A mountain of paper money
International Viewpoint #266 May 1995
The massive growth in the state debt of the advanced industrial countries, the growth in enterprise and personal debt, and a persistent imbalance in the foreign trade accounts of a number of countries has transformed the global financial sector into a bloated monster of unprecedented SIze.
The history of capitalism has no examples of higher public debt — 66% of GDP (US 4 billion) in 1993 in the E.U. and 39.6% of GDP ($US 2.7 billion) in the U.S.A. Interest payments on the public sector debt represented 5.6% of the E.U. GDP in 1993, or almost $US 350 million. The public debt of the OECD as a whole probably represents some SUS 10 billion. By absorbing these huge amounts of private capital, the imperialist states did not just reduce the capital available for productive investment, they also assured a market-determined return on the borrowed capital, during a period when there were very few opportunities for profitable private sector investment.
When states announce that they wish to borrow money, private investment funds and corporations often borrow on the "free market the money they need to become the creditor of the state — a stable, and therefor desirable client. To manage this accumulation of debt on debt, a whole range of "innovative financial instruments" have been developed, making possible the continued expansion of public, private and personal debt financing, and creating an unprecedented space for speculation. The result is an enormous mountain of paper money, made up of what Karl Marx called "fictive capital" , resting on a base of directly productive capital.
The link between these two spheres of capital is the stock exchange. More and more companies offer shares for sale, and financial capital invests more and more money in these shares. Since the 'crash' of 1987, the amount of money invested in shares in companies has risen by over 25% in Italy and Canada, more than 50% in the U.S.A., Germany and Great Britain, and over 100% in France. Only Japan is resisting this trend. Obviously, the higher the price of a company's shares are, the lower the relative value of the dividend -the share of profits from production distributed to each shareholder - can be. In reality, few investors nowadays buy shares in order to share in the profits a company produced through its activities in the real world. The point of dealing on the stock market is speculation, buying and selling shares in companies - any companies — in the hope of making a quick profit by predicting the way everybody else will be buying and selling tomorrow, or in five minutes.
The deregulation of stock markets in most countries has allowed this bloated and speculative system to grow to the
World Economy point where it is no longer supported by the appropriate level of real activities in the companies whose shares are being traded. Sooner or later, the price of shares will have to be realigned to reflect reality. No-one knows what will spark the crisis, or when.
As well as shares, speculators also bet on future movements in the relative price of different national currencies. The size of these speculative currency deals is now so large that speculation itself causes the price of the various currencies to fluctuate much more than would be made necessary by the evolution of their countries' balance of payments. Since greater fluctuation means greater possibilities for speculative profits, more and more speculative capital is being attracted to the currency markets. The result is that countries are now too poor to prevent shifts in the value of their own currency. Between December 1993 and February 1995, the value of the German Mark rose 12.2% against the U.S. Dollar. The Swiss Franc rose 13.1% and the Japanese Yen 10.7% in the same period. The the British Pound depreciated (fell in value) by 6.8% against the German Mark, and the Italian lira 7.8%.
As for the third world, foreign debt almost doubled between 1986 and 1994, reaching a terrible 1,489,000,000,000 U.S dollars. This doesn't include the $US 215,000,000,000 debt of the former "socialist' countries. Payments and service charges on third world debt reached 203,000,000,000 in 1994, which rep-
A mountain of bullshit DUTCH FARMERS import tapioca,soya beans, groundnuts and cotton from Brazil, Thailand and India. This they feed to cows, pigs and chickens kept in small boxes, in order to produce huge surpluses of meat and milk, for which they are rewarded with EU subsidies. Dutch animal breeders buy fodder from as much as seven acres of land in the third world to support every acre of animal breeding in the Netherlands. One of the results of this process is Holland's 20 million tonne dung surplus, riddled with harmful copper, antibiotics and seeds. Dutch company Seaswan plans to buy this dung at 20 NG per 1,000 kg., and export it to the western Indian state of Gujarat for resale as fertilizer.
Dutch dung is too expensive for most Gujaratis, and the main customers will be ncher tarmers, producing cash crops for export to countries like Holland. * Adapted from Third World Resurgence no. 55. Dutch and Indian activists and volunteer groups are digging deeper into Project Bullshit. To get involved contact K Mathen, D/1 Aurobindo Society, Vastrapur Talavadi, Ahmedabad 380015, India resented 4.3% of the total value of goods and services produced in the countries concerned. Since the growth rate of the third world is nowhere near 4.3%, it seems impossible that the debt will ever be paid Since half the debtor countries have difficulties with their repayment plans, total debt is more likely to grow. The Mexican crisis is a clear illustration of the time bomb third world debt represents for the international financial system.
The current upturn in the advanced capitalist economies cannot prevent a severe crisis in one or more of the major stock exchanges or currency markets sooner or later. There may not be a collapse, but there will not be stability. *
(JA/D]
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