Introduction:
There is a great deal of controversy
about the true shape of the Venezuelan economy and whether Hugo Chavez’ and
Nicholas Maduro’s reform and policies were crucial for the people of Venezuela
or whether they were completely misguided and precipitated the current crises.
Anybody and everybody seems to have very strong held views about this. But I
don’t simply because I lack the expertise to have any such opinions. So I
decided to ask one of the most respected independent economists out there,
Michael Hudson, for whom I have immense respect and whose analyses (including
those he co-authored
with Paul Craig Roberts) seem to be the most credible and honest ones you
can find. In fact, Paul Craig Roberts considers Hudson the “best
economist in the world“!
I am deeply grateful to Michael for his replies which, I
hope, will contribute to a honest and objective understanding of what really is
taking place in Venezuela.
THE SAKER
COULD YOU
SUMMARIZE THE STATE OF VENEZUELA’S ECONOMY WHEN CHAVEZ CAME TO POWER?
Venezuela was an oil monoculture. Its export revenue was
spent largely on importing food and other necessities that it could have produced
at home. Its trade was largely with the United States. So despite its oil
wealth, it ran up foreign debt.
From the outset, U.S. oil companies have feared that
Venezuela might someday use its oil revenues to benefit its overall population
instead of letting the U.S. oil industry and its local comprador aristocracy
siphon off its wealth. So the oil industry – backed by U.S. diplomacy – held
Venezuela hostage in two ways.
First of all, oil refineries
were not built in Venezuela, but in Trinidad and in the southern U.S. Gulf
Coast states. This enabled U.S. oil companies – or the U.S. Government – to
leave Venezuela without a means of “going it alone” and pursuing an independent
policy with its oil, as it needed to have this oil refined. It doesn’t help to
have oil reserves if you are unable to get this oil refined so as to be usable.
Second, Venezuela’s central
bankers were persuaded to pledge their oil reserves and all assets of the state
oil sector (including Citgo) as collateral for its foreign debt. This meant
that if Venezuela defaulted (or was forced into default by U.S. banks refusing
to make timely payment on its foreign debt), bondholders and U.S. oil majors
would be in a legal position to take possession of Venezuelan oil assets.
These pro-U.S. policies made Venezuela a typically polarized
Latin American oligarchy. Despite being nominally rich in oil revenue, its
wealth was concentrated in the hands of a pro-U.S. oligarchy that let its
domestic development be steered by the World Bank and IMF. The indigenous
population, especially its rural racial minority as well as the urban
underclass, was excluded from sharing in the country’s oil wealth. The
oligarchy’s arrogant refusal to share the wealth, or even to make Venezuela
self-sufficient in essentials, made the election of Hugo Chavez a natural
outcome.
COULD YOU
OUTLINE THE VARIOUS REFORMS AND CHANGES INTRODUCED BY HUGO CHAVEZ? WHAT
DID HE DO RIGHT, AND WHAT DID HE DO WRONG?
Chavez sought to restore a mixed economy to Venezuela, using
its government revenue – mainly from oil, of course – to develop infrastructure
and domestic spending on health care, education, employment to raise living
standards and productivity for his electoral constituency.
What he was unable to do was to clean up the embezzlement
and built-in rake-off of income from the oil sector. And he was unable to stem
the capital flight of the oligarchy, taking its wealth and moving it abroad –
while running away themselves.
This was not “wrong”. It merely takes a long time to change
an economy’s disruption – while the U.S. is using sanctions and “dirty tricks”
to stop that process.
WHAT ARE,
IN YOUR OPINION, THE CAUSES OF THE CURRENT ECONOMIC CRISIS IN VENEZUELA – IS IT
PRIMARILY DUE TO MISTAKES BY CHAVEZ AND MADURO OR IS THE MAIN CAUSE US
SABOTAGE, SUBVERSION AND SANCTIONS?
There is no way that’s Chavez and Maduro could have pursued
a pro-Venezuelan policy aimed at achieving economic independence without
inciting fury, subversion and sanctions from the United States. American
foreign policy remains as focused on oil as it was when it invaded Iraq under
Dick Cheney’s regime. U.S. policy is to treat Venezuela as an extension of the
U.S. economy, running a trade surplus in oil to spend in the United States or
transfer its savings to U.S. banks.
By imposing sanctions that prevent Venezuela from gaining
access to its U.S. bank deposits and the assets of its state-owned Citco, the
United States is making it impossible for Venezuela to pay its foreign debt.
This is forcing it into default, which U.S. diplomats hope to use as an excuse
to foreclose on Venezuela’s oil resources and seize its foreign assets much as
Paul Singer hedge fund sought to do with Argentina’s foreign assets.
Just as U.S. policy under Kissinger was to make Chile’s
“economy scream,” so the U.S. is following the same path against Venezuela. It
is using that country as a “demonstration effect” to warn other countries not
to act in their self-interest in any way that prevents their economic surplus
from being siphoned off by U.S. investors.
WHAT IN
YOUR OPINION SHOULD MADURO DO NEXT (ASSUMING HE STAYS IN POWER AND THE USA DOES
NOT OVERTHROW HIM) TO RESCUE THE VENEZUELAN ECONOMY?
I cannot think of anything that President Maduro can do that
he is not doing. At best, he can seek foreign support – and demonstrate to the
world the need for an alternative international financial and economic system.
He already has begun to do this by trying to withdraw
Venezuela’s gold from the Bank of England and Federal Reserve. This is turning
into “asymmetrical warfare,” threatening what to de-sanctify the dollar
standard in international finance. The refusal of England and the United States
to grant an elected government control of its foreign assets demonstrates to
the entire world that U.S. diplomats and courts alone can and will control
foreign countries as an extension of U.S. nationalism.
The price of the U.S. economic attack on Venezuela is thus
to fracture the global monetary system. Maduro’s defensive move is showing
other countries the need to protect themselves from becoming “another
Venezuela” by finding a new safe haven and paying agent for their gold, foreign
exchange reserves and foreign debt financing, away from the dollar, sterling
and euro areas.
The only way that Maduro can fight successfully is on the
institutional level, upping the ante to move “outside the box.” His plan – and
of course it is a longer-term plan – is to help catalyze a new international
economic order independent of the U.S. dollar standard. It will work in the
short run only if the United States believes that it can emerge from this fight
as an honest financial broker, honest banking system and supporter of
democratically elected regimes. The Trump administration is destroying illusion
more thoroughly than any anti-imperialist critic or economic rival could do!
Over the longer run, Maduro also must develop Venezuelan
agriculture, along much the same lines that the United States protected and
developed its agriculture under the New Deal legislation of the 1930s – rural
extension services, rural credit, seed advice, state marketing organizations
for crop purchase and supply of mechanization, and the same kind of price
supports that the United States has long used to subsidize domestic farm
investment to increase productivity.
WHAT
ABOUT THE PLAN TO INTRODUCE A OIL-BASED CRYPTO CURRENCY? WILL THAT BE AN
EFFECTIVE ALTERNATIVE TO THE DYING VENEZUELAN BOLIVAR?
Only a national government can issue a currency. A “crypto”
currency tied to the price of oil would become a hedging vehicle, prone to
manipulation and price swings by forward sellers and buyers. A national
currency must be based on the ability to tax, and Venezuela’s main tax source
is oil revenue, which is being blocked from the United States. So Venezuela’s
position is like that of the German mark coming out of its hyperinflation of
the early 1920s. The only solution involves balance-of-payments support. It
looks like the only such support will come from outside the dollar sphere.
The solution to any hyperinflation must be negotiated
diplomatically and be supported by other governments. My history of
international trade and financial theory, Trade, Develpoment and Foreign
Debt, describes the German reparations problem and how its hyperinflation
was solved by the Rentenmark.
Venezuela’s economic-rent tax would fall on oil, and luxury
real estate sites, as well as monopoly prices, and on high incomes (mainly
financial and monopoly income). This requires a logic to frame such tax and
monetary policy. I have tried to explain how to achieve monetary and hence
political independence for the past half-century. China is applying such policy
most effectively. It is able to do so because it is a large and self-sufficient
economy in essentials, running a large enough export xurplus to pay for its
food imports. Venezuela is in no such position. That is why it is looking to
China for support at this time.
HOW MUCH
ASSISTANCE DO CHINA, RUSSIA AND IRAN PROVIDE AND HOW MUCH CAN THEY DO TO
HELP? DO YOU THINK THAT THESE THREE COUNTRIES TOGETHER CAN HELP
COUNTER-ACT US SABOTAGE, SUBVERSION AND SANCTIONS?
None of these countries have a current capacity to refine
Venezuelan oil. This makes it difficult for them to take payment in Venezuelan
oil. Only a long-term supply contract (paid for in advance) would be workable.
And even in that case, what would China and Russia do if the United States
simply grabbed their property in Venezuela, or refused to let Russia’s oil
company take possession of Citco? In that case, the only response would be to
seize U.S. investments in their own country as compensation.
At least China and Russia can provide an alternative bank
clearing mechanism to SWIFT, so that Venezuela can by pass the U.S. financial
system and keep its assets from being grabbed at will by U.S. authorities or
bondholders. And of course, they can provide safe-keeping for however much of
Venezuela’s gold it can get back from New York and London.
Looking ahead, therefore, China, Russia, Iran and other
countries need to set up a new international court to adjudicate the coming
diplomatic crisis and its financial and military consequences. Such a court –
and its associated international bank as an alternative to the U.S.-controlled
IMF and World Bank – needs a clear ideology to frame a set of principles of
nationhood and international rights with power to implement and enforce its
judgments.
This would confront U.S. financial strategists with a
choice: if they continue to treat the IMF, World Bank, ITO and NATO as
extensions of increasingly aggressive U.S. foreign policy, they will risk
isolating the United States. Europe will have to choose whether to remain a
U.S. economic and military satellite, or to throw in its lot with Eurasia.
However, Daniel Yergin reports in the Wall Street Journal
(Feb. 7) that China is trying to hedge its bets by opening a back-door
negotiation with Guaido’s group, apparently to get the same deal that it has
negotiated with Maduro’s government. But any such deal seems unlikely to be
honored in practice, given U.S. animosity toward China and Guaido’s total
reliance on U.S. covert support.
VENEZUELA
KEPT A LOT OF ITS GOLD IN THE UK AND MONEY IN THE USA. HOW COULD CHAVEZ
AND MADURO TRUST THESE COUNTRIES OR DID THEY NOT HAVE ANOTHER CHOICE? ARE
THERE VIABLE ALTERNATIVES TO NEW YORK AND LONDON OR ARE THEY STILL THE “ONLY
GAME IN TOWN” FOR THE WORLD’S CENTRAL BANKS?
There was never real trust in the Bank of England or Federal
Reserve, but it seemed unthinkable that they would refuse to permit an official
depositor from withdrawing its own gold. The usual motto is “Trust but verify.”
But the unwillingness (or inability) of the Bank of England to verify means
that the formerly unthinkable has now arrived: Have these central banks sold
this gold forward in the post-London Gold Pool and its successor commodity
markets in their attempt to keep down the price so as to maintain the
appearance of a solvent U.S. dollar standard.
Paul Craig Roberts has described how
this system works. There are forward markets for currencies, stocks and
bonds. The Federal Reserve can offer to buy a stock in three months at, say,
10% over the current price. Speculators will by the stock, bidding up the
price, so as to take advantage of “the market’s” promise to buy the stock. So
by the time three months have passed, the price will have risen. That is
largely how the U.S. “Plunge Protection Team” has supported the U.S. stock
market.
