by Javed Zamir (Special Reports, Crescent International Vol. 38, No. 6, Sha'ban, 1430)
Capitalism and capitalists have no religion and no loyalty to anything or anyone except their personal financial interests. Profit margin is what drives them. Workers may not withdraw their labour in certain critical industries — health, food and so on — for fear of being branded as irresponsible but capitalists are free to move their capital wherever and whenever they want to maximize profits. This is what has happened to the US. When wages increased in the US, the corporate elites took their capital to other parts of the world where labour was cheap — Indonesia, Philippines, India, China and Mexico, for instance — to manufacture goods cheaply and sell them at exorbitant prices in the US. Walk into any Walmart store in the US and you will find 90 to 95 percent of goods are manufactured in China, Taiwan, Singapore or even India andBangladesh.
This may be the nirvana of globalization but it also means the US now lives in a virtual economy. Its real economy was shipped abroad when its manufacturing jobs disappeared under the rubric of globalization. The US created a “New Economy”, based on services. This economy was sustained on the life-support system provided by the Federal Reserve Bank — not a real bank but a private institution that has the right to print as many dollars as it wants to keep itself afloat and its shareholders happy. This is precisely what the Fed, as it is called, is doing. It is printing one trillion dollars — yes a trillion dollars with a ‘t’, not underpinned by any real assets. This is the bubble economy that the Wall Street gangsters have created.
Following the attacks of 9/11, as consumer confidence plummeted and deep uncertainty took hold, US President George Bush encouraged Americans to go out and shop. To facilitate this binge, he lowered interest rates so that people could borrow money and those not eligible to buy houses could do so. This led to an artificial boom in the housing market but reality soon caught up and the bubble burst when mortgages came due and people could not afford to renew them. The Americans’ wealth in real estate, pensions, and savings collapsed dramatically while their jobs disappeared.
In September 2008 when the economic downturn finally caught up with them and Wall Street executives could no longer sustain their Ponzi schemes, then Treasury Secretary Henry Paulson and Federal Reserve Bank Chairman Ben Bernanke went to a select group of congressmen telling them if they did not agree to provide an immediate bailout package of $750 billion to failing banks, the economy would collapse. US President George Bush even threatened to declare martial law — think of a third world banana republic — if congress did not approve the money they demanded. Paulson was given vast powers to dispense the money as he deemed fit with few oversights or questions asked. But even the $750 billion was not enough. In fact, American International Group (AIG), the insurance giant that had been caught in the Ponzi schemeby underwriting bad mortgage loans, needed more than what was doled out. The most criminal of these bailouts has been to Goldman Sachs, the investment bank, as Paul Krugman pointed out in his column in the New York Times (July 16). Goldman executives are to get huge bonuses from money doled out by the government; it is American taxpayers’ money who have lost their jobs and life’s savings.
While ordinary Americans cannot finance their homes to prevent foreclosure, Goldman executives are chomping on cigars. Ordinary people neither have equity nor jobs to survive. America’s consumer economy, approximately 70 percent of the Gross Domestic Product (GDP), is dead. Those Americans that still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are now living in tents; others will soon join them. Welcome to the Banana Republic of America!
The problem is not confined to the US or Americans alone. America’s appetite for money is so huge that other countries, mainly China and Japan, have been pumping in hundreds of billions of dollars annually into its economy to keep it afloat. This has now mushroomed to $2 trillion a year. The global financial meltdown, however, means other countries need the money for their own markets and can no longer afford to dole out to the US that in any case has little capacity to repay. Beside, they see the effect of massive printing by the Federal Reserve that will further erode the value of the dollar. This in turn will affect its ability to pay for oil imports and manufactured goods. US domestic prices will shoot up while people’s earnings will decline and their purchasing power will disappear.
Since 1945, the US dollar has been the world reserve currency. As its value depreciates, countries holding huge dollar reserves begin to worry. China in particular has expressed grave concerns since it holds nearly $2 trillion in US currency reserves, mostly in the form of US treasury bonds. According to some reports, it is drawing down its dollar reserves by purchasing gold and stocks of raw materials and energy.
Naturally other countries are not sitting idle in the face of such financial calamity brought by gangster capitalism. Brazil, Russia, India and China have pooled their resources in what is referred to by the acronym, BRIC, to override the financial meltdown. China and Brazil have already agreed to trade in each other’s currency. The BRIC quartet holds about 40 per cent of the world’s hard currency reserves.
Three of the four (China, Brazil and Russia) worry that US inflation might either erode their dollar-denominated investments or interfere with their export businesses. All four want a bigger say in organizations, such as the International Monetary Fund, that direct the world economy. Russia, Brazil and China have also taken symbolic steps to shift $70 billion worth of their reserves from dollars into IMF-issued multi-currency bonds prompting such headlines as ‘Throwing BRIC at the dollar’.
China has taken other step as well. It has moved aggressively to invest in Africa and has made major energy investments in Venezuela, Russia, Sudan, Iran and Iraq. It has also attempted to create new outlets for trade such as with Japan and India.
How the US government has responded to the financial crisis so far? Since the oligarchs that control America are heavily dependent on wars to make profit, they are creating new killing fields globally. The war from Afghanistan has now been extended into Pakistan with the Pakistan army being used against its own people. There is danger that the war in Iraq would be extended to Iran as well as recent threatening postures from US and Israeli officials indicate. Far from winding down the wars in Afghanistan and Iraq that are primarily responsible for creating the current financial turmoil, President Obama wants to launch more wars. He is, after all, a slave of the establishment even if he sleeps in the White House.