Posted by Ken Waldron on January 21, 2022, 11:43 pm
Is the plan to bankrupt Russia working?
The economic state of play is very different now to even just a few decades ago
Paul Robinson
Economic coercion is the West’s favourite tool to influence Russian behaviour. But with oil prices rising, Russia’s economy growing, and the West backing off from pledges to exclude Russia from SWIFT, this policy seems to have reached a dead-end.
In 2014, the Russian economy was struck by a double-whammy. First, the oil price collapsed. And second, Western states imposed a series of sanctions in response to events in Ukraine. The immediate impact on Russia’s economy was dire, sending GDP plummeting.
Economists had problems determining which was more responsible for Russia’s problems – the oil price or the sanctions – but most came down in favour of the former. Cheaper oil translated into a less valuable ruble, which increased the price of imports and created inflationary pressures. To this end, the Central Bank responded with higher interest rates, depressing demand and thereby GDP.
The economic crisis of 2014 created hopes in the West that Russia could be brought to its knees. Pundits predicted that cheap oil was here to stay. Beyond that, the introduction of so-called 'sectoral sanctions’, targeting Russia’s energy, financial, and military industries, was meant to strangle what were seen as the most vital sectors of the Russian economy.
It would not be long before Russia would be bankrupt, some claimed. Speaking in Ottawa in November 2014, former Russian Finance Minister Mikhail Kasyanov stated that within two years, Russia would have used up all its financial reserves and would have to severely cut government spending. The Russian people would then turn away from the government en masse. In the face of cheap oil and sanctions, the 'Putin regime’ was doomed.
It didn’t turn out that way. Sanctions had a rather marginal impact on the Russian economy. The government responded effectively by important substitution, providing financial aid to threatened sectors, and finding new sources of much-needed technologies (most notably China). This came at a price, but Russia weathered the sanctions storm quite well.
Rather than declining, Russian oil and gas production has remained steady. Moreover, the price of hydrocarbons has rebounded. This week, Goldman Sachs issued a prediction that oil would reach $100 a barrel by the end of the year, as the world economy recovers from the Covid-induced recession, and demand for oil and plastics increases. Suddenly, the picture is looking very different from what it did in 2014.
In fact, the Russian government is flush with cash. Russia’s international currency reserves hit a record high of $600 billion last year. Meanwhile, the country’s debt in relation to GDP is one of the lowest in the world – especially given that, much like other former Soviet states, much of its GDP is uncounted, off the books in the black and grey economies. This compares very favourably to Western states, who have borrowed on a massive scale during the Covid pandemic and are afloat in a sea of debt. It’s the West that is looking bankrupt, not Russia.
That’s not to say that all is well with the Russian economy. Inflation has risen to 8%, and the World Bank predicts that GDP growth will slow from 4.3% in 2021 to 2.4% in 2022. This is far below the rate Russia needs in order to catch up economically with the West. Still, it is growth, not decline. The Russian economy suffered much less than many other countries during the Covid pandemic and has recovered faster. Russia is perhaps not doing well, but it’s not doing immensely badly either.
All this undermines Western sanctions policy. If the purpose of sanctions was to punish, they haven’t succeeded. If it was to deter Russia from further “aggressive” acts against Ukraine, then it’s impossible to prove that they haven’t worked (given that one doesn’t know what would have happened in a universe without sanctions), but one has to doubt it. Given Russia’s success in riding out past sanctions, Russia has less reason to worry about them in the future. It has also reduced its dependency on the West. The deterrent value of sanctions is weak.
Unfortunately, rather than recognizing the pointlessness of sanctions, many in the West are now doubling down on them, allegedly as a means to deter Russia from invading Ukraine. Top of the list of proposed measures is excluding Russia from the SWIFT system that underpins international trade by facilitating financial transfers. If put into practice, this would make it very difficult for Russia to sell goods and services abroad, and as such it would be potentially very harmful.
The problem, however, is that it would harm many Western countries too. The Russians aren’t going to hand over oil and gas for free. If Russia were excluded from SWIFT, European countries that depend on Russian supplies, such as Germany, would find themselves deprived of energy to heat their homes and power their industries. American LNG could not make up the difference.
Understandably, therefore, people are having second thoughts. On Monday, the newspaper Handelsblatt reported that the German government had decided SWIFT should not be part of any future sanctions against Russia. If this is true, then the most significant threat against Russia has been removed.
In any case, were Russia to decide to invade Ukraine, it would be because a decision had been made that vital national interests were at stake. At that point, only military threats could deter the Kremlin from action, not economic ones. But Western states have ruled out fighting to defend Ukraine. In short, the idea that Russia can be deterred is a fallacy.
In practice, all these threats do is annoy. For some in the West, that’s enough. Writing on Saturday in the Toronto Star, veteran anti-Russia campaigners Bill Browder and Marcus Kolga claimed that the fact Putin was annoyed by sanctions was proof they were working. But this is a silly argument. Sanctions are meant to change the target’s behaviour in a way that suits the sanctioner. But it’s hard to see how angering your target translates into him behaving in a way that suits you. More likely, the result is the opposite.
The past few years show that the idea Russia can be economically coerced into political concessions, or so crippled that its population rises up against the government, is completely mistaken. Western policy is thus at an impasse. Today Russia enjoys high oil prices, vast reserves in the bank, and the knowledge that the West can’t follow through with its worst threats without severely damaging itself. Western threats are not, therefore, very meaningful. If we want Russia to act in a manner more suiting our own interests, we need to find a new approach.
Paul Robinson, a professor at the University of Ottawa. He writes about Russian and Soviet history, military history and military ethics, and is author of the Irrussianality blog. He tweets at @Irrussianality.
