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energyecon:

Mary wrote:

Money has no intrinsic value. Its value is extrinsic, comparative.

Now don't upset the bigendians (hard money) folks by telling them they are not really different than the littleendians (fiat money) folks... 

Monies – Joining Economic and Legal Perspectivesby David Bholat, Jonathan Grant and Ryland Thomas

Bank Underground

The economist John Kenneth Galbraith once quipped that the answers economists give to the question “what is money?” are usually incoherent. So in this blog we turn to law for some answers. Debate about the nature of money has been renewed by recent financial crises and the rise of digital currencies (Ali et al 2014; Desan 2014; Ryan-Collins et al 2014; Martin 2013). This was the focus of a panel session at the Bank’s recent annual conference on Monetary and Financial Law, which brought together lawyers and economists to develop interdisciplinary perspectives on topics such as money. It prompted us to think more deeply about how law does and does not constitute ‘it.’

Common legal attributes of money

Anything can function as money. And many things have: cattle; cowry shells; even cigarettes. But as Minsky once said, while “everyone can create money, the problem is to get it accepted.”

While in theory anything can be money, the reality is few things are. Monies produced by the Royal Mint and the Bank of England (BoE) are the ultimate means of payment, followed by private sector claims, in order of how immediate they provide for full convertibility into these.

Some economists argue that this hierarchy of money is the result of legal privileges, especially legal tender legislation (Smith 1936; Hayek 1976). However, legal tender legislation in the UK only applies to the settlement of debts. It doesn’t cover spot transactions — our daily buying and selling in the marketplace.

So if we want to explain why state issued tokens and claims, and promises of immediate conversion into them, are monies, legal tender laws seem less important than other legal attributes that make them trusted and give people comfort they can get someone else to accept them.

In the past, when gold and silver were monies, economists often explained this reality by reference to these metals’ physical attributes such as portability, uniformity and durability. Today these physical attributes of metal monies have legal analogues.

Think of a fiver. Three legal attributes make it money.

First, a fiver is portable because it is legally negotiable: it can be transferred to others without each time gaining consent from the BoE (the fiver’s issuer), and, once transferred, it’s free and clear of any claims being brought by those who previously possessed it provided it was taken in good faith (Geva 2011).

Second, fivers are uniform because they are fungible: each can substitute for another. This is because the rights and obligations they confer are the same.

Finally, durability means maintaining fixed nominal value through time. A rough legal equivalent of durability is an option for instant par redemption. State-backed monies such as fivers and promises of immediate conversion into them are monies probably because states retain the power to fix the nominal meaning of their unit of account and can choose to accept only claims denominated in that unit of account in discharge of tax obligations.

Monies

While all monies share hues of negotiability, fungibility, and instant par redemption, each type of money also has unique legal features. Ordinarily, these legal differences don’t matter because one type of money is easily convertible into another. Qualitative differences in the legal construction of monies appear, if at all, merely as quantitative differences in their rate of financial return. For example, in ordinary times, although term bank deposits accrue interest and BoE notes do not, they are treated by most people as equivalents. However, during financial crises, qualitative differences reassert themselves and, in the extreme, parity breaks down. In classic bank runs, for example, individuals seek to convert bank balances into cash because the difference between having a claim on a private counterparty that can go bust, versus a public counterparty like central banks that can operate even on negative capital, acquires greater salience.

Consequently legal differences between monies sometimes matter. So we note some below. Here our analysis chimes with research in sociology and behavioural economics showing that money is not singular but plural (Dodd 2014). However, while those studies focus on how money is imbued with different meanings by individuals once in circulation, for example, depending on its source (e.g. whether it’s from wages or inheritance), our point is that monies are plural from the start, in the nature of their legal construction.

Royal Mint coins

Sterling coins are manufactured by the Royal Mint Limited, a public limited company wholly owned by HM Treasury through the Royal Mint Trading Fund. Different denominations of coin are legal tender up to different thresholds. For example, 5p coins are legal tender for any amount not exceeding £5, while 50p coins are legal tender for any amount not exceeding £10. Royal Mint coins are unique among UK monies in that they are not the legal obligations of any counterparty, though they are treated as a liability of central government in the financial accounts of national income statistics.

BoE notes

Legally, notes represent debt obligations of the Bank. Originally they could be redeemed in gold. However, since 1931, the Bank no longer pays out gold against its notes. BoE notes were first issued in the seventeenth century but did not acquire legal tender status in England and Wales until 1833. They are not legal tender in Scotland or Northern Ireland.

BoE reserve accounts

BoE reserve accounts are debt obligations owed by the Bank to commercial banks and other Sterling Monetary Framework (SMF) participants. They are the largest liabilities on the Bank’s balance sheet and have been used by banks for settling their obligations with each other since at least the mid-19th century.

Scottish and Northern Ireland banknotes

Seven banks in Scotland and Northern Ireland issue their own notes which are these banks’ debt obligations. These notes are not legal tender even in Scotland and Northern Ireland. Rather, they circulate by convention, underscoring our thesis about the importance of other legal attributes besides legal tender legislation in conferring ‘money-ness.’ As a result of the Banking Act 2009, these notes are backed in full by a combination of Royal Mint coins, BoE notes and reserve account balances.

Accounts with banks and mutual organisations

Banks and mutual organisations offer current and other types of spendable accounts used for payments. On the one hand, these accounts are unsecured debt obligations of private organisations. On the other hand, many are backed up to certain limits by statutory guarantees. Today the value of transactions involving these accounts greatly exceeds the value of transactions involving legal tender. And growth in these accounts’ balances is mainly driven by additional loans that create equal and opposite accounting entries.

Further research

Economists and lawyers often approach the topic of money differently because they have different philosophies underpinning their professions. Economics is basically a branch of utilitarianism, meaning that the consequences of actions are the basis for judging their rightness or wrongness. Hence many problems in economics are about optimization and involve cost-benefit analysis. By contrast, law is derived from deontology, meaning some actions are intrinsically right or wrong according to normative rules. Hence legal decisions are typically justified by history and notions of justice.

These philosophical differences mean economists and lawyers often think about money differently. For example, many economists think money arose as a transaction cost reducing, utility enhancing device to overcome the absence of a double coincidence of wants that hampers barter, while many lawyers and institutionally minded economists think the origins of money is the state (Goodhart 1998). Economists mostly think of money as a medium of exchange (Kiyotaki and Wright 1989) because this function relates to trade and commerce, while law emphasises money as a means of payment (Proctor 2012): whether one party has discharged their obligation to another. In emphasising the settlement of obligations, law draws attention to money’s role in non-commercial transactions such as taxation and transfers. And while economists treat money mainly as an indicator or intermediate target for influencing real, macroeconomic variables, lawyers typically think about money in the context of individual cases and adhere to the doctrine of nominalism.

Despite these different points of emphasis, this blog has tried to show that understanding money requires joining legal with economic perspectives. For example, while for a long time lawyers saw bank deposits simply as loans, economists much earlier appreciated their wider bearing on inflation and output. However, if economists want to explain why certain claims like bank deposits are money, while others are not, they must look at their legal attributes and socio-legal history. Recent research on money by Bank staff has been informed by both law and economics (McLeay et al. 2014; Bholat 2013). Here are a couple paths on which further interdisciplinary research might advance:

  1. How is the money demand for a claim impacted by changes in its legal constitution, for example, after a major structural break like the conferring of legal tender status on BoE notes or abolition of their gold convertibility?
  2. Besides negotiability, fungibility and instant par redemption, what other legal features make claims suitable to be money?

David Bholat works in the Bank’s Advanced Analytics Division, Jonathan Grant works in the Bank’s Legal Directorate and Ryland Thomas works in the Bank’s Monetary Assessment and Strategy Division.

Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.

If you want to get in touch, please email us at bankunderground@bankofengland.co.uk


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[Aug 08, 2020] Russia-China -Dedollarization- Reaches -Breakthrough Moment- As Countries Ditch Greenback For Bilateral Trade -

Aug 08, 2020 | www.zerohedge.com

Russia-China "Dedollarization" Reaches "Breakthrough Moment" As Countries Ditch Greenback For Bilateral Trade by Tyler Durden Thu, 08/06/2020 - 21:55 Twitter Facebook Reddit Email Print

Late last year, data released by the PBOC and the Russian Central Bank shone a light on a disturbing - at least, for the US - trend: As the Trump Administration ratcheted up sanctions pressure on Russia and China, both countries and their central banks have substantially "diversified" their foreign-currency reserves, dumping dollars and buying up gold and each other's currencies.

Back in September, we wrote about the PBOC and RCB building their reserves of gold bullion to levels not seen in years. The Russian Central Bank became one of the world's largest buyers of bullion last year (at least among the world's central banks). At the time, we also introduced this chart.

We've been writing about the impending demise of the greenback for years now, and of course we're not alone. Some well-regarded economists have theorized that the fall of the greenback could be a good thing for humanity - it could open the door to a multi-currency basket, or better yet, a global current (bitcoin perhaps?) - by allowing us to transition to a global monetary system with with less endemic instability.

Though, to be sure, the greenback is hardly the first "global currency".

Falling confidence in the greenback has been masked by the Fed's aggressive buying, as central bankers in the Eccles Building now fear that the asset bubbles they've blown are big enough to harm the real economy, so we must wait for exactly the right time to let the air out of these bubbles so they don't ruin people's lives and upset the global economic apple cart. As the coronavirus outbreak has taught us, that time may never come.

But all the while, Russia and China have been quietly weening off of the dollar, and instead using rubles and yuan to settle transnational trade.

Since we live in a world where commerce is directed by the whims of the free market (at least, in theory), the Kremlin can just make Russian and Chinese companies substitute yuan and rubles for dollars with the flip of a switch: as Russian President Vladimir Putin once exclaimed , the US's aggressive sanctions policy risks destroying the dollar's reserve status by forcing more companies from Russia and China to search for alternatives to transacting in dollars, if for no other reason than to keep costs down (international economic sanctions can make moving money abroad difficult).

In 2019, Putin gleefully revealed that Russia had reduced the dollar holdings of its central bank by $101 billion, cutting the total in half.

https://lockerdome.com/lad/13084989113709670?pubid=ld-dfp-ad-13084989113709670-0&pubo=https%3A%2F%2Fwww.zerohedge.com&rid=www.zerohedge.com&width=890

And according to new data from the Russian Central Bank and Federal Customs Service, the dollar's share of bilateral trade between Russia and China fell below 50% for the first time in modern history.

Businesses only used the greenback for roughly 46% of settlements between the two countries. Over the same period, the euro constituted an all-time high of 30%. While other national currencies accounted for 24%, also a new high.

As one 'expert' told the Nikkei Asian Review, it's just the latest sign that Russia and China are forming a "de-dollarization alliance" to diminish the economic heft of Washington's sanctions powers, and its de facto control of SWIFT, the primary inter-bank messaging service via which banks move money from country to country.

The shift is happening much more quickly than the US probably expected. As recently as 2015, more than 90% of bilateral trade between China and Russia was conducted in dollars.

Alexey Maslov, director of the Institute of Far Eastern Studies at the Russian Academy of Sciences, told the Nikkei Asian Review that the Russia-China "dedollarization" was approaching a "breakthrough moment" that could elevate their relationship to a de facto alliance.

"The collaboration between Russia and China in the financial sphere tells us that they are finally finding the parameters for a new alliance with each other," he said. "Many expected that this would be a military alliance or a trading alliance, but now the alliance is moving more in the banking and financial direction, and that is what can guarantee independence for both countries."

Dedollarization has been a priority for Russia and China since 2014, when they began expanding economic cooperation following Moscow's estrangement from the West over its annexation of Crimea. Replacing the dollar in trade settlements became a necessity to sidestep U.S. sanctions against Russia.

"Any wire transaction that takes place in the world involving U.S. dollars is at some point cleared through a U.S. bank," explained Dmitry Dolgin, ING Bank's chief economist for Russia. "That means that the U.S. government can tell that bank to freeze certain transactions."
The process gained further momentum after the Donald Trump administration imposed tariffs on hundreds of billions of dollars worth of Chinese goods. Whereas previously Moscow had taken the initiative on dedollarization, Beijing came to view it as critical, too.

"Only very recently did the Chinese state and major economic entities begin to feel that they might end up in a similar situation as our Russian counterparts: being the target of the sanctions and potentially even getting shut out of the SWIFT system," said Zhang Xin, a research fellow at the Center for Russian Studies at Shanghai's East China Normal University.

[Aug 08, 2020] The Dollar Standard Slipping Out of Control- -- Strategic Culture

Aug 08, 2020 | www.strategic-culture.org

As commentators focus on the hospitalisations of two Gulf monarchs, and permutate likely succession issues, they may miss the wood for the succession trees: Of course, the death of either the Emir of Kuwait (91 years old) or King Salman of Saudi Arabia (84 years old) is a serious political matter. King Salman's particularly has the potential to upturn the region (or not). Yet Gulf stability today rests less on who succeeds, but rather on tectonic shifts in geo-finance and politics that are just becoming visible. Time to move on from stale ruminations about who's 'up and coming', and who's 'down and out' in these dysfunctional families.

The stark fact is that Gulf stability rests on selling enough energy to buy-off internal discontents, and to pay for supersized surveillance and security set-ups.

For the moment, times are hard, but the States' financial 'cushions' are just about holding-up (albeit only for the big three: Saudi Arabia, Abu Dhabi and Qatar). For others the situation is dire. The question is, will this present status quo persist? This is where the warnings of shifts in certain global tectonic plates becomes salient.

The Kuwaiti succession struggle is emblematic of the Gulf rift: One candidate for Emir, (the brother), stands with Saudi Arabia and its Wahhabi-led 'war' on Sunni Islamists (the Muslim Brotherhood). Whereas the other, (the eldest son), is actively backed by the Muslim Brotherhood, Qatar and Turkey. Thus, Kuwait sits on firmly on the Gulf abyss – a region with significant, but disempowered Shi'a minorities, and a Sunni camp divided and 'at war' with itself over support for the Muslim Brotherhood; or what is (politely called) 'autocratic secular stability'.

Interesting though this is, is this really still so relevant?

The Gulf, perhaps more significantly, is held hostage to two huge financial bubbles. The real risk to these States may prove to come from these bubbles, which are the very devil to prick-down into any gentle, expelling of gas. They are sustained by mass psychology – which can pivot on a dime – and usually end catastrophically in a market 'tantrum', or a 'bust' – and with consequent risk of depression, should Central Banks ever try to lift the foot off the monetary accelerator.

The U.S. ubiquitous 'asset bubble' is famous. Central Bankers have been worrying about it for years. And the Fed is throwing money at it – with abandon – to keep it from popping. But as indicated earlier, such bubbles are highly vulnerable to psychology – and that may be turning, as the celebrated V-shaped, expected economic recovery recedes into the virus-induced distance. But for now, investors believe that the Fed daren't let it implode – that the Fed has absolutely no option but go on throwing more and more money at it (at least until November elections & then what?).

Less visible is that other vast 'asset bubble': The Chinese domestic property market. With its closed capital account, China has a huge sum (some $40 trillion) sloshing around in collective bank accounts. That money can't go abroad (at least legally), so it rotates around between three asset markets: apartments, stocks, and commodities somewhat whimsically. But investing in apartments is absolutely king! 96% of urban Chinese own more than one: 75% of private wealth is represented by investments in condos – albeit with 21% standing empty in urban China, for lack of a tenant.

Long story, short, the Chinese massively chase property valuations. Indeed, as the WSJ has noted "the central problem in China is that buyers have figured out the government doesn't appear to be willing to let the market fall. If home prices did drop significantly, it would wipe out most citizens' primary source of wealth, and potentially trigger unrest". Even during the pandemic – or, perhaps because of it as the Chinese piled-in – prices rose 4.9% in June, year on year. The total value of Chinese homes and developers' inventory hit $52 trillion in 2019, according to Goldman Sachs; i.e. twice the size of the U.S. residential market, and outstripping even the entire U.S. bond market.

If it sounds just like America's QE-inflated asset markets, that's because it is. As things stand, both the Chinese residential and the U.S. equity bubbles are unstable. Which might fracture fist? Who knows but bubbles are also vulnerable to pop on geo-political events (such as a U.S. naval landing on one of China's disputed South Sea islands, to which China is promising , absolutely, a military response).

No one has any idea how Chinese officials can manage the property bubble, without destabilizing the broader economy. And even should the market stay strong, it creates headaches for policy makers, who have had to hold off on more aggressive economic stimulus this year – which some analysts say is needed, partly because of fears it will inflate housing further.

Ah there it is: Out in plain view – the risk. The condo-trade has hijacked the entire Chinese economy, tying officials' hands. This, at the moment when Trump's trade war has turned into a new ideological cold war targeting the Chinese Communist Party. What if the Chinese economy, under further U.S. sanctions, slides further, or if Covid 19 resurges (as it is in Hong Kong)? Will then the housing market break, causing recession or depression? It is, after all, China and Asia that buy the bulk of Gulf energy: Demand shrinks, and price falls. The fate of the Gulf States' economies – and stability – is tied to these mega-bubbles not popping.

Bubbles are one factor, but there are also signs of the tectonic plates drifting apart in a different way, but no less threatening. Bankers Goldman Sachs sits at the very heart of the western financial system – and incidentally staffs much of Team Trump, as well as the Federal Reserve.

And Goldman wrote something this week that one might not expect from such a system stalwart: Its commodity strategist Jeffrey Currie, wrote that "real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge".

What? Goldman says the dollar might lose its reserve currency status. Unthinkable? Well that would be the standard view. Dollar hegemony and sanctions have long been seen as Washington's stranglehold on the world through which to preserve U.S. primacy. America's 'hidden war', as it were. Trump clearly views the dollar as the bludgeon that can make America Great Again. Furthermore, as Trump and Mnuchin – and now Congress – have taken control of the Treasury arsenal, the roll-out of new sanctions bludgeoning has turned into a deluge.

But there has also been within certain U.S. circles, a contrarian view. Which is that the U.S. needs to 're-boot' its economic model with a Tech-led, 'supply-side' miracle to end growth stagnation. Too much debt suffocates an economy, and populates it with zombie enterprises.

In 2014, Jared Bernstein, Obama's former chief economist said that the U.S. Dollar must lose its reserve status , if such a re-boot were to be done. He explained why, in a New York Times op-ed:

"There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world's reserve currency. It's a core principle of American economic policy. After all, who wouldn't want their currency to be the one that foreign banks and governments want to hold in reserve?

"But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar's reserve-currency status."

In essence, this is the Davos Great Reset line . Christine Lagarde, in the same year, called too for a 'reset' (or re-boot) of monetary policy (in the face of "bubbles growing here and there) – and to deal with stagnant growth and unemployment. And this week, the U.S. Council on Foreign Relations issued a paper entitled: It is Time to Abandon Dollar Hegemony .

That, we repeat, is the globalist line. The CFR has been a progenitor of both the European and Davos projects. It is not Trump's. He is fighting to keep America as the seat of western power, and not to accede that role to Merkel's European project – or to China.

So why would Goldman Sachs say such a thing? Attend carefully to Goldman's framing: It is not the Davos line. Instead, Currie writes that the soaring disconnect between spiking gold price and a weakening dollar "is being driven by a potential shift in the U.S. Fed towards an inflationary bias, against a backdrop of rising geopolitical tensions, elevated U.S. domestic political and social uncertainty, and a growing second wave of covid-19 related infections".

Translation: It is about U.S. explosive debt accumulation, on account of the Coronavirus lockdown. In a world where there is already over $100 trillion in dollar-denominated debt, on which the U.S. cannot default; nor will it ever be repaid. It can therefore only be inflated away. That is to say the debt can only be managed through debasing the currency. (Debt jubilees are viewed as beyond the pale.)

That is to say, Goldman's man says dollar debasement is firmly on the Fed agenda. And that means that "real concerns around the longevity of the U.S. dollar as a reserve currency, have started to emerge".

It is a nuanced message: It hints that the monetary experiment, which began in 1971, is ending. Currie is telling U.S. that the U.S. is no longer able to manage an economy with this much debt – simply by printing new currency, and with its hands tied on other options. The debt situation already is unprecedented – and the pandemic is accelerating the process.

In short, things are starting to spin out of control, which is not the same as advocating a re-boot. And the debasement of money is inevitable. That's why Currie points to the disconnect between the gold price (which usually governments like to repress), and a weakening dollar. If it is out of the Fed's control, it is ultimately (post-November) out of Trump's hands, too.

Should confidence in the dollar begin to evaporate, all fiat currencies will sink in tandem – as G20 Central Banks are bound by the same policies as the U.S.. China's situation is complicated. It would in one way be harmed by dollar debasement, but in another way, a general debasement of fiat currency would offer China and Russia the crisis (i.e. the opportunity), to escape the dollar's knee pressed onto their throats.

And for Gulf States? The slump in oil prices this year already has prompted some investors to bet against Gulf nations' currencies, putting longstanding currency pegs with the dollar under pressure. GCC states have kept their currencies glued to the dollar since the 1970s, but low oil demand, combined with dollar weakness would exacerbate the threat to Gulf 'pegs', as their trade deficits blow out. Were a peg to break, it is not clear there would be any obvious floor to that currency, in present circumstances.

Against such a backdrop, the royal successions underway in Gulf States might perhaps be regarded a sideshow.

[Jul 19, 2020] A trillion here, a trillion there, pretty soon you're talking real money (creation) -- Crooked Timber

Jul 19, 2020 | crookedtimber.org

Larry Hamelin 07.18.20 at 9:37 am (no link)

The MMTers reading your article will take umbrage at your use of finance .

According to MMT, all government spending is financed by creating money. The problem of where to get the money is a non-problem.

Once the government has spent money into existence, the real problem is how to distribute the social opportunity cost of the spending, especially if the government has spent money to allocate real resources away from the production of private goods and services.

MMT makes this distinction precisely because they (we?) want to eliminate the rich as a veto point for spending. We don't need to get their money in order to spend it, and they cannot (or we should not let them) essentially restrict spending by obstructing the government's taxation of their wealth.

If we want to get the money belonging to the rich (and we do!), we want to do so because we don't want them to have it, for whatever reason.

There's another reason to be explicit about the difference between financing and distributing opportunity costs. If the rich have a lot of money that is not in circulation (in the national economy), and the government taxing that money to "pay for" its spending will do nothing to control inflation or distribute opportunity costs. Removing money that is not circulating has no effect on prices. It seems theoretically possible to balance the budget financially but still see price-level inflation.

I haven't done any specific investigation into the GND, but it seems uncontroversial that it will involve allocating substantial real resources to the creation of a nonpolluting power, transportation, and agricultural infrastructure. However, the effect on the real economy and the price level seems uncontroversially complicated. Some of the real resources will be previously unallocated, and we will simply be transferring demand from welfare-supported to work-supported, with no effect on the price level. Some of the demand created will indirectly cause an increase in private production, putting unused industrial capacity to work; the increase in circulating money will cause a corresponding increase in real private production, and again have no net effect on the price level. And some of the real resources will indeed be transferred from private production with no corresponding offset; taxes, "enforced" borrowing, and other monetary interventions will be needed to keep price inflation manageable.

I don't know of (and, like Lee A. Arnold above, would very much like to see) a model showing what effect something like the GND would have on the real economy. Under normal circumstances, the fiscal impact is a good proxy for the real impact. But circumstances are far from normal, so think that the fiscal impact is no longer a valuable proxy for modeling the real impact.

MisterMr 07.18.20 at 10:11 am ( 4 )

"The ultimate constraint on money creation is inflation. That hasn't been a problem lately and (as I'll argue in more detail later) the world is in need of a fair bit of inflation, probably at an annual rate of about 4 per cent for the foreseeable future. It's unclear how much expansion of the monetary base would generate this outcome, while avoiding the risk of a resurgence of inflation like that of the 1970s"

I don't agree that this is the problem: IMO the direct cause of [keynesian] inflation is the wage-price spiral, and not money creation per se (this also implies a problem, which is that if we want an high level of employment because we want an higer bargaining power for workers we can't really avoid wage-price spirals and therefore inflation).

Money creation by itself creates wealth, not income, and the kind of economic policies we had in recent decades caused an increase in the wealth/income ratio (or in other words the creation of a lot of fictitious capital) more than inflation.
So the real problem of "money creation" today is that it generates financial bubbles, rather than inflation.
The difference between money printing and government debt, from this point of view, is just that money is a 0% interest financial asset, whereas bonds bear at least some interest, so money creation pushes the general interest rate down more than bond creation, but this again is a consequence of the increase of the wealth/income ratio (since more wealth extracts profits from the same quantity of income).

"Substantial reductions in private consumption and investment will be needed to make room for the required public expenditure, and that can only be achieved through a combination of taxation and debt."
In my view the problem is that taxation is needed to avoid bubbles, and therefore what we need is to tax income from wealth and wealth itself (in order to push down the wealth/income ratio).
To put it in more familiar keynesian terms, the problem is that the ex-ante saving rate is too high, so that currently we need an increase in debt levels (bubbles) to ricycle ex-ante savings into consumption; we need taxation to push down the ex-ante saving rate.

But, the problem is, is it possible to have a capitalist economy running without economic crises while the wealth/income ratio goes down (which means that a lot of people see their relative wealth go down)?
IMO this is really difficult, and also explains the political problem for policieswhose purpose is to push down the wealth/income ratio, since these policies look like just some way to be mean against wealth owners, without an immediate economic reason, and when the bubble pops everyone blames the banks and the financial sector, not the excessively high ex-ante saving rate, that is instead perceived as a virtue.

Bradley C Kuszmaul 07.18.20 at 10:38 am ( 5 )

Recent quantitative easing of only 2% of GDP doesn't provide much of a bound on how much can be tolerated without causing too much inflation. Inflation is still up against the zero lower bound, and it seems plausible that we could get more than a factor of two more money creation. Which does get us into the green new deal range.

John Quiggin 07.18.20 at 10:40 am ( 6 )

@1 The Green part is (comparatively) easy and low cost. It's the New Deal (free college tuition, Job Guarantee, single-payer health etc) that will require a bit transfer of resources.

Lee A. Arnold 07.18.20 at 11:27 am ( 7 )

@6 Transfers of real resources or financial resources? Single-payer requires an expansion of suppliers in the healthcare sector to meet the uncovered demand, and those suppliers will be new taxpayers. College learning will be going more on-line, a tendency accelerated by this pandemic and anticipating the next pandemic, so we need, not many more buildings, but more professors, but they too will be new taxpayers. The jobs guarantee could be structured to generate sector expansions, not merely makework. So couldn't all of these eventuate in expanded sectors, ergo more taxes? Government investment at rock-bottom interest rates?

bob mcmanus 07.18.20 at 11:50 am ( 8 )

How much is enough (to pay for our policy goals)?

Only too much is enough, we want to print and spend enough to change expectations.

Currently, the dollar is the reserve currency I think largely for "safe haven" reasons, i.e. the oligarchs who have all the assets believe the US will be the last place to inflate, devalue, or elect an expropriating left-wing gov't.

After 40+ years of capital share gains and worker immiseration in terms of real and social wages and labour solidarity, and assuming we have under President S Kelton control only of printing and spending but no ability to raise progressive redistributive taxes how much MMT financed spending will it take to have the average worker believe that her real wages, social wages, standard of living, opportunities etc will improve relative to capital and the rich for the next forty years? And have the oligarchs also believe it?

That's how much.

Alan White 07.19.20 at 1:21 am (no link)

John, what say you about US/global military spending, which if cut and reallocated in the low double digits could transform society? Do you think it's just politically untouchable? If the US cut its military budget by say 25% it would still be formidable, especially given its nuclear deterrent. For the life of me I can never understand why military budgets are sacrosanct. Is it just WW2 and Cold War hangover? Couldn't the obvious effects of climate change and the fragility of the economy subject to natural threats like the pandemic change attitudes about overfunding the military (like the debacle of the F-35 program)?

J-D 07.19.20 at 2:03 am ( 14 )

@Tim Worstall: The political poles shifted, but less than you might think. Southern pols were overwhelmingly opposed, and nearly all of them were D (the entire old Confederacy had only 11 R Reps and only 1 R Senator). Northern pols, including Dirksen, were overwhelmingly in favor, and they were split between the two parties. But if you break it down by party and region, a larger percentage of Ds than Rs voted for the bill within each region. https://www.theguardian.com/commentisfree/2013/aug/28/republicans-party-of-civil-rights

An interesting example of Simpson's paradox.

I don't know about the Democratic Party, but there was an important shift in the Republican Party: the thing is, that shift took place in the nineteenth century, not the twentieth. At the end of the Civil War, the Republican Party really was the party of civil rights, with champions of equality prominent within it; after the end of the Reconstruction this ceased to be true. Of course the Republican Party has changed further since then, because everything changes; but it hasn't changed as rapidly since the late nineteenth century as it did after the Civil War.

John Quiggin 07.19.20 at 3:50 am ( 15 )

Alan White @13 Military spending is about 3.4 per cent of US GDP, compared to 2 per cent or less most places. So that's a significant and unproductive use of resources that could be redirected to better effect. But the income of the top 1 per cent is around 20 per cent of total income. If that was cut in half, there would be little or no reduction in the productive services supplied by this group. If you want big change, that's where you need to look.

eg 07.19.20 at 4:08 am ( 16 )

@Alan White #13

I think some of the reluctance to cut military spending in the US is the extent to which it acts as a politically unassailable source of fiscal stimulus and "welfare" in a country where such things are otherwise anathema. Well, that and all of the grift it represents for the donor class.

[Jul 15, 2020] -There Are No Free Lunches- - Former Reserve Bank Of India Chief Explains Why MMT Will Never Work -

Jul 14, 2020 | www.zerohedge.com

As Joe Biden tries to split the difference between the midwestern swing-state voters and the Sanders faithful, he's released an economic plan - a plan that bears the imprimatur of his one-time foe Bernie Sanders - that, in its attempt to be everything to every one, effectively promises everything to every one.

Buy American. Green New Deal. Corporate tax hikes. Trillions of dollars spent on infrastructure to install the latest eco-nonsense with money that should be going to roads, bridges, rails and airports. Docks and highways. Things people actually need and use. And who knows? Depending on his running mate, maybe we'll get a massive student-debt jubilee, too. All on the federal government's tab.

Now that MMT has gone from fringe idea to mainstream, making Stephanie Kelton, a cryptomarxist who believes that the link between value and money can be completely severed, so long as we tax the wealthiest among us enough to keep inflation low. It doesn't take a genius to suspect that an 'economic theory' grounded in the idea that governments can take on unlimited amounts of debt and never stick anybody with the tab sounds absurd - even dangerous.

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We say dangerous because Kelton's greatest sin is offering pandering politicians more cover to encourage their spendthrift ways. During a recent interview with Macro Hive, former Central Bank of India Governor and University of Chicago Professor Raghuram Rajan delivered a succinct and insightful explanation of why MMT is so dangerous.

"We talked about sustainability and one of the big topics in markets at least is this whole idea of QE MMT infinity, the ability of sovereigns to borrow. Now in developed countries, they have historical capital they've built up and credibility," Rajan's interviewer began. "But you're starting to also see this idea...you're starting to see more emerging market countries experiment with it, including Indonesia and several others."

But at the same time "yields are very low, and if you look at emerging market spreads, they're very low...so markets are telling you that they aren't worried. Yet we know debt levels are high, and there's more talk in debt markets of QE and MMT."

Does the fact that markets seem content with the status quo (at least for now) validate Kelton's argument?

Of course not, Rajan explained. Because while the complexities of the global financial system, and the dollar's role within it, have allowed the Fed to spearhead this great monetary, as the veteran central banker explained, there's no such thing as a free lunch.

"We know that markets can be complacent until a certain point and then they turn on a time. We are at this point in a benign phase supported by an enormous amount of central bank liquidity emanating from the primary reserve currencies, the euro area, the US Fed and to some extent the Bank of Japan and the Bank of England."

"But we must also recognize is that there are no free lunches. If there's one statement you want to keep to pound into the head of every policy maker, it's that there are no free lunches. If you borrow today, there is a presumption that it will be repaired at some point, so you are in a sense taking away resources from somebody else in the future."

" Now it may be a generation or two down the line will be on the hook for this ...whether they can pass it on to their children is an open question...but you're definitely taking away their ability to borrow by borrowing today."

https://lockerdome.com/lad/13084989113709670?pubid=ld-dfp-ad-13084989113709670-0&pubo=https%3A%2F%2Fwww.zerohedge.com&rid=www.zerohedge.com&width=890

.While burdening future generations doesn't seem to come up much in cryptomarxist essays about the moral imperative of expansive fiscal spending - some have gone so far as to argue that the federal government has a moral obligation to forgive student debt - Rajan acknowledges that the idea is "seductive" for all the wrong reasons.

"So the idea that there are free lunches...which certainly is what the lay person takes away from MMT...is very sort of attractive, seductive - but it's absolute nonsense."

If that's the message that's going to be communicated, then that's wrong.

Asked to elaborate, he continued...

"There are times when you can spend a little bit more, but you are still making a trade off and evaluating this trade off well...I think that's the right thing to do. If that's the message from MMT, then I'm fine with that. There are periods where you have more leeway."

"The message can't be 'Don't Worry, Be Happy' it has to be 'yes take advantage of periods when you have a little more spending capacity but use it wisely, because there's no such thing as a free lunch and you will have to repay it at some point... that's what any sensible economic theory will tell you, and I think that's what we understand now."

"When banks aren't lending, when inflation is low, it is possible for the central bank to expand its balance sheet somewhat ...and finance more activities that the government wants to undertake. That doesn't mean it's free debt it's equivalent to debt issued by the government - think of the central bank issuing debt as the same as the government issuing debt: it's the consolidated balance sheet you're looking at."

"Somebody is responsible for payment, it's either the central bank or the government."

"At low interest rates it doesn't really matter who it is, but as inflation picks ups it does matter a little more who it is because the central bank often is financing itself with effectively forced loans from the banking sector, and there's a limit to how much the banking sector is willing to do that, especially as economic activity picks up."

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"So my sense is yes there is some room now but it doesn't mean the debt level doesn't matter and it doesn't mean that we should just keep spending without thought of who's going to repay. And I think the big philosophical issues are how much are you going to bail out companies...why should Joe Schmoe...why should his taxes go to bail out a capital owner? After all, neither of them saw the pandemic coming...neither is responsible for the pandemic...so why should one bail out the property rights of another?"

"It strikes me these guys who want to open up the government wallet and spend to protect everybody from the consequences of the pandemic don't realize that there's one person who's bearing the hit: it may not be you, but it might be your children."

"And the question is: Why do they have to pay when they have no part in this?"

Remember: As Rajan explains, we must recognize that our resources are limited and use them wisely. Keep that in mind when Democratic politicians are trying to spend trillions of dollars of public money to outfit private buildings with solar panels or whatever 'Green New Deal' infrastructure travesty AOC & Co come up with.

* * *

Source: Macro Hive

[May 10, 2020] MMT and COVID-19

May 10, 2020 | www.moonofalabama.org

financial matters , May 9 2020 22:43 utc | 34

The Fed is just following the Congressional mandate of supporting the people who fund our political system.

It should be clear that the stock market doesn't care about Main Street when you see it still going up with massive levels of unemployment.

MMT states that the Fed can create these funds that are handed out to business by the trillions but that is not what MMT 'policy' would want.

Most MMT people are actually against handouts to people in the form of a basic guaranteed income.

A major cornerstone of MMT policy though is a Job Guarantee. In times like these they would very much like to see employment supported by these government funds. Not only the basic job pool of a minimum wage job but also supporting more highly paid skilled employment such as supervising infrastructure projects etc.

MMT is more concerned with resources than money per se. It doesn't help to have money if people aren't making stuff, providing food and services etc.

[Apr 28, 2020] Hudson gives him the primary credit for providing the foundation for Modern Monetary Theory

Apr 28, 2020 | www.moonofalabama.org

karlof1 , Apr 27 2020 0:25 utc | 53

Some will know who Hyman Minsky was, some won't. Hudson gives him the primary credit for providing the foundation for Modern Monetary Theory, and he gets praise from Keen, Wolfe and many others too. On the occasion of his 100th birthday, here's a long essay that seeks the following:

"But the question still stands: Was Minsky in fact a communist? Of course not. But, a century after his birth, it is useful to clarify often neglected aspects of his intellectual biography."

Since Minsky's referenced so often by Hudson particularly, I think this piece will be helpful for those of us following the serious economic issues now in play. I'd reserve an hour for a critical read.

[Apr 24, 2020] The Use and Abuse of MMT

Apr 24, 2020 | www.moonofalabama.org

karlof1 , Apr 23 2020 18:19 utc | 35

Musburger @3--

I highly suggest you read "The Use and Abuse of MMT" by Michael Hudson, with Dirk Bezemer, Steve Keen and T.Sabri Öncü.


Leser , Apr 23 2020 18:55 utc | 41

MMT is brilliant and it's really embarrassing that it took The Deadliest Pandemic™ for some folks to come round to it. We all collectively print an extra bit of money - and give it to each other!

There are historic examples documented of successful applications of the concept, look no further than to the earnest witness of Baron Munchausen pulling himself out of a swamp by his own hair. https://en.wikipedia.org/wiki/Baron_Munchausen

karlof1 , Apr 23 2020 19:22 utc | 48
Hudson also has another video posted to his site , "An interview on the Radical Imagination: Imagining How Financial Parasites and Debt Bondage Are Destroying Us," which is based on his book Killing the Host . It's a recent video interview that's @50 minutes long prefaced by the Occupy Wall Street Anthem and introduction.

One aspect of MMT that must be made clear is it advocates the use of public banking or the Treasury to pump capital in the form of money into the productive economy , not the parasitic economy the Fed supports--the difference is huge and vital. For MMT to succeed within the Outlaw US Empire, the Fed must be liquidated. For more, please read the essay I linked to @35.

suzan , Apr 23 2020 19:56 utc | 50
Musburger @ 3 : "What do you folks think about MMT?"


Re-inflation of a depressed economy can be achieved by government spending into:
public investment
employment
income transfers
income support
labour
tangible capital
infrastructure.

This is "good" MMT.

"Bad" MMT, or fake MMT, is government spending into WallStreet, handouts to:
the banks
large corporations
speculators
bondholders.

The March 2020 CAREs Act is bad MMT as was the 2008 bailout. This one is same as that one but "on steroids."
Both bailouts further empower(ed):
rentiers (the landlord class),
monopolies,
the financial creditor class
and cast most of the rest of the US population into reduced circumstances, poverty and/or debt servitude. They burden the working economy with overhead and debt that cannot be paid. Bad MMT.

While the MMT school has a healthy diversity within it, USG applications have flipped the theory on its head, says Hudson. See below for link.

(Remember Cheney's, "We are all Keynesians now"? )

Worse, Bad MMT does more than simply bailout the top 1%. It also increases the parasitic power of financialization on the real economy. As we have repeatedly seen, now most dramatically, the financial sector is incapable of planning for anything other than its own fictional valorization.

Libertarians' freedom from government dogma excoriates against centralized planning and yet, ironically, the end result of their "government is bad" path forced upon us in USA led directly to central 'planning' by default -- by parasitic-on-the real-economy privatized finance sector, a form of fascism not democracy or liberty.

USA'ns public health crisis occurs as states, which are required by law to not run deficits, face huge costs that will force more austerity on their populations. More callous, they are forced to compete against each other as they purchase essential equipment and technology (from for-profit privateers) to deal with the highly infectious novel virus, and the fed indemnifies the privateer mask makers!!!

What is the root of inequality today? Debt and the monopolization of real estate.
What are solutions?
Wipe out and roll back debt overhead on production and consumption.
This is "good" MMT.
Bad MMT furthers the debt burden on society, concentrates monopolization and cements in central planning by parasitic private finance sector.


https://michael-hudson.com/2020/04/covid-plan-more-capital-gains-not-profits/

[Apr 21, 2020] On monetary policy: there is always money for corporate welfare, the military, tax relief and benefits for the oligarchy but never money for health care, education, infrastructure

Notable quotes:
"... The budget deficit is simply a ruse to make you believe that government funding is limited when in reality they create money on demand with a few keystrokes. ..."
"... Thus there is always money for corporate welfare, the military, tax relief and benefits for the oligarchy but never money for health care, education, infrastructure, etc. ..."
Apr 21, 2020 | www.moonofalabama.org

Noah Way , Apr 21 2020 16:42 utc | 75

@ #6 Passer by

In the broadest sense the US deficit is a measure of how much money the govt has created (not entirely accurate as the creation of money - really debt - has been largely outsourced to private banks). If the national debt was 'paid off' It would suck all the money out of society and the economy would collapse.

The Fed doesn't need taxes as revenue as it just creates whatever money it needs. The budget deficit is simply a ruse to make you believe that government funding is limited when in reality they create money on demand with a few keystrokes.

Thus there is always money for corporate welfare, the military, tax relief and benefits for the oligarchy but never money for health care, education, infrastructure, etc. The deficit is 1/2 of a balance sheet, the deficit on the govt side is balanced by a surplus (money in circulation) in the economy. Note that states are revenue constrained and depend on taxes and federal outlays to operate as they cannot create their own money on demand.

But what about inflation? Too much money in circulation lowers its value. Taxes are the real federal economic regulatory mechanism. When there is inflation, higher taxes directly remove money from circulation. The disinformation campaign is that interest rates control inflation, which has a) repeatedly been demonstrated false and b) is simply another system of rewards for the banking cartel.

The best metaphor is a sink. The faucet is the creation of money, the basin is the economy, and the drain is taxes. When the sink starts to overflow (inflation) the solution is to open up the drain (raise taxes).

Note also that this is for a sovereign economy, one that is controlled by the government. The EU has effectively destroyed all the sovereign economies in Europe with its central bank. Thus Greece, Italy, Spain, etc. have no control of their own economies and as such are unable to economically regulate themselves and subject to foreign predatory forces.

gm , Apr 21 2020 16:51 utc | 77

@Posted by: Noah Way | Apr 21 2020 16:42 utc | 75

Shorter version: "Deficits Don't Matter" Dick Cheney, 2002.
https://www.chicagotribune.com/news/ct-xpm-2004-01-12-0401120168-story.html

[Mar 15, 2020] While it is still popular to claim that the United States has never defaulted on its debt, this is a myth

Mar 15, 2020 | www.moonofalabama.org

Likklemore , Mar 14 2020 22:42 utc | 44

@c1ue 28 and 30

Given that 2/3rds or more of the debt is owed to Americans

suggest you whisper that to the Chinese, other sovereign holders and non-US individuals - you know those Tbills and Tbonds.

Nobody has a better credit rating than the USG - because the USG can literally not default.

Really? Why did S&P downgrade US credit rating in 2014?

and

what do you think happened on August 15 1971? that date can be categorized as recent!

LINK


[.]
While it is still popular to claim that the United States has never defaulted on its debt, this is a myth. The US has been forced to default a couple of times throughout history, the last of which being when Richard Nixon&rsquo closed the gold window. By cutting the ability of foreign governments to redeem US dollars for gold, America was allowed to pay back past debt with devalued fiat money. This form of default has long been a popular option for governments with debt obligations it can't or won't honor.

Of course, as Peter Klein wrote last week, even Trump's suggestion of the US restructuring its debt isn't the doomsday scenario CNBC talking heads have made it out to be, noting that:

[T]he idea that the US can never restructure or even repudiate the national debt -- that US Treasuries must always be treated as a unique and magical "risk-free" investment -- is wildly speculative at best, preposterous at worst.

Murray Rothbard himself advocated for outright repudiating the national debt, arguing:

The government is an organization, so why not liquidate the assets of that organization and pay the creditors (the government bondholders) a pro-rata share of those assets? This solution would cost the taxpayer nothing, and, once again, relieve him of $200 billion in annual interest payments. The United States government should be forced to disgorge its assets, sell them at auction, and then pay off the creditors accordingly.

Trump himself has even touched on the possibility of selling of assets held by the Federal government as a form of debt reduction.[.]

Oops then there was 1979 said caused by word-processing error
so we defaulted on some of them."

c1ue dear friend, the current level of US debt is unsustainable. Never mind the happy cheerleaders promoting mighty U.S. is the wealthiest nation on earth. Have no fear our dollar is good as gold, backed by the full faith and credit of Uncle Sam.

Here is a brief history of U.S.defaults starting with year 1790- LINK

[Jan 16, 2020] Will The US Obsession With Sanctions Destroy The Dollar

Notable quotes:
"... Authored by Ryan McMaken via The Mises Institute, ..."
"... "Washington is treating the EU as an adversary. It is dealing the same way with Mexico, Canada, and with allies in Asia. This policy will provoke counter-reactions across the world." ..."
"... The National Interest ..."
"... Treasury's War: The Unleashing of a New Era of Financial Warfare ..."
"... "We must increase Europe's autonomy and sovereignty in trade, economic and financial policies ... It will not be easy, but we have already begun to do it." ..."
Jan 16, 2020 | www.zerohedge.com

by Tyler Durden Thu, 01/16/2020 - 17:50 0 SHARES

Authored by Ryan McMaken via The Mises Institute,

When the US places financial sanctions one one country, it de facto sanctions many other countries as well -- including many of its allies.

This is because not all countries and firms are interested in participating in the US sanctions-based foreign policy.

Sanctions, after all, have become a favorite go-to strategy for American policymakers who seek to isolate or punish foreign states that don't cooperate with US international policy goals.

In recent years, the US has been most active in imposing new sanctions on Russia and Iran, with many consequences for US allies who are still open to doing business with both of those countries.

The US can retaliate against organizations that violate US sanctions in a variety of ways. In the past, the US has sued firms such as the Netherlands' ING Groep and Switzerland Credit Suisse. Both firms have paid hundreds of millions of dollars in fines in the past. The US has been known to go after individuals .

US bureaucrats like to remind firms that penalties await them, should then not buckle under US sanctions plan. In November 2018, for example, US Secretary of State Michael Pompeo announced :

I promise you that doing business in Iran in defiance of our sanctions will ultimately be a much more painful business decision than pulling out of Iran.

Fear of sanctions has caused some firms to stop work mid project, such as when Swiss pipe-laying company Allseas Group abandoned a $10 billion pipeline that was nearing completion.

Not surprisingly, these firms -- who employ people, pay taxes, and contribute to economic growth -- have put pressure on their governments to protest the mounting interference from the US into private trade.

As a result, some European politicians are increasingly looking for ways to get around US sanctions . In a tweet last week, Germany's deputy foreign minister Niels Annen wrote "Europe needs new instruments to be able to defend itself from licentious extraterritorial sanctions."

Another "senior German government official" concluded, "Washington is treating the EU as an adversary. It is dealing the same way with Mexico, Canada, and with allies in Asia. This policy will provoke counter-reactions across the world."

But how is the US so easily able to sanction so much of the world, including companies in huge and influential countries like Germany?

The answer lies in the fact the US dollar and the US economy remain at the center of the international trade system.

SWIFT: How the US Sanctions the World

By the waning days of the Cold War, the US dollar had become the dominant currency in the non-communist world, thanks to the Bretton Woods agreement, the petrodollar, and the sheer size of the US economy.

Once the Communist Bloc collapsed, the dollar was poised to grow even more in importance, and the world's financial institutions searched for a way to make global trade and investing even faster and easier.

Henry Farrell at The National Interest describes what came next:

Financial institutions wanted to communicate with other financial institutions so that they could send and receive money. This led them to abandon inefficient institution-to-institution communications and to converge on a common solution: the financial messaging system maintained by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) consortium, based in Belgium. Similarly, banks wanted to make transactions in the globally dominant currency, the U.S. dollar. ... In practice, the physical infrastructure, for a variety of efficiency reasons, tended to channel global flows through a small number of central data cables and switch points.

At the time, Europe was still years away from creating the euro, and it only seemed natural that a centralized dollar-transfer system be developed for all the world.

SWIFT personnel have always maintained their organization is apolitical, neutral, and only interested in providing a service. But geopolitical realities have long intervened. Farrell continues:

The centralizing tendencies meant that the new infrastructure of global networks was asymmetric: some nodes and connections were far more important than others. ... What this meant was that a few states -- most prominently the United States -- had the latent ability to transform the global economic infrastructures ... into an architecture of global power and information gathering.

By 2001, the power of this centralized system had become apparent. And in the wake of 9/11, the US used the "War on Terror" and an opportunity to turn SWIFT into an enormous international tool for surveillance and financial power.

In his book Treasury's War: The Unleashing of a New Era of Financial Warfare Juan Zarate shows how the US Treasury officials pressured SWIFT and its personnel to provide the US government with the means to use this international financial "plumbing" to deprive the US's enemies of access to markets.

This started out slow, and SWIFT officials were concerned it would become widely known that SWIFT was becoming politicized and largely a tool of the US and US allies. Nevertheless, the American regime pressed its advantage, and by 2012 "for the first time ever, SWIFT unplugged designated Iranian banks from its system, in accordance with a European directive and under the threat of possible US legislation."

This only strengthened worries among both world regimes and the world's financial institutions that the basic technical infrastructure of the international financial system was really a political tool.

The World Searches for Alternatives

Naturally, Russia and China have been highly motivated to find alternatives to SWIFT. But even perennial US allies have grown far more wary of leaving the financial system in a place where it can be so easily dominated by the US regime. If Iranian banks can be "unplugged" so easily from the global system, what's to stop the US from taking similar steps against German banks, French banks, or Italian banks?

This, of course, is an implied threat behind US demands that European companies not try to work around US sanctions or face "punishment." From the US perspective, if Germans refuse to kowtow to US policy, then there's an easy solution: simply cut the Germans off from the international banking system.

Consequently, Germany's Foreign Minister Heiko Maas announced in 2008

"We must increase Europe's autonomy and sovereignty in trade, economic and financial policies ... It will not be easy, but we have already begun to do it."

By late 2019, the UK, France, and Germany had put together a workaround called "INSTEX" designed to facilitate continued trade with Iran without using the dollar and the SWIFT system built upon it. Belgium, Denmark, Finland, the Netherlands, Norway and Sweden have joined the system as well.

As of January 2020, however, the cumbersome system remains unused. But we remain in the very early stages of European efforts to get a divorce from the dollar-dominated financial system. The INSTEX system has been devised, for now, for a limited purpose. But there is no reason it cannot be expanded in the future. The short-term prospects for a functional system are low. Longer-term, however, things are different. The motivation for a long-term workaround is growing. The Trump administration has embraced showmanship that looks good in a short-term news cycle, but which encourages US allies to pull away. Farrell continues:

Unlike Obama, Donald Trump did not use careful diplomacy to build international support for [new sanctions] against Iran. Instead, he imposed them by fiat, to the consternation of European allies, who remained committed to the [Iran agreement put in place under Obama]. The United States now threatened to impose draconian penalties on its allies' firms if they continued to work inside the terms of an international agreement that the United States itself had negotiated. The EU invoked a blocking statute, which effectively made it illegal for European firms to comply with U.S. sanctions, but without any significant consequences. SWIFT, for example, avoided the statute by never formally stating that it was complying with U.S. sanctions; instead explaining that it was regrettably suspending relations with Iranian banks "in the interest of the stability and integrity of the wider global financial system."

All of this is viewed with alarm by not only Europe, but by China and Russia as well. The near-constant stream of threats by the US administration to impose ever harsher limits and sanctions on both China and Europe has pushed the rest of the world to accelerate plans to get around US sanctions. After all, as of mid-2019, the US had nearly 8,000 sanctions in place against various states and organizations and individuals. The term now being used in reference to American sanctions is " overuse ." It was one thing when the US imposed sanctions in some extreme cases. But now the US appears increasingly fond of using and threatening sanctions regularly, without consulting allies.

This makes continued US dominance in this regard less likely as allies the world pour more and more resources into ending the US-SWIFT control of the system. In a 2018 report, "Towards a Stronger International Role of the Euro," the European Commission described U.S. sanctions as " wake-up call regarding Europe's economic and monetary sovereignty. "

The effort still has a long way to go, but perhaps not as far as many think.

Source.

The dollar remains far ahead of the euro in terms of the dollar's use as a reserve currency, but the dollar and the euro are move evenly matched when it comes to international payment transactions.

If the rest of the world remains sufficiently motivated, more can certainly be done to rein in dollar-based sanctions. Indeed, in 2019, former US Treasury Secretary Jacob Lew admitted :

the plumbing is being built and tested to work around the United States. Over time as those tools are perfected, if the United States stays on a path where it is seen as going it alone there will increasingly be alternatives that will chip away at the centrality of the United States.

If the US finds itself not longer at the center of the global financial system, this will bring significant disadvantages for the US regime and US residents. A decline in demand for the dollar would also lead to less demand for US debt. This would put upward pressure on interest rates and thus bring higher debt-payment obligations for the US regime. This would constrain defense spending and the ability of the US to project its power to every corner of the globe. At the same time, central bank efforts to drive interest rates back down would bring a greater need to monetize the debt. The resulting price inflation in either consumer goods or assets would be significant.

The fact none of this will become obvious next week or next month doesn't mean it will never happen . But the US's enthusiasm for sanctions means the world is already learning the price of doing business with the United States and with the dollar.


Arising , 11 minutes ago link

Sanctions are a weak man's weapon when he can't/won't negotiate.

Maghreb , 29 minutes ago link

https://en.wikipedia.org/wiki/Anti-Nazi_boycott_of_1933 January....

https://en.wikipedia.org/wiki/Executive_Order_6102 April

Took three months to pass the legislation to seize control of the Gold supply even though they knew the U.S defaulted on the War debt of first world war and America was only partially involved.

Better move fast. U.S has not declared War for real since Pearl Harbour.

Best way to avert it is to look at the economic calculations being made and slow what they need for this extended and probably apocalyptic war to start.

They need man power for what is planned but I have a suspicion this time they are planning for megadeath on all sides.

Schroedingers Cat , 2 hours ago link

The Us Dollar will be destroyed sometime between now and 1 week before the Sun turns into a red giant and swallows the Earth.

uhland62 , 1 hour ago link

Nothing will be destroyed. Situations like this are about chipping away and crumbling. Rome was not built in a day. People sit in wait to find a weak spot of the hegemon and if you think that the US is a perfect and perpetual hegemon than you are as delusional as Obama.

He bragged in 2015 that he/they twisted arms of countries when they did not do what he 'needed' them to do. (See y-tube). Every country, every person who had arms twisted is sitting in wait to hit back. Chisel away, apply needlepricks, obedience can be forced; desire for revenge never dies.

You need to treat people well on your way up because you are meeting them all again on your way down.

CashMcCall , 2 hours ago link

Will The US Obsession With Sanctions Destroy The Dollar?

Hopefully it will destroy the US BULLY TOO...

This saga of Sanctions all started with the Black Jesus Obama and Russia. It was a disaster then, harmful to Russian women and children and never affect the oligarchs. It is Stalingrad stuff.

Then along comes the pile of **** known as the Orange Jesus. Considering Trump's pretend hatred of Obama, he sure loved the community organizers weaponizing of the Dollar Reserve... So much so the orange ******* now has 40% of the world population under Dollar Reserve Sanctions. More Stalingrad ****. And the world hates it.

So there is no question that nations will find ways around sanctions and the mother fking pencil necked poodles that support this mfkirng ****. They can't comprehend that if TRUMP does this to some country, he can do it to them.

The Dollar Reserve was intended to be apolitical a means of global commerce. At Bretton Woods, Maynard Keynes addressed the Reserve Currency to avoid this. He recommended a synthetic reserve currency composed of five of the world's leading currencies called the BANCOR. He was voted down by the US delegation that only would accept the Dollar over the Pound. Britain was too weak after the war to oppose the US. So that set up the Dollar Reserve by intimidation and bullying. What else is new.

Now the US uses their 800 military bases to enforce their Sanctions and Dollar reserve weaponizing.

This will come to an end. Europe is a larger economy than the US and Asia is larger than the US and Europe Combined. So this dollar reserve weaponizing crap will end.

Interesting isn't it that the two most economically illiterate presidents in history, love sanctions. I promise, the Dollar reserve as the primary currency of exchange is THE DEAD MAN WALKING.... They are also the most RACIST presidents in US History.

CashMcCall , 2 hours ago link

Goldamn did a white paper on this... If the US loses the Dollar Reserve the GDP would tank 30%. So yeah... welcome to the the stone age and fighting in the streets. But to neutralize the dollar Reserve damage only requires competition to the US Dollar.

So far the Yuan is not printed in enough quantity to compete in a big way. The Euro has never shown the inclination to be anything but a poodle.

WWII has never ended. Look at NATO... who are they opposing... RUSSIA. Give it a rest. Russia is not going to attack Europe. So this NATO military facade is about to crumble. Trump attempting to get NATO to attack Iran and enter the Middle east is laughable and won't happen. Only the British Poodles are stupid enough for that.

And why is Britain fking with anybody... Doesn't the Queen have enough RYSIST issues now that Harry and Megan have called her a RYSIST? Love to see Britain go it alone but they are real pussies and have filled the world with hatred so there will be consequences.

alphasammae , 3 hours ago link

Sanctions use the same philosophy of the the Mafia and having to use it means the days of the dollar hegemony are gradually ending. What goes around comes around. yin-yang.

jm , 3 hours ago link

Probably, but it will take a while. Alternatives are few at present.

CashMcCall , 2 hours ago link

YES but for the first time they are present. The Euro is a Reserve Currency but Europe has never asserted its status. Likely due to Germany. Germany destroys Europe in so many way. Merkel is pathetic.

Now the Yuan as of 2016 is a reserve currency and they are trading Iron ore from Australia and Brazil in Yuan. Also China has a 24 Trillion dollar internal commodities market that trades in Yuan. So the mechanics of massive Trade are already set in place in China and Asia.

Traditionally the largest trading nation had the reserve currency. The US is no longer the largest trading nation. They are the largest debtor nation however.

Maghreb , 21 minutes ago link

This only Bretton woods post World War II rules. Back in the old days gold was trusted because people who had it actually hd to produce or trade for it. War economy is always pure fiat even if it means killing your own soldiers and robbing their families.

https://www.pbs.org/wgbh/frontline/article/veterans-face-greater-risks-amid-opioid-crisis/

If it gets dirty everyone is going to have to play the game. Why do you think they are still dealing with Afghanistan like its the centre of the universe for the last 20 years.

PTSD and ******** propaganda on young men is enough to push them over the edge. Same thing for the nasty **** that happens to women.

All these currencies are pure fiat floating against perceived demand and ******** technocrats. People want to die in these situations they are going to monetize human misery. The opiate epidemics in the 60s pushed the U.S of the Gold standard. Where do you think the French got all those U.S dollars from straight after the war.

https://en.wikipedia.org/wiki/French_Connection

https://en.wikipedia.org/wiki/Nixon_shock

https://www.youtube.com/watch?v=eMs6eI1VRBQ

fackbankz , 1 hour ago link

Ever heard of this little thing called cryptocurrency? It can't be weaponized like a CB currency because there is no centralized authority and no need for a trusted third party. It can cross international borders at the speed of light and cheaply to boot. It's quite clever. I imagine it will become all the rage in the next couple years.

Maghreb , 35 minutes ago link

I dont think you understand the concept of war. They napalmed kids to heard their parents into concentration camps. That was the Pentagon. Theyre not going to spare your internet service provider in the name of free trade and libertarian finance.

Bit coin can be used the same way as the military script just by switching off your computer and forcing you to adopt another currency. They did it every few months in Vietnam. IBM ran the analytics with a super computer and they still didnt beat the Tet Offensive which was just people letting of steam for lunar new year by killing anyone who worked with the Americans.

https://en.wikipedia.org/wiki/Military_payment_certificate

https://en.wikipedia.org/wiki/Strategic_Hamlet_Program

After World War II penicillin was a global commodity used as black market currency to cure venereal disease.

https://www.bbc.com/news/technology-50851420

Hedge. Iodine for fallout. Water purification tablets. Toilet Paper and Sanitary wipes and shoes. Batteries. You wont be allowed to grow food when it starts.

Demeter55 , 3 hours ago link

Economic sanctions, sanctions of any kind, are like pepper: use cautiously, sparingly, and only when the recipe calls for it. Don't inhale, either. Massive sneeze attacks can follow and the dish can be ruined.

pedoland , 3 hours ago link

the Fed destroyed the dollar

madashellron , 3 hours ago link

IT'S CALLED SHOOTING YOURSELF IN THE FOOT, NOT ONCE BUT A THOUSAND TIMES!

Mustafa Kemal , 3 hours ago link

CAATSA, Countering American Adversaries Through Sanctions,

https://www.treasury.gov/resource-center/sanctions/Programs/Pages/caatsa.aspx

signed by Trump in 2017 means we have essentially entered into a world where the American regime is weaponizing sanctions to dominate the planet.


Of course, karma is a law, which cannot be avoided, and this article is right. It is only a matter of time. Moreover, he is right in that when we lose this status our ability to wage endless wars throughout the planet will stop. I hope to see that day.

It is my feeling that the primary reason we are not in a major war at this moment is that our "adversaries" have noted our decline, as well have many astute and not so astute ZH members have, and are waiting us out. The other is that our military is not as good as we claim and some of us know it.

https://www.amazon.com/Losing-Military-Supremacy-American-Strategic-ebook/dp/B07DVSM76H/ref=sr_1_2?keywords=martyanov&qid=1579218682&sr=8-2

Element , 3 hours ago link

... the American regime is weaponizing sanctions to dominate the planet.

Good. Because the alternative is to bomb countries.

Element , 3 hours ago link

... and are waiting us out. The other is that our military is not as good as we claim and some of us know it.

Because everyone else's military is so much better, right?

Idiot.

Mustafa Kemal , 3 hours ago link

You appear "ideologically possessed" as Jordan Pederson says; namely you do not seek the truth but have a position to promote.

Here read em and weep

https://www.amazon.com/Losing-Military-Supremacy-American-Strategic-ebook/dp/B07DVSM76H/ref=sr_1_2?keywords=martyanov&qid=1579218682&sr=8-2

logicalman , 3 hours ago link

It's hard to break with the Mob.

NotAGenius , 1 hour ago link

You don't, alive.

44magnum , 3 hours ago link

Zionist banker bucks masquerading as US Dollars.

No US dollars since 1913

3rdWorldTrillionaire , 3 hours ago link

Not true, the US Treasury issued certificates backed by silver as late as the 1960s.

Silver Fox 47 , 3 hours ago link

Truth bomb

BillEpstein , 3 hours ago link

american war whores sure have proven eisenhower to be a prophet

Silver Fox 47 , 3 hours ago link

along with Gen. Smedley Butler

indus creed , 1 hour ago link

....who, unlike Ike, was a combat General.

Element , 3 hours ago link

No

crypt007 , 4 hours ago link

GOLD should be trading currently at least at 4,800 and SILVER should be trading today at triple digits -- The Federal Reserve and PPT like to manipulate the precious metals, stop manipulating the PM morons.

Let's take a look at the SILVER chart:

SILVER -- TF = Daily -- SILVER --time frame is daily-- has developed a very well known technical pattern CUP and HANDLE -- SILVER STRONG BUY -- https://invst.ly/pie5l

Son of Captain Nemo , 4 hours ago link

$USD was already DOA when Don Rumsfeld declared that $2.3 trillion ( https://www.youtube.com/watch?v=a6pkCG9fs3I ) was missing from the DOD t he day before this was allowed to ( https://www.ae911truth.org/ ) happen!...

The rest is shall we say "academic" ( https://www.zerohedge.com/news/2019-03-29/true-size-us-national-debt-including-unfunded-liabilities-222-trillion-dollars )!!!

P.S.

"Donny Appleseed" send$ his tiding$ to the American lemming... counting all those "0"s that are only gettin bigger with each sweep of the EST "second hand".

Still allowed to be "alive" after all that damage and all these years!

NotAGenius , 1 hour ago link

See "logicalman"'s comment above. You can't break with the mob. Alive.

crypticcurrency , 4 hours ago link

I just attended a China - US conference. The chinese fund managers who spoke there said that China's economy is at a standstill and now is the time for "VULTURE" funds to be active acquiring heavily discounted firms which are over-leveraged. Not the sounds of a ready for prime time currency. And the market know as less than 2% of global reserves are Yuan as in the chart and Chinese dollar reserves are 30% of what they were years ago.

CashMcCall , 2 hours ago link

who ran the conference BANNON.

PGR88 , 4 hours ago link

Germany's deputy foreign minister Niels Annen wrote "Europe needs new instruments to be able to defend itself from licentious extraterritorial sanctions."

Dare we say the word? (((gold)))

crypt007 , 4 hours ago link

The BIG problem with the US dollar is not only the data but it is also the staggering amounts of printing, printing, printing and QE4ever that totally destroy the purchasing power of the US Dollar. Only GOLD and SILVER are the real 'store of value'.

Let's take a look at the US Dollar chart:

US DOLLAR Index -- TF = 4H -- ROUNDED TOP suggesting much lower levels ahead -- US DOLLAR STRONG SELL -- https://invst.ly/pj042

inhibi , 4 hours ago link

Like how in the 80's everybody assumed flying cars were "near future", people who think the dollar will lose (or already lost) reserve status are delusional.

It will take a long long time to ween the world off of the entire banking complex, literally made by and through the dollar.

Multiple reasons, primarily:

1) US gov still a strong presence around the world militarily and financially

2) US dollar still the #1 currency used in transactions between major firms

3) US banking system has, in its pockets, about 80% of the worlds billionaire class, which conversely, makes most of the major decisions around the world

4) SWIFT system and World Bank both huge institutions that literally hold most 3rd world countries economics (see Venezuela for examples of a 3rd world country trying to NOT do what the US wants)

Woodenman , 4 hours ago link

When you build a house of cards it can collapse faster than you can blink.

