Juggler drops his balls

Twenty years ago we saw the end of an ideology and the end of an empire. When the Soviet Union collapsed it took with it Leninism-Stalinism, an abhorrent mutation of pristine Marxism because it lacked at its fulcrum morality and improvement of the human condition that are Marxism’s drivers. It also took with it the Soviet empire – its ‘republics’ that have since become independent states and its east European satellites.

But ideologies have a way of reincarnating, even before their deaths, albeit in another form and in another place. Perhaps China read the writing on the wall and started changing in 1979 with the advent of Deng Xiaoping, who married the best of communism with the best of capitalism. The effort was to inject the vital efficiency of capitalism into socialist economy and at the same time inculcate some morality into capitalism that it utterly lacks. Amorality is the price of efficiency. Inefficiency is the price of morality.

It needn’t be if ideologies are dynamic, not static and frozen as the Soviets’ was. That is what ijtihad is. China under Deng did ijtihad. Those who refuse to learn and reform become rigid and eventually fail and fall. Now it is the turn of ‘free market capitalism’ American style, a misuse and misapplication of Keynesianism that believes in monetarism as an instrument of injecting money into markets to enhance economic growth and create jobs. America changed it to reckless borrowing by the State and also conned its people into living an illusory lifestyle on borrowed money, far beyond their incomes deserved. America’s European satellites mindlessly followed suit and are also paying the price for living a lie. Many Third World countries mimicked them, but thankfully we never adopted credit-based consumption. Our government’s huge borrowings are largely for deficit financing, which is equally suicidal and will bear bitter fruit before long.

Stupid hegemony driven decisions like the decoupling of the dollar from gold in 1971 forced other currencies to do the same and have driven the world to the brink. Values of currencies became price-dependent, primarily of oil, on the erratic value of the dollar and currency manipulation by speculators. Dependence on prices made all currencies, particularly of oil importing countries, hostage to the pricing and production levels of oil, hostage too because America decreed that oil could only be traded in dollars and that too through two companies privately owned by American citizens. This made inflation not only inherent but also endemic in world economies and unfavourably affected the wellbeing of peoples and countries.

The reality of borrowed or printed money is that it is without value. By injecting such money into markets to meet deficits or borrowing one’s way out of trouble or to meet irrational expenditures like manufactured wars became prevalent. Unnecessary wars were forced by America to create orders for its military-industrial complex, to test new weaponry in real war conditions and to test new strategies. These wars had to be financed by borrowing more and more printed money that added to its debt. Today, America’s public debt is more than its GDP: a fit case for liquidation if it were a corporation.

They forgot that when you borrow money from your own central bank, it has to print it, for it doesn’t keep billions in its vaults. It is money without value because it is unearned and has no productivity behind it. This, too, causes inflation. To control inflation, they manipulate interest rates: they raise them to lower consumption because people have been conditioned to consume by borrowing; they lower interest to increase borrowed consumption and attract investment. Doesn’t always work. Both have adverse consequences: reduce interest and it can raise demand so much that inflation ensues and doesn’t always trigger a commensurate rise in investment, because investors look to more things than just interest rates. Increase interest and you might lower demand but that doesn’t necessarily control inflation because when the cost of money goes up it gets included in the cost of production, which raises prices. Existing businesses shrink, new investment shies away while the cost of debt servicing goes up. It can affect currency values, thus affecting the trade balance adversely, not just for America but also for countries like Pakistan whose imports and exports are both price inelastic. It’s a very difficult juggling game. In October 2008, the juggler dropped most of his balls. Now he is in danger of dropping them all.

Losing artificial wars erodes confidence badly in a country. They may produce regime change but they also cause loss of control. Countries become unstable and dangerous. America has lost its war in Afghanistan and is now desperately looking for a way out. Worse, the return to power of the victorious Taliban after America’s departure is a virtual certainty, yet America persists in talking to them in the language of victors, insisting that the Taliban allow its military bases to remain in Afghanistan even after departure. While they know that they cannot safely exit without Pakistan, they persist in talking to it too like victors, bullying and threatening. It has come down to the ranting of an impotent.

Ditto for Iraq: they have lost control there too and all hell could break loose when US troops leave. Perhaps this suits them, for in turmoil lie the seeds of future wars. But the global paradigm has shifted east and without money to finance it or future wars, the military-industrial complex as structured today has become irrelevant. The dire need now is to decrease the debt burden and close the negative fiscal gap, which cannot be done with wars that require borrowing, for borrowing is no longer viable. America brought about regime change in Egypt, but that is all. The country went from one military ruler to a gaggle of generals. There is uncertainty, and turmoil has returned with the Muslim Brotherhood finally coming to the fore. The Egyptian-Israeli peace treaty has become wobbly.

America and its NATO mercenaries, with local dissidents upfront to make the revolt seem home-grown, have killed Libya’s Gaddafi. Undoubtedly most of the dissidents were genuine, fed up with Gaddafi’s tyranny, but many of their leaders are ‘former’ Al-Qaeda members and from the Brotherhood too. So what advantage has America gained? Not even temporary control over Libya’s light sweet crude for the civil war begins now? When will America learn to think long-term?

We tend to ignore what China is doing. It is working hard on launching the new Global Reserve Currency. What it is pegged to is still unclear. If it is pegged to the Yuan then that too could come under the same sort of pressures that the dollar did. But when China does launch it, all countries will be asked to change their dollar reserves to GRC. What then for the ‘mighty’ dollar? And if China becomes the largest donor to the IMF, it will definitely ask for it to be shifted to Beijing. If America balks, China could unilaterally launch the Asian Monetary Fund. Bye-bye IMF, and thank God for it.

That America’s own people are now also fed up is demonstrated by the Wall Street Protests that have swelled to hundreds of thousands and spilled right across the country. So, too, in Europe: Berlusconi fiddled with his debt while Rome burned. Is this the ‘Capitalist Spring’ or the ‘Capitalist Winter’ that is upon us? I would say both: first harsh winters come followed by a spring that hopefully brings in a more sensible, kinder, gentler and moral capitalism. You cannot escape morality. You just can’t.

The writer is a political analyst. He can be contacted at [email protected]