Russia wasn't defeated by Napoleon or by Hitler despite being invaded by history's most massive and effective military forces - which the US and the West now has but a faint shadow of. . It's a proud, patriotic, historic, and generally cohesive society with robust political and legal institutions, massive material and energy resources, energy and food self-sufficient (indeed large exporter of grain), having undertaken a large and generally effective effort at import substitution of machinery and important technical products - all with an autocratic commander, true, but many stable countries have autocratic commanders. And this autocratic commender can totally rely on his citizens to support him when threatened by a foreign agency. That's what patriotic citizens do. This is in stark contrast with the chaotic state of the decaying US. The idea from the US and the "West" that sanctions would bring down Putin or materially affect Russia is yet another ridiculous political premature ejaculation of the US neocons . Did sanctions work in Cuba, Iraq, Venezuela, much weaker countries than Russia.
There's a Russian exile in the US, Dmitri Orlov, who has been writing for a number of years about the collapse of the USSR (note, not Russia) and the impending collapse of the USA. A now deleted contributor to this site, Rhisiart Gwilim, would regularly refer readers to Orlov's pages .However, the bulk of Orlov's writing is now behind a paywall (Patreon), but here's his introduction to one recent article
2022: The Year the US achieves Collapse Phase Lock
2021-12-21
I have been studying the forthcoming collapse of the USA for 25 years and publishing books and articles on this subject for the last 15, with good results: CCCP 2.0 is developing quite nicely. The 30-year reprieve which the US was granted thanks to the collapse of the USSR has now expired, every effort at imperial expansion since then (Afghanistan, Iraq, Syria, Libya and the “suicide belt” of Eastern Europe) has been a total failure. Meanwhile a reborn Russia, backed by much of the rest of Eurasia, is now turning the tables and ordering the US around in perfectly undiplomatic terms. And now this: Barbara Water of US San Diego recently appeared on CNN to explain that the US is now in a zone of high risk for political violence and civil war.
And what this means is that the US has finally achieved Total Collapse Preparedness. Let us look into the details of this.
He obviously thinks that the Empire is digging it's own grave and says so humorously. Meanwhile, Orlov has moved to the right imo in the last couple of years since leaving the US and also says things like this:
Mother Russia will no longer allow a bunch of useless non-Russian ingrates to suckle at her ample bosom.
He is referring to non-Russian parts of the USSR. It may be true in terms of the economy at that time, but he forgets the contribution of the 'ingrates' during the WW2 when they were defending the USSR. I am not talking about Estonia, Latvia, Lithuania etc. These were just the 'newly created' buffer zones post-WW2, that sided with nazis during the war. It's kinda Russian bigotry.
Back to Ukraine crisis, I was listening to Radio 4, 'Any questions?' whilst driving - no, I don't normally listen to it, but it was a long drive and I thought I might learn something. Did I learn!?, my, the audience and the politicians were absolutely clueless of what is really happening, completely brainwashed by, ahem, media. Astonishing:
I found Orlov's writing here florid and discursive and difficult to follow his reasoning. His flights of fancy didn't seem to make much sense to me. As I wrote above, there ar two simple reasons that Russia won't become bankrupt - first being that sanctions never achieve this , and secondly Russia's economy and politics is robust enough for sanctions to make little difference in any case. Because Russia's economy is bit isolated from the rest of the planet's, it's the nation most like to survive any major world-wide crash. (A little bit of autocracy is quite useful in this sort of crisis) And in this, I include China, who's economy is built on very shaky foundations of over-leveraged debt, is grossly over-stimulated and is itself the centre of the hyper-globalisation house of economic cards, that it is one of the most vulnerable countries around (excluding perhaps the UK) So the idea that China is going to be some great economic and global power to rival or overtake the US is very simplistic and probably wrong. The two could well collapse together. .
You mention: I include China, who's economy is built on very shaky foundations of over-leveraged debt, is grossly over-stimulated and is itself the centre of the hyper-globalisation house of economic cards
See this where Michael Hudson discussing China's economic issues:
Use word-search to locate Everglade. It illustrates how China has dealt or will be dealing with debt. It's a completely different method to the one USA uses. Thus thinking US and China would collapse in tandem doesn't seem likely to me.
Another reason why China is not buckling under US trade sanctions/pressure is that they are diversifying internal economy and investing in global South via BRI etc.
Note: Had to drastically cut down on number of words in this post, so transcript in the link is better i.e. parts below are for illustration only ...
Super Imperialism: The economic strategy of American empire with economist Michael Hudson BEN NORTON AND MAX BLUMENTHAL·OCTOBER 19, 2021
BEN NORTON: Hello, everyone, this is Moderate Rebels live. I’m Ben Norton. As always, I’m joined by my co-host, Max Blumenthal. And today we have back one of our most popular guests, one of our favorite guests, Professor Michael Hudson.
People probably know who he is. He is a prominent economist, a very unique thinker. He has written several books not only on economics, but also on history and human society. He’s an expert on balance of payments, and debt, and a lot of topics. And today we’re going to talk about a new edition of his book that was just published. We actually had Professor Hudson on over a year ago to talk about his legendary book Super Imperialism. He actually just published a new edition of it. You can see here, Super Imperialism: The Economic Strategy of American Empire.
And he just published the third edition. It just came out. So we wanted to have him on to talk about why Professor Hudson updated this book that he published back in the 1970s. This is now the third edition.
The second edition was published in 2002 or 2003, at the beginning of the so-called War on Terror. And I think it’s pretty appropriate, Professor Hudson, we can begin with this – I think it’s pretty appropriate that your first edition of Super Imperialism was published after Richard Nixon took the dollar off of gold in the early 1970s.
And then the second edition was published after 9/11 and the beginning of the War on Terror, which represents a kind of new phase of imperialism. And then finally, your third edition here was just published, and your new edition encompasses the new cold war.
