resterday: own 22.6% capitalist economy asserting themselves in the most spectacular single days events The sequence of events is clear. On 14 October disastrous US monthly trade figures were announced — a defect of equivalent to an annual and the second worst figure in US history. It was clear the US balance of payments deficit could not be sustained. The United States made its normal demand that West Germany cut its interest rates, expand its economy, and therefore finance the US way out of dollar devalued. the crisis. West Germany replied by rais'financial took hold in the United States. For if West Germany and Japan would not expand their economies to suck in US exports then there was only one other way the US balance of payments could be corrected _ hv a direct cut of imports into ine United States. And all economic history short of overt protectionism which would have plunged the world into a 1930s style depression Harada there is only one way for a country to drastically cut back imports. This is to quences clearly: drastically deflate its own economy experience shows that devaluation by itself will not suffice In other words West Germany's interest rate cut spelt recession in the United States. On Thursday 15 August US share prices began to slide rapidly on a wave of domestic selling rates.
Over the same weekend US Treasury Secretary Baker made a miscalculation which worsened the situation. He openly threatened devaluation of the dollar to Panic on the New York stock exchange on 19 October hit back at West Germany. Foreign investors began to rapidly remove their funds from the United States before the The combination domestic and foreign selling in the US on Monday 19 October, when the markets opened after the weekend produced what the chair of the New York Stock ExJohn Phelan, described meltdown'. Internationa. stockmarkets fell both to parallel falls in internationally traded stock and in fear of a world recession. Within a few days the dollar was falling rapidly.
Devaluation • This dollar devaluation was what the United States rivals had feared. Kazuaki chief economist of the Sanwa bank of Japan put the likely conse'a sudden fall in the dollar below its range of Y(yen) 140-150 could result "in chaos" because many Japanese investors still believed in the stability of the Louvre agreement - the commitment by leading industrialised countries to maintain current exchange If the dollar fell the value of equities and of bonds would once again have to be reassessed 'A further fall in the stock markets could lead to a downward spiral of falling prices and diminishing economic pre spects ... The.. • effect of this eart quake would be stronger than investor faith in the recovery of the Japanese re In addition to the effect on Japan assets either a US recession or a dot devaluation has knock on effects Japanese trade. Approximately 15 cent of Japanese GDP is accounted: by exports — 5 per cent of the japan economy alone is accounted for by ports to the United States. The collar in the Tokyo stock market following W Street was therefore particularly conce trated among large Japanese exporti firms - a US recession or devaluation the dollar would squeeze Japanese porters hard.
Chaos The same fears also explain traordinary fury from BBC got at last week's announcemeteby the p dent of the EEC Commission, Jacq Delors, that the United States Intend let the exchange rate of the dollar Delors stated: 'Let us have no flusi The Americans are prepared to let dollar fall.
The Financial Times noted chaos followed: 'A West German F
force beyond the power of any person to control, be, it was horrible' - J K Galbraith Ministry: called Mr Delors remarks "entirely incorrect," while the French finance ministry insisted that the emarks did not reflect the views of the Louvre nations or of the French monetary authorities.
The president of the Dutch central ink, Mr Wim Duisenberg, also criticised Mr Delors saying that those responsible for monetary policy should "in principle refrain from remarks about the preferred level for the dollar or interest Impact The Bonn Finance Ministry pokesman echoed this view: goyernment expects individuals who do ot take part in the copsultations to frain from making improvised public ments which send false signals ...
e truth is that the major industrial untries have agreed to continue their Operation to stabilise currency rates" : Commission within minutes to try to limit the telephoning news agencies to extracts of Delors prepared ish did not contain the remark. ey said only the official text was toe it alone would be included in irliament's record ol the debate 'But yesterday the assembly's president, Lord Plumb of distribution of the official record and ordered it reprinted so that it included Mr Delors' exact words.' Stella Shamoon in rightly noted: "The suspicion is that the dollar was "allowed" to fall and will be "managed" lower in a bid to improve the United States trade deficit... a free fall could trigger a flight of foreign capital, with further stock market collapse, and force up US interest rates 'Given the current fears of a recession, the classic defence of the dollar, by. raising interest rates, propriate. Rather the reverse. There is pressure on the UK, West Germany and "the Japan to cut their respective interest rates in order to stimulate their economies and help stabilise the dollar."
