Saturday, May 31, 2003

Although I praised John Bellamy Foster today for his recent commentary on informal imperialism, the biggest problem with The Monthly Review crowd has always been its nearly mindless equation of the US state with US capital. Thus Foster says this month that
"There is every reason to believe that the 'Imperial America' argument espoused by Haass represents in broad outline the now dominant view of the U.S. ruling class, together with the U.S. state that primarily serves that class. After many years of denying the existence of U.S. empire, received opinion in the United States has now adopted a position that glories in the 'American imperium,' with its 'imperial military,' and 'imperial protectorates.'"
Bollocks. The MR crowd too often has its nose so buried in The Weekly Standard that they actually believe Bill Kristol is the voice of capital.

Immanuel Wallerstein sets us straight.
"No doubt, George W. Bush thinks he is in the forefront of those sustaining the world capitalist system. No doubt, a large part of the world left thinks that too. But do the great capitalists think so? That is far less clear."
In fact, the General thinks there is very little evidence to suggest that American capital is on board the Neoconservative Express. After all, what does Wall Street care about more -- Iraq or the EU? Condi Rice and the rest of Bush's cabal can say "punish France, isolate Germany, forgive Russia" all they want, but US bread isn't buttered in Moscow as much as it is in "old Europe".

More Wallerstein:
"Hegemony is not about macho militarism. Hegemony is about economic efficiency, making possible the creation of a world order on terms that will guarantee a smoothly-running world-system in which the hegemonic power becomes the locus of a disproportionate share of capital accumulation. . . . a collapsed dollar is far more significant than an Al-Qaeda attack on the Twin Towers. The U.S. has clearly survived the latter. But it will be a vastly different U.S. once the dollar collapses. The U.S. will no longer be able to live far beyond its means, to consume at the rest of the world's expense. Americans may begin to feel what countries in the Third World feel when faced by IMF-imposed structural readjustment - a sharp downward thrust of their standard of living. "
Enough parading about over Iraq and the "mission accomplished". Bush has proven he can invade alone any country he wants. Can he now shed his unilateral skin and cooperate in Evian? I'm not holding my breath.

John Bellamy Foster turns in a nice overview of "Imperial America and War" in the latest Monthly Review. The best part of this piece is Foster drawing our attention away from a strictly military-political interpretation of imperialism and toward its true essence, namely economic control. Foster cites not only Marxists but many non-Marxists (Hobson, Gallagher and Robinson, Mommsen) to demonstrate the importance of "informal" empire as opposed to the "formal" kind, the latter being of course the only kind that current mainstream commentary can wrap its brain around. The informal imperialism of free trade gives rise to the formal imperialism of the late 19th and early 20th centuries due to inter-imperialist competition. When Britain can't keep Africa and South Asia under its thumb through informal means any longer, it turns to formal colonies. Rivalry with France, the Netherlands, and even Germany forces that odd form of empire which is far more the exception than the norm throughout history.

Surely in a situation of US hegemony almost wholly uncontested, there will be no formal US colonies in the Middle East. No need! All can be achieved (for now) informally. Watch the Paris-Berlin-Moscow axis, however. The hyperpower won't rule alone forever.

Bob Geldof gets the famine-coffee connection in Ethiopia, too: "There's always been drought in the south but it didn't mean famine because people there were rich enough to buy food because of the coffee crop. But because their income has dropped so much they are now in near-starvation."

As Paul Vallely summarizes, "There is a solution. Rich nations place import tariffs on coffee. These increase with every stage of coffee processing, to discourage Africans from doing anything except export the raw beans. France has proposed a cut in the tariffs but America is refusing to have any high-level meetings to discuss it."

Will the world buy fair trade coffee, or choose a band-aid approach instead, only to revisit this issue in another 10-20 years??

Now George W. is pushing genetically modified crops as a solution to the problems of world hunger. How noble! How sublime! How bold! Never mind that US policy since at least the Nixon Administration has been to create food dependency in the Global South on the US, by dumping excess production when it can and destroying small farmers in the South, which contributes to starvation in the first place.

The red herring of southern Africa and GMO grain will surely be trotted out again soon. Let's set the record straight. Most countries accepted GM corn from the US when faced with starvation, but they required is to arrive in milled form so as to prevent genetic contamination of their own stocks. The one country to refuse US beneficence was Zimbabwe, and Mugabe did so for internal political reasons, not because of European 'pressure' or Luddite 'fears' of GMOs.

Funny how with this administration, every problem has the very same solution: more free trade. One might be tempted to think it's ideology rather than economics which drives these folks.

Proof that from the sublime to the ridiculous is but a step, McDonald's in Italy has sued food critic Edoardo Raspelli, big wig in the Slow Food movement, for statements -- and this is a quote -- "clearly defamatory and offensive to McDonald's and to the more than 600,000 Italians who each day freely choose to eat in a McDonald's restaurant." The megachain which has fallen on hard times is reportedly seeking 21 million euros ($24.86 million) in damages, the equivalent of what it spent on advertising in Italy in 2002.

