1035 Michael Hudson on World Bank, IMF & Bank for International Settlements

Michael Hudson on World Bank, IMF & Bank for International Settlements

Newsletter published on July 7, 2019

(1) Michael Hudson on World Bank, IMF & Bank for International Settlements
(2) The British Empire continues through the City of London & its Tax
Havens - Nicholas Shaxson
(3) Tax Havens: the most important single reason why poor people and
poor countries stay poor

(1) Michael Hudson on World Bank, IMF & Bank for International Settlements

http://www.unz.com/mhudson/the-world-bank-and-imf-2019/

The World Bank and IMF 2019

MICHAEL HUDSON AND BONNIE FAULKNER

JUNE 26, 2019

"The purpose of a military conquest is to take control of foreign
economies, to take control of their land and impose tribute. The genius
of the World Bank was to recognize that it’s not necessary to occupy a
country in order to impose tribute, or to take over its industry,
agriculture and land. Instead of bullets, it uses financial maneuvering.
As long as other countries play an artificial economic game that U.S.
diplomacy can control, finance is able to achieve today what used to
require bombing and loss of life by soldiers."

I’m Bonnie Faulkner. Today on Guns and Butter: Dr. Michael Hudson.
Today’s show: The IMF and World Bank: Partners In Backwardness.

Dr. Hudson is a financial economist and historian. He is President of
the Institute for the Study of Long-Term Economic Trend, a Wall Street
Financial Analyst, and Distinguished Research Professor of Economics at
the University of Missouri, Kansas City.

Bonnie Faulkner: Michael Hudson, welcome back.

Michael Hudson: It’s good to be back, Bonnie.

Bonnie Faulkner: In your seminal work form 1972, Super-Imperialism: The
Economic Strategy of American Empire, you write: "The development
lending of the World Bank has been dysfunctional from the outset." When
was the World Bank set up and by whom?

Michael Hudson: It was set up basically by the United States in 1944,
along with its sister institution, the International Monetary Fund
(IMF). Their purpose was to create an international order like a funnel
to make other countries economically dependent on the United States. To
make sure that no other country or group of countries – even all the
rest of the world – could not dictate U.S. policy. American diplomats
insisted on the ability to veto any action by the World Bank or IMF. The
aim of this veto power was to make sure that any policy was, in Donald
Trump’s words, to put America first. "We’ve got to win and they’ve got
to lose."

The World Bank was set up from the outset as a branch of the military,
of the Defense Department. John J. McCloy (Assistant Secretary of War,
1941-45), was the first full-time president. He later became Chairman of
Chase Manhattan Bank (1953-60). McNamara was Secretary of Defense
(1961-68), Paul Wolfowitz was Deputy and Under Secretary of Defense
(1989-2005), and Robert Zoellick was Deputy Secretary of State. So I
think you can look at the World Bank as the soft shoe of American diplomacy.

Bonnie Faulkner: What is the difference between the World Bank and the
International Monetary Fund, the IMF? Is there a difference?

Michael Hudson: Yes, there is. The World Bank was supposed to make loans
for what they call international development. "Development" was their
euphemism for dependency on U.S. exports and finance. This dependency
entailed agricultural backwardness – opposing land reform, family
farming to produce domestic food crops, and also monetary backwardness
in basing their monetary system on the dollar.

The World Bank was supposed to provide infrastructure loans that other
countries would go into debt to pay American engineering firms, to build
up their export sectors and their plantation sectors by public
investment roads and port development for imports and exports.
Essentially, the Bank financed long- investments in the foreign trade
sector, in a way that was a natural continuation of European colonialism.

In 1941, for example, C. L. R. James wrote an article on "Imperialism in
Africa" pointing out the fiasco of European railroad investment in
Africa: "Railways must serve flourishing industrial areas, or densely
populated agricult5ural regions, or they must open up new land along
which a thriving population develops and provides the railways with
traffic. Except in the mining regions of South Africa, all these
conditions are absent. Yet railways were needed, for the benefit of
European investors and heavy industry." That is why, James explained
"only governments can afford to operate them," while being burdened with
heavy interest obligations.[1] What was "developed" was Africa’s mining
and plantation export sector, not its domestic economies. The World Bank
followed this pattern of "development" lending without apology.

The IMF was in charge of short-term foreign currency loans. Its aim was
to prevent countries from imposing capital controls to protect their
balance of payments. Many countries had a dual exchange rate: one for
trade in goods and services, the other rate for capital movements. The
function of the IMF and World Bank was essentially to make other
countries borrow in dollars, not in their own currencies, and to make
sure that if they could not pay their dollar-denominated debts, they had
to impose austerity on the domestic economy – while subsidizing their
import and export sectors and protecting foreign investors, creditors
and client oligarchies from loss.

