Tuesday, September 21, 2010

Post World War 2 Global Financial Structure Remains Shattered

Dragged down by the economic inability of the global 'regulator' of capitalism, the United States, to support the dollar demand that comes with reserve currency. The dollar has two values: one, at a much lower rate that would reflect the competitiveness of US production in the global market. The second, much higher, reflecting the near monopoly the dollar has in international finance and the subsequent demand for dollars. The gap between these two dollar values will continue to grow as the developing world moves up the value chain.

The bourgeoisie academic solution would be to convert to a SDR system that reflects each country's real strength in production in the global market. That probably isn't theoretically possible in a world of capitalist nation-states, and certainly isn't possible in reality as we look at each region engaging in currency devaluation and export turf battles. Other 'solutions' are as before, war and the liquidation of competitors and capacity through violence, or a crashing of the world economy to wipe out export dependent countries. Unless U.S. capitalism finds a way to revive itself, theoretically possible through massive government spending and investment, but politically almost impossible, the other options will increasingly be on the table.

1Graph from Albert Edwards, SocGen

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