U.S.
ECONOMIC WARFARE AND LIKELY FOREIGN DEFENSES
By MICHAEL HUDSON:
My Introduction
This article is about the neoliberal Barbary we were condemned
to suffer. It offers several alternatives on how to face it. In the next
article from same author we will see an updated version with new alternatives
to face current changes in TRUMP system of domination, if already published..
Hugo Adan
August 1, 2019
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Today’s
world is at war on many fronts. The
rules of international law and order put in place toward the end of World War
II are being broken by U.S. foreign policy escalating its confrontation with
countries that refrain from giving its companies control of their economic
surpluses. Countries that do
not give the United States control of their oil and financial sectors or
privatize their key sectors are being isolated by the United States imposing
trade sanctions and unilateral tariffs giving
special advantages to U.S. producers in violation of free trade agreements with
European, Asian and other countries.
This
global fracture has an increasingly military cast. U.S. officials justify tariffs and import quotas
illegal under WTO rules on “national security” grounds, claiming that the
United States can do whatever it wants as the world’s “exceptional” nation.
U.S. officials explain that this means that their nation is not obliged to
adhere to international agreements or even to its own treaties and
promises. This allegedly sovereign right to ignore on its international agreements
was made explicit after Bill Clinton and his Secretary of State Madeline
Albright broke the promise by President George Bush and Secretary of State
James Baker that NATO would not expand eastward after 1991. (“You didn’t get it
in writing,” was the U.S. response to the verbal agreements that were made.)
Likewise, the Trump administration
repudiated the multilateral Iranian nuclear agreement signed by the Obama
administration, and is escalating warfare with its proxy armies in the
Near East. U.S. politicians are waging a New Cold War against Russia, China,
Iran, and oil-exporting countries that the United States is seeking to isolate
if cannot control their governments, central bank and foreign diplomacy.
But the
past decade has seen U.S. diplomacy become one-sided in turning the International
Monetary Fund (IMF), World Bank, SWIFT bank-clearing system and world trade
into an asymmetrically exploitative system. This
unilateral U.S.-centered array of institutions is coming to be widely seen not
only as unfair, but as blocking the progress of other countries whose growth
and prosperity is seen by U.S. foreign policy as a threat to unilateral U.S.
hegemony. What began as an ostensibly international order to promote peaceful
prosperity has turned increasingly into an extension of U.S. nationalism,
predatory rent-extraction and a more dangerous military confrontation.
Deterioration of international
diplomacy into a more nakedly explicit pro-U.S. financial, trade and military
aggression was implicit in the way in which economic diplomacy was shaped when
the United Nations, IMF and World Bank were shaped mainly by U.S. economic
strategists. Their economic belligerence is driving countries to
withdraw from the global financial and trade order that has been turned into a
New Cold War vehicle to impose unilateral U.S. hegemony. Nationalistic
reactions are consolidating into new economic and political alliances from
Europe to Asia.
We are
still mired in the Oil War that escalated in 2003 with the invasion of Iraq,
which quickly spread to Libya and Syria. American foreign policy has long been
based largely on control of oil. This has led the United States to
oppose the Paris accords to stem global warming. Its aim is to give U.S.
officials the power to impose energy sanctions forcing other countries to
“freeze in the dark” if they do not follow U.S. leadership.
To expand its oil monopoly, America
is pressuring Europe to oppose the Nordstream II gas pipeline from Russia,
claiming that this would make Germany and other countries dependent on Russia
instead of on U.S. liquified natural gas (LNG). Likewise, American oil
diplomacy has imposed unilateral sanctions against Iranian oil exports, until
such time as a regime change opens up that country’s oil reserves to U.S.,
French, British and other allied oil majors.
U.S. control of dollarized money and
credit is critical to this hegemony. As Congressman Brad Sherman of Los
Angeles told a House Financial Services Committee hearing on May 9, 2019: “An
awful lot of our international power comes from the fact that the U.S. dollar
is the standard unit of international finance and transactions. Clearing
through the New York Fed is critical for major oil and other transactions. It
is the announced purpose of the supporters of cryptocurrency to take that power
away from us, to put us in a position where the most significant sanctions we
have against Iran, for example, would become irrelevant.”
