Re: [gang8] Dollar Hegemony Revisited

["Barkley Rosser" <rosserjb@xxxxxxx>]

     If this is some kind of consensus coming out of the
Gang8, it is severely flawed on numerous points.
     (First set of letters)
(a)  When the world financial system went off gold, it was
not decided that the dollar would be the currency of world
trade.  It already was and simply continued to be so.  Such
things  do not change overnight.  To the extent a decision
was  made at that time it was by the U.S. to go off gold.
Nobody else decided or did anything.
(b)  Although the floating of exchange rates (which did not
fully occur until 1973) certainly reduced international trade
and increased general volatility, it is far from clear that it
exacerbated global inflation.  To the extent that the inflation
was coming out of the U.S., allowing the dollar to depreciate
reduced broader global inflationary pressures.
     Furthermore, the oil price increases were far in excess
of any inflation that had happened prior to late 1973.  They
were independent forces arising from developments within
the oil industry, following a wave of nationalizations of oil.
Certainly the decline in the dollar stimulated increasing the
price, which OPEC had long wanted to do, but again these
increases were far in excess of what was required to offset
the decline of the dollar.  Essentially the oil price increases
were independent and essentially exogenous inflationary
shocks on top of all else that was going on then, including
food price shocks in the early 1970s that most people have
forgotten about, if they were ever aware of them.
(e)  Japan did not encourage investment by foreigners, quite
the opposite.  The Japanese were (and still are) very proud
of having provided their own financing for themselves, and when
they opened up Japan formally to foreign investment when they
joined the OECD (I think in 1968), they engaged in massive
cross-stock purchases among companies, especially within
keiretsus, specifically for the purpose of preventing any would-be
foreign investors from obtaining control of any major Japanese
corporations.
(f)  It was the U.S. companies that first began to open up
production faciities abroad in LDCs, not the Japanese companies,
who simply followed the U.S. model in this case.
(g)  The devaluation of the yuan/renmimbi in 1994 was only
peripherally related to the devaluations of other Asian currencies
in 1997.  The Chinese devaluation was to retain a current account
surplus and to maintain domestic employment.  It is true that this
devaluation reduced the current account surpluses of the other
Asian tigers.  But their currency collapses in 1997 reflected sudden
capital flight (yes, which can be labeled capital account deficits)
that reflected their pegging of their external borrowings to the dollar.
China avoided this crisis partly by limiting capital movements, as
did India.
     (second set of letters)
(a)  Why would it not be a hegemony if gold were still convertible
from dollars?  There certainly was dollar hegemony between 1944
and 1971 when it was convertible.  Arguably the U.S. unhooked the
dollar from gold because its hegemony was weakening and it needed
to do so to retain its hegemony.  Likewise, there was certainly British
pound hegemony in the late 19th century, even during the very height
of the international gold standard.  The hegemony came through the
Bank of England enforcing the gold standard.
(b) Part of the most serious current threat by the Japanese against
the US in manufacturing comes from Japanese companies building
production facilities in the US.  I am thinking here of the auto industry
where many observers are forecasting imminent death of the US
auto industry at the hands of these firms, not at the hands of facilities
established in LDCs.
(d)  I think that IMF and World Bank policies had very little to do with
whether or not the US lent money abroad.  This arose from the US
chronic current account deficit.  Who was/is responsible for that?
      Anyway, if this is the current state of the Gang8 consensus, I must
say that it is in pretty sorry shape.
Barkley Rosser

----- Original Message -----
From: "Gary Santos" <evs@xxxxxxxxxxxx>
To: "EGroup PKT" <pkt@xxxxxxxxxxxxxxxx>
Cc: <Hudsonmi@xxxxxxx>; "Arno Mong Daastoel" <arno@xxxxxxxxxxx>
Sent: Friday, July 04, 2003 12:14 PM
Subject: Re: [gang8] Dollar Hegemony Revisited


> 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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> >
> >
> >
> >
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> >
> >
> >
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> >
> >
> >
> >
> >
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> >
> >
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> >
> >
>
>
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