Re: [gang8] Dollar Hegemony Revisited

["Barkley Rosser" <rosserjb@xxxxxxx>]

     OK, so maybe I'm not being a very
nice guy.  But we have been getting these
secondary announcements from this other
list for quite a long time, often delivered
with a sort of "word from the mountain"
atmospheric, which has seemed a bit
stronger lately.  Consider it the outburst of
an accumulated perception that may be
unfair.  I'll try not to pick on the Gang8 as
a group any more, just the individuals when
they say silly things...
Barkley Rosser
----- Original Message -----
From: "Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>
To: "Barkley Rosser" <rosserjb@xxxxxxx>; "Gary Santos" <evs@xxxxxxxxxxxx>;
"EGroup PKT" <pkt@xxxxxxxxxxxxxxxx>
Cc: <Hudsonmi@xxxxxxx>; "Arno Mong Daastoel" <arno@xxxxxxxxxxx>
Sent: Monday, July 07, 2003 5:41 PM
Subject: Re: [gang8] Dollar Hegemony Revisited


> Barkley:
>
> Re. the following:
>
> >      If this is some kind of consensus coming out of the
> > Gang8, it is severely flawed on numerous points.
>
> >       Anyway, if this is the current state of the Gang8 consensus, I
must
> > say that it is in pretty sorry shape.
>
> Comment:
>
> This is the third time in a week or so that you attack Gang8 on PKT.
>
> Why?
>
> Gunnar
>
> ----- 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: Monday, July 07, 2003 4:01 PM
> 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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