But nobody thought that it would happen this
fast.
By Michael Hudson
March 07, 2022:
Information Clearing House
-- Empires often
follow the course of a Greek tragedy, bringing
about precisely the fate that they sought to
avoid. That certainly is the case with the
American Empire as it dismantles itself in
not-so-slow motion.
The basic assumption of economic and
diplomatic forecasting is that every country
will act in its own self-interest. Such
reasoning is of no help in today’s world.
Observers across the political spectrum are
using phrases like “shooting themselves in their
own foot” to describe U.S. diplomatic
confrontation with Russia and allies alike.
For more than a generation the most prominent
U.S. diplomats have warned about what they
thought would represent the ultimate external
threat: an alliance of Russia and China
dominating Eurasia. America’s economic sanctions
and military confrontation has driven them
together, and is driving other countries into
their emerging Eurasian orbit.
American economic and financial power was
expected to avert this fate. During the
half-century since the United States went off
gold in 1971, the world’s central banks have
operated on the Dollar Standard, holding their
international monetary reserves in the form of
U.S. Treasury securities, U.S. bank deposits and
U.S. stocks and bonds. The resulting
Treasury-bill Standard has enabled America to
finance its foreign military spending and
investment takeover of other countries simply by
creating dollar IOUs. U.S. balance-of-payments
deficits end up in the central banks of
payments-surplus countries as their reserves,
while Global South debtors need dollars to pay
their bondholders and conduct their foreign
trade.
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This monetary privilege – dollar seignorage –
has enabled U.S. diplomacy to impose neoliberal
policies on the rest of the world, without
having to use much military force of its own
except to grab Near Eastern oil
The recent escalation U.S. sanctions blocking
Europe, Asia and other countries from trade and
investment with Russia, Iran and China has
imposed enormous opportunity costs – the cost of
lost opportunities – on U.S. allies. And the
recent confiscation of the gold and foreign
reserves of Venezuela, Afghanistan and now
Russia, along the targeted grabbing of bank
accounts of wealthy foreigners (hoping to win
their hearts and minds, along with recovery of
their sequestered accounts), has ended the idea
that dollar holdings or those in its sterling
and euro NATO satellites are a safe investment
haven when world economic conditions become
shaky.
So I am somewhat chagrined as I watch the
speed at which this U.S.-centered financialized
system has de-dollarized over the span of just a
year or two. The basic theme of my
Super Imperialism has been how, for the past
fifty years, the U.S. Treasury-bill standard has
channeled foreign savings to U.S. financial
markets and banks, giving Dollar Diplomacy a
free ride. I thought that de-dollarization would
be led by China and Russia moving to take
control of their economies to avoid the kind of
financial polarization that is imposing
austerity on the United States. But U.S.
officials are forcing them to overcome whatever
hesitancy they had to de-dollarize.
I had expected that the end of the dollarized
imperial economy would come about by other
countries breaking away. But that is not what
has happened. U.S. diplomats have chosen to end
international dollarization themselves, while
helping Russia build up its own means of
self-reliant agricultural and industrial
production. This global fracture process
actually has been going on for some years now,
starting with the sanctions blocking America’s
NATO allies and other economic satellites from
trading with Russia.For Russia, these sanctions
had the same effect that protective tariffs
would have had.
Russia had remained too enthralled by
free-market ideology to take steps to protect
its own agriculture or industry. The United
States provided the help that was needed by
imposing domestic self-reliance on Russia (via
sanctions). When the Baltic states lost the
Russian market for cheese and other farm
products, Russia quickly created its own cheese
and dairy sector – while becoming the world’s
leading grain exporter.
Russia is discovering (or is on the verge of
discovering) that it does not need U.S. dollars
as backing for the ruble’s exchange rate. Its
central bank can create the rubles needed to pay
domestic wages and finance capital formation.
The U.S. confiscations thus may finally lead
Russia to end neoliberal monetary philosophy, as
Sergei Glaziev has long been advocating in favor
of MMT.
The same dynamic undercutting ostensible U.S
aims has occurred with U.S. sanctions against
the leading Russian billionaires. The neoliberal
shock therapy and privatizations of the 1990s
left Russian kleptocrats with only one way to
cash out on the assets they had grabbed from the
public domain. That was to incorporate their
takings and sell their shares in London and New
York. Domestic savings had been wiped out, and
U.S. advisors persuaded Russia’s central bank
not to create its own ruble money.
The result was that Russia’s national oil,
gas and mineral patrimony was not used to
finance a rationalization of Russian industry
and housing. Instead of the revenue from
privatization being invested to create new
Russian means of protection, it was burned up on
nouveau-riche acquisitions of luxury British
real estate, yachts and other global
flight-capital assets. But the effect of making
the Russian dollar, sterling and euro holdings
hostage has been to make the City of London too
risky a venue in which to hold their assets. By
imposing sanctions on the richest Russians
closest to Putin, U.S. officials hoped to induce
them to oppose his breakaway from the West, and
thus to serve effectively as NATO
agents-of-influence. But for Russian
billionaires, their own country is starting to
look safest.
