[R-G] [BillTottenWeblog] Michael Hudson's Super Imperialism

[Bill Totten]

The Economic Strategy of Imperial America

by Stephen Lendman

sjlendman.blogspot.com (July 01 2009)


First written in 1972, it was updated in a 2003 edition that's every bit
as relevant now - thus this review focusing on Hudson's new preface,
introduction, and detailed account of the book's theme.

He revisited it in his 2008-09 Project Censored award-winning article
titled: "Economic Meltdown - The 'Dollar Glut' is What Finances America's
Global Military Build-up" in which he explains the following - the
"inter-related dynamics" of:

- "surplus (US) dollars pouring into the rest of the world for yet further
financial speculation and corporate takeovers";

- global central banks "recyl(ing) these dollar inflows (into) US Treasury
bonds to finance the federal US budget deficit; and most important (but
most suppressed in the US media);"

- "the military character of the US payments deficit and the domestic
federal budget deficit".

In other words, the global "dollar glut" finances US corporate takeovers,
speculative excesses creating bubbles and global economic crises,
America's reckless spending, foreign wars, hundreds of bases worldwide,
"military build-up", and culture of militarism and belligerence overall at
the expense of democratic freedoms, beneficial social change, and human
and civil rights.

In softer form, it's what former US diplomat, advisor, father of Soviet
containment, and dove compared to others at that time George Kennan
believed should be America's post-World War Two foreign policy. In his
February 1948 Memo PPS23, he stated:

"...we have fifty per cent of the world's wealth but only 6.3% of its
population. (It makes us) the object of envy and resentment. Our real task
in the coming period is to devise a pattern of relationships (to let us)
maintain this position of disparity without positive detriment to our
national society. To do so we will have to dispense with all
sentimentality and daydreaming; and our attention will have to be
concentrated everywhere on our immediate national objectives. We need not
deceive ourselves that we can afford today the luxury of altruism and
world benefaction ...

"We should dispense with the aspiration to 'be liked' or to be regarded as
the repository of a high-minded international altruism ... We should (stop
talking about) unreal objectives such as human rights, the raising of the
living standards, and democratization. The day is not far off when we are
going to have to deal in straight power concepts. The less we are hampered
by idealistic slogans (ideas and practices), the better".

Yet Kennan advocated diplomacy over force in contrast to Paul Nitze, Dean
Atcheson and other Truman and succeeding administration officials favoring
hardline militarism, future wars, and National Security Council Report 68
(NSC-68) policies to contain the Soviet Union. In 1962, nuclear disaster
nearly resulted. The threat remains, more menacingly than ever by "forc
(ing) foreign central banks to bear the costs of America's expanding
military empire" through recycling their dollars into US Treasuries -
something the mass media call "showing their faith in US economic
strength".

Hudson refers to a "sinister dynamic", not involving consumers or private
investors, but central banks putting "their money" in US Treasuries, but
"it is not 'their money' at all. They are sending back the dollars that
foreign exporters and other recipients turn over to their central banks
for domestic currency".

"When the US payment deficit pumps dollars into foreign economies, these
banks (have) little option except to buy US Treasury bills and bonds which
the Treasury spends on financing an enormous, hostile military build-up to
encircle (today's) major dollar-recyclers China, Japan and Arab OPEC oil
producers" - essentially a process by which they finance their own
endangerment.

Up to now it's continued, but, given the reckless dollar glut in recent
months, with less enthusiasm by bigger buyers and hints of a possible end
game or at least less buying than previously - mostly among BRIC (Brazil,
Russia, India and China) and OPEC countries but other emerging economies
as well getting more interdependent on themselves than on America.

In his 2002 preface, Hudson noted that "the US Treasury (pursued the same
balance-of-payment) 'benign neglect' (strategy as) it did thirty years"
earlier. In 1971, it "caused a global crisis when its $10 billion (level)
led to a ten per cent dollar devaluation". Now it's hundreds of billions
annually and still high during the current economic crisis when exports
and imports are lower.

Earlier and especially now, if Europe and Asia let the dollar deflate,
their exporters will be disadvantaged at a time they can least afford it.
So they're forced to "support the dollar's exchange rate by recycling
their surplus dollars back to the United States" by buying US Treasuries.

