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This month marks fifty years since President Richard Nixon closed the “gold window” that had allowed foreign governments to exchange US dollars for gold. Nixon’s action severed the last link between the dollar and gold, transforming the dollar into pure fiat currency.

Since the “Nixon shock” of 1971, the dollar’s value — and the average American’s living standard — has continuously declined, while income inequality and the size, scope, and cost of government have risen.

Since the beginning of this year, price inflation has increased much, and it could continue onward to exceed the 1970s-era price spikes. Understandably, Republicans are trying to blame President Joe Biden for the price increases. However, a major cause of the current price inflation is the unprecedented money creation the Federal Reserve has engaged in since the 2008 market meltdown. This, though, does not mean Biden and most US politicians of both parties do not bear some responsibility for rising prices. Their support for the Fed and massive government spending contributes to the problem.

The main way the Fed pumps money into the economy is by monthly purchases of 120 billion dollars of Treasury and mortgage-backed securities. Even many Keynesian economists agree that rising price inflation means the Fed should stop pumping money into the economy. Yet, this year the Fed is likely, at most, to only slightly reduce its purchases of Treasury securities. It will almost certainly keep interest rates at near-zero levels.

A reason the Fed will not stop or significantly reduce its purchases of Treasuries and allow interest rates to increase is that doing so would increase federal debt payments to unsustainable levels. Even with interest rates at historic lows, interest payments remain a significant portion of federal spending, and recent indications are that the US government is not about to start being frugal.  Consider, for example, Congress’ six trillion dollars “Covid relief and economic stimulus” spending spree and the Senate passage of the trillion dollars “traditional infrastructure” bill and a budget “outline” of a 3.5 trillion dollars “human infrastructure” bill.

The “human infrastructure” bill represents an expansion of government along the lines of the Great Society. Among its initiatives are universal pre-kindergarten; two “free” years of community college; increased government control of health care via expansions of Obamacare, Medicare, and Medicaid; and a raft of new government mandates and spending aimed at reshaping the US economy to fight “climate change.”

The need to gain support of “moderate” Democrats will likely mean the final “human infrastructure” bill will costs less than 3.5 trillion dollars. However, no Democrat is objecting to the bill’s programs; the objectors just want cheaper tolls on the road to serfdom. While progressives will likely accept reduced spending levels in order to get their wish list into law, they will then work to increase funding and expand the programs. As the programs become more entrenched, even many “conservatives” will support increasing their funding.

The expansion of government will increase pressure on the Fed to keep the money spigots open. This will lead to a major economic crisis. The good news is the crisis may mark the beginning of the end of the fiat monetary system and the welfare-warfare state, along with the dawn of a new era of free markets, sound money, and limited government.

ronpaulinstitute.org

Treasury Secretary Janet Yellen has proposed that governments around the world require payment of at least a uniform “global minimum corporate tax.” A motivation for Yellen’s push for a global minimum corporate tax is fear that the Biden administration’s proposed increase in the US corporate tax will cause some American corporations to flee the US for countries with lower corporate taxes.

President Biden wants to increase corporate taxes to help pay for his so-called infrastructure plan. The plan actually spends more on “progressive” priorities, including a down payment on the Green New Deal, than on infrastructure.

Much of the spending will benefit state-favored businesses. For example, the plan provides money to promote manufacturing and electric vehicles. So, the idea is to raise taxes on all corporations and then use some of the received tax payments to subsidize government-favored businesses and industries.

The only way to know the highest valued use of resources is by seeing what goods and services consumers voluntary choose to spend their money on. A system where the allocation of resources is based on the preferences of politicians and bureaucrats — who use force to get their way — will be less efficient than a system where consumers control the allocation of resources.

Thus, the greater role government plays in the economy the less prosperous the people will be — with the possible exception of the governing class and those who make their living currying favor with the rulers.

Yellen’s global corporate tax proposal will no doubt be supported by governments of many European Union (EU) countries, as well as the globalist bureaucrats at the Organization for Economic Cooperation and Development (OECD). For years, these governments and their power-hungry OECD allies have sought to create a global tax cartel.

The goal of those supporting global minimum taxes enforced by a global tax agency is to prevent countries from lowering their taxes. Lowering corporate and other taxes is one way countries are able to attract new businesses and grow their economies. For example, after Ireland lowered its corporate taxes, it moved from being one of the poorest countries in the EU to having one of the EU’s strongest economies. Also, American workers and investors benefited from the 2017 tax reform’s reduction of corporate taxes from 35 percent to 21 percent.

Yellen and her pro-global tax counterparts deride tax competition between countries as a “race to the bottom.” In fact, tax competition is a race to the top for the countries whose economies benefit from new investments, and for the workers and consumers who benefit from new job opportunities and new products. In contrast, a global minimum corporate tax will raise prices and lower wages, while incentivizing politicians to further increase the minimum.

A global minimum corporate tax will also set a precedent for imposition of other global minimum taxes on individuals. This scheme may even advance the old Keynesian dream of a global currency. The Biden administration is already taking steps toward a global currency by asking the International Monetary Fund to issue more special drawing rights (SDRs).

Global tax and fiat currency systems will only benefit the world’s political and financial elites. In contrast, regular people across the world benefit from limited government, free markets, sound money, and reduced or eliminated taxes.

ronpaulinstitute.org

Pepe ESCOBAR, Michael HUDSON

Michael Hudson: Fifty ago, I wrote Super Imperialism about basically how America dominates the world financially and gets the free ride.

I wrote it right after America went off gold in 1971, when the Vietnam War, which was responsible for the entire balance of payments deficit, forced the country to go off gold. And everybody at that time worried the dollar was going to go down. There’d be hyperinflation. And what happened was something entirely different.

Once there was no gold, America strong-armed its allies to invest in U.S. Treasury bonds because their central banks don’t buy companies. They don’t buy raw materials. All they could buy is other central bank’s treasury bonds. So, all of a sudden, the only thing that other people could buy with all the dollars coming in were U.S. Treasury securities.

And the securities they bought essentially were to finance yet more war making and the balance of payments deficit from war and the 800 military bases America has around the world. And the largest customer, I think we discussed it before, are the Defense Department and the CIA that looked at it [Super Imperialism] as a how-to-do it book. Well, that was 50 years ago.

 

And what I’ve done is not only re-edit the book and add more information that’s come out, but I’ve picked up the last 50 years and how it’s absolutely transformed the whole world. And it’s a new kind of imperialism.

There was still a view 50 years ago that imperialism was [essentially] economic. And this is the view that there’s still a rivalry for instance, between America and China or America and Europe and other countries.

But I think the whole world has changed so much in the last 50 years that what we have now is not really so much a conflict between America and China or America and Russia, but between a financial system economy run by finance and an economy run by governments — democratic or less democratic, but certainly a mixed economy.

Well, everything that made industrial capitalism rich, everything that made America so strong in the 19th century, through its protective tariffs, through its public infrastructure investment all the way down through World War II and the aftermath. We had a mixed economy in America, and that was very balanced. Europe had a mixed economy. Every economy since Babylon and Rome has been a mixed economy, but in America you’ve had since 1980 something entirely different. That was not foreseen by anybody because it seemed to be so disruptive.

And what that was, was the financial sector saying we need liberty and by liberty, meaning we have to take planning and subsidy and economic policy and tax policy out of the hands of government. And put it in the hands of Wall Street.

And so, libertarianism and free market is a centralized economy that is centralized in the hands of the financial centers, Wall Street, the City of London, the Paris Bourse. And what you’re having today is the attempt of the financial sector to take the role that the landlord class had in Europe, from feudal times through the 19^th century.  It’s a kind of resurgence.

If you look at the whole last 200 years of economic theory — from Adam Smith and, Henry George and Marx, onward — the whole idea was that everybody expected a mixed economy to become more and more productive and to free itself from the landlords, to free itself from banking to make land a public utility.

That was the tax base to make finance basically something public, and government would decide who gets the funding and thus, the idea of finance in the public sector was going to be pretty much what it is in China. You create bank credit in order to finance capital investment in factories. It means the production of machinery, agricultural modernization, of transport, infrastructure of high-speed trains of ports and all of that.

But in the United States and England, you have finance becoming something completely different.  Banks don’t lend money to factories. They don’t want money to make means of production. They make money to take over other assets. Eighty percent of bank loans are mortgage loans to transfer the ownership of real estate. And of course that’s what created a middle class in the United States.

The middle class was able to buy its own housing, it didn’t have to pay rent to landlords or absentee owners or warlords and their descendants in England and Europe. They could buy their own. What nobody realized is that if you borrowed the money to take a mortgage, there’s still an economic rental value that is not paid to the landlords. It’s paid to the banks. And so, in the Western civilizations in America and Europe, the banks have played the role that the landlords played a hundred years ago.

And just as the landlord is trying to do everything they could through the House of Lords in England and the upper houses of government in Europe, they’re trying to block any kind of democratic government. And the fight really is against government that would do anything that is not controlled by the 1 percent, by the banks. Essentially the merger between finance insurance and real estate; the FIRE sector. So, you have almost a relapse of capitalism in the West back into feudalism, but feudalism with a financialized twist much more than it was in medieval times.

The fight against China, the fear of China is that you can’t do to China, what you did to Russia.  America would love for there to be a [former Russian President Boris] Yeltsin figure in China to say, just give all of the railroads that you’ve built, the high-speed rail, the wealth, all the factories to individuals. And let the individuals run everything and, then we’ll lend them the money, or we’ll buy them out and then we can control them financially.

And China’s not letting that happen. And Russia stopped that from happening. And the fury in the West is that somehow, the American financial system is unable to take over foreign resources, foreign agriculture. It is left only with military means of grabbing them as we are seeing in the near East. And you’re seeing in the Ukraine right now.

Chinese President Xi Jinping, left, with Russian President Vladimir Putin during a state visit to Moscow. (Kremlin)

Pepe Escobar: Well, as an introduction, Michael that was perfect because now we have the overall framework — geo-economic and historically — at least for the past 70 years.

I have a series of questions for you. I was saving one of these for the end, but I think I should start really the Metallica way. Let’s go heavy metal for a start, right?

So considering  what you describe as a new kind of imperialism and the fact that this sort of extended free lunch cannot apply anymore because sovereigns around the world, especially Russia and China, I tried to formulate the idea that there are only three real sovereign powers on the planet, apart from the hegemon; Russia, China, and Iran, these three, which happen to be the main hub and the main focus of not only of the New Silk Roads but of the Eurasia integration process, they are actively working for some sort of change of the rules that predominated for the past 70 years.

So my first question to you would be, do you see any realistic possibility of a, sort of a Bretton Woods 2.0, which would imply the end of the dollar hegemony as we know it, and petrodollar recycling on and on and on, with the very important presence of that oily hacienda in the lands of Arabia. And do you think this is possible considering that President [Vladimir] Putin himself only a few days ago reiterated once again that the U.S. is no longer agreement- capable?  So that destroys already the possibility of the emergence of the new rules of the game. But do you think this is still realistically possible?

Michael: I certainly do not see any repetition of a Bretton Woods because as I described in Super Imperialism, the whole of Bretton Woods was designed to make American control over Britain, over Europe total. Bretton Woods was a U.S.-centered system to prevent England from maintaining its empire. That’s okay. To prevent France from maintaining its empire and for America to take over the sterling area and, essentially with the World Bank, to prevent other countries from becoming independent and feeding themselves, to make sure that they supported plantation agriculture, not land reform. The one single fight of the World Bank was to prevent land reform and to make sure that America, and foreign investors, would take over the agriculture of these countries.

And very often people think of capitalism, certainly in the sense that Marx described in Volume One, capitalism is the exploitation of wage labor by employers. But capitalism also is an appropriation of the land rent, the agricultural rent, the natural resource rent, the oil and the mineral rent. And the idea of Bretton Woods was to make sure that other countries could not impose capital controls to prevent American finance coming in and appropriating their resources, of making the loans to foreign governments so that governments would not create their own money to promote their own social development but would have to borrow from the World Bank and the IMF, which essentially meant from the Pentagon and the State Department, in U.S. dollars.

World Bank headquarters in D.C. (Bruno Sanchez-Andrade Nuño, Flickr)

 

And they would dollarize their economies and the economies would all be sucked. The economic rents from oil, agriculture, mining would all be sucked into the United States. That kind of Bretton Woods cannot be done again. And since Bretton Woods was an idea of centralizing the world’s economic surplus in a single country, the United States, no, that can never be done again.

What is happening? You mentioned the world of free, free lunch, and that’s what was a theme of Super Imperialism, when America issues dollars, for these all end up in central banks and they hold the dollars as a surplus. That means what can they do? All they can do is really lend them to the United States. America got a free lunch. It could spend and spend on its military, on bumping up corporate takeovers of other countries. The dollars have come in and foreign countries couldn’t cash them in for gold. They had nothing to cash them into. And all they could do is finance the U.S. budget deficit by buying Treasury bills.

