US trade/current account deficits and foreign exchange reserves are the two sides of „global imbalances“.

A global „new economy“ is emerging and is keeping global economic growth going.

The “global imbalances” are increasingly threatening global economic growth. The role of the dollar as the world’s leading currency is increasingly under threat. The US trade and current account deficits are growing inexorably in lockstep with the productivity, trade surpluses and currency reserves of emerging economies such as China. The excessive striving for ever higher return targets, the greed for profits and dividend payments, the transfer of capital and technology from the rich industrialized to the low-wage countries and the pull of the domestic markets emerging overseas on the capital of the developed industrialized countries are throwing the world economy out of balance and creating “global imbalances”… 

A  global “new economy ” is emerging.

In the distance, dark clouds are gathering in the sky…

The “ global imbalances ” are recognized worldwide as a growing threat to the international financial system. The dollar threatens to lose its importance as  the key currency  of the  world financial system  and to shake the whole system. The pressure on the value of the dollar has already become so severe that it seems only a matter of time before it collapses and, in the worst case, drags other countries along with it…

Economic growth at any price is the creed of the Anglo-American neoliberals, because that is the only way for business to thrive and prosper. The price they pay is increasing, however, and can be seen in the red US trade deficit, the current account deficit and the size of the US government’s budget deficit.    

The  US trade deficit  grew because the US continued to import more from abroad than it exported there.

The  US current account deficit  was $660 billion in 2004 and has been growing year on year as Americans borrow money they don’t have to spend on consumption. They lived far beyond their means.

The  US budget deficit  grew as the US government borrowed more and more money to fund government spending and consumption, which helps/helps them keep their consumer-driven „growth engine“ running and avoid a global recession.

On the other hand, the  currency reserves  and assets of emerging and developing countries have swelled from $1 trillion in 1999 to nearly $3 trillion now, and have nearly tripled in five years. Three quarters (3/4) of the reserves are invested in the dollar area and support the US dollar. Emerging and developing countries are accumulating ever larger dollar balances…

The largely  credit-financed consumption  is a key driver of growth in the US economy, which is sustained by high liquidity worldwide, the ideology of “buy now and pay later” (buy now and pay later) and rising real estate prices in the US, which continues to tempt Americans to borrow more and spend more… all of this has led to huge US household debt over the last few years, which has now risen to $11 trillion.

At the same time, little was saved, resulting in a very low to  negative savings rate is expressed. Ordinary Americans have almost no savings, leaving them ill-equipped for times of need. Consumption and growth at any price is the neoliberal recipe that managed to get the economy back on course for growth after the turbulence and downward spiral at the turn of the century. After September 11, 2001, the American central bank, the Federal Reserve (FED), reduced interest rates to almost zero relatively quickly. With money borrowed from the banks almost free, US consumers increasingly began to buy on credit… Countries like China, through the purchase of billions of dollars in US Treasuries, finance much of the consumption in the United States, not out of generosity but out of the quite selfish interest,

The emerging countries seem to have learned from the events around the turn of the century… The  Asian crisis , which swept from Thailand to Russia to South America from  1997 , showed them vividly and painfully how vulnerable their countries can become if they go beyond their means live and to what extent countries can surrender themselves to the forces and constraints of the global financial world if,  instead of having sufficient financial cushions  for times of need, they  take on debt in bad times have. The currency reserves of their central banks were used up far too quickly when capital flight set in and investors and banks from the rich industrialized countries called back their short-term loans overnight. Now emerging markets are buying US Treasuries and foreign exchange reserves to protect themselves from a repeat of the global financial and economic crisis of the late 1990s. One day they, too, could call back their loans if their  American debtors  should lose all sense of proportion for healthy development in the future. For about five years, a role reversal has been quietly and secretly taking place.

The economic and political centers of power in the world are in the process of shifting. 

If the demand for goods in the USA collapses, things can get dicey for the goods producers. Then there is the danger of  worldwide overproduction . First, the production is dumped and later the production is throttled with the corresponding  mass unemployment  and social misery in the most diverse forms.

