Financial Tsunamis

In the last few days I have read a few articles on the effect of the global financial crisis on Japan. The owners of much of the world’s liquid wealth, having withdrawn their funds from U. S. and European financial markets to cut their losses, have decided that the Japanese yen is the safest major currency in which to place their money. This has created a monumental problem for the Japanese because it has rapidly increased the value of the yen by about 12%. This has commensurately increased the price for Japanese products. For a nation as dependent upon exports as Japan, this is a real blow to their economy. Thus because of the crash of the American economy and in consequence a debased dollar the Japanese are faced with selling expensive products that the world cannot buy. What does this tell us about an economic tsunami that can slosh back and forth across the world’s societies with no control?

The first thing it says, I believe, is that the world needs some mechanism by which, for starters, the size of the tsunami can be reduced. Capitalism has always had the boom and bust cycle so we know that this will happen again and again and in the globally integrated economy we now have it will have repeated disastrous consequences. To reduce the magnitude of the tsunami waves we need to reduce the over speculation that produces them. This speculation goes on globally 24 hours a day every day in the foreign exchange market, i.e. making money by exploiting the constantly changing relative values of the different national currencies. To quote from the Global Policy Forum,

“The foreign exchange market is the largest market in the world, with an estimated $1.9 trillion currency traded per day (2004). This means that in less than one year, currency worth 10 times the global GDP is traded. Of this massive amount, international trade in goods and services, which requires foreign exchange, accounts for only a small percentage ($9 trillion per year) of the total trading.”

That such a massive amount of money is in motion around the globe and not focused on any human need creates, in my view, a wild beast capable of great harm at any time and any place. It also indicates that the resources exist to deal with humanity’s oppressing needs. Controlling this beast that can devastate a nation’s or a region’s (Southeast Asia in 1997) or the global economy should be of the highest priority for the world’s leaders and especially that of the United States. A good device for doing this, as I have mentioned previously, is the Tobin Tax on global financial transactions.

James Tobin and others have proposed tax rates ranging from 0.005 to 0.25 percent that would generate between $15 and $300 billion per year for the benefit of the poor areas of the planet or addressing the social problems at the root of conflict. A UN study has estimated that about $150 billion per year is needed to meet the Millennium Development Goals, including halving the proportion of people living in extreme poverty and hunger by 2015, ensuring primary schooling for all children, and reversing the spread of HIV/AIDS, malaria and other major diseases.
To my mind, this tax verges on a no brainer. We negotiated the GATT, NAFTA, etc. for the benefit of the corporations. It is high time we did the same for the benefit of humanity. We ordinary people have long lived with transaction taxes such as the sales tax. It is also high time that the wealthy of this planet pay a transaction tax as they move their wealth around the world manipulating money to make even more money. We badly need to bring this money market into some conformity with the world’s real economy. The wealthy and the Far Right will and are fighting it, usually as that hated economic practice called socialism, which has been made a bogeyman in the campaign against Obama. Which brings me to my final point (at last?). Several countries, e.g. France and Belgium, have already adopted the Tobin Tax conditional upon other major economic powers adopting it also. If the G8 plus India, China and Brazil could be persuaded to use this tax to mitigate the massively destructive over speculation of the global capitalist system’s impact on their own economies, the benefits to world economic stability would be substantial. By using the tax proceeds to progressively enhance the lives of the world’s poor, humanity just might find its way through the chaos of global warming and overpopulation.

Bob Newhard