File spoon-archives/marxism-international.archive/marxism-international_1997/marxism-international.9711, message 351


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




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