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Home / Contributions & Guests / System Failure and the Need for Revolution

System Failure and the Need for Revolution

by Raymond Lotta |

The most serious financial crisis since the Great Depression shows no sign of letting up. The financial edifice of U.S. imperialism is in danger of crumbling. The U.S. ruling class is confronting what Federal Reserve chairman Ben Bernanke describes as a crisis of “historic proportions”—and is hurriedly cobbling together desperate measures to prevent wholesale collapse. Three of the largest independent investment banks on Wall Street have ceased to exist since April. The government had to assume a major stake in the American International Group (AIG), the world’s largest insurer, to prevent it from collapsing. Now the U.S. Treasury is considering taking ownership positions in major U.S. banks.

This crisis is amplifying internationally. Western Europe is facing large bank failures and governments are engineering their own bailouts. The Russian stock market has intermittently suspended operations. Financial markets in Asia have nose-dived. Mexico’s economy is wobbling, as its exports shrink.

Two things stand out about this crisis. First, there is the ferocity of its global shocks and the speed with which it has spread. Second, unlike the debt and financial crises of the last 30 years, which were largely centered in the Third World, this crisis initially exploded in the U.S., the world’s leading capitalist economy, and is focused in the financial centers of world capitalism.

U.S.-led finance, which plays a dominant and shaping role in the global capitalist order, has taken a huge body blow. This will have enormous repercussions, not just for the stability of the world capitalist system but for power shifts and rivalries within it.

Many progressive commentators have put the blame for this crisis on fraud and greed, or on lax regulation. All of which are certainly in play. But these explanations do not get to the essence of what is happening, to the cause of the problem. This crisis is the outcome of the fundamental workings of the capitalist system.

The analysis that follows is framed by these core points:

  1. There is an essential relationship between the vast enlargement of the financial sector in the U.S., and the general phenomenon of financialization, and the deepening globalization of capitalist production of the last 15 years. And central to this dynamic has been the relationship between U.S. imperialism and China.
  2. Through the course of this growth and expansion, severe imbalances have built up between the financial system—and its expectation of future profits—and the accumulation of capital, that is, the structures and actual production and reinvestment of profit based on the exploitation of wage-labor.
  3. A “dirty little secret” of this crisis is the enormous weight of militarization of the U.S. economy.
  4. This crisis is a concentrated expression of the anarchy of capitalist production—the fact that production is not carried out according to any conscious, rational plan at the society-wide level, much less at the international level.

Background to Crisis

In the early 2000s, in the aftermath of the collapse of high-tech stocks, the U.S. Federal Reserve Bank sought to stimulate lending and growth. It lowered interest rates and pumped funds into the banking system. Banks had access to cheap and plentiful credit. And through deceit and aggressive marketing, they pushed mortgages on people. The Federal Reserve continued to inject low-cost funds into the banking system—helping to prop up loans and to fuel a long-term speculative housing bubble.

Banks sold these mortgages to investment banks. The investment banks in turn bundled these loans together with other loans, created complex financial products, and sold them to large investors—in the U.S. and in other parts of the world, especially Western Europe. These mortgage-backed securities, as they are called, circulated in financial markets and became the basis for other loans. The ultimate collateral for this chain of borrowing and lending was the original mortgage loans. So when housing prices fell, and as growing numbers of mortgage holders found themselves unable to pay back housing loans, much of this original collateral became nearly worthless.

This whole process is an obscene example of how under this capitalist system something as basic as human shelter becomes a financial instrument and object of speculation. This has led to a situation today where 1 in 6 U.S. homeowners owe more on a mortgage than their home is worth; where 1 in every 65 households in California is in some phase of foreclosure; and where a disproportionate number of Black and Latino families who have been victimized by predatory lending have experienced incredible losses of what little wealth they had.1

AIG had made enormous profits internationally by selling insurance to investors who held many of these mortgage-backed securities. These investors would be repaid by AIG, in the event that the loans that were bundled into these financial packages they had purchased were defaulted on—could not be paid back. But by mid-September, AIG could neither cover massive loan damage nor borrow sufficient funds on the financial markets to keep itself afloat. AIG was so interconnected with other major financial players that if the company went under, it would likely have taken others down.

In the face of mounting financial crisis, the imperialist state intervened. It acted as the representative of capital and as the guardian of the interests of capital. The U.S. ruling class was faced with a two-fold danger: mounting losses and bankruptcies in the financial sector; and the choking up of lending channels, which could send the economy into a rapid downward spiral.

The government basically took over AIG. And on September 19, the Treasury Secretary Henry Paulson announced a $700 billion bailout. The essence of the rescue package was that the government would buy the troubled mortgage-backed securities sloshing about in the financial system and through this get lending going again. But the announced bailout did not unblock credit markets or calm stock markets. Nor has it restored international confidence in the U.S. economy.