TBT or not TBT , 2 hours ago link

Tell that to the mullahs. Shades of the Berlin Wall moment for the USSR.

eekastar , 4 hours ago link

All 4 are loosing credibility fast

Consuelo , 4 hours ago link

In a static geopolitical environment, your points are valid. After all, it's been this way for a very long time. You would - and perhaps will be however, amazed at just how fast the dynamics of your 4 points can change when two near equally (and in some cases superior) military and economic world powers are geopolitically pushed to a limit they will no longer accept. And guess what? That's coming a whole lot sooner than most think.

Element , 3 hours ago link

Too much truth!

You've got the anti-crown shrieking, "The End Is Nigh!".

They'll still be screaming it in 2050, while they themselves are being lowered into a coffin.

Mustafa Kemal , 3 hours ago link

The days of US Military Supremacy are over

https://www.amazon.com/Losing-Military-Supremacy-American-Strategic-ebook/dp/B07DVSM76H/ref=sr_1_2?keywords=martyanov&qid=1579218682&sr=8-2

luffy0212 , 2 hours ago link

Your comparison is retarded. Economically you been overtaken

Chinese and Russians just haven't completely crash JUSA dollar to allow the world to transition away from you parasites without feeling much pain.

we know you dontunderstand the word pragmatism.

Militarily

you can be removed conventionally at any moment and be made to bleed dry

again Pragmatism comes into play

what better way then to allow the war criminals to crumble on their own and left stranded around the world once dollar goes bloop


alternative payment systems are being implemented and put into use

but again a transition must gradually allow for broader use to avoid the pain and aches that come with hastily made moves

again the word pragmatism comes into mind

lastly 80% is no longer the case

And the percentage keeps decreasing day by day

yerfej , 4 hours ago link

EVERY ******* in Washington needs to go and be replace with people who have an interest in the well being of the country rather than their personal power plays. The world HATES the Washington assholes almost as much as the US citizens hate the bastards.

Woodenman , 4 hours ago link

Superbly inteligent coment!

JBL , 1 hour ago link

biden....36 yrs in the senate?

yeah yeah, the woke electorate's gunna clean house n vote in the good guys

ted41776 , 4 hours ago link

you too can have freedom and democracy and live under the threat of losing everything you have if you don't do as you're told

WHERE DO I SIGN UP?

nope-1004 , 4 hours ago link

Sanctions are used to force another nation into compliance.

Bombs are used to force another nation into compliance.

Anyone still think the treasury and Fed aren't the biggest warmongers around? They have to be, otherwise the US dollar would be toast, as there is nothing but a military holding it up. A nation with 5% of the global population, full of fat walmart shoppers, does not have the productive means to force their will without the war machine. Ironically, that same war machine is fully funded by the foreigners the bankers bomb, as using the USD means you must hold dollar reserves. It is a grand racket.

Woodenman , 4 hours ago link

The Russia and Ukraine scandals leading to impeachment are nonsense but Trump should be impeached for hastening the demise of our reserve currency. Weaponizing the dollar was the dumbest strategy he ever came up with. Russia and China are gaining friends and influence every day while the U.S. is becoming an outcast. They are using the Carrot while all Trump knows is the Stick.

ReturnOfDaMac , 4 hours ago link

Bullshyt, it was King Dollar yesterday, it's King Dollar today, and by Gawd, it's King Dollar FOREVER!!

You will use our Dollar and dammit, you WILL like it.

CashMcCall , 2 hours ago link

Sounds like Kudlow has been back into the ding dong daddy white powder... LOL...

Don't forget SARC... some may not have captured your subtle humor.

cogitergosum , 4 hours ago link

The dollar's days as a global reserve currency are numbered because..

TRUMP LOST THE PETRODOLLAR.

The US UK Israel petrodollar system collapsed overnight with the US military having no credible response to having its base bombed. A credible response is for the US to have dealt death from the skies, destroying and severely deteriorating Iran's ballistic launch capabilities or at the least a strike on its major oil refineries. That did not happen. Why?

The US & UK airforce are outdated....in fact any conventional air force that relies on drones or stealth jets to deliver bomb payloads are outdated!

The purpose of an air-force is to bomb targets from the sky. Iranians have shown you can do it with ultra-cheap short medium range ballistic missiles which are nothing more than crap aluminum tubes filled with propellant, a low cost cell phone GPS guidance system and a big payload. You can make millions for the cost of one stealth jet!

IRAN has all US, Israel and Saudi targets mapped and gave a demo of what they can do. By the time the shitty F35s start their engines on a runway of a worthless aircraft carrier, thousands of these missiles will be launched by Iran destroying all targets within minutes of declaration of TOTAL WAR!

THE PURPOSE OF STEALTH has been defeated. There is no deterrence against ballistic missiles which are faster then aircraft! So by the time the first wave of stupid burger planes reach IRAN, all BURGER bases in Saudi Arabia, Iraq, Israel and aircraft carriers will have been destroyed! So the USA cant protect anything without losing everything!

TOTAL WAR even with a weak power like Iran means TOTAL BALLISTIC MISSILE WAR in which case everybody's base gets destroyed and who ever pushes the button fastest gets to destroy the targets fastest and everything is over in less than an hour! Since burgers dont have magic hollywood space lasers, just piece of **** F35s and outdated carriers....burgers cant defend anything! Burgers have no deterrence for TOTAL BALLISTIC MISSILE WARFARE. There is no time to start your engines and take off on a runway, the missiles are already on their way and will hit bases and aircraft carriers within 10 to 20 minutes of declaration of TOTAL WAR.

Trump killed a rook (solemani) in the game of geopolitical chess (which the Persians invented) and the mullahs in Tehran checkmated the USA and Israel by making redundant the view that only very very expensive stealth jets can accurately deliver bombs with precision! No brainer right there...a plane requires life support, complex systems just to support the idiot who is flying it to the target...a missile requires no stealth technology, its fast, accurate and deadly with no deterrent! In one stroke the mullahs revealed that the entire US air-force is obsolete against TOTAL short/ medium range ballistic missile war!

We should have had ballistic missile carriers but we dont because greedy defense contractor boomers think they are the smartest defense planners when in fact they just loved to build planes instead of realizing short range ballistic GPS guided precision missiles can do the same thing! But not much profit in that of course..

US air-force outdated = US ground troops outdated because they rely on US air-force for back up. So you have to withdraw = NO PETRODOLLAR.

As of today the US cannot defend its bases in Iraq, Israel or Saudi Arabia.... US/UK/Israel/Saudis combined cannot protect anything without losing everything!

That is called check-mate my friends. The petrodollar age has ended and the AGE OF THE PETROYUAN has begun. China copies everything the US does, they wanted their Saudi Arabia and they got all of IRAN and IRAQ.

Now Trump has to sign trade deal after trade deal because the world holds a massive amount of US securities and we have to supply real goods and services...opening up oil fields for export, everything. Burgers have to become a land of farmers and oil workers to satisfy all the US dollar holdings out there because TRUMP LOST THE PETRODOLLAR by DESTROYING US CREDIBLE MILITARY DETERRENCE for the whole world to see...the ability to provide 'SEGURIDY' AS HENRY KISSINGER would say.

Everybody now knows the US is just another power only burgers have their head up their asses. A big crash is coming our way and this time we DO NOT HAVE THE PETRODOLLAR FOR RECOVERY LIKE WE HAD IN 2008!

TRUMP LOST THE WESTERN PETRODOLLAR HEGEMON....HE LITERALLY LOST THE WEST!

THE PETRODOLLAR AGE OF PROSPERITY HAS ENDED! BECAUSE DRUMPF, KUSHNER AND NETANYAHU!

The EVANGELICAL BIBLICAL APOCALYPSE has come and gone! The GREAT SATAN as the mullahs would call them have been revealed to have no power to price oil in the middle east anymore! The military humiliation and withdrawal comes next...its a Greek tragedy in modern times...

Paraphrasing Thucydides

"A society that divides its warriors and scholars will have its wars planned by cowards and fought by fools"

That is true and accurate in the case of burgerland and its rulers!
https://www.dailymail.co.uk/news/article-7881839/New-images-damage-caused-Iranian-missile-strike-Iraqi-base.html

https://www.dailymail.co.uk/news/article-7893435/US-military-lost-contact-drones-overhead-Iranian-ballistic-missile-strike.html

DisorderlyConduct , 4 hours ago link

LOL. That's hilarious.

Trump knocked out a rook and a couple bishops, and ignored opportunities on several pawns. By not taking the bait, escalations fall onto Iran's shoulders and will be increasingly hard to justify.

Eventually their retaliation actions blur into the smoke of their terrorist proxies. Then they fulfill the role thst Trump claims they occupy. Then action on them will be easily justified. Even now Iran is shredding the JCPOA, that document that they acted like was so dear to them - thus giving the rest of the world the finger. Hey, you couldn't play their part worse if you tried...

Checkmate.

Woodenman , 4 hours ago link

Trump shredded the JCPOA, not Iran.

DisorderlyConduct , 3 hours ago link

Obama did by not putting it to the Senate for ratification. That is how the US becomes bound by a treaty.

Trump did what he had a right and the mandate to do. The JCPOA has no broad-based support in the US and still doesn't. Should have never existed.

That aside, The US was not the only nation in the agreement. The rest of you are free to work it out.

TBT or not TBT , 2 hours ago link

A U.S. induhvidual signed it. The U.S. declined to.

cogitergosum , 4 hours ago link

okay boomer

enjoy some petrodollar humor

http://boards.4chan.org/pol/thread/239782961/geopolitics-china-trade-deal-edition

DisorderlyConduct , 3 hours ago link

LOL.

luffy0212 , 1 hour ago link

You're the typical jarhead indispensable fodder dumbass.

no checkmate fool none at all.

close the high school history book.

Element , 3 hours ago link

What a ridiculous argument, the USA has its own oil and gas, more than the Saudis have!

Your version of reality is 40 years out of date.

Element , 3 hours ago link

There is no deterrence against ballistic missiles which are faster then aircraft! So by the time the first wave of stupid burger planes reach IRAN, all BURGER bases in Saudi Arabia, Iraq, Israel and aircraft carriers will have been destroyed! So the USA cant protect anything without losing everything!

That's what Hitler thought, Saddam tried it as well, the theory proved to be wrong.

The purpose of an air-force is to bomb targets from the sky. Iranians have shown you can do it with ultra-cheap short medium range ballistic missiles which are nothing more than crap aluminum tubes filled with propellant, a low cost cell phone GPS guidance system and a big payload. You can make millions for the cost of one stealth jet!

This was particularly hilarious. If that were the case the USA and its allies would be doing that. Do you not realize the US has had rocket artillery for the past 70 years? The larger the rocket, and the longer its range, the larger and heavier the transport TEL vehicle and support base and storage must be. The industrial and technical support base as well. And the crews to man and employ them get larger as well, as does their training equipping and paying of them.

That's in fact very expensive, and you run out of rockets real fast.

But stealth jets come back every day, for months, or years, and drop big-*** bombs on your missile factories, and its industrial support base, it's electricity supply, its fuel supply, its chemical factories, its bases, bunkers, sensors comms, personnel, ports and the entire industrial economic infrastructure of the entire country.

See Japan after WWII - that would occur to Iran.

The End

cogitergosum , 2 hours ago link

then why didnt you boomer? Because Iran's missiles will hit your base anyway..stealth or no stealth that is the point! The US was supposed to wage such a death match war against China or Russia...not a 4th rate shithole like IRAN. You boomers literally have your head up your asses. The 90s is over boomers! The boomer run US armed forces is totally obsolete because we have been humiliated and the boomers are so shameless they are behaving like 'colored peoples of poor upbringing'.

Hold me back or ill......hold me back or ill.... you will do what? Nothing! No one held burger boy trump back. Burger boy held himself back because he and his son in law and the prime brains behind losing the petrodollar, Netanyahu would lose Israel also along with Saudi Arabia and all burger bases!

TBT or not TBT , 2 hours ago link

We thought you didn't like pork. What's your beef with hamburger?

cogitergosum , 2 hours ago link

oh so I must be a muslim if I said Israel lost the petrodollar because the joke is on you clowns. Lose the petrodollar boomers lose their 401k and Israel has to negotiate with Iran to exist...win win if you ask me...cant wait to watch you flip burgers in your 80s.

luffy0212 , 1 hour ago link

The fact that you want us to use WWII Japan as comparison completely nullifies your rant. Furthermore, revisionism and hyped up ability does no good in the real world. We don't need to ask Hitler or Saddam. Had Saddam moved in on Saudi Arabia rather than allowing forces to amass it's been a different story. Regarding Hitler, you cinta had little to no hand in the matter. Case in point.

[Jan 10, 2020] The Saker interviews Michael Hudson

Highly recommended!
Looks like Iran is Catch22 for the USA: it can destroy it, but only at the cost of losing empire and dollar hegemony...
Notable quotes:
"... The United States is now turning on the screws demanding that other countries sacrifice their growth in order to finance the U.S. unipolar empire. In effect, foreign countries are beginning to respond to the United States what the ten tribes of Israel said when they withdrew from the southern kingdom of Judah, whose king Rehoboam refused to lighten his demands (1 Kings 12). They echoed the cry of Sheba son of Bikri a generation earlier: "Look after your own house, O David!" The message is: What do other countries have to gain by remaining in the US unipolar neoliberalized world, as compared to using their own wealth to build up their own economies? It's an age-old problem. ..."
"... The dollar will still play a role in US trade and investment, but it will be as just another currency, held at arms length until it finally gives up its domineering attempt to strip other countries' wealth for itself. However, its demise may not be a pretty sight. ..."
"... Conflict in the ME has traditionally almost always been about oil [and of course Israel]. This situation is different. It is only partially about oil and Israel, but OVERWHHEMINGLY it is about the BRI. ..."
"... The salient factor as I see it is the Oil for Technology initiative that Iraq signed with China shortly before it slid into this current mess. ..."
"... This was a mechanism whereby China would buy Iraq oil and these funds would be used directly to fund infrastructure and self-sufficiency initiatives and technologies that would help to drag Iraq out of the complete disaster that the US war had created in this country. A key part of this would be that China would also make extra loans available at the same time to speed up this development. ..."
"... "Iraq's Finance Ministry that the country had started exporting 100,000 barrels per day (bpd) of crude oil to China in October as part of the 20-year oil-for-infrastructure deal agreed between the two countries." ..."
"... "For Iraq and Iran, China's plans are particularly far-reaching, OilPrice.com has been told by a senior oil industry figure who works closely with Iran's Petroleum Ministry and Iraq's Oil Ministry. China will begin with the oil and gas sector and work outwards from that central point. In addition to being granted huge reductions on buying Iranian oil and gas, China is to be given the opportunity to build factories in both Iran and Iraq – and build-out infrastructure, such as railways – overseen by its own management staff from Chinese companies. These are to have the same operational structure and assembly lines as those in China, so that they fit seamlessly into various Chinese companies' assembly lines' process for whatever product a particular company is manufacturing, whilst also being able to use the still-cheap labour available in both Iraq and Iraq." ..."
"... Hudson is so good. He's massively superior to most so called military analysts and alternative bloggers on the net. He can clearly see the over arching picture and how the military is used to protect and project it. The idea that the US is going to leave the middle east until they are forced to is so blind as to be ridiculous. ..."
"... I'd never thought of that "stationary aircraft carrier" comparison between Israel and the British, very apt. ..."
"... Trump et al assassinated someone who was on a diplomatic mission. This action was so far removed from acceptable behavior that it must have been considered to be "by any means and at all costs". ..."
"... This article, published by Strategic Culture, features a translation of Mahdi's speech to the Iraqi parliament in which he states that Trump threatened him with assassination and the US admitted to killing hundreds of demonstrators using Navy SEAL snipers. ..."
"... This description provided by Mr Hudson is no Moore than the financial basis behind the Cebrowski doctrine instituted on 9/11. https://www.voltairenet.org/article ..."
"... "The leading country breaking up US hegemony obviously is the United States itself. That is Trump's major contribution The United States is now turning on the screws demanding that other countries sacrifice their growth in order to finance the U.S. unipolar empire." ..."
"... The US govt. have long since paid off most every European politician. Thusly, Europe, as separate nations that should be remain still under the yolk of the US Financial/Political/Military power. ..."
"... In any event, it is the same today. Energy underlies, not only the military but, all of world civilization. Oil and gas are overwhelmingly the source of energy for the modern world. Without it, civilization collapses. Thus, he who controls oil (and gas) controls the world. ..."
"... the link between the US $$$ and Saudi Oil, is the absolute means of the American Dollar to reign complete. This payment system FEEDS both the US Military, but WALL STREET, hedge funds, the US/EU oligarchs – to name just a few entities. ..."
Jan 09, 2020 | thesaker.is

[this interview was made for the Unz Review ]

Introduction: After posting Michael Hudson's article " America Escalates its "Democratic" Oil War in the Near East " on the blog, I decided to ask Michael to reply to a few follow-up questions. Michael very kindly agreed. Please see our exchange below.

The Saker

-- -- -

The Saker: Trump has been accused of not thinking forward, of not having a long-term strategy regarding the consequences of assassinating General Suleimani. Does the United States in fact have a strategy in the Near East, or is it only ad hoc?

Michael Hudson: Of course American strategists will deny that the recent actions do not reflect a deliberate strategy, because their long-term strategy is so aggressive and exploitative that it would even strike the American public as being immoral and offensive if they came right out and said it.

President Trump is just the taxicab driver, taking the passengers he has accepted – Pompeo, Bolton and the Iran-derangement syndrome neocons – wherever they tell him they want to be driven. They want to pull a heist, and he's being used as the getaway driver (fully accepting his role). Their plan is to hold onto the main source of their international revenue: Saudi Arabia and the surrounding Near Eastern oil-export surpluses and money. They see the US losing its ability to exploit Russia and China, and look to keep Europe under its control by monopolizing key sectors so that it has the power to use sanctions to squeeze countries that resist turning over control of their economies and natural rentier monopolies to US buyers. In short, US strategists would like to do to Europe and the Near East just what they did to Russia under Yeltsin: turn over public infrastructure, natural resources and the banking system to U.S. owners, relying on US dollar credit to fund their domestic government spending and private investment.

This is basically a resource grab. Suleimani was in the same position as Chile's Allende, Libya's Qaddafi, Iraq's Saddam. The motto is that of Stalin: "No person, no problem."

The Saker: Your answer raises a question about Israel: In your recent article you only mention Israel twice, and these are only passing comments. Furthermore, you also clearly say the US Oil lobby as much more crucial than the Israel Lobby, so here is my follow-up question to you: On what basis have you come to this conclusion and how powerful do you believe the Israel Lobby to be compared to, say, the Oil lobby or the US Military-Industrial Complex? To what degree do their interests coincide and to what degree to they differ?

Michael Hudson: I wrote my article to explain the most basic concerns of U.S. international diplomacy: the balance of payments (dollarizing the global economy, basing foreign central bank savings on loans to the U.S. Treasury to finance the military spending mainly responsible for the international and domestic budget deficit), oil (and the enormous revenue produced by the international oil trade), and recruitment of foreign fighters (given the impossibility of drafting domestic U.S. soldiers in sufficient numbers). From the time these concerns became critical to today, Israel was viewed as a U.S. military base and supporter, but the U.S. policy was formulated independently of Israel.

I remember one day in 1973 or '74 I was traveling with my Hudson Institute colleague Uzi Arad (later a head of Mossad and advisor to Netanyahu) to Asia, stopping off in San Francisco. At a quasi-party, a U.S. general came up to Uzi and clapped him on the shoulder and said, "You're our landed aircraft carrier in the Near East," and expressed his friendship.

Uzi was rather embarrassed. But that's how the U.S. military thought of Israel back then. By that time the three planks of U.S. foreign policy strategy that I outlined were already firmly in place.

Of course Netanyahu has applauded U.S. moves to break up Syria, and Trump's assassination choice. But the move is a U.S. move, and it's the U.S. that is acting on behalf of the dollar standard, oil power and mobilizing Saudi Arabia's Wahabi army.

Israel fits into the U.S.-structured global diplomacy much like Turkey does. They and other countries act opportunistically within the context set by U.S. diplomacy to pursue their own policies. Obviously Israel wants to secure the Golan Heights; hence its opposition to Syria, and also its fight with Lebanon; hence, its opposition to Iran as the backer of Assad and Hezbollah. This dovetails with US policy.

But when it comes to the global and U.S. domestic response, it's the United States that is the determining active force. And its concern rests above all with protecting its cash cow of Saudi Arabia, as well as working with the Saudi jihadis to destabilize governments whose foreign policy is independent of U.S. direction – from Syria to Russia (Wahabis in Chechnya) to China (Wahabis in the western Uighur region). The Saudis provide the underpinning for U.S. dollarization (by recycling their oil revenues into U.S. financial investments and arms purchases), and also by providing and organizing the ISIS terrorists and coordinating their destruction with U.S. objectives. Both the Oil lobby and the Military-Industrial Complex obtain huge economic benefits from the Saudis.

Therefore, to focus one-sidedly on Israel is a distraction away from what the US-centered international order really is all about.

The Saker: In your recent article you wrote: " The assassination was intended to escalate America's presence in Iraq to keep control the region's oil reserves ." Others believe that the goal was precisely the opposite, to get a pretext to remove the US forces from both Iraq and Syria. What are your grounds to believe that your hypothesis is the most likely one?

Michael Hudson: Why would killing Suleimani help remove the U.S. presence? He was the leader of the fight against ISIS, especially in Syria. US policy was to continue using ISIS to permanently destabilize Syria and Iraq so as to prevent a Shi'ite crescent reaching from Iran to Lebanon – which incidentally would serve as part of China's Belt and Road initiative. So it killed Suleimani to prevent the peace negotiation. He was killed because he had been invited by Iraq's government to help mediate a rapprochement between Iran and Saudi Arabia. That was what the United States feared most of all, because it effectively would prevent its control of the region and Trump's drive to seize Iraqi and Syrian oil.

So using the usual Orwellian doublethink, Suleimani was accused of being a terrorist, and assassinated under the U.S. 2002 military Authorization Bill giving the President to move without Congressional approval against Al Qaeda. Trump used it to protect Al Qaeda's terrorist ISIS offshoots.

Given my three planks of U.S. diplomacy described above, the United States must remain in the Near East to hold onto Saudi Arabia and try to make Iraq and Syria client states equally subservient to U.S. balance-of-payments and oil policy.

Certainly the Saudis must realize that as the buttress of U.S. aggression and terrorism in the Near East, their country (and oil reserves) are the most obvious target to speed the parting guest. I suspect that this is why they are seeking a rapprochement with Iran. And I think it is destined to come about, at least to provide breathing room and remove the threat. The Iranian missiles to Iraq were a demonstration of how easy it would be to aim them at Saudi oil fields. What then would be Aramco's stock market valuation?

The Saker: In your article you wrote: " The major deficit in the U.S. balance of payments has long been military spending abroad. The entire payments deficit, beginning with the Korean War in 1950-51 and extending through the Vietnam War of the 1960s, was responsible for forcing the dollar off gold in 1971. The problem facing America's military strategists was how to continue supporting the 800 U.S. military bases around the world and allied troop support without losing America's financial leverage. " I want to ask a basic, really primitive question in this regard: how cares about the balance of payments as long as 1) the US continues to print money 2) most of the world will still want dollars. Does that not give the US an essentially "infinite" budget? What is the flaw in this logic?

Michael Hudson: The U.S. Treasury can create dollars to spend at home, and the Fed can increase the banking system's ability to create dollar credit and pay debts denominated in US dollars. But they cannot create foreign currency to pay other countries, unless they willingly accept dollars ad infinitum – and that entails bearing the costs of financing the U.S. balance-of-payments deficit, getting only IOUs in exchange for real resources that they sell to U.S. buyers.

This is the situation that arose half a century ago. The United States could print dollars in 1971, but it could not print gold.

In the 1920s, Germany's Reichsbank could print deutsche marks – trillions of them. When it came to pay Germany's foreign reparations debt, all it could do was to throw these D-marks onto the foreign exchange market. That crashed the currency's exchange rate, forcing up the price of imports proportionally and causing the German hyperinflation.

The question is, how many surplus dollars do foreign governments want to hold. Supporting the dollar standard ends up supporting U.S. foreign diplomacy and military policy. For the first time since World War II, the most rapidly growing parts of the world are seeking to de-dollarize their economies by reducing reliance on U.S. exports, U.S. investment, and U.S. bank loans. This move is creating an alternative to the dollar, likely to replace it with groups of other currencies and assets in national financial reserves.

The Saker: In the same article you also write: " So maintaining the dollar as the world's reserve currency became a mainstay of U.S. military spending. " We often hear people say that the dollar is about to tank and that as soon as that happens, then the US economy (and, according to some, the EU economy too) will collapse. In the intelligence community there is something called tracking the "indicators and warnings". My question to you is: what are the economic "indicators and warnings" of a possible (probable?) collapse of the US dollar followed by a collapse of the financial markets most tied to the Dollar? What shall people like myself (I am an economic ignoramus) keep an eye on and look for?

Michael Hudson: What is most likely is a slow decline, largely from debt deflation and cutbacks in social spending, in the Eurozone and US economies. Of course, the decline will force the more highly debt-leveraged companies to miss their bond payments and drive them into insolvency. That is the fate of Thatcherized economies. But it will be long and painfully drawn out, largely because there is little left-wing socialist alternative to neoliberalism at present.

Trump's protectionist policies and sanctions are forcing other countries to become self-reliant and independent of US suppliers, from farm crops to airplanes and military arms, against the US threat of a cutoff or sanctions against repairs, spare parts and servicing. Sanctioning Russian agriculture has helped it become a major crop exporter, and to become much more independent in vegetables, dairy and cheese products. The US has little to offer industrially, especially given the fact that its IT communications are stuffed with US spyware.

Europe therefore is facing increasing pressure from its business sector to choose the non-US economic alliance that is growing more rapidly and offers a more profitable investment market and more secure trade supplier. Countries will turn as much as possible (diplomatically as well as financially and economically) to non-US suppliers because the United States is not reliable, and because it is being shrunk by the neoliberal policies supported by Trump and the Democrats alike. A byproduct probably will be a continued move toward gold as an alternative do the dollar in settling balance-of-payments deficits.

The Saker: Finally, my last question: which country out there do you see as the most capable foe of the current US-imposed international political and economic world order? whom do you believe that US Deep State and the Neocons fear most? China? Russia? Iran? some other country? How would you compare them and on the basis of what criteria?

Michael Hudson: The leading country breaking up US hegemony obviously is the United States itself. That is Trump's major contribution. He is uniting the world in a move toward multi-centrism much more than any ostensibly anti-American could have done. And he is doing it all in the name of American patriotism and nationalism – the ultimate Orwellian rhetorical wrapping!

Trump has driven Russia and China together with the other members of the Shanghai Cooperation Organization (SCO), including Iran as observer. His demand that NATO join in US oil grabs and its supportive terrorism in the Near East and military confrontation with Russia in Ukraine and elsewhere probably will lead to European "Ami go home" demonstrations against NATO and America's threat of World War III.

No single country can counter the U.S. unipolar world order. It takes a critical mass of countries. This already is taking place among the countries that you list above. They are simply acting in their own common interest, using their own mutual currencies for trade and investment. The effect is an alternative multilateral currency and trading area.

The United States is now turning on the screws demanding that other countries sacrifice their growth in order to finance the U.S. unipolar empire. In effect, foreign countries are beginning to respond to the United States what the ten tribes of Israel said when they withdrew from the southern kingdom of Judah, whose king Rehoboam refused to lighten his demands (1 Kings 12). They echoed the cry of Sheba son of Bikri a generation earlier: "Look after your own house, O David!" The message is: What do other countries have to gain by remaining in the US unipolar neoliberalized world, as compared to using their own wealth to build up their own economies? It's an age-old problem.

The dollar will still play a role in US trade and investment, but it will be as just another currency, held at arms length until it finally gives up its domineering attempt to strip other countries' wealth for itself. However, its demise may not be a pretty sight.

The Saker: I thank you very much for your time and answers! ­


Col...'the farmer from NZ' on January 09, 2020 , · at 5:19 pm EST/EDT

What a truly superb interview!

Another one that absolutely stands for me out is the below link to a recent interview of Hussein Askary.

As I wrote a few days ago IMO this too is a wonderful insight into the utterly complicated dynamics of the tinderbox that the situation in Iran and Iraq has become.

Conflict in the ME has traditionally almost always been about oil [and of course Israel]. This situation is different. It is only partially about oil and Israel, but OVERWHHEMINGLY it is about the BRI.

The salient factor as I see it is the Oil for Technology initiative that Iraq signed with China shortly before it slid into this current mess.

This was a mechanism whereby China would buy Iraq oil and these funds would be used directly to fund infrastructure and self-sufficiency initiatives and technologies that would help to drag Iraq out of the complete disaster that the US war had created in this country. A key part of this would be that China would also make extra loans available at the same time to speed up this development.

In essence, this would enable the direct and efficient linking of Iraq into the BRI project. Going forward the economic gains and the political stability that could come out of this would be a completely new paradigm in the recovery of Iraq both economically and politically. Iraq is essential for a major part of the dynamics of the BRI because of its strategic location and the fact that it could form a major hub in the overall network.

It absolutely goes without saying that the AAA would do everything the could to wreck this plan. This is their playbook and is exactly what they have done. The moronic and extraordinarily impulsive Trump subsequently was easily duped into being a willing and idiotic accomplice in this plan.

The positive in all of this is that this whole scheme will backfire spectacularly for the perpetrators and will more than likely now speed up the whole process in getting Iraq back on track and working towards stability and prosperity.

Please don't anyone try to claim that Trump is part of any grand plan nothing could be further from the truth he is nothing more than a bludgeoning imbecile foundering around, lashing out impulsively indiscriminately. He is completely oblivious and ignorant as to the real picture.

I urge everyone involved in this Saker site to put aside an hour and to listen very carefully to Askary's insights. This is extremely important and could bring more clarity to understanding the situation than just about everything else you have read put together. There is hope, and Askary highlights the huge stakes that both Russia and China have in the region.

This is a no brainer. This is the time for both Russia and China to act and to decisively. They must cooperate in assisting both Iraq and Iran to extract themselves from the current quagmire the one that the vicious Hegemon so cruelly and thoughtlessly tossed them into.

Cheers from the south seas
Col

And the link to the Askary interview: . https://youtu.be/UD1hWq6KD44

Col...'the farmer from NZ' on January 09, 2020 , · at 8:22 pm EST/EDT
Also interesting is what Simon Watkins reports in his recent article entitled "Is Iraq About To Become A Chinese Client State?"

To quote from the article:

"Iraq's Finance Ministry that the country had started exporting 100,000 barrels per day (bpd) of crude oil to China in October as part of the 20-year oil-for-infrastructure deal agreed between the two countries."

and

"For Iraq and Iran, China's plans are particularly far-reaching, OilPrice.com has been told by a senior oil industry figure who works closely with Iran's Petroleum Ministry and Iraq's Oil Ministry. China will begin with the oil and gas sector and work outwards from that central point. In addition to being granted huge reductions on buying Iranian oil and gas, China is to be given the opportunity to build factories in both Iran and Iraq – and build-out infrastructure, such as railways – overseen by its own management staff from Chinese companies. These are to have the same operational structure and assembly lines as those in China, so that they fit seamlessly into various Chinese companies' assembly lines' process for whatever product a particular company is manufacturing, whilst also being able to use the still-cheap labour available in both Iraq and Iraq."

and

"The second key announcement in this vein made last week from Iraq was that the Oil Ministry has completed the pre-qualifying process for companies interested in participating in the Iraqi-Jordanian oil pipeline project. The U$5 billion pipeline is aimed at carrying oil produced from the Rumaila oilfield in Iraq's Basra Governorate to the Jordanian port of Aqaba, with the first phase of the project comprising the installation of a 700-kilometre-long pipeline with a capacity of 2.25 million bpd within the Iraqi territories (Rumaila-Haditha). The second phase includes installing a 900-kilometre pipeline in Jordan between Haditha and Aqaba with a capacity of 1 million bpd. Iraq's Oil Minister – for the time being, at least – Thamir Ghadhban added that the Ministry has formed a team to prepare legal contracts, address financial issues and oversee technical standards for implementing the project, and that May will be the final month in which offers for the project from the qualified companies will be accepted and that the winners will be announced before the end of this year. Around 150,000 barrels of the oil from Iraq would be used for Jordan's domestic needs, whilst the remainder would be exported through Aqaba to various destinations, generating about US$3 billion a year in revenues to Jordan, with the rest going to Iraq. Given that the contractors will be expected to front-load all of the financing for the projects associated with this pipeline, Baghdad expects that such tender offers will be dominated by Chinese and Russian companies, according to the Iran and Iraq source."

Cheers
Col

And the link https://oilprice.com/Geopolitics/Middle-East/Is-Iraq-About-To-Become-A-Chinese-Client-State.html#

Anonymouse on January 09, 2020 , · at 5:20 pm EST/EDT
Hudson is so good. He's massively superior to most so called military analysts and alternative bloggers on the net. He can clearly see the over arching picture and how the military is used to protect and project it. The idea that the US is going to leave the middle east until they are forced to is so blind as to be ridiculous.

They will not sacrifice the (free) oil until booted out by a coalition of Arab countries threatening to over run them and that is why the dollar hegemonys death will be slow, long and drawn out and they will do anything, any dirty trick in the book, to prevent Arab/Persian unity. Unlike many peoples obsession with Israel and how important they feel themselves to be I think Hudson is correct again. They are the middle eastern version of the British – a stationary aircraft carrier who will allow themselves to be used and abused whilst living under the illusion they are major players. They aren't. They're bit part players in decline, subservient to the great dollar and oil pyramid scheme that keeps America afloat. If you want to beat America you have to understand the big scheme, that and the utter insanity that backs it up. It is that insanity of the leites, the inability to allow themselves to be 'beaten' that will keep nuclear exchange as a real possibility over the next 10 to 15 years. Unification is the only thing that can stop it and trying to unite so many disparate countries (as the Russians are trying to do despite multiple provocations) is where the future lies and why it will take so long. It is truly breath taking in such a horrific way, as Hudson mentions, that to allow the world to see its 'masters of the universe' pogram to be revealed:

"Of course American strategists will deny that the recent actions do not reflect a deliberate strategy, because their long-term strategy is so aggressive and exploitative that it would even strike the American public as being immoral and offensive if they came right out and said it."

Would be to allow it to be undermined at home and abroad. God help us all.

Little Black Duck on January 09, 2020 , · at 7:01 pm EST/EDT
They're bit part players in decline, subservient to the great dollar and oil pyramid scheme that keeps America afloat.

So who owns the dollar? And who owns the oil companies?

Osori on January 09, 2020 , · at 8:06 pm EST/EDT
I'd never thought of that "stationary aircraft carrier" comparison between Israel and the British, very apt.
Zachary Smith on January 09, 2020 , · at 9:53 pm EST/EDT
Clever would be a better word. Looking at my world globe, I see Italy, Greece, and Turkey on that end of the Mediterranean. Turkey has been in NATO since 1952. Crete and Cyprus are also right there. Doesn't Hudson own a globe or regional map?

That a US Admiral would be gushing about the Apartheid state 7 years after the attempted destruction of the USS Liberty is painful to consider. I'd like to disbelieve the story, but it's quite likely there were a number of high-ranking ***holes in a Naval Uniform.

44360 on January 09, 2020 , · at 5:34 pm EST/EDT
The world situation reminds us of the timeless fable by Aesop of The North Wind and the Sun.

Trump et al assassinated someone who was on a diplomatic mission. This action was so far removed from acceptable behavior that it must have been considered to be "by any means and at all costs".

Perhaps the most potent weapon Iran or anyone else has at this critical juncture, is not missiles, but diplomacy.

Ahmed on January 09, 2020 , · at 5:37 pm EST/EDT
"Therefore, to focus one-sidedly on Israel is a distraction away from what the US-centered international order really is all about."

Thank you for saying this sir. In the US and around the world many people become obsessively fixated in seeing a "jew" or zionist behind every bush. Now the Zionists are certinly an evil, blood thirsty bunch, and certainly deserve the scorn of the world, but i feel its a cop out sometimes. A person from the US has a hard time stomaching the actions of their country, so they just hoist all the unpleasentries on to the zionists. They put it all on zionisim, and completly fail to mention imperialism. I always switced back and forth on the topic my self. But i cant see how a beachead like the zionist state, a stationary carrier, can be bigger than the empire itself. Just look at the major leaders in the resistance groups, the US was always seen as the ultimate obstruction, while israel was seen as a regional obstruction. Like sayyed hassan nasrallah said in his recent speech about the martyrs, that if the US is kicked out, the Israelis might just run away with out even fighting. I hate it when people say "we are in the middle east for israel" when it can easily be said that "israel is still in the mid east because of the US." If the US seized to exist today, israel would fall rather quickly. If israel fell today the US would still continue being an imperalist, bloodthirsty entity.

Azorka1861 on January 09, 2020 , · at 5:57 pm EST/EDT
The Deeper Story behind the Assassination of Soleimani

This article, published by Strategic Culture, features a translation of Mahdi's speech to the Iraqi parliament in which he states that Trump threatened him with assassination and the US admitted to killing hundreds of demonstrators using Navy SEAL snipers.

https://www.veteranstoday.com/2020/01/08/vital-the-deeper-story-behind-the-assassination-of-soleimani/

..

Nils on January 09, 2020 , · at 6:05 pm EST/EDT
This description provided by Mr Hudson is no Moore than the financial basis behind the Cebrowski doctrine instituted on 9/11. https://www.voltairenet.org/article

I wish the Saker had asked Mr Hudson about some crucial recent events to get his opinion with regards to US foreign policy. Specifically, how does the emergence of cryptocurrency relate to dollar finance and the US grand strategy? A helpful tool for the hegemon or the emergence of a new currency that prevents unlimited currency printing? Finally, what is global warming and the associated carbon credit system? The next planned model of continuing global domination and balance of payments? Or true organic attempt at fair energy production and management?

Much thanks for this interview, Saker

Col...'the farmer from NZ' on January 09, 2020 , · at 6:26 pm EST/EDT
With all due respect, these are huge questions in themselves and perhaps could to be addressed in separate interviews. IMO it doesn't always work that well to try to cover too much ground in just one giant leap.

Regards
Col

Mike from Jersey on January 09, 2020 , · at 7:26 pm EST/EDT
I have never understood the Cebrowski doctrine. How does the destruction of Middle Eastern state structures allow the US to control Middle East Oil? The level of chaos generated by such an act would seem to prevent anyone from controlled the oil.
Outlaw Historian on January 09, 2020 , · at 7:48 pm EST/EDT
Dr. Hudson often appears on RT's "Keiser Report" where he covers many contemporary topics with its host Max Keiser. Many of the shows transcripts are available at Hudson's website . Indeed, after the two Saker items, you'll find three programs on the first page. Using the search function at his site, you'll find the two articles he's written that deal with bitcoin and cryptocurrencies, although I think he's been more specific in the TV interviews.

As for this Q&A, its an A+. Hudson's 100% correct to playdown the Zionist influence given the longstanding nature of the Outlaw US Empire's methods that began well before the rise of the Zionist Lobby, which in reality is a recycling of aid dollars back to Congress in the form of bribes.

RR on January 09, 2020 , · at 7:59 pm EST/EDT
Nils: Good Article. The spirit of Nihilism.
Quote from Neocon Michael Ladeen.

"Creative destruction is our middle name, both within our own society and abroad. We tear down the old order every day, from business to science, literature, art, architecture, and cinema to politics and the law. Our enemies have always hated this whirlwind of energy and creativity, which menaces their traditions (whatever they may be) and shames them for their inability to keep pace. Seeing America undo traditional societies, they fear us, for they do not wish to be undone. They cannot feel secure so long as we are there, for our very existence -- our existence, not our politics -- threatens their legitimacy. They must attack us in order to survive, just as we must destroy them to advance our historic mission."

Frank on January 09, 2020 , · at 10:27 pm EST/EDT
@NILS As far as crypto currency goes it is a brilliant idea in concept. But since during the Bush years we have been shown multiple times, who actually owns [and therefore controls] the internet. Many times now we have also been informed that through the monitoring capability's of our defense agency's, they are recording every key stroke. IMO, with the flip of a switch, we can shut down the internet. At the very least, that would stop us from being able to trade in crypto, but they have e-files on each of us. They know our passwords, or can easily access them. That does not give me confidence in e=currency during a teotwawki situation.
Anonymous on January 09, 2020 , · at 6:34 pm EST/EDT
A truly superb interview, thanks Michael Hudson.
David on January 09, 2020 , · at 6:39 pm EST/EDT
One thing that troubles me about the petrodollar thesis is that ANNUAL trade in oil is about 2 trillion DAILY trade in $US is 4 trillion. I can well believe the US thinks oil is the bedrock if dollar hegemony but is it? I see no alternative to US dollar hegemony.
Mike from Jersey on January 09, 2020 , · at 7:17 pm EST/EDT
Excellent article.

The lines that really got my attention were these:

"The leading country breaking up US hegemony obviously is the United States itself. That is Trump's major contribution The United States is now turning on the screws demanding that other countries sacrifice their growth in order to finance the U.S. unipolar empire."

That is so completely true. I have wondered why – to date – there had not been more movement by Europe away from the United States. But while reading the article the following occurred to me. Maybe Europe is awaiting the next U.S. election. Maybe they hope that a new president (someone like Biden) might allow Europe to keep more of the "spoils."

If that is true, then a re-election of Trump will probably send Europe fleeing for the exits. The Europeans will be cutting deals with Russia and China like the store is on fire.

Rubicon on January 09, 2020 , · at 10:22 pm EST/EDT
The critical player in forming the EU WAS/IS the US financial Elites. Yes, they had many ultra powerful Europeans, especially Germany, but it was the US who initiated the EU.

Purpose? For the US Financial Powerhouses & US politicians to "take Europe captive." Notice the similarities: the EU has its Central Bank who communicates with the private Banksters of the FED. Much austerity has ensued, especially in Southern nations: Greece, Italy, etc. Purpose: to smash unions, worker's pay, eliminate unions, and basically allowing US/EU Financial capital to buy out Italy, most of Greece, and a goodly section of Spain and Portugal.

The US govt. have long since paid off most every European politician. Thusly, Europe, as separate nations that should be remain still under the yolk of the US Financial/Political/Military power.

Craig Mouldey on January 09, 2020 , · at 8:19 pm EST/EDT
I have a hard time wrapping my head around this but it sounds like he is saying that the U.S. has a payment deficit problem which is solved by stealing the world's oil supplies. To do this they must have a powerful, expensive military. But it is primarily this military which is the main cause of the balance deficit. So it is an eternally fuelled problem and solution. If I understand this, what it actually means is that we all live on a plantation as slaves and everything that is happening is for the benefit of the few wealthy billionaires. And they intend to turn the entire world into their plantation of slaves. They may even let you live for a while longer.
Mike from Jersey on January 09, 2020 , · at 9:25 pm EST/EDT
Actually, oil underlies everything.

I didn't know this until I read a history of World War I.

As you know, World War One was irresolvable, murderous, bloody trench warfare. People would charge out of the trenches trying to overrun enemy positions only to be cutdown by the super weapon of the day – the machine gun. It was an unending bloody stalemate until the development of the tank. Tanks were immune to machine gun fire coming from the trenches and could overrun enemy positions. In the aftermath of that war, it became apparently that mechanization had become crucial to military supremacy. In turn, fuel was crucial to mechanization. Accordingly, in the Sykes Picot agreement France and Britain divided a large amount of Middle Eastern oil between themselves in order to assure military dominance. (The United States had plenty of their own oil at that time.)

In any event, it is the same today. Energy underlies, not only the military but, all of world civilization. Oil and gas are overwhelmingly the source of energy for the modern world. Without it, civilization collapses. Thus, he who controls oil (and gas) controls the world.

That is one third of the story. The second third is this.

Up till 1971, the United States dollar was the most trusted currency in the world. The dollar was backed by gold and lots and lots of it. Dollars were in fact redeemable in gold. However, due to Vietnam War, the United States started running huge balance of payments deficits. Other countries – most notably France under De Gaulle – started cashing in dollars in exchange for that gold. Gold started flooding out of the United States. At that point Nixon took the United States off of the gold standard. Basically stating that the dollar was no longer backed by gold and dollars could not be redeemed for gold. That caused an international payments problem. People would no longer accept dollars as payment since the dollar was not backed up by anything. The American economy was in big trouble since they were running deficits and people would no longer take dollars on faith.

To fix the problem, Henry Kissinger convinced the Saudis to agree to only accept dollars in payment for oil – no matter who was the buyer. That meant that nations throughout the world now needed dollars in order to pay for their energy needs. Due to this, the dollars was once again the most important currency in the world since – as noted above – energy underlies everything in modern industrial cultures. Additionally, since dollars were now needed throughout the world, it became common to make all trades for any product in highly valued dollars. Everyone needed dollars for every thing, oil or not.

At that point, the United States could go on printing dollars and spending them since a growing world economy needed more and more dollars to buy oil as well as to trade everything else.

That leads to the third part of the story. In order to convince the Saudis to accept only dollars in payments for oil (and to have the Saudis strong arm other oil producers to do the same) Kissinger promised to protect the brutal Saudi regime's hold on power against a restive citizenry and also to protect the Saudi's against other nations. Additionally, Kissinger made an implicit threat that if the Saudi's did not agree, the US would come in and just take their oil. The Saudis agreed.

Thus, the three keys to dominance in the modern world are thus: oil, dollars and the military.

Thus, Hudson ties in the three threads in his interview above. Oil, Dollars, Military. That is what holds the empire together.

Rubicon on January 09, 2020 , · at 10:26 pm EST/EDT
Thank you for thinking through this. Yes, the link between the US $$$ and Saudi Oil, is the absolute means of the American Dollar to reign complete. This payment system FEEDS both the US Military, but WALL STREET, hedge funds, the US/EU oligarchs – to name just a few entities.
Stanislaw Janowicz on January 09, 2020 , · at 8:58 pm EST/EDT
I should make one note only to this. That "no man, no problem" was Stalin's motto is a myth. He never said that. It was invented by a writer Alexei Rybnikov and inserted in his book "The Children of Arbat".
Greg Horrall on January 09, 2020 , · at 9:42 pm EST/EDT
Wow! Absolutely beautiful summation of the ultimate causes that got us where we are and, if left intact, will get us to where we're going!

So, the dreamer says: If only we could throw-off our us-vs-them BS political-economic ideology & religious doctrine-faith issues, put them into live-and-let-live mode, and see that we are all just humans fighting over this oil resource to which our modern economy (way of life) is addicted, then we might be able to hammer out some new rules for interacting, for running an earth-resource sustainable and fair global economy We do at least have the technology to leave behind our oil addiction, but the political-economic will still is lacking. How much more of the current insanity must we have before we get that will? Will we get it before it's too late?

Only if we, a sufficient majority from the lowest economic classes to the top elites and throughout all nations, are able to psychologically-spiritually internalize the two principles of Common Humanity and Spaceship Earth soon enough, will we stop our current slide off the cliff into modern economic collapse and avert all the pain and suffering that's already now with us and that will intensify.

The realist says we're not going to stop that slide and it's the only way we're going to learn, if we are indeed ever going to learn.

Ann Watson on January 09, 2020 , · at 10:42 pm EST/EDT
So now we know why Michael Hudson avoids the Israel involvment – Like Pepe.
Лишний Человек on January 09, 2020 , · at 11:02 pm EST/EDT
Thank you for this excellent interview. You ask the kind of questions that we would all like to ask. It's regrettable that Chalmers Johnson isn't still alive. I believe that you and he would have a lot in common.

Naxos has produced an incredible, unabridged cd audiobook of Gibbon's Decline and Fall of the Roman Empire. One of Gibbon's observations really resonates today: "Assassination is the last resource of cowards". Thanks again.

[Jan 09, 2020] Protecting the Dollar Standard is the main national security objective of the USA

Jan 09, 2020 | www.moonofalabama.org

vk , Jan 9 2020 19:35 utc | 43

@ Posted by: Cynica | Jan 9 2020 19:20 utc | 38

I agree that, today, protecting the Dollar Standard is the main national security objective of the USA. That is so because issuing the universal fiat currency is a conditio sine qua non of keeping the financial superpower status.

I also agree that the Petrodollar is the base that sustains the Dollar Standard.

But I disagree with the rest:

1) the Cold War didn't begin in 1945, but in 1917 - right after the October Revolution. There's overwhelming documental evidence of that and, in fact, the years of 1943-1945 was the only break it had. Until Stalingrad, the Western allies were still waiting to see if the USSR and the Third Reich could still mutually anihilate themselves (yes, it is a myth the Allies were really allies from 1939, but that's not a very simple demonstration);

2) in the aftermath of WWII, the USA emerged as both the industrial and financial superpower in the capitalist world (i.e. the West). But this was an accidental - and very unlikely - alignment of events. The USA always had imperial ambitions from its foundation (the Manifest Destiny), but there's no evidence it was scheming to dominate the world before 1945. The American ascension was more a fruit of the European imperial superpowers destroying themselves than by any American (or Jewish, as the far-right likes to speculate) design;

3) the USSR had nothing to do with Bretton Woods. BW was a strictly capitalist affair. And it could not be any difference: the USSR was a socialist country, therefore, it didn't have money-capital (money in the capitalist system has three functions: reserve of value, means of exchange and means of payment). The only way it had to trade with the capitalist half of the world was to exchange essential commodities (oil) for hard currency, with which it bought what it needed for its own development (mainly, high technological machines which it could copy and later develop on). So, the USSR didn't "balk" at BW - it was literally impossible for it to pertain to the agreement.


Cynica , Jan 9 2020 19:20 utc | 39

@Kali #22

Michael Hudson is not the only one who's come to understand that maintaining the reserve-currency status of the US dollar (the "dollar hegemony") is the primary goal of US foreign policy. Indeed, it's been the primary goal of US foreign policy since the end of World War II, when the Bretton Woods agreement was put into effect. Notably, the Soviets ended up balking at that agreement, and the Cold War did not start until afterwards. This means that even the Cold War was not really about ideology - it was about money.

It's also important to note that the point of the "petrodollar" is to ensure that petroleum - one of the most globally traded commodities and a commodity that's fundamental to the global economy - is traded primarily, if not exclusively, in terms of the US dollar. Ensuring that as much global/international trade happens in US dollars helps ensure that the US dollar keeps its reserve-currency status, because it raises the foreign demand for US dollars.

vk , Jan 9 2020 19:35 utc | 43
@ Posted by: Cynica | Jan 9 2020 19:20 utc | 38

I agree that, today, protecting the Dollar Standard is the main national security objective of the USA. That is so because issuing the universal fiat currency is a conditio sine qua non of keeping the financial superpower status.

I also agree that the Petrodollar is the base that sustains the Dollar Standard.

But I disagree with the rest:

1) the Cold War didn't begin in 1945, but in 1917 - right after the October Revolution. There's overwhelming documental evidence of that and, in fact, the years of 1943-1945 was the only break it had. Until Stalingrad, the Western allies were still waiting to see if the USSR and the Third Reich could still mutually anihilate themselves (yes, it is a myth the Allies were really allies from 1939, but that's not a very simple demonstration);

2) in the aftermath of WWII, the USA emerged as both the industrial and financial superpower in the capitalist world (i.e. the West). But this was an accidental - and very unlikely - alignment of events. The USA always had imperial ambitions from its foundation (the Manifest Destiny), but there's no evidence it was scheming to dominate the world before 1945. The American ascension was more a fruit of the European imperial superpowers destroying themselves than by any American (or Jewish, as the far-right likes to speculate) design;

3) the USSR had nothing to do with Bretton Woods. BW was a strictly capitalist affair. And it could not be any difference: the USSR was a socialist country, therefore, it didn't have money-capital (money in the capitalist system has three functions: reserve of value, means of exchange and means of payment). The only way it had to trade with the capitalist half of the world was to exchange essential commodities (oil) for hard currency, with which it bought what it needed for its own development (mainly, high technological machines which it could copy and later develop on). So, the USSR didn't "balk" at BW - it was literally impossible for it to pertain to the agreement.

vk , Jan 9 2020 19:40 utc | 45
@ Posted by: vk | Jan 9 2020 19:35 utc | 42

Correction: the three functions of money in capitalism are reserve/store of value, means of exchange and unit of account . I basically wrote "means of exchange" twice in the original comment.

karlof1 , Jan 9 2020 19:45 utc | 47
Cynica @38--

Hello! Michael Hudson first set forth the methodology of the Outlaw US Empire's financial control of the world via his book Super Imperialism: The Economic Strategy of American Empire in 1972. In 2003, he issued an updated edition which you can download for free here .

If you're interested, here's an interview he gave while in China that's autobiographical . And here's his most recent Resume/CV/Bibliography , although it doesn't go into as much detail about his recent work as he does in and forgive them their debts: Lending, Foreclosure, and Redemption From Bronze Age Finance to the Jubilee Year , which for me is fascinating.

His most recent TV appearances are here and here .

karlof1 , Jan 9 2020 19:55 utc | 48
Walter @39--

Bingo! You're the first person here to make that connection aside from myself. You'll note from Hudson's assessment of Soleimani's killing he sees the Outlaw US Empire as using the Climate Crisis as a weapon:

"America's attempt to maintain this buttress explains U.S. opposition to any foreign government steps to reverse global warming and the extreme weather caused by the world's U.S.-sponsored dependence on oil. Any such moves by Europe and other countries would reduce dependence on U.S. oil sales, and hence on the U.S's ability to control the global oil spigot as a means of control and coercion. These are viewed as hostile acts.

"Oil also explains U.S. opposition to Russian oil exports via Nordstream. U.S. strategists want to treat energy as a U.S. national monopoly. Other countries can benefit in the way that Saudi Arabia has done – by sending their surpluses to the U.S. economy – but not to support their own economic growth and diplomacy. Control of oil thus implies support for continued global warming as an inherent part of U.S. strategy....

"This strategy will continue, until foreign countries reject it. If Europe and other regions fail to do so, they will suffer the consequences of this U.S. strategy in the form of a rising U.S.-sponsored war via terrorism, the flow of refugees, and accelerated global warming (and extreme weather)."

c1ue , Jan 9 2020 19:58 utc | 49
@Cynica #38
Financially, the US dollar as reserve currency is enormously beneficial to the US government's ability to spend.
And oil has historically been both a tactical and a strategic necessity; when the US was importing half its oil, this is a lot of money. 8 million bpd @ $50/barrel = $146B. Add in secondary value add like transport, refining, downstream industries, etc and it likely triples the impact or more - but this is only tactical.
Worldwide, the impact is 10X = $1.5 trillion annually. Sure, this is a bit under 10% of the $17.7T in world trade in 2017, but it serves as an "anchor tenant" to the idea of world reserve currency. A second anchor is the overall role of US trade, which was $3.6T in 2016 (imports only).
If we treat central bank reserves as a proxy for currency used in trade, this means 60%+ of the $17.7T in trade is USD. $3.6T is direct, but the $7 trillion in trade that doesn't impact the US is the freebie. To put this in perspective, the entire monetary float of the USD domestically is about $3.6T.
USD as world reserve currency literally doubles (at least) the float - from which the US government can issue debt (money) to fund its activities. In reality, it is likely a lot more since foreigners using USD to fund trade means at least some USD in Central Banks, plus the actual USD in the transaction, plus corporate/individual USD reserves/float.
Again, nothing above is formally linked - I just wanted to convey an idea of just how advantageous the petrodollar/USD as world trade reserve currency really is.

[Jan 08, 2020] "Debt Wish 2020" Did Iran strike affects dollar status as the world reserve currency, because it is a clear sign the the period of the USA absolute hegemony after the dissolution of the USSR came the end?

Jan 08, 2020 | www.moonofalabama.org

karlof1 , Jan 8 2020 0:02 utc | 110

psychohistorian @88--

What was your take on "Debt Wish 2020"?

Jezabeel @82--

"U.S. Economic Warfare and Likely Foreign Defenses" provides numerous methods besides simply the cessation of dollar use for international commercial transactions. Along with watching the "Debt Wish 2020" vid linked above, I also suggest reading/watching this program . And lastly, I suggest reading this analysis here , although it only tangentially deals with your question.

[Dec 01, 2019] Will America's Trade Policy End Up Destroying The Dollar

Dec 01, 2019 | www.zerohedge.com

Will America's Trade Policy End Up Destroying The Dollar? by Tyler Durden Sat, 11/30/2019 - 23:30 0 SHARES

Authored by Alasdair Macleod via GoldMoney.com,

America's tariffs against China are already showing signs of undermining the global economy and will create a funding crisis for the Federal Government when it leads to foreigners no longer buying US Treasury debt and selling down their existing dollar holdings. A subversive attempt by America to divert global portfolio investment from China by destabilising Hong Kong will force China into a Plan B to fund its infrastructure plans, which could involve actively selling down her dollar reserves and hastening the introduction of a new crypto-based trade settlement currency.

The US budget deficit will then be financed entirely by monetary inflation. Furthermore, the turn of the credit cycle, made more destructive by trade tariffs, is driving the global and US economy into a slump , further accelerating all indebted governments' dependency on inflationary financing. The end result is America's trade policies have been instrumental in hastening the end of the dollar as the world's reserve currency, ultimately leading to its destruction.

Introduction

For almost two years President Trump has imposed various tariffs on imported Chinese goods. He advertised his tactics as hardball from a tough president who knows the art of the deal, taking his business acumen and applying it to foreign affairs. He even proudly described himself as a tariff man.

His opening gambit was to impose tariffs on some goods to get leverage over the Chinese, with the threat that if they didn't cooperate, then further tariffs would be introduced. The Chinese declined to be cowed by threats, introducing tariffs themselves on US imports, particularly agricultural products, to bring pressure to bear in turn on President Trump.

Egged on by his trade adviser Peter Navarro and Commerce Secretary Wilbur Ross, Trump has continued to intensify his tariff policies, oblivious to the damage being done to the global economy. Putting aside Panglossian statistics, both America and China are now heading for a recession that is increasingly likely to deepen significantly. America's consumer-driven economy is yet to reflect much of a slow-down, though producer countries dependent on either or both economies, such as Germany, are already descending into a manufacturing slump. China's GDP is registering a growth rate of about 6%, low by Chinese standards, but being no more than a money total this is just a reflection of the quantity of money still being pumped into the Chinese economy by the authorities.

As the world descends into an economic contraction, it will not be reflected in government statistics, because all economies are having increasing quantities of fiat money pumped into them. Financial market participants naively believe that changes in GDP indicate an economy's condition. If that was the case, the German economy in 1918-23 was an economic miracle and not the disaster history has led us to believe. The impoverishment of the masses, just like today's reported impoverishment of Venezuelans and Zimbabweans must have been misreported, because nominal GDP was increasing ten or a hundredfold. Then there is the deflator. Ah, the deflator: a concoction by statisticians who appear to be under a government cosh to keep it as low as possible. That's easy to deal with: introduce price controls across the board and use those official prices as a basis for the CPI. Infinite GDP growth is then assured.

That is the ultimate logic of perennial bulls and the errors should be obvious. At some stage, market participants beholden to the system will awaken to the lie that GDP, nominal or adjusted, has any statistical value, even in respectable jurisdictions. Banks will be rescued, and unemployment will rise, but GDP will continue to inflate - sorry, grow. The effect on prices so far has been subdued. At least, if you believe the official CPI version. Tariffs will end up blowing a hole in inflation targets while the global economy slumps and borrowing costs will then rise inexorably.

It's time to discover why the America-China financial war and trade war will end up undermining the dollar.

US's deep state strategy is stuck in the cold war era

Besides President Trump's policy on tariffs, the permanent staff in the intelligence and military complexes are the driving force behind Cold War 2 against China and Russia. Russia has been in their sights since Yalta. Control of the Middle East along with Libya and Afghanistan have been key objectives. The Western alliance, comprising the US and its European handmaidens, has been focusing on oil, but at its root is the justification of US military spending. US taxpayers have been told that the Middle East, North Africa and more recently the Ukraine are important to stop Russia either dominating global energy supplies or pursuing territorial ambitions.

Russia's military power is not as strong as projected by US military propagandists. It has excellent nuclear capability but an underequipped out-of-date military. Who can forget the sight of Russia's one aircraft carrier, the Admiral Kuznetsov, chugging from the Baltic to the Mediterranean to come to Syria's aid, breaking down and emitting clouds of black smoke, needing tugs to nurse it along? It is the naval equivalent of the ghastly Trabant motor car of the 1980s. The most egregious example of Russia's non-nuclear might perhaps, but indicative, nonetheless.

The same is broadly true of Russia's army. Its capability is limited, and American battle failures in the field are their own. Russia does not even try to punch above its weight, choosing to dance round the ring and tire out its opponent that way. Despite its superior equipment and battlefield technology, America usually then succumbs to its own errors.

As an adversary, China is in a different league to Russia altogether. At least America's military complex knows not to take China on. Instead, more subversive tactics are deployed, and this is why Hong Kong has become the pressure point against China, destroying the investment link for international funds investing in Chinese infrastructure projects.

Logically, America should have accommodated China long ago, recognizing the dollar's role as the supreme fiat currency would not then be challenged. But that would have led to the entire military complex being downsized over time: peace is not good for the war business. Without doubt it would have been economically beneficial for everyone other than the military. American corporations were happily running manufacturing operations in China and South East Asia as high-quality processors in their supply chains. Trump's simple world, where China steals American jobs was never the case.

US Government's developing funding crisis

The statistics in Table 1 summarise America's financial problem.

These figures tell us that since the turn of the millennium 94% of America's accumulated budget deficit is covered by the accumulated balance of payments deficit. In other words, almost all the budget deficit is financed directly or indirectly by inward capital flows, and very little can be attributed to genuine demand for US Treasuries by America's savers.

This result is to be expected, since it reflects an accounting identity at the national level. The accounting identity tells us that unless there is an increase in national savings, a budget deficit will be financed by capital arising from the trade deficit. We can also say the money to cover the budget deficit in the absence of capital inflows and an increase in savings can only be through monetary inflation. In other words, through the debasement of the currency substituting for genuine savings.

In practice, foreign-owned dollars do not all go into US Treasuries, and investment outflows must be taken into account as well. Since 2000, according to Treasury TIC figures these are approximately $9 trillion, while total investment inflows at about $16 trillion leaves us with net inflows of $7 trillion, implying that foreign-owned cash and deposits in the US banks will have expanded to fill the gap between investment flows and the total balance of payments deficit. And indeed, we find that these balances amount to $4.3 trillion, accounting almost entirely for the gap between net inflows and the accumulated budget deficit in Table 1.

Obviously, there are other flows involved, but they are not material to the point. In the absence of an increase in savings, a budget deficit will always lead to a balance of payments deficit. How it is covered, by a combination of net inward capital flows and monetary inflation is a separate, but important consideration to which we will return later.

Now that the US faces a recession, the budget deficit will rise due to lower than forecast tax receipts and higher than expected welfare costs. The deeper the recession, the greater the deficit, which before the recessionary effect is factored in was forecast by the Congressional Budget Office to be just over one trillion dollars for the current fiscal year, which is two months in. It will obviously be somewhat higher, requiring funding by a combination of inward capital flows and monetary expansion.

If the foreigners don't play ball, funding the budget deficit will be entirely down to monetary inflation. Worse, if they reduce their dollar holdings, not only will monetary expansion have to make up the funding difference for the government, but it will also have to address net foreign sales of existing treasuries and other US dollar assets as well. At end-June 2018 the total value of those assets including those held before 2000 were recorded at $19.4 trillion, plus bank deposits and short-term assets of $4.3bn, taking the total to $23.7 trillion.[i] This is the same approximate size as the US Government's total debt and slightly more than US GDP.

Will foreigners sell US assets?

Naturally, dollar-based capital markets believe in the dollar and its hegemonic status. This extends to a belief that foreigners in financial trouble will always demand dollars and the more their trouble the greater their demand for dollars is likely to be. It is a mantra that ignores the fact that foreigners are up to their eyes in dollars already.

Look at it from China's point of view. The bulk of her foreign reserves of $3.1 trillion are in dollars, with about one third of it in US Government debt. She is helping America to finance its military, which aims to contain and crush China. It's rather like giving the school bully your baseball bat and inviting him to hit you with it. Furthermore, China's military strategists have their own view of how America uses her currency's hegemonic status, and it is not a casual one. They know, or think they know why America has stirred up Hong Kong, and that is to prevent global portfolio flows being invested in China, because America is desperate to have them instead.

It leaves China with a serious problem. She had expected inward global portfolio flows to help finance her infrastructure projects, and the Americans have effectively succeeded in closing down the Hong Kong Shanghai-connect link, through which foreign investment was to be directed. She is now in a position whereby she may have no alternative but to put her plans on hold or use her own dollar reserves to that end. Besides her US Treasury holdings, she is likely to have a further trillion or so in short-term instruments and bank deposits to draw on.

A decision to actively reduce her holdings of US Treasuries would not be taken lightly by China. The response from America would likely be an intensification of the financial war, perhaps including an emergency power to stop China selling her Treasury stock. If that happened, China would have no option but to respond, and a dollar crisis would almost certainly ensue. While outcomes with a rational opponent are theoretically predictable, President Trump's actions and how they mesh with the deep state are less so, making the consequences of any action taken by China deeply unpredictable.

We shall have to wait to see how this next stage plays out. Meanwhile, the inflationary outlook in America is already deteriorating.

