|
RE: [ERANet] Michael Hudson on Debtor Power
|
John Perkins
|
Nov 24, 2003 16:59 PST
|
It seems that this book puts a lot of emphasis on financial transactions as
the primary driver of world income and wealth. I would say this empashsis
is misplaced. It what happens in the real economy, (production,
consumption, imports, exports) that primarily determines imcome and wealth.
Finance is more like the grease for the wheels - it is needed, otherwise
they sieze up, but it is not what drives them.
The US and others made a lot of mistakes in the interwar years, and as
Hudson apparently says, they paid for them in the depression, more than
anyone else. After WWII the policy was completely different and America
poured money into Europe under the Marshall Plan, and the result was
several decades of steady growth in prosperity. If the book ignores this
then it is a complete dud.
Currently the US is going into deficit in trade and in the government
budget. This is not a conspiracy against the rest of the world. It is more
a by-product of their misplaced assumption of world imperial domination via
military means. If they start to get inflation and have to put up interest
rates, they will pay for it. This will not really benefit anyone because
surprising as it may seem, the world economy is a game of cooperation just
as much as it is a game of competition.
John
(Doug, post this to ERAnet if you like)
At 12:44 22/11/03 +1000, Doug Everingham wrote:
| | Relayed by Doug Everingham
from Economic Reform Australia network
--------------
Attachment Converted: "c:\eudora\attach\image.tif"
I don't know if ERANet has discussed Michael Hudson's book 'Super
Imperialism, The Origin and Fundamentals of US World Dominance', 2nd
Edition, Pluto Press, 2003.
It is worth reading. I will try to provide a brief summary of its major
|
points.
| |
The USA entered World War I late - 1917 - by which time the European powers
were reaching the end of their financial tether, and the Allies -
particularly Britain - were deeply in debt to the USA.
At the end of the war - 1918 - the USA insisted that the Allies immediately
begin repaying their debts with interest. This put pressure on the Allies
to take a harsh line with Germany apropos reparations. An ugly triangle
developed, with German authorities borrowing from private US sources so as
to be able to pay Germany's reparations to the Allies who, in turn, used
this revenue to repay their debts to the US Government.
Hudson comments: "In the history of warfare no ally had requested such
payment for its military support. The provision of arms to allies, by
universal custom, had been written off as a war cost. ..." [p 50]
Hudson makes it plain that the USA wanted to destroy Britain as a dominant
world power, and to take its place. His basic overview is neatly summarized
in a paragraph from p 58 of the book:
"These years of postwar recovery were of comparative prosperity for most of
Europe. Yet the burden of Inter-Ally debt imposed by the United States
compelled the governments of Europe, Allies of the United States during
World War I, to impoverish their national treasuries, to run deeper and
deeper into debt, to deprive their industries of needed credits, to limit
their export potentials and to leave a clear field for the United States to
grow as a world power to any extent and in any direction its government
desired. These were the years when the United States was given - and earned
- the name Uncle Shylock. The policy of compelling the European Allies -
ultimately Britain - to continue after the war to meet capital and interest
charges on war debts to the United States was a political aggression of the
first magnitude, in violation of the implied promises made during the war
by the United States to its allies."
The climax of Uncle Shylock's creditor spree [economic warfare?] was the
Great Depression:
"During 1928-29 the circular flow of payments between the United States and
Europe began to break down, first by a slowing down in US private purchases
of foreign bonds when investments increased domestically in response to the
stock market boom; then by the market collapse which erased lendable
assets; and finally by the Great Depression, itself the product of the
impossibility of pyramiding debt to infinity. The first great swelling of
intergovernmental claims came to an end in bankruptcy on a world scale."
[pp 66-7]
Hudson describes the buildup to World War II on pp 112-3:
"It would be false to say that the United States provoked World War II out
of malice or out of knowledge of the results of insisting on repayment of
its war debts by a world utterly unable to repay them. It is true, however,
that no Act [Trade Agreements Act of 1934] contributed more to the genesis
of World War II than the intolerable burdens that the United States imposed
on its allies of World War I and, through them, on Germany. Every US
administration from 1917 through the Roosevelt era employed the strategy of
compelling repayment of these war debts, above all by Britain. The effect
was to splinter Europe so that the continent was laid open politically as a
possible province of the United States.