What vile bile has this crank from "old Europe" spewed forth to earn the righteous ire of this symbol of Americana? Raspelli apparently claimed that McDonald's food is "repellent," the french fries taste like "cardboard", the bread is poor, and the chain itself is a "symbol of oppression of the culture of the palate" whose only benefit is "to feed quickly at a low cost". This sounds more like truth in advertising than libel.

Now apparently transnational corporations claim not only the right to advertise as widely and as misleadingly as humanly possible, but even the right to have their advertising be believed! And it seems it is also now illegal to insult people such as the "600,000 Italians" who eat this slop. Talk about liberal multicultural sensibilities run amok! The ether is alive with hubris these days.

The General had computer problems on Friday, so that means a bit of a backlog for today's blogging.

It appears Peru has clearly entered step three-and-a-half of their IMF/World Bank structural adjustment plan. Remember Joe Stiglitz's cheeky depiction of the four-step process the Fund and Bank together use to nurse their patients back to health. Step one is privatization; step two is capital market liberalisation; step three is market-based pricing; and then comes Stiglitz's step 3.5 -- the IMF riot. As the BBC reports,
At least 95 people have been arrested since the state of emergency was imposed on Tuesday night to contain strikes by teachers, farmers and health workers. The protesters have been pressing for pay increases, which the government says it cannot afford while implementing austerity policies agreed with the International Monetary Fund.
Let's not get lost among trees of HIPC debt initiatives and Millennium Challenge Grants forgetting to see the same old forest.

Thursday, May 29, 2003

Sure, US GDP went up 1.9% in 2003:I, but it looks like the yo-yo swings which provided at least some growth in 2002 are now over. Come, gentle reader, and step back in time with me to the recession of 2001, in which GDP fell three consecutive quarters (2001:I to 2001:III). Since then, GDP growth has zigged into significantly positive territory (e.g. 2002:I, 2002:III) and zagged into sluggish growth (e.g. 2002:II, 2002:IV). Now the US economy is coming off a significant zag (2002:IV) during which GDP grew just 1.37% annualized, but got no zig the following quarter as it had throughout 2002. And 1.88% is good news?

I missed it the first time around, but Larry Elliott of The Guardian had a nice little piece on Iraq and globalization last Wednesday. The first half is rather uninteresting, but the second half is devoted to explicating the radical strategic shift from Clinton to Bush in pursuit of the very same goals. Thus the Clinton people, devotees of multilateralism to then end, were constanting arm-twisting the IMF and World Bank to tow the US line or else. The Bush people, unilateralist fanactics that they are who nevertheless somehow got both Bulgaria and the Marshall Islands (yes, all of them!) into the "coalition of the willing", figures the Bretton Woods institutions can go screw themselves and likes Millennium Challenge Grants, Article 99 opt-outs from the jurisdiction of the International Criminal Court and bilateral trade deals best. The ends, of course, are the same: press the interests of American capital worldwide.

Kevin Watkins of Oxfam states at the end that "Iraq is accelerating the demise of multilateralism." Probably true, but this harms whom the most? The knee-jerk reaction is that this is bad for weaker powers and good for the US, but we all know The General is quite skeptical of the dictatorial power of the United States, at least in the medium-term. Rules are most important for weaker states under conditions of hegemony -- rules are not so necessary in a multipolar system where suitors may be played off one another. Moreover, with the impasse of globalization at hand, the US needs multilateralism as much as anybody, especially the Bushies who know that Americans value cheap stuff more than anything else and need cooperation at the global scale to get it.

Before we all jump up with Bob Geldof to praise the Bushies for their concern over the plight of Ethiopia, take a long look at Mark Tran's piece in today's Guardian. While Geldof is certainly right to pillory the EU for not sending more band-aids to Ethiopia, the man who penned "Another Piece of Red" (one of my favorite Boomtown Rats songs) shouldn't get too proud of the UK and US in this sordid story. The US may be doing a better job of responding to immediate needs, but the US is also primarily responsible for the collapse of the International Coffee Agreement in 1989 which sent producer prices in coffee spiralling downward. Ethiopia earns over half of its export revenues from coffee, and that's at a 100-year low price.

The US is more than happy to unload its excess GMO grain on countries in need, but not so keen on food sovereignty or fair trade. Bush can respond to a disaster, but can he contribute to preventing the disasters from happening in the first place??

The radical unsustainability of the US economy was demonstrated yet again by the British press (why does the "liberal media" in the US sit on their thumbs and parrot the latest line from administration talking heads rather than go out and find stories like these??). The Financial Times reports that "the US currently faces a future of chronic federal budget deficits totalling at least $44,200bn in current US dollars." To us North Americans, that $44.2 TRILLION a year!! It turns out that nearly all of this chronic deficit is due to Medicare and Social Security. The American people can get along without those, can't they?