FMQ confirms a reacceleration of monetary inflation

After pausing in its headlong growth since the Lehman crisis, the fiat money quantity surged into record territory at $15,812bn at the beginning of October (Figure 1).

FMQ is the sum of Austrian true money supply and bank reserves held at the Fed. The reason for its renewed growth is the Fed's easing by injecting money into the system through its repurchase agreements. FMQ for the beginning of November is likely to be higher still.

Something is amiss systemically, which appears to require continual monetary injections to prevent a financial crisis. The US economy having been already flooded with money following Lehman, this development is deeply worrying and possibly marks a countdown to the next credit crisis.

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To independent analysts, it should be clear by now that the world is probably teetering on the edge of a cyclical credit crisis, which this time is coupled with the destructive synergy of trade tariffs. Equally, it is obvious that while central bankers and politicians suspect something is wrong, they are clueless about the forces involved, otherwise they would not have implemented monetary policies that led to the situation today.

In the short-term, as we saw with the Lehman crisis when a credit crisis hits, there will probably be a panic into safety. But for the eventual outcome we must look beyond any initial effect. America and its dollar are central to how events will evolve. As already shown in this article the dollar is over-owned by foreigners, relative to ownership of foreign currencies by Americans. The basis of both categories of ownership is commercial assumptions about current and future prospects for international trade. For this reason a slump will cause demand for all currencies to contract, which in the dollar's case will need to net selling greater than any repatriation of capital from abroad. Even though most dollars are actually held by foreign governments and their agencies, their strategic reserve decisions are ultimately driven by economic factors.

Assuming the global economic slump deepens over the next few years, at a time when the American budget deficit will be increasing rapidly foreigners will be sellers of dollars and underlying US assets, including US Treasuries. Unless private sector actors in America increase their propensity to save, the budget deficit will have to be financed instead entirely by inflationary means.

Broadly, other than intertemporal factors there are two ways in which monetary inflation can translate into higher prices: a relative desire to reduce possession of the currency relative to goods either by domestic users or by foreigners. The two preceding paragraphs describe why foreigners are likely to turn sellers for reasons of trade, to which we can add the further consideration that over the last year a combination of a rising dollar and falling US Treasury yields have been immensely profitable for them, an experience which might not be repeated next year. So, while domestic users may be slow to see the dollar's purchasing power accelerate in its decline, the push to a weakening dollar is likely to come from abroad, at least initially.

All holders of dollars will find that their ownership of dollars relative to goods will be increasing rapidly, due to inflationary financing to cover a rising budget deficit. Instead of consumers and other economic actors associated with Main Street, the banks owe the bulk of their balances and deposits to other financial entities and foreigners. Therefore, the domestic monetary system is potentially more footloose than in the past. The risk to the Fed is that this deposit cohort is more likely to take its cue from factors such as the foreign exchanges, the price of gold and even cryptocurrencies, speeding up the fall in the dollar's purchasing power once it begins to slide.

It is a long time since we have seen it, but when the smart money begins to view things negatively, everything the Fed does with monetary policy, or the executive does fiscally, leads to failure. A falling dollar leads to rising interest rates in the markets, and the government's funding crisis will be laid bare for all to see. And with the Fed and the US Treasury staffed with neo-Keynesians, a policy reversal to stabilise the currency by making it sound will be the last thing that happens.

A world driven to trade isolationism

American trade policy under President Trump is isolationist and at odds with the role of a reserve currency. His mantra of "Make America Great Again" and his determination to build a wall on the Mexican border are testament to his thinking. If anything, America's introspection towards Russia and China has strengthened their partnership as joint Asian hegemons. Their decision to progress their economies without America and its dollars was taken by America for them. Russia has already turned most of her dollars into gold and continues to do so. China's plans to evolve her economy into a more consumer oriented one are underway, but she is still too dependent on export-oriented trade to disregard ties with her Western trading partners.

Consequently, China can be expected to accelerate plans for her vision of a consumer-driven middle class. In order to do so she will dispose of the dollar for trade purposes as much as possible. At the meeting of the BRICS nations in Brazil earlier this month, a common cryptocurrency was discussed, ostensibly to reduce currency volatility, but in reality, to eliminate the dollar as a common settlement medium between BRICS members.

So far, China has seen the redundancy of the dollar as a gradual evolutionary process. But America's policy of diverting global portfolio flows from China is likely to lead to China drawing down on her foreign reserves, particularly her holdings of US dollars, to replace expected capital inflows. She will still be dependent on imports of raw materials, for which some dollars will be needed; but so long as she has a trade surplus, and she insists on her preferences for trade settlement by other means, China's dollar requirements will be minimised.

China can probably weather the political consequences of a collapse in international trade, because for the population American aggression is clearly to blame. While China has had to amend its plans and is resisting precipitative action, there can be no doubt her determination to do away with the dollar is more urgent. Together with Russia, the other BRICS members and the Shanghai Cooperation Organisation as well as her trade counterparties in sub-Saharan Africa, China's policies for trade settlement without the dollar will affect more than half the world's population.

And when you get establishment figures in the Western banking system, such as Mark Carney, openly speculating at Jackson Hole last August about a replacement for the dollar in international trade, you know the dollar's jig is finally up.

[Nov 30, 2019] Practitioner's Guide to MMT

Part 1 and Part 2
Nov 30, 2019 | themacrotourist.com
              1. Danny November 28, 2019 at 3:27 pm

                Hal,
                Could you please comment on Dylan Ratigan's comment about $128 Billion being automatically pumped into the banker's hands without public comment by Dodd Frank?

                Is it the same thing as a repo? I'm a non-economist, just a simple fellow, that's getting the hang of this con game.

                https://www.greanvillepost.com/2019/11/15/jimmy-dore-with-dylan-ratigan-the-super-rich-have-no-country/

                After the 1 hour 39 minute mark here:
                https://www.youtube.com/watch?v=23Dc2ZfpKmo

                Reply
                1. OpenThePodBayDoorsHAL November 28, 2019 at 6:16 pm

                  I watched the Ratigan video on your recommendation and agree it is a fundamental retelling that pulls the elements together better than anything I'd previously seen. And I completely agree with his assessment that this was the biggest theft in mankind's history.

                  The Fed's highest stated purpose is "the integrity and stability of the banking system". Problem is, that mission justifies anything and everything beneath it. They are not in the business of ensuring a bank obeys the law, and if they break the law, even the "business law" of making terrible business decisions, all the Fed thinks they are required to do is make them whole.

                  So you have a radically anti-capitalist structure at the tippy top of a supposedly "capitalist" system. And that's even before you even get to any discussion of secrecy, subterfuge or malfeasance.

                  Why are we not allowed to know who the recipients were of the *$21 trillion* (GAO number) of free Fed money after 2009? All we can do is follow the bread crumbs: we do know, for example, that 2/3rds of those dollars went to European institutions, including non-bank corporations. Huh? Q: That benefits the Main St U.S. economy how, again? A: It doesn't. This means you can pay no attention whatsoever to the ancillary Fed "missions" around U.S. employment and economic growth.

                  The $128B Ratigan mentions re Dodd-Frank is just a trickle in the tsunami of funds reaching bank coffers. Free money of course is funding massive share buybacks, the *only* cause of stock "rises" since 2009, but what completely infuriates me is what banks are doing around buybacks. It's one thing if buybacks benefit *all* shareholders, but the latest trick (esp by Jamie Dimon) is to take free money, buy back JPM shares, *but those shares are only given to Jamie himself and his top managers*.

                  (Of course until 1982 companies borrowing money to buy back their own shares was completely illegal since it's effect is stock price manipulation).

                  Repo is just a shorter term version of all of these other diverted flows. Completely under all radars, with no Congressional hearings or public scrutiny or oversight.

                  End the Fed.

                  Reply
                  1. Yves Smith Post author November 28, 2019 at 10:46 pm

                    No this is totally wrong and I don't have the time now to debunk it. Ratigan is not a funding markets expert and it shows.

                    Reply
                    1. OpenThePodBayDoorsHAL November 29, 2019 at 1:51 am

                      I always love to be wrong because it means I get to be right again. I'm not a funding market expert either, but I hope you're just correctlng Ratigan's views on the $128B, not the entirety of my ramble? Thx Yves

                  2. cnchal November 28, 2019 at 11:40 pm

                    Interesting comment Dylan made regarding politicians.

                    The political system rewards those that are the best at raising money and character assasination.

                    Trump assassinates his own character better than anyone else. Bernie is great at raising lots of money with small donations from many people.

                    Bernie or bust.

                    Reply
              2. Yves Smith Post author November 28, 2019 at 10:45 pm

                *Sigh*

                I don't write about the repo mess because the commentary on it is generally terrible. This is not "monetizing debt". This is "providing liquidity to the money markets" which is what the Fed is supposed to do!!!

                The Fed got itself into a corner with super low rates and QE. It also stupidly decided to manage short term rates via interest on reserves. Prior to 2008, the Fed intervened in the repo markets every bloody day to hit the target rate and no one cared.

                The Fed drained liquidity too fast. It's been caught out and has had to go into reverse big time. Its refusal to admit that is why everyone is overreacting to the liquidity injections.

                Reply
                1. skippy November 28, 2019 at 11:03 pm

                  You just can't washout that commodity money stain in some peoples minds .

                  Reply
                2. OpenThePodBayDoorsHAL November 29, 2019 at 1:54 am

                  42 days seems longish to apply to the overnight money markets, no? Macro Voices/Alhambra have a very different perspective

                  Reply
            1. Yves Smith Post author November 28, 2019 at 10:41 pm

              Yes, MMT proponents oppose a UBI (or BGI). They want a Job Guarantee. They argue that setting a floor on the price of labor is a much more important way to regulate the economy than diddling with interest rates, plus it increases the productive capacity of an economy, which increases prosperity.

              The will accept a UBI that is lower than a JG as a sort of disability income.

              Reply
      1. xkeyscored November 28, 2019 at 12:39 pm

        Thank you for that link. It certainly sounds like real life, and they say their models predict inequality in various countries to within 1%.
        Any single agent in this economy could have become the oligarch -- in fact, all had equal odds if they began with equal wealth. In that sense, there was equality of opportunity. But only one of them did become the oligarch, and all the others saw their average wealth decrease toward zero as they conducted more and more transactions. To add insult to injury, the lower someone's wealth ranking, the faster the decrease.
        once we have some variance in wealth, however minute, succeeding transactions will systematically move a "trickle" of wealth upward from poorer agents to richer ones, amplifying inequality until the system reaches a state of oligarchy. If the economy is unequal to begin with, the poorest agent's wealth will probably decrease the fastest. Where does it go? It must go to wealthier agents because there are no poorer agents. Things are not much better for the second-poorest agent. In the long run, all participants in this economy except for the very richest one will see their wealth decay exponentially.
        the presence of symmetry breaking puts paid to arguments for the justness of wealth inequality that appeal to "voluntariness" -- the notion that individuals bear all responsibility for their economic outcomes simply because they enter into transactions voluntarily -- or to the idea that wealth accumulation must be the result of cleverness and industriousness. It is true that an individual's location on the wealth spectrum correlates to some extent with such attributes, but the overall shape of that spectrum can be explained to better than 0.33 percent by a statistical model that completely ignores them.

        Reply
        1. JTMcPhee November 28, 2019 at 8:52 pm

          From "The Highlander:" "In the end, there can be only one."

          Reply

[Nov 28, 2019] Making Sense of the National Debt

Nov 28, 2019 | research.stlouisfed.org

It will be interesting to see how China responds in reality to the naked hegemony of the US law just passed and signed by Trump about HK. Is China ready to stand up to the bully of dying empire or be cowed into slicing their response even thinner and thinner but not saying NO MORE!

We do live in interesting times.

Transferring my post to this thread, about the decline of US fertility rates:

Japanification of the USA:

Birthrates in the U.S. are falling. Abortions have also hit an all-time low

As we all know, constant population growth is essential for the survival of capitalism, since it is one of the main factors that slow down its tendency of the profit rate to fall. The article seems to agree with this:

Birthrates have been trending downward overall since 2005, sparking concern about potential economic and cultural ramifications. Keeping the number of births within a certain range, called the "replacement level," ensures the population level will remain stable. A low birthrate runs the risk that the country will not be able to replace the workforce and have enough tax revenue, while a high birthrate can cause shortages of resources.

Another related article approaches the issue from another angle:

Social counterrevolution and the decline in US life expectancy

Virginia Commonwealth University professor Dr. Steven H. Woolf and Eastern Virginia Medical School student Heidi Schoomaker analyzed life expectancy data for the years 1959-2016 and cause-specific mortality rates for 1999-2017. The data shows that the decline in life expectancy is not a statistical anomaly, but the outcome of a decades-long assault on the working class.

So, this is not an "anomaly". If it isn't, then there's an underlying cause, which the same article hypothetizes:

Obamacare was part of a deliberate drive by the ruling class to lower the life expectancy of working people. As far as the strategists of American capitalism are concerned, the longer the lifespan of elderly and retired workers, who no longer produce profits for the corporations but require government-subsidized medical care to deal with health issues, the greater the sums that are diverted from the coffers of the rich and the military machine.

A 2013 paper by Anthony H. Cordesman of the Washington think tank Center for Strategic and International Studies (CSIS) frankly presented the increasing longevity of ordinary Americans as an immense crisis for US imperialism. "The US does not face any foreign threat as serious as its failure to come to grips with the rise in the cost of federal entitlement spending," Cordesman wrote, saying the debt crisis was driven "almost exclusively by the rise in federal spending on major health care programs, Social Security, and the cost of net interest on the debt."

Meanwhile, conditions for the rich have never been better. This is reflected in the growing life expectancy gap between the rich and the poor. The richest one percent of men live 14 years longer than the poorest one percent, and the richest one percent of women 10 years longer than the poorest.

I wasn't aware of this CSIS report. If true, then this is indeed a very interesting hypothesis.

--//--

The thing I don't understand in the WSWS article linked above is this:

The first nodal point, in the early 1980s, corresponds to the initiation of the social counterrevolution by the administration of Ronald Reagan, which involved union busting, strikebreaking, wage-cutting and plant closings on a nationwide scale, combined with cuts in education, health care and other social programs.

So, Ronald Reagan did a "counterrevolution". That means there was a revolution before him, which I suppose is the post-war "Keynesian consensus", the "golden age of capitalism" of 1945-1975.

I really can't understand the logic behind the Trotskyists: they condemn the USSR and China as "stalinists", i.e. as counterrevolutionaries. But Harry Truman was a revolutionary? Dwight Eisenhower was a revolutionary? Clement Attlee was a revolutionary? De Gaulle was revolutionary?

What kind of nonsense is this?

What is most funny is that these same Trotskyists from the same WSWS website use the rise of labor strikes in China to argue China is a capitalist empire -- but uses the same strikes as evidence there was a revolution in the West during the post-war (by negative, since Reagan's "counterrevolution" was characterized by "union busting, strikebreaking, wage-cutting and plant closings on a nationwide scale, combined with cuts in education, health care and other social programs").

I think Trotskyism is having an identity crisis. They don't know if they are essentially a movement whose objective is essentially to tarnish Stalin's image or if they are closeted social-democrats. They forgot Trotsky fought for the revolution, not personal vendetta.

Posted by: vk | Nov 28 2019 15:44 utc | 12

[Aug 25, 2019] IMF's Special Drawing Rights (SDR) currency.

Aug 25, 2019 | www.moonofalabama.org

Grieved , Aug 25 2019 3:00 utc | 89

One thing I don't understand in all this talk of a replacement reserve currency for the world is why there is no mention of the IMF's Special Drawing Rights (SDR) currency. This is a basket of currencies fashioned to act as a global reserve currency at some, currently unknown, point in the future. Both the USD and Yuan are in the basket - China doesn't want to be the reserve currency, but she wants adequate voting rights over the SDR, and this is a continuing negotiation, to downgrade the US's legacy majority vote.

And although I haven't studied Carney's proposal well, I get the point that while the US is at most 15% of global GDP, more than half of all trades are closed in USD. So he's looking for ways to close some of those trades in alternative currencies. Russia and China and I think Iran are helping this by trading directly in each other's currencies, but I suspect that such things for most companies would be very unwieldy with today's global supply chains.

The fact is that, still today, the US Dollar is a damn useful currency to trade in. Are the sanctions worth it? Obviously, increasingly not. But I can't imagine trying to go outside of it without a very strong platform to switch to.

[Aug 25, 2019] Keynes was correct about the need for a neutral global reserve currency for trade rather than a national currency serving as world reserve currency

Aug 25, 2019 | www.moonofalabama.org

donkeytale , Aug 24 2019 23:03 utc | 48

vk with your comments about the USD as reserve currency (Triffin Paradox) and for pointig out global capitalist exploitation is unrelated to nationalism....exactly correct and right on. I make this same point once in awhile. Lol. But not nearly as well explained as you do here.

This is the non-sequitor behind the Brexit fallacy as well, that rejecting the EU for a nationalist trade and economic policy will somehow make Britain Great again. Pure nonsense and not a coincidence that Mercer/Bannon created this policy like Trump's policies with outright lies through a complicit media/political campaign.

The sad fact of the matter is Britain can't even feed itself. So, Brexiteers, welcome to a steady diet of overpriced sovereignty on a bun after the October 31st crash out.

And yes of course Keynes was correct about the need for a neutral global reserve currency for trade rather than a national currency serving as world reserve currency. As james and b suggest has great utility for the wealthiest Amerikkkans, while NC correctly views the strong dollar as the reason for the hollowing of the Amerikkkan blue collar worker.

And bet your bottom dollar (pun intended) China has no desire for the yuan to become the world reserve currency. That is the entire point of their global currency strategy: to maintain the yuan subordinate to the USD.

[Aug 25, 2019] I agree that US abuses it exorbitant providge , but that is what hegemoney always does. Power corrupts and has always done so

Aug 25, 2019 | www.moonofalabama.org

Contributor , Aug 24 2019 22:49 utc | 45

Said differently: The U.S. abuses is 'exorbitant privilege'. The hope is that China would be less inclined to do so.

The real solution though is a different system with some global exchange medium that can not be manipulated by one country or a block of selfish countries.

b @20

I agree that US abuses, but that is what hegemony always does. Power corrupts and has always done so. If there ever was a hegemony less inclined to do so, the history certainly shows not to expect that from China or Communists. Hence, I would not wish to desire outcome in which China gets close to hegemony.

I agree that a different system would be the solution. Currently, such option does not yet exist? Or at least function? For that reason, it would seem safe to say that other countries have no reason to de-couple from the least bad master of all bad ones available.


Perimetr , Aug 24 2019 23:11 utc | 50

Perhaps it has already been stated in this thread, but once the US dollar was decoupled from gold in 1971, it gave the Fed and the banksters the ability to create an infinite number of digital and paper dollars. The US used this power to build 1000 military bases around the world and use its sanctions to freeze dollars to anyone who challenged its policies and power.

The call to replace the fiat dollar with some other form of bankster digital fiat should be a non-starter. Only commodity-based currencies, which have intrinsic value and cannot be created out of thin air, are the only viable form money for a world which could be free of endless war paid for by endless debt and economic slavery.

C I eh? , Aug 24 2019 23:14 utc | 51
It is astonishing to see how British Imperialism, from before Hobbes wrote Leviathan to the present day, has fooled everyone by teaching us to focus on the particulars and our physical senses instead of taking in the bigger picture and registering the totality and spirit of what is occurring.

... ... ...

dh-mtl , Aug 24 2019 23:18 utc | 52
On May 23, on MOA, I made the following comment:

This is the beginning of dividing the world into two spheres. A Multi-Polar sphere, led by China and Russia, and a U.S. led sphere.

In the current world order, the U.S. has lost its place of leadership. Militarily it has been surpassed by Russia and economically it has been surpassed by China.

In terms of the economy, China's GDP (PPP basis) is some 20% larger than the U.S. In terms of what counts, producing useful products, the difference is much larger than that. In fact the U.S. hasn't produced the value of products that it consumes for more than 30 years, and is currently running a trade deficit of more than 2% of GDP. The accumulated foreign debt, resulting from these on-going trade deficits is a major strategic threat.

Not only has the U.S. lost its position of leadership, its perspectives are rapidly deteriorating. 30+ years of Globalization has destroyed its industrial base, and without an industrial base it cannot compete either economically or militarily.

To stop the on-going loss of its leadership position, the U.S. must redevelop its industrial base. But it cannot do so in world of open borders in which it has to compete with China. Thus, the U.S. is seeking to create its own sphere, accompanied by its loyal vassals, where it can redevelop its industrial base and ultimately recover its industrial strength and leadership, isolated from its competitors.

This, in my opinion, is the strategic intent of Trump's economic and trade policies. He is not looking to achieve a trade deal with China, but rather to shut down trade between China (and the Multi-Polar sphere in general), and a U.S. led economic sphere, which consists of the U.S. and its vassal states. He is also looking to limit or harm the Multi-Polar sphere in every way, short of all out war, in order to ensure the loyalty of as many vassals as possible.

Posted by: dh-mtl | May 23, 2019 1:15:10 PM | 39

It seems to me that this comment is quite pertinent to this thread.

Regarding the US dollar as a reserve currency: This reserve currency status and the resulting overpricing of the U.S. dollar has been a windfall to the global elites, but has been devastating to the United States itself, being a major factor in the destruction of the U.S. as an industrial economy.

In addition, the fact that the U.S. dollar has a dual purpose, as the currency of the U.S. and as the reserve currency of the world, has resulted in considerable financial instability. When the U.S. adjusts its monetary policy based on domestic needs, resulting wild swings in the exchange rate send shock waves around the world.

A world reserve currency is used as a reference for other currencies and must be stable. A domestic currency must be able to adjust based on the monetary policy required for the domestic economy. These two separate functions are incompatible.

Over the past five decades the U.S. dollar has been anything but stable. In this sense Mark Carney's analysis is spot on.

I believe that the Chinese, Russians, etc. recognize this situation and have long been looking for an alternative to the U.S. dollar as a world reserve currency. The recent weaponization of the dollar for geo-political purposes has only made the situation more urgent.

I believe that what is required is a world reserve currency that is separate from any domestic currency, similar to what Carney is calling for. However, my bet is that this world reserve currency will take the form of a crypto-currency backed by gold. Only with the backing of gold will the currency have the transparency required to be a world reference currency, acceptable to all.

Jackrabbit , Aug 24 2019 23:21 utc | 53
Carney's plan just creates a stronger coupling to the Empire by transforming a system that uses the dollar as reserve currency into a system that uses what might be termed the 'e-dollar' for everything.

The proposal likely leads to a revived TPP because global currency requires "harmonization" of regulatory regimes.

Most importantly: European poodles will be on an even shorter lease. (No gas from Russia!)

Western globalist elites have already de-coupled from nation-states. The e-dollar makes would force everyone to catch-up.

An exorbitant privilege" is likely to continue in one form or another. They will not give up the ability to use currency as a tax without real pressure (which is currently nonexistent).

Bonus: "the Russians hacked our currency!" is the perfect way for the in-group to crush resistance by stealing from their critics.

donkeytale , Aug 24 2019 23:29 utc | 54
ADKC - careful here. Don't over subscribe Chinese elitist propaganda for the truth just because their government says so. The BRI to date isn't a proven winner, far from it, except for the Chinese who insist on imperialistic control over these ventures both for their companies and imported Chinese workers. Proof of benefits to the foreign countries has yet to be determined.

In fact, there is evidence that at least in some respects BRI looks to be an empty boondoggle like the empty skyscrapers in the Chinese urban skyline.

China is sending empty freight trains to Europe through one of its key Belt and Road Initiative (BRI) projects: the China-Europe Railway Express. The bizarre phenomenon caught the attention of Depth Paper (等深线), a Chinese online news platform. In a rare move by a Chinese media outlet in today's media environment, Depth Paper probed critically into one of the BRI's most visible "connectivity" projects, uncovering the perverse incentives that are luring China's local governments and companies to create huge "bubbles" of ostensibly flourishing rail routes that run tens of thousands of kilometers across the vast landmass of Eurasia.

The revelation partly confirms what some observers have suspected all along: that China's central government lacks the ability to keep BRI strategically tight and coordinated. Sub-national stakeholders, as they do in other policy areas, have the incentives to bend the initiative to their own narrowly defined interests and in the process undermine the overarching strategy, if such a strategy indeed exists at all. The curious case uncovers some important dynamics playing out among Belt and Road's diverse stakeholders.

Yes, Barflies, there are also downsides to central government planning even in the Zen Master Paradiso, which of course is 100% free of corruption and perverse incentives:

The elevation of the freight service in political importance created powerful incentives for players to "rig the game". Depth Paper reveals two groups of schemers in the game:

Provincial and local governments: As the number of freight trips to and from Europe become a measurable indicator, local governments, particularly those sitting at key railway hubs, saw a clear opportunity to boost their visibility under the BRI (and probably to the leadership). At their disposal were subsidies to lower the cost of freight services and make them competitive with cargo ships.

The Ministry of Finance provides a guiding subsidy ceiling of 0.8USD/container/kilometer. But ambitious local governments circumvent it by inventing all kinds of additional rewards to lure businesses to their train terminals, sometimes even compensating for the extra mileage of truck transportation to bring containers from thousands of kilometers away. According to a chart collated by Sino Trade and Finance, many municipal government offer around 3000USD per container for a one-way Europe bound trip and a whole train could receive a total of 123,000USD worth of subsidies per trip. These local governments also use tax rebate and land use subsidies to sweeten the deal for freight service companies.

International railway service companies : Competition with each other and pressure from local governments eager for BRI visibility has incentivized the companies who actually run the numerous rail routes to Europe to increase the number of train trips. Every month these companies have to book planned trips from the railway regulators and get what is called a "route slip" that permits them to run those trains. The ratio of actual trips to the applied number is called "realization rate" that regulators use to monitor rail capacity utilization.

The interplay of these incentives drives both groups to boost indicators that make them look good in this game, creating scenes that are outright bizarre. The government of Xi'an is one of the most active players starting from 2018. The city, 1000 kilometers to the west of Beijing and the former capital of Tang Dynasty more than a millennium ago, considers itself the "starting point of the ancient Silk Road" and strives to restore its glory in the Belt and Road era. With full support from its provincial bosses, it is the most generous with subsidies, dwarfing other provinces by a wide margin. "Subsidized per container transportation price from Xi'an is constantly below RMB 8500, while it costs over 20000 RMB from Shandong," a trade agent told Depth Paper.

The subsidies are of the scale that they bend the gravity of trade. In the most extreme cases, traders in the far west Xinjiang Autonomous Region, which already borders Central Asia and is itself a Belt and Road rail hub, would move their cargo thousands of kilometers to the east to capitalize on the Xi'an government's free handouts before transporting west across the Eurasian continent. Similarly, traders in coastal Shandong provinces would truck their goods all the way to Xi'an and load them onto trains, as it is cheaper even after taking into account the 5000 RMB per container transportation cost by truck (for which the Xi'an government also partially remunerates). The result is that Europe-bound freight train trips from Xi'an grew by a whopping 536.6% in just one year from 2017 to 2018.

The railway service companies, on the other hand, blow up their trip numbers even when they have very little to ship. Before Xi'an arrived on the scene in 2018, the competition between Chongqing and Chengdu, two nearby cities, was so fierce that the two cities would refuse to merge cargo loads back from Germany despite neither being able to fill a whole train themselves. When the pressure (and reward) to be the top railway service company facilitating "Belt and Road" trips to Europe becomes huge, the companies simply start loading empty containers to their trains. They must ensure that each train meets the regulator's 40-container minimum before it leaves the station, but there is no obligation and no ability (for lack of demand) to fill those containers.

In the most extreme case, one train carried 40 empty containers and just one full container all the way to Europe. This makes the China Railway Express's impressive growth number highly dubious, and most certainly a "bubble". Even with all their tricks, companies can barely fulfill their promise to regulators: they have overbooked railway resources. In Q2 of 2019, Chongqing's "realization rate" dipped to as low as 64% for some routes.

donkeytale , Aug 24 2019 23:47 utc | 55
The ghost cities of China.
China will unquestionably need even more infrastructure if it's to accommodate all the additional migrants McKinsey anticipates. But just because China needs things that haven't yet been built, that doesn't mean that everything that gets built is truly needed. Even the casual observer driving around China can see that something is wrong. You can see it in the industrial parks that are empty except for a small handful of factories, and in the government buildings that are so large it seems impossible that they will ever fill in with civil servants, and in the airports that only sporadically host an arriving plane, and in the glut of exhibition centres and museums that every town seems compelled to build.

Urbanisation – the construction of new housing and infrastructure – has been the driving force behind the Chinese economy for close to two decades. It has created demand for massive volumes of steel, cement, and glass; for the ships that bring iron ore from overseas; for the power plants and coal mines needed by the steel mills; and for the machinery that is needed on construction sites.

But this constant and nonstop building has become an addiction for local governments. it's a way of stimulating the local economy and maintaining growth, all loosely justified by the needs of migrants. The World Bank calls urbanisation an "enabling parallel [process] in rapid growth"; in other words, urbanisation can support growth, but it can't drive it. China has put the cart before the horse, and the result is waste on an epic scale. Tieling's story is one of how ambition and a lack of restraint by local governments, masquerading as planning for the future, have laid the foundation for financial problems that have been replicated throughout China – and how the promise of further migration isn't going to fix them.

Daniel , Aug 24 2019 23:57 utc | 57
I see many many people have bought into anti-China propaganda. So the MSM lies about Israel and Russia and Syria and WMD and Iran but when it comes to China it tells the truth. Gotcha.
ADKC , Aug 25 2019 0:04 utc | 59 vk , Aug 25 2019 0:05 utc | 60
@ Posted by: donkeytale | Aug 24 2019 23:29 utc | 53

But it is not us, alleged "pro-China propagandists" who are "buying into Chinese elite propaganda". It is its main enemy -- the USA -- that is stating China is a superpower (the term "great power" is used + subliminar message of the document).

As a famous philosopher once said: the best way to know yourself is to know your enemy.

And, by knowing its enemy and by assessing the evidence on the field available to us, it leaves us to believe that the Chinese socialist system has been -- with all its virtues and flaws -- a monumental success: so far, it's the only Third World country to ascend to superpower status; it's also the first really big country (1.4 billion people) to have found a way to material prosperity (mutatis mutandis) to the totality of its population (which breaks with the post-war Western European social-democrat myth that states only small countries can be prosperous).

And we have corruption here in the (capitalist) Third World too. Corruption is not an invention of socialism. If I could, I would choose the Chinese system for my country in a heartbeat.

milomilo , Aug 25 2019 0:16 utc | 61
First : Good articles from B always get responded by astroturfers / paid trolls in the first few comments , that mean B's MoA already in priority watch list of TPTB drones

Second : Rather surprised by people that got surprised of the decoupling plan , as it been the goal all along and any china watcher knew this right from the start. Trump is not the instigator of this , he acted like moron on twitter but the machination for the decoupling have been ongoing even during obama years (TPP anyone ?) The whole trump trade deal promise with china are not about trade deals , it is a list of demand from US to make china bow to US or face decoupling. China of course refused and here we are today. US overplayed their hands as china better prepared for the decoupling.

Third : HK violent protests are in fact designed to make china over react and send in security forces into HK , the debacle then will be used as US and push EU allies to support decoupling with china. But the awaited china HK crackdown never happened and the western plan go ahead anyway with the choreographed western leader's comments on china action toward HK even when theres no action.

To the trolls like Nemesis Calling and his sock puppet accounts , it would be wiser if you notice the people coming to MoA are not random ignorant citizen of USA or EU. Such blatant pro US narrarive from you instantly got recognized and laughed at.

S , Aug 25 2019 0:22 utc | 62
SHC idea is BS. I don't want to even think about all the hidden tricks the City is planning to build into it. There's no need to because there's no need for SHC itself.

It used to be hard to maintain accounts in multiple currencies, as well as settle such accounts when trading internationally, so the trade (and, therefore, insurance, short-term credit, and trade reserves) inevitably coalesced around a few main currencies. With the computation capabilities available today, there's nothing preventing banks and companies from having accounts in dozens of currencies. There's nothing preventing all kinds of currency pairs (thousands, even tens of thousands of combinations) to be traded automatically by market-making algorithms, thus providing the necessary liquidity.

This is what the non-Empire countries should be working towards: a decentralized system of currency exchanges and settling systems built upon a common standard for maximum interoperability. No blockchain currencies are necessary: simple correspondent accounts at the central banks will do. The trick is to adopt a common tech standard and simplify legal procedures, so that a bank can easily open accounts in the currencies of dozens of countries and easily exchange these currencies on a currency exchange of its choosing.

vk , Aug 25 2019 0:43 utc | 63
Here's the famous memorandum where Trump admits China is (by exclusion) at least an "developed" economy:

Trump Targets China Over WTO 'Developing Nation' Crackdown

Trump singled out China in a memo to U.S. Trade Representative Robert Lighthizer, saying that "the United States has never accepted China's claim to developing-country status, and virtually every current economic indicator belies China's claim." In response, China said that it's still a developing nation and needs flexibility and policy room, according to state broadcaster CCTV.
ADKC , Aug 25 2019 0:53 utc | 66
donkeytale @54

That's because you look at the empty cities from a western (particularly Hayek economics) perspective. There are at least the following factors that you have ignored:

1. That the US/West requested China to support the world economy post 2008 by spending.

2. That the West has wasted far greater resources with quantitative easing & non-performing investments.

3. That China adopted a Keynesian approach to keep their economy moving.

4. That the cities were all planned anyway and build was just brought forward to support the world and Chinese economy.

5. That most of these cities are still not complete and not ready yet for mass residence.

I can see the argument that these cities might turn out to be a waste but so was the western approach to the 2008 crash and what we are left with is continuing austerity, huge amounts of money that has been wasted by pouring it straight into the pockets of the ultra rich, and another pending crash. What China is left with is money that went to the workers, an economy that continued to develop and assets (cities) that may well be very useful in the future.

[Aug 25, 2019] The creation of the Asian Infrastructure Investment Bank, AIIB, in 2015 was a sensation. Former US Treasury Secretary Larry Summers called it, "The moment the United States lost its role as the underwriter of the global economic system.

Aug 25, 2019 | www.moonofalabama.org

Godfree Roberts , Aug 24 2019 22:43 utc | 41

After the Global Financial Crisis Zhou Xiaochuan, Governor of the Bank of China announced, "The world needs an international reserve currency that is disconnected from individual nations and able to remain stable in the long run, removing the inherent deficiencies caused by using credit-based national currencies."

He proposed Special Drawing Rights, SDRs, that derive their value from a basket of world currencies. Nobelists C. Fred Bergsten, Robert Mundell and Joseph Stieglitz, were supportive, "The creation of a global currency would restore a needed coherence to the international monetary system, give the IMF a function that would help it to promote stability and be a catalyst for international harmony."

To demonstrate the scheme's stability China began valuing its own currency, the RMB, against a basket of dollars, euros, yen and pounds sterling and, almost immediately complaints about RMB valuation ceased. The IMF made its first SDR loan in 2014, the World Bank issued the first SDR bond in 2016, Standard Chartered Bank issued the first commercial SDR notes in 2017 and the world's central banks began stating reserves in SDRs in 2019.

While few noticed the advent of SDRs, the creation of the Asian Infrastructure Investment Bank, AIIB, in 2015 was a sensation. Former US Treasury Secretary Larry Summers called it, "The moment the United States lost its role as the underwriter of the global economic system. I can think of no event since Bretton Woods⁠ comparable to the combination of China's effort to establish a major new institution–and the failure of the US to persuade dozens of its traditional allies, starting with Britain–to stay out of it."

The AIIB's one hundred member countries account for eighty percent of the world's total population and two-thirds of global GDP. It guarantees a trillion dollars annually in long term, low interest loans for regional infrastructure, poverty reduction, growth and climate change mitigation and allows Eurasia's four billion savers to mobilize local savings that previously had few safe or creative outlets.

[Aug 25, 2019] U.S. Decoupling From China Forces Others To Decouple From U.S.

G7 is not less then 50% of world economics.
Aug 25, 2019 | www.moonofalabama.org
U.S. Decoupling From China Forces Others To Decouple From U.S.

The U.S. is decoupling itself from China. The effects of that process hurt all global economies. To avoid damage other countries have no choice but to decouple themselves from the U.S.

Today's Washington Post front page leads with a highly misleading headline:

The headline above the article is also wrong:

Trump retaliates in trade war by escalating tariffs on Chinese imports and demanding companies cut ties with China

It was China, not Trump, which retaliated. Trump reacted to that with a tweet-storm and by intensifying the trade war he started . The piece under the misleading headline even says that :

President Trump demanded U.S. companies stop doing business with China and announced he would raise the rate of tariffs on Beijing Friday, capping one of the most extraordinary days in the long-running U.S.-China trade war.
...
The day began with Beijing's announcement that it would impose new tariffs on $75 billion in goods, including reinstated levies on auto products, starting this fall. It came to a close Friday afternoon with Trump tweeting that he would raise the rate of existing and planned tariffs on China by 5 percentage points.

Beijing's tariff retaliation was delivered with strategic timing, hours before an important address by Powell, and as Trump prepared to depart for the G-7 meeting in Biarritz.

After Trump's move the stock markets had a sad. Trade wars are, at least in the short term, bad for commerce. The U.S. and the global economy are still teetering along, but will soon be in recession.

The Trump administration is fine with that. (As is Dilbert creator Scott Adams (vid).)

U.S. grand strategy is to prevent other powers from becoming equals to itself or to even surpass it. China, with with a population four times larger than the U.S., is the country ready to do just that. It already built itself into an economic powerhouse and it is also steadily increasing its military might.

China is thus a U.S. 'enemy' even though Trump avoided, until yesterday, to use that term.

Over the last 20+ years the U.S. imported more and more goods from China and elsewhere and diminishes its own manufacturing capabilities. It is difficult to wage war against another country when one depends on that country's production capacities . The U.S. must first decouple itself from China before it can launch the real war. Trump's trade war with China is intended to achieve that. As Peter Lee wrote when the trade negotiations with China failed:

The decoupling strategy of the US China hawks is proceeding as planned. And economic pain is a feature, not a bug.
...
Failure of trade negotiations was pretty much baked in, thanks to [Trump's trade negotiator] Lightizer's maximalist demands.

And that was fine with the China hawks.

Because their ultimate goal was to decouple the US & PRC economies, weaken the PRC, and make it more vulnerable to domestic destabilization and global rollback.

If decoupling shaved a few points off global GDP, hurt American businesses, or pushed the world into recession, well that's the price o' freedom.

Or at least the cost of IndoPACOM being able to win the d*ck measuring contest in East Asia, which is what this is really all about.

Trump does not want a new trade deal with China. He wants to decouple the U.S. economy from the future enemy. Trade wars tend to hurt all involved economies. While the decoupling process is ongoing the U.S. will likely suffer a recession.

Trump is afraid that a downturn in the U.S. could lower his re-election chances. That is why he wants to use the Federal Reserve Bank to douse the economy with more money without regard for the long term consequences. That is the reason why the first part of his tweet storm yesterday was directed at Fed chief Jay Powell:

In his order for U.S. companies to withdraw from China, some close to the administration saw the president embracing the calls for an economic decoupling made by the hawks inside his administration.

The evidence of the shift may have been most apparent in a 14-word tweet in which Trump appeared to call Xi an "enemy."

"My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?" he said in a Tweet posted after Powell gave a speech in Jackson Hole that contained implicit criticism of Trump's trade policies and their impact on the U.S. and global economies.

Jay Powell does not want to lower the Fed interest rate. He does not want to increase bond buying, i.e. quantitative easing. Interest rates are already too low and to further decrease them has its own danger. The last time the Fed ran a too-low interest rate policy it caused the 2008 crash and a global depression.

Expect Trump to fire Powell should he not be willing to follow his command. The U.S. will push up its markets no matter what.

From Powell's perspective there is an additional danger in lowering U.S. interest rates. When the U.S. runs insane economic and monetary policies U.S. allies will also want decouple themselves - not from China but from the U.S. The 2008 experience demonstrated that the U.S. dollar as the global reserve and main trade currency is dangerous for all who use it. Currently any hickup in the U.S. economy leads to large scale recessions elsewhere.

That is why even long term U.S. ally Britain warns of such danger and looks for a way out :

Bank of England Governor Mark Carney took aim at the U.S. dollar's "destabilising" role in the world economy on Friday and said central banks might need to join together to create their own replacement reserve currency.

The dollar's dominance of the global financial system increased the risks of a liquidity trap of ultra-low interest rates and weak growth, Carney told central bankers from around the world gathered in Jackson Hole, Wyoming, in the United States.
...
Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes in the banking system.
...
China's yuan represented the most likely candidate to become a reserve currency to match the dollar, but it still had a long way to go before it was ready.

The best solution would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.

Carney speaks of a "new Synthetic Hegemonic Currency (SHC)" which, in a purely electronic form, could be created by a contract between the central banks of most or all countries. It would replace the dollar as the main trade currency and lower the risk for other economies to get infected by U.S. sicknesses (and manipulations).

Carney did not elaborate further but is an interesting concept. The devil will be, as always, in the details. Will one be able to pay ones taxes in that currency? How will the value of each sovereign currency in relation to SHC be determined?

That the U.S. dollar is used as a global reserve currency under the Bretton Woods system is, in the words of the former French Minister of Finance Valéry Giscard d'Estaing, an "exorbitant privilege". It if wants to keep that privilege it will have to go back to sane economic and monetary policies. Otherwise the global economy will have no choice but to decouple from it.

Posted by b on August 24, 2019 at 19:22 UTC | Permalink

[Aug 17, 2019] On currency manipulation: The USA afministration wants to weaken dollar but this is not an easy task

Aug 17, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 07, 2019 at 02:23 PM

A Weak Dollar Could Help the US. Getting One
Isn't So Easy. https://nyti.ms/33j7eFe
NYT - Matt Phillips - August 6

President Trump has made no secret of his
frustration that the United States dollar
has strengthened against other currencies.

The trade war between Washington and Beijing took an unexpected turn this week as China let its currency drop sharply and the United States responded by officially designating the country a currency manipulator.

The confrontation underscored the Trump administration's focus on weakness in foreign currencies -- and the corresponding strength of the dollar -- as a drag on the American economy.

Now, investors are gaming out the prospect that the United States could actively intervene in the financial markets, in a significant break from a decades-long commitment to free-floating currencies.

"It's a big deal because I think it would mark a new sort of phase in how the U.S. approaches the international economy," said Michael Feroli, chief United States economist with JPMorgan Chase.

But while the president might want a weaker dollar, engineering one is complicated. Here's the context you need to understand the United States' changing approach to the dollar.

Why would the U.S. benefit from a weaker dollar?

A weaker currency makes a country's exports cheaper for buyers overseas, giving a country a competitive advantage. For years, an artificially weak renminbi underpinned China's growth as a manufacturing base for the rest of the world.

The Trump administration's tariffs on imports of Chinese-made goods are meant to raise the price of those products once they land in the United States, discouraging Americans from buying them.

But one way for China to respond is to weaken the renminbi and undermine the impact of those tariffs by making those products cheaper.

That's why when China allowed its closely controlled renminbi to depreciate sharply against the dollar on Monday, it was taken as a sign that the trade war between the United States and China was getting worse.

The currency has since strengthened, easing this tension somewhat, but China isn't the only trading partner the president has a problem with.

For instance, in June, after the European Central Bank said it might restart stimulus programs to bolster the economy, Mr. Trump accused it of pushing down the value of the euro, "making it unfairly easier for them to compete against the USA."

"They have been getting away with this for years, along with China and others," he said on Twitter.

A weaker dollar has other benefits. For instance, it could also bolster corporate earnings. Roughly 40 percent of the revenue of the biggest American companies now comes from overseas, and a weaker dollar means those foreign sales make a bigger contribution to the bottom line. Those higher earnings can help give the stock market a lift.

None of this is a secret. But in the past, governments have shied away from weakening their currencies, in part because they were afraid it would also lead to an ugly bout of inflation, which was traditionally viewed as the big risk of a weak currency. These days, inflation around the world is incredibly low and shows little sign of rising.

"You have almost the perfect macro backdrop for policymakers to encourage currency weakness," said Alan Ruskin, chief international strategist at Deutsche Bank in New York.

How did this become a political issue?

Foreign exchange markets are a zero-sum game: If China's currency weakens against the dollar, the dollar, by definition, strengthens.

So whether China is deliberately lowering the value of the renminbi, or the euro is tumbling because currency traders are worried about the region's growth, the ultimate impact is that the dollar is stronger.

Strong currencies tend to weaken a country's exports and bolster the consumption of foreign products. That can lead to larger trade deficits.

President Trump has made reducing the trade deficit with China a crucial focus of his administration and a crucial goal of the tariff war that began in 2018.

But that effort has had mixed results. The United States' goods deficit with China initially widened to a record $43 billion in October before shrinking significantly since then. It is now hovering around $30 billion a month.

In theory, if the dollar weakened against the Chinese currency, it could do more to cut that trade deficit than a tariff battle, potentially offering the president a chance for a political victory going into the 2020 election.

If other countries can weaken their currency, why doesn't the United States do the same?

In theory, it can. But in practice it isn't easy.

In part, that's just because the currency markets are so big. Every day, more than $5 trillion changes hands in those markets, and more than $4 trillion of those trades involve the dollar.

China controls the renminbi because it can use the bottomless buying power of its central bank, which publishes an official price for the currency every day around which it allows a certain amount of trading.

The People's Bank of China has the ability to print renminbi to weaken the currency if the exchange rate gets too high. On the flip side, Beijing has $3 trillion in reserves it can deploy to keep the currency from getting too weak.

Right now, the United States doesn't operate that way.

It has some capacity to intervene in financial markets by using the Exchange Stabilization Fund, a vehicle under the control of the Treasury secretary, with about $100 billion of buying power.

"Unless Congress gives Treasury authority to beef up the Exchange Stabilization Fund, it just doesn't have enough firepower," said Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.

Last month, Larry Kudlow, director of the National Economic Council, said the White House had considered an intervention to weaken the dollar before deciding against it. The same day, however, Mr. Trump contradicted Mr. Kudlow, telling reporters that all options were on the table.

"I could do that in two seconds if I wanted," Mr. Trump said. "I didn't say that I'm not going to do something."

So in the past, when American politicians wanted to change the value of the dollar, they had to coordinate efforts involving a number of countries. That's what happened in 1985, when the United States engineered an agreement to weaken the dollar as part of an agreement known as the Plaza Accord.

Of course, those countries were all strategic allies of the United States. Persuading China to let its currency strengthen to help the United States is a different situation all together.

[Aug 17, 2019] If the U.S. abuses its exorbitant privilege too much by bullying, there will eventually be a switch.

Notable quotes:
"... The real concern is about the primacy of the dollar and US hegemony. When Krugman trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit, his main point was that it was good policy strategically. Krugman was woefully wrong, as China grew to be a geopolitical rival, not a US client state like Japan or Germany as the Clintonistas and the foreign policy borg had hoped. ..."
"... Folks, it ain't about US jobs and consumer prices, which will be affected at worst only marginally. What it's really about is the dominance of the empire and its enormous, tax-free profits overseas. ..."
Aug 17, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 07, 2019 at 06:22 AM

What's at Risk if US Stumbles Into
a Currency War https://nyti.ms/2yKGPC1
NYT - Neil Irwin - August 7

... ... .. ...

The Trump administration has introduced a zero-sum approach to global currency policy -- envisioning a loser for every winner -- that violates the spirit of those rules.

In that sense, the latest moves risk upsetting a relatively stable order, creating unpredictable ripple effects. When currencies swing wildly, they can pull along the economies of some of the most powerful nations, such as by crushing entire sectors of the economy that find themselves uncompetitive after a swing in global exchange rates.

And it could undermine the central role the United States has played in the international financial system, especially if the accusations of manipulation are followed up with concrete retaliation to try to artificially depress the value of the dollar.

"The dollar being the primary global currency has enormous benefits for the U.S., but with the side effect that when the U.S. tries to depreciate, there are limits on how much it can do that," said Adam Posen, president of the Peterson Institute for International Economics. "But if the U.S. abuses its privilege too much by bullying, there will eventually be a switch."

The decision to name China a currency manipulator does not, in and of itself, do much. But it could be followed up with pressure on the International Monetary Fund and other nations to make similar findings and lean on the Chinese to adjust their policies. Or it could lead to direct intervention in foreign exchange markets by the United States Treasury.

This is not the first time President Trump has accused a major trading partner of using currency policy to mistreat the United States.

... ... ...

A habit of the Trump administration has been to link seemingly unrelated items in its dealings with other countries -- using tariff threats to try to influence Mexican immigration policy, for example.

If the Trump administration continues down the path of using currency policy to try to bludgeon China over trade, technology and national security issues, it will signal a remarkable expansion into a policy area that has been a source of stability in recent decades.

"It's dangerous to start a currency war because you don't know where it will end," said Eric Winograd, chief U.S. economist at AllianceBernstein. "We've seen with the trade war that it started in one place, and ended up much broader. There's every risk a currency war will do the same."

JohnH -> Fred C. Dobbs... , August 07, 2019 at 09:26 AM
No we're talking turkey!

"It could undermine the central role the United States has played in the international financial system."

All the talk about hurting consumers and jobs is just noise that policy elites emit to win support on false pretenses.

The real concern is about the primacy of the dollar and US hegemony. When Krugman trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit, his main point was that it was good policy strategically. Krugman was woefully wrong, as China grew to be a geopolitical rival, not a US client state like Japan or Germany as the Clintonistas and the foreign policy borg had hoped.

Now there is a real debate about global strategy going on. Trump wants to whack China back into place, reduce it as a geopolitical threat. The other side is still wedded to the 2000 notion having China follow US global leadership and defending the exorbitant privileges of US corporations, their banksters, and their profits. Their latest gambit is to raise a potentially real issue--the primacy of the US dollar.

Folks, it ain't about US jobs and consumer prices, which will be affected at worst only marginally. What it's really about is the dominance of the empire and its enormous, tax-free profits overseas.

[Aug 08, 2019] What's at Risk if US Stumbles Into a Currency War

Aug 08, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 07, 2019 at 06:22 AM

What's at Risk if US Stumbles Into
a Currency War https://nyti.ms/2yKGPC1
NYT - Neil Irwin - August 7

When the United States declared China a currency manipulator on Monday, long-building trade tensions between the world's two largest economies spread to the combustible realm of currencies -- with potentially huge consequences for the global financial system should the escalation continue.

Did China allow the value of the yuan to fall against the dollar simply to allow it to better match the nation's economic situation, as the country's leaders and many international economists argue? Or was it, as President Trump contends, an effort to give Chinese exporters an unfair advantage in trade?

That clash reflects Mr. Trump's rejection of the consensus of global economic policymakers. That consensus says countries should be free to set monetary policies aimed at generating sustained growth, even if that causes their currency to depreciate. And they should be free to manage their exchange rates so long as they keep those rates broadly in line with their economic fundamentals.

The conflict also reflects the president's singular focus on reducing trade deficits, which he has argued make the United States a loser in the global trade system. But waging a currency war could come at a big cost.

"I worry it further undermines the international framework that has supported decades of faster growth," said Kristin Forbes, an economist at M.I.T. and a former official of the U.S. Treasury and the Bank of England. "Exchange rates are the shock absorber in the global economy."

There have been international strains over currency valuations for years, all the more so in a world in which all the major economies are coping with sluggish growth. But the newest currency frictions are different.

Up until now, countries have been focused on stimulating their domestic economies. In particular, central banks have cut interest rates and taken other steps to pump money into their financial systems. That tends to lower the value of their currency. After all, investing in a currency with lower interest rates is less attractive, all else equal, than in one with higher rates.

But the conventional wisdom among international economists is that this doesn't count as currency manipulation. It's not a game in which one country's win means another must lose. Lower interest rates should generate more economic activity, which makes the whole world better off.

The Trump administration has introduced a zero-sum approach to global currency policy -- envisioning a loser for every winner -- that violates the spirit of those rules.

In that sense, the latest moves risk upsetting a relatively stable order, creating unpredictable ripple effects. When currencies swing wildly, they can pull along the economies of some of the most powerful nations, such as by crushing entire sectors of the economy that find themselves uncompetitive after a swing in global exchange rates.

And it could undermine the central role the United States has played in the international financial system, especially if the accusations of manipulation are followed up with concrete retaliation to try to artificially depress the value of the dollar.

"The dollar being the primary global currency has enormous benefits for the U.S., but with the side effect that when the U.S. tries to depreciate, there are limits on how much it can do that," said Adam Posen, president of the Peterson Institute for International Economics. "But if the U.S. abuses its privilege too much by bullying, there will eventually be a switch."

The decision to name China a currency manipulator does not, in and of itself, do much. But it could be followed up with pressure on the International Monetary Fund and other nations to make similar findings and lean on the Chinese to adjust their policies. Or it could lead to direct intervention in foreign exchange markets by the United States Treasury.

This is not the first time President Trump has accused a major trading partner of using currency policy to mistreat the United States.

He assailed the European Central Bank for moving toward monetary stimulus in June -- complaining on Twitter that the resulting drop in the value of the euro was "making it unfairly easier for them to compete against the USA."

The European Central Bank explained its stimulus as an effort to keep Europe from sliding back into recession. When the central bank first undertook its "quantitative easing" policies, it was with encouragement from the Obama administration, which believed a stronger European economy was ultimately good for the U.S. economy, despite its effect on currencies.

Similarly, the Trump administration's decision Monday to name China a currency manipulator -- for allowing the value of its currency to fall -- does not align with how mainstream economists view China's move.

With the economy slowing in China, in part because of the trade wars, market forces tend to push its currency lower. But the People's Bank of China has defended the currency from big drops, aiming to prevent capital from flowing out of the country or destabilizing the world economy.

The "manipulation" that took place Monday morning wasn't artificially depressing the Chinese currency to seize advantage with trade partners, but engaging in less manipulation in order to allow it to fall closer to its market-determined rate.

There is a more nuanced case to be made against Chinese currency policy -- that it did intervene for years to push down the value of its currency, ending in the early 2010s, and that Chinese economic might was built on an unfair practice. But the Trump administration's announcement focuses on the more recent actions, in which different economic rationales apply.

There is also a paradox for President Trump. Because of the dollar's unique role as the global reserve currency, when panic sets in overseas, money tends to flow into United States Treasury bonds, which are viewed as the safest assets on earth. But that movement tends to prop up the value of the dollar and push overseas currencies lower.

In other words, the more chaos he injects into the global economy by trying to pressure China, Europe and others to depreciate their currencies, the more upward pressure there will be on the dollar, undermining those efforts.

That is potentially the worst of both worlds. When the dollar rises on currency markets because the United States economy is booming, it may be hard on American export industries, but at least it takes place in the context of strong growth.

But for the dollar to surge because of a global economic troubles, it means exporters suffer at the same time that the overall economy is under pressure. A particularly extreme example of this happened in the fall of 2008, when the United States economy was in free fall and yet the dollar rose because of the global financial crisis.

A habit of the Trump administration has been to link seemingly unrelated items in its dealings with other countries -- using tariff threats to try to influence Mexican immigration policy, for example.

If the Trump administration continues down the path of using currency policy to try to bludgeon China over trade, technology and national security issues, it will signal a remarkable expansion into a policy area that has been a source of stability in recent decades.

"It's dangerous to start a currency war because you don't know where it will end," said Eric Winograd, chief U.S. economist at AllianceBernstein. "We've seen with the trade war that it started in one place, and ended up much broader. There's every risk a currency war will do the same."

JohnH -> Fred C. Dobbs... , August 07, 2019 at 09:26 AM
No we're talking turkey! "It could undermine the central role the United States has played in the international financial system." All the talk about hurting consumers and jobs is just noise that policy elites emit to win support on false pretenses.

The real concern is about the primacy of the dollar and US hegemony. When Krugman trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit, his main point was that it was good policy strategically. Krugman was woefully wrong, as China grew to be a geopolitical rival, not a US client state like Japan or Germany as the Clintonistas and the foreign policy borg had hoped.

Now there is a real debate about global strategy going on. Trump wants to whack China back into place, reduce it as a geopolitical threat. The other side is still wedded to the 2000 notion having China follow US global leadership and defending the exorbitant privileges of US corporations, their banksters, and their profits. Their latest gambit is to raise a potentially real issue--the primacy of the US dollar.

Folks, it ain't about US jobs and consumer prices, which will be affected at worst only marginally. What it's really about is the dominance of the empire and its enormous, tax-free profits overseas.

[Aug 03, 2019] Trump created a significant motivation in Europe and even China in creating a real alternative to the US dollar for international transactions which bypasses US banks. If this happens to any significant degree, it would undercut the US dollar as the world's reserve currency, resulting in a permanent drop in its value.

Aug 03, 2019 | www.nakedcapitalism.com

Noel Nospamington , August 3, 2019 at 10:50 am

I think that 10 years from now the biggest impact from Trump will be from his cancellation of the Iran nuclear accord and unilateral imposition of strict sanctions which the Europeans were not able to bypass in any meaningful way due the prevalence of the US dollar in global transactions.

There is now significant motivation in Europe and even China in creating a real alternative to the US dollar for international transactions which bypasses US banks. If this happens to any significant degree, it would undercut the US dollar as the world's reserve currency, resulting in a permanent drop in its value.

Without international support, US Government deficits and trade deficits will become unsustainable, and there will be a significant drop in the American median standard of living.

[Aug 02, 2019] 'Dr Doom' economist Nouriel Roubini in Bitcoin battle

Aug 02, 2019 | economistsview.typepad.com

(Ron) Weakley , July 23, 2019 at 03:30 AM

https://www.bbc.com/news/business-48852059

'Dr Doom' economist Nouriel Roubini in Bitcoin battle


3 July 2019


Outspoken economist Nouriel Roubini, nicknamed Dr Doom for his gloomy warnings, has caused a stir with his latest attack on Bitcoin and its fellow cryptocurrencies.

Prof Roubini, who foresaw the financial crisis, says Bitcoin is "overhyped".

At a summit in Taiwan on Tuesday, he likened it to a "cesspool".

But his sparring partner at the event, who runs a cryptocurrency exchange, has angered the professor by blocking the release of video of the event.

Arthur Hayes, the chief executive of the BitMex exchange, controls the rights to footage of their debate, which took place during the Asia Blockchain Summit.


In a post on Twitter, Prof Roubini said he "destroyed" Mr Hayes in the debate and called him a "coward" for not making it available...

RC (Ron) Weakley said in reply to RC (Ron) Weakley... , July 23, 2019 at 03:34 AM
Oh, RE: The Great Crypto Heist

Jul 16, 2019 | Nouriel Roubini

https://www.project-syndicate.org/commentary/cryptocurrency-exchanges-are-financial-scams-by-nouriel-roubini-2019-07


Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.


NEW YORK – There is a good reason why every civilized country in the world tightly regulates its financial system. The 2008 global financial crisis, after all, was largely the result of rolling back financial regulation. Crooks, criminals, and grifters are a fact of life, and no financial system can serve its proper purpose unless investors are protected from them...

*

[Go get 'em Doctor Doom. Does he know that this is a feature and not a bug?]

Joe -> RC (Ron) Weakley... , July 23, 2019 at 03:55 AM
Wild traders are a feature, not a bug.

Wild traders are always here, as Doctor Doom points out. They are there when we use rocks, when we used sea shells, when we used paper and now crypto, the wild traders remain.

Regulate as much as Dr. Doom thinks regulators should regulate. But do not deploy government bean counters looking for stone age rocks under our matress, we are using digital crypto instead.

Just yesterday Daimler announce a completely independent hard wallet for crypto use, in a car. They are giving a car all the freedom to hold bearer assets in crypto form. The car needs this to automate much of the car industry functions from gas taxes to used car sales. So tell Dr. Doom to complain about car industry violating financial regulations.

RC (Ron) Weakley said in reply to Joe... , July 23, 2019 at 04:11 AM
The crypto casino was created so that speculators could profit from the money laundering industry that provides investor liquidity to the back end of the human and illegal narcotics trafficking industry. It was built on the anti-bank angst that emerged after the financial crisis. It gives organized crime the legitimacy that they need to spend their enormous wealth that is generated by so many ruined lives. Fools have always run with dicks. They just do not know any better.
Joe -> RC (Ron) Weakley... , July 23, 2019 at 05:39 AM
The crypto casinos were created to automate trading. Crypto insures that a bot trading obeys the prior contract, and thus great simplifies transactions everywhere, from the Fed down to you and me with significant savings, at least 1% increase in productivity.

We have a technology change happening. You get the wildcatters, they don't scare me, so Dr. Doom is likely missing something here. More than likely he is short sided, looking at this one thing and ignoring the fact that this is our 7th or 8th time we have changed money tech. How did we do it last time? Wildcatters, hysterics, and failure to read history. Worked fine then.

RC (Ron) Weakley said in reply to Joe... , July 23, 2019 at 09:51 AM
Crypto currencies are not money. They are just private scrip. Only demand give them exchange value and only crooks and speculators have any demand for scrip born of the daughters of ENIAC. To believe otherwise is to be a sovereign fool.
RC (Ron) Weakley said in reply to RC (Ron) Weakley... , July 23, 2019 at 10:05 AM
Actual automated trading algorithms run on computers all the time and have been for decades now, no cryptocurrencies required.
Julio -> RC (Ron) Weakley... , August 01, 2019 at 07:50 AM
The Empire, in all its wisdom, has declared some countries as illegal, unworthy of using the banking system. And then, sanctioned anyone who does business with those illegals. So, it is illegals all the way down, in our ever-expanding WOE (War On Everyone).

This has generated interest in cryptocurrencies from some of those crooks and criminals (aka "other countries").

Julio -> Joe... , July 23, 2019 at 10:01 AM
You are too focused on the technology. Banks are not there just to conduct transactions, they are there to track them and report to the government. They are required to know something about the people behind the transactions.
RC (Ron) Weakley said in reply to Julio ... , July 23, 2019 at 10:07 AM
Joe appears to miss the significance of underlying technology as much as anything else. Joe's focus is directed somewhere inside his own mind that is separated from any reality that I am aware of.
Joe -> RC (Ron) Weakley... , July 23, 2019 at 11:56 AM
No, we are using cryptography everywhere, from cars to toys to wallets. Dr. Doom fails to see this happening, happening as sure as we switched from metal to paper. Dr. Doom wants more regulation of shadow banking, fine, why not say that out loud?

His ability to regulated shadow bankers has nothing to do with technology. Crypto is no different than the embedded water mark on paper, same technology. Both regulators and regulated have to adapt.

He has created a red Herring, a useless talking point to fool the delusionals, give them some worthless talking point.

RC (Ron) Weakley said in reply to Joe... , July 24, 2019 at 03:40 AM
Duh! Cryptography and cryptocurrencies are not the same thing.
kurt -> Joe... , July 25, 2019 at 04:07 PM
Crypto - the money laundering index.
mulp -> Joe... , July 23, 2019 at 02:26 PM
"Crypto insures that a bot trading obeys the prior contract, and thus great simplifies transactions everywhere, from the Fed down to you and me with significant savings, at least 1% increase in productivity."


Huh?

How does crypto ensure that my wages producing a thousand meals as a food worker will allow me to buy a thousand meals in the future? What I've seen is crypto turning a thousand meals produced into a contracct that will buy two thousand one day, but only 500 the next day.

kurt -> mulp ... , July 25, 2019 at 04:09 PM
Crypto really just wastes a bunch of computing power to solve a problem that only exists if you are trying to hide illegal transactions from governments. Crypto currency is a solution in search of problem unless you are engaged in laundering money, selling large quantities of drugs/guns/people/animals/other illegal products, or buying same. Governments should make it prosecutable wire fraud to use them.
anne -> RC (Ron) Weakley... , July 23, 2019 at 05:14 PM
The Roubini-Hayes video:

https://www.youtube.com/watch?v=qlZukhN_C6c&t=12s

RC (Ron) Weakley said in reply to anne... , July 24, 2019 at 03:41 AM
thanks

[Jul 31, 2019] Tell me now, how did George Soros get so rich, and why was the Bretton Woods system abandoned?

Jul 31, 2019 | economistsview.typepad.com

David -> reason... ,

Thanks. I referred to Judy Shelton's book for the reasons to support the gold standard. But, I can list some of them here:
1) The gold standard was the core mechanism of Bretton-Woods that worked so well at keeping world prices stable, promoting growth, and tying the money supply to the real economy.
2) Free market currencies have led to speculation taking over from market exchange rates to support trade. Currency trading is ~100x the underlying trade in goods and services.
3) The exchange rates of currencies fluctuate far greater under a free market fiat currency system than under the gold standard
4) Fiat currencies are always subject to political intervention.
5) gold can't be faked or conjured into existence.
6) The gold supply grows about 2%/year, which has been stable for many decades.
7) gold, as a real commodity, ties money to the real economy rather than the financial markets.

canonicalthoughts.blogspot.com

kurt -> David ... , July 16, 2019 at 10:04 AM
1. Under the gold standard prices were much more unstable. This argument doesn't pass even the most modest scrutiny. https://www.minneapolisfed.org/community/financial-and-economic-education/cpi-calculator-information/consumer-price-index-1800

2. This has what to do with the gold standard? There was lots of currency trading under the gold standard. This is primarily a result of algorithmic trading.

3. True - but this is good. Why would this be bad?

4. This is why you have an independent central bank.

5. No but gold can also be hoarded. Please see Krugman's Baby Sitter Klatch article.

6. This is utterly absurd. Gold production stops when the price is too low, ramps up when it is high.

7. How is gold a commodity? 99% of the gold in the world sits in a basement being guarded by governments. It's only value is in making shiny things and the current supply is wildly more than there is demand for said shiny things. Ohhhh, Shiny! does not make something a commodity. If there were any large industrial applications for the metal maybe - but there really isn't.