Sooner or later, it's a losing proposition, especially in today's climate
with the Federal Reserve sacrificing dollar strength to bail out Wall
Street and trying to keep long rates low to contain borrowing costs. Yet
the greater the dollar erosion, the more losses foreign investors will
incur and less likely they'll tolerate more by buying bad assets.

So far, however, they're still recycling their dollar inflows to fund
America's budget deficit and global militarism - something Hudson calls a
"Free Lunch in the form of compulsory foreign loans to finance US
Government policy".

Even so, they have no say over US policies, yet America and international
lending agencies, like the IMF and World Bank, "use their dollar claims"
on indebted nations to enforce Washington Consensus diktats.
Independent-minded states face sanctions, isolation, coups or wars if they
refuse.

Until Nixon closed the gold window in August 1971, America couldn't run
unlimited balance-of-payments deficits. However without gold
convertibility, it's continued for nearly forty years along with
protectionist policies through generous subsidies to US exporters - most
notably to agribusiness. As a result, Hudson sees international tensions
growing for the next generation, perhaps even greater now given America's
reckless monetarism and perpetual wars.

His book "provid(es) the background for US - European and US - Asian
financial relations by explaining how (post-1971) the US Treasury-bill
standard came to provide America with a Free Lunch". Also how the IMF
promoted debtor nations' capital flight and the World Bank supported
"foreign trade dependency on US farm exports ..."

The early 1970s dollar crisis and balance-of-payments deficits seem small
compared to today. Yet the "Treasury-bill standard (frees) the US economy
from (doing) what American diplomats (force on) other debtor nations
(with) payments deficits: impose austerity to restore balance in its
international payments. The United States alone has been free to pursue
domestic expansion and foreign diplomacy with hardly a worry about the
balance-of-payment consequences". No other nation has that luxury.

Post-World War Two, Washington made other countries dependent on America,
something it eschewed after World War One, staying isolationist instead to
pursue internal development.

In the 1970s, emerging nations proposed a New International Economic Order
(NIEO) through the UN Conference on Trade and Development to promote their
own trade and other concerns. It "originated as a response to America's
aggressive world economic diplomacy, and how US strategy has provided
other nations with a learning curve that they may follow in pressing their
own national and regional interests".

The more reckless and belligerent America becomes, the more incentive they
have to try - and in greater alliance, with BRIC country partners, may
have a greater chance for success.


Introduction

Post-World War Two, on the pretext of national security, America pursued
"world power ... and economic advantage as perceived by American
strategists quite apart from the profit motive of private investors".

After World War One, it achieved world creditor status from its
"unprecedented terms (in extending) armaments and reconstruction loans to
its wartime allies". In 1917, it entered the war late when it felt staying
out would "entail at least an interim economic collapse (the result of)
American bankers and exporters (getting) stuck with uncollectible loans to
Britain and allies". So it joined the Triple Entente as an associate, not
a full partner, to protect its $12 billion investment.

Post-war, America was the world's major creditor - but one "to foreign
governments with which it felt little brotherhood" and no obligation to
stabilize world finance and trade. Unlike its post-World War Two policy,
it didn't extend loans to foreign countries so they could finance their
US-owed debt. Nor did it open its markets to foreign imports. It wanted
Europe's empires dissolved, their military spending cut, their wealth "to
flow out and their prices to fall" - the idea being in this way to
re-establish world payments equilibrium, a very unrealistic notion, but
many leading Europeans embraced it. It didn't work and made repayment of
foreign debts impossible.

The "world economy emerged from World War One shackled with debts far
beyond its ability to pay", except by "borrow(ing) funds from private
lenders in the creditor nation to pay the creditor-nation government".

A more enlightened policy would have turned "other countries into (US)
economic satellites". But America eschewed European imports, and US
investors preferred its own outperforming stock market. On trade and
finance, US policies "impelled European countries to withdraw from the
world economy and turn within".

America's isolationism prevented it from collecting its foreign debts.
"Its status as world creditor proved ultimately worthless as the world
broke into nationalist units", and sought independence from foreign trade
and payments.

Washington pursued isolationism, thus prompting other nations to seek
self-sufficiency. A bankrupt Britain convened the 1932 Ottawa Conference
"to establish a system of Commonwealth tariff preferences". By the
mid-1930s, Germany began preparing for war. At the same time, the
Depression affected one country after another as private capital dried up
while at the same time Britain and other nations had mounting debt
problems. It begs the question as to why they let them get so onerous in
the first place.