While the US threat to devalue the dollar is a potent one it however also suffers from internal contradictions problem of how to attract foreign funds to continue to finance the officials budget deticit.
Crasn This issue is going to come to a crunch during this month. November, the US government is auctioning its next major tranche of governUS$ against * 1987 US$ against DM ment debt. On the last occasion in May, Britain, blocked the Japanese institutions were only just persuaded to take up 40 per cent by fierce pressure from the Japanese Ministry of Finance This time they will be more hesithe Observer tant. Yet if they don't American interest and the dollar will be under renewed picssure being applied by the US and Japanese wise economic chaos was feared.
would appear inap- Respite that a temporary respite set in because, as the Financial Times put it a "balance of terror' had been established.
West Germany found that if it tried to avoid bearing the costs of the US crisis it • the might precipitate a collapse of the US economy that would bring West Gersufficient United States found that if it tried to down.
On tectionism, reduced however, itself• cost of the recession DM "dollar standard"?
Answer chaos. rates will again be under upward pressure After the crash intense pressure was governments for Japanese institutions to continue funding the US debt - otherWhat will take place now? The first is recession. 'economic miracle, to an abrupt halt.
many down with it. At the same time the escape from its dilemma simply by dollar under conditions devaluation it risked an exodus of foreign funds that would bring its economy The initial days following the crisis The debt undoubtedly saw some gaining of points by the United States. The dollar began to devalue rapidly — loosing 5 per cent of its value in a week. Interest rates began to fall not simply in the United States but in •February. West Germany. As the Fimancial Times put it the dollar devaluation, in particular, was a bitter pill for the US's economic rivals to swallow: "The relevant fact is that the dollar has, indeed, started payment. to fall ... The decision appears to have been not so much that a fall is desirable as that the costs of averting that fall exceed the foreseeable benefits.' But this, so far, is only fiddling at the edges. The really gigantic test is going to come over the next two years. To turn round the US balance of payments deficit, whether through dollar devaluation or, less likely, straight forward promeans reducing export markets for other countries by anything from $100-$170 billion. And without reflation in West Germany and Japan, which would weaken them confronted with the United States, this means reces sion in these two rivals of the United States. If the US trade deficit is not by Japan and West Germany sucking in its goods, this will deepen the recession in the United States - which can have a knock on effect of pulling West Germany and Japan into recession anyway. A huge test of strength will now take place between the imperialist states over who is to bear the One final question, the key to the whole situation, is worth dealing with Why do West Germany and Japan accept based these type of policies from the United States? Because whatever their policy decisions the US enjoys mechanisms whereby it imposes disadvantages on them. For example at present, in order to try to halt the speed of the decline of the dollar, the West German central bank: is buying huge quantities of dollars. This means creating Deutsche Marks and exmanding the West German money supp- itself reflating the West German securing the United States goals. Why does West Germany, for example, not simply cut loose old way. from the whole system and abandon the violent The answer is because the United States has been the lynch pin which has kept the post-war capitalist economy together. There is no other alternative weaken a central pivot of the world capitalist The United States ultimate argument has always been 'if not us then After 19 October the United States rivals know that this is no empty threat. While the United States will undoubtedly now be forced to rein back on some of its policies, by cutting back the budget deficit, it will also be able to impose some of its burdens on its 'allies' That is the privilege it gains from being the centre of the world capitalist system.
What are likely to be the political consequences of the crash? Very great.
Firstly the crash already means, even if nothing further occurs, an economic recession in the United States. The only issue is how deep it is going to be which in turn depends on how much the United States can put the squeeze on West Germany and Japan. will resist the USi to the best of their ability. To the degree that they do so they will deepen the recession in the United States - and at the same time slow the growth of their own economies. We are, without doubt, heading into a new international which saw even unemployment falling, is going to come The consequences in the third world will be still deeper. There is no chance of third world debtors repaying their debts of an recession and where one of their chicf atport markets, the Unised States, reducing its balance of paymenes defici crisis was in fact already tightening again prior to the crash - the most important single debtor country, Socialist Action 6 Nov 1987 Brazil, has refused to make any service payments on international debt since banks throughout the year have been increas ingly writing down the nominal value of their third world debts in anticipation of •substantial defaults or reductions But something still more fundamental has happened than a new recession. We have seen the most violent inter imperialist economic conflicts since the inter-war depression. And this has profound consequences for world politics.
First it means a new wave of attacks on the working class. But it will also in. crease the forces breaking up the coherence of • ruling classes themselves - because the various imperialist ruling classes are striking increasing blows against each other.
It has been one of the great strengths of capitalism in the post-war period that it has not suffered from deep inter imperialist conflicts. Imperialism Wak able to face both the political crisis of 1968-73 and the economic crisis after 1973 in a relatively united way. Such trade restrictions, frictions in the Atlantic Alliance etc, as did appear were extremely small compared to the protectionism trade wars, expansion and destruction of colonial empires, which characterised the inter-war period. This ability to maintain the fundamental mechanisms of postwar imperialist collaboration intact -the system of relatively free international trade, the international monetary system the dollar, strengthened all the imperialist powers against the working class The reason for is simple. The ability of the working class to advance depends not only on its own strength but on that of its enemy. It remains one of the most important realities that, in Lenin's words 'for a revolution to take place it is not enough for the exploited and oppressed ' masses to realise the impossibility of living in the old way and demand changes it is essential that the exploiters should not be able to live and rule in the And what applies to revolution applies also to any working class struggle The greatest advances of the working class in this century took place around inter-imperialist contilct: above all, of course, the two world wars. Inter-imperialist conflicts both break up the coherence of the ruling classes and them as individual capitalist classes are forced to attack one another. The ability of imperialism to maintain relauve concicuce equilibrium during the post-war period was one of its greatest strengths. coherence is now visibly under strain.
Whatever immediate developments the situation in the imperialist will significantly shifted. Political weakness in the United States as it turns to attack its own working class, political destabilisation in West Germany and Japan as they are forced to • bear at least some of the brunt of the US economic crisis, is inevitable. And new chapter in the relation between the imperialist states is being ushered in. Strengths The 19 October 1987, in short was not about a stock market crash. It was about deep economic collisions between the most powerful imperialist cen tres in world capitalism - the Uniter States, Japan and Western Europe Shake the leaves in the test of the word And when that tree trunk begins economy will tremble.
summarised in famous quote of J K Galbraith on the crash oi 1929: The market had asserted itself a if any person to control, while e an impersonal force beyond th is the way markets are supposed to be.
was horrible.' While we stil S 2 Особ 150 SOLDC bose PeTE:
• TO DOI can be Whatever the form and tempo da worst is still to come.
Socialist Action 6 Nov 1987 WHY HAS inter-imperialist competition broken out more violently now when profits are recovering the deep economic depressions of 1973-75 1979-81?| The answer lies in the way different capitals survive the slump then seek 'redivide the world' in order to reflect the new relation of forces between them. JOHN ROSS looks at the Marxist analysis of inter-imperialist competition.
TER imperialist competition is an issue frequently not integrated into the body of Marxist economic analysis. The latter is seen as relating to the study of the workplace or to national capitalism and inter-imperialist competition is seen as running 'parallel' to this. This is radically wrong.
point of Marx's analysis is the development of 'capita) in general' or the capital of the whole society" This is sometimes taken to be the capital in a nation state, but this 1s wrong? Capitalism is an international system in which the world economy is dominant - as the events of the last two weeks have rather convincingly demonstrated. The decline in the rate of profit throughout the 1960s and early to of the How International Business Week saw Japanese competition with the United States Lullal y only sharp attacks on the working class but by increased conflicts between the imperialists. Capialism producTors quilbrium, Trotsky disrupts it, restores it anew in order to disrupt it anew, concurrently extending the limits of its domination. In the restorations equilibrium assumes the form of strikes, lockouts, revolutionary struggle. In the sphere of inter-state relations the disruption of equilibrium means war economic war or orade arif war or - in a weaker form -The economic conflicts between the imperialist states are given particular weight because these powers attempt to use political means to maintain their control over sections of the world economy. Previously this has taken the form of wars, the creation of empires etc. But it can equally take the form of competitive devaluations, military threats etc.
The most extreme expression of inter-imperialist competition course war. Thus Trotsky noted during the 1930s that the international weight and empires of the old European states Britain and France, was totally out of line with their real weight in the world economy compared to the rising power of the United States. He prophetically noted: "The United States is heading inevitably towards an imperialist explo sion such as the world has never seen ...A new partition of the world is on