The crisis and the dollar
By Tim Anderson
Optimistic comments by US President Obama on his country’s financial crisis are premature. In mid April he suggested there were “signs of progress”. Federal Reserve chief Ben Bernanke also claimed there were “tentative signs” the contraction was “calming”.
This is standard stuff from those accustomed to reading short term markets and ‘talking up’ the economy. However I suggest the US crisis, in particular, has not yet reached its lowest point.
The main reasons for this are that the mountains of bad debt (‘fictitious capital’) have not yet been fully accounted, private capital is still largely on strike (therefore there is little new productive investment) and mass unemployment is still growing, with a accumulating contractionary impact on the US economy.
Neoliberal policies in the US and many other countries, which promoted wide ranging privatisations and largely disqualified public investment, have ensured that state investment (as opposed to subsidies for corporations, housing and consumption) will compensate little for this deficit in private investment. This means years of stagnation.
Another reason the US economy has not yet hit ‘the bottom’ is the US dollar. Any major shift away from the US dollar in international trading would trigger a devaluation, which would further damage US purchasing and foreign investment power and, in turn, general economic capacity.
In any other country this devaluation would have happened already. Indeed in the Asian Financial Crisis of 1997, currency collapses mostly preceded the capital flight, financial collapses and broader economic crisis.