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President, Prout Institute of theUnited States, Lansing, Michigan, US
Susmit Kumar
Casino Capitalism and Collapseof the American Economy
A Brief History of the Global Economy
Until 700 to 800 years ago, the various continents exhibitedlittle dierence in wealth and poverty. The industrial revolu-tion in Europe, however, created vast dierences in wealthbetween rich and poor countries due to the act that thecolonies were deprived o the use o the “new technologies.” As shown in Tables 1 and 2, the economies o Third World
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countries like India, China, and Brazil were comparable tothose o what are now the developed countries until 1750, butdue to exploitation o their resources and trade restrictionstheir economies declined.During the 18
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century, or example, the British imposedtrade restrictions on Indian textile exports, which were betterthan British machine-manuactured textiles, to saeguard itsown textile industry. India experienced zero per capita growthrom 1600 to 1870, the period o growing British inuence. Percapita economic growth rom 1870 to independence in 1947 was a meager 0.2 percent per year,compared with one percent in theUK.The UK and other Europeancountries achieved tremendouseconomic growth in the 1800s atthe expense o the economicgrowth o their colonies until thetwo world wars ended thisscheme. The US then took overeconomic leadership when European nations had to take American war loans and due to the boost these wars gave American industry. The US supplied billions o dollars’ wortho munitions and oodstus to the Allies during two WorldWars, and the Allies had to borrow money on the New Yorkand Chicago moneymarkets to pay or them. Bythe late 1940s, the US grossdomestic product (GDP) was almost hal o the world’s GDP, and American companies were working at ullcapacity. This contrasts dramatically with post-war Europe,most o whose actories had been completely destroyed. Inaddition, technological advances in both ocean and airtransport during the war made the transportation o goodscheap, integrating the American economy into the worldeconomy.The war also caused the demise o the world’s two maincolonial powers, Britain and France. Britain’s national debt was about 250 percent o its GDP in 1946. This orced them togrant independence to most o their colonies, which were tooexpensive to keep within the colonial old.World War II also saw the emergence o the U.S.S.R., whichinitially demonstrated tremendous economic growth. Sovietrulers claimed that they would surpass the economic might o the West, but ater a ew decades the Soviet economic miraclefzzled out once the drawbacks o communism, includinginefciency and relatively poor productivity, crept into theSoviet economy. This fnally led to the collapse o the Sovietempire in 1991.Due to the Korean War, the Japanese and South Koreaneconomies were rebuilt on the ruins o World War II. Ater theoil price increases in the late 1970s and subsequent ination,US industries started shiting their productionto East Asia, creating the our“Asian Tigers,” namely, SouthKorea, Hong Kong, Taiwan, andSingapore. Since these ourcountries were too small to pro-duce all the manuactured goodsneeded or the US consumermarket, Chinese businessmen inHong Kong, Taiwan, andSingapore invested in countrieslike Indonesia, Thailand, and Malaysia, where the Chineseorigin people had a monopoly on industry. This fnally led tothe rise o China. The losers were American workers, who were laid o on a large scale. The advent o inormationtechnology in the mid-1990s created jobs in the US, but tosatisy the proft demandso Wall Street investors,CEO’s had to send inor-mation technology jobs tocountries like India,Ireland, andPhilippines.
