I
WHATEVER HAPPENED TO THE FUNDAMENTALS
The livelihood of people in very different parts of the world is all a matter of the economic fundamentals, that’s what the wiseguys of finance capital say, whatever policies are produced, the fundamentals will out. Talking of East Asia for example, conventional wiseguy wisdom was that its crony capitalists had lost sight of them, of sound investment and realistic exchange rates. The fundamentals, if transparent, they say, will show up where money is sound, and where it is funny money.
In fact these fundamentals have been slippery since 1971 as if they were those of quantum physics, having different meaning in different parts of the world. The value of the US dollar for one has often borne little relation to the USA’s Balance of Payments position, or even, at some moments, to its base interest rate relative to the interest rates available elsewhere. More recently the fundamental relation whereby a currency when devalued to its proper/realistic rate will automatically lead to an increase in a country’s exports (limited only by the equations of the J curve) has gone by the wayside. More recently still, fundamentals have come to mean whatever mostly western finance wants them to mean at any given time or place, post facto rationalisations of Confidence and a Market Sentiment in which there is no room for sentiment.
The volatility of Market Sentiment in the last 20 months has at the same time been sobering for warier wiseguys and especially for ex-wiseguys who have seen the light: Jeffrey Sachs, Paul Krugman of MIT and Joseph Stiglitz of the World Bank. Even arbiters of Confidence like Alan Greenspan of the US Federal Reserve have hinted this way and that, depending on the situation and audience, in prose read phrase by phrase, gnomic as theological statements or pronouncements from the Chinese Communist Party. These latter are now read without irony when it comes to their policy on the exchange rate of the Yuan on which for a period, the fate of the global economy was said to rest until the average American citizen as Consumer of Last Resort came to take over this role.
If there is irony, it is to be found in the power of individuals and what thy say to influence a world in which no government, let alone individual can supposedly buck the market and its fundamentals. This is not an entirely new phenomena, not since 1971 and the de facto imposition of floating exchange rates. Back in the 1970s, Malcolm Crawford then Economics editor of The Sunday Times, is said to have created a sterling crisis by implying that there ought to be such a crisis. Now it is on a bigger scale, that is certainly the Russian point of view. Within days of a letter from George Soros to The Financial Times (13/8/98), arguing for a devaluation of the rouble, the run on the rouble became unstoppable. In the same month Ralph Acampora of Prudential Securities (USA) and described as a famous bull of the American stock market, an optimist, declared himself as a pessimistic bear, and this in itself is said to have prompted August 4th‘s steep fall in the market. Late in September US Treasury Secretary Robert Rubin talked of his concern about the weakness of the Japanese Yen, and it promptly rose in value against the dollar.
These instances are not identical, having only in common not that they are Signs or Signifiers but rather nudges and hints from those with a listened-to voice which reflected certain slippery fundamentals. In the case of Soros it was consistent with his antipathy to IMF policies that were consistent only in being wrong. The policy of maintaining a fixed rouble exchange rate against the dollar was as wrong, he said as the credit squeeze the Fund imposed on East Asian countries with massively devalued currencies. (NB
-that he has bee a hero for S-Ds shows to what desperate starits it is in
-this because despite all the philodophical flim-fam he got so heavily slagged by Reaganite US-Can bleive he enjoys the delight (that is not exclusively post-modern) of paying aganst type)
Robert Rubin, ex-Goldman Sachs trader and a hradliner of the US Treasury-Wall St-IMF axis (western clubby capitalism as we might call it) in the case of East Asia, had been lecturing the Japanese stateon its resposibilities since the genesis of that crisis. These responsibilitis did not include any autonomous plocies; from the very start his deputy Lawrence Summers had knocked down their idea for an Asian Monetary Fund with a brutality which always seems to win out with the Japanese. Similarly he turned down Japanese suggestions for stabilisng the yen-dollar excahnge rate, shifts in which had played such a part in the first act of that crisis, the assault on the currencies of the region. As recently as 10th August 1998 he was quoted by The Financial Times as saying that such an intervention would not work since it would fly in the face of the fundamentals and of Market Sentiment, that exchange rates are effects and that tinkering (the language is always loaded) with them would not change the causes. Because of who he is, he could say this with a straight face despite the evidence that the original dollar appeciation against the yen after 1995 was a policy decision whereby the Jpanses could export their way out of trouble on the undertanding that a share of the surplus would be invested in US Treasury bonds thus keeping down US interest rates. That as an end this was helpful to Bill Clinton’s re-election campaign might be conspiracy theory. What is more certain is that such an exchange rate policy deal was made just as in the Louvre and Plaza deals of the 1980s.
