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January 22, 2013, Tuesday

Every request is now legitimate from South to East

This week I want to focus on a few recent notes from the Organization for Economic Cooperation and Development (OECD), as they actually shed light on a new form of market sharing.

However, I must add that we are facing a systemic crisis, or more precisely, a transformation. What we call market sharing, many analysts prefer to describe as “currency wars,” and this has been explained in the OECD's growth notes on the third quarter of 2012:

“Real GDP growth in the OECD area increased by 0.3 percent in the third quarter of 2012, compared with 0.2 percent in the second quarter. Private consumption was the main contributor to overall GDP growth with 0.2 percentage point, while government consumption and stockbuilding contributed 0.1 percentage point each; net exports also contributed positively but marginally. However the contribution of gross fixed capital formation (minus 0.1 percentage point) remained negative for the second consecutive quarter.”

I would like to draw your attention to a few points on these OECD notes: First of all, contrary to 2012's first quarter data, export contribution to growth is shown on a positive but marginal level, whereas private consumption is slightly more active, and this fact, although not very exciting, merits attention.


Moreover, the bad news is that we observe a negative trend for fixed capital formations in the third quarter. For us, this data indicate a stalemate. In other words, countries are developing long-term financing mechanisms to increase their exports, and at the same time trying to maintain local currencies at low levels against what we call reserve currencies. However, here is another point that draws attention: keeping local currencies low is not enough on its own -- the two reserve currencies, the US dollar and the euro, also have to be low.

Now this is the most important part -- while the US dollar is being devaluated due to moves by the Federal Reserve (the Fed), we cannot say the same for the euro -- in fact quite the contrary, we can say that the euro is gaining. Undoubtedly this is an unsustainable situation for the EU.

This lack of sustainability mentioned in the OECD notes can be observed from the drop in fixed capital formation and especially in the decline of exports in major economies, such as Germany, in the eurozone. This is the economic side, but there is more.


This situation is simultaneously a political and a structural problem. This structural problem is based on the Bretton-Woods system -- a monetary management system that established the rules for commercial and financial relations among the world's major industrial states. The two basic currencies (the US dollar and euro) are becoming relatively less popular. This situation resulted in quotations based on these basic currencies increasing the prices of basic industrial commodities such as oil. This beyond doubt is a warped situation. In other words, a warped basic currency and basic commodity system exists in a global economy at this moment.


This aspect, as mentioned above, shows that the Bretton-Woods system came to an end more than four decades ago. As we know, Bretton-Woods ended in 1971 when President Nixon lifted the gold standard for printing money. However, there will be political consequences arising from this situation. The first political consequence: The EU cannot play currency wars with the US. There will either be a new integration determined by the US, or the European Union will fail, which would result in war. The second political consequence: Let us have a look at what the famous world-systems analyst Immanuel Maurice Wallerstein says:

“I have previously laid out why I think the capitalist world-system is in a structural crisis, and why this leads to a worldwide political struggle over which of two alternative outcomes will prevail: one that results in a non-capitalist system that retains all the worst features of capitalism (hierarchy, exploitation, and polarization); or one that lays the basis for a system that is based on relative democratization and relative egalitarianism, a kind of system that has never yet existed.”

Yes, this is exactly the case. There is no need to add that constant war will prevail with Wallerstein's terrible three (hierarchy, exploitation and polarization). As he says, we have started to see signs of a move to a new paradigm. We are observing a new world being built alongside the old. This beyond a shadow of a doubt would be a “reorient” (“ReORIENT: Global Economy in the Asian Age” by Andre Gunder Frank, first published in 1998).


Now let us turn to the South and to the East; every request is now legitimate and justified.

Previous articles of the columnist