By NAT WEINSTEIN
A series of four articles appearing in the Feb. 15 -18 New York Times titled, “Global Contagion: A Narrative,” makes the most convincing case yet to appear in the mass media of the rapidly worsening global economic crisis. This latest and most informative report is based on an extensive array of concrete evidence justifying the authors’ implicit warning that the global economy is rushing headlong towards a cliff, and that no one in charge knows how to stop it!
It’s not the first warning. Federal Reserve chairman Alan Greenspan, on Dec. 5, 1996, indicated the concern of his class that “irrational exuberance” is driving the stock market up into unsustainable heights. But that and the many warnings since have not been heeded.
On the contrary, since Greenspan’s 1996 pronouncement, the U.S. stock market rose 64 percent higher. Thus, despite mounting evidence that economic reality is coming down the tracks like a mile-long, runaway railroad train, all the cautionary appeals have not dampened the speculative mania.
This four-part series of articles in The Times is not likely to have been the result of a whim by a few economic writers; rather it suggests having been initiated by the editors of the New York daily. It appears to be a major effort to “talk down” stock prices before it’s too late.
But such a candid picture of the depths reached by the world crisis as is portrayed in The Times’s “Narrative,” whether intentional or not, points knowledgeable readers to the conclusion that it may already be too late.
It appears that the editors of this newspaper voice of American big business assigned the authors of this series to deliver something of a shock to the mass of investors who are heading lemming-like toward an economic cliff. Their intent can be likened to the old saying about whacking a “stubborn mule” with a two-by-four just to get its attention.
It’s likely, however, that their shocking tale of failed measures to prevent the spread of the contagion that began in Thailand in July 1997 will not have the desired effect. In which case, they will come down a little harder with their cautionary message next time.
But just in the way of an introduction: The day before this series began to be run in The Times, a column by Louis Uchitelle titled, “Sky-High Stocks Breed Debt, Sowing the Seeds of a Slump” appeared in the financial pages of the paper’s Feb. 14 edition. It also seems to have been designed by its editors to gain the attention of the stampeding herd intent on bidding stocks up without regard to the tiny dividends paid out.
Clearly, speculation is rampant because investors are convinced that there always will be someone who will pay a higher price and thus provide a healthy profit when the stock is sold. But Uchitelle also stresses that the market can reverse course with heart-stopping suddenness:
More than 24 percent of the nation’s household wealth is now invested in stocks, up from 10 percent at the time of the 1987 crash. Rarely if ever has the Federal Reserve recorded a higher percentage. And many Americans believe that the economy must weaken for standard reasons-rising unemployment, less consumption, a spike in oil prices-before the market will react and fall. They do not see that the causal chain can run in reverse: A scare or panic collapses stock prices, and then the crash shrinks the economy. [Emphasis added]
The ‘Narrative’ authors make their case
The following quotation from the third installment in The Times series exemplifies the thrust of the articles. The authors begin by posing the “$64 Question” roiling the capitalist world:
Why did the crisis ripple from country to country and end up leaving Russia facing hunger and economic chaos, with 30 per cent of Russians living below the poverty line, up from 18 percent at the end of 1996?
And why has it now hit Brazil and shaken financial markets in Argentina, Colombia and Mexico?…
Nobody else was initially very worried that Thailand’s problems would radiate around the world. While some of Thailand’s underlying problems were well known, on the day of the devaluation [of its currency] the Thai stock market rose 7.9 percent, its biggest gain in more than five years.
In hindsight, absolutely everyone seems to have made a catastrophic misdiagnosis of the problem, one that resulted in Thailand’s getting insufficient treatment and in exposing other countries to the contagion.
The misdiagnosis was twofold: first, that Thailand probably faced a typical temporary downturn, rather than a staggering depression that would last for years; second, that the problem was largely confined to Thailand rather than the beginnings of a serious global crisis. [Emphasis added]
The authors document what they claim is now generally recognized by all concerned to be mistake after mistake by those in charge and by their critics as well. They show how such a misdiagnosis as is mentioned above was repeated over and over again.
They don’t point to a single expert with a hand in determining policy, from the beginning of the crisis to the present, who had been consistently right. Neither can they cite any other of capitalism’s recognized experts as having had a clue to a solution when Thailand first hit the skids, or earlier, when Japan’s phenomenal boom petered out at the end of the 1980s and the world’s second largest economy began its long descent into a major and seemingly endless depression.
The authors of this graphic description of global capitalism rapidly spinning out of control point to repeated zig-zagging from one failed solution to another with only the most arrogant (Clinton administration officials in charge are among those cited) claiming that though their medicine didn’t work, it was still the best that could be administered at the time.
For instance, they cite how President Clinton’s administration first reacted to the collapse of Southeast Asia. The authors report that he and his cabinet initially saw the crisis in Thailand as just “a replay of what happened in Mexico in 1995, and prescribed the same [medicine], a mix of austerity and aid.” But the Japanese had a different idea of how to stabilize the entire region. The authors describe what happened:
Thailand appealed to Japan for financial help that summer of 1997, and officials in Tokyo say they thought seriously about arranging a big package of loans. But in the end they did not, partly because Washington insisted that a rescue be made only through the fund [the International Monetary Fund (IMF)] and only after imposing tough conditions on Thailand.
The authors subsequently describe what amounts to U.S. capitalism’s self-serving motive for favoring the IMF-style austerity solution in their account of the Clinton administration’s “rescue” of South Korea:
President Clinton telephoned President Kim Young Sam of South Korea [on Thanksgiving day, 1997] and told him he had no choice but to accept an international bailout. Mr. Kim bowed to the inevitable and accepted a bailout that swelled to $57 billion, the biggest ever. But with that money now flowing into South Korea, Western banks saw a chance to take it and run. The banks called in their loans, hoping to flee while they could….
South Koreans lost their businesses and in some cases were even driven to suicide. But foreign banks-among them Citibank, J.P. Morgan, Chase Manhattan, BankAmerica, and Bankers Trust-were rewarded with sharply higher interest rates … and a government guarantee that passed the risk of default from their shareholders to Korean taxpayers. [Emphasis added]
Impact on ordinary people
The authors skillfully work into their story the terrible consequences of the developing crisis on the great majority of those who gained nothing while the getting was good but are now left holding the bag as the system unravels and their lives ruined. The authors interweave their narrative of capitalist crisis with the stories of two ordinary people, half a world apart, now caught up in a world they never made.
The first mentioned is Mary Jo Paoni, a 59-year-old secretary, who lives with her husband, a retired meat cutter, in Cantrall, Ill., a farm town about 130 miles southwest of Chicago. She is described as having “in fact invested in Asia and all over the world, although she does not know it.”
When she retires early this year her income, the authors say, will derive from a pension fund that has large investments abroad, giving her indirect ownership of stocks in Indonesia, Russia, and Brazil.
Neither does she know that she is also linked in another way to the fate of the global economy because her savings are deposited in a money market account, which, the article notes, “helped build elegant hotels and office towers from Argentina to Vietnam.”
On the other side of the planet, is Mr. Salamet, an Indonesian rickshaw driver in a town east of Jakarta, who is already suffering from the effects of the global crisis.
One of the reporters describes how she witnessed Salamet’s mother writhing in pain on the bare floor of her family’s small house. Salamet’s mother was dying a painful death from terminal breast cancer. But the painkillers she needed cost Salamet two days pay per month.
He was faced with the awful choice of either continuing to spend the two dollars he earned for two days work out of each month on painkillers for his mother, or have his rickshaw, his only means of making a living, seized for lack of payments.
And then, unable to pay school fees, his son would be dropped after just two years in the primary school he attended and thus be denied a basic education. (Salamet, quite typically in Indonesia, cannot read or write.)
The reporter tells how Salamet’s mother-in-law has been pawning her sarongs to buy food for her two hungry grandchildren, and is starving herself because, as she says, “I can put up with it if I don’t eat, but the children aren’t used to it. They cry and cry.”
While the authors of this series show their concern for the tragic consequences of the crisis on ordinary people, their main objective, of course, is to portray the enormity of the degenerating world economic order. They describe the fantastically interlinked world system that affects every single inhabitant of the planet.
In the end, whether they intend to or not, what comes through is a preview of the apocalyptic future that faces the entire human race.
Build it and they will come?
For instance, the authors give one of the most graphic examples imaginable of a classic capitalist crisis of overproduction, such as is at the heart of the currently unfolding global crisis. Under the heading of “High Rise Ghost Town,” the authors describe how an entire city was planned and built to house a population of 700,000, bigger than Boston’s. But far too few buyers came.
The ghost city is called Muang Thong Thani and was built on barren fields on the edge of Bangkok, Thailand. The owners of the land, the project’s promoters, the banks that financed it and the stockholders, expected to attract more than enough buyers from land-short, crowded Bangkok. The authors give a vivid description of the city-sized failed enterprise:
It is a dazzling complex of two dozen huge gray-white buildings soaring nearly 30 stories high, and surrounded by streets lined with shops, town houses, and detached homes. Walk closer and it feels eerie, for it is a ghost city. Along one street of 100 houses the windows are mere holes in the walls and yards have weeds that grow as high as a person. Muong Thong Thani was built during Thailand’s boom as a product of free capital flows and financial liberalization….
The project was greeted enthusiastically as all proposals were in the early 1990s, and [its promoters and backers] issued shares on the Thai stock exchange in 1992 to raise money. Its shares were hot, picked up by J. Mark Mobius, the emerging-markets guru and by funds like the Thai International Fund and the Thai Euro Fund….
In Illinois, the state pension fund bought shares … and that made Mary Jo Paoni, a secretary in Cantrall, Ill., a roundabout owner of a tiny part of Bangok Land and Muang Tong Thani….
How does such a thing happen? The New York Times, along with the rest of the mass news media, had earlier told us it was due to the irresponsible Asian variety of “crony capitalism.” It suited their purposes then, since the culpability of imperialist bankers was kept out of the news.
But The Times, now having other fish to fry, comes a little closer to the truth. After all, such facts cannot be kept secret for long. It has now become widely known that much if not most of the capital that went into Thailand’s ghost city and many other speculative projects in Asia, Russia and Brazil came from Mrs. Paoni’s pension fund and other American banking and financial institutions.
Let’s take a closer look at how the profit system works and how crises of overproduction are built into the system of organized anarchy-otherwise known as capitalism:
In periods of rapid capitalist expansion such as led to the construction of a ghost city in Thailand, capitalists everywhere are in intense competition to grab as much a share of the profits to be made as they can. Commodities, whether office towers or automobiles, must be produced and carried to where the buyers are waiting with cash in hand while the market is hot. If your competitors, and there are always competitors, get there with the goods ahead of you, you miss out.
Large scale housing or commercial construction requires years of preparation before their product is ready for purchase: locating and buying the land, arranging financing and beginning actual construction. Thus all capitalists must make an educated guess as to whether or not the market will absorb the goods they intend to produce. But in boom periods, when demand is high and capitalists seem to be selling anything and everything they can produce and lucrative profits are there for the taking, under such conditions the production of more than the market can possibly absorb is inevitable.
The builders of Muang Thong Thani, along with their bankers and stockholders, guessed wrong as capitalists throughout the history of capitalism have done and will continue to do.
The U.S. economy is no exception
What about the arguments we hear in the same newspapers, often on the same day, from the perennial optimists who believe that the American economy, the world’s largest and most powerful, is strong enough to resist the spreading global infection. Some maintain, moreover, that the United States is capable of staying afloat and may even be powerful enough to help keep much of the world economy from sinking.
In fact, it seems to be a case of a split capitalist psyche since most economists speak out of both sides of their mouths. For instance, Federal Reserve chairman Greenspan alternates between carefully-worded pronouncements designed to maintain confidence in the health of the economy and at other times issues just as carefully-worded statements pointing in the opposite direction.
It’s not a case of a split personality, of course. The simple explanation for this dualism is at least in part motivated by their perceived need to keep confidence in the economy just right, neither too optimistic nor too pessimistic-like Goldilocks and the three bears, neither too hot nor too cold, but just right.
Just the next day, to illustrate the seriousness with which world capitalism is treating the state of the global economy, an article in the Feb. 19 London-based daily, the Financial Times, appeared titled, “The U.S. economy: An impossible balancing act.”
The piece briefly but convincingly also warns of the ominous trend of events, in this case the U.S. economy itself. The article focuses in on the fact that personal savings in this country are “declining unsustainably.” It notes too that this means that there is now a “financial imbalance at the heart of the U.S. economy … [which] is a highly unusual situation, and one fraught with danger.”
The author of this short piece goes on to point out that the unusually prolonged growth of the U.S. economy has depended for an unclearly defined period of time (at least since the early 1990s) on a steady rise in private debt and the acceleration of the money supply-a sophisticated way to put money in circulation that’s not there.
In a word, it amounts to a devaluation of every dollar in circulation; that is, it will accelerate the rate of inflation. And only so long as there is no run on the U.S. Treasury, will the devaluation of the currency fail to result in rising prices. (Of course, the rapidly falling price of basic commodities helps hide the devaluation of the dollar.)
Add to this the accelerating balance of payments deficit and the mythological federal “budget surplus” Clinton bragged about, which even if true will disappear the moment the economy goes into decline, as it must.
The Financial Times article sums it up this way: “Neither the growth in net lending nor the acceleration in the money supply can continue for ever … this can happen only for as long as debt continues to mount exponentially.”
Of course, as one “highly respected” capitalist expert once said (with deadpan sarcasm), “If something cannot go on forever, it will stop.” And in that case, long before U.S. debt reaches impossible heights, those in the business of buying and selling currencies for a profit will sense the weakness of the dollar.
In that case, the U.S. Treasury will come under attack by an army of speculators armed with huge amounts of leveraged capital in the form of derivatives and hedge funds. Even the most powerful nation on earth cannot resist such an attack.
If this happens, it would be much more significant than a run on the dollar; the equilibrium of the entire global monetary system would be shaken down to its foundations.
In any event, the seeming omnipotence and permanence of the world capitalist order is showing all the signs that the economic infrastructure upon which it stands is in a state of accelerating decay. The beginning of its decomposition and its collapse cannot be far down the road.
And with that the objective prerequisites for world socialist revolution will once again become dominant and the march toward the construction of a mass revolutionary workers’ leadership will then proceed apace.