Page 2 of
4 BOOK
REVIEW Reaping what is
sown The Age of Turbulence
by Alan
Greenspan
Reviewed by Julian
Delasantellis
Greenspan would find
his true destiny.
Many of those
professional graduate students at those
coffeehouses in London or their union brothers
nursing all-day lattes in Berlin, Cambridge or
Berkeley, probably would, in their
permanently over-caffeinated
haze, contend that the fall of the wall had left
the United States as the most powerful political
force on earth.
That is not true. The
force that has really emerged triumphant since
1989 is the market; the United States may be its
strongman and its rules-enforcer, but it is not
its sovereign.
In 2001, historians Michael
Hardt and Antonio Negri developed these ideas in
their book Empire.
Over the past several decades, as
colonial regimes were overthrown and then
precipitously after the Soviet barriers to the
capitalist world market finally collapsed, we
have witnessed an irresistible and irreversible
globalization of economic and cultural
exchanges. Along with the global market and
global circuits of production has emerged a
global order, a new logic and structure of rule
- in short, a new form of
sovereignty.
The new global order is
not centered in any one region, political party or
leader. Power is contained in an international
network of market connections, nodes; the power
and influence of their sum working in synergy
greatly exceed that of the component parts.
In the realm of finance, the new network
power structure can reward those nations it likes,
and punish those that earn its disfavor. It has
rewarded the United States with the US$2.5 billion
a day of imported capital this country needs to
live beyond its means, and in doing so, maintain
the military muscle to enforce its needs.
Machiavelli knew that it was better to be
feared than to be loved, and the new power
structure, Hardt and Negri's "empire", has very
ably demonstrated the fearsomeness of its wrath.
Ten years ago, the capitalist world became
consumed in what was, and still is, the most
serious economic dislocation of the post-1989 era,
the 15-month convulsion that, beginning in
Thailand and ending in Russia, came to be known as
the Asian economic crisis.
All during the
1990s up to the summer of 1997, the international
capital markets had been looking very favorably on
the economies of what came to be known as the
Asian Tiger countries - Taiwan, South Korea,
Malaysia, Indonesia, the Philippines and Thailand.
Private capital flooded into these
export-centered economies, and the economies
responded in kind, with impressive growth rates of
industrialization and standards of living. The
International Monetary Fund blessed the Tiger
economies with high praise, pointing to them as
examples of how Third World prosperity could be
accomplished with minimal official development
assistance; these economies showed how the new
development strategy was to be "trade, not aid".
Then, all of sudden, beginning in the
early summer of 1997, it seemed that, for no
reason at all, the market power structure seemed
to, rather capriciously, just change its mind. The
flow of capital seemed to reverse, away from the
Tigers and their national currencies, the Thai
baht, the South Korean won, the Philippine peso
and others. In rapid succession, they began to
sell off sharply; the baht lost over half of its
value against the US dollar from July 1997 to the
beginning of 1998.
The turmoil in Asian
currency markets led to turmoil in the Asian
equity markets, and that subsequently led to
turmoil in Western equity markets. On October 27,
1997, the Dow Jones Industrial Average lost 554
points, surpassing the record 508-point drop of
Black Monday, 1987. (Ten years later that Monday
in 1997 still holds second place in terms of
one-day point drops in the Dow, only being
surpassed by the first post September 11, 2001,
day of trading's 685-point loss.)
The
declines in US stock markets definitely got the
attention of US policymakers; they had basically
been ignoring the hardship being caused by the
declining Asian currencies (with their currencies
depreciated it was now much more difficult for
them to import needed foreign petroleum, food and
medical products) in those currencies' home
countries. US economic officials moved to act.
Then, as well as now, two different
ideological camps debate the causes of the crisis.
One view, propagated by Nobel Prize-winning
American economist Joseph Stiglitz, as well as
Jeffrey Sachs, Paul Krugman and, to a certain
extent George Soros, located the problem in the
modern-day structure of the markets themselves,
stating that the relatively new ability to
instantaneously move huge quantities of capital
in, and in this case out, of individual markets
and countries had given a technological
turbocharge to the herd stampede mentality
constantly lurking just under the surface in all
markets.
This thinking says the problem
started when a little bit of currency selling in
one place, in this case Thailand, snowballed into
more selling in Thailand's neighbors, and
eventually, all the way to Brazil and Russia.
This is a view that posited that markets
were malfunctioning, and Greenspan would hear none
of that. Then, and in The Age of
Turbulence, he blamed the problem on the fact
that many of these countries had not allowed their
national currencies to be subject to the market,
to "float" in value against the US dollar. The
countries, of course, replied that they had only
"pegged" their currencies against the dollar so
that Western investors could have confidence in
the currency value of their investments when they
repatriated their profits home. In any event, up
until the crisis was well under way, the
International Monetary Fund and other Western
economic agencies expressed no real displeasure
with the Tigers' currency or fiscal management
policies and procedures.
Greenspan got
involved not to save the Tigers, but only when it
appeared possible that the Tigers' defaulting on
loans to Western financial institutions might
imperil the financial system as a whole:
I got more deeply involved in
September, when a senior official of the Bank of
Japan called the Fed to warn that South Korea
would be the next to go. "The dam is bursting,"
is how the official put it, explaining that
Japanese banks had lost confidence in Korea and
were about to stop renewing billions of dollars
in loans.
Greenspan's role in the
solution of the crisis became something of a
de-facto chairman of a rescue committee consisting
of the US Fed, Robert Rubin's US Treasury and the
International Monetary Fund. They "persuaded" US
and other Western banks not to call the loans to
the Tigers; eventually, the various "rescue"
packages put together by the group allowed the
Tigers to stabilize their currencies and resume
their needed imports.
But nothing came for
free. In return for the emergency finance, the
Tigers had to agree to Western demands for
sweeping new "liberalizations" of their economies,
called SAPs, or structural adjustment policies.
These included government fiscal cuts that
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