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Forum: What’s The Hype Around Modern Monetary Theory (MMT)?

Join Voices for New Democracy on October 3 for our next forum discussing Modern Monetary Theory (MMT). Our panel will explore how governments pay for our needs; whether (and how) federal deficits and national debt matter; how the U.S. dollar affects the global economy. Ultimately, we will seek to answer whether MMT offers a path fo build a people’s economy, or if its insights represent a new form of imperialism.

Join us on Sunday, October 3, at 4pm PT / 7pm ET by clicking this link.

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Analysis Commentary Financial Justice Global Peace & Collaboration

Steve Clark Responds to “The Dollar as the World’s Reserve Currency”

| Steve Clark |

In this piece, Steve Clark responds to Dennis Torigoe’s recent article, “The Dollar as the World’s Reserve Currency.”

Thanks to Signe for raising a stimulating comment on Dennis’ piece in regard to Modern Monetary Theory (MMT). I appreciate what Tom had to say and wanted to comment further.

A bifurcated agenda (MMT at home and financial imperialism abroad) would be inconsistent and morally reprehensible for any progressive, and I don’t think anyone in or around MMT takes such a position. Rather, at worst — and like Dennis (and most of us) — MMT advocates don’t have a clearly articulated plan for remaking the international financial order. They know how it works, but they don’t know how to assert popular control at that scale (currently, their focus is on gaining effective influence in sovereign states and, someday, “going global” from such new-found power bases). Rather than criticize MMT for the same shortcoming that we all share, we need to put our MMT thinking caps on, figure out the necessary “next steps,” and advocate for consistent financial restructuring across our both domestic and global economies.  This might require a think tank and a legal corps, but that could set us in the right direction.

It seems to me that when our nation’s progressive wing overcomes dual power (defeats neoliberalism) in the US (that is, for now, in the Biden Administration and the Congress), all nations and people stand to benefit because the world does, in fact, have an integrated, global, financial system (and I think Dennis would agree) in which the US dollar and the US central bank (the Fed) dominate decision-making and financial power (at the IMF/BIS/SWIFT/IIF etc.). 

Given this institutional domination, if/when American progressives gain the power necessary to implement a true, worker-oriented, social investment agenda in the US, we also will gain (or will be on the verge of gaining) the power to pursue a similar agenda at global scale (via the IMF, where we progressives will have just acquired dominant power, or via some new authority that we and the world create to replace the IMF).

Further, given the scale and breadth of today’s crisis, when American progressives finally break the power of finance capital in the US (winning majority control of our government), the rest of the world’s progressives (in countries everywhere) will demand we immediately break that same financial power globally as well. Having gained control of the US votes at the IMF, we will have no choice but to comply (twist my arm!). 

Few American progressives have given much thought to how this “next system” of finance must operate to meet the needs of the whole world, including its impoverished nations. Obviously, “trickle down” from the US to the world doesn’t work, but, for sure, there’s no way some kind of global planned economy will be imposed. Rather, the next system — which has to carry civilization through the era of climate change impact and mitigation ahead — will be some kind of global mixed economy in which private entities and markets operate alongside public investment entities and non-market allocations, both within the world’s many nations and in transnational forms as well (corporations, global NGOs, UN-determined public investments(?), etc.).  

However this next system shapes up, the world is never going back to the gold standard. It will remain on fiat currencies because that is the actual and only way, now, that nation-states and their markets can operate (if anyone can see beyond the era of fiat currencies, please let us know what that might look like!). When US progressives quash dual power and take general control of our government (sometime over the next few election cycles), the dollar will become our currency (the public’s currency!), and we can directly and forthrightly engage China, Europe, Japan, Britain — the other four IMF-approved-for-trade currencies — the Global South, and all other sovereign nations on the matter of how best to reconstruct and democratize global finance for the challenging crisis-mitigation era ahead (including, possibly, setting a new Special Drawing Rights (SDR) currency to replace the dollar as the global reserve… MMT suggests how that might be done).  

I think that forging a new system of global finance is a necessary piece of this era’s struggle, an issue to be resolved sooner rather than later. MMT is empowering because it explains not only how the system works (and, as a corollary, how finance capital exploits the system for its own ends) but, also, how our nation’s democratic majority can impose its will on the system, reprioritize its investment agenda, move on to global financial reform, and, thereby, tackle all the vital problems of our time.

To me, a crucial task, now, is raising the financial consciousness of voters so elected politicians fight for popular oversight of finance in the public interest. That’s how we overcome dual power (defeat neoliberalism) and win progressive legislative majorities over the next few election cycles. Right now, the MMT folks are leading this project, but they need allies as well as broadened popular grounding and intersectional collaboration. I hope we Leftists will walk towards them, learn from them and help them see and link more effectively, beyond the financial realm.

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Analysis Commentary Financial Justice

Tom Clark Responds to “The Dollar as the World’s Reserve Currency”

| Tom Clark |

In this piece, Tom Clark responds to Dennis Torigoe’s recent article, “The Dollar as the World’s Reserve Currency.”

I’m a big Dennis Torigoe fan.  As I told him at the 40th Anniversary event, having never met him before, I miss his writings from the Worker’s Viewpoint days and am very glad to see him still at it after all these years.  His response about Walden Bello last winter was very useful and enlightening.  And, as I commented on the Voices for New Democracy site, I do appreciate Dennis’ timely information about SWIFT, one of the ways the US exercises its hegemony, and INTREX, a potential remedy. He is still an authority in my view.  I’ve thought that we should invite him to present to our Finance Group on how he thinks about financial and economic issues and what his suggestions are for how we should think about them.

So it is with all due respect that I say that I found Dennis’ explanation of Modern Monetary Theory (MMT) to be vague and unsubstantial, and his conclusion about reserve currencies misplaced.  

In his article, he mentions the name Wynne Godley. What he didn’t mention, and might have, is the substance of what that economist’s work is about.  As laid out in Chapter 2 of The Deficit Myth, Godley demonstrated the principle of ‘sectoral balances.’  Simply put, as author Kelton does, the government’s red ink (the deficit) is the non-government’s black ink (a surplus).  Or, more precisely, there is a ‘penny-to-penny’ relationship between the amount of the government’s ‘debt,’ as we so misleadingly call it, and the amount of the surplus held by the non-government sector (what you, me, the business community, the Chinese etc., hold onto in our wallets, bank accounts, 401(k)s etc.) as assets, and didn’t pay in taxes.  As Godley showed, this accounting is a fact, not a theory, and decisively exposes the myth that the national debt is somehow a burden to our descendants, any more than the massive deficits from WWII were a burden to us.