Post-1990s Casino Capitalism
Let us discuss the 1997 East Asian crisis, the recent recordgasoline prices and the current global economic crisis to seehow casino capitalism is playing havoc with the commonpeople.With the entry o China in the US consumer market in the1990s, its trade surplus started increasing at the expense o other East Asian countries, notably Thailand, South Korea,Malaysia, Indonesia and Philippines. In 1994, China devaluedits currency Yuan by 35 percent whereas other East Asiancountries delayed devaluation until 1997; however, the
India experienced zero per capitagrowth from 1600 to 1870, theperiod of growing British influence
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damage was already done as their imports began to exceedtheir exports and they became vulnerable to currency specula-tors. Thailand had the weakest economy in the region becauseo its high debts, which were about 38 percent o GDP. Whencurrency traders saw the vulnerability o the Thai economy,they bought several orward contracts worth more than $ 15billion and ooded the international market by selling bahts,the Thai currency, in May 1997. Thailand’s central bankinitially spent more than $ 16 billion in its ailed attempt toprop up its currency. When its FOREX dropped into thedanger level, it had to unpeg the baht rom the dollar, result-ing in a ree-all or the Thai currency. It led to domino eectin entire region, leading to sharp devaluation o currencies,massive loss o jobs and stock market crashes. In Thailand,people invested a lot o money in real estate, but since there were not enough buyers, the real estate market crashed. It wasdue to Thailand’s real estate sector that most East Asianeconomies eventually suered, but currency speculators madea lot o money. Ater watching the IMF at work during the 1997 East Asianeconomic crisis, Joseph E. Stiglitz, 2001 winner o Nobel Prizein economics, wrote in April 2000:“I was chie economist at the World Bank rom 1996 untillast November, during thegravest global economiccrisis in a hal-century. Isaw how the IMF, intandem with the USTreasury Department, responded. And I was appalled.”
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“The IMF may not have become the bill collector o theG-7, but it clearly worked hard (though not always success-ully) to make sure that the G-7 lenders got repaid.”
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It was he who described the crisis best:
“The IMF frst told countries in Asia to open up their marketsto hot short-term capital [It is worth noting that Europeancountries avoided ull convertibility until the 1970s.]. Thecountries did it and money ooded in, but just as suddenlyowed out. The IMF then said interest rates should be raisedand there should be a fscal contraction, and a deep recession was induced. As asset prices plummeted, the IMF urgedaected countries to sell their assets even at bargain basementprices. It said the companies needed solid oreign management(conveniently ignoring that these companies had a mostenviable record o growth over the preceding decades, hard toreconcile with bad management), and that this would happenonly i the companies were sold to oreigners—not just man-aged by them. The sales were handled by the same oreignfnancial institutions that had pulled out their capital, precipi-tating the crisis. These banks then got large commissions romtheir work selling the troubled companies or splitting them up, just as they had got large commissions when they had originallyguided the money into the countries in the frst place. As theevents unolded, cynicism grew even greater: some o these American and other fnancial companies didn’t do muchrestructuring; they just held the assets until the economyrecovered, making profts rom buying at fre sale prices andselling at more normal prices.”
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In his US Senate testimony in May 2008, Michael Masters, ahedge und manager, blamed speculators or the record rise inoil prices, citing US government data that over the last fve years demands rom speculators (848 million barrels) werealmost the same as the Chinese oil demand (920 millionbarrels) over the same period. In his weekly New York Timescolumn, Paul Krugman criticized Michael Masters’ theory o hedge unds as being mainly responsible or the oil price rise, byclaiming that the price o iron ore paid by Chinese steel makersto Australian miners had jumped by 95 per cent.
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Iron ore is nottraded in the globalexchange. But Krugmanailed to consider the actthat the price paid byChinese Steel makers to Australian miners was the delivered cost to China and itreected the higher transportation costs due to record gasolineprices. Gasoline prices had more than doubled in the last one year when this deal was signed.
Four dollar a gallon gas prices created havoc in the USeconomy. The best-selling gas-guzzling SUV market droppeddrastically, causing auto manuacturers like GE, Ford andChrysler to close down their manuacturing plants andshowrooms and lay o tens o thousands o workers. Althoughoil companies were raking in record tens o billions o dollarsin profts each quarter, higher gas prices were causing a rise intransportation costs, raising the price o all ood products insuper markets. This increased ination. It aected the sales o supermarkets like Walmart and Kmart as higher ood and gasprices let ewer dollars in the pockets o lower income peopleto spare. All over the world, hundreds o millions o people
It was due to Thailand’s real estatesector that most other East Asianeconomies eventually suffered
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