The final chapter talks about the increasing economic competition between the US on one side and China and Russia on the other side. And you talk about the move toward a “de-dollarized multi-polar economy.” So can you talk about the differences in the editions and how they reflect the changes in US super imperialism, the system that you described back in the 1970s? MICHAEL HUDSON: Well, the first edition was published in September of 1972, 13 months after President Nixon took the dollar off gold. And everybody was worried that, oh, without gold, how are we going to control the world? How are we going to control Europe? Because we’re losing all the gold.
Because the entire balance-of-payments deficit in the 1950s and the ’60s and early 70s came from military spending. And they thought that if you had to lose your gold stock, which was the source of world power, as a result of military spending, how can you control the world?
Well, what I wrote was that there was a new means of controlling the world and going off gold had actually locked in America’s control, because now that it had forced other central banks not to buy gold, what were they going to do? All they could do was recycle the dollar surpluses they were getting into U.S. Treasury bonds. Because that’s what central banks bought; they would buy Treasury bonds.
So then what I said was that all this deficit coming from the military spending abroad is going to be recycled to the United States by central banks who have to recycle their money into dollars, otherwise their currencies are going to go way up, and that will price their exports out of the market, and it’ll make their economies basically overvalued.
So to keep down the value, they buy U.S. dollar securities, and America would not let some by big companies; it wouldn’t let them buy anything important, only U.S. Treasury bonds.
So the irony is that the larger the balance-of-payments deficit became, the more money was recycled into financing the U.S. budget deficit, which also was largely military.
Well, I thought that this was going to be a warning to other countries. And indeed, there was a very quick Spanish translation and Japanese translation. But the main purchases, as we’ve talked about a year ago, were the CIA and the Defense Department.
Immediately Herman Kahn hired me to the Hudson Institute and gave a very large grant for me to explain to the government how imperialism was working. And the U.S. government used this as a how-to-do-it book.
Well, it went out of print, and Pluto Press offered to make a new addition, but it had hundreds and hundreds of typographical errors, and I didn’t like the reset. And I was going to live with that until I began to work in China, 10 or 15 years ago, and the Chinese government wanted me to do a new version to upgrade it as a key to how they can de-dollarize.
And from their point of view, they want to see how they can decouple not only from the United States, but from the West. They don’t look at there as being any competition between China and the United States, certainly not industrial competition. The United States decided it was going to de-industrialize, because its corporations could essentially hire cheaper labor abroad than they could hire in the United States.
The United States has got so debt-oriented and so privatized. Since the Reagan Revolution, the American economy was Thatcher-ized, and that made it a high-cost economy.
The cost of housing has gone way up. The cost of medical insurance has gone way up. The debt burden has gone way up. And America has now priced itself out of the market.
So China and Russia look at America as an object lesson, as how do we avoid here having the dynamic that occurred in the United States. It doesn’t have anything to do with capitalism versus socialism or other isms. It has to do with the basic dynamics of debt.
And China realizes that, ok, we’re going to do make our economy productive in the way that the United States and Germany did in the 19th century. It’s a mixed economy. And as a mixed economy, we’re going to have the government provide the basic utilities at a subsidized rate, instead of letting them be privatized, so that we can have a low-priced economy.
And the most important public utility to China, as it was to Russia, is to keep money creation, banking, and credit in the public domain. So right now, you’ve seen the problems and the news about the Chinese company [Evergrande] getting into trouble. And in America, if the largest real estate corporation like BlackRock were to go under, that would bring down the banks; it would bring down everything. It doesn’t doesn’t have a ripple in China, because the the debts are owed to the government, and the government can simply write down the debt.
It can decide what to do, to protect the home buyers who put money into buying apartments low. It can tax away the land rent to prevent the housing from being essentially financialized. So China is trying to de-financialize its real estate, de-financialize its industry.
It’s not a rivalry with the United States; it’s a rejection of the whole neoliberal structure that the United States has put in place.
And what I discuss and Super Imperialism is how the World Bank and the International Monetary Fund were created as a means of imposing a neoliberal, anti-government structure on the world to prevent other countries from regulating their industry or from regulating their agriculture.
The function of the World Bank basically was to make Third World countries, the Global South, dependent on the United States for their food supply, by only funding export agriculture, export plantation crops, not growing their own food.
The function of the IMF was to use debt leverage to force other countries to impose austerity on their populations, and to essentially say we will control what government you have, because if your government does something that the United States officials don’t like, we’re just going to raid your currency, force of austerity on you, and you’ll be voted out of power.
So essentially, the United States, what it calls the international organizations, as if this is a world organization, is actually a very nationalistic tool of the United States to distort the agriculture and industry and commercial development of other countries, to serve U.S. interests and specifically U.S. financial interests.
And the mode of control, obviously, is not military anymore; it’s financial. And Super Imperialism is about how America is different from European colonialism by controlling the world financially and covertly, politically, not by military force.
And yet all of this requires an enormous subsidy of foreign countries that are now decoupling from the dollar and no longer giving America the free ride that it has been getting since 1971, when all governments could do with their balance-of-payments surpluses were to buy Treasury bonds. Now they’re buying gold. They’re buying each other’s currencies. They’re doing everything except holding dollars. And that’s the big change in the world.
So when the Chinese ask me to rewrite this book for their audience – and I spend a lot of time with China – I thought, well, I’m going to fix up Super Imperialism; I’m going to re-edit it; I’m going to include some episodes that I didn’t include before; and I’m going to show how the framework of international relations has been transformed in a way that isn’t being discussed in the press.
BEN NORTON: Professor Hudson, you said something there that, not necessarily to push back, but to complement your analysis, you said that it’s no longer about military domination, but financial. I would say it’s both, and that they are kind of two sides of the same coin that reinforce each other. One of the points that you make throughout the book is that the U.S. military occupies many parts of the world, including it has occupied Japan since 1945, Korea since the 1950s, the early 1950s; there are troops in Germany and many other countries.
So the US military presence clearly in Afghanistan and Syria right now and Iraq, it’s still a huge part of it, but complementing that, you point out in your book, is that those U.S. military occupations are essentially paid for by the country that is being occupied by the U.S. military.
