"Finance is the new form of warfare --" without the expense of a military overhead and an occupation against unwilling hosts. It is a competition in credit creation to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership. Who needs an army when you can obtain the usual objective (monetary wealth and asset appropriation) simply by financial means? All that is required is for central banks to accept dollar credit of depreciating international value in payment for local assets. Victory promises to go to whatever economy's banking system can create the most credit, using an army of computer keyboards to appropriate the world's resources. The key is to persuade foreign central banks to accept this electronic credit." [i]
Thirty eight years ago in his book "Super Imperialism" Dr. Michael Hudson described the outlines of an economic strategy the United States has employed to the hilt since then, a strategy in which the rest of the world is deprived of its wealth in exchange for US dollars. Those dollars, at first derived mainly from ill-advised wars the United States fought in a doomed attempt to retain a global empire it acquired at the conclusion of WW II, were collected by foreign central banks returning to the US Treasury to purchase US debt securities. In the vocabulary of financial diplomacy they were "sterilized'. It is the solvency of this strategy, together with the debts incurred in a "full employment for money' that has grown in scale since the 1970s, that has been at stake since the "financial weapons of mass destruction" exploded in 2008. It is this privilege of buying the world with money created in bank and stock exchange ledgers that underlies the quest for hegemony by modern imperial powers like Britain and the United States. It is the debts incurred paying for an economic order in which the wealthy can't lose for which humanity is expected to sacrifice its material welfare now as well as much needed investments if it has any hope of surviving in the future.
By 1971, the volume of US debt had grown to such proportions the government realized there was no longer any possibility of honoring its commitment to redeem foreign-held dollars with gold as promised in the original Bretton Woods Monetary Agreement. Recognizing the world's need for a reserve or key currency in which its business could be conducted and, perhaps above all, its fear of the still extant Soviet Union, the US abrogated Bretton Woods, freeing it from all restraints on financing its balance of payments deficits. Since then, those deficits have been financed with money created as debt by private US financial institutions and repatriated as US Treasury debt.
This US "Empire of Debt" --" as described in a book with that title by two financial luminaries, Bill Bonner and Addison Wiggin - may have been mainly the product of historical "accident' combined with inept diplomacy from a world exhausted by a century of global imperial wars. But US national debt has been systematically exploited since the dollar standard replaced the gold standard embodied in the original Bretton Woods agreement as the ultimate foundation of the international monetary system. It is what has made possible a world in which the US no longer pays for what it consumes with manufactured goods or gold but with debt. It is the foundation of a globalization in which investors and large multinational corporations book huge monetary profits while they plunge their domestic work forces further into debt peonage and unemployment via off-shoring the jobs workers need to remain financially solvent. It is what Richard Nixon's Treasury Secretary John Connolly was referring to when he said "It's our currency but your problem", what Dick Cheney was referring to when he said --deficits don't matter." [ii]
It is this Empire of Debt which US authorities and their accomplices around the world are fighting so desperately to maintain rather than their real Main Street economies. Even a cursory look at the numbers of bailouts and quantitative easings around the world shows the numbers don't justify any other interpretation. For example, at the end of 2007 it would have taken just $1.4 trillion for the US government to have purchased all the subprime loans outstanding [iii] allowing families to remain in their homes and, by scaling payments to ability to pay, increasing their disposable incomes - incomes that could have been used to sustain the employment of those fortunate enough to still have jobs here.
However, unlike Wall Street, the banks, oil companies and US defense (sic) contractors, the inhabitants of Main Street in the US and elsewhere do not have effective political representation. Whenever the demand for "change" grows too loud in the US, politicians promise it will be coming with their victory in the next election --" and then proceed with business as usual. This is the general outline of the political status quo prevailing in the world's other industrial democracies. Party labels may be different and the political dialog more subtle elsewhere. But around the world, Main Street no longer matters. The finance, insurance and real estate (FIRE) sector of the economy is calling the shots.
Dr. Hudson repeatedly expresses surprise the world's diplomats would allow the blatantly exploitive nature of economic relationships inherent in the current US dollar-based international monetary system to persist so long. For the United States - or at least for those in the US who possess a lot of money or the right to create it as bank credit or financially-engineered securities, there is no mystery. With a few computer keystrokes, the US can buy the world --" and may be in the process of doing just that right now with its quantitative easings. For China, India and many countries in the developing world the answer may also be relatively straight-forward; they are getting something for the money they are being forced to ingest as the price for continued access to Western markets, i.e. factories, jobs, access to advanced industrial technology - as opposed to the old imperial / colonial relationships persisting up to and immediately following WW II.
For the rest of the world, the answer may well be a combination of fear and inertia. The former Soviet Union may be gone and with it any immediate threat of more brutal and overt foreign domination and exploitation --" not to mention the threat to an established social order in the West based upon money and inherited wealth if "the Communists' actually practiced what they preached. What remains however is an absolute dependence in most of the developed world on foreign sources of energy and other natural resources, particularly from the Middle East and other unstable areas around the world. The instability there, in large part the consequence of artificial borders cobbled together for the administrative convenience for former imperial powers, is very real. But US threats to remake the Middle East, bring "Iraqi Freedom" to countries like Iraq and Iran or rid the latter of its purported nuclear weapons program threaten to send that instability off the charts --" and with it the world's access to irreplaceable energy sources.
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