Shownotes
In this episode we discuss:
My summary of the ideas in Michael Hudson's book "Super Imperialism".
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Transcripts
We need to talk about ideas.
Speaker:Good ones and bad ones.
Speaker:We need to learn stuff about the world.
Speaker:We need an honest, intelligent, thought provoking, and entertaining
Speaker:review of what the hell happened on this planet in the last seven days.
Speaker:We need to sit back and listen to the Iron Fist and the Velvet Glove.
Speaker:I do listen now.
Speaker:In this episode, I'm going to attempt to explain money, and how it works, and how
Speaker:it is washing around the world, and how that's causing enormous Advantages for
Speaker:some and disadvantages for others, and we'll try and understand it a bit better.
Speaker:And, uh, so the first thing I want to talk to you about is just
Speaker:how much money relies on faith.
Speaker:And, and it's that faith that, that keeps it going in many respects.
Speaker:And without that faith, the whole system could collapse.
Speaker:I've often said to people that if I was the Prime Minister of Australia,
Speaker:I would say to people as part of my, my policy or my speeches that I would
Speaker:never lie to them about anything.
Speaker:Except about matters relating to our currency because some
Speaker:lying might be necessary to maintain the faith at some stage.
Speaker:So, um, what you could do after this episode is have a look at a podcast
Speaker:that was done by This American Life called The Invention of Money.
Speaker:Just Google that and you'll find it.
Speaker:And they tell three stories in that podcast and this is one of the
Speaker:podcasts that really had a major effect on my thinking about money.
Speaker:And, uh, really good podcast, so they talked about three different, um,
Speaker:stories in relation to money, and some of you have heard this before,
Speaker:so sorry to repeat myself, but it's worth thinking about in terms of,
Speaker:uh, the overall concept of faith.
Speaker:So the first story was in relation to, um, the island of Yap, and, uh, on
Speaker:the island of Yap, they had a currency which was In the form of these giant
Speaker:limestone circles and, uh, that were carved out and were located around the
Speaker:island at different points and they were in different sizes and the bigger
Speaker:ones were more valuable than the smaller ones but many of them were far too big
Speaker:to actually move and those, um, carved out circular limestone structures were
Speaker:used as currency on the island so, um, a big one, for example, might be used.
Speaker:If a warrior had, uh, died in a battle and they wanted to recover
Speaker:the warrior's body, then a tribe might, uh, transfer to another
Speaker:tribe a particular limestone circle.
Speaker:And the strange thing is that that limestone circle might not actually
Speaker:physically transfer in possession.
Speaker:Like, it would be situated on a certain hill, and by
Speaker:agreement they would say, Okay.
Speaker:It no longer belongs to Tribe A, it belongs to Tribe B, and in return, they're
Speaker:going to return the body of a warrior.
Speaker:Or there might be other things that, uh, of major importance, where they
Speaker:wanted to trade between tribes or resolve conflicts, and they would
Speaker:do so by transferring ownership of, These limestone circles and, um, one
Speaker:story was of how, uh, the limestone is actually not found on the island of Yap.
Speaker:The workers have to travel to a different island in order to carve out these.
Speaker:Stones and then bring them back.
Speaker:And on one occasion they were bringing one back and they got
Speaker:close to shore and a storm had come up, caused the boat to sink.
Speaker:And of course the limestone, um, circle sunk to the bottom of the ocean.
Speaker:But they were close enough to the island of Yap that the, uh, that the guys who who
Speaker:constructed it were able to swim ashore.
Speaker:And they said, you know, well we made it, but it's, it's over
Speaker:there in the bottom of the ocean.
Speaker:And, uh, the people said, no problem.
Speaker:Uh, we believe you, we know that you did it, and we know that it's sitting
Speaker:there, and we can still use it.
Speaker:And, and in trading between tribes, uh, one of the limestone circles that
Speaker:was traded was the one that lies under the ocean, over that way, um, and,
Speaker:and they would trade it as per normal.
Speaker:Now, we may think to ourselves, gosh, what a primitive, stupid system, um,
Speaker:those dumb hillbillies came up with there.
Speaker:And, Um, the purpose of the next two, sort of, stories, which really are
Speaker:from western civilization, end up showing that what the apps were doing,
Speaker:maybe, was probably a better system than what we've developed ourselves.
Speaker:So, the, uh, the second one was in relation to Brazil, where they were
Speaker:experiencing hyperinflation and no matter what they did, they could
Speaker:not get Inflation under control.
Speaker:And some economists were called in and sure they made some changes in terms
Speaker:of, of government spending and whatnot.
Speaker:But what they really had to do was restore faith in the currency and um,
Speaker:you know, rampant in hyperinflation.
Speaker:You know, people would go to a shop to buy bread and milk and whatever, and.
Speaker:In the shop, there would be people adjusting the prices feverishly
Speaker:in the shop, increasing them.
Speaker:So you sort of raced ahead of the person with the machine, uh, trying
Speaker:to buy something at the slightly lower price before they got to it.
Speaker:So, um, so anyway, what they did to try and regain faith was they created a fake,
Speaker:uh, sort of currency called a, a URV.
Speaker:And they said, uh, one bottle of milk, for example, is worth one URV.