In fact, there was a recent Twitter exchange where someone asked about exactly what [Signe Waller Foxworth] wrote here and what was in Dennis’ article:  Doesn’t MMT get used to maintain US hegemony over the world financial system?  The answer is that framing it that way is backwards:  The dollar acts as the world’s reserve currency because the US is an imperialist power and has the military and political clout to enforce its culture onto other players.  In other words, the dollar’s status as reserve currency is a result, not a cause, of US imperialism.  Of course they use monetary operations (the accurate description of which is the basis for MMT) to further their domination; it’s what we used to call ‘cultural hegemony,’ and part of the ‘code of capital,’ as we have called it more recently.  But the work of Fahdel KaboubLua Kamal YuilleNdongo Samba Sylla and many others demonstrate how the MMT lens and the concept of monetary sovereignty can be used by progressive/revolutionary movements to improve the lives of their constituents as well as further expose the aggressive, oppressive roles played by the US and their neoliberal allies. 

To say one more thing, since you mention military spending.  As we all know the US military budget is nearly 3 quarters of a trillion dollars per year.  But notice that the Dems infrastructure and rescue proposals are for $6T total over 10 years, in other words about $.6T/year, comparable to the military expense.  What the MMT folk say is that we have enough room to do both, at least for a while. The MMT proposition is that there is no need to ‘pay for’ the Green New Deal, Medicare for All, education, childcare, reparations etc. by cutting the military budget or anything else.  Of course doing both seems wasteful and leaves in place an aggressive, damaging institution that we all hate.  (I say we can work on that problem as we go.)  But isn’t it worth it to get the good stuff that we really have to have and to highlight that possibility to those we work with?  I think so.

The point is that believing that we must first cut things like military spending to ‘pay for’ the social programs we know are so acutely necessary, is to swallow the ‘Deficit Myth,’ to accept that the US government has to ‘find’ the money it spends just like households, businesses and local governments must.  It’s just not so.
So the question is larger than, ‘how do we stop so much military spending?’  It’s ‘how do we get people the things they need?’ The MMT lens says we do that by writing and passing budgets that fund the programs we want, at least initially no matter what happens with the military budget.  Let’s do that and then the democratic will of the people we have established by working with everyone who will — what I think Steve means by ‘dual power’ — can decide later what best to fund for the long term, guns or butter, to use the old phrase.  The issue is getting our (small-d) democratic foot further in the door of this appropriations/spending process, using what ‘dual-power’ we can muster, not slaying old dragons no matter how righteous and right we are about how monstrous they are.   

Agree or disagree, I hope this is useful. Again, thanks for your response to my vids about the ongoing mainstreaming of MMT.

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Analysis Commentary Financial Justice

Signe Waller Foxworth Responds to “The Dollar as the World’s Reserve Currency”

| Signe Waller Foxworth, PhD |

In this piece, Signe Waller Foxworth responds to Dennis Torigoe’s recent article, “The Dollar as the World’s Reserve Currency.”

Thanks to Dennis Torigoe for a very informative piece in Voices for New Democracy about the privileged position the U.S. has in global finance due to the acceptance of the dollar as the world’s reserve currency. I am wondering about the relationship between Modern Monetary Theory (MMT), that has captured the enthusiasm of many of us, and the sovereign role of the dollar in global finance. 

We are excited about MMT because it exposes the myth of deficit spending and describes the actual working of the economy. MMT shows the deceitfulness of rationalizing the government’s failure to provide for the basic needs of the people with excuses like we don’t have the money for this or we would have to raise taxes to pay for that. These rationalizations are false because the U.S. Government is the sole currency issuer and creates fiat money by spending it into existence, a feat none of us can accomplish, at least legally. It is no more difficult to find the money for universal health care, housing, living wages, education, immigration reform and addressing environmental destruction and climate catastrophe than it is to find the money for bombs, drones, guns, corporate bailouts and aid to foreign countries that are human rights abusers. The failure to provide a decent living standard for its population is exposed as due to a failure of political will and moral values, not a shortage of money. MMT opens the door to a more democratic process of managing the U.S. economy.

What I find challenging is what is precisely the relationship between MMT and the international financial arrangements that lead to U.S. dominance over other nations. The sovereign dollar plays a major, if not decisive, role in promoting U.S. imperialism. Could we, or would we even want to, create a paradise in the U.S. by trampling the rest of the world to death with imperialistic and financial action afforded by our privileged position in the global financial system? The relationship between MMT, with its potential benefits toward democratizing our national life, and the global financial system that fosters U.S. imperialism challenges our thinking in the fields of Economics and Ethics.  Could we (is it even economically feasible) or would we want to (is it even ethically justifiable to) utilize the tools of MMT domestically to fund education, housing, living wages, immigration reform, universal health care and avoiding the worst climate catastrophes if the US sovereign position in global finance continues to allow us the latitude to address Americans’ needs by immiserating other peoples?

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Analysis Commentary Economic Justice Financial Justice

The Dollar as the World’s Reserve Currency

| Dennis Torigoe |

The US dollar is in a privileged position in the world as the global reserve currency which dominates international trade and commerce. As the world’s reserve currency, the US can continue to print as many dollars as it needs, run massive balance of trade deficits and use it to buy the world’s goods, basically swapping our paper for their raw materials and labor. The US can continue to increase its internal and trade deficits as long as it retains this world reserve currency status.

The bottom line: The dollar as the world’s reserve currency has been both an economic blessing and a curse on the workers and people of color in the US.  The US dollar’s role as the hegemonic reserve currency allows the US to deficit spend massively on the military and wars of aggression, while funding certain reforms to quell domestic resistance through targeted programs paid for by massive deficit spending.  At the same time the US dollar is used to plunder developing countries through high interest loans( by its de facto control of the IMF and the World Bank),  to attack other countries’ sovereign currencies and engage in unequal trade with developing countries.

