New Characteristics of America's Financial Imperialism

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

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

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

From then to now, foreign central banks have recycled their dollars to the US government. "Running a dollar surplus in their balance of payments became synonymous with lending (it) to the US Treasury." For its part, America borrows from other central banks and runs trade deficits. The larger they get, the greater the amount available to be loaned back, so today the volume is enormous.

For both sides, the problem is that Washington's guns and butter economy (including trillions to Wall Street) creates greater deficits and inflated spending. America's dominance is maintained, and foreign economies are obliged to finance it. Failure to support the dollar will inflate their own currencies, give US exporters a competitive edge, and ultimately let the world monetary system break down.

The "unique ability of the US Government to borrow from foreign central banks rather than from its own citizens (through taxes) is one of the economic miracles of modern times. Without it, the war-induced American prosperity of the 1960s and early 1970s would have ended quickly...."

How America's Payment Deficit Became a Source of Strength, not Weakness

It let America achieve what no earlier empires did - "a flexible form of global exploitation that controlled debtor countries by imposing Washington Consensus (diktats)." It's used the IMF, World Bank and other international lending agencies for its purposes, while the Treasury-bill standard "obliged the payments-surplus nations of Europe and East Asia to extend forced loans to the US Government." If they don't, world economies face monetary crisis.

Implications for the Theory of Imperialism

Hudson calls it a "new form of imperialism" under which America exploits other nations "via the central banks (and international lending agencies) rather than via the activities of private corporations seeking profits."

A "Super Imperialism" model "pressed foreign governments to regulate their nations' trade and investment to serve US national objectives...Washington Consensus (diktats) made aid borrowers more dependent on their creditors, worsened their terms of trade by promoting raw materials exports and grain dependency, and forestalled needed social modernization such as land reform and progressive income and property taxation."

US companies thus achieved a competitive advantage, not in the marketplace, but by Washington Consensus rules and the Bretton Woods institutions it controls - the IMF, World Bank, etc. What's good for US business benefits America overall and its Super Imperial ambitions.

Today's Source of Financial Instability Compared to the 1920s

The earlier period had a shortage of liquidity. By the early 1970s, it was in surplus, the result of the enormous volume of dollar inflows in world economies. The Korean War began shifting America's balance-of-payments from surplus to deficit. In 1971, Vietnam forced it off gold and "induced a US debtor-oriented international financial policy (with) the rest of the world" - something other nations have been trapped by ever since.

US deficits have disrupted world economies, but its character has changed. Not only does it finance US militarism, but it also "sustain(s) America's stock market and real estate bubble" while at the same time industrial America erodes. In addition, pressure is applied to privatize public enterprises to let this sector pass "into the hands of global finance capital....controlled and shaped by the Washington Consensus."

Under a "new state-capitalist form of imperialism," central banks, not industry, "are the vehicle for balance-of-payments exploitation" with the dollar as the world's reserve currency. It's Super Imperialism because one nation alone gets a Free Lunch right to benefit by getting others to finance its deficits and reckless spending.

The system's unique feature is that other countries may extract their citizens' wealth, but only America extracts theirs through the sale of its Treasury securities. 

The World's Need for Financial Autonomy from Dollarization

In its relationship with client countries, America's dollarization policy imposes dependency, not self-sufficiency. It drains "the financial resources of its Dollar Bloc allies (and retards) the development of indebted third world raw-materials exporters...." But its gain isn't put to productive use. It's used instead for militarism and financialization at the expense of its former industrial strength.

It's an unsustainable system, but for other countries to break away, they'll have to renounce Chicago School alchemy, the austerity programs it imposes, and advantages it gives America in trade and other relations. It drains other nations' resources by trapping emerging economies in chronic debt and developed ones into forced buying of US Treasuries. 

In return, America gets a Free Lunch. It rules as world debtor, forces other countries into creditor bondage, and threatens to bring down the global monetary system if enough of them balk. So far it's worked because Europe and Asia lack the political will to devise a "New International Economic Order" so nations producing economic gains can keep them and not let America use them to reinforce its "new kind of centralized global planning" - one based on financialization and a US Treasury securities standard, not industrial mechanisms. In WTO terms, it transfers foreign trade gains from other economies to the US, drains their resources overall, promotes dependency, not self-sufficiency, and backs it with hardline militarism and threats of systemic monetary collapse. 

Eventually, exploited countries won't tolerate more "taxation without representation," a "quid without quo," a Free Lunch from "the world's payments-surplus nations." The longer America demands it by glutting world economies with dollars, the more likely disadvantaged nations will object. Hudson put it this way in his Project Censored award-winning article:

Today, "the only way a nation can block capital movements is to withdraw from the IMF, the World Bank and the World Trade Organization (WTO). For the first time since the 1950s, this looks like a real possibility, thanks to the worldwide awareness" of America's dirty game and how it harms them.

"De-Dollarization and the Ending of America's Financial-Military Empire"

In his June 14, 2009 article, Hudson explained that "Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO)" had a two-day June 15 - 16 meeting in Yekaterinburg, Russia, with Brazil attending on the 16th. SCO countries include Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan, Uzbekistan with Iran, India, Pakistan and Mongolia having observer status.

The meeting's stated purpose was "to discuss mutual aid," not challenge America's financial and military empire. Yet it potentially may be pivotal by doing just that.

On June 5, Medvedev told the St. Petersburg International Economic Forum that Russia, China and India have an opportunity to "build an increasingly multipolar world order" away from America's "artificially maintained unipolar system (based on) one big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks."

In other words, America "makes too little and spends too much," especially with regard to its military. It also gluts the world with dollars that end up in foreign central banks. Either they recycle them into US Treasuries or "let the 'free market' force up their currency relative to the dollar - thereby pricing their exports out of world markets, creating domestic unemployment and business insolvency."

Given a choice up to now, they've had to choose the least bad alternative. "Now they want out" as Medvedev explained in St. Petersburg saying: "what we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries will not dominate." How so is the question, and can it work?

"For starters, the six SCO (and other BRIC) countries intend to trade in their own currencies" to benefit by what America "until now has monopolized for itself." China's central bank governor Zhou Xiaochuan wants a new reserve currency "that is disconnected from individual nations." It was discussed in Yekaterinburg.

These and other countries see America as "a lawless nation, not only financially but also militarily." It forces its rules on others but won't abide by them itself - a practice now intolerable, and there's more.

So much of America's budget is for militarism that the Pentagon faces overstretch while the nation is so indebted it's effectively a deadbeat with amounts impossible to repay. For countries like China, the problem is especially acute given its $2 trillion holdings "denominated in yuan." 

A "return to the kind of dual exchange rates common between World Wars I and II" may be the solution - "one exchange rate for commodity trade, another for capital movements and investments."

With or without these controls, "foreign nations are taking steps to avoid being the unwilling recipients of yet more dollars" that face lower valuations the more of them America prints. If SCO countries and Brazil have their way, America "no longer (will) live off the savings of others....nor have the money for unlimited military expenditures and adventures." For these nations and many others, it can't come a moment too soon.

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