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发帖数: 23 | 1 【 以下文字转载自 USANews 讨论区 】
发信人: sadenessless (were-human transforming), 信区: USANews
标 题: Why the U.S. Has Launched a New Financial World War
发信站: BBS 未名空间站 (Tue Oct 19 02:29:46 2010, 美东)
http://www.alternet.org/news/148481/why_the_u.s._has_launched_a_new_financial_world_war_--_and_how_the_rest_of_the_world_will_fight_back_/?page=entire
CounterPunch / By Michael Hudson
Why the U.S. Has Launched a New Financial World War -- and How the Rest of
the World Will Fight Back
Finance is the new form of warfare -- without the expense of a military
overhead and an occupation against unwilling hosts.
October 12, 2010 |
What is to stop U.S. banks and their customers from creating $1 trillion, $
10 trillion or even $50 trillion on their computer keyboards to buy up all
the bonds and stocks in the world, along with all the land and other assets
for sale in the hope of making capital gains and pocketing the arbitrage
spreads by debt leveraging at less than 1 per cent interest cost? This is
the game that is being played today.
Finance is the new form of warfare - without the expense of a military
overhead and an occupation against unwilling hosts. It is a competition in
credit creation to buy foreign resources, real estate, public and privatized
infrastructure, bonds and corporate stock ownership. Who needs an army when
you can obtain the usual objective (monetary wealth and asset appropriation
) simply by financial means? All that is required is for central banks to
accept dollar credit of depreciating international value in payment for
local assets. Victory promises to go to whatever economy's banking system
can create the most credit, using an army of computer keyboards to
appropriate the world's resources. The key is to persuade foreign central
banks to accept this electronic credit.
U.S. officials demonize foreign countries as aggressive "currency
manipulators" keeping their currencies weak. But they simply are trying to
protect their currencies from being pushed up against the dollar by
arbitrageurs and speculators flooding their financial markets with dollars.
Foreign central banks find them obliged to choose between passively letting
dollar inflows push up their exchange rates - thereby pricing their exports
out of global markets - or recycling these dollar inflows into U.S. Treasury
bills yielding only 1% and whose exchange value is declining. (Longer-term
bonds risk a domestic dollar-price decline if U.S interest rates should rise
.)
"Quantitative easing" is a euphemism for flooding economies with credit,
that is, debt on the other side of the balance sheet. The Fed is pumping
liquidity and reserves into the domestic financial system to reduce interest
rates, ostensibly to enable banks to "earn their way" out of negative
equity resulting from the bad loans made during the real estate bubble. But
why would banks lend more under conditions where a third of U.S. homes
already are in negative equity and the economy is shrinking as a result of
debt deflation?
The problem is that U.S. quantitative easing is driving the dollar downward
and other currencies up, much to the applause of currency speculators
enjoying a quick and easy free lunch. Yet it is to defend this system that U
.S. diplomats are threatening to plunge the world economy into financial
anarchy if other countries do not agree to a replay of the 1985 Plaza Accord
"as a possible framework for engineering an orderly decline in the dollar
and avoiding potentially destabilizing trade fights." The run-up to this
weekend's IMF meetings saw the United States threaten to derail the
international financial system, bringing monetary chaos if it does not get
its way. This threat has succeeded for the past few generations.
The world is seeing a competition in credit creation to buy foreign
resources, real estate, public and privatized infrastructure, bonds and
corporate stock ownership. This financial grab is occurring without an army
to seize the land or take over the government. Finance is the new form of
warfare - without the expense of a military overhead and an occupation
against unwilling hosts. Indeed, this "currency war" so far has been
voluntary among individual buyers and the sellers who receive surplus
dollars for their assets. It is foreign economies that lose, as their
central banks recycle this tidal wave of dollar "keyboard credit" back into
low-yielding U.S. Treasury securities of declining international value.
For thousands of years tribute was extracted by conquering land and looting
silver and gold, as in the sacking of Constantinople in 1204, or Incan Peru
and Aztec Mexico three centuries later. But who needs a military war when
the same objective can be won financially? Today's preferred mode of warfare
is financial. Victory in today's monetary warfare promises to go to
whatever economy's banking system can create the most credit. Computer
keyboards are today's army appropriating the world's resources.
