Sunday, January 30, 2011

North African struggle

Egypt demonstrates how US ‘economic stabilisation’ produces world political destabilisation

Posted: 29 Jan 2011 05:33 AM PST


By Andrew Brown

The uprising of the people of Egypt, following the revolution in Tunisia, is one of those truly inspiring political events. For several decades US administrations believed they could trample on the Arab peoples with impunity. Buttressed by its client state in Israel, US imperialism believed that while peoples in other parts of the world might revolt a series of quisling regimes, such as the Saudi and Egyptian dictatorships, together with the increasingly compliant Palestinian Authority in the West Bank, would be sufficient to prevent this happening in the Arab world.

Nothing else can explain why US administrations felt they could back such openly murderous actions as the invasion of Iraq or the repeated Israeli assaults on the civilian population of Gaza. Now not only have the Palestinian people of Gaza held out, and the US will be forced to leave Iraq, but across increasing parts of the Arab world the fires of revolt are (in Egypt literally) burning.

The first and overwhelming duty of socialists in economically developed countries is to express solidarity with this revolt. There is no crime to which the US administration and its Israeli allies would not resort in an attempt to stop it. US and Israeli regimes which murdered hundreds of thousands in Iraq, and thousands in Palestine, would not hesitate for an instant to sanction the gunning down of thousands of protestors by the corrupt Arab puppet regimes.

Expressions of ‘disquiet’ by Obama and Hillary Clinton over the crackdown and deaths in Egypt are pure hypocrisy – as the revelations made by Wikileaks and many others confirm. They are made only because the US administration fears even greater anti-US sentiment in the Arab world and public opinion in their own countries. They confirm the old wisdom that ‘the only civilised capitalist is a scared capitalist’. So every protest, demonstration and action that takes place in developed countries is the most important aid that can be given there to this wholly inspiring revolt by the Arab peoples. These struggles are so important that everything that can be done must be done to aid those who are struggling and dying for a wholly progressive cause.

But alongside the most important thing, action to support the Arab revolt, it is worth understanding why it has broken out now at the same time as the capitalist elite, gathered for their annual self-congratulatory event in Davos, are proclaiming themselves ‘more optimistic’ about the world economic situation and when at least weak economic growth has reappeared in the US.

The methods used by most governments in the world, above all the US, to ‘stabilise’ their economies after the world financial crisis – with the notable exception of those in Cuba, Vietnam, and China – have served to destabilise world politics. In the US a gigantic transfer of resources has taken place from the majority of the population to the capitalist class. The profits of US companies have now reached record levels while – and as a result of – millions of Americans have been made unemployed and tens of millions had their wages cut.

But to achieve ‘economic stabilisation’, that is to stop the decline of the US economy, the US administration, in addition to other measures, has adopted so called ‘quantitative easing’ that is the gigantic printing of money – a large part of which has flowed out of the US. Part of this policy was an attempt to revive the US economy through lower interest rates. But the US also knew that such outflows of ‘hot money’ would increase inflationary pressures in China and hoped this would force China’s government to slow down its economic growth. The US administration believed that such large scale printing of money would not only stimulate its own economy but have the useful side effect of damaging what it saw as the main threat to US international hegemony – the rise of China. An essentially correct analysis of this appeared on America Online’s site Daily Finance by Charles Wallace – excerpts from which are printed below.

But this huge outflow of money had an unintended consequence. It helped fuel the fires of food price inflation throughout the world. This has bad consequences for people everywhere, but in developing countries such as the Arab world, where the highest proportion of the population’s income is spent on food, the effect was particularly severe. It was this wave of food price increases that was the final straw that ignited the revolt in a series of Arab countries and the revolution in Tunisia.

In short the methods used by US imperialism to create ‘economic stabilisation’ in its own country spread political destabilisation throughout the world. There is therefore a tight connection between the self-satisfied ‘economic stabilisation’ proclaimed at Davos and the destabilisation of world politics most dramatically shown on the streets of Egypt’s cities.

Socialists above all have to get people to act in solidarity with what is happening – but they also need to understand it.

Excerpts from Currency Wars: How Ben Bernanke Outsmarted China’ by Charles Wallace

‘For years, U.S. officials have ritually complained that China's currency is undervalued and that the country should let it appreciate... Washington is quietly celebrating that fact that Fed Chairman Ben Bernanke has outsmarted the Chinese government, forcing it to revalue its currency or face increasing domestic unrest.

‘"No U.S. official will admit this, but Bernanke has succeeded in breaking the Bank of China in the same way George Soros broke the Bank of England in 1992," says James Rickards, senior managing director for merchant bank Tangent Capital in New York. "The U.S. has won the first round of the currency war."...

‘How did Bernanke pull off the magic trick that previous U.S. administrations were unable to accomplish? Last fall, he announced a program of quantitative easing – a federal bond-buying program – which was targeted, he said, at raising U.S. inflation to head off possible deflation.

‘But in reality, it had a completely different result: Money poured out of the U.S. and flowed into China. According to Adam Wolfe, research analyst at Roubini Global Economics, the amount of so-called hot money entering China reached $1 billion a day in 2010.

‘Coming on top of China’s massive trade surplus, those inflows presented a dilemma for the Bank of China. In order to maintain its exchange rate with the U.S. dollar, which was fixed after 2008, the Chinese government bought dollars from exporters and banks and printed local yuan for each dollar it purchased.

‘But last fall, the supply of yuan skyrocketed, increasing by 19.7% in December, Wolfe says. Increasing the money supply causes prices to increase as more money chases fewer products. Chinese inflation had ramped up 4.9% in November, compared with the same month in 2009.

‘China has attempted to keep a lid on prices by cooling the economy, raising interest rates twice last autumn. But that prescription has failed. According to fourth-quarter GDP figures, the economy grew by 9.8%, raising the likelihood that the Beijing government will have to slam even harder on the economic brakes.

‘It has just two ways to limit prices: impose price controls or raise the value of the yuan, which reduces the price of imports. Price controls rarely work for more than a short time because people find ways around them, such as the black market.

‘It now seems likely the Chinese will opt for raising the yuan’s value. Since last June, the currency has appreciated about 3.5%, or an annual rate of about 7%. When you add inflation, that’s 12%. Wolfe says he expects the same level of appreciation for 2011, while Rickards says he sees the yuan rising by at least 10%...

‘China might feel some resentment about its position. "The Chinese feel betrayed by the U. S.," Rickards says. "They feel that part of the deal for buying all those Treasurys was that the U.S. would maintain the value of the dollar. There’s an old saying, 'if you’re in a poker game and you don’t know who the sucker is, then you’re the sucker. The Chinese have just woken up to the fact that they’re the sucker."’

See full article in DailyFinance: http://srph.it/fvfScv

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