Private finance capital could not have achieved that end, especially as the
United States disarmed after World War I. The division and immiseration of
Europe could achieve it, had the world not tumbled into a depression. Not
only did the United States not escape the Great Depression, it became the
principal sufferer from a collapse of its own creating, as a result of its
highly debt-leveraged economy. It came to recognize that it needed export
markets to maintain full employment and prosperity, and that bleeding
Europe dry by over-indebting it was counter-productive.
The first great foray of US governmental finance capital into world power
politics thus ended in ignominious failure, and ultimately in a war of
dimensions vaster even than World War I. ... America had learned a basic
lesson in power politics. ... Money was the lifeblood of nations. A
creditor overwhelming on international account could control the pulse of
nations. A powerful nation, as usurer, could dominate the actions of
equally powerful nations as debtors."
The US's campaign for economic dominance continued relentlessly, showing no
mercy to anyone, including its most powerful military allies. The
international institutions set up by the Bretton Woods agreements
facilitated the onward march towards global dominance. The basis of this
dominance was the US's status as the world's supreme creditor. After the
Korean War and as the US became bogged down in the Vietnam War, it became
clear that the US was sliding inexorably from being a super creditor to a
debtor. It was going to lose the foundation of its dominance.
Hudson first introduces the concept of "debtor's power" on p 118:
"The debtor's power lies in the ability to threaten the system, bringing
down the creditors by their default. Once this wrecking power is
recognized, the debtor is able to lay down the law. America has used this
strategy for the past thirty years, but the Third World, the former Soviet
Union and other debtor economies still have not grasped it. European
nations had not a hint of this potential power in the 1930s. Much like
Third World countries in modern times, they subjected themselves to an
economic depression from which they were rescued only by war spending. It
proved easier to go to war than to join together to create an alternative
financial system."
On pp 339-340 Hudson gives a succinct account of the Nixon Administration's
strategy for wielding debtor's power:
arrange for:
• "apparent weakness of the dollar", with
• "corresponding firming of other currencies",
• accelerate "the outflow of dollars", and
• "force the central banks of other countries to pick up the short-term
debt of the United States, by
• including this debt among their reserve banking assets".
If the strategy worked, then
• "the huge overseas debt of the United States would cease to exist for
all practical purposes, at least as a debt that was expected to be paid".
I will provide a selection of further quotes to flesh out the picture of
debtor power.
"In August 1971, President Nixon made the gold embargo an official pillar
of his New Economic Policy. The suspension of gold convertibility did
indeed force Europe to choose between holding dollars (mainly in the form
of Treasury Bills) or dumping them and thereby permitting the dollar to
find its own level - a de facto US devaluation. This made the US payments
deficit - that is, the world's dollar surplus - not a US problem but one
for Germany, Japan and other payments-surplus nations." [p 349]
"American strategists recognized that the excess dollars being thrown off
by the US payments deficit were being converted into marks and yen to force
up the price of one currency after another. This financial instability
threatened to render trade agreements unworkable, for the only way to
defend against US devaluation advantages would have been for foreign
governments to compartmentalize their currency and trading systems,
arranging barter deals to protect against shifting currency relations, and
even to enact floating tariffs and export subsidies. US strategists doubted
that Europe and Asia would take these steps, and they were proved right.
Foreign economies ended up supporting the dollar rather than risk the
monetary anarchy threatened by US actions.
The aim of US policy was to continue running deficits for as long as
possible. ... The Americans saw that only a world monetary crisis could
bring the free ride to an end. ... It was clear that the greater role
played by foreign trade and investment in the economic life of foreign
countries meant that such a crisis would hurt them more than the United
States. The threat of triggering a world monetary breakdown accordingly
became the US bludgeon with which to threaten the world as the dollar glut
intensified during 1972 and 1973." [p 348]
On p 363 Hudson quotes the New York Times of 1973-02-21:
"From the end of 1969 to the fall of 1972, the United States covered the
$45.5 billion increase in its dollar liabilities to other countries simply
by requiring that the other nations add that amount of dollars to their
monetary reserves [i.e., invest this amount in US Treasury Bills]. American
officials think this dollar standard works tolerably well, and are in no
hurry to change it. Some Europeans complain that the ability of the United
States to create international monetary reserves by printing dollars gives
it a free ride on foreign policy - and, in effect, has forced others to
finance such American adventures as the Vietnam war. The Europeans see this
ability of the United States to get credit without international
constraints as an 'exorbitant privilege,' in the words of the late General
de Gaulle. Some still regard an international credit system controlled by a
single country as 'a great obstacle in the way of perpetual peace,' as
Immanuel Kant wrote in 1795. Prof. Robert Triffin of Yale notes that Kant
also said: 'The other States are justified in allying themselves against
such a State and its pretensions.' "
"... the United States is now able to run trade and payments deficits
amounting to hundreds of billions of dollars annually with no audible
protest from the rest of the world." [p 377]
"Since the nation went off gold in 1971, the Treasury bill standard has
enabled the United States to draw on the resources of the rest of the world
without reciprocation, governing financially through its debtor position,
not through its creditor status. As dollar debts have replaced gold as the
backing for central bank reserves, and hence for the world's credit supply,
the entire system would be threatened if questions into its intrinsic
unfairness were reopened.
No nation ever before has been able to invert the classical rules of
international finance. Economies that have fallen into deficit have lost
not only their world power, but usually also their autonomy to manage their
own domestic policies and retain ownership of their public resources and
their central bank's financial policy. This is still the financial and
political principle they must follow. Yet US diplomats have been able to
convince Europe, Asia and the Third World - and since 1991 even the former
Soviet Union - to reorient their economies to faciliate America's evolution
from payments-surplus to payments-deficit status.
How has America been able to achieve this quid without the quo, something
for nothing, a free subsidy from the world's payments-surplus nations? For
one thing, the rationale for acquiescence has shifted from an early
post-war faith in American moral leadership and the rhetoric of free
markets to the fear that the United States will plunge the world into
crisis if it does not get its way." [pp 377-8]
On p 381 Hudson expresses what appear to be deeply held principles of how
bona fide governments should run their affairs for the long-term benefit of
their peoples. He expresses these in the guise of advice that the World
Bank should have given to Russia, and other countries:
• "to tax natural resource rents and the public domain rather than letting
these revenues be taken by insiders and sent abroad as capital flight" -
economic rents from:
• "public enterprises",
• "the land, and its mineral wealth",
• "the radio spectrum" and
• "other natural monopolies"
"which could have saved governments from having to tax labor and capital."
On p 382 Hudson explains that the prevailing pathological system cannot be
remedied without the abandonment of "the existing world specialization of
production and fiscal malstructuring" which he warns "would involve
immediate short-term losses and economic dislocations", although these
"losses in the short term pale in comparison with the long-term costs of
not breaking with the existing system".
Why is it that the leaders/rulers of nations fail to appreciate such logic?
Perhaps a quote from p 266 - apropos why Britain capitulated so readily to
American Inter-Ally debt demands after World War I - gives a clue:
"The main reason seems to be that it put its domestic class and property
bias over international considerations, as did other European nations.
Previously, foreign policy had tended to take the lead in shaping domestic
policy. This was how Europe's central governments usurped the rights of
paramilitary democracy during the period of colonial empire-building,
1870-1914. But now the reverse was true. Europe placed its notions of the
sanctity of debt - in this case its own debts, behind which lay ultimately
the idea of property itself - above the goal of maintaining its own
national economic independence and viability. The result fragmented the
European continent, forcing its nations to act selfishly, one by one, as a
penalty for not having acted in concert vis-à-vis the United States."
In other words, the selfishness of the haves transcends the well being of
nations.
Better stop there, I think.
I hope this email is not so fragmented that it destroys Hudson's important
message.
Alan Kerns
To unsubscribe from this group, send an email to:
ERANet-un-@yahoogroups.com
|
|
|
 |
|
