Economic Malaise Continues to Deepen

“Keynes's collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff," - Hyman Minsky 

A few months after I had shifted back to Delhi in end 2007, having stayed abroad from 1989 and since 1996 after retiring from Ankara, as an accredited journalist, with last 10 years in Bucharest, I sent to my civil service batch mates and others my article on onrushing crisis in world economy, which is literally being dragged towards a catastrophe by Wall Street something akin to the American film “Runaway Train”, with US economy leading like the rogue locomotive.

Some of my 1961 year civil services batch mates and others specially in India, who had held almost all the top positions in India’s federal economic ministries and departments dealing with economic matters and revenue found fault with my analysis that the manifest American economic hegemony could ever be challenged.  Some of them took particular objection to my comment that “have always considered an economist as someone who could not become a scientist and tries to shape economics, with its many variables and unpredictables based on fickle human nature, greed and other factors, to conform to the rigors of exact sciences with its equations and graphs. Like an Alchemist's it is hit or miss and when garnished with self-serving propaganda, it is a dangerous cocktail”. 

They were still skeptical when I sent around my article in end March 2008 predicting a traumatic economic fall by September, 2008 which was hosted by dozens of websites and blogs and much appreciated.

The Decline and Coming Fall of US Hegemony, March 30, 2008

The piece at the end was my third (but unpublished) article on the decline of the American century and its hegemony, since 11 September 2002. 

What did surprise me then and continues to anger  me very much is the Indian media especially TV channels , all have been unfortunately taken over by India’s corporate interests and were misleading the investing public with a rosy picture of the rise and rise in the Sensex. In Indian media not only on economic matters but in other sectors too this has been the fate of fourth pillar of democracy.

Once independent, media led by USA and other Western countries, barring some exceptions, now telecasts spins such as by BBC, CNN, Fox channel and others. This false propaganda barrage led the illegal 2003 invasion of Iraq, or for that matter the situation in Libya before and after the brutal assassination of its leader Gadhafi. Now the Dogs of War are swarming around Syria, led by NATO powers, Saudi Arabia, Gulf Emirates and Kingdoms along with an Islamist party dominated Turkey and upcoming Muslim Brotherhoods in Egypt and Tunisia. Truth has become a rare commodity in Western media. Earlier independent, Qatar based Al Jazeera news outlet too has now joined the gang of BBC and CNN.

Even when I wrote the article below it was felt that sooner or later India's GDP growth would hover around 6% of so, but tall claims have been made on the basis of foreign direct investment, a good portion of it the black money stacked abroad by India’s corrupt politicians, business houses and bureaucrats via officially recognized  shady route , Mauritius, stock exchanges have become like yo-yo Casinos with cheap US stimulus funds without any backing and ill gained Indian hot money moving in and out.  

Against overpowering inequities in wealth and incomes in USA, in hundreds of cities beginning with The Wall Street, there are daily demonstrations and sit ins. Violent riots have taken place in UK and other European cities. In India the equivalent has been the movements led by Gandhian Anna Hazare and Yoga teacher Baba Ram Dev, the former attracting middle classes, weighed by the daily exactions of the corrupt ruling classes and their tools, while the latter has strong roots among hundreds of millions of poor masses in urban and rural areas, whom he has been teaching Yoga for years and bringing about a remarkable improvement in their health. More than the combined efforts of health departments of governments, now centers of corruption and loot of public health funds.

The ruling dispensation mired in corruption and moral decay refuses to see the truth at its own peril.  

The American leadership is still telling lies to the people although all indicators indicate coming catastrophe sooner than later. Two reports of the United States Government released this week suggest that the so called recovery of the American economy may be losing momentum. The Labor Department admitted that the economy added fewer than half the number of jobs in terms of the market expectations and an acute long-term unemployment problem remains with a total of over 40 percent of the unemployed having been out of job for more than six months. The Commerce Department lowered the economy’s growth estimate to 1.9percent from the estimated 2.2 percent, which in itself was lower than the actual 3 percent growth in the last quarter of 2011.

The fraud being perpetrated on public in America and elsewhere by US bankers, financiers, corporate interests and military industry complex with loyal support from their followers elsewhere in India is now in the final stages of a likely collapse, sooner than later along the lines of the October 2008 which sent shockwaves to very foundations of Keynesian neo-liberal model of capitalism. 

In India, finally the leadership, our so-called experts in neo-liberal capitalism is confessing that there is something wrong with the Indian economy. Let me quote from my conversation with one such expert in 2000.

Confidence in the US Dollar;

Before 9/11, at a lunch for the Turkish PM at the Rashtrapati Bhavan I had demurred to an Indian economist, now occupying a very high position about the inequities of the current economic order, founded on the US dollar as the dominant reserve currency, which accounted for 68 percent of global currency reserves, up from 51 percent a decade ago. Yet in 2000, the US share of global exports ($781.1 billion out of a world total of $6.2 trillion) was only 12.3 percent and its share of global imports ($1.257 trillion out of a world total of $6.65trillion) was 18.9 percent. 

"Ever since 1971, when US president Richard Nixon arbitrarily took the dollar off the gold standard ($35 per ounce) in force since the Bretton Woods Conference at the end of World War II, the dollar has become the global monetary instrument that the United States, and only the United States, can produce by fiat, despite record US current-account deficits and the US as the leading debtor nation. The US national debt as of April 4 was $6.021 trillion against a GDP of $9 trillion. (It is now 9 trillion in a GDP of around 13 trillion) 

"India has to maintain ample foreign-exchange reserves, which have now reached $60 billion. Most of this must be kept in low-interest US securities, which US companies like Enron can then invest in India and force governments to guarantee 15 percent returns. Thus US companies earn billions of dollars by investing Indian savings in India. “[This argument I had used in my piece, ‘Decline of the American Century '.] 

The economist [looked at me disdainfully] replied with great insouciance, “Yes, but you have to create confidence as US has done in the dollar." I had to move away quickly not to give vent to my feelings of dismay and disgust. Since then many lunches have been organized at the Rashtrapati Bhavan and look where is the confidence in the US dollar. (In just 12 years) 

Below is my article of January 2008, which had brought quick retorts and brickbats from my batch mates and friends. 

Capitalism in Crisis –Again? 

After record falls in share index around the world, caused by imminent recession in USA, thus Federal Reserve announced immediate three-quarter-point cut, the largest in 26 years, which calmed the situation, perhaps temporarily. US President George Bush's $150 billion tax rebates were seen as too little and too late and had triggered a frenzy of selling. 

"Right now it's 50-50 whether you're going to have a recession in America,” said John Silvia, chief economist at the US bank Wachovia. "In the first quarter, growth will be negative and the Fed is struggling to keep it in positive territory for the second quarter." 

Profits at the US's second and fourth largest banks, Bank of America and Wachovia, have been all but wiped out by the deepening sub-prime crisis with both companies yesterday announcing multibillion-dollar write downs. The results follow news this month from market leader Citigroup of an $18 bn write-off, leading to the biggest loss in the firm’s 196-year history. All told, the world's big banks and broking houses have written off an estimated $120bn since the summer. 

I have repeatedly said that navel watching Indian media and so called policy makers think and behave like frogs in a well, albeit a big well. In spite of the developing economic crisis in USA for more than a year, our media and the government remained complacent and refused to see the onrushing tempest. Analysts commented if at all that India would not be affected much by the US crisis. PM and FM, both economists warmed by the rising Sensex based on influx of hot money took credit for the blooming of the Indian economy till the bull dream turned into a nightmare since Monday, ending the Bollywood like dream run into a hangover many an investor in India woke up to after predictions of Sensex crossing 25,000 in near future, to find it crashing down from a recent high of 22,000 to below 17,000. Investors on lost a whopping Rs. 15.82 trillion in the last seven days of market mayhem that included a fall of more than 4,000 points in the benchmark 30-share sensitive Index or Sensex. 

Following US Fed decision and calming effect in the US and East Asian shares , Indian Sensex recovered to over 17,000 on Wednesday, 23 January. It could stabilize higher for the time being. 

I have always considered an economist as someone who has failed as a scientist and tries to shape economics, with its many variables and unpredictables based on fickle human nature and other factors, to conform to the rigors of exact sciences with its equations and graphs. Like an Alchemist's method it is hit or miss and when garnished with self-serving propaganda, it is a dangerous cocktail.


Capitalism is once again in crisis but the center of gravity unlike the last 1997-98 crisis is in the heart of capitalism, USA. Having globalized and attached the world economy to its coat tails, the US recession is dragging down the whole world. 

In 2000 after the 1997-98 economic crisis I had written;

“In August/Sept 1998 the very bastions of capitalism were reduced to utter panic and incoherence after the collapse of East and South East Asian economies, the decimation of the ruble and impending fall of the Brazilian economy. On September 8, The Washington Post under the title “Rethink Capitalism" wrote,' what is frightening about the world’s current economic troubles is a sense that rules we thought we understood don’t seem to apply now. Until a few months ago, we thought we knew what a developing country had to do to join the ranks of the wealthy. We thought we knew how a Communist country could transform itself into a capitalist one. The general understanding was that as the world became more connected, it also would become more prosperous. Now, with Russia and much of Asia having crashed, with Eastern Europe and Latin America imperiled and with much of Africa going backward, the certainties of only a year ago seem far from certain.—' 

“Some other headlines around the same time were 'Global Capitalism, Once Triumphant, Is in Full Retreat' by Robert J. Samuelson in Newsweek, 'In Russia, the Liberal Western Model Has Failed 'by Martin Malia in International Herald Tribune etc. There were similar articles in Foreign Affairs of CFR, Washington and other journals. After chiding Asians for their crony capitalism , in Sep 1998, LTMC a big US Investment firm run by two 1997 Nobel Prize Winners for Economics (derivative trading?) had to be bailed out as its bets around   the world amounted to US$ 100 billion. Perhaps in expatiation Amritya Sen was given next year’s prize for his writings on famines and democracy. "… from my article "Capitalism  in Crisis and Failure of Globalization” - at the end. (It was published in the Romanian Journal of International Affairs, Bucharest Volume VI 1-2 , October , 2000)


Even in the so called socialist era in India before 1991, Indian state sector had lower share in GDP than that sector in UK, but India was demonized by the West as almost a communist state for not opening India to FDI. It is policies of that era implemented by Nehru and others that gave the economic and industrial strength and resilience, and human resources to build up the Indian industry.
Even then officers, especially in economic affairs department of Indian Ministry of Finance and elsewhere (with possibilities of a deputation to the West controlled Institutions) were chosen with tacit approval from USA controlling the IMF, World Bank and other Washington consensus institutes. They were, if found in tune with western thinking, then seconded to these Institutions. They earned fat pensions and have continued to promote policies favoring the West. These gentlemen and others retiring from multinationals have the temerity to write against Nehru's economic policies. Many are in important decision making positions in India. Somebody should request Wajahat Habibullah, Chief of Central Information Commission for information on the pensions earned by these worthies, who now are in the government or writing in corporate owned Indian media promoting unabashed capitalism and globalization. The list will amaze the Aam Aadmi and explain, why when they say that India is shining, the electorate votes out the villains (in walks another set) 

Let me give an example from elsewhere.

Victor Yushchenko 
Ukraine's President Viktor Yushchenko as the head of the newly-formed National Bank of Ukraine in 1993 enforced the IMF's usual shock therapy economic medicine which only impoverished the economy. He created a new Ukrainian national currency, which resulted in a dramatic plunge in real wages and the standard of living tumbled. In 1999, Yushchenko was appointed Prime Minister because of loans which IMF etc. had promised. In the now discredited IMF programs, it closed down part of the country's manufacturing base. Yushchenko also tried to undermine bilateral trade in oil and natural gas with Russia and demanded that this trade be conducted in US dollars rather than in terms of commodity barter. In 2001, he was dismissed following a non-confidence vote in the parliament - "Viktor Yushchenko has fulfilled obligations to the IMF better and more accurately than his duties to citizens of his our country, Olena Markosyan, a Kharkiv-based analyst, opined in Ukrainian centrist daily Den" (BBC Monitoring, 16 Nov 2004). 

Yushchenko was elected President in a December, 2004 re-poll as a result of US led West supported franchised 'street revolutions', earlier carried out successfully in Serbia and Georgia but which  failed in Belarus , Uzbekistan and Kyrgyzstan. There were many write ups in Guardian, Globalsearch and other websites which documented western agencies' massive financial and logistic support to Yushchenko.  According to New Statesman Yushchenko was supported covertly by the National Endowment for Democracy (NED), the Carnegie Endowment for International Peace, Freedom House and George Soros' Open Society Institute, the very entities, which helped oust Shevardnadze in Georgia the previous year. The NED has four affiliate institutes: The International Republican Institute (IRI), the National Democratic Institute for International Affairs (NDI), the Center for International Private Enterprise (CIPE), and the American Center for International Labor Solidarity (ACILS). They" provide technical assistance to aspiring democrats worldwide." Basically they help install pro-US puppets under the pretext of promoting democracy.
While in 1990s and earlier, countries like Mexico. Brazil. Argentina, Thailand. Indonesia became victims of recession this time it is the United States. In my view it is always the speculation on land and buildings, which have no agreed intrinsic value in crunch, which bring economic downfall as in South East Asia in 1997-98. Indians have still not caught on but I have been saying since many months that the land and housing values in spite of genuine demand have reached too sky high. They are not commensurate with returns on rents aka; speculation capital has entered the sector even from abroad.  The housing and land price boom will soon come down sharply.

Basically using jiggery pokery the investment banks and speculators in the West have created various kinds of funds and liquidity and disappointed with the returns from one country go to another, demanding opportunities for direct investment (FDI). “Eventually it becomes clear that the investment opportunity wasn't all it seemed to be, and the money rushes out again, with nasty consequences for the former financial favorite. That's the story of multiple financial crises in Latin America and Asia. And it's also the story of the U.S. combined housing and credit bubble. These days, we're playing the role usually assigned to third-world economies," said US economist Paul Krugman in New York Times last week. 

In early in 2005, Ben Bernanke before he was named chairman of the US Federal Reserve asked: "Why is the United States, with the world's largest economy, borrowing heavily on international capital markets “rather than lending, as would seem more natural?"  His answer was that the main explanation lay not here in America, but abroad. In particular, third world economies, which had been investor favorites for much of the 1990s, were shaken by a series of financial crises beginning in 1997. As a result, they abruptly switched from being destinations for capital to sources of capital, as their governments began accumulating huge precautionary hoards of overseas assets. 

The result, said Mr. Bernanke, there was a "global saving glut": lots of money. In the end, most of that was forced to go to the United  States. Why? Because, said Mr. Bernanke, of the "depth and sophistication of the country's financial markets." Krugman retorts that those U.S. financial markets, it turns out, were characterized less by sophistication than by sophistry, which" my dictionary defines as a deliberately invalid argument displaying ingenuity in reasoning in the hope of deceiving someone." E.g., "Repackaging dubious loans into collateralized debt obligations creates a lot of perfectly safe, AAA assets that will never go bad." 

Continues Krugman, "In other words, the United States was not, in fact, uniquely well-suited to make use of the world's surplus funds." It was, instead, a place where large sums could be and were invested very badly. Directly or indirectly, capital flowing into America from global investors ended up financing a housing-and-credit bubble that has now burst, with painful consequences."
Another main reason is US-Saudi axis , with the former protecting the degenerate but Wahhabi ideology spreading dynasty (and others in the Gulf) through Madarsas and support to Jihadis and nominating oil prices in US dollars , forcing the oil importing nations to keep US dollar reserves. But slowly things are changing with oil prices being quoted in Euros or basket of currencies and other such measures. And transfer of dollars into Euros. Iran President Ahmadinejad must be delighted. 

An apologia; I am a simple electrical engineering graduate from Banaras of 1958 vintage, who taught it at Patiala for three years and found that chief engineers at IDPL ,which I managed in 1985 and 86 remembered even less of engineering. The job was all about management. In spite of efforts to learn economics I remain a dilettante.  Still I keep on trying. 

The article below was written for late President K.R Narayanan. Having been his First Secretary in early 1970s when he was Ambassador to Ankara he was very kind and always granted me an audience of half an hour or more whenever I visited Delhi, when he resided up at the Raisina Hill. He also indulged me to 'lecture' on whatever I was writing on. I had spoken to him in early 2000 about the crisis in Capitalism. Next day he telephoned to enquire if I had written much on the subject. So I wrote this piece for him. 

It was written based on some further reading of the history of Capitalism and Banking dynasties, and experience of postings and tours in communist and post-Communist countries like Romania, Germany (East), Azerbaijan, Turkmenistan and Uzbekistan among others. It will provide a useful background on post Communist era, when mafias have taken over many of the institutions if not these countries for the US led west. 

Unlike George Bush, who has approval rating of just over 30% in USA, Vladimir Putin has an approval rating of over 70 % in Russia. According to a recent Public Opinion Barometer, conducted by the Soros Foundation Nicolae Ceausescu the demonized dictator remains in the first position of great Romanian leaders during the last hundred years, with 23 per cent votes, followed by current President Traian Basescu, with 15 per cent. The lower positions are taken by Ion Iliescu (7 percent), Kings Carol I (6 per cent) and Mihai I (6 per cent), Gheorghiu Dej (3 percent), King Ferdinand (3 per cent), Nicolae Titulescu (2 per cent), King Carol II (2 per cent), Ion Antonescu (2 per cent), Emil Constantinescu (1 per cent.) 


More by :  K. Gajendra Singh

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Views: 3255      Comments: 1

Comment Hi, Excellent article but the strength of US is coming from the weekness of others. So how ever the weakness of US, it is self-defeating untill other economies grow strong.

andy william
05-Jun-2012 14:00 PM

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