Wednesday, November 29, 2017

Michael Hudson — Monetary Imperialism

This article is adapted from the German edition of Super-Imperialism (2017).…
It's a fairly long article. Here are some highlights in summary.
The U.S. response has been to extend the new Cold War into the financial sector, rewriting the rules of international finance to benefit the United States and its satellites – and to deter countries from seeking to break free from America’s financial free ride.
Aiming to isolate Russia and China, the Obama Administration’s confrontational diplomacy has drawn the Bretton Woods institutions more tightly under US/NATO control. In so doing, it is disrupting the linkages put in place after World War II.
The U.S. plan was to hurt Russia’s economy so much that it would be ripe for regime change (“color revolution”). But the effect was to drive it eastward, away from Western Europe to consolidate its long-term relations with China and Central Asia.…
To U.S. strategists, what made changing IMF rules urgent was Ukraine’s $3 billion debt falling due to Russia’s National Wealth Fund in December 2015. The IMF had long withheld credit to countries refusing to pay other governments. This policy aimed primarily at protecting the financial claims of the U.S. Government, which usually played a lead role in consortia with other governments and U.S. banks. But under American pressure the IMF changed its rules in January 2015. Henceforth, it announced, it would indeed be willing to provide credit to countries in arrears other governments – implicitly headed by China (which U.S. geostrategists consider to be their main long-term adversary), Russia and others that U.S. financial warriors might want to isolate in order to force neoliberal privatization policies.…

Since World War II the United States has used the Dollar Standard and its dominant role in the IMF and World Bank to steer trade and investment along lines benefiting its own economy. But now that the growth of China’s mixed economy has outstripped all others while Russia finally is beginning to recover, countries have the option of borrowing from the Asian Infrastructure Investment Bank (AIIB) and other non-U.S. consortia.
At stake is much more than just which nations will get the contracting and banking business. At issue is whether the philosophy of development will follow the classical path based on public infrastructure investment, or whether public sectors will be privatized and planning turned over to rent-seeking corporations.…
 American strategists evidently hoped that the threat of isolating Russia, China and other countries would bring them to heel if they tried to denominate trade and investment in their own national currencies. Their choice would be either to suffer sanctions like those imposed on Cuba and Iran, or to avoid exclusion by acquiescing in the dollarized financial and trade system and its drives to financialize their economies under U.S. control.
The problem with surrendering is that this Washington Consensus is extractive and lives in the short run, laying the seeds of financial dependency, debt-leveraged bubbles and subsequent debt deflation and austerity. The financial business plan is to carve out opportunities for price gouging and corporate profits.…
This policy threat is splitting the world into pro-U.S. satellites and economies maintaining public infrastructure investment and what used to be viewed as progressive capitalism. U.S.-sponsored neoliberalism supporting its own financial and corporate interests has driven Russia, China and other members of the Shanghai Cooperation Organization into an alliance to protect their economic self-sufficiency rather than becoming dependent on dollarized credit enmeshing them in foreign-currency debt.
At the center of today’s global split are the last few centuries of Western social and democratic reform. Seeking to follow the classical Western development path by retaining a mixed public/private economy, China, Russia and other nations find it easier to create new institutions such as the AIIB than to reform the dollar standard IMF and World Bank. Their choice is between short-term gains by dependency leading to austerity, or long-term development with independence and ultimate prosperity.

This policy threat is splitting the world into pro-U.S. satellites and economies maintaining public infrastructure investment and what used to be viewed as progressive capitalism. U.S.-sponsored neoliberalism supporting its own financial and corporate interests has driven Russia, China and other members of the Shanghai Cooperation Organization into an alliance to protect their economic self-sufficiency rather than becoming dependent on dollarized credit enmeshing them in foreign-currency debt. 
At the center of today’s global split are the last few centuries of Western social and democratic reform. Seeking to follow the classical Western development path by retaining a mixed public/private economy, China, Russia and other nations find it easier to create new institutions such as the AIIB than to reform the dollar standard IMF and World Bank. Their choice is between short-term gains by dependency leading to austerity, or long-term development with independence and ultimate prosperity.

This policy threat is splitting the world into pro-U.S. satellites and economies maintaining public infrastructure investment and what used to be viewed as progressive capitalism. U.S.-sponsored neoliberalism supporting its own financial and corporate interests has driven Russia, China and other members of the Shanghai Cooperation Organization into an alliance to protect their economic self-sufficiency rather than becoming dependent on dollarized credit enmeshing them in foreign-currency debt. 
At the center of today’s global split are the last few centuries of Western social and democratic reform. Seeking to follow the classical Western development path by retaining a mixed public/private economy, China, Russia and other nations find it easier to create new institutions such as the AIIB than to reform the dollar standard IMF and World Bank. Their choice is between short-term gains by dependency leading to austerity, or long-term development with independence and ultimate prosperity.

This policy threat is splitting the world into pro-U.S. satellites and economies maintaining public infrastructure investment and what used to be viewed as progressive capitalism. U.S.-sponsored neoliberalism supporting its own financial and corporate interests has driven Russia, China and other members of the Shanghai Cooperation Organization into an alliance to protect their economic self-sufficiency rather than becoming dependent on dollarized credit enmeshing them in foreign-currency debt. 
At the center of today’s global split are the last few centuries of Western social and democratic reform. Seeking to follow the classical Western development path by retaining a mixed public/private economy, China, Russia and other nations find it easier to create new institutions such as the AIIB than to reform the dollar standard IMF and World Bank. Their choice is between short-term gains by dependency leading to austerity, or long-term development with independence and ultimate prosperity.
The price of resistance involves risking military or covert overthrow. …
This is not how the Enlightenment was supposed to evolve. The industrial takeoff of Germany and other European nations involved a long fight to free markets from the land rents and financial charges siphoned off by their landed aristocracies and bankers. That was the essence of classical 19th-century political economy and 20th-century social democracy. Most economists a century ago expected industrial capitalism to produce an economy of abundance, and democratic reforms to endorse public infrastructure investment and regulation to hold down the cost of living and doing business. But U.S. economic diplomacy now threatens to radically reverse this economic ideology by aiming to dismantle public regulatory power and impose a radical privatization agenda….
 Counterpunch
Monetary Imperialism
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

See also
The Obama administration sparked controversy in Congress and the national security world when it announced in late 2016 that it would spend more than $8 million dollars to purchase Iranian heavy water, a nuclear byproduct, in a bid to keep the Islamic Republic in line with restrictions on these materials imposed under the nuclear agreement....
After leaving the door open to additional purchases, senior Trump administration officials confirmed to the Free Beacon on Wednesday that the U.S. government would no longer engage in these nuclear transactions with Iran, a major policy shift that sources say is part of an effort to crackdown on Iran's access to U.S. funds.
Lawmakers and other insiders had viewed the $8.6 million payment to Iran as a scheme to give Iran access to U.S. currency as part of an incentive package aimed at keeping it in compliance with the nuclear deal....
Trump administration officials told the Free Beacon they have informed Iran that it is now solely responsible for maintaining compliance with the nuclear deal.
"No, the United States is not planning to purchase any Iranian heavy water," a White House National Security Council spokesperson told the Free Beacon. "We have made it clear to Iran that it is their responsibility to remain under their heavy water limit in the JCPOA," or Joint Comprehensive Plan of Action, the official title of the nuclear agreement....
So, in addition to continuing economic warfare against Iran, the Trump administration is making it harder for Iran to conform to the nuclear deal.

Washington Free Beacon
Trump Admin Halts Taxpayer-Funded Purchases of Iranian Nuclear Materials
Adam Kredo

See also
RT reports that Siluanov warned if the west include the seizure of Russia's foreign exchange reserves, it would be regarded as a "declaration of a financial war."
The budget "has a margin of safety in case of restrictions and sanctions." It also includes losses incurred by a probable ban on investment in Russian government bonds for foreign funds. The US Treasury is currently considering such penalties.

"If we did not have a margin of safety, then it would be easy to weaken us. And then, our so-called friends would say – if you want to get help from the International Monetary Fund, you must do this and that," said Siluanov.

If sanctions include the freezing of foreign accounts of the central bank, it would be equal to declaring financial war on Russia, Siluanov said.
Zero Hedge
Russia Warns Washington: Confiscating Gold Reserves Would Be "Declaration Of Financial War"
Tyler Durden

3 comments:

GLH said...

"This policy threat is splitting the world into pro-U.S. satellites and economies maintaining public infrastructure investment and what used to be viewed as progressive capitalism."
In seeking to maintain an extractive economy for the benefit of the rentiers the West has chosen a losing strategy and will probably turn to war with Russia, China, and Iran. As those three nations advance while the West collapses expect the media to increase their hostility toward the three. The aristocracy that rules the West will cause a world war in order to maintain control. It has worked for them several times before.

Matt Franko said...

“$8 million dollars to purchase Iranian heavy water, ”

Why don’t they take Iranian currency for it?

Tom Hickey said...

Why don’t they take Iranian currency for it?

Maybe because the US issues US currency and not Iranian currency and therefore cuts its check in USD.

Of course the US could just deduct the amount in USD from Iran's frozen assets at the Fed and that would not involve transfer of USD to Iran. But Iran would have to agree before shipment and that is unlikely since it regards the freeze as illegal, on one hand, and financial warfare, on the other.

The US has been at war with Iran since the fall of the Shah in the sense of hybrid warfare using economic warfare as a chief instrument.

Hudson is right on this. US strategist figured it was a lot cheaper and more acceptable in domestic politics than military action. Military action is therefore reserved when the other aspect of hybrid warfare — economic warfare, cyber warfare (recall Stuxnet) — prove insufficient.