Saturday, September 20, 2008

Real vs. Casino Economics

What does the collapse of Fannie Mae and Freddie Mac, Lehman, AIG, and now the latest financial turmoil around UK ’s HBOS and Halifax mean to ordinary folks? Free market economist Solita Monsod was quoted saying those who have no money or no money invested in these financial institutions would not be affected. That is like saying an earthquake rated 9 on the Richter Scale hitting the coast of the US -- and destroying one of the bedrocks of the global financial system, the 150-year-old Lehman -- can have no effect across the Pacific. If the impact has not yet been felt in Manila the past few days since the bankruptcy declaration of Lehman, it is because it takes any tsunami to travel a distance to strike across the ocean.

While we are watching the international cable news, thousands of Wall Street employees clear their desks and carry off boxes of their belongings out of their offices to look for other jobs (if they can find any), the financial and economic tsunami is already traveling fast to our shores. Since those US employees being laid off are consumers of export goods from Asia and the Pacific, over 300,000 such consumers are expected to be lost in the coming months. If, as it is being described now, the financial crisis in the US is going to be worse than the Great Depression of the 1930s, then millions of US jobs are bound to be lost and a collapse of the “export-oriented” Philippine economy will get worse. At the same time, the US OFW remittances constituting 30 percent of all remittances will decline dramatically.

Cash from US land-based OFWs grew by less than a percent (0.66) to $2.462 billion in the six months ending May against the same six-month period in 2007 of $2.446 billion. After the US financial collapse, this will decline rapidly. Other Philippine export markets will similarly be hit. The UK ’s Northern Rock and Bank of Scotland have already taken devastating hits. OFWs there will also start reducing remittances, and that will not be the end of the chain reaction. Italy and Spain ’s large OFW population will similarly contract their remittances. This shows the folly of Solita Monsod’s comments that irresponsibly try to hide the perils that lie ahead for the Philippines , to cover up her erroneous advocacy of financial liberalization that has made the Philippines dependent on the Western speculative financial system.

This speculative financial system is sometimes called the “casino economy,” where people or institutions with money -- or claiming to have money -- allegedly put antes or bets on various “investments” which promise very high yields for little sweat. They bet on stock market shares and futures shares (such as oil and other commodities). They even bet on the bets, insure the bets so bettors believe they are completely covered from any loss, take easy premiums and re-insure the premiums.

For instance, the home mortgage market was an investment that could not have gone wrong -- so they claimed -- because of the home as collateral; but then, it’s reused as credit card security, and reused for buying stocks and futures, even buying second property used again as collateral, ad infinitum.

But why can’t the US Federal Reserve keep printing money to shore up the collapsing financial institutions? Actually, it is doing that. The buyout of Merrill Lynch by Bank of America for $50 billion, four times its collapsed value, is bailout money from the US Fed. They’re hiding the fraud of saving criminally speculative private funds with US taxpayer loans to them, which US taxpayers will continue to pay off for years to come. They couldn’t hide it anymore for AIG, with $85 billion representing 80 percent of its $110 billion investment portfolio lost in the financial casino. However, the US Federal Reserve can’t keep on issuing credit without ending up like Zimbabwe with the 3,371.1 percent inflation of its money. So the US now wants China , Japan , Saudi Arabia et al. to “invest” in or lend to these collapsed financial companies.

All major economies in the world have degrees of dependence on the US capital markets, investments in US bonds, stocks, and the like. While the US collapse is already dragging down major Asian capital markets, it is primarily important to recognize the financial system based on financial speculation for what it is: a system which can only build a virtual economy based on paper wealth -- a great pyramiding scam that inevitably collapses, leaving tons of worthless paper in the pockets, with people hungry for jobs and food. It happened in the Great Depression; it is happening again. The worse is still to come. For the financial gangsters to escape responsibility, they will create a new World War.

Real economics is about real people and real goods, not paper wealth. Countries will have to turn away from the stock, money and futures markets to the real physical markets — production and trade of food, manufactured goods and exchange of services. To do this, the Philippines must reduce interest rates and direct credit toward agricultural production, mineral extraction and the processing and manufacturing sectors. China lowered its interest by 1 percent the day Lehman’s declared bankruptcy; the US Fed will lower rates by 25 percentage points. In contrast, Bangko Sentral ng Pilipinas’ Tetangco recently announced another raising of interest rates. He should be lined up and shot!

For good measure, the finance managers going up with Gloria on stage for the mid-year Economic Briefing declaring “the Philippines has weathered the economic storm” should be lined up with Tetangco as well.

The Philippines has not even weathered the 1997 Financial Crisis, with employment lagging behind job entrants according to the recent ADB report, coupled with the fall from No. 77 to No. 90 in the UN Human Development Index. Ralph Recto then should be on the firing line’s center stage for claiming his eVAT helped RP weather the US economic storm, together, of course, with Gloria for accelerating liberalization and privatization for these global finance speculators.

Filipinos must get out and take their money out of the casinos, go to fields and factories to plant rice and vegetables, raise cara-buffaloes for milk and meat, and build factories to manufacture shoes, tractors and trains. This is real economics, the only way to ensure our future. To do this, a coalition of nationalist civilian forces, backed by our nationalist military leaders, should provide leadership. Take the cue from South America ; they’re doing just fine.