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Lineages of the 2008–10 global economic crisis: exposing shifts in the world economic order

2010; Routledge; Volume: 12; Issue: 2 Linguagem: Inglês

10.1080/19448951003791781

1944-8961

Bülent Gökay, Darrell Whitman,

Global Financial Crisis and Policies

Click to increase image sizeClick to decrease image size Notes 1 Alan Laubsch, ‘Navigating the global credit crisis’, June 2009, < http://www.riskmetrics.com/system/files/private/Subprime_200906b.pdf> (accessed February 2010). 2 SPIEGEL ONLINE, December 2009, < http://www.spiegel.de/international/zeitgeist/0,1518,668729-3,00.html> (accessed January 2010). 3 EU Business, 28 January 2010, < http://www.eubusiness.com/news-eu/world-economy.2gk> (accessed February 2010). 4 The Independent, 19 February 2010, < http://www.independent.co.uk/news/business/news/shock-as-british-deficit-equals-that-of-greece-1904129.html> (accessed February 2010). 5 ‘IMF says US crisis is “largest financial shock since Great Depression”’, Guardian.co.uk, 9 April 2008, < http://www.guardian.co.uk/business/2008/apr/09/useconomy.subprimecrisis>. 6 ‘How to prevent a financial crisis and avoid a domino effect’, < http://www.xpatloop.com/news/how_to_prevent_a_financial_crisis_in_hungary_and_avoid_a_domino_effect>. 7 ‘Domino effect: how did the US financial crisis become a global epidemic?’, Associated Content, 13 October 2008, < http://www.associatedcontent.com/article/1092135/domino_effect_how_did-the_us_financial.html>; ‘Chaos theory: McCombs scholars weigh in on turbulent times’, University of Texas at Austin, McCombs School of Business, < http://www.mccombs.utexas.edu/news/magazine/08f/chaostheory.asp>. 8 See, e.g. Samuel Huntington, The Clash of Civilizations and the Remaking of World Order, Simon and Schuster, New York, 1996, which offers a US-centred view of international relations; Zbigniew Brezinski, The Grand Chessboard: American Primacy and Its Geostrategic Imperatives, Basic Books, New York, 1998, which is organized around residual views of a bipolar world; and Joseph Stiglitz, Making Globalization Work, W. W. Norton, New York, 2007, which argues that US and European public policy can manage the global political economy. 9 Eurocentric thinking attributes to the West an almost providential sense of historical destiny, manifested in its continuous advances in science, technology, industrialism, rationality and economic institutions from time immemorial. It takes European experience as universal and envisions the world from a single privileged point that is Europe. The world is thus bifurcated into ‘the West’ and ‘the Rest’, and a system of knowledge is constructed around a series of binary hierarchies with Europe invariably occupying the higher position: Western nation, non-Western tribe; Western religion, non-Western superstition; Western capitalism, non-Western petty commodity production; Western technology, non-Western craftsmanship; Western progress, non-Western stagnation, and so on and so forth. (See Lei Guang, ‘Re-orient: Andre Gunder Frank and a globalist perspective on the world economy’, Perspectives, 3(4), Sunday, March 2002, < http://www.oycf.org/oycfold/httpdocs/Perspectives2/16_033102/re_orient.htm> (accessed February 2010).) This view has been expressed by both Marxist and non-Marxist scholars (Robert Brenner, ‘The origins of capitalist development: a critique of neo-Smithian Marxism’, New Left Review, I/104, July–August 1977, < http://www.newleftreview.org/A185> (accessed February 2010); David S. Landes, The Wealth and Poverty of Nations: Why Are Some So Rich and Others So Poor?, W. W. Norton, New York, 1998). The larger global context is simply left undiscussed on the assumption that it was unimportant as compared to European developments. Andre Gunder Frank and other critical thinkers call this ‘tunnel history’ derived from a tunnel vision, which sees only ‘exceptional’ intra-European causes and consequences and is blind to all extra-European contributions to modern European and world history (Andre Gunder Frank, ‘A review of David Landes’ THE WEALTH AND POVERTY OF NATIONS’, 28 November 1998, < http://www.reorient.net/html/frank_on_landes.html> (accessed February 2010)). 10 Paul Kennedy, ‘American power is on the wane’, The Wall Street Journal, 14 January 2009, < http://online.wsj.com/article/SB123189377673479433.html>. 12 Peter Gowan, ‘Crisis in the heartland: consequences of the New Wall Street System’, New Left Review, January–February 2009, p. 25. 11 Sub-prime mortgages carry a higher risk to the lender (and therefore tend to be at higher interest rates) because they are offered to people who have had financial problems or who have low or unpredictable incomes. 13 Ronald R. Cooke, ‘BANKS: bleeding value and hiding desperation’, Financial Sense, 24 March 2008, < http://www.financialsense.com/editorials/cooke/2008/0324.html>. 14 ‘Homes in foreclosure top 1 million’, CNNMoney.com, 5 June 2008, < http://money.cnn.com/2008/06/05/news/economy/foreclosure/index.htm>. 15 ‘Toxic debts’ are the debts that are very unlikely to be recovered from borrowers. The estimated US 1000-billion dollar-worth of assets lost in the current crisis seems largely underestimated. It is probably closer to 10,000 billion of US dollars that are about to be lost over the coming two years. ‘Global systemic crisis: four big trends over the 2008–2013 period’, GEAB, No. 24, 16 April 2008, < http://www.leap2020.eu/GEAB-N-24-is-available!-Global-systemic-crisis-Four-big-trends-over-the-2008-2013-period_a1561.html>. 16 ‘Toxic security’ has become shorthand for the various asset classes hard hit by the financial crisis, such as sub-prime mortgages. In simple terms, ‘toxic’ assets mean things that may not be worth what the price tag says. 17 There are today approximately 10,000 billion of fictitious US dollars circulating on the planet which global banks are now trying to get rid at any cost in order to limit their own losses. ‘The credit crunch explained’, timesonline, 14 August 2008, < http://www.timesonline.co.uk/tol/money/reader_guides/article4530072.ece>. 18 Iceland's bank assets are more than 10 times greater than its gross domestic product, that's why the government obviously cannot afford a bailout. 19 Ann Pettifor, ‘America's financial meltdown: lessons and prospects’, openDemocracy, 16 September 2008, < http://www.opendemocracy.net/article/america-s-financial-meltdown-lessons-and-prospects>. 20 Angel Gurria, OECD Observer, October 2008, < http://www.oecdobserver.org/news/fullstory.php/aid/2753/>. 21 Bernd Debusmann, ‘Karl Marx and the world financial crisis’, Reuters, 15 October 2008, < http://www.reuters.com/article/reutersComService4/idUSTRE49E99F20081015>. 22 ‘Greenspan: economy in “once-in-a-century” crisis’, CNNMoney.com, 14 September 2008, < http://money.cnn.com/2008/09/14/news/economy/greenspan/index.htm?cnn = yes>. 23 Martin Wolf, ‘Regulators should intervene in bankers’ pay’, FT.com, 15 January 2008, < http://www.ft.com/cms/s/0/73a891b4-c38d-11dc-b083-0000779fd2ac.html?nclick_check = 1>. 24 Martin Wolf, ‘Choices made in 2009 will shape the globe's destiny’, Financial Times, 6 January 2009, < http://www.ft.com/cms/s/0/4f5c5ba2-dc22-11dd-b07e-000077b07658.html>. 25 For both classical and neoclassical economics, higher rates of profit mean greater investment and higher growth rates are possible, both because they provided greater sources of funds for investment, and because they generated higher expectations of future profits and through that a greater desire to invest. 26 David Harvey, A Brief History of Neoliberalism, Oxford University Press, Oxford, 2007, p. 154; and Minqi Li, ‘After neoliberalism: empire, social democracy, or socialism?’, Monthly Review, January 2004, < http://www.monthlyreview.org/0104li.htm>. 27 David M. Kotz, ‘Contradictions of economic growth in the neoliberal era: accumulation and crisis in the contemporary U.S. economy’, Review of Radical Political Economics, 40(2), Spring 2008, pp. 174–188. 29 John Bellamy Foster, ‘The household debt bubble’, Monthly Review, 58(1), May 2006, < http://monthlyreview.org/0506jbf.htm>. 28 Walden Bello, ‘Afterthoughts: the global collapse: a non-orthodox view’, Philippine Daily Inquirer, 11 February 2009. 30 Peter Gowan, ‘Crisis in the heartland: consequences of the New Wall Street System’, p. 15. 31 James Pressley, ‘Brace for $1 trillion writedown of “Yertle the Turtle” debt’, Bloomberg Press, 31 March 2008, < http://www.bloomberg.com/apps/news?pid = newsarchive&sid = aHCnscodO1s0>. 32 From 2000 to 2005, the rise in after-tax income was barely one-third of the rise in home prices. 33 Robert Guttmann, ‘A primer on finance-led capitalism and its crisis’, Revue de la régulation, No. 3/4, 2e semestre 2008, Varia, [En ligne], mis en ligne le 15 novembre 2008, < http://regulation.revues.org/document5843.html>. 34 Peter Gowan, ‘Crisis in the heartland: consequences of the New Wall Street System’, p. 6. 35 Michael R. Bloomberg and Charles E. Schumer, Sustaining New York's and the US’ Global Financial Services Leadership (a 2007 report to the US Senate), < http://schumer.senate.gov/SchumerWebsite/pressroom/special_reports/2007/NY_REPORT%20_FINAL.pdf>. 36 Peter Gowan, ‘Crisis in the heartland: consequences of the New Wall Street System’, p. 6. 37 The Glass–Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. Curbing banks’ ability to grow too large has been a common theme in legislation. With the repeal of the Act in 1999, the Depression-era barrier to the merger of stockbrokers, banks and insurance companies was effectively destroyed (Robert Scheer, ‘McCain and the mortgage meltdown’, The Nation, 10 September 2008, < http://www.thenation.com/doc/20080922/scheer/print>). 38 Peter Dicken, Global Shift. Mapping the Changing Contours of the World Economy, Sage, New York, 2007, pp. 379–409. 39 ‘Working class households and the burden of debt’, Monthly Review, 50(1), May 2000, < http://monthlyreview.org/500editr.htm>; and John Bellamy Foster, ‘The household debt bubble’, Monthly Review, 58(1), May 2006, < http://monthlyreview.org/0506jbf.htm>. 40 ‘The true extent of Britain's debt’, Spectator.co.uk, 10 December 2008, < http://www.spectator.co.uk/coffeehouse/3078296/the-true-extent-of-britains-debt.html>. 41 William A. Dowling, ‘Retirement imperiled: the case of HELOCs’, Journal of Business Case Studies, 3(4), Fourth Quarter 2007, pp. 51–56; and William K. Tabb, ‘The financial crisis of U.S. capitalism’, Monthly Review, 10 October 2008, < http://www.monthlyreview.org/mrzine/tabb101008.html>. 42 William K. Tabb, ‘The financial crisis of U.S. capitalism’, 10 October 2008, < http://www.monthlyreview.org/mrzine/tabb101008.html>; and ‘As debt collectors multiply, so do consumer complaints’, Washington Post, 28 July 2005. 43 Martin Wolf, ‘Choices made in 2009 will shape the globe's destiny’, Financial Times, 6 January 2009, < http://www.ft.com/cms/s/0/4f5c5ba2-dc22-11dd-b07e-000077b07658.html>. 44 Peter Dicken, Global Shift, p. 476. 45 Peter Gowan, ‘Crisis in the heartland: consequences of the New Wall Street System’, < http://newleftreview.org/?view = 2759>. 46 The ideas contained in this section are drawn from Bülent Gökay, ‘The beginning of the end of the petrodollar: what connects Iraq to Iran’, Alternatives: Turkish Journal of International Relations, 4(4), Winter 2005, pp. 40–56; and Bülent Gökay and Darrell Whitman, ‘Ghost dance: the U.S. and illusions of power in the 21st century’, Alternatives: Turkish Journal of International Relations, 3(4), Winter 2004, pp. 60–91. 47 Bülent Gökay and Darrell Whitman, ‘Ghost dance: the U.S. and illusions of power in the 21st century’, Alternatives: Turkish Journal of International Relations, 3(4), Winter 2004, p. 65. 48 The Bretton Woods system was an international monetary framework of fixed exchange rates after the Second World War, drawn up by the USA and Britain in 1944, with Keynes as one of its principal architects. 49 IMF, ‘Money matters: an IMF exhibit—the importance of global cooperation’, Washington, DC, July 2006, < http://www.imf.org/external/np/exr/center/mm/eng/mm_dr_01.htm>. 50 IMF, ‘Money matters: an IMF exhibit—the importance of global cooperation, system in crisis (1959–71), Part 2’, Washington, DC, July 2006, < http://www.imf.org/external/np/exr/center/mm/eng/mm_sc_01.html>. 51 F. William Engdahl, ‘The dollar system and US economic reality post-Iraq War’, < http://www.engdahl.oilgeopolitics.net/1973_Oil_Shock/Dollar_System/dollar_system.html>. See also, John Whiteclay Chambers (ed.), The Oxford Companion to American Military History, Oxford University Press, New York, 1999. 52 ‘De Gaulle v. the dollar’, Time Magazine, 12 February 1965, < http://www.time.com/time/archive/printout/0,23657,840572,00.html>. 53 IMF, ‘Money matters: an IMF exhibit—the importance of global cooperation, system in crisis (1959–71), Part 5’, Washington, DC, July 2006, < http://www.imf.org/external/np/exr/center/mm/eng/mm_sc_01.htm>. 54 ‘Petrodollar problem’, < http://www.imf.org/external/np/exr/center/mm/eng/mm_rs_03.htm>. See also David E. Spiro, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets, Cornell University Press, Ithaca, NY, 1999. 55 United States Treasury Department, ‘Jeddah, Saudi Arabia, Joint Statement: US–Saudi Arabian economic dialogue’, Washington, DC, 6 March 2002, < http://www.ustreas.gov/press/releases/po1074.htm>. 56 David E. Spiro, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets, Cornell University Press, Ithaca, NY, 1999, p. 121. 57 Robert G. Kaiser and David Ottaway, ‘Oil for security fueled close ties. But major differences led to tensions’, Washington Post, 11 February 2002, < http://www.library.cornell.edu/colldev/mideast/saudusxx.htm>. 58 Andre Gunder Frank, ReOrient: Global Economy in the Asian Age, University of California Press, Berkeley, 1998. 59 Scott L. Kastner, ‘The global implications of China's rise’, International Studies Review, December 2008, p. 786. 60 Michael Klare, Rising Powers, Shrinking Planet, Oneworld Press, Oxford, 2008, p. 67. 61 China Daily, 30 September 2007, < http://www.chinadaily.com.cn/china/2007-09/30/content_6148252.htm>. 62 ‘Report: U.S. power will fade by 2025. National Intelligence Council predicts scarce resources, loose nukes, a rising China’, CBS News, 20 November 2008, < http://www.cbsnews.com/stories/2008/11/20/world/main4622166.shtml>. 63 National Intelligence Council, Global Trends 2025: The National Intelligence Council's 2025 Project, < http://www.dni.gov/nic/NIC_2025_project.html>. 64 United States Energy Information Administration, ‘China country analysis brief’, August 2005, < http://www.eia.doe.gov/emeu/cabs/china.html>. 65 ‘Oil price not to restrain China, India growth’, Associated Press, 1 September 2005, < http://www.chinadaily.com.cn/english/doc/2005-09/01/content_474283.htm>; and ‘China, India are highest-growth economies’, Xinhua, 25 January 2006, < http://www.chinadaily.com.cn/english/doc/2006-01/25/content_15525.htm>. 66 ‘A new world economy: the balance of power will shift to the East as China and India evolve’, Business Week Online, 22 August 2005, < http://www.businessweek.com/magazine/content/05_34/b3948401htm>. 67 Peter Dicken, Global Shift, p. 320. 68 ‘India, China to hold joint military exercises’, China Daily, 29 May 2007, < http://www.chinadaily.com.cn/china/2007-05/29/content_882845.htm>. 69 James W. Bagley, ‘90% of the world's engineers Asian residents by 2010?’, Control Engineering, 4 January 2006, < http://www.manufacturing.net/ct/index.asp?layout = articlePrint&articleID = ca6296224>. 70 Arindam Bhattacharya, ‘China and India: new innovation and talent forces’, Business Week, 17 November 2008, < http://www.businessweek.com/globalbiz/content/nov2008/gb20081117_964178.htm?chan = top+news_top+news+index+-+temp_global+business>. 71 R. Kaplinsky, ‘Is globalization all it is cracked up to be?’, Review of International Political Economy, 8(1), pp. 56–57. 