On April 2, 2009, the long-awaited opening of G-20 London Conference was greeted with violent demonstrations. The fighting erupted as demonstrators fought with police in an anti-capitalist fervor that reflected the gloomy economic situation in the world.
Indeed, since the financial crisis, which started in Wall Street in 2007, with the subsequent collapse of Bear Stearns, the bankruptcy of Lehman Brothers and the rescue of AIG, the global economic crisis has worsened. The world has “moved toward the disintegration of the entire globalized world financial system, based on the residual status of the US dollar as a reserve currency, and expressed through the banking hegemony of London, New York, and U.S.-UK controlled international lending institutions like the International Monetary Fund and the World Bank.”1.
For this reason, efforts have been made on the part of the leaders of America and Western Europe to strengthen the role of the International Monetary Funds, which became the central focus of this G-20’s Summit in London.2.
IMF together with the World Bank, were established as a result of Bretton Woods Conference in 1944. IMF was to supply funds to countries to overcome short-term balance-of-payments difficulties, and such money was available only for those countries that agreed to the IMF’s harsh structural adjustment programs.
Unfortunately, IMF’s structural adjustment programs were not only notorious for their brutalities in imposing a miserable life on the vast majority of population in many developing countries, but in fact were responsible for binging about many economic crisis, as in the case of the Asian financial crisis of 1997. As events unfolded, the measures adopted by IMF “ended up accelerating the regional collapse into recession. Finally, the billions of dollars of IMF rescue funds went not to rescuing the collapse economies but to compensating foreign financial institutions for their losses.”2.
It is obvious that by focusing its efforts in the strengthening of an institution such as IMF which has this kind of operating record and reputation, the G-20 leaders led by the United States and Britain, are more eager to protect the financial interests of the Western financial institutions rather than the global economy and the lives of many ordinary citizens.
Not surprisingly, amidst the economic crisis in the United States and, even with the imminent bankruptcy of the world’s biggest auto company in the United States, the focus of the Obama administration, since it entered office, has been to rescue the banking sector, as it allocated “$ 1 trillion dollars to buy worthless bank assets and over 40% of his $787 billion stimulus package to insolvent banks and tax breaks, rather than to the productive sector, in order to save stock and bond holders, while over 600,000 workers lose their jobs monthly.”3.
In reality, President Obama and his economic team seems to carry on the policy of the previous administration, under which failed companies like AIG were awarded with injection of capital to the tune of $170 billion. Americans were told that the collapse of AIG would destabilize the U.S. financial system and devastate the U.S. economy. Unfortunately, that was a blatant lie, as much of the capital AIG received from the government went to pay out the Wall Street banks, the derivative counterparties of AIG, and, by far the largest amount, to the tune of $13 billion went to Goldman Sachs. Goldman Sachs’ former CEO was none other than Henry Paulson, who along with Timothy Geithner and in the presence of Goldman Sachs CEO Lloyd Bankerfein, made the decision that AIG must not fail in order to protect the derivative dealer interests.4.
Ironically, many regard the current $1.5 quadrillion derivative contracts as the immediate cause of the present financial tsunami. As a matter of fact, “derivatives have provoked the downfall of Bear Stearns, Countrywide, Northern Rock, Lehman Brothers, AIG, Merrill Lynch, and Wachovia, and most other institutions which have succumbed. Derivatives have made J.P. Morgan Chase, Bank of America, Societe Generale, Barclays, RBS, and money center banks of the world into Zombie Banks.”1.
Consequently, American economy underwent a free fall, with marked increase in job losses, drastic decline in stock market, and the imminent collapse of many of her banking institutions such as Citigroup, Bank of America, and the viability of world’s biggest industrial companies such as GE seems in doubt. More ominously, the current economic crisis occurs in a time of tremendous fiscal difficulties, and after many years of heavy expenditure in wars, American economy is burdened with an unprecedented high level of deficits and debts. “All of these variables defy the contexts in which previous depressions occurred. Nothing in previous contexts leading up to a crisis of capitalism resembles the present situation.”3. The situation becomes so desperate that American policy-makers resort to the appropriation of state fund to resurrect insolvent banks and other failed industrial enterprises. “The rate and levels of appropriation and reduction of savings, pensions and health plans, all without any compensation, has led to the most rapid and widespread reduction of living standards and mass impoverishment in recent US history.”3.
This ruthless financial appropriation further extended to her trading partners, especially to the balance-payment-surplus countries like China, Japan, Middle East oil producing countries, and this was accomplished by the excessive continuous printing of the American dollars to satisfy the incessant demands for further bailout of Wall Street financial interests. As a result, the value of the dollars has been eroded and the dollar’s status as the world currency diminished, especially in the time of global economic turmoil. Therefore, it is rather puzzling that the issue of a new world reserve currency was not even on the agenda of the critical meeting of G-20 summit in London.
To be sure, On March 24, 2009, less than two weeks before the summit, Zhou Xiaochuan, the governor of China’s central bank, raised the possibility for the resurrection of the Special Drawing Rights as world reserve currency. He wanted the new reserve currency to be controlled by none other than the International Monetary Fund. The valuation of the new Special Drawing Rights would include all the major currencies, which will include the Chinese yuan. The new currency will be managed by the IMF, and gradually used in international trade and finance, eventually replacing the dollar.10.
This is rather a startling proposal on the part of the governor of China’s central bank, given the historical failure of the Special Drawing Rights as world currency, and the horrendous records of IMF in carrying out the structure adjustment programs against the indebted nations in the third world countries. IMF’s reputation in the developing countries is such that many countries “decided to stay away, preferring to build up their foreign exchange reserves to defend themselves against external developments rather than contract new IMF loans. This led to the IMF’s budget crisis, for most of its income was from debt payments made by the bigger developing countries.”2.
Accordingly, one might ask why China, after hundreds of years of revolutionary struggle, at a sacrifice of tens of millions of lives, would voluntarily consider surrendering her national sovereignty by proposing the creation of world currency. The creation of world currency would place the control of China’s finance in the hands of Bretton Woods institution the IMF, which is dominated by Washington which has a veto power.
It goes without saying that, as a result of the creation of world currency, China would lose its independence, and “it certainly plays into the hands of the plutocratic masters running the financial markets. It’s hard to imagine why the Chinese would even entertain this idea.”5. These plutocratic masters are in turn the appointees of Washington. It is incredulous that any Chinese officials of sound mind would come up with this kind of proposal, especially in the time when the United States which is in economic decline and experiencing the worse financial disaster since the Great Depression where “foreclosures, bankruptcies and unemployment are still skyrocketing. And like Damocles’ sword, the hundreds of trillions in derivatives and bad debts are still hanging over the world banking industry.”6.
Not unexpectedly too, the world leaders completely ignored the hundreds of trillions of the derivatives contracts which loom over the financial landscape, thereby refusing to face the consequence of the bursting of derivative bubbles. Ironically, debt, the inflation of financial bubble and the explosive growth of derivatives were the root causes of the present day global economic crisis.1.
Thus, by ignoring the issue of the derivatives and the dollar’s status as the hegemonic world reserve currency, the leaders of G-20 did not really wish to take the tough measures in confronting the global economic problems and rein in the United States to put its house in order. For many years, the United States has relied on its printing press in issuing dollars to inflate its economy and export inflation abroad. “This turned the U.S. economy into both the consumer of last resort and the center of debt buildup for the world economy as a whole.”7. As a result, hundreds of billions of Treasury bonds were imposed on countries such as China, which became the holders of the largest amount of U.S. government debts, much to the detriment of the Chinese economy and the welfare of the Chinese people.
Not surprisingly, with the world crisis of globalization and America in dire straits, this U.S. “Treasury bubble” has to come to an end. The run in the dollar would usher a seismic change in the global economic relations. Thus, the G-20 London summit should offer China, as the country with the largest amount of foreign reserves and which happens to be the number one creditor to the United States, the unique opportunity to seize and initiate the discussion of a new economic order and a new dialogue to address the pressing issues. Unfortunately, by allowing such issue as the world reserve currency not to appear on the agenda and be muted on other important issues, China became a passive participant without having much bearing on the conference.
As a matter of fact, the conference itself can be regarded as a failure, as it is no more than photo ops for the world leaders. By promising trillions of dollars for IMF, which is an instrument, used for economic aggression by the Western imperial powers, the G-20 summit has lost its credibility with the vast majority of the people in the third world countries. In the end, the money allocated to IMF will be either used to further its notorious structured adjustment programs, rendering the people in the indebted countries more miserable and further suffering, or to rescue the Western banking institutions which are in deep trouble in Eastern Europe and other countries as a result of reckless lending practices. Thus, notwithstanding President Obama’s optimism and calling the G-20 summit the “turning point” in the global economic meltdown and praising the joint efforts as “a historic step on the road to stability, ”8. the G-20 did not offer any viable solution to the global economic crisis, or any hope to the people of the world.
Unfortunately, this might turn out to be no more than empty words of Federal Reserve Chairman Ben Bernanke, and the former U.S. Treasury Secretary Henry Paulson when they promised a quick turn around in the economy with the creation of millions of jobs. New U.S. Treasury Secretary Timothy Geithner also said “unlimited bailout of banks was the best solution for American families; without bank bailouts, American families would face an unimaginable economic decline.”9. Obviously, bank bailouts were all but empty promises and only serve the interests of the financial conglomerates at the expense of the public. It can be said with certainty that the capital awarded to the IMF in this summit would have a similar outcome.
Notes:
1. Tarpley Webster: “Freeze the $1.5 Quadrillion Derivatives Bubble As The First Step to Recovery” March 25, 2009, www.rense.com
2. Bello Walden: “The G-20 summit of fear”, April 1, 2008 Asia Times Online
3. Petras James: “World Depression: Regional Wars and the Decline of the U.S. Empire”, Part 1, April 2, 2009 Global Research
4. Spitzer Eliot: “The Real AIG Scandal”, March 17, 2008 Slate
5. Bradshaw Robert: “G-20 Meeting and Special Drawing Rights Potential Development: March 26, 2009, Market Oracle
6. Weiss Martin: “The G-20 Follies: Watch out below!” April 3, 2009 Weiss Research Inc.
7. Foster John Bellamy: “A Failed System: The World Crisis of Capitalist Globalization and its Impact on China”, March 2009 Monthly Review
8. Javers Eamon: “Obama: G-20 summit a turning point: April 2, 2009 Politico
9. Askari H., Krichene N.: “G-20fritters as crisis deepens” April 1, 2009 Asia Times Online
10. Zhou Xiaochun: “Reform the International Monetary System”, March 26, 2009 Xinhuanet.com
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