Global financial meltdown or golden opportunity for a healthier future?

Posted on October 10, 2008. Filed under: economics, microcredit, Politics, USA |

The influential central banks of influential national economies of the world have cut down interest rates. President George Bush has struggled but succeeded to get a moth-eaten financial bail-out package approved. The British have gone one step further, taking a page out of their historical experiments with “socialism of the right-wing kind” and started processes for nationalizations. But the apparent “confidence” of “investors” appear to slide. I have already talked in these pages about why and how, the national governments of the so-called “super economies” cannot shake off their responsibilities about allowing this to build up.

The financial smoothies can blabber about smugly in technicalities on the media – about a “system collapse”, and how “surprisingly” and “otherwise sound” financial system seems to “puzzlingly work no more” – and that the “governments” must do something “drastic” and “do more”. It sounds like a wayward teenager’s pout, that she has crashed her mom’s convertible, and dad should do “something” to clear this “puzzling accident”.

The main problem has been building up for a long long time, explicitly in the manipulation of the world market to ensure fat profits for the controllers of these markets. The process had started before the second world war, and after the war simply consolidated as the Euro-American control over the world markets adpated itself to the more efficient extraction of profits through transnationals compared to the less efficient and politically increasingly costly or risky direct colonial form of extraction of capital and profits for the benefit of the Euro-American home nations. Without going into jargon and technicalities, the original source of this departure from free market conditions can be understood in very simple terms.

Suppose two countries A and B are engaged in international trade. A is capital rich, held in currency reserves in a dominant currency [a currency against which the currency of country B is pegged, or fixed, so that changes in the face-value of this dominant currency immediately forces corresponding changes in the currency of B]. For example, the south east Asian currencies involved in the 90’s crash were all typically pegged or fixed as a predetermined weighted combination of Euro-American currencies, and the effect of the transition of the Euro zone in triggering the south-east Asian currency crisis is still being debated. Country B on the other hand was an ex-colony, and therefore had been sucked dry of all capital, or capital producing economic elements, and is trapped in  a low-surplus production process.   Further  as part of the transition from colony to ex-colony let us suppose that country B has inherited elements of dependent capitalist production and market systems, which are dominated by the capital and market control mechanisms of the ex-colonizer which is either A or a third country having mutually interdependent and mutually profitable capital and financial exchanges with A.

By the market and hence the indirect political control required to maintain such market control, country A can extract surplus from country B by marking up prices of commodities on which the economy of B depends – as B’s colonial inherited production systems had been deliberately kept dependent on primarily “high-value” capital goods produced in country A or its allied colonizer economy. This sort of profiteering is a kind of “investment”. In financial terms there is no problem with this as long as the rate of such profit is not very “large”.

But it all gets out of hand, if the profit rate exceeds a certain critical value determined by the conditions of the economy of country A. Beyond a certain value, any excess profit cannot be balanced against commodities produced by country B and of value to the consumers of A, and will then have to be balanced against the purely financial commodity aspect of “money” – that is against the currency of A. This can mean either printing of money which will not immediately appear as “inflation” as accounts are being balanced formally against external trade. However, over time this excess profit translates into a fictitious commodity, that of pure currency reserve, which cannot be balanced at fixed and adjusted prices against the real commodity production of country A. This means either prices of commodities in A have to be marked up or there is excess monetary capital that cannot be balanced against the surplus production of the economy of A  at constant prices.

