Category Archives: Global economics

America as others see us, Pt. 1: Der Spiegel

This week’s lengthy cover article in Germany’s Der Spiegel is definitely worth reading. Non-German readers can even read it in English there.
By the way, Bernhard of Moon of Alabama shows us the cover here. The title there is “The price of Haughtiness” (or perhaps, Hubris). Inside the mag, the title is “The End of Arrogance: America Loses its Dominant Economic Role.”
The team of staff writers who wrote it start out by noting how irrelevant and old-hat George Bush’s speech at the UN last week seemed to many of the diplomats who heard it:

    He talked about terrorism and terrorist regimes, and about governments that allegedly support terror. He failed to notice that the delegates sitting in front of and below him were shaking their heads, smiling and whispering… The US president gave a speech similar to the ones he gave in 2004 and 2007, mentioning the word “terror” 32 times in 22 minutes… George W. Bush was the only one still talking about terror and not about the topic that currently has the rest of the world’s attention.
    “Absurd, absurd, absurd,” said one German diplomat. A French woman called him “yesterday’s man” over coffee on the East River. There is another way to put it, too: Bush was a laughing stock in the gray corridors of the UN.

The article continues by noting that even Chancellor Angela Merkel, long a very close ally of Bush’s on the world scene, has started to express ill-concealed anger about his misgovernance of the US economy:

    There was no mention of loyalty and friendship last Monday. Merkel stood in the glass-roofed entrance hall of one of the German parliament’s office buildings in Berlin and prepared her audience of roughly 1,000 businesspeople from all across Germany for the foreseeable consequences of the financial crisis. It was a speech filled with concealed accusations and dark warnings.
    Merkel talked about a “distribution of risk at everyone’s expense” and the consequences for the “economic situation in the coming months and possibly even years.” Most of all, she made it clear who she considers the true culprit behind the current plight. “The German government pointed out the problems early on,” said the chancellor, whose proposals to impose tighter international market controls failed repeatedly because of US opposition…
    Merkel had never publicly criticized the United States this harshly and unapologetically.

The writers comment,

    This is no longer the muscular and arrogant United States the world knows, the superpower that sets the rules for everyone else and that considers its way of thinking and doing business to be the only road to success.
    A new America is on display, a country that no longer trusts its old values and its elites even less: the politicians, who failed to see the problems on the horizon, and the economic leaders, who tried to sell a fictitious world of prosperity to Americans.
    Also on display is the end of arrogance. The Americans are now paying the price for their pride.
    Gone are the days when the US could go into debt with abandon, without considering who would end up footing the bill.

The article contains a helpful short appraisal of the way in which the globalization of financial markets in recent years has allowed the swift worldwide spread of the contagion from the financial crisis that originated with the problems of the US’s sub-prime mortgage market:

    The financial assets that economies hold abroad have grown more than sevenfold in the past three decades. By late 2007, the market volume for derivatives, which are used to bet on interest rate, stock and credit risks worldwide, had reached a previously unthinkable level of $596 trillion (€411 trillion).
    At the same time, the number of players has multiplied. The banks stopped being the only ones in control of the industry some time ago. Nowadays, hedge funds bet on falling stock prices and mortgage rates, private equity companies buy up failed banks and bad loans, and wealthy pension funds keep the fund managers afloat.
    The “greater complexity of linkages within and between the financial systems” now has one man worried, a man whose profession ought to provide him with a better idea of what’s going on: Jean-Claude Trichet, president of the European Central Bank. In a recent speech at New York University, Europe’s highest-ranking central banker complained about the “obscurity of and interactions among many financial instruments,” often combined with a “high level of borrowing.”
    The inventors of these complex securities hoped that they could be used to distribute risk more broadly around the globe. But instead of making financial transactions more secure, they achieved the opposite effect, increasing the risks. Today the notion of using “many shoulders for support,” the constant mantra of the gurus of financial alchemy, has proved to be one of the catalysts of the crash.
    American economist Raghuram Rajan, whom ECB President Trichet is frequently quoting these days, had a premonition of the current disaster three years ago. The total integration of the markets “exposes the system to large systemic shocks,” Rajan wrote then in a study. Although the economy had survived many crises before, like the bursting of the Internet bubble, “this should not lead us to be too optimistic.” “Can we be confident that the shocks were large enough and in the right places to fully test the system?” Rajan asked. “A shock to equity markets, though large,” he continued, “may have less effect than a shock to credit markets.”
    There was certainly no shortage of warnings, and there were many voices of caution…
    New York economist Nouriel Roubini presented the most accurate scenario of a crash, from the bursting of the real estate bubble to the domino-like demise of major banks. Roubini, known as a notorious alarmist, now predicts a prolonged recession in the United States that will drag down the entire global economy with it. “The US consumer has consumed himself to death,” says Roubini.
    Paul Samuelson, the doyen of the world’s economists, predicted this bitter outcome three years ago. “America’s position is under pressure because we have become a society that hardly saves,” Samuelson, 90 at the time, said in an interview with SPIEGEL. “We don’t think of others or of tomorrow.”
    And now the global conflagration is a reality, triggered by cleverly packaged US subprime mortgages sold around the world…

