American Diplomacy as a Tragic Drama

July 29, 2022

By Michael Hudson and posted with the author’s permission

As in a Greek tragedy whose protagonist brings about precisely the fate that he has sought to avoid, the US/NATO confrontation with Russia in Ukraine is achieving just the opposite of America’s aim of preventing China, Russia and their allies from acting independently of U.S. control over their trade and investment policy. Naming China as America’s main long-term adversary, the Biden Administration’s plan was to split Russia away from China and then cripple China’s own military and economic viability. But the effect of American diplomacy has been to drive Russia and China together, joining with Iran, India and other allies. For the first time since the Bandung Conference of Non-Aligned Nations in 1955, a critical mass is able to be mutually self-sufficient to start the process of achieving independence from Dollar Diplomacy.

Confronted with China’s industrial prosperity based on self-financed public investment in socialized markets, U.S. officials acknowledge that resolving this fight will take a number of decades to play out. Arming a proxy Ukrainian regime is merely an opening move in turning Cold War 2 (and potentially/or indeed World War III) into a fight to divide the world into allies and enemies with regard to whether governments or the financial sector will plan the world economy and society.

What is euphemized as U.S.-style democracy is a financial oligarchy privatizing basic infrastructure, health and education. The alternative is what President Biden calls autocracy, a hostile label for governments strong enough to block a global rent-seeking oligarchy from taking control. China is deemed autocratic for providing basic needs at subsidized prices instead of charging whatever the market can bear. Making its mixed economy lower-cost is called “market manipulation,” as if that is a bad thing that was not done by the United States, Germany and every other industrial nation during their economic takeoff in the 19th and early 20th century.

Clausewitz popularized the axiom that war is an extension of national interests – mainly economic. The United States views its economic interest to lie in seeking to spread its neoliberal ideology globally. The evangelistic aim is to financialize and privatize economies by shifting planning away from national governments to a cosmopolitan financial sector. There would be little need for politics in such a world. Economic planning would shift from political capitals to financial centers, from Washington to Wall Street, with satellites in the City of London, the Paris Bourse, Frankfurt and Tokyo. Board meetings for the new oligarchy would be held at Davos’s World Economic Forum. Hitherto public infrastructure services would be privatized and priced high enough to include profits (and indeed, monopoly rents), debt financing and management fees rather than being publicly subsidized. Debt service and rent would become the major overhead costs for families, industry and governments.

The U.S. drive to retain its unipolar power to impose “America First” financial, trade and military policies on the world involves an inherent hostility toward all countries seeking to follow their own national interests. Having less and less to offer in the form of mutual economic gains, U.S. policy makes threats of sanctions and covert meddling in foreign politics. The U.S. dream envisions a Chinese version of Boris Yeltsin replacing the nation’s Communist Party leadership and selling off its public domain to the highest bidder – presumably after a monetary crisis wipes out domestic purchasing power much as occurred in post-Soviet Russia, leaving the international financial community as buyers.

Russia and President Putin cannot be forgiven for having fought back against the Harvard Boys’ “reforms.” That is why U.S. officials planned how to create Russian economic disruption to (they hope) orchestrate a “color revolution” to recapture Russia for the world’s neoliberal camp. That is the character of the “democracy” and “free markets” being juxtaposed to the “autocracy” of state-subsidized growth. As Russian Foreign minister Sergey Lavrov explained in a press conference on July 20, 2022 regarding Ukraine’s violent coup in 2014, U.S. and other Western officials define military coups as democratic if they are sponsored by the United States in the hope of promoting neoliberal policies.

Do you remember how events developed after the coup? The putschists spat in the face of Germany, France and Poland that were the guarantors of the agreement with Viktor Yanukovych. It was trampled underfoot the next morning. These European countries didn’t make a peep – they reconciled themselves to this. A couple of years ago I asked the Germans and French what they thought about the coup. What was it all about if they didn’t demand that the putschists fulfil the agreements? They replied: “This is the cost of the democratic process.” I am not kidding. Amazing – these were adults holding the post of foreign ministers.[1]

This Doublethink vocabulary reflects how far mainstream ideology has evolved from Rosa Luxemburg’s description a century ago of the civilizational choice being posed: barbarism or socialism.

The contradictory U.S. and European interests and burdens of the war in Ukraine

To return to Clausewitz’s view of war as an extension of national policy, U.S. national interests are diverging sharply from those of its NATO satellites. America’s military-industrial complex, oil and agriculture sectors are benefiting, while European industrial interests are suffering. That is especially the case in Germany and Italy as a result of their governments blocking North Stream 2 gas imports and other Russian raw materials.

The interruption of world energy, food and minerals supply chains and the resulting price inflation (providing an umbrella for monopoly rents by non-Russian suppliers) has imposed enormous economic strains on U.S. allies in Europe and the Global South. Yet the U.S. economy is benefiting from this, or at least specific sectors of the U.S. economy are benefiting. As Sergey Lavrov, pointed out in his above-cited press conference: “The European economy is impacted more than anything else. The stats show that 40 percent of the damage caused by sanctions is borne by the EU whereas the damage to the United States is less than 1 percent.” The dollar’s exchange rate has soared against the euro, which has plunged to parity with the dollar and looks set to fall further down toward the $0.80 that it was a generation ago. U.S. dominance over Europe is further strengthened by the trade sanctions against Russian oil and gas. The U.S. is an LNG exporter, U.S. companies control the world oil trade, and U.S. firms are the world’s major grain marketers and exporters now that Russia is excluded from many foreign markets.

A revival of European military spending – for offense, not defense

U.S. arms-makers are looking forward to making profits off arms sales to Western Europe, which has almost literally disarmed itself by sending its tanks and howitzers, ammunition and missiles to Ukraine. U.S. politicians support a bellicose foreign policy to promote arms factories that employ labor in their voting districts. And the neocons who dominate the State Department and CIA see the war as a means of asserting American dominance over the world economy, starting with its own NATO partners.

The problem with this view is that although America’s military-industrial, oil and agricultural monopolies are benefitting, the rest of the U.S. economy is being squeezed by the inflationary pressures resulting from boycotting Russian gas, grain and other raw-materials exports, and the enormous rise in the military budget will be used as an excuse to cut back social spending programs. That also is a problem for Eurozone members. They have promised NATO to raise their military spending to the stipulated 2 percent of their GDP, and the Americans are urging much higher levels to upgrade to the most recent array of weaponry. All but forgotten is the Peace Dividend that was promised in 1991 when the Soviet Union dissolved the Warsaw Pact alliance, expecting that NATO likewise would have little reason to exist.

Russia has no discernable economic interest in mounting a new occupation of Central Europe. That would offer no gain to Russia, as its leaders realized when they dissolved the old Soviet Union. In fact, no industrial country in today’s world can afford to field an infantry to occupy an enemy. All that NATO can do is bomb from a distance. It can destroy, but not occupy. The United States found that out in Serbia, Iraq, Libya, Syria and Afghanistan. And just as the assassination Archduke Ferdinand in Sarajevo (now Bosnia-Herzegovina) triggered World War I in 1914, NATO’s bombing of adjoining Serbia may be viewed as throwing down the gauntlet to turn Cold War 2 into a veritable World War III. That marked the point at which NATO became an offensive alliance, not a defensive one.

How does this reflect European interests? Why should Europe re-arm, if the only effect is to make it a target of retaliation in the event of further attacks on Russia? What does Europe have to gain in becoming a larger customer for America’s military-industrial complex? Diverting spending to rebuild an offensive army – that can never be used without triggering an atomic response that would wipe out Europe – will limit the social spending needed to cope with today’s Covid problems and economic recession.

The only lasting leverage a nation can offer in today’s world is trade and technology transfer. Europe has more of this to offer than the United States. Yet the only opposition to renewed military spending is coming from right-wing parties and the German Linke party. Europe’s Social Democratic, Socialist and Labour parties share American neoliberal ideology.

Sanctions against Russian gas makes coal “the fuel of the future”

The carbon footprint of bombing, arms manufacturing and military bases is strikingly absent from today’s discussion about global warming and the need to cut back on carbon emissions. The German party that calls itself Green is leading the campaign for sanctions against importing Russian oil and gas, which electric utilities are replacing with Polish coal and even German lignite. Coal is becoming the “fuel of the future.” Its price also is soaring in the United States, benefitting American coal companies.

In contrast to the Paris Club agreements to reduce carbon emissions, the United States has neither the political capability nor the intention to join the conservation effort. The Supreme Court recently ruled that the Executive Branch has no authority to issue nation-wide energy rules; only individual states can do that, unless Congress passes a national law to cut back on fossil fuels.

That seems unlikely in view of the fact that becoming head of a Democratic Senate and Congressional committee requires being a leader in raising campaign contributions for the party. Joe Manchin, a coal-company billionaire, leads all senators in campaign support from the oil and coal industries, enabling him to win his party’s auction for the Senate Energy and Natural Resources committee chairmanship and block any seriously restrictive environmental legislation.

Next to oil, agriculture is a major contributor to the U.S. balance of payments. Blocking Russian grain and fertilizer shipping threatens to create a Global South food crisis as well as a European crisis as gas is unavailable to make domestic fertilizer. Russia is the world’s largest exporter of grain and also of fertilizer, and its exports of these products have been exempted from NATO sanctions. But Russian shipping was blocked by Ukraine placing mines in the sea lanes through the Black Sea to close off access to Odessa’s harbor, hoping that the world would blame the world’s imminent grain and energy crisis on Russia instead of the US/NATO trade sanctions imposed on Russia.[2] At his July 20, 2022 press conference Sergey Lavrov showed the hypocrisy of the public relations attempt to distort matters:

For many months, they told us that Russia was to blame for the food crisis because the sanctions don’t cover food and fertiliser. Therefore, Russia doesn’t need to find ways to avoid the sanctions and so it should trade because nobody stands in its way. It took us a lot of time to explain to them that, although food and fertiliser are not subject to sanctions, the first and second packages of Western restrictions affected freight costs, insurance premiums, permissions for Russian ships carrying these goods to dock at foreign ports and those for foreign ships taking on the same consignments at Russian harbours. They are openly lying to us that this is not true, and that it is up to Russia alone. This is foul play.

Black Sea grain transport has begun to resume, but NATO countries have blocked payments to Russia in dollars, euros or currencies of other countries in the U.S. orbit. Food-deficit countries that cannot afford to pay distress-level food prices face drastic shortages, which will be exacerbated when they are compelled to pay their foreign debts denominated in the appreciating U.S. dollar. The looming fuel and food crisis promises to drive a new wave of immigrants to Europe seeking survival. Europe already has been flooded with refugees from NATO’s bombing and backing of jihadist attacks on Libya and Near Eastern oil-producing countries. This year’s proxy war in Ukraine and imposition of anti-Russian sanctions is a perfect illustration of Henry Kissinger’s quip: “It may be dangerous to be America’s enemy, but to be America’s friend is fatal.”

Blowback from the US/NATO miscalculations

America’s international diplomacy aims to dictate financial, trade and military policies that will lock other countries into dollar debt and trade dependency by preventing them from developing alternatives. If this fails, America seeks to isolate the recalcitrants from the U.S.-centered Western sphere.

America’s foreign diplomacy no longer is based on offering mutual gain. Such could be claimed in the aftermath of World War II when the United States was in a position to offer loans, foreign-aid and military protection against occupation – as well as manufactures to rebuild war-torn economies – to governments in exchange for their accepting trade and monetary policies favorable to American exporters and investors. But today there is only the belligerent diplomacy of threatening to hurt nations whose socialist governments reject America’s neoliberal drive to privatize and sell off their natural resources and public infrastructure.

The first aim is to prevent Russia and China from helping each other. This is the old imperial divide-and-conquer strategy. Minimizing Russia’s ability to support China would pave the way for the United States and NATO Europe to impose new trade sanctions on China, and to send jihadists to its western Xinjiang Uighur region. The aim is to bleed Russia’s armaments inventory, kill enough of its soldiers, and create enough Russian shortages and suffering to not only weaken its ability to help China, but to spur its population to support a regime change, an American-sponsored “color revolution.” The dream is to promote a Yeltsin-like leader friendly to the neoliberal “therapy” that dismantled Russia’s economy in the 1990s.

Amazing as it may seem, U.S. strategists did not anticipate the obvious response by countries finding themselves together in the crosshairs of US/NATO military and economic threats. On July 19, 2022, the presidents of Russia and Iran met to announce their cooperation in the face of the sanctions war against them. That followed Russia’s earlier meeting with India’s Prime Minister Modi. In what has been characterized as “shooting itself in its own foot,” U.S. diplomacy is driving Russia, China, India and Iran together, and indeed to reach out to Argentina and other countries to join the BRICS-plus bank to protect themselves.

The U.S. itself is ending the Dollar Standard of international finance

The Trump Administration took a major step to drive countries out of the dollar orbit in November 2018, by confiscating nearly $2 billion of Venezuela’s official gold stock held in London. The Bank of England put these reserves at the disposal of Juan Guaidó, the marginal right-wing politician selected by the United States to replace Venezuela’s elected president as head of state. This was defined as being democratic, because the regime change promised to introduce the neoliberal “free market” that is deemed to be the essence of America’s definition of democracy for today’s world.

This gold theft actually was not the first such confiscation. On November 14, 1979, the Carter Administration paralyzed Iran’s bank deposits in New York after the Shah was overthrown. This act blocked Iran from paying its scheduled foreign debt service, forcing it into default. That was viewed as an exceptional one-time action as far as all other financial markets were concerned. But now that the United States is the self-proclaimed “exceptional nation,” such confiscations are becoming a new norm in U.S. diplomacy. Nobody yet knows what happened to Libya’s gold reserves that Muammar Gadafi had intended to be used to back an African alternative to the dollar. And Afghanistan’s gold and other reserves were simply taken by Washington as payment for the cost of “freeing” that country from Russian control by backing the Taliban. But when the Biden Administration and its NATO allies made a much larger asset grab of some $300 billion of Russia’s foreign bank reserves and currency holdings in March 2022, it made official a radical new epoch in Dollar Diplomacy. Any nation that follows policies not deemed to be in the interests of the U.S. Government runs the risk of U.S. authorities confiscating its holdings of foreign reserves in U.S. banks or securities.

This was a red flag leading countries to fear denominating their trade, savings and foreign debt in dollars, and to avoid using dollar or euro bank deposits and securities as a means of payment. By prompting other countries to think about how to free themselves from the U.S.-centered world trade and monetary system that was established in 1945 with the IMF, World Bank and subsequently the World Trade Organization, the U.S. confiscations have accelerated the end of the U.S. Treasury-bill standard that has governed world finance since the United States went off gold in 1971.[3]

Since dollar convertibility into gold ended in August 1971, dollarization of the world’s trade and investment has created a need for other countries to hold most of their new international monetary reserves in U.S. Treasury securities and bank deposits. As already noted, that enables the United States to seize foreign bank deposits and bonds denominated in U.S. dollars.

Most important, the United States can create and spend dollar IOUs into the world economy at will, without limit. It doesn’t have to earn international spending power by running a trade surplus, as other countries have to do. The U.S. Treasury can simply print dollars electronically to finance its foreign military spending and purchases of foreign resources and companies. And being the “exceptional country,” it doesn’t have to pay these debts – which are recognized as being far too large to be paid. Foreign dollar holdings are free U.S. credit to the Unites States, not requiring repayment any more than the paper dollars in our wallets are expected to be paid off (by retiring them from circulation). What seems to be so self-destructive about America’s economic sanctions and confiscations of Russian and other foreign reserves is that they are accelerating the demise of this free ride.

Blowback resulting from US/NATO isolating their economic and monetary systems

It is hard to see how driving countries out of the U.S. economic orbit serves long-term U.S. national interests. Dividing the world into two monetary blocs will limit Dollar Diplomacy to its NATO allies and satellites.

The blowback now unfolding in the wake of U.S. diplomacy begins with its anti-Russia policy. Imposing trade and monetary sanctions was expected to block Russian consumers and businesses from buying the US/NATO imports to which they had become accustomed. Confiscating Russia’s foreign currency reserves was supposed to crash the ruble, “turning it into rubble,” as President Biden promised. Imposing sanctions against importing Russian oil and gas to Europe was supposed to deprive Russia of export earnings, causing the ruble to collapse and raising import prices (and hence, living costs) for the Russian public. Instead, blocking Russian exports has created a worldwide price inflation for oil and gas, sharply increasing Russian export earnings. It exported less gas but earned more – and with dollars and euros blocked, Russia demanded payment for its exports in rubles. Its exchange rate soared instead of collapsing, enabling Russia to reduce its interest rates.

Goading Russia to send its soldiers to eastern Ukraine to defend Russian speakers under attack in Luhansk and Donetsk, along with the expected impact of the ensuing Western sanctions, was supposed to make Russian voters press for regime change. But as almost always happens when a country or ethnicity is attacked, Russians were appalled at the Ukrainian hatred of Russian-language speakers and Russian culture, and at the Russophobia of the West. The effect of Western countries banning music by Russian composers and Russian novels from libraries – capped by England banning Russian tennis players from the Wimbledon tournament – was to make Russians feel under attack simply for being Russian. They rallied around President Putin.

NATO’s trade sanctions have catalyzed helped Russian agriculture and industry to become more self-sufficient by obliging Russia to invest in import substitution. One well-publicized farming success was to develop its own cheese production to replace that of Lithuania and other European suppliers. Its automotive and other industrial production is being forced to shift away from German and other European brands to its own and Chinese producers. The result is a loss of markets for Western exporters.

In the field of financial services, NATO’s exclusion of Russia from the SWIFT bank-clearing system failed to create the anticipated payments chaos. The threat had been so loudly for so long that Russia and China had plenty of time to develop their own payments system. This provided them with one of the preconditions for their plans to split their economies away from those of the US/NATO West.

As matters have turned out, the trade and monetary sanctions against Russia are imposing the heaviest costs on Western Europe, and are likely to spread to the Global South, driving them to think about whether their economic interests lie in joining U.S. confrontational Dollar Diplomacy. The disruption is being felt most seriously in Germany, causing many companies to close down as a result of gas and other raw-materials shortages. Germany’s refusal to authorize the North Stream 2 pipeline has pushed its energy crisis to a head. This has raised the question of how long Germany’s political parties can remain subordinate to NATO’s Cold War policies at the cost of German industry and households facing sharp rises in heating and electricity costs.

The longer it takes to restore trade with Russia, the more European economies will suffer, along with the citizenry at large, and the further the euro’s exchange rate will fall, spurring inflation throughout its member countries. European NATO countries are losing not only their export markets but their investment opportunities to gain from the much more rapid growth of Eurasian countries whose government planning and resistance to financialization has proved much more productive than the US/NATO neoliberal model.

It is difficult to see how any diplomatic strategy can do more than play for time. That involves living in the short run, not the long run. Time seems to be on the side of Russia, China and the trade and investment alliances that they are negotiating to replace the neoliberal Western economic order.

America’s ultimate problem is its neoliberal post-industrial economy

The failure and blowbacks of U.S. diplomacy are the result of problems that go beyond diplomacy itself. The underlying problem is the West’s commitment to neoliberalism, financialization and privatization. Instead of government subsidy of basic living costs needed by labor, all social life is being made part of “the market” – a uniquely Thatcherite deregulated “Chicago Boys” market in which industry, agriculture, housing and financing are deregulated and increasingly predatory, while heavily subsidizing the valuation of financial and rent-seeking assets – mainly the wealth of the richest One Percent. Income is obtained increasingly by financial and monopoly rent-seeking, and fortunes are made by debt-leveraged “capital” gains for stocks, bonds and real estate.

U.S. industrial companies have aimed more at “creating wealth” by increasing the price of their stocks by using over 90 percent of their profits for stock buybacks and dividend payouts instead of investing in new production facilities and hiring more labor. The result of slower capital investment is to dismantle and financially cannibalize corporate industry in order to produce financial gains. And to the extent that companies do employ labor and set up new production, it is done abroad where labor is cheaper.

Most Asian labor can afford to work for lower wages because it has much lower housing costs and does not have to pay education debt. Health care is a public right, not a financialized market transaction, and pensions are not paid for in advance by wage-earners and employers but are public. The aim in China in particular is to prevent the rentier Finance, Insurance and Real Estate (FIRE) sector from becoming a burdensome overhead whose economic interests differ from those of a socialist government.

China treats money and banking as a public utility, to be created, spent and lent for purposes that help increase productivity and living standards (and increasingly to preserve the environment). It rejects the U.S.-sponsored neoliberal model imposed by the IMF, World Bank and World Trade Organization.

The global economic fracturing goes far beyond NATO’s conflict with Russia in Ukraine. By the time the Biden administration took office at the start of 2021, Russia and China already had been discussing the need to de-dollarize their foreign trade and investment, using their own currencies.[4] That involves the quantum leap of organizing a new payments-clearing institution. Planning had not progressed beyond broad outlines of how such a system would work, but the U.S. confiscation of Russia’s foreign reserves made such planning urgent, starting with a BRICS-plus bank. A Eurasian alternative to the IMF will remove its ability to impose neoliberal austerity “conditionalities” to force countries to lower payments to labor and give priority to paying their foreign creditors above feeding themselves and developing their own economies. Instead of new international credit being extended mainly to pay dollar debts, it will be part of a process of new mutual investment in basic infrastructure designed to accelerate economic growth and living standards. Other institutions are being designed as China, Russia, Iran, India and their prospective allies represent a large enough critical mass to “go it alone,” based on their own mineral wealth and manufacturing power.

The basic U.S. policy has been to threaten to destabilize countries and perhaps bomb them until they agree to adopt neoliberal policies and privatize their public domain. But taking on Russia, China and Iran is a much higher order of magnitude. NATO has disarmed itself of the ability to wage conventional warfare by handing over its supply of weaponry – admittedly largely outdated – to be devoured in Ukraine. In any case, no democracy in today’s world can impose a military draft to wage a conventional land warfare against a significant/major adversary. The protests against the Vietnam War in the late 1960s ended the U.S. military draft, and the only way to really conquer a country is to occupy it in land warfare. This logic also implies that Russia is no more in a position to invade Western Europe than NATO countries are to send conscripts to fight Russia.

That leaves Western democracies with the ability to fight only one kind of war: atomic war – or at least, bombing at a distance, as was done in Afghanistan and the Near East, without requiring Western manpower. This is not diplomacy at all. It is merely acting the role of wrecker. But that is the only tactic that remains available to the United States and NATO Europe. It is strikingly like the dynamic of Greek tragedy, where power leads to hubris that is injurious to others and therefore ultimately anti-social – and self-destructive in the end.

How then can the United States maintain its world dominance? It has deindustrialized and run up foreign official debt far beyond any foreseeable way to be paid. Meanwhile, its banks and bondholders are demanding that the Global South and other countries pay foreign dollar bondholders in the face of their own trade crisis resulting from the soaring energy and food prices caused by America’s anti-Russian and anti-China belligerence. This double standard is a basic internal contradiction that goes to the core of today’s neoliberal Western worldview.

I have described the possible scenarios to resolve this conflict in my recent book The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism. It has now also been issued in e-book form by Counterpunch Books.

Text, company name Description automatically generated
  1. “Foreign Minister Sergey Lavrov’s interview with RT television, Sputnik agency and Rossiya Segodnya International Information Agency, Moscow, July 20, 2022,” Russian Foreign Affairs Ministry, July 20, 2022. https://mid.ru/en/foreign_policy/news/1822901/. From Johnson’s Russia List, July 21, 2022, #5. 
  2. International Maritime Organization, “Maritime Security and Safety in the Black Sea and Sea of Azov,” https://www.imo.org/en/MediaCentre/HotTopics/Pages/MaritimeSecurityandSafetyintheBlackSeaandSeaofAzov.aspx. See Yves Smith, Some Implications of the UN’s Ukraine Grain and Russia Fertilizer/Food Agreements,” Naked Capitalism, July 25, 2022, and Lavrov’s July 24 speech to the Arab League. 
  3. My Super ImperialismThe Economic Strategy of American Empire (3rd ed., 2021) describes how the Treasury-bill standard has provided America with a free ride and enabled it to run balance-of-payments deficits without constraint, including the costs of its overseas military spending. 
  4. Radhika Desai and Michael Hudson (2021), “Beyond Dollar Creditocracy: A Geopolitical Economy,” Valdai Club Paper No. 116. Moscow: Valdai Club, 7 July, reprinted in Real World Economic Review (97), https://rwer.wordpress.com/2021/09/23. 

Going to Samarkand

July 31, 2022

By Pepe Escobar, posted with the author’s permission and widely cross-posted

The SCO and other pan-Eurasian organizations play a completely different – respectful, consensual – ball game. And that’s why they are catching the full attention of most of the Global South.

The meeting of the SCO Ministerial Council  in Tashkent this past Friday involved some very serious business. That was the key preparatory reunion previous to the SCO summit in mid-September in fabled Samarkand, where the SCO will release a much-awaited “Declaration of Samarkand”.

What happened in Tashkent was predictably unreported across the collective West and still not digested across great swathes of the East.

So once again it’s up to Russian Foreign Minister Sergei Lavrov to cut to the chase. The world’s foremost diplomat – amidst the tragic drama of the American-concocted Era of Non-Diplomacy, Threats and Sanctions – has singled out the two overlapping main themes propelling the SCO as one of the key organizations on the path towards Eurasia integration.

  1. Interconnectivity and “the creation of efficient transport corridors”. The War of Economic Corridors is one of the key features of the 21st
  2. Drawing “the roadmap for the gradual increase in the share of national currencies in mutual settlements.”

Yet it was in the Q@A session that Lavrov for all practical purposes detailed all the major trends in the current, incandescent state of international relations. These are the key takeaways.

How comfortable are you with the US dollar?

Africa: “We agreed that we will submit to the leaders for consideration proposals on specific actions to switch to settlements in national currencies. I think that everyone will now think about it. Africa already has a similar experience: common currencies in some sub-regional structures, which, nevertheless, by and large, are pegged to Western ones. From 2023, a continental free trade zone will start functioning on the African continent. A logical step would be to reinforce it with currency agreements.”

Belarus – and many others – eager to join the SCO: “There is a broad consensus on the Belarusian candidacy (…) I felt it today. There are a number of contenders for the status of observer, dialogue partner. Some Arab countries show such interest, as do Armenia, Azerbaijan and a number of Asian states.”

Grain diplomacy: “In regard to the issue of Russian grain, it was the American sanctions that did not allow the full implementation of the signed contracts due to the restrictions imposed: Russian ships are prohibited from entering a number of ports, there is a ban on foreign ships entering Russian ports to pick up export cargo, and insurance rates have gone up (…) Financial chains are also interrupted by illegitimate US and EU sanctions. In particular, Rosselkhozbank, through which all the main settlements for food exports pass, was one of the first to be included in the sanctions list. UN Secretary General A. Guterres has committed to removing these barriers to addressing the global food crisis. Let’s see.”

Taiwan: “We do not discuss this with our Chinese colleague. Russia’s position on having only one China remains unchanged. The United States periodically confirms the same line in words, but in practice their ‘deeds’ do not always coincide with words. We have no problem upholding the principle of Chinese sovereignty.”

Should the SCO abandon the US dollar? “Each SCO country must decide for itself how comfortable it feels to rely on the dollar, taking into account the absolute unreliability of this currency for possible abuses. The Americans have used this more than once in relation to a number of states.”

Why the SCO matters: “There are no leaders and followers in the SCO. There are no situations in the organization like in NATO, when the US and its closest allies impose one line or another on all other members of the alliance. In the Shanghai Cooperation Organization, the situation that we are currently seeing in the EU does not arise: sovereign countries are literally being ‘knocked out’, demanding that they either stop buying gas or reduce its consumption in violation of national plans and interests.”

Lavrov was also keen to stress how “other structures in the Eurasian space, for example, the EAEU and BRICS, are based and operate on the same principles” of the SCO. And he referred to the crucial cooperation with the 10 member-nations of ASEAN.

Thus he set the stage for the clincher: “All these processes, in interconnection, help to form the Greater Eurasian Partnership, which President Vladimir Putin has repeatedly spoken about. We see in them a benefit for the entire population of the Eurasian continent.”

Those Afghan and Arab lives

The real big story of the Raging Twenties  is how the special military operation (SMO) in Ukraine de facto kick-started “all these processes”, as Lavrov mentioned, simultaneously leading towards inexorable Eurasia integration.

Once again he had to recall two basic facts that continue to escape any serious analysis across the collective West:

Fact 1: “All our proposals for their removal [referring to NATO-expansion assets] on the basis of the principle of mutual respect for security interests were ignored by the US, the EU, and NATO.”

Fact 2: “When the Russian language was banned in Ukraine, and the Ukrainian government promoted neo-Nazi theories and practices, the West did not oppose, but, on the contrary, encouraged the actions of the Kyiv regime and admired Ukraine as a ‘stronghold of democracy.’ Western countries supplied the Kyiv regime with weapons and planned the construction of naval bases on Ukrainian territory. All these actions were openly aimed at containing the Russian Federation. We have been warning for 10 years that this is unacceptable.”

It’s also fitting that Lavrov would once again put Afghanistan, Iraq and Libya in context: “Let us recall the example of Afghanistan, when even wedding ceremonies were subjected to air strikes, or Iraq and Libya, where statehood was completely destroyed, and many human lives were sacrificed. When states that easily pursued such a policy are now making a fuss about Ukraine, I can conclude that the lives of Afghans and Arabs mean nothing to Western governments. It’s unfortunate. Double standards, these racist and colonial instincts must be eliminated.”

Putin, Lavrov, Patrushev, Madvedev have all been stressing lately the racist, neocolonial character of the NATOstan matrix. The SCO and other pan-Eurasian organizations play a completely different – respectful, consensual – ball game. And that’s why they are catching the full attention of most of the Global South. Next stop: Samarkand.

Mobilization and Real Economy

July 20, 2022

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World War 3 for dummies

June 18, 2022

Source

By Gaius Baltar

Some knowledgeable people, apparently including the Pope, are beginning to suspect that there may be more going on in the world than just the war in the Ukraine. They say that World War 3 has already started and things will get worse from now on. This can be difficult to determine while we are participating in the unfolding events and do not have the benefit of the historical perspective. It is doubtful that people back in 1939 realized that they were looking at the start of a major worldwide conflict, although some may have suspected it.

The current global situation is in many ways like a giant jigsaw puzzle where the general public only sees a tiny part of the complete picture. Most don’t even realize that there may be more pieces and don’t even ask these simple questions: Why is all this happening and why is it happening now?

Things are more complicated than most people realize. What they see is the evil wizard Vladimir Saruman Putin invading innocent Ukraine with his orc army – for absolutely no reason. This is a simplistic view, to say the least because nothing happens without a reason. Let’s put things in perspective and see what is really going on – and why the world is going crazy before our eyes. Let’s see what World War 3 is all about.

The pressure cooker

The West (which we can define here as the US and the EU and a few more) has been maintaining pressure on the entire world for decades. This does not only apply to countries outside the West, but also to Western countries which strayed from the diktats of the West’s rulers. This pressure has been discussed widely and attributed to all kinds of motives, including neocolonialism, forced financial hegemony, and so forth. What is interesting, particularly during the last 20 years, is which countries have been pressured and what they do not have in common.

Among the pressured countries we find Russia, China, Cuba, Venezuela, Libya, Syria, Serbia, Thailand, and Iran to mention a few. There have also been recent additions, including India and Hungary. In order to understand why they have been pressured, we need to find out what they have in common. That’s not easy since they are extremely different in most ways. There are democracies and non-democracies, conservative and communist governments, Christian, Muslim and Buddhist countries, and so on. Still, many of them are very clearly allied. One must ask why conservative and religious countries such as Russia or Iran would ally themselves with Godless communists in Cuba and Venezuela.

What all these countries have in common is their desire to run their own affairs; to be independent countries. This is unforgivable in the eyes of the West and must be tackled by any means necessary, including economic sanctions, color revolutions, and outright military aggression.

The West and its NATO military arm had surrounded Russia with hostile countries and military bases, armed and manipulated Ukraine to be used as a hammer against it, and employed sanctions and threats. The same thing was and is happening in Asia where China is being surrounded by all means available. The same applies to all the Independents mentioned above to some extent. In the past 10 years or so the pressure has increased massively on the Independents and it reached almost a fever pitch in the year before the Russian invasion of the Ukraine.

During the year before the Ukraine war, the US sent its diplomats around the world to tune up the pressure. They were like a traveling circus or a rock band on a tour, but instead of entertainment, they delivered threats: buy this from us and do what we tell you or there will be consequences. The urgency was absolute and palpable, but then came the Ukraine war and the pressure went up to 11. During the first month of the war, the entire West’s diplomatic corps was fully engaged in threats against the ‘rest of the world’ to engineer the isolation of Russia. This didn’t work, which resulted in panic in political and diplomatic circles in the US and Europe.

All this pressure through the years, and all the fear and panic when it didn’t work, are clearly related to the events in the Ukraine. They are a part of the same ‘syndrome’ and have the same cause.

The debt dimension

There have been many explanations for what is going on and the most common is the fight between two possible futures; a multipolar world where there are several power centers in the world, and a unipolar world where the West governs the world. This is correct as far as it goes, but there is another reason which explains why this is happening now and all the urgency and panic in the West.

Recently the New Zealand tech guru Kim Dotcom tweeted a thread about the debt situation in the US. According to him all debt and unfunded liabilities of the US exceed the total value of the entire country, including the land. This situation is not unique to the US. Most countries in the West have debt that can only be paid back by selling the entire country and everything it contains. On top of that, most non-western countries are buried in dollar-denominated debt and are practically owned by the same financiers who own the West.

During the last few decades, the economy of the US and Europe has been falsified on a level that is difficult to believe. We in the West have been living far beyond our means and our currencies have been massively overvalued. We have been able to do this through two mechanisms:

  1. The first one is the reserve status of the dollar and the semi-reserve status of the euro which have enabled the West to export digital money and receive goods in return. This has created enormous financial power for the West and enabled it to function as a parasite on the world economy. We have been getting a lot of goods for free, to put it mildly.
  2. The second falsification mechanism is the increase in debt to a level where we have essentially pawned everything we own, including our houses and lands, to keep up our living standards. We own nothing now when the debt has been subtracted. The debt has long since become unserviceable – far beyond our ability to pay interests on – which explains why the interest rates in the West are in the neighborhood of zero. Any increase would make the debt unserviceable and we would all go formally bankrupt in a day.

On top of all this, the falsification has created artificially strong currencies in the West which has boosted their purchasing power for goods priced in non-western currencies. These mechanisms have also enabled the West to run bloated and dysfunctional service economies where inefficiencies are beyond belief. We have giant groups of people in our economies that not only create no value but destroy value systematically. What maintains the West’s standard of living now is a small minority of productive people, constant debt increase, and parasitism of the rest of the world.

The people who own all this debt actually own everything we think we own. We in the West own nothing at this point – we only think we do. But who are our real owners? We know more or less who they are because they meet every year at the World Economic Forum in Davos along with the western political elites who they also happen to own.

It is clear that our owners have been getting increasingly worried, and their worries have been increasing in sync with the increased pressure applied by the West on the rest of the world, particularly the Independents. During the last Davos meeting, the mood was bleak and panicked at the same time, much like the panic among the western political elites when the isolation of Russia failed.

What is about to happen

The panic of our owners and their politicians is understandable because we have come to the end of the line. We can no longer keep up our living standards by debt increase and parasitism. The debt is reaching beyond what we own as collateral and our currencies are about to become worthless. We will no longer be able to get free stuff from the rest of the world, or pay back our debt – let alone pay interest on it. The entire West is about to go bankrupt and our standard of living is about to go down by a massive percentage. This is what has our owners panicked and they see only two scenarios:

  1. In the first scenario most countries in the West, and everything and everyone within them, declare bankruptcy and erase the debt by diktat – which sovereign states are able to do. This will also erase the wealth and political power of our owners.
  2. In the second scenario, our owners take over the collateral during the bankruptcy. The collateral is us and everything we own.

It doesn’t take a genius to figure out which scenario was chosen. The plan for the second scenario is ready and being implemented as we speak. It is called ‘The Great Reset’ and was constructed by the people behind the World Economic Forum. This plan is not a secret and can be examined to a certain degree on the WEF website.

The Great Reset is a mechanism for the seizing of all debt collateral which includes your assets, the assets of your city or municipality, the assets of your state, and most corporate assets not already held by our owners.

This asset seizure mechanism has several components, but the most important are the following four:

  1. Abolishment of sovereignty: A sovereign (independent) country is a dangerous country because it can choose to default on its debt. The decrease in sovereignty has been a priority for our owners and various schemes have been attempted such as the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership. The most successful scheme is undoubtedly the European Union itself.
  2. The down-tuning of the economy: The western economy (and indeed the global economy) must be tuned down by a very significant percentage. This down-tuning is necessary because the western economy is massively falsified now and must be taken down to its real level – which may be as low as half of what it is now – or more. The slow takedown has also the purpose of avoiding a sudden crash that would cause massive social unrest which would be a threat to our owners. A controlled takedown is therefore preferable to an uncontrolled crash. This controlled takedown is already happening and has been going on for quite some time. Many examples can be mentioned of this takedown, including the EU and US energy policy which is designed to sabotage the western economy, and the obvious attempts at demand destruction during and after the epidemic, including the fairly bizarre logistical problems which suddenly came out of nowhere.
  3. Asset harvesting (you will own nothing and be ‘happy’): All assets that can be considered to be collateral to our private and collective/public debt will be taken over. This is a clearly stated aim of the Great Reset but it is less clear how this would be carried out. Total control of western governments (and indeed all governments) would seem to be necessary for this. That precondition is closer than one might think because most western governments seem to be beholden to Davos at this point. The process will be sold as necessary social restructuring because of an economic crisis and global warming and will result in a massive decrease in living standards for regular people, although not the elites.
  4. Oppression: A great many people will not like this and an uprising is a likely response, even if the takedown is done gradually. To prevent this from happening, a social control mechanism is being implemented which will erase personal freedom, the freedom of speech, and privacy. It will also create absolute dependence of the individual on the state. This must be done before the economic takedown can be completed or there will be a revolution. This mechanism is already being implemented enthusiastically in the West as anybody with eyes and ears can see.

Russia, China, and other Independents

How do Russia and China, and the war in Ukraine, factor into all of this? Why all the pressure from the West throughout the years and why all this panic now? Part of the reason for the pressure on the Independents, particularly Russia and China, is simply that they have resisted western hegemony. That is enough for getting on the West’s naughty list. But why the increased pressure in recent years?

The reason is that Russia and China cannot be subjugated through bankruptcy and their assets harvested. They do not have much debt in western currencies which means that the people who own the West through debt do not currently own Russia and China (like they own the West and the indebted ‘third world’) and cannot acquire them through debt. The only way to acquire them is through regime change. Their governments must be weakened by any means, including economic sanctions and military means if necessary -thus the use of Ukraine as a battering ram for Russia and Taiwan for China.

Subjugating Russia and China is an existential issue for our Davos owners because when they take the western economy down, everything else must go down too. If the western economy is taken down and a large economic block doesn’t participate in the downfall, it will be a disaster for the West. The new block will gain massive economic power, and possibly unipolar hegemony of sorts, while the West descends into a feudal Dark Age and irrelevance. Therefore the entire world must go down for the Great Reset to work. Russia and China must be subjugated by any means, as well as India and other stubborn nations.

This is what has fueled the situation we now find ourselves in and will fuel the continuation of World War 3. The western owner-elites are going to war to keep their wealth and power. Everyone who resists must be subjugated so they can follow the West into the planned Great Reset Dark Age.

The reason for the current panic among western elites is that the Ukraine project isn’t going as planned. Instead of Russia being bled on the battlefield, it is Ukraine and the West that bleed. Instead of the Russian economy crashing resulting in Putin’s replacement by a Davos-compatible leader, it is the West’s economy that is crashing. Instead of Russia being isolated, it is the West that is being increasingly isolated. Noting is working, and to top it all off, Europe has given the Russians the means and motive to destroy the European economy by partly shutting down its industry. Without Russian resources, there is no European industry, and without industry, there are no taxes for paying for unemployment benefits, pensions, all the refugees, and pretty much everything else which holds European societies together. The Russians now have the ability to engineer an uncontrolled crash in Europe which is not what Davos planned. An uncontrolled crash might see Davos’s heads roll, literally, and that is causing fear and panic in elite circles. The only solution for them is to move on with World War 3 and hope for the best.

What to do

The Great Reset of the world economy is the direct cause of World War 3 – assuming that is what is going on. What can be done about this? From inside the West, little can be done. The only way is to somehow remove Davos from the equation, but that is most likely not going to happen for two reasons: The first one is that the Davos great resetters are too entwined in the western economy and politics. Davos is like an octopus with its arms and suckers inside every country’s elite circles, media, and government. They are too entrenched to be easily removed. The second reason is that the western population is too brainwashed and ignorant. The level of their brainwashing is such that a large part of them actually want to become poor – although they use the word ‘green’ for ‘poor’ because it sounds better. There are, however, some indications that there may be divisions within western elites. Some of them, particularly within the US, may be resisting the primarily Europe-designed Great Reset – but whether this opposition is real or effective remains to be seen.

However, outside the West, there are certain measures that can be taken and must be taken. Some of those measures are drastic and some of them are being done as we speak. Among the measures are the following:

  1. The Independents, led by Russia, China, and India, must create a block to isolate themselves from the radioactive West. This isolation must not only be economic, but also political and social. Their economic systems must be divorced from the West and made autonomous. Their cultures and history must be defended against western influences and revisionism. This process appears to be underway.
  2. The Independents must immediately ban all western sponsored institutions and NGOs in their countries, regardless of whether they are sponsored by western states or individuals. Furthermore, they must ban all media receiving western sponsorship and strip every school and university of western sponsorship and influence.
  3. They must leave all international institutions up to and possibly including the United Nations because all international bodies are controlled by the West. They must then replace them with new institutions within their block.
  4. They must, at some point, declare the dollar and the euro currencies non grata. That means that they should declare default on all debts denominated in these currencies, but not other debts. This will most likely come at a later stage but is inevitable.

This will create a situation where the West will descend into darkness without pulling others down with it – if we manage to escape the nuclear fire.

Economic Rent and Exploitation: Michael Hudson, Shepheard Walwyn

June 18, 2022

Michael Hudson, Shepheard Walwyn recording May 23, 2022
Part one:  https://www.youtube.com/watch?v=XDo7HykYN9k

Part two here:  https://www.youtube.com/watch?v=I-xWgLertkg

Jonathan Brown
Michael, welcome to the podcast.

Michael Hudson
It’s good to be here. I’m looking forward to it.

Jonathan Brown
Michael, I think you have one the most extraordinary upbringings and journeys into economics. And I just wanted to give our listeners just some sense of how you got from being the godson of Leon Trotsky all the way to what I consider to be probably the most important economist in the world today.

Michael Hudson 00:23
There’s no direct causality there that could have been anticipated. I never studied economics in college, because I went to school at the University of Chicago. We know that there were some students at the university who were at that business school. They were such strange people that we never even thought of going near them, because there was something otherworldly about them, something abstract.

My degree was in German language and history of culture, because the head of the History of Culture Department was Matthijs Jolles, a German professor and translator of von Clausewitz, On War. And in at the time, my intention was to become a musician. And I had to learn German in order to read the works of Heinrich Schenker. In music theory, my teachers were German. And for the History of Culture, most of the books that I was reading were, were all in German. And the German professors were also heads of the Comparative Literature Department and other departments. That meant that I could take all the courses cafeteria style at the university that I wanted.

I had to go to work when I graduated. I went to work for a while for direct mail advertising for the American Technical Society, a publisher a block away from the university, and then went to work for Free Press that was headed by Jerry Kaplan, a Trotskyist follower of Max Shachtman. And he wanted to send me to New York to help set up Free Press there.

Soon after I came to New York, Trotsky’s widow died. And Max Shachtman was the executor of her estate. He thought I should go into publishing by myself. And I had already had the copyrights for George Lukacs, the Hungarian Marxist and I thought tried to get funding for a publishing company with Trotsky’s works and other works. I’ve been writing a history of music and art theory. And needless to say, I didn’t get any funding because nobody was at all interested in publishing the works of Trotsky. I even tried to get Dwight Eisenhower the write the introduction to his military papers, wouldn’t work.

I was urged to meet Terence McCarthy, the father of a girlfriend of one of my schoolmates, Gavin MacFadyen. He was the first English-language translator of the first history of economic thought that was written: Karl Marx’s Theories of Surplus Value (Mehrwert), reviewing the value theory of classical economics. Terence said that he would help guide me in economic thinking if I’d get a PhD in economics and go to work on Wall Street to see how the world works. But I had to read all of the bibliography in Marx’s Theories of Surplus Value. So I had to begin buying the books, and ended up working as a sideline with one of the reprinters, Augustus Kelly, who was reprinting many of the classical economists. He was a socialist. There were other dealers in New York: Samuel Ambaras, Sydney Millman. I began buying all of the 19th-century classical economic books that I could, sinse that was the only way that I could get copies.

I took graduate classes in the evening while working at a bank for three years, the Savings Banks Trust Company. It was a commercial bank, but was acting as a central bank for the savings banks that in America finance mortgages. All their savings are reinvested in mortgages. So for three years my job was to track the real estate market, the mortgage market, interest rates, the funding of mortgages, the growth of assets by the savings banks, all growing at compound interest. All the growth in savings in the New York savings banks in the early 1960s was simply the accrual of dividends. So you’d have a step function at dividend time every quarter, going up exponentially. There was hardly any new savings inflow. It’s as if you’ve just left a given amount of savings in 1945, and let the amount rise exponentially. All this increase in savings was recycled into the real estate market.

The New York banks wanted to extend their market so they couldn’t just keep bidding up New York housing prices. They won the right to lend out of state, especially the Florida. So my job was basically seeing that real estate prices were whatever a bank would lend. At that time, banks would not lend you a mortgage if the debt service exceeded 25% of your income. And you had to put up usually 30% of the purchase price as a down payment, but possibly 10%. So housing was affordable. You could buy a really nice house for you know, $20 or $30,000. Now, it costs $400,000 to buy just a one room apartment in a condominium.

I bought a house for $1 down – it was $45,000 total. I took out a mortgage from Chase for half the price, and the other half was a purchase-money mortgage. So it was easy. Anybody coul get a house in New York at that time. Housing was readily affordable.

After I finished my PhD courses, I changed jobs. My real interest at the time was international finance and the balance of payments. So I went to work at Chase Manhattan as their balance of payments economist. This was at a time when the balance of payments and even balance-sheet analysis was not taught in schools. It was very specialised. I realised that what I was taught, especially in monetary theory, had nothing at all to do with what I was learning in practice.

In monetary theory, for instance, that was the era of Milton Friedman in the 60s and 70s. He thought that when you create more money, it increases consumer prices. Well, I thought that obviously was not how things worked. When banks create money, they don’t lend for people for spending. About 80% of bank loans in America, as in England, are mortgage loans. They lend against property already in place. They also lend for corporate mergers and acquisitions, and by the 1980s for corporate takeovers.

The effect of this lending is to increase asset prices, not consumer prices. You could say that money creation actually lowers consumer prices, because 80% is to increase housing prices. Banks seek to increase their loan market by lending more and more against every kind of real estate, whether it’s residential or commercial property. They keep increasing the proportion of debt to overall real estate price. So by 2008 you could buy property with no money down at all, and take 100% mortgage, sometimes even 102 or 103% so that you would have enough money to pay the closing fees. The government did not limit the amount of money that a bank could lend against income. The proportion of income devoted to mortgage service that was federally guaranteed increased to 43%. Well, that’s a lot more than 25%. That’s 18% of personal income more in 2008 than in the 1960s – simply to pay mortgage interest in order to get a house. So I realised that this was deflationary. The more money you have to spend on mortgage interest to buy a house as land and real estate is financialized, the less you have left to spend on goods and services. This was one of the big problems that was slowing the economy down.

Well, it was obvious to me that rent was being paid out as interest. Rent is for paying interest. If I talked with various developers about buying buildings, they said, “Well, we try to buy our buildings without any money at all. The banks will lend us the money to buy a building, and they calculate how much is your rental income going to be? That rental income will carry how much of a bank loan at a given interest charge, and lend the money to buy it.” That is how real estate rent was financialized.

Democratization of real estate on credit means turns rental income into interest, not taxes
This meant that the role that had been played in the 19th century by landlords is now played by banks. In the 19th century, the problem was absentee landlords, the heirs of the warlords who conquered England or other European countries in the Middle Ages. You had hereditary rent. Well, now our rent has been democratised. But it’s been democratised on credit, because obviously, the only way that a wage earner can afford to buy is is on credit. For an investor you can buy whole buildings on credit.

Finance has transformed real estate into a financial vehicle. So that that’s what rent is for paying interest means. There’s a symbiotic sector, Finance, Insurance and Real Estate – the FIRE sector. It’s the key to today’s financialised economy. Most real estate tax in America is at the local level, because after the income tax was introduced, commercial real estate was made tax exempt by the pretence that buildings depreciate in value, as if they don’t in fact rise in price. The pretence is that they wear out, even though landlords normally pay about 10% of the rental income for repairs and upgrades to keep the building from wearing out.

Today in New York, and I’m sure in London too, the older a building is, the better it’s built. Real-estate developers have crapified building codes so that the newer the building, the more shoddily it’s built. They call shoddy buildings “luxury” real estate, meaning is built with really not very thick walls. I think the junkiest building in New York is Trump Tower, which is sort of the model of shadiness which they call luxury. It’s very high-priced.

The academic economics curriculum finds unproductive credit to embarrassing to acknowledge
While I saw the importance of finance and real estate, none of that was discussed in the university’s economics courses at all. The pretense is that money is created by banks lending to investors who build factories and employ labour to produce more. All credit is assumed to be productive, and taken on to finance productive investment in the form of tangible capital formation. Well, that that was the hope in the 19th century, and actually was the reality in Germany and in Central Europe, where you had banking becoming industrialised. But after World War I, you had a snap back to the Anglo-Dutch-American kind of banking, which was really just the Merchant banking. It was bank lending against assets already in place.

Classical economics as a reform program to free economies from economic rent and rentier income

I realised that the statistics that I worked on showed the opposite of what I was taught. I had to go through the motions of the PhD orals. and avoided conflict by writing my dissertation on the history of economic thought, because anything that I would have written about the modern economy would have driven the professors nutty. Needless to say, none of the academic professors I had ever actually worked in the real world. It was all very theoretical. So that basically how I came to realise that the 19th century fight for 100 years – we can call it the long 19th century, from the French Revolution, up to World War I, and from the French Physiocrats, to Adam Smith, Ricardo and Malthus, John Stuart Mill, Marx, Simon Patton and Thorstein Veblen – was the value and price theory of classical economics to quantify economic rent as unearned income.

The purpose of value and price theory was to define the excess of market price over actual cost value. The difference was economic rent. The essence of classical economics was a reform campaign – that of industrial capitalism. It was a radical campaign, because the basic cost-cutting dynamic of industrial capitalism was radical. It realised that in order to make Britain, France or Germany, or any country competitive with others, you had to get rid of the landlord class and its demands for economic rent. You also had to get rid of monopolies and their economic rent. You had to get rid of all payments of income that were not necessary for production to take place. The aim was to bring prices in line with the actual cost value of production, to free economies from this rake-off to unproductive investment, unproductive labour and economic rent – land rent, monopoly rent and financial interest charges. Those were the three basic categories of rent on which classical political economy focused.

To translate classical rent theory into practice, you needed a political reform, You had to get rid of the landlord class’s political power to block reform. It wasn’t enough simply to say that economic rent was not a necessary cost of production, not part of real value. The landlord class would simply say, “Well, what are you going to do about it?”

The proponents of industrial capitalism saw that the constitution of England, France and America required giving governments the power to pass laws to free economies from economic rent. in order to do that, they needed democratic reform of the political system. In England they needed to empower the House of Commons over the House of Lords. That effort led to a constitutional crisis in 1909 and 1910, when the House of Commons, Parliament, passed a land tax. That was rejected, as I’m sure you know, by the House of Lords. The crisis was resolved by saying the Lords could never again reject a Revenue Act passed by the House of Commons. That political reform was part and parcel with classi9cal economic theory defining rent as an unnecessary cost of production.

But where did this leave the interests of labor – the majority of the population? As a broad social reform, classical economics began to falter by 1848. You had revolutions in almost every European country. These revolutions were not fully democratic in the sense of they weren’t really for wage labour, which was the bulk of society. They were bourgeois revolutions, including land reform. They were all for getting rid of the landed aristocracy and the special privileges that the aristocracy held. But they were not very interested in helping consumers, and labour’s working conditions, shortening the workweek, shortening the workday and promoting safety. There was nothing really about public health, or public social infrastructure spending. So things began to falter by 1848.

But they still made progress through the balance of the 19th century. By the time World War I broke out in 1914, it looked like the world was moving towards socialism. Almost everybody in the 19th century, across the political spectrum, whatever you were advocating was called socialism.

Socialism and strong government as the program of post-rentier industrial capitalism
At the broadest level, socialism meant collecting economic rent and getting rid of the landlords and the aristocracy, either by taxing away rent or nationalizing land and natural monopolies, in hope that that by itself would create a viable industrial economy. you had libertarian socialism, Marxist socialism, anarchist socialism, industrial socialism and Christian socialism. Almost every reformer wanted that as a label. The question is, what kind of socialism were are you going to have?

That was what the aftermath of World War I was fought about. The fight was largely shaped by the Russian Revolution, which unfortunately went tragically wrong under Stalin and gave socialism and communism a bad name. But it still had a good name in England after World War II. And also in America in the 1930s, as a result of Franklin Roosevelt’s New Deal that saved capitalism by investing in public infrastructure.

I can give you an example of where pro-capitalist theory was in the 1890s. In the United States. The industrial interests in America faced a problem once the Civil War ended in 1865. They wanted to create an industrial society – ideally, a fair society with rising living standards. How do you do that without training people to administer such an economy? You need to train people in a university. You have to teach them how economies worked. But the main universities in America were religious colleges, founded to train the clergy. Yale, Harvard, Princeton and most taught British free-trade theory, which trivialized economic theory.

So the business interests and the government saw the need to teach reality-based economics. They saw that there was little hope in trying to reform the existing universities. Their economics departments – called moral philosophy – were unreformable. So it was necessary to create new universities. All through America, each state was given a land grant to enable it to create a new university and teach reality economics. They also would teach economic history and how the world actually works. Most of all, they would teach protectionist trade theory and how to create a society and economy that is more efficient than other economies?

Well, the first business school in America was the Wharton School at the University of Pennsylvania. Its first economics professor was Simon Patton, a protectionist. And he explained that if you’re going to make industrial products at prices that outcompete those of England, you need public infrastructure spending. You need as much of the cost of living as possible to not to be paid by the employers to factor into the price of their products, but to be paid by the government.

Patten cited public roads and canals to lower the cost of doing business. He also noted that every time you build a road or railroad, you’re going to raise the land value along these routes – and lower land prices for areas replaced by the now-more-accessible producers. You can simply self-finance the cost of these by taxing the rent.

You also need public education, and that should be free so that you don’t have like today, to earn enough money to pay an enormous student debt – and receive a high salary to afford to pay that. If the government would provide free education, you wouldn’t have to pay workers enough to pay this student debt, so they wouldn’t need such high wages simply to break even.
Today 18% of America’s national income is from medical insurance. If you have a public health system and socialized medicine, as England had after World War II and as Bernie Sanders advocates today, then you wouldn’t have to pay workers a high enough salary to afford this enormous medical expense. England realised this already in the 1870s and ‘80s, when Benjamin Disraeli campaigned as a conservative for health.

So the movement towards public infrastructure towards government spending was led by the industrialists. It was they themselves who wanted strong government. The common denominator of politics from Adam Smith through all of the 19th century was to free economies from the unnecessary economic rent, to free them from unearned income, from the free lunch. To do that, you have to have a government strong enough to take on the vested interests – first the landlord class in the House of Lords, and then the financial class behind it.

Jonathan Brown 26:00
Well, just to clarify that, Michael, I think what you’re, what you’re saying is, I know in some of your writing you talk about the view of government or the public sector was it was a fourth means of production. So you got land, labour, capital and the public sector.

Michael Hudson 26:16
That was the term that Simon Patten used. Government infrastructure is a fourth means of production. But what makes it different from profits and wages is that if you’re a wage earner, you want to make as high a wage as possible. If you’re a capitalist, you want to make as high a profit as possible. But the job of public investment is not to make an income, not to do what was done under Thatcher and Tony Blair, not to treat public utilities, education and health as profit making opportunities. Instead, Patten said, you should measure their productivity by how much they lower the cost of doing business and the cost of living for the economy at large.

Jonathan Brown 27:03
And what that allows a country to do, so if you’re good at it, is to get together and ask how to educate our people, lower the cost of transportation so we’ve got we’ve got a mobile workforce, all those things. We can then start to compete against other nations who are ahead of us, who may have more expensive means of production, and we can maintain that advantage. We’re not stuck in a lower level of the economy where we’re basically working for someone else. We’re able to develop ourselves as a nation. And I guess the benefit of us doing it collectively is that we can minimise the cost, then use a natural monopoly power in government hands to provide efficient services across the board. Is that right?

Michael Hudson 27:46
Yes, but they went further. Protectionists in America said the way to minimise costs – and it may seem an oxymoron to you – the way you minimise costs is to have high-wage labour. You raise the wages of labour, or more specifically, you want to raise the living standards, because highly paid labour, highly educated labour, well fed labour, well rested labour is more productive than pauper labour. So they said explicitly, America’s going to be a high wage economy. We’re not like Europe. Our higher wages are going to provide high enough living standards to provide high labour productivity. And our higher labour productivity, shorter working day, better working conditions, healthy working conditions, public health, well educated labor will undersell that of countries that don’t have an active public sector.

Jonathan Brown 28:45
and Henry Ford being the poster boy for that approach, of doubling his employees’ salaries and so on.

Michael Hudson 28:53
Yes.

Jonathan Brown 28:54
Amazing.

<h4>The fight against classical economics and its concept of rent as unearned income</h4>
Michael Hudson 28:55
Needless to say, the fight for the kind of democracy that will free economies from economic rent was not easy. By the late 1880s, and especially the 1890s, you had the rentiers fighting back. In America the fight was led by John Bates Clark. There was a movement, which today is called neoliberalism, to deny the entire thrust of classical economics. Clarke said that there is no such thing is unearned income. That meant that economic rent does not exist. Whatever a businessman makes, he is said to earn. Whatever a landlord makes, he earns – so there was no unearned income.

This came to a head around 1890 the Journal of Ethics. Clark wrote the first essay, and it was refuted by Simon Patton. There was a fight against the concept of economic rent by academic economics, especially in New York City at Columbia University, where Clark ended up, This is really the dividing line: You recognise that much of the economy is unearned income and you want to get rid of it. To do that, you have to pass laws that will tax away the unearned income, or better yet, you put land and other natural resources and natural monopolies in the public domain where the public sector directly sets prices. That was what Teddy Roosevelt did with his trust busting.

Jonathan Brown 31:13
Michael, I just want to say reading your work is something of a revelation. I’ve got a degree in economics for what it’s worth. And I would say the only valuable thing that I found from a getting a degree in economics is that I know, resolutely when an economist is talking bullshit. How do you know that? It’s when his lips move.

Michael Hudson 31:32
If it’s an economist, they’re talking bullshit – let me make it easy, right!

Jonathan Brown 31:36
And then the thing is, that reading your work, for example, going back to Thorstein Veblen, his work, which only made it into the mainstream when I was getting a degree in the 90s, was conspicuous consumption. It had nothing to do with absentee landlords or, and the profound importance of that, and then I’m looking in J is for Junk Economics, and you talk about the free lunch, and how Milton Friedman said that there’s no such thing as a free lunch.

When you look at your work, you prove that actually there is, and that he’s having it! And you say, “Most business ventures seek such free lunches not entailing actual work or real production costs, and to deter public regulation or higher taxation of rent-seeking recipients of free lunches. They have embraced Milton Friedman’s claim that there’s no such thing as a free lunch”.

And you talk about: “Even more aggressively rent extractors accused governments of taxing their income to subsidise freeloaders, pinning the label of free lunches on public welfare recipients, job programs, beneficiaries of higher minimum wage, when the actual antidote to free lunches is to make governments strong enough to tax economic rent, and keep the potential rent extracting opportunities and natural monopolies in the public domain.”

Michael Hudson 32:51
Veblen was indeed was the last great classical economist. He coined the term neoclassical economics. I think that’s an unfortunate term. When I went to school in my 20s, I thought neoclassical meant ‘Oh, it’s a new version of classical economics’. It’s not that at all. What Veblen meant was there used to be the old classical economics of Adam Smith, John Stuart Mill and Marx, all about economic rent and exploitation. “Neo” means there’s a new body of completely different, post-classical economics aiming to make classical economics obsolete. That is the new mainstream economics of today, trying to make itself “classical.” So Veblen he should have used the terms post-classical or anti-classical economics.

Jonathan Brown 33:44
Or even pseudo classical?

Michael Hudson 33:49
It’s antithetical, because the root of classical value and price theory was to isolate and define economic rents statistically. To deny economic rent is to deny the whole point of classical value and price theory. That is where economics became untracked.

Unfortunately, it became untracked largely by Henry George, who rejected classical economics and very quickly followed J.B. Clark and accepted his mushy value and price theory. Removing all elements the cost of production from value theory, analysing prices simply in terms of consumer demand and what people want, and not analysing what determines land and other asset prices, loses focus.

George became very popular as a journalist. He wrote wonderful journalism to expose the railroads in California as landlords, and he wrote a wonderful book on the Irish land question. But when he tried to talk about the whole economy, he didn’t want any competition. He said, in effect, “Economics begins and ends with me. Forget everything, Adam Smith and classical economics.” He’s sort of an early Margaret Thatcher. There’s no such thing as society or the economy. Only “tax the landlords.”

Jonathan Brown 35:35
What are you doing? You’re destroying my view of Henry George! He’s an early Margaret Thatcher? How, how could that possibly be?

Michael Hudson 35:47
Well, in two ways. The first way is that in the 19th century, in order to tax the land rent, you had to take on the most powerful vested interests of all: the real estate interests and the financial interests. But Henry George was a libertarian. He was for small government. He broke with the socialists, because he warned that socialism had a potential for authoritarianism. Well, we know that he was right in that warning, because we saw what happened in Stalinist Russia. But obviously, what you want is a government that is strong and democratic, and with enough authority to tax and regulate the vested interests. (That term is Veblen’s, by the way.) That was the ideal in America, but it needed a strong enough government so that Teddy Roosevelt could come in and be able to bust the trusts.

The government was strong enough in 1913-14 to impose an American income tax that fell just on 1% of the population, almost entirely on economic rent, on land rent, mineral rent on monopoly rent of the big corporations. If you’re a libertarian, your government is too small to take on these vested interests. And you’ll never win. You’ll end up like the Social Democrats or like today’s Labour Party under Mr. Starmer, not able to be very efficient. So that was George’s first problem.

The second problem was when he said that all you have to do is tax the land and everything else will take care of itself. Well, as you know, he was nominated as a celebrity candidate by the socialist and labour groups in New York City in 1876 to run for mayor. They gave him their programme – safe housing, workers housing, safe working conditions, food laws that protect people from poison, like you don’t want to use chromium for cake frosting to make it yellow.
Well, George threw out the whole labour programme and said that there’s only one thing that mattered: If you tax the land rent, the cakes will take care of themselves, worker safety conditions will take care of themselves. You don’t need socialism; just tax land rent.

Well, the word “panacea” came into popular use in the English language at that time, because George didn’t see the economy as a whole. That was a tragedy. He was great as a journalist describing rent and the machinations of the railroads. But once he tried to talk about the economy, without really describing how it worked as a system, saying there really isn’t any economic system, it’s just about land rent. That separated him from the other reformers.

By the 1890s you had many of reformers in America, who had been inspired by George’s journalism in the 70s and early 80s, including attacks on the oil monopoly and the Rockefellers. They asked what happened to George? Well, he became a sectarian. He formed his own party and said, we’re only going to talk about land rent. This diverted attention away from how the overall economy works. And if you don’t understand how the economy is all about providing a free lunch in one way or another, not only to landlords but to the financial sector primarily, then you’re really not going to address the interests of most of the population.

