Michael Hudson explains what’s really going on

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Michael Hudson is an economist whose books make clear how the United States exercises financial power over the whole world, and escapes the consequences of government budget deficits and balance of trade deficits.  In his most recent book, The Destiny of Civilization, he explains how the U.S. free ride may be coming to an end.

He laid all this out in the podcasts above.  He said the Biden administration is speeding up the inevitable U.S. decline.   Here’s an excerpt from the transcript: 

My job at Chase was to analyse basically the balance of payments of Third World countries and then of the oil industry.  I had to develop an accounting format to find how much does the oil industry actually makes in the rest of the world.  I had to calculate natural-resource rent, and how large it was.  I did that from 1964 till October 1967.  

Then I had to quit to finish my dissertation to get the PhD.  And then I developed the system of balance-of-payments analysis that actually was the way it had been calculated before GDP analysis.  I went to work for Arthur Andersen and spent a year calculating the whole U.S. balance of payments.  

That’s where I found that it was all military in character.  And I began to write in popular magazines like Ramparts, warning that America’s foreign wars were forcing it to run out of gold. That was the price that America was paying for its military spending abroad.

I realised as soon as it went off gold in 1971 that America now had a cost-free means of military spending.  Suppose you were to go to the grocery store and just pay in IOUs.  You could just keep spending if you could convince the owner, the grocer to use the IOU to pay the farmers and the dairy people for their products.  What if everybody else used these IOUs as money?  You would continue to get your groceries for free.

That’s how the United States economy works under the dollar standard, at least until the present.  This is what led China, Russia, Iran and other countries to say that they don’t want to keep giving America a free ride.  

These dollarized IOUs are being used to surround them with military bases, to overthrow them and to threaten to bomb them if they don’t do what American diplomats tell them to do.

That led already a few years ago to pressure to de-dollarize the world economy and make it multipolar, not simply an extension of the U.S. military, U.S. investors, mining and oil companies.  

The post-dollar aim was for other countries to keep their economic surplus among themselves to promote their own economic growth, instead of imposing IMF dictated austerity programmes to impose austerity so that they can pay foreign dollarized bondholders.

Just about everybody thought that it would take many years for China, Russia, Iran, India, Indonesia and other countries to get their act together and create an alternative.  But this year the Biden administration itself destroyed America’s free ride for the dollar.  

First the United States grabbed Venezuela’s foreign exchange, then Biden grabbed all of the foreign exchange of Afghanistan, just confiscated it.  

And then a month ago he confiscated $300 billion of Russia’s foreign exchange reserves.  He said, in effect, that we are the leading democracy in the world, and global democracy means that America’s military gets to appoint foreign president.

And so we don’t like the person you’ve voted in as president for Venezuela.  We’re going to hire this little nitwit that we bought out, Juan Guaido, and appoint him president.  To force you to accept this, we’re going to take away all of your gold reserves held in the Bank of England, and we’re going to give it to Mr. Guaido as our nominee for the bastion of democracy, to do what a democratic regime is supposed to do: hiring terrorist groups to kill all land reformers and labor leaders, to finance a neo-Nazi takeover like we did in Chile under Pinochet, and just like, we’ve done in democratic Ukraine with our funding neo-Nazis to fight against the Russians there.

This confiscation of foreign reserves and foreign money held in U.S. banks shocked the rest of the world.  Nobody had believed that countries would actually grab other countries’ financial savings.  If you go back to the wars in the 19th century, the Crimean War and others, countries would continue to pay their foreign debts.

All this was ended by President Biden rejecting the international rule of law.  He said that “We have a ‘rules-based’ order, in which we can make up the rules. Number one, we are exempt from the rules. Only you have to follow them.  Number two, the rules are whatever we say.”

China, Russia and India would have taken years by themselves to denominate their trade in their own currencies.  Biden’s money grab has impelled them to create a new economic order independently of the United States and Europe, whose euro and sterling are satellite currencies of the United States.

The videos are a bit long, and so is the transcript, but if you care about this topic, I think you’ll find the effort worthwhile.  Michael Hudson is a clear and enjoyable speaker.   Here’s a link to the transcript, followed by other links.

Michael Hudson Talks About Almost Everything with Jonathan Brown on Naked Capitalism.

The American Empire self-destructs by Michael Hudson.

Michael Hudson on finance, real estate and the powers of neoliberalism.  His web page.

Tags: Financialization, MIchael Hudson, U.S. dollar