In an effort to prop up the value of the dollar,
Richard Nixon negotiated
a deal with Saudi Arabia
that in exchange for arms and protection they would denominate all future oil sales in
U.S.
dollars. Subsequently, the other OPEC
countries agreed to similar deals thus ensuring a global demand for U.S. dollars and allowing the
U.S. to export some of its inflation.
Since these dollars did not circulate within the country and thus were not part of the normal
money supply, economists felt another term was necessary to describe the dollars received by petroleum
exporting countries (OPEC) in exchange for oil, so the term petrodollar was coined by
Georgetown
University economics professor,
Ibrahim Oweiss.
Because the United States was the largest producer and consumer of oil in the world, the world
oil market had been priced in United States dollars since the end of
World War II.
International oil prices were based on discounts or premiums relative to that for oil in the Gulf
of Mexico. But, although oil sales prior to 1973 were denominated in U.S. dollars, nothing precluded
settlement in local currency.
In October 1973, OPEC declared an oil embargo in response to the United States' and Western Europe's
support of Israel in the
Yom Kippur War,
and this tension (and the new power of OPEC) led to fear that the dollar would become insignificant
in the oil trade.
Large inflows of petrodollars into a country often has an impact on the value of its currency.
For Canada it was shown that an
increase of 10% in the price of oil increases the
Canadian dollar
value versus the US dollar by 3%[5]
and vice versa.
The petrodollar is under the threat of extinction due to the bilateral trade agreements of other
nation states. Currency swaps between countries, which are not so much anti dollar, but more about
efficiency undermine petrodollar. Selling oil for euro does the same damage to the petrodollar and
is very negatively vied by the US elite. One often cited reason of war in Iraq was to stop Iraq to
sell oil using euro (Petrodollar
Warfare Oil, Iraq and the Future of the Dollar William R. Clark)
The invasion of Iraq may well be remembered as the first oil currency war. Far from being a
response to 9/11 terrorism or Iraq’s alleged weapons of mass destruction, Petrodollar
Warfare argues that the invasion was precipitated by two converging phenomena: the
imminent peak in global oil production and the ascendance of the euro currency.
Energy
analysts agree that world oil supplies are about to peak, after which there will be a
steady decline in supplies of oil. Iraq, possessing the world’s second-largest oil
reserves, was therefore already a target of US geostrategic interests. Together with the
fact that Iraq had switched to paying for oil in euros—rather than US dollars—the Bush
administration’s unreported aim was to prevent further OPEC momentum in favor of the euro
as an alternative oil transaction currency standard.
Meticulously researched, Petrodollar Warfare examines US dollar hegemony and the
unsustainable macroeconomics of ‘petrodollar recycling,’ pointing out that the issues
underlying the Iraq war also apply to geostrategic tensions between the United States and
other countries, including the member states of the European Union, Iran, Venezuela and
Russia. The author warns that without changing course, the American experiment will end the
way all empires end—with military overextension and subsequent economic decline. He
recommends the multilateral pursuit of both energy and monetary reforms within a UN
framework to create a more balanced global energy and monetary system—thereby reducing the
possibility of future oil and oil currency-related warfare.
A sober call for an end to aggressive US unilateralism, Petrodollar Warfare is a
unique contribution to the debate about the future global political economy.
William R. Clark is manager of performance improvement at Johns Hopkins
University School of Medicine. His research on oil depletion, oil currency issues and US
geostrategy received a 2003 Project Censored Award and was published in Censored 2004.
He lives in Columbia, Maryland.
Low oil prices also undermine petrodollar as less petrodollars leaving the USA (or more correct
are exchanged for treasuries ). At the same time less petrodollars leaving the country = lower balance of payments deficit.
The problem s that as a result of the soaring US dollar and collapse in oil prices, petrodollar
recycling into Tresuries has crashed, leading to an outright liquidation of FX reserves, read US
Treasuries by emerging market nations. This was reinforced on August 11th when China joined the
global liquidation push as a result of its devaluation announcement. It might well be thatexposing Chinese were dumping of US Treasurys via Belgium (
May report "Revealing The Identity Of The Mystery "Belgian" Buyer Of US Treasurys",) The
emerging market petro-exporters have no choice but to liquidate FX reserve assets: this includes all
oil producing nations and most recently, China.
Rapidly falling revenues for those US oil shale oil producers is another problem. Most,
if not all of them, have borrowed huge amounts from the US capital markets, and...... the debt needs to
be serviced. That spells massive bankruptcies' in the near future and might affect some banks
unless they are allowed to borrow from Fed at zero rate.
If most heavily leverage frackers go bankrupt, that punishes both their investors and
lenders on Wall Street. The assets are then sold off (pennies in the dollar) and the new owners now only
need to pay the costs of fracking and not the cost of debt servicing. In other words low oil
prices are bad for Wall Street and bad for the oil exporting nations. Especially those which were building giant cities like
in Dubai:
As commentators focus on the hospitalisations of two Gulf monarchs, and permutate likely
succession issues, they may miss the wood for the succession trees: Of course, the death of
either the Emir of Kuwait (91 years old) or King Salman of Saudi Arabia (84 years old) is a
serious political matter. King Salman's particularly has the potential to upturn the region (or
not). Yet Gulf stability today rests less on who succeeds, but rather on tectonic shifts in
geo-finance and politics that are just becoming visible. Time to move on from stale ruminations
about who's 'up and coming', and who's 'down and out' in these dysfunctional families.
The stark fact is that Gulf stability rests on selling enough energy to buy-off internal
discontents, and to pay for supersized surveillance and security set-ups.
For the moment, times are hard, but the States' financial 'cushions' are just about
holding-up (albeit only for the big three: Saudi Arabia, Abu Dhabi and Qatar). For others the
situation is dire. The question is, will this present status quo persist? This is where the
warnings of shifts in certain global tectonic plates becomes salient.
The Kuwaiti succession struggle is emblematic of the Gulf rift: One candidate for Emir, (the
brother), stands with Saudi Arabia and its Wahhabi-led 'war' on Sunni Islamists (the Muslim
Brotherhood). Whereas the other, (the eldest son), is actively backed by the Muslim
Brotherhood, Qatar and Turkey. Thus, Kuwait sits on firmly on the Gulf abyss – a region
with significant, but disempowered Shi'a minorities, and a Sunni camp divided and 'at war' with
itself over support for the Muslim Brotherhood; or what is (politely called) 'autocratic
secular stability'.
Interesting though this is, is this really still so relevant?
The Gulf, perhaps more significantly, is held hostage to two huge financial bubbles. The
real risk to these States may prove to come from these bubbles, which are the very devil to
prick-down into any gentle, expelling of gas. They are sustained by mass psychology –
which can pivot on a dime – and usually end catastrophically in a market 'tantrum', or a
'bust' – and with consequent risk of depression, should Central Banks ever try to lift
the foot off the monetary accelerator.
The U.S. ubiquitous 'asset bubble' is famous. Central Bankers have been worrying about it
for years. And the Fed is throwing money at it – with abandon – to keep it from
popping. But as indicated earlier, such bubbles are highly vulnerable to psychology – and
that may be turning, as the celebrated V-shaped, expected economic recovery recedes into the
virus-induced distance. But for now, investors believe that the Fed daren't let it implode
– that the Fed has absolutely no option but go on throwing more and more money at it (at
least until November elections & then what?).
Less visible is that other vast 'asset bubble': The Chinese domestic property market. With
its closed capital account, China has a huge sum (some $40 trillion) sloshing around in
collective bank accounts. That money can't go abroad (at least legally), so it rotates around
between three asset markets: apartments, stocks, and commodities somewhat whimsically. But
investing in apartments is absolutely king! 96%
of urban Chinese own more than one: 75% of private wealth is represented by investments in
condos – albeit with 21% standing empty in urban China, for lack of a tenant.
Long story, short, the Chinese massively chase property valuations. Indeed, as the WSJ has
noted "the central problem in China is that buyers have figured out the government doesn't
appear to be willing to let the market fall. If home prices did drop significantly, it would
wipe out most citizens' primary source of wealth, and potentially trigger unrest". Even during
the pandemic – or, perhaps because of it as the Chinese piled-in – prices rose 4.9%
in June, year on year. The total
value of Chinese homes and developers' inventory hit $52 trillion in 2019, according to
Goldman Sachs; i.e. twice the size of the U.S. residential market, and outstripping even the
entire U.S. bond market.
If it sounds just like America's QE-inflated asset markets, that's because it is. As things
stand, both the Chinese residential and the U.S. equity bubbles are unstable. Which might
fracture fist? Who knows but bubbles are also vulnerable to pop on geo-political events (such
as a U.S. naval landing on one of China's disputed South Sea islands, to which
China is promising , absolutely, a military response).
No one has any idea how Chinese officials can manage the property bubble, without
destabilizing the broader economy. And even should the market stay strong, it creates headaches
for policy makers, who have had to hold off on more aggressive economic stimulus this year
– which some analysts say is needed, partly because of fears it will inflate
housing further.
Ah there it is: Out in plain view – the risk. The condo-trade has hijacked the entire
Chinese economy, tying officials' hands. This, at the moment when Trump's trade war has turned
into a new ideological cold war targeting the Chinese Communist Party. What if the Chinese
economy, under further U.S. sanctions, slides further, or if Covid 19 resurges (as it is in
Hong Kong)? Will then the housing market break, causing recession or depression? It is, after
all, China and Asia that buy the bulk of Gulf energy: Demand shrinks, and price falls. The fate
of the Gulf States' economies – and stability – is tied to these mega-bubbles not
popping.
Bubbles are one factor, but there are also signs of the tectonic plates drifting apart in a
different way, but no less threatening. Bankers Goldman Sachs sits at the very heart of the
western financial system – and incidentally staffs much of Team Trump, as well as the
Federal Reserve.
And Goldman wrote something this week that one might not expect from such a system stalwart:
Its commodity strategist Jeffrey Currie,
wrote that "real concerns around the longevity of the U.S. dollar as a reserve currency
have started to emerge".
What? Goldman says the dollar might lose its reserve currency status. Unthinkable? Well that
would be the standard view. Dollar hegemony and sanctions have long been seen as Washington's
stranglehold on the world through which to preserve U.S. primacy. America's 'hidden war', as it
were. Trump clearly views the dollar as the bludgeon that can make America Great Again.
Furthermore, as Trump and Mnuchin – and now Congress – have taken control of the
Treasury arsenal, the roll-out of new sanctions bludgeoning has turned into a deluge.
But there has also been within certain U.S. circles, a contrarian view. Which is that the
U.S. needs to 're-boot' its economic model with a Tech-led, 'supply-side' miracle to end growth
stagnation. Too much debt suffocates an economy, and populates it with zombie enterprises.
In 2014, Jared Bernstein, Obama's former chief economist said that the U.S. Dollar
must
lose its reserve status , if such a re-boot were to be done. He explained why, in a New
York Times op-ed:
"There are few truisms about the world economy, but for decades, one has been the role of
the United States dollar as the world's reserve currency. It's a core principle of American
economic policy. After all, who wouldn't want their currency to be the one that foreign banks
and governments want to hold in reserve?
"But new research reveals that what was once a privilege is now a burden, undermining job
growth, pumping up budget and trade deficits and inflating financial bubbles. To get the
American economy on track, the government needs to drop its commitment to maintaining the
dollar's reserve-currency status."
In essence, this is the Davos Great Reset line
. Christine Lagarde, in the same year, called too for a 'reset' (or re-boot) of monetary policy
(in the face of "bubbles growing here and there) – and to deal with stagnant growth and
unemployment. And this week, the U.S. Council on Foreign Relations issued a paper entitled:
It
is Time to Abandon Dollar Hegemony .
That, we repeat, is the globalist line. The CFR has been a progenitor of both the European
and Davos projects. It is not Trump's. He is fighting to keep America as the seat of western
power, and not to accede that role to Merkel's European project – or to China.
So why would Goldman Sachs say such a thing? Attend carefully to Goldman's framing: It is
not the Davos line. Instead, Currie writes that the soaring disconnect between spiking gold
price and a weakening dollar "is being driven by a potential shift in the U.S. Fed towards an
inflationary bias, against a backdrop of rising geopolitical tensions, elevated U.S. domestic
political and social uncertainty, and a growing second wave of covid-19 related
infections".
Translation: It is about U.S. explosive debt accumulation, on account of the Coronavirus
lockdown. In a world where there is already over $100 trillion in dollar-denominated debt, on
which the U.S. cannot default; nor will it ever be repaid. It can therefore only be inflated
away. That is to say the debt can only be managed through debasing the currency. (Debt jubilees
are viewed as beyond the pale.)
That is to say, Goldman's man says dollar debasement is firmly on the Fed agenda. And that
means that "real concerns around the longevity of the U.S. dollar as a reserve currency, have
started to emerge".
It is a nuanced message: It hints that the monetary experiment, which began in 1971, is
ending. Currie is telling U.S. that the U.S. is no longer able to manage an economy with this
much debt – simply by printing new currency, and with its hands tied on other options.
The debt situation already is unprecedented – and the pandemic is accelerating the
process.
In short, things are starting to spin out of control, which is not the same as advocating a
re-boot. And the debasement of money is inevitable. That's why Currie points to the disconnect
between the gold price (which usually governments like to repress), and a weakening dollar. If
it is out of the Fed's control, it is ultimately (post-November) out of Trump's hands, too.
Should confidence in the dollar begin to evaporate, all fiat currencies will sink in tandem
– as G20 Central Banks are bound by the same policies as the U.S.. China's situation is
complicated. It would in one way be harmed by dollar debasement, but in another way, a general
debasement of fiat currency would offer China and Russia the crisis (i.e. the opportunity), to
escape the dollar's knee pressed onto their throats.
And for Gulf States? The slump in oil prices this year already has prompted some investors
to bet against Gulf nations' currencies, putting longstanding currency pegs with the dollar
under pressure. GCC states have kept their currencies glued to the dollar since the 1970s, but
low oil demand, combined with dollar weakness would exacerbate the threat to Gulf 'pegs', as
their trade deficits blow out. Were a peg to break, it is not clear there would be any obvious
floor to that currency, in present circumstances.
Against such a backdrop, the royal successions underway in Gulf States might perhaps be
regarded a sideshow.
"... Authored by Ryan McMaken via The Mises Institute, ..."
"... "Washington is treating the EU as an adversary. It is dealing the same way with Mexico, Canada, and with allies in Asia. This policy will provoke counter-reactions across the world." ..."
"... The National Interest ..."
"... Treasury's War: The Unleashing of a New Era of Financial Warfare ..."
"... "We must increase Europe's autonomy and sovereignty in trade, economic and financial policies ... It will not be easy, but we have already begun to do it." ..."
When the US places financial sanctions one one country, it de facto sanctions many
other countries as well -- including many of its allies.
This is because not all countries and firms are interested in participating in the US
sanctions-based foreign policy.
Sanctions, after all, have become a favorite go-to strategy for American policymakers who
seek to isolate or punish foreign states that don't cooperate with US international policy
goals.
In recent years, the US has been most active in imposing new sanctions on Russia and Iran,
with many consequences for US allies who are still open to doing business with both of those
countries.
The US can retaliate against organizations that violate US sanctions in a variety of ways.
In the past, the US has sued firms such as the Netherlands' ING Groep and Switzerland Credit
Suisse. Both firms have paid hundreds of millions of dollars in fines in the past. The US has
been known to
go after individuals .
US bureaucrats like to remind firms that penalties await them, should then not buckle under
US sanctions plan. In November 2018, for example, US Secretary of State Michael Pompeo
announced :
I promise you that doing business in Iran in defiance of our sanctions will ultimately be
a much more painful business decision than pulling out of Iran.
Fear of sanctions has caused some firms to stop work mid project, such as
when Swiss pipe-laying company Allseas Group abandoned a $10 billion pipeline that was
nearing completion.
Not surprisingly, these firms -- who employ people, pay taxes, and contribute to economic
growth -- have put pressure on their governments to protest the mounting interference from the
US into private trade.
As a result, some European politicians are increasingly looking for ways
to get around US sanctions . In a tweet last week, Germany's deputy foreign minister Niels
Annen wrote "Europe needs new instruments to be able to defend itself from licentious
extraterritorial sanctions."
Another "senior German government official" concluded, "Washington is treating the EU as
an adversary. It is dealing the same way with Mexico, Canada, and with allies in Asia. This
policy will provoke counter-reactions across the world."
But how is the US so easily able to sanction so much of the world, including companies in
huge and influential countries like Germany?
The answer lies in the fact the US dollar and the US economy remain at the center of the
international trade system.
SWIFT: How the US Sanctions the World
By the waning days of the Cold War, the US dollar had become the dominant currency in the
non-communist world, thanks to the Bretton Woods agreement, the petrodollar, and the sheer size
of the US economy.
Once the Communist Bloc collapsed, the dollar was poised to grow even more in importance,
and the world's financial institutions searched for a way to make global trade and investing
even faster and easier.
Henry Farrell at The National Interestdescribes
what came next:
Financial institutions wanted to communicate with other financial institutions so that
they could send and receive money. This led them to abandon inefficient
institution-to-institution communications and to converge on a common solution: the financial
messaging system maintained by the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) consortium, based in Belgium. Similarly, banks wanted to make
transactions in the globally dominant currency, the U.S. dollar. ... In practice, the
physical infrastructure, for a variety of efficiency reasons, tended to channel global flows
through a small number of central data cables and switch points.
At the time, Europe was still years away from creating the euro, and it only seemed natural
that a centralized dollar-transfer system be developed for all the world.
SWIFT personnel have always maintained their organization is apolitical, neutral, and only
interested in providing a service. But geopolitical realities have long intervened. Farrell
continues:
The centralizing tendencies meant that the new infrastructure of global networks was
asymmetric: some nodes and connections were far more important than others. ... What this
meant was that a few states -- most prominently the United States -- had the latent ability
to transform the global economic infrastructures ... into an architecture of global power and
information gathering.
By 2001, the power of this centralized system had become apparent. And in the wake of 9/11,
the US used the "War on Terror" and an opportunity to turn SWIFT into an enormous international
tool for surveillance and financial power.
In his book Treasury's War: The Unleashing of a New Era of Financial Warfare Juan Zarate shows
how the US Treasury officials pressured SWIFT and its personnel to provide the US government
with the means to use this international financial "plumbing" to deprive the US's enemies of
access to markets.
This started out slow, and SWIFT officials were concerned it would become widely known that
SWIFT was becoming politicized and largely a tool of the US and US allies. Nevertheless, the
American regime pressed its advantage, and by 2012 "for the first time ever, SWIFT unplugged
designated Iranian banks from its system, in accordance with a European directive and under the
threat of possible US legislation."
This only strengthened worries among both world regimes and the world's financial
institutions that the basic technical infrastructure of the international financial system was
really a political tool.
The World Searches for Alternatives
Naturally, Russia and China have been highly motivated to find alternatives to SWIFT. But
even perennial US allies have grown far more wary of leaving the financial system in a place
where it can be so easily dominated by the US regime. If Iranian banks can be "unplugged" so
easily from the global system, what's to stop the US from taking similar steps against German
banks, French banks, or Italian banks?
This, of course, is an implied threat behind US demands that European companies not try to
work around US sanctions or face "punishment." From the US perspective, if Germans refuse to
kowtow to US policy, then there's an easy solution: simply cut the Germans off from the
international banking system.
Consequently, Germany's Foreign Minister Heiko Maas announced
in 2008
"We must increase Europe's autonomy and sovereignty in trade, economic and financial
policies ... It will not be easy, but we have already begun to do it."
By late 2019, the UK, France, and Germany had put together a workaround called "INSTEX"
designed to facilitate continued trade with Iran without using the dollar and the SWIFT system
built upon it. Belgium, Denmark, Finland, the Netherlands, Norway and Sweden have joined the
system as well.
As of January 2020, however, the cumbersome system remains unused. But we remain in the very
early stages of European efforts to get a divorce from the dollar-dominated financial system.
The INSTEX system has been devised, for now, for a limited purpose. But there is no reason it
cannot be expanded in the future. The short-term prospects for a functional system are low.
Longer-term, however, things are different. The motivation for a long-term workaround is
growing. The Trump administration has embraced showmanship that looks good in a short-term news
cycle, but which encourages US allies to pull away. Farrell continues:
Unlike Obama, Donald Trump did not use careful diplomacy to build international support
for [new sanctions] against Iran. Instead, he imposed them by fiat, to the consternation of
European allies, who remained committed to the [Iran agreement put in place under Obama]. The
United States now threatened to impose draconian penalties on its allies' firms if they
continued to work inside the terms of an international agreement that the United States
itself had negotiated. The EU invoked a blocking statute, which effectively made it illegal
for European firms to comply with U.S. sanctions, but without any significant consequences.
SWIFT, for example, avoided the statute by never formally stating that it was complying with
U.S. sanctions; instead explaining that it was regrettably suspending relations with Iranian
banks "in the interest of the stability and integrity of the wider global financial
system."
All of this is viewed with alarm by not only Europe, but by China and Russia as well. The
near-constant stream of threats by the US administration to impose ever harsher limits and
sanctions on both China and Europe has pushed the rest of the world to accelerate plans to get
around US sanctions. After all, as of mid-2019, the US
had nearly 8,000 sanctions in place against various states and organizations and
individuals. The term now being used in reference to American sanctions is "
overuse ." It was one thing when the US imposed sanctions in some extreme cases. But now
the US appears increasingly fond of using and threatening sanctions regularly, without
consulting allies.
This makes continued US dominance in this regard less likely as allies the world pour more
and more resources into ending the US-SWIFT control of the system. In a 2018 report, "Towards a
Stronger International Role of the Euro," the European Commission described U.S. sanctions as "
wake-up call regarding Europe's economic and monetary sovereignty. "
The effort still has a long way to go, but perhaps not as far as many think.
The dollar remains far ahead of the euro in terms of the dollar's use as a reserve currency,
but the dollar and the euro are move evenly matched
when it comes to international payment transactions.
If the rest of the world remains sufficiently motivated, more can certainly be done to rein
in dollar-based sanctions. Indeed, in 2019, former US Treasury Secretary Jacob Lew
admitted :
the plumbing is being built and tested to work around the United States. Over time as
those tools are perfected, if the United States stays on a path where it is seen as going it
alone there will increasingly be alternatives that will chip away at the centrality of the
United States.
If the US finds itself not longer at the center of the global financial system, this will
bring significant disadvantages for the US regime and US residents. A decline in demand for the
dollar would also lead to less demand for US debt. This would put upward pressure on interest
rates and thus bring higher debt-payment obligations for the US regime. This would constrain
defense spending and the ability of the US to project its power to every corner of the globe.
At the same time, central bank efforts to drive interest rates back down would bring a greater
need to monetize the debt. The resulting price inflation in either consumer goods or assets
would be significant.
The fact none of this will become obvious next week or next month
doesn't mean it will never happen . But the US's enthusiasm for sanctions means the world
is already learning the price of doing business with the United States and with the dollar.
Took three months to pass the legislation to seize control of the Gold supply even though
they knew the U.S defaulted on the War debt of first world war and America was only partially
involved.
Better move fast. U.S has not declared War for real since Pearl Harbour.
Best way to avert it is to look at the economic calculations being made and slow what they
need for this extended and probably apocalyptic war to start.
They need man power for what is planned but I have a suspicion this time they are planning
for megadeath on all sides.
Nothing will be destroyed. Situations like this are about chipping away and crumbling.
Rome was not built in a day. People sit in wait to find a weak spot of the hegemon and if you
think that the US is a perfect and perpetual hegemon than you are as delusional as Obama.
He bragged in 2015 that he/they twisted arms of countries when they did not do what he
'needed' them to do. (See y-tube). Every country, every person who had arms twisted is
sitting in wait to hit back. Chisel away, apply needlepricks, obedience can be forced; desire
for revenge never dies.
You need to treat people well on your way up because you are meeting them all again on
your way down.
Will The US Obsession With Sanctions Destroy The Dollar?
Hopefully it will destroy the US BULLY TOO...
This saga of Sanctions all started with the Black Jesus Obama and Russia. It was a
disaster then, harmful to Russian women and children and never affect the oligarchs. It is
Stalingrad stuff.
Then along comes the pile of **** known as the Orange Jesus. Considering Trump's pretend
hatred of Obama, he sure loved the community organizers weaponizing of the Dollar Reserve...
So much so the orange ******* now has 40% of the world population under Dollar Reserve
Sanctions. More Stalingrad ****. And the world hates it.
So there is no question that nations will find ways around sanctions and the mother fking
pencil necked poodles that support this mfkirng ****. They can't comprehend that if TRUMP
does this to some country, he can do it to them.
The Dollar Reserve was intended to be apolitical a means of global commerce. At Bretton
Woods, Maynard Keynes addressed the Reserve Currency to avoid this. He recommended a
synthetic reserve currency composed of five of the world's leading currencies called the
BANCOR. He was voted down by the US delegation that only would accept the Dollar over the
Pound. Britain was too weak after the war to oppose the US. So that set up the Dollar Reserve
by intimidation and bullying. What else is new.
Now the US uses their 800 military bases to enforce their Sanctions and Dollar reserve
weaponizing.
This will come to an end. Europe is a larger economy than the US and Asia is larger than
the US and Europe Combined. So this dollar reserve weaponizing crap will end.
Interesting isn't it that the two most economically illiterate presidents in history, love
sanctions. I promise, the Dollar reserve as the primary currency of exchange is THE DEAD MAN
WALKING.... They are also the most RACIST presidents in US History.
Goldamn did a white paper on this... If the US loses the Dollar Reserve the GDP would tank
30%. So yeah... welcome to the the stone age and fighting in the streets. But to neutralize
the dollar Reserve damage only requires competition to the US Dollar.
So far the Yuan is not printed in enough quantity to compete in a big way. The Euro has
never shown the inclination to be anything but a poodle.
WWII has never ended. Look at NATO... who are they opposing... RUSSIA. Give it a rest.
Russia is not going to attack Europe. So this NATO military facade is about to crumble. Trump
attempting to get NATO to attack Iran and enter the Middle east is laughable and won't
happen. Only the British Poodles are stupid enough for that.
And why is Britain fking with anybody... Doesn't the Queen have enough RYSIST issues now
that Harry and Megan have called her a RYSIST? Love to see Britain go it alone but they are
real pussies and have filled the world with hatred so there will be consequences.
Sanctions use the same philosophy of the the Mafia and having to use it means the days of
the dollar hegemony are gradually ending. What goes around comes around. yin-yang.
YES but for the first time they are present. The Euro is a Reserve Currency but Europe has
never asserted its status. Likely due to Germany. Germany destroys Europe in so many way.
Merkel is pathetic.
Now the Yuan as of 2016 is a reserve currency and they are trading Iron ore from Australia
and Brazil in Yuan. Also China has a 24 Trillion dollar internal commodities market that
trades in Yuan. So the mechanics of massive Trade are already set in place in China and
Asia.
Traditionally the largest trading nation had the reserve currency. The US is no longer the
largest trading nation. They are the largest debtor nation however.
This only Bretton woods post World War II rules. Back in the old days gold was trusted
because people who had it actually hd to produce or trade for it. War economy is always pure
fiat even if it means killing your own soldiers and robbing their families.
If it gets dirty everyone is going to have to play the game. Why do you think they are
still dealing with Afghanistan like its the centre of the universe for the last 20 years.
PTSD and ******** propaganda on young men is enough to push them over the edge. Same thing
for the nasty **** that happens to women.
All these currencies are pure fiat floating against perceived demand and ********
technocrats. People want to die in these situations they are going to monetize human misery.
The opiate epidemics in the 60s pushed the U.S of the Gold standard. Where do you think the
French got all those U.S dollars from straight after the war.
Ever heard of this little thing called cryptocurrency? It can't be weaponized like a CB
currency because there is no centralized authority and no need for a trusted third party. It
can cross international borders at the speed of light and cheaply to boot. It's quite clever.
I imagine it will become all the rage in the next couple years.
I dont think you understand the concept of war. They napalmed kids to heard their parents
into concentration camps. That was the Pentagon. Theyre not going to spare your internet
service provider in the name of free trade and libertarian finance.
Bit coin can be used the same way as the military script just by switching off your
computer and forcing you to adopt another currency. They did it every few months in Vietnam.
IBM ran the analytics with a super computer and they still didnt beat the Tet Offensive which
was just people letting of steam for lunar new year by killing anyone who worked with the
Americans.
Hedge. Iodine for fallout. Water purification tablets. Toilet Paper and Sanitary wipes and
shoes. Batteries. You wont be allowed to grow food when it starts.
Economic sanctions, sanctions of any kind, are like pepper: use cautiously, sparingly, and
only when the recipe calls for it. Don't inhale, either. Massive sneeze attacks can follow
and the dish can be ruined.
signed by Trump in 2017 means we have essentially entered into a world where the American
regime is weaponizing sanctions to dominate the planet.
Of course, karma is a law, which cannot be avoided, and this article is right. It is only a
matter of time. Moreover, he is right in that when we lose this status our ability to wage
endless wars throughout the planet will stop. I hope to see that day.
It is my feeling that the primary reason we are not in a major war at this moment is that
our "adversaries" have noted our decline, as well have many astute and not so astute ZH
members have, and are waiting us out. The other is that our military is not as good as we
claim and some of us know it.
GOLD should be trading currently at least at 4,800 and SILVER should be trading today
at triple digits -- The Federal Reserve and PPT like to manipulate the precious metals, stop
manipulating the PM morons.
Let's take a look at the SILVER chart:
SILVER -- TF = Daily -- SILVER --time frame is daily-- has developed a very well known
technical pattern CUP and HANDLE -- SILVER STRONG BUY -- https://invst.ly/pie5l
"Donny Appleseed" send$ his tiding$ to the American lemming... counting all those "0"s
that are only gettin bigger with each sweep of the EST "second hand".
Still allowed to be "alive" after all that damage and all these years!
I just attended a China - US conference. The chinese fund managers who spoke there said
that China's economy is at a standstill and now is the time for "VULTURE" funds to be active
acquiring heavily discounted firms which are over-leveraged. Not the sounds of a ready for
prime time currency. And the market know as less than 2% of global reserves are Yuan as in
the chart and Chinese dollar reserves are 30% of what they were years ago.
Germany's deputy foreign minister Niels Annen wrote "Europe needs new instruments to be
able to defend itself from licentious extraterritorial sanctions."
The BIG problem with the US dollar is not only the data but it is also the staggering
amounts of printing, printing, printing and QE4ever that totally destroy the purchasing power
of the US Dollar. Only GOLD and SILVER are the real 'store of value'.
Let's take a look at the US Dollar chart:
US DOLLAR Index -- TF = 4H -- ROUNDED TOP suggesting much lower levels ahead -- US DOLLAR
STRONG SELL -- https://invst.ly/pj042
Like how in the 80's everybody assumed flying cars were "near future", people who think
the dollar will lose (or already lost) reserve status are delusional.
It will take a long long time to ween the world off of the entire banking complex,
literally made by and through the dollar.
Multiple reasons, primarily:
1) US gov still a strong presence around the world militarily and financially
2) US dollar still the #1 currency used in transactions between major firms
3) US banking system has, in its pockets, about 80% of the worlds billionaire class, which
conversely, makes most of the major decisions around the world
4) SWIFT system and World Bank both huge institutions that literally hold most 3rd world
countries economics (see Venezuela for examples of a 3rd world country trying to NOT do what
the US wants)
In a static geopolitical environment, your points are valid. After all, it's been this way
for a very long time. You would - and perhaps will be however, amazed at just how fast the
dynamics of your 4 points can change when two near equally (and in some cases superior)
military and economic world powers are geopolitically pushed to a limit they will no longer
accept. And guess what? That's coming a whole lot sooner than most think.
EVERY ******* in Washington needs to go and be replace with people who have an interest in
the well being of the country rather than their personal power plays. The world HATES the
Washington assholes almost as much as the US citizens hate the bastards.
Sanctions are used to force another nation into compliance.
Bombs are used to force another nation into compliance.
