Nations have reached their limit in subsidizing the United States’ military adventures. During meetings in June 2009 in Yekaterinburg, Russia, world leaders such as China’s President Hu Jintao, Russia’s President Dmitry Medvedev, and other top officials of the six-nation Shanghai Cooperation Organisation took the first formal step to replace the dollar as the world’s reserve currency. The United States was denied admission to the meetings. If the world leaders succeed, the dollar will dramatically plummet in value; the cost of imports, including oil, will skyrocket; and interest rates will climb.
Foreigners see the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) as Washington surrogates in a financial system backed by US military bases and aircraft carriers encircling the globe. But this military domination is a vestige of an American empire no longer able to rule by economic strength. US military power is muscle-bound, based more on atomic weaponry and long-distance air strikes than on ground operations, which have become too politically unpopular to mount on any large scale.
As Chris Hedges wrote in June 2009, “The architects of this new global exchange realize that if they break the dollar they also break America’s military domination. US military spending cannot be sustained without this cycle of heavy borrowing. The official US defense budget for fiscal year 2008 was $623 billion. The next closest national military budget was China’s, at $65 billion, according to the Central Intelligence Agency.”
To fund the permanent war economy, the US has been flooding the world with dollars. The foreign recipients turn the dollars over to their central banks for local currency. The central banks then have a problem. If a central bank does not spend the money in the United States, then the exchange rate against the dollar increases, penalizing exporters. This has allowed the US to print money without restraint, to buy imports and foreign companies, to fund military expansion, and to ensure that foreign nations like China continue to buy American treasury bonds.
In July 2009, President Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a “united future world currency.” The coin, which bears the words “Unity in Diversity,” was minted in Belgium and presented to the heads of G8 delegations.
In September 2009, the United Nations Conference on Trade and Development proposed creating a new artificial currency that would replace the dollar as reserve currency. The UN wants to redesign the Bretton Woods system of international exchange. Formation of this currency would be the largest monetary overhaul since World War II. China is involved in deals with Brazil and Malaysia to denominate their trade in China’s yuan, while Russia promises to begin trading in the ruble and local currencies.
Additionally, nine Latin American countries have agreed on the creation of a regional currency, the sucre, aimed at scaling back the use of the US dollar. The countries, members of the Bolivarian Alliance for the Americas (ALBA), a leftist bloc conceived by Venezuela’s President Hugo Chávez, met in Bolivia where they vowed to press ahead with a new currency for intraregional trade. The sucre would be rolled out beginning in 2010 in a nonpaper form. ALBA’s member states are Venezuela, Bolivia, Cuba, Ecuador, Nicaragua, Dominica, Saint Vincent and the Grenadines, and Antigua and Barbuda.
The cycle supporting a permanent US war economy appears to be almost over. Once the dollar cannot flood central banks and no one buys US treasury bonds, the American global military empire collapses. The impact on daily living for the US population could be severe.
Our authors predict that in addition to increased costs, states and cities will see their pension funds drained. The government will be forced to sell off infrastructure, including roads and transport, to private corporations. People will be increasingly charged for privatized utilities that were once regulated and subsidized. Commercial and private real estate will be worth less than half its current value. The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses. There will be block after block of empty stores and boarded-up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless.
Update by Michael Hudson
Foreign countries are presently seeking to create an international monetary system in which central bank savings do not fund the United States’ military deficit. At present, foreign “dollar holdings” take the form of US treasury bonds, used to finance the (largely military) US domestic budget deficit, a deficit that is largely due to military spending.
Russia, China, India, and Brazil have taken the lead in seeking an alternative system. But almost no information about such a system was available in the US or even the European press, except for a shorter version of my “De-Dollarization” article that I published as an op-ed in the Financial Times of London.
Discussions about creating an alternative monetary system have not been public. I was invited to China to discuss my views with officials there and to lecture at three universities, and was subsequently asked to write up my proposals for Premier Wen Jiabao, pending another visit just prior to this year’s meetings between China, Russia, India, and Brazil, with Iran attending with visitor status. All of this signals that other countries are seeking an alternative. Now that the euro has collapsed, there’s currently little alternative to the dollar as a reserve currency. This implies that there is no national currency that is a stable store of value for international savings.
Meanwhile, US money managers are leading the flight from the dollar to Brazil, China, and other “emerging market” countries. As matters stand, these countries are selling their resources and companies for free—as the dollars being spent to buy them end up in their central banks, to be recycled into US treasury bonds, or to be used to purchase euro debt that is plunging in international value.
The result of this conundrum is the pressure to end the postwar era of “free capital movements” and to introduce capital controls.
There has been almost no press discussion of my story or indeed of the issue itself. US and European media have successfully ignored the proposal of an alternative to the existing state of affairs.
Update by Fred Weir
This story illustrates one aspect of post–Soviet Russia’s search for a place in the US-led global order—a position that would reflect that country’s own distinct geopolitical interests and how it differs from the West in terms of history, culture, and level of economic development. Russia inherited from the former Soviet Union close relations with many countries that the US regards as “rogue states,” including Iran, Cuba, and Venezuela. There continues to be a lot of official, public sympathy for those countries and their opposition to the US global system, even though Moscow no longer has any grand sense of anti-Western ideology or even any practical goal of mobilizing toward an “alliance” that would serve Russia’s ends.
Under the George W. Bush administration, Moscow felt itself under pressure from what it viewed as Western encroachments into the post-Soviet space, what Russians term the “near abroad.” This took the form of “colored revolutions,” or what the Western media referred to as “pro-democracy uprisings” in Georgia, Ukraine, and Kyrgyzstan, which removed corrupt but Moscow-friendly regimes and brought to power much more outspoken and active pro-Western ones. The Kremlin, rightly or wrongly, interpreted these upheavals as US-sponsored and orchestrated attempts to reengineer the political loyalties of neighboring states with which Russia has deep historical ties. Two of those new leaders, Georgia’s Mikheil Saakashvili and Ukraine’s Viktor Yushchenko, sought to put their countries on a fast track to membership in the North Atlantic Treaty Organization (NATO), a prospect that Russia viewed with alarm bordering on panic. Another Bush-era initiative that engendered deep hostility in Moscow was a plan to station strategic antimissile interceptors in neighboring Poland, with associated radars in the Czech Republic. Russian military experts argued these deployments were the beginning of a strategic process that might eventually undermine Russia’s own aging, Soviet-era nuclear deterrent, which is the main priority of Russia’s national defense.
In response to these perceived threats, Russia seemed to sometimes go out of its way to cultivate relationships with other countries that were at odds with the US, which is the subject of this story. The Russians also held war games with the Venezuelan navy in the Caribbean, resumed cold war–era nuclear bomber patrols along the North American coast, and talked about revitalizing former Soviet air bases in Cuba.
In the past year, with substantially changed foreign policy priorities brought in by President Barack Obama, Moscow’s attitude has relaxed somewhat. Obama shelved the controversial plan to station antimissile weapons in Poland, and implicitly removed from the agenda any question of inducting Ukraine and Georgia into NATO. The so-called Obama “reset” of relations between Moscow and Washington seems to be improving prospects for cooperation, even on such thorny issues as Iran, though it may be too early to draw any firm conclusions.
Chris Hedges, “The American Empire Is Bankrupt,” Truthdig, June 15, 2009, http://www.truthdig.com/report/item/20090614_the_american_empire_is_bankrupt/.
Michael Hudson, “De-Dollarization: Dismantling America’s Financial-Military Empire: The Yekaterinburg Turning Point,” Global Research, June 13, 2009, http://www.globalresearch.ca/PrintArticle.php?articleId=13969.
Fred Weir, “Iran and Russia Nip at US Global Dominance” Christian Science Monitor, June 16, 2009, http://www.csmonitor.com/2009/0616/p06s12-woeu.html.
Lyubov Pronina, “Medvedev Shows Off Sample Coin of New ‘World Currency’ at G-8,” Bloomberg, July 10, 2009, http://www.bloomberg.com/apps/news?pid=20601087 &sid=aeFVNYQpByU4.
Edmund Conway, “UN Wants New Global Currency to Replace Dollar,” Telegraph (UK), September 7, 2009, http://www.telegraph.co.uk/finance/currency/6152204/UN-wants-new-global-currency-to-replace-dollar.html.
Jose Arturo Cardenas, “Latin American Leftists Tackle Dollar with New Currency,” Agence France-Presse, October 16, 2009, http://www.google.com/hostednews/afp/article/ ALeqM5jisHEg79Cz8uRtYfZR6WK4JmWsIg.