Monday, 17 November 2008

Why China and Saudi Arabia have refused to prop up the IMF and Japan has agreed

The emerging US government plan to attempt to salvage its position in the economic world order is now relatively clear.
The US government has pumped gigantic resources into bailing out its most central financial institutions. It knows that this will involve great domestic political unpopularity as ordinary US taxpayers are asked to pay hundreds of billions of dollars to shareholders of US banks - a point strongly made not only by Socialist Economic Bulletin but also by other observers.
But the US government also knows that these bailouts have left little financial oxygen for the 'periphery' of the international financial system. Therefore the financial system of a whole series of countries faces destablisation or even collapse.
The US has then decided which countries it considers it wishes to attempt most closely economically to bind to itself and will offer them the little financial aid it has left. Brazil, Mexico, Singapore and South Korea have therefore been chosen for $30 billion dollar swaps with the Federal Reserve to prop up their financial system.
This leaves the problem, however, of what to do with other countries, including the real basket cases of the international financial system - those countries where huge losses are possible. The US government proposes that these be saved through the IMF. The US government, however, has no extra resources to put into the IMF and proposes that the China, the oil producers and Japan come up with the necessary money.
Saudi Arabia and China, acting with financial sense, have politely declined that they prop up an international financial system that benefits the US at the expense of their suffering further huge losses. That is, they have refused to put further money into the IMF.
Japan has, however, agreed to put in $100 billion - which is not enough to meet the type of financial resources the IMF is likely to require but represents a considerable financial exposure to loss even for a country with such large financial resources as Japan.
Once more this illustrates the political subordination of Japan to US economic interests. Any country acting in its own economic interests, as with Saudi Arabia and China, would have declined this US offer. Japan has gone along with it because it wants an alliance with the US against China and Russia. The price Japan pays for this is tremendous damage to its own economy - as the whole economic history of Japan since 1973 shows.

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