How the U.S. turned being in debt into power

SUPER IMPERIALISM: The Economic Strategy of American Empire by Michael Hudson (1972, 2003, 2021)

You’ve shown how the United States has run rings around Britain and every other empire-building nation in history.  We’ve pulled off the greatest rip-off ever achieved.  [==Herman Kahn to the author, in 1972]

The USA as a nation  consumes more than it produces, borrows more than it saves and imports more than it exports.

All the supposed laws of economics say that we should be bankrupt.  But instead we are the world’s dominant economic power.

Michael Hudson’s Super-Imperialism, written 50 years ago, explained how this came to be.  Almost everything he described is still in place today.

U.S. Treasury bonds have replaced gold as the world’s store of value.  The bonds don’t have to be repaid because they are treated as valuable in themselves.

Americans buy oil from Saudi Arabia or electronics from China, and pay for them with dollars.  The only thing of value these dollars represent is Treasury bonds.  So the dollars come back to the United States in the form of Treasury bond purchases, which makes it possible to sustain the twin deficits—the U.S. government budget deficit, and the trade deficit.

It is as if I could go to the grocery store or hardware store, pay for my purchases with IOUs and get the world to use the IOUs as if they were money without ever paying the IOUs off.

So as long as the world is willing to use the U.S. dollar as its basic currency, there is no upper limit on the United States ability to issue money to pay for its wars or bail out its failed businesses.

This has gone on for 50 years, and counting.  It stands to reason that it can’t go on forever.


Hudson’s book is in three parts.

The first part, covering 1917 to 1946, shows how the United States used its position as the world’s leading creditor nation to undermine its economic rivals, especially the British Empire.

The middle part shows how the United States set up the World Bank, the International Monetary Fund and other international economic institutions so as to lock in its dominance of the world financial structure..

The last part shows how the United States went from world’s leading creditor to world’s leading debtor, but in a kind of economic jiu-jitsu, leveraged its debtor status to maintain its economic supremacy.

There are brief epilogues bringing the story up to date, and an introduction that summarizes the main points of the book.  If you just read the introduction, you’ll understand the gist of the book.


Before the First World War, there were three main industrial powers.  They were Great Britain, the world’s first major industrial nation, ruler of the world’s most extensive empire and the world’s leading creditor and trading nation, and its two rising rivals, the United States and Germany.

The rising power of the USA and Germany was based on investment in infrastructure and public education and on tariffs and trade barriers to protect their growing industries.  Neither practiced fee trade.  The USA had the advantage of its rich endowment of fertile land and natural resources and its large internal market.

When the war broke out and especially after the United States joined it, American banks lent money to Britain and France to help finance the war.  The British and French were under the impression that the fact that aid was given in the form of loans were a mere formality in support of a common effort.  

Maybe that was the intention at the time.  But by the time the war ended, many Americans felt (with reason) that they’d been tricked into entering a conflict that was none of their business.  So there was no forgiveness or write-down of the war debts.

The British, French and other Allies complained they were treated like defeated enemies.  The Allied war debts were literally more than they could pay.  

Their only recourse was to squeeze reparations out of Germany, which were more than the Germans could afford to pay.  The result was a continuing financial crisis that all through the 1920s.  It only ended in 1931, when Britain, France and the other Allies repudiated their war debts.

Hudson wrote that the world, including the USA, would have been better off if the Allies had simply repudiated their war debts in 1917.  

American banks and investors would have issued new loans to finance the rebuilding of the European economies.  Ideally this would have created new customers to buy American exports.  Very possibly the economic crisis of the 1930s could have been avoided, or been less catastrophic than it was.

Michael Hudson wondered why the proud Europeans empires failed to resist.  They could have.  The USA would not have sent the Marines to occupy Britain and France, as it did Haiti, Nicaragua and other small debtor nations. 

His guess is that the Europeans believed their own rhetoric about the sacredness of debt obligations, which they had used as excuses for aggression against China, the Ottoman Empire and other weak countries.

Although the USA between the world wars was the dominant financial power,  it did not aspire to world leadership.  It merely pursued its perceived economic self-interest, refused to accept any limitations on its sovereignty and ignored the impact of its policies on the rest of the world.

President Franklin Roosevelt was no exception.  Despite his internationalist rhetoric, he was only concerned about the well-being of Americans, and willing to let the rest of the world go to the devil.  

His policy during the Great Depression was to help prices in U.S. dollars to rise, thus enabling American farmers, workers and business owners to pay their debts.

To do this, he took the U.S. dollar off the gold standard and allowed its value to fall in relation to other currencies, without any concern about the impact on other countries.  He also allowed U.S. tariffs to stand, which benefitted the United States but also contributed to “beggar thy neighbor” trade wars abroad.

FDR was, in his own way, an America Firster.

Michael Hudson

To me, the most shocking part of Hudson’s book was how the U.S. government took advantage of the economic vulnerability of Great Britain during and immediately after the Second World War to destroy it as a commercial rival.

Britain was economically weak. The U.S. did not activate its Lend-Lease aid program until Britain was on the verge of bankruptcy, including drawing down its gold reserves and allowing the sell-off of British businesses.

One of the conditions for Lend Lease was that Britain give up its Imperial Preference system, a kind of common market embracing Britain, its colonies and its Commonwealth partners.  The USA, however, did not lower its tariffs against British and other foreign goods.

Lend-Lease was cut off on the date of the Japanese surrender.  Britain then needed a loan to keep afloat.  The U.S. imposed hard terms, including Britain unblocking the use of British pounds by its trading partners.

Britain during the war had bought many supplies from its colonies, Commonwealth nations and other trading partners, on condition that the pounds not be exchanged for dollars or other currencies.  This meant that Britain could have earned those pounds back by exports to those nations.  

By forcing Britain to unblock the pounds, the U.S. replaced the British as a trading partner with these nations and kept Britain in a debtor status.

It took an impoverished Britain many years to recover from the war.  Britain went on bread rationing for the first time in 1946 and reduced its meat ration.  Many Britons ate whale meat.  I remember that food rationing was still in effect in Britain when I entered college in 1952.

By 1945, the United States was in an even more dominant economic position than in 1918.  It was by far the world’s leading manufacturing nation, the world’s leading exporting nation and the holder of most of the world’s gold reserves.  Unlike in the earlier era, the USA was prepared to assume the position of world leadership.

The U.S. dollar, having eclipsed the British pound, was to be world’s dominant currency, based on a fixed value of $35 per ounce of gold.  

Through Marshall Plan grants and loans, the USA would help Europe’s economic recovery.  Through foreign aid, it would help the economic growth of poor nations.  

They would gain more dollars to spend, and the result of this would be increased markets for U.S. exports—in theory and to some degree in practice, a win-win situation for all.

In separate chapters, Hudson described the workings of the World Bank, the U.S. foreign aid program, the General Agreement on Tariffs and Trade (later the World Trade Organization) and the International Monetary Fund.

All did business in dollars.  The World Bank, IMF and GATT  were structured to give the U.S. government the final say.  The World Bank and IMF were headquartered in Washington, for convenience.  All operated in the American interest.

Foreign aid was tied to purchases of American goods and services.  Hudson worked out that the U.S. actually gained a profit on its foreign aid.

Countries helped by these agencies were not empowered to become self-sufficient, but to fit into the existing pattern of U.S.-dominated world trade.  This was particularly true of agricultural policy.

When they were unable to pay off their loans, they were told to sell off national assets, privatize public assets, raise taxes, cut services and allow prices to rise and wages to fall.

So everything seemed in place to lock in American dominance indefinitely.  But then the USA started running balance of payments deficits.

The cause of the trade deficit was U.S. military spending, according to Hudson.  The amount of the deficit was almost exactly equal to U.S. military spending.

The French government under De Gaulle started exchanging its depreciating dollars for gold.  Other governments followed.  There was a real danger that the U.S. gold stock would be drained.

All through the 1960s, the U.S. government engaged in diplomatic arm-twisting to maintain the value of the dollar.  It demanded “voluntary” agreements to accept set amounts of U.S. exports and to limit their own exports to the U.S.  These agreements were one-way, Hudson noted.  The U.S. violated them at will.

None of these things worked.  Deficits rose and the U.S. gold supply shrank.  

Finally, in 1971, President Nixon and Treasury Secretary John Connelly took the U.S. off the gold standard.  

