Prisoners of Value

What is needed to keep the world economy going? And what are the needs of the process of capitalist accumulation today? At first sight, these two questions seem the same. Looking closer, they are not identical at all. In order to maintain the conditions in which the accumulation of capital can continue, existing capital must devalorize. But to keep the world economy going, this devalorization must be prevented, the bubble of fictitious capital must be further inflated. While (consciously) trying to do the second, (unconsciously) the agents of capital are really paving the way for the first.

Faced with global conditions of overcapacity and a falling general rate of profit, American capital has protected itself rather well in recent years. Gigantic tax cuts helped to offset the decline of its profit-rate, and low interest rates combined with increased deficit spending to feed the financial monster whose healthy appearance is so essential to prevent the house of cards that the world economy has become from collapsing.

The basic mechanism through which such a collapse is staved off, is well known by now. The strongest economy of the world, the US, accumulates huge trade deficits by continuously absorbing surplus production from the rest of the world. It pays for those by printing dollars that are backed by debt-notes that are bought with the savings of its trading partners. As absurd as this merry-go-round is, it seems to be to the advantage of everyone involved: the US gets the goods, the rest of the world gets the indispensable market of last resort.

But you don’t need a degree from a fancy university to understand that this can’t go on forever and that, the longer it does go on, and thus the greater the debt-load on the most pivotal player of the global economy becomes, the more crushing will be its collapse. So the IMF and just about every economist in the world are warning that a steep crisis is inevitable if nothing is done. But the situation is described as a mere “imbalance”, and the advice is simply to correct it: the US should consume less and save more and its trading partners should do the opposite. But there’s hesitation in the advisors’ voices. They realize that any serious attempt to correct the “imbalance” would trigger a global collapse too. There is little doubt that the elimination of America’s trade deficit would depress the global economy, or that stepped up domestic spending by its main trading partners would merely move the creation of fictitious capital-bubbles to other, more risky locations.

The “imbalance” is not the cause, but a symptom of the disease. In the second half of the 1980’s, Japan, which then had the largest single trade surplus with the US, tried to correct the imbalance by reinvesting more of its profits domestically. But this attempt to store more and more value in Japanese capital kept pushing up its nominal value, which crashed by the end of the decade. It was simply no longer believable that the Japanese economy could continue to valorize (to increase, or even maintain the value of) so much capital. When that belief collapsed, so did the value of Japanese capital. Something similar is now brewing in China, the country that currently has the largest trade surplus with the US. Increased attempts to store more value in Chinese capital, have led to inflationary pressure and the formation of speculative bubbles that are growing at a dangerous pace.

US capitalism created this “imbalance” for a simple reason: because it could. It alone has the power to keep buying goods from all over the world for mere paper, because of its money’s role as the international means of payment, the global reserve currency, and thus store of value. It continues to do so, not only because it still can, but also because it must. It is leading the capitalist world on a leap forward and it can’t afford to stop.

But why is the rest of the world so eagerly subsidizing America’s overconsumption? It is not a coincidence that the countries with the largest trade surpluses with the US are also the main buyers of the US’ debt-notes. They want to prevent the dollar from falling steeply, because that would devalorize their own dollar holdings and it would make their exports to the US more expensive and thus diminish their access to the US market. But why is the latter of such vital importance to them? Why has Japan been buying dollars recently like crazy, on top of its purchases of US treasury notes? Why keep accepting paper for goods if it could just as well keep the goods -or make different goods- for itself?

The reason is to be found in capital’s feverish search for protection against the mounting deflationary pressure. There is too much capital in relation to the opportunities for valorization. So capital must devalorize as it is doing already in many countries all around the world. As a result, capital all over the world is looking for where it can “park safely,” where it can store value without having to fear that it will drop as a result of currency devaluations, stock crashes or other forms of devalorization.

So if the world continues to pump much of its savings into the US economy (80% of its net-savings, according to Morgan Stanley’s chief economist Stephen Roach) it is because of the world’s belief that it’s safer to store value in dollar-assets than in yen, yuan or euro-assets. This belief is based on a belief in the economic-military-political power of American capital, which is unrivaled. But to the degree that the dollar is propped up with more and more debt, with fictional capital, the belief in it is based on fiction rather than fact. However, it’s a belief the capitalist world has grown dependent on. If it collapses, the capitalist world crashes too. Even though the credibility of the dollar is undermined by the US’ course towards ever more indebtedness and even though there is no realistic prospect to change that course, the world’s faith in the dollar remains remarkably intact, despite its devaluation relative to the euro and yen. The reason is the lack of alternative options. In the tale of the naked emperor, the adults remained silent because they, in contrast to the child, dreaded the consequences of facing the truth. It was more pleasant to assume that they must not have seen it right, to look the other way and imagine that the emperor was clothed after all. In the same way, the economic experts of the ruling class don’t talk about the coming tsunami of devalorization, and prefer to imagine that there is no dollar-bubble on the verge of bursting, just a minor imbalance that will correct itself.

The US remains an economic powerhouse with a dominant position in several of the most profitable and promising sectors. At the same time however, its industrial base is more and more eroded, in part because it has been moved to China and other places where the cost of labor power is low. The relative decline of the US’ economic power makes the other pillars on which its power -and thus also the belief in the dollar- rest, that much more important. This, more than anything else, explains the aggressive political and military stance of the US in recent years. It is in the first place in defense of the dollar that these wars are waged, but their destructive impact makes the US, as well as its opponents, (blind) agents of capital’s drive to devalorize, to make room for itself.

It has been argued that the dollar-bubble will never implode because the rest of the world can’t afford to stop supporting it. Because countries like Japan and China can’t stop buying US debt, there is supposedly no limit to the US’ ability to increase its debt. But while it may be true that they cannot stop, at some point they can’t continue either. Even without a downturn that forces them to spend dollar-reserves for self-protection, the burden of continuously buying ever-larger quantities of US debt is bound to become too heavy. And if they stop buying dollar-debt, interest rates in the US will shoot upwards and in the contraction that follows, we’ll hear the sound of bubbles bursting: stocks, housing and so on.

So the dependency is mutual. Just as the other countries must continue to feed the dollar-bubble, the US can’t afford an implosion of the Chinese bubble. But that becomes increasingly difficult. China is navigating in an ever-narrowing channel between inflation and contraction. Its collapse may very well become the trigger of a global depression.

We have some hard but interesting years in front of us.


December 2004

Home Issues of IP Texts Discussion IP's French site Links