Taking a Step Back

This crisis broke out in the banking system. Its more immediate trigger was the popping of a speculative real estate bubble, cascading losses in the financial sector, and the inability of stricken financial institutions to raise capital and the unwillingness of others to lend capital.

At a deeper level, this crisis is the outcome of a particular trajectory of world capitalist growth.

There has been a massive new wave of globalization. One of the most significant features of world growth and expansion of the last 15 years has been the deepening integration of the world capitalist economy. This is happening both on the level of production and trade—like the parts that go into a computer being manufactured in different parts of the world; and in the case of an iPod being totally manufactured in China. And it is happening on the level of finance—where banks operate globally and are more tightly interlinked with one another through chains of borrowing and lending and even, as in the case of AIG, insuring risks of lending.

This new wave of globalization has involved direct productive and financial investments abroad. It has involved the expansion of outsourcing and subcontracting. And central to all of this has been the fuller integration of export producing countries of the Third World into the world capitalist market—and the forging of a globally-integrated, cheap-labor manufacturing economy.2

40 percent of the imports coming into the U.S. are accounted for by U.S. transnational corporations—and this does not even include the subcontracting done by companies like Walmart. 30 percent of U.S. corporate profits are generated overseas. China, which has evolved into the high-profit workshop/sweatshop for international capitalism, has been at the epicenter of this recent surge of globalization.3

From the standpoint of the needs of profitable globalization, various elements of deregulation—for instance, the lifting of barriers to rapid shifts and transfers of capital—were functional. This is why both Republicans and Democrats have promoted deregulation. Indeed, the Clinton administration in the 1990s played a decisive deregulating role. It negotiated so-called free-trade agreements with Third World countries and helped to loosen strictures on U.S. banking and telecommunications.

The trajectory of capitalist growth of the last 15 years has also involved heightened financialization. On this platform of more globalized production and exploitation, the financial services sector in the advanced capitalist countries mushroomed.

On a turbo-charged global playing field of ever-more mobile and massive flows of investment capital—where the stakes of winning and losing are enormous—capital requires all kinds of risk management. Investment banks and other financial institutions provide such financial services to “hedge” against interest rate variations, currency fluctuations, and other sources of volatility and loss. At the same time, financial activities became a greater source of short-term and speculative profits. In an intensely competitive atmosphere for financial market share, investment banks were creating ever-more complex and exotic financial products. Global financial assets increased from $12 trillion in 1980 to nearly $200 trillion in 2007, far outstripping the growth of world output or the expansion of trade.4

Growth in the advanced capitalist countries over the last 15 years became increasingly finance-led and credit-driven. The U.S. has been at the epicenter of this process of heightened financialization. By 2005, the manufacturing sector of the U.S. economy had fallen to 12 percent of the U.S. gross domestic product (the production of goods and services), while the financial services sector made up of finance, insurance, and real estate had grown to 20 percent. In 1982, the financial sector’s share of total corporate profits was just over 5 percent; in 2007, the financial share of corporate profits had skyrocketed to 40 percent!5

Contradictions of Development

These interrelated processes of globalization and financialization ultimately led to unsustainable imbalances and instabilities. The dynamics that fueled growth have generated new barriers to profitable accumulation of capital. Strengths have turned into vulnerabilities.

These include:

  • Bloating of the financial sector relative to the productive base.
  • Huge run-up of debt and U.S. trade and government deficits in the U.S. necessitating massive and uninterrupted inflows of capital from around the world, with the central banks of Japan and increasingly China holding huge amounts of U.S. Treasury debt.
  • Billions upon billions of dollars of paper assets that cannot be transformed into real, productive and material, assets.
  • U.S. consumption and borrowing stimulating China’s growth but China’s breakneck manufacturing growth further fueling U.S. trade deficits and intensifying competitive pressures throughout the world economy.
  • The expansion of credit spurring growth but heightening global financial fragility.

We are seeing things turn into their opposites. Financial institutions attempted to reduce risk and to profit from risk by dispersing more varied financial instruments over a wider field of investors internationally. But this process has drawn investors, these very institutions, and now governments into a vortex of vulnerability and crisis. The heightened globalization of production and markets, the closer intertwining of economies, has created conditions for faster and even more extensive ripple effects of crisis throughout the world.

A Knot of Contradictions

A strategic concern of the U.S. ruling class is the international strength of the dollar. The dollar is the world’s leading currency for settling transactions, clearing debts, and holding foreign exchange reserves (trade and investment earnings that become part of the reserves of foreign central banks). The dollar has been a linchpin of U.S. global supremacy and of the whole current global economic order.

The dollar is also an investible commodity—major currencies are bought and sold and traded on international currency markets. The value of the dollar rises and falls in relation to other currencies, and in response to international political and economic trends and developments. If foreign central banks and investors were to significantly shift away from dollar holdings, this could set off a global monetary crisis and/or strengthen the position of rival currencies (like the euro) and rival powers.

