Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. The Sinking Dollar (Wallerstein)Very clear and interesting commentary by Immanuel Wallerstein; hat-tip to Bob F. Also check out the cover story from our Jan/Feb issue.May 15, 2009, Commentary No. 257 When Premier Wen Jiabao of China said in March of 2009 that he was "a little bit worried" about the state of the U.S. dollar, he echoed the feelings of states, enterprises, and individuals across the world. He called upon the United States "to maintain its good credit, to honor its promises and to guarantee the safety of China's assets." Even five years ago, this would have seemed a very presumptuous request. Now it seems "understandable" even to Janet Yellen, the President of the San Francisco Federal Reserve Bank, although she considers China's proposals concerning the world's reserve currency "far from being a practical alternative." There are only two ways to store wealth: in actual physical structures and in some form of money (currency, bonds, gold). They both entail risks for the holder. Physical structures deteriorate unless used and using them involves costs. To utilize such structures to obtain income and therefore profits depends on the "market" - that is, on the availability of buyers willing to purchase what the physical structures can produce. Physical structures are at least tangible. Money (which is denominated in nominal figures) is merely a potential claim on physical structures. The value of that claim depends on its exchange relation with physical structures. And this relation can and does vary constantly. If it varies a small amount, hardly anyone notices. But if it varies considerably and frequently, its holders either gain or lose a lot of wealth, often quite rapidly. A reserve currency in economic terms is really nothing but the most reliable form of money, the one that varies least. It is therefore the safest place to store whatever wealth one has that is not in the form of physical structures. Since at least 1945, the world's reserve currency has been the U.S. dollar. It still is the U.S. dollar. The country that issues the reserve currency has one singular advantage over all other countries. It is the only country that can legally print the currency, whenever it thinks it is in its interest to do so. Currencies all have exchange rates with other currencies. Since the United States ended its fixed rate of exchange with gold in 1973, the dollar has fluctuated against other currencies, up and down. When its currency went down against another currency, it made selling its exports easier because the buyer of the exports required less of its own currency. But it also made importing more expensive, since it required more dollars to pay for the imported item. In the short run, a weakened currency may increase employment at home. But this is at best a short-run advantage. In the middle run, there are greater advantages to having a so-called strong currency. It means that the holder of such currency has a greater command on world wealth as measured in physical structures and products. Over the middle run, reserve currencies are strong currencies and want to remain strong. The strength of a reserve currency derives not only from its command over world wealth but from the political power it offers in the world-system. This is why the world's reserve currency tends to be the currency of the world's hegemonic power, even if it is a declining hegemonic power. This is why the U.S. dollar is the world's reserve currency. Read the rest of the commentary. Labels: China, dollar, Immanuel Wallerstein, reserve currency Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Two Items on Guadeloupe General StrikeTwo items on the recent massive general strike in Guadeloupe. First, from Friday's Democracy Now!:Labor Victory in Guadeloupe After Six-Week Strike Reverberates Across French Caribbean and France Hear it or read it here. Second, an article on the general strike by Immanuel Wallerstein: Guadeloupe: Obscure Key to World Crisis Read the rest of the article. Labels: activism, Democracy Now, financial crisis, general strike, global downturn, Guadeloupe, Immanuel Wallerstein Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Immanuel Wallerstein on the CrisisImmanuel Wallerstein on the crisis; hat-tip to Arpita B. Here are some choice paragraphs; the whole piece is short and worth reading:... For the moment, the United States government, which is still in a position to borrow money and print money, intends to throw some new money into circulation. This might work if the government threw an awful lot, and threw it wisely. But quite probably, it won't do it wisely. And quite probably throwing the amount that might work amounts to little more than creating another bubble. And the dollar might then really fall much faster than other currencies, pulling down the last important prop to the world-economy. In the meantime, there is less and less money for daily consumption of all kinds for the bottom 90% of the world's population (and it's not so good for the top 10%). People are getting restless. Just in the last month, we have seen people in the streets protesting economic difficulties in a growing number of countries - Greece, Russia, Latvia, Great Britain, France, Iceland, China, South Korea, Guadeloupe, Reunion, Madagascar, Mexico—and probably a lot more that haven't been noticed by the world press. In fact, it's been relatively mild up to now, but the governments are all on edge. What do governments do when their primary concern is dealing with internal unrest? They really have two choices—shoot the protestors, or appease them. Shooting works only up to a point. For one thing, the agents of force must themselves be well-enough paid to be willing to do it. And when there is a serious economic downturn, arranging this is not all that easy for the regimes. ... Read the whole piece. Labels: financial crisis, Immanuel Wallerstein, protest, recession, rioting Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
