8 October 1998 Edition
Workers in struggle: Time to unplug the markets
Greenspan, Clinton, Wolfensohn, Camdessus, Tietmeyer, Brown and Blair - these are the names of just some of the economic decision makers that are this week being forced to wrestle with some simple truths. The first simple truth that they have been forced to acknowledge is that they are unable to stop the Asian Flu financial markets crisis hitting North America and Europe.
Last week stock and currency markets in these regions went into crisis as panic selling forced share prices to their lowest level in almost a year. The Japanese stock market hit a twelve year low.
The second truth is that Clinton and comrades are facing up to the fact that they do not understand how the global economy works.
Last weekend the finance ministers of the G7, the seven largest industrial nations, the International Monetary Fund and the World Bank all met In Washington for six hours. They were discussing the ongoing series of crises on foreign exchange markets. The meeting ended with no new initiatives, only a statement of the obvious. They could only agree that the global economy was set for recession and that ``financial market conditions have deteriorated in many parts of the world''.
WHY?
So why did the stock markets crash again last week and why is it seemingly so difficult to resolve this crisis? Why does the economic crisis in Asia have such ramifications for Europe and America?
The first component of the Asian Flu crisis is to do with the very nature of global capitalism. In the years since World War Two more and more economies around the world have become industrialised states operating on a simple principle that as long as your economy is growing and exporting more than it imports all will be well. In South East Asia this economic model was aided by the fact that workers' wages were significantly lower than in Europe or America.
These economies would pump out the cheap exports that we would buy. The only problem was that there was an expectation they would keep growing at the same rate. The companies in these economies found that banks from Europe and North America were falling over themselves to give loans. The normal lending critieria was forgotten in the rush for a quick payout.
This time last year it became clear that the Asian economies were beginning to slow down and that global demand for their output, while not falling, was peaking. It was this that started the Asian Flu as banks who had lent and invested billions of punts on the promise of substantial returns now found that this was not to be. Not only were they facing reduced profits but many have to deal with the fact that the loans they gave will never be repaid.
Oil Price Slump
The slump in Asia meant that oil prices fell. This is the genesis of the Asian crisis spreading to Russia. Much of the Russian Government's loans from private banks as well as the IMF were to be paid with revenue from oil sales.
The former state socialist economy was already having huge difficulties dealing with the exploits of the free market carpetbaggers who are carving up the former Soviet Union. The slump in oil prices broke the back of the struggling economy. In Europe and North America more banks had to deal with the fact that money they lent was not going to be repaid and they would have to report losses in their annual accounts.
Many of these banks lent money on the basis that currency exchange rates would be relatively stable. The devaluation of currencies in Asia, Russia and now South America has meant that international banks who thought they would profit by billions from their ill judged loans now find many of them almost worthless.
Speculators
On the world's stock and currency markets this information has been digested by the thousands of speculators who also have funds invested in these fragile economies. The advent of electronic trading for currencies has meant that billions of punts of speculators' funds can be moved from currency to currency, from share to share.
These speculative capitalists have no long term commitment to the economies they are investing in. All it takes is a sniff of a crisis and their funds have moved on. They have made the crisis in Asia worse because they moved funds out of economies' financial markets at the very time they needed stability.
Last week's share collapse was another instalment in this ongoing crisis. Now the global economy is teetering on a crisis with tens of millions of people facing unemployment.
Simple Solution
There is a simple solution that the IMF and others could implement. They need to unplug the world's financial markets and stop electronic trading. This would slow down the markets and stop panic selling from crashing financial markets.
The next step is to reintroduce currency controls and only allow currency exchanges that are based on legitimate export and import contracts.
In the long term they need to question the basic building blocks they believe the global economy is built on. It is nonsense to believe that global markets can grow endlessly. A brief study of economic industry shows this is clearly not the case. The endless search for cheap short-term profits is detrimental to the global economy. Profits cannot and do not increase infinitely.
Next, the leaders of the world economy have to face up to the fact that the free market has been shown to have failed miserably. It is only serving the vested interests of dubious bankers and industrialists.