These are uncharted waters for U.S. policymakers: in the scale and complexity of the crisis…in the magnitude of the rescue operations required to prevent financial breakdown…and in the rapidity with which this crisis is unfolding. A Harvard research economist put it this way: “like the sorcerer’s apprentice, we have created things we do not understand and cannot easily control.”6

U.S. imperialism has limited maneuvering room. The U.S. is already the largest debtor country in the world. It is waging costly wars for greater empire in Iraq and Afghanistan. And both John McCain and Barack Obama are committed to America’s global “war on terror”—the umbrella under which the U.S. is waging these wars for empire.

U.S. imperialism has attempted to parlay its superior military strength into a new world order and to lock in its global supremacy for decades to come. Defense and defense-related spending totaled more than $1 trillion in fiscal 2008.7 And military-related production and research have long been deeply embedded in the U.S. economy. The whole imperialist system rests on the domination of vast swaths of the globe through savage force, with the U.S. military colossus playing a special role. The costs of forcibly preserving and extending the U.S. empire is one of the dirty little secrets of the dynamics of this crisis that scarcely gets talked about.

Here an important dialectic comes into play. “U.S. military dominance,” writes Kenneth Rogoff, former chief economist for the International Monetary Fund, “has been one of the linchpins of the dollar.”8 But this military dominance and the wars the U.S. is waging have increasingly come to depend on the steady inflow of foreign capital into the U.S. (to the tune of $3 billion a day). For this to continue requires that the U.S. economy and dollar remain stable. This is a major contradiction for U.S. imperialism.

U.S. imperialism is facing new competitive challenges and the emergence of potential rival constellations of imperial and big powers—vying for market shares, control over energy resources, and geopolitical position.

Emergency Capitalism

People are losing their homes. Retirement savings plans since the middle of 2007 have lost 20 percent of their value with the stock market sinking. Funding for vitally needed social programs and services at state and local levels is being pinched by the financial crisis and economic slowdown. In much of the Third World, food prices soared over the last year, this is partly related to financial speculation, and hunger has spread.9

While the futures of millions are in jeopardy, what is the paramount concern of those at the top of the pyramid of economic and political power? It is the protection of a financial system that sits atop a global system of exploitation; it is the rescue of the owners and investor beneficiaries of that system.

This is not “socialism for the rich” or a bailout for the people. It’s emergency capitalism for the capitalist class: injections of funds and guarantees, government takeovers, cost-cutting, selective liquidations, restructuring of regulations; and it’s more brutal capitalism for everyone else: austerity, more intense international exploitation, and more misery for people throughout the world.

The official story line is that this crisis issues from particular flaws and malpractices that can be corrected: “excessive greed,” “Wall Street irresponsibility,” “outdated” or “ unenforced regulations.”

The truth is that this crisis has deep structural causes in the very nature of the system—in the quest for profit, not the satisfaction of human need, and in the anarchic workings of world capitalism.

We are seeing how the means through which capitalism expands and “innovates” have led to new barriers and to gales of “creative destruction”—with trillions of dollars of asset values destroyed in the market turmoil. Through these convulsions, the imperialists seek to wrench new freedom, promoting further consolidation and monopolization. Bank of America absorbs the giant investment bank Merrill Lynch. Lehman Brothers is forced into liquidation.

Whoever wins the presidential election will be inheriting a battered financial system and huge government deficits. This will not be an era of expanded social spending, but one of more direct government intervention in financial markets and cutbacks in social spending.

A Status Report

This rolling and intensifying financial crisis serves as a profile and status report on capitalism in the 21st century:

A once-thriving subprime mortgage market…had been linked to the ability of U.S. financial institutions to market securities to European banks and of the U.S. Treasury to draw in export earnings from China…earnings generated in sweatshops…tied into subcontracting networks of Western corporations….

Real estate markets tank…. The “smart money” looks for “safe places” to shift its capital…. Some of it heads for commodity futures like rice…. So food prices spiral upward in response to the investment stratagems of people who know and care nothing about food needs and food production…. In countries like Haiti, women who can no longer afford basic staples are feeding their children mud-cakes….

A French bank, with its assets plunging in value, and the chain of global capitalist finance snapping all over, now finds itself with “non-performing loans”…. It must “improve its balance sheet” and faces pressures to reduce or eliminate trade credits to a country in Africa that depends on imports for food, and where people already spend 50 percent of their incomes for food.

Despite staggering advances in technology and human knowledge, despite the fact that the development of human society has brought humanity to a historic threshold where it is now possible not only to overcome scarcity and exploitation but also to forge social arrangements where human beings can truly flourish—despite all of this potential, social and economic life are under painful duress and the ecosystems of the planet gravely threatened. It is not for lack of resources or knowledge.

All of what has been described in this article is the result of the relations and domination of capital, the result of the workings of a system driven by vicious competition and the blind accumulation of profit based on exploitation—and backed by massive military force.