The FT not only dug this story up, but also interviewed the two authors of the independent report commissioned by the US Department of Treasury as well as posts on their website the report itself. What does this little gem say? You'd better be sitting down for this:
"We estimate that to achieve fiscal sustainability, an additional 16.6 percent of annual payrolls would have to be taxed away forever beginning today. Alternatively, income tax revenues would have to be hiked permanently by another two-thirds beginning immediately. Yet another alternative would be to permanently eliminate all future federal discretionary outlays.
And this information simply can't find it's way into the mainstream US press.

So if the US public wants Medicare and Social Security, either it swallows a massive tax increase or it shuts down all spending funded through annual budgets: that means no war on terrorism, no war on Iraq, no war on Iran, no ambassadors, no EPA, no interstate highways, no federal employees . . . you get the idea.

So now alongside the stunningly enormous current account deficit we place stunningly enormous federal budget deficits into the foreseeable future -- that is, as long as anybody reading this is going to be alive. Don't give me that crap about American empire. Money will beat a gun every time (more accurately, money will buy the gun and then turn it against it's original owner). It's time again to revisit Manny Wallerstein's argument that "The Eagle Has Crash Landed".

Wednesday, May 28, 2003

Kudos to Krugman (yes, again) for stating the obvious -- which, remarkably, is becoming very difficult in today's economic and political atmosphere: "at some point bond markets will balk � they won't lend money to a government, even that of the United States, if that government's debt is growing faster than its revenues and there is no plausible story about how the budget will eventually come under control." Economic pundits for the most part walk about in a glowing golden fog (most likely left by a careening SUV heading up a mountain to take in the beauty of nature) when thinking through the ability of the United States to levitate in the face of current account deficits over 5% GDP, a rapidly falling dollar, and the ability to run an empire and a republic at the same time. Krugman brings us back to terra firma by stating the obvious truth -- a hard rain is gonna fall.

Krugman emphasizes the fundamental threats to Social Security and Medicare, but the General is looking at the ability of the US market to suck up global overproduction as well. After all, the American middle and working classes have been bought off into neoliberal globalization with cheap goods from East Asia filling the shelves of their favorite big box retailers. When (it's only a matter of when) this come to an end, the political aquiesence of the majority to the neoliberal minority (whether in Democratic or Republican, Liberal or Conservative guise) will be sorely tested.

Americans, the General believes, will sacrifice their health and their retirement and their childrens' education for cheap stuff, but they won't sacrifice cheap stuff for anything.

Something to keep your eye on. We all know that electoral democracy is virtually dead around the world, with the recent fiasco in Texas putting a dramatic exclamation point on the trend. Nonetheless, politics is not dead but alive and well. You won't find it in parliaments or executive offices, however, but rather in the streets. A wave of widespread, in some cases general, strikes has hit countries as diverse as Austria, Israel, France, and now Peru. When teachers, farmers and health care workers pose a dire threat to the security of the state, you know it's all starting to hit the fan.

Tuesday, May 27, 2003

Lest you think the G7 will get it together in the near future and address global problems from a global perspective, Jeffrey Garten, Yale School of Management Dean and former aide to war criminal Henry Kissinger, shows us how much the "G7 is a case study in bureaucratic dysfunctionality and irrelevance".

The General hasn't blogged on transnational corporations much yet, but a new report by Associated Press on how deadbeat US firms going off-shore to avoid taxation are at the same time feeding at the federal government's contract trough provides a great opportunity.

You know the type. Stanley Works, that helpful company making all the power tools for Norm Abram to work his magic on PBS, tried to scurry "off-shore" -- to Bermuda in this case -- last year in an effort to flee its responsibilities to Connecticut and to US taxpayers. This is no repeat of the Baltimore Colts, however, packing up and moving in the middle of the night. No, you can 'move' to Bermuda or The Bahamas or The Caymans or any number of off-shore tax havens simply by setting up a folder in a filing cabinet in some name-plate bank in one of these tropical locales, call it "headquarters" and then go about business as usual. Stanley Works faced withering criticism over its plans to run off with its tail between its legs to Bermuda, but public outcry (including some helpful threats from Capitol Hill) kept the firm in Connecticut. Not so with most, who gladly take tail and run.

So its bad enough that these mega-corporations leave taxpayers holding the bag, but even worse when they "return" to the US and hit the taxpayers up again for work! The likes of Arthur Andersen, Foster Wheeler and Tyco made over $1 billion off of US taxpayers in 2002 despite their deadbeat status. A few folks in Washington thought this wasn't good policy and not once but twice passed Senate legislation to bar the O-so-patriotic Department of Homeland Security from doing business with such bad seeds, only to see the provisions expunged by House Republican leaders. I guess deadbeat off-shore corporations just love America more than all the suckers voting Republican.