Finally Clinton and comrades need to do some reading. A bit of Connolly, Marx, Chomsky et al would be a start. If it comes to a need for tuition Neil Forde is more than willing to give a beginner's class.
Last week stock and currency markets in these regions went into crisis as panic selling forced share prices to their lowest level in almost a year. The Japanese stock market hit a twelve year low.
The second truth is that Clinton and comrades are facing up to the fact that they do not understand how the global economy works.
Last weekend the finance ministers of the G7, the seven largest industrial nations, the International Monetary Fund and the World Bank all met In Washington for six hours. They were discussing the ongoing series of crises on foreign exchange markets. The meeting ended with no new initiatives, only a statement of the obvious. They could only agree that the global economy was set for recession and that ``financial market conditions have deteriorated in many parts of the world''.
WHY?
So why did the stock markets crash again last week and why is it seemingly so difficult to resolve this crisis? Why does the economic crisis in Asia have such ramifications for Europe and America?
The first component of the Asian Flu crisis is to do with the very nature of global capitalism. In the years since World War Two more and more economies around the world have become industrialised states operating on a simple principle that as long as your economy is growing and exporting more than it imports all will be well. In South East Asia this economic model was aided by the fact that workers' wages were significantly lower than in Europe or America.
These economies would pump out the cheap exports that we would buy. The only problem was that there was an expectation they would keep growing at the same rate. The companies in these economies found that banks from Europe and North America were falling over themselves to give loans. The normal lending critieria was forgotten in the rush for a quick payout.
This time last year it became clear that the Asian economies were beginning to slow down and that global demand for their output, while not falling, was peaking. It was this that started the Asian Flu as banks who had lent and invested billions of punts on the promise of substantial returns now found that this was not to be. Not only were they facing reduced profits but many have to deal with the fact that the loans they gave will never be repaid.
Oil Price Slump
The slump in Asia meant that oil prices fell. This is the genesis of the Asian crisis spreading to Russia. Much of the Russian Government's loans from private banks as well as the IMF were to be paid with revenue from oil sales.
The former state socialist economy was already having huge difficulties dealing with the exploits of the free market carpetbaggers who are carving up the former Soviet Union. The slump in oil prices broke the back of the struggling economy. In Europe and North America more banks had to deal with the fact that money they lent was not going to be repaid and they would have to report losses in their annual accounts.
Many of these banks lent money on the basis that currency exchange rates would be relatively stable. The devaluation of currencies in Asia, Russia and now South America has meant that international banks who thought they would profit by billions from their ill judged loans now find many of them almost worthless.
Speculators
On the world's stock and currency markets this information has been digested by the thousands of speculators who also have funds invested in these fragile economies. The advent of electronic trading for currencies has meant that billions of punts of speculators' funds can be moved from currency to currency, from share to share.
These speculative capitalists have no long term commitment to the economies they are investing in. All it takes is a sniff of a crisis and their funds have moved on. They have made the crisis in Asia worse because they moved funds out of economies' financial markets at the very time they needed stability.
Last week's share collapse was another instalment in this ongoing crisis. Now the global economy is teetering on a crisis with tens of millions of people facing unemployment.
Simple Solution
There is a simple solution that the IMF and others could implement. They need to unplug the world's financial markets and stop electronic trading. This would slow down the markets and stop panic selling from crashing financial markets.
The next step is to reintroduce currency controls and only allow currency exchanges that are based on legitimate export and import contracts.
In the long term they need to question the basic building blocks they believe the global economy is built on. It is nonsense to believe that global markets can grow endlessly. A brief study of economic industry shows this is clearly not the case. The endless search for cheap short-term profits is detrimental to the global economy. Profits cannot and do not increase infinitely.
Next, the leaders of the world economy have to face up to the fact that the free market has been shown to have failed miserably. It is only serving the vested interests of dubious bankers and industrialists.
Finally Clinton and comrades need to do some reading. A bit of Connolly, Marx, Chomsky et al would be a start. If it comes to a need for tuition Neil Forde is more than willing to give a beginner's class.