The U.S.
aim is to keep the dollar as the transactions currency for world trade,
savings, central bank reserves and international lending. This monopoly status
enables the U.S. Treasury and State Department to disrupt the financial
payments system and trade for countries with which the United States is at
economic or outright military war.
Russian President Vladimir Putin quickly responded by
describing how “the degeneration of the universalist
globalization model [is] turning into a parody, a caricature of itself, where
common international rules are replaced with the laws… of one country.”
That is the trajectory on which this deterioration of formerly open
international trade and finance is now moving. It has been building up for a
decade. On June 5, 2009, then-Russian President Dmitry Medvedev cited this same
disruptive U.S. dynamic at work in the wake of the U.S. junk mortgage and bank
fraud crisis.
Those whose job it was to forecast
events … were not ready for the depth of the crisis and turned out to be too
rigid, unwieldy and slow not interest in their response. The
international financial organisations – and I think we need to state this up
front and not try to hide it – were not up to their responsibilities, as has
been said quite unambiguously at a number of major international events such as
the two recent G20 summits of the world’s largest economies.
The
artificially maintained uni-polar system and preservation of monopolies in key
global economic sectors are root causes of the crisis. One big centre of consumption, financed by a growing
deficit, and thus growing debts, one formerly strong reserve currency, and one
dominant system of assessing assets and risks – these
are all factors that led to an overall drop in the quality of regulation
and the economic justification of assessments made, including assessments of
macroeconomic policy. As a result, there was no avoiding a global crisis.
That crisis is what is now causing
today’s break in global trade and payments.
WARFARE ON MANY FRONTS, WITH DOLLARIZATION BEING THE MAIN ARENA
Dissolution of the Soviet Union 1991
did not bring the disarmament that was widely expected. U.S. leadership
celebrated the Soviet demise as signaling the end of foreign opposition to
U.S.-sponsored neoliberalism and even as the End of History. NATO expanded to
encircle Russia and sponsored “color revolutions” from Georgia to Ukraine,
while carving up former Yugoslavia into small statelets. American diplomacy created a foreign legion of Wahabi
fundamentalists from Afghanistan to Iran, Iraq, Syria and Libya in support of
Saudi Arabian extremism and Israeli expansionism.
The United States is waging war for
control of oil against Venezuela, where a military coup failed a few
years ago, as did the 2018-19 stunt to recognize an unelected pro-American
puppet regime. The Honduran coup under President Obama was more successful in
overthrowing an elected president advocating land reform, continuing the
tradition dating back to 1954 when the CIA overthrew Guatemala’s Arbenz regime.
U.S. officials bear a special hatred
for countries that they have injured, ranging from Guatemala in 1954 to Iran,
whose regime it overthrew to install the Shah as military dictator.
Claiming to promote “democracy,” U.S. diplomacy has redefined the word to mean
pro-American, and opposing land reform, national ownership of raw materials and
public subsidy of foreign agriculture or industry as an “undemocratic” attack
on “free markets,” meaning markets controlled by U.S. financial interests and absentee
owners of land, natural resources and banks.
A major
byproduct of warfare has always been refugees,
and today’s wave fleeing ISIS, Al Qaeda and other U.S.-backed Near Eastern
proxies is flooding Europe. A similar wave is fleeing the dictatorial
regimes backed by the United States from Honduras, Ecuador, Colombia and
neighboring countries. The refugee crisis has become a major factor leading to
the resurgence of nationalist parties throughout Europe and for the white
nationalism of Donald Trump in the United States.
DOLLARIZATION AS THE VEHICLE FOR U.S. NATIONALISM
The Dollar
Standard – U.S. Treasury debt to foreigners held by the world’s central banks –
has replaced the gold-exchange standard for the world’s central bank reserves
to settle payments imbalances among themselves. This
has enabled the United States to uniquely run balance-of-payments deficits for
nearly seventy years, despite the fact that these Treasury IOUs have little
visible likelihood of being repaid except under arrangements where U.S.
rent-seeking and outright financial tribute from other enables it to liquidate its
official foreign debt.
The United States is the only nation
that can run sustained balance-of-payments deficits without having to sell off
its assets or raise interest rates to borrow foreign money. No other
national economy in the world can could afford foreign military expenditures on
any major scale without losing its exchange value. Without the Treasury-bill
standard, the United States would be in this same position along with other
nations. That is why Russia, China and other powers that U.S. strategists deem
to be strategic rivals and enemies are looking to restore gold’s role as the
preferred asset to settle payments imbalances.
The U.S.
response is to impose regime change on countries that prefer gold or other
foreign currencies to dollars for their exchange reserves. A case in point is the overthrow of Libya’s Omar
Kaddafi after he sought to base his nation’s international reserves on gold.
His liquidation stands as a military warning to other countries.
Thanks to the fact that
payments-surplus economies invest their dollar inflows in U.S. Treasury bonds,
the U.S. balance-of-payments deficit finances its domestic budget deficit.
This foreign central-bank recycling of U.S. overseas military spending into
purchases of U.S. Treasury securities gives the United States a free ride,
financing its budget – also mainly military in character – so that it can
taxing its own citizens.
TRUMP IS FORCING OTHER COUNTRIES TO CREATE AN ALTERNATIVE TO THE DOLLAR
STANDARD
The fact that Donald Trump’s
economic policies are proving ineffective in restoring American manufacturing
is creating rising nationalist pressure to exploit foreigners by arbitrary
tariffs without regard for international law, and to impose trade sanctions and
diplomatic meddling to disrupt regimes that pursue policies that U.S.
diplomats do not like.
There is a
parallel here with Rome in the late 1st century BC. It stripped its provinces to pay for its military
deficit, the grain dole and land
redistribution at the expense of Italian cities and Asia Minor. This created
foreign opposition to drive Rome out. The U.S. economy is similar to Rome’s:
extractive rather than productive, based mainly on land rents and
money-interest. As the domestic market is impoverished,
U.S. politicians are seeking to take from abroad what no longer is being
produced at home.
What is so ironic – and so self-defeating of America’s free
global ride – is that Trump’s simplistic aim of
lowering the dollar’s exchange rate to make U.S. exports more price-competitive.
He imagines commodity trade to be the entire balance of payments, as if there
were no military spending, not to mention lending and investment. To lower the dollar’s exchange rate, he is demanding
that China’s central bank and those of other countries stop supporting the
dollar by recycling the dollars they receive for their exports into holdings of
U.S. Treasury securities.
This tunnel vision leaves out of
account the fact that the trade balance is not simply a matter of comparative
international price levels. The United States has dissipated its supply
of spare manufacturing capacity and local suppliers of parts and materials,
while much of its industrial engineering and skilled manufacturing labor has
retired. An immense shortfall must be filled by new capital investment,
education and public infrastructure, whose charges are far above those of other
economics.
Trump’s infrastructure ideology is a
Public-Private Partnership characterized by high-cost financialization
demanding high monopoly rents to cover its interest charges, stock dividends
and management fees. This neoliberal policy raises the cost of living
for the U.S. labor force, making it uncompetitive. The United
States is unable to produce more at any price right now, because its has
spent the past half-century dismantling its infrastructure, closing down its
part suppliers and outsourcing its industrial technology.
The United States has privatized and
financialized infrastructure and basic needs such as public health and medical
care, education and transportation that other countries have kept in
their public domain to make their economies more cost-efficient by providing
essential services at subsidized prices or freely. The United States also has
led the practice of debt pyramiding, from housing to corporate finance. This financial engineering and wealth creation by inflating
debt-financed real estate and stock market bubbles has made the United States a
high-cost economy that cannot compete successfully with well-managed mixed economies.
Unable to recover dominance in manufacturing, the United
States is concentrating on rent-extracting sectors that it hopes monopolize, he
aded by information technology and military production. On the industrial
front, it threatens disrupt China and other mixed economies by imposing trade
and financial sanctions.
The great
gamble is whether these other countries will defend themselves by joining in
alliances enabling them to bypass the U.S. economy. American strategists
imagine their country to be the world’s essential economy, without whose market
other countries must suffer depression. The Trump Administration thinks that
There Is No Alternative (TINA) for other countries except for their own
financial systems to rely on U.S. dollar credit.
To protect themselves from U.S.
sanctions, countries would have to avoid using the dollar, and hence U.S.
banks. This would require creation of a non-dollarized financial system
for use among themselves, including their own alternative to the SWIFT bank
clearing system. Table 1 lists some possible
related defenses against U.S. nationalistic diplomacy.
See Table 1:
As noted above, it was also ironic
in President Trump’s accusation of China and other countries of artificially
manipulating their exchange rate against the dollar (by recycling their
trade and payments surpluses into Treasury securities to hold down their
currency’s dollar valuation) it involves dismantling
the Treasury-bill standard. The main way that foreign economies have is
to stabilized their exchange rate changed since 1971 . That indeed meen to
recycle their dollar inflows into U.S. Treasury securities. Letting their
currency’s value rise would threaten their export competitiveness against their
rivals, although not necessarily benefit the United States.
Ending this practice leaves countries with the main way to
protect their currencies from rising against the dollar is to reduce dollar
inflows by blocking U.S. lending to domestic borrowers. They may levy floating
tariffs proportioned to the dollar’s declining value. The
U.S. has a long history since the 1920s of raising its tariffs against currencies
that are depreciating the American Selling Price (ASP) system. Other countries can impose their own floating tariffs against
U.S. goods too.
TRADE DEPENDENCY AS AN AIM OF THE WORLD BANK, IMF AND US AID
The world today faces a problem much
like what it faced on the eve of World War II. Like Germany then, the
United States now poses the main threat of war, and equally destructive
neoliberal economic regimes imposing austerity, economic shrinkage and
depopulation. U.S. diplomats are threatening to destroy regimes and entire
economies that seek to remain independent of this system, by trade and
financial sanctions backed by direct military force.
Dedollarization
will require creation of multilateral alternatives to U.S. “front” institutions
such as the World Bank, IMF and other agencies in which the United States holds
veto power to block any alternative policies deemed not to let it “win.” U.S. trade
policy through the World Bank and U.S. foreign aid agencies aims at promoting
dependency on U.S. food exports and other key commodities, while hiring U.S.
engineering firms to build up export infrastructure to subsidize U.S. and other
natural-resource investors. The financing is mainly in dollars, providing
risk-free bonds to U.S. and other financial institutions. The resulting
commercial and financial “interdependency” has led to a situation in which a sudden interruption of supply would disrupt foreign
economies by causing a breakdown in their chain of payments and production. The
effect is to lock client countries into dependency on the U.S. economy and its
diplomacy, euphemized as “promoting growth and development.”
U.S. neoliberal policy via the IMF
imposes austerity and opposes debt writedowns. Its economic model
pretends that debtor countries can pay any volume of
dollar debt simply by reducing wages to squeeze more income out of the labor
force to pay foreign creditors. This ignores the fact that solving the
domestic “budget problem” by taxing local revenue still faces the “transfer
problem” of converting it into dollars or other hard currencies in which most
international debt is denominated. The result is that
the IMF’s “stabilization” programs actually destabilize and impoverish
countries forced into following its advice.