The key to victory is to persuade foreign central banks to accept this
electronic credit, bringing pressure to bear via the International Monetary
Fund, meeting this last weekend. The aim is nothing as blatant as
extracting overt tribute by military occupation. Who needs an army when you
can obtain the usual objective (monetary wealth and asset appropriation)
simply by financial means? All that is required is for central banks to
accept dollar credit of depreciating international value in payment for
local assets.
But the world has seen the Plaza Accord derail Japan's economy by obliging
its currency to appreciate while lowering interest rates by flooding its
economy with enough credit to inflate a real estate bubble. The alternative
to a new currency war "getting completely out of control," the bank lobbyist
suggested, is "to try and reach some broad understandings about where
currencies should move." However, IMF managing director Dominique Strauss-
Kahn, was more realistic. "I'm not sure the mood is to have a new Plaza or
Louvre accord," he said at a press briefing. "We are in a different time
today." On the eve of the Washington IMF meetings he added: "The idea that
there is an absolute need in a globalised world to work together may lose
some steam." (Alan Beattie Chris Giles and Michiyo Nakamoto, "Currency war
fears dominate IMF talks," Financial Times, October 9, 2010, and Alex
Frangos, "Easy Money Churns Emerging Markets," Wall Street Journal, October
8, 2010.)
Quite the contrary, he added: "We can understand that some element of
capital controls [need to] be put in place."
The great question in global finance today is thus how long other nations
will continue to succumb as the cumulative costs rise into the financial
stratosphere? The world is being forced to choose between financial anarchy
and subordination to a new U.S. economic nationalism. This is what is
prompting nations to create an alternative financial system altogether.
The global financial system already has seen one long and unsuccessful
experiment in quantitative easing in Japan's carry trade that sprouted in
the wake of Japan's financial bubble bursting after 1990. Bank of Japan
liquidity enabled the banks to lend yen credit to arbitrageurs at a low
interest rate to buy higher-yielding securities. Iceland, for example, was
paying 15 per cent. So Japanese yen were converted into foreign currencies,
pushing down its exchange rate.
It was Japan that refined the "carry trade" in its present-day form. After
its financial and property bubble burst in 1990, the Bank of Japan sought to
enable its banks to "earn their way out of negative equity" by supplying
them with low-interest credit for them to lend out. Japan's recession left
little demand at home, so its banks developed the carry trade: lending at a
low interest rate to arbitrageurs at home and abroad, to lend to countries
offering the highest returns. Yen were borrowed to convert into dollars,
euros, Icelandic kroner and Chinese renminbi to buy government bonds,
private-sector bonds, stocks, currency options and other financial
intermediation. This "carry trade" was capped by foreign arbitrage in bonds
of countries such as Iceland, paying 15 per cent. Not much of this funding
was used to finance new capital formation. It was purely financial in
character - extractive, not productive.
By 2006 the United States and Europe were experiencing a Japan-style
financial and real estate bubble. After it burst in 2008, they did what
Japan's banks did after 1990. Seeking to help U.S. banks work their way out
of negative equity, the Federal Reserve flooded the economy with credit. The
aim was to provide banks with more liquidity, in the hope that they would
lend more to domestic borrowers. The economy would "borrow its way out of
debt," re-inflating asset prices real estate, stocks and bonds so as to
deter home foreclosures and the ensuing wipeout of the collateral on bank
balance sheets.
This is occurring today as U.S. liquidity spills over to foreign economies,
increasing their exchange rates. Joseph Stiglitz recently explained that
instead of helping the global recovery, the "flood of liquidity" from the
Federal Reserve and the European Central Bank is causing "chaos" in foreign
exchange markets. "The irony is that the Fed is creating all this liquidity
with the hope that it will revive the American economy. … It's doing
nothing for the American economy, but it's causing chaos over the rest of
the world." (Walter Brandimarte, "Fed, ECB throwing world into chaos:
Stiglitz," Reuters, Oct. 5, 2010, reporting on a talk by Prof. Stiglitz at
Colombia University. )
Dirk Bezemer and Geoffrey Gardiner, in their paper "Quantitative Easing is
Pushing on a String" , prepared for the Boeckler Conference, Berlin, October
29-30, 2010, make clear that "QE provides bank customers, not banks, with
loanable funds. Central Banks can supply commercial banks with liquidity
that facilitates interbank payments and payments by customers and banks to
the government, but what banks lend is their own debt, not that of the
central bank. Whether the funds are lent for useful purposes will depend,
not on the adequacy of the supply of fund, but on whether the environment is
encouraging to real investment."
