[Marxism] RE Economic Crash Imminent? - Center for Research on Globalization

[Ilyenkova@xxxxxxx]

>The US is currently attempting to get OPEC and other oil producing nations
to maintain a stable price for oil, even as the value of the dollar plummets.
This amounts to asking other countries to accept our losses FOR us, as we
continue to print more and more billions of dollars out of NOTHING to give them 
in
exchange for their oil.<

Ralph asks if predictions of an imminent world economic crash are more
'chicken little' or if 'we are really there.'
I'd answer, both/and provided we change 'crash' to 'crisis'.  The stability
of the global economy is threatened
by a sharp dollar devaluation for the reasons mentioned by Bornemann's
references. But the dollar crisis is not
going to issue in a sudden crash of world trade and finance. The U.S., as
Bornemann concedes in his synopsis, is
both too strong militarily, and in the driver's seat economically to be
seriously challenged much less brought to the
brink of war by its capitalist rivals. Although undividual OPEC members would
love to move to the Euro the 'cartel' lacks the power and cohesion needed to
challenge the US outright. Also, most OPEC countries are imbricated in the
petrodollar recycling cycle, and any precipitous moves out of the dollar would
threaten the value of their own holdings
in US financial institutions.
The case of China is a paradigmatic example. China *is planning to diversify
its holdings out of exclusively dollar denominated assets* yet, China holds an
*unimaginably large portion of the US debt.*   Asian regimes, including China
and Japan hold over 2 trillion dollars in official currency reserves which is
over 80% of the world total and 3x the amount they held just 5 years ago! The
IMF's Spring 04 'World Economic Outlook'  worried that the financial sector
had 'overinvested in emerging markets', meaning that Western banks have
leveraged low-interest borrowings against risky, high return assets in the Asian
sector. Any sharp increase in interest rates to offset inflationary pressures on
the
dollar will threaten this speculative leveraging process and the capital
plowed into it.
In an earlier report this year 'Global Financial Stability', the IMF linked
continued global financial stability to
continuation of  'unprecedented gross and net capital inflows into the US.'
It's this inflow that funds the American
deficits of the budget and current account payments (which are each running
at record $500B levels). The
flipside of this is massive purchases by Asian banks of US dollars to keep
their own currency values low, and their commodities competitive in American
markets. Any significant further fall in the dollar's value will put the Asian
economies in severe jeopardy.
On the domestic side such a dollar plunge will trigger rising interest rates
and a national crisis in the US that will hit
1st in the housing and home equity markets. The Bush/Greenspan strategy for
recovery has been based on injecting liquidity into consumer spending by
inflating real estate values. A blowout in home equity values will turn this 
credit
expansion into a consumer debt crisis. Severe contraction in the US market
could in turn cause a rebound global
crisis.
Low interest rates, cheap money, tax cutting, budget deficits and increased
debt-driven consumer spending has
given the appearance of stabilization in the short run. But in the longer
term this stabilization strategy has only
increased the turbulence in the global economy and can't be continued.
Whichever party governs in the near future will be forced to cut the deficit,
increase interest rates and pull the plug on the speculative bubble in 
residential
real estate. The appearance of fiscal and financial austerity may temporarily
boost US credibility and stave off a spiralling global economic crisis. But a
national recession in the American economy could be quite severe as working
class homeowners see their home equity savings go down the drain, and there's no
guarantee that this scenario will restore global stability.
The most useful site on following capital flows, interestingly not cited by
Bornemann is Financial Markets Center (www.fmcenter.org)

Ilyenkova

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