A primary cause of WW1 was competition between Europe's imperial powers for
markets to absorb the excess productive capacity of their industries, excess
at least at the prevailing wages and standards of living for the time. The
objective was the same for the competitive monetary devaluations, the
currency wars fought prior to WWII. A country could prevail in such wars by
simply making its currency and thus its products cheaper relative to those
of its competitors. Dr. Hudson argued this was exactly the outcome U.S.
creditors and competitors feared if the United States was made to fully
suffer the consequences of its profligacy. The political and economic
costs of challenging an international monetary system increasingly based
upon unpayable U.S. dollar-denominated debt were just too great.
At stake for everyone, world-wide, was a social order controlled by people
who already had more money than they could possibly spend or for whom
earning ever more money is just a way of 'keeping score'. The goal was not
the creation of real, needed wealth or even jobs for those who didn't have
money. It no longer functioned to promote the creation of needed wealth but
simply to preserve itself. The children of America's Robber Barons had
turned their wealth over to Wall Street and its bankers. Like the latter,
they were now fully committed to a form of capitalism where money was earned
by creating more debt - not wealth. Add the 'debt bombs', the "financial
weapons of mass destruction" being created by financiers and bankers to the
exponentially growing claims of conservatively invested 'old money', money
growing at compounded rates of interest, and maintaining the confusion
between wealth and debt (i.e. money) becomes an impossibility in a finite
world.
But until 2008, instead of education and jobs for its children, affordable
healthcare, an economic infrastructure to support a sustainable level of
resource consumption or renewable sources of energy to power its economy,
the Western middle class had been led to believe its prosperity rests upon
finding foreign buyers for the increasing levels of debt being created by
bankers and governments. To the extent their circumstances permit, other
industrial democracies have been emulating the U.S., paying for both
prosperity and social peace with debt. It is this debt that is being used
to pay for the products once made by their own workers; products the
populations of Western nations will need to survive but soon will no longer
be capable of producing. Western labor is being replaced by workers who
can be paid with less than nothing, with debt.
In a culture where the people have been taught that life is governed by the
laws of finance, all that matters are activities which lead to the
accumulation of ever-more money. The creation of real, needed wealth
becomes a risky, time-consuming obstacle to the fastest possible
accumulation of money. Rather than challenge a status quo under which they
are told that anything good for Wall Street - anything that increases the
monetary value of their stock portfolios - is good for them as well, in a
money-obsessed culture they become increasingly willing to participate in
activities that are antithetical to their survival. They accept, for
example, the fallacy that 'war is good for the economy'. To be fair, they
do this at least in part out of necessity in a culture where access to some
form of money is a prerequisite for survival.
Super Imperialism
Reserve currency status is a landmark event in the transition of a nation
from wealth creation to debt creation. The value of reserve currency
privileges has been understood by US bankers for a long time. Listen to
Thomas Lamont describe the considerations that should guide the national
interest two years before the U.S. entry into WWI:
"A third factor, and that, too, is dependent on the duration of the war
[sic!] is as to whether we shall become lenders to the foreign nations on a
really large scale. ... If the war continues long enough ... then inevitably we
shall become a creditor instead of a debtor nation, and such a development,
sooner or later, would certainly tend to bring about the dollar, instead of
the pound sterling, as the international basis of exchange." - v
For various reasons, the receiving country will hold much of its reserve
currency in the form of debt backed by the government of the issuing
country. Much as a bank is supposed to exercise its privilege of creating
money as debt responsibly, a country with what Valà �ry Giscard d'Estaing,
then the French Minister of Finance, described as the "exorbitant privilege"
- vi of issuing a reserve currency is expected to exercise that privilege
responsibly as well. Since the end of WWII, however, the United States,
with a preeminent reserve currency status embodied in the 1944 Bretton Woods
International Monetary System, has failed to do so.
The flood of dollars U.S. investors and statesmen sent abroad to buy up and
police the globe overwhelmed the credibility of the U.S. government
commitment in the 1944 Bretton Woods agreement to redeem those dollars for
gold on demand. From 1971 forward, the U.S. dollar would be backed by
nothing but debt, by the promise of the U.S. government to pay. The United
States would launch its "Empire of Debt" (the title of a book by Will Bonner
and Addison Wiggin both of whom have solid credentials as financial
conservatives) - and begin its transformation from the world's factory to
its 'consumer of last resort'.
Foreign leaders have been aware of this situation for decades. They didn't
need to be familiar with Dr. Hudson's work. In the early 1970s Treasury
Secretary John Connally was reputed to have told world finance ministers the
dollar was "our currency but your problem" when they complained about the
deficits the United States was rolling up.
