Re: ReORIENT thesis - an objection

Thu, 4 Jun 1998 02:21:52 +0100
Richard K. Moore (rkmoore@iol.ie)

I had written:
> SE-Asian currency crisis. Again an Asian power-nexus developed
> in Asia, this time the `tiger economies' of SE Asia. And again
> this uprising was squelched by Western agency

At 7:51 PM 6/01/98, Dennis R Redmond wrote:
>Oh? Japan is the world's biggest creditor, my friend ($1 trillion in net
>assets and counting); the US is the world's biggest debtor. Japan has been
>buying Godzilla-sized quantities of T-bills during the 1990s, keeping US
>interest rates low and enabling Wall Street to run riot in one of the
>great financial manias of world history. Singapore, Taiwan and Hong Kong
>are efficient exporters and sit on a mountain of foreign exchange
>reserves. The sick tigers are mostly Second World countries, who went
>under thanks to rampant currency inflows and deregulation (Indonesia and
>Thailand had very weak developmental states, South Korea caught a bad case
>of the neoliberal virus in the early Nineties and deregulated everything
>in sight, and is paying for its hubris). The rest of the tigers have drawn
>the appropriate conclusions from the whole mess, and are mostly
>reregulating and increasing state supervision of the economy. Also, SE
>Asia is being bailed out not by American banks, who own surprisingly
>little of SE Asia's debt (see the BIS at www.bis.org for the details on
>this), but by Japanese and European banks. The American rentiers
>can rant and rave all they like, but the fact remains that their ass is
>*owned* by the EU-East Asian co-hegemons.

What planet, Dennis, have you recently arrived from? Perhaps an academic
ivory tower? Unlike most neoliberal propaganda, I can't even find the
grains of truth to sustain the line you've taken.

To begin with, my claim about "Western agency" has nothing to do with the
US as a nation, vis a vis SE Asia or Japan as nations. Western agency,
while you've off planet hopping, has become concentrated in the capitalist
elite, who now rule via their ownership of mass-media, their control of the
international financial system, their all-powerful neoliberal bureacrices
such as the IMF and the WTO, and their control over Western political
machines.

The "agent" behind Western "agency" is not Bill Clinton, it is the elite
globalist regime. One almost hesitates to call it "Western" since capital
is truly global, but the _institutions of globalism and most of the elite
population are part of the matrix of US-Euro culture, and so it seems that
under glboalization....

All nations are equal, but some are more equal than others.
Four yen good, two dollars better.

Contrary to your characterization, the whole thrust of the IMF `reforms' in
S Korea et al are to _deregulate economies that were _too regulated and
state-managed for the designs of the global neoliberal project. In case
you haven't looked at the history, _all major economies, including that of
the UK (imperial version) and the US (19th century) and Japan (postwar)
were nurtured into prominence by protectionist policies. S Korea was no
different.

Have you read "The Global Trap"? A "mountain of reserves" turns out to be
a scant defense in the face of `currency imperialism' or even `casino
capitalism', and many deep pockets have regretted the attempt to post them
as collateral against currency decline. The response of the Fed is often
to simply `let it float' when the dollar is attacked, and no one ever hits
the dollar that hard... do you know why? because the dollar is the
preferred universal holding! The "mountain of foreign exchange" you allude
to... I wonder, how much of that is in dollars? _That's where you can read
the _real value of currencies. You do know, I assume, that the dollar is
the standard currency in Russia. (just an anecdotal aside).

How smug to say "South Korea...is paying for its hubris". I'd just love to
see what you were publishing _prior to the Asian `meltdown'. The tigers
were the universal darlings of the neoliberal establishment... admit it.
Now after being raided by the machinations of the Western-dominated
international financial scam, it is suddenly Korea's own fault. But of
course this follows from neoliberal logic: A. The market is never wrong.
B. Whatever the elite globalist institutions do is `in the name of the
market'. C. The IMF reforms _must be prescriptions for Korea's sins.

"It ain't necessarily so"
-Cole Porter

---

My primary objection to your whole way of framing things is the pretense that national economic competition is the primary operative dynamic in the global economy, as if the US was losing ground to the EU in some kind of economic dominance contest.

The actual primary operative dynamic is the overthrow of the nation-state system by the centralized elite capitalist system. The repudiation of the Bretton Woods arrangements, the first decisive act of the neoliberal project, shifted the balance of global economic power from nations to the elite-owned international banking system, and we are now seeing the endgame as nations are selectively targetted for destablization and reprgramming under the auspices of the elite-controlled IMF. We saw it in Brazil, in Mexico, now in SE Asia, and Japan too is vulnerable, despite your adroit juggling of spreadsheet numbers to the contrary. I'll attach below a recent posting giving a more realistic and complex picture of the Japanese financial situation than exists in your abstract model. And then there are those reports of increasing homelessness all around Tokyo...

rkm cadre@cyberjournal.org http://cyberjournal.org

------------------------------------------------------------------------ Date: Fri, 29 May 1998 To: (Recipient list suppressed) From: Sid Shniad <shniad@sfu.ca> (by way of Michael Eisenscher <meisenscher@igc.apc.org>) Subject: ASIA'S THREAT TO EVERYWHERE

The Globe and Mail Report on Business Friday, May 29, 1998

ASIA'S THREAT TO EVERYWHERE

By Peter Cook

Let's start by sketching a truly global problem.

