FacebookTwitterGoogle+RedditEmail

With Capitalism in Crisis, “Look East”…But First Blame the West

by

In the macho world of high finance, occasionally an accidental whistle-blower gives away the game just by blowing off steam and revealing his giant ego. One popped up last week: Richard Fisher, the former 2005-14 president of the United States Federal Reserve System’s Dallas bank branch.

In 2013 Fisher voted against his Fed colleagues’ third “Quantitative Easing” (QE), an obfuscating term which means that central banks in the US, EU, UK and Japan can print money to bail out fragile financiers no matter how foolish the cause. Though he described QE3 as “monetary Ritalin” that time (losing the vote by 1 to 11), Fisher had supported QE the first two times, in 2008 and 2012.

So as he sheepishly admitted to a stunned CNBC reporter, What the Fed did, and I was part of it, was front-load an enormous market rally in order to create a wealth effect.” Oops, the $15 trillion in QE wealth loaded into the world’s largest banks only trickled upwards to the top 0.1% of the richest societies, i.e. to enterprises where speculation has replaced production.

Thanks to the hollowed-out Western economy that resulted from the repeated QE fix, financial crisis is again brewing. Fisher warned, “An uncomfortable digestive period is likely now.”

Why can’t the Fed’s experienced leader, Janet Yellen, try another round of QE if a 2008-type panic ensues? “The Fed is a giant weapon that has no ammunition left,” Fisher scathingly remarked.

The critical point Fisher inadvertently makes is that the financial melting that wiped away $2.5 trillion from the world’s financial markets last week should be traced back to Washington: “It is not China.”

Yet everyone else enjoys blaming China, and there are many good opportunities, given multiple messes created by Beijing-Shanghai-Shenzhen capitalist and state elites:

* stock market crashes of 7%+ that caused ‘circuit-breaker’ panics on two days in the first week of 2016 trading, with panicky trading forcibly halted within a half hour on the second occasion;

* capital flight that has already reduced China’s peak $4 trillion in foreign reserves to $3.3 trillion today, at a pace rising to a record $120 billion/month outflow by the end of 2015 (in contrast, the average annual ‘illicit financial flows’ from China were $140 billion from 2003-14, according to a recent study by the NGO Global Financial Integrity);

* massive industrial and commodity overcapacity especially in coal, steel and cement, requiring a new round of subsidies to avoid massive local bankruptcies;

* an inability by many Chinese borrowers to repay the fast-rising $27 trillion domestic debt, given the profusion of zombie companies and individuals who over-borrowed;

* such an over-saturation of commodities that the dependency generated elsewhere during China’s import splurge is now the cause of many exporters’ collapse;

* real estate overbuilding in an even more maniacal fashion;

* several attempts at devaluing the yuan – recently named an International Monetary Fund ‘reserve’ currency – that could start a currency war;

* bouts of regulatory incompetence and other corporate-captive maladies that include extreme urban pollution, and

* a willingness to continue putting down citizen uprisings with police violence and arrests of a couple of dozen key labor leaders here, a few hundred human rights lawyers there, thousands of environmentalists here, 15,000 internet activists there, more hundreds of thousands of ethnic minorities

Until recently, China has been immensely functional to Western capitalism, what with its banning of trade unions from western corporate factories, its rural-urban migration controls that cheapen labor supplies, and its local ecological despoliation. Together these shifted substantial costs of production to workers, to women left in the countryside, and to nature.

Yet as Johns Hopkins University sociologist Ho-fung Hung argues, “Capital accumulation in China follows the same logic and suffers from the same contradictions of capitalist development in other parts of the world. To understand the recent booms and busts of Chinese capitalism, we first have to understand capital’s international trends and cycles.”

In a recent London School of Economics lecture, David Harvey remarked on how China served the world economy during the last decade:

“There is a tale to be told here about the overaccumulation of capital… and surplus capital and labor which had to be absorbed in order to keep stability within the global system of capital accumulation.” Hung agrees that this is “a typical overaccumulation crisis, epitomized by the ghost towns and shuttered factories across the country.”

Indeed, simply blaming the ‘Chinese’ is dangerous, University of Massachusetts professor emeritus Richard Wolff explains:

“The cause of global economic decline is not China or any other particular part of a more-globalized-than-ever world economy, but rather the capitalist contradiction that could no longer be postponed by credit extension. That so many contemporary economic pundits and others blame China reflects a combination of very superficial economics and old-fashioned China bashing.”

Can the crisis be halted? Because of the Communist Party’s extremely efficient, repressive political controls, last month Bejing banned massive banks – Standard Chartered and the Development Bank of Singapore – from destructive foreign exchange dealings. Observed Telegraph financial correspondent Ambrose Evans-Pritchard, authorities also “cracked down on false invoicing by exporters, effectively invoking police powers to stop money leaking out of the country.”

Last October, there was another notable police crack-down, also apparently on grounds of financial corruption, against Hong Kong-based entrepreneur Sam Pa. Until then he was China’s most prolific operator in Africa. In 2014 the Financial Times revealed Pa’s deals “worth tens of billions of dollars” with the continent’s dictators.

