Volume 43, Number 168,
January-March 2012
The new financial power
Kostas Vergopoulos*

The Harvard economic historian Niall Ferguson suggests that the last decade (2000-2010) was marked by an abundance of printed money and cheap credit proceeding primarily from surplus countries, especially China, Japan, and Germany (Ferguson, 2009). This decade came immediately after the serious international and Asian crisis of 1998-2000. The feeling of insecurity that this crisis provoked became a stimulus for the phenomenon of precautionary over-saving on a world-wide scale. First of all, the Asian countries started saving at a historically unprecedented level. In china, the savings rate has reached half of gdp, and between 35% and 40% in South Korea and Japan. In India, a new emerging economy, savings reach 46% of gdp. In Germany, which exports 45% of its gdp, the national savings rate went from 19% of gdp in 2002 to 27% in 2007. Overall, the international instability and feeling of insecurity has caused official reserves around the world to grow at a particularly accelerated rate, infinitely faster than the trade surplus of the respective countries. Thus the official global foreign-exchange reserves go from 2.4 trillion dollars in value in 2002 to 8.165 trillion dollars in 2009; with the American dollar making up two thirds of this amount (Wolf, 2010d). The power of financial logic makes it so that countries with a surplus refuse to risk recirculating their surplus, preferring to keep a large part of it in the form of official reserves. The Chinese reserves exceed 2.5 trillion while the Japanese 1 trillion. The Latin-American subcontinent is not left behind by this development: the currency reserves from all the countries in the subcontinent have gone from 110 billion in 2002 to 600 billion in 2009. Taking into account the fact that the total of the world's countries' current account balance has reached 700 billion, it is easy to deduce that the world's current currency reserves are equal to 12 years of the world's current account surplus.

This has already been pointed out as something alarming and completely incompatible with capital's international mobility. If a large part of the surplus is removed from the world's liquidity and then "sterilized," it unavoidably implies not only a contraction in the flow of international finance, but also the world economy's growth, as well as the international market's. As Eichengreen pointed out (2010), the current German and Chinese policy consists of "sterilizing" the increasing quantities of international liquidity in order to prepare for the twists of fate brought about by world circumstances. A comparison can be drawn between them and France and the usa in the 1930s: both in the 1930s and the present, the countries with a surplus opt to "sterilize" a sizeable portion of the world's liquidity with catastrophic consequences for the international economy. The phenomenon of a strong "preference for liquidity" has marked a time spanning various centuries in world economic history and always leads to either pre-capitalist societies or to capitalism's different crisis stages. Keynes considered it a cause for the crises and recessions of our times, while liberal economists, when they deem to acknowledge it, have considered it not a cause but rather a consequence of crisis and the subsequent drop in profitable investment opportunities. The phenomenon of a strong preference for liquidity is always associated with a setback phase in capital formation, growth, and employment.

The phenomenon of over-saving is also feared in general for being a form of disguised protectionism. China, like Germany, bring to mind the underlying American commercial protectionism, but their over-saving practices and their growing reserves expose them as more protectionist than the US finance-wise. It is true that market protectionism has yet to openly reveal itself and has so far chosen to disguise itself; it is equally important to halt the financial protectionism rapidly progressing on both sides of the Atlantic. Financial protectionism actually represents a much more serious case than market protectionism or protectionism in the pricing scheme: in the latter the national economy is set on a specific track and international exchanges are strengthened; while in the first case, the opposition between nations arises from appropriating, keeping, and sterilizing a growing part of international methods of payment, which unavoidably ends up contracting the liquidity needed for a well working world economy. The part of market surpluses made up of emergency reserves and savings has grown continually larger over the last decade, particularly in Asian nations and Germany. The emergency reserves become the financial power that imposes the law of deflation on the rest of the world with the aim of its own revalorization. Today, China strongly opposes all attempts at an American recovery as these attempts would weaken the dollar, China's main savings currency. Over-saving and the make-up of the monetary reserves doom all attempts at an economic recovery on a global scale. In this sequence of stages and phases, countries with a surplus like Germany, in full agreement with the emerging, oil, and energy-based economies (i.e. the BRIC economies), basically those who currently enjoy prosperity that becomes increasingly more uncertain and at risk, have shown themselves to be the most conservative, even reactionary, and the ones most opposed to any policy geared towards recovery (a recovery of which the world is in dire need due to the recession and deflation). The "saviors" of capitalism risk exposing themselves as its very executioners.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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