Re: [gang8] Dollar Hegemony Revisited

["Gary Santos" <evs@xxxxxxxxxxxx>]

James and Arno,

We do not disagree. Nor, does the kind explanation of Michael to my
understanding of dollar hegemony give me reason to disagree with what I
actually see in the region. I recognize the strides China, despite the gross
inequality it has fostered in its economy, has achieved economically, the
previous and parallel strides of the Asian Tigers and the mirror image of
the US and Australia exporting of manufacturing and now of service
(outsourcing) industries. I merely reacted to Arno's use of "temporary" to
describe the dollar hegemony. Surprised he chose that word, I had to clarify
things with him since "temporary" is a rather weak word to use to describe
the situation. Hegemony appears to me as *embedded* in the "system of
international trade". It is embedded because it
is a result of historical events whose effects are not easily reversed.

I will assume that someone in Gang8 has already written about these
historical events. But, for discussion sake and as briefly as I can:

(a) In 1971, the world goes off into a period of full fiat. The US dollar is
chosen as the currency for international trade by default.

(b) This is followed by/results in a period of inflation which results in
oil being repriced several times.

(c) All these oil revenue dollars find their way to US banks mostly who
lend to developing countries, later the exporters, to borrow following the
economic "experiment" of the time -- development by government sponsored
industrialization.

(d) When this policy fails two things happen: First, eyes turn to Japan as
the model for development. There is even a Japanese moral ascendancy over
American values. Second, Hayek's ideas become fashionable. The terms"free
market", globalization and the Washington Consensus (which includes
privatization selling off the assets of the previous experiment) become
accepted as the new economic prescription to prosperity.

(e) Southeast Asia as does Latin America follows the Japanese model and
invites foreign investors under increasingly liberal terms.

(f) America, not to be outdone, does the same thing Japan did -- it spreads
its manufacturing base away from its high labor markets but this time not in
Southeast Asia but in mainland China which offers the cheapest source of
labor and raw materials. China is smart though and maintains capital
controls.

(f) The market for these exporters based in East Asia remain largely US
based. Europe is too protective of its industries and farmers and is too far
away to be in the consciousness of Asian business planners.

(g) When supply grows faster than demand, suppliers start to feel increased
competition and, in this case, aside from keeping wages and raw material
costs suppressed, competition eventually came in the form of exchange rate
management. The devaluation of the yuan from 5.80 to 8.30 in 1994 set the
stage for the 1997 round of devaluations as capital accounts turned
negative.

The post of Michael in Gang8 characterizes the dynamics of how it
perpetuates itself.

Some additional comments:

(a) It wouldn't be a hegemony if gold were somehow still convertible from
dollar financial assets.

(b) It is a sad state of affairs that American manufacturing established
itself in China to export to the US consumer but it is exactly what was
needed for US business to remake itself in the face of a developing Japanese
and Asian manufacturing hegemony. It would have been underpriced in its own
market if it did not. The unfortunate thing about this is that the common
folk in the US lose out. But, that can be said of all common folk -- the
poor have gotten poorer and the rich richer world wide. I see no reason to
say that the US (business) has not invested wisely.

(c) China's oligarchy remains as a winner as does American and Asian
business.

(d) It isn't totally America's fault that the world is saddled with dollar
debt although I would fault the IMF and the World Bank in part as their
policies fostered all the borrowing.

(e) And, it is the continuing choice of all these exporting countries to
hold fast to their developmental strategy for a lack of a better alternative
although everyone, including Mahathir, is wondering what to do with all of
the dollars.

Is the solution solely political? Perhaps, I misunderstood Michael's
reaction but, as entrenched as the system is, it will take an economic
crisis to change things. No politician nor economist, mainstream or fringe,
can do the job. Only after a crisis will some consensus, political and
economic at the same time, come about. Otherwise, it will be business as
usual.

Gary Santos


----- Original Message -----
From: "schulte-baeuminghaus" <schulte.baeuminghaus@xxxxxxxxx>
To: <gang8@xxxxxxxxxxxxxxx>; ""Gary Santos"" <evs@xxxxxxxxxxxx>;
<pkt@xxxxxxxxxxxxxxxx>
Sent: Thursday, July 03, 2003 5:16 PM
Subject: Re: [gang8] Dollar Hegemony Revisited


Gary,

There are several elements in the deficits, "dollar hegemony" issue.
I won't go over them all again.