Speaker:So when you looked in the sh in the, uh, in the shop, um, the, uh, the
Speaker:price tag on the bottle of milk was one URV, and that wouldn't change.
Speaker:The next day it was one URV and the day after that it was one URV.
Speaker:Each day, the, um, government would, would publish what one URV was in
Speaker:terms of, of the actual currency.
Speaker:And they would say, well today, One URV is worth 200 pesos or whatever it was.
Speaker:And then the next day it's 220 pesos, and the next day it's 240 pesos.
Speaker:So people were still having to come up with more pesos every
Speaker:day to pay for their milk.
Speaker:Um, but the actual price tag on the shelf of the item was one URV
Speaker:or two URV, which remain constant.
Speaker:And the important part of that is that people began to have faith in
Speaker:the URV as a constant stable thing.
Speaker:You know, they go to the shop and the milk was always one URV.
Speaker:And so, uh, it was the peso that had become, I, I forget actually the name
Speaker:of the currency, but whatever it was, it was, it was that, that had kept moving.
Speaker:But the URV stayed the same.
Speaker:And then one day what they said to people was, um.
Speaker:Okay, um, uh, we're gonna have Cruceros and, um, uh, sorry, it was Cruceros that
Speaker:were the currency that would change.
Speaker:And uh, and one day they said, okay, we're gonna get rid of Cruceros and we're gonna
Speaker:have the Rial, and the Rial is one URV.
Speaker:And people had got, um, so used to the concept of the URV being stable.
Speaker:That they then accepted that the real was stable being a 1 URV and It was
Speaker:essentially this mind trick that actually Stopped the hyperinflation in Brazil
Speaker:together with a few other things But but this ability to get people to have faith
Speaker:in the currency again is what made it work so the third example from the podcast
Speaker:was Just talking about, uh, quantitative easing, and in America with the Federal
Speaker:Reserve, um, in the financial crisis, printing money, and not even printing
Speaker:money, but, but actually just somebody in a computer, in a fairly nondescript
Speaker:office, just sitting down at a computer and typing in, you know, a trillion as a
Speaker:figure, And then, electronically, shifting that money to the major banks in the USA.
Speaker:And, you know, a trillion dollars just invented out of nowhere by
Speaker:just a guy sitting at a table.
Speaker:And, um, you know, sort of the three stories just go to show how
Speaker:much money relies on our faith and our acceptance of, of the system.
Speaker:And while we believe in it, it will keep going, but, uh, I'm worried that
Speaker:down the track we may not believe in it, so that's the purpose of this
Speaker:podcast, um, and what I'm going to be doing here is looking at a book which
Speaker:is called, uh, Superimperialism, The Economic Strategy of the American Empire.
Speaker:This is by Michael Hudson and it's his third edition, 2021.
Speaker:He wrote the original edition.
Speaker:First edition, I think nearly 30 years ago, recently updated and, um, some
Speaker:of you may remember I did an interview with Stephen Hale over modern monetary
Speaker:theory and that was back, um, gee, probably a year or longer ago now and
Speaker:we talked about modern monetary theory, but as an aside in that conversation,
Speaker:I, I said to him, You know, the U.
Speaker:S.
Speaker:dollar seems to get an advantage as the world's default currency.
Speaker:You know, is, do you see that as a significant, as a problem,
Speaker:or was it going to change?
Speaker:And, um, he was kind of no to all of those, uh, questions.
Speaker:That, uh, he said, you know, the British, um, pound sterling was,
Speaker:was in, uh, was the default currency for a long time, effectively after
Speaker:Britain had ceased being a superpower.
Speaker:It's sort of hard to shake.
Speaker:A default currency and they last longer than they should and at this point he
Speaker:couldn't see any reason why the US as a default currency would, would change.
Speaker:So, um, so I've just sort of, uh, you know, I guess let's be honest, I'm
Speaker:on a bit of a anti-US a bent at the moment, aren't I, in the last, you know,
Speaker:year two, three and um, and anyway, this has attracted my attention so.
Speaker:So, I'm just going to give you the shorthand story of what the
Speaker:book says, and then I'm going to go into the detail of it.
Speaker:Hopefully I can rattle off the shorthand story in five minutes, um, and it goes
Speaker:something like this, that, um, prior to World War I, obviously America was
Speaker:an emerging superpower, um, World War I, um, the traditional superpowers,
Speaker:UK, France, Germany, of course.
Speaker:Uh, knocked themselves silly, um, with, um, uh, the World War and financially, you
Speaker:know, crippled themselves, spent money on munitions and, and bombing their resources
Speaker:and just the destructive capacity of that on their economies, of course, is obvious.
Speaker:Um, really, according to Michael Hudson, uh, the U.
Speaker:S.
Speaker:only really entered the war when it saw that, uh, its potential markets
Speaker:were going to be in economic ruin and recognized it had to do something
Speaker:about it, and in any event, entered the war, um, um, with the, uh, as an
Speaker:associate rather than as a full ally.
Speaker:And, in doing that, said, well we're going to be providing all of this, um,
Speaker:armaments and loans and all the rest of it, and we expect all of that to
Speaker:be repaid in full, because we're not claiming land as part of this, we're
Speaker:not in this as a traditional, um, party to a war, we're not looking to acquire
Speaker:land as a result, um, we're only in this because we have to be, and therefore,
Speaker:You're going to have to stump up, uh, and repay us when this is all finished.