To a significant extent, the current crisis was ultimately triggered formally through the collapse of the housing finance sector in the USA. There will of course of be thousands of papers published in the finance journals over the coming months justifying extension of tenures – but with little real insight or corrective prescriptions. The fact is that the excess accumulated capital under the control of the US economy, as well as excess capital flowing in from growing economies like China or the demand-fuelled monetary super-profits of the oil-rich Gulf countries, have been super-inflated due to conversion of capital as balanced against real commodities in demand into fictitious purely numerical monetary commodities.  The financial wizadry of the type of Wall-street flyers, have simply devised more and more elaborate forms of “exotic” fictitious commodities in the form of options to absorb this excess currency in circulation or held in the accounts books of the investor chains. As the profitability of the capital rich economies decline internally, there has been a systematic  tendency towards preying on the essential commodities within their domestic economies – commodities like housing, or health care, or insurance which are also typically lucrative because of government legislations that make them compulsory and therefore convert the domestic populations into captive markets. This makes it obvious, that surplus monetary capital would prey on the most vulnerable consumer in order to extract higher profit rates using the weaker negotiating power of the consumer. This being risky, government legislations that require compulsory protection of such “risks” which provide opportunities to other financial service providers to put their teeth into the fat profits being made by marking up their own prices as coverage of risks, and this then gets spread around by the financial wizards through their exotic fictitious commodities.

There will now be a huge hue and cry to nationalize, conversion of deflated assets into public liabilities, and maintain minimal profits or high levels of conspicuous consumption by the controllers of the financial systems. But this will simply restore the power of the controllers of the financial system and will retain the highly manipulated market system under heavy control by the few.  For a truly free market, all economic agents have to be empowered. This means that the small consumer too has to have greater power in the markets. Instead of concentrating capital in the hands of a few managers who have shown how “unfree” the “free” market can be made to be, the task of the hour is to give access to capital to those who have least access to it. Basic housing, education  and healthcare are important components of empowerment  in addition to access to capital and means of production.

It will be crucial to develop local markets, and for communities to try and be self-sufficient in the basic commodities. As far as possible, communities should not only stress on pure urbanization but also try and develop the agrarian and small-scale industrial potential of lands and facilities surrounding them. Production, production and more production of the basic necessities through a process in which everyone in the community or the local system participate. Production and consumption on site is more efficient in energy usage and infrastructure, and over specialization should be discouraged. There should be government policy and legislation now that requires urbanization to be also concurrently agriculturally productive, and such urban-agrarian land usage to provide sustainable energy and housing generation – such as managed forests within the defined urban area that provide renewable fuel, power and building material.

This does not mean that international commerce or trade and capital formation or exchange has to be abandoned. But what it means is to reproduce national economies in ever smaller scales within larger and overlapping economic systems, so that all financial “eggs” are not put in one “investment” basket. This will provide a basic safety net within the “free market” system so that people have their fundamental requirements for sustenance satisfied, and risks entailed by investments of large capitals cannot then affect or damage lives to the extent they can do now. The multifarious sectors and aspects of these local economies can provide sufficient diversifications to cushion communities from large scale financial blows. This will also mean much more efficient and clean resource usage, and less dependence on distant economies mediated by those who concentrate capital in their own hands through the pure process of  managing exchange and capital circulation. In its turn this will lead to capital formation that cannot leave real production processes and commodities far behind in “value”. Strong local economies will also serve to increase the number of “free” economic agents and factors in national as well as global markets, leading to the results expected of efficient market clearance, and sustainable growth equilibriums.

Try to grow something in your back garden, in empty and unused patches of land, in a corner of your window in an urban high-rise, get together with your community to start a small farm with the help of local administration, form small cooperatives or companies to produce items needed in the community, absorb and use as many of the population in these production processes, teach yourself about economics and the financial system, try to organize a basic local healthcare system, invest in a child or teenager to become a doctor with clear legal commitments to practise at reasonable compensation for a period of time as part of the healthcare system, try to ensure education so that generations of producers can keep abreast of technological change.

At the global level, the tendency will be towards global financial system consolidation and homogenization, with greater regulation at the international level. However, political expediencies and persistent racial, religious, and xenophobic fractures will desperately fight against this consolidation, as just like within national economies these fractures are crucial in extracting profits from the pure circulation of capital for those entities and transnationals who own large amounts of capital.


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2 Responses to “Global financial meltdown or golden opportunity for a healthier future?”

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Nice writing. You are on my RSS reader now so I can read more from you down the road.

Allen Taylor

I found your site on Google and read a few of your other entires. Nice Stuff. I’m looking forward to reading more from you.

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