Tuesday, November 12, 2013

618 Threat of Default portends end of Dollar Hegemony, Seigniorage and American Empire

Threat of Default portends end of Dollar Hegemony, Seigniorage and
American Empire

Newsletter published on 10 October 2013

(1) Threat of Default portends end of Dollar Hegemony, American Empire
(2) Israel Shamir proclaims End of American Empire
(3) & (4) Michael Hudson on difference between Dollar Imperialism and
Dollar Hegemony
(5) Wolf D. Metz (Max, now deceased) on Dollar Hegemony
(6) Michael Hudson writes, "Yes US debt is the new world currency" (2004)
(7) Asian Central Banks fed up with "US Dollar Hegemony" (2003)
(8) Re: Asian Central Banks fed up with "US Dollar Hegemony" - F. Wlliam
Engdahl to gang8 (2003)
(9) Re: Asian Central Banks fed up with "US Dollar Hegemony" - from
David Chiang (2003)
(10) The End of Dollar hegemony - Ron Paul speech to House of Reps (2006)
(11) David Stockman warns: US can't afford Empire, must slash military
spending (2011)
(12) Dollar Hegemony has got to go - Henry C K Liu  (2002)
(13) Robert Skidelsky: Martin Wolf's change of heart on Asian Trade
Surplus; US Seigniorage (money-printing)
(14) De Gaulle 1960s attack on "Hegemony of the Dollar": US paid for
wars & foreign assets by printing $s (Seigneurage)
(15) Niall Ferguson acknowledges "Hegemony of the Dollar", "Seigniorage"
(16) & (17) Rhine model / Asia model economies beat Anglo-American
(18) Thatcher hollowed out UK Industry, handed lead to Germany & Asia -
Eamonn Fingleton

(1) Threat of Default portends end of Dollar Hegemony, American Empire

Peter Myers

October 8, 2013

This bulletin takes as its cue Israel Shamir's article The Cape of Good
Hope, in which he announces "American hegemony is over" (see item 2).

He sees the US dollar losing its role as the world reserve currency,
being replaced by a number of regional currencies, and the US military
being forced to withdraw from most of its bases, as the Soviet Union did
in the wake of its collapse.

Here is why I think he's right. It deals with the concepts of "Dollar
Hegemony" and "Seigniorage".

Dollar Hegemony is the denomination of trade and investment contracts in
US Dollars. For example, OPEC countries insist on pricing and trading
Oil in US Dollars.

Even countries producing a consistent Trade Surplus find themselves in
the service of the $, rather than the other way around. They exchange
their Trade Surplus for $ bonds, and also buy assets (eg farms, mines
and businesses, around the world) priced in Dollars. US Treasury $ bonds
have been a "safe haven" as a store of wealth.

But if the US defaults on its debt, that is all at risk. It is an epic
moment, a marker of the end of American Empire.

In the event of Default, the US $ will likely lose its role as Reserve
currency of the world, the currency in which Trade contracts are
denominated and paid.

It will probably be replaced by a basket of currencies (weighted), which
includes the $. That basket might be given a new name, as the new unit
of trade.

The result will be that the US can no longer run huge Current Account
Deficits, because no-one will be willing to cash their cheques. It will
no longer be able to afford its network of military bases around the
world, and will have to withdraw, as the Soviet Union did.

Free Trade and Laissez-Faire, which the US imposed on other countries,
will have killed the Empire.

Other powers will expand to fill the gap. Germany and the Asia-model
countries, which have been running Trade Surpluses, will receive their

Their economies are not Capitalist, but Market Socialist (mixed
economies with state guidance). In that sense, this will be the end of
(laissez-faire) Capitalism.

One other possibility is a multiplicity of trade zones each with a
different Reserve Currency and different pricing, sheltered behind
tariffs and non-tariff barriers. The British Empire had such a system in
the 1930s with Imperial Preference.

The term "Dollar Hegemony" was invented by Henry C. K. Liu, after
extensive debate in a closed Yahoo Group called Gang8. One of the other
participants was Michael Hudson, a Professor of Economics who had coined
the term "Dollar Imperialism" and written about it in his book
SuperImperialism (1972 edition).

The two terms are closely connected; the main difference being that Liu
applied Dollar Hegemony to the period from 1971 when the Dollar was a
purely fiat currency, unfettered by any tie to Gold.

Yet, even in the 1960s, French President, Charles de Gaulle, spoke of
the "Hegemony of the Dollar", and accused the United States of
Seigneurage (Seigniorage), saying that it was paying for foreign wars,
and buying up foreign assets, merely by printing Dollars.

It was the French insistence that their Dollars be exchanged for Gold,
at the official rate, that prompted Nixon, on the advice of Milton
Friedman, to take the US off Gold convertibility altogether.

During the 1980s, the Yen seemed a rival to the Dollar; and the Euro and
the Yuan have more recently been touted as such. The IMF also has a
world currrency in the wings (SDR). And the Amero is ready should there
be a decision to make it the currency of NAFTA.

The America whose downfall we welcome, with trepidation because the
future could yet be worse, is not the one which won the Cold War. It has
been transformed by the PNAC Neocons into a bully abroard, and a police
state at home; by such means it has forfeited the goodwill it once had -
its cultural capital.

Its industry and jobs have been offshored, on the basis that the "means
of production" belong to private owners (shareholders) rather than to
the people as a whole. Selfishness has been enthroned as a supreme
principle. The rich hide their wealth in Tax Havens, and buy politicians
who replace progressive (stepped) taxes with flat ones.

Some of the items below are current news, but others are reproduced from
discussions and presentations about Dollar Hegemony going back a decade
or more. Some of the contributors are now deceased: Wolf D. Metz (Max),
and David Chiang. They would be honoured that their thoughts and efforts
are still of help to us today.

(2) Israel Shamir proclaims End of American Empire

[shamireaders] The Cape of Good Hope, by Israel Shamir

    From: Israel Shamir <adam@israelshamir.net> Date: 6 October 2013 08:37

The Cape of Good Hope

Israel Shamir

(A talk at Rhodes Forum, October 5, 2013)


First, the good news. American hegemony is over. The bully has been
subdued. We cleared the Cape of Good Hope, symbolically speaking, in
September 2013. With the Syrian crisis, the world has passed a key
forking of modern history. It was touch and go, just as risky as the
Cuban missile crisis of 1962. The chances for total war were high, as
the steely wills of America and Eurasia had crossed in the Eastern
Mediterranean. It will take some time until the realisation of what
we’ve gone through seeps in: it is normal for events of such magnitude.
The turmoil in the US, from the mad car chase in the DC to the shutdown
of federal government and possible debt default, are the direct
consequences of this event.

Remember the Berlin Wall? When it went down, I was in Moscow, writing
for Haaretz. I went to a press-conference with Politburo members in the
President Hotel, and asked them whether they concurred that the end of
the USSR and world socialist system was nigh. I was laughed at; it was
an embarrassing occasion. Oh no, they said. Socialism will blossom, as
the result of the Wall’s fall. The USSR went down two years later. Now
our memory has compacted those years into a brief sequence, but in
reality, it took some time.

The most dramatic event of September 2013 was the high-noon stand-off
near the Levantine shore, with five US destroyers pointing their
Tomahawks towards Damascus and facing them - the Russian flotilla of
eleven ships led by the carrier-killer Missile Cruiser Moskva and
supported by Chinese warships. Apparently, two missiles were launched
towards the Syrian coast, and both failed to reach their destination.

It was claimed by a Lebanese newspaper quoting diplomatic sources that
the missiles were launched from a NATO air base in Spain and they were
shot down by the Russian ship-based sea-to-air defence system. Another
explanation proposed by the Asia Times says the Russians employed their
cheap and powerful GPS jammers to render the expensive Tomahawks
helpless, by disorienting them and causing them to fail. Yet another
version attributed the launch to the Israelis, whether they were trying
to jump-start the shoot-out or just observed the clouds, as they claim.

Whatever the reason, after this strange incident, the pending shoot-out
did not commence, as President Obama stood down and holstered his guns.
This was preceded by an unexpected vote in the British Parliament. This
venerable body declined the honour of joining the attack proposed by the
US. This was the first time in two hundred years that the British
parliament voted down a sensible proposition to start a war; usually the
Brits can’t resist the temptation.

After that, President Obama decided to pass the hot potato to the
Congress. He was unwilling to unleash Armageddon on his own. Thus the
name of action was lost. Congress did not want to go to war with
unpredictable consequences. Obama tried to browbeat Putin at the 20G
meeting in St Petersburg, and failed. The Russian proposal to remove
Syrian chemical weaponry allowed President Obama to save face. This
misadventure put paid to American hegemony , supremacy and
exceptionalism. Manifest Destiny was over. We all learned that from
Hollywood flics: the hero never stands down; he draws and shoots! If he
holsters his guns, he is not a hero: he’s chickened out.

Afterwards, things began to unravel fast. The US President had a chat
with the new president of Iran, to the chagrin of Tel Aviv. The Free
Syrian Army rebels decided to talk to Assad after two years of fighting
him, and their delegation arrived in Damascus, leaving the Islamic
extremists high and dry. Their supporter Qatar is collapsing
overextended. The shutdown of their government and possible debt default
gave the Americans something real to worry about. With the end of US
hegemony, the days of the dollar as the world reserve currency are

World War III almost occurred as the banksters wished it. They have too
many debts, including the unsustainable foreign debt of the US. If those
Tomahawks had flown, the banksters could have claimed Force Majeure and
disavow the debt. Millions of people would die, but billions of dollars
would be safe in the vaults of JP Morgan and Goldman Sachs. In
September, the world crossed this bifurcation point safely, as President
Obama refused to take the fall for the banksters. Perhaps he deserved
his Nobel peace prize, after all.

The near future is full of troubles but none are fatal. The US will lose
its emission rights as a source of income. The US dollar will cease to
serve as the world reserve currency though it will remain the North
American currency. Other parts of the world will resort to their euro,
yuan, rouble, bolivar, or dinar. The US military expenditure will have
to be slashed to normal, and this elimination of overseas bases and
weaponry will allow the US population to make the transition rather
painlessly. Nobody wants to go after America; the world just got tired
of them riding shotgun all over the place. The US will have to find new
employment for so many bankers, jailers, soldiers, even politicians.

As I stayed in Moscow during the crisis, I observed these developments
as they were seen by Russians. Putin and Russia have been relentlessly
hard-pressed for quite a while.

* The US supported and subsidised Russia’s liberal and nationalist
opposition; the national elections in Russia were presented as one big
fraud. The Russian government was delegitimised to some extent.

* The Magnitsky Act of the US Congress authorised the US authorities to
arrest and seize the assets of any Russian they deem is up to no good,
without a recourse to a court.

* Some Russian state assets were seized in Cyprus where the banks were
in trouble.

* The US encouraged Pussy Riot, gay parades etc. in Moscow, in order to
promote an image of Putin the dictator, enemy of freedom and gay-hater
in the Western and Russian oligarch-owned media.

* Russian support for Syria was criticised, ridiculed and presented as a
brutal act devoid of humanity. At the same time, Western media pundits
expressed certainty that Russia would give up on Syria.

As I wrote previously, Russia had no intention to surrender Syria, for a
number of good reasons: it was an ally; the Syrian Orthodox Christians
trusted Russia; geopolitically the war was getting too close to Russian
borders. But the main reason was Russia’s annoyance with American
high-handedness. The Russians felt that such important decisions should
be taken by the international community, meaning the UN Security
Council. They did not appreciate the US assuming the role of world arbiter.

In the 1990s, Russia was very weak, and could not effectively object,
but  they felt bitter when Yugoslavia was bombed and NATO troops moved
eastwards breaking the US promise to Gorbachev. The Libyan tragedy was
another crucial point. That unhappy country was bombed by NATO, and
eventually disintegrated. From the most prosperous African state it was
converted into most miserable. Russian presence in Libya was rather
limited, but still, Russia lost some investment there. Russia abstained
in the vote on Libya as this was the position of the then Russian
president Dmitry Medvedev who believed in playing ball with the West. In
no way was Putin ready to abandon Syria to the same fate.

The Russian rebellion against the US hegemony began in June, when the
Aeroflot flight from Beijing carrying Ed Snowden landed in Moscow.
Americans pushed every button they could think of to get him back. They
activated the full spectre of their agents in Russia. Only a few voices,
including that of your truly, called on Russia to provide Snowden with
safe refuge, but our voices prevailed. Despite the US pressure, Snowden
was granted asylum.

The next step was the Syrian escalation. I do not want to go into the
details of the alleged chemical attack. In the Russian view, there was
not and could not be any reason for the US to act unilaterally in Syria
or anywhere else. In a way, the Russians have restored the Law of
Nations to its old revered place. The world has become a better and
safer place.

None of this could’ve been achieved without the support of China. The
Asian giant considers Russia its “elder sister” and relies upon her
ability to deal with the round-eyes. The Chinese, in their quiet and
unassuming way, played along with Putin. They passed Snowden to Moscow.
They vetoed anti-Syrian drafts in the UNSC, and sent their warships to
the Med. That is why Putin stood the ground not only for Russia, but for
the whole mass of Eurasia.

There were many exciting and thrilling moments in the Syrian saga,
enough to fill volumes. An early attempt to subdue Putin at G8 meeting
in Ireland was one of them. Putin was about to meet with the united
front of the West, but he managed to turn some of them to his side, and
he sowed the seeds of doubt in others’ hearts by reminding them of the
Syrian rebel manflesh-eating chieftains.

The proposal to eliminate Syrian chemical weapons was deftly introduced;
the UNSC resolution blocked the possibility of attacking Syria under
cover of Chapter Seven. Miraculously, the Russians won in this mighty
tug-of-war. The alternative was dire: Syria would be destroyed as Libya
was; a subsequent Israeli-American attack on Iran was unavoidable;
Oriental Christianity would lose its cradle; Europe would be flooded by
millions of refugees; Russia would be proven irrelevant, all talk and no
action, as important as Bolivia, whose President’s plane can be grounded
and searched at will. Unable to defend its allies, unable to stand its
ground, Russia would’ve been left with a ‘moral victory’, a euphemism
for defeat. Everything Putin has worked for in 13 years at the helm
would’ve been lost; Russia would be back to where it was in 1999, when
Belgrade was bombed by Clinton.

The acme of this confrontation was reached in the Obama-Putin exchange
on exceptionalism. The two men were not buddies to start with. Putin was
annoyed by what he perceived as Obama’s insincerity and hypocrisy. A man
who climbed from the gutter to the very top, Putin cherishes his ability
to talk frankly with people of all walks of life. His frank talk can be
shockingly brutal. When he was heckled by a French journalist regarding
treatment of Chechen separatists, he replied:

“the Muslim extremists (takfiris) are enemies of Christians, of
atheists, and even of Muslims because they believe that traditional
Islam is hostile to the goals that they set themselves. And if you want
to become an Islamic radical and are ready to be circumcised, I invite
you to Moscow. We are a multi-faith country and we have experts who can
do it. And I would advise them to carry out that operation in such a way
that nothing would grow in that place again”.

Another example of his shockingly candid talk was given at Valdai as he
replied to BBC’s Bridget Kendall. She asked: did the threat of US
military strikes actually play a rather useful role in Syria’s agreeing
to have its weapons placed under control?

Putin replied: Syria got itself chemical weapons as an alternative to
Israel’s nuclear arsenal. He called for the disarmament of Israel and
invoked the name of Mordecai Vanunu as an example of an Israeli
scientist who opposes nuclear weapons. (My interview with Vanunu had
been recently published in the largest Russian daily paper, and it
gained some notice).

Putin tried to talk frankly to Obama. We know of their exchange from a
leaked record of the Putin-Netanyahu confidential conversation. Putin
called the American and asked him: what’s your point in Syria? Obama
replied: I am worried that Assad’s regime does not observe human rights.
Putin almost puked from the sheer hypocrisy of this answer. He
understood it as Obama’s refusal to talk with him “on eye level”.

In the aftermath of the Syrian stand-off, Obama appealed to the people
of the world in the name of American exceptionalism. The United States’
policy is “what makes America different. It’s what makes us
exceptional”, he said. Putin responded: “It is extremely dangerous to
encourage people to see themselves as exceptional. We are all different,
but when we ask for the Lord’s blessings, we must not forget that God
created us equal.” This was not only an ideological, but theological

As I expounded at length elsewhere, the US is built on the Judaic
theology of exceptionalism, of being Chosen. It is the country of Old
Testament. This is the deeper reason for the US and Israel’s special
relationship. Europe is going through a stage of apostasy and rejection
of Christ, while Russia is deeply Christian. Its churches are full, they
bless one other with Christmas and Easter blessings, instead of neutral
“seasons”. Russia is a New Testament country. And rejection of
exceptionalism, of chosenness is the underlying tenet of Christianity.

For this reason, while organised US Jewry supported the war, condemned
Assad and called for US intervention, the Jewish community of Russia,
quite numerous, wealthy and influential one, did not support the Syrian
rebels but rather stood by Putin’s effort to preserve peace in Syria.
Ditto Iran, where the wealthy Jewish community supported the legitimate
government in Syria. It appears that countries guided by a strong
established church are immune from disruptive influence of lobbies;
while countries without such a church – the US and/or France – give in
to such influences and adopt illegal interventionism as a norm.

As US hegemony declines, we look to an uncertain future. The behemoth
might of the US military can still wreck havoc; a wounded beast is the
most dangerous one. Americans may listen to Senator Ron Paul who called
to give up overseas bases and cut military expenditure. Norms of
international law and sovereignty of all states should be observed.
People of the world will like America again when it will cease snooping
and bullying. It isn’t easy, but we’ve already negotiated the Cape and
gained Good Hope.

(Language edited by Ken Freeland)

Israel Shamir reported from Moscow. He can be reached at

(3) Michael Hudson on difference between Dollar Imperialism and Dollar

                     Mon, 20 Feb 2006 10:25:09 -0500
                     Michael Hudson <michael.hudson@earthlink.net>
                     peter myers <myers@cyberone.com.au>

Dollar imperialism DID begin before 1971 -- right after World War I, in
fact. Henry's term "dollar hegemony" relates, as he explains, to the
post-1971 period when the U.S. Could print dollars freely without central
banks having an alternative, e.g. Of gold. Prior to 1971, the gold
convertibility prevented this. It was the Vietnam War that pushed the US off
gold, and had the unanticipated pro-U.S. Consequence of the Treasury-bill


On 2/17/06 3:46 PM, "Peter Myers" <myers@cyberone.com.au> wrote:

 > Michael,
 > Henry Liu says that Dollar Hegemony began in 1971, with the end of
 > gold-backing.
 > But you say that it began earlier.
 > I have the 1972 edition of SuperImperialism (hardback); you write
about it
 > then,
 > even before the fiat currency took effect.
 > Peter

(4) Michael Hudson to A-List on difference between Dollar Imperialism
and Dollar Hegemony


 > From: "Michael Hudson" <michael.hudson@earthlink.net>
 > To: "A-List" <a-list@lists.econ.utah.edu>
 > Sent: Monday, February 20, 2006 10:29 AM
 > Subject: [A-List] Dollar imperialism and dollar hegemony
 > Dear All,
 >  I've been thinking more about the distinction between Dollar
 > imperialism
 > (with its long pedigree) and dollar hegemony.
 >  Dollar imperialism began long before 1971 -- right after World War I,
 > in
 > fact, as I've described in Super Imperialism. Henry's term "dollar
 > hegemony"
 > relates, as he explains, to the post-1971 period when the U.S. could
 > dollars freely without central banks having an alternative, e.g. of gold.
 > Prior to 1971, the gold convertibility prevented this. It was the Vietnam
 > War that pushed the US off gold, and had the unanticipated pro-U.S.
 > consequence of the Treasury-bill standard.
 >  Whereas U.S. Imperialism, old-style, worked because the dollar was in
 > surplus and other countries needed them to finance THEIR foreign debts
 > (denominated in $s), the post-1971 sub-genus of dollar hegemony
worked via
 > the dollar glut, when other countries were impaled on America's debt, not
 > their own.
 >  Of course, vis-à-vis third world debtor countries the US still
 > promotes
 > old-style dollar imperialism. So the two functions should be
 > Michael Hudson

(5) Wolf D. Metz (Max, now deceased) on Dollar Hegemony

Date: Mon, 1 Nov 2004 12:40:32 +0800 From: "Max" <Max@mailstar.net>

Henry Liu tells us that there are already two US$ economies in place.
There is the domestic market with approx. one quarter volume and there
is the international market that trades dollar commodities and services.
I strongly doubt the proportion of this external trade. Living in Asia I
notice that all quotes which are connected to a dollar product are
requested in dollars. i.e. goods destined for the US. But if the
products go to other markets, most offers and deals are preferred in
other currencies. It makes little sense in risking and buying US$ and
loosing money on the exchange rate, on both sides and this in a vastly
depreciating currency. A straight forward deal in the buyers or sellers
currency reduces exchange risk/costs, which amount usually on either
side to around 3-5% and are skimmed off by the banks. We know that since
1978 all OPEC members have to trade oil in US$. The only country that
can print endless funds for those almost endless commodities, is the
privately owned FED.
http://www.save-a-patriot.org/files/view/whofed.html All other countries
are told that they have to borrow with their Central Banks, money from
either the FED or their private owners, in order to finance their budget.

Henry Liu pointed out correctly that America is consuming and that
foreign countries supply real wealth in form of goods, for which they
are getting paid in fiat - or paper tokens. The workshops of the world
established themselves in Asia. The Japanese flooded in the 70s and 80s
the US and world markets with goods that earned them dollars. Japan
reinvested those dollars in bonds and into the US investment vehicle,
which promised a high return and seemed in those days an excellent
proposition. In the 80s and 90s China went the same way. With a
declining dollar, both are realizing today that there are better value
propositions by converting those dollars in resources and commodities.

The billions of issued dollars, which are suppose to pay for any
internal or external available goods, commodities and services etc. and
which are flooding the world since Bretton Woods, have to be regularly
destroyed in order to firm up and stabilize the dollar and in order to
create a demand for new dollars. This is done via inflation (as a result
of the interest rate, which is the Elites core business and hegemonic
tool) and latest since the 70s via exchanges. Stock exchanges have the
same purpose as gambling casinos - only the mafia that operates them is
winning. They help the FED to destroy a fast amount of wealth (paper
tokens) and recreate indirectly a demand for new money. A large force of
vultures (investment agents) are operating this business and spread the
rumor of winning fortunes - just like in the gambling casinos.

Today the world market is over saturated with dollars and since the
American investment vehicle provides less attractions than foreign
opportunities, dollars are being converted (at any rate) into 'real
value' i.e. areas such as commodities (Oil, Steel etc.) and it is
obvious why China or India are converting their surplus into local
developments rather than investing them in the US economy.

In the past this surplus money had to flow back into the Elite's domain
for wealth destruction. All they needed to do was keep the U.S. economy
sufficiently large enough to generate a steady supply of secure
dollar-denominated investment vehicles, so that the rest of the world
was able to recycle its annual half a trillion dollar current account
surplus. With the rapid decline of the dollar, the dividends are
worthless and it seems smarter changing those reserve holdings for
anything better.

Buying today oil at $100 is better than waiting till the dollar is even
less worth. The price of oil in ? was always constant as we can see on
this link http://www.asponews.org/HTML/Newsletter43.html The oil prices
are referring to forward purchases and indicate what the market thinks
of the real dollar buying value in future. Oil cannot be compared with
soybean as Marc Faber does, since Mr. Kissinger did not make a deal with
a soybean cartel as he did with OPEC, obliging them to trade oil only in
petro-dollars - a currency which can only be transacted at very special
banks of 'the Elite'.

As the FED is no longer able to ensure a return-flow of the dollar into
their controlled areas of value destruction, the surplus dollars
pressure on the rating and as more and more traders prefer non-dollar
trade, it accelerates. Most countries are keen in building up non-dollar
trade and look at their high reserves very critical. Particularly third
world countries have great difficulties meeting the BIS demand for
minimum reserve in dollars, to be able to participate in WTO, Gatt and
its global trading rules. The dollar has devalued in this millennium by
over 40% and BIS did not ask development countries to increase their
reserve minimum in order to upkeep their value. The Elite owns the FED
and the dollar and is ignoring its value measured against other
currencies. By allowing devaluation they in effect cure the problem of
high debt. The German model of hyperinflation would also cure partially
the US deficit problem and at the same time would make the US exports
more competitive and affordable even in Asia. It might even help them to
create in the US more low-wage jobs and make the statistics look better
and tell the world the good news of a booming US economy.

Now that military option to enforce unilateralism alienated America, and
displayed the limits of such actions, it becomes clear that any change
can only take place in a constructive environment. Moneymasters on the
other hand are not bowing to the world, which they feel is controlled by
them anyway. It will be interesting to see how they will reduce their
national debt, continue issuing a world currency that allows them to
hegemonies the world and to stay in control.

While Greenspan emerges from every currency related uncertainty as
winner, he will have to learn that Asian countries are not managed by
banks under the Elites control and therefore pay more attention to their
national development than to profits for the Elite.

(6) Michael Hudson writes, "Yes US debt is the new world currency" (2004)


(6.1) Poland, the Euro, and the Dollar's Double Standard, by Michael Hudson

Date: Mon, 30 Aug 2004 13:55:40 +0200 From: "cresscourt@chello.at"
<cresscourt@chello.at> From: Hudsonmi@aol.com To: gang8@yahoogroups.com

Poland, the Euro, and the Dollar's Double Standard

Prof. Michael Hudson

[...] Europe has been hypnotized by the monetarist theories - so-called
theories of wealth and capitalism - that have been exported from the
University of Chicago via the Washington Consensus and imposed by the
International Monetary Fund (IMF) as gospel. ...

This policy has enabled the U.S. economy to get a free ride
internationally. The free ride comes mainly from Asia (China and Japan)
and Europe. It has been built into the international monetary system
ever since the United States went off gold in 1971. At the time this
occurred, it was viewed as a weakness. After all, the United States had
fought hard to keep the dollar "as good as gold" - until the costs of
its military spending in Vietnam, Asia and elsewhere in the 1960s broke
the linkage.

But severing the link to gold left the world's central banks in a
no-man's land. What were they to invest their growing international
reserves in, if not gold? What was OPEC to do with its oil money?

Central banks invested in U.S. Treasury bills because they were not able
to find an alternative to gold or dollars for their balance-of-payments
inflows. This meant that the larger their export surpluses to the United
States grew, the more dollars they had to invest in U.S. Treasury bonds.

In this way, central banks have financed America's balance-of-payments
deficit year after year, and decade after decade for the past 34 years,
since 1971. For the United States, running a balance-of-payments deficit
turned out to be a way to finance its own domestic budget deficit.
Foreign central banks rather than Americans bought up the bonds issued
to finance these deficits.

Nobody back in 1971 expected the United States to run budget deficits of
a size that now amounts to half a trillion dollars annually. But it has
done so, in order to spur its own economy. The U.S. Government debt has
doubled and redoubled, yet Americans have not had to finance these
deficits with their own money. Foreign central banks are doing this -
including that of Poland with its own dollar reserves. [...]

(6.2) To Michael Hudson, from Peter Myers:


You portray the US Government's foreign debt as a defacto world currency
(in place of gold). By implication there is no need for US citizens to
worry about paying it back. What about the foreign debt of Britain &

One factor you omit is the US military. Do they not intimidate would-be
debt-collectors? And can the EU establish a regional currency block
without a regional military force? Does not NATO thwart that?

Here are two alternative solutions that occur to me (as a layman).

1. Given that privatisation in the EU exacerbates the problem, why not
halt privatisation, and reverse it - renationalising industries?

2. The EU could give up exporting to the US, given that the US will
never pay.

As to the objection, "our factories will lose market share, & have to
shed workers" - well, if the US doesn't pay its debts, those workers
won't get paid anyway - in the long run. Their wages are, in effect,
part of America's debt which it will never pay.

If export markets are lost in the US, then to make up, US exports to the
EU could be penalised, so that the Eurozone aims at self-reliance rather
than interdependence with the US. Much like the Soviet-bloc economy.

The US could be told that if it wants a return to interdependence, it
has to pay its way.

(6.3) Reply from Michael Hudson

Poland, the Euro, and the Dollar's Double Standard Date: Sun, 5 Sep 2004
16:52:42 EDT From: Hudsonmi@aol.com To: myers@cyberone.com.au

Dear Peter,

Yes US debt is the new world currency. But it's a DOUBLE standard.
Australia and Britain are on the hook, and THEIR debt forces
privatization, ostensibly to pay off their debts. The US simply ignores
foreign claims.

To break with this system, foreign countries would have to produce for
their own market, not for the US export market.

Why not indeed roll back privatization? I'm all for it. But people have
fallen for the neoliberal doctrine, and ideas are not newsworthy items
to discuss.

Neoliberalism only works if you have total censorship control of the
curriculum, such as the Chicago Boys achieved in Chile under Pinochet
and try to replicate in the US. But they seem to be losing in Russia.


(6.4) More from Michael Hudson

the rest of my answer

Date: Sun, 5 Sep 2004 16:54:10 EDT From: Hudsonmi@aol.com To:

Yes, the system is cemented by US military power. But the US hardly
could use this power against Europe -- or it WOULD not. And it fears to
use it in China or Asia these days. For Iraq at least has given the rest
of the world a respite, probably even Iran.


(7) Asian Central Banks fed up with "US Dollar Hegemony" (2003)

Date: Tue, 27 May 2003 16:02:09 -0400 From: "David Chiang"

U.S. Debt In Asia Has Its Costs


Copyright © 2003, Newsday, Inc.

Charles V. Zehren

May 24, 2003

As British economist John Maynard Keynes observed, if you owe the bank
100 pounds, you're the one with the problem. But if you owe a million
pounds, the bank's the one with the problem. So it goes with Asia and
the United States.

In recent decades, Asian central banks and investors have lent trillions
of U.S. dollars to the U.S. government and American corporations to
finance everything from federal deficits to mergers and acquisitions. As
a result, the Asian countries, which form the wheelhouse of the global
economic machine, now have "the problem."