The writers quote Bernd Pfaffenbach, Merkel’s chief negotiator on foreign trade issues, as saying that now the relative conservatism that Germans have shown in financial matters is now paying off:

    “One can see that we are on a more solid base,” says Pfaffenbach, who refers to the crisis as a “purifying storm.”
    Pfaffenbach isn’t the only one to see the problem in this light. The American bank crash has prompted economists and politicians worldwide to prepare for the end of an era of turbo-capitalism driven by the financial markets.
    The financial industry — especially in the United States — will shrink considerably, while the significance of the real economy will increase. Once again, the government will have to base its supervisory function on the old banker’s principle: security first.

They conclude that a “new chapter in economic history has begun,”

    one in which the United States will no longer play its former dominant role. A process of redistributing money and power around the world — away from America and toward the resource-rich countries and rising industrialized nations in Asia — has been underway for years. The financial crisis will only accelerate the process.
    The wealthy state-owned funds of China, Singapore, Dubai and Kuwait control assets of almost $4 trillion (€2.76 trillion), and they are now in a position to buy their way onto Wall Street in a big way.
    But they have remained reserved until now, partly as a result of poor experiences in the past. The China Investment Corp., for example, invested in the initial public offering of the Blackstone Group, a private equity firm, and invested $5 billion (€3.45 billion) in Morgan Stanley. In both cases, it lost a lot of money.
    But time is on the side of the Chinese…
    Both in Asia and the United States, expressing schadenfreude over the decline of the United States as a superpower is out of place. The risk is too great that if America goes into a tailspin, it will drag the rest of the world down with it.

It is true that we are in a period of unprecedented interdependence among all the world’s major power centers. This inter-dependence means that, as I have long argued, if the crisis is well handled by the leaders of the major powers we have a fair chance that the transition from a US-dominated world to a more multipolar system can be effected without major strife or bloodshed.
That will take a good measure of realism, humility, patience, and vision from all the leaders concerned, inside and outside the US. Leaders and publics, both, I would rather say.
But here’s the thing. We are now at a seminal point in world history where (a) There is actually quite enough capacity to produce enough material stuff to give everyone on earth the prerequisites of a decent life; (b) Most people understand the counter-productive and destructive nature of war; and (c) In the United Nations we have a system of rules and norms for international engagement that, though far from perfect, is still far, far better to have than not to have, and that can certainly be further reformed.
So we can do this. Yes, we can. Provided we bear in mind two of the strongest norms in the UN system: the strong norm against addressing disagreements through warfare, and the equally strong norm that stresses the equality of all human persons.

China and Japan’s stakes in the US financial crisis

Did you know that China has over $900 billion of exposure/investment in US Treasury bills and in debt issued by Fannie Mae and Freddie Mac– and that the Chinese government has therefore (quite understandably) been exerting its influence in Washington and elsewhere to prevent the US financial system tumbling completely off the cliff of insolvency?
You might never know that fact if you read only the mainstream media in the US, which have been dominated by highly Americo-centric stories about the anguished interplay among the big players in the US government and economy.
But an article buried deep within today’s WaPo tells us this:

    As U.S. financiers scrambled this week over how to deal with possible collapse of major financial institutions, Chinese Vice Premier Wang Qishan arrived in Washington with a message: To survive the crisis, U.S. equity markets need countries such as China that have massive foreign exchange reserves to jump in a big way.
    … China … is estimated to hold a fifth of its currency reserves — as much as $400 billion — in Fannie Mae and Freddie Mac debt. In addition, its banks have billions of dollars worth of exposure to the American International Group, Merrill Lynch, Lehman Brothers and other companies in crisis. The Industrial and Commercial Bank of China, for example, has $151 million in bonds issued or linked to Lehman; China Merchants Bank has $70 million of Lehman bonds; and the Bank of China has $75.62 million of Lehman bonds.