However, as I have explained before, the big consideration is that, for
example, China has got real investment, real productivity, real production,
real growth and employment, on the ground - its own ground. Their economy
has made real progress - indeed, huge progress - in ways and on a scale that
they could never have expected twenty years or so ago.
They have also got some real dollar assets - plants, real estate, whatever
in the US, and of course in such a country as Australia which has travelled
much the same path as the US.
Some of their surplus, the Chinese might have kept and be keeping in the
form, for example,  of Treasury Notes. These might decline in value or be
effectively, over a long period, not convertible into real goods, services
or capital assets.
In the end, they might as well be thrown into a furnace or a trash can and
be disposed of.
Even if they are, what is the bottom line for (1) China and (2) the US and
Australia.
China might have been left with a load of pretty useless financial paper but
they have converted their economy - and their society and everything else
that goes with it - into a dynamic entity, promising prosperity and
stability for their people and, gradually, conversion of their economy into
an entity that can stand pretty much by itself, dependent primarily on
domestic investment and growth and be much less dependent on the markets of
the US, Australia and others.
As for the US and Australia, they have gutted their own industry, reduced
real investment, productivity and production, frustrated their own growth
and employment opportunities and generally denied their people the
prosperity and stability they could have had. Some of the bits of financial
paper they handed over may have come to be a bit - or a lot - dud; but, for
that "advantage," they've given themselves otherwise a pretty lousy deal.

Do not read any of the above to mean that I do not applaud the economic
growth etc that China, the Asian Tigers and the rest have achieved in the
last thirty years or so.
I do applaud it and hope it may continue; but, as an Australian, I wish we
Australians could have been more perceptive about where our policies were
leading us and that we could have been a "Tiger" instead of - effectively -
their "prey."
If you're an American, it's hard not to believe that you should have the
same regrets.



James Cumes
http://members.chello.at/schulte-baeuminghaus
http://www.authorsden.com/jameswcumes
http://VictoryOverWant.org
http://www.crystaldreamspub.com/bios/authors/A-E/cumes_j.htm


----- Original Message -----
From: "Gary Santos" <evs@xxxxxxxxxxxx>
To: <gang8@xxxxxxxxxxxxxxx>
Sent: Wednesday, July 02, 2003 7:23 PM
Subject: Re: [gang8] Dollar Hegemony Revisited


> Arno,
>
> Doesn't this advantage vanish only when people (central banks,
specifically,
> and big speculative money to a lesser extent) decide they do not want to
> hold dollars nor US treasuries? This notwithstanding the drop of the
dollar
> versus, mainly, European currencies. It does seem that people still want
US
> assets. Dollar reserves appear to be expanding still. Until then the
> advantage remains even as a current account deficit and US debt expands
> (this is, I assume, what you mean by the squandering of potential).
>
> Gary Santos
>
> ----- Original Message -----
> From: "Arno Mong Daastoel" <am@xxxxxxxxxxx>
> To: <gang8@xxxxxxxxxxxxxxx>
> Sent: Wednesday, July 02, 2003 11:14 PM
> Subject: Re: [gang8] Dollar Hegemony Revisited
>
>
> Michael,
> Yes, I have understood this for a long time.
> My point is like James', that this free ride advantage is only temporary.
> IF the US had used that advantage cleverly, it might have made the
advantage
> permanent.
> It has not. It has squandered the potential.
>
> I cannot see any mechanism that makes this a permanent advantage.
> (See my answer to Henry.)
>
> Arno
>   ----- Original Message -----
>   From: Hudsonmi@xxxxxxx
>   To: gang8@xxxxxxxxxxxxxxx
>   Sent: Wednesday, July 02, 2003 2:15 PM
>   Subject: Re: [gang8] Dollar Hegemony Revisited
>
>
>   Arno, you may be mis-understanding what the statistics mean.
>         You look at the trade and payments deficit as a sign of weakness.
> Why not look at it as reflecting the STRENGTH of the US to get all these
> surplus goods, services and foreign assets (entire companies) for FREE?
This
> parasitic ability to exploit is America's strength. It is in the Double
> Standard implicit in the dollar standard.
>         America is not Australia. Australia can't do the same thing. IT
> would have to sell off its assets, its national patrimony, as it has done.
> America has done no such thing. It just keeps supplying paper or
electronic
> dollars to the world, laughing all the way to the bank, so to speak.
>
>         Michael
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