Date: Sat, 21 Nov 1998 15:07:41 -0500
To: [EMAIL PROTECTED]
From: Bob Olsen <[EMAIL PROTECTED]>
Subject: forward to Futurework
Paul........
You may want to forward this to Futurework.........
Date: Sat, 21 Nov 1998 07:06:29 +0000
To: Bob Olsen <[EMAIL PROTECTED]>
From: Paul Swann <[EMAIL PROTECTED]>
Subject: Fwd: Bill Greider: Global Economy in Crisis
Date: Fri, 20 Nov 1998 17:40:20 -1000
From: Jay Hanson <[EMAIL PROTECTED]> via GRAFFIS-L
Subject: THE GLOBAL ECONOMY IN CRISIS
Rolling Stone * Issue 800 * November 26, 1998
THE GLOBAL ECONOMY IN CRISIS
Six steps the United States must take now
to prevent a depression at home
By William Greider
FLAGS of all nations line the ballroom wall, but the sea of blue
suits makes the world seem a very somber place. Several thousand
bankers, economic policymakers, and global financiers have
gathered in Washington, D.C., in early October, for their annual
ritual of self-congratulation and dealmaking, the joint meeting
of the International Monetary Fund and World Bank. At this event,
even the reporters dress like bankers. Hundreds of them have come
from every continent, and none dares to smile or banter in such a
crowd. Around the world, people are losing serious money--
companies, nations, even the bankers themselves.
The financial titans, political elites, and technocrats do
not feel so powerful at this moment. The Brazilians are running
in and out of meetings, trying to persuade creditors from New
York or London or Zurich that Brazil is not next on the list of
defunct economies. Stock markets are routinely losing two or
three or five percent a day. The French are steamed, as usual, at
American inaction, but so are Koreans, Japanese, Germans, and the
representatives of other lesser nations. The global system is
unraveling in slow motion; paper wealth is evaporating on a
trillion-dollar scale. Yet no one seems to have a plan.
The veil has fallen from the IMF's awesome visage, too. For
decades, the fund has dispensed loans to troubled economies,
along with stern conditions on how their unsound practices must
be reformed. During the past year, the IMF's golden touch has
turned into a gruesome sort of curse. Whatever country receives
IMF loans and implements its austerity plans sees its economy
sink deeper into ruin.
A scratchy recording of "Hail to the Chief" announces the
arrival of the American president, accompanied by Treasury
Secretary Robert Rubin, and the world is on its feet, anxiously
waiting for a strong message that might restore hope. "The world
faces perhaps its most serious financial crisis in half a
century," Bill Clinton begins. But he looks tired; his voice is
flat. Two days later, the House of Representatives will vote to
begin its impeachment inquiry. Clinton's speech turns into a
collage of heartfelt cliches, with no meaningful plan of action.
When the leader does not lead, others seek their own
remedies. Russia suspends payments on its mountainous foreign
debts. Malaysia opts out of the free market by imposing emergency
controls on capital flows, and other developing nations are
tempted to follow. Japan puts together its own $30 billion rescue
fund to aid its battered Asian neighbors. Mexico's finance
minister laments to the New York Times: "What worries me is, who
is running this show? There is an enormous vacuum of leadership
worldwide."
A few days after Clinton's speech, the dollar plunges
against the yen and deutsche mark. The prices for U.S.
manufactured goods are falling at the fastest rate in nearly 50
years, a deflationary pressure sure to squeeze corporate profits
further. The U.S. Export-lmport Bank seizes a Boeing 747-400
owned by Philippine Airlines.
Amid such bizarre events, the IMF's managing director,
Michel Camdessus, reassures everyone that normalcy is right
around the comer. If nations will adhere to the conservative
orthodoxy of sound economics, this crisis will in time be seen
"as just a temporary setback."
Sometime in the future, historians will use remarks like
this to illustrate the hubris of the governing authorities and
the folly of our era. The global economy--and our reigning free-
market economic theory--has entered a fateful crisis. It
threatens a tragic breakdown of the global system that could lead
to vast human suffering as peoples' everyday livelihoods are
sacrificed to the abstractions of learned theorists.
The longer that leaders pretend otherwise and refuse to act
decisively, the more likely that this suffering will engulf the
world. The "D word" is already present in speculative
conversations among elites and even in some forecasts--that is,
the possibility of global depression.
"FATAL SYSTEMS ERROR"
Some ordinary Americans are already intensely focused on
their own losses, haplessly watching the stock market devalue
their family savings--marking down the few thousand they invested
in a mutual fund or perhaps their stake in a retirement account.
They should not feel so stupid. The very smartest people are also
losing their money, on a gargantuan scale.