In addition, as I noted here recently, China has holdings of US T-bills that on July 31 totaled $518.7 billion.
Today’s WaPo piece is by Blaine Harden, reporting from Tokyo, and Ariana Eunjung Cha, reporting from Shanghai. The information it gives about tyhe actual content of Wang’s interventions in Washington, and the US reaction to them, is sketchy or non-existent. But at least Harden and Cha do give some important information about the role that both China and the also heavily exposed/invested Bank of Japan have been playing in the current crisis, matters that provide a crucial geostrategic background and framing for the current crisis.
The WaPo’s editors saw fit, however, to bury it deep within the “Business” section of the paper, as though it was of no particular interest to the general public.
Also buried deep within the business section is another article illustrating another significant international dimension of the US financial crisis. That is this article, that reminds us that enormous though the current– hopefully one-off– taxpayer bailout of the financial sector will be, still, it is roughly the same size as just one year of the Pentagon’s budget.
I’ll deal with some of the intriguing implications of this latter fact later on. But the Harden/Cha article contains some extremely important information that I think the WaPo’s editors should have given a lot more prominence to.
It starts with this assessment from an associate director of the Bank of Japan:

    Japan is a captive of its investment in the United States economy and its central bank has no real alternative other than to hold on to the massive amounts of U.S. Treasury bonds it owns and work hard to help clean up the mess on Wall Street, Hidehiko Sogano, an associate finance director at the Bank of Japan, said Friday.
    “The reason why we stress the importance of stability is that the amount which we have in U.S. assets is so enormous,” said Sogano, referring to the roughly $860 billion of the bank’s $1 trillion in reserves that are in U.S. investments, mostly Treasury bonds.

Of note there: Both the figure for the size of the BoJ’s total US investments, which I haven’t seen recently, and the way that this BoJ manager– reportedly representing bank policy– defined the bank’s interest during the current crisis.
As I noted here recently, the latest figure on the amount of T-bills Japan owes is $593 billion. That means it owns around $260 billion in other, quite possibly much more risky US investments. Later in the piece, Harden/Cha write that on Friday, “Finance Minister Bunmei Ibuki conceded at a parliamentary hearing that the government and central bank hold about $74.5 billion in debt issued by… Fannie Mae and Freddie Mac.” Well, not nearly as much as the Chinese hold in Fannie and Freddie. But still, not inconsequential.
Harden and Cha also wrote this:

    Sogano, who said he was speaking for the bank, is part of a team at the bank that has worked around the clock this week to calm global markets. “If we shift out of the dollar without deep consideration, then that would surely affect the market,” he said. “So that is why we always have to be very careful. If that sounds conservative, it is conservative.”
    In a week of epochal market turmoil, for the Bank of Japan being very careful has meant being aggressively interventionist. Besides injecting the equivalent of about $96 billion in four days into money markets for overnight loans, the bank has gone into the business of making dollar loans.
    It joined with four other central banks in a $180 billion currency swap with the Federal Reserve and will use its $60 billion share to supply dollars to local and foreign institutions.
    Sogano said that the Bank of Japan feels that U.S. market turmoil, even if it continues for months or years, will not alter the central place the United States occupies in global finance and will not undermine the willingness of the Bank of Japan to invest in the United States. “There will be no change because we quite understand the importance of the U.S. market and the stability of the dollar,” he said.
    …Ibuki, the Finance Minister, said Friday that Japan would consider funding the International Monetary Fund or other international lending agencies to help with bad debt.
    Sogano said there is no political support in Japan for mobilizing the several trillion dollars in Japanese pension funds and other savings funds to recapitalize troubled U.S. financial institutions. He agreed that such investments, if properly managed, could increase returns for savers in Japan.