Speaker:And, according to Michael Hudson, that was quite contrary to what normally
Speaker:happens when allies get together in wars.
Speaker:The, uh, their co contributions are normally all forgiven in the
Speaker:wash, provided there's a victory.
Speaker:So, what that left, um, was that, uh, the UK, France, uh, other European
Speaker:allies and Germany, uh, Um, ended up with a massive debt to the U.
Speaker:S.
Speaker:and, uh, the U.
Speaker:S.
Speaker:A.
Speaker:really should have forgiven those loans.
Speaker:We'll get into the detail of that.
Speaker:A bit like any commercial lender these days, if you've lent too much to a, um,
Speaker:a borrower, um, it becomes your problem.
Speaker:As much as the borrowers, and it's sometimes in your own self interest, um,
Speaker:to allow people to wipe the slate clean and start again, and, and this is what,
Speaker:uh, the problem was for, um, Western economies, was that they had this debt
Speaker:that they owed the USA, and the USA had trade barriers, so people were not able
Speaker:to produce, uh, items That could earn U.
Speaker:S.
Speaker:dollars that would then enable them to pay off the U.
Speaker:S.
Speaker:debt.
Speaker:I mean, they were already crippled by their wartime experience,
Speaker:but, um, add to that the sort of trade barriers that the U.
Speaker:S.
Speaker:had put up and, um, sort of very much protectionist policies meant
Speaker:that the Allies could not, uh, sell, um, easily into the U.
Speaker:S.
Speaker:and And acquire U.
Speaker:S.
Speaker:dollars to pay off the U.
Speaker:S.
Speaker:dollar loans.
Speaker:So, uh, that became a major reason for the Depression, which became a
Speaker:major reason for the, uh, Germany deciding to have another crack at it,
Speaker:and we ended up with World War II.
Speaker:Uh, so, after World War II, you might remember again, the U.
Speaker:S.
Speaker:were late to the party, but, uh In any event, um, the US sort of
Speaker:learnt, um, from the First World War, um, that they couldn't do
Speaker:that again in exactly the same way.
Speaker:So, what they ended up doing was creating the International Monetary
Speaker:Fund, the IMF and the World Bank, and basically said to, um, the Allies,
Speaker:um, You now have to allow us, um, full access to all of your markets.
Speaker:So you, Great Britain, with all of these British colonies that were
Speaker:previously, um, pound sterling colonies, that's, um, that's all open now to
Speaker:American, um, access economically.
Speaker:So, The USA was in an extremely dominant position compared to the other war torn
Speaker:countries and at that point in history, it was very much in their, um, interest
Speaker:to declare that, uh, the world open up and, and, you know, call it, well,
Speaker:we want everyone to have free access to all markets, but it was the USA
Speaker:that was really the ones in a position to take advantage of that overseas.
Speaker:And they still had tariffs on their own stuff, and still, through the IMF and the
Speaker:World Bank, would not allow loans that would allow, uh, uh, sort of third world
Speaker:countries to create, um, businesses, um, products that would compete with America.
Speaker:So, um, so essentially, uh, America, very dominant economically.
Speaker:It forced the other countries to open up all markets so that America could enter
Speaker:and, and essentially American businesses did and America at that point acquired
Speaker:almost, uh, three quarters of all the gold in the world and, uh, the gold at that
Speaker:point was sort of pegged to currencies so when people, um You know, a pound sterling
Speaker:was worth a certain amount in gold, the US dollar was worth a certain amount in gold.
Speaker:If you had that currency, you could demand this amount of
Speaker:gold in return for the currency.
Speaker:So, that's how, um, you know, currencies were operating post World War II.
Speaker:Now, um, uh, as I said, America had three quarters of the world gold,
Speaker:extremely strong, uh, economically as a world power, while the others were
Speaker:trying to get back on their feet.
Speaker:What happened then, of course, was that the U.
Speaker:S.
Speaker:decided to enter into wars in Korea and Vietnam.
Speaker:And essentially, those wars were a spending spree that got
Speaker:the USA into a lot of trouble.
Speaker:So where it had been, uh, you know, a surplus country, it was, it was selling
Speaker:more stuff and earning foreign currency.
Speaker:Um, it flipped over.
Speaker:They were spending so much on military stuff.
Speaker:That was basically responsible for the deficit that the U.
Speaker:S.
Speaker:created, and the gold started leaving, uh, incredibly quickly and it then
Speaker:reached the point where the U.
Speaker:S.
Speaker:could not, it didn't have enough gold to say, well, one U.
Speaker:S.
Speaker:dollar is worth X amount of gold and you can come and collect the gold in
Speaker:return for, uh, handing over the U.
Speaker:S.
Speaker:dollars because it was running out of gold and Nixon at that point said, and really
Speaker:in the lead up to that, in the lead up to that position, post World War II, America
Speaker:was so dominant that the US dollar was more or less taken as gold and it was the
Speaker:economy that was dominant in the world.
Speaker:Transactions were done in US dollars.