They're fed up with "dollar hegemony" or having to keep high dollar
reserves to pay their debts and protect their currencies. Consequently,
they're poised to issue "cross-border" debt instruments in their own
currencies, essentially putting the rest of the world on notice that
they no longer consider the United States as the sole safe haven for
storing the considerable fruits of their financial success.

While it may sound innocuous, the possibility of such a move represents
nothing less than a "massive hammer poised above the U.S. economy,"
warns Arun Motianey, the Citigroup Private Bank's director of investment

An even weaker U.S. dollar, higher interest rates, and lower stock and
bond prices could eventually result, affecting Americans who pay federal
taxes, buy imported goods or have their retirement savings tied up in a

The key player is ASEAN+3, the 36-year-old Association of Southeast
Asian Nations, which represents Indonesia, Malaysia, Philippines,
Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam, along
with the big three - Japan, China and South Korea. A critical date comes
June 30 when the organization is expected to telegraph its members'
intention to begin issuing cross-border debt in the "Chiang Mai
Initiative" report to the Asian Development Bank board of governors in

It's anticipated the plan will call for Asian central bankers to reduce
the dollar holdings in their reserves and greatly increase how much they
hold in each others' currencies, elevating them to "reserve status."
Once this is done, Asian debtors will find securities issued in their
own currencies more marketable with deep-pockets Asian investors and
their fellow central bankers. By eschewing the dollar and buying each
others' debt in their own currencies, the Asian countries would be
scaling back on the amount of excess wealth they invest in the United
States. And that wealth has been considerable.

Japan and China pack most of ASEAN+3's international economic punch. But
as a group, Motianey estimates, the 13 countries - which export a lot
and import a little - account for 95 percent of the world's surplus
"current accounts" - or the difference between imports and exports. The
Asian countries then send about four-fifths of those savings to the
United States and wind up holding about 90 percent of all the reserves
in U.S. dollars worldwide.

"America's success at attracting foreign capital may be a pyrrhic
victory," Motianey said. "The U.S. may live to rue the day that it has
such a huge portion of its debt held by foreigners," he said, putting
the figure at 30 to 40 percent.

Given the dominance of the dollar, the U.S. government and American
corporations have been able to count on the Asian countries paying up to
buy their debt as U.S. imports rise in proportion to exports. But
ASEAN+3, favoring its debt over U.S. debt, could erode the status of the
dollar as the dominant global reserve currency. That could reduce demand
for U.S. government and commercial debt, forcing the United States to
pay more to borrow money to finance growing federal deficits, worsening
the nation's fiscal situation.

As borrowing costs mount, the president and Congress would have a
tougher time keeping a lid on taxes, the Fed would face more of a
challenge maintaining low interest rates, and the private sector would
see the gap widen between what it spends and what it earns.

With Asian central bankers and investors demanding fewer dollars, the
value of the dollar would fall, helping U.S. exporters, but hurting the
ability of U.S. consumers to buy cheap imports. Resulting strength in
Asian capital markets could also result in what Motianey calls
"collateral damage," by stemming demand for U.S. equities and fixed
income instruments by Asian investors, weakening U.S. prices.

ASEAN+3 is no monolith. But Motianey and others say the members
generally believe Asian countries should expand their options and take
steps toward limiting their dollar exposure. There's something that can
be said, too, for investing in instruments issued by culturally and
economically familiar countries instead of the United States. And for
foreign investors, Sept. 11 and the war on terror has lessened the
attractiveness of this nation as a place to invest compared to other
parts of the world.

The Fed also estimates nonresidents hold about $3 trillion in U.S.
credit market instruments, with most of the dollar-related currency risk
getting passed on not to the U.S. debtors, but to the Asian creditors.
"No other net- debtor economy has the luxury of doing this," Motianey
said. "As a result, all of the risk of the weak U.S. dollar hits
unhedged creditors disproportionately." The members of the ASEAN+3 are
bearing the brunt of the dollar's recent fall.

But ASEAN+3's decision to rely more on their members' own currencies is
not so much "us vs. them," as an imbalance that economic forces will
correct, Motianey said. "ASEAN+3 is not looking to punish America or
clip its wings. It has a problem. And their solution is to say 'maybe we
should not be holding that much in dollars.'"

Spinning out the scenario to a logical conclusion has Motianey mulling
the possibility that an Asian monetary union could in the "medium to
long term" create its own Euro-type currency, an ACU or Asian Currency Unit.

Reducing the dollar's status as the paramount reserve currency could
then eventual force the United States into a "major debt workout,"
Motianey said. And one day the U.S. government may actually find itself
issuing Treasury bonds not in dollars, but in Asian currencies, like the

"Either way, near or long term, there's likely to be restraints on the
dollar's appeal and attractiveness, and that could eventually mean that
U.S. entities will have to curb their appetite for living beyond their
means," Motianey said. "It will no longer be so easy to borrow from the

(8) Re: Asian Central Banks fed up with "US Dollar Hegemony" - F. Wlliam
Engdahl to gang8 (2003)


Date: Sun, 1 Jun 2003 10:18:24 +0200 From: "Arno Mong Daastoel"
<am@daastol.com> FYI. Arno ----- Original Message ----- From: william
engdahl < engdahl@t-online.de > To: Arno Mong Daastoel Sent: Wednesday,
May 28, 2003 11:04 AM


This is quite a bombshell if ASEAN +3 go ahead June 30. I still maintain
and have it from banking circles in London as well that the
Euro-Petroeuro threat from Iraq and possibly Iran and others pricing oil
at least part in dollars, threatened a snowball effect out of dollars,
and that that played a role in the ultimate decision to war in Iraq,
even if one of several factors. This Asian development indicates just
what the threat would be. My question is what Washington will do to
preempt this, as they are not unaware of it.

This also fits with recent analysis I have been reading on the Japanese
"ten lost years" to wit, that Japan Inc. has hyped their misery for US
and Western consumption while the corporate establshment quietly began
to turn the japan supertanker around towards China and Asean. The
argument is that for a country on the brink of insolvency, Japan seems
to be doing just fine. A bit of unemployment, some bankruptcies of
firms, but hardly German levels. Japan according to this view is
stealthily moving away from its 50 year dependence on the dollar
imperium towards a Pacific tie up with China long term, despite its many
dangers. This is likely the reason Korea was inserted into the Axis of
Evil hit parade by Washington. So long as a nuclear Korea threatens, the
US can justify a strong military presence which secures obedience on
other fronts--especially given Japan military security needs. Japan was
not ready to challenge this US role hence went along with Iraq and now
tries to get a few juicy construction contracts. So long as Tokyo can
play the poor man of Asia, she attracts less the wrath of the US, and
can use the maneuvering room.

The argument on Japan's fake collapse is that the stock market
especially Nikkei, is not the heart of Japan Inc in the sense of Nasdaq
or S&P500 for the US. The Japanese offloaded many overpriced assets in
the early 1990's on unwitting foreigners etc. Yes some banks are belly
up. But the slow response of Japan Inc to demands from Washington to
reflate or reform etc etc etc reflect rather Japanese strategy to hold
the benefits of the US relation while quietly repositioning for the
coming 30-50 years towards Asia (without American hegemony dictating the
course). A delicate deception operation to be sure but this ASEAN+3
report fits the pattern nicely. That is, there is more going on inside
Japan than abject submission to American hegemony.

If this is true that Japan is in far better shape, and one argument is
that in the past 10 years Japan has racked up a cumulative trade surplus
of some $900 billions, then this ASEAN +3 currency shift takes on a very
interesting strategic light. I know from work I did about a year ago
that all top Japanese technology companies have been outsourcing into
China, but keeping the critical edge in Japan, using China as the cheap
labor assembly base for reexport to US and on. The leading researchers
in cutting-edge technologies around Compound Semiconductors (GaAs, etc),
which are the next wave in semiconductors are Japanese, even if they are
in California or US labs, to cite only one case. Toyota is a world class
competitor as are other Japanese tech companies.

If the japan-China trade is of critical mass now, it would add to the
pressures for the Bank of Japan to try de facto to hold the Yen-dollar
in bounds. This would be for Japan a very different period from that in
the late 1980's Plaza Hotel Accord era for example.


(9) Re: Asian Central Banks fed up with "US Dollar Hegemony" - from
David Chiang (2003)

Subject: Re: Asian Central Banks fed up with "US Dollar Hegemony" Date:
Mon, 2 Jun 2003 23:55:48 -0400 From: "David Chiang"
<chiang.d@worldnet.att.net> To: "Peter Myers" <myers@cyberone.com.au>,
"Arno Mong Daastoel" <am@daastol.com> CC: <engdahl@t-online.de>, "Henry
C.K. Liu" <hliu@mindspring.com> References: 1

Dear Arno, I have several Japanese friends, one of whom is a Professor
at Kyoto University. The Japanese are well aware of the Jewish influence
in Washington DC. In fact, the Japanese referred to Clinton's Treasury
Secretary Robert Rubin as the "Bandit" for his alleged role in
organizing the hedge fund attacks on Asian currencies in the 1990's.
Later Robert Rubin went to work at Citibank which is the largest foreign
exchange trader in the United States.

Yes, the Japanese intentionally understate the actual strength of their
economy so as to avoid the trade friction with the United States. You
may also recall the verbal "Japan bashing" of the 1980's when Japan was
viewed as omnipotent. In contrast to Western cultures, it is also an
aspect of Asian culture to understate your abilities and strengths.

Japan did experience a "bubble" economy in the 1980's, and have
experienced aftershocks from the misallocation of capital. But not
enough credit is given to the Japanese people who have tightened their
belts and improved productivity. Just look at Japan's growing current
account surpluses. Does the exponential growth in foreign asset holdings
portend bankruptcy of the "Japanese economic model"? My Japanese friend
tells me that things really aren't as bad in Japan as the Jewish
dominated American media portrays. For some reason, the American
newsmedia also seems to want to portray the "Japanese economic model" as
bankrupt. Perhaps when the "mortgage finance" driven bubble economy
implodes, the American public won't feel so upset at the Washington
elites or Jewish bankers?

Dave Chiang New Jersey, USA

(10) The End of Dollar hegemony - Ron Paul speech to House of Reps (2006)

Date: Fri, 17 Feb 2006 07:42:55 -0000 From: "Rowan Berkeley"

The End of Dollar hegemony

Speech before the U.S. House of Representatives

by Ron Paul

February 15, 2006


A hundred years ago it was called "dollar diplomacy." After World War
II, and especially after the fall of the Soviet Union in 1989, that
policy evolved into "dollar hegemony." But after all these many years of
great success, our dollar dominance is coming to an end.