That’s the irony now, what has happened in the last few years in the fight against Russia and China is America has killed the free lunch because it said, okay, now we’re going to have sanctions against Russia and China. We’re going to all of a sudden grab whatever money you have in foreign banks like we grabbed Venezuela’s money. Let’s go, we’re going to excommunicate you from the bank clearing system. So, you can’t use banking. We’re going to put sanctions against banks that deal with you.

So obviously Russia and China said, okay, we can’t deal with the dollar anymore, because the United States just crammed them. And if we do have dollars, we’re just going to hold everything in reserves and lending to the United States, the dollars that it’s going to spend building more military bases around us to make us waste our money on monetary spending. And so, America itself by the way, in fighting against China and Russia, has ended the free lunch.

“In America you’ve had since 1980 something entirely different. That was not foreseen by anybody because it seemed to be so disruptive.”

And now, Russia and China as you pointed out, are de-dollarizing, they’re trading in each other’s currency. They’re being the exact opposite of everything that Bretton Woods tried to create. They’re trying to create independence from the United States.

If Bretton Woods is this dependence on the United States, a centralized system dependent ultimately on Wall Street financial planners then, what China and Russia are trying to create is an economy that’s not run by the financial sector, but it is run by, let’s say, industrial and economic engineering and saying, what kind of an economy do we need in order to raise living standards and wages and self-sufficiency and preserve the environment, what is needed for the ideal world that we want?

Well, in order to do that, you’re going to have to have a lot of infrastructure. And in America, infrastructure is all privatized. You have to make a profit. And once you have infrastructure, a railroad or electric utility, like you see in Texas recently, it’s a monopoly. Infrastructure, for 5,000 years, Europe, the near East, Asia was always kept in the public domain that goes, if you’ll give it to private owners, they’ll charge a monopoly rent.

Well, the idea that China has is, “OK, we’re going to provide the educational system freely and let everybody try to get an education.” In America if you have an education, you have to go into debt for the banks for between $50,000 and $200,000. And whatever you make you’re going to end up paying the bank while in China, if you give free education, the money that they earned from the education will be spent into the economy, buying the goods and services that they produce, and the economy will be expanding, not shrinking, not having it all sucked out into the financial banks that are financing the education, same thing with the railroads, same things with the healthcare.

If you provide healthcare freely then the employers do not have to pay for the healthcare because that’s provided freely. In the United States, if the  corporation and the employees have to pay for healthcare, that means that the employees have to be paid a much higher wage in order to afford the healthcare, in order to afford the transportation that gets him to work, in order to afford the auto loans, in order to drive to work, all of this is free, or subsidized in other countries, who create their own credit.

In the United States and Europe, governments feel that they have to borrow from the wealthy people in a bond and pay interest. In China they say, “we don’t have to borrow from a wealthy class. We can simply print the money.” That’s Modern Monetary Theory. As Donald Trump has explained in the United States, we can print whatever we want. Dick Cheney said, deficits don’t matter. We can just print it.  And of course, Stephanie Kelton and my colleagues in MMT at Kansas City for many years have been saying.

“The economy has been saturated and Reaganized and the result is a fight of economic systems against China and Russia.”

The banks fear this because they say, “Wait a minute, Modern Monetary Theory means it’s not feudal monetary theory. We want feudal monetary theory. We want the rich people to be able to have a choke point on the economy that you can’t survive unless you borrow from us and pay us interest. We want the choke points.” That’s called economic rent.

And so, you have the West turning into a rent-extractive economy, a rent-seeking economy. And you’ll have the whole ideal of Russia, China, and other countries being the ideal of not only Marx, but Adam Smith, John Stuart Mill, Ricardo. The whole of classical economics was to free economies from economic rent. And the American economy is all about extracting rent through the real estate sector, the financial sector, the health insurance sector, the monopolies and infrastructure sector.

The economy has been saturated and Reaganized and the result is a fight of economic systems against China and Russia. So, it’s not simply that, there’s a fight between who makes the best computer chips and the best iPhones. It’s: are we going to have a fallback of civilization back into feudalism, back into control by a narrow class at the top of the economy, that 1 percent? Or are we going to have the ideal of democratic industrialization that used to be called socialism but it was also called capitalism. Industrial capitalism was socialism; it was socialized medicine, it was socialized infrastructure, it was socialized schooling. And so, the fight against socialism is a fight against industrial capitalism, a fight against democracy, a fight against prosperity.

[See previous coverage:  The Consequences of Moving from Industrial to Financial Capitalism]

That’s why what you’re seeing now is a fight for what direction civilization will go into. And you can’t have a Bretton Woods for a single kind of organization because the United States would never join that civilization. The United States calls a country trying to make its labor force prosperous, educated and healthy instead of sick with shorter lifespans, they call it communism or socialism.

Well, it can call it whatever it wants, but that’s the dynamic we are talking about.

Pepe:  Well, you put it very, I would say starkly. The opposition between two completely different systems, what the Chinese are proposing, including, from productive capitalism to trade and investment all across Eurasia and beyond, including Africa, parts of Latin America as well. And the rentier obsession of the 0.01 percent that controls the U.S. financial system. In terms of facts on the ground, are we going slowly but surely and ominously towards an absolute divorce by a system based on rentier, ultra-financialization, which is the American system, not productive capitalism at all.

May 14, 1984: Pop superstar Michael Jackson, center, with President Ronald Reagan and First Lady Nancy Reagan. (Pete Souza, White House)

I was going through a small list of what the U.S. exports, it’s not much as you know, better than I do. Agricultural products but always privileging U.S. farmers.  Hollywood, we are all hostages of Hollywood all over the world. Pop culture? That’s not the pop culture that used to be absolutely impregnable and omniscient during the ‘60s, the 70s, during the Madonna, Michael Jackson era in the ‘80s, right? Infotech. And that’s where a big bet comes in. And this is maybe the most important American export at the moment because American Big Tech controls social networks all over the planet. Big Pharma. Now we see the power of Big Pharma with the whole Covid operations, right?  But Boeing prefers to invest in financial engineering instead of building decent products. Right?

So, in terms of a major superpower, the hyperpower, that’s not much, and obviously buyers all over the world already noticed that. So, China is proposing the New Silk Roads, which is a foreign-policy strategy, and a trade, investment and sustainable development strategy. [It’s] applied not only to the whole of Eurasia, but Eurasia and beyond to grow a great deal of the Global South and that’s why we have Global South partners to the New Silk Roads — 130-and-counting as we speak.

So, the dichotomy could not be clearer. What will the 0.001 percent do? Because they don’t have anything seductive to sell. To all those nations in the Global South to start with; the new version of the Non-Aligned Movement, NAM, the countries that are already part of New Silk Road projects, not even to Europe and this, we could see by the end of last year when the China-European Union agreement was more or less sealed. It’s probably going to be sealed in 2021 for good.

And at the same time, we had the Regional Economic Comprehensive Partnership, RCEP, with the ASEAN 10, my neighbors here, the Association of South East Asian Nations, China, Japan, South Korea, Australia, and New Zealand. So, when you have the China-EU deal, and when you have RCEP, you have China as the number one trade partner on the planet, no competition whatsoever.

And obviously every one of these players wants to do business with China. And they’re privileging doing business with China to doing business with the U.S., especially with a country that once again, according to President Putin, is non-agreement capable. So, Michael, what is your key geo-economic view of the next steps? Are we going towards the divorce of the American financialization system and the Eurasia-and-beyond integration system?

Sept. 25, 2015: Vice President Joe Biden, center, raises a toast in honor of Chinese President Xi at a State Department luncheon. U.S. Secretary of State Johh Kerry on right. Jill Biden lower left. (Wikimedia Commons)

Michael: Well, you you’ve made the whole point clear. There is incompatibility between a rentier society controlled by the finance and real estate interests and military interests and an industrial democracy.

Industry in England and Europe in the 19th century — the whole fight for democratic reform to increase the role of the House of Commons against the House of Lords in England and the lower house in Europe — was a fight to get labor on the side of industry [and] to get rid of the landlord class. And it was expected that … capitalism [would then be] free of the landlord class, free of something that wasn’t really capitalism at all, it was a carry-over from feudalism. Once you free capitalism, you wouldn’t have this overhead of the idle 1 percent, only consuming resources and going to war, anymore.

And then World War I changed all of that . … Already, in the late 19th century, the landlords and the banks fought back, and they fought back largely through the Austrian School of individualism and the English marginalist and they called it freedom. They call it free markets. Free market meant giving power to the monopolists, to the oppressors, to violence. A free market was where armies can come in, take over your country, impose a client dictatorship like [Gen. Augusto] Pinochet in Chile or the neo-Nazis in the Ukraine. And you call that a free market.

Poster of the mongrel dog symbol of social protests in Chile since the student demonstrations of 2011. (Carlos Teixidor Cadenas, CC BY-SA 4.0, Wikimedia Commons)

The free world was a world centrally planned by the American military and finance together. So, it’s Orwellian, and the dynamic of this world is shrinking because it’s polarizing and you’ve seen with the Covid pandemic in the United States, the economy has polarized much more sharply than ever before between the 1 percent, the 10 percent and the rest of the economy.

Well, as opposed to that here, you have economies that are not run by a rentier class, that do not have a banking class and the landlord class controlling the economy, but a partnership. The kind of thing you had in Germany in the late 19th century, government industry and labor, all working together to design how we provide the financing for industry so that it can provide not only industrial capital formation, but public funding for us to build infrastructure and uplift the population.

What China is doing is what made America rich in the 19th century, what made Germany rich. It’s exactly the same logical engineering plan. Now, this plan because it’s based on economic expansion, and environmental preservation and economic balance instead of concentration, this is going to be a growing economy. So, you’re having a growing economy outside of the United States and a shrinking economy in the States and its satellites in Europe.

“What China is doing is what made America rich in the 19th century, what made Germany rich.”

Europe had a choice; either it could shrink, and be American, or it could join the growth. Europe has decided unanimously, we don’t want to grow. We want to be constant. We want our banks to take over just like in America. That’s a free market because Americans have found out, and I’m told by American officials we just buy the European politicians, they’re bribable. That’s why when president Putin says, America and Europe are not agreement capable, it means they’re just in it for the money. There is no ideology there. There is no idea of the overall social benefit. The system is “how can I get rich, and you can get rich by being bribed?” That’s why you go into politics. As you can tell in America with the Supreme Court law saying politics can be personally financed.

So, you’re having two incompatible systems and, they’re on different trajectories and if you have a system that is shrinking like the West and growing in the East, you have resentment.  People who obtain their wealth in crooked ways, or without working — by inheritance, by crime, by exploitation — they will fight like anything to keep that. Whereas people who actually create wealth, labor, capital, they, they’re not willing to fight, they just want to be creative. So you have a destructive military force, in the West. And, basically a productive, economic growth force. And in Eurasia, the clash now is occurring largely in Ukraine. You’re having the United States back the neo-Nazis.

Pepe: The old Nazi movement!

Michael: It’s the same swastika-carrying group that threatened Russia in World War II. And this is like waving a red flag before a bull. Putin continues to remind the Russians. We know what happened with the 22 million Russians that died, in World War II with Europe coming in. We’re not going to let it happen again.

And you can be certain Russia is not going to be sucked into invading the Ukraine. The United States has its military advisers in the Ukraine. Now, the Vineyard of the Saker has a very good report on that. America’s trying to needle Russia into fighting back against the terrorist groups and Russia has no desire at all to. There’s nothing that Russia has to gain by taking it over. It’s essentially a bankrupt country.

The United States is trying to provoke a response so it can say Russia is attacking the West.  The result will probably be that Russia will very simply provide arms to the Eastern Ukrainians to fight back the invasion. And you’re going to have a wasteland in Western Ukraine and Poland. And this wasteland will be the new buffer state with Europe. Already you have, maybe 10 percent of the Ukrainians having moved to Russia and the east. [Another] 10 percent are now plumbers in England and Europe, working. They’re beginning to look like Latvia and other neo-liberalized countries. Neo-liberalized countries? If you want to see the future, look at Latvia, Estonia. Look at Greece. That’s the American plan. Essentially, an emigration of skilled labor, a sharp reduction of living standards, a 20 percent decline in population. And although it may appear to have more income, all of this income and GDP is, essentially, interest collection and rents to the FIRE sector.

All the American GDP growth is essentially payment to the bank, to the landlords and the monopolist, it’s not, the population, the employees are not sharing in the GDP. It’s all concentrated at the top. They make a desert, and they call it growth.

Street in Detroit in 2009. (Bob Jagendorf, Flickr, (CC BY-NC 2.0)

It hasn’t changed.  Rome was a predatory economy held by military force that ultimately collapsed and America is on the same trajectory as Rome. And it knows this, I have spoken to American policymakers and they say, “you know, we we’re going to be dead by then. It doesn’t matter if the West loses. I’m going to get rich. I’m going to buy a farm in New Zealand and make a big bomb shelter there and live underground, you know, like a cave dweller.”

The financial time frame and the predatory rentier time frame is short term. The Eurasian time frame is long-term. So, you’ve got to have the short-term burning what wealth it has as opposed to the longer-term building up.

[Consider the Biden Covid relief measure.] They call it a stimulus bill, but if you’re starving, if you haven’t been able to pay your rent, if you’re six months behind in your rent and you get enough money to pay the landlord, at least one month back rent, that’s not a stimulus, that’s a survival.  And it’s a one-time payment. This kind of stimulus checks that America’s sending out are sent out every month in Germany and parts of Europe.

“All the American GDP growth is essentially payment to the bank, to the landlords and the monopolist.”

The whole idea in Europe is: OK, you have a pandemic, you have business interrupted. What we’re going to do is we’re going to have a pause. You don’t pay the rent, but the landlords are not going to pay the banks. And the banks are not going to be in arrears. We’re just going to have a pause so that when it’s all over people will go back to normal. Well, China and Russia are already pretty much there and where you are [in Asia], and especially in Thailand, are already back to normal.

People in Guangzhou, China in February 2020, during the Covid-19 pandemic. (Zhizhou Deng, CC BY 2.0, Wikimedia Commons)

But in America anybody who’s renting or who’s bought a house on mortgage credit or who has credit card debt or personal debt or automobile debt they’re way behind. And all of these stimulus checks are just being used to pay the banks and the landlords not to not to buy more goods and services.

All they’re trying to do is, is get out of the hole that they’ve been dug into in the last 12 months. That’s not a stimulus that’s a partial, desperation payment. This problem never existed in other civilizations. You have the whole tradition of Greece, Babylonia that’s what my book Forgiving the Debt is all about. The whole idea is when there is an economic interruption, you have an interruption, you don’t have people into debt. You wipe out all of the arrears that have mounted up. You wipe out the tax arrears, the rent arrears, the debt of payment arrears. So once the crisis is over, you can start from a normal position again.

There’s no normalization in America, there’s no normal position to start. You’re starting from a position, even more behind the financial problems than you were when you went in. The foreign economies of China and Russia don’t have that kind of problem, they don’t have any kind of deficit. So, the West is beginning with 99 percent of the population deeper and deeper into debt to the 1 percent.

Protesters with Occupy Wall Street in NYC, Nov. 17, 2011. (Z22, CC BY-SA 3.0, Wikimedia Commons)

Where is that whole polarization between the 1 percent and the 99 percent? It doesn’t exist certainly in China and in Russia, Putin is trying to minimize it, given the legacy of the kleptocracy that the neo-liberals put in he’s still trying to deal with that, but you really have that. It’s a difference in economic systems and the direction in which these systems are moving in.

Pepe: I’m really glad that you brought up Ukraine, Michael, because this, let’s say U.S. foreign policy, even, before Trump and now with the new Biden-Harris administration, basically more or less what it boils down to is sanction sanctions, sanctions, as we know, and provocations, which is what they’re doing certainly in Syria with that recent bombing.

And, in the case of Ukraine and Donbass, it’s absolutely crazy because NATO so-called strategists, when you talk to them in Brussels, they know very, very well about each state or whatever they weaponize and financialize to profit Kiev to mount some sort of offensive against the Donbass and even if they would have like 300,000 soldiers against like 30,000 in Donbass.

If the Russians see that this is going to get really heavy if they intervene in directly, with their bombing, with their super missiles, they can finish this story in one day. And if they want it, they could finish the whole story, including invading Ukraine in three days, like they did in 2008 with Georgia and still they keep the provocations, loosely acted on by  people from inside the Pentagon.

And so, we have sanctions, we have nonstop provocations, and we have also a sort of introducing a Fifth Column — elements inside or at the top of government — which brings me to, and I would love to have your personal analysis on the role of Mario (Goldman Sachs) Draghi now in Italy, which is something I had been discussing with my Italian friends. And there’s more or less a consensus, among very well informed, independent Italian analysts that Draghi may be the perfect Trojan horse to accelerate the destruction of the Italian state, which will accelerate the globalist project of the European Union, which is absolutely non-state centric.

Let’s put it this way, which is also part of the Great Reset so if you could briefly talk to us about the role of Super Mario at the moment.

Mario Draghi, right, with Italian President Sergio Mattarella at the Quirinal Palace, Feb. 3. (Presidenza della Repubblica, Wikimedia Commons)

Michael: Well, Italy is a very good example to look at. It had strings for a long time. When you have a country that needs infrastructure, that needs public, social democratic spending, you need a government to create the credit. But when Americans and specifically the University of Chicago free market lobbyists created the European, the Eurozone financial system, their premise was that governments cannot create money. Only banks can create money. Only banks owned by the bond holders can create money for the benefit of their owners and bond holders. So, no European government, first of all, can run a budget deficit sufficient to cope with the coronavirus or with the problems that have been plaguing Italy for a decade. They can’t create their money to revive employment, to revive infrastructure, to revive the economy. The European Central Bank only lends to other central banks.

It’s created trillions of euros just to buy stocks and bonds, not to spend into the economy, not to hire labor, not to build infrastructure, but just for the holders of the stocks and bonds. The 1 percent or 5 percent of the population gets richer. The function of the European Central Bank is to create money, to save the wealthiest 5 percent from losing a single penny on their stocks and bonds.

And the cost is to impoverish the economy and to basically make the economy end up looking like Greece, which was sort of the dress rehearsal for how the Eurozone was going to just essentially reduce Europe to debt dependency, just like in feudalism everybody had to have access to the land by becoming a serf.

Well now you’re in debt peonage. It’s the modern, finance capital’s version of serfdom. And so, in Italy we’re going to need government spending. We’re going to need to do in our way what China’s doing in its way and what Russia is doing in its way. We’re going to have some kind of government program. And we can’t have the economy being impoverished just because the University of Chicago has designed a plan for Europe to prevent the euro ever from being a rival to the U.S. dollar. If there’s no European central bank to borrow, to pump euros into the world economy, then, only dollars will be left for central bank reserves. The United States doesn’t ever want a rival. It wants satellites and so that’s what it’s basically turned Europe into. And I don’t see any response outside of Italy for an attempt to say we can’t be a part of this system. Let’s withdraw from the euro.

I know that the Greeks, when I was in Greece years ago, we all thought can’t we join with Italy and Portugal and Ireland and say look, the system isn’t working. Everybody else no, no, the Americans will just simply get us out of office one way or another. And in Italy, of course, if you look at what happened after World War II, the great threat was Italian communism.  You had the Americans essentially say well, we know the answer to communism, it’s fascism and, you saw where they put the money. They essentially did every dirty trick in the book in order to fight any left- wing group in Italy, just as they did in Yugoslavia, just as they did in Greece, wiping out the partisans, all the leading anti-Nazi groups from Greece to Italy to elsewhere. All of a sudden they were all either assassinated or moved out of office and replaced by the very people that America had been fighting against during World War II.

Well, now Italy is finally coming to terms with this and trying to fight back and you’re having what’s happening there, between Northern Italy and Southern Italy. You’re having the same splits occur in other countries.

Pepe: Yeah. Well, I’m going to bring up, perhaps an even more extreme case now Michael, which is the case of Brazil, which at the moment is in the middle of an absolutely out of this world mix of telenovela and Kabuki theater that even for most Brazilians is absolutely incomprehensible. It’s like a fragmentation bomb exploding over and over again, a Groundhog Day of fragmentation bombs.

In fact, it’s completely crazy. Lula [former President Luiz Inácio Lula da Silva] is back in the picture as well. We still don’t know under which terms, we still don’t know how the guys who run the show, which are the Brazilian military, are going to deal with him or instrumentalize him, et cetera.

In 2007, President Luiz Inácio Lula da Silva (Lula) and his wife Marisa Letícia review troops during the Independence Day military parade. (Ricardo Stuckert, Agência Brasil, CC BY 3.0. Wikimedia Commons)

In 2007, President Luiz Inácio Lula da Silva (Lula) and his wife Marisa Letícia review troops during the Independence Day military parade. (Ricardo Stuckert, Agência Brasil, CC BY 3.0. Wikimedia Commons)

I bring up this case because … essentially it has convulsed Brazil completely and large parts of Latin America. It is a telenovela with one cliffhanger after another, sometimes in a matter of minutes, but it encompasses all the basic themes of what really interests the 0.01 percent, which we can identify for instance as a class war against labor which is what the system in Brazil, since the coup against Dilma [Former President Dilma Vana Rousseff] has been waging. A war against mixed economies, economic sovereignty, which is something that the Masters of the Universe of the 0.01 percent cannot wage against Russia and China. But that was very successfully waged against Brazil and implemented in Brazil. In fact, in a matter of two years, they completely devastated the country in every possible sense, industrially, sociologically, you name it…

And of course, because the main objective is something that you keep stressing over and over again, unipolar rentier dominance, in fact.

Brazil, I would say is the extreme case in the world not only in the Global South, but in planetary terms of let’s say the last frontier of the rentier economy, when you manage to capture a country that was slowly emerging as a leader in the Global South, as an economic leader. Don’t forget that a few years ago, Brazil was the sixth-largest economy in the world and on the way to become the fifth. Now it’s the 12th and falling down nonstop and controlled by a mafia that includes not by accident, a Chicago Boy Pinochetista, Minister Paulo Guedes, who is implementing, in the 21st century, something that was implemented in Chile in the ‘70s and ‘80s. And they were successful. Apparently, at least so far.

Brazil’s Economy Minister Paulo Guedes in 2019. (Presidente da República, Alan Santos)

Brazil is so disorganized as a nation, so shattered, so fragmented and atomized as a nation that basically it depends on the re-emergence of a single political leader, in this case, Lula to try to rebuild the nation from scratch. And even in a position where he cannot control the game he can interfere in the game, which is what happened, like you know, … when he gave a larger-than-life press conference, mixed with a re-presentation of himself as a statesman and  said, “Look  the whole thing is shattered, but there is some light at the end of the tunnel.”

But still he cannot confront the real Masters of the Universe that have allowed this to happen in the first place. So just to give an example to many of you who are not familiar with some details of the Brazilian case, and it involves directly the Obama-Biden scheme or the Obama-Biden larger operation.  When Biden was vice president in 2013, in May 2013, he visited Brazil for three days and he met with President Dilma.

They discussed very touchy subjects, including the most important one, the absolutely enormous, pre-salt oil reserves, which obviously, the Americans wanted to be part of the whole thing, not by accident. You know what happened one week later? The start of the Brazilian color revolution, in fact, and this thing kept rolling and rolling and rolling.

Brazil’s Dilma Rousseff receiving presidential sash from Luiz Inácio Lula da Silva, Jan. 1, 2011. (Fabio Rodrigues Pozzebom, Agência Brasil, CC BY 3.0 br, Wikimedia Commons)

We got the coup against Dilma in 2016, we got to the Car Wash operation landing Lula in jail. And we got to the election of [President Jair] Bolsanaro. And now we are in a place where even if the military controls this whole process, even if Bolsanaro is becoming bad for business will he become bad for the rentier class business, for the 0.01 percent in the U.S. that has all the connections in their new, large neo-colony in the tropics, which has enormous strategic value, not to mention, unforeseen resources, wealth resources, right? So, this is an extreme case and I know that you follow Brazil relatively closely. So, your geo-economic and geopolitical input on the running telenovela I think would be priceless for all of us.

Michael: Well, this problem goes back 60 years. In 1965, the former president of Brazil came to New York and we met. He explained to me how the United States essentially got rid of him because he wasn’t representing the banking class. And he said that they built Brasilia because it’s apart from the big industrial cities, they wanted to prevent industry and democracy and the population from controlling the government.

So, they built Brasilia. He said maybe they’ll use it as an atom bomb site. It certainly doesn’t have an economic thing. Well, fast forward, in 1980, after Mexico defaulted on its foreign debt in 1972, nobody would invest in Latin America. And by 1990, Brazil was paying 45 percent interest per year to borrow the dollars to be able to finance its deficit, which is mainly flight capital by the wealthy. Well, I think I’d mentioned before here, I was hired by Scudder, Stevens and Clark for the Third World bond fund. Forty five percent: I mean, just imagine that. That’s a fortune every year. No American would buy it, no European would buy it. Who bought it? The Brazilians and the Argentineans bought, and I get it, they’re the government, they’re the central bankers. They’re the president’s family. They’re the 1 percent, they’re the only people that are holding Brazil’s dollar debt.

Entrance to the Cathedral of Brasília. (Rodrigo de Almeida Marfan, CC BY-SA 4.0)

So when Brazil pays its foreign dollar debt, it’s paying to its own 1 percent who are holding, who are saying well, we’re holding it off shore in the Dutch West Indies where the fund was located for tax-exempt purposes and pretending to be American imperialists, but actually being local imperialists.

Well then, just towards the end of Lula’s reign, the Council of Economic Advisors brought Jamie Galbraith and Randy Wray and me down for a discussion. How do we, you know, we’re, we’re really worried because, Lula in order to get elected, had to meet with the banks and agree to give them what they wanted.

They said, look, we can see that, you know, you have the power to be elected. We don’t want to have to fight you in dirty ways, but will let you be elected, but you’re going to have to do the policies and certainly the financial policies that we want and Lula made a kind of a devil’s agreement with them because he didn’t want to be killed and he wanted to do some good things.

So, he was sort of like a Bernie Sanders-type character. Okay, you have to go along with a really bad system in order to get something good done, because Brazil really needs something good done. Well, the fact is that even the little bit he did the finance couldn’t take because one of the characteristics of financial wealth is it’s addictive. It’s not like diminishing marginal utility. If you give more food to an employee or to a worker you know, at the end of the meal, you’re satiated, you don’t want much more. If you give enough money you know, OK, they buy a few luxuries and then, OK, they save it. But if you give more money to a billionaire they want even more and they grow even more desperate. It’s like a cocaine-addicted person and the Brazilian ruling class wanted it so desperately that they framed up and controlled the utterly corrupt judiciary.  The judiciary in Brazil is almost as corrupt as it is in New York City.

Pepe: More, even more.

Michael: They framed them up and they want totalitarian control. And that sort of is what free market is. Totalitarian control by the financial class. That’s freedom for the financial class, if the freedom to do what they want to do to the rest of the economy, that’s libertarianism, it’s a free market, it’s Austrian economics.

It’s the right wing’s fight against government, it’s a fight against any governments for long enough who resist the financial and real estate interests. That’s what the free market is. And Brazil is merely the most devastating example of this because it takes such a racial term there. Not only does Brazil want to make a fortune, tearing down the Amazon, cutting up the Amazon, selling the lumber to China, turning the Amazon into soy production to sell to China. But for that, you have to exterminate the domestic population, the indigenous population that wants to use the land to feed itself. So you see the kind of race war and ethnic war that you have, not to mention the war against the blacks in the Brazilian slums that Lula tried so much to overcome.

So you have a resumption of the ethnic war there, and on Wall Street, I had discussions with money managers back in 1990. Well I wonder whether that’s going to be a model for what’s happening in the United States with the ethnic war here.

Essentially, it’s a tragedy what’s happening in Brazil, but it’s pretty much what happened in Chile under Pinochet which is why they have the Pinochetistas and the Chicago boys that you mentioned.

Pepe: Absolutely. Coming back to China, Michael, and the [recent] approval of the Five-Year Plan, which is not actually the five-year plan. It’s actually three five-year plans in one because they are already planning 2035, which is something absolutely unimaginable anywhere in the West. Right?

So, it’s a different strategy of productive investment, of expansion of social welfare and solidifying social welfare, technological improvements.  I would say by 2025 China would be very close to the same infotech level of the U.S., which is part of “Made in China 2025,” which is fantastic. They stopped talking about it, but they are still implementing it, the technological drive in all those standard areas that they had codified a few years ago. And of course, this notion, which I found particularly fascinating because it is in one sense socialism with some Confucianist elements, but it’s also very Taoist: The dual development strategy, which is inversions and expansion of domestic investment and consumption and balancing all the time with projects across Eurasia, not only affiliated with the Belt and Road, with the New Silk Road, but all other projects as well. So, when you have a leadership that is capable of planning with this scope, amplitude breadth and reach, and when we compare it to the money managers in the West, which basically their planning goes, not even quarterly in many cases, it’s 24 hours.

So our dichotomy between rentier capitalism, financialization, or whatever we want to define it, and state planning with the view of social benefit is even starker in fact, and I’m not saying that the Chinese system can be exported to the rest of the world, but I’m sure that, all across the Global South, when people look at Chinese policies, long-term, how they are planning, how they are developed and how they are always fine tuning what they developed and discuss…. As you said in the beginning, this is a frontal shock of two systems and sooner or later we’re going to have the bulk of the Global South including nations which nowadays are still American vassals or satrapies or puppets or poodles, et cetera.

They’re going to see which way the wind is blowing. Right?

Michael: Why can’t the Chinese system be exported to the West? That’s a good question…. How would you make American industry able to follow the same productive path that China did? Well for one thing the biggest element in workers’ budget today is housing, 40 percent. There was one way to get rid of it, get rid of the high housing prices that essentially, or whatever a bank would lend. And the banks lend essentially the economic rent. There’s a very simple way to keep housing prices down. You tax the land rent, you use your tax system, not on taxing labor, that increases the cost of labor, not increasing capital, that leaves less, industrial capital, but your tax of the land and the real estate and the banks.

Well, suppose you were to lower the price of housing in America from 40 percent to 10 percent like China has, and this is the big element in the cost structure difference. Well, if all of a sudden people only had to pay 10 percent of their income for housing, then all the banks would go under because 80 percent of the bank loans are mortgage loans.

The whole idea is that the purpose of housing is to force how many buyers and renters go into debt to the banks so that the banks end up with all of the lend rent that the landlord class used to get. This is what’s preventing America from being like China. What if America would try to develop a high-speed railroad like China?

Well, then you need the right of way. You’d need to have the railroads go in a straight line. … They need a right of way and it doesn’t have a right of way because that conflicts with private property and most of the right of way is a very expensive real estate.

So, you can’t have high-speed rail in the United States, like in China.  Suppose you would have a low-cost education. Well then, you get rid of the whole means of siphoning off labor’s income to pay for education loans. You could go, suppose you had private healthcare and prevent Americans from getting sick like they do in China and Thailand, where you are.

High speed electric train arrives at a Shanghai rail station. (Wikimedia)

Well, then the health insurance companies and the pharmaceutical companies wouldn’t be able to make their rent. So you could not have America adopt a China type industrial program without what would be really a revolution against the legacy of the monopoly of private banking, of finance and all of the fortunes that have been built up financially really in the last 40 years since 1980.

Pepe: So, what’s going to happen in the, let’s say, short to mid-term in the U.S.? Michael, we are seeing the corrosion of the whole system, not only externally in terms of foreign policy and the end of the free lunch, but internally with those 70-million-plus “deplorables” being literally canceled from public debate, the impoverishment of the middle classes, with over 50 million people in America who are practically becoming literally poor. And obviously the American dream ended a few decades ago, maybe, but now there’s not even a glimpse of it, that there could be a renewal of the  American dream. So we have a larval civil war situation, degrading on a daily basis.  What’s the end game in fact? And what exactly does Wall Street, the American ruling class —the guys who have those lunches at the Harvard club — what do they ultimately want?

Michael: Well, what you call a disaster for the economy, isn’t it a bonanza for the 1 percent?  This is a victory of finance. You look at it as a collapse of industrial capitalism. I look at it as the victory of rentier finance capitalism.  You’re having probably 10 million Americans that are going to be thrown out of their apartments and their homes in June when the moratorium on rents and mortgages ends. You’re going to have a vast increase in the homeless population. That will probably represent an increase in people who use the subways. Where else are they going to live? And all of this, there’s an immense amount of private capital firms that have all been created in the last year of just wealth accumulations and they’re saying there are going to be such great opportunities to pick up real estate at bargain prices, all of this for the commercial real estate, that’s broken, all the buildings and the restaurants that have to be sold because they can’t meet their mortgage payments and their rents, all the houses that are going to be under, private capital can come in and do what was done after the Obama evictions.

We can do what Blackstone did. We can buy them all out for pennies on the dollar. So, for them, they’re looking at their own 20-year plan. And their 20-year plan is to grab everything!

consortiumnews.com

Well, the calculus for Moscow on whether to cut production (to help Trump) was never simple. There were geo-political and domestic economic considerations – as well as the industry ones – to weigh. But, perhaps one issue trumped all others?

Since 2007, President Putin has been pointing to one overarching threat to global trade: And that problem was simply, the U.S. dollar.

And now, that dollar is in crisis. We are referring, here, not so much to America’s domestic financial crisis (although the monetisation of U.S. debt is connected to threat to the global system), but rather, how the international trading system is poised to blow apart, with grave consequences for everyone.

In other words, Covid-19 may be the trigger, but it is the U.S. dollar – as President Putin has long warned – that is the root problem:

“We’re looking at a commodity-price collapse and a collapse in global trade unlike anything we’ve seen since the 1930s”, said Ken Rogoff, the former chief economist of the IMF, now at Harvard University. An avalanche of government-debt crises is sure to follow, he said, and “the system just can’t handle this many defaults and restructurings at the same time”.

“It’s a little bit like going to the hospitals and they can handle a certain number of Covid-19 patients but they can’t handle them – all at once”, he added.

More than 90 countries have inquired about bailouts from the IMF—nearly half the world’s nations—while at least 60 have sought to avail themselves of World Bank programs. The two institutions together [only] have resources of up to $1.2 trillion”.

Just to be clear, this amount is not nearly sufficient. Rogoff is saying that $1.2 trillion is a drop in the ocean – for what lies ahead. The health of the global economy thus has attenuated down to a race between dollars flooding out of this ‘complex self-organising’ system amidst the coronavirus pandemic, versus the very limited resources of the IMF and World Bank to pump dollars in.

Simple? Just ramp up the dollar flow into system. But whoa there! This would mean the U.S. providing a flow of dollars sufficient to meet ‘rest of world’ needs – ‘during the biggest collapse since the 1930s’? There is $11.9 trillion of U.S. denominated debt out there alone, plus the dollar float required to finance day-to-day international trade (usually held as national, foreign exchange reserves).

That however, is only a fraction of the dollar-denominated debt ‘problem’, since a part of that debt takes the characteristics of a distinct ‘currency’ used in international trade, called Eurodollars. Mostly (but not exclusively), they present themselves as if ordinary dollars, but what distinguishes them is that they are overseas dollar deposits that exist outside of U.S. regulation, in one sense.

But which – in the other sense – they become the tools extending U.S. jurisdiction (think Treasury sanctions), across the globe, through the use of U.S. dollars, as its medium of trade. That is to say, this huge Eurodollar market serves Washington’s geo-political interests by enabling it to sanction the world. Hence, the Eurodollar market is a main tool to the U.S.’ covert ‘war’ against China and Russia.

Eurodollars just ‘emerged’, (initially) in Europe after WW2 (no-one is sure quite how), and they grew organically to huge size, by the European banking system simply electronically creating more of them. The Achilles’ Heel is that it lacks any Central Bank to supply it with liquid dollars, as and when, payments into the U.S. sphere are sucked out of it.

This happens especially in times of crisis, when there is flight to the onshore dollar. Oh, no. Oh yes: It’s another self-organising dynamic system that can only ‘grow’ under the right conditions, but will be prone to dynamic de-construction if too many dollars are withdrawn from it. And now, with the Covid-19 pandemic, the Eurodollar market is in a near panic for dollars: liquid dollars.

The U.S. Fed does ‘help out’, at its own discretion, but mainly through offering to swap other currencies for dollars, and by extending short term dollar loans. But this ‘swap bandage’ cannot of course staunch full-blown global trade blowout – in the same way that the Fed is ‘supporting’ U.S. domestic financial system – by throwing trillions of dollars at it.

President Putin saw this eventuality long ago, and predicted the dollar’s ultimate collapse, as a result of the world’s trade becoming too large and too diverse to be sustained on the slender back of the U.S. Fed. And because the world is no longer ready for the U.S. to be able to sanction it, willy-nilly, and at will.

And here ‘is’ that moment – very possibly. So, the collapse in the oil price is a piece to this much bigger story. Putin – not so surprisingly – thus cooperated with Trump’s OPEC initiative, no doubt guessing that the attempt to ramp prices higher would never ‘fly’. Putin may not want to see the dollar hegemony renewed, but nor would he want Russia to be viewed as a main contributor to a global blow-out. The blame being heaped on China over coronavirus serves as a potent alert in this context.

This – emphatically – is not an essay about barely-understood Eurodollars. It is about real global risk. Take the Middle East, as one example. Oil is trading currently at $17 (Friday’s WTI). No producer state’s Middle East business-model is viable at this price level. National budget ‘break-evens’ require a price of oil to be at least three times higher – maybe more. And this, comes on top of the collapse of the Gulf air-travel hub business and tourism. The northern tier of states additionally, is being pressed hard by U.S. sanctions, with the latter tightening the sanctions tourniquet, as Covid-19 strikes, rather than relaxing it. Lebanon, Jordan, Syria – and Iraq. All have national business-models that are bust. They all require bail-outs.

And into this bleak picture, coronavirus has gripped precisely that class of expatriates and migrant workers that sustain the Gulf ‘way of life’ and its business model. NGOs presently are scouring the UAE for empty buildings, and Bahrain is re-purposing closed schools in order to re-house migrant-labourers from cramped accommodation where one room with bunk-beds would sleep a dozen workers.

The virus has also spread to densely populated commercial districts of cities, where many expatriates share housing to save on rent. Many have lost jobs and are struggling. The authorities are trying to deport the migrants home; but Pakistan and India both are refusing them immediate entry. These victims have lost their livelihood, and any chance to escape their misery.

Just to be clear: Gulf élites are not exempt from Covid-19. The al-Saud have been particularly hit by what they sometimes call the “Shi’i virus”. The situation is turning explosive. Gulf economies are held aloft by expatriates, migrant workers and domestic help, and coronavirus has upended the pillars of their economies.

The state looms large over the financial sector in the Gulf, and this makes financial institutions especially vulnerable, because the proportion of loans that local banks extend to the government or to government-related entities, has been rising since 2009. As the authorities draw further on these institutions, so the Gulf economies will prove more vulnerable to Eurodollar stress – absent huge Fed bail-outs.

The global impact of Covid-19 is only beginning, but one thing is abundantly clear: Middle Eastern states will be needing a great deal of spending money, just to fend off social disorder. An economic breakdown is more than just economic. It leads quickly to a social breakdown that involves looting, random violence, fraud and popular anger directed at authorities. Global trade is going to be hit hard, and U.S. imports are going to tumble, which threatens one of the main USD liquidity channels into the Eurodollar system.

This fear of a systemic dynamic destruction of the trading system has led the BIS (Bank for International Settlements: the Central Bankers’ own Central Bank) to insist that: “… today’s crisis differs from the 2008 GFC, and requires policies that reach beyond the banking sector to final users. These businesses, particularly those enmeshed in global supply chains, are in constant need of working capital, much of it in dollars. Preserving the flow of payments along these chains is essential if we are to avoid further economic meltdown”.

This is a truly revolutionary warning. The BIS is saying that unless the Fed makes bail-outs and working capital available on a massive scale – all the way down, and through, the supply-pyramid to nitty-gritty individual enterprises – trade collapse cannot be avoided. What is hinted at here is the concern that when multiple dynamic complex systems begin to degrade, they can, and often do, enter into a spiralling feedback-loop.

There may be agreement in the G7 on the principle of a limited debt moratorium to be offered to struggling economies, but an approach à outrance – on the BIS lines – apparently is being blocked by U.S. Treasury Secretary Mnuchin (the U.S. enjoys a veto at the IMF by virtue of its quota): No more U.S. cash is being offered to the IMF by Mnuchin, who prefers to keep the U.S. Fed front and centre of the USD liquidity roll-out process.

In other words, Trump wishes to keep intact the scaffolding of the ‘hidden’ dollar-based, sanctions and tariff ‘war’ against China and Russia. He wants the Fed to be able to determine who does, and who does not, get help in any ‘liquidity roll-out’. He wants to continue to be able to sanction those he wants. And he wants to maintain as large an external footprint of the dollar as possible.

Here then, is the crux to Putin’s complaint: “At root, the Eurodollar system is based on using the national currency of just one country, the U.S., as the global reserve currency. This means the world is beholden to a currency that it cannot create as needed”.

When a crisis hits, as at present, everyone in the Eurodollar system suddenly realizes they have no ability to create fiat dollars, and can rely only on that which exists in national foreign exchange reserves, or in ‘swap lines’. This obviously grants the U.S. enormous power and privilege.

But more than subjecting the world to the geo-political hegemony of Washington, the crucial point is made by Professor Rogoff: “We’re looking at a commodity-price collapse – and a collapse in global trade unlike anything we’ve seen since the 1930s. An avalanche of government-debt crises is sure to follow, he said, and “the system just can’t handle this many defaults and restructurings – at the same time”.

This simply is beyond the U.S. Fed, or the U.S. Treasury’s capacities, by a long shot. The Fed is already set to monetize double the total U.S. Treasury debt issuance. The global task would overwhelm it – in an avalanche of money-printing.

Does Mnuchin then, believe his and Trump’s narrative, that the virus will soon pass, and the economy will rapidly bounce-back? If so, and it turns out that the virus does not rapidly disappear, then Mnuchin’s stance portends a coming, tragic débacle. And with further massive money issuance, a collapse in confidence in the dollar. (President Putin would have been proved right, but he will not welcome, assuredly, being proved right in such a destructive manner).

In a parallel sphere, the global trade plight is being mirrored in the microcosm by that of EU states, such as Italy, whose economies similarly have been racked by Covid-19. They too, are beholden to a currency – the Euro – that Italy and others cannot create as needed.

With this crisis hitting Europe, everyone in the Euro system is experiencing what it means to have no ability to create fiat currency, and be entirely subject to a non-statutory body, the Eurogroup, which – like Mnuchin – simply says ‘no’ to any BIS-like approach.

Again, it is about scale: this is not business as usual, as in some neo-‘Greek’ eruption, to be countered with EU ‘discipline’. This crisis is much, much greater than that. The absence of monetary instruments – in crisis – can become existential.

Some muse might recall to Mnuchin and the Eurogroup, Alexander del Mar’s 1899 Monetary History, in which he observes how the manoeuvres of the British Crown, in constricting the export of gold and silver (i.e. money) to its American colonies, led to the Crown’s ‘war’ on the paper monetary instruments – Bills of Credit – issued by the Revolutionary Assemblies of Massachusetts and Philadelphia, to compensate for this British monetary starvation.

Finally, it left the desperate colonists with but one resort: “to stand by their monetary system. Thus the Bills of Credit of this era … were really the standards of The [American] Revolution. They were more than this: They were the Revolution itself!”

The mainstream media are carefully sidestepping the method behind America’s seeming madness in assassinating Islamic Revolutionary Guard general Qassim Suleimani to start the New Year. The logic behind the assassination this was a long-standing application of U.S. global policy, not just a personality quirk of Donald Trump’s impulsive action. His assassination of Iranian military leader Suleimani was indeed a unilateral act of war in violation of international law, but it was a logical step in a long-standing U.S. strategy. It was explicitly authorized by the Senate in the funding bill for the Pentagon that it passed last year.

The assassination was intended to escalate America’s presence in Iraq to keep control the region’s oil reserves, and to back Saudi Arabia’s Wahabi troops (Isis, Al Quaeda in Iraq, Al Nusra and other divisions of what are actually America’s foreign legion) to support U.S. control o Near Eastern oil as a buttress o the U.S. dollar. That remains the key to understanding this policy, and why it is in the process of escalating, not dying down.

I sat in on discussions of this policy as it was formulated nearly fifty years ago when I worked at the Hudson Institute and attended meetings at the White House, met with generals at various armed forces think tanks and with diplomats at the United Nations. My role was as a balance-of-payments economist having specialized for a decade at Chase Manhattan, Arthur Andersen and oil companies in the oil industry and military spending. These were two of the three main dynamic of American foreign policy and diplomacy. (The third concern was how to wage war in a democracy where voters rejected the draft in the wake of the Vietnam War.)

The media and public discussion have diverted attention from this strategy by floundering speculation that President Trump did it, except to counter the (non-)threat of impeachment with a wag-the-dog attack, or to back Israeli lebensraum drives, or simply to surrender the White House to neocon hate-Iran syndrome. The actual context for the neocon’s action was the balance of payments, and the role of oil and energy as a long-term lever of American diplomacy.

The balance of payments dimension

The major deficit in the U.S. balance of payments has long been military spending abroad. The entire payments deficit, beginning with the Korean War in 1950-51 and extending through the Vietnam War of the 1960s, was responsible for forcing the dollar off gold in 1971. The problem facing America’s military strategists was how to continue supporting the 800 U.S. military bases around the world and allied troop support without losing America’s financial leverage.

The solution turned out to be to replace gold with U.S. Treasury securities (IOUs) as the basis of foreign central bank reserves. After 1971, foreign central banks had little option for what to do with their continuing dollar inflows except to recycle them to the U.S. economy by buying U.S. Treasury securities. The effect of U.S. foreign military spending thus did not undercut the dollar’s exchange rate, and did not even force the Treasury and Federal Reserve to raise interest rates to attract foreign exchange to offset the dollar outflows on military account. In fact, U.S. foreign military spending helped finance the domestic U.S. federal budget deficit.

Saudi Arabia and other Near Eastern OPEC countries quickly became a buttress of the dollar. After these countries quadrupled the price of oil (in retaliation for the United States quadrupling the price of its grain exports, a mainstay of the U.S. trade balance), U.S. banks were swamped with an inflow of much foreign deposits – which were lent out to Third World countries in an explosion of bad loans that blew up in 1972 with Mexico’s insolvency, and destroyed Third World government credit for a decade, forcing it into dependence on the United States via the IMF and World Bank).

To top matters, of course, what Saudi Arabia does not save in dollarized assets with its oil-export earnings is spent on buying hundreds of billion of dollars of U.S. arms exports. This locks them into dependence on U.S. supply o replacement parts and repairs, and enables the United States to turn off Saudi military hardware at any point of time, in the event that the Saudis may try to act independently of U.S. foreign policy.

So maintaining the dollar as the world’s reserve currency became a mainstay of U.S. military spending. Foreign countries to not have to pay the Pentagon directly for this spending. They simply finance the U.S. Treasury and U.S. banking system.

Fear of this development was a major reason why the United States moved against Libya, whose foreign reserves were held in gold, not dollars, an which was urging other African countries to follow suit in order to free themselves from “Dollar Diplomacy.” Hillary and Obama invaded, grabbed their gold supplies (we still have no idea who ended up with these billions of dollars worth of gold) and destroyed Libya’s government, its public education system, its public infrastructure and other non-neoliberal policies.

The great threat to this is dedollarization as China, Russia and other countries seek to avoid recycling dollars. Without the dollar’s function as the vehicle for world saving – in effect, without the Pentagon’s role in creating the Treasury debt that is the vehicle for world central bank reserves – the U.S. would find itself constrained militarily and hence diplomatically constrained, as it was under the gold exchange standard.

That is the same strategy that the U.S. has followed in Syria and Iraq. Iran was threatening this dollarization strategy and its buttress in U.S. oil diplomacy.

The oil industry as buttress of the U.S. balance of payments and foreign diplomacy

The trade balance is buttressed by oil and farm surpluses. Oil is the key, because it is imported by U.S. companies at almost no balance-of-payments cost (the payments end up in the oil industry’s head offices here as profits and payments to management), while profits on U.S. oil company sales to other countries are remitted to the United States (via offshore tax-avoidance centers, mainly Liberia and Panama for many years). And as noted above, OPEC countries have been told to keep their official reserves in the form of U.S. securities (stocks and bonds as well as Treasury IOUs, but not direct purchase of U.S. companies being deemed economically important). Financially, OPEC countries are client slates of the Dollar Area.

America’s attempt to maintain this buttress explains U.S. opposition to any foreign government steps to reverse global warming and the extreme weather caused by the world’s U.S.-sponsored dependence on oil. Any such moves by Europe and other countries would reduce dependence on U.S. oil sales, and hence on U.S. ability to control the global oil spigot as a means of control and coercion, are viewed as hostile acts.

Oil also explains U.S. opposition to Russian oil exports via Nordstream. U.S. strategists want to treat energy as a U.S. national monopoly. Other countries can benefit in the way that Saudi Arabia has done – by sending their surpluses to the U.S. economy – but not to support their own economic growth and diplomacy. Control of oil thus implies support for continued global warming as an inherent part of U.S. strategy.

How a “democratic” nation can wage international war and terrorism

The Vietnam War showed that modern democracies cannot field armies for any major military conflict, because this would require a draft of its citizens. That would lead any government attempting such a draft to be voted out of power. And without troops, it is not possible to invade a country to take it over.

The corollary of this perception is that democracies have only two choices when it comes to military strategy: They can only wage airpower, bombing opponents; or they can create a foreign legion, that is, hire mercenaries or back foreign governments that provide this military service.

Here once again Saudi Arabia plays a critical role, through its control of Wahabi Sunnis turned into terrorist jihadis willing to sabotage, bomb, assassinate, blow up and otherwise fight any target designated as an enemy of “Islam,” the euphemism for Saudi Arabia acting as U.S. client state. (Religion really is not the key; I know of no ISIS or similar Wahabi attack on Israeli targets.) The United States needs the Saudis to supply or finance Wahabi crazies. So in addition to playing a key role in the U.S. balance of payments by recycling its oil-export earnings are into U.S. stocks, bonds and other investments, Saudi Arabia provides manpower by supporting the Wahabi members of America’s foreign legion, ISIS and Al-Nusra/Al-Qaeda. Terrorism has become the “democratic” mode of today U.S. military policy.

What makes America’s oil war in the Near East “democratic” is that this is the only kind of war a democracy can fight – an air war, followed by a vicious terrorist army that makes up for the fact that no democracy can field its own army in today’s world. The corollary is that, terrorism has become the “democratic” mode of warfare.

From the U.S. vantage point, what is a “democracy”? In today’s Orwellian vocabulary, it means any country supporting U.S. foreign policy. Bolivia and Honduras have become “democracies” since their coups, along with Brazil. Chile under Pinochet was a Chicago-style free market democracy. So was Iran under the Shah, and Russia under Yeltsin – but not since it elected Vladimir Putin president, any more than is China under President Xi.

The antonym to “democracy” is “terrorist.” That simply means a nation willing to fight to become independent from U.S. neoliberal democracy. It does not include America’s proxy armies.

Iran’s role as U.S. nemesis

What stands in the way of U.S. dollarization, oil and military strategy? Obviously, Russia and China have been targeted as long-term strategic enemies for seeking their own independent economic policies and diplomacy. But next to them, Iran has been in America’s gun sights for nearly seventy years.

America’s hatred of Iran is starts with its attempt to control its own oil production, exports and earnings. It goes back to 1953, when Mossadegh was overthrown because he wanted domestic sovereignty over Anglo-Persian oil. The CIA-MI6 coup replaced him with the pliant Shah, who imposed a police state to prevent Iranian independence from U.S. policy. The only physical places free from the police were the mosques. That made the Islamic Republic the path of least resistance to overthrowing the Shah and re-asserting Iranian sovereignty.

The United States came to terms with OPEC oil independence by 1974, but the antagonism toward Iran extends to demographic and religious considerations. Iranian support its Shi’ite population an those of Iraq and other countries – emphasizing support for the poor and for quasi-socialist policies instead of neoliberalism – has made it the main religious rival to Saudi Arabia’s Sunni sectarianism and its role as America’s Wahabi foreign legion.

America opposed General Suleimani above all because he was fighting against ISIS and other U.S.-backed terrorists in their attempt to break up Syria and replace Assad’s regime with a set of U.S.-compliant local leaders – the old British “divide and conquer” ploy. On occasion, Suleimani had cooperated with U.S. troops in fighting ISIS groups that got “out of line” meaning the U.S. party line. But every indication is that he was in Iraq to work with that government seeking to regain control of the oil fields that President Trump has bragged so loudly about grabbing.

Already in early 2018, President Trump asked Iraq to reimburse America for the cost of “saving its democracy” by bombing the remainder of Saddam’s economy. The reimbursement was to take the form of Iraqi Oil. More recently, in 2019, President Trump asked, why not simply grab Iraqi oil. The giant oil field has become the prize of the Bush-Cheney post 9-11 Oil War. “‘It was a very run-of-the-mill, low-key, meeting in general,” a source who was in the room told Axios.’ And then right at the end, Trump says something to the effect of, he gets a little smirk on his face and he says, ‘So what are we going to do about the oil?’” [1]

Trump’s idea that America should “get something” out of its military expenditure in destroying the Iraqi and Syrian economies simply reflects U.S. policy.

In late October, 2019, The New York Times reported that: “In recent days, Mr. Trump has settled on Syria’s oil reserves as a new rationale for appearing to reverse course and deploy hundreds of additional troops to the war-ravaged country. He has declared that the United States has “secured” oil fields in the country’s chaotic northeast and suggested that the seizure of the country’s main natural resource justifies America further extending its military presence there. ‘We have taken it and secured it,’ Mr. Trump said of Syria’s oil during remarks at the White House on Sunday, after announcing the killing of the Islamic State leader, Abu Bakr al-Baghdadi.” [2] A CIA official reminded the journalist that taking Iraq’s oil was a Trump campaign pledge.

That explains the invasion of Iraq for oil in 2003, and again this year, as President Trump has said: “Why don’t we simply take their oil?” It also explains the Obama-Hillary attack on Libya – not only for its oil, but for its investing its foreign reserves in gold instead of recycling its oil surplus revenue to the U.S. Treasury – and of course, for promoting a secular socialist state.

It explains why U.S. neocons feared Suleimani’s plan to help Iraq assert control of its oil and withstand the terrorist attacks supported by U.S. and Saudi’s on Iraq. That is what made his assassination an immediate drive.

American politicians have discredited themselves by starting off their condemnation of Trump by saying, as Elizabeth Warren did, how “bad” a person Suleimani was, how he had killed U.S. troops by masterminding the Iraqi defense of roadside bombing and other policies trying to repel the U.S. invasion to grab its oil. She was simply parroting the U.S. media’s depiction of Suleimani as a monster, diverting attention from the policy issue that explains why he was assassinated now.

The counter-strategy to U.S. oil, and dollar and global-warming diplomacy

This strategy will continue, until foreign countries reject it. If Europe and other regions fail to do so, they will suffer the consequences of this U.S. strategy in the form of a rising U.S.-sponsored war via terrorism, the flow of refugees, and accelerated global warming and extreme weather.

Russia, China and its allies already have been leading the way to dedollarization as a means to contain the balance-of-payments buttress of U.S. global military policy. But everyone now is speculating over what Iran’s response should be.

The pretense – or more accurately, the diversion – by the U.S. news media over the weekend has been to depict the United States as being under imminent attack. Mayor de Blasio has positioned policemen at conspicuous key intersections to let us know how imminent Iranian terrorism is – as if it were Iran, not Saudi Arabia that mounted 9/11, and as if Iran in fact has taken any forceful action against the United States. The media and talking heads on television have saturated the air waves with warnings of Islamic terrorism. Television anchors are suggesting just where the attacks are most likely to occur.

The message is that the assassination of General Soleimani was to protect us. As Donald Trump and various military spokesmen have said, he had killed Americans – and now they must be planning an enormous attack that will injure and kill many more innocent Americans. That stance has become America’s posture in the world: weak and threatened, requiring a strong defense – in the form of a strong offense.

But what is Iran’s actual interest? If it is indeed to undercut U.S. dollar and oil strategy, the first policy must be to get U.S. military forces out of the Near East, including U.S. occupation of its oil fields. It turns out that President Trump’s rash act has acted as a catalyst, bringing about just the opposite of what he wanted. On January 5 the Iraqi parliament met to insist that the United States leave. General Suleimani was an invited guest, not an Iranian invader. It is U.S. troops that are in Iraq in violation of international law. If they leave, Trump and the neocons lose control of oil – and also of their ability to interfere with Iranian-Iraqi-Syrian-Lebanese mutual defense.

Beyond Iraq looms Saudi Arabia. It has become the Great Satan, the supporter of Wahabi extremism, the terrorist legion of U.S. mercenary armies fighting to maintain control of Near Eastern oil and foreign exchange reserves, the cause of the great exodus of refugees to Turkey, Europe and wherever else it can flee from the arms and money provided by the U.S. backers of Isis, Al Qaeda in Iraq and their allied Saudi Wahabi legions.

The logical ideal, in principle, would be to destroy Saudi power. That power lies in its oil fields. They already have fallen under attack by modest Yemeni bombs. If U.S. neocons seriously threaten Iran, its response would be the wholesale bombing and destruction of Saudi oil fields, along with those of Kuwait and allied Near Eastern oil sheikhdoms. It would end the Saudi support for Wahabi terrorists, as well as for the U.S. dollar.

Such an act no doubt would be coordinated with a call for the Palestinian and other foreign workers in Saudi Arabia to rise up and drive out the monarchy and its thousands of family retainers.

Beyond Saudi Arabia, Iran and other advocates of a multilateral diplomatic break with U.S. neoliberal and neocon unilateralism should bring pressure on Europe to withdraw from NATO, inasmuch as that organization functions mainly as a U.S.-centric military tool of American dollar and oil diplomacy and hence opposing the climate change and military confrontation policies that threaten to make Europe part of the U.S. maelstrom.

Finally, what can U.S. anti-war opponents do to resist the neocon attempt to destroy any part of the world that resists U.S. neoliberal autocracy? This has been the most disappointing response over the weekend. They are flailing. It has not been helpful for Warren, Buttigieg and others to accuse Trump of acting rashly without thinking through the consequences of his actions. That approach shies away from recognizing that his action did indeed have a rationale—do draw a line in the sand, to say that yes, America WILL go to war, will fight Iran, will do anything at all to defend its control of Near Eastern oil and to dictate OPEC central bank policy, to defend its ISIS legions as if any opposition to this policy is an attack on the United States itself.

I can understand the emotional response or yet new calls for impeachment of Donald Trump. But that is an obvious non-starter, partly because it has been so obviously a partisan move by the Democratic Party. More important is the false and self-serving accusation that President Trump has overstepped his constitutional limit by committing an act of war against Iran by assassinating Soleimani.

Congress endorsed Trump’s assassination and is fully as guilty as he is for having approved the Pentagon’s budget with the Senate’s removal of the amendment to the 2019 National Defense Authorization Act that Bernie Sanders, Tom Udall and Ro Khanna inserted an amendment in the House of Representatives version, explicitly not authorizing the Pentagon to wage war against Iran or assassinate its officials. When this budget was sent to the Senate, the White House and Pentagon (a.k.a. the military-industrial complex and neoconservatives) removed that constraint. That was a red flag announcing that the Pentagon and White House did indeed intend to wage war against Iran and/or assassinate its officials. Congress lacked the courage to argue this point at the forefront of public discussion.

Behind all this is the Saudi-inspired 9/11 act taking away Congress’s sole power to wage war – its 2002 Authorization for Use of Military Force, pulled out of the drawer ostensibly against Al Qaeda but actually the first step in America’s long support of the very group that was responsible for 9/11, the Saudi airplane hijackers.

The question is, how to get the world’s politicians – U.S., European and Asians – to see how America’s all-or-nothing policy is threatening new waves of war, refugees, disruption of the oil trade in the Strait of Hormuz, and ultimately global warming and neoliberal dollarization imposed on all countries. It is a sign of how little power exists in the United Nations that no countries are calling for a new Nurenberg-style war crimes trial, no threat to withdraw from NATO or even to avoid holding reserves in the form of money lent to the U.S. Treasury to fund America’s military budget.

Notes

[1] axios.com. The article adds: “In the March meeting, the Iraqi prime minister replied, ‘What do you mean?’ according to the source in the room. And Trump’s like, ‘Well, we did a lot, we did a lot over there, we spent trillions over there, and a lot of people have been talking about the oil.’”
[2] Michael Crowly, “‘Keep the Oil’: Trump Revives Charged Slogan for new Syria Troop Mission,” The New York Times, October 26, 2019. . The article adds: “‘I said keep the oil,’ Mr. Trump recounted. ‘If they are going into Iraq, keep the oil. They never did. They never did.’”

counterpunch.org

Speaking at the Doha Forum in Qatar last week, Mnuchin made a virtue of the US imposing economic sanctions on countries it dislikes because such measures, he claimed, were a way to avoid the worse alternative of war.

“The reason why we’re using sanctions is because they are an important alternative for world military conflicts,” said the US Treasury Secretary.

The sleight of hand here is to portray Washington as somehow being more responsible and principled in its foreign policy by using coercion against other nations supposedly without harming civilians, damaging infrastructure or spilling blood.

Billionaire Mnuchin is living in a bubble of American propaganda if he thinks that economic sanctions are some kind of sterile lever which do not have any impact on human suffering. Sanctions are acts of war, conducted as other means to troop invasions, air strikes and naval blockades.

International lawyer and former UN diplomat Alfred de Zayas calls the sanctions imposed by the US on Venezuela “economic terrorism”. Tens of thousands of Venezuelans are estimated to have died as a result of Washington’s tightening embargo on the South American country since 2017.

Iran’s government has also condemned US sanctions on its nation as “economic terrorism”. So too has Syria, North Korea and Cuba – the latter having been embargoed by the US for nearly six decades without relent.

Typically, sanctioned countries cannot import vital medicines and medical equipment due to US restrictions on banking systems and trade. That leads to premature deaths from terminal illnesses that go untreated, and to worsening health of vulnerable sections of the population, the young and elderly. Less perceptibly, but no less real, is increased mortality from general deprivation caused by sanctions-hit economies.

Remember how former US Secretary of State Madeleine Albright infamously admitted on national TV that American sanctions killed 500,000 children in Iraq during the 1990s, and with monstrous callousness added, “it was worth it”.

Steve Mnuchin claims with barefaced lies that US sanctions do not impinge on humanitarian supplies to targeted countries. That is contradicted by independent international observers who have visited Syria, Iraq, Iran, Venezuela and North Korea where US sanctions have decimated public health services. See this article by independent journalist Eva Bartlett who visited several of the aforementioned countries.

Indeed, the whole purpose of sanctions is to deliberately ravage populations in order to provoke widespread social instability and ultimately regime change.

The practice of unilateral sanctions by the US should be banned under international law as a form of aggression against nations. It is an act of war and, without just cause of self-defense, is therefore a war crime.

Mnuchin’s cynicism pretends that sanctions are a valid legal instrument of foreign policy which are qualitatively different from military warfare. His nauseating attempt to claim that the US is acting with restraint by using sanctions “instead of war” is absurd.

Sanctions are part of the US arsenal to harass and subjugate other nations which Washington deems to be recalcitrant to achieving its geopolitical objectives.

Historically it is seen that economic assault on countries is often the prelude to all-out war. The good “alternative” that Mnuchin talks of is delusional.

Recall how US sanctions against Japan in the 1930s aimed at cutting off the latter’s oil imports led to Japan precipitating the Pacific War with the attacks on Pearl Harbor on December 7, 1941. Arguably, the war’s inception was not at Pearl Harbor, but rather found in the prior US policy of strangulating Japan economically.