The IMF developed a junk-economics model pretending that any country can
pay any amount of debt to the creditors if it just impoverishes its
labor enough. So when countries were unable to pay their debt service,
the IMF tells them to raise their interest rates to bring on a
depression – austerity – and break up the labor unions. That is
euphemized as "rationalizing labor markets." The rationalizing is
essentially to disable labor unions and the public sector. The aim – and
effect – is to prevent countries from essentially following the line of
development that had made the United States rich – by public subsidy and
protection of domestic agriculture, public subsidy and protection of
industry and an active government sector promoting a New Deal democracy.
The IMF was essentially promoting and forcing other countries to balance
their trade deficits by letting American and other investors buy control
of their commanding heights, mainly their infrastructure monopolies, and
to subsidize their capital flight.

BONNIE FAULKNER: Now, Michael, when you began speaking about the IMF and
monetary controls, you mentioned that there were two exchange rates of
currency in countries. What were you referring to?

MICHAEL HUDSON: When I went to work on Wall Street in the ‘60s, I was
balance-of-payments economist for Chase Manhattan, and we used the IMF’s
monthly International Financial Statistics every month. At the top of
each country’s statistics would be the exchange-rate figures. Many
countries had two rates: one for goods and services, which was set
normally by the market, and then a different exchange rate that was
managed for capital movements. That was because countries were trying to
prevent capital flight. They didn’t want their wealthy classes or
foreign investors to make a run on their own currency – an ever-present
threat in Latin America.

The IMF and the World Bank backed the cosmopolitan classes, the wealthy.
Instead of letting countries control their capital outflows and prevent
capital flight, the IMF’s job is to protect the richest One Percent and
foreign investors from balance-of-payments problems. The World Bank and
American diplomacy have steered them into a chronic currency crisis. The
IMF enables its wealthy constituency to move their money out of the
country without taking a foreign-exchange loss. It makes loans to
support capital flight out of domestic currencies into the dollar or
other hard currencies. The IMF calls this a "stabilization" program. It
is never effective in helping the debtor economy pay foreign debts out
of growth. Instead, the IMF uses currency depreciation and sell-offs of
public infrastructure and other assets to foreign investors after the
flight capital has left and currency collapses. Wall Street speculators
have sold the local currency short to make a killing, George-Soros style.

When the debtor-country currency collapses, the debts that these Latin
American countries owe are in dollars, and now have to pay much more in
their own currency to carry and pay off these debts. We’re talking about
enormous penalty rates in domestic currency for these countries to pay
foreign-currency debts – basically taking on to finance a
non-development policy and to subsidize capital flight when that policy
"fails" to achieve its pretended objective of growth.

All hyperinflations of Latin America – Chile early on, like Germany
after World War I – come from trying to pay foreign debts beyond the
ability to be paid. Local currency is thrown onto the foreign-exchange
market for dollars, lowering the exchange rate. That increases import
prices, raising a price umbrella for domestic products.

A really functional and progressive international monetary fund that
would try to help countries develop would say: "Okay, banks and we (the
IMF) have made bad loans that the country can’t pay. And the World Bank
has given it bad advice, distorting its domestic development to serve
foreign customers rather than its own growth. So we’re going to write
down the loans to the ability to be paid." That’s what happened in 1931,
when the world finally stopped German reparations payments and
Inter-Ally debts to the United States stemming from World War I.

Instead, the IMF says just the opposite: It acts to prevent any move by
other countries to bring the debt volume within the ability to be paid.
It uses debt leverage as a way to control the monetary lifeline of
financially defeated debtor countries. So if they do something that U.S.
diplomats don’t approve of, it can pull the plug financially,
encouraging a run on their currency if they act independently of the
United States instead of falling in line. This control by the U.S.
financial system and its diplomacy has been built into the world system
by the IMF and the World Bank claiming to be international instead of an
expression of specifically U.S. New Cold War nationalism.

BONNIE FAULKNER: How do exchange rates contribute to capital flight?

MICHAEL HUDSON: It’s not the exchange rate that contributes. Suppose
that you’re a millionaire, and you see that your country is unable to
balance its trade under existing production patterns. The money that the
government has under control is pesos, escudos, cruzeiros or some other
currency, not dollars or euros. You see that your currency is going to
go down relative to the dollar, so you want to get our money out of the
country to preserve your purchasing power.

This has long been institutionalized. By 1990, for instance, Latin
American countries had defaulted so much in the wake of the Mexico
defaults in 1982 that I was hired by Scudder Stevens, to help start a
Third World Bond Fund (called a "sovereign high-yield fund"). At the
time, Argentina and Brazil were running such serious balance-of-payments
deficits that they were having to pay 45 percent per year interest, in
dollars, on their dollar debt. Mexico, was paying 22.5 percent on its
tesobonos.

Scudders’ salesmen went around to the United States and tried to sell
shares in the proposed fund, but no Americans would buy it, despite the
enormous yields. They sent their salesmen to Europe and got a similar
reaction. They had lost their shirts on Third World bonds and couldn’t
see how these countries could pay.

Merrill Lynch was the fund’s underwriter. Its office in Brazil and in
Argentina proved much more successful in selling investments in
Scudder’s these offshore fund established in the Dutch West Indies. It
was an offshore fund, so Americans were not able to buy it. But
Brazilian and Argentinian rich families close to the central bank and
the president became the major buyers. We realized that they were buying
these funds because they knew that their government was indeed going to
pay their stipulated interest charges. In effect, the bonds were owed
ultimately to themselves. So these Yankee dollar bonds were being bought
by Brazilians and other Latin Americans as a vehicle to move their money
out of their soft local currency (which was going down), to buy bonds
denominated in hard dollars.

