Keith Hart on Fri, 10 Aug 2018 20:58:47 +0200 (CEST)

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Re: <nettime> Adam Tooze: Politics don’t matter; market forces shape our world (The Observer/Guardian)

In a 1986 article, "Heads or tails? Two sides of the coin", I argued that politics and markets are both intrinsic to money. The idea that politics (Keynes) had  been superseded by markets (Friedman) was bound to lead to massive errors in money management. When politics are made to disappear from view, they take clandestine and anti-social forms. So the firs thing missing from Tooze's analysis is "What was the market logic of Keynesianism in the 70s and the politics of  neoliberalism in the 80s?" 

There are  a number of answers to each. Nixon's vodka-cola strategy was one of them: We will never enough vodka to pay for how much coke the Russians drink. So what do we have that we want to buy from Eastern Europe? Cheap docile labour controlled by the politburo. But how to get the goods they make out when the Soviet Bloc is barred access to our markets? It turns out that when Germany was divided, it remained undivided in some legal documents.  So East Germany was a port of trade with the West.  The World Bank poured loans into Poland etc and western corporations had their finishing done on the cheap. The politburos got the dollars and spent it in privileged luxury markets for whisky and the like. This is just one example of how markets and politics were combined in the 70s and 80s.

When the British lost their colonial empire, the City built an illegal financial replacement, offshore banking in the empire's insular residue (Cayman Islands etc). In the 70s, the US tried to clean up international financial markets, offshore banking in other words, but the City held out and made the plan unworkable. In the 80s the US decided to build an offshore banking system on its own territory (Delaware, Wyoming). After WW2 the Russians and Chinese worried that the US would seize their dollar deposits in New York, so they put them in London and Paris. The City soon cornered the market in eurodollars, not least because of its extensive offshore system. When Westminster and the City made a deal some 600 years ago, it was agreed that the City, in return for  bankrolling the politicians, would  be subject to no laws. Imagine what the interfering French politicians and German bureaucrats means for that cozy arrangement. The Tories and their financial allies couldn't put up with that. Hence Brexit.

Apart from its USP of tax evasion, offshore banking can offer one percent extra in interest, this being the cot of keeping the minimum deposit required by national law. The OPEC price hike of 1973 transferred a huge bite from the industrial countries, depressing demand for loans there and creating a huge financial  surplus in countries with few people to spend it on. The Third World became the target for a massive loans sales drive, with scant attention being paid to the feasibility of repayment. This culminated in the Third World debt crisis during the lost decade of the 80s. 

What was the basis of the Eurodollar/offshore bank's credit? They were subsidiaries of the big domestic banks. Insurance against default came from involving 200-300 banks in each loan. In case of default the banks would lay claim to all foreign assets, including the country's exports. But this ran the risk of a run on the bank by their customers which would make the Great Depression look likes child's play. The main capitalist states therefore chose to  reschedule debts rather than invoke this spectre of default.

Come the neoliberal counter-revolution of 1979/80, structural adjustment (compulsory privatization) was imposed by the IMF and World Bank first on the weaker developing countries, eventually on the big ones too (Britain came under the IMF's control in 1976 at a time of 25% inflation). Need I go on with this seamless litany of the marriage between politics and markets under all alleged regimes in the world economy? What is the point of claiming that markets and money ever existed without politics. One truism that would win universal assent on nettime is the free market economics goes with a strengthening of the state. Less obviously, the stories above fill in some of the  gaps that might allow contributors here to claim that they understand what has been going on, let us say before the end of the Cold War.


Brian Holmes <> wrote:
Well, this is a very interesting article. Up to the part "The Crash Changes Everything" it is all exceedingly familiar. But the observations about the City are fascinating and require inside knowledge. The key point is here:

In 2013, the City began marketing itself as the offshore centre for China. Again, this was driven in part by commercial logic, but also by political choice. The UK authorities, under David Cameron’s government, selfconsciously repeated the eurodollar strategy of their forebears. The City of London would provide China and its banks with a platform to globalise the yuan.

The creation of the eurodollar market in the 1950s unleashed both global industrial investment and contemporary financial capitalism. The ecological damage this caused, is alas, calculable (it is the cultural damage which is not). The suggestion this could happen again, in a different form, is momentous.

Another way of saying the same thing is that this article provides the beginnings of an answer to the puzzling question, Which capital interests, and which political figures representing those interests, could possibly have seen an advantage in Brexit? Now one can reply, Of course, it's clear: those who sought to play an intermediary role between the declining West and the rising power of Asia. For indeed, the Eurodollar market, unconstrained by any regulatory apparatus, was able to play that mediating role between a declining Europe and the rising US. Were the financiers of the City, unleashed from EU regulation, able to replay the same strategy today, the consequences could be staggering. However the final point of the article is ominous:
The eurodollar world that took shape in the 1960s mapped neatly on to the outlines of Nato. It had Washington’s assent. It was, as we say nowadays, a geo-economic bloc. The same cannot be said for Britain’s China venture.

A full connection to the global financial markets would be the equivalent of throwing gasoline on China's economic bonfire. At the very least, geopolitical embers will fly. The fire could well get out of control. We need to know much more about the dynamic that is being described in this article.

thoughtfully, BH

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