David -> kurt... , July 16, 2019 at 11:33 AM
Thanks for the good points. Some clarification:
1) By world prices this means the exchange rate. Under Bretton-Woods the price of gold was set at $35/oz and other currencies were pegged to the dollar.
2) If the purpose of currency exchange is to facilitate trade, then this is the tail wagging the dog, and indicates a currency trading system that has become disconnected from its core purpose.
3) Price stability is a core goal of money. So that tomorrow I will be confident of what that money will be worth.
4) Independence is not disinterest. Central banking has shown itself to sway with political winds such as the German central bank in the 1990s, and the US central bank under Nixon.
5) Hoarding of gold, in the sense of cornering the market, is essentially impossible because of the wide distribution of gold in the world and because moving to gold in general would indicate a loss of confidence in a currency, which is good. (as long as we're saying good v. bad).
6) True. production is not that stable, but on average it is fairly constant. See Fig 1. : https://pubs.usgs.gov/of/2002/of02-303/OFR_02-303.pdf
7) Not true. Again see the USGS publication. Most gold goes into jewelry, and so is held by the public. Much of the other gold goes into industry, dental

Total gold in the world, 3.4B troy oz (105,000 t) see: https://pubs.usgs.gov/gip/gold/gold.pdf
Annual production ~2500t, which is about 2.4% of the total.

The reason to prefer gold, besides the above, is that most money created since 1971 has gone into the financial sector rather than the real economy. Thus, workers don't get a real raise, but financial instruments just keep going up with no limit.

http://canonicalthoughts.blogspot.com

reason -> David ... , July 17, 2019 at 08:06 AM
David,
tell me now, how did George Soros get so rich, and why was the Bretton Woods system abandoned?

5. Shows that you don't understand the issue. Hoarding doesn't have to corner the market to be an issue, it's just that rewards people who are creating a problem and so can create a vicious circle.

reason -> reason... , July 17, 2019 at 08:30 AM
P.S. 2% is way too low. Money needs to expand at least enough to match nominal GDP - and that assumes that the rate of savings and circulation velocity are constant. And if prices are absolutely constant how will people ever pay off debts. People have to pay back the nominal capital of a loan. If income/head in nominal terms is relatively constant (in some countries at some times there will be actual deflation) then compared to the current situation in situations of absolute price stability delinquency rates will rise. You quote the 50/60s as a golden - what were inflation rates like then (answer >2% with real growth of >5% so >7% nominal GDP growth)?
David -> RC (Ron) Weakley... , July 16, 2019 at 08:50 AM
Gold is not a great system for a money supply, but its the best one we have so far. Other commodities could be used as the means of value and settlement, but they are far less convenient and have other properties that are not as good as gold.

Perhaps a global crypto currency will take the place of gold in the future? It would need to be of a fixed amount that does not change over time, and secure against hacking. So, maybe not.

canonicalthoughts.blogspot.com

RC (Ron) Weakley said in reply to David ... , July 16, 2019 at 10:11 AM
[Great answer inasmuch as changing the question is always the best answer when one has no answer to some obvious questions.

OTOH, the US dollar based global reserve currency is a problem, although mostly for the US in just general economic terms, but a problem for the entire world in terms of limiting the use of carbon based fuels. Cheap oil is good for the dollar hegemon, but bad for supporting continued human existence on Earth.

Internationally managed reserve currency and FOREX institutional arrangements along the lines of Keynes's Bancor might be a better idea. Crypto currency is an invitation to black market traffickers and hackers. Primary support is from drug and sex trafficking. So, what is not to love?

The hard money crew in the US defeated Keynes's Bancor proposal at the Bretton Woods conference and basically all of the problems that the gold bugs complain about today have been the results of following their preferred policy path after WWII.]

https://theweek.com/articles/626620/how-john-maynard-keynes-most-radical-idea-could-save-world

How John Maynard Keynes' most radical idea could save the world

As the Second World War was drawing to a close, the economic experts of the Allies met in a New Hampshire resort to try to hammer out an international monetary system that would help prevent a recurrence of the Great Depression. The ensuing debate centered around two main proposals, one from the British delegation and one from the American. John Maynard Keynes, the greatest economist of the 20th century, presented the British case while Harry Dexter White, one of FDR's key economic advisers, presented the American one.

Keynes lost on many key points. The result was the Bretton Woods system, named after the small town in which the conference was held. As part of the agreement, it also created what would later become the International Monetary Fund and the World Bank. That served as the system of managing international trade and currencies for nearly three decades. Today the IMF and World Bank survive, but Bretton Woods was broken in 1971 when Nixon suspended the convertibility of the dollar into gold.

Yet most of the problems that spurred the creation of Bretton Woods have since returned in only somewhat less dire form. It's worth returning to Keynes' original, much more ambitious idea for an international institution to manage the flow of goods and money around the globe.


The basic problem with international trade is that imbalances can develop: Some countries get big export surpluses, while others necessarily develop big trade deficits (since the world cannot be in surplus or deficit with itself). And because countries typically must borrow to finance trade deficits, it's a quick and easy recipe for a crash in those countries when their ability to take on more debt reaches its limit. It's not as bad for surplus countries, since they will not have a debt crisis or a collapse in the value of their currency, but they too will be hurt by the loss of export markets. This problem has haunted nations since well before the Industrial Revolution.

Nations like Germany with a large export surplus often portray it as resulting from their superior virtue and technical skill. But the fundamental reality of such a surplus is that it requires someone to buy the exports. As Yanis Varoufakis points out in his new book, without some sort of permanent mechanism to recycle that surplus back into deficit countries, the result will be eventual disaster. It's precisely what caused the initial economic crisis in Greece that is still ongoing.

Bretton Woods addressed this problem with a set of rather ad hoc measures. The dollar would be pegged to a particular amount of gold, and semi-fixed exchange rates for other currencies were to be fixed around that. In keeping with White's more orthodox economic views, all trade imbalances were to be solved on the deficit side. There was no limit to the surplus nations could build up (importantly, at the time the U.S. was a huge exporter), and the IMF was tasked with shoring up countries having serious trade deficit problems by enforcing austerity and tight money. (This would lead to repeated disaster for developing countries.)

Keynes' idea, by contrast, was substantially more ambitious. He proposed an overarching "International Clearing Union" that potentially every country in the world could join. It would create a new reserve currency, the "bancor," that could only be used for settling international accounts, and member nations would pay a membership quota in proportion to their total trade. Countries in surplus would receive bancor credit, while those in deficit would have a negative account.

The union was also explicitly aimed at facilitating increased trade overall (also unlike Bretton Woods). And critically, it would incentivize nations to keep their trade balanced on both sides -- surplus and deficit. Run too far into deficit, and a country would be required to devalue to reduce imports. But run too far into surplus, and a country's currency would be required to appreciate so as to increase imports. A bancor tax would also be levied at an increasing rate on anyone with a large trade imbalance.


There's much more to the story, but the fundamental idea is fairly simple. As Keynes wrote in his original proposal, the basic "principle is the necessary equality of credits and debits, of assets and liabilities. If no credits can be removed outside the clearing system but only transferred within it, the Union itself can never be in difficulties."

For the postwar generation, Bretton Woods worked tolerably well -- and it certainly was a vast improvement on the prewar gold standard. But its mechanisms were far less legible, and required constant good-faith efforts from various nations, particularly Germany and the U.S., to work properly. More importantly, it relied on large American surpluses to soak up the huge aid that was being sent to Europe under the Marshall Plan, a goodly portion of which was used to buy American-made exports. When the U.S. moved to deficit, the system broke down within only a few years.


Keynes' plan, by contrast, would likely have had the flexibility to adapt to a massive 180 degree shift in the balance of trade. It is also far more transparent and comprehensible to average people, perhaps disrupting the excessive pride of surplus countries to some extent. And if it were to be created in the future, it would be under effective supervision from the member states. The vast carnage inflicted by the unaccountable, supranational European Central Bank is too stark to ignore.

It would undoubtedly take years and years to build and update Keynes proposal to where it might be implemented. But the problems it is designed to address will always keep cropping up. Perhaps after the eurozone implodes, the world will get another chance to do it right.


*

[The rallying cry of the gold bugs is "Idiots of the world unite," which is very effective given the considerable majority held by idiots in the electorates of republics and among their controlling elites both public and private.]


David -> RC (Ron) Weakley... , July 16, 2019 at 11:42 AM
Under Bretton-Woods no trade imbalances were possible because of the settlement mechanism in gold. The deficit nations (that imported more than exported) would have to settle by transferring gold out in the amount of the deficit. Thus, in effect selling the commodity of gold for the excess imports. This all works well if the imbalances are periodically settled by the gold transfers, which didn't happen as many countries simply held onto the currencies, and if trade is balanced.

Balance of trade is the key to stable trade. All imbalances eventually come back into balance. The question is: will this happen in a smooth orderly manner, like under Bretton-Woods, or in a calamity where for example the dollar crashes?

http://canonicalthoughts.blogspot.com

RC (Ron) Weakley said in reply to David ... , July 16, 2019 at 12:16 PM
"...This all works well if the imbalances are periodically settled by the gold transfers, which didn't happen as many countries simply held onto the currencies, and if trade is balanced..."

*

[You are getting warmer, but still no cigar and a whole lot of cart before the horse. What happened under the original Bretton Woods agreement was that surplus traders held onto their US dollar reserves while convertibility (more to silver than gold - which we hold) kept the US dollar from becoming overvalued under the simultaneous pressures of what remained small US trade deficits and growing foreign reserves of US dollars. This was not a gold standard per se, but rather the establishment of the US dollar, the currency of the dominant global economic power, as the global reserve currency for foreign held reserves and also the dominant currency of international trade exchange. Trade remained relatively well balanced because convertibility limited how overvalued the dollar could maintain itself under trade deficits despite its broadly held status as the dominate global reserve currency.

The end of Bretton Woods US dollar convertibility saw growing US trade deficits with simultaneous growth in US dollar denominated foreign reserves and an over-valued dollar which just accelerated US trade deficits even further. Bigger US trade deficits just fed into even larger USD foreign reserves. It was a vicious cycle of dollar over-valuation despite growing US trade deficits because surplus partners had relatively secure means of holding large USD reserves. The world's high demand for dollars was great for rentiers, arbitrage seekers, and global corporations. Trading partners could hold USD reserves to keep their currencies undervalued relative to the USD more successfully than with convertibility. OTOH, the US gained cheap access to global oil reserves and also US multinational corporations gained global price arbitrage advantages if they were willing to offshore much labor to countries with currencies undervalued relative to the dollar or merely countries with lower standards of living (i.e., real wages) and environmental protection standards for industrial production. Winning all three together on the same US dollar capital flow was the global price arbitrage trifecta. ]

David -> RC (Ron) Weakley... , July 16, 2019 at 01:21 PM
The US could have had it both ways in the sense that it could have run budget deficits by monetizing the dollar and causing inflation as it was starting to do in the late 1960s and maintain the international exchange rate. The mechanism to do this is US tariffs. This would have made imports to the US expensive and kept all those excess dollars from flowing overseas. The rational is balance of trade. As long as the current account is balanced the Bretton-Woods system would continue to function.
RC (Ron) Weakley said in reply to David ... , July 16, 2019 at 02:22 PM
The US went all in on free trade and eliminating tariffs when it implemented the income tax system to finance government operations spending in 1913. At the time the US dollar was underpriced against most European currencies in FOREX, particularly the pound sterling, and the US had a growing trade surplus which eventually contributed significantly to the settlements crisis under the gold standard that was a major cause for precipitating the Great Depression. Once that path was taken it became difficult to turn back since the wealthy build their rentier and arbitrage systems upon the world that is rather than some world that might be. Policy makers rely upon the stock of wealth both for campaign contributions and to raise their miserable lives into something of elite significance because of who they hang out with and in turn whose interests that they serve.

I understand it that if a frog had wings then it would not bump its ass every time that it leaped.

reason -> David ... , July 18, 2019 at 05:18 AM
The US consistently ran a trade surplus during the Bretton Woods period, but Bretton Woods was based on US dollars. So the world was being drained of US dollars (or the rest of the world of Gold). That is clearly not sustainable. There is a problem with unbalanced trade if it is either direction. Under Bretton Woods there was no penalty for mercantilism. You just need to know history to no that financial crises are nothing new and that a gold standard didn't prevent them, but in fact exacerbated them. I don't where you get your ideas from, but you should go back and read some history.
David -> reason... , July 17, 2019 at 10:32 AM
Yes, this beats around the bush as they say.

The real questions are:
1) During Bretton-Woods worker compensation grew with growth in productivity, but since the withdrawal in 1971, worker compensation has been flat. Why? And how to re-mediate this?
2) Why has so much of GDP shifted to financial speculation and away from the productive economy? And how to shift economic activity back to the productive sector?
3) Given our use of fiat currency, what limits the growth of the money supply in the financial sector? That is, what prevents financial instruments that are disconnected from the productive economy from creating an endless cycle of: new instruments drives new money to buy them, rinse and repeat...

anne -> David ... , July 17, 2019 at 04:46 PM
https://fred.stlouisfed.org/graph/?g=lSfN

January 30, 2018

Nonfarm business productivity and real compensation, 1948-2018

(Percent change)


https://fred.stlouisfed.org/graph/?g=lSfP

January 30, 2018

Nonfarm business productivity and real compensation, 1948-2018

(Indexed to 1948)

David -> anne... , July 18, 2019 at 06:11 AM
Anne, thanks for the graphs.

The second one in particular lays out the issue quite clearly. It literally forms an arrow with the tip pointing to the divergent point where something major happened to create such a stark and durable systematic change.

reason -> David ... , July 19, 2019 at 02:19 AM
This is classical cargo cult thinking, these two things are correlated so one must have caused the other. There were lots of things changed at that time, I was there, I followed the debates (in which the world basically decided to follow some of what Milton Friedman said - and ignored some other things that he said - like negative interest rates and that money supply expansion should come mostly from expanding the central bank balance sheet - see also Robert Waldmann's explanation that Lucas and Friedman are methodical opposites and yet both belong to the "Chicago School"). You have to not only note a correlation, but also show the mechanism and control for other factors. Get to it.
reason -> reason... , July 19, 2019 at 02:37 AM
For your amusement.
http://ok-cleek.com/blogs/?p=27691
David -> reason... , July 19, 2019 at 04:31 AM
I agree, and am working on just that.
reason -> reason... , July 19, 2019 at 12:59 PM
oops - not negative interest rates - negative income tax.
reason -> David ... , July 18, 2019 at 12:19 AM
1. Other things happened at the same time (see tariffs, changes in laws related to unions, containerization and also relaxation of capital controls and banking regulation). You went from a world of relatively isolated economies (especially the US) to a world of tightly integrated economies. Bretton Woods fall had almost nothing to do with it.
2. Washington consensus that budget deficits are bad and monetary policy (i.e. encouraging private debt) are good. We need to expand the central bank balance sheet in line with nominal GDP and reduce private indebtedness again.

As I said read "Between Debt and the Devil".

reason -> reason... , July 18, 2019 at 12:27 AM
Not to mention what was happening demographically (which was massive). Sorry, I really should not have forgotten that. The real world matters.
David -> reason... , July 19, 2019 at 04:38 AM
True, but whatever the cause, to have such a sharp and clear divergence, one or more significant changes had to happen in a short span of time. Do those things mentioned above add up to enough of a cumulative durable change?
reason -> David ... , July 19, 2019 at 12:58 PM
But it wasn't a SHARP divergence at all. I actually wish that Anne had done the chart in terms of rates of change. Having it in terms of levels hides more than it shows. But think about this - there was a reason that Bretton Woods was abandoned - it didn't happen in a vacuum. Maybe you should ask why that happened.
Paine -> David ... , July 17, 2019 at 12:14 PM
Commodity money
Is our new friends preference

And as commodities go gold has a number of advantages
Over say concrete blocks or diamonds

Lots of clever souls would like to use an exchange medium that
Wasn't subject to modern state financial casuistry
And usually they aren't overly focused on the existing
Unregulated market systems hitches and loops
and
Perversities

Paine -> Paine ... , July 17, 2019 at 12:19 PM
The Recalcitrance of markets has always been a wish away reality

And price systems are often reified into angel dust

And shipped from Chicago FOB

mulp -> RC (Ron) Weakley... , July 17, 2019 at 04:15 PM
Cold mining costs have always tracked the monetary price of gold. Aka, the marginal price of a new ounce is the monetary price.

To get the cost of mining goold down to $20 in the late 20s, food, housing prices had tlo fall by slashing wages which cut demand for food forcing prices of food down by forcing wages down, thus gold miners could eat enough food to mine an ounce of gold.

When FDR set the price government paid for gold to $35 dollars, the number of gold miners, and gold ounces mined doubled in less than a year, and stayed up until government prohibited gold mining to reallocate labor to the war industrial production.

What we don't see is the actual marginal costs of gold mining in either the short or long run. The global gold mining cartel keeps all the data secret, eg, South Africa, Russia, which produce about half the gold aannually. They can easily bankrupt a big corporation investing in a new big mineing and refining operation by releasing some of their massive gold hoard at prices just below the corporation marginal cost plus debt service. The big driver of gold demand is Asia and Muslim consumption for gold hoops and rings so people, especially women have their wealth with them at all times.

anne -> mulp ... , July 17, 2019 at 04:40 PM
Aside:

MULP made an assertion a couple of days ago that there were far more empty beds in the country now that several decades ago. I questioned the assertion, since there was no supporting data, but now I am finding the data in Census tracts and know MULP was correct. Family and household sizes have been declining for decades.

Thank you MULP.

[Jul 29, 2019] Michael Hudson Trump s Brilliant Strategy to Dismember US Dollar Hegemony by Michael Hudson

Highly recommended!
Looks like the world order established after WWIII crumbed with the USSR and now it is again the law if jungles with the US as the biggest predator.
Notable quotes:
"... The root cause is clear: After the crescendo of pretenses and deceptions over Iraq, Libya and Syria, along with our absolution of the lawless regime of Saudi Arabia, foreign political leaders are coming to recognize what world-wide public opinion polls reported even before the Iraq/Iran-Contra boys turned their attention to the world's largest oil reserves in Venezuela: The United States is now the greatest threat to peace on the planet. ..."
"... Calling the U.S. coup being sponsored in Venezuela a defense of democracy reveals the Doublethink underlying U.S. foreign policy. It defines "democracy" to mean supporting U.S. foreign policy, pursuing neoliberal privatization of public infrastructure, dismantling government regulation and following the direction of U.S.-dominated global institutions, from the IMF and World Bank to NATO. For decades, the resulting foreign wars, domestic austerity programs and military interventions have brought more violence, not democracy ..."
"... A point had to come where this policy collided with the self-interest of other nations, finally breaking through the public relations rhetoric of empire. Other countries are proceeding to de-dollarize and replace what U.S. diplomacy calls "internationalism" (meaning U.S. nationalism imposed on the rest of the world) with their own national self-interest. ..."
"... For the past half-century, U.S. strategists, the State Department and National Endowment for Democracy (NED) worried that opposition to U.S. financial imperialism would come from left-wing parties. It therefore spent enormous resources manipulating parties that called themselves socialist (Tony Blair's British Labour Party, France's Socialist Party, Germany's Social Democrats, etc.) to adopt neoliberal policies that were the diametric opposite to what social democracy meant a century ago. But U.S. political planners and Great Wurlitzer organists neglected the right wing, imagining that it would instinctively support U.S. thuggishness. ..."
"... Perhaps the problem had to erupt as a result of the inner dynamics of U.S.-sponsored globalism becoming impossible to impose when the result is financial austerity, waves of population flight from U.S.-sponsored wars, and most of all, U.S. refusal to adhere to the rules and international laws that it itself sponsored seventy years ago in the wake of World War II. ..."
"... Here's the first legal contradiction in U.S. global diplomacy: The United States always has resisted letting any other country have any voice in U.S. domestic policies, law-making or diplomacy. That is what makes America "the exceptional nation." But for seventy years its diplomats have pretended that its superior judgment promoted a peaceful world (as the Roman Empire claimed to be), which let other countries share in prosperity and rising living standards. ..."
"... Inevitably, U.S. nationalism had to break up the mirage of One World internationalism, and with it any thought of an international court. Without veto power over the judges, the U.S. never accepted the authority of any court, in particular the United Nations' International Court in The Hague. Recently that court undertook an investigation into U.S. war crimes in Afghanistan, from its torture policies to bombing of civilian targets such as hospitals, weddings and infrastructure. "That investigation ultimately found 'a reasonable basis to believe that war crimes and crimes against humanity." ..."
"... This showed that international finance was an arm of the U.S. State Department and Pentagon. But that was a generation ago, and only recently did foreign countries begin to feel queasy about leaving their gold holdings in the United States, where they might be grabbed at will to punish any country that might act in ways that U.S. diplomacy found offensive. So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. U.S. officials pretended to feel shocked at the insult that it might do to a civilized Christian country what it had done to Iran, and Germany agreed to slow down the transfer. ..."
"... England refused to honor the official request, following the direction of Bolton and U.S. Secretary of State Michael Pompeo. As Bloomberg reported: "The U.S. officials are trying to steer Venezuela's overseas assets to [Chicago Boy Juan] Guaido to help bolster his chances of effectively taking control of the government. The $1.2 billion of gold is a big chunk of the $8 billion in foreign reserves held by the Venezuelan central bank." ..."
"... But now, cyber warfare has become a way of pulling out the connections of any economy. And the major cyber connections are financial money-transfer ones, headed by SWIFT, the acronym for the Society for Worldwide Interbank Financial Telecommunication, which is centered in Belgium. ..."
"... On January 31 the dam broke with the announcement that Europe had created its own bypass payments system for use with Iran and other countries targeted by U.S. diplomats. Germany, France and even the U.S. poodle Britain joined to create INSTEX -- Instrument in Support of Trade Exchanges. The promise is that this will be used only for "humanitarian" aid to save Iran from a U.S.-sponsored Venezuela-type devastation. But in view of increasingly passionate U.S. opposition to the Nord Stream pipeline to carry Russian gas, this alternative bank clearing system will be ready and able to become operative if the United States tries to direct a sanctions attack on Europe ..."
"... The U.S. overplaying its position is leading to the Mackinder-Kissinger-Brzezinski Eurasian nightmare that I mentioned above. In addition to driving Russia and China together, U.S. diplomacy is adding Europe to the heartland, independent of U.S. ability to bully into the state of dependency toward which American diplomacy has aimed to achieve since 1945. ..."
"... By following U.S. advice, countries have left themselves open to food blackmail – sanctions against providing them with grain and other food, in case they step out of line with U.S. diplomatic demands. ..."
"... It is worthwhile to note that our global imposition of the mythical "efficiencies" of forcing Latin American countries to become plantations for export crops like coffee and bananas rather than growing their own wheat and corn has failed catastrophically to deliver better lives, especially for those living in Central America. The "spread" between the export crops and cheaper food imports from the U.S. that was supposed to materialize for countries following our playbook failed miserably – witness the caravans and refugees across Mexico. Of course, our backing of the most brutal military dictators and crime lords has not helped either. ..."
"... But a few years ago Ukraine defaulted on $3 billion owed to Russia. The IMF said, in effect, that Ukraine and other countries did not have to pay Russia or any other country deemed to be acting too independently of the United States. The IMF has been extending credit to the bottomless it of Ukrainian corruption to encourage its anti-Russian policy rather than standing up for the principle that inter-government debts must be paid. ..."
"... It is as if the IMF now operates out of a small room in the basement of the Pentagon in Washington. ..."
"... Anticipating just such a double-cross, President Chavez acted already in 2011 to repatriate 160 tons of gold to Caracas from the United States and Europe. ..."
"... It would be good for Americans, but the wrong kind of Americans. For the Americans that would populate the Global Executive Suite, a strong US$ means that the stipends they would pay would be worth more to the lackeys, and command more influence. ..."
"... Dumping the industrial base really ruined things. America is now in a position where it can shout orders, and drop bombs, but doesn't have the capacity to do anything helpful. They have to give up being what Toynbee called a creative minority, and settle for being a dominant minority. ..."
"... Having watched the 2016 election closely from afar, I was left with the impression that many of the swing voters who cast their vote for Trump did so under the assumption that he would act as a catalyst for systemic change. ..."
"... Now we know. He has ripped the already transparent mask of altruism off what is referred to as the U.S.-led liberal international order and revealed its true nature for all to see, and has managed to do it in spite of the liberal international establishment desperately trying to hold it in place in the hope of effecting a seamless post-Trump return to what they refer to as "norms". Interesting times. ..."
"... Exactly. He hasn't exactly lived up to advanced billing so far in all respects, but I suspect there's great deal of skulduggery going on behind the scenes that has prevented that. ..."
"... To paraphrase the infamous Rummy, you don't go to war with the change agent and policies you wished you had, you go to war with the ones you have. That might be the best thing we can say about Trump after the historic dust of his administration finally settles. ..."
"... Yet we find out that Venezuela didn't managed to do what they wanted to do, the Europeans, the Turks, etc bent over yet again. Nothing to see here, actually. ..."
"... So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging by some pygmy leaders (Merkel) does not signal a global change. ..."
"... Currency regime change can take decades, and small percentage differences are enormous because of the flows involved. USD as reserve for 61% of global sovereigns versus 64% 15 years ago is a massive move. ..."
"... I discovered his Super Imperialism while looking for an explanation for the pending 2003 US invasion of Iraq. If you haven't read it yet, move it to the top of your queue if you want to have any idea of how the world really works. ..."
"... If it isn't clear to the rest of the world by now, it never will be. The US is incapable of changing on its own a corrupt status quo dominated by a coalition of its military industrial complex, Wall Street bankers and fossil fuels industries. As long as the world continues to chase the debt created on the keyboards of Wall Street banks and 'deficits don't matter' Washington neocons – as long as the world's 1% think they are getting 'richer' by adding more "debts that can't be repaid (and) won't be" to their portfolios, the global economy can never be put on a sustainable footing. ..."
"... In other words, after 2 World Wars that produced the current world order, it is still in a state of insanity with the same pretensions to superiority by the same people, to get number 3. ..."
"... Few among Washington's foreign policy elite seem to fully grasp the complex system that made U.S. global power what it now is, particularly its all-important geopolitical foundations. As Trump travels the globe, tweeting and trashing away, he's inadvertently showing us the essential structure of that power, the same way a devastating wildfire leaves the steel beams of a ruined building standing starkly above the smoking rubble." ..."
"... He's draining the swamp in an unpredicted way, a swamp that's founded on the money interest. I don't care what NYT and WaPo have to say, they are not reporting events but promoting agendas. ..."
"... The financial elites are only concerned about shaping society as they see fit, side of self serving is just a historical foot note, Trumps past indicates a strong preference for even more of the same through authoritarian memes or have some missed the OT WH reference to dawg both choosing and then compelling him to run. ..."
"... Highly doubt Trump is a "witting agent", most likely is that he is just as ignorant as he almost daily shows on twitter. On US role in global affairs he says the same today as he did as a media celebrity in the late 80s. Simplistic household "logics" on macroeconomics. If US have trade deficit it loses. Countries with surplus are the winners. ..."
"... Anyhow frightening, the US hegemony have its severe dark sides. But there is absolutely nothing better on the horizon, a crash will throw the world in turmoil for decades or even a century. A lot of bad forces will see their chance to elevate their influence. There will be fierce competition to fill the gap. ..."
"... On could the insane economic model of EU/Germany being on top of global affairs, a horribly frightening thought. Misery and austerity for all globally, a permanent recession. Probably not much better with the Chinese on top. I'll take the USD hegemony any day compared to that prospect. ..."
"... Former US ambassador, Chas Freeman, gets to the nub of the problem. "The US preference for governance by elected and appointed officials, uncontaminated by experience in statecraft and diplomacy, or knowledge of geography, history and foreign affairs" https://www.youtube.com/watch?annotation_id=annotation_882041135&feature=iv&src_vid=Ge1ozuXN7iI&v=gkf2MQdqz-o ..."
"... Michael Hudson, in Super Imperialism, went into how the US could just create the money to run a large trade deficit with the rest of the world. It would get all these imports effectively for nothing, the US's exorbitant privilege. I tied this in with this graph from MMT. ..."
"... The Government was running a surplus as the economy blew up in the early 1990s. It's the positive and negative, zero sum, nature of the monetary system. A big trade deficit needs a big Government deficit to cover it. A big trade deficit, with a balanced budget, drives the private sector into debt and blows up the economy. ..."
Feb 01, 2019 | www.nakedcapitalism.com

The end of America's unchallenged global economic dominance has arrived sooner than expected, thanks to the very same Neocons who gave the world the Iraq, Syria and the dirty wars in Latin America. Just as the Vietnam War drove the United States off gold by 1971, its sponsorship and funding of violent regime change wars against Venezuela and Syria – and threatening other countries with sanctions if they do not join this crusade – is now driving European and other nations to create their alternative financial institutions.

This break has been building for quite some time, and was bound to occur. But who would have thought that Donald Trump would become the catalytic agent? No left-wing party, no socialist, anarchist or foreign nationalist leader anywhere in the world could have achieved what he is doing to break up the American Empire. The Deep State is reacting with shock at how this right-wing real estate grifter has been able to drive other countries to defend themselves by dismantling the U.S.-centered world order. To rub it in, he is using Bush and Reagan-era Neocon arsonists, John Bolton and now Elliott Abrams, to fan the flames in Venezuela. It is almost like a black political comedy. The world of international diplomacy is being turned inside-out. A world where there is no longer even a pretense that we might adhere to international norms, let alone laws or treaties.

The Neocons who Trump has appointed are accomplishing what seemed unthinkable not long ago: Driving China and Russia together – the great nightmare of Henry Kissinger and Zbigniew Brzezinski. They also are driving Germany and other European countries into the Eurasian orbit, the "Heartland" nightmare of Halford Mackinder a century ago.

The root cause is clear: After the crescendo of pretenses and deceptions over Iraq, Libya and Syria, along with our absolution of the lawless regime of Saudi Arabia, foreign political leaders are coming to recognize what world-wide public opinion polls reported even before the Iraq/Iran-Contra boys turned their attention to the world's largest oil reserves in Venezuela: The United States is now the greatest threat to peace on the planet.

Calling the U.S. coup being sponsored in Venezuela a defense of democracy reveals the Doublethink underlying U.S. foreign policy. It defines "democracy" to mean supporting U.S. foreign policy, pursuing neoliberal privatization of public infrastructure, dismantling government regulation and following the direction of U.S.-dominated global institutions, from the IMF and World Bank to NATO. For decades, the resulting foreign wars, domestic austerity programs and military interventions have brought more violence, not democracy.

In the Devil's Dictionary that U.S. diplomats are taught to use as their "Elements of Style" guidelines for Doublethink, a "democratic" country is one that follows U.S. leadership and opens its economy to U.S. investment, and IMF- and World Bank-sponsored privatization. The Ukraine is deemed democratic, along with Saudi Arabia, Israel and other countries that act as U.S. financial and military protectorates and are willing to treat America's enemies are theirs too.

A point had to come where this policy collided with the self-interest of other nations, finally breaking through the public relations rhetoric of empire. Other countries are proceeding to de-dollarize and replace what U.S. diplomacy calls "internationalism" (meaning U.S. nationalism imposed on the rest of the world) with their own national self-interest.

This trajectory could be seen 50 years ago (I described it in Super Imperialism [1972] and Global Fracture [1978].) It had to happen. But nobody thought that the end would come in quite the way that is happening. History has turned into comedy, or at least irony as its dialectical path unfolds.

For the past half-century, U.S. strategists, the State Department and National Endowment for Democracy (NED) worried that opposition to U.S. financial imperialism would come from left-wing parties. It therefore spent enormous resources manipulating parties that called themselves socialist (Tony Blair's British Labour Party, France's Socialist Party, Germany's Social Democrats, etc.) to adopt neoliberal policies that were the diametric opposite to what social democracy meant a century ago. But U.S. political planners and Great Wurlitzer organists neglected the right wing, imagining that it would instinctively support U.S. thuggishness.

The reality is that right-wing parties want to get elected, and a populist nationalism is today's road to election victory in Europe and other countries just as it was for Donald Trump in 2016.

Trump's agenda may really be to break up the American Empire, using the old Uncle Sucker isolationist rhetoric of half a century ago. He certainly is going for the Empire's most vital organs. But it he a witting anti-American agent? He might as well be – but it would be a false mental leap to use "quo bono" to assume that he is a witting agent.

After all, if no U.S. contractor, supplier, labor union or bank will deal with him, would Vladimir Putin, China or Iran be any more naïve? Perhaps the problem had to erupt as a result of the inner dynamics of U.S.-sponsored globalism becoming impossible to impose when the result is financial austerity, waves of population flight from U.S.-sponsored wars, and most of all, U.S. refusal to adhere to the rules and international laws that it itself sponsored seventy years ago in the wake of World War II.

Dismantling International Law and Its Courts

Any international system of control requires the rule of law. It may be a morally lawless exercise of ruthless power imposing predatory exploitation, but it is still The Law. And it needs courts to apply it (backed by police power to enforce it and punish violators).

Here's the first legal contradiction in U.S. global diplomacy: The United States always has resisted letting any other country have any voice in U.S. domestic policies, law-making or diplomacy. That is what makes America "the exceptional nation." But for seventy years its diplomats have pretended that its superior judgment promoted a peaceful world (as the Roman Empire claimed to be), which let other countries share in prosperity and rising living standards.

At the United Nations, U.S. diplomats insisted on veto power. At the World Bank and IMF they also made sure that their equity share was large enough to give them veto power over any loan or other policy. Without such power, the United States would not join any international organization. Yet at the same time, it depicted its nationalism as protecting globalization and internationalism. It was all a euphemism for what really was unilateral U.S. decision-making.

Inevitably, U.S. nationalism had to break up the mirage of One World internationalism, and with it any thought of an international court. Without veto power over the judges, the U.S. never accepted the authority of any court, in particular the United Nations' International Court in The Hague. Recently that court undertook an investigation into U.S. war crimes in Afghanistan, from its torture policies to bombing of civilian targets such as hospitals, weddings and infrastructure. "That investigation ultimately found 'a reasonable basis to believe that war crimes and crimes against humanity." [1]

Donald Trump's National Security Adviser John Bolton erupted in fury, warning in September that: "The United States will use any means necessary to protect our citizens and those of our allies from unjust prosecution by this illegitimate court," adding that the UN International Court must not be so bold as to investigate "Israel or other U.S. allies."

That prompted a senior judge, Christoph Flügge from Germany, to resign in protest. Indeed, Bolton told the court to keep out of any affairs involving the United States, promising to ban the Court's "judges and prosecutors from entering the United States." As Bolton spelled out the U.S. threat: "We will sanction their funds in the U.S. financial system, and we will prosecute them in the U.S. criminal system. We will not cooperate with the ICC. We will provide no assistance to the ICC. We will not join the ICC. We will let the ICC die on its own. After all, for all intents and purposes, the ICC is already dead to us."

What this meant, the German judge spelled out was that: "If these judges ever interfere in the domestic concerns of the U.S. or investigate an American citizen, [Bolton] said the American government would do all it could to ensure that these judges would no longer be allowed to travel to the United States – and that they would perhaps even be criminally prosecuted."

The original inspiration of the Court – to use the Nuremburg laws that were applied against German Nazis to bring similar prosecution against any country or officials found guilty of committing war crimes – had already fallen into disuse with the failure to indict the authors of the Chilean coup, Iran-Contra or the U.S. invasion of Iraq for war crimes.

Dismantling Dollar Hegemony from the IMF to SWIFT

Of all areas of global power politics today, international finance and foreign investment have become the key flashpoint. International monetary reserves were supposed to be the most sacrosanct, and international debt enforcement closely associated.

Central banks have long held their gold and other monetary reserves in the United States and London. Back in 1945 this seemed reasonable, because the New York Federal Reserve Bank (in whose basement foreign central bank gold was kept) was militarily safe, and because the London Gold Pool was the vehicle by which the U.S. Treasury kept the dollar "as good as gold" at $35 an ounce. Foreign reserves over and above gold were kept in the form of U.S. Treasury securities, to be bought and sold on the New York and London foreign-exchange markets to stabilize exchange rates. Most foreign loans to governments were denominated in U.S. dollars, so Wall Street banks were normally name as paying agents.

That was the case with Iran under the Shah, whom the United States had installed after sponsoring the 1953 coup against Mohammed Mosaddegh when he sought to nationalize Anglo-Iranian Oil (now British Petroleum) or at least tax it. After the Shah was overthrown, the Khomeini regime asked its paying agent, the Chase Manhattan bank, to use its deposits to pay its bondholders. At the direction of the U.S. Government Chase refused to do so. U.S. courts then declared Iran to be in default, and froze all its assets in the United States and anywhere else they were able.

This showed that international finance was an arm of the U.S. State Department and Pentagon. But that was a generation ago, and only recently did foreign countries begin to feel queasy about leaving their gold holdings in the United States, where they might be grabbed at will to punish any country that might act in ways that U.S. diplomacy found offensive. So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. U.S. officials pretended to feel shocked at the insult that it might do to a civilized Christian country what it had done to Iran, and Germany agreed to slow down the transfer.

But then came Venezuela. Desperate to spend its gold reserves to provide imports for its economy devastated by U.S. sanctions – a crisis that U.S. diplomats blame on "socialism," not on U.S. political attempts to "make the economy scream" (as Nixon officials said of Chile under Salvador Allende) – Venezuela directed the Bank of England to transfer some of its $11 billion in gold held in its vaults and those of other central banks in December 2018. This was just like a bank depositor would expect a bank to pay a check that the depositor had written.

England refused to honor the official request, following the direction of Bolton and U.S. Secretary of State Michael Pompeo. As Bloomberg reported: "The U.S. officials are trying to steer Venezuela's overseas assets to [Chicago Boy Juan] Guaido to help bolster his chances of effectively taking control of the government. The $1.2 billion of gold is a big chunk of the $8 billion in foreign reserves held by the Venezuelan central bank."

Turkey seemed to be a likely destination, prompting Bolton and Pompeo to warn it to desist from helping Venezuela, threatening sanctions against it or any other country helping Venezuela cope with its economic crisis. As for the Bank of England and other European countries, the Bloomberg report concluded: "Central bank officials in Caracas have been ordered to no longer try contacting the Bank of England. These central bankers have been told that Bank of England staffers will not respond to them."

This led to rumors that Venezuela was selling 20 tons of gold via a Russian Boeing 777 – some $840 million. The money probably would have ended up paying Russian and Chinese bondholders as well as buying food to relieve the local famine. [4] Russia denied this report, but Reuters has confirmed is that Venezuela has sold 3 tons of a planned 29 tones of gold to the United Arab Emirates, with another 15 tones are to be shipped on Friday, February 1. [5] The U.S. Senate's Batista-Cuban hardliner Rubio accused this of being "theft," as if feeding the people to alleviate the U.S.-sponsored crisis was a crime against U.S. diplomatic leverage.

If there is any country that U.S. diplomats hate more than a recalcitrant Latin American country, it is Iran. President Trump's breaking of the 2015 nuclear agreements negotiated by European and Obama Administration diplomats has escalated to the point of threatening Germany and other European countries with punitive sanctions if they do not also break the agreements they have signed. Coming on top of U.S. opposition to German and other European importing of Russian gas, the U.S. threat finally prompted Europe to find a way to defend itself.

Imperial threats are no longer military. No country (including Russia or China) can mount a military invasion of another major country. Since the Vietnam Era, the only kind of war a democratically elected country can wage is atomic, or at least heavy bombing such as the United States has inflicted on Iraq, Libya and Syria. But now, cyber warfare has become a way of pulling out the connections of any economy. And the major cyber connections are financial money-transfer ones, headed by SWIFT, the acronym for the Society for Worldwide Interbank Financial Telecommunication, which is centered in Belgium.

Russia and China have already moved to create a shadow bank-transfer system in case the United States unplugs them from SWIFT. But now, European countries have come to realize that threats by Bolton and Pompeo may lead to heavy fines and asset grabs if they seek to continue trading with Iran as called for in the treaties they have negotiated.

On January 31 the dam broke with the announcement that Europe had created its own bypass payments system for use with Iran and other countries targeted by U.S. diplomats. Germany, France and even the U.S. poodle Britain joined to create INSTEX -- Instrument in Support of Trade Exchanges. The promise is that this will be used only for "humanitarian" aid to save Iran from a U.S.-sponsored Venezuela-type devastation. But in view of increasingly passionate U.S. opposition to the Nord Stream pipeline to carry Russian gas, this alternative bank clearing system will be ready and able to become operative if the United States tries to direct a sanctions attack on Europe.

I have just returned from Germany and seen a remarkable split between that nation's industrialists and their political leadership. For years, major companies have seen Russia as a natural market, a complementary economy needing to modernize its manufacturing and able to supply Europe with natural gas and other raw materials. America's New Cold War stance is trying to block this commercial complementarity. Warning Europe against "dependence" on low-price Russian gas, it has offered to sell high-priced LNG from the United States (via port facilities that do not yet exist in anywhere near the volume required). President Trump also is insisting that NATO members spend a full 2 percent of their GDP on arms – preferably bought from the United States, not from German or French merchants of death.

The U.S. overplaying its position is leading to the Mackinder-Kissinger-Brzezinski Eurasian nightmare that I mentioned above. In addition to driving Russia and China together, U.S. diplomacy is adding Europe to the heartland, independent of U.S. ability to bully into the state of dependency toward which American diplomacy has aimed to achieve since 1945.

The World Bank, for instance, traditionally has been headed by a U.S. Secretary of Defense. Its steady policy since its inception is to provide loans for countries to devote their land to export crops instead of giving priority to feeding themselves. That is why its loans are only in foreign currency, not in the domestic currency needed to provide price supports and agricultural extension services such as have made U.S. agriculture so productive. By following U.S. advice, countries have left themselves open to food blackmail – sanctions against providing them with grain and other food, in case they step out of line with U.S. diplomatic demands.

It is worthwhile to note that our global imposition of the mythical "efficiencies" of forcing Latin American countries to become plantations for export crops like coffee and bananas rather than growing their own wheat and corn has failed catastrophically to deliver better lives, especially for those living in Central America. The "spread" between the export crops and cheaper food imports from the U.S. that was supposed to materialize for countries following our playbook failed miserably – witness the caravans and refugees across Mexico. Of course, our backing of the most brutal military dictators and crime lords has not helped either.

Likewise, the IMF has been forced to admit that its basic guidelines were fictitious from the beginning. A central core has been to enforce payment of official inter-government debt by withholding IMF credit from countries under default. This rule was instituted at a time when most official inter-government debt was owed to the United States. But a few years ago Ukraine defaulted on $3 billion owed to Russia. The IMF said, in effect, that Ukraine and other countries did not have to pay Russia or any other country deemed to be acting too independently of the United States. The IMF has been extending credit to the bottomless it of Ukrainian corruption to encourage its anti-Russian policy rather than standing up for the principle that inter-government debts must be paid.

It is as if the IMF now operates out of a small room in the basement of the Pentagon in Washington. Europe has taken notice that its own international monetary trade and financial linkages are in danger of attracting U.S. anger. This became clear last autumn at the funeral for George H. W. Bush, when the EU's diplomat found himself downgraded to the end of the list to be called to his seat. He was told that the U.S. no longer considers the EU an entity in good standing. In December, "Mike Pompeo gave a speech on Europe in Brussels -- his first, and eagerly awaited -- in which he extolled the virtues of nationalism, criticised multilateralism and the EU, and said that "international bodies" which constrain national sovereignty "must be reformed or eliminated." [5]

Most of the above events have made the news in just one day, January 31, 2019. The conjunction of U.S. moves on so many fronts, against Venezuela, Iran and Europe (not to mention China and the trade threats and moves against Huawei also erupting today) looks like this will be a year of global fracture.

It is not all President Trump's doing, of course. We see the Democratic Party showing the same colors. Instead of applauding democracy when foreign countries do not elect a leader approved by U.S. diplomats (whether it is Allende or Maduro), they've let the mask fall and shown themselves to be the leading New Cold War imperialists. It's now out in the open. They would make Venezuela the new Pinochet-era Chile. Trump is not alone in supporting Saudi Arabia and its Wahabi terrorists acting, as Lyndon Johnson put it, "Bastards, but they're our bastards."

Where is the left in all this? That is the question with which I opened this article. How remarkable it is that it is only right-wing parties, Alternative for Deutschland (AFD), or Marine le Pen's French nationalists and those of other countries that are opposing NATO militarization and seeking to revive trade and economic links with the rest of Eurasia.

The end of our monetary imperialism, about which I first wrote in 1972 in Super Imperialism, stuns even an informed observer like me. It took a colossal level of arrogance, short-sightedness and lawlessness to hasten its decline -- something that only crazed Neocons like John Bolton, Elliot Abrams and Mike Pompeo could deliver for Donald Trump.

Footnotes

[1] "It Can't be Fixed: Senior ICC Judge Quits in Protest of US, Turkish Meddling," January 31, 2019.

[2] Patricia Laya, Ethan Bronner and Tim Ross, "Maduro Stymied in Bid to Pull $1.2 Billion of Gold From U.K.," Bloomberg, January 25, 2019. Anticipating just such a double-cross, President Chavez acted already in 2011 to repatriate 160 tons of gold to Caracas from the United States and Europe.

[3] ibid

[4] Corina Pons, Mayela Armas, "Exclusive: Venezuela plans to fly central bank gold reserves to UAE – source," Reuters, January 31, 2019.

[5] Constanze Stelzenmüller, "America's policy on Europe takes a nationalist turn," Financial Times, January 31, 2019.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is "and forgive them their debts": Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year< Jointly posted with Hudson's website


doug , February 1, 2019 at 8:03 am

We see the Democratic Party showing the same colors. Yes we do. no escape? that I see

drumlin woodchuckles , February 1, 2019 at 9:43 am

Well, if the StormTrumpers can tear down all the levers and institutions of international US dollar strength, perhaps they can also tear down all the institutions of Corporate Globalonial Forced Free Trade. That itself may BE our escape . . . if there are enough millions of Americans who have turned their regionalocal zones of habitation into economically and politically armor-plated Transition Towns, Power-Down Zones, etc. People and places like that may be able to crawl up out of the rubble and grow and defend little zones of semi-subsistence survival-economics.

If enough millions of Americans have created enough such zones, they might be able to link up with eachother to offer hope of a movement to make America in general a semi-autarchik, semi-secluded and isolated National Survival Economy . . . . much smaller than today, perhaps likelier to survive the various coming ecosystemic crash-cramdowns, and no longer interested in leading or dominating a world that we would no longer have the power to lead or dominate.

We could put an end to American Exceptionalism. We could lay this burden down. We could become American Okayness Ordinarians. Make America an okay place for ordinary Americans to live in.

drumlin woodchuckles , February 1, 2019 at 2:27 pm

I read somewhere that the Czarist Imperial Army had a saying . . . "Quantity has a Quality all its own".

... ... ...

Cal2 , February 1, 2019 at 2:54 pm

Drumlin,

If Populists, I assume that's what you mean by "Storm Troopers", offer me M4A and revitalized local economies, and deliver them, they have my support and more power to them.

That's why Trump was elected, his promises, not yet delivered, were closer to that then the Democrats' promises. If the Democrats promised those things and delivered, then they would have my support.

If the Democrats run a candidate, who has a no track record of delivering such things, we stay home on election day. Trump can have it, because it won't be any worse.

I don't give a damn about "social issues." Economics, health care and avoiding WWIII are what motivates my votes, and I think more and more people are going to vote the same way.

drumlin woodchuckles , February 1, 2019 at 8:56 pm

Good point about Populist versus StormTrumper. ( And by the way, I said StormTRUMper, not StormTROOper). I wasn't thinking of the Populists. I was thinking of the neo-etc. vandals and arsonists who want us to invade Venezuela, leave the JCPOA with Iran, etc. Those are the people who will finally drive the other-country governments into creating their own parallel payment systems, etc.

And the midpoint of those efforts will leave wreckage and rubble for us to crawl up out of. But we will have a chance to crawl up out of it.

My reason for voting for Trump was mainly to stop the Evil Clinton from getting elected and to reduce the chance of near immediate thermonuclear war with Russia and to save the Assad regime in Syria from Clintonian overthrow and replacement with an Islamic Emirate of Jihadistan.

Much of what will be attempted " in Trump's name" will be de-regulationism of all kinds delivered by the sorts of basic Republicans selected for the various agencies and departments by Pence and Moore and the Koch Brothers. I doubt the Populist Voters wanted the Koch-Pence agenda. But that was a risky tradeoff in return for keeping Clinton out of office.

The only Dems who would seek what you want are Sanders or maybe Gabbard or just barely Warren. The others would all be Clinton or Obama all over again.

Quanka , February 1, 2019 at 8:29 am

I couldn't really find any details about the new INSTEX system – have you got any good links to brush up on? I know they made an announcement yesterday but how long until the new payment system is operational?

The Rev Kev , February 1, 2019 at 8:43 am

Here is a bit more info on it but Trump is already threatening Europe if they use it. That should cause them to respect him more:

https://www.dw.com/en/instex-europe-sets-up-transactions-channel-with-iran/a-47303580

LP , February 1, 2019 at 9:14 am

The NYT and other have coverage.

https://www.google.com/amp/s/www.nytimes.com/2019/01/31/world/europe/europe-trade-iran-nuclear-deal.amp.html

Louis Fyne , February 1, 2019 at 8:37 am

arguably wouldn't it be better if for USD hegemony to be dismantled? A strong USD hurts US exports, subsidizes American consumption (by making commodities cheaper in relative terms), makes international trade (aka a 8,000-mile+ supply chain) easier.

For the sake of the environment, you want less of all three. Though obviously I don't like the idea of expensive gasoline, natural gas or tube socks either.

Mel , February 1, 2019 at 9:18 am

It would be good for Americans, but the wrong kind of Americans. For the Americans that would populate the Global Executive Suite, a strong US$ means that the stipends they would pay would be worth more to the lackeys, and command more influence.

Dumping the industrial base really ruined things. America is now in a position where it can shout orders, and drop bombs, but doesn't have the capacity to do anything helpful. They have to give up being what Toynbee called a creative minority, and settle for being a dominant minority.

integer , February 1, 2019 at 8:43 am

Having watched the 2016 election closely from afar, I was left with the impression that many of the swing voters who cast their vote for Trump did so under the assumption that he would act as a catalyst for systemic change.

What this change would consist of, and how it would manifest, remained an open question. Would he pursue rapprochement with Russia and pull troops out of the Middle East as he claimed to want to do during his 2016 campaign, would he doggedly pursue corruption charges against Clinton and attempt to reform the FBI and CIA, or would he do both, neither, or something else entirely?

Now we know. He has ripped the already transparent mask of altruism off what is referred to as the U.S.-led liberal international order and revealed its true nature for all to see, and has managed to do it in spite of the liberal international establishment desperately trying to hold it in place in the hope of effecting a seamless post-Trump return to what they refer to as "norms". Interesting times.

James , February 1, 2019 at 10:34 am

Exactly. He hasn't exactly lived up to advanced billing so far in all respects, but I suspect there's great deal of skulduggery going on behind the scenes that has prevented that. Whether or not he ever had or has a coherent plan for the havoc he has wrought, he has certainly been the agent for change many of us hoped he would be, in stark contrast to the criminal duopoly parties who continue to oppose him, where the daily no news is always bad news all the same. To paraphrase the infamous Rummy, you don't go to war with the change agent and policies you wished you had, you go to war with the ones you have. That might be the best thing we can say about Trump after the historic dust of his administration finally settles.

drumlin woodchuckles , February 1, 2019 at 2:39 pm

Look on some bright sides. Here is just one bright side to look on. President Trump has delayed and denied the Clinton Plan to topple Assad just long enough that Russia has been able to help Assad preserve legitimate government in most of Syria and defeat the Clinton's-choice jihadis.

That is a positive good. Unless you are pro-jihadi.

integer , February 1, 2019 at 8:09 pm

Clinton wasn't going to "benefit the greater good" either, and a very strong argument, based on her past behavior, can be made that she represented the greater threat. Given that the choice was between her and Trump, I think voters made the right decision.

Stephen Gardner , February 1, 2019 at 9:02 am

Excellent article but I believe the expression is "cui bono": who benefits.

hemeantwell , February 1, 2019 at 9:09 am

Hudson's done us a service in pulling these threads together. I'd missed the threats against the ICC judges. One question: is it possible for INSTEX-like arrangements to function secretly? What is to be gained by announcing them publicly and drawing the expected attacks? Does that help sharpen conflicts, and to what end?

Oregoncharles , February 1, 2019 at 3:23 pm

Maybe they're done in secret already – who knows? The point of doing it publicly is to make a foreign-policy impact, in this case withdrawing power from the US. It's a Declaration of Independence.

whine country , February 1, 2019 at 9:15 am

It certainly seems as though the 90 percent (plus) are an afterthought in this journey to who knows where? Like George C.Scott said while playing Patton, "The whole world at economic war and I'm not part of it. God will not let this happen." Looks like we're on the Brexit track (without the vote). The elite argue with themselves and we just sit and watch. It appears to me that the elite just do not have the ability to contemplate things beyond their own narrow self interest. We are all deplorables now.

a different chris , February 1, 2019 at 9:30 am

Unfortunately this

The end of America's unchallenged global economic dominance has arrived sooner than expected

Is not supported by this (or really the rest of the article). The past tense here, for example, is unwarranted:

At the United Nations, U.S. diplomats insisted on veto power. At the World Bank and IMF they also made sure that their equity share was large enough to give them veto power over any loan or other policy.

And this

So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. Germany agreed to slow down the transfer.

Doesn't show Germany as breaking free at all, and worse it is followed by the pregnant

But then came Venezuela.

Yet we find out that Venezuela didn't managed to do what they wanted to do, the Europeans, the Turks, etc bent over yet again. Nothing to see here, actually.

So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging by some pygmy leaders (Merkel) does not signal a global change.

orange cats , February 1, 2019 at 11:22 am

"So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging by some pygmy leaders (Merkel) does not signal a global change."

I'm surprised more people aren't recognizing this. I read the article waiting in vain for some evidence of "the end of our monetary imperialism" besides some 'grumbling and foot dragging' as you aptly put it. There was some glimmer of a buried lede with INTEX, created to get around U.S. sanctions against Iran ─ hardly a 'dam-breaking'. Washington is on record as being annoyed.

OpenThePodBayDoorsHAL , February 1, 2019 at 1:41 pm

Currency regime change can take decades, and small percentage differences are enormous because of the flows involved. USD as reserve for 61% of global sovereigns versus 64% 15 years ago is a massive move. World bond market flows are 10X the size of world stock market flows even though the price of the Dow and Facebook shares etc get all of the headlines.

And foreign exchange flows are 10-50X the flows of bond markets, they're currently on the order of $5 *trillion* per day. And since forex is almost completely unregulated it's quite difficult to get the data and spot reserve currency trends. Oh, and buy gold. It's the only currency that requires no counterparty and is no one's debt obligation.

orange cats , February 1, 2019 at 3:47 pm

That's not what Hudson claims in his swaggering final sentence:

"The end of our monetary imperialism, about which I first wrote in 1972 in Super Imperialism, stuns even an informed observer like me."

Which is risible as not only did he fail to show anything of the kind, his opening sentence stated a completely different reality: "The end of America's unchallenged global economic dominance has arrived sooner than expected" So if we hold him to his first declaration, his evidence is feeble, as I mentioned. As a scholar, his hyperbole is untrustworthy.

No, gold is pretty enough lying on the bosom of a lady-friend but that's about its only usefulness in the real world.

skippy , February 1, 2019 at 8:09 pm

Always bemusing that gold bugs never talk about gold being in a bubble . yet when it goes south of its purchase price speak in tongues about ev'bal forces.

timbers , February 1, 2019 at 12:26 pm

I don't agree, and do agree. The distinction is this:

If you fix a few of Hudson's errors, and take him as making the point that USD is losing it's hegemony, IMO he is basically correct.

Brian (another one they call) , February 1, 2019 at 9:56 am

thanks Mr. Hudson. One has to wonder what has happened when the government (for decades) has been shown to be morally and otherwise corrupt and self serving. It doesn't seem to bother anyone but the people, and precious few of them. Was it our financial and legal bankruptcy that sent us over the cliff?

Steven , February 1, 2019 at 10:23 am

Great stuff!

Indeed! It is to say the least encouraging to see Dr. Hudson return so forcefully to the theme of 'monetary imperialism'. I discovered his Super Imperialism while looking for an explanation for the pending 2003 US invasion of Iraq. If you haven't read it yet, move it to the top of your queue if you want to have any idea of how the world really works. You can find any number of articles on his web site that return periodically to the theme of monetary imperialism. I remember one in particular that described how the rest of the world was brought on board to help pay for its good old-fashioned military imperialism.

If it isn't clear to the rest of the world by now, it never will be. The US is incapable of changing on its own a corrupt status quo dominated by a coalition of its military industrial complex, Wall Street bankers and fossil fuels industries. As long as the world continues to chase the debt created on the keyboards of Wall Street banks and 'deficits don't matter' Washington neocons – as long as the world's 1% think they are getting 'richer' by adding more "debts that can't be repaid (and) won't be" to their portfolios, the global economy can never be put on a sustainable footing.

Until the US returns to the path of genuine wealth creation, it is past time for the rest of the world to go its own way with its banking and financial institutions.

Oh , February 1, 2019 at 3:52 pm

The use of the stick will only go so far. What's the USG going to do if they refuse?

Summer , February 1, 2019 at 10:46 am

In other words, after 2 World Wars that produced the current world order, it is still in a state of insanity with the same pretensions to superiority by the same people, to get number 3.

Yikes , February 1, 2019 at 12:07 pm

UK withholding Gold may start another Brexit? IE: funds/gold held by BOE for other countries in Africa, Asian, South America, and the "stans" with start to depart, slowly at first, perhaps for Switzerland?

Ian Perkins , February 1, 2019 at 12:21 pm

Where is the left in all this? Pretty much the same place as Michael Hudson, I'd say. Where is the US Democratic Party in all this? Quite a different question, and quite a different answer. So far as I can see, the Democrats for years have bombed, invaded and plundered other countries 'for their own good'. Republicans do it 'for the good of America', by which the ignoramuses mean the USA. If you're on the receiving end, it doesn't make much difference.

Michael A Gualario , February 1, 2019 at 12:49 pm

Agreed! South America intervention and regime change, Syria ( Trump is pulling out), Iraq, Middle East meddling, all predate Trump. Bush, Clinton and Obama have nothing to do with any of this.

Oregoncharles , February 1, 2019 at 2:12 pm

" So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. "

What proof is there that the gold is still there? Chances are it's notional. All Germany, Venezuela, or the others have is an IOU – and gold cannot be printed. Incidentally, this whole discussion means that gold is still money and the gold standard still exists.

Oregoncharles , February 1, 2019 at 3:41 pm

Wukchumni beat me to the suspicion that the gold isn't there.

The Rev Kev , February 1, 2019 at 7:40 pm

What makes you think that the gold in Fort Knox is still there? If I remember right, there was a Potemkin visit back in the 70s to assure everyone that the gold was still there but not since then. Wait, I tell a lie. There was another visit about two years ago but look who was involved in that visit-

https://www.whas11.com/article/news/local/after-40-years-fort-knox-opens-vault-to-civilians/466441331

And I should mention that it was in the 90s that between 1.3 and 1.5 million 400 oz tungsten blanks were manufactured in the US under Clinton. Since then gold-coated tungsten bars have turned up in places like Germany, China, Ethiopia, the UK, etc so who is to say if those gold bars in Fort Knox are gold all the way through either. More on this at -- http://viewzone2.com/fakegoldx.html

Summer , February 1, 2019 at 5:44 pm

A non-accountable standard. It's more obvious BS than what is going on now.

jochen , February 2, 2019 at 6:46 am

It wasn't last year that Germany brought back its Gold. It has been ongoing since 2013, after some political and popular pressure build up. They finished the transaction in 2017. According to an article in Handelblatt (but it was widely reported back then) they brought back pretty much everything they had in Paris (347t), left what they had in London (perhaps they should have done it in reverse) and took home another 300t from the NY Fed. That still leaves 1236t in NY. But half of their Gold (1710t) is now in Frankfurt. That is 50% of the Bundesbanks holdings.

They made a point in saying that every bar was checked and weighed and presented some bars in Frankfurt. I guess they didn't melt them for assaying, but I'd expect them to be smart enough to check the density.

Their reason to keep Gold in NY and London is to quickly buy USD in case of a crisis. That's pretty much a cold war plan, but that's what they do right now.

Regarding Michal Hudsons piece, I enjoyed reading through this one. He tends to write ridiculously long articles and in the last few years with less time and motivation at hand I've skipped most of his texts on NC as they just drag on.

When I'm truly fascinated I like well written, long articles but somehow he lost me at some point. But I noticed that some long original articles in US magazines, probably research for a long time by the journalist, can just drag on for ever as well I just tune out.

Susan the Other , February 1, 2019 at 2:19 pm

This is making sense. I would guess that tearing up the old system is totally deliberate. It wasn't working so well for us because we had to practice too much social austerity, which we have tried to impose on the EU as well, just to stabilize "king dollar" – otherwise spread so thin it was a pending catastrophe.

Now we can get out from under being the reserve currency – the currency that maintains its value by financial manipulation and military bullying domestic deprivation. To replace this old power trip we are now going to mainline oil. The dollar will become a true petro dollar because we are going to commandeer every oil resource not already nailed down.

When we partnered with SA in Aramco and the then petro dollar the dollar was only backed by our military. If we start monopolizing oil, the actual commodity, the dollar will be an apex competitor currency without all the foreign military obligations which will allow greater competitive advantages.

No? I'm looking at PdVSA, PEMEX and the new "Energy Hub for the Eastern Mediterranean" and other places not yet made public. It looks like a power play to me, not a hapless goofball president at all.

skippy , February 2, 2019 at 2:44 am

So sand people with sociological attachment to the OT is a compelling argument based on antiquarian preferences with authoritarian patriarchal tendencies for their non renewable resource . after I might add it was deemed a strategic concern after WWII .

Considering the broader geopolitical realities I would drain all the gold reserves to zero if it was on offer . here natives have some shiny beads for allowing us to resource extract we call this a good trade you maximize your utility as I do mine .

Hay its like not having to run C-corp compounds with western 60s – 70s esthetics and letting the locals play serf, blow back pay back, and now the installed local chiefs can own the risk and refocus the attention away from the real antagonists.

ChrisAtRU , February 1, 2019 at 6:02 pm

Indeed. Thanks so much for this. Maybe the RICS will get serious now – can no longer include Brazil with Bolsonaro. There needs to be an alternate system or systems in place, and to see US Imperialism so so blatantly and bluntly by Trump admin – "US gives Juan Guaido control over some Venezuelan assets" – should sound sirens on every continent and especially in the developing world. I too hope there will be fracture to the point of breakage. Countries of the world outside the US/EU/UK/Canada/Australia confraternity must now unite to provide a permanent framework outside the control of imperial interests. The be clear, this must not default to alternative forms of imperialism germinating by the likes of China.

mikef , February 1, 2019 at 6:07 pm

" such criticism can't begin to take in the full scope of the damage the Trump White House is inflicting on the system of global power Washington built and carefully maintained over those 70 years. Indeed, American leaders have been on top of the world for so long that they no longer remember how they got there.

Few among Washington's foreign policy elite seem to fully grasp the complex system that made U.S. global power what it now is, particularly its all-important geopolitical foundations. As Trump travels the globe, tweeting and trashing away, he's inadvertently showing us the essential structure of that power, the same way a devastating wildfire leaves the steel beams of a ruined building standing starkly above the smoking rubble."

http://www.tomdispatch.com/blog/176373/tomgram%3A_alfred_mccoy%2C_tweeting_while_rome_burns

Rajesh K , February 1, 2019 at 7:23 pm

I read something like this and I am like, some of these statements need to be qualified. Like: "Driving China and Russia together". Like where's the proof? Is Xi playing telephone games more often now with Putin? I look at those two and all I see are two egocentric people who might sometimes say the right things but in general do not like the share the spotlight. Let's say they get together to face America and for some reason the later gets "defeated", it's not as if they'll kumbaya together into the night.

This website often points out the difficulties in implementing new banking IT initiatives. Ok, so Europe has a new "payment system". Has it been tested thoroughly? I would expect a couple of weeks or even months of chaos if it's not been tested, and if it's thorough that probably just means that it's in use right i.e. all the kinks have been worked out. In that case the transition is already happening anyway. But then the next crisis arrives and then everyone would need their dollar swap lines again which probably needs to cleared through SWIFT or something.

Anyway, does this all mean that one day we'll wake up and a slice of bacon is 50 bucks as opposed to the usual 1 dollar?

Keith Newman , February 2, 2019 at 1:12 am

Driving Russia and China together is correct. I recall them signing a variety of economic and military agreement a few years ago. It was covered in the media. You should at least google an issue before making silly comments. You might start with the report of Russia and China signing 30 cooperation agreements three years ago. See https://www.rbth.com/international/2016/06/27/russia-china-sign-30-cooperation-agreements_606505 . There are lots and lots of others.

