that paper? In that case, how high will the US have to raise interest rates to support the value of the dollar in international money markets? And will a depressed US then be able to absorb the exports on which SE Asia is banking to overcome its crisis? At this point, OPEC may raise the price of oil to compensate for the declining value of the dollar, while engendering supply side inflation. Now in terms of Mark's post, what evidence do we have global deflation? It is true that such declines may allow more powerfully situated capitals to wipe out and/or absorb competitors, claim more market space and restore profitability by claiming a greater share of a diminished mass of surplus value. And it is true that the rate of increase in the inflation rate seems to have fallen (though in the case of the US surely not as much as Boskin thinks so). But global deflation? Even the most powerful capitals seem now to fear it... rb --- from list marxism-international-AT-lists.village.virginia.edu ---
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