Speaker:It was accepted in a lot of faith.
Speaker:That a U.
Speaker:S.
Speaker:dollar was as good as gold.
Speaker:And, um, it developed that, that aura about it.
Speaker:So, when the U.
Speaker:S.
Speaker:started running out of gold, uh, it was then that Nixon decided to take the U.
Speaker:S.
Speaker:dollar off the gold, uh, as a, sort of, de link it, if you like,
Speaker:and say, no, it's, it's just a U.
Speaker:S.
Speaker:dollar now, it doesn't get you.
Speaker:An equivalent, uh, piece of gold in return.
Speaker:And really, at that point, the world had a choice.
Speaker:Where it really could have said, Hang on a minute, what do you
Speaker:mean it's not worth gold anymore?
Speaker:And why should we have this faith in this basic paper that you're producing?
Speaker:Um But the world didn't, and America then, uh, was able to generate US
Speaker:dollars without having to have an equivalent backup stock of gold.
Speaker:Um, and the world continued.
Speaker:So, of course, America didn't stop its military spending.
Speaker:So, America were still engaged in, in spending more than it was earning.
Speaker:And this, of course, caused outflows of American dollars into
Speaker:the hands of other countries.
Speaker:And the way it works in economics, and I'm still trying to get my head around
Speaker:this, but take this one on faith, is that, um, The other countries have
Speaker:to protect their currency in that they don't want it to be overvalued.
Speaker:So, um, you know, in terms of being competitive in an export
Speaker:market, you really don't want to overvalue your own currency.
Speaker:You want it to be undervalued so that it's easier to sell stuff.
Speaker:And, uh, what countries have found is that They can't hang on to these U.
Speaker:S.
Speaker:dollars, um, because it causes a problem with the valuation of their own currency.
Speaker:So, what they do is they end up, um, having to basically hand the U.
Speaker:S.
Speaker:dollars back to the U.
Speaker:S.
Speaker:government and get a bond in return.
Speaker:So, they hand over a billion dollars, or let's, you know A
Speaker:million dollars, uh, to the U.
Speaker:S.
Speaker:government who says thank you very much for returning our million dollars and
Speaker:we promise in ten years time we'll give you, uh, that million dollars back plus,
Speaker:uh, three percent or something like that.
Speaker:So, so essentially these countries were earning U.
Speaker:S.
Speaker:dollars but they had to put them somewhere and the only place to put them was In U.
Speaker:S.
Speaker:Treasury bonds.
Speaker:So, the dollars went out of America, uh, because America was
Speaker:buying military equipment, etc.
Speaker:The countries were receiving it and going, we can't hang on to this, it's
Speaker:not good for our currency, we have to get rid of these American dollars,
Speaker:let's send them back to America.
Speaker:And they ended up there in U.
Speaker:S.
Speaker:Treasury bonds.
Speaker:Which then, the U.
Speaker:S.
Speaker:government could then Uh, lend out money to its own multinational companies.
Speaker:So, it had cheap money.
Speaker:I mean, it's just printing it itself, and it's lending it out,
Speaker:uh, you know, two or three percent.
Speaker:So, essentially, um, the U.
Speaker:S.
Speaker:was able to, to lend money then to its own multinational
Speaker:companies, let's say three percent.
Speaker:And those companies could then go out into the world and buy German
Speaker:manufacturing companies, industrial companies, all sorts of companies
Speaker:around the world and um, with cheap U.
Speaker:S.
Speaker:dollars where they only had to pay 2 or 3 percent and they would then be
Speaker:buying businesses that were earning 15 percent, like it's a no brainer.
Speaker:And so, um, uh, you know, normally, um, countries would pay a price for printing
Speaker:too much money, but that's not what happened to the USA, because it had been
Speaker:this default currency, because of the faith that surrounded the US currency,
Speaker:and still does, and, you know, if a banana republic did half of what the US
Speaker:was doing in terms of printing money.
Speaker:You'd be experiencing some incredible hyperinflation, but as a default currency
Speaker:and with the other countries having to Recycle the US dollars back to US
Speaker:Treasury We end up with this amazing situation where the US Essentially goes
Speaker:around buying stuff on the planet with its own currency that it can Produce
Speaker:at will and people are accepting it now What, of course, uh, is happening in
Speaker:recent times, um, and you see, you know, this is where, uh, just briefly, you
Speaker:know, other countries like Argentina, for example, uh, got into trouble
Speaker:where they had loans from the IMF that they had to repay, but they're in U.
Speaker:S.
Speaker:currency, not their own currency.
Speaker:So as a country, if you're going to owe a debt, you want to owe it in your
Speaker:own currency that you can print, and As I mentioned in the, um, episode
Speaker:with Stephen Hale, you know, the problem of the European, the Euro,
Speaker:is that you've got countries now that don't control their currency.
Speaker:So someone like Greece, if it had its own currency, could have, could have
Speaker:printed its own currency, so, allowed a, a devaluation to take place, which
Speaker:would have allowed it to export.
Speaker:And gradually get itself back onto its feet, but it's, you know, using the euro.
Speaker:Controlled by Brussels.
Speaker:Controlled by German banks.
Speaker:Had no say over that.