In the heartland of capitalism, there is financial meltdown. In the Third World, millions are already suffering the ravages of a global food crisis. This system is a horror and a failure. Is it necessary for humanity to live this way?

The October 10 edition of The Washington Post carried an article with the title and question “The End to American Capitalism?” In forums and in the media, leading bourgeois policymakers and analysts have discussed whether this crisis, careening beyond control and threatening greater economic calamity, suggests that there is something fundamentally amiss about capitalism. And the emphatic answer given is the same: “the system may not be working optimally, but there is no alternative, only gradations and variations of capitalism.”

But there is another way. It is possible to take hold of the productive resources of society and to develop and deploy them in a rational, planned, and society-wide way to meet human need and to safeguard the planet. It is possible to establish a radically different kind of state power and to create a society and institutions that unleash people’s creativity and that promote initiative and diversity in an atmosphere that brings out human community.

The question of socialism, of communism, of revolution could not be more relevant…and more urgent.

To be clear, revolution is not a catchword for lots of new things or lots of change. Revolution has very specific meaning: the people getting rid of the system; depriving the old ruling class of their political-economic-military power; and creating a new power with new aims and objectives and the means to enforce those aims and objectives.

As serious as this crisis is, with all the havoc it is wreaking, the system will not automatically collapse of its own weight and disorder. Absent revolution, capitalism will put itself back together—in its own image and at unimaginable social cost.

And for all the agony that crisis inflicts, this will not automatically and spontaneously translate into progressive, radical, and revolutionary sentiment and consciousness. Other forces are in the field doing ideological and political work: reactionary populists like Lou Dobbs (“blame the foreigners and illegal immigrants”) and Sarah Palin whipping up a social base for religio-fascism. The Obama candidacy is channeling disenchantment and the thirst for change right back into the political system’s suffocating embrace (“change we can believe in” is nothing other than change acceptable to the powers that be).

This is a highly fraught situation. Things can change very quickly. The system is revealing much about its basic nature. Bigger jolts may come and outrage may suddenly grow and give rise to resistance from all kinds of quarters. We have to grasp the potential of the situation. We have to be out there bringing forward understanding and bringing forward a vision of a liberatory world. We have to rise to new political and ideological challenges in the belly of the beast.

 

ENDNOTES

1. Data from James R. Hagerty and Ruth Simon, “Housing Pain Gauge: Nearly 1 in 6 Owners ‘Under Water,’” Wall Street Journal, October 8, 2008; RealtyTrac, “Foreclosure Activity Up 14 Percent in Second Quarter,” Realtytrac.com, July 25, 2008. A study published earlier this year estimates the total loss of wealth suffered by Black, Latino, and other minority households on account of bank subprime-lending of the last eight years to be the greatest loss of wealth for people of color in modern U.S. history (United for a Fair Economy, Foreclosed: State of the Dream 2008). [back]

2. Among informative studies of the origins and development of a globally integrated cheap labor manufacturing economy, see Michel Chossudovsky, The Globalization of Poverty and the New World Order (Quebec: Center for Research on Globalization, 2003); and on globalized manufacturing in relation to financialization, see William Millberg, “Shifting Sources and Uses of Profits: Sustaining US Financialization with Global Value Chains,” Economy and Society, Vol. 37, No. 3 (August 2008), pp. 420-451. [back]

3. Data from Milberg, “Shifting Value Chains…” [back]

4. Jeffrey Garten, “We Need a New Global Monetary Authority,” Financial Times, September 25, 2008. On financialization as a means also to contain financial disorder and to impose profit maximizing discipline on capital, see Christopher Rude, “The Role of Financial Discipline in Imperial Strategy,” in Leo Panitch and Colin Leys, eds., Socialist Register 2005: The Empire Reloaded, London: Merlin Press, 2004. [back]

5. Kevin Phillips, Bad Money (New York: Viking, 2008), p. 5; Robert Wade, “The First-World Debt Crisis of 2007-2010 in Global Perspective,” Challenge: The Magazine of Economic Affairs, July-August 2008, p. 33. [back]

6. David Dapice, “Bad Spell on Wall Street,” Policyinnovations.org, January 24, 2008. [back]

7. Leaving out the wars in Iraq and Afghanistan, defense spending has doubled since the mid-1990s. See Chalmers Johnson, “Why the US has really gone broke,” mondediplo.com (English edition), February 5, 2008. [back]

8. Kenneth Rogoff, “America Will Need a $1,000bn Bail-Out,” Financial Times, September 17, 2008. [back]

9. On the global food crisis, see “The Global Food Crisis and the Ravenous System of Capitalism,” Revolution #128, May 1, 2008. [back]

  • ERIC COUFAL

    The political crisis in the US began with the fraudulent election of GWB, a nefarious attack to democratic principles, as endorsed by the US Supreme Court, so no wonder there is both a political and a financial crisis now.