BONNIE FAULKNER: If wealthy families from these countries bought these
bonds denominated in dollars, knowing that they were going to be paid
off, who was going to pay them off? The country that was going broke?

MICHAEL HUDSON: Well, countries don’t pay; the taxpayers pay, and in the
end, labor pays. The IMF certainly doesn’t want to make its wealthy
client oligarchies pay. It wants to squeeze ore economic surplus out of
the labor force. So countries are told that the way they can afford to
pay their enormously growing dollar-denominated debt is to lower wages
even more.

Currency depreciation is an effective way to do this, because what is
devalued is basically labor’s wages. Other elements of exports have a
common world price: energy, raw materials, capital goods, and credit
under the dollar-centered international monetary system that the IMF
seeks to maintain as a financial strait jacket.

According to the IMF’s ideological models, there’s no limit to how far
you can lower wages by enough to make labor competitive in producing
exports. The IMF and World Bank thus use junk economics to pretend that
the way to pay debts owed to the wealthiest creditors and investors is
to lower wages and impose regressive excise taxes, to impose special
taxes on necessities that labor needs, from food to energy and basic
services supplied by public infrastructure.

BONNIE FAULKNER: So you’re saying that labor ultimately has to pay off
these junk bonds?

MICHAEL HUDSON: That is the basic aim of IMF. I discuss its fallacies in
my Trade Development and Foreign Debt, which is the academic sister
volume to Super Imperialism. These two books show that the World Bank
and IMF were viciously anti-labor from the very outset, working with
domestic elites whose fortunes are tied to and loyal to the United States.

BONNIE FAULKNER: With regard to these junk bonds, who was it or what entity…

MICHAEL HUDSON: They weren’t junk bonds. They were called that because
they were high-interest bonds, but they weren’t really junk because they
actually were paid. Everybody thought they were junk because no American
would have paid 45 percent interest. Any country that really was
self-reliant and was promoting its own economic interest would have
said, "You banks and the IMF have made bad loans, and you’ve made them
under false pretenses – a trade theory that imposes austerity instead of
leading to prosperity. We’re not going to pay." They would have seized
the capital flight of their comprador elites and said that these dollar
bonds were a rip-off by the corrupt ruling class.

The same thing happened in Greece a few years ago, when almost all of
Greece’s foreign debt was owed to Greek millionaires holding their money
in Switzerland. The details were published in the "Legarde List." But
the IMF said, in effect that its loyalty was to the Greek millionaires
who ha their money in Switzerland. The IMF could have seized this money
to pay off the bondholders. Instead, it made the Greek economy pay. It
found that it was worth wrecking the Greek economy, forcing emigration
and wiping out Greek industry so that French and German bondholding
banks would not have to take a loss. That is what makes the IMF so
vicious an institution.

BONNIE FAULKNER: So these loans to foreign countries that were regarded
as junk bonds really weren’t junk, because they were going to be paid.
What group was it that jacked up these interest rates to 45 percent?

MICHAEL HUDSON: The market did. American banks, stock brokers and other
investors looked at the balance of payments of these countries and could
not see any reasonable way that they could pay their debts, so they were
not going to buy their bonds. No country subject to democratic politics
would have paid debts under these conditions. But the IMF, U.S. and
Eurozone diplomacy overrode democratic choice.

Investors didn’t believe that the IMF and the World Bank had such a
strangle hold over Latin American, Asian, and African countries that
they could make the countries act in the interest of the United States
and the cosmopolitan finance capital, instead of in their own national
interest. They didn’t believe that countries would commit financial
suicide just to pay their wealthy One Percent.

They were wrong, of course. Countries were quite willing to commit
economic suicide if their governments were dictatorships propped up by
the United States. That’s why the CIA has assassination teams and
actively supports these countries to prevent any party coming to power
that would act in their national interest instead of in the interest of
a world division of labor and production along the lines that the U.S.
planners want for the world. Under the banner of what they call a free
market, you have the World Bank and the IMF engage in central planning
of a distinctly anti-labor policy. Instead of calling them Third World
bonds or junk bonds, you should call them anti-labor bonds, because they
have become a lever to impose austerity throughout the world.

BONNIE FAULKNER: Well, that makes a lot of sense, Michael, and answers a
lot of the questions I’ve put together to ask you. What about Puerto
Rico writing down debt? I thought such debts couldn’t be written down.

MICHAEL HUDSON: That’s what they all said, but the bonds were trading at
about 45 cents on the dollar, the risk of their not being paid. The Wall
Street Journal on June 17, reported that unsecured suppliers and
creditors of Puerto Rico, would only get nine cents on the dollar. The
secured bond holders would get maybe 65 cents on the dollar.

