This article was first published by Global Research in October 2008
“Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.” – The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s
The Federal Reserve (or Fed) has assumed sweeping new powers in the last year. In an unprecedented move in March 2008, the New York Fed advanced the funds for JPMorgan Chase Bank to buy investment bank Bear Stearns for pennies on the dollar. The deal was particularly controversial because Jamie Dimon, CEO of JPMorgan, sits on the board of the New York Fed and participated in the secret weekend negotiations.1 In September 2008, the Federal Reserve did something even more unprecedented, when it bought the world’s largest insurance company. The Fed announced on September 16 that it was giving an $85 billion loan to American International Group (AIG) for a nearly 80% stake in the mega-insurer. The Associated Press called it a “government takeover,” but this was no ordinary nationalization. Unlike the U.S. Treasury, which took over Fannie Mae and Freddie Mac the week before, the Fed is not a government-owned agency. Also unprecedented was the way the deal was funded. The Associated Press reported:
“The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs.”2
This is extraordinary. Why is the Treasury issuing U.S. government bonds (or debt) to fund the Fed, which is itself supposedly “the lender of last resort” created to fund the banks and the federal government? Yahoo Finance reported on September 17:
“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”
Normally, the Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces of paper called U.S. bonds (the federal government’s I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes. Now, it seems, the government is issuing bonds, not for its own use, but for the use of the Fed! Perhaps the plan is to swap them with the banks’ dodgy derivatives collateral directly, without actually putting them up for sale to outside buyers. According to Wikipedia (which translates Fedspeak into somewhat clearer terms than the Fed’s own website):
“The Term Securities Lending Facility is a 28-day facility that will offer Treasury general collateral to the Federal Reserve Bank of New York’s primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. . . . The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable.”
“To switch debt that is less liquid for U.S. government securities that are easily tradable” means that the government gets the banks’ toxic derivative debt, and the banks get the government’s triple-A securities. Unlike the risky derivative debt, federal securities are considered “risk-free” for purposes of determining capital requirements, allowing the banks to improve their capital position so they can make new loans. (See E. Brown, “Bailout Bedlam,” webofdebt.com/articles, October 2, 2008.)
In its latest power play, on October 3, 2008, the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed. Reuters reported on October 3:
“The U.S. Federal Reserve gained a key tactical tool from the $700 billion financial rescue package signed into law on Friday that will help it channel funds into parched credit markets. Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank.”3
If the Fed’s money comes ultimately from the taxpayers, that means we the taxpayers are paying interest to the banks on the banks’ own reserves – reserves maintained for their own private profit. These increasingly controversial encroachments on the public purse warrant a closer look at the central banking scheme itself. Who owns the Federal Reserve, who actually controls it, where does it get its money, and whose interests is it serving?
Not Private and Not for Profit?
The Fed’s website insists that it is not a private corporation, is not operated for profit, and is not funded by Congress. But is that true? The Federal Reserve was set up in 1913 as a “lender of last resort” to backstop bank runs, following a particularly bad bank panic in 1907. The Fed’s mandate was then and continues to be to keep the private banking system intact; and that means keeping intact the system’s most valuable asset, a monopoly on creating the national money supply. Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads.4 The Fed’s website attempts to gloss over its role as chief defender and protector of this private banking club, but let’s take a closer look. The website states:
* “The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations – possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.”
* “[The Federal Reserve] is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.”
* “The Federal Reserve’s income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. . . . After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.”5
So let’s review:
1. The Fed is privately owned.
Its shareholders are private banks. In fact, 100% of its shareholders are private banks. None of its stock is owned by the government.
2. The fact that the Fed does not get “appropriations” from Congress basically means that it gets its money from Congress without congressional approval, by engaging in “open market operations.”
Here is how it works: When the government is short of funds, the Treasury issues bonds and delivers them to bond dealers, which auction them off. When the Fed wants to “expand the money supply” (create money), it steps in and buys bonds from these dealers with newly-issued dollars acquired by the Fed for the cost of writing them into an account on a computer screen. These maneuvers are called “open market operations” because the Fed buys the bonds on the “open market” from the bond dealers. The bonds then become the “reserves” that the banking establishment uses to back its loans. In another bit of sleight of hand known as “fractional reserve” lending, the same reserves are lent many times over, further expanding the money supply, generating interest for the banks with each loan. It was this money-creating process that prompted Wright Patman, Chairman of the House Banking and Currency Committee in the 1960s, to call the Federal Reserve “a total money-making machine.” He wrote:
“When the Federal Reserve writes a check for a government bond it does exactly what any bank does, it creates money, it created money purely and simply by writing a check.”
3. The Fed generates profits for its shareholders.
The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed’s operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered “for profit” corporations.
In addition to this guaranteed 6%, the banks will now be getting interest from the taxpayers on their “reserves.” The basic reserve requirement set by the Federal Reserve is 10%. The website of the Federal Reserve Bank of New York explains that as money is redeposited and relent throughout the banking system, this 10% held in “reserve” can be fanned into ten times that sum in loans; that is, $10,000 in reserves becomes $100,000 in loans. Federal Reserve Statistical Release H.8 puts the total “loans and leases in bank credit” as of September 24, 2008 at $7,049 billion. Ten percent of that is $700 billion. That means we the taxpayers will be paying interest to the banks on at least $700 billion annually – this so that the banks can retain the reserves to accumulate interest on ten times that sum in loans.
The banks earn these returns from the taxpayers for the privilege of having the banks’ interests protected by an all-powerful independent private central bank, even when those interests may be opposed to the taxpayers’ — for example, when the banks use their special status as private money creators to fund speculative derivative schemes that threaten to collapse the U.S. economy. Among other special benefits, banks and other financial institutions (but not other corporations) can borrow at the low Fed funds rate of about 2%. They can then turn around and put this money into 30-year Treasury bonds at 4.5%, earning an immediate 2.5% from the taxpayers, just by virtue of their position as favored banks. A long list of banks (but not other corporations) is also now protected from the short selling that can crash the price of other stocks.
Time to Change the Statute?
According to the Fed’s website, the control Congress has over the Federal Reserve is limited to this:
“[T]he Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute.”
As we know from watching the business news, “oversight” basically means that Congress gets to see the results when it’s over. The Fed periodically reports to Congress, but the Fed doesn’t ask; it tells. The only real leverage Congress has over the Fed is that it “can alter its responsibilities by statute.” It is time for Congress to exercise that leverage and make the Federal Reserve a truly federal agency, acting by and for the people through their elected representatives. If the Fed can demand AIG’s stock in return for an $85 billion loan to the mega-insurer, we can demand the Fed’s stock in return for the trillion-or-so dollars we’ll be advancing to bail out the private banking system from its follies.
If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves. Among other benefits to the taxpayers. a truly “federal” Federal Reserve could lend the full faith and credit of the United States to state and local governments interest-free, cutting the cost of infrastructure in half, restoring the thriving local economies of earlier decades.
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine. Her websites are www.webofdebt.com and www.ellenbrown.com .
The original source of this article is Web of Debt and Global Research
Parliamentarian Hussain Mouanes is a member of the Finance Committee in the publicly-elected Iraqi Council of Representatives. He has been politically active through many different stages of Iraq’s recent history, including the Baathist era, the US occupation, and the war against ISIS.
Before 2003, Mouanes was persecuted and imprisoned multiple times for his political activism by the government of former Iraqi President Saddam Hussein. He joined an Iraqi resistance movement after the illegal US invasion of Iraq and, after the rise of ISIS, initially joined the Iraqi Popular Mobilization Units (PMU) to organize against the terror group.
Despite his past political and military engagements, it is Mouanes’ recent experience as an elected politician, member of the Democratic Political Framework, and leader of the Rights Movement (Harakat Huquq), which has catapulted him into the national spotlight. His political cadres were previously members of Kataib Hezbollah, a faction known for its hostility toward the policies of the US, Israel, and the Gulf Cooperation Council (GCC).
These details are significant in the context of the new Iraqi government – led by Prime Minister Muhammad Shia al-Sudani – the first in two decades that is not packed to the rafters with Iraq’s old political elite.
Today, other figures are emerging in this theater, including Mouanes, who has overnight become a prominent political figure in contemporary Iraqi politics – not least because he filed a high-profile lawsuit against former PM Mustafa al-Kadhimi for his negligence leading up to the January 2020 assassinations of Iranian General Qassem Soleimani and Iraqi PMU Deputy Leader Abu Mahdi al-Muhandis.
Iraq’s parliament just passed its first federal budget under the six-month old Sudani administration, which for the first time covers a three-year period instead of the traditional one year of previous budgets. This is part of a slew of economic and political changes promised by the prime minister, who appears to be tackling all of Iraq’s chronic problems at the same time.
In his interview, from his unique vantage point as a deputy in the parliament’s finance committee, Mouanes addresses those challenges, denounces his country’s enforced dependence on the US dollar, and candidly weighs in on both the good and bad policy directions being undertaken in Iraq today:
The Cradle: Does the federal budget presented in the parliament today actually address the necessary measures to reform Iraq’s economic system?
Mouanes: The Iraqi economic system has been built incorrectly. It has moved away from banks and financial institutions toward the bankers managing it. Iraq has been and continues to be a slave to the US dollar, even though every country’s economic strength depends on the strength of its currency.
Reforming and strengthening the economy starts with the federal budget. However, we face far greater challenges, such as reforming existing financial legislation like the Securities Commission Law, laws for private banks, and the Central Bank.
These laws must be in line with the global economic situation. The Financial Management Law should govern the budget, but instead, it is governed by the budget. The Parliamentary Finance Committee is seeking to establish a real political and economic system built on legislation, not on constant and continuous exceptions. For example, according to the Financial Management Law, the country’s deficit ceiling should be 3 percent, but the current budget allows it to swell to 18 percent.
The Cradle: Introducing a federal budget law covering three years – instead of one year – of government spending is a major change in the way the state deals with the economy, isn’t it?
Mouanes: Yes, but only if it includes actual programs, not a recurring annual budget under the pretext of escaping from political blackmail in a political system built on quotas. As a parliamentary financial committee, it is not clear to us what is meant by the three-year budget because the tables that we received cover only one year, and there is no evidence that it is a three-year budget except for some items related to oil prices.
Prime Minister Muhammad Shia al-Sudani and Minister of Planning Muhammad Tamim justified this by saying that limiting the budget schedules to one year is to ensure that projects do not stop. In this case, I agree with them. But the committee’s point of view is that the budget figures should be updated annually, which means a re-vote on the budget in Parliament.
The Cradle: There is much debate about the government’s attempt to appease protesters by employing them in the public sector. This has led to an increase in the number of public sector employees by about one million people within the first six months of the current Iraqi administration. Is this a correct policy?
Mouanes: No, it was not the right policy, and it stems from the despair of state-building. These measures reflect incorrect state-building practices and must be addressed. The government’s birth was abnormal, forced by the failures of previous administrations and the country’s widespread demonstrations.
However, the public sector cannot employ everyone. We need to explore alternative options, and our committee is working to include legislation in the budget that encourages people to seek jobs in the private sector.
Dependence on employment in the public sector burdens the state: take the operational budget, for instance, where 90 percent of its revenues are spent on salaries. This is not right and must stop. While, in the past, large public sector employment was necessary, continuing to rely on it when our needs have changed is a problem. It is necessary to look at the long-term interest of citizens and diversify their opportunities in various private sector jobs, because today, the public sector is simply unable to absorb anymore.
The Cradle: It is assumed that the measures taken by the current government are the result of a political agreement between the government coalition and the Rights Movement (Harakat Huquq), which you lead. Is there such an agreement?
Mouanes: The Rights Movement is not part of Iraq’s governing coalition or the Coordination Framework, nor is it part of the ministerial composition. Let it be clear that we will continue to criticize government performance, because we believe that improving the political process requires an active opposition bloc that challenges poor policies. The Rights Movement is keen to be the basis for such opposition.
The Cradle: Regarding the national interest in political agreements, should the agreement between Baghdad and the Kurdistan Regional Government (KRG) on oil sales be evaluated based on broader criteria than the decision of the current political forces?
Mouanes: The agreement has not yet been presented to parliament, and it is vague. We support a comprehensive solution to this issue in accordance with the Iraqi constitution. The Rights Movement will not allow the interests of the central, southern, and western governorates to be neglected for the sake of political favors, and I expect that the agreement will not last long if it does not comply with the constitution and existing laws.
The Cradle: Would you consider adopting a law to grant amnesty to those sentenced to prison and abolishing the Accountability and Justice Commission, which denies members of Saddam Hussein’s regime participation in political life and repatriates the displaced?
Mouanes: These demands must be discussed, and if an agreement is reached, we will deal with them in accordance with the constitution and laws. But the way in which the general amnesty is being promoted is incorrect.
Amnesty for those not involved in terrorism must be offered in a way that does not provoke Iraqis who are still suffering from the crimes that befell them. With regard to the Accountability and Justice Commission, it will be transformed into a judicial body after the termination of its work. But we believe that it is necessary to activate and expand the law banning the Baath Party to ensure that this party is not revived.
The Cradle: Is there any push to remove the current speaker of the Iraqi parliament, Mohammed al-Halbousi?
Mouanes: Halbousi’s dismissal requires political will. There is a popular demand within the Sunni political blocs for his dismissal. Among the Shia political blocs, too, there are those who believe that there are Sunni personalities who are excluded from the political arena and should be allowed to play their rightful roles. Let’s be frank, the discussion of Halbousi’s dismissal is related to competition between political blocs, not to public sentiment, and it is clear that there is no real political desire for that. So this is not an issue at this time.
The Cradle: What about the corruption allegations targeting Halbousi and his party in Anbar, such as the seizure of millions of meters of government land? You were involved in this operation, so what is your take on it?
Mouanes: This case is very important. It is more than the theft of money, rather, it represents the establishment of a political project. We are talking here about a crime greater than the “theft of the century” (a corruption scandal involving more than $3 billion).
There is another corruption file related to some areas of Fallujah that we will announce soon. This is not targeting a specific person as much as it is targeting corruption, and we will expose any corruption file, even if it is in our own areas. We are determined to prevent the waste of public money and honor our oath in parliament.
The Cradle: There seems to be a political dispute between PM Sudani and Speaker Halbousi. Do you think that there is a possibility that the latter could be dismissed?
Mouanes: Disagreement is normal, and there are efforts to end it, and it seems that things are going toward reconciliation. But let me make it clear that we are with Sudani in that the executive and legislative branches should not encroach on one another. We will stand in the face of any intrusion from any side.
The Cradle: We have heard about Iraq’s efforts to move away from the domination of the US dollar. How can this be achieved?
Mouanes: The current system of selling oil and transferring 100 percent of those revenues to the US Federal Bank – under the pretext of protecting Iraqi funds – is unsustainable. We need to develop real economic foundations to advance our country and break free from the dollar’s hegemony.
It is clear that Iraq is economically dominated by the US, and our government does not truly control or have access to its own money. This is evident in the new banking restrictions on Iraqi dollar bank accounts, any and all banking transactions in dollars, and America’s imposition of an electronic platform to register all Iraqi currency exchanges.
Currently, most of Iraq’s foreign investment generation is limited to the lucrative energy sector, ignoring other vital sectors such as agriculture, industry, and tourism. It is time for Iraq to diversify its sources, basket, and storage of currency, especially given that the whole world is moving in this direction.
The Iraqi dinar must be strengthened and consolidated within Iraq as the primary currency used in transactions and ultimately be part of the basket of international currencies. As an oil-rich country that exports about four million barrels daily, we have a strong financial situation that can be leveraged to increase the value of the dinar in the market.
We believe that it is crucial to move away from the hegemony of the dollar, especially as it has become a tool to impose sanctions on countries. It is time for Iraq to rely on its local currency or at least diversify its sources of income.
The Cradle: Do you think Sudani’s efforts to replace ministers, governors, and hundreds of senior positions in the government will be successful?
Mouanes: One advantage of not being tied to any political agreement is that we have the freedom to make decisions without any alliance commitments. Sudani has set standards in his government program and identified shortcomings in the performance of some governors and ministers, and it is his responsibility to make changes.
It is normal for some political blocs to resist these changes as they try to maintain their entitlements. We have always advocated for ministers to be selected by the prime minister and not by their political blocs. Therefore, I believe that Sudani’s efforts to make changes are right, and we support him as long as we know the reasons behind the changes.
Sudani has assured us that he is not restricted by party or sectarian affiliations and that his changes will affect everyone who proves negligent. However, we reject any external international interference in Iraqi affairs or in the process of changing ministers. If such interference occurs, the prime minister should take a firm stance against it, as we entered the political process to lift tutelage and stop its imposition on the country.
The Cradle: Do you think the American delay in inviting Sudani to Washington indicates US suspicion toward him and his political program? Is this good or bad for Iraq?
Mouanes: The prime minister should assert his position in meetings as he represents the face of our country. We do not view the American people as enemies, but we are opposed to reckless US policies that impact Iraq’s interests adversely.
The government has the right to communicate with those it deems to be in the general interest of Iraq. However, the importance of Sudani’s visit to the US depends on its purpose. Is it just a ceremonial visit, or to discuss critical issues facing Iraq? And will Iraq benefit from the discussion of these issues with the Americans?
Given the ongoing US presence in Iraq, we do not see the importance of a Washington visit as much as a visit to Beijing, for example, as strengthening and diversifying relations with China would be more economically beneficial for us. Ultimately, the decision is up to the prime minister for the best interests of Iraq.
The views expressed in this article do not necessarily reflect those of The Cradle.
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Selected text from Transcript
Minor Edits by GR. Important text.
We do not concur with all the statements. It is not an issue of party politics.
***
Where were you on March 9, 2022…
…when President Biden signed the death warrant on American freedom?
On that day, in a hushed ceremony at the White House… without the approval of Congress, the states, or the American people… Biden signed into law Executive Order 14067.
Buried in his Order are a few paragraphs, titled Section 4… The language in Section 4 makes Order 14067… the most treacherous act by a sitting President in the history of our republic.
Because Section 4 sets the stage for…
Legal government surveillance of all US citizens…
Total control over your bank accounts and purchases…
And the ability to silence all dissenting voices for good.
They’re coming for your money.
And it’s already started.
My name is Jim Rickards.
I’m a former advisor to the Pentagon, the White House, Congress, the CIA, and the Department of Defense. I’m also an attorney, investment banker… and author of 7 books on currencies and international economics.
When places like Fox, CNBC or Bloomberg want to know what’s about to shakeup the global economy, they call me.
Most of all, like you, I’m a proud American patriot.
The disturbing predictions you’re about to see are based on my independent research and my contacts in the intelligence community.
I’ve never made this kind of public announcement before… But it’s my duty to pull the alarm.
This is what I believe Section 4 of Biden’s Order means for all Americans…it is laying the groundwork for…
The US dollar being made obsolete.
Soon, your cash will be confiscated – or will simply be worthless paper.
The cash currency we have now will be replaced with a new, programmable digital tokens.
But the truth is, few outside the deep state recognize Biden’s move for what it really is.
If my predictions are correct, this so much more sinister than simply replacing the cash dollar with a new digitized version…
Friend, this new currency will allow for total control of all American citizens.
Because every “digital dollar” will be programmed by the government… that means they will be able to “turn on or off” your money at will.
Not only that, but they’ll be able to TRACK and RECORD every purchase you make.
This is very different when compared to “online banking”… And it has nothing to do with crypto.
I’ll explain everything in a moment, but what you need to know now is…
AOC has already publicly declared her support for a government controlled “spyware” currency…
The digital dollar means Dems [Deep state] would be able to punish any contribution, purchase, or even social media comment they don’t like.
And this isn’t something years away… It’s starting now.
Biden’s secret army has been hard at work, and… US trials are already well underway.
In fact, our government is racing to catch up…
China and Russia have already launched pilot programs for their own digital currencies.
More than half the countries in the world and almost 90% of central banks are testing or exploring a digital currency right now.
In my opinion, it’s not a question of “Will the US implement a digital dollar?”
It’s just a question of “When”…
And the answer to that is… It’s already happening.
Under Project Lithium and Project Hamilton, the new “spyware” currency has been quietly tested for several years.
There’s no stopping it.
I predict we’ll see a digital dollar hit circulation next year – or 2024 at the latest.
But I do have some good news for you.
It’s almost too late, but you can still protect your assets and your freedom…
…if you know exactly what to do.
In the next 84 seconds, I’m going to show you everything. [See video]
You’ll see the ugly proof of their plan. You’ll see what this could mean for you and your life savings.
I’m also going to show you the ONLY way I trust to protect your money and your freedom from Biden’s new surveillance machine.
I call it “Asset Emancipation” – and it’s easy to do and understand.
If you choose to take advantage of it…
Asset Emancipation is a way to legally secure – and even GROW – your wealth…
While hiding it safely away from surveillance and control.
It’s a loophole designed to outsmart a new spyware currency…
While potentially increasing your personal wealth.
But you must know exactly how to do it.
And that’s what I’m going to show you today.
I must warn you – some of this will be difficult to watch.
But if you care about your money and your freedom, please do not turn away.
Thanks to what you’ll witness here…
You’re about to be much more prepared for the coming storm than your neighbors…
…and that’s a very powerful position to be in.
Imagine if you were German in 1923 and able to somehow avoid the 29,500% hyperinflation that made their money worthless…
Or if you could have “opted out” of Roosevelt’s confiscation of all private gold in 1934…
That’s the power of Asset Emancipation.
And I’ll show you everything right now.
Thanks to Section 4 of Biden’s Order 14067 ordering urgent research into developing the digital dollar…I believe the US dollar, the standard of the world since 1792…
…will be REPLACED by a new currency, the digital dollar.
These new electronic currencies are called CBDCs – or “central bank digital currencies”.
(I call the digital dollar “Biden Bucks” because I want him to take full credit for what I consider to be crimes.)
This is not like the money in your online bank account… No, this is new and different.
Every digital dollar will be a programmable token, like bitcoin or other crypto currencies.
But there’s a big difference…
Cryptocurrencies are decentralized digital currencies. Instead, if it plays out the way I see it…
Biden Bucks will have the full backing of the U.S. Federal Reserve.
They will REPLACE the cash (“fiat”) dollar we have now…
And will soon be the sole, MANDATORY currency of the United States.
When Biden Bucks are rolled out, many experts – myself included… …believe they will begin an era of total government control and surveillance.
This is not hyperbole.
This would dramatically expand the power and influence of the federal government… essentially acting as a new type of “spyware”.
With Biden Bucks, the government will be able to force you to comply with its agenda.
Because if you don’t, they could turn off your money.
This won’t be like freezing a bank account, it will be so much easier.
Because Biden Bucks will be “digital tokens”programmed at the source…
…they could be “turned on or off” at will, with just a keystroke.
And they could be reprogrammed at any time.
With Biden’s secret surveillance army running the show, the anti-freedom implications are almost limitless…
For example, Biden Bucks could be programmed to allow only certain kinds of purchases…
Imagine what this new world could look like…
You want to keep your internal combustion engine car?
Your digital dollars suddenly won’t pay for gas.
Instead, you can be forced to buy an electric vehicle…
That’s just the tip of the fascist iceberg…
They can force you to get vaccinated…
They can force you into solar…
They can force you to use less water or heat…
They can force you to eat fake, plant-based meat…
They can control where you are allowed to travel…
They can stop you purchasing certain items – like guns, ammo, or survival supplies.
They can control to which candidates you are allowed to donate.
And they’ll know every single place you ever spend money. Forever.
America would become a surveillance state.
Every single aspect of your life could be controlled…
Because they’ll control your money.
In fact, I fully expect them to implement a “social credit rating” like in China.
Say the “wrong” thing on social media…
Buy the “wrong” thing…
Subscribe to the “wrong” news channel…
Give money to the “wrong” candidate…
And your rating drops…
Suddenly, your Biden Bucks are frozen or disappearing from your account…
There, a low social score gets you officially labeled “untrustworthy”.
They can take away your ability to travel…
…restrict your internet access…
…deny your family the best schools or jobs…
They may even take away your pets.
I’m not kidding.
All of this is going on today.
Could this really happen in a democracy?
Just ask the truckers in Canada.
Because that’s exactly what happened to them.
Their Prime Minister Trudeau was granted “special emergency powers” during the peaceful trucker protests over his forced vaccination law…
He then ordered all banks to freeze the accounts of the protestors…
AND anyone who aided them in any way.
And it wasn’t just a threat… That fascist froze the bank accounts of non-violent protestors.
He locked up over $6 million in private accounts for protesting a forced vaccination law the truckers believed violated their sovereign human rights.
Think about that… They protested his policies…
So he took away their money.
Think our current government would love to do that?
Me too.
Under Biden Bucks, we’ll lose many of our God-given American rights.
They’ll be replaced by total government surveillance and control.
For almost all Americans, this will be the death of freedom.
Forever. Almost all Americans…
Not you.
You won’t be a victim.
You can beat Biden’s surveillance army at its own game.
The key is what I call “Asset Emancipation”.
Asset Emancipation was created to help you maintain and even grow your personal wealth…
…regardless of what happens to the cash dollar.
Even better…
It’s designed to legally hide your assets away from government surveillance…
And allow you to potentially profit from the turmoil.
For the record…
Asset Emancipation has nothing to do with giving up your passport or fleeing the country…
It also has nothing to do with offshore banks or foreign currency trading…
And you won’t hear about it from your financial advisor, because it’s almost certain…
…he has no clue about this loophole for legally “opting out” of the Biden Bucks surveillance program.
I’ll reveal everything in a moment, but I want to expose how deep this new conspiracy runs…
Programmable currencies will soon replace ALL the cash currencies on earth.
More than HALF of countries and almost 90% of central banks are exploring or testing a digital currency right now.
This includes Japan, Germany, India, France, the UK, Russia, Australia, Brazil, Canada, and China.
In fact, China’s new digital currency – the e-yuan – was used for millions of dollars’ worth of transactions at the Beijing Winter Olympics.
The Economist has announced the rise of government-backed digital currencies, warning they will “shift power from individuals to the state”.
Even an institution as conservative as the International Monetary Fund (IMF) admits these new currencies are “The future of money”.
Make no mistake…
No matter the outcome of any future elections…
This is happening.
The storm is closing in.
If my research and predictions are correct…
Soon, there will be no more cash.
The dollar we know will be dead and buried.
Replaced by programmable Biden Bucks.
The secret surveillance army has been working on this for years…
The U.S. Federal Reserve has been quietly partnering with scientists at MIT to develop a digital currency to replace the dollar.
They call this initiative Project Hamilton.
Then, this year, the Depository Trust and Clearing Corporation, the clearinghouse for US stocks, bonds, and other security trades…
…quietly launched Project Lithium.
Project Lithium is testing how a digital dollar will work in the financial markets once the current dollar is dead.
Project Lithium is partnering with the Digital Dollar Project…
…a joint effort started in 2020 between Accenture, US regulators, and tech leaders to create the digital dollar…
Then, on March 29, 2022, just days after Biden’s Order 14067 was signed…
Representative Stephen F. Lynch introduced H.R. 7231, the Electronic Currency and Secure Hardware Act.
This act, co-sponsored by 4 other Democrats…
…ORDERS the Secretary of the Treasury to develop a digital dollar.
I believe we’ll see the first rollout of the new digital dollar – Biden Bucks – in 2023 or 2024.
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The US emerged from WWII as the world’s preeminent military and economic power. All of the pillars supporting US power are now threatened by decades of neoliberal economic policies, spending vast sums of taxpayer money propping up financial markets, the military and attainment of economic/military parity by the Russia-China-Iran axis. In this essay, I link the continuing economic and social decline in the US/EU (collectively referred to as the ‘west) to an increasingly reckless US foreign policy, the role corporate media serves in promoting these policies to the American/EU public and the rise of Russia, China and other countries in the global south.
Introduction
This is a continuation or my previous article, linking US economic decline and global instability [1]. Briefly, the US emerged from WWII as the world’s leading economic and military power. Since that time, US global power has rested on: 1) unrivaled military and economic power, 2) control of world’s energy reserves (primarily in the Middle East), and 3) maintaining the dollar as the world’s reserve currency. Following the conclusion of WWII in 1945, the US had the world’s largest economy and was the major ‘growth engine’ for western capitalism for the next 3 decades. In the mid-1970s, this began to change as US corporate profits began to stagnate/decline, a direct consequence of spending large amounts of taxpayer money on wars on the Korean Peninsula (1950-1953) and Vietnam (1955-1975) and increased competition from rebuilt economies in Europe, primarily Germany (Marshall Plan) and Asia- Japan, South Korea (Korean and Vietnam wars) and more recently China. Starting in the early 1980s, the US financial elite began pressuring policy makers to pursue neoliberal economic policies, including multiple tax cuts for the wealthy, financial deregulation, austerity, attacks on the poor and labor and outsourcing manufacturing jobs to Mexico, China and other low-wage platforms. The Soviet Union officially dissolved on Dec 26, 1991. This was viewed by the US ruling elite as the removal of the major rival to US global power and would allow unrestrained actions of the American military to invade and occupy countries which are rich in natural resources and/or occupy geo-strategic locations and expand NATO into Eastern Europe up to the Russian border. Since 1991, US/NATO have been involved in conflicts in Yugoslavia, Persian Gulf/Iraq, Afghanistan, Pakistan, Somalia, Libya, Syria, Yemen and Ukraine [2].