It has been said, rightly, that he who holds the gold makes the rules.
In earlier times it was readily accepted that fair and honest trade
required an exchange for something of real value.

First it was simply barter of goods. Then it was discovered that gold
held a universal attraction, and was a convenient substitute for more
cumbersome barter transactions. Not only did gold facilitate exchange of
goods and services, it served as a store of value for those who wanted
to save for a rainy day.

Though money developed naturally in the marketplace, as governments grew
in power they assumed monopoly control over money. Sometimes governments
succeeded in guaranteeing the quality and purity of gold, but in time
governments learned to outspend their revenues. New or higher taxes
always incurred the disapproval of the people, so it wasn't long before
Kings and Caesars learned how to inflate their currencies by reducing
the amount of gold in each coin-- always hoping their subjects wouldn't
discover the fraud. But the people always did, and they strenuously

This helped pressure leaders to seek more gold by conquering other
nations. The people became accustomed to living beyond their means, and
enjoyed the circuses and bread. Financing extravagances by conquering
foreign lands seemed a logical alternative to working harder and
producing more. Besides, conquering nations not only brought home gold,
they brought home slaves as well. Taxing the people in conquered
territories also provided an incentive to build empires. This system of
government worked well for a while, but the moral decline of the people
led to an unwillingness to produce for themselves. There was a limit to
the number of countries that could be sacked for their wealth, and this
always brought empires to an end. When gold no longer could be obtained,
their military might crumbled. In those days those who held the gold
truly wrote the rules and lived well.

That general rule has held fast throughout the ages. When gold was used,
and the rules protected honest commerce, productive nations thrived.
Whenever wealthy nations-- those with powerful armies and gold-- strived
only for empire and easy fortunes to support welfare at home, those
nations failed.

Today the principles are the same, but the process is quite different.
Gold no longer is the currency of the realm; paper is. The truth now is:
"He who prints the money makes the rules"-- at least for the time being.
Although gold is not used, the goals are the same: compel foreign
countries to produce and subsidize the country with military superiority
and control over the monetary printing presses.

Since printing paper money is nothing short of counterfeiting, the
issuer of the international currency must always be the country with the
military might to guarantee control over the system. This magnificent
scheme seems the perfect system for obtaining perpetual wealth for the
country that issues the de facto world currency. The one problem,
however, is that such a system destroys the character of the
counterfeiting nation's people-- just as was the case when gold was the
currency and it was obtained by conquering other nations. And this
destroys the incentive to save and produce, while encouraging debt and
runaway welfare.

The pressure at home to inflate the currency comes from the corporate
welfare recipients, as well as those who demand handouts as compensation
for their needs and perceived injuries by others. In both cases personal
responsibility for one's actions is rejected.

When paper money is rejected, or when gold runs out, wealth and
political stability are lost. The country then must go from living
beyond its means to living beneath its means, until the economic and
political systems adjust to the new rules-- rules no longer written by
those who ran the now defunct printing press.

"Dollar Diplomacy," a policy instituted by William Howard Taft and his
Secretary of State Philander C. Knox, was designed to enhance U.S.
commercial investments in Latin America and the Far East. McKinley
concocted a war against Spain in 1898, and (Teddy) Roosevelt's corollary
to the Monroe Doctrine preceded Taft's aggressive approach to using the
U.S. dollar and diplomatic influence to secure U.S. investments abroad.
This earned the popular title of "Dollar Diplomacy." The significance of
Roosevelt's change was that our intervention now could be justified by
the mere "appearance" that a country of interest to us was politically
or fiscally vulnerable to European control. Not only did we claim a
right, but even an official U.S. government "obligation" to protect our
commercial interests from Europeans.

This new policy came on the heels of the "gunboat" diplomacy of the late
19th century, and it meant we could buy influence before resorting to
the threat of force. By the time the "dollar diplomacy" of William
Howard Taft was clearly articulated, the seeds of American empire were
planted. And they were destined to grow in the fertile political soil of
a country that lost its love and respect for the republic bequeathed to
us by the authors of the Constitution. And indeed they did. It wasn't
too long before dollar "diplomacy" became dollar "hegemony" in the
second half of the 20th century.

This transition only could have occurred with a dramatic change in
monetary policy and the nature of the dollar itself.

Congress created the Federal Reserve System in 1913. Between then and
1971 the principle of sound money was systematically undermined. Between
1913 and 1971, the Federal Reserve found it much easier to expand the
money supply at will for financing war or manipulating the economy with
little resistance from Congress-- while benefiting the special interests
that influence government.

Dollar dominance got a huge boost after World War II. We were spared the
destruction that so many other nations suffered, and our coffers were
filled with the world's gold. But the world chose not to return to the
discipline of the gold standard, and the politicians applauded. Printing
money to pay the bills was a lot more popular than taxing or restraining
unnecessary spending. In spite of the short-term benefits, imbalances
were institutionalized for decades to come.

The 1944 Bretton Woods agreement solidified the dollar as the preeminent
world reserve currency, replacing the British pound. Due to our
political and military muscle, and because we had a huge amount of
physical gold, the world readily accepted our dollar (defined as 1/35th
of an ounce of gold) as the world's reserve currency. The dollar was
said to be "as good as gold," and convertible to all foreign central
banks at that rate. For American citizens, however, it remained illegal
to own. This was a gold-exchange standard that from inception was doomed
to fail.

The U.S. did exactly what many predicted she would do. She printed more
dollars for which there was no gold backing. But the world was content
to accept those dollars for more than 25 years with little question--
until the French and others in the late 1960s demanded we fulfill our
promise to pay one ounce of gold for each $35 they delivered to the U.S.
Treasury. This resulted in a huge gold drain that brought an end to a
very poorly devised pseudo-gold standard.

It all ended on August 15, 1971, when Nixon closed the gold window and
refused to pay out any of our remaining 280 million ounces of gold. In
essence, we declared our insolvency and everyone recognized some other
monetary system had to be devised in order to bring stability to the

Amazingly, a new system was devised which allowed the U.S. to operate
the printing presses for the world reserve currency with no restraints
placed on it-- not even a pretense of gold convertibility, none
whatsoever! Though the new policy was even more deeply flawed, it
nevertheless opened the door for dollar hegemony to spread.

Realizing the world was embarking on something new and mind boggling,
elite money managers, with especially strong support from U.S.
authorities, struck an agreement with OPEC to price oil in U.S. dollars
exclusively for all worldwide transactions. This gave the dollar a
special place among world currencies and in essence "backed" the dollar
with oil. In return, the U.S. promised to protect the various oil-rich
kingdoms in the Persian Gulf against threat of invasion or domestic
coup. This arrangement helped ignite the radical Islamic movement among
those who resented our influence in the region. The arrangement gave the
dollar artificial strength, with tremendous financial benefits for the
United States. It allowed us to export our monetary inflation by buying
oil and other goods at a great discount as dollar influence flourished.

This post-Bretton Woods system was much more fragile than the system
that existed between 1945 and 1971. Though the dollar/oil arrangement
was helpful, it was not nearly as stable as the pseudo gold standard
under Bretton Woods. It certainly was less stable than the gold standard
of the late 19th century.

During the 1970s the dollar nearly collapsed, as oil prices surged and
gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were
required to rescue the system. The pressure on the dollar in the 1970s,
in spite of the benefits accrued to it, reflected reckless budget
deficits and monetary inflation during the 1960s. The markets were not
fooled by LBJ's claim that we could afford both "guns and butter."

Once again the dollar was rescued, and this ushered in the age of true
dollar hegemony lasting from the early 1980s to the present. With
tremendous cooperation coming from the central banks and international
commercial banks, the dollar was accepted as if it were gold. [...]

In the short run, the issuer of a fiat reserve currency can accrue great
economic benefits. In the long run, it poses a threat to the country
issuing the world currency. In this case that's the United States. As
long as foreign countries take our dollars in return for real goods, we
come out ahead. This is a benefit many in Congress fail to recognize, as
they bash China for maintaining a positive trade balance with us. But
this leads to a loss of manufacturing jobs to overseas markets, as we
become more dependent on others and less self-sufficient. Foreign
countries accumulate our dollars due to their high savings rates, and
graciously loan them back to us at low interest rates to finance our
excessive consumption.

It sounds like a great deal for everyone, except the time will come when
our dollars-- due to their depreciation-- will be received less
enthusiastically or even be rejected by foreign countries. That could
create a whole new ballgame and force us to pay a price for living
beyond our means and our production. The shift in sentiment regarding
the dollar has already started, but the worst is yet to come.

The agreement with OPEC in the 1970s to price oil in dollars has
provided tremendous artificial strength to the dollar as the preeminent
reserve currency. This has created a universal demand for the dollar,
and soaks up the huge number of new dollars generated each year. Last
year alone M3 increased over $700 billion.

The artificial demand for our dollar, along with our military might,
places us in the unique position to "rule" the world without productive
work or savings, and without limits on consumer spending or deficits.
The problem is, it can't last.

Price inflation is raising its ugly head, and the NASDAQ bubble--
generated by easy money-- has burst. The housing bubble likewise created
is deflating. Gold prices have doubled, and federal spending is out of
sight with zero political will to rein it in. The trade deficit last
year was over $728 billion. A $2 trillion war is raging, and plans are
being laid to expand the war into Iran and possibly Syria. The only
restraining force will be the world's rejection of the dollar. It's
bound to come and create conditions worse than 1979-1980, which required
21% interest rates to correct. But everything possible will be done to
protect the dollar in the meantime. We have a shared interest with those
who hold our dollars to keep the whole charade going. [...]

It's not likely that maintaining dollar supremacy was the only
motivating factor for the war against Iraq, nor for agitating against
Iran. Though the real reasons for going to war are complex, we now know
the reasons given before the war started, like the presence of weapons
of mass destruction and Saddam Hussein's connection to 9/11, were false.
The dollar's importance is obvious, but this does not diminish the
influence of the distinct plans laid out years ago by the
neo-conservatives to remake the Middle East. Israel's influence, as well
as that of the Christian Zionists, likewise played a role in prosecuting
this war. Protecting "our" oil supplies has influenced our Middle East
policy for decades.

