[Marxism] Why is world economy more dollar-centered despite hugetrade, govt deficits (and euro)
marvgandall at videotron.ca
Sun Dec 3 08:56:11 MST 2006
Robert Montgomery wrote:
> Back a ways, economist Henry H.K. Liu wrote re this:
>>>...There was no productivity boom in the US in the last two decades
> of the 20th century; there was an import boom. What's more, this boom
> was driven not by the spectacular growth of the American economy; it
> was driven by debt borrowed from the low-wage countries producing this
> wealth. Or, to put it a tad less technically, the economic boom that
> made possible the current US political hegemony was fueled by payments
> of tribute from vassal states kept perpetually at the level of
> subsistence poverty by their own addiction to exports. Call it the New
> Rome theory of US economic performance.
> True, exports can be beneficial to an economy if they enable that
> economy to import needed goods and services in return. Under
> mercantilism and a gold standard, for example, an economy that
> incurred recurring trade surpluses was essentially accumulating gold
> which could reliably be used for paying for imports in the future.
> In the current international trade system, however, trade surpluses
> accumulate dollars, a fiat currency of uncertain value in the future.
> Furthermore, these dollar-denominated trade surpluses cannot be
> converted into the exporter's own currency because they are needed to
> ward off speculative attacks on the exporter's currency in global
> financial markets.
> Aside from distorting domestic policy, the export sector of the
> Chinese economy has been exerting disproportionate influence on
> Chinese foreign policy for more than a decade. China has been making
> political concessions on all fronts to the US for fear of losing the
> US market from whence it earns most of its foreign reserves, which it
> is compelled to invest in US government debt. This is ironic because
> according to trade theory, a perpetual trade surplus accompanied with
> a perpetual capital account deficit is not in the economic interest of
> the exporting nation. China is not unique in this dilemma. Most of the
> world's export economies face similar problems. This is the economic
> basis of US unilateralism in foreign affairs.
> When Chinese exporters invest China's current account surplus in
> dollar financial assets, the Chinese economy will see no benefit from
> exports as more goods leave China than come in to offset the trade
> imbalance. True wealth is given away by Chinese exporters for paper,
> at least until a future trade deficit allows China to import an
> equivalent amount of goods in the future. But China cannot afford a
> balanced trade, let alone a trade deficit, because trade surpluses are
> necessary to keep the export sector growing and for maintaining the
> long-term value of its currency in relation to the dollar. The bulk of
> China's trade surpluses, then, must be invested in US securities. This
> is the economic reality of US-China trade.
> The gap between the perceived value of the accumulated fiat currency
> (US) of the importing economy (US) and the value of that currency when
> dollar-denonimated investments are finally cashed in at market price
> represents the ultimate difference in the quantity of goods and
> services eventually received between the trading economies. Since the
> drivers of trade imbalances are overvalued currencies of the importer
> or undervalued currencies of exporters, obviously the one-sided trade
> can only end when the exporter has wasted away all its expandable
> wealth, or the importer has run deficits to levels that exceed the
> willingness of the exporter to accept more of the importer's debt.
> Interest rate policies of central banks are usually the culprit in
> this matter as they drive investment flows in the direction of a high
> interest economy, making necessary the perpetual trade imbalance.
> Other forms of waste of wealth, such as pollution, low wages and
> worker benefits, neglect of domestic development and rising poverty in
> both export and non-export sectors, are penalties assumed by the
Sure. There is no contradiction in saying that Chinese USD purchases are
facilitating Chinese exports - actually, in most cases those of
mutinationals operating out of China - and that this arrangement at the same
time represents a huge transfer of wealth which could otherwise be spent
further developing the domestic economy and raising living standards.
The relationship has a parallel distorting effect on the US economy, as
mainstream economists have noted, in that it has artificially kept interest
rates low and the dollar high, spurring a debt-financed import boom and
current account deficit which now threatens both the solvency of US
consumers and international confidence in the dollar.
Which is why the central banks hope a gradual shift in the yuan/dollar
exchange rate will result in a) fewer imports into the US and more saving
(and financing of the US fiscal deficit) by American consumers, and a
reduction in the trade deficit and b) more spending on imports by Chinese
consumers - boosted by both by credit supplied by Chinese banks (massively
recapitalized by the government and Western shareholders) and Keynesian
measures to boost purchasing power - and less dependence on export-led
They hope this happens before either economy crashes because of the
contradictions produced by the relationship to which Henry Liu refers. His
comment about China's foreign policy being affected by its dependence on the
large US market is also true - as it is of all exporters generally - but it
should be noted also that the US's dependence on Chinese capital places
reciprocal constraints on its foreign policy towards the PRC. Unless I
misunderstand what he is getting at, Liu's other comment that paper money is
unreliable is not especially controversial.
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