Published on WSWS, by Barry Grey, 10 November 2009.
… Here are some indications of the scale of this bubble:
“Since its March 9 low, the Standard & Poor’s 500 stock index has gained more than 50 percent. An index of stocks for 22 “emerging market” countries (including Brazil, China and India) has doubled from its recent low. Oil, now around $80 a barrel, has increased 150 percent from its recent low of $31. Gold is near an all-time high, around $1,090 an ounce.” (Robert J. Samuelson in Monday’s Washington Post).
A central component of this policy is a tacit encouragement of the ongoing fall in the dollar. Ultimately, the decline in the dollar is dictated by the objective decline in the global position of American capitalism. The financial crash and ensuing global recession, which began in the US, have further eroded global confidence in the dollar as it has diminished the weight of US gross domestic product relative to global gross domestic product.
This is a profoundly destabilizing factor in the world economy, which renders any recovery fragile and ultimately unsustainable. Increasingly, the unique role of the US dollar as the world’s major reserve and trading currency is being called into question. This was highlighted last Tuesday when India’s central bank announced it had purchased 200 metric tons of gold on offer by the International Monetary Fund.
In making the announcement, India’s finance minister said that the US and European economies had “collapsed.” The Indian purchase came a few months after China, which holds an estimated $1.4 trillion in dollar assets, revealed that it had almost doubled its gold reserves in the past six years.
The buildup of gold reserves is part of a growing move by creditor nations away from the dollar. As BusinessWeek reported last month: “Instead of buying just dollars for their foreign exchange reserves, they’re diversifying into other currencies. The countries that reveal the composition of their reserve holdings put 63 percent of their new reserves into euros and yen in the second quarter, according to an analysis by Barclays Capital.”
The mid- to long-term implications of the erosion in the world position of the dollar are massive. A strong and stable dollar was the bedrock of the international capitalist monetary system that was established at the Bretton Woods conference at end of World War II. The dollar has served for nearly seven decades as the world’s supreme trading and reserve currency. The unique and privileged position of the dollar—which brought with it immense advantages for US capital—was based on the unchallenged economic supremacy of the US at the end of the war. That, in turn, was founded on the global dominance of American industry.
The long-term decline of American capitalism, reflected most importantly in the decay of its industrial base, resulted in the massive global imbalances between debtor nations—first and foremost, the US—and creditor nations, such as China, Japan and Germany, which led to the implosion of the world economy a year ago. It is the transformation of the US from the industrial powerhouse of the world to the center of global financial speculation and parasitism that, in the final analysis, underlies the erosion in the international position of the dollar … (full long text).