Tag Archives: US Dollar

Are Americans Rational?

Posted on by
Reply

By Dmitry Orlov

Source: Club Orlov

I’ve been holding back on commenting on current events because they are far too silly. At this point it is safe to say that the elections in the US have been thoroughly botched and that, no matter who is ultimately chosen as president for the next four years, enough questions will remain in the minds of enough people to thoroughly delegitimize the national leadership in the eyes of at least half the country.

Just this morning I got a missive from Paul Craig Roberts containing the following bullet points:

• Joe Biden’s Twitter account has 20 million followers. Trump’s Twitter account has 88.8 million followers.

• Joe Biden’s Facebook account has 7.78 million followers. Trump’s Facebook account has 34.72 million followers. How likely is it that a person with four to five times the following of his rival lost the election?

• Joe Biden, declared by the biased presstitutes to be president by landslide, gave a Thanksgiving Day message and only 1,000 people watched his live statement. Where is the enthusiasm?

• Trump’s campaign appearances were heavily attended and that Biden’s were avoided. Somehow a candidate who could not draw supporters to his campaign appearances won the presidency.

• Despite Biden’s total failure to animate voters during the presidential campaign, he received 15 million more votes than Barack Obama did in his 2012 re-election.

• Biden won despite underperforming Hillary Clinton’s 2016 vote in every urban US county, but outperformed Clinton in Democrat-controlled Detroit, Milwaukee, Atlanta, and Philadelphia, the precise cities where the most obvious and most blatant electoral fraud was committed.

• Biden won despite receiving a record low share of the Democrat primary vote compared to Trump’s share of the Republican primary vote.

• Biden won despite Trump bettering his 2016 vote by ten million votes and Trump’s record support from minority voters.

• Biden won despite losing the bellwether counties that have always predicted the election outcome and the bellwether states of Ohio and Florida.

• Biden won in Georgia, a completely red state with a red governor and legislature both House and Senate. Somehow a red state voted for a blue president.

• Biden won despite the Democrats losing representation in the House.

• In Pennsylvania 47 memory cards containing more than 50,000 votes are missing.

• Pennsylvania 1.8 million ballots were mailed out to voters, but 2.5 million mail-in ballots were counted.

Roberts is a Republican and therefore believes that the Democrats stole the election. A Democrat, once it turns out that Trump won after all, would believe the opposite. But that makes no difference because, as I keep repeating, the US is not a democracy and it doesn’t matter who is its president.

It is not a democracy because the vast majority of votes—all Democratic votes in Republican states and all Republican votes in Democratic states—are simply thrown away. That’s roughly half the electorate who have no chance of making their vote count in the state where they live. Of course, they could move to a different state, in which case their vote would be thrown away for the opposite reason—lost as part of a superfluously large majority.

This is easy enough to explain to any rational person—but not to the vast majority of Americans, for whom such logic goes in one ear and comes out the other. In short, they are not rational. Worse than that, their leaders are not rational either. This brings us to the second point—that it doesn’t matter who is president.

Trump keeps talking about making America great—by bringing manufacturing back from China. Except that the opposite has happened over the past four years: China’s industrial production has continued to grow (although more slowly than before) while in the US it has continued to decline. Nor is is there any reason at all to think that this is going to change over the next four years.

Biden keeps talking about America continuing as the leader of the free world—except that America is no longer the leader of much of anything and there is no reason to think that anything can be done to reverse this slide. Thus, no matter who becomes (or remains) president, the US administration will continue to wallow in nostalgia while steadfastly refusing to admit defeat.

This defeat has multiple elements. First, the shale oil gamble is over. Drilling rates have collapsed, many shale oil companies are bankrupt, and US oil production is set to plummet from over 12 million barrels per day at its peak to around 5 million by next June (according to Art Berman, whose opinion I trust). After that point the US will once again become a major oil importer, and since no other swing producers are available this will drive up oil prices, perhaps beyond the previous all-time record of $150/barrel, resulting in a US oil import bill of half a trillion dollars a year. But it is doubtful whether that much extra oil can be produced at almost any price.

