From Financial Crisis to Monetary Crisis?

Oct 12, 2009

The following article is translated from the October 9^th issue of Lutte Ouvrière (Workers Struggle), the newspaper of the revolutionary workers’ group of that name active in France.

After the Pittsburgh summit, the imperialist leaders publicly expressed satisfaction with their handling of the economic crisis. But behind their public facade, they demonstrated real concern. The finance ministers and treasury secretaries of these countries, meeting with the leaders of the International Monetary Fund (IMF) in Istanbul on October 3^rd, raised the possibility that the crisis in the financial and banking sectors could spread to a financial crisis inside the governments themselves.

One indication of the problem has been the increasing fluctuations in the exchange rates between the various national currencies. But the officials had no proposals for how to deal with this problem. Government ministers clearly don’t want to interfere with how the big international banks make money.

The banks have been speculating on the different currencies, as well as on differences in interest rates in various countries. They have been buying and selling huge sums of money in one currency and then another. These trades increase or reduce the demand for one currency or another, thus pushing up or down the currencies’ exchange rates. These big increases and decreases in exchange rates are potentially dangerous and destabilizing. And often the big banks are doing it with funds that governments had given them in various bailouts, although the different treasury officials say nothing about this.

The different governments do not have an international agreement to stop this speculation. Each government uses the variations in its currency to support its own capitalists in their competition on the world market. For example, today the dollar is low in relation to the Euro, which makes U.S. exports cheaper on the world market and European exports more expensive. This harms the big French or other European industrial companies. So the French finance minister has been protesting against the drop in the dollar. Obviously, she was not protesting some months ago when the higher rate of the dollar favored the exports of Airbus, Areva and other French products over U.S. exports.

These big fluctuations in currency exchange rates are nothing new. But the means the imperialist governments have used to contain the world economic crisis–by bailing out big financial companies with taxpayer money–could set in motion worse crises in the future, starting with a monetary crisis. The International Monetary Fund, in its report for the conference in Istanbul, warned of the “transfer of private sector risks to the public sector.”

So far the wealthier governments have taken over 3.4 trillion dollars of bad debt held by the banks. The IMF estimates that these governments will spend an additional three trillion to try to buy up the rest of the bad debts, running enormous deficits.

As a result, the people of the entire world pay the cost of these bailouts. But, of course, this is of no concern to the wealthy. The second consequence does concern them. For there is a real possibility that a loss of confidence among the banks, part of the crisis unleashed a year ago, could be reproduced, but this time on a much bigger scale, as a financial crisis of the governments themselves. By monkeying around with the amount of money in circulation, the great imperialist powers risk that their own money could be considered worthless scraps of paper–just like a year ago when all those financial instruments and securities held by the banks and financial companies turned suddenly into “toxic debt” that nobody wanted.

For the moment, the IMF only speaks about the risk of a monetary crisis. But the bankruptcy of a government of a wealthy country is not impossible. It has happened in the past as a result of enormous public deficits. Finally, the entire economic system is so unstable and so absurd that a panic over the credit- worthiness of a government can cause panic in the world’s stock exchanges at any moment.

In no way have the economic policies of the big imperialist governments over the past year reduced the crisis. Instead these policies might have created conditions that could set off a still more catastrophic crisis.