    If the US government (at least the incoming administration soon after taking office) doesn't incarcerate a significant number of white collar criminals in the US and impounds their assets (both from the private and the public sectors; entrepreneurs and politicians alike, at the highest levels, whether members of the Illuminati clan or not) who are to blame for unfair business practices, political corruption, insider trading, favoritism on juicy war and other public contracts, self demolition of buildings and institutions, abusive secrecy about relevant information and technology that should be made public for the advancement of mankind (i.e. the Disclosure Project), including all sorts of tax / financial simulation and manipulation schemes, which combined blatant crimes have led the US to this collapse, and whose conduct is legally sanctionable by law and in equity, so as to demonstrate that there are rooted solid principles in the US legal system, sufficiently strong and valuable to shelter those main street citizens who abide by decent standards of living, and to punish wrongdoers until they repair the damage, with punitive and decisive action, the conclusion is simple: NO MONETARY BAILOUT WILL EVER BE ENOUGH FOR THE US TO REGAIN CREDIBILITY, because it is conducted at the expense of innocents and for the shared benefit of criminals. That is abuse of power … pure and intolerable injustice. If the Judicial system remains a silent puppet, just as the two other branches of government have clearly become noisy ones, the free fall of this crisis will not end, because what is being done is simply immoral, no matter how it is labeled or justified.

    THE WORLD URGENTLY NEEDS A MORAL BAILOUT, and both the US Executive branch and the Legislature (composed of politicians mostly interested in their selfish careers, and not in the common good as public servants) don’t seem to have a clue of what that means or how to implement it, except with more of the same which wont solve the roots of the problem.

    It is the Judiciary (not composed of biased politicians but by persons of allegedly good moral character with standards of ethical behavior), through the Supreme Court, the branch of government that is constitutionally in charge of administering Justice, so IT IS ABOUT TIME FOR THE JUSTICES TO DO THEIR JOB and save us all from what is coming.

    Regardless of the merits, the US achieved international respect when President Nixon was impeached, which led to his removal from office after Watergate. During the last few administrations all kinds of lies and deceit by Presidents in the US have not been sanctioned and have not only been tolerated but continue to be even applauded, with a much worse component of dishonesty than the Nixon era, including shameless ridicule, so the outcome is exactly what we have and where we stand right now: economic, political and moral decay.

    If a country has the government it deserves … there's no more time to waste and the US as a country should regain worldwide credibility, because further delays in taking effective action with a principled bailout will unfortunately turn over governmental leadership to others abroad, just to save those few liable criminals in-house (politicians and bankers), and that will be at the expense of freedom and international peace, let alone the continued bankruptcy trends of the US economy and its political system, fundamentally due to more than obvious moral insolvency from the top down.

    Eric Coufal, Esq.

    Attorney and Counsellor at Law, admitted to practice in Mexico,

    and in the United States, by the New York and New Jersey Bars

  • http://360.yahoo.com/speakerscornerspore kc

    Financial Tsunami USA 2008!!!

    The USA 2008 Wall Street financial meltdown is unprecedented, with implications reverberating around the world. Granted the concerted efforts and measures by the central banks have temporarily received rallying support by national bourses. However, more events and serious consequences should be anticipated. . .

    1) Ominous Warnings by Financial Chieftains

    When the Federal Reserve Board and IMF chiefs warned to expect the imponderable, the guts response was “USA goes bankrupt?” The collapse of financial institutions is but symptom, stock markets spiral downward are signs and the contagion spreads to Europe and Asia. The sickness is reckless over spending and irresponsible racking up of debts. Since 1989 a debt clock had been showcased in New York as an unabashed tourism gimmick. Recently the electronic display clock counter had ran out of space to display the 1 trillion dollars or U$1,000,000,000,000/- debt.

    2) US Dollar Is As Good As Gold?

    In 1971 Nixon dismantled the Gold Standard when certain European nation asked for their US dollar holdings to be exchanged for Gold, he refused then he announced that the US Dollar was as good as gold. The most poignant caricature was when he stuck up two victory signs with his left and right fingers said, “Let me tell you this,” and looking at his right victory sign he said, “about that.”

    Now on every dollar note in circulation, the motto or slogan is “In God We Trust”, perhaps the third Commandment should be revisited? Maybe judgement has already called…

    Should we still have faith in the US dollar? The short reply is, “If you still insist on dancing with Uncle Sam, be sure to dance very, very, very close to the exit!!”
    If you need a longer discourse, then read on to assess for yourself what gems of truth, opportunities or falsehoods and risks there may be…

    3) The American Saga What to Expect?

    There should be at least 6 happenings in the market for the American Saga of Excess to play out: –

    3.1) Corporate and USA institutional bankruptcies become widespread from big to small entities. We should realise that market rescue funds are neither panacea nor quick fix for a sliding super-bear market. Confidence is the key, and it has been thrown out of the window.

