The economist John Kenneth
Galbraith once quipped that the answers economists give to the question “what is money?” are
usually incoherent. So in this blog we turn to law for some answers. Debate about the nature of money
has been renewed by recent financial crises and the rise of digital currencies (Ali
et al 2014; Desan
2014;
Ryan-Collins et al 2014;
Martin 2013). This was the focus of a panel session at the Bank’s recent annual conference on
Monetary and Financial Law, which brought together lawyers and economists to develop interdisciplinary
perspectives on topics such as money. It prompted us to think more deeply about how law does and
does not constitute ‘it.’
Common legal attributes of money
Anything can function as money. And many things have: cattle; cowry shells; even cigarettes. But
as Minsky once said, while “everyone
can create money, the problem is to get it accepted.”
While in theory anything can be money, the reality is few things are. Monies produced by the Royal
Mint and the Bank of England (BoE) are the ultimate means of payment, followed by private sector
claims, in order of how immediate they provide for full convertibility into these.
Some economists argue that this
hierarchy of money is
the result of legal privileges, especially legal tender legislation (Smith
1936;
Hayek
1976). However,
legal tender
legislation in the UK only applies to the settlement of debts. It doesn’t cover spot transactions
— our daily buying and selling in the marketplace.
So if we want to explain why state issued tokens and claims, and promises of immediate conversion
into them, are monies, legal tender laws seem less important than other legal attributes that make
them trusted and give people comfort they can get someone else to accept them.
In the past, when gold and silver were monies, economists often explained this reality by reference
to these metals’ physical attributes such as portability, uniformity and durability. Today these
physical attributes of metal monies have legal analogues.
Think of a
fiver.
Three legal attributes make it money.
First, a fiver is portable because it is legally negotiable: it can be transferred to
others without each time gaining consent from the BoE (the fiver’s issuer), and, once transferred,
it’s free and clear of any claims being brought by those who previously possessed it provided it
was taken in good faith (Geva
2011).
Second, fivers are uniform because they are fungible: each can substitute for another.
This is because the rights and obligations they confer are the same.
While all monies share hues of negotiability, fungibility, and instant par redemption, each type
of money also has unique legal features. Ordinarily, these legal differences don’t matter because
one type of money is easily convertible into another.
Qualitative differences in the legal construction of monies appear, if at all, merely as quantitative
differences in their rate of financial return. For example, in ordinary times, although term
bank deposits accrue interest and BoE notes do not, they are treated by most people as equivalents.
However, during financial crises, qualitative differences reassert themselves and, in the extreme,
parity breaks down. In classic bank runs, for example, individuals seek to convert bank balances
into cash because the difference between having a claim on a private counterparty that can go bust,
versus a public counterparty like
central banks that can operate
even on negative capital, acquires greater salience.
Consequently legal differences between monies sometimes matter. So we note some below. Here our
analysis chimes with research in sociology and behavioural economics showing that money is not singular
but plural (Dodd 2014).
However, while those studies focus on how money is imbued with different meanings by individuals
once in circulation, for example, depending on its source (e.g. whether it’s from wages or inheritance),
our point is that monies are plural from the start, in the nature of their legal construction.
Royal Mint coins
Sterling coins are manufactured by the Royal Mint Limited, a public limited company wholly owned
by HM Treasury through the Royal Mint Trading Fund. Different denominations of coin are legal tender
up to different thresholds. For example,
5p coins are
legal tender for any amount not exceeding £5, while 50p coins are legal tender for any amount not
exceeding £10. Royal Mint coins are unique among UK monies in that they are not the legal obligations
of any counterparty, though they are treated as a liability of central government in the financial
accounts of national income statistics.
BoE notes
Legally, notes represent debt obligations of the Bank. Originally they could be redeemed in gold.
However, since 1931, the Bank
no longer
pays out gold against its notes. BoE notes were first issued in the seventeenth century but did
not acquire legal tender status in England and Wales until 1833. They are not legal tender in Scotland
or Northern Ireland.
Seven banks in Scotland and Northern Ireland issue their own notes which are these banks’ debt
obligations. These notes are not legal tender even in Scotland and Northern Ireland. Rather, they
circulate by convention, underscoring our thesis about the importance of other legal attributes besides
legal tender legislation in conferring ‘money-ness.’ As a result of the
Banking
Act 2009, these notes are backed in full by a combination of Royal Mint coins, BoE notes and
reserve account balances.
Accounts with banks and mutual organisations
Banks and mutual organisations offer current and other types of spendable accounts used for payments.
On the one hand, these accounts are unsecured debt obligations of private organisations. On the other
hand, many are backed up to certain limits by
statutory
guarantees. Today the value of transactions involving these accounts greatly exceeds the value
of transactions involving legal tender. And growth in these accounts’ balances is mainly driven by
additional loans that create equal and opposite accounting entries.
Further research
Economists and lawyers often approach the topic of money differently because they have different
philosophies underpinning their professions. Economics is basically a branch of
utilitarianism,
meaning that the consequences of actions are the basis for judging their rightness or wrongness.
Hence many problems in economics are about optimization and involve cost-benefit analysis. By contrast,
law is derived from
deontology, meaning some actions are intrinsically right or wrong according to normative rules.
Hence legal decisions are typically justified by history and notions of justice.
These philosophical differences mean economists and lawyers often think about money differently.
For example, many economists think money arose as a transaction cost reducing, utility enhancing
device to overcome the absence of a double coincidence of wants that hampers barter, while many lawyers
and institutionally minded economists think the origins of money is the state (Goodhart
1998). Economists mostly think of
money as a medium of exchange (Kiyotaki
and Wright 1989) because this function relates to trade and commerce, while law emphasises money
as a means of payment (Proctor
2012): whether one party has discharged their obligation to another. In emphasising the settlement
of obligations, law draws attention to money’s role in non-commercial transactions such
as taxation and transfers. And while economists treat money mainly as an indicator or intermediate
target for influencing real, macroeconomic variables, lawyers typically think about money in the
context of individual cases and adhere to the
doctrine of nominalism.
Despite these different points of emphasis, this blog has tried to show that understanding money
requires joining legal with economic perspectives. For example, while for a long time lawyers saw
bank deposits simply as loans, economists much earlier appreciated their wider bearing on inflation
and output. However, if economists want to explain why certain claims like bank deposits are money,
while others are not, they must look at their legal attributes and socio-legal history. Recent research
on money by Bank staff has been informed by both law and economics (McLeay
et al. 2014;
Bholat 2013). Here are a couple paths on which further interdisciplinary research might advance:
How is the money demand for a claim impacted by changes in its legal constitution, for example,
after a major structural break like the conferring of legal tender status on BoE notes or abolition
of their gold convertibility?
Besides negotiability, fungibility and instant par redemption, what other legal features make
claims suitable to be money?
David Bholat works in the Bank’s Advanced Analytics Division, Jonathan Grant works
in the Bank’s Legal Directorate and Ryland Thomas works in the Bank’s Monetary Assessment and Strategy
Division.
Bank Underground is a blog for Bank of England staff to share views that challenge
– or support – prevailing policy orthodoxies. The views expressed here are those of the authors,
and are not necessarily those of the Bank of England, or its policy committees.
Cryptos are a collectors item just like fine art. While money has value based on the military jack boot of empire which insures
its value only with its domination of most countries and the violent destruction of any attempt to set up a transparent real money
system exchangable for gold (Libya). A painting by a hot painter is worth 900k because there are a handful of people who will
pay that for it, they're interest in it keeps the value at a certain level. Same with Bitcoin, but that interest is spread out
to millions of people. If they all decide its worthless than it is, but why would they? I think a lot of these evidence free claims
of hacking and ransom wear are made to devalue the currency that the ransom is paid in, it could have easily been paid in dollars
via the internet, as cryptos is basiclly just that: a stand in for the dollar being moved to an account that is a number. Cryptos
in this way provide a window to real capitalism. This to me is natural human evolution toward anarchism and a system of exchange
that is transparent and based on people working together instead of militaristic violence. You can exchange cryptos for gold,
rubles and yaun, so saying that it exist only based on the dollars supremacy is wrong.
What I know about computers and Bitcoin would get lost in a thimble. However, what I've learnt about the US Govt over the years
tells me that this problem wouldn't be happening if the USG hadn't dedicated itself to micro-managing, and dominating the www
- for Top Secret (i.e. bullshit) reasons.
I was appalled when I learnt that the USG had made strong encryption ILLEGAL, and dumbfounded when I first heard about the
PRISM 'co-operative' USG-mandated www surveillance program. Edward Snowden's NSA revellations confirmed that the USG has KILLED
computer security for crappy, feeble-minded reasons.
It's more or less par for the course that the USG blames other entities for its own prying and mischief-making. Were it not
for the USG placing LOW limits on computer security, we would all have access to Pretty Good Privacy and pro-active, timely means
of detecting and defending and/or evading malware.
"They mostly never see the piece, it's kept in climate controlled storage."
This is standard practice. Using "Ports Franches" as in several Swiss towns including Geneva. Perfectly legal as they are not
IN the country (for Tax purposes).
However, this is not really for "drug" cartels but just a way of transferring assets from one rich person to another.
Many ownership deals are made inside the Port Franche itself, without the need to transport the work outside. There is a limitation
on the time a work can be left inside the building, but I believe all that they have to do is drive more or less "round the block"
and re-enter it. I'm a bit hazy about that detail, as I do not have a spare Rembrandt to verify this personally.
****
jsanprox | Jul 12 2021 1:59 utc | 103
A painting by a hot painter is worth 900k because there are a handful of people who will pay that for it, they're interest
in it keeps the value at a certain level.
The primary dealers agree on a common price level for a stated painter. These paintings can even be used as collateral when
borrowing money.
Other painters do not have a "guaranteed" price level but one based on auction values (ie. What the customer is willing to pay.)
The Primary dealers are a very small group who control all the big art fairs and which other dealers are allowed to sell or deal
there -.
There are "rules" about "participation" (not sure about the terminology here), that various dealers will have made between themseves.
ie. There is a split-up of profits following certain agreed parts. Woe unto a dealer that doesn't pay his part. (OK; personal
note here, I once accidently fell foul of the "cartel" because a gallery owner with my works, had not paid "out" on a large sum
that he had made on another artist he was representing. They decided to "get" him.)
****
Ransomware ; Why are people getting all hot and bothered about Corporations paying money in Bitcoin? Happens all the
time.
Another Personal anecdote ; About five years ago I started recieving emails from unknown "people", Real first names,
with an attachement. As normal, these go into trash without being opened (or into a folder I have, called "dodgy spam?) About
20 + of them. Next I recieved one email saying (in French) " I know your little secret, and if you don't want everyone else to
know, pay (about €30) a "Small" sum into the following bitcoin account xxxxx."
In France you can " porter plainte" , ie, denounce and start a legal process against an "unknown person, or persons".
This is to protect yourself, and is run by the Government/police. In my case, never having opened any of the "attachments", I
don't know what they were, probably porn of some sort. IF they had been opened there would have been a suspicion that I was a
"willling" victim. (The first question asked by the Gov. Site was "Have you paid them/it, and by how much". in my case - none)
******
Haven't heard anything since. BUT, Bitcoin was already being used for criminal purposes.
Nobody had to find a super-secret backdoor into my computer. Just buy a data base with working emails - Corporations
use them all the time to send publicity. By looking at the address, and other more or less freely available information, they
can target people, by location, age, etc.
But you only know a Picasso is worth a lot because you can calculate it in USD terms (ultimately: you can also calculate in
any other fiat currency, but, since we live in the USD Standard, we only know a certain amount of fiat currency is worth if we
can convert it to USDs). The USD is still the unit of accountancy and the means of payment even in the art market.
You can never pay your taxes or fill the tank of your car with a Picasso - you would have to sell it for USDs, and use these
USDs to pay for everything you need. Sure, two megarich persons could exchange art between them as some kind of permute, but that
doesn't constitute a societal unity (because billionares don't exist in a vacuum). It is a particularity of society, not society
itself.
The same is true with crypto. And with gold. And with platinum. And with whatever else you want. It is a myth crypto is "fake"
just because it is purely digital: the material specification of the thing doesn't matter for its status of money. Being digital
is the lesser of crypto's problems. Crypto's main problem is the very economic foundations of its existence, which ensure it will
never be money.
And no: subdividing crypto wouldn't solve it - they tried it with gold when capitalism lived through the Gold Standard (when
it was on its death throes) and there's a limit to this. Even if the digital era allowed it, you would then simply have fiat money
system with extra steps and double the brutality, because then the power to issue money would rest with few private individual
hoarders of the crypto with no legal accountability and responsibility; it would be a dystopian "Pirates of the Caribbean" meets
"Mad Max" scenario.
I worry that people cannot survive this. Real, warm blooded, caring, loving people can be
broken by this. And that's what makes me angry. Because this is unnecessary. The money to
deliver a decent society exists.
All that we need to make the lives of the vast majority of people in this country is a real
understanding of economics, of money, of how it interacts with tax, and how we can use that for
the common good.
But no political party seems to get that as yet. And until they do, this unnecessary
suffering will continue. And that makes me very angry. Pointless pain is what we're enduring.
And all for the sake of accepting that money is not a constraint on our potential, and never
will be.
Let me have a go.
If prosperity and wealth can be created by printing more money, why there is still poverty
in the world?
After all, isn't every country equipped with a central bank that can print as much money as
they want?
Real wealth is not denominated in dollars, only in what those dollars can buy. Devaluing
the dollar doesn't hurt the wealthy, most of their wealth is in the form of equity and real
assets, not dollars.
The average person's wealth is measured mostly in his future labor, how much he is going to
earn. He will earn less because the Fed devalues his labor through its manipulation of the
dollar. He will see this in the rising cost of living without an increase in his pay. Sure
perhaps the value of labor will at some point catch up to the devalued dollar, but in the
interim he will earn less and will never catch up to what he would have earned otherwise.
It doesn't hurt the wealthy, it hurts the middle class, and will for years to come.
Your macroeconomic ignorance is duly noted, featuring as it does the usual "commodity
money" and mercantilist shibboleths.
MMT describes fiat monetary operations which have been in effect since the Nixon
shock and the abandonment of Bretton Woods almost 50 years ago . Do catch up.
honest question, wouldn't MMT (in a hypothetical universe run by committed MMTers) in
the UK likely will produce vastly different results than MMT in relatively autarkic
economics like the USA or Russia?
The UK relies on imports to one degree or another for virtually every physical good
necessary for a first-world living standard (food -- even basic foodstuffs like wheat,
medicine, spare parts, petrol, apparel, even steel, etc).
While the UK's economy tilts to exporting services education, finance, media,
medicinal/technological intellectual property, tourism, etc.
Would a weaker UK pound encourage more service exports? Or merely increase inflation,
particularly for the bottom 50%?
Because MMT analysts tend to be mostly US or Australian, the applicability of it to
smaller, more open economies has not, I think, had the attention thats needed (although to
be fair, Richard Murphy has done quite a lot of writing on this). While the UK is a large
economy, its also very open (although increasingly less so, thanks to Brexit). So it
clearly has much less room to manoeuvre in terms of monetary or fiscal policy than a more
autarkical nation. Its not just with MMT and inflation – things like Keynesian
multipliers tend to be lower in more open economies as the benefits of fiscal expansion get
exported out. The Labour party under Corbyn did put together some very interesting and well
thought through MMT-influenced policies, but of course that all got thrown out with
Corbyn.
As Yves has pointed out before, the UK has a particular problem in that it has little
spare physical capacity in its economy to take advantage of a weaker currency. In the past,
it has been unable to increase output when the pound has been weaker. So a weakening pound
is likely to be more inflationary than in many other economies.
I think that in a general sense, MMT makes sense in all economies in a Covid scenario of
a massive drop in output thanks to a black swan event. As Murphy points out, you just need
to shove the cash into the economy through monetary means and forget about having to repay
it. Inflation just isn't a problem in those circumstances, and it has the benefit of
maintaining productive capacity within the economy. But in more 'normal' times, MMT needs
to be applied with far more care in an economy like the UK than in a US or China or Russia
or EU.
Kind of wondering here what would happen if all the poor and unemployed/welfare
recipients and even the precarious middle class also decided to offshore their money. Why
not? Say in every country; say it became a global movement. The neoliberal nightmare should
inform us all. Just because a small country doesn't have spare capacity or idle resources
is not really a contraindication for MMT. It is more a factor of having an intrinsic
imbalance due to decades if not centuries of grift and graft by those in a position to help
themselves. And it creates confused politics. As you mentioned above – the Tories in
the UK seem to have also usurped the opposition. Well, to my thinking, that is exactly what
Trump did. And it is almost a crazy hope of "If you can't beat them, join them." And just
exactly where does that leave a functional economy? My first image is a junkyard.
First, apropos the applicability of Modern Money Theory to relatively open economies
like that of the U.K., see the discussion of the prerequisites for monetary sovereignty as
outlined by Robert Hockett and Aaron James in their 2020 book, Money for Nothing .
In addition to the well-known requirements (nation must issue its own currency; currency
not pegged to metal or any other currency; no borrowing in foreign currencies), Hockett and
James add others, including "limited trade dependence in essential goods such as food or
energy sources, in order to mitigate foreign exchange and inflation risk ." (274)
Second, apropos the applicability of MMT to smaller economies, I am pleased to note that
Fanny Pigeaud and Ndongo Samba Sylla's 2018 book, L'Arme Invisible de la
Françafrique: Une Histoire du Franc CFA , has at last been published in English
as Africa's Last Colonial Currency: The CFA Franc Story . (Your search engine will
take you either to the
publisher or to an internet behemoth where you can order it.)
Pigeaud and Sylla's book is a history and analysis of the political economy of the CFA
zone: the countries of central and west Africa which were French colonies and which
continue to use a common currency imposed on them by the French imperialists in 1945.
This book is, in my estimation, the best book we have so far in applying the insights of
Modern Money Theory to non-monetarily sovereign economies. You have to love any book that
starts out by translating Hyman Minsky's most famous aphorism into French: Tout un
chacun peut creér de la monnaie: le problème est de la faire
accepter.
"limited trade dependence in essential goods such as food or energy sources, in order
to mitigate foreign exchange and inflation risk ."
Again, we/they have choices based on resource constraints. But, as usual, they are
political. Most of these choices seem impossible now, but remember Victory Gardens ?
Alas, such things are not looked upon favourably by Big Ag and the supermarket chains, but
my depression-era grandparents grew most of their own food for their very large (by our
standards) families. Maternal side, farmers -- my mother, born 1923, said that she never
even knew there was a depression until she read about it later in high school. Grandpa paid
his property taxes by driving snowplow for the county in the winter. Father's side -- my
father, born 1922, grew up in a village (5-bedroom two story house built by his father, a
shoemaker, and friends/relatives/contractors) on a biggish, maybe 1-2 acre? lot, which was
part of a grant to the family for Civil War service. Grandma still had apple, peach, cherry
and walnut trees, raspberry and currant bushes when I knew her, and had grown beans,
tomatoes, potatoes and all that stuff before the 7 kids got married. Obviously, the kids
did a lot of the work, too. Sewing room -- made most of the clothes for family, Dad says
the kids' diapers were made of sugar sacks.
IOW, this is not rocket science. We did this sort of thing for millions of years,
omitting the last 200 or so, and can very likely do it again. People explored the whole
round world, and conquered a lot of it, without electricity or the internal combustion
engine. We're not all gonna die!
Unless we as a species continue to act on maximizing shareholder value rather than
surviving.
I think that you might be onto something here. I suspect that the lives of our
grandchildren as they grow older will resemble the lives of our grandparents from your
description. Of course that may mean a lot off decentralization from out of big cities but
it can be done – especially if there is no other choice. And it's not like in the US
that there is not the land to do this with.
It is an excellent article, with one small exception, the words, "I accept that creating
money this way is inflationary."
Contrary to popular wisdom, inflation is not caused by money creation . All
inflations are caused by shortages , most often shortages of food or energy.
That includes hyperinflations. Consider, for one, the Zimbabwe hyperinflation. The
government took farmland from farmers and gave it to non-farmers. The inevitable food
shortages caused inflation. The government's "money-printing" was merely the wrongheaded
response to the inflation, not the cause.
In fact, the hyperinflation could have been cured by more money creation, had that money
been used to cure the food shortage, by purchasing food from abroad and distributing it, or
by teaching the non-farmers how to farm.
In the past year, the U.S. has spent an astounding $4 trillion, and soon it will spend
another $2 trillion, Yet, there will be no inflation so long as there are no shortages of
food, oil, or labor.
Bottom line: Scarcity, not money creation, causes inflation.
In the US, as in the UK, planned inequality and (managed) unequal access to the benefits
of the money system are two of the most salient activities of our (US) three government
branches.
So are ye telling me the reason conservatives don't (for example) want to raise the
minimum wage is not because of some economic or monetary reason or law but instead just to
keep people in their place, i.e. preserve the status quo? Amazing! And I guess them
conservatives that "havenot" go along because of that "relative advantage" thing –
they are so fixated on keeping those below in their place that they are blind to the upside
of a more democratic and social monetary policy. Well I'll be. Now I git it!
Then the MMT School are conservatives since they'd use taxation to curb inflation (by
some undisclosed means that does not curb consumption).
But why should price inflation be a problem so long as:
1) It does not exceed income gains for ALL citizens;
2) the means that produce it do not violate equal protection under the law;
and
3) it is not extreme?
The only reason I can think of, and it's a contemptible one, is that large fiat
hoarders* would see their hoards diminish in value in real terms.
*not to disparage those saving for a home, initial capital formation, legitimate
liquidity needs, etc.
One point of inflation is to restrain creditors (rhymes with "predators").
Meanwhile, "printing" money does not initiate inflation. Most inflation–even
hyperinflation–is "cost push," i.e. related to shortages of goods. In Zimbabwe, the
Rhodesian farmers left, and the people to whom Mugabe gave their land were not as
productive. Result: a shortage of food requiring imports (balance of payments problem).
In Weimar Germany, the French army invaded the Ruhr, shutting down Germany's industrial
heartland, making a shortage of goods. They already had a balance of payments problems with
WWI reparations.
it was always thus.
the real Burkean Conservatives behind it all, who yes want to keep everyone in their
place.
as i've lamented many times, it's hard to get a read on who the real Bosses are, since they
don't go on TV and brag, generally(various rightwing billionaires in the last 15 years,
notwithstanding)
C.Wright Mills and Domhoff are the only taxonomists of that cohort that i'm aware of
Diannah Johnstone, perhaps.
Maybe Pepe Escobar when they hide the rum.
otherwise, every attempt i've seen in the last 30 years has had elements of tinfoil and
illuminatii/NWO scattered throughout.
I reckon this is by design, at some level.
whatever there exists a demographic cohort of humanity that is exceedingly wealthy, thinks
it's in charge and mostly really is and that is truly cosmopolitiain citizens of the
world.
their most defining feature is that they pretend real hard not to exist and most of us
little people give them no mind, and pretend right along.
This cohort is not monolithic, nor all powerful they each are as prone to tunnel vision and
stupidity as any of us but they have better connected steering wheels, and cleaner
windshields, and mirrors that work.
One hopes that, like in FDR Times, they will feel threatened enough by the results of their
long term policy preferences to allow a few larger crumbs to fall from the table, so as to
mollify the ravening hordes .ere those hordes notice who the real Hostis Humani Generis
are.
But it looks like they're more likely to double down on the diversionary division of the
Bewildered Herd hence, Cancel Seuss! and Sinema's little antoinette dance .and an hundred
other mostly unimportant things that happened just yesterday to keep us'n's riled up about
the wrong things.
I actually talked about this with Kuppy last week.
He considers HFT a problem but not crippling; he says they cost him $10K to $25K a day
but apparently this isn't enough to deter his hedge fund activities. He said that up to 70%
of trading volume activity in any stock is HFT (!).
As for scam: well - the value of the front running exists only so long as the herd is in
the market. Every single market crash - whether bitcoin or the stock market or whatever -
sees the vast majority of players exit (or bankrupt). At that point, the trading volumes
and numbers of people participating plummet dramatically.
How valuable do you think RH's model is then?
Sounds to me that HFT is a scam in itself. Am I to believe that algorithms trading against
each other repetitively at high speed is anything other than machine driven gambling on one
algorithm's interpretation of the behaviour of another algorithm, mostly outside of the human
buy and sell in the market place. Are the humans just strapped on for the ride through a
cabal of trading companies?
@ uncle t # 168 who wrote
"
I was looking back at some earlier reports to gain an insight into the means by which the USA
gave the game away and the means that might restore its place in the economic world. It has
allowed itself to be completely captive to global private finance AND ownership of the keys
to its salvation. If it does not nationalize its key industries then it can rest assured of
its doom.
"
I continue to posit that the key industry that needs to be "nationalized/made totally
sovereign" is finance. If humanity can follow China's lead, the motivations in the other
industries will revert to doing what is right, rather than what is profitable.
In regards to your HFT comment in # 172, you have calling HFT a scam correct. It is
programmed/manufactured theft under the guise of AI.
When guys like Michael Saylor put a half a billion into bitcoin they have done their
homework. Seems to me a scam is an operation containing a lot of lies. I don't see how
bitcoin falls into that category.
As far as a Ponzi scheme I also do not see the connection. It is nothing like a Ponzi.
There are no promises of big returns or large dividends.
When people follow 'guys like Michael Saylor [and see him] put a half a billion into bitcoin
they [think] have done their homework [and follow like fish chasing a lure] THEN they have
been sucked into a ponzi scheme where the lure is a fast buck if they follow the (smart?)
leader. Then the smart leader progressively sells out at a sweet peak and the chumps watch it
dip for a month or two. Unless of course there are lots of paid journalists and bloggers and
facebook praise singers pumping the lure of the endless profit of bitcoin.
Sounds like rumours of gold in them thar hills.
There are a large number of lies (or exaggeration?) in bitcoin and all spun within a
sheath of mystery and complexity and even 'mining' to smear some credible lipstick on the
scheme.
There is a sucker born every minute and they invest in BS and love a veneer of mystique
and bitcoin falls squarely into the category of lies and scams and fancy imaginings and the
lure that suckers are forever chasing. Yes, people buy and sell and some make a profit - same
as any ponzi scheme.
Russia-China "Dedollarization" Reaches "Breakthrough Moment" As Countries Ditch Greenback
For Bilateral Trade by Tyler Durden Thu, 08/06/2020 - 21:55
Twitter Facebook Reddit EmailPrint
Late last year, data released by the PBOC and the Russian Central Bank shone a light on a
disturbing - at least, for the US - trend: As the Trump Administration ratcheted up sanctions
pressure on Russia and China, both countries and their central banks have substantially
"diversified" their foreign-currency reserves, dumping dollars and buying up gold and each
other's currencies.
Back in September, we wrote about the PBOC and RCB building their reserves of gold bullion
to levels not seen in years. The Russian Central Bank became one of the world's largest buyers
of bullion last year (at least among the world's central banks). At the time, we also
introduced this chart.
We've been writing about the impending demise of the greenback for years now, and of course
we're not alone. Some well-regarded economists have theorized that the fall of the greenback
could be a good thing for humanity - it could open the door to a multi-currency basket, or
better yet, a global current (bitcoin perhaps?) - by allowing us to transition to a global
monetary system with with less endemic instability.
Though, to be sure, the greenback is hardly the first "global currency".
Falling confidence in the greenback has been masked by the Fed's aggressive buying, as
central bankers in the Eccles Building now fear that the asset bubbles they've blown are big
enough to harm the real economy, so we must wait for exactly the right time to let the air out
of these bubbles so they don't ruin people's lives and upset the global economic apple cart. As
the coronavirus outbreak has taught us, that time may never come.
But all the while, Russia and China have been quietly weening off of the dollar, and instead
using rubles and yuan to settle transnational trade.
Since we live in a world where commerce is directed by the whims of the free market (at
least, in theory), the Kremlin can just make Russian and Chinese companies substitute yuan and
rubles for dollars with the flip of a switch:
as Russian President Vladimir Putin once exclaimed , the US's aggressive sanctions policy
risks destroying the dollar's reserve status by forcing more companies from Russia and China to
search for alternatives to transacting in dollars, if for no other reason than to keep costs
down (international economic sanctions can make moving money abroad difficult).
In 2019, Putin gleefully revealed that Russia had reduced the dollar holdings of its central
bank by $101 billion, cutting the total in half.
And according to new data from the Russian Central Bank and Federal Customs Service, the
dollar's share of bilateral trade between Russia and China fell below 50% for the first time in
modern history.
Businesses only used the greenback for roughly 46% of settlements between the two countries.
Over the same period, the euro constituted an all-time high of 30%. While other national
currencies accounted for 24%, also a new high.
As one 'expert' told the Nikkei Asian Review, it's just the latest sign that Russia and
China are forming a "de-dollarization alliance" to diminish the economic heft of Washington's
sanctions powers, and its de facto control of SWIFT, the primary inter-bank messaging service
via which banks move money from country to country.
