[Marxism] Interimperialist fallout from the crisis

["Matthew Russo" <russo.matthew9@xxxxxxxxx>]

Some views to chew on from Stratfor and Engdahl. Apologies for the length.

http://www.financialsense.com/editorials/engdahl/2008/1009.html

I don't go in for the excess of conspiracy theorizing - I see individual
personalities as always acting as necessary in a systemic context even as
they may exercise power over some of the contours of that context - so for
example, I see Paulson's actions less as a nefarious power grab vis-a-vis
the Europeans than as an increasingly desperate struggle for the survival of
what remains of U.S. global financial preeminence.  It certainly is not a
clever strategy that both drives the U.S. economy into depression and
disgraces the ideology of so-called "American free market capitalism" before
the whole world.  But in identifying the differences in approach to the
crisis it exposes the interimperialist fault lines that identify - once
again - Germany as the chief foot-dragger on the old "surrender monkey"
continent, as it has been with the Iraq, Afghanistan and Russia flashpoints.

But the more interesting divergence identified both by Engdhal and Stratfor
(below) is the novel one emerging between Britain and the U.S.  That could
be explained by the proportionally greater importance of London finance in
the British economy relative to that of Wall Street in the U.S. economy.  In
the U.S. case, while there have been great strides made in the
"financialization" of the U.S. economy over the last quarter century, it is
the military-industrial sector, and not the financial sector, that is the
dominant sector of capital in the U.S., though a strong Wall Street with
international leverage has been vital to securing global financing for U.S.
military industry until this time - and as an aside here, it will be of
interest to see how any loss of such leverage will affect American state
finances and therefore the finances of the military industrial sector.
However in Britain the financial sector is absolutely dominant and must be
saved at all costs, "free markets" be damned.  That at least is my wager
here.

On the other side are the Asian countries, whom - with the notable exception
of Korea - avoided being ensnared in Paulson's 'evil machinations'.
Corresponding to the role of Germany, the pivot country here will be Japan,
whose banks could ironically be in a position to buy assets at rock bottom
prices, considering that the contemporary form of financial contagion and
crisis could be said to have originated in the late 1980's bubble in that
country.

http://en.wikipedia.org/wiki/F._William_Engdahl

Stratfor's latest freebee

Red Alert: The G-7 -- Geopolitics, Politics and the Financial Crisis

 The finance ministers of the G-7 countries are meeting in Washington. The
first announcements on the meetings will come this weekend. It is not too
extreme to say that the outcome of these meetings could redefine how the
financial markets work, certainly for months and perhaps for a generation.
The Americans are arguing that the regime of intervention and bailouts be
allowed to continue. Others, like the British, are arguing for what in
effect would be the nationalization of financial markets on a global scale.
It is not clear what will be decided, but it is clear that this meeting
matters.

The meetings will extend through the weekend to include members of the G-20
countries, which together account for about 90 percent of the global
economy. This meeting was called because previous steps have not freed up
lending between financial institutions, and the financial problem has
increasingly become an economic one, affecting production and consumption in
the global economy. The political leadership of these countries is under
extreme pressure from the public to do something to solve — or at least
alleviate — the problem.

Underlying this political pressure is a sense that the financial class,
people who run global financial institutions, have failed to behave
responsibly and effectively, and have therefore lost their legitimacy. The
expectation, reasonable or not, is that the political system will now
supplant these managers and impose at least a temporary solution. The
finance ministers therefore have a political mandate, almost global in
scope, to act decisively. The question is what they will do?

That question then divides further into two parts. The first is whether they
will try to craft a single, global, integrated solution. The second is the
degree to which they will take control of the financial system — and
inter-financial institution lending in particular. (A primary reason for the
credit crunch is that banks are currently afraid to lend — even to each
other.) Thus far, attempts at solutions on the whole have been national
rather than international. In addition, they have been built around
incentivizing certain action and increasing the available money in the
system.