RBHoughton , February 1, 2019 at 9:16 pm

He's draining the swamp in an unpredicted way, a swamp that's founded on the money interest. I don't care what NYT and WaPo have to say, they are not reporting events but promoting agendas.

skippy , February 2, 2019 at 1:11 am

The financial elites are only concerned about shaping society as they see fit, side of self serving is just a historical foot note, Trumps past indicates a strong preference for even more of the same through authoritarian memes or have some missed the OT WH reference to dawg both choosing and then compelling him to run.

Whilst the far right factions fight over the rudder the only new game in town is AOC, Sanders, Warren, et al which Trumps supporters hate with Ideological purity.

/lasse , February 2, 2019 at 7:50 am

Highly doubt Trump is a "witting agent", most likely is that he is just as ignorant as he almost daily shows on twitter. On US role in global affairs he says the same today as he did as a media celebrity in the late 80s. Simplistic household "logics" on macroeconomics. If US have trade deficit it loses. Countries with surplus are the winners.

On a household level it fits, but there no "loser" household that in infinity can print money that the "winners" can accumulate in exchange for their resources and fruits of labor.

One wonder what are Trumps idea of US being a winner in trade (surplus)? I.e. sending away their resources and fruits of labor overseas in exchange for what? A pile of USD? That US in the first place created out of thin air. Or Chinese Yuan, Euros, Turkish liras? Also fiat-money. Or does he think US trade surplus should be paid in gold?

When the US political and economic hegemony will unravel it will come "unexpected". Trump for sure are undermining it with his megalomaniac ignorance. But not sure it's imminent.

Anyhow frightening, the US hegemony have its severe dark sides. But there is absolutely nothing better on the horizon, a crash will throw the world in turmoil for decades or even a century. A lot of bad forces will see their chance to elevate their influence. There will be fierce competition to fill the gap.

On could the insane economic model of EU/Germany being on top of global affairs, a horribly frightening thought. Misery and austerity for all globally, a permanent recession. Probably not much better with the Chinese on top. I'll take the USD hegemony any day compared to that prospect.

Sound of the Suburbs , February 2, 2019 at 10:26 am

Former US ambassador, Chas Freeman, gets to the nub of the problem. "The US preference for governance by elected and appointed officials, uncontaminated by experience in statecraft and diplomacy, or knowledge of geography, history and foreign affairs" https://www.youtube.com/watch?annotation_id=annotation_882041135&feature=iv&src_vid=Ge1ozuXN7iI&v=gkf2MQdqz-o

Sound of the Suburbs , February 2, 2019 at 10:29 am

When the delusion takes hold, it is the beginning of the end.

The British Empire will last forever
The thousand year Reich
American exceptionalism

As soon as the bankers thought they thought they were "Master of the Universe" you knew 2008 was coming. The delusion had taken hold.

Sound of the Suburbs , February 2, 2019 at 10:45 am

Michael Hudson, in Super Imperialism, went into how the US could just create the money to run a large trade deficit with the rest of the world. It would get all these imports effectively for nothing, the US's exorbitant privilege. I tied this in with this graph from MMT.

This is the US (46.30 mins.) https://www.youtube.com/watch?v=ba8XdDqZ-Jg

The trade deficit required a large Government deficit to cover it and the US government could just create the money to cover it.

Then ideological neoliberals came in wanting balanced budgets and not realising the Government deficit covered the trade deficit.

The US has been destabilising its own economy by reducing the Government deficit. Bill Clinton didn't realize a Government surplus is an indicator a financial crisis is about to hit. The last US Government surplus occurred in 1927 – 1930, they go hand-in-hand with financial crises.

Richard Koo shows the graph central bankers use and it's the flow of funds within the economy, which sums to zero (32-34 mins.).

https://www.youtube.com/watch?v=8YTyJzmiHGk

The Government was running a surplus as the economy blew up in the early 1990s. It's the positive and negative, zero sum, nature of the monetary system. A big trade deficit needs a big Government deficit to cover it. A big trade deficit, with a balanced budget, drives the private sector into debt and blows up the economy.

skippy , February 2, 2019 at 5:28 pm

It should be remembered Bill Clinton's early meeting with Rubin, where in he was informed that wages and productivity had diverged – Rubin did not blink an eye.

[Jul 28, 2019] Goodbye Dollar, It Was Nice Knowing You! by Philip Giraldi

This might be not the end, but it is definitely the beginning of the decline of the dollar
Jul 04, 2019 | www.strategic-culture.org

Over the past two years, the White House has initiated trade disputes, insulted allies and enemies alike, and withdrawn from or refused to ratify multinational treaties and agreements. It has also expanded the reach of its unilaterally imposed rules, forcing other nations to abide by its demands or face economic sanctions. While the stated Trump Administration intention has been to enter into new arrangements more favorable to the United States, the end result has been quite different, creating a broad consensus within the international community that Washington is unstable, not a reliable partner and cannot be trusted. This sentiment has, in turn, resulted in conversations among foreign governments regarding how to circumvent the American banking system, which is the primary offensive weapon apart from dropping bombs that Washington has to force compliance with its dictates.

Consequently, there has been considerable blowback from the Make America Great Again campaign, particularly as the flip side of the coin appears to be that the "greatness" will be obtained by making everyone else less great. The only country in the world that currently regards the United States favorably is Israel, which certainly has good reason to do so given the largesse that has come from the Trump Administration. Everyone else is keen to get out from under the American heel.

Well the worm has finally turned, maybe. Even the feckless Angela Merkel's Germany now understands that national interests must prevail when the United States is demanding that it do the unspeakable. At the recently concluded G20 meeting in Tokyo Britain, France and Germany announced that the special trade mechanism that they have been working on this year is now up and running. It is called the Instrument in Support of Trade Exchanges (Instex) and it will permit companies in Europe to do business with countries like Iran, avoiding American sanctions by trading outside the SWIFT system, which is dollar denominated and de facto controlled by the US Treasury.

The significance of the European move cannot be understated. It is the first major step in moving away from the dominance of the dollar as the world's trading and reserve currency. As is often the case, the damage to US perceived interests is self-inflicted. There has been talk for years regarding setting up trade mechanisms that would not be dollar based, but they did not gain any momentum until the Trump Administration abruptly withdrew from the Joint Comprehensive Plan of Action (JCPOA) with Iran over a year ago.

There were other signatories to the JCPOA, all of whom were angered by the White House move, because they believed correctly that it was a good agreement, preventing Iranian development of a nuclear weapon while also easing tensions in the Middle East. Major European powers Germany, France and Great Britain, as well as Russia and China, were all signatories and the agreement was endorsed by the United Nations Security Council. The US withdrawal in an attempt to destroy the "plan of action" was therefore viewed extremely negatively by all the other signatories and their anger increased when Washington declared that it would reinstate sanctions on Iran and also use secondary sanctions to punish any third party that did not comply with the restrictions on trade.

Instex is an upgrade of a previous "Special Purpose Vehicle" set up by the Europeans a year ago to permit trading with Iran without any actual money transfers, something like a barter system based on balancing payments by value. The announcement regarding Instex came as a result of last week's meeting in Vienna in which the JCPOA signatories minus the US got together with Iranian ministry spokesman Abbas Mousavi, who called the gathering "the last chance for the remaining parties to gather and see how they can meet their commitments towards Iran."

Iran is quietly pleased by the development, even though there are critics of the arrangement and the government is officially declaring that Instex is not enough and it will proceed with plans to increase its uranium production. This produced an immediate response from Secretary of State Mike Pompeo last week speaking in New Delhi "If there is conflict, if there is war, if there is a kinetic activity, it will be because the Iranians made that choice." Nevertheless, Instex could possibly be a model for mechanisms that will allow Iran to sell its oil without hindrance from Washington. But a sharp reaction from the White House is expected. While Instex was in the development phase, US observers noted that the Iranian Special Trade and Finance Instrument, that will do the actual trading, includes government agencies that are already under US sanctions. That likely means that Washington will resort to secondary sanctions on the Europeans, a move that will definitely make the bilateral relationship even more poisonous than it already is. A global trade war is a distinct possibility and, as observed above, the abandonment of the dollar as the international reserve currency is a possible consequence.

Trump has already been "threatening penalties against the financial body created by Germany, the U.K. and France to shield trade with the Islamic Republic from US sanctions." The Treasury's undersecretary for terrorism and financial intelligence, Israeli Sigal Mandelker, warned in a May 7 th letter that "I urge you to carefully consider the potential sanctions exposure of Instex. Engaging in activities that run afoul of US sanctions can result in severe consequences, including a loss of access to the US financial system."

Indeed, the White House appears to be willing to engage in economic warfare with Europe over the issue of punishing Iran. The Treasury Department issued a statement regarding the Mandelker letter, saying "entities that transact in trade with the Iranian regime through any means may expose themselves to considerable sanctions risk, and Treasury intends to aggressively enforce our authorities." Mike Pompeo also was explicit during a visit to London on May 8 th when he stated that " it doesn't matter what vehicle's out there, if the transaction is sanctionable, we will evaluate it, review it, and if appropriate, levy sanctions against those that were involved in that transaction. It's very straightforward."

It is perhaps not unreasonable to wish the Europeans success, as they are supporting free trade while also registering their opposition to the White House's bullying tactics using the world financial system. And if the dollar ceases to be the world's trade and reserve currency, what of it? It would mean that the Treasury might have to cease printing surplus dollars and the US ability to establish global hegemony on a credit card might well be impeded. Those would be good results and one might also hope that some day soon the United States might once again become a normal country that Americans would be proud to call home.

[Jul 24, 2019] Russia Urges Independence From Imposed World Order Of US Financial System

Jul 24, 2019 | www.zerohedge.com

Following Russia signalling last week, its willingness to join the controversial payments channel Instex - designed to circumvent both SWIFT as well as US sanctions banning trade with Iran - new statements from Russian Deputy Foreign Minister Sergei Ryabkov called on the international community to free itself from a purely US-controlled international financial system and US dollar dominance.

"We must protect ourselves from political abuses made with the help of the US dollar and the American banking system," he said while addressing a ministerial meeting of the Non-Aligned Movement held in Venezuela, according to TASS . "We must turn our dependence in this sphere into independence," he added.

"Let us be multipolar in the spheres of finance and currency," he said.

Image via Newsmax

The senior diplomat was specifically addressing US-led sanctions and the tightening economic noose, including a near total oil export blockade, on the Maduro government in Caracas.

The comments also come after early this year the Maduro regime was stymied in its bid to pull $1.2 billion worth of gold out of the Bank of England , according to a January Bloomberg report . The Bank of England's (BoE) decision to deny Maduro officials' withdrawal request was a the height of US coup efforts targeting Maduro.

Specifically top US officials, including Secretary of State Michael Pompeo and National Security Adviser John Bolton, had lobbied their UK counterparts to help cut off the regime from its overseas assets, as we reported at the time. Washington has further lobbied other international institutions, and especially its Latin American allies, to seize Venezuelan assets and essentially hold them for control of Juan Guaido's opposition government in exile.

Russian Deputy Foreign Minister Sergei Ryabkov. Image source: TASS

Deputy FM Ryabkov held up the Venezuela situation as an example of "barefaced misappropriation of assets kept at Western banks."

He described further :

"This is just one of the examples of a wider policy of deliberate instigation of crises to change government, to replace legitimately elected politician with American stooges ."

Despite western capitals virtue-signaling their "rules-based order" approach, Ryabkov said instead, "We think that it is not a rule-based world order, it is rather a foisted and imposed world order ."

Meanwhile, the establishment of the 'SWIFT-alternative' Instex - now online as of three weeks ago - constitutes the biggest threat the dollar as a reserve currency to date, especially if Russia follows through on its signalling it could join.


CashMcCall , 39 minutes ago link

DeDollarization is inevitable. The US has abused the dollar reserve currency by weaponizing it first under FDR when he dropped the price of gold from $50 to 35 over night, a violation of Bretton Woods.

Then Nixon devalued three times

The worst infraction of all was Obama Sanctioning Russia and weaponizing the dollar reserve.

Trump who knows nothing at all except bullyism, then used Obama weaponizing sanctions and now covers nearly 50% of the global population. Trump is dumber than dirt.

It is now inevitable that the rest of the world will find methods to trade outside of the dollar. That is currently being done with Iron ore and coal with China in Yuan and this will spread.

The present system of demigod dollars is not sustainable. Maynard Keynes proposed a synthetic currency called the Bancor comprise of five of the world's leading currencies. New technology in Cryptos may at last be a method of trade that cannot be weaponized. Obviously a global currency that could not be manipulated is necessary. A crypto could be instantly valued correctly based on real instant transactions not speculators buying and selling.

Bitcoin is unsatisfactory for many reasons, primarily because the developers gave themselves lots of free bitcoins and its circulation is so limited that its value cannot be determined due to volatility. It's worthless. But the idea is the future.

Until then the best alternative is competing currencies. Let buyers and sellers determine the currency to be used.

Ignorance is bliss , 46 minutes ago link

The big question on my mind is how long before all confidence in the Dollar is lost? Foreign central banks are buying gold which leaves the U.S. government with a funding problem. Just this year the U.S. has to roll over 11 Trillion in debt. Without central banks adding Dollars to their core reserves who's going to fund U.S. deficits ? certainly not the domestic financial economy. Then you have INSTEX bypassing the petro Dollar with Iran and now potentially with Russia. We know Russia and China are trading directly and bypassing the Dollar. We're also losing weapons sales and Boeing aircraft sales to competitors. These are Dollar denominated big ticket items that support the Dollar. How long before people start getting rid of Dollars in mass? When is the confidence lost?

Blankone , 1 hour ago link

According to all the expert articles written on ZH both Russia and China had fully functioning alternatives to SWIFT several years ago.

And they were going to facilitate the abandonment of the dollar, with the dollars demise any day.

Now, the experts tell us Russia wants to join the Instex club, which was created by Europe and controlled by Europe and has very limited abilities to handle international trade.

The inability of Russia to avoid SWIFT and having to use the dollar in much of Russia's trade is a huge tactical error in this financial war.

EHM , 1 hour ago link

"The Bank of the United States is one of the most deadly hostilities existing, against the principles and form of our Constitution. An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile?" –Thomas Jefferson to Albert Gallatin, 1803. ME 10:437

PKKA , 1 hour ago link

When you are going to war, dig two graves for yourself too.
American sanctions undermine the hegemony of the dollar.
Russia, Iran, China, North Korea, Venezuela, Cuba and those many others who are tired of the hegemony of the dollar. The total population of these countries exceeds two billion people, and the cumulative GDP is over 15 trillion.

[Jul 24, 2019] JPMorgan We Believe The Dollar Could Lose Its Status As World s Reserve Currency

Jul 24, 2019 | www.zerohedge.com

JPMorgan: We Believe The Dollar Could Lose Its Status As World's Reserve Currency

by Tyler Durden Tue, 07/23/2019 - 12:55 0 SHARES

Almost eight year ago , we first presented a chart first created by JPMorgan's Michael Cembalest, which showed very simply and vividly that reserve currencies don't last forever, and that in the not too distant future, the US Dollar would also lose its status as the world's most important currency, since it is never different this time.

As Cembalest put it back in January 2012, "I am reminded of the following remark from late MIT economist Rudiger Dornbusch: 'Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.'"

Perhaps it is not a coincidence then that in light of the growing number of mentions of MMT and various other terminal, destructive monetary policies that have been proposed to kick on the current financial system the can just a little bit longer, that the topic of longevity of reserve currency status is once again becoming all the rage, and none other than JPMorgan's Private Bank ask in this month's investment strategy note whether "the dollar's "exorbitant privilege" is coming to an end?"

So why is JPM, after first creating the iconic chart above which has since spread virally across all financial corners of the internet, not only worried that the dollar's reserve status may be coming to an end, but in fact goes so far as to state that "we believe the dollar could lose its status as the world's dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments."

Read on to learn why even the largest US bank has started to lose faith in the world's most powerful currency.

Is the dollar's "exorbitant privilege" coming to an end?

In Brief

The U.S. dollar (USD) has been the world's dominant reserve currency for almost a century. As such, many investors today, even outside the United States, have built and become comfortable with sizable USD overweights in their portfolios. However, we believe the dollar could lose its status as the world's dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments .

As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well as precious metals makes sense today. This diversification can be achieved with a strategy that maintains the underlying assets in an investment portfolio, but changes the mix of currencies within that portfolio. This is a completely bespoke approach that can be customized to meet the unique needs of individual clients.

The rise of the U.S. dollar

It is commonly perceived that the U.S. dollar overtook the Great British Pound (GBP) as the world's international reserve currency with the signing of the Bretton Woods Agreements after World War II. The reality is that sterling's value was eroded for many decades prior to Bretton Woods. The dollar's rise to international prominence was fueled by the establishment of the Federal Reserve System a little over a century ago and U.S. economic emergence after World War I. The Federal Reserve System aided in the establishment of more mature capital markets and a nationally coordinated monetary policy, two important pillars of reserve-currency countries. Being the world's unit of account has given the United States what former French Finance Minister Valery d'Estaing called an "exorbitant privilege" by being able to purchase imports and issue debt in its own currency and run persistent deficits seemingly without consequence.

The shifting center

There is nothing to suggest that the dollar dominance should remain in perpetuity . In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world's economic center has shifted.

After the end of World War II, the U.S. accounted for biggest share of world GDP at more than 25%. This number is brought to more than 40% when we include Western European powers. Since then, the main driver of economic growth has shifted eastwards towards Asia at the expense of the U.S. and the West. China is at the epicenter of this recent economic shift driven by the country's strong growth and commitment to domestic reforms. Over the last 70 years, China has quadrupled its share of global GDP to around 20% -- roughly the same share as the U.S. -- and this share is expected to continue to grow in the years ahead. China is no longer just a manufacturer of low cost goods as a growing share of corporate earnings is coming from "high value add" sectors like technology.

China regaining its status as a global superpower

Source: Angus Maddison Database, IMF, J.P. Morgan Private Bank Economics. Data as of June 14, 2019

Earnings in China are becoming more balanced

Source: Bloomberg, J.P. Morgan Private Bank Economics. Data as of September 30, 2018. The low-value added sectors series is HP filtered to smooth over cyclical volatility. Low-value added includes materials and industrials. High-value added includes tech, health care, consumer staples, and consumer discretionary.

In addition to China, the economies of Southeast Asia, including India, have strong secular tailwinds driven by younger demographics and proliferating technological know-how. Specifically, the Asian economic zone -- from the Arabian Peninsula and Turkey in the West to Japan and New Zealand in the East and from Russia in the North and Australia in the South -- now represents 50% of global GDP and two-thirds of global economic growth. Of the estimated $30 trillion in middle-class consumption growth between 2015 and 2030, only $1 trillion is expected to come from today's Western economies. As this region grows, the share of non-USD transactions will inevitably increase which will likely erode the dollar's "reserveness", even if the dollar isn't replaced as the dominant international currency.

In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.

Dollar's declining role already under way?

Recent data on currency reserve holdings among global central banks suggests this shift may already be under way. As a share of overall central bank reserves, the USD's role has been declining ever since the Great Recession (see chart). The most recent central bank reserve flow data also suggests that for the first time since the euro's introduction in 1999, central banks simultaneously sold dollars and bought euros.

Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.

USD share of central bank reserves, %

Source: Exante. Data as of September 30, 2018. The series is FX-adjusted.
Trade Wars have long-term consequences

The current U.S. administration has called into question agreements with nearly all of its largest partners -- tariffs on China, Mexico and the European Union, renegotiating NAFTA, as well as abandoning the Trans Pacific Partnership. A more adversarial U.S. administration could also encourage countries to reduce their reliance on USD in trade. Currently 85% of all currency transactions involve the USD despite the U.S. accounting for only roughly 25% of global GDP.

Countries around the world are already developing payment mechanisms that would avoid using the dollar. These systems are small and still developing but this is likely to be a structural story that will extend beyond one particular administration. In a recent speech on the international role of the euro, Bank for International Settlements Chief Economist Claudio Borio brought up the benefits of pricing oil in the euro saying, "Trading and settling oil in the euro would move payments from dollars to euros and thereby shift ultimate settlement to the euro's TARGET2 system. This could limit the reach of U.S. foreign policy insofar as it leverages dollar payments." The European Central Bank also alluded to this theme in a recent report saying that "growing concerns about the impact of international trade tensions and challenges to multilateralism, including the imposition of unilateral sanctions seem to have lent support to the euro's global standing."

We believe we are at an important juncture. On a real basis, the dollar stands currently more than 10% above its long-term average and on a nominal basis has actually been trending lower for 50 years (see chart below).

Source: Bloomberg as of June 13, 2019

Given the persistent -- and rising -- deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold . As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and gold (see chart).

FX exposure

Source: J.P. Morgan Private Bank as of June 13, 2019.

angle-asshole identity , 55 minutes ago link

The Spanish Piece of Eight (a silver coin) was in circulation until Mao's Long March (1934) and was legal tender in the US until 1857. Known as the Spanish dollar it was one of the few currencies accepted by the Chinese until the Opium Wars.

zeropol , 52 minutes ago link

Guess it was accepted not because it's a currency but because it is silver.

angle-asshole identity , 51 minutes ago link

It was silver and it was reliably minted. And as you prolly know, the Chinese only accepted silver or precious metals as currency. Then the British declared war on them bc ...reasons.

Meximus , 48 minutes ago link

Spanish pieces of eight is the modern day mexican 0.720 onza.

Spain ceased producing these once méxico won independence in 1821.

They all came from the national mint.

So for over 100 years the MXN was the world's reserve currency.

angle-asshole identity , 41 minutes ago link

Spain minted a huge ammount of Po8 in 300 years, that went on circulation for a long time. The coins were minted in Bolivia from Mexican and Peruvian mines. In that time Mexicans earned like 5 times the wage of most Europeans.

But I guess you're right in some way. However, Mexico was not the country that it is now.

ThomasEdmonds , 1 hour ago link

https://www.globalresearch.ca/world-dedollarizing/5684049

Let it Go , 1 hour ago link

The Fed has become the great enabler. A key role of a reserve currency is to force other currencies to toe the line or pay a stiff price. Ignoring this economic reality translates into pain for those holding the currency of any country that abuses this economic law.

The rapid expansion of debt and credit during the last decade could have occurred without the Fed being totally complicit and in agreement. It has been the Fed that decided to allow the dollar to be used as a global prop.

Trump's desire to manipulate the dollar lower to boost exports would take the world down a very slippery slope. The article below argues this is a destabilizing force.

https://Manipulating Value Of US Dollar is A Very Dangerous Policy .html

Let it Go , 1 hour ago link

Many of us see the introduction of a single "World Currency" as a major part of the economic endgame. This is something that will be forced on us as part of a "needed reset" to a global economy that has gone off track. The fact this issue is again in the news may be an indication we are getting closer to where currencies begin to fail.

The new world order and globalization which has been pushed by many world leaders and the rich elite touting that "larger, more cooperative governments under one financial unit will benefit us all" plays into the world currency scenario. The article below delves into how this might unfold.

http://World Currency Will Be Part Of The Financial Endgame.html

natxlaw , 1 hour ago link

Trump gets the weak dollar he always wanted. We can pay off our debts and buy $15/gallon gas.

HRH of Aquitaine 2.0 , 2 hours ago link

CIPS, the Chinese Interbank Payment System was created a few years ago, 2015 as I recall. https://en.wikipedia.org/wiki/Cross-Border_Inter-Bank_Payments_System

Most Americans are financial illiterates and easy prey for the wolves. How many know that the USD / FRN is the WRC? I am guessing five, or less, out of 100.

[Jul 22, 2019] Michael Hudson pointed out in Super Imperialism how the US can run a big trade deficit as it can just print dollars to cover it.

Jul 22, 2019 | www.nakedcapitalism.com

Sound of the Suburbs , July 22, 2019 at 7:57 am

This is the US (46.30 mins.)
https://www.youtube.com/watch?v=ba8XdDqZ-Jg

This comes from an MMT talk and you can see how the trade deficit balloons around 2000.

Michael Hudson pointed out in Super Imperialism how the US can run a big trade deficit as it can just print dollars to cover it.

Putting the two together.

It looks like the system used to work by allowing the Government deficit to cover the trade deficit.

Now, they have tried to balance the Government budget causing problems for the private sector and financial crises.

It all sums to zero and something needs to cover that trade deficit.

It worked when the Government deficit covered it, but not now.

[Jul 22, 2019] Russia has almost zero foreign public debt and that the private foreign debt has been much reduced and now amounts to US dollars 450 billion.

Jul 22, 2019 | www.nakedcapitalism.com

"On a similar note, I've wondered why Russia has not defaulted on it's considerable USD and EUR debt (also too, why is Russia still doing debt in USD and thus strengthening U.S.?)"

It should be noted that Russia has almost zero foreign public debt and that the private foreign debt has been much reduced and now amounts to US dollars 450 billion.

As Russia has a surplus of more than US dollars 100 billion on the current account the total foreign debt amounts to 4 years current account surplus only.

Ad to this that Russias international currency reserves amounts to ca. US dollars 500 billion which meens that Russia is in a very strong fiscal position as it is capable of paying off its entire foreign debt any time it chooses.

Ian Perkins , July 21, 2019 at 9:16 am

Along the same lines, the summary starts with, "The first existential objective is to avoid the current threat of war by winding down U.S. military interference in foreign countries and removing U.S. military bases as relics of neocolonialism." Either would be taken as proof of evil anti-US intentions, leading to sanctions, coups, assassinations, regime change, and eventually outright war. As Mael Colium says, the US picks off individual countries by isolating them.

Off The Street , July 21, 2019 at 9:19 am

Peripherally related MMT 2nd of 3 articles

[Jul 22, 2019] As with all things public and private, public money is not required to make a profit, but in contrast, private money has no other reason to exist than to make a profit.

Jul 22, 2019 | www.moonofalabama.org

Grieved , Jul 22 2019 5:46 utc | 107

Regarding money, and the difference between private and public money.

As with all things public and private, public money is not required to make a profit, but in contrast, private money has no other reason to exist than to make a profit.

What we call money in the US, is privately owned. It is actually a promissory note, the signifier of a loan made to those who hold the note. This is how US money comes into existence.

We could trade coconut shells, or beads, but we trade promissory notes. They are legal tender by law. And they fulfill the role of money pretty well. But we the people do not ultimately own those obligations.

Public money is issued out of the same thin air as private money, but not as a debt, simply as an issuance. The bills do their job for exchange and storage, and circulate until being retired as taxes and the like. No one pays interest on that money.

Public money doesn't charge interest. Private money charges interest. This is the only difference, and this difference is killing us and destroying the entire world.

~~

Professor Richard Werner illustrates nicely how a mortgage comes into existence through a bank, which doesn't actually create money in this loan, but purchases a promissory note from the home buyer. It is this promissory note that then enters the public record as new money, which we then trade like sea shells - happy children, except that we now will pay interest of more than 100 percent over the next 30 years. This interest is the profit on the private money.

The Finance Curse

You'll find the mortgage part specifically around 16:15.

~~

As to all the rest, there is much more collateral, including the flagship work by Helen Brown. Sorry I have no time to supply more links.

But I'm surprised to see so much wordy ignorance here on the subject, which is actually very simple (although obfuscated, of course). Thanks to psychohistorian and karlof1 and others who show that the good economists are all calling for public money which charges no interest. And the communists and socialists do this as a matter of course.

As Hudson ended in his address cited by b and discussed here: "nations face a choice between socialism and barbarism" .

Neoliberal economics and private finance is this very barbarism. It is accompanied by fascism, oppression and the utter loss of freedom. As I cited in my previous comment, Dambisa Moyo suggests very cogently that economic sufficiency undergirds democratic freedom. The corollary is obvious: as we get more impoverished, freedom flees away.

~~

Interest charged on a loan is a claim on wealth that it doesn't create. It therefore steals existing wealth in order to be redeemed. That's where our wealth went, and why we're all so broke.

A loan for a productive purpose that will create new wealth can hopefully afford to slice some of this new wealth off to pay the interest. It's still usury. But any loan at interest that doesn't create wealth - such as a mortgage that simply buys an existing asset - is something vastly more wicked.

[Jul 22, 2019] T>here's a fundamental difference between debt in the past and debt today. In the past debt was owed to the state, today it's owed to some wealthy corporations. Good luck with debt jubilees in the absence of violent uprisings.

Notable quotes:
"... As Mael Colium says, the US picks off individual countries by isolating them. ..."
"... there's a fundamental difference between debt in the past and debt today. In the past debt was owed to the state, today it's owed to some wealthy corporations. Good luck with debt jubilees in the absence of violent uprisings. ..."
"... The difference is they internalize profit and externalize cost. And that's fundamentally different from all other epochs in the past. Even the birth of nation state was out of their rationalization of how to maximize profit extraction and cost externalization in the 1st place. Good luck with debt jubilees. ..."
"... How would this occur aside from a repudiation of the almighty buck one wonders, and would it be based on reserves in the vault, or actual use as money? ..."
"... The Eurozone and China could run trade deficits, thereby creating an opportunity for their currencies to become reasonably viable alternative reserves. But they don't because they don't want to cede control of their manufacturing and export-driven economic bases away. ..."
"... The sine qua non of our economic empire (which I learned here) is that a global currency requires global trade deficits, which must grow as quickly as the global economy to fulfill its role. ..."
"... So American deficits are structural. Our debt-ceiling controversies are theater. And our dollar is exceptional until the instant it isn't–then the Fed electron-tranfers trillions more to the speculators whose notional dollars just evaporated, keeping the currencies in the air with their new casino chips. Is this a loan? A gift? An electron cloud? It's the fog of war by other means . . . ..."
"... Resources and the critical health of the planet bother me a lot. Money and "gold" are, in the end, both fictitious obsessions. ..."
"... You'll find few authors willing to provide their seminal work for free online– 2nd Edition PDF . I think it fair for those unfamiliar with Hudson's work to read his analysis prior to being judgmental. ..."
Jul 22, 2019 | www.nakedcapitalism.com

"On a similar note, I've wondered why Russia has not defaulted on it's considerable USD and EUR debt (also too, why is Russia still doing debt in USD and thus strengthening U.S.?)"

It should be noted that Russia has almost zero foreign public debt and that the private foreign debt has been much reduced and now amounts to US dollars 450 billion.

As Russia has a surplus of more than US dollars 100 billion on the current account the total foreign debt amounts to 4 years current account surplus only.

Ad to this that Russias international currency reserves amounts to ca. US dollars 500 billion which meens that Russia is in a very strong fiscal position as it is capable of paying off its entire foreign debt any time it chooses.


Ian Perkins , July 21, 2019 at 9:16 am

Along the same lines, the summary starts with, "The first existential objective is to avoid the current threat of war by winding down U.S. military interference in foreign countries and removing U.S. military bases as relics of neocolonialism."

Either would be taken as proof of evil anti-US intentions, leading to sanctions, coups, assassinations, regime change, and eventually outright war. As Mael Colium says, the US picks off individual countries by isolating them.

Off The Street , July 21, 2019 at 9:19 am

Peripherally related MMT 2nd of 3 articles

jsn , July 21, 2019 at 11:50 am

When we have MMT paying for arts, history, journalism and particularly editors, I won't be so irritated by these kinds of criticisms.

We live in a very advanced world of Bernaysian propaganda where the communicative industries are privately owned and directed to ensure deep criticisms of the hyper-exploitative current reality CANNOT be published and promoted.

When someone takes the effort to produce something, like this or the book other commenters on this thread are also slighting, at great personal expense to themselves without corporate backing or institutional support, a decent reply would be "Thank you!", rather than tasking them or our hosts here at this site to "go back and clean up this mess??"

If you had any decency, you might suggest clarifying edits in comments, like changing "– so that it can taxing its own citizens." at the end of the 23rd paragraph to, "– so that it can avoid taxing its own citizens", to help the people you are criticizing for making things so difficult for you.

Jonathan Holland Becnel , July 21, 2019 at 1:43 pm

Michael Hudson is a modern day Saint! Who cares about a few typos when his ideas are truly REVOLUTIONARY!

For example, i had no idea about Debt Jubilees in early civilizations 3000 years ago! The pyramids built by FREE MEN! Liberty and Freedom originating from canceling debts! Torches and Beacons of light as representatives of said Debt Jubilees!

If you ask me, the #HudsonHawk is trying to awaken the Workers of the World in Forgiveness, Peace, Love, and Solidarity.

HUDSON 2024

softie , July 21, 2019 at 3:27 pm

I didn't know that until I read anthropologist David Graeber's Debt: The First 5,000 Years.

But there's a fundamental difference between debt in the past and debt today. In the past debt was owed to the state, today it's owed to some wealthy corporations. Good luck with debt jubilees in the absence of violent uprisings.

Kurtismayfield , July 21, 2019 at 5:20 pm

And those corporations get favorable rates on money printed by the government.. and the government backs trillions in mortgage and student loans.

Not much different.

softie , July 21, 2019 at 10:22 pm

The difference is they internalize profit and externalize cost. And that's fundamentally different from all other epochs in the past. Even the birth of nation state was out of their rationalization of how to maximize profit extraction and cost externalization in the 1st place. Good luck with debt jubilees.

Wukchumni , July 21, 2019 at 10:15 am

That is why Russia, China and other powers that U.S. strategists deem to be strategic rivals and enemies are looking to restore gold's role as the preferred asset to settle payments imbalances.

How would this occur aside from a repudiation of the almighty buck one wonders, and would it be based on reserves in the vault, or actual use as money?

Keep in mind that there isn't a human alive now who ever proffered a monetized gold coin in order to purchase something, and increasingly relatively few that have ever used a monetized silver coin for the same purpose.

Clive , July 21, 2019 at 10:44 am

I don't have a huge amount of sympathy. The Eurozone and China could run trade deficits, thereby creating an opportunity for their currencies to become reasonably viable alternative reserves. But they don't because they don't want to cede control of their manufacturing and export-driven economic bases away.

The US doesn't mind and doesn't care about the domestic repercussions. For how much longer that can continue, especially as Trump's America First policy is putting that under some strain, is an open question. But for now, it's willing to be satisfied with a little rowing back rather than wholesale reversal (back to, for example, an immediate-post war position of significant trade surpluses although the article is correct to point out this was due to the US being the last man standing, in terms of having a manufacturing base still intact).

The Eurozone and China are not only not showing any signs of a policy change, they've continued embedding and strengthening the current modus operandi. You pays your money, you takes your choices. Here as elsewhere. If they'd rather not have the US$ having a more-or-less monopoly position in then global financial system as a reserve currency, they'll need to make the compromises needed to set up these challenger currencies as viable alternatives.

But they can't have their economic cakes and eat them, too.

And it's not just currencies. You need legal systems which are deemed to be (which can only come through real, observational experience) investor-friendly -- not just prone to supporting or at the very least given an easy ride to domestic stalwarts. Again, this has repercussions if you then have to stop cosseting domestic "champions". The US legal system is ridiculously business friendly. But it doesn't, overtly, differentiate between US and non-US companies in a commercial dispute.

barefoot charley , July 21, 2019 at 11:31 am

The sine qua non of our economic empire (which I learned here) is that a global currency requires global trade deficits, which must grow as quickly as the global economy to fulfill its role. Tell that to Germany! If your silly little euro or yen or renminbi tries to go global, the dollar-based currency speculators will shrivel it like Soros did the pound in the 90s.

So American deficits are structural. Our debt-ceiling controversies are theater. And our dollar is exceptional until the instant it isn't–then the Fed electron-tranfers trillions more to the speculators whose notional dollars just evaporated, keeping the currencies in the air with their new casino chips. Is this a loan? A gift? An electron cloud? It's the fog of war by other means . . .

It may have been Hudson who explained that a quarter (or was it half?) of all corporate profits after WWII went to American companies, when our economy was that much of the world's. Now we're a much smaller fraction of the global economy, but our corporate sector still profits as much as it did when it was producing, rather than marketing, real goods. Another exceptional achievement.

Summer , July 21, 2019 at 1:20 pm

Really all we know is that such a plan would create a different order. That so many countries have continued to pauper their populations long after the obviousness that "development" is a sham doesn't bode well for their intentions even after the USA is brought to heel.

hunkerdown , July 22, 2019 at 5:20 am

Agreed. The likes of the Regional Comprehensive Economic Partnership are still under negotiation and still, like every other multilateral investment agreement of recent vintage, apparently primarily concerned with creating supranational rights for landlords, especially of the absentee variety, at the expense of citizens in their collective capacity.

Susan the other` , July 21, 2019 at 2:30 pm

This is a good summary of our irrational world. MMT and the GND can save the situation but only if we industrialized humans forego any more fossil fuels except for long-term survival purposes. Ration it with draconian discipline. That in turn will discipline our military and turn our energies to things we can no longer ignore. Money doesn't bother me much. Resources and the critical health of the planet bother me a lot. Money and "gold" are, in the end, both fictitious obsessions.

karlof1 , July 21, 2019 at 4:56 pm

Thanks for providing this transcript prior to Hudson posting it to his own website. He was the first political-economist to lay out the Outlaw US Empire's game plan when he published Super Imperialism: The Economic Strategy of American Empire in 1972.

You'll find few authors willing to provide their seminal work for free online– 2nd Edition PDF . I think it fair for those unfamiliar with Hudson's work to read his analysis prior to being judgmental.

[Jul 22, 2019] I think Calvin and his role in today's debt based monetary system is much underestimated

Jul 22, 2019 | www.moonofalabama.org

Alexander P , Jul 22 2019 13:09 utc | 138

@84 Karlof1

I think Calvin and his role in today's debt based monetary system is much underestimated. The meteoric rise of the seven provinces and what was to become the Dutch colonial empire was in no small part funded and financed by this debt based system in the latter half of the 16th century. The same applied shortly afterwards to the UK. The book passage I quoted from is from Devaluing the Scholastics: Calvin's Ethics of Usury .

[Jul 22, 2019] The world is in WWIII which is between private and public finance. To characterize the private finance side as being just the US is obfuscation

Jul 22, 2019 | www.moonofalabama.org

psychohistorian , Jul 21 2019 15:20 utc | 2

I read the Michael Hudson piece and shake my head at the manifest obfuscation at play

The world is in WWIII which is between private and public finance. To characterize the private finance side as being just the US is obfuscation

Global private finance exists outside the bounds of any one nation state and the US is just the current face of the centuries of empires under this model.

Why is the West unable to have a discussion about the core component to the world war we are engaged in?

Sad comment on the successful brainwashing at work here.....that is why I call the web site Michael Hudson's writing is provided at ALMOST Naked Capitalism

Wake the rest of the way up fellow humans of the West.

John Merryman , Jul 21 2019 15:39 utc | 4

psychohistorian,

The essential problem is that money functions as a contract, with one side an asset and the other a debt, but as we experience it as quantified hope and security, we try to save and store it. Thus Econ 101 tells us it is both medium of exchange and store of value. Even though one is dynamic and the other is static, like blood and fat, or roads and parking lots.

Necessarily then, in order to store the asset side, generally equal amounts of debt have to be manufactured and this creates a centripetal effect, as positive feedback pulls the asset side to the center of the economy, while negative feedback accumulates the debt on the fringes.
The ancients used debt jubilees to push the reset button, but since we have been conditioned to think of money as private property, not a public medium, now the only way to reset is for societal collapse.

Value, as a savings for the future, needs to be stored in tangibles, like strong social and environmental networks, not as abstractions in the financial circulation system. The functionality of money is in its fungibility. We own it like we own the section of road we are using, or the fluids passing through our bodies.
We are also conditioned to think of ourselves as individuals, not as parts of a larger community, so this social atomization enables finance to mediate most transactions and tax them. A figurative version of The Matrix.

John Merryman , Jul 21 2019 15:49 utc | 7
psycho,

I was pretty much banned from NC for questioning MMT. Yves called me a troll. The exchange is jan 6, in the links post.

Consequently I'll only try posting very occasionally and one or two have gone through moderation.

My view in MMT is that either these people are extremely naive, or operatives for the oligarchy, as there is no free lunch and the public issuing ever more promises only drives it further into debt. Which is then accumulated by the oligarchy and eventually traded for remaining public assets. It's basic predatory lending/disaster capitalism and has been going on since the dawn of civilization.
Not that people are not often incredibly stupid, but I suspect some recognize the dynamic. When you start having to pay tolls on most roads, you will know we are way down that rabbit hole.

Bemildred , Jul 21 2019 16:06 utc | 8
John Merryman @7: Sure there are free lunches, Uncle Sugar has been getting lots of free lunches ever since WWII. The thing about free lunches is those situations cannot be permanent in a growth economy. To have permanent free lunches you have to have an ecologically stable economy and a stable population consuming it. In other words, you can't get too greedy.
Russ , Jul 21 2019 16:17 utc | 11
What's ridiculous is to fall for the "public vs. private" scam, one of the most potent divide-and-conquer scams of the corporate state, where in reality there's zero distinction between public and private power.

Power is power, and the finance sector is purely wasteful, purely destructive, serves zero legitimate purpose, and needs to be abolished as a necessary part of any kind of human liberation.

Of course the Mammon religion has brainwashed almost everyone into believing, among other lies, that the dominion of money is necessary for human existence. Never mind that the vast majority of societies didn't use money for more than a few special transactions, and many didn't use it at all. Almost all of those societies were humanly more wholesome than this one, and all of them were less ecologically destructive by many orders of magnitude.

bevin , Jul 21 2019 16:22 utc | 12
"The ancients used debt jubilees to push the reset button, but since we have been conditioned to think of money as private property, not a public medium, now the only way to reset is for societal collapse."
John Merryman @4

There are compromises in this business: debt repudiation being an obvious one.
It is easy enough to make a case for declaring large parts of the public debt, odious. This is particularly true of the enormous debts run up by Public-Private Partnerships of the sort that the former UK Premier Brown promoted so enthusiastically. But it is generally true of debts contracted for purposes which contradict the public interest.
Debt used to make deposits in private bank accounts in the Caymans for example can justifiably be repudiated by the public, particularly when the creditor was well aware that its loans were going to be employed for corrupt purposes.
Most of the US Debt, contracted to finance the MIC, is not only odious on general grounds (Defending what against whom?) but on a contract to contract basis, most contracts being padded to ensure the ability to provide kickbacks: when Congressmen receive funds from government contractors and 'public servants', including military types, get jobs/sinecures from the same, then any money borrowed to finance such contracts is, clearly, odious.

It would be revolutionary no doubt but perfectly practicable to push a 'reset' button on the Public Debt by proclaiming that, in future, all borrowing for purposes not approved or understood the putative taxpayer would be found to be odious.

Another possible course would be to stop paying interest on public debt and issue bonds to repay the capital amounts lent.

The fact that such options are understood would make the regular claims, by neo-liberals pushing austerity, that there is no money for such things as social security or living wages, an obvious trigger for debt reduction measures designed to impact the rich rather than their victims.

fastfreddy , Jul 21 2019 16:31 utc | 13
Predators and Prey. But the prey believe themselves to be predators also, or at least to have the potential to become predators should they win the lotto.

"Send Her Back!, Send Her Back!"

[Jul 21, 2019] Michael Hudson US Economic Warfare and Likely Foreign Defenses>

Jul 21, 2019 | www.nakedcapitalism.com

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is "and forgive them their debts": Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year Keynote paper delivered at the 14th Forum of the World Association for Political Economy, July 21, 2019

Today's world is at war on many fronts. The rules of international law and order put in place toward the end of World War II are being broken by U.S. foreign policy escalating its confrontation with countries that refrain from giving its companies control of their economic surpluses. Countries that do not give the United States control their oil and financial sectors or privatize their key sectors are being isolated by the United States imposing trade sanctions and unilateral tariffs giving special advantages to U.S. producers in violation of free trade agreements with European, Asian and other countries.

This global fracture has an increasingly military cast. U.S. officials justify tariffs and import quotas illegal under WTO rules on "national security" grounds, claiming that the United States can do whatever it wants as the world's "exceptional" nation. U.S. officials explain that this means that their nation is not obliged to adhere to international agreements or even to its own treaties and promises. This allegedly sovereign right to ignore on its international agreements was made explicit after Bill Clinton and his Secretary of State Madeline Albright broke the promise by President George Bush and Secretary of State James Baker that NATO would not expand eastward after 1991. ("You didn't get it in writing," was the U.S. response to the verbal agreements that were made.)

Likewise, the Trump administration repudiated the multilateral Iranian nuclear agreement signed by the Obama administration, and is escalating warfare with its proxy armies in the Near East. U.S. politicians are waging a New Cold War against Russia, China, Iran, and oil-exporting countries that the United States is seeking to isolate if cannot control their governments, central bank and foreign diplomacy.

The international framework that originally seemed equitable was pro-U.S. from the outset. In 1945 this was seen as a natural result of the fact that the U.S. economy was the least war-damaged and held by far most of the world's monetary gold. Still, the postwar trade and financial framework was ostensibly set up on fair and equitable international principles. Other countries were expected to recover and grow, creating diplomatic, financial and trade parity with each other.

But the past decade has seen U.S. diplomacy become one-sided in turning the International Monetary Fund (IMF), World Bank, SWIFT bank-clearing system and world trade into an asymmetrically exploitative system. This unilateral U.S.-centered array of institutions is coming to be widely seen not only as unfair, but as blocking the progress of other countries whose growth and prosperity is seen by U.S. foreign policy as a threat to unilateral U.S. hegemony. What began as an ostensibly international order to promote peaceful prosperity has turned increasingly into an extension of U.S. nationalism, predatory rent-extraction and a more dangerous military confrontation.

Deterioration of international diplomacy into a more nakedly explicit pro-U.S. financial, trade and military aggression was implicit in the way in which economic diplomacy was shaped when the United Nations, IMF and World Bank were shaped mainly by U.S. economic strategists. Their economic belligerence is driving countries to withdraw from the global financial and trade order that has been turned into a New Cold War vehicle to impose unilateral U.S. hegemony. Nationalistic reactions are consolidating into new economic and political alliances from Europe to Asia.

We are still mired in the Oil War that escalated in 2003 with the invasion of Iraq, which quickly spread to Libya and Syria. American foreign policy has long been based largely on control of oil. This has led the United States to oppose the Paris accords to stem global warming. Its aim is to give U.S. officials the power to impose energy sanctions forcing other countries to "freeze in the dark" if they do not follow U.S. leadership.

To expand its oil monopoly, America is pressuring Europe to oppose the Nordstream II gas pipeline from Russia, claiming that this would make Germany and other countries dependent on Russia instead of on U.S. liquified natural gas (LNG). Likewise, American oil diplomacy has imposed unilateral sanctions against Iranian oil exports, until such time as a regime change opens up that country's oil reserves to U.S., French, British and other allied oil majors.

U.S. control of dollarized money and credit is critical to this hegemony. As Congressman Brad Sherman of Los Angeles told a House Financial Services Committee hearing on May 9, 2019: "An awful lot of our international power comes from the fact that the U.S. dollar is the standard unit of international finance and transactions. Clearing through the New York Fed is critical for major oil and other transactions. It is the announced purpose of the supporters of cryptocurrency to take that power away from us, to put us in a position where the most significant sanctions we have against Iran, for example, would become irrelevant."[1]

The U.S. aim is to keep the dollar as the transactions currency for world trade, savings, central bank reserves and international lending. This monopoly status enables the U.S. Treasury and State Department to disrupt the financial payments system and trade for countries with which the United States is at economic or outright military war.

Russian President Vladimir Putin quickly responded by describing how "the degeneration of the universalist globalization model [is] turning into a parody, a caricature of itself, where common international rules are replaced with the laws of one country."[2]That is the trajectory on which this deterioration of formerly open international trade and finance is now moving. It has been building up for a decade. On June 5, 2009, then-Russian President Dmitry Medvedev cited this same disruptive U.S. dynamic at work in the wake of the U.S. junk mortgage and bank fraud crisis.

Those whose job it was to forecast events were not ready for the depth of the crisis and turned out to be too rigid, unwieldy and slow in their response. The international financial organisations – and I think we need to state this up front and not try to hide it – were not up to their responsibilities, as has been said quite unambiguously at a number of major international events such as the two recent G20 summits of the world's largest economies.

Furthermore, we have had confirmation that our pre-crisis analysis of global economic trends and the global economic system were correct. The artificially maintained uni-polar system and preservation of monopolies in key global economic sectors are root causes of the crisis. One big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks – these are all factors that led to an overall drop in the quality of regulation and the economic justification of assessments made, including assessments of macroeconomic policy. As a result, there was no avoiding a global crisis.[3]

That crisis is what is now causing today's break in global trade and payments.

Warfare on Many Fronts, with Dollarization Being the Main Arena

Dissolution of the Soviet Union 1991 did not bring the disarmament that was widely expected. U.S. leadership celebrated the Soviet demise as signaling the end of foreign opposition to U.S.-sponsored neoliberalism and even as the End of History. NATO expanded to encircle Russia and sponsored "color revolutions" from Georgia to Ukraine, while carving up former Yugoslavia into small statelets. American diplomacy created a foreign legion of Wahabi fundamentalists from Afghanistan to Iran, Iraq, Syria and Libya in support of Saudi Arabian extremism and Israeli expansionism.

The United States is waging war for control of oil against Venezuela, where a military coup failed a few years ago, as did the 2018-19 stunt to recognize an unelected pro-American puppet regime. The Honduran coup under President Obama was more successful in overthrowing an elected president advocating land reform, continuing the tradition dating back to 1954 when the CIA overthrew Guatemala's Arbenz regime.

U.S. officials bear a special hatred for countries that they have injured, ranging from Guatemala in 1954 to Iran, whose regime it overthrew to install the Shah as military dictator. Claiming to promote "democracy," U.S. diplomacy has redefined the word to mean pro-American, and opposing land reform, national ownership of raw materials and public subsidy of foreign agriculture or industry as an "undemocratic" attack on "free markets," meaning markets controlled by U.S. financial interests and absentee owners of land, natural resources and banks.

A major byproduct of warfare has always been refugees, and today's wave fleeing ISIS, Al Qaeda and other U.S.-backed Near Eastern proxies is flooding Europe. A similar wave is fleeing the dictatorial regimes backed by the United States from Honduras, Ecuador, Colombia and neighboring countries. The refugee crisis has become a major factor leading to the resurgence of nationalist parties throughout Europe and for the white nationalism of Donald Trump in the United States.

Dollarization as the Vehicle for U.S. Nationalism

The Dollar Standard – U.S. Treasury debt to foreigners held by the world's central banks – has replaced the gold-exchange standard for the world's central bank reserves to settle payments imbalances among themselves. This has enabled the United States to uniquely run balance-of-payments deficits for nearly seventy years, despite the fact that these Treasury IOUs have little visible likelihood of being repaid except under arrangements where U.S. rent-seeking and outright financial tribute from other enables it to liquidate its official foreign debt.

The United States is the only nation that can run sustained balance-of-payments deficits without having to sell off its assets or raise interest rates to borrow foreign money. No other national economy in the world can could afford foreign military expenditures on any major scale without losing its exchange value. Without the Treasury-bill standard, the United States would be in this same position along with other nations. That is why Russia, China and other powers that U.S. strategists deem to be strategic rivals and enemies are looking to restore gold's role as the preferred asset to settle payments imbalances.

The U.S. response is to impose regime change on countries that prefer gold or other foreign currencies to dollars for their exchange reserves. A case in point is the overthrow of Libya's Omar Kaddafi after he sought to base his nation's international reserves on gold. His liquidation stands as a military warning to other countries.

Thanks to the fact that payments-surplus economies invest their dollar inflows in U.S. Treasury bonds, the U.S. balance-of-payments deficit finances its domestic budget deficit. This foreign central-bank recycling of U.S. overseas military spending into purchases of U.S. Treasury securities gives the United States a free ride, financing its budget – also mainly military in character – so that it can taxing its own citizens.

Trump Is Forcing Other Countries To Create an Alternative to the Dollar Standard

The fact that Donald Trump's economic policies are proving ineffective in restoring American manufacturing is creating rising nationalist pressure to exploit foreigners by arbitrary tariffs without regard for international law, and to impose trade sanctions and diplomatic meddling to disrupt regimes that pursue policies that U.S. diplomats do not like.

There is a parallel here with Rome in the late 1 st century BC. It stripped its provinces to pay for its military deficit, the grain dole and land redistribution at the expense of Italian cities and Asia Minor. This created foreign opposition to drive Rome out. The U.S. economy is similar to Rome's: extractive rather than productive, based mainly on land rents and money-interest. As the domestic market is impoverished, U.S. politicians are seeking to take from abroad what no longer is being produced at home.

What is so ironic – and so self-defeating of America's free global ride – is that Trump's simplistic aim of lowering the dollar's exchange rate to make U.S. exports more price-competitive. He imagines commodity trade to be the entire balance of payments, as if there were no military spending, not to mention lending and investment. To lower the dollar's exchange rate, he is demanding that China's central bank and those of other countries stop supporting the dollar by recycling the dollars they receive for their exports into holdings of U.S. Treasury securities.

This tunnel vision leaves out of account the fact that the trade balance is not simply a matter of comparative international price levels. The United States has dissipated its supply of spare manufacturing capacity and local suppliers of parts and materials, while much of its industrial engineering and skilled manufacturing labor has retired. An immense shortfall must be filled by new capital investment, education and public infrastructure, whose charges are far above those of other economics.

Trump's infrastructure ideology is a Public-Private Partnership characterized by high-cost financialization demanding high monopoly rents to cover its interest charges, stock dividends and management fees. This neoliberal policy raises the cost of living for the U.S. labor force, making it uncompetitive. The United States is unable to produce more at any price right now, because its has spent the past half-century dismantling its infrastructure, closing down its part suppliers and outsourcing its industrial technology.

The United States has privatized and financialized infrastructure and basic needs such as public health and medical care, education and transportation that other countries have kept in their public domain to make their economies more cost-efficient by providing essential services at subsidized prices or freely. The United States also has led the practice of debt pyramiding, from housing to corporate finance. This financial engineering and wealth creation by inflating debt-financed real estate and stock market bubbles has made the United States a high-cost economy that cannot compete successfully with well-managed mixed economies.

Unable to recover dominance in manufacturing, the United States is concentrating on rent-extracting sectors that it hopes monopolize, headed by information technology and military production. On the industrial front, it threatens disrupt China and other mixed economies by imposing trade and financial sanctions.

The great gamble is whether these other countries will defend themselves by joining in alliances enabling them to bypass the U.S. economy. American strategists imagine their country to be the world's essential economy, without whose market other countries must suffer depression. The Trump Administration thinks that There Is No Alternative (TINA) for other countries except for their own financial systems to rely on U.S. dollar credit.

To protect themselves from U.S. sanctions, countries would have to avoid using the dollar, and hence U.S. banks. This would require creation of a non-dollarized financial system for use among themselves, including their own alternative to the SWIFT bank clearing system. Table 1 lists some possible related defenses against U.S. nationalistic diplomacy.

As noted above, what also is ironic in President Trump's accusation of China and other countries of artificially manipulating their exchange rate against the dollar (by recycling their trade and payments surpluses into Treasury securities to hold down their currency's dollar valuation) involves dismantling the Treasury-bill standard. The main way that foreign economies have stabilized their exchange rate since 1971 has indeed been to recycle their dollar inflows into U.S. Treasury securities. Letting their currency's value rise would threaten their export competitiveness against their rivals, although not necessarily benefit the United States.

Ending this practice leaves countries with the main way to protect their currencies from rising against the dollar is to reduce dollar inflows by blocking U.S. lending to domestic borrowers. They may levy floating tariffs proportioned to the dollar's declining value. The U.S. has a long history since the 1920s of raising its tariffs against currencies that are depreciating: the American Selling Price (ASP) system. Other countries can impose their own floating tariffs against U.S. goods.

Trade dependency as an Aim of the World Bank, IMF and US AID

The world today faces a problem much like what it faced on the eve of World War II. Like Germany then, the United States now poses the main threat of war, and equally destructive neoliberal economic regimes imposing austerity, economic shrinkage and depopulation. U.S. diplomats are threatening to destroy regimes and entire economies that seek to remain independent of this system, by trade and financial sanctions backed by direct military force.

Dedollarization will require creation of multilateral alternatives to U.S. "front" institutions such as the World Bank, IMF and other agencies in which the United States holds veto power to block any alternative policies deemed not to let it "win." U.S. trade policy through the World Bank and U.S. foreign aid agencies aims at promoting dependency on U.S. food exports and other key commodities, while hiring U.S. engineering firms to build up export infrastructure to subsidize U.S. and other natural-resource investors.[4]The financing is mainly in dollars, providing risk-free bonds to U.S. and other financial institutions. The resulting commercial and financial "interdependency" has led to a situation in which a sudden interruption of supply would disrupt foreign economies by causing a breakdown in their chain of payments and production. The effect is to lock client countries into dependency on the U.S. economy and its diplomacy, euphemized as "promoting growth and development."

U.S. neoliberal policy via the IMF imposes austerity and opposes debt writedowns. Its economic model pretends that debtor countries can pay any volume of dollar debt simply by reducing wages to squeeze more income out of the labor force to pay foreign creditors. This ignores the fact that solving the domestic "budget problem" by taxing local revenue still faces the "transfer problem" of converting it into dollars or other hard currencies in which most international debt is denominated. The result is that the IMF's "stabilization" programs actually destabilize and impoverish countries forced into following its advice.

IMF loans support pro-U.S. regimes such as Ukraine, and subsidize capital flight by supporting local currencies long enough to enable U.S. client oligarchies to flee their currencies at a pre-devaluation exchange rate for the dollar. When the local currency finally is allowed to collapse, debtor countries are advised to impose anti-labor austerity. This globalizes the class war of capital against labor while keeping debtor countries on a short U.S. financial leash.

U.S. diplomacy is capped by trade sanctions to disrupt economies that break away from U.S. aims. Sanctions are a form of economic sabotage, as lethal as outright military warfare in establishing U.S. control over foreign economies. The threat is to impoverish civilian populations, in the belief that this will lead them to replace their governments with pro-American regimes promising to restore prosperity by selling off their domestic infrastructure to U.S. and other multinational investors.

US Warfare on Many Fronts Dedollarization defense

Military warfare (the Near East, Asia)

NATO and bilateral treaty (Saudi, ISIS, Al Qaida). color revolutions and proxy wars.

Shanghai Cooperation Organization, and pressure for Europe to withdraw from NATO unless the U.S. alleviates its New Cold War threats.
Dollarization is monetary warfare. The US Treasury-bill standard finances the mainly military U.S. balance-of-payments deficit. SWIFT threatens to isolate Iran and Russia Dedollarization will refrain from foreign central banks financing U.S. overseas military spending by keeping their savings in dollars.

Creation of alternative payments clearing system.

The IMF finances US client regimes and seeks to isolate those not following US policy. An alternative global financial organization, such as Europe's INSTEX to circumvent US anti-Iran sanctions, and Russo-China alternative to SWIFT.
Creditor policy forcing austerity on debtor economies, forcing them to privatize and sell off their public domain to pay debts. An international court empowered to write down debts to the ability to pay, based on the original principles that were to guide the BIS in 1931.
The World Bank finances trade dependency on US food exports and opposes national food self-sufficiency. An alternative development organization based on food self-sufficiency. Annulment of World Bank and IMF debt as "odious debt."
Unilateral US trade war based on levy of US protectionist tariffs, quotas and sanctions, Countervailing sanctions, and creation of an alternative to the WTO or a strengthened organization free of US control.
Cyber War, spycraft via US internet platforms, and Stuxnet sabotage. Work with Huawei and other alternatives to US internet options.
Class War: austerity program for labor MMT, taxation of rentier income and capital gains.
Neoliberal monetarist doctrine of privatization and creditor-oriented rules Promotion of a mixed economy with public infrastructure as a factor of production.
US patent policy seeks monopoly rents. Non-recognition of predatory monopoly patents.
Investment control Deprivatization and buyoutsof US assets abroad.
International law and diplomacy The U.S. as the world's "exceptional nation," not subject to international laws or even to its own treaty agreements.

Veto power in any organization it joins. The basic principle that the U.S. is not subject to any foreign say over its laws and policies.

Global Problems caused by US Policy Response to U.S. Disruptive Policy

U.S. refuses to join international agreements to reduce carbon emissions, Global Warming and Extreme Weather.

U.S. diplomacy is based on control of oil to make other countries dependent on U.S. energy dominance.

Trade and tax sanctions against U.S. exporters and banks. Taxes on U.S. tax avoidance by the oil industry's "flags of convenience" (convenient for tax avoidance).

Taxation or isolation of U.S. exports based on high-carbon production.

Attempt to monopolize new G5 Internet technology, Sanctioning of Huawei, insistence on US priority in high-tech. Rejection of patents on basic IT, medicine and other basic human needs.
Patent laws in pharmaceuticals, etc. Taxation of monopoly rents.

There Are Alternatives, on Many Fronts

Militarily, today's leading alternative to NATO expansionism is the Shanghai Cooperation Organization (SCO), along with Europe following France's example under Charles de Gaulle and withdrawing. After all, there is no real threat of military invasion today in Europe. No nation can occupy another without an enormous military draft and such heavy personnel losses that domestic protests would unseat the government waging such a war. The U.S. anti-war movement in the 1960s signaled the end of the military draft, not only in the United States but in nearly all democratic countries (Israel, Switzerland, Brazil and South Korea are exceptions).

The enormous spending on armaments for a kind of war unlikely to be fought is not really military, but simply to provide profits to the military industrial complex. The arms are not really to be used. They are simply to be bought, and ultimately scrapped. The danger, of course, is that these not-for-use arms actually might be used, if only to create a need for new profitable production.

Likewise, foreign holdings of dollars are not really to be spent on purchases of U.S. exports or investments. They are like fine-wine collectibles, for saving rather than for drinking. The alternative to such dollarized holdings is to create a mutual use of national currencies, and a domestic bank-clearing payments system as an alternative to SWIFT.Russia, China, Iran and Venezuela already are said to be developing a crypto-currency payments to circumvent U.S. sanctions and hence financial control.

In the World Trade Organization, the United States has tried to claim that any industry receiving public infrastructure or credit subsidy deserves tariff retaliation in order to force privatization. In response to WTO rulings that U.S. tariffs are illegally imposed, the United States "has blocked all new appointments to the seven-member appellate body in protest, leaving it in danger of collapse because it may not have enough judges to allow it to hear new cases."[5]In the U.S. view, only privatized trade financed by private rather than public banks is "fair" trade.

An alternative to the WTO (or removal of its veto privilege given to the U.S. bloc) is needed to cope with U.S. neoliberal ideology and, most recently, the U.S. travesty claiming "national security" exemption to free-trade treaties, impose tariffs on steel, aluminum, and on European countries that circumvent sanctions on Iran or threaten to buy oil from Russia via the Nordstream II pipeline instead of high-cost liquified "freedom gas" from the United States.

In the realm of development lending, China's bank along with its Belt and Road initiative is an incipient alternative to the World Bank, whose main role has been to promote foreign dependency on U.S. suppliers. The IMF for its part now functions as an extension of the U.S. Department of Defense to subsidize client regimes such as Ukraine while financially isolating countries not subservient to U.S. diplomacy.

To save debt-strapped economies suffering Greek-style austerity, the world needs to replace neoliberal economic theory with an analytic logic for debt writedowns based on the ability to pay. The guiding principle of the needed development-oriented logic of international law should be that no nation should be obliged to pay foreign creditors by having to sell of the public domain and rent-extraction rights to foreign creditors. The defining character of nationhood should be the fiscal right to tax natural resource rents and financial returns, and to create its own monetary system.

The United States refuses to join the International Criminal Court. To be effective, it needs enforcement power for its judgments and penalties, capped by the ability to bring charges of war crimes in the tradition of the Nuremberg tribunal. U.S. to such a court, combined with its military buildup now threatening World War III, suggests a new alignment of countries akin to the Non-Aligned Nations movement of the 1950s and 1960s. Non-aligned in this case means freedom from U.S. diplomatic control or threats.

Such institutions require a more realistic economic theory and philosophy of operations to replace the neoliberal logic for anti-government privatization, anti-labor austerity, and opposition to domestic budget deficits and debt writedowns. Today's neoliberal doctrine counts financial late fees and rising housing prices as adding to "real output" (GDP), but deems public investment as deadweight spending, not a contribution to output. The aim of such logic is to convince governments to pay their foreign creditors by selling off their public infrastructure and other assets in the public domain.

Just as the "capacity to pay" principle was the foundation stone of the Bank for International Settlements in 1931, a similar basis is needed to measure today's ability to pay debts and hence to write down bad loans that have been made without a corresponding ability of debtors to pay. Without such an institution and body of analysis, the IMF's neoliberal principle of imposing economic depression and falling living standards to pay U.S. and other foreign creditors will impose global poverty.

The above proposals provide an alternative to the U.S. "exceptionalist" refusal to join any international organization that has a say over its affairs. Other countries must be willing to turn the tables and isolate U.S. banks, U.S. exporters, and to avoid using U.S. dollars and routing payments via U.S. banks. To protect their ability to create a countervailing power requires an international court and its sponsoring organization.

Summary

The first existential objective is to avoid the current threat of war by winding down U.S. military interference in foreign countries and removing U.S. military bases as relics of neocolonialism. Their danger to world peace and prosperity threatens a reversion to the pre-World War II colonialism, ruling by client elites along lines similar to the 2014 Ukrainian coup by neo-Nazi groups sponsored by the U.S. State Department and National Endowment for Democracy. Such control recalls the dictators that U.S. diplomacy established throughout Latin America in the 1950s. Today's ethnic terrorism by U.S.-sponsored Wahabi-Saudi Islam recalls the behavior of Nazi Germany in the 1940s.

Global warming is the second major existentialist threat. Blocking attempts to reverse it is a bedrock of American foreign policy, because it is based on control of oil. So the military, refugee and global warming threats are interconnected.