This cycle is only a small part of the larger trend away from business taxation and towards individual taxation in the US. Citizens for Tax Justice crunched the numbers from the Congressional Budget Office and the Joint Committee on Taxation earlier this year and found that corporate income taxes as a percentage of GDP was down to 1.7% in 2001 and forecast to be a miniscule 1.3% in 2002. Back in the bad old days of economic growth and rising wages, corporate taxation as a % of GDP was around 4% (4.5% in the Truman and Eisenhower administrations, 3.7% under Kennedy and Johnson). No wonder the little guy is happy to collect another crumb or two off the master's tax-cut table. When big business refuses to pay, the middle class picks up the slack.

The General always reads Stephen Roach, and so should you! oach turns in another great analysis today of the unstable and unbalanced nature of the global economy. His comments are mostly what he's been saying for months, but there are a few juicy new tidbits thrown in.
"Currently, about 75% of the world�s total foreign exchange reserves are held in the form of dollar-denominated assets -- more than twice America�s 32% share of world GDP (at market exchange rates). At the same time, foreign investors hold about 45% of the outstanding volume of US Treasury indebtedness, 35% of US corporate debt, and 12% of US equities. All of these ratios are at or near record highs. Never before has the world put more stock in America -- both as an engine of growth and as a store of financial value."
With figures like these, the US powers-that-be will surely feel the pressure sooner rather than later of playing Paul Krugman's 'confidence game'. The US Treasury hardly holds the fate of the dollar in its hands, and the temptation will be to play to the fears of all these foreign investors by raising interest rates if they start to spook

What makes the US different from East Asia in 1997 is that Americans have debts denominated in their own currency, and so a sharp decline in the value of the greenback doesn't have nearly the implications for economic collapse which it does in Indonesia or Argentina. That being said, how do you stop all these people from selling dollars all at once? Raising interest rates seems suicidal in the current atmosphere, although just holding the line in face of sure-to-come European rate cuts may be somewhat useful. How much "talking up" can John Snow do?

Think it can't happen here? Let me take you back to late 1978 when foreign investors looked at US inflation and its growing current account deficit (then a whopping $15 billion, or about $35 billion in 2003 dollars!!) and decided it was time to head for the hills. Rather than choose capital controls, President Carter chose Paul Volcker and a radical austerity program that pumped the federal funds rate to over 10%, on its way to over 17% in 1980 and over 19% in 1981. In comparison to East Asia and continental Europe, the US looks positively inflationary today. There's no reason why a repeat of 1978 can't happen.

And the Fed will have to react strongly to any whiff of capital flight since Americans won't save a dime as long as there are deals to be had at Home Depot and Wal-Mart. US consumption is utterly dependent on foreigners' belief in the value of the dollar.

Some look at this scenario and see inflation rather than deflation as the big bugaboo. However, competitive devaluation has already shifted into gear, especially in Japan. A rapidly falling dollar will surely be met with efforts to stop the plunge by buying dollars with yen or euros, slowing the inflationary effect without necessarily keeping money in the US (see dictionary under: Euromarkets). While the US is unlikely to see Japan-like deflation, a deflationesque malaise is certainly in the cards.

Roach sounds the clarion call for global re-balancing, but is anybody listening? Roach shows himself to be a good political economist when he sums up his analysis by saying, "All this speaks ominously of the deeply entrenched forces that are aligned against global rebalancing."

Monday, May 26, 2003

Thamir Ghadhban, interim head of the Iraqi Oil Ministry, reports that Iraqi people will control Iraqi oil. One has to wonder what Mr. Ghadhban's definition of "control" is. Iraq engineers and technicians, of course. Oil funds channeled into a development fund? Certainly. Iraqi political control? Please.

The buzz that Iraq will leave OPEC is ongoing, although Ghadhban denies it. At the same time, he says Iraq may pump without an OPEC quota -- thus formally in the organization but not bound by it! OPEC meets again June 11, but Iraq has no delegation to send. In fact, there is no Iraqi government of any kind to send a delegation. The goal seems to be 1.4 million barrels a day by mid-June; before the 1990 invasion of Kuwait, Iraq was pumping 3.5 million barrels per day.

There are lots of opportunities for Big Oil to invest in Iraqi and grab a piece of the pie. Surely the Iraqis in some nebulous form will have the remaining pieces, but at what price? OPEC likes $22-$28/barrel. We can be sure the Bush administration would like to push prices below that OPEC floor, probably close to the longterm trend price of $15/barrel, and Iraq is the means to do so. Iraqi "control" under US oversight in no oxymoron.

Is the British housing bubble about to burst? Back in April the General decided to begin following housing prices in the US and UK as a leading deflation indicator in these dynamic economies. The UK boom has been far hotter than that in the US, and the Financial Times now reports falling housing prices for the second consecutive month. Per the usual, nobody can agree as to what this means. Notably, the author didn't think to incorporate the IMF report which got the General thinking in the first place. Falling housing prices with widespread (even if mild) deflation means positive real interest rates cutting into consumer spending. This could be about a lot more than simply local property markets.