But the truth is that paying the bills for this aggressive intervention
is impossible the old fashioned way, with more taxes, more savings, and
more production by the American people. Much of the expense of the
Persian Gulf War in 1991 was shouldered by many of our willing allies.
That's not so today. Now, more than ever, the dollar hegemony-- it's
dominance as the world reserve currency-- is required to finance our
huge war expenditures. This $2 trillion never-ending war must be paid
for, one way or another. Dollar hegemony provides the vehicle to do just

For the most part the true victims aren't aware of how they pay the
bills. The license to create money out of thin air allows the bills to
be paid through price inflation. American citizens, as well as average
citizens of Japan, China, and other countries suffer from price
inflation, which represents the "tax" that pays the bills for our
military adventures. That is until the fraud is discovered, and the
foreign producers decide not to take dollars nor hold them very long in
payment for their goods. Everything possible is done to prevent the
fraud of the monetary system from being exposed to the masses who suffer
from it. If oil markets replace dollars with Euros, it would in time
curtail our ability to continue to print, without restraint, the world's
reserve currency.

It is an unbelievable benefit to us to import valuable goods and export
depreciating dollars. The exporting countries have become addicted to
our purchases for their economic growth. This dependency makes them
allies in continuing the fraud, and their participation keeps the
dollar's value artificially high. If this system were workable long
term, American citizens would never have to work again. We too could
enjoy "bread and circuses" just as the Romans did, but their gold
finally ran out and the inability of Rome to continue to plunder
conquered nations brought an end to her empire.

The same thing will happen to us if we don't change our ways. Though we
don't occupy foreign countries to directly plunder, we nevertheless have
spread our troops across 130 nations of the world. Our intense effort to
spread our power in the oil-rich Middle East is not a coincidence. But
unlike the old days, we don't declare direct ownership of the natural
resources-- we just insist that we can buy what we want and pay for it
with our paper money. Any country that challenges our authority does so
at great risk.

Once again Congress has bought into the war propaganda against Iran,
just as it did against Iraq. Arguments are now made for attacking Iran
economically, and militarily if necessary. These arguments are all based
on the same false reasons given for the ill-fated and costly occupation
of Iraq.

Our whole economic system depends on continuing the current monetary
arrangement, which means recycling the dollar is crucial. Currently, we
borrow over $700 billion every year from our gracious benefactors, who
work hard and take our paper for their goods. Then we borrow all the
money we need to secure the empire (DOD budget $450 billion) plus more.
The military might we enjoy becomes the "backing" of our currency. There
are no other countries that can challenge our military superiority, and
therefore they have little choice but to accept the dollars we declare
are today's "gold." This is why countries that challenge the system--
like Iraq, Iran and Venezuela-- become targets of our plans for regime

Ironically, dollar superiority depends on our strong military, and our
strong military depends on the dollar. As long as foreign recipients
take our dollars for real goods and are willing to finance our
extravagant consumption and militarism, the status quo will continue
regardless of how huge our foreign debt and current account deficit
become. ...

The economic law that honest exchange demands only things of real value
as currency cannot be repealed. The chaos that one day will ensue from
our 35-year experiment with worldwide fiat money will require a return
to money of real value. We will know that day is approaching when
oil-producing countries demand gold, or its equivalent, for their oil
rather than dollars or Euros. The sooner the better.

(11) David Stockman warns: US can't afford Empire, must slash military
spending (2011)

From: IHR News <news@ihr.org> Date: 15.01.2011 12:00 AM

Exclusive: America has ‘reached the point of no return,' Reagan budget
director warns

by Nathan Diebenow -- Raw Story

Monday, January 10th, 2011 -- 8:53 am


The Obama administration's $78 billion cut to US defense spending is a
mere "pin-prick" to a behemoth military-industrial complex that must
drastically shrink for the good of the republic, a former Reagan
administration budget director recently told Raw Story.

"It amounts to a failed opportunity to recognize that we are now at a
historical inflection point at which the time has arrived for a classic
post-war demobilization of the entire military establishment," David
Stockman said in an exclusive interview.

"The Cold War is long over," he continued. "The wars of occupation are
almost over and were complete failures -- Afghanistan and Iraq. The
American empire is done. There are no real seriously armed enemies left
in the world that can possibly justify an $800 billion national defense
and security establishment, including Homeland Security."

Short of that, he suggested, the United States has "reached the point of
no return" with its artificial creation of wealth, and will eventually
face a sharp economic decline.

Stockman last fall criticized the extension of the Bush tax cuts while
the federal government continued to borrow money abroad to pay for its
public welfare and warfare programs. His solution to deficit spending --
a huge across-the-board tax increase -- is contrary to the current
anti-tax ideology shared among tea party activists as well as fiscal
conservatives in the Republican Party.

Stockman, who was appointed by President Ronald Reagan in 1981 to run
the Office of Management and Budget, offered two models for the US
military's compulsory demobilization: the one after World War I in 1920
and the one after World War II in 1946.

Calling today's military spending running at 5.4 percent of GDP "simply
an absurd level that begs for radical contraction and surgery," he said
that a "reasonable target" to shrink the defense establishment would be
3 percent of GDP by 2015.

What budget cuts?

Republicans, who were elected to a majority in the House of
Representatives on promises to cut government spending, promised to cut
$100 billion from the budget in their first year. Relatively few have
proposed significant decreases in defense spending, and GOP leadership
has outright dismissed the possibility.

[...] Stockman, who described himself as a libertarian during a recent
interview with Reason.tv, told Raw Story that the economy got into this
mess because of the public and private sectors' addiction to "guns and
butter Keynesianism," an economic policy that amounts to a Ponzi scheme
that has ballooned since 1990.

"If we see what's going on carefully, we've reached the final unmasking
of the Keynesian illusion, that Keynesianism is really nothing but
borrowing, stealing from the future to induce consumption today," he
said. "There are no multipliers. Every one of these programs we've had
from 'cash for clunkers' to housing purchase credits have disappeared as
soon as they expired and simple shifted activities in time by a few
months." [...]

(12) Dollar Hegemony has got to go - Henry C K Liu  (2002)

US dollar hegemony has got to go

By Henry C K Liu

April 11, 2002

[...] World trade is now a game in which the US produces dollars and the
rest of the world produces things that dollars can buy.

[...] By definition, dollar reserves must be invested in US assets,
creating a capital-accounts surplus for the US economy.

[...] To save the world from the path of impending disaster, we must:
     promote an awareness among policy makers globally that excessive
dependence on exports merely to service dollar debt is self-destructive
to any economy;

This is easier done than imagained. The starting point is for the major
exporting nations each to unilaterally require that all its exports be
payable only in its currency, so that the global finance architecture
will turn into a multi-currency regime overnight.

[...] As for aggregate demand management, Asia leads the world in both
overcapacity and underconsumption. It is high time for Asia to realize
the potential of its market power. ...

Robert Skidelsky: Seigniorage allows US to wage wars & "acquire real
resources through the printing of money"

{quote} The new arrangement allowed the United States to continue to
enjoy the political benefits of "seigniorage" - the right to acquire
real resources through the printing of money. The "free" resources were
not just unpaid-for imported consumer goods but the ability to deploy
large military forces overseas without having to tax its own citizens to
do so. Every historian knows that a hegemonic currency is part of an
imperial system

(13) Robert Skidelsky: Martin Wolf's change of heart on Asian Trade
Surplus; US Seigniorage (money-printing)

The World Finance Crisis & the American Mission

By Robert Skidelsky

{reviews this book} Fixing Global Finance
by Martin Wolf
Johns Hopkins University Press, 230 pp., $24.95

NYR Books
Volume 56, Number 12 · July 16, 2009


[...] Concern about the US current account deficit - the excess of
expenditures over receipts in a country's balance of payments - long
preceded the financial crisis. ... The puzzle, though, was why the
countries with surpluses continued to pour their hard-earned savings
into the debt-ridden American economy.

In a notable lecture in 2005, Ben Bernanke, about to become chairman of
the Federal Reserve, gave the answer. At first, he said, it was because
the US was a highly productive economy. But following the financial
crisis of 1997–1998, East Asian countries had deliberately started
accumulating foreign exchange reserves to guard against another flight
of capital similar to what they had just suffered or observed. To
accumulate reserves they had to run current account surpluses, by
earning more in exports than they spent on imports. This tied in with
their policy of undervaluing their currencies against the dollar in
order to maintain export-led growth.

After the collapse of the dot-com boom in 2000, the US became a much
less desirable place for direct foreign investment. So East Asian
countries, especially China, started to buy US Treasury bonds. They
adopted aggressive policies of buying large quantities of dollars and
resisting market pressure for appreciation of their currencies.
Investing their dollars in US securities was a way of segregating their
dollar purchases from the domestic money supply, thereby preventing
domestic price increases that would have eroded their export
competitiveness. Like other economists at the time, Bernanke saw
considerable merit in the arrangement: it enabled emerging and
developing countries to reduce their foreign debts, stabilize their
currencies, and reduce the risk of financial crises. Without US
willingness to act as a "consumer of last resort," the global savings
glut would exert a huge deflationary pressure on the world economy.

But Bernanke also pointed out three snags in the situation. First, for
developing countries to be lending large net sums to mature industrial
countries with abundant capital was undesirable: the flow should be
going the other way - to countries with a capital shortage. Second, much
of the inflow of capital to the US went not into improving productivity
but into the housing sector and consumption. Third, the arrangement
depressed US exports, encouraging instead the parts of the economy that
produce nontraded goods and services, such as the financial industry.
Yet to repay its foreign creditors, the US needed healthy export
industries. A fall in the dollar was, therefore, needed to shrink the
nontradable economy relative to the export sector. Nevertheless,
Bernanke concluded, "fundamentally, I see no reason why the whole
process [of rebalancing] should not proceed smoothly."

This was the standard view before the present crisis broke. Martin Wolf,
the world's most respected financial columnist - mainly for the
Financial Times - published a book in 2004 called Why Globalization
Works.[2] ...