My colleagues Farai Maguwu and Khadija Sharife, as well as the London NGO Global Witness, documented how Harare’s Treasury was systematically denied billions of dollars in royalty revenues from three Chinese-Zimbabwean companies, including Pa’s. Instead, Sharife discovered, in 2013 Pa channelled vast sums to Robert Mugabe’s victorious election campaign from the Marange diamond fields, the world’s largest at the time, responsible then for 13% of global supply. Zimbabwe’s military was the main conduit for smuggling diamond revenues, because during the country’s 2009-13 ‘unity’ government, the Treasury was controlled by Mugabe’s enemy, Finance Minister Tendai Biti of the Movement for Democratic Change.

From 2003 onwards, Mugabe had established a ‘Look East’ philosophy after Western sanctions were imposed on more than 100 top politicians linked to human rights violations. To be sure, China-Zimbabwe fraternal anti-imperialist rhetoric remains strong, based on Beijing’s admirable support for the 1966-79 liberation war led by Mugabe against white Rhodesian colonialism. But in the diamond fields, the contemporary record includes mass murder (hundreds of artisanal miners killed in November 2008), the displacement of thousands of residents, labor exploitation and enormous environmental damage. And the Look East policy has damaged the economy in many other ways.

The China-Africa relationship is suffering unprecedented stress, emblematized by Pa’s arrest. Burgis concludes, “Slowing growth has damped China’s demand for African oil and minerals. Falling commodity prices have forced resource-dependent African governments to cut their budgets. The economic winds appear to have been turning against Pa, regardless of his apparent troubles with Communist Party bosses at home.”

For Mugabe as well as for global capitalism’s apologists, a look East should be preceded by a look in the mirror, in search of obvious fatal flaws built into the tyrannical, self-destructive model that each uses to reproduce their power. Both kinds of despotic rule have crisis tendencies now readily apparent. Both need democratic regime change, bottom-up.

Patrick Bond (pbond@mail.ngo.za) is professor of political economy at the University of the Witwatersrand School of Governance in Johannesburg. He is co-editor (with Ana Garcia) of BRICS: An Anti-Capitalist Critique, published by Pluto (London), Haymarket (Chicago), Jacana (Joburg) and Aakar (Delhi).

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

January 23, 2017
John Wight
Trump’s Inauguration: Hail Caesar!
Patrick Cockburn
The Rise of Trump and Isis Have More in Common Than You Might Think
Binoy Kampmark
Ignored Ironies: Women, Protest and Donald Trump
Gregory Barrett
Flag, Cap and Screen: Hollywood’s Propaganda Machine
Gareth Porter
US Intervention in Syria? Not Under Trump
L. Ali Khan
Trump’s Holy War against Islam
Gary Leupp
An Al-Qaeda Attack in Mali:  Just Another Ripple of the Endless, Bogus “War on Terror”
Norman Pollack
America: Banana Republic? Far Worse
Bob Fitrakis - Harvey Wasserman
We Mourn, But We March!
Kim Nicolini
Trump Dump: One Woman March and Personal Shit as Political
William Hawes
We Are on Our Own Now
Martin Billheimer
Last Tango in Moscow
Colin Todhunter
Development and India: Why GM Mustard Really Matters
Mel Gurtov
Trump’s America—and Ours
David Mattson
Fog of Science II: Apples, Oranges and Grizzly Bear Numbers
Clancy Sigal
Who’s Up for This Long War?
Weekend Edition
January 20, 2017
Friday - Sunday
Paul Street
Divide and Rule: Class, Hate, and the 2016 Election
Andrew Levine
When Was America Great?
Jeffrey St. Clair
Roaming Charges: This Ain’t a Dream No More, It’s the Real Thing
Yoav Litvin
Making Israel Greater Again: Justice for Palestinians in the Age of Trump
Linda Pentz Gunter
Nuclear Fiddling While the Planet Burns
Ruth Fowler
Standing With Standing Rock: Of Pipelines and Protests
David Green
Why Trump Won: the 50 Percenters Have Spoken
Dave Lindorff
Imagining a Sanders Presidency Beginning on Jan. 20
Pete Dolack
Eight People Own as Much as Half the World
Roger Harris
Too Many People in the World: Names Named
Steve Horn
Under Tillerson, Exxon Maintained Ties with Saudi Arabia, Despite Dismal Human Rights Record
John Berger
The Nature of Mass Demonstrations
Stephen Zielinski
It’s the End of the World as We Know It
David Swanson
Six Things We Should Do Better As Everything Gets Worse
Alci Rengifo
Trump Rex: Ancient Rome’s Shadow Over the Oval Office
Brian Cloughley
What Money Can Buy: the Quiet British-Israeli Scandal
Mel Gurtov
Donald Trump’s Lies And Team Trump’s Headaches
Kent Paterson
Mexico’s Great Winter of Discontent
Norman Solomon
Trump, the Democrats and the Logan Act
David Macaray
Attention, Feminists
Yves Engler
Demanding More From Our Media
James A Haught
Religious Madness in Ulster
Dean Baker
The Economics of the Affordable Care Act
Patrick Bond
Tripping Up Trumpism Through Global Boycott Divestment Sanctions
Robert Fisk
How a Trump Presidency Could Have Been Avoided
Robert Fantina
Trump: What Changes and What Remains the Same
David Rosen
Globalization vs. Empire: Can Trump Contain the Growing Split?
Elliot Sperber
Dystopia
Dan Bacher
New CA Carbon Trading Legislation Answers Big Oil’s Call to Continue Business As Usual
FacebookTwitterGoogle+RedditEmail