There are a number of theories about why the US dollar remains other
countries' problem to this day. They range from a fear of the less subtle
form of imperialism practiced by the former Soviet Union to the need for
access to energy supplies located in the world's most politically unstable
regions, access which only the United States could assure. Among the more
interesting theories is one advanced by William Engdahl. Engdahl in "A
Century of War" suggests that the US succeeded in substituting the Middle
East's oil as backing for the money as debt it was still creating when it
could no longer back that money with gold - by getting Saudi Arabia and
hence OPEC to require payment for their oil in US dollars and then
depositing the dollars they didn't spend in U.S. banks or government
securities.
Proponents of this theory point to the coincidence of U.S. military action
and contemplated action against former friends or at least cooperating
nations like Iraq, Libya and now Iran. In each case war or contemplated war
was preceded by the decision of the targeted country to effectively end
accepting US dollars as payment for their oil. Iran formally announced its
decision to do so in 2008. But it left a loophole allowing countries like
China with huge US dollar reserves to use those dollars in payment for
Iranian oil. It closed that loophole in response to toughened US sanctions
President Obama signed into law December 31, 2011.
Conclusion
We have allowed financiers, bankers and their political friends to define
'wealth' for us by ceding to them the power to create money as debt and
control its distribution. For more than a century, the United States has
been buttressing a world social order based upon money created as debt.
This is a 'system' that has worked well for the Old Money accumulated from
the labor of previous generations of Americans and the despoliation of a
continent. Globalization was never about comparative national advantage.
It was about the privilege of creating money as debt and using that money to
buy up and control the world.
It is also a system that has worked well for U.S. politicians and their
friends around the world. It has allowed them to dispense wealth and favors
to their constituents, and to preserve a political status quo in the United
States - what former President Eisenhower called the "Congressional military
industrial complex" and what since 1971 has become the 'financial petro
Congressional military industrial complex' - that emerged from a
half-century of global war. It is a system whose bankruptcy - on its own
terms - has been apparent but tolerated by the entire world since 1971. But
it is a system the world can no longer afford.
The world's economy has become dangerously distorted and unbalanced by
bankers', financiers' and war peddlers' efforts to mask the international
monetary system's realities and preserve their privileges. About the only
people who don't know what is going on are 'the people' - in the United
States and around the world. According to an article published in 2007 by
General Leonid Ivashov, whose credentials include Joint chief of staff of the
Russian armies:
markets to absorb the excess productive capacity of their industries, excess
at least at the prevailing wages and standards of living for the time. The
objective was the same for the competitive monetary devaluations, the
currency wars fought prior to WWII. A country could prevail in such wars by
simply making its currency and thus its products cheaper relative to those
of its competitors. Dr. Hudson argued this was exactly the outcome U.S.
creditors and competitors feared if the United States was made to fully
suffer the consequences of its profligacy. The political and economic
costs of challenging an international monetary system increasingly based
upon unpayable U.S. dollar-denominated debt were just too great.
At stake for everyone, world-wide, was a social order controlled by people
who already had more money than they could possibly spend or for whom
earning ever more money is just a way of 'keeping score'. The goal was not
the creation of real, needed wealth or even jobs for those who didn't have
money. It no longer functioned to promote the creation of needed wealth but
simply to preserve itself. The children of America's Robber Barons had
turned their wealth over to Wall Street and its bankers. Like the latter,
they were now fully committed to a form of capitalism where money was earned
by creating more debt - not wealth. Add the 'debt bombs', the "financial
weapons of mass destruction" being created by financiers and bankers to the
exponentially growing claims of conservatively invested 'old money', money
growing at compounded rates of interest, and maintaining the confusion
between wealth and debt (i.e. money) becomes an impossibility in a finite
world.
But until 2008, instead of education and jobs for its children, affordable
healthcare, an economic infrastructure to support a sustainable level of
resource consumption or renewable sources of energy to power its economy,
the Western middle class had been led to believe its prosperity rests upon
finding foreign buyers for the increasing levels of debt being created by
bankers and governments. To the extent their circumstances permit, other
industrial democracies have been emulating the U.S., paying for both
prosperity and social peace with debt. It is this debt that is being used
to pay for the products once made by their own workers; products the
populations of Western nations will need to survive but soon will no longer
be capable of producing. Western labor is being replaced by workers who
can be paid with less than nothing, with debt.
In a culture where the people have been taught that life is governed by the
laws of finance, all that matters are activities which lead to the
accumulation of ever-more money. The creation of real, needed wealth
becomes a risky, time-consuming obstacle to the fastest possible
accumulation of money. Rather than challenge a status quo under which they
are told that anything good for Wall Street - anything that increases the
monetary value of their stock portfolios - is good for them as well, in a
money-obsessed culture they become increasingly willing to participate in
activities that are antithetical to their survival. They accept, for
example, the fallacy that 'war is good for the economy'. To be fair, they
do this at least in part out of necessity in a culture where access to some
form of money is a prerequisite for survival.