The terms are being written down because it’s obvious that Puerto Rico
can’t pay, and that trying to do so is driving the population to move
out of Puerto Rico to the United States. If you don’t want Puerto Ricans
to act the same way Greeks did and leave Greece when their industry and
economy was shut down, then you’re going to have to provide stability or
else you’re going to have half of Puerto Rico living in Florida.

BONNIE FAULKNER: Who wrote down the Puerto Rican debt?

MICHAEL HUDSON: A committee was appointed, and it calculated how much
Puerto Rico can afford to pay out of its taxes. Puerto Rico is a U.S.
dependency, that is, an economic colony of the United States. It does
not have domestic self-reliance. It’s the antithesis of democracy, so
it’s never been in charge of its own economic policy and essentially has
to do whatever the United States tells it to do. There was a reaction
after the hurricane and insufficient U.S. support to protect the island
and the enormous waste and corruption involved in the U.S. aid. The U.S.
response was simply: "We won you fair and square in the Spanish-American
war and you’re an occupied country, and we’re going to keep you that
way." Obviously this is causing a political resentment.

BONNIE FAULKNER: You’ve already touched on this, but why has the World
Bank traditionally been headed by a U.S. secretary of defense?

MICHAEL HUDSON: Its job is to do in the financial sphere what, in the
past, was done by military force. The purpose of a military conquest is
to take control of foreign economies, to take control of their land and
impose tribute. The genius of the World Bank was to recognize that it’s
not necessary to occupy a country in order to impose tribute, or to take
over its industry, agriculture and land. Instead of bullets, it uses
financial maneuvering. As long as other countries play an artificial
economic game that U.S. diplomacy can control, finance is able to
achieve today what used to require bombing and loss of life by soldiers.

In this case the loss of life occurs in the debtor countries. Population
growth shrinks, suicides go up. The World Bank engages in economic
warfare that is just as destructive as military warfare. At the end of
the Yeltsin period Russia’s President Putin said that American
neoliberalism destroyed more of Russia’s population than did World War
II. Such neoliberalism, which basically is the doctrine of American
supremacy and foreign dependency, is the policy of the World Bank and IMF.

BONNIE FAULKNER: Why has World Bank policy since its inception been to
provide loans for countries to devote their land to export crops instead
of giving priority to feeding themselves? And if this is the case, why
do countries want these loans?

MICHAEL HUDSON: One constant of American foreign policy is to make other
countries dependent on American grain exports and food exports. The aim
is to buttress America’s agricultural trade surplus. So the first thing
that the World Bank has done is not to make any domestic currency loans
to help food producers. Its lending has steered client countries to
produce tropical export crops, mainly plantation crops that cannot be
grown in the United States. Focusing on export crops leads client
countries to become dependent on American farmers – and political sanctions.

In the 1950s, right after the Chinese revolution, the United States
tried to prevent China from succeeding by imposing grain export controls
to starve China into submission by putting sanctions on exports. Canada
was the country that broke these export controls and helped feed China.

The idea is that if you can make other countries export plantation
crops, the oversupply will drive down prices for cocoa and other
tropical products, and they won’t feed themselves. So instead of backing
family farms like the American agricultural policy does, the World Bank
backed plantation agriculture. In Chile, which has the highest natural
supply of fertilizer in the world from its guano deposits, exports guano
instead of using it domestically. It also has the most unequal land
distribution, blocking it from growing its own grain or food crops. It’s
completely dependent on the United States for this, and it pays by
exporting copper, guano and other natural resources.

The idea is to create interdependency – one-sided dependency on the U.S.
economy. The United States has always aimed at being self-sufficient in
its own essentials, so that no other country can pull the plug on our
economy and say, "We’re going to starve you by not feeding you."
Americans can feed themselves. Other countries can’t say, "We’re going
to let you freeze in the dark by not sending you oil," because America’s
independent in energy. But America can use the oil control to make other
countries freeze in the dark, and it can starve other countries by
food-export sanctions.

So the idea is to give the United States control of the key
interconnections of other economies, without letting any country control
something that is vital to the working of the American economy.

There’s a double standard here. The United States tells other countries:
"Don’t do as we do. Do as we say." The only way it can enforce this is
by interfering in the politics of these countries, as it has interfered
in Latin America, always pushing the right wing. For instance, when
Hillary’s State Department overthrew the Honduras reformer who wanted to
undertake land reform and feed the Hondurans, she said: "This person has
to go." That’s why there are so many Hondurans trying to get into the
United States now, because they can’t live in their own country.

The effect of American coups is the same in Syria and Iraq. They force
an exodus of people who no longer can make a living under the brutal
dictatorships supported by the United States to enforce this
international dependency system.

BONNIE FAULKNER: So when I asked you why countries would want these
loans, I guess you’re saying that they wouldn’t, and that’s why the U.S.
finds it necessary to control them politically.

MICHAEL HUDSON: That’s a concise way of putting it Bonnie.

BONNIE FAULKNER: Why are World Bank loans only in foreign currency, not
in the domestic currency of the country to which it is lending?

