PAUL JAY: Welcome to The Real News Network. I'm Paul Jay in Toronto. On Thursday, stock
markets around the globe crashed again--concerns about the crisis in Europe and perhaps profound
concerns about the growing recession around the globe. Now joining us to help us unpack
all of this is Professor Leo Panitch. He's the author of the book In and Out of Crisis:
The Global Financial Meltdown and the Left Alternative, and he teaches at York University
in Toronto. Thanks for joining us again.
LEO PANITCH: Hi, Paul.
JAY: So just to to begin with, what happened when the markets crashed? Everybody buys more
American dollars and more T-bills. So just as a sort of beginning note, we were told
so many times about the crash of the US dollar and all the rest, and quite the contrary seems
to be happening.
PANITCH: Yeah. You know. And it isn't only in relation to this crisis. People have been
expecting that the American dollar would go the way of the dodo bird since the 1960s,
not understanding the extent to which the whole of global trade and global finance is
founded on the dollar. But more importantly, all calculations of value in the world, of
what something's worth, are in the monetary sense really based on the price of a US Treasury
bill, and that's because the American state stands behind it. So what you see is all of
the world's capital, all the world's investors, all the world's capitalists look upon the
American state as the guarantor of their property. There's no question the Americans are going
to default on their debt. That's not--. And--you know, and even when Standard & Poor's downgrades
the Treasury bill from AAA to AA, people pile in and buy more dollars now. In--of course,
it's occurring in this context in the sense of a tremendous amount of fear that was induced
by the financial crisis that began in 2007. Investors are extremely skittish and don't
know where to put their money, and they then go to the place where credit is issued by
the state that they have most confidence in as the state of global capital. And when people--you
know, every time Chavez would say he was going to sell his oil in euros or some oil sheik
would say he's going to sell their oil in euros, they immediately jump to the conclusion
that the dollar is finished. One, even if you sold it in euros, an Arab sheik sold it
in euros, the guy who paid them the euros, I mean, they'd immediately turn around and
on the London exchange turn that into dollars if they wanted dollars. And, you know, the
Europeans didn't want people pushing up the value of the euro. It would make their imports
more expensive and their exports more difficult to sell, etc. So you have a completely flexible
exchange rate in the world. And people were so silly about this. The left in particular
keeps hoping that their problems are going to be solved by capitalism going up in smoke
when there's a crisis and the American Empire collapsing with it. And since the political
economy of the American Empire is founded on the dollar's role in the world, the Treasury
bill's role in the world, they keep hoping that, you know, it'll just go away, it'll
get into trouble and it'll just go away. You know. And it's just silly.
JAY: Okay. So let's jump to what happened on Thursday, which had a lot to do, first
of all, with the crisis in Europe. Speaking of the euro, the euro is kind of--if anything's
going to go up in smoke, it's going to be the euro.
PANITCH: It has been the euro. And, you know, it had to do with the way in which the European
Union was constructed. You know, it was always a vehicle for the Germans to be able to sell
their exports in a free trade market. That was the core of what it was. And then it got
extended to the free movement of capital. It used to be the case that it was American
multinationals who produced across Europe. The Germans produced their cars in Germany,
the French produced their cars in France, but the American multinationals produced in
Spain and in Germany and in France, etc. You know. So an attempt to compete led them to
try to open up capital markets as well. Well, what happened as the European Union expanded
and Spain was let in and Greece was let in and Portugal [incompr.] let's leave aside
Eastern Europe for the moment--was that they bought German goods in this market, in this
free market, and the German banks lent them the money to buy these goods. It's much like
China lending United States the money to buy the goods, right? The difference is that they
aren't empires--they don't have the world currency.
JAY: Yeah, they don't print the world's currency. Yeah.
PANITCH: And they don't have deep financial markets. I mean, people go to New York because
that's where all the financial services are. So the long-term consequence was fairly clear.
They were always aware of it. You may remember that, you know, they had this provision that
you couldn't have budget deficits over 3 percent, and they--that caused a lot of austerity already
in some of these countries, and, you know, they couldn't hold to that. And the result
of it is--you know, without having fiscal transfers, without German taxes going to Greece
or Spain or Portugal, the outcome was fairly inevitable.
JAY: Well, the Germans seem--and recently the German finance minister wrote an op-ed
in The Financial Times about austerity is the only solution. They seem absolutely
committed to the course they're on, which is to, you know, make Greece and Spain and
Portugal and the other countries pay, and they don't want to come up with any dough.
And German public opinion is becoming even more kind of nationalistic about all of this.
So where does this all go? Like, the rest of the globe is saying, hold on, what's going
on in Europe is going to unravel, you know, at least this phase of global capitalism as
we know it. But the Germans seem to say, well, no, this is what we want.
PANITCH: Well, there's two things going on here. One is that despite this financial crisis
being caused by the bankers, their orthodoxy with regard to government debt is riding the
world. They have not lost their political influence. And bankers always look upon state
expenditures from the point of view of will this cause inflation. And, you know, for a
banker's point of view, if they lend you a dollar, and you pay them back in a devalued
dollar which is now worth $0.90, they lose money. I mean, it's that simple. So they're
always looking at inflation. Now, the Germans in particular have been especially irresponsible
in the world, whereas the United States has--doesn't only act out of its own narrow national interest.
It is looking at what is necessary to keep global capitalism going.
JAY: Maybe 'cause they are the empire.
