Abstract
In this chapter, Nakatani and Gomes seek to reveal the privileges achieved by the US economy due to its position in imperialist relations, its reaction to the capitalist crisis and to the threat of the replacement of the dollar as the world currency. Based on empirical evidence on international economic relations, the authors demonstrate how the enforcement of the dollar reserve on most countries end up financing the continuous US external deficits, thereby guaranteeing the fractional reserves model and maintaining US command over the regulation of the speculative race around the world.
This chapter was originally published in Portuguese with Políticas Públicas, in 2014, and was translated into English by Kenton James Keys.
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Notes
- 1.
See also Dierckxsens (2009, pp. 13–16).
- 2.
In 2016 Paul M. Romer, then chief economist at the World Bank, published the article “The Trouble With Macroeconomics” for The American Economist (see Romer, 2016), with a devastating critique of orthodox economic theory that leads to the idea that adopted models of economic policy must all be abandoned. Despite its importance, his criticism was largely ignored. Nonetheless, he received the Nobel Prize in Economics in 2018, along with William D. Nordhaus.
- 3.
- 4.
“From a modest start in 1964, at about US$11 billion, the system had grown to US$40 billion in 1969—and these are conservative numbers. I say conservative numbers because there are several different estimates of the volume of Eurodollars that existed in 1969: the numbers range from US$40 billion to US$85 billion” (Wachtel 1988, p. 98). Then, with the oil crises in 1973 and 1979, this volume of money became predominantly petrodollars, which grew rapidly. “From the first oil price increase in 1973 to the end of the decade price increase, OPEC surplus totalled US$357 billion” (Wachtel 1988, p. 104).
- 5.
“The top 1% of global wealth holders started the millennium with 47.1% of all household wealth. This share changed little between 2000 and 2005, but then fell to 42.6% by 2008. Our latest estimates suggest that the share of the top percentile continued downward until 2011, but then rose sharply from 42.1% in 2011 to a peak of 47.5% in 2016, before edging back to 47.2% in mid-2018” (Credit Suisse 2018, p. 16).
- 6.
In December 1981, total Brazilian foreign debt, public and private, was US$61.4 billion and by December 1995, this had jumped to US$129.3 billion (Cerqueira 1997, p. 144). The accumulated balance of the trade balance between 1982 and 1995 was US$144.5 billion and total net interest paid was US$114.2 plus US$183.4 billion of amortisations (BCB 2013). Thus, almost 80% of the balance of trade was used to pay interest on foreign debt and although the amortisations in the period corresponded to almost three times the initial debt balance Brazil ended the period with a debt that was two and a half times the initial amount.
- 7.
Exports of goods and services constitute the transfer of use values abroad in exchange for value represented by dollars that, through imports, could restore internal use values. The return of dollars obtained from exports as interest, amortization, profits or capital gains prevents this kind of conversion from occurring and the result is the transfer of material wealth produced domestically without any return.
- 8.
Derivatives are denominated, high risk speculative (on currency exchange rates and interest rate futures) bonds that derive from (or are backed by) primary securities such as corporate stocks, government bonds, mortgages, and so on.
- 9.
“In the last ten years the volume of resources (bonuses, euronotes, bank loans and stock issuance) has quadrupled, from US$395 billion in 1987 to US$1597 billion in 1996; and “the daily volume of transactions in the currency market increased from US$ 718 billion in 1989 to US$ 1572 billion in 1995”. In the derivatives market, “while the total value of transactions increased from US$618 billion in 1986 to US$9.185 billion in 1995, the number of contracts traded increased from 315 million to 1210 million in 1995” (Gonçalves 1997, p. 314, 316 and 318).
- 10.
According to BIS (2007a, p. 12), the global derivatives market, according to notional amounts, reached US$297,670 billion in December 2005 and reached US$414,290 billion a year later. Meanwhile, the international currency market, which traded US$880 billion a day in April 1995, rose to US$1.2 billion a day in April 2001 (BIS 2007b, p. 5).
- 11.
“Here we have firstly the section of profit that is not spent as revenue, being rather designed for accumulation, but which the industrial capitalists concerned do not have any immediate employment for in their own businesses. […] The part to be spent as revenue is gradually consumed, but in the meantime, it constitutes loan capital as a deposit with the banker. […] With the development of the credit system and its organisation, the rise in revenue, i.e. in the consumption of the industrial and commercial capitalists, is thus itself expressed as an accumulation of loan capital. And this holds good of all revenues, in so far as they are only gradually consumed—i.e. ground-rent, the higher forms of salary, the incomes of the unproductive classes etc.” (Marx 1991, pp. 635–636).
- 12.
For Marx, public bonds and shares traded on the Stock Exchange represent specific forms of fictitious capital. But not only that; other types of securities are also fictitious capital, “Even when the promissory note—the security—does not represent purely illusory capital, as it does in the case of national debts, the capital value of this security is still pure illusion” (Marx 1991, p. 597). Between 1980 and 1992 the stock of so-called financial assets went from US$10.7 trillion to US$35.5 trillion. The composition of these assets in 1991/1992 was as follows: foreign exchange, 32%, international bonds, 4%, government bonds, 25%, corporate bonds, 10%, shares, 29% (Chesnais 1998, p. 27). According to the McKinsey Global Institute data released in October 2008, this stock of financial assets reached US$117 trillion in 2003, US$142 trillion in 2005, US$167 trillion in 2006, and US$196 trillion in 2007 (McKinsey 2008, p. 9).
- 13.
“With the development of interest-bearing capital and the credit system, all capital seems to be duplicated, and at some points triplicated, by the various ways in which the same capital or even the same claim, appears in various hands in different guises. The greater part of this ‘money capital’ is purely fictitious” (Marx 1991, p. 601).
- 14.
The data in the tables are illustrative only due to the variety of sources and methods of acquisition and aggregation. Therefore, they should not be considered absolutely and should not be aggregated.
- 15.
Australia, Germany, Norway, Austria, Greece, Panama, Belgium, Hong Kong SAR, Portugal, Brazil, India, Singapore, Canada, Ireland, Chile, Italy, Sweden, Taiwan, Japan, Switzerland, Denmark, Turkey, Finland, Mexico, United Kingdom, France, Netherlands, United States (BIS 2012a, p. A5).
- 16.
This data was extracted from various editions of the BIS Quarterly Review (https://www.bis.org/quarterlyreviews/).
- 17.
“The greater part of banker’s capital is therefore purely fictitious and consists of claims (bills of exchange) and shares (drafts on future revenues). It should not be forgotten here that this capital’s money value, as represented by these papers in the banker’s safe, is completely fictitious even in so far as they are drafts on certain assured revenues (as with government securities) or ownership titles to real capital (as with shares), their money value being determined differently from the value of the actual capital that they at least partially represent; or, where they represent only a claim to revenue and not capital at all, the claim to the same revenue is expressed in a constantly changing fictitious money capital. Added to this is the fact that this fictitious capital of the banker represents to a large extent not his own capital but rather that of the public who deposit with him, whether with interest or without” (Marx 1991, p. 600).
- 18.
Data obtained from the website of the World Bank (2019).
- 19.
With the difficulties in collecting and compiling the information from the periodic declarations offered by each country, especially on positions in the domestic banking institutions and non-banking assets of foreign origin, BIS changed the system for calculating Locational Banking Statistics (LBS), the nationality of the reporting bank or the country of residence of its counterpart, giving preference to consolidated data collected by the Consolidated Banking Statistics (CBS) system, reporting country, as of June 2012. See: BIS (Dec. BIS 2012a, b).
- 20.
For more details on relevant methodological issues see Gruić and Wooldridge (2012).
- 21.
This term was first used by Eleutério Prado and stems from the Brazilian debate on the Marxist theory of money in analogy with the Marxist concept of fictitious capital (Prado 2013).
- 22.
The derivatives market registers the total amount of contracts over the future values that are the object of the bet. For example, a future exchange rate contract records the buying and selling bet of billions of dollars at a certain rate expected today and what the future rate will be. A buyer agrees to buy these billions at the exchange rate that he bets on in the future and the seller sells betting that the rate will be lower. The buyer must pay a premium, which consists of a small percentage of the total amount of the contract. Anyone who succeeds wins the difference between the stake rate and the effective rate at the end of the contract. The record is about the total of the contract, but the effect is on the ratio between the differences in betting rates and the total contract.
- 23.
The US Treasury has put US$50 billion in stock to save General Motors, according to Folha de S. Paulo, and lost US$11 billion in five years (FSP 2013).
- 24.
A necessary theoretical question for the grounds of this process is the transformation of the convertible dollar into the world currency both under the Bretton Woods Agreement, and its continuation after 1971, without such convertibility, as a purely forced currency, as fictitious money.
- 25.
There are, of course, innumerable mediations and this direct relationship is just a device we are using.
- 26.
This is the situation in which Brazil finds itself, as we have seen. Most serious is that the BCB’s orthodox economists are trying to keep the exchange rate stable through fictitious dollar creation by increasing speculation in the market. These are the foreign exchange swap operations, in which the capitalist buys a bond with the exchange rate plus a currency coupon (difference between the basic interest rate and the exchange devaluation rate) and pays the central bank the basic interest rate. In December 2018, the notional value of the foreign exchange swaps was US$259.9 billion and the total cash flow, which the central bank had to pay, was US$15.1 billion (BCB 2019c).
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Nakatani, P., Gomes, H. (2019). The Nature and the Contradictions of the Capitalist Crisis. In: Mello, G., Sabadini, M. (eds) Financial Speculation and Fictitious Profits. Marx, Engels, and Marxisms. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-23360-0_8
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