MICHAEL HUDSON: That’s a good point. A basic principle should be to
avoid borrowing in a foreign currency. A country can always pay the
loans in its own currency, but there’s no way that it can print dollars
or euros to pay loans denominated in these foreign currencies.

Making the dollar central forces other countries to interface with the
U.S. banking system. So if a country decides to go its own way, as Iran
did in 1953 when it wanted to take over its oil from British Petroleum
(or Anglo Iranian Oil, as it was called back then), the United States
can interfere and overthrow it. The idea is to be able to use the
banking system’s interconnections to stop payments from being made.

After America installed the Shah’s dictatorship, they were overthrown by
Khomeini, and Iran had run up a U.S. dollar debt under the Shah. It had
plenty of dollars. I think Chase Manhattan was its paying agent. So when
its quarterly or annual debt payment came due, Iran told Chase to draw
on its accounts and pay the bondholders. But Chase took orders from the
State Department or the Defense Department, I don’t know which, and
refused to pay. When the payment was not made, America and its allies
claimed that Iran was in default. They demanded the entire debt to be
paid, as per the agreement that the Shah’s puppet government had signed.
America simply grabbed the deposits that Iran had in the United States.
This is the money that was finally returned to Iran without interest
under the agreement of 2016.

America was able to grab all of Iran’s foreign exchange just by the
banks interfering. The CIA has bragged that it can do the same thing
with Russia. If Russia does something that U.S. diplomats don’t like,
the U.S. can use the SWIFT bank payment system to exclude Russia from
it, so the Russian banks and the Russian people and industry won’t be
able to make payments to each other.

This prompted Russia to create its own bank-transfer system, and is
leading China, Russia, India and Pakistan to draft plans to de-dollarize.

BONNIE FAULKNER: I was going to ask you, why would loans in a country’s
domestic currency be preferable to the country taking out a loan in a
foreign currency? I guess you’ve explained that if they took out a loan
in a domestic currency, they would be able to repay it.

MICHAEL HUDSON: Yes.

BONNIE FAULKNER: Whereas a loan in a foreign currency would cripple them.

MICHAEL HUDSON: Yes. You can’t create the money, especially if you’re
running a balance of payments deficit and if U.S. foreign policy forces
you into deficit by having someone like George Soros make a run on your
currency. Look at the Asia crisis in 1997. Wall Street funds bet against
foreign currencies, driving them way down, and then used the money to
pick up industry cheap in Korea and other Asian countries. This was also
done to Russia’s ruble. The only country that avoided this was Malaysia,
under Mohamed Mahathir, by using capital controls. Malaysia is an object
lesson in how to prevent a currency flight.

But for Latin America and other countries, much of their foreign debt is
held by their own ruling class. Even though it’s denominated in dollars,
Americans don’t own most of this debt. It’s their own ruling class. The
IMF and World Bank dictate tax policy to Latin America – to un-tax
wealth and shift the burden onto labor. Client kleptocracies take their
money and run, moving it abroad to hard currency areas such as the
United States, or at least keeping it in dollars in offshore banking
centers instead of reinvesting it to help the country catch up by
becoming independent agriculturally, in energy, finance and other sectors.

BONNIE FAULKNER: You say that: "While U.S. agricultural protectionism
has been built into the postwar global system at its inception, foreign
protectionism is to be nipped in the bud." How has U.S. agricultural
protectionism been built into the postwar global system?

MICHAEL HUDSON: Under Franklin Roosevelt the Agricultural Adjustment Act
of 1933 called for price supports for crops so that farmers could earn
enough to invest in equipment and seeds. The Agriculture Department was
a wonderful department in spurring new seed varieties, agricultural
extension services, marketing and banking services. It provided public
support so that productivity in American agriculture from the 1930s to
‘50s was higher over a prolonged period than that of any other sector in
history.

But in shaping the World Trade Organization’s rules, the United States
said that all countries had to promote free trade and could not have
government support, except for countries that already had it. We’re the
only country that had it. That’s what’s called "grandfathering". The
Americans said: "We already have this program on the books, so we can
keep it. But no other country can succeed in agriculture in the way that
we have done. You must keep your agriculture backward, except for the
plantation crops and growing crops that we can’t grow in the United
States." That’s what’s so evil about the World Bank’s development plan.

BONNIE FAULKNER: According to your book: "Domestic currency is needed to
provide price supports and agricultural extension services such as have
made U.S. agriculture so productive." Why can’t infrastructure costs be
subsidized to keep down the economy’s overall cost structure if IMF
loans are made in foreign currency?

MICHAEL HUDSON: If you’re a farmer in Brazil, Argentina or Chile, you’re
doing business in domestic currency. It doesn’t help if somebody gives
you dollars, because your expenses are in domestic currency. So if the
World Bank and the IMF can prevent countries from providing domestic
currency support, that means they’re not able to give price supports or
provide government marketing services for their agriculture.

America is a mixed economy. Our government has always subsidized capital
formation in agriculture and industry, but it insists that other
countries are socialist or communist if they do what the United States
is doing and use their government to support the economy. So it’s a
double standard. Nobody calls America a socialist country for supporting
its farmers, but other countries are called socialist and are overthrown
if they attempt land reform or attempt to feed themselves.