The U.S. military poses the greatest immediate danger. Today's warfare is fundamentally changed from what it used to be. Prior to the 1970s, nations conquering others had to invade and occupy them with armies recruited by a military draft. But no democracy in today's world can revive such a draft without triggering widespread refusal to fight, voting the government out of power. The only way the United States – or other countries – can fight other nations is to bomb them. And as noted above, economic sanctions have as destructive an effect on civilian populations in countries deemed to be U.S. adversaries as overt warfare. The United States can sponsor political coups (as in Honduras and Pinochet's Chile), but cannot occupy. It is unwilling to rebuild, to say nothing of taking responsibility for the waves of refugees that our bombing and sanctions are causing from Latin America to the Near East.

U.S. ideologues view their nation's coercive military expansion and political subversion and neoliberal economic policy of privatization and financialization as an irreversible victory signaling the End of History. To the rest of the world it is a threat to human survival.

The American promise is that the victory of neoliberalism is the End of History, offering prosperity to the entire world. But beneath the rhetoric of free choice and free markets is the reality of corruption, subversion, coercion, debt peonage and neofeudalism. The reality is the creation and subsidy of polarized economies bifurcated between a privileged rentier class and its clients, eir debtors and renters. America is to be permitted to monopolize trade in oil and food grains, and high-technology rent-yielding monopolies, living off its dependent customers. Unlike medieval serfdom, people subject to this End of History scenario can choose to live wherever they want. But wherever they live, they must take on a lifetime of debt to obtain access to a home of their own, and rely on U.S.-sponsored control of their basic needs, money and credit by adhering to U.S. financial planning of their economies. This dystopian scenario confirms Rosa Luxemburg's recognition that the ultimate choice facing nations in today's world is between socialism and barbarism.

___________________

[1]Billy Bambrough, "Bitcoin Threatens To 'Take Power' From The U.S. Federal Reserve," Forbes , May 15, 2019. https://www.forbes.com/sites/billybambrough/2019/05/15/a-u-s-congressman-is-so-scared-of-bitcoin-and-crypto-he-wants-it-banned/#36b2700b6405.

[2]Vladimir Putin, keynote address to the Economic Forum, June 5-6 2019. Putin went on to warn of "a policy of completely unlimited economic egoism and a forced breakdown." This fragmenting of the global economic space "is the road to endless conflict, trade wars and maybe not just trade wars. Figuratively, this is the road to the ultimate fight of all against all."

[3]Address to St Petersburg International Economic Forum's Plenary Session, St Petersburg, Kremlin.ru, June 5, 2009, from Johnson's Russia List, June 8, 2009, #8,

[4] https://www.rt.com/business/464013-china-russia-cryptocurrency-dollar-dethrone/ . Already in the late 1950s the Forgash Plan proposed a World Bank for Economic Acceleration. Designed by Terence McCarthy and sponsored by Florida Senator Morris Forgash, the bank would have been a more truly development-oriented institution to guide foreign development to create balanced economies self-sufficient in food and other essentials. The proposal was opposed by U.S. interests on the ground that countries pursuing land reform tended to be anti-American. More to the point, they would have avoided trade and financial dependency on U.S. suppliers and banks, and hence on U.S. trade and financial sanctions to prevent them from following policies at odds with U.S. diplomatic demands.

[5]Don Weinland, "WTO rules against US in tariff dispute with China," Financial Times , July 17, 2019.


Mael Colium , July 21, 2019 at 8:53 am

Views from an economist who has been promoting neoclassical ideology for decades and then wonders when there are no alternatives to escape the narrative? Completely ignores how a monetary sovereign capacity can move away from US hegemony. The countries under the heel of the US are there because the IMF has engineered their economies in favour of the US. They could all threaten default at the same time and scare off the IMF horses – the US picks off individual countries by isolating them. Play the united game and the power of division practiced by the US would crumble. Just saying.

timbers , July 21, 2019 at 9:13 am

"They could all threaten default at the same time and scare off the IMF horses – the US picks off individual countries by isolating them. Play the united game and the power of division practiced by the US would crumble."

This is interesting. On a similar note, I've wondered why Russia has not defaulted on it's considerable USD and EUR debt (also too, why is Russia still doing debt in USD and thus strengthening U.S.?).

But only after she sells off all her U.S. holdings which will be (and have been already) seized by Out Law America.

I believe Russia would be on some sort of legal ground in doing so in response to the illegal sanctions imposed upon by by the EU and U.S.

And it will be interesting to see if Germany backs down on Nordstream II. Will she be a total puppet of the U.S.?

Of course, it's depressing Russia has not reformed it's internal economy so that she can grow faster. Maybe because while Putin and others don't want to take orders from Washington they are trapped in neoliberal economic thinking and can't think outside the box?

Until Washington changes, I firmly believe Russia and other nations must act as if their future hold one totally without U.S. interdependence and must create completely independent economies the U.S. can not touch. China? Hard to include China in that right now with so much trade with the U.S. but on the other hand their are reports U.S. related firms are starting to move out of China.

Synoia , July 21, 2019 at 11:57 am

Among the reports of companies leaving China, I've not seen any who declare they will return manufacturing to the US.

One of the major objectives of Tariffs, historically, is to favor local manufacture over imports. Other than defense, is that happening?

Boeing appears to be the poster child of how well a company with a large defense arm performs in the commercial sector.

Oh , July 21, 2019 at 12:44 pm

The corporations that moved manufacturing to Mexico and then subsequently to China will continue to seek cheaper labor so that their management can feather their own nests. They're not going to bring back manufacturing to the US. Look at these greedy corporations that sell Hanes underwear for example. They get rid of labels on their product to save less than a cent per item and spend money and spend millions in extolling the virtues of not having labesl on their tee shirts (Michael Jordon is the spokesman in the ad). Greed has no limits.

lazycat1984 , July 21, 2019 at 12:23 pm

"Maybe because while Putin and others don't want to take orders from Washington they are trapped in neoliberal economic thinking and can't think outside the box?"

Probably a lot there. Maybe the idea is that the system can work but needs to be fiddled with to make it more fair to B stringers like Russia and China.

The only time anyone has had any success escaping Anglo-American finance was Germany, Japan and the USSR in the 1930-45 period. The Soviets managed to keep their thing going until much later, but internal corruption ( where isn't this a factor?) did them in.

Oh , July 21, 2019 at 1:03 pm

Post WWII Japan kept away from the stranglehold of US Financiers by only purchasing technology and protecting their markets which other countries have to emulate.

Plenue , July 21, 2019 at 2:30 pm

"I've wondered why Russia has not defaulted on it's considerable USD and EUR debt (also too, why is Russia still doing debt in USD and thus strengthening U.S.?)"

They have. Russia has dropped 84% of the Treasury Securities it held. https://money.cnn.com/2018/07/30/investing/russia-us-debt-treasury/index.html

Notice how this hasn't effected anything; other parties just happily bought it all up. The Russians were stupid to drop it because Treasury Securities are a guaranteed return on investment. Because, stick with me here on this, the US government can't run out of US dollars.

Roger Boyd , July 21, 2019 at 4:10 pm

They have removed those assets from the very great possibility of seizure by the US and others (like the Venezuelan gold seized by the UK). When push comes to shove the US and its minions have no ethics abut breaking whatever laws they deem to be in their way.

They bought quite a lot of gold, which seems to be doing pretty well these days.

timbers , July 21, 2019 at 5:35 pm

You misunderstood me. Russia borrows USD and EUR from Western banks. That makes US – Russia's enemy – stronger. Russia should borrow from Russia not the US. I'm asking why don't they default on that debt. Your response assumed I was referring to Russia holding US assets. That's different. BTW I don't agree with you that Russia made a mistake getting rid of US assets given the US has stolen Russian real estate holdings in the US and other nations property held in US banks like Venezuela's USD deposits and gold.

Ian Perkins , July 21, 2019 at 9:16 am

Along the same lines, the summary starts with, "The first existential objective is to avoid the current threat of war by winding down U.S. military interference in foreign countries and removing U.S. military bases as relics of neocolonialism." Either would be taken as proof of evil anti-US intentions, leading to sanctions, coups, assassinations, regime change, and eventually outright war. As Mael Colium says, the US picks off individual countries by isolating them.

flora , July 21, 2019 at 1:11 pm

I noticed that. I think Michael Hudson is a classical economist pushing back against the currently reigning neo-classical economists. Classical economics is not Neo-classical economics. Saying Hudson promotes neo-classical economics is a mistake.

http://heteconomist.com/classical-vs-neoclassical-economics-tax-and-rent/

RBHoughton , July 21, 2019 at 9:42 pm

I believe his hope is for the world to recognise that Athens, Rome and Constantinoiple collapsed economically due to legislatively favoring creditors over debtors. Its a process we see alive in North America and Europe today. That's where he is coming from

jsn , July 21, 2019 at 11:36 am

"Views from an economist who has been promoting neoclassical ideology for decades and then wonders when there are no alternatives to escape the narrative?"

Really, you should read the article you posted this note under. What text is this comment in reference to?

Vato , July 21, 2019 at 12:57 pm

Michael Hudson promoting neoclassical ideology for decades?? Are we talking about the same Michael Hudson from UMKC?
Could you please provide one single link to a paper that was written by him relying on inductive methodology-based equilibrium theory??

Thank you

Off The Street , July 21, 2019 at 9:19 am

Peripherally related MMT 2nd of 3 articles

Trey N , July 21, 2019 at 9:20 am

There are a number of such "unclear sentences" in the article. Is the original article so poorly written/edited, or is it errata in the transcription here?

Either way, it's a shame that such errors detract from the clarity of the ideas presented. Is there any way to go back and clean this mess up??

barefoot charley , July 21, 2019 at 10:05 am

Reading Michael's fascinating history of debt forgiveness isn't much different. I'm grateful for his writing but suffer from his typing. Have proofreaders gone the way of buggy whips?

(And we must stipulate that typos here on NC are so buggy they're a feature. Which makes me wonder if/when Roman inscriptions went illiterate–first century BC civil wars, or third century AD Christian takeover? Valuable historic perspective!)

ex-PFC Chuck , July 21, 2019 at 12:36 pm

" Have proofreaders gone the way of buggy whips?"

Yes. The job has been outsourced to Spellcheck.

Vato , July 21, 2019 at 1:04 pm

The translations of his books into German are even worse. Lots of typos and often contentual mistranslation.

Adams , July 21, 2019 at 10:09 am

Support. I would go further and say the article should be taken down for editing. Needs to be translated into English.

Also, too, the final sentence: "This dystopian scenario confirms Rosa Luxemburg's recognition that the ultimate choice facing nations in today's world is between socialism and barbarism." is a rather large jump from the text. While many regular NC readers will agree, the connection for others is obscure.

Monty , July 21, 2019 at 6:02 pm

You should ask for a refund!

Oh wait

Anon , July 21, 2019 at 8:42 pm

Wait the final sentence is what it is because it comes after everything before it. The quote distills much of what precedes it: The US is determined to be "the winner" in all dealings and nations acquiescing to US goals will likely lead to barbarism (austerity) for those populations.

Sometimes a phrase hits to the core of a wider meaning: "Send Her Back!" (a racist chant in any language).

jsn , July 21, 2019 at 11:50 am

When we have MMT paying for arts, history, journalism and particularly editors, I won't be so irritated by these kinds of criticisms.

We live in a very advanced world of Bernaysian propaganda where the communicative industries are privately owned and directed to ensure deep criticisms of the hyper-exploitative current reality CANNOT be published and promoted.

When someone takes the effort to produce something, like this or the book other commenters on this thread are also slighting, at great personal expense to themselves without corporate backing or institutional support, a decent reply would be "Thank you!", rather than tasking them or our hosts here at this site to "go back and clean up this mess??"

If you had any decency, you might suggest clarifying edits in comments, like changing "– so that it can taxing its own citizens." at the end of the 23rd paragraph to, "– so that it can avoid taxing its own citizens", to help the people you are criticizing for making things so difficult for you.

sporble , July 21, 2019 at 1:14 pm

+1

Jonathan Holland Becnel , July 21, 2019 at 1:43 pm

Michael Hudson is a modern day Saint!

Who cares about a few typos when his ideas are truly REVOLUTIONARY!

For example, i had no idea about Debt Jubilees in early civilizations 3000 years ago! The pyramids built by FREE MEN! Liberty and Freedom originating from canceling debts! Torches and Beacons of light as representatives of said Debt Jubilees!

If you ask me, the #HudsonHawk is trying to awaken the Workers of the World in Forgiveness, Peace, Love, and Solidarity.

HUDSON 2024

softie , July 21, 2019 at 3:27 pm

I didn't know that until I read anthropologist David Graeber's Debt: The First 5,000 Years.

But there's a fundamental difference between debt in the past and debt today. In the past debt was owed to the state, today it's owed to some wealthy corporations. Good luck with debt jubilees in the absence of violent uprisings.

Stephen Gardner , July 21, 2019 at 4:45 pm

Uprising? Whatever it takes.

Kurtismayfield , July 21, 2019 at 5:20 pm

And those corporations get favorable rates on money printed by the government.. and the government backs trillions in mortgage and student loans.

Not much different.

softie , July 21, 2019 at 10:22 pm

The difference is they internalize profit and externalize cost. And that's fundamentally different from all other epochs in the past. Even the birth of nation state was out of their rationalization of how to maximize profit extraction and cost externalization in the 1st place. Good luck with debt jubilees.

Oh , July 21, 2019 at 3:17 pm

I agree. I can read through typos, missing words, etc as long as the writing conveys the intended meaning. I think the criticism of the document for grammatical perfection is not warranted. I enjoyed the article myself anad I thank the author.

Wukchumni , July 21, 2019 at 10:15 am

That is why Russia, China and other powers that U.S. strategists deem to be strategic rivals and enemies are looking to restore gold's role as the preferred asset to settle payments imbalances.

How would this occur aside from a repudiation of the almighty buck one wonders, and would it be based on reserves in the vault, or actual use as money?

Keep in mind that there isn't a human alive now who ever proffered a monetized gold coin in order to purchase something, and increasingly relatively few that have ever used a monetized silver coin for the same purpose.

Synoia , July 21, 2019 at 3:51 pm

I've used Copper .

Clive , July 21, 2019 at 10:44 am

I don't have a huge amount of sympathy. The Eurozone and China could run trade deficits, thereby creating an opportunity for their currencies to become reasonably viable alternative reserves. But they don't because they don't want to cede control of their manufacturing and export-driven economic bases away.

The US doesn't mind and doesn't care about the domestic repercussions. For how much longer that can continue, especially as Trump's America First policy is putting that under some strain, is an open question. But for now, it's willing to be satisfied with a little rowing back rather than wholesale reversal (back to, for example, an immediate-post war position of significant trade surpluses although the article is correct to point out this was due to the US being the last man standing, in terms of having a manufacturing base still intact).

The Eurozone and China are not only not showing any signs of a policy change, they've continued embedding and strengthening the current modus operandi. You pays your money, you takes your choices. Here as elsewhere. If they'd rather not have the US$ having a more-or-less monopoly position in then global financial system as a reserve currency, they'll need to make the compromises needed to set up these challenger currencies as viable alternatives.

But they can't have their economic cakes and eat them, too.

And it's not just currencies. You need legal systems which are deemed to be (which can only come through real, observational experience) investor-friendly -- not just prone to supporting or at the very least given an easy ride to domestic stalwarts. Again, this has repercussions if you then have to stop cosseting domestic "champions". The US legal system is ridiculously business friendly. But it doesn't, overtly, differentiate between US and non-US companies in a commercial dispute.

barefoot charley , July 21, 2019 at 11:31 am

The sine qua non of our economic empire (which I learned here) is that a global currency requires global trade deficits, which must grow as quickly as the global economy to fulfill its role. Tell that to Germany! If your silly little euro or yen or renminbi tries to go global, the dollar-based currency speculators will shrivel it like Soros did the pound in the 90s. So American deficits are structural. Our debt-ceiling controversies are theater. And our dollar is exceptional until the instant it isn't–then the Fed electron-tranfers trillions more to the speculators whose notional dollars just evaporated, keeping the currencies in the air with their new casino chips. Is this a loan? A gift? An electron cloud? It's the fog of war by other means . . .

It may have been Hudson who explained that a quarter (or was it half?) of all corporate profits after WWII went to American companies, when our economy was that much of the world's. Now we're a much smaller fraction of the global economy, but our corporate sector still profits as much as it did when it was producing, rather than marketing, real goods. Another exceptional achievement.

barefoot charley , July 21, 2019 at 11:41 am

Oops, and I meant to begin with strong agreement, Clive, just developing your point about the need for deficits to 'buy' control with unpayable debt. And it's an excellent point that "The US doesn't mind and doesn't care about the domestic repercussions." Just imagine if we did.

The Rev Kev , July 21, 2019 at 11:05 am

Oh man, this is definitely a two coffee cup read with a ton of material to absorb. Definitely a keeper this. I'll just make a brief comment as it is late here. Maybe what is key here is that there are so many trends working against the US as power shifts from a unipolar to a multipolar world that a determination has been made in Washington to try to set out a unilateral domineering position with regards the rest of the world to stop the loss of prestige and power. This is just not Trump but the Washington political establishment backing him up to put the US in a domineering position for at least the first half of this century.

Peter , July 21, 2019 at 12:29 pm

This is the first serious article I've seen linking opposition to climate action with the US strategic focus on securing oil. The current oil wars may have started in 2003, but we've really been fighting them for longer, at least since the Tanker War of the late 80s, which led into the first Gulf War (which was explicitly for oil). We've been openly preparing for such wars since the Carter Doctrine of the late 70s as well. Those dates matter because the public generally became aware of global warming with the congressional hearings in 1988, and the oil companies (and thus presumably the rest of the deep state) became aware of the science as early as the 70s.

US military strategy has been based around ensuring climate change happens for as long as climate change has been known about. Why isn't this more of a scandal? Why isn't this more openly discussed as a justification for changing US foreign policy? Why isn't reducing imperial adventures discussed as a side benefit of any policy, like a Green New Deal, that seriously attempted to cut carbon emissions? It boggles the mind, and seems like the sort of thing that'll be obvious to future generations so long as civilization hasn't collapsed by then.

Daniel Rich , July 21, 2019 at 8:57 pm

@ Peter,

Perhaps we'll get an 'Easter Island V2.0 – The Extended Edition' rehash

Summer , July 21, 2019 at 1:20 pm

Really all we know is that such a plan would create a different order. That so many countries have continued to pauper their populations long after the obviousness that "development" is a sham doesn't bode well for their intentions even after the USA is brought to heel.

Susan the other` , July 21, 2019 at 2:30 pm

This is a good summary of our irrational world. MMT and the GND can save the situation but only if we industrialized humans forego any more fossil fuels except for long-term survival purposes. Ration it with draconian discipline. That in turn will discipline our military and turn our energies to things we can no longer ignore. Money doesn't bother me much. Resources and the critical health of the planet bother me a lot. Money and "gold" are, in the end, both fictitious obsessions.

karlof1 , July 21, 2019 at 4:56 pm

Thanks for providing this transcript prior to Hudson posting it to his own website. He was the first political-economist to lay out the Outlaw US Empire's game plan when he published Super Imperialism: The Economic Strategy of American Empire in 1972. You'll find few authors willing to provide their seminal work for free online– 2nd Edition PDF . I think it fair for those unfamiliar with Hudson's work to read his analysis prior to being judgmental.

Jonathan Holland Becnel , July 21, 2019 at 6:56 pm

Thanks for the link!

flora , July 21, 2019 at 10:25 pm

One quibble with the closing Summary:

The first existential objective is to avoid the current threat of war by winding down U.S. military interference in foreign countries and removing U.S. military bases as relics of neocolonialism.

US Naval base in Subic Bay, Philippines was closed in 1992 after a leasing disagreement with the Philippine govt .
https://www.nytimes.com/1991/12/28/world/philippines-orders-us-to-leave-strategic-navy-base-at-subic-bay.html

Clark Air Force base in Angeles City, Philippines had closed the year earlier in 1991.

China is growing power and challenger to shipping freedom of the South China Sea trading route, building artificial fortified islands and aircraft carriers. History has not ended. Power abhors a vacuum.

I agree with Hudson's point about the dangers of misdirected militarism, but I don't think closing military bases around the world necessarily guarantees the end of military adventurism dangers by other rising powers.

ElViejito , July 21, 2019 at 10:50 pm

Subic Bay is back in business as a resupply port for U.S. exercises in the Phillipines. https://www.csmonitor.com/World/Asia-Pacific/2015/1112/US-Navy-edges-back-to-Subic-Bay-in-Philippines-under-new-rules

[Jul 06, 2019] Neoliberal economics and other fairytales about money by Peter McKenna

Notable quotes:
"... Aditya Chakrabortty ( It's reckless. But a Tory cash splurge could win an election , 3 July) is right to point out the hypocrisy of the political right about public expenditure. While progressive proposals for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to use public money to rescue the banks or boost their electoral chances. ..."
"... As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built on a fairytale about money that distorts our view of how a contemporary public money system operates. It is assumed that public spending depends on extracting money from the market and that money (like gold) is always in short supply. Neither is true. Both the market and the state generate money – the market through bank lending and the state through public spending. Both increase the money supply, while bank loan repayments and taxation reduce it. There is no natural shortage of money – which today mainly exists only as data. ..."
Jul 04, 2019 | www.theguardian.com

Neoliberal economics and other fairytales about money Politics is not about a struggle over a fixed pot of money, says Mary Mellor, and the best way to end austerity is to reject it as an ideology, says Peter McKenna

Aditya Chakrabortty ( It's reckless. But a Tory cash splurge could win an election , 3 July) is right to point out the hypocrisy of the political right about public expenditure. While progressive proposals for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to use public money to rescue the banks or boost their electoral chances.

As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built on a fairytale about money that distorts our view of how a contemporary public money system operates. It is assumed that public spending depends on extracting money from the market and that money (like gold) is always in short supply. Neither is true. Both the market and the state generate money – the market through bank lending and the state through public spending. Both increase the money supply, while bank loan repayments and taxation reduce it. There is no natural shortage of money – which today mainly exists only as data.

ss="rich-link tone-news--item rich-link--pillar-news"> Business Today: sign up for a morning shot of financial news Read more

The case for austerity missed the point. Politics is not about a struggle over a fixed pot of money. What is limited are resources (particularly the environment) and human capacity. How these are best used should be a matter of democratic debate. The allocation of money should depend on the priorities identified. In this the market has no more claim than the public economy to be the source of sustainable human welfare.
Professor Mary Mellor
Newcastle upon Tyne

• Over the years Aditya Chakrabortty has provided us with powerful critiques of austerity. His message now – that EU membership "is the best way to end austerity" – overlooks the fact that the UK was in the EU all that time.

Moreover, the EU's stability and growth pact requires that budget deficits and public debt be pegged below 3% and 60% of GDP respectively.

Such notions are the beating heart of austerity, and the European commission's excessive deficit procedure taken against errant states has almost universally resulted in swingeing austerity programmes. These were approved and monitored by the commission and council, with the UK only taken off the naughty step in 2017 after years of crippling austerity finally reduced the deficit to 2.3% of GDP.

The best way to end austerity – and to sway voters – is to reject austerity as an ideology regardless of remain or leave, and rehabilitate the concept of public investment in a people's economy.
Peter McKenna

[Jul 05, 2019] The World Bank and IMF 2019 by Michael Hudson and Bonnie Faulkner

Highly recommended!
Notable quotes:
"... The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute, or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers ..."
"... It was set up basically by the United States in 1944, along with its sister institution, the International Monetary Fund (IMF). Their purpose was to create an international order like a funnel to make other countries economically dependent on the United States ..."
"... American diplomats insisted on the ability to veto any action by the World Bank or IMF. The aim of this veto power was to make sure that any policy was, in Donald Trump's words, to put America first. "We've got to win and they've got to lose." ..."
"... The World Bank was set up from the outset as a branch of the military, of the Defense Department. John J. McCloy (Assistant Secretary of War, 1941-45), was the first full-time president ..."
"... Many countries had two rates: one for goods and services, which was set normally by the market, and then a different exchange rate that was managed for capital movements. That was because countries were trying to prevent capital flight. They didn't want their wealthy classes or foreign investors to make a run on their own currency – an ever-present threat in Latin America. ..."
"... The IMF and the World Bank backed the cosmopolitan classes, the wealthy. Instead of letting countries control their capital outflows and prevent capital flight, the IMF's job is to protect the richest One Percent and foreign investors from balance-of-payments problems ..."
"... The IMF enables its wealthy constituency to move their money out of the country without taking a foreign-exchange loss ..."
"... Wall Street speculators have sold the local currency short to make a killing, George-Soros style. ..."
"... When the debtor-country currency collapses, the debts that these Latin American countries owe are in dollars, and now have to pay much more in their own currency to carry and pay off these debts. ..."
"... Local currency is thrown onto the foreign-exchange market for dollars, lowering the exchange rate. That increases import prices, raising a price umbrella for domestic products. ..."
"... Instead, the IMF says just the opposite: It acts to prevent any move by other countries to bring the debt volume within the ability to be paid. It uses debt leverage as a way to control the monetary lifeline of financially defeated debtor countries. ..."
"... This control by the U.S. financial system and its diplomacy has been built into the world system by the IMF and the World Bank claiming to be international instead of an expression of specifically U.S. New Cold War nationalism. ..."
"... The same thing happened in Greece a few years ago, when almost all of Greece's foreign debt was owed to Greek millionaires holding their money in Switzerland ..."
"... The IMF could have seized this money to pay off the bondholders. Instead, it made the Greek economy pay. It found that it was worth wrecking the Greek economy, forcing emigration and wiping out Greek industry so that French and German bondholding banks would not have to take a loss. That is what makes the IMF so vicious an institution. ..."
"... America was able to grab all of Iran's foreign exchange just by the banks interfering. The CIA has bragged that it can do the same thing with Russia. If Russia does something that U.S. diplomats don't like, the U.S. can use the SWIFT bank payment system to exclude Russia from it, so the Russian banks and the Russian people and industry won't be able to make payments to each other. ..."
"... You can't create the money, especially if you're running a balance of payments deficit and if U.S. foreign policy forces you into deficit by having someone like George Soros make a run on your currency. Look at the Asia crisis in 1997. Wall Street funds bet against foreign currencies, driving them way down, and then used the money to pick up industry cheap in Korea and other Asian countries. ..."
"... This was also done to Russia's ruble. The only country that avoided this was Malaysia, under Mohamed Mahathir, by using capital controls. Malaysia is an object lesson in how to prevent a currency flight. ..."
"... Client kleptocracies take their money and run, moving it abroad to hard currency areas such as the United States, or at least keeping it in dollars in offshore banking centers instead of reinvesting it to help the country catch up by becoming independent agriculturally, in energy, finance and other sectors. ..."
"... But in shaping the World Trade Organization's rules, the United States said that all countries had to promote free trade and could not have government support, except for countries that already had it. We're the only country that had it. That's what's called "grandfathering". ..."
Jul 05, 2019 | www.unz.com

"The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute, or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers."

I'm Bonnie Faulkner. Today on Guns and Butter: Dr. Michael Hudson. Today's show: The IMF and World Bank: Partners In Backwardness . Dr. Hudson is a financial economist and historian. He is President of the Institute for the Study of Long-Term Economic Trend, a Wall Street Financial Analyst, and Distinguished Research Professor of Economics at the University of Missouri, Kansas City.

His most recent books include " and Forgive them Their Debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year "; Killing the Host: How Financial Parasites and Debt Destroy the Global Economy , and J Is for Junk Economics: A Guide to Reality in an Age of Deception . He is also author of Trade, Development and Foreign Debt , among many other books.

We return today to a discussion of Dr. Hudson's seminal 1972 book, Super Imperialism: The Economic Strategy of American Empire , a critique of how the United States exploited foreign economies through the IMF and World Bank, with a special emphasis on food imperialism.

... ... ...

Bonnie Faulkner : In your seminal work form 1972, Super-Imperialism: The Economic Strategy of American Empire , you write: "The development lending of the World Bank has been dysfunctional from the outset." When was the World Bank set up and by whom?

Michael Hudson : It was set up basically by the United States in 1944, along with its sister institution, the International Monetary Fund (IMF). Their purpose was to create an international order like a funnel to make other countries economically dependent on the United States. To make sure that no other country or group of countries – even all the rest of the world – could not dictate U.S. policy. American diplomats insisted on the ability to veto any action by the World Bank or IMF. The aim of this veto power was to make sure that any policy was, in Donald Trump's words, to put America first. "We've got to win and they've got to lose."

The World Bank was set up from the outset as a branch of the military, of the Defense Department. John J. McCloy (Assistant Secretary of War, 1941-45), was the first full-time president. He later became Chairman of Chase Manhattan Bank (1953-60). McNamara was Secretary of Defense (1961-68), Paul Wolfowitz was Deputy and Under Secretary of Defense (1989-2005), and Robert Zoellick was Deputy Secretary of State. So I think you can look at the World Bank as the soft shoe of American diplomacy.

Bonnie Faulkner : What is the difference between the World Bank and the International Monetary Fund, the IMF? Is there a difference?

Michael Hudson : Yes, there is. The World Bank was supposed to make loans for what they call international development. "Development" was their euphemism for dependency on U.S. exports and finance. This dependency entailed agricultural backwardness – opposing land reform, family farming to produce domestic food crops, and also monetary backwardness in basing their monetary system on the dollar.

The World Bank was supposed to provide infrastructure loans that other countries would go into debt to pay American engineering firms, to build up their export sectors and their plantation sectors by public investment roads and port development for imports and exports. Essentially, the Bank financed long- investments in the foreign trade sector, in a way that was a natural continuation of European colonialism.

In 1941, for example, C. L. R. James wrote an article on "Imperialism in Africa" pointing out the fiasco of European railroad investment in Africa: "Railways must serve flourishing industrial areas, or densely populated agricult5ural regions, or they must open up new land along which a thriving population develops and provides the railways with traffic. Except in the mining regions of South Africa, all these conditions are absent. Yet railways were needed, for the benefit of European investors and heavy industry." That is why, James explained "only governments can afford to operate them," while being burdened with heavy interest obligations. [1] What was "developed" was Africa's mining and plantation export sector, not its domestic economies. The World Bank followed this pattern of "development" lending without apology.

The IMF was in charge of short-term foreign currency loans. Its aim was to prevent countries from imposing capital controls to protect their balance of payments. Many countries had a dual exchange rate: one for trade in goods and services, the other rate for capital movements. The function of the IMF and World Bank was essentially to make other countries borrow in dollars, not in their own currencies, and to make sure that if they could not pay their dollar-denominated debts, they had to impose austerity on the domestic economy – while subsidizing their import and export sectors and protecting foreign investors, creditors and client oligarchies from loss.

The IMF developed a junk-economics model pretending that any country can pay any amount of debt to the creditors if it just impoverishes its labor enough. So when countries were unable to pay their debt service, the IMF tells them to raise their interest rates to bring on a depression – austerity – and break up the labor unions. That is euphemized as "rationalizing labor markets." The rationalizing is essentially to disable labor unions and the public sector. The aim – and effect – is to prevent countries from essentially following the line of development that had made the United States rich – by public subsidy and protection of domestic agriculture, public subsidy and protection of industry and an active government sector promoting a New Deal democracy. The IMF was essentially promoting and forcing other countries to balance their trade deficits by letting American and other investors buy control of their commanding heights, mainly their infrastructure monopolies, and to subsidize their capital flight.

BONNIE FAULKNER : Now, Michael, when you began speaking about the IMF and monetary controls, you mentioned that there were two exchange rates of currency in countries. What were you referring to?

MICHAEL HUDSON : When I went to work on Wall Street in the '60s, I was balance-of-payments economist for Chase Manhattan, and we used the IMF's monthly International Financial Statistics every month. At the top of each country's statistics would be the exchange-rate figures. Many countries had two rates: one for goods and services, which was set normally by the market, and then a different exchange rate that was managed for capital movements. That was because countries were trying to prevent capital flight. They didn't want their wealthy classes or foreign investors to make a run on their own currency – an ever-present threat in Latin America.

The IMF and the World Bank backed the cosmopolitan classes, the wealthy. Instead of letting countries control their capital outflows and prevent capital flight, the IMF's job is to protect the richest One Percent and foreign investors from balance-of-payments problems.

The World Bank and American diplomacy have steered them into a chronic currency crisis. The IMF enables its wealthy constituency to move their money out of the country without taking a foreign-exchange loss. It makes loans to support capital flight out of domestic currencies into the dollar or other hard currencies. The IMF calls this a "stabilization" program. It is never effective in helping the debtor economy pay foreign debts out of growth. Instead, the IMF uses currency depreciation and sell-offs of public infrastructure and other assets to foreign investors after the flight capital has left and currency collapses. Wall Street speculators have sold the local currency short to make a killing, George-Soros style.

When the debtor-country currency collapses, the debts that these Latin American countries owe are in dollars, and now have to pay much more in their own currency to carry and pay off these debts. We're talking about enormous penalty rates in domestic currency for these countries to pay foreign-currency debts – basically taking on to finance a non-development policy and to subsidize capital flight when that policy "fails" to achieve its pretended objective of growth.

All hyperinflations of Latin America – Chile early on, like Germany after World War I – come from trying to pay foreign debts beyond the ability to be paid. Local currency is thrown onto the foreign-exchange market for dollars, lowering the exchange rate. That increases import prices, raising a price umbrella for domestic products.

A really functional and progressive international monetary fund that would try to help countries develop would say: "Okay, banks and we (the IMF) have made bad loans that the country can't pay. And the World Bank has given it bad advice, distorting its domestic development to serve foreign customers rather than its own growth. So we're going to write down the loans to the ability to be paid." That's what happened in 1931, when the world finally stopped German reparations payments and Inter-Ally debts to the United States stemming from World War I.

Instead, the IMF says just the opposite: It acts to prevent any move by other countries to bring the debt volume within the ability to be paid. It uses debt leverage as a way to control the monetary lifeline of financially defeated debtor countries. So if they do something that U.S. diplomats don't approve of, it can pull the plug financially, encouraging a run on their currency if they act independently of the United States instead of falling in line. This control by the U.S. financial system and its diplomacy has been built into the world system by the IMF and the World Bank claiming to be international instead of an expression of specifically U.S. New Cold War nationalism.

BONNIE FAULKNER : How do exchange rates contribute to capital flight?

MICHAEL HUDSON : It's not the exchange rate that contributes. Suppose that you're a millionaire, and you see that your country is unable to balance its trade under existing production patterns. The money that the government has under control is pesos, escudos, cruzeiros or some other currency, not dollars or euros. You see that your currency is going to go down relative to the dollar, so you want to get our money out of the country to preserve your purchasing power.

This has long been institutionalized. By 1990, for instance, Latin American countries had defaulted so much in the wake of the Mexico defaults in 1982 that I was hired by Scudder Stevens, to help start a Third World Bond Fund (called a "sovereign high-yield fund"). At the time, Argentina and Brazil were running such serious balance-of-payments deficits that they were having to pay 45 percent per year interest, in dollars, on their dollar debt. Mexico, was paying 22.5 percent on its tesobonos .

Scudders' salesmen went around to the United States and tried to sell shares in the proposed fund, but no Americans would buy it, despite the enormous yields. They sent their salesmen to Europe and got a similar reaction. They had lost their shirts on Third World bonds and couldn't see how these countries could pay.

Merrill Lynch was the fund's underwriter. Its office in Brazil and in Argentina proved much more successful in selling investments in Scudder's these offshore fund established in the Dutch West Indies. It was an offshore fund, so Americans were not able to buy it. But Brazilian and Argentinian rich families close to the central bank and the president became the major buyers. We realized that they were buying these funds because they knew that their government was indeed going to pay their stipulated interest charges. In effect, the bonds were owed ultimately to themselves. So these Yankee dollar bonds were being bought by Brazilians and other Latin Americans as a vehicle to move their money out of their soft local currency (which was going down), to buy bonds denominated in hard dollars.

BONNIE FAULKNER : If wealthy families from these countries bought these bonds denominated in dollars, knowing that they were going to be paid off, who was going to pay them off? The country that was going broke?

MICHAEL HUDSON : Well, countries don't pay; the taxpayers pay, and in the end, labor pays. The IMF certainly doesn't want to make its wealthy client oligarchies pay. It wants to squeeze ore economic surplus out of the labor force. So countries are told that the way they can afford to pay their enormously growing dollar-denominated debt is to lower wages even more.

Currency depreciation is an effective way to do this, because what is devalued is basically labor's wages. Other elements of exports have a common world price: energy, raw materials, capital goods, and credit under the dollar-centered international monetary system that the IMF seeks to maintain as a financial strait jacket.

According to the IMF's ideological models, there's no limit to how far you can lower wages by enough to make labor competitive in producing exports. The IMF and World Bank thus use junk economics to pretend that the way to pay debts owed to the wealthiest creditors and investors is to lower wages and impose regressive excise taxes, to impose special taxes on necessities that labor needs, from food to energy and basic services supplied by public infrastructure.

BONNIE FAULKNER: So you're saying that labor ultimately has to pay off these junk bonds?

MICHAEL HUDSON: That is the basic aim of IMF. I discuss its fallacies in my Trade Development and Foreign Debt , which is the academic sister volume to Super Imperialism . These two books show that the World Bank and IMF were viciously anti-labor from the very outset, working with domestic elites whose fortunes are tied to and loyal to the United States.

BONNIE FAULKNER : With regard to these junk bonds, who was it or what entity

MICHAEL HUDSON : They weren't junk bonds. They were called that because they were high-interest bonds, but they weren't really junk because they actually were paid. Everybody thought they were junk because no American would have paid 45 percent interest. Any country that really was self-reliant and was promoting its own economic interest would have said, "You banks and the IMF have made bad loans, and you've made them under false pretenses – a trade theory that imposes austerity instead of leading to prosperity. We're not going to pay." They would have seized the capital flight of their comprador elites and said that these dollar bonds were a rip-off by the corrupt ruling class.

The same thing happened in Greece a few years ago, when almost all of Greece's foreign debt was owed to Greek millionaires holding their money in Switzerland. The details were published in the "Legarde List." But the IMF said, in effect that its loyalty was to the Greek millionaires who ha their money in Switzerland. The IMF could have seized this money to pay off the bondholders. Instead, it made the Greek economy pay. It found that it was worth wrecking the Greek economy, forcing emigration and wiping out Greek industry so that French and German bondholding banks would not have to take a loss. That is what makes the IMF so vicious an institution.

BONNIE FAULKNER : So these loans to foreign countries that were regarded as junk bonds really weren't junk, because they were going to be paid. What group was it that jacked up these interest rates to 45 percent?

MICHAEL HUDSON : The market did. American banks, stock brokers and other investors looked at the balance of payments of these countries and could not see any reasonable way that they could pay their debts, so they were not going to buy their bonds. No country subject to democratic politics would have paid debts under these conditions. But the IMF, U.S. and Eurozone diplomacy overrode democratic choice.

Investors didn't believe that the IMF and the World Bank had such a strangle hold over Latin American, Asian, and African countries that they could make the countries act in the interest of the United States and the cosmopolitan finance capital, instead of in their own national interest. They didn't believe that countries would commit financial suicide just to pay their wealthy One Percent.

They were wrong, of course. Countries were quite willing to commit economic suicide if their governments were dictatorships propped up by the United States. That's why the CIA has assassination teams and actively supports these countries to prevent any party coming to power that would act in their national interest instead of in the interest of a world division of labor and production along the lines that the U.S. planners want for the world. Under the banner of what they call a free market, you have the World Bank and the IMF engage in central planning of a distinctly anti-labor policy. Instead of calling them Third World bonds or junk bonds, you should call them anti-labor bonds, because they have become a lever to impose austerity throughout the world.

BONNIE FAULKNER : Well, that makes a lot of sense, Michael, and answers a lot of the questions I've put together to ask you. What about Puerto Rico writing down debt? I thought such debts couldn't be written down.

MICHAEL HUDSON : That's what they all said, but the bonds were trading at about 45 cents on the dollar, the risk of their not being paid. The Wall Street Journal on June 17, reported that unsecured suppliers and creditors of Puerto Rico, would only get nine cents on the dollar. The secured bond holders would get maybe 65 cents on the dollar.

The terms are being written down because it's obvious that Puerto Rico can't pay, and that trying to do so is driving the population to move out of Puerto Rico to the United States. If you don't want Puerto Ricans to act the same way Greeks did and leave Greece when their industry and economy was shut down, then you're going to have to provide stability or else you're going to have half of Puerto Rico living in Florida.

BONNIE FAULKNER : Who wrote down the Puerto Rican debt?

MICHAEL HUDSON : A committee was appointed, and it calculated how much Puerto Rico can afford to pay out of its taxes. Puerto Rico is a U.S. dependency, that is, an economic colony of the United States. It does not have domestic self-reliance. It's the antithesis of democracy, so it's never been in charge of its own economic policy and essentially has to do whatever the United States tells it to do. There was a reaction after the hurricane and insufficient U.S. support to protect the island and the enormous waste and corruption involved in the U.S. aid. The U.S. response was simply: "We won you fair and square in the Spanish-American war and you're an occupied country, and we're going to keep you that way." Obviously this is causing a political resentment.

BONNIE FAULKNER : You've already touched on this, but why has the World Bank traditionally been headed by a U.S. secretary of defense?

MICHAEL HUDSON : Its job is to do in the financial sphere what, in the past, was done by military force. The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute, or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers.

In this case the loss of life occurs in the debtor countries. Population growth shrinks, suicides go up. The World Bank engages in economic warfare that is just as destructive as military warfare. At the end of the Yeltsin period Russia's President Putin said that American neoliberalism destroyed more of Russia's population than did World War II. Such neoliberalism, which basically is the doctrine of American supremacy and foreign dependency, is the policy of the World Bank and IMF.

BONNIE FAULKNER : Why has World Bank policy since its inception been to provide loans for countries to devote their land to export crops instead of giving priority to feeding themselves? And if this is the case, why do countries want these loans?

MICHAEL HUDSON : One constant of American foreign policy is to make other countries dependent on American grain exports and food exports. The aim is to buttress America's agricultural trade surplus. So the first thing that the World Bank has done is not to make any domestic currency loans to help food producers. Its lending has steered client countries to produce tropical export crops, mainly plantation crops that cannot be grown in the United States. Focusing on export crops leads client countries to become dependent on American farmers – and political sanctions.

In the 1950s, right after the Chinese revolution, the United States tried to prevent China from succeeding by imposing grain export controls to starve China into submission by putting sanctions on exports. Canada was the country that broke these export controls and helped feed China.

The idea is that if you can make other countries export plantation crops, the oversupply will drive down prices for cocoa and other tropical products, and they won't feed themselves. So instead of backing family farms like the American agricultural policy does, the World Bank backed plantation agriculture. In Chile, which has the highest natural supply of fertilizer in the world from its guano deposits, exports guano instead of using it domestically. It also has the most unequal land distribution, blocking it from growing its own grain or food crops. It's completely dependent on the United States for this, and it pays by exporting copper, guano and other natural resources.

The idea is to create interdependency – one-sided dependency on the U.S. economy. The United States has always aimed at being self-sufficient in its own essentials, so that no other country can pull the plug on our economy and say, "We're going to starve you by not feeding you." Americans can feed themselves. Other countries can't say, "We're going to let you freeze in the dark by not sending you oil," because America's independent in energy. But America can use the oil control to make other countries freeze in the dark, and it can starve other countries by food-export sanctions.

So the idea is to give the United States control of the key interconnections of other economies, without letting any country control something that is vital to the working of the American economy.

There's a double standard here. The United States tells other countries: "Don't do as we do. Do as we say." The only way it can enforce this is by interfering in the politics of these countries, as it has interfered in Latin America, always pushing the right wing. For instance, when Hillary's State Department overthrew the Honduras reformer who wanted to undertake land reform and feed the Hondurans, she said: "This person has to go." That's why there are so many Hondurans trying to get into the United States now, because they can't live in their own country.

The effect of American coups is the same in Syria and Iraq. They force an exodus of people who no longer can make a living under the brutal dictatorships supported by the United States to enforce this international dependency system.

BONNIE FAULKNER : So when I asked you why countries would want these loans, I guess you're saying that they wouldn't, and that's why the U.S. finds it necessary to control them politically.

MICHAEL HUDSON : That's a concise way of putting it Bonnie.

BONNIE FAULKNER : Why are World Bank loans only in foreign currency, not in the domestic currency of the country to which it is lending?

MICHAEL HUDSON : That's a good point. A basic principle should be to avoid borrowing in a foreign currency. A country can always pay the loans in its own currency, but there's no way that it can print dollars or euros to pay loans denominated in these foreign currencies.

Making the dollar central forces other countries to interface with the U.S. banking system. So if a country decides to go its own way, as Iran did in 1953 when it wanted to take over its oil from British Petroleum (or Anglo Iranian Oil, as it was called back then), the United States can interfere and overthrow it. The idea is to be able to use the banking system's interconnections to stop payments from being made.

After America installed the Shah's dictatorship, they were overthrown by Khomeini, and Iran had run up a U.S. dollar debt under the Shah. It had plenty of dollars. I think Chase Manhattan was its paying agent. So when its quarterly or annual debt payment came due, Iran told Chase to draw on its accounts and pay the bondholders. But Chase took orders from the State Department or the Defense Department, I don't know which, and refused to pay. When the payment was not made, America and its allies claimed that Iran was in default. They demanded the entire debt to be paid, as per the agreement that the Shah's puppet government had signed. America simply grabbed the deposits that Iran had in the United States. This is the money that was finally returned to Iran without interest under the agreement of 2016.

America was able to grab all of Iran's foreign exchange just by the banks interfering. The CIA has bragged that it can do the same thing with Russia. If Russia does something that U.S. diplomats don't like, the U.S. can use the SWIFT bank payment system to exclude Russia from it, so the Russian banks and the Russian people and industry won't be able to make payments to each other.

This prompted Russia to create its own bank-transfer system, and is leading China, Russia, India and Pakistan to draft plans to de-dollarize.

BONNIE FAULKNER : I was going to ask you, why would loans in a country's domestic currency be preferable to the country taking out a loan in a foreign currency? I guess you've explained that if they took out a loan in a domestic currency, they would be able to repay it.

MICHAEL HUDSON : Yes.

BONNIE FAULKNER : Whereas a loan in a foreign currency would cripple them.

MICHAEL HUDSON : Yes. You can't create the money, especially if you're running a balance of payments deficit and if U.S. foreign policy forces you into deficit by having someone like George Soros make a run on your currency. Look at the Asia crisis in 1997. Wall Street funds bet against foreign currencies, driving them way down, and then used the money to pick up industry cheap in Korea and other Asian countries.

This was also done to Russia's ruble. The only country that avoided this was Malaysia, under Mohamed Mahathir, by using capital controls. Malaysia is an object lesson in how to prevent a currency flight.

But for Latin America and other countries, much of their foreign debt is held by their own ruling class. Even though it's denominated in dollars, Americans don't own most of this debt. It's their own ruling class. The IMF and World Bank dictate tax policy to Latin America – to un-tax wealth and shift the burden onto labor. Client kleptocracies take their money and run, moving it abroad to hard currency areas such as the United States, or at least keeping it in dollars in offshore banking centers instead of reinvesting it to help the country catch up by becoming independent agriculturally, in energy, finance and other sectors.

BONNIE FAULKNER : You say that: "While U.S. agricultural protectionism has been built into the postwar global system at its inception, foreign protectionism is to be nipped in the bud." How has U.S. agricultural protectionism been built into the postwar global system?

MICHAEL HUDSON : Under Franklin Roosevelt the Agricultural Adjustment Act of 1933 called for price supports for crops so that farmers could earn enough to invest in equipment and seeds. The Agriculture Department was a wonderful department in spurring new seed varieties, agricultural extension services, marketing and banking services. It provided public support so that productivity in American agriculture from the 1930s to '50s was higher over a prolonged period than that of any other sector in history.

But in shaping the World Trade Organization's rules, the United States said that all countries had to promote free trade and could not have government support, except for countries that already had it. We're the only country that had it. That's what's called "grandfathering". The Americans said: "We already have this program on the books, so we can keep it. But no other country can succeed in agriculture in the way that we have done. You must keep your agriculture backward, except for the plantation crops and growing crops that we can't grow in the United States." That's what's so evil about the World Bank's development plan.

BONNIE FAULKNER : According to your book: "Domestic currency is needed to provide price supports and agricultural extension services such as have made U.S. agriculture so productive." Why can't infrastructure costs be subsidized to keep down the economy's overall cost structure if IMF loans are made in foreign currency?

MICHAEL HUDSON : If you're a farmer in Brazil, Argentina or Chile, you're doing business in domestic currency. It doesn't help if somebody gives you dollars, because your expenses are in domestic currency. So if the World Bank and the IMF can prevent countries from providing domestic currency support, that means they're not able to give price supports or provide government marketing services for their agriculture.

America is a mixed economy. Our government has always subsidized capital formation in agriculture and industry, but it insists that other countries are socialist or communist if they do what the United States is doing and use their government to support the economy. So it's a double standard. Nobody calls America a socialist country for supporting its farmers, but other countries are called socialist and are overthrown if they attempt land reform or attempt to feed themselves.

This is what the Catholic Church's Liberation Theology was all about. They backed land reform and agricultural self-sufficiency in food, realizing that if you're going to support population growth, you have to support the means to feed it. That's why the United States focused its assassination teams on priests and nuns in Guatemala and Central America for trying to promote domestic self-sufficiency.

BONNIE FAULKNER : If a country takes out an IMF loan, they're obviously going to take it out in dollars. Why can't they take the dollars and convert them into domestic currency to support local infrastructure costs?

MICHAEL HUDSON : You don't need a dollar loan to do that. Now were getting in to MMT. Any country can create its own currency. There's no reason to borrow in dollars to create your own currency. You can print it yourself or create it on your computers.

BONNIE FAULKNER: Well, exactly. So why don't these countries simply print up their own domestic currency?

MICHAEL HUDSON : Their leaders don't want to be assassinated. More immediately, if you look at the people in charge of foreign central banks, almost all have been educated in the United States and essentially brainwashed. It's the mentality of foreign central bankers. The people who are promoted are those who feel personally loyal to the United States, because they that that's how to get ahead. Essentially, they're opportunists working against the interests of their own country. You won't have socialist central bankers as long as central banks are dominated by the International Monetary Fund and the Bank for International Settlements.

BONNIE FAULKNER : So we're back to the main point: The control is by political means, and they control the politics and the power structure in these countries so that they don't rebel.

MICHAEL HUDSON : That's right. When you have a dysfunctional economic theory that is destructive instead of productive, this is never an accident. It is always a result of junk economics and dependency economics being sponsored. I've talked to people at the U.S. Treasury and asked why they all end up following the United States. Treasury officials have told me: "We simply buy them off. They do it for the money." So you don't need to kill them. All you need to do is find people corrupt enough and opportunist enough to see where the money is, and you buy them off.

BONNIE FAULKNER : You write that "by following U.S. advice, countries have left themselves open to food blackmail." What is food blackmail?

MICHAEL HUDSON : If you pursue a foreign policy that we don't like -- for instance, if you trade with Iran, which we're trying to smash up to grab its oil -- we'll impose financial sanctions against you. We won't sell you food, and you can starve. And because you've followed World Bank advice and not grown your own food, you will starve, because you're dependent on us, the United States and our Free World Ó allies. Canada will no longer follow its own policy independently of the United States, as it did with China in the 1950s when it sold it grain. Europe also is falling in line with U.S. policy.

BONNIE FAULKNER : You write that: "World Bank administrators demand that loan recipients pursue a policy of economic dependency above all on the United States as food supplier." Was this done to support U.S. agriculture? Obviously it is, but were there other reasons as well?

MICHAEL HUDSON : Certainly the agricultural lobby was critical in all of this, and I'm not sure at what point this became thoroughly conscious. I knew some of the World Bank planners, and they had no anticipation that this dependency would be the result. They believed the free-trade junk economics that's taught in the schools' economics departments and for which Nobel prizes are awarded.

When we're dealing with economic planners, we're dealing with tunnel-visioned people. They stayed in the discipline despite its unreality because they sort of think that abstractly it makes sense. There's something autistic about most economists, which is why the French had their non-autistic economic site for many years. The mentality at work is that every country should produce what it's best at – not realizing that nations also need to be self-sufficient in essentials, because we're in a real world of economic and military warfare.

BONNIE FAULKNER : Why does the World Bank prefer to perpetrate world poverty instead of adequate overseas capacity to feed the peoples of developing countries?

MICHAEL HUDSON : World poverty is viewed as solution , not a problem. The World Bank thinks of poverty as low-priced labor, creating a competitive advantage for countries that produce labor-intensive goods. So poverty and austerity for the World Bank and IMF is an economic solution that's built into their models. I discuss these in my Trade, Development and Foreign Debt book. Poverty is to them the solution, because it means low-priced labor, and that means higher profits for the companies bought out by U.S., British, and European investors. So poverty is part of the class war: profits versus poverty.

BONNIE FAULKNER : In general, what is U.S. food imperialism? How would you characterize it?

MICHAEL HUDSON : Its aim is to make America the producer of essential foods and other countries producing inessential plantation crops, while remaining dependent on the United States for grain, soy beans and basic food crops.

BONNIE FAULKNER : Does World Bank lending encourage land reform in former colonies?

MICHAEL HUDSON : No. If there is land reform, the CIA sends its assassination teams in and you have mass murder, as you had in Guatemala, Ecuador, Central America and Columbia. The World Bank is absolutely committed against land reform. When the Forgash Plan for a World Bank for Economic Acceleration was proposed in the 1950s to emphasize land reform and local-currency loans, a Chase Manhattan economist to whom the plan was submitted warned that every country that had land reform turned out to be anti-American. That killed any alternative to the World Bank.

BONNIE FAULKNER : Does the World Bank insist on client governments privatizing their public domain? If so, why, and what is the effect?

MICHAEL HUDSON : It does indeed insist on privatization, pretending that this is efficient. But what it privatizes are natural monopolies – the electrical system, the water system and other basic needs. Foreigners take over, essentially finance them with foreign debt, build the foreign debt that they build into the cost structure, and raise the cost of living and doing business in these countries, thereby crippling them economically. The effect is to prevent them from competing with the United States and its European allies.

BONNIE FAULKNER : Would you say then that it is mainly America that has been aided, not foreign economies that borrow from the World Bank?

MICHAEL HUDSON : That's why the United States is the only country with veto power in the IMF and World Bank – to make sure that what you just described is exactly what happens.

BONNIE FAULKNER : Why do World Bank programs accelerate the exploitation of mineral deposits for use by other nations?

MICHAEL HUDSON : Most World Bank loans are for transportation, roads, harbor development and other infrastructure needed to export minerals and plantation crops. The World Bank doesn't make loans for projects that help the country develop in its own currency. By making only foreign currency loans, in dollars or maybe euros now, the World Bank says that its clients have to repay by generating foreign currency. The only way they can repay the dollars spent on American engineering firms that have built their infrastructure is to export – to earn enough dollars to pay back for the money that the World Bank or IMF have lent.

This is what John Perkins' book about being an economic hit man for the World Bank is all about. He realized that his job was to get countries to borrow dollars to build huge projects that could only be paid for by the country exporting more – which required breaking its labor unions and lowering wages so that it could be competitive in the race to the bottom that the World Bank and IMF encourage.

BONNIE FAULKNER : You also point out in Super Imperialism that mineral resources represent diminishing assets, so these countries that are exporting mineral resources are being depleted while the importing countries aren't.

MICHAEL HUDSON : That's right. They'll end up like Canada. The end result is going to be a big hole in the ground. You've dug up all your minerals, and in the end you have a hole in the ground and a lot of the refuse and pollution – the mining slag and what Marx called the excrements of production.

This is not a sustainable development. The World Bank only promotes the U.S. pursuit of sustainable development. So naturally, they call their "Development," but their focus is on the United States, not the World Bank's client countries.

BONNIE FAULKNER : When Super Imperialism: The Economic Strategy of American Empire was originally published in 1972, how was it received?

MICHAEL HUDSON : Very positively. It enabled my career to take off. I received a phone call a month later by someone from the Bank of Montreal saying they had just made $240 million on the last paragraph of my book. They asked what it would cost to have me come up and give a lecture. I began lecturing once a month at $3,500 a day, moving up to $6,500 a day, and became the highest-paid per diem economist on Wall Street for a few years.

I was immediately hired by the Hudson Institute to explain Super Imperialism to the Defense Department. Herman Kahn said I showed how U.S. imperialism ran rings around European imperialism. They gave the Institute an $85,000 grant to have me go to the White House in Washington to explain how American imperialism worked. The Americans used it as a how-to-do-it book.

The socialists, whom I expected to have a response, decided to talk about other than economic topics. So, much to my surprise, it became a how-to-do-it book for imperialists. It was translated by, I think, the nephew of the Emperor of Japan into Japanese. He then wrote me that the United States opposed the book being translated into Japanese. It later was translated. It was received very positively in China, where I think it has sold more copies than in any other country. It was translated into Spanish, and most recently it was translated into German, and German officials have asked me to come and discuss it with them. So the book has been accepted all over the world as an explanation of how the system works.

BONNIE FAULKNER : In closing, do you really think that the U.S. government officials and others didn't understand how their own system worked?

MICHAEL HUDSON : Many might not have understood in 1944 that this would be the consequence. But by the time 50 years went by, you had an organization called "Fifty Years Is Enough." And by that time everybody should have understood. By the time Joe Stiglitz became the World Bank's chief economist, there was no excuse for not understanding how the system worked. He was amazed to find that indeed it didn't work as advertised, and resigned. But he should have known at the very beginning what it was all about. If he didn't understand how it was until he actually went to work there, you can understand how hard it is for most academics to get through the vocabulary of junk economics, the patter-talk of free trade and free markets to understand how exploitative and destructive the system is.

BONNIE FAULKNER : Michael Hudson, thank you very much.

MICHAEL HUDSON : It's always good to be here, Bonnie. I'm glad you ask questions like these.

I've been speaking with Dr. Michael Hudson. Today's show has been: The IMF and World Bank: Partners in Backwardness. Dr. Hudson is a financial economist and historian. He is president of the Institute for the Study of Long-Term Economic Trend, a Wall Street financial analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972 book, Super Imperialism : The Economic Strategy of American Empire , a critique of how the United States exploited foreign economies through the IMF and World Bank, the subject of today's broadcast, is posted in PDF format on his website at michael-hudson.com. He is also author of Trade, Development and Foreign Debt , which is the academic sister volume to Super Imperialism. Dr. Hudson acts as an economic advisor to governments worldwide on finance and tax law. Visit his website at michael-hudson.com.

Guns and Butter is produced by Bonnie Faulkner, Yarrow Mahko and Tony Rango. Visit us at gunsandbutter.org to listen to past programs, comment on shows, or join our email list to receive our newsletter that includes recent shows and updates. Email us at faulkner@gunsandbutter.org . Follow us on Twitter at #gandbradio.

[Jul 04, 2019] The role of having world reserve currency in the unleashing the USA militarism

Jul 04, 2019 | www.unz.com

J. Gutierrez, July 2, 2019 at 5:49 pm GMT 600 Words @Commentator Mike

Hey Mike,

There is an article on here by Michael Hudson, an economist who wrote about U.S. control of the World Bank and IMF since 1948. He claims that the U.S. wages war because it gets other countries to unwittingly finance them and the trade deficit. After WWII the U.S. forced European countries to pay their war debt, by selling corporate assets, reducing barriers and reduce their social programs. They had 3/4 of the world gold reserves because of those loans during the war. Korea and Vietnam reduced their gold reserves to 10 billion by the late 60's and were forced to get out off the Gold Standard. The French Banks that had a big presense in Indochina sending their dollars to the French Central Bank and they were trading dollars for gold. Nixon stopped it.

The dollar gave U.S. the means to have other countries finance their trade deficit, all their wars and the military buildup. By ending the Gold backed dollar they forced the countries that had U.S. debt dollars to purchase U.S. Treasury Bonds. As the U.S. debt grew so did the dollars being held by those countries and the purchase of Treasury Bonds. The U.S. does not allow countries holding those dollars to buy US property or buy Corporations and risk being acused of commiting an act of war. So they are forced to buy U.S. debt while the US uses its dollars to buy other countries resources with those worthless dollars.

The U.S. forces countries that default on their loans to pay penalties and huge interest payments while the U.S. debt goes un checked and growing without the threat of being in default...

[Jun 26, 2019] Neoliberalism Has Tricked Us Into Believing a Fairytale About Where Money Comes From by Mary MELLOR

Jun 26, 2019 | www.strategic-culture.org

There is nothing natural about money. There is no link to some scarce essential form of money that sets a limit to its creation. It can be composed of base metal, paper or electronic data – none of which is in short supply. Similarly – despite what you may have heard about the need for austerity and a lack of certain cash-generating trees – there is no "natural" level of public expenditure. The size and reach of the public sector is a matter of political choice.

Which puts austerity, the culling of expenditure in the public economy, under some question. For some countries, such as Greece , the impact of austerity has been devastating. Austerity policies still persist despite numerous studies arguing that they were entirely misconceived, based on political choice rather than economic logic. But the economic case for austerity is equally mistaken: it is based on what can best be described as fairytale economics.

So what were the justifications? Britain, for example, has lived under an austerity regime since 2010, when the incoming Tory-Liberal Democrat government reversed the Labour policy of raising the level of public expenditure in response to the 2007-8 financial crisis. The crisis had created a perfect storm: bank rescue required high levels of public spending while economic contraction reduced tax income. The case for austerity was that the higher level of public expenditure could not be afforded by the taxpayer. This was supported by " handbag economics ", which adopts the analogy of states as being like households, dependent on a (private sector) breadwinner.

Under handbag economics, states are required to restrict their expenditure to what the taxpayer is deemed to be able to afford. States must not try to increase their spending by borrowing from the (private) financial sector or by "printing money" (although the banks were rescued by doing so by another name – quantitative easing , the creation of electronic money).

The ideology of handbag economics claims that money is to be generated only through market activity and that it is always in short supply. Request for increased public expenditure is almost invariably met with the response "where's the money to come from?" When confronted by low pay in the NHS, the British prime minister, Theresa May, famously declared, "there is no magic money tree".

So where does money come from? And what is money anyway? What is money?

Until the last 50 years or so the answer seemed to be obvious: money was represented by cash (notes and coin). When money was tangible, there seemed no question about its origin, or its value. Coins were minted, banknotes were printed. Both were authorised by governments or central banks. But what is money today? In richer economies the use of cash is declining rapidly . Most monetary transactions are based on transfers between accounts: no physical money is involved.

In the run up to the financial crisis, the state's role in relation to money held in bank accounts was ambiguous. Banking was a monitored and licensed activity with some level of state guarantee of bank deposits, but the actual act of creating bank accounts was, and is, seen as a private matter. There may be regulations and limitations, but there is no detailed scrutiny of bank accounts and bank lending.

Yet, as the 2007-8 financial crisis showed, when bank accounts came under threat as banks teetered on the edge of bankruptcy, states and central banks had to step in and guarantee the security of all deposit accounts. The viability of money in non-investment bank accounts was demonstrated to be as much a public responsibility as cash.

The magic money tree. © Kate Mc , Author provided

This raises fundamental questions about money as a social institution. Is it right that money can be generated by a private choice to take on debt, which then becomes a liability of the state to guarantee in a crisis?

But far from seeing money as a public resource, under neoliberal handbag economics, money creation and circulation has increasingly been seen as a function of the market. Money is "made" solely in the private sector. Public spending is seen as a drain on that money, justifying austerity to make the public sector as small as possible.

This stance, however, is based on a complete misunderstanding of the nature of money, sustained by a series of deeply embedded myths.

Myths about money

Neoliberal handbag economics is derived from two key myths about the origin and nature of money. The first is that money emerged from a previous market economy based on barter. The second is that money was originally made from precious metal.

It is claimed that bartering proved to be very inefficient as each buyer-seller needed to find another person who exactly matched their requirements. A hat maker might barter a hat for some shoes she needs – but what if the shoe maker is in no need of a hat? The solution to this problem, so the story goes, was to choose one commodity that everyone desired, to act as a medium of exchange. Precious metal (gold and silver) was the obvious choice because it had its own value and could be easily divided and carried. This view of the origin of money goes back to at least the 18th century: the time of economist Adam Smith .

The 'father of capitalism' Adam Smith, 1723-1790. Matt Ledwinka/Shutterstock.com

These myths led to two assumptions about money that are still current today. First, that money is essentially connected to, and generated by, the marketplace. Second that modern money, like its original and ideal form, is always in short supply. Hence the neoliberal claim that public spending is a drain on the wealth-creating capacity of the market and that public spending must always be as limited as possible. Money is seen as a commercial instrument, serving a basic, market, technical, transactional function with no social or political force.

But the real story of money is very different. Evidence from anthropology and history shows that there was no widespread barter before markets based on money developed, and precious metal coinage emerged long before market economies. There are also many forms of money other than precious metal coins.

Money as custom

Something that acts as money has existed in most, if not all, human societies. Stones, shells, beads, cloths, brass rods and many other forms have been the means of comparing and acknowledging comparative value. But this was rarely used in a market context. Most early human communities lived directly off the land – hunting, fishing, gathering and gardening. The customary money in such communities was used mainly to celebrate auspicious social events or serve as a way of resolving social conflict.

