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.

The hour of maximum danger for U.S. democracy

The hour of maximum danger for U.S. democracy, or what will be left of it, will be when other nations rebel against the power of the U.S. dollar.   That will be when the United States is most in danger of a would-be Hitler or Mussolini.

The power of the U.S. dollar is what gives Washington the means to be a great economic power despite huge trade deficits and a hollowing out of American manufacturing.  It provides the means to maintain the world’s most expensive military.

It gives Washington the means to wage economic warfare against nations such as Iran, Venezuela and Russia, and to force poor nations to sacrifice the well-being of their people to foreign creditors.

But the power of the U.S. dollar is a legacy of a past when the U.S. was the world’s leading industrial nation, leading creditor nation and leading exporting nation.   Now the dominance of the dollar rests on the fact no nation’s leaders are both brave enough, and lead a nation that is strong enough, to defy the dollar system.

Benjamin Carter Hett wrote in The Death of Democracy that many European nations turned to fascist and right-wing dictatorships as a result of military defeat, which discredited the established governments, and strong Communist and revolutionary movements, which caused the middle classes to look for protectors.

German democracy survived for a time, but was pushed over the brink by onset of the Great Depression, which the established government was unable to cope with.

The conditions will exist in the United States following the crash of the U.S. dollar.  The U.S. government will no longer be able to raise money by borrowing in foreign markets.  Lack of borrowing power will mean it no longer will be able to pay for a world-wide network of military bases.

At the same time, the military will have to pay more for imported electronics components, imported oil and other supplies, including uniforms.  The fall in value of the U.S. dollar will make U.S. manufacturing costs cheaper in relation other currencies, but it won’t be able to fix the lack of manufacturing capacity.  And it will make investment in new manufacturing capacity more expensive.

The sudden collapse of U.S. military power without a military defeat would open the way to a “stab in the back” myth, comparable to the one about Germany’s defeat in World War One.

The buying power of U.S. workers will fall and the prices of merchandise, so much of which is directly or indirectly dependent on foreign supply chains, will fall.  There will be a crash in the U.S. financial markets and real estate markets.  Many workers will strike.  Many citizens will turn to the streets in protest—probably very few that are explicitly Communist, but who knows?

The passing scene: Links & comments 11/20/14

Gandhi vs. the Mafia by Jesse Walker for Reason.

More than 900 Sicilian business owners, most of them in Palermo, have successfully defied the Sicilian Mafia and refuse to pay protection money.  It is an example of the success of the tactic of mass defiance, as pioneered by Mohandas K. Gandhi and explained by Gene Sharp.

The power of a small organization such as the Mafia to compel the obedience of large numbers of people is based on the fact that the masses of people are divided and the Mafia is united by powerful bonds of loyalty.  But if great masses of people decide together, all at once, that they will not submit, no matter what, their oppressors cannot kill them all.

I’m reminded of the words of Alexander Solzhenitsyn, the great Russian novelist and dissident.  “Don’t believe them, don’t fear them, don’t obey them.”  And the words of Solidarity Forever.  “The union makes us strong.”

Why the US has the most powerful currency on the planet by Matt Phillips for Quartz.

The American dollar replaced the British pound as the world’s currency of choice after World War One, when the United Kingdom became a debtor nation and the USA became the world’s greatest creditor nation.   Now the USA is a debtor nation, but the world’s business is still done in dollars.

Matt Phillips wrote that the dollar maintains its position because of the inconvenience of shifting to another currency.  I would add that if nations start to sell off dollar-denominated holdings, such as U.S. Treasury bonds, in large amounts, this will cause the exchange value of the dollar to fall against other currencies.

Holders of dollars wouldn’t want the value of the dollar to fall.  But once it starts to fall, they wouldn’t want to be caught at the last ones holding dollars.  If and when the world abandons the dollar, the fall could come very quickly.

The Norovirus Demagoguery Starts Here by Mike the Mad Biologist.

The Norovirus causes gastroenteritis and kills an estimated 570 to 800 Americans a year, as well as causing 56,000 to 71,000 hospitalizations, 400,000 emergency room visits and 1.7 million to 1.9 million visits to physicians.

One of the main ways it spreads is by infected and obviously sick people working in restaurants.  As Mike the Mad Biologist notes, mandatory sick leave for restaurant workers would be a good public health measure.