This is what the Catholic Church’s Liberation Theology was all about.
They backed land reform and agricultural self-sufficiency in food,
realizing that if you’re going to support population growth, you have to
support the means to feed it. That’s why the United States focused its
assassination teams on priests and nuns in Guatemala and Central America
for trying to promote domestic self-sufficiency.

BONNIE FAULKNER: If a country takes out an IMF loan, they’re obviously
going to take it out in dollars. Why can’t they take the dollars and
convert them into domestic currency to support local infrastructure costs?

MICHAEL HUDSON: You don’t need a dollar loan to do that. Now were
getting in to MMT. Any country can create its own currency. There’s no
reason to borrow in dollars to create your own currency. You can print
it yourself or create it on your computers.

BONNIE FAULKNER: Well, exactly. So why don’t these countries simply
print up their own domestic currency?

MICHAEL HUDSON: Their leaders don’t want to be assassinated. More
immediately, if you look at the people in charge of foreign central
banks, almost all have been educated in the United States and
essentially brainwashed. It’s the mentality of foreign central bankers.
The people who are promoted are those who feel personally loyal to the
United States, because they that that’s how to get ahead. Essentially,
they’re opportunists working against the interests of their own country.
You won’t have socialist central bankers as long as central banks are
dominated by the International Monetary Fund and the Bank for
International Settlements.

BONNIE FAULKNER: So we’re back to the main point: The control is by
political means, and they control the politics and the power structure
in these countries so that they don’t rebel.

MICHAEL HUDSON: That’s right. When you have a dysfunctional economic
theory that is destructive instead of productive, this is never an
accident. It is always a result of junk economics and dependency
economics being sponsored. I’ve talked to people at the U.S. Treasury
and asked why they all end up following the United States. Treasury
officials have told me: "We simply buy them off. They do it for the
money." So you don’t need to kill them. All you need to do is find
people corrupt enough and opportunist enough to see where the money is,
and you buy them off.

BONNIE FAULKNER: You write that "by following U.S. advice, countries
have left themselves open to food blackmail." What is food blackmail?

MICHAEL HUDSON: If you pursue a foreign policy that we don’t like—for
instance, if you trade with Iran, which we’re trying to smash up to grab
its oil—we’ll impose financial sanctions against you. We won’t sell you
food, and you can starve. And because you’ve followed World Bank advice
and not grown your own food, you will starve, because you’re dependent
on us, the United States and our Free WorldÓ allies. Canada will no
longer follow its own policy independently of the United States, as it
did with China in the 1950s when it sold it grain. Europe also is
falling in line with U.S. policy.

BONNIE FAULKNER: You write that: "World Bank administrators demand that
loan recipients pursue a policy of economic dependency above all on the
United States as food supplier." Was this done to support U.S.
agriculture? Obviously it is, but were there other reasons as well?

MICHAEL HUDSON: Certainly the agricultural lobby was critical in all of
this, and I’m not sure at what point this became thoroughly conscious. I
knew some of the World Bank planners, and they had no anticipation that
this dependency would be the result. They believed the free-trade junk
economics that’s taught in the schools’ economics departments and for
which Nobel prizes are awarded.

When we’re dealing with economic planners, we’re dealing with
tunnel-visioned people. They stayed in the discipline despite its
unreality because they sort of think that abstractly it makes sense.
There’s something autistic about most economists, which is why the
French had their non-autistic economic site for many years. The
mentality at work is that every country should produce what it’s best at
– not realizing that nations also need to be self-sufficient in
essentials, because we’re in a real world of economic and military warfare.

BONNIE FAULKNER: Why does the World Bank prefer to perpetrate world
poverty instead of adequate overseas capacity to feed the peoples of
developing countries?

MICHAEL HUDSON: World poverty is viewed as solution, not a problem. The
World Bank thinks of poverty as low-priced labor, creating a competitive
advantage for countries that produce labor-intensive goods. So poverty
and austerity for the World Bank and IMF is an economic solution that’s
built into their models. I discuss these in my Trade, Development and
Foreign Debt book. Poverty is to them the solution, because it means
low-priced labor, and that means higher profits for the companies bought
out by U.S., British, and European investors. So poverty is part of the
class war: profits versus poverty.

BONNIE FAULKNER: In general, what is U.S. food imperialism? How would
you characterize it?

MICHAEL HUDSON: Its aim is to make America the producer of essential
foods and other countries producing inessential plantation crops, while
remaining dependent on the United States for grain, soy beans and basic
food crops.

BONNIE FAULKNER: Does World Bank lending encourage land reform in former
colonies?

MICHAEL HUDSON: No. If there is land reform, the CIA sends its
assassination teams in and you have mass murder, as you had in
Guatemala, Ecuador, Central America and Columbia. The World Bank is
absolutely committed against land reform. When the Forgash Plan for a
World Bank for Economic Acceleration was proposed in the 1950s to
emphasize land reform and local-currency loans, a Chase Manhattan
economist to whom the plan was submitted warned that every country that
had land reform turned out to be anti-American. That killed any
alternative to the World Bank.

BONNIE FAULKNER: Does the World Bank insist on client governments
privatizing their public domain? If so, why, and what is the effect?

MICHAEL HUDSON: It does indeed insist on privatization, pretending that
this is efficient. But what it privatizes are natural monopolies – the
electrical system, the water system and other basic needs. Foreigners
take over, essentially finance them with foreign debt, build the foreign
debt that they build into the cost structure, and raise the cost of
living and doing business in these countries, thereby crippling them
economically. The effect is to prevent them from competing with the
United States and its European allies.

BONNIE FAULKNER: Would you say then that it is mainly America that has
been aided, not foreign economies that borrow from the World Bank?

MICHAEL HUDSON: That’s why the United States is the only country with
veto power in the IMF and World Bank – to make sure that what you just
described is exactly what happens.

BONNIE FAULKNER: Why do World Bank programs accelerate the exploitation
of mineral deposits for use by other nations?

MICHAEL HUDSON: Most World Bank loans are for transportation, roads,
harbor development and other infrastructure needed to export minerals
and plantation crops. The World Bank doesn’t make loans for projects
that help the country develop in its own currency. By making only
foreign currency loans, in dollars or maybe euros now, the World Bank
says that its clients have to repay by generating foreign currency. The
only way they can repay the dollars spent on American engineering firms
that have built their infrastructure is to export – to earn enough
dollars to pay back for the money that the World Bank or IMF have lent.

This is what John Perkins’ book about being an economic hit man for the
World Bank is all about. He realized that his job was to get countries
to borrow dollars to build huge projects that could only be paid for by
the country exporting more – which required breaking its labor unions
and lowering wages so that it could be competitive in the race to the
bottom that the World Bank and IMF encourage.

BONNIE FAULKNER: You also point out in Super Imperialism that mineral
resources represent diminishing assets, so these countries that are
exporting mineral resources are being depleted while the importing
countries aren’t.

MICHAEL HUDSON: That’s right. They’ll end up like Canada. The end result
is going to be a big hole in the ground. You’ve dug up all your
minerals, and in the end you have a hole in the ground and a lot of the
refuse and pollution – the mining slag and what Marx called the
excrements of production.

This is not a sustainable development. The World Bank only promotes the
U.S. pursuit of sustainable development. So naturally, they call their
"Development," but their focus is on the United States, not the World
Bank’s client countries.

BONNIE FAULKNER: When Super Imperialism: The Economic Strategy of
American Empire was originally published in 1972, how was it received?

MICHAEL HUDSON: Very positively. It enabled my career to take off. I
received a phone call a month later by someone from the Bank of Montreal
saying they had just made $240 million on the last paragraph of my book.
They asked what it would cost to have me come up and give a lecture. I
began lecturing once a month at $3,500 a day, moving up to $6,500 a day,
and became the highest-paid per diem economist on Wall Street for a few
years.

I was immediately hired by the Hudson Institute to explain Super
Imperialism to the Defense Department. Herman Kahn said I showed how
U.S. imperialism ran rings around European imperialism. They gave the
Institute an $85,000 grant to have me go to the White House in
Washington to explain how American imperialism worked. The Americans
used it as a how-to-do-it book.

The socialists, whom I expected to have a response, decided to talk
about other than economic topics. So, much to my surprise, it became a
how-to-do-it book for imperialists. It was translated by, I think, the
nephew of the Emperor of Japan into Japanese. He then wrote me that the
United States opposed the book being translated into Japanese. It later
was translated. It was received very positively in China, where I think
it has sold more copies than in any other country. It was translated
into Spanish, and most recently it was translated into German, and
German officials have asked me to come and discuss it with them. So the
book has been accepted all over the world as an explanation of how the
system works.

BONNIE FAULKNER: In closing, do you really think that the U.S.
government officials and others didn’t understand how their own system
worked?

MICHAEL HUDSON: Many might not have understood in 1944 that this would
be the consequence. But by the time 50 years went by, you had an
organization called "Fifty Years Is Enough." And by that time everybody
should have understood. By the time Joe Stiglitz became the World Bank’s
chief economist, there was no excuse for not understanding how the
system worked. He was amazed to find that indeed it didn’t work as
advertised, and resigned. But he should have known at the very beginning
what it was all about. If he didn’t understand how it was until he
actually went to work there, you can understand how hard it is for most
academics to get through the vocabulary of junk economics, the
patter-talk of free trade and free markets to understand how
exploitative and destructive the system is.

BONNIE FAULKNER: Michael Hudson, thank you very much.

MICHAEL HUDSON: It’s always good to be here, Bonnie. I’m glad you ask
questions like these.