The system works in reverse to hold down gold prices. The
central banks holding gold can get together and offer to sell gold at a lowprice
in three months. “The market” will realize that with low-priced gold being
sold, there’s no point in buying more gold and bidding its price up. So the
forward-settlement market shapes today’s market.
The question is, have gold buyers (such as the Russian and
Chinese government) bought so much gold that the U.S. Fed and the Bank of
England have actually had to “make good” on their forward sales, and steadily
depleted their gold? In this case, they would have been “living for the
moment,” keeping down gold prices for as long as they could, knowing that once
the world returns to the pre-1971 gold-exchange standard for intergovernmental
balance-of-payments deficits, the U.S. will run out of gold and be unable to
maintain its overseas military spending (not to mention its trade deficit and
foreign disinvestment in the U.S. stock and bond markets). My book on
Super-Imperialism explains why running out of gold forced the Vietnam War to an
end. The same logic would apply today to America’s vast network of military bases
throughout the world.
Refusal of England and the U.S. to pay Venezuela means that
other countries means that foreign official gold reserves can be held hostage
to U.S. foreign policy, and even to judgments by U.S. courts to award this gold
to foreign creditors or to whoever might bring a lawsuit under U.S. law against
these countries.
This hostage-taking now makes it urgent for other countries
to develop a viable alternative, especially as the world de-dedollarizes and a
gold-exchange standard remains the only way of constraining the
military-induced balance of payments deficit of the United States or any other
country mounting a military attack. A military empire is very expensive – and
gold is a “peaceful” constraint on military-induced payments deficits. (I spell
out the details in my Super Imperialism: The Economic Strategy of American
Empire (1972), updated in German as Finanzimperium (2017).
The U.S. has overplayed its hand in destroying the
foundation of the dollar-centered global financial order. That order has
enabled the United States to be “the exceptional nation” able to run
balance-of-payments deficits and foreign debt that it has no intention (or
ability) to pay, claiming that the dollars thrown off by its foreign military
spending “supply” other countries with their central bank reserves (held in the
form of loans to the U.S. Treasury – Treasury bonds and bills – to finance the
U.S. budget deficit and its military spending, as well as the largely military
U.S. balance-of-payments deficit.
Given the fact that the EU is acting as a branch of NATO and
the U.S. banking system, that alternative would have to be associated with the
Shanghai Cooperation Organization, and the gold would have to be kept in Russia
and/or China.
WHAT CAN
OTHER LATIN AMERICAN COUNTRIES SUCH AS BOLIVIA, NICARAGUA, CUBA AND, MAYBE,
URUGUAY AND MEXICO DO TO HELP VENEZUELA?
The best thing neighboring Latin American countries can do
is to join in creating a vehicle to promote de-dollarization and, with it, an
international institution to oversee the writedown of debts that are beyond the
ability of countries to pay without imposing austerity and thereby destroying
their economies.
An alternative also is needed to the World Bank that would
make loans in domestic currency, above all to subsidize investment in domestic
food production so as to protect the economy against foreign food-sanctions –
the equivalent of a military siege to force surrender by imposing famine
conditions. This World Bank for Economic Acceleration would put the development
of self-reliance for its members first, instead of promoting export competition
while loading borrowers down with foreign debt that would make them prone to
the kind of financial blackmail that Venezuela is experiencing.
Being a Roman Catholic country, Venezuela might ask for
papal support for a debt write-down and an international institution to oversee
the ability to pay by debtor countries without imposing austerity, emigration,
depopulation and forced privatization of the public domain.
Two international principles are needed. First, no country
should be obliged to pay foreign debt in a currency (such as the dollar or its
satellites) whose banking system acts to prevents payment.
Second, no country should be obliged to pay foreign debt at the
price of losing its domestic autonomy as a state: the right to determine its
own foreign policy, to tax and to create its own money, and to be free of
having to privatize its public assets to pay foreign creditors. Any such debt
is a “bad loan” reflecting the creditor’s own irresponsibility or, even worse,
pernicious asset grab in a foreclosure that was the whole point of the loan.
This interview originally appeared on Unz.com.
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