That’s what makes the current sanctions on Iran by the Trump administration a matter of grave concern. The US economic blockade seems aimed at forcing Iran to make a retaliatory move which would then be cited by Washington as “justifying” American military action. But let’s put those sanctions in proper context. They were imposed unilaterally by the Trump administration when it tore up its signature in May 2018 to the treaty-binding international nuclear accord. Bad faith has been followed by economic aggression, which may, in turn, lead to open military aggression. Thus, sanctions are part of a sliding scale of war, not some abstract benign alternative to war, as the US Treasury Secretary likes to pretend.

What is more disturbing is the increasing use of sanctions as a normal foreign policy by the Trump administration.

The list of nations under US sanctions continues to grow. In addition to countries mentioned above are several others, primarily Russia and China. Countless layers of sanctions originated by the Obama administration have been added on to Moscow by the Trump presidency. The vague and unverified nature of US claims invoked to implement these sanctions against Russia are in themselves provocative.

The threat of American sanctions against Russia’s Nord Stream-2 mega project for increasing gas exports to Europe is perhaps the most egregious example of using economic instruments gratuitously to pursue geopolitical interests. Not only Russia but also European “allies” of the US are being threatened with sanctions over Nord Stream-2.

Nord Stream-2 clearly illustrates how US sanctions are another instrument of unlawful aggression and coercion for achieving American interests.

The complacency of Mnuchin’s virtue-signaling belies a brutal truth. Far from avoiding war, Washington is more and more at war with the rest of the planet by using economic aggression, terrorism and bullying.

The would-be US hegemon is increasingly out of control, no longer restrained by the superficial need for appearance of legal niceties. The international tensions it is stoking by its wanton tyranny are creating a dangerous threshold. US economic warfare through sanctions has ensured that catastrophic military war is but one fatal slip away.

For example, on May 10th, the US regime warned that if Venezuela’s government takes any actions against the participants in the failed April 30th US-backed coup-attempt in Venezuela, then the US regime will tighten the economic-sanctions screws even harder, which means that any nation that trades with Venezuela will be even more punished than before. Economic sanctions are the first step of war, the end-step being a military invasion, but it’s really dictating to other countries whom they can trade with, and whom not. America’s economic sanctions are saying: Move aside, UN, WTO, etc.; we’re taking over as the judge, jury, policeman and executioner, for the entire world. Move aside — we do whatever we want, and we’ll crush you, too, if you resist. American ‘democracy’ is being spread by international dictatorship, and it’s now bolder than ever.

One of the excuses that the US regime offers for these economic sanctions is that they are necessary in order to punish Venezuela’s government for Venezuelans’ suffering from shortages of food, medicine, and other necessities, but the chief purpose of the sanctions — an economic blockade, actually — is precisely to engender such shortages. They are a vastly bigger success than many in the public recognize, and so other reasons for those shortages, etc., are instead cited by the US regime and its allies. In other words, it’s an extremely effective operation to fool the public — not only about how effective the sanctions are (which is very); but also about why these extraordinary conditions now exist in Venezuela, Iran, and other countries that the US regime (and its allies) sanction. In other words: the publics (at least in allied countries) are fooled to believe that the main source of the problems in those suffering countries is the government that the US regime is trying to overthrow, the victim nations themselves. The mind-control operation here is that the extreme problems in the sanctioned countries are to be blamed on those nations’ internal political situation, instead of on the US and its allied regimes — their shared determination to overthrow and replace the targeted governments. The US regime thinks that the American people (and the publics in its allied regimes) will be too stupid to recognize the self-contradiction here (that it uses those sanctions in order to help, instead of to impoverish, the people in the targeted lands), and thus that they will blame only Venezuela’s government for the shortages, etc. But the undeniable fact is that by blocking trade between Venezuela and its trading-partners, Venezuela not only can’t import, but can’t export, and so gets economically strangled — which is what is happening — and that’s the success of the sanctions.

On May 10th the US Treasury Department headlined “Treasury Identifies the Venezuelan Defense and Security Sector as Subject to Sanctions and Further Targets Venezuelan Oil Moving to Cuba”, and announced:

Today, Secretary of the Treasury Steven T. Mnuchin, in consultation with Secretary of State Michael Pompeo, and pursuant to Executive Order (E.O.) 13850, as amended, determined that persons operating in the defense and security sector of the Venezuelan economy may be subject to sanctions. In addition, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated two companies that operate in the oil sector of the Venezuelan economy, pursuant to E.O. 13850, as amended. OFAC has also identified two vessels, which transported oil from Venezuela to Cuba, as blocked property owned by the two companies.

“Treasury’s action today puts Venezuela’s military and intelligence services, as well as those who support them, on notice that their continued backing of the illegitimate Maduro regime will be met with serious consequences,” said Treasury Secretary Steven T. Mnuchin.

The US regime accuses Venezuela’s government for its “continued backing of the illegitimate Maduro regime” — as if the stooge Guaido that the US regime demands to replace Maduro had beaten Maduro in the last Venezuelan election, when in fact Guaido is a long-time CIA asset who never even was, nor ever applied to be, a candidate in any nationwide Venezuelan election, much less is he someone who would have — or likely could have — won against Maduro in such. First come the US regime’s lies and sanctions, then (if those fail) comes, maybe, its military?

The purpose of the military is to apply the ultimate weapons, if and as needed, in order to impose one’s will. The US dollar is backed by blood — victims’ blood, the target-nations’ blood — and the dollar wouldn’t be the world’s reserve currency if it weren’t backed up ultimately by America’s military, “the policeman to the world.” (That’s how the thug calls itself, instead, a ‘policeman’.) The dollar would be just another currency. Alliances are essential in order for an empire such as this to be able to function. But alliances also need enemies — and those are intended to be the victims. And trading with the ‘enemies’ (any sanctioned country) causes that trader to become likewise punished. As was stated before, these sanctions are actually economic blockades. A blockade doesn’t affect only its target-nation but also the nations which don’t join the economic war against that target. This is how a blockade works. The purpose of the sanctions is to isolate the target-country by extending those sanctions also against any nation which doesn’t abandon that target-nation. After the target-nation becomes sufficiently abandoned, the empire invades it. That’s how an empire works, in our time (if not all times).

More blatantly than ever before, the US regime is now actually trying to terrorize the entire world into submission.

On April 29th, the Stockholm International Peace Research Institute or SIPRI (which is the standard authority on military spending around the world) headlined “World military expenditure grows to $1.8 trillion in 2018”, and reported that:

“Total military expenditure by all 29 North Atlantic Treaty Organization members was $963 billion in 2018, which accounted for 53 per cent of world spending.”

What is NATO defending itself against? Is it defending against non-NATO nations? Those 166 non-NATO nations constitute 85% of all nations, but collectively they spend (according to SIPRI) only 47% of the entire world’s military budget, so who is really benefiting from all of the weapons that NATO nations are producing and buying — other than the owners of those weapons-producing firms? Those people are the real beneficiaries of NATO’s existence after the end of the Soviet Union and of its communism in 1991. And doesn’t the leader of NATO, which is the US, perpetrate around 90% of the world’s invasions and coups — roughly 90% of the world’s aggressions? So: what is NATO defending against? The US doesn’t even attempt to do regime-changes against NATO nations, except against Turkey in 2015, and US propagandists blamed that coup-attempt’s failure on Russia, which is the country against which NATO had been founded by the US in 1949. Today’s US regime continues to direct NATO to be primarily against Russia. NATO at its founding claimed to be ‘anti-communist’, but is actually — and has always been — the anti-Russian military alliance. After the break-up of the Soviet Union in 1991, Russia expressed the desire to become a member of NATO but was quietly blocked by the US regime. Corporations such as Lockheed didn’t want it as an ally (a market), but only as a target (an ‘enemy’), because such firms need both ally-nations and target-nations in order to thrive. How else can military sales keep growing, than this — especially after Russia left the Cold War in 1991?

SIPRI’s report says “The largest absolute increase in spending in 2018 was by the USA ($27.8 billion).”

US President Trump demands that all 29 NATO member-nations spend at least 2% of their GDP on ‘Defence’. According to NATO’s 10 July 2018 “Defence Expenditure of NATO Countries (2011-2018)”, only 4 of the then-28 NATO nations actually did: US=3.5%. Greece=2.7%. Estonia=2.2%. And UK=2.1%. Clearly, the US government carries the torch for torching things (bombing them, etc.) in its target-countries (the friends and allies of Russia), but America’s leadership wants their foreign allies (such as Europe) to extract more money from their taxpayers, in order to support the US team’s aggressions (‘defences’). So: too much weapons-buying is not enough to satisfy NATO, which is the members’ weapons-manufacturers’ top PR and marketing organization. (Actually, NATO after 1991 no longer has any other actual reason for being.)

But the biggest foreign market-area for America’s ‘defense’ contractors isn’t NATO — it’s the Middle East, where the war-business is thriving. Furthermore, unlike the NATO countries, many of which are themselves major weapons-producers and not merely major consumers of weapons, Middle Eastern countries are insignificant as weapons-manufacturing lands — so, they import instead of manufacture almost all of their military equipment. This makes them even more lucrative to have as allies.

SIPRI’s report says that “Six of the 10 countries with the highest military burden (military spending as a proportion of GDP) in the world in 2018 are in the Middle East: Saudi Arabia (8.8 per cent of GDP), Oman (8.2 per cent), Kuwait (5.1 per cent), Lebanon (5.0 per cent), Jordan (4.7 per cent) and Israel (4.3 per cent).” Since those nations also are US allies, they too are huge markets for NATO’s (mainly for America’s) weapons-making giants. In fact, according to SIPRI, “Arms exports to Saudi Arabia by supplier, 2013-17” were 61% from US, 23% from UK, and the remaining 16% came from 9 countries. So, perhaps the “Special Relationship” that the US has is not just UK, but their shared special relationship with Saudi Arabia (and maybe even including Israel, which is strongly allied with those other three dictatorships). (Though UK probably isn’t entirely a dictatorship as the US and Israel are, it’s close.)

The US regime is the power that rules NATO, and it leads the way in financing its weapons-makers: it spends not the standard 20% of its military costs on weaponry, but 28% of its enormous 3.5% of GDP military on weaponry. (The US spends exactly 1% of its total GDP on military weapons.) That’s not nearly as high a GDP percentage as the highest GDP percentage, non-NATO Saudi Arabia’s 8.8%, but Saudi Arabia’s GDP is around a thirtieth as large as America’s. Still, the Sauds’ 8.8% of GDP going to their military is of huge benefit to the ruling corporations, because the Sauds are, by far, the largest foreign buyer of US-made weapons. Consequently, the Sauds control the US Government far more than do any other foreign government. (Some say that Israel’s regime does, but, to a large extent, Israel’s powerful influence over America’s regime is due to the special relationship that exists between the Sauds and Israel’s regime.)

The payers of that “military burden” turn out to be a list of the world’s biggest buyers of NATO (mainly US) weapons — the weapons that are marketed by firms such as Lockheed Martin and BAE, and that are marketed only to America’s Government and to its military allies (mainly in Europe and the Middle East). These weapons are to be used against the main countries that America’s billionaires want ultimately to conquer and take over so as for America’s billionaires to control and exploit: America’s billionaires especially want to conquer and exploit Iran and Russia and any nation that’s allied with (or even merely friendly toward) either of those two currently independent nations — which therefore are America’s chief targets, instead of America’s allies. (US ‘news’-media call them ‘enemies’, not targets.)

America’s soldiers think that they are America’s military, but actually they are only the users, and the trainers in the use, of these firms’ products — products which are officially guidelined to constitute at least 20% of the government’s ‘defence’ budget. And the government’s taxpayers pay the tab for all of this, and they’ve been successfully brainwashed to respect NATO, instead of to detest and despise its continued existence after 1991.

Xi is essentially correct. Until recently, Washington subscribed to the western cultural conviction of the linear itinerary of historical ‘progress’ – that is to say, that the introduction of the western-style economic liberal market, under Deng Xiaoping, constituted part of an inevitable Chinese journey towards ever greater economic and political liberty (i.e. they would become like ‘us’). 

But Washington DC had its ‘tipping point’. It slid across, into a very different understanding. This was that China’s liberal economic reforms were all about restoring China’s former global economic primacy and power – and never about ‘empowering the individual’ in the western mode of thinking. In that context, China remaining compliant and well-behaved within the global order made sense for China – so long as it remained on course to become the global Number One, by 2049 (the CCP Centenary Year).

But, like all ‘Road to Damascus’ late converts, US foreign policy élites now have become fervent proselytisers for the Chinese ‘threat’ meme. So, the question arises: does it make sense any more for China to pursue its instinctive policy of not confronting the US, especially if Trump is known for keeping up the pressure, never backing off, and always doubling down? How can China too, stick with its ‘quietist’ posture if Trump ups the pressure in the South China Sea, or in North Korea, or decides to adopt Taiwan as a ‘democracy cause’? Xi can’t.

