[Peace-discuss] Fwd: [WBPF] Financing The Empire

[Morton K. Brussel]

I thought the article relayed here was interesting, linking our  
balance of payments to our military adventurism. --mkb

Begin forwarded message:

> From: "marke slipp" <mslipp at ns.sympatico.ca>
> Date: April 26, 2009 11:40:19 AM CDT
>
> Subject: [WBPF] Financing The Empire
> Reply-To: "marke slipp" <mslipp at ns.sympatico.ca>
>
> Here's another perspective on the global financial crisis. There's  
> definitely a different perspective of things coming out of Europe  
> than out of the North American media...
>
> Financing the Empire - Does US Face G20 Mutiny?
>
>
> By MICHAEL HUDSON
>
> I am travelling in Europe for three weeks to discuss the global  
> financial
> crisis with government officials, politicians and labor leaders.  
> What is
> most remarkable is how differently the financial problem is  
> perceived over
> here. It's like being in another economic universe, not just another
> continent.
>
> The U.S. media are silent about the most important topic policy  
> makers are
> discussing here (and I suspect in Asia too): how to protect their  
> countries
> from three inter-related dynamics:
>
> (1) the surplus dollars pouring into the rest of the world for yet  
> further
> financial speculation and corporate takeovers;
>
> (2) the fact that central banks are obliged to recycle these dollar  
> inflows
> to buy U.S. Treasury bonds to finance the federal U.S. budget  
> deficit; and
> most important (but most suppressed in the U.S. media,
>
> (3) the military character of the U.S. payments deficit and the  
> domestic
> federal budget deficit.
>
> Strange as it may seem - and irrational as it would be in a more  
> logical
> system of world diplomacy - the "dollar glut" is what finances  
> America's
> global military build-up. It forces foreign central banks to bear  
> the costs
> of America's expanding military empire - effective "taxation without
> representation." Keeping international reserves in "dollars" means  
> recycling
> their dollar inflows to buy U.S. Treasury bills - U.S. government debt
> issued largely to finance the military.
>
> To date, countries have been as powerless to defend themselves  
> against the
> fact that this compulsory financing of U.S. military spending is  
> built into
> the global financial system. Neoliberal economists applaud this as
> "equilibrium," as if it is part of economic nature and "free  
> markets" rather
> than bare-knuckle diplomacy wielded with increasing aggressiveness  
> by U.S.
> officials. The mass media chime in, pretending that recycling the  
> dollar
> glut to finance U.S. military spending is "showing their faith in U.S.
> economic strength" by sending "their" dollars here to "invest." It  
> is as if
> a choice is involved, not financial and diplomatic compulsion to  
> choose
> merely between "Yes" (from China, reluctantly), "Yes, please" (from  
> Japan
> and the European Union) and "Yes, thank you" (Britain, Georgia and
> Australia).
>
> It is not "foreign faith in the U.S. economy" that leads foreigners  
> to "put
> their money here." That's a silly cartoon of a more sinister  
> dynamic. The
> "foreigners" in question are not consumers buying U.S. exports, nor  
> are they
> private-sector "investors" buying U.S. stocks and bonds. The largest  
> and
> most important foreign entities putting "their money" here are central
> banks, and it is not "their money" at all. They are sending back the  
> dollars
> that foreign exporters and other recipients [remesas] turn over to  
> their
> central banks for domestic currency.
>
> When the U.S. payments deficit pumps dollars into foreign economies,  
> these
> banks are being given little option except to buy U.S. Treasury  
> bills and
> bonds - which the Treasury spends on financing an enormous, hostile  
> military
> build-up to encircle the major dollar-recyclers - China, Japan and  
> Arab OPEC
> oil producers. Yet these governments are forced to recycle dollar  
> inflows in
> a way that funds U.S. military policies in which they have no say in
> formulating, and which threaten them more and more belligerently.  
> That is
> why China and Russia took the lead in forming the Shanghai Cooperation
> Organization (SCO) a few years ago.
>
> Here in Europe there is a clear awareness that the U.S. payments  
> deficit is
> much larger than just the trade deficit. One need merely look at  
> Table 5 of
> the U.S. balance-of-payments data compiled by the Bureau of Economic
> Analysis (BEA) and published by the Dept. of Commerce in its Survey of
> Current Business to see that the deficit does not stem merely from  
> consumers
> buying more imports than the United States exports as the financial  
> sector
> de-industrializes its economy. U.S. imports are now plunging as the  
> economy
> shrinks and consumers are now finding themselves obliged to pay down  
> the
> debts they have taken on.
>
> Congress has told foreign investors in the largest dollar holder,  
> China, not
> to buy anything except perhaps used-car dealerships and maybe more  
> packaged
> mortgages and Fannie Mae stock - the equivalent of Japanese  
> investors being
> steered into spending $1 billion for Rockefeller Center, on which they
> subsequently took a 100 per cent loss, and Saudi investment in  
> Citigroup.
> That's the kind of "international equilibrium" that U.S. officials  
> love to
> see. "CNOOK go home" is the motto when it comes to serious attempts by
> foreign governments and their sovereign wealth funds (central bank
> departments trying to figure out what to do with their dollar glut)  
> to make
> direct investments in American industry.
>
> So we are left with the extent to which the U.S. payments deficit  
> stems from
> military spending. The problem is not only the war in Iraq, now being
> extended to Afghanistan and Pakistan. It is the expensive build-up  
> of U.S.
> military bases in Asian, European, post-Soviet and Third World  
> countries.
> The Obama administration has promised to make the actual amount of  
> this
> military spending more transparent. That presumably means publishing a
> revised set of balance of payments figures as well as domestic federal
> budget statistics.
>
> The military overhead is much like a debt overhead, extracting  
> revenue from
> the economy. In this case it is to pay the military-industrial  
> complex, not
> merely Wall Street banks and other financial institutions. The  
> domestic
> federal budget deficit does not stem only from "priming the pump" to  
> give
> away enormous sums to create a new financial oligarchy. It contains an
> enormous and rapidly growing military component.
>
> So Europeans and Asians see U.S. companies pumping more and more  
> dollars
> into their economies. Not just to buy their exports in excess of  
> providing
> them with goods and services in return; not just  to buy their  
> companies and
> "commanding heights" of privatized public enterprises without giving  
> them
> reciprocal rights to buy important U.S. companies (remember the U.S.
> turn-down of China's attempt to buy into the U.S. oil distribution
> business);  not just to buy foreign stocks, bonds and real estate.  
> The U.S.
> media somehow neglect to mention that the U.S. government is spending
> hundreds of billions of dollars abroad - not only in the Near East for
> direct combat, but to build enormous military bases to encircle the  
> rest of
> the world, to install radar systems, guided missile systems and  
> other forms
> of military coercion, including the "color revolutions" that have been
> funded - and are still being funded - all around the former Soviet  
> Union.
>
> Pallets of shrink-wrapped $100 bills adding up to tens of millions  
> of the
> dollars at a time have become familiar "visuals" on some TV  
> broadcasts, but
> the link is not made with U.S. military and diplomatic spending and  
> foreign
> central-bank dollar holdings, which are reported simply as  
> "wonderful faith
> in the U.S. economic recovery" and presumably the "monetary magic"  
> being
> worked by Wall Street's Tim Geithner at Treasury and Helicopter Ben  
> Bernanke
> at the Federal Reserve.
>
> Here's the problem: The Coca Cola company recently tried to buy  
> China's
> largest fruit-juice producer and distributor. China already holds  
> nearly $2
> trillion in U.S. securities - way more than it needs or can use,  
> inasmuch as
> the United States government refuses to let it buy meaningful U.S.
> companies. If the U.S. buyout would have been permitted to go  
> through, this
> would have confronted China with a dilemma: Choice #1 would be to  
> let the
> sale go through and accept payment in dollars, reinvesting them in  
> what the
> U.S. Treasury tells it to do - U.S. Treasury bonds yielding about 1  
> per
> cent. China would take a capital loss on these when U.S. interest  
> rates rise
> or when the dollar declines as the United States alone is pursuing
> expansionary Keynesian policies in an attempt to enable the U.S.  