The dollar as the world’s reserve currency has led to the gutting of domestic industry as US corporations, riding on the massive amounts of dollars printed by the US, drive for higher profits through outsourcing manufacturing and with them factory jobs to cheaper producers in Asia and elsewhere.  This has directly contributed to deindustrialization, structural unemployment and widespread suffering for a large swath of the American people.

Not only does the US control the creation of the dollar as the world’s reserve currency, it also controls the mechanism which allows another country to use the US dollar in trade or finance, the SWIFT trade clearing system.  Through it, it has attacked countries like Iran and Venezuela though enforcing trade sanctions and caused untold suffering to the people of those countries,

The reserve currency status of the dollar allows the US to import cheap manufactured goods from other countries, particularly China, while paying for it in dollar-denominated paper or bonds. The US balance of trade deficit has soared, especially since the 1990s, as they give us real goods and we give them paper.

This cheap goods vs. paper payment has contributed to inflation being almost nonexistent, till now, from the 1990s to 2020.

Given the history of the imperialist wars, the plunder through unequal trade and economic and political aggression against the developing countries, the US owes reparations to much of the developing world which have to be repaid over time.  In our view, the only way to repay these historic debts and to raise the standard of living within the US is through unleashing massive postindustrial gains in productivity through a top to bottom reform of the present economic system.

However, we do recognize that replacing the US dollar as a reserve currency will perhaps take decades. In the interim, a Green New Deal-like program could be pivotal in accelerating the fight against climate change and the US’s advance in a post-industrial world.  However, the feasibility of such massive spending assumes the reserve currency status of the US dollar and the US’s own easy access to capital markets. Do the benefits that accrue to American workers from giant government programs come at the expense of people around the world? The answer is yes, thus the US bears a special responsibility to the rest of the world to fight climate change, inequality and injustice. As starters, the US needs to join or rejoin initiatives like the 2015 Paris Agreement, COVAX, the World Health Organization and revolutionize the character of international institutions like the IMF, World Bank, Bank for International Settlements, and the UN.

At the same time, we should seek first to promote alternatives to the US dollar’s reserve currency status and more equitable control of the world’s financial, trading and banking networks.

Commentary:

The US Dollar as the Global Reserve Currency: Is Modern Monetary Theory Only Good for Modern Imperialism?

When Representative Alexandria Ocasio-Cortez was asked how the potentially multi-trillion dollar Green New Deal was going to be paid for, she mentioned Modern Monetary Theory (MMT).  Coming into wider public view since then, it has become the answer for some on the political left to the question of how to pay for any major program proposed, from Medicare for All to Guaranteed Annual Income.

So what is this theory and how does it work, who benefits and who actually pays for what it promises?  We think it is usable by a superpower with hegemonic financial power through the use of the US dollar as the world reserve currency, benefiting the ruling class financially and politically.  It is paid for by the developing countries and their citizens forced to use the US dollar in trade and finance. And while it may give short term benefits to US workers, it creates an unsustainable global economy and prolongs the rule of the monopoly capitalists.

The bottom line: the US dollar’s role as the hegemonic reserve currency allows the US to spend massively on the military and wars of aggression, while funding certain reforms to quell domestic resistance through targeted programs and to continue to use the US dollar to plunder third world countries and engage in unequal trade.

It is one currency, one system.  They are interconnected. Given the history of the imperialist wars, the plunder through unequal trade and economic and political aggression against the developing countries, the US owes reparations to much of the developing world which have to be repaid over time.  In our view, the only way to repay these historic debts and to raise the standard of living within the US is through unleashing massive postindustrial gains in productivity through a top to bottom reform of the present economic system.

However, we do recognize that replacing the US dollar as a reserve currency will perhaps take decades.  In the interim, a Green New Deal-like program could be pivotal in accelerating the fight against climate change and the US’s advance in a post-industrial world.  However, the feasibility of such massive spending assumes the reserve currency status of the US dollar and the US’s own easy access to capital markets. Do the benefits that accrue to American workers from giant government programs come at the expense of people around the world?  As we show below, the answer is yes, and if so then the US bears a special responsibility to the rest of the world to fight climate change, inequality and injustice. As starters, the US needs to join or rejoin initiatives like the 2015 Paris Agreement, COVAX, the World Health Organization and revolutionize the character of international institutions like the IMF, World Bank, Bank for International Settlements, and the UN.

At the same time, we should seek and promote alternatives to the US dollar’s reserve currency status and more equitable control of the world’s banking networks.

Secular Stagnation Takes Hold in the US Economy

We believe that the US economy is in a period of what Lawrence Summers, the Harvard economist, calls secular stagnation.  He cites a number of factors pointing in this direction.

First of all, there has been a decrease in market-based investment demand overall, driven by a shrinking working age population which drives down investment in housing, consumer demand and production equipment.  Also driving down investment has been the lower cost and higher productivity afforded by the technology revolution.  He also argues that increased monopoly power in the US has stifled investment, as well as the refusal of the politicians to fund major infrastructure projects.  The net result has been that infrastructure spending is now one half of what it once was,

The other aspect driving secular stagnation has been the increased savings taking place in the economy.  Much more of the country’s income and wealth is going to the top economic earners, driving up the prices of assets like stocks and real estate, not into productive investments.  Moreover, because of the traumatic experience of the Great Recession of the 2009, people are themselves saving more as a cushion and banks have tightened lending rules, excluding many from purchasing homes and opening businesses.  Of course, the coronavirus pandemic has greatly increased all these factors.

What Is Modern Monetary Theory?

Modern Monetary Theory has been around for a while.  In her recent book The Deficit Myth, Stephanie Kelton, a leading proponent, cites her colleague Wynne Godley who in the late1990’s as a major inspiration for her thinking.  Basically, MMT argues that the government (in the US case, the Federal Reserve) can issue as much money to enable the Federal Government to spend as much money as it wants up to the point where economic demand in the economy outstrips the available supply of goods and services, at which point inflation and higher interest rates set in.  For a country with a sovereign currency, meaning it issues and controls its own currency, MMT believes that it can create money and the government can spend money as long as the goods and services exist for it to buy in its specific currency.

One of the major distinctions made by MMT is that unlike households and private businesses, a government with a sovereign currency does not need to balance its expenses with its revenues.  The government, as the creator and controller of the currency, can print as much money as it wants to pay off its bills.  But this means that governments without control over the currency with which they borrow or trade must use the US dollar to trade or pay off debts denominated in dollars or held by US-controlled institutions.  They are like households.  They need to get US dollars to pay off these bills.

How Does the US Ruling Class Use the Dollar as the Global Reserve Currency to Plunder the Rest of the World?

The countries that have the ability to follow MMT’s policies are the advanced capitalist countries of the world, with the US by far the most powerful.  Like households and businesses, the rest of the world has to get (through trade or borrowing) and use the major currencies of the West, mainly the US dollar but also the euro, the yen, the pound, and to a smaller extent China’s yuan, to engage in trade and finance with the US and major trading nations of Europe, Japan and China.  As we shall see, not only does the US control the creation of the dollar as the world’s reserve currency, it also controls the mechanism which allows another country to use the US dollar in trade or finance. (Unlike the US, the European countries that share the euro are a work in progress. While they share a single currency and a central bank that issues that currency, spending decisions are still made, within limits, by their individual governments.)

The US dollar is in a privileged position in the world as the global reserve currency.  After World War II, the US was the world’s most powerful military and economic power. At the post war Bretton Woods Conference, the major allied powers and other signers agreed to the US dollar as the world’s reserve currency, then pegged at US$35 to an ounce of gold.

The Conference also created the International Monetary Fund, which was to stabilize currencies vis-a-vis the US dollar through loans and the World Bank which was to help develop international trade and finance.  Both were de facto controlled by the United States in its position as the biggest contributor of financial support, with US dollars, a currency that it created and distributed as its sovereign currency.

The US Dollar as the World’s Currency for Buying Oil Shores Up its Dominance

In the 1950s and 1960s, as the world’s economic and military superpower, the US dominated the world economy in trade, finance and manufacturing. Importantly, it also dominated the trade in the world’s most traded commodity – oil.  As the US dollar was the reserve currency in the world, almost all oil produced and exported had to be bought with US dollars. This worked until the US stagflation crisis (economic stagnation AND inflation at the same time) in the early 1970s when the US unilaterally pulled out of the gold standard of US$35 being exchangeable for one ounce of gold.  With US inflation and the dollar’s devaluation — its value “floating” depending on supply and demand — the oil-exporting countries of the Middle East lost purchasing power. They rebelled with the 1979 OPEC boycott by oil producing countries, refusing to ship oil to the West, which made the price of oil quadruple, from a fixed price of US$4 a barrel to US$12 a barrel in a matter of months.  With US dollars now gushing out of the US and Europe to the oil producers in OPEC, a new agreement was signed.  In 1979, the US-Saudi Arabia Joint Agreement on Economic Cooperation, in which Saudi Arabia, the biggest oil exporter, agreed to take only US dollars for its oil and to funnel them back into the US.  This again strengthened the US dollar’s hegemony on the world economic, trade and financial scene.

Since then, the US dollar has kept its position as the only truly world currency, though it is being potentially challenged by the euro and less so by China’s yuan. (On a secular basis, the shift away from fossil fuels, including oil, and the rise of digital currencies, especially sovereign-state-supported ones, pose challenges to the US dollar’s dominance in world trade and finance.)

The US Dollar Hegemony Helps Keep Wages Down Here and Oppress Low Wage Labor Overseas

The new millennium has brought historically low inflation to the United States, especially compared with the decades since the 1970s, as can be seen by the chart below.

At the same time, the US balance of trade deficit soared, especially since the 1990s, or as MMT author Kelton says, they give us goods and we give them paper.  What happened in that period?  The US started importing massive amounts of goods from the rest of the world, particularly China.  While the US has historically exploited cheap overseas labor and raw materials, from the banana plantations of Central and South America to the sewing factories in the Caribbean and Asia, now the US was buying manufactured goods from a fast-growing Chinese economy. At least one study shows that this had the effect of dampening price inflation.  This was especially true after the period of the Great Recession of 2008-2010, when the US economy was recovering.  According to A New York Federal Reserve staff report showing the impact on trade on US prices:

Lower Chinese export prices due to WTO entry reduce the U.S. manufacturing price index by 4.9 percent, while greater Chinese export variety reduce the index by 2.6 percent. The sum of these two values indicates that the total WTO effect on the U.S. price index is 0.076, that is the U.S. manufacturing price index was 7.6 percent lower in 2006 relative to 2000 due to China joining the WTO. Note that this fall is after correcting for any overall inflation in domestic and import prices that is common across industries in the constructed U.S. price index, since common trends would be absorbed by the constant term in (33).

So we interpret this 7.6 percent fall in prices as the real impact on U.S. manufacturing prices relative to inflation. Since manufacturing is only a fraction of the U.S. economy, this seemingly large effect is notably smaller than the aggregate 6.7 percent long-run U.S. welfare increase that Caliendo et al. (2015) estimate from the 2000-2007 China trade shock.

In a period of increasing impoverishment of US workers, this meant that their real wages were buffered by this lowered inflation and thus kept their standard of living from declining even more.  The fact that most of the imports from China are consumer goods and consumer spending makes up 2/3 of our economy means that the standard of living of people in the US is increasingly dependent on the continuation of US dollar hegemony. We are using massive amounts of printed dollars to keep the goods coming.  If there ever was a sudden stop to this, our living standards could fall precipitously.  As quoted by Siddiqui, Paul Samuelson expressed his deep concern about this:

More than a decade ago, Krugman (2007: 437) noted, “The United States has a remarkably large current account deficit, both in absolute terms and as a share of GDP. At the moment the country is not having any difficulty attracting capital inflows sufficient to finance this deficit, but many observers nonetheless find that deficit worrisome. This worriers see an ominous resemblance between the current U.S. situation and that of developing countries that also went through periods during which capital flows easily financed large current deficits, then experienced ‘sudden stops’ in which capital inflows abruptly ceased, the currency plunged, and the economy experienced a major setback.”

The Walmart’s and Amazons depend on the much lower paid labor making manufactured goods from China and the developing countries as an inherent part of their business models.  This was another way that the ruling class kept pressure for wage increases down and capitalist profits higher.  The other way was US companies offshoring production of things like sophisticated electronics at a fraction of the cost of what it would be to produce in the US.  The Apple iPhone is a prime example of this,

And how does the United States pay for this massive trade deficit?  As MMT says, we get real goods, we send them paper.  Basically by printing money that the world is obliged to take as payment. China now has over a trillion dollars of US Treasury notes that it has accumulated in trade with the US, about 7% of the total foreign-held US government debt.

US Global Trade Deficit 1950-2018

Thus the US ruling class continues to reap the profits of exploiting cheap labor from the developing countries in both raw materials and in manufactured goods because of its position as the creator of the world reserve currency.

The Cycle of US Interest Rates and Currency Attacks on Developing Countries 

Federal Funds Rate 1950-2019

In 2007 Joseph Stiglitz wrote an article titled “The Asian Crisis 10 Years Later” in The Guardian, explaining the Asian Financial Crisis which began in 1997.  In it, he laid out the timeline of the crisis:

In July 1997, the Thai Baht plummeted. Soon after, the crisis spread to Indonesia and Korea, then to Malaysia. In a little more than a year, the Asian crisis had become a global financial crisis, with the crash of Russia’s ruble and Brazil’s real.

In that year, George Soros’ hedge fund, the Quantum Fund, bet heavily against the Thai baht, which had recently dissolved its peg to the US dollar. Thailand did this after the dollar strengthened, and Thailand was caught in deteriorating terms of trade and thus an inability to pay the massive loans it had denominated in dollars. That was like blood in the water to the hedge fund sharks and other currency speculators to attack the Thai baht, betting that it would quickly devalue against the dollar.  George Soros’ fund’s $1 billion bet, in fact, wasn’t the biggest of the attackers. Julian Roberts’ Tiger Fund hedge fund bet $3 billion against it.  The attacks continued through the next two years.

What were the general conditions causing this financial crisis? As Stiglitz puts it, “[B]efore the 1997 crisis, there had been rapid increases in capital flows from developed to developing countries – a six-fold increase in six years. Afterwards, capital flows to developing countries stagnated.”   He went on to say, “Indeed, the two most important lessons of the crisis have not been absorbed. The first is that capital market liberalisation – opening up developing countries’ financial markets to surges in short-term ‘hot’ money – is dangerous. The only two major developing countries to be spared a crisis were India and China, both of which had resisted capital market liberalisation. Yet today, both are under pressure to liberalise.”

We think that the cycles of interest rates play a major part in the recurring financial crises. When US interest rates decline and a weaker dollar follows, US companies use the cheap money to buy up assets in these countries and US banks push dollar-denominated loans to them.  Then the crisis hits and the foreign investments become “hot money” and flows out of the country.  At the same time, Western banks stop lending and the economic crisis intensifies in developing countries.

Korea’s experience with the 1997 Asian financial crisis is an example of Western predatory attacks against a weakening currency leading to the attempts at an economic takeover of its most valuable assets.  Korea was  forced to borrow from the IMF to cover foreign loan repayments for its major industrial companies, the Chaebol.  Among other demands, the IMF demanded that Korea “open up” its financial markets to foreign investment, allowing 55% foreign ownership of its companies (Korea dropped limits altogether), which would mean foreign, primarily U.S., control of Korea’s companies.

As one report in 2009 stated in Korea’s attempt to instill anti-takeover poison pill measures:

Domestic M&A laws have been loosened since the 1997-98 Asian financial crisis, and in 2006 activist investor Carl Icahn and hedge fund Steel Partners floated the idea of buying tobacco monopoly KT&G…in what would have been South Korea’s first unsolicited foreign takeover bid, but no official tender offer was filed.

In 2003, SK Group, parent of top mobile carrier SK Telecom…and refiner SK Energy…, clashed with Sovereign Asset Management, which unsuccessfully sought to remove its chairman.

Those cases raised a red flag to unfriendly takeover attempts and led listed companies, including Samsung and POSCO, to spend $55 billion defending their management as of end-January.

“Our country has made hostile M&A attacks easy by removing a ceiling on foreign stock investments, but it has not had any means to prevent hostile M&A,” the justice ministry said in a statement on Monday.

The US Dollar and the SWIFT International Settlement System: Weaponizing the Dollar

On November 5, 2018 Al Jazeera ran the following headline: US Treasury Secretary Steven Mnuchin told reporters that SWIFT could get slapped with sanctions if it provides services to Iranian banks blacklisted by Washington.

The article continued:

The Belgium-based Society for Worldwide Interbank Financial Communications (SWIFT) financial messaging service announced on Wednesday it was suspending access for some Iranian banks “in the interest of the stability and integrity of the wider global financial system.”

What was this about?  Another way the US uses its hegemonic position as the world’s reserve currency is its weaponization of the currency clearing system used in global trade.  Today SWIFT (the Belgium-based Society for Worldwide Interbank Financial Communications) system dominates the international trade payments system, which of course is heavily based on the US dollar,

As a whole, the US dollar is by far the currency of world trade transactions.  As Kalim Siddiqui wrote in his 2018 article “The U.S. Dollar and the World Economy: A Critical Review”:

the U.S. dollar makes up nearly 63% of central banks’ reserve currency holdings, against 17% for the euro and 2% for the yen (Siddiqui 2018a, World Bank 2017).

In the foreign exchange market, 90% of forex trading involves the U.S. dollar. At present, nearly 40% of the world’s debt is issued in the U.S.dollars (World Bank 2017, Willett and Chiu 2012).

SWIFT is basically a financial messaging system that allows its member banks to conduct payment settlements between international trade buyers and sellers,  According to Al Jazeera, the member-owned cooperative connects more than 11,000 banks, financial institutions and corporations in more than 200 countries and territories around the world.  It continues:

Think of SWIFT as the central nervous system of international financial transactions. The messaging platform enables financial institutions to send, receive and track information about financial transactions in a secure and standardised way that facilitates the smooth flow of funds across borders.

When the Trump administration wanted to punish Iran with sanctions, it used the US’ role as the world’s issuer of reserve currency as one of the ways to enforce it.  Al Jazeera states,

Countries cut off from SWIFT can be crippled financially because money transfer information can’t be forwarded to its banks.  When a country’s banks are cut off from SWIFT, it can’t pay for imports and can’t receive payment for exports… In March 2012, SWIFT agreed to not forward messages to any Iranian bank or individual that had been blacklisted by the EU. As a result, Iran’s oil exports plunged from around 2.5 million bpd in 2011 to around one million bpd by 2014.  The 2012 SWIFT ban was widely seen as instrumental in bringing Iran to the negotiating table which led to the 2015 Iran-nuclear deal.  When Iranian banks were reconnected to SWIFT following the 2015 Iran-nuclear deal, oil exports increased again.

While SWIFT is not owned by the US, it defies the wishes of the superpower at its own peril.  Al Jazeera states:

…There could be consequences if it resists US pressure to cut off Iran again. Richard Goldberg, senior adviser at the Foundation for Defense of Democracies, a think-tank, argued in this blog that in 2012, Congress authorised any president to impose sanctions on SWIFT’s board of directors (which includes executives from some of the world’s biggest banks) if it refused to disconnect Iranian banks blacklisted by Washington. 

As can be seen, the US can impose its will on SWIFT and use it as a financial weapon against its intended targets.

Europe Countering US Move on SWIFT

The US campaign against Iran and pulling out of the 2015 nuclear deal, however, has not been supported by the major countries of Europe, who rely on trade and imported oil from the Middle East and want the best deal they can get in buying it,  To have Iran cut off from supplying oil to them and trading with them is a major problem for them,  To counter the US move against SWIFT by banning Iran from it, the Europeans have attempted to set up a separate shadow trade settlement system.

On December 1, 2019, six European countries joined a barter system for the Iran trade.  As reported by TRT World, the Paris-based INSTEX, which has yet to enable transactions, functions as a clearing house allowing Iran to continue to sell oil and import other products or services in exchange, to avoid US sanctions.  Paris, London and Berlin on Saturday welcomed six new European countries to the INSTEX barter mechanism, which is designed to circumvent US sanctions against trade with Iran by avoiding use of the dollar.

As founding shareholders of the Instrument in Support of Trade Exchanges (INSTEX), France, Germany and the United Kingdom warmly welcome the decision taken by the governments of Belgium, Denmark, Finland, the Netherlands, Norway and Sweden, to join INSTEX as shareholders,” the three said in a joint statement. The Paris-based INSTEX functions as a clearing house allowing Iran to continue to sell oil and import other products or services in exchange.

This, in itself, is a step toward freeing the world from the US dollar hegemony that has lasted over 85 years.

Categories
Analysis Commentary Economic Justice Immigration Social Justice

Commentary: The Root Cause of Central American Migration Is US Imperialism

This post offers commentary on the article, “The Root Cause of Central American Migration Is US Imperialism,” written by Suyapa Portillo Villeda and Miguel Tinker Salas, and recently published in Jacobin. Read the full piece here.

Earlier this week, Vice President Kamala Harris visited Guatemala as part of a series of foreign policy meetings regarding Central American migration. But despite the Biden administration’s promises to close the chapter on Trump-era policies by welcoming immigrants and building a more just immigration system, Harris quickly indicated that tight border restrictions are here to stay. Speaking to migrants in Central America, Harris’s message was explicit: “Do not come. Do not come.”

While Harris’s trip was ostensibly meant to begin discussions with foreign leaders around addressing the “root causes” of Central American migration, the overarching message she conveyed was that the United States will turn you back at the border if you try to come. (It’s worth noting that this is legally dubious; all migrants have a right to seek asylum at the US border under existing immigration law.) And even when discussing the “root causes” of migration, Harris continued to disappoint, focusing primarily on issues of corruption and lack of economic opportunity. As many immediately pointed out, Harris failed to recognize that the United States itself has long been one of the key actors animating these “root causes” in the first place.

In a recent Voices for New Democracy forum, scholar Miguel Tinker Salas discussed the United States’ historic record of involvement in Central America and how it continues to animate migration patterns today. He also recently published a new piece with the scholar Suyapa Portillo Villeda in Jacobin magazine elaborating on these issues in the context of the controversy Harris has provoked.

Does anyone believe that promoting “economic development” by expanding the presence of foreign companies in Central America will slow immigration? Does anyone believe that callously declaring “Do not come” will improve the lot of would-be migrants?

https://jacobinmag.com/2021/06/kamala-harris-central-america-guatemala-visit-us-imperialism

Throughout the last century, they argue, the United States has been deeply involved in shaping a neocolonial reality in Central America, as the American economy relies heavily on cheap Central American labor. With this history in mind, Harris’s gestures towards expanding economic opportunity ring hollow – another justification for American-led development and economic policy more likely to favor multinational corporations than potential migrant populations. Ultimately, if we want to get serious about root causes, we must begin with US empire.

Read the full piece, “The Root Cause of Central American Migration Is US Imperialism,” via Jacobin.

Categories
Commentary Economic Justice Organizing Social Justice

Commentary: The Dream of a Unionized New Orleans Is Coming True

This post offers commentary on the article, “The Dream of a Unionized New Orleans Is Coming True,” written by Hamilton Nolan and recently published in In These Times. Read the full piece here.

Readers of Voices for New Democracy have long been grappling with the ongoing transformation of the American economy, beginning in the 1970s, towards a post-industrial society. Over the past decades, this has manifested in the decline of manufacturing, rapidly growing financialization, a massive shift towards the service sector, and a series of all-out assaults on organized labor. The American South has been especially hard hit by these trends, particularly in terms of the rights of workers, as Republican control of state governments have created legal regimes that keep wages low, precarity high, and maintain massive obstacles to organized labor.

Amid this trajectory, COVID-19 has been a major disruption, and it remains uncertain whether the fallout could help strengthen the position of workers or serve as a justification for further attacks on labor. That is why the work of unions in the South are so critical, and why the left must focus on these fights; since they represent a model that could upend this trajectory even in the heart of reactionary states.