Quantitative easing subsidizes U.S. capital flight, pushing up non-dollar
currency exchange rates
Federal Reserve Chairman Ben Bernanke's quantitative easing may not have set
out to disrupt the global trade and financial system or start a round of
currency speculation that is forcing other countries to defend their
economies by rejecting the dollar as a pariah currency. But that is the
result of the Fed's decision in 2008 to keep unpayably high debts from
defaulting by re-inflating U.S. real estate and financial markets. The aim
is to pull home ownership out of negative equity, rescuing the banking
system's balance sheets and thus saving the government from having to
indulge in a Tarp II, which looks politically impossible given the mood of
most Americans.
The announced objective is not materializing. The Fed's new credit creation
is not increasing bank loans to real estate, consumers or businesses. Banks
are not lending - at home, that is. They are collecting on past loans. This
is why the U.S. savings rate is jumping. The "saving" that is reported (up
from zero to 3 per cent of GDP) is taking the form of paying down debt, not
building up liquid funds on which to draw. Just as hoarding diverts revenue
away from being spent on goods and services, so debt repayment shrinks
spendable income.
So Bernanke created $2 trillion in new Federal Reserve credit. And now (
October 2010) the Fed is proposing to increase the Fed's money creation by
another $1 trillion over the coming year. This is what has led gold prices
to surge and investors to move out of weakening "paper currencies" since
early September - and prompted other nations to protect their own economies
accordingly.
It is hardly surprising that banks are not lending to an economy being
shrunk by debt deflation. The entire quantitative easing has been sent
abroad, mainly to the BRIC countries: Brazil, Russia, India and China. "
Recent research at the International Monetary Fund has shown conclusively
that G4 monetary easing has in the past transferred itself almost completely
to the emerging economies since 1995, the stance of monetary policy in Asia
has been almost entirely determined by the monetary stance of the G4 - the
US, eurozone, Japan and China - led by the Fed." According to the IMF, "
equity prices in Asia and Latin America generally rise when excess liquidity
is transferred from the G4 to the emerging economies."
Borrowing unprecedented amounts from U.S., Japanese and British banks to buy
bonds, stocks and currencies in the BRIC and Third World countries is a
self-feeding expansion. Speculative inflows into these countries are pushing
up their currencies as well as their asset prices, but. Their central banks
settle these transactions in dollars, whose value falls as measured in
their own local currencies.
U.S. officials say that this is all part of the free market. "It is not good
for the world for the burden of solving this broader problem to rest on the
shoulders of the United States," insisted Treasury Secretary Tim Geithner
on Wednesday.
So other countries are solving the problem on their own. Japan is trying to
hold down its exchange rate by selling yen and buying U.S. Treasury bonds in
the face of its carry trade being unwound as arbitrageurs are paying back
the yen that they earlier borrowed to buy higher-yielding but increasingly
risky sovereign debt from countries such as Greece. Paying back these
arbitrage loans has pushed up the yen's exchange rate by 12 per cent against
the dollar so far during 2010. On Tuesday, October 5, Bank of Japan
governor Masaaki Shirakawa announced that Japan had "no choice" but to "
spend 5 trillion yen ($60 billion) to buy government bonds, corporate IOUs,
real-estate investment trust funds and exchange-traded funds - the latter
two a departure from past practice."
This "sterilization" of unwanted financial speculation is precisely what the
United States has criticized China for doing. China has tried more "normal"
ways to recycle its trade surplus, by seeking out U.S. companies to buy.
But Congress would not let CNOOC buy into U.S. oil refinery capacity a few
years ago, and the Canadian government is now being urged to block China's
attempt to purchase its potash resources. This leaves little option for
China and other countries but to hold their currencies stable by purchasing
U.S. and European government bonds.
