Conversations with Abdul Aziz 3

By | October 17, 2008

KH: Well, Abdul, what’s your position on these crazy markets?

AA: I’m with Warren Buffet. I love that guy. Did you see his oped piece in the New York Times today, ‘Buy American. I am‘? It’s not just that I agree with his prediction that US stocks are going to bounce back soon, he has discovered a mother lode of pithy sayings: Be fearful when others are greedy, and be greedy when others are fearful. If you wait for the robins, spring will be over. Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.” I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” On top of which, he has such a good grasp of the economic history of the twentieth century. Maybe if Obama is going to be the next FDR, Buffet can do the fireside chats. He’d be wonderful at it. That way, he can be his own self-fulfilling prophecy, just like he always has been.

KH: I came across his Berkshire Hathaway annual report for 2002 not long ago. It’s got a sensational expose of derivatives, written in such clear language. But that’s enough of a puff for Warren B. I wanted to ask you, if you are bullish on America, how you think this economic crisis will affect the balance of power between the leading countries of the world and some of the smaller ones?

AA: Well, let’s start with the BRIC countries. Russia has had a financial meltdown of its own and all those dodgy banks relying on international credit are going to the wall. Putin has fortunately built up huge foreign exchange reserves from the commodities boom, so the state will be able to bail some of them out. But the whole of the former Soviet empire is going to be in deep trouble when the recession bites, since their economies have never known global conditions other than the neoliberal boom. I read somewhere that the Baltic states, Bulgaria and Kazakhstan are particularly vulnerable. None of the Eastern European governments have the resources to do anything comparable to what the major economies have done. But that raises the issue of what the European Union will do for the Eastern countries they let in.

KH: Europe hasn’t come out of all this very well, has it? There has been almost no evidence of political coordination, beyond the occasional press release of Merkel and Sarkozy holding hands and Gordon Brown leering on the fringes of some Brussels meeting. The performance of the common economic institutions, especially of the ECB, has been sluggish and inappropriate. What strikes me, living in Paris, is how slow they have been to recognize that a big slump is coming everywhere. It’s like they believe they were immune to the Anglo-Saxon liberal disease and will escape lightly now. There is no sign yet that the housing markets in France or Switzerland are feeling the effects of the credit crunch, but they surely will. It’s worth pointing out that all the big European countries have conservative governments (and I include New Labour!), without any prospect of electing an alternative soon. How ironic that the Americans are about to elect their most left-wing government since the 30s. So much for Europe’s claim to being the heartland of social democracy.

AA: Before we get into all that again, let’s go back to the other BRIC countries. Brazil has suffered the same kind of stock market crash as elsewhere, but it seems to be in better shape than Russia, because its underlying production, especially in agriculture, is sound and it has depended less on an extractive windfall. The stories coming out of the rest of Latin America are pretty horrendous, though. The big question is how China and India are weathering the storm and I guess we can add Japan. I should say that I have transferred a good chunk of my euros into dollars and yen, partly because I think European monetary union will become more unstable as this thing develops, partly because I like the US’s chances, as I said. Japan is by far the principal owner of US Treasury paper, much larger than the Chinese holdings we hear more about. If the world economy is heading for depression, that means that cash is king and the Japanese have a lot of it they can use to buy up cheap assets, like Mitsubishi’s capital injection into Morgan Stanley this week. Second, they had their financial collapse in the 90s and ought to be more robust now. And they are in the right part of the world if India and China really survive this period as strongly as some people seem to think.

KH: I have always thought that China’s political economy was more likely to come unhinged in a crisis than India’s. But I was in Manchester last weekend, eating in a huge Cantonese restaurant with 90% Chinese clientele. The atmosphere was so cheerful! It was hard not to be infected by the happy noise all around. For a moment I felt that I was witnessing the global revival of China, the optimism that comes from riding a wave to the top. The contrast with European gloom is hard to miss.

AA: Well, I do think that the trend towards Asia as the epicenter of the world economy will be strengthened in the long run and I am pessimistic about Europe’s prospects of finding the energy to respond creatively to the crisis. But the US was already a third of the world economy before and it could end up having an even higher share soon. So European fantasies of American decline are premature, to say the least. China’s manufactures are more vulnerable to a global recession and market fragmentation than India’s internet services. I can’t say I have a clear view of either’s prospects.

KH: We need to talk about Africa and the Middle East.

AA: Next time. More tea?

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