The shift is happening much more quickly than the US probably expected. As recently as 2015,
more than 90% of bilateral trade between China and Russia was conducted in dollars.
Alexey Maslov, director of the Institute of Far Eastern Studies at the Russian Academy of
Sciences, told the Nikkei Asian Review that the Russia-China "dedollarization" was
approaching a "breakthrough moment" that could elevate their relationship to a de facto
alliance.
"The collaboration between Russia and China in the financial sphere tells us that they are
finally finding the parameters for a new alliance with each other," he said. "Many expected
that this would be a military alliance or a trading alliance, but now the alliance is moving
more in the banking and financial direction, and that is what can guarantee independence for
both countries."
Dedollarization has been a priority for Russia and China since 2014, when they began
expanding economic cooperation following Moscow's estrangement from the West over its
annexation of Crimea. Replacing the dollar in trade settlements became a necessity to
sidestep U.S. sanctions against Russia.
"Any wire transaction that takes place in the world involving U.S. dollars is at some
point cleared through a U.S. bank," explained Dmitry Dolgin, ING Bank's chief economist for
Russia. "That means that the U.S. government can tell that bank to freeze certain
transactions."
The process gained further momentum after the Donald Trump administration imposed tariffs on
hundreds of billions of dollars worth of Chinese goods. Whereas previously Moscow had taken
the initiative on dedollarization, Beijing came to view it as critical, too.
"Only very recently did the Chinese state and major economic entities begin to feel that
they might end up in a similar situation as our Russian counterparts: being the target of the
sanctions and potentially even getting shut out of the SWIFT system," said Zhang Xin, a
research fellow at the Center for Russian Studies at Shanghai's East China Normal
University.
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.
The MMTers reading your article will take umbrage at your use of finance .
According to MMT, all government spending is financed by creating money. The
problem of where to get the money is a non-problem.
Once the government has spent money into existence, the real problem is how to distribute
the social opportunity cost of the spending, especially if the government has spent money to
allocate real resources away from the production of private goods and services.
MMT makes this distinction precisely because they (we?) want to eliminate the rich as a
veto point for spending. We don't need to get their money in order to spend it, and they
cannot (or we should not let them) essentially restrict spending by obstructing the
government's taxation of their wealth.
If we want to get the money belonging to the rich (and we do!), we want to do so because
we don't want them to have it, for whatever reason.
There's another reason to be explicit about the difference between financing and
distributing opportunity costs. If the rich have a lot of money that is not in circulation
(in the national economy), and the government taxing that money to "pay for" its spending
will do nothing to control inflation or distribute opportunity costs. Removing money that is
not circulating has no effect on prices. It seems theoretically possible to balance the
budget financially but still see price-level inflation.
I haven't done any specific investigation into the GND, but it seems uncontroversial that
it will involve allocating substantial real resources to the creation of a nonpolluting
power, transportation, and agricultural infrastructure. However, the effect on the real
economy and the price level seems uncontroversially complicated. Some of the real resources
will be previously unallocated, and we will simply be transferring demand from
welfare-supported to work-supported, with no effect on the price level. Some of the demand
created will indirectly cause an increase in private production, putting unused industrial
capacity to work; the increase in circulating money will cause a corresponding increase in
real private production, and again have no net effect on the price level. And some of the
real resources will indeed be transferred from private production with no corresponding
offset; taxes, "enforced" borrowing, and other monetary interventions will be needed to keep
price inflation manageable.
I don't know of (and, like Lee A. Arnold above, would very much like to see) a model
showing what effect something like the GND would have on the real economy. Under
normal circumstances, the fiscal impact is a good proxy for the real impact. But
circumstances are far from normal, so think that the fiscal impact is no longer a valuable
proxy for modeling the real impact.
"The ultimate constraint on money creation is inflation. That hasn't been a problem lately
and (as I'll argue in more detail later) the world is in need of a fair bit of inflation,
probably at an annual rate of about 4 per cent for the foreseeable future. It's unclear how
much expansion of the monetary base would generate this outcome, while avoiding the risk of a
resurgence of inflation like that of the 1970s"
I don't agree that this is the problem: IMO the direct cause of [keynesian] inflation is
the wage-price spiral, and not money creation per se (this also implies a problem, which is
that if we want an high level of employment because we want an higer bargaining power for
workers we can't really avoid wage-price spirals and therefore inflation).
Money creation by itself creates wealth, not income, and the kind of economic policies we
had in recent decades caused an increase in the wealth/income ratio (or in other words the
creation of a lot of fictitious capital) more than inflation.
So the real problem of "money creation" today is that it generates financial bubbles, rather
than inflation.
The difference between money printing and government debt, from this point of view, is just
that money is a 0% interest financial asset, whereas bonds bear at least some interest, so
money creation pushes the general interest rate down more than bond creation, but this again
is a consequence of the increase of the wealth/income ratio (since more wealth extracts
profits from the same quantity of income).
"Substantial reductions in private consumption and investment will be needed to make room
for the required public expenditure, and that can only be achieved through a combination of
taxation and debt."
In my view the problem is that taxation is needed to avoid bubbles, and therefore what we
need is to tax income from wealth and wealth itself (in order to push down the wealth/income
ratio).
To put it in more familiar keynesian terms, the problem is that the ex-ante saving rate is
too high, so that currently we need an increase in debt levels (bubbles) to ricycle ex-ante
savings into consumption; we need taxation to push down the ex-ante saving rate.
But, the problem is, is it possible to have a capitalist economy running without economic
crises while the wealth/income ratio goes down (which means that a lot of people see their
relative wealth go down)?
IMO this is really difficult, and also explains the political problem for policieswhose
purpose is to push down the wealth/income ratio, since these policies look like just some way
to be mean against wealth owners, without an immediate economic reason, and when the bubble
pops everyone blames the banks and the financial sector, not the excessively high ex-ante
saving rate, that is instead perceived as a virtue.
Recent quantitative easing of only 2% of GDP doesn't provide much of a bound on how much
can be tolerated without causing too much inflation. Inflation is still up against the zero
lower bound, and it seems plausible that we could get more than a factor of two more money
creation. Which does get us into the green new deal range.
@1 The Green part is (comparatively) easy and low cost. It's the New Deal (free college
tuition, Job Guarantee, single-payer health etc) that will require a bit transfer of
resources.
@6 Transfers of real resources or financial resources? Single-payer requires an expansion
of suppliers in the healthcare sector to meet the uncovered demand, and those suppliers will
be new taxpayers. College learning will be going more on-line, a tendency accelerated by this
pandemic and anticipating the next pandemic, so we need, not many more buildings, but more
professors, but they too will be new taxpayers. The jobs guarantee could be structured to
generate sector expansions, not merely makework. So couldn't all of these eventuate in
expanded sectors, ergo more taxes? Government investment at rock-bottom interest rates?
Only too much is enough, we want to print and spend enough to change expectations.
Currently, the dollar is the reserve currency I think largely for "safe haven" reasons,
i.e. the oligarchs who have all the assets believe the US will be the last place to inflate,
devalue, or elect an expropriating left-wing gov't.
After 40+ years of capital share gains and worker immiseration in terms of real and social
wages and labour solidarity, and assuming we have under President S Kelton control only of
printing and spending but no ability to raise progressive redistributive taxes how much MMT
financed spending will it take to have the average worker believe that her real wages, social
wages, standard of living, opportunities etc will improve relative to capital and the rich
for the next forty years? And have the oligarchs also believe it?
That's how much.
Alan White 07.19.20 at 1:21 am (no link)
John, what say you about US/global military spending, which if cut and reallocated in the
low double digits could transform society? Do you think it's just politically untouchable? If
the US cut its military budget by say 25% it would still be formidable, especially given its
nuclear deterrent. For the life of me I can never understand why military budgets are
sacrosanct. Is it just WW2 and Cold War hangover? Couldn't the obvious effects of climate
change and the fragility of the economy subject to natural threats like the pandemic change
attitudes about overfunding the military (like the debacle of the F-35 program)?
@Tim Worstall: The political poles shifted, but less than you might think. Southern pols
were overwhelmingly opposed, and nearly all of them were D (the entire old Confederacy had
only 11 R Reps and only 1 R Senator). Northern pols, including Dirksen, were overwhelmingly
in favor, and they were split between the two parties. But if you break it down by party
and region, a larger percentage of Ds than Rs voted for the bill within each region.
https://www.theguardian.com/commentisfree/2013/aug/28/republicans-party-of-civil-rights
An interesting example of Simpson's paradox.
I don't know about the Democratic Party, but there was an important shift in the
Republican Party: the thing is, that shift took place in the nineteenth century, not the
twentieth. At the end of the Civil War, the Republican Party really was the party of civil
rights, with champions of equality prominent within it; after the end of the Reconstruction
this ceased to be true. Of course the Republican Party has changed further since then,
because everything changes; but it hasn't changed as rapidly since the late nineteenth
century as it did after the Civil War.
Alan White @13 Military spending is about 3.4 per cent of US GDP, compared to 2 per cent
or less most places. So that's a significant and unproductive use of resources that could be
redirected to better effect. But the income of the top 1 per cent is around 20 per cent of
total income. If that was cut in half, there would be little or no reduction in the
productive services supplied by this group. If you want big change, that's where you need to
look.
I think some of the reluctance to cut military spending in the US is the extent to which
it acts as a politically unassailable source of fiscal stimulus and "welfare" in a country
where such things are otherwise anathema. Well, that and all of the grift it represents for
the donor class.
As Joe Biden tries to split the difference between the midwestern swing-state voters and the
Sanders faithful,
he's released an economic plan - a plan that bears the imprimatur of his one-time foe
Bernie Sanders - that, in its attempt to be everything to every one, effectively promises
everything to every one.
Buy American. Green New Deal. Corporate tax hikes. Trillions of dollars spent on
infrastructure to install the latest eco-nonsense with money that should be going to roads,
bridges, rails and airports. Docks and highways. Things people actually need and use. And who
knows? Depending on his running mate, maybe we'll get a massive student-debt jubilee, too. All
on the federal government's tab.
Now that MMT has gone from fringe idea to mainstream, making Stephanie Kelton, a
cryptomarxist who believes that the link between value and money can be completely severed, so
long as we tax the wealthiest among us enough to keep inflation low. It doesn't take a genius
to suspect that an 'economic theory' grounded in the idea that governments can take on
unlimited amounts of debt and never stick anybody with the tab sounds absurd - even
dangerous.
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We say dangerous because Kelton's greatest sin is offering pandering politicians more cover
to encourage their spendthrift ways. During a recent interview with Macro Hive, former Central
Bank of India Governor and University of Chicago Professor Raghuram Rajan delivered a succinct
and insightful explanation of why MMT is so dangerous.
"We talked about sustainability and one of the big topics in markets at least is this
whole idea of QE MMT infinity, the ability of sovereigns to borrow. Now in developed
countries, they have historical capital they've built up and credibility," Rajan's
interviewer began. "But you're starting to also see this idea...you're starting to see more
emerging market countries experiment with it, including Indonesia and several others."
But at the same time "yields are very low, and if you look at emerging market spreads,
they're very low...so markets are telling you that they aren't worried. Yet we know debt levels
are high, and there's more talk in debt markets of QE and MMT."
Does the fact that markets seem content with the status quo (at least for now) validate
Kelton's argument?
Of course not, Rajan explained. Because while the complexities of the global financial
system, and the dollar's role within it, have allowed the Fed to spearhead this great monetary,
as the veteran central banker explained, there's no such thing as a free lunch.
"We know that markets can be complacent until a certain point and then they turn on a
time. We are at this point in a benign phase supported by an enormous amount of central bank
liquidity emanating from the primary reserve currencies, the euro area, the US Fed and to
some extent the Bank of Japan and the Bank of England."
"But we must also recognize is that there are no free lunches. If there's one statement
you want to keep to pound into the head of every policy maker, it's that there are no free
lunches. If you borrow today, there is a presumption that it will be repaired at some point,
so you are in a sense taking away resources from somebody else in the future."
" Now it may be a generation or two down the line will be on the hook for this ...whether
they can pass it on to their children is an open question...but you're definitely taking away
their ability to borrow by borrowing today."
.While burdening future generations doesn't seem to come up much in cryptomarxist essays
about the moral imperative of expansive fiscal spending - some have gone so far as to argue
that the federal government has a moral obligation to forgive student debt - Rajan acknowledges
that the idea is "seductive" for all the wrong reasons.
"So the idea that there are free lunches...which certainly is what the lay person takes
away from MMT...is very sort of attractive, seductive - but it's absolute nonsense."
If that's the message that's going to be communicated, then that's wrong.
Asked to elaborate, he continued...
"There are times when you can spend a little bit more, but you are still making a trade off
and evaluating this trade off well...I think that's the right thing to do. If that's the
message from MMT, then I'm fine with that. There are periods where you have more leeway."
"The message can't be 'Don't Worry, Be Happy' it has to be 'yes take advantage of periods
when you have a little more spending capacity but use it wisely, because there's no such thing
as a free lunch and you will have to repay it at some point... that's what any sensible
economic theory will tell you, and I think that's what we understand now."
"When banks aren't lending, when inflation is low, it is possible for the central bank to
expand its balance sheet somewhat ...and finance more activities that the government wants to
undertake. That doesn't mean it's free debt it's equivalent to debt issued by the government -
think of the central bank issuing debt as the same as the government issuing debt: it's the
consolidated balance sheet you're looking at."
"Somebody is responsible for payment, it's either the central bank or the government."
"At low interest rates it doesn't really matter who it is, but as inflation picks ups it
does matter a little more who it is because the central bank often is financing itself with
effectively forced loans from the banking sector, and there's a limit to how much the banking
sector is willing to do that, especially as economic activity picks up."
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"So my sense is yes there is some room now but it doesn't mean the debt level doesn't matter
and it doesn't mean that we should just keep spending without thought of who's going to repay.
And I think the big philosophical issues are how much are you going to bail out companies...why
should Joe Schmoe...why should his taxes go to bail out a capital owner? After all, neither of
them saw the pandemic coming...neither is responsible for the pandemic...so why should one bail
out the property rights of another?"
"It strikes me these guys who want to open up the government wallet and spend to protect
everybody from the consequences of the pandemic don't realize that there's one person who's
bearing the hit: it may not be you, but it might be your children."
"And the question is: Why do they have to pay when they have no part in this?"
Remember: As Rajan explains, we must recognize that our resources are limited and use them
wisely. Keep that in mind when Democratic politicians are trying to spend trillions of dollars
of public money to outfit private buildings with solar panels or whatever 'Green New Deal'
infrastructure travesty AOC & Co come up with.
The Fed is just following the Congressional mandate of supporting the people who fund our
political system.
It should be clear that the stock market doesn't care about Main Street when you see it
still going up with massive levels of unemployment.
MMT states that the Fed can create these funds that are handed out to business by the
trillions but that is not what MMT 'policy' would want.
Most MMT people are actually against handouts to people in the form of a basic guaranteed
income.
A major cornerstone of MMT policy though is a Job Guarantee. In times like these they
would very much like to see employment supported by these government funds. Not only the
basic job pool of a minimum wage job but also supporting more highly paid skilled employment
such as supervising infrastructure projects etc.
MMT is more concerned with resources than money per se. It doesn't help to have money if
people aren't making stuff, providing food and services etc.
Some will know who Hyman Minsky was, some won't. Hudson gives him the primary credit for
providing the foundation for Modern Monetary Theory, and he gets praise from Keen, Wolfe and
many others too. On the occasion of his 100th birthday, here's a
long essay that seeks the following:
"But the question still stands: Was Minsky in fact a communist? Of course not. But, a
century after his birth, it is useful to clarify often neglected aspects of his intellectual
biography."
Since Minsky's referenced so often by Hudson particularly, I think this piece will be
helpful for those of us following the serious economic issues now in play. I'd reserve an
hour for a critical read.
MMT is brilliant and it's really embarrassing that it took The Deadliest Pandemic™ for
some folks to come round to it. We all collectively print an extra bit of money - and give it
to each other!
There are historic examples documented of successful applications of the concept, look no
further than to the earnest witness of Baron Munchausen pulling himself out of a swamp by his
own hair. https://en.wikipedia.org/wiki/Baron_Munchausen
Hudson also has another video posted to
his site , "An interview on the Radical Imagination: Imagining How Financial Parasites
and Debt Bondage Are Destroying Us," which is based on his book Killing the Host .
It's a recent video interview that's @50 minutes long prefaced by the Occupy Wall Street
Anthem and introduction.
One aspect of MMT that must be made clear is it advocates the use of public banking or the
Treasury to pump capital in the form of money into the productive economy , not the
parasitic economy the Fed supports--the difference is huge and vital. For MMT to succeed
within the Outlaw US Empire, the Fed must be liquidated. For more, please read the essay I
linked to @35.
Musburger @ 3 : "What do you folks think about MMT?"
Re-inflation of a depressed economy can be achieved by government spending into:
public investment
employment
income transfers
income support
labour
tangible capital
infrastructure.
This is "good" MMT.
"Bad" MMT, or fake MMT, is government spending into WallStreet, handouts to:
the banks
large corporations
speculators
bondholders.
The March 2020 CAREs Act is bad MMT as was the 2008 bailout. This one is same as that one
but "on steroids."
Both bailouts further empower(ed):
rentiers (the landlord class),
monopolies,
the financial creditor class
and cast most of the rest of the US population into reduced circumstances, poverty and/or
debt servitude. They burden the working economy with overhead and debt that cannot be paid.
Bad MMT.
While the MMT school has a healthy diversity within it, USG applications have flipped the
theory on its head, says Hudson. See below for link.
(Remember Cheney's, "We are all Keynesians now"? )
Worse, Bad MMT does more than simply bailout the top 1%. It also increases the parasitic
power of financialization on the real economy. As we have repeatedly seen, now most
dramatically, the financial sector is incapable of planning for anything other than its own
fictional valorization.
Libertarians' freedom from government dogma excoriates against centralized planning and
yet, ironically, the end result of their "government is bad" path forced upon us in USA led
directly to central 'planning' by default -- by parasitic-on-the real-economy privatized
finance sector, a form of fascism not democracy or liberty.
USA'ns public health crisis occurs as states, which are required by law to not run
deficits, face huge costs that will force more austerity on their populations. More callous,
they are forced to compete against each other as they purchase essential equipment and
technology (from for-profit privateers) to deal with the highly infectious novel virus, and
the fed indemnifies the privateer mask makers!!!
What is the root of inequality today? Debt and the monopolization of real estate.
What are solutions?
Wipe out and roll back debt overhead on production and consumption.
This is "good" MMT.
Bad MMT furthers the debt burden on society, concentrates monopolization and cements in
central planning by parasitic private finance sector.
"... The budget deficit is simply a ruse to make you believe that government funding is limited when in reality they create money on demand with a few keystrokes. ..."
"... Thus there is always money for corporate welfare, the military, tax relief and benefits for the oligarchy but never money for health care, education, infrastructure, etc. ..."
In the broadest sense the US deficit is a measure of how much money the govt has created (not entirely accurate as the creation
of money - really debt - has been largely outsourced to private banks). If the national debt was 'paid off' It would suck all
the money out of society and the economy would collapse.
The Fed doesn't need taxes as revenue as it just creates whatever money it needs. The budget deficit is simply a ruse to
make you believe that government funding is limited when in reality they create money on demand with a few keystrokes.
Thus there is always money for corporate welfare, the military, tax relief and benefits for the oligarchy but never money
for health care, education, infrastructure, etc. The deficit is 1/2 of a balance sheet, the deficit on the govt side is balanced
by a surplus (money in circulation) in the economy. Note that states are revenue constrained and depend on taxes and federal outlays
to operate as they cannot create their own money on demand.
But what about inflation? Too much money in circulation lowers its value. Taxes are the real federal economic regulatory mechanism.
When there is inflation, higher taxes directly remove money from circulation. The disinformation campaign is that interest rates
control inflation, which has a) repeatedly been demonstrated false and b) is simply another system of rewards for the banking
cartel.
The best metaphor is a sink. The faucet is the creation of money, the basin is the economy, and the drain is taxes. When the
sink starts to overflow (inflation) the solution is to open up the drain (raise taxes).
Note also that this is for a sovereign economy, one that is controlled by the government. The EU has effectively destroyed
all the sovereign economies in Europe with its central bank. Thus Greece, Italy, Spain, etc. have no control of their own economies
and as such are unable to economically regulate themselves and subject to foreign predatory forces.
[.]
While it is still popular to claim that the United States has never defaulted on its debt,
this is a myth. The US has been forced to default a couple of times throughout history, the
last of which being when Richard Nixon&rsquo closed the gold window. By cutting the
ability of foreign governments to redeem US dollars for gold, America was allowed to pay
back past debt with devalued fiat money. This form of default has long been a popular
option for governments with debt obligations it can't or won't honor.
Of course, as Peter Klein wrote last week, even Trump's suggestion of the US
restructuring its debt isn't the doomsday scenario CNBC talking heads have made it out to
be, noting that:
[T]he idea that the US can never restructure or even repudiate the national debt -- that
US Treasuries must always be treated as a unique and magical "risk-free" investment -- is
wildly speculative at best, preposterous at worst.
Murray Rothbard himself advocated for outright repudiating the national debt,
arguing:
The government is an organization, so why not liquidate the assets of that organization
and pay the creditors (the government bondholders) a pro-rata share of those assets? This
solution would cost the taxpayer nothing, and, once again, relieve him of $200 billion in
annual interest payments. The United States government should be forced to disgorge its
assets, sell them at auction, and then pay off the creditors accordingly.
Trump himself has even touched on the possibility of selling of assets held by the
Federal government as a form of debt reduction.[.]
c1ue dear friend, the current level of US debt is unsustainable. Never mind the happy
cheerleaders promoting mighty U.S. is the wealthiest nation on earth. Have no fear our dollar
is good as gold, backed by the full faith and credit of Uncle Sam.
Here is a brief history of U.S.defaults starting with year 1790- LINK
"... 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.
Hal,
Could you please comment on Dylan Ratigan's comment about $128
Billion being automatically pumped into the banker's hands without
public comment by Dodd Frank?
Is it the same thing as a repo? I'm a non-economist, just a
simple fellow, that's getting the hang of this con game.
I watched the Ratigan video on your recommendation and agree
it is a fundamental retelling that pulls the elements together
better than anything I'd previously seen. And I completely
agree with his assessment that this was the biggest theft in
mankind's history.
The Fed's highest stated purpose is "the integrity and
stability of the banking system". Problem is, that mission
justifies anything and everything beneath it. They are not in
the business of ensuring a bank obeys the law, and if they
break the law, even the "business law" of making terrible
business decisions, all the Fed thinks they are required to do
is make them whole.
So you have a radically anti-capitalist structure at the
tippy top of a supposedly "capitalist" system. And that's even
before you even get to any discussion of secrecy, subterfuge or
malfeasance.
Why are we not allowed to know who the recipients were of
the *$21 trillion* (GAO number) of free Fed money after 2009?
All we can do is follow the bread crumbs: we do know, for
example, that 2/3rds of those dollars went to European
institutions, including non-bank corporations. Huh? Q: That
benefits the Main St U.S. economy how, again? A: It doesn't.
This means you can pay no attention whatsoever to the ancillary
Fed "missions" around U.S. employment and economic growth.
The $128B Ratigan mentions re Dodd-Frank is just a trickle
in the tsunami of funds reaching bank coffers. Free money of
course is funding massive share buybacks, the *only* cause of
stock "rises" since 2009, but what completely infuriates me is
what banks are doing around buybacks. It's one thing if
buybacks benefit *all* shareholders, but the latest trick (esp
by Jamie Dimon) is to take free money, buy back JPM shares,
*but those shares are only given to Jamie himself and his top
managers*.
(Of course until 1982 companies borrowing money to buy back
their own shares was completely illegal since it's effect is
stock price manipulation).
Repo is just a shorter term version of all of these other
diverted flows. Completely under all radars, with no
Congressional hearings or public scrutiny or oversight.
I always love to be wrong because it means I get to
be right again. I'm not a funding market expert either,
but I hope you're just correctlng Ratigan's views on
the $128B, not the entirety of my ramble? Thx Yves
I don't write about the repo mess because the commentary on it
is generally terrible. This is not "monetizing debt". This is
"providing liquidity to the money markets" which is what the Fed is
supposed to do!!!
The Fed got itself into a corner with super low rates and QE. It
also stupidly decided to manage short term rates via interest on
reserves. Prior to 2008, the Fed intervened in the repo markets
every bloody day to hit the target rate and no one cared.
The Fed drained liquidity too fast. It's been caught out and has
had to go into reverse big time. Its refusal to admit that is why
everyone is overreacting to the liquidity injections.
Yes, MMT proponents oppose a UBI (or BGI). They want a Job
Guarantee. They argue that setting a floor on the price of labor is a
much more important way to regulate the economy than diddling with
interest rates, plus it increases the productive capacity of an
economy, which increases prosperity.
The will accept a UBI that is lower than a JG as a sort of
disability income.
Thank you for that link. It certainly sounds like real life, and they say their
models predict inequality in various countries to within 1%. Any single agent in this economy could have become the oligarch -- in fact, all
had equal odds if they began with equal wealth. In that sense, there was equality
of opportunity. But only one of them did become the oligarch, and all the others
saw their average wealth decrease toward zero as they conducted more and more
transactions. To add insult to injury, the lower someone's wealth ranking, the
faster the decrease. once we have some variance in wealth, however minute, succeeding transactions
will systematically move a "trickle" of wealth upward from poorer agents to richer
ones, amplifying inequality until the system reaches a state of oligarchy. If the
economy is unequal to begin with, the poorest agent's wealth will probably decrease
the fastest. Where does it go? It must go to wealthier agents because there are no
poorer agents. Things are not much better for the second-poorest agent. In the long
run, all participants in this economy except for the very richest one will see
their wealth decay exponentially.
the presence of symmetry breaking puts paid to arguments for the justness of wealth
inequality that appeal to "voluntariness" -- the notion that individuals bear all
responsibility for their economic outcomes simply because they enter into
transactions voluntarily -- or to the idea that wealth accumulation must be the
result of cleverness and industriousness. It is true that an individual's location
on the wealth spectrum correlates to some extent with such attributes, but the
overall shape of that spectrum can be explained to better than 0.33 percent by a
statistical model that completely ignores them.
It will be interesting to see how China responds in reality to the naked hegemony of the US
law just passed and signed by Trump about HK. Is China ready to stand up to the bully of dying
empire or be cowed into slicing their response even thinner and thinner but not saying NO
MORE!
We do live in interesting times.
Transferring my post to this thread, about the decline of US fertility rates:
As we all know, constant population growth is essential for the survival of
capitalism, since it is one of the main factors that slow down its tendency of the profit
rate to fall. The article seems to agree with this:
Birthrates have been trending downward overall since 2005, sparking concern about
potential economic and cultural ramifications. Keeping the number of births within a
certain range, called the "replacement level," ensures the population level will remain
stable. A low birthrate runs the risk that the country will not be able to replace the
workforce and have enough tax revenue, while a high birthrate can cause shortages of
resources.
Another related article approaches the issue from another angle:
Virginia Commonwealth University professor Dr. Steven H. Woolf and Eastern Virginia
Medical School student Heidi Schoomaker analyzed life expectancy data for the years
1959-2016 and cause-specific mortality rates for 1999-2017. The data shows that the
decline in life expectancy is not a statistical anomaly, but the outcome of a
decades-long assault on the working class.
So, this is not an "anomaly". If it isn't, then there's an underlying cause, which the
same article hypothetizes:
Obamacare was part of a deliberate drive by the ruling class to lower the life
expectancy of working people. As far as the strategists of American capitalism are
concerned, the longer the lifespan of elderly and retired workers, who no longer
produce profits for the corporations but require government-subsidized medical care to
deal with health issues, the greater the sums that are diverted from the coffers of the
rich and the military machine.
A 2013 paper by Anthony H. Cordesman of the Washington think tank Center for
Strategic and International Studies (CSIS) frankly presented the increasing longevity
of ordinary Americans as an immense crisis for US imperialism. "The US does not face
any foreign threat as serious as its failure to come to grips with the rise in the cost
of federal entitlement spending," Cordesman wrote, saying the debt crisis was driven
"almost exclusively by the rise in federal spending on major health care programs,
Social Security, and the cost of net interest on the debt."
Meanwhile, conditions for the rich have never been better. This is reflected in the
growing life expectancy gap between the rich and the poor. The richest one percent of
men live 14 years longer than the poorest one percent, and the richest one percent of
women 10 years longer than the poorest.
I wasn't aware of this CSIS report. If true, then this is indeed a very interesting
hypothesis.
--//--
The thing I don't understand in the WSWS article linked above is this:
The first nodal point, in the early 1980s, corresponds to the initiation of the social
counterrevolution by the administration of Ronald Reagan, which involved union busting,
strikebreaking, wage-cutting and plant closings on a nationwide scale, combined with cuts
in education, health care and other social programs.
So, Ronald Reagan did a "counterrevolution". That means there was a revolution before
him, which I suppose is the post-war "Keynesian consensus", the "golden age of
capitalism" of 1945-1975.
I really can't understand the logic behind the Trotskyists: they condemn the USSR and
China as "stalinists", i.e. as counterrevolutionaries. But Harry Truman was a
revolutionary? Dwight Eisenhower was a revolutionary? Clement Attlee was a revolutionary?
De Gaulle was revolutionary?
What kind of nonsense is this?
What is most funny is that these same Trotskyists from the same WSWS website use the
rise of labor strikes in China to argue China is a capitalist empire -- but uses the same
strikes as evidence there was a revolution in the West during the post-war (by negative,
since Reagan's "counterrevolution" was characterized by "union busting, strikebreaking,
wage-cutting and plant closings on a nationwide scale, combined with cuts in education,
health care and other social programs").
I think Trotskyism is having an identity crisis. They don't know if they are
essentially a movement whose objective is essentially to tarnish Stalin's image or if
they are closeted social-democrats. They forgot Trotsky fought for the revolution, not
personal vendetta.
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.
'Dr Doom' economist Nouriel Roubini in Bitcoin battle
3 July 2019
Outspoken economist Nouriel Roubini, nicknamed Dr Doom for his gloomy warnings, has caused a
stir with his latest attack on Bitcoin and its fellow cryptocurrencies.
Prof Roubini, who foresaw the financial crisis, says Bitcoin is "overhyped".
At a summit in Taiwan on Tuesday, he likened it to a "cesspool".
But his sparring partner at the event, who runs a cryptocurrency exchange, has angered the
professor by blocking the release of video of the event.
Arthur Hayes, the chief executive of the BitMex exchange, controls the rights to footage
of their debate, which took place during the Asia Blockchain Summit.
In a post on Twitter, Prof Roubini said he "destroyed" Mr Hayes in the debate and called him
a "coward" for not making it available...
Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated
offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail
investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial
regulators and law-enforcement agencies remain asleep at the wheel.
NEW YORK – There is a good reason why every civilized country in the world tightly
regulates its financial system. The 2008 global financial crisis, after all, was largely the
result of rolling back financial regulation. Crooks, criminals, and grifters are a fact of
life, and no financial system can serve its proper purpose unless investors are protected
from them...
*
[Go get 'em Doctor Doom. Does he know that this is a feature and not a bug?]
Wild traders are always here, as Doctor Doom points out. They are there when we use rocks,
when we used sea shells, when we used paper and now crypto, the wild traders remain.
Regulate as much as Dr. Doom thinks regulators should regulate. But do not deploy
government bean counters looking for stone age rocks under our matress, we are using digital
crypto instead.
Just yesterday Daimler announce a completely independent hard wallet for crypto use, in a
car. They are giving a car all the freedom to hold bearer assets in crypto form. The car
needs this to automate much of the car industry functions from gas taxes to used car sales.
So tell Dr. Doom to complain about car industry violating financial regulations.
The crypto casino was created so that speculators could profit from the money laundering
industry that provides investor liquidity to the back end of the human and illegal narcotics
trafficking industry. It was built on the anti-bank angst that emerged after the financial
crisis. It gives organized crime the legitimacy that they need to spend their enormous wealth
that is generated by so many ruined lives. Fools have always run with dicks. They just do not
know any better.
The crypto casinos were created to automate trading. Crypto insures that a bot trading obeys
the prior contract, and thus great simplifies transactions everywhere, from the Fed down to
you and me with significant savings, at least 1% increase in productivity.
We have a technology change happening. You get the wildcatters, they don't scare me, so
Dr. Doom is likely missing something here. More than likely he is short sided, looking at
this one thing and ignoring the fact that this is our 7th or 8th time we have changed money
tech. How did we do it last time? Wildcatters, hysterics, and failure to read history. Worked
fine then.
Crypto currencies are not money. They are just private scrip. Only demand give them exchange
value and only crooks and speculators have any demand for scrip born of the daughters of
ENIAC. To believe otherwise is to be a sovereign fool.
The Empire, in all its wisdom, has declared some countries as illegal, unworthy of using the
banking system. And then, sanctioned anyone who does business with those illegals. So, it is
illegals all the way down, in our ever-expanding WOE (War On Everyone).
This has generated interest in cryptocurrencies from some of those crooks and criminals
(aka "other countries").
You are too focused on the technology. Banks are not there just to conduct transactions, they
are there to track them and report to the government. They are required to know something
about the people behind the transactions.
Joe appears to miss the significance of underlying technology as much as anything else. Joe's
focus is directed somewhere inside his own mind that is separated from any reality that I am
aware of.
No, we are using cryptography everywhere, from cars to toys to wallets. Dr. Doom fails to see
this happening, happening as sure as we switched from metal to paper. Dr. Doom wants more
regulation of shadow banking, fine, why not say that out loud?
His ability to regulated shadow bankers has nothing to do with technology. Crypto is no
different than the embedded water mark on paper, same technology. Both regulators and
regulated have to adapt.
He has created a red Herring, a useless talking point to fool the delusionals, give them
some worthless talking point.
"Crypto insures that a bot trading obeys the prior contract, and thus great simplifies
transactions everywhere, from the Fed down to you and me with significant savings, at least
1% increase in productivity."
Huh?
How does crypto ensure that my wages producing a thousand meals as a food worker will
allow me to buy a thousand meals in the future? What I've seen is crypto turning a thousand
meals produced into a contracct that will buy two thousand one day, but only 500 the next
day.
Crypto really just wastes a bunch of computing power to solve a problem that only exists if
you are trying to hide illegal transactions from governments. Crypto currency is a solution
in search of problem unless you are engaged in laundering money, selling large quantities of
drugs/guns/people/animals/other illegal products, or buying same. Governments should make it
prosecutable wire fraud to use them.
Thanks. I referred to Judy Shelton's book for the reasons to support the gold standard. But,
I can list some of them here:
1) The gold standard was the core mechanism of Bretton-Woods that worked so well at keeping
world prices stable, promoting growth, and tying the money supply to the real economy.
2) Free market currencies have led to speculation taking over from market exchange rates to
support trade. Currency trading is ~100x the underlying trade in goods and services.
3) The exchange rates of currencies fluctuate far greater under a free market fiat currency
system than under the gold standard
4) Fiat currencies are always subject to political intervention.
5) gold can't be faked or conjured into existence.
6) The gold supply grows about 2%/year, which has been stable for many decades.
7) gold, as a real commodity, ties money to the real economy rather than the financial
markets.
2. This has what to do with the gold standard? There was lots of currency trading under
the gold standard. This is primarily a result of algorithmic trading.
3. True - but this is good. Why would this be bad?
4. This is why you have an independent central bank.
5. No but gold can also be hoarded. Please see Krugman's Baby Sitter Klatch article.
6. This is utterly absurd. Gold production stops when the price is too low, ramps up when
it is high.
7. How is gold a commodity? 99% of the gold in the world sits in a basement being guarded
by governments. It's only value is in making shiny things and the current supply is wildly
more than there is demand for said shiny things. Ohhhh, Shiny! does not make something a
commodity. If there were any large industrial applications for the metal maybe - but there
really isn't.
Thanks for the good points. Some clarification:
1) By world prices this means the exchange rate. Under Bretton-Woods the price of gold was
set at $35/oz and other currencies were pegged to the dollar.
2) If the purpose of currency exchange is to facilitate trade, then this is the tail wagging
the dog, and indicates a currency trading system that has become disconnected from its core
purpose.
3) Price stability is a core goal of money. So that tomorrow I will be confident of what that
money will be worth.
4) Independence is not disinterest. Central banking has shown itself to sway with political
winds such as the German central bank in the 1990s, and the US central bank under Nixon.
5) Hoarding of gold, in the sense of cornering the market, is essentially impossible because
of the wide distribution of gold in the world and because moving to gold in general would
indicate a loss of confidence in a currency, which is good. (as long as we're saying good v.
bad).
6) True. production is not that stable, but on average it is fairly constant. See Fig 1. :
https://pubs.usgs.gov/of/2002/of02-303/OFR_02-303.pdf
7) Not true. Again see the USGS publication. Most gold goes into jewelry, and so is held by
the public. Much of the other gold goes into industry, dental
The reason to prefer gold, besides the above, is that most money created since 1971 has
gone into the financial sector rather than the real economy. Thus, workers don't get a real
raise, but financial instruments just keep going up with no limit.
David,
tell me now, how did George Soros get so rich, and why was the Bretton Woods system
abandoned?
5. Shows that you don't understand the issue. Hoarding doesn't have to corner the market
to be an issue, it's just that rewards people who are creating a problem and so can create a
vicious circle.
P.S. 2% is way too low. Money needs to expand at least enough to match nominal GDP - and that
assumes that the rate of savings and circulation velocity are constant. And if prices are
absolutely constant how will people ever pay off debts. People have to pay back the nominal
capital of a loan. If income/head in nominal terms is relatively constant (in some countries
at some times there will be actual deflation) then compared to the current situation in
situations of absolute price stability delinquency rates will rise. You quote the 50/60s as a
golden - what were inflation rates like then (answer >2% with real growth of >5% so
>7% nominal GDP growth)?
Gold is not a great system for a money supply, but its the best one we have so far. Other
commodities could be used as the means of value and settlement, but they are far less
convenient and have other properties that are not as good as gold.
Perhaps a global crypto currency will take the place of gold in the future? It would need
to be of a fixed amount that does not change over time, and secure against hacking. So, maybe
not.
[Great answer inasmuch as changing the question is always the best answer when one has no
answer to some obvious questions.
OTOH, the US dollar based global reserve currency is a problem, although mostly for the US
in just general economic terms, but a problem for the entire world in terms of limiting the
use of carbon based fuels. Cheap oil is good for the dollar hegemon, but bad for supporting
continued human existence on Earth.
Internationally managed reserve currency and FOREX institutional arrangements along the
lines of Keynes's Bancor might be a better idea. Crypto currency is an invitation to black
market traffickers and hackers. Primary support is from drug and sex trafficking. So, what is
not to love?
The hard money crew in the US defeated Keynes's Bancor proposal at the Bretton Woods
conference and basically all of the problems that the gold bugs complain about today have
been the results of following their preferred policy path after WWII.]
How John Maynard Keynes' most radical idea could save the world
As the Second World War was drawing to a close, the economic experts of the Allies met in
a New Hampshire resort to try to hammer out an international monetary system that would help
prevent a recurrence of the Great Depression. The ensuing debate centered around two main
proposals, one from the British delegation and one from the American. John Maynard Keynes,
the greatest economist of the 20th century, presented the British case while Harry Dexter
White, one of FDR's key economic advisers, presented the American one.
Keynes lost on many key points. The result was the Bretton Woods system, named after the
small town in which the conference was held. As part of the agreement, it also created what
would later become the International Monetary Fund and the World Bank. That served as the
system of managing international trade and currencies for nearly three decades. Today the IMF
and World Bank survive, but Bretton Woods was broken in 1971 when Nixon suspended the
convertibility of the dollar into gold.
Yet most of the problems that spurred the creation of Bretton Woods have since returned in
only somewhat less dire form. It's worth returning to Keynes' original, much more ambitious
idea for an international institution to manage the flow of goods and money around the
globe.
The basic problem with international trade is that imbalances can develop: Some countries get
big export surpluses, while others necessarily develop big trade deficits (since the world
cannot be in surplus or deficit with itself). And because countries typically must borrow to
finance trade deficits, it's a quick and easy recipe for a crash in those countries when
their ability to take on more debt reaches its limit. It's not as bad for surplus countries,
since they will not have a debt crisis or a collapse in the value of their currency, but they
too will be hurt by the loss of export markets. This problem has haunted nations since well
before the Industrial Revolution.
Nations like Germany with a large export surplus often portray it as resulting from their
superior virtue and technical skill. But the fundamental reality of such a surplus is that it
requires someone to buy the exports. As Yanis Varoufakis points out in his new book, without
some sort of permanent mechanism to recycle that surplus back into deficit countries, the
result will be eventual disaster. It's precisely what caused the initial economic crisis in
Greece that is still ongoing.
Bretton Woods addressed this problem with a set of rather ad hoc measures. The dollar
would be pegged to a particular amount of gold, and semi-fixed exchange rates for other
currencies were to be fixed around that. In keeping with White's more orthodox economic
views, all trade imbalances were to be solved on the deficit side. There was no limit to the
surplus nations could build up (importantly, at the time the U.S. was a huge exporter), and
the IMF was tasked with shoring up countries having serious trade deficit problems by
enforcing austerity and tight money. (This would lead to repeated disaster for developing
countries.)
Keynes' idea, by contrast, was substantially more ambitious. He proposed an overarching
"International Clearing Union" that potentially every country in the world could join. It
would create a new reserve currency, the "bancor," that could only be used for settling
international accounts, and member nations would pay a membership quota in proportion to
their total trade. Countries in surplus would receive bancor credit, while those in deficit
would have a negative account.
The union was also explicitly aimed at facilitating increased trade overall (also unlike
Bretton Woods). And critically, it would incentivize nations to keep their trade balanced on
both sides -- surplus and deficit. Run too far into deficit, and a country would be required
to devalue to reduce imports. But run too far into surplus, and a country's currency would be
required to appreciate so as to increase imports. A bancor tax would also be levied at an
increasing rate on anyone with a large trade imbalance.
There's much more to the story, but the fundamental idea is fairly simple. As Keynes wrote in
his original proposal, the basic "principle is the necessary equality of credits and debits,
of assets and liabilities. If no credits can be removed outside the clearing system but only
transferred within it, the Union itself can never be in difficulties."
For the postwar generation, Bretton Woods worked tolerably well -- and it certainly was a
vast improvement on the prewar gold standard. But its mechanisms were far less legible, and
required constant good-faith efforts from various nations, particularly Germany and the U.S.,
to work properly. More importantly, it relied on large American surpluses to soak up the huge
aid that was being sent to Europe under the Marshall Plan, a goodly portion of which was used
to buy American-made exports. When the U.S. moved to deficit, the system broke down within
only a few years.
Keynes' plan, by contrast, would likely have had the flexibility to adapt to a massive 180
degree shift in the balance of trade. It is also far more transparent and comprehensible to
average people, perhaps disrupting the excessive pride of surplus countries to some extent.
And if it were to be created in the future, it would be under effective supervision from the
member states. The vast carnage inflicted by the unaccountable, supranational European
Central Bank is too stark to ignore.
It would undoubtedly take years and years to build and update Keynes proposal to where it
might be implemented. But the problems it is designed to address will always keep cropping
up. Perhaps after the eurozone implodes, the world will get another chance to do it
right.
*
[The rallying cry of the gold bugs is "Idiots of the world unite," which is very effective
given the considerable majority held by idiots in the electorates of republics and among
their controlling elites both public and private.]
Under Bretton-Woods no trade imbalances were possible because of the settlement mechanism in
gold. The deficit nations (that imported more than exported) would have to settle by
transferring gold out in the amount of the deficit. Thus, in effect selling the commodity of
gold for the excess imports. This all works well if the imbalances are periodically settled
by the gold transfers, which didn't happen as many countries simply held onto the currencies,
and if trade is balanced.
Balance of trade is the key to stable trade. All imbalances eventually come back into
balance. The question is: will this happen in a smooth orderly manner, like under
Bretton-Woods, or in a calamity where for example the dollar crashes?
"...This all works well if the imbalances are periodically settled by the gold transfers,
which didn't happen as many countries simply held onto the currencies, and if trade is
balanced..."
*
[You are getting warmer, but still no cigar and a whole lot of cart before the horse. What
happened under the original Bretton Woods agreement was that surplus traders held onto their
US dollar reserves while convertibility (more to silver than gold - which we hold) kept the
US dollar from becoming overvalued under the simultaneous pressures of what remained small US
trade deficits and growing foreign reserves of US dollars. This was not a gold standard per
se, but rather the establishment of the US dollar, the currency of the dominant global
economic power, as the global reserve currency for foreign held reserves and also the
dominant currency of international trade exchange. Trade remained relatively well balanced
because convertibility limited how overvalued the dollar could maintain itself under trade
deficits despite its broadly held status as the dominate global reserve currency.
The end of Bretton Woods US dollar convertibility saw growing US trade deficits with
simultaneous growth in US dollar denominated foreign reserves and an over-valued dollar which
just accelerated US trade deficits even further. Bigger US trade deficits just fed into even
larger USD foreign reserves. It was a vicious cycle of dollar over-valuation despite growing
US trade deficits because surplus partners had relatively secure means of holding large USD
reserves. The world's high demand for dollars was great for rentiers, arbitrage seekers, and
global corporations. Trading partners could hold USD reserves to keep their currencies
undervalued relative to the USD more successfully than with convertibility. OTOH, the US
gained cheap access to global oil reserves and also US multinational corporations gained
global price arbitrage advantages if they were willing to offshore much labor to countries
with currencies undervalued relative to the dollar or merely countries with lower standards
of living (i.e., real wages) and environmental protection standards for industrial
production. Winning all three together on the same US dollar capital flow was the global
price arbitrage trifecta. ]
The US could have had it both ways in the sense that it could have run budget deficits by
monetizing the dollar and causing inflation as it was starting to do in the late 1960s and
maintain the international exchange rate. The mechanism to do this is US tariffs. This would
have made imports to the US expensive and kept all those excess dollars from flowing
overseas. The rational is balance of trade. As long as the current account is balanced the
Bretton-Woods system would continue to function.
The US went all in on free trade and eliminating tariffs when it implemented the income tax
system to finance government operations spending in 1913. At the time the US dollar was
underpriced against most European currencies in FOREX, particularly the pound sterling, and
the US had a growing trade surplus which eventually contributed significantly to the
settlements crisis under the gold standard that was a major cause for precipitating the Great
Depression. Once that path was taken it became difficult to turn back since the wealthy build
their rentier and arbitrage systems upon the world that is rather than some world that might
be. Policy makers rely upon the stock of wealth both for campaign contributions and to raise
their miserable lives into something of elite significance because of who they hang out with
and in turn whose interests that they serve.
I understand it that if a frog had wings then it would not bump its ass every time that it
leaped.
The US consistently ran a trade surplus during the Bretton Woods period, but Bretton Woods
was based on US dollars. So the world was being drained of US dollars (or the rest of the
world of Gold). That is clearly not sustainable. There is a problem with unbalanced trade if
it is either direction. Under Bretton Woods there was no penalty for mercantilism. You just
need to know history to no that financial crises are nothing new and that a gold standard
didn't prevent them, but in fact exacerbated them. I don't where you get your ideas from, but
you should go back and read some history.
The real questions are:
1) During Bretton-Woods worker compensation grew with growth in productivity, but since the
withdrawal in 1971, worker compensation has been flat. Why? And how to re-mediate this?
2) Why has so much of GDP shifted to financial speculation and away from the productive
economy? And how to shift economic activity back to the productive sector?
3) Given our use of fiat currency, what limits the growth of the money supply in the
financial sector? That is, what prevents financial instruments that are disconnected from the
productive economy from creating an endless cycle of: new instruments drives new money to buy
them, rinse and repeat...
The second one in particular lays out the issue quite clearly. It literally forms an arrow
with the tip pointing to the divergent point where something major happened to create such a
stark and durable systematic change.
This is classical cargo cult thinking, these two things are correlated so one must have
caused the other. There were lots of things changed at that time, I was there, I followed the
debates (in which the world basically decided to follow some of what Milton Friedman said -
and ignored some other things that he said - like negative interest rates and that money
supply expansion should come mostly from expanding the central bank balance sheet - see also
Robert Waldmann's explanation that Lucas and Friedman are methodical opposites and yet both
belong to the "Chicago School"). You have to not only note a correlation, but also show the
mechanism and control for other factors. Get to it.
1. Other things happened at the same time (see tariffs, changes in laws related to unions,
containerization and also relaxation of capital controls and banking regulation). You went
from a world of relatively isolated economies (especially the US) to a world of tightly
integrated economies. Bretton Woods fall had almost nothing to do with it.
2. Washington consensus that budget deficits are bad and monetary policy (i.e. encouraging
private debt) are good. We need to expand the central bank balance sheet in line with nominal
GDP and reduce private indebtedness again.
True, but whatever the cause, to have such a sharp and clear divergence, one or more
significant changes had to happen in a short span of time. Do those things mentioned above
add up to enough of a cumulative durable change?
But it wasn't a SHARP divergence at all. I actually wish that Anne had done the chart in
terms of rates of change. Having it in terms of levels hides more than it shows. But think
about this - there was a reason that Bretton Woods was abandoned - it didn't happen in a
vacuum. Maybe you should ask why that happened.
And as commodities go gold has a number of advantages
Over say concrete blocks or diamonds
Lots of clever souls would like to use an exchange medium that
Wasn't subject to modern state financial casuistry
And usually they aren't overly focused on the existing
Unregulated market systems hitches and loops
and
Perversities
Cold mining costs have always tracked the monetary price of gold. Aka, the marginal price of
a new ounce is the monetary price.
To get the cost of mining goold down to $20 in the late 20s, food, housing prices had tlo
fall by slashing wages which cut demand for food forcing prices of food down by forcing wages
down, thus gold miners could eat enough food to mine an ounce of gold.
When FDR set the price government paid for gold to $35 dollars, the number of gold miners,
and gold ounces mined doubled in less than a year, and stayed up until government prohibited
gold mining to reallocate labor to the war industrial production.
What we don't see is the actual marginal costs of gold mining in either the short or long
run. The global gold mining cartel keeps all the data secret, eg, South Africa, Russia, which
produce about half the gold aannually. They can easily bankrupt a big corporation investing
in a new big mineing and refining operation by releasing some of their massive gold hoard at
prices just below the corporation marginal cost plus debt service. The big driver of gold
demand is Asia and Muslim consumption for gold hoops and rings so people, especially women
have their wealth with them at all times.
MULP made an assertion a couple of days ago that there were far more empty beds in the
country now that several decades ago. I questioned the assertion, since there was no
supporting data, but now I am finding the data in Census tracts and know MULP was correct.
Family and household sizes have been declining for decades.
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.
Regarding money, and the difference between private and public money.
As with all things public and private, public money is not required to make a profit, but
in contrast, private money has no other reason to exist than to make a profit.
What we call money in the US, is privately owned. It is actually a promissory note, the
signifier of a loan made to those who hold the note. This is how US money comes into
existence.
We could trade coconut shells, or beads, but we trade promissory notes. They are legal
tender by law. And they fulfill the role of money pretty well. But we the people do not
ultimately own those obligations.
Public money is issued out of the same thin air as private money, but not as a debt,
simply as an issuance. The bills do their job for exchange and storage, and circulate until
being retired as taxes and the like. No one pays interest on that money.
Public money doesn't charge interest. Private money charges interest. This is the only
difference, and this difference is killing us and destroying the entire world.
~~
Professor Richard Werner illustrates nicely how a mortgage comes into existence through a
bank, which doesn't actually create money in this loan, but purchases a promissory note from
the home buyer. It is this promissory note that then enters the public record as new money,
which we then trade like sea shells - happy children, except that we now will pay interest of
more than 100 percent over the next 30 years. This interest is the profit on the private
money.
You'll find the mortgage part specifically around 16:15.
~~
As to all the rest, there is much more collateral, including the flagship work by Helen
Brown. Sorry I have no time to supply more links.
But I'm surprised to see so much wordy ignorance here on the subject, which is actually
very simple (although obfuscated, of course). Thanks to psychohistorian and karlof1 and
others who show that the good economists are all calling for public money which charges no
interest. And the communists and socialists do this as a matter of course.
As Hudson ended in his address cited by b and discussed here: "nations face a choice
between socialism and barbarism" .
Neoliberal economics and private finance is this very barbarism. It is accompanied by
fascism, oppression and the utter loss of freedom. As I cited in my previous comment, Dambisa
Moyo suggests very cogently that economic sufficiency undergirds democratic freedom. The
corollary is obvious: as we get more impoverished, freedom flees away.
~~
Interest charged on a loan is a claim on wealth that it doesn't create. It therefore
steals existing wealth in order to be redeemed. That's where our wealth went, and why we're
all so broke.
A loan for a productive purpose that will create new wealth can hopefully afford to slice
some of this new wealth off to pay the interest. It's still usury. But any loan at interest
that doesn't create wealth - such as a mortgage that simply buys an existing asset - is
something vastly more wicked.
"... As Mael Colium says, the US picks off individual countries by isolating them. ..."
"... 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. ..."
"... 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? ..."
"... 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 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. ..."
"... 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 . . . ..."
"... Resources and the critical health of the planet bother me a lot. Money and "gold" are, in the end, both fictitious obsessions. ..."
"... 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. ..."
"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.
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.
Michael Hudson is a modern day Saint! 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.
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.
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.
Agreed. The likes of the Regional Comprehensive Economic Partnership are still under
negotiation and still, like every other multilateral investment agreement of recent vintage,
apparently primarily concerned with creating supranational rights for landlords, especially
of the absentee variety, at the expense of citizens in their collective capacity.
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.
I think Calvin and his role in today's debt based monetary system is much underestimated.
The meteoric rise of the seven provinces and what was to become the Dutch colonial empire was
in no small part funded and financed by this debt based system in the latter half of the 16th
century. The same applied shortly afterwards to the UK. The book passage I quoted from is
from Devaluing the Scholastics: Calvin's Ethics of Usury .
I read the Michael Hudson piece and shake my head at the manifest obfuscation at play
The world is in WWIII which is between private and public finance. To characterize the
private finance side as being just the US is obfuscation
Global private finance exists outside the bounds of any one nation state and the US is
just the current face of the centuries of empires under this model.
Why is the West unable to have a discussion about the core component to the world war we
are engaged in?
Sad comment on the successful brainwashing at work here.....that is why I call the web
site Michael Hudson's writing is provided at ALMOST Naked Capitalism
Wake the rest of the way up fellow humans of the West.
The essential problem is that money functions as a contract, with one side an asset and
the other a debt, but as we experience it as quantified hope and security, we try to save and
store it. Thus Econ 101 tells us it is both medium of exchange and store of value. Even
though one is dynamic and the other is static, like blood and fat, or roads and parking
lots.
Necessarily then, in order to store the asset side, generally equal amounts of debt have
to be manufactured and this creates a centripetal effect, as positive feedback pulls the
asset side to the center of the economy, while negative feedback accumulates the debt on the
fringes.
The ancients used debt jubilees to push the reset button, but since we have been conditioned
to think of money as private property, not a public medium, now the only way to reset is for
societal collapse.
Value, as a savings for the future, needs to be stored in tangibles, like strong social
and environmental networks, not as abstractions in the financial circulation system. The
functionality of money is in its fungibility. We own it like we own the section of road we
are using, or the fluids passing through our bodies.
We are also conditioned to think of ourselves as individuals, not as parts of a larger
community, so this social atomization enables finance to mediate most transactions and tax
them. A figurative version of The Matrix.
I was pretty much banned from NC for questioning MMT. Yves called me a troll. The exchange
is jan 6, in the links post.
Consequently I'll only try posting very occasionally and one or two have gone through
moderation.
My view in MMT is that either these people are extremely naive, or operatives for the
oligarchy, as there is no free lunch and the public issuing ever more promises only drives it
further into debt. Which is then accumulated by the oligarchy and eventually traded for
remaining public assets. It's basic predatory lending/disaster capitalism and has been going
on since the dawn of civilization.
Not that people are not often incredibly stupid, but I suspect some recognize the dynamic.
When you start having to pay tolls on most roads, you will know we are way down that rabbit
hole.
John Merryman @7: Sure there are free lunches, Uncle Sugar has been getting lots of free
lunches ever since WWII. The thing about free lunches is those situations cannot be permanent
in a growth economy. To have permanent free lunches you have to have an ecologically stable
economy and a stable population consuming it. In other words, you can't get too greedy.
What's ridiculous is to fall for the "public vs. private" scam, one of the most potent
divide-and-conquer scams of the corporate state, where in reality there's zero distinction
between public and private power.
Power is power, and the finance sector is purely wasteful, purely destructive, serves zero
legitimate purpose, and needs to be abolished as a necessary part of any kind of human
liberation.
Of course the Mammon religion has brainwashed almost everyone into believing, among other
lies, that the dominion of money is necessary for human existence. Never mind that the vast
majority of societies didn't use money for more than a few special transactions, and many
didn't use it at all. Almost all of those societies were humanly more wholesome than this
one, and all of them were less ecologically destructive by many orders of magnitude.
"The ancients used debt jubilees to push the reset button, but since we have been conditioned
to think of money as private property, not a public medium, now the only way to reset is for
societal collapse."
John Merryman @4
There are compromises in this business: debt repudiation being an obvious one.
It is easy enough to make a case for declaring large parts of the public debt, odious. This
is particularly true of the enormous debts run up by Public-Private Partnerships of the sort
that the former UK Premier Brown promoted so enthusiastically. But it is generally true of
debts contracted for purposes which contradict the public interest.
Debt used to make deposits in private bank accounts in the Caymans for example can
justifiably be repudiated by the public, particularly when the creditor was well aware that
its loans were going to be employed for corrupt purposes.
Most of the US Debt, contracted to finance the MIC, is not only odious on general grounds
(Defending what against whom?) but on a contract to contract basis, most contracts being
padded to ensure the ability to provide kickbacks: when Congressmen receive funds from
government contractors and 'public servants', including military types, get jobs/sinecures
from the same, then any money borrowed to finance such contracts is, clearly, odious.
It would be revolutionary no doubt but perfectly practicable to push a 'reset' button on
the Public Debt by proclaiming that, in future, all borrowing for purposes not approved or
understood the putative taxpayer would be found to be odious.
Another possible course would be to stop paying interest on public debt and issue bonds to
repay the capital amounts lent.
The fact that such options are understood would make the regular claims, by neo-liberals
pushing austerity, that there is no money for such things as social security or living wages,
an obvious trigger for debt reduction measures designed to impact the rich rather than their
victims.
Predators and Prey. But the prey believe themselves to be predators also, or at least to have
the potential to become predators should they win the lotto.
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.
"... Aditya Chakrabortty ( It's reckless. But a Tory cash splurge could win an election , 3 July) is right to point out the hypocrisy of the political right about public expenditure. While progressive proposals for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to use public money to rescue the banks or boost their electoral chances. ..."
"... As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built on a fairytale about money that distorts our view of how a contemporary public money system operates. It is assumed that public spending depends on extracting money from the market and that money (like gold) is always in short supply. Neither is true. Both the market and the state generate money – the market through bank lending and the state through public spending. Both increase the money supply, while bank loan repayments and taxation reduce it. There is no natural shortage of money – which today mainly exists only as data. ..."
Neoliberal economics and other fairytales about money Politics is not about a
struggle over a fixed pot of money, says Mary Mellor, and the best way to end austerity is to
reject it as an ideology, says Peter McKenna
Aditya Chakrabortty (
It's reckless. But a Tory cash splurge could win an election , 3 July) is right to point
out the hypocrisy of the political right about public expenditure. While progressive proposals
for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to
use public money to rescue the banks or boost their electoral chances.
As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built
on a fairytale about money that distorts our view of how a contemporary public money system
operates. It is assumed that public spending depends on extracting money from the market and
that money (like gold) is always in short supply. Neither is true. Both the market and the
state generate money – the market through bank lending and the state through public
spending. Both increase the money supply, while bank loan repayments and taxation reduce it.
There is no natural shortage of money – which today mainly exists only as data.
The case for austerity missed the point. Politics is not about a struggle over a fixed pot
of money. What is limited are resources (particularly the environment) and human capacity. How
these are best used should be a matter of democratic debate. The allocation of money should
depend on the priorities identified. In this the market has no more claim than the public
economy to be the source of sustainable human welfare.
Professor Mary Mellor Newcastle upon Tyne
• Over the years Aditya Chakrabortty has provided us with powerful critiques of
austerity. His message now – that EU membership "is the best way to end austerity"
– overlooks the fact that the UK was in the EU all that time.
Moreover, the EU's stability and growth pact requires that budget deficits and public debt
be pegged below 3% and 60% of GDP respectively.
Such notions are the beating heart of austerity, and the European commission's excessive
deficit procedure taken against errant states has almost universally resulted in swingeing
austerity programmes. These were approved and monitored by the commission and council, with the
UK only taken off the naughty step in 2017 after years of crippling austerity finally reduced
the deficit to 2.3% of GDP.
The best way to end austerity – and to sway voters – is to reject austerity as
an ideology regardless of remain or leave, and rehabilitate the concept of public investment in
a people's economy.
Peter McKenna
"... The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute, or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers ..."
"... It was set up basically by the United States in 1944, along with its sister institution, the International Monetary Fund (IMF). Their purpose was to create an international order like a funnel to make other countries economically dependent on the United States ..."
"... American diplomats insisted on the ability to veto any action by the World Bank or IMF. The aim of this veto power was to make sure that any policy was, in Donald Trump's words, to put America first. "We've got to win and they've got to lose." ..."
"... The World Bank was set up from the outset as a branch of the military, of the Defense Department. John J. McCloy (Assistant Secretary of War, 1941-45), was the first full-time president ..."
"... Many countries had two rates: one for goods and services, which was set normally by the market, and then a different exchange rate that was managed for capital movements. That was because countries were trying to prevent capital flight. They didn't want their wealthy classes or foreign investors to make a run on their own currency – an ever-present threat in Latin America. ..."
"... The IMF and the World Bank backed the cosmopolitan classes, the wealthy. Instead of letting countries control their capital outflows and prevent capital flight, the IMF's job is to protect the richest One Percent and foreign investors from balance-of-payments problems ..."
"... The IMF enables its wealthy constituency to move their money out of the country without taking a foreign-exchange loss ..."
"... Wall Street speculators have sold the local currency short to make a killing, George-Soros style. ..."
"... When the debtor-country currency collapses, the debts that these Latin American countries owe are in dollars, and now have to pay much more in their own currency to carry and pay off these debts. ..."
"... Local currency is thrown onto the foreign-exchange market for dollars, lowering the exchange rate. That increases import prices, raising a price umbrella for domestic products. ..."
"... Instead, the IMF says just the opposite: It acts to prevent any move by other countries to bring the debt volume within the ability to be paid. It uses debt leverage as a way to control the monetary lifeline of financially defeated debtor countries. ..."
"... This control by the U.S. financial system and its diplomacy has been built into the world system by the IMF and the World Bank claiming to be international instead of an expression of specifically U.S. New Cold War nationalism. ..."
"... The same thing happened in Greece a few years ago, when almost all of Greece's foreign debt was owed to Greek millionaires holding their money in Switzerland ..."
"... The IMF could have seized this money to pay off the bondholders. Instead, it made the Greek economy pay. It found that it was worth wrecking the Greek economy, forcing emigration and wiping out Greek industry so that French and German bondholding banks would not have to take a loss. That is what makes the IMF so vicious an institution. ..."
"... America was able to grab all of Iran's foreign exchange just by the banks interfering. The CIA has bragged that it can do the same thing with Russia. If Russia does something that U.S. diplomats don't like, the U.S. can use the SWIFT bank payment system to exclude Russia from it, so the Russian banks and the Russian people and industry won't be able to make payments to each other. ..."
"... You can't create the money, especially if you're running a balance of payments deficit and if U.S. foreign policy forces you into deficit by having someone like George Soros make a run on your currency. Look at the Asia crisis in 1997. Wall Street funds bet against foreign currencies, driving them way down, and then used the money to pick up industry cheap in Korea and other Asian countries. ..."
"... This was also done to Russia's ruble. The only country that avoided this was Malaysia, under Mohamed Mahathir, by using capital controls. Malaysia is an object lesson in how to prevent a currency flight. ..."
"... Client kleptocracies take their money and run, moving it abroad to hard currency areas such as the United States, or at least keeping it in dollars in offshore banking centers instead of reinvesting it to help the country catch up by becoming independent agriculturally, in energy, finance and other sectors. ..."
"... But in shaping the World Trade Organization's rules, the United States said that all countries had to promote free trade and could not have government support, except for countries that already had it. We're the only country that had it. That's what's called "grandfathering". ..."
"The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose
tribute. The genius of the World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute,
or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries
play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing
and loss of life by soldiers."
I'm Bonnie Faulkner. Today on Guns and Butter: Dr. Michael Hudson. Today's show: The IMF and World Bank: Partners In Backwardness
. Dr. Hudson is a financial economist and historian. He is President of the Institute for the Study of Long-Term Economic Trend,
a Wall Street Financial Analyst, and Distinguished Research Professor of Economics at the University of Missouri, Kansas City.
His most recent books include " and Forgive them Their Debts: Lending, Foreclosure and Redemption from Bronze Age Finance
to the Jubilee Year "; Killing the Host: How Financial Parasites and Debt Destroy the Global Economy , and J Is for
Junk Economics: A Guide to Reality in an Age of Deception . He is also author of Trade, Development and Foreign Debt
, among many other books.
We return today to a discussion of Dr. Hudson's seminal 1972 book, Super Imperialism: The Economic Strategy of American Empire
, a critique of how the United States exploited foreign economies through the IMF and World Bank, with a special emphasis on
food imperialism.
... ... ...
Bonnie Faulkner : In your seminal work form 1972, Super-Imperialism: The Economic Strategy of American Empire ,
you write: "The development lending of the World Bank has been dysfunctional from the outset." When was the World Bank set up and
by whom?
Michael Hudson : It was set up basically by the United States in 1944, along with its sister institution, the International
Monetary Fund (IMF). Their purpose was to create an international order like a funnel to make other countries economically dependent
on the United States. To make sure that no other country or group of countries – even all the rest of the world – could not
dictate U.S. policy. American diplomats insisted on the ability to veto any action by the World Bank or IMF. The aim of this
veto power was to make sure that any policy was, in Donald Trump's words, to put America first. "We've got to win and they've got
to lose."
The World Bank was set up from the outset as a branch of the military, of the Defense Department. John J. McCloy (Assistant
Secretary of War, 1941-45), was the first full-time president. He later became Chairman of Chase Manhattan Bank (1953-60).
McNamara was Secretary of Defense (1961-68), Paul Wolfowitz was Deputy and Under Secretary of Defense (1989-2005), and Robert Zoellick
was Deputy Secretary of State. So I think you can look at the World Bank as the soft shoe of American diplomacy.
Bonnie Faulkner : What is the difference between the World Bank and the International Monetary Fund, the IMF? Is
there a difference?
Michael Hudson : Yes, there is. The World Bank was supposed to make loans for what they call international development.
"Development" was their euphemism for dependency on U.S. exports and finance. This dependency entailed agricultural backwardness
– opposing land reform, family farming to produce domestic food crops, and also monetary backwardness in basing their monetary system
on the dollar.
The World Bank was supposed to provide infrastructure loans that other countries would go into debt to pay American engineering
firms, to build up their export sectors and their plantation sectors by public investment roads and port development for imports
and exports. Essentially, the Bank financed long- investments in the foreign trade sector, in a way that was a natural continuation
of European colonialism.
In 1941, for example, C. L. R. James wrote an article on "Imperialism in Africa" pointing out the fiasco of European railroad
investment in Africa: "Railways must serve flourishing industrial areas, or densely populated agricult5ural regions, or they must
open up new land along which a thriving population develops and provides the railways with traffic. Except in the mining regions
of South Africa, all these conditions are absent. Yet railways were needed, for the benefit of European investors and heavy industry."
That is why, James explained "only governments can afford to operate them," while being burdened with heavy interest obligations.
[1] What was "developed" was Africa's
mining and plantation export sector, not its domestic economies. The World Bank followed this pattern of "development" lending without
apology.
The IMF was in charge of short-term foreign currency loans. Its aim was to prevent countries from imposing capital controls to
protect their balance of payments. Many countries had a dual exchange rate: one for trade in goods and services, the other rate
for capital movements. The function of the IMF and World Bank was essentially to make other countries borrow in dollars, not in
their own currencies, and to make sure that if they could not pay their dollar-denominated debts, they had to impose austerity on
the domestic economy – while subsidizing their import and export sectors and protecting foreign investors, creditors and client
oligarchies from loss.
The IMF developed a junk-economics model pretending that any country can pay any amount of debt to the creditors if it just impoverishes
its labor enough. So when countries were unable to pay their debt service, the IMF tells them to raise their interest rates to bring
on a depression – austerity – and break up the labor unions. That is euphemized as "rationalizing labor markets." The rationalizing
is essentially to disable labor unions and the public sector. The aim – and effect – is to prevent countries from essentially following
the line of development that had made the United States rich – by public subsidy and protection of domestic agriculture, public
subsidy and protection of industry and an active government sector promoting a New Deal democracy. The IMF was essentially promoting
and forcing other countries to balance their trade deficits by letting American and other investors buy control of their commanding
heights, mainly their infrastructure monopolies, and to subsidize their capital flight.
BONNIE FAULKNER : Now, Michael, when you began speaking about the IMF and monetary controls, you mentioned that there
were two exchange rates of currency in countries. What were you referring to?
MICHAEL HUDSON : When I went to work on Wall Street in the '60s, I was balance-of-payments economist for Chase Manhattan,
and we used the IMF's monthly International Financial Statistics every month. At the top of each country's statistics would
be the exchange-rate figures. Many countries had two rates: one for goods and services, which was set normally by the market,
and then a different exchange rate that was managed for capital movements. That was because countries were trying to prevent capital
flight. They didn't want their wealthy classes or foreign investors to make a run on their own currency – an ever-present threat
in Latin America.
The IMF and the World Bank backed the cosmopolitan classes, the wealthy. Instead of letting countries control their capital
outflows and prevent capital flight, the IMF's job is to protect the richest One Percent and foreign investors from balance-of-payments
problems.
The World Bank and American diplomacy have steered them into a chronic currency crisis. The IMF enables its wealthy constituency
to move their money out of the country without taking a foreign-exchange loss. It makes loans to support capital flight out
of domestic currencies into the dollar or other hard currencies. The IMF calls this a "stabilization" program. It is never effective
in helping the debtor economy pay foreign debts out of growth. Instead, the IMF uses currency depreciation and sell-offs of public
infrastructure and other assets to foreign investors after the flight capital has left and currency collapses. Wall Street speculators
have sold the local currency short to make a killing, George-Soros style.
When the debtor-country currency collapses, the debts that these Latin American countries owe are in dollars, and now have
to pay much more in their own currency to carry and pay off these debts. We're talking about enormous penalty rates in domestic
currency for these countries to pay foreign-currency debts – basically taking on to finance a non-development policy and to subsidize
capital flight when that policy "fails" to achieve its pretended objective of growth.
All hyperinflations of Latin America – Chile early on, like Germany after World War I – come from trying to pay foreign debts
beyond the ability to be paid. Local currency is thrown onto the foreign-exchange market for dollars, lowering the exchange
rate. That increases import prices, raising a price umbrella for domestic products.
A really functional and progressive international monetary fund that would try to help countries develop would say: "Okay, banks
and we (the IMF) have made bad loans that the country can't pay. And the World Bank has given it bad advice, distorting its domestic
development to serve foreign customers rather than its own growth. So we're going to write down the loans to the ability to be paid."
That's what happened in 1931, when the world finally stopped German reparations payments and Inter-Ally debts to the United States
stemming from World War I.
Instead, the IMF says just the opposite: It acts to prevent any move by other countries to bring the debt volume within
the ability to be paid. It uses debt leverage as a way to control the monetary lifeline of financially defeated debtor countries.
So if they do something that U.S. diplomats don't approve of, it can pull the plug financially, encouraging a run on their currency
if they act independently of the United States instead of falling in line. This control by the U.S. financial system and its
diplomacy has been built into the world system by the IMF and the World Bank claiming to be international instead of an expression
of specifically U.S. New Cold War nationalism.
BONNIE FAULKNER : How do exchange rates contribute to capital flight?
MICHAEL HUDSON : It's not the exchange rate that contributes. Suppose that you're a millionaire, and you see that your
country is unable to balance its trade under existing production patterns. The money that the government has under control is pesos,
escudos, cruzeiros or some other currency, not dollars or euros. You see that your currency is going to go down relative to the
dollar, so you want to get our money out of the country to preserve your purchasing power.
This has long been institutionalized. By 1990, for instance, Latin American countries had defaulted so much in the wake of the
Mexico defaults in 1982 that I was hired by Scudder Stevens, to help start a Third World Bond Fund (called a "sovereign high-yield
fund"). At the time, Argentina and Brazil were running such serious balance-of-payments deficits that they were having to pay 45
percent per year interest, in dollars, on their dollar debt. Mexico, was paying 22.5 percent on its tesobonos .
Scudders' salesmen went around to the United States and tried to sell shares in the proposed fund, but no Americans would buy
it, despite the enormous yields. They sent their salesmen to Europe and got a similar reaction. They had lost their shirts on Third
World bonds and couldn't see how these countries could pay.
Merrill Lynch was the fund's underwriter. Its office in Brazil and in Argentina proved much more successful in selling investments
in Scudder's these offshore fund established in the Dutch West Indies. It was an offshore fund, so Americans were not able to buy
it. But Brazilian and Argentinian rich families close to the central bank and the president became the major buyers. We realized
that they were buying these funds because they knew that their government was indeed going to pay their stipulated interest charges.
In effect, the bonds were owed ultimately to themselves. So these Yankee dollar bonds were being bought by Brazilians and other
Latin Americans as a vehicle to move their money out of their soft local currency (which was going down), to buy bonds denominated
in hard dollars.
BONNIE FAULKNER : If wealthy families from these countries bought these bonds denominated in dollars, knowing that they
were going to be paid off, who was going to pay them off? The country that was going broke?
MICHAEL HUDSON : Well, countries don't pay; the taxpayers pay, and in the end, labor pays. The IMF certainly doesn't want
to make its wealthy client oligarchies pay. It wants to squeeze ore economic surplus out of the labor force. So countries are told
that the way they can afford to pay their enormously growing dollar-denominated debt is to lower wages even more.
Currency depreciation is an effective way to do this, because what is devalued is basically labor's wages. Other elements of
exports have a common world price: energy, raw materials, capital goods, and credit under the dollar-centered international monetary
system that the IMF seeks to maintain as a financial strait jacket.
According to the IMF's ideological models, there's no limit to how far you can lower wages by enough to make labor competitive
in producing exports. The IMF and World Bank thus use junk economics to pretend that the way to pay debts owed to the wealthiest
creditors and investors is to lower wages and impose regressive excise taxes, to impose special taxes on necessities that labor
needs, from food to energy and basic services supplied by public infrastructure.
BONNIE FAULKNER: So you're saying that labor ultimately has to pay off these junk bonds?
MICHAEL HUDSON: That is the basic aim of IMF. I discuss its fallacies in my Trade Development and Foreign Debt
, which is the academic sister volume to Super Imperialism . These two books show that the World Bank and IMF were viciously
anti-labor from the very outset, working with domestic elites whose fortunes are tied to and loyal to the United States.
BONNIE FAULKNER : With regard to these junk bonds, who was it or what entity
MICHAEL HUDSON : They weren't junk bonds. They were called that because they were high-interest bonds, but they weren't
really junk because they actually were paid. Everybody thought they were junk because no American would have paid 45 percent interest.
Any country that really was self-reliant and was promoting its own economic interest would have said, "You banks and the IMF have
made bad loans, and you've made them under false pretenses – a trade theory that imposes austerity instead of leading to prosperity.
We're not going to pay." They would have seized the capital flight of their comprador elites and said that these dollar bonds were
a rip-off by the corrupt ruling class.
The same thing happened in Greece a few years ago, when almost all of Greece's foreign debt was owed to Greek millionaires
holding their money in Switzerland. The details were published in the "Legarde List." But the IMF said, in effect that its
loyalty was to the Greek millionaires who ha their money in Switzerland. The IMF could have seized this money to pay off the
bondholders. Instead, it made the Greek economy pay. It found that it was worth wrecking the Greek economy, forcing emigration and
wiping out Greek industry so that French and German bondholding banks would not have to take a loss. That is what makes the IMF
so vicious an institution.
BONNIE FAULKNER : So these loans to foreign countries that were regarded as junk bonds really weren't junk, because
they were going to be paid. What group was it that jacked up these interest rates to 45 percent?
MICHAEL HUDSON : The market did. American banks, stock brokers and other investors looked at the balance of payments of
these countries and could not see any reasonable way that they could pay their debts, so they were not going to buy their bonds.
No country subject to democratic politics would have paid debts under these conditions. But the IMF, U.S. and Eurozone diplomacy
overrode democratic choice.
Investors didn't believe that the IMF and the World Bank had such a strangle hold over Latin American, Asian, and African countries
that they could make the countries act in the interest of the United States and the cosmopolitan finance capital, instead of in
their own national interest. They didn't believe that countries would commit financial suicide just to pay their wealthy One Percent.
They were wrong, of course. Countries were quite willing to commit economic suicide if their governments were dictatorships propped
up by the United States. That's why the CIA has assassination teams and actively supports these countries to prevent any party coming
to power that would act in their national interest instead of in the interest of a world division of labor and production along
the lines that the U.S. planners want for the world. Under the banner of what they call a free market, you have the World Bank and
the IMF engage in central planning of a distinctly anti-labor policy. Instead of calling them Third World bonds or junk bonds, you
should call them anti-labor bonds, because they have become a lever to impose austerity throughout the world.
BONNIE FAULKNER : Well, that makes a lot of sense, Michael, and answers a lot of the questions I've put together to ask
you. What about Puerto Rico writing down debt? I thought such debts couldn't be written down.
MICHAEL HUDSON : That's what they all said, but the bonds were trading at about 45 cents on the dollar, the risk of their
not being paid. The Wall Street Journal on June 17, reported that unsecured suppliers and creditors of Puerto Rico, would
only get nine cents on the dollar. The secured bond holders would get maybe 65 cents on the dollar.
The terms are being written down because it's obvious that Puerto Rico can't pay, and that trying to do so is driving the population
to move out of Puerto Rico to the United States. If you don't want Puerto Ricans to act the same way Greeks did and leave Greece
when their industry and economy was shut down, then you're going to have to provide stability or else you're going to have half
of Puerto Rico living in Florida.
BONNIE FAULKNER : Who wrote down the Puerto Rican debt?
MICHAEL HUDSON : A committee was appointed, and it calculated how much Puerto Rico can afford to pay out of its taxes.
Puerto Rico is a U.S. dependency, that is, an economic colony of the United States. It does not have domestic self-reliance. It's
the antithesis of democracy, so it's never been in charge of its own economic policy and essentially has to do whatever the United
States tells it to do. There was a reaction after the hurricane and insufficient U.S. support to protect the island and the enormous
waste and corruption involved in the U.S. aid. The U.S. response was simply: "We won you fair and square in the Spanish-American
war and you're an occupied country, and we're going to keep you that way." Obviously this is causing a political resentment.
BONNIE FAULKNER : You've already touched on this, but why has the World Bank traditionally been headed by a U.S. secretary
of defense?
MICHAEL HUDSON : Its job is to do in the financial sphere what, in the past, was done by military force. The purpose of
a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the
World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute, or to take over its industry,
agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic
game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers.
In this case the loss of life occurs in the debtor countries. Population growth shrinks, suicides go up. The World Bank engages
in economic warfare that is just as destructive as military warfare. At the end of the Yeltsin period Russia's President Putin said
that American neoliberalism destroyed more of Russia's population than did World War II. Such neoliberalism, which basically is
the doctrine of American supremacy and foreign dependency, is the policy of the World Bank and IMF.
BONNIE FAULKNER : Why has World Bank policy since its inception been to provide loans for countries to devote their land
to export crops instead of giving priority to feeding themselves? And if this is the case, why do countries want these loans?
MICHAEL HUDSON : One constant of American foreign policy is to make other countries dependent on American grain exports
and food exports. The aim is to buttress America's agricultural trade surplus. So the first thing that the World Bank has done is
not to make any domestic currency loans to help food producers. Its lending has steered client countries to produce tropical export
crops, mainly plantation crops that cannot be grown in the United States. Focusing on export crops leads client countries to become
dependent on American farmers – and political sanctions.
In the 1950s, right after the Chinese revolution, the United States tried to prevent China from succeeding by imposing grain
export controls to starve China into submission by putting sanctions on exports. Canada was the country that broke these export
controls and helped feed China.
The idea is that if you can make other countries export plantation crops, the oversupply will drive down prices for cocoa and
other tropical products, and they won't feed themselves. So instead of backing family farms like the American agricultural policy
does, the World Bank backed plantation agriculture. In Chile, which has the highest natural supply of fertilizer in the world from
its guano deposits, exports guano instead of using it domestically. It also has the most unequal land distribution, blocking it
from growing its own grain or food crops. It's completely dependent on the United States for this, and it pays by exporting copper,
guano and other natural resources.
The idea is to create interdependency – one-sided dependency on the U.S. economy. The United States has always aimed at being
self-sufficient in its own essentials, so that no other country can pull the plug on our economy and say, "We're going to starve
you by not feeding you." Americans can feed themselves. Other countries can't say, "We're going to let you freeze in the dark by
not sending you oil," because America's independent in energy. But America can use the oil control to make other countries freeze
in the dark, and it can starve other countries by food-export sanctions.
So the idea is to give the United States control of the key interconnections of other economies, without letting any country
control something that is vital to the working of the American economy.
There's a double standard here. The United States tells other countries: "Don't do as we do. Do as we say." The only way it can
enforce this is by interfering in the politics of these countries, as it has interfered in Latin America, always pushing the right
wing. For instance, when Hillary's State Department overthrew the Honduras reformer who wanted to undertake land reform and feed
the Hondurans, she said: "This person has to go." That's why there are so many Hondurans trying to get into the United States now,
because they can't live in their own country.
The effect of American coups is the same in Syria and Iraq. They force an exodus of people who no longer can make a living under
the brutal dictatorships supported by the United States to enforce this international dependency system.
BONNIE FAULKNER : So when I asked you why countries would want these loans, I guess you're saying that they wouldn't,
and that's why the U.S. finds it necessary to control them politically.
MICHAEL HUDSON : That's a concise way of putting it Bonnie.
BONNIE FAULKNER : Why are World Bank loans only in foreign currency, not in the domestic currency of the country to which
it is lending?
MICHAEL HUDSON : That's a good point. A basic principle should be to avoid borrowing in a foreign currency. A country
can always pay the loans in its own currency, but there's no way that it can print dollars or euros to pay loans denominated in
these foreign currencies.
Making the dollar central forces other countries to interface with the U.S. banking system. So if a country decides to go its
own way, as Iran did in 1953 when it wanted to take over its oil from British Petroleum (or Anglo Iranian Oil, as it was called
back then), the United States can interfere and overthrow it. The idea is to be able to use the banking system's interconnections
to stop payments from being made.
After America installed the Shah's dictatorship, they were overthrown by Khomeini, and Iran had run up a U.S. dollar debt under
the Shah. It had plenty of dollars. I think Chase Manhattan was its paying agent. So when its quarterly or annual debt payment came
due, Iran told Chase to draw on its accounts and pay the bondholders. But Chase took orders from the State Department or the Defense
Department, I don't know which, and refused to pay. When the payment was not made, America and its allies claimed that Iran was
in default. They demanded the entire debt to be paid, as per the agreement that the Shah's puppet government had signed. America
simply grabbed the deposits that Iran had in the United States. This is the money that was finally returned to Iran without interest
under the agreement of 2016.
America was able to grab all of Iran's foreign exchange just by the banks interfering. The CIA has bragged that it can do
the same thing with Russia. If Russia does something that U.S. diplomats don't like, the U.S. can use the SWIFT bank payment system
to exclude Russia from it, so the Russian banks and the Russian people and industry won't be able to make payments to each other.
This prompted Russia to create its own bank-transfer system, and is leading China, Russia, India and Pakistan to draft plans
to de-dollarize.
BONNIE FAULKNER : I was going to ask you, why would loans in a country's domestic currency be preferable to the country
taking out a loan in a foreign currency? I guess you've explained that if they took out a loan in a domestic currency, they would
be able to repay it.
MICHAEL HUDSON : Yes.
BONNIE FAULKNER : Whereas a loan in a foreign currency would cripple them.
MICHAEL HUDSON : Yes. You can't create the money, especially if you're running a balance of payments deficit and if
U.S. foreign policy forces you into deficit by having someone like George Soros make a run on your currency. Look at the Asia crisis
in 1997. Wall Street funds bet against foreign currencies, driving them way down, and then used the money to pick up industry cheap
in Korea and other Asian countries.
This was also done to Russia's ruble. The only country that avoided this was Malaysia, under Mohamed Mahathir, by using capital
controls. Malaysia is an object lesson in how to prevent a currency flight.
But for Latin America and other countries, much of their foreign debt is held by their own ruling class. Even though it's denominated
in dollars, Americans don't own most of this debt. It's their own ruling class. The IMF and World Bank dictate tax policy to Latin
America – to un-tax wealth and shift the burden onto labor. Client kleptocracies take their money and run, moving it abroad
to hard currency areas such as the United States, or at least keeping it in dollars in offshore banking centers instead of reinvesting
it to help the country catch up by becoming independent agriculturally, in energy, finance and other sectors.
BONNIE FAULKNER : You say that: "While U.S. agricultural protectionism has been built into the postwar global system at
its inception, foreign protectionism is to be nipped in the bud." How has U.S. agricultural protectionism been built into the postwar
global system?
MICHAEL HUDSON : Under Franklin Roosevelt the Agricultural Adjustment Act of 1933 called for price supports for crops
so that farmers could earn enough to invest in equipment and seeds. The Agriculture Department was a wonderful department in spurring
new seed varieties, agricultural extension services, marketing and banking services. It provided public support so that productivity
in American agriculture from the 1930s to '50s was higher over a prolonged period than that of any other sector in history.
But in shaping the World Trade Organization's rules, the United States said that all countries had to promote free trade
and could not have government support, except for countries that already had it. We're the only country that had it. That's what's
called "grandfathering". The Americans said: "We already have this program on the books, so we can keep it. But no other country
can succeed in agriculture in the way that we have done. You must keep your agriculture backward, except for the plantation crops
and growing crops that we can't grow in the United States." That's what's so evil about the World Bank's development plan.
BONNIE FAULKNER : According to your book: "Domestic currency is needed to provide price supports and agricultural extension
services such as have made U.S. agriculture so productive." Why can't infrastructure costs be subsidized to keep down the economy's
overall cost structure if IMF loans are made in foreign currency?
MICHAEL HUDSON : If you're a farmer in Brazil, Argentina or Chile, you're doing business in domestic currency. It doesn't
help if somebody gives you dollars, because your expenses are in domestic currency. So if the World Bank and the IMF can prevent
countries from providing domestic currency support, that means they're not able to give price supports or provide government marketing
services for their agriculture.
America is a mixed economy. Our government has always subsidized capital formation in agriculture and industry, but it insists
that other countries are socialist or communist if they do what the United States is doing and use their government to support the
economy. So it's a double standard. Nobody calls America a socialist country for supporting its farmers, but other countries are
called socialist and are overthrown if they attempt land reform or attempt to feed themselves.
This is what the Catholic Church's Liberation Theology was all about. They backed land reform and agricultural self-sufficiency
in food, realizing that if you're going to support population growth, you have to support the means to feed it. That's why the United
States focused its assassination teams on priests and nuns in Guatemala and Central America for trying to promote domestic self-sufficiency.
BONNIE FAULKNER : If a country takes out an IMF loan, they're obviously going to take it out in dollars. Why can't they
take the dollars and convert them into domestic currency to support local infrastructure costs?
MICHAEL HUDSON : You don't need a dollar loan to do that. Now were getting in to MMT. Any country can create its own currency.
There's no reason to borrow in dollars to create your own currency. You can print it yourself or create it on your computers.
BONNIE FAULKNER: Well, exactly. So why don't these countries simply print up their own domestic currency?
MICHAEL HUDSON : Their leaders don't want to be assassinated. More immediately, if you look at the people in charge of
foreign central banks, almost all have been educated in the United States and essentially brainwashed. It's the mentality of foreign
central bankers. The people who are promoted are those who feel personally loyal to the United States, because they that that's
how to get ahead. Essentially, they're opportunists working against the interests of their own country. You won't have socialist
central bankers as long as central banks are dominated by the International Monetary Fund and the Bank for International Settlements.
BONNIE FAULKNER : So we're back to the main point: The control is by political means, and they control the politics and
the power structure in these countries so that they don't rebel.
MICHAEL HUDSON : That's right. When you have a dysfunctional economic theory that is destructive instead of productive,
this is never an accident. It is always a result of junk economics and dependency economics being sponsored. I've talked to people
at the U.S. Treasury and asked why they all end up following the United States. Treasury officials have told me: "We simply buy
them off. They do it for the money." So you don't need to kill them. All you need to do is find people corrupt enough and opportunist
enough to see where the money is, and you buy them off.
BONNIE FAULKNER : You write that "by following U.S. advice, countries have left themselves open to food blackmail." What
is food blackmail?
MICHAEL HUDSON : If you pursue a foreign policy that we don't like -- for instance, if you trade with Iran, which we're
trying to smash up to grab its oil -- we'll impose financial sanctions against you. We won't sell you food, and you can starve.
And because you've followed World Bank advice and not grown your own food, you will starve, because you're dependent on us, the
United States and our Free World Ó allies. Canada will no longer follow its own policy independently of the United States,
as it did with China in the 1950s when it sold it grain. Europe also is falling in line with U.S. policy.
BONNIE FAULKNER : You write that: "World Bank administrators demand that loan recipients pursue a policy of economic dependency
above all on the United States as food supplier." Was this done to support U.S. agriculture? Obviously it is, but were there other
reasons as well?
MICHAEL HUDSON : Certainly the agricultural lobby was critical in all of this, and I'm not sure at what point this became
thoroughly conscious. I knew some of the World Bank planners, and they had no anticipation that this dependency would be the result.
They believed the free-trade junk economics that's taught in the schools' economics departments and for which Nobel prizes are awarded.
When we're dealing with economic planners, we're dealing with tunnel-visioned people. They stayed in the discipline despite its
unreality because they sort of think that abstractly it makes sense. There's something autistic about most economists, which is
why the French had their non-autistic economic site for many years. The mentality at work is that every country should produce what
it's best at – not realizing that nations also need to be self-sufficient in essentials, because we're in a real world of economic
and military warfare.
BONNIE FAULKNER : Why does the World Bank prefer to perpetrate world poverty instead of adequate overseas capacity to
feed the peoples of developing countries?
MICHAEL HUDSON : World poverty is viewed as solution , not a problem. The World Bank thinks of poverty as low-priced
labor, creating a competitive advantage for countries that produce labor-intensive goods. So poverty and austerity for the World
Bank and IMF is an economic solution that's built into their models. I discuss these in my Trade, Development and Foreign Debt
book. Poverty is to them the solution, because it means low-priced labor, and that means higher profits for the companies bought
out by U.S., British, and European investors. So poverty is part of the class war: profits versus poverty.
BONNIE FAULKNER : In general, what is U.S. food imperialism? How would you characterize it?
MICHAEL HUDSON : Its aim is to make America the producer of essential foods and other countries producing inessential
plantation crops, while remaining dependent on the United States for grain, soy beans and basic food crops.
BONNIE FAULKNER : Does World Bank lending encourage land reform in former colonies?
MICHAEL HUDSON : No. If there is land reform, the CIA sends its assassination teams in and you have mass murder, as you
had in Guatemala, Ecuador, Central America and Columbia. The World Bank is absolutely committed against land reform. When the Forgash
Plan for a World Bank for Economic Acceleration was proposed in the 1950s to emphasize land reform and local-currency loans, a Chase
Manhattan economist to whom the plan was submitted warned that every country that had land reform turned out to be anti-American.
That killed any alternative to the World Bank.
BONNIE FAULKNER : Does the World Bank insist on client governments privatizing their public domain? If so, why, and what
is the effect?
MICHAEL HUDSON : It does indeed insist on privatization, pretending that this is efficient. But what it privatizes are
natural monopolies – the electrical system, the water system and other basic needs. Foreigners take over, essentially finance them
with foreign debt, build the foreign debt that they build into the cost structure, and raise the cost of living and doing business
in these countries, thereby crippling them economically. The effect is to prevent them from competing with the United States and
its European allies.
BONNIE FAULKNER : Would you say then that it is mainly America that has been aided, not foreign economies that borrow
from the World Bank?
MICHAEL HUDSON : That's why the United States is the only country with veto power in the IMF and World Bank – to make
sure that what you just described is exactly what happens.
BONNIE FAULKNER : Why do World Bank programs accelerate the exploitation of mineral deposits for use by other nations?
MICHAEL HUDSON : Most World Bank loans are for transportation, roads, harbor development and other infrastructure needed
to export minerals and plantation crops. The World Bank doesn't make loans for projects that help the country develop in its own
currency. By making only foreign currency loans, in dollars or maybe euros now, the World Bank says that its clients have to repay
by generating foreign currency. The only way they can repay the dollars spent on American engineering firms that have built their
infrastructure is to export – to earn enough dollars to pay back for the money that the World Bank or IMF have lent.
This is what John Perkins' book about being an economic hit man for the World Bank is all about. He realized that his job was
to get countries to borrow dollars to build huge projects that could only be paid for by the country exporting more – which required
breaking its labor unions and lowering wages so that it could be competitive in the race to the bottom that the World Bank and IMF
encourage.
BONNIE FAULKNER : You also point out in Super Imperialism that mineral resources represent diminishing assets,
so these countries that are exporting mineral resources are being depleted while the importing countries aren't.
MICHAEL HUDSON : That's right. They'll end up like Canada. The end result is going to be a big hole in the ground. You've
dug up all your minerals, and in the end you have a hole in the ground and a lot of the refuse and pollution – the mining slag and
what Marx called the excrements of production.
This is not a sustainable development. The World Bank only promotes the U.S. pursuit of sustainable development. So naturally,
they call their "Development," but their focus is on the United States, not the World Bank's client countries.
BONNIE FAULKNER : When Super Imperialism: The Economic Strategy of American Empire was originally published in
1972, how was it received?
MICHAEL HUDSON : Very positively. It enabled my career to take off. I received a phone call a month later by someone from
the Bank of Montreal saying they had just made $240 million on the last paragraph of my book. They asked what it would cost to have
me come up and give a lecture. I began lecturing once a month at $3,500 a day, moving up to $6,500 a day, and became the highest-paid
per diem economist on Wall Street for a few years.
I was immediately hired by the Hudson Institute to explain Super Imperialism to the Defense Department. Herman Kahn said
I showed how U.S. imperialism ran rings around European imperialism. They gave the Institute an $85,000 grant to have me go to the
White House in Washington to explain how American imperialism worked. The Americans used it as a how-to-do-it book.
The socialists, whom I expected to have a response, decided to talk about other than economic topics. So, much to my surprise,
it became a how-to-do-it book for imperialists. It was translated by, I think, the nephew of the Emperor of Japan into Japanese.
He then wrote me that the United States opposed the book being translated into Japanese. It later was translated. It was
received very positively in China, where I think it has sold more copies than in any other country. It was translated into Spanish,
and most recently it was translated into German, and German officials have asked me to come and discuss it with them. So the book
has been accepted all over the world as an explanation of how the system works.
BONNIE FAULKNER : In closing, do you really think that the U.S. government officials and others didn't understand how
their own system worked?
MICHAEL HUDSON : Many might not have understood in 1944 that this would be the consequence. But by the time 50 years went
by, you had an organization called "Fifty Years Is Enough." And by that time everybody should have understood. By the time Joe Stiglitz
became the World Bank's chief economist, there was no excuse for not understanding how the system worked. He was amazed to find
that indeed it didn't work as advertised, and resigned. But he should have known at the very beginning what it was all about. If
he didn't understand how it was until he actually went to work there, you can understand how hard it is for most academics to get
through the vocabulary of junk economics, the patter-talk of free trade and free markets to understand how exploitative and destructive
the system is.
BONNIE FAULKNER : Michael Hudson, thank you very much.
MICHAEL HUDSON : It's always good to be here, Bonnie. I'm glad you ask questions like these.
I've been speaking with Dr. Michael Hudson. Today's show has been: The IMF and World Bank: Partners in Backwardness. Dr.
Hudson is a financial economist and historian. He is president of the Institute for the Study of Long-Term Economic Trend, a Wall
Street financial analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972
book, Super Imperialism : The Economic Strategy of American Empire , a critique of how the United States exploited foreign economies
through the IMF and World Bank, the subject of today's broadcast, is posted in PDF format on his website at michael-hudson.com.
He is also author of Trade, Development and Foreign Debt , which is the academic sister volume to Super Imperialism. Dr. Hudson
acts as an economic advisor to governments worldwide on finance and tax law. Visit his website at michael-hudson.com.
Guns and Butter is produced by Bonnie Faulkner, Yarrow Mahko and Tony Rango. Visit us at
gunsandbutter.org to listen to past programs, comment on shows, or join
our email list to receive our newsletter that includes recent shows and updates. Email us at
[email protected]. Follow us
on Twitter at #gandbradio.
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...
There is nothing natural about money. There is no link to some scarce essential form of money that sets a limit to its creation.
It can be composed of base metal, paper or electronic data – none of which is in short supply. Similarly – despite what you may have
heard about the need for austerity and a lack of certain cash-generating trees – there is no "natural" level of public expenditure.
The size and reach of the public sector is a matter of political choice.
Which puts austerity, the culling of expenditure in the public economy, under some question. For some countries, such as
Greece , the impact of austerity has been devastating. Austerity policies still persist despite numerous
studies arguing that they were entirely misconceived,
based on political choice rather than economic logic. But the economic case for austerity is equally mistaken: it is based on what
can best be described as fairytale economics.
So what were the justifications? Britain, for example, has lived under an austerity regime since 2010, when the incoming Tory-Liberal
Democrat government reversed the Labour policy of raising the level of public expenditure in response to the 2007-8 financial crisis.
The crisis had created a perfect storm: bank rescue required high levels of public spending while economic contraction reduced tax
income. The case for austerity was that the higher level of public expenditure could not be afforded by the taxpayer. This was supported
by "
handbag economics ", which adopts the analogy of states as being like households, dependent on a (private sector) breadwinner.
Under handbag economics, states are required to restrict their expenditure to what the taxpayer is deemed to be able to afford.
States must not try to increase their spending by borrowing from the (private) financial sector or by "printing money" (although
the banks were rescued by doing so by another name – quantitative
easing , the creation of electronic money).
The ideology of handbag economics claims that money is to be generated only through market activity and that it is always in short
supply. Request for increased public expenditure is almost invariably met with the response "where's the money to come from?" When
confronted by low pay in the NHS, the British prime minister, Theresa May, famously declared, "there is no magic money tree".
So where does money come from? And what is money
anyway? What is money?
Until the last 50 years or so the answer seemed to be obvious: money was represented by cash (notes and coin). When money was
tangible, there seemed no question about its origin, or its value. Coins were minted, banknotes were printed. Both were authorised
by governments or central banks. But what is money today? In richer economies the use of cash is
declining rapidly . Most monetary transactions are based on transfers between accounts: no physical money is involved.
In the run up to the financial crisis, the state's role in relation to money held in bank accounts was ambiguous. Banking was
a monitored and licensed activity with some level of state guarantee of bank deposits, but the actual act of creating bank accounts
was, and is, seen as a private matter. There may be regulations and limitations, but there is
no detailed scrutiny of bank accounts and bank lending.
Yet, as the 2007-8 financial crisis showed, when bank accounts came under threat as banks teetered on the edge of bankruptcy,
states and central banks had to step in and
guarantee the security
of all deposit accounts. The viability of money in non-investment bank accounts was demonstrated to be as much a public responsibility
as cash.
This raises fundamental questions about money as a social institution. Is it right that money can be generated by a private choice
to take on debt, which then becomes a liability of the state to guarantee in a crisis?
But far from seeing money as a public resource, under neoliberal handbag economics, money creation and circulation has increasingly
been seen as a function of the market. Money is "made" solely in the private sector. Public spending is seen as a drain on that money,
justifying austerity to make the public sector as small as possible.
This stance, however, is based on a complete misunderstanding of the nature of money, sustained by a series of deeply embedded
myths.
Myths about money
Neoliberal handbag economics is derived from two key myths about the origin and nature of money. The first is that money emerged
from a previous market economy based on barter. The second is that money was originally made from precious metal.
It is claimed that bartering proved to be very inefficient as each buyer-seller needed to find another person who exactly matched
their requirements. A hat maker might barter a hat for some shoes she needs – but what if the shoe maker is in no need of a hat?
The solution to this problem, so the story goes, was to choose one commodity that everyone desired, to act as a medium of exchange.
Precious metal (gold and silver) was the obvious
choice because it had its own value and could be easily divided and carried. This view of the origin of money goes back to at
least the 18th century: the time of economist
Adam Smith .
The 'father of capitalism' Adam Smith, 1723-1790. Matt Ledwinka/Shutterstock.com
These myths led to two assumptions about money that are still current today. First, that money is essentially connected to, and
generated by, the marketplace. Second that modern money, like its original and ideal form, is always in short supply. Hence the
neoliberal
claim that public spending is a drain on the wealth-creating capacity of the market and that public spending must always be as
limited as possible. Money is seen as a commercial instrument, serving a basic, market, technical, transactional function with no
social or political force.
But the real story of money is very different. Evidence from anthropology and history shows that there was no widespread barter
before markets based on money developed, and precious metal coinage emerged long before market economies. There are also many forms
of money other than precious metal coins.
Money as custom
Something that acts as money has existed in most, if not all, human societies. Stones, shells, beads, cloths, brass rods and many
other forms have been the means of comparing and acknowledging comparative value. But this was rarely used in a market context. Most
early human communities lived directly off the land – hunting, fishing, gathering and gardening. The customary money in such communities
was used mainly to celebrate auspicious social events or serve as a way of resolving social conflict.
For example, the Lele people, who lived in what is now the Democratic Republic of Congo in the 1950s, calculated value in
woven raffia
cloths . The number of cloths required for different occasions was fixed by custom. Twenty cloths should be given to a father
by a son on achieving adulthood and a similar amount given to a wife on the birth of a child. The anthropologist Mary Douglas, who
studied the Lele, found
they were resistant to using the cloths in transactions with outsiders, indicating that the cloths had a specific cultural relevance.
Even stranger is the large stone money of the Yap people of Micronesia. Huge circular discs of stone could weigh up to
four metric tons . Not something to put in your
pocket for a trip to the shops.
Try lugging that to the market. Evenfh/Shutterstock.com
There is plenty of other anthropological evidence such as this all over the world, all pointing to the fact that money, in its
earliest form, served a social rather than market-based purpose.
Money as power
For most traditional societies, the origin of the particular money form has been lost in the mist of time. But the origin and
adoption of money as an institution became much more obvious with the emergence of states. Money did not originate as precious metal
coinage with the development of markets. In fact, the new invention of precious metal coinage in around
600BC was adopted
and controlled by imperial rulers to build their empires by waging war.
Most notable was Alexander the Great, who ruled from 336–323BC. He is said to have used
half a ton of silver a day
to fund his largely mercenary army rather than a share of the spoils (the traditional payment). He had more than 20 mints producing
coins, which had images of gods and heroes and the word Alexandrou (of Alexander). From that time, new ruling regimes have
tended to herald their arrival by a new coinage.
Alexandrou. Alex Coan/Shutterstock.com
More than a thousand years after the invention of coinage, the Holy Roman Emperor Charlemagne (742-814), who ruled most of western
and central Europe, developed what became the basis of the British pre-decimal money system: pounds, shillings and pence. Charlemagne
set up a currency system based on 240 pennies minted from a pound of silver. The pennies became established as the denier in France,
the pfennig in Germany, the dinero in Spain, the denari in Italy and the penny in Britain.
So the real story of money as coinage was not one of barterers and traders: it emerged instead from a long history of politics,
war and conflict. Money was an active agent in state and empire building, not a passive representation of price in the market. Control
of the money supply was a major power of rulers: a sovereign power. Money was created and spent into circulation by rulers either
directly, like Alexander, or through taxation or seizure of private holdings of precious metal.
Nor was early money necessarily based on precious metal. In fact, precious metal was relatively useless for building empires,
because it was in short supply. Even in the Roman era, base metal was used, and Charlemagne's new money eventually became debased.
In China, gold and silver did not feature and paper money was being used as early as the 9th century.
A coin from the time of Charlemagne, 768-814 AD. Classical Numismatic Group, CC BY-SA
What the market economy did introduce was a new form of money: money as debt.
Money as debt
If you look at a £20 banknote you will see it says: "I promise to pay the bearer on demand the sum of twenty pounds." This is
a promise originally made by the Bank of England to exchange notes for the sovereign currency. The banknote was a new form of money.
Unlike sovereign money it was not a statement of value, but a promise of value. A coin, even if made of base metal, was exchangeable
in its own right: it did not represent another, superior, form of money. But when banknotes were first invented, they did.
The new invention of promissory notes emerged through the needs of trade in the 16th and 17th centuries. Promissory notes were
used to acknowledge receipt of loans or investments and the obligation to repay them through the fruits of future transactions. A
major task of the emerging profession of banking was to periodically set all these promises against each other and see who owed what
to whom. This process of "clearing" meant that a great amount of paper commitments was reduced to relatively less actual transfer
of money. Final settlement was either by payment with sovereign money (coins) or another promissory note (banknote).
Eventually, the banknotes became so trusted that they were treated as money in their own right. In Britain they became equivalent
to the coinage, particularly when they were united under the banner of the Bank of England. Today, if you took a banknote to the
Bank of England, it would merely exchange your note for one that is exactly the same. Banknotes are no longer promises, they are
the currency. There is no other "real" money behind them.
What promissory notes became. Wara1982/Shutterstock.com
What modern money does retain is its association with debt. Unlike sovereign money, which was created and spent directly into
circulation, modern money is largely borrowed into circulation through the banking system. This process shelters behind another myth,
that banks merely act as a link between savers and borrowers. In fact, banks create money. And it is only in the last decade that
this powerful myth has been finally put to rest by banking and monetary authorities.
It is now
acknowledged
by monetary authorities such as the IMF, the US Federal Reserve and the Bank of England, that banks are creating new money when
they make loans. They don't lend the money of other account holders to those who want to borrow.
Bank loans consist of money conjured out of thin air, whereby new money is credited to the borrowers account with the agreement
that the amount will eventually be repaid with interest.
The policy implications of the public currency being created out of nowhere and lent to borrowers on a purely commercial basis
have still not been taken on board. Nor has basing a public currency on debt as opposed to the sovereign power to create and directly
circulate money free of debt.
The result is that rather than using their own sovereign power over money creation, as Alexander the Great did, states have become
borrowers from the private sector. Where there are public spending deficits or the need for large scale future expenditure, there
is an expectation that the state will borrow the money or increase taxation, rather than create the money itself.
Creators of cash. Creative Lab/Shutterstock.com
Dilemmas of debt
But basing a money supply on debt is ecologically, socially and economically problematic.
Ecologically, there is a problem because the need to pay off debt could drive potentially
damaging
growth : money creation based on repaying debt with interest must imply constant growth in the money supply. If this is achieved
through increasing productive capacity, there will inevitably be pressure on natural resources.
Basing the money supply on debt is also socially discriminatory because not all citizens are in a position to take on debt. The
pattern of the money supply will tend to favour the already rich or the most speculative risk-taker. Recent decades, for example,
have seen a
huge amount of borrowing by the financial sector to enhance their investments.
The economic problem is that the money supply depends on the capacity of the various elements of the economy (public and private)
to take on more debt. And so as countries have become more dependent upon bank-created money, debt bubbles and credit crunches have
become more frequent.
This is because handbag economics creates an impossible task for the private sector. It has to create all new money through bank-issued
debt and repay it all with interest. It has to completely fund the public sector and generate a profit for investors.
But when the privatised bank-led money supply flounders, the money creating powers of the state come back into clear focus. This
was particularly plain in the 2007-8 crisis, when central banks created new money in the process known as quantitative easing. Central
banks used the sovereign power to create money free of debt to spend directly into the economy (by buying up existing government
debt and other financial assets, for example).
The question then becomes: if the state as represented by the central bank can create money out of thin air to save the banks
– why can't it create money to save the people?
It's a mistake to think of the state as a piggybank or handbag. ColorMaker/Shutterstock.com
Money for the people
The myths about money have led us to look at public spending and taxation the wrong way around. Taxation and spending, like bank
lending and repayment, is in a constant flow. Handbag economics assumes that it is taxation (of the private sector) that is raising
the money to fund the public sector. That taxation takes money out of the taxpayer's pocket.
But the long political history of sovereign power over money would indicate that the flow of money can be in the opposite direction.
In the same way that banks can conjure money out of thin air to make loans, states can conjure money out of thin air to fund public
spending. Banks create money by setting up bank accounts, states create money by allocating budgets.
When governments set budgets they do not see how much money they have in a pre-existing taxation piggybank. The budget allocates
spending commitments that may, or may not, match the amount of money coming in through taxation. Through its accounts in the treasury
and the central bank, the state is constantly spending out and taking in money. If it spends more money than it takes in, it leaves
more money in people's pockets. This creates a budget deficit and what is effectively an overdraft at the central bank.
Is this a problem? Yes, if the state is treated as if it was any other bank account holder – the dependent household of handbag
economics. No, if it is seen as an independent source of money. States do not need to wait for handouts from the commercial sector.
States are the authority behind the money system. The power exercised by the banks to create the public currency out of thin air
is a sovereign power.
It is no longer necessary to mint coins like Alexander, money can be created by keystrokes. There is no reason why this should
be monopolised by the banking sector to create new public money as debt. Deeming public spending as being equivalent to bank borrowing
denies the public, the sovereign people in a democracy, the right to access its own money free of debt.
Money should be designed for the many, not the few. Varavin88/Shutterstock.com
Redefining money
This foray into the historical and anthropological stories about money shows that long-held conceptions – that money emerged from
a previous market economy based on barter, and that it was originally made from precious metal – are fairytales. We need to recognise
this. And we need to capitalise on the public ability to create money.
But it is also important to recognise that the sovereign power to create money is not a solution in itself. Both the state and
bank capacity to create money have advantages and disadvantages. Both can be abused. The reckless lending of the banking sector,
for example, led to the near meltdown of the American and European monetary and financial system. On the other hand, where countries
do not have a developed banking sector, the money supply remains in the hands of the state, with massive room for corruption and
mismanagement.
The answer must be to subject both forms of money creation – bank and state – to democratic accountability. Far from being a technical,
commercial instrument, money can be seen as a social and political construct that has immense radical potential. Our ability to harness
this is hampered if we do not understand what money is
and how it works . Money must become our servant, rather than our master.
theconversation.com The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation.
Tags: Capitalism Neoliberalism
Print this article June
24, 2019 | Editor's Сhoice Neoliberalism Has Tricked Us Into Believing a Fairytale About Where Money Comes From Mary MELLOR
There is nothing natural about money. There is no link to some scarce essential form of money that sets a limit to its creation.
It can be composed of base metal, paper or electronic data – none of which is in short supply. Similarly – despite what you may have
heard about the need for austerity and a lack of certain cash-generating trees – there is no "natural" level of public expenditure.
The size and reach of the public sector is a matter of political choice.
Which puts austerity, the culling of expenditure in the public economy, under some question. For some countries, such as
Greece , the impact of austerity has been devastating. Austerity policies still persist despite numerous
studies arguing that they were entirely misconceived,
based on political choice rather than economic logic. But the economic case for austerity is equally mistaken: it is based on what
can best be described as fairytale economics.
So what were the justifications? Britain, for example, has lived under an austerity regime since 2010, when the incoming Tory-Liberal
Democrat government reversed the Labour policy of raising the level of public expenditure in response to the 2007-8 financial crisis.
The crisis had created a perfect storm: bank rescue required high levels of public spending while economic contraction reduced tax
income. The case for austerity was that the higher level of public expenditure could not be afforded by the taxpayer. This was supported
by "
handbag economics ", which adopts the analogy of states as being like households, dependent on a (private sector) breadwinner.
Under handbag economics, states are required to restrict their expenditure to what the taxpayer is deemed to be able to afford.
States must not try to increase their spending by borrowing from the (private) financial sector or by "printing money" (although
the banks were rescued by doing so by another name – quantitative
easing , the creation of electronic money).
The ideology of handbag economics claims that money is to be generated only through market activity and that it is always in short
supply. Request for increased public expenditure is almost invariably met with the response "where's the money to come from?" When
confronted by low pay in the NHS, the British prime minister, Theresa May, famously declared, "there is no magic money tree".
So where does money come from? And what is money
anyway? What is money?
Until the last 50 years or so the answer seemed to be obvious: money was represented by cash (notes and coin). When money was
tangible, there seemed no question about its origin, or its value. Coins were minted, banknotes were printed. Both were authorised
by governments or central banks. But what is money today? In richer economies the use of cash is
declining rapidly . Most monetary transactions are based on transfers between accounts: no physical money is involved.
In the run up to the financial crisis, the state's role in relation to money held in bank accounts was ambiguous. Banking was
a monitored and licensed activity with some level of state guarantee of bank deposits, but the actual act of creating bank accounts
was, and is, seen as a private matter. There may be regulations and limitations, but there is
no detailed scrutiny of bank accounts and bank lending.
Yet, as the 2007-8 financial crisis showed, when bank accounts came under threat as banks teetered on the edge of bankruptcy,
states and central banks had to step in and
guarantee the security
of all deposit accounts. The viability of money in non-investment bank accounts was demonstrated to be as much a public responsibility
as cash.
This raises fundamental questions about money as a social institution. Is it right that money can be generated by a private choice
to take on debt, which then becomes a liability of the state to guarantee in a crisis?
But far from seeing money as a public resource, under neoliberal handbag economics, money creation and circulation has increasingly
been seen as a function of the market. Money is "made" solely in the private sector. Public spending is seen as a drain on that money,
justifying austerity to make the public sector as small as possible.
This stance, however, is based on a complete misunderstanding of the nature of money, sustained by a series of deeply embedded
myths.
Myths about money
Neoliberal handbag economics is derived from two key myths about the origin and nature of money. The first is that money emerged
from a previous market economy based on barter. The second is that money was originally made from precious metal.
It is claimed that bartering proved to be very inefficient as each buyer-seller needed to find another person who exactly matched
their requirements. A hat maker might barter a hat for some shoes she needs – but what if the shoe maker is in no need of a hat?
The solution to this problem, so the story goes, was to choose one commodity that everyone desired, to act as a medium of exchange.
Precious metal (gold and silver) was the obvious
choice because it had its own value and could be easily divided and carried. This view of the origin of money goes back to at
least the 18th century: the time of economist
Adam Smith .
The 'father of capitalism' Adam Smith, 1723-1790. Matt Ledwinka/Shutterstock.com
These myths led to two assumptions about money that are still current today. First, that money is essentially connected to, and
generated by, the marketplace. Second that modern money, like its original and ideal form, is always in short supply. Hence the
neoliberal
claim that public spending is a drain on the wealth-creating capacity of the market and that public spending must always be as
limited as possible. Money is seen as a commercial instrument, serving a basic, market, technical, transactional function with no
social or political force.
But the real story of money is very different. Evidence from anthropology and history shows that there was no widespread barter
before markets based on money developed, and precious metal coinage emerged long before market economies. There are also many forms
of money other than precious metal coins.
Money as custom
Something that acts as money has existed in most, if not all, human societies. Stones, shells, beads, cloths, brass rods and many
other forms have been the means of comparing and acknowledging comparative value. But this was rarely used in a market context. Most
early human communities lived directly off the land – hunting, fishing, gathering and gardening. The customary money in such communities
was used mainly to celebrate auspicious social events or serve as a way of resolving social conflict.
For example, the Lele people, who lived in what is now the Democratic Republic of Congo in the 1950s, calculated value in
woven raffia
cloths . The number of cloths required for different occasions was fixed by custom. Twenty cloths should be given to a father
by a son on achieving adulthood and a similar amount given to a wife on the birth of a child. The anthropologist Mary Douglas, who
studied the Lele, found
they were resistant to using the cloths in transactions with outsiders, indicating that the cloths had a specific cultural relevance.
Even stranger is the large stone money of the Yap people of Micronesia. Huge circular discs of stone could weigh up to
four metric tons . Not something to put in your
pocket for a trip to the shops.
Try lugging that to the market. Evenfh/Shutterstock.com
There is plenty of other anthropological evidence such as this all over the world, all pointing to the fact that money, in its
earliest form, served a social rather than market-based purpose.
Money as power
For most traditional societies, the origin of the particular money form has been lost in the mist of time. But the origin and
adoption of money as an institution became much more obvious with the emergence of states. Money did not originate as precious metal
coinage with the development of markets. In fact, the new invention of precious metal coinage in around
600BC was adopted
and controlled by imperial rulers to build their empires by waging war.
Most notable was Alexander the Great, who ruled from 336–323BC. He is said to have used
half a ton of silver a day
to fund his largely mercenary army rather than a share of the spoils (the traditional payment). He had more than 20 mints producing
coins, which had images of gods and heroes and the word Alexandrou (of Alexander). From that time, new ruling regimes have
tended to herald their arrival by a new coinage.
Alexandrou. Alex Coan/Shutterstock.com
More than a thousand years after the invention of coinage, the Holy Roman Emperor Charlemagne (742-814), who ruled most of western
and central Europe, developed what became the basis of the British pre-decimal money system: pounds, shillings and pence. Charlemagne
set up a currency system based on 240 pennies minted from a pound of silver. The pennies became established as the denier in France,
the pfennig in Germany, the dinero in Spain, the denari in Italy and the penny in Britain.
So the real story of money as coinage was not one of barterers and traders: it emerged instead from a long history of politics,
war and conflict. Money was an active agent in state and empire building, not a passive representation of price in the market. Control
of the money supply was a major power of rulers: a sovereign power. Money was created and spent into circulation by rulers either
directly, like Alexander, or through taxation or seizure of private holdings of precious metal.
Nor was early money necessarily based on precious metal. In fact, precious metal was relatively useless for building empires,
because it was in short supply. Even in the Roman era, base metal was used, and Charlemagne's new money eventually became debased.
In China, gold and silver did not feature and paper money was being used as early as the 9th century.
A coin from the time of Charlemagne, 768-814 AD. Classical Numismatic Group, CC BY-SA
What the market economy did introduce was a new form of money: money as debt.
Money as debt
If you look at a £20 banknote you will see it says: "I promise to pay the bearer on demand the sum of twenty pounds." This is
a promise originally made by the Bank of England to exchange notes for the sovereign currency. The banknote was a new form of money.
Unlike sovereign money it was not a statement of value, but a promise of value. A coin, even if made of base metal, was exchangeable
in its own right: it did not represent another, superior, form of money. But when banknotes were first invented, they did.
The new invention of promissory notes emerged through the needs of trade in the 16th and 17th centuries. Promissory notes were
used to acknowledge receipt of loans or investments and the obligation to repay them through the fruits of future transactions. A
major task of the emerging profession of banking was to periodically set all these promises against each other and see who owed what
to whom. This process of "clearing" meant that a great amount of paper commitments was reduced to relatively less actual transfer
of money. Final settlement was either by payment with sovereign money (coins) or another promissory note (banknote).
Eventually, the banknotes became so trusted that they were treated as money in their own right. In Britain they became equivalent
to the coinage, particularly when they were united under the banner of the Bank of England. Today, if you took a banknote to the
Bank of England, it would merely exchange your note for one that is exactly the same. Banknotes are no longer promises, they are
the currency. There is no other "real" money behind them.
What promissory notes became. Wara1982/Shutterstock.com
What modern money does retain is its association with debt. Unlike sovereign money, which was created and spent directly into
circulation, modern money is largely borrowed into circulation through the banking system. This process shelters behind another myth,
that banks merely act as a link between savers and borrowers. In fact, banks create money. And it is only in the last decade that
this powerful myth has been finally put to rest by banking and monetary authorities.
It is now
acknowledged
by monetary authorities such as the IMF, the US Federal Reserve and the Bank of England, that banks are creating new money when
they make loans. They don't lend the money of other account holders to those who want to borrow.
Bank loans consist of money conjured out of thin air, whereby new money is credited to the borrowers account with the agreement
that the amount will eventually be repaid with interest.
The policy implications of the public currency being created out of nowhere and lent to borrowers on a purely commercial basis
have still not been taken on board. Nor has basing a public currency on debt as opposed to the sovereign power to create and directly
circulate money free of debt.
The result is that rather than using their own sovereign power over money creation, as Alexander the Great did, states have become
borrowers from the private sector. Where there are public spending deficits or the need for large scale future expenditure, there
is an expectation that the state will borrow the money or increase taxation, rather than create the money itself.
Creators of cash. Creative Lab/Shutterstock.com
Dilemmas of debt
But basing a money supply on debt is ecologically, socially and economically problematic.
Ecologically, there is a problem because the need to pay off debt could drive potentially
damaging
growth : money creation based on repaying debt with interest must imply constant growth in the money supply. If this is achieved
through increasing productive capacity, there will inevitably be pressure on natural resources.
Basing the money supply on debt is also socially discriminatory because not all citizens are in a position to take on debt. The
pattern of the money supply will tend to favour the already rich or the most speculative risk-taker. Recent decades, for example,
have seen a
huge amount of borrowing by the financial sector to enhance their investments.
The economic problem is that the money supply depends on the capacity of the various elements of the economy (public and private)
to take on more debt. And so as countries have become more dependent upon bank-created money, debt bubbles and credit crunches have
become more frequent.
This is because handbag economics creates an impossible task for the private sector. It has to create all new money through bank-issued
debt and repay it all with interest. It has to completely fund the public sector and generate a profit for investors.
But when the privatised bank-led money supply flounders, the money creating powers of the state come back into clear focus. This
was particularly plain in the 2007-8 crisis, when central banks created new money in the process known as quantitative easing. Central
banks used the sovereign power to create money free of debt to spend directly into the economy (by buying up existing government
debt and other financial assets, for example).
The question then becomes: if the state as represented by the central bank can create money out of thin air to save the banks
– why can't it create money to save the people?
It's a mistake to think of the state as a piggybank or handbag. ColorMaker/Shutterstock.com
Money for the people
The myths about money have led us to look at public spending and taxation the wrong way around. Taxation and spending, like bank
lending and repayment, is in a constant flow. Handbag economics assumes that it is taxation (of the private sector) that is raising
the money to fund the public sector. That taxation takes money out of the taxpayer's pocket.
But the long political history of sovereign power over money would indicate that the flow of money can be in the opposite direction.
In the same way that banks can conjure money out of thin air to make loans, states can conjure money out of thin air to fund public
spending. Banks create money by setting up bank accounts, states create money by allocating budgets.
When governments set budgets they do not see how much money they have in a pre-existing taxation piggybank. The budget allocates
spending commitments that may, or may not, match the amount of money coming in through taxation. Through its accounts in the treasury
and the central bank, the state is constantly spending out and taking in money. If it spends more money than it takes in, it leaves
more money in people's pockets. This creates a budget deficit and what is effectively an overdraft at the central bank.
Is this a problem? Yes, if the state is treated as if it was any other bank account holder – the dependent household of handbag
economics. No, if it is seen as an independent source of money. States do not need to wait for handouts from the commercial sector.
States are the authority behind the money system. The power exercised by the banks to create the public currency out of thin air
is a sovereign power.
It is no longer necessary to mint coins like Alexander, money can be created by keystrokes. There is no reason why this should
be monopolised by the banking sector to create new public money as debt. Deeming public spending as being equivalent to bank borrowing
denies the public, the sovereign people in a democracy, the right to access its own money free of debt.
Money should be designed for the many, not the few. Varavin88/Shutterstock.com
Redefining money
This foray into the historical and anthropological stories about money shows that long-held conceptions – that money emerged from
a previous market economy based on barter, and that it was originally made from precious metal – are fairytales. We need to recognise
this. And we need to capitalise on the public ability to create money.
But it is also important to recognise that the sovereign power to create money is not a solution in itself. Both the state and
bank capacity to create money have advantages and disadvantages. Both can be abused. The reckless lending of the banking sector,
for example, led to the near meltdown of the American and European monetary and financial system. On the other hand, where countries
do not have a developed banking sector, the money supply remains in the hands of the state, with massive room for corruption and
mismanagement.
The answer must be to subject both forms of money creation – bank and state – to democratic accountability. Far from being a technical,
commercial instrument, money can be seen as a social and political construct that has immense radical potential. Our ability to harness
this is hampered if we do not understand what money is
and how it works . Money must become our servant, rather than our master.
My advice is to drop the idea of acquiring gold. There are just too many issues for the
small buyer to safely overcome.
1) If gold prices ever shoot through the roof (as the seller sites keep hinting at) I'd
expect the US government to politely invite you to sell them your stocks. This happened in
the Thirties, and can certainly happen again. It is probably impossible to accumulate
anything more than a few pieces of jewelry without being put on somebody's list. The Feds
closely monitor virtually every financial transaction made in this country.
2) How will you know you're getting pure 24k gold vs 23 or 18k stuff? Worse than that, the
Chinese have become VERY good at gilding Tungsten bars or disks. Even central Banks have
been taken in by this scam, and what do you suppose your chances are? The 19.25 gm/cubic
cm. density of Tungsten is very, very close to the 19.3 density of Gold. I'd imagine with a
bit of powder metallurgy work involving a speck of 22.5 Osmium, the numbers could be exactly
matched. There are a few other tests, but nobody outside of the huge dealers or central banks
can afford to do them.
3) come the financial disaster, how will you "spend" your gold? Even if you're certain you
have the genuine product, how will you convince me? Or anybody else, for that matter.
It'll come down to what the guy at the pawn shop will give you for it, and that'll probably
be on the order of 1/3 the value. (there is always the Official Government purchasers, and at
their price and their penalties for holding out)
I'd suggest you buy US "junk silver" in small cash deals - the old silver coins minted up
to 1964. The odds are much higher somebody will understand these have a superior value, and
they're in sizes suitable for small purchases. Even so, would you reasonably expect anybody
to accept a couple Ben Franklin half dollars in exchange for a sack of food - especially
if there is a severe food shortage going on? If your kids know about this acquisition,
you'd better prepare for the burglars - they talk about everything to everybody. Come to
think of it, I know of an adult who lost tens of thousands worth of silver because he was
motor mouth about it. Total loss. BTW, telling your insurance guy is the same as putting it
on a billboard - this information gets shared!
Do as Karlof1 suggested - find a reputable coin dealer in your vicinity. Don't buy at
Amazon, Ebay et al..
Also, if manageable buy 1 ounce coins only as this will save you surcharge that always
comes with the smaller ones. Stick with well known brands - Canadian Maple Leaf, Austrian
Philharmonics, Australian Kangaroo, Britannia, American Eagle - and stay away from collector
items.
Notional value of the coins:
Britannia 100 GBP, Philharmonics 100 Euro, Maple Leaf 50 CAD, American Eagle 50 US, Kangaroo
50 AUS.
Watch Gold spot price prior to any purchase at barchart.com (ticker ^XAUUSD - ^XAUCAD),
stockcharts.com (ticker $Gold), investing.com etc (ticker XAU/CAD - XAU/US).
We can already hear the whining from the uber-left's ivory tower as Fed Chair Jerome Powell
unleashed some common-sense on the latest fraud being thrust upon Americans - that of Modern
Monetary Theory (MMT).
As Bloomberg reminds, MMT argues that because America borrows in its own currency, it can
always print more dollars to cover its obligations. As a result, the thinking goes, the U.S.
can always run sustained budget deficits and rack up an ever-increasing debt burden. Helping
grease the wheels for some MMTers is the expectation that the Fed would keep rates low to
contain the cost of servicing America's obligations . With that in mind, Sen. David Perdue,
R-Ga., asked Powell about the theory, saying its advocates back a "spend-now spend-later
spend-often policy that would use massive annual deficits to fund these tremendously expensive
policy proposals." MMT advocates figure the Fed would be a partner in funding these programs
through easy monetary policy.
Powell's response was brief and to the point:
"The idea that deficits don't matter for countries that can borrow in their own currency I
think is just wrong..."
"And to the extent that people are talking about using the Fed -- our role is not to
provide support for particular policies," Powell said.
"Decisions about spending, and controlling spending and paying for it, are really for
you."
Simply put, Powell explained that the increasingly popular theory espoused by progressives
that the government can continue to borrow to fund social programs such as Medicare for
everyone, free college tuition and a conversion to renewable energy in the next decade is
unworkable and makes some "pretty extreme claims."
Earlier in the hearing Powell also noted that "U.S. debt is fairly high to the level of GDP
-- and much more importantly -- it's growing faster than GDP, really significantly faster. We
are going to have to spend less or raise more revenue."
In his book "A Time For Action" written in 1980 William Simon, a former Secretary of the
Treasury tells how he was "frightened and angry". In short, he sounded the trumpet about how
he saw the country was heading down the wrong path. William Simon (1927 – 2000) was a
businessman and a philanthropist.
Simon became the Secretary of the Treasury on May 8, 1974, during the Nixon administration
and was reappointed by President Ford and served until 1977. I recently picked up a copy of
the book that I had read decades ago and while re-reading it I reflected on and tried to
evaluate the events that brought us to today.
Out of this came an article reflecting on how the economy of today had been greatly shaped
by the actions that took place starting around 1979. Interest rates, inflation, and debt do
matter and are more significant than most people realize. Rewarding savers and placing a
value on the allocation of financial assets is important.
The path has again become unsustainable and many people will be shocked when the reality
hits, this is not the way it has always been. The day of reckoning may soon be upon us, how
it arrives is the question. Many of us see it coming, but the one thing we can bank on is
that after it arrives many people will be caught totally off guard. The piece below explores
how we reached this point.
1) It isn't a theory, just an explanation of the US monetary system and how it works. It
isn't advocating the system, it is just stating how it works and how one would need to
operate within it.
2) MMT states that money shouldn't be created (spent into the economy by the gov) unless
the necessary capacity, productivity, workers, resources and assets existed in the economy.
And, if they didn't, they'd have to be created first. This would prevent inflation, not
create it.
Most everyone is misinformed and hasn't done their homework as to what MMT is. The
Libtards have taken an MMT point out of context and run with it. PRINT MONEY! But they omit
the key MMT policy point of... "Print/spend ONLY ONLY ONLY if the productive capacity and
resources are already in the economy to balance any gov spending out." A slightly important
point that they conveniently overlooked due to their 2nd grade understanding of finance,
economics and accounting.
MMT simply doesn't work if a nation 'borrows' its own currency. However, if it does not,
then MMT would at least theoretically be correct because the issue of 'printing money'
(or creating credit) would not be tied to debt but would entail a balancing of the
beneficial and adverse effects of monetary inflation.
There is some evidence that you can print money and spend it and have a vibrant, powerful
economy. It depends on how you spend it. If it's spent on supportive infrastructure such as
energy, transportation, utilities, communications, etc. it's all upwards. If it's spent on
welfare, war machinery, and supporting the bureaucracy the system fails in one
generation.
Underlying the whole premise of MMT is the question; Does the market determine interest
rates or does the fed?
I know the fed determines the federal funds rate but are they the sole dictator of
interest rates? A large portion of our debt is purchased by both domestic and foreign
investors. These are independent people....as well as governments. Will they continue to buy
bonds at 2% interest from a country that has a debt-to-GDP ration of 300% and 10 trillion
dollar yearly deficits??
If US debt gets downgraded, can the fed over-ride the tide of reality and dictate low
interest rates? Can they print enough to buy them all or do they have to maintain a
functioning balance sheet as well?
cut spending - why does usa need fbi branches in every foreign country?
why do we need so many outdated military machines (ahem aircraft carriers)
why does health care and education cost so much (ahem we forget to talk about cost, only
how to pay the fee imposed by the business)
Much of our debt is result of party over country, pointless wars (that Iraq oil is now
controlled by Russia and china..so much for the return on investment there), Afghanistan is a
failed and foolish intervention - just ask russia, syria is a soverign nation leave them
alone, same as venezuala.
Retrench and let the world figure itself out - after pakistan and india nuke each other
back to stone age, lets hope for humanities sake we can get real global cooperative
leadership that doesnt include the capitalist big read white and blue **** smacking foreign
nations on the forehead to further the elites agenda.
"... But otherwise, quite correct. Raise payments on deposits and get more deposits. Raise charges on loans and get fewer loans. I might note that the Fed has supposedly paused rate hikes, but deposits are still exiting the system faster than loans. This result can be had via Fred. Thus the curve is getting more3 inverted. ..."
Large Excess Reserves and the Relationship between Money and Prices - FRB Richmond
At the same time that it has been normalizing its balance sheet, the Fed also has been
raising its target for interest rates. The ability to pay interest on reserves has been
crucial to allowing the Fed to raise its target rate while there are still significant excess
reserves in the banking system. Despite these rate increases, due to various secular reasons,
interest rates are expected to remain historically low for a long time.
--------------
I sample the current expectation, and it is a bit more detailed. The expectation is that
the curve will remain inverted, generally with a zero near the five yer mark, if I judge from
the Treasury curve where the curve has been inverted with a zero near the five yer mark.
The ten year rate will remain historically higher than the five year rate for some time,
evidently. If we measure interest rate as the per annum percent of Real GDP devoted to
nominal federal interest charges, then the interest rate was higher than it has ever been
going back to 1972, briefly (four months ago) , and now occupies the second highest level
since just before the 92 recession, at about 3.5% of GDP. These result can be had in Fred by
dividing nominal interest payments by real GDP.
But otherwise, quite correct. Raise payments on deposits and get more deposits. Raise
charges on loans and get fewer loans. I might note that the Fed has supposedly paused rate
hikes, but deposits are still exiting the system faster than loans. This result can be had
via Fred. Thus the curve is getting more3 inverted.
Why do we know the curve will invert? It is the law, when the Fed loses deposits, loan
charges drop, not rise as would be normal. That is why we all expect the curve to remain
inverted, the law. The law is specifically designed so the Fed holds the current low rate as
long as possible, then does the sudden regime change. The law, written into the law, a rule
requires that we spend time with an inverted yield curve before price adjustment. I emphasis
the law because it is actually typed out, signed and enforced publicly.
The law requires the Fed hold the curve as long as possible, mainly so the pres and
Congress have time to react to changes in term of trade. So, like under Obama, we hold the
line on rates until Obama and the Repubs agree on a tax and spending plan going forward, then
the treasury curve gains traction again. Te law, it is not under debate unless you want to be
arreswted.
The original bronze disks of Rome circulated as currency. The metal money of U.S.
Confederacy circulated that is until the Confederacy became no more.
The point? Money's true nature is law. When a country collapses, then its money
collapses.
Paper money that was good? Lincoln's greenbacks circulated at par. Massachusetts Bills
circulated as money and prevented Oligarchs from England and their attempted takeover. The
colony used the money to make iron goods (like Cannons) and do commerce.
The real statement is this: Money when it becomes unlawful, always collapses.
Massive money printing can happen when too many loans are made, as in the case today as
all private bank credit notes come into being with loan activity -- a little more that
98%.
Driving a currency down with shorts causes new money to be loaned into existence, which in
turn is the underlying cause of hyperinflations. The new credit creation covers the short.
This mechanism always goes along with exchange rate pressures, where your country has to pay
a debt in a foreign currency.
If you had an internal gold currency, which is recognized internationally, then your debts
would be paid in gold, which would collapse your country into depression instead of
inflation.
Bottom line is that money's true nature is law, and making claims about "paper" or "metal"
obscures this fact.
Since both the Fed and your local bank create money from nothing
They also impose some obligations: repayment of principle and interest. Since we
can't create money from nothing, this payback has to come from money somehow created by the
banks as well.
I'm less worried about "disappearing" tax money than I am about misallocated spending
and its consequences -- eg the 'black budget' of the NSA and 'deep state' generally.
Can't we worry about everything ?
Good point about the 'black budget'. But the last time some sort of DOD audit was
attempted the Pentagon accountants' offices got hit by a missile, I mean airliner, on
911.
Internally, a national currency has a value corresponding to demand placed by the
government, such as money for the taxes the state requires of its people. The ups and downs
of Lincoln's Greenback fiat currency, especially its interaction with the value of gold,
demonstrates how currency is tied to confidence in the government, as you suggest.
Externally, a nation's currency usually has value to the extent that a nation has
something to offer others, which makes the currency useful for making a desired purchase.
Today, the "desired purchase" is oil. The dollar is valued because you need dollars to buy
oil, as formerly enforced by diplomatic pressure. Because of US sanctions, trade in oil is
now beginning using rubles, yuan, and most unforgivably, Venezuelan currency! (Like Iraq,
Libya and Syria). If this keeps up, countries will no longer need dollars for their oil, and
$ will have to compete internationally based on other considerations. That won't be pretty.
IMHO, US leaders have dangerously eroding the dollar's pre-eminence by profligate use of
sanctions.
I need to remedy my own deficiencies in this area, but advocates of Modern Monetary
Theory, like Michael Hudson, Steve Keene, and like-minded economists who often post at
nakedcapitalism, make a strong case for a fiat money system, issued and controlled by
state banks, in contrast to the private banks as now.
But objecting to the fact that private bankers charge us interest, and act above the law
and democratic accountability, is such a quaint complaint.
Money quote: " neoliberalism is the fight of finance to subdue society at large, and to
make the bankers and creditors today in the position that the landlords were under
feudalism."
Notable quotes:
"... ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. ..."
"... neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism. ..."
"... They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ..."
"... Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc. ..."
"... The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries. ..."
"... Now Christianity has itself long given up on the tradition teaching against usury of course. ..."
"... In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans. ..."
Just finished reading the fascinating
Michael Hudson interview I linked to on previous thread; but since we're discussing Jews
and their religion in a tangential manner, I think it appropriate to post here since the
history Hudson explains is 100% key to the ongoing pain us humans feel and inflict. My
apologies in advance, but it will take this long excerpt to explain what I mean:
"Tribes: When does the concept of a general debt cancellation disappear historically?
"Michael: I guess in about the second or third century AD it was downplayed in the Bible.
After Jesus died, you had, first of all, St Paul taking over, and basically Christianity was
created by one of the most evil men in history, the anti-Semite Cyril of Alexandria. He
gained power by murdering his rivals, the Nestorians, by convening a congress of bishops and
killing his enemies. Cyril was really the Stalin figure of Christianity, killing everybody
who was an enemy, organizing pogroms against the Jews in Alexandria where he ruled.
"It was Cyril that really introduced into Christianity the idea of the Trinity. That's
what the whole fight was about in the third and fourth centuries AD. Was Jesus a human, was
he a god? And essentially you had the Isis-Osiris figure from Egypt, put into Christianity.
The Christians were still trying to drive the Jews out of Christianity. And Cyril knew the
one thing the Jewish population was not going to accept would be the Isis figure and the
Mariolatry that the church became. And as soon as the Christian church became the
establishment rulership church, the last thing it wanted in the West was debt
cancellation.
"You had a continuation of the original Christianity in the Greek Orthodox Church, or the
Orthodox Church, all the way through Byzantium. And in my book And Forgive Them Their Debts,
the last two chapters are on the Byzantine echo of the original debt cancellations, where one
ruler after another would cancel the debts. And they gave very explicit reason for it: if we
don't cancel the debts, we're not going to be able to field an army, we're not going to be
able to collect taxes, because the oligarchy is going to take over. They were very explicit,
with references to the Bible, references to the jubilee year. So you had Christianity survive
in the Byzantine Empire. But in the West it ended in Margaret Thatcher. And Father
Coughlin.
"Tribes: He was the '30s figure here in the States.
"Michael: Yes: anti-Semite, right-wing, pro-war, anti-labor. So the irony is that you have
the people who call themselves fundamentalist Christians being against everything that Jesus
was fighting for, and everything that original Christianity was all about."
Hudson says debt forgiveness was one of the central tenets of Judaism: " ... if
you take the Bible literally, it's the fight in almost all of the early books of the Old
Testament, the Jewish Bible, all about the fight over indebtedness and debt
cancellation. "
Looks like I'll be purchasing Hudson's book as he's essentially unveiling a whole new,
potentially revolutionary, historical interpretation.
@ karlof1 with the Michale Hudson link....thanks!!
Here is the quote that I really like from that interview
"
Michael: No. You asked what is the fight about? The fight is whether the state will be taken
over, essentially to be an extension of Wall Street if you do not have government planning.
Every economy is planned. Ever since the Neolithic (era), you've had to have (a form of)
planning. If you don't have a public authority doing the planning, then the financial
authority becomes the planners. So globalism is in the financial interest –Wall Street
and the City of London, doing the planning, not governments. They will do the planning in
their own interest. So neoliberalism is the fight of finance to subdue society at
large,and to make the bankers and creditors today in the position that the landlords were
under feudalism.
"
karlof1, please email me as I would like to read the book as well and maybe we can share a
copy.
And yes, it is relevant to Netanyahoo and his ongoing passel of lies because humanity has
been told and been living these lives for centuries...it is time to stop this shit and grow
up/evolve
@13 / 78 karlof1... thanks very much for the links to michael hudson, alastair crooke and the
bruno maraces articles...
they were all good for different reasons, but although hudson is being criticized for
glossing over some of his talking points, i think the main thrust of his article is very
worthwhile for others to read! the quote to end his article is quite good "The question is,
who do you want to run the economy? The 1% and the financial sector, or the 99% through
politics? The fight has to be in the political sphere, because there's no other sphere that
the financial interests cannot crush you on."
it seems to me that the usa has worked hard to bad mouth or get rid of government and the
concept of government being involved in anything.. of course everything has to be run by a
'private corp' - ie corporations must run everything.. they call them oligarchs when talking
about russia, lol - but they are corporations when they are in the usa.. slight rant..
another quote i especially liked from hudson.. " They call themselves free marketers,
but they realize that you cannot have neoliberalism unless you're willing to murder and
assassinate everyone who promotes an alternative ." that sounds about right...
@ 84 juliania.. aside from your comments on hudsons characterization of st paul "the
anti-Semite Cyril of Alexandria" further down hudson basically does the same with father
coughlin - https://en.wikipedia.org/wiki/Charles_Coughlin..
he gets the anti-semite tag as well.. i don't know much about either characters, so it's
mostly greek to me, but i do find some of hudsons views especially appealing - debt
forgiveness being central to the whole article as i read it...
it is interesting my own view on how money is so central to the world and how often times
I am incapable of avoiding the observation of the disproportionate number of Jewish people in
banking.. I guess that makes me anti-semite too, but i don't think of myself that way.. I
think the obsession with money is killing the planet.. I don't care who is responsible for
keeping it going, it is killing us...
Just so long as you remember that most of the strongest and most moving condemnations
of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah,
Jeremiah, Micah, the Gospels, Letter of James, etc.
The history of Jewish banking after the fall or Rome is inextricable from cultural
anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from
most aspects of social life. The Jewish lending of money on interest to gentiles was both
necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish
money lenders were essential to and yet ostracized within European economies for
centuries.
Now Christianity has itself long given up on the tradition teaching against usury of
course.
I too greatly admire the work of Hudson but he consistently errs and oversimplifies
whenever discussing the beliefs of and the development of beliefs among preNicene followers
of the way (as Acts puts is) or Christians (as they came to be known in Antioch within
roughly eight or nine decades after Jesus' death.) Palestinian Judaism in the time of Jesus
was much more variegated than scholars even twenty years ago had recognized. The gradual
reception and interpretation of the Dead Sea Scrolls in tandem with renewed research into
Phili of Alexandria, the Essenes, the so-called Sons of Zadok, contemporary Galilean zealot
movements styles after the earlier Maccabean resistance, the apocalyptism of post exilic
texts like Daniel and (presumably) parts of Enoch--all paint a picture of a highly diverse
group of alternatives to the state-Church once known as Second Temple Judaism that has been
mistaken as undisputed Jewish "orthodoxy" since the advent of historical criticism.
The
Gospel of John, for example, which dates from betweeen 80-120 and is the record of a much
earlier oral tradition, is already explicitly binitarian, and possibly already trinitarian
depending on how one understands the relationship between the Spirit or Advocate and the Son.
(Most ante-Nicene Christians understood the Spirit to be *Christ's* own spirit in distributed
form, and they did so by appeal to a well-developed but still largely under recognized strand
in Jewish angelology.)
The "theological" development of Christianity occurred much sooner
that it has been thought because it emerged from an already highly theologized strand or
strands of Jewish teaching that, like Christianity itself, privileged the Abrahamic covenant
over the Mosaic Law, the testament of grace over that of works, and the universal scope of
revelation and salvation as opposed to any political or ethnic reading of the "Kingdom."
None
of these groups were part of the ruling class of Judaean priests and levites and their
hangers on the Pharisees.
In John, for instance most of the references to what in English is
translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to
the ruling elite among the southern tribe in bed with the Romans.
So the anti-Judaism/Semiti
of John's Gispel largely rests on a mistranslation. In any event, everything is much more
complex than Hudson makes it out to be. Christian economic radicalism is alive and well in
the thought of Gregory of Nysa and Basil the Great, who also happened to be Cappadocian
fathers highly influential in the development of "orthodox" Trinitarianism in the fourth
century.
I still think that Hudson's big picture critique of the direction later Christianity
took is helpful and necessary, but this doesn't change the fact that he simplifies the
origins, development, and arguably devolution of this movement whenever he tries to get
specific. It is a worthwhile danger given the quality of his work in historical economics,
but still one has to be aware of.
Newly elected Representative Alexandria Ocasio-Cortez recently
said that Modern Monetary Theory (MMT) absolutely needed to be "a larger part of our
conversation." Her comment shines a spotlight on MMT. So what is it? According to Wikipedia , it is:
"a macroeconomic theory that describes the currency as a public monopoly and unemployment as
the evidence that a currency monopolist is restricting the supply of the financial assets
needed to pay taxes and satisfy savings desires."
It is uncontroversial to say that the Federal Reserve has a monopoly on the dollar. So let's
look at the second proposition. Unemployment, MMT holds, is evidence that the supply of dollars
is restricted.
In other words, more money causes more employment!
This does not sound very different from what the New Keynesians say. Keith analyzed former
Fed Chair Janet Yellen's seminal paper on the economics of labor for
Forbes :
"Here is their [Yellen and co-author Ackerloff] tenuous chain of logic:
Disgruntled employees don't work hard, and may even sabotage machinery.
So companies must overpay to keep them from slacking.
Higher pay per worker means fewer workers, because companies have a finite budget.
Yellen concludes -- you guessed it:
inflation provides corporations with more money to hire more people."
As a footnote, MMT is referred to as neo-Chartalism, and there is some evidence that Keynes
was influenced by Chartalism (which goes back to at least
1905).
On Thursday, Marketplace published a piece on
MMT . Things are heating up for this hot new (old) idea. Marketplace presented a "bathroom
sink" model of the economy (yes, really!)
To wrap your brain around this concept, picture a bathroom sink. Think of the government and
its ability to create more money whenever it needs to as the faucet and that bucket area of the
sink where the water goes as the economy.
The government controls how much money, or water, is flowing into the economy. It spends
money into the economy by building interstates or paying farm subsidies or funding
programs.
"And so as those dollars reach the economy, they begin to fill up that bucket, and what you
want to do is be very mindful about how full that bucket is getting or you're going to get an
inflation problem," [Bernie Sanders economic advisor Stephanie] Kelton said.
Inflation is where the sink overflows. If that happens, Kelton said there are two ways to
fix it: "You can slow the flow of dollars coming into that bucket. That means the government
then has to start slowing it's [sic] rate of spending, or you can open up the drain and let
some of those dollars out of the economy. And that's what we do when we collect taxes."
This sounds a lot like the Quantity Theory of Money (QTM). This view often paints a picture
of pouring water into a container. The higher the water level, the higher the general price
level.
QTM by itself does not promote the idea that more money causes more employment. Only that
more money causes more rising prices. But Keynes did. And the New Keynesians like Yellen
do.
So what makes MMT unique?
According to Stephanie Kelton, in the Marketplace article:
"If you control your own currency and you have bills that are coming due, it means you can
always afford to pay the bills on time," Kelton said. "You can never go broke, you can never be
forced into bankruptcy. You're nothing like a household."
Keynes taught us about government deficits to bolster employment and government deficits to
respond to a crisis. MMT teaches us how to get to the next level. The voters want free goodies.
Traditional economics says "there ain't no such thing as a free lunch."
MMT says "oh yes there is!"
At least until you get to too much inflation . The Monetarists would agree, don't print too
much money or you get too much inflation . Much of the gold community also agrees. If you print
too much money, then you get skyrocketing inflation .
Never mind that this prediction was proven wrong in the post-2008 policy response. We want
to highlight that the Keyesians, the Monetarists, the MMTers, and even many Austrians largely
agree. The problem with too much money printing is too much inflation . They quibble about what
is too much, but they agree on the "bathroom sink" model of the economy.
In the words of early 20 th century physicist Wolfgang Pauli, QTM "is not even
wrong ."
We define inflation as the counterfeiting of credit. That is, fraudulently taking money from
a saver. It is called borrowing , but the borrower hasn't got the means or intent to repay.
Additionally, when everyone thinks that the government's debt paper is money , the saver
doesn't even know or consent to the borrowing.
There are lies, damnlies, and statistics. Then there are a few pugnacious, in your face,
gaslighting make-you-believe-in-unreality cargo cults. We will explore this in full, below.
During World War II, the US military set up operations on certain Pacific islands. They
built landing strips, where they landed planes bringing in supplies and men. They hired the
local tribesmen as labor, and paid them stuff that was ordinary to Americans, but wondrous to
the islanders. Like canned food. The islanders really looked forward to when a plane would
land, and they would get some cargo.
After the war, the US military pulled up stakes and left. But the islanders still wanted the
cargos. So they set up these elaborate charades, with tiki torches instead of flashlights, and
coconut shell mockup headphones. They went through the motions that they thought the Americans
did. To try to bring back the cargos.
Huh. What does that remind you of? An elaborate charade, with bogus props, going through the
motions of a civilization they don't understand to try to produce desired results -- free
goodies?
Modern Monetary Theory is a cargo cult.
It's ironic that the name includes the word modern . If we said that a pile of greasy rags
sealed in a dark closet would spontaneously generate rats, would you call that a modern theory?
If we said that sickness is caused by bad humors, and the cure is bloodletting by leaches,
would you say this is modern ? How about the idea that the Sun and the planets orbit the Earth.
Is this modern , too?
Not only are these not modern -- they are, in fact, old ideas that were tossed into the
garbage heap -- they are not theories either. A theory is an explanation of reality, which
integrates many observed facts and contradicts none. Modern Monetary Theory is neither modern
nor a theory .
MMT is not an attempt to explain reality, but to deny it.
Even a child understands something. Even people in the ancient world understood it, too. If
you lend a bushel of wheat to your neighbor, and he does not repay it, you suffer a loss. You
are worse off, compared to before. And so is the borrower (who at the least ruins his
credit).
MMT is based on denying this universal truth. Common sense says that if Peter lends to Paul,
and Paul does not repay, then Peter is impoverished. Common sense says that Peter would not
lend to Paul if he knew that Paul would renege on his obligation.
MMT says that a modern economy has a modern currency, which is just the state's paper. And
in a modern economy, the modern state can print more with no concerns other than "overflowing
the bathroom sink". Get that, the only concern is prices could rise too fast. And so long as
this does not occur, then the state can get away with it. Only, there is nothing to get away
with. It's perfectly fine.
In a cargo cult, the people did not recognize the difference between fake coconut shell
headphones, and real headphones. Or flashlights and tiki torches. So they made crude copies as
best they could. They went through the motions to summon the sky gods to come down to earth,
with cargo.
Let's look at the mental gymnastics. They imbued magical -- that is outside the principle of
cause and effect -- characteristics to their props. Failing to understand that airplanes are
created by men, and that it takes a great deal of planning (not to mention wealth) to fly a
plane full of cargo from America to the middle of the Pacific, they imagined that, somehow, the
act of using the headphones and the flashlights caused the plane and its cargo to come. The
headset is tokenized, viewed as a magical talisman.
What a cargo cult does to headphones, MMT does to money. First, the cargo cult substitutes
coconut shells held together with twisted vine for headphones. What they wear when attempting
to summon the sky gods is not a headset, but a surrogate. MMT (as does Keynesianism and
Monetarism) substitutes government debt paper for money.
As an aside, even a gold-redeemable certificate is not money. Think about it. You can bring
this piece of paper to the teller window. You push it across the counter. The teller pushes
back the gold coin. If the word for the paper is money, then what is the word for the gold for
which it redeems?
Anyways, modern monetary systems use irredeemable paper. It's not gold-redeemable, but even
worse. And they treat this paper as if it were money .
And it goes even farther. Previous theories felt the need to at least pay lip service to
repaying debt. They couldn't quite get to the point of openly admitting that the debt is never
to be repaid. Keynes famously quipped that, "in the long run, we are all dead," creating
ambiguity about the intention to repay. Monetarists generally promote the idea that if the
economy grows fast enough, the debt will shrink as a proportion of GDP.
The Keynesians don't have the intention to repay. And the Monetarists don't look at
Marginal
Productivity of Debt , which would show them that their idea isn't working. But they don't
go as far as the MMT'ers.
MMT says that the government is unlike deadbeat-debtor Paul. There is no need for the
government to repay. It's the same as the cargo cult. The cargo cult has no concept for
capital. The islanders do not produce in excess of what they consume, accumulating tools and
technology to increase their productivity. They subsist, and assume that this is how the world
works.
MMT has no concept for capital either. It puts blinders on, declaring that consumer prices
are the only thing to measure. The only risk is if they rise too fast. And the MMT'ers refuse
to see anything else.
In our discussion of Yield Purchasing Power , we
introduced a farmer who sells off the back 40 (acres), chops down the apple orchard to sell the
fruitwood, tears down the old barn to sell the planks, and even dismantles the tractor. And why
does he do this? He gets cash in exchange. And the cash is far in excess of his crop yield. Why
struggle and sweat to produce $20,000 a year by growing food, when you can sell off the piece
of the farm for $20,000,000.
The monetary system incentivizes the farmer to trade productive capital for paper credit
slips. The incentive is that this paper has a greater purchasing power than what he can earn by
operating the farm. He can trade his farm for far more groceries, than the food he could grow
on it.
This is the same old game. But MMT gives it a new name -- and asserts a bolder defense.
MMT'ers don't want to see, and they want you not to see, that the lender gives up good capital
but the borrower is just consuming it.
MMT justifies the naked consumption of capital.
Supply and Demand Fundamentals
The prices of the metals rose this week, especially on Friday. The exchange rate of gold
went up twenty two US dollars, and that of silver 41 US cents.
As we will discuss below, we think that there is a rethinking of gold occurring in the
market. And we don't just mean celebrities like Sam Zell buying gold for the first time.
There is a sense of déjà vu. Starting in mid-2004, the Fed went on one of its
rate-hiking sprees. It did not manage to get as high as the previous peak of 6.5%, set prior to
the previous crisis. In 2006, this rate topped out at 5.25%. In both the crisis of 2001, and
the crisis of 2008, the Fed had begun cutting rates before the official indication of recession
, and the cuts occurred more rapidly than the preceding hikes.
The cuts were too little and/or too late to avert disaster.
The problem is that during the period of low rates, firms are incentivized to borrow. They
finance projects which generate a low rate of return. These projects would not be financed, but
for the even-lower cost of borrowing. When rates rise, it does not increase the rate of return
produced by marginal projects (likely the opposite). So borrowers are squeezed.
The Fed eventually comes along with its fix -- even lower rates. While this is too late to
save firms that are teetering into default, it does enable the next wave of borrowing for
even-poorer-projects.
And now, here we are. Since its first tepid hike in December 2005, the Fed has been hiking
for just over three years so far. It has hit a rate well under half of the peak of 2006-2007.
The president has publicly urged the Fed to reverse policy course. And the Fed said it is
listening to the market, and may have paused hiking for now.
Meanwhile, the Fed Funds rate may be lower than the previous peak but it is much higher than
it was from the end of 2008 through the end of 2015. For seven years, it was basically zero.
Nobody knows how many dollars' worth of projects were financed that were only justified, only
possible, due to this zero interest-rate policy. But it was surely a lot (we would guess at
least trillions).
And now the rate is up to 2.25%. Many of those projects are no longer justified, and can no
longer service the debt that finances them.
And none of this is a secret. It is well known to the borrowers, of course. And their
creditors. And the Fed. And hedge funds and other sophisticated speculators. And not just in
general theory, but lists of specific companies and the rollover dates of their bond
issues.
Rollover is key to this. After decades of falling interest, everyone has learned the game of
using short-term financing. But the risk is that it must be rolled over. And when it is rolled,
the previous low-rate is replaced with the higher, current rate. And that's when we find out
which businesses can still pay.
So what will the Fed do? The next programs will have a new name, but the Fed must lower the
cost of capital if it wants to keep the game going.
Is this time going to be the total collapse of the dollar? We don't believe so, as there is
still a lot of capital remaining and more is flooding in as people abandon the
dollar-derivative currencies. So we think of it as déjà vu, the Fed is likely to
do something similar to last time.
And that is an environment where even the non-goldbugs see clear and compelling arguments
for owning gold.
It could be that the timing is not now. It could be that it will take months or years to
arrive at this point. We make no predictions of timing. However, we note that the Monetary
Metals Gold Fundamental Price has been in a rising trend since mid-October. Its low was on
October 9 ($1,266).
Silver is similar, but a bit different. The low in its fundamental occurred in late November
($14.37). But it's up like a rocket since then, now about two bucks higher.
We are at an interesting point.
Let's take a look at the only true picture of the supply and demand fundamentals of gold and
silver. But, first, here is the chart of the prices of gold and silver.
@tac The Torah,
biblical and Quran stories were written in agrarian societies where capitalistic enterprise
hardly existed.
Loans were for not dying of hunger in the period between when the food of the last harvest
had been used completely, and the new harvest was still in the future.
Thus interest was seen as blackmailing people, they needed money to prevent dying of
starvation.
There was enterprise long ago, and trade over long distances, in the early centuries for
example swords from Damascus were famous in Europe, and exported to Europe.
Investment for business was the exception, even the first iron smelting installations were
simple, those who wanted them could build them by themselves.
The idea that invested money could yield money came later, when installations became more
complex, ships bigger, etc.
With investment came risk, there was not much risk in consumptive loans, they normally could
paid out of the coming harvest.
And so the problem began, a church not understanding capitalism, an agrarian society based on
barter changing into a money using capitalistic society.
Commercial people had no problem with interest, even now Muslims do not have problems with
interest.
What they do is simply giving interest other names, such as a fine for repaying late.
It has been agreed that the repayment will be late, so anybody is happy.
@renfro And
there you have it in a nutshell: usary -- the usurper of civilization, the enslaver of
humanity, the seed of ultimate degeneracy. It seems humanity is adverse to learn from
history. It is an interesting side-note that both Christianity and Islam both prohibit the
use of usury (a consideration worthy of mention when one contemplates the ongoing wars in the
ME) and some who here take shots at Farakhann, 'neo-nazis', blue-hair and other deplorables.
Our dilemma today is the same that occurred in Rome. Our country and people will
suffer the same fate if usury continues as it has. From the onset of history, it has
been the moneychangers, who have exploited mankind for pure profit. Usury is an abomination
against God's statutes, which manipulates and destroys people, families, and nations. It is
by the profits made from usury used to attack Christianity. One needs only to ask- who is
in control of usury worldwide? Didn't Rome suffer from these same people? Usury brings
forth an insidious side to all people. The temptation to borrow is powerful, and it always
polarizes lender against borrower where the former becomes the master and the later, the
slave. As a vice, neighbor is pitted against his neighbor, and nation against nation.
[...]
The Roman government was far too corrupt already with its politicians bought by
moneychangers for any fledgling Christian sect to have an affect on its decline. The
moneychanger's demand was perpetually self-serving, which was disparate to the common good
of the populace. Originally, Rome was founded as a republic. The unchecked influence of the
moneychangers caused it to change into a democracy. A republic is derived through the
election of public officials whose attitude toward property is respected in terms of law
for individual rights. A democracy is derived through the election of public officials
whose attitude toward property is communistic and respects the "collective good" of the
population instead of the individual. This is the resultant system that moneychangers bring
to civilization. The subversion of power is a sleight of hand that changes the right of the
individual into what is often called the "collective good" of the people (communistic),
which is always controlled by an alliance of powerful interests.
There is no reference in the article to the moneychangers and their lawyers sowing the
seeds for Roman society to suffocate under its own lethargic weight. Lawyers were indeed a
problem to Rome. The Romans were so concerned by lawyers' opprobrious effect on public
morale that they attempted to curb their influence. In 204 BC, the Roman Senate passed a
law prohibiting lawyers from plying their trade for money. As the Roman republic declined
and became more democratic, it became increasingly difficult to keep lawyers in check and
prevent them from accepting fees under the table. Indeed, they were very useful to the
moneychangers. The lawyers fed upon corruption and accelerated the downward plunge of Roman
civilization. Some wealthy Romans began sending their sons to Greece to finish their
schooling, to learn rhetoric (Julius Caesar was one example) -- a lawyer's cleverness in
oration. This compounded Rome's growing woes.
[...] The moneychangers destroyed Rome from within by first monopolizing usury, monopolizing
the precious mineral trade and then disproportionately magnifying the temporal businesses
of prostitution (including pedophilia and homosexuality), and slavery. Constantine
(306-337 AD) was the first Roman emperor to issue laws, which radically limited the rights
of Jews as citizens of the Roman Empire, a privilege conferred upon them by Caracalla in
212 AD. The laws of Constantius (337-361 AD) recognized the Jewish domination of the slave
trade and acted to greatly curtail it. A law of Theodosius II (408-410 AD), prohibited Jews
from holding any advantageous office of honor in the Roman state. Always the impetus was
buying influence concerning their trade.
[...] Usury has been the opiate that has ruined the ingenuity of many of its civilizations. As
this Jewish craft spread, the people increasingly suffered from the burdens of
indebtedness. So troubling was the effects of usury that Lex Genucia outlawed usury in
342 BC. Nevertheless, ways of evading such legislation were found and by the last period of
the Republic, usury was once again rife. Emperors like Julius Caesar and Justinian tried to
limit the interest rate and control its devastating effects (Birnie, 1958).
Entertainment was a way to temporarily set aside the burdens of indebtedness. It was a
way to festively indulge in all the glory that Rome had to offer. Rome soon became drunk on
hedonism. Collectively, entertainment helped disguise the collapsing of a great power.
Spectator blood sports, brothels, carnivals, festivals, and parties substituted for
everything that was wrong with Rome.
[...] Rome became a multi-cultural state much like our own in the United States. Indeed, it
was truly an international city. Foreigners of every nation resided and worked there. The
Romans soon intermarried and had children with the many foreigners. This included
concubines from the numerous slaves won through war. Rome had an extraordinary large
slave population and was estimated to make up about two-thirds of its population at one
time.
[...] Eventually, the Romans lost their tribal cohesion and identity. The population of Rome
had changed and so did its character. Increasing demands were made of the ruling
patricians. The aristocrats tried to appease the masses, but eventually those demands could
not be sustained. Rome had become bankrupt. The effects of usury polarized the patrician
class against an increasingly dispossessed and burdened class of citizens.
[...]
Rome was bankrupt and was collapsing. The parasitic nature of usury and its effect on
government was too complex for the uneducated plebeians to understand (see Addendum for
an illustration of usury's power). Indeed, it was the moneychangers with the use of
their lawyers that destroyed pagan Rome. The Jewish interests did not control all
usury. However, they were a people well recognized as being extremely loyal to each
other and adept in the black craft of usury. To all others (gentiles) they showed hate and
enmity. Throughout history the weapon of usury is used again and again to destroy
nations.
[...]
Fortunately, the writings of Cicero survived the burning of libraries. In the case against
Faccus, we can see the crafts of the Jews are the same today. The Jews clearly held
great influence in politics as a result of their professions and profited immensely at the
expense of Rome. We can further deduce by the case of Faccus that the Jews were not
concerned with the interests of Rome, but rather for their own interests. The Jewish
gold was being shipped from Rome and its provinces throughout the empire to Jerusalem. Why?
We also know that the Jews had utter contempt and hatred of the Romans. This contempt is
demonstrated by their breaking of Roman law, which Faccus tried to uphold. If we look
closer, we see that gold has a very special meaning to all Jewry unlike any other
people.
[...] There are enough records for us to piece together what actually occurred in Rome that
led to its downfall. Rome fell as a result of corruption and the lack of cohesion of its
own people. But, it was the instrument of usury that brought about this corruption and
allowed its gold and silver to be controlled by Jewish interests.
[...] It was Christianity that put an end to the destructive nature of usury on its people
(see addendum for usury example). Rome's treasury became barren as a result of the
moneychangers. It weakened the Roman Empire immeasurably, and thrust untold millions in
poverty, debt, and in prison. It was Christianity that halted the influence of the Jews and
their destructive trades and practices. And, the Christian faith spread throughout the
former Roman Empire. All of the European people eventually became Christianity's vanguard
and champion. Without the strict adherence to the moral ethos, any civilization will
devolve into the religion of Nimrod.
I apologize in advance to Lambert for adding this link to his terrific daily water cooler
topics, but since Yves and NC were specifically mentioned I thought it would be interesting
to share. The video is titled, "Should we trust MMT?" with Joe Bongiovanni. It is 48 minutes
long and I only made it about 20 minutes after becoming too annoyed. Yves/NC are mentioned at
18 minutes and 40 seconds in. Joe says he was part of the NC commentariat for years, but was
banned due to his thoughts that MMT proponents are misleading and don't "tell the real
truth".
Not being an economist or comfortable enough with my understanding of MMT to know if what
he was saying had merit. Plus the style and lack of preparation from the interviewer other
than wanting her expert to debunk MMT for her right wing followers.
I'm 30 min in .skip ahead to that point to get to the meat of his discussion.
He keeps repeating that he wants monetary "reform", so that the money system 'works for
the people'. But he doesn't say what that change is or why MMT gets it wrong in its
understanding of how the system works.
He says "govt doesn't create money by spending". Except, yes, it does. It then chooses to
offset that spending later with bond auctions.
He doesn't make a distinction between public and private debt, doesn't distinguish between
currency users and issuers. No distinction between stocks and flows. No discussion of
capacity constraints, inflation.
He actually fear-mongers about the debt around the 38-39 min mark. Says there's going to
be tough times when we get austerity (in addition to environment collapsing).
He talks a lot about how 'the monetary system works', but it's clear to me he doesn't get
how the banking system works. I don't think you can understand one without the other very
well.
MMT can offer a clear explanation of why:
1) 30 yr treasury bond yields fell rapidly in the 1980s while deficits were exploding.
2) 30 yr treasury bond yields rose in 2000, hitting 7% on the 30 yr at one point, when the
government was running surpluses.
3) Japan has a functional currency and economy with massive debts and deficits for many
years.
Conventional economics has NO explanation for the above phenomenon.
Cheers Johnny – he's been here before and took umbrage to the NC crew saying that
taxation for revenue is obsolete. Don't make me go there.
Said NC doesn't like criticism and Yves had banned him I'd be banned too if I thought
that!!
Got some trolls on Youtube worked up. I'll go and finish them off after I do a little more
digging on Joe and his Kettle Pond Institute for Debt Free Money.
He had a go at Bill Mitchell on this post recently:
IMO, Tvc, if you want some relevant stuff, look at how Jimmy Dore (a comedian turned
activist) gets his head around MMT – Stephanie Kelton was good and has been linked here
and also Chris Hedges
People like JD are very influential and I can see a heightened awareness out there that we
are not going to get anywhere now by being polite and civil.
I don't remember the details, but he was banned for behavior. The problem that so often
happens is that the people on losing sides of arguments here (as in not just the moderators
but the commentariat does a good job of debunking their claims) is they don't give up and
start going into various forms of bad faith argumentation: broken record, straw manning, or
just plain getting abusive. Then they try to claim they were banned due to their position, as
opposed to how they started carrying on when they couldn't make their case.
The AMI people are a real problem, and the worst is that they use enough lingo that sounds
MMT-like that they confuse people about MMT. They are also presumptuous as hell. I was part
of an Occupy Wall Street group, Alternative Banking. Every week, a group came and kept trying
to hijack the discussion to be about Positive Money. They got air time because that's Occupy
but everyone else regarded them as an annoyance.
One Sunday, the president of AMI showed up in a suit, uninvited, and expected to be able
to take over the group and lecture. The rules were everyone on stack got only 2 or 3 minutes
each (I forget how long) and then had to cede the floor. Since everyone else was too polite,
I was the one who had to shut him up by blowing up at him and telling him he was totally out
of line and had no business abusing the group's rules. That is the only time in my WASPy life
I have carried on like that in a public setting. Broke up the meeting, which reconvened only
after he left.
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."
Why does the dollar continue to possess a hegemonic status a decade after the crisis that
seemed to signal an end to U.S.-U.K. dominated finance? Gillian Tett of the
Financial Times offers several reasons. The first is the global reach of U.S.
based banks. U.S. banks are seen as stable, particularly when compared to European banks. Any
listing
of the largest international banks will be dominated by Chinese banks, and
these institutions have expanded their international business . But the Chinese banks will
conduct business in dollars when necessary. Tett's second reason is the relative strength of
the U.S. economy, which grew at a 4.1% pace in the second quarter. The third reason is the
liquidity and credibility of U.S. financial markets, which are superior to those of any
rivals.
The U.S. benefits from its financial dominance in several ways.
Jeff Sachs of Columbia University points out that the cost of financing government deficits
is lower due to the acceptance of U.S. Treasury securities as "riskless assets." U.S. banks and
other institutions earn profits on their foreign operations. In addition, the use of our
banking network for international transactions provides the U.S. government with a powerful
foreign policy tool in the form of sanctions
that exclude foreign individuals, firms or governments from this network .
There are risks to the system with this dependence. As U.S. interest rates continue to rise,
loans that seemed reasonable before now become harder to finance. The burden of
dollar-denominated debt also increases as the dollar appreciates. These developments exacerbate
the repercussions of policy mistakes in Argentina and Turkey, but also affect other countries
as well.
The IMF in its latest Global Financial Stability (see also here )
identifies another potential destabilizing feature of the current system. The IMF reports that
the U.S. dollar balance sheets of non-U.S. banks show a reliance on short-term or wholesale
funding. This reliance leaves the banks vulnerable to a liquidity freeze. The IMF is
particularly concerned about the use of foreign exchange swaps, as swap markets can be quite
volatile. While
central banks have stablished their own network of swap lines , these have been
criticized .
The status of the dollar as the primary international currency is not welcomed by foreign
governments. The Russian government, for
example, is seeking to use other currencies for its international commerce. China and
Turkey have offered some support, but China is invested in promoting the use of its own
currency. In addition, Russia's dependence on its oil exports will keep it tied to the
dollar.
But interest in formulating a new international payments system has now spread outside of
Russia and China.
Germany's Foreign Minister Heiko Maas has called for the establishment of "U.S. independent
payment channels" that would allow European firms to continue to deal with Iran despite the
U.S. sanctions on that country.
Chinese electronic payments systems are being used in Europe and the U.S. The dollar may
not be replaced, but it may have to share its role as an international currency with other
forms of payment if foreign nations calculate that the benefits of a new system outweigh its
cost. Until now that calculation has always favored the dollar, but the reassessment of
globalization initiated by the Trump administration may have lead to unexpected
consequences.
Our commenter psychohistorian and others interested in public banking, and the
concept of money as a public utility rather than a private (and profit-gouging) instrument,
may want to watch the latest Keiser Report, which has an interview with Ellen Brown.
Brown relates that the city of Los Angeles has on its ballot for the November elections a
measure to create a city-owned bank. This was put on the ballot by the city council itself,
prompted by a groundswell of support coming from constituents.
The rapid-fire interview doesn't go deeply into the politics behind this citizen
initiative, but it seems like a happy story of young millennials looking for an alternative
to Wall Street banks, and learning from Brown and others about the strong value of the public
bank.
An interesting turn of events. The interview starts in the second half of the show at
14:40:
"... By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives ..."
"... Treatise on Money ..."
"... State Theory of Money ..."
"... Money and Credit in Capitalist Economies ..."
"... Understanding Modern Money ..."
"... Modern Money Theory ..."
"... Payback: Debt and the shadow side of wealth ..."
"... Reclaiming the State ..."
"... Austerity: The History of a Dangerous Idea ..."
"... permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. ..."
"... that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. ..."
"... income inequality ..."
"... even after paying interest ..."
"... It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945). ..."
"... After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received. ..."
"... "Taxes or other obligations (fees, fines, tribute, tithes) drive the currency." ..."
"... "JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability." ..."
I was asked to give a short presentation at the MMT conference. What follows is the text
version of my remarks, some of which I had to skip over in the interests of time. Many readers
might want to skip to the bullet points near the end, which summarize what I include in
MMT.
I'd also like to quickly respond to some comments that were made at the very last session of
the conference -- having to do with "approachability" of the "original" creators of MMT. Like
Bill Mitchell, I am uncomfortable with any discussion of "rockstars" or "heroes". I find this
quite embarrassing. As Bill said, we're just doing our job. We are happy (or, more accurately
pleasantly surprised) that so many people have found our work interesting and useful. I'm happy
(even if uncomfortable) to sign books and to answer questions at such events. I don't mind
emailed questions, however please understand that I receive hundreds of emails every day, and
the vast majority of the questions I get have been answered hundreds, thousands, even tens of
thousands of times by the developers of MMT. A quick reading of my Primer or search of NEP (and
Bill's blog and Warren's blogs) will reveal answers to most questions. So please do some
homework first. I receive a lot of "questions" that are really just a thinly disguised pretense
to argue with MMT -- I don't have much patience with those. Almost every day I also receive a
2000+ word email laying out the writer's original thesis on how the economy works and asking me
to defend MMT against that alternative vision. I am not going to engage in a debate via email.
If you have an alternative, gather together a small group and work for 25 years to produce
scholarly articles, popular blogs, and media attention -- as we have done for MMT -- and then
I'll pay attention. That said, here you go: [email protected] .
As an undergraduate I studied psychology and social sciences -- but no economics, which
probably gave me an advantage when I finally did come to economics. I began my economics career
in my late 20's studying mostly Institutionalist and Marxist approaches while working for the
local government in Sacramento. However, I did carefully read Keynes's General Theory
at Sacramento State and one of my professors -- John Henry -- pushed me to go to St. Louis to
study with Hyman Minsky, the greatest Post Keynesian economist.
I wrote my dissertation in Bologna under Minsky's direction, focusing on private banking and
the rise of what we called "nonbank banks" and "off-balance sheet operations" (now called
shadow banking). While in Bologna, I met Otto Steiger -- who had an alternative to the barter
story of money that was based on his theory of property. I found it intriguing because it was
consistent with some of Keynes's Treatise on Money that I was reading at the time.
Also, I had found Knapp's State Theory of Money -- cited in both Steiger and
Keynes–so I speculated on money's origins (in spite of Minsky's warning that he didn't
want me to write Genesis ) and the role of the state in my dissertation that became a
book in 1990 -- Money and Credit in Capitalist Economies -- that helped to develop the
Post Keynesian endogenous money approach.
What was lacking in that literature was an adequate treatment of the role of the
state–which played a passive role -- supplying reserves as demanded by private bankers --
that is the Post Keynesian accommodationist or Horzontalist approach. There was no discussion
of the relation of money to fiscal policy at that time. As I continued to read about the
history of money, I became more convinced that we need to put the state at the center.
Fortunately I ran into two people that helped me to see how to do it.
First there was Warren Mosler, who I met online in the PKT discussion group; he insisted on
viewing money as a tax-driven government monopoly. Second, I met Michael Hudson at a seminar at
the Levy Institute, who provided the key to help unlock what Keynes had called his "Babylonian
Madness" period -- when he was driven crazy trying to understand early money. Hudson argued
that money was an invention of the authorities used for accounting purposes. So over the next
decade I worked with a handful of people to put the state into monetary theory.
As we all know, the mainstream wants a small government, with a central bank that follows a
rule (initially, a money growth rate but now some version of inflation targeting). The fiscal
branch of government is treated like a household that faces a budget constraint. But this
conflicts with Institutionalist theory as well as Keynes's own theory. As the great
Institutionalist Fagg Foster -- who preceded me at the University of Denver–put it:
whatever is technically feasible is financially feasible. How can we square that with the
belief that sovereign government is financially constrained? And if private banks can create
money endogenously -- without limit -- why is government constrained?
My second book, in 1998, provided a different view of sovereign spending. I also revisited
the origins of money. By this time I had discovered the two best articles ever written on the
nature of money -- by Mitchell Innes. Like Warren, Innes insisted that the dollar's value is
derived from the tax that drives it. And he argued this has always been the case. This was also
consistent with what Keynes claimed in the Treatise, where he said that money has been a state
money for the past four thousand years, at least. I called this "modern money" with intentional
irony -- and titled my 1998 book Understanding Modern Money as an inside joke. It only
applies to the past 4000 years.
Surprisingly, this work was more controversial than the earlier endogenous money research.
In my view it was a natural extension -- or more correctly, it was the prerequisite to a study
of privately created money. You need the state's money before you can have private money.
Eventually our work found acceptance outside economics -- especially in law schools, among
historians, and with anthropologists.
For the most part, our fellow economists, including the heterodox ones, attacked us as
crazy.
I benefited greatly by participating in law school seminars (in Tel Aviv, Cambridge, and
Harvard) on the legal history of money -- that is where I met Chris Desan and later Farley
Grubb, and eventually Rohan Grey. Those who knew the legal history of money had no problem in
adopting MMT view -- unlike economists.
I remember one of the Harvard seminars when a prominent Post Keynesian monetary theorist
tried to argue against the taxes drive money view. He said he never thinks about taxes when he
accepts money -- he accepts currency because he believes he can fob it off on Buffy Sue. The
audience full of legal historians broke out in an explosion of laughter -- yelling "it's the
taxes, stupid". All he could do in response was to mumble that he might have to think more
about it.
Another prominent Post Keynesian claimed we had two things wrong. First, government debt
isn't special -- debt is debt. Second, he argued we don't need double entry book-keeping -- his
model has only single entry book-keeping. Years later he agreed that private debt is more
dangerous than sovereign debt, and he's finally learned double-entry accounting. But of course
whenever you are accounting for money you have to use quadruple entry book-keeping. Maybe in
another dozen years he'll figure that out.
As a student I had read a lot of anthropology -- as most Institutionalists do. So I knew
that money could not have come out of tribal economies based on barter exchange. As you all
know, David Graeber's book insisted that anthropologists have never found any evidence of
barter-based markets. Money preceded market exchange.
Studying history also confirmed our story, but you have to carefully read between the lines.
Most historians adopt monetarism because the only economics they know is Friedman–who
claims that money causes inflation. Almost all of them also adopt a commodity money view --
gold was good money and fiat paper money causes inflation. If you ignore those biases, you can
learn a lot about the nature of money from historians.
Farley Grubb -- the foremost authority on Colonial currency -- proved that the American
colonists understood perfectly well that taxes drive money. Every Act that authorized the issue
of paper money imposed a Redemption Tax. The colonies burned all their tax revenue. Again,
history shows that this has always been true. All money must be redeemed -- that is, accepted
by its issuer in payment. As Innes said, that is the fundamental nature of credit. It is
written right there in the early acts by the American colonies. Even a gold coin is the
issuer's IOU, redeemed in payment of taxes. Once you understand that, you understand the nature
of money.
So we were winning the academic debates, across a variety of disciplines. But we had a hard
time making progress in economics or in policy circles. Bill, Warren, Mat Forstater and I used
to meet up every year or so to count the number of economists who understood what we were
talking about. It took over decade before we got up to a dozen. I can remember telling Pavlina
Tcherneva back around 2005 that I was about ready to give it up.
But in 2007, Warren, Bill and I met to discuss writing an MMT textbook. Bill and I knew the
odds were against us -- it would be for a small market, consisting mostly of our former
students. Still, we decided to go for it. Here we are -- another dozen years later -- and the
textbook is going to be published. MMT is everywhere. It was even featured in a New
Yorker crossword puzzle in August. You cannot get more mainstream than that.
We originally titled our textbook Modern Money Theory , but recently decided to
just call it Macroeconomics . There's no need to modify that with a subtitle. What we
do is Macroeconomics. There is no coherent alternative to MMT.
A couple of years ago Charles Goodhart told me: "You won. Declare victory but be magnanimous
about it." After so many years of fighting, both of those are hard to do. We won. Be nice.
Let me finish with 10 bullet points of what I include in MMT:
1. What is money: An IOU denominated in a socially sanctioned money of account. In almost
all known cases, it is the authority -- the state -- that chooses the money of account. This
comes from Knapp, Innes, Keynes, Geoff Ingham, and Minsky.
2. Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability
to impose such obligations is an important aspect of sovereignty; today states alone monopolize
this power. This comes from Knapp, Innes, Minsky, and Mosler.
3. Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU
denominated in the recognized money of account; but acceptance can be hard to get unless you
have the state backing you up. This is Minsky.
4. The word "redemption" is used in two ways -- accepting your own IOUs in payment and
promising to convert your IOUs to something else (such as gold, foreign currency, or the
state's IOUs).
The first is fundamental and true of all IOUs. All our gold bugs mistakenly focus on the
second meaning -- which does not apply to the currencies issued by most modern nations, and
indeed does not apply to most of the currencies issued throughout history. This comes from
Innes and Knapp, and is reinforced by Hudson's and Grubb's work, as well as by Margaret
Atwood's great book: Payback: Debt and the shadow side of wealth .
5. Sovereign debt is different. There is no chance of involuntary default so long as the
state only promises to accept its currency in payment. It could voluntarily repudiate its debt,
but this is rare and has not been done by any modern sovereign nation.
6. Functional Finance: finance should be "functional" (to achieve the public purpose), not
"sound" (to achieve some arbitrary "balance" between spending and revenues). Most importantly,
monetary and fiscal policy should be formulated to achieve full employment with price
stability. This is credited to Abba Lerner, who was introduced into MMT by Mat Forstater.
In its original formulation it is too simplistic, summarized as two principles: increase
government spending (or reduce taxes) and increase the money supply if there is unemployment
(do the reverse if there is inflation). The first of these is fiscal policy and the second is
monetary policy. A steering wheel metaphor is often invoked, using policy to keep the economy
on course. A modern economy is far too complex to steer as if you were driving a car. If
unemployment exists it is not enough to say that you can just reduce the interest rate, raise
government spending, or reduce taxes. The first might even increase unemployment. The second
two could cause unacceptable inflation, increase inequality, or induce financial instability
long before they solved the unemployment problem. I agree that government can always afford to
spend more. But the spending has to be carefully targeted to achieve the desired result. I'd
credit all my Institutionalist influences for that, including Minsky.
7. For that reason, the JG is a critical component of MMT. It anchors the currency and
ensures that achieving full employment will enhance both price and financial stability. This
comes from Minsky's earliest work on the ELR, from Bill Mitchell's work on bufferstocks and
Warren Mosler's work on monopoly price setting.
8. And also for that reason, we need Minsky's analysis of financial instability. Here I
don't really mean the financial instability hypothesis. I mean his whole body of work and
especially the research line that began with his dissertation written under Schumpeter up
through his work on Money Manager Capitalism at the Levy Institute before he died.
9. The government's debt is our financial asset. This follows from the sectoral balances
approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to
tell students: go home and do the balances sheets because what you are saying is nonsense.
Fortunately, I had learned T-accounts from John Ranlett in Sacramento (who also taught
Stephanie Kelton from his own, great, money and banking textbook -- it is all there, including
the impact of budget deficits on bank reserves). Godley taught us about stock-flow consistency
and he insisted that all mainstream macroeconomics is incoherent.
10. Rejection of the typical view of the central bank as independent and potent. Monetary
policy is weak and its impact is at best uncertain -- it might even be mistaking the brake
pedal for the gas pedal. The central bank is the government's bank so can never be independent.
Its main independence is limited to setting the overnight rate target, and it is probably a
mistake to let it do even that. Permanent Zirp (zero interest rate policy) is probably a better
policy since it reduces the compounding of debt and the tendency for the rentier class to take
over more of the economy. I credit Keynes, Minsky, Hudson, Mosler, Eric Tymoigne, and Scott
Fullwiler for much of the work on this.
That is my short list of what MMT ought to include. Some of these traditions have a very
long history in economics. Some were long lost until we brought them back into discussion.
We've integrated them into a coherent approach to Macro. In my view, none of these can be
dropped if you want a macroeconomics that is applicable to the modern economy. There are many
other issues that can be (often are) included, most importantly environmental concerns and
inequality, gender and race/ethnicity. I have no problem with that.
A JG is to discontinue NAIRU or structural under-unemployment with attendant
monetarist/quasi inflation views. Something MMT has be at pains to point out wrt fighting a
nonexistent occurrence due to extended deflationary period.
Its double entry accounting counting both sides of the equation. Fed deposits money into
bank requires 4 entries, a double entry for the Fed and for the bank. Typical double entry
accounting only looks at the books of 1 entity at a time. Quadruple Entry accounting makes
the connection between the government monetary policy and private business accounting. I'm
not an accountant, I may have butchered that.
think about banks and reserves, your money is on the bank's liability side (and your
asset), while the reserves are on the bank's asset side (and gov't or fed's liability.)
i think its the reserves that quadruple it, reserves are confusing because when you move
$5 from a bank account to buy ice cream its not just one copy of the $5 that moves between
checking accounts, there is another $5 that moves "under the hood" so to speak in reserve
world
Very briefly, double entry bookkeeping keeps track of how money comes in/out, and where it
came from/went. Cash is the determining item (although there may be a few removes). Hence,
say I buy a $20 dollar manicure from you. I record my purchase as "Debit (increase) expense:
manicure $20, credit (decrease) cash, $20". Bonus! If my bookkeeping is correct, my debits
and credits are equal and if I add them up (credits are minus and debits are plus) the total
is zero – my books "balance". So, double-entry bookkeeping is also a hash-total check
on my accounting accuracy. But I digress.
On your books, the entry would be "Debit (increase) cash $20, credit (decrease)
sales, $20".
So, your double-entry book plus my double-entry books would be quadruple-entry
accounting.
#7 was my immediate stopper, too. It drives me nuts when people introduce 2-3-4 letter
acronyms with no explanation (I work for the DoD and I'm surrounded by these "code words". I
rarely know what people are talking about and when I ask, the people talking rarely know what
these TLAs – T hree L etter A cronyms – stand for either!).
Next question regarding #7: What is ELR?
Other than #7, I really appreciate this article. NC teaches and/or clarifies on a daily
basis.
This quick, entertaining read is IMHO nothing less than a "Rosetta Stone" that can bring
non-specialists to understand MMT: not just how , but why it differs from
now-conventional neoliberal economics. I hope it finds a wide readership and that its many
references to MMT's antecedents inspire serious study by the unconvinced (and I hope they
don't take Wray's invitation to skip the 10 bullet points).
This piece is a fine demonstration of why I've missed Wray as he seemed to withdraw from
public discourse for the last few years.
Thank you! The (broad) analogies with my own experience are there. I had a decidedly
"mainstream" macro education at Cambridge (UK); though many of the "old school"
professors/college Fellows who, although not MMT people as we'd currently understand (or
weren't at *that* stage – Godley lectured a module I took but this was in the early
1990s) were still around, in hindsight the "university syllabus" (i.e. what you needed to
regurgitate to pass exams) had already steered towards neoliberalism. I never really
understood why I never "got" macro and it was consistently my weakest subject.
It was later, having worked in the City of London, learned accountancy in my actuarial
training, and then most crucially starting reading blogs from people who went on to become
MMT leading lights, that I realised the problem wasn't ME, it was the subject matter. So I
had to painfully unlearn much of what I was taught and begin the difficult process of getting
my head around a profoundly different paradigm. I still hesitate to argue the MMT case to
friends, since I don't usually have to hand the "quick snappy one liners" that would torpedo
their old discredited understanding.
I'm still profoundly grateful for the "old school" Cambridge College Fellows who were
obviously being sidelined by the University and who taught me stuff like the Marxist/Lerner
critiques, British economic history, political economy of the system etc. Indeed whilst I had
"official" tutorials with a finance guy who practically came whenever Black-Scholes etc was
being discussed, an old schooler was simultaneously predicting that it would blow the world
economy up at some point (and of course he was in the main , correct). I still had to fill in
some gaps in my knowledge (anthropology was not a module, though Marxist economics was), with
hindsight I appreciate so much more of what the "old schoolers" said on the sly during quiet
points in tutorials – Godley being one, although he wasn't ready at that time to
release the work he subsequently published and was so revolutionary. Having peers educated
elsewhere during my Masters and PhD who knew nothing of the subjects that – whilst
certainly not the "key guide" to "proper macro" described in the article – began to
horrify me later in my career.
This is really great. Thanks a ton, as Yves would say.
I know I have used to "rock star" metaphor on occasion, so let me explain that to
me what is important in excellent (i.e., live) rock and roll is improvisational
interplay among the group members -- the dozen or so who understood MMT in the beginning, in
this case -- who know the tune, know each other, and yet manage to make the song a little
different each time. It's really spectacular to see in action. Nothing to do with spotlights,
or celebrity worship, or fandom!
I'm no MMT expert, but I think
this article does a good job of juxtaposing MMT with classic (non-advanced)
macroeconomics. I quote:
In the language of Tinbergen (1952), the debate between MMT and mainstream macro can be
thought of as a debate over which instrument should be assigned to which target. The
consensus assignment is that the interest rate, under the control of an independent central
bank, should be assigned to the output gap target, while the fiscal position, under control
of the elected budget authorities, should be assigned to the debt sustainability target. [
] The functional finance assignment is the reverse -- the fiscal balance under the budget
authorities is assigned to the output target, while any concerns about debt sustainability
are the responsibility of the monetary authority.
What about interest rate fixing? The central bank would remain in charge of that, but in
an MMT context this instrument would lose most of its relevance:
[W]hile a simple swapping of instruments and targets is one way to think about
functional finance, this does not describe the usual MMT view of how the policy interest
rate should be set. What is generally called for, rather, is that the interest rate be
permanently kept at a very low level, perhaps zero. In an orthodox policy framework, of
course, this would create the risk of runaway inflation; but keep in mind that in the
functional framework, the fiscal balance is set to whatever level is consistent with price
stability.
It may be a partial reconstruction of MMT, but to me this seems to be a neat way to
present MMT to most people. Saying that taxes are there just to remove money from the economy
or to provide incentives is a rather extreme statement that is bound to elicit some fierce
opposition.
Having said that, I've never seen anyone address what I think are two issues to MMT: how
to make sure that the power to create money is not exploited by a political body in order to
achieve consensus, and how to assure that the idea of unlimited monetary resources do not
lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry
would probably be a good example).
The best comparison of MMT with neoliberal neoclassical economics, in my view, is Bill
Mitchell's blog post, "How to Discuss Modern Monetary Theory" ( http://bilbo.economicoutlook.net/blog/?p=25961
). I especially recommend the table near the end as a terrific summary of the differences
between the mainstream narrative and MMT.
Thanks! I have enormous respect for Mitchell, given the quantity and quality of his
blogging. However, my only nitpick is that a lot of his blog entries are quite long and "not
easily digestible". I have long thought that one of those clever people who can do those 3
minute rapid animation vids we see on youtube is needed to "do a Lakoff" and change the
metaphors/language. But this post of Mitchell (which I missed, since I don't read all his
stuff) is, IMHO, his best at "re-orienting us".
Saying that taxes are there just to remove money from the economy or to provide
incentives is a rather extreme statement that is bound to elicit some fierce
opposition.
Yes this is a frightening statement. The power to tax is the power to destroy. If this is
a foundation point of the proposal then
Having said that, I've never seen anyone address what I think are two issues to MMT: how
to make sure that the power to create money is not exploited by a political body in order
to achieve consensus, and how to assure that the idea of unlimited monetary resources do
not lead to misallocation and inefficiencies (the bloated, awash-with-money US military
industry would probably be a good example).
Bingo. My thoughts exactly. Too much power in the hands of the few. Easy to slide into
Orwell's Animal Farm – where some people are more equal than others.
MMT is based upon very good intentions but, in my view, there is a moral rot at the root
of the US of A's problems, not sure this can be solved by monetary policy and more
centralized control.
And the JG? Once the government starts to permanently guarantee jobs
I suggest you delve into what is proposed by the MMT – PK camp wrt a JG because its
not centralized in the manner you suggest. It would be more regional and hopefully
administrated via social democratic means e.g. the totalitarian aspect is moot.
I think its incumbent on commenters to do at least a cursory examination before heading
off on some deductive rationalizations, which might have undertones of some book they read
e.g. environmental bias.
Skippy, I read the article, plus the links, including those links of the comments. I will
admit that I am a little more right of center in my views than many on the website.
The idea is interesting, but the administration of such a system would require rewriting
the US Constitution, or an Amendment to it if one thinks the process through, would it not? I
think of the Amendment required to create the Federal Reserve System when I say this.
One thing I really don't like at all -- and I've crossed swords with many over this -- is
that we do tend to take (not just in the US, this is prevalent in far too many
places) things like the constitution, or cultural norms, or traditions or other variants of
"that's the way we've always done this" and elevate them to a level of sacrosanctity.
Not for one moment am I suggesting that we should ever rush into tweaking such devices
lightly nor without a great deal of analysis and introspective consultations.
Constitutions get amended all the time. The Republic of Ireland changed its to renounce a
territorial claim on Northern Ireland. The U.K. created a right for Scotland to secede from
the Union. There's even a country in Europe voting whether to formally change its name right
now. Britain "gave up" its empire territories (not, I would add speedily, without a lot of
prodding, but still, we got there in the end). All of which were, at one time or another,
"unthinkable". Even the US, perhaps the most inherently resistant to change country when it
thinks it's being "forced" to do so, begrudgingly acknowledged Cuba.
Why would a jobs guarantee require a constitutional amendment? The federal government
creates jobs all the time, with certain defined benefits. This would merely expand upon that,
to potentially include anyone who wants a job.
There are a couple different aspects of this that people are getting mixed together, I
think. The core of MMT is not a proposal for government to implement. Rather, it is simply a
description of how sovereign currencies actually operate, as opposed by mainstream economics,
which has failed in this regard. In other words, we don't need any new laws to implement MMT
– we need a paradigm shift.
The Jobs Guarantee is a policy proposal that flows from this different paradigm.
It has been stated many times that it is to inform policy wrt to potential and not some
booming voice from above dictating from some ridged ideology.
Persoanly as a capitalist I can't phantom why anyone would want structural under –
unemployment. Seems like driving around with the hand brake on and then wondering why
performance is restricted or parts wear out early.
Thinking of the Federal Reserve Act being enabled by the Federal Income Tax of the 16th
Amendment.
Using Federal taxes to fund the JG; I do not think that this aspect of it (and others)
would survive a Constitutional challenge. Therefore ultimately an Amendment might be
needed.
Then again I may be wrong. Technically Obamacare should have been implemented by an
Amendment were strict Constitutional law applied.
Rights to health care and jobs are not enumerated in either the Constitution or Bill of
Rights, as far as I am aware.
Not opposed to some of the principles of MMT, just don't understand, in this modern age
where effectively all currency is electronic digits in a banking computer system, the issue
of a currency must be tied to taxes. In years past, where currency was printed and in one's
pocket, or stuffed under a mattress, or couriered by stagecoach, then yes – taxes would
be needed. But today can we not just print (electronically) the cash needed for government
operations each year based upon a fixed percentage of private sector GDP? Why therefore do we
need government debt? Why do we need an income tax?
Skippy, I have lived and worked in countries without income tax (but instead indirect tax)
and where government operating revenue was based upon a percentage of projected national
revenue. I have been involved in the administration of such budgets.
I am in favor of government spending, or perhaps more accurately termed investing, public
money on long-term, economically beneficial projects. But this is not happening. The reality
is that government priorities can easily be hijacked by political interests, as we currently
witness.
While I agree that political highjacking is possible and must be dealt with, this is not
strictly speaking part of an economic theory, which is what MMT is. While MMT authors may
take political positions, the theory itself is politically neutral.
Income taxes, tithes, or any other kind of driver is what drives the monetary circuit.
Consider it from first principles. You have just set up a new government with a new currency
where this government is the monopoly issuer. No one else has any money yet. So, the
government must be the first spender. However, how is this nascent government going to
motivate anyone to use this new currency? Via taxation, or like means, that can only be met
by using the national currency, whatever form that currency may take, marks on a stick,
paper, an entry in a ledger, or the like.
Thank you for this explanation. I understand that, for example, this is why the Federal
Reserve Act of 1913, I believe, created the Federal Reserve and Federal Income Tax at the
same time.
But the US economy functioned adequately, survived a civil war, numerous banking crises,
experienced industrialization, national railways, etc without a central bank or federal
income tax from the 1790's to 1913.
To me, the US's state of perpetual war is enabled by Federal Income Tax. Without it the
MIC would collapse, I am certain.
Functioned adequately
During the 150 yr hard money period we had recessions/depressions that we're both far more
frequent (every three years) and on avg far deeper than what we have had since fdr copied the
brits and took us off the gold standard. Great deprecession was neither the longest or
deepest.
Two reasons
Banks used to fail frequently, a run on one bank typically leading to runs on other banks,
spreading across regions like prairie fires if your bank failed you lost all your money.
Consequences were serious.
During GR so many banks failed in the Midwest, leading to farm foreclosures, the region was
near armed insurrection in 1932. Fiat meant that the fed can supply unlimited liquidity.
Since then banks have failed but immediately taken over by another. Critically, no depositor
has lost a penny, even those with far more exposed than the deposit insurance limit. No runs
on us banks since 1933.
Second, we now have auto stabilizers, spending continues during downturns because gov has no
spending limit. Note previously in an emergency gov borrowed. 10 mil from J.P. Morgan.
But at what cost? no depositor loses money, yet huge amounts are required to be printed,
thus devaluing the "currency". So is the answer inflation that must by necessity become
hyperinflation?
I don't understand why it is important to protect a bank vs. making it perform its function
without risking collapse. This is magical thinking as we have found very few banks in this
world not ready and willing to pillage their clients, be it nations or just the little
folk.
Why would anyone trust a government to do the right thing by its population? When has that
ever worked out in favor of the people?
I can not understand the trust being demanded by this concept. It wants trust for the users,
but in no way can it expect trust or virtue from the issuer of the "currency"
also, I can't help but think MMT is for growth at all costs. Hasn't the growth shown that
it is pernicious in itself? Destroy the planet for the purpose of stabilizing "currency".
Our federal reserve gave banks trillions of dollars, and then demanded they keep much of
it with the Fed and are paid interest not to use it. It inflated the "currency" in
circulation yet again and now it is becoming clear a great percentage of people in our
country can no longer eat, no longer purchase medications, a home, a business
If being on a hard money system as we were causes recessions and depressions, would we
find that it was a natural function to cut off the speculators at their knees?
How does MMT promote and retain value for the actual working and producing people that
have no recourse with their government? I would like to read about what is left out of this
monumental equation.
US had a federal income tax during the civil war and for a decade or so after.
I have always assumed that mass conscription and the Dreadnought arms race led to the
implementation of the modern taxing/monetary system. (gov't needed both warfare and
welfare)
Taxes, just as debt, create an artificial demand for currency as one must pay back their
taxes in {currency}, and one must pay back debt in {currency}. It doesn't have to be an
income tax, and I think a sales tax would be a better driver of demand than an income
tax.
The US had land sales that helped fund government expenditures in the 1800s.
Not all taxes are income taxes. Back in the day (20's/30's/40's),my grandfather could pay
off the (county) property taxes on his farm by plowing snow for the county in the winter --
and he was damned careful to make sure that the county commissioners' driveways were plowed
out as early as possible after a storm.
In the 30's/40's the property tax laws were changed to be payable only in dollars.
So Grandpa had to make cash crops. Things changed and money became necessary.