The Chinese have recognized exactly this danger for their economy and for the world economy and in  March 2006  in their new “ five-year plan “ set the course for a timely diversion of goods that may no longer be sold in the USA in the future into their own  domestic market  … For the Chinese have initially set themselves a five-year timeframe for restructuring their economy in the direction of their own domestic market. Until then, with their currency reserves, they will have an instrument in their hands that they will probably use to prevent the dollar from falling and a massive slump in consumption in the USA for as long as possible.

What China needs most right now is stability in the global economy and global financial system to give it enough time to  reorient its economy  . The trick will be to ensure that the new path is taken carefully and deliberately…  Currency reserves  represent a potential for power, both in economic and fiscal terms, because money is known to be power when it is used for this purpose. Above all, China’s huge currency reserves give it the power it needs to influence global monetary and financial policy and, in the best-case scenario, have a stabilizing effect. But they will only do so as long as it is of use to them. 

Economic growth  needs  stability . Unrest on the financial and capital markets  is counterproductive and only benefits speculators who swim in  currency turbulence  like fish in water and make it their business. East Asian countries have had their unfortunate experiences of powerful foreign investors lending lavishly  on short-term loans  with only  quick profits  in mind. As long as there  were profits  , they stayed in the country. But precisely when capital was needed in a difficult economic situation, they were gone just as quickly as they had come. The experience is that not „short-term money ”, but that, above all, long-term investments, including foreign capital, are more useful in factories and production facilities for healthy economic growth. These direct investments are less dangerous for economic development. They are bound and far less volatile… 

 More than 30 years ago, the world financial system, which had been stable up to that point, got out of joint after US President Richard Nixon terminated the “Bretton Wood system”  of 1945 in the early 1970s   . Currencies began to “ float ”, being at the mercy of free market forces and at the mercy of currency speculators, as was the case last time during the  1997 Asian crisis . Since then, the system has stabilized again, albeit at the cost of economic imbalances that have arisen worldwide, especially between the USA and the emerging countries, but also in the countries themselves…

There is a high probability  that the dollar will depreciate  in the future . The question is no longer whether the dollar will lose value, but when the dollar will lose its importance as a leading  global currency   . The question is whether this correction will be gentle and gentle on the peoples of the world and whether there can be damage control that will prevent the global economy from being sucked into the whirlpool of dollar decline…

The Chinese “ currency basket ” and “ Bretton Woods II ” primarily stabilize the Asian currency area and make it possible to influence the international financial system. Emerging countries like China, at least in the near future, have an economic interest in their „growth machines“ that produce real value and wealth, which have been running at full speed for years, continue to run as before … China can use its savings capital, which for years has increasingly been   in currency  reserves   and   American government bonds is parked, carefully skim it off and use it even more than before for the sustainable development of the national Chinese economy. China can decide to no longer produce mainly for export, mainly to the USA, but can instead raise the standard of living of its own population by increasingly serving domestic demand in its own country… 

In March 2006, the Chinese set the course for a new direction  in their “ Five-Year Plan“.“ by 2010. It was decided that economic growth and industrial production should primarily help the 700 million farmers in the future and not the other way around as before. The gap between town and country should be reduced and the differences between rich and poor should be reduced. The environment should be protected and the country’s resources should be handled more carefully. In the medium term, production that is less export-driven and therefore more oriented towards the domestic market diverts some of the goods previously exported to the national domestic markets. Reduction of poverty  worldwide – an important   millennium goal  of the United Nations, which cannot be achieved by increasing development aid alone. Fortunately, it seems that there is no other alternative to this approach. Despite an intensive search, no more promising alternative approaches have been proposed to reduce the so-called “ global “  imbalances  … Even the private American central bank FED with its new chairman B. Bernanke and the US government are demanding, along with the EU and large parts of the IMF and the World Bank, more recently China and other emerging countries are increasingly encouraging this new, more national, policy of strengthening domestic demand“ to operate …

