Civil Defense Perspectives March 2023 (vol. 38 #2)
Defeating Russia in Ukraine is “the most important thing in the world right now,” according to U.S. Senate minority leader Mitch McConnell (R-Ky.). Tucker Carlson disagrees: maintaining the value of the dollar is far, far more important, though the media and politicians are largely ignoring this issue.
The U.S. dollar has been the currency of the world for 80 years, giving Americans unique privileges of low-cost borrowing. But with the Russian invasion of Ukraine, the U.S. determined to blow up the Russian economy. The “strong sanctions” were “morally essential” to deter further aggression, politicians said. But since March 2022, it has been apparent that the U.S. has been hurt far more, Carlson stated.
Unlike the U.S., Russia does not have a late-stage finance economy. Oligarchs do not get rich from credit default swaps but from selling things that people actually need, such as coal, gas, wheat, and fertilizer. The largest resource economy on earth can barter if necessary. In contrast, the Biden Administration has depleted the most valuable hard asset the U.S. has, the Strategic Petroleum Reserve. The sale of 218 million barrels in one year is more than in all previous years combined. And no one knows, Carlson says, how much gold is in Fort Knox.
By converting the dollar, previously an apolitical store of value, into a weapon, the Biden Administration has “done the most destructive thing to America that any president has ever done.” People have learned that if the U.S. government disapproves of what they do, it can seize all their money. If dollars held abroad come home, the massive worsening of inflation will cause poverty and civil unrest, Carlson predicts.
What caused the hyperinflation in Weimar? Carlson says: Germany borrowed too much money, to fund a pointless war. The U.S. has gotten away with this—until now. But instead of ending the war in Ukraine, U.S. rulers are fantasizing about WWII and Winston Churchill (https://tinyurl.com/4jrxhe4u).
De-dollarization
The destruction of the dollar is occurring at an accelerating rate. Even France is using Chinese currency.
Beijing and Brasilia have signed an agreement on trade in mutual currencies, abandoning the U.S. dollar as an intermediary. China has been Brazil’s largest trading partner for more than a decade, with bilateral trade hitting a record $150 billion last year.
According to Brazil’s Secretary for International Affairs at the Ministry of Finance, 25 countries are already making settlements with China in yuan (https://tinyurl.com/55p39mmt).
An Upside-down Pyramid
A superstructure on a tiny base is bound to collapse eventually. As the U.S. has off-shored its industrial base, its prosperity is based on financial rather than industrial engineering. “It’s as if the whole objective of corporate industry today is to get consumers to run into debt and make money off the interest…rather than to make a profit,” states Michael Hudson. “Even Macy’s used to make more money by getting credit cards for Macy’s customers than they made actually on the store” (https://tinyurl.com/2wecxnmv).
What we are seeing now, in Hudson’s opinion, is “the unraveling of neoliberal financialization.” He states that for two decades U.S. authorities have “acted like the policeman in the film Casablanca who is shocked to find there is gambling in the casino.” The Zero Interest Rate Policy (ZIRP) has resulted in blowing up asset bubbles, in stock, bonds, and real estate—as well as speculative products such as asset-based securities and derivatives. If the banks reported what their assets were really worth, it would be clear that they are broke. The private banking system cannot survive if interest rates go back to normal.
Hudson explains: If private capital takes over a company like Bed Bath & Beyond, it’ll privatize the company, loan it money, take that loan and pay itself a special dividend for management, and leave the company a bankrupt shell. “So you could say that the role of the banking system is to bankrupt corporate industry and to lock in the transition from industrial capitalism to finance capitalism. Really it’s suicide” (ibid.).
Silicon Valley Bank (SVB) financed extremely speculative investments and the lavish lifestyles and immense wealth agglomeration of the people involved (ibid.).
“The Treasury has been privatized by the banking system,” Hudson argues. “That is sort of the ultimate victory of finance capitalism, but the result is that it’ll destroy industrialization and what used to be industrial capitalism in the United States” (ibid.).
Reindustrializing the U.S. will require replacing the banking system, Hudson states.
Financial Weapon of Self Destruction
Hanging over the whole banking system is the threat of a quadrillion-dollar derivatives tsunami. Pull out one card and the whole house collapses, writes Ellen Brown. SVB held $27.7 billion in derivatives, no small sum, but it is only .05% of the $55,387 billion ($55.387 trillion) held by JPMorgan, the largest U.S. derivatives bank (https://tinyurl.com/2jw3dejb).
The unwinding of this precarious system will probably be unimaginably catastrophic. If a new BRICS currency emerges, we can, according to The Consciousness of Sheep, “expect roughly a 33 percent devaluation of the western currencies…something which would result in what can only be described as hyper-stagflation, with prices of imports—including essentials like food and fuel—rising beyond the reach of all but the wealthiest westerners, even as that mountain of unrepayable debt comes tumbling down so rapidly that it will render most of what we still consider repayable bad as well” (tinyurl.com/337yt3rm).
Perpetual Motion Machine Is Failing
In the finance economy, the expansion of credit pulls money into risk assets whose valuation grows as demand increases, serving as collateral for more borrowing, setting in motion a feedback loop. But now the globalized West has pawned everything and owns nothing but debt. The Great Reset is our owners’ attempt to take control of the collateral—our lives—in order to retain control in the face of socioeconomic breakdown, through Central Bank Digital Currency, which can cancel any account at will (https://tinyurl.com/2eszcx5p).
Macron Calls for Ditching Dollar
Returning from his visit to China in early April, French president Emmanuel Macron told journalists of his theory of “strategic autonomy” for Europe, presumably led by France, to become a “third superpower.”
In his meeting with Chinese president Xi Jinping, Macron also argued that “Europe had increased its dependency on the U.S. for weapons and energy and must now focus on boosting European defense industries” and also suggested that “Europe should reduce its dependence on the ‘extraterritoriality of the U.S. dollar,’ a key policy objective of both Moscow and Beijing.”
“Russia, China, Iran and other countries have been hit by U.S. sanctions in recent years that are based on denying access to the dominant dollar-denominated global financial system,” write Jamil Anderlini and Clea Caulcutt in Politico. “Some in Europe have complained about ‘weaponization’ of the dollar by Washington, which forces European companies to give up business and cut ties with third countries or face crippling secondary sanctions” (https://tinyurl.com/ukhpscxs).
In France, Macron is facing riots as he’s planning to extend the retirement age. One reason France can’t afford to pay social security is that banks needed more money for the bailout (https://tinyurl.com/2fc95ye3).
Debt and Civilization
In Dante’s Inferno, usurers are in the eighth circle of hell, with blasphemers and sodomites. They crouch with purses around their necks in a steady stream of flakes of fire.
In modern English, “usury” means charging an exorbitant rate of interest, but originally it meant charging any interest at all. In the Old Testament, the Israelites were forbidden to charge “usury,” or interest, on loans to fellow Israelites (Deuteronomy 23:19), but they were permitted to charge interest on loans to foreigners (Deuteronomy 23:20). This seemed to be in the context of not profiting from aiding the needy. Financing risky but possibly profitable ventures or keeping up with inflation (possibly not invented yet) were evidently not considered.
Some ancient kings, as in Babylon, Egypt, Sparta, China, and others, resolved the widespread problem of crushing debt, which would cause people to lose their land or even their freedom, by declaring debt amnesties. The ancient Israelites removed debt relief from the realm of a king’s whims and encoded it into their laws, making a Jubilee recur the year after seven cycles of seven years: “Every creditor shall cancel any loan they have made to a fellow Israelite” (Deuteronomy 15:2-3). Note: this was not a bail-out of imprudent creditors at the expense of non-debtors.
Greece and Rome and subsequent societies were different in that they did not cancel debts, writes Michael Hudson, an independent Wall Street financial economist who describes himself as an anti-imperial leftist. Rome had a Dark Age, when creditors took over and reduced all the rest of the economy to bondage. Today, this is called “austerity” or “debt deflation.” Today’s feudal lords are a financial class, not landlords.
Hudson states that the common denominator in all Western financial systems is that debts grow by compound interest. That is, any rate of interest has a doubling time. Debts “sweep up steadily, and the real economy grows much more slowly, so that debts mount up without the economy being able to pay them and there’s a crash” (https://tinyurl.com/tucw5h57).
Rising debt destroys economies when it is not being used to finance new capital investment in means of production. Most Western credit today is created to inflate stock, bond, and real estate prices, not to restore industrial ability. As a result of this debt-without-production approach, the U.S. domestic economy has been overwhelmed by debt owed to its own financial oligarchy, even though it has had a free lunch in running up foreign debt based on dollar hegemony.
Classical political economy defined a free market as one free from unearned income and related creditor privileges. But by the end of the 19th century the rentier oligarchy sponsored a fiscal and ideological counter-revolution. This rejection of the classical critique of rentier income has been accompanied by re-defining “democracy” to require having a “free market” of the anti-classical oligarchic rentier variety. The result has been to centralize economic planning in Wall Street and other imperial financial centers, writes Hudson. A defining characteristic of Western legal systems for the past 2,000 years has been the oligarchy’s “security of contracts” giving creditors the right to expropriate debtors (ibid.).
The goal of reaching a unipolar Western neoliberal financialism as the “end of history” is being blocked by the war in Ukraine and sanctions on Russia. The war is a catalyst for fracturing the world into competing economic systems. The global South owes enormous dollar debts that they cannot afford to repay. International Monetary Fund (IMF) and World Bank loans are “odious debt”—that does not help the client countries earn the money to repay the debt with interest (tinyurl.com/2je6csa4). What if the Bank of China offered credit on better terms?
Would it mean the end of Western civilization—or just of financial hegemony? How important could it be?
In 2013, Ukrainian president Viktor Yanukovych ditched a long-pending EU affiliation agreement and IMF stabilization plan in favor of a more favorable deal with Moscow, which included a $15 billion loan without the IMF’s preconditions and a discount on gas purchases from Russia. The U.S. State Department decided that such a deal could not be allowed and undertook a $5 billion “regime change” (https://tinyurl.com/yekdvehb).
Cheating 20th Century Prophets
“Scipio [the Roman general who defeated Hannibal in the Second Punic War] dreaded for you, when he stopped the building of theaters, when he saw how easily you could be corrupted and perverted by prosperity…. He did not think that a city is fortunate when its walls are standing, while its morals are in ruins.
–St. Augustine, City of God, Bk I. Ch 33
Reflecting on the ways in which our current political society resembles the decline of Rome (tinyurl.com/6hcjkk8w), Frank Connor sees signs that people may again be playing the game of “Cheat the Prophet” (https://tinyurl.com/29xu4n66). Humanity has begun to undermine the predictors of perpetual liberal enlightenment. The liberal world values were embodied in the Bretton Woods System, United Nations, European Union, and even NATO. The prophets of this order foresaw perpetual economic prosperity and lasting peace ensured by an integrated international economy. But instead of clear-headed secular enlightenment, we see a hazy popular paganism. Heroes come from Marvel comics, and belief in witchcraft and Satanism is on the rise.
“The fruit of liberalism, however, has been spoiling and increasingly it feels like a new vine is growing.”