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Cold War strategy gave Congress an anti-communist reason to "bribe foreign governments" to fight the red menace as well as open their markets to US exporters. It got the Marshall Plan and other aid agreed on to "keep its fellow capitalist countries solvent" and not tempted to turn left. The possibility continued foreign aid for several decades.
At the same time, America's balance-of-payments reached never before attained levels and needed rebalancing "to promote foreign export markets and world currency stability." To buy US products and services, other countries needed resources to pay for them, something only Washington could arrange at a time when they weren't creditworthy.
However, what worked early on became destabilizing as America began "sink(ing) into the mire that had bankrupted every European power that experimented with colonialism." Unlike foreign investors that cut their losses when necessary, national security interests (and industries profiting from them) trump other considerations even when counterproductive. Once begun, military spending takes on a life of its own - something very apparent given its current out-of-control level and growing.
New Characteristics of America's Financial Imperialism
A growing US balance-of-payments surplus was "incompatible with continued growth in world liquidity and trade." So America had to buy more foreign products, services and capital assets than it supplied to foreign buyers. At the same time, it shifted more dollars abroad through a payments deficit, easily handled in the 1950s and 1960s as long as Washington could redeem them with gold. But that game had a limited life span as "Attempts by governments to repay their debts beyond a point extinguish(es) their monetary base."
...."international money (is also) a debt of the key-currency nation." Providing other countries with assets involves going into debt, and repaying it "extinguish(es) an international monetary asset."
By the early 1960s, America approached "the point at which its debts to foreign central banks soon would exceed the value of the Treasury's gold stock." It happened in 1964 the result of Vietnam War spending at an early stage in the conflict. Just as two world wars bankrupted Europe, Vietnam threatened the same fate for America, but it didn't curtail spending and still doesn't.
Earlier, the result was a run on gold with foreign central banks "cash(ing) in their dollar surpluses for American gold almost on a monthly basis." By March 1968, the US Treasury suspended its sales, and informally world central banks agreed to stop converting dollars into the metal. The result - the dollar gold price link was broken, and in August 1971, Nixon closed its window with an official embargo.
Henceforth, in place of gold, the US Treasury-bill (dollar-debt) standard began. No longer able to buy US gold, substituting Treasuries became the only option and "to a much lesser extent, US corporate stocks and bonds."
From then to now, foreign central banks have recycled their dollars to the US government. "Running a dollar surplus in their balance of payments became synonymous with lending (it) to the US Treasury." For its part, America borrows from other central banks and runs trade deficits. The larger they get, the greater the amount available to be loaned back, so today the volume is enormous.
For both sides, the problem is that Washington's guns and butter economy (including trillions to Wall Street) creates greater deficits and inflated spending. America's dominance is maintained, and foreign economies are obliged to finance it. Failure to support the dollar will inflate their own currencies, give US exporters a competitive edge, and ultimately let the world monetary system break down.
The "unique ability of the US Government to borrow from foreign central banks rather than from its own citizens (through taxes) is one of the economic miracles of modern times. Without it, the war-induced American prosperity of the 1960s and early 1970s would have ended quickly...."
How America's Payment Deficit Became a Source of Strength, not Weakness
It let America achieve what no earlier empires did - "a flexible form of global exploitation that controlled debtor countries by imposing Washington Consensus (diktats)." It's used the IMF, World Bank and other international lending agencies for its purposes, while the Treasury-bill standard "obliged the payments-surplus nations of Europe and East Asia to extend forced loans to the US Government." If they don't, world economies face monetary crisis.
Implications for the Theory of Imperialism
Hudson calls it a "new form of imperialism" under which America exploits other nations "via the central banks (and international lending agencies) rather than via the activities of private corporations seeking profits."
