----- Original Message ----- From: Sven Buttler <[EMAIL PROTECTED]> To: MLL <[EMAIL PROTECTED]> Sent: Sunday, May 28, 2000 7:20 PM Subject: MLL: fwd: The aftermath of the 1997 'currency crisis' part 1 Folks, This article in Lalkar, organ of the Indian Workers Association (GB) provides a holistic overview of the world economic crisis since 1997 and explains its dynamics in relation to the US economy and stock market. Written at the end of last year, it predicts troubles in the US economy which are now showing signs of coming true. Furthermore, it compares the situation now with the situation towards the end of the 1920's boom in the United States and with the 1980's boom in Japan -- ie. shortly before the capitalist economy fell off a cliff and people jumped out of windows. While Malaysia may appear to be coming out of its recession right now, a downturn in the United States -- the capitalist world's locomotive of growth and market of last resort -- could have serious implications on all capitalist economies in the world, including Malaysia's. I really love this quote by the Financial Times' Tony Jackson in the article below: "No serious investor supposes, for instance, that US internet stocks are sensibly valued. "The game is rather that of the Greater Fool. Buy e-stocks at 100 times revenues; sell immediately to the Greater Fool at 120 times; and bear in mind that, if the game stops in the middle, the Greater Fool is you." (Financial Times, 24 April 1999). When I see people running like lemmings, hoping to get rich from this or that dot-com, they don't seem to have a clue that a cliff lies ahead -- a cliff off which they will plunge to their doom. At the end of the day, despite all the opportunities the Internet appears to provide, and the fact that some people are getting very rich off it -- the success of e-commerce ultimately depends on living, breathing, flesh and blood people -- ie us -- to buy things off it. IE. it depends on the health of the economy in which we eating, breathing, defaecating and consuming human beings live. So if you can't afford to buy a BMW from a brick and mortar showroom, it's highly unlikely that you can afford to buy a BMW from a virtual showroom on the Internet, even at 10% or 20% discount. (BMWs are very expensive in Malaysia and hence considered a luxury car, though they may not be so in Germany and some other countries.) At the end of the day, it's still the same capitalist economy on planet Earth in which these Internet traders are operating, despite the delusions of some who think that they are operating in an ethereal economy called "cyberspace," selling things to ethereal beings -- ie. angels, devils, ghosts and demons. These traders must have smoked too much pot and taken too much LSD in their younger days, and today they seek to realise their escapist fantasies in "cyberspace," believing it to be outer space. (I guess that with the slow down in space exploration and decline in excitement of the race to the moon -- where Apollo 11 landed on the moon in July 1969, (yes those were heady days alright) -- people of that and succeeding generations have nothing much to fire their imagination, so they make "cyberspace" their "outer space.") The only real alternative economy which operates according to different rules is the socialist economy, under the dictatorship of the proletariat, where the means of production distribution and exchange is in the hands of the producers (ie. the workers and peasants), who produce for social need, and not for the private profit of the capitalist owners of these means of production, distribution and exchange. Regards Charles ===================================================== The aftermath of the 1997 'currency crisis' http://www.lalkar.demon.co.uk/issues/contents/jan2000/currency.html This article was written at the end of October 1999 with a view to being reproduced in the November/December issue of LALKAR. However, lack of space prevented its publication then. The reader ought to keep this in mind when confronted with a reference to expressions such as this year and last year. Nothing has happened in the intervening two months to make the author make any changes to the text. The article will appear in two parts: Part 1 appears below. Part 1 "Commerce is at a standstill, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence because they have produced too much of the means of subsistence, bankruptcy follows upon bankruptcy, execution upon execution." Thus wrote Frederick Engels in 1876 in Socialism: Utopian and Scientific. The world capitalist economy is facing a most serious crisis. How are we to explain this crisis? What is the way out of this crisis? Only Marxian analysis, contained in succinct form in the above-quoted words of Engels, offers the key to the understanding of this crisis, as well as the way out of it. The words of Engels that we have quoted were written about England in 1876, but could just as well have been uttered in response to the shambles of the economies of East Asia, the chaos in Russia and the imminent crash on Wall Street. Then as now Engels' words contain the key to understanding the whole crisis: "the workers are in want of the means of subsistence BECAUSE THEY HAVE PRODUCED TOO MUCH OF THE MEANS OF SUBSISTENCE." In other words, these devastating economic crises are caused by Overproduction. Bourgeois economic science offers little in the way of clear understanding in this regard, not because bourgeois economists are less intelligent, but because their outlook is hemmed in by their belief in the immortality of the capitalist system of production. They have sold themselves body and soul to the service of this parasitic, decadent and moribund system, namely, imperialism. Thus even when they come pretty close to understanding the underlying cause of the crisis, they shy away from it, ending very often by confusing symptoms and their causes, and appearance and reality. One has to indulge in excavations, as it were, to dig and drag the truth out into the light of day. Since the autumn of last year, stock markets in the centres of imperialism have melted down, melted up, and are about to melt down again. In this review article, we had to indulge in what can only be described as excavatory work to drag the truth out into the light of day. Notwithstanding their proclivity for confusing cause and effect and their obsession with incidental details, reality forces serious-minded and thoughtful bourgeois experts possessing the least amount of integrity to pick up information about the real cause of the crisis, namely, overproduction under the conditions of capitalism - although naturally they attach no blame to capitalism as such, and continue to express their faith, with the zeal of true believers, in the eternity of capitalism. In the main body of this article, no attempt has been made to allude to Marxism. Instead the bourgeois experts, who cannot be accused of the slightest bias in the direction of Marxism, have been dragged, kicking and screaming, to speak against their will, no matter how inconsistently and feebly, in confirmation of the conclusions of Marxist economic science, while all the time maintaining that Marxism is dead! The aftermath of the 1997 'currency' crisis A little over two years ago, everything appeared to be hunky-dory for capitalism. The economies of Asia were booming - the South Korean economy was growing by 7% a year, the Indonesian by 8% and the Malaysian by 9%. The equity markets in the centres of imperialism, as well as elsewhere, witnessed hugely rising share prices and cascading paper wealth. Then suddenly, out of the blue as it were, many countries of the Far East were gripped by a crisis, which announced its arrival on 2 July 1997 with the precipitous fall of the Thai currency. Within a matter of weeks the crisis spread from Thailand to Indonesia, Malaysia, the Philippines, South Korea, Singapore and to Japan - which was already in the grip of economic difficulties. The effects of this crisis have been far more destructive than those predicted by even the most pessimistic of bourgeois economic analysts and commentators. Here, briefly, are the figures that provide such eloquent testimony to the economic meltdown in the Far East. In the 12 months following the outbreak of the crisis, which began with the devaluation of the Thai currency on 2 July 1997, $100 billion of foreign capital fled Asia as the currencies of the 'tiger' economies tumbled, stock markets crashed, and major banks came face to face with insolvency - with their shares falling from 50%-90%. In dollar terms, compared with January 1997, equities fell by 85% in Indonesia, 83% in Malaysia and Thailand, 70% in the Philippines, 60% in South Korea, 50% in Hong Kong and 40% in Japan. In Asia as a whole, equities registered a precipitous fall of 60%. Within weeks of the outbreak of this crisis, the tiger currencies were in free fall. As against the dollar, the Thai baht suffered a devaluation of 50%, the Malaysian ringgit 40%, the Philippine peso 25%, the South Korean won 40%, the Singapore dollar 10%, the Taiwan dollar 15%, the Japanese yen 15% and the Indonesian rupiah fell from 2,434:$1 just before the crisis to an astronomical Rp 17,000:$1 on 22 January 1998, before rallying. On 24 November 1997, Yamaichi Securities, one of the largest in the world, went bust. This came hard on the heels of the failure of Hokkaido Takushoku (the 10th largest commercial bank) and Sanyo Securities. Banks in all these countries are saddled with huge portfolios of non-performing debts. In Japan alone, problem debts amounted to over $600 bn - the result of bad loans at home and abroad. Between 1996 and 1998 the shift towards surplus in the current accounts of the five most afflicted economies was to the tune of $118 billion, equal to 11% of pre-crisis GDP. From a current account deficit of 8% of GDP in 1996, Thailand moved to a surplus of 12% in 1998, making a saving of 20%. In South Korea the adjustment was 16% (from a deficit of 5% to a surplus of 11%). The swing in Malaysia's current account deficit was 14% (from a deficit of 4.9% to a surplus of 9.4%). And in that of Indonesia the swing was of 7% (from -3.4% to +3.9%). Given this brutal consequence of the flight of capital, the depth of depression in these countries is not surprising. The fall in domestic demand was still more dramatic than in output, though the latter had been startling enough: in the year to the third quarter of 1998, real GDP shrank 17% in Indonesia, 11% in Thailand, 9% in Malaysia and 7% in Hong Kong and South Korea. Japanese recession As for that wonder of capitalist countries, namely, Japan, its economy, stagnating for years, went into contraction in the last quarter of 1997 and continued to contract for most of 1998. During 1998, Japanese domestic demand shrank 3.2%, Japanese private consumption fell by 1.8%, private residential investment shrank by 13.5%, and non-residential gross fixed investment dwindled 9.6%. "If it were not for the improvement in Japan's net exports, equivalent to 0.7% of the GDP, total output would have fallen still more than the estimated 2.6%" (Financial Times, 23 December 1998). Wholesale prices in Japan fell by 3.6% in the year to November 1998. No wonder, then, that Japan finds herself in the midst of the longest recession of the past 50 years. Its unemployment rate hit a post-war record of 4.8% in April 1999. In a shock to Japanese national pride, the jobless rate in Japan is now higher than that of the US, with more and more Japanese workers being 'restructured' out. With the unemployment rate among men aged 16-24 at 11% (as compared with 7% among men aged over 54) social stability is increasingly under strain. The increasing unemployment is merely a reflection of the struggle of corporate Japan to stay competitive at home and abroad by boosting its faltering productivity and reducing wages and bonuses, whose share, as a proportion of GDP, has risen from 53% a decade ago to 58% today. Even the 'core' workers have not escaped this fate: unemployment among 'bread-winners' now stands at a post-war record of 3.6%. Japan's suicide rate rose by 35% in 1998. Homelessness is increasingly becoming an ugly feature of big industrial cities. Clinics report a significant increase in middle-aged men seeking treatment for depression. The 'jobs for life' system is being shown the door. The generation that built Japan's manufacturing might is the real victim. It is being required to be 'flexible' and accept jobs as security guards, cleaners and cooks, often for as little as 200,000 yen ($1,730) a month. Men often leave the house every day pretending to go to work, just to avoid the shame of their unemployment. Aware of the damage to Western imperialist interests should complete economic collapse persist throughout East Asia, the IMF dug deep: $17.2 billion to Thailand; $46 billion to Indonesia and $57 billion to South Korea. Reputedly the IMF had only some $25-30 billion left in the kitty, and the banks that provide its funds were less than anxious to provide more. Devastating effects of the crisis Since its outbreak in the summer of 1997 in Thailand, the currency and stock-market turmoil, spreading like wildfire to Indonesia, Malaysia, the Philippines, South Korea, Singapore, and to Japan, has wreaked havoc, causing big business failures, throwing millions of workers out of their jobs, and sharpening inter-imperialist contradictions to the extreme. In the words of a leading article in the Financial Times, the crisis in the Far East "has laid waste what was once the most dynamic part of the world economy." ('1998 in the Crystal Ball'). "Tens of millions of people," says the Financial Times of 24 April 1999, "have lost a degree of comfort it took a lifetime to achieve." According to the Financial Times of 28 September 1998 "millions of household in East Asia are being pushed back into poverty by the regions financial crisis, threatening to reverse decades of achievement in poverty reduction and human development, according to a World Bank Report ...'What began as a financial crisis has also become a fully-pledged social crisis. Unemployment already has reached record levels, real wages have plummeted, prices for essential commodities have risen and social services have been cut back. Households are coping by rationing food, pulling children out of school, and in some cases resorting to illegal activities. Violence, street children and prostitution are all on the increase and the social fabric is under increasing strain'". A Report by a certain Mary Jordan, which appeared in the International Herald Tribune (IHT) towards the end of September 1998, paints the following vivid picture of the devastating effect of the crisis of overproduction in the Far East: --- from list [EMAIL PROTECTED] ---