Wolf more recently argued that the accumulation of dollar reserves by
China and other East Asian countries that have maintained undervalued
exchange rates against the dollar explains the low long-term interest
rates and monetary easing of the US in the 2000s. Cheap money, he
writes, had "encouraged an orgy of financial innovation, borrowing and
spending" that created housing bubbles:

     High-income countries with elastic credit systems and households
willing to take on rising debt levels offset the massive surplus savings
in the rest of the world. The lax monetary policies facilitated this
excess spending, while the housing bubble was the vehicle through which
it worked.[5]

Wolf's most recent book, Fixing Global Finance, marks a turning point in
his worldview. Written in 2007, just before the first signs of the
current financial crisis were starting to register, it explains how
unprecedented macroeconomic imbalances have repeatedly created the
preconditions for financial crises over the last three decades. ...
South Korea offers a good example. During the 1990s, in order to qualify
for OECD membership, South Korea had been liberalizing its exchange
controls and credit markets. Spurred by their government to keep
growing, large Korean companies and banks started borrowing abroad
despite dwindling profits. Rising foreign interest rates undermined
their creditworthiness and increased the cost of servicing their debt.
They therefore needed to borrow even more - but now under worse
conditions. This led to a general skepticism among foreign lenders.
Whether solvent or not, Korean companies were faced by an ever-worsening
credit situation.

Under these conditions of uncertainty, Koreans and other foreigners
started selling the domestic currency, which therefore plummeted in
value and triggered a currency crisis. This is when the full financial
crisis of the 1990s really got going. With a devalued domestic currency,
neither private nor public institutions could afford to take out new
loans in foreign currencies, and the old ones could not be repaid.
Interest rates soared and insolvent companies were wiped out, bringing
solvent banks down with them. "Domestic credit seizes up. Inflation
surges as the currency tumbles. The economy falls into a deep
recession." Partly because of similarity of circumstances and partly
because of contagion effects, this was the fate of most East Asian
economies in 1997–1998.

[..] Thus, at the end of the 1990s, most emerging economies simply said
"enough." No longer would they run current account deficits; instead
they would keep their currencies artificially low - but stable - to
facilitate export-led growth and become net exporters of capital.

To prevent inflows of capital from private foreign interests and banks
from jeopardizing this policy, the governments of these countries have
since been accumulating huge foreign-denominated reserves. In
particular, they have been hoarding dollars. As Wolf puts it:

     In essence, this is government recycling of money earned through
the current account and money received from private sector capital
flows: the emerging market economies are...smoking capital, but not

This set the stage for unprecedented global imbalances. There can be no
net exporter of capital without a net importer of capital. And if the
net exporters happen to include countries such as China, you need a
really big economy to absorb that capital. Enter the United States.

What follows in Wolf's account is largely a rehash of Bernanke's 2005
lecture. Wolf explains the "saving glut"/"money glut" debate, which is
also an argument about the conduct of US macroeconomic policy in the
years leading up to the bank crash of 2008. The official view of the
Federal Reserve was that the existence of a "global saving glut"
required the US to step forward as the superborrower to rescue the world
from a recession. The "money glut" view holds that the direction of
causality was quite the opposite: US monetary excess brought about low
interest rates, which sparked a rapid growth in credit while reducing
the willingness of American households to invest. This then resulted in
trade deficits that weakened the dollar. To preserve competitiveness,
East Asian governments were forced to embark on open-ended foreign
currency intervention.

Thus, in the "money glut" view it was excessive US spending that led to
excessive saving in emerging markets and not the other way around. Wolf
prefers the "saving glut" to the "money glut" explanation.

[...] The very density of the material may obscure the reader's
understanding of the causal mechanisms by which "surplus Chinese saving"
became "excessive American spending." Evidently, Americans didn't
directly spend Chinese savings. The US dollars earned by Chinese
exporters weren't being borrowed by American firms and households: they
were being borrowed by China's central bank, which then hoarded or
segregated them to keep them out of the domestic money supply and to
keep the exchange rate low.

The story goes somewhat like this. Instead of having to borrow from the
American public to finance its fiscal deficit, the US government could
borrow Chinese savings by issuing Treasury bonds that were bought by the
Chinese. Therefore federal deficits did not raise the cost of domestic
borrowing, which they would have done had the government had to borrow
American savings rather than selling debt to China. If the economy is
working to capacity, the more governments borrow, the less private
investors borrow. This is called "crowding out." With Chinese savings
available, the US government could run a deficit without crowding out
private spending. This allowed the Fed to establish a much lower funds
rate - the rate at which banks borrow from the Fed and one another -
than it would otherwise have been able to do, helped in this by the
downward pressure on prices exerted by the import of cheap Chinese goods
produced by cheap Chinese labor. Cheap money, in turn, enabled banks to
expand their deposits and their loans to customers more than they could
otherwise have done. In short, it was via their impact on the financing
of the federal deficit that Chinese savings made it possible for the US
consumer to go on a spending spree.

[...] Americans borrowed not to invest in new machines but to speculate
in houses and mergers and acquisitions. The resulting growth in paper
wealth triggered a consumption boom. The situation was unsustainable
because no new resources were being created with which to pay back
either domestic or foreign borrowing. ...

In line with the "saving glut" hypothesis, Wolf argues that it is up to
the Chinese and other East Asian countries to take steps to eliminate
the excess savings they have created. This is in their own
self-interest. The Chinese save and invest almost 50 percent of their
GDP. ... there are political risks in channeling current account
surpluses into foreign reserves instead of greater consumption, improved
health care, and infrastructure. [...]

American businessmen have been complicit in Chinese
"super-competitiveness" by arranging for manufacturing jobs to be moved
to China from the US in order to cut costs. The decline in US
manufacturing and the growth in nontradable services, and the financial
operations that secured this restructuring, have enabled financiers and
businessmen to earn huge profits that should have been shared with their
workers. Morally, the financial community has been living well beyond
its means. But perhaps above all, by getting other countries to finance
its imperial pretensions, the US government has been able to live beyond
its means. Wolf refers in several places to the "exorbitant privilege"
of the US dollar, but omits entirely to discuss the political benefits
that this privilege buys. [...]

The privileged position of the dollar survived the collapse of the
Bretton Woods regime of fixed-exchange rates in 1971. In theory, the
resulting system of floating exchange rates removes the need for any
reserves at all, since adjustment of current account imbalances was
supposed to be automatic. But the need for reserves unexpectedly
survived, mainly to guard against speculative movements of short-term
investment - "hot money" - that could drive exchange rates away from
their equilibrium values. Starting in the 1990s, East Asian governments
unilaterally erected a "Bretton Woods II," linking their currencies to
the dollar, and holding their reserves in dollars. This reproduced both
the benefits and faults of Bretton Woods I: it avoided global deflation,
but undermined the long-run credibility of the dollar as the global
reserve currency.

The new arrangement allowed the United States to continue to enjoy the
political benefits of "seigniorage" - the right to acquire real
resources through the printing of money. The "free" resources were not
just unpaid-for imported consumer goods but the ability to deploy large
military forces overseas without having to tax its own citizens to do
so. Every historian knows that a hegemonic currency is part of an
imperial system of political relations. Americans acquiesced in the
unbalanced economic relations initiated by East Asian governments in
their undervaluation of their currencies because they ensured the
persistence of unbalanced political relations.

(14) De Gaulle 1960s attack on "Hegemony of the Dollar": US paid for
wars & foreign assets by printing $s (Seigneurage)


Robert Gilpin, "The Rise of American Hegemony," in Two Hegemonies:
Britain 1846-1914 and the United States 1941-2001 edited by Patrick Karl
O'Brien and Armand Clesse (Aldershot: Ashgate Publishing, Ltd., 2002),
pp. 165-182

The dominant world role of the United States following the end of World
War II has been the subject of many scholarly and conflicting analyses.

The world has known only two eras of economic liberalism based on a
hegemonic power. From the late nineteenth century to the outbreak of
World War I, Great Britain led the efforts for trade liberalisation and
monetary stability. Similarly, the United States led the world economy
following World War II. [...] Although the Bank of England played a
central role in the management of the gold standard, the nineteenth
century monetary system was largely denationalised. The post World War
II system was based on the dollar and was subject to American influence.

The key role of the dollar in the international monetary system held the
American alliance system and the world economy together, and the
international role of the dollar as both a reserve and transaction
currency actually became a cornerstone of America's global economic and
political position. Because America's major allies and economic partners
were willing to hold dollars for political as well as for economic
reasons, the international role of the dollar conferred on the United
States the right of 'seigneurage'; this term refers to privileges
associated with being the provider of the currency for an economy, in
this case the international economy. As President Charles de Gaulle of
France bitterly complained in the 1960s, the 'hegemony of the dollar'
conferred 'extravagant privileges' on the United States, because it
alone could simply print dollars to fight foreign wars, buy up French
and other businesses, and go deeply into national debt with no fear for
the consequences.

As Robert Triffin warned in the early 1960s, there was a fundamental
contradiction at the heart of this dollar-based system. While the huge
outflow of American dollars to finance the re-building of Western Europe
and Japan and the American military build-up during both the Korean and
Vietnam Wars helped to solve the liquidity problem, this outflow or
overhang of dollars meant that the United States would one day be unable
to redeem in gold those dollars held by private investors and foreign
governments at the agreed price. Triffin predicted that confidence in
the dollar would be undermined as the American balance of payments
shifted from a surplus to a deficit. As this deficit grew in the late
1950s and the 1960s, the conflict between the monetary system's
mechanism of liquidity creation and the solution of the confidence
problem became increasingly severe. The problem became even more acute
in the 1960s when the escalation of the Vietnam War and its inflationary
consequences caused a deterioration of international confidence in the
value of the dollar. As confidence in the dollar declined, the
foundations of the Bretton Woods system of fixed rates began to erode.

Decreasing confidence in the dollar led to intensifying speculation in
gold, and this was followed by attempts to find solutions to the
confidence problem; the most important of these efforts was the creation
in the late 1960s of Special Drawing Rights (SDRs) as a new reserve
asset to complement the dollar. However, the 'solution' reached was
essentially political. America's Cold War allies, fearing that a
collapse of the dollar would force the United States to withdraw its
forces from overseas and to retreat into political isolation, agreed to
hold over-valued dollars to prevent the monetary system from breaking
down. In essence, the confidence problem was solved by the political
necessity to maintain the anti-Soviet alliance. Another factor in the
allied support of the overvalued dollar, however, was that the American
market was lucrative for such export-oriented economies as West Germany
and, later, Japan. [...]