For many decades now, the Federal Reserve and
Treasury have fought against gold recovering its
role in international reserves. But how will
India and Saudi Arabia view their dollar
holdings as Biden and Blinken try to strong-arm
them into following the U.S. “rules-based order”
instead of their own national self-interest? The
recent U.S. dictates have left little
alternative but to start protecting their own
political autonomy by converting dollar and euro
holdings into gold as an asset free of political
liability of being held hostage to the
increasingly costly and disruptive U.S. demands.
U.S. diplomacy has rubbed Europe’s nose in
its abject subservience by telling its
governments to have their companies dump the
Russian assets for pennies on the dollar after
Russia’s foreign reserves were blocked and the
ruble’s exchange rate plunged. Blackstone,
Goldman Sachs and other U.S. investors moved
quickly to buy up what Shell Oil and other
foreign companies were unloading.
Nobody thought that the postwar 1945-2020
world order would give way this fast. A truly
new international economic order is emerging,
although it is not yet clear just what form it
will take. But “prodding the Bear” with the
U.S./NATO confrontation with Russia has passed
critical-mass level. It no longer is just about
Ukraine. That is merely the trigger, a catalyst
for driving much of the world away from the
US/NATO orbit.
The next showdown may come within Europe
itself. Nationalist politicians could seek to
lead a break-away from the over-reaching U.S.
power-grab over its European and other Allies,
trying in vain to keep them dependent on
U.S.-based trade and investment. The price of
their continuing obedience is to impose
cost-inflation on their industry while
relinquishing their democratic electoral
politics in subordination to America’s NATO
proconsuls.
These consequences cannot really be deemed
“unintended.” Too many observers have pointed
out exactly what would happen – headed by
President Putin and Foreign Secretary Lavrov
explaining just what their response would be if
NATO insisted in backing them into a corner
while attacking Eastern Ukrainian
Russian-speakers and moving heavy weaponry to
Russia’s Western border. The consequences were
anticipated. The neocons in control of U.S.
foreign policy simply didn’t care. Recognizing
its concerns was deemed to make one a
Putinversteher.
European officials did not feel uncomfortable
in telling the world about their worries that
Donald Trump was crazy and upsetting the apple
cart of international diplomacy. But they seem
to have been blindsided at the Biden
Administration’s resurgence of visceral
Russia-hatred by Secretary of State Blinken and
Victoria Nuland-Kagan. Trump’s mode of
expression and mannerisms may have been uncouth,
but America’s neocon gang has much more globally
threatening confrontation obsessions. For them,
it was a question of whose reality would emerge
victorious: the “reality” that they believed
they could make, or economic reality outside of
U.S. control.
What foreign countries have not done for
themselves – replacing the IMF, World Bank and
other arms of U.S. diplomacy – American
politicians are forcing them to do. Instead of
European, Near Eastern and Global South
countries breaking away out of their own
calculation of their long-term economic
interests, America is driving them away, as it
has done with Russia and China. More politicians
are seeking voter support by asking whether they
would be better served by new monetary
arrangements to replace dollarized trade,
investment and even foreign debt service.
The energy and food price squeeze is hitting
Global South countries especially hard,
coinciding with their own Covid-19 problems and
the looming dollarized debt service coming due.
Something must give. How long will these
countries impose austerity to pay foreign
bondholders?
How will the U.S. and European economies cope
in the face of their sanctions against imports
of Russian gas and oil, cobalt, aluminum,
palladium and other basic materials? American
diplomats have made a list of raw materials that
their economy desperately needs and which
therefore are exempt from the trade sanctions
being imposed. This provides Mr. Putin a handy
list of pressure points to use in reshaping
world diplomacy, in the process helping European
and other countries break away from the Iron
Curtain that America has imposed to lock its
satellites into dependence on high-priced U.S.
supplies.
But the final breakaway from NATO’s
adventurism must come from within the United
States itself. As this year’s midterm elections
approach, politicians will find a fertile ground
in showing U.S. voters that the price inflation
led by gasoline and energy is a policy byproduct
of the Biden administration blocking Russian oil
and gas exports. Gas is needed not only for
heating and energy production, but to make
fertilizer, of which there already is a world
shortage. This is exacerbated by blocking
Russian and Ukrainian grain exports, sending
U.S. and European food prices soaring.
Trying to force Russia to respond militarily
and thereby looking bad to the rest of the world
is turning out to be a stunt aimed simply at
demonstrating Europe’s need to contribute more
to NATO, buy more U.S. military hardware and
lock itself deeper into trade and monetary
dependence on the United States. The instability
that this has caused is turning out to have the
effect of making the United States look as
threatening as Russia.
Michael Hudson is President of The
Institute for the Study of Long-Term Economic
Trends (ISLET), a Wall Street Financial Analyst,
Distinguished Research Professor of Economics at
the University of Missouri, Kansas City.
The views expressed in this article are
solely those of the author and do not necessarily
reflect the opinions of Information Clearing House.
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