Why the U.S. Has Launched a New Financial World War

[Hannah Bell]

What is to stop U.S. banks and their customers from creating $1 trillion, $10 trillion or even $50 trillion on their computer keyboards to buy up all the bonds and stocks in the world, along with all the land and other assets for sale in the hope of making capital gains and pocketing the arbitrage spreads by debt leveraging at less than 1 per cent interest cost? This is the game that is being played today.

Finance is the new form of warfare - without the expense of a military overhead and an occupation against unwilling hosts. It is a competition in credit creation to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership. Who needs an army when you can obtain the usual objective (monetary wealth and asset appropriation) simply by financial means? All that is required is for central banks to accept dollar credit of depreciating international value in payment for local assets. Victory promises to go to whatever economy's banking system can create the most credit, using an army of computer keyboards to appropriate the world's resources. The key is to persuade foreign central banks to accept this electronic credit.

U.S. officials demonize foreign countries as aggressive "currency manipulators" keeping their currencies weak. But they simply are trying to protect their currencies from being pushed up against the dollar by arbitrageurs and speculators flooding their financial markets with dollars. Foreign central banks find them obliged to choose between passively letting dollar inflows push up their exchange rates - thereby pricing their exports out of global markets - or recycling these dollar inflows into U.S. Treasury bills yielding only 1% and whose exchange value is declining. (Longer-term bonds risk a domestic dollar-price decline if U.S interest rates should rise.)

"Quantitative easing" is a euphemism for flooding economies with credit, that is, debt on the other side of the balance sheet. The Fed is pumping liquidity and reserves into the domestic financial system to reduce interest rates...The problem is that U.S. quantitative easing is driving the dollar downward and other currencies up, much to the applause of currency speculators enjoying a quick and easy free lunch. Yet it is to defend this system that U.S. diplomats are threatening to plunge the world economy into financial anarchy if other countries do not agree to a replay of the 1985 Plaza Accord "as a possible framework for engineering an orderly decline in the dollar and avoiding potentially destabilizing trade fights." The run-up to this weekend's IMF meetings saw the United States threaten to derail the international financial system, bringing monetary chaos if it does not get its way. This threat has succeeded for the past few generations.

http://www.alternet.org/module/printversion/148481

[thunder rising]

1. Well this is one area where free markets work. Country vs Country.

[Starry Messenger]

2. k & r

[phasma ex machina]

3. "currencies as potential weapons"

At the IMF, Japan, Korea, Brazil, Thailand, Rebel Against Globalized Hot Money Speculation Stoked by Bernanke's QE2; Capital Controls for Self-Defense Gain Ground

The immediate perspective is that more and more countries will now manage their currencies and institute capital controls as a means for defending themselves against massive speculative influxes of hot cash, in particular from the notorious Federal Reserve 0% dollar carry trade. Capital controls allowed Malaysia to fare better than any other country caught up in the “Asian contagion” crisis of slightly more than a decade ago, so there is reason to believe that the current popularity of capital controls will be a modest step in the right direction. However, the beginnings of a real and permanent solution to the current world economic and financial depression require a restoration of the fixed currency parities and narrow bands of oscillation which characterized the Bretton Woods system of 1944 to 1971. A restoration of the positive features of Bretton Woods is now the concrete goal towards which international negotiations should now be directed, starting at the G20 meeting soon to be held in South Korea. National Tobin taxes to discourage speculation and aid distressed budgets should also be enacted.

The stage for this current crisis was set last May when the Anglo-American attack on the euro, designed to provoke a panic crash of that currency, broke down — partly due to German self-defense, partly because of Chinese intervention, and partly because a high-frequency attack on the euro boomeranged against the Dow in the infamous “flash crash” of May 6. Since then, the euro has been steadily gaining ground, while the US dollar has lost about 13% of its value since mid-June. The forces of depression, represented by $1.5 quadrillion of kited, toxic, and bankrupt derivatives centered on New York, have been re-asserting themselves against the battered US greenback.

If smashing the euro was one prong of the Anglo-American game plan, then driving the Chinese renminbi up into the stratosphere was the other prong of an ongoing attempt by London and New York to export a world depression by beggaring their leading rivals in Frankfurt and Beijing. The attack on China had been speaheaded by the feckless Tiny Tim Geithner, so it is not surprising that the Chinese have largely ignored US demands, limiting the rise of the renminbi to just a couple of percentage points since the last bilateral confrontation in June. ...

[autorank]

4. k*r

Excellent idea! I'm sure it's going on now.