(15) Niall Ferguson acknowledges "Hegemony of the Dollar", "Seigniorage"

Hegemony or Empire?

by Niall Ferguson

Foreign Affairs, (September/October 2003)


It is fast becoming conventional wisdom that the power of the United
States today closely resembles that of the United Kingdom roughly a
century ago.

Nevertheless, whereas the British were generally quite open about the
fact that they were running an empire, few American politicians today
would use the "e" word as anything other than a term of abuse. ...
Americans, in short, don't "do" empire; they do "leadership" instead,
or, in more academic parlance, "hegemony."

According to S. Ryan Johansson, one of the contributors to Two
Hegemonies, the word "hegemony" was used originally to describe the
relationship of Athens to the other Greek city-states that joined it in
an alliance against the Persian Empire.

[...] the authors point to the way the United States has very
deliberately used its power to advance multilateral, mutually balanced
tariff reductions under the General Agreement on Tariffs and Trade
(later the World Trade Organization). As Robert Gilpin argues in his
chapter, the tariff reductions achieved in the 1967 Kennedy Round
negotiations (and subsequently) owed much to "American pressures." Such
pressure was classically exerted through "conditionality" -- that is,
the terms under which the Washington-based International Monetary Fund
granted its loans.  ...

The third pillar of American dominance can be found in the way
successive U.S. governments sought to take advantage of the dollar's
role as a key currency before and after the breakdown of the Bretton
Woods institutions, which, according to O'Brien, enabled the United
States to be "far less restrained ... than all other states by normal
fiscal and foreign exchange constraints when it came to funding whatever
foreign or strategic policies Washington decided to implement." As
Robert Gilpin notes, quoting Charles de Gaulle, such policies led to a
"hegemony of the dollar" that gave the U.S. "extravagant privileges." In
David Calleo's words, the U.S. government had access to a "gold mine of
paper" and could therefore collect a subsidy from foreigners in the form
of seigniorage (the profits that flow to those who mint or print a
depreciating currency). [...]

(16) Rhine model / Asia model economies beat Anglo-American Individualism

Date: Sat, 02 Feb 2013 11:47:57 +0100 From: Arno Mong Daastoel

Capitalism Against Capitalism

Michael (Michel) Albert

London: Whurr, 1993


On the one hand is the "neo-American" model based on individual
achievement and short-term profits. On the other is the Rhine model
practices in Switzerland, Germany, Benelux, Northern Europe and, partly,
in Japan. In the Rhine model collective achievement and public concensus
are seen as the keys to long-term success.

The first is more seductive, the second more effective. These two
opposing forms of capitalism are engaged in a war which, like all
internal conflicts, involves both secrecy and even hypocrisy. The
outcome of this struggle could affect the quality of life on all levels
of society.

(17) Rhine model / Asia model economies beat Anglo-American Individualism

Capitalism Against Capitalism

How America's Obsession with Individual Achievement and Short-term
Profit Has Led It to the Brink of Collapse

by Michel Albert

Introduction by Felix G. Rohatyn
Translated by Paul Haviland

Wiley, 1993


{p. 5} There is little doubt that capitalism is no monolithic structure,
but an aggregate of tendencies out of which, in each case, two diverging
currents, two broad 'schools' emerge ... and challenge one another for
supremacy. Hence, Capitalism Vs. Capitalism.

  [...] Should taxation promote savings or borrowing?

In France, public opinion is still largely in favor of the former,
although the level of savings is steadily dropping. In Germany and
Japan, thrift is an almost patriotic virtue, and the tax structure is
designed to encourage it.

At the other end of the scale is the USA, where prodigality rules:
personal success is measured in terms of external signs of opulence -
conspicuous consumption' - notably since the Reagan revolution. The tax
structure is designed to encourage borrowing, given that the higher
one's level of indebtedness, the less the taxman can take. ...

'Anglo-Saxon'vs 'German-Japanese' model

[...] The election of Ronald Reagan put an abrupt end to the tendency,
apparent since the Depression, of US capitalism to take on some of the
characteristics of European capitalism (e.g. greater state intervention
in the economy). This movement had much to do with the need for
trans-Atlantic solidarity in the confrontation with communism. Nowhere
in continental Europe has there been anything remotely like the 'Reagan
revolution' in the USA. A new economic model was

{p. 17} forged (and baptized Reaganomics, already in every dictionary);
its fame was to spread far beyond the boundaries of America, even as its
shortcomings have started to become apparent at home. ...

Today, Helmut Kohl continues in the tradition of Adenauer, Erhard, and
even Brandt and Schmidt, at the helm of an economy which exemplifies
what I call the Rhine model of capitalism. It includes not only the
Rhine countries in the narrow geographical sense - Switzerland, Germany
and the Netherlands - but also, to some extent, Scandinavia and (with
allowances for the inevitable cultural differences) Japan as well. ...

In Japan, it is considered somewhat shameful to bring a lawsuit; every
avenue of negotiation and compromise must be explored before resorting
to such an extreme measure. In the European tradition, the legal
profession - like all the other professions - frees its members from the
need to chase profits and calculate prices, in order to be able to
concentrate in a disinterested fashion on serving the public good. It is
this notion of service to a higher ideal- whether this be defined as
'justice' or 'health' or 'education' - which in turn defines the code of
professional conduct: in a word, honor. Honor is the key concept, as the
term 'honorarium' (payment for professional services) clearly indicates. ...

{p. 114} German workers are not only better paid than their American or
French counterparts but, as previously noted, they work fewer hours.
What, then, of their overall career prospects? The litmus test for
promotion is, in the Rhine model, based on qualifications and seniority.
Thus the twin priorities for an employee who wishes to 'get ahead' are
dear: company loyalty and further training. Not coincidentally, the
pursuit of both is beneficial to all.

It is not unusual to find that senior managers of German (and Japanese)
firms have spent their entire working lives in the same company, having
moved up the ladder of promotion from shop floor to executive suite.
Nothing could be further removed from the attitude now prevalent in
America, whereby job mobility and frequent career changes are seen as
proof of excellence and individual initiative. ...

{p. 117} • The Anglo-American model of employment, in which a company
seeks to maximise its competitiveness by sharpening the competition
between individual employees. This entails a relentless drive to recruit
the best and brightest, whatever the cost, and then to keep them by
paying the 'going rate' as dictated at any given time by market forces.
Salaries, like jobs, are fundamentally individualised, and highly

• The Rhine-Japanese model has an entirely different set of priorities.
It rejects the notion that employers have the right to treat staff as so
many productive units or raw materials to be bought and sold on the
market. The company-as-community has an obligation to ensure a certain
level of job security, to earn its members' loyalty, and to provide
educational and training opportunities - which do not come cheaply. As a
result, it may not be able to pay each worker at his or her current
market value; what it can do is lay the ground for a lasting career, and
smooth out some of the rough spots along the way. In this model of
employment, there is no virtue in promoting cutthroat (and ultimately
destructive) in-house competition.  ...

(18) Thatcher hollowed out UK Industry, handed lead to Germany & Asia -
Eamonn Fingleton


Thatcher's Last Wish: Another Clunker From The Iron Lady

Eamonn Fingleton

4/14/2013 @ 10:46AM

[Updated with reader comments, 4/15]

[...] The fact is that under Thatcherism the UK’s trade position went
from the merely weak to the totally disastrous. The UK ran a current
account surplus of 0.6 percent of GDP in 1978, the last full year before
Thatcher came to office. As of 1989, the last full year before she was
ousted by her own party in May of 1990, the current account DEFICIT had
reached an appalling 3.9 percent of GDP. In the meantime Thatcher
presided over a savage program to destroy the UK’s core exporting
industries and, with wholesale financial deregulation, laid the
groundwork for the catastrophic financial bubbles of more recent times.
She was smitten by the erroneous notion that advanced nations should
leave “rust bucket” industries behind and move to a postindustrial
model. Not a view shared by Germany, which has now long eclipsed the UK
as Europe’s premier economy. This view is not shared either in any of
the most successful East Asian nations (though they are delighted if the
English-speaking world continues to believe in postindustrialism). For
what it is worth, I have consistently attacked the postindustrialist
fallacy since the 1980s and indeed I devoted a whole book to it in 1999
(In Praise of Hard Industries: Why Manufacturing, Not the Information
Economy, Is the Key to Future Prosperity). The book’s main point is that
an economy without a strong export sector is like a car without an
engine: services in general do little or no exporting, so if you allow
your manufacturing industries to decline, you lose your ability to pay
your way in the world. My book has now been vindicated on its analysis
of finance: my message was summed up in the heading of the relevant
chapter, “Finance: A Cuckoo in the Economy’s Nest.” My point about
manufacturing will take longer to become generally obvious but in the
end Thatcher’s true believers will discover the hard way that there is
no such thing as a free lunch. [...]


As of this writing, this blog has already generated more than 170
comments, not all of them friendly. [...]

 From logic001 [9/4+ Member: logic001]
Submitted on 2013/04/14 at 3:10 pm

The article is correct on the major points.

Since the 1980?s I’ve witnessed up close and personally the paths taken
by two very different models for Western Civilization. One is the
Anglo-American model, with a migration from manufacturing to finance and
a big bet placed on unfettering private sector titans.

The second model has been the Northern European one (by which I include
Germany and Holland), with a big bet placed on the wisdom of massive
long term investments in human capital by government. And taxes high
enough to pay for that human capital bet.

It is looking like the Norse/Teutonic instincts were better. Both models
have their problems, but in terms of business competitiveness, health,
and most importantly in terms of measured human happiness and confidence
in tomorrow, the Thatcher model has brought only tidings of woe.

This is most apparent over the course of decades. In the 1980s, the life
and dreams of a young man in the U.K. were broadly on par with those of
a young man in West Germany or Sweden. Today, it is not even close.
Young Britons (and young Americans as well) have a lifetime of part time
hustling for low pay to look forward to. As one London fellow put it to
me, “being born next to the Baltic is like winning life’s lottery.”

That is Thatcher’s legacy. [...]

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