Does that mean that the Japanese might be eager (or at least willing) to have the IMF help bail out some sectors of the US economy? That would raise some fascinating issues, if so.
Regarding China, Harden and Cha note that, unlike the Japanese, China might indeed be willing to intervene to buy up some troubled US financial entities– including the troubled financial giant Morgan Stanley.
Harden and Cha write:

    In recent weeks, finance chiefs from around the world have come to consult with their counterparts at the Federal Reserve and U.S. Treasury about possible interventions.
    China’s delegation, headed by a 60-year-old ex-banker who comes from the country’s depressed coal-mining region, has been among the most vocal, according to sources briefed on the discussions.
    … As U.S. officials were deciding in August whether to take over Fannie Mae and Freddie Mac, the Treasury Department held informal talks with officials from the People’s Bank of China, the country’s central bank. At that time, investors in Fannie Mae and Freddie Mac in China were dramatically reducing their holdings. The U.S. side told China that a cash infusion was in the works; China said that it expected the U.S. government to “do whatever is necessary” to protect the investments.
    Accompanied by a delegation that includes senior officials from China’s central bank and Ministry of Finance, as well as banking, insurance and securities regulators, [Vice Premier] Wang had originally traveled to the United States on Sept. 14 for trade talks in Los Angeles. But as new shocks hit earlier this week, Wang flew to Washington to meet with Treasury Secretary Henry M. Paulson Jr.
    Wang sought assurances that if the Chinese government were to encourage its companies to seek investments in the United States, the deals would not face the same political opposition that has undone past Chinese investment proposals.
    Andy Xie, an independent economist who was formerly Morgan Stanley’s chief Asia economist, said the United States needs to accept that a large amount of U.S. assets must be transferred to other countries’ ownership. “If the U.S. is not willing to accept that,” Xie said, “they will have to print money and the dollar will fall. And we will be headed toward a global financial meltdown.”
    Companies in the United States and in Europe are already reaching out to Chinese investors.
    Morgan Stanley chief executive John Mack has been in contact with the China Investment Corp., the sovereign wealth fund that manages $200 billion, and with China’s Citic Group. La Compagnie Financière Edmond de Rothschild on Thursday announced that it had sold a 20 percent, $340 million stake to Bank of China.
    It’s unclear how Chinese investors will respond to the overtures, especially given that their biggest investment in Wall Street to date, CIC’s investment in asset manager Blackstone Group, has turned out to be a disaster — its investment has lost half its value.

That investment was of around $3 billion. Ouch.
… At the end of last month I wrote here about the extent to which the economy of the “rest-of-the-world” was becoming decoupled from that of the US. It is true that that decoupling has been happening– in the sense that countries other than the US now do a lot of trade and financial business with each other that does not involve the US or US-owned companies at all. But this decoupling has been a process, not a binary on-off switch; and it is still very far from being anywhere near complete. Indeed, given the very “open”, globalized nature of the world economic system, it will never be complete. The US will still certainly, for the entire foreseeable future, be one significant participant in the world economy. But it will not dominate the world economy to anything like the extent it did from 1945 until recently.
Meanwhile, what we have seen in the past few days, is the extent to which non-US governments, seeing the size of the stake their countries’ economies have in the good health of the US financial system, have stepped in to try to help Washington shore up the system. It is true that these other countries– primarily Japan, China, some European countries, and Saudi Arabia– are not helping to save the US financial system out of pure altruism. They strongly need the US system to remain fundamentally sound. There is a very deep interdependence between the US and these these other countries.
But it is also the case that, as they help Washington shore up the US system, they will be buying increasingly large stakes in the whole of the US economy– and in both the policies that steer the US economy, and the policies that might affect it.
Those latter policies include many strands of Washington’s foreign policy, with at the forefront its incredibly expensive maintenance of a bloated (and often actively dysfunctional) worldwide military machine.
What’s more, Washington has been using that military– and threatening to use it–in a number of different ways that directly affect the national interests of what we might now handily start to call “our friendly creditors” among the world’s other nations. Those friendly creditors will most likely be having an increasingly strong say in the content of some of those policies.;
Use the military– or threaten to use it– against China, or in a way that escalates tensions between China and Japan?
You gotta be kidding.
Use the military in Afghanistan in ways that destabilize China’s long-time friend Pakistan and continue to foment additional Islamist extremism in Central Asia (including Western China)?
The Chinese will most have something to say about that, too.
Use the military to launch an act of war against Iran or to help Israel to do that?
Many of the friendly creditor nations will have plenty to say about that.
The world is changing with unprecedented speed these days…

Rest-of-world saving US from recession?

Time was, the US economy dominated the world economy to such a degree that economists would quip that if the US economy sneezed the rest of the world would catch a cold.
Things have changed.
While the US is still a huge player in the world economy, its total (ppp*) GDP is now less than that of the European Union. This great chart, that compares the GDP’s of the EU and its constituent states with those of the US and its constituent states, tells us that in 2006, the ppp GDP of the EU was $13.3 trillion, while that of the US was $13.1 trn. And this PDF chart from the World Bank tells us that in 2007 the ppp GDP of the US was $13.8 trn (21.2% of the world total of $65.2 trn) while that of China was $7.1 trn (10.9% of the world total.)
Recently, the veteran international economist Fred Bergsten has started talking about the “reverse coupling” of the economies of the US and of the rest of the world. At last January’s Davos World Economic Forum he defined that as occurring “when the others will help keep the US from falling too far.”
On July 1, Bergsten published a Financial Times op-ed titled Trade has saved America from recession. In it, he argued that “reverse coupling” had already started to occur.
He wrote,

    Continued expansion abroad, especially in the emerging market economies, has in fact cushioned the [US] slowdown and so far prevented recession in the US. Hence we are also experiencing the first episode in history of reverse coupling, in which the rest of the world pulls the US forward rather than the opposite.

He explains what has been happening thus:

    The improved US trade performance of the past two years is due partly to the substantial, if lagged, restoration of the country’s price competitiveness as the dollar declined by a trade-weighted average of 25-30 per cent since early 2002, reversing most of its excessive run-up during the previous seven years… Equally important, however, is the continued robust growth of the world economy. Every percentage point by which the rest of the world expands domestic demand faster than internal growth in the US produces gains of about $50bn (€32bn, £25bn) for the US external balance. Weighted by US exports, foreign growth exceeded US growth by about 2 percentage points in 2007 and will do so by an average of about 1.5 points this year and next as decoupling persists. Taken together, these currency and comparative growth factors have already improved the real US trade balance, and hence GDP, by almost $150bn since 2006, with gains of another $150bn or so likely through 2009. (The nominal US trade and current account deficits will not improve as much because of the sharp rise in the price of oil imports.)

His conclusion is this:

    These international macroeconomic developments also provide another telling indication of the shifts in global economic power. As noted, the emerging market economies make up about half the world economy, so their growth of 6-7 per cent assures reasonably strong world output increases even if there were no expansion at all in the rich countries. China alone accounts for 10 per cent of the global total, so its annual expansion of 10 per cent generates a full percentage point of world growth all by itself. The steadily rising diversification of global economic leadership is paying huge dividends to all its participants, most dramatically during this episode to the US as export-led growth saves it from at least the worst ravages of its housing bubble and associated policy errors.