Second, national bankruptcy is looming ever closer. The federal government now overspends its revenues by a factor of two or more, meaning that for every dollar of federal revenue it borrows and spends at least two. Previously, despite its already ridiculous size and exponential growth rate, US federal debt could be given an appearance of legitimacy because enough foreign buyers could be found for it; but this is no longer the case. And so this debt is looking less and less legitimate because it is being monetized—simply printed into existence—as the Federal Reserve degenerates into a pure pyramid scheme.

Third, the US dollar (along with some other currencies to which it is tied) is poised on the edge of a hyperinflationary wipe-out. In an effort to shore up the economy a great deal of money has been unleashed into the economy and it went chasing after stocks, keeping it from triggering hyperinflation. Thus we have the truly bizarre combination of a record-high stock market along with record-high bankruptcies, foreclosures and evictions. At some point confidence in the stock market will evaporate and all of this notional money will go chasing after anything that isn’t made of paper (with the possible exception of toilet paper). Much of this notional money will evaporate as people liquidate their stock holdings, but enough will remain to result in hoarding and hyperinflation. The US dollar will devalue internationally and the US will lose access to imports.

Fourth, the US has lost its lead militarily, definitely to Russia and possibly to China and Iran. Its major military asset is its aircraft carrier fleet, which is by now completely useless because it can be destroyed using conventional weapons from a safe stand-off distance which is greater than the reach of its aircraft. Consequently, it cannot be deployed close enough to an enemy shore to make its aircraft useful. US military bases, hundreds of which are scattered all over the globe, but mostly clustered along Russia’s and China’s borders, are also useless militarily, as demonstrated by Iran’s rocket attacks against two of them in Iraq. In short, the entire US military is by now more of a liability than an asset—likely to draw the US into a military confrontation which it cannot win.

Now, do you hear these points discussed in the national media, in the course of the election campaign or otherwise? Do these points come up at all in conversations with colleagues, neighbors, friends and family? Are these topics of discussion in high school civics classes? (Wait, what high school civics classes?) No? And yet they are real, and their consequences are at this point unavoidable, and refusing to acknowledge them will only exacerbate their effects.

Collapse is bad enough when you and everyone around you can acknowledge it. But if everyone from the president (pick either one) to the lowliest convenience store clerk is incapable of accepting it as real and thinking through some of the immediate consequences, that makes it much, much worse. I refuse to accept any of the responsibility for this dreadful state of affairs; I’ve been doing all I can to warn people for a decade and a half now. It is now pointless for me to issue any more warnings. All I can do now is watch the inevitable unfold.

From Dollar Hegemony to Global Warming

Posted on by
5

Globalization, Glyphosate and Doctrines of Consent

By Colin Todhunter

Source: Dissident Voice

There has been an on-going tectonic shift in the West since the abandonment of the Bretton Woods agreement in 1971. This accelerated when the USSR ended and has resulted in the ‘neoliberal globalization’ we see today.

At the same time, there has been an unprecedented campaign to re-engineer social consensus in the West. Part of this strategy, involves getting populations in Western countries to fixate on ‘global warming’, ‘gender equity’ and ‘anti-racism’: by focusing on identity politics and climate change, the devastating effects and injustices brought about by globalized capitalism and associated militarism largely remain unchallenged by the masses and stay firmly in the background.

This is the argument presented by Denis Rancourt, researcher at Ontario Civil Liberties Association, in a new report. Rancourt is a former full professor of physics at the University of Ottawa in Canada and author of ‘Geo-economics and geo-politics drive successive eras of predatory globalization and socialengineering: Historical emergence of climate change, gender equity, andanti-racism as state doctrines’ (April 2019).

In the report, Rancourt references Michael Hudson’s 1972 book Super Imperialism: The Economic Strategy of American Empire to help explain the key role of maintaining dollar hegemony and the importance of the petrodollar to US global dominance. Aside from the significance of oil, Rancourt argues that the US has an existential interest to ensure that opioid drugs are traded in US dollars, another major global commodity. This explains the US occupation of Afghanistan. He also pinpoints the importance of US agribusiness and the arms industry in helping to secure US geo-strategic goals.

Since the fall of the USSR in 1991, Rancourt says that US war campaigns have, among other things, protected the US dollar from abandonment, destroyed nations seeking sovereignty from US dominance, secured the opium trade, increased control over oil and have frustrated Eurasian integration. In addition, we have seen certain countries face a bombardment of sanctions and hostility in an attempt to destroy energy-producing centres that the US does not control, not least Russia.