Speaker:So, it owed money in a currency that, uh, it couldn't control.
Speaker:So, it's an enormous advantage for the USA to be able to just generate at will
Speaker:the default currency that the world uses.
Speaker:Now, um, uh Let's look at China.
Speaker:So, China, of course, has, you know, been accumulating U.
Speaker:S.
Speaker:dollars, uh, over the past, uh, decades, and, and was, you know, buying U.
Speaker:S.
Speaker:Treasury bonds like everybody else, but, uh, China recognizes there's an
Speaker:issue here, uh, at any moment the U.
Speaker:S.
Speaker:could simply say, well, you're an evil empire and we're not, you know,
Speaker:the, the bonds to you are now just a Defunct and have gone, um, you
Speaker:know, China would love to use the U.
Speaker:S.
Speaker:dollars and buy U.
Speaker:S.
Speaker:companies in the same way that U.
Speaker:S.
Speaker:companies were able to buy German businesses, for example.
Speaker:But guess what?
Speaker:USA won't let China buy U.
Speaker:S.
Speaker:businesses like that.
Speaker:So, uh, so there, the, the, the other thing that's, uh,
Speaker:so what's China to do then?
Speaker:Uh, China has great difficulty also in just, sort of just buying
Speaker:businesses around the world.
Speaker:Nobody's going to let China buy, you know, Google or something like that.
Speaker:So what's it doing?
Speaker:It's using its US dollars in a Belt and Road project where it is, it is creating
Speaker:infrastructure projects that it can, you know, ports and other facilities that
Speaker:it can hopefully So it's, it's spending its US dollars around the world instead
Speaker:of cycling them back to the US Treasury.
Speaker:Smart move by China.
Speaker:That's what they should be doing.
Speaker:The other thing is that the USA says, well, any transaction that involves
Speaker:US dollars, even if it's a transaction between two other countries and
Speaker:doesn't involve us, is a transaction that we can, we can regulate.
Speaker:And so, um, uh, There's an incentive now for countries such as Russia,
Speaker:Iran, China, Venezuela, Cuba, um, places like that to avoid using the U.
Speaker:S.
Speaker:currency and, uh, because they don't want to be holding U.
Speaker:S.
Speaker:treasury bonds and, um, uh, And to de dollarise, and that's where those
Speaker:countries are heading, where they are now looking as much as possible to
Speaker:trade with each other in their own currencies, and totally avoiding the
Speaker:US currency, and again, that's a smart move, that's what they should be doing.
Speaker:So So, um So yeah, so that's where we're at in a nutshell, where according to
Speaker:the Michael Hudson argument, the USA has been getting a free lunch and has
Speaker:been benefiting by being this de facto world currency, but it's played its
Speaker:hand too hard and You know, as part of this it's, you know, it's confiscated
Speaker:Um, you know, Venezuelan gold and other things like that, which caused
Speaker:European countries to demand their physical gold be returned to them.
Speaker:And also, the other part that, uh, works in all of this is
Speaker:the IMF and the World Bank.
Speaker:So, uh, essentially, you know, these were created, uh, straight after the
Speaker:Second World War, with America in supreme control and basically with a
Speaker:veto power over whatever the IMF does.
Speaker:And They have basically set up the IMF and the World Bank as institutions
Speaker:of, you know, so called, sort of, opening up economies to free trade.
Speaker:And what they do, of course, is they impose on countries that need loans
Speaker:draconian neoliberal policies in return for the loans which are in US dollars.
Speaker:So, For a poor country, uh, like Argentina that gets into trouble, they would say,
Speaker:um, you're in trouble, here's a loan of US dollars, but before you get that loan,
Speaker:you're going to have to do some structural changes, you, um, you are going to have to
Speaker:stop a lot of the social security payments that you're making, you're going to have
Speaker:to, um, push down labour and wages, You're going to have to deregulate your economy
Speaker:to allow our foreign businesses to come in and you're going to, um, uh, allow
Speaker:foreign businesses to come in and, um, and you're going to sell off some of your
Speaker:key financial assets, so, um, if you've got, uh, you know, your water, electricity
Speaker:and other services Uh, telecoms owned by the government, you're going to have
Speaker:to sell them off and privatise them.
Speaker:And, well guess what, um, that's invariably bad for a country and,
Speaker:um, so in various ways things happen.
Speaker:For example, often these loans have been made to cruel dictators.
Speaker:And then when they get overthrown, the slightly leftish sort of replacement
Speaker:government comes in and is saddled with, with these debts that, uh, that the,
Speaker:uh, the military junta or whatever, um, might have agreed to beforehand.
Speaker:Um, so, the other part of it is that, is that these countries are never,
Speaker:you know, particularly let's, talking Latin America here, They're never
Speaker:given the opportunity to industrialise.
Speaker:They're told you're all about plantation crops or resources that can be
Speaker:extracted that America can't produce.
Speaker:But they're not given the opportunity to industrialise their economies.
Speaker:The loans are for things that You know, plantation based and the like,
Speaker:or just simple mining of resources.
Speaker:So nothing that would allow the country to, um, uh, industrialize.
Speaker:I mean, you need to protect these industries.
Speaker:If you want to start a car industry in Argentina or elsewhere, you need
Speaker:protection for, you know, a decade while that industry gets up and going.