In an attempt to pump life into its banks and economy, the Bank of Japan feels it must lower the cost of money and lower the yen. As the currency moves toward 200 yen to the U.S. dollar, a chain reaction sets in.

First the South Koreans devalue. Then, the Chinese reluctantly let the renminbi go and, with it, end the Hong Kong dollar's fixed link to the U.S. dollar. Seeing this, other countries in the region feel that they must protect the competitive position of their economies, which leads to a number of forced, and unforced, devaluations and a renewed flight of capital. From there, we descend into the Asian Crisis, Part Two, a sequel that has many more spectacular special effects and disaster scenes than did Part One.

As one grim side effect, investors in the West's towering stock markets are forced to think again about whether the future is quite so rosy. The result of their reassessment is that the previously benign effect of Asia Part One -- less inflation, low commodity prices, huge capital inflows, a strong U.S. dollar -- turns malign. Investors cannot get out of stocks fast enough and, in the time-honoured way of Great Crashes, panic in one place produces panic everywhere.

What can be said about this "problem?" Not that it is fanciful because, in muted form, it has hurt Wall Street and European bourses and lifted demand for U.S. Treasuries in recent days. All that can be said is that it has not occurred yet.

For Asia to recover from its first crisis, a number of things had to happen. Japan had to successfully stimulate its economy and thereby raise the level of demand for Asian goods and services. The IMF rescue packages in Indonesia, South Korea and Thailand had to be fully complied with and be effective enough to restore confidence, not precipitate fresh political crises and social unrest. And, most important, confidence had to be rebuilt sufficiently quickly so that foreign capital would flow in and local savings would not flow out. Five months after Mexico crashed in late 1994, the stock investor who had stayed put would have been 70 per cent richer; that has not been true anywhere in Asia.

The result is that Asia is following an alternative scenario that puts it on course to go through all the unpleasant steps of deflation and devaluation listed above, but hopefully do it over enough time to avoid disaster.

Japan is on the way to a cheap yen. Its economy is moribund, its central bank is engaged in surreptitiously monetizing commercial debt. China is doing everything to support and subsidize its industrial sector except devalue -- for now. Hong Kong is set to announce gloomy economic figures for the first quarter after already announcing that retail spending went down by a record amount. Meanwhile, total capital flows out of Asia are running at a seemingly unstoppable annual rate of $120-billion (U.S.), twice as fast as in 1997. Nor are they likely to slow down when Japanese long bonds yield 1.4 per cent while U.S. Treasuries stand at 5.8 per cent and Canadian 10-year government bonds at 5.5 per cent.

These trends, and the overall deflationary track that Asia is on, suggest confidence will not come back unless and until currencies fall further. The only saving grace would be if they were to fall gradually, not suddenly.

Gradualism is, to an extent, in the interests of the West. Wall Street took fright when U.S. News and World Report magazine suggested that U.S. Treasury Secretary Robert Rubin was willing to see the Japanese yen go down if that was needed to save Japan's economy, and Mr. Rubin stepped in and denied it. But Washington does not mind a slowly depreciating yen or a stronger U.S. dollar because it is helpful at home. It is a painless way of slowing growth and cooling off a hot U.S. economy, allowing the Federal Reserve Board to hold off on raising rates. In Europe, much of the momentum behind this year's rally in stocks comes from the strength of the U.S. dollar and analysts' projections of what it will do to lift the profits of European multinationals.

So a gentle descent is to be encouraged, while the yen going over a cliff, and dragging China, Hong Kong and the rest with it, is clearly not.

Carry this message into financial markets and, unsurprisingly, it is a one- or two-day wonder. This week Wall Street got alarmed about Asia (and Mr. Rubin's alleged views) on a day when European bourses were in a happy mood, buoyed by news of a $12-billion Dutch-Belgian bank takeover and a record trading day in both Paris and Frankfurt. So Europe took a day to catch up with Wall Street's worries and only did so after Russia's ruble collapsed and Hong Kong's government warned its economy was in bad shape.

Until now, the Asian contagion has been a some-time thing. Yes, Asia suffers. But when Asian deflation comes West, it takes the form of lower prices, higher capital inflows and a strong U.S. dollar, none of them unwelcome. Is this about to change? In the past few days, financial markets have been warning that it is.

------------------------------------------------------------------------