American Plans for a Post-World War Two "Free-Trade Imperialism"

Early in the war, US officials and economists knew America would prevail
and emerge as the world's dominant power. However, transitioning from war
to peace needed large export volumes to stimulate economic growth and full
employment. "This in turn required that foreign countries be able to earn
or borrow dollars to pay" for what they got. So America supplied them
through government loans and private investment.

In return, it "name(d) the terms on which" they were provided and
structured the IMF and World Bank so countries could "pursue laissez faire
policies by insuring adequate resources to finance the international
payments imbalances", the result of opening their markets to US imports.
It was thought that free trade and investment would result in "balanced
international trade and payments ... under US leadership".

Post-war, America was the only dominant nation intact, so it alone had
enough foreign exchange to invest substantially abroad. Its commercial
strength turned other economies into US satellites and assured America
achieved maximum world power by:

- having European nations let US investors buy extractive industries in
their former colonies, especially Middle East oil;

- less developed nations would supply America with raw materials rather
than develop their own competitive manufacturing infrastructure;

- they'd also buy US products and services; and

- the resulting trade surplus would provide enough foreign exchange for US
investors to buy the world's most productive resources and make America
even stronger.

The goal was short-lived as:

-  America had tariffs on commodities that other nations could produce
more cheaply;

-  the International Trade Organization, in place to subject all economies
to the same rules, was scuttled; and

-  private US investment abroad was never enough to finance sufficient
foreign purchases of US exports; IMF and World Bank loans also fell short.

America accumulated a payments surplus. It, in turn, weakened its export
potential. The lesson learned was that "Beyond a point, a creditor and
payment-surplus status can be decidedly uncomfortable".

At first, the enlightened solution wasn't taken - extended foreign aid for
rebalancing as Congress put internal interests ahead of foreign policy.


The Cold War Pushes America's Balance-of-Payments into Deficit

Cold War strategy gave Congress an anti-communist reason to "bribe foreign
governments" to fight the red menace as well as open their markets to US
exporters. It got the Marshall Plan and other aid agreed on to "keep its
fellow capitalist countries solvent" and not tempted to turn left. The
possibility continued foreign aid for several decades.

At the same time, America's balance-of-payments reached never before
attained levels and needed rebalancing "to promote foreign export markets
and world currency stability". To buy US products and services, other
countries needed resources to pay for them, something only Washington
could arrange at a time when they weren't creditworthy.

However, what worked early on became destabilizing as America began "sink
(ing) into the mire that had bankrupted every European power that
experimented with colonialism". Unlike foreign investors that cut their
losses when necessary, national security interests (and industries
profiting from them) trump other considerations even when
counterproductive. Once begun, military spending takes on a life of its
own - something very apparent given its current out-of-control level and
growing.


New Characteristics of America's Financial Imperialism

A growing US balance-of-payments surplus was "incompatible with continued
growth in world liquidity and trade". So America had to buy more foreign
products, services and capital assets than it supplied to foreign buyers.
At the same time, it shifted more dollars abroad through a payments
deficit, easily handled in the 1950s and 1960s as long as Washington could
redeem them with gold. But that game had a limited life span as "Attempts
by governments to repay their debts beyond a point extinguish(es) their
monetary base".

.."..international money (is also) a debt of the key-currency nation".
Providing other countries with assets involves going into debt, and
repaying it "extinguish(es) an international monetary asset".

By the early 1960s, America approached "the point at which its debts to
foreign central banks soon would exceed the value of the Treasury's gold
stock". It happened in 1964 the result of Vietnam War spending at an early
stage in the conflict. Just as two world wars bankrupted Europe, Vietnam
threatened the same fate for America, but it didn't curtail spending and
still doesn't.

Earlier, the result was a run on gold with foreign central banks "cash
(ing) in their dollar surpluses for American gold almost on a monthly
basis". By March 1968, the US Treasury suspended its sales, and informally
world central banks agreed to stop converting dollars into the metal. The
result - the dollar gold price link was broken, and in August 1971, Nixon
closed its window with an official embargo.

Henceforth, in place of gold, the US Treasury-bill (dollar-debt) standard
began. No longer able to buy US gold, substituting Treasuries became the
only option and "to a much lesser extent, US corporate stocks and bonds".