PANITCH: Because they're the empire. The German state has been particularly narrowminded in
this respect. And, you know, people look upon Germany very often as this welfare state,
etc., but the most powerful institution inside the state is the Bundesbank, is the central
bank, and they are absolutely fanatical about government debt in this sense and the fear
of inflation. Now, even that, you have to be careful with it, 'cause [incompr.] these
bankers, it depends what you're spending on. You know, if you're spending on the military,
if you've got tax expenditures, they don't mind so much. If you're giving it to the poor,
if you're giving benefits to workers in a way that might undermine productivity in the
economy, they won't work as hard, right, that's what they're looking at. It's not just the
size of the debt; it's the structure of the debt. Look, in a sense they're cutting off
their noses to spite their face, and that's what large portions of the world's capitalists
and the American state is telling them. You know, the Americans from the beginning of
this crisis have been very much oriented to stimulus, and they've tried to play that role
around the world. They've been under tremendous pressure from the idiots in the Tea Party
not to, but they've continued to do it.
JAY: Even if they have to do it through the Fed, they do it.
PANITCH: They do it through monetary stimulus, but they've also had [incompr.] the Obama
stimulus 2009 was the largest in American history--in non-wartime history, in any case.
So--and Geithner has been--he showed up--just to show you the empire, Geithner showed up
at a meeting of European finance ministers, right, told them they couldn't have a financial
transaction tax, but also told them that they ought to be spending rather than squeezing.
And the Americans are pressing them hard, hard, hard to do this. And I think they will.
I think one should make it very clear that when push comes to shove, they are going to
do this. But mainly they'll do it because the European banks will go under.
JAY: And "do this", what is "this"?
PANITCH: They will stimulate. They may not do it through fiscal stimulus initially. They
will have, and they already are having, in this sense, enormous monetary stimulus. And
they've been buying Greek debt. They've been buying (a lot of it) Spanish and Portuguese
debt. They've been buying some Italian debt. They haven't been buying enough of it. And
the reason they're buying it, you have to be clear, is they're not doing any favor to
these governments. What they're doing is guaranteeing the banks that hold this debt, because it
was private banks that lent the money to banks in Spain and Portugal and Greece, etc., that
funded the credit to purchase all this stuff. And it is very serious.
JAY: But global capital seems to be betting, when you look at these crashes, that there
is enough political paralysis in Europe, as there is in United States, that they're really
not going to resolve this in a timely enough way to avoid a deeper and deeper global recession,
which is why nobody knows what the hell to do with their money.
PANITCH: Well, it isn't just a matter of what's done in relation to this European problem.
We probably are in for a decade of stagnation. We've talked about this before. The world
economy kept booming on the basis of a credit-driven consumption. That was true in the United States
above all, which is the consumer of first and last resort, but not only in the United
States [incompr.] in Spain, etc. It was, you know, a consumption that was founded on the
ability to take second mortgages out, credit cards, etc. And the big question now for capitalism,
now that that credit bubble burst, is: given that you're not paying people more wages,
given that you're cutting their social benefits, given that their home values aren't appreciating,
so they can't get second mortgages, where is consumption going to come from? So it isn't
just a matter of the skittishness of the world's financial capital around are European banks
solvent. It isn't just that American banks are dubious about lending European banks money
overnight. And the main thing that keeps the banking system going is what's called interbank
lending overnight. And they're worried that if they give them money overnight, that bank
may not be able to pay them back.
JAY: In the morning.
PANITCH: In the morning. So they're increasingly having to pay higher and higher rates on the
interbank market. But it isn't only that that's going on. The skittishness when you hear about
a recession isn't only, you know, are they going to be able to save the banks in Europe
or prevent Greece from defaulting; it's more an awareness that the banks aren't lending,
even though they are very cash-flush in the United States, and that corporations, although
their profits are high, they're sitting on a lot of cash liquidity, aren't investing.
And they aren't investing because they're not sure the consumption will be there. And
we're about to see--there has been some reports on this this week--that the Chinese are going
to cut back on their production.
JAY: Well, I was about to say that if you read the G-20 documents in Toronto, the big
great hope for consumption was China. They were encouraging China to let wages rise and
so on. And now we're looking at a possible slowdown in China.
PANITCH: You know, there was the exact opposite of what happened in the '80s and '90s, you
know, when the Third World banks got into crisis. They pushed austerity upon them whenever
there was a financial crisis, and they threw liquidity at the advanced capitalist countries.
Right? In this crisis, because these countries got so much more integrated, because there
was such an enormous growth in the proletariats inside those countries, the response, especially
of the US Treasury, to the crisis as it worsened in 2008, 2009 was to try to get the South
to engage in a big stimulus. The point is--and that made a marginal difference. Certainly,
the Chinese stimulus made some difference. But there's no way within the framework of
decades that--you know, the United States accounts for five times as much global consumption
as China and India combined. So even if you get some movement in that direction, it's
not going to solve the problem. You know. And the big question for the left is whether
Chinese workers, who certainly are militant--there's strike waves of China--in China and there's
been some response in terms of giving them some higher wages--whether Chinese workers
are going to follow the path of American workers or European workers, that is, that their strikes
are going to go to the end of making them individual consumers, and then they'll be
stuck in the same treadmill, or whether we'll get back in China to some notion of working-class
strength gives you collective public services rather than individual consumption.
JAY: Thanks for joining us.
PANITCH: Good to talk to you, Paul.
JAY: Thank you for joining us on The Real News Network. And don't forget the donate
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