In the macho world of high finance, occasionally an accidental whistle-blower gives away the game just by blowing off steam and revealing his giant ego. One popped up last week: Richard Fisher, the former 2005-14 president of the United States Federal Reserve System’s Dallas bank branch.
In 2013 Fisher voted against his Fed colleagues’ third “Quantitative Easing,” an obfuscating term which means that central banks in the U.S., EU, U.K. and Japan can print money to bail out fragile financiers no matter how foolish the cause. Though he described QE3 as “monetary Ritalin” that time (losing the vote by 1 to 11), Fisher had supported QE the first two times, in 2008 and 2012.
So as he sheepishly admitted to a stunned CNBC reporter, "What the Fed did, and I was part of it, was front-load an enormous market rally in order to create a wealth effect.” Oops, the US$15 trillion in QE wealth loaded into the world’s largest banks only trickled upwards to the top 0.1 percent of the richest societies, i.e. to enterprises where speculation has replaced production.
Thanks to the hollowed-out Western economy that resulted from the repeated QE fix, financial crisis is again brewing. Fisher warned, “An uncomfortable digestive period is likely now.”
Why can’t the Fed’s experienced leader, Janet Yellen, try another round of QE if a 2008-type panic ensues? “The Fed is a giant weapon that has no ammunition left,” Fisher scathingly remarked.
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The critical point Fisher inadvertently makes is that the financial melting that wiped away US$2.5 trillion from the world’s financial markets last week should be traced back to Washington: “It is not China.”
Yet everyone else enjoys blaming China, and there are many good opportunities, given multiple messes created by Beijing-Shanghai-Shenzhen capitalist and state elites:
— stock market crashes of over 7 percent that caused ‘circuit-breaker’ panics on two days in the first week of 2016 trading, with panicky trading forcibly halted within a half hour on the second occasion;
— capital flight that has already reduced China’s peak US$4 trillion in foreign reserves to US$3.3 trillion today, at a pace rising to a record US$120 billion/month outflow by the end of 2015 (in contrast, the average annual ‘illicit financial flows’ from China were US$140 billion from 2003-14, according to a recent study by the nongovernmental organization Global Financial Integrity);
— massive industrial and commodity overcapacity, especially in coal, steel and cement, requiring a new round of subsidies to avoid massive local bankruptcies;
— an inability by many Chinese borrowers to repay the fast-rising $27 trillion domestic debt, given the profusion of zombie companies and individuals who over-borrowed;
— such an over-saturation of commodities that the dependency generated elsewhere during China’s import splurge is now the cause of many exporters’ collapse;
— real estate overbuilding in an even more maniacal fashion;
— several attempts at devaluation of the yuan – recently named an International Monetary Fund ‘reserve’ currency – that could start a currency war;
— bouts of regulatory incompetence and other corporate-captive maladies that include extreme urban pollution, and willingness to continue putting down citizen uprisings with police violence and arrests: a couple of dozen key labor leaders here, a few hundred human rights lawyers there, thousands ofenvironmentalists here, 15,000 internet activists there, more hundreds of thousands of ethnic minorities here.
Until recently, China has been immensely functional to Western capitalism, what with its banning of trade unions from western corporate factories, its rural-urban migration controls that cheapen labor supplies, and its local ecological despoliation. Together these shifted substantial costs of production to workers, to women left in the countryside, and to nature.
Yet as Johns Hopkins University sociologist Ho-fung Hung argues, “Capital accumulation in China follows the same logic and suffers from the same contradictions of capitalist development in other parts of the world. To understand the recent booms and busts of Chinese capitalism, we first have to understand capital’s international trends and cycles.”
In a recent London School of Economics lecture, David Harvey remarked on how China served the world economy during the last decade: “There is a tale to be told here about the overaccumulation of capital… and surplus capital and labor which had to be absorbed in order to keep stability within the global system of capital accumulation.” Hung agrees that this is “a typical overaccumulation crisis, epitomized by the ghost towns and shuttered factories across the country.”
Indeed, simply blaming the ‘Chinese’ is dangerous, University of Massachusetts professor emeritus Richard Wolff explains: “The cause of global economic decline is not China or any other particular part of a more-globalized-than-ever world economy, but rather the capitalist contradiction that could no longer be postponed by credit extension. That so many contemporary economic pundits and others blame China reflects a combination of very superficial economics and old-fashioned China bashing.”
Can the crisis be halted? Because of the Communist Party’s extremely efficient, repressive political controls, last month Bejing banned massive banks – Standard Chartered and the Development Bank of Singapore – from destructive foreign exchange dealings. Observed Telegraph financial correspondent Ambrose Evans-Pritchard, authorities also “cracked down on false invoicing by exporters, effectively invoking police powers to stop money leaking out of the country.”
Last October, there was another notable police crack-down, also apparently on grounds of financial corruption, against Hong Kong-based entrepreneur Sam Pa. Until then he was China’s most prolific operator in Africa. In 2014 the Financial Times revealed Pa’s deals “worth tens of billions of dollars” with the continent’s dictators.
My colleagues Farai Maguwu and Khadija Sharife, as well as the London NGO Global Witness, documented how Harare’s Treasury was systematically denied billions of dollars in royalty revenues from three Chinese-Zimbabwean companies, including Pa’s. Instead, Sharife discovered, in 2013 Pa channeled vast sums to Robert Mugabe’s victorious election campaign from the Marange diamond fields, the world’s largest at the time, responsible then for 13 percent of global supply. Zimbabwe’s military was the main conduit for smuggling diamond revenues, because during the country’s 2009-13 “unity” government, the Treasury was controlled by Mugabe’s enemy, Finance Minister Tendai Biti of the Movement for Democratic Change.
From 2003 onwards, Mugabe had established a “Look East” philosophy after Western sanctions were imposed on more than 100 top politicians linked to human rights violations. To be sure, China-Zimbabwe fraternal anti-imperialist rhetoric remains strong, based on Beijing’s admirable support for the 1966-79 liberation war led by Mugabe against white Rhodesian colonialism. But in the diamond fields, the contemporary record includes mass murder (hundreds of artisanal miners killed in November 2008), the displacement of thousands of residents, labor exploitation and enormous environmental damage. And the Look East policy has damaged the economy in many other ways.
The China-Africa relationship is suffering unprecedented stress, emblematized by Pa’s arrest. Burgis concludes, “Slowing growth has damped China’s demand for African oil and minerals. Falling commodity prices have forced resource-dependent African governments to cut their budgets. The economic winds appear to have been turning against Pa, regardless of his apparent troubles with Communist Party bosses at home.”
For Mugabe as well as for global capitalism’s apologists, a look East should be preceded by a look in the mirror, in search of obvious fatal flaws built into the tyrannical, self-destructive model that each uses to reproduce their power. Both kinds of despotic rule have crisis tendencies now readily apparent. Both need democratic regime change, bottom-up.
Patrick Bond directs the University of KwaZulu-Natal Centre for Civil Society and is also Professor of Political Economy at the University of the Witwatersrand.