He also outlines the impacts within Western countries too, including: the systematic relative loss of middle-class economic status, the rise of urban homelessness, the decimation of the industrial working class, corporate megamergers, rising inequality, the dismantling of welfare, financial speculation, stagnant wages, debt, deregulation and privatisation. In addition, the increased leniency in food and drug regulation has led to the dramatic increase in the use of the herbicide glyphosate, which has been concurrent with upsurges of many diseases and chronic ailments.

In the face of this devastation, Western nations have had to secure ongoing consent among their own populations. To help explain how this has been achieved, Rancourt focuses on gender equity, anti-racism and global warming as state doctrines that have been used to divert attention from the machinations of US empire (and also to prevent class consciousness taking hold). I recently asked Denis Rancourt about this aspect of his report.

Colin Todhunter:  Can you say a bit about yourself and how you came to produce this report? What is it meant to achieve?

Denis Rancourt:  I’m a former physics professor, environmental scientist and a civil rights advocate. I currently work as a researcher for the Ontario Civil Liberties Association (ocla.ca). During a conversation about civil rights issues I had with the executive director of OCLA, we identified several important societal and economic phenomena that seemed to be related to the early 1990s. So, I eventually settled in to do some ‘heavy lifting’, research wise.

While there is no lack of hired intellectuals and experts to wrongly guide our perception, my research demonstrates a link between surges in large-scale suppression and exploitation of national populations with the acceleration of an aggressive, exploitative globalization.

CT: In your report, you’ve described the consequences of the abandonment of Bretton Woods and the dissolution of the USSR in terms of dollar hegemony, US militarism and the devastating impacts of ‘neoliberal globalisation’ both for nation states and for ordinary people.

DR: There is little doubt that Russian and Chinese analysts have a solid understanding of what I have outlined in my report. For instance, foreshadowing Trump’s trade war, the People’s Liberation Army Major-General Qiao Liang’s April 2015 speech to the Chinese Communist Party’s Central Committee and government office, included the following:

Since that day [dissolution of Bretton Woods], a true financial empire has emerged, the US dollar’s hegemony has been established, and we have entered a true paper currency era. There is no precious metal behind the US dollar. The government’s credit is the sole support for the US dollar. The US makes a profit from the whole world. This means that the Americans can obtain material wealth from the world by printing a piece of green paper. […] If we [now] acknowledge that there is a US dollar index cycle [punctuated by engineered crises, including war] and the Americans use this cycle to harvest from other countries, then we can conclude that it was time for the Americans to harvest China…

CT: You discuss the need for states to ensure consent: the need to pacify, hypnotize and align populations for continued globalization; more precisely, the need to divert attention from the structural violence of economic policies and the actual violence of militarism. Can you say something about how the issue of global warming relates to this?

DR:  Irrespective of whether the so-called ‘climate crisis’ is real, exaggerated or fabricated, it is clear, from the data in my report, that the ethos of global warming was engineered on a global scale and benefits the exploiters of the carbon-economy and, more indirectly, the state.

For example, one of the studies that I review shows that a many-fold increase in mainstream media reporting about global warming suddenly occurred in the mid-2000s, in all the leading news media, at the same time that the financiers and their acolytes such as Al Gore decided to make and manage a global carbon economy. This media campaign has been sustained ever since and the global warming ethos has been institutionalized.

Carbon sequestration schemes have devastated local communities on every occupied continent. If anything, carbon schemes − from wind farms to biofuel harvesting to industrial battery production to solar-cell array installations to mining uranium to mega hydro-dam construction and so on – have accelerated habitat destruction.

Meanwhile, economic and military warfare rages, glyphosate is dumped into the ecosphere at unprecedented rates (poured on GM herbicide-resistant cash crops), active genocides are in progress (Yemen), the US is unilaterally withdrawing from nuclear treaties and forcing an arms race with next generation death machines and US-held extortionary loans are serviced by land-use transformation on the scale of nations; while our educated children have nervous breakdowns trying to get governments to “act” on “climate”.

In the early-1990s, a world conference on climate environmentalism was an express response to the dissolution of the Soviet Union. This was part of a global propaganda project intended to mask the new wave of accelerated predatory globalