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Hugo Salinas
Price
February 6, 2004
The globalization
of the world economy which we have been experiencing these past
decades has not been a sound and inevitable process, nor is it
a result of the forces of supply and demand in a liberalized
world that impose painful but beneficial changes on the economies
of the world, to the benefit of mankind.
All to the
contrary. Globalization is a vicious and destructive process,
that adversely affects national economies all over the world.
It is not a natural process by any means, but one based on illusion
and fraud. Globalization is not producing a more harmonious and
more productive world, but a world of distortions and malinvestments
that accompany the elimination of local production everywhere.
Globalization today is not a virtue, it is a vice
Most people
think of globalization as the productive unification of humanity,
in such a way that those who produce more efficiently predominate
in their fields in world markets and benefit the world with lower
prices. Free trade is thought to be the natural road to world
prosperity, inevitably, and the globaliphobics, those
who oppose globalization, are regarded as extremists and agitators
who are against progress.
Those who accept
globalization as inevitable and beneficial, would be right if
conditions in today's world were the same as those which prevailed
back in the XIXth century or in the early XXth century. Unfortunately,
globalization today is taking place under circumstances totally
different from conditions in that now remote past.
What is happening
today is that the U.S.A. is enjoying a great privilege: its currency
is the world reserve currency, in other words, it's the universal
money, and the U.S.A. is flagrantly abusing this privilege and
flooding the world with dollars which are nothing more than digits
which its computers can produce at no cost. In exchange for these
dollars of no intrinsic value - they are a sort of irredeemable
voucher - the U.S.A. acquires everything it needs in the world,
without any limit. The commercial deficit of the U.S.A is over
$500 thousand millions of dollars a year!
Ships arrive
at U.S. ports loaded down with merchandise and many of them make
their return voyages empty, because the U.S. is no longer selling
enough stuff overseas in an amount equal to its imports. The
U.S. has been living an orgy of unlimited consumption, thanks
to the fact that its currency - a digit with no substance - is
accepted as payment all over the world.
As a consequence
of the one-way travel of U.S. dollars to destinations around
the world in search of cheaper products, U.S. industry has been
hollowed out. American industries, once an awesome powerhouse
of production, have followed the dollars abroad, to locate in
the countries that sell the cheapest. U.S. unemployment is over
10% of the labor force, because official statistics ignore the
employed who have stopped looking for work in toting up unemployment
figures.
Reality has
caught up with Americans. A privilege cannot be abused indefinitely.
Consequences show up, sooner or later. That privilege was obtained
by the U.S. in 1944, at the Bretton Woods conference: the dollar
would be a reserve currency, alongside gold. In 1971, Nixon reneged
on the gold promise and the dollar was left as the world's currency:
irredeemable and nothing more than a simple digit.
Globalization
in the old days meant that all nations limited their imports
to such volumes as they could pay for with their exports. If
imports exceeded exports, the difference had to be paid in
gold. If exports exceeded imports, the balance was collected
in gold.
"Chinafication"
harms China itself and the rest of the world, too
It is only
an unimportant exaggeration, to say that China threatens to become
the only manufacturer in the world, of everything for everyone,
just because it does not demand payment in gold for the balance
of its exports not covered by imports. It is enough to send dollars
to China, and the purchase operations by buyers around the world
are considered paid.
The situation
is truly absurd. China will manufacture everything the world
wants to buy - no one can equal their labor costs. (For example,
a recent buyer interested in tenis racquets was taken one night
on a tour of a Chinese factory producing them. He was ushered
into a pitch black building. The light was turned on, and there
he saw hundreds of workers working completely in the dark, stringing
tenis racquets. No lights were normally on, to save on electricity
costs.) All factories in the world are potentially at risk from
Chinese competition. In the U.S., once a manufacturing superpower,
factories are firing workers or closing. Enormous Kodak, an icon
of industry and technology, is firing 15,000 workers. A very
bad omen, among many others.
