Franc falls, is US dollar far behind?
By Stephen Millies
NEW YORK — "Money does not smell", wrote the Roman historian Tacitus nearly 20 centuries ago. Whether or not this is true, money has to represent value. This is the root of the currency crisis that rocked the financial markets of Europe and brought down the French franc at the end of July.
What's the whole hullabaloo about the drop in value of the franc? After all, this currency dropped only two percentage points or so against the German mark. Why should this create such a crisis? Because the entire system of European finance — the so-called European Monetary System of exchange rates — was based on the relationship between the German mark and the French franc.
This currency crisis shows the brutal reality of who's in charge, however. "France knows that the real new Europe is centered around Germany", said Peter O'Shea, a managing director at Morgan Stanley brokerage house in London to the Wall Street Journal (July 30).
Much has been made of the fact the jacked-up interest rates in Germany have caused a surge of capital to go into that country. This inflow of capital could not but raise the value of the mark in relation to every other currency.
Capital always flows to where the profit is greatest. The "discount rate" of the Bundesbank — the German equivalent of the Federal Reserve Bank — has risen from 2.5% in 1988 to 6.75% today. This discount rate is what the Bundesbank charges to lend money to the other German banks and thus serves as the minimum lending rate.
This discount rate was raised in order to attract the capital needed for swallowing the German Democratic Republic by the government of the Deutsche Bank, the Flicks of Mercedes-Benz, and the Krupps.
But this dramatic increase in the German interest rates is not the entire story behind the crisis. For, as Karl Marx noted over a century ago, disturbances in the capitalist system often first appear at its financial extremities.
And the general crisis of world capitalism is deepening. Production is stagnant or even declining.
It is this crisis that produces the continued instability on the
currency markets. According to the August 2 issue of the Wall Street Journal, between $US28 billion and $US45 billion was spent by the European central banks in a futile effort to stanch the hemorrhage of the franc.
Why not an exact figure? Because the money spent by these government-owned banks is kept as a secret from the people. To this day, Alan Greenspan, head of the Federal Reserve, refuses to reveal how much money the Fed lent out to prop up the stock market in the big crash of 1987.
But all this money could not alter the fact that the French economy has declined relative to the German. And thus the currency declined as well.
Where did these billions of dollars that were spent to prop up the franc end up? While the capitalist system trembled at the currency crisis, individual capitalists and some of the biggest banks made a killing.
Meet George Soros. He claims to have made a tidy profit of $US1 billion from speculating against the British pound last October. Soros first claimed in a July 26 letter to the French newspaper Le Figaro that he wouldn't speculate against the franc. Four days later Soros told news agencies that he no longer felt bound from betting against the franc.
What is consistent about Soros and every other capitalist is their lust for profit. Soros, by the way, serves as sort of a godfather to one wing of the Hungarian counterrevolution in the same way that Felix Rohatyn did to the cutback regimes of Abe Beame and Ed Koch in New York City.
The biggest banks are involved in this massive gambling operation as well. One trillion dollars is traded every day on the currency market. Money, whether it comes from "laundering" the profits of the drug trade or from bashing a country's currency, does not smell to them either.
Our friend Tacitus also wrote that "a corpse of an enemy smells sweet". To the worthies who made billions off its fall, the franc may indeed have been a most fragrant corpse. But do they realise that the next currency crisis may not be the franc in Europe but the dollar in the US?
[From Workers World Service, via Pegasus.]