Re: [gang8] Dollar Hegemony Revisited

["Gary Santos" <evs@xxxxxxxxxxxx>]

Barkley,

Either way, dollar hegemony is embedded in history and things are not easily
changed. You define hegemony in a general sense. I use the term in the
context of all of the discussions in PKT and TNF I have read. More credit
extended by the US for current consumption. A lot of people are holding
these "net US financial assets" as one has termed it with no compelling
benefit from holding. These assets are predonimantly in the form of US
Treasuries. The amount is growing even as the issuing country has a growing
current account deficit, it's government is being funded with new debt, it
has projected an increasingly negative Entitlements cash flow soon, its real
estate is not cheap, its stock market is overvalued and interest rates are
historically, significantly low. Now who would hold a fiat currency whose
country it belongs to has these macro features? Yet, central banks around
continue to hold dollars afraid to hurt employment. Your "hegemony", that
the dollar was already the dominant international currency, became a
"hegemony problem", in my mind, when the dollar was made inconvertible to
gold. If it were convertible, Sir, the composition of central bank reserves
would not be in their present composition. Neither will the price of gold be
$350 where it is today. It will be higher and have a strong place as a
central bank reserve. Yet, dollars are held as reserves and earning
practically nothing in the short term and 2-4% in the longer term.

There was a recent discussion on whether this "fiat exchange for current
consumption" was a credit or a debt. The distinction is an important one for
the credits (the dollars) are not being redeemed. For gold, for example. Or,
real estate. Or, equipment. Or, something. It is only being accumulated on
increasingly deteriorating terms. Meanwhile, more fiat claims are being
issued as more Treasuries are issued. There would be no problem hegemony if
that exchange for "gold" or "something" took place*. Or, for that matter and
importantly, if the fiat paid gave to people are able to have a decent
standard of living for their labor. Are we all talking about the same
hegemony?

Gary Santos

 (*Parenthetically, if the exchange took place then fiat takes on the nature
of a debt -- being redeemded.)

----- Original Message -----
From: "Barkley Rosser" <rosserjb@xxxxxxx>
To: "Gary Santos" <evs@xxxxxxxxxxxx>; "EGroup PKT" <pkt@xxxxxxxxxxxxxxxx>
Cc: <Hudsonmi@xxxxxxx>; "Arno Mong Daastoel" <arno@xxxxxxxxxxx>
Sent: Tuesday, July 08, 2003 4:01 AM
Subject: Re: [gang8] Dollar Hegemony Revisited


>      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
> > >         Yahoo! Groups Sponsor
> > >               ADVERTISEMENT
> > >
> > >
> > >
> > >
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> > >
> > >
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> > >
> > >
> > >
> > >
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