So his sectarian party shrank. Still, in the first decade of the 20th century you had followers of Henry George and socialists going around the country debating each other. They had great debates, they spelled out the whole problem. I wanted to reprint all these debates somewhere, what both the socialists and the Georgists said: “One thing we can agree on is that society is going to get go either your way or our way. We’re talking about how is the future of the political system and the economic relations and taxes that follow from this system. How are they going to evolve?”

The socialists focused on labour’s working conditions, because these were getting worse and worse. In America the fight for labour unionisation got quite violent, and corrupt. The abuse of consumers, the growth of monopolies, all these were growing problems. The socialists focused on these problems – and decided to leave the discussion of rent to followers of George. I think that was very unfortunate, because George had pried the discussion of economic rent away from the classical value theory and its political dimension, which was socialist.

I find little interest in today’s socialist movement or the socialist movement 50 years ago about land rent. They are more concerned about international issues, about war, about almost everything except land rent. And today I find the greatest interest in rent theory as a guide to a tax system in the context of an overall economic system to be in China. So that’s really where the debate over how to keep the price of housing down by keeping the financial sector from trying to capitalise the land rent into a bank loan.

That’s a big fight in China today. It should have been also in Russia. Fred Harrison, in the early 1990s, brought a group of people including me over to Russia. We made two trips to the Duma and did everything we could to explain that Russia could have a great advantage to rebuild its industry into a productive economy. The first thing that it should have done was to keep housing prices down. It could have given everybody their houses, free and clear, without any debt. Of course, some places would be more valuable than others, but Russia would have had the lowest-priced economy in the world. In America, the rent can take up to 43% of a home buyer’s income.

Well, there was pushback from the Russians. They had no rent in a socialist economy. Ted Gwartney, an American real estate appraiser, walked down the streets of St. Petersburg with the local mayor, I think on a fall or winter days. He pointed out that one side of the street was very sunny. The other street was in the shade. That’s how the sun is in the northern latitudes in the winter. Most people were walking on the sunny side of the street. That means that if you’re going to have a store, whether it’s a bakery, a food store or a restaurant, the store on the sunny side of the street is going to be able to attract more customers. Their site has more economic rent than the dark side of the street. Same thing with buildings near a subway. They will be worth more than sites far away from transportation.

The mayor said understood the point, and asked how to actually make a land value tax so to collect this rent? Ted explained that St. Petersburg’s layout was much like that of Boston, where a land map was easy to make. It showed that there was a peak centre of values near the subway, with rents tapering off further away. He suggested to apply Boston as a scale model to St. Petersburg. Just plug in a few prices, and you have a land-valuation map.

Russia could have been a low-cost economy. It could have kept the oil and gas, Yukos, GazProm, nickel and platinum resources all in the public domain to finance investment in re-industrialization, to become independent of the West. But as we all know, Ted and the people that Fred Harrison bought were completely overwhelmed by the billions of dollars that U.S. diplomats spent on promoting kleptocracy and shock therapy in Russia. Its officials and insiders worked for themselves, not Russia.

And it wasn’t only Russia that missed opportunities. I brought Ted Gwartney and his mathematical model-maker to Latvia, where I was Economic Research Director of the Riga Graduate School of Law. I was asked by the leading political party of Latvia, the Centre Party – basically the party of Russian speakers, with 1/3 of the population and votes – to draw up a model for how Latvia could restructure its post-Soviet economy and industry. Ted met with the tax authorities and housing authorities and explained how to use land rent as the tax base. They were amazed and said, “This is great. We can hire a separate appraiser for every single building. This will create a lot of employment”. No he said. He had been the appraiser for Greenwich, Connecticut, the state’s wealthiest city. He said, “We can do a whole city in about one week.” They couldn’t believe this in Latvia.

Around the time of his visit there was a meeting in Boston of the Eastern Economics Association. It was largely created by John Kenneth Galbraith to go off the economic mainstream. I think the Schalkenbach Foundation had a session on political critics of Henry George, so there were a lot of Georgists. Other people who came to the Eastern Economic Association meeting were socialists, including Alan Freeman who was the assistant to Ken Livingston, the Mayor of London.

When everybody was having lunch after the economic meetings, I brought Alan over to sit down with Ted Gwartney. Ted explained what he did, and Alan said, “Oh, I’ve never heard of this! I’ve got to come and meet you some more.’ So he came to New York and we went up to visit Ted in Connecticut. He explained how to make a land value map. Alan said, “You should win the Nobel Prize for this! This is amazing! There’s nothing like this in England.”

Ted explained that there are about 20,000 appraisers in America that do what he did. There are abundant statistics. Every city has a map of land and building appraisals: here’s the value of the building, here’s the value of the land. So smoothing out a land value map is pretty easy to do. Alan could hardly believe it.

Well, I went back to London shortly and met with Alan. It turned out that political pressures in England, especially from the Labour Party, led London to hire Weatheralls, a real estate company, do appraisals. So we never got to do our version of a real estate appraisal of London to calculate land rent.

But this is what all of the theories of the Physiocrats, Adam Smith, Ricardo, John Stuart Mill, Marx, Veblen, Alfred Marshall, all of them were focusing on. Yet this idea is so alien that from London to St. Petersburg, they don’t have any idea of how the simple concept can be done. The economics profession is in denial. It’s followed the idea that there’s no such thing as unearned income, everybody gets what they make.

The National Income and Product Accounts treat rent as a product, not a subtrahend
A byproduct of this value-free doctrine is how countries calculate their national income and product accounts. And if you look at the GDP accounts for the United States (and I’ve published a number of articles on my website and in major economic journals), rent is counted as part of GDP.

This is easiest to see in real estate and finance. The Bureau of Labor Statistics sends its employees around to ask homeowners what the rental income of their home would be if they had to rent it. If you were a landlord and rented yourself how much rent would that be? This appears in the NIPA statistics as “homeowners imputed rent.” That’s 8% of GDP. But it is not really income, because it is not actually paid. Nobody gets it. But value-free designers of GDP want to describe all of the income that landlords make as contributing to GDP. They say that landlords provide a productive service, they provide housing to people who need it, and they provide commercial properties to businesses that need it. Well, that’s not exactly how John Stuart Mill put it. He said that rent is what landlords make ‘in their sleep’. So how can you rationalize how productive landlords are?

Another element of American GDP is financial services. I called up the Commerce Department where they make the NIPA statistics and asked what happens when credit card companies increase their interest charges. And where do penalty charges for late payments appear? Credit card companies in America make billions of dollars in interest a year and even more billions in fees, late fees and penalties. Most of the income that credit card companies make are actually on these fees and penalties. So where does that appear in that GDP? I was told, in “financial services.’ So the “service” of calculating how far the debtors must pay for falling behind in their payments. They typical charge 29%. That’s all counted as a contribution to GDP. But in reality it is a subtrahend, leaving less to spend on real “product.”

This raises the question of just what income and product actually mean. Well, this brings us back to what classical economics is all about. The “product” should be measured by what its actual necessary cost of production is. But there’s a lot of income over and above this necessary cost of production. Namely, economic rent, that’s unearned income. But the income and product accounts don’t say how much is “earned” and how much is “unearned” land rent, monopoly rent, natural resource rent, interest and financial charges.

A classical economic accounting format would show how much of the prices for what our society produces is actually necessary, and how much is a subtrahend. Classical economists treat the land rent that you pay, interest charges and monopoly prices as a rake-off. So not all of your income is income equals “product,” because only a portion of that income represents a real product.

In America, the head of Goldman Sachs a few years ago said Goldman Sachs partners – a financial management firm – make more money than almost anyone else in America, because they’re the most productive. If you make a lot of money, by definition, you make it by being productive. That’s the false identity.

Jonathan Brown 55:25
That’s really the John Bates Clark idea that if you make the money, you’ve earned it. And it’s not just because you control the gate. You’re the gatekeeper, to stop people and make them pay the toll. You’re the troll under the bridge, taking people’s money as they cross, which is essentially what financial economics is about.

Michael Hudson 55:48
Right. I have spoken with a number of political advisors, many of whom were followers of Henry George. They’ve described to me how political all of this definition of the economy is. A number of friends of mine have been trying to show how much of what the United Nations calculates as income and product is actually economic rent. Steve Keen, Dirk Bezemer and Jacob Assa are in this group. There are a number of others who do it. We publish in places like the Review of Keynesian Economics, Journal of Economic Issues and other not-mainstream journals. A lot of this was taught where I was a professor for decades, at the University of Missouri in Kansas City.

Our graduates had problems getting jobs, because in order to get an appointment at a university, you have to publish articles in prestige journals. The University of Chicago, the Milton Friedman boys, the Chicago Boys control the editorial boards of all these prestige magazines, just like they control the Nobel Economics Prize Committee. The prize basically is given to Chicago Boys every year for not explaining how the economy works.

A precondition for what you call an economist, especially a Nobel Prize winning economist, is not to understand how the economy works. Because if you understand that, you’re going to threaten the vested interests that are getting the free lunch. You have to say there’s no such thing as a free lunch, everybody earns whatever they can get. Robbers and criminals like that idea. “Yeah, we stole it fair and square!”

Crime pays, and rent seeking also pays.

You can get much more money quicker by extractive means – by rent extraction – than you can by investing in plant and equipment and developing products and marketing them and making a profit over time, and spending on research and development. That’s why in today’s United States, 92% of corporate revenue, called earnings, (although not all of it is earned – that’s a euphemism) is spent on stock buybacks and dividend payouts, not on new capital investment.

So the way that the economy works today is no longer industrial capitalism; it is finance capitalism. Instead of Industrial Engineering, making society produce more with all of the environmental protection cost included, you have financial engineering, making wealth by increasing stock-market prices. Wealth is not achieved by earning it. You don’t save up your earnings and get wealthy. I think half of Americans are unable to raise $400 In an emergency. They have no savings at all.

For most people it’s very hard to save up money, especially if they have student debt, credit-card debt, medical debt and mortgage debt. After paying this, there’s really no income left to be saved. So you have the 1% of society, the rentier portion that had to pay income tax back in 1914, getting huge amounts of income and the rest of the society getting less and less. The result is economic polarisation. The dynamics of society are financial and basically rely on rent seeking that has been financialized.

I’ll give you another example of the GDP. One of the problems that makes GDP statistics meaningless is depreciation, the idea that buildings depreciate. When Ronald Reagan came in, the real estate interests and their banks basically took over the government. Henry George and the Libertarians oppose central planning by elected democratic governments, and that leaves central planning to Wall Street’s financial interests. Every economy is planned, and if you don’t have a government strong enough to do the planning, then the planning is done by the financial sector and the real estate sector, and they were given free rein under Ronald Reagan.

Under Reagan’s 1981 tax “reform” you could pretend that if you buy a big commercial building, you can write off 1/7 of the entire costs every single year as tax deductible income. At the end of seven years, you change your ownership from one name to another name, and you start all over again. The same building can be re depreciated again and again and again.

Donald Trump wrote in his autobiography, he loves depreciation, because he said thanks to the pretence of depreciation, his buildings are all going up in value, but he gets to pretend they’re falling, and deduct all of that fictitious over-depreciation from his taxable income. It’s actually economic rent. But if you look at the national income statistics, you can’t find economic rent in them at all. I was able to piece it together by adding up what goes into economic rent: Real estate taxes are part of economic rent, and also interest payments, because interest is paid out of economic rent. But fictitious depreciation tax loopholes also should be there.

But nowhere in the national income statistics is a report of how much income real estate owners actually claim as depreciation. They haven’t done that because if they showed this, people would think, ‘Wait a minute, this is a giveaway. This is utterly unrealistic.” So they only put in a figure for how much they [think] buildings are actually depreciating over a period of decades. So you have a fictitious national income accounting format that makes it impossible to calculate what land rent is – and that was the major focus of classical economics.

How are you going to get a statistical system that actually reflects this? Well, one associate of mine, Jacob Assa, has written a few books on this criticising economic rent. He worked in the United Nations here in New York until quite recently. But as I said, our graduates can’t publish in the University of Chicago economic journals whose party line is that ‘there’s no such thing as economic rent’, just like there’s no such thing as society is beyond “the market.”

I wanted to publish statistics on this and in 1994 the Henry George School in New York asked me to calculate what rent was and the land value. I found out that the value of land, the market price of land in the United States was twice what the government reported.

The government pretends that real estate prices rise mainly because buildings keep growing in value, even though they’re supposed to depreciate. They pretend that buildings grow in value by taking the original cost of the building, and multiplying it by the Construction Price Index. Whatever is left is reported as land value. Well, in 1994 the Federal Reserve reported that the land value of all of the commercially owned real estate in the United States was negative $4 billion. This is crazy.

The statistics are drawn up by a methodology that the real estate interests lobbied for. When I calculated this, the Georgists in America got furious. They said that I was showing that land value and rents were much higher than they thought. They worried that this might lead people to want to tax real estate. Lowell Harriss of Schalkenbach explained that Georgists today represent mainly real estate developers, and that their major audience was local mayors, whose biggest campaign funders are the real estate interest.

These Georgists called themselves “two raters,” wanting to keep overall real estate taxes unchanged (“revenue-neutral”) but shift the tax from commercial landlords onto homeowners by taxing land, not buildings – e.g., electric utilities, office buildings and other capital-intensive structures.

By representing the developers, Georgists proposed to save society by having the developers build up those slums, build up those vacant lots. Like George, they said that there was no need to worry about ecology or any problem except cutting property taxes for large real estate owners. You don’t need to worry about workers conditions or anything else. Let’s just give an economic incentive (i.e., a tax cut) to help contractors build up those vacant lots.

I was told if I published a new explanation of my statistics showing that most rent was paid out as interest, I could never have any relations with Schalkenbach and the Henry George school again. So I published them in a Harper’s Magazine cover story and have lived happily ever after.

Jonathan Brown 1:06:13
And was that “The New Road to Serfdom”?

Michael Hudson 1:06:22
Yes. I chose that title because the purpose of industrial capitalism was to free economies from the legacy of feudalism. And the legacy of feudalism was the landlord-warrior class collecting hereditary rent and the predatory banks that were not making loans for industry. None of the industrialists got their money to invest in banks. The inventors of the steam engine couldn’t get loans except by mortgaging their houses. Banks don’t lend money to create capital, only for the right to foreclose on it.

Jonathan Brown 1:07:02
This is all included in your in your latest book that just came out, The Destiny of Civilization: Finance Capitalism, Industrial capitalism, or Socialism, which I gather was a series of lectures to a Chinese University. Is that correct?

Michael Hudson 1:07:16
Yes. There were 160,000 viewers for the first lecture, and there’s a huge interest in this in China, because they realise that higher housing prices make them poorer and more highly indebted, not richer. What is pushing up housing prices in China is the amount of credit that banks will lend against the property.

A land tax would keep housing prices down, because the rent could not be available, to be capitalized into a bank loan. As China gets more productive and more prosperous, people obviously are going to be able to afford housing, which is how most people define their status. If a site gets more valuable because of public investment in transportation, or schools or parks nearby, that’s going to make it more valuable. But if you tax this rental income, then you’re going to keep the housing price down.

I think Fred Harrison and Don Riley wrote a book Taken for a Ride where they show that the money that London spent on extending the Jubilee Line increased real estate prices by twice as much as the line cost. London could have simply collected the land’s increase in rental value that this public investment created and made it self-financing.

Instead it was a giveaway.

They ended up taxing labour and business, and the effect was to increase Britain’s cost of living and hence the cost of production, which is why Britain is de-industrialising. It’s been de-industrialising because despite the attempts through 1909 and 1911, to free itself from landlordism, the bankers have taken the place of the landlords. They are the class today that the landlords were in the 19th century. So we’re back on the revival of what really was feudalism – a rake-off by a hereditary privileged class.

America’s monetary imperialism coming to an end with de-dollarization
Jonathan Brown 1:09:47

I’m wondering where we go next. I want to get into the conversations that you started with the 1972 first edition of Super Imperialism. I know we had a third edition fairly recently, with your prescience of the predictions in analyzing the situation for America, and how the balance of payments deficit was a result of U.S. expenditure by the military. Getting into the current manifestation of the de-dollarization challenge that seems to be accelerating through the Ukraine and Russia crisis, I wonder what background we need to give the listeners just to tell them about how that system works.

Michael Hudson 1:10:39
One of the things that most people don’t understand is money, largely because of the academic discussion confusing matters. Until 1971, countries running a balance of payments deficit would have to settle it either in gold or by selling off their industry to investors in the payments-surplus countries. Well, beginning with the war in Korea in 1950-1951, the U.S. balance of payments moved into deficit. The entire U.S. balance of payments deficit from the Korean War to the 1970s was a result of its foreign military spending.

By the time the Vietnam war was ending, the Americans had to sell its gold every month. Vietnam had been a French colony, so the banks there were French. As America spent more dollars in Southeast Asia, these dollars were sent from local French bank branches to their head offices in Paris. The Paris bank would turn over these dollars to the central bank for francs, and the central bank, under General de Gaulle, would cash in these dollars for gold.

Germany was doing the same thing, using its export proceeds that were paid in dollars to buy gold. So America’s gold stock was steadily going down, until finally it had to withdraw from the London Gold pool and stop making the dollar gold convertible. Back in 1950 when the Korean War began, the American Treasury had 75% of the world’s monetary gold. It had used this monetary power to control diplomacy in other countries. The basis of America’s political power was its gold stock.

Once they left the gold-exchange standard there was hand wringing. How was the United States going to dominate the world if it didn’t have gold anymore, if the military spending abroad had made it run out of gold? My Super Imperialism pointed out that henceforth when foreign central banks got more dollars, what were they going to use them for? Well, there’s only one thing that central banks at that time did: That was to buy government securities. So the central banks of France, Germany and other payment-surplus countries had little option except to buy U.S. Treasury bills and bonds. Some of these were special non-marketable bonds that they couldn’t sell, but they were stores of value.

So the money that America was spending abroad was simply recycled to the United States. It didn’t mean that America had to devalue the dollar through running a balance-of-payments deficit, like today’s Global South countries do, or do as England had to do with its’ stop-go policies, always raising interest rates to borrow when its deficits threatened to force the pound sterling to depreciate.

Jonathan Brown 1:13:57
Michael, this insight was that was that when you were working at Chase Manhattan, and you were advising the State Department on what to do with the fact that they were having these balance of payments problem, because of military spending?

Michael Hudson 1:14:07
My job at Chase was to analyse basically the balance of payments of Third World countries and then of the oil industry. I had to develop an accounting format to find how much does the oil industry actually makes in the rest of the world. I had to calculate natural-resource rent, and how large it was. I did that from 1964 till October 1967. Then I had to quit to finish my dissertation to get the PhD. And then I developed the system of balance-of-payments analysis that actually was the way it had been calculated before GDP analysis.

I went to work for Arthur Andersen and spent a year calculating the whole U.S. balance of payments. That’s where I found that it was all military in character, and I began to write in popular magazines like Ramparts, warning that America’s foreign wars were forcing it to run out of gold. That was the price that America was paying for its military spending abroad.

I realised as soon as it went off gold in 1971 that America now had a cost-free means of military spending. Suppose you were to go to the grocery store and just pay in IOUs. You could just keep spending If you could convince the owner, the grocer to use the IOU to pay the farmers and the dairy people for their products. What if everybody else used these IOUs as money? You would continue to get your groceries for free.

That’s how the United States economy works under the dollar standard, at least until the present. This is what led China, Russia, Iran and other countries to say that they don’t want to keep giving America a free ride. These dollarized IOUs are being used to surround them of military bases, to overthrow them and to threaten to bomb them if we don’t do what American diplomats tell them to do.

That led already a few years ago to pressure to de-dollarize the world economy and make it multipolar, not simply an extension of the U.S. military, U.S. investors, mining and oil companies. The post-dollar aim was for other countries to keep their economic surplus among themselves to promote their own economic growth, instead of imposing IMF dictated austerity programmes to impose austerity so that they can pay foreign dollarized bondholders.

Just about everybody thought that it would take many years for China, Russia, Iran, India, Indonesia and other countries to get their act together and create an alternative. But this year the Biden administration itself destroyed America’s free ride for the dollar. First the United States grabbed Venezuela’s foreign exchange, then Biden grabbed all of the foreign exchange of Afghanistan, just confiscated it. And then a month ago he confiscated $300 billion of Russia’s foreign exchange reserves. He said, in effect, that we are the leading democracy in the world, and global democracy means that America’s military gets to appoint foreign presidents.

And so we don’t like the person you’ve voted in as president for Venezuela. We’re going to hire this little nitwit that we bought out, Juan Guaido, and appoint him president. To force you to accept this, we’re going to take away all of your gold reserves held in the Bank of England, and we’re going to give it to Mr. Guaido as our nominee for the bastion of democracy, to do what a democratic regime is supposed to do: hiring terrorist groups to kill all land reformers and labour leaders, to finance a neo-Nazi takeover like we did in Chile under Pinochet, and just like we’ve done in democratic Ukraine with our funding of neo-Nazis to fight against the Russians there.

This confiscation of foreign reserves and foreign money held in U.S. banks shocked the rest of the world. Nobody had believed that countries would actually grab other countries’ financial savings. If you go back to the wars in the 19th century, the Crimean War and others, countries would continue to pay their foreign debts.

All this was ended by President Biden rejecting the international rule of law. He said that “We have a ‘rules-based’ order, in which we can make up the rules. Number one, we are exempt from the rules. Only you have to follow them. Number two, the rules or whatever we say.” China, Russia and India would have taken years by themselves to denominate their trade in their own currencies. Biden’s money grab has impelled them to create a new economic order independently of the United States and Europe, whose euro and sterling are satellite currencies of the United States.

Jonathan Brown 1:19:54
So Michael, this is a crazy situation that we’ve got. Even If you have deposits in a bank, the deposits don’t really belong to you, but they used to be respected.

Michael Hudson 1:20:07
Well they belong to you, but they can be stolen.

Jonathan Brown 1:20:09
Yeah, but then they don’t belong to me, do they? They’re kind of mine, but not. Likewise, if I annoy the wrong person, I could have my car impounded, because I’ve just annoyed the local politician, which is essentially what’s happened to a Russian oligarch. Now, whether or not the oligarch deserved that $500 million yacht, obviously, they didn’t, but it was technically theirs. So what Americans are doing is showing that if you piss them off, they will take all your resources, which has happened in other countries, right? We’ve stolen it.

The British did that, right? We appropriated resources and stole resources from other nations. If you want the best example of that, you can just go into the very beautiful British Museum and see all the artefacts that we’ve appropriated, one of which was a Rosetta Stone, which I know you write about.

So we’ve got this situation now that the Americans have declared the most profound economic war on Russia, threatening China that we can do the same. China’s got trillions of U.S. dollars. And one of the things that I don’t quite understand, looking at your philosophy and Super Imperialism, was in demonstrating that the Americans can have a free lunch by getting people to buy U.S. Treasury bonds. How is it that the U.S. dollar has gone up against all currencies pretty much other than the rouble since declaring war in Ukraine?

Michael Hudson 1:21:43
Europe has committed economic suicide, United States offered its leaders a lot of money in their offshore accounts, and made sure that their kids got free education in the United States. But in return, they would have to represent the United States, not Germany, France or other countries. The Americans have been meddling in European politics for years. European politicians do not represent their own countries. They represent the American State Department and American diplomacy. And they were told to lock their countries into the U.S. economy.
For instance, European businesses had a hope that Americans really hated. The Europeans hoped that after 1991, now that communism was over, they could invest in Russia to make money. They could sell exports to Russia and make mutual gains from each other. But the Americans wanted to make all the money off Russia for themselves, mainly by using the kleptocrats they backed to sell the natural resources that they grabbed to U.S. investors. The Harvard Boys wanted to make sure that rent-yielding natural resources were given the kleptocrats – who could only make their money in hard currency by selling shares abroad in the assets they grabbed, keeping their payments in England or the United States.

So they’ve asked Europe not to buy Russian gas, but to spend seven times as much buying American liquefied natural gas, and spend $5 billion to build the ports to accept this gas – while going without gas for about three or four years…let their pipes freeze… stop making fertiliser… Don’t feed your land, we’ll take it on the chin for America. Your standard of living is going to have to drop by 20%, but it’s all for American democracy. And the European heads said that’s fine.

America said that you Europeans are bothering them by trying to stop global warming. That’s a direct attack on a major arm of U.S. diplomacy, the oil industry. American companies control almost all the world’s oil trade. It’s the highest rent-yielding sector in the world. And it’s income-tax free. It’s politically powerful, and as long as America can control the oil trade, it can talk to Latin American countries or African countries and say if they elect a leader that U.S. officials don’t like, it can impose sanctions and stop exporting oil to them to freeze them out. They won’t get fertilizer, so the U.S. can starve you out. It can put a sanction on their food trade. 

Agriculture is Americans biggest trade surplus.

Jonathan Brown 1:25:14
That’s what they’re doing with the conflict in Ukraine to Russia, and also China as well. Are there other major sources of grain, wheat and rice?

Michael Hudson 1:25:26
Yes. But President Biden has blamed Putin for creating a world food shortage and threatening to cause a famine, because Ukraine can’t export its grain. Ukraine, at American direction, has put mines all over the Black Sea. So the Black Sea’s ports have mines around them. If a ship hits them, it’ll blow a hole in the hull and will sink.
As a result, if you’re a shipping company and want to transport grain, you have to get insurance, because if you don’t have insurance, then you’re in danger of going bust if your ship goes under. But no insurance company will insure it until the Ukrainians remove the mines that they put. You need minesweepers for that. Needless to say, Russia doesn’t want American minesweepers in, because they may very well attack as there’s a war on.

So you have the United States blocking Ukrainian grain exports, which was a huge export. You’ve had the American dollar area, the NATO countries, refusing to import food from Russia, which is the world’s largest agricultural exporter. This is creating a crisis for Global South countries, for Latin America and Africa.

Meanwhile, global warming is causing droughts that are reducing the harvest. The Green Party in Germany has a pro-war policy that is making global warming rise faster. By supporting military warfare against Russia, and U.S. military adventurism in general, they are becoming major lobbyists for the air polluters. The largest air polluter is the American military. The Green Party in Germany advocates fighting Russia more, providing it with more arms, and thus supporting the military that is now the largest new contributor to global warming. In effect, this means that Europe is willing to say, ‘Okay, we are willing to have the sea levels rise another 10 feet, as long as we can help America dominate Russia’.

Europe even is letting America keep the Trump tariffs on its exports, in place, so it can’t export more for America. It looks like Europe will have to de-industrialize, maybe we’ll go back to the 19th century and become a country of farmers. That basically is the situation that its subservience is imposing.

Jonathan Brown 1:28:49
I’d like to come back to the just what China and Russia can do, given their reserves. They understand they’ve got… they’ve got lots of reserves of gold, and also large grain stores, China having the most as I understand it, but can you help me understand why all these nations around the world have U.S. dollar reserves in some form or other, most of it in bonds? Why is the dollar still increasing at this moment in time?

Michael Hudson 1:29:28
Because the Euro was going down. The Japanese Yen is going down. The Yen is the worst performing currency, because they’ve held their interest rates very low. Their aim is for banks to make money by borrowing low at low rates and lending to foreign countries at a higher rate. Europe is also keeping its interest rates low. The American Federal Reserve is raising the interest rate, and that is money from low interest rate countries. Capital from Europe and Japan is flowing to America.

Currency values are primarily set by relative interest rates and capital flows. They’re not set by the cost of production for imports and exports. They are not caused by trade, unless there’s a radical breakdown of trade. All these zigzags that you see are short-term capital movements. America tells other countries to keep their interest rates low, so that money will flow from their banks and financial to the United States to buy American securities that yield higher returns. As long as the Euro is a satellite currency to the dollar, it’s going to continue to go down. So the both the euro and the British Sterling are now moving towards $1 per pound and $1 per euro.

Jonathan Brown 1:28:49
That’s a short-term measure. The long-term measure is that countries have to start selling the bonds that they’ve got in U.S. currency. So long term, it has to come down. Is that right?

Michael Hudson 1:29:28
Yes. They’re going to hold each other’s currencies. Especially now that Russia is denominating its exports, in roubles instead of dollars. The American banks have lost the trade financing of the world oil trade, certainly Russian oil and agricultural trade. Instead of holding dollars, countries will hold rouble reserves to stabilise their currencies via the rouble, China is holding rouble reserves, and Russia is holding Chinese yuan reserves.

The balance will be held more in gold and some kind of assets without a liability attached to them. I think the logical direction in which this is moving is that the non-dollar countries will create their own version of the International Monetary Fund, their own World Bank, their own trade organization. So there will be one set of trade and financial and development organisations and military organisations in the U.S. and Europe, in NATO, that is, in the white countries, and another set of relations and the non-white countries that are actually developing while America and Europe shrink.

Jonathan Brown 1:33:06
So what’s your idea of how much gold China actually holds, because there’s the published numbers [which] are really extraordinarily small aren’t they for an economy that’s so big.

Michael Hudson 1:33:18
I don’t know. Governments can hold gold not only through their own treasury, but through some subordinate agency. I no longer go into the financial statistics like I used to, because it takes a whole year to do a balance sheet that is comprehensive. All I know is that they saw how America simply grabbed Russia’s dollar holdings, and they don’t want the same thing done to them. President Biden has said China is America’s number one long-term enemy, and he wants to destroy the Russian economy first and then attack China after prying them apart.

Obviously, China is reading the newspapers and wants to avoid that fate.

Jonathan Brown 1:34:16
The other thing that I find utterly remarkable, for example, is that Biden in his speech said that he wants to get rid of Putin. I think if it was a U.S. Defence Secretary or Secretary of State saying that he wants to arm Taiwan……. If I ran China and I said I want to arm Mexico, or if anyone in South America wants any weapons then my doors open to you, I would expect the Americans to be very upset with that because I’m breaching the Monroe Doctrine. Can you help me understand, having been in the corridors of power, whether Chase Manhattan or the contacts you’ve got, how can …. how can politicians be so delusional to think they can say stuff like that without having a negative consequence?

Michael Hudson 1:35:18
Well you know who’s really upset by that? The Taiwanese! They say, Oh, they want to make Taiwan into another Ukraine, to fight to the last Taiwanese, just like the Ukrainians have been used. They see two choices before them. If they do arm and get weapons that can hit China, then China is likely to bomb them. On the other hand, I’ve met Taiwanese officials for 40 years, and many have said that their long-term hope is to be reintegrated. They want to be investors in China, but they want to merger under terms where they can be sort of like Hong Kong, able to have a merger that will make them prosperous too.

So Taiwan’s choice is between following the Americans and becoming the Ukraine of the Pacific, or joining with China. Given the fact that China is growing and America is shrinking, what are they going to choose? Well, I would imagine that you will see a strong, peaceful integrationist movement with China. But China remembers that Chiang Kai Shek massacred the communists in 1927.

Jonathan Brown 1:36:47
So what are we looking at then, who is in charge, President Biden or other people?

Michael Hudson 1:36:56
President Biden is a front man. They’re all the front men for the faceless people in the State Department, the neocons who are controlling things. Biden has always been right-wing, just a corrupt party politician. He does what he’s paid to do. He’s unimaginative. He’s brought in some real Russia haters – people who have a visceral hatred of Russia because of their family background under the tsars or under Stalin. Blinken said that his family was Jewish and lost under the tsars, and maybe under Stalin. He wants to kill Russians because he’s so angry at what they did to his ancestors. That is the neocon mentality in a nutshell. It’s a crazy mentality.

The Federal Reserve and the Treasury officials say they were not consulted in the political moves that Biden and Blinken and the neocons are making. There is the kind of single-minded tunnel vision at work. They really are Russia haters and China haters. There is a lot of racism you’re seeing in New York, where it’s very dangerous for Asian women to take a subway. Almost every week, the lead news item is yet another Asian woman attacked or pushed in front of a subway. There’s a there’s a new race hatred in America. And they are treating Russians as the Ukrainians do, as if Slavic speaking people are a separate race.