Bergsten is far from being alone among economists and policymakers in seeing the fortunate, “reverse coupling” effect that the economies of the non-US 95% of humanity have been having on the US economy.
In this piece of reporting from Washington (HT: Nazia Vasi of 2point6billion), Xinhua’s Liu Hong quotes Jim O’Neill, the chief economist at Goldman Sachs, as noting that China “is now contributing more to global demand than the United States.”
Liu cites IMF data showing that China “has accounted for about one-quarter of global growth over the past five years. Altogether “the BRICs”– that is, Brazil, Russia, India, and China– “have accounted for almost half of global growth and all the emerging and developing economies together for about two-thirds, compared with about half in the 1970s.”
Liu also quotes Bergsten as saying, “”China now plays a decisive role in the world economy as indicated by its dominant role in global economic growth.”
Well, evidently, China– whose population is four times that of the US– will still have to grow about sevenfold for its per-capita GDP to reach that of the US’s citizens. (If we’re committed to the equality of all human persons, we would want to see that happen– or to see the US doing some quite plausible “leveling down.” But if we’re committed to the survival of humanity on this fragile planet of ours, we need to work fast and hard to find ways for this to happen without carbon-emitting us all into overheated oblivion.) But for Americans who have long taken pride in their (our) country’s role as the motor for world economic growth it is important and interesting to recognize that right now, our economic world wellbeing is dependent on the economic performance of others around the world, not just on our own.
This gives us a lot of new ways to think about economic globalization. I completely understand the concerns of those in the US who worry about job-losses in our country when their functions are shifted to lower-paid workers elsewhere. And I am also very concerned about the horrendously destructive effects that the strongly pro-free-trade policies pursued by the “Washington consensus” over the past 20 years have had on entire societies and nations that are much more vulnerable than we are– in sub-Saharan Africa, Latin America, or Asia. The heartless, greedy way that economic globalization has been pursued in the past 20 years has inflicted huge damage on hundreds of millions of the world’s most vulnerable people.
But it has also had some benefits for world humanity. Crucially, the degree of economic entwinement that has been built up among the world’s major power blocs has made open warfare among them less likely– certainly a huge benefit to us all.
Also, there are many measures that can be taken even within the context of the world’s current, strongly pro-trade economic structure that can (a) straighten out the extremely unfair “tilts” in the world economic playing field that the rich nations have maintained in it– to their own clear advantage– for many years now, and (b) start to build into the world economic order the kinds of social protections for the world’s most vulnerable that nation-states have nearly always had for their own most poor and vulnerable.
Why not? If we all plan together and pull together on this, it is enitirely doable. To put it bluntly, there is actually quite enough basic material “stuff” (including food) to go around in the world today, and to offer all the world’s people the hope of a decent, meaningful life and the development of their capabilities… Provided we can start to really see each other– all around the world– as worthy of our care and concern.
(I note that when modern-day academic economics was launched by John Stuart Mill, Adam Smith, and others in the British empiricist school, it was pursued as a sub-branch of “moral philosophy,” that is, of philosophical ethics. We certainly need to honor and return to those roots as we ponder the challenges the world economy faces today.)
As I blogged here earlier this week, the present era is one of the “return of geography” to many dimensions of the world order that some people– neoliberals and others– have long assumed could be kept effortlessly “global.” And yes, the rise in fuel prices will undoubtedly change some aspects of what happens in the world economy. But this is far from signaling a retreat to isolationism and autarky in international economics. Russia, China, the EU, the US, and other international actors all strongly need each other, at the economic level, if their own economies are to survive and prosper.
And right now, we here in the US should just be very glad that the world trade system our country has dominated for the past 63 years has now grown strong enough to help cushion or support our own economy from effects of its gross mismanagement of recent years. Thank you, world!
—-
* “Ppp” is a unit called “Purchasing power parity dollars” that allows international comparisons of things like GDP among countries with different price structures. It’s not perfect but I think it gives a better picture than raw $ figures for GDP.

Milanovic: From Global Trade to Global War

    Editorial note from HC: In the piece I had in the CSM last Friday about the current, Georgia-revealed shifts in global power balances, I argued that the many economic interdependencies among the world’s major power centers will act as a powerful brake on their going to war against each other. Afterwards, I received an intriguing critique of this position from none other than Branko Milanovic, an economist on global inequality whose work I admire a lot. (Indeed, I used this recent book of his quite a bit in my Re-engage! book.)
    So although Milanovic’s conclusions are very different from mine– or rather, precisely because they are so different from mine– I am very happy to publish the short argument he has composed on this subject, so we can have a good exploration of these issues.

