History of the world economy|
Examining the fallout from the global financial crisis
By Daniel Vila, in People's Weekly World
6 December 1997
Although the damage caused by a nuclear explosion is pretty
nasty, the radioactive fallout that remains in the
environment poisoning all forms of life, water and soil for
decades is even more disastrous.
Likewise, the global stock market crash that took place
Oct. 27 will have a negative impact on the economies and
lives of working people throughout the planet for many
years to come. In fact, barely a month has passed since the
historic event, and the lethal radiation has already spread
around the globe.
The stock market on Wall Street has recovered the losses of
Oct. 27, so the corporate media are doing their part to
downplay the implications of the crash, giving Americans a
false sense of security regarding the economy.
As Nelson D. Schwartz wrote in the Nov. 24 edition of
Fortune magazine, "No big deal ... Our momentary
fascination with numbers scrolling across on CNBC seemed
like a sporting event, an exciting diversion to fill the
brief interval between the World Series and the start of
the NBA season."
But economies are reeling, billion-dollar companies in Asia
are melting away and the U.S. economy, according to the
federal government, is already receiving the fallout from
The global crash was precipitated by the fall in the Asian
markets. And it is indicative of the madness of the
capitalist system that, despite the fact that the financial
interests that dominate global stock exchanges knew months,
and possibly years, in advance that a crisis was
approaching, they just continued their business as usual.
For example, an article in the March 1 issue of The
Economist is titled "The Asian Miracle, Is it over?" It
states that in the past year, Asian economies "have come
down to Earth with a bump." And a major editorial on the
economies of the region in the Aug. 4 edition of The Japan
Times warned, "That crisis has underscored two dimensions
of Asian economic policy. The first is the need for Asian
authorities to rein in the profligate spending of the
recent past ... Bank lending has been reckless and the
resulting hangover of bad debt threatens financial
industries throughout the region."
Prophetic words. Soon after the global crash, the current
troubles first struck Thailand, then quickly spread to the
Philippines, Indonesia, Malaysia, Hong Kong and Korea. At
first, the countries that were formerly known as the "Asian
Tigers" because of their economic performance, denied the
need for foreign intervention in their economies. But as
banks and other financial institutions began to collapse,
one after another, the tigers were transformed into
domestic pussycats, and soon lined up in front of the
International Monetary Fund (IMF) applying for billion-dollar
Speaking in Java on Oct. 28, President Suharto of Indonesia
rejected help from the IMF for his country and said his
government would accept a $10 billion loan from Singapore
instead. But three weeks later, an advisor to Suharto said
at the Asian Pacific Economic Cooperation (APEC) summit
held in Vancouver, British Columbia, "It's a real shock.
Our economy kept growing by about 8 percent a year for 20
years. All of a sudden it stopped. Prices are rising and
we'll be lucky to avoid a recession." Apparently Suharto's
advisor had not read the editorial in the Japan Times.
South Korea followed the same script for most of November.
Even the head of the IMF, Michael Camdessus, backed up the
South Korean denial in an attempt to bolster confidence in
that government's economy.
But after denial came acceptance. Thailand, the Philippines
and Indonesia have obtained emergency rescue funds totaling
$48 billion. But the real shocker so far has been South
Korea, which will be forced to borrow some $60 billion from
the IMF. With the strict conditions requiring economic
restructuring imposed by the IMF, South Korea is carefully
negotiating the conditions of the loan in an apparent
attempt to avoid becoming an indentured servant of the
international financial monster. David Hale, chief
economist at Zurich Temper, has stated, "Korea makes this
an entirely different ball game."
Clearly, we are witnessing a very destructive economic
phenomenon that is difficult, if not impossible, to
control. The big question is what will happen to Japan.
David E. Sanger wrote in the Nov. 22 New York Times, "Korea
is a critical firewall to keep the contagion from engulfing
the world's second largest economy: Japan."
But the firewall crumbled on Nov. 24 and the dung began to
hit the fan! Japan's Yamaichi Securities collapsed, sending
shudders throughout Asia and Wall Street. It was Japan's
biggest corporate failure since WWII. The brokerage firm
reported $24 billion in liabilities.
Meanwhile the country's largest brokerage firm, Nomura
Securities, is in the middle of a corporate racketeer
scandal that has rocked Japan's financial industry. Making
matters worse, another top-ten brokerage company, Sanyo
Industries, went bankrupt Nov. 9, and on Nov. 16 Hokkaido
Takushoku Bank became the first major bank to go under.
Japanese banks have been hurting for some time due to bad
loans which date to the speculative land and stock "bubble"
in the late 1980s.
So the recent bankruptcies are just the tip of the iceberg.
Japanese financial institutions need government help
desperately. The almighty banks are now asking for a
government bailout. Even the U.S. Deputy Treasury Secretary
has urged Japan's finance minister to make public aid
available to the ailing banks.
The U.S. business concern stems from the fear that bankrupt
Japanese and Asian economies will not import U.S. goods.
The results would be felt on factory floors and Wall
In fact, a survey of economic conditions by the Federal
Reserve released Dec. 3 said that the "Asian financial
turmoil and currency weaknesses have adversely affected
demand for manufactured and agricultural exports." And U.S.
companies have recently launched a new round of layoffs and
Kodak has announced the firing of 10,000, Kleenex will get
rid of 5,000, Levi-Strauss will do without 6,400 and
Citicorp without 9,000. Many other companies have announced
In the Nov. 13 Wall Street Journal, Fred Bleakley frankly
described two of the forces responsible. "One is the
spreading contagion to the world economy of a slowing
growth rate in the South East Asian countries," he said.
The other, according to Bleakley, is the "boom in the
mergers and acquisitions underway in banking,
telecommunications, and other fields." But the fundamental
cause of the global crash will not be directly addressed by
the Wall Street Journal or other corporate publications.
The problem of overproduction has been plaguing U.S.
manufacturers for over a decade. In 1982, the U.S. Commerce
Department conducted a survey that concluded 41 percent of
all U.S. productive capacity lay idle. A similar conclusion
was reached by the Federal Reserve Bank in 1992 regarding
commercial and residential overbuilding.
In recent weeks, the crisis in overproduction has finally
overtaken the Asian economies. The real estate booms or
"bubbles" of the 1980s, not to mention the overproduction
of products related to the computer industries, have begun
The "contagion" has reached the U.S. economy, and corporate
America's solution is layoffs and labor-bashing. Last
October's global crash and its initial fallout should be
interpreted by workers everywhere as the beginning of a
period of more intense class struggle due to capitalism's
deepening crisis. We should not be fooled by the images
beamed by the mass media. Our conclusions should be based
on the realities of the workplace. All indications point to
the need for greater working class solidarity on a global
level in order to defeat the even greater corporate
offensive right around the corner.
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