So far, this hasn't worked. The first problem is that financial institutions
have not increased interbank lending significantly because they are
concerned about the unknowns in the borrower's balance sheet, and about the
borrowers' ability to repay the loans. With even large institutions failing,
the fear is that other institutions will fail, but since the identity of the
ones that will fail is unknown, lending on any terms — with or without
government money — is imprudent. There is more lending to non-financial
corporations than to financial ones because fewer unknowns are involved.
Therefore, in the United States, infusions and promises of infusion of funds
have not solved the basic problem: the uncertain solvency of the borrower.

The second problem is the international character of the crisis. An example
from the Icelandic meltdown is relevant. The government of Iceland promised
to repay Icelandic depositors in the island country's failed banks. They did
not extend the guarantee to non-Icelandic depositors. Partly they simply
didn't have the cash, but partly the view has been that taking care of one's
own takes priority. Countries do not want to bail out foreigners, and
different governments do not want to assume the liabilities of other
nations. The nature of political solutions is always that politicians
respond to their own constituencies, not to people who can't vote for them.

This weekend some basic decisions have to be made. The first is whether to
give the bailouts time to work, to increase the packages or to accept that
they have failed and move to the next step. The next step is for governments
and central banks to take over decision making from financial institutions,
and cause them to lend. This can be done in one of two ways. The first is to
guarantee the loans made between financial institutions so that solvency is
not an issue and risk is eliminated. The second is to directly take over the
lending process, with the state dictating how much is lent to whom. In a
real sense, the distinction between the two is not as significant as it
appears. The market is abolished and wealth is distributed through
mechanisms created by the state, with risk eliminated from the system, or
more precisely, transferred from the lender to the taxing authority of the
state.

The more complex issue is how to manage this on an international scale. For
example, American banks lend to European banks. If the United States comes
up with a plan which guarantees loans to U.S. banks but not European banks,
and Europeans lend to Europe and not the United States, the integration of
the global economy will very quickly shatter, leading to significant
limitations on international trade, currency convertibility and so on. You
will nationalize economies that can't stand being purely national.

At the same time, there is no global mechanism for managing radical
solutions. In taking over lending or guarantees, the administrative
structure is everything. Managing the interbank-lending of the global
economy is something for which there is no institution. And even with
coordination, finance ministries and central banks would find it difficult
to bear the burden — not to mention managing the system's Herculean size and
labyrinthine complexity. But if the G-7 in effect nationalize global
financial systems and do it without international understandings and
coordination, the consequences will be immediate and serious.

The G-7 is looking hard for a solution that will not require this level of
intrusion, both because they don't want to abolish markets even temporarily,
and more important, because they have no idea how to manage this on a global
scale. They very much want to have the problem solved with liquidity
injections and bailouts. Their inclination is to give the current regime
some more time. The problem is that the global equity markets are destroying
value at extremely high rates and declines are approaching historic levels.

In other words, a crisis in the financial system is becoming an economic
problem — and that means public pressure will surge, not decline. Therefore,
it is plausible that they might choose to ask for what FDR did in 1933, a
bank holiday, which in this case would be the suspension of trading on
equity markets globally for several days while administrative solutions are
reached. We have no information whatsoever that they are thinking of this,
but in starting to grapple with a problem of this magnitude — and searching
for solutions on this scale — it is totally understandable that they might
like to buy some time.

It is not clear what they will decide. Fundamental issues to watch for are
whether they move from manipulating markets through government intrusions
that leave the markets fundamentally free, or do they abandon free markets
at least temporarily.

Another such issue is whether they can find a way to do this globally or
whether it will be done nationally. If they do go international and
suspending markets, the question is how they will unwind this situation. It
will be easier to start this than to end it and state-controlled markets are
usually not very attractive in the long run. But then again, neither is
where we are now.

This report may be forwarded or republished on your Web site with
attribution to www.stratfor.com
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