I’ve been speaking with Dr. Michael Hudson. Today’s show has been: The
IMF and World Bank: Partners in Backwardness. Dr. Hudson is a financial
economist and historian. He is president of the Institute for the Study
of Long-Term Economic Trend, a Wall Street financial analyst and
Distinguished Research Professor of Economics at the University of
Missouri, Kansas City. His 1972 book, Super Imperialism: The Economic
Strategy of American Empire, a critique of how the United States
exploited foreign economies through the IMF and World Bank, the subject
of today’s broadcast, is posted in PDF format on his website at
michael-hudson.com. He is also author of Trade, Development and Foreign
Debt, which is the academic sister volume to Super Imperialism. Dr.
Hudson acts as an economic advisor to governments worldwide on finance
and tax law. Visit his website at michael-hudson.com.

Guns and Butter is produced by Bonnie Faulkner, Yarrow Mahko and Tony
Rango. Visit us at gunsandbutter.org to listen to past programs, comment
on shows, or join our email list to receive our newsletter that includes
recent shows and updates. Email us at faulkner@gunsandbutter.org. Follow
us on Twitter at #gandbradio.

Notes

[1] C. L. R. James and Revolutionary Marxism: Selected Writings, 1939-49
(Chicago: Haymarket Books, 1994), pp. 133f.

(2) The British Empire continues through the City of London & its Tax
Havens - Nicholas Shaxson

http://mailstar.net/Empire-survives-City-Haven.doc

Nicholas Shaxson

The City of London threatens U.S. security and abets corruption.

[...] The truth is that the City of London is a greater potential threat
to the national security of the United States than almost anyone
supposes. That story, told true and right, has three main parts.

The first part shows that the United Kingdom is the single most
important playerin a global system of offshore tax havens, and has
facilitated and even enthusiastically—if discreetly—encouraged the élite
looting of pretty much every country in the world, from Pakistan to
Greece to Libya to Mexico, typically via U.S., British and Swiss banks.
This is a national security issue par excellence, now revealed in its
fullness through the Crimea affair, let's call it. This British offshore
system is a fast-growing cash cow for the City, which will fight to
protect it.

The second part of the story tells of how the City of London has spent
half a century building a business model based on thwarting and opposing
U.S. laws and regulations. It is crucial to understand that this is a
deliberate feature of the modern City, not an incidental side effect.

The third reveals the aforementioned depth of Britain's political
capture by the City of London, which makes Britain a thoroughly
untrustworthy ally not only with regard to Russia, but many other
portfolios as well.

There is more to the offshore story than the tale of the City of London.
It now involves China, Saudi Arabia and others as well. But London's
role is key, so much so that the financial crisis the United States is
still digging its way out of can fairly be traced back to the City as
well. It is therefore essential for Americans to understand better what
the City of London is, how and why Britain developed its network of tax
havens and the mentality of a tax haven itself, and how the
all-embracing City Consensus has captured the British establishment,
along with much of the UK media, and even British society at large. [...]

Tim Congdon, a former UK government economic adviser and veteran
financial commentator, sees three big factors behind the City of
London's post-imperial growth: globalisation, the information technology
revolution and what he calls the "offshore revolution"—a massive growth
in the use of tax havens over the past two and a half decades. "You can
establish a company in a tax haven", he said, "and it can then hold
assets that are subject to the tax and regulation of your choice." ...

Though the asset—an English stately home, for instance, or a bank
account—might be owned by an offshore company, all the lucrative legal,
accounting and banking work putting together these structures and
arrangements would be done in a big financial centre, typically London.
"So the Cayman Islands appears statistically as the fourth largest
financial centre in the world," explains Ronen Palan, Professor of
International Political Economy at City University in London. "But it's
only a paper centre: most of the activities attributed to it in fact
take place in London."

So Britain is not just an offshore jurisdiction in its own right: It is
at the centre of a British spider's web of offshore finance that serves
as a mechanism for feeding easy economic rents into the City. Genuine
economic activities in the United States, Latin America, Africa or Asia
are financialised and repackaged via the offshore conversion machine, so
as to minimise taxes by legal or illegal means, to wrap an asset in
offshore secrecy, or to wriggle out from domestic financial regulation.
Conveniently, a lot of the business of handling and facilitating this
mayhem flows to London. The more that other economies are financialised,
the wealthier the City becomes—hence the Lord Mayor's lobbying for
deregulation in China. [...]

(3) Tax Havens: the most important single reason why poor people and
poor countries stay poor

http://mailstar.net/MontPelerin-City-BoE-Empire.doc

Treasure Islands: Tax Havens and the Men who Stole the World

by Nicholas Shaxson (2011)

Tax havens are the most important single reason why poor people and poor
countries stay poor. They lie at the very heart of the global economy,
with over half the world trade processed through them. They have been
instrumental in nearly every major economic event, in every big
financial scandal, and in every financial crisis since the 1970s,
including the latest global economic downturn.

Without understanding tax havens we will never properly understand the
economic history of the modern world.

Nobody disagrees that Britain sits, spider-like, at the centre of a vast
international web of tax havens, hoovering up trillions of dollars'
worth of business and capital from around the globe and funnelling it up
to the City of London.

Despite some vigorous efforts, nobody has come close to overturning the
research or analysis showing the sheer scale of the harm wreaked on the
world by these elitist, criminal-infested libertarian paradises; these
silent battering rams of tax-cutting and financial deregulation. [...]