Drudge Retort: The Other Side of the News
Thursday, November 30, 2017

What made the United States and Germany the leading industrial nations of the 20th century, and now China, has been public investment in infrastructure. This lowers the cost of living and doing business by providing basic services on a subsidized basis or freely. By contrast, U.S. privatizers have brought debt leverage to bear on Third World countries, post-Soviet economies and southern Europe to force selloffs.

The past century's global fracture between creditor and debtor economies has interrupted what should be Europe's democratic destiny to empower governments to override financial and other rentier interests. Instead, the EU is following U.S. diplomatic leadership back to the age when Kings and inherited wealth ruled governments. This conflict between creditors and democracy, between oligarchy and economic growth will remain the defining issue of our epoch over the next generation, and probably for the remainder of the 21st century.




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U.S. monetary imperialism confronts the EU and Asian central banks with a dilemma: If they do not buy dollars (US Treasuries), their currencies will rise against the dollar. These purchases stabilize their exchange rates and prevents their exports from rising in dollars and being priced out of dollar-denominated markets.

The system may have developed without foresight, but quickly became deliberate. Michael Hudson's book "Super Imperialism" became a how-to manual for the Defense Department and the White House, hardly the intent for writing the book. Attention soon focused on the oil-exporting countries.

After the U.S. quadrupled its grain export prices and suspended gold exports in 1971, the oil-exporting countries quadrupled their oil prices. U.S. diplomats had let Saudi Arabia and other oil countries know that they could charge as much as they wanted for their oil, but that the United States would treat it as an act of war not to keep their oil proceeds in U.S. dollar assets.

The international financial system became explicitly extractive to the exclusive benefit of the USA. In 2009, victimized countries made their first attempt to withdraw from this system with a conference in Russia, that comprised of Russia, China, Kazakhstan, Tajikistan, Kirghizstan and Uzbekistan, Iran, India, Pakistan and Mongolia. U.S. officials asked to attend as observers, but their request was rejected.

The U.S. response was to expand the new Cold War into the financial sector, rewriting the rules of international finance to benefit the United States and its satellites and deter countries from independence 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. American strategists 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.

The U.S. plan was to hurt Russia's economy so much that it would be ripe for regime change, but instead Russia aligned with China and Central Asia. Pressing Europe to shift its oil and gas purchases to U.S. allies, U.S. sanctions have disrupted German and other European trade and investment with Russia and China. It also has meant lost opportunities for European farmers, other exporters and investors – and a flood of refugees from failed post-Soviet states drawn into the NATO orbit, most recently Ukraine.

The IMF had long withheld credit to countries refusing to pay other governments. But when Ukraine's $3 billion debt fell due to Russia in December 2015, the IMF suddenly reversed and began funding Ukraine, permitting the Ukraine to default against Russia. Ukraine began a bombing campaign in its own Donbass region in the East destroying its export industry, mainly to Russia.

Article I of the IMF's 1944-45 founding charter prohibits it from lending to a member engaged in civil war or at war with another member state, or for military purposes generally. A reason for this rule is that such a country is unlikely to earn the foreign exchange to pay its debt. Withholding IMF credit could have been a lever to force adherence to the Minsk peace agreements, but U.S. diplomacy rejected that opportunity. The IMF broke four of its own rules by lending to Ukraine.

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.

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.

Without a global alternative to letting debt dynamics polarize societies and tear economies apart, monetary imperialism by creditor nations is inevitable.


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