Sunday, May 25, 2003

Has John Snow declared war on the euro? William Keegan makes a pretty good case. Let's not leave this simply in the arena of global finance and economics. Let's bring in politics and see what happens.

The Bush adminsitration bent over backwards -- well, OK, at least slowed down to catch its breath -- to placate Tony Blair's concerns before and during the Iraq war not only because the US needed at least one ally to make a "coalition of the willing". The US also used Blair to interrupt the continuing unification of Europe. Rummy playing on "old Europe" v. "new Europe" is more of the same -- making sure Poland plays its assigned role of US trojan horse into the EU.

If the Europeans unite behind a common foreign and especially defense policy, things could get dicy for all the American imperialists. Better to hit the EU where it really lives, in the euro. Keegan is bold enough to say the words "competitive devaluation" in reference to the US dollar policy. What the US would count as victory over the euro is as yet unclear. Forcing an ECB interest rate drop? Forcing structural adjustment in European labor markets? Jamming GMOs down European markets? The war is on, but victory remains undefined.

After a week's haitus, Paul Krugman turns in a great opinion piece in Saturday's Times. Titled "Fear of a Quagmire?", Krugman turns our attention away from the circus in Iraq and towards the certainly less exciting but by far more consequential global crisis: global deflation.

Krugman does well in showing us as many are now doing that 21st century deflation is not a monetary phenomenon. Deflation is the symptom, not the disease itself, and monetary policy alone is unlikely to head it off. Mr. Yen tells us deflation is structural, and Krugman chooses to hammer the "liquidity trap" argument, but they are saying similar things.

Krugman asks "what if the economy is in such a deep malaise that pushing interest rates all the way to zero isn't enough to get the economy back to full employment?" For Big K, "deep malaise" is the polite way of saying structural overproduction. That is, who would borrow money to produce goods for non-existent consumers?

Now deflation does not equal deflation spiral. Japan has been in a Jimmy Carteresque "malaise" for some 13 years now, but no deflation spiral has occurred (although Japan is entering its fifth consecutive year of falling prices). In a similar manner, the US could very well sink into "malaise" for years on end, a period far worse than the "jobless recovery" of the early 1990s. In fact, it may be hard to tell the difference between recession and recovery in this new era, as we are certainly seeing today.

Global deflation can be headed off only through global coordination. For all the bravado of G.W. landing on that aircraft carrier and proclaiming "mission accomplished," The Shrub has to realize that you can fight a war alone (especially if you're the United States) but you can't lasso the global economy alone (even if you're the United States). Yah, tell that to Rummy and all the other hormone cases at the Pentagon pumping up on GNC Pro Performance.

Krugman is more sanguine than the General, however, when he emphasizes the ability to plan one's way out of the "liquidity trap" through expert pre-emption. Since deflation is both a structural and a global phenomenon, however, there's little reason to be hopeful.

Krugman wraps up saying, "In short, those of us who worry about a Japanese-style quagmire find the global picture pretty scary. Policymakers are preoccupied with their usual agendas; outside the Fed, none of them seem to understand what may be at stake." Here's a toast we can all agree on.

Friday, May 23, 2003

For those FTAA watchers out there, Andreas Oppenheimer offers an interesting read of Brazil v. Mexico in the battle to lead Latin America. With Lula more in tune with the left turn south of the border than former Coca-Cola man Vincente Fox, few countries in South America are likely to look to Mexico City for leadership. Central America is under the US thumb, but it always has been. The real story is whether Brazil can organize like-minded governments in the region and drive hard bargins on agriculture, pharmaceuticals and the like. Perhaps the whole FTAA could die in the cradle -- a funeral worth attending.

An interesting review of the rise of the Canadian dollar over the past few months showed up in the World Socialist Web Site this week. The author suggests that Canadian capital may use this as an opportunity to cut wages and jobs in the name of competitiveness. As Finance Minister John Manley said last year, "too many Canadian firms are profiting mightily from a US 62-cent dollar and would be hard-pressed to compete at a US 80-cent dollar." On Wednesday the loonie stood at US$0.74, a height not seen since February 1997.

As if we didn't see this one coming. The Canadian Food Inspection Agency now thinks that perhaps BSE Bessie from Alberta contracted mad cow disease from eating chicken feed, which as the General mentioned the other day is chock full of nasty cow bits -- heads, hides, guts, and the like. Now 13 herds have been quarantined in British Columbia and Saskatchewan as well as in Alberta. Although it has been the enlightened policy of both Canada and the US to ban feeding cows or sheep to cows or sheep, now some 'concerned experts' think "it may be time to look closely at expanding that ban to all animal protein."