IMF loans support pro-U.S. regimes
such as Ukraine, and subsidize capital flight by supporting local currencies
long enough to enable U.S. client oligarchies to flee their currencies at a
pre-devaluation exchange rate for the dollar. When the local currency
finally is allowed to collapse, debtor countries are
advised to impose anti-labor austerity. This globalizes the class war of
capital against labor while keeping debtor countries on a short U.S. financial leash
vs.crash.
U.S.
diplomacy is capped by trade sanctions to disrupt economies that break away
from U.S. aims. Sanctions are a form of economic sabotage, as lethal
as outright military warfare in establishing U.S. control over foreign
economies. The threat is to impoverish civilian populations, in the belief that
this will lead them to replace their governments with
pro-American regimes promising to restore prosperity by selling off their
domestic infrastructure to U.S. and other multinational investors.
THERE ARE ALTERNATIVES, ON MANY FRONTS
Militarily, today’s leading alternative to NATO expansionism is the Shanghai Cooperation Organization (SCO), along with Europe following France’s
example under Charles de Gaulle and withdrawing. After all, there is no
real threat of military invasion today in Europe. No nation can occupy another
without an enormous military draft and such heavy personnel losses that
domestic protests would unseat the government waging such a war. The U.S. anti-war movement in the 1960s signaled the end of
the military draft, not only in the United States but in nearly all democratic
countries. (Israel, Switzerland, Brazil and North Korea are exceptions.)
The
enormous spending on armaments for a kind of war unlikely to be fought is not
really military, but simply to provide profits to the military industrial
complex. The arms are not really to be
used. They are simply to be bought, and ultimately scrapped. The danger, of
course, is that these not-for-use arms actually might be used, if only to
create a need for new profitable production.
Likewise,
foreign holdings of dollars are not really to be spent on purchases of U.S.
exports or investments. They are like fine-wine collectibles, for saving rather
than for drinking. The alternative to such dollarized holdings is to create a
mutual use of national currencies, and a domestic bank-clearing payments system
as an alternative to SWIFT.
Russia, China, Iran and Venezuela already are said to be developing a
crypto-currency payments to circumvent U.S. sanctions and hence financial
control.
In the World Trade Organization, the
United States has tried to claim that any industry receiving public
infrastructure or credit subsidy deserves tariff retaliation in order to force
privatization. In response to WTO rulings that U.S. tariffs are
illegally imposed, the United States “has blocked all new appointments to the
seven-member appellate body in protest, leaving it in danger of collapse
because it may not have enough judges to allow it to hear new cases.”[5] In
the U.S. view, only privatized trade financed by private rather than public
banks is “fair” trade.
An alternative to the WTO (or
removal of its veto privilege given to the U.S. bloc) is
needed to cope with U.S. neoliberal ideology and, most recently, the U.S.
travesty claiming “national security” exemption to free-trade treaties, impose
tariffs on steel, aluminum, and on European countries that circumvent
sanctions on Iran or threaten to buy oil from Russia via the Nordstream II
pipeline instead of high-cost liquified “freedom gas” from the United States.
In the realm of development lending,
China’s bank along with its Belt and Road initiative is an incipient
alternative to the World Bank, whose main role has been to promote foreign
dependency on U.S. suppliers. The IMF for its part now functions as an
extension of the U.S. Department of Defense to subsidize client regimes such as
Ukraine while financially isolating countries not subservient to U.S. diplomacy.
To save debt-strapped economies
suffering Greek-style austerity, the world needs to replace neoliberal economic
theory with an analytic logic for debt writedowns based on the ability to pay.
The guiding principle of the needed development-oriented logic of international
law should be that no nation should be obliged to pay foreign creditors by
having to sell of the public domain and rent-extraction rights to foreign
creditors. The defining character of nationhood should be the fiscal right to
tax natural resource rents and financial returns, and to create its own
monetary system.
The United States refuses to join
the International Criminal Court. To be effective, it needs enforcement
power for its judgments and penalties, capped by the ability to bring charges
of war crimes in the tradition of the Nuremberg tribunal. U.S. to such a court,
combined with its military buildup now threatening World War III, suggests a
new alignment of countries akin to the Non-Aligned Nations movement of the
1950s and 1960s. Non-aligned in this case means freedom
from U.S. diplomatic control or threats.
Such institutions require a more
realistic economic theory and philosophy of operations to replace the
neoliberal logic for anti-government privatization, anti-labor austerity, and
opposition to domestic budget deficits and debt writedowns. Today’s
neoliberal doctrine counts financial late fees and rising housing prices as
adding to “real output” (GDP), but deems public investment as deadweight
spending, not a contribution to output. The aim of such logic is to convince
governments to pay their foreign creditors by selling off their public
infrastructure and other assets in the public domain.
Just as the “capacity to pay”
principle was the foundation stone of the Bank for International Settlements in
1931, a similar basis is needed to measure today’s ability to pay debts and
hence to write down bad loans that have been made without a corresponding
ability of debtors to pay. Without such an institution and body of
analysis, the IMF’s neoliberal principle of imposing economic depression and
falling living standards to pay U.S. and other foreign creditors will impose
global poverty.
The above proposals provide an
alternative to the U.S. “exceptionalist” refusal to join any international
organization that has a say over its affairs. Other countries must be
willing to turn the tables and isolate U.S. banks, U.S. exporters, and to avoid
using U.S. dollars and routing payments via U.S. banks. To protect their
ability to create a countervailing power requires an international court and
its sponsoring organization.
SUMMARY
The first
existential objective is to avoid the current threat of war by winding down
U.S. military interference in foreign countries and removing U.S. military
bases as relics of neocolonialism. Their
danger to world peace and prosperity threatens a reversion to the pre-World War
II colonialism, ruling by client elites along lines similar to the 2014
Ukrainian coup by neo-Nazi groups sponsored by the U.S. State Department and
National Endowment for Democracy. Such control recalls the dictators that U.S.
diplomacy established throughout Latin America in the 1950s. Today’s ethnic
terrorism by U.S.-sponsored Wahabi-Saudi Islam recalls the behavior of Nazi
Germany in the 1940s.
Global
warming is the second major existentialist threat. Blocking attempts to reverse it is a bedrock of American
foreign policy, because it is based on control of oil. So the military, refugee
and global warming threats are interconnected.
The U.S.
military poses the greatest immediate danger.
Today’s warfare is fundamentally changed from what it used to be. Prior to the
1970s, nations conquering others had to invade and occupy them with
armies recruited by a military draft. But no democracy in today’s world can
revive such a draft without triggering widespread refusal to fight, voting the
government out of power. The only way the United States – or other countries –
can fight other nations is to bomb them. And as noted above, economic sanctions
have as destructive an effect on civilian populations in countries deemed to be
U.S. adversaries as overt warfare. The United States
can sponsor political coups (as in Honduras and Pinochet’s Chile), but cannot
occupy. It is unwilling to rebuild, to say nothing of taking
responsibility for the waves of refugees that our bombing and sanctions are
causing from Latin America to the Near East.
U.S. ideologues view are based on nation’s coercive military expansion and neoliberal
economic policy of privatization and financialization. They keep this view as irreversible victory signaling the End
of History. To
the rest of the world it is a threat to human survival ( WW3)
The American promise is that the victory of neoliberalism is
the End of History, offering prosperity to the entire world. But beneath the rhetoric of free choice and free markets is
the reality of corruption, subversion, coercion, debt peonage and neofeudalism.
The reality is the creation and subsidy of polarized economies bifurcated
between a privileged rentier class and its clients, their
debtors and renters.
Unlike medieval serfdom,
people subject to this End of History scenario can choose to live wherever they
want. But wherever they live, they must take on a lifetime of debt to obtain
access to a home of their own, and rely on U.S.-sponsored control of their
basic needs, money and credit by adhering to U.S. financial planning of their
economies. This dystopian
scenario confirms Rosa Luxemburg’s recognition that the ultimate choice facing
nations in today’s world is between socialism and barbarism.
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