Anyone still think the treasury and Fed aren't the biggest warmongers around? They have to
be, otherwise the US dollar would be toast, as there is nothing but a military holding it up.
A nation with 5% of the global population, full of fat walmart shoppers, does not have the
productive means to force their will without the war machine. Ironically, that same war
machine is fully funded by the foreigners the bankers bomb, as using the USD means you must
hold dollar reserves. It is a grand racket.
The Russia and Ukraine scandals leading to impeachment are nonsense but Trump should be
impeached for hastening the demise of our reserve currency. Weaponizing the dollar was the
dumbest strategy he ever came up with. Russia and China are gaining friends and influence
every day while the U.S. is becoming an outcast. They are using the Carrot while all Trump
knows is the Stick.
The US UK Israel petrodollar system collapsed overnight with the US military having no
credible response to having its base bombed. A credible response is for the US to have dealt
death from the skies, destroying and severely deteriorating Iran's ballistic launch
capabilities or at the least a strike on its major oil refineries. That did not happen.
Why?
The US & UK airforce are outdated....in fact any conventional air force that relies on
drones or stealth jets to deliver bomb payloads are outdated!
The purpose of an air-force is to bomb targets from the sky. Iranians have shown you can
do it with ultra-cheap short medium range ballistic missiles which are nothing more than crap
aluminum tubes filled with propellant, a low cost cell phone GPS guidance system and a big
payload. You can make millions for the cost of one stealth jet!
IRAN has all US, Israel and Saudi targets mapped and gave a demo of what they can do. By
the time the shitty F35s start their engines on a runway of a worthless aircraft carrier,
thousands of these missiles will be launched by Iran destroying all targets within minutes of
declaration of TOTAL WAR!
THE PURPOSE OF STEALTH has been defeated. There is no deterrence against ballistic
missiles which are faster then aircraft! So by the time the first wave of stupid burger
planes reach IRAN, all BURGER bases in Saudi Arabia, Iraq, Israel and aircraft carriers will
have been destroyed! So the USA cant protect anything without losing everything!
TOTAL WAR even with a weak power like Iran means TOTAL BALLISTIC MISSILE WAR in which case
everybody's base gets destroyed and who ever pushes the button fastest gets to destroy the
targets fastest and everything is over in less than an hour! Since burgers dont have magic
hollywood space lasers, just piece of **** F35s and outdated carriers....burgers cant defend
anything! Burgers have no deterrence for TOTAL BALLISTIC MISSILE WARFARE. There is no time to
start your engines and take off on a runway, the missiles are already on their way and will
hit bases and aircraft carriers within 10 to 20 minutes of declaration of TOTAL WAR.
Trump killed a rook (solemani) in the game of geopolitical chess (which the Persians
invented) and the mullahs in Tehran checkmated the USA and Israel by making redundant the
view that only very very expensive stealth jets can accurately deliver bombs with precision!
No brainer right there...a plane requires life support, complex systems just to support the
idiot who is flying it to the target...a missile requires no stealth technology, its fast,
accurate and deadly with no deterrent! In one stroke the mullahs revealed that the entire US
air-force is obsolete against TOTAL short/ medium range ballistic missile war!
We should have had ballistic missile carriers but we dont because greedy defense
contractor boomers think they are the smartest defense planners when in fact they just loved
to build planes instead of realizing short range ballistic GPS guided precision missiles can
do the same thing! But not much profit in that of course..
US air-force outdated = US ground troops outdated because they rely on US air-force for
back up. So you have to withdraw = NO PETRODOLLAR.
As of today the US cannot defend its bases in Iraq, Israel or Saudi Arabia....
US/UK/Israel/Saudis combined cannot protect anything without losing everything!
That is called check-mate my friends. The petrodollar age has ended and the AGE OF THE
PETROYUAN has begun. China copies everything the US does, they wanted their Saudi Arabia and
they got all of IRAN and IRAQ.
Now Trump has to sign trade deal after trade deal because the world holds a massive amount
of US securities and we have to supply real goods and services...opening up oil fields for
export, everything. Burgers have to become a land of farmers and oil workers to satisfy all
the US dollar holdings out there because TRUMP LOST THE PETRODOLLAR by DESTROYING US CREDIBLE
MILITARY DETERRENCE for the whole world to see...the ability to provide 'SEGURIDY' AS HENRY
KISSINGER would say.
Everybody now knows the US is just another power only burgers have their head up their
asses. A big crash is coming our way and this time we DO NOT HAVE THE PETRODOLLAR FOR
RECOVERY LIKE WE HAD IN 2008!
TRUMP LOST THE WESTERN PETRODOLLAR HEGEMON....HE LITERALLY LOST THE WEST!
THE PETRODOLLAR AGE OF PROSPERITY HAS ENDED! BECAUSE DRUMPF, KUSHNER AND NETANYAHU!
The EVANGELICAL BIBLICAL APOCALYPSE has come and gone! The GREAT SATAN as the mullahs
would call them have been revealed to have no power to price oil in the middle east anymore!
The military humiliation and withdrawal comes next...its a Greek tragedy in modern
times...
Paraphrasing Thucydides
"A society that divides its warriors and scholars will have its wars planned by cowards
and fought by fools"
Trump knocked out a rook and a couple bishops, and ignored opportunities on several pawns.
By not taking the bait, escalations fall onto Iran's shoulders and will be increasingly hard
to justify.
Eventually their retaliation actions blur into the smoke of their terrorist proxies. Then
they fulfill the role thst Trump claims they occupy. Then action on them will be easily
justified. Even now Iran is shredding the JCPOA, that document that they acted like was so
dear to them - thus giving the rest of the world the finger. Hey, you couldn't play their
part worse if you tried...
There is no deterrence against ballistic missiles which are faster then aircraft! So by
the time the first wave of stupid burger planes reach IRAN, all BURGER bases in Saudi
Arabia, Iraq, Israel and aircraft carriers will have been destroyed! So the USA cant
protect anything without losing everything!
That's what Hitler thought, Saddam tried it as well, the theory proved to be wrong.
The purpose of an air-force is to bomb targets from the sky. Iranians have shown you can
do it with ultra-cheap short medium range ballistic missiles which are nothing more than
crap aluminum tubes filled with propellant, a low cost cell phone GPS guidance system and a
big payload. You can make millions for the cost of one stealth jet!
This was particularly hilarious. If that were the case the USA and its allies would be
doing that. Do you not realize the US has had rocket artillery for the past 70 years? The
larger the rocket, and the longer its range, the larger and heavier the transport TEL vehicle
and support base and storage must be. The industrial and technical support base as well. And
the crews to man and employ them get larger as well, as does their training equipping and
paying of them.
That's in fact very expensive, and you run out of rockets real fast.
But stealth jets come back every day, for months, or years, and drop big-*** bombs on your
missile factories, and its industrial support base, it's electricity supply, its fuel supply,
its chemical factories, its bases, bunkers, sensors comms, personnel, ports and the entire
industrial economic infrastructure of the entire country.
then why didnt you boomer? Because Iran's missiles will hit your base anyway..stealth or
no stealth that is the point! The US was supposed to wage such a death match war against
China or Russia...not a 4th rate shithole like IRAN. You boomers literally have your head up
your asses. The 90s is over boomers! The boomer run US armed forces is totally obsolete
because we have been humiliated and the boomers are so shameless they are behaving like
'colored peoples of poor upbringing'.
Hold me back or ill......hold me back or ill.... you will do what? Nothing! No one held
burger boy trump back. Burger boy held himself back because he and his son in law and the
prime brains behind losing the petrodollar, Netanyahu would lose Israel also along with Saudi
Arabia and all burger bases!
oh so I must be a muslim if I said Israel lost the petrodollar because the joke is on you
clowns. Lose the petrodollar boomers lose their 401k and Israel has to negotiate with Iran to
exist...win win if you ask me...cant wait to watch you flip burgers in your 80s.
The fact that you want us to use WWII Japan as comparison completely nullifies your rant.
Furthermore, revisionism and hyped up ability does no good in the real world. We don't need
to ask Hitler or Saddam. Had Saddam moved in on Saudi Arabia rather than allowing forces to
amass it's been a different story. Regarding Hitler, you cinta had little to no hand in the
matter. Case in point.
Looks like Iran is Catch22 for the USA: it can destroy it, but only at the cost of losing empire and dollar hegemony...
Notable quotes:
"... The United States is now turning on the screws demanding that other countries sacrifice their growth in order to finance the U.S. unipolar empire. In effect, foreign countries are beginning to respond to the United States what the ten tribes of Israel said when they withdrew from the southern kingdom of Judah, whose king Rehoboam refused to lighten his demands (1 Kings 12). They echoed the cry of Sheba son of Bikri a generation earlier: "Look after your own house, O David!" The message is: What do other countries have to gain by remaining in the US unipolar neoliberalized world, as compared to using their own wealth to build up their own economies? It's an age-old problem. ..."
"... The dollar will still play a role in US trade and investment, but it will be as just another currency, held at arms length until it finally gives up its domineering attempt to strip other countries' wealth for itself. However, its demise may not be a pretty sight. ..."
"... Conflict in the ME has traditionally almost always been about oil [and of course Israel]. This situation is different. It is only partially about oil and Israel, but OVERWHHEMINGLY it is about the BRI. ..."
"... The salient factor as I see it is the Oil for Technology initiative that Iraq signed with China shortly before it slid into this current mess. ..."
"... This was a mechanism whereby China would buy Iraq oil and these funds would be used directly to fund infrastructure and self-sufficiency initiatives and technologies that would help to drag Iraq out of the complete disaster that the US war had created in this country. A key part of this would be that China would also make extra loans available at the same time to speed up this development. ..."
"... "Iraq's Finance Ministry that the country had started exporting 100,000 barrels per day (bpd) of crude oil to China in October as part of the 20-year oil-for-infrastructure deal agreed between the two countries." ..."
"... "For Iraq and Iran, China's plans are particularly far-reaching, OilPrice.com has been told by a senior oil industry figure who works closely with Iran's Petroleum Ministry and Iraq's Oil Ministry. China will begin with the oil and gas sector and work outwards from that central point. In addition to being granted huge reductions on buying Iranian oil and gas, China is to be given the opportunity to build factories in both Iran and Iraq – and build-out infrastructure, such as railways – overseen by its own management staff from Chinese companies. These are to have the same operational structure and assembly lines as those in China, so that they fit seamlessly into various Chinese companies' assembly lines' process for whatever product a particular company is manufacturing, whilst also being able to use the still-cheap labour available in both Iraq and Iraq." ..."
"... Hudson is so good. He's massively superior to most so called military analysts and alternative bloggers on the net. He can clearly see the over arching picture and how the military is used to protect and project it. The idea that the US is going to leave the middle east until they are forced to is so blind as to be ridiculous. ..."
"... I'd never thought of that "stationary aircraft carrier" comparison between Israel and the British, very apt. ..."
"... Trump et al assassinated someone who was on a diplomatic mission. This action was so far removed from acceptable behavior that it must have been considered to be "by any means and at all costs". ..."
"... This article, published by Strategic Culture, features a translation of Mahdi's speech to the Iraqi parliament in which he states that Trump threatened him with assassination and the US admitted to killing hundreds of demonstrators using Navy SEAL snipers. ..."
"... This description provided by Mr Hudson is no Moore than the financial basis behind the Cebrowski doctrine instituted on 9/11. https://www.voltairenet.org/article ..."
"... "The leading country breaking up US hegemony obviously is the United States itself. That is Trump's major contribution The United States is now turning on the screws demanding that other countries sacrifice their growth in order to finance the U.S. unipolar empire." ..."
"... The US govt. have long since paid off most every European politician. Thusly, Europe, as separate nations that should be remain still under the yolk of the US Financial/Political/Military power. ..."
"... In any event, it is the same today. Energy underlies, not only the military but, all of world civilization. Oil and gas are overwhelmingly the source of energy for the modern world. Without it, civilization collapses. Thus, he who controls oil (and gas) controls the world. ..."
"... the link between the US $$$ and Saudi Oil, is the absolute means of the American Dollar to reign complete. This payment system FEEDS both the US Military, but WALL STREET, hedge funds, the US/EU oligarchs – to name just a few entities. ..."
Introduction: After posting Michael Hudson's article "America
Escalates its "Democratic" Oil War in the Near East" on the blog, I decided to ask
Michael to reply to a few follow-up questions. Michael very kindly agreed. Please see our
exchange below.
The Saker
-- -- -
The Saker: Trump has been accused of not thinking forward, of not having a long-term
strategy regarding the consequences of assassinating General Suleimani. Does the United States
in fact have a strategy in the Near East, or is it only ad hoc?
Michael Hudson: Of course American strategists will deny that the recent actions do not
reflect a deliberate strategy, because their long-term strategy is so aggressive and
exploitative that it would even strike the American public as being immoral and offensive if
they came right out and said it.
President Trump is just the taxicab driver, taking the passengers he has accepted –
Pompeo, Bolton and the Iran-derangement syndrome neocons – wherever they tell him they
want to be driven. They want to pull a heist, and he's being used as the getaway driver (fully
accepting his role). Their plan is to hold onto the main source of their international revenue:
Saudi Arabia and the surrounding Near Eastern oil-export surpluses and money. They see the US
losing its ability to exploit Russia and China, and look to keep Europe under its control by
monopolizing key sectors so that it has the power to use sanctions to squeeze countries that
resist turning over control of their economies and natural rentier monopolies to US buyers. In
short, US strategists would like to do to Europe and the Near East just what they did to Russia
under Yeltsin: turn over public infrastructure, natural resources and the banking system to
U.S. owners, relying on US dollar credit to fund their domestic government spending and private
investment.
This is basically a resource grab. Suleimani was in the same position as Chile's Allende,
Libya's Qaddafi, Iraq's Saddam. The motto is that of Stalin: "No person, no problem."
The Saker: Your answer raises a question about Israel: In your recent article you only
mention Israel twice, and these are only passing comments. Furthermore, you also clearly say
the US Oil lobby as much more crucial than the Israel Lobby, so here is my follow-up question
to you: On what basis have you come to this conclusion and how powerful do you believe the
Israel Lobby to be compared to, say, the Oil lobby or the US Military-Industrial Complex? To
what degree do their interests coincide and to what degree to they differ?
Michael Hudson: I wrote my article to explain the most basic concerns of U.S. international
diplomacy: the balance of payments (dollarizing the global economy, basing foreign central bank
savings on loans to the U.S. Treasury to finance the military spending mainly responsible for
the international and domestic budget deficit), oil (and the enormous revenue produced by the
international oil trade), and recruitment of foreign fighters (given the impossibility of
drafting domestic U.S. soldiers in sufficient numbers). From the time these concerns became
critical to today, Israel was viewed as a U.S. military base and supporter, but the U.S. policy
was formulated independently of Israel.
I remember one day in 1973 or '74 I was traveling with my Hudson Institute colleague Uzi
Arad (later a head of Mossad and advisor to Netanyahu) to Asia, stopping off in San Francisco.
At a quasi-party, a U.S. general came up to Uzi and clapped him on the shoulder and said,
"You're our landed aircraft carrier in the Near East," and expressed his friendship.
Uzi was rather embarrassed. But that's how the U.S. military thought of Israel back then. By
that time the three planks of U.S. foreign policy strategy that I outlined were already firmly
in place.
Of course Netanyahu has applauded U.S. moves to break up Syria, and Trump's assassination
choice. But the move is a U.S. move, and it's the U.S. that is acting on behalf of the dollar
standard, oil power and mobilizing Saudi Arabia's Wahabi army.
Israel fits into the U.S.-structured global diplomacy much like Turkey does. They and other
countries act opportunistically within the context set by U.S. diplomacy to pursue their own
policies. Obviously Israel wants to secure the Golan Heights; hence its opposition to Syria,
and also its fight with Lebanon; hence, its opposition to Iran as the backer of Assad and
Hezbollah. This dovetails with US policy.
But when it comes to the global and U.S. domestic response, it's the United States that is
the determining active force. And its concern rests above all with protecting its cash cow of
Saudi Arabia, as well as working with the Saudi jihadis to destabilize governments whose
foreign policy is independent of U.S. direction – from Syria to Russia (Wahabis in
Chechnya) to China (Wahabis in the western Uighur region). The Saudis provide the underpinning
for U.S. dollarization (by recycling their oil revenues into U.S. financial investments and
arms purchases), and also by providing and organizing the ISIS terrorists and coordinating
their destruction with U.S. objectives. Both the Oil lobby and the Military-Industrial Complex
obtain huge economic benefits from the Saudis.
Therefore, to focus one-sidedly on Israel is a distraction away from what the US-centered
international order really is all about.
The Saker: In your recent article you wrote: " The assassination was intended to escalate
America's presence in Iraq to keep control the region's oil reserves ." Others believe that
the goal was precisely the opposite, to get a pretext to remove the US forces from both Iraq
and Syria. What are your grounds to believe that your hypothesis is the most likely one?
Michael Hudson: Why would killing Suleimani help remove the U.S. presence? He was the
leader of the fight against ISIS, especially in Syria. US policy was to continue using ISIS to
permanently destabilize Syria and Iraq so as to prevent a Shi'ite crescent reaching from Iran
to Lebanon – which incidentally would serve as part of China's Belt and Road initiative.
So it killed Suleimani to prevent the peace negotiation. He was killed because he had been
invited by Iraq's government to help mediate a rapprochement between Iran and Saudi Arabia.
That was what the United States feared most of all, because it effectively would prevent its
control of the region and Trump's drive to seize Iraqi and Syrian oil.
So using the usual Orwellian doublethink, Suleimani was accused of being a terrorist, and
assassinated under the U.S. 2002 military Authorization Bill giving the President to move
without Congressional approval against Al Qaeda. Trump used it to protect Al Qaeda's
terrorist ISIS offshoots.
Given my three planks of U.S. diplomacy described above, the United States must remain in
the Near East to hold onto Saudi Arabia and try to make Iraq and Syria client states equally
subservient to U.S. balance-of-payments and oil policy.
Certainly the Saudis must realize that as the buttress of U.S. aggression and terrorism in
the Near East, their country (and oil reserves) are the most obvious target to speed the
parting guest. I suspect that this is why they are seeking a rapprochement with Iran. And I
think it is destined to come about, at least to provide breathing room and remove the threat.
The Iranian missiles to Iraq were a demonstration of how easy it would be to aim them at Saudi
oil fields. What then would be Aramco's stock market valuation?
The Saker: In your article you wrote: " The major deficit in the U.S. balance of payments
has long been military spending abroad. The entire payments deficit, beginning with the Korean
War in 1950-51 and extending through the Vietnam War of the 1960s, was responsible for forcing
the dollar off gold in 1971. The problem facing America's military strategists was how to
continue supporting the 800 U.S. military bases around the world and allied troop support
without losing America's financial leverage. " I want to ask a basic, really primitive
question in this regard: how cares about the balance of payments as long as 1) the US continues
to print money 2) most of the world will still want dollars. Does that not give the US an
essentially "infinite" budget? What is the flaw in this logic?
Michael Hudson: The U.S. Treasury can create dollars to spend at home, and the Fed can
increase the banking system's ability to create dollar credit and pay debts denominated in US
dollars. But they cannot create foreign currency to pay other countries, unless they willingly
accept dollars ad infinitum – and that entails bearing the costs of financing the U.S.
balance-of-payments deficit, getting only IOUs in exchange for real resources that they sell to
U.S. buyers.
This is the situation that arose half a century ago. The United States could print dollars
in 1971, but it could not print gold.
In the 1920s, Germany's Reichsbank could print deutsche marks – trillions of them.
When it came to pay Germany's foreign reparations debt, all it could do was to throw these
D-marks onto the foreign exchange market. That crashed the currency's exchange rate, forcing up
the price of imports proportionally and causing the German hyperinflation.
The question is, how many surplus dollars do foreign governments want to hold. Supporting
the dollar standard ends up supporting U.S. foreign diplomacy and military policy. For the
first time since World War II, the most rapidly growing parts of the world are seeking to
de-dollarize their economies by reducing reliance on U.S. exports, U.S. investment, and U.S.
bank loans. This move is creating an alternative to the dollar, likely to replace it with
groups of other currencies and assets in national financial reserves.
The Saker: In the same article you also write: " So maintaining the dollar as the world's
reserve currency became a mainstay of U.S. military spending. " We often hear people say
that the dollar is about to tank and that as soon as that happens, then the US economy (and,
according to some, the EU economy too) will collapse. In the intelligence community there is
something called tracking the "indicators and warnings". My question to you is: what are the
economic "indicators and warnings" of a possible (probable?) collapse of the US dollar followed
by a collapse of the financial markets most tied to the Dollar? What shall people like myself
(I am an economic ignoramus) keep an eye on and look for?
Michael Hudson: What is most likely is a slow decline, largely from debt deflation
and cutbacks in social spending, in the Eurozone and US economies. Of course, the decline will
force the more highly debt-leveraged companies to miss their bond payments and drive them into
insolvency. That is the fate of Thatcherized economies. But it will be long and painfully drawn
out, largely because there is little left-wing socialist alternative to neoliberalism at
present.
Trump's protectionist policies and sanctions are forcing other countries to become
self-reliant and independent of US suppliers, from farm crops to airplanes and military arms,
against the US threat of a cutoff or sanctions against repairs, spare parts and servicing.
Sanctioning Russian agriculture has helped it become a major crop exporter, and to become much
more independent in vegetables, dairy and cheese products. The US has little to offer
industrially, especially given the fact that its IT communications are stuffed with US
spyware.
Europe therefore is facing increasing pressure from its business sector to choose the non-US
economic alliance that is growing more rapidly and offers a more profitable investment market
and more secure trade supplier. Countries will turn as much as possible (diplomatically as well
as financially and economically) to non-US suppliers because the United States is not reliable,
and because it is being shrunk by the neoliberal policies supported by Trump and the Democrats
alike. A byproduct probably will be a continued move toward gold as an alternative do the
dollar in settling balance-of-payments deficits.
The Saker: Finally, my last question: which country out there do you see as the most capable
foe of the current US-imposed international political and economic world order? whom do you
believe that US Deep State and the Neocons fear most? China? Russia? Iran? some other country?
How would you compare them and on the basis of what criteria?
Michael Hudson: The leading country breaking up US hegemony obviously is the United States
itself. That is Trump's major contribution. He is uniting the world in a move toward
multi-centrism much more than any ostensibly anti-American could have done. And he is doing it
all in the name of American patriotism and nationalism – the ultimate Orwellian
rhetorical wrapping!
Trump has driven Russia and China together with the other members of the Shanghai
Cooperation Organization (SCO), including Iran as observer. His demand that NATO join in US oil
grabs and its supportive terrorism in the Near East and military confrontation with Russia in
Ukraine and elsewhere probably will lead to European "Ami go home" demonstrations against NATO
and America's threat of World War III.
No single country can counter the U.S. unipolar world order. It takes a critical mass of
countries. This already is taking place among the countries that you list above. They are
simply acting in their own common interest, using their own mutual currencies for trade and
investment. The effect is an alternative multilateral currency and trading area.
The United States is now turning on the screws demanding that other countries sacrifice
their growth in order to finance the U.S. unipolar empire. In effect, foreign countries are
beginning to respond to the United States what the ten tribes of Israel said when they withdrew
from the southern kingdom of Judah, whose king Rehoboam refused to lighten his demands (1 Kings
12). They echoed the cry of Sheba son of Bikri a generation earlier: "Look after your own
house, O David!" The message is: What do other countries have to gain by remaining in the US
unipolar neoliberalized world, as compared to using their own wealth to build up their own
economies? It's an age-old problem.
The dollar will still play a role in US trade and investment, but it will be as just another
currency, held at arms length until it finally gives up its domineering attempt to strip other
countries' wealth for itself. However, its demise may not be a pretty sight.
The Saker: I thank you very much for your time and answers!
Another one that absolutely stands for me out is the below link to a recent interview of
Hussein Askary.
As I wrote a few days ago IMO this too is a wonderful insight into the utterly complicated
dynamics of the tinderbox that the situation in Iran and Iraq has become.
Conflict in the ME has traditionally almost always been about oil [and of course Israel].
This situation is different. It is only partially about oil and Israel, but OVERWHHEMINGLY it
is about the BRI.
The salient factor as I see it is the Oil for Technology initiative that Iraq signed with
China shortly before it slid into this current mess.
This was a mechanism whereby China would buy Iraq oil and these funds would be used
directly to fund infrastructure and self-sufficiency initiatives and technologies that would
help to drag Iraq out of the complete disaster that the US war had created in this country. A
key part of this would be that China would also make extra loans available at the same time
to speed up this development.
In essence, this would enable the direct and efficient linking of Iraq into the BRI
project. Going forward the economic gains and the political stability that could come out of
this would be a completely new paradigm in the recovery of Iraq both economically and
politically. Iraq is essential for a major part of the dynamics of the BRI because of its
strategic location and the fact that it could form a major hub in the overall network.
It absolutely goes without saying that the AAA would do everything the could to wreck this
plan. This is their playbook and is exactly what they have done. The moronic and
extraordinarily impulsive Trump subsequently was easily duped into being a willing and
idiotic accomplice in this plan.
The positive in all of this is that this whole scheme will backfire spectacularly for the
perpetrators and will more than likely now speed up the whole process in getting Iraq back on
track and working towards stability and prosperity.
Please don't anyone try to claim that Trump is part of any grand plan nothing could be
further from the truth he is nothing more than a bludgeoning imbecile foundering around,
lashing out impulsively indiscriminately. He is completely oblivious and ignorant as to the
real picture.
I urge everyone involved in this Saker site to put aside an hour and to listen very
carefully to Askary's insights. This is extremely important and could bring more clarity to
understanding the situation than just about everything else you have read put together. There
is hope, and Askary highlights the huge stakes that both Russia and China have in the
region.
This is a no brainer. This is the time for both Russia and China to act and to decisively.
They must cooperate in assisting both Iraq and Iran to extract themselves from the current
quagmire the one that the vicious Hegemon so cruelly and thoughtlessly tossed them into.
Also interesting is what Simon Watkins reports in his recent article entitled "Is Iraq About
To Become A Chinese Client State?"
To quote from the article:
"Iraq's Finance Ministry that the country had started exporting 100,000 barrels per day
(bpd) of crude oil to China in October as part of the 20-year oil-for-infrastructure deal
agreed between the two countries."
and
"For Iraq and Iran, China's plans are particularly far-reaching, OilPrice.com has been
told by a senior oil industry figure who works closely with Iran's Petroleum Ministry and
Iraq's Oil Ministry. China will begin with the oil and gas sector and work outwards from that
central point. In addition to being granted huge reductions on buying Iranian oil and gas,
China is to be given the opportunity to build factories in both Iran and Iraq – and
build-out infrastructure, such as railways – overseen by its own management staff from
Chinese companies. These are to have the same operational structure and assembly lines as
those in China, so that they fit seamlessly into various Chinese companies' assembly lines'
process for whatever product a particular company is manufacturing, whilst also being able to
use the still-cheap labour available in both Iraq and Iraq."
and
"The second key announcement in this vein made last week from Iraq was that the Oil
Ministry has completed the pre-qualifying process for companies interested in participating
in the Iraqi-Jordanian oil pipeline project. The U$5 billion pipeline is aimed at carrying
oil produced from the Rumaila oilfield in Iraq's Basra Governorate to the Jordanian port of
Aqaba, with the first phase of the project comprising the installation of a
700-kilometre-long pipeline with a capacity of 2.25 million bpd within the Iraqi territories
(Rumaila-Haditha). The second phase includes installing a 900-kilometre pipeline in Jordan
between Haditha and Aqaba with a capacity of 1 million bpd. Iraq's Oil Minister – for
the time being, at least – Thamir Ghadhban added that the Ministry has formed a team to
prepare legal contracts, address financial issues and oversee technical standards for
implementing the project, and that May will be the final month in which offers for the
project from the qualified companies will be accepted and that the winners will be announced
before the end of this year. Around 150,000 barrels of the oil from Iraq would be used for
Jordan's domestic needs, whilst the remainder would be exported through Aqaba to various
destinations, generating about US$3 billion a year in revenues to Jordan, with the rest going
to Iraq. Given that the contractors will be expected to front-load all of the financing for
the projects associated with this pipeline, Baghdad expects that such tender offers will be
dominated by Chinese and Russian companies, according to the Iran and Iraq source."
Hudson is so good. He's massively superior to most so called military analysts and
alternative bloggers on the net. He can clearly see the over arching picture and how the
military is used to protect and project it. The idea that the US is going to leave the middle
east until they are forced to is so blind as to be ridiculous.
They will not sacrifice the
(free) oil until booted out by a coalition of Arab countries threatening to over run them and
that is why the dollar hegemonys death will be slow, long and drawn out and they will do
anything, any dirty trick in the book, to prevent Arab/Persian unity. Unlike many peoples
obsession with Israel and how important they feel themselves to be I think Hudson is correct
again. They are the middle eastern version of the British – a stationary aircraft
carrier who will allow themselves to be used and abused whilst living under the illusion they
are major players. They aren't. They're bit part players in decline, subservient to the great
dollar and oil pyramid scheme that keeps America afloat. If you want to beat America you have
to understand the big scheme, that and the utter insanity that backs it up. It is that
insanity of the leites, the inability to allow themselves to be 'beaten' that will keep
nuclear exchange as a real possibility over the next 10 to 15 years. Unification is the only
thing that can stop it and trying to unite so many disparate countries (as the Russians are
trying to do despite multiple provocations) is where the future lies and why it will take so
long. It is truly breath taking in such a horrific way, as Hudson mentions, that to allow the
world to see its 'masters of the universe' pogram to be revealed:
"Of course American strategists will deny that the recent actions do not reflect a
deliberate strategy, because their long-term strategy is so aggressive and exploitative that
it would even strike the American public as being immoral and offensive if they came right
out and said it."
Would be to allow it to be undermined at home and abroad. God help us all.
Clever would be a better word. Looking at my world globe, I see Italy, Greece, and Turkey on
that end of the Mediterranean. Turkey has been in NATO since 1952. Crete and Cyprus are also
right there. Doesn't Hudson own a globe or regional map?
That a US Admiral would be gushing about the Apartheid state 7 years after the attempted
destruction of the USS Liberty is painful to consider. I'd like to disbelieve the story, but
it's quite likely there were a number of high-ranking ***holes in a Naval Uniform.
The world situation reminds us of the timeless fable by Aesop of The North Wind and the Sun.
Trump et al assassinated someone who was on a diplomatic mission. This action was so far
removed from acceptable behavior that it must have been considered to be "by any means and at
all costs".
Perhaps the most potent weapon Iran or anyone else has at this critical juncture, is not
missiles, but diplomacy.
"Therefore, to focus one-sidedly on Israel is a distraction away from what the US-centered
international order really is all about."
Thank you for saying this sir. In the US and around the world many people become
obsessively fixated in seeing a "jew" or zionist behind every bush. Now the Zionists are
certinly an evil, blood thirsty bunch, and certainly deserve the scorn of the world, but i
feel its a cop out sometimes. A person from the US has a hard time stomaching the actions of
their country, so they just hoist all the unpleasentries on to the zionists. They put it all
on zionisim, and completly fail to mention imperialism. I always switced back and forth on
the topic my self. But i cant see how a beachead like the zionist state, a stationary
carrier, can be bigger than the empire itself. Just look at the major leaders in the
resistance groups, the US was always seen as the ultimate obstruction, while israel was seen
as a regional obstruction. Like sayyed hassan nasrallah said in his recent speech about the
martyrs, that if the US is kicked out, the Israelis might just run away with out even
fighting. I hate it when people say "we are in the middle east for israel" when it can easily
be said that "israel is still in the mid east because of the US." If the US seized to exist
today, israel would fall rather quickly. If israel fell today the US would still continue
being an imperalist, bloodthirsty entity.
The Deeper Story behind the Assassination of Soleimani
This article, published by Strategic Culture, features a translation of Mahdi's speech to
the Iraqi
parliament in which he states that Trump threatened him with assassination and the US
admitted
to killing hundreds of demonstrators using Navy SEAL snipers.