Another notable bit of information:
" On Thursday, Marwyn Peaster, the farmer who owned the northern Alberta cow infected with mad-cow disease, said the animal was stumbling and unable to stand before it was shipped off for slaughter. Mr. Peaster said the cow was shipped for slaughter when it could no longer get up on its own. 'The cow went down, and that is when it was shipped. The cow was still alive, it just wasn't getting up any more,' Mr. Peaster said Thursday outside his farm near Wanham, Alta., about 550 kilometres northwest of Edmonton."
Well, that's just peachy, isn't it? Step right up for your diseased beef, 50% off today only!

Will will this madness of turning ruminants into carnivores end? See below for more on the relationship between capital and hellholes.

In August of 2002 Ted Fishman wrote a great piece in Harper's arguing in short that "money will brave any hellhole" if profits can be made there. You know, diamonds in Sierra Leone, oil in Sudan, just about everything and the kitchen sink in DR Congo. Well, it seems mighty Bechtel is having second thoughts about the hellhole known as Iraq. Apparently getting kidnpaped or killed, or being totally unable to afford insurance on a project, is something corporate big-wigs don't much care for. Who knew?

But let's not get carried away here. There is plenty of money to be made in Iraq, and as Fishman tells us, money will brave any hellhole. Although The Guardian article starts off with Bechtel's "sobering message," it soon gets to the real story:
"Despite the sobering message from Bechtel, the roadshow at the Novotel hotel in Hammersmith, west London, attracted more than a thousand hopefuls, forcing organisers to enlarge the conference room. The interest in the Bechtel roadshow reflects the mounting frenzy to get a foot in the door in Iraq, especially now that the UN has lifted decade-long sanctions against the country."
So let's cut the crap about transnational capital being the avant-garde of peace, stability and prosperity around the world. TNCs want profits, and hellholes can produce them just as well as anyplace else.

Wednesday, May 21, 2003

About a month ago, USAID head Andrew Natsios was planning the biggest state-led export of US capital since the Marshall Plan, dedicated to rebuilding Iraq. Now we hear that US dollars are flooding into Iraq (so much so that the prices of US goods in Iraq is falling sharply) not so much because of those tasty Bechtel and Kellogg, Brown & Root contracts, but because of Tommy Franks' bribes to Iraqi generals. How can *this* General get his hand into that well-stocked government cookie jar?!?!

An interesting tidbit in the otherwise insipid New York Times business coverage:

"To limit or prevent their currencies' rise against the dollar despite substantial trade surpluses, Asian governments have been buying dollars from exporters, paying with more of their domestic currency. They have accumulated hoards of foreign exchange reserves as a result, with the world's top five holders of such reserves all in Asia. According to figures from the International Monetary Fund and the Chinese central bank for March, the most recent month available, Japan had reserves of $496.2 billion, China had $316 billion, Taiwan had $171 billion, South Korea had $124 billion and Hong Kong had $114 billion."
So we find out that East Asia may really hold the fate of the dollar in its hands, not Europe or John Snow. If there are any attacks on the East Asian currencies a la 1997 and the East Asians are forced to sell dollars to defend their pegs and the world market is flooded with dollars which then forces the dollar even lower at not a gentle descent but a sharp crash -- well, you get the picture.

Stephen Roach at Morgan Stanley hits the nail on the head today. Although he couches his most provocative statement in thick econo-speak, read between the lines:

"In the long run, the supply-led impetus of globalization generates incremental income that supports increased aggregate demand. But today�s world is far from that long run. Instead, it is coping with the impacts of the first-round effects of globalization on the supply side, which further exacerbate the global imbalance between supply and demand."
In plain English, Roach is saying that deflation is structural not monetary, and that globalization is inherently deflationary. It exacerbates capitalism's tendencies toward overproduction/underconsumption, something which even Paul Krugman is now admitting although he spent most of the Clinton years savaging the arguments of William Greider among others that wages in fact do not automatically keep pace with productivity growth. We see from East Asia in particular because of the amazing gains in productivity -- but which is in fact occurring worldwide, especially in every part of the Global South -- that deflation is part and parcel of globalization.

Roach also channels the General's concerns in his statement:

"an increasingly self-absorbed world seems to be flirting with the perils of competitive currency devaluation as a means to temper deflationary pressures. If anything, that makes the future even more worrisome."
The G-8 meeting in France last weekend was a bad joke, and yet so few in the business press picked up on the complete lack of even interest in coordinated action on the part of the power-that-be.

Globalization is going to be looking uglier and uglier.

Tuesday, May 20, 2003

OK, the General couldn't let this one pass: "euro showed today how thoroughly it has taken on its latest role: shock absorber for the world's leading currency." What exactly does this mean anyway? That the dollar's fall is being cushioned by the euro? After all, the shock absorber in my car allows me to hit those potholes oblivious to the conditions on the road because it takes the hit from the tires without transmitting them to me in the driver's seat. So the dollar is me, the euro is the shock absorber -- so what's the pothole? US deflation? US recession? I don't think anyone really believes the euro is heading off either of these dips in the road ahead. A fall in the dollar is not going to make much of a dent at all in the US current account deficit. With Germany, Italy and the Netherlands in recession and most of Asia pegged to the dollar, who exactly is going to be buying US products and services now but wasn't in 2002? After all, the broad dollar index fell in 2002 by 3.6% (Feb. '02 to Dec. '02) but the current account deficit continued to soar -- mostly because US exports dropped pretty handily. So is Canada going to pull the US exporters' fat out of the fire??