Jonathan Brown 1:38:49
Extraordinary. So Super Imperialism came out, as I understand it, and was used by the State Department to figure out how to continue running their economics …

Michael Hudson 1:39:04
At first U.S. officials thought that going off gold was going to be a disaster. Herman Khan told me, “You’ve shown that we’ve run rings around the British Empire.” He hired me for the Hudson Institute, which is a national security institute, and brought me to the State Department for meetings and to Army War colleges and Air Force war colleges to talk about it. I guess I shouldn’t be surprised that the main people who wanted to learn how imperialism works were the imperialists themselves. I had thought that the anti-imperialists were going to be my main audience, but the imperialists really needed to know what was new.

Jonathan Brown 1:39:50
They took your book, Super Imperialism and they read it as a love letter, right.

Michael Hudson 1:39:56
Not a love letter. They saw it as a “how to do it” book. I was a technician.

Jonathan Brown 1:40:04
Right. And working for Herman Kahn, he’s a powerful guy that people don’t talk about so much anymore, but he was, he was extraordinarily influential at the time, right?

Michael Hudson 1:40:14
Yes, he had a great sense of humour. He was a great speaker. He was absolutely brilliant. He wrote a book on thermonuclear war, saying that even if there were to be a war, somebody would be left to survive. That made him one of the models for Dr. Strangelove in the movies. I would sit and hear Herman talk about military strategy, and was awed by how he thought it all through. He was a brilliant military tactician. He would bring me and sit down with generals, and they would explain things. I don’t have a good military sense, or any military training at all. He wrote that, personally, he wanted to be right under the first hydrogen bomb. He didn’t want to live in the post-nuclear world. But there would be some survivors somewhere. That made him notorious. He was so reviled for even having brought up discussion of the topic that needed to be discussed, that he wanted to have ideas that people liked. And that was the corporate environment study. That was what I was pretty much in charge of. I was the economist, he was the military. We had the same salary there.

We would go around the world disagreeing with each other. It would be like a show. He’d talk about the world being a cup half full. I talked about the cup being half-empty, as he put it. I talked about the debt overhead, and how debt was growing and would ultimately stifle the economy. He talked about how productivity would be sufficient to pay debt, although productivity doesn’t necessarily give you the money to pay the debt. Productivity does not grows exponentially, but tapers off. As debt grows, any rate of interest is a doubling time. And it doubles quicker than the economy can double.

Jonathan Brown 1:42:24
And this is really coming back to one of your initial questions from Terrence McCarthy, which was to focus on productivity, wasn’t it?

Michael Hudson 1:42:33
Yes. And the idea was focusing on productivity, you realise that it all comes down to labour ultimately. How do you make labour more productive? How do you make industry more productive? You get rid of what is unproductive – and the unproductive overhead is rent. So how much corporate spending is just plain overhead? How much is unnecessary for corporate industry to take place? That line of questioning brings you back into the classical economics.
Marx is really the last great classical economist who pushed it all to its logical end. His contribution was to explain that just as the landlord exploits by taking rent, the industrial capitalist exploits labour by charging more for the products of labour than it costs to hire labour to produce.

However, unlike the rentier, unlike the landlord, the capitalist uses this economic surplus value to expand production, to build yet more factories, to employ yet more labour. This is an expanding society, whereas the rent paid to landlords is a kind of exploitation that is pure overhead and shrinks industrial capitalism. That’s why Marx said that the political aim of industrial capitalism was to free society from the landlords, predatory bankers and monopolists. That’s why the Communist Manifesto‘s program begins with collecting rent for the public sector. You can tax the land as a transition to socialising it. That was the Communist Manifesto’s classical economics.

Jonathan Brown 1:44:26
You have these views, and yet you were still a valued member of the team at the Hudson Institute.

Michael Hudson 1:44:33
Yes, because I was explaining how the world worked. Herman and I disagreed so much, we were genuine friends. I liked him, and we couldn’t believe that the other would actually believe something so different. But we said okay, if the arguments that we’re having is the “big argument,” it’s going to determine where the economy is going. Either he’s right or I’m right.
This is like the debates between Henry George’s followers and the socialists in the early 1900s. It was going to be one world or another.

What is the key to analysing the economy? Is it to focus on rent and finance, or on technological potential? My point is that technological potential can be smothered by so much overhead paid to the rentier class via the FIRE sector – finance, insurance and real estate – that there’s no money left to invest, no income left for wage earners to spend on buying the goods and services that they produce.

Jonathan Brown 1:45:48
And yet the technology sector in my opinion is actually the new monopolist. Instead of having a competition, in that sense they’re the new landowners. So Google is a spectrum landowner. If I want to host these videos, then I’ve got to negotiate or accept the terms of the landowner YouTube. I’m posting them there, but I won’t be making any money on it. Because I’m one of the serfs on YouTube.

Michael Hudson 1:46:16
This is the problem that China is dealing with in its own way. What do you do when Jack Ma and other IT specialists end up as billionaires? Well, China did not have an anti-monopoly group. It let 100 flowers bloom and let billionaires develop, but would then have them transfer their money to the government in one way or another. They haven’t done this in the way that Western economies do, by an anti-monopoly tax, but by a political consensus way.

In countries like Russia, I’m trying to get them to formalise this into formally calculating the magnitude of economic trends. You want innovation to take place, you want people to make the fortune, but at a certain point they can’t somehow make so big a fortune that it ends up crashing the economy.

Jonathan Brown 1:47:37
But looking at your writing from the Byzantine times and the ancient Near East, is the importance of the leader of that particular economy or society to make sure that no one got so rich that they could overthrow the leader? Which is really what you’ve got with someone like Zuckerberg, the power that he was able to wield in the election, whether you agree with him or not, was extraordinary. And likewise, if you look at the fight that’s currently going on with Elon Musk and Twitter, is to recognise that actually we want, we want our people to own these resources that we pretend are private, but actually have tremendous social power.

Michael Hudson 1:48:24
Yes, they financialized politics in America, by the Supreme Court’s Citizens United ruling. Anyone can contribute as much as they want, if you’re a corporation. The rentier interests give to pro-rentier politicians to act as their puppets. The money goes for advertising airtime on television and the media to overwhelm all the people who normally would want to minimise the rentier class. So essentially, you’ve financialized politics in America much more than has occurred in Europe. But in Europe, it’s the right wingers who basically control the press, commercial television and media. So if the media are controlled by the right wing with their own agenda, they frame the economic issues from the vantage point of the rentier class instead of from the vantage point of how an economy actually develops and grows wealthier in a fair manner.

Jonathan Brown 1:49:48
I know we need to need to wrap up. Just thinking about the scenarios for Russia and China currently. Everybody who is part of the original white economies of Europe, realises that if they don’t side with America, they get overthrown. But also right now they have a short-term challenge that the Americans are going to let them starve because they’re stopping wheat exports coming through the European ports. But then you’ve also got Russia with resources, you’ve got China with grain resources.

So there is a potential that when people start to starve, and you look at the challenges in Sri Lanka, with politicians being murdered and people running out of food, there’s a chance for China to step in and say, we can send you grain exports. And by lucky coincidence, because of the all the lock downs that China’s got right now, a lot of the world’s boats and ships are currently waiting outside ports in China.

Michael Hudson 1:50:54
[Missing part here] Computer chips are part of the problem. And that’s probably going to make them friendlier with Taiwan. Taiwan has the computer chips.

Jonathan Brown 1:51:03
And by your assessment, because Taiwan do not want to be another Ukraine, American actions are likely to accelerate the reintegration.

Michael Hudson 1:51:12
There’s a bell shaped curve, I haven’t met with the Taiwanese in quite a few years so I don’t know, up to date what the dynamic is. But just by logic, you can see the international environment in which they’re operating. You wonder how they are going to calculate the plusses and minuses of the U.S. versus China? What economy do they want to attach themselves to so that they can get richer fastest?

Jonathan Brown 1:51:46
And also stay safe and not get involved in unnecessary wars. When you look at the tragedy in Ukraine, all these people dying when you’ve got such a strong opponent in Russia, how can you go to war with them for any period of time?

Michael Hudson 1:52:07
Well, that’s what the world is divided into. The U.S. and European society is built on war. It’s the only foreign policy they have, because they don’t have an economic power anymore. They’ve de-industrialised and the rest of the world that is trying to industrialise and trying to feed itself. China, Russia, India, the Global South are the anti-war part of the world. So the world is dividing into two parts: a rentier part supporting finance capitalism [that] is trying to impose it on other countries, to financialize China and Russia to make them put a Margaret Thatcher or Boris Yeltsin in charge of China. While they try to put their own candidates in charge, a la General Pinochet, the rest of the world is trying to defend itself against this terrorism.

So the Western world that calls itself democracy is the terrorist military world. The nations that it calls authoritarian are any authority strong enough to control and tax the financial interests – that is, any government strong enough to regulate finance and real estate. Such an economy is by definition authoritarian as opposed to a democracy, where Wall Street and the financial centres are the democratically elected central planners. So what’s at issue is who’s going to plan society: the financial sector, or the people as in China and other countries.

Jonathan Brown 1:53:41
I think that says it. From a Western lens it’s a different type of democracy.

Michael Hudson 1:53:48
Yes. But democracy really means an economy run to benefit the great bulk of the population, who happen to be wage earners? Or is it going to be for the 1%? Is the economy run for on behalf of the 99% and the 1%? Well, the 99% need a strong government to run it in their own interests and cope with the counter-revolutionary policies, the neo-feudal rentier policies of the 1%.

Jonathan Brown 1:54:22
Okay, so knowing China, then your take on its zero-COVID policy that the authorities are implementing in some parts of the country?

Michael Hudson 1:54:32
The more I read about long COVID here, the worse it seems. I’m 83 years old, so my wife and I have not gone to a restaurant since 2020. We haven’t even gone to our friends’ houses for dinner. We’re isolating ourselves. China has isolated itself at great cost, but it saved the population not only from having COVID itself, but from having long COVID. There are now a million Americans with long COVID. They also say that long COVID lowers your, your IQ by 10%.

It’s almost as dangerous is inheriting a trust fund when it comes to impairing your IQ. It’s debilitating.

My webmaster in Australia and his family have COVID. So I’m very sympathetic with what China’s doing, even though it means that I can’t go there, because I’d have to be isolated in a hotel room for two weeks just to give a few days’ meeting – and then be isolated again when I come back. So China is making a huge effort not to sicken its population with COVID. And now of course, since the Russians have began to publish all their findings of the US bio-warfare labs in Ukraine that were designed to spread a COVID like diseases by migrating birds and bats and manmade aircraft over Russia.

Now, they’ve reopened the question ‘was COVID a US bio-warfare from the very beginning’? And the Chinese are looking at it and saying ‘was it engineered’? If the Americans are trying to engineer COVID to affect mainly Slavic population and their DNA signatures, could they have been doing the same thing against Asians? So all of this is suddenly opened up. The World Health Organisation has refused to divulge any of the USA biowarfare efforts, and the U.S. has stonewalled all efforts to find out about the bio-warfare. This is isolating America and Europe.

If American Europe is left with its current foreign policy, biowarfare and atomic bombs, NATO will be shunned by the civilised world. As Rosa Luxemburg said a century ago, the choice is between socialism or barbarism. NATO, Europe and America represent the new barbarism. The alternative is socialism. That is how the world seemed to be developing in Europe and America until World War I untracked everything. The rest of the world now has a chance to get back on track. I don’t know what’s going to happen in the West.

Jonathan Brown 1:57:47
Michael, as always, you always get more into your stuff than I expected. Are there any things that you’d like to say to our listeners, before we finish up,

Michael Hudson 1:57:56
I’ve probably said too much. And I hope you can edit out anything that’s embarrassing.

Jonathan Brown 1:58:01
I may get thrown off YouTube for publishing some of your comments. So you may have to go back and review a few of them. But as always, Michael, thanks so much your time what we’ll do is we’ll send a link to everybody for the website and also for the new book, as well which I think and those series of lectures when I was researching for this conversation were the single best economic lectures I’ve ever listened to – truly extraordinary levels of insight and real economics rather than theoretical or textbook stuff. So as always from ShepherdWalwyn, thanks so much for your time and for your contribution.

Michael Hudson 1:58:41
Well, if you transcribe it all in will be worth it. \

Jonathan Brown 1:58:45
That’s, that’s our promise 100%. So thanks very much.

Michael Hudson 2:00:05
Thanks a lot.

Will the Global South break free from dollarized debt?

In his latest book, economist Michael Hudson pits socialism against finance capitalism and tears apart the ‘dream civilization’ imposed by the 1 percent.

June 09, 2022

By Pepe Escobar

Let’s jump straight into the fray. Hudson begins with an analysis of the “take the money and run” ethos, complete with de-industrialization, as 90 percent of US corporate revenue is “used to share buybacks and dividend payouts to support company stock prices.”

Michael Hudson’s new book on the world’s urgent global economic re-set is sure to ruffle some Atlanticist feathers.Photo Credit: The Cradle

With The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism, Michael Hudson, one of the world’s leading independent economists, has given us arguably the ultimate handbook on where we’re at, who’s in charge, and whether we can bypass them.

That represents the apex of “Finance Capitalism’s” political strategy: to “capture the public sector and shift monetary and banking power” to Wall Street, the City of London and other western financial centers.

The whole Global South will easily recognize the imperial modus operandi: “The strategy of US military and financial imperialism is to install client oligarchies and dictatorships, and arm-twist allies to join the fight against designated adversaries by subsidizing not only the empire’s costs of war-making (“defense”) but even the imperial nation’s domestic spending programs.” This is the antithesis of the multipolar world advocated by Russia and China.

In short, our current Cold War 2.0 “is basically being waged by US-centered finance capitalism backing rentier oligarchies against nations seeking to build up more widespread self-reliance and domestic prosperity.”

Hudson presciently reminds us of Aristotle, who would say that it is in the interest of financiers to wield their power against society at large: “The financial class historically has been the major beneficiary of empires by acting as collection agents.”

So inevitably the major imperial leverage over the world, a true “strategy of underdevelopment,” had to be financial: instrumentalizing IMF pressure to “turn public infrastructure into privatized monopolies, and reversing 20th century pro-labor reforms” via those notorious ‘conditionalities’ for loans.

No wonder the Non-Aligned Movement (NAM), established in Belgrade in 1961 with 120 nations and 27 observers, became such a threat to US global strategy. The latter predictably fought back with a slew of ethnic wars and the earliest incarnations of color revolution – fabricating dictatorships on an industrial scale, from Suharto to Pinochet.

The culmination was a cataclysmic Houston get-together in December 19, 1990 “celebrating” the dissolution of the USSR, as Hudson reminds us how the IMF and the World Bank “laid out a blueprint for Russia’s leaders to impose austerity and give away its assets – it didn’t matter to whom – in a wave of ‘shock therapy’ to let the alleged magic of free enterprise create a neoliberal free-for-all.”

Lost in a Roman wilderness of debt

To a large extent, nostalgia for the rape-and-pillaging of 1990s-era Russia fuels what Hudson defines as the New Cold War, where Dollar Diplomacy must assert its control over every foreign economy. The New Cold War is not waged only against Russia and China, “but against any countries resisting privatization and financialization under US sponsorship.”

Hudson reminds us how China’s policy “followed almost the same path that American protectionism did from 1865 though 1914 – state subsidy for industry, heavy public-sector capital investment…and social spending on education and health care to upgrade the quality and productivity of labor. This was not called Marxism in the United States; it was simply the logical way to look at industrialization, as part of a broad economic and social system.”

But then, finance – or casino – capitalism gained steam, and left the US economy mainly with “agribusiness farm surpluses, and monopolies in information technology (largely developed as a by-product of military research), military hardware, and pharmaceutical patents (based on public seed-money to fund research) able to extract monopoly rent while making themselves largely tax-exempt by using offshore banking centers.”

That’s the current State of Empire: relying only “on its rentier class and Dollar Diplomacy,” with prosperity concentrated in the top one percent of establishment elites. The inevitable corollary is US diplomacy imposing illegal, unilateral sanctions on Russia, China and anyone else who defies its diktats.

The US economy is indeed a lame post-modern remake of the late Roman empire: “dependent on foreign tribute for its survival in today’s global rentier economy.” Enter the correlation between a dwindling free lunch and utter fear: “That is why the United States has surrounded Eurasia with 750 military bases.”

Delightfully, Hudson goes back to Lactantius, in the late 3rd century, describing the Roman empire on Divine Institutes, to stress the parallels with the American version:

“In order to enslave the many, the greedy began to appropriate and accumulate the necessities of life and keep them tightly closed up, so that they might keep these bounties for themselves. They did this not for humanity’s sake (which was not in them at all), but to rake up all things as products of their greed and avarice. In the name of justice they made unfair and unjust laws to sanction their thefts and avarice against the power of the multitude. In this way they availed as much by authority as by strength of arms or overt evil.”

Socialism or barbarism

Hudson succinctly frames the central issue facing the world today: whether “money and credit, land, natural resources and monopolies will be privatized and concentrated in the hands of a rentier oligarchy or used to promote general prosperity and growth. This is basically a conflict between finance capitalism vs. socialism as economic systems.”

To advance the struggle, Hudson proposes a counter-rentier program which should be the Global South’s ultimate Blueprint for responsible development: public ownership of natural monopolies; key basic infrastructure in public hands; national self-sufficiency – crucially, in money and credit creation; consumer and labor protection; capital controls – to prevent borrowing or denominating debts in foreign currency; taxes on unearned income such as economic rent; progressive taxation; a land tax (“will prevent land’s rising rental value from being pledged to banks for credit to bid up real estate prices”); use of the economic surplus for tangible capital investment; and national self-sufficiency in food.

As Hudson seems to have covered all the bases, at the end of the book I was left with only one overarching question. I asked him how he analyzed the current discussions between the Eurasia Economic Union (EAEU) and the Chinese – and between Russia and China, further on down the road – as being able to deliver an alternative financial/monetary system. Can they sell the alternative system to most of the planet, all while dodging imperial financial harassment?

Hudson was gracious enough to reply with what could be regarded as the summary of a whole book chapter: “To be successful, any reform has to be system-wide, not merely a single part. Today’s western economies have become financialized, leaving credit creation in private hands – to be used to make financial gains at the expense of the industrial economy… This aim has spread like leprosy throughout entire economies – their trade patterns (dependency on US agricultural and oil exports, and IT technology), labor relations (anti-unionism and austerity), land tenure (foreign-owned plantation agriculture instead of domestic self-reliance and self-sufficiency in food grains), and economic theory itself (treating finance as part of GDP, not as an overhead siphoning off income from labor and industry alike).”

Hudson cautions that “in order to break free of the dynamic of predatory finance-capitalism sponsored by the United States and its satellites, foreign countries need to be self-sufficient in food production, energy, technology and other basic needs. This requires an alternative to US ‘free trade’ and its even more nationalistic ‘fair trade’ (deeming any foreign competition to US-owned industry ‘unfair’). That requires an alternative to the IMF, World Bank and ITO (from which Russia has just withdrawn). And alas, an alternative also requires military coordination such as the SCO [the Shanghai Cooperation Organization] to defend against the militarization of US-centered finance capitalism.”

Hudson does see some sunlight ahead: “As to your question of whether Russia and China can ‘sell’ this vision of the future to the Global South and Eurasian countries, that should become much easier by the end of this summer. A major byproduct (not unintended) of the NATO war in Ukraine is to sharply raise energy and food prices (and shipping prices). This will throw the balance of payments of many Global South and other countries into sharp deficit, creating a crisis as their dollar-denominated debt to bondholders and banks falls due.”

The key challenge for most of the Global South is to avoid default:

“The US raise in interest rates has increased the dollar’s exchange rate not only against the euro and Japanese yen, but against the Global South and other countries. This means that much more of their income and export revenue must be paid to service their foreign debt – and they can avoid default only by going without food and oil. So what will they choose? The IMF may offer to create SDRs to enable them to pay – by running even further into dollarized debt, subject to IMF austerity plans and demands that they sell off even more of their natural resources, forests and water.”

So how to break free from dollarized debt? “They need a critical mass. That was not available in the 1970s when a New International Economic Order was first discussed. But today it is becoming a viable alternative, thanks to the power of China, the resources of Russia and those of allied countries such as Iran, India and other East Asian and Central Asian countries. So I suspect that a new world economic system is emerging. If it succeeds, the last century – since the end of World War I and the mess it left – will seem like a long detour of history, now returning to what seemed to be the basic social ideals of classical economics – a market free from rent-seeking landlords, monopolies and predatory finance.”

Hudson concludes by reiterating what the New Cold War is really all about:

“In short, it is a conflict between two different social systems, each with their own philosophy of how societies work. Will they be planned by neoliberal financial centers centered in New York, supported by Washington’s neo-cons, or will they be the kind of socialism that the late 19th century and early 20th century envisioned – a ‘market’ and, indeed, society free from rentiers? Will natural monopolies such as land and natural resources be socialized and used to finance domestic growth and housing, or left to financial interests to turn rent into interest payments eating into consumer and business income? And most of all, will governments create their own money and steer banking to promote domestic prosperity, or will they let private banks (whose financial interests are represented by central banks) take control away from national treasuries?”

The views expressed in this article do not necessarily reflect those of The Cradle.

Is US/NATO (with WEF help) pushing for a Global South famine?

June 06, 2022

By Michael Hudson and posted with the author’s permission

Is the proxy war in Ukraine turning out to be only a lead-up to something larger, involving world famine and a foreign-exchange crisis for food- and oil-deficit countries?

Many more people are likely to die of famine and economic disruption than on the Ukrainian battlefield. It thus is appropriate to ask whether what appeared to be the Ukraine proxy war is part of a larger strategy to lock in U.S. control over international trade and payments. We are seeing a financially weaponized power grab by the U.S. Dollar Area over the Global South as well as over Western Europe. Without dollar credit from the United States and its IMF subsidiary, how can countries stay afloat? How hard will the U.S. act to block them from de-dollarizing, opting out of the U.S. economic orbit?

U.S. Cold War strategy is not alone in thinking how to benefit from provoking a famine, oil and balance-of-payments crisis. Klaus Schwab’s World Economic Forum worries that the world is overpopulated – at least with the “wrong kind” of people. As Microsoft philanthropist (the customary euphemism for rentier monopolist) Bill Gates has explained: “Population growth in Africa is a challenge.” His lobbying foundation’s 2018 “Goalkeepers” report warned: “According to U.N. data, Africa is expected to account for more than half of the world’s population growth between 2015 and 2050. Its population is projected to double by 2050,” with “more than 40 percent of world’s extremely poor people … in just two countries: Democratic Republic of the Congo and Nigeria.”[1]

Gates advocates cutting this projected population increase by 30 percent by improving access to birth control and expanding education to “enable more girls and women to stay in school longer, have children later.” But how can that be afforded with this summer’s looming food and oil squeeze on government budgets?

South Americans and some Asian countries are subject to the same jump in import prices resulting from NATO’s demands to isolate Russia. JPMorgan Chase head Jamie Dimon recently warned attendees at a Wall Street investor conference that the sanctions will cause a global “economic hurricane.”[2] He echoed the warning by IMF Managing Director Kristalina Georgieva in April that, “To put it simply: we are facing a crisis on top of a crisis.” Pointing out that the Covid pandemic has been capped by inflation as the war in Ukraine has made matters “much worse, and threatens to further increase inequality” she concluded that: “The economic consequences from the war spread fast and far, to neighbors and beyond, hitting hardest the world’s most vulnerable people. Hundreds of millions of families were already struggling with lower incomes and higher energy and food prices.”[3]

The Biden administration blames Russia for “unprovoked aggression.” But it is his administration’s pressure on NATO and other Dollar Area satellites that has blocked Russian exports of grain, oil and gas. But many oil- and food-deficit countries see themselves as the primary victims of “collateral damage” caused by US/NATO pressure.

Is world famine and balance-of-payments crisis a deliberate US/NATO policy?

On June 3, African Union Chairperson Macky Sall, President of Senegal, went to Moscow to plan how to avoid a disruption in Africa’s food and oil trade by refusing to become pawns in the US/NATO sanctions. So far in 2022, President Putin noted: “Our trade is growing. In the first months of this year it grew by 34 percent.”[4] But Senegal’s President Sall worried that: “Anti-Russia sanctions have made this situation worse and now we do not have access to grain from Russia, primarily to wheat. And, most importantly, we do not have access to fertilizer.”

U.S. diplomats are forcing countries to choose whether, in George W. Bush’s words, “you are either for us or against us.” The litmus test is whether they are willing to force their populations to starve and shut down their economies for lack of food and oil by stopping trade with the world’s Eurasian core of China, Russia, India, Iran and their neighbors.

Mainstream Western media describe the logic behind these sanctions as promoting a regime change in Russia. The hope was that blocking it from selling its oil and gas, food or other exports would drive down the ruble’s exchange rate and “make Russia scream” (as the U.S. tried to do to Allende’s Chile to set the stage for is backing of the Pinochet military coup). Exclusion from the SWIFT bank-clearing system was supposed to disrupt Russia’s payment system and sales, while seizing Russia’s $300 billion om foreign-currency reserves held in the West was expected to collapse the ruble, preventing Russian consumers from buying the Western goods to which they had become accustomed. The idea (and it seems so silly in retrospect) was that Russia’s population would rise in rebellion to protest against how much more Western luxury imports cost. But the ruble soared rather than sunk, and Russia quickly replaced SWIFT with its own system linked to that of China. And Russia’s population began to turn away from the West’s aggressive enmity.

Evidently some major dimensions are missing from the U.S. national-security think-tank models. But when it comes to global famine, was a more covert and even lager strategy at work? It is now looking like the major aim of the U.S. war in Ukraine all along was merely to serve as a catalyst, an excuse to impose sanctions that would disrupt the world’s food and energy trade, and to manage this crisis in a way that would afford U.S. diplomats an opportunity to confront Global South countries with the choice “Your loyalty and neoliberal dependency or your life – and, in the process, to “thin out” the world’s non-white populations that so worried Mr. Dimon and the WEF?

There must have been the following calculation: Russia accounts for 40% of the world’s grain trade and 25 percent of the world fertilizer market (45 percent if Belarus is included). Any scenario would have included a calculation that if so large a volume of grain and fertilizer was withdrawn from the market, prices would soar, just as they have done for oil and gas.

Adding to the disruption in the balance-of-payments of countries having to import these commodities, the price is rising for buying dollars to pay their foreign bondholders and banks for debts falling due. The Federal Reserve’s tightening of interest rates has caused a rising premium for U.S. dollars over euros, sterling and Global South currencies.

It is inconceivable that the consequences of this on countries outside of Europe and the United States were not taken into account, because the global economy is an interconnected system. Most disruptions are in the 2 to 5 percent range, but today’s US/NATO sanctions are so far off the historical track that price increases will soar substantially above the historic range. Nothing like this has happened in recent times.

This suggests that what appeared in February to be a war between Ukrainians and Russia is really a trigger intended to restructure the world economy – and to do so in a way to lock U.S. control over the Global South. Geopolitically, the proxy war in Ukraine has been a handy excuse for America’s to counter China’s Belt and Road Initiative (BRI).

The choice confronting Global South countries: to starve by paying their foreign bondholders and bankers, or to announce, as a basic principle of international law: “As sovereign countries, we put our survival above the aim of enriching foreign creditors who have made loans that have gone bad as a result of their choice to wage a new Cold War. As for the destructive neoliberal advice that the IMF and World Bank have given us, their austerity plans were destructive instead of helpful. Therefore, their loans have gone bad. As such, they have become odious.”

NATO policy has given Global South countries no choice but to reject its attempt to establish a U.S. food stranglehold on the Global South by blocking any competition from Russia, thereby monopolizing the world’s grain and energy trade. The major grain exporter was the heavily subsidized U.S. farm sector, followed by Europe’s highly subsidized Common Agricultural Policy (CAP). These were the main grain exporters before Russia entered the picture. The US/NATO demand is to roll back the clock to restore dependency on the Dollar Area and its eurozone satellites.

The implicit Russian and Chinese counterplan

What is needed for the world’s non-US/NATO population to survive is a new world trade and financial system. The alternative is world famine for much of the world. More people will die of the sanctions than have died on the Ukrainian battlefield. Financial and trade sanctions are as destructive as military attack. So the Global South is morally justified in putting its sovereign interests above those of the wielders of international financial and trade weaponry.

First, reject the sanctions and reorient trade to Russia, China, India, Iran and their fellow members of the Shanghai Cooperation Organization (SCO). The problem is how to pay for imports from these countries, especially if U.S. diplomats extend sanctions against such commerce.

There is no way that Global South countries can pay for oil, fertilizer and food from these countries and also pay the dollar debts that are the legacy of U.S.-sponsored neoliberal trade policy subject to U.S. and eurozone protectionism. Therefore, the second need is to declare a debt moratorium – in effect, a repudiation – of the debts that represent loans gone bad. This act would be analogous to the 1931 suspension of German reparations and Inter-Ally debts owed to the United States. Quite simply, today’s Global South debts cannot be paid without subjecting debtor countries to famine and austerity.

A third corollary that follows from these economic imperatives is to replace the World Bank and its pro-U.S. policies of trade dependency and underdevelopment with a genuine Bank for Economic Acceleration. Along with this institution is a fourth corollary in the form of the new bank’s sibling: a replacement for the IMF free of austerity junk economics and subsidy of America’s client oligarchies coupled with currency raids on countries resisting U.S. privatization and financialization takeovers.

The fifth requirement is for countries to protect themselves by joining a military alliance as an alternative to NATO, to avoid being turned into another Afghanistan, another Libya, another Iraq or Syria or Ukraine.

The main deterrent to this strategy is not U.S. power, for it has shown itself to be a paper tiger. The problem is one of economic consciousness and will.

  1. “Bill Gates has a warning about population growth,” World Economic Forum/Reuters, September 19, 2018. https://www.weforum.org/agenda/2018/09/africas-rapid-population-growth-puts-poverty-progress-at-risk-says-gates
  2. Lananh Nguyen, “‘It’s a hurricane.’ Bank chiefs warn of a weakening economy,” The New York Times, June 1, 2022. 
  3. Kristalina Georgieva, IMF Managing Director, “Facing Crisis Upon Crisis: How the World Can RespondApril 14, 2022. https://www.imf.org/en/News/Articles/2022/04/14/sp041422-curtain-raiser-sm2022.&nbsp;
  4. “Putin meets with African Union Chairperson at Sochi, June 3, 2022.” President Sall was accompanied by Moussa Faki Mahamat, Chairperson of the African Union Commission. http://en.kremlin.ru/events/president/news/68564. For a elated discussion on the sanctions see https://www.nakedcapitalism.com/2022/06/sanctions-now-weapons-of-mass-starvation.html

Bilderberg does China

June 04, 2022

When Davos and Bilderberg messenger boys look at The Grand Chessboard, they realize that their era of perpetual free lunch is over.

By Pepe Escobar posted with his permission and widely cross-posted. 

Discreetly, as under the radar as a looming virus, the 68th Bilderberg meeting  is currently underway in Washington, D.C. Nothing to see here. No conspiracy theories about a “secret cabal”, please. This is just a docile, “diverse group of political leaders and experts” having a chat, a laugh, and a bubbly.

Still, one cannot but notice that the choice of venue speaks more volumes than the entire – burned to the ground – Library of Alexandria. In the year heralding the explosion of a much-awaited NATO vs. Russia proxy war, discussing its myriad ramifications does suit the capital of the Empire of Lies, much more than Davos a few weeks ago, where one Henry Kissinger sent them into a frenzy by advancing the necessity of a toxic compromise named “diplomacy”.

The list of Bilderberg 2022 participants is a joy to peruse. Here are just some of the stalwarts:

James Baker, Consigliere extraordinaire, now a mere Director of the Office of Net Assessment at the Pentagon.

José Manuel Barroso, former head of the European Commission, later the recipient of a golden parachute in the form of Chairman of Goldman Sachs International.

Albert Bourla, the Pfizer Big Guy.

William Burns, CIA director.

Kurt Campbell, the guy who invented the Obama/Hillary “pivot to Asia”, now White House Coordinator for Indo-Pacific.

Mark Carney, former Bank of England, one of the designers of the Great Reset, now Vice Chair of Brookfield Asset Management.

Henry Kissinger, The Establishment’s Voice (or a war criminal: take your pick).

Charles Michel, President of the European Council.

