One World, Ready or Not: The Manic Logic of Global Capitalism

1. One World, Ready or Not: The Manic Logic of Global Capitalism Chapter 11 – The Alchemists William Greider

2. Key Issues • Soros Fund • Enhanced power of finance • Volatility of Currencies • Weakness of Political Leaders

4. The Quantum Fund • George Soros was the owner of the fund • Soros was a wealthy investor with a “strategic sense of finance” • Rob Johnson was his assistant; he was a well know and highly educated economist and financial investor • After 3 decades the Fund was worth about $11 billion

5. The Strategy His basic investment strategy involved identifying the fundamental misalignments in market perceptions – prices or political judgments that would be sharply reversed once markets or governments were compelled to recognize them. p241 • European Currency Crisis • Black Wednesday “I believe that the market prices are always wrong,” –Soros p242

6. Soros vs. the Governments • “George likes to call the bluff of the governments” - Johnson p240 • A very rich man who has the power to ridicule the governments is frightening. p240 • The national governments expected to guarantee stability were trapped between two worlds – their obligations to domestic economies and the new force of the global market. p242

7. Leader of the Pack • Despite his reputation George Soros could not single-handedly overwhelm governments… The big banks, commercial and investment banks, surf on Soros – trading behind Soros’s trades and multiplying the amplitude. p245 • When it suited him, Soros virtually announced his market positions to the press, inviting others to join his crowd. p245

8. Enhanced Power of Finance • Financial assets growp232 • Debt is the fastest and largest component. P232 • Liberated from old controls (capital confined to home markets) p233

9. Anomaly Between Abundant Capital And High Interest Rate • Risk • The problem lies in a lack of good debtors rather than a scarcity of capital. P235 • Wider range of choices • More choices in emerging market. P235 • Deregulation • Savings been freed to chase the higher market returns. P235

10. Government Intervention • “The existence of government intervention is the one crucial fundamental that separates the present situation from the celebrated financial crashes in capitalism’s history”.P236 • 1982 Third World Debt • 1995 Japan’s banking crisis

11. Government Intervention (Continued) • Two large contradictions • Socializing the costs • Governments have successfully managed the recurring debt deflations largely by shifting the bad debts from private holders to the public. P236 • Finance capital has captured greater power • The finance system now has the ability to turn around and punish governments. The steady weakening of government authority, alongside its rising debts, suggests an abnormal arrangement that is not sustainable. p237

12. Damage to Value of Money • Liberated finance created uncertainty and volatility among major currencies • 5-10% monthly fluctuation in exchange between dollar and mark • Decline of dollar against yen • Currency troubles spawned globalization of industry • “Firms were literally driven offshore by the competitive disadvantage induced by their home currency.” p 250

13. Floating Exchange Rate Trouble • “Since the early 1970s, long-term growth in the major industrial countries has been cut in half, from about 5% a year to about 2.5% a year. Although many factors have contributed to this decline in different countries at different times, low growth has been an international problem, and the loss of exchange rate discipline has played a part.” p 250

14. Results of Liberated Finance and Expanded Trade • G-7 unemployment rose from 2-3% • Averaged 8% in OECD countries in 1994 • Capital investment declined • Fell from 24% to below 20% of GDP • At the heart of the problem was the battle between market players and government monetary policy

15. The Monetary Policy Saga • Fed anti-inflation policy appreciated dollar and increased U.S. offshore production, trade deficits • But, 1985 Plaza Accord began yen appreciation and Japanese kudoka • Japanese policy in 1990s continued to hurt exports

16. Major Crisis Averted? • In 1995, Fed, Bundesbank, and Bank of Japan campaigned to weaken yen against dollar • Governments worried about banking crisis with general deflation • Another example of governments struggling to control currency gyrations

17. The Winners…and Losers • Instability aided countries that added market share and factories, along with currency traders • Victimized by currency fluctuations were workers, companies, and economies of the U.S. and Japan---as well as anyone who has to adjust to the currencies p 254

18. Putting Humpty Dumpty Back Together Again • Analogy for reconstructing a stable currency system • Weak political leaders and parties • Bretton Woods Commission Report • Proposed a new system to stabilize money • Only worked if the U.S. dollar was dependable • Since 1971, the dollar has had four major devaluations.

19. Major Cause of Devaluation • Great shift of wealth from the older economies to developing nations “The richer one gets, the greater one’s stake in maintaining stable money.” p. 256

20. Political Power • Who should have political power over the globalized financial system? • Government Vs. Private Market • If the government yields, marketplace produces greater stability. • Farfetched claim • Bretton Wood Commission • Government will keep responsibility.

21. “National governance and broader social priorities could be swiftly reasserted over capital and its movements in the old-fashioned way: by taxing it.” p. 257

22. Tax It! • If global disintegration is under way, then governments must find the courage to intervene before it’s too late – George Soros • Impose a slight transactions tax on all cross-border flows of capital in order to increase stability in many values – Yale Economist, James Tobin • Not likely due to the weakness of political leaders

23. Notes • George Soros • The Alchemy of Finance • International Economy • Wall Street Journal • International Herald Tribune • Economic Strategy Institute • The New York Times • The Economist • Manias, Panics, and Crashes • The Great Crash • Money: Whence It Came • McKinsey Study • Robert Dugger • Financial Times • Global Asset Location • Bretton Woods • Times