Here then is policy manipulating the fundamentals: in the Japanese case the fundamentals themselves behaved in strange fashion. True, Japanese-style crony capitalism did involve very large amounts of bad debt, but the real problem from the Western point of view was a long term domestic recession that existed despite a close-to-zero rate of interest. Underlying 18 months of western finger-wagging is the gut belief that the damned Japanese do not spend enough on themselves. Not only that, the behaviour of these savings fetishists undermines that basic fundamental of neo-liberal ideology, the rational individual pursuing his/her best advantage. One of the gains of US Treasury policy during the Asian crisis was to open Japanese and other regional doors to western banks as profitable re-cyclists of those phenomenal savings. The Tokyo ‘Big Bang’ of April 1998 meant that Japanese saver/investors could hold dollar and sterling accounts with Citibank for example. The evidence now is that few took advantage of this option despite the close-to-zero interest rates on Yen accounts. What is surprising is that the Yen did not fall further.
When its value did rise sharply against the dollar, something that had been ruled impossible by wiseguy opinion just 6 weeks before it happened, the only normal fundamental that had changed was a small cut in US interest rates announced by Alan Greenspan in early September 1998. It may be that Robert Rubin’s expression of concern about the weakness of the Yen (the role of Protectionist Sentiment back for its On/Off spot in the theatre of American politics) only helped along a rise that was going to happen anyway, but what-was-going-to-happen-anyway did not come from a shift in the economic fundamentals. In fact the situation looked worse: bankruptcies had spread into the Japanese industrial sector; Toa Steel said it would liquidate and Hitcahi said it was facing the worst crisis since the war. What had changed were the rhythms of finance capital, arcane in themselves but real in their impact. There was a mass repayment of yen borrowed at close-to-zero interest rates by large -scale wiseguys who had lent elsewhere for a far greater return. This at least was rational behaviour by individuals as corporate investors but reflected no shift in economic fundamentals.
Ralph Acampora’s change of mind had its impact for a day or so but the American bull market has, in bull-like fashion, charged on ever since. It has done so despite the fundamentals of Price/Earnings ratios or even, as in the case of Intenet-related stocks, made losses. Hs done so despite the more elliptical warnings from the most public faces of the \US Treasury-Wall Street axis, Alan Greenspan had talked of Wall Street needing to ‘adjust to a less optimistic view of earnings prospects’. Lawrence Summers in a neat renversement of Roosevelt talked of there being nothing to fear but the lack of fear itself. Too elliptical perhaps. Commenting on a Greenspan speech in early September 1998 which prompted a 5% Dow Jones rise, ex-Fed governor Lawrence Lindsey commented that people had not read beyond the 4th paragraph where, he said they would read the most depressing speech he had heard Greenspan give and that what he’d said was that the fate of the markets was in the hands of psychology and not of policy makers.
It is true that there is genuine confusion about the value of internet-related stocks, that the net is either actually realized communism which capitalism does not understand; or that it truly is a goldmine, one dominated in near-hegemonic fashion by the United States. But it goes further than that. As the self-perpetuating ‘bad news’ from the rest of the world gets worse and credit harder to obtain, the US stock market keeps rising because there is nowhere else invest.
THE CONSCIOUSNESS THAT ALWAYS COMES TOO LATE
Paul Krugman’s view of the last 20 months have carried especial weight because he had been sceptical of the Asian ‘economic miracle’ when its virtues were proseltyzed by the most hardened free market ideologues and technicians. It is hard to remember, given the destruction of historical memory which has itself become a bland notion, the euphoria about East Asian economic growth and ‘Asian values’. Its virtues were proclaimed by the British Conservative Party for example, in contrast to hopelessly social democratic/dinosaur policies in Europe. In Asia capitalism was the real stuff, ruthless and unencumbered by welfare policies. By the time it was discovered that this model was compromised by corporatism and riddled with cronyism, it had served its purpose as frightener to workers in the west.