"One Hell of a Job," Brownie

By Stormy

The old world order is not just slipping away; it is running out the door. Or, to change the metaphor, the structures of the old order are falling so fast that is difficult to keep track of the debris on the streets.

While the CEO of Lehmann Brothers, that “gorilla of greed,” Dick Fuld, has a small point when he says that the crisis is not just a crisis of Wall Street, he certainly has been part of the capitalistic gang that has driven the U.S. over the cliff, dragging many other countries with it.

Yes, the fashioners of globalization have done a hell of a job, Brownie. The rich got really rich, but they simply could not keep the party going indefinitely, these great scions of capitalism. Today’s offerings that spell out parts of the crises are from here and India. Both are worth reading in their entirety.

M R Venkatesh spells out how China could wreck the U.S. economy, as if it needed more help, simply by selling some of their U.S. dollar denominated holdings.

the recent bailout package being approved in the US Congress needs to be viewed in the context of the spurt in the accumulation of forex reserves of China by about $500 billion in the last six months to about $2 trillion in aggregate.

Why is China engaged in this exercise? What could be its implications on the on going global financial crisis? Could China trip the bailout package announced by the US last week? Crucially what are the implications for the existing global order?

What is intriguing in the Chinese forex reserve build-up is that both trade surplus and foreign direct investment account only for a part of this gargantuan pile.

Be nice to China.

William M Tab in The Monthly Review sees Four Crises of the Contemporary World Capitalist System:

the financial crisis, the loss of relative power by the United States, the rise of other centers of accumulation, and resource depletion and ecological crisis.

The Washington Consensus has been discredited, and although the damage it causes continues, it has not achieved Washington’s goals. There has been a uniting of much of the world into a coalition of the unwilling. If serious left-wing governments took power in many countries of the South, there could be dramatic reconstruction of the global political economy.

During the Bush presidency, the United States lost one in five manufacturing jobs and that too is part of financialization and globalization. Wages have been pushed down, pension benefits curtailed, health care burdens shifted onto workers and their families, employees made to work part-time or fired and hired back as “temporary” workers, and so on—all in order to meet profit targets and to finance the huge debts companies are burdened with as a result of widespread borrowing to finance takeovers. More people are working part-time or as temporary workers and are pessimistic about the prospects of their children. They see their government captured by the corporations and the wealthy.

We are now witnessing the loss of what Charles DeGaulle once called the “exorbitant privilege” of the United States, derived from its role as issuer of the international currency. George Soros, speaking to the World Economic Forum in January of 2008, suggested, “It’s basically the end of a sixty-year period of continuing credit expansion based on the dollar as the reserve currency.”11 The advantage the United States has enjoyed by being able to borrow in its own currency has been undercut by abuse, outsized current account deficits, and the buildup of dollars in foreign hands. This has progressed to the point where the money creation and lower U.S. interest rates implemented by the Federal Reserve to stave off financial collapse have driven down the currency’s value and encouraged further flight from the dollar.

There is one other piece I thought I might include, but it does require extensive comment: The Financial Development Report (January 2008) from the World Economic Forum. Suffice it to say that its conclusions were:

On the basis of this holistic view, this year the United States scores top honors in the rankings closely followed by the United Kingdom.The collective strength of financial intermediaries and markets in these countries, spanning banks, investment banks, insurance companies, equity markets, and bond markets is unparalleled.

The circle has been squared at last. I do understand that placing just its conclusions before you is a bit unfair, but I am feeling particularly nasty today. Parts of the report are truly superb; others are just latrine filler.