For example, the Lele people, who lived in what is now the Democratic Republic of Congo in the 1950s, calculated value in woven raffia cloths . The number of cloths required for different occasions was fixed by custom. Twenty cloths should be given to a father by a son on achieving adulthood and a similar amount given to a wife on the birth of a child. The anthropologist Mary Douglas, who studied the Lele, found they were resistant to using the cloths in transactions with outsiders, indicating that the cloths had a specific cultural relevance.

Even stranger is the large stone money of the Yap people of Micronesia. Huge circular discs of stone could weigh up to four metric tons . Not something to put in your pocket for a trip to the shops.

Try lugging that to the market. Evenfh/Shutterstock.com

There is plenty of other anthropological evidence such as this all over the world, all pointing to the fact that money, in its earliest form, served a social rather than market-based purpose.

Money as power

For most traditional societies, the origin of the particular money form has been lost in the mist of time. But the origin and adoption of money as an institution became much more obvious with the emergence of states. Money did not originate as precious metal coinage with the development of markets. In fact, the new invention of precious metal coinage in around 600BC was adopted and controlled by imperial rulers to build their empires by waging war.

Most notable was Alexander the Great, who ruled from 336–323BC. He is said to have used half a ton of silver a day to fund his largely mercenary army rather than a share of the spoils (the traditional payment). He had more than 20 mints producing coins, which had images of gods and heroes and the word Alexandrou (of Alexander). From that time, new ruling regimes have tended to herald their arrival by a new coinage.

Alexandrou. Alex Coan/Shutterstock.com

More than a thousand years after the invention of coinage, the Holy Roman Emperor Charlemagne (742-814), who ruled most of western and central Europe, developed what became the basis of the British pre-decimal money system: pounds, shillings and pence. Charlemagne set up a currency system based on 240 pennies minted from a pound of silver. The pennies became established as the denier in France, the pfennig in Germany, the dinero in Spain, the denari in Italy and the penny in Britain.

So the real story of money as coinage was not one of barterers and traders: it emerged instead from a long history of politics, war and conflict. Money was an active agent in state and empire building, not a passive representation of price in the market. Control of the money supply was a major power of rulers: a sovereign power. Money was created and spent into circulation by rulers either directly, like Alexander, or through taxation or seizure of private holdings of precious metal.

Nor was early money necessarily based on precious metal. In fact, precious metal was relatively useless for building empires, because it was in short supply. Even in the Roman era, base metal was used, and Charlemagne's new money eventually became debased. In China, gold and silver did not feature and paper money was being used as early as the 9th century.

A coin from the time of Charlemagne, 768-814 AD. Classical Numismatic Group, CC BY-SA

What the market economy did introduce was a new form of money: money as debt.

Money as debt

If you look at a £20 banknote you will see it says: "I promise to pay the bearer on demand the sum of twenty pounds." This is a promise originally made by the Bank of England to exchange notes for the sovereign currency. The banknote was a new form of money. Unlike sovereign money it was not a statement of value, but a promise of value. A coin, even if made of base metal, was exchangeable in its own right: it did not represent another, superior, form of money. But when banknotes were first invented, they did.

The new invention of promissory notes emerged through the needs of trade in the 16th and 17th centuries. Promissory notes were used to acknowledge receipt of loans or investments and the obligation to repay them through the fruits of future transactions. A major task of the emerging profession of banking was to periodically set all these promises against each other and see who owed what to whom. This process of "clearing" meant that a great amount of paper commitments was reduced to relatively less actual transfer of money. Final settlement was either by payment with sovereign money (coins) or another promissory note (banknote).

Eventually, the banknotes became so trusted that they were treated as money in their own right. In Britain they became equivalent to the coinage, particularly when they were united under the banner of the Bank of England. Today, if you took a banknote to the Bank of England, it would merely exchange your note for one that is exactly the same. Banknotes are no longer promises, they are the currency. There is no other "real" money behind them.

What promissory notes became. Wara1982/Shutterstock.com

What modern money does retain is its association with debt. Unlike sovereign money, which was created and spent directly into circulation, modern money is largely borrowed into circulation through the banking system. This process shelters behind another myth, that banks merely act as a link between savers and borrowers. In fact, banks create money. And it is only in the last decade that this powerful myth has been finally put to rest by banking and monetary authorities.

It is now acknowledged by monetary authorities such as the IMF, the US Federal Reserve and the Bank of England, that banks are creating new money when they make loans. They don't lend the money of other account holders to those who want to borrow.

Bank loans consist of money conjured out of thin air, whereby new money is credited to the borrowers account with the agreement that the amount will eventually be repaid with interest.

The policy implications of the public currency being created out of nowhere and lent to borrowers on a purely commercial basis have still not been taken on board. Nor has basing a public currency on debt as opposed to the sovereign power to create and directly circulate money free of debt.

The result is that rather than using their own sovereign power over money creation, as Alexander the Great did, states have become borrowers from the private sector. Where there are public spending deficits or the need for large scale future expenditure, there is an expectation that the state will borrow the money or increase taxation, rather than create the money itself.

Creators of cash. Creative Lab/Shutterstock.com

Dilemmas of debt

But basing a money supply on debt is ecologically, socially and economically problematic.

Ecologically, there is a problem because the need to pay off debt could drive potentially damaging growth : money creation based on repaying debt with interest must imply constant growth in the money supply. If this is achieved through increasing productive capacity, there will inevitably be pressure on natural resources.

Basing the money supply on debt is also socially discriminatory because not all citizens are in a position to take on debt. The pattern of the money supply will tend to favour the already rich or the most speculative risk-taker. Recent decades, for example, have seen a huge amount of borrowing by the financial sector to enhance their investments.

The economic problem is that the money supply depends on the capacity of the various elements of the economy (public and private) to take on more debt. And so as countries have become more dependent upon bank-created money, debt bubbles and credit crunches have become more frequent.

This is because handbag economics creates an impossible task for the private sector. It has to create all new money through bank-issued debt and repay it all with interest. It has to completely fund the public sector and generate a profit for investors.

But when the privatised bank-led money supply flounders, the money creating powers of the state come back into clear focus. This was particularly plain in the 2007-8 crisis, when central banks created new money in the process known as quantitative easing. Central banks used the sovereign power to create money free of debt to spend directly into the economy (by buying up existing government debt and other financial assets, for example).

The question then becomes: if the state as represented by the central bank can create money out of thin air to save the banks – why can't it create money to save the people?

It's a mistake to think of the state as a piggybank or handbag. ColorMaker/Shutterstock.com

Money for the people

The myths about money have led us to look at public spending and taxation the wrong way around. Taxation and spending, like bank lending and repayment, is in a constant flow. Handbag economics assumes that it is taxation (of the private sector) that is raising the money to fund the public sector. That taxation takes money out of the taxpayer's pocket.

But the long political history of sovereign power over money would indicate that the flow of money can be in the opposite direction. In the same way that banks can conjure money out of thin air to make loans, states can conjure money out of thin air to fund public spending. Banks create money by setting up bank accounts, states create money by allocating budgets.

When governments set budgets they do not see how much money they have in a pre-existing taxation piggybank. The budget allocates spending commitments that may, or may not, match the amount of money coming in through taxation. Through its accounts in the treasury and the central bank, the state is constantly spending out and taking in money. If it spends more money than it takes in, it leaves more money in people's pockets. This creates a budget deficit and what is effectively an overdraft at the central bank.

Is this a problem? Yes, if the state is treated as if it was any other bank account holder – the dependent household of handbag economics. No, if it is seen as an independent source of money. States do not need to wait for handouts from the commercial sector. States are the authority behind the money system. The power exercised by the banks to create the public currency out of thin air is a sovereign power.

It is no longer necessary to mint coins like Alexander, money can be created by keystrokes. There is no reason why this should be monopolised by the banking sector to create new public money as debt. Deeming public spending as being equivalent to bank borrowing denies the public, the sovereign people in a democracy, the right to access its own money free of debt.

Money should be designed for the many, not the few. Varavin88/Shutterstock.com

Redefining money

This foray into the historical and anthropological stories about money shows that long-held conceptions – that money emerged from a previous market economy based on barter, and that it was originally made from precious metal – are fairytales. We need to recognise this. And we need to capitalise on the public ability to create money.

But it is also important to recognise that the sovereign power to create money is not a solution in itself. Both the state and bank capacity to create money have advantages and disadvantages. Both can be abused. The reckless lending of the banking sector, for example, led to the near meltdown of the American and European monetary and financial system. On the other hand, where countries do not have a developed banking sector, the money supply remains in the hands of the state, with massive room for corruption and mismanagement.

The answer must be to subject both forms of money creation – bank and state – to democratic accountability. Far from being a technical, commercial instrument, money can be seen as a social and political construct that has immense radical potential. Our ability to harness this is hampered if we do not understand what money is and how it works . Money must become our servant, rather than our master.

theconversation.com The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation. Tags: Capitalism Neoliberalism Print this article June 24, 2019 | Editor's Сhoice Neoliberalism Has Tricked Us Into Believing a Fairytale About Where Money Comes From Mary MELLOR

There is nothing natural about money. There is no link to some scarce essential form of money that sets a limit to its creation. It can be composed of base metal, paper or electronic data – none of which is in short supply. Similarly – despite what you may have heard about the need for austerity and a lack of certain cash-generating trees – there is no "natural" level of public expenditure. The size and reach of the public sector is a matter of political choice.

Which puts austerity, the culling of expenditure in the public economy, under some question. For some countries, such as Greece , the impact of austerity has been devastating. Austerity policies still persist despite numerous studies arguing that they were entirely misconceived, based on political choice rather than economic logic. But the economic case for austerity is equally mistaken: it is based on what can best be described as fairytale economics.

So what were the justifications? Britain, for example, has lived under an austerity regime since 2010, when the incoming Tory-Liberal Democrat government reversed the Labour policy of raising the level of public expenditure in response to the 2007-8 financial crisis. The crisis had created a perfect storm: bank rescue required high levels of public spending while economic contraction reduced tax income. The case for austerity was that the higher level of public expenditure could not be afforded by the taxpayer. This was supported by " handbag economics ", which adopts the analogy of states as being like households, dependent on a (private sector) breadwinner.

Under handbag economics, states are required to restrict their expenditure to what the taxpayer is deemed to be able to afford. States must not try to increase their spending by borrowing from the (private) financial sector or by "printing money" (although the banks were rescued by doing so by another name – quantitative easing , the creation of electronic money).

The ideology of handbag economics claims that money is to be generated only through market activity and that it is always in short supply. Request for increased public expenditure is almost invariably met with the response "where's the money to come from?" When confronted by low pay in the NHS, the British prime minister, Theresa May, famously declared, "there is no magic money tree".

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So where does money come from? And what is money anyway? What is money?

Until the last 50 years or so the answer seemed to be obvious: money was represented by cash (notes and coin). When money was tangible, there seemed no question about its origin, or its value. Coins were minted, banknotes were printed. Both were authorised by governments or central banks. But what is money today? In richer economies the use of cash is declining rapidly . Most monetary transactions are based on transfers between accounts: no physical money is involved.

In the run up to the financial crisis, the state's role in relation to money held in bank accounts was ambiguous. Banking was a monitored and licensed activity with some level of state guarantee of bank deposits, but the actual act of creating bank accounts was, and is, seen as a private matter. There may be regulations and limitations, but there is no detailed scrutiny of bank accounts and bank lending.

Yet, as the 2007-8 financial crisis showed, when bank accounts came under threat as banks teetered on the edge of bankruptcy, states and central banks had to step in and guarantee the security of all deposit accounts. The viability of money in non-investment bank accounts was demonstrated to be as much a public responsibility as cash.

The magic money tree. © Kate Mc , Author provided

This raises fundamental questions about money as a social institution. Is it right that money can be generated by a private choice to take on debt, which then becomes a liability of the state to guarantee in a crisis?

But far from seeing money as a public resource, under neoliberal handbag economics, money creation and circulation has increasingly been seen as a function of the market. Money is "made" solely in the private sector. Public spending is seen as a drain on that money, justifying austerity to make the public sector as small as possible.

This stance, however, is based on a complete misunderstanding of the nature of money, sustained by a series of deeply embedded myths.

Myths about money

Neoliberal handbag economics is derived from two key myths about the origin and nature of money. The first is that money emerged from a previous market economy based on barter. The second is that money was originally made from precious metal.

It is claimed that bartering proved to be very inefficient as each buyer-seller needed to find another person who exactly matched their requirements. A hat maker might barter a hat for some shoes she needs – but what if the shoe maker is in no need of a hat? The solution to this problem, so the story goes, was to choose one commodity that everyone desired, to act as a medium of exchange. Precious metal (gold and silver) was the obvious choice because it had its own value and could be easily divided and carried. This view of the origin of money goes back to at least the 18th century: the time of economist Adam Smith .

The 'father of capitalism' Adam Smith, 1723-1790. Matt Ledwinka/Shutterstock.com

These myths led to two assumptions about money that are still current today. First, that money is essentially connected to, and generated by, the marketplace. Second that modern money, like its original and ideal form, is always in short supply. Hence the neoliberal claim that public spending is a drain on the wealth-creating capacity of the market and that public spending must always be as limited as possible. Money is seen as a commercial instrument, serving a basic, market, technical, transactional function with no social or political force.

But the real story of money is very different. Evidence from anthropology and history shows that there was no widespread barter before markets based on money developed, and precious metal coinage emerged long before market economies. There are also many forms of money other than precious metal coins.

Money as custom

Something that acts as money has existed in most, if not all, human societies. Stones, shells, beads, cloths, brass rods and many other forms have been the means of comparing and acknowledging comparative value. But this was rarely used in a market context. Most early human communities lived directly off the land – hunting, fishing, gathering and gardening. The customary money in such communities was used mainly to celebrate auspicious social events or serve as a way of resolving social conflict.

For example, the Lele people, who lived in what is now the Democratic Republic of Congo in the 1950s, calculated value in woven raffia cloths . The number of cloths required for different occasions was fixed by custom. Twenty cloths should be given to a father by a son on achieving adulthood and a similar amount given to a wife on the birth of a child. The anthropologist Mary Douglas, who studied the Lele, found they were resistant to using the cloths in transactions with outsiders, indicating that the cloths had a specific cultural relevance.

Even stranger is the large stone money of the Yap people of Micronesia. Huge circular discs of stone could weigh up to four metric tons . Not something to put in your pocket for a trip to the shops.

Try lugging that to the market. Evenfh/Shutterstock.com

There is plenty of other anthropological evidence such as this all over the world, all pointing to the fact that money, in its earliest form, served a social rather than market-based purpose.

Money as power

For most traditional societies, the origin of the particular money form has been lost in the mist of time. But the origin and adoption of money as an institution became much more obvious with the emergence of states. Money did not originate as precious metal coinage with the development of markets. In fact, the new invention of precious metal coinage in around 600BC was adopted and controlled by imperial rulers to build their empires by waging war.

Most notable was Alexander the Great, who ruled from 336–323BC. He is said to have used half a ton of silver a day to fund his largely mercenary army rather than a share of the spoils (the traditional payment). He had more than 20 mints producing coins, which had images of gods and heroes and the word Alexandrou (of Alexander). From that time, new ruling regimes have tended to herald their arrival by a new coinage.

Alexandrou. Alex Coan/Shutterstock.com

More than a thousand years after the invention of coinage, the Holy Roman Emperor Charlemagne (742-814), who ruled most of western and central Europe, developed what became the basis of the British pre-decimal money system: pounds, shillings and pence. Charlemagne set up a currency system based on 240 pennies minted from a pound of silver. The pennies became established as the denier in France, the pfennig in Germany, the dinero in Spain, the denari in Italy and the penny in Britain.

So the real story of money as coinage was not one of barterers and traders: it emerged instead from a long history of politics, war and conflict. Money was an active agent in state and empire building, not a passive representation of price in the market. Control of the money supply was a major power of rulers: a sovereign power. Money was created and spent into circulation by rulers either directly, like Alexander, or through taxation or seizure of private holdings of precious metal.

Nor was early money necessarily based on precious metal. In fact, precious metal was relatively useless for building empires, because it was in short supply. Even in the Roman era, base metal was used, and Charlemagne's new money eventually became debased. In China, gold and silver did not feature and paper money was being used as early as the 9th century.

A coin from the time of Charlemagne, 768-814 AD. Classical Numismatic Group, CC BY-SA

What the market economy did introduce was a new form of money: money as debt.

Money as debt

If you look at a £20 banknote you will see it says: "I promise to pay the bearer on demand the sum of twenty pounds." This is a promise originally made by the Bank of England to exchange notes for the sovereign currency. The banknote was a new form of money. Unlike sovereign money it was not a statement of value, but a promise of value. A coin, even if made of base metal, was exchangeable in its own right: it did not represent another, superior, form of money. But when banknotes were first invented, they did.

The new invention of promissory notes emerged through the needs of trade in the 16th and 17th centuries. Promissory notes were used to acknowledge receipt of loans or investments and the obligation to repay them through the fruits of future transactions. A major task of the emerging profession of banking was to periodically set all these promises against each other and see who owed what to whom. This process of "clearing" meant that a great amount of paper commitments was reduced to relatively less actual transfer of money. Final settlement was either by payment with sovereign money (coins) or another promissory note (banknote).

Eventually, the banknotes became so trusted that they were treated as money in their own right. In Britain they became equivalent to the coinage, particularly when they were united under the banner of the Bank of England. Today, if you took a banknote to the Bank of England, it would merely exchange your note for one that is exactly the same. Banknotes are no longer promises, they are the currency. There is no other "real" money behind them.

What promissory notes became. Wara1982/Shutterstock.com

What modern money does retain is its association with debt. Unlike sovereign money, which was created and spent directly into circulation, modern money is largely borrowed into circulation through the banking system. This process shelters behind another myth, that banks merely act as a link between savers and borrowers. In fact, banks create money. And it is only in the last decade that this powerful myth has been finally put to rest by banking and monetary authorities.

It is now acknowledged by monetary authorities such as the IMF, the US Federal Reserve and the Bank of England, that banks are creating new money when they make loans. They don't lend the money of other account holders to those who want to borrow.

Bank loans consist of money conjured out of thin air, whereby new money is credited to the borrowers account with the agreement that the amount will eventually be repaid with interest.

The policy implications of the public currency being created out of nowhere and lent to borrowers on a purely commercial basis have still not been taken on board. Nor has basing a public currency on debt as opposed to the sovereign power to create and directly circulate money free of debt.

The result is that rather than using their own sovereign power over money creation, as Alexander the Great did, states have become borrowers from the private sector. Where there are public spending deficits or the need for large scale future expenditure, there is an expectation that the state will borrow the money or increase taxation, rather than create the money itself.

Creators of cash. Creative Lab/Shutterstock.com

Dilemmas of debt

But basing a money supply on debt is ecologically, socially and economically problematic.

Ecologically, there is a problem because the need to pay off debt could drive potentially damaging growth : money creation based on repaying debt with interest must imply constant growth in the money supply. If this is achieved through increasing productive capacity, there will inevitably be pressure on natural resources.

Basing the money supply on debt is also socially discriminatory because not all citizens are in a position to take on debt. The pattern of the money supply will tend to favour the already rich or the most speculative risk-taker. Recent decades, for example, have seen a huge amount of borrowing by the financial sector to enhance their investments.

The economic problem is that the money supply depends on the capacity of the various elements of the economy (public and private) to take on more debt. And so as countries have become more dependent upon bank-created money, debt bubbles and credit crunches have become more frequent.

This is because handbag economics creates an impossible task for the private sector. It has to create all new money through bank-issued debt and repay it all with interest. It has to completely fund the public sector and generate a profit for investors.

But when the privatised bank-led money supply flounders, the money creating powers of the state come back into clear focus. This was particularly plain in the 2007-8 crisis, when central banks created new money in the process known as quantitative easing. Central banks used the sovereign power to create money free of debt to spend directly into the economy (by buying up existing government debt and other financial assets, for example).

The question then becomes: if the state as represented by the central bank can create money out of thin air to save the banks – why can't it create money to save the people?

It's a mistake to think of the state as a piggybank or handbag. ColorMaker/Shutterstock.com

Money for the people

The myths about money have led us to look at public spending and taxation the wrong way around. Taxation and spending, like bank lending and repayment, is in a constant flow. Handbag economics assumes that it is taxation (of the private sector) that is raising the money to fund the public sector. That taxation takes money out of the taxpayer's pocket.

But the long political history of sovereign power over money would indicate that the flow of money can be in the opposite direction. In the same way that banks can conjure money out of thin air to make loans, states can conjure money out of thin air to fund public spending. Banks create money by setting up bank accounts, states create money by allocating budgets.

When governments set budgets they do not see how much money they have in a pre-existing taxation piggybank. The budget allocates spending commitments that may, or may not, match the amount of money coming in through taxation. Through its accounts in the treasury and the central bank, the state is constantly spending out and taking in money. If it spends more money than it takes in, it leaves more money in people's pockets. This creates a budget deficit and what is effectively an overdraft at the central bank.

Is this a problem? Yes, if the state is treated as if it was any other bank account holder – the dependent household of handbag economics. No, if it is seen as an independent source of money. States do not need to wait for handouts from the commercial sector. States are the authority behind the money system. The power exercised by the banks to create the public currency out of thin air is a sovereign power.

It is no longer necessary to mint coins like Alexander, money can be created by keystrokes. There is no reason why this should be monopolised by the banking sector to create new public money as debt. Deeming public spending as being equivalent to bank borrowing denies the public, the sovereign people in a democracy, the right to access its own money free of debt.

Money should be designed for the many, not the few. Varavin88/Shutterstock.com

Redefining money

This foray into the historical and anthropological stories about money shows that long-held conceptions – that money emerged from a previous market economy based on barter, and that it was originally made from precious metal – are fairytales. We need to recognise this. And we need to capitalise on the public ability to create money.

But it is also important to recognise that the sovereign power to create money is not a solution in itself. Both the state and bank capacity to create money have advantages and disadvantages. Both can be abused. The reckless lending of the banking sector, for example, led to the near meltdown of the American and European monetary and financial system. On the other hand, where countries do not have a developed banking sector, the money supply remains in the hands of the state, with massive room for corruption and mismanagement.

The answer must be to subject both forms of money creation – bank and state – to democratic accountability. Far from being a technical, commercial instrument, money can be seen as a social and political construct that has immense radical potential. Our ability to harness this is hampered if we do not understand what money is and how it works . Money must become our servant, rather than our master.

[Apr 18, 2019] My advice is to drop the idea of acquiring gold. There are just too many issues for the small buyer to safely overcome.

Apr 18, 2019 | www.moonofalabama.org

james , Apr 17, 2019 7:30:29 PM | link

@ christian - find a place like this in some city close by to where you live - it will be easier in person and avoid shipping and insurance costs..

https://www.jandm.com/systemhome.htm


Zachary Smith , Apr 17, 2019 9:11:34 PM | link

@ Christian J Chuba #37

My advice is to drop the idea of acquiring gold. There are just too many issues for the small buyer to safely overcome.

1) If gold prices ever shoot through the roof (as the seller sites keep hinting at) I'd expect the US government to politely invite you to sell them your stocks. This happened in the Thirties, and can certainly happen again. It is probably impossible to accumulate anything more than a few pieces of jewelry without being put on somebody's list. The Feds closely monitor virtually every financial transaction made in this country.

2) How will you know you're getting pure 24k gold vs 23 or 18k stuff? Worse than that, the Chinese have become VERY good at gilding Tungsten bars or disks. Even central Banks have been taken in by this scam, and what do you suppose your chances are? The 19.25 gm/cubic cm. density of Tungsten is very, very close to the 19.3 density of Gold. I'd imagine with a bit of powder metallurgy work involving a speck of 22.5 Osmium, the numbers could be exactly matched. There are a few other tests, but nobody outside of the huge dealers or central banks can afford to do them.

3) come the financial disaster, how will you "spend" your gold? Even if you're certain you have the genuine product, how will you convince me? Or anybody else, for that matter. It'll come down to what the guy at the pawn shop will give you for it, and that'll probably be on the order of 1/3 the value. (there is always the Official Government purchasers, and at their price and their penalties for holding out)

I'd suggest you buy US "junk silver" in small cash deals - the old silver coins minted up to 1964. The odds are much higher somebody will understand these have a superior value, and they're in sizes suitable for small purchases. Even so, would you reasonably expect anybody to accept a couple Ben Franklin half dollars in exchange for a sack of food - especially if there is a severe food shortage going on? If your kids know about this acquisition, you'd better prepare for the burglars - they talk about everything to everybody. Come to think of it, I know of an adult who lost tens of thousands worth of silver because he was motor mouth about it. Total loss. BTW, telling your insurance guy is the same as putting it on a billboard - this information gets shared!

Hmpf , Apr 17, 2019 10:29:49 PM | link
@ Christian J Chuba | Apr 17, 2019 7:22:58 PM | 37

Do as Karlof1 suggested - find a reputable coin dealer in your vicinity. Don't buy at Amazon, Ebay et al..

Also, if manageable buy 1 ounce coins only as this will save you surcharge that always comes with the smaller ones. Stick with well known brands - Canadian Maple Leaf, Austrian Philharmonics, Australian Kangaroo, Britannia, American Eagle - and stay away from collector items.
Notional value of the coins:
Britannia 100 GBP, Philharmonics 100 Euro, Maple Leaf 50 CAD, American Eagle 50 US, Kangaroo 50 AUS.

Watch Gold spot price prior to any purchase at barchart.com (ticker ^XAUUSD - ^XAUCAD), stockcharts.com (ticker $Gold), investing.com etc (ticker XAU/CAD - XAU/US).

[Feb 27, 2019] It's Just Wrong - Fed Chair Powell Destroys MMT Dreams

Feb 27, 2019 | www.zerohedge.com

We can already hear the whining from the uber-left's ivory tower as Fed Chair Jerome Powell unleashed some common-sense on the latest fraud being thrust upon Americans - that of Modern Monetary Theory (MMT).

As Bloomberg reminds, MMT argues that because America borrows in its own currency, it can always print more dollars to cover its obligations. As a result, the thinking goes, the U.S. can always run sustained budget deficits and rack up an ever-increasing debt burden. Helping grease the wheels for some MMTers is the expectation that the Fed would keep rates low to contain the cost of servicing America's obligations . With that in mind, Sen. David Perdue, R-Ga., asked Powell about the theory, saying its advocates back a "spend-now spend-later spend-often policy that would use massive annual deficits to fund these tremendously expensive policy proposals." MMT advocates figure the Fed would be a partner in funding these programs through easy monetary policy.

Powell's response was brief and to the point:

"The idea that deficits don't matter for countries that can borrow in their own currency I think is just wrong..."

"And to the extent that people are talking about using the Fed -- our role is not to provide support for particular policies," Powell said.

"Decisions about spending, and controlling spending and paying for it, are really for you."

Simply put, Powell explained that the increasingly popular theory espoused by progressives that the government can continue to borrow to fund social programs such as Medicare for everyone, free college tuition and a conversion to renewable energy in the next decade is unworkable and makes some "pretty extreme claims."

Earlier in the hearing Powell also noted that "U.S. debt is fairly high to the level of GDP -- and much more importantly -- it's growing faster than GDP, really significantly faster. We are going to have to spend less or raise more revenue."


Let it Go , 10 hours ago link

In his book "A Time For Action" written in 1980 William Simon, a former Secretary of the Treasury tells how he was "frightened and angry". In short, he sounded the trumpet about how he saw the country was heading down the wrong path. William Simon (1927 – 2000) was a businessman and a philanthropist.

Simon became the Secretary of the Treasury on May 8, 1974, during the Nixon administration and was reappointed by President Ford and served until 1977. I recently picked up a copy of the book that I had read decades ago and while re-reading it I reflected on and tried to evaluate the events that brought us to today.

Out of this came an article reflecting on how the economy of today had been greatly shaped by the actions that took place starting around 1979. Interest rates, inflation, and debt do matter and are more significant than most people realize. Rewarding savers and placing a value on the allocation of financial assets is important.

The path has again become unsustainable and many people will be shocked when the reality hits, this is not the way it has always been. The day of reckoning may soon be upon us, how it arrives is the question. Many of us see it coming, but the one thing we can bank on is that after it arrives many people will be caught totally off guard. The piece below explores how we reached this point.

http://brucewilds.blogspot.com/2015/04/interest-rates-inflation-and-debt-matter.html

Condor_0000 , 14 hours ago link

The Fed loved MMT when it was called quantitative easing and all the trillions were going to the one-percenters. They proved MMT works beautifully.

It's funny how the ruling-class talks so differently depending upon whether the 1% are benefiting or the 99% are benefiting.

"Reagan proved deficits don't matter." - greedy capitalist-**** **** Cheney as the 1% were looting the public till for tax cuts.

alfbell , 15 hours ago link

This is not fair to MMT for two reasons...

1) It isn't a theory, just an explanation of the US monetary system and how it works. It isn't advocating the system, it is just stating how it works and how one would need to operate within it.

2) MMT states that money shouldn't be created (spent into the economy by the gov) unless the necessary capacity, productivity, workers, resources and assets existed in the economy. And, if they didn't, they'd have to be created first. This would prevent inflation, not create it.

Most everyone is misinformed and hasn't done their homework as to what MMT is. The Libtards have taken an MMT point out of context and run with it. PRINT MONEY! But they omit the key MMT policy point of... "Print/spend ONLY ONLY ONLY if the productive capacity and resources are already in the economy to balance any gov spending out." A slightly important point that they conveniently overlooked due to their 2nd grade understanding of finance, economics and accounting.

HamburgerToday , 16 hours ago link

MMT simply doesn't work if a nation 'borrows' its own currency. However, if it does not, then MMT would at least theoretically be correct because the issue of 'printing money' (or creating credit) would not be tied to debt but would entail a balancing of the beneficial and adverse effects of monetary inflation.

Batman11 , 17 hours ago link

Alan Greenspan tells Paul Ryan the Government can create all the money it wants and there is no need to save for pensions.

https://www.youtube.com/watch?v=DNCZHAQnfGU

What matters is whether the goods and services are there for them to buy with that money.

Money comes out of nothing and is just numbers typed in at a keyboard.

Too much and you get inflation (consumer price and/or asset price inflation), too little and you get deflation.

The true nature of money is revealed with hyper inflation.

Wheel barrows of the stuff won't buy you anything, it has no intrinsic value.

yogibear , 16 hours ago link

Hence state bailouts of NJ, IL, CA, etc. Money from helicopters coming to those that are broke!

Freebies from the Fed.

JD59 , 17 hours ago link

It is all FIAT CURRENCY, the debt is WORTHLESS, and means nothing.

Rusty Pipes , 16 hours ago link

Tell that to future (unaborted) generations. $10 billion a week in interest payments now, at relatively low rates, and rising.

Stuck on Zero , 17 hours ago link

There is some evidence that you can print money and spend it and have a vibrant, powerful economy. It depends on how you spend it. If it's spent on supportive infrastructure such as energy, transportation, utilities, communications, etc. it's all upwards. If it's spent on welfare, war machinery, and supporting the bureaucracy the system fails in one generation.

brushhog , 17 hours ago link

Underlying the whole premise of MMT is the question; Does the market determine interest rates or does the fed?

I know the fed determines the federal funds rate but are they the sole dictator of interest rates? A large portion of our debt is purchased by both domestic and foreign investors. These are independent people....as well as governments. Will they continue to buy bonds at 2% interest from a country that has a debt-to-GDP ration of 300% and 10 trillion dollar yearly deficits??

If US debt gets downgraded, can the fed over-ride the tide of reality and dictate low interest rates? Can they print enough to buy them all or do they have to maintain a functioning balance sheet as well?

daveeemc2 , 17 hours ago link

cut spending - why does usa need fbi branches in every foreign country?

why do we need so many outdated military machines (ahem aircraft carriers)

why does health care and education cost so much (ahem we forget to talk about cost, only how to pay the fee imposed by the business)

Much of our debt is result of party over country, pointless wars (that Iraq oil is now controlled by Russia and china..so much for the return on investment there), Afghanistan is a failed and foolish intervention - just ask russia, syria is a soverign nation leave them alone, same as venezuala.

Retrench and let the world figure itself out - after pakistan and india nuke each other back to stone age, lets hope for humanities sake we can get real global cooperative leadership that doesnt include the capitalist big read white and blue **** smacking foreign nations on the forehead to further the elites agenda.

[Feb 09, 2019] Large Excess Reserves and the Relationship between Money and Prices - FRB Richmond

Notable quotes:
"... But otherwise, quite correct. Raise payments on deposits and get more deposits. Raise charges on loans and get fewer loans. I might note that the Fed has supposedly paused rate hikes, but deposits are still exiting the system faster than loans. This result can be had via Fred. Thus the curve is getting more3 inverted. ..."
Feb 09, 2019 | economistsview.typepad.com

Joe , February 06, 2019 at 04:54 PM

Large Excess Reserves and the Relationship between Money and Prices - FRB Richmond

At the same time that it has been normalizing its balance sheet, the Fed also has been raising its target for interest rates. The ability to pay interest on reserves has been crucial to allowing the Fed to raise its target rate while there are still significant excess reserves in the banking system. Despite these rate increases, due to various secular reasons, interest rates are expected to remain historically low for a long time.

--------------

I sample the current expectation, and it is a bit more detailed. The expectation is that the curve will remain inverted, generally with a zero near the five yer mark, if I judge from the Treasury curve where the curve has been inverted with a zero near the five yer mark.

The ten year rate will remain historically higher than the five year rate for some time, evidently. If we measure interest rate as the per annum percent of Real GDP devoted to nominal federal interest charges, then the interest rate was higher than it has ever been going back to 1972, briefly (four months ago) , and now occupies the second highest level since just before the 92 recession, at about 3.5% of GDP. These result can be had in Fred by dividing nominal interest payments by real GDP.

But otherwise, quite correct. Raise payments on deposits and get more deposits. Raise charges on loans and get fewer loans. I might note that the Fed has supposedly paused rate hikes, but deposits are still exiting the system faster than loans. This result can be had via Fred. Thus the curve is getting more3 inverted.

Why do we know the curve will invert? It is the law, when the Fed loses deposits, loan charges drop, not rise as would be normal. That is why we all expect the curve to remain inverted, the law. The law is specifically designed so the Fed holds the current low rate as long as possible, then does the sudden regime change. The law, written into the law, a rule requires that we spend time with an inverted yield curve before price adjustment. I emphasis the law because it is actually typed out, signed and enforced publicly.

The law requires the Fed hold the curve as long as possible, mainly so the pres and Congress have time to react to changes in term of trade. So, like under Obama, we hold the line on rates until Obama and the Repubs agree on a tax and spending plan going forward, then the treasury curve gains traction again. Te law, it is not under debate unless you want to be arreswted.

[Feb 05, 2019] Money's true nature is law. When a country collapses, then its money collapses.

Feb 05, 2019 | www.unz.com

MEFOBILLS , says: February 3, 2019 at 8:07 pm GMT

@nsa Sorry, not true.

The original bronze disks of Rome circulated as currency. The metal money of U.S. Confederacy circulated that is until the Confederacy became no more.

The point? Money's true nature is law. When a country collapses, then its money collapses.

Paper money that was good? Lincoln's greenbacks circulated at par. Massachusetts Bills circulated as money and prevented Oligarchs from England and their attempted takeover. The colony used the money to make iron goods (like Cannons) and do commerce.

The real statement is this: Money when it becomes unlawful, always collapses.

Massive money printing can happen when too many loans are made, as in the case today as all private bank credit notes come into being with loan activity -- a little more that 98%.

Driving a currency down with shorts causes new money to be loaned into existence, which in turn is the underlying cause of hyperinflations. The new credit creation covers the short. This mechanism always goes along with exchange rate pressures, where your country has to pay a debt in a foreign currency.

If you had an internal gold currency, which is recognized internationally, then your debts would be paid in gold, which would collapse your country into depression instead of inflation.

Bottom line is that money's true nature is law, and making claims about "paper" or "metal" obscures this fact.

cassandra , says: February 3, 2019 at 8:38 pm GMT
@eah

Since both the Fed and your local bank create money from nothing

They also impose some obligations: repayment of principle and interest. Since we can't create money from nothing, this payback has to come from money somehow created by the banks as well.

I'm less worried about "disappearing" tax money than I am about misallocated spending and its consequences -- eg the 'black budget' of the NSA and 'deep state' generally.

Can't we worry about everything ?

Good point about the 'black budget'. But the last time some sort of DOD audit was attempted the Pentagon accountants' offices got hit by a missile, I mean airliner, on 911.

[Feb 04, 2019] Externally, a nation's currency usually has value to the extent that a nation has something to offer others, which makes the currency useful for making a desired purchase. Today, the "desired purchase" is oil.

Feb 04, 2019 | www.unz.com

cassandra , says: February 4, 2019 at 9:43 pm GMT

@MEFOBILLS +++++

I'd extend your comment a bit.

Internally, a national currency has a value corresponding to demand placed by the government, such as money for the taxes the state requires of its people. The ups and downs of Lincoln's Greenback fiat currency, especially its interaction with the value of gold, demonstrates how currency is tied to confidence in the government, as you suggest.

Externally, a nation's currency usually has value to the extent that a nation has something to offer others, which makes the currency useful for making a desired purchase. Today, the "desired purchase" is oil. The dollar is valued because you need dollars to buy oil, as formerly enforced by diplomatic pressure. Because of US sanctions, trade in oil is now beginning using rubles, yuan, and most unforgivably, Venezuelan currency! (Like Iraq, Libya and Syria). If this keeps up, countries will no longer need dollars for their oil, and $ will have to compete internationally based on other considerations. That won't be pretty. IMHO, US leaders have dangerously eroding the dollar's pre-eminence by profligate use of sanctions.

I need to remedy my own deficiencies in this area, but advocates of Modern Monetary Theory, like Michael Hudson, Steve Keene, and like-minded economists who often post at nakedcapitalism, make a strong case for a fiat money system, issued and controlled by state banks, in contrast to the private banks as now.

But objecting to the fact that private bankers charge us interest, and act above the law and democratic accountability, is such a quaint complaint.

[Feb 03, 2019] Neoliberalism and Christianity

Highly recommended!
Money quote: " neoliberalism is the fight of finance to subdue society at large, and to make the bankers and creditors today in the position that the landlords were under feudalism."
Notable quotes:
"... ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. ..."
"... neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism. ..."
"... They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ..."
"... Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc. ..."
"... The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries. ..."
"... Now Christianity has itself long given up on the tradition teaching against usury of course. ..."
"... In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans. ..."
May 02, 2018 | www.moonofalabama.org

karlof1 , May 1, 2018 2:27:06 PM | 13

Just finished reading the fascinating Michael Hudson interview I linked to on previous thread; but since we're discussing Jews and their religion in a tangential manner, I think it appropriate to post here since the history Hudson explains is 100% key to the ongoing pain us humans feel and inflict. My apologies in advance, but it will take this long excerpt to explain what I mean:

"Tribes: When does the concept of a general debt cancellation disappear historically?

"Michael: I guess in about the second or third century AD it was downplayed in the Bible. After Jesus died, you had, first of all, St Paul taking over, and basically Christianity was created by one of the most evil men in history, the anti-Semite Cyril of Alexandria. He gained power by murdering his rivals, the Nestorians, by convening a congress of bishops and killing his enemies. Cyril was really the Stalin figure of Christianity, killing everybody who was an enemy, organizing pogroms against the Jews in Alexandria where he ruled.

"It was Cyril that really introduced into Christianity the idea of the Trinity. That's what the whole fight was about in the third and fourth centuries AD. Was Jesus a human, was he a god? And essentially you had the Isis-Osiris figure from Egypt, put into Christianity. The Christians were still trying to drive the Jews out of Christianity. And Cyril knew the one thing the Jewish population was not going to accept would be the Isis figure and the Mariolatry that the church became. And as soon as the Christian church became the establishment rulership church, the last thing it wanted in the West was debt cancellation.

"You had a continuation of the original Christianity in the Greek Orthodox Church, or the Orthodox Church, all the way through Byzantium. And in my book And Forgive Them Their Debts, the last two chapters are on the Byzantine echo of the original debt cancellations, where one ruler after another would cancel the debts. And they gave very explicit reason for it: if we don't cancel the debts, we're not going to be able to field an army, we're not going to be able to collect taxes, because the oligarchy is going to take over. They were very explicit, with references to the Bible, references to the jubilee year. So you had Christianity survive in the Byzantine Empire. But in the West it ended in Margaret Thatcher. And Father Coughlin.

"Tribes: He was the '30s figure here in the States.

"Michael: Yes: anti-Semite, right-wing, pro-war, anti-labor. So the irony is that you have the people who call themselves fundamentalist Christians being against everything that Jesus was fighting for, and everything that original Christianity was all about."

Hudson says debt forgiveness was one of the central tenets of Judaism: " ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. "

Looks like I'll be purchasing Hudson's book as he's essentially unveiling a whole new, potentially revolutionary, historical interpretation.

psychohistorian , May 1, 2018 3:31:50 PM | 26
@ karlof1 with the Michale Hudson link....thanks!!

Here is the quote that I really like from that interview
"
Michael: No. You asked what is the fight about? The fight is whether the state will be taken over, essentially to be an extension of Wall Street if you do not have government planning. Every economy is planned. Ever since the Neolithic (era), you've had to have (a form of) planning. If you don't have a public authority doing the planning, then the financial authority becomes the planners. So globalism is in the financial interest –Wall Street and the City of London, doing the planning, not governments. They will do the planning in their own interest. So neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism.
"

karlof1, please email me as I would like to read the book as well and maybe we can share a copy.

And yes, it is relevant to Netanyahoo and his ongoing passel of lies because humanity has been told and been living these lives for centuries...it is time to stop this shit and grow up/evolve

james , May 1, 2018 10:30:01 PM | 96
@13 / 78 karlof1... thanks very much for the links to michael hudson, alastair crooke and the bruno maraces articles...

they were all good for different reasons, but although hudson is being criticized for glossing over some of his talking points, i think the main thrust of his article is very worthwhile for others to read! the quote to end his article is quite good "The question is, who do you want to run the economy? The 1% and the financial sector, or the 99% through politics? The fight has to be in the political sphere, because there's no other sphere that the financial interests cannot crush you on."

it seems to me that the usa has worked hard to bad mouth or get rid of government and the concept of government being involved in anything.. of course everything has to be run by a 'private corp' - ie corporations must run everything.. they call them oligarchs when talking about russia, lol - but they are corporations when they are in the usa.. slight rant..

another quote i especially liked from hudson.. " They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ." that sounds about right...

@ 84 juliania.. aside from your comments on hudsons characterization of st paul "the anti-Semite Cyril of Alexandria" further down hudson basically does the same with father coughlin - https://en.wikipedia.org/wiki/Charles_Coughlin.. he gets the anti-semite tag as well.. i don't know much about either characters, so it's mostly greek to me, but i do find some of hudsons views especially appealing - debt forgiveness being central to the whole article as i read it...

it is interesting my own view on how money is so central to the world and how often times I am incapable of avoiding the observation of the disproportionate number of Jewish people in banking.. I guess that makes me anti-semite too, but i don't think of myself that way.. I think the obsession with money is killing the planet.. I don't care who is responsible for keeping it going, it is killing us...

WJ | May 1, 2018 10:48:58 PM | 100

James @96,

Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc.

The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries.

Now Christianity has itself long given up on the tradition teaching against usury of course.

WJ , May 1, 2018 8:23:40 PM | 88
Juliana @84,

I too greatly admire the work of Hudson but he consistently errs and oversimplifies whenever discussing the beliefs of and the development of beliefs among preNicene followers of the way (as Acts puts is) or Christians (as they came to be known in Antioch within roughly eight or nine decades after Jesus' death.) Palestinian Judaism in the time of Jesus was much more variegated than scholars even twenty years ago had recognized. The gradual reception and interpretation of the Dead Sea Scrolls in tandem with renewed research into Phili of Alexandria, the Essenes, the so-called Sons of Zadok, contemporary Galilean zealot movements styles after the earlier Maccabean resistance, the apocalyptism of post exilic texts like Daniel and (presumably) parts of Enoch--all paint a picture of a highly diverse group of alternatives to the state-Church once known as Second Temple Judaism that has been mistaken as undisputed Jewish "orthodoxy" since the advent of historical criticism.

The Gospel of John, for example, which dates from betweeen 80-120 and is the record of a much earlier oral tradition, is already explicitly binitarian, and possibly already trinitarian depending on how one understands the relationship between the Spirit or Advocate and the Son. (Most ante-Nicene Christians understood the Spirit to be *Christ's* own spirit in distributed form, and they did so by appeal to a well-developed but still largely under recognized strand in Jewish angelology.)

The "theological" development of Christianity occurred much sooner that it has been thought because it emerged from an already highly theologized strand or strands of Jewish teaching that, like Christianity itself, privileged the Abrahamic covenant over the Mosaic Law, the testament of grace over that of works, and the universal scope of revelation and salvation as opposed to any political or ethnic reading of the "Kingdom."

None of these groups were part of the ruling class of Judaean priests and levites and their hangers on the Pharisees.

In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans.

So the anti-Judaism/Semiti of John's Gispel largely rests on a mistranslation. In any event, everything is much more complex than Hudson makes it out to be. Christian economic radicalism is alive and well in the thought of Gregory of Nysa and Basil the Great, who also happened to be Cappadocian fathers highly influential in the development of "orthodox" Trinitarianism in the fourth century.

I still think that Hudson's big picture critique of the direction later Christianity took is helpful and necessary, but this doesn't change the fact that he simplifies the origins, development, and arguably devolution of this movement whenever he tries to get specific. It is a worthwhile danger given the quality of his work in historical economics, but still one has to be aware of.

[Jan 29, 2019] Modern Monetary Theory A Cargo Cult

Jan 29, 2019 | www.zerohedge.com

Newly elected Representative Alexandria Ocasio-Cortez recently said that Modern Monetary Theory (MMT) absolutely needed to be "a larger part of our conversation." Her comment shines a spotlight on MMT. So what is it? According to Wikipedia , it is:

"a macroeconomic theory that describes the currency as a public monopoly and unemployment as the evidence that a currency monopolist is restricting the supply of the financial assets needed to pay taxes and satisfy savings desires."

It is uncontroversial to say that the Federal Reserve has a monopoly on the dollar. So let's look at the second proposition. Unemployment, MMT holds, is evidence that the supply of dollars is restricted.

In other words, more money causes more employment!

This does not sound very different from what the New Keynesians say. Keith analyzed former Fed Chair Janet Yellen's seminal paper on the economics of labor for Forbes :

"Here is their [Yellen and co-author Ackerloff] tenuous chain of logic:

  1. Disgruntled employees don't work hard, and may even sabotage machinery.
  2. So companies must overpay to keep them from slacking.
  3. Higher pay per worker means fewer workers, because companies have a finite budget.

Yellen concludes -- you guessed it:

  1. inflation provides corporations with more money to hire more people."

As a footnote, MMT is referred to as neo-Chartalism, and there is some evidence that Keynes was influenced by Chartalism (which goes back to at least 1905).

On Thursday, Marketplace published a piece on MMT . Things are heating up for this hot new (old) idea. Marketplace presented a "bathroom sink" model of the economy (yes, really!)

To wrap your brain around this concept, picture a bathroom sink. Think of the government and its ability to create more money whenever it needs to as the faucet and that bucket area of the sink where the water goes as the economy.

The government controls how much money, or water, is flowing into the economy. It spends money into the economy by building interstates or paying farm subsidies or funding programs.

"And so as those dollars reach the economy, they begin to fill up that bucket, and what you want to do is be very mindful about how full that bucket is getting or you're going to get an inflation problem," [Bernie Sanders economic advisor Stephanie] Kelton said.

Inflation is where the sink overflows. If that happens, Kelton said there are two ways to fix it: "You can slow the flow of dollars coming into that bucket. That means the government then has to start slowing it's [sic] rate of spending, or you can open up the drain and let some of those dollars out of the economy. And that's what we do when we collect taxes."

This sounds a lot like the Quantity Theory of Money (QTM). This view often paints a picture of pouring water into a container. The higher the water level, the higher the general price level.

QTM by itself does not promote the idea that more money causes more employment. Only that more money causes more rising prices. But Keynes did. And the New Keynesians like Yellen do.

So what makes MMT unique?

According to Stephanie Kelton, in the Marketplace article:

"If you control your own currency and you have bills that are coming due, it means you can always afford to pay the bills on time," Kelton said. "You can never go broke, you can never be forced into bankruptcy. You're nothing like a household."

Keynes taught us about government deficits to bolster employment and government deficits to respond to a crisis. MMT teaches us how to get to the next level. The voters want free goodies. Traditional economics says "there ain't no such thing as a free lunch."

MMT says "oh yes there is!"

At least until you get to too much inflation . The Monetarists would agree, don't print too much money or you get too much inflation . Much of the gold community also agrees. If you print too much money, then you get skyrocketing inflation .

Never mind that this prediction was proven wrong in the post-2008 policy response. We want to highlight that the Keyesians, the Monetarists, the MMTers, and even many Austrians largely agree. The problem with too much money printing is too much inflation . They quibble about what is too much, but they agree on the "bathroom sink" model of the economy.

In the words of early 20 th century physicist Wolfgang Pauli, QTM "is not even wrong ."

We define inflation as the counterfeiting of credit. That is, fraudulently taking money from a saver. It is called borrowing , but the borrower hasn't got the means or intent to repay. Additionally, when everyone thinks that the government's debt paper is money , the saver doesn't even know or consent to the borrowing.

There are lies, damnlies, and statistics. Then there are a few pugnacious, in your face, gaslighting make-you-believe-in-unreality cargo cults. We will explore this in full, below.

During World War II, the US military set up operations on certain Pacific islands. They built landing strips, where they landed planes bringing in supplies and men. They hired the local tribesmen as labor, and paid them stuff that was ordinary to Americans, but wondrous to the islanders. Like canned food. The islanders really looked forward to when a plane would land, and they would get some cargo.

After the war, the US military pulled up stakes and left. But the islanders still wanted the cargos. So they set up these elaborate charades, with tiki torches instead of flashlights, and coconut shell mockup headphones. They went through the motions that they thought the Americans did. To try to bring back the cargos.

Huh. What does that remind you of? An elaborate charade, with bogus props, going through the motions of a civilization they don't understand to try to produce desired results -- free goodies?

Modern Monetary Theory is a cargo cult.

It's ironic that the name includes the word modern . If we said that a pile of greasy rags sealed in a dark closet would spontaneously generate rats, would you call that a modern theory? If we said that sickness is caused by bad humors, and the cure is bloodletting by leaches, would you say this is modern ? How about the idea that the Sun and the planets orbit the Earth. Is this modern , too?

Not only are these not modern -- they are, in fact, old ideas that were tossed into the garbage heap -- they are not theories either. A theory is an explanation of reality, which integrates many observed facts and contradicts none. Modern Monetary Theory is neither modern nor a theory .

MMT is not an attempt to explain reality, but to deny it.

Even a child understands something. Even people in the ancient world understood it, too. If you lend a bushel of wheat to your neighbor, and he does not repay it, you suffer a loss. You are worse off, compared to before. And so is the borrower (who at the least ruins his credit).

MMT is based on denying this universal truth. Common sense says that if Peter lends to Paul, and Paul does not repay, then Peter is impoverished. Common sense says that Peter would not lend to Paul if he knew that Paul would renege on his obligation.

MMT says that a modern economy has a modern currency, which is just the state's paper. And in a modern economy, the modern state can print more with no concerns other than "overflowing the bathroom sink". Get that, the only concern is prices could rise too fast. And so long as this does not occur, then the state can get away with it. Only, there is nothing to get away with. It's perfectly fine.

In a cargo cult, the people did not recognize the difference between fake coconut shell headphones, and real headphones. Or flashlights and tiki torches. So they made crude copies as best they could. They went through the motions to summon the sky gods to come down to earth, with cargo.

Let's look at the mental gymnastics. They imbued magical -- that is outside the principle of cause and effect -- characteristics to their props. Failing to understand that airplanes are created by men, and that it takes a great deal of planning (not to mention wealth) to fly a plane full of cargo from America to the middle of the Pacific, they imagined that, somehow, the act of using the headphones and the flashlights caused the plane and its cargo to come. The headset is tokenized, viewed as a magical talisman.

What a cargo cult does to headphones, MMT does to money. First, the cargo cult substitutes coconut shells held together with twisted vine for headphones. What they wear when attempting to summon the sky gods is not a headset, but a surrogate. MMT (as does Keynesianism and Monetarism) substitutes government debt paper for money.

As an aside, even a gold-redeemable certificate is not money. Think about it. You can bring this piece of paper to the teller window. You push it across the counter. The teller pushes back the gold coin. If the word for the paper is money, then what is the word for the gold for which it redeems?

Anyways, modern monetary systems use irredeemable paper. It's not gold-redeemable, but even worse. And they treat this paper as if it were money .

And it goes even farther. Previous theories felt the need to at least pay lip service to repaying debt. They couldn't quite get to the point of openly admitting that the debt is never to be repaid. Keynes famously quipped that, "in the long run, we are all dead," creating ambiguity about the intention to repay. Monetarists generally promote the idea that if the economy grows fast enough, the debt will shrink as a proportion of GDP.

The Keynesians don't have the intention to repay. And the Monetarists don't look at Marginal Productivity of Debt , which would show them that their idea isn't working. But they don't go as far as the MMT'ers.

MMT says that the government is unlike deadbeat-debtor Paul. There is no need for the government to repay. It's the same as the cargo cult. The cargo cult has no concept for capital. The islanders do not produce in excess of what they consume, accumulating tools and technology to increase their productivity. They subsist, and assume that this is how the world works.

MMT has no concept for capital either. It puts blinders on, declaring that consumer prices are the only thing to measure. The only risk is if they rise too fast. And the MMT'ers refuse to see anything else.

In our discussion of Yield Purchasing Power , we introduced a farmer who sells off the back 40 (acres), chops down the apple orchard to sell the fruitwood, tears down the old barn to sell the planks, and even dismantles the tractor. And why does he do this? He gets cash in exchange. And the cash is far in excess of his crop yield. Why struggle and sweat to produce $20,000 a year by growing food, when you can sell off the piece of the farm for $20,000,000.

The monetary system incentivizes the farmer to trade productive capital for paper credit slips. The incentive is that this paper has a greater purchasing power than what he can earn by operating the farm. He can trade his farm for far more groceries, than the food he could grow on it.

This is the same old game. But MMT gives it a new name -- and asserts a bolder defense. MMT'ers don't want to see, and they want you not to see, that the lender gives up good capital but the borrower is just consuming it.

MMT justifies the naked consumption of capital.

Supply and Demand Fundamentals

The prices of the metals rose this week, especially on Friday. The exchange rate of gold went up twenty two US dollars, and that of silver 41 US cents.

As we will discuss below, we think that there is a rethinking of gold occurring in the market. And we don't just mean celebrities like Sam Zell buying gold for the first time.

There is a sense of déjà vu. Starting in mid-2004, the Fed went on one of its rate-hiking sprees. It did not manage to get as high as the previous peak of 6.5%, set prior to the previous crisis. In 2006, this rate topped out at 5.25%. In both the crisis of 2001, and the crisis of 2008, the Fed had begun cutting rates before the official indication of recession , and the cuts occurred more rapidly than the preceding hikes.

The cuts were too little and/or too late to avert disaster.

The problem is that during the period of low rates, firms are incentivized to borrow. They finance projects which generate a low rate of return. These projects would not be financed, but for the even-lower cost of borrowing. When rates rise, it does not increase the rate of return produced by marginal projects (likely the opposite). So borrowers are squeezed.

The Fed eventually comes along with its fix -- even lower rates. While this is too late to save firms that are teetering into default, it does enable the next wave of borrowing for even-poorer-projects.

And now, here we are. Since its first tepid hike in December 2005, the Fed has been hiking for just over three years so far. It has hit a rate well under half of the peak of 2006-2007. The president has publicly urged the Fed to reverse policy course. And the Fed said it is listening to the market, and may have paused hiking for now.

Meanwhile, the Fed Funds rate may be lower than the previous peak but it is much higher than it was from the end of 2008 through the end of 2015. For seven years, it was basically zero. Nobody knows how many dollars' worth of projects were financed that were only justified, only possible, due to this zero interest-rate policy. But it was surely a lot (we would guess at least trillions).

And now the rate is up to 2.25%. Many of those projects are no longer justified, and can no longer service the debt that finances them.

And none of this is a secret. It is well known to the borrowers, of course. And their creditors. And the Fed. And hedge funds and other sophisticated speculators. And not just in general theory, but lists of specific companies and the rollover dates of their bond issues.

Rollover is key to this. After decades of falling interest, everyone has learned the game of using short-term financing. But the risk is that it must be rolled over. And when it is rolled, the previous low-rate is replaced with the higher, current rate. And that's when we find out which businesses can still pay.

So what will the Fed do? The next programs will have a new name, but the Fed must lower the cost of capital if it wants to keep the game going.

Is this time going to be the total collapse of the dollar? We don't believe so, as there is still a lot of capital remaining and more is flooding in as people abandon the dollar-derivative currencies. So we think of it as déjà vu, the Fed is likely to do something similar to last time.

And that is an environment where even the non-goldbugs see clear and compelling arguments for owning gold.

It could be that the timing is not now. It could be that it will take months or years to arrive at this point. We make no predictions of timing. However, we note that the Monetary Metals Gold Fundamental Price has been in a rising trend since mid-October. Its low was on October 9 ($1,266).

Silver is similar, but a bit different. The low in its fundamental occurred in late November ($14.37). But it's up like a rocket since then, now about two bucks higher.

We are at an interesting point.

Let's take a look at the only true picture of the supply and demand fundamentals of gold and silver. But, first, here is the chart of the prices of gold and silver.

[Nov 20, 2018] The Torah, biblical and Quran stories were written in agrarian societies where capitalistic enterprise hardly existed. Loans were for not dying of hunger in the period between when the food of the last harvest had been used completely, and the new harvest was still in the future.

Nov 20, 2018 | www.unz.com

jilles dykstra , says: November 14, 2018 at 12:21 pm GMT

@tac The Torah, biblical and Quran stories were written in agrarian societies where capitalistic enterprise hardly existed.
Loans were for not dying of hunger in the period between when the food of the last harvest had been used completely, and the new harvest was still in the future.
Thus interest was seen as blackmailing people, they needed money to prevent dying of starvation.
There was enterprise long ago, and trade over long distances, in the early centuries for example swords from Damascus were famous in Europe, and exported to Europe.
Investment for business was the exception, even the first iron smelting installations were simple, those who wanted them could build them by themselves.
The idea that invested money could yield money came later, when installations became more complex, ships bigger, etc.
With investment came risk, there was not much risk in consumptive loans, they normally could paid out of the coming harvest.
And so the problem began, a church not understanding capitalism, an agrarian society based on barter changing into a money using capitalistic society.
Commercial people had no problem with interest, even now Muslims do not have problems with interest.
What they do is simply giving interest other names, such as a fine for repaying late.
It has been agreed that the repayment will be late, so anybody is happy.

[Nov 20, 2018] It is an interesting side-note that both Christianity and Islam both prohibit the use of usury

Nov 20, 2018 | www.unz.com

tac , says: November 14, 2018 at 6:35 am GMT

@renfro And there you have it in a nutshell: usary -- the usurper of civilization, the enslaver of humanity, the seed of ultimate degeneracy. It seems humanity is adverse to learn from history. It is an interesting side-note that both Christianity and Islam both prohibit the use of usury (a consideration worthy of mention when one contemplates the ongoing wars in the ME) and some who here take shots at Farakhann, 'neo-nazis', blue-hair and other deplorables.

Our dilemma today is the same that occurred in Rome. Our country and people will suffer the same fate if usury continues as it has. From the onset of history, it has been the moneychangers, who have exploited mankind for pure profit. Usury is an abomination against God's statutes, which manipulates and destroys people, families, and nations. It is by the profits made from usury used to attack Christianity. One needs only to ask- who is in control of usury worldwide? Didn't Rome suffer from these same people? Usury brings forth an insidious side to all people. The temptation to borrow is powerful, and it always polarizes lender against borrower where the former becomes the master and the later, the slave. As a vice, neighbor is pitted against his neighbor, and nation against nation.

[...]

The Roman government was far too corrupt already with its politicians bought by moneychangers for any fledgling Christian sect to have an affect on its decline. The moneychanger's demand was perpetually self-serving, which was disparate to the common good of the populace. Originally, Rome was founded as a republic. The unchecked influence of the moneychangers caused it to change into a democracy. A republic is derived through the election of public officials whose attitude toward property is respected in terms of law for individual rights. A democracy is derived through the election of public officials whose attitude toward property is communistic and respects the "collective good" of the population instead of the individual. This is the resultant system that moneychangers bring to civilization. The subversion of power is a sleight of hand that changes the right of the individual into what is often called the "collective good" of the people (communistic), which is always controlled by an alliance of powerful interests.

There is no reference in the article to the moneychangers and their lawyers sowing the seeds for Roman society to suffocate under its own lethargic weight. Lawyers were indeed a problem to Rome. The Romans were so concerned by lawyers' opprobrious effect on public morale that they attempted to curb their influence. In 204 BC, the Roman Senate passed a law prohibiting lawyers from plying their trade for money. As the Roman republic declined and became more democratic, it became increasingly difficult to keep lawyers in check and prevent them from accepting fees under the table. Indeed, they were very useful to the moneychangers. The lawyers fed upon corruption and accelerated the downward plunge of Roman civilization. Some wealthy Romans began sending their sons to Greece to finish their schooling, to learn rhetoric (Julius Caesar was one example) -- a lawyer's cleverness in oration. This compounded Rome's growing woes.
[...]
The moneychangers destroyed Rome from within by first monopolizing usury, monopolizing the precious mineral trade and then disproportionately magnifying the temporal businesses of prostitution (including pedophilia and homosexuality), and slavery. Constantine (306-337 AD) was the first Roman emperor to issue laws, which radically limited the rights of Jews as citizens of the Roman Empire, a privilege conferred upon them by Caracalla in 212 AD. The laws of Constantius (337-361 AD) recognized the Jewish domination of the slave trade and acted to greatly curtail it. A law of Theodosius II (408-410 AD), prohibited Jews from holding any advantageous office of honor in the Roman state. Always the impetus was buying influence concerning their trade.
[...]
Usury has been the opiate that has ruined the ingenuity of many of its civilizations. As this Jewish craft spread, the people increasingly suffered from the burdens of indebtedness. So troubling was the effects of usury that Lex Genucia outlawed usury in 342 BC. Nevertheless, ways of evading such legislation were found and by the last period of the Republic, usury was once again rife. Emperors like Julius Caesar and Justinian tried to limit the interest rate and control its devastating effects (Birnie, 1958). Entertainment was a way to temporarily set aside the burdens of indebtedness. It was a way to festively indulge in all the glory that Rome had to offer. Rome soon became drunk on hedonism. Collectively, entertainment helped disguise the collapsing of a great power. Spectator blood sports, brothels, carnivals, festivals, and parties substituted for everything that was wrong with Rome.
[...]
Rome became a multi-cultural state much like our own in the United States. Indeed, it was truly an international city. Foreigners of every nation resided and worked there. The Romans soon intermarried and had children with the many foreigners. This included concubines from the numerous slaves won through war. Rome had an extraordinary large slave population and was estimated to make up about two-thirds of its population at one time.
[...]
Eventually, the Romans lost their tribal cohesion and identity. The population of Rome had changed and so did its character. Increasing demands were made of the ruling patricians. The aristocrats tried to appease the masses, but eventually those demands could not be sustained. Rome had become bankrupt. The effects of usury polarized the patrician class against an increasingly dispossessed and burdened class of citizens.
[...]
Rome was bankrupt and was collapsing. The parasitic nature of usury and its effect on government was too complex for the uneducated plebeians to understand (see Addendum for an illustration of usury's power). Indeed, it was the moneychangers with the use of their lawyers that destroyed pagan Rome. The Jewish interests did not control all usury. However, they were a people well recognized as being extremely loyal to each other and adept in the black craft of usury. To all others (gentiles) they showed hate and enmity. Throughout history the weapon of usury is used again and again to destroy nations.
[...]
Fortunately, the writings of Cicero survived the burning of libraries. In the case against Faccus, we can see the crafts of the Jews are the same today. The Jews clearly held great influence in politics as a result of their professions and profited immensely at the expense of Rome. We can further deduce by the case of Faccus that the Jews were not concerned with the interests of Rome, but rather for their own interests. The Jewish gold was being shipped from Rome and its provinces throughout the empire to Jerusalem. Why? We also know that the Jews had utter contempt and hatred of the Romans. This contempt is demonstrated by their breaking of Roman law, which Faccus tried to uphold. If we look closer, we see that gold has a very special meaning to all Jewry unlike any other people.
[...]
There are enough records for us to piece together what actually occurred in Rome that led to its downfall. Rome fell as a result of corruption and the lack of cohesion of its own people. But, it was the instrument of usury that brought about this corruption and allowed its gold and silver to be controlled by Jewish interests.
[...]
It was Christianity that put an end to the destructive nature of usury on its people (see addendum for usury example). Rome's treasury became barren as a result of the moneychangers. It weakened the Roman Empire immeasurably, and thrust untold millions in poverty, debt, and in prison. It was Christianity that halted the influence of the Jews and their destructive trades and practices. And, the Christian faith spread throughout the former Roman Empire. All of the European people eventually became Christianity's vanguard and champion. Without the strict adherence to the moral ethos, any civilization will devolve into the religion of Nimrod.

http://www.vanguardnewsnetwork.com/v1/index274.htm

[Oct 25, 2018] Should we trust MMT?

