1
1
Sooner or later, it's a losing proposition, especially in today's climate with the Federal Reserve sacrificing dollar strength to bail out Wall Street and trying to keep long rates low to contain borrowing costs. Yet the greater the dollar erosion, the more losses foreign investors will incur and less likely they'll tolerate more by buying bad assets.
So far, however, they're still recycling their dollar inflows to fund America's budget deficit and global militarism - something Hudson calls a "Free Lunch in the form of compulsory foreign loans to finance US Government policy."
Even so, they have no say over US policies, yet America and international lending agencies, like the IMF and World Bank, "use their dollar claims" on indebted nations to enforce Washington Consensus diktats. Independent-minded states face sanctions, isolation, coups or wars if they refuse.
Until Nixon closed the gold window in August 1971, America couldn't run unlimited balance-of-payments deficits. However without gold convertibility, it's continued for nearly 40 years along with protectionist policies through generous subsidies to US exporters - most notably to agribusiness. As a result, Hudson sees international tensions growing for the next generation, perhaps even greater now given America's reckless monetarism and perpetual wars.
His book "provid(es) the background for US - European and US - Asian financial relations by explaining how (post-1971) the US Treasury-bill standard came to provide America with a Free Lunch." Also how the IMF promoted debtor nations' capital flight and the World Bank supported "foreign trade dependency on US farm exports...."
The early 1970s dollar crisis and balance-of-payments deficits seem small compared to today. Yet the "Treasury-bill standard (frees) the US economy from (doing) what American diplomats (force on) other debtor nations (with) payments deficits: impose austerity to restore balance in its international payments. The United States alone has been free to pursue domestic expansion and foreign diplomacy with hardly a worry about the balance-of-payment consequences." No other nation has that luxury.
Post-WW II, Washington made other countries dependent on America, something it eschewed after WW I, staying isolationist instead to pursue internal development.
In the 1970s, emerging nations proposed a New International Economic Order (NIEO) through the UN Conference on Trade and Development to promote their own trade and other concerns. It "originated as a response to America's aggressive world economic diplomacy, and how US strategy has provided other nations with a learning curve that they may follow in pressing their own national and regional interests."
The more reckless and belligerent America becomes, the more incentive they have to try - and in greater alliance, with BRIC country partners, may have a greater chance for success.
Introduction
Post-WW II, on the pretext of national security, America pursued "world power....and economic advantage as perceived by American strategists quite apart from the profit motive of private investors."
After WW I, it achieved world creditor status from its "unprecedented terms (in extending) armaments and reconstruction loans to its wartime allies." In 1917, it entered the war late when it felt staying out would "entail at least an interim economic collapse (the result of) American bankers and exporters (getting) stuck with uncollectible loans to Britain and allies." So it joined the Triple Entente as an associate, not a full partner, to protect its $12 billion investment.
Post-war, America was the world's major creditor - but one "to foreign governments with which it felt little brotherhood" and no obligation to stabilize world finance and trade. Unlike its post-WW II policy, it didn't extend loans to foreign countries so they could finance their US-owed debt. Nor did it open its markets to foreign imports. It wanted Europe's empires dissolved, their military spending cut, their wealth "to flow out and their prices to fall" - the idea being in this way to re-establish world payments equilibrium, a very unrealistic notion, but many leading Europeans embraced it. It didn't work and made repayment of foreign debts impossible.
The "world economy emerged from World War I shackled with debts far beyond its ability to pay," except by "borrow(ing) funds from private lenders in the creditor nation to pay the creditor-nation government."
A more enlightened policy would have turned "other countries into (US) economic satellites." But America eschewed European imports, and US investors preferred its own outperforming stock market. On trade and finance, US policies "impelled European countries to withdraw from the world economy and turn within."
America's isolationism prevented it from collecting its foreign debts. "Its status as world creditor proved ultimately worthless as the world broke into nationalist units," and sought independence from foreign trade and payments.