    3.2) Contagion spreads to Europe and Asia affecting the rest of the world nations and even affecting daily living: cooking oil, and grain prices…

    3.3) Final realisation that USA is bankrupt, and that all nations’ central banks are holding the US of A dollars just because everybody had all along accepted the US Dollar as the Reserve Currency…that it is a fossilised fixation of the mindset would be the greatest understatement of the millennium perhaps a paradigm shift is in order?

    3.4) Call to establish a “global currency” as a reserve currency for central banks. The fundamental flaw of using one currency as a reserve currency is suspect. The US dollar is arguably a rogue currency.

    The unique status of US dollar being the world national central banks’ reserve currency has unwittingly lured the United States like a frog in a slow fire cooking pot into overspending and debt ridden economy under the dubious distinction of savvy financial engineering, and “spending out of our debts”.

    3.5) If the global national central banks bail out the United States debts by buying US issued bonds, bills and notes or the US turn on the printing press by issuing new dollars. Who is going to pay for the American debts eventually?

    It would be a deadly musical chair or Russian roulette, which few will have the gal to play. Could it then be an offer, which nobody can refuse? This soul searching process is going to be froth with uncertainties and turbulence in the financial markets.

    Indeed how will inflation play out, and what should be the value of the US dollar? Hold on to your seat of this American roller coaster ride…the seat guard rails are faulty!!

    3.6) The new world monetary order should see China emerging as a leading world economy, financial and capital market. After 2010 Shanghai World Trade Fair China shall have well established trade relations worldwide. The overseas supply of resources and local consumer market match should stand China in good stead.

    Internal consumer demand by the 800 million farmers may well be the saviours of the world economies or at least the economic engine to spur China’s economy along with respectable GDP. They will not be peasants forever… they shall be rural folks and respected farmers with the simple advent of mechanisation and food technology.

    Food supply shall become a strategic security, let alone crude oil supply. The Chinese people know historically that whoever controls the food supply controls the people’s support.

    4) China Can Weather and Defend the Contagion from USA?

    Does China have the requirements to weather and defend the financial meltdown contagion from USA? China has 1.9 trillion dollars (U$1,900,000,000,000/-) foreign reserve, foreign exchange control and strong fiscal surplus to defend and weather the contagion from the United States. Moreover, China owns U$519 billion worth of US Treasury bonds the second largest creditor to USA after Japan.

    China has the courage, ability and foresight to deal with crises and challenges. The management and rescue operation of the SiChuan earthquake, the response of the victims and the rescuers amply reflected courage. The successful hosting of the Beijing 2008 Olympics and ParaOlympics and the advent of Shanghai 2010 World Trade Fair surely underscore China’s ability unreservedly. The ShengZhou 7 space walk had its roots in the 1955 foresight to embark on rocketry technology and launching of her first satellite DongFang Hong in 1970.

    Since 1997 Asian Financial Crisis China had acted in a responsible and exemplary manner. She confirmed her revisionist policy of returning HongKong and Macau back to her fold. China stood her ground by not devaluing the Yuan, and mounted a classic operation of supporting the HongKong stock market. Her actions averted further meltdown of the Asian financial markets. For the last 10 years China had done what was necessary to establish her economy, financial market and capital market.

    5) We should better ask what USA did?

    Stoked global inflation by overspending and creating the mortgage loan credit bubble, and property bubble, which crashed on the world financial markets?

    i hate to say this, but it is a fact we have to face in the “free world”.

    These excesses verged on the exploitation of the US dollar’s unique status as a foreign reserve currency. The irony is that all the nations around the world are held to ransom because their respective central banks hold US dollars in their foreign reserves.

    i sincerely believe that if we don’t have a deprecating sense of humour, we shall all be stark raving mad!! So in a lighter vein…

    Humpty Dumpty sat on a wall;
    Humpty Dumpty had a great fall.
    Threescore men and threescore more,
    Can’t place Humpty Dumpty as he was before…

    6) Emergence of A New Global Monetary Order

    Inevitably some soul searching will have to be done to assess the appropriateness of using the single currency US dollar as reserve currency for the central banks of world nations.

    The failed role amongst the Federal Reserve Board, the US Government and Financial Market Regulator and International Monetary Fund to safeguard the financial market will no doubt be scrutinised.

    Had the IMF been even handed in regulating members of Asia, Europe and United States?

    How and why did IMF failed to regularise the United States’ excesses in her monetary policy?

    Should the IMF role be redefined or empowered or even replaced?

    A replacement global currency or monetary model should eventually be crafted and implemented worldwide. This shall inevitably pressurise the US dollar resulting in gyrations in the forex market.

    Perhaps a revamp of the world monetary system shall be the order of the day.