Hamilton Nolan’s recent piece in In These Times is illustrative. The piece explores the growth of the Unite Here hospitality workers union in New Orleans over the past years, which is especially notable given the low union density across the state and the traditional challenges of organizing in a tourist economy in a right-to-work state. While Unite Here members and staff alike have experienced the fallout from the pandemic, the union has done remarkable work to support its members throughout these challenges, both by negotiating recall rights with employers and providing direct support services to members. All of this work is offering new visions for what the city’s hospitality industry could look like with an organized working class:

The bulk of Unite Here’s organizing in New Orleans happened after the 2008 recession, meaning the pandemic has been the first major economic shock most members have lived through as union members. Even as it lost staff, Local 23 had to transform itself into what Patrick-Cooper describes as ​“a social service beacon.” The union turned its focus to helping newly laid off union members navigate the state’s broken unemployment system. It created a hotline for members to call for assistance, ran a food bank and searched everywhere for fundraising, all while marshaling support for Unite Here’s massive national door-knocking campaign in support of Joe Biden’s presidential run — and fighting for extended recall rights for workers.

https://inthesetimes.com/article/unionized-new-orleans-labor-workers-organizing-pandemic-south

While Unite Here continues to face an uphill battle, its efforts on behalf of its members during the pandemic could help turn the tide for organized labor throughout the state. Union members are the only workers in the city who won guaranteed recall rights, which offers a strong incentive for more hospitality workers to unionize especially at a moment when many working people feel they have little left to lose. And if these local efforts prove successful in these critical right-wing strongholds, they will be key stepping stones to rebuilding a powerful labor movement on a national scale.

As Unite Here’s international president, D. Taylor, says:

You change the South, you change America.

https://inthesetimes.com/article/unionized-new-orleans-labor-workers-organizing-pandemic-south

Read the full piece, “The Dream of a Unionized New Orleans Is Coming True, via In These Times.

Categories
Commentary Economic Justice Organizing Social Justice

Long Live the Day Laborers!

The following is a speech by Professor José Calderón Clausura of the José Fernando Pedraza Institute, which was originally published in Popular Education Liberates.

The development of the National Day laborer Organizing Network, Radio Jornalera, and this Institute, are very close to my heart.

I was part of the start of the Day Labor Center in Pomona in 1997. At that time the City Council passed a law that, if implemented, would have fined each day laborer $1,500 just for looking for work on the street. We responded with a march and filled the Council with hundreds of people. Out of this organizing, the city council rescinded the unjust ordinance and agreed to help support the development of the Pomona Day Labor center.

I was also part of the beginning of the National Day Labor Organizing Network alongside twelve organizations at a conference held at Cal State Northridge in July 2001.

I have to tell you that my commitment – my passion – in support of these struggles came from the fact that I was an immigrant from Mexico, that came to this country when I was 7 years old with my parents – who were farmworkers their entire lives in Colorado and with my father who was a day laborer in the winters, waiting on the corners, even when there was snow, for a job so that we could eat. I never forgot – and when I graduated from college, I went to work for a while with the United Farmworkers Union of Cesar Chavez in Delano, CA – and when I returned to Colorado with my parents, I started a little school in the back of my parents’ house – and I have to tell you, I started teaching 18 students who did not know English in the same way that you are using the Paulo Freire and Popular Education method.

And I must also share with you today that there is no better way to honor the life of José Fernando Pedraza, than with the development of this Instituto, because truly, Fernando was an example of the development of a consciousness, of a day laborer who organized other day laborers – on a street corner – to respect each other in the search for work – and also to fight injustice. Fernando was part of the classes with some of my students on the street corner in Rancho where he was not only a learner but a teacher – and went beyond the learning to read and write – but to use his skills in organizing against injustices.

In 2002, when the city of Rancho Cucamonga passed a law against day laborers being able to look for work on the street, Fernando was not afraid and took the city to court to ensure that his comrades could continue to organize themselves on the corner. After that victory, Fernando continued the struggle to create a center for day laborers.

That is the way it was for Fernando, Don Gilberto, and other workers who, with the support of students, the Pomona Day Labor Center, and NDLON, developed a corner of struggle that, not only helped the workers in employment and education, but organized them to respond to monthly attacks, on the corner of Arrow and Grove, by such anti-immigrant groups as the Ku Klux Klan and the Minute Men. Hence, on April 2, 2007, a dozen of Ku Klux Klansmen wearing their Klan t-shirts and hats protested the day laborers on that corner. A month later, on Cinco de Mayo 2007 (a day celebrated in Mexican communities when the colonial French army was defeated in Puebla by a largely Mestizo and Zapotec force in 1862) dozens of Minute Men protested across the street from the day laborers. In the middle of the protest, two cars collided on the road and one of the cars landed on the sidewalk killing our leader Fernando.

Although his death hurt all of us deeply, Fernando is very much alive in the ongoing development of the Pomona Day Labor Center, the continuance of classes and leadership development at the corner, and in the annual organizing of an annual memorial attended by day laborers, students and the community. The example and spirit of Fernando is here today with all of you – leaders from all over the country- with the advancement of the National Day Labor Organizing Network (which began with a few and now includes hundreds in corners, centers and cities throughout the nation).

We are here in the spirit of Fernando, to use our skills – without fear – to defeat the walls of ignorance, racism, and scapegoating. At this time when the conservative right and the government use the frustration of workers– (many who don’t have livable salaries and benefits) to advance hatred against our immigrant communities – now, more than ever, it is necessary that we commit ourselves to fight and organize (in the spirit of Fernando) for justice, for fair wages and benefits, for the legalization of our immigrant communities (that contribute billions to the economy with our labor and the taxes that we pay).

We all know very well that this is what Fernando and all those who have sacrificed their lives across the nation would want. Their spirit is very much alive among us – and in that spirit – with the NDLON – with the development of the Jose Fernando Pedraza Institute – we can be sure that in the end we will win – and that a better future – as a result of our efforts – is on the horizon for our communities.

Fernando Pedraza Lives and La Lucha Sigue!

Categories
Commentary Economic Justice

Commentary: No, China didn’t steal our jobs. Corporate America gave them away.

The following article was originally published in Salon.

For as long as outsourcing has been a major trend in global capitalism, the ruling classes have had to weave a narrative of how workers in the Global South are “stealing our jobs” as a cover for the reality that global capital actively seeks out cheap, exploitable labor. These narratives have long been embraced by the American right-wing to scapegoat non-American labor and drive a wedge between the international working classes. As such, it is always worthwhile to sharpen our arguments highlighting the ways that these trends are a result of our global economic system and the will of the ruling elite, and the only way to fight back is to forge international solidarity among workers. The following article by Cody Cain in Salon is an important contribution to these efforts.

China is not “stealing” American jobs.