Speaker:And, you know, the IMF just does not allow protection and in fact forces an opening.
Speaker:So these countries are, are, are locked into their primitive
Speaker:economies by these draconian loans.
Speaker:And I mean, people talk about China with the Belt and Road as being a
Speaker:deals that are going to cruelly, you know, these countries are going to
Speaker:pay for it in the end of the day.
Speaker:It can't be any worse than what the IMF and the World Bank have been doing to
Speaker:these countries on behalf of the West already, so And there's actual evidence
Speaker:that the Belt and Road Initiatives of the Chinese have actually been far better
Speaker:behaved than the IMF and the World Bank so So yeah, so we've got the IMF and
Speaker:the World Bank going around the world saying to these Uh, countries, you're
Speaker:in trouble, the only way you'll get a loan is if it is under these conditions.
Speaker:Which then invariably, um, make the country's leaders unpopular
Speaker:with the local, um, population.
Speaker:And you know, you end up with more turmoil and governments being
Speaker:overthrown and the rest of it.
Speaker:And uh, so, so this has been going on.
Speaker:Literally all over the planet and, uh, you know, even in Russia, I mean, when
Speaker:the oligarchs, you know, when Boris Yeltsin opened up, uh, the economy,
Speaker:I mean, the, uh, Russian stock market was the darling of the world there
Speaker:from 94, 95, with lots of American businesses rushing in and buying.
Speaker:Uh, Soviet infrastructure that has suddenly privatised.
Speaker:So, um, uh, the key to China's success is China said, No, we're not taking, uh,
Speaker:a loan from the IMF or the World Bank.
Speaker:We're not accepting those conditions.
Speaker:We are not letting American businesses come in here.
Speaker:And buy our stuff on the cheap.
Speaker:We are maintaining ownership of it, of the commons, by the government.
Speaker:And that is what's driving America nuts.
Speaker:It's not that China is running around the world promoting communism in
Speaker:cells in other countries, is it?
Speaker:Their gripe is that they're not allowed in, like they have been everywhere else.
Speaker:And any country that has tried, e.
Speaker:g.
Speaker:Venezuela, has been smashed with sanctions.
Speaker:China's too big.
Speaker:That's the problem.
Speaker:And as I explained in last week's episode, when we're looking at the Ukraine, um,
Speaker:what was happening there was the classic IMF ploy, where they wanted, um, the
Speaker:Ukrainian government to agree to These neoliberal policies, which, uh, which
Speaker:were going to be terrible for the local population, including, um, uh, increasing
Speaker:the cost of, um, sort of our power supply, I think it was, electricity, something
Speaker:like that, um, which had been subsidised.
Speaker:So, the government said, no, we're not going to accept it.
Speaker:And they looked around, and Russia had been pressuring
Speaker:them with an alternative deal.
Speaker:The Russian Deal.
Speaker:So, um, So that's what's been happening around the world with economies and
Speaker:it's been a lot of IMF intervention with the World Bank constraining and
Speaker:crippling economies, keeping them in, um, low value Um, economic states,
Speaker:making it very difficult for them to industrialise, and meanwhile American
Speaker:multinationals able to get cheap money from their government, who can print it,
Speaker:go out buying businesses wherever they like, meanwhile other countries finding
Speaker:it difficult to buy American businesses.
Speaker:And, and that's where we're at, and this has been going on for a while now, and
Speaker:at some point I see that China, Russia, Iran, other countries are going to de
Speaker:dollarise even more, encourage other countries to join them, because they
Speaker:just have no option, like the Ukraine.
Speaker:Now, I don't know, if you're a, sort of a pessimist and you think that the world's
Speaker:heading for some sort of Armageddon or something like that, then, um, Yeah, and
Speaker:at times, I feel that way, and I think to myself, the trigger will be currency.
Speaker:If, if there is Um, a really bad, a really bad future for this planet.
Speaker:At some point, the currency is going to be part of that story.
Speaker:I don't know how it's going to work out.
Speaker:But you can see that, uh, it has inherent problems in it that are really, at
Speaker:the moment, uh, surviving on faith.
Speaker:And the fundamentals are such that that can't continue forever.
Speaker:So, so there we go.
Speaker:Um, now I'm just going to pause here and look at some detail.
Speaker:So, I'm just going to grab some ideas from the various chapters in
Speaker:this book and that will fill out, um, put some flesh on the bones of
Speaker:the story that I've just told you.
Speaker:So, um, from chapter one, uh, during World War I and its aftermath, deaths
Speaker:among governments came to overshadow Private investments that had characterised
Speaker:the pre war economic situation.
Speaker:So, before World War I, claims on foreign assets were held
Speaker:mainly by private investors.
Speaker:Um, large government debts were common, but they were held principally by private
Speaker:investors, not by other governments.
Speaker:So private investors would lend money to governments.
Speaker:Um, Governments borrowed to finance projects designed in
Speaker:principle to increase national income and hence their tax revenue.
Speaker:The way the war changed all this, it gave birth to massive claims by
Speaker:governments on other governments.
Speaker:That was a crucial feature of World War I.