This description provided by Mr Hudson is no Moore than the financial basis behind the
Cebrowski doctrine instituted on 9/11.
https://www.voltairenet.org/article
I wish the Saker had asked Mr Hudson about some crucial recent events to get his opinion
with regards to US foreign policy. Specifically, how does the emergence of cryptocurrency
relate to dollar finance and the US grand strategy? A helpful tool for the hegemon or the
emergence of a new currency that prevents unlimited currency printing? Finally, what is
global warming and the associated carbon credit system? The next planned model of continuing
global domination and balance of payments? Or true organic attempt at fair energy production
and management?
With all due respect, these are huge questions in themselves and perhaps could to be
addressed in separate interviews.
IMO it doesn't always work that well to try to cover too much ground in just one giant
leap.
I have never understood the Cebrowski doctrine. How does the destruction of Middle Eastern state structures allow the US to control Middle
East Oil? The level of chaos generated by such an act would seem to prevent anyone from controlled
the oil.
Dr. Hudson often appears on RT's "Keiser Report" where he covers many contemporary topics
with its host Max Keiser. Many of the shows transcripts are available at Hudson's website . Indeed, after the two Saker items,
you'll find three programs on the first page. Using the search function at his site, you'll
find the two articles he's written that deal with bitcoin and cryptocurrencies, although I
think he's been more specific in the TV interviews.
As for this Q&A, its an A+. Hudson's 100% correct to playdown the Zionist influence
given the longstanding nature of the Outlaw US Empire's methods that began well before the
rise of the Zionist Lobby, which in reality is a recycling of aid dollars back to Congress in
the form of bribes.
Nils: Good Article. The spirit of Nihilism.
Quote from Neocon Michael Ladeen.
"Creative destruction is our middle name, both within our own society and abroad. We tear
down the old order every day, from business to science, literature, art, architecture, and
cinema to politics and the law. Our enemies have always hated this whirlwind of energy and
creativity, which menaces their traditions (whatever they may be) and shames them for their
inability to keep pace. Seeing America undo traditional societies, they fear us, for they do
not wish to be undone. They cannot feel secure so long as we are there, for our very
existence -- our existence, not our politics -- threatens their legitimacy. They must attack
us in order to survive, just as we must destroy them to advance our historic mission."
@NILS As far as crypto currency goes it is a brilliant idea in concept. But since during the
Bush years we have been shown multiple times, who actually owns [and therefore controls] the
internet. Many times now we have also been informed that through the monitoring capability's
of our defense agency's, they are recording every key stroke. IMO, with the flip of a switch,
we can shut down the internet. At the very least, that would stop us from being able to trade
in crypto, but they have e-files on each of us. They know our passwords, or can easily access
them. That does not give me confidence in e=currency during a teotwawki situation.
One thing that troubles me about the petrodollar thesis is that ANNUAL trade in oil is about
2 trillion DAILY trade in $US is 4 trillion. I can well believe the US thinks oil is the
bedrock if dollar hegemony but is it? I see no alternative to US dollar hegemony.
The lines that really got my attention were these:
"The leading country breaking up US hegemony obviously is the United States itself. That
is Trump's major contribution The United States is now turning on the screws demanding that
other countries sacrifice their growth in order to finance the U.S. unipolar empire."
That is so completely true. I have wondered why – to date – there had not been
more movement by Europe away from the United States. But while reading the article the
following occurred to me. Maybe Europe is awaiting the next U.S. election. Maybe they hope
that a new president (someone like Biden) might allow Europe to keep more of the
"spoils."
If that is true, then a re-election of Trump will probably send Europe fleeing for the
exits. The Europeans will be cutting deals with Russia and China like the store is on
fire.
The critical player in forming the EU WAS/IS the US financial Elites. Yes, they had many
ultra powerful Europeans, especially Germany, but it was the US who initiated the EU.
Purpose? For the US Financial Powerhouses & US politicians to "take Europe captive."
Notice the similarities: the EU has its Central Bank who communicates with the private
Banksters of the FED. Much austerity has ensued, especially in Southern nations: Greece,
Italy, etc. Purpose: to smash unions, worker's pay, eliminate unions, and basically allowing
US/EU Financial capital to buy out Italy, most of Greece, and a goodly section of Spain and
Portugal.
The US govt. have long since paid off most every European politician. Thusly, Europe, as
separate nations that should be remain still under the yolk of the US
Financial/Political/Military power.
I have a hard time wrapping my head around this but it sounds like he is saying that the U.S.
has a payment deficit problem which is solved by stealing the world's oil supplies. To do
this they must have a powerful, expensive military. But it is primarily this military which
is the main cause of the balance deficit. So it is an eternally fuelled problem and solution.
If I understand this, what it actually means is that we all live on a plantation as slaves
and everything that is happening is for the benefit of the few wealthy billionaires. And they
intend to turn the entire world into their plantation of slaves. They may even let you live
for a while longer.
I didn't know this until I read a history of World War I.
As you know, World War One was irresolvable, murderous, bloody trench warfare. People
would charge out of the trenches trying to overrun enemy positions only to be cutdown by the
super weapon of the day – the machine gun. It was an unending bloody stalemate until
the development of the tank. Tanks were immune to machine gun fire coming from the trenches
and could overrun enemy positions. In the aftermath of that war, it became apparently that
mechanization had become crucial to military supremacy. In turn, fuel was crucial to
mechanization. Accordingly, in the Sykes Picot agreement France and Britain divided a large
amount of Middle Eastern oil between themselves in order to assure military dominance. (The
United States had plenty of their own oil at that time.)
In any event, it is the same today. Energy underlies, not only the military but, all of
world civilization. Oil and gas are overwhelmingly the source of energy for the modern world.
Without it, civilization collapses. Thus, he who controls oil (and gas) controls the
world.
That is one third of the story. The second third is this.
Up till 1971, the United States dollar was the most trusted currency in the world. The
dollar was backed by gold and lots and lots of it. Dollars were in fact redeemable in gold.
However, due to Vietnam War, the United States started running huge balance of payments
deficits. Other countries – most notably France under De Gaulle – started cashing
in dollars in exchange for that gold. Gold started flooding out of the United States. At that
point Nixon took the United States off of the gold standard. Basically stating that the
dollar was no longer backed by gold and dollars could not be redeemed for gold. That caused
an international payments problem. People would no longer accept dollars as payment since the
dollar was not backed up by anything. The American economy was in big trouble since they were
running deficits and people would no longer take dollars on faith.
To fix the problem, Henry Kissinger convinced the Saudis to agree to only accept dollars
in payment for oil – no matter who was the buyer. That meant that nations throughout
the world now needed dollars in order to pay for their energy needs. Due to this, the dollars
was once again the most important currency in the world since – as noted above –
energy underlies everything in modern industrial cultures. Additionally, since dollars were
now needed throughout the world, it became common to make all trades for any product in
highly valued dollars. Everyone needed dollars for every thing, oil or not.
At that point, the United States could go on printing dollars and spending them since a
growing world economy needed more and more dollars to buy oil as well as to trade everything
else.
That leads to the third part of the story. In order to convince the Saudis to accept only
dollars in payments for oil (and to have the Saudis strong arm other oil producers to do the
same) Kissinger promised to protect the brutal Saudi regime's hold on power against a restive
citizenry and also to protect the Saudi's against other nations. Additionally, Kissinger made
an implicit threat that if the Saudi's did not agree, the US would come in and just take
their oil. The Saudis agreed.
Thus, the three keys to dominance in the modern world are thus: oil, dollars and the
military.
Thus, Hudson ties in the three threads in his interview above. Oil, Dollars, Military.
That is what holds the empire together.
Thank you for thinking through this. Yes, the link between the US $$$ and Saudi Oil, is the
absolute means of the American Dollar to reign complete. This payment system FEEDS both the
US Military, but WALL STREET, hedge funds, the US/EU oligarchs – to name just a few
entities.
I should make one note only to this. That "no man, no problem" was Stalin's motto is a myth.
He never said that. It was invented by a writer Alexei Rybnikov and inserted in his book "The
Children of Arbat".
Wow! Absolutely beautiful summation of the ultimate causes that got us where we are and, if
left intact, will get us to where we're going!
So, the dreamer says: If only we could throw-off our us-vs-them BS political-economic
ideology & religious doctrine-faith issues, put them into live-and-let-live mode, and see
that we are all just humans fighting over this oil resource to which our modern economy (way
of life) is addicted, then we might be able to hammer out some new rules for interacting, for
running an earth-resource sustainable and fair global economy We do at least have the
technology to leave behind our oil addiction, but the political-economic will still is
lacking. How much more of the current insanity must we have before we get that will? Will we
get it before it's too late?
Only if we, a sufficient majority from the lowest economic classes to the top elites and
throughout all nations, are able to psychologically-spiritually internalize the two
principles of Common Humanity and Spaceship Earth soon enough, will we stop our current slide
off the cliff into modern economic collapse and avert all the pain and suffering that's
already now with us and that will intensify.
The realist says we're not going to stop that slide and it's the only way we're going to
learn, if we are indeed ever going to learn.
Thank you for this excellent interview. You ask the kind of questions that we would all like
to ask. It's regrettable that Chalmers Johnson isn't still alive. I believe that you and he
would have a lot in common.
Naxos has produced an incredible, unabridged cd audiobook of
Gibbon's Decline and Fall of the Roman Empire. One of Gibbon's observations really resonates
today: "Assassination is the last resource of cowards". Thanks again.
I agree that, today, protecting the Dollar Standard is the main national security
objective of the USA. That is so because issuing the universal fiat currency is a
conditio sine qua non of keeping the financial superpower status.
I also agree that the Petrodollar is the base that sustains the Dollar Standard.
But I disagree with the rest:
1) the Cold War didn't begin in 1945, but in 1917 - right after the October Revolution.
There's overwhelming documental evidence of that and, in fact, the years of 1943-1945 was the
only break it had. Until Stalingrad, the Western allies were still waiting to see if the USSR
and the Third Reich could still mutually anihilate themselves (yes, it is a myth the Allies
were really allies from 1939, but that's not a very simple demonstration);
2) in the aftermath of WWII, the USA emerged as both the industrial and financial
superpower in the capitalist world (i.e. the West). But this was an accidental - and very
unlikely - alignment of events. The USA always had imperial ambitions from its foundation
(the Manifest Destiny), but there's no evidence it was scheming to dominate the world before
1945. The American ascension was more a fruit of the European imperial superpowers destroying
themselves than by any American (or Jewish, as the far-right likes to speculate) design;
3) the USSR had nothing to do with Bretton Woods. BW was a strictly capitalist affair. And
it could not be any difference: the USSR was a socialist country, therefore, it didn't have
money-capital (money in the capitalist system has three functions: reserve of value, means of
exchange and means of payment). The only way it had to trade with the capitalist half of the
world was to exchange essential commodities (oil) for hard currency, with which it bought
what it needed for its own development (mainly, high technological machines which it could
copy and later develop on). So, the USSR didn't "balk" at BW - it was literally impossible
for it to pertain to the agreement.
Michael Hudson is not the only one who's come to understand that maintaining the
reserve-currency status of the US dollar (the "dollar hegemony") is the primary goal of US
foreign policy. Indeed, it's been the primary goal of US foreign policy since the end of
World War II, when the Bretton Woods agreement was put into effect. Notably, the Soviets
ended up balking at that agreement, and the Cold War did not start until afterwards. This
means that even the Cold War was not really about ideology - it was about money.
It's also important to note that the point of the "petrodollar" is to ensure that
petroleum - one of the most globally traded commodities and a commodity that's fundamental to
the global economy - is traded primarily, if not exclusively, in terms of the US dollar.
Ensuring that as much global/international trade happens in US dollars helps ensure that the
US dollar keeps its reserve-currency status, because it raises the foreign demand for US
dollars.
I agree that, today, protecting the Dollar Standard is the main national security
objective of the USA. That is so because issuing the universal fiat currency is a
conditio sine qua non of keeping the financial superpower status.
I also agree that the Petrodollar is the base that sustains the Dollar Standard.
But I disagree with the rest:
1) the Cold War didn't begin in 1945, but in 1917 - right after the October Revolution.
There's overwhelming documental evidence of that and, in fact, the years of 1943-1945 was the
only break it had. Until Stalingrad, the Western allies were still waiting to see if the USSR
and the Third Reich could still mutually anihilate themselves (yes, it is a myth the Allies
were really allies from 1939, but that's not a very simple demonstration);
2) in the aftermath of WWII, the USA emerged as both the industrial and financial
superpower in the capitalist world (i.e. the West). But this was an accidental - and very
unlikely - alignment of events. The USA always had imperial ambitions from its foundation
(the Manifest Destiny), but there's no evidence it was scheming to dominate the world before
1945. The American ascension was more a fruit of the European imperial superpowers destroying
themselves than by any American (or Jewish, as the far-right likes to speculate) design;
3) the USSR had nothing to do with Bretton Woods. BW was a strictly capitalist affair. And
it could not be any difference: the USSR was a socialist country, therefore, it didn't have
money-capital (money in the capitalist system has three functions: reserve of value, means of
exchange and means of payment). The only way it had to trade with the capitalist half of the
world was to exchange essential commodities (oil) for hard currency, with which it bought
what it needed for its own development (mainly, high technological machines which it could
copy and later develop on). So, the USSR didn't "balk" at BW - it was literally impossible
for it to pertain to the agreement.
Correction: the three functions of money in capitalism are reserve/store of value, means
of exchange and unit of account . I basically wrote "means of exchange" twice in the
original comment.
Hello! Michael Hudson first set forth the methodology of the Outlaw US Empire's financial
control of the world via his book Super Imperialism: The Economic Strategy of American
Empire in 1972. In 2003, he issued an updated edition which you can download for free
here .
If you're interested, here's an interview he gave while in China that's autobiographical
. And here's his most recent Resume/CV/Bibliography , although it doesn't
go into as much detail about his recent work as he does in and forgive them their debts:
Lending, Foreclosure, and Redemption From Bronze Age Finance to the Jubilee Year , which
for me is fascinating.
His most recent TV appearances are here and here .
Bingo! You're the first person here to make that connection aside from myself. You'll note
from Hudson's
assessment of Soleimani's killing he sees the Outlaw US Empire as using the Climate
Crisis as a weapon:
"America's attempt to maintain this buttress explains U.S. opposition to any foreign
government steps to reverse global warming and the extreme weather caused by the world's
U.S.-sponsored dependence on oil. Any such moves by Europe and other countries would reduce
dependence on U.S. oil sales, and hence on the U.S's ability to control the global oil spigot
as a means of control and coercion. These are viewed as hostile acts.
"Oil also explains U.S. opposition to Russian oil exports via Nordstream. U.S. strategists
want to treat energy as a U.S. national monopoly. Other countries can benefit in the way that
Saudi Arabia has done – by sending their surpluses to the U.S. economy – but not
to support their own economic growth and diplomacy. Control of oil thus implies support for
continued global warming as an inherent part of U.S. strategy....
"This strategy will continue, until foreign countries reject it. If Europe and other
regions fail to do so, they will suffer the consequences of this U.S. strategy in the form of
a rising U.S.-sponsored war via terrorism, the flow of refugees, and accelerated global
warming (and extreme weather)."
@Cynica #38
Financially, the US dollar as reserve currency is enormously beneficial to the US
government's ability to spend.
And oil has historically been both a tactical and a strategic necessity; when the US was
importing half its oil, this is a lot of money. 8 million bpd @ $50/barrel = $146B. Add in
secondary value add like transport, refining, downstream industries, etc and it likely
triples the impact or more - but this is only tactical.
Worldwide, the impact is 10X = $1.5 trillion annually. Sure, this is a bit under 10% of the
$17.7T in world trade in 2017, but it serves as an "anchor tenant" to the idea of world
reserve currency. A second anchor is the overall role of US trade, which was $3.6T in 2016
(imports only).
If we treat central bank reserves as a proxy for currency used in trade, this means 60%+ of
the $17.7T in trade is USD. $3.6T is direct, but the $7 trillion in trade that doesn't impact
the US is the freebie. To put this in perspective, the entire monetary float of the USD
domestically is about $3.6T.
USD as world reserve currency literally doubles (at least) the float - from which the US
government can issue debt (money) to fund its activities. In reality, it is likely a lot more
since foreigners using USD to fund trade means at least some USD in Central Banks, plus the
actual USD in the transaction, plus corporate/individual USD reserves/float.
Again, nothing above is formally linked - I just wanted to convey an idea of just how
advantageous the petrodollar/USD as world trade reserve currency really is.
"U.S.
Economic Warfare and Likely Foreign Defenses" provides numerous methods besides simply
the cessation of dollar use for international commercial transactions. Along with watching
the "Debt Wish 2020" vid linked above, I also suggest reading/watching this program . And lastly, I
suggest reading this analysis
here , although it only tangentially deals with your question.
America's tariffs against China are already showing signs of undermining the global economy
and will create a funding crisis for the Federal Government when it leads to foreigners no
longer buying US Treasury debt and selling down their existing dollar holdings. A subversive
attempt by America to divert global portfolio investment from China by destabilising Hong Kong
will force China into a Plan B to fund its infrastructure plans, which could involve actively
selling down her dollar reserves and hastening the introduction of a new crypto-based trade
settlement currency.
The US budget deficit will then be financed entirely by monetary inflation. Furthermore, the
turn of the credit cycle, made more destructive by trade tariffs, is driving the global and US
economy into a slump , further accelerating all indebted governments' dependency on
inflationary financing. The end result is America's trade policies have been instrumental in
hastening the end of the dollar as the world's reserve currency, ultimately leading to its
destruction.
Introduction
For almost two years President Trump has imposed various tariffs on imported Chinese goods.
He advertised his tactics as hardball from a tough president who knows the art of the deal,
taking his business acumen and applying it to foreign affairs. He even proudly described
himself as a tariff man.
His opening gambit was to impose tariffs on some goods to get leverage over the Chinese,
with the threat that if they didn't cooperate, then further tariffs would be introduced. The
Chinese declined to be cowed by threats, introducing tariffs themselves on US imports,
particularly agricultural products, to bring pressure to bear in turn on President Trump.
Egged on by his trade adviser Peter Navarro and Commerce Secretary Wilbur Ross, Trump has
continued to intensify his tariff policies, oblivious to the damage being done to the global
economy. Putting aside Panglossian statistics, both America and China are now heading for a
recession that is increasingly likely to deepen significantly. America's consumer-driven
economy is yet to reflect much of a slow-down, though producer countries dependent on either or
both economies, such as Germany, are already descending into a manufacturing slump. China's GDP
is registering a growth rate of about 6%, low by Chinese standards, but being no more than a
money total this is just a reflection of the quantity of money still being pumped into the
Chinese economy by the authorities.
As the world descends into an economic contraction, it will not be reflected in government
statistics, because all economies are having increasing quantities of fiat money pumped into
them. Financial market participants naively believe that changes in GDP indicate an economy's
condition. If that was the case, the German economy in 1918-23 was an economic miracle and not
the disaster history has led us to believe. The impoverishment of the masses, just like today's
reported impoverishment of Venezuelans and Zimbabweans must have been misreported, because
nominal GDP was increasing ten or a hundredfold. Then there is the deflator. Ah, the deflator:
a concoction by statisticians who appear to be under a government cosh to keep it as low as
possible. That's easy to deal with: introduce price controls across the board and use those
official prices as a basis for the CPI. Infinite GDP growth is then assured.
That is the ultimate logic of perennial bulls and the errors should be obvious. At some
stage, market participants beholden to the system will awaken to the lie that GDP, nominal or
adjusted, has any statistical value, even in respectable jurisdictions. Banks will be rescued,
and unemployment will rise, but GDP will continue to inflate - sorry, grow. The effect on
prices so far has been subdued. At least, if you believe the official CPI version. Tariffs will
end up blowing a hole in inflation targets while the global economy slumps and borrowing costs
will then rise inexorably.
It's time to discover why the America-China financial war and trade war will end up
undermining the dollar.
US's deep state strategy is stuck in the cold war era
Besides President Trump's policy on tariffs, the permanent staff in the intelligence and
military complexes are the driving force behind Cold War 2 against China and Russia. Russia has
been in their sights since Yalta. Control of the Middle East along with Libya and Afghanistan
have been key objectives. The Western alliance, comprising the US and its European handmaidens,
has been focusing on oil, but at its root is the justification of US military spending. US
taxpayers have been told that the Middle East, North Africa and more recently the Ukraine are
important to stop Russia either dominating global energy supplies or pursuing territorial
ambitions.
Russia's military power is not as strong as projected by US military propagandists. It has
excellent nuclear capability but an underequipped out-of-date military. Who can forget the
sight of Russia's one aircraft carrier, the Admiral Kuznetsov, chugging from the Baltic to the
Mediterranean to come to Syria's aid, breaking down and emitting clouds of black smoke, needing
tugs to nurse it along? It is the naval equivalent of the ghastly Trabant motor car of the
1980s. The most egregious example of Russia's non-nuclear might perhaps, but indicative,
nonetheless.
The same is broadly true of Russia's army. Its capability is limited, and American battle
failures in the field are their own. Russia does not even try to punch above its weight,
choosing to dance round the ring and tire out its opponent that way. Despite its superior
equipment and battlefield technology, America usually then succumbs to its own errors.
As an adversary, China is in a different league to Russia altogether. At least America's
military complex knows not to take China on. Instead, more subversive tactics are deployed, and
this is why Hong Kong has become the pressure point against China, destroying the investment
link for international funds investing in Chinese infrastructure projects.
Logically, America should have accommodated China long ago, recognizing the dollar's role as
the supreme fiat currency would not then be challenged. But that would have led to the entire
military complex being downsized over time: peace is not good for the war business. Without
doubt it would have been economically beneficial for everyone other than the military. American
corporations were happily running manufacturing operations in China and South East Asia as
high-quality processors in their supply chains. Trump's simple world, where China steals
American jobs was never the case.
US Government's developing funding crisis
The statistics in Table 1 summarise America's financial problem.
These figures tell us that since the turn of the millennium 94% of America's accumulated
budget deficit is covered by the accumulated balance of payments deficit. In other words,
almost all the budget deficit is financed directly or indirectly by inward capital flows, and
very little can be attributed to genuine demand for US Treasuries by America's savers.
This result is to be expected, since it reflects an accounting identity at the national
level. The accounting identity tells us that unless there is an increase in national savings, a
budget deficit will be financed by capital arising from the trade deficit. We can also say the
money to cover the budget deficit in the absence of capital inflows and an increase in savings
can only be through monetary inflation. In other words, through the debasement of the currency
substituting for genuine savings.
In practice, foreign-owned dollars do not all go into US Treasuries, and investment outflows
must be taken into account as well. Since 2000, according to Treasury TIC figures these are
approximately $9 trillion, while total investment inflows at about $16 trillion leaves us with
net inflows of $7 trillion, implying that foreign-owned cash and deposits in the US banks will
have expanded to fill the gap between investment flows and the total balance of payments
deficit. And indeed, we find that these balances amount to $4.3 trillion, accounting almost
entirely for the gap between net inflows and the accumulated budget deficit in Table 1.
Obviously, there are other flows involved, but they are not material to the point. In the
absence of an increase in savings, a budget deficit will always lead to a balance of payments
deficit. How it is covered, by a combination of net inward capital flows and monetary inflation
is a separate, but important consideration to which we will return later.
Now that the US faces a recession, the budget deficit will rise due to lower than forecast
tax receipts and higher than expected welfare costs. The deeper the recession, the greater the
deficit, which before the recessionary effect is factored in was forecast by the Congressional
Budget Office to be just over one trillion dollars for the current fiscal year, which is two
months in. It will obviously be somewhat higher, requiring funding by a combination of inward
capital flows and monetary expansion.
If the foreigners don't play ball, funding the budget deficit will be entirely down to
monetary inflation. Worse, if they reduce their dollar holdings, not only will monetary
expansion have to make up the funding difference for the government, but it will also have to
address net foreign sales of existing treasuries and other US dollar assets as well. At
end-June 2018 the total value of those assets including those held before 2000 were recorded at
$19.4 trillion, plus bank deposits and short-term assets of $4.3bn, taking the total to $23.7
trillion.[i] This is the same approximate size as the US Government's total debt and slightly
more than US GDP.
Will foreigners sell US assets?
Naturally, dollar-based capital markets believe in the dollar and its hegemonic status. This
extends to a belief that foreigners in financial trouble will always demand dollars and the
more their trouble the greater their demand for dollars is likely to be. It is a mantra that
ignores the fact that foreigners are up to their eyes in dollars already.
Look at it from China's point of view. The bulk of her foreign reserves of $3.1 trillion are
in dollars, with about one third of it in US Government debt. She is helping America to finance
its military, which aims to contain and crush China. It's rather like giving the school bully
your baseball bat and inviting him to hit you with it. Furthermore, China's military
strategists have their own view of how America uses her currency's hegemonic status, and it is
not a casual one. They know, or think they know why America has stirred up Hong Kong, and that
is to prevent global portfolio flows being invested in China, because America is desperate to
have them instead.
It leaves China with a serious problem. She had expected inward global portfolio flows to
help finance her infrastructure projects, and the Americans have effectively succeeded in
closing down the Hong Kong Shanghai-connect link, through which foreign investment was to be
directed. She is now in a position whereby she may have no alternative but to put her plans on
hold or use her own dollar reserves to that end. Besides her US Treasury holdings, she is
likely to have a further trillion or so in short-term instruments and bank deposits to draw
on.
A decision to actively reduce her holdings of US Treasuries would not be taken lightly by
China. The response from America would likely be an intensification of the financial war,
perhaps including an emergency power to stop China selling her Treasury stock. If that
happened, China would have no option but to respond, and a dollar crisis would almost certainly
ensue. While outcomes with a rational opponent are theoretically predictable, President Trump's
actions and how they mesh with the deep state are less so, making the consequences of any
action taken by China deeply unpredictable.
We shall have to wait to see how this next stage plays out. Meanwhile, the inflationary
outlook in America is already deteriorating.
FMQ confirms a reacceleration of monetary
inflation
After pausing in its headlong growth since the Lehman crisis, the fiat money quantity surged
into record territory at $15,812bn at the beginning of October (Figure 1).
FMQ is the sum of Austrian true money supply and bank reserves held at the Fed. The reason
for its renewed growth is the Fed's easing by injecting money into the system through its
repurchase agreements. FMQ for the beginning of November is likely to be higher still.
Something is amiss systemically, which appears to require continual monetary injections to
prevent a financial crisis. The US economy having been already flooded with money following
Lehman, this development is deeply worrying and possibly marks a countdown to the next credit
crisis.
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and try again.Price inflation will get out of control
To independent analysts, it should be clear by now that the world is probably teetering on
the edge of a cyclical credit crisis, which this time is coupled with the destructive synergy
of trade tariffs. Equally, it is obvious that while central bankers and politicians suspect
something is wrong, they are clueless about the forces involved, otherwise they would not have
implemented monetary policies that led to the situation today.
In the short-term, as we saw with the Lehman crisis when a credit crisis hits, there will
probably be a panic into safety. But for the eventual outcome we must look beyond any initial
effect. America and its dollar are central to how events will evolve. As already shown in this
article the dollar is over-owned by foreigners, relative to ownership of foreign currencies by
Americans. The basis of both categories of ownership is commercial assumptions about current
and future prospects for international trade. For this reason a slump will cause demand for all
currencies to contract, which in the dollar's case will need to net selling greater than any
repatriation of capital from abroad. Even though most dollars are actually held by foreign
governments and their agencies, their strategic reserve decisions are ultimately driven by
economic factors.
Assuming the global economic slump deepens over the next few years, at a time when the
American budget deficit will be increasing rapidly foreigners will be sellers of dollars and
underlying US assets, including US Treasuries. Unless private sector actors in America increase
their propensity to save, the budget deficit will have to be financed instead entirely by
inflationary means.
Broadly, other than intertemporal factors there are two ways in which monetary inflation can
translate into higher prices: a relative desire to reduce possession of the currency relative
to goods either by domestic users or by foreigners. The two preceding paragraphs describe why
foreigners are likely to turn sellers for reasons of trade, to which we can add the further
consideration that over the last year a combination of a rising dollar and falling US Treasury
yields have been immensely profitable for them, an experience which might not be repeated next
year. So, while domestic users may be slow to see the dollar's purchasing power accelerate in
its decline, the push to a weakening dollar is likely to come from abroad, at least
initially.
All holders of dollars will find that their ownership of dollars relative to goods will be
increasing rapidly, due to inflationary financing to cover a rising budget deficit. Instead of
consumers and other economic actors associated with Main Street, the banks owe the bulk of
their balances and deposits to other financial entities and foreigners. Therefore, the domestic
monetary system is potentially more footloose than in the past. The risk to the Fed is that
this deposit cohort is more likely to take its cue from factors such as the foreign exchanges,
the price of gold and even cryptocurrencies, speeding up the fall in the dollar's purchasing
power once it begins to slide.
It is a long time since we have seen it, but when the smart money begins to view things
negatively, everything the Fed does with monetary policy, or the executive does fiscally, leads
to failure. A falling dollar leads to rising interest rates in the markets, and the
government's funding crisis will be laid bare for all to see. And with the Fed and the US
Treasury staffed with neo-Keynesians, a policy reversal to stabilise the currency by making it
sound will be the last thing that happens.
A world driven to trade isolationism
American trade policy under President Trump is isolationist and at odds with the role of a
reserve currency. His mantra of "Make America Great Again" and his determination to build a
wall on the Mexican border are testament to his thinking. If anything, America's introspection
towards Russia and China has strengthened their partnership as joint Asian hegemons. Their
decision to progress their economies without America and its dollars was taken by America for
them. Russia has already turned most of her dollars into gold and continues to do so. China's
plans to evolve her economy into a more consumer oriented one are underway, but she is still
too dependent on export-oriented trade to disregard ties with her Western trading partners.
Consequently, China can be expected to accelerate plans for her vision of a consumer-driven
middle class. In order to do so she will dispose of the dollar for trade purposes as much as
possible. At the meeting of the BRICS nations in Brazil earlier this month, a common
cryptocurrency was discussed, ostensibly to reduce currency volatility, but in reality, to
eliminate the dollar as a common settlement medium between BRICS members.
So far, China has seen the redundancy of the dollar as a gradual evolutionary process. But
America's policy of diverting global portfolio flows from China is likely to lead to China
drawing down on her foreign reserves, particularly her holdings of US dollars, to replace
expected capital inflows. She will still be dependent on imports of raw materials, for which
some dollars will be needed; but so long as she has a trade surplus, and she insists on her
preferences for trade settlement by other means, China's dollar requirements will be
minimised.
China can probably weather the political consequences of a collapse in international trade,
because for the population American aggression is clearly to blame. While China has had to
amend its plans and is resisting precipitative action, there can be no doubt her determination
to do away with the dollar is more urgent. Together with Russia, the other BRICS members and
the Shanghai Cooperation Organisation as well as her trade counterparties in sub-Saharan
Africa, China's policies for trade settlement without the dollar will affect more than half the
world's population.
And when you get establishment figures in the Western banking system, such as Mark Carney,
openly speculating at Jackson Hole last August about a replacement for the dollar in
international trade, you know the dollar's jig is finally up.
One thing I don't understand in all this talk of a replacement reserve currency for the world
is why there is no mention of the IMF's Special Drawing Rights (SDR) currency. This is a
basket of currencies fashioned to act as a global reserve currency at some, currently
unknown, point in the future. Both the USD and Yuan are in the basket - China doesn't want to
be the reserve currency, but she wants adequate voting rights over the SDR, and this is a
continuing negotiation, to downgrade the US's legacy majority vote.
And although I haven't studied Carney's proposal well, I get the point that while the US
is at most 15% of global GDP, more than half of all trades are closed in USD. So he's looking
for ways to close some of those trades in alternative currencies. Russia and China and I
think Iran are helping this by trading directly in each other's currencies, but I suspect
that such things for most companies would be very unwieldy with today's global supply
chains.