72 Leo Lewis, ‘China builds rare-earth metal monopoly’, The Australian, 9 March 2009, < http://www.theaustralian.news.com.au/business/story/0,28124,25158871-5005200,00.html>. Rare earth elements or rare earth metals are a collection of 17 chemical elements in the periodic table. Rare earth elements are incorporated into many modern technological devices, including superconductors, miniaturized magnets, electronic polishers, refining catalysts and hybrid car components. The use of rare earth elements in modern technology has increased dramatically over the past years. 73 David Lague, ‘China corners market in a high-tech necessity’, The International Herald Tribune, 22 January 2006, < http://www.iht.com/articles/2006/01/22/business/rare.php>. 74 China Daily, 1 September 2004, < http://www.chinadaily.com.cn/en/doc/2004-01/09/content_296976.htm>; and Shai Oster, ‘As China's auto market booms, leaders clash over heavy toll’, Wall Street Journal, 13 June 2006. 75 Developing Telecoms, 13 October 2008, < http://www.developingtelecoms.com/content/view/1481/100/>. 76 ‘It's getting hotter in the East’, Business Week Online, 22 August 2005, < http://www.businessweek.com/magazine/content/05_34/b3948456.htm>. 77 The National Intelligence Council, Global Trends 2025: The National Intelligence Council's 2005 Project, p. 27, < http://www.dni.gov/nic/NIC_2025_project.html>. 78 Peter Dicken, Global Shift, p. 43. 79 Clyde Prestowitz, ‘China–India entente shifts global balance’, Yale Global, 15 April 2005, < http://yaleglobal.yale.edu/display.article?id = 5578>. 80 Andre Gunder Frank, ‘World system history’, preliminary draft prepared for presentation at the annual meeting of The New England Historical Association, Bentley College, Waltham, MA, 23 April 1994, < http://www.hartford-wp.com/archives/10/034.html>. 81 Edward Cody, ‘China boosts military spending: senior U.S. official presses Beijing to clarify plans and intentions’, The Washington Post, 5 March 2007, p. A12, < http://www.washingtonpost.com/wp-dyn/content/article/2007/03/04/AR2007030400401.html>; World Bank, ‘World development indicators 2006 (2004 data)’, < devdata.worldbank.org/wdi2006/contents/Table1_1.htm>; and United States Central Intelligence Agency, The World Factbook 2006, CIA, Washington, DC, 2006, < http://www.cia.gov/cia/publications/factbook/geos/ch.htmlf>. 82 Peter Dicken, Global Shift, p. 32. 83 Paul Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000, Vintage Books, New York, 1989, pp. 17 and 29. 84 Roger Altman, ‘The Great Crash, 2008, a geopolitical setback for the West’, Foreign Affairs, January/February 2009, < http://www.foreignaffairs.org/20090101faessay88101/roger-c-altman/the-great-crash-2008.html>. 85 BBC World Service, < http://www.bbc.co.uk/worldservice/sci_tech/features/essentialguide/theme_pol.shtml>. 86 ‘The new Seven Sisters: oil and gas giants dwarf western rivals’, FT.com, 11 March 2007, < http://www.ft.com/cms/s/2/471ae1b8-d001-11db-94cb-000b5df10621.html>. 87 Bülent Gőkay, ‘The power shift to the East: the “American Century” is ending’, Pravda.ru, 18 May 2006, < http://english.pravda.ru/opinion/feedback/80536-east-0>; and Peter Dicken, Global Shift, pp. 225–228, 282–285, 313–315. 89 National Intelligence Council, Global Trends 2025: The National Intelligence Council's 2025 Project, p. 27, < http://www.dni.gov/nic/NIC_2025_project.html>. 88 IMF Survey Magazine, ‘IMF predicts major global slowdown amid financial crisis’, IMF Research, 8 October 2008, < http://www.imf.org/external/pubs/ft/survey/so/2008/res100808a.htm>. 90 Paul Kennedy, ‘American power is on the wane’, The Wall Street Journal, 14 January 2009, < http://online.wsj.com/article/SB123189377673479433.html>. 91 China's banking sector is controlled by the so-called ‘Big Four’ (China Construction Bank Corp., Industrial and Commercial Bank of China, Bank of China Ltd, Agricultural Bank of China). 92 Chinese banks have recently cemented their position as the most highly valued financial institutions, taking four of the top five slots in a ranking of banks’ share prices as a multiple of their book values. China Merchants Bank, China Citic, ICBC and China Construction Bank lead the table, followed by Itaú Unibanco of Brazil, all with a price-to-book multiple of more than three. 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