The ongoing currency war is not really a battle between countries with current account deficits versus countries with surpluses. It is the continuing offensive of finance capital against working people in the world, especially in the South. Here is why.

According to the World Bank, the main challenge to economic recovery today is finding sources of growth in global demand.

What the Bank, the IMF and the G20 governments do not admit is that the only just and robust way to do this is to raise the purchasing power of the majority of people in the world -- wage workers, farmers, and so on – whose share of global income has declined precipitously under three decades of neoliberal globalization. With more money in their pockets, they will spend more, stimulate production, encourage more investment and generate more jobs.

The best way to do this quickly is to boost public spending on labor-intensive services like education, health, water, housing, public infrastructure and green investments; ensure universal access to essential services; and reduce inequalities along gender, ethnic, and geographic lines. This also entails expansion of public ownership or public control over critical sectors that cannot be left to the market such as finance, (renewable) energy, mass transportation, etc., along with redistributive measures such as agrarian reform in the case of unindustrialized countries.

Indeed, there is no shortage of social needs that remain unmet or underprovided because they are not profitable enough for the private sector while governments are forbidden by neoliberals in power from "crowding out" private investment.

It should be emphasized that a large part of this additional public spending does not have to come from increasing public debt. A substantial portion can come from raising taxes on the rich (after all the tax cuts they got from previous administrations) especially on capital gains, dividends, property and financial transactions. The US spends more than USD 2.8 billion on “defense” every single day – equivalent to about two-thirds the federal deficit -- excluding indirect costs such as interest on the additional debt and care for veterans. Surely a big chunk of that money is better reallocated to building lives and communities rather than destroying them.

In other words, all these entail taking money (and power) from the rich to give to the poor. What a monstrous proposition!

So instead, governments of the richest countries representing the interests of finance capital have tried spending trillions of dollars to bailout the biggest bankers who triggered this crisis, lowering interest rates to near zero and printing more money (aka quantitative easing). All of these measures have put more money in the hands of finance capitalists yet all have failed to spur investment in the real economy, generate jobs and lift people out of poverty and insecurity.

In fact, governments in the “deficit” countries are making the problem worse by shifting to fiscal austerity. Many of the G20 countries (including EU members), have started implementing or announced plans to raise effective taxation in their economies; cut public pensions, health care, education, unemployment benefits and social security; layoff public sector workers and cut public sector wages. The IMF, reinvigorated by a new infusion of money and mandate from the G20, is increasing its lending in low income and vulnerable countries with the usual pro-cyclical monetary and fiscal policies attached -- worsening the adverse impacts of the downturn on developing countries.

The upshot to this is that working families are made to pay for the costs of the global crisis several times over, through falling incomes and rising unemployment, then through reduced access to social services in order to pay for the handouts given to financial giants responsible for the crisis. In other words, robbing the poor many times over to give to the rich.

And what are the rich doing with this money? According to the IIF, financial investors are taking advantage of excess liquidity and record low U.S. dollar short-term interest rates to fund bets in emerging market assets. This is creating new asset bubbles, particularly in Asian property markets, and forcing currencies in emerging markets to appreciate. In other words, they are fuelling the currency war and setting the stage for more financial convulsions.

Elites in countries most affected by the crisis would rather find external sources of demand and export their way to recovery rather than redistribute wealth to raise domestic purchasing power.

The US aims to double its exports within the next five years. The EU has been extremely aggressive in pursuing bilateral Economic Partnership Agreements overseas. They all have their sights on emerging economies, both as markets and as competitors. But amidst conditions of depressed global demand, export gains of some countries are losses for others. Hence measures that cause even minor changes in exchange rates – such as monetary policy or capital controls -- are seen as weapons in a nascent trade war.

Such a trade war will put pressure on firms to be more competitive and squeeze more profits from their workers and from their suppliers especially in developing countries, and so on. This ultimately pits workers against one another in a race to the bottom.

To sum up, this is another way that finance capital is shifting the burden of the crisis onto the shoulders of the working poor in the world.

There is no way out of this crisis without democratizing wealth and power. And that means working people would have to win the class war.#

Download  Resist Newsletter October 2010

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