Speaker:Paramount among the post war claims were the, um, the debts by the Allies,
Speaker:which, uh, in 1923 stood at 28 billion.
Speaker:Which was overshadowed by Germany's reparations bill set at 60 billion.
Speaker:So, of course, these obligations did not find any counterpart in productive
Speaker:resources or expanding taxing capacity.
Speaker:I mean, normally when countries borrow those sorts of money That sort of
Speaker:amounts, they've created something that generates income or tax, but
Speaker:not so in the case of World War I.
Speaker:I think I mentioned earlier that Allies normally forgave the debts between
Speaker:themselves after a victory, but he makes a point here that, um, most of the wars
Speaker:fought during the century spanning the Napoleonic Wars and World War I were of
Speaker:local and bilateral character, such as the Franco Prussian War, the Boer War.
Speaker:The Spanish American War, the Russo Japanese War.
Speaker:With the exception of the Crimean War, they did not involve large groups
Speaker:of nations, so there were neither inter allied debts nor subsidies.
Speaker:So World War I was therefore a conflagration of unprecedented scope.
Speaker:So, just reading from page 73 here, he says that, um, A higher value for
Speaker:sterling meant that a given amount of British pounds would exchange for a
Speaker:greater number of US dollars, and thus pay off a larger value of US dollars.
Speaker:U.
Speaker:S.
Speaker:dollar debt.
Speaker:So the, uh, the British were inclined to have a high value for sterling because it
Speaker:meant that they could, um, pay off more U.
Speaker:S.
Speaker:dollars.
Speaker:But the high exchange rate for sterling, um, meant that British
Speaker:exports were uncompetitive.
Speaker:So it reduced their ability to earn.
Speaker:Money, and other foreign exchange.
Speaker:So, also, the British were promoting high interest rates in order to support
Speaker:this high valuation on the sterling.
Speaker:High interest, of course, deterred new domestic investment.
Speaker:So, the attempt to solve this problem by making labour bear the
Speaker:by keeping domestic wages down.
Speaker:As one of the things the U.
Speaker:S.
Speaker:was saying to these countries is, Well, in order to pay us back, if
Speaker:you can't earn the money, you're going to have to just spend less.
Speaker:So, there was pressure to keep wages down.
Speaker:And, so you had an overvalued pound, high interest rates,
Speaker:pressure to keep wages down.
Speaker:Uh, all of that adding up to a wave of strikes, culminating
Speaker:in the general strike of 1926.
Speaker:And the American economy itself was distorted, because they were
Speaker:keeping interest rates low to prevent the US dollar from rising, because
Speaker:they wanted a low US dollar in order to make it easier to export.
Speaker:So, those low interest rates in the US led to a domestic credit bubble.
Speaker:That culminated in the 1929 stock market crash.
Speaker:Just turning back to Germany, uh, he makes a note here that like many third
Speaker:world debtor countries today, Germany could not inflate its way out of debt
Speaker:because the debt was denominated in US dollars or other foreign currency, which
Speaker:the German central bank could not print.
Speaker:Central banks can create a domestic currency, but not the dollars
Speaker:and the other hard currencies necessary to pay foreign debts.
Speaker:Likewise, they cannot increase domestic taxes to pay their foreign
Speaker:currency debts, because taxes are levied in local currency.
Speaker:If you're a country in trouble, and your debts are in the denomination of
Speaker:another country, you're in trouble.
Speaker:I'd previously had a fairly high opinion of, uh, President Roosevelt,
Speaker:um, and the New Deal, and his, um, uh, his work during the war.
Speaker:But, um, in this book Hudson makes the point that the previous president,
Speaker:Hoover, recognised the problem of the amount of debt owed by the former allies
Speaker:and how that was, that needed to be forgiven in some way by the US and he
Speaker:really understood what was going on and he tried to convince Roosevelt.
Speaker:Uh, in the transition that Roosevelt should adopt a policy of forgiving
Speaker:the debt but, uh, Roosevelt, uh, disagreed with that, um, and he
Speaker:was insistent that everybody had to pay their debts to the US.
Speaker:So while we might, uh, praise Roosevelt for, uh, The New Deal, uh, he was
Speaker:partly responsible for the requirement of it as a result of the Depression,
Speaker:parts of which might have been avoided if he had forgiven the debts.
Speaker:Just reading from page 326, where Hudson, uh, makes the point.
Speaker:This is around about 1963, I believe, that, um, Common market economists
Speaker:complained of America's growing investment in European industry.
Speaker:and correlated this investment outflow with the size of the overall US payments
Speaker:deficit to demonstrate that the United States was in effect obtaining a cost
Speaker:free takeover of Europe's economy.
Speaker:Private US investors were spending billions of dollars to buy highly
Speaker:profitable European enterprises.
Speaker:The European recipients of these funds exchanged their dollar proceeds with their
Speaker:central banks to obtain local currency.
Speaker:These central banks, in turn, were pressured by the U.
Speaker:S.
Speaker:Treasury to refrain from cashing in their dollars for U.
Speaker:S.
Speaker:gold on the ground that it might disrupt world financial conditions.
Speaker:They therefore bought U.
Speaker:S.
Speaker:Treasury securities, whose yield was only a fraction of what U.
Speaker:S.