The fact is that, still today, the US Dollar is a damn useful currency to trade in. Are
the sanctions worth it? Obviously, increasingly not. But I can't imagine trying to go outside
of it without a very strong platform to switch to.
vk with your comments about the USD as reserve currency (Triffin Paradox) and for pointig out
global capitalist exploitation is unrelated to nationalism....exactly correct and right on. I
make this same point once in awhile. Lol. But not nearly as well explained as you do here.
This is the non-sequitor behind the Brexit fallacy as well, that rejecting the EU for a
nationalist trade and economic policy will somehow make Britain Great again. Pure nonsense
and not a coincidence that Mercer/Bannon created this policy like Trump's policies with
outright lies through a complicit media/political campaign.
The sad fact of the matter is Britain can't even feed itself. So, Brexiteers, welcome to a
steady diet of overpriced sovereignty on a bun after the October 31st crash out.
And yes of course Keynes was correct about the need for a neutral global reserve currency
for trade rather than a national currency serving as world reserve currency. As james and b
suggest has great utility for the wealthiest Amerikkkans, while NC correctly views the strong
dollar as the reason for the hollowing of the Amerikkkan blue collar worker.
And bet your bottom dollar (pun intended) China has no desire for the yuan to become the
world reserve currency. That is the entire point of their global currency strategy: to
maintain the yuan subordinate to the USD.
Said differently: The U.S. abuses is 'exorbitant privilege'. The hope is that China would be
less inclined to do so.
The real solution though is a different system with some global exchange medium that can
not be manipulated by one country or a block of selfish countries.
b @20
I agree that US abuses, but that is what hegemony always does. Power corrupts and has
always done so. If there ever was a hegemony less inclined to do so, the history certainly
shows not to expect that from China or Communists. Hence, I would not wish to desire outcome
in which China gets close to hegemony.
I agree that a different system would be the solution. Currently, such option does not yet
exist? Or at least function? For that reason, it would seem safe to say that other countries
have no reason to de-couple from the least bad master of all bad ones available.
Perhaps it has already been stated in this thread, but once the US dollar was decoupled
from gold in 1971, it gave the Fed and the banksters the ability to create an infinite number
of digital and paper dollars. The US used this power to build 1000 military bases around the
world and use its sanctions to freeze dollars to anyone who challenged its policies and
power.
The call to replace the fiat dollar with some other form of bankster digital fiat should
be a non-starter. Only commodity-based currencies, which have intrinsic value and cannot be
created out of thin air, are the only viable form money for a world which could be free of
endless war paid for by endless debt and economic slavery.
It is astonishing to see how British Imperialism, from before Hobbes wrote Leviathan to
the present day, has fooled everyone by teaching us to focus on the particulars and our
physical senses instead of taking in the bigger picture and registering the totality and
spirit of what is occurring.
This is the beginning of dividing the world into two spheres. A Multi-Polar sphere, led by
China and Russia, and a U.S. led sphere.
In the current world order, the U.S. has lost its place of leadership. Militarily it has
been surpassed by Russia and economically it has been surpassed by China.
In terms of the economy, China's GDP (PPP basis) is some 20% larger than the U.S. In terms
of what counts, producing useful products, the difference is much larger than that. In fact
the U.S. hasn't produced the value of products that it consumes for more than 30 years, and
is currently running a trade deficit of more than 2% of GDP. The accumulated foreign debt,
resulting from these on-going trade deficits is a major strategic threat.
Not only has the U.S. lost its position of leadership, its perspectives are rapidly
deteriorating. 30+ years of Globalization has destroyed its industrial base, and without an
industrial base it cannot compete either economically or militarily.
To stop the on-going loss of its leadership position, the U.S. must redevelop its
industrial base. But it cannot do so in world of open borders in which it has to compete with
China. Thus, the U.S. is seeking to create its own sphere, accompanied by its loyal vassals,
where it can redevelop its industrial base and ultimately recover its industrial strength and
leadership, isolated from its competitors.
This, in my opinion, is the strategic intent of Trump's economic and trade policies. He is
not looking to achieve a trade deal with China, but rather to shut down trade between China
(and the Multi-Polar sphere in general), and a U.S. led economic sphere, which consists of
the U.S. and its vassal states. He is also looking to limit or harm the Multi-Polar sphere in
every way, short of all out war, in order to ensure the loyalty of as many vassals as
possible.
Posted by: dh-mtl | May 23, 2019 1:15:10 PM | 39
It seems to me that this comment is quite pertinent to this thread.
Regarding the US dollar as a reserve currency: This reserve currency status and the
resulting overpricing of the U.S. dollar has been a windfall to the global elites, but has
been devastating to the United States itself, being a major factor in the destruction of the
U.S. as an industrial economy.
In addition, the fact that the U.S. dollar has a dual purpose, as the currency of the U.S.
and as the reserve currency of the world, has resulted in considerable financial instability.
When the U.S. adjusts its monetary policy based on domestic needs, resulting wild swings in
the exchange rate send shock waves around the world.
A world reserve currency is used as a reference for other currencies and must be stable. A
domestic currency must be able to adjust based on the monetary policy required for the
domestic economy. These two separate functions are incompatible.
Over the past five decades the U.S. dollar has been anything but stable. In this sense
Mark Carney's analysis is spot on.
I believe that the Chinese, Russians, etc. recognize this situation and have long been
looking for an alternative to the U.S. dollar as a world reserve currency. The recent
weaponization of the dollar for geo-political purposes has only made the situation more
urgent.
I believe that what is required is a world reserve currency that is separate from any
domestic currency, similar to what Carney is calling for. However, my bet is that this world
reserve currency will take the form of a crypto-currency backed by gold. Only with the
backing of gold will the currency have the transparency required to be a world reference
currency, acceptable to all.
Carney's plan just creates a stronger coupling to the Empire by transforming a system that
uses the dollar as reserve currency into a system that uses what might be termed the
'e-dollar' for everything.
The proposal likely leads to a revived TPP because global currency requires
"harmonization" of regulatory regimes.
Most importantly: European poodles will be on an even shorter lease. (No gas from
Russia!)
Western globalist elites have already de-coupled from nation-states. The e-dollar makes
would force everyone to catch-up.
An exorbitant privilege" is likely to continue in one form or another. They will not give
up the ability to use currency as a tax without real pressure (which is currently
nonexistent).
Bonus: "the Russians hacked our currency!" is the perfect way for the in-group to crush
resistance by stealing from their critics.
ADKC - careful here. Don't over subscribe Chinese elitist propaganda for the truth just
because their government says so. The BRI to date isn't a proven winner, far from it, except
for the Chinese who insist on imperialistic control over these ventures both for their
companies and imported Chinese workers. Proof of benefits to the foreign countries has yet to
be determined.
In fact, there is evidence that at least in some respects
BRI looks to be an empty boondoggle like the empty skyscrapers in the Chinese urban
skyline.
China is sending empty freight trains to Europe through one of its key Belt and Road
Initiative (BRI) projects: the China-Europe Railway Express. The bizarre phenomenon caught
the attention of Depth Paper (等深线), a Chinese online news platform. In
a rare move by a Chinese media outlet in today's media environment, Depth Paper probed
critically into one of the BRI's most visible "connectivity" projects, uncovering the
perverse incentives that are luring China's local governments and companies to create huge
"bubbles" of ostensibly flourishing rail routes that run tens of thousands of kilometers
across the vast landmass of Eurasia.
The revelation partly confirms what some observers have suspected all along: that
China's central government lacks the ability to keep BRI strategically tight and
coordinated. Sub-national stakeholders, as they do in other policy areas, have the
incentives to bend the initiative to their own narrowly defined interests and in the
process undermine the overarching strategy, if such a strategy indeed exists at all. The
curious case uncovers some important dynamics playing out among Belt and Road's diverse
stakeholders.
Yes, Barflies, there are also downsides to central government planning even in the Zen
Master Paradiso, which of course is 100% free of corruption and perverse incentives:
The elevation of the freight service in political importance created powerful incentives
for players to "rig the game". Depth Paper reveals two groups of schemers in the game:
Provincial and local governments: As the number of freight trips to and from Europe
become a measurable indicator, local governments, particularly those sitting at key railway
hubs, saw a clear opportunity to boost their visibility under the BRI (and probably to the
leadership). At their disposal were subsidies to lower the cost of freight services and
make them competitive with cargo ships.
The Ministry of Finance provides a guiding subsidy ceiling of
0.8USD/container/kilometer. But ambitious local governments circumvent it by inventing all
kinds of additional rewards to lure businesses to their train terminals, sometimes even
compensating for the extra mileage of truck transportation to bring containers from
thousands of kilometers away. According to a chart collated by Sino Trade and Finance, many
municipal government offer around 3000USD per container for a one-way Europe bound trip and
a whole train could receive a total of 123,000USD worth of subsidies per trip. These local
governments also use tax rebate and land use subsidies to sweeten the deal for freight
service companies.
International railway service companies : Competition with each other and
pressure from local governments eager for BRI visibility has incentivized the companies who
actually run the numerous rail routes to Europe to increase the number of train trips.
Every month these companies have to book planned trips from the railway regulators and get
what is called a "route slip" that permits them to run those trains. The ratio of actual
trips to the applied number is called "realization rate" that regulators use to monitor
rail capacity utilization.
The interplay of these incentives drives both groups to boost indicators that make them
look good in this game, creating scenes that are outright bizarre. The government of Xi'an
is one of the most active players starting from 2018. The city, 1000 kilometers to the west
of Beijing and the former capital of Tang Dynasty more than a millennium ago, considers
itself the "starting point of the ancient Silk Road" and strives to restore its glory in
the Belt and Road era. With full support from its provincial bosses, it is the most
generous with subsidies, dwarfing other provinces by a wide margin. "Subsidized per
container transportation price from Xi'an is constantly below RMB 8500, while it costs over
20000 RMB from Shandong," a trade agent told Depth Paper.
The subsidies are of the scale that they bend the gravity of trade. In the most extreme
cases, traders in the far west Xinjiang Autonomous Region, which already borders Central
Asia and is itself a Belt and Road rail hub, would move their cargo thousands of kilometers
to the east to capitalize on the Xi'an government's free handouts before transporting west
across the Eurasian continent. Similarly, traders in coastal Shandong provinces would truck
their goods all the way to Xi'an and load them onto trains, as it is cheaper even after
taking into account the 5000 RMB per container transportation cost by truck (for which the
Xi'an government also partially remunerates). The result is that Europe-bound freight train
trips from Xi'an grew by a whopping 536.6% in just one year from 2017 to 2018.
The railway service companies, on the other hand, blow up their trip numbers even when
they have very little to ship. Before Xi'an arrived on the scene in 2018, the competition
between Chongqing and Chengdu, two nearby cities, was so fierce that the two cities would
refuse to merge cargo loads back from Germany despite neither being able to fill a whole
train themselves. When the pressure (and reward) to be the top railway service company
facilitating "Belt and Road" trips to Europe becomes huge, the companies simply start
loading empty containers to their trains. They must ensure that each train meets the
regulator's 40-container minimum before it leaves the station, but there is no obligation
and no ability (for lack of demand) to fill those containers.
In the most extreme case, one train carried 40 empty containers and just one full
container all the way to Europe. This makes the China Railway Express's impressive growth
number highly dubious, and most certainly a "bubble". Even with all their tricks, companies
can barely fulfill their promise to regulators: they have overbooked railway resources. In
Q2 of 2019, Chongqing's "realization rate" dipped to as low as 64% for some routes.
China will unquestionably need even more infrastructure if it's to accommodate all the
additional migrants McKinsey anticipates. But just because China needs things that haven't
yet been built, that doesn't mean that everything that gets built is truly needed. Even the
casual observer driving around China can see that something is wrong. You can see it in the
industrial parks that are empty except for a small handful of factories, and in the
government buildings that are so large it seems impossible that they will ever fill in with
civil servants, and in the airports that only sporadically host an arriving plane, and in
the glut of exhibition centres and museums that every town seems compelled to build.
Urbanisation – the construction of new housing and infrastructure – has been
the driving force behind the Chinese economy for close to two decades. It has created
demand for massive volumes of steel, cement, and glass; for the ships that bring iron ore
from overseas; for the power plants and coal mines needed by the steel mills; and for the
machinery that is needed on construction sites.
But this constant and nonstop building has become an addiction for local governments.
it's a way of stimulating the local economy and maintaining growth, all loosely justified
by the needs of migrants. The World Bank calls urbanisation an "enabling parallel [process]
in rapid growth"; in other words, urbanisation can support growth, but it can't drive it.
China has put the cart before the horse, and the result is waste on an epic scale.
Tieling's story is one of how ambition and a lack of restraint by local governments,
masquerading as planning for the future, have laid the foundation for financial problems
that have been replicated throughout China – and how the promise of further migration
isn't going to fix them.
I see many many people have bought into anti-China propaganda. So the MSM lies about Israel
and Russia and Syria and WMD and Iran but when it comes to China it tells the truth. Gotcha.
ADKC , Aug 25 2019 0:04 utc |
59vk , Aug
25 2019 0:05 utc |
60
@ Posted by: donkeytale | Aug 24 2019 23:29 utc | 53
But it is not us, alleged "pro-China propagandists" who are "buying into Chinese elite
propaganda". It is its main enemy -- the USA -- that
is stating China is a superpower (the term "great power" is used + subliminar message of
the document).
As a famous philosopher once said: the best way to know yourself is to know your
enemy.
And, by knowing its enemy and by assessing the evidence on the field available to us, it
leaves us to believe that the Chinese socialist system has been -- with all its virtues and
flaws -- a monumental success: so far, it's the only Third World country to ascend to
superpower status; it's also the first really big country (1.4 billion people) to have found
a way to material prosperity (mutatis mutandis) to the totality of its population (which
breaks with the post-war Western European social-democrat myth that states only small
countries can be prosperous).
And we have corruption here in the (capitalist) Third World too. Corruption is not an
invention of socialism. If I could, I would choose the Chinese system for my country in a
heartbeat.
First : Good articles from B always get responded by astroturfers / paid trolls in the first
few comments , that mean B's MoA already in priority watch list of TPTB drones
Second : Rather surprised by people that got surprised of the decoupling plan , as it been
the goal all along and any china watcher knew this right from the start. Trump is not the
instigator of this , he acted like moron on twitter but the machination for the decoupling
have been ongoing even during obama years (TPP anyone ?) The whole trump trade deal promise
with china are not about trade deals , it is a list of demand from US to make china bow to US
or face decoupling. China of course refused and here we are today. US overplayed their hands
as china better prepared for the decoupling.
Third : HK violent protests are in fact designed to make china over react and send in
security forces into HK , the debacle then will be used as US and push EU allies to support
decoupling with china. But the awaited china HK crackdown never happened and the western plan
go ahead anyway with the choreographed western leader's comments on china action toward HK
even when theres no action.
To the trolls like Nemesis Calling and his sock puppet accounts , it would be wiser if you
notice the people coming to MoA are not random ignorant citizen of USA or EU. Such blatant
pro US narrarive from you instantly got recognized and laughed at.
SHC idea is BS. I don't want to even think about all the hidden tricks the City is planning
to build into it. There's no need to because there's no need for SHC itself.
It used to be hard to maintain accounts in multiple currencies, as well as settle such
accounts when trading internationally, so the trade (and, therefore, insurance, short-term
credit, and trade reserves) inevitably coalesced around a few main currencies. With the
computation capabilities available today, there's nothing preventing banks and companies from
having accounts in dozens of currencies. There's nothing preventing all kinds of currency
pairs (thousands, even tens of thousands of combinations) to be traded automatically by
market-making algorithms, thus providing the necessary liquidity.
This is what the non-Empire countries should be working towards: a decentralized system of
currency exchanges and settling systems built upon a common standard for maximum
interoperability. No blockchain currencies are necessary: simple correspondent accounts at
the central banks will do. The trick is to adopt a common tech standard and simplify legal
procedures, so that a bank can easily open accounts in the currencies of dozens of countries
and easily exchange these currencies on a currency exchange of its choosing.
Trump singled out China in a memo to U.S. Trade Representative Robert Lighthizer, saying
that "the United States has never accepted China's claim to developing-country status, and
virtually every current economic indicator belies China's claim." In response, China said
that it's still a developing nation and needs flexibility and policy room, according to
state broadcaster CCTV.
That's because you look at the empty cities from a western (particularly Hayek economics)
perspective. There are at least the following factors that you have ignored:
1. That the US/West requested China to support the world economy post 2008 by
spending.
2. That the West has wasted far greater resources with quantitative easing &
non-performing investments.
3. That China adopted a Keynesian approach to keep their economy moving.
4. That the cities were all planned anyway and build was just brought forward to support
the world and Chinese economy.
5. That most of these cities are still not complete and not ready yet for mass
residence.
I can see the argument that these cities might turn out to be a waste but so was the
western approach to the 2008 crash and what we are left with is continuing austerity, huge
amounts of money that has been wasted by pouring it straight into the pockets of the ultra
rich, and another pending crash. What China is left with is money that went to the workers,
an economy that continued to develop and assets (cities) that may well be very useful in the
future.
After the Global Financial Crisis Zhou Xiaochuan, Governor of the Bank of China announced,
"The world needs an international reserve currency that is disconnected from individual
nations and able to remain stable in the long run, removing the inherent deficiencies caused
by using credit-based national currencies."
He proposed Special Drawing Rights, SDRs, that derive their value from a basket of world
currencies. Nobelists C. Fred Bergsten, Robert Mundell and Joseph Stieglitz, were supportive,
"The creation of a global currency would restore a needed coherence to the international
monetary system, give the IMF a function that would help it to promote stability and be a
catalyst for international harmony."
To demonstrate the scheme's stability China began valuing its own currency, the RMB,
against a basket of dollars, euros, yen and pounds sterling and, almost immediately
complaints about RMB valuation ceased. The IMF made its first SDR loan in 2014, the World
Bank issued the first SDR bond in 2016, Standard Chartered Bank issued the first commercial
SDR notes in 2017 and the world's central banks began stating reserves in SDRs in 2019.
While few noticed the advent of SDRs, the creation of the Asian Infrastructure Investment
Bank, AIIB, in 2015 was a sensation. Former US Treasury Secretary Larry Summers called it,
"The moment the United States lost its role as the underwriter of the global economic system.
I can think of no event since Bretton Woods comparable to the combination of China's
effort to establish a major new institution–and the failure of the US to persuade
dozens of its traditional allies, starting with Britain–to stay out of it."
The AIIB's one hundred member countries account for eighty percent of the world's total
population and two-thirds of global GDP. It guarantees a trillion dollars annually in long
term, low interest loans for regional infrastructure, poverty reduction, growth and climate
change mitigation and allows Eurasia's four billion savers to mobilize local savings that
previously had few safe or creative outlets.
U.S. Decoupling From China Forces Others To Decouple From
U.S.
The U.S. is decoupling itself from China. The effects of that process hurt all global
economies. To avoid damage other countries have no choice but to decouple themselves from the
U.S.
Today's Washington Post front page leads with a highly misleading headline:
It was China, not Trump, which retaliated. Trump reacted to that with a tweet-storm and by
intensifying
the trade war he started . The piece under the misleading headline
even says that :
President Trump demanded U.S. companies stop doing business with China and announced he would
raise the rate of tariffs on Beijing Friday, capping one of the most extraordinary days in
the long-running U.S.-China trade war.
...
The day began with Beijing's announcement that it would impose new tariffs on $75 billion in
goods, including reinstated levies on auto products, starting this fall. It came to a close
Friday afternoon with Trump tweeting that he would raise the rate of existing and planned
tariffs on China by 5 percentage points.
Beijing's tariff retaliation was delivered with strategic timing, hours before an
important address by Powell, and as Trump prepared to depart for the G-7 meeting in
Biarritz.
After Trump's move the stock markets had a sad. Trade wars are, at least in the short term,
bad for commerce. The U.S. and the global economy are still teetering along, but will soon be
in recession.
The Trump administration is fine with that. (As is Dilbert creator Scott Adams
(vid).)
U.S. grand strategy is to prevent other powers from becoming equals to itself or to even
surpass it. China, with with a population four times larger than the U.S., is the country ready
to do just that. It already built itself into an economic powerhouse and it is also steadily
increasing its military might.
China is thus a U.S. 'enemy' even though Trump avoided, until yesterday, to use that
term.
Over the last 20+ years the U.S. imported more and more goods from China and elsewhere
and diminishes its own manufacturing capabilities. It is difficult to wage war against another
country when one depends on that country's production capacities . The U.S. must first
decouple itself from China before it can launch the real war. Trump's trade war with China is
intended to achieve that. As Peter Lee wrote
when the trade negotiations with China failed:
The decoupling strategy of the US China hawks is proceeding as planned. And economic pain is
a feature, not a bug.
...
Failure of trade negotiations was pretty much baked in, thanks to [Trump's trade negotiator]
Lightizer's maximalist demands.
And that was fine with the China hawks.
Because their ultimate goal was to decouple the US & PRC economies, weaken the PRC,
and make it more vulnerable to domestic destabilization and global rollback.
If decoupling shaved a few points off global GDP, hurt American businesses, or pushed the
world into recession, well that's the price o' freedom.
Or at least the cost of IndoPACOM being able to win the d*ck measuring contest in East
Asia, which is what this is really all about.
Trump does not want a new trade deal with China. He wants to decouple the U.S. economy
from the future enemy. Trade wars tend to hurt all involved economies. While the decoupling
process is ongoing the U.S. will likely suffer a recession.
Trump is afraid that a downturn in the U.S. could lower his re-election chances. That is
why he wants to use the Federal Reserve Bank to douse the economy with more money without
regard for the long term consequences. That is the reason why the first part of his tweet storm
yesterday was
directed at Fed chief Jay Powell:
In his order for U.S. companies to withdraw from China, some close to the administration saw
the president embracing the calls for an economic decoupling made by the hawks inside his
administration.
The evidence of the shift may have been most apparent in a 14-word tweet in which Trump
appeared to call Xi an "enemy."
"My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?" he said in a
Tweet posted after Powell gave a speech in Jackson Hole that contained implicit criticism of
Trump's trade policies and their impact on the U.S. and global economies.
Jay Powell does not want to lower the Fed interest rate. He does not want to increase bond
buying, i.e. quantitative easing. Interest rates are already too low and to further decrease
them has its own danger. The last time the Fed ran a too-low interest rate policy it caused the
2008 crash and a global depression.
Expect Trump to fire Powell should he not be willing to follow his command. The U.S. will
push up its markets no matter what.
From Powell's perspective there is an additional danger in lowering U.S. interest rates.
When the U.S. runs insane economic and monetary policies U.S. allies will also want decouple
themselves - not from China but from the U.S. The 2008 experience demonstrated that the U.S.
dollar as the global reserve and main trade currency is dangerous for all who use it. Currently
any hickup in the U.S. economy leads to large scale recessions elsewhere.
That is why even long term U.S. ally Britain warns of such danger and looks for a way
out :
Bank of England Governor Mark Carney took aim at the U.S. dollar's "destabilising" role in
the world economy on Friday and said central banks might need to join together to create
their own replacement reserve currency.
The dollar's dominance of the global financial system increased the risks of a liquidity
trap of ultra-low interest rates and weak growth, Carney told central bankers from around the
world gathered in Jackson Hole, Wyoming, in the United States.
...
Carney warned that very low equilibrium interest rates had in the past coincided with wars,
financial crises and abrupt changes in the banking system.
...
China's yuan represented the most likely candidate to become a reserve currency to match the
dollar, but it still had a long way to go before it was ready.
The best solution would be a diversified multi-polar financial system, something that
could be provided by technology, Carney said.
Carney speaks of a "new Synthetic Hegemonic Currency (SHC)" which, in a purely electronic
form, could be created by a contract between the central banks of most or all countries. It
would replace the dollar as the main trade currency and lower the risk for other economies to
get infected by U.S. sicknesses (and manipulations).
Carney did not elaborate further but is an interesting concept. The devil will be, as
always, in the details. Will one be able to pay ones taxes in that currency? How will the value
of each sovereign currency in relation to SHC be determined?
That the U.S. dollar is used as a global reserve currency under the Bretton Woods system
is, in the words of the former French Minister of Finance Valéry Giscard d'Estaing, an
"exorbitant privilege". It if wants to keep that privilege it will have to go back to sane
economic and monetary policies. Otherwise the global economy will have no choice but to
decouple from it.
Posted by b on August 24, 2019 at 19:22 UTC |
Permalink
A Weak Dollar Could Help the US. Getting One
Isn't So Easy. https://nyti.ms/33j7eFe
NYT - Matt Phillips - August 6
President Trump has made no secret of his
frustration that the United States dollar
has strengthened against other currencies.
The trade war between Washington and Beijing took an unexpected turn this week as China
let its currency drop sharply and the United States responded by officially designating the
country a currency manipulator.
The confrontation underscored the Trump administration's focus on weakness in foreign
currencies -- and the corresponding strength of the dollar -- as a drag on the American
economy.
Now, investors are gaming out the prospect that the United States could actively intervene
in the financial markets, in a significant break from a decades-long commitment to
free-floating currencies.
"It's a big deal because I think it would mark a new sort of phase in how the U.S.
approaches the international economy," said Michael Feroli, chief United States economist
with JPMorgan Chase.
But while the president might want a weaker dollar, engineering one is complicated. Here's
the context you need to understand the United States' changing approach to the dollar.
Why would the U.S. benefit from a weaker dollar?
A weaker currency makes a country's exports cheaper for buyers overseas, giving a country
a competitive advantage. For years, an artificially weak renminbi underpinned China's growth
as a manufacturing base for the rest of the world.
The Trump administration's tariffs on imports of Chinese-made goods are meant to raise the
price of those products once they land in the United States, discouraging Americans from
buying them.
But one way for China to respond is to weaken the renminbi and undermine the impact of
those tariffs by making those products cheaper.
That's why when China allowed its closely controlled renminbi to depreciate sharply
against the dollar on Monday, it was taken as a sign that the trade war between the United
States and China was getting worse.
The currency has since strengthened, easing this tension somewhat, but China isn't the
only trading partner the president has a problem with.
For instance, in June, after the European Central Bank said it might restart stimulus
programs to bolster the economy, Mr. Trump accused it of pushing down the value of the euro,
"making it unfairly easier for them to compete against the USA."
"They have been getting away with this for years, along with China and others," he said on
Twitter.
A weaker dollar has other benefits. For instance, it could also bolster corporate
earnings. Roughly 40 percent of the revenue of the biggest American companies now comes from
overseas, and a weaker dollar means those foreign sales make a bigger contribution to the
bottom line. Those higher earnings can help give the stock market a lift.
None of this is a secret. But in the past, governments have shied away from weakening
their currencies, in part because they were afraid it would also lead to an ugly bout of
inflation, which was traditionally viewed as the big risk of a weak currency. These days,
inflation around the world is incredibly low and shows little sign of rising.
"You have almost the perfect macro backdrop for policymakers to encourage currency
weakness," said Alan Ruskin, chief international strategist at Deutsche Bank in New York.
How did this become a political issue?
Foreign exchange markets are a zero-sum game: If China's currency weakens against the
dollar, the dollar, by definition, strengthens.
So whether China is deliberately lowering the value of the renminbi, or the euro is
tumbling because currency traders are worried about the region's growth, the ultimate impact
is that the dollar is stronger.
Strong currencies tend to weaken a country's exports and bolster the consumption of
foreign products. That can lead to larger trade deficits.
President Trump has made reducing the trade deficit with China a crucial focus of his
administration and a crucial goal of the tariff war that began in 2018.
But that effort has had mixed results. The United States' goods deficit with China
initially widened to a record $43 billion in October before shrinking significantly since
then. It is now hovering around $30 billion a month.
In theory, if the dollar weakened against the Chinese currency, it could do more to cut
that trade deficit than a tariff battle, potentially offering the president a chance for a
political victory going into the 2020 election.
If other countries can weaken their currency, why doesn't the United States do the
same?
In theory, it can. But in practice it isn't easy.
In part, that's just because the currency markets are so big. Every day, more than $5
trillion changes hands in those markets, and more than $4 trillion of those trades involve
the dollar.
China controls the renminbi because it can use the bottomless buying power of its central
bank, which publishes an official price for the currency every day around which it allows a
certain amount of trading.
The People's Bank of China has the ability to print renminbi to weaken the currency if the
exchange rate gets too high. On the flip side, Beijing has $3 trillion in reserves it can
deploy to keep the currency from getting too weak.
Right now, the United States doesn't operate that way.
It has some capacity to intervene in financial markets by using the Exchange Stabilization
Fund, a vehicle under the control of the Treasury secretary, with about $100 billion of
buying power.
"Unless Congress gives Treasury authority to beef up the Exchange Stabilization Fund, it
just doesn't have enough firepower," said Joseph Gagnon, senior fellow at the Peterson
Institute for International Economics.
Last month, Larry Kudlow, director of the National Economic Council, said the White House
had considered an intervention to weaken the dollar before deciding against it. The same day,
however, Mr. Trump contradicted Mr. Kudlow, telling reporters that all options were on the
table.
"I could do that in two seconds if I wanted," Mr. Trump said. "I didn't say that I'm not
going to do something."
So in the past, when American politicians wanted to change the value of the dollar, they
had to coordinate efforts involving a number of countries. That's what happened in 1985, when
the United States engineered an agreement to weaken the dollar as part of an agreement known
as the Plaza Accord.
Of course, those countries were all strategic allies of the United States. Persuading
China to let its currency strengthen to help the United States is a different situation all
together.
"... The real concern is about the primacy of the dollar and US hegemony. When Krugman trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit, his main point was that it was good policy strategically. Krugman was woefully wrong, as China grew to be a geopolitical rival, not a US client state like Japan or Germany as the Clintonistas and the foreign policy borg had hoped. ..."
"... Folks, it ain't about US jobs and consumer prices, which will be affected at worst only marginally. What it's really about is the dominance of the empire and its enormous, tax-free profits overseas. ..."
What's at Risk if US Stumbles Into
a Currency War https://nyti.ms/2yKGPC1
NYT - Neil Irwin - August 7
... ... .. ...
The Trump administration has introduced a zero-sum approach to global currency policy --
envisioning a loser for every winner -- that violates the spirit of those rules.
In that sense, the latest moves risk upsetting a relatively stable order, creating
unpredictable ripple effects. When currencies swing wildly, they can pull along the economies
of some of the most powerful nations, such as by crushing entire sectors of the economy that
find themselves uncompetitive after a swing in global exchange rates.
And it could undermine the central role the United States has played in the international
financial system, especially if the accusations of manipulation are followed up with concrete
retaliation to try to artificially depress the value of the dollar.
"The dollar being the primary global currency has enormous benefits for the U.S., but with
the side effect that when the U.S. tries to depreciate, there are limits on how much it can
do that," said Adam Posen, president of the Peterson Institute for International Economics.
"But if the U.S. abuses its privilege too much by bullying, there will eventually be a
switch."
The decision to name China a currency manipulator does not, in and of itself, do much. But
it could be followed up with pressure on the International Monetary Fund and other nations to
make similar findings and lean on the Chinese to adjust their policies. Or it could lead to
direct intervention in foreign exchange markets by the United States Treasury.
This is not the first time President Trump has accused a major trading partner of using
currency policy to mistreat the United States.
... ... ...
A habit of the Trump administration has been to link seemingly unrelated items in its
dealings with other countries -- using tariff threats to try to influence Mexican immigration
policy, for example.
If the Trump administration continues down the path of using currency policy to try to
bludgeon China over trade, technology and national security issues, it will signal a
remarkable expansion into a policy area that has been a source of stability in recent
decades.
"It's dangerous to start a currency war because you don't know where it will end," said
Eric Winograd, chief U.S. economist at AllianceBernstein. "We've seen with the trade war that
it started in one place, and ended up much broader. There's every risk a currency war will do
the same."
"It could undermine the central role the United States has played in the
international financial system."
All the talk about hurting consumers and jobs is just noise that policy elites emit to win
support on false pretenses.
The real concern is about the primacy of the dollar and US hegemony. When Krugman
trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit,
his main point was that it was good policy strategically. Krugman was woefully wrong, as
China grew to be a geopolitical rival, not a US client state like Japan or Germany as the
Clintonistas and the foreign policy borg had hoped.
