Occupy Wall Street: The 99% may achieve what Obama alone couldn't
Published:Friday | October 21, 2011 | 12:00 AM
In May, this column asked whether fallout from the Wall Street meltdown could kill the dollar standard. In general, the view is 'No, it won't'. Yet, US policy has not exhibited behaviour befitting its pre-eminent position as provider of the world's.
That column pointed out that something like "three-quarter of all US$100 bills circulate outside continental United States." It also reported French finance minister in the time of Charles De Gaulle, Valery Giscard d'Estaing, describing the world's dollar standard as "providing an 'exorbitant privilege' to the US".
Part of that privilege is that whereas "the US Bureau of Engraving and Printing spends but a few cents to produce each US$100 bill, foreigners must give up US$100 worth of real resources - actual goods and services - to hold one.
Additionally, foreign firms, banks and, of course, central banks hold not only currency but also bonds of the US Treasury - central banks hold about US$5 trillion of such bonds. China now counts billions of dollar-denominated financial instruments among its reserves."
In late September 2008, Wall Street suffered a meltdown that, in today's ultra-interconnected world, quickly clogged up the globe's financial plumbing.
The US government bailed out Wall Street while allowing its captains to keep bonuses and the proceeds of ridiculous compensation packages that appeared structured to guarantee risky and imprudent behaviour and decision making.
Derivatives and other associated toxic assets, sub-prime mortgages against which issuing firms bet the other way, all played their part in bursting the bubble allowed and fostered by repeal of Glass Steagall.
The outcome of financial turmoil and evaporation of trillions in value from homeowner assets — their homes — and the balance sheets of banking and other financial institutions such as pension funds, drastically reduced US consumers' capacity to continue the previously phenomenal increases in aggregate demand experienced throughout the previous decade.
Bailout was necessary but President Obama sought concessions to fix the problem, after the rescue.
Wall Street's response was little short of disrespectful. The moguls were too busy to attend meetings with the President of the United States. Republicans thereafter blocked any meaningful legislation meant to improve regulatory reform of Wall Street.
The billions of Wall Street dollars dedicated to lobbying and political contributions had won out again.
The investment and commercial banks became, at least temporarily, solvent and the appearance of stability returned.
Yet millions of Americans remained underwater in home mortgages, lost jobs, became unable to service student loans and pay for college education, among a whole slew of bad economic and life-sustaining things.
The world economy tottered at the brink of another great depression. The fix and stimulus has been too little and usually too late. The problem simply would not go away. Former President George W. Bush had prosecuted two wars on credit.
He told his citizens to attend the mall and fear not — ironically advising this, immediately after having terrified them with talk of mushroom clouds and weapons of mass destruction in Iraq; after having squandered the budget surplus he found upon assuming office by tax reduction that benefited only the rich in America.
This policy by the way, even Warren Buffet believes to be misguided and patently unfair.
As the deficit continued to mount into the trillions, and the Republicans insisted on making maximum political gain from their voting in Congress, the US teetered on the brink of default on government debt, suffering an unprecedented credit rating downgrade.
Responsible adults seemed to have left the playfield unattended.
When Britain ruled the world, sterling gave her that 'exorbitant privilege'. The Exchequer and Colonial Office were financier, money and fiscal police to the world of its colonies. It managed the system.
Today the International Monetary Fund (IMF) plays this role. But it cannot tell the US to reduce its deficit upon pain of no standby agreement or financial support, no IMF seal of approval. Prudential and responsible behaviour must yet be the other side of the coin, the duties balancing and accompanying rights of an 'exorbitant privilege'.
Wall Street objects to this. Keynes, in a passage the authenticity of which remains in dispute, remarked: "Lenin is said to have declared that the best way to destroy the capitalist system was to debauch its currency ... Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency."
We can't prove Lenin actually uttered these words. The implications of those words attributed to him are, however, true.
This we glimpse from the disparate group of people, young and old, parents and children, recently homeless and others, predominantly US citizens responding to a call to occupy Wall Street.
"Dear one per cent, we fell asleep for a while. Just woke up. Sincerely, the 99 per cent". So states one of the simple yet powerfully effective placards of the Occupy Wall Street (OWS 99 per cent) protest movement.
They crave democracy and a return to governance by the people as opposed to the faceless corporation.
The IMF's October 2011 Regional Outlook for the Western Hemisphere asserts: "Global economic activity is slowing amid increasing concerns about its prospects. Growth in advanced countries is stalling, owing not only to temporary shocks but also stronger-than-expected headwinds from sovereign and private balance-sheet strains. Fears of a renewed advanced-economy recession, along with concerns about negative feedback between sovereigns and financial institutions in Europe, and policy inaction in key advanced economies, have sparked risk aversion and market volatility."
Call for action
This is a call in diplomatic language for action on the part of the USA and the other 'advanced countries'.
OWS 99 per cent acts. Response to this action shall determine the future path of capitalism.
So far, it appears that US President Barack Obama has unexpectedly been given a headwind in his sails to confront double-dip global recession. Just as use of the horse and invention of the stirrup changed warfare and societies of old, Internet technologies and communication have changed society's responses to crisis and potential chaos.
Wall Street moguls may with impunity decline an invitation to tea, scones and talk. To decline understanding a huge and virally growing protest movement is another matter altogether.
That smacks of wishing to put Lenin's disputed observation to the empirical test. New York's Mayor Bloomberg seems willing to have none of that.