Role of Corporate Media
First Amendment of the US constitution-
‘Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.’
It is commonly stated that the press (aka the proverbial ‘4th estate’) in the US is ‘free’ and ‘independent’ and ‘essential for the functioning of a free society’, serving as a ‘watchdog’ on government actions and policies and vital to protect the ‘liberty’ of American citizens. As is often the case, things are not always as they seem.
In a recent interview with Brian Berletic, Mark Sleboda commented that “Western media is in ‘lockstep’ with government on foreign policy to a degree that would make real dictators blush” [3]. While there is no doubt that Western (read corporate) media is indeed promoting US foreign policy, it is not the US government that formulates these polices, rather they are formulated and developed by the ruling elite, using corporate-funded foundations and ‘think tanks’, academic institutions and prominent politicians. These include the Council on Foreign Relations (CFR), Rand Corporation, Rockefeller Foundation, American Heritage Foundation, Atlantic Council, Brookings, Center for Strategic and International Studies (CSIS). Academic institutions such as The Kennedy School (Harvard), Hoover Institution (Stanford), Walsh School of Foreign Service (Georgetown) and School of Advanced International Studies (Johns Hopkins) not only provide ‘experts’ and government officials, such as Wendy Sherman (Kennedy School) current US Deputy Secretary of State in the Biden Administration, they serve as training grounds for government officials and corporate management, some of whom are employed by above listed universities and foundations.
Once formulated, these policies are ‘sold’ to the American public by a compliant and well-disciplined media. Approximately 90% of US media is controlled by six large corporations- Comcast, Walt Disney, AT&T, Paramount Global, Sony, and Fox, with a combined market cap of circa $500 billion [4] [5]. Like other large corporations, media conglomerates have the same class interests as the financial elite, i.e., promoting policies which increase corporate power and profits and maintain US global hegemony. So called ‘public’ media, such as National Public Radio (NPR) and the BBC, in the UK, function in a similar manner. Corporate media is closely integrated with large financial interests and serves as a ‘cheerleader’ for the Pentagon and US foreign policy.
Not surprisingly, major broadcasters, the paper of record (NYT), Wall St. Journal (WSJ), Washington Post, etc. are little more than a sounding board for the US ruling elite and thus, function primarily as the ‘ministry of propaganda’ for large financial interests. Any reporter, military analyst, aka ‘TV General’, etc. who ‘steps out of line’, such as telling the truth about the military debacle facing Ukraine will either be severely reprimanded or find themselves out of a job. Some examples-
1) CBS recently ran a documentary claiming that only 30% of ‘military aid’ sent to Ukraine actually arrived. The video was removed following complaints from the Ukrainian government. [6] [7].
2) David Sanger (Harvard graduate) is chief Washington correspondent for the NYT and also a member of the Council on Foreign Relations (CFR) [8], whose members include corporate executives, bankers, and other representatives of the ruling elite.
3) David Ignatius (Harvard graduate) is a foreign affairs columnist for the WaPo and has close ties to the intelligence community- CIA and Pentagon.
Sanger and Ignatius serve as pundits for US global power, promoting the use of military force to promote American interests.
When you do not toe the corporate line…………
4) Gary Webb was a journalist working for the San Jose Mercury News. In 1996, Webb published a series of articles, “Dark Alliance”, describing how Nicaraguan Contra rebels, working closely with the CIA, supplied crack cocaine to the Black community in Los Angeles and used proceeds from these sales to purchase weapons to overthrow the government of Daniel Ortega’s Sandinista National Liberation Front. Following publication of the Dark Alliance series, corporate media became hysterical, denouncing Webb, effectively ruining his career; he committed suicide in 2004 [9]
5) Julian Assange- In 2010, Wikileaks, founded by Julian Assange, published a series of leaks obtained from Chelsea Manning, a U.S. Army intelligence analyst, documenting US war crimes in Iraq and Afghanistan. Following publication of these leaks, the American government began a criminal investigation into WikiLeaks. In 2010, Sweden issued an arrest warrant for Assange over allegations of sexual misconduct. To avoid extradition, Assange sought refuge in the Ecuadorian embassy in London. In 2019, Assange was arrested by British police at the Ecuadorian embassy and transferred to Belmarsh, a Category-A men’s prison in London. Up to this point, Julian Assange had not been formally charged. However, on May 23, 2019, the United States government charged Assange with violating the Espionage Act of 1917 and is currently awaiting potential extradition to the US [10].
The US has been almost continuously involved in overt and covert military conflicts since 1940 and as a result, war and associated violence has been normalized and institutionalized by corporate media to the point, where these policies are readily accepted by a relatively docile and ignorant American public. When foreign governments deemed hostile to US corporate interests limit press ‘freedom’, they are immediately labeled as repressive/terrorist regimes and potential candidates for direct attack and ‘regime’ change by the US State Department. Apparently, what is ‘good for the goose’ is ‘not good for the gander’. As pointed out above, any journalist that threatens the American empire risks losing their job, imprisonment and/or death.
Accelerating Decline of late-stage American Capitalism
Multiple factors have contributed to the decline of American economic power. These include economic policies, spending astronomical amounts of taxpayer money on the military and war, social instability and rise of China-Russia-Iran axis.
Economic policies
Since the mid-1970s, US policy makers have pursued neoliberal economic policies- financial deregulation, austerity, tax cuts for the wealthy, attacks on labor and job-outsourcing, which has resulted in the massive growth of the FIRE sector of the economy composed of finance, insurance, and real estate. These polices precipitated the Global Financial Crisis (GFC) 2007-2008, the largest financial shock since the Great Depression. Rather than resolve the severe structural problems confronting American capitalism which created this crisis, the FED used the Treasury as a de facto taxpayer-supported ‘piggy bank’ (the FED cannot print money) to prop up equity markets, bonds, over-priced real estate and [still] insolvent banks. To put this in perspective, since 2009, the FED has injected over $40 trillion into financial markets, increasing the wealth of the financial elite, the proverbial ‘1%’. Not surprisingly, over the last 5 years, US government deficits have increased circa $2 trillion annually, currently exceeding $30 trillion (Fig. 1); this figure does not include municipal, corporate or consumer debt. This begs the obvious question of how long can the FED continue this orgy or money printing and debt? Note- for comprehensive background information on the FED’s financial activities, see Wall Street on Parade [11].
Military Spending and War
Since its inception, the US has been built on theft and violence, justified by ‘Christian’ religion and ‘White man’s burden’. The first permanent British settlement in North America was established in Jamestown, Virginia in 1607. A decade later, African slaves were introduced by Dutch slave traders. Over the next 250 years, the US government would continue stealing land and displace/murder circa 90% of the indigenous population. In the mid-19th century, the US had the world’s leading economy, largely built on cotton produced by Black slaves [12]. Fast forward 150 years, the US has been almost continuously at war since 1940. 911 was a godsend for the military- US taxpayers have spent circa $21 trillion ($7.2 trillion going to military contractors) on post-911 militarization [13] [14]. The military appropriation for 2023 exceeds $760 billion. Despite this taxpayer largess, the Pentagon has not ‘won’ a war since 1945, was forced out of Afghanistan after spending $2 trillion, and confronts looming strategic debacles in Iraq, Syria, Libya, Yemen and Ukraine. This has vividly shown the rest of the world the limits of American military power. Unfortunately, after expending so much financial and human capital, the Pentagon appears incapable of extricating itself from these conflicts as doing so is an admission of failure and by extension military weakness. This was clearly seen following Joe Biden’s decision to remove US troops from Afghanistan in 2021 and the push-back he received from corporate media and people in Congress.
Political Chaos and Social Instability
We frequently hear that US society has progressed to the point, where the country appears to be increasingly ungovernable. Indeed, American society is plagued by economic inequality, racism and ubiquitous violence. The American working class has watched their standard of living plummet- a result of decades of neoliberal economic policies, including job outsourcing, austerity, stagnant income growth and since the Covid 19 pandemic, high inflation, reflected by increasing costs for rent, transportation, energy, groceries, medical care and other necessities. To put this in perspective, 60% of Americans do not have $500 in savings and thus are one expensive car repair, medical emergency or job loss away from financial ruin. At the same time the wealth of American billionaires has increased circa $1 trillion during the Covid19 pandemic. Not surprisingly in 2016, Donald Trump skillfully exploited the justifiable anger and frustration of working people, stating that he would ‘Make American Great Again’, blaming American economic problems on immigrants from Mexico and Latin America and China’s economic rise.
Rise of BRICS/SCO and US/NATO debacle in Ukraine
We are seeing the continued rise in the global power and influence of Russia, China and allied nations, on multiple fronts, including organizational, economic and militarily. The BRICS and Shanghai Cooperation Organization (SCO) are expanding. Original BRICS members included Brazil, Russia, India, China and South Africa. Iran and Argentina have applied for admission, while the Kingdom of Saudi Arabia (KSA), Turkey and Egypt are applying for entry next year. SCO is the largest regional economic institution in the world, covering 60% of Eurasia with a population > 3.2 billion and combined GDP of member states circa 25% of global total. Trade between BRICS and SCO member states is increasingly being carried out using local currencies.
The Mir payment system operated by the Russian National Card Payment System [15] is a direct competitor to Visa and Mastercard and now accepted throughout the Russian Federation and in 13 countries including India, Turkey and South Korea and will soon be used in Iran. BRICS nations are developing a global currency for international trade that will directly compete with the dollar [16]. Russia is developing a new international trading platform for precious metals: the Moscow World Standard (MWS) [17]. The Russian Finance Ministry believes this new independent international structure will ‘normalize the functioning of the precious metals industry” and serve as an alternative to the London Bullion Market Association (LBMA; https://www.lbma.org.uk), [18] which for years has been accused of systematically manipulating the price of precious metals markets to depress prices [19]. Collectively, these policies have been designed to significantly reduce the dependence of economies in Russia, China, India and other countries in the Global South on the US/EU and eliminate dependence on the US dollar and Society for Worldwide Interbank Financial Telecommunications (SWIFT) system [20] for international trade. No doubt this is being done in close collaboration with China’s Belt and Road Initiative (BRI) whose goal is to connect Asia with Africa and Europe via land and maritime networks with the aim of improving regional integration, increasing trade and stimulating economic growth [21] [22]. This trajectory has been accelerated following enactment of US/EU sanctions on Russia, Iran and China.
Over the last decade, the military power of Russia, China and Iran has greatly strengthened. The Russian military is a global leader in air-defense systems and hypersonic weapons, which are impermeable to any air-defense systems currently deployed by the US/NATO [23]. Over the last 25 years, China has modernized its military, focusing on People’s Liberation Navy and Army Air Force [24] [25]. China has developed a robust missile arsenal including intercontinental ballistic missiles (ICBMs) [26]. The Pentagon now considers China a ‘formidable military force’ and a ‘major challenge’ to the US Navy in the Western Pacific. The Islamic Republic of Iran has also developed a formidable defensive military capability, which has positioned Iran as a major power broker in the region. The Center for Strategic and International Studies (CSIS) has concluded- ‘Iran possesses the largest and most diverse missile arsenal in the Middle East, with thousands of ballistic and cruise missiles, some capable of striking as far as Israel and southeast Europe.’ [27]. Iran has repeatedly warned the US/NATO that it can target US military bases in the region, including Al Udeid base in Qatar, the largest US base in the Middle East. We are seeing increased assertiveness from the Russia-China-Iran axis in Syria, Ukraine and Western Pacific. This was clearly articulated by Russian President Vladimir Putin’s speech to the St. Petersburg International Economic Forum in June, declaring an end of “the era of the unipolar world” [28]. The Pentagon is being increasingly challenged by the Russia-China-Iran axis in Eastern Europe, the Middle East and Western Pacific.
Ukraine- another US/NATO debacle
For background and historical information covering Ukraine and her relationship with Russia, see [29]. Ukraine is the second largest country in Europe after Russia and occupies a strategic location in Eastern Europe, sharing a circa 2300 km (1227 mi) border with Russia [30] (Fig. 2). As of 2021, Ukraine had the second largest military (circa 200,000 military personnel), after the Russian Armed Forces, in Europe and has the dubious distinction of being one of the most corrupt countries in the world [31]. Historically, the predominantly Russian speaking population in the Donbas region in eastern Ukraine has maintained close ties with Russia.
In February 2014, the US- instigated Maidan coup took place, replacing the democratically-elected President Victor Yanukovych with a Russia-phobic and far-right politician/economist/lawyer, Arseniy Yatsenyuk. Not surprisingly, the Ukrainian government was soon dominated by an alliance of far-right/fascistic organizations including the Right Sector and Svoboda and oligarchic parties, such as Fatherland. This was predictable, as these groups were the most virulently anti-Russian factions in Ukraine [32] and are still very active in the government and military [33] [34]. Soon after the coup took place, the Donetsk and Luhansk Peoples Republics declared their independence, initiating the war in the Donbas. Over the next 8 years, the US/NATO would train circa 100,000 Ukrainian troops and channel $ billions in military aid [35], which was used to equip Ukrainian army and fortify positions adjacent to the Donetsk and Luhansk Republics [30] (Fig. 3). This buildup was accompanied by increased shelling of residential areas in the Donbas region by the Ukrainian military [36] [37], setting up a potential invasion of this region [38]. In response to the escalating attacks by Ukrainian forces. Russia recognized the Donetsk and Luhansk Peoples Republics as sovereign states on Feb 21, 2022, just prior to the Russian invasion on Feb 24, 2022, describing this campaign as a Special Military Operation (SMO) [39]. For an excellent overview of why Russia made the decision to invade Ukraine, see [40].
Going up against a well-trained, well equipped and an entrenched Ukrainian army, Russian forces have managed to take control of circa 20% (~47,000 square miles) of southern Ukraine and are incrementally removing Ukrainian forces from this region [38] (Fig. 3). Significantly, this territory contains prime agricultural and resource-rich land. It appears that Russia is planning on annexing littoral territory extending from the Donetsk/Luhansk region to Odesa [41]. Once this happen, any future Ukrainian state will not only be land-locked and lack direct access to the Black Sea, it will also lose valuable land as well. Military analyst Andrei Martyanov [42] has pointed out the ‘combined West doesn’t have material and technological means of fighting Russia in Eastern Europe without losing catastrophically. Western weapons turned out to be nothing more than commercial items not designed to fight the modern war, plus–no Western economy, including the United States has the capability to produce them in needed quantities anyway.’
The collective west has responded to the Russian invasion by blocking the opening of the Nord Stream 2 energy pipeline, which would directly supply Russian natural gas to Germany, imposed sanctions on Russian energy exports and disconnected Russian banks from the SWIFT system. To the dismay of the US/NATO, these actions have led to large increases in EU energy costs while strengthening the Russian economy [43]. Indeed, the paper of record (NYT) published a recent OpEd bemoaning the fact that despite western sanctions, Russia is making more money than ever on energy exports to China, India and other countries [44]. Despite nonstop condemnation from the US and EU of Russia’s SMO in Ukraine, many nations have not criticized the war [45]; only 1/3 of UN members supported a new anti-Russia resolution this August [46]. Thus, dwindling international support for Ukraine, coupled with success of the Russian SMO indicates that the country will not exist in its current form.
Concluding Remarks
The decline of late-stage American capitalism has been ongoing since the mid-1970s, but has been accelerated by the GFC, Covid-19 pandemic, climate change and Russian SMO in Ukraine. Not surprisingly, the ruling elite and their representatives in Washington have responded by shifting the costs of this decline onto the public, who have watched their living standard plummet, homelessness increase [47], imposed reactionary legislation such as the criminalization of pregnancy by the US Supreme Court, ratcheted up state violence against working people and people of color, while engaging in an astronomically expensive and reckless foreign policy. It appears the ruling elite view the Russia-China-Iran axis as an intolerable obstacle to US global power, reflected in the ongoing war in Ukraine, which is a de facto proxy war between the US and Russia. US-imposed sanctions on Russian energy have driven global energy prices higher; natural gas prices in the EU are 14-fold higher than the 10-year average. As a result, the UK/EU are at risk of not having sufficient quantities of natural gas for the winter, while EU industry will not be competitive with their rivals in Asia, who are being supplied with cheaper Russian energy. This is going to lead to increasing unemployment and social instability in the Eurozone.
The continued presence of US troops in Iraq and Syria is a desperate attempt to maintain control over Middle East energy reserves. The continued recklessness of this occupation can be seen from the constant Israeli attacks on Syrian and Iranian-allied forces by Israel/US, increasing the chances of a war with Iran, which can rapidly escalate, potentially incinerating the entire Persian Gulf region. It appears the US is abandoning the ‘one-China’ policy’ that has guided relations between the two countries for nearly 5 decades and is preparing to recognize Taiwan as an ‘independent’ state, a redline for the Peoples Republic of China. No doubt, this was one motivation for sending House Speaker Nancy Pelosi, from ‘’liberal’ San Francisco, with a net worth exceeding $100 million, to visit Taiwan. The Pentagon is actively encouraging Japan, which is little more than a US stooge/vassal and still occupied by circa 50K US troops, to join in this effort [48]. This begs the obvious question- did Japan learn anything from their defeat in WWII? As Glen Ford has pointed out, hegemons do not have ‘allies’ they only have subordinates [49].
The decline of late-stage American capitalism has progressed to the point where the very survival of the American empire is now contingent upon endless money printing to prop up financial markets and the military. This is becoming increasingly tenuous as this orgy of money printing and debt has created gigantic bubbles in every asset class- ‘everything bubble’, increasing inflation and threatening to derail the dollar’s role as world reserve currency and viability of western capitalism. Considering the weak state of US/EU economies, what economic incentives does the US have to encourage countries in the Indo-Pacific to reduce trade with China? Obviously, this is a nonstarter [50]. The ruling oligarchy are well aware of US economic decline and in desperation, are attempting to directly confront the Russia-China-Iran axis, which has attained economic and military parity (superiority?) with US/NATO. Perilous times ahead.
24. China Naval Modernization: Implications for U.S. Navy Capabilities—Background and Issues for Congress. Congressional Research Service Mar 8, 2022; https://sgp.fas.org/crs/row/RL33153.pdf
33. Neo-Nazis and the Far Right Are on the March in Ukraine- Five years after the Maidan uprising, anti-Semitism and fascist-inflected ultranationalism are rampant.
Figure 3. Military Situation in Ukraine for Aug 31, 2022. Areas in Red are controlled by the allied forces of the Donetsk and Luhansk People’s Militia and Russian military.
Hey, everyone, this is Ben Norton, and you are watching or listening to the Multipolarista podcast. I am always privileged to be joined by one of my favorite guests, Michael Hudson, one of the greatest economists living today.
We’re going to be talking about the inflation crisis. This is a crisis around the world, but especially in the United States, where inflation has been at over 8%. And it has caused a lot of political problems. It’s very likely going to cause the defeat, among other factors, of the Democrats in the mid-term elections in November.
And we’ve seen that the response of the US government and top economists in the United States is basically to blame inflation on wages, on low levels of unemployment and on working people.
We’ve seen that the chair of the Federal Reserve, Jerome Powell, has said that inflation is being caused by wages supposedly being too high. We’ve also seen that the top economist and former Clinton administration official Larry Summers has claimed that the solution to inflation is increasing unemployment, potentially up to 10%.
So today I’m joined by economist Michael Hudson, who has been calling out this kind of neoliberal snake oil economics for many years. And Professor Hudson has an article he just published that we’re going to talk about today. You can find this at his website, which is michael-hudson.com. It’s titled “The Fed’s Austerity Program to Reduce Wages.” and I’m going to let Professor Hudson summarize the main points of his article.
Professor Hudson, as always, it’s a pleasure having you. Can you respond to the decision by the Federal Reserve to increase interest rates by 0.75%? It doesn’t sound like a lot – it’s less than 1% – but this was the largest rate hike since 1994.
And now we’ve already seen reports that there’s going to be a depression. The Fed chair is blaming this on wages. Can you respond to the position of the Fed and the inflation crisis in the US right now.
MICHAEL HUDSON:
For the Fed, the only two things that it can do is, number one, raise the discount rate, the interest rate; and number two, spend $9 trillion buying stocks, and bonds, and real estate mortgages to increase real estate prices, and to increase the amount of wealth that the wealthiest 10% of the population has.
To the wealthiest 10%, especially the 1%, it’s not only inflation that’s a problem of wages; every problem that America has is the problem of the working class earning too much money. And if you’re an employer, that’s the problem: you want to increase your profits. And if you look at the short term, your profits go up the more that you can squeeze labor down. And the way to squeeze labor down is to increase what Marx called the reserve army of the unemployed.
You need unemployment in order to prevent labor from getting most of the value of what it produces, so that the employers can get the value, and pay that to the banks and the financial managers that have taken over corporate industry in the United States.
You mentioned that while the Fed blames the inflation it on labor, that’s not President Biden’s view; Biden keeps calling it the Putin inflation. And of course, what he really means is that the sanctions that America has placed on Russia have created a shortage of oil, gas, energy, and food exports.
So really we’re in the Biden inflation. And the Biden inflation that America is experiencing is the result basically of America’s military policy, its foreign policy, and above all, the Democratic Party’s support of the oil industry, which is the most powerful sector in the United States and which is guiding most of the sanctions against Russia; and the national security state that bases America’s power on its ability to export oil, or control the oil trade of all the countries, and to export agricultural products.
So what we’re in the middle of right now isn’t simply a domestic issue of wage earners wanting higher salaries – which they’re not particularly getting; certainly the minimum wage has not been increased – but you have to put this in the context of the whole cold war that’s going on.
The whole US and NATO confrontation of Russia has been a godsend, as you and I have spoken before, for the oil industry and the farm exporters.
And the result is that the US dollar is rising against the euro, against sterling, and against Global South currencies. Well, in principle a rising dollar should make the price of imports low. So something else is at work.
And what’s at work, of course, is the fact that the oil industry is a monopoly, that most of the prices that have been going up are basically the result of a monopolization, in the case of food, by the marketing firms, like Cargill and Archer Daniels Midland, that buy most of the crops from the farmers.
The irony is that while food prices, next to oil prices, are the major factor that is soaring, farmers are getting less and less for their crops. And yet farmers’ costs are going up – up for fertilizer, up for energy, up for other inputs – so that you’re having enormous profits for Archer Daniels Midland and the food monopolies, of the distributors, and enormous, enormous gains for the oil industry, and also of course for the military-industrial complex.
So if you look at what’s happening in the overall world economic system, you can see that this inflation is being engineered. And the beneficiaries of this inflation certainly have not been the wage earners, by any stretch of the imagination.
But the crisis that the Biden policy has created is being blamed on the wage earners instead of on the Biden administration’s foreign policy and the basically the US-NATO war to isolate Russia, China, India, Iran, and Eurasia generally.
BENJAMIN NORTON:
Professor Hudson, I want to talk about the increase in interest rates by the Fed. There has been a lot of attention to this, although, again, it’s 0.75%, which is not that big. But it’s of course going to have an outsize impact on the economy.
raising interest rates will cure inflation by deterring borrowing to spend on the basic needs that make up the Consumer Price Index and its related GDP deflator. But banks do not finance much consumption, except for credit card debt, which is now less than student loans and automobile loans. Banks lend almost entirely to buy real estate, stocks and bonds, not goods and services.
So you argue that one of the effects of this is that it’s actually going to roll back homeownership in the United States. You note that the rate of homeownership has been falling since 2008.
So can you expand on those arguments? What will be the impact of the increase of the interest rates by the Fed?
MICHAEL HUDSON:
Well, in order to get an economics degree which is needed to work at the Fed or at the Council of Economic Advisors, you have to take economics courses in the universities, and all of the textbooks say just what you quoted me as saying they say.
The pretense is that banks actually play a productive role in society, by providing the money for factories to buy machinery, and build plants, and do research and development, and to hire labor; and that somehow the money that banks create is all lent out for industrial economy, and that that will enable companies to make more money that they’ll spend on labor; and of course, as they spend more money on labor, that supports to bid prices up as the reserve army of the unemployed is depleted.
But that’s all a fiction. The textbooks don’t want to say that banks don’t play a productive role like that at all. And the corporations don’t do what the textbooks say.
If you look at the Federal Reserve balance sheet and statistics that it publishes every month, you’ll see that 80% of bank loans in the United States are mortgage loans to commercial real estate and mostly for home real estate. And of course the home mortgage loans have been nothing, like under 1% for the last 14 years, since 2008.
Only the banks and the large borrowers, the financial sector, have been able to borrow at these low rates. Homeowners all along have had to pay very high rates, just under 4%, and now it’s going above 4%, heading to 5%.
Well, here is the situation that the Federal Reserve has created. Suppose that you’re a family right now going out to buy a home, and you find out that in order to borrow the money to buy the home – because if the average home in America costs $600,000 or $700,000, people haven’t saved that much; the only way you can buy a home is to take out a mortgage.
Well, you have a choice: you can either rent a home, or you can borrow the money to buy a home. And traditionally, for a century, the carrying charge for financing a home with the mortgage has been about the equivalent of paying a rent. The advantage is, of course, that you get to own the home when it’s over.
Well, now let’s look at what’s happening right now. All of a sudden, the carrying charge of mortgages have gone way, way up. The banks are making an enormous gap. They can borrow at just around 1%, and they lend out at 4.5%. They get a windfall gain of the markup they have in mortgages, lending to prospective homeowners.
And of course, the homeowners don’t have enough money to be able to pay the higher interest charged on the mortgages that they take out. So they are not able to buy as expensive a home as they wanted before.
But they’ve been a declining part of the population. At the time Obama took office, over 68% of Americans owned their own home. Obama started the great wave of evictions, of 10 million Americans who lived in homes, essentially to throw them out of their homes, especially the victims of the junk mortgages, especially the lower income and racial minorities who were redlined and had to become the main victims of the mortgages.
America’s homeownership rate is now under 61%. What has happened? You’ve had huge private capital firms come into the market thinking, wait a minute, we can now buy these properties and rent them out. And we can buy them for all cash, unlike homeowners, we’re multibillionaires, we Blackstone, BlackRock.
You have these multibillion-dollar funds, and they say, well, we can’t make much money buying bonds or buying stocks that yield what they do today, now that the Federal Reserve has ground down interest rates. What we can do is make money as landlords.
And so they’ve shifted, they’ve reversed the whole shift away from the 19th-century landlordism to an economy based on financialization, and the wealthy classes making money on finance, to go back to making money as landlords.
And so they are buying up these homes that American homeowners can’t afford to buy. Because when you raise the mortgage rate, that doesn’t affect a billionaire at all. Because the billionaire firm doesn’t have to borrow money to buy the home. They have the billion dollars of their own money, of pension fund money, of speculative money, of the money of the 1% and the 10% to spend.
So what you’re having by increasing the interest rates is squeezing homeowners out of the market and turning the American economy into a landlord-ridden rental economy, instead of a homeowners economy. That’s the effect.
And it’s a windfall for the private capital firms that are now seeing that are making money as landlords, the old fashioned way, it worked for 800 years under feudalism. It’s coming back in style.
BENJAMIN NORTON:
Professor Hudson, you point out in this article at your website that more than 50% of the value of U.S. real estate already is held by mortgage bankers. And of course, that percentage is increasing and increasing.
Now, you, Professor Hudson, have argued a point that I haven’t seen many other people make, although it’s an obvious, correct point, which is that there has actually been a lot of inflation in the United States in the past several years, but that inflation was in the FIRE sector: finance, insurance, and real estate.
We see that with the constant increase in real estate prices; they go up every single year; rent goes up every single year. The difference now is that there’s also a significant increase in the Consumer Price Index.
And there is an interesting study published by the Economic Policy Institute, which is, you know, a center-left think tank, affiliated with the labor movement; they’re not radicals, they’re progressives. And they did a very good study.
And they found – this was published this April – they found that corporate profits are responsible for around 54% of the increase of prices in the non-financial corporate sector, as opposed to unit labor costs only being responsible for around an 8% increase.
So they showed, scientifically, that over half of the increase of prices in the non-financial corporate sector, that is in the Consumer Price Index, over half of that inflation is because of corporate profits.
Of course, that’s not the way it’s discussed in mainstream media. That’s not the way the Fed is discussing it all. We see Larry Summers saying that we need to increase unemployment. Larry Summers, of course, was the treasury secretary for Bill Clinton.
He’s saying that the U.S. has to increase unemployment; the solution to inflation is increasing unemployment. Even though these studies show that over half of inflation in the Consumer Price Index is because of corporate profits.
I’m wondering if you can comment on why so many economists, including people as revered as Larry Summers, refuse to acknowledge that reality.
MICHAEL HUDSON:
Most economists need to get employment, and in order to be employed, you have to give a picture of the economy that reflects how well your employer helped society at large. You’re not allowed to say that your employer is acting in ways that are purely predatory. You’re not allowed to say that the employer does not earn an income.
You talked about corporate profits and the classical economists. If you were a free-market economist like Adam Smith, or David Ricardo, or John Stuart Mill – these are monopoly rents. So what you call corporate profits are way above normal corporate rates of return, normal profits. They’re economic rents from monopoly.
And that’s because about 10 or 15 years ago, the United States stopped imposing its anti-monopoly laws. It has essentially let monopolies concentrate markets, concentrate power, and charge whatever they want.
And so once you’ve dismantled the whole legal framework that was put in place from the 1890s, from the Sherman Antitrust Act, down through the early 20th century, the New Deal, once you dismantle all of this state control, saying – essentially what Larry Summers says is, we’re for a free market.
A “free market” is one in which companies can charge whatever they want to charge for things; a free market is one without government regulation; a free market is one without government; a free market is a weak enough government so that it cannot protect the wage earners; it cannot protect voters. A “democracy” is a country where the bulk of the population, the wage earners, have no ability to affect economic policy in their own interests.
A “free market” is one where, instead of the government being the planner, Wall Street is the planner, on behalf of the large industries that are basically being financialized.
So you’ve had a transformation of the concept of what a free market is, a dismantling of government regulation, a dismantling of anti-monopoly regulation, and essentially the class war is back in business.
That’s what the Biden administration is all about. And quite frankly, it’s what the Democratic Party is all about, even more than the Republican Party. The Republican Party can advocate pro-business policies and pro-financial policies, but the Democratic Party is in charge of dismantling the legacy of protection of the economy that had been put in place for a century.
Now, I also wanted to get your response, Professor Hudson, to these comments that you highlighted in a panel that was organized by the International Manifesto Group – a great organization, people can find it here, their channel here at YouTube. And they held a conference on inflation. And you were one of several speakers.
And you highlighted these comments that were made by the Fed chair, Jerome Powell. And this is according to the official transcript from The Wall Street Journal. So this is not from some lefty, socialist website. Here’s the official transcript of a May 4 press conference given by the Fed chief, Jerome Powell.
In this press conference, he said, discussing inflation, he said, in order to get inflation down, he’s talking about things that can be done “to get wages down, and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially.”
So this is another proposal. Larry Summers says 6% unemployment for five years, or 10% unemployment for one year. The Fed chair, Jerome Powell, says the solution is “to get wages down.” I’m wondering if you can respond to that as well.
MICHAEL HUDSON:
Well, the important thing to realize is that President Biden re-appointed Jerome Powell. President Biden is a Republican. The Democratic Party is basically the right wing of the Republican Party, the pro-financial, the pro-Wall Street wing of the Republican Party.
Why on earth, if the Democrats were different from the Republicans, why would would Biden re-appoint an anti-labor Republican, as head of the Federal Reserve, instead of someone that would actually try to spur employment?
Imagine, here’s a party that is trying to be elected on a program of, “Elect us, and we will create a depression and we will lower wages.” That is the Democrat Party slogan.
And it’s a winning slogan, because elections are won by campaign contributions. The slogan is, “We will lower wages by bringing you depression,” is a tsunami of contributions to the Democratic Party, by Wall Street, by the monopolists, by all the beneficiaries of this policy.
So that’s why the Supreme Court ruling against abortions the other day is a gift to the Democrats, because it distracts attention from their identity politics of breaking America into all sorts of identities, every identity you can think of, except being a wage earner.
The wage earners are called deplorables, basically. And that’s how the donor class thinks of them, as sort of unfortunate overhead. You need to employ them, but it really it’s unfortunate that they like to live as well as they do, because the better they live, the less money that you will end up with.
So I think that this issue of the inflation, and what really causes it, really should be what elections are all about. This should be the economic core of this November’s election campaign and the 2024 election campaign. And the Democrats are leading the fight to lower wages.
And you remember that when President Obama was elected, he promised to increase the minimum wage? As soon as he got in, he said the one thing we cannot do is raise the minimum wage. And he had also promised to back card check. He said, the one thing we must not do is increase labor unionization with card check, because if you unionize labor, they’re going to ask for better wages and better working conditions.
So you have the Democratic Party taking about as hard a right-wing position as sort of Chicago School monetarism, saying the solution to any any problem at all is just lower wages and somehow you’ll be more competitive, whereas the American economy is already rendered uncompetitive, not because wages are so high, but because, as you mentioned before, the FIRE sector, the finance, insurance, and real estate sector is so high.
Rents and home ownership, having a home is too expensive to be competitive with foreign labor. Having to pay 18% of GDP on medical care, privatized medical care, prices American labor out of the market. All of the debt service that America has paid is pricing America out of the market.
So the problem is not that wages are too high. The problem is that the overhead that labor has to pay in order to survive, for rent, for medical care, for student loans, for car loans, to have a car to drive to work, for gas to drive to work, to buy the monopoly prices that you need in order to survive – all of these are too high.
None of this even appears in economic textbooks that you need to get a good mark on, in order to get an economics degree, in order to be suitably pliable to be hired by the Federal Reserve, or the Council of Economic Advisers, or by corporations that use economists basically as public relations spokesmen. So that’s the mess we’re in.
BENJAMIN NORTON:
Professor Hudson, in your article at your website, michael-hudson.com, you have an important section about the quantitative easing policies. We were talking about how there has been inflation in the past decade, but then inflation was largely in the FIRE sector, pushing up, artificially inflating the prices of real estate and stocks.
You note that:
While home ownership rates plunged for the population at large, the Fed’s “Quantitative Easing” increased its subsidy of Wall Street’s financial securities from $1 trillion to $8.2 trillion – of which the largest gain has been in packaged home mortgages. This has kept housing prices from falling and becoming more affordable for home buyers.
And you, of course, note that “the Fed’s support of asset prices saved many insolvent banks – the very largest ones – from going under.”
I had you on to discuss, in late 2019, before the Covid pandemic hit, we know that the Fed had this emergency bailout where it gave trillions of dollars in emergency repo loans to the biggest banks to prevent them from from crashing, trying to save the economy.
I do want to talk about this as well, because sometimes this is used by right-wingers who portray Biden hilariously as a socialist. You were just talking about how the Democrats have a deeply neoliberal, right-wing economic program.
But of course, there is this rhetoric that we see from Republicans and conservatives claiming that Biden is a socialist. They claim that the reason there is inflation is because Biden is just printing money and giving money to people.
Of course, that’s not at all what’s happening. What has happened is that the Fed has printed trillions of dollars and given that to stockholders, to big corporations, and to banks.
And this is a point that I saw highlighted in that panel I mentioned, the conference on inflation that was organized by the International Manifesto Group. A colleague of yours, a brilliant political economist, Radhika Desai, she invited everyone to go to the Fed website and look at the Fed balance sheet.
And this is the Fed balance sheet from federalreserve.gov. This is the Board of Governors of the Federal Reserve System website. And it is pretty shocking to see this graph, which shows the total assets of the U.S. Federal Reserve.
Back in 2008, the Federal Reserve had around $900 billion in assets. Now it’s at nearly $9 trillion in assets.
And we can see, after the financial crash, or during the financial crash, it increased to around $2 trillion. And then around 2014, it increased to around $4.5 trillion. And then especially in late 2019 and 2020, it skyrocketed from around $4 trillion up to $7 trillion. And since then, it has continued skyrocketing to $9 trillion in assets.
Where did all of that money go? And what was the impact on the economy, of course?
MICHAEL HUDSON:
Well, the impact on the economy has been to vastly increase the wealth of the wealthiest 1% of Americans who own most of the stocks and bonds.
Sheila Bair, the former head of the Federal Deposit Insurance Corporation, pointed out that a lot of this $8 trillion is spent to buy junk bonds.
Here’s the problem. The problem really began with President Obama. He inherited a system where you had the largest wave of commercial bank fraud in American history.
As my colleague Bill Black at the University of Missouri at Kansas City has pointed out, everybody knew that there was a bank fraud on. The newspapers referred to junk mortgages and “NINJA” borrowers: “no income, no jobs, no assets.”
So banks had written mortgages way above the actual value of homes, especially to racial and ethnic minorities, without any ability of the borrowers to actually pay.
And then these banks had packaged these mortgages, and sold them to hapless pension funds, and other institutional investors and to the European banks that are always very naive about how honest American banks are.
You had this whole accumulation of what the 19th century called fictitious capital. Mortgages for property that wasn’t worth anywhere near as much as the mortgage is for.
So if the mortgage was defaulted, if homeowners had jingle mail – in other words, you just mail the keys back to the bank and say, ok, take the house, I find I can buy a house now at half the price that Citibank or one of these other banks lent out.
Well, normally you’d have a crash of prices back to realistic levels, so that the value of mortgages actually reflected the value of property, or the value of junk bonds issued by a corporation reflected the actual earning power of the corporation to pay interest on the junk bonds.
So by the time Obama took over, the whole economy was largely fictitious capital. Well, Obama came in and he said, my campaign donors are on Wall Street. He called in the Wall Street bankers and he said, I’m the guy standing between you and the crowd with the pitchforks, the people who voted for me. But don’t worry, I’m on your side.
He said, I’m going to have the Federal Reserve create the largest amount of credit in human history. And it’s all going to go to you. It’s going to go to the 1% of the population. It’s not going to go into the economy. It’s not going to build infrastructure. It’s not going into wages. It’s not going to reduce the price of homes and make them more affordable to Americans.
It’s going to keep the price of these junk bonds so high that they don’t crash back to non-fictitious values. It’s going to keep the stock market so high that it’s not going to go down. It’s going to create the largest bond market boom in history.
The boom went from high interest rates to low interest rates, meaning a gigantic rise in the price of bonds that actually pay interest that are more than 0.1%.
So there was a huge bond market boom, a huge stock market, a tripling of stock market prices. And if you are a member of the group that owns 72% of American stocks, I think that’s 10% of the population, you have gotten much, much richer.
But if you’re a member of the 90% of the population, you have had to go further and further into debt just in order to survive, just in order to pay for medical care, student loans, and your daily living expenses out of your salary.
So if American wages were at a decent level, American families would not be pushed more and more into debt. The reason the personal debt has gone up in the United States is because families can’t get by on what they earn.
So obviously, if they can’t get by on what they earn, and they have to borrow to get by, they are not responsible for causing the inflation. They’re being squeezed.
And the job of economists, and of Democratic Party and Republican politicians, is to distract attention from the fact that they’re being squeezed and blame the victim, and saying, you’re doing it to yourself by just wanting more money, you’re actually creating the inflation that is squeezing you.
When actually it’s the banks, and the government’s non-enforcement of the monopoly policy, and the government support of Wall Street that is responsible for what is happening.
BENJAMIN NORTON:
Very, very well said.
Professor Hudson, I should have highlighted another part of this graph here. This is, again, this is at the Federal Reserve Board website. It’s even more revealing when you look at the selected assets of the Fed, and you see that all of these assets basically are securities, securities held outright by the Fed.
We see that around 2008, the Fed had less than $500 billion in securities. And you have this policy of quantitative easing. And since then, basically all of the increase has been in securities. Of the roughly $9 trillion in assets the Fed holds, about about $8.5 trillion is in securities.
I’m wondering if you can compare this to central banks in other countries. We’ve seen, for instance, that the Western sanctions on Russia were aimed at trying to destroy the Russian economy.
President Biden claimed they were trying to make the ruble into rubble. In fact, the ruble is significantly stronger now than it was before the sanctions. To such a degree that the Russian government and Russian national bank are actually trying to decrease the value of the ruble, because they think it’s a little overvalued; it makes it a little harder to be competitive.
So how does this policy of the US Fed having $8.5 trillion worth of securities compare to the policies of other central banks?
You have experience working with the Chinese government as an advisor. Do other governments’ central banks have this policy?
And and that $8.5 trillion in securities, what are those securities? Even from the perspective of these neoliberal economics textbooks that you were talking about, that people are taught in universities, this seems to me to be totally insane. I don’t see how there is even an academic, neoliberal textbook explanation for this policy.
MICHAEL HUDSON:
Very few people realize the difference between a central bank and the national treasury. The national treasury is what used to perform all of the policies that central banks now do. The national treasury would be in charge of issuing money and spending it.
Central banks were broken off in America in 1913 from the Treasury in order to shift control of the money supply and credit away from Washington to New York. That was very explicit.
The original Federal Reserve didn’t even permit a Treasury official to be on the board of directors. So the job of a central bank is to represent the interest of the commercial banks.
And as we just pointed out, the interest of the commercial banks is to produce their product: debt. And they create their product against existing assets, mainly real estate, but also stocks and bonds.
So the job of the central bank here is to support the financial sector of the economy, and that sector that holds wealth in the form of stocks, bonds, and loans, and especially bank bonds that make their money off real estate credit.
Same thing in Europe, with Europe’s central bank. Europe is going into a real squeeze now, and has been going into a squeeze ever since you had the Greek crisis.
In Europe, because right-wing monetarist designed the euro, part of the eurozone rule is you cannot run a budget deficit, a national budget deficit of more than 3% of gross domestic product.
Well, that’s not very much. That means that you can’t have a real Keynesian policy in Europe to pull the economy out of depression. That means that if you’re a country like Italy right now, and you have a real financial squeeze there, a corporate squeeze, a labor squeeze, the government cannot essentially rescue either Italian industry or Italian labor.
However, the European central bank can, by the way that it creates credit, by central bank deposits, the European central bank can vastly increase the price of European stocks, bonds, and packaged mortgages. So the European central bank is very much like the commercial bank.
China is completely different, because, unlike the West, China treats money and credit as a public utility, not as a private monopoly.
And as a public utility, China’s central bank will say, what are we going to want to create money for? Well, we’re going to want to create money to build factories; we’re going to want to create money so that real estate developers can build cities, or sometimes overbuild cities. We can create money to actually spend in the economy for something tangible, for goods and services.
The Chinese central bank does not create money to increase stock market prices or bond prices. It doesn’t create money to support a financial class, because the Communist Party of China doesn’t want a financial class to exist; it wants an industrial class to exist; it wants an industrial labor force to exist, but not a rentier class.
So a central bank in a Western rentier economy basically seeks to create credit to inflate the cost of living for homebuyers and for anyone who uses credit or needs credit, and to enable corporations to be financialized, and to shift their management away from making profits by investing in plant and equipment and employing labor to produce more, to making money by financial engineering.
In the last 15 years, over 90% of corporate earnings in the United States have been spent on stock buybacks and on dividend payouts. Only 8% of corporate earnings have been spent on new investment, and plants, and equipment, and hiring.
And so of course you have had the economy deindustrialized. It’s this idea that you can make money financially without an industrial base, without a manufacturing base; you can make money without actually producing more or doing anything productive, simply by having a central bank increase the price of the stocks, and bonds, and the loans made by the wealthiest 10%.
And of course, ultimately, that doesn’t work, because at a certain point the whole thing collapses from within, and there’s no industrial base.
And of course, when that happens, America will find out, wait a minute, if we close down the economy, we’re still reliant on China and Asia to produce our manufacturers, and to provide us with raw materials, and to do everything that we need. We’re really not doing anything but acting as a world – well, people used to say parasite – as a world rentier, as getting something for nothing, as a kind of financial colonialism.
So America you could look at as a colonial power that is a colonial power not by military occupation, but simply by financial maneuvering, by the dollar standard.
And that’s what’s being unwound today as a result of Biden’s new cold war.
BENJAMIN NORTON:
Professor Hudson, you criticized the strategy of simply trying to increase the interest rates to bring down inflation, noting that it’s going to lead to a further decline in homeownership in the United States. It’s going to hurt working people. I think that’s a very valid criticism.
I’m curious, though, what your take is on the response of the Russian central bank to the Western sanctions. We saw that the chair of the Russian central bank, Elvira Nabiullina, she – actually this is someone who is not even necessarily really condemned a lot by Western economists; she is pretty well respected by even, you know, Western neoliberal economists.
And she did manage to deal with the sanctions very well. She imposed capital controls immediately. She closed the Russian stock market. And also, in a controversial move, she raised the interest rates from around 9% up to 20%, for a few months. And then after that, dropped the rates.
MICHAEL HUDSON:
A few days, not a few months. That was very short. And now she has moved the interest rates way down.
BENJAMIN NORTON:
Back to 9%.
MICHAEL HUDSON:
She was criticized for not moving them further down.
BENJAMIN NORTON:
Yeah, well go ahead. I’m just curious. So she immediately raised it to 20%, and then has dropped the interest rates since then. I’m curious what you think about that policy. Yeah, go ahead.
MICHAEL HUDSON:
There is very little that a central banker can do when the West has declared a war, basically, a war on a country that is completely isolated.
The response has come from President Putin and from Foreign Secretary Lavrov. And they pointed out, well, how is Russia going to going to trade and get what it needs. And this is what the recent meetings of the BRICS are all about.
Russia realizes that the world is now broken into two halves. America and NATO have separated the West. Basically you have a white people’s confederation against all the rest of the world.
And the West has said, we’re isolating ourselves from you totally. And we think you can’t get along without us.
Well, look at the humor of this. Russia, China, Iran, India, Indonesia, and other countries are saying, hah, you say we we can’t get along without you? Who is providing your manufacturers? Who is providing your raw materials? Who is providing your oil and gas? Who is providing your agriculture, and the helium, the titanium, the nickel?
So they realize that the world is breaking in two, and Eurasia, where most of the world’s population is concentrated, is going to go its own way.
The problem is, how do you really go your own way? You need a means of payment. You need to create a whole international system that is an alternative to the Western international system. You need your own International Monetary Fund to provide credit, so that the these Eurasian countries and their allies in the Global South can deal with each other.
You need a World Bank that, instead of lending money to promote U.S. policies and U.S. investments, will promote mutual gains and self-sufficiency among the countries.
So already, every day in the last few weeks, you have had meetings with the Russians about this, who said, ok, we’re going to create a mutual trading area, starting among the BRICS: Brazil, Russia, India, China, and South Africa.
And how are we going to pay? We can’t pay in dollars, because if we have money in a dollar bank, or a euro bank in Europe, they can just grab the money, like they grab Venezuela’s money. They can just say, we’re taking all your money because, essentially, we don’t want you to exist as an alternative to the finance capital world that we are creating.
So essentially, Russia, China, and these other countries are saying, ok, we’re going to create our own international bank. And how are we going to fund it? Well, every member of the bank will contribute, say, a billion dollars, or some amount of their own currency, and this will be our backing. We can also use gold as a means of settlement, as was long used among countries.
And this bank can create its own special drawing rights, its own bank order, is what Keynes called it. It can create its own credit.
Well, the problem is that, if you have Brazil, for instance, or Argentina, joining this group, or Ecuador, that sells almost all of its bananas to Russia, how is it going to get by?
Well, if there is a BRICS group or a Shanghai Cooperation Organization bank, obviously the Western governments are not going to accept this.
So Russia realizes that as a result of Biden’s Cold War Two, there is going to be a continued rise in energy prices. You think gasoline prices are not high now? They’re going up. You think food prices are not high now? They’re going up more.
And Europe is especially the case, because Europe now cannot buy Russian gas to make the fertilizer to make its own crops grow.
So you’re going to have a number of countries in the Global South, from Latin America to Africa, being squeezed and wanting to trade with the Eurasian group.
And the problem is Russia says, all right, we know that you can’t afford to pay. We’re glad to give you credit, but we don’t want to give you credit that you’re going to simply use the money you have to pay your dollar debts that are coming due.
Because one of the effects that I didn’t mention of the Federal Reserve raising interest rates is there is a huge flow of capital from Europe and England into the United States, so that if you’re a billionaire, where are you going to put your savings? You want the highest interest rates you want. And if the United States raises interest rates, the billionaires are going to move their money out of England, out of the euro, and the euro is going back down against the dollar. It’s almost down to a dollar a euro.
The British pound is heading downwards, towards one pound per dollar.
This increase in the dollar’s exchange rate is also rising against the currencies of Brazil, Argentina, the African countries, all the other countries.
So how are they going to pay this summer, and this fall, for their food, for their oil and gas, and for the higher cost of servicing their dollar debts?
Well, for Eurasia, they’re going to say, we want to help you buy our exports – Russia is now a major grain exporter, and obviously also an oil exporter – saying we want to supply you and give you the credit for this, but you’re really going to have to make a decision. Are you going to join the U.S.-NATO bloc, or are you going to join the Eurasian bloc?
Are you going to join the White People’s Club or the Eurasian Club? And it really comes down to that. And that’s what is fracturing the world in these two halves.
Europe is caught in the middle, and its economies are going to be torn apart. Employment is going to go down there. And I don’t see wages going up very much in Europe.
You’re going to have a political crisis in Europe. But also you’ll have an international diplomatic crisis over how are you going to restructure world trade, and investment, and debt.
There will be two different financial philosophies. And that’s what the new cold war is all about.
The philosophy of US-sponsored finance capitalism, of making money financially, without industrialization, and with trying to lower wages and reduce the labor force to a very highly indebted workforce living on the margin.
Or you’ll have the Eurasian philosophy of using the economic surplus to increase productivity, to build infrastructure, to create the kind of society that America seemed to be growing in the late 19th century but has now rejected.
So all of this is ultimately not simply a problem of interest rates and central bank policy; it really goes beyond central banks to what kind of a social and economic system are you going to have.
And the key to any social and economic system is how you treat money and credit. Is money and credit going to be a public utility, or will it be a private monopoly run for the financial interests and the 1%, instead of a public utility run for the 99%?
That’s what the new cold war is going to be all about. And that’s what international diplomacy week after week is trying to settle.
BENJAMIN NORTON:
Very, very well said. And I really agree about this increasing kind of bipolar order, where the US-led imperialist system is telling the world they have to pick a side. You know, as George W. Bush said, you’re either with us or you’re against us; you’re with us or you’re with the terrorists.
That’s what Biden is saying to the world. And we see the West has drawn this iron curtain around Russia. And now they’re threatening to do the same around China.
Now, of course, the difference is that China has the largest economy in the world, according to a PPP measurement. It’s even larger than the US economy. I don’t know how they can try to sanction the Chinese economy, considering China is the central factory of the world.
But this is related to a question I had for you, Professor Hudson, and this is from a super chat question from Manoj Payardha, and it’s about how Chinese banks say they’re not ready yet to develop an alternative to the SWIFT. He asked, how will the Third World pay Russia for resources?
And we’ve seen, maybe you can talk about the measures being implemented. India has this rupee-ruble system that they’ve created.
But I want to highlight an article that was published in Global Times. This is a major Chinese newspaper, and this is from April. And it quotes the former head of China’s central bank, who was speaking at a global finance forum in Beijing this April.
And basically he said, we need to prepare to replace Swift. He said the West’s adoption of a financial nuclear option of using SWIFT to sanction Russia is a wake up call for China’s financial development. And he said, “We must get prepared.”
So it seems that they’re not yet prepared. But this is something that you’ve been talking about for years. Or maybe you disagree and maybe you think they already are prepared with the SWIFT alternative?
MICHAEL HUDSON:
Well they’re already using an alternative system. If they weren’t using an alternative system – Russia is adopting part of the Chinese system for this – they wouldn’t be able to have banks communicate with each other.
So, yes, they already have a rudimentary system. They’re making it a better system that can also be immune from U.S. computer espionage and interference. So yes, of course there’s already a system.
But I want to pick up on what you said about Biden, how Biden characterizes things.
Biden characterizes the war of the West against Eurasia as between democracy and autocracy. By “democracy,” he means a free market run by Wall Street; he means an oligarchy.
But what does he mean by autocracy? What he means by autocracy, when he calls China an autocracy, an “autocracy” is a government strong enough to prevent an oligarchy from taking power, and taking control of the government for its own interests, and reducing the rest of the economy to debt peonage.
An “autocracy” is a country with public regulation against monopolies, instead of an oligarchic free market. An “autocracy” uses money and credit, essentially, to help economies grow. And when debts cannot be paid in China, if a factory or a real estate company cannot pay debts, China does not simply say, ok, you’re bankrupt, you’re going to have to be sold; anybody can buy you; the Americans can buy you.
Instead, the Chinese say, well, you can’t pay the debts; we don’t want to tear down your factory; we don’t want your factory to be turned and gentrified into luxury housing. We’re going to write down the debt.
And that’s what China has done again and again. And it’s done that with foreign countries that couldn’t pay the debt. When a debt that China has come due for China’s development of a port, or roads, or infrastructure, it says, well, we understand that you can pay; we will delay payment; we will have a moratorium on your payment. We’re not here to bankrupt you.
For the Americans, to the international funds, they’re saying, well, we are here to bankrupt you. And now if we lend you, we the IMF, lends you money to avoid a currency devaluation, the term is you’re going to have to privatize your infrastructure; you’re going to have to sell off your public utilities, your electric system, your roads, your land to private buyers, mainly from the United States.
So you have a “democracy” supporting bankruptcy, foreclosure, financialization, and privatization, and low wages by a permanent depression, a permanent depression to keep down wages.
Or you have “autocracy,” seeking to protect the interests of labor by supporting a living wage, to increase living standards as a precondition for increasing productivity, for building up infrastructure.
You have these two diametrically economic systems. And, again, that’s why there’s a cold war on right now.
BENJAMIN NORTON:
And there’s another super chat question here, Professor Hudson. You mentioned the International Monetary Fund, the IMF. We have talked about that many times. This is from Sam Owen. He asked, why do countries continue to accept bad IMF loans when they have such a poor track record? Is it just the US government meddling in the national politics? Are there cases of good IMF loans?
MICHAEL HUDSON:
Well, what is a country? When you say a country to most people, people think, ok, let’s talk about Brazil; let’s talk about all the people in Brazil; you have a picture in the mind of the Amazon; you have a big city with a lot of people in it.
But the country, in terms of the IMF, is a group of maybe the 15 wealthiest families in Brazil, that own most of the money, and they are quite happy to borrow from the IMF, because they say, right now there’s a chance that Lula may become president instead of the neo-fascist Bolsonaro. And if Lula comes in, then he is going to support labor policies, and he may stop us from tearing down the Amazon. So let’s move our money out of the country.
Well, normally this would push the exchange rate of the cruzeiro (real) down. So the IMF is going to make a loan to Brazil to support the cruzeiro (real), so that the wealthy 1% of Brazil can move their money into dollars, into euros, into foreign currency and offshore bank incentives, and load Brazil down with debt, so that then when there is an election, and if Lula is elected, the IMF is going to say, well, we don’t really like your policies, and if you pursue a pro-labor, socialist policy, then there’s going to be a capital flight. And we’re insisting that you pay all the money that you borrowed from the West right back now.
Well, that’s going to lead Lula either to sit there, follow the IMF direction, and let the IMF run the economy, instead of his own government, or just say, we’re not going to pay the foreign debt.
Well, until now, no country has been in a strong enough position not to pay the foreign debt. But for the first time, now that you have the Eurasian group – we’ll call it BRICS, but it’s really Eurasia, along with the Southern groups that are joining, the Global South – for the first time, they can say, we can’t afford to stay in the West anymore.
We cannot afford to submit the economy to the IMF demands for privatization. We cannot submit to the IMF rules that we have to fight against labor, that we have to pass laws banning labor unions, that we have to fight against laborers’ wage, like Western democracies insist on. We have to go with the Chinese “autocracy,” which we call socialism.
And of course, when America accuses China being an “autocracy,” autocracy is the American word for socialism. They don’t want to use that word. So we’re back in Orwellian double-think.
So the question is what, will the Global South countries do when they cannot afford to buy energy and food this summer, without an IMF loan? Are they going to say, ok, we can only survive by joining the break from the West and joining the Eurasian group?
That is what the big world fracture is all about.
And I described this global fracture already in 1978. I wrote a book, “Global Fracture,” explaining just exactly how all of this was going to happen.
And at that time, you had Indonesia, you had Sukarno taking the lead, the non-aligned nations, India, Indonesia, were trying to create an alternative to the financialized, American-centered world order. But none of these countries had a critical mass sufficient to go their own way.
Well, now that America has isolated Russia, China, India, Iran, Turkey, all these countries, now it has created a critical mass that is able to go its own way. And the question is, now you have like a gravitational pull, and will this Eurasian mass attract Latin America and Africa to its own group, away from the United States? And where is that going to leave the United States and Europe?
BENJAMIN NORTON:
And we saw one of the clearest examples yet of this bipolar division of the world between, you know, the West and the rest, as they say, with this ridiculous meeting that was just held of the G7.
Of course, the G7 are the white, Western countries. And then they’ll throw in U.S.-occupied Japan in there, to pretend they’re a little more diverse.
But we saw that the G7 just held a summit, and basically the entire summit was about how can we contain China? How can we expand the new cold war on Russia into a new cold war on China?
It’s also absurd considering that China’s Belt and Road Initiative, which involves over half of the countries on Earth, is estimated at many trillions of dollars in infrastructure projects. So the US and its allies think that they can challenge that with $600 billion in public-private partnerships.
I should stress, of course, what they announced is going to be a mixture of so-called public initiative and then contracts for private corporations.
So it’s yet another giveaway to the private sector, in the name of building infrastructure.
But I’m wondering if if you can comment on the G7 summit that just was held.
MICHAEL HUDSON:
Well, nothing really came out of it. They all said that they could not agree on any more sanctions against Russia, because they’re already hurting enough. India, in particular, stood up and said, look, there’s no way that we’re going to join the sanctions against Russia, because it’s one of our major trading partners. And by the way, we’re getting a huge benefit from importing Russian oil, and you’re getting a huge benefit by getting this oil from us at a markup.
So the G7 could not get any agreement on what to do. It is already at a stalemate. And this is only June. Imagine the stalemate it’s going to be in September.
Well, next week, President Biden is going to Saudi Arabia and saying, you know, we’re willing to kill maybe 10 million more of your enemies; we’re willing to help Wahhabi Sunni groups kill more of the Iranian Shiites, and sabotage Iraq and Syria. We’ll help you back al-Qaeda again, if you will lower your oil prices so that we can squeeze Russia more.
So that’s really the question that Saudi Arabia will have. America will send give it more cluster bombs to use against Yemen. And the question is, is Saudi Arabia going to say, ok, we’re going to earn maybe $10 billion less a month, or however much they’re making, just to make you happy, and so that that you will kill more Shiites who support Iran?
Or are they going to realize that if they throw in their lot with the United States, all of a sudden they’ll be under attack from Iran, Russia, Syria, and they’ll be sitting ducks? So what are they going to do?
And I don’t see any way that Biden can actually succeed in getting Saudi Arabia to voluntarily earn less on its oil prices. Maybe Biden can say it’s only for a year, only for one or two years. But as other countries know, when America says only for a year or two, it really means forever. And if you don’t continue, then somehow they have a regime replacement, or a regime change and a color revolution.
So Biden keeps trying to get foreign countries to join the West against Eurasia, but there is Saudi Arabia sitting right in the middle of it.
And all that Europe can do is watch and wonder how it’s going to get by without without energy and without much food.
BENJAMIN NORTON:
Yeah, in fact, Venezuela’s President Maduro just confirmed that the Biden administration has sent another delegation basically begging Venezuela to try to work out some deal because, of course, the U.S. and the EU have boycotts of Russian energy.
So it’s really funny to me that, after years of demonizing Venezuela, portraying it as a dictatorship and all of this, the U.S. had to decide, well, the war in Venezuela is not as important as the war on Russia right now; so we’re going to temporarily pause our war on Venezuela to stick the knife deeper into Russia.
So echoing the same perspective that we hear from Biden, U.S. government officials constantly say that the US needs to challenge China in the Global South. So Europe pledged €300 billion – however, once again, important asterisk – “in private and public funds over five years to fund infrastructure in developing countries.”
So once again, we see another neoliberal private-public partnership. It’s going to be another public giveaway to private corporations.
And “she said that this is part of the G7’s drive to counter China’s multitrillion-dollar Belt and Road project.”
Now, this is really just tying everything together that we have been talking about today, Professor Hudson – in your article “The Fed’s Austerity Program to Reduce Wages,” you conclude the article noting that the depression that people in the United States are on the verge of facing because of these neoliberal policies – telling workers in the U.S. that they need to decrease their wages and be unemployed in order to stop inflation – you point out that:
Biden’s military and State Department officers warn that the fight against Russia is just the first step in their war against China’s non-neoliberal economy, and may last twenty years. That is a long depression. But as Madeline Albright would say, they think that the price is “worth it.”
And you talk about the new cold war against the socialist economy in China and the state-led economy in Russia.
So you predict not only a depression is coming. We have seen that in mainstream media outlets. Larry Summers said, you know, a depression could be coming for a few years. But you say, no, not only is a depression coming; it’s going to be a long depression. We could be seeing 20 years.
And basically the U.S. government and other Western leaders, as we see Ursula von der Leyen from the EU, they’re basically telling their populations, tighten your belts; we have decades of depression coming, because we have collectively decided, as Western leadership, that we are going to force the world through a long depression economically, or at least forced the West through a long economic depression, in order to try to halt the rise of China and Russia.
They’re basically telling their populations, suck it up, tighten your belts for decades, because in the end, the price is worth it in order to prevent the collapse of our empires.
MICHAEL HUDSON:
That’s right. When they’re talking about private-public initiatives, they’re talking about Pentagon capitalism. That means the government will give trillions of dollars to private firms and ask them to build infrastructure.
And if they build a port or a road in a Global South country, they will operate this at a profit, and it will be an enormously expensive infrastructure, because to make financial money off this infrastructure, you have to price it at the cost of production, which is Pentagon capitalism, hyper inflated prices; you have to pay management fees; you have to pay profits; you have to pay interest rates.
As opposed to the Chinese way of funding as equity. The Western mode of funding is all debt leverage. China takes as collateral for the infrastructure that it pays, an equity ownership in the port or whatever infrastructure in the Belt and Road that it’s building.
So you have the difference between equity ownership, debt-free ownership, where if it can afford to pay, fine; if it doesn’t make an income, there are no dividends to pay.
Or you have the debt leverage that is intended that the government cannot pay it, so that the government that will be the co-signer for the debt for all of this infrastructure will somehow be obliged to tax its whole population to pay the enormous super-profits, the enormous monopoly rents, the enormous debt charges of von der Leyen’s Margaret Thatcher plan.
Von der Leyen thinks that she can do to Europe and to America what Margaret Thatcher did to England. And if she does, then then America and Europe deserve it.
BENJAMIN NORTON:
And Professor Hudson, as we start wrapping up here, I know you have to go pretty soon, just a few short questions here at the end.
I’m wondering if what we’re also seeing is not only this fundamental crisis in the Western neoliberal, financialized economies, but it’s also this bubble that has burst, or at least this phase that is over.
At least this is my reading, I’m curious if you agree. In the 1990s, the peak of, you know, the so-called golden age of neoliberalism; we had Bill Clinton riding this wave, and it was the “end of history,” in Francis Fukuyama’s nonsense prediction and all that.
How much of that was not only based on this exorbitant privilege, as the French call it, of the dictatorship of the US dollar – we talked about that based on your book “Super Imperialism,” how the US was given this massive global free lunch economically because of dollar hegemony – but how much of it was not just that, but also the fact that in the 1990s and the first decade of the 2000s, the US and Western Europe had access to very cheap consumer goods from Asia and very cheap energy from Russia?
To me, it seems like those two factors are some of the most important reasons why this golden age of neoliberalism in the ’90s and early 2000s was even possible.
It was on the back of low-paid Asian workers, and based on this idea that Russia would permanently be, what Obama called it: a gas station.
Well, we’ve seen that, one, East Asian economies have lifted themselves up of poverty, especially China has ended extreme poverty and raised median wages significantly.
And now, of course, the West has sanctioned itself against buying Russian energy, massively increasing the cost of energy around the world.
So do you think that that bubble, or that brief moment of the end of history, the golden age of neoliberalism, that can never come back?
Because unless the West can succeed in overthrowing the Russian government and imposing a new puppet like Yeltsin, and overthrowing the Chinese government, it seems like that that the golden in the 1990s is never going to come back.
MICHAEL HUDSON:
Well, you’ve left out the key element of the golden age: that is military force, and the willingness to assassinate any foreign leader that does not want to go along with US policy.
BENJAMIN NORTON:
Of course.
MICHAEL HUDSON:
You’re neglecting what America did to [Salvador Allende]; you’re neglecting how America took over Brazil; America’s meddling and control, and in Europe, the wholesale bribery and manipulation of Europe’s political system, to put in charge of the [German] Green Party a pro-war leadership, an anti-environmental leadership, to put in charge of every socialist party of Europe right-wingers, neoliberals.
Every European socialist and labor party turned neoliberal largely by American maneuvering and meddling in their foreign policy.
So it’s that meddling that was intended to prevent any alternative economic philosophy from existing to rival neoliberalism.
So that when you talk about the end of history, what is the end of history? It means the end of change. It means stop; there will be no reform; there will be no change in the neoliberal system that we have locked in.
And of course, the only way that you can really end history is by what Biden is threatening: atomic war to blow up the world.
That is the neoliberal end of history. And it’s the only way that the neoliberals can really stop history. Apart from that, all they can try to do is to prevent any change that is adverse to locking in the neoliberal order.
So the “end of history” is a declaration of war against any country that wants to go its own way. Any country that wants to build up its own economy as a way that will keep the benefits of its economic growth in its own country, instead of letting it go to the global financial class centered in the United States and Britain.
So we’re talking about, neoliberalism was always a belligerent, implicitly military policy, and that’s exactly what you’re seeing in the proxy war of US and NATO in Ukraine today.
BENJAMIN NORTON:
Yeah, very well said. That’s the other key ingredient: overthrowing any government that is a challenge, that shows there is an alternative, to try to prove the maxim that “there is no alternative.”
MICHAEL HUDSON:
Yes.
BENJAMIN NORTON:
Here’s an interesting comment from Christopher Dobbie. He points out that in Australia, the average age for their first homeowner was 27 in 2001; now it’s 35, and increasing more and more by the year.
Now, in the last few minutes here, Professor Hudson, here’s another brief question that I got from someone over at patreon.com/multipolarista – people can go and support this show. One of my patrons asked this question: who who is hurt most by the Fed or other central banks raising interest rates? People, average consumers, or companies?
And obviously, you talked earlier about how the US Federal Reserve is different from other central banks, but it’s kind of an open question. Who is hurt more by raising interest rates?
MICHAEL HUDSON:
Well, companies are certainly hurt because it means that any possibility of getting productive credit is raised. But they’re also benefited, because if interest rates raised go up high enough, then it will not pay corporate raiders to borrow money to take over and raid companies and empty them out, like they did in the 1980s.
So everything cuts both ways. Raising the interest rates have given commercial banks an excuse to raise the interest charges on credit card loans and mortgage debts.
So raising interest rates, to the banks, have enabled them to actually increase their margin of monopoly profits on the credit that they extend.
And that certainly hurts people who are reliant on bank credit, either for mortgages or for consumer debt, or for any kind of loans that they want to take out.
Basically, raising interest rates hurts debtors and benefits creditors.
And benefiting creditors very rarely helps the economy at large, because the creditors are always really the 1%; the debtors are the 99%.
And if you think of economies, when you say, how does an economy benefit, you realize that, well, if the economy is 1% creditors and 99% debtors, you are dealing with a bifurcation there.
And you have to realize that the creditors usually occupy the government, and they claim we are the country. And the 99% are not very visible.
Democracy can only be afforded if they population’s voting has no effect at all on the government, that it’s only symbolic. You can vote exactly which oligarch you want to rule your country. Ever since Rome that was the case, and it’s the case today.
Is there really any difference between the Republicans and Democrats in terms of their policy? When you the same central bank bureaucracy, the same State Department blob, the same military-industrial complex, the same Wall Street control, what does democracy mean in a situation like that?
The only way that you can have what democracy aims at is to have a government strong enough to check the financial interests, to check the 1%, acting on behalf of the 99%. And that’s what socialism is.
BENJAMIN NORTON:
Very well said.
Here is another brief question from patreon.com/multipolarista – people can become a patron and help support the show over there.
This question, Professor Hudson, is about the proposal of an excess profits tax as an alternative to try to contain inflation. What do you think about the proposal of an excess profits tax?
MICHAEL HUDSON:
Well, only the little people make profits. If you’re a billionaire, you don’t want to make a profit; you want to essentially take all of your return in the form of capital gains. That’s where your money is.
And the way you avoid making a profit is you establish an offshore bank or creditor, and you pay out all of your profits in the form of interest, which an expense. You expense all of what used to be, what really is, income. And you show no profits at all.
I don’t think Amazon has ever made a profit. You have huge, the biggest corporations, with all the capital gains, have no profits. Tesla is a gigantic stock market presence, and it doesn’t make a profit.
So the key is capital gains, is financial gains, stock market gains, gains in real estate prices, unearned income. That’s what the free lunch is.
You want to prevent profits being paid out in the form of interest. So I would vastly increase profits, by saying you cannot deduct interest as a business expense. It’s not a business expense. It’s a predatory parasitic expense. So you’re going to have to declare all of this as profit, and pay interest on it.
Pricing your output from a foreign offshore banking center, so that you don’t seem to make any profit, like Apple does, pretending to make all its money in Ireland, you can’t do that anymore. You’re going to have to pay a real return.
So the accounting profession has made profits essentially tax free. So the pretense of making money by taxing profits avoids talking about capital gains and all of fictitiously low profits that are simply pretended not to be profit, like interest, depreciation, amortization, offshore earnings, management fees.
All of these should be counted as profits, and taxed as such as they were, I’d say back at the Eisenhower administration levels.
BENJAMIN NORTON:
And finally, the last question here, Professor Hudson, someone asked about the U.S. government pressuring countries in Africa not to buy Russian wheat. And the U.S. is, of course, claiming that this wheat is supposedly stolen from Ukraine.
I know this could be a long point of discussion; it could be the entire interview. And I know you have to go soon. But just concluding here, I’m wondering if you could comment.
The United Nations itself has warned that there could be a famine, especially in Global South nations.
What do you think the role of these neoliberal policies and Western sanctions are in fueling that potential crisis?
MICHAEL HUDSON:
Well, the wealthiest families in the world used to go every year, now they go every few years, to Davos, to Klaus Schwab’s Davos World Economic Forum. And they say, the world is overpopulated; we need about 2 billion human beings to starve, preferably in the next year or two.
So it’s as if the wealthy families have got together and say, how can we thin out the population that really we, the 1%, don’t need?
And in all of their policies, it is as if they’ve decided to follow the World Economic Forum and deliberately shrink the world population, especially in Africa and Latin America.
Remember, these are white people at the World Economic Forum, and that is their idea of how to retain equilibrium.
They’re always talking about “equilibrium,” and equilibrium is going to be for countries that cannot afford to grow their own food, because they have put their money into plantation crops and cotton to sell to the West, instead of feeding themselves – they’re just going to have to starve to contribute to world “equilibrium.”
BENJAMIN NORTON:
And while we’re on the subject of the World Economic Forum, I guess I should just briefly add – we’ve talked about this a little bit, but I just feel remiss not mentioning it – it’s interesting to see how right-wingers have seized on the World Economic Forum and begun criticizing it a lot.
Obviously, it’s worth criticizing. It’s a horrible neoliberal institution that represents the Western capitalist class. But we’ve even seen, you know, Glenn Beck, the right-winger, former Fox News host, he published a book about the Great Reset and the World Economic Forum.
I’m just wondering really quickly if you could respond to the idea that the World Economic Forum is like some “socialist” organization. Obviously, it’s the exact opposite.
But what do you say to these conservatives who have a right-wing critique of the World Economic Forum, and think it’s like secretly socialist, and Biden is a socialist.
MICHAEL HUDSON:
They look at any government or managerial power as socialist, not drawing the distinction between socialism and oligarchy.
The question is government power can be either right-wing or left-wing, and to say that any government power is socialist is just degrading the word.
However, as I mentioned before, almost all of the European “socialist” parties are neoliberal. Tony Blair was the head of something that called itself the British Labour Party. Gordon Brown was the head of the British Labour Party.
You can’t be more neoliberal and oligarchic than that. And that’s why Margaret Thatcher said her greatest success was creating Tony Blair.
You have the same thing in France; the French “socialists” are on the right-wing of the spectrum. The Greek “socialist” party, on the right-wing of the spectrum.
You have “socialist” parties around the world being neoliberalized.
So what does the word socialism mean? You want to go beyond labels into the essence.
And the question is, in whose interest is the government going to be run for? Will it be run for the 1% or the 99%?
And the right wing wants to say, well, the 1% can be socialist, because they’re taking over the government and that’s the big government, and we’re against it.
Well, the right-wing is taking over the government, but it’s not really what the world meant by socialism a century ago.
BENJAMIN NORTON:
Yeah, very well said. I just always laugh when I see these right-wing critiques of the World Economic Forum. I mean, the World Economic Forum is the embodiment of capitalism. It is the group of the elite capitalists who get together to talk about how they can exploit the working class and help monopolize the global economy on behalf of Western capital.
So with that said, there still are many questions, but I know you have to go, and we’re already at an hour and a half.
I do want to thank everyone who joined. We’re at 1200 viewers right now, so it has been a really good response.
Professor Hudson, you’re very popular. You should do your own YouTube channel. Maybe we can talk about that, because every time I have you on, it’s always an amazing response that I get. And hopefully we can do this again more in future.
Aside from people going to your website, michael-hudson.com, is there anything else that you want to plug before we conclude?
MICHAEL HUDSON:
Well, the book that I just wrote, “The Destiny of Civilization,” is all about what we’ve been talking about. It’s about the world’s split between neoliberalism and socialism. So that was just published and is available on Amazon. And I have two more books that are coming out very shortly.
BENJAMIN NORTON:
Yeah, for people who are interested, I did an interview with Professor Hudson here at Multipolarista a few weeks ago about his new book, The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism.”
And of course, anyone who wants to support this show, you can go to patreon.com/multipolarista. And as always, this will be available as a podcast, if you want to listen to the interview again. I’m certainly going to listen to this discussion again. You can find that anywhere there are podcasts.
Professor Hudson, it’s always a real pleasure. Thanks so much for joining me.
MICHAEL HUDSON:
I enjoyed the discussion.
BENJAMIN NORTON:
And like I said earlier at the beginning, for me, I truly think it’s always a privilege, because I do think you’re one of the greatest living economists. So I always feel very privileged to have the opportunity to pick your brain about all of these questions.
And I want to thank everyone who commented, who watched, and who listened. I will see you all next time.
The Federal Reserve Board’s ostensible policy aim is to manage the money supply and bank credit in a way that maintains price stability. That usually means fighting inflation, which is blamed entirely on “too much employment,” euphemized as “too much money.”[1] In Congress’s more progressive days, the Fed was charged with a second objective: to promote full employment. The problem is that full employment is supposed to be inflationary – and the way to fight inflation is to reduce employment, which is viewed simplistically as being determined by the supply of credit.
So in practice, one of the Fed’s two directives has to give. And hardly by surprise, the “full employment” aim is thrown overboard – if indeed it ever was taken seriously by the Fed’s managers. In the Carter Administration (1777-80) leading up to the great price inflation of 1980, Fed Chairman Paul Volcker expressed his economic philosophy in a note card that he kept in his pocket, to whip out and demonstrate where his priority lay. The card charted the weekly wage of the average U.S. construction worker.
Chairman Volcker wanted wages to go down, blaming the inflation on too much employment – meaning too full. He pushed the U.S. bank rate to an unprecedented 20 percent – the highest normal rate since Babylonian times back in the first millennium BC. This did indeed crash the economy, and with it employment and prosperity. Volcker called this “harsh monetary medicine,” as if the crash of financial markets and economic growth showed that his “cure” for inflation was working.
Apart from employment and wage levels, another victim of Volcker’s interest-rate hike was the Democratic Party’s fortunes in the 1980 presidential election. They lost the White House for twelve years. The party thus is taking great courage – or simply being ignorant – by entering on this autumn’s midterm election by emulating Mr. Volcker’s attempt to drive down wage levels by financial tightening, which already has crashed the stock market by 20 percent.
President Biden has thoroughly backed up Republican-appointed Federal Reserve Chairman Jerome Powell in endorsing a financial crash in hope that it will roll back U.S. wage levels. That is the policy of the Democratic Party’s donor class and hence political constituency.
……………
To Wall Street and its neoliberal policy backers … the solution to any price inflation is to reduce wages and public social spending. The orthodox way to do this is to push the economy into recession in order to reduce hiring. Rising unemployment will oblige labor to compete for jobs that pay less and less as the economy slows.
This class-war doctrine is the prime directive of neoliberal economics. It is a feature of the tunnel vision of corporate managers and the One Percent. The Federal Reserve and IMF are are the operating arms for impoverishing the masses. Along with Janet Yellen at the Treasury, public discussion of today’s U.S. inflation is framed in a way that avoids blaming the 8.2 percent rise in consumer prices on the Biden Administration’s New Cold War sanctions on Russian oil, gas and agriculture, or on oil companies and other sectors using these sanctions as an excuse to charge monopoly prices as if America has not continued to buy Russian diesel oil, as if fracking has not picked up and as if corn is not being turned into biofuel. There has been no disruption in supply. We are simply dealing with monopoly rent by the oil companies using the anti-Russian sanctions as an excuse that an oil shortage will soon develop for the United States and indeed for the entire world economy.
Covid’s shutdown of the U.S. and foreign economies and foreign trade also is not acknowledged as disrupting supply lines and raising shipping costs and hence import prices. The entire blame for inflation is placed on wage earners, and the response is to make them the victims of the coming austerity, as if their wages are responsible for bidding up oil prices, food prices and other prices resulting from the crisis. The reality is that they are too debt-strapped to be spendthrifts.
The Fed’s Junk Economics of What Bank Credit Is Spent On
The pretense behind the Fed’s recent increase in its discount rate by 0.75 percent on June 15 (to a paltry range of 1.50% to 1.75%) is that raising interest rates will cure inflation by deterring borrowing to spend on the basic needs that make up the Consumer Price Index and its related GDP deflator. But banks do not finance much consumption, except for credit card debt, which in the United States is now less than student loans and automobile loans.
Banks lend almost entirely to buy real estate, stocks and bonds, not goods and services. Some 80 percent of bank loans are real estate mortgages, and most of the remainder are loans collateralized by stocks and bonds. So raising interest rates will not lead wage-earners to borrow less to buy consumer goods. The main price effect of less bank credit and higher interest rates is on asset prices – deterring borrowing to buy homes, and arbitragers and corporate raiders from buying stocks and bonds. So the main price effect of less bank credit and higher interest rates is to reduce stock and bond prices and demand for home mortgages.
Rolling Back Middle-Class Home Ownership
The most immediate effect of the Federal Reserve’s credit tightening will be to reduce America’s home-ownership rate. This rate has been falling since 2008, from nearly 68 percent to just 61 percent today. The decline got underway with President Obama’s eviction of nearly ten million victims of junk mortgages, mainly black and Hispanic debtors. That was the Democratic Party’s alternative to writing down fraudulent mortgage loans to realistic market prices, and reducing their carrying charges to bring them in line with market rental values. The indebted victims of this massive bank fraud were made to suffer, so that Obama’s Wall Street sponsors could keep their predatory gains and indeed, receive massive bailouts. The costs of their fraud fell on bank customers, not on the banks and their stockholders and bondholders.
The effect of discouraging new home buyers by raising interest rates is to lower home ownership – the badge of being middle-class. The Fed’s policy of raising interest rates will greatly increase the interest charges that prospective new home buyers will have to pay, pricing the carrying charge out of reach for many families. The United States is turning into a landlord economy.
As the United States has become more debt-ridden, more than 50 percent of the value of U.S. real estate already is held by mortgage bankers. That means that homeowners are left with only a minority share in the value of their homes; most is owed to their banks. The remaining homeowners’ equity – what they own net of their mortgage debt – has fallen even faster than home ownership rates have declined.
Real estate is being transferred from “poor” hands to those of wealthy landlord corporations. Private capital companies – the funds of the One Percent – are going to pick up the pieces from the coming wave of foreclosures to turn homes into rental properties. Higher interest rates will not affect their cost of buying this housing, because they buy for all cash to make profits (actually, real estate rents) as landlords. Within another decade the nation’s home ownership rate may fall toward 50 percent (and homeowners’ equity even lower), turning the United States into a landlord economy instead of the promised middle-class home ownership economy.
The Coming Economic Austerity (Indeed, Debt-Burdened Depression)
While home ownership rates have plunged for the population at large, the Fed’s “Quantitative Easing” has increased its subsidy of Wall Street’s financial securities from $800 billion to $9 trillion – of which the largest gain has been in packaged home mortgages. This has kept housing prices from falling and becoming more affordable for home buyers. But the Fed’s support of asset prices has saved many insolvent banks – the very largest ones – from going under. Sheila Bair of the FDIC singled out Citigroup, along with Countrywide, Bank of America and the other usual suspects. The working population is not considered to be too big to fail. Its political weight is small by comparison to that of Wall Street banks and other FIRE-sector beneficiaries.
Lowering the discount rate to only about 0.1 percent enabled the banking system to make a bonanza of gains by making mortgage loans at around 3.50 percent. The banks kept credit-card rates high – and made even more money on penalty fees for late payment than they “earned” on interest charges (in the range of 18 percent). And despite the stock market’s plunge of over 20 percent from nearly 36,000 to under 30,000 on June 17, America’s wealthiest One Percent, and indeed the top 10 Percent, have vastly increased their wealth in stocks, while the bond market has had the largest boom in history. But most Americans have not benefitted from this runup in asset prices, because most stocks and bonds are owned by only the wealthiest layer of the population. The Fed is all in favor of asset-price inflation. But For most American families, corporations and government at all levels, the financial boom since 2008 has entailed a growing debt burden. Many families face insolvency as Federal Reserve policy aims to create unemployment. Now that the Covid moratorium on the evictions of renters behind in their payments is expiring, the ranks of the homeless are rising.
The Biden Administration is trying to blame today’s inflation and related distortions on Putin, even using the term “Putin inflation.” The mainstream media follow suit in not explaining to their audience that Western sanctions blocking Russian energy and food exports will cause a food and energy crisis for many countries this summer and autumn. And indeed, beyond: Biden’s military and State Department officers warn that the fight against Russia is just the first step in their war against China’s non-neoliberal economy, and may last twenty years.
That portends a long depression. But as Madeline Albright would say, they think that the price is “worth it.” As seen by the Biden regime, the New Cold War is a fight between the “democratic” United States, with its privatized economic planning in the hands of the financial class, and “autocratic” China and Russia, where banking and money creation are treated as a public utility to finance tangible economic growth instead of serving the financialization of the economy.
There is no evidence that America’s neoliberal-neoconservative New Cold War can restore the nation’s former industrial and related economic power. The economy cannot recover as long as today’s debt overhead is left in place. Debt service, housing costs, privatized medical care, student debt and a decaying infrastructure have made the U.S. economy uncompetitive. There is no way to restore its economic viability without fundamental changes in economic policy. But there is little “reality economics” at hand to provide an alternative to the class war inherent in neoliberalism’s belief that the economy and living standards can prosper by purely financial means, by debt leveraging and corporate monopoly rent extraction while the United States has made its domestic manufacturing uncompetitive – seemingly irreversibly. To reduce their labor costs, U.S. corporations moved manufacturing offshore, thereby depriving the American work force of high value-added, high productivity jobs.
The Rentier Class Has Sought to Make America’s Neoliberal Privatization and Financialization Irreversible
It has succeeded to such a degree that there is no party or economic constituency promoting the policies needed for an industrial recovery. Yet the Democratic Party leadership, subjecting the economy to an IMF-style austerity plan, will make this November’s midterm elections unique. For the past half century, the Fed’s role has been to provide easy money for the economy, to give the ruling party at least the illusion of trickle-down prosperity to deter voters from electing the opposition party. But this time the Biden Administration is running on a program of financial austerity.
The Party’s identity politics address almost every identity except that of wage-earners and debtors. Advocating lower wages, more expensive financial charges for home mortgages and credit-card loans, and broken promises for student-debt writedowns does not look like a platform that can attract many voters, especially as the administration pours money into Ukraine. Republicans such as Tucker Carlson are appealing to the “deplorables” majority that the Democrats have left behind.
Addendum: Yves Smith of Naked Capitalism reminds me that: “Paul Volcker made it explicit that the Fed is in the business of crushing labor. As reported by William Greider in Secrets of the Temple, when Volcker was driving interest rates to the moon, he kept a note card in his pocket. It was a record of weekly average construction wages. Volcker wanted them to go down as proof his harsh medicine was working.”
M.K. Bhadrakumar, “West at inflection point in Ukraine war,” Indian Punchline, June 19, 2022
“Fundamentally, the Western economies are facing a systemic crisis. The complacency that the reserve-currency-based US economy is impervious to ballooning debt; that the petrodollar system compels the entire world to purchase dollars to finance their needs; that the flood of cheap Chinese consumer goods and cheap energy from Russia and Gulf States would keep inflation at bay; that interest rate hikes will cure structural inflation; and, above all, that the consequences of taking a trade-war hammer to a complex network system in the world economy can be managed — these notions stand exposed.”
Forbes Media CEO Steve Forbes has warned that President Joe Biden’s policy to raise the interest rates in order to solve the inflation problem will “make people poor”.
In an interview with conservative news outlet Newsmax, Forbes stressed that raising interest rates will have severe effects on American consumers.
“Let’s be blunt about it. When they talk about a soft landing or trying to slow the economy down, that means making people poor,” he said.
Rather than “punishing the American economy” with higher interest rates, the Federal Reserve should focus its efforts on stabilizing the value of the dollar, he added.
Many economists have voiced concern about a possible recession after the Fed last week announced its highest interest rate increase in 28 years.
Forbes stressed that the interest rate hikes will particularly hurt consumers when “mortgage rates are readjusted later this year” and heating prices rise in the winter.
“A big, bad thing is happening. And when heating oil prices come in this winter, when you’re paying twice as much as you were before and you have to heat your home, that’s going to be a disaster,” he said, adding that “whatever they want to call it, it’s not good.”
The US is grappling with rising prices and soaring inflation, with its population under severe pressure like many of the European countries.
Biden’s administration placed an embargo on Russian oil earlier this year, shortly after Russian President Vladimir Putin declared a military campaign against Ukraine on February 24. It prompted the gas and energy prices to hike all over the country. The move has also sent the prices of grain, cooking oil, fertilizers and food skyrocketing.
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.
Ross [00:00:29] Welcome to Renegade Inc. Whatever the outcome in Ukraine, one thing is for sure the economic reverberations will be felt by everyone for years to come as the world divides between the West and a rapidly reshaping Eurasia.
Ross [00:00:49] Michael Hudson, always a pleasure to have you on the programme, welcome to Renegade Inc.
Michael Hudson [00:00:53] Thank you for inviting me.
Ross [00:00:55] Michael, sanctions, sanctions, sanctions is all we hear now. We’re sanctioning people. The West sanction people back to the Stone Age. What are the unintended consequences of sanctions?
Michael Hudson [00:01:05] Well, one is to serve very much like a protective tariff on the sanctioned country. For instance, when America made sanctions on European trade with Russia, Lithuania dutifully stopped exporting cheese to Russia. Well, the result is that Russia set up its own cheese’s sector, and now it’s self-sufficient in cheese. If you sanction a country, you force it to become more self-reliant and across the board, from agriculture to dairy products to technology, Russia is forced to become more self-reliant and at the same time to depend much more on trade with China for the things that it is still not self-reliant in. So America is bringing about exactly the opposite of what it intended. It’s hopeless to somehow isolate Russia and then be able to go after China without Russia. And instead, what it’s doing is integrating the Eurasian core, Russia and China, exactly the policy that Henry Kissinger warned against going all the way back to Mackinder a century ago that said, Eurasia is the world island, Russia and China could be the whole world centre. That’s what the fight is all about. Well, American sanctions are driving Russia and China together, and America has gone to China and said, Please don’t support Russia. It most recently, on Monday, March 14, Jake Sullivan came out and told China, we will sanction countries that break our sanctions against Russia. And basically, China said, fine. You know, we’ll just break off all the trade between East and West now and the East, Eurasia is pretty much self-sufficient. The West is not self-sufficient since it began to industrialise, and it’s heavily dependent on Russia for not only oil and gas, but palladium and many raw materials. So the sanctions are ending up driving a wedge between the European countries.
Ross [00:03:31] Don’t people who apply these sanctions think this through? Are they so short-sighted they don’t understand that these sanctions are going to build further capacity within Russia, push Russia further towards China, make that economic alliance concrete and, ultimately, you’re not going to be able to keep the lights on in in Europe? All the while underestimating the fact that from a food security point of view – take the U.K., for instance, a net importer of food – not appreciating the fact that, for instance, Russia/Ukraine, they create twenty five percent, a quarter, of all wheat annually. The estimation this year is one hundred and two million tonnes Russia and Ukraine, wheat. Don’t people realise that there’s going to be a massive knock on effect?
Michael Hudson [00:04:23] Yes, they do realise it. Yes, they’ve thought it all through. I worked with these people for more than 50 years.
Ross [00:04:31] Who are these people?
Michael Hudson [00:04:32] The neocons, basically, the people who are in charge of U.S. foreign policy? Victoria Nuland and her husband, Robert Kagan, the people that President Biden has appointed all around him, from Blinken to Sullivan and right down the line. They are basically urging people around the New American Century. They’re the people who said America can run the whole world and create its own reality. And yes, they know that this is going to cause enormous problems for Germany. They know that not only will it block the energy that Germany and Italy and other countries in Europe need through their oil and gas, but also it’ll block the use of gas for fertiliser, upping their fertiliser production and decreasing their food production. They look at this and they say, How can America gain from all of this? There’s always a way of gaining what something looks to be bad. Well, one way they’ll gain is oil prices are going way up. And that benefits the United States whose foreign policy is based very largely on oil and gas. The oil industry controls most of the world’s oil trade, and that explains a lot of the US diplomacy. This is a fight to lock the world energy trade into control by U.S. companies, excluding not only Iran and Venezuela, but also excluding Russia.
Ross [00:06:16] So as Europe pushes towards more and more green and renewable energy and this for the Americans they must think it’s a dreadful scenario insofar as they can’t sell the oil as Europe becomes or wants to become more self-sufficient. So ultimately, and Britain net zero, whatever that means. But but going down the renewables path, going down the solar path takes America’s dependency or dependency on America out the game, doesn’t it?
Michael Hudson [00:06:49] This is exactly the point that the European public has not realised. While most of the European public wants to prevent global warming and prevent carbon into the atmosphere, U.S. foreign policy is based on increasing, and even accelerating, global warming, accelerating carbon emissions because that’s the oil trade. Suppose that Europe got its way. Suppose if the Greens got what they wanted and Germany and Europe were completely dependent on solar energy panels, on wind energy and to some extent, on nuclear power, perhaps? Well, if they were completely self-sufficient in energy without oil or gas or coal, America would lose the primary lever. It has over the ability to turn off the power and electricity and oil of any country that didn’t follow U.S. diplomatic direction.
Ross [00:07:48] So when we take your analysis here and we think about how the sanctions are going to build capacity, push Russia and China together, when we start to look at sort of piggy in the middle, if you like the EU, when we’re thinking about America, the EU has had a sort of abusive relationship with the Americans for quite some time now, hasn’t it?
Michael Hudson [00:08:06] Well, that’s that’s true in the sense that EU foreign policy has basically been turned over to NATO. So instead of European voters and politicians making their policy, they’ve relinquished European foreign policy to NATO, which is really an arm of the US military. So yes, Europe has had a decent relationship with the United States diplomatically by saying yes, yes, please or yes, thank you by not being independent. Of course, if it were independent, the relationship would not be so friendly and decent.
Ross [00:08:46] So for countries that are net importers of food, need to keep the lights on, need heating and need cheap oil. How does this pan out? What does it look like for the UK? What does it look like for the EU?
Michael Hudson [00:08:59] Well, Vice President, Kamala Harris the other day said to Americans, Yes, life is going to be much more expensive. Our oil prices are going up and squeezing families. But think of the poor Ukrainian babies that we’re saving. So take it on the chin for the Ukrainian babies. So basically the United States is presenting horror stories of the Ukraine and saying, if you don’t willingly suffer now by isolating Russia, then Russia is going to roll over you with tanks just like it rolled over Central Europe after World War Two. I mean, it’s waving the flag of Russian aggression, as if Russia or any country in today’s world has an army that’s able to invade any other industrial nation. All military can do today of any country is bomb and kill other populations and industrial centres. No nation is able to occupy or rollover any industrial country. And the United States keeps trying to promote this mythology that we’re still in the world of 1945. And that world ended really with the Vietnam War when the military draft ended. And no country is able to have a military draft to raise the army with necessary to fight to invade. Russia can’t do it any more than Europe or the United States could do it. So all the United States can do is wave warnings about how awful Russia is and somehow convince Europe to follow the US position. But most of all, it doesn’t really have to. Europe doesn’t really have a voice, and this is what the complaint by Putin and Foreign Secretary Lavrov have been saying. They say that Europe is just following the United States and it doesn’t matter what the European people want or what European politicians want. The United States is so deeply in control that they really don’t have much of a choice.
Ross [00:11:15] When does the consumer start to feel this? When does the European or British consumer start to feel the pinch when these sanctions are enacted? And what does that look like?
Michael Hudson [00:11:25] Well, it depends on how fast the sanctions work. The United States said Well, in another year and a half, we’ll be able to provide Europe with liquefied natural gas. Well, the problem is, first of all, they’re not the ports to handle the liquefied natural gas to go into Europe. Secondly, there are not enough ships and tankers to carry all of this gas to Europe. So unless there are very warm winters, Europe is not going to have a very easy time for the next few years. And that’s only for oil and gas. It’s dependent on raw materials that Russia produces. For instance, palladium is necessary for catalytic converters. Titanium is necessary to make the screws that are especially used on aeroplanes that are strong enough not to buckle and break when winds go up and down and when they’re full. Russia even produces the neon and the crypton that are necessary for making some kind of electronic uses and also for many components that go into computers and information technology. There’s a whole range of exports that Europe is highly dependent on, and the United States has provided Putin with a whole list of these exports, saying, Well, OK, we’re going to fight against Europe buying your oil and gas but you can certainly sell us your heavy oil that we need since we’re not buying it from Venezuela. We certainly need the following list of critical materials that we need, like helium and crypton. These are our pressure points. Please don’t press on them. Well, you can imagine what Putin and his advisers are saying. Thank you for giving us this list of the pressure points that you’re exempting from the trade sanctions. I think if you really want a break in the unilateral, unipolar world, I think we should break now and see whether you really want to get along without trading.
Ross [00:13:51] Michael Hudson, welcome back, second half, Renegade Inc. Wonderful to have you. In that first half we followed the money, if you like. We talked about sanctions and the unintended consequences. I just want to pull back a little further if we can and just talk about the sort of tectonic shifts that are going on in the world. I spoke to somebody from Russia recently and what he said was very straightforward. He said, now what we have to do is begin to learn to live without the West. Do you think that that sentiment is proliferating across Russia now? Is that the mindset?
Michael Hudson [00:14:22] Well, if you read President Putin’s speeches, that’s exactly what’s happening. And Secretary Lavrov has voiced exactly the same feeling. There’s almost a disgust with the West and a feeling from Putin, Lavrov and the other Russian spokesmen, how could we everhave hoped to have an integration with Europe after 1991? Europe really was not on our side at all, and we didn’t realise that Europe is really part of the U.S. diplomatic sphere. It’s like all of Europe is now backing the attack on Russia. The best to do is reorient our economy towards China, Asia and Eurasia and become our own self-sufficient, independent centre
Ross [00:15:15] De-dollarisation and the amassing of plenty of gold by both the Russians and the Chinese. Just talk us through that.
Michael Hudson [00:15:21] Well, Ross, you asked in the first half of this interview how has American sanctions worked against it? I should have mentioned what you just mentioned, the dollar. The United States just grabbed all of Russia’s foreign exchange reserves, just as England a few months ago grabbed all of Venezuela’s gold that was held in the Bank of England when Venezuela tried to spend this gold on buying medical supplies to cope with the COVID virus. So basically, the United States have said, if any foreign country holds its reserves in the United States or accounts in U.S. banks. If a country in the global south tries to pay its foreign debt by holding its reserves in US banks in order to be the paying agent on the interest on its foreign debt. And if that foreign country does something we don’t like, like trade with Russia or permit more labour unionisation or try to become independent in food, we’re just going to do what we did to Venezuela, what we did to Iran when we grabbed its foreign exchange reserves or what we did to Russia. And that means that other countries all of a sudden see what they thought was their flight to security, what they thought was their most secure savings, their holdings in U.S. banks, US treasury bill, all of a sudden, is holding them hostage and is a high risk. Even the Financial Times of London has been writing about this, saying, how can the United States that was getting a free ride off the dollar standard for the last 50 years, ever since 1971, when foreign countries held dollars instead of gold and basically holding dollars means you buy U.S. Treasury bonds to finance the US budget deficit and the balance of payments deficit. How can the United States kill the goose that’s giving it the free ride? Well, the answer is that other countries can only move into gold and there’s an alternative to the dollar because that’s something that all the countries of the world have agreed upon is an asset, not a liability. If you hold any foreign currency, that currency is a liability of a foreign country, and if you hold gold, it’s a pure asset. There’s no country that can cancel it, the Americans can’t cancel Russia’s gold supply that’s held in Russia, although it can grab Russian gold supply if it were to hold it in the New York Federal Reserve Bank or the Bank of England. So other countries are not only moving to gold, Germany is bringing its gold back from New York, the Federal Reserve, in aeroplanes back to Germany, so it’ll have its own gold just in case German politicians would do something the United States didn’t like and the United States would simply grab Germany’s gold. The United States sanctions, and it’s especially it’s grabbing on foreign reserve, has started a war that is dividing the world between the West and Eurasia.
Ross [00:18:40] A technical part to all of this because let’s face it, it is an information war and it’s also an economic war. Is it the FIRE sector that you point out – the financial, insurance and real estate sector. Is it that they want to continue the exorbitant privilege of credit creation, because ultimately, if you think about gold, there’s no counterparty risk. Gold is gold and it has been for millennia. Far from being a barbarous relic, by the way now, people are starting to realise the intrinsic value, especially as crypto falls apart. Can you just talk a little bit about this, the FIRE sector wanting the exorbitant privilege of creating credit?
Michael Hudson [00:19:19] This is really what the new world division and global fracture is all about. You’re right, Ross. If you look at after World War One, the American fight against Soviet communism, was basically a fight of industrial capitalism against the threat of socialism. But after 1991, and especially in the last two decades, America deindustrialised. So the fight is not by industrial capitalism against countries pushing their labour up. It’s a fight of neoliberalism against industrial capitalism or socialism abroad. It’s against industrial capitalism evolving into socialism. It’s a belief that, well, now that America’s be industrialised, how is it going to control the world economy? Well, it’ll control it through a financial means by being the creditor and foreign countries debt payments to America will enable it to make its military payments abroad and finance its trade deficit. But also, America’s purchase of key natural resources will give it natural resources when its purchase of takeover of real estate is going to essentially make the United States the landlord class and monopoly class, that mediaeval Europe had to hold the rest of the population in serfdom. That basically is the American strategy of neoliberalism fighting against countries that reject privatisation and financialization of their economy, and specifically financialization under the control of U.S. banks, U.S. private capital and allied satellite banks and capital from England or France or Germany. This is exactly the fight. Will banking and finance control the world economy or will other countries try to build up their own economies through labour and tangible capital formation?
Ross [00:21:27] Where do you stand on that? And I’m only asking you to predict the future, Michael. How do you think this plays out? Because the way you’ve depicted it is the rent seekers, the neoliberal rent seekers on one hand, and there are value creators on the other. And by the way, those two things don’t sit very well together, as we know. How does that play out?
Michael Hudson [00:21:51] Even though the United States is the largest debtor economy in the world, it’s a creditor vis-a-vis the global south and other countries and it uses its creditor position to take over their natural resources, real estate, oil and gas, mineral rights and public utilities and natural monopolies and that are being privatised in government infrastructure. It’s becoming basically the landlord monopoly class of the entire world. That’s the U.S. strategy, and that’s the key to why the world is fracturing globally. And in the past, the global south countries were unable to fight against this tendency in the 70s and 80s with the Vendome conference on. But now that China and Russia threatened to be a self-sufficient core in Eurasia, this is the great threat to the American dream of becoming a landlord and financier of the world.
Ross [00:22:50] How do you think this pans out?
Michael Hudson [00:22:52] Well, the question is whether the United States is if we can control the world, who wants to live in a world like that, let’s blow it up. The question is whether the United States will actually go to war. The only lever that it has left is to drop bombs and to destroy and make the world look like Ukraine. So from the U.S. point of view, Europe’s future and Eurasia’s future is the Ukraine. Look at what we will do to you if you don’t follow our policy. America has just moved al Qaeda very heavily in the Ukraine to sort of repeat in Ukraine and Europe what it was doing in Syria and Libya. And the United States says this is what we can do. What are you going to do about it? Do you really want to fight. But the rest of the world, certainly China and Russia says, Well, we’re ready to fight. So there is no telling what you. And it comes down to personalities. Putin has said, well, do we really want to live in a world without Russia? If the United States is to attack us, we might as well end the world. The United States says, Do we really want to live in a world that we can’t control? If we’re not completely in control, we feel very insecure and we’re going to blow up the world. So you have this countervailing position in a world where all the arms control has been dismantled by the United States in the last few years. The United States has withdrawn from all of the agreements that Russia and China have tried to promote. And Europe is standing by and apparently is willing to be the sacrificial lamb in all of this as Ukraine is being the sacrificial lamb. So the United States and Russia say, let’s fight to the last European. And Russia initially didn’t want that because it was hoping that Europe and Russia would have a mutual gain in trade and investment relationships. But now it doesn’t feel that way. And there may be a proxy war between the United States over the European economy, not necessarily bombing Europe, but trade sanctions, energy sanctions, the kind of disruption that Europe is going to be seeing in the next year is if it loses Russian oil and gas and minerals and also, I think Chinese exports.
Ross [00:25:25] Is there a moment where cooler heads prevail and suddenly the West and other places realise that they’re dependent from a food security point of view, from an energy security point of view that we are dependent? And is there a moment at that point that you can thaw a frozen conflict by saying, actually, if we both meet, we just take a step toward each other, actually, we can do something in a collaborative way? Now I get what you’ve said throughout the rest of the programme, and I give this a percentage possibility of about three percent, but isn’t there a strategy to say, actually, we’ve had all the grandstanding, we’ve had all the brinksmanship, we should now sit around the table and try and work something out?
Michael Hudson [00:26:03] I don’t see any cooler heads in the United States. The surprising thing is that here it’s the right wing channel, the Republican Fox Channel, is the only channel that’s taking the anti-war stand and is saying we shouldn’t be at war in Ukraine. It’s the only channel that’s talking about here is how Russia sees the world. Do we really want to take a one sided perspective or do we want to see the actual dynamics at work? So it was the Republicans and the right wing that is now primarily against the NATO war in the Ukraine. The left wing seems to be all for it, but the left wing of the Democratic Party is in office and I don’t see any cooler heads in the Democratic Party at all. And I’ve known many of these people for many decades, and they are willing to go to war for a death. There are still back in the world of World War Two when the fight was against the Nazis and anti-Semitism. They’re still living in a kind of mythology world, not in the real world. And the thought that the world can come to an end either doesn’t have a reality to them or as Herman Cain said, Well, somebody is going to survive.
Ross [00:27:29] Michael Hudson always a pleasure, a great insight. And, you know, it’s just refreshing to hear. Thank you very much for your time.
Michael Hudson [00:27:38] Well, thank you very much for having me, Ross.
The “rules-based international order” – as in “our way or the highway” – is unraveling much faster than anyone could have predicted.
The Eurasia Economic Union (EAEU) and China are starting to design a new monetary and financial system bypassing the U.S. dollar, supervised by Sergei Glazyev and intended to compete with the Bretton Woods system.
Saudi Arabia – perpetrator of bombing, famine and genocide in Yemen, weaponized by U.S., UK and EU – is advancing the coming of the petroyuan.
India – third largest importer of oil in the world – is about to sign a mega-contract to buy oil from Russia with a huge discount and using a ruble-rupee mechanism.
Riyadh’s oil exports amount to roughly $170 billion a year. China buys 17% of it, compared to 21% for Japan, 15% for the U.S., 12% for India and roughly 10% for the EU. The U.S. and its vassals – Japan, South Korea, EU – will remain within the petrodollar sphere. India, just like China, may not.
Sanction blowback is on the offense. Even a market/casino capitalism darling such as uber-nerd Credit Suisse strategist Zoltan Poznar, formerly with the NY Fed, IMF and Treasury Dept., has been forced to admit, in an analytical note: “If you think that the West can develop sanctions that will maximize the pain for Russia by minimizing the risks of financial stability and price stability for the West, then you can also trust unicorns.”
Unicorns are a trademark of the massive NATOstan psyops apparatus, lavishly illustrated by the staged, completely fake “summit” in Kiev between Comedian Ze and the Prime Ministers of Poland, Slovenia and the Czech Republic, thoroughly debunked by John Helmer and Polish sources.
Poznar, a realist, hinted in fact at the ritual burial of the financial chapter of the “rules-based international order” in place since the early Cold War years: “After the end of this war [in Ukraine], ‘money’ will never be the same.” Especially when the Hegemon demonstrates its “rules” by encroaching on other people’s money.
And that configures the central tenet of 21st century martial geopolitics as monetary/ideological. The world, especially the Global South, will have to decide whether “money” is represented by the virtual, turbo-charged casino privileged by the Americans or by real, tangible assets such as energy sources. A bipolar financial world – U.S. dollar vs. yuan – is at hand.
There’s no surefire evidence – yet. But the Kremlin may have certainly gamed that by using Russia’s foreign reserves as bait, likely to be frozen by sanctions, the end result could be the smashing of the petrodollar. After all the overwhelming majority of the Global South by now has fully understood that the backed-by-nothing U.S. dollar as “money” – according to Poznar – is absolutely untrustworthy.
If that’s the case, talk about a Putin ippon from hell.
It’s gold robbery time
As I outlined the emergence of the new paradigm, from the new monetary system to be designed by a cooperation between the EAEU and China to the advent of the petroyuan, a serious informed discussion erupted about a crucial part of the puzzle: the fate of the Russian gold reserves.
Doubts swirled around the Russian Central Bank’s arguably suicidal policy of keeping assets in foreign securities or in banks vulnerable to Western sanctions.
Of course there’s always the possibility Moscow calculated that nations holding Russian reserves – such as Germany and France – have assets in Russia that can be easily nationalized. And that the total debt of the state plus Russian companies even exceeds the amount of frozen reserves.
But what about the gold?
As of February 1, three weeks before the start of Operation Z, the Russian Central Bank held $630.2 billion in reserves. Almost half – $311.2 billion – were placed in foreign securities, and a quarter – $151.9 billion – on deposits with foreign commercial and Central Banks. Not exactly a brilliant strategy. As of June last year, strategic partner China held 13.8% of Russia’s reserves, in gold and foreign currency.
As for the physical gold, $132.2 billion – 21% of total reserves – remains in vaults in Moscow (two-thirds) and St. Petersburg (one-third).
So no Russian gold has been frozen? Well, it’s complicated.
The key problem is that more than 75% of Russian Central Bank reserves are in foreign currency. Half of these are securities, like government bonds: they never leave the nation that issued them. Roughly 25% of the reserves are linked to foreign banks, mostly private, as well as the BIS and the IMF.
Once again it’s essential to remember Sergei Glazyev in his groundbreaking essay Sanctions and Sovereignty: “It is necessary to complete the de-dollarization of our foreign exchange reserves, replacing the dollar, euro and pound with gold. In the current conditions of the expected explosive growth in the price of gold, its mass export abroad is akin to treason and it is high time for the regulator to stop it.”
This is a powerful indictment of the Russian Central Bank – which was borrowing against gold and exporting it. For all practical purposes, the Central Bank could be accused of perpetrating an inside job. And subsequently they were caught flat-footed by the devastating American sanctions.
As a Moscow analyst puts it, the Central Bank “had delivered some volumes of gold to London in 2020-2021. This decision was motivated by a high price of gold at that time (near $2000 per ounce) and could hardly be initiated by Putin. If so, this decision can be qualified as very stupid, or even part of a diversionist tactic (…) Most of the gold delivered to London was not stored but sold and transferred into foreign currency reserves (in euro or pounds) which were frozen later.”
No wonder a lot of people in Russia are livid. A quick flashback is in order. In June last year, Putin signed a law canceling requirements for the repatriation of foreign exchange earnings from gold exports. Five months later, Russia’s gold miners were exporting like crazy. A month later, the Duma wanted to know why the Central Bank had stopped buying gold. No wonder Russia media erupted with accusations of “an unprecedented [gold] robbery”.
Now it’s way more dramatic: RIA Novosti described the American-dictated freeze as – what else – a “robbery” and duly predicted global economic chaos. As for the Central Bank, it’s back on the gold buying business.
None of the above though explains some “missing” gold that de facto is not under the possession of the Russian Central Bank. And that’s where a somewhat shady character such as Herman Gref comes in.
“This process has been going on for the past year. Exported, according to some estimates, 600 tons. [Head of Russian Central Bank] Nabiullina said – whoever wants to sell gold to get cash, or if you mine gold and trade it, keep in mind that the state, in my person, will not buy gold from you at a market price. We will take it at a big discount. If you want to get honest money for it, please export it. The world center of gold trading is London. Accordingly, everyone began to export and sell gold there. Including Mr. [Herman] Gref. The head of the formally state-owned Sberbank sold a huge part of his gold reserves.”
Look here for fascinating details about Sberbank’s Gref shenanigans.
Watch for the gold-backed ruble
It may be a case of too little too late, but at least the Kremlin has now established a committee – with authority over the Central Bank nerds – to handle the serious stuff.
It boggles the mind that the Russian Central Bank does not answer to the Russian constitution as well as to the judicial system, but in fact is subordinated to the IMF. A case can be made that this cartel-designed financial system – implying zero sovereignty – simply cannot be tackled head on by any nation on the planet, and Putin has been trying to undermine it step by step. That includes, of course, keeping Elvira Nabiullina on the job even as she duly follows the Washington consensus to the letter.
And that brings us back to the ultra high stakes possibility that the Kremlin may have wanted from the start to go no holds barred, forcing the Atlanticists to reveal their true hand, and exposing their system in a “The King is Naked” spectacular for a worldwide audience.
And that’s where the EAEU/China new monetary/financial system comes in, under Glazyev supervision. We can certainly envision Russia, China and vast swathes of Eurasia progressively divorcing from casino capitalism; the ruble reconverted to a gold-backed currency; and Russia focused on self-sufficiency, productive domestic investment and trade connectivity with most of the Global South.
Way beyond its confiscated foreign reserves and tons of gold sold in London, what matters is that Russia remains the ultimate natural resource powerhouse. Shortages? A little austerity for a little while will take care of it: nothing as dramatic as the national impoverishment under the neoliberal 1990s. And extra boost would come from exporting natural resources at premium discount prices to other BRICS and most of Eurasia and the Global South.
The collective West has just fabricated a new, tawdry East-West divide. Russia is turning it upside down, to its own profit: after all the multipolar world is rising in the East.
The Empire of Lies won’t back down, because it does not have a Plan B. Plan A is to “cancel” Russia across the – Western – spectrum. So what? Russophobia, racism, 24/7 psyops, propaganda overdrive, cancel culture online mobs, that don’t mean a thing.
Facts matter: the Bear has enough nuclear/hypersonic hardware to shatter NATO in a few minutes before breakfast and teach a lesson to the collective West before pre-dinner cocktails. There will come a time when some exceptionalist with a decent IQ will finally understand the meaning of “indivisibility of security”.
The Russia-led Eurasia Economic Union and China just agreed to design the mechanism for an independent financial and monetary system that would bypass dollar transactions.
Russia says half its gold assets were frozen – is this for real or a slick play by Moscow?
Photo Credit: The Cradle
It was a long time coming, but finally some key lineaments of the multipolar world’s new foundations are being revealed.
On Friday, after a videoconference meeting, the Eurasian Economic Union (EAEU) and China agreed to design the mechanism for an independent international monetary and financial system. The EAEU consists of Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia, is establishing free trade deals with other Eurasian nations, and is progressively interconnecting with the Chinese Belt and Road Initiative (BRI).
For all practical purposes, the idea comes from Sergei Glazyev, Russia’s foremost independent economist, a former adviser to President Vladimir Putin and the Minister for Integration and Macroeconomics of the Eurasia Economic Commission, the regulatory body of the EAEU.
Glazyev’s central role in devising the new Russian and Eurasian economic/financial strategy has been examined here. He saw the western financial squeeze on Moscow coming light-years before others.
Quite diplomatically, Glazyev attributed the fruition of the idea to “the common challenges and risks associated with the global economic slowdown and restrictive measures against the EAEU states and China.”
Translation: as China is as much a Eurasian power as Russia, and they need to coordinate their strategies to bypass the US unipolar system.
The Eurasian system will be based on “a new international currency,” most probably with the yuan as reference, calculated as an index of the national currencies of the participating countries, as well as commodity prices. The first draft will be already discussed by the end of the month.
The Eurasian system is bound to become a serious alternative to the US dollar, as the EAEU may attract not only nations that have joined BRI (Kazakhstan, for instance, is a member of both) but also the leading players in the Shanghai Cooperation Organization (SCO) as well as ASEAN. West Asian actors – Iran, Iraq, Syria, Lebanon – will be inevitably interested.
In the medium to long term, the spread of the new system will translate into the weakening of the Bretton Woods system, which even serious US market players/strategists admit is rotten from the inside. The US dollar and imperial hegemony are facing stormy seas.
Show me that frozen gold
Meanwhile, Russia has a serious problem to tackle. This past weekend, Finance Minister Anton Siluanov confirmed that half of Russia’s gold and foreign reserves have been frozen by unilateral sanctions. It boggles the mind that Russian financial experts have placed a great deal of the nation’s wealth where it can be easily accessed – and even confiscated – by the ‘Empire of Lies’ (copyright Putin).
At first, it was not exactly clear what Siluanov had meant. How could the Central Bank’s Elvira Nabiulina and her team let half of foreign reserves and even gold be stored in Western banks and/or vaults? Or is this some sneaky diversionist tactic by Siluanov?
Hudson was quite frank: “When I first heard the word ‘frozen,’ I thought that this meant that Russia was not going to expend its precious gold reserves on supporting the ruble, trying to fight against a Soros-style raid from the west. But now the word ‘frozen’ seems to have meant that Russia had sent it abroad, outside of its control.”
“It looks like at least as of last June, all Russian gold was kept in Russia itself. At the same time, it would have been natural to have kept securities and bank deposits in the United States and Britain, because that is where most intervention in world foreign exchange markets occurs,” Hudson added.
Essentially, it’s all still up in the air: “My first reading assumed that Russia must be doing something smart. If it was smart to move gold abroad, perhaps it was doing what other central banks do: ‘lend” it to speculators, for an interest payment or fee. Until Russia tells the world where its gold was put, and why, we can’t fathom it. Was it in the Bank of England – even after England confiscated Venezuela’s gold? Was it in the New York Fed – even after the Fed confiscated Afghanistan’s reserves?”
So far, there has been no extra clarification either from Siluanov or Nabiulina. Scenarios swirl about a string of deportations to northern Siberia for national treason. Hudson adds important elements to the puzzle:
“If [the reserves] are frozen, why is Russia paying interest on its foreign debt falling due? It can direct the “freezer’ to pay, to shift the blame for default. It can talk about Chase Manhattan’s freezing of Iran’s bank account from which Iran sought to pay interest on its dollar-denominated debt. It can insist that any payments by NATO countries be settled in advance by physical gold. Or it can land paratroopers on the Bank of England, and recover gold – sort of like Goldfinger at Fort Knox. What is important is for Russia to explain what happened and how it was attacked, as a warning to other countries.”
As a clincher, Hudson could not but wink at Glazyev: “Maybe Russia should appoint a non-pro-westerner at the Central Bank.”
The petrodollar game-changer
It’s tempting to read into Russian Foreign Minister Sergey Lavrov’s words at the diplomatic summit in Antalya last Thursday as a veiled admission that Moscow may not have been totally prepared for the heavy financial artillery deployed by the Americans:
“We will solve the problem – and the solution will be to no longer depend on our western partners, be it governments or companies that are acting as tools of western political aggression against Russia instead of pursuing the interests of their businesses. We will make sure that we never again find ourselves in a similar situation and that neither some Uncle Sam nor anybody else can make decisions aimed at destroying our economy. We will find a way to eliminate this dependence. We should have done it long ago.”
So, ‘long ago’ starts now. And one of its planks will be the Eurasian financial system. Meanwhile, ‘the market’ (as in, the American speculative casino) has ‘judged’ (according to its self-made oracles) that Russian gold reserves – the ones that stayed in Russia – cannot support the ruble.
That’s not the issue – on several levels. The self-made oracles, brainwashed for decades, believe that the Hegemon dictates what ‘the market’ does. That’s mere propaganda. The crucial fact is that in the new, emerging paradigm, NATO nations amount to at best 15 percent of the world’s population. Russia won’t be forced to practice autarky because it does not need to: most of the world – as we’ve seen represented in the hefty non-sanctioning nation list – is ready to do business with Moscow.
Iran has shown how to do it. Persian Gulf traders confirmed to The Cradle that Iran is selling no less than 3 million barrels of oil a day even now, with no signed JCPOA (Joint Comprehensive Plan of Action agreement, currently under negotiation in Vienna). Oil is re-labeled, smuggled, and transferred from tankers in the dead of night.
Another example: the Indian Oil Corporation (IOC), a huge refiner, just bought 3 million barrels of Russian Urals from trader Vitol for delivery in May. There are no sanctions on Russian oil – at least not yet.
Washington’s reductionist, Mackinderesque plan is to manipulate Ukraine as a disposable pawn to go scorched-earth on Russia, and then hit China. Essentially, divide-and-rule to smash not only one but two peer competitors in Eurasia who are advancing in lockstep as comprehensive strategic partners.
As Hudson sees it: “China is in the cross-hairs, and what happened to Russia is a dress rehearsal for what can happen to China. Best to break sooner than later under these conditions. Because the leverage is highest now.”
All the blather about “crashing Russian markets,” ending foreign investment, destroying the ruble, a “full trade embargo,” expelling Russia from “the community of nations,” and so forth – that’s for the zombified galleries. Iran has been dealing with the same thing for four decades, and survived.
Historical poetic justice, as Lavrov intimated, now happens to rule that Russia and Iran are about to sign a very important agreement, which may likely be an equivalent of the Iran-China strategic partnership. The three main nodes of Eurasia integration are perfecting their interaction on the go, and sooner rather than later, may be utilizing a new, independent monetary and financial system.
But there’s more poetic justice on the way, revolving around the ultimate game-changer. And it came much sooner than we all thought.
Saudi Arabia is considering accepting Chinese yuan – and not US dollars – for selling oil to China. Translation: Beijing told Riyadh this is the new groove. The end of the petrodollar is at hand – and that is the certified nail in the coffin of the indispensable Hegemon.
Meanwhile, there’s a mystery to be solved: where is that frozen Russian gold?
The views expressed in this article do not necessarily reflect those of The Cradle.
يقدم الخبراء الماليون في وكالة بلومبرغ المتخصصة بالشؤون المالية، في دراسة حول العملات الرقمية، صورة للوضع في الأسواق المالية للأعوام التي تفصلنا عن عام 2030 قوامه، المزيد من الذوبان لكتلة الاعتماد على الدولار في المدخرات لحساب العملات الرقمية التي يتزايد اللجوء إليها، وفقاً لما تفرضه الاقتصادات الافتراضية التي تتوسع بصورة متوالية هندسية، ولا مصلحة أميركية بالحدّ منها منعا للتضخم لأنها تستوعب الفوائض النقدية من الأسواق، ولا قدرة على الحد منها لأنها فعل سوق صرف ولا تعبر بالمصارف المركزية بل لا تعبر عموماً بالمصارف التجارية ولها منصاتها الخاصة غير الخاضعة للرقابة وغير الممكن إخضاعها للرقابة، ويعتقد خبراء بلومبرغ أن ذلك سيتزامن مع نزوح شركات عالمية كبرى الى العملات الرقمية بحثاً عن ملاقاة روح العصر الرقمي، من جهة، وسيفعل ذلك بعض آخر تهرباً من الملاحقات القانونية من جهة مقابلة، فكل الأسواق المالية التي تشوبها مشاكل قانونية وتحتاج إلى درجات من التوثيق والتدقيق، سواء في التجارات غير المشروعة أو في المشتبه بتورطها بنوع من أنواع غسيل الأموال، ستنزح الى الملاذ الآمن للعملة الرقمية. ومع هذه وتلك ستبدأ الدول التي تراكم فوائض مالية بحجز البعض من احتياطاتها بالعملات الرقمية من باب تعدد أنواع العملة كعنصر للأمان، ويعتقد الخبراء أن مجموع هذه المصادر سيعني تراجعاً في الاعتماد على الدولار بنسبة لا تقلّ عن 30%.
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بالتوازي يتحدث خبراء المصرف الفيدرالي الأميركي، في دراسة عن مخاطر الصعود الصيني وتحدياته، عن تراجع بنسبة مشابهة بين 25 و30% في الاعتماد العالمي على الدولار، بسبب الإفراط الأميركي في استخدام سياسة العقوبات، من جهة، وصعود الاقتصاد الصيني من جهة مقابلة، وسعي الصين لتشكيل تكتل مصرفي ومالي مع روسيا ودول عديدة تتذمر من السطوة الأميركية على الأسواق. ويعتقد هؤلاء الخبراء ان على واشنطن أن تسارع الخطى للتهيؤ للمرحلة الجديدة بالسعي لتنشيط اقتصاد حقيقي يستطيع منع التأثير التضخمي لتراجع الطلب العالمي على الدولار، ويشبه هؤلاء الخبراء وضع الدولار اليوم بوضع الذهب قبل نصف قرن، عندما بدأ الانتقال العالمي من الذهب الى الدولار، والعالم بقوة العولمة التي قادتها واشنطن يدخل العصر الرقمي، الذي تشكل العملات الرقمية أحد مخرجاته، وهذا مسار لا يمكن وقفه، وهو من ارتدادات وتداعيات التطور الذي نادت به أميركا وقادته على مستوى العالم، في إدراك أن سقوط المركزية سيدخل كل مجال بما في ذلك المجالات التي توفر وضعية التفوق للأميركيين، هو العبرة التي يجب أخذها، ليس في مجال العملة فقط، بل في مجالات عديدة، والتيقن من أن أميركا التي كان لها الفضل في قيادة هذا المسار الجديد عالمياً جاء وقتها لتدفع ثمنه، والاستعداد لتقبل نهاية عهدها الذهبي، والتساؤل عما إذا كانت قد احسنت استخدامه تهيؤا لمراحل اشد قسوة وصعوبة.
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في المجال العسكري يتحدث الخبراء العسكريون الأميركيون، في ورش عمل أقيمت خصيصاً تحت عنوان خطر الطائرات المسيرة تحدي القرن الحادي والعشرين، عن تراجع قدرة التدخل العسكري الأميركي بسبب عدم القدرة على الدخول في منافسة الخصوم على تحمل بذل الدماء، وهو ما يفسر به هؤلاء الخبراء خسارة واشنطن لحربيها على العراق وأفغانستان. وهذا التطور من نتاجات العولمة وعوالم الثقافة والقيم التي رافقتها، ومثله دخول الخصخصة على الخدمات العسكرية والأكلاف الهائلة التي باتت تترتب على أي عمل عسكري. وهو أمر يجب أخذه بالحساب عند تقدير الأعباء والعائدات، فأحد أسباب الانسحاب من أفغانستان كان كلفة الحرب يومياً بما يزيد عن ثلاثمئة مليون دولار، بينما كلفة الخصوم لا تقارب نصف هذا الرقم في الشهر، ويتوقف الخبراء أمام عولمة التقنيات وتطور الميكرو تكنولوجيا، وتداخل استخدامات الأنترنت مع الأنشطة العسكرية، ويضربون مثالاً على دور الطائرات المسيرة في إرباك كل الخطط الأميركية العسكرية التي يتولى تنفيذها حلفاء واشنطن سواء في دول الخليج او في “إسرائيل”، ويقولون إن منتجات عابرة للقارات بأحجام لا يلتقطها الرادار المتطور، تحمل المتفجرات، تمثلها الطائرات المسيرة بكلفة لا تزيد عن بضعة آلاف الدولارات للطائرة الواحدة، تشكل سلاح الحرب المقبلة ومواجهة الطائرة التي تكلف بضعة آلاف من الدولارات ستحتاج الى ما يزيد عن عشرة ملايين دولار لضمان اسقاط كل طائرة في الأجواء، وفي حرب قد تتعرّض لها “إسرائيل”، يتوقع خلالها اشتراك مئة الف طائرة من هذا النوع، سيكون ممكناً إسقاط نصفها اذا تم رصد مبلغ تريليون دولار، لكن النصف الباقي سيصل الى أهدافه ويخلّف وراءه الدمار الشامل في المؤسسات والمرافق الحيوية.
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الخبراء الاستراتيجيون الأميركيون متفقون على التشخيص والتقييم لعناصر المشهد ومنقسمون بين من يقول ان الفترة الفاصلة عن عام 2030 هي آخر فرصة لأميركا لخوض آخر حروبها والاستثمار على أشد واقسى العقوبات المالية والمصرفية، لفرض أفضل التسويات، وبين من يقول إن الوقت ينفد من بين أيدي واشنطن وإن الاستعداد لملاقاة مرحلة ما بعد القدرة على خوض الحروب والتحكم بالأسواق، يحتاج إلى أكثر من الوقت المتبقي حتى عام 2030، ولذلك يجب البدء الآن والبداية هي المسارعة للخروج من زمن الحروب والعقوبات بأفضل ما هو متاح اليوم، لأن ما هو ممكن اليوم قد يصبح مستحيلاً غداً.
Benjamin Norton from Moderate Rebels interviews Dr. Michael Hudson. The interview is more wide-ranging than the title suggests but, with razor-sharp intellect, Dr. Hudson breaks open the reason for today’s inflationary cycles. Dr. Hudson again looks at the roots of de-dollarization, the new financial system, China’s purported slow-down, and common prosperity policy being implemented now.
It certainly looks like a domino that has been put in position poised to fall waiting for others to take their places in the line.
With America withdrawing from Afghanistan abruptly after some 20 years, one big question is being discussed throughout the strategic sphere by those both in big institutions and laying on their couches – is the American loss in Afghanistan the first domino to fall in the eventual collapse of the Global Hegemon? After all, Afghanistan is the “graveyard of empires” probably because it is an expression that sounds nice and because the Soviets fell apart a few years after losing to the locals. So this must be the “beginning of the end” right?
Well, we should never be so quick as to jump onto narrow narratives without looking at the big picture. Side-by-side images of the Americans and their allies fleeing Vietnam and Afghanistan by helicopter are flooding Facebook, posted by those in the Alternative Media who take great joy in any loss by the 21st century’s “Evil Empire” but they seem to forget that just a few decades after losing in Vietnam the United States won the Cold War and took dominance over the planet.
Image: Strategic meme-of-the-year material for 2021.
No single event no matter how photogenic it is, is not going to be a sign of the grand demise of the “Sole Hyperpower”. It really took from the beginning of WWI till the end of WWII for the British to truly fall apart as a geopolitical force. The Soviet Union fell much quicker, but it is very widely believed that Perestroika (or the The Reykjavik Summit) was the real first white flag that devolved into the breakup of the union years later. The Roman Empire was a vastly slower burn than either of these two modern behemoths.
This means we should not be debating if Afghanistan is the first “domino” to fall, but instead we should really take a look at what the rest of the dominos falling would look like. At this point we can surely put together a rough picture of what the next tiles to fall would look like, i.e. what other major failures/events would really be signs of the Monopolar World meeting its demise? The following are a few humble offerings as to what these dominos could be…
Abandoning the Maidan Regime in the Ukraine
The unexpected surrender and soon to be total fall of Kabul has certainly resonated in another city that starts with the letter K. If Washington is finding it necessary to abandon a twenty-year Nation-Building project that they have invested vast sums of money and manpower into, that means that back-burner Kiev could be cut loose in the near future, putting the fate of the region in the hands of the Russians.
Image: We all know who secures Ukrainian “independence”.
The Maidan has been a major roadblock for Russia. As Brzeziński wrote, “It cannot be stressed enough that without Ukraine, Russia ceases to be an empire, but with Ukraine suborned and then subordinated, Russia automatically becomes an empire” and Washington has done an absolutely fantastic job of turning the region into an “anti-Russia” as Putin recently called it.
If the Maidan project were to be abandoned, it would become another quite massive domino. Washington giving up on Kiev, resulting in that current political entity probably being divided up, mostly going to Moscow, would symbolize either the USA’s inability to stop the rise of the Russians or their begrudging acceptance of it.
Taiwan, Hong Kong and/or South Korea
The Trump-era State Department Democracy storm that was inflicted on Hong Kong has seemed to fade away, but a total abandonment of the thorns in the side of the Chinese Dragon would also result in another domino being placed into position.
Image: Not State Department = No Professional Protest Organizers in China.
Bailing on Hong Kong activists or failing to maintain Taiwan’s independence would certainly present a strong sign of weakness and inability from the standpoint of Washington. Furthermore, although China has never had a passionate love for the North Koreans, having South Korea as essentially an American beachhead right next door has been a cause of concern for decades for Beijing. The South Korean economy on paper looks amazing and their cities dazzle with progress but what would be the effects of Ameria giving up on them? Is South Korea able to stand as a great nation, or is it really only successful thanks to the American umbrella? The answer to that would reveal itself within two weeks of an America-free Korean Peninsula.
Simply put, if Washington gives up on Hong Kong, Taiwan and/or South Korea it is another sign of the end for sure as China would be more or less rid of these weak points that have been exploited against it for decades.
A Loss of Control Over the “Bigs”
Big Tech, Big Pharma, Big Agro and so on, have dutifully served Washington’s interests despite their theoretically international nature. But we should never forget that large for-profit entities are quite “whoreish” and will serve whichever master they need to. If Washington cannot control the Bigs as it used to, this would be another domino.
To a small extent this is happening in Hollywood where the Chinese market’s (and its official and unofficial) demands are having a major impact. But if it comes to a point that Hollywood is only making a chunk of the world’s blockbusters rather than nearly all of them it would be the end of the total unobstructed Soft Power dominance of this American institution. Or even worse, if Hollywood can be bought out from under America then a new global narrative could be spun quite quickly.
If the Hegemon fades, the leadership of the Bigs will feel increasing pressure from the Russians, Chinese and Arabs to give up the whole “gay thing” and portray these societies in a positive light whether through bribery or threats of force. Apple may be “designed in California” but if need be they would surely bail for greener pastures rather than living a life of poverty loyal to a failed America.
Mexico, Lakotastan and African-America
The United States has done a fantastic job of fostering independence movements within its rivals while making diverse masses “American” at home. However, as with the Soviets and the British, waves of breakaway republics and successful secessionist movements would be a very big domino indeed.
The Soviets tried to create an African workers uprising in America in the 60’s and failed miserably, but BLM could get out of control, or in the case of a dying USA, could become used by foreign powers. An Afro-American Maidan would certainly be another sign of doom.
The rise of an independent Native-American state like the Lakota Indians’ lands would be yet another tile being stood into place, opening the door for further break-away attempts.
When the Mexicans lost the Mexican-American war they lost the chance to become the dominant power on the continent. Few remember, but the destiny of this New World was not just given to the Americans wrapped in a box. If the Mexicans had won the war they would be the ones with access to the Atlantic (via the Gulf of Mexico) and the Pacific simultaneously, not Washington. It would have been very possible for them to secure the entire West Coast. A Mexico that would begin to take action as an independent actor would certainly be another sign of serious trouble for Washington. Thus far, on the North American continent “there can be only one” but perhaps that isn’t necessarily going to always remain the same “one”.
The death of the Dollar or collapse of the Federal Reserve
If the dollar were to collapse, or there were serious problems at the Federal Reserve, as have been predicted for many years due to insane national debt, this would of course be the biggest domino of all. The West has been able to accumulate bafflingly massive debt with no consequences because of the dominance of Washington. It is very hard to call in a debt from the toughest kid school surrounded by his henchmen. But when the big bully stops growing, and loses his buddies, all of a sudden getting your $5 back with a few whacks from a baseball bat becomes viable.
Image: If you are powerful enough no one can call in your debts.
No one can call in the debt of a Global Hegemon, but Regional Powers have to balance their checkbook. A decrease in power could lead to the national debt prophecy coming true in our lifetimes which would be probably the largest domino of all.
In conclusion
Is Afghanistan “the first domino to fall” in the death of the American Empire? This cannot be proven, but it certainly looks like a domino that has been put in position poised to fall waiting for others to take their places in the line. Other major defeats would be required to say for sure that this “New American Century” is over, not even making it to the one-fourth mark. It is really the other potential signs of the end that are of most concern not squabbling over Afghanistan’s domino status. So the big question is, if Washington is losing its Monopolar World Order, then where will be the next grand retreats?
The legendary Chinese success story goes hand-in-hand with the evolution of the Communist Party of China (CPC) and China’s Communist Revolution that began in 1945. The foundation of the CPC on 1 July 1921 signaled the end of some 200 years of China’s oppression by foreign powers, to western invasions and exploitation, grabbing China’s territories and especially her rich natural resources – and to gain trading advantages, including from the riches of China’s resources and crafts.
Background and History About two centuries ago, foreign interferences were dominated by illegal Opium Trade that eventually culminated in two Opium Wars. In the 18th and 19th centuries Western countries, mostly Great Britain, exported opium grown in India to China. In turn, the Brits used the profits from opium sales largely to buy Chinese luxury goods, like porcelain, silk, and tea. These goods were in high demand in the west.
Much of this opium export was illegitimate and created widespread addiction throughout China, causing serious social and economic calamities. The wars were triggered by China’s attempting to suppress the trade, that grew tremendously from about 1820 onwards. In early 1839 the Chinese government confiscated and destroyed more than 20,000 chests of opium (chest = about 63.5 kg) — some 1,400 tons of the drug—that were warehoused at Canton, Guangzhou Province by British merchants. By 1838 imports had grown to some 40,000 chests annually.
In July 1839, British sailors killed a Chinese villager. The British government refused to turn the accused over to be judged in Chinese courts. The Brits did not wish its subjects to be tried in the Chinese legal system, and refused to turn the accused men over to the Chinese courts.
This conflict prompted the first Opium War (1839 – 1842), fought between the UK and the Qing dynasty (1644 to 1912), with the British objective to legalize the opium trade. This did not happen, which led to the Second Opium war (1856 – 1860), also called the Anglo-French war. But China did not win the wars and the nefarious addiction-causing trade continued for several more decades.
China’s British-forced war-concession to the winner, was to hand over the island of Hong Kong to British administration. In addition, China had to legalize the opium trade and concede a number of trading ports to the Brits, as well as opening travel for foreigners into China and granting residencies for Wester envoys to China. And an important concession for a predominantly Buddhist country was that China had to grant freedom of movement to Christian missionaries throughout China.
The wars and the resulting multiple concession of China, prompted an era of unequal treaties between China and foreign imperialist powers, aka, the UK, France, Germany, the United States, Russia and Japan. China was forced to concede many of her territorial and sovereignty rights. These encroachments on Chinese sovereignty weakened and eventually brought down the Qing dynasty, leading to a revolution on October 10, 1911, bringing the Kuomintang (KMT) to power. They are also referred to as the Chinese National Party and founded the Republic of China on 1 January 1912.
The founder of the KMT and initial ruler of China after the 1911 revolution, Sun Yat-sen attempted to modernize China along western lines and values – which was not accepted by the Chinese people. The next couple of decades of KMT rule were rather chaotic times, during which Sun Tat-sen was unable to control China which fractured into many regions controlled by warlords. To strengthen its position and to gain back control of the country, the KMT was seeking alliance with the new fledgling Communist Party, forging the first United Front, but was still unable to control all of China. After Sun Yat-sen died in 1925, Chiang Kai-shek (1887–1975) took over and became the KMT strong man.
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The creation of the Communist Party of China on 1 July 1921, was deeply marked by the preceding history. One of the CPC’s key objective was that China would never again be dominated by wester colonial powers. The CPC became a force to be reckoned with, as it grew stronger by increased solidarity forged throughout communities and regions of China which all pursued the same goal – independence from foreign colonization and exploitation and the creation of a sovereign communist China, with a sovereign socialist economy.
With the support of the west, notably the UK and the United States, the KMT-led government of the Republic of China (ROC) entered in 1927 into a civil war with the forces of the CPC. The war was intermittent, but basically played out in two major phases, until 1949. The first phase can be described as a war of attrition. It lasted until 1937, when due to the Japanese invasion of China, KMT-CPC hostilities were put on hold. Instead, a KMT-CPC alliance fought and defeated the Japanese. This was also called the War of Resistance against Japanese Aggression(1937–1945).
The KMT – CPC civil war resumed with the victory over the Japanese forces, and entered its second, but most violent and decisive final phase from 1945 to 1949. This phase is also called the beginning of the Chinese Communist Revolution, during which the CPC gained the upper hand and finally defeated the Kuomintang on the Chinese mainland.
The leader of KMT (1928 – 1975), Chiang Kai-shek, fled the mainland and established himself and the KMT in what was originally called by her Portuguese discoverers in 1542, Ilha Formosa (“beautiful island”), located north of the Philippines and the South China Sea, some 180 km off the Southeastern coast of China.
In 1895 Formosa became “Taiwan” meaning “foreigners” referring to the early Chinese settlers on the island. Today Taiwan is again integral part of China, since the Treaty of San Francisco (WWII Allied Forces Peace Agreement with Japan, signed on 8 September 1951), when Japan ceased its occupation of Taiwan, returning the island back to China.
Though an integral part of China, Taiwan is still occupied by the KMT Regime, calling it the Republic of China or ROC, the name taken over from KMT’s reign over mainland China until their defeat by the CPC in 1949, which also marked the beginning of the new communist People’s Republic of China (PRC).
This internationally illegal control of Taiwan by the KMT has been going on since 1949, but especially for the last 50 years, when on 25 October 1971, the United Nations General Assembly recognized the PRC, led by the CPC, as “the only legitimate representative of China to the United Nations” and removed the representatives of the Chiang Kai-shek ROC regime of Taiwan from the United Nations. Nevertheless, today still 15 nations, including the Vatican, of the 193 UN member nations recognize Taiwan as the official China. Many of them would like to switch to the officially recognized CPC-led mainland China, but are coerced, predominantly by the US and the UK, not to do so.
Over the past several decades, the United States, the UK and other western allies have continually sought to destabilize China by interfering in Taiwan, meaning in China’s internal affairs. The latest such events include the US weapons sale for US$ 5 billion to Taiwan in December 2020, and earlier this year, the U.S. Ambassador to the Pacific Island of Palau (Palau being one of the states recognizing Taiwan), became the first US envoy to travel to Taiwan in an official capacity, since Washington cut formal ties with Taipei in favor of Beijing in 1979.
In addition, the US is promoting closer relations with Taiwan through the so-called Taipei Act, signed in April 2020, calling for strengthening trade relations and diplomatic ties between the US and Taiwan to bring Taiwan closer into “international space”, meaning politically distancing the island territory from the mainland.
This and other interferences of the US in China’s internal affairs, are attempts at disrupting peaceful co-existence with China. They include the US-provoked trade war with Beijing, during the last almost 4 years; the stationing of about 60% of the American Navy in the South China Sea; the Washington orchestrated interference in Honk Kong, seeking independence from Beijing; and wildly falsified accusation of Human Rights abuses of the Uyghurs in the officially known as the Xinjiang Uyghur Autonomous Region, in Northwestern China; as well as similar claims in Tibet.
Thanks to the steadfast leadership of President Xi Jinping of the People’s Republic of China and of the Communist Party of China, these interferences are being dealt with carefully by Beijing, always trying to find diplomatic and non-belligerent solutions. China is a master in following the paths of non-aggression, while constantly creating and moving peacefully forward – always with the goal of achieving a multipolar world, where people of different nations, regions, races, roots, cultures and believes can prosper peacefully together. —— Present – and Vision for the Future Since the foundation of the Communist Party on 1 July 1921, China strove for total independence, and never surrendered to foreign invasions or attempts to influence China’s internal, as well as foreign relations policies. What the CPC has attained over the past 100 years is truly remarkable. It comprises not only maintaining internal solidarity, but also and foremost, people’s trust in the government, moving peacefully forward, becoming food, health and education-wise autonomous and self-sufficient and, not least, lifting 800 million people out of poverty. No other nation in the world has achieved such extraordinary objectives for their people’s well-being.
The CPC has today 91 million members. It is by far the largest single party in the world. In addition, thanks to her leadership, starting with Mao Tse Tung in 1949 and today by President Xi Jinping, China, with a population of 1.4 billion people, has become the second largest economy in the world in absolute terms, and since 2017 already the largest, assessed by the only real measure – the Purchasing Power Parity (PPP). This is an indicator of how much people can buy for their money. Within a few years, China is expected to surpass the currently largest economy, the United States, also in absolute terms.
This is, of course, representing a threat for the country that has declared itself as THE Empire of the world, controlling all vital essentials, like energy, food supply and the international monetary system – though faltering, but still dominated by the US-dollar. The self-styled empire is already crumbling. And Washington knows it. Its strongest asset, the US-dollar, is gradually being dismantled. The US-currency has been widely used throughout the world, almost exclusively, to buy vital goods and services, like energy, food and communication services, as well as for other international trade, but it is losing its weight in the international arena.
The reasons for this are both political and economic. On the economic front, the US have created by their 1913 Federal Reserve Act, a fiat currency without any backing, a currency of which the flow and money mass can be expanded at will. This allowed and still allows Washington to “print” money as per necessities, i.e. to finance extensive wars and conflicts around the globe and to accumulate debts that the US Treasury and Federal Reserve (the totally privately owned US Central Bank), will never be able to pay back.
The US-dollar has absolutely no backing whatsoever. When Washington abandoned in 1971 their self-designed so-called gold-standard (Bretton Woods Conference, 1944), the US-dollar became de facto the “new gold standard”, since the gold standard was based on the value of the US-dollar (US$35 / troy ounce, about 31 grams), instead of on a basket of currencies. Since everybody needed US dollars for their reserves, this gave the US Treasury free range to increase its money supply almost infinitely.
When the US, also at the beginning of the 1970s, negotiated with Saudi Arabia, head of OPEC (Organization of Petroleum Exporting Countries), that all hydrocarbons, petrol gas and coal, should be traded in US-dollars, it gave the US another dollar boost – printing freely dollars in abundance, because the entire world needed US-dollars to buy hydrocarbon energy. Even today about 84% of all energy consumed worldwide consists of hydrocarbons (2019 Forbes).
As a counter-measure, the US promised the House of Saud to always protect Saudi Arabia, and proceeded almost immediately building numerous military bases in Saudi Arabia, from which they are now waging different wars in the Middle East.
Due to this phenomenon of freely generating new US-dollars, creating new debt, the US is by far the most indebted country in the world, with currently US$ 49.8 trillion debt, compared with a 2020 GDP of about US$ 21 trillion (Debt – GDP ratio 2.3 = 237% debt over GDP).
There is another important component of US debt, called by the General Accounting Office (GAO), “Unfunded Liabilities”, US$ 213 trillion (all figures 16 April 2021: US Debt Clock – https://www.usdebtclock.org/current-rates.html). These exceptionally high ratios have undoubtedly also to do with incurred covid-debt.
Unfunded liabilities are debt obligations that do not have sufficient funds or assets set aside to pay them. These liabilities generally refer to the U.S. government’s debt-service (unpaid interest on debt), or pension plans and their impact on savings and investment securities, as well as health-insurance and social support coverage for soldiers returning from wars.
These astronomical debt figures and an unbacked fiat currency are even further reducing worldwide confidence in the US-dollar. It is clear, the US debt will never be paid-off. The Federal Reserve Chair, Allan Greenspan (1987 – 2006), once answered to a journalist’s question, when will the US pay back her debt: Never. We just print new money. So, spoken, so it was and so it is. —–
Today and for the last about 10 years the US-dollar has no longer a hydrocarbon trade monopoly, nor are other international contracts primarily established in US-dollars as used to be the case a couple of decades ago. China, Russia, Iran, Venezuela and others have stopped using the US-dollar and are trading in local currencies and increasingly in Chinese yuan.
Why? – Countries’ treasurers around the world started realizing that the dollar is a highly volatile fiat currency, based on nothing, as shown by the above figures. Equally important for the loss of trust in the US-currency is that dollar-denominated international assets and the US banking system are frequently used by Washington to impose draconian, illegal economic sanction on countries that do not follow Washington’s dictate, including blocking countries’ foreign placed reserve assets. These economic and political realities are signaling the end of the US-dollar hegemony.
The trend of diminishing trust in the US-dollar may increase when China rolls out her digital Renminbi (RMB = people’s money) or international Yuan (the terms RMB and Yuan are used interchangeably) which may be used for international trade without touching the international US-dominated SWIFT transfer and US banking system. The Chinese currency being backed by a strong and solid Chinese economy, confidence in the Chinese currency is growing rapidly. Already today, the Chinese currency’s use as an international reserve asset is increasing quickly.
While the US Federal Reserve (FED) is also contemplating a new digital currency, it is not clear to what extent it can be detached from the current dollar and its debt burden. In any case, with US international trade waning, and Chinese trade rapidly increasing, it will be very difficult, if not impossible, for a declining empire to catch up with China.
For example, in the first quarter of 2021, Chinas foreign trade (exports and imports) soared by 29.2%, with Exports jumping 38.7% from the year before, while imports climbed 19.3 percent in yuan terms, according to the General Administration of Customs (GAC).
If anything, these developments – plus the fact that China has been highly successful in overcoming the covid-crisis – within less than 6 months – and putting her industrial apparatus back on line, are testimony for a solid CPC leadership, a sound Chinese economy and fiscal policy. China is the world’s only major economy reporting economic growth in 2020, amounting to 2.3% according to the Wall Street Journal. It is what China calls “Socialism with Chinese Characteristics” – a feature demonstrating a spirit of constant creation and evolution of the CPC. These facts will further enhance international trust in the Chinese economy, as well as in the Chinese way of seeking a more equal, more egalitarian and more just multipolar world, where nations may keep their national sovereignty over their internal and external political inclinations, their culture, national resources, monetary policies and foreign relations – and live peacefully together. —- CPC and the Chinese Vision
The New Silk Road, or Belt and Road Initiative (BRI), is President Xi Jinping’s brilliant brainchild. It’s based on the same ancient principles as was the original Silk Road, adjusted to the 21st Century, building bridges between peoples, exchanging goods and services, research, education, knowledge, cultural wisdom, peacefully, harmoniously and ‘win-win’ style. On 7 September 2013, President Xi presented BRI at Kazakhstan’s Nazarbayev University. He spoke about “People-to-People Friendship and Creating a better Future”. He referred to the Ancient Silk Road of more than 2,100 years ago, that flourished during China’s Western Han Dynasty (206 BC to 24 AD).
Referring to this epoch of more than two millenniums back, President Xi pointed to the history of exchanges under the Ancient Silk Road, saying, “they had proven that countries with differences in race, belief and cultural background can absolutely share peace and development as long as they persist in unity and mutual trust, equality and mutual benefit, mutual tolerance and learning from each other, as well as cooperation and win-win outcomes.”
President Xi’s vision may be shaping the world of the 21st Century. The Belt and Road Initiative is designed and modeled loosely according to the Ancient Silk Road. President Xi launched this ground-breaking project soon after assuming the Presidency in 2013. The endeavor’s idea is to connect the world with transport routes, infrastructure, industrial joint ventures, teaching and research institutions, cultural exchange and much more. Since 2017, enshrined in China’s Constitution, BRI has become the flagship for China’s foreign policy.
BRI is literally building bridges and connecting people of different continents and nations. The purpose of the New Silk Road is “to construct a unified large market and make full use of both international and domestic markets, through cultural exchange and integration, to enhance mutual understanding and trust of member nations, ending up in an innovative pattern with capital inflows, talent pool, and technology database”.
BRI is a global development strategy adopted by the Chinese Government. Already today BRI has investments involving more than 150 countries and international organizations – and growing – in Asia, Africa, Europe, the Middle East and the Americas. Since the onset of BRI in 2013, BRI investments have exceeded US$ 5 trillion equivalent.
BRI is a long-term multi-trillion investment scheme for transport routes on land and sea, as well as construction of industrial and energy infrastructure and energy exploration – as well as trade among connected countries. Unlike WTO (World Trade Organization), BRI is encouraging nations to benefit from their comparative advantages, creating win-win situations. In essence, BRI is to develop mutual understanding and trust among member nations, allowing for free capital flows, a pool of experts and access to a BRI-based technology data base. At present, BRI’s closing date is foreseen for 2049 which coincides with the People’s Republic of China’s 100th Anniversary. The size and likely success of the program indicates, however, already today that it will most probably be extended way beyond that date. It is worth noting, though, that only in 2019, six years after its inception, BRI has become a news item in the West. Remarkably, for six years, the west was in denial of BRI, in the hope it may go away. But away it didn’t go. To the contrary, many European Union members have already subscribed to BRI, including Greece, Italy, France, Portugal – and more will follow, as the temptation to participate in this projected socioeconomic boom is overwhelming.
The BRI, also called Belt and Road, or One Belt One Road, is not the only initiative that will enhance China’s economy and standing in the world.
After decades of western aggressions, denigrations and belligerence towards China, in a precautionary detachment from western dependence, China is focusing trade development and cooperation on her ASEAN partners. In November 2020, after 8 years of negotiations, China signed a free trade agreement with the ten ASEAN nations, plus Japan, South Korea, Australia and New Zealand, altogether 15 countries, including China.
The so-called Regional Comprehensive Economic Partnership, or RCEP, covers some 2.2 billion people, commanding some 30% of the world’s GDP. This is a never before reached agreement in size, value and tenor.
The RCEP’s trade deals will be carried out in local currencies and in yuan – no US dollars. The RCEP is, therefore, also an instrument for dedollarizing, primarily in the Asia-Pacific Region, and gradually moving across the globe. Moving away from the dollar-based economies may be an effective way to stem against the western “sanctions culture”. China is soon rolling-out her new digital Renminbi (RMB) or yuan, internationally, as legal tender for inter-country payments and transfers. The digital RMB is primed to become also an international reserve currency, thereby further reducing demand for the US-dollar.
Orientation towards China’s internal economic development – so-called horizontal instead of vertical growth – is a strategy to develop local Chinese internal production and infrastructure to build up and enhance Chinese internal capacities and markets and bringing about wellbeing and a better equilibrium between China’s vast hinterland and China’s prosperous eastern coastal areas.
The future belongs to China After two thousand years of western “white supremacy”, relentless exploitation, colonization, discrimination and outright enslavement of other colored people, other cultures, throughout the world, the time has come to turn the wheel – and to veer the future of mankind into a more peaceful, more just and more egalitarian world.
During the next hundred years and under the leadership of the Chinese Communist Party – China will guide the East into the era of the Rising Sun – prosperity and good health for all.
This new epoch will strive for a multi-polar world, with win-win trade relations, and bringing about new environmental, social and technological challenges, but also a new awakening for a social consciousness and solidarity. A key instrument for achieving major goals for human wellbeing is the Belt and Road Initiative, providing a steady flow of new ideas, creations, cultural exchange and mutual learning. The future focus may be on:
Renewable sources of energy, based mainly on hydro- and solar power, developed with cutting edge technologies, i.e. capturing solar power with a process of photosynthesis, producing high efficiency energy yields;
Increasing green areas in urban centers to bring about a balance of natural CO2 absorption and Oxygen production, aiming at zero pollution;
Protecting the world’s rain forests and water resources;
Keeping natural resources and public services – health, education, food supply, water and sanitation services, electricity, and public transport – in the public domain;
Promoting biological and multi-crop agriculture;
Developing Artificial Intelligence (AI) to help increase production and transport efficiency and to serve humanity; and
Adopting public banking as the primary means of socioeconomic development funding, Leading humanity to building a community with a shared future for mankind.
—–
Peter Koenig is a geopolitical analyst and a former Senior Economist at the World Bank and the World Health Organization (WHO), where he has worked for over 30 years on water and environment around the world. He lectures at universities in the US, Europe and South America. He writes regularly for online journals. He is also the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed; and co-author of Cynthia McKinney’s book “When China Sneezes: From the Coronavirus Lockdown to the Global Politico-Economic Crisis” (Clarity Press – November 1, 2020).
Peter Koenig is a Research Associate of the Centre for Research on Globalization and a Non-resident senior fellow of Chongyang Institute for Financial Studies at Renmin University of China
The origin of modern banking can be found in the early days of the gold trade. In the Middle Ages, goldsmiths accepted deposits of gold in return for paper notes, which could be exchanged for the deposits at a later date. Because these paper notes were more convenient for commercial use than physical metal, they were usually not redeemed for gold right away. The goldsmiths noticed their customers’ deposits could be used in the meantime to generate interest and began surreptitiously lending out the savings of their depositors. Over time fractional reserve banking developed from this tendency of lending out money in excess of the actual reserves being held.
Goldsmith became banker, and from this early monetary system, banking families emerged. Prior to the existence of modern financial institutions, these houses were the entities which could be relied upon for large amounts of credit. A reputable surname gave confidence to depositors that their gold was in good hands, and from the intergenerational accumulation of wealth grew large pools of loanable capital. As nobles required weapons and pay for their armies, the conflicts of medieval Europe were fueled by families such as the Medici, Fuggers, and Welsers. Today, it is the Federal Reserve which finances America’s enormous military and conquests abroad.
To truly understand banking, the concept of free markets must be cast aside. Just as oil is a strategic resource for the real economy capitalist, gold and silver are strategic resources for the financial capitalist. Physical bullion is the basis from which all other lines of credit extend; we know this because the same central banks which publicly proclaim gold to be a barbarous relic still feel the need to maintain enormous hordes in their vaults.
As in oil markets, pricing is not influenced primarily by a large number of producers and buyers but by concentrated cartel dynamics. So while we witness yet another energy battle between OPEC and Russia unfold, it should be understood that similar dynamics are at play in the upper echelons of the monetary world as bankers seek to fix prices and control physical bullion flows in a manner which is beneficial to their interests.
A key difference from oil is that while the pump leads to the refinery and the refinery to the end-user, bankers do not generally like to part with their gold. Accordingly, markets have been designed so that prices are determined not by physical delivery but by the trading of unbacked or fractionally backed “claims” on the underlying metal: certificates, ETFs, and futures. We can be certain that there is not enough physical bullion to cover all these paper metal claims, just like the medieval goldsmith did not hold his deposits in full.
These paper markets set the price, although bars rarely leave the vault
Where is the vault? While Fort Knox claims the largest holdings, the price is set by the London Bullion Market Association and CME Group which together account for around 70% and 20% of global trading volume respectively. The London Bullion Market began in 1850, when N. M. Rothschild and Sons and several other banking families created a cartel to oversee the operations of the global gold market, including the establishment of the “London good delivery” list which created trading standards for size, dimensions, shape and fineness of bullion; today trading on London markets requires a high purity and being between 350-450 ounces.
This domination of the world’s gold market was not achieved through peaceful means: look into the forces behind the conquest of Transvaal’s gold mines, for it bears a direct parallel to America’s invasions of oil-rich nations today. Another similarity with oil markets is that military interventions have a habit of “liberating” the target nation of their gold: just ask Muammar Gaddafi.
The price of such a strategic resource could not be determined by an open market, thus alongside good delivery standards the “gold fix” was established in 1919 and was held in the offices of New Court until 2004, when its operations were passed on to a cartel of bullion banks such JP Morgan and HSBC. Ever since, these banks have been investigated and convicted countless times of manipulating and spoofing the prices.
How do we know that there isn’t enough gold to cover physical deliveries? Back in the 1970s the dollar was under a lot of pressure and Western banks maintained secret gentlemen’s agreements not to request delivery of bullion. In 1971 Dutch central bank chief Jelle Zjilstra ignored these formalities and planned to convert $600 million of the Dutch dollar reserves to gold, prompting Federal Reserve chair Paul Volcker to fly out to the Netherlands and warn him: “you’re rocking the boat.” Shortly after Zijlstra refused Volcker’s pressure and continued with the purchase, the US decoupled from the gold standard.
Abandonment of the gold standard risked a reduction in dollar demand, so Nixon enlisted Wall Street scion Gerry Parsky to negotiate with oil exporting Arab nations. After discussion, the Saudi state agreed to sell oil priced exclusively in dollars and to invest the proceeds of oil sales in America.
To those who say dismissively that the dollar is now backed by “nothing,” I say it is backed by oil and the threat of the US military.
Look at the somber fates of those that tried to ditch the dollar for gold or the Euro: Libya in a state of permanent civil war; starving Syrians picking through landfills in search of food only miles from occupied wheat fields.
So maintaining confidence in our reserve currency requires the undermining of confidence in gold, as its reemergence would unnecessarily democratize the international monetary order. Confidence is undermined first by price suppression, which is accomplished by the manipulation of precious metals futures markets. While it would be hugely wasteful for a private individual or consortium to manipulate such a market with their own money, that is where the unlimited fiat available at central bank trading desks come in: and we know central banks are secretly trading precious metals futures due to leaked documents from CME Group.
Leo Melamed, chairman of CME Group and the putative father of modern commodity futures markets noted in his book Escape to the Futures that CME’s Globex system was inspired by the original London gold fix:
Sandner, Kilcollin and I were in London with the chairman of the Rothschild Bank seeking his advice on how to bring the “gold fix” to Chicago. From the heated debate that followed one would have concluded that Kilcollin knew more about the subject than the legendary Rothschilds, the people who had founded the concept ages before.
What we can see from this is that strategic commodities such as gold and oil are far from a free market: recall my previous article The Empire is Losing the Energy War which described how the Saudi state functions as a price-suppression weapon against Russia’s oil exports. This global commodity suppression schema allows the importation of the planet’s finite resources at a fraction of the true cost in return for theoretically unlimited currency. Recall Fed governor Kevin Warsh’s comments in December of 2011 when gold hit an all time high that banks were:
“finding it tempting to pursue financial repression- suppressing market prices that they don’t like”
There are signs, however, that the thin pool of physical bullion which exists to maintain confidence in paper markets is drying up. In March of 2020, CME Group had to relax its own requirement of 100oz bars to allow 400oz London good delivery bars to be shipped from overseas and used for trade settlement. Some would say: if price suppression exists then why has the gold price gone up over the last few years?
The middle ground between setting the price to very low or very high levels, say, $100 or $10,000, is that the prices are set high enough to minimize outflows from vaults, while at the same time using futures to hammer down the prices at psychologically important levels and initiating margin calls on those who are long gold using leverage. Those who have watched gold for a long time can attest to the sudden and inexplicable drops which originate in the futures market and which occur every time the gold price appears *just* ready to break out.
It’s a very complicated charade for the bullion bank cartel. Allow the price per ounce to go too low and you risk running out of the gold necessary to facilitate markets. At the same time, if the price rises too high it attracts international attention and risks gold reemerging in monetary policy. Notice how as soon as the supply shortages became apparent in March 2020 the bankers were forced to reset gold from $1230 to over $2000 in order to stem the outflows of physical delivery.
Putin is intentionally exacerbating this drought of physical gold in Western banks by expanding the Russian central bank’s purchases of gold. For the past few years Russia has been the number one global purchaser of bullion, having spent over $40 billion to bring Moscow’s reserves to the highest level in history: a sum close to the annual military budget because it is a strategic asset.
Just last week, Russia’s gold reserves passed its dollar reserves for the first time reaching a sum of $583 billion, highlighted by the central bank as part of Putin’s de-dollarization agenda. Given that purchases have grown at roughly 15% per year we can predict that even if the price does not rise, the value of these holdings will be around $1 trillion in three years. Read the anxious commentary about these purchases in Bloomberg and Forbes, and remember the nervousness in the business press when Germany demanded its gold back in 2013, which would only exist if behind-the-scenes physical gold flows were disjointed and there was internal muttering in the financial world as to whether the demand could be fulfilled.
To any who doubt that this is an overt move, in the pre-WW2 monetary system the mass accumulation of gold was well understood among central bankers as an aggressive act intended to starve competitor states of their ability to create credit. For example, French and American hoarding resulted in hyperinflation for Germany and forced Britain’s pound sterling off the gold standard.
Russia’s acquisition of precious metal is a direct threat to the financial system. How funny that the system is so fraudulent that it is an act of aggression to simply demand in physical form what one has paid for in full on an open market; an act which the designers of the system cannot protest lest they reveal their own bankruptcy. Just as it did in the 1920s, the hoarding of gold in the East will eventually limit the West’s ability to extend credit, it is simply unfolding on a longer time frame.
So why is a tiny stock like GameStop causing billionaire Leon Cooperman to cry on CNBC, and why is the SEC threatening small-time investors?
Simply, the financial markets are being revealed as a highly illiquid house of cards. Retail investors from Reddit began trolling short-sellers by rapidly buying small stocks and causing hedge funds to blow up from expensive margin calls. The losses are now estimated at around $70 billion, and as these small-time investors funnel their unemployment and stimulus checks into their aggressive trades they have fought wealthy investors in a more effective way than Occupy Wall Street ever did. They have now turned their eyes to the small and illiquid silver market…
Look at the fate of the Hunt brothers fortune: they were oil billionaires who tried to exercise their legal right to take physical delivery of a large volume of silver futures contracts and had CME pull the rug out from under them before it could be achieved. CME Group defeated the Hunt brothers by instituting Silver Rule 7 which limited the dollar amount of physical silver that an individual investor could buy. But how will that stop the hordes of young low net worth traders who are now telling one another to purchase physical bullion and intentionally strain the rigged silver market?
This arcane financial system is doomed to fail because it is based on ever-higher and more unstable abstractions of underlying wealth: CDOs squared and cubed, dark pool derivatives markets totaling trillions of dollars, and so on: all of which depends on the financial sector sucking as much money as possible out of a shrinking global economy through securitization. Now that people are demanding the underlying assets themselves, change is beginning.
What an interesting timeline: where Russia and unemployed youths have come to the same conclusion for how to defeat the banks.
The Ister is a researcher of financial markets and geopolitics. Author of The Ister: Escape America
The US emerged from WWII as the world’s preeminent economic and military power. Seven decades later, American power is in decline, a direct consequence of decades of neoliberal economic policies, spending large amounts of public money on the military and attainment of economic/military parity by Russia and China. These policies have eroded US economic strength and are undermining the role of the dollar as the world’s reserve currency, key pillars of US global power. In this essay, we highlight how this situation evolved and its implications for US foreign policy and international relations.
Foundations of American Global Hegemony
The US emerged from WWII as the world’s leading military and economic power. This power was further solidified at the United Nations Monetary and Financial Conference, held in Bretton Woods, New Hampshire in 1944, which came to be known as the ‘Bretton Woods Agreement’. This agreement: 1) pegged the value of member country’s currencies to the US dollar, which was pegged to the price of gold, and 2) created the International Monetary Fund (IMF) and International Bank for Reconstruction and Development, later known as the World Bank. The purported goals of the Bretton Woods system were to ‘stabilize currencies and promote international economic growth’. This conference also recognized the US dollar as the world’s reserve currency. 1, 2
International economic relations started to change in the mid-1970s as US corporate profits began to stagnate/decline, a direct consequence of spending lots of taxpayer money on wars in Korea and Vietnam and increased competition from rebuilt economies in Europe, primarily Germany (Marshall Plan) and Asia- Japan, South Korea (Korean and Vietnam wars) and more recently China. US policy makers responded to these economic challenges in several ways. 1) Recognizing that the government had insufficient gold reserves to cover all of the dollars in circulation, in 1971 President Richard Nixon was forced to suspend convertibility of the dollar into gold, effectively devaluing the US dollar and making it a fiat currency. 3 2) In the early 1980s, US policy makers began instituting neoliberal economic policies. Neoliberalism can be broadly defined as policies promoting free-market capitalism, deregulation, and a reduction in government spending and was widely promoted in the US by President Ronald Reagan (1981-1989) and in the UK by Prime Minister Margaret Thatcher (1975-1990). 4 These policies included multiple tax cuts for the wealthy, financial deregulation, attacks on labor and poor, job outsourcing and spending $ trillions of taxpayer money on the military. 5 A short description of these policies and their impact on US society follows.
Tax Cuts
Beginning with the Reagan Administration, a number of tax cuts were enacted which reduced and/or eliminated top tax rates, corporate taxes and inheritance taxes (aka ‘death tax’; see Table 1). It should be noted that to market this legislation and ‘sell’ it to a generally uninformed American public, these bills frequently contain words or phrases in their titles which convey a positive and progressive message, such as ‘Economic Recovery’, ‘Tax Reform’, ‘Economic Growth and Tax Relief’, ‘Jobs and Growth’ and ‘Jobs Act’. After all, who is against ‘Economic Recovery’ and ‘Growth’ or a ‘Jobs Act’? However, to quote Phaedrus (Greek; circa 444 – 393 BC) ‘things are not always what they seem’. Each of these pieces of legislation was the result of massive lobbying campaigns by large financial interests- banks and corporations, with the goal of rolling back ‘New Deal’ tax and economic legislation enacted by President Franklin D. Roosevelt during the depths of the Great Depression (1933-1939) 6, 7 and ‘open up’ the economy to unregulated and risky financial schemes, which under the right circumstances can yield substantial profits, but when things do not proceed as planned, can lead to large losses, as observed during the 2008 financial collapse. An analysis by the Institute on Taxation and Economic Policy (ITEP) concluded that between 2001-2018, 65% of the benefit from these tax cuts went to the wealthiest (top 20%) households, while federal tax revenues declined $5.1 Trillion and federal deficits grew $5.9 Trillion. 8 As a result of the COVID19 pandemic, federal deficits are now hemorrhaging.
Attacks on Labor and Poor
In 1981, members of the Professional Air Traffic Controllers Organization (PATCO) went on strike. President Reagan declared the strike a threat to ‘national safety’ and ordered all workers back to work, under the Taft-Hartley Act (1947). Of the circa 13,000 striking air traffic controllers, only 1,300 returned to work; Reagan fired the remaining 11,345 air traffic controllers who were still out. 9 The decline in labor solidarity was readily apparent as there was little support for striking PATCO workers from other unions. As a result, this began a frontal assault on union workers and labor.
During the 1992 presidential campaign, Bill Clinton vowed to ‘end welfare as we have come to know it’ 10 and in 1996, signed the Personal Responsibility and Work Opportunity Reconciliation Act, creating the Temporary Assistance for Needy Families (aka TANF) program 11, which changed the financing and benefit structure of cash assistance to poor people, Predictably, these changes did not ‘end welfare’ but increased poverty. Not surprisingly, Conservatives in Congress want to use the TANF model to ‘reform’ other federal programs such as Medicaid.
Job Outsourcing
The North American Free Trade Agreement (NAFTA), enacted Jan, 1994, created a ‘free trade’ agreement between Canada, Mexico, and US. While not fully appreciated at the time, this trade agreement would have a major impact on US industrial policy and jobs. NAFTA enabled large American corporations such as auto makers- Ford, General Motors, etc., to build manufacturing plants in Mexico taking advantage of lower wage rates and import the finished products back into the country duty free. The savings in labor costs is significant- the 2020 manufacturing wage in the US- $23/hr 12 vs $2.50/hr in Mexico 13 (90% lower) and not surprisingly, decreased labor costs boost corporate profits. On the negative side, NAFTA has: 1) led to the loss 4.5 million manufacturing jobs, with many of these displaced workers were forced to take lower paying jobs, 2) reduced growth in the export of manufactured products and services, 3) increased trade deficits with Canada and Mexico 14.
Job outsourcing has acquired the acronym ‘Globalization’ implying that it is a natural form of economic evolution, enabling large corporations to make their operations more cost-effective and efficient. Not surprisingly, the reality is somewhat different. Since passage of NAFTA, large corporations from the US and other countries have moved their manufacturing to Mexico, China, India, and other low-wage platforms to reduce labor costs, take advantage of lax environmental regulation and more favorable tax policies which increase corporate profits. It should be stressed that these polices have been voluntarily enacted by large financial interests in the US and other countries based on economic decisions and the relentless drive of capitalism to maximize corporate profits. During his 2016 ‘Make America Great Again’ campaign, presidential candidate Donald Trump repeatedly stated that China has ‘stolen’ American jobs and been involved in massive ‘theft’ of intellectual property 15 . Indeed, China has aggressively pursued economic development and has clearly taken advantage of technology transfer by multinational corporations 16. However, China is certainly not unique as these practices are frequently used by other developing countries. For example, during the Industrial Revolution (circa 1760-1840), the developing US manufacturing base relied largely on knowledge and technologies that had been developed in Europe, primarily the UK. No doubt, some of this technology was acquired by unscrupulous methods. Thus, while Trump was correct in pointing out that many American jobs had indeed moved to China, he has repeatedly failed to acknowledge that these jobs were deliberately moved by American corporations because it is more profitable. Trump’s allegations also beg the obvious question, if large US corporations and their functionaries in government were concerned about technology transfer to China, they should not have moved their production and associated ‘sensitive’ technology out of the US in the first place. Following his electoral victory in 2016, Trump attempted to force corporations to repatriate outsourced jobs. While some US-based firms left China, little of this production was moved back to the US; the vast majority were relocated to Vietnam, Thailand, India, Mexico and other low-wage platforms 17. A fundamental axiom of Capitalism is that business enterprises always seek the highest rate of return on their capital investments. Further, US CEO compensation is typically tied to stock price. Given this reality, large US corporations have curtailed domestic business spending (i.e., investing in new plants and equipment) and instead have allocated large amounts of money for stock buybacks. The reason for this behavior is clear- investments in new plants and equipment have payback periods ranging from years-decades, while spending money on share buybacks and stock futures results in near instantaneous increase of equity prices and higher financial compensation for corporate management. No one forced the CEOs of Apple, Nike, Levis, GM, etc. to move their RD/production facilities to China or other countries. Rather, this was done deliberately to maximize corporate profits. Unfortunately, the proverbial ‘chickens are coming home to roost’. The US is lagging behind China in 5G technology because corporate CEOs have been more interested in boosting stock price and their financial compensation, rather than investing in new plants and equipment to compete with China in this technology.
Financial Deregulation
The Glass-Steagall Act was part of the Banking Act of 1933, and established a barrier or ‘firewall’ between commercial banks, which accept deposits from working people and issue loans and investment banks that sell investment products, such as stocks and bonds. 7 Not surprisingly the financial industry lobbied heavily to repeal the Glass-Steagall Act; in 1999, this lobbying paid off as Bill Clinton enacted the Gramm–Leach–Bliley Act (GLBA; aka the Financial Services Modernization Act), which repealed the depression era Glass-Steagall Act thus loosening regulations on banking. Prior to leaving office, Clinton also signed The Commodity Futures Modernization Act of 2000 (CFMA) into law, which exempted over-the-counter (OTC) derivatives from regulation.
A derivative is defined as a financial security whose value is based or ‘derived’ from an underlying asset- bonds, commodities, currencies, interest rates, stocks and market indexes. 18 Not surprisingly, derivatives can potentially yield a large financial reward to savvy investors. On the down side, derivatives carry significant ‘market risk’ and lead to financial losses, which can rapidly accelerate during periods of collapsing equity prices. Warren Buffett has described the $ multi-quadrillion derivatives market as “financial weapons of mass destruction. 19 As Pepe Escobar has pointed out, ‘If Tehran were totally cornered by Washington, with no way out, the de facto nuclear option of shutting down the Strait of Hormuz would instantly cut off 25 percent of the global oil supply. Oil prices could rise to over $500 a barrel or more even $1000 a barrel. The 2.5 quadrillion of derivatives would start a chain reaction of destruction.’ 20
Financial deregulation enacted during the Clinton Administration (see Table 1) have been considered a major cause of the 2007-2008 GFC. 21 As pointed out by Pam Martins-
‘The Glass-Steagall Act had kept the U.S. financial system safe for 66 years. It took just nine years after its repeal by Clinton for Wall Street to enrich its own pockets to the tune of billions of dollars, blow up the U.S. economy, and then collect an astounding and secret $29 trillion in below-market-rate loans from the Federal Reserve to bail itself out.’ 22
Unfortunately, none of the structural economic problems giving rise to the 2008 crisis were resolved and as we are now seeing, have returned with a vengeance from the COVID19 pandemic. As a result, American Capitalism confronts the deepest crisis since the Great Depression, plagued by excess capacity and slack demand, high unemployment, with millions of families facing eviction from their homes, food insecurity, loss of medical insurance and financial ruin. Debt levels have exploded- projected US government debt for 2020- $3.1 Trillion (CBO estimate), while total debt levels are projected to reach $80 trillion, up from $71 trillion at the end of last year. 23 A further indication of the severe structural economic problems confronting American capitalism is that the financial industry has been unable to recover from the Global Financial crisis of 2008 and is still dependent on taxpayer support to function. Indeed, since April, the FED has pumped circa $ 7 Trillion of taxpayer-backed funds to Wall St for share buybacks and to purchase toxic corporate debt and mortgage-backed securities. 24 Without this support, many corporations and banks will collapse. 25
Enduring Economic Power
Despite continuing economic decline, the US still wields considerable global economic power, which stems from several factors.
1) Dollar- The US dollar is the world’s reserve currency, and as of 2019, comprises 60% of central bank foreign exchange reserves; circa 90% of forex trading involves the U.S. dollar. 26, 27 The dollar (i.e., ‘Petrodollar’) is used for purchase of crude oil. 28
2) FED– The US Federal Reserve System was set up following the 1910 secret meeting of executives from large banks- J.P. Morgan, Rockefeller, and Kuhn, Loeb & Co. for ten days on Jekyll Island, Georgia, which was followed by Congress passing the Federal Reserve Act (Dec, 1913), which established the Federal Reserve System as the central bank of the United States. The Chairman, currently Jerome Powell, and FED Governors are appointed by the US President. Thus, the ‘FED’ was set up by private bankers to support the interests of large banks and has effectively no public control over its actions. 29 Of the 12 Reserve banks in the Federal Reserve System, the New York FED (NY FED) wields the most power. 30 The NY FED directs monetary policy through open market operations, emergency lending facilities, quantitative easing, and foreign exchange transactions. It also stores gold on behalf of the U.S. and foreign governments, other nation’s central banks, and international organizations. FED policies, such as setting interest rates and money supply are closely followed by the European Central Bank (ECB), Bank of England, Bank of Japan (BOJ) and other central banks.
3) SWIFT– The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system is used to conduct financial transactions between 11,000 SWIFT member institutions and is the largest financial network in the world. 31 SWIFT is described as a ‘cooperative society’ under Belgian law, owned by its member financial institutions and headquartered in La Hulpe, Belgium. Due to its dominant global economic position, the US has been able to exert a strong influence on SWIFT policies, such as enforcing unilateral US economic sanctions (effectively a form of financial warfare) on the Islamic Republic of Iran, Russia, Venezuela, Cuba, North Korea and other countries deemed an obstacle to US global hegemony. 32
WWII and subsequent events shaping US foreign policy
Nuclear Attacks on Japan
The twentieth century was marked by turbulence, economic depression, war and economic prosperity. Eclipsing all prior conflicts, WWII was the deadliest conflict in human history, resulting in circa 75 million fatalities, with approximately twice as many civilian vs military casualties. During the war, the Soviet Union, much of Europe and Japan experienced high casualties and physical destruction. At the end of the war, the US dropped ‘Little Boy’ an enriched uranium gun-type fission device on Hiroshima, Japan on Aug 6, 1945, followed 3 days later, with ‘Fat Man’, a plutonium implosion-type nuclear weapon dropped on Nagasaki, resulting in circa 250,000 casualties. 33
While much has been written about the decision by the US to attack Japan, when the outcome of the war was all but certain, several things stand out.
1) The Soviet Union suffered the most physical destruction and casualties in WWII, a minimum of 25 million. In comparison, the US experienced circa 400,000 casualties.
2) During the war, the Soviet Union was an ally of the US/allied forces. As the war began winding down, this relationship rapidly changed, as the ruling elite, led by President Harry Truman were positioning the US as the world’s leading military power and viewed the USSR as a threat to American global hegemony. Thus, by dropping atomic bombs on Japan, the US was: i) sending an unmistakable message to the global community of US military might, and ii) also sending a warning to Stalin and the Soviet Union to not interfere with US global policies.
3) As pointed out by Prof Michel Chossudovsky, Center for Research on Globalization, as early as 1945 “the Pentagon had envisaged blowing up the Soviet Union with a coordinated nuclear attack directed against major urban areas. The Pentagon estimated that a total of 204 atomic bombs would be required to Wipe the Soviet Union off the Map”. 34
Iron Curtain & Truman Doctrine
On March 5, 1946 former British PM Winston Churchill delivered a speech at Westminster College, Fulton, MO, dubbed the ‘Iron Curtain speech’, stating
‘From Stettin in the Baltic to Trieste in the Adriatic an ‘iron curtain’ has descended across the Continent. Behind that line lie all the capitals of the ancient states of Central and Eastern Europe. Warsaw, Berlin, Prague, Vienna, Budapest, Belgrade, Bucharest and Sofia, all these famous cities and the populations around them lie in what I must call the Soviet sphere, and all are subject in one form or another, not only to Soviet influence but to a very high and, in some cases, increasing measure of control from Moscow.’ 35 In his speech, Churchill stressed the need for the US and UK to work together, acting as ‘guardians of peace and stability’ against the menace of Soviet communism. As a representative of the [former] British Empire, Churchill was signaling that the UK would willingly serve as a junior partner to American imperialism.
In a speech to Congress March 12, 1947, President Harry Truman laid out the ‘Truman Doctrine’, whose primary goal was to ‘contain Soviet geopolitical expansion’ and more broadly, implied American support for other countries ‘threatened’ by Soviet communism. The Truman Doctrine became the bedrock of post-WWII US foreign policy and in 1949, led to establishment of North Atlantic Treaty Organization (NATO). Truman’s speech is considered by many to be the start of the ‘Cold War’.
Demise of Soviet Union
Between 1988–1991 the Soviet Union experienced a process of internal disintegration which began with growing unrest in its various constituent republics are subsequent political and legislative conflicts between the republics and the central government. This is not surprising considering that the country was the largest country in the world, covering a vast land mass of 22,400,000 square km2 with a diverse population of circa 290 million consisting of 100 distinct nationalities. In addition, the USSR faced near continuous hostility from the US, UK and other imperialist powers since its very inception. The collapse of the Soviet Union and ‘end’ of the Cold War was interpreted by some in the US, notably Charles Krauthammer as the beginning of a US-directed ‘unipolar’ movement and a ‘new world order’ by President GW Bush. As is usually the case in global affairs, things did not go exactly as planned- the cold war never ‘ended’ and a ‘multipolar’ world emerged.
Project for the New American Century (PNAC)
The PNAC was founded by William Kristol and Robert Kagan in the Spring of 1997 as ‘a non-profit, educational organization’ that had a neo-conservative philosophy with close ties to the American Enterprise Institute (AEI) and endorsed strong American global leadership. 36 The PNAC had a particular focus on Iraq, predating the Bush Presidency and in Jan, 1998, sent a letter to then President Bill Clinton stating:
‘We are writing you because we are convinced that current American policy toward Iraq is not succeeding……We urge you to seize that opportunity, and to enunciate a new strategy that would secure the interests of the U.S……That strategy should aim, above all, at the removal of Saddam Hussein’s regime from power’. 37
In Sept 2000, ironically a year prior to 911, the PNAC would publish an influential policy document “Rebuilding America’s Defenses” that would serve as a blueprint for US foreign policy in the 21st century. Summarized in its Statement of Principles:
‘As the 20th century draws to a close, the United States stands as the world’s most preeminent power. Having led the West to victory in the Cold War, America faces an opportunity and a challenge: Does the United States have the vision to build upon the achievement of past decades? Does the United States have the resolve to shape a new century favorable to American principles and interests?’
‘[What we require is] a military that is strong and ready to meet both present and future challenges; a foreign policy that boldly and purposefully promotes American principles abroad; and national leadership that accepts the United States’ global responsibilities.’
‘Of course, the United States must be prudent in how it exercises its power. But we cannot safely avoid the responsibilities of global leadership of the costs that are associated with its exercise. America has a vital role in maintaining peace and security in Europe, Asia, and the Middle East. If we shirk our responsibilities, we invite challenges to our fundamental interests. The history of the 20th century should have taught us that it is important to shape circumstances before crises emerge, and to meet threats before they become dire. The history of the past century should have taught us to embrace the cause of American leadership.” 38
The PNAC advocated: 1) increased ‘defense’ spending to ‘carry out our global responsibilities today and modernize our armed forces for the future’, 2) ‘strengthen our ties to democratic allies and to challenge regimes hostile to our interests and values’, 3) ‘promote the cause of political and economic freedom abroad’, and 4) ‘accept responsibility for America’s unique role in preserving and extending an international order friendly to our security, our prosperity, and our principles’.
Many PNAC members would go on to hold high level positions in the GW Bush administration, including: Elliott Abrams, Richard Armitage, John Bolton, Dick Cheney (Vice President), Eliot Cohen, Paula Dobriansky, Aaron Friedberg, Francis Fukuyama, Zalmay Khalilzad, Lewis “Scooter” Libby, Richard Perle, Peter Rodman, Donald Rumsfeld, Paul Wolfowitz, Robert Zoellick, William Schneider and James Woolsey. 39 Not surprisingly, these individuals would play a major role in shaping post-911 US foreign policy.
911 and Eruption of US Military Activity
On the morning of Tuesday, Sept 11, 2001 the US experienced the deadliest attack in its history. According to the ‘official’ narrative, nineteen people affiliated with al-Qaeda, a radical Islamic group, hijacked 4 jet aircraft- 2 from Boson, 1 from Newark and 1 from Washington Dulles. Two of these aircraft subsequently crashed into the World Trade Center (WTC) in NYC resulting in the collapse of building 1 (WTC1) and building 2 (WTC2), one hit the Pentagon and the fourth crashed into an empty field in Shanksville, PA. 40 Two decades later, there are still multiple outstanding questions about 911, including what did the intelligence community- FBI, CIA know about the hijackers prior to 911, why didn’t the Pentagon immediately scramble fighter jets to intercept the hijacked aircraft, and why did steel framed buildings that had been ostensibly engineered to survive an impact from an airplane, rapidly collapse? 41
As it turned out, 911 would be a ‘watershed’ event, showcased in President George W. Bush’s 2002 State of the Union address where he delivered his [in]famous ‘axis of evil’ speech, designating three countries- North Korea, Iran and Iraq- as rogue states that he claimed ‘harbored, financed and aided terrorists’. 42 Indeed, 911 would set the stage for US military engagements, currently stretching from the Levant, to Caspian Basin, Persian Gulf, South-Central Asia, China Sea, Indian Ocean, Horn of Africa, the Maghreb, to Eastern Europe and Russian border (Figure 1). 43, 44. These conflicts and conflict zones are summarized in Table 2.
Invasion of Afghanistan
The Pentagon has had a longstanding interest in Afghanistan, due to its strategic location in southern Asia- sharing borders with Tajikistan, Uzbekistan, and Turkmenistan to the north, Iran to the west, and Pakistan to the south and east. During the Soviet–Afghan War (1979-1989), the Mujahideen, headed by Osama Bin Laden fought a nine-year guerrilla war against the Soviet Army and Afghanistan government, receiving material and financial support from the US, Pakistan, Iran, Saudi Arabia, and other countries and has been described as a ‘Cold War-era proxy war’, pitting the US against the USSR. In October 2001, immediately following 911, the U.S. launched its invasion of Afghanistan, rapidly ‘defeating’ the Taliban, and soon thereafter, installing a new government headed by Hamid Karzai in Kabul, and declaring the country ‘liberated’. 45. It soon became obvious that this rapid ‘success’ would be short lived. Despite spending over $1 trillion of US taxpayer money and deploying more than 100K troops, the conflict in Afghanistan continues and is the longest war in US history. The Taliban currently control >50% of Afghan territory and Afghanistan has the dubious distinction of supplying >90% of the world’s heroin 46
War on Iraq
Following defeat of the Central Powers in WWI, the Paris Peace Conference (1919-1920) assembled diplomats from 32 countries, resulting in the creation of the League of Nations, denounced by Lenin as a “thieves’ kitchen” and the ‘awarding’ of German and Ottoman overseas possessions as “mandates,” primarily to Britain and France. 47 Well aware of Iraq’s large energy reserves and strategic importance, Winston Churchill managed to cobble together Basra, Bagdad and Mosul into the ‘state’ of Iraq, while at the same time, carve out the state of Kuwait, which has 499 km of Coastline on the Persian Gulf, compared with Iraq, which has 58 km. 48, 49 This was likely done to limit Iraqi coast line and access to the Gulf.
The collapse of the Soviet Union and 911 attacks provided the directors of US foreign policy considerable latitude to pursue a more aggressive foreign policy. As described above, the PNAC laid out their perspective in their 2000 policy manifesto ‘Rebuilding America’s Defenses’. The Bush Administration was literally infiltrated with PNAC members, led by Vice President Dick Chaney and Defense Secretary Don Rumsfeld who were well aware of Iraq’s large energy reserves and was ‘ripe’ for the picking. All that was missing was a ‘marketing’ strategy, using 911 as a rationale for initially invading Iraq and then attempting to widen US control of other countries in the Middle East, with the goal of governing the regions vast energy reserves and selling this to a skeptical American public. This was accomplished using corporate media and testimony by Colin Powell, a respected former four-star Army General and 12th Chairman of the Joint Chiefs of Staff. The stage would be set by a 2002 piece by Michael Gordon and Judith Miller in the paper of record (NYT), alleging that Iraqi leader Saddam Hussein was secretly building ‘weapons of mass destruction’ (WMD). 50 This piece would form the basis of Collin Powell’s Feb 5, 2003 Speech before the UN, setting up a casus belli (Latin, ‘occasion for war’) for the 2003 invasion and occupation of Iraq. 51 As is now well known, the piece by Gordon and Miller was essentially fabricated as was much of Powell’s UN speech. 52 As preparations for Invading Iraq were being formulated, President Bush, Vice President Dick Cheney, Defense Secretary Donald Rumsfeld and others estimated the costs of the conflict to be below $100 billion and ‘reassuring’ nervous Americans that Iraq’s oil ‘would cover’ the cost of the war. 53 As is now readily apparent, the Iraq war which is still ongoing, has been a strategic disaster, resulting in thousands of American casualties, killing or displacing circa 25% of the Iraq population, led to the creation of ISIS and has cost US taxpayers circa $ 5 Trillion. The extent of this disaster was pointed out in vivid detail by Thomas Ricks, former US military reporter for the Washington Post, in his 2006 book- ‘Fiasco: The American Military Adventure in Iraq, 2003 to 2005. As pointed out by General Wesley Clark in his 2007 interview with Amy Goodman, US plans to invade Iraq were formulated within days after 911. In addition, these plans also included strategies for ‘taking out’ six other countries in 5 years, including Syria, Lebanon, Libya, Somalia, Sudan and Iran.” 43
Libya, Syria and Yemen
On Mar 19, 2011 a multi-state NATO-led coalition began a military intervention in Libya, to implement UNSC Resolution 1973, which ‘demanded’ an immediate ceasefire in Libya, including an end to the current attacks against civilians and imposed a no-fly zone and new sanctions on the Qadhafi regime and its supporters. This resolution would be used by US/NATO to overthrow the Libyan government and kill Libyan leader Muammar Gaddafi. Secretary of State Hillary Clinton would later ‘joke’ about Qaddafi’s death, commenting ‘We came, we saw, he died’. 54 In a 2016 interview with the BBC, President Barack Obama stated- failing to prepare for the aftermath of the ousting of Libyan leader Col Muammar Gaddafi was the ‘worst mistake’ of his presidency’. 55 Gaddafi’s removal plunged the country into chaos and became an international arms bazaar for radical Islamic groups, as he predicted. 56 Since 2014, the country has fractured- split between forces loyal to the Tripoli-based Government of National Accord (GNA), supported by Turkey and Qatar and the Libyan National Army (LNA) led by Benghazi-based Field Marshal Khalifa Haftar and supported by Egypt, United Arab Emirates (UAE) and Russia.
The US has been intent on ‘regime change’ in Syria since at least 2007. 43 Syria occupies a strategic position in Western Asia, sharing borders with Israel, Lebanon, Turkey, Iraq and Jordan (see Figure 1). Direct US involvement in the war on Syria began in 2014, with the support of US vassals- Bahrain, Jordan, Qatar, Saudi Arabia, UAE and Israel, with the goal of removing President Bashar al-Assad from power, a policy which remains in effect today. Due to the loyalty of the Syrian Arab Army (SAA) along with support from Hezbollah, the Islamic Republic or Iran and Russian Air Force and advisors, Syrian forces have fortified control over much of the country and Bashar al-Assad remains in power.
Yemen occupies a strategic position on the Arabian Peninsula, abutting the Bab-el-Mandeb strait, which connects the Arabian Sea to the Red Sea and the Mediterranean. Thus, the Bab-el-Mandeb Strait is considered a strategic ‘chokepoint’ that can be closed during a military crisis and thus, of interest to major global powers. 57 In 2015, the Houthi Ansarullah movement overthrew the Yemeni government, led by Abdrabbuh Mansur Hadi, forcing him to flee to neighboring KSA. In response, Mohammed bin Salman (aka MBS), Crown Prince of Saudi Arabia, formed a ‘coalition’ consisting of circa 10 countries, including Gulf Cooperation Council (GCC)- the United Arab Emirates (UAE), Bahrain, Kuwait, Qatar, along with Egypt, Jordan, Sudan and Morocco. While not directly involved in the Yemen conflict, the US, UK and other imperialist countries have provided the Saudi coalition with intelligence, logistical and material support. 58 As pointed out by HRW and others, the war on Yemen has been a humanitarian disaster, leading to massive cholera epidemics, poverty, starvation and physical destruction of the country’s infrastructure. 57, 59
2021 and Beyond
The US emerged from WWII as the world’s dominant economic and military power. This power has been facilitated by the dollar’s privileged status as the world’s reserve currency, giving Washington the ability to print money and effectively ‘weaponize’ the dollar. Since the mid-1970s, US global power has been systematically undermined from decades of neoliberal economic policies and costly wars. Since 2001, the US has been involved in conflicts in Afghanistan (longest war in US history), Iraq, Libya, Syria and Yemen. These conflicts have been humanitarian disasters, resulting in the injury or death of thousands of American soldiers, while displacing/killing an estimated 37 million people in the affected countries. The ongoing refugee ‘crisis’ in Europe is a direct consequence of these wars, with millions of people escaping the chaos, violence and poverty that US/NATO wars have created. 60
The costs of these wars to American taxpayers have been staggering. In addition to spending circa $14 trillion on the Pentagon (2001-2020) 61, post-911 conflicts have cost taxpayers circa $6.4 trillion. 60 Despite expending astronomical amounts of financial and human capital on these wars, the American empire has been unable to extract significant imperial rent from these countries. Unfortunately, the Pentagon is incapable of extricating itself from these conflicts as doing so is an admission of failure and by extension military/geopolitical weakness. No amount of jingoistic and bellicose rhetoric from politicians in Washington or talking heads on corporate media changes this reality.
The Trump administration has accelerated US global isolation by exiting or contemplating leaving: Paris Climate Accord, Trans-Pacific Partnership (TTP), Joint Comprehensive Plan of Action (JCPOA; Iran Nuclear deal), Intermediate-Range Nuclear Forces (INF) Treaty, Open Skies Treaty, UN Human Rights council, World Trade Organization (WTO) and several other agreements. 62 At the same time, China has been actively negotiating multiple trade agreements, including: $400 billion comprehensive energy and security agreement with Iran 63; Regional Comprehensive Economic Partnership (RCEP) with 15 Asian countries including Japan, South Korea, New Zealand and Australia and is the largest trade deal in history 64; EU-China Comprehensive Agreement on Investment 65. Significantly, the US is not a party to any of these agreements and trade will be conducted using regional currencies, excluding the dollar. Not surprisingly, these trade deals are exacerbating tensions between the US, China and other countries. 66 US economic decline has now progressed to the point where the very survival of the American Empire depends on continued money printing to prop up Wall St and large banks, subsidize the military and war. This was recently summarized by economist Richard Wolff- “The Federal Reserve is sustaining US capitalism — directly by loaning to corporations and indirectly by loaning to the federal government — to run a huge deficit, excess of trillion dollars… The federal government is not an intrusion; the federal government is the only thing that keeps private capitalism from a complete bust… And what do we know about this way that the Federal Reserve is keeping capitalism going? It’s funding the most extreme inequality in a century of American history.” 25
Thus, the US is stuck between the proverbial ‘rock and a hard place’. The very functioning of the American state- keeping Wall St. and large banks solvent and funding the Pentagon and ongoing wars, requires continued public support- i.e., providing unlimited amounts of ultra-cheap money from the Treasury, as laid out in a recent presentation by FED chair Jerome Powell. 67 Indeed, anytime there is so much as a hint that interest rates are going up, equity markets fall. These policies have become so ingrained and accepted as the ‘normal’ functioning of the state, that they were not addressed by Donald Trump or Joe Biden, during the 2020 campaign. The problem is that this is further undermining the strength of the dollar and jeopardizing its role as the world’s reserve currency 68, readily seen from the rising price of gold, which increased 25% last year. History tells us that over the last 700 years, world reserve currencies maintain their position on average 100 years. 69 At this point, the dollar has been the reserve currency for 77 years. 70 As the global economic vise continues to tighten, American foreign policy is becoming increasingly reckless and bellicose, while debt levels continue rising, putting increasing downward pressure on the dollar. When the dollar crashes the American Empire will crash with it. The American ruling elite are courting a rendezvous with disaster.
Notes
1. Bretton Woods Agreement and System by James Chen Apr 30, 2020; Link:
2. Launch of the Bretton Woods System- The international currency system became operational in 1958 with the elimination of exchange controls for current-account transactions By Robert L. Hetzel Federal Reserve History; Link: https://www.federalreservehistory.org/essays/bretton_woods_launched
3. Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls- With inflation on the rise and a gold run looming, President Richard Nixon’s team enacted a plan that ended dollar convertibility to gold and implemented wage and price controls, which soon brought an end to the Bretton Woods System. By Sandra Kollen Ghizoni, Federal Reserve Bank of Atlanta Aug 1971; Link: https://www.federalreservehistory.org/essays/gold-convertibility-ends
5. Neoliberalism – the ideology at the root of all our problems- Financial meltdown, environmental disaster and even the rise of Donald Trump – neoliberalism has played its part in them all. Why has the left failed to come up with an alternative? By George Monbiot Apr 15, 2016; Link: https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot
10. How Bill Clinton’s Welfare Reform Changed America- Bill Clinton’s 1992 presidential campaign placed welfare reform at its center, claiming that his proposal would “end welfare as we have come to know it.” By Mary Pilon Aug 29, 2018; Link: https://www.history.com/news/clinton-1990s-welfare-reform-facts
11. The Real Lessons from Bill Clinton’s Welfare Reform- The 1996 creation of the Temporary Assistance for Needy Families program effectively killed cash assistance. Now, Republicans want to use it as a model for the rest of the social safety net. By Vann R. Newkirk II Feb 5, 2018; Link:
32. SWIFT and the Weaponization of the U.S. Dollar- The U.S. has used the system as a stick before. Continuing down this path could trigger de-dollarization and an ensuing currency crisis. Saturday, Oct 6, 2018; Link: https://fee.org/articles/swift-and-the-weaponization-of-the-us-dollar/
33. The Atomic Bombings of Hiroshima and Nagasaki; Link:
44. A Timeline of the U.S.-Led War on Terror- In the wake of the attacks of 9/11, President George W. Bush called for a global “War on Terror,” launching an ongoing effort to thwart terrorists before they act. By History.com Editors May 5, 2020; Link: https://www.history.com/topics/21st-century/war-on-terror-timeline
45. A timeline of U.S. troop levels in Afghanistan since 2001 AP July 6, 2016; Link:
50. Threats and Responses: The Iraqis; U.S. Says Hussein Intensifies Quest for A-Bomb Parts By Michael R. Gordon and Judith Miller NYT Sept. 8, 2002; Link:
51. Colin Powell Still Wants Answers- In 2003, he made the case for invading Iraq to halt its weapons programs. The analysts who provided the intelligence now say it was doubted inside the C.I.A. at the time. By Robert Draper NYT Jan. 11, 2021; Link: https://www.nytimes.com/2020/07/16/magazine/colin-powell-iraq-war.html
52. Lie After Lie: What Colin Powell Knew About Iraq 15 Years Ago and What He Told the U.N.- The evidence is irrefutable: Powell consciously deceived the world in his 2003 presentation making the case for war with Saddam Hussein. By Jon Schwarz
54. The Libya Gamble- A New Libya, with ‘Very Little Time Left’. The fall of Col. Muammar el-Qaddafi seemed to vindicate Hillary Clinton. Then militias refused to disarm, neighbors fanned a civil war, and the Islamic State found refuge. By Scott Shane and Jo Becker NYT Feb. 27, 2016; Link: https://www.nytimes.com/2016/02/28/us/politics/libya-isis-hillary-clinton.html
59. U.S. War Crimes in Yemen: Stop Looking the Other Way- The State Department warned for years that the U.S. was complicit in war crimes in Yemen. No one put a stop to it. Foreign Policy in Focus by Andrea Prasow Sept 21, 2020; Link:
The United States has throughout its existence demonstrated all the features of ‘empire’, from the original settlers using the Papal Doctrine of Discovery (1542) through to the current propaganda of the global war and terror, now changing to defense doctrines against Russia and China. My new work, “Days of the Future Passed – Point of No Return” presents the broad outlines of what this represents to the international scene from inception through to today’s ongoing empirical adventures.
The two main constants have been economic influence and military influence. The two are highly integrated and always have been even from before Independence, through the conquest of much of North America, where sometimes the soldiers led the way, and sometimes the settlers led the way, but neither being far apart from the other. Today the economy of the US empire is highly dependent on the military mindset of the US supporting its economic adventures overseas, the bottom line being support for the global reserve currency, the fiat ‘petrodollar.’
Three other ideas enter into this picture. An additional military factor is the threat of nuclear war, an event only a hair trigger action away from ultimately ending all of our problems. The current increase in propaganda rhetoric against Russia and China makes a nuclear scenario unfortunately all too realistic. Added to this, climate change is affecting our chances at long term safety and overall survival, much of it caused by our consumer oriented economy based on fossil fuels – control of the latter being of paramount importance for the US dollar and thus the US military. Add to all that the current Covid-19 pandemic, and the empire appears to be slowly losing its grip on its desired hegemony, but not without threatening much of the rest of the world.
“Days of the Future Passed – Point of No Return” argues that we have passed some tipping points for which there will be no return to normal, within economics, the environment, and the military industrial complex. Ideas for solutions are easy, their implementation is not as the inertia of empire is not easily restrained or controlled.
Excerpt
2020 – Tipping Points
It may not be evident yet, but in another ten or twenty years, the year 2020 may also be looked on as a pivotal year in global interactions – geopolitical, environmental, and financial – all of which are highly interrelated.
Imagine the lowly teeter-totter, a playground piece not as common as it used to be. The teeter-totter is aptly named as many a child, and many an adult has stood above the bar that makes the plank teeter and totter, trying to maintain balance but also testing how far they can go before touching down on one side or the other. Now imagine that teeter-totter is poised on the edge of a cliff, where one side can touch down and avoid the unknown drop, and the other side obviously is the drop from which there is no recovery to equilibrium.
It is a simple metaphor, but it illustrates for several sectors of our lives, we have allowed ourselves to drop into the unknown.
The unknown is simply the future. This future is to be determined by a declining global economy becoming saturated with massive US money printing to prop up the banksters and corporate CEOs. It will be determined by the disregard domestically and in foreign affairs for the supposed ‘rule of law’ but more importantly international law and true justice for all people. The changes to our environment are at the moment relatively slow but are becoming irreversible under current trends. Finally, the massive military investments on a global scale for both nuclear and conventional weaponry threatens everyone with a very delicate balance of power.
….Under the Trump presidency, combined with the economic impact of the virus and actions to contain it (for better or worse, not a point of discussion here), the US has assuredly reached a point where its huge national debt can never be repaid. Combine this with the main source of income and wealth in the US no longer being production, but financialized services simply creating money at the stroke of a keyboard and the economy is surviving precariously on the whim of people servicing the US$.
Put simply, the US survives on the Federal Reserve Bank (a consortium of private banks) pumping money into the economy. With much of the economy based on debt, and interest rates kept necessarily low in order to service the debt, the strength of the US$ as a global reserve currency – the petrodollar – is jeopardized.
….This year there have been several accounts of how the climate/environment is showing signs of tipping into conditions where there can be no reversals to ‘normal’ without serious changes to our atmospheric inputs: Greenland’s ice sheet melts more than it accumulates in snowfall each year by a significant amount; the Amazon has reached the status where it can no longer regenerate itself after a series of droughts; the forest fires in Siberia, Australia, and California demonstrate the overall pattern of global warming; each succeeding month has set record new global highs.
….The main feature here is that the combination of China and Russia have created a multi-polar world whether the US is willing to admit it or not. Russian resources, defensive military achievements, and a renewed domestic scene under the direction of the much-vilified Vladimir Putin have combined with China’s increasing defensive measures in the Western Pacific, its Belt and Road initiative throughout Asia and extending elsewhere, and the economic power that China has achieved as the largest economy in the world (on purchasing power and domestic market basis).
Above all, both China and Russia have stated they no longer support the hegemony of the US$ as the global reserve currency. They cannot replace it themselves, but they can operate outside of it, and they can support alternate global systems such as a ‘basket’ of reserve currencies, and their own digital exchange systems. That is what truly scares the US as it sees its own debt problems trap it into hyperinflation while other countries start to shift away from supporting the US$. That could mean war, hybrid for sure, but it could also go kinetic.
– Jim Miles is a Canadian educator and analyst who examines the world through a syncretic lens. His analysis of international and domestic geopolitical ideas and actions incorporates a lifetime of interest in current events, a desire to preserve and conserve our natural environment and stop the commodification of the environment. He has been active as a critical writer in opposition to the US empire and its militarization of most aspects of domestic and international affairs. Miles’ work has been published globally and has appeared on a variety of websites including Palestine Chronicle, Axis of Logic, Countercurrents, and Global Research. He has appeared on RT News and The Tyee concerning events in Palestine/Israel. This is his first book and effectively summarizes many years, indeed a lifetime, of interest in international geopolitical and environmental affairs. He contributed this article to the Palestine Chronicle.
UPROOTED PALESTINIANS: SALAM ALQUDS ALAYKUM 