President Trump loves to blame China for the job losses that have devastated American workers under globalization. But the truth is that Trump is blaming the wrong party. Trump’s reckless trade war against China is misguided and amounts to a colossal charade that will not solve the actual problem.

Yes, it is true that numerous American manufacturing jobs have been shipped overseas to China, thereby leaving American workers jobless and suffering. But China did not steal these jobs.

No. These jobs were given to China. It was all legal and legitimate. China merely accepted the gift.

What would anyone expect China to do? Accepting these jobs was a perfectly rational course of action.

China was an underdeveloped nation with a large population of poor people willing to work for a fraction of the hourly wages of American workers. And then corporations came along and presented China with an attractive offer: We would like to build manufacturing plants in China and hire droves of your unemployed people to work there. What was China supposed to do? Naturally, China said yes.

This is hardly stealing.

It is true that these new jobs in China were intended to displace American workers. But does that concern belong to China? Does China have the responsibility to care for the well-being of American workers? Is China supposed to prioritize American workers over its own workers?

Of course not.

China is supposed to look out for itself and for its own workers, not for American workers. Thus it was perfectly proper for China to allow the manufacturing plants to be built in China and employ Chinese workers. China did not steal these jobs.

So if China is not at fault, then who is to blame for the devastation caused to American workers?

The answer is plain to see, and it lies within our own shores. The fault belongs squarely with corporate America.

It was corporate America that made these decisions. Corporate America decided to close their American plants and open new plants in China. Corporate America decided to lay off multitudes of American workers and ruin entire American communities.

And who profited from the destruction to American workers? It was the wealthy executives and shareholders of American corporations. They earned millions of dollars for themselves by cutting the costs of their workforce.

This is part of the larger trend of economic inequality that is eroding the entire middle class in America. Wealth is being shifted away from the workers down below and transferred up into the hands of the wealthy executives and shareholders at the top.

Trump blaming China is nonsense. China is not at fault. To be sure, China is hardly an angel and indeed engages in improper trade practices. But even if China agreed to whatever bone-headed demands Trump is seeking, the problem still would not be solved. The truth is that America cannot possibly compete against China on labor costs. The standard of living is much lower in China and thus Chinese workers are willing to accept wages far below living wages in America. So corporate America will continue to transfer more and more jobs to China and elsewhere. If we do not address this fundamental economic reality, then we will never solve the problem.

Trump blaming China has an insidious aspect to it as well. Focusing all the ire upon China is a grand misdirection that conceals the true culprit, namely, the super-rich corporate executives and shareholders in America.

This is part of Trump’s standard playbook. Trump falsely proclaims to be fighting for blue-collar workers, when in truth, Trump acts entirely in favor of the rich at the top.

Surprisingly, this seems to work. Some of the hard-working Americans who are being crushed by Trump’s idiotic trade war and who should be denouncing Trump, nonetheless praise him for standing up to China, believing that Trump is fighting for blue-collar jobs. It is painful to witness such good people falling victim to Trump’s despicable con job.

In order to actually save the middle class, we need to focus on the true cause of the problem. We must direct our great powers of reform where they belong — upon the wealthy executives and shareholders of corporate America who caused this problem in the first place.

The nature of the problem is that corporate America has no incentive to protect American workers. In fact, corporate America has every incentive to harm American workers by shifting their jobs overseas.

So the financial incentives must be reconfigured. If corporate America is going to ship American jobs overseas, it must not be permitted to pocket all the profits themselves and leave their displaced workers with nothing. Instead, corporations that send jobs offshore must be required to sufficiently compensate their displaced American workers. Executives and shareholders must not be permitted to enrich themselves unless and until their workers are financially secure.

Our society must favor people over profits, not profits over people.

Categories
Commentary Organizing Social Justice

Commentary: On Solidarity with AAPI Communities

| Wenda Tai |

I’ve spent the last 3 days reaching out to my AAPI friends and family, responding to other non-AAPI friends, doom-scrolling through the news coverage and experiencing a traumatic cycle of emotions – sadness, grief, anger, anxiety and more ANGER.

There were some rays of hope and comfort from AAPI representatives and groups speaking up and educating the public about a history of violence and exclusion deliberately buried and distorted. What has been most upsetting for me is the deafening silence from friends and colleagues and many people in the progressive movement. Some have expressed solidarity, issuing statements and committing to
actions. We need more. Now is the time for a true united front against white supremacy and misogyny, against colonization and divide-and-conquer manipulations by the state. We need respected civil rights groups to speak up, not just the AAJC and the ADL. [Note: since this was written, many groups have put out clear and powerful solidarity messages: Poor People’s Campaign, M4BL, Racial Equity Anchor Collaborative, and the NAACP, among others.]

I heartily support Marion’s suggestions. And I applaud the observations about the racist undertone in Biden’s foreign policy toward China.

For me, the Atlanta murders hit very close to home. Not sure many of you know that I spent my teen years in Atlanta as a new immigrant. My memories of high school bullying, micro-aggressions, invisibility, and invalidation just came flooding back. Yet I am encouraged that this is now out in the open and people (Asians and non-Asians
alike) are confronting this. No more hiding because we’re forced to feel white- adjacent and presumed to have the same level of white privilege (“model minority” myth). No more hiding because we feel we don’t “count” as POC. No more hiding because we still have to deal with inter- and intra-Asian colorism and racism within each of the Asian American communities.
 
“Let’s take this opportunity to build solidarity across communities of color and ensure that AAPI voices are listened to. That we count, and are COUNTED, literally! How many official reports and research papers actually disaggregate AAPI data and statistics to get to the underlying issues and needs, instead of getting lumped together and ignored/dismissed?”

This is what I told my former boss, the director of the largest LGBTQ and HIV/AIDS advocacy organization in the Pacific Northwest yesterday and helped him edit a statement. Next, I’m going to work with the largest Community Land Trust in this area to do the same in my capacity as a board member. I hope all of us in the family do the same with the platforms we have and the organizations we work with.
 
Thank you to those who are already on it. Thank you for the thoughtful support and resource sharing. Some of us are starting to keep a tally of who’s done what – not in a negative way – as a document of AAPI movement building to take charge of our lives and futures, avenge the suffering of our ancestors and earn the respect of
future generations, to paraphrase the preamble to the M4BL Reparations Now Toolkit.

One step in many towards healing and restorative justice.