If the world
continues on this path, China looks set to absorb a goodly percentage
of all production on this planet. In exchange, it is willing
to receive in payment, dollars and more dollars; simple digits.
Dollars are not wealth
Dollars are
a means of acquiring wealth, but they are not wealth in itself;
nor is receiving them really and truly, collecting. But,
no matter! The Chinese do not appear to give much thought to
this question. They are pleased to receive dollars and more dollars,
and to add to their stash. For what purpose?
All the while,
as China produces goods for the rest of the world, most of its
population lives in poverty, because in return for their exports,
the Chinese are not receiving imported goods, which are the things
which raise a nation from poverty. The proof that they are not
receiving imports in a volume similar to their exports, is that
they continue to accumulate massive amounts of dollars in their
reserves.
The trend is
irrational. On the one hand, Americans are happy to receive imported
riches from the whole world, while their factores close and their
population is increasingly unemployed. And on the other hand,
the Chinese amass incredible amounts of dollars while the people
remain in poverty, because all those dollars represent goods
which they have not received in payment - real payment
- of their exports.
How was it in the
old days?
When international
balances were settled in gold, as used to happen in the XIXth
century and in the early XXth century, what is going on today
could not take place. Nor would today's irrationality be possible,
if international accounts were still settled with the hated gold.
(Hated by most governments around the world.)
Under the previous,
old system, if China wanted to sell its goods at bargain prices,
there would come a moment when the U.S. would have to stop buying,
as the flow of gold out of the U.S. and into China would produce
a scarcity of gold in the U.S. and drive up interest rates, which
would slow down imports until an equilibrium was restored between
exports and imports.
Then again,
if a foreign country attempted to undermine and destroy a domestic
industry with cheap goods, by means of subsidies, import tariffs
were applied. Tariffs are an obstacle to free trade, but subsidies
are also an obstacle. The ideal in the XIXth century was to eliminate
or reduce such obstacles, and it was a good ideal. However, the
greater part of international trade was harmonized and integrated
by means of the self-regulation of national economies that was
provided by the system of liquidation of international accounts,
in gold.
"Sins carry with
them their own punishment"
Gold has been
abolished from international trade. There is no limit to the
imports of Asian products, other than the amount of dollars you
have available. Of course, Americans have unlimited amounts of
dollars available, since the U.S. manufactures dollars. (The
European Union would like to have a cut of this privilege of
the U.S., that's why the Euro was created. Europe would love
to have the rest of the world accumulate Euros.)
Mexico has
some pretty large dollar reserves. We are contracting the U.S.
disease. Kodak's closure of its Guadalajara, Mexico, plant is
an example of the progress of the disease. The same illness that
has gutted U.S. industry is at work here, in Mexico.
Some time ago,
American industries relocated in Mexico. But, not any more. Now
they are moving again, to China, because that's where it is cheaper
to produce.
Mexico has
an ample supply of dollars, so we can also import from China,
from Hong Kong, from Korea, from Singapore - from wherever the
price is lowest. And our Mexican industries are also choking.
We have plenty
of dollars, because we export oil. Exaggerating somewhat, we
could say that we sell oil - a natural resource whose supply
is finite - for dollars; then we export the dollars to Asia,
and import goods which, when they arrive for sale in Mexico,
weaken the ability of our factories to survive. What is going
to happen to us, when the oil runs out?
There is no automatic
regulator of international trade
We have to
say once again: gold - that "barbarous metal"
according to J.M Keynes - was the great regulator of international
trade. It protected local industries, because there was
always a natural limit to imports, no matter how cheap they might
be, because of the simple fact that the balance remaining
between imports and exports had to be paid in gold, and the
quantity of gold that any country had was limited and jealously
guarded.
That is precisely
the difference between the beneficial globalization of the XIXth
century, the era of the great boom in international trade, and
our own times. Globalization today is causing enormous damage,
and as long as the countries that accept payment in dollars (or
euros, for that matter) continue to receive these irredeemable
vouchers, international trade is out of control and eating out
the guts of local production in the countries that have dollars
or euros to spend.
The world economy
cannot go down this road indefinitely. There must come a moment
when everyone, even the Chinese, realize that there is no point
in accumulating dollars that are really not needed. Those countries
that decide to accept euros as an alternative, will be no better
off: they will simply stack up piles of unneeded euros, and continue
to flood the rest of the world with cheap merchandise. And their
reserves, whether in dollars or euros, will necessarily devalue
as time goes on, while their populations have to relinquish the
benefits of their exporting capabilities.
Who is going to bell
the cat?
Is the European
Union going to declare someday, that it will no longer accumulate
dollars, and that those dollars that come its way, will be sold
for gold, on the spot, the only alternative? They have not wanted
to do that as yet, conscious of the fact that if they do not
accumulate dollars, they will have to restrict drastically their
sales to the U.S. market, and the political cost of unemployment
that such a measure involves, is too heavy for the E.U. to bear.
In any event,
a debt collapse is approaching in the U.S., because the excessive
creation of dollars in recent years has been done with an unbridled
creation of debt. Debt on the part of consumers, on the part
of corporations, on the part of the Agencies of the U.S. Government
dealing in mortgages. And let us not omit, on the part of a Federal
Government whose deficit is blossoming in the best Third World
style.
When, not if,
debt collapses in the U.S. - through bankruptcy or inflation,
it makes no difference - the ability to import from the rest
of the world will have to diminish. That will tend to reestablish
some parity between imports and exports. China and the rest of
Asia too, and Europe thrown in for good measure, will be thrown
into chaos when their export market collapses.
What we shall
probably soon see - Lou Dobbs talking about Protectionism shows
which way the wind is blowing - is a drastic movement toward
Protectionism in the U.S.: tariffs on imports, to provide some
breathing room for local industry. Labor in the U.S. is becoming
restive - alarmed, as well it should be, by the spectre
of imports from Asia. Protectionism will arrive, and soon.
But Protectionism
deals with a symptom, not with the fundamental problem. It will
cause many internal stresses within the U.S. Externally, it will
favor the loss of reserve status for the dollar as world currency.
Aspirin is no good for dealing with pneumonia. However, Protectionism
is something that people can understand. Most people do not understand
international monetary problems, nor do these problems interest
most voters.
Hurry! Hurry! Hurry!
With or without
a new international monetary order, things are going to change.
They may change in an orderly fashiion and with as little pain
as possible, if the change comes about as a result of a new international
conference to deal with the creation of a new international monetary
order. If the change does not come this way, it will be drastic,
disorderly and with no previous warning, like the tremendous
earthquake that hit Mexico City in September of 1985, and killed
- no one knows how many thousands.
The duly accredited
monetary "experts" around the world are members of
an very exclusive club and they avoid at all costs, anything
that might endanger their relations within the high circles of
finance, national governments and supra-national organizations:
the FED, the IMF, the BIS and other bureaucratic organizations.
In such circles it's bad taste to talk about what really has
to be done. Perhaps because what has to be done is so simple:
Gold must
once again be the means of international payment. Deficits in
the trade balance must be paid in gold. Credit balances must
be collected in gold.
No other solution
will do. Change will come, but it does not appear likely that
the change will be one that is voluntarily agreed to by world
powers. What the world will look like, after the change arrives,
is hard to imagine. It is my guess that the world will not again
resemble the world we have known, for many, many years, if ever.
How can individuals
prepare for such a change? Amid all the changes we shall witness,
we know only one thing: gold and silver will never cease to be
a store of value. Among all preparations, we must keep that eternal
fact in mind.
Hugo Salinas Price
eMail: hsalinas@elektra.com.mx
website: http://www.plata.com.mx
February 2004
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321gold Inc Miami USA
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