Overall a pretty slow news day, but this story did catch Gen. Glut's eye.

"A cow in Alberta has been diagnosed with mad cow disease, Canadian officials announced Tuesday - the first known case in North America in a decade. U.S. health officials immediately banned imports of cattle, beef, beef-based products and animal feed from Canada."
Nobody really knows how poor ol' Alberta bessie came down with BSE, but scientists have known for some time now of the link between our turning cows into cannibals and cows contracting mad cow disease. In the late 1990s the US and Canada both took an enlightened move and banned feeding cows to cows (oh, the humanity!). However, it is still perfectly legal to feed chickens to cows and to feed cows to chickens. Complete the circle and you get cows eating chickens which eat cows. Whether this is a viable strategy for stopping BSE and the human version, Creutzfeldt-Jakob disease, is anyone's guess. I wouldn't put my money on the table, however.

In the end, why worry about Canadian beef? Of course, not that any American would every know where their food was coming from anyway -- for after all, the informed consumer is a barrier to the operation of the free market. Opt out of factory farming and Eat Wild instead.

Monday, May 19, 2003

Here's something I've been following pretty closely ever since the IMF came out with its World Economic Outlook in April: housing prices. While the global economy has seen many bubbles pop over the last three years, the housing bubbles in the US and the UK are yet to disintegrate. The UK housing markets has been running with the bulls since the second quarter of 1996, and in the US since third quarter of the same year. Now CNN/Money tells us "economists, for the umpteen-thousandth time in the past several months, offered reassuring words -- home prices aren't likely to pop and soak homeowners any time soon, if at all." Phew! Because a housing bust would have far greater wealth effects than the equity price bust we've seen over the last three years, cutting into the ever-expanding girth of the American consumer and slamming the breaks on the only real growth engine of the global economy. This is the place to watch, folks.

"We've had a lot of people running around saying, 'Deflation � it can't happen here,' " Harvey Rosenblum, the research director of the Dallas Fed, said in a telephone interview last week. "I think it can."

It's about time the world realized [1] the Fed is more than just Alan "Mr. Mojo Risin'" Greenspan and three back-up flunkies on drums, guitar and organ; and [2] that Greenspan is not the magic man of monetary policy. I know it's shocking to learn that when New Democrats and Rabid Republicans agree on something, it might not be right. Call your parents, leave the compound, get deprogrammed and for heaven's sake drop out of the Maestro's cult already!

On top of deflation and recession, now the Germans have to face a rocketing euro which hit US$1.17 today. The electronic herd is fleeing the greenback thanks more to John Snow's remarks than anything really concrete like say a $500 billion current account deficit and a sluggish economy. Who in their right mind wants to flee into yen? There is always gold (which closed at $359.75 per oz. today, up nearly 13% just since early April) or the mattress in the spare guest room in the summer mansion, but euros look like the ticket these days -- especially in light of the rather high ECB interest rates. Maybe the Europeans will finally face reality and lower their rates next month, capital will bid the dollar back up, the US current account deficit can go to $700 billion in 2003, and the whole thing will explode just in time for Bush's re-election campaign?

The Levy Institute thinks the dollar needs a 25% decline to find a sustainable level. So far the broad dollar index is down less than 9%. There's still a loooong way to go, and we ain't seen nothin' yet!

It's official. Deflation has migrated out of East Asia and is now feared to run rampant in Germany, the largest economy in Europe. The World Health Organization has been a lot more vigorous and a lot more successful in fighting the SARS epidemic than the IMF has been in tackling deflation. The IMF now says the risk of "mild deflation" in Germany in 2003 is "considerable". Japan will see deflation again this year (that will be five years in a row for Japan) and both Hong Kong and Taiwan are considered "high-risk" for deflation. Yet what did the Seven Dwarves talk about over the weekend? Anybody? Anybody at all?

Anyone fretting over the state of the global economy today surely must be a heavy coffee drinker. General Glut being an avid coffee hound, I take particular note of a special meeting of the International Coffee Organization today in London to address the farmgate price squeeze in the coffee market which has been unrelenting since 1997. World coffee markets are a good example of the plight of commodity producers world-wide, whether in Africa or Southeast Asia or North America. Terms of trade for commodity producers tanked around 1980 and have only grown worse since then. The answer for commodity producers in the face of falling prices is of course to become more efficient than the next guy and produce more in order to generate the same amount of profit in a deflationary situation. Throw in an oligopolistic market structure and a World Bank which assists countries like Vietnam in flooding the market with low-quality beans, and you get coffee farmers and their families "on the brink of starvation".