Oct 25, 2018 | www.nakedcapitalism.com

Tvc15 , October 23, 2018 at 2:34 pm

I apologize in advance to Lambert for adding this link to his terrific daily water cooler topics, but since Yves and NC were specifically mentioned I thought it would be interesting to share. The video is titled, "Should we trust MMT?" with Joe Bongiovanni. It is 48 minutes long and I only made it about 20 minutes after becoming too annoyed. Yves/NC are mentioned at 18 minutes and 40 seconds in. Joe says he was part of the NC commentariat for years, but was banned due to his thoughts that MMT proponents are misleading and don't "tell the real truth".

https://youtu.be/jvunhn47F20

Tvc15 , October 23, 2018 at 3:31 pm

Not being an economist or comfortable enough with my understanding of MMT to know if what he was saying had merit. Plus the style and lack of preparation from the interviewer other than wanting her expert to debunk MMT for her right wing followers.

JohnnyGL , October 23, 2018 at 6:45 pm

I'm 30 min in .skip ahead to that point to get to the meat of his discussion.

He keeps repeating that he wants monetary "reform", so that the money system 'works for the people'. But he doesn't say what that change is or why MMT gets it wrong in its understanding of how the system works.

He says "govt doesn't create money by spending". Except, yes, it does. It then chooses to offset that spending later with bond auctions.

He doesn't make a distinction between public and private debt, doesn't distinguish between currency users and issuers. No distinction between stocks and flows. No discussion of capacity constraints, inflation.

He actually fear-mongers about the debt around the 38-39 min mark. Says there's going to be tough times when we get austerity (in addition to environment collapsing).

He talks a lot about how 'the monetary system works', but it's clear to me he doesn't get how the banking system works. I don't think you can understand one without the other very well.

MMT can offer a clear explanation of why:

1) 30 yr treasury bond yields fell rapidly in the 1980s while deficits were exploding.
2) 30 yr treasury bond yields rose in 2000, hitting 7% on the 30 yr at one point, when the government was running surpluses.
3) Japan has a functional currency and economy with massive debts and deficits for many years.

Conventional economics has NO explanation for the above phenomenon.

ChristopherJ , October 23, 2018 at 7:33 pm

Cheers Johnny – he's been here before and took umbrage to the NC crew saying that taxation for revenue is obsolete. Don't make me go there.

Said NC doesn't like criticism and Yves had banned him I'd be banned too if I thought that!!

Got some trolls on Youtube worked up. I'll go and finish them off after I do a little more digging on Joe and his Kettle Pond Institute for Debt Free Money.

He had a go at Bill Mitchell on this post recently:

http://bilbo.economicoutlook.net/blog/?p=39889

IMO, Tvc, if you want some relevant stuff, look at how Jimmy Dore (a comedian turned activist) gets his head around MMT – Stephanie Kelton was good and has been linked here and also Chris Hedges

People like JD are very influential and I can see a heightened awareness out there that we are not going to get anywhere now by being polite and civil.

That's how we got here in the first place

Plenue , October 23, 2018 at 8:18 pm

"he's been here before and took umbrage to the NC crew saying that taxation for revenue is obsolete."

It's not just obsolete as in "we don't need to do this anymore". Instead it literally doesn't happen at the federal level.

Yves Smith , October 23, 2018 at 9:36 pm

I don't remember the details, but he was banned for behavior. The problem that so often happens is that the people on losing sides of arguments here (as in not just the moderators but the commentariat does a good job of debunking their claims) is they don't give up and start going into various forms of bad faith argumentation: broken record, straw manning, or just plain getting abusive. Then they try to claim they were banned due to their position, as opposed to how they started carrying on when they couldn't make their case.

ChrisAtRU , October 23, 2018 at 7:19 pm

Joe B. is part of AMI (American Monetary Institute). This installment from NEP should sort you out.

#MMT v #AMI/#PositiveMoney

Yves Smith , October 23, 2018 at 9:43 pm

The AMI people are a real problem, and the worst is that they use enough lingo that sounds MMT-like that they confuse people about MMT. They are also presumptuous as hell. I was part of an Occupy Wall Street group, Alternative Banking. Every week, a group came and kept trying to hijack the discussion to be about Positive Money. They got air time because that's Occupy but everyone else regarded them as an annoyance.

One Sunday, the president of AMI showed up in a suit, uninvited, and expected to be able to take over the group and lecture. The rules were everyone on stack got only 2 or 3 minutes each (I forget how long) and then had to cede the floor. Since everyone else was too polite, I was the one who had to shut him up by blowing up at him and telling him he was totally out of line and had no business abusing the group's rules. That is the only time in my WASPy life I have carried on like that in a public setting. Broke up the meeting, which reconvened only after he left.

ChrisAtRU , October 24, 2018 at 12:22 pm

#Yikes I learned early on to avoid the #PositiveMoney trap, and this anecdote should convince others of the same.

skippy , October 24, 2018 at 12:41 am

All part of the broader sound money camp, not unlike Mr. Volcker's recent NYT piece.

[Oct 09, 2018] US Russia Sanctions Are 'A Colossal Strategic Mistake', Putin Warns

Oct 09, 2018 | russia-insider.com

Russian President Vladimir Putin accused Washington of making a "colossal" but "typical" mistake by exploiting the dominance of the dollar by levying economic sanctions against regimes that don't bow to its whims.

"It seems to me that our American partners make a colossal strategic mistake," Putin said.

"This is a typical mistake of any empire," Putin said, explaining that the US is ignoring the consequences of its actions because its economy is strong and the dollar's hegemonic grasp on global markets remains intact. However "the consequences come sooner or later."

These remarks echoed a sentiment expressed by Putin back in May, when he said that Russia can no longer trust the US dollar because of America's decisions to impose unilateral sanctions and violate WTO rules.

... ... ...

With the possibility of being cut off from the dollar system looming, a plan prepared by Andrei Kostin, the head of Russian bank VTB, is being embraced by much of the Russian establishment. Kostin's plan would facilitate the conversion of dollar settlements into other currencies which would help wean Russian industries off the dollar. And it already has the backing of Russia's finance ministry, central bank and Putin.

Meanwhile, the Kremlin is also working on deals with major trading partners to accept the Russian ruble for imports and exports.

In a sign that a united front is forming to help undermine the dollar, Russia's efforts have been readily embraced by China and Turkey, which is unsurprising, given their increasingly fraught relationships with the US. During joint military exercises in Vladivostok last month, Putin and Chinese President Xi Jinping declared that their countries would work together to counter US tariffs and sanctions.

"More and more countries, not only in the east but also in Europe, are beginning to think about how to minimise dependence on the US dollar," said Dmitry Peskov, Mr Putin's spokesperson. "And they suddenly realise that a) it is possible, b) it needs to be done and c) you can save yourself if you do it sooner."

[Oct 09, 2018] The Continuing Dominance of the Dollar by Josepth Joyce

Notable quotes:
"... Financial Times ..."
"... Global Financial Stability ..."
Oct 09, 2018 | angrybearblog.com

Why does the dollar continue to possess a hegemonic status a decade after the crisis that seemed to signal an end to U.S.-U.K. dominated finance? Gillian Tett of the Financial Times offers several reasons. The first is the global reach of U.S. based banks. U.S. banks are seen as stable, particularly when compared to European banks. Any listing of the largest international banks will be dominated by Chinese banks, and these institutions have expanded their international business . But the Chinese banks will conduct business in dollars when necessary. Tett's second reason is the relative strength of the U.S. economy, which grew at a 4.1% pace in the second quarter. The third reason is the liquidity and credibility of U.S. financial markets, which are superior to those of any rivals.

The U.S. benefits from its financial dominance in several ways. Jeff Sachs of Columbia University points out that the cost of financing government deficits is lower due to the acceptance of U.S. Treasury securities as "riskless assets." U.S. banks and other institutions earn profits on their foreign operations. In addition, the use of our banking network for international transactions provides the U.S. government with a powerful foreign policy tool in the form of sanctions that exclude foreign individuals, firms or governments from this network .

There are risks to the system with this dependence. As U.S. interest rates continue to rise, loans that seemed reasonable before now become harder to finance. The burden of dollar-denominated debt also increases as the dollar appreciates. These developments exacerbate the repercussions of policy mistakes in Argentina and Turkey, but also affect other countries as well.

The IMF in its latest Global Financial Stability (see also here ) identifies another potential destabilizing feature of the current system. The IMF reports that the U.S. dollar balance sheets of non-U.S. banks show a reliance on short-term or wholesale funding. This reliance leaves the banks vulnerable to a liquidity freeze. The IMF is particularly concerned about the use of foreign exchange swaps, as swap markets can be quite volatile. While central banks have stablished their own network of swap lines , these have been criticized .

The status of the dollar as the primary international currency is not welcomed by foreign governments. The Russian government, for example, is seeking to use other currencies for its international commerce. China and Turkey have offered some support, but China is invested in promoting the use of its own currency. In addition, Russia's dependence on its oil exports will keep it tied to the dollar.

But interest in formulating a new international payments system has now spread outside of Russia and China. Germany's Foreign Minister Heiko Maas has called for the establishment of "U.S. independent payment channels" that would allow European firms to continue to deal with Iran despite the U.S. sanctions on that country. Chinese electronic payments systems are being used in Europe and the U.S. The dollar may not be replaced, but it may have to share its role as an international currency with other forms of payment if foreign nations calculate that the benefits of a new system outweigh its cost. Until now that calculation has always favored the dollar, but the reassessment of globalization initiated by the Trump administration may have lead to unexpected consequences.

[Oct 08, 2018] The city of Los Angeles has on its ballot for the November elections a measure to create a city-owned bank.

Oct 08, 2018 | www.moonofalabama.org

Grieved , Oct 7, 2018 4:13:53 PM | link

Our commenter psychohistorian and others interested in public banking, and the concept of money as a public utility rather than a private (and profit-gouging) instrument, may want to watch the latest Keiser Report, which has an interview with Ellen Brown.

Brown relates that the city of Los Angeles has on its ballot for the November elections a measure to create a city-owned bank. This was put on the ballot by the city council itself, prompted by a groundswell of support coming from constituents.

The rapid-fire interview doesn't go deeply into the politics behind this citizen initiative, but it seems like a happy story of young millennials looking for an alternative to Wall Street banks, and learning from Brown and others about the strong value of the public bank.

An interesting turn of events. The interview starts in the second half of the show at 14:40:

Episode 1289 Keiser Report

[Oct 02, 2018] Randy Wray Modern Monetary Theory How I Came to MMT and What I Include in MMT naked capitalism

Notable quotes:
"... By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives ..."
"... Treatise on Money ..."
"... State Theory of Money ..."
"... Money and Credit in Capitalist Economies ..."
"... Understanding Modern Money ..."
"... Modern Money Theory ..."
"... Payback: Debt and the shadow side of wealth ..."
"... Reclaiming the State ..."
"... Austerity: The History of a Dangerous Idea ..."
"... permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. ..."
"... that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. ..."
"... income inequality ..."
"... even after paying interest ..."
"... It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945). ..."
"... After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received. ..."
"... See: https://mythfighter.com/2018/08/27/ten-answers-that-are-contrary-to-popular-wisdom/ ..."
"... There is no avoiding bad government. ..."
"... "Taxes or other obligations (fees, fines, tribute, tithes) drive the currency." ..."
"... "JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability." ..."
Oct 02, 2018 | www.nakedcapitalism.com

Randy Wray: Modern Monetary Theory – How I Came to MMT and What I Include in MMT Posted on October 2, 2018 by Yves Smith By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives

I was asked to give a short presentation at the MMT conference. What follows is the text version of my remarks, some of which I had to skip over in the interests of time. Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT.

I'd also like to quickly respond to some comments that were made at the very last session of the conference -- having to do with "approachability" of the "original" creators of MMT. Like Bill Mitchell, I am uncomfortable with any discussion of "rockstars" or "heroes". I find this quite embarrassing. As Bill said, we're just doing our job. We are happy (or, more accurately pleasantly surprised) that so many people have found our work interesting and useful. I'm happy (even if uncomfortable) to sign books and to answer questions at such events. I don't mind emailed questions, however please understand that I receive hundreds of emails every day, and the vast majority of the questions I get have been answered hundreds, thousands, even tens of thousands of times by the developers of MMT. A quick reading of my Primer or search of NEP (and Bill's blog and Warren's blogs) will reveal answers to most questions. So please do some homework first. I receive a lot of "questions" that are really just a thinly disguised pretense to argue with MMT -- I don't have much patience with those. Almost every day I also receive a 2000+ word email laying out the writer's original thesis on how the economy works and asking me to defend MMT against that alternative vision. I am not going to engage in a debate via email. If you have an alternative, gather together a small group and work for 25 years to produce scholarly articles, popular blogs, and media attention -- as we have done for MMT -- and then I'll pay attention. That said, here you go: wrayr@umkc.edu .

******************************************************************************

As an undergraduate I studied psychology and social sciences -- but no economics, which probably gave me an advantage when I finally did come to economics. I began my economics career in my late 20's studying mostly Institutionalist and Marxist approaches while working for the local government in Sacramento. However, I did carefully read Keynes's General Theory at Sacramento State and one of my professors -- John Henry -- pushed me to go to St. Louis to study with Hyman Minsky, the greatest Post Keynesian economist.

I wrote my dissertation in Bologna under Minsky's direction, focusing on private banking and the rise of what we called "nonbank banks" and "off-balance sheet operations" (now called shadow banking). While in Bologna, I met Otto Steiger -- who had an alternative to the barter story of money that was based on his theory of property. I found it intriguing because it was consistent with some of Keynes's Treatise on Money that I was reading at the time. Also, I had found Knapp's State Theory of Money -- cited in both Steiger and Keynes–so I speculated on money's origins (in spite of Minsky's warning that he didn't want me to write Genesis ) and the role of the state in my dissertation that became a book in 1990 -- Money and Credit in Capitalist Economies -- that helped to develop the Post Keynesian endogenous money approach.

What was lacking in that literature was an adequate treatment of the role of the state–which played a passive role -- supplying reserves as demanded by private bankers -- that is the Post Keynesian accommodationist or Horzontalist approach. There was no discussion of the relation of money to fiscal policy at that time. As I continued to read about the history of money, I became more convinced that we need to put the state at the center. Fortunately I ran into two people that helped me to see how to do it.

First there was Warren Mosler, who I met online in the PKT discussion group; he insisted on viewing money as a tax-driven government monopoly. Second, I met Michael Hudson at a seminar at the Levy Institute, who provided the key to help unlock what Keynes had called his "Babylonian Madness" period -- when he was driven crazy trying to understand early money. Hudson argued that money was an invention of the authorities used for accounting purposes. So over the next decade I worked with a handful of people to put the state into monetary theory.

As we all know, the mainstream wants a small government, with a central bank that follows a rule (initially, a money growth rate but now some version of inflation targeting). The fiscal branch of government is treated like a household that faces a budget constraint. But this conflicts with Institutionalist theory as well as Keynes's own theory. As the great Institutionalist Fagg Foster -- who preceded me at the University of Denver–put it: whatever is technically feasible is financially feasible. How can we square that with the belief that sovereign government is financially constrained? And if private banks can create money endogenously -- without limit -- why is government constrained?

My second book, in 1998, provided a different view of sovereign spending. I also revisited the origins of money. By this time I had discovered the two best articles ever written on the nature of money -- by Mitchell Innes. Like Warren, Innes insisted that the dollar's value is derived from the tax that drives it. And he argued this has always been the case. This was also consistent with what Keynes claimed in the Treatise, where he said that money has been a state money for the past four thousand years, at least. I called this "modern money" with intentional irony -- and titled my 1998 book Understanding Modern Money as an inside joke. It only applies to the past 4000 years.

Surprisingly, this work was more controversial than the earlier endogenous money research. In my view it was a natural extension -- or more correctly, it was the prerequisite to a study of privately created money. You need the state's money before you can have private money. Eventually our work found acceptance outside economics -- especially in law schools, among historians, and with anthropologists.

For the most part, our fellow economists, including the heterodox ones, attacked us as crazy.

I benefited greatly by participating in law school seminars (in Tel Aviv, Cambridge, and Harvard) on the legal history of money -- that is where I met Chris Desan and later Farley Grubb, and eventually Rohan Grey. Those who knew the legal history of money had no problem in adopting MMT view -- unlike economists.

I remember one of the Harvard seminars when a prominent Post Keynesian monetary theorist tried to argue against the taxes drive money view. He said he never thinks about taxes when he accepts money -- he accepts currency because he believes he can fob it off on Buffy Sue. The audience full of legal historians broke out in an explosion of laughter -- yelling "it's the taxes, stupid". All he could do in response was to mumble that he might have to think more about it.

Another prominent Post Keynesian claimed we had two things wrong. First, government debt isn't special -- debt is debt. Second, he argued we don't need double entry book-keeping -- his model has only single entry book-keeping. Years later he agreed that private debt is more dangerous than sovereign debt, and he's finally learned double-entry accounting. But of course whenever you are accounting for money you have to use quadruple entry book-keeping. Maybe in another dozen years he'll figure that out.

As a student I had read a lot of anthropology -- as most Institutionalists do. So I knew that money could not have come out of tribal economies based on barter exchange. As you all know, David Graeber's book insisted that anthropologists have never found any evidence of barter-based markets. Money preceded market exchange.

Studying history also confirmed our story, but you have to carefully read between the lines. Most historians adopt monetarism because the only economics they know is Friedman–who claims that money causes inflation. Almost all of them also adopt a commodity money view -- gold was good money and fiat paper money causes inflation. If you ignore those biases, you can learn a lot about the nature of money from historians.

Farley Grubb -- the foremost authority on Colonial currency -- proved that the American colonists understood perfectly well that taxes drive money. Every Act that authorized the issue of paper money imposed a Redemption Tax. The colonies burned all their tax revenue. Again, history shows that this has always been true. All money must be redeemed -- that is, accepted by its issuer in payment. As Innes said, that is the fundamental nature of credit. It is written right there in the early acts by the American colonies. Even a gold coin is the issuer's IOU, redeemed in payment of taxes. Once you understand that, you understand the nature of money.

So we were winning the academic debates, across a variety of disciplines. But we had a hard time making progress in economics or in policy circles. Bill, Warren, Mat Forstater and I used to meet up every year or so to count the number of economists who understood what we were talking about. It took over decade before we got up to a dozen. I can remember telling Pavlina Tcherneva back around 2005 that I was about ready to give it up.

But in 2007, Warren, Bill and I met to discuss writing an MMT textbook. Bill and I knew the odds were against us -- it would be for a small market, consisting mostly of our former students. Still, we decided to go for it. Here we are -- another dozen years later -- and the textbook is going to be published. MMT is everywhere. It was even featured in a New Yorker crossword puzzle in August. You cannot get more mainstream than that.

We originally titled our textbook Modern Money Theory , but recently decided to just call it Macroeconomics . There's no need to modify that with a subtitle. What we do is Macroeconomics. There is no coherent alternative to MMT.

A couple of years ago Charles Goodhart told me: "You won. Declare victory but be magnanimous about it." After so many years of fighting, both of those are hard to do. We won. Be nice.

Let me finish with 10 bullet points of what I include in MMT:

1. What is money: An IOU denominated in a socially sanctioned money of account. In almost all known cases, it is the authority -- the state -- that chooses the money of account. This comes from Knapp, Innes, Keynes, Geoff Ingham, and Minsky.

2. Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability to impose such obligations is an important aspect of sovereignty; today states alone monopolize this power. This comes from Knapp, Innes, Minsky, and Mosler.

3. Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU denominated in the recognized money of account; but acceptance can be hard to get unless you have the state backing you up. This is Minsky.

4. The word "redemption" is used in two ways -- accepting your own IOUs in payment and promising to convert your IOUs to something else (such as gold, foreign currency, or the state's IOUs).

The first is fundamental and true of all IOUs. All our gold bugs mistakenly focus on the second meaning -- which does not apply to the currencies issued by most modern nations, and indeed does not apply to most of the currencies issued throughout history. This comes from Innes and Knapp, and is reinforced by Hudson's and Grubb's work, as well as by Margaret Atwood's great book: Payback: Debt and the shadow side of wealth .

5. Sovereign debt is different. There is no chance of involuntary default so long as the state only promises to accept its currency in payment. It could voluntarily repudiate its debt, but this is rare and has not been done by any modern sovereign nation.

6. Functional Finance: finance should be "functional" (to achieve the public purpose), not "sound" (to achieve some arbitrary "balance" between spending and revenues). Most importantly, monetary and fiscal policy should be formulated to achieve full employment with price stability. This is credited to Abba Lerner, who was introduced into MMT by Mat Forstater.

In its original formulation it is too simplistic, summarized as two principles: increase government spending (or reduce taxes) and increase the money supply if there is unemployment (do the reverse if there is inflation). The first of these is fiscal policy and the second is monetary policy. A steering wheel metaphor is often invoked, using policy to keep the economy on course. A modern economy is far too complex to steer as if you were driving a car. If unemployment exists it is not enough to say that you can just reduce the interest rate, raise government spending, or reduce taxes. The first might even increase unemployment. The second two could cause unacceptable inflation, increase inequality, or induce financial instability long before they solved the unemployment problem. I agree that government can always afford to spend more. But the spending has to be carefully targeted to achieve the desired result. I'd credit all my Institutionalist influences for that, including Minsky.

7. For that reason, the JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability. This comes from Minsky's earliest work on the ELR, from Bill Mitchell's work on bufferstocks and Warren Mosler's work on monopoly price setting.

8. And also for that reason, we need Minsky's analysis of financial instability. Here I don't really mean the financial instability hypothesis. I mean his whole body of work and especially the research line that began with his dissertation written under Schumpeter up through his work on Money Manager Capitalism at the Levy Institute before he died.

9. The government's debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balances sheets because what you are saying is nonsense. Fortunately, I had learned T-accounts from John Ranlett in Sacramento (who also taught Stephanie Kelton from his own, great, money and banking textbook -- it is all there, including the impact of budget deficits on bank reserves). Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.

10. Rejection of the typical view of the central bank as independent and potent. Monetary policy is weak and its impact is at best uncertain -- it might even be mistaking the brake pedal for the gas pedal. The central bank is the government's bank so can never be independent. Its main independence is limited to setting the overnight rate target, and it is probably a mistake to let it do even that. Permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. I credit Keynes, Minsky, Hudson, Mosler, Eric Tymoigne, and Scott Fullwiler for much of the work on this.

That is my short list of what MMT ought to include. Some of these traditions have a very long history in economics. Some were long lost until we brought them back into discussion. We've integrated them into a coherent approach to Macro. In my view, none of these can be dropped if you want a macroeconomics that is applicable to the modern economy. There are many other issues that can be (often are) included, most importantly environmental concerns and inequality, gender and race/ethnicity. I have no problem with that.

Hilary Barnes , October 2, 2018 at 3:01 am

Out of my depth: "7. For that reason, the JG is a critical component of MMT." The JG?

BillC , October 2, 2018 at 3:07 am

Job guarantee (especially as distinguished from a basic income guarantee). See here for fairly recent coverage by Lambert.

Epistrophy , October 2, 2018 at 6:16 am

I had exactly the same question. Thank you.

skippy , October 2, 2018 at 7:04 am

A JG is to discontinue NAIRU or structural under-unemployment with attendant monetarist/quasi inflation views. Something MMT has be at pains to point out wrt fighting a nonexistent occurrence due to extended deflationary period.

dcrane , October 2, 2018 at 5:31 am

The paragraph on "double entry book-keeping" is also a bit too inside-baseball. Otherwise I enjoyed the essay.

PlutoniumKun , October 2, 2018 at 6:11 am

Yup, he lost me on quadruple entry book-keeping, thats the first time I ever heard of that concept.

Quanka , October 2, 2018 at 8:02 am

Its double entry accounting counting both sides of the equation. Fed deposits money into bank requires 4 entries, a double entry for the Fed and for the bank. Typical double entry accounting only looks at the books of 1 entity at a time. Quadruple Entry accounting makes the connection between the government monetary policy and private business accounting. I'm not an accountant, I may have butchered that.

todde , October 2, 2018 at 12:15 pm

that's pretty much it

Peter Pan , October 2, 2018 at 1:37 pm

Does Steve Keen's "Minsky" program utilize quadruple-entry bookkeeping?

Todde , October 2, 2018 at 1:47 pm

Double entry

Grebo , October 2, 2018 at 3:12 pm

Yes it does. Double entry for each party to the transaction.

todde , October 2, 2018 at 3:29 pm

you are right – it does give each parties transactions.

horostam , October 2, 2018 at 8:43 am

think about banks and reserves, your money is on the bank's liability side (and your asset), while the reserves are on the bank's asset side (and gov't or fed's liability.)

i think its the reserves that quadruple it, reserves are confusing because when you move $5 from a bank account to buy ice cream its not just one copy of the $5 that moves between checking accounts, there is another $5 that moves "under the hood" so to speak in reserve world

HotFlash , October 2, 2018 at 12:10 pm

Very briefly, double entry bookkeeping keeps track of how money comes in/out, and where it came from/went. Cash is the determining item (although there may be a few removes). Hence, say I buy a $20 dollar manicure from you. I record my purchase as "Debit (increase) expense: manicure $20, credit (decrease) cash, $20". Bonus! If my bookkeeping is correct, my debits and credits are equal and if I add them up (credits are minus and debits are plus) the total is zero – my books "balance". So, double-entry bookkeeping is also a hash-total check on my accounting accuracy. But I digress.

On your books, the entry would be "Debit (increase) cash $20, credit (decrease) sales, $20".

So, your double-entry book plus my double-entry books would be quadruple-entry accounting.

JCC , October 2, 2018 at 9:40 am

#7 was my immediate stopper, too. It drives me nuts when people introduce 2-3-4 letter acronyms with no explanation (I work for the DoD and I'm surrounded by these "code words". I rarely know what people are talking about and when I ask, the people talking rarely know what these TLAs – T hree L etter A cronyms – stand for either!).

Next question regarding #7: What is ELR?

Other than #7, I really appreciate this article. NC teaches and/or clarifies on a daily basis.

Mel , October 2, 2018 at 10:11 am

Employer of Last Resort? (Wikipedia)

Matthew Platte , October 2, 2018 at 11:29 am

DoD?

JCC , October 2, 2018 at 2:45 pm

Guilty as charged :-)

For non-US readers, DoD is D epartment o f D efense, the undisputed-by-many home of TLAs.

lyman alpha blob , October 2, 2018 at 3:10 pm

Ha! I really love this blog.

somecallmetim , October 2, 2018 at 12:51 pm

NC?

;)

Bill C , October 2, 2018 at 3:02 am

Thank you for this post!

This quick, entertaining read is IMHO nothing less than a "Rosetta Stone" that can bring non-specialists to understand MMT: not just how , but why it differs from now-conventional neoliberal economics. I hope it finds a wide readership and that its many references to MMT's antecedents inspire serious study by the unconvinced (and I hope they don't take Wray's invitation to skip the 10 bullet points).

This piece is a fine demonstration of why I've missed Wray as he seemed to withdraw from public discourse for the last few years.

HotFlash , October 2, 2018 at 12:14 pm

No no! He said "Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT."

el_tel , October 2, 2018 at 4:55 am

Thank you! The (broad) analogies with my own experience are there. I had a decidedly "mainstream" macro education at Cambridge (UK); though many of the "old school" professors/college Fellows who, although not MMT people as we'd currently understand (or weren't at *that* stage – Godley lectured a module I took but this was in the early 1990s) were still around, in hindsight the "university syllabus" (i.e. what you needed to regurgitate to pass exams) had already steered towards neoliberalism. I never really understood why I never "got" macro and it was consistently my weakest subject.

It was later, having worked in the City of London, learned accountancy in my actuarial training, and then most crucially starting reading blogs from people who went on to become MMT leading lights, that I realised the problem wasn't ME, it was the subject matter. So I had to painfully unlearn much of what I was taught and begin the difficult process of getting my head around a profoundly different paradigm. I still hesitate to argue the MMT case to friends, since I don't usually have to hand the "quick snappy one liners" that would torpedo their old discredited understanding.

I'm still profoundly grateful for the "old school" Cambridge College Fellows who were obviously being sidelined by the University and who taught me stuff like the Marxist/Lerner critiques, British economic history, political economy of the system etc. Indeed whilst I had "official" tutorials with a finance guy who practically came whenever Black-Scholes etc was being discussed, an old schooler was simultaneously predicting that it would blow the world economy up at some point (and of course he was in the main , correct). I still had to fill in some gaps in my knowledge (anthropology was not a module, though Marxist economics was), with hindsight I appreciate so much more of what the "old schoolers" said on the sly during quiet points in tutorials – Godley being one, although he wasn't ready at that time to release the work he subsequently published and was so revolutionary. Having peers educated elsewhere during my Masters and PhD who knew nothing of the subjects that – whilst certainly not the "key guide" to "proper macro" described in the article – began to horrify me later in my career.

skippy , October 2, 2018 at 5:07 am

Thanks for your efforts Mr Wray, your provide a rich resource to familiarize most and in some cases refute doctrinaire attitudes. Kudos.

BTW completely agree with the perspective against PR marketing of the topic or individuals wrt MMT or PK.

Lambert Strether , October 2, 2018 at 5:23 am

This is really great. Thanks a ton, as Yves would say.

I know I have used to "rock star" metaphor on occasion, so let me explain that to me what is important in excellent (i.e., live) rock and roll is improvisational interplay among the group members -- the dozen or so who understood MMT in the beginning, in this case -- who know the tune, know each other, and yet manage to make the song a little different each time. It's really spectacular to see in action. Nothing to do with spotlights, or celebrity worship, or fandom!

DavidEG , October 2, 2018 at 5:54 am

I'm no MMT expert, but I think this article does a good job of juxtaposing MMT with classic (non-advanced) macroeconomics. I quote:

In the language of Tinbergen (1952), the debate between MMT and mainstream macro can be thought of as a debate over which instrument should be assigned to which target. The consensus assignment is that the interest rate, under the control of an independent central bank, should be assigned to the output gap target, while the fiscal position, under control of the elected budget authorities, should be assigned to the debt sustainability target. [ ] The functional finance assignment is the reverse -- the fiscal balance under the budget authorities is assigned to the output target, while any concerns about debt sustainability are the responsibility of the monetary authority.

What about interest rate fixing? The central bank would remain in charge of that, but in an MMT context this instrument would lose most of its relevance:

[W]hile a simple swapping of instruments and targets is one way to think about functional finance, this does not describe the usual MMT view of how the policy interest rate should be set. What is generally called for, rather, is that the interest rate be permanently kept at a very low level, perhaps zero. In an orthodox policy framework, of course, this would create the risk of runaway inflation; but keep in mind that in the functional framework, the fiscal balance is set to whatever level is consistent with price stability.

It may be a partial reconstruction of MMT, but to me this seems to be a neat way to present MMT to most people. Saying that taxes are there just to remove money from the economy or to provide incentives is a rather extreme statement that is bound to elicit some fierce opposition.

Having said that, I've never seen anyone address what I think are two issues to MMT: how to make sure that the power to create money is not exploited by a political body in order to achieve consensus, and how to assure that the idea of unlimited monetary resources do not lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry would probably be a good example).

larry , October 2, 2018 at 6:14 am

The best comparison of MMT with neoliberal neoclassical economics, in my view, is Bill Mitchell's blog post, "How to Discuss Modern Monetary Theory" ( http://bilbo.economicoutlook.net/blog/?p=25961 ). I especially recommend the table near the end as a terrific summary of the differences between the mainstream narrative and MMT.

el_tel , October 2, 2018 at 8:53 am

Thanks! I have enormous respect for Mitchell, given the quantity and quality of his blogging. However, my only nitpick is that a lot of his blog entries are quite long and "not easily digestible". I have long thought that one of those clever people who can do those 3 minute rapid animation vids we see on youtube is needed to "do a Lakoff" and change the metaphors/language. But this post of Mitchell (which I missed, since I don't read all his stuff) is, IMHO, his best at "re-orienting us".

kgw , October 2, 2018 at 11:15 am

I get this "http's server IP address could not be found." I'll try, gasp, googling it

el_tel , October 2, 2018 at 11:24 am

FWIW I mucked around with the link in Firefox (although I typically use Opera, which gave me that same error) and could read it.

Epistrophy , October 2, 2018 at 6:34 am

Saying that taxes are there just to remove money from the economy or to provide incentives is a rather extreme statement that is bound to elicit some fierce opposition.

Yes this is a frightening statement. The power to tax is the power to destroy. If this is a foundation point of the proposal then

Having said that, I've never seen anyone address what I think are two issues to MMT: how to make sure that the power to create money is not exploited by a political body in order to achieve consensus, and how to assure that the idea of unlimited monetary resources do not lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry would probably be a good example).

Bingo. My thoughts exactly. Too much power in the hands of the few. Easy to slide into Orwell's Animal Farm – where some people are more equal than others.

MMT is based upon very good intentions but, in my view, there is a moral rot at the root of the US of A's problems, not sure this can be solved by monetary policy and more centralized control.

And the JG? Once the government starts to permanently guarantee jobs

skippy , October 2, 2018 at 7:12 am

I suggest you delve into what is proposed by the MMT – PK camp wrt a JG because its not centralized in the manner you suggest. It would be more regional and hopefully administrated via social democratic means e.g. the totalitarian aspect is moot.

I think its incumbent on commenters to do at least a cursory examination before heading off on some deductive rationalizations, which might have undertones of some book they read e.g. environmental bias.

Epistrophy , October 2, 2018 at 7:38 am

Skippy, I read the article, plus the links, including those links of the comments. I will admit that I am a little more right of center in my views than many on the website.

The idea is interesting, but the administration of such a system would require rewriting the US Constitution, or an Amendment to it if one thinks the process through, would it not? I think of the Amendment required to create the Federal Reserve System when I say this.

skippy , October 2, 2018 at 7:45 am

I think WWII is instructive here.

Clive , October 2, 2018 at 7:58 am

One thing I really don't like at all -- and I've crossed swords with many over this -- is that we do tend to take (not just in the US, this is prevalent in far too many places) things like the constitution, or cultural norms, or traditions or other variants of "that's the way we've always done this" and elevate them to a level of sacrosanctity.

Not for one moment am I suggesting that we should ever rush into tweaking such devices lightly nor without a great deal of analysis and introspective consultations.

Constitutions get amended all the time. The Republic of Ireland changed its to renounce a territorial claim on Northern Ireland. The U.K. created a right for Scotland to secede from the Union. There's even a country in Europe voting whether to formally change its name right now. Britain "gave up" its empire territories (not, I would add speedily, without a lot of prodding, but still, we got there in the end). All of which were, at one time or another, "unthinkable". Even the US, perhaps the most inherently resistant to change country when it thinks it's being "forced" to do so, begrudgingly acknowledged Cuba.

If something is necessary, it should be done.

vlade , October 2, 2018 at 8:06 am

Human laws (any and all, for simplicity I include culture, customs etc.. here) are not laws of nature.

They change over time to survive. The easy way, or the hard way.

Or they don't survive at all, that's an option too.

witters , October 2, 2018 at 9:09 am

"Human laws (any and all, for simplicity I include culture, customs etc.. here) are not laws of nature."

Wave Function Collapse?

voteforno6 , October 2, 2018 at 8:14 am

Why would a jobs guarantee require a constitutional amendment? The federal government creates jobs all the time, with certain defined benefits. This would merely expand upon that, to potentially include anyone who wants a job.

Epistrophy , October 2, 2018 at 8:26 am

I was thinking of implementing the whole concept of MMT, of which the JG is but one part, with this statement. Perhaps I did not make that clear.

voteforno6 , October 2, 2018 at 8:36 am

There are a couple different aspects of this that people are getting mixed together, I think. The core of MMT is not a proposal for government to implement. Rather, it is simply a description of how sovereign currencies actually operate, as opposed by mainstream economics, which has failed in this regard. In other words, we don't need any new laws to implement MMT – we need a paradigm shift.

The Jobs Guarantee is a policy proposal that flows from this different paradigm.

skippy , October 2, 2018 at 3:16 pm

It has been stated many times that it is to inform policy wrt to potential and not some booming voice from above dictating from some ridged ideology.

Persoanly as a capitalist I can't phantom why anyone would want structural under – unemployment. Seems like driving around with the hand brake on and then wondering why performance is restricted or parts wear out early.

todde , October 2, 2018 at 4:37 pm

Power.

I want 12 people lined up at the door to take your job, and then you will know where the power lies

Carla , October 2, 2018 at 11:18 am

Re-writing the U.S. Constitution is something people think about and talk about all the time, FYI.

todde , October 2, 2018 at 1:08 pm

the Amendment required to create the Federal Reserve System

What Amendment was that?

And since the Constitution gives Congress the power to coin money I am unaware of any reason an amendment would be necessary.

Epistrophy , October 2, 2018 at 3:43 pm

Thinking of the Federal Reserve Act being enabled by the Federal Income Tax of the 16th Amendment.

Using Federal taxes to fund the JG; I do not think that this aspect of it (and others) would survive a Constitutional challenge. Therefore ultimately an Amendment might be needed.

Then again I may be wrong. Technically Obamacare should have been implemented by an Amendment were strict Constitutional law applied.

Rights to health care and jobs are not enumerated in either the Constitution or Bill of Rights, as far as I am aware.

todde , October 2, 2018 at 4:05 pm

16th Amendment had nothing to do with the Federal Reserve.

And I think you are confusing 'you must buy health insurance or face a tax", with "You have a right to have healthcare".

If the government forced you to work, you may have a case.

There are 3 things the feds can spend federal funds on, pay debt, provide for the common defense, and the general welfare clause.

The General Welfare clause has been interpreted very widely in regards to Government spending.

New Deal, Social Security, Medicare/aid all survived court challenges, or if they lost, they lost on regulatory issues, and not 'spending' issues

Epistrophy , October 2, 2018 at 7:28 am

Not opposed to some of the principles of MMT, just don't understand, in this modern age where effectively all currency is electronic digits in a banking computer system, the issue of a currency must be tied to taxes. In years past, where currency was printed and in one's pocket, or stuffed under a mattress, or couriered by stagecoach, then yes – taxes would be needed. But today can we not just print (electronically) the cash needed for government operations each year based upon a fixed percentage of private sector GDP? Why therefore do we need government debt? Why do we need an income tax?

skippy , October 2, 2018 at 7:37 am

A. GDP is non distributional.

B. Had taxation not been promoted as theft in some camps Volcker would have not had to jack IR to such a upper bound during the Vietnam war.

C. Government Debt allocated to socially productive activities is a long term asset with distributional income vectors.

D. Ask the Greeks.

Epistrophy , October 2, 2018 at 7:48 am

Skippy, I have lived and worked in countries without income tax (but instead indirect tax) and where government operating revenue was based upon a percentage of projected national revenue. I have been involved in the administration of such budgets.

I am in favor of government spending, or perhaps more accurately termed investing, public money on long-term, economically beneficial projects. But this is not happening. The reality is that government priorities can easily be hijacked by political interests, as we currently witness.

larry , October 2, 2018 at 7:58 am

While I agree that political highjacking is possible and must be dealt with, this is not strictly speaking part of an economic theory, which is what MMT is. While MMT authors may take political positions, the theory itself is politically neutral.

Income taxes, tithes, or any other kind of driver is what drives the monetary circuit. Consider it from first principles. You have just set up a new government with a new currency where this government is the monopoly issuer. No one else has any money yet. So, the government must be the first spender. However, how is this nascent government going to motivate anyone to use this new currency? Via taxation, or like means, that can only be met by using the national currency, whatever form that currency may take, marks on a stick, paper, an entry in a ledger, or the like.

Epistrophy , October 2, 2018 at 8:34 am

Thank you for this explanation. I understand that, for example, this is why the Federal Reserve Act of 1913, I believe, created the Federal Reserve and Federal Income Tax at the same time.

But the US economy functioned adequately, survived a civil war, numerous banking crises, experienced industrialization, national railways, etc without a central bank or federal income tax from the 1790's to 1913.

To me, the US's state of perpetual war is enabled by Federal Income Tax. Without it the MIC would collapse, I am certain.

John k , October 2, 2018 at 10:31 am

Functioned adequately
During the 150 yr hard money period we had recessions/depressions that we're both far more frequent (every three years) and on avg far deeper than what we have had since fdr copied the brits and took us off the gold standard. Great deprecession was neither the longest or deepest.
Two reasons
Banks used to fail frequently, a run on one bank typically leading to runs on other banks, spreading across regions like prairie fires if your bank failed you lost all your money. Consequences were serious.
During GR so many banks failed in the Midwest, leading to farm foreclosures, the region was near armed insurrection in 1932. Fiat meant that the fed can supply unlimited liquidity. Since then banks have failed but immediately taken over by another. Critically, no depositor has lost a penny, even those with far more exposed than the deposit insurance limit. No runs on us banks since 1933.
Second, we now have auto stabilizers, spending continues during downturns because gov has no spending limit. Note previously in an emergency gov borrowed. 10 mil from J.P. Morgan.

Brian , October 2, 2018 at 11:30 am

But at what cost? no depositor loses money, yet huge amounts are required to be printed, thus devaluing the "currency". So is the answer inflation that must by necessity become hyperinflation?
I don't understand why it is important to protect a bank vs. making it perform its function without risking collapse. This is magical thinking as we have found very few banks in this world not ready and willing to pillage their clients, be it nations or just the little folk.
Why would anyone trust a government to do the right thing by its population? When has that ever worked out in favor of the people?
I can not understand the trust being demanded by this concept. It wants trust for the users, but in no way can it expect trust or virtue from the issuer of the "currency"

also, I can't help but think MMT is for growth at all costs. Hasn't the growth shown that it is pernicious in itself? Destroy the planet for the purpose of stabilizing "currency".

Our federal reserve gave banks trillions of dollars, and then demanded they keep much of it with the Fed and are paid interest not to use it. It inflated the "currency" in circulation yet again and now it is becoming clear a great percentage of people in our country can no longer eat, no longer purchase medications, a home, a business

If being on a hard money system as we were causes recessions and depressions, would we find that it was a natural function to cut off the speculators at their knees?

How does MMT promote and retain value for the actual working and producing people that have no recourse with their government? I would like to read about what is left out of this monumental equation.

TroyMcClure , October 2, 2018 at 12:10 pm

Money is not a commodity and does not "lose value" the more of it there is.

todde , October 2, 2018 at 12:57 pm

we used to protect the banks depositors and the government put the the bank in receivership.

That went away in the 21st century for some reason.

Now we protect the bank and put the Government in receivership (Greece).

todde , October 2, 2018 at 12:08 pm

Some points:

US had a federal income tax during the civil war and for a decade or so after.

I have always assumed that mass conscription and the Dreadnought arms race led to the implementation of the modern taxing/monetary system. (gov't needed both warfare and welfare)

Taxes, just as debt, create an artificial demand for currency as one must pay back their taxes in {currency}, and one must pay back debt in {currency}. It doesn't have to be an income tax, and I think a sales tax would be a better driver of demand than an income tax.

The US had land sales that helped fund government expenditures in the 1800s.

HotFlash , October 2, 2018 at 12:32 pm

Not all taxes are income taxes. Back in the day (20's/30's/40's),my grandfather could pay off the (county) property taxes on his farm by plowing snow for the county in the winter -- and he was damned careful to make sure that the county commissioners' driveways were plowed out as early as possible after a storm.

In the 30's/40's the property tax laws were changed to be payable only in dollars.

So Grandpa had to make cash crops. Things changed and money became necessary.

Benjamin Wolf , October 2, 2018 at 7:44 am

But today can we not just print (electronically) the cash needed for government operations each year based upon a fixed percentage of private sector GDP?

The élites could, but it would be totally undemocratic and the economics profession's track record of forecasting growth is no better than letting a cat choose a number written on an index card.

Why therefore do we need government debt?

There is no government debt. It's just a record of interest payments Congress has agreed to make because the wealthy wanted another welfare program.

Why do we need an income tax?

The only logically consistent purpose is because people have too much income.

voteforno6 , October 2, 2018 at 8:19 am

I think the point they're driving at, is that by requiring the payment of taxes in a particular currency, a government creates demand for that currency. There are other uses for federal taxes, not the least of which is to keep inflation in check.

Government debt is not needed, at least not at the federal level. My understanding of it is that it's a relic from the days of the gold standard. It's also very useful to some rather large financial institutions, so eliminating it would be politically difficult.

WobblyTelomeres , October 2, 2018 at 9:23 am

Wray has said in interviews that the debt (and associated treasury bonds), while not strictly necessary in a fiat currency, is of use in that it provides a safe base for investment, for pensioners and retirees, etc.

Sure, it could be eliminated by (a) trillion dollar platinum coins deposited at the Federal Reserve followed by (b) slowly paying off the existing debt when the bonds mature or (c) simply decreeing that the Fed must go to a terminal and type in 21500000000000 as the US Gov account balance (hope I got the number of zeroes correct!).

It could be argued that the US doesn't strictly need taxes to drive currency demand as long as our status as the world reserve currency is maintained (see oft-discussed petrodollar, Libya, etc). If that status is imperiled, say by an push by a coalition of nations to establish a different currency as the "world reserve currency") taxes would be needed to drive currency demand.

I think most of this is covered in one way or another here:

http://neweconomicperspectives.org/modern-monetary-theory-primer.html

HotFlash , October 2, 2018 at 12:39 pm

Government debt is not actually a 'real thing'. It is a residue of double-entry bookkeeping, as is net income (income minus expenses, that's a credit in the double-entry system). It could as well be called 'retained earnings (also a 'book' credit in the double-entry system). If everybody had to take bookkeeping in high school there would be far few knickers in knots!

Todde , October 2, 2018 at 3:10 pm

Its real if you pay an interest rate on it

Grebo , October 2, 2018 at 3:48 pm

There are two kinds of government 'debt': the accumulated deficit which is the money in circulation not a real debt, and outstanding bonds which is real in the sense that it must be repaid with interest.

However, the government can choose the interest rate and pay it (or buy back the bonds at any time) with newly minted money at no cost to itself, cf. QE.

Neither kind warrant bunched panties.

todde , October 2, 2018 at 4:39 pm

no panties bunched.

horostam , October 2, 2018 at 8:51 am

seems to me that the guaranteed jobs would be stigmatized, and make it harder for people to get private sector jobs. "once youre in the JG industry, its hard to get out" etc.

how much of a guarantee is the job guarantee supposed to be? ie. at what point can you get fired from a guaranteed job?

Epistrophy , October 2, 2018 at 9:31 am

Yes, my mind wandered into the same territory. While I agree that something needs to be done, it also has the potential to strike at the heart of a lean, merit-based system by introducing another layer of bureaucracy. In principle, I am not against the idea, but as they say, "God (or the Devil – take your pick) is in the details ".

The Rev Kev , October 2, 2018 at 9:48 am

Is there any point in working for a jobs guarantee when the only sort of jobs that would probably be guaranteed would be MacJobs and Amazon workers?

Newton Finn , October 2, 2018 at 11:23 am

If you haven't already read it, "Reclaiming the State" by Mitchell and Fazi (Pluto Press 2017) provides a detailed and cogent analysis of how neoliberalism came into ascendency, and how the principles of MMT can be used to pave the way to a more humane and sustainable economic system. A new political agenda for the left, drawing in a different way upon the nationalism that has energized the right, is laid out for those progressives who understand the necessity of broadening their appeal. And the jobs guarantee that MMT proposes has NOTHING to do with MacJobs and Amazon workers. It has to do with meeting essential human and environmental needs which are not profitable to meet in today's private sector.

HotFlash , October 2, 2018 at 12:51 pm

Job guarantee, or govt as employer of last resort -- now there is a social challenge/opportunity if there ever was one.

Well managed, it would guarantee a living wage to anyone who wants to work, thereby setting a floor on minimum wages and benefits that private employers would have to meet or exceed. These minima would also redound to the benefit of self-employed persons by setting standards re income and care (health, vacations, days off, etc) *and* putting money in the pockets of potential customers.

Poorly managed it could create the 'digging holes, filling them in' programs of the Irish Potato Famine ore worse (hard to imagine, but still ). It has often been remarked that the potato blight was endemic across Europe, it was only a famine in Ireland -- through policy choices.

So, MMT aside (as being descriptive, rather than prescriptive), we are down to who controls policy. And that is *really* scary.

Todde , October 2, 2018 at 3:11 pm

Government job guarantees is an idea as old as the pyramids.

Frankly so is mmt

Mel , October 2, 2018 at 11:34 am

In terms of power, the government has the power to shoot your house to splinters, or blow it up, with or without you in it. We say they're not supposed to, but they have the ability, and it has been done.
The question of how to hold your government to the things it's supposed to do applies to issues beyond money. We'd best deal with government power as an issue in itself. I should buckle down and get Mitchell's next-to-newest book Reclaiming the State .

HotFlash , October 2, 2018 at 12:56 pm

Ding ding ding!

Grebo , October 2, 2018 at 3:23 pm

Bill Mitchell was not too impressed with the INET paper: Part 1 .
There's three parts! Mitchell rarely has the time to be brief.

Tinky , October 2, 2018 at 6:02 am

I don't claim to fully understand MMT yet, but I find Wray's use of the derogatory term "gold bugs" to be both disappointing and revealing. To lump those, some of whom are quite sophisticated, who believe that currencies should be backed by something of tangible value (and no, "the military" misses the point), or those who hold physical gold as an insurance policy against political incompetence, and the inexorable degradation of fiat currencies, in with those who promote or hold gold in the hopes of hitting some type of lottery, is disingenuous at best.

Wukchumni , October 2, 2018 at 7:06 am

OMT seemingly has no reason to exist being old school, but for what it's worth, the almighty dollar has lost over 95% of it's value when measured against something that matters, since the divorce in 1971.

I found this passage funny, as in flipping the dates around to 1791, is when George Washington set an exchange rate of 1000-1 for old debauched Continental Currency, in exchange for newly issued specie. (there was no Federal currency issued until 1861)

So yeah, they burned all of their tax revenue, because the money wasn't worth jack.

Farley Grubb -- the foremost authority on Colonial currency -- proved that the American colonists understood perfectly well that taxes drive money. Every Act that authorized the issue of paper money imposed a Redemption Tax. The colonies burned all their tax revenue.

skippy , October 2, 2018 at 7:30 am

Gold bug is akin to money crank e.g. money = morals. That's not to mention all the evidence to date does not support the monetarist view nor how one gets the value into the inanimate object or how one can make it moral.

Benjamin Wolf , October 2, 2018 at 8:01 am

Gold doesn't historically perform as a hedge but as a speculative trade. Those who think it can protect them from political events typically don't realize that a gold standard means public control of the gold industry, thereby cutting any separation from the political process off at the knees.

When a government declares that $20 is equal in value to one ounce of gold, it also declares an ounce of gold is equal to $20 dollars. It is therefore fixing, through a political decision subject to political changes, the price of the commodity.

Tinky , October 2, 2018 at 9:44 am

Nonsense. When fiat currencies invariably degrade, and especially at a fast rate, gold has proven to be a relative store of value for millennia . All one need do is to look at Venezuela, Argentina, Turkey, etc., to see that ancient dynamic in action today.

You, and others who have replied to my comment, are using the classical gold standard as a straw man, as well. Neither I, nor many other gold "bugs" propose such a simple solution to the obviously failed current economy, which is increasingly based on mountains of debt that can never be repaid.

WobblyTelomeres , October 2, 2018 at 9:48 am

gold has proven to be a relative store of value for millennia.

As long as one is mindful that gold is just another commodity, subject to the same speculative distortions as any other commodity (see Hunt brothers and silver).

Tinky , October 2, 2018 at 9:54 am

But that is obviously false, given that no other commodity has remotely performed with such stability over such a long period of time.

It is true that over short periods distortions can appear, and the *true* value of gold has been suppressed in recent years through the use of fraudulent paper derivatives. But again, I'm not arguing for the return of a classical gold standard.

Wukchumni , October 2, 2018 at 10:13 am

The only way the gold standard returns, is if it's forced on the world on account of massive fraud in terms of fiat money, but that'll never happen.

WobblyTelomeres , October 2, 2018 at 10:56 am

Tinky:

I'm curious as to what you consider the "*true* value of gold". Could you elaborate?

I'm dense/obtuse and thus not an economist!

Tinky , October 2, 2018 at 11:18 am

Don't worry, I'm likely to be at least equally dense!

I didn't mean to suggest that there is some formula from which a *true* value of precious metals might be derived. I simply meant that gold has clearly been the object of price suppression in recent years through the use of paper derivatives (i.e. future contracts). The reason for such suppression, aside from short-term profits to be made, is that gold has historically acted as a barometer relating to political and economic stability, and those in power have a particular interest in suppressing such warning signals when the system becomes unstable.

So, while the Central Banks created previously unimaginable mountains of debt, it was important not to alarm the commoners.

The suppression schemes have become less effective of late, and will ultimately fail when the impending crisis unfolds in earnest.

Wukchumni , October 2, 2018 at 10:00 am

As long as one is mindful that gold is just another commodity, subject to the same speculative distortions as any other commodity

It sounds good in theory, but history says otherwise.

The value remained more or less the same for well over 500 years as far as an English Pound was concerned, the weight and value of a Sovereign hardly varied, and the exact weight and fineness of one struck today or any time since 1817, is the same, no variance whatsoever.

Thus there was no speculative distortions in terms of value, the only variance being the value of the Pound (= 1 Sovereign) itself.

https://en.wikipedia.org/wiki/Sovereign_(British_coin)

Benjamin Wolf , October 2, 2018 at 12:23 pm

When fiat currencies invariably degrade, and especially at a fast rate, gold has proven to be a relative store of value for millennia.

Currencies do not degrade. Political systems degrade.

Bridget , October 2, 2018 at 8:25 am

" who believe that currencies should be backed by something of tangible value"

As I understand it, MMT also requires that currency be backed by something of tangible value: a well managed and productive economy. It doesn't matter in the least if your debt is denominated in your own currency if you have the economy of Zimbabwe.

Tinky , October 2, 2018 at 9:48 am

Sounds reasonable in theory, but that was supposed to be the case with the current economic system, as well, and we can all see where that has led.

I'm not arguing that there isn't a theoretically better way to create and use "modern" money, but rather doubt that those empowered to create it out of thin air will ever do so without abusing such power.

Bridget , October 2, 2018 at 10:10 am

Oh, I agree with you. In no universe that I am aware of would the temptation to create money beyond the productive capacity of the economy to back it up be resisted. I think Zimbabwe is a pretty good example of where the theory goes in practice.

TroyMcClure , October 2, 2018 at 12:20 pm

That's exactly wrong. Zimbabwe had a production collapse. Same amount of money to buy a much smaller amount of goods. The gov responded not by increasing goods, but increasing money supply.

Bridget , October 2, 2018 at 1:30 pm

Maybe because the economy did not have the productive capacity to increase goods? It takes more than a magic wand and wishful thinking.

voteforno6 , October 2, 2018 at 8:29 am

Mark Blyth has a good discussion of the gold standard in his book Austerity: The History of a Dangerous Idea . He makes the point that, in imposing the adjustments necessary to keep the balance of payments flowing, the measures imposed by a government would be so politically toxic, that no elected official in his or her right mind would implement them, and expect to remain in office. In short, you can have either democracy, or a gold standard, but you can't have both.

Also, MMT does recognize that there are real world constraints on a currency, and that is represented by employment, not some artificially-imposed commodity such as gold (or bitcoin, or seashells, etc). The Jobs Guarantee flows out of this.

Tinky , October 2, 2018 at 9:50 am

As mentioned above, you, among others who have replied to my original comment, are using the classical gold standard as a straw manl. Neither I, nor many other gold "bugs", propose such a simple solution for the failed current economic system, which is increasingly based on mountains of debt that can never be repaid.

WobblyTelomeres , October 2, 2018 at 11:35 am

increasingly based on mountains of debt that can never be repaid.

Huh? I listed two ways they could be repaid above. In the US, the national debt is denominated in dollars, of which we have an infinite supply (fiat). In addition, the Federal Reserve could buy all the existing debt by [defer to quad-entry accounting stuff from Wray's primer] and then figuratively burn it. Sure, the rest of the world would be pissed and inflation *may* run amok, but "can never" is just flat out wrong.

Tinky , October 2, 2018 at 1:59 pm

Of course it can be extinguished through hyperinflation. I didn't think that it would be necessary to point that out. No "may" about it, though, as if the U.S. prints tens of trillions of dollars to extinguish the debt, hyperinflation will be assured.

todde , October 2, 2018 at 2:14 pm

not if it would be done over time, as the debt comes due.

We could also tax the excess dollars from the system with a large capital gains tax rate.

todde , October 2, 2018 at 3:04 pm

so I don't believe there will be a hyper-inflation of goods, but in asset prices. That is why I would raise the capital gains rate.

The failure of MMT is when the hyper-inflation occurs in goods and services.

Taxing a middle class person while his cost of living is rising will be a tough political act to do.

WobblyTelomeres , October 2, 2018 at 2:19 pm

I didn't think that it would be necessary to point that out.

Sorry, but I'm an old programmer; logic rules the roost. When one's software is expected to execute billions of times a day without fail for years (and this post is very likely routed through a device running an instance of something I've written). Always means every time, no exceptions; never means not ever, no matter what.

You said never.

Tinky , October 2, 2018 at 3:30 pm

Yes I did. I was simply being lazy, as I typically do add "except via hyperflation", when discussing debts that can only be repaid in that manner.

That "solution" is obviously no solution at all, as it would lead to chaos.

Interpret it any way that you wish.

todde , October 2, 2018 at 11:37 am

So what is the new solution proposed by 'gold bugs'?

Tinky , October 2, 2018 at 2:06 pm

I'm sure that there is no one solution proposed, though an alternative to the current system which seems plausible would be a currency backed by a basket of commodities, including gold.

todde , October 2, 2018 at 2:26 pm

and when commodity prices fluctuate you will still have government printing and eliminating money to maintain the price.

I would say, if that was the argument, stick to gold as it is one of the more stable commodities.

AlexHache , October 2, 2018 at 11:43 am

Can I ask what your solution would be? I don't think you've mentioned it.

HotFlash , October 2, 2018 at 1:08 pm

Hi Tinky, much late but still. Gold will have value as long as people believe it has value. But what will they trade it for? The bottom line is your life.

I don't have any gold, too expensive, and it really has no use. But I remember Dimitri Orlov's advice : I am long in needles, pins, thread, nails and screws, drill bits, saws, files, knives, seeds, manual tools of many sorts, mechanical skills and beer recipes. Plus I can sing.

Bridget , October 2, 2018 at 1:31 pm

Don't forget a nice supply of 30 year old single malt scotch!

Tinky , October 2, 2018 at 2:04 pm

The vast majority of people who hold physical gold are well aware of the value of having skills and supplies, etc., in case of a serious meltdown. But it's not a zero-sum game, as you suggest. Gold will inexorably rise sharply in value when today's fraudulent markets crash, and there will be plenty of opportunities for those who own it to trade it for other assets.

Furthermore, as previously mentioned, gold's utility is already on full display, to those who are paying attention, and not looking myopically through a USD lens.

Wukchumni , October 2, 2018 at 2:19 pm

Why not the GOILD standard?, one mineral moves everything, while the other just sits around gathering dust, after being extracted.

David Swan , October 2, 2018 at 2:28 pm

"Mountains of debt that can never be repaid" is a propaganda statement with no reference to any economic fact. Why do you feel that this "debt" needs to be "repaid"? It is simply an accounting artifact. The "debt" is all of the dollars that have been spent *into* the economy without having been taxed back *out*. The word "debt" activates your feels, but has no intrinsic meaning in this context. Please step back from your indoctrinated emotional reaction and understand that the so-called national "debt" is nothing more than money that has been created via public spending, and "repaying" it would be an act of destruction.

WobblyTelomeres , October 2, 2018 at 3:27 pm

THIS!!!

I keep telling (boring, annoying, infuriating) people that, in the simplest terms, the national debt is the money supply and they won't grasp that simple declaration. When I said it to my Freedom Caucus congress critter (we were seated next to each other on an exit aisle) his head started spinning, reminding me of Linda Blair in The Exorcist.

Tinky , October 2, 2018 at 3:44 pm

The debt may not have to be repaid, but the interest does have to be serviced. Good luck with that in the long run.

WobblyTelomeres , October 2, 2018 at 4:18 pm

As I said to my congress critter, if the debt bother's y'all so much, why not just pay it off, dust off your hands, and be done with it?

Personally, if I were President for a day, I'd have the mint stamp out 40 or so trillion dollar platinum coins just to fill the top right drawer of the Resolute desk. Would give me warm fuzzy feelings all day long.

p.s. I also told him that the man with nothing cares not about inflation. He didn't like that either.

MisterMr , October 2, 2018 at 8:46 am

"those, some of whom are quite sophisticated, who believe that currencies should be backed by something of tangible value (and no, "the military" misses the point), or those who hold physical gold as an insurance policy against political incompetence, and the inexorable degradation of fiat currencies"

I suspect that Wray exactly means that these people are the goldbugs, not the ones who speculate on gold.

The whole point that currencies should be backed by something of tangible value IMO is wrong, and I think the MMTers agree with me on this.

Tinky , October 2, 2018 at 9:56 am

If so, then he should clarify his position, as again, lumping the billions – literally – of people who consider gold to be economically important, together as one, is disingenuous.

skippy , October 2, 2018 at 3:55 pm

I think people that consider gold to be a risk hedge understand its anthro, per se an early example of its use was a fleck of golds equal weight to a few grains of wheat e.g. the gold did not store value, but was a marker – token of the wheat's value – labour inputs and utility. Not to mention its early use wrt religious iconography or vis-à-vis the former as a status symbol. Hence many of the proponents of a gold standard are really arguing for immutable labour tokens, problem here is scalability wrt high worth individuals and resulting distribution distortions, unless one forwards trickle down sorts of theory's.

Not to mention in times of nascent socioeconomic storms many that forward the idea of gold safety are the ones selling it. I think as such the entire thing is more a social psychology question than one of factual natural history e.g. the need to feel safe i.e. like commercials about "peace of mind". I think a reasonably stable society would provide more "peace of mind" than some notion that an inanimate object could lend too – in an atomistic individualistic paradigm.

WobblyTelomeres , October 2, 2018 at 4:26 pm

I once had an co-worker that was a devout Christian. When he realized I wasn't religious, he asked me, incredulously, how I was able to get out of bed in the morning. Meaning, he couldn't face a world without meaning.

I think a lot of people feel that same way about money. They fight over it, lie for it, steal it, kill for it, go to war over it, and most importantly, slave for it. Therefore, it must have intrinsic value. I think gold bugs are in this camp.

Fried , October 2, 2018 at 6:06 am

Talking about Warren's blog ( http://moslereconomics.com/ ), everytime I try to go there, Cloudflare asks me to prove that I am human. Anyone know what's up with that? It's the only website I've ever seen do that.

Tinky , October 2, 2018 at 6:13 am

No such prompt for me (using Mac desktop computer, OS 10.11.6 and Safari browser.

Fried , October 2, 2018 at 7:35 am

Thanks. It seems to be blocking my IP address, no idea why. Not sure why I have to be human to look at a website.

Epistrophy , October 2, 2018 at 8:46 am

Try running your IP address through a blacklist checker maybe it's been flagged

Fried , October 2, 2018 at 10:03 am

Hm, I can't find anything that would explain it. Maybe the website just generally blocks Austrians. ;-)

el_tel , October 2, 2018 at 10:10 am

That's a good suggestion. Unfortunately, as I sometimes find, you can pass ALL the major test-sites but something (a minor, less-used site using out-of-date info?) can give you grief. NC site managers once (kindly) took the time to explain to me why I might have problems that they had no ability to address at their end. I had to muck around with a link given earlier to Bill Mitchell's blog before my browser would load it.
I think there can be quirks that are beyond our control (unfortunately) – for instance I think a whole block of IP addresses (including mine) used by my ISP have been flagged *somewhere* – no doubt due to another customer doing stuff that the checker(s) don't like. (The issue I mentioned above was more likely due to a strict security protocol in my browser, however.)

kgw , October 2, 2018 at 11:57 am

I ended up physically typing in the url to Bill Mitchell's blog: that worked.

el_tel , October 2, 2018 at 12:43 pm

yeah think that's what I did

larry , October 2, 2018 at 6:45 am

Monetary policy in terms of interest rates is not just weak, it also tends to treat all targets the same. Fiscal policy can be targetted to where it is felt it can do the most good.

William Beyer , October 2, 2018 at 7:00 am

Christine Desan's book, "Making Money," exhaustively documents the history of money as a creature of the state. Recall as well that creating money and regulating its value are among the enumerated POWERS granted to our government by we, the people. Money, indeed, is power.

Grumpy Engineer , October 2, 2018 at 8:26 am

Hmmm Randy Wray states that " permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. "

But just last week, Yves stated that " that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. " [ https://www.nakedcapitalism.com/2018/09/crisis-caused-pension-train-wreck.html ]

So are interest rates today too high, or too low? We're getting mixed messages here.

IMO, interest rates are too low . Beyond the harmful effect to savers, it also drives income inequality . How? When interest rates are less than inflation, it is trivial to borrow money, buy some assets, wait for the assets to appreciate, sell the assets, repay the debt, and still have profit left over even after paying interest . Well, it's trivial if you're already rich and have a line of credit that is both large and low-interest. If you're poor with a bad FICO score, you don't get to play the asset appreciation game at all.

I can't think of another reason inequality skyrocketed so badly during the Obama years: