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The financial tsunami ahead

The world is almost certain to witness a financial tsunami, warns financial analyst Ernst Wolff in his latest book, FinanzTsunami:…

The financial tsunami ahead

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The world is almost certain to witness a financial tsunami, warns financial analyst Ernst Wolff in his latest book, FinanzTsunami: Wie das globale Finanzsystem uns alle bedroht (Financial tsunami- How the global financial system threatens us all). Published in the third week of September in Germany, Wolff, in an interview to Sputnik International, has explained why he foresees an ‘imminent collapse’ of the financial system and likens it to a ‘Financial Tsunami’ that will stupefy all , ‘leaving devastation in its wake”.

The financial tsunami is in short a financial crisis in which the value of financial institutions or assets drops rapidly. Wolff blames the US dollar for the impending disaster, ‘the consequences of which the world is wholly unprepared for’.

Referring to the subprime crisis that erupted in 2008 which still keeps the US-based financial industry tottering and surviving on “life support”, he states pointblank, “The patient is about 75 years old. Our financial system was founded in Bretton Woods, USA in 1944. The patient is in great difficulty because in 1998 and a second time in 2007/2008, he almost died. Since this second crisis, he has only been kept alive artificially.

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The financial system is lying in the intensive care unit.” Driving his point elaborately, Wolff, a well-known financial journalist and film-script writer, explains that in contrast to most of the countries under monitoring by a state central bank, the US monetary policy is monitored by the Federal Reserve, a consortium of 12 regional banks in which commercial banks own shares. Wolff defines the system as a cartel.

Established a hundred years ago, many people do not know, ‘the Federal Reserve is not a state institution, but is in private hands. This is a bank cartel’, under diktats of several large, very rich families. This fact has been covered up in the course of history. Which is why as he puts it, “”One not only gives a patient a diagnosis, but also a case history. First, we need to understand the power of the Federal Reserve, the American central bank”.

The dollar , the most important currency since 1944 in the world, became in the mid-1970s the most important reserve currency since oil, the most important and most traded commodity in the world, has been mandatorily traded in dollars only. Now that dominating currency being in an irreversibly ailing state, the entire global financial system is heading towards a hitherto unknown deeply critical state, very likely to assume an uncontrollably seismic nature.

Wolff looks up to the Chinese currency, Renminbi,as an antidote to the hegemonistic imposition of dollar, more so as the dominating currency is collapsing like the unforeseeable penetration of a foreign body after a major orthopaedic surgery. But Washington, refusing to cope with the grim reality, tries frantically to gag the freedom of sovereign states to move away dollar. Now the dollar, having been hit synergistically with the US financial crisis, there is a great competition from other currencies, especially from China. But it “takes time to replace the world’s main currency.

Those who have opposed the dollar until now have suffered a terrible fate. Saddam Hussein was the first to try to sell his oil in euros, and he was executed. Then Gaddafi tried the same in Libya, and we know how that ended. The conflict with Iran is also related to the fact that Iran has announced its intention to sell its oil in euros, and now we have the next flashpoint of this kind with Venezuela.” But this nasty tactic won’t work.

So we have to wait for China. Going by IMF estimates, the aggregate service economy accounts for 60-65 per cent of total global revenue. And according to the OECD, financial services comprise 20-30 per cent of the total service market. Thus the financial economy is many times bigger than the real economy.

Furthermore, it is almost hyphenated from the real economy ‘by not producing anything of value’, Wolff has rightly observed, adding “In the last 30 years it has become a huge casino in which money is simply pushed back and forth. Since the system is built on loans that need to be serviced, more and more money must be pumped into the system.

The central banks, such as the IMF or the ECB, are the largest manipulators of the financial system. They are printing more and more money, which they now offer for zero or negative interest rates.” Three years ago, the German financial analyst made an inch-byinch striptease of the International Monetary Fund through another well-researched treatise, Pillaging the World-The History and Politics of the IMF. There he argued that no other financial organization has harmed the lives of the majority of the world’s population more devastatingly than the IMF.

Wolff reminds us of pacesetting exposes of the Bretton Woods twins like Teresa Hayter’s Aid as Imperialism (1971) and The Trojan Horse; a Radical Look At Foreign Aid by Steve Weissman and Members of Pacific Studies Center and the North American Congress on Latin America (1974). Since its inception after World War II, the IMF has expanded its sphere of influence to the remotest corners of the earth. Its membership currently includes 188 countries on five continents.

It has been active mainly in Africa, Asia and South America or countries that radical economists such as Andre Gunder Frank and Samir Amin defined as ‘peripheral economies’. But almost nowhere did it frame its policy of socalled economic reconstruction in close collaboration with the respective national governments.

Instead, the IMF imposed policies that caused grater economic debilitation. On paper, the IMF is committed to stabilising the global financial system and helping out troubled countries in times of crisis. In practice, it did the opposite , more reminiscent of warring armies. The IMF intervention led to scuttling of the sovereignty of states by forcing them to implement measures, basically against the interests of the majority of the population, thus leaving behind a broad trail of economic and social devastation. The IMF, Wolff asserted, doesn’t openly resort to the use of weapons or soldiers.

Instead, it applies the mechanisms of capitalism, specifically those of credit as a strategy when a country runs into financial difficulties. It ostentatiously steps in and provides support in the form of loans, but in lieu of stringent conditionalities, demanding enforcement of measures that serve to ensure the country’s solvency in order to enable it to repay these loans. And the governments-in-financial distress are left with no option other than acceptance of IMF’s terms, ‘thus getting caught in a web of debt’, (sum of interest, compound interest and principal).

“The resulting strain on the state budget and the domestic economy inevitably leads to a deterioration of their financial situation, which the IMF in turn uses as a pretext for demanding ever new concessions in the form of ‘austerity programs’. The IMF programmes deprived millions of people of their jobs, denied them access to adequate health care and functioning educational systems, let alone barely decent housing and food, necessary for sustenance.

Old people’s lives turned miserable, diseases spread across layers of population and life expectancy come down worrisomely along with increased infant mortality. Whether the global economy is moving towards a financial tsunami is to be awaited but possibility looms large.. On the other end of the social scale, a tiny layer of ultra-rich flourish with expansion of their vast fortunes irrespective of the depth of crisis. In these decades, global inegalitarianism has assumed historically unprecedented levels.

“The income difference between a sun king and a beggar at the end of the Middle Ages pales compared to the difference between a hedge fund manager and a social welfare recipient of today”. All this notwithstanding, the financial tsunami, seeds of which were sown during the sub-prime crisis, will not spare even the super rich.

The myth of infallibility of neo-liberal finance capital has burst, leading to demolition of faith in the Friedmanian school of monetary economics. The relevance of Karl Marx’s Capital – The Critique of Political Economy is evident in the rising gradient of its sale curve.

Queerly enough , official Marxist parties ( like communist parties) seem apathetic to celebration of the 150th anniversary of Marx’s magnum opus when economists, sociologists and political theorists on the other side of the fence lean on reading the great book to understand the mammoth socio-financial crisis, leaving aside works of Milton Friedman, John Maynard Keynes, Adam Smith and Alfred Marshall.

In a lengthy conversation between Eric Hobsbawm and Marcello Marshall about a decade back, Hobsbawm said, “It is not surprising that intelligent capitalists, especially in the globalised financial sector, were impressed by Marx, since they were necessarily more aware than others of the nature and instabilities of the capitalist economy in which they operated. ”. Musto elucidated, “understood that the birth of a globalised international economy was inherent in the capitalist mode of production and predicted that this process would generate not only the growth and prosperity flaunted by liberal theorists and politicians but also violent conflicts, economic crises and widespread social injustice.

In the last decade we have seen the East Asian financial crisis, which started in the summer of 1997, the Argentinian economic crisis of 1999-2002 and, above all, the subprime mortgage crisis, which started in the United States in 2006 and has now become the biggest post-war financial crisis”.

(The writer is a veteran journalist and commentator.)

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