Wherever trust in the economic strength of the USA and in the ideology of the neo-liberalized world market is dwindling, China seems to be filling the resulting vacuum with new ideas of a state-regulated and “ tamed globalization „… In the “ G20 „, the forum of the thresholds and developing countries, China is successfully offering its model of a global world market…

China’s main arguments  are a 20-year history of growth with average growth rates of 10 percent, a Chinese industry that is competitive in the global market, gaining more and more market share and creating wealth, and the emergence of a middle class of almost 300 million people, mainly in the cities and on the east coast of China, whose standard of living almost approaches that of the industrialized countries.

Poverty in the millions has been successfully reduced in China over the past 25 years  … The emerging countries are establishing a new form of global division of labor with  China  as the factory bench,  India  as the high-tech forge,  Russia  as the supplier of energy and  Brazil  as the raw material supplier, to give a very simplified picture of these so-called  “BRIC” countries  . Markets are huge, productive forces and technology are available and global growth is expected to continue even if the US domestic market cools down.

 The hunger for energy and raw materials in the emerging countries of China and India, with a population of over 2 billion people, will continue and  keep energy and raw material prices  reasonably high.

The resource-rich developing countries, for example in South America and Africa, get the chance to participate in global economic growth, just like the energy-rich countries in the Middle East or in Central Asia, if fair trade  and  fair economic relations  come about… 

In the existing institutions, such as the  UN , the  WTO , the  IMF  or the   World Bank , there will be an opportunity to shape this development   together  if the balance of power within these institutions continues to shift and their structures are further democratized and freed from the ballast of the Neoliberalism to be liberated. „

03/24/2009

Bremen in January 2007 before the crisis

11 – Taming globalization

„At some point in the not-too-distant future, domestic demand and consumption in the United States will be dampened, interest rates and savings rates will increase, liquidity will decrease, and US government spending on social and also military sectors will have to be reduced.“

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In the coming years…

„It can still be assumed that in the coming years US society will be busy recovering from the expected financial and economic crisis, consolidating, repaying accumulated debts and, despite a likely fall in income and tax revenues, the accruing ones to service interest.”

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“The fuel” of “artificial consumption”

“After the collapse of the “new economy” in the USA, the interest rate cuts were politically desired and the most important fiscal policy tool used by the US Federal Reserve and the US Treasury to stabilize the economy.

>This economic stimulant will no longer be available in the future because it has created speculative bubbles. The „cheap“ central bank money of the US Federal Reserve will have to be held tighter in the future as the mountains of debt grow. So far, it has been an important, if not „the fuel“ of the „consumer-driven“ US economic recovery.“

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The “easy money policy”

“With its “cheap money policy”, the US Federal Reserve, which is in private hands and is authorized to increase the money supply by printing green dollars, managed to lead the US relatively quickly out of the economic crisis and a long-lasting recession to avoid, while at the same time encouraging the growth of global and home-grown internal imbalances.

>A large part of the money that the central bank has pumped into the economic system has not gone into building new factories and creating new jobs. It is being hunted by speculators and short-sighted financial investors around the world, always looking for a profitable investment. The more liquid money there is in circulation, the narrower the investment opportunities and chances of profit and the more willing investors are to take big risks.”

Tame globalization

America’s economy is addicted to liquidity.

Unfortunately, economic growth on the Anglo-American side is not solid. It is leveraged and, in many areas, grossly oversubscribed and bubbled over.
Exaggerations have arisen in the USA in the real estate markets, in consumer borrowing and bank lending, in debt-financed mergers and investment transactions, or in debt-financed takeovers of entire companies by private equity. Someone in the US is always in too much debt. America’s economy is addicted to liquidity. Financial transactions can only be done with it. Wall Street triumphs in the USA. The USA has not only accumulated large debts at home, but also in the global economic and financial system. Many emerging countries have become US creditor states and invest their reserves in US dollars. As long as the dollar is stable, the risks are low.

>At some point the creditors will call back their loans, at the latest when there is a risk that the loans will default and repayment is no longer guaranteed. Then there can be panic reactions and herd behavior, which occurs with great regularity on the financial markets.

Tame globalization

Emerging markets are much better off today.

The Asian crisis began to rage in East Asia in 1997, starting in Thailand, and in 1998 it reached Russia, which had undergone radical neoliberal transformation under Yeltsin. At the end of 2001, Argentina went bankrupt, having blossomed into one of the most neoliberal model students in the previous years. A year later, it hit Brazil, which slid past state bankruptcy with difficulty and full of debt. To make matters worse, the IMF and the World Bank made the global crisis worse because they allowed themselves to be exploited by the industrialized countries with their superiority in quotas and, first and foremost, protected the financial interests of private creditors from the rich donor countries in order to save what could still be saved for them was. Loans were granted to countries deep in crisis,
Like most emerging markets, South American countries are much better off today. In the 1990s, many regions of the world followed neoliberal creeds under pressure from the rich industrialized countries in tow of the USA and ultimately ran large current account deficits. Disappointed, many of them turned away from Anglo-American neoliberal economic principles after the bitter experiences of the Asian and Latin American crises.

>First successes can be seen today when they generate surpluses. The aggregate current account surplus of all emerging economies is now estimated at over $500 billion. In addition, there are currency reserves of three trillion US dollars.
It was different six years ago during the Asian and Latin American crises. At that time, the currency reserves were used up very quickly when foreign banks and private financial investors panicked and called back their short-term loans, so to speak overnight.

7 – Tame globalization

The build-up of currency reserves

“Another obvious and probably the actual purpose of the current currency regime of the emerging countries is to maintain the growth momentum of the global economy, which has been going on for years, with the “growth engines” China and the USA in divided roles. This is the constellation of a global division of labor that has so far made a major contribution to global growth, especially in the emerging countries.

>The accumulation of currency reserves keeps this constellation of global economic growth going. This will support the dollar.”

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The temptation to excuse oneself by devaluing.

“The overall value of US dollar debt and the burden of the debt will decrease as the value of the US dollar falls relative to other currencies, e.g. B. to the Japanese Jen, to currencies from the oil-rich Middle East or to Asian currencies.

>The US may be tempted to deleverage through devaluation. That in turn would probably be the beginning of the end of the dollar’s role as the world’s reserve currency and the beginning of the end of American dominance in world finance and the world trading system.”

Tame globalization

The price China would have to pay…

If the US dollar continues to lose value in the future, which many experts and economists already believe is inevitable, then the value of Chinese dollar reserves and Chinese savings will also fall.

>That would probably be the price that China would have to pay and is willing to pay for its growth driven by American consumption, including the American know-how provided.

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The shift in the balance of power

“Due to the dynamic and economic growth and the favorable environment for investments, the center of gravity of the world economy will shift to East Asia and the Asian part of the Pacific region.

>There are already signs of a shift in the political balance of power in favor of the emerging and developing countries.”

Tame globalization

Boom for at least 10 more years

It seems that China’s industrialization has only just begun with a population of 1.3 billion people… China and India alone have a combined population of over two billion people. That is a third of the entire world population. The potential is huge. The opportunities of globalization with high technology, container shipping, data superhighways, internet and global exchange of goods and services are already being used by many emerging countries…

Most experts assume that the current boom will continue for at least 10 years, because with the industrialization of India and China two huge new markets have emerged that demand more than can currently be supplied… For the developing countries, the price increase is due to the commodity and energy market a blessing and of paramount importance…

>Higher incomes offer developing countries, especially in poor Africa, the opportunity to participate in global economic growth and the increase in global prosperity, even if this is often unevenly and unfairly distributed.

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Global Direct Investment

“While direct investment in industrialized countries fell by 14 percent to $380 billion in 2004, emerging and developing countries grew by 40 percent to $223 billion. With these figures, the official statistics describe the exodus of domestic private capital, taking jobs from the developed home countries to low-wage countries.”

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The so-called “BRIC” countries

“The emerging countries are establishing a new form of global division of labor with China as the factory bank, India as the high-tech forge, Russia as an energy supplier and Brazil as a raw material supplier, to make it clear using a grossly simplified picture of these so-called “BRIC” countries.

>Markets are huge, productive forces and technology are available and global growth is expected to continue even if the US domestic market cools down.”

Tame globalization

Supply and demand in world trade

There is a great demand for cheap labour, a favorable production environment, sales markets, energy and raw materials.

>In return for high profits and the prospect of even higher profits in the future, many countries expect transfers of capital and technology, cleverly exploiting inter-corporate competition. Asian countries in particular attract investors from abroad who bring technology with them. They in turn use the cheap labor and low-cost production conditions in Asia to produce cheaply for the world market and increasingly also for the domestic markets, which are now developing more and more in the low-wage countries.

>This is how jobs and an industrial infrastructure are created in Asia, accompanied by a technology transfer that serves the long-term development of these economies.

Tame globalization

Direct investment and technology transfer

Above all, direct investments also mean technology transfer, naturally accompanied by an increase in the level of education in the low-wage countries. Increasing productivity increases the value of labor and leads to higher wages. Purchasing power increases. A single market is developing that promises new profits and greater competitiveness for global corporations.
At some point in the more distant future, markets will become saturated and at some point in the more distant future, wage levels will tend to, and perhaps largely, converge across the world. Only then does capital no longer have any profitable reason to emigrate and the economic pendulum slowly moves backwards and comes to rest somewhere in the middle.

>Perhaps in the more distant future the bustling capital will only come to rest when all people everywhere on earth live in prosperity and it has fulfilled its purpose and has become superfluous.

Tame globalization

New rules and binding standards

In large parts of the world’s population, there is a common will to restore meaning and values ​​to the unleashed and socially cold neoliberal capitalism, which are more oriented towards the interests of individual countries and their people and less towards the unleashed forces of a liberalized market with a single driving force of the profit interest of the individual… The possibilities of information processing and information transmission, telecommunications and the Internet, capital transfer via data highway, container shipping and air freight transport have reached a level where everything can be traded faster, more perfectly and more cheaply worldwide as a commodity, including labor as a commodity. Today the world appears from this point of view, a bit like a global village. One would wish that the general standard of living of people in this ever-shrinking world could be further raised and that global poverty could be eliminated safely and sustainably in the near future.

>Maybe new rules and norms have to be negotiated between the countries in existing multilateral institutions, such as the IMF or the WTO, whose goal is not primarily the unrestrained global liberalization and unrestrained unleashing of private liquid capital in the global hunt for profits.

TAMING GOBALIZATION

Then globalization would have borne fruit…

Multilaterally capable of reaching a consensus, because the current state of economic development is probably predestined, it seems that the USA must reduce its spending and increase its savings rate… On the other hand, the emerging countries of East Asia in particular are called upon to do their part to reduce global imbalances, by producing less for export and more for their own domestic market and lowering their high savings rates in order to stimulate domestic demand accordingly… It is necessary to redirect exports to the domestic market, increase the purchasing power of domestic consumers, build and expand a social network and old-age provision in order to reduce the excessive savings rate…
>If this is the direction in which the world economy and the world division of labor is being propelled by the contradictions produced by globalization, then globalization would have borne fruit that is now to be harvested.

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“Stimulating domestic demand

and thus fighting the poverty of a population of hundreds of millions is the way in China today to get out of the export-oriented economic growth and to get out of the dependence of Chinese industry on the American market.

>This seems to be the only viable Chinese contribution to reducing global imbalances.”

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Progress towards the Millennium Development Goals

“ In its 2006 Annual Report, the UN Conference on Trade and Development ( Unctad ) writes: “Since 2002, the world economy has had a strong positive impetus for growth and  poverty reduction in developing countries.

>There has been progress in achieving the UN Millennium Development Goals .”