Now there is a real debate about global strategy going on. Trump wants to whack China back
into place, reduce it as a geopolitical threat. The other side is still wedded to the 2000
notion having China follow US global leadership and defending the exorbitant privileges of US
corporations, their banksters, and their profits. Their latest gambit is to raise a
potentially real issue--the primacy of the US dollar.
Folks, it ain't about US jobs and consumer prices, which will be affected at worst
only marginally. What it's really about is the dominance of the empire and its enormous,
tax-free profits overseas.
What's at Risk if US Stumbles Into
a Currency War https://nyti.ms/2yKGPC1
NYT - Neil Irwin - August 7
When the United States declared China a currency manipulator on Monday, long-building
trade tensions between the world's two largest economies spread to the combustible realm of
currencies -- with potentially huge consequences for the global financial system should the
escalation continue.
Did China allow the value of the yuan to fall against the dollar simply to allow it to
better match the nation's economic situation, as the country's leaders and many international
economists argue? Or was it, as President Trump contends, an effort to give Chinese exporters
an unfair advantage in trade?
That clash reflects Mr. Trump's rejection of the consensus of global economic
policymakers. That consensus says countries should be free to set monetary policies aimed at
generating sustained growth, even if that causes their currency to depreciate. And they
should be free to manage their exchange rates so long as they keep those rates broadly in
line with their economic fundamentals.
The conflict also reflects the president's singular focus on reducing trade deficits,
which he has argued make the United States a loser in the global trade system. But waging a
currency war could come at a big cost.
"I worry it further undermines the international framework that has supported decades of
faster growth," said Kristin Forbes, an economist at M.I.T. and a former official of the U.S.
Treasury and the Bank of England. "Exchange rates are the shock absorber in the global
economy."
There have been international strains over currency valuations for years, all the more so
in a world in which all the major economies are coping with sluggish growth. But the newest
currency frictions are different.
Up until now, countries have been focused on stimulating their domestic economies. In
particular, central banks have cut interest rates and taken other steps to pump money into
their financial systems. That tends to lower the value of their currency. After all,
investing in a currency with lower interest rates is less attractive, all else equal, than in
one with higher rates.
But the conventional wisdom among international economists is that this doesn't count as
currency manipulation. It's not a game in which one country's win means another must lose.
Lower interest rates should generate more economic activity, which makes the whole world
better off.
The Trump administration has introduced a zero-sum approach to global currency policy --
envisioning a loser for every winner -- that violates the spirit of those rules.
In that sense, the latest moves risk upsetting a relatively stable order, creating
unpredictable ripple effects. When currencies swing wildly, they can pull along the economies
of some of the most powerful nations, such as by crushing entire sectors of the economy that
find themselves uncompetitive after a swing in global exchange rates.
And it could undermine the central role the United States has played in the international
financial system, especially if the accusations of manipulation are followed up with concrete
retaliation to try to artificially depress the value of the dollar.
"The dollar being the primary global currency has enormous benefits for the U.S., but with
the side effect that when the U.S. tries to depreciate, there are limits on how much it can
do that," said Adam Posen, president of the Peterson Institute for International Economics.
"But if the U.S. abuses its privilege too much by bullying, there will eventually be a
switch."
The decision to name China a currency manipulator does not, in and of itself, do much. But
it could be followed up with pressure on the International Monetary Fund and other nations to
make similar findings and lean on the Chinese to adjust their policies. Or it could lead to
direct intervention in foreign exchange markets by the United States Treasury.
This is not the first time President Trump has accused a major trading partner of using
currency policy to mistreat the United States.
He assailed the European Central Bank for moving toward monetary stimulus in June --
complaining on Twitter that the resulting drop in the value of the euro was "making it
unfairly easier for them to compete against the USA."
The European Central Bank explained its stimulus as an effort to keep Europe from sliding
back into recession. When the central bank first undertook its "quantitative easing"
policies, it was with encouragement from the Obama administration, which believed a stronger
European economy was ultimately good for the U.S. economy, despite its effect on
currencies.
Similarly, the Trump administration's decision Monday to name China a currency manipulator
-- for allowing the value of its currency to fall -- does not align with how mainstream
economists view China's move.
With the economy slowing in China, in part because of the trade wars, market forces tend
to push its currency lower. But the People's Bank of China has defended the currency from big
drops, aiming to prevent capital from flowing out of the country or destabilizing the world
economy.
The "manipulation" that took place Monday morning wasn't artificially depressing the
Chinese currency to seize advantage with trade partners, but engaging in less manipulation in
order to allow it to fall closer to its market-determined rate.
There is a more nuanced case to be made against Chinese currency policy -- that it did
intervene for years to push down the value of its currency, ending in the early 2010s, and
that Chinese economic might was built on an unfair practice. But the Trump administration's
announcement focuses on the more recent actions, in which different economic rationales
apply.
There is also a paradox for President Trump. Because of the dollar's unique role as the
global reserve currency, when panic sets in overseas, money tends to flow into United States
Treasury bonds, which are viewed as the safest assets on earth. But that movement tends to
prop up the value of the dollar and push overseas currencies lower.
In other words, the more chaos he injects into the global economy by trying to pressure
China, Europe and others to depreciate their currencies, the more upward pressure there will
be on the dollar, undermining those efforts.
That is potentially the worst of both worlds. When the dollar rises on currency markets
because the United States economy is booming, it may be hard on American export industries,
but at least it takes place in the context of strong growth.
But for the dollar to surge because of a global economic troubles, it means exporters
suffer at the same time that the overall economy is under pressure. A particularly extreme
example of this happened in the fall of 2008, when the United States economy was in free fall
and yet the dollar rose because of the global financial crisis.
A habit of the Trump administration has been to link seemingly unrelated items in its
dealings with other countries -- using tariff threats to try to influence Mexican immigration
policy, for example.
If the Trump administration continues down the path of using currency policy to try to
bludgeon China over trade, technology and national security issues, it will signal a
remarkable expansion into a policy area that has been a source of stability in recent
decades.
"It's dangerous to start a currency war because you don't know where it will end," said
Eric Winograd, chief U.S. economist at AllianceBernstein. "We've seen with the trade war that
it started in one place, and ended up much broader. There's every risk a currency war will do
the same."
No we're talking turkey! "It could undermine the central role the United States has played in
the international financial system." All the talk about hurting consumers and jobs is just
noise that policy elites emit to win support on false pretenses.
The real concern is about the primacy of the dollar and US hegemony. When Krugman
trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit,
his main point was that it was good policy strategically. Krugman was woefully wrong, as
China grew to be a geopolitical rival, not a US client state like Japan or Germany as the
Clintonistas and the foreign policy borg had hoped.
Now there is a real debate about global strategy going on. Trump wants to whack China back
into place, reduce it as a geopolitical threat. The other side is still wedded to the 2000
notion having China follow US global leadership and defending the exorbitant privileges of US
corporations, their banksters, and their profits. Their latest gambit is to raise a
potentially real issue--the primacy of the US dollar.
Folks, it ain't about US jobs and consumer prices, which will be affected at worst only
marginally. What it's really about is the dominance of the empire and its enormous, tax-free
profits overseas.
I think that 10 years from now the biggest impact from Trump will be from his cancellation
of the Iran nuclear accord and unilateral imposition of strict sanctions which the Europeans
were not able to bypass in any meaningful way due the prevalence of the US dollar in global
transactions.
There is now significant motivation in Europe and even China in creating a real
alternative to the US dollar for international transactions which bypasses US banks. If this
happens to any significant degree, it would undercut the US dollar as the world's reserve
currency, resulting in a permanent drop in its value.
Without international support, US Government deficits and trade deficits will become
unsustainable, and there will be a significant drop in the American median standard of
living.
Looks like the world order established after WWIII crumbed with the USSR and now it is again the law if jungles with the US as the
biggest predator.
Notable quotes:
"... The root cause is clear: After the crescendo of pretenses and deceptions over Iraq, Libya and Syria, along with our absolution of the lawless regime of Saudi Arabia, foreign political leaders are coming to recognize what world-wide public opinion polls reported even before the Iraq/Iran-Contra boys turned their attention to the world's largest oil reserves in Venezuela: The United States is now the greatest threat to peace on the planet. ..."
"... Calling the U.S. coup being sponsored in Venezuela a defense of democracy reveals the Doublethink underlying U.S. foreign policy. It defines "democracy" to mean supporting U.S. foreign policy, pursuing neoliberal privatization of public infrastructure, dismantling government regulation and following the direction of U.S.-dominated global institutions, from the IMF and World Bank to NATO. For decades, the resulting foreign wars, domestic austerity programs and military interventions have brought more violence, not democracy ..."
"... A point had to come where this policy collided with the self-interest of other nations, finally breaking through the public relations rhetoric of empire. Other countries are proceeding to de-dollarize and replace what U.S. diplomacy calls "internationalism" (meaning U.S. nationalism imposed on the rest of the world) with their own national self-interest. ..."
"... For the past half-century, U.S. strategists, the State Department and National Endowment for Democracy (NED) worried that opposition to U.S. financial imperialism would come from left-wing parties. It therefore spent enormous resources manipulating parties that called themselves socialist (Tony Blair's British Labour Party, France's Socialist Party, Germany's Social Democrats, etc.) to adopt neoliberal policies that were the diametric opposite to what social democracy meant a century ago. But U.S. political planners and Great Wurlitzer organists neglected the right wing, imagining that it would instinctively support U.S. thuggishness. ..."
"... Perhaps the problem had to erupt as a result of the inner dynamics of U.S.-sponsored globalism becoming impossible to impose when the result is financial austerity, waves of population flight from U.S.-sponsored wars, and most of all, U.S. refusal to adhere to the rules and international laws that it itself sponsored seventy years ago in the wake of World War II. ..."
"... Here's the first legal contradiction in U.S. global diplomacy: The United States always has resisted letting any other country have any voice in U.S. domestic policies, law-making or diplomacy. That is what makes America "the exceptional nation." But for seventy years its diplomats have pretended that its superior judgment promoted a peaceful world (as the Roman Empire claimed to be), which let other countries share in prosperity and rising living standards. ..."
"... Inevitably, U.S. nationalism had to break up the mirage of One World internationalism, and with it any thought of an international court. Without veto power over the judges, the U.S. never accepted the authority of any court, in particular the United Nations' International Court in The Hague. Recently that court undertook an investigation into U.S. war crimes in Afghanistan, from its torture policies to bombing of civilian targets such as hospitals, weddings and infrastructure. "That investigation ultimately found 'a reasonable basis to believe that war crimes and crimes against humanity." ..."
"... This showed that international finance was an arm of the U.S. State Department and Pentagon. But that was a generation ago, and only recently did foreign countries begin to feel queasy about leaving their gold holdings in the United States, where they might be grabbed at will to punish any country that might act in ways that U.S. diplomacy found offensive. So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. U.S. officials pretended to feel shocked at the insult that it might do to a civilized Christian country what it had done to Iran, and Germany agreed to slow down the transfer. ..."
"... England refused to honor the official request, following the direction of Bolton and U.S. Secretary of State Michael Pompeo. As Bloomberg reported: "The U.S. officials are trying to steer Venezuela's overseas assets to [Chicago Boy Juan] Guaido to help bolster his chances of effectively taking control of the government. The $1.2 billion of gold is a big chunk of the $8 billion in foreign reserves held by the Venezuelan central bank." ..."
"... But now, cyber warfare has become a way of pulling out the connections of any economy. And the major cyber connections are financial money-transfer ones, headed by SWIFT, the acronym for the Society for Worldwide Interbank Financial Telecommunication, which is centered in Belgium. ..."
"... On January 31 the dam broke with the announcement that Europe had created its own bypass payments system for use with Iran and other countries targeted by U.S. diplomats. Germany, France and even the U.S. poodle Britain joined to create INSTEX -- Instrument in Support of Trade Exchanges. The promise is that this will be used only for "humanitarian" aid to save Iran from a U.S.-sponsored Venezuela-type devastation. But in view of increasingly passionate U.S. opposition to the Nord Stream pipeline to carry Russian gas, this alternative bank clearing system will be ready and able to become operative if the United States tries to direct a sanctions attack on Europe ..."
"... The U.S. overplaying its position is leading to the Mackinder-Kissinger-Brzezinski Eurasian nightmare that I mentioned above. In addition to driving Russia and China together, U.S. diplomacy is adding Europe to the heartland, independent of U.S. ability to bully into the state of dependency toward which American diplomacy has aimed to achieve since 1945. ..."
"... By following U.S. advice, countries have left themselves open to food blackmail – sanctions against providing them with grain and other food, in case they step out of line with U.S. diplomatic demands. ..."
"... It is worthwhile to note that our global imposition of the mythical "efficiencies" of forcing Latin American countries to become plantations for export crops like coffee and bananas rather than growing their own wheat and corn has failed catastrophically to deliver better lives, especially for those living in Central America. The "spread" between the export crops and cheaper food imports from the U.S. that was supposed to materialize for countries following our playbook failed miserably – witness the caravans and refugees across Mexico. Of course, our backing of the most brutal military dictators and crime lords has not helped either. ..."
"... But a few years ago Ukraine defaulted on $3 billion owed to Russia. The IMF said, in effect, that Ukraine and other countries did not have to pay Russia or any other country deemed to be acting too independently of the United States. The IMF has been extending credit to the bottomless it of Ukrainian corruption to encourage its anti-Russian policy rather than standing up for the principle that inter-government debts must be paid. ..."
"... It is as if the IMF now operates out of a small room in the basement of the Pentagon in Washington. ..."
"... Anticipating just such a double-cross, President Chavez acted already in 2011 to repatriate 160 tons of gold to Caracas from the United States and Europe. ..."
"... It would be good for Americans, but the wrong kind of Americans. For the Americans that would populate the Global Executive Suite, a strong US$ means that the stipends they would pay would be worth more to the lackeys, and command more influence. ..."
"... Dumping the industrial base really ruined things. America is now in a position where it can shout orders, and drop bombs, but doesn't have the capacity to do anything helpful. They have to give up being what Toynbee called a creative minority, and settle for being a dominant minority. ..."
"... Having watched the 2016 election closely from afar, I was left with the impression that many of the swing voters who cast their vote for Trump did so under the assumption that he would act as a catalyst for systemic change. ..."
"... Now we know. He has ripped the already transparent mask of altruism off what is referred to as the U.S.-led liberal international order and revealed its true nature for all to see, and has managed to do it in spite of the liberal international establishment desperately trying to hold it in place in the hope of effecting a seamless post-Trump return to what they refer to as "norms". Interesting times. ..."
"... Exactly. He hasn't exactly lived up to advanced billing so far in all respects, but I suspect there's great deal of skulduggery going on behind the scenes that has prevented that. ..."
"... To paraphrase the infamous Rummy, you don't go to war with the change agent and policies you wished you had, you go to war with the ones you have. That might be the best thing we can say about Trump after the historic dust of his administration finally settles. ..."
"... Yet we find out that Venezuela didn't managed to do what they wanted to do, the Europeans, the Turks, etc bent over yet again. Nothing to see here, actually. ..."
"... So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging by some pygmy leaders (Merkel) does not signal a global change. ..."
"... Currency regime change can take decades, and small percentage differences are enormous because of the flows involved. USD as reserve for 61% of global sovereigns versus 64% 15 years ago is a massive move. ..."
"... I discovered his Super Imperialism while looking for an explanation for the pending 2003 US invasion of Iraq. If you haven't read it yet, move it to the top of your queue if you want to have any idea of how the world really works. ..."
"... If it isn't clear to the rest of the world by now, it never will be. The US is incapable of changing on its own a corrupt status quo dominated by a coalition of its military industrial complex, Wall Street bankers and fossil fuels industries. As long as the world continues to chase the debt created on the keyboards of Wall Street banks and 'deficits don't matter' Washington neocons – as long as the world's 1% think they are getting 'richer' by adding more "debts that can't be repaid (and) won't be" to their portfolios, the global economy can never be put on a sustainable footing. ..."
"... In other words, after 2 World Wars that produced the current world order, it is still in a state of insanity with the same pretensions to superiority by the same people, to get number 3. ..."
"... Few among Washington's foreign policy elite seem to fully grasp the complex system that made U.S. global power what it now is, particularly its all-important geopolitical foundations. As Trump travels the globe, tweeting and trashing away, he's inadvertently showing us the essential structure of that power, the same way a devastating wildfire leaves the steel beams of a ruined building standing starkly above the smoking rubble." ..."
"... He's draining the swamp in an unpredicted way, a swamp that's founded on the money interest. I don't care what NYT and WaPo have to say, they are not reporting events but promoting agendas. ..."
"... The financial elites are only concerned about shaping society as they see fit, side of self serving is just a historical foot note, Trumps past indicates a strong preference for even more of the same through authoritarian memes or have some missed the OT WH reference to dawg both choosing and then compelling him to run. ..."
"... Highly doubt Trump is a "witting agent", most likely is that he is just as ignorant as he almost daily shows on twitter. On US role in global affairs he says the same today as he did as a media celebrity in the late 80s. Simplistic household "logics" on macroeconomics. If US have trade deficit it loses. Countries with surplus are the winners. ..."
"... Anyhow frightening, the US hegemony have its severe dark sides. But there is absolutely nothing better on the horizon, a crash will throw the world in turmoil for decades or even a century. A lot of bad forces will see their chance to elevate their influence. There will be fierce competition to fill the gap. ..."
"... On could the insane economic model of EU/Germany being on top of global affairs, a horribly frightening thought. Misery and austerity for all globally, a permanent recession. Probably not much better with the Chinese on top. I'll take the USD hegemony any day compared to that prospect. ..."
"... Former US ambassador, Chas Freeman, gets to the nub of the problem. "The US preference for governance by elected and appointed officials, uncontaminated by experience in statecraft and diplomacy, or knowledge of geography, history and foreign affairs" https://www.youtube.com/watch?annotation_id=annotation_882041135&feature=iv&src_vid=Ge1ozuXN7iI&v=gkf2MQdqz-o ..."
"... Michael Hudson, in Super Imperialism, went into how the US could just create the money to run a large trade deficit with the rest of the world. It would get all these imports effectively for nothing, the US's exorbitant privilege. I tied this in with this graph from MMT. ..."
"... The Government was running a surplus as the economy blew up in the early 1990s. It's the positive and negative, zero sum, nature of the monetary system. A big trade deficit needs a big Government deficit to cover it. A big trade deficit, with a balanced budget, drives the private sector into debt and blows up the economy. ..."
The end of America's unchallenged global economic dominance has arrived sooner than expected, thanks to the very same Neocons
who gave the world the Iraq, Syria and the dirty wars in Latin America. Just as the Vietnam War drove the United States off gold
by 1971, its sponsorship and funding of violent regime change wars against Venezuela and Syria – and threatening other countries
with sanctions if they do not join this crusade – is now driving European and other nations to create their alternative financial
institutions.
This break has been building for quite some time, and was bound to occur. But who would have thought that Donald Trump would become
the catalytic agent? No left-wing party, no socialist, anarchist or foreign nationalist leader anywhere in the world could have achieved
what he is doing to break up the American Empire. The Deep State is reacting with shock at how this right-wing real estate grifter
has been able to drive other countries to defend themselves by dismantling the U.S.-centered world order. To rub it in, he is using
Bush and Reagan-era Neocon arsonists, John Bolton and now Elliott Abrams, to fan the flames in Venezuela. It is almost like a black
political comedy. The world of international diplomacy is being turned inside-out. A world where there is no longer even a pretense
that we might adhere to international norms, let alone laws or treaties.
The Neocons who Trump has appointed are accomplishing what seemed unthinkable not long ago: Driving China and Russia together
– the great nightmare of Henry Kissinger and Zbigniew Brzezinski. They also are driving Germany and other European countries into
the Eurasian orbit, the "Heartland" nightmare of Halford Mackinder a century ago.
The root cause is clear: After the crescendo of pretenses and deceptions over Iraq, Libya and Syria, along with our absolution
of the lawless regime of Saudi Arabia, foreign political leaders are coming to recognize what world-wide public opinion polls reported
even before the Iraq/Iran-Contra boys turned their attention to the world's largest oil reserves in Venezuela: The United States
is now the greatest threat to peace on the planet.
Calling the U.S. coup being sponsored in Venezuela a defense of democracy reveals the Doublethink underlying U.S. foreign
policy. It defines "democracy" to mean supporting U.S. foreign policy, pursuing neoliberal privatization of public infrastructure,
dismantling government regulation and following the direction of U.S.-dominated global institutions, from the IMF and World Bank
to NATO. For decades, the resulting foreign wars, domestic austerity programs and military interventions have brought more violence,
not democracy.
In the Devil's Dictionary that U.S. diplomats are taught to use as their "Elements of Style" guidelines for Doublethink, a "democratic"
country is one that follows U.S. leadership and opens its economy to U.S. investment, and IMF- and World Bank-sponsored privatization.
The Ukraine is deemed democratic, along with Saudi Arabia, Israel and other countries that act as U.S. financial and military protectorates
and are willing to treat America's enemies are theirs too.
A point had to come where this policy collided with the self-interest of other nations, finally breaking through the public
relations rhetoric of empire. Other countries are proceeding to de-dollarize and replace what U.S. diplomacy calls "internationalism"
(meaning U.S. nationalism imposed on the rest of the world) with their own national self-interest.
This trajectory could be seen 50 years ago (I described it in Super Imperialism [1972] and Global Fracture [1978].) It had to
happen. But nobody thought that the end would come in quite the way that is happening. History has turned into comedy, or at least
irony as its dialectical path unfolds.
For the past half-century, U.S. strategists, the State Department and National Endowment for Democracy (NED) worried that
opposition to U.S. financial imperialism would come from left-wing parties. It therefore spent enormous resources manipulating parties
that called themselves socialist (Tony Blair's British Labour Party, France's Socialist Party, Germany's Social Democrats, etc.)
to adopt neoliberal policies that were the diametric opposite to what social democracy meant a century ago. But U.S. political planners
and Great Wurlitzer organists neglected the right wing, imagining that it would instinctively support U.S. thuggishness.
The reality is that right-wing parties want to get elected, and a populist nationalism is today's road to election victory in
Europe and other countries just as it was for Donald Trump in 2016.
Trump's agenda may really be to break up the American Empire, using the old Uncle Sucker isolationist rhetoric of half a century
ago. He certainly is going for the Empire's most vital organs. But it he a witting anti-American agent? He might as well be – but
it would be a false mental leap to use "quo bono" to assume that he is a witting agent.
After all, if no U.S. contractor, supplier, labor union or bank will deal with him, would Vladimir Putin, China or Iran be any
more naïve? Perhaps the problem had to erupt as a result of the inner dynamics of U.S.-sponsored globalism becoming impossible
to impose when the result is financial austerity, waves of population flight from U.S.-sponsored wars, and most of all, U.S. refusal
to adhere to the rules and international laws that it itself sponsored seventy years ago in the wake of World War II.
Dismantling International Law and Its Courts
Any international system of control requires the rule of law. It may be a morally lawless exercise of ruthless power imposing
predatory exploitation, but it is still The Law. And it needs courts to apply it (backed by police power to enforce it and punish
violators).
Here's the first legal contradiction in U.S. global diplomacy: The United States always has resisted letting any other country
have any voice in U.S. domestic policies, law-making or diplomacy. That is what makes America "the exceptional nation." But for seventy
years its diplomats have pretended that its superior judgment promoted a peaceful world (as the Roman Empire claimed to be), which
let other countries share in prosperity and rising living standards.
At the United Nations, U.S. diplomats insisted on veto power. At the World Bank and IMF they also made sure that their equity
share was large enough to give them veto power over any loan or other policy. Without such power, the United States would not join
any international organization. Yet at the same time, it depicted its nationalism as protecting globalization and internationalism.
It was all a euphemism for what really was unilateral U.S. decision-making.
Inevitably, U.S. nationalism had to break up the mirage of One World internationalism, and with it any thought of an international
court. Without veto power over the judges, the U.S. never accepted the authority of any court, in particular the United Nations'
International Court in The Hague. Recently that court undertook an investigation into U.S. war crimes in Afghanistan, from its torture
policies to bombing of civilian targets such as hospitals, weddings and infrastructure. "That investigation ultimately found 'a reasonable
basis to believe that war crimes and crimes against humanity."
[1]
Donald Trump's National Security Adviser John Bolton erupted in fury, warning in September that: "The United States will use any
means necessary to protect our citizens and those of our allies from unjust prosecution by this illegitimate court," adding that
the UN International Court must not be so bold as to investigate "Israel or other U.S. allies."
That prompted a senior judge, Christoph Flügge from Germany, to resign in protest. Indeed, Bolton told the court to keep out of
any affairs involving the United States, promising to ban the Court's "judges and prosecutors from entering the United States." As
Bolton spelled out the U.S. threat: "We will sanction their funds in the U.S. financial system, and we will prosecute them in the
U.S. criminal system. We will not cooperate with the ICC. We will provide no assistance to the ICC. We will not join the ICC. We
will let the ICC die on its own. After all, for all intents and purposes, the ICC is already dead to us."
What this meant, the German judge spelled out was that: "If these judges ever interfere in the domestic concerns of the U.S. or
investigate an American citizen, [Bolton] said the American government would do all it could to ensure that these judges would no
longer be allowed to travel to the United States – and that they would perhaps even be criminally prosecuted."
The original inspiration of the Court – to use the Nuremburg laws that were applied against German Nazis to bring similar prosecution
against any country or officials found guilty of committing war crimes – had already fallen into disuse with the failure to indict
the authors of the Chilean coup, Iran-Contra or the U.S. invasion of Iraq for war crimes.
Dismantling Dollar Hegemony from the IMF to SWIFT
Of all areas of global power politics today, international finance and foreign investment have become the key flashpoint. International
monetary reserves were supposed to be the most sacrosanct, and international debt enforcement closely associated.
Central banks have long held their gold and other monetary reserves in the United States and London. Back in 1945 this seemed
reasonable, because the New York Federal Reserve Bank (in whose basement foreign central bank gold was kept) was militarily safe,
and because the London Gold Pool was the vehicle by which the U.S. Treasury kept the dollar "as good as gold" at $35 an ounce. Foreign
reserves over and above gold were kept in the form of U.S. Treasury securities, to be bought and sold on the New York and London
foreign-exchange markets to stabilize exchange rates. Most foreign loans to governments were denominated in U.S. dollars, so Wall
Street banks were normally name as paying agents.
That was the case with Iran under the Shah, whom the United States had installed after sponsoring the 1953 coup against Mohammed
Mosaddegh when he sought to nationalize Anglo-Iranian Oil (now British Petroleum) or at least tax it. After the Shah was overthrown,
the Khomeini regime asked its paying agent, the Chase Manhattan bank, to use its deposits to pay its bondholders. At the direction
of the U.S. Government Chase refused to do so. U.S. courts then declared Iran to be in default, and froze all its assets in the United
States and anywhere else they were able.
This showed that international finance was an arm of the U.S. State Department and Pentagon. But that was a generation ago,
and only recently did foreign countries begin to feel queasy about leaving their gold holdings in the United States, where they might
be grabbed at will to punish any country that might act in ways that U.S. diplomacy found offensive. So last year, Germany finally
got up the courage to ask that some of its gold be flown back to Germany. U.S. officials pretended to feel shocked at the insult
that it might do to a civilized Christian country what it had done to Iran, and Germany agreed to slow down the transfer.
But then came Venezuela. Desperate to spend its gold reserves to provide imports for its economy devastated by U.S. sanctions
– a crisis that U.S. diplomats blame on "socialism," not on U.S. political attempts to "make the economy scream" (as Nixon officials
said of Chile under Salvador Allende) – Venezuela directed the Bank of England to transfer some of its $11 billion in gold held in
its vaults and those of other central banks in December 2018. This was just like a bank depositor would expect a bank to pay a check
that the depositor had written.
England refused to honor the official request, following the direction of Bolton and U.S. Secretary of State Michael Pompeo.
As Bloomberg reported: "The U.S. officials are trying to steer Venezuela's overseas assets to [Chicago Boy Juan] Guaido to help bolster
his chances of effectively taking control of the government. The $1.2 billion of gold is a big chunk of the $8 billion in foreign
reserves held by the Venezuelan central bank."
Turkey seemed to be a likely destination, prompting Bolton and Pompeo to warn it to desist from helping Venezuela, threatening
sanctions against it or any other country helping Venezuela cope with its economic crisis. As for the Bank of England and other European
countries, the Bloomberg report concluded: "Central bank officials in Caracas have been ordered to no longer try contacting the Bank
of England. These central bankers have been told that Bank of England staffers will not respond to them."
This led to rumors that Venezuela was selling 20 tons of gold via a Russian Boeing 777 – some $840 million. The money probably
would have ended up paying Russian and Chinese bondholders as well as buying food to relieve the local famine.
[4] Russia denied this report, but Reuters has confirmed is that Venezuela has sold 3 tons of a planned 29 tones of gold to the
United Arab Emirates, with another 15 tones are to be shipped on Friday, February 1.
[5] The U.S. Senate's Batista-Cuban hardliner Rubio accused this of being "theft," as if feeding the people to alleviate the
U.S.-sponsored crisis was a crime against U.S. diplomatic leverage.
If there is any country that U.S. diplomats hate more than a recalcitrant Latin American country, it is Iran. President Trump's
breaking of the 2015 nuclear agreements negotiated by European and Obama Administration diplomats has escalated to the point of threatening
Germany and other European countries with punitive sanctions if they do not also break the agreements they have signed. Coming on
top of U.S. opposition to German and other European importing of Russian gas, the U.S. threat finally prompted Europe to find a way
to defend itself.
Imperial threats are no longer military. No country (including Russia or China) can mount a military invasion of another major
country. Since the Vietnam Era, the only kind of war a democratically elected country can wage is atomic, or at least heavy bombing
such as the United States has inflicted on Iraq, Libya and Syria. But now, cyber warfare has become a way of pulling out the
connections of any economy. And the major cyber connections are financial money-transfer ones, headed by SWIFT, the acronym for the
Society for Worldwide Interbank Financial Telecommunication, which is centered in Belgium.
Russia and China have already moved to create a shadow bank-transfer system in case the United States unplugs them from SWIFT.
But now, European countries have come to realize that threats by Bolton and Pompeo may lead to heavy fines and asset grabs if they
seek to continue trading with Iran as called for in the treaties they have negotiated.
On January 31 the dam broke with the announcement that Europe had created its own bypass payments system for use with Iran
and other countries targeted by U.S. diplomats. Germany, France and even the U.S. poodle Britain joined to create INSTEX -- Instrument
in Support of Trade Exchanges. The promise is that this will be used only for "humanitarian" aid to save Iran from a U.S.-sponsored
Venezuela-type devastation. But in view of increasingly passionate U.S. opposition to the Nord Stream pipeline to carry Russian gas,
this alternative bank clearing system will be ready and able to become operative if the United States tries to direct a sanctions
attack on Europe.
I have just returned from Germany and seen a remarkable split between that nation's industrialists and their political leadership.
For years, major companies have seen Russia as a natural market, a complementary economy needing to modernize its manufacturing and
able to supply Europe with natural gas and other raw materials. America's New Cold War stance is trying to block this commercial
complementarity. Warning Europe against "dependence" on low-price Russian gas, it has offered to sell high-priced LNG from the United
States (via port facilities that do not yet exist in anywhere near the volume required). President Trump also is insisting that NATO
members spend a full 2 percent of their GDP on arms – preferably bought from the United States, not from German or French merchants
of death.
The U.S. overplaying its position is leading to the Mackinder-Kissinger-Brzezinski Eurasian nightmare that I mentioned above.
In addition to driving Russia and China together, U.S. diplomacy is adding Europe to the heartland, independent of U.S. ability to
bully into the state of dependency toward which American diplomacy has aimed to achieve since 1945.
The World Bank, for instance, traditionally has been headed by a U.S. Secretary of Defense. Its steady policy since its inception
is to provide loans for countries to devote their land to export crops instead of giving priority to feeding themselves. That is
why its loans are only in foreign currency, not in the domestic currency needed to provide price supports and agricultural extension
services such as have made U.S. agriculture so productive. By following U.S. advice, countries have left themselves open to food
blackmail – sanctions against providing them with grain and other food, in case they step out of line with U.S. diplomatic demands.
It is worthwhile to note that our global imposition of the mythical "efficiencies" of forcing Latin American countries to
become plantations for export crops like coffee and bananas rather than growing their own wheat and corn has failed catastrophically
to deliver better lives, especially for those living in Central America. The "spread" between the export crops and cheaper food imports
from the U.S. that was supposed to materialize for countries following our playbook failed miserably – witness the caravans and refugees
across Mexico. Of course, our backing of the most brutal military dictators and crime lords has not helped either.
Likewise, the IMF has been forced to admit that its basic guidelines were fictitious from the beginning. A central core has been
to enforce payment of official inter-government debt by withholding IMF credit from countries under default. This rule was instituted
at a time when most official inter-government debt was owed to the United States. But a few years ago Ukraine defaulted on $3
billion owed to Russia. The IMF said, in effect, that Ukraine and other countries did not have to pay Russia or any other country
deemed to be acting too independently of the United States. The IMF has been extending credit to the bottomless it of Ukrainian corruption
to encourage its anti-Russian policy rather than standing up for the principle that inter-government debts must be paid.
It is as if the IMF now operates out of a small room in the basement of the Pentagon in Washington. Europe has taken
notice that its own international monetary trade and financial linkages are in danger of attracting U.S. anger. This became clear
last autumn at the funeral for George H. W. Bush, when the EU's diplomat found himself downgraded to the end of the list to be called
to his seat. He was told that the U.S. no longer considers the EU an entity in good standing. In December, "Mike Pompeo gave a speech
on Europe in Brussels -- his first, and eagerly awaited -- in which he extolled the virtues of nationalism, criticised multilateralism
and the EU, and said that "international bodies" which constrain national sovereignty "must be reformed or eliminated."
[5]
Most of the above events have made the news in just one day, January 31, 2019. The conjunction of U.S. moves on so many fronts,
against Venezuela, Iran and Europe (not to mention China and the trade threats and moves against Huawei also erupting today) looks
like this will be a year of global fracture.
It is not all President Trump's doing, of course. We see the Democratic Party showing the same colors. Instead of applauding democracy
when foreign countries do not elect a leader approved by U.S. diplomats (whether it is Allende or Maduro), they've let the mask fall
and shown themselves to be the leading New Cold War imperialists. It's now out in the open. They would make Venezuela the new Pinochet-era
Chile. Trump is not alone in supporting Saudi Arabia and its Wahabi terrorists acting, as Lyndon Johnson put it, "Bastards, but they're
our bastards."
Where is the left in all this? That is the question with which I opened this article. How remarkable it is that it is only right-wing
parties, Alternative for Deutschland (AFD), or Marine le Pen's French nationalists and those of other countries that are opposing
NATO militarization and seeking to revive trade and economic links with the rest of Eurasia.
The end of our monetary imperialism, about which I first wrote in 1972 in Super Imperialism, stuns even an informed observer like
me. It took a colossal level of arrogance, short-sightedness and lawlessness to hasten its decline -- something that only crazed
Neocons like John Bolton, Elliot Abrams and Mike Pompeo could deliver for Donald Trump.
[2] Patricia Laya, Ethan Bronner and Tim Ross,
"Maduro Stymied in Bid to Pull $1.2 Billion of Gold From U.K.," Bloomberg, January 25, 2019. Anticipating just such a double-cross,
President Chavez acted already in 2011 to repatriate 160 tons of gold to Caracas from the United States and Europe.
Well, if the StormTrumpers can tear down all the levers and institutions of international US dollar strength, perhaps they
can also tear down all the institutions of Corporate Globalonial Forced Free Trade. That itself may BE our escape . . . if there
are enough millions of Americans who have turned their regionalocal zones of habitation into economically and politically armor-plated
Transition Towns, Power-Down Zones, etc. People and places like that may be able to crawl up out of the rubble and grow and defend
little zones of semi-subsistence survival-economics.
If enough millions of Americans have created enough such zones, they might be able to link up with eachother to offer hope
of a movement to make America in general a semi-autarchik, semi-secluded and isolated National Survival Economy . . . . much smaller
than today, perhaps likelier to survive the various coming ecosystemic crash-cramdowns, and no longer interested in leading or
dominating a world that we would no longer have the power to lead or dominate.
We could put an end to American Exceptionalism. We could lay this burden down. We could become American Okayness Ordinarians.
Make America an okay place for ordinary Americans to live in.
If Populists, I assume that's what you mean by "Storm Troopers", offer me M4A and revitalized local economies, and deliver
them, they have my support and more power to them.
That's why Trump was elected, his promises, not yet delivered, were closer to that then the Democrats' promises. If the Democrats
promised those things and delivered, then they would have my support.
If the Democrats run a candidate, who has a no track record of delivering such things, we stay home on election day. Trump
can have it, because it won't be any worse.
I don't give a damn about "social issues." Economics, health care and avoiding WWIII are what motivates my votes, and I think
more and more people are going to vote the same way.
Good point about Populist versus StormTrumper. ( And by the way, I said StormTRUMper, not StormTROOper). I wasn't thinking
of the Populists. I was thinking of the neo-etc. vandals and arsonists who want us to invade Venezuela, leave the JCPOA with Iran,
etc. Those are the people who will finally drive the other-country governments into creating their own parallel payment systems,
etc.
And the midpoint of those efforts will leave wreckage and rubble for us to crawl up out of. But we will have a chance to crawl
up out of it.
My reason for voting for Trump was mainly to stop the Evil Clinton from getting elected and to reduce the chance of near immediate
thermonuclear war with Russia and to save the Assad regime in Syria from Clintonian overthrow and replacement with an Islamic
Emirate of Jihadistan.
Much of what will be attempted " in Trump's name" will be de-regulationism of all kinds delivered by the sorts of basic Republicans
selected for the various agencies and departments by Pence and Moore and the Koch Brothers. I doubt the Populist Voters wanted
the Koch-Pence agenda. But that was a risky tradeoff in return for keeping Clinton out of office.
The only Dems who would seek what you want are Sanders or maybe Gabbard or just barely Warren. The others would all be Clinton
or Obama all over again.
I couldn't really find any details about the new INSTEX system – have you got any good links to brush up on? I know they made
an announcement yesterday but how long until the new payment system is operational?
arguably wouldn't it be better if for USD hegemony to be dismantled? A strong USD hurts US exports, subsidizes American consumption
(by making commodities cheaper in relative terms), makes international trade (aka a 8,000-mile+ supply chain) easier.
For the sake of the environment, you want less of all three. Though obviously I don't like the idea of expensive gasoline,
natural gas or tube socks either.
It would be good for Americans, but the wrong kind of Americans. For the Americans that would populate the Global Executive
Suite, a strong US$ means that the stipends they would pay would be worth more to the lackeys, and command more influence.
Dumping the industrial base really ruined things. America is now in a position where it can shout orders, and drop bombs,
but doesn't have the capacity to do anything helpful. They have to give up being what Toynbee called a creative minority, and
settle for being a dominant minority.
Having watched the 2016 election closely from afar, I was left with the impression that many of the swing voters who cast
their vote for Trump did so under the assumption that he would act as a catalyst for systemic change.
What this change would consist of, and how it would manifest, remained an open question. Would he pursue rapprochement with
Russia and pull troops out of the Middle East as he claimed to want to do during his 2016 campaign, would he doggedly pursue corruption
charges against Clinton and attempt to reform the FBI and CIA, or would he do both, neither, or something else entirely?
Now we know. He has ripped the already transparent mask of altruism off what is referred to as the U.S.-led liberal international
order and revealed its true nature for all to see, and has managed to do it in spite of the liberal international establishment
desperately trying to hold it in place in the hope of effecting a seamless post-Trump return to what they refer to as "norms".
Interesting times.
Exactly. He hasn't exactly lived up to advanced billing so far in all respects, but I suspect there's great deal of skulduggery
going on behind the scenes that has prevented that. Whether or not he ever had or has a coherent plan for the havoc he has
wrought, he has certainly been the agent for change many of us hoped he would be, in stark contrast to the criminal duopoly parties
who continue to oppose him, where the daily no news is always bad news all the same. To paraphrase the infamous Rummy, you
don't go to war with the change agent and policies you wished you had, you go to war with the ones you have. That might be the
best thing we can say about Trump after the historic dust of his administration finally settles.
Look on some bright sides. Here is just one bright side to look on. President Trump has delayed and denied the Clinton Plan
to topple Assad just long enough that Russia has been able to help Assad preserve legitimate government in most of Syria and defeat
the Clinton's-choice jihadis.
That is a positive good. Unless you are pro-jihadi.
Clinton wasn't going to "benefit the greater good" either, and a very strong argument, based on her past behavior, can be made
that she represented the greater threat. Given that the choice was between her and Trump, I think voters made the right decision.
Hudson's done us a service in pulling these threads together. I'd missed the threats against the ICC judges. One question:
is it possible for INSTEX-like arrangements to function secretly? What is to be gained by announcing them publicly and drawing
the expected attacks? Does that help sharpen conflicts, and to what end?
Maybe they're done in secret already – who knows? The point of doing it publicly is to make a foreign-policy impact, in this
case withdrawing power from the US. It's a Declaration of Independence.
It certainly seems as though the 90 percent (plus) are an afterthought in this journey to who knows where? Like George C.Scott
said while playing Patton, "The whole world at economic war and I'm not part of it. God will not let this happen." Looks like
we're on the Brexit track (without the vote). The elite argue with themselves and we just sit and watch. It appears to me that
the elite just do not have the ability to contemplate things beyond their own narrow self interest. We are all deplorables now.
The end of America's unchallenged global economic dominance has arrived sooner than expected
Is not supported by this (or really the rest of the article). The past tense here, for example, is unwarranted:
At the United Nations, U.S. diplomats insisted on veto power. At the World Bank and IMF they also made sure that their
equity share was large enough to give them veto power over any loan or other policy.
And this
So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. Germany agreed
to slow down the transfer.
Doesn't show Germany as breaking free at all, and worse it is followed by the pregnant
But then came Venezuela.
Yet we find out that Venezuela didn't managed to do what they wanted to do, the Europeans, the Turks, etc bent over yet
again. Nothing to see here, actually.
So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging
by some pygmy leaders (Merkel) does not signal a global change.
"So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging
by some pygmy leaders (Merkel) does not signal a global change."
I'm surprised more people aren't recognizing this. I read the article waiting in vain for some evidence of "the end of our
monetary imperialism" besides some 'grumbling and foot dragging' as you aptly put it. There was some glimmer of a buried lede
with INTEX, created to get around U.S. sanctions against Iran ─ hardly a 'dam-breaking'. Washington is on record as being annoyed.
Currency regime change can take decades, and small percentage differences are enormous because of the flows involved. USD
as reserve for 61% of global sovereigns versus 64% 15 years ago is a massive move. World bond market flows are 10X the size
of world stock market flows even though the price of the Dow and Facebook shares etc get all of the headlines.
And foreign exchange flows are 10-50X the flows of bond markets, they're currently on the order of $5 *trillion* per day. And
since forex is almost completely unregulated it's quite difficult to get the data and spot reserve currency trends. Oh, and buy
gold. It's the only currency that requires no counterparty and is no one's debt obligation.
That's not what Hudson claims in his swaggering final sentence:
"The end of our monetary imperialism, about which I first wrote in 1972 in Super Imperialism, stuns even an informed
observer like me."
Which is risible as not only did he fail to show anything of the kind, his opening sentence stated a completely different reality:
"The end of America's unchallenged global economic dominance has arrived sooner than expected" So if we hold him to his first
declaration, his evidence is feeble, as I mentioned. As a scholar, his hyperbole is untrustworthy.
No, gold is pretty enough lying on the bosom of a lady-friend but that's about its only usefulness in the real world.
Always bemusing that gold bugs never talk about gold being in a bubble . yet when it goes south of its purchase price speak
in tongues about ev'bal forces.
thanks Mr. Hudson. One has to wonder what has happened when the government (for decades) has been shown to be morally and otherwise
corrupt and self serving. It doesn't seem to bother anyone but the people, and precious few of them. Was it our financial and
legal bankruptcy that sent us over the cliff?
Indeed! It is to say the least encouraging to see Dr. Hudson return so forcefully to the theme of 'monetary imperialism'.
I discovered his Super Imperialism while looking for an explanation for the pending 2003 US invasion of Iraq. If you
haven't read it yet, move it to the top of your queue if you want to have any idea of how the world really works. You can
find any number of articles on his web site that return periodically to the theme of monetary imperialism. I remember one in particular
that described how the rest of the world was brought on board to help pay for its good old-fashioned military imperialism.
If it isn't clear to the rest of the world by now, it never will be. The US is incapable of changing on its own a corrupt
status quo dominated by a coalition of its military industrial complex, Wall Street bankers and fossil fuels industries. As long
as the world continues to chase the debt created on the keyboards of Wall Street banks and 'deficits don't matter' Washington
neocons – as long as the world's 1% think they are getting 'richer' by adding more "debts that can't be repaid (and) won't be"
to their portfolios, the global economy can never be put on a sustainable footing.
Until the US returns to the path of genuine wealth creation, it is past time for the rest of the world to go its own way with
its banking and financial institutions.
In other words, after 2 World Wars that produced the current world order, it is still in a state of insanity with the same
pretensions to superiority by the same people, to get number 3.
UK withholding Gold may start another Brexit? IE: funds/gold held by BOE for other countries in Africa, Asian, South America,
and the "stans" with start to depart, slowly at first, perhaps for Switzerland?
Where is the left in all this? Pretty much the same place as Michael Hudson, I'd say. Where is the US Democratic Party in all
this? Quite a different question, and quite a different answer. So far as I can see, the Democrats for years have bombed, invaded
and plundered other countries 'for their own good'. Republicans do it 'for the good of America', by which the ignoramuses mean
the USA. If you're on the receiving end, it doesn't make much difference.
Agreed! South America intervention and regime change, Syria ( Trump is pulling out), Iraq, Middle East meddling, all predate
Trump. Bush, Clinton and Obama have nothing to do with any of this.
" So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. "
What proof is there that the gold is still there? Chances are it's notional. All Germany, Venezuela, or the others have is
an IOU – and gold cannot be printed. Incidentally, this whole discussion means that gold is still money and the gold standard
still exists.
What makes you think that the gold in Fort Knox is still there? If I remember right, there was a Potemkin visit back in the
70s to assure everyone that the gold was still there but not since then. Wait, I tell a lie. There was another visit about two
years ago but look who was involved in that visit-
And I should mention that it was in the 90s that between 1.3 and 1.5 million 400 oz tungsten blanks were manufactured in the
US under Clinton. Since then gold-coated tungsten bars have turned up in places like Germany, China, Ethiopia, the UK, etc so
who is to say if those gold bars in Fort Knox are gold all the way through either. More on this at --
http://viewzone2.com/fakegoldx.html
It wasn't last year that Germany brought back its Gold. It has been ongoing since 2013, after some political and popular pressure
build up. They finished the transaction in 2017. According to an article in Handelblatt (but it was widely reported back then)
they brought back pretty much everything they had in Paris (347t), left what they had in London (perhaps they should have done
it in reverse) and took home another 300t from the NY Fed. That still leaves 1236t in NY. But half of their Gold (1710t) is now
in Frankfurt. That is 50% of the Bundesbanks holdings.
They made a point in saying that every bar was checked and weighed and presented some bars in Frankfurt. I guess they didn't
melt them for assaying, but I'd expect them to be smart enough to check the density.
Their reason to keep Gold in NY and London is to quickly buy USD in case of a crisis. That's pretty much a cold war plan, but
that's what they do right now.
Regarding Michal Hudsons piece, I enjoyed reading through this one. He tends to write ridiculously long articles and in the
last few years with less time and motivation at hand I've skipped most of his texts on NC as they just drag on.
When I'm truly fascinated I like well written, long articles but somehow he lost me at some point. But I noticed that some
long original articles in US magazines, probably research for a long time by the journalist, can just drag on for ever as well
I just tune out.
This is making sense. I would guess that tearing up the old system is totally deliberate. It wasn't working so well for us
because we had to practice too much social austerity, which we have tried to impose on the EU as well, just to stabilize "king
dollar" – otherwise spread so thin it was a pending catastrophe.
Now we can get out from under being the reserve currency – the currency that maintains its value by financial manipulation
and military bullying domestic deprivation. To replace this old power trip we are now going to mainline oil. The dollar will become
a true petro dollar because we are going to commandeer every oil resource not already nailed down.
When we partnered with SA in Aramco and the then petro dollar the dollar was only backed by our military. If we start monopolizing
oil, the actual commodity, the dollar will be an apex competitor currency without all the foreign military obligations which will
allow greater competitive advantages.
No? I'm looking at PdVSA, PEMEX and the new "Energy Hub for the Eastern Mediterranean" and other places not yet made public.
It looks like a power play to me, not a hapless goofball president at all.
So sand people with sociological attachment to the OT is a compelling argument based on antiquarian preferences with authoritarian
patriarchal tendencies for their non renewable resource . after I might add it was deemed a strategic concern after WWII .
Considering the broader geopolitical realities I would drain all the gold reserves to zero if it was on offer . here natives
have some shiny beads for allowing us to resource extract we call this a good trade you maximize your utility as I do mine .
Hay its like not having to run C-corp compounds with western 60s – 70s esthetics and letting the locals play serf, blow back
pay back, and now the installed local chiefs can own the risk and refocus the attention away from the real antagonists.
Indeed. Thanks so much for this. Maybe the RICS will get serious now – can no longer include Brazil with Bolsonaro. There needs
to be an alternate system or systems in place, and to see US Imperialism so so blatantly and bluntly by Trump admin –
"US
gives Juan Guaido control over some Venezuelan assets" – should sound sirens on every continent and especially in the developing
world. I too hope there will be fracture to the point of breakage. Countries of the world outside the US/EU/UK/Canada/Australia
confraternity must now unite to provide a permanent framework outside the control of imperial interests. The be clear, this must
not default to alternative forms of imperialism germinating by the likes of China.
" such criticism can't begin to take in the full scope of the damage the Trump White House is inflicting on the system of global
power Washington built and carefully maintained over those 70 years. Indeed, American leaders have been on top of the world for
so long that they no longer remember how they got there.
Few among Washington's foreign policy elite seem to fully grasp the complex system that made U.S. global power what it
now is, particularly its all-important geopolitical foundations. As Trump travels the globe, tweeting and trashing away, he's
inadvertently showing us the essential structure of that power, the same way a devastating wildfire leaves the steel beams of
a ruined building standing starkly above the smoking rubble."
I read something like this and I am like, some of these statements need to be qualified. Like: "Driving China and Russia together".
Like where's the proof? Is Xi playing telephone games more often now with Putin? I look at those two and all I see are two egocentric
people who might sometimes say the right things but in general do not like the share the spotlight. Let's say they get together
to face America and for some reason the later gets "defeated", it's not as if they'll kumbaya together into the night.
This website often points out the difficulties in implementing new banking IT initiatives. Ok, so Europe has a new "payment
system". Has it been tested thoroughly? I would expect a couple of weeks or even months of chaos if it's not been tested, and
if it's thorough that probably just means that it's in use right i.e. all the kinks have been worked out. In that case the transition
is already happening anyway. But then the next crisis arrives and then everyone would need their dollar swap lines again which
probably needs to cleared through SWIFT or something.
Anyway, does this all mean that one day we'll wake up and a slice of bacon is 50 bucks as opposed to the usual 1 dollar?
Driving Russia and China together is correct. I recall them signing a variety of economic and military agreement a few years
ago. It was covered in the media. You should at least google an issue before making silly comments. You might start with the report
of Russia and China signing 30 cooperation agreements three years ago. See
https://www.rbth.com/international/2016/06/27/russia-china-sign-30-cooperation-agreements_606505
. There are lots and lots of others.
He's draining the swamp in an unpredicted way, a swamp that's founded on the money interest. I don't care what NYT and
WaPo have to say, they are not reporting events but promoting agendas.
The financial elites are only concerned about shaping society as they see fit, side of self serving is just a historical
foot note, Trumps past indicates a strong preference for even more of the same through authoritarian memes or have some missed
the OT WH reference to dawg both choosing and then compelling him to run.
Whilst the far right factions fight over the rudder the only new game in town is AOC, Sanders, Warren, et al which Trumps supporters
hate with Ideological purity.
Highly doubt Trump is a "witting agent", most likely is that he is just as ignorant as he almost daily shows on twitter. On
US role in global affairs he says the same today as he did as a media celebrity in the late 80s. Simplistic household "logics"
on macroeconomics. If US have trade deficit it loses. Countries with surplus are the winners.
On a household level it fits, but there no "loser" household that in infinity can print money that the "winners" can accumulate
in exchange for their resources and fruits of labor.
One wonder what are Trumps idea of US being a winner in trade (surplus)? I.e. sending away their resources and fruits of labor
overseas in exchange for what? A pile of USD? That US in the first place created out of thin air. Or Chinese Yuan, Euros, Turkish
liras? Also fiat-money. Or does he think US trade surplus should be paid in gold?
When the US political and economic hegemony will unravel it will come "unexpected". Trump for sure are undermining it with
his megalomaniac ignorance. But not sure it's imminent.
Anyhow frightening, the US hegemony have its severe dark sides. But there is absolutely nothing better on the horizon, a crash
will throw the world in turmoil for decades or even a century. A lot of bad forces will see their chance to elevate their influence.
There will be fierce competition to fill the gap.
On could the insane economic model of EU/Germany being on top of global affairs, a horribly frightening thought. Misery and
austerity for all globally, a permanent recession. Probably not much better with the Chinese on top.
I'll take the USD hegemony any day compared to that prospect.
Michael Hudson, in Super Imperialism, went into how the US could just create the money to run a large trade deficit with the
rest of the world. It would get all these imports effectively for nothing, the US's exorbitant privilege. I tied this in with this graph from MMT.
The trade deficit required a large Government deficit to cover it and the US government could just create the money to cover
it.
Then ideological neoliberals came in wanting balanced budgets and not realising the Government deficit covered the trade deficit.
The US has been destabilising its own economy by reducing the Government deficit. Bill Clinton didn't realize a Government surplus is an indicator a financial crisis is about to hit. The last US Government surplus occurred in 1927 – 1930, they go hand-in-hand with financial crises.
Richard Koo shows the graph central bankers use and it's the flow of funds within the economy, which sums to zero (32-34 mins.).
The Government was running a surplus as the economy blew up in the early 1990s. It's the positive and negative, zero sum, nature of the monetary system. A big trade deficit needs a big Government deficit to cover it. A big trade deficit, with a balanced budget, drives the private sector into debt and blows up the economy.
It should be remembered Bill Clinton's early meeting with Rubin, where in he was informed that wages and productivity had diverged –
Rubin did not blink an eye.
Over the past two years, the White House has initiated trade disputes, insulted allies and
enemies alike, and withdrawn from or refused to ratify multinational treaties and agreements.
It has also expanded the reach of its unilaterally imposed rules, forcing other nations to
abide by its demands or face economic sanctions. While the stated Trump Administration
intention has been to enter into new arrangements more favorable to the United States, the end
result has been quite different, creating a broad consensus within the international community
that Washington is unstable, not a reliable partner and cannot be trusted. This sentiment has,
in turn, resulted in conversations among foreign governments regarding how to circumvent the
American banking system, which is the primary offensive weapon apart from dropping bombs that
Washington has to force compliance with its dictates.
Consequently, there has been considerable blowback from the Make America Great Again
campaign, particularly as the flip side of the coin appears to be that the "greatness" will be
obtained by making everyone else less great. The only country in the world that currently
regards the United States favorably is Israel, which certainly has good reason to do so given
the largesse that has come from the Trump Administration. Everyone else is keen to get out from
under the American heel.
Well the worm has finally turned, maybe. Even the feckless Angela Merkel's Germany now
understands that national interests must prevail when the United States is demanding that it do
the unspeakable. At the recently concluded G20 meeting in Tokyo Britain, France and Germany
announced that the special trade mechanism that they have been working on this year is now
up and running. It is called the Instrument in Support of Trade Exchanges (Instex) and it will
permit companies in Europe to do business with countries like Iran, avoiding American sanctions
by trading outside the SWIFT system, which is dollar denominated and de facto controlled by the
US Treasury.
The significance of the European move cannot be understated. It is the first major step in
moving away from the dominance of the dollar as the world's trading and reserve currency. As is
often the case, the damage to US perceived interests is self-inflicted. There has been talk for
years regarding setting up trade mechanisms that would not be dollar based, but they did not
gain any momentum until the Trump Administration abruptly withdrew from the Joint Comprehensive
Plan of Action (JCPOA) with Iran over a year ago.
There were other signatories to the JCPOA, all of whom were angered by the White House move,
because they believed correctly that it was a good agreement, preventing Iranian development of
a nuclear weapon while also easing tensions in the Middle East. Major European powers Germany,
France and Great Britain, as well as Russia and China, were all signatories and the agreement
was endorsed by the United Nations Security Council. The US withdrawal in an attempt to destroy
the "plan of action" was therefore viewed extremely negatively by all the other signatories and
their anger increased when Washington declared that it would reinstate sanctions on Iran and
also use secondary sanctions to punish any third party that did not comply with the
restrictions on trade.
Instex is an upgrade of a previous "Special Purpose Vehicle" set up by the Europeans a year
ago to permit trading with Iran without any actual money transfers, something like a barter
system based on balancing payments by value. The announcement regarding Instex came as a result
of last week's meeting in Vienna in which the JCPOA signatories minus the US got together with
Iranian ministry spokesman Abbas Mousavi, who called the gathering "the last chance for the
remaining parties to gather and see how they can meet their commitments towards Iran."
Iran is quietly pleased by the development, even though there are
critics of the arrangement and the government is officially declaring that Instex is
not
enough and it will proceed with plans to increase its uranium production. This produced
an immediate response from Secretary of State Mike Pompeo last week speaking in New Delhi
"If there is conflict, if there is war, if there is a kinetic activity, it will be because the
Iranians made that choice." Nevertheless, Instex could possibly be a model for mechanisms that
will allow Iran to sell its oil without hindrance from Washington. But a sharp reaction from
the White House is expected. While Instex was in the development phase, US observers noted that
the Iranian Special Trade and Finance Instrument, that will do the actual trading, includes
government agencies that are already under US sanctions. That likely means that Washington will
resort to secondary sanctions on the Europeans, a move that will definitely make the bilateral
relationship even more poisonous than it already is. A global trade war is a distinct
possibility and, as observed above, the abandonment of the dollar as the international reserve
currency is a possible consequence.
Trump
has already been "threatening penalties against the financial body created by Germany, the
U.K. and France to shield trade with the Islamic Republic from US sanctions." The Treasury's
undersecretary for terrorism and financial intelligence, Israeli Sigal Mandelker, warned in a
May 7 th letter that "I urge you to carefully consider the potential sanctions
exposure of Instex. Engaging in activities that run afoul of US sanctions can result in severe
consequences, including a loss of access to the US financial system."
Indeed, the White House appears to be willing to engage in economic warfare with Europe over
the issue of punishing Iran. The Treasury Department
issued a statement regarding the Mandelker letter, saying "entities that transact in trade
with the Iranian regime through any means may expose themselves to considerable sanctions risk,
and Treasury intends to aggressively enforce our authorities." Mike Pompeo also was explicit
during a visit to London on May 8 th when he stated that " it doesn't matter what
vehicle's out there, if the transaction is sanctionable, we will evaluate it, review it, and if
appropriate, levy sanctions against those that were involved in that transaction. It's very
straightforward."
It is perhaps not unreasonable to wish the Europeans success, as they are supporting free
trade while also registering their opposition to the White House's bullying tactics using the
world financial system. And if the dollar ceases to be the world's trade and reserve currency,
what of it? It would mean that the Treasury might have to cease printing surplus dollars and
the US ability to establish global hegemony on a credit card might well be impeded. Those would
be good results and one might also hope that some day soon the United States might once again
become a normal country that Americans would be proud to call home.
Following Russia signalling last week, its willingness to join the controversial payments channel Instex - designed to circumvent
both SWIFT as well as US sanctions banning trade with Iran - new statements from Russian Deputy Foreign Minister Sergei Ryabkov called
on the international community to free itself from a purely US-controlled international financial system and US dollar dominance.
"We must protect ourselves from political abuses made with the help of the US dollar and the American banking system," he said
while addressing a ministerial meeting of the Non-Aligned Movement held in Venezuela, according to
TASS . "We must turn our dependence in this sphere into independence,"
he added.
"Let us be multipolar in the spheres of finance and currency," he said.
The senior diplomat was specifically addressing US-led sanctions and the tightening economic noose, including a near total oil
export blockade, on the Maduro government in Caracas.
The comments also come after early this year the Maduro regime was stymied in its bid to pull $1.2 billion worth of gold out of
the Bank of England , according to a January
Bloomberg report . The Bank of England's (BoE) decision to deny Maduro officials' withdrawal request was a the height of US coup
efforts targeting Maduro.
Specifically top US officials, including Secretary of State Michael Pompeo and National Security Adviser John Bolton, had lobbied
their UK counterparts to help cut off the regime from its overseas assets, as we
reported at the time. Washington has further lobbied other international institutions, and especially its Latin American allies,
to seize Venezuelan assets and essentially hold them for control of Juan Guaido's opposition government in exile.
"This is just one of the examples of a wider policy of deliberate instigation of crises to change government, to replace legitimately
elected politician with American stooges ."
Despite western capitals virtue-signaling their "rules-based order" approach, Ryabkov said instead, "We think that it is not a
rule-based world order, it is rather a foisted and imposed world order ."
Meanwhile, the establishment of the 'SWIFT-alternative' Instex - now online as of three weeks ago - constitutes the biggest threat
the dollar as a reserve currency to date, especially if Russia follows through on its signalling it could join.
DeDollarization is inevitable. The US has abused the dollar reserve currency by weaponizing it first under FDR when he dropped
the price of gold from $50 to 35 over night, a violation of Bretton Woods.
Then Nixon devalued three times
The worst infraction of all was Obama Sanctioning Russia and weaponizing the dollar reserve.
Trump who knows nothing at all except bullyism, then used Obama weaponizing sanctions and now covers nearly 50% of the global
population. Trump is dumber than dirt.
It is now inevitable that the rest of the world will find methods to trade outside of the dollar. That is currently being done
with Iron ore and coal with China in Yuan and this will spread.
The present system of demigod dollars is not sustainable. Maynard Keynes proposed a synthetic currency called the Bancor comprise
of five of the world's leading currencies. New technology in Cryptos may at last be a method of trade that cannot be weaponized.
Obviously a global currency that could not be manipulated is necessary. A crypto could be instantly valued correctly based on
real instant transactions not speculators buying and selling.
Bitcoin is unsatisfactory for many reasons, primarily because the developers gave themselves lots of free bitcoins and its
circulation is so limited that its value cannot be determined due to volatility. It's worthless. But the idea is the future.
Until then the best alternative is competing currencies. Let buyers and sellers determine the currency to be used.
The big question on my mind is how long before all confidence in the Dollar is lost? Foreign central banks are buying gold
which leaves the U.S. government with a funding problem. Just this year the U.S. has to roll over 11 Trillion in debt. Without
central banks adding Dollars to their core reserves who's going to fund U.S. deficits ? certainly not the domestic financial economy.
Then you have INSTEX bypassing the petro Dollar with Iran and now potentially with Russia. We know Russia and China are trading
directly and bypassing the Dollar. We're also losing weapons sales and Boeing aircraft sales to competitors. These are Dollar
denominated big ticket items that support the Dollar. How long before people start getting rid of Dollars in mass? When is the
confidence lost?
According to all the expert articles written on ZH both Russia and China had fully functioning alternatives to SWIFT several
years ago.
And they were going to facilitate the abandonment of the dollar, with the dollars demise any day.
Now, the experts tell us Russia wants to join the Instex club, which was created by Europe and controlled by Europe and has
very limited abilities to handle international trade.
The inability of Russia to avoid SWIFT and having to use the dollar in much of Russia's trade is a huge tactical error in this
financial war.
"The Bank of the United States is one of the most deadly hostilities existing, against the principles and form of our Constitution.
An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical
moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any
other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States,
with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we
then to give further growth to an institution so powerful, so hostile?" –Thomas Jefferson to Albert Gallatin, 1803. ME 10:437
When you are going to war, dig two graves for yourself too.
American sanctions undermine the hegemony of the dollar.
Russia, Iran, China, North Korea, Venezuela, Cuba and those many others who are tired of the hegemony of the dollar. The total
population of these countries exceeds two billion people, and the cumulative GDP is over 15 trillion.
Almost eight year ago
, we first presented a chart first created by JPMorgan's Michael Cembalest, which showed very simply and vividly that reserve currencies
don't last forever, and that in the not too distant future, the US Dollar would also lose its status as the world's most important
currency, since it is never different this time.
As Cembalest put it back in January 2012, "I am reminded of the following remark from late MIT economist Rudiger Dornbusch: 'Crisis
takes a much longer time coming than you think, and then it happens much faster than you would have thought.'"
Perhaps it is not a coincidence then that in light of the growing number of mentions of MMT and various other terminal, destructive
monetary policies that have been proposed to kick on the current financial system the can just a little bit longer, that the topic
of longevity of reserve currency status is once again becoming all the rage, and none other than JPMorgan's Private Bank ask in this
month's investment strategy note whether "the dollar's "exorbitant privilege" is coming to an end?"
So why is JPM, after first creating the iconic chart above which has since spread virally across all financial corners of the
internet, not only worried that the dollar's reserve status may be coming to an end, but in fact goes so far as to state that "we
believe the dollar could lose its status as the world's dominant currency (which could see it depreciate over the medium term) due
to structural reasons as well as cyclical impediments."
Read on to learn why even the largest US bank has started to lose faith in the world's most powerful currency.
Is the dollar's "exorbitant privilege" coming to an end?
In Brief
The U.S. dollar (USD) has been the world's dominant reserve currency for almost a century. As such, many investors today, even
outside the United States, have built and become comfortable with sizable USD overweights in their portfolios. However, we believe
the dollar could lose its status as the world's dominant currency (which could see it depreciate over the medium term) due to structural
reasons as well as cyclical impediments .
As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well
as precious metals makes sense today. This diversification can be achieved with a strategy that maintains the underlying assets in
an investment portfolio, but changes the mix of currencies within that portfolio. This is a completely bespoke approach that can
be customized to meet the unique needs of individual clients.
The rise of the U.S. dollar
It is commonly perceived that the U.S. dollar overtook the Great British Pound (GBP) as the world's international reserve currency
with the signing of the Bretton Woods Agreements after World War II. The reality is that sterling's value was eroded for many decades
prior to Bretton Woods. The dollar's rise to international prominence was fueled by the establishment of the Federal Reserve System
a little over a century ago and U.S. economic emergence after World War I. The Federal Reserve System aided in the establishment
of more mature capital markets and a nationally coordinated monetary policy, two important pillars of reserve-currency countries.
Being the world's unit of account has given the United States what former French Finance Minister Valery d'Estaing called an "exorbitant
privilege" by being able to purchase imports and issue debt in its own currency and run persistent deficits seemingly without consequence.
The shifting center
There is nothing to suggest that the dollar dominance should remain in perpetuity . In fact, the dominant international currency
has changed many times throughout history going back thousands of years as the world's economic center has shifted.
After the end of World War II, the U.S. accounted for biggest share of world GDP at more than 25%. This number is brought to more
than 40% when we include Western European powers. Since then, the main driver of economic growth has shifted eastwards towards Asia
at the expense of the U.S. and the West. China is at the epicenter of this recent economic shift driven by the country's strong growth
and commitment to domestic reforms. Over the last 70 years, China has quadrupled its share of global GDP to around 20% -- roughly
the same share as the U.S. -- and this share is expected to continue to grow in the years ahead. China is no longer just a manufacturer
of low cost goods as a growing share of corporate earnings is coming from "high value add" sectors like technology.
In addition to China, the economies of Southeast Asia, including India, have strong secular tailwinds driven by younger demographics
and proliferating technological know-how. Specifically, the Asian economic zone -- from the Arabian Peninsula and Turkey in the West
to Japan and New Zealand in the East and from Russia in the North and Australia in the South -- now represents 50% of global GDP
and two-thirds of global economic growth. Of the estimated $30 trillion in middle-class consumption growth between 2015 and 2030,
only $1 trillion is expected to come from today's Western economies. As this region grows, the share of non-USD transactions will
inevitably increase which will likely erode the dollar's "reserveness", even if the dollar isn't replaced as the dominant international
currency.
In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where
Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies,
including precious commodities like gold.
Dollar's declining role already under way?
Recent data on currency reserve holdings among global central banks suggests this shift may already be under way. As a share of
overall central bank reserves, the USD's role has been declining ever since the Great Recession (see chart). The most recent central
bank reserve flow data also suggests that for the first time since the euro's introduction in 1999, central banks simultaneously
sold dollars and bought euros.
Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand
for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes
sense: gold is a stable source of value with thousands of years of trust among humans supporting it.
The current U.S. administration has called into question agreements with nearly all of its largest partners -- tariffs on China,
Mexico and the European Union, renegotiating NAFTA, as well as abandoning the Trans Pacific Partnership. A more adversarial U.S.
administration could also encourage countries to reduce their reliance on USD in trade. Currently 85% of all currency transactions
involve the USD despite the U.S. accounting for only roughly 25% of global GDP.
Countries around the world are already developing payment mechanisms that would avoid using the dollar. These systems are small
and still developing but this is likely to be a structural story that will extend beyond one particular administration. In a recent
speech on the international role of the euro, Bank for International Settlements Chief Economist Claudio Borio brought up the benefits
of pricing oil in the euro saying, "Trading and settling oil in the euro would move payments from dollars to euros and thereby shift
ultimate settlement to the euro's TARGET2 system. This could limit the reach of U.S. foreign policy insofar as it leverages dollar
payments." The European Central Bank also alluded to this theme in a recent report saying that "growing concerns about the impact
of international trade tensions and challenges to multilateralism, including the imposition of unilateral sanctions seem to have
lent support to the euro's global standing."
We believe we are at an important juncture. On a real basis, the dollar stands currently more than 10% above its long-term average
and on a nominal basis has actually been trending lower for 50 years (see chart below).
Source: Bloomberg as of June 13, 2019
Given the persistent -- and rising -- deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could
become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold . As we scan client portfolios,
we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe
this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other
G10 currencies, currencies in Asia and gold (see chart).
The Spanish Piece of Eight (a silver coin) was in circulation until Mao's Long March (1934) and was legal tender in the US
until 1857. Known as the Spanish dollar it was one of the few currencies accepted by the Chinese until the Opium Wars.
It was silver and it was reliably minted. And as you prolly know, the Chinese only accepted silver or precious metals as currency.
Then the British declared war on them bc ...reasons.
Spain minted a huge ammount of Po8 in 300 years, that went on circulation for a long time. The coins were minted in Bolivia
from Mexican and Peruvian mines. In that time Mexicans earned like 5 times the wage of most Europeans.
But I guess you're right in some way. However, Mexico was not the country that it is now.
The Fed has become the great enabler. A key role of a reserve currency is to force other currencies to toe the line or pay
a stiff price. Ignoring this economic reality translates into pain for those holding the currency of any country that abuses this
economic law.
The rapid expansion of debt and credit during the last decade could have occurred without the Fed being totally complicit and
in agreement. It has been the Fed that decided to allow the dollar to be used as a global prop.
Trump's desire to manipulate the dollar lower to boost exports would take the world down a very slippery slope. The article
below argues this is a destabilizing force.
Many of us see the introduction of a single "World Currency" as a major part of the economic endgame. This is something that
will be forced on us as part of a "needed reset" to a global economy that has gone off track. The fact this issue is again in
the news may be an indication we are getting closer to where currencies begin to fail.
The new world order and globalization which has been pushed by many world leaders and the rich elite touting that "larger,
more cooperative governments under one financial unit will benefit us all" plays into the world currency scenario. The article
below delves into how this might unfold.
Most Americans are financial illiterates and easy prey for the wolves. How many know that the USD / FRN is the WRC? I am guessing
five, or less, out of 100.
"On a similar note, I've wondered why Russia has not defaulted on it's considerable USD and
EUR debt (also too, why is Russia still doing debt in USD and thus strengthening U.S.?)"
It should be noted that Russia has almost zero foreign public debt and that the private foreign
debt has been much reduced and now amounts to US dollars 450 billion.
As Russia has a surplus of more than US dollars 100 billion on the current account the total
foreign debt amounts to 4 years current account surplus only.
Ad to this that Russias international currency reserves amounts to ca. US dollars 500
billion which meens that Russia is in a very strong fiscal position as it is capable of paying
off its entire foreign debt any time it chooses.
Along the same lines, the summary starts with, "The first existential objective is to
avoid the current threat of war by winding down U.S. military interference in foreign
countries and removing U.S. military bases as relics of neocolonialism." Either would be
taken as proof of evil anti-US intentions, leading to sanctions, coups, assassinations,
regime change, and eventually outright war. As Mael Colium says, the US picks off individual
countries by isolating them.
Today's world is at war on many fronts. The rules of international law and order put in
place toward the end of World War II are being broken by U.S. foreign policy escalating its
confrontation with countries that refrain from giving its companies control of their economic
surpluses. Countries that do not give the United States control their oil and financial sectors
or privatize their key sectors are being isolated by the United States imposing trade sanctions
and unilateral tariffs giving special advantages to U.S. producers in violation of free trade
agreements with European, Asian and other countries.
This global fracture has an increasingly military cast. U.S. officials justify tariffs and
import quotas illegal under WTO rules on "national security" grounds, claiming that the United
States can do whatever it wants as the world's "exceptional" nation. U.S. officials explain
that this means that their nation is not obliged to adhere to international agreements or even
to its own treaties and promises. This allegedly sovereign right to ignore on its international
agreements was made explicit after Bill Clinton and his Secretary of State Madeline Albright
broke the promise by President George Bush and Secretary of State James Baker that NATO would
not expand eastward after 1991. ("You didn't get it in writing," was the U.S. response to the
verbal agreements that were made.)
Likewise, the Trump administration repudiated the multilateral Iranian nuclear agreement
signed by the Obama administration, and is escalating warfare with its proxy armies in the Near
East. U.S. politicians are waging a New Cold War against Russia, China, Iran, and oil-exporting
countries that the United States is seeking to isolate if cannot control their governments,
central bank and foreign diplomacy.
The international framework that originally seemed equitable was pro-U.S. from the outset.
In 1945 this was seen as a natural result of the fact that the U.S. economy was the least
war-damaged and held by far most of the world's monetary gold. Still, the postwar trade and
financial framework was ostensibly set up on fair and equitable international principles. Other
countries were expected to recover and grow, creating diplomatic, financial and trade parity
with each other.
But the past decade has seen U.S. diplomacy become one-sided in turning the International
Monetary Fund (IMF), World Bank, SWIFT bank-clearing system and world trade into an
asymmetrically exploitative system. This unilateral U.S.-centered array of institutions is
coming to be widely seen not only as unfair, but as blocking the progress of other countries
whose growth and prosperity is seen by U.S. foreign policy as a threat to unilateral U.S.
hegemony. What began as an ostensibly international order to promote peaceful prosperity has
turned increasingly into an extension of U.S. nationalism, predatory rent-extraction and a more
dangerous military confrontation.
Deterioration of international diplomacy into a more nakedly explicit pro-U.S. financial,
trade and military aggression was implicit in the way in which economic diplomacy was shaped
when the United Nations, IMF and World Bank were shaped mainly by U.S. economic strategists.
Their economic belligerence is driving countries to withdraw from the global financial and
trade order that has been turned into a New Cold War vehicle to impose unilateral U.S.
hegemony. Nationalistic reactions are consolidating into new economic and political alliances
from Europe to Asia.
We are still mired in the Oil War that escalated in 2003 with the invasion of Iraq, which
quickly spread to Libya and Syria. American foreign policy has long been based largely on
control of oil. This has led the United States to oppose the Paris accords to stem global
warming. Its aim is to give U.S. officials the power to impose energy sanctions forcing other
countries to "freeze in the dark" if they do not follow U.S. leadership.
To expand its oil monopoly, America is pressuring Europe to oppose the Nordstream II gas
pipeline from Russia, claiming that this would make Germany and other countries dependent on
Russia instead of on U.S. liquified natural gas (LNG). Likewise, American oil diplomacy has
imposed unilateral sanctions against Iranian oil exports, until such time as a regime change
opens up that country's oil reserves to U.S., French, British and other allied oil majors.
U.S. control of dollarized money and credit is critical to this hegemony. As Congressman
Brad Sherman of Los Angeles told a House Financial Services Committee hearing on May 9, 2019:
"An awful lot of our international power comes from the fact that the U.S. dollar is the
standard unit of international finance and transactions. Clearing through the New York Fed is
critical for major oil and other transactions. It is the announced purpose of the supporters of
cryptocurrency to take that power away from us, to put us in a position where the most
significant sanctions we have against Iran, for example, would become irrelevant."[1]
The U.S. aim is to keep the dollar as the transactions currency for world trade, savings,
central bank reserves and international lending. This monopoly status enables the U.S. Treasury
and State Department to disrupt the financial payments system and trade for countries with
which the United States is at economic or outright military war.
Russian President Vladimir Putin quickly responded by describing how "the degeneration of
the universalist globalization model [is] turning into a parody, a caricature of itself, where
common international rules are replaced with the laws of one country."[2]That is the trajectory
on which this deterioration of formerly open international trade and finance is now moving. It
has been building up for a decade. On June 5, 2009, then-Russian President Dmitry Medvedev
cited this same disruptive U.S. dynamic at work in the wake of the U.S. junk mortgage and bank
fraud crisis.
Those whose job it was to forecast events were not ready for the depth of the crisis and
turned out to be too rigid, unwieldy and slow in their response. The international financial
organisations – and I think we need to state this up front and not try to hide it –
were not up to their responsibilities, as has been said quite unambiguously at a number of
major international events such as the two recent G20 summits of the world's largest
economies.
Furthermore, we have had confirmation that our pre-crisis analysis of global economic trends
and the global economic system were correct. The artificially maintained uni-polar system and
preservation of monopolies in key global economic sectors are root causes of the crisis. One
big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly
strong reserve currency, and one dominant system of assessing assets and risks – these
are all factors that led to an overall drop in the quality of regulation and the economic
justification of assessments made, including assessments of macroeconomic policy. As a result,
there was no avoiding a global crisis.[3]
That crisis is what is now causing today's break in global trade and payments.
Warfare on Many Fronts, with Dollarization Being the Main Arena
Dissolution of the Soviet Union 1991 did not bring the disarmament that was widely expected.
U.S. leadership celebrated the Soviet demise as signaling the end of foreign opposition to
U.S.-sponsored neoliberalism and even as the End of History. NATO expanded to encircle Russia
and sponsored "color revolutions" from Georgia to Ukraine, while carving up former Yugoslavia
into small statelets. American diplomacy created a foreign legion of Wahabi fundamentalists
from Afghanistan to Iran, Iraq, Syria and Libya in support of Saudi Arabian extremism and
Israeli expansionism.
The United States is waging war for control of oil against Venezuela, where a military coup
failed a few years ago, as did the 2018-19 stunt to recognize an unelected pro-American puppet
regime. The Honduran coup under President Obama was more successful in overthrowing an elected
president advocating land reform, continuing the tradition dating back to 1954 when the CIA
overthrew Guatemala's Arbenz regime.
U.S. officials bear a special hatred for countries that they have injured, ranging from
Guatemala in 1954 to Iran, whose regime it overthrew to install the Shah as military dictator.
Claiming to promote "democracy," U.S. diplomacy has redefined the word to mean pro-American,
and opposing land reform, national ownership of raw materials and public subsidy of foreign
agriculture or industry as an "undemocratic" attack on "free markets," meaning markets
controlled by U.S. financial interests and absentee owners of land, natural resources and
banks.
A major byproduct of warfare has always been refugees, and today's wave fleeing ISIS, Al
Qaeda and other U.S.-backed Near Eastern proxies is flooding Europe. A similar wave is fleeing
the dictatorial regimes backed by the United States from Honduras, Ecuador, Colombia and
neighboring countries. The refugee crisis has become a major factor leading to the resurgence
of nationalist parties throughout Europe and for the white nationalism of Donald Trump in the
United States.
Dollarization as the Vehicle for U.S. Nationalism
The Dollar Standard – U.S. Treasury debt to foreigners held by the world's central
banks – has replaced the gold-exchange standard for the world's central bank reserves to
settle payments imbalances among themselves. This has enabled the United States to uniquely run
balance-of-payments deficits for nearly seventy years, despite the fact that these Treasury
IOUs have little visible likelihood of being repaid except under arrangements where U.S.
rent-seeking and outright financial tribute from other enables it to liquidate its official
foreign debt.
The United States is the only nation that can run sustained balance-of-payments deficits
without having to sell off its assets or raise interest rates to borrow foreign money. No other
national economy in the world can could afford foreign military expenditures on any major scale
without losing its exchange value. Without the Treasury-bill standard, the United States would
be in this same position along with other nations. That is why Russia, China and other powers
that U.S. strategists deem to be strategic rivals and enemies are looking to restore gold's
role as the preferred asset to settle payments imbalances.
The U.S. response is to impose regime change on countries that prefer gold or other foreign
currencies to dollars for their exchange reserves. A case in point is the overthrow of Libya's
Omar Kaddafi after he sought to base his nation's international reserves on gold. His
liquidation stands as a military warning to other countries.
Thanks to the fact that payments-surplus economies invest their dollar inflows in U.S.
Treasury bonds, the U.S. balance-of-payments deficit finances its domestic budget deficit. This
foreign central-bank recycling of U.S. overseas military spending into purchases of U.S.
Treasury securities gives the United States a free ride, financing its budget – also
mainly military in character – so that it can taxing its own citizens.
Trump Is Forcing Other Countries To Create an Alternative to the Dollar Standard
The fact that Donald Trump's economic policies are proving ineffective in restoring American
manufacturing is creating rising nationalist pressure to exploit foreigners by arbitrary
tariffs without regard for international law, and to impose trade sanctions and diplomatic
meddling to disrupt regimes that pursue policies that U.S. diplomats do not like.
There is a parallel here with Rome in the late 1 st century BC. It stripped its
provinces to pay for its military deficit, the grain dole and land redistribution at the
expense of Italian cities and Asia Minor. This created foreign opposition to drive Rome out.
The U.S. economy is similar to Rome's: extractive rather than productive, based mainly on land
rents and money-interest. As the domestic market is impoverished, U.S. politicians are seeking
to take from abroad what no longer is being produced at home.
What is so ironic – and so self-defeating of America's free global ride – is
that Trump's simplistic aim of lowering the dollar's exchange rate to make U.S. exports more
price-competitive. He imagines commodity trade to be the entire balance of payments, as if
there were no military spending, not to mention lending and investment. To lower the dollar's
exchange rate, he is demanding that China's central bank and those of other countries stop
supporting the dollar by recycling the dollars they receive for their exports into holdings of
U.S. Treasury securities.
This tunnel vision leaves out of account the fact that the trade balance is not simply a
matter of comparative international price levels. The United States has dissipated its supply
of spare manufacturing capacity and local suppliers of parts and materials, while much of its
industrial engineering and skilled manufacturing labor has retired. An immense shortfall must
be filled by new capital investment, education and public infrastructure, whose charges are far
above those of other economics.
Trump's infrastructure ideology is a Public-Private Partnership characterized by high-cost
financialization demanding high monopoly rents to cover its interest charges, stock dividends
and management fees. This neoliberal policy raises the cost of living for the U.S. labor force,
making it uncompetitive. The United States is unable to produce more at any price right now,
because its has spent the past half-century dismantling its infrastructure, closing down its
part suppliers and outsourcing its industrial technology.
The United States has privatized and financialized infrastructure and basic needs such as
public health and medical care, education and transportation that other countries have kept in
their public domain to make their economies more cost-efficient by providing essential services
at subsidized prices or freely. The United States also has led the practice of debt pyramiding,
from housing to corporate finance. This financial engineering and wealth creation by inflating
debt-financed real estate and stock market bubbles has made the United States a high-cost
economy that cannot compete successfully with well-managed mixed economies.
Unable to recover dominance in manufacturing, the United States is concentrating on
rent-extracting sectors that it hopes monopolize, headed by information technology and military
production. On the industrial front, it threatens disrupt China and other mixed economies by
imposing trade and financial sanctions.
The great gamble is whether these other countries will defend themselves by joining in
alliances enabling them to bypass the U.S. economy. American strategists imagine their country
to be the world's essential economy, without whose market other countries must suffer
depression. The Trump Administration thinks that There Is No Alternative (TINA) for other
countries except for their own financial systems to rely on U.S. dollar credit.
To protect themselves from U.S. sanctions, countries would have to avoid using the dollar,
and hence U.S. banks. This would require creation of a non-dollarized financial system for use
among themselves, including their own alternative to the SWIFT bank clearing system. Table 1
lists some possible related defenses against U.S. nationalistic diplomacy.
As noted above, what also is ironic in President Trump's accusation of China and other
countries of artificially manipulating their exchange rate against the dollar (by recycling
their trade and payments surpluses into Treasury securities to hold down their currency's
dollar valuation) involves dismantling the Treasury-bill standard. The main way that foreign
economies have stabilized their exchange rate since 1971 has indeed been to recycle their
dollar inflows into U.S. Treasury securities. Letting their currency's value rise would
threaten their export competitiveness against their rivals, although not necessarily benefit
the United States.
Ending this practice leaves countries with the main way to protect their currencies from
rising against the dollar is to reduce dollar inflows by blocking U.S. lending to domestic
borrowers. They may levy floating tariffs proportioned to the dollar's declining value. The
U.S. has a long history since the 1920s of raising its tariffs against currencies that are
depreciating: the American Selling Price (ASP) system. Other countries can impose their own
floating tariffs against U.S. goods.
Trade dependency as an Aim of the World Bank, IMF and US AID
The world today faces a problem much like what it faced on the eve of World War II. Like
Germany then, the United States now poses the main threat of war, and equally destructive
neoliberal economic regimes imposing austerity, economic shrinkage and depopulation. U.S.
diplomats are threatening to destroy regimes and entire economies that seek to remain
independent of this system, by trade and financial sanctions backed by direct military
force.
Dedollarization will require creation of multilateral alternatives to U.S. "front"
institutions such as the World Bank, IMF and other agencies in which the United States holds
veto power to block any alternative policies deemed not to let it "win." U.S. trade policy
through the World Bank and U.S. foreign aid agencies aims at promoting dependency on U.S. food
exports and other key commodities, while hiring U.S. engineering firms to build up export
infrastructure to subsidize U.S. and other natural-resource investors.[4]The financing is
mainly in dollars, providing risk-free bonds to U.S. and other financial institutions. The
resulting commercial and financial "interdependency" has led to a situation in which a sudden
interruption of supply would disrupt foreign economies by causing a breakdown in their chain of
payments and production. The effect is to lock client countries into dependency on the U.S.
economy and its diplomacy, euphemized as "promoting growth and development."
U.S. neoliberal policy via the IMF imposes austerity and opposes debt writedowns. Its
economic model pretends that debtor countries can pay any volume of dollar debt simply by
reducing wages to squeeze more income out of the labor force to pay foreign creditors. This
ignores the fact that solving the domestic "budget problem" by taxing local revenue still faces
the "transfer problem" of converting it into dollars or other hard currencies in which most
international debt is denominated. The result is that the IMF's "stabilization" programs
actually destabilize and impoverish countries forced into following its advice.
IMF loans support pro-U.S. regimes such as Ukraine, and subsidize capital flight by
supporting local currencies long enough to enable U.S. client oligarchies to flee their
currencies at a pre-devaluation exchange rate for the dollar. When the local currency finally
is allowed to collapse, debtor countries are advised to impose anti-labor austerity. This
globalizes the class war of capital against labor while keeping debtor countries on a short
U.S. financial leash.
U.S. diplomacy is capped by trade sanctions to disrupt economies that break away from U.S.
aims. Sanctions are a form of economic sabotage, as lethal as outright military warfare in
establishing U.S. control over foreign economies. The threat is to impoverish civilian
populations, in the belief that this will lead them to replace their governments with
pro-American regimes promising to restore prosperity by selling off their domestic
infrastructure to U.S. and other multinational investors.
US Warfare on Many Fronts Dedollarization defense
Military warfare (the Near East, Asia)
NATO and bilateral treaty (Saudi, ISIS, Al Qaida). color revolutions and proxy
wars.
Shanghai Cooperation Organization, and pressure for Europe to
withdraw from NATO unless the U.S. alleviates its New Cold War threats.
Dollarization is monetary warfare. The US Treasury-bill
standard finances the mainly military U.S. balance-of-payments deficit. SWIFT threatens to
isolate Iran and Russia
Dedollarization will refrain from foreign central banks financing U.S. overseas military
spending by keeping their savings in dollars.
Creation of alternative payments clearing system.
The IMF finances US client regimes and seeks to isolate those
not following US policy.
An alternative global financial organization, such as Europe's
INSTEX to circumvent US anti-Iran sanctions, and Russo-China alternative to SWIFT.
Creditor policy forcing austerity on debtor economies, forcing
them to privatize and sell off their public domain to pay debts.
An international court empowered to write down debts to the
ability to pay, based on the original principles that were to guide the BIS in 1931.
The World Bank finances trade dependency on US food exports and
opposes national food self-sufficiency.
An alternative development organization based on food
self-sufficiency. Annulment of World Bank and IMF debt as "odious debt."
Unilateral US trade war based on levy of US protectionist
tariffs, quotas and sanctions,
Countervailing sanctions, and creation of an alternative to the
WTO or a strengthened organization free of US control.
Cyber War, spycraft via US internet platforms, and Stuxnet
sabotage.
Work with Huawei and other alternatives to US internet
options.
Class War: austerity program for labor
MMT, taxation of rentier income and capital gains.
Neoliberal monetarist doctrine of privatization and creditor-oriented
rules
Promotion of a mixed economy with public infrastructure as a
factor of production.
US patent policy seeks monopoly rents.
Non-recognition of predatory monopoly patents.
Investment control
Deprivatization and buyoutsof US assets abroad.
International law and diplomacy
The U.S. as the world's "exceptional nation," not subject to international laws or even
to its own treaty agreements.
Veto power in any organization it joins. The basic principle that the U.S. is not
subject to any foreign say over its laws and policies.
Global Problems caused by US Policy Response to U.S. Disruptive Policy
U.S. refuses to join international agreements to reduce carbon emissions, Global Warming
and Extreme Weather.
U.S. diplomacy is based on control of oil to make other countries dependent on U.S.
energy dominance.
Trade and tax sanctions against U.S. exporters and banks. Taxes on U.S. tax avoidance by
the oil industry's "flags of convenience" (convenient for tax avoidance).
Taxation or isolation of U.S. exports based on high-carbon production.
Attempt to monopolize new G5 Internet technology, Sanctioning of Huawei,
insistence on US priority in high-tech.
Rejection of patents on basic IT, medicine and other basic human
needs.
Patent laws in pharmaceuticals, etc.
Taxation of monopoly rents.
There Are Alternatives, on Many Fronts
Militarily, today's leading alternative to NATO expansionism is the Shanghai Cooperation
Organization (SCO), along with Europe following France's example under Charles de Gaulle and
withdrawing. After all, there is no real threat of military invasion today in Europe. No nation
can occupy another without an enormous military draft and such heavy personnel losses that
domestic protests would unseat the government waging such a war. The U.S. anti-war movement in
the 1960s signaled the end of the military draft, not only in the United States but in nearly
all democratic countries (Israel, Switzerland, Brazil and South Korea are exceptions).
The enormous spending on armaments for a kind of war unlikely to be fought is not really
military, but simply to provide profits to the military industrial complex. The arms are not
really to be used. They are simply to be bought, and ultimately scrapped. The danger, of
course, is that these not-for-use arms actually might be used, if only to create a need for new
profitable production.
Likewise, foreign holdings of dollars are not really to be spent on purchases of U.S.
exports or investments. They are like fine-wine collectibles, for saving rather than for
drinking. The alternative to such dollarized holdings is to create a mutual use of national
currencies, and a domestic bank-clearing payments system as an alternative to SWIFT.Russia,
China, Iran and Venezuela already are said to be developing a crypto-currency payments to
circumvent U.S. sanctions and hence financial control.
In the World Trade Organization, the United States has tried to claim that any industry
receiving public infrastructure or credit subsidy deserves tariff retaliation in order to force
privatization. In response to WTO rulings that U.S. tariffs are illegally imposed, the United
States "has blocked all new appointments to the seven-member appellate body in protest, leaving
it in danger of collapse because it may not have enough judges to allow it to hear new
cases."[5]In the U.S. view, only privatized trade financed by private rather than public banks
is "fair" trade.
An alternative to the WTO (or removal of its veto privilege given to the U.S. bloc) is
needed to cope with U.S. neoliberal ideology and, most recently, the U.S. travesty claiming
"national security" exemption to free-trade treaties, impose tariffs on steel, aluminum, and on
European countries that circumvent sanctions on Iran or threaten to buy oil from Russia via the
Nordstream II pipeline instead of high-cost liquified "freedom gas" from the United States.
In the realm of development lending, China's bank along with its Belt and Road initiative is
an incipient alternative to the World Bank, whose main role has been to promote foreign
dependency on U.S. suppliers. The IMF for its part now functions as an extension of the U.S.
Department of Defense to subsidize client regimes such as Ukraine while financially isolating
countries not subservient to U.S. diplomacy.
To save debt-strapped economies suffering Greek-style austerity, the world needs to replace
neoliberal economic theory with an analytic logic for debt writedowns based on the ability to
pay. The guiding principle of the needed development-oriented logic of international law should
be that no nation should be obliged to pay foreign creditors by having to sell of the public
domain and rent-extraction rights to foreign creditors. The defining character of nationhood
should be the fiscal right to tax natural resource rents and financial returns, and to create
its own monetary system.
The United States refuses to join the International Criminal Court. To be effective, it
needs enforcement power for its judgments and penalties, capped by the ability to bring charges
of war crimes in the tradition of the Nuremberg tribunal. U.S. to such a court, combined with
its military buildup now threatening World War III, suggests a new alignment of countries akin
to the Non-Aligned Nations movement of the 1950s and 1960s. Non-aligned in this case means
freedom from U.S. diplomatic control or threats.
Such institutions require a more realistic economic theory and philosophy of operations to
replace the neoliberal logic for anti-government privatization, anti-labor austerity, and
opposition to domestic budget deficits and debt writedowns. Today's neoliberal doctrine counts
financial late fees and rising housing prices as adding to "real output" (GDP), but deems
public investment as deadweight spending, not a contribution to output. The aim of such logic
is to convince governments to pay their foreign creditors by selling off their public
infrastructure and other assets in the public domain.
Just as the "capacity to pay" principle was the foundation stone of the Bank for
International Settlements in 1931, a similar basis is needed to measure today's ability to pay
debts and hence to write down bad loans that have been made without a corresponding ability of
debtors to pay. Without such an institution and body of analysis, the IMF's neoliberal
principle of imposing economic depression and falling living standards to pay U.S. and other
foreign creditors will impose global poverty.
The above proposals provide an alternative to the U.S. "exceptionalist" refusal to join any
international organization that has a say over its affairs. Other countries must be willing to
turn the tables and isolate U.S. banks, U.S. exporters, and to avoid using U.S. dollars and
routing payments via U.S. banks. To protect their ability to create a countervailing power
requires an international court and its sponsoring organization.
Summary
The first existential objective is to avoid the current threat of war by winding down U.S.
military interference in foreign countries and removing U.S. military bases as relics of
neocolonialism. Their danger to world peace and prosperity threatens a reversion to the
pre-World War II colonialism, ruling by client elites along lines similar to the 2014 Ukrainian
coup by neo-Nazi groups sponsored by the U.S. State Department and National Endowment for
Democracy. Such control recalls the dictators that U.S. diplomacy established throughout Latin
America in the 1950s. Today's ethnic terrorism by U.S.-sponsored Wahabi-Saudi Islam recalls the
behavior of Nazi Germany in the 1940s.
Global warming is the second major existentialist threat. Blocking attempts to reverse it is
a bedrock of American foreign policy, because it is based on control of oil. So the military,
refugee and global warming threats are interconnected.
The U.S. military poses the greatest immediate danger. Today's warfare is fundamentally
changed from what it used to be. Prior to the 1970s, nations conquering others had to invade
and occupy them with armies recruited by a military draft. But no democracy in today's world
can revive such a draft without triggering widespread refusal to fight, voting the government
out of power. The only way the United States – or other countries – can fight other
nations is to bomb them. And as noted above, economic sanctions have as destructive an effect
on civilian populations in countries deemed to be U.S. adversaries as overt warfare. The United
States can sponsor political coups (as in Honduras and Pinochet's Chile), but cannot occupy. It
is unwilling to rebuild, to say nothing of taking responsibility for the waves of refugees that
our bombing and sanctions are causing from Latin America to the Near East.
U.S. ideologues view their nation's coercive military expansion and political subversion and
neoliberal economic policy of privatization and financialization as an irreversible victory
signaling the End of History. To the rest of the world it is a threat to human survival.
The American promise is that the victory of neoliberalism is the End of History, offering
prosperity to the entire world. But beneath the rhetoric of free choice and free markets is the
reality of corruption, subversion, coercion, debt peonage and neofeudalism. The reality is the
creation and subsidy of polarized economies bifurcated between a privileged rentier
class and its clients, eir debtors and renters. America is to be permitted to monopolize trade
in oil and food grains, and high-technology rent-yielding monopolies, living off its dependent
customers. Unlike medieval serfdom, people subject to this End of History scenario can choose
to live wherever they want. But wherever they live, they must take on a lifetime of debt to
obtain access to a home of their own, and rely on U.S.-sponsored control of their basic needs,
money and credit by adhering to U.S. financial planning of their economies. This dystopian
scenario confirms Rosa Luxemburg's recognition that the ultimate choice facing nations in
today's world is between socialism and barbarism.
___________________
[1]Billy Bambrough, "Bitcoin Threatens To 'Take Power' From The U.S. Federal Reserve,"
Forbes , May 15, 2019.
https://www.forbes.com/sites/billybambrough/2019/05/15/a-u-s-congressman-is-so-scared-of-bitcoin-and-crypto-he-wants-it-banned/#36b2700b6405.
[2]Vladimir Putin, keynote address to the Economic Forum, June 5-6 2019. Putin went on to
warn of "a policy of completely unlimited economic egoism and a forced breakdown." This
fragmenting of the global economic space "is the road to endless conflict, trade wars and maybe
not just trade wars. Figuratively, this is the road to the ultimate fight of all against
all."
[3]Address to St Petersburg International Economic Forum's Plenary Session, St Petersburg,
Kremlin.ru, June 5, 2009, from Johnson's Russia List, June 8, 2009, #8,
[4] https://www.rt.com/business/464013-china-russia-cryptocurrency-dollar-dethrone/
. Already in the late 1950s the Forgash Plan proposed a World Bank for Economic Acceleration.
Designed by Terence McCarthy and sponsored by Florida Senator Morris Forgash, the bank would
have been a more truly development-oriented institution to guide foreign development to create
balanced economies self-sufficient in food and other essentials. The proposal was opposed by
U.S. interests on the ground that countries pursuing land reform tended to be anti-American.
More to the point, they would have avoided trade and financial dependency on U.S. suppliers and
banks, and hence on U.S. trade and financial sanctions to prevent them from following policies
at odds with U.S. diplomatic demands.
[5]Don Weinland, "WTO rules against US in tariff dispute with China," Financial Times
, July 17, 2019.
Views from an economist who has been promoting neoclassical ideology for decades and then
wonders when there are no alternatives to escape the narrative? Completely ignores how a
monetary sovereign capacity can move away from US hegemony. The countries under the heel of
the US are there because the IMF has engineered their economies in favour of the US. They
could all threaten default at the same time and scare off the IMF horses – the US picks
off individual countries by isolating them. Play the united game and the power of division
practiced by the US would crumble. Just saying.
"They could all threaten default at the same time and scare off the IMF horses – the
US picks off individual countries by isolating them. Play the united game and the power of
division practiced by the US would crumble."
This is interesting. On a similar note, I've wondered why Russia has not defaulted on it's
considerable USD and EUR debt (also too, why is Russia still doing debt in USD and thus
strengthening U.S.?).
But only after she sells off all her U.S. holdings which will be (and have been already)
seized by Out Law America.
I believe Russia would be on some sort of legal ground in doing so in response to the
illegal sanctions imposed upon by by the EU and U.S.
And it will be interesting to see if Germany backs down on Nordstream II. Will she be a
total puppet of the U.S.?
Of course, it's depressing Russia has not reformed it's internal economy so that she can
grow faster. Maybe because while Putin and others don't want to take orders from Washington
they are trapped in neoliberal economic thinking and can't think outside the box?
Until Washington changes, I firmly believe Russia and other nations must act as if their
future hold one totally without U.S. interdependence and must create completely independent
economies the U.S. can not touch. China? Hard to include China in that right now with so much
trade with the U.S. but on the other hand their are reports U.S. related firms are starting
to move out of China.
The corporations that moved manufacturing to Mexico and then subsequently to China will
continue to seek cheaper labor so that their management can feather their own nests. They're
not going to bring back manufacturing to the US. Look at these greedy corporations that sell
Hanes underwear for example. They get rid of labels on their product to save less than a cent
per item and spend money and spend millions in extolling the virtues of not having labesl on
their tee shirts (Michael Jordon is the spokesman in the ad). Greed has no limits.
"Maybe because while Putin and others don't want to take orders from Washington they are
trapped in neoliberal economic thinking and can't think outside the box?"
Probably a lot there. Maybe the idea is that the system can work but needs to be fiddled
with to make it more fair to B stringers like Russia and China.
The only time anyone has had any success escaping Anglo-American finance was Germany,
Japan and the USSR in the 1930-45 period. The Soviets managed to keep their thing going until
much later, but internal corruption ( where isn't this a factor?) did them in.
Post WWII Japan kept away from the stranglehold of US Financiers by only purchasing
technology and protecting their markets which other countries have to emulate.
"I've wondered why Russia has not defaulted on it's considerable USD and EUR debt (also
too, why is Russia still doing debt in USD and thus strengthening U.S.?)"
Notice how this hasn't effected anything; other parties just happily bought it all up. The
Russians were stupid to drop it because Treasury Securities are a guaranteed return on
investment. Because, stick with me here on this, the US government can't run out of US
dollars.
They have removed those assets from the very great possibility of seizure by the US and
others (like the Venezuelan gold seized by the UK). When push comes to shove the US and its
minions have no ethics abut breaking whatever laws they deem to be in their way.
They bought quite a lot of gold, which seems to be doing pretty well these days.
You misunderstood me. Russia borrows USD and EUR from Western banks. That makes US –
Russia's enemy – stronger. Russia should borrow from Russia not the US. I'm asking why
don't they default on that debt. Your response assumed I was referring to Russia holding US
assets. That's different. BTW I don't agree with you that Russia made a mistake getting rid
of US assets given the US has stolen Russian real estate holdings in the US and other nations
property held in US banks like Venezuela's USD deposits and gold.
Along the same lines, the summary starts with, "The first existential objective is to
avoid the current threat of war by winding down U.S. military interference in foreign
countries and removing U.S. military bases as relics of neocolonialism." Either would be
taken as proof of evil anti-US intentions, leading to sanctions, coups, assassinations,
regime change, and eventually outright war. As Mael Colium says, the US picks off individual
countries by isolating them.
I noticed that. I think Michael Hudson is a classical economist pushing back against the
currently reigning neo-classical economists. Classical economics is not Neo-classical
economics. Saying Hudson promotes neo-classical economics is a mistake.
I believe his hope is for the world to recognise that Athens, Rome and Constantinoiple
collapsed economically due to legislatively favoring creditors over debtors. Its a process we
see alive in North America and Europe today. That's where he is coming from
"Views from an economist who has been promoting neoclassical ideology for decades and then
wonders when there are no alternatives to escape the narrative?"
Really, you should read the article you posted this note under. What text is this comment
in reference to?
Michael Hudson promoting neoclassical ideology for decades?? Are we talking about the same
Michael Hudson from UMKC?
Could you please provide one single link to a paper that was written by him relying on
inductive methodology-based equilibrium theory??
There are a number of such "unclear sentences" in the article. Is the original article so
poorly written/edited, or is it errata in the transcription here?
Either way, it's a shame that such errors detract from the clarity of the ideas presented.
Is there any way to go back and clean this mess up??
Reading Michael's fascinating history of debt forgiveness isn't much different. I'm
grateful for his writing but suffer from his typing. Have proofreaders gone the way of buggy
whips?
(And we must stipulate that typos here on NC are so buggy they're a feature. Which makes
me wonder if/when Roman inscriptions went illiterate–first century BC civil wars, or
third century AD Christian takeover? Valuable historic perspective!)
Support. I would go further and say the article should be taken down for editing. Needs to
be translated into English.
Also, too, the final sentence: "This dystopian scenario confirms Rosa Luxemburg's
recognition that the ultimate choice facing nations in today's world is between socialism and
barbarism." is a rather large jump from the text. While many regular NC readers will agree,
the connection for others is obscure.
Wait the final sentence is what it is because it comes after everything before it. The
quote distills much of what precedes it: The US is determined to be "the winner" in all
dealings and nations acquiescing to US goals will likely lead to barbarism (austerity) for
those populations.
Sometimes a phrase hits to the core of a wider meaning: "Send Her Back!" (a racist chant
in any language).
When we have MMT paying for arts, history, journalism and particularly editors, I won't be
so irritated by these kinds of criticisms.
We live in a very advanced world of Bernaysian propaganda where the communicative
industries are privately owned and directed to ensure deep criticisms of the
hyper-exploitative current reality CANNOT be published and promoted.
When someone takes the effort to produce something, like this or the book other commenters
on this thread are also slighting, at great personal expense to themselves without corporate
backing or institutional support, a decent reply would be "Thank you!", rather than tasking
them or our hosts here at this site to "go back and clean up this mess??"
If you had any decency, you might suggest clarifying edits in comments, like changing
"– so that it can taxing its own citizens." at the end of the 23rd paragraph to,
"– so that it can avoid taxing its own citizens", to help the people you are
criticizing for making things so difficult for you.
Who cares about a few typos when his ideas are truly REVOLUTIONARY!
For example, i had no idea about Debt Jubilees in early civilizations 3000 years ago! The
pyramids built by FREE MEN! Liberty and Freedom originating from canceling debts! Torches and
Beacons of light as representatives of said Debt Jubilees!
If you ask me, the #HudsonHawk is trying to awaken the Workers of the World in
Forgiveness, Peace, Love, and Solidarity.
I didn't know that until I read anthropologist David Graeber's Debt: The First 5,000
Years.
But there's a fundamental difference between debt in the past and debt today. In the past
debt was owed to the state, today it's owed to some wealthy corporations. Good luck with debt
jubilees in the absence of violent uprisings.
The difference is they internalize profit and externalize cost. And that's fundamentally
different from all other epochs in the past. Even the birth of nation state was out of their
rationalization of how to maximize profit extraction and cost externalization in the 1st
place. Good luck with debt jubilees.
I agree. I can read through typos, missing words, etc as long as the writing conveys the
intended meaning. I think the criticism of the document for grammatical perfection is not
warranted. I enjoyed the article myself anad I thank the author.
That is why Russia, China and other powers that U.S. strategists deem to be strategic
rivals and enemies are looking to restore gold's role as the preferred asset to settle
payments imbalances.
How would this occur aside from a repudiation of the almighty buck one wonders, and would
it be based on reserves in the vault, or actual use as money?
Keep in mind that there isn't a human alive now who ever proffered a monetized gold coin
in order to purchase something, and increasingly relatively few that have ever used a
monetized silver coin for the same purpose.
I don't have a huge amount of sympathy. The Eurozone and China could run trade deficits,
thereby creating an opportunity for their currencies to become reasonably viable alternative
reserves. But they don't because they don't want to cede control of their manufacturing and
export-driven economic bases away.
The US doesn't mind and doesn't care about the domestic repercussions. For how much longer
that can continue, especially as Trump's America First policy is putting that under
some strain, is an open question. But for now, it's willing to be satisfied with a little
rowing back rather than wholesale reversal (back to, for example, an immediate-post war
position of significant trade surpluses although the article is correct to point out this was
due to the US being the last man standing, in terms of having a manufacturing base still
intact).
The Eurozone and China are not only not showing any signs of a policy change, they've
continued embedding and strengthening the current modus operandi. You pays your money, you
takes your choices. Here as elsewhere. If they'd rather not have the US$ having a
more-or-less monopoly position in then global financial system as a reserve currency, they'll
need to make the compromises needed to set up these challenger currencies as viable
alternatives.
But they can't have their economic cakes and eat them, too.
And it's not just currencies. You need legal systems which are deemed to be (which can
only come through real, observational experience) investor-friendly -- not just prone to
supporting or at the very least given an easy ride to domestic stalwarts. Again, this has
repercussions if you then have to stop cosseting domestic "champions". The US legal system is
ridiculously business friendly. But it doesn't, overtly, differentiate between US and non-US
companies in a commercial dispute.
The sine qua non of our economic empire (which I learned here) is that a global currency
requires global trade deficits, which must grow as quickly as the global economy to fulfill
its role. Tell that to Germany! If your silly little euro or yen or renminbi tries to go
global, the dollar-based currency speculators will shrivel it like Soros did the pound in the
90s. So American deficits are structural. Our debt-ceiling controversies are theater. And our
dollar is exceptional until the instant it isn't–then the Fed electron-tranfers
trillions more to the speculators whose notional dollars just evaporated, keeping the
currencies in the air with their new casino chips. Is this a loan? A gift? An electron cloud?
It's the fog of war by other means . . .
It may have been Hudson who explained that a quarter (or was it half?) of all corporate
profits after WWII went to American companies, when our economy was that much of the world's.
Now we're a much smaller fraction of the global economy, but our corporate sector still
profits as much as it did when it was producing, rather than marketing, real goods. Another
exceptional achievement.
Oops, and I meant to begin with strong agreement, Clive, just developing your point about
the need for deficits to 'buy' control with unpayable debt. And it's an excellent point that
"The US doesn't mind and doesn't care about the domestic repercussions." Just imagine if we
did.
Oh man, this is definitely a two coffee cup read with a ton of material to absorb.
Definitely a keeper this. I'll just make a brief comment as it is late here. Maybe what is
key here is that there are so many trends working against the US as power shifts from a
unipolar to a multipolar world that a determination has been made in Washington to try to set
out a unilateral domineering position with regards the rest of the world to stop the loss of
prestige and power. This is just not Trump but the Washington political establishment backing
him up to put the US in a domineering position for at least the first half of this
century.
This is the first serious article I've seen linking opposition to climate action with the
US strategic focus on securing oil. The current oil wars may have started in 2003, but we've
really been fighting them for longer, at least since the Tanker War of the late 80s, which
led into the first Gulf War (which was explicitly for oil). We've been openly preparing for
such wars since the Carter Doctrine of the late 70s as well. Those dates matter because the
public generally became aware of global warming with the congressional hearings in 1988, and
the oil companies (and thus presumably the rest of the deep state) became aware of the
science as early as the 70s.
US military strategy has been based around ensuring climate change happens for as long as
climate change has been known about. Why isn't this more of a scandal? Why isn't this more
openly discussed as a justification for changing US foreign policy? Why isn't reducing
imperial adventures discussed as a side benefit of any policy, like a Green New Deal, that
seriously attempted to cut carbon emissions? It boggles the mind, and seems like the sort of
thing that'll be obvious to future generations so long as civilization hasn't collapsed by
then.
Really all we know is that such a plan would create a different order. That so many
countries have continued to pauper their populations long after the obviousness that
"development" is a sham doesn't bode well for their intentions even after the USA is brought
to heel.
This is a good summary of our irrational world. MMT and the GND can save the situation but
only if we industrialized humans forego any more fossil fuels except for long-term survival
purposes. Ration it with draconian discipline. That in turn will discipline our military and
turn our energies to things we can no longer ignore. Money doesn't bother me much. Resources
and the critical health of the planet bother me a lot. Money and "gold" are, in the end, both
fictitious obsessions.
Thanks for providing this transcript prior to Hudson posting it to his own website. He was
the first political-economist to lay out the Outlaw US Empire's game plan when he published
Super Imperialism: The Economic Strategy of American Empire in 1972. You'll find few
authors willing to provide their seminal work for free online– 2nd Edition
PDF . I think it fair for those unfamiliar with Hudson's work to read his analysis prior
to being judgmental.
The first existential objective is to avoid the current threat of war by winding down
U.S. military interference in foreign countries and removing U.S. military bases as relics of
neocolonialism.
Clark Air Force base in Angeles City, Philippines had closed the year earlier in 1991.
China is growing power and challenger to shipping freedom of the South China Sea trading
route, building artificial fortified islands and aircraft carriers. History has not ended.
Power abhors a vacuum.
I agree with Hudson's point about the dangers of misdirected militarism, but I don't think
closing military bases around the world necessarily guarantees the end of military
adventurism dangers by other rising powers.
There is an article on here by Michael Hudson, an economist who wrote about U.S. control of
the World Bank and IMF since 1948. He claims that the U.S. wages war because it gets other
countries to unwittingly finance them and the trade deficit. After WWII the U.S. forced
European countries to pay their war debt, by selling corporate assets, reducing barriers and
reduce their social programs. They had 3/4 of the world gold reserves because of those loans
during the war. Korea and Vietnam reduced their gold reserves to 10 billion by the late 60's
and were forced to get out off the Gold Standard. The French Banks that had a big presense in
Indochina sending their dollars to the French Central Bank and they were trading dollars for
gold. Nixon stopped it.
The dollar gave U.S. the means to have other countries finance their trade deficit, all
their wars and the military buildup. By ending the Gold backed dollar they forced the countries
that had U.S. debt dollars to purchase U.S. Treasury Bonds. As the U.S. debt grew so did the
dollars being held by those countries and the purchase of Treasury Bonds. The U.S. does not
allow countries holding those dollars to buy US property or buy Corporations and risk being
acused of commiting an act of war. So they are forced to buy U.S. debt while the US uses its
dollars to buy other countries resources with those worthless dollars.
The U.S. forces countries that default on their loans to pay penalties and huge interest
payments while the U.S. debt goes un checked and growing without the threat of being in
default...
Russian President Vladimir Putin accused Washington of making a "colossal" but "typical"
mistake by exploiting the dominance of the dollar by levying economic sanctions against regimes
that don't bow to its whims.
"It seems to me that our American partners make a colossal strategic mistake," Putin
said.
"This is a typical mistake of any empire," Putin said, explaining that the US is ignoring
the consequences of its actions because its economy is strong and the dollar's hegemonic
grasp on global markets remains intact. However "the consequences come sooner or later."
These remarks echoed a sentiment expressed by Putin back in May, when he said that Russia
can no longer trust the US dollar because of America's decisions to impose unilateral sanctions
and violate WTO rules.
... ... ...
With the possibility of being cut off from the dollar system looming, a plan prepared by Andrei Kostin, the head of Russian
bank VTB, is being embraced by much of the Russian establishment. Kostin's plan would facilitate the conversion of dollar
settlements into other currencies which would help wean Russian industries off the dollar. And it already has the backing of
Russia's finance ministry, central bank and Putin.
Meanwhile, the Kremlin is also working on deals with major trading partners to accept the Russian ruble for imports and exports.
In a sign that a united front is forming to help undermine the dollar, Russia's efforts have been readily embraced by China
and Turkey, which is unsurprising, given their increasingly fraught relationships with the US. During joint military exercises
in Vladivostok last month, Putin and Chinese President Xi Jinping declared that their countries would work together to counter
US tariffs and sanctions.
"More and more countries, not only in the east but also in Europe, are beginning to think about how to minimise dependence on
the US dollar," said Dmitry Peskov, Mr Putin's spokesperson. "And they suddenly realise that a) it is possible, b) it needs to
be done and c) you can save yourself if you do it sooner."
Two years ago, in hushed tones at first, then ever louder, the financial world began
discussing that which shall never be discussed in polite company - the end of the system that according
to many has framed and facilitated the US Dollar's reserve currency status: the Petrodollar, or the
world in which oil export countries would recycle the dollars they received in exchange for their
oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve
currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth,
in a virtuous (especially if one held US-denominated assets and printed US currency)
loop.
The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was
that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance
themselves from the US-led, "developed world" status quo spearheaded by the IMF, global trade would
increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And
sure enough, this has certainly been taking place, as first Russia and China, together with Iran,
and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead
engaging in bilateral trade arrangements, leading to, among other thing, such discussions as, in
today's FT, why China's
Renminbi offshore market has gone from nothing to billions in a short space of time.
And yet, few would have believed that the Petrodollar did indeed quietly die, although ironically,
without much input from either Russia or China, and paradoxically, mostly as a result of the actions
of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia
too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to
take out the US crude cost-curve, may have Plaxico'ed both itself, and its closest Petrodollar trading
partner, the US of A.
As
Reuters reports, for the first time in almost two decades, energy-exporting countries are set
to pull their "petrodollars" out of world markets this year, citing a study by BNP Paribas
(more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and
facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting
nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove
itself into irrelevance.
A consequence of this year's dramatic drop in oil prices, the shift is likely to cause global
market liquidity to fall, the study showed.
This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia
and Nigeria. Much of that money found its way into financial markets, helping to boost asset
prices and keep the cost of borrowing down, through so-called petrodollar recycling.
But no more: "this year the oil producers will effectively import capital
amounting to $7.6 billion. By comparison, they exported $60 billion in
2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations."
In short, the Petrodollar may not have died per se, at least not yet since the USD is still holding
on to the reserve currency title if only for just a little longer, but it has managed to price itself
into irrelevance, which from a USD-recycling standpoint, is essentially the same thing.
According to BNP, Petrodollar recycling peaked at $511 billion in 2006, or just about the time
crude prices were preparing to go to $200, per Goldman Sachs. It is also the time when capital markets
hit all time highs, only without the artificial crutches of every single central bank propping up
the S&P ponzi house of cards on a daily basis. What happened after is known to all...
"At its peak, about $500 billion a year was being recycled back into financial markets.
This will be the first year in a long time that energy exporters will be sucking capital out,"
said David Spegel, global head of emerging market sovereign and corporate Research at
BNP.
Spegel acknowledged that the net withdrawal was small. But he added: "What is interesting is
they are draining rather than providing capital that is moving global liquidity. If oil prices
fall further in coming years, energy producers will need more capital even if just to repay bonds."
In other words, oil exporters are now pulling liquidity out of financial markets rather than putting
money in. That could result in higher borrowing costs for governments, companies, and ultimately,
consumers as money becomes scarcer.
Which is hardly great news: because in a world in which central banks are actively soaking up
high-quality collateral, at a pace that is unprecedented in history, and led to the world's allegedly
most liquid bond market to
suffer a 10-sigma
move on October 15, the last thing the market needs is even less liquidity, and even sharper
moves on ever less volume, until finally the next big sell order crushes the entire market or at
least force the [NYSE|Nasdaq|BATS|Sigma X] to shut down indefinitely until further notice.
So what happens next, now that the primary USD-recycling mechanism of the past 2 decades is no
longer applicable? Well, nothing good.
Here are the highlights of David Spegel's note Energy price shock scenarios: Impact on EM
ratings, funding gaps, debt, inflation and fiscal risks.
Whatever the reason, whether a function of supply, demand or political risks, oil prices plummeted
in Q3 2014 and remain volatile. Theories related to the price plunge vary widely: some argue it is
an additional means for Western allies in the Middle East to punish Russia. Others state it is the
result of a price war between Opec and new shale oil producers. In the end, it may just reflect the
traditional inverted relationship between the international value of the dollar and the price of
hard-currency-based commodities (Figure 6). In any event, the impact of the energy price drop will
be wide-ranging (if sustained) and will have implications for debt service costs, inflation, fiscal
accounts and GDP growth.
Have you noticed a reduction of financial markets liquidity?
Outside from the domestic economic impact within EMs due to the downward oil price shock,
we believe that the implications for financial market liquidity via the reduced recycling of petrodollars
should not be underestimated. Because energy exporters do not fully invest their export
receipts and effectively 'save' a considerable portion of their income, these surplus funds find
their way back into bank deposits (fuelling the loan market) as well as into financial markets and
other assets. This capital has helped fund debt among importers, helping to boost overall growth
as well as other financial markets liquidity conditions.
Last year, capital flows from energy exporting countries (see list in Figure 12) amounted to USD812bn
(Figure 3), with USD109bn taking the form of financial portfolio capital and USD177bn in the form
of direct equity investment and USD527bn of other capital over half of which we estimate
made its way into bank deposits (ie and therefore mostly into loan markets).
The recycling of petro-dollars has benefited financial markets liquidity conditions. However,
this year, we expect that incremental liquidity typically provided by such recycled flows will be
markedly reduced, estimating that direct and other capital outflows from energy exporters will have
declined by USD253bn YoY. Of course, these economies also receive inward capital, so on
a net basis, the additional capital provided externally is much lower. This year, we expect that
net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn)
for the first time in eighteen years. This compares with USD60bn last year, which itself was down
from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006.
The declines seen since 2006 not only reflect the changed global environment, but also the
propensity of underlying exporters to begin investing the money domestically rather than save.
The implications for financial markets liquidity -
not to mention related downward pressure on US Treasury
yields – is negative.
* * *
Even scarcer liquidity in US Capital markets aside, this is how BNP sees the inflation and
growth for energy exporters:
Household consumption benefits: While we recognise that the relationship is not
entirely linear, we use inflation basket weights for 'transportation' and 'household & utilities'
(shown in the 'Economic components' section of Figure 27) as a means to address the differing demand
elasticities prevalent across countries. These act as our proxy for consumption the consumption basket
in order to determine the economic benefit that would result as lower energy prices improve household
disposable income. This is weighted by the level of domestic consumption relative to the economy,
which we also show in the 'Economic components' section of Figure 27.
Reduced industrial production costs: Outside the energy industry, manufacturers
will benefit from falling operating costs. Agriculture will not benefit as much and services will
benefit even less.
Trade gains and losses: Lost trade as a result of lower demand from oil-producing
trade partners will impact both growth and the current account balance. On the other hand, better
consumption from many energy-importing trade partners will provide some offset. The percentage of
each country's exports to energy producing partners represents relative to its total exports is used
to determine potential lost growth and CAR due to lower demand from trade partners.
Domestic FX moves are beyond the scope of our analysis. These will be tied to the level of openness
of the economy and the impact of changed demand conditions among trade partners as well as dollar
effects. Neither do we address non-oil related political risks (eg sanctions) or any fiscal or monetary
policy responses to oil shocks.
GDP growth
The least impacted oil producing country, from a GDP perspective, is Brazil followed by Mexico,
Argentina, Tunisia and Trinidad & Tobago. The impact on fiscal accounts also appears lower for these
than most other EMs.
Remarkably, the impact of lower oil for Russia's economic growth is not as severe as might be
expected. Sustained oil at USD80/bbl would see growth slow by 1.8pp to 0.6%. This compares with the
worst hit economies of Angola (where growth is nearly 8pp lower at -2%), Iraq (GDP slows to -1.6%
from 4.5% growth), Kazakhstan and Azerbaijan (growth falls to -0.9% from 5.8%).
For a drop to USD 80/bbl, it can be seen (in Figure 27) that, in some cases, such as the UAE,
Qatar and Kuwait, the negative impact on GDP can be comfortably offset by fiscal stimulus. These
economies will probably benefit from such a policy in which case our 'model-based' GDP growth estimate
would represent the low end of the likely outcome (unless a fiscal policy response is not forthcoming).
Global growth in 2015? More like how great will the hit to GDP be if oil prices don't rebound
immediately?
On the whole, we can say that the fall in oil prices will prove negative, shaving 0.4pp from 2015
EM GDP growth. The collective current account balance will fall 0.58pp to 0.6% of GDP, while the
budget deficit will deteriorate by 0.61pp to -2.9%. This probably has the worst implications for
EM as an asset class in the credit world.
Energy exporters will fare worst, with growth falling by 1.9pp and their current account
balances suffering negative pressure to the tune of 2.69pp of GDP. Budget balances will
suffer a 1.67pp of GDP fall, despite benefits from lower subsidy costs. The impact of oil falling
USD 25/bbl will be likely to put push the current account balance into deficit, with our analysis
indicating a 0.3% of GDP deficit from a 2.4% surplus before. Fortunately, the benefit to inflation
will be the best in EM and could help offset some of the political risks from reduced growth.
As might be expected, energy importers will benefit by 0.4pp better growth in this scenario. Their
collective current account will improve by 0.6pp to 1.1% of GDP.
The regions worst hit are the Middle East, with GDP growth slowing to 0.3%, which is 3.8pp
lower than when oil was averaging USD105/bbl. The regions' fiscal accounts will also suffer
most in EM, moving from a 1.7% of GDP surplus to a 1.8% deficit. Meanwhile, the CAB will drop 5.3pp,
although remain in surplus at 3.9%. The CIS is the next-worst hit, from a GDP perspective, with regional
growth flat-lined versus 1.91% previously. The region's fiscal deficit will worsen from 0.7% of GDP
to -1.8% and CAB shrink to 0.7% from 3% of GDP. Africa's growth will come in 1.4pp slower at 2.8%
while Latam growth will be 0.4pp slower at 2.2%. For Africa, the CAB/GDP ratio will fall by 2.4pp
pushing it deep into deficit (-2.9% of GDP).
Some regions benefit, however, with Asia ex-China growing 0.45bpp faster at 5.5% and EM Europe
(ex-CIS) growing 0.55pp faster at 3.9%, with the region's CAB/GDP improving 0.69pp, although remain
in deficit to the tune of -2.4% of GDP.
* * *
And so on, but to summarize, here are the key points once more:
The stronger US dollar is having an inverse impact on dollar-denominated commodity prices,
including oil. This will affect emerging market (EM) credit quality in various ways.
The implications of reduced recycled petrodollars has significant ramifications for
financial markets, loan markets and Treasury yields. In fact, EM energy exporters will
post their first net drain on global capital (USD8bn) in eighteen years.
Oil and gas exporting EMs account for 26% of total EM GDP and 21% of external bonds.
For these economies, the impact will be on lost fiscal revenue, lost GDP growth and the contribution
to reserves of oil and gas-related export receipts. Together, these will have a significant
effect on sustainability and liquidity ratios and as a consequence are negative for dollar debt-servicing
risks and credit ratings.
This is the smoking gun story that you weren't allowed to hear. Total media
blackout in the United States about the 1 WMD that Saddam Hussein used in November of 2000 that sealed
the fate of the future, not just of America & the Middle East, but the fate of the entire global
community. This revelation (which isn't news by the way) makes the "official version" of the 9/11
story fly in the face of logic. It answers the questions as to "who & why" leaving little doubt about
the fact that 9/11 was a result of High Treason to justify the War Iraq since Hussein essentially
"declared war" first.
There are so many aspects of this and the implications are so extensive, that I'm fairly certain
we'll NEVER see another investigation into those events. Frankly, at this point it's irreversible.
Now that Iran, and the other oil dominating countries are getting ready to follow suit, it's only
a matter of time before the bottom falls out completely.