> economy to
> carry its debt overhead.
>
> Choice #2 is not to recycle the dollar inflows. This would lead the  
> renminbi
> to rise against the dollar, thereby eroding China's export  
> competitiveness
> in world markets. So China chose a third way, which brought U.S.  
> protests.
> It turned the sale of its tangible company for merely "paper" U.S.  
> dollars -
> which went with the "choice" to fund further U.S. military  
> encirclement of
> the Shanghai Cooperative Agreement.  The only people who seem not to  
> be
> drawing this connection are the American mass media, and hence  
> public. I can
> assure you from personal experience, it is being drawn here in Europe.
> (Here's a good diplomatic question to discuss: Which will be the first
> European country besides Russia to join the S.C.O.?)
>
> Academic textbooks have nothing to say about how "equilibrium" in  
> foreign
> capital movements - speculative as well as for direct investment - is
> infinite as far as the U.S. economy is concerned. The U.S. economy can
> create dollars freely, now that they no longer are convertible into  
> gold or
> even into purchases of U.S. companies, inasmuch as America remains the
> world's most protected economy. It alone is permitted to protect its
> agriculture by import quotas, having "grandfathered" these into  
> world trade
> rules half a century ago. Congress refuses to let "sovereign wealth"  
> funds
> invest in important U.S. sectors.
>
> So we are confronted with the fact that the U.S. Treasury prefers  
> foreign
> central banks to keep on funding its domestic budget deficit, which  
> means
> financing the cost of America's war in the Near East and  
> encirclement of
> foreign countries with rings of military bases. The more "capital  
> outflows"
> U.S. investors spend to buy up foreign economies -the most profitable
> sectors, where the new U.S. owners can extract the highest monopoly  
> rents -
> the more funds end up in foreign central banks to support America's  
> global
> military build-up. No textbook on political theory or international
> relations has suggested axioms to explain how nations act in a way so
> adverse to their own political, military and economic interests. Yet  
> this is
> just what has been happening for the past generation.
>
> So the ultimate question turns out to be what countries can do to  
> counter
> this financial attack. A Basque labor union asked me whether I  
> thought that
> controlling speculative capital movements would ensure that the  
> financial
> system would act in the public interest. Or is outright  
> nationalization
> necessary to better develop the real economy?
>
> It is not simply a problem of "regulation" or "control of speculative
> capital movements." The question is how nations can act as real  
> nations, in
> their own interest rather than being roped into serving whatever the
> American government  decides is in America's interest.
>
> Any country trying to do what the United States has done for the  
> past 150
> years is accused of being "socialist" - and this from the most
> anti-socialist economy in the world, except when it calls bailouts  
> for its
> banks "socialism for the rich," a.k.a. financial oligarchy. This  
> rhetorical
> inflation almost leaves no alternative but outright nationalization of
> credit as a basic public utility.
>
> Of course, the word "nationalization" has become a synonym for  
> bailing out
> the largest and most reckless banks from their bad loans, and  
> bailing out
> hedge funds and non-bank counterparties for losses on "casino  
> capitalism,"
> gambling on derivatives that AIG and other insurers or players on  
> the losing
> side of these gambles are unable to pay.  Bailout in this form is not
> nationalization in the traditional sense of the term - bringing credit
> creation and other basic financial functions back into the public  
> domain. It
> is the opposite. It prints new government bonds to turn over - along  
> with
> self-regulatory power - to the financial sector, blocking the  
> citizenry from
> taking back these functions.
>
> Framing the issue as a choice between democracy and oligarchy turns  
> the
> question into one of who will control the government doing the  
> regulation
> and "nationalizing." If it is done by a government whose central  
> bank and
> major congressional committees dealing with finance are run by Wall  
> Street,
> this will not help steer credit into productive uses. It will merely
> continue the Greenspan-Paulson-Geithner era of more and larger free  
> lunches
> for their financial constituencies.
>
> The financial oligarchy's idea of "regulation" is to make sure that
> deregulators are installed in the key positions and given only a  
> minimal
> skeleton staff and little funding. Despite Alan Greenspan's  
> announcement
> that he has come to see the light and realizes that self-regulation  
> doesn't
> work, the Treasury is still run by a Wall Street official and the  
> Fed is run
> by a lobbyist for Wall Street. To lobbyists the real concern isn't  
> ideology
> as such - it's naked self-interest for their clients. They may seek  
> out
> well-meaning fools, especially prestigious figures from academia.  
> But these
> are only front men, headed as they are by the followers of Milton  
> Friedman
> at the University of Chicago. Such individuals are put in place as
> "gate-keepers" of the major academic journals to keep out ideas that  
> do not
> well serve the financial lobbyists.
>
> This pretence for excluding government from meaningful regulation is  
> that
> finance is so technical that only someone from the financial  
> "industry" is
> capable of regulating it. To add insult to injury, the additional
> counter-intuitive claim is made that a hallmark of democracy is to  
> make the
> central bank "independent" of elected government. In reality, of  
> course,
> that is just the opposite of democracy. Finance is the crux of the  
> economic
> system. If it is not regulated democratically in the public  
> interest, then
> it is "free" to be captured by special interests. So this becomes the
> oligarchic definition of "market freedom."
>
> The danger is that governments will let the financial sector  
> determine how
> "regulation" will be applied. Special interests seek to make money  
> from the
> economy, and the financial sector does this in an extractive way.  
> That is
> its marketing plan. Finance today is acting in a way that de- 
> industrializes
> economies, not builds them up. The "plan" is austerity for labor,  
> industry
> and all sectors outside of finance, as in the IMF programs imposed on
> hapless Third World debtor countries. The experience of Iceland,  
> Latvia and
> other "financialized" economies should be examined as object  
> lessons, if
> only because they top the World Bank's ranking of countries in terms  
> of the
> "ease of doing business."
>
> The only meaningful regulation can come from outside the financial  
> sector.
> Otherwise, countries will suffer what the Japanese call "descent from
> heaven": regulators are selected from the ranks of bankers and their  
> "useful
> idiots." Upon retiring from government they return to the financial  
> sector
> to receive lucrative jobs, "speaking engagements" and kindred  
> paybacks.
> Knowing this, they regulate in favor of financial special interests,  
> not
> that of the public at large.
>
> The problem of speculative capital movements goes beyond drawing up  
> a set of
> specific regulations. It concerns the scope of national government  
> power.
> The International Monetary Fund's Articles of Agreement prevent  
> countries
> from restoring the "dual exchange rate" systems that many retained  
> down
> through the 1950s and even into the '60s. It was widespread practice  
> for
> countries to have one exchange rate for goods and services (sometimes
> various exchange rates for different import and export categories) and
> another for "capital movements." Under American pressure, the IMF  
> enforced
> the pretence that there is an "equilibrium" rate that just happens  
> to be the
> same for goods and services as it is for capital movements.  
> Governments that
> did not buy into this ideology were excluded from membership in the  
> IMF and
> World Bank - or were overthrown.
>
> The implication today is that the only way a nation can block capital
> movements is to withdraw from the IMF, the World Bank and the World  
> Trade
> Organization (WTO). For the first time since the 1950s this looks  
> like a
> real possibility, thanks to worldwide awareness of how the U.S.  
> economy is
> glutting the global economy with surplus "paper" dollars - and U.S.
> intransigence at stopping its free ride. From the U.S. vantage  
> point, this
> is nothing less than an attempt to curtail its international military
> program.
>
> Michael Hudson is a former Wall Street economist. A Distinguished  
> Research
> Professor at University of Missouri, Kansas City (UMKC), he is the  
> author of
> many books, including Super
> <http://www.amazon.com/exec/obidos/ASIN/0745319890/counterpunchmaga>
> Imperialism: The Economic Strategy of American Empire (new ed.,  
> Pluto Press,
> 2002) He can be at: mh at michael-hudson.com
>

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