    7) Super Inflation…Recession…Slow Economic Recovery

    The meltdown in the financial markets will translate into economic malaise: inflation, food and energy prices, business failures, decline in growth, loss of jobs and income. The recovery could be long and strenuous. The patterns of recovery may be U, V, L, M, W or a combination.

    My choice is an upturned goal post with no cross bar…don’t know how to call it, anybody’s guess is just as good though.

    Somehow the USA economy and financial markets have to be put through a mangle for a thorough wash and wring. How should USA tame inflation and settle the debts, and restore investors’ confidence? Let’s hope that Uncle Sam can pay the laundering (no misspelling here) bill.

    Why “laundering”? The world nations may have to lend her good money to cover squandered money.

    8) What X-factor Does the Chinese Have to Create and Retain Wealth?

    The Chinese has a wealth of software in the form of philosophies from sage educators, military strategists and philosophers. They are industrious and intelligent with valuable software to retain their wealth.

    Very quickly they have owned up to mistakes and transparently right the wrongs. They have conducted themselves with prudence and dignity.

    Yes, of course there are still problems, which nation has not, try and cast the first stone? The basic truism is every nation has blind spots. The crux is to be able to own up to mistakes and right the wrongs. China can do and is fast to deliver.

    9) What Can We Look Forward To In This Bleak Hour?

    To borrow a poetic line:

    “Winter is here, can Spring be far off?”
    “The moon at its darkest shall begin to glow…”
    “Dawn is the break of the darkest hour of night…”

    10) Adages: How to Bargain Hunt or Not to Bargain?

    In buying property the adage is location, location, and location. When buying collectibles it is real, fine artwork and good as new condition. For investment the adage is homework, homework and homework.

    After doing homework and convinced about a stock’s fundamentals consider at least a 10 year price chart, better still a 12 years chart from 1997 to 2008.

    Note the high and low prices for the period. If the current price has dropped from the peak by 60% or better still 80% that is if the peak price is 100 then it should be trading at 40 or 20 respectively.

    Entry at current price level should have a potential of making 150% to 400% if the stock rise to the previous peak. The risk reward ratios are 1:1.5 and 1:4 respectively.

    No need to hurry, take your time and pick your bargains. It is going to be a long drawn recovery… How to manage greed and fear is the crux. Nobody can teach us, it is a process of experience, which has to be earned…

    “May you attain the realisation that we own nothing, and yet blessed with everything that you need.”

    KctFtUsa20081016

  • GOD69

    Chinas wealth is built on slave labour & selling products far cheaper than even slaves in India can make for.

    To solve this financial problem two things need to happen:

    We need to ditch the fractional banking system which uses deb as money & we need to have a high minimum standard of human rights, world wide.

    If economic slaves in sweat shops in China are putting economic slaves in sweat shops in India out of business, then how will economies in the west ever compete?

    We need to ensure everybody is treated properly in these slave states. If we do nothing then our children will not have a future either – wake up people!

    Check out the root cause of this financial crisis "the fractional banking system".

    Go to google video and type in "fractional banking system" to learn how we all, including the middle class, are slowly being enslaved by debt – needlessly.

  • http://MCCAINATTACKS.BLOGSPOT.COM Aaron James

    http://MCCAINATTACKS.BLOGSPOT.CO MCCAIN CORPORATE GREED Incites Kidnapping/Murder Attempts Upon Our Family To Silence our Online Protest Against Northwest Airlines-the Official Airline Carrier for McCain Campaign, we the victims of a vicious Northwest Airlines profiling attack leaving me hospitalized family friends terrorized years thereafter via covert state persecution:

    McCain's Campaign TIES TO NORTHWEST AIRLINES (Official airline Carrier of McCain Campaign) at the Root of Murder attempts upon our We have received email threats from FBI, and by way of phone, including threats from FBI agent Steven Davis referencing McCain as a “Very good friend of his” amidst repeated lawless no warrant, no charges attempts upon our persecution, kidnapping and murder here in Canada, attempts upon us beginning one year ago-the ear mark of the McCain campaign.

    Northwest Airlines has been sued in the past via ACLU, was in bankruptcy protection at the time of the attack, and is now not only in a delicate merger with Delta, but the official carrier of the McCain campaign.

    Ties between McCain/Republican Campaign and Northwest Airlines, the official Airline carrier for their campaign, coupled with the fact that McCain’s top executive legal council have Northwest and U.S. Chamber of Commerce as their top two clientele as exposed on the following sites: http://mccainsource.com/corruption?id=0006 and http://tpmcafe.talkingpointsmemo.com/talk/2008/08

    McCain well known for his *volatile temper (according to over 30 civilian and military sources)*Keaing 5 Scanadal, Investment savings and Loan, and his Exxon Oil 4.3 Billion tax relief initiative under the bailout.