If you drink coffee, the first thing to do is declare a preventive strike on all forms of instant. *Never drink instant coffee!* Instant is made from the lowest quality beans which drive down prices worldwide. Second, give up Folger's (Proctor & Gamble), Maxwell House (Kraft) and Nestle and instead make an effort to buy fair trade coffee. Dean's Beans is a personal favorite of the General's. The fair trade price is US$1.26 per pound. This price gives producers a fair return on their investment and their labor as well as provides them with something extra for luxuries such as health care and education for their children, as well as, oh I don't know, a roof that doesn't leak. World composite coffee prices haven't seen that level since early 1998. That means five long years of suffering, five years of exploitation by the coyotes, five years of fat cats in the US and Switzerland getting rich off of the exploitation of some of the poorest of the poor.

In March 2003 world market prices stood at just under US$0.50 per pound. Dean pays US$1.41 per pound (for organic coffee). Go Dean!

Sunday, May 18, 2003

Global capital seems to be shivering in its boots again now that another left-wing populist is poised to come to power in another Latin American country. First it was Hugo Chavez in Venezuela, then Lula da Silva in Brazil, followed by Lucio Gutierrez in Ecuador. Now we have Nestor Kirchner on the horizon in Argentina, who has the audacity to suggest that some of the country's foreign debt is "illegitimate" and may be repudiated or at least forcibly rescheduled. Kirchner even had the gall to say "We are not disposed to do everything to continue paying international creditors at the expense of the hunger of Argentines". Shocking!

Funny how when Latin America questions the legitimacy of its foreign debt, capital markets start wetting their pants, but when the US Treasury announces (as it did in April) that Iraq's debts (mostly to Russia, France and Kuwait, *not* the US) must be written down because they were amassed under illegitimate circumstances, Wall Street and the City nods its collective empty head in agreement. How convenient that both John Snow and global financial capital found religion in Iraq just in time to lose it in Latin America.

A final interesting point in this NYTimes article is how Kirchner is "more enthusiastic about strengthening trade ties with fellow members of Mercosur, the South American common market, especially Brazil, than about seeking a bilateral agreement with the United States or joining Washington's Free Trade Area of the Americas." With nominal lefties now leading the three largest economies of South America, one can only hope the FTAA -- at least in its uber-NAFTA-for-the-hemisphere superhero cape and mask -- is now a dead letter.

If one had to argue for a comparison of the recent meeting of the Group of Seven (plus Russia) in Deauville, France (or is that Deauville, Freedom?) this weekend with either the Seven Chinese Brothers or the Seven Dwarves, I'd have to take Walt Disney's animated classic. While you might be tempted to pick the Brothers who all look alike and sound alike -- and all await imminent execution -- let's instead cast the G-7 ministers as well-intentioned misfits who hang out in the woods a lot and don't know a lick about keeping the house tidy.

Deflation is stalking the global economy, Japan is facing a major banking crisis, Germany along with half of Europe is in official recession, and these yahoos actually had the audacity to state collectively they are "nonetheless confident in the potential for stronger growth." Exactly when is this supposed to occur?

The game for distributing the costs of globalization's first dramatic impasse has begun. The decline in the US dollar since February 2002 has put significant pressure on first the Japanese and now the Europeans to cushion the blow to their export-dependent economies. If the ministers can't start to plot out a compromise which will talk the dollar down from its suicidal heights without simultaneously driving both Japan and Europe into economic depression, things will get real ugly real fast. The EU is already holding $4 billion in WTO sanctions over the head of the US, and now the US says it is filing a complaint with the EU over its policies on genetically-modified foods. Iraq continues to be a sore point, NATO is in turmoil, and all these guys can do is give us George H. W. Bush's famous campaign pitch from 1988: "Stay the course"??

Have no fear, little flock, your shepherd has spoken. US Secretary of the Treasury John Snow said on Saturday that "We're far from having a deflationary economy" in the United States. Great comfort from the man who also tells us that the US dollar's realignment is "really fairly modest" and that the massive US tax cut on unearned stock dividens will spur US economic growth. Granted the United States is a flexible economy largely immune from the rigidities of the Japanese and European system (such as pensions, health insurance and job security). That being said, the core consumer price index (CPI minus the volatile food and energy sectors) rose a mere 0.6% annualized over the first four months of 2003 -- less than one-third the inflation rate over the same period in 2002. US productivity continues to rise while wage increases fail to keep pace. With the weak economic outlook, tax cuts and interest rate cuts are more likely to find their way into the bank accounts of the rich rather than into job-creating investments which will produce goods for which there are no consumers.

Far from a deflationary economy? All the major East Asian economies save Korea (Japan, China, Hong Kong, Taiwan, Singapore) experienced outright deflation in 2002. What makes John Snow so sure the US is immune?