Harvard University dropped $l.3 billion in the marketplace,
about 10 percent of its endowment, when it bet on esoteric
financial gambles. George Soros's Quantum Fund lost $2 billion
when Russia went blooey (though his Quantum Group still holds
around $20 billion). The now-notorious Greenwich, Connecticut,
hedge fund Long-Term Capital Management became a basket case in
early September, most of its $4.8 billion in capital wiped out
when panicky financial markets abruptly contradicted the firm's
arcane, analytical assumptions about how prices behave.
The implosion of Long-Term Capital has caused real
collateral damage, deepening the general anxieties of investors
and hitting those major Wall Street and European banks that lent
tens of billions to finance the firm's market gambles. But Long-
Term Capital is more important as a symbol for our age--how very
smart people with learned credentials, including two Nobel-
winning economists, managed to fool themselves, and their
bankers, with their computers. Merrill Lynch, J.P. Morgan,
Goldman Sachs, Chase Manhattan, Morgan Stanley--nearly all the
best and biggest names of American finance--were so eager to dive
in that they did not require Wall Street bond wizard John
Meriwether and his firm to reveal the full range of their
indebtedness: the borrowed leverage that rose as high as
$90 billion. This is stunning: If you need a car loan or a home
mortgage, the lender wants every last detail about your credit
rating and who else has lent you money. But if you are an inside
guy who needs $10 billion or $15 billion for a market play, it's
no questions asked.
As more reckless gambles are uncovered and stock prices
continue to sag, a worldwide financial bubble is bursting. The
long-running bull market is over. Global markets had been buoyed
for years by giddy investors possessing a surplus of wealth
(thanks to rising income inequalities). Financial illusions are
shattering, with severe consequences.
Contractionary forces are now spreading across the globe.
The collapse of Asian economies resulted in a huge decline in
consumer demand. This in turn has exposed the crucial problem in
nearly every developed country: overcapacity in most
manufacturing sectors, from cars to computers. If the United
States is not able to absorb the excess supply, countries will
drive down the value of their currencies in order to sell their
goods more cheaply than their neighbors. That contest can become
a deadly deflationary spiral, once it begins.
The gravest threat, however, may be fear. When people are
buffeted by financial losses, they respond by hunkering down into
a defensive crouch. Bankers stop investing and lending, producers
stop building, consumers stop buying and borrowing. Fear feeds on
itself, becoming a depressant on the economy.
Meanwhile, the media have been behind the curve from the
outset. First the crisis was condescendingly called the "Asian
flu." Then, as the crisis leapt to other continents, it became a
"financial contagion," like a strange new disease no one could
explain. A more accurate metaphor to describe the wondrously
complicated and utterly unregulated global system is a grand but
deranged computer--it can perform many marvelous functions,
instantly and precisely, but has no sense of balance, no
internal governor to curb the predictable impulses toward greed
and random destruction. The utopian idea that markets need no
restraints by governments is what's spinning out of control. The
computer screen is frozen, displaying that chilling message FATAL
SYSTEMS ERROR.
A HOLIDAY FROM BANKERS
It is not too late to avert a historic tragedy, but this
will require brave heretics in powerful positions--political
leaders willing to break decisively from the conservative
orthodoxy and ignore its laissez-faire prescriptions for the
marketplace. Major governments--especially ours--have the power
to reverse this deflation before it turns into a full-blown
global depression. But first they must find the courage to act
aggressively.
Partly for the shock effect, I suggest a global "bank
holiday" like the one Franklin Roosevelt declared for American
banking at the darkest hour of the Great Depression, in early
1933. Close down financial markets, banks, and brokerages for one
day, worldwide. Overnight, governments would announce a dramatic
agenda of new recovery measures--initiatives designed to
stimulate economic activity and to muscle the bankers and other
major players into cooperating with this reversal of direction.
Bold action by leaders can itself generate hope and optimism to
counter the spreading fear and pessimism.
The symbolism of a "bank holiday" is important. Governments
have to free themselves from the bankers' mentality--their
obsession with financial indicators as the measure of economic
well-being. Instead of trying to restore financial order--stable
currencies, liquidation of bad bank loans, zero inflation--
governments must accept this central lesson from the 1930s:
Banking and finance will not be restored to good health until the
real economies of producers and consumers are rescued first. Once
economic growth is restored, there will be time later to clean up
the financial reforms. If the real economies are not revived,
bankers are sure to fail, too.
Our dilemma is that governing authorities want to see the
visible evidence of calamity before they are willing to take
extreme measures. This natural hesitation may explain the weak
and tentative steps taken so far by our wounded president and his
two main economic advisers, Treasury Secretary Rubin and Federal
Reserve Chairman Alan Greenspan, both of whom are financial
conservatives. Official hesitation and timidity are what led to
the complete collapse of the major economies between 1929 and
1933. The experts refused to face new realities that contradicted
conservative maxims. They watched passively as the great
unraveling destroyed the global trading system.
What follows is my quick list of emergency steps that
governments ought to be taking--right now.