    Stepping on McCain's Corrupt corporate agenda has precipitated attempts upon our lives:

    By lobbying against his airline, more pressure has been brought to bear on the sensitive Northwest Air Delta Airlines merger currently ongoing hanging precariously in the balance, the airline finally out of their state of bankruptcy protection, which prompted the original attack upon us in Jan 06- it was a retaliatory attack in response to our having filed a written complaint against the airline for lying to my mother and I about why our baggage had not come off the carousel, she and only to find we had been profiled, the baggage locks cut and searched through with a note appended to it as such. As a civil action against the airline still amidst bankruptcy protection at the time did not bode well for corporate interests at hand, retaliatory entrapment ensued and only after my mother and I had successfully passed through security and were already on board, did stewardess Sherrie Caudill accuse her of harboring a “suspicious bag” following which U.S. airport police boarded and an attack ensued.

    I had been assured I was not under arrest had not committed any crime and was not being charged- but could not return to Canada and would have to de board. Prompting them to simply give explanation of under what authority they were then acting, they did not respond and instead lit into me with a barrage of tasings and brutality leaving me bloodied in the isle, my mother looking on in horror, whereupon they then attempted to confine her to the plane when realizing in horror, that she was family as witness.

    Extensive extrajudicial persecution (framed, covert tribunal housing FBI and Northwest Airlines employees on a illegitimate “jury pool”, threats, stalking, sabotaged mail etc) prompted us to expose their crimes on line.

    This spawned repeated attempts via cross border collusion towards our kidnapping or murder by *criminally charged local Canadian Winnipeg police (acting covertly without warrant or charges) on behalf of U.S. judicial and corporate factions including FBI CIA and NSA, in attempt to silence us.

    FBI Asset Winnipeg Police Chief Keith McCaskill: Local Canadian Winnipeg police remain motivated by a close affiliation with Minneapolis Police: Winnipeg Police Chief Keith Mc Caskill is president of North West Chapter of Associates FBI with Minneapolis Police affiliation and was referenced by police upon the first kidnapping/murder attempt. Family Friends Associates threatened, terrorized now 3 years ongoing as police use many covert tactics in order to effect attempts at kidnapping, havening necessitated my going into hiding in remote locations for extended periods of time. Family and I have been traumatized, I with 12 trips to hospital with Heart Attack symptoms via combination of the effects of the tasing attack and ongoing persecution and my 64 year old mother's health rapidly deteriorating.

    Our Contact Information:

    Aaron James 204 296 6497; Linda James 204 509 9144/ 204 889 9134

    e: [email protected], gmail: [email protected] ; [email protected]

  • http://profiles.yahoo.com/speakerscornerspore kc tan

    [quote post="4731"]Chinas wealth is built on slave labour & selling products far cheaper than even slaves in India can make for.

    (Reply by kc tan: Very sweeping statement and blatant putdown verging on pointification from a high horse. As a Singaporean based in China i know that Singapore's cost factors in terms of food, clothing, shelter and transport are 4 to 5 times more expensive than China, but our earnings are 5 to 8 times higher. We just need to be pracmatic… go higher on the value chain be competitive in labour(import foreign labour), quality and service. Painful adjustments and still in Singapore we have blindspots…Basic truism: "Nobody is perfect, no system is perfect and no government is perfect" my perennial quote at Speakers' Corner Singapore.

    China just have a vast labour force and hence very competitive. Let's not forget that IBM, Microsoft, Wal Mart, McDonald and Kentucky, etc have huge operations all over China. Exploitation? No!! It is pracmatic utilisation of effective cost factors of China and local market demand…

    China has a huge market and her potential "farm labor" shall be your consumers of tomorrow, which i truly believe shall take up the economic slacks in the years to come… So?! The point is that your computer needs rebooting…???)

    To solve this financial problem two things need to happen:

    We need to ditch the fractional banking system which uses deb as money & we need to have a high minimum standard of human rights, world wide.

    (Reply by kc tan: Right USA has just "exported" or spread the contagion results of loose credit, breakneck leverage of derivative products or securitisations of martgage loans to the whole world. Introspections are in order?

    The most important human right is to have a job. Let's reflect on this USA biz model: "if make profit then do business", China biz model: "provide jobs even breakeven will do business" )

    If economic slaves in sweat shops in China are putting economic slaves in sweat shops in India out of business, then how will economies in the west ever compete?

    (kc reply: i have not been to USA for more than 20 years, but had been following the markets for 28 years, so i need to reboot my computer about USA too…are there Mexican or Hispenic labour in the USA?)

    We need to ensure everybody is treated properly in these slave states. If we do nothing then our children will not have a future either – wake up people!

    (kc reply: Agree up to a point…seems to be darkeness and all, where is your light? The rest of the world nations have to accept USA cost factors and standards?)

    Check out the root cause of this financial crisis “the fractional banking system”.

    Go to google video and type in “fractional banking system” to learn how we all, including the middle class, are slowly being enslaved by debt – needlessly.[/quote]

    In brackets annotated are kc's reply

    Regards

    kc tan

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