Reserve currency status is a landmark event in the transition of a nation
from wealth creation to debt creation. The value of reserve currency
privileges has been understood by US bankers for a long time. Listen to
Thomas Lamont describe the considerations that should guide the national
interest two years before the U.S. entry into WWI:
"A third factor, and that, too, is dependent on the duration of the war
[sic!] is as to whether we shall become lenders to the foreign nations on a
really large scale. ... If the war continues long enough ... then inevitably we
shall become a creditor instead of a debtor nation, and such a development,
sooner or later, would certainly tend to bring about the dollar, instead of
the pound sterling, as the international basis of exchange." - v
For various reasons, the receiving country will hold much of its reserve
currency in the form of debt backed by the government of the issuing
country. Much as a bank is supposed to exercise its privilege of creating
money as debt responsibly, a country with what Valà �ry Giscard d'Estaing,
then the French Minister of Finance, described as the "exorbitant privilege"
- vi of issuing a reserve currency is expected to exercise that privilege
responsibly as well. Since the end of WWII, however, the United States,
with a preeminent reserve currency status embodied in the 1944 Bretton Woods
International Monetary System, has failed to do so.
The flood of dollars U.S. investors and statesmen sent abroad to buy up and
police the globe overwhelmed the credibility of the U.S. government
commitment in the 1944 Bretton Woods agreement to redeem those dollars for
gold on demand. From 1971 forward, the U.S. dollar would be backed by
nothing but debt, by the promise of the U.S. government to pay. The United
States would launch its "Empire of Debt" (the title of a book by Will Bonner
and Addison Wiggin both of whom have solid credentials as financial
conservatives) - and begin its transformation from the world's factory to
its 'consumer of last resort'.
Foreign leaders have been aware of this situation for decades. They didn't
need to be familiar with Dr. Hudson's work. In the early 1970s Treasury
Secretary John Connally was reputed to have told world finance ministers the
dollar was "our currency but your problem" when they complained about the
deficits the United States was rolling up.
There are a number of theories about why the US dollar remains other
countries' problem to this day. They range from a fear of the less subtle
form of imperialism practiced by the former Soviet Union to the need for
access to energy supplies located in the world's most politically unstable
regions, access which only the United States could assure. Among the more
interesting theories is one advanced by William Engdahl. Engdahl in "A
Century of War" suggests that the US succeeded in substituting the Middle
East's oil as backing for the money as debt it was still creating when it
could no longer back that money with gold - by getting Saudi Arabia and
hence OPEC to require payment for their oil in US dollars and then
depositing the dollars they didn't spend in U.S. banks or government
securities.
Proponents of this theory point to the coincidence of U.S. military action
and contemplated action against former friends or at least cooperating
nations like Iraq, Libya and now Iran. In each case war or contemplated war
was preceded by the decision of the targeted country to effectively end
accepting US dollars as payment for their oil. Iran formally announced its
decision to do so in 2008. But it left a loophole allowing countries like
China with huge US dollar reserves to use those dollars in payment for
Iranian oil. It closed that loophole in response to toughened US sanctions
President Obama signed into law December 31, 2011.
Conclusion
We have allowed financiers, bankers and their political friends to define
'wealth' for us by ceding to them the power to create money as debt and
control its distribution. For more than a century, the United States has
been buttressing a world social order based upon money created as debt.
This is a 'system' that has worked well for the Old Money accumulated from
the labor of previous generations of Americans and the despoliation of a
continent. Globalization was never about comparative national advantage.
It was about the privilege of creating money as debt and using that money to
buy up and control the world.
It is also a system that has worked well for U.S. politicians and their
friends around the world. It has allowed them to dispense wealth and favors
to their constituents, and to preserve a political status quo in the United
States - what former President Eisenhower called the "Congressional military
industrial complex" and what since 1971 has become the 'financial petro
Congressional military industrial complex' - that emerged from a
half-century of global war. It is a system whose bankruptcy - on its own
terms - has been apparent but tolerated by the entire world since 1971. But
it is a system the world can no longer afford.
The world's economy has become dangerously distorted and unbalanced by
bankers', financiers' and war peddlers' efforts to mask the international
monetary system's realities and preserve their privileges. About the only
people who don't know what is going on are 'the people' - in the United
States and around the world. According to an article published in 2007 by
General Leonid Ivashov, whose credentials include Joint chief of staff of the
Russian armies:
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
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