Minton Beddoes, Editor-in-Chief of The Economist, which will duly relay all major Bilderberg directives in the magazine’s upcoming cover stories.

David Petraeus, certified loser of endless surges and Chairman of KKR Global Institute.

Mark Rutte, hawkish Prime Minister of the Netherlands.

Jens Stoltenberg, NATO top parrot, sorry, secretary-general.

Jake Sullivan, Director of the National Security Council.

The ideological and geopolitical affiliations of these members of the “diverse group” need no further elaboration. It gets positively sexier when we see what they will be discussing.

Among other issues we find “NATO challenges”; “Indo-Pacific realignment”; “continuity of government and economy” (Conspirationists: continuity in case of nuclear war?); “disruption of global financial system” (already on); “post-pandemic health” (Conspirationists: how to engineer the next pandemic?); “trade and deglobalization”; and of course, the choice wagyu beef steaks: Russia and China.

As Bilderberg follows Chatham House Rules, mere mortals won’t have a clue of what they actually “proposed” or approved, and none of the participants will be allowed to talk about it with anyone else. One of my top New York sources, with direct access to most of the Masters of the Universe, loves to quip that Davos and Bilderberg are just for the messenger boys: the guys who really run the show don’t even bother to show up, ensconced in their uber-private meetings in uber-private clubs, where the real decisions are made.

Still, anyone following in some detail the rotten state of the “rules-based international order” will have a pretty good idea about the 2022 Bilderberg chatter.

What the Chinese say

Secretary of State Little Blinken – Sullivan’s sidekick in the ongoing Crash Test Dummy administration’s Dumb and Dumber remake – has recently claimed that China “supports” Russia on Ukraine instead of remaining neutral.

What really matters here is that Little Blinken is implying that Beijing wants to destabilize Asia-Pacific – which is a notorious absurdity. Yet that’s the master narrative that must pave the way for the US to muscle up its “Indo-Pacific” concoction. And that’s the briefing Sullivan and Kurt Campbell will be delivering to the “diverse group”.

Davos – with its new self-billed mantra, “The Great Narrative” – completely excluded Russia. Bilderberg is mostly about containment of China – which after all is the number one existential threat to the Empire of Lies and its satrapies.

Rather than wait for Bilderberg morsels dispensed by The Economist, it’s much more productive to check out what a cross-section of fact-based Chinese intelligentsia thinks about the new “collective West” racket.

Let’s start with Justin Lin Yifu, former Chief Economist of the World Bank and now Dean of the Institute of New Structural Economics at Peking University, and Sheng Songcheng, former head of the Financial Survey and Statistic Dept. a the Bank of China.

They advance that if China achieves “dynamic zero infection” on Covid-19 by the end of May (that actually happened: see the end of the Shanghai lockdown), China’s economy may grow by 5.5% in 2022.

They dismiss the imperial attempt to establish an “Asian version of NATO”: “As long as China continues to grow at a higher rate and to open up, European and ASEAN countries would not participate in the US’s decoupling trap so as to ensure their economic growth and job creation.”

Three academics from the Shanghai Institute of International Studies and Fudan University touch on the same point: the American-announced “Indo-Pacific Economic Framework”, supposed to be the economic pillar of the Indo-Pacific strategy, is nothing but a cumbersome attempt to “weaken the internal cohesion and regional autonomy of ASEAN.”

Liu Zongyi stresses that China’s position at the heart of the vastly inter-connected Asian supply chains “has been consolidated”, especially now with the onset of the largest trade deal on the planet, the Regional Comprehensive Economic Partnership (RCEP).

Chen Wengling, Chief Economist of a think tank under the key National Development and Reform Commission, notes  the “comprehensive ideological and technological war against China” launched by the Americans.

But he’s keen to stress how they are “not ready for a hot war as the US and Chinese economies are so closely linked.” The crucial vector is that “the US has not yet made substantial progress in strengthening its supply chain focusing on four key fields including semiconductors.”

Chen worries about “China’s energy security”; “China’s silence” on US sanctions on Russia, which “may result in US retaliation”; and crucially, how “China’s plan of building the Belt and Road Initiative (BRI) with Ukraine and EU countries will be affected.” What will happen in practice is BRI will be privileging economic corridors across Iran and West Asia, as well as the Maritime Silk Road, instead of the Trans-Siberian corridor across Russia.

It’s up to Yu Yongding, from the Chinese Academy of Social Sciences (CASS) and a former member of the Monetary Policy Committee of the Central Bank, to go for the jugular, noting how” the global financial system and the US dollar have been weaponized into geopolitical tools. The nefarious behavior of the US in freezing foreign exchange reserves has not only seriously damaged the international credibility of the US but has also shaken the credit foundation of the dominant international financial system in the West.”

He expresses the consensus among Chinese intel, that “if there is a geopolitical conflict between the US and China, then China’s overseas assets will be seriously threatened, especially its huge reserves. Therefore, the composition of China’s external financial assets and liabilities urgently needs to be adjusted and the portion of US dollar denominated assets in its reserves portfolio should be reduced.”

This chessboard sucks

A serious debate is raging across virtually all sectors of Chinese society on the American weaponization of the world financial casino. The conclusions are inevitable: get rid of US Treasuries, fast, by any means necessary; more imports of commodities and strategic materials (thus the importance of the Russia-China strategic partnership); and firmly secure overseas assets, especially those foreign currency reserves.

Meanwhile Bilderberg’s “diverse group”, on the other side of the pond, is discussing, among other things, what will really happen in case they force the IMF racket to blow up (a key plan to implement The Great Reset, or “Great Narrative”).

They are starting to literally freak out with the slowly but surely emergence of an alternative, resource-based monetary/financial system: exactly what the Eurasia Economic Union (EAEU) is currently discussing and designing, with Chinese input.

Imagine a counter-Bilderberg system where a basket of Global South actors, resource-rich but economically poor, are able to issue their own currencies backed by commodities, and finally get rid of their status of IMF hostages. They are all paying close attention to the Russia gas-for-rubles experiment.

And in China’s particular case, what will always matter is loads of productive capital underpinning a massive, extremely deep industrial and civil infrastructure.

No wonder Davos and Bilderberg messenger boys, when they look at The Grand Chessboard, are filled with dread: their era of perpetual free lunch is over. What would delight cynics, skeptics, neoplatonists and Taoists galore is that it was Davos-Bilderberg Men (and Women) who actually boxed themselves into zugzwang.

All dressed up – with nowhere to go. Even JP Morgan’s Jamie Dimon – who didn’t even bother to go to Bilderberg – is scared, saying an economic “hurricane” is coming. And overturning the chessboard is no remedy: at best that may invite a ceremonious tuxedo visit by Mr. Sarmat and Mr. Zircon carrying some hypersonic bubbly.

Vladimir Putin: Interview with Rossiya TV

June 04, 2022

The President answered questions from Pavel Zarubin of Rossyia 1 TV channel.

Pavel Zarubin: Mr President, we have just followed your meeting with the head of Senegal who is also the current leader of the African Union. He expressed, and actually in the past week many countries have expressed concern not so much about the food crisis, but they are afraid of large-scale famine because world food prices are climbing and so are oil and gas prices, These issues are interrelated.

Naturally, the West blames Russia for this, too. What is the real situation at this point, how is it developing? And what do you think will happen in the food and energy markets?

President of Russia Vladimir Putin: Yes, indeed, we are seeing attempts to place the responsibility on Russia for developments in the global food market and the growing problems there. I must say that this is another attempt to pin the blame on someone else. But why?

First, the situation with the global food market did not become worse yesterday or even with the launch of Russia’s special military operation in Donbass, in Ukraine.

The situation took a downturn in February 2020 during the efforts to counter the coronavirus pandemic when the global economy was down and had to be revived.

The financial and economic authorities in the United States, of all things, found nothing better than to allocate large amounts of money to support the population and certain businesses and economic sectors.

We generally did almost the same thing, but I assure you that we were much more accurate, and the results are obvious: we did this selectively and got the desired results without affecting macroeconomic indicators, including excessive inflation growth.

The situation was quite different in the United States. The money supply in the United States grew by 5.9 trillion in less than two years, from February 2020 to the end of 2021 – unprecedented productivity of the money printing machines. The total cash supply grew by 38.6 percent.

Apparently, the US financial authorities believed the dollar was a global currency, and it would spread, as usual, as it did in previous years, would dissolve in the global economy, and the United States would not even feel it. But that did not happen, not this time. As a matter of fact, decent people – and there are such people in the United States – the Secretary of the Treasury recently said they had made a mistake. So, it was a mistake made by the US financial and economic authorities – it has nothing to do with Russia’s actions in Ukraine, it is totally unrelated.

And that was the first step – and a big one – towards the current unfavourable food market situation, because, in the first place, food prices immediately went up, they grew. This is the first reason.

The second reason was European countries’ short-sighted policies, and above all, the European Commission’s policy in regard to energy. We see what is going on there. Personally, I believe that many political players in the United States and Europe have been taking advantage of people’s natural concerns about the climate, climate change, and they began to promote this green agenda, including in the energy sector.

It all seems fine, except for the unqualified and groundless recommendations about what needs to be done in the energy sector. The capabilities of alternative types of energy are overestimated: solar, wind, any other types, hydrogen power – those are good prospects for the future, probably, but today, they cannot be produced in the required amount, with the required quality and at acceptable prices. And at the same time, they began to belittle the importance of conventional types of energy, including, and above all, hydrocarbons.

What was the result of this? Banks stopped issuing loans because they were under pressure. Insurance companies stopped insuring deals. Local authorities stopped allocating plots of land for expanding production and reduced the construction of special transport, including pipelines.

All this led to a shortage of investment in the world energy sector and price hikes as a result. The wind was not as strong as expected during the past year, winter dragged on, and prices instantly soared.

On top of all that, the Europeans did not listen to our persistent requests to preserve long-term contracts for the delivery of natural gas to European countries. They started to wind them down. Many are still valid, but they started winding them down. This had a negative effect on the European energy market: the prices went up. Russia has absolutely nothing to do with this.

But as soon as gas prices started going up, fertiliser prices followed suit because gas is used to produce some of these fertilisers. Everything is interconnected. As soon as fertiliser prices started growing, many businesses, including those in European countries, became unprofitable and started shutting down altogether. The amount of fertiliser in the world market took a dive, and prices soared dramatically, much to the surprise of many European politicians.

However, we warned them about this, and this is not linked to Russia’s military operation in Donbass in any way. This has nothing to do with it.

But when we launched our operation, our so-called European and American partners started taking steps that aggravated the situation in both the food sector and fertiliser production.

By the way, Russia accounts for 25 percent of the world fertiliser market. As for potash fertilisers, Alexander Lukashenko told me this – but we should double-check it, of course, although I think it is true – when it comes to potash fertilisers, Russia and Belarus account for 45 percent of the world market. This is a tremendous amount.

The crop yield depends on the quantity of fertiliser put into the soil. As soon as it became clear that our fertilisers would not be in the world market, prices instantly soared on both fertilisers and food products because if there are no fertilisers, it is impossible to produce the required amount of agricultural products.

One thing leads to another, and Russia has nothing to do with it. Our partners made a host of mistakes themselves, and now they are looking for someone to blame. Of course, Russia is the most suitable candidate in this respect.

Pavel Zarubin: Incidentally, it has just been reported that the wife of the head of our largest fertiliser companies has been included in the new European package of sanctions.

What will all this lead to in your opinion?

Vladimir Putin: This will make a bad situation worse.

The British and later the Americans – Anglo-Saxons – imposed sanctions on our fertilisers. Then, having realised what was happening, the Americans lifted their sanctions, but the Europeans did not. They are telling me themselves during contacts: yes, we must think about it, we must do something about it, but today they have just aggravated this situation.

This will make the situation in the world fertiliser market worse, and hence the crop prospects will be much more modest, and prices will keep going up – that is it. This is an absolutely myopic, erroneous, I would say, simply stupid policy that leads to a deadlock.

Pavel Zarubin: But Russia is accused by high-ranking officials of preventing the grain that is actually there, in Ukrainian ports, from leaving.

Vladimir Putin: They are bluffing, and I will explain why.

First, there are some objective things, and I will mention them now. The world produces about 800 million tonnes of grain, wheat per year. Now we are being told that Ukraine is ready to export 20 million tonnes. So, 20 million tonnes out of 800 million tonnes amounts to 2.5 percent. But if we proceed from the fact that wheat accounts for merely 20 percent of all food products in the world – and this is the case, this is not our data, it comes from the UN – this means that these 20 million tonnes of Ukrainian wheat are just 0.5 percent, practically nothing. This is the first point.

The second. 20 million tonnes of Ukrainian wheat are potential exports. Today, the US official bodies also say that Ukraine could export six million tonnes of wheat. According to our Ministry of Agriculture, the figure is not six but about five million tonnes, but okay, let us assume it is six, plus it could export seven million tonnes of maize – this is the figure of our Ministry of Agriculture. We realise that this is not much.

In the current agricultural year of 2021–2022, we will export 37 million and, I believe, we will raise these exports to 50 million tonnes in 2022–2023. But this is apropos, by the way.

As for shipping out Ukrainian grain, we are not preventing this. There are several ways to export grain.

The first one. You can ship it out via the Ukraine-controlled ports, primarily in the Black Sea – Odessa and nearby ports. We did not mine the approaches to the port – Ukraine did this.

I have already said to all our colleagues many times – let them demine the ports and let the vessels loaded with grain leave. We will guarantee their peaceful passage to international waters without any problems. There are no problems at all. Go ahead.

They must clear the mines and raise the ships they sunk on purpose in the Black Sea to make it difficult to enter the ports to the south of Ukraine. We are ready to do this; we will not use the demining process to initiate an attack from the sea. I have already said this. This is the first point.

The second. There is another opportunity: the ports in the Sea of Azov – Berdyansk and Mariupol – are under our control, and we are ready to ensure a problem-free exit from these ports, including for exported Ukrainian grain. Go ahead, please.

We are already working on the demining process. We are completing this work – at one time, Ukrainian troops laid three layers of mines. This process is coming to an end. We will create the necessary logistics. This is not a problem; we will do this. This is the second point.

The third. It is possible to move grain from Ukraine via the Danube and through Romania.

Fourth. It is also possible through Hungary.

And fifth, it is also possible to do this via Poland. Yes, there are some technical problems because the tracks are of different gauges and the wheel bogies must be changed. But this only takes a few hours, that is all.

Finally, the easiest way is to transport grain via Belarus. This is the easiest and the cheapest way because from there it can be instantly shipped to the Baltic ports and further on to any place in the world.

But they would have to lift the sanctions from Belarus. This is not our problem though. At any rate, President of Belarus Alexander Lukashenko puts it like this: if someone wants to resolve the problem of exporting Ukrainian grain, if this problem exists at all, please use the simplest way – through Belarus. No one will stop you.

So, the problem of shipping grain out of Ukraine does not really exist.

Pavel Zarubin: How would the logistics work to ship it from the ports under our control? What would the conditions be?

Vladimir Putin: No conditions.

They are welcome. We will provide peaceful passage, guarantee safe approaches to these ports, and ensure the safe entry of foreign ships and passage through the Sea of Azov and the Black Sea in any direction.

By the way, several ships are stuck in Ukrainian ports at this point. These are foreign ships, dozens of them. They are simply locked up and their crews are still being held hostage.

Pepe Escobar and Danny Haiphong; Russia, China, and the Post-Dollar World

April 28, 2022

Exclusive: Russian geo-economics Tzar Sergey Glazyev introduces the new global financial system

The world’s new monetary system, underpinned by a digital currency, will be backed by a basket of new foreign currencies and natural resources. And it will liberate the Global South from both western debt and IMF-induced austerity.

April 14 2022

By Pepe Escobar

Sergey Glazyev is a man living right in the eye of our current geopolitical and geo-economic hurricane. One of the most influential economists in the world, a member of the Russian Academy of Sciences, and a former adviser to the Kremlin from 2012 to 2019, for the past three years he has helmed Moscow’s uber strategic portfolio as Minister in Charge of Integration and Macroeconomics of the Eurasia Economic Union (EAEU).

https://media.thecradle.co/wp-content/uploads/2022/04/Unknown-6.jpeg
Leading Russian economist Sergey Glazyev says a complete overhaul of the western-dominated global monetary and financial system is under works. And the world’s rising powers are buying into it. Photo Credit: The Cradle

Glazyev’s recent intellectual production has been nothing short of transformative, epitomized by his essay Sanctions and Sovereignty and an extensive discussion of the new, emerging geo-economic paradigm in an interview to a Russian business magazine.

In another of his recent essays, Glazyev comments on how “I grew up in Zaporozhye, near which heavy fighting is now taking place in order to destroy the Ukrainian Nazis, who never existed in my small Motherland. I studied at a Ukrainian school and I know Ukrainian literature and language well, which from a scientific point of view is a dialect of Russian. I did not notice anything Russophobic in Ukrainian culture. In the 17 years of my life in Zaporozhye, I have never met a single Banderist.”

Glazyev was gracious to take some time from his packed schedule to provide detailed answers to a first series of questions in what we expect to become a running conversation, especially focused to the Global South. This is his first interview with a foreign publication since the start of Operation Z. Many thanks to Alexey Subottin for the Russian-English translation.

The Cradle: You are at the forefront of a game-changing geo-economic development: the design of a new monetary/financial system via an association between the EAEU and China, bypassing the US dollar, with a draft soon to be concluded. Could you possibly advance some of the features of this system – which is certainly not a Bretton Woods III – but seems to be a clear alternative to the Washington consensus and very close to the necessities of the Global South?

Glazyev: In a bout of Russophobic hysteria, the ruling elite of the United States played its last “trump ace” in the hybrid war against Russia. Having “frozen” Russian foreign exchange reserves in custody accounts of western central banks, financial regulators of the US, EU, and the UK undermined the status of the dollar, euro, and pound as global reserve currencies. This step sharply accelerated the ongoing dismantling of the dollar-based economic world order.

Over a decade ago, my colleagues at the Astana Economic Forum and I proposed to transition to a new global economic system based on a new synthetic trading currency based on an index of currencies of participating countries. Later, we proposed to expand the underlying currency basket by adding around twenty exchange-traded commodities. A monetary unit based on such an expanded basket was mathematically modeled and demonstrated a high degree of resilience and stability.

At around the same time, we proposed to create a wide international coalition of resistance in the hybrid war for global dominance that the financial and power elite of the US unleashed on the countries that remained outside of its control. My book The Last World War: the USA to Move and Lose, published in 2016, scientifically explained the nature of this coming war and argued for its inevitability – a conclusion based on objective laws of long-term economic development. Based on the same objective laws, the book argued the inevitability of the defeat of the old dominant power.

Currently, the US is fighting to maintain its dominance, but just as Britain previously, which provoked two world wars but was unable to keep its empire and its central position in the world due to the obsolescence of its colonial economic system, it is destined to fail. The British colonial economic system based on slave labor was overtaken by structurally more efficient economic systems of the US and the USSR. Both the US and the USSR were more efficient at managing human capital in vertically integrated systems, which split the world into their zones of influence. A transition to a new world economic order started after the disintegration of the USSR. This transition is now reaching its conclusion with the imminent disintegration of the dollar-based global economic system, which provided the foundation of the United States global dominance.

The new convergent economic system that emerged in the PRC (People’s Republic of China) and India is the next inevitable stage of development, combining the benefits of both centralized strategic planning and market economy, and of both state control of the monetary and physical infrastructure and entrepreneurship. The new economic system united various strata of their societies around the goal of increasing common wellbeing in a way that is substantially stronger than the Anglo-Saxon and European alternatives. This is the main reason why Washington will not be able to win the global hybrid war that it started. This is also the main reason why the current dollar-centric global financial system will be superseded by a new one, based on a consensus of the countries who join the new world economic order.

In the first phase of the transition, these countries fall back on using their national currencies and clearing mechanisms, backed by bilateral currency swaps. At this point, price formation is still mostly driven by prices at various exchanges, denominated in dollars. This phase is almost over: after Russia’s reserves in dollars, euro, pound, and yen were “frozen,” it is unlikely that any sovereign country will continue accumulating reserves in these currencies. Their immediate replacement is national currencies and gold.

The second stage of the transition will involve new pricing mechanisms that do not reference the dollar. Price formation in national currencies involves substantial overheads, however, it will still be more attractive than pricing in ‘un-anchored’ and treacherous currencies like dollars, pounds, euro, and yen. The only remaining global currency candidate – the yuan – won’t be taking their place due to its inconvertibility and the restricted external access to the Chinese capital markets. The use of gold as the price reference is constrained by the inconvenience of its use for payments.

The third and the final stage on the new economic order transition will involve a creation of a new digital payment currency founded through an international agreement based on principles of transparency, fairness, goodwill, and efficiency. I expect that the model of such a monetary unit that we developed will play its role at this stage. A currency like this can be issued by a pool of currency reserves of BRICS countries, which all interested countries will be able to join. The weight of each currency in the basket could be proportional to the GDP of each country (based on purchasing power parity, for example), its share in international trade, as well as the population and territory size of participating countries.

In addition, the basket could contain an index of prices of main exchange-traded commodities: gold and other precious metals, key industrial metals, hydrocarbons, grains, sugar, as well as water and other natural resources. To provide backing and to make the currency more resilient, relevant international resource reserves can be created in due course. This new currency would be used exclusively for cross-border payments and issued to the participating countries based on a pre-defined formula. Participating countries would instead use their national currencies for credit creation, in order to finance national investments and industry, as well as for sovereign wealth reserves. Capital account cross-border flows would remain governed by national currency regulations.

The Cradle: Michael Hudson specifically asks that if this new system enables nations in the Global South to suspend dollarized debt and is based on the ability to pay (in foreign exchange), can these loans be tied to either raw materials or, for China, tangible equity ownership in the capital infrastructure financed by foreign non-dollar credit?

Glazyev: Transition to the new world economic order will likely be accompanied by systematic refusal to honor obligations in dollars, euro, pound, and yen. In this respect, it will be no different from the example set by the countries issuing these currencies who thought it appropriate to steal foreign exchange reserves of Iraq, Iran, Venezuela, Afghanistan, and Russia to the tune of trillions of dollars. Since the US, Britain, EU, and Japan refused to honor their obligations and confiscated the wealth of other nations which was held in their currencies, why should other countries be obliged to pay them back and to service their loans?

In any case, participation in the new economic system will not be constrained by the obligations in the old one. Countries of the Global South can be full participants of the new system regardless of their accumulated debts in dollars, euro, pound, and yen. Even if they were to default on their obligations in those currencies, this would have no bearing on their credit rating in the new financial system. Nationalization of extraction industry, likewise, would not cause a disruption. Further, should these countries reserve a portion of their natural resources for the backing of the new economic system, their respective weight in the currency basket of the new monetary unit would increase accordingly, providing that nation with larger currency reserves and credit capacity. In addition, bilateral swap lines with trading partner countries would provide them with adequate financing for co-investments and trade financing.

The Cradle: In one of your latest essays, The Economics of the Russian Victory, you call for “an accelerated formation of a new technological paradigm and the formation of institutions of a new world economic order.” Among the recommendations, you specifically propose the creation of “a payment and settlement system in the national currencies of the EAEU member states” and the development and implementation of “an independent system of international settlements in the EAEU, SCO and BRICS, which could eliminate critical dependence of the US-controlled SWIFT system.” Is it possible to foresee a concerted joint drive by the EAEU and China to “sell” the new system to SCO members, other BRICS members, ASEAN members and nations in West Asia, Africa and Latin America? And will that result in a bipolar geo-economy – the West versus The Rest?

Glazyev: Indeed, this is the direction where we are headed. Disappointingly, monetary authorities of Russia are still a part of the Washington paradigm and play by the rules of the dollar-based system, even after Russian foreign exchange reserves were captured by the west. On the other hand, the recent sanctions prompted extensive soul searching among the rest of the non-dollar-block countries. western ‘agents of influence’ still control central banks of most countries, forcing them to apply suicidal policies prescribed by the IMF. However, such policies at this point are so obviously contrary to the national interests of these non-western countries that their authorities are growing justifiably concerned about financial security.

You correctly highlight potentially central roles of China and Russia in the genesis of the new world economic order. Unfortunately, current leadership of the CBR (Central Bank of Russia) remains trapped inside the intellectual cul-de-sac of the Washington paradigm and is unable to become a founding partner in the creation of a new global economic and financial framework. At the same time, the CBR already had to face the reality and create a national system for interbank messaging which is not dependent on SWIFT, and opened it up for foreign banks as well. Cross-currency swap lines have been already set up with key participating nations. Most transactions between member states of the EAEU are already denominated in national currencies and the share of their currencies in internal trade is growing at a rapid pace.

A similar transition is taking place in trade with China, Iran, and Turkey. India indicated that it is ready to switch to payments in national currencies as well. A lot of effort is put in developing clearing mechanisms for national currency payments. In parallel, there is an ongoing effort to develop a digital non-banking payment system, which would be linked to gold and other exchange-traded commodities – the ‘stablecoins.’

Recent US and European sanctions imposed on the banking channels have caused a rapid increase in these efforts. The group of countries working on the new financial system only needs to announce the completion of the framework and readiness of the new trade currency and the process of formation of the new world financial order will accelerate further from there. The best way to bring it about would be to announce it at the SCO or BRICS regular meetings. We are working on that.  

The Cradle: This has been an absolutely key issue in discussions by independent analysts across the west. Was the Russian Central Bank advising Russian gold producers to sell their gold in the London market to get a higher price than the Russian government or Central Bank would pay? Was there no anticipation whatsoever that the coming alternative to the US dollar will have to be based largely on gold? How would you characterize what happened? How much practical damage has this inflicted on the Russian economy short-term and mid-term?

Glazyev: The monetary policy of the CBR, implemented in line with the IMF recommendations, has been devastating for the Russian economy. Combined disasters of the “freezing” of circa $400 billion of foreign exchange reserves and over a trillion dollars siphoned from the economy by oligarchs into western offshore destinations, came with the backdrop of equally disastrous policies of the CBR, which included excessively high real rates combined with a managed float of the exchange rate. We estimate this caused under-investment of circa 20 trillion rubles and under-production of circa 50 trillion rubles in goods.

Following Washington’s recommendations, the CBR stopped buying gold over the last two years, effectively forcing domestic gold miners to export full volumes of production, which added up to 500 tons of gold. These days the mistake and the harm it caused are very much obvious. Presently, the CBR resumed gold purchases, and, hopefully, will continue with sound policies in the interest of the national economy instead of ‘targeting inflation’ for the benefit of international speculators, as had been the case during the last decade.

The Cradle: The Fed as well as the ECB were not consulted on the freeze of Russian foreign reserves. Word in New York and Frankfurt is that they would have opposed it were they to have been asked. Did you personally expect the freeze? And did the Russian leadership expect it?

Glazyev: My book, The Last World War, that I already mentioned, which was published as far back as 2015, argued that the likelihood of this happening eventually is very high. In this hybrid war, economic warfare and informational/cognitive warfare are key theaters of conflict. On both of these fronts, the US and NATO countries have overwhelming superiority and I did not have any doubt that they would take full advantage of this in due course.

I have been arguing for a long time for the replacement of dollars, euro, pounds, and yen in our foreign exchange reserves with gold, which is produced in abundance in Russia. Unfortunately, western agents of influence which occupy key roles at central banks of most countries, as well as rating agencies and key publications, were successful in silencing my ideas. To give you an example, I have no doubt that high-ranking officials at the Fed and the ECB were involved in developing anti-Russian financial sanctions. These sanctions have been consistently escalating and are being implemented almost instantly, despite the well-known difficulties with bureaucratic decision making in the EU.  

The Cradle: Elvira Nabiullina has been reconfirmed as the head of the Russian Central Bank. What would you do differently, compared to her previous actions? What is the main guiding principle involved in your different approaches?

Glazyev: The difference between our approaches is very simple. Her policies are an orthodox implementation of IMF recommendations and dogmas of the Washington paradigm, while my recommendations are based on the scientific method and empirical evidence accumulated over the last hundred years in leading countries.

The Cradle: The Russia-China strategic partnership seems to be increasingly ironclad – as Presidents Putin and Xi themselves constantly reaffirm. But there are rumbles against it not only in the west but also in some Russian policy circles. In this extremely delicate historical juncture, how reliable is China as an all-season ally to Russia?

Glazyev: The foundation of Russian-Chinese strategic partnership is common sense, common interests, and the experience of cooperation over hundreds of years. The US ruling elite started a global hybrid war aimed at defending its hegemonic position in the world, targeting China as the key economic competitor and Russia as the key counter-balancing force. Initially, the US geopolitical efforts were aiming to create a conflict between Russia and China. Agents of western influence were amplifying xenophobic ideas in our media and blocking any attempts to transition to payments in national currencies. On the Chinese side, agents of western influence were pushing the government to fall in line with the demands of the US interests.

However, sovereign interests of Russia and China logically led to their growing strategic partnership and cooperation, in order to address common threats emanating from Washington. The US tariff war with China and financial sanctions war with Russia validated these concerns and demonstrated the clear and present danger our two countries are facing. Common interests of survival and resistance are uniting China and Russia, and our two countries are largely symbiotic economically. They complement and increase competitive advantages of each other. These common interests will persist over the long run.

The Chinese government and the Chinese people remember very well the role of the Soviet Union in the liberation of their country from the Japanese occupation and in the post-war industrialization of China. Our two countries have a strong historical foundation for strategic partnership and we are destined to cooperate closely in our common interests. I hope that the strategic partnership of Russia and the PRC, which is enhanced by the coupling of the One Belt One Road with the Eurasian Economic Union, will become the foundation of President Vladimir Putin’s project of the Greater Eurasian Partnership and the nucleus of the new world economic order.

April 15, 2022

The world’s new monetary system, underpinned by a digital currency, will be backed by a basket of new foreign currencies and natural resources. And it will liberate the Global South from both western debt and IMF-induced austerity.

By Pepe Escobar, posted with the author’s permission and cross-posted at The Cradle. 

Leading Russian economist Sergey Glazyev says a complete overhaul of the western-dominated global monetary and financial system is under works. And the world’s rising powers are buying into it. Photo Credit: The Cradle

Sergey Glazyev is a man living right in the eye of our current geopolitical and geo-economic hurricane. One of the most influential economists in the world, a member of the Russian Academy of Sciences, and a former adviser to the Kremlin from 2012 to 2019, for the past three years he has helmed Moscow’s uber strategic portfolio as Minister in Charge of Integration and Macroeconomics of the Eurasia Economic Union (EAEU).

Glazyev’s recent intellectual production has been nothing short of transformative, epitomized by his essay Sanctions and Sovereignty and an extensive discussion of the new, emerging geo-economic paradigm in an interview to a Russian business magazine.

In another of his recent essays, Glazyev comments on how “I grew up in Zaporozhye, near which heavy fighting is now taking place in order to destroy the Ukrainian Nazis, who never existed in my small Motherland. I studied at a Ukrainian school and I know Ukrainian literature and language well, which from a scientific point of view is a dialect of Russian. I did not notice anything Russophobic in Ukrainian culture. In the 17 years of my life in Zaporozhye, I have never met a single Banderist.”

Glazyev was gracious to take some time from his packed schedule to provide detailed answers to a first series of questions in what we expect to become a running conversation, especially focused to the Global South. This is his first interview with a foreign publication since the start of Operation Z. Many thanks to Alexey Subottin for the Russian-English translation.

The Cradle: You are at the forefront of a game-changing geo-economic development: the design of a new monetary/financial system via an association between the EAEU and China, bypassing the US dollar, with a draft soon to be concluded. Could you possibly advance some of the features of this system – which is certainly not a Bretton Woods III – but seems to be a clear alternative to the Washington consensus and very close to the necessities of the Global South?

Glazyev: In a bout of Russophobic hysteria, the ruling elite of the United States played its last “trump ace” in the hybrid war against Russia. Having “frozen” Russian foreign exchange reserves in custody accounts of western central banks, financial regulators of the US, EU, and the UK undermined the status of the dollar, euro, and pound as global reserve currencies. This step sharply accelerated the ongoing dismantling of the dollar-based economic world order.

Over a decade ago, my colleagues at the Astana Economic Forum and I proposed to transition to a new global economic system based on a new synthetic trading currency based on an index of currencies of participating countries. Later, we proposed to expand the underlying currency basket by adding around twenty exchange-traded commodities. A monetary unit based on such an expanded basket was mathematically modeled and demonstrated a high degree of resilience and stability.

At around the same time, we proposed to create a wide international coalition of resistance in the hybrid war for global dominance that the financial and power elite of the US unleashed on the countries that remained outside of its control. My book The Last World War: the USA to Move and Lose, published in 2016, scientifically explained the nature of this coming war and argued for its inevitability – a conclusion based on objective laws of long-term economic development. Based on the same objective laws, the book argued the inevitability of the defeat of the old dominant power.

Currently, the US is fighting to maintain its dominance, but just as Britain previously, which provoked two world wars but was unable to keep its empire and its central position in the world due to the obsolescence of its colonial economic system, it is destined to fail. The British colonial economic system based on slave labor was overtaken by structurally more efficient economic systems of the US and the USSR. Both the US and the USSR were more efficient at managing human capital in vertically integrated systems, which split the world into their zones of influence. A transition to a new world economic order started after the disintegration of the USSR. This transition is now reaching its conclusion with the imminent disintegration of the dollar-based global economic system, which provided the foundation of the United States global dominance.

The new convergent economic system that emerged in the PRC (People’s Republic of China) and India is the next inevitable stage of development, combining the benefits of both centralized strategic planning and market economy, and of both state control of the monetary and physical infrastructure and entrepreneurship. The new economic system united various strata of their societies around the goal of increasing common wellbeing in a way that is substantially stronger than the Anglo-Saxon and European alternatives. This is the main reason why Washington will not be able to win the global hybrid war that it started. This is also the main reason why the current dollar-centric global financial system will be superseded by a new one, based on a consensus of the countries who join the new world economic order.

In the first phase of the transition, these countries fall back on using their national currencies and clearing mechanisms, backed by bilateral currency swaps. At this point, price formation is still mostly driven by prices at various exchanges, denominated in dollars. This phase is almost over: after Russia’s reserves in dollars, euro, pound, and yen were “frozen,” it is unlikely that any sovereign country will continue accumulating reserves in these currencies. Their immediate replacement is national currencies and gold.

The second stage of the transition will involve new pricing mechanisms that do not reference the dollar. Price formation in national currencies involves substantial overheads, however, it will still be more attractive than pricing in ‘un-anchored’ and treacherous currencies like dollars, pounds, euro, and yen. The only remaining global currency candidate – the yuan – won’t be taking their place due to its inconvertibility and the restricted external access to the Chinese capital markets. The use of gold as the price reference is constrained by the inconvenience of its use for payments.

The third and the final stage on the new economic order transition will involve a creation of a new digital payment currency founded through an international agreement based on principles of transparency, fairness, goodwill, and efficiency. I expect that the model of such a monetary unit that we developed will play its role at this stage. A currency like this can be issued by a pool of currency reserves of BRICS countries, which all interested countries will be able to join. The weight of each currency in the basket could be proportional to the GDP of each country (based on purchasing power parity, for example), its share in international trade, as well as the population and territory size of participating countries.

In addition, the basket could contain an index of prices of main exchange-traded commodities: gold and other precious metals, key industrial metals, hydrocarbons, grains, sugar, as well as water and other natural resources. To provide backing and to make the currency more resilient, relevant international resource reserves can be created in due course. This new currency would be used exclusively for cross-border payments and issued to the participating countries based on a pre-defined formula. Participating countries would instead use their national currencies for credit creation, in order to finance national investments and industry, as well as for sovereign wealth reserves. Capital account cross-border flows would remain governed by national currency regulations.

The Cradle: Michael Hudson specifically asks that if this new system enables nations in the Global South to suspend dollarized debt and is based on the ability to pay (in foreign exchange), can these loans be tied to either raw materials or, for China, tangible equity ownership in the capital infrastructure financed by foreign non-dollar credit?

Glazyev: Transition to the new world economic order will likely be accompanied by systematic refusal to honor obligations in dollars, euro, pound, and yen. In this respect, it will be no different from the example set by the countries issuing these currencies who thought it appropriate to steal foreign exchange reserves of Iraq, Iran, Venezuela, Afghanistan, and Russia to the tune of trillions of dollars. Since the US, Britain, EU, and Japan refused to honor their obligations and confiscated the wealth of other nations which was held in their currencies, why should other countries be obliged to pay them back and to service their loans?

In any case, participation in the new economic system will not be constrained by the obligations in the old one. Countries of the Global South can be full participants of the new system regardless of their accumulated debts in dollars, euro, pound, and yen. Even if they were to default on their obligations in those currencies, this would have no bearing on their credit rating in the new financial system. Nationalization of extraction industry, likewise, would not cause a disruption. Further, should these countries reserve a portion of their natural resources for the backing of the new economic system, their respective weight in the currency basket of the new monetary unit would increase accordingly, providing that nation with larger currency reserves and credit capacity. In addition, bilateral swap lines with trading partner countries would provide them with adequate financing for co-investments and trade financing.

The Cradle: In one of your latest essays, The Economics of the Russian Victory, you call for “an accelerated formation of a new technological paradigm and the formation of institutions of a new world economic order.” Among the recommendations, you specifically propose the creation of “a payment and settlement system in the national currencies of the EAEU member states” and the development and implementation of “an independent system of international settlements in the EAEU, SCO and BRICS, which could eliminate critical dependence of the US-controlled SWIFT system.” Is it possible to foresee a concerted joint drive by the EAEU and China to “sell” the new system to SCO members, other BRICS members, ASEAN members and nations in West Asia, Africa and Latin America? And will that result in a bipolar geo-economy – the West versus The Rest?

Glazyev: Indeed, this is the direction where we are headed. Disappointingly, monetary authorities of Russia are still a part of the Washington paradigm and play by the rules of the dollar-based system, even after Russian foreign exchange reserves were captured by the west. On the other hand, the recent sanctions prompted extensive soul searching among the rest of the non-dollar-block countries. western ‘agents of influence’ still control central banks of most countries, forcing them to apply suicidal policies prescribed by the IMF. However, such policies at this point are so obviously contrary to the national interests of these non-western countries that their authorities are growing justifiably concerned about financial security.

You correctly highlight potentially central roles of China and Russia in the genesis of the new world economic order. Unfortunately, current leadership of the CBR (Central Bank of Russia) remains trapped inside the intellectual cul-de-sac of the Washington paradigm and is unable to become a founding partner in the creation of a new global economic and financial framework. At the same time, the CBR already had to face the reality and create a national system for interbank messaging which is not dependent on SWIFT, and opened it up for foreign banks as well. Cross-currency swap lines have been already set up with key participating nations. Most transactions between member states of the EAEU are already denominated in national currencies and the share of their currencies in internal trade is growing at a rapid pace.

A similar transition is taking place in trade with China, Iran, and Turkey. India indicated that it is ready to switch to payments in national currencies as well. A lot of effort is put in developing clearing mechanisms for national currency payments. In parallel, there is an ongoing effort to develop a digital non-banking payment system, which would be linked to gold and other exchange-traded commodities – the ‘stablecoins.’

Recent US and European sanctions imposed on the banking channels have caused a rapid increase in these efforts. The group of countries working on the new financial system only needs to announce the completion of the framework and readiness of the new trade currency and the process of formation of the new world financial order will accelerate further from there. The best way to bring it about would be to announce it at the SCO or BRICS regular meetings. We are working on that.  

The Cradle: This has been an absolutely key issue in discussions by independent analysts across the west. Was the Russian Central Bank advising Russian gold producers to sell their gold in the London market to get a higher price than the Russian government or Central Bank would pay? Was there no anticipation whatsoever that the coming alternative to the US dollar will have to be based largely on gold? How would you characterize what happened? How much practical damage has this inflicted on the Russian economy short-term and mid-term?

Glazyev: The monetary policy of the CBR, implemented in line with the IMF recommendations, has been devastating for the Russian economy. Combined disasters of the “freezing” of circa $400 billion of foreign exchange reserves and over a trillion dollars siphoned from the economy by oligarchs into western offshore destinations, came with the backdrop of equally disastrous policies of the CBR, which included excessively high real rates combined with a managed float of the exchange rate. We estimate this caused under-investment of circa 20 trillion rubles and under-production of circa 50 trillion rubles in goods.

Following Washington’s recommendations, the CBR stopped buying gold over the last two years, effectively forcing domestic gold miners to export full volumes of production, which added up to 500 tons of gold. These days the mistake and the harm it caused are very much obvious. Presently, the CBR resumed gold purchases, and, hopefully, will continue with sound policies in the interest of the national economy instead of ‘targeting inflation’ for the benefit of international speculators, as had been the case during the last decade.

The Cradle: The Fed as well as the ECB were not consulted on the freeze of Russian foreign reserves. Word in New York and Frankfurt is that they would have opposed it were they to have been asked. Did you personally expect the freeze? And did the Russian leadership expect it?

Glazyev: My book, The Last World War, that I already mentioned, which was published as far back as 2015, argued that the likelihood of this happening eventually is very high. In this hybrid war, economic warfare and informational/cognitive warfare are key theaters of conflict. On both of these fronts, the US and NATO countries have overwhelming superiority and I did not have any doubt that they would take full advantage of this in due course.

I have been arguing for a long time for the replacement of dollars, euro, pounds, and yen in our foreign exchange reserves with gold, which is produced in abundance in Russia. Unfortunately, western agents of influence which occupy key roles at central banks of most countries, as well as rating agencies and key publications, were successful in silencing my ideas. To give you an example, I have no doubt that high-ranking officials at the Fed and the ECB were involved in developing anti-Russian financial sanctions. These sanctions have been consistently escalating and are being implemented almost instantly, despite the well-known difficulties with bureaucratic decision making in the EU.  

The Cradle: Elvira Nabiullina has been reconfirmed as the head of the Russian Central Bank. What would you do differently, compared to her previous actions? What is the main guiding principle involved in your different approaches?

Glazyev: The difference between our approaches is very simple. Her policies are an orthodox implementation of IMF recommendations and dogmas of the Washington paradigm, while my recommendations are based on the scientific method and empirical evidence accumulated over the last hundred years in leading countries.

The Cradle: The Russia-China strategic partnership seems to be increasingly ironclad – as Presidents Putin and Xi themselves constantly reaffirm. But there are rumbles against it not only in the west but also in some Russian policy circles. In this extremely delicate historical juncture, how reliable is China as an all-season ally to Russia?

Glazyev: The foundation of Russian-Chinese strategic partnership is common sense, common interests, and the experience of cooperation over hundreds of years. The US ruling elite started a global hybrid war aimed at defending its hegemonic position in the world, targeting China as the key economic competitor and Russia as the key counter-balancing force. Initially, the US geopolitical efforts were aiming to create a conflict between Russia and China. Agents of western influence were amplifying xenophobic ideas in our media and blocking any attempts to transition to payments in national currencies. On the Chinese side, agents of western influence were pushing the government to fall in line with the demands of the US interests.

However, sovereign interests of Russia and China logically led to their growing strategic partnership and cooperation, in order to address common threats emanating from Washington. The US tariff war with China and financial sanctions war with Russia validated these concerns and demonstrated the clear and present danger our two countries are facing. Common interests of survival and resistance are uniting China and Russia, and our two countries are largely symbiotic economically. They complement and increase competitive advantages of each other. These common interests will persist over the long run.

The Chinese government and the Chinese people remember very well the role of the Soviet Union in the liberation of their country from the Japanese occupation and in the post-war industrialization of China. Our two countries have a strong historical foundation for strategic partnership and we are destined to cooperate closely in our common interests. I hope that the strategic partnership of Russia and the PRC, which is enhanced by the coupling of the One Belt One Road with the Eurasian Economic Union, will become the foundation of President Vladimir Putin’s project of the Greater Eurasian Partnership and the nucleus of the new world economic order.

The views expressed in this article do not necessarily reflect those of The Cradle.

Gonzalo Lira: “YouTube bans any open discussion about the Bucha false flag”

April 05, 2022

الحرب الأهلية الرأس المالية في العالم: قراءة اقتصادية سياسية للمواجهة في أوكرانيا

الثلاثاء 5 نيسان 2022

زياد حافظ

يعتبر بعض المراقبين الدوليين المخضرمين كسفير الهند السابق م. ك. بهادرا كومار والذي يؤكّدها مراقب آخر مرموق الستير كروك الضابط السابق في المخابرات البريطانية وصاحب موقع «كونفليكت فوروم» (منتدى الصراعات) أنّ المواجهة في أوكرانيا هي مواجهة بين روسيا والولايات المتحدة. هذه مقاربة صحيحة إلاّ أنها لا تفسّر لماذا؟ فالمواجهة التي نشهدها على الصعيدين الدولي والإقليمي هي بين محور صاعد ومحور متراجع على وشك الانفراط وهي فعلياً حرب أهلية بين رأس ماليتين: رأس مالية صناعية إنتاجية ورأس مالية ريعية مالية. المحور الصاعد هو محور الرأس المالية الصناعية الإنتاجية التي تقوده الكتلة الأوراسية ومعها دول الجنوب الإجمالي بينما المحور الثاني هو الرأس المالية الريعية الإنتاجية المالية التي تقوده الولايات المتحدة ومعها دول الغرب وخاصة دول التحالف الانكلوساكسوني. فالمحور الانكلوساكسوني انتهج سياسة اقتصادية منذ خمسة عقود فرضها على حلفائه في أوروبا أدّت إلى التخلّي عن الإنتاج الصناعي للدخول في عصر ما بعد التصنيع عبر التركيز على الخدمات بشكل عام والخدمات المالية بشكل خاص. والتحوّلات في البنية الاقتصادية والسياسية التي حصلت من جرّاء سياسات مالية ونقدية أدّت إلى تغلّب الريع على المصادر الأخرى لإنتاج الثروة.

ولتجنّب فقدان القوّامة والهيمنة في المشهد الاقتصادي الدولي اعتبرت النخب الحاكمة في الغرب من الطيف النيوليبرالي أن السيطرة على المال والنقد تكفي للسيطرة على الاقتصاد وبالتالي على الدول. هذه هي نظرية كيسنجر الذي اعتبر ان السياسة النقدية هي مفتاح السيطرة على العالم والتي روّج قوّامتها في ما بعد الاقتصادي ميلتون فريدمان وعلى الصعيد السياسي مارغاريت تاتشر ورونالد ريغان. لكن هذه النظرية كانت خاطئة منذ اللحظة الأولى لأنّ السيطرة على العالم تأتي من بوّابة السيطرة على الغذاء والطاقة والموارد الطبيعية وليس على المال كما أكدته التطوّرات خلال العقود الخمسة الماضية. هذا هو جوهر الصراع بين الرؤية النيوليبرالية الضيّقة الأفق والواقعية السياسية في الصراع الجيوسياسي للسيطرة على الجزيرة الأوراسية حيث تكمن موارد العالم في الغذاء والطاقة والمعادن. الانسان لم يعد قيمة اساسية في النظام النيوليبرالي الغربي الذي تمّت دحرجته إلى مستهلك ممنوع عنه التفكير وتقرير المصير.

السيطرة على الإعلام الشركاتي

 لذلك كانت الموجة للسيطرة على الاعلام عبر التمركز الشركاتي في العالم الغربي وسلب حرّياته الدستورية في التعبير.

والهيمنة الاقتصادية في النظام النيوليبرالي كانت عبر البوّابة المالية عندما تحوّل الدولار إلى عملة الاحتياط الأولي وحتى الوحيدة في العالم. لم يكن ليحصل ذلك لولا قرارين أساسيين اتخذتهما إدارة ريشار نيكسون في 1971 و1973. فالقرار الأول هو قطع صلة الرحم بين الدولار والذهب والقرار الثاني بعد حرب تشرين عندما اقنعت الإدارة الأميركية بلاد الحرمين ومن خلال الأخيرة جميع الدول النفطية في منظمة أوبك تسعير برميل النفط بالدولار. هذا القرار مع القرار السابق بقطع العلاقة مع الذهب مكّن الإدارات الأميركية المتتالية في طباعة الدولار دون أي مساءلة أو محاسبة ما سمح لها بتمويل العجر المتفاقم في الموازنة الأميركية. وهذا العجز ساهم في تمويل الحروب الخارجية الأميركية ومشاريع زعزعة الاستقرار العالمي أينما شاءت في المكان والزمان.

العجز في الموازنة الأميركية ساهم في تكوين الدين العام الذي تجاوز 30 تريليون دولار ناهيك عن الدين الخاص الذي يعود للشركات والأفراد الذي يقدّر ب 38 تريليون دولار. أما الناتج الداخلي فلا يتجاوز 23 تريليون دولار أي بمعنى آخر فإن الدين العام يشكل 130 بالمائة من الناتج الداخلي بينما الدين الخاص تجاوز 165 بالمائة من الناتج الداخلي. ومجموع الدين العام والدين الخاص يقدّر في 2022 إلى 68 تريليون دولار أي 296 بالمائة من الناتج الداخلي. هذا يعني أن الولايات المتحدة مفلسة وإن كانت لديها موارد تستطيع أن تنقذها. لكن السياسات التي اتبعتها خلال العقود الخمسة الماضية أدّت إلى حالة افلاس. لكن هذا الإفلاس تمّ تمويله عبر جعل الدولار العملة الاحتياطية الأساسية في العالم مما سمح للولايات المتحدة طباعة الدولار لتمويل رفاهية في الحكومة وفي القطاع الخاص على حساب مصالح الدول الأخرى. هذه السياسة لم تعد ممكنة وقد يكون لها عواقب مهمة.

فهذا الإفلاس الذي هو أكثر من افتراضي ويهدّد وجود الكيان الأميركي. لذلك أصبحت السيطرة على المقدّرات الاقتصادية في العالم ضرورة للبقاء للولايات المتحدة. وهذه السيطرة تستدعي حروبا مستدامة إما للقضاء على الخصوم المحتملين في الحدّ الأقصى أو لاستنزافهم في الحدّ الأدنى. فالإفلاس هو المحرّك لسياسات عدوانية لا نهاية لها إلا بنهاية النموذج الأميركي القائم حاليا في الاقتصاد وفي السياسة. لذلك نفهم الاستشراس في السياسات الأميركية عبر مقولة ما لنا هو لنا فقط وما هو لكم هو لنا أيضاً فأنتم وكلاء لنا فقط لا غير. والمقصود بـ «لنا» هو النخب الحاكمة وليس المواطن الأميركي! هذا ما صرّح به بشكل واضح الرئيس الأميركي السابق دونالد ترامب الذي عبّر عن يقين السياسات الأميركية تجاه الدول النفطية حيث اعتبر النفط العربي ملكا للولايات المتحدة.

السياسات النقدية والمالية التي اتبعتها الولايات المتحدة خلال العقود الأربعة الماضية أدّت إلى سيطرة الدولار على العالم وبالتالي ساهمت في تكوين ريع افتراضي للولايات المتحدة ساهم في الإمعان في تلك السياسات. فعندما أصبح الدولار عملة الاحتياط للدول فهذا أدّى إلى تمويل العجز في الموازنة الأميركية بدون كلفة. فالدول التي تملك احتياطاً بالدولار مضطرة إلى شراء سندات الخزينة التي هي الوسيلة لتمويل العجز. تمّ التعامل بذلك حتى أقدمت الولايات المتحدة على حجز أموال المصرف المركزي الإيراني ثم الليبي ثم الفنزويلي ثم الافغاني ثم الروسي. هذا يعني أنّ الدول التي تملك احتياطاً نقديا بالدولار مهدّدة في أي وقت بخسارة أموالها إذا كانت سياساتها متناقضة مع سياسات الولايات المتحدة. هيمنة الدولار كعملة احتياط انتهت عندما احتجزت أموال دولة عظمى. هل تستطيع الولايات المتحدة التعامل مع الواقع الجديد؟ في رأينا كلا ولكن هذا حديث آخر!

لكن هذا جزء بسيط من نتائج تلك السياسات. فالبنية الاقتصادية أصبحت عاجزة عن التنافس في الإنتاجية وبالتالي في النمو الفعلي. بمعنى آخر إنّ الناتج الداخلي الذي ارتفع من 1،7 تريليون دولار سنة 1975 إلى 23 تريليون دولار سنة 2020 أيّ 14 ضعفا لم يجار الارتفاع بقيمة البورصة لنفس الفترة حيث ارتفع الداو جونز بنسبة 54 أضعاف. فكيف يمكن أن ترتفع قيمة الشركات بتلك النسبة التي تفوق ارتفاع الناتج الداخلي كمّاً ونسبياً؟ وهنا لم نتكلّم عن الخسارات المحتملة في البورصات الأميركية خاصة في المشتقات الورقية التي تعود إلى اقتراض مفرط مبني على تقديرات للمستقبل دون أيّ سند. فالخسارات المحتملة قد تكون بالكوادريليونات من الدولار أي أرقام فلكية. وإذا اعتمدنا الإحصاءات التي تقدّر القيمة السوقية للشركات الأميركية المتداولة في الأسواق أي ما يوازي 68 تريليون دولار فهذا يعنى أن هناك ثروة معظمها افتراضية لا تتماهى مع الإنتاج الفعلي. فمن أين اتى ذلك الفارق؟

الفارق مصدره السياسات النقدية المعتمدة وخاصة خلال العقود الثلاثة الماضية حيث التسهيل الكمي النقدي التي اعتمدها الاحتياط المركزي أدّى إلى إمداد الشركات بأموال (وبالتالي إلى تفاقم دينها) ليس لزيادة الطاقة الإنتاجية بل لرفع قيمة أسهمها! فالمسؤولون في الشركات الأميركية يتقاضون أتعابهم عبر الأسهم التي يأخذونها وبالتالي أصبحت اولويتهم رفع قيمة تلك الأسهم وإن كان على حساب الشركة التي يديرونها! والأمور لم تتوقف عند هذا الحد. فالاقتراض المسهّل بفوائد منخفضة جدّا أدّى إلى تدمير البنية الإنتاجية عبر وأد التنافس. فالعقود الثلاثة الماضية شهدت تمركزاً شديداً لمعظم القطاعات الاقتصادية في المال والنقل الجوي وإنتاج السيارات وشركات التواصل والمؤسسات المالية وذلك على سبيل المثال وليس الحصر. فالاقتصاد الأميركي أصبح اقتصاداً تحكمه الحالة الاحتكارية وليست التنافسية ما أدّى إلى تراجع الحوافز للتجديد والابداع وبالتالي التقدّم التكنولوجي.

أرقام صينية مرعبة

الصورة مختلفة كلّياً إذا نظرنا إلى النموذج الصيني حيث حقّقت الصين معدلات نمو قياسية خلال العقود الأربعة الماضية وصلت إلى ثلاث أضعاف معدّلات النمو في الولايات المتحدة. السياسات المالية والنقدية أدّت إلى ارتفاع الاستثمارات في البنى التحتية والتعليم وفي الطاقات الإنتاجية وليس لدعم أسهم الشركات! الاستثمار كان في البشر كما كان في الحجر! لذلك استطاعت رفع أكثر من 250 مليون صيني من مستوى الفقر إلى مستوى الطبقة الوسطى بينما نشهد انقراض الطبقة الوسطى في الولايات المتحدة والغرب الذي يتبع النموذج الأميركي عموما (بما فيه لبنان!). والصين استفادت من التكنولوجيا الغربية لتمكين وتطوير قاعدتها الإنتاجية حيث أصبحت أكبر دولة صناعية في العالم. والنموذج الصيني استند إلى دعم الدولة للقطاعات الإنتاجية سواء كانت مملوكة من القطاع العام أو من القطاع الخاص كما حافظت على التنافس وكبحت من الاحتكار. فالاحتكار هو مصدر ريعي بامتياز للثروة بينما الإنتاج مصدر عيني لها.

النموذج الصيني مزج بين قيادة سياسية مركزية متسلّطة حصرت في الدولة مركزية التخطيط بينما النموذج الغربي اعتمد على قوّامة المؤسسة المالية في فرض الخيارات الاقتصادية على السوق. فالمؤسسات المالية المهيمنة، وهي خمس مؤسسات فقط تملكها أربع شركات استثمار وتوظيف فقط، هي التي تحدّد الخيارات مع الاحتياط الاتحادي الذي هو أيضاً مملوك من مصارف خاصة. أي بمعنى آخر الدولة خارج إطار التوجيه للاقتصاد العام وتتكل على «حكمة» السوق الذي تسيطر عليه الشركات المالية. فلا عجب التراجع في الإنتاجية والقدرات التنافسية، ولا عجب في الانكشاف تجاه الخارج بشكل عام والصين بشكل خاص لتلبية حاجاتها. النخب الحاكمة أدركت تلك المفارقة ولكن بعد أن فات الأوان. وهي تجهد منذ عقد من الزمن كبح النمو الصيني عبر وسائل عدة ولكنها لم تنجح بينما كان من المفترض مراجعة سياساتها ونموذجها الاقتصادي والعودة إلى عهد التصنيع بدلاً من الخدمات الريعية.

محاصرة الصين للانقضاض عليها تتطلب التخلّص من تحالفها مع روسيا. لذلك المواجهة مع روسيا التي بدأت فعلا بعد مؤتمر ميونيخ للأمن سنة 2007 حيث حذّر الرئيس الروسي بوتين من القطبية الواحدة وضرورة إعادة صوغ الامن الدولي على قاعدة احترام مصالح الدول بينما الولايات المتحدة المتفرّدة بالقرار الدولي لا تقبل بأيّ مشاركة. حاولت الولايات المتحدة كبح الصعود الروسي بقيادة بوتين الذي قضى على النخب المتحكمة بروسيا التي أوجدتها الولايات المتحدة بعد انهيار الاتحاد السوفيتي. فكان عصر صعود الاوليغارشيات الروسية ومعها الغربية لنهب ثروات روسيا. مع وصول بوتين إلى السلطة توقّفت هذه العملية إلى حد كبير وهذا ما أزعج الولايات المتحدة التي حاولت محاصرة روسيا. فكانت موجة الثورات الملوّنة في أوكرانيا وجورجيا وحتى مؤخرا في كازخستان. والمواجهة المباشرة مع روسيا بدأت في عهد الرئيس الأميركي أوباما وفي أوكرانيا بالذات سنة 2014 مع الانقلاب الأميركي ضد النظام القائم في أوكرانيا والمنتخب ديمقراطيا. أدركت روسيا أنّ المواجهة مع الأطلسي لا مفرّ منها وبدأت التخطيط لها. لحظة المواجهة حددتها روسيا بعد أن أيقنت أن الأطلسي يهدف إلى قلب النظام في روسيا وعبر استنزافها في «مستنقع» أوكرانيا. غير أن الرياح الروسية لم تكن كما اشتهت السفن الأطلسية بشكل عام والأميركية بشكل خاص فكانت المواجهة التي نشهدها الآن والتي تنذر بزوال أوكرانيا وهزيمة الأطلسي والولايات المتحدة.

المهم في هذه المقاربة هو التركيز على التنافس بين رأس ماليتين. فالرأس المالية الريعية الأميركية الغربية لم تعد قادرة على التحكّم بالاقتصاد العيني بل فقط بالاقتصاد الافتراضي المالي وذلك عبر سيطرتها على شرايين المال. المواجهة مع روسيا عجّلت في العمل على إقامة نظام مالي خارج سيطرة الولايات المتحدة. والقرار الروسي بعدم التعامل في مبيعات الغاز الروسي للاتحاد الأوروبي يشكّل ضربة قاسمة لهيمنة الدولار وأو اليورو ويكرّس جدوى التعامل بالعملات الوطنية كالروبل واليووان الصيني والروبية الهندية وسائر العملات الوطنية للدول الرافضة للهيمنة الأميركية، وذلك وفقاً للاقتصاديين الأميركيين المرموقين ريتشارد ولف ومايكل هدسون. وفقدان النظام الرأس المالي الريعي المالي القدرة على السيطرة على شرايين المال يضرب في الصميم النموذج الذي اعتمدته الولايات المتحدة منذ أن قرّرت توطين قاعدتها الإنتاجية خارج الولايات المتحدة. وجاءت جائحة كورونا لتكشف هشاشة ما تبقّى من القاعدة الإنتاجية الأميركية حيث معظم قطع الغيار للمصانع الأميركية تأتي من الخارج وخاصة من الصين. فالولايات المتحدة أصبحت بحاجة إلى العالم أكثر مما العالم بحاجة إلى الولايات المتحدة.

هذا هو الدافع المركزي لدى النخب الحاكمة في الولايات المتحدة لمواجهة روسيا. فهي معركة بقاء لنموذج اقتصادي سياسي يعتمد تمركز الثروة في يد القلّة ويؤثّر على المجتمع الأميركي الذي تحوّل إلى سوق استهلاكي فقط لا غير دون أن يكون له أي رأي. وكذلك الأمر في الاعلام الغربي عموما حيث الرأي الواحد هو السائد. فتمركز الاعلام الأميركي بيد ست شركات فقط يساهم في السيطرة على السردية السياسية المطلوبة ويضبط تدفق المعلومات. كذلك الأمر بالنسبة لشركات التواصل الاجتماعي التي لا يتجاوز عددها أصابع اليد الواحدة. وقد اتبعت هذه الشركات سياسة «إلغاء» الرأي الآخر ضاربة عرض الحائط الحق الدستوري في حرّية التعبير. كما يقوم الاعلام الشركاتي المهيمن وشركات وسائل التواصل الاجتماعي بتحويل انتباه المواطن الأميركي عن القضايا الأساسية عبر التركيز على قضايا أخلاقية وثقافية لا تمسّ بمصالح الراس المالية الريعية المالية. فخلال جائحة كورونا تمّ تغييب الحديث عن البطالة التي حصلت من جرّاء الجائحة وإقفال المشاريع. كما أنه تمّ استبدال الخطاب الثقافي بالخطاب المسائل لتوجهات الحكومة على الصعيد الاقتصادي والسياسي. كما تمّ أيضا تحميل مسؤولية تردّي الأوضاع الاقتصادية للرئيس الروسي بوتين كما جاء على لسان الرئيس الأميركي بايدن عندما صرّح بأن ارتفاع الأسعار في الولايات المتحدة هو من صنع بوتين!

ما يسيطر في الاعلام الأميركي ووسائل التواصل الاجتماعي هو انقلاب على المفاهيم والقيم المجتمعية عبر ترويج ثقافة الوعي التي تريد إعادة هندسة القيم المجتمعية كالجنوسية التي تريد الغاء التمايز بين الذكور والإناث حتى عند الأطفال أي التسيّب في تحديد الجنس أو ، وثقافة مكافحة العنصرية التي امتدت إلى كل شيء لا يتماهى مع مصالح النخب الحاكمة. فكل ذلك يتيح الفرصة للتكتلات الاقتصادية الاحتكارية الحفاظ على مصالحها دون أي مساءلة أو محاسبة. فالوضع الاقتصادي اليوم في الولايات المتحدة على وشك الانفجار السياسي والاجتماعي وما زالت النخب الحاكمة تعتقد انه باستطاعتها السيطرة على الأمور عبر السيطرة في الاعلام ووسائل التواصل الاجتماعي. الاستثمارات التي تحصل في الولايات المتحدة لا تعود إلى تنمية وتطوير الطاقة الإنتاجية لأن هدف النمو لم يعد لتحسين الأوضاع الاقتصادية للمجتمع بل لزيادة أرباح المستثمرين وإن كانت تلك الأرباح وهمية وافتراضية.

هذا التمركز الإعلامي الضاغط على حرية التعبير موجود أيضا في كل من الصين وروسيا. لكن الفارق هو أن الحكومتين استطاعتا أن تقدما للمواطن ما يريده. لذلك نرى تماسكا اجتماعيا في كل من روسيا والصين يمكن الحكومات من الاستمرار في بناء مجتمع أفضل على قاعدة التزاوج بين اقتصاد السوق وحكومة مركزية قوية تضبط إيقاع السوق عبر التخطيط المركزي. فالتخطيط المركزي ضرورة لضبط إيقاع اقتصاد معقد ومركّب مع تزايد السكان. الحل في الغرب هو عبر السيطرة على الشعوب عبر نزع حرّياتها في الحد الأدنى وتخفيض أعدادها في الحد الأقصى كما دعا كل من كيسنجر وبيل غيتس وكلوس شواب رئيس منتدى دافوس.

الجدل حول جدوى اللقاحات…

هذا ما غذّى الجدل حول جدوى اللقاحات في جائحة كورونا. في القرن التاسع عشر كان البريطانيون يروّجون لتجارة الافيون للسيطرة على القارة الآسيوية. في القرن الحادي والعشرين الافيون الجديد هو ما ابتكرته وسائل التواصل الاجتماعي لتخدير الناس وخاصة الشباب عن متابعة القضايا الجوهرية عبر التركيز على الملذّات. الهدف هو إفقار الناس ولكن برضاهم وجعلهم سعداء في ذلك الفقر!

الصراع بين الرأس الماليتين هو صراع بين سيطرة الأسواق المالية على المقدرات الاقتصادية (الرأس المالية الريعية المالية) وبين التمازج بين التخطيط المركزي وقوّامة الدولة من جهة مع مقتضيات اقتصاد السوق (الرأس المالية الإنتاجية). النموذج الأول لا يكترث بمصلحة الشعوب بل يكترث لمصلحة المساهمين فقط لا غير بينما النموذج الثاني يعتبر سعادة الانسان الهدف الرئيسي. لذلك وجدنا أن النموذج الريعي المالي لا يستثمر في البنية التحتية التي يستفيد منها الجميع بينما النموذج الثاني استثمر بكثافة في البنية التحتية وخاصة في التربية والتعليم.

هذا لا يعني أن الرأس المالية الإنتاجية هي معصومة من الخطأ الأخلاقي إلاّ أنها تحاول تخفيف من سطوة رأس المال على العمل. هذا هو دور الحزب الشيوعي الحاكم في الصين وهذا هو دور الدولة القوية في روسيا. إعادة توزيع الثروة بشكل عادل يساهم في الحفاظ على النموذج الاقتصادي. هذا ما قامت به الرأس المالية الغربية عندما كانت إنتاجية وليست ريعية. فمنذ ثلاثينات القرن الماضي أدركت ضرورة توزيع الثروة وإن بالحد الأدنى عبر مشاريع اقتصادية اجتماعية لمنع انتشار الشيوعية. لكن بعد سقوط الاتحاد السوفيتي لم تجد النخب الحاكمة في الغرب أي مبرر لتوزيع الثروة بل أقدمت على إجراءات أدّت إلى تمركز الثروة بيد القلة. وهدف النخب الحاكمة النيوليبرالية في الراس المالية الريعية الإطاحة بما تبقّى من الدولة الريعية كالضمان الاجتماعي. ففي معتقد هذه النخب وذلك النموذج تحوّلت إلى الحقوق الاجتماعية إلى امتيازات يجب دفع ثمنها. المواطن لا حق له بالعمل او التعليم أو الاستشفاء أو الإسكان فهذه امتيازات عليه أن يدفع ثمنها. هذا هو الحال في لبنان! أما في النموذج الرأس المالي الإنتاجي وخاصة مع وجود الحزب الشيوعي في الحكم فإن العمل والتعليم والاستشفاء والإسكان حقوق وليست امتيازات. كذلك الأمر في روسيا وفي كلّ الدول التي تعتبر رفاهية المواطن واجب.

*باحث وكاتب اقتصادي سياسي والأمين العام السابق للمؤتمر القومي العربية وعضو المنتدى الاقتصادي والاجتماعي في لبنان

Meet the New, Resource-Based Global Reserve Currency

April 01, 2022

A new reality is being formed:

the unipolar world is irrevocably becoming a thing of the past,

a multipolar one is taking shape.

By Pepe Escobar, posted with the author’s permission and widely cross-posted

It was something to behold. Dmitri Medvedev, former Russian President, unrepentant Atlanticist, current deputy chairman of the Russian Security Council, decided to go totally unplugged in an outburst matching the combat star turn of Mr. Khinzal that delivered palpable shock and awe all across NATOstan.

Medvedev said “hellish” Western sanctions not only have failed to cripple Russia, but are instead “returning to the West like a boomerang.” Confidence in reserve currencies is “fading like the morning mist”, and ditching the US dollar and the euro is not unrealistic anymore: “The era of regional currencies is coming.”

After all, he added, “no matter if they want it or not, they’ll have to negotiate a new financial order (…) And the decisive voice will then be with those countries that have a strong and advanced economy, healthy public finances and a reliable monetary system.”

Medvedev relayed his succinct analysis even before D Day – as in the deadline this Thursday established by President Putin after which payments for Russian gas by “unfriendly nations” will only be accepted in rubles.

The G7, predictably, had struck a (collective) pose: we won’t pay. “We” means the 4 that are not large Russian gas importers. “We”, moreover, means the Empire of Lies dictating the rules. As for the 3 that will be in dire straits, not only they are major importers but also happen to be WWII losers – Germany, Italy and Japan, still de facto occupied territories. History does have a habit of playing perverted tricks.

Denial didn’t last long. Germany was the first to break – even before industrialists from Ruhr to Bavaria staged a mass revolt. Scholz, the puny Chancellor, called Putin, who had to explain the obvious:  payments are being converted into rubles because the EU froze Russia’s foreign exchange reserves – in a crass violation of international law.

With Taoist patience, Putin also expressed hope this would not represent a deterioration in contract terms for European importers. Russian and German experts should sit down together and discuss the new terms.

Moscow is working on a set of documents defining the new deal. Essentially, that spells out no rubles, no gas. Contracts become null and void once you violate trust. The US and the EU broke legally biding agreements with unilateral sanctions and on top of it confiscated foreign reserves of a – nuclear – G20 nation.

The unilateral sanctions made dollars and euros worthless to Russia. Hysteria fits won’t cut it: this will be resolved – but under Russia’s terms. Period. The Foreign Ministry had already warned that refusal to pay for gas in rubles would lead to a serious global crisis of non-payments and serial global-level bankruptcies, a hellish chain reaction of blocked transactions, freezing of collateral assets and closures of credit lines.

What will happen next is partially predictable. EU companies will receive the new set of rules. They will have time to examine the documents and make a decision. Those that say “no” will be automatically excluded from receiving direct Russian gas shipments – all politico-economic consequences included.

There will be some compromise, of course. For instance, quite a few EU nations will accept to use rubles and increase their gas acquisitions so they may resell the surplus to their neighbors and make a profit. And some may also decide to buy gas on the go on energy exchanges.

So Russia is not imposing an ultimatum on anybody. The whole thing will take time – a rolling process. With some sideway action as well. The Duma is contemplating the extension of payment in rubles to other essential products – such as oil, metals, timber, wheat. It will depend on the collective voracity of the EU chihuahuas. Everyone knows that their non-stop hysteria may translate into a colossal rupture of supply chains across the West.

Bye bye oligarchs

While the Atlanticist ruling classes have gone totally berserk but still remain focused on fighting to the last European to extract any remaining, palpable EU wealth, Russia is playing it cool. Moscow has been quite lenient in fact, brandishing the specter of no gas in Spring rather than Winter.

The Russian Central Bank nationalized foreign exchange earnings of all major exporters. There was no default. The ruble keeps rising – and is now back to roughly the same level before Operation Z.  Russia remains self-sufficient, food-wise. American hysteria over “isolated” Russia is laughable. Every actor that matters across Eurasia – not to mention the other 4 BRICS and virtually the whole Global South – did not demonize and/or sanction Russia.

As an extra bonus, arguably the last oligarch capable of influence in Moscow, Anatoly Chubais, is gone. Call it another momentous historical trickery: Western sanction hysteria de facto dismembered Russian oligarchy – Putin’s pet project since 2000. What that implies is the strengthening of the Russian state and the consolidation of Russian society.

We still don’t have all the facts, but a case can be made that after years of careful evaluation Putin opted to really go for broke and break the West’s back – using that trifecta (imminent blitzkrieg on Donbass; US bioweapon labs; Ukraine working on nuclear weapons)  as the casus belli.

The freezing of foreign reserves had to have been forecasted, especially because the Russian Central Bank had been increasing its reserves of US Treasuries since November last year. Then there’s the serious possibility of Moscow being able to access “secret” offshore foreign reserves – a complex matrix built with Chinese insider help.

The sudden switch from dollars/euros to rubles was hardcore, Olympic-level geoeconomic judo. Putin enticed the collective West to unleash its demented hysteria sanction attack – and turned it against the opponent with a single, swift move.

And here we all are now trying to absorb so many in-synch game-changing developments following the weaponization of dollar assets:  rupee-ruble with India, the Saudi petroyuan, co-badged Mir-UnionPay cards issued by Russian banks, the Russia-Iran SWIFT alternative, the EAEU-China project of an independent monetary/financial system.

Not to mention the master coup by the Russian Central Bank, pegging 1 gram of gold to 5,000 rubles – which is already around $60, and climbing.

Coupled with No Rubles No Gas, what we have here is energy de facto pegged to gold. The EU Chihuahuas and the Japanese colony will need to buy a lot of rubles in gold or buy a lot of gold to have their gas. And it gets better. Russia may re-peg the ruble to gold in the near future. Could go to 2,000 rubles, 1,000 rubles, even 500 rubles for a gram of gold.

Time to be sovereign

The Holy Grail in the evolving discussions about a multipolar world, since the BRICS summits in the 2000s featuring Putin, Hu Jintao and Lula, has always been how to bypass dollar hegemony. It’s now right in front of the whole Global South, as a benign apparition bearing a Cheshire cat’s smile: the golden ruble, or ruble backed by oil, gas, minerals, commodity exports.

The Russian Central Bank, unlike the Fed, does not practice QE and won’t export toxic inflation to the rest of the planet. The Russian Navy not only secures all Russian sea lines, but Russian nuclear-powered submarines are capable of popping up all over the planet unannounced.

Russia is far, far ahead already implementing the concept of “continental naval power”. December 2015, in the Syrian theater, was the strategic game-changer. The Black Sea-based submarine 4th division is the star of the show.

Russian naval fleets may now employ Kalibr missiles across a space comprehending Eastern Europe, West Asia and Central Asia. The Caspian Sea and the Black Sea, linked by the Don-Volga canal, offer a space of maneuver comparable to the Eastern Mediterranean and the Persian Gulf combined. 6,000 km-long. And you don’t even need to access warm waters.

That covers around 30 nations: the traditional Russian sphere of influence; historical borders of the Russian empire; and current political/energy rivalry spheres.

No wonder the Beltway is berserk.

Russia guarantees shipping across Asia, the Arctic and Europe, in tandem with the Eurasia-wide BRI railway network.

And last but not least, don’t mess with a Nuclear Bear.

Essentially, this is what hardcore power politics is all about. Medvedev was not bragging when he said the era of a single reserve currency is over. The advent of a resource-based global reserve currency means, in a nutshell, that 13% of the planet will not dominate the other 87% anymore.

It’s NATOstan vs. Eurasia redux. Cold War 2.0, 3.0, 4.0 and even 5.0. It doesn’t matter. All the previous Non-Aligned Movement (NAM) nations see which way the geopolitical and geo-economic winds are blowing: the time to assert their real sovereignty is at hand as the “rules-based international order” bites the dust.

Welcome to the birth of the new world system. Foreign Minister Sergei Lavrov, in China, after meeting several counterparts from across Eurasia, could not have outlined it better:

“A new reality is being formed: the unipolar world is irrevocably becoming a thing of the past, a multipolar one is taking shape. It’s an objective process. It’s unstoppable. In this reality, more than one power will “rule” – it will be necessary to negotiate between all the key states that today have a decisive influence on the world economy and politics. At the same time, realizing their special situation, these countries ensure compliance with the basic principles of the UN Charter, including the fundamental one – the sovereign equality of states. No one on this Earth should be seen as a minor player. Everyone is equal and sovereign.”

Michael Hudson: Interview with Margaret Flowers, WBAI, March 29, 2022

March 30, 2022

Michael Hudson interviewed by Margaret flowers, Clearing the Fog, March 29, 2022. https://popularresistance.org/michael-hudson-us-dollar-hegemony-ended-abruptly-last-wednesday/

Posted with Dr Hudson’s permission

Margaret Flowers: You’re listening to Clearing the FOG, speaking truth to expose the forces of greed, with Margaret Flowers. And now I turn to my guest, Michael Hudson. Michael is the president of the Institute for the Study of Long-term, Economic Trends, ISLET. He’s a Wall Street financial analyst and a distinguished research professor of Economics at the University of Missouri, in Kansas City. He’s also the author of numerous books and recently updated his book, “Super Imperialism: The economic strategy of American Empire.” Thank you for taking time to speak with me today, Michael.

Michael Hudson: Well, thanks for having me on Margaret.

MF: You’ve talked a lot and written a lot about dollar hegemony and what’s happening now with de-dollarization. Can you start out by explaining to my listeners what dollar hegemony is and how it has benefited the wealthy class in the United States?

MH: Dollar hegemony seems to be the position that has just ended as of this week very abruptly. Dollar hegemony was when America’s war in Vietnam and the military spending of the 1960s and 70s drove the United States off gold. The entire US balance of payments deficit was military spending, and it began to run down the gold supply. So, in 1971, President Nixon took the dollar off gold. Well, everybody thought America has been controlling the world economy since World War I by having most of the gold and by being the creditor to the world. And they thought what is going to happen now that the United States is running a deficit, instead of being a creditor.

Well, what happened was that, as I’ve described in Super Imperialism, when the United States went off gold, foreign central banks didn’t have anything to buy with their dollars that were flowing into their countries – again, mainly from the US military deficit but also from the investment takeovers. And they found that these dollars came in, the only thing they could do would be to recycle them to the United States. And what do central banks hold? They don’t buy property, usually, back then they didn’t. They buy Treasury bonds. And so, the United States would be spending dollars abroad and foreign central banks didn’t really have anything to do but send it right back to buy treasury bonds to finance not only the balance of payments deficit, but also the budget deficit that was largely military in character. So, dollar hegemony was the system where foreign central banks keep their monetary and international savings reserves in dollars and the dollars are used to finance the military bases around the world, almost eight hundred military bases surrounding them. So, basically central banks have to keep their savings by weaponizing them, by militarizing them, by lending them to the United States, to keep spending abroad.

This gave America a free ride. Imagine if you went to the grocery store and you just paid by giving them an IOU. And then the next week you want to buy more groceries and you give them another IOU. And they say, wait a minute, you have an IOU before and you say, well just use the IOU to pay the milk company that delivers, or the farmers that deliver. You can use this as your money and just you’ll as a customer, keep writing IOU’s and you never have to pay anything because your IOU is other people’s money. Well, that’s what dollar hegemony was, and it was a free ride. And it all ended last Wednesday when the United States grabbed Russia’s reserves having grabbed Afghanistan’s foreign reserves and Venezuela’s foreign reserves and those of other countries.

And all of a sudden, this means that other countries can no longer safely hold their reserves by sending their money back, depositing them in US banks or buying US Treasury Securities, or having other US investments because they could simply be grabbed as happened to Russia. So, all of a sudden this last week, you’re seeing the world economy fracture into two parts, a dollarized part and other countries that do not follow the neoliberal policies that the United States insists that its allies follow. We’re seeing the birth of a new dual World economy.

MF: Wow, there’s a lot to unpack there. So, are we seeing then other countries starting to disinvest in US dollars? You’ve written about how the treasury bonds that these central banks buy up have been basically funding our domestic economy. Are they starting to shed those bonds or what’s happening?

MH: No, they haven’t been funding our domestic economy because the Federal Reserve can create its own money to fund the domestic economy. We don’t need to borrow from foreign countries to fund our economy. We can print it ourselves. What the dollar hegemony does is fund the balance of payments deficit. It funds our spending in other economies, our spending abroad. It doesn’t help our economy, but it does help us get a free ride from other countries. The more dollars we spend in making a military base, all these military expenditures get turned over to the local Central Bank that turns and sends them back to the Federal Reserve or deposits them in US bank accounts. So, it’s the international free ride we get, not a domestic free ride.

MF: Okay. So are we seeing countries now, since this past week, starting to move their assets back to repatriate them because I know for Afghanistan, a big problem is that most of the government’s money was outside of the country and that has been used as a weapon against Afghanistan by seizing those assets and not allowing the Central Bank of Afghanistan to have them. Are we starting to see other countries repatriating their money and gold?

MH: Well, figures are only available at the end of each month, reported at the end of each month and then there’s a two-month delay, so we don’t have any idea what’s happening. But I’ve been talking to people all over the world in the last few days and the consensus is that everybody is now deciding the only place, certainly if you’re China or Russia or Kazakhstan or you’re in the Eurasian orbit, South Asia, East Asia, you realize, wait a minute, if all we have to do is something like Allende did in Chile or all we have to do is refuse to sell off our industry to American investors and they can treat us like they’ve treated Venezuela. So you can imagine that everybody’s watching this and there’s an expectation that as a result of the war in Ukraine, that’s really America’s NATO war, that this is going to create a balance-of-payments crisis throughout the whole Global South as their energy prices go up, oil prices soar, food prices are going to soar and this is going to make it impossible for them to pay their foreign debts unless they go without food and energy. Obviously, this is a political crisis. That is, the only result can be to split the world in two.

MF: You’ve been writing about this happening. You’ve written that the de-dollarization has been happening relatively quickly in recent years. So, are we now we’re now just seeing the end result of that? I mean, people said it could happen quickly. Is that exactly what we’re seeing right now?

MH: Yes, and nobody expected that it would happen this quickly. Nobody expected that it would be the United States itself that ends de-dollarization. People thought that, well, most of the sales of my book describing this super imperialism were bought by the Defense Department and they looked at it as a how -to-do-it book. And I was brought down to the White House and the Defense Department to explain to them how imperialism works.

I had expected that maybe China, Russia, and other countries would say, “We don’t want to give America free rides.” And yet it was the United States itself that broke all of this, by grabbing Russia’s reserves right after it grabbed Afghanistan’s and Venezuela’s reserves.

Nothing like this has happened in modern history, even in the 19th century wars. In the Crimean War in the mid-19th century, Russia, England and Germany, everybody kept paying the debts to the countries they were fighting against because the idea is that debts were sacrosanct. And now, all of a sudden, not only are debts are not sacrosanct, but countries can just grab foreign savings. I guess the problem began after the Shah of Iran fell and the United States grabbed Iran’s money and refused to let it pay its bond holders and started the whole war against Iran for trying to take control of its own oil resources. So, all of a sudden, the United States grabbing this has ended what everybody thought was an immutable morality.

MF: So that was in 1979 that the Shah fell in Iran and, and over the last number of decades, the United States has been increasingly using economic warfare against countries through what people call sanctions, but they’re actually, illegal unilateral coercive measures, has that been kind of driving and setting the stage for what is happening today?

MH: Yes, the International Monetary Fund has operated, basically, as an arm of the Defense Department. It’s been bailing out dictatorships, bailing out Ukraine, lending money to countries whose client oligarchies America wants to support, and not lending any money to countries that America doesn’t want to support, like Venezuela. So, its job is basically to promote neoliberal policies, and to insist that other countries balance their payments by undergoing a class war against labor.

The conditionality that the IMF insists upon for foreign borrowing is that countries devalue their currency and lower their wage rates and pass anti-labor legislation. Well, when you lower the currency’s exchange rate, what do you really lower? Food prices are set in dollars internationally, raw materials prices are, and prices for machinery and many goods. The only economic variable devalued is domestic labor (and domestic rents). The IMF has been using this kind of junk-economic free-trade policy as a means of keeping the wage rates in the Global South down. You could say it’s a financialization of an ultimately military conflict to promote neoliberal ideology.

MF: And you mentioned the lowering wages and things like that. And this is actually done because it’s favorable to US investors and US business, right? I mean, the World Bank actually has an index, the cost of doing business index, that helps inform large corporations about laws that countries pass that make them more favorable to businesses to come in.

MH: It’s even worse than that. The central aim of the World Bank is to prevent other countries from growing their own food. That is the prime directive. It will only make loans for countries to earn foreign currency and it has insisted ever since about 1950 that countries that borrow from it must shift their agriculture to plantation export crops to grow tropical crops that cannot be grown in the United States for environmental and weather reasons. And the countries must not grow their own food and must not undertake Land Reform or small family-based farming. So, it insisted on foreign-owned agribusiness in large plantation agriculture. And what that means is that countries that have borrowed for agricultural loans have not been loans to produce their own food. It’s been to compete with each other producing tropical export crops while being increasingly dependent on the United States for their food supplies, and for their grain. And that’s part of the corner they painted them into that is going to be creating such a world famine this summer.

MF: I definitely want to get into that as well as the energy situation and the climate crisis, but before we do that, I just want you to comment quickly on how this has also been driving countries to seek alternatives. The United States removed Russia from the SWIFT system, which is the international mechanism for doing trading and finance. It threatened China if they didn’t denounce what was happening with Russia and Ukraine to kick them out of the SWIFT system. So, this hubris of the United States is also kind of driving countries away to seek other alternatives, right?

MH: That’s the whole point. Well, fortunately they’ve been threatening to kick Russia out of SWIFT for the last two years. And so, Russia and China have been putting in place an alternative system. So, they almost pretty smoothly are shifting over to using their own currency with each other instead of using the dollar. And that’s part of what has ended the dollar standard and ended dollar hegemony.

If the way you have dollar hegemony is to have other countries deposit your money in your banks and handle their oil trade with each other by financing it in dollars, but all of a sudden you grab all their dollars and you don’t let them use US banks to pay for their oil and their trade with each other, then they’re going to shift to a different system. And that’s exactly what has ended the dollar hegemony, as you just pointed out.

MF: So, let’s get a little bit into where things are headed with this new situation, a rapidly changing situation. It may be hard to say what’s happening, but you talked about a food crisis this summer. Can you talk a little bit about more about that and does the conflict in Ukraine feed into that?

MH: Well, as President Putin and Lavrov have said, the fighting in Ukraine isn’t really over Ukraine at all. It’s a fight over what shape the world will take and whether the world will be unipolar or, as it now appears, multipolar. The US, for the last year before it began to escalate attacks on the Russian-speaking Ukraine, was trying to block Europe from, and especially Germany, from buying Russia gas and oil.

There are three pillars of American foreign policy that base American power. The first pillar is the oil industry. That’s the most powerful industry next to banking in the United States. And United States throughout the 20th century, along with Britain and France, have controlled the world oil trade.

That has benefited the United States in two ways. Number one, we are a major oil exporter because we have a big oil and gas industry. But, number two, our US companies control the foreign oil trade. So that if some country, say Chile or Venezuela, does something that the United States doesn’t like, like growing their own food or pursuing a socialist policy, the United States can simply cut off their oil and sanction them. Without oil, they don’t have energy to drive the cars or power their factories or drive their GDP.

So, the American war in Ukraine is really a war against Germany. Russia is not the enemy. Germany and Europe are the enemy and the United States made it very clear. This is a war to lock in our allies so they cannot trade with Russia. They cannot buy Russian oil. They must be dependent on American oil for which they will have to pay three or four times as much. They will have to be dependent on American liquefied natural gas for fertilizer. If they don’t buy American gas for fertilizer, and we don’t let them buy from Russia, then they cannot put fertilizer on the land and the crop yield will fall by about 50% without fertilizer.

So, the, the war in Ukraine was to make Russia look so bad by defending itself against the attacks by the Ukrainian right wing in the Russian-speaking areas that the US has said, look at how bad Russia is. You’ve got to forego buying oil and gas or grain or titanium or palladium or anything else from Russia.

And so, the effect of this war has been to lock the NATO countries into dependency on the United States because the great fear of the United States in the last few years is that as America is de-industrializing, these countries are looking to the part of the world that’s growing, China, Central Asia, Russia, South Asia. And the United States feared losing control of its satellites mainly in NATO, but also in South America. So, it sanctioned and blocked their ability to buy non-US energy. They’re blocking their ability to buy non-US food, blocking their ability to invest in or use their surplus to get prosperous by investing in China, Russia, or Eurasia.

So, this is basically a war of America to lock in its allies. Well, the result is that oil prices, now that you can’t get Russian oil, are going to go way, way up, and that is going to create a crisis for many of the Global South countries that are oil deficit countries. The fertilizer companies in Germany have already been closing down because they say, without Russian gas, we make our fertilizer out of gas, and if we can’t get Russian gas, we can’t produce the fertilizer that. So, world fertilizer prices are going way up.

Russia is the largest grain exporter. And now that grain exports are being blocked by the sanctions, the question is, what are North Africa and the Near East going to do that have been depending very largely on Russian grain exports? Their food prices are going to go way up.

You can imagine just from seeing what’s happening in the United States when gas prices go up here, food prices go up here, not only does it put a squeeze on individual family budgets, but throughout the world, it puts the squeeze on the balance of payments of other countries. And so, they’re desperate. How are they going to pay the higher prices unless they borrow even more money from US banks? And of course, that’s another arm of US policy. The US banks hope to make a killing in making loans at rising interest rates to third world countries.

And of course, arms exports. NATO in the last few days has agreed to make American arms exports to increase their purchase of arms. So, the stock market has been soaring in the last few days. They say this, the world famine, the world crisis is a bonanza for Wall Street. The oil company stocks are going way up, the military, industrial stocks, Boeing Raytheon way up, the bank stocks. This is America’s great power grab, and it realizes, when it can create a crisis and tell the Global South or poor countries your money or your life. This is how most of the great property grabs and conquests have been made throughout history.

MF: And just this week at the NATO meetings, President Biden basically said food prices are going to go up in the United States and Europe as a result of what’s happening. And that’s just the price we have to pay.

MH: Well, what he should have said, this is the price they have to pay us. That’s how the stock market took it. When he said this is the price we have to pay, this is the price consumers have to pay to the American oil companies, to the American Agricultural food distribution companies. It’s the price other countries have to pay to the United States.

This is to say to the rest of the world, you know, we’ve got you completely, I don’t know how to put it, what phrase to use, but you don’t have any choice, your money or your life. We’ve got you trapped. And he’s crowing over the fact that this resulting inflation is exactly what was intended by the war in Ukraine that has led to the isolation of Russia and other countries following a non-US policy.

MF: But more and more countries in Latin America, in Africa, are turning to countries like China for partnerships, for investment. Do you see a point coming where there is just this real shunning of the United States and turning to these alternatives?

MH: That is exactly what’s going to happen. What’s going to happen is, China’s investment is very different from US investment. US and European investment will give financial investments to countries at interest that the whole country is liable for to repay. China’s investment is taking place by means of the Belt and Road Initiative and direct capital investment in developing ports, infrastructure and railways. And instead of having a general financial claim against these countries, China has an equity claim, a property claim backed by the physical means of production that it puts in place.

Well, this summer, when countries say they cannot afford to pay their foreign debts, the United States has as a backup plan, okay, let’s write down everybody’s debts, government debts, to each other so that governments can pay the private bond holders and the banks. And they’re going to try to, essentially the US will forgive its debts so that Latin America can pay Chase Manhattan Bank and Citibank and the bondholders. And China is going to say, wait a minute, we don’t have any financial claim against these countries. We didn’t lend them dollars. We didn’t lend them our foreign currency at all. We built assets there and the assets are still in place. There’s no problem there.

So, the question is, whose debts are going to be written down to whom? And all of this is going to lead to, as you can imagine, destabilization. The United States is probably going to try to push regime change on countries that try to trade with China as it’s already threatened China with. And the more sanctions the United States imposes on Latin America, Africa and the Near East and South Asia, they will be creating a crisis, but the crisis will lead the rest of the world to treat the United States in the same way that Russia and China are treating the United States as just the enemy threatening the entire world with their neoliberal power grab. So, the United States in a way is isolating itself from the rest of the world by declaring war on it.

MF: And I think that’s not going to be good for us here at home in the United States. You’ve talked about the way that the current economy has been structured. You’ve also raised a lot of concern about the climate crisis. And of course, we have the recent IPCC report basically saying that we’re way behind in taking action to even adapt to the climate crisis or the warming that we’re going to be experiencing. So now in this new situation, how do you see that impacting the climate crisis?

MH: Here’s what Biden said, in effect: “We’re way behind in the pace of global warming.” American policy is based on increasing and accelerating global warming. That has been a central point of US policy ever since I joined the Hudson Institute in the 1970s. The United States is opposing any attempt at trying to prevent global warming because you can imagine what would happen if other countries go to solar energy and renewable energy. That will reduce their dependency on the US oil industry. If you look at American policy, it is being run basically by the oil industry to establish dependence of other countries on oil. Then obviously the last thing the United States is ever going to do is prevent global warming. So, if we’re behind in global warming, it’s that the sea level is not rising fast enough. The world is not getting hot fast enough not to lock in foreign reliance on America’s oil.

And I think you’ve seen what in the last few weeks, what President Biden has said, the fuel of the future is coal and oil. Right now, he’s in Poland. I think he’s suggesting that Polish coal, which is one of its major products, should be used in Europe instead of Russian gas. So, American foreign policy is based on the accelerated use of coal and oil, not renewable energy.

Now, that’s why I think the environmental movement should become an anti-war movement and the movement against this neoliberal dollar hegemony. You’re not going to avoid global warming unless you stop the dominance of American foreign policy by the oil industry.

MF: I think we’ve been seeing that shift over the last few years where the climate movement is starting to understand we can’t address this crisis without addressing the US military. So just in the last minutes that I have with you, what do you have to say to the listeners about where this is going for us materially as people living in the United States, a country that has been showing itself to be a failing state? The Covid-19 pandemic, I think, has really exposed that in so many ways, the financial insecurity that people are facing, housing, education, health care, all of the failures of the government to meet the basic needs of the people. How do you think that’s going to change with this new situation?

MH: Well, the United States has been getting a free ride internationally. So, much of the prosperity here has been the result of our not having to pay for our own military spending, not having to pay for many of the foreign investments that we’ve got that supply the US with low priced foreign raw materials. All that is being ended by President Biden’s policy, which, of course, the Republicans support just as much as the Democrats.

So, there’s really a political movement that is ending up impoverishing, I’d say, 99% of Americans. While the Federal Reserve saves the stock and bond market for the 1%, there’s going to be a huge squeeze that’s going to force, I think, most American families into debt leading to probably a close down of a lot of businesses just as you had the Covid crisis closing down a lot of businesses. You’re going to have the rising fuel prices, the rising food prices utterly force families into default and an inability to be self-supporting without either running into debt or selling their homes and becoming renters.

MF: And that’s a whole other problem with the buying up of the housing in the United States by these investment corporations so that they can then control those rent prices. It sounds like difficult days are ahead.

MH: Yes. Well, and nobody can really ,it’s really Uncharted Territory because nobody thought there was an alternative. The economic view was as Margaret Thatcher said, “There is no alternative.” Well, now, America’s forced the world to find its own alternative.

MF: Well, thank you for sharing that wisdom with me. I encourage people to continue to follow you and read your books and follow your writing. Where’s the best place to find you?

MH: I have a website: Michael-Hudson.com. And I’m on Patreon. I post my articles on the website and on Patreon.

MF: Well, thank you so much for taking time to speak with me today, and for the important work that you’re doing.

MH: Well, I’m awfully glad we had to talk about this, Margaret.

Quick update on the war in the Ukraine

March 24, 2022

The Ukrainians fired a Tochka-U missile at a port where three large landing ship were offloading their freight, the Tochka-U was intercepted by Russian air defenses, but its parts did enough to start a major fire on one of the ships whom the Russians decided to sink in the port to avoid a detonation of the ammo it carried.  This is the first Ukrainian strike which we can consider as a major success of the Ukie military.

Other than that, the major development of the day is the fallout of Putin’s announcement that Russia would only sell energy to hostile countries in Rubles.  Biden is in Europe now to discuss energy and the Polish idea of invade the western Ukraine.

Oh, and China backing Russia and really pissing off Uncle Shmuel has been a daily ritual and the Eurolemmings are very upset: https://www.rt.com/news/552565-nato-china-misinformation-ukraine/

Here is a pretty decent map of the current situation as found on Telegram:

See you later!

Andrei

Boomerang Sanctions

March 12, 2022

Source

by Ghassan Kadi,

Do Western sanctions have any chance of achieving their objectives? Perhaps we need to look back at history and see how the earliest recorded sanctions were implemented.

Before the age of electronic transfers and massive international trading and complex technology came into existence, warring factions enforced sanctions on each other by way of imposing sieges, and therefore cutting off food and water supplies to heavily fortified cities. Those cities had to ration out their supplies, and when they ran out, they often capitulated.

Much has changed since, but the only way for any sanction to work now is in the ability to deprive a nation from goods and services that are essential. But this is now easier said than done.

In today’s age of technology and all what comes with it, the world depends on a huge array of manufactured goods for its economy and the services that support that economy to run. Manufactured good are themselves made of parts often made in different countries and assembled together somewhere else. Many, if not most of those goods and parts, are made in China, and this is fact.

How do we know that the manufacturers of American/NATO military hardware do not use parts and components that are made in China and no longer made in the West? They can be as simple as special size or shape screw, but without it, the strategic weapon cannot be assembled. And if one of the suppliers of hardware to the Pentagon suddenly wakes up to the realization that it needs the part that is made in China to put together a strategic defence weapon, what will happen then? Alternative Western productions lines can be put to work, but these things take time, and time is precious commodity in the event of a military blitz.

But here is more. Even if in peacetime an American buys a T-shirt made in America from American grown cotton, the cotton crop is highly likely to have been fertilized with urea imported from China. As a matter of fact, China controls a huge sector of the global fertilizer market, and when one controls food and its production, no other leverage becomes comparable in magnitude. Having control of the food supply is tantamount to the ancient city sieges.

The dependence of the West on China therefore is alarming, and the examples mentioned above, have been selected to demonstrate that Western sanctions against China, if ever implemented, would boomerang and hit the West in the guts.

The whole world and particularly the West are reliant on and addicted to Chinese goods. All the way from T-shirts to iPhones, a huge percentage of global consumable goods are made in China.

China is therefore the ultimate example of where American sanctions would fail abysmally. As a matter of fact, if anything at all, a Chinese export sanction against America would bring the latter to its knees in a few weeks if not less.

What about Russia? Are American sanctions effective against Russia? Thus far, they haven’t been. Time will tell if new ones will, but Russia does not ‘need’ any American imports or franchises. Russia does not need either McDonald’s or Starbucks. It doesn’t need those fast-food chains that litter its streets. Honestly, what a manner to sanction Russia with? What is next, the Disney Channel?

It is America that needs Russian rocket engines and not the other way around. Fancy this, comparing rocket engines to hamburgers.

And with its ties with China, Russia has a huge export market of gas and petroleum crude, all the while Western EU slumps into cold nights or enormous power bills. In the last couple of days alone, the price of gas has nearly doubled.

What is pertinent here is going back to the basics and remembering that any talk of sanctions can only be effective if based on depriving an adversary from what its people 1) need and 2) want. Currently, there is no product, no commodity, no technology, absolutely nothing that is essential for the rest of the world, that the West exclusively produces and the rest of the world cannot.

The current Western sanctions on nations that refuse to follow the directives of the West do not carry any weight at all; or anything that comes close. Non-Western countries can survive without Tesla, Porsche and Ferrari cars. Earth will continue to spin without French perfumes and champaign.

With those facts known though unspoken, the USA continues to impose sanctions on other nations by utilizing the power of the Greenback, ie US Dollar of USD for short.

But this approach is foolish to say the least, and it is bound to backfire.

America is determined to keep the stature of the USD as the single reserve world currency. But to maintain this stature, America must make sure that the rest of the world needs to use the USD and that it has no other alternative. But when successive American administrations impose sanctions on other nations that prevent them from using the USD, they are effectively shooting their last and only remaining asset in the foot.

This is not a complex issue that requires a PhD in macro-economics to understand. It is very simple in fact. You cannot coerce people to do something by way of banning them from doing it. This is a simple logical contradiction that even children can understand.

This oxymoronic comedy of errors appears more ludicrous when we see that the USD is the only asset left that the USA can use to impose sanctions with. Do successive American administrations really believe that sanctioned and potentially sanctionable nations, are going to sit idle and starve themselves to death without taking pre-emptive measures to avert this?

If anything, sanctions over the years have taught even small and developing countries like Cuba, Syria and Iran to be self-reliant and innovative. Those countries have produced whole ‘armies’ of technicians who are able to manufacture spare parts even for old American cars. When you see photos of 1950’s Chevvies in Cuba, rest assured that there are hardly any original made-in-America parts left in them. If an American owns such an antique model and cannot find parts for it in the US, he/she may be able to find them in Cuba.

What makes the situation more farcical is that America knows well that China and Russia are intent to replace the USD as the single global reserve currency with China having a good chance to have it replaced by the Renminbi. It is also no secret that both Russia and China have been buying huge amounts of gold, and this is not to mention that they already have an alternative to the SWIFT system (СПФС or SPFS) of international banking transfers.

Back in the days of city sieges, the Athenians built their infamous horse, the original horse that coined the term ‘Trojan Horse’ and tricked the Trojans to take it into Troy. But in the West right now, there are no such strategists.

The current soaring fuel prices at service stations world-wide are not an outcome of the Russian action in Ukraine. They are the outcome of the sanctions.

These sanctions can only turn back and hurt the hand that created them. They are not arrows aimed at targets. They are boomerangs, but even boomerangs are meant to return to the hand that launched them when they miss the target. But Western sanctions are sharply-pointed boomerangs that can only hit back, and hit with vengeance, and the soaring fuel prices may just be only the beginning.

The American Empire self-destructs. But nobody thought that it would happen this fast

MARCH 08, 2022

Source

by Michael Hudson

Empires often follow the course of a Greek tragedy, bringing about precisely the fate that they sought to avoid. That certainly is the case with the American Empire as it dismantles itself in not-so-slow motion.

The basic assumption of economic and diplomatic forecasting is that every country will act in its own self-interest. Such reasoning is of no help in today’s world. Observers across the political spectrum are using phrases like “shooting themselves in their own foot” to describe U.S. diplomatic confrontation with Russia and allies alike. But nobody thought that The American Empire would self-destruct this fast.

For more than a generation the most prominent U.S. diplomats have warned about what they thought would represent the ultimate external threat: an alliance of Russia and China dominating Eurasia. America’s economic sanctions and military confrontation have driven these two countries together, and are driving other countries into their emerging Eurasian orbit.

American economic and financial power was expected to avert this fate. During the half-century since the United States went off gold in 1971, the world’s central banks have operated on the Dollar Standard, holding their international monetary reserves in the form of U.S. Treasury securities, U.S. bank deposits and U.S. stocks and bonds. The resulting Treasury-bill Standard has enabled America to finance its foreign military spending and investment takeover of other countries simply by creating dollar IOUs. U.S. balance-of-payments deficits end up in the central banks of payments-surplus countries as their reserves, while Global South debtors need dollars to pay their bondholders and conduct their foreign trade.

This monetary privilege – dollar seignorage – has enabled U.S. diplomacy to impose neoliberal policies on the rest of the world, without having to use much military force of its own except to grab Near Eastern oil.

The recent escalation of U.S. sanctions blocking Europe, Asia and other countries from trade and investment with Russia, Iran and China has imposed enormous opportunity costs – the cost of lost opportunities – on U.S. allies. And the recent confiscation of the gold and foreign reserves of Venezuela, Afghanistan and now Russia,[1] along with the targeted grabbing of bank accounts of wealthy foreigners (hoping to win their hearts and minds, enticed by the hope for the return of their sequestered accounts), has ended the idea that dollar holdings – or now also assets in sterling and euro NATO satellites of the dollar – are a safe investment haven when world economic conditions become shaky.

So I am somewhat chagrined as I watch the speed at which this U.S.-centered financialized system has de-dollarized over the span of just a year or two. The basic theme of my Super Imperialism has been how, for the past fifty years, the U.S. Treasury-bill standard has channeled foreign savings to U.S. financial markets and banks, giving Dollar Diplomacy a free ride. I thought that de-dollarization would be led by China and Russia moving to take control of their economies to avoid the kind of financial polarization that is imposing austerity on the United States.[2] But U.S. officials are forcing Russia, China and other nations not locked into the U.S. orbit to see the writing on the wall and overcome whatever hesitancy they had to de-dollarize.

I had expected that the end of the dollarized imperial economy would come about by other countries breaking away. But that is not what has happened. U.S. diplomats themselves have chosen to end international dollarization, while helping Russia build up its own means of self-reliant agricultural and industrial production. This global fracture process actually has been going on for some years, starting with the sanctions blocking America’s NATO allies and other economic satellites from trading with Russia. For Russia, these sanctions had the same effect that protective tariffs would have had.

Russia had remained too enthralled by free-market neoliberal ideology to take steps to protect its own agriculture and industry. The United States provided the help that was needed by imposing domestic self-reliance on Russia. When the Baltic states obeyed American sanctions and lost the Russian market for their cheese and other farm products, Russia quickly created its own cheese and dairy sector – while becoming the world’s leading grain exporter.

Russia is discovering (or is on the verge of discovering) that it does not need U.S. dollars as backing for the ruble’s exchange rate. Its central bank can create the rubles needed to pay domestic wages and finance capital formation. The U.S. confiscations of its dollar and euro reserves may finally lead Russia to end its adherence to neoliberal monetary philosophy, as Sergei Glaziev has long been advocating, in favor of Modern Monetary Theory (MMT).

The same dynamic of undercutting ostensible U.S aims has occurred with U.S. sanctions against the leading Russian billionaires. The neoliberal shock therapy and privatizations of the 1990s left Russian kleptocrats with only one way to cash out on the assets they had grabbed from the public domain. That was to incorporate their takings and sell their shares in London and New York. Domestic savings had been wiped out, and U.S. advisors persuaded Russia’s central bank not to create its own ruble money.

The result was that Russia’s national oil, gas and mineral patrimony was not used to finance a rationalization of Russian industry and housing. Instead of the revenue from privatization being invested to create new Russian means of protection, it was burned up on nouveau-riche acquisitions of luxury British real estate, yachts and other global flight-capital assets. But the effect of sanctions making the dollar, sterling and euro holdings of Russian billionaires hostage has been to make the City of London too risky a venue in which to hold their assets – and for the wealthy of any other nation potentially subject to U.S. sanctions. By imposing sanctions on the richest Russians closest to Putin, U.S. officials hoped to induce them to oppose his breakaway from the West, and thus to serve effectively as NATO agents-of-influence. But for Russian billionaires, their own country is starting to look safest.

For many decades now, the U.S. Federal Reserve and Treasury have fought against gold recovering its role in international reserves. But how will India and Saudi Arabia view their dollar holdings as Biden and Blinken try to strong-arm them into following the U.S. “rules-based order” instead of their own national self-interest? The recent U.S. dictates have left little alternative but to start protecting their own political autonomy by converting dollar and euro holdings into gold as an asset free from political liability of being held hostage to the increasingly costly and disruptive U.S. demands.

U.S. diplomacy has rubbed Europe’s nose in its abject subservience by telling its governments to have their companies dump their Russian assets for pennies on the dollar after Russia’s foreign reserves were blocked and the ruble’s exchange rate plunged. Blackstone, Goldman Sachs and other U.S. investors moved quickly to buy up what Shell Oil and other foreign companies were unloading.

Nobody thought that the postwar 1945-2020 world order would give way this fast. A truly new international economic order is emerging, although it is not yet clear just what form it will take. But the confrontations resulting from “prodding the Bear” with the U.S./NATO aggression against Russia has passed critical-mass level. It no longer is just about Ukraine. That is merely the trigger, a catalyst for driving much of the world away from the US/NATO orbit.

The next showdown may come within Europe itself as nationalist politicians seek to lead a break-away from the over-reaching U.S. power-grab over its European and other allies to keep them dependent on U.S.-based trade and investment. The price of their continuing obedience is to impose cost-inflation on their industry while subordinating their democratic electoral politics to America’s NATO proconsuls.

These consequences cannot really be deemed “unintended.” Too many observers have pointed out exactly what would happen – headed by President Putin and Foreign Minister Lavrov explaining just what their response would be if NATO insisted on backing them into a corner while attacking Eastern Ukrainian Russian-speakers and moving heavy weaponry to Russia’s Western border. The consequences were anticipated. The neocons in control of U.S. foreign policy simply didn’t care. Recognizing Russian concerns was deemed to make one a Putinversteher.

European officials did not feel uncomfortable in telling the world about their worries that Donald Trump was crazy and upsetting the apple cart of international diplomacy. But they seem to have been blindsided by the Biden Administration’s resurgence of visceral Russia-hatred via Secretary of State Blinken and Victoria Nuland-Kagan. Trump’s mode of expression and mannerisms may have been uncouth, but America’s neocon gang have much more globally threatening confrontation obsessions. For them, it was a question of whose reality would emerge victorious: the “reality” that they believed they could make, or economic reality outside of U.S. control.

What foreign countries have not done for themselves to replace the IMF, World Bank and other strongarms of U.S. diplomacy, American politicians are forcing them to do. Instead of European, Near Eastern and Global South countries breaking away as they calculate their own long-term economic interests, America is driving them away, as it has done with Russia and China. More politicians are seeking voter support by asking whether their countries would be better served by new monetary arrangements to replace dollarized trade, investment and even foreign debt service.

The energy and food price squeeze is hitting Global South countries especially hard, coinciding with their own Covid-19 problems and the looming dollarized debt service coming due. Something must give. How long will these countries impose austerity to pay foreign bondholders?

How will the U.S. and European economies cope in the face of their sanctions against imports of Russian gas and oil, cobalt, aluminum, palladium and other basic materials. American diplomats have made a list of raw materials that their economy desperately needs and which therefore are exempt from the trade sanctions being imposed. This provides Mr. Putin a handy list of U.S. pressure points to use in reshaping world diplomacy and helping European and other countries break away from the Iron Curtain that America has imposed to lock its satellites into dependence on high-priced U.S. supplies?

The Biden Inflation

But the final breakaway from NATO’s adventurism must come from within the United States itself. As this year’s midterm elections approach, politicians will find a fertile ground in showing U.S. voters that the price inflation led by gasoline and energy is a policy byproduct of the Biden Administration’s blocking of Russian oil and gas exports. (Bad news for owners of big SUV gas guzzlers!) Gas is needed not only for heating and energy production, but to make fertilizer, of which there already is a world shortage. This situation is exacerbated by blocking Russian and Ukrainian grain exports to the United States and Europe, causing food prices already to soar.

There already is a striking disconnect between the financial sector’s view of reality and that promoted in the mainstream NATO media. Europe’s stock markets plunged at their opening on Monday, March 7, while Brent oil soared to $130 a barrel. The BBC’s morning “Today” news broadcast featured Conservative MP Alan Duncan, an oil trader, warning that the near doubling of prices in natural gas futures threatened to bankrupt companies committed to supplying gas to Europe at the old rates. But returning to the military “Two Minutes of Hate” news, the BBC kept applauding the brave Ukrainian fighters and NATO politicians urging more military support. In New York, the Dow Jones Industrial Average plunged 650 points, and gold soared to over $2,000 an ounce – reflecting the financial sector’s view of how the U.S. game is likely to play out. Nickel prices rose by even more – 40 percent.

Trying to force Russia to respond militarily and thereby look bad to the rest of the world is turning out to be a stunt aimed simply at ensuring Europe contribute more to NATO, buy more U.S. military hardware and lock itself deeper into trade and monetary dependence on the United States. The instability that this has caused is turning out to have the effect of making the United States look as threatening as Russia is claimed to be by the NATO West.

  1. Libya’s gold also disappeared after NATO’s overthrow of Muammar Gaddafi in 2011. 
  2. See most recently Radhika Desai and Michael Hudson (2021), “Beyond Dollar Creditocracy: A Geopolitical Economy,” Valdai Club Paper No. 116. Moscow: Valdai Club, 7 July, repr. in Real World Economic Review (97), https://rwer.wordpress.com/2021/09/23.&nbsp;

A Russian wrench in Vienna halts US dash for the finish line

In an eleventh-hour shot across Vienna’s bow, the Russians challenged the US ‘weaponization of the dollar’ with the ‘weaponization of the atom.’

March 07 2022

By MK Bhadrakumar

On 5 March, Moscow demanded written guarantees of sanctions waivers from US President Joe Biden and Secretary of State Antony Blinken that would preserve Russia’s ambitious economic, scientific-technological and military collaboration projects in the pipeline with Iran.

The clock is ticking on Vienna sanctions-removal talks, but the Ukraine crisis has injected some new, valid, sanctions-related snafus into negotiations.Photo Credit: The Cradle

While privately, Iranian delegation members in Vienna were undoubtedly miffed at this eleventh-hour wrench in the works, Tehran’s official position was stoic.

“Russia is a responsible member of nuclear negotiations, and it has always proven that, not like America,” Iran’s Foreign Ministry Spokeman Saeed Khatibzadeh informed reporters on Monday.

“It is natural for us to discuss its [Russia’s] demands,” he continued, and bolstered Moscow’s position by adding: “What really matters is that the nuclear cooperation relations between Iran and various countries should not be subject to sanctions.”

March 5 also happens to be the anniversary of the date the Nuclear Non-Proliferation Treaty (NPT) entered into force in 1970.

The fate of the NPT may now hinge on the US response. For, if the Biden administration rides the high horse, that will almost certainly be a deal-breaker for the current negotiations in Vienna to broker the US’ return to the 2015 Iran nuclear deal, also known as the Joint Comprehensive Plan of Action (JCPOA).

On the other hand, a golden opportunity is now at hand for Iran too to hang tough on its remaining demands — that is, removing the US designation of the elite Islamic Revolutionary Guard Corps (IRGC) as a terrorist organization; a firm guarantee that a future US government will not (again) renege on the nuclear deal; and, conclusively closing the International Atomic Energy Agency’s (IAEA) case on Tehran’s nuclear program. Russia is firmly supportive of Iran’s demands.

The chances of Biden obliging Moscow with sanctions waivers are nil, as that would lethally damage US prestige and make a complete mockery of its ‘weaponization of the dollar’ (which is what sanctions are about). Without using sanctions as a weapon, the US is increasingly unable to force its will on other countries.

The “sanctions from hell” recently imposed on Russia demonstrate a new cutting edge, and include the freezing of Russia’s central bank reserves. It is a cynical move to the extreme which may come with significant unforeseen repercussions. For one, the US looks to be sending a powerful message to China as well, which holds something like 2-3 trillion dollars as US Treasury bonds.

China draws its own lines

The call from Blinken to his Chinese counterpart Wang Yi on March 5 — the same day Russia transmitted its demand for sanction waivers — suggests that China is no doubt closely observing developments. Wang told Blinken point-blank that Beijing has “grave concern over recent words and deeds of the US side,” especially with regard to Taiwan, and expects “concrete actions” by the Americans to shore up the relationship.

China has consistently opposed US sanctions. On the issue of Ukraine, Wang Yi cautioned Washington from taking further actions that “add fuel to the fire” (alluding to reported plans to dispatch foreign mercenaries to join the fighting), and importantly, “to engage in equal dialogue with Russia, face up to the frictions and problems accumulated over the years, pay attention to the negative impact of NATO’s continuous eastward expansion on Russia’s security, and seek to build a balanced, effective and sustainable European security mechanism in accordance with the ‘indivisibility of security’ principle.”

Suffice to say, if China is not caving in, the strong likelihood is that the negotiations in Vienna may soon lose momentum. The latest Russian demand can even prove a deal-maker. The action-reaction syndrome used to be a staple of the superpower nuclear competition. But Russians seem to have now found an ingenious new dimension to it: counter US dollar weaponization by extending the countermeasure to the nuclear non-proliferation issue.

“Weaponizing the atom”

By doing so, Russia has elevated the American sanctions regime far beyond the crude money terms of seizing central bank dollar reserves — which is plain highway robbery — to an altogether new sublime level of “weaponization of atom.”

Iran has suffered immensely from the US’ weaponization of the dollar. Ever since its 1979 revolution, Iran has been under western sanctions aimed at stifling its growth and development — many of them cruel and humiliating. These hit a nadir, when at the peak of the Covid-19 pandemic, the US even blocked Iran’s pathway to procure vaccines for its citizens.

So many such horrific episodes can be dredged up from Iran’s four-decade-long painful history as a victim of America’s “weaponization of dollar,” whereby, an immensely resource-rich country was forced to live far below its real potential, and one of the world’s greatest and oldest civilizations suffered humiliations at the hands of an uppity country with some 246 years of history.

It must then be tormenting for Washington that Iran is one of the countries that has immense potential to resort to “weaponization of atom” to counter America’s “weaponization of dollar.”

Whether it will do or not is a moot point. Certainly, Iran’s stated preference is to live without nuclear weapons. That is why it has come fully prepared to close the deal at the negotiations in Vienna. Iran’s foreign minister Hossein Amir-Abdollahian even told EU foreign policy chief Josep Borrell on Friday that he’s “ready to fly to Vienna” to sign the nuclear deal on Monday.

But the point is, if Iran wishes, it has the capability to meet the US on equal terms even without a nuclear deal in Vienna. In fact, if Biden refuses to provide Russia with a written guarantee to suspend the “sanctions from hell,” that deal may not go through in Vienna, since Russia, as an original signatory to the JCPOA, must sign off on it. Of course, the Americans are insisting that they will continue to work with Russia at Vienna within the matrix of their shared interest to prevent Iran from producing nuclear weapons.

Indeed, as it is, the remaining three demands by Iran also pose a big challenge to Biden. Lifting the ban on the IRGC is a bitter pill for the Washington elite to swallow; again, Biden is in no position to guarantee that a deal signed in Vienna will have any shelf life beyond his presidency.

Herein lies the catch. Until such time as an agreement is reached in Vienna, Iran’s centrifuges will be producing enriched uranium, which would mean that the so-called “breakout time” keeps shrinking and for all purposes, at some point, Iran will have transformed itself as a virtual nuclear weapon state whether it wants or not — and the very purpose of the deal that the US is frantically seeking at Vienna will be defeated.

For Iran too, this is a moment of truth. Things have come to such a pass in international politics that many countries, which willingly signed the NPT, probably regret their decision now. India, Pakistan and North Korea already broke the NPT shackle. The point is, in the final analysis, a nuclear weapon is the means to preserve a country’s strategic autonomy to pursue independent policies.

It provides a firewall against foreign interference in the internal affairs; it reduces the scope for Washington’s coup machine to overthrow the established government; it compels the US to abandon the highly immoral, cynical bullying via “weaponization of the dollar;” and, above all, it enhances plurality in the world order by strengthening a country’s freedom to choose its own unique path of development.

“Atoms for Peace” was the title of a famous speech delivered by US President Dwight Eisenhower to the UN General Assembly in New York City in 1953. In retrospect, it turned out to be a propaganda component of the US’ Cold War strategy of containing the former Soviet Union.

Eisenhower was launching a media campaign that would last for years aimed at “emotion management,” balancing fears of continuing nuclear armament with promises of peaceful use of uranium in future nuclear reactors.

Ironically, that catchy phrase acquires today an altogether new meaning: Atoms may offer the best means to an equitable world order.

The views expressed in this article do not necessarily reflect those of The Cradle.

Follow the money: how Russia will bypass western economic warfare

March 01, 2022

By Pepe Escobar

The Cradle

The US and EU are over-reaching on Russian sanctions. The end result could be the de-dollarization of the global economy and massive commodity shortages worldwide.

So a congregation of NATO’s top brass ensconced in their echo chambers target the Russian Central Bank with sanctions and expect what? Cookies?

What they got instead was Russia’s deterrence forces bumped up to “a special regime of duty” – which means the Northern and Pacific fleets, the Long-Range Aviation Command, strategic bombers and the entire Russian nuclear apparatus on maximum alert.

One Pentagon general very quickly did the basic math on that, and mere minutes later, a Ukrainian delegation was dispatched to conduct negotiations with Russia in an undisclosed location in Gomel, Belarus.

Meanwhile, in the vassal realms, the German government was busy “setting limits to warmongers like Putin” – quite a rich undertaking considering that Berlin never set any such limits for western warmongers who bombed Yugoslavia, invaded Iraq, or destroyed Libya in complete violation of international law.

While openly proclaiming their desire to “stop the development of Russian industry,” damage its economy, and “ruin Russia” – echoing American edicts on Iraq, Iran, Syria, Libya, Cuba, Venezuela and others in the Global South – the Germans could not possibly recognize a new categorical imperative.

They were finally liberated from their WWII culpability complex by none other than Russian President Vladimir Putin. Germany is finally free to support and weaponize neo-Nazis out in the open all over again – now of the Ukrainian Azov battalion variety.

To get the hang of how these NATO sanctions will “ruin Russia,” I asked for the succinct analysis of one of the most competent economic minds on the planet, Michael Hudson, author, among others, of a revised edition of the must-read Super-Imperialism: The Economic Strategy of American Empire.

Hudson remarked how he is “simply numbed over the near-atomic escalation of the US.” On the confiscation of Russian foreign reserves and cut-off from SWIFT, the main point is “it will take some time for Russia to put in a new system, with China. The result will end dollarization for good, as countries threatened with ‘democracy’ or displaying diplomatic independence will be afraid to use US banks.”

This, Hudson says, leads us to “the great question: whether Europe and the Dollar Bloc can buy Russian raw materials – cobalt, palladium, etc, and whether China will join Russia in a minerals boycott.”

Hudson is adamant that “Russia’s Central Bank, of course, has foreign bank assets in order to intervene in exchange markets to defend its currency from fluctuations. The ruble has plunged. There will be new exchange rates. Yet it’s up to Russia to decide whether to sell its wheat to West Asia, that needs it; or to stop selling gas to Europe via Ukraine, now that the US can grab it.”

About the possible introduction of a new Russia-China payment system bypassing SWIFT, and combining the Russian SPFS (System for Transfer of Financial Messages) with the Chinese CIPS (Cross-Border Interbank Payment System), Hudson has no doubts “the Russian-China system will be implemented. The Global South will seek to join and at the same time keep SWIFT – moving their reserves into the new system.”

I’m going to de-dollarize myself

So the US itself, in another massive strategic blunder, will speed up de-dollarization. As the managing director of Bocom International Hong Hao told the Global Times, with energy trade between Europe and Russia de-dollarized, “that will be the beginning of the disintegration of dollar hegemony.”

It’s a refrain the US administration was quietly hearing last week from some of its own largest multinational banks, including notables like JPMorgan and Citigroup.

Bloomberg article sums up their collective fears:

“Booting Russia from the critical global system – which handles 42 million messages a day and serves as a lifeline to some of the world’s biggest financial institutions – could backfire, sending inflation higher, pushing Russia closer to China, and shielding financial transactions from scrutiny by the west. It might also encourage the development of a SWIFT alternative that could eventually damage the supremacy of the US dollar.”

Those with IQs over 50 in the European Union (EU) must have understood that Russia simply could not be totally excluded from SWIFT, but maybe only a few of its banks: after all, European traders depend on Russian energy.

From Moscow’s point of view, that’s a minor issue. A number of Russian banks are already connected to China’s CIPS system. For instance, if someone wants to buy Russian oil and gas with CIPS, payment must be in the Chinese yuan currency. CIPS is independent of SWIFT.

Additionally, Moscow already linked its SPFS payment system not only to China but also to India and member nations of the Eurasia Economic Union (EAEU). SPFS already links to approximately 400 banks.

With more Russian companies using SPFS and CIPS, even before they merge, and other maneuvers to bypass SWIFT, such as barter trade – largely used by sanctioned Iran – and agent banks, Russia could make up for at least 50 percent in trade losses.

The key fact is that the flight from the US-dominated western financial system is now irreversible across Eurasia – and that will proceed in tandem with the internationalization of the yuan.

Russia has its own bag of tricks

Meanwhile, we’re not even talking yet about Russian retaliation for these sanctions. Former President Dmitry Medvedev already gave a hint: everything, from exiting all nuclear arms deals with the US to freezing the assets of western companies in Russia, is on the table.

So what does the “Empire of Lies” want? (Putin terminology, on Monday’s meeting in Moscow to discuss the response to sanctions.)

In an essay published this morning, deliciously titled America Defeats Germany for the Third Time in a Century: the MIC, OGAM and FIRE conquer NATO, Michael Hudson makes a series of crucial points, starting with how “NATO has become Europe’s foreign policy-making body, even to the point of dominating domestic economic interests.”

He outlines the three oligarchies in control of US foreign policy:

First is the military-industrial complex, which Ray McGovern memorably coined as MICIMATT (military industrial Congressional intelligence media academia think tank).

Hudson defines their economy base as “monopoly rent, obtained above all from its arms sales to NATO, to West Asian oil exporters and to other countries with a balance-of-payments surplus.”

Second is the oil and gas sector, joined by mining (OGAM). Their aim is “to maximize the price of energy and raw materials so as to maximize natural resource rent. Monopolizing the Dollar Area’s oil market and isolating it from Russian oil and gas has been a major US priority for over a year now, as the Nord Stream 2 pipeline from Russia to Germany threatened to link the western European and Russian economies together.”

Third is the “symbiotic” Finance, Insurance and Real Estate (FIRE) sector, which Hudson defines as “the counterpart to Europe’s old post-feudal landed aristocracy living by land rents.”

As he describes these three rentier sectors that completely dominate post-industrial finance capitalism at the heart of the western system, Hudson notes how “Wall Street always has been closely merged with the oil and gas industry (namely, the Citigroup and Chase Manhattan banking conglomerates).”

Hudson shows how “the most pressing US strategic aim of NATO confrontation with Russia is soaring oil and gas prices. In addition to creating profits and stock market gains for US companies, higher energy prices will take much of the steam out of the German economy.”

He warns how food prices will rise “headed by wheat.” (Russia and Ukraine account for 25 percent of world wheat exports.) From a Global South perspective, that’s a disaster: “This will squeeze many West Asian and Global South food-deficient countries, worsening their balance of payments and threatening foreign debt defaults.”

As for blocking Russian raw materials exports, “this threatens to cause breaks in supply chains for key materials, including cobalt, palladium, nickel, aluminum.”

And that leads us, once again, to the heart of the matter: “The long-term dream of the US new Cold Warriors is to break up Russia, or at least to restore its managerial kleptocracy seeking to cash in their privatizations in western stock markets.”

That’s not going to happen. Hudson clearly sees how “the most enormous unintended consequence of US foreign policy has been to drive Russia and China together, along with Iran, Central Asia and countries along the Belt and Road initiative.”

Let’s confiscate some technology

Now compare all of the above with the perspective of a central European business tycoon with vast interests, east and west, and who treasures his discretion.

In an email exchange, the business tycoon posed serious questions about the Russian Central Bank support for its national currency, the ruble, “which according to US planning is being destroyed by the west through sanctions and currency wolf packs who are exposing themselves by selling rubles short. There is really almost no amount of money that can beat the dollar manipulators against the ruble. A 20 percent interest rate will kill the Russian economy unnecessarily.”

The businessman argues that the chief effect of the rate hike “would be to support imports that should not be imported. The fall of the ruble is thus favorable to Russia in terms of self-sufficiency. As import prices rise, these goods should start to be produced domestically. I would just let the ruble fall to find its own level which will for a while be lower than natural forces would permit as the US will be driving it lower through sanctions and short selling manipulation in this form of economic war against Russia.”

But that seems to tell only part of the story. Arguably, the lethal weapon in Russia’s arsenal of responses has been identified by the head of the Center for Economic Research of the Institute of Globalization and Social Movements (IGSO), Vasily Koltashov: the key is to confiscate technology – as in Russia ceasing to recognize US rights to patents.

In what he qualifies as “liberating American intellectual property,” Koltashov calls for passing a Russian law on “friendly and unfriendly states. If a country turns out to be on the unfriendly list, then we can start copying its technologies in pharmaceuticals, industry, manufacturing, electronics, medicine. It can be anything – from simple details to chemical compositions.” This would require amendments to the Russian constitution.

Koltashov maintains that “one of the foundations of success of American industry was copying of foreign patents for inventions.” Now, Russia could use “China’s extensive know-how with its latest technological production processes for copying western products: the release of American intellectual property will cause damage to the United States to the amount of $10 trillion, only in the first stage. It will be a disaster for them.”

As it stands, the strategic stupidity of the EU beggars belief. China is ready to grab all Russian natural resources – with Europe left as a pitiful hostage of the oceans and of wild speculators. It looks like a total EU-Russia split is ahead – with little trade left and zero diplomacy.

Now listen to the sound of champagne popping all across the MICIMATT.

The views expressed in this article do not necessarily reflect those of The Cradle.

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