(1) Cut interest rates much more substantially than the Fed has
yet been willing to do. Europe should, as well, increasing the
money supply to counteract the deflationary price pressures that
are hammering profits, production, and employment. The U.S.
itself is sinking toward recession right now, thanks to the Fed's
indifference to global deflation. A U.S. recession will gravely
aggravate the downward spiral for other nations, because they
hope to recover by selling more exports to a vibrant American
market.
(2) Mobilize both political parties to enact a significant, one-
time tax cut aimed not at benefiting the usual upper-income
brackets, but that instead delivers more money to the paychecks
of ordinary working people who will promptly spend it.
(3) Create jobs quickly by accelerating and enlarging public-
works projects for improved infrastructure (roads, bridges,
schools), which the nation needs in any case. In other words, the
political fixation on balancing the federal budget must be
reversed, at least for several years, to gain the stimulative
impact of deficit spending.
(4) Fire the leaders of the IMF and replace them with a group of
progrowth business executives who understand how the
international agency's lending power can be employed to jump-
start failed economies, instead of depressing them further with
austerity measures. With new leadership and a new direction, the
IMF could also organize a rescue agency like the Reconstruction
Finance Corp., which operated during the New Deal, lending
capital to companies that cannot get credit from the private
financial system, pushing lenders and debtors into work-outs and
temporary moratoriums that allow economic growth first, debt
repayments later.
(5) Restore some capital controls to protect poorer nations from
the current hysteria of global capital--the in-and-out surges of
"hot money"--that overwhelms struggling economies and leaves them
in ruin. This means that nations could stabilize their inflows
and outflows of investment money, at least until their economies
regain their health. Ultimately, the major industrial nations
should also reregulate financial systems, not to shut down global
investing but to moderate its manic behavior. Until this occurs,
the crises and breakdowns will continue to spread random
destruction among millions of innocent bystanders.
(6) Finally, to foster global recovery, the United States cannot
escape the role of "buyer of last resort," absorbing swelling
exports from others, including rival Japan, in order to foster a
global recovery. That process will balloon our trade deficits and
wipe out many prime manufacturing jobs. After the crisis,
however, the U.S. must force a showdown with the unbalanced
trading system that penalizes American workers to the benefit of
our trading partners. For now, we don't have much choice.
These are ugly prospects for a country soon to be engaged by
another presidential-election season. But our long-term economic
interests--not to mention our humane values toward the rest of
the world--require an enlightened internationalism, not
protectionism and not the nasty, selfish values promoted by the
free-market crowd. The political temptation to withdraw from the
global system will get stronger as this crisis deepens, but
history teaches that retreat only makes things much worse for
everyone. In the last crisis of capitalism, protectionism led to
global collapse, the rise of fascism and then the carnage of
World War II.
It will take brave and honest leaders to persuade scared and
injured Americans to accept these costs in the larger interest of
the long-term future. Indeed, working people in America are
entitled to know that the future promises them a better deal--
more equity and opportunity--than they've been given by the
status quo. In fact, I don't think the present global system will
survive on its present terms, not unless it's reformed in
fundamental, progressive ways.
A CURE THAT MAKES THINGS WORSE
[ Here the author explains how Russia affected Brazil. ]
[...]
If Brazil goes down, who's next? We are.
A NEW, NEW WOULD ORDER?
Once the world gets out of this ditch (if it does get out),
an exciting new opens before us--the chance to reform and
moderate the global system, so that its wealth-creating powers do
genuinely serve everyone, rich and poor alike, across the
distances of geography, the differences of race, religion, and
history. That kind of reform is much more difficult than
launching a recovery agenda, because it means nations (especially
the U.S.) must confront economic and social contradictions that a
generation of giddy globalization brushed aside.
When people are compelled by economic crisis to look more
closely at the global reality, I predict they will be shocked to
discover that some of the system's basic tenets are absurdly
reactionary, even immoral. In the present terms of trade, for
instance, nations can invoke tariff penalties to defend the
rights of capital (such as copyright ripoffs), yet the trade
agreements treat human rights as irrelevant to free commerce.
That is, basic human freedoms, including the rights of workers to
organize themselves and contract jointly for their labor, are
regarded as illegitimate intrusions. So is protecting the natural
world from rank industrial despoliation.
Globalizing commerce and finance have connected us to
distant others--as consumers and producers, as workers and
managers and investors--but we have not yet learned how to live
with these connections. It remains for the rest of us to define
our mutual values--the social obligations and economic
assumptions that should unite us--and then to mobilize the
political struggles that will make them real. The politics are
bound to be long and hard, but it will be noble work for citizens
on both ends of the global system. This crisis opens the door to
great change, but we can't leave reform to the bankers.
__
National editor William Greider profiled former House Speaker
Newt Gingrich in Rolling Stone 799.