From Global Trade to Global War
by Branko Milanovic, August 26, 2008
Openness to trade and globalization lead to interdependence and cooperation and hence to global peace. There is a venerable school of thought, beginning with Montesquieu and Kant, that argues more or less exactly this. Less famously, the same point was made in Norman Angell bestseller that had the misfortune of being published just a few years before the vaunted cooperation and interdependence transmuted into the worst carnage the world had ever seen up to that date (1914). But there is another school of school to whom the carnage of the Great War did not come unexpected. It belongs to the Marxist and semi-Marxist tradition, starting from Hobson and continuing with Lenin and Rosa Luxembourg. It viewed the war as inevitable as capitalists from different countries clashed when dividing up the globe, and then manipulated the public and used their nations’ armies to further own interests.
And indeed the unease with the standard (“peaceful globalization”) version of events is evident even today. In one of globalization cheerleading bestsellers Martin Wolf (“Why globalization works?”) shows a singular difficulty explaining how apparently benign global capitalist competition resulted in the disaster of 1914. His explanation is to lay blame on “German militarism”. But German militarism was only special because it was a late-comer’s militarism: once most of Asia and Africa was divided (not always without conflict; witness Fashoda) between the French and British capitalists, the up and coming German capitalists wanted a slice of the pie too. So, it is the very nature of global capitalism, not some unique “German militarism,” that is to blame.
Why does it matter today, exactly 100 years from the run-up to World War I (the Tangier crisis which almost led to a direct clash between the French and the Germans) and just short of the World War I centennial? Because the same forces are at work again. Consider the following. The three most important countries, US, China and Russia have a nicely balanced division of assets among them: US has capital and technology, China labor, and Russia land and natural resources. But to make more money, US capital needs control of as many natural resources as possible. A glance at the map shows that the sparsely populated and natural resource-rich Siberia and Central Asia are the prime candidates for their lucrative control. After the break up of the Soviet Union, it seemed, all too briefly, that the US and Western capitalists had all this wealth within their reach. The Yeltsin regime was engaged in a fire sale where multi-billion plants and oil-fields were being sold for a song. But already by the time the second Yeltsin administration, the rules of the game started changing. In the swindle that has since become known as “loans for shares”, Russian big capitalists (known as the “oligarchs”) figured out that they did not need to share all these riches with foreigners. Instead, why not keep them for themselves?
This trend accelerated under the two Putin terms. The division of spoils was limited to a restricted circle of cronies and secret agents who suddenly developed an acumen for business deals. The agreements with foreign capitalists were rescinded or revised (most famously, the British Petroleum Tyumen oil field deal). Oligarchs who did not accept the new rules of the game, and who wanted to build pipelines with foreigners (Khodorovsky) were stripped of their assets and sent to jail.
Thus today the struggle between the West and Russia that threatens the world with not only another cold, but rather hot, war is between the two bands of greedy men, and it involves the riches of the Eurasian heartland (“the world island”) east of the Urals. It is an implacable fight because it is a zero-sum game. In contrast, the nature of the Sino-US rivalry is different because of complementarily which exists between capital and labor. Both are needed to produce toys and micro chips. But when it comes to natural resources, it is either you or I who control it.
No less an admirer of global capitalism than Keynes saw its Achilles’ heel in greed that at times becomes so irrational that it works against person’s own interests. Lenin agreed: he thought that a capitalist would sell the rope with which he would be hanged. They might still be right. Halliburtons and Gazproms of this world, rather than ushering an era of universal peace, may bring us World War III.

Ethanol and the discourse of the US “National interest”

Yesterday, Pres. Bush referred to the huge subsidies the US government gives to farmers to grow corn for conversion into ethanol, a car fuel, by saying:

    “the truth of the matter is it’s in our national interests that our farmers grow energy, as opposed to purchasing energy from parts of the world that are unstable or may not like us.

For many years, those two words “national interest” have been widely used in US political discussions as a kind of conversation-stopping trump card. “Oh! The ‘national interest’ is at stake! Then I’d better stop criticizing the president!” — that was the kind of reaction past leaders sought, and too often won.
But who defines this slippery thing called the “national interest”, anyway? In Chap. 7 of my book Re-engage! America and the World After Bush, I write:

    [I]n line with the human security precept that true security is people-centered rather than state-centered, we can start thinking about our own country’s national interest in a new, more people-centered way, very different from the “big power” way it has generally been understood until now.

I then go on to ask some questions about how the adoption of this definition of the US “national interest” might actually change many aspects of our relationship with the rest of the world. (Posing queries intended to stimulate further discussion is a very Quaker thing to do. Anyway, I hope you find these queries in my book thought-provoking, when you read them.)
This current, mounting global food crisis is an instance in which we certainly need to adopt the people-centered rather than big-business-centered definition of “national interest”.
It is certainly not in our interest, as US citizens, that the activities of our country’s very well-funded Big Ag sector and the financial sectors that have been speculating heavily in foodstuffs– and fuel– over recent months should be allowed to continue to pursue policies that are driving hundreds of millions of our fellow-humans in poor countries into hunger, and towards outright, directly life-threatening starvation.
These big business sectors need to be effectively controlled and regulated by a political leadership that understands– finally!– that the greed of US car-owners should never be allowed to over-ride the right that all the world’s men, women, and children have to adequate and assured sources of nutrition. (Elsewhere in the book, by the way, I note that most “rights” activists in the US have focused far too tightly on issues of civil and political rights around the world, and have given short shrift to the frequently far more pressing issues of social and economic rights.)
The WaPo’s smart and thoughtful business columnist Steve Pearlstein has a good column in today’s paper on the role that speculators have been playing in the current food crisis. For those of you who are interested, the whole of the column is worth reading. As was his previous column, here.
Some highlights from today’s Pearlstein:

    Speculators have always played a prominent role in commodities markets, but in the past year, they have literally overwhelmed them, causing a dramatic increase in trading volume, volatility and prices and disrupting many of the normal relationships between producers and end-users.
    Many of these were the same hedge funds and hot-money investors who had gorged on sovereign debt of developing countries, tech and telecom stocks, subprime mortgages and commercial real estate and now needed a new thing to focus on. Others — including, it is said, some sovereign wealth funds — looked to commodities as a hedge against the falling dollar. But perhaps the biggest push came from pension funds, foundations and university endowments whose managers had all gone to the same conferences and read the same academic papers, suggesting that a basket of commodity futures would provide a good hedge against stock and bond market declines.
    …[T]he Bank for International Settlements estimates that the value of all the derivative contracts traded on the unregulated over-the-counter markets surged from about $3 trillion in the spring of 2005 to more than $8 trillion today.
    Whatever the number, it’s hard to imagine that it wasn’t a significant factor in skyrocking prices…
    … [T]he only people who don’t believe speculation is driving a commodities bubble are the big commodity traders and the commodities exchanges, which are profiting handsomely from the soaring prices and trading volumes, and the regulators at the Commodities Futures Trading Commission, whose economists cannot seem to find statistical evidence that financial investors have had much of an impact on commodity prices.

US citizens need to start acting responsibly and quickly to bring these devastating speculations in basic foodstuffs under some form of rational and accountable control. This is in our direct interest as a citizenry, since so many of our own citizens are being harmed by the food-price rises.
But in today’s irreversibly hyperconnected world it is always, also, in our interest to make sure that actions taken by our government and our fellow-citizens on Wall Street, in Big Ag, and other big-business sectors stop inflicting harm on the world’s poorest, most vulnerable people.

U.S. speculators took multi-billion dollar incomes from sub-prime crash

Obscene! Read the whole of this article on how some male US speculators pulled in multi-billion-dollar takings from their activities in so-called hedge funds in 2007, and weep.
The top HF speculator was John Paulson, who took in $3.7 billion in personal income (after expenses) from the fund that he managed. That is more than the GDP of each of 60 nations and territories in 2005, as listed here by Nationmaster. Among those nations was Niger, population 14 million.
The second HF speculator, by 2007 income, was George Soros– $2.9 billion.
The author of the article, David Cho, explained that Paulson,

    amassed his winnings by “shorting” securities linked to subprime mortgages. In a short sale, the investor borrows securities — in this case, subprime mortgages that were widely held by banks, brokerages and other investors — and sells them to another buyer. Later, the investor must buy those securities back and return them to the original lender. As the subprime market collapsed, the value of the securities fell, and Paulson was able to pocket the difference. The lenders were stuck with the losses.
    Several hedge fund managers, including Philip Falcone,… also profited from the mortgage crisis by betting that subprime debt securities would plunge in price. Falcone earned $1.7 billion last year. Others made fortunes by betting that the prices of commodities such as oil, sugar and corn would rise.

So basically, the speculative bets these men made helped fuel the massive current rash of foreclosures of the homes of low-income Americans and the even more devastating rise in world commodity prices.
Cho attributed many of the facts in his article to something called Alpha Magazine. I imagine that would be this article there. He explained that the explosion of income by HF managers to this degree is a phenomenon of just the past few years. He described how top donors within the US’s money-drenched political system had recently beaten back an attempt to have these HF manager incomes taxed just as other individuals’ incomes are, at a top rate in the US of 35%, rather than 15%, as they currently are.
He also wrote that Daniel Strachman, described as an HF “consultant”,

    was skeptical of raising taxes on hedge fund managers, saying they should be rewarded for taking huge risks. Most managers have their own money in their funds and suffer massive losses when their investments go bad.
    “It’s clear somebody has to win and somebody has to lose,” he said. “It’s not pretty at all because people say, ‘Oh my God. Look how much money these guys are making while people are losing their homes and are complaining about the cost of eggs and sugar.’ But so what? We don’t live in a society that is pretty all the time. That’s why it’s capitalism.”

Capitalism, however, involves choices. These can be made by the relevant governments and citizenries in a responsible way, or in a callous and inhumane way. The way they are currently made within both the US and world financial systems quite clearly falls into the latter category. It is time for deep reform. (But we shouldn’t count on George Soros to fund the campaign for it, I think.)