Re: FWD: The Biggest Risk to the Global economy in 2002

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> =====
Davos began building momentum along with the rise of post Cold War
>globalization. After 1997, Davos participants were forced to take the
>defensive, to argue that globalization was not really the predatory regime
>that it actually was, but that the victims of globalization, particularly
>financial globalization, were the victims of self-inflicated bad decisions
>that the market would not forgive.  Yesterday, O'Neill sounded the same tune
>on Argentina.  The real problem of financial globalization, which has
>outstripped industrial globalization as a threat to both world peace and
>world order, is that dollar hegemony has eliminated the level playing field
>for world trade.

 Unfortunately playing fields in ancial capitalism are never level.  What we
can do however is to provide a handicap (as in golf) to make the game more
equal.

My view on this issue is well known to PKT list members and
>thus need not be repeated here.  Suffice to say that the dollar's role as
>the sole reserve currency for world trade has eroded not only the potential
>benefits of global trade, but it has also distorted the US economy to a
>degree that risks destroying its future.  The strong dollar policy is
>sapping the real strength of the US economy, allowing it a false prosperity
>on borrowed money and borrowed time.

There is no such thing as a false prosperity, in my view.  Either oner
prospers or one does not. The only question is can develop institutions that
tends to maintain the prosper economic state

, In the current economy other countries can propser only as long as their
economics fit into the economy of the nation that serves as the world's
central bank by providing the world's foreign reserves.  In the 1980s that was
Japan-- but when the BOJ broke the Japanese "bubble", the game was over for
Japan--.


>
>Now neo-liberals are focusing on Japan, blaming its policies for being
>obstacles to their hope, nay, fantasy, of looking to the Asian consumer
>market to save the rapidly collapsing global economy.  For almost a decade,
>economists and market leaders of all stripes have been giving Japan
>gratuitous advice on how to "jump start" its anemic economy. Washington has
>shifted from its policy of the Plaza Accord of 1985 to push down the dollar,
>primarily against the yen, to the policy of the past few years of a strong
>dollar. Yet the US criticises Japan for allowing the yen to fall, which is
>the flip side of a strong dollar.  The conventional "snake oil cures", as
>the Japanese characterise them, offered by Summers and company, are
>absolutely off target as far as Japan is concerned.

Yet when I tried to suggest the need for an IMCU union in the late 1980s, the
query always put to me by foreigners (and somer US economists) was why should
Japan be interested in changin g the system that is working so well.  My
answer was that in the near future Japan maywish she had taken the opportunity
when she was in the cat bird seat.
>
>It is not possible for any Japanese political leader to truly "reform" the
>Japanese economy unless he plans to negate all that Japan was since WWII.
>Besides, as I have pointed out before, the LDP enjoys one party rule in
>Japan, not much different than the CPC in China.  Thus if Goldman Sachs is
>waiting for Japanese reform to save Asia, and therefore the US and the EU,
>from protracted recession, it has a long wait.  The fact of the matter is
>that the Japanese have figured out a strategy to sustain near permanent
>recession.  It is waiting for the US recession to unfold to restore the
>level playing field destroyed by dollar hegemony.  The fact of the matter is
>that as long as Japan can still export to US markets, no domestic reform is
>either necessary or possible.  That goes to most economies outside the US.
>Thus the biggest risk of globalization is not a Japanese melt down, but the
>inevitable shut down of the US market for imports.  When that happens,
>globalization will come to a stand still.

But if another nation's (or currency union's e.g., the EURO) money becomes a
mroe attractive foreign reserver currency, then US markets for imports will
shut down as Gresham's Law devestates the US exchange rate.  Thus the rest of
tghe world has the US dollar hegemony by the tail, if it lets go, the tiger
will devour al in sight include the dollar itself. (to mix metaphors).

 Nations will turn inward for
>development and trade only if they need good and services not availble
>domestically, but not for financial gain under a regime of dollar hegemony.
>It may not be the dark age revisited as the neoliberals warn.



  Perhaps
>finally, when nation tend to domestic development as a priority, away from
>senseless export merely to service foreign loans denominated in dollar,


That is exactly what my IMCU system -- as was Keynes's clearfing system--
designed to do, as Skidelsky notes in hids latest vfolume of his biography of
Keynes.


>children around the world will begin to eat decent meals and enjoy basic
>health care and edcuation. What does it matter if the DOW and the Nikkei hit
>3000?


Or 30,000?

paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 523
Knoxville, Tennessee 37996-0550
phone # (865)974-4221; fax #(561)737-8262;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html