Speaker:investors were extracting from private European companies they were buying out.
Speaker:The result was a financial and commercial arbitrage.
Speaker:The US economy gained control of highly profitable European companies in
Speaker:exchange for paying low interest rates on the dollars that foreign central
Speaker:banks recycled to the US Treasury.
Speaker:In effect, Americans were buying control of Europe's leading
Speaker:industries with funds provided by Europe's central banks themselves.
Speaker:There seemed no effective limit on how far this free ride might go.
Speaker:As long as the United States was not compelled to part with its monetary
Speaker:gold in payment for the increase in its private sector net investment in Europe.
Speaker:U.
Speaker:S.
Speaker:Treasury bonds, which are essentially IOUs, were being
Speaker:exchanged for higher paying direct ownership of European assets.
Speaker:And, uh, just reading further, beginning of Chapter 15,
Speaker:Who could tell how long its ability to buy up foreign goods and even
Speaker:companies on credit could continue?
Speaker:Until other countries actually drew the line and stopped
Speaker:absorbing surplus dollars.
Speaker:The Americans saw that only a world monetary breakdown could
Speaker:bring the free ride to an end.
Speaker:Uh, it goes on, The impotence of foreign governments to meaningfully retaliate,
Speaker:short of breaking totally with the United States and its dollar standard.
Speaker:Uh, was perceived early as April 1967.
Speaker:Uh, two bank economists, Ralph Peterson from Bank of America, and,
Speaker:um, John Deaver from Chase Manhattan.
Speaker:Uh, Deaver wrote, Foreign central banks would be faced with a serious dilemma.
Speaker:With their dollars no longer freely convertible into gold, They would
Speaker:have to decide what to do with the dollars they own and how to deal with
Speaker:the dollars that would be presented to them by their own commercial banks
Speaker:for conversion into local currencies.
Speaker:But this would be a most disagreeable choice.
Speaker:On the one hand, if they permitted the dollar to depreciate, prices of U.
Speaker:S.
Speaker:goods would drop relative to domestic produced goods.
Speaker:Furthermore, it would make U.
Speaker:S.
Speaker:exports more competitive in third markets.
Speaker:This solution would be vigorously opposed by most exporters
Speaker:and businessmen abroad, okay?
Speaker:So if they had said, these dollars are now worthless, well if the dollar then
Speaker:depreciated drastically, the US would have a huge advantage with exports.
Speaker:It goes on, on the other hand, if foreign central banks continued to support the
Speaker:dollar at its present rate, meaning pretending everything's still fine,
Speaker:this would place them more unequivocally than ever on a dollar standard.
Speaker:If it is made unmistakably clear that in the event of a crisis, the U.
Speaker:S.
Speaker:would simply terminate the privilege now given to foreign central banks
Speaker:of buying gold freely, then the burden of decision making regarding
Speaker:the defence of the dollar would be shifted even more than now from the U.
Speaker:S.
Speaker:to the European and other central banks.
Speaker:So, this is in the lead up to de linking the gold, and they said,
Speaker:that's essentially going to be a decision for European banks
Speaker:as to how they deal with it.
Speaker:And it's going to be ugly either way, and the US was just going to keep
Speaker:doing what it was doing because its companies could buy foreign assets
Speaker:cheaply as long as they're allowed to.
Speaker:Uh, in the book he sort of makes a point that in all these negotiations,
Speaker:negotiations over loans and whatnot between America and other countries,
Speaker:uh, he's quite scathing and critical of, uh, the British for capitulating.
Speaker:Um, and at different times, the only ones who really stood up to the U.
Speaker:S.
Speaker:were the French, at different times.
Speaker:Uh, buy the book to get all the detail on that.
Speaker:And his last chapter just looks into the future, and what he says
Speaker:is that, uh, the self defeating U.
Speaker:S.
Speaker:trade sanctions against Russia and China, uh, he calls them self defeating
Speaker:because Uh, the trade sanctions against Russia, for example, forced the Russians
Speaker:to, to produce internally what they couldn't get from America and its allies.
Speaker:So, uh, Russia and China, because of the threat of U.
Speaker:S.
Speaker:sanctions, um, basically grow, produce, build everything
Speaker:that they need themselves.
Speaker:Without being reliant on imports, which can be snatched away from them at any
Speaker:time, so he calls them self defeating because it's caused Russia and China
Speaker:to, to broaden their economies to cover what will be stopped via sanctions.
Speaker:And he says that, um, It's driven these and other nations into a position where
Speaker:their only defence is to do what Britain and the rest of Europe could not do in
Speaker:1945, and that is create an alternative economic order with its own rules, and
Speaker:replace the dollar by negotiating their own mutual currency swaps, using gold,
Speaker:or using both gold and swaps together.
Speaker:That's where we're heading, and the US is not going to like it.
Speaker:And when you're looking at world affairs and conflicts between countries, keep
Speaker:in mind these currency issues and the US dollar and how all that plays out and will
Speaker:help explain a lot of what's going on.
Speaker:So there you go.
Speaker:I hope that made sense and next week, back with a normal panel where we
Speaker:will, where we will be discussing religious discrimination bill and all
Speaker:the other nuttery that's been going on.
Speaker:Okay, cheers.
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