Re: <nettime> history lesson

["Dan S. Wang" <danwang@mindspring.com>]

Hi Keith, thanks for the post.

> Basically the Bush regime had the option of defending the dollar or monetizing
> the debt. The former would require interest rate hikes which would certainly
> kill off the housing bubble that is the thread holding up both the US and UK
> economies and precipitate a crash with immediate and visible domestic
> consequences. So they opted for playing Texas hold 'em against the rest of the
> capitalist world, using the world unit of account for chips. Since March the
> Fed has stopped publishing M3 data, the measure of how many dollars are in
> circulation, but from the end of 2005 it was clear that they were printing
> dollars as if there were no tomorrow and continue to do so. The bet is that
> their creditors will protect their dollar holdings rather than offload them.
> But, even if they do, the results will be disastrous for everyone. The euro
> will go through the roof making European goods too dear to sell. Japan will
> sink into the ocean and China will dissolve into civil war.
> 

An important story flew under the media radar just around the slow
christmas period, overshadowed in the U.S. newspapers by the deaths of
James Brown, Gerald Ford, and Saddam Hussein. Like the non-reporting
of the M3 data blackout, the episode in question fits into the
continuing tale of waning American economic power, and the inability
of the political elites to do much about it. In mid-December a very
high profile American delegation led by Treasury Sec Henry Paulson and
Fed Chair Ben Bernanke--when was the last time anyone can remember a
fed chairman personally leading a foreign diplomatic effort?--went
to Beijing, intent on forcing the Chinese into currency flexibility
agreements. Chinese Vice-Premier Wu Yi welcomed the delegation and
at the end pronounced the meeting an excellent exercise in building
trust and understanding. In the actual negotiating sessions, according
to a number of accounts I've read, she lectured the visitors like a
schoolteacher conducting a remedial history class--and the kind of
nationalist history that most raises the hackles of the ahistorical
Americans. At the closing ceremonies she conspicuously made no comment
on the currency dispute. Whoopee for the Americans.

http://globaleconomicanalysis.blogspot.com/2006/12/paulson-bernanke-st
rike-o ut.html

The delegation returned to a home government grateful for the
distraction of Jerry Ford's timely passing, even if he had harsh words
for Bush from beyond the grave. Better that than dealing with a media
focus spotlight on America's inability to persuade and/or twist arms
in Beijing, yet again.

Japan is basically stuck with their deal, beholden as they are to the
US for its defense. Even more so given the perceived belligerence of
N Korea and the slow but steady rise of Chinese military power. China
may hold a little less in dollars, but compared to Japan may have
more flexibility in selling off their dollars because of 1) their
military independence and 2) their willingness to repress their own
people. A third and maybe less important factor is the considerable
investment coming into China in euros. Point #2 is the wild card. Even
though there is a growing Chinese middle class--people who feel a new
nationalist pride and who tend to support their government even if
they are not party members--there is a greater number of rural poor,
about ten million a year of whom move to the cities and have to be
absorbed by the urban economies. This absorbtion, right now, is partly
made possible by the Chinese currency control formula. The ten million
surplus workers a year figure might go on for another twenty years or
more. No wonder the Chinese leadership is taking its sweet time making
adjustments. The latent threat posed by this enormous tide of internal
migration will figure into any decision the Chinese gov makes if and
when it feels the need to put the economic hurt on America.

> In The Great Transformation, Polanyi points out that the others never realised
> the Nazis were aiming to destroy the existing international system as their
> strategy for winning the whole pot in the end. Since they themselves had so
> much at stake in the status quo, it never occurred to them that Hitler was
> prepared to break up the zhole show. How much more difficult is it for others
> to imagine why the US government would be prepared to smash a world political
> economy of which it is the acknowledged leader. But they are, because they
> know, left to its own devices, power in the world economy is inexorably
> slipping away.
> 

Whenever I get the 'rise of China' rant going a friend of mine who has
a talent for the cynical view likes to remind me that the imperial
powers of the west, especially England and then America, never have
had qualms about changing the rules in the middle of the game, and
doing so with guns, bombs, and indignant self-righteousness. Making
the game of currency and trade *into* one of guns, bombs, and the
rest. That's another way to think of the 'smash the whole for the
pieces' strategy, one that might resonate more effectively with
American leftists accustomed to thinking in terms of oppression more
than history.

dan w.




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