News about financial markets is 24/7. Coverage of this or that stock price moving up and down comes fast and hard. Earth’s orbit would appear to be dependent on what the Federal Reserve Bank does or does not do to interest rates.
The inquiring minds of investors want to know that, and more. Constantly, they search for a crystal ball to tell them what tomorrow may bring for their investments. Such knowledge is a precious thing to them, indeed.
What is assumed here needs to be explained. Namely, why is it that investment capital flows into financial markets in the first place? Why not invest in producing things that people make/grow, sell, buy and use?
Apparently, profits are not as likely with additional production as they are in financial speculation. So investors buy bonds and stocks. On that note, much foreign capital flows to U.S. borrowers, households and businesses.
Some foreign lenders like the safety of such investments in the only world superpower. It is militarily supreme. That power of force helps to make its currency, the greenback, attractive—for now.
However, some investors worry about how long that attraction will continue.
In the June 17 Financial Times, a top bond manager fretted "The U.S. dollar is being supported by the kindness of strangers -- Japan and China.” What will happen to the bubbly value of the U.S. currency if/when that support weakens?
Where would this investment capital go if not to the U.S.? What unseen effects could be set into motion from such changes in global investment?
The business press can speculate, having mainly missed the meltdown of the dot.com bubble, among others.
And radicals? Some of them have correctly forecast one of the past 10 financial crises. But don’t dismiss radical analyses of the market quite yet.
Go to the root of the matter and try this thought experiment. Ask yourself a question that does not get posed by those who dominate the investment debate in news outlets such as The Financial Times. Who has created the surplus capital being lent by a few and spent by many?
The surplus comes from working people around the world. In one case, U.S. borrowers are spending the surplus created by Japanese and Chinese workers.
The market tends to hide the origin of the surplus—interest, profit and rent.
Firms and workers pay for the privilege of borrowing money. This claim on their future income takes the price form of interest. The names of the financial institutions involved may and do change like the weather, but relations between creditors and debtors remain uneven.
Crucially, private-sector workers create profits for their employers in high- and low-income nations. This is done legally, according to the letter of the law. The Iraqi people will be getting more of this thing called market democracy with the “handover of sovereignty” to them from the U.S. government, effective July 1.
As regards rent, it is income earned by landlords from their tenants. For workers, rent payments come from wages earned on the job. Wages are the price form of the value that employees create for private-sector employers from Argentina to Russia and throughout the “land of the free.”
Significantly, those who produce the surplus capital do not own it. The direct producers are basically surplus-less. Call them the working majority, in no way overlooking the many national differences in the global economy.
On the surface, some foreign lenders appear as kind strangers to U.S. debtors. Yet the underlying reality points to a much different set of social relations. Meanwhile, the Bush administration wages a war on some terrorists to expand market democracy, itself the engine for surplus capital.
Seth Sandronsky is a member of Peace Action and co-editor with Because People Matter, Sacramento’s progressive paper. He can be reached at: firstname.lastname@example.org.
Other Recent Articles by Seth Sandronsky
America, Can I Get A Whiteness?