Dollar
Crisis And American Empire
By Jeffrey Sommers
Znet
22 June, 2003
America has postponed the
day of reckoning since the dollar crisis of the early 1970s when the
soaring cost of killing Vietnamese in order to "save them,"
along with other expenses of empire, became too high. The tab only rose
when the US matched this imperial project with efforts to buy off its
own poor through social spending designed to quell the democractic surge
and rising expectations that followed World War II. The world balked
at Americas spending and central banks began cashing in dollars
for the promised gold the American currency was backed by.
So the US ditched the dollar-gold
standard in exchange for a purely fiat paper dollar standard.
The US managed a fantastic
wealth transfer from the rest of the world to itself with this ploy.
America barely managed to escape the run on its dollars, and the upsurge
of democracy at home and abroad in the 1970s. But, the empire did strike
back. The US jujitsued the crisis to its advantage by using a combination
of experimentation, opportunism and planning. Rather than being sunk
by high oil prices in the 1970s, the US Treasury Department turned this
challenge to its advantage. It had no choice. By cutting a deal with
the Saudis for weapons and secure investments for their oil wealth,
the Saudis gave America a
monopoly: the paper dollar
was elevated to the worlds currency of choice. This was not the
market at work, but realpolitik statecraft to ensure dollar dominance,
even though it would no longer be backed by gold. The nations of the
world would have to pay dollars for Saudi oil and have to pay the US
real goods for these paper dollars. The Saudis, in turn, and then other
oil producers, would put their oil wealth in US banks and T-bills. The
US further benefited by lending out this money to other nations and
reaped huge interest payments ever since from the worlds poor
countries.
Since the 1970s the US has
merely prints dollars and T-bills and gets oil, minerals, manufactured
goods, etc., in return. The only problem with this virtuous circle of
paper for real goods is that at some point the rest of the world might
refuse to play along and the dollar could collapse.
We are seeing the early signs
of just that. The euro was designed to cut in on Americas action,
and Europes gamble appears to be working. Indeed, one of Saddam
Hussein's cardinal sins was pricing oil in euros instead of dollars,
for which if other oil producers followed suit would have been a major
blow to the US. More menacingly, on Monday, Malaysian Prime Minister
Mahathir Mohamad declared that in principle oil should be priced in
euros. Iran too has made such noises in the past, but has cooled this
rhetoric in light of recent US moves in Iraq and saber rattling directed
at North Korea and Syria. Moreover, the Chinese, and other nations,
are now hedging their bets by holding more of their currency reserves
in euros, and not just dollars. That fiat money has to be paid for in
real goods, and the less dollars nations held, the smaller the subsidy
the US gets.
Rather than Weberian work
ethics and other simple nostrums and bromides used to explain the "success"
of the American economy in the 1990s--and even still today among a few
Strangelovian types who declare the same even after the huge equity
market losses of the new millennium--the dollar-standard racket allows
the US to float a half-trillion dollar a year trade deficit with other
countries, which the rest of the world pays for! Figure something like
a global subsidy of 4k per year to every American. But of course, in
this welfare scheme the goods are not distributed equally. The rich
take the lions share, while the rest can content themselves with
inexpensive electronic toys and cheap consumer goodies that the global
economy delivers to Americans as a substitute for quality health-care,
education, or decent housing.
There is a major restructuring
ahead on the horizon.
Indeed, it is already visible.
So far the US has covered its prolifigate spending, in part, through
the interest payments it extracts from the rest of the world, even though
many poor nations have now already paid in interest many times the original
amount of the principle on their loans. The Japanese pay for some of
it by saving money and having it then invested in US T-bills. The Europeans,
especially the Germans, who have also kept the US afloat by buying its
government bonds, pay for another portion. And then the Chinese also
help fill the gap by holding massive dollar reserves. Yet, all these
states have their own problems and might need the resources they currently
use to prop up the US economy and to pay for its massive deficit spending.
If this happens Americas
own leaders might administer conditionality, austerity, and the countless
poisons dispensed to the rest of the world the past thirty years--largely
with disastrous results--to the US with renewed vigor. To be sure, you
can count on court intellectuals and pundits to tell us its all for
the best and blame the victims for any ills that befall them. The elite
brain trust at the US Treasury, and among the country clubs populated
by American manufactures, have warned since the 1970s that American
workers needed to get used to a lower living standards. Of course, this
same public has also had to get used to the top 1% of the population
ascending to heights of wealth and excess not scene since the Gilded
Age and the 1920s. As usual, there would be increased socialism for
the elite and capitalism for the rest.
Under this program the numbers
of hours average Americans work has dramatically risen--surpassing even
the Japanese. They made most Americans work harder and longer for less
pay and benefits, and eliminated job security for good measure. Yet,
up to now, Americans have only been gently going down hill in their
decline. With a deflationary spiral and the collapse of the dollar standard,
they will fall off a cliff as the global subsidy to the US is withdrawn
if global investors lose confidence in the dollar.
The one out for the US might
be to continue threatening Japan, Germany, and the Saudis with destruction
of their US assets if they withdraw T-bill investments, or if the euro
is advanced too far as an alternative currency to the US.
Yet, if global investors
and central bank managers panic or if their own internal economic crises
require them to pull out of US investments, Americans are in deep trouble.
This would be disastrous
not only for Americans, of whom you can be sure capital would export
as much of this crisis as possible onto the backs of average people
in the US, but also for the rest of the world. An America in economic
crisis would place the world in even greater danger of American military
adventures by a government seeking both diversions from its domestic
ills while it also sought means to shore up its empire.