Can you explain how that works? And how that that scheme – you keep calling it in your book, again and again, a free lunch, that the U.S. has a free lunch; it has accomplished an economic scheme that no other country was able to accomplish. Can you explain how that still operates today?
MICHAEL HUDSON: Well it’s not that the country that is hosting the troops is paying; it’s the payment-surplus countries in general. It’s Saudi Arabia; it’s Germany; it’s the prosperous countries that are paying.
Here’s what happens. And here’s what happened during the Vietnam War. And here’s what was not in the Vietnam Papers that McNamara asked for. When the United States spent money in Vietnam, or when it spends it now in the Near East or the 800 military bases it has, these dollars go into the domestic economy. And when you’re in Japan and Korea, what do you do? You turn these dollars, you make an export, you get the spending – you turn it in for domestic currency to your central bank.
The central bank now ends up with these dollars that are thrown off by American military spending. And what is the central bank going to do with the dollars? Well, central banks – America told Japan already in the 1970s, when Japan was basically funding, 22 percent of the entire U.S. budget deficit was funded by Japan in 1986.
And America said, look, we’re not going to let you buy any major company. We’re going to let other, former whisky sellers, the Seagram people buy DuPont, but we won’t let you buy DuPont, because you’re Japanese.
We’re not going to let you buy a company. You can buy Rockefeller Center, and lose a billion dollars on it. You can buy a Pebble Beach golf course. But really, you’re going to have to take the money that you’re getting in Japan for the US exports, and you’re going to have to invest it in Treasury bills. Otherwise, we’re going to impose punitive tariffs against you and we’re going to do something you don’t like.
Because remember, you Japanese, you’re the yakuza, you’re the crooks that we put in power to fight the socialists to make sure Japan didn’t go socialist. You’re the gangs. You’re going to do what we say. And Japan did exactly what the United States told them to do, recycled its auto export earnings and electronic exports to help finance the US balance-of-payments deficit and the US budget deficit simultaneously.
So it was Japan, Germany, France, other countries that ended up with all these dollars that are spent abroad.
For instance, the money America spent in Vietnam, because that was French Indo-China earlier, the money was all sent to French banks. And General de Gaulle would turn in the dollars being thrown off by the army in Vietnam to buy gold every month, much to their embarrassment. Germany did the same thing with this dollars.
So basically, America wants the ability to say we have one power, we can wreck your economy. If you don’t do it, we say, we can make you look like Libya, we can make you look like Iraq, and we can tear you up. We can make you like Afghanistan. We have one power. We don’t have economic power. We don’t have productivity. We don’t have competitive power. But we can destroy you, and we’re willing to destroy you, because otherwise we’re going under.
And we’re not going to feel safe unless we have the power to destroy you and prevent you from having the power to fight back and protect yourself.
So it can only do this if it can control the financial system that recycles all of this military spending abroad in the United States, otherwise America would have to either print the money or tax its corporations and people, which would make it even more high cost.
So America essentially has painted itself into a corner as a result of its military spending. It has lost its industrial advantage. It has lost its international competitiveness. And the only thing that it has left to do is the power to destroy, if other countries don’t essentially surrender their economies to control by the US, pretending to be objective and non-nationalistic by saying, we’re not controlling you, the the World Bank is controlling you, the IMF is controlling you, the international organizations are controlling you. But it’s a double standard. And my book shows how this double standard has perverted these seemingly international organizations into nationalistic arms, basically, of the Defense Department and State Department.
MAX BLUMENTHAL: Professor Hudson, you write in Super Imperialism about how the United States, coming out of World War Two, was facing a balance-of-payments problem. It had a surplus and it managed to resolve this problem through a cold war, in which it moved into deficit spending in order to promote foreign export markets and world currency stability.
I wonder if you can expound on that and maybe take us into the new cold war and the economic rationale for a very different United States, arguably a declining empire that has agitated a new cold war.
MICHAEL HUDSON: Well, in 1944 and 1945, it was apparent that the war was going to be over, and the United States had gained power since World War One, essentially by staying out of war and by building up its own industry.
So the United States essentially structured the post-war world so that it would increase its economic power. And indeed, from 1945 to 1951, the United States increased its balance, its gold supply, to three-quarters of the world’s gold, monetary gold, all in the United States.
Well, this was a problem for the US, because Europe and other countries said, well, wait a minute, we’ve been on the gold standard now for a century, but we’re not going to be impoverished if you can have all the gold, but we’re going to go in a different standard.
This is what the discussion between John Maynard Keynes and the American Treasury was all about at the end of World War Two. Europe said if you’re going to have all the gold and control the money, we’re not going to operate without money, we’re just going to go off gold. That’s how we de-dollarize, by going off gold, and the dollar was as good as gold.
So the United States then decided to go to war in Korea, and the Korean War, from 1950 to 1951 onwards, every single year, the balance-of-payments deficit got worse and worse, and the entire balance-of-payments deficit was military. So American military spending was actually welcomed by other countries because they said, oh, now we don’t have to create a new monetary system and go it alone. Now we can still earn enough dollars that we can finance our own economic growth. And they were amenable to staying in the American economic orbit.
BEN NORTON: Professor Hudson, sorry to cut you off really quickly, but I just want to underscore a point that you make in your book that I think is crucial to understand this transition you’re talking about.
You say in the book that, before World War Two, and immediately after World War Two, around that time period, from the 1920s into the 1940s, the U.S. was a global creditor.
But then the point you make is that after the Korean War, when the Cold War began getting hot, and the U.S. began waging these these proxy wars against the Soviet Union and China and other socialist and communist forces, in Korea and Vietnam and other parts of Southeast Asia, your argument is that from the ’50s on, the U.S. went from being the global creditor to the global debtor, so a major shift.
MICHAEL HUDSON: Yes. The difference is that the American debt to foreign countries is a debt that it never expects to pay, because how is it going to pay? The debt is owed by the U.S. government to other governments.
BEN NORTON: In the form of treasuries, Treasury bonds.
MICHAEL HUDSON: Treasury bonds. Yeah, exactly. And this debt is basically created by military spending. So America has been able to control other countries by issuing its money.
The debt that America has is the money of other countries. The central bank reserves that they hold in dollars in Treasury bonds is counted as their monetary reserves for their own economy. So just like the American dollars you have in your pocket are technically a debt of the U.S.
Treasury, these dollar bills or five dollar bills or 50 dollar bills, nobody expects them to be repaid, because if they were repaid, they wouldn’t be any more money.
BEN NORTON: And no one can force the U.S. to repay them because of the U.S. military. So at the end of the day, the reason that the U.S. can have this global debtor status is because no one can invade it.
MICHAEL HUDSON: That was the case until recently. Well, you know, it’s true that the United States cannot repay its debt because it doesn’t have enough gold to repay. And it’s not going to repay in the way that Latin America or other countries repay, by selling its industry.
It’s not going to pay its foreign debt by saying, ok, why don’t you take that Amazon? Why don’t you take General Motors? Why don’t you take Boeing? You know, we’ll pay by giving you the industry just like we’ve made you countries give us your industry when you’re in debt.
America simply isn’t going to do that. But other countries don’t have to ask to get repaid for their dollars. They can say, ok, we’re not going to hold dollars. So China has decided we want to just minimize our holdings of dollars, except for what we need for trading on the foreign-exchange markets to keep the exchange rate stable. Russia is avoiding dollars. Iran is the avoiding values. Obviously, Venezuela is avoiding dollars, because anything that Venezuela holds, the U.S. can simply grab their accounts.
So other countries are afraid to have their gold in the United States. Even Germany has said send us back the gold that we have on deposit at the Federal Reserve. We don’t trust you anymore. Give us our gold.
Everybody is dumping the dollar, and nobody wants to be repaid. The dollar now is like a hot potato, and nobody wants to hold it except pliant satellite economies of the United States that don’t want to upset the United States because of the power, bribery power if nothing else, that the United States has over European politicians, Asian politicians, all the overt support that the United States can wield.
But other economies are just dumping the dollar. And so all these dollars are being turned in to hard currency, each other’s currencies, gold, each other’s industry, real economic means of production.
And so now we’re winding down the whole free-lunch system of issuing dollars that will not be repaid. It’s as if you’re going to the grocery store and you give them an IOU and then they ask, well, you know, you ran up a bill last month and you owe us 50 dollars. We have your IOU.
And you say, well, you give this IOU to your dairy suppliers, or your vegetable suppliers, just use it as money, we’ll pay someday. And somehow your IOU that you got something for just gets used as other people’s money.
Well, that’s what the United States does on a global scale.
BEN NORTON: Professor Hudson, another point that that you addressed recently, a few minutes ago, also in your book you call food imperialism, is the role of the International Monetary Fund, the IMF, and the World Bank in trying to make other countries dependent on U.S. food exports.
In the new chapter, in your updated Super Imperialism book, you refer to this as “U.S. food imperialism versus a new international economic order.” So can you explain your argument? MICHAEL HUDSON: Well, the World Bank ideally was supposed to make loans for other countries to earn dollars. In other words, so they could buy American exports of things. But the most central element of American diplomacy for the last 80 years has been to promote U.S. farm exports.
So the World Bank did not make any loans to Chile or Venezuela or Latin America to increase their own food supply. You have to buy your grain and your basic food from the United States.
We want to develop your agriculture, but we will only develop export crops because you are a tropical country that can be exported, that we can’t grow in the United States, palm oil or whatever, coffee, bananas.
We’re going to promote plantation crops, not food supply, so that countries have become more and more dependent on the U.S. for food. And that means that the United States can do to other countries what it tried to do to China after Mao’s revolution.
It can say, well, you had a revolution, we don’t like. We’re going to put sanctions on you and we’re not going to export any more food to you. Now, you can starve if you don’t reject Mao’s revolution and thank Chiang Kai-shek.
Well, Canada broke that. Canada said, well, if America won’t sell you the grain, we’re going to sell you the grain. So that that broke it. Other countries are now realizing in order to be independent and prevent the U.S. from “Your money, or your life” threat, they’re all growing their own food. They’re all being independent.
The United States two years ago, more than two years ago, thought that it was going to really hurt Russia by putting sanctions on agricultural exports to Russia, and said, boy, now you’re going to suffer.
So all of a sudden, the Baltic countries couldn’t export cheese or other things to Russia. What Russia did was say this is the most wonderful thing that has happened. Now we can develop our own agriculture.
Russia is now producing its own cheese, that it used to get from Lithuania. Russia is now the largest agricultural exporter in the world, and displaced the United States.
So the result of the United States trying to hurt Russia and make it a dependent has actually forced Russia to become independent in food and immune from the U.S. food threat.
It still has the food threat over Latin America. And that’s why when Hillary went down to Honduras and the Honduran president [Manuel Zelaya] wanted to develop Honduran agriculture, immediately Hillary had a coup d’etat, had the army take over in a coup d’etat and establish a dictatorship that promised the United States not to grow its own food, but to remain dependent on the United States.
So the United States could feel secure, secure that it could starve Honduras to death if Honduras didn’t do what it wanted, and was dependent on the U.S. for food.
That’s the kind of food strangulation that the United States has sought through every country. And it has used the World Bank and the IMF and the international banking system to impose sanctions, and to only make loans for industries and agriculture and sectors that do not compete with the United States, but actually end up serving the U.S. economy as inputs.
So other countries are turned into economic and trade satellites of the United States. That’s the aim of the U.S. control of the World Bank, the IMF. And that’s why the United States will not join any organization in which it does not have veto power. It insists on being able to veto any policy of other countries acting in their own interests independently of the United States, or in ways that do not actually enable the United States to be the main beneficiaries of foreign countries’ growth.
MAX BLUMENTHAL: That’s what we call the “rules-based order.”
MICHAEL HUDSON: Right. That’s exactly right. MAX BLUMENTHAL: We make up the rules, and order everyone around. Mafia rule.
And ironically, after Hillary’s sort of instrumentalized coup in Honduras, her husband – or right before Hillary entered the State Department, her husband had apologized for destroying Haiti’s indigenous food economy, basically its ability to produce rice, so that they would import rice from his home state of Arkansas.
So yeah there’s a certain irony there. We also saw, in WikiLeaks cables, Hillary go down to Haiti and demand that they cancel a massive pay hike of sweatshop workers from something like 37 cents an hour to 45 cents an hour, which is consistent. We’ve also seen the release of Meng Wanzhou, I guess she is the CFO or COO of Huawei, a Chinese tech firm. And I think this is relevant to the conversation here.
A key facet of the U.S. great power competition with China revolves around tech. And you write how, you describe how in the post-war period, the U.S. sought to foster dependency not only with food, but also with military wares and specifically technology.
And now you have a situation where the U.S. is being outpaced by China in 5G and demanding that the U.K. ban 5G.
So what is happening here? How will the U.S. fare in a world where it can no longer foster dependency on its own technology? And what will it do to remedy the situation?
MICHAEL HUDSON: Well when you say technology, what you really mean economically is economic rent, monopoly rent. And America cannot compete on the basis of cost for industry. It can’t compete in a profit-making industry because there aren’t profits.
You can’t make a profit if your labor costs, and your economy, and your transport costs, and your health costs are so high. But you can make a monopoly rents.
And the function of technology for the United States is to make other countries obliged to pay anything that the the large information technology and high tech companies can charge.
So the technology sector is really a monopoly sector, and it wants to keep it monopolized. The problem is that no country for the last 5000 years has been able to keep a monopoly.
You remember that maybe 3000 years, 2000 years ago, China had a monopoly in silk. And then Marco Polo and Catholic priests brought back silkworms to Italy and began the Italian silk. I guess that was 1000 years ago.
So you can try to get a temporary monopoly on technology, like from Google or from Apple, but ultimately, you can’t really prevent other countries from doing it. So the United States essentially has not been doing much innovation. Let’s take IBM as an example. IBM was really the first high-tech company that was made a monopoly, but it wasn’t very imaginative. It had to be told by insurance companies to go and begin making computers in the late ’30s and to develop it. By the 1960s, IBM was using about $10 million a year to buy back its own shares. And Google and Amazon are spending hundreds of billions of dollars every year now to buy back their own shares, not to invest in new technology, in research and development, in developing new technology and 5G technology, and the other technology that China is developing.
But when China is a mixed economy, the public and private sector together, when it is trying to develop the technology sectors that are the mirror image of Google and other things, like TikTok replacing Facebook, they’re doing it much better because they’re not trying to make capital gains in stocks.
The purpose of technology, to China, isn’t to increase the price of the stock in the companies that make it. They’re trying to lower the cost of production and develop new technologies to develop their technology better.
So obviously, China is getting a lead. The United States has made a policy decision: We don’t need a lead; all we need to do is establish a monopoly rent. And let China get way ahead of us. Let it be more efficient. Let it be more lower cost. Let it be more modern.
As long as we have enough satellites in Europe and Latin America, and in Asia, to promise only to buy U.S. goods, they’ll buy high-cost, less efficient, American 3G or 4G technology, and let China and its Belt and Road Initiative countries develop 5G. So we’re really having a technological divergence in the world. America, living in the short term, wants to have high-priced, hit-and-run, very quick profits for Facebook and Google and the others, while China’s trying to look at the long run and develop an actual technological economy that will create a new non-dollar trading and currency area, that will be independent of U.S. Threats. And America in 10 years can tell China, well, we are not going to let you use Facebook or Google anymore. China can say that’s fine. We have our own systems. They work much better. We’ll go our own way.
BEN NORTON: Professor Hudson, there’s another really interesting part of your book Super Imperialism, well you talk about this throughout, but specifically one of the arguments you make is that one of the primary U.S. economic competitors after World War One, well, during and after World War One, and then leading to World War Two, leading to the end of the British Empire, was England, was Britain, the British economy. Can you talk about how essentially the U.S. helped to collapse the Sterling Area? And for people who don’t know, explain what the Sterling Area is, how the U.S. helped to collapse that. And then also, the point you make in the book in the last chapter, is how the U.S. did something similar to another so-called ally, to Japan, how in the 1980s, the U.S. basically waged a kind of economic war against the Japanese economy, which permanently crippled it. Japan had had been one of the largest economies in the world, and it has never really, truly recovered from that. So can you talk about how the U.S. has waged economic war not only against its adversaries, but even so-called allies like Britain and Japan? MICHAEL HUDSON: The number one U.S. enemy has always been its closest friend, its closest rival. It fought against England, and then France. And they were getting a free lunch through the Sterling Area and the Franc Area in the following way: England’s colonies had to do their banking in England. They had to keep the savings in England. The government had to keep all of its revenues in England. So when World War One broke out, England simply told the government, give us a gift of all of your money. Mass famine in India, mass starvation, because England just grabbed the money that India had in sterling. Well, during World War Two, there wasn’t much international trade, and so raw materials producers – India, Argentina, and other countries – had maintained close connections with England. And there weren’t many consumer goods to buy. Countries had to be self-sufficient. But India, Argentina, and the Sterling Area countries had to keep all of their money in sterling. The United States insisted that, number one, that sterling balances that were held by India and other countries be allowed to be spent outside of sterling. You couldn’t tie the sterling balances to say they have to be spent in England. And that was what the sterling balances were before. England says, ok, you’ve got a lot of savings here in England in sterling; you have to spend that money on British goods and British companies. You have to keep within the English economy. Not only did the Americans say, first of all, no country can limit its spending to say you have to keep the money in your former colonial power. But it insisted as a condition to lending England the British Loan – in 1944, England was desperate by the last year of the war. It needed food. It needed supplies. It needed industry. And America said, we’re going to make you a loan, called the British Loan, but as a result, you’re going to have to keep your own pound sterling at five dollars a sterling. You’re going to have to keep it at a high price. You’re not going to be able to devalue it in order to compete with us. And England, as a result, from 1945 to about 1950, had to take this huge overvalued sterling, so that there was no way that English companies could compete with American companies.
And America was able to undersell England and grab the Indian market, the Argentine market, the market for almost all the countries that had been within the Sterling Area, and undersell it. So America had essentially gained control of Britain’s domestic financial policy by insisting that this policy be set in Washington, not in London. ........... The U.K. is seeing record gas prices, too. And global supply chains are what we would call verkakte.
And I don’t know if you want to address that, but the U.S. economy is just seeing massive, massive amounts of workers being financially disempowered, a downwardly mobile middle class, endless printing of money, and more wealth for this very – I mean, it’s not even the 1 percent; it’s like the 0.1 percent percent – and it’s beginning to plague Biden through inflation. MICHAEL HUDSON: Well that is happening, but not in the way you described. The Federal Reserve has hardly spent any money into the economy at all. MAX BLUMENTHAL: Well in the banking sector. MICHAEL HUDSON: It’s printing trillions and trillions of dollars, more money, more essential credit than ever before, but all of this credit has gone into the stock market and the bond market and the packaged loan market. It’s all gone for assets that the 1 percent of the economy hold. It has financed asset price inflation, not domestic inflation. The domestic inflation is something that comes not from an increase in the money supply, but from supply shortages. And this is a result of the neoliberal management philosophy that corporations have. In order to increase their reported profits, they have cut costs wherever they could. And one way they found of cutting costs is to minimize inventories. 80 years ago, every company would have enough inventory on hand so that if there was an interruption in its imports, in its raw materials, in the supplies that it needs, it has enough to get by. But the corporate managers said let’s have something called just-in-time inventory. That is, if we need a part, we’re not trying to order it six months in advance and hold it in a warehouse; we’ll just pay for it that day and order it. And all of the companies together in the United States thought, the economy is going to shrink, we don’t need any inventories, because everybody is going to be poor. They thought they were going to be poor, because they were making the economy poor, by predatory practices that they were following. They were getting rich by impoverishing the economy. They thought the economy couldn’t buy what they produce, so they didn’t need any inventories. Well, all of a sudden, they ran out; they depleted all of the inventories. And there were huge, huge orders, in China, in Asia, in Japan, in Korea, for electronics exports, for chips, for everything else. And now you see, the price of shipping has multiplied tenfold. It costs 10 times as much to ship a container from China to New York today than it did a year ago. So what is happening is a shortage from just the neoliberal, really socially incompetent management of American corporations. Other companies throughout the rest of the world have tried to, they keep inventories; they’re not having this problem. This is unique only the United States is not. It’s not people are richer and have so much more money; it’s that there’s a shortage. In the case of housing, which has gone up – it’s the most rapid increase, over 10 percent in the last year, that’s essentially because BlackRock has said, the era of rising into the middle class by getting home ownership is over. Our ideal here at BlackRock is the 19th-century ideal; really, it’s the 14th-century ideal. It’s the landlords. We want to turn the American economy away from a home ownership economy into a renter’s economy. And if we had BlackRock and our fellow landlords can monopolize the control of housing, and bid it all the way, we all of a sudden will have a monopoly in housing costs. We can raise it 10 percent this year, 10 percent next year. And the banks are going to lend to us to buy out all of this real estate at 1 percent or 2 percent, and they’ll charge 3 or 4 or 5 percent to other people. All of a sudden you’re going to have a concentration of home ownership in the hands of large corporations. And the middle-class ideal of home ownership is going to be squeezed out. The other major growth is in pharmaceuticals and medical care. It’s way up, medical insurance, 10 or 15 percent. The one thing that corporations in America are willing to fight to the death for is to prevent socialized medicine, to prevent public health. Because they realize if we can prevent public health in America, then workers, the American population is going to have only one way of getting health care and avoiding the threat of bankruptcy if they get sick. .... And then the price of gas and also oil just skyrocketed recently. And now there’s a huge demand in Asia, and largely because countries in East Asia have for the most part recovered from the coronavirus pandemic.
So now Europe has a huge shortage of gas and oil, and they’re of course blaming Russia, and they’re doing all the typical things that they do. But the irony is that it’s the same kind of short-term neoliberal philosophy that you’re talking about, where the bankers who run the European Commission said, we don’t need contracts; we don’t need long-term deals; we can just buy everything short term every single day by day or week, week by week in the spot market.
MICHAEL HUDSON: Well, I think you’re talking also about the Nord Stream Two pipeline that the Germans and the Europeans were blocking. So when a European politician said we would rather all starve in the dark than have to buy from the Russians, what they mean is, we would rather take the bribes that we’re getting into our bank accounts from the Americans. We would rarely get the high prices and all of the support from the Americans, and let our 99 percent of the population starve, so that we can get rich off what the Americans are paying us to starve the Europeans of energy and freeze in the dark, just so that Russia won’t get get the payment for this. So obviously, Russia is thinking, well, it can now sell all the gas that it wants to China. At some point, it’ll decide, if Europe doesn’t want to buy our gas, if it’s not going to open the Nord Stream Two pipeline. The pipeline is all there. All they have to do is open the pipeline, and the price of gas will come down. .... MAX BLUMENTHAL: I wanted to go back to some comments you made earlier about the U.S. and Japan and how the U.S.’s best allies are often it often get treated as its worst enemies. This kind of reminded me of the AUKUS deal and France. The former French ambassador to Washington, I think his name is Gerard Araud, commented that after this deal, where France was basically stabbed in the back – it had what, like I don’t know the dollar sum, BEN NORTON: Over $60 billion. MAX BLUMENTHAL: Over $60 billion in diesel subs to Australia. And the deal was canceled after it was inked, apparently because the U.S. just stepped in with more advanced nuclear subs. And Araud said we need to return to a de Gaullist policy; we need a neo-de Gaullist policy. I wanted you, professor, to weigh in. Just give us your thoughts on AUKUS, on the deal, what it signals for the new cold war, but also for U.S.-French relations and the U.S. treatment of Europe. And maybe you could remind us what happened when de Gaulle tried to collect on what he was owed. MICHAEL HUDSON: Well, the English language is an enormous language, and it’s always expanding the words. And one of the new terms that is come into the English language about two years ago, a year or two ago, was a translation from the Russian: non-agreement capable. In other words, just like a Trump wrote the bestseller The Art of Breaking the Deal, that’s become the American policy: we can break any deal we want, because we can make our own reality. That’s what the neocons said: We make the deal, but we can make our own reality. So the United States, and Australia – U.S. satellites would have a deal with France to say we’re going to buy a submarine. But the Americans could say, wait a minute, buy our submarines, because we need our companies would rather make profits in dollars than have you order something from France that will make profits for French companies. So without telling France at all, it told Australia, just break the deal. And Australia essentially – it is not well known, but the prime minister actually lives in a basement of the Pentagon in Washington. MAX BLUMENTHAL: I thought they just kept his brain there in a jar. MICHAEL HUDSON: Well it is in a jar. MAX BLUMENTHAL: What exists of it, anyway. MICHAEL HUDSON: At any rate, Australia has never been known to do anything that America or London didn’t want. Well, once Australia actually elected a socialist prime minister, and all of a sudden the British representatives said, no, you’re not allowed to elect anyone the queen of England doesn’t recognize; you have to cancel the election. And they did. They didn’t say we want to be free of England. They said, oh, ok, who should we elect? And America told England to tell Australia to elect. So Australia is hopeless. But at any rate, this led France to say, we have been double crossed again. We want to look at, just like Germany, we want to look at making better deals with Russia. We can see that one part of the world is growing: China, Russia, the mixed economies, not the oligarchy, the financialized economies. So they’re shifting. And when you say what happened to de Gaulle – well, in May, I guess, was it [1968] – de Gaulle had been cashing in the dollars he was getting from America’s spending in Southeast Asia, he was cashing them in for gold. So America, the CIA, bragged that it had organized the big May riots in Paris. And the riots led to de Gaulle being replaced by a more left-wing party that was thoroughly under the control of the United States. So obviously, the French are worrying, ok, if we try to follow a policy of turning east, of turning towards Russia, China, and the mixed economies, with active governments instead of banks, America is going to try to do to us what it did not only to de Gaulle, but it did to Italy after World War Two, getting rid of the communists; Greece after World War Two, assassinating the communist leadership; essentially just coming and in every country, trying to interfere and meddle in elections. So they’re trying to prevent the United States from using the Green Party in Germany’s turn, following the U.S., with a very nationalistic anti-Russian, pro-American position. So Europe is realizing, breaking away from dependence on the United States, breaking away from letting the United States have all of the European surplus, and telling us to freeze in the dark and to impoverish ourselves, just so that U.S. neocons can create a world – breaking away is not going to be a pretty sight. They’re going to do to us what Hillary did the Honduras, and what and what Obama did to Libya. And we have got to be prepared for that. But at a certain point, we we just get tired of surrendering. At a certain point, we just can’t live this way anymore. And that’s the point at which Europe is maybe five years away from realizing. BEN NORTON: Well, that’s a good image, and I think it’s important to stress that point, that these policies that Washington carry out abroad always come back home, they always come back home. And just wrapping up here in the last few minutes. But that this actually reminded me, Professor Hudson, have you heard of this book by this French executive, Frederic Pierucci, who wrote this interesting book called The American Trap: My Battle to Expose America’s Secret Economic War Against the Rest of the World? It’s a very interesting book. This guy Frederic Pierucci, he was previously was an executive at the French transport company Alstom. And the U.S. government accused him of so-called corruption. And he was kind of the first case of like a Meng Wanzhou, before Meng Wanzhou, a few years before her. He was arrested actually in the United States, and he was held as what he claimed to be an “economic hostage.” And this is the beginning of this campaign we now see against Alex Saab from Venezuela, Meng Wanzhou from China, and also there’s a North Korean businessman whom the U.S. is trying to imprison. And what’s interesting is the Washington Post did a story about this book. Here’s the Washington Post article; it’s titled “An unlikely winner in the U.S. trade war: A French businessman’s book about his battle with the DOJ.” And here’s the translation of The American Trap.
So I haven’t read this book; I want to get a copy of it. But essentially, from the summaries that I’ve read about this book, The American Trap, he argues that the U.S. has been carrying out a kind of economic war against French companies, in the same way it carried out those policies you explained against Japanese companies in the 1980s. MICHAEL HUDSON: That’s probably true. I have not heard of the book; nobody sent me a copy. I don’t know about it.
But it seems that that’s the American modus operandi. It tries to prevent any real competition.
People talk about the Thucydides problem as if there’s a competition. The United States wants to prevent any competition.
Hudson was very good but as usual I ignored the others
most of the time. I'm hoping that the price drops before my birthday.Clio the cat, ? July 1997 - 1 May 2016 Kira the cat, ? ? 2010 - 3 August 2018 Jasper the Ruffian cat ? ? ? - 4 November 2021
Russia is always one of 2 things: (a) a superpower, (b) a superpower in remission..
on January 21, 2022, 11:43 pm