This has become the problem for all countries today. As presently structured
, the international financial system rewards speculation and makes it
difficult for central banks to maintain stability without forced loans to
the U.S. Government that has long enjoyed a near monopoly in providing
central bank reserves. As noted earlier, arbitrageurs obtain a twofold gain:
the arbitrage margin between Brazil's nearly 12 per cent yield on its long-
term government bonds and the cost of U.S. credit (1 per cent), plus the
foreign-exchange gain resulting from the fact that the outflow from dollars
into reals has pushed up the real's exchange rate some 30 per cent - from R$
2.50 at the start of 2009 to $1.75 last week. Taking into account the
ability to leverage $1 million of one's own equity investment to buy $100
million of foreign securities, the rate of return is 3000 per cent since
January 2009.
Brazil has been more a victim than a beneficiary of what is euphemized as a
"capital inflow." The inflow of foreign money has pushed up the real by 4
per cent in just over a month (from September 1 through early October). The
past year's run-up has eroded the competitiveness of Brazilian exports,
prompting the government to impose 4 per cent tax on foreign purchases of
its bonds on October 4 to deter the currency's rise. "It's not only a
currency war," Finance Minister Guido Mantega said on Monday. "It tends to
become a trade war and this is our concern." And Thailand's central bank
director Wongwatoo Potirat warned that his country was considering similar
taxes and currency trade restrictions to stem the baht's rise, and Subir
Gokarn, deputy governor of the Reserve Bank of India announced that his
country also was reviewing defenses against the "potential threat" of inward
capital flows."
Such inflows do not provide capital for tangible investment. They are
predatory, and cause currency fluctuation that disrupts trade patterns while
creating enormous trading profits for large financial institutions and
their customers. Yet most discussions of exchange rate treat the balance of
payments and exchange rates as if they were determined purely by commodity
trade and "purchasing power parity," not by the financial flows and military
spending that actually dominate the balance of payments. The reality is
that today's financial interregnum - anarchic "free" markets prior to
countries hurriedly putting up their own monetary defenses - provides the
arbitrage opportunity of the century. This is what bank lobbyists have been
pressing for. It has little to do with the welfare of workers.
The potentially largest speculative prize of all promises to be an upward
revaluation of China's renminbi. The House Ways and Means Committee is
backing this gamble, by demanding that China raise its exchange rate by the
20 per cent that the Treasury and Federal Reserve are suggesting. A
revaluation of this magnitude would enable speculators to put down 1 per
cent equity - say, $1 million to borrow $99 million and buy Chinese renminbi
forward. The revaluation being demanded would produce a 2000 per cent
profit of $20 million by turning the $100 million bet (and just $1 million "
serious money") into $120 million. Banks can trade on much larger, nearly
infinitely leveraged margins, much like drawing up CDO swaps and other
derivative plays.
This kind of money already has been made by speculating on Brazilian, Indian
and Chinese securities and those of other countries whose exchange rates
have been forced up by credit-flight out of the dollar, which has fallen by
7 per cent against a basket of currencies since early September when the
Federal Reserve floated the prospect of quantitative easing. During the week
leading up to the IMF meetings in Washington, the Thai baht and Indian
rupee soared in anticipation that the United States and Britain would block
any attempts by foreign countries to change the financial system and curb
disruptive currency gambling.
This capital outflow from the United States has indeed helped domestic banks
rebuild their balance sheets, as the Fed intended. But in the process the
international financial system has been victimized as collateral damage.
This prompted Chinese officials to counter U.S. attempts to blame it for
running a trade surplus by retorting that U.S. financial aggression "risked
bringing mutual destruction upon the great economic powers.
From the gold-exchange standard to the Treasury-bill standard to "free
credit" anarchy
Indeed, the standoff between the United States and other countries at the
IMF meetings in Washington this weekend threatens to cause the most serious
rupture since the breakdown of the London Monetary Conference in 1933. The
global financial system threatens once again to break apart, deranging the
world's trade and investment relationships - or to take a new form that will
leave the United States isolated in the face of its structural long-term
balance-of-payments deficit.
This crisis provides an opportunity - indeed, a need - to step back and
review the longue duree of international financial evolution to see where
past trends are leading and what paths need to be re-tracked. For many
centuries prior to 1971, nations settled their balance of payments in gold
or silver. This "money of the world," as Sir James Steuart called gold in
1767, form |
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