Russia, on the other hand, is witnessing an extremely defensive US President – a longstanding believer in good relations with Russia, but whose persistent vulnerability to the ‘Russiagate’ hysteria is pushing him to polish his anti-Russian credentials to the extent that he is now becoming holier than the Pope (more ‘hard-on-Russia’ than the Russophobes); more neocon, than the neocons. With rafts of crushing sanctions against Russia already in the Congressional pipeline (over which the US President has minimal ability to limit their implementation), Russia too must prepare for a long period of economic attrition. The depth of the American crisis is such that President Putin (like everyone) cannot guess how it may all turn out.

For Europe, Iran, Turkey, Pakistan and Venezuela, the outlook is similar: It will be a period in which the US weaponises all the leverage it has at its command to restore the US global primacy – and to bring all into line with the wider US agenda. Trump is escalating – intent, it would seem, on having the first capitulation, or political fissure to burst apart, by November. But what if that doesn't happen?

The ‘market’ (with a few exceptions) take the view of America's victory in the trade war as certain: the US is easily the predominant consumer market and concomitantly, it hurts US trade partners the more to be shut out from it – which is also to say, that retaliatory tariffs imposed by others will hurt US exporters the less (because US outwards exports are the lesser, in most cases).

With states such as China, its exports to the US are at least double the value of US exports to the US, therefore the US owns the leverage (in the White House view) – because there are twice as many possibilities for US to impose import tariffs as China has to impose export tariffs. Additionally, the US uses the US dollar hegemony (i.e. currency war) to create an artificially strong dollar – which weakens emerging markets, and concomitantly weakens their leverage (as their US dollar-denominated debt and interest payments, become toxically elevated, in relation to their domestic currencies).

This ‘market’ view of trade war somehow is a mirror of America’s military zeitgeist. The US has the biggest military by far; it can outgun everyone (except Russia), so anyone challenging the US is bound to be ‘a loser’ (it is assumed). Indeed, the US can, and does, begin its wars with a slick show of destructive capability that pummels the adversary. But what then? Then, the US military doesn’t seem to have answers to the subsequent phases: It bogs down, and then finds itself losing to asymmetric retaliation. Its only answer is the ‘forever’ wars.

Alastair Macleod of the Mises Institute suggests that such market sanguinity is wrong:

“Comments that China is in trouble from trade tariffs and being undermined by a strong dollar, are wide of the mark. Geopolitics dominates here. America’s occasional successes in attacking the rouble and yuan are no more that transient pyrrhic victories. She is not winning the currency war against China and Russia. China is not being deflected from her strategic goals to become, in partnership with Russia, the Eurasian super-power, beyond the reach of American hegemony.”

Russia and China are intent on playing – and winning – the long game. Both states, presently are sounding out Washington (prior to November) as to whether, in the words of Putin’s spokesman, there is any “common ground, trying to understand if it is possible at all – and if the other party is willing at all.” Beijing too is exploring whether Trump is ready to compromise on some sort of a face-saving, PR trade deal – ahead of the November midterms – or, not. This ‘scenting the wind’ should not be misinterpreted for weakness, or a readiness to capitulate. These states are simply doing ‘due diligence’ before events take them to the next stage of the conflict – in which the risks will be graver.

What is less noticed – because there has been no ‘shout out’ occurrence – is how much the preparations for the next phase have been incrementally unfolding (since some time). Small steps, perhaps, but of great significance nonetheless. Because the platforms for countering US financial bullying are being put into place at an accelerating pace – particularly since Trump started to sanction ‘the world’.

And this old axiom is the first point to grasp: ‘Every crisis is also an opportunity’. And Trump’s lambasting and sanctioning of ‘the world’ is catalyzing a powerful push-back. When America sanctions ‘the world’ it is an easy ‘sell’ for China and Russia to push others towards de-dollarisation, and to trading in local (non-dollar) currencies. And this is happening. It is almost ‘done’ in respect to oil. The advent of Shanghai Futures Exchange symbolically marked the beginning of the upending of the Bretton Woods world (with Gulf States likely to succumb to the inevitable, in due course).

The ‘market’ sees the selling of US government debt (US Treasuries) by the PBOC as China’s Damocles Sword hanging over the US; but at the same time, ‘the market’ believes that China will never do such a thing – as it would lower the value of its holdings. It would be counter to China’s own interest. (It is never asked however, why China should want these holdings – at all – if China is debarred, by the US, from purchasing dollar-denominated assets with its US dollars).

China has always been wary of disrupting markets – that is true. But, it maybe that the ‘market’ is misreading China’s ‘war-plan’. The expectation might be that China’s only resort is to sell US Treasuries (as Russia has just done). But, as usual, that would be the ‘market’ looking to the short-term view of China’s possibilities. China however, clearly is playing the long game. Recall what Maj. Gen. Qiau Liang said in 2016: “The US needs a large ‘capital return’ to support the daily life of the Americans, and the US economy. Under such circumstances, [any nation that] blocks the return of capital to the US is the enemy of the US. We must understand this matter clearly … To effectively contain the United States, other countries shall think more about how to cut off the capital flow to the United States while formulating their strategies”. 

And what China can – and is – doing with those US dollar assets, is to deploy them in another important way. It is not selling them, but rather is using them – without fanfare – to support its key allies, whose currencies are under periodic, concerted, Wall Street ‘short’ selling raids on their currencies: that is to say, China is supporting quietly Turkey and Iran (more through the purchase of its crude, in the latter case). So China is quietly subverting, and undermining Trump’s strong dollar card that is intended to force Turkey and Iran to capitulate. This is asymmetric financial war for the long game.

Both these states (together with Pakistan) are key hubs of the ‘Belt and Road’ initiative; but more than that, they are directly strategically significant components to the national security of China. China is very concerned by the Muslim, Turkic, Uighurs of Xinjiang province, thousands of whom already fight as jihadists in Syria. China does not want the latter returned, nor does it want Muslims to be radicalised in China, or in the states to the West of China. 

President Erdogan has been significantly instrumental in their radicalisation. They want Erdogan to stop his game with the ethnic Turkic populations, in and near to China, in return for which, China is helping with the Lira. Equally, China’s economy is vulnerable to America closing the Malacca Strait. To offset that vulnerability, China needs Pakistan, and its ‘corridor’, down to the port at Gwadar. And Iran is absolutely central to both China’s and Russia’s national security.

What we see therefore is China and Russia quietly sewing together the fabric of a de-dollarised, currency-swap equipped, and credit-supplied, belt across Central Asia – in opposition to America’s attempt to break it up. Russia, which largely already has de-dollarised its economy, has the particular role of ensuring that Europe is not lost as a market for the Belt and Road to Trump’s leveraged bullying, and that his aim to reacquire energy dominance remains no more than ‘an aspiration’.

Taken in aggregate, all these quantitatively, mini-steps, represent a qualitatively significant diminution of the use of the dollar, outside of the US domestic sphere. Its depth, beyond the US homeland, is being salami-sliced away. The import of this should not be underestimated — the US enjoys the high standard of living that it has because it can buy cheap goods, paid for, in paper (fiat) US debt, that others are obliged to hold, for purposes of trading in the global reserve currency. Americans’ standard of living is, in effect, subsidised by the rest of the world.

It can only afford the military it has because it can – unlike any other state – run budget deficits to pay for its outsized military, whimsically, and without concern, since foreigners (until now), simply go on filling the budget gap.

America has radical financial leverage at this moment precisely because of the ‘strong dollar’. Make no mistake. This is not just the result of Fed hiking rates: Trump well understands that: “Money is pouring into our cherished DOLLAR like rarely before.” Donald Trump tweeted, on 16 August. It is, of course, all about leverage.

With a strong dollar, trading partners’ currencies devalue, their interest and capital payments soar – and, traditionally, they are pushed to the IMF for a dose of austerity and the sale of their national assets. This is the ‘play’ which Russia and China intend to end. They have set up alternatives to the Word Bank and to the IMF to which Turkey may have recourse – instead of being forced into an IMF programme.

Alasdair Macleod notes the dichotomy between Trump’s ‘short game’ and China and Russia’s ‘long game’:

“For now, and probably for only a few months ahead of the US mid-term elections in November, President Trump is forcing currency difficulties on his enemies by aggressive trade policies, including sanctions, and by weaponising the dollar. It is a trick that has been used by successive American administrations for a considerable time…

President Trump’s actions over trade… are driving countries away from her sphere of influence. Ultimately this will prove counterproductive. Speculators buying into Trump’s short-termism and the Fed’s normalization policies are, for the moment, driving the dollar higher … This seems certain to lead to the dollar’s downfall [in the longer term].

The dollar is rising only on short-term considerations, driven by nothing more substantial than speculative flows. Once these abate, the longer-term prospects for the dollar will reassert themselves, including the escalating budget and trade deficits… and rising prices fueled by a combination of earlier monetary expansion, and the extra taxes of trade tariffs.”

This may well be Russia and China’s ‘long game’. For now, the strong dollar (and geo-political fear), is causing a safe-haven flight into easily marketable, US assets. The recent US Tax Bill has deepened this flow of dollars ‘returning home’ (through its amnesty for returning, corporate, off-shore, cash holdings). The financial leverage presently lies with the US. All looks well: the stock market is up; traders think the trade war will be an easy ‘win’; and economic indicators, the Federal Reserve says, are ‘strong’.

But Russia and China can be patient. Those overseas dollars “pouring in [to America], as rarely before” – are sucking out the oxygen, (i.e. dollar-liquidity) from everywhere. It will either soon exhaust itself, or will result in a contagious credit crisis (with Europe likely the prime victim), triggered precisely by the liquidity-drought engineered to give Trump more leverage.

At this point, the relative strengths between the US and Russia-China invert, and leverage flips to the latter’s advantage.

Moscow realized that the US would continue its efforts to strangle Russia economically to make countermeasures inevitable. The Russian government expedited the occurrence by taking steps to lessen the dependence on Washington, including selling off US treasury bills. The ability to foresee the worst scenario and take timely measures to prevent it pays off.

The recent events show Moscow did the right thing at the right time. Just a few months ago, it got rid of US dollars to increase gold reserves. It has taken measures to become almost immune to Western sanctions with no fiscal deficit, a solid current account balance, and very little debt.

On August 2, a bill was introduced in the US Senate to impose “crushing” sanctions on Moscow to include restrictions on new Russian sovereign debt transactions, energy and oil projects and Russian uranium imports, and new sanctions on political figures and businessmen. One package follows another to no avail as the country is well prepared for it with no “soft underbelly” left. There are more steps planned over Russia’s alleged violations of sanctions against North Korea. The vicious circle is unstoppable but the impact has been minimized.

The US has recently imposed sanctions of Turkish top officials. The well-calculated move not only damaged the bilateral relationship but also made the Turkish lira plunge to an all-time low. The currency has fallen by over 40 percent since 2016.

Meanwhile, the US is preparing new sanctions to hit its NATO ally, including what the administration calls “large sanctions’ or “designation packages” to assault Turkey’s economy dependent on foreign investments. With foreign capital gone, the country will not be able to shoulder its large current-account deficit. It needs roughly $200 million a day in foreign financing to plug it. The sanctions could also bring down the banking system.

In late July, the Senate Foreign Relations Committee passed the “Turkey International Financial Institutions Act”. The legislation directs the US executive of the World Bank and the European Bank for Reconstruction and Development (EBRD) to oppose future loans, except those for humanitarian purposes, to Turkey by the International Finance Corporation (IFC) and the EBRD until the administration certifies to Congress that Turkey is “no longer arbitrarily detaining or denying freedom of movement to United States citizens or locally employed staff members of the U.S. mission to Turkey.” If the bill becomes law, and there is each and every reason to believe it will go through without a hitch as lawmakers strongly support it, it’ll deliver a really heavy blow on Turkey. In 2017 alone, the EBRD invested €1.6 billion in 51 projects. The country is near the top of the pile for a debt and currency crisis. 

Washington believes the policy of sanctions works. It sets Iran as an example, where protests are on the rise having reached Tehran, the capital. The frustration over the country’s economic performance is the main cause of public dissatisfaction with the government.

On Aug. 7, sanctions will be re-imposed on Iran’s purchase of US currency, its trade in gold and precious metals, its dealings with metals, coal and industrial-related software. The measures will also affect US imports of Iranian carpets and foodstuffs and on certain related financial transactions. According to Reuters, Iran’s oil exports could fall by as much as two-thirds by the end of the year.

The US State Department said on its Persian-language Twitter account: “While it is ultimately up to the #peopleofIran to determine their country’s path, #America supports the voice of the Iranian people, which has been ignored for a long time.” That’s the pattern. Incite protests first to interfere into internal affairs second. And Russia, whose meddling into the 2016 election has never been proven despite all the “probes” conducted by so many agencies and both houses of Congress, is subject to sanctions while the US keeps on pontificating about “non-interference”, the need to comply with international law and other things it, itself, has nothing to do with. And it stubbornly refuses to look at the mirror.

It all goes to show the wisdom of taking a page out of Russia’s book. The world is going through changes and the nations have to adapt to new reality.