The world’s other leading economic powers—the European nations, Japan and the OPEC nations—then faced a dilemma.  If they allowed the dollar’s exchange rate to fall to its natural level, all their holdings in U.S. Treasury bonds and other dollar-denominated holdings would become worthless.  There would be a depression. 

Hudson said that if the United States had been subject to the same constraints as the World Bank and IMF imposed on other deficit nations, there would have been no Vietnam War and none of the U.S. “wars of choice” that came after.  Neither would any of these things have happened if the world had remained on the gold standard.

But because the other rich nations feared to stand up to the United States, American debts became a source of strength rather than weakness.  U.S. Treasury bonds replaced gold as a store of value.  The United States could issue Treasury bonds without limit and never have to pay them back.

Everything that has happened since 1971 has been an epilogue to what was done then, Hudson wrote.  

The question is why the rest of the world submits to this.  I would say the answer is to be found in the history, much of it unwritten, of U.S. diplomacy, U.S. covert action and U.S. military interventions.

Ironically, many in the American establishment did not fully realize what they had done until Hudson wrote the first edition of his book.  It was not a best-seller, but Hudson was invited to lecture bankers, Treasury officials and Herman Kahn’s RAND Corporation, a think tank that served the Pentagon and other government agencies.  He had intended it as a warning, but it became a “how to” manual.

The more recent edition of his book was published in Hong Kong and has drawn the attention of the Chinese establishment.  He is frequently asked to lecture there.


The period immediately following 1971 marked the end of growth in (inflation-adjusted) wages of American workers, and the transfer of wealth from producers to holders of financial assets.  I see no reason why this had to be.   Hudson did not go into this.  

The U.S. government had the means to invest in infrastructure improvements, scientific research, education and everything else needed to make the USA a rich, productive nation—although at the expense of the rest of the world.

Instead it chose to use its financial position to create the world’s most extensive and expensive military, to wage wars that took hundreds of thousands of innocent lives and to bail out failed banks and corporations.  This is diabolically evil.


One of Hudson’s mottoes is, “Debt that can’t be paid, won’t be paid.”

After World War One, war debts were greater than any nation’s ability to pay.  Default was inevitable, and it would have been better if it had come sooner rather than later.

The same is true now, Hudson says.  The world’s chief economic problem is that too little of its income goes to producers and too much to “rentiers”—non-productive owners of financial assets.  What’s needed is a debt jubilee that will write down the debt and make possible a fresh start.

Meanwhile, he says, nations such as China, Russia and Iran are busy disentangling themselves from the U.S.-dominated financial system and creating an alternative for the world.


This material is not entirely new to me.  Leo Panich and Sam Gindin covered much of the same ground in The Making of Global Capitalism and brought it up to date.  Adam Tooze did the same for a limited period in The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931.  Andre Gunter Frank explained how Chile and Brazil financed their own subordinate position in the world economy in Capitalism and Underdevelopment in Latin America.

What sets Michael Hudson’s book apart is his close look at policy decisions, how and why they were made and what the results were.  It was governmental policy, not market forces and not abstract entities such as “capitalism” or “neoliberalism” that made things as they are today.  

Hudson denies there is any such thing as an economy that operates based on its own internal dynamics.  Economics can’t be separated from politics and governmental policy, he wrote.


Michael Hudson web page.

Super Imperialism: the economic strategy of American empire with Michael Hudson, an interview for The Grayzone.

The Saker interviews Michael Hudson.

Michael Hudson Discusses Russia Sanctions Blowback on the Renegade.  [Added 03/23/2022]

NATO-Russia Proxy War: Revealing Signs of a Fading America, an interview of Michael Hudson for Global Research [Added 03/29/2022]

“Dollar Hegemony Ended Last Wednesday”: Michael Hudson interviewed by Margaret Flowers on Clearing the Fog.  [Added 03/30/2022]

On Michael Hudson’s ‘Superimperialism” & Debt Jubilee Propositions by Dr. Jack Rasmus. [Added 09/18/2022]

The video below is from Oct. 15, 2021

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One Response to “How the U.S. turned being in debt into power”

  1. How the U.S. turned being in debt into power — Phil Ebersole’s Blog | Vermont Folk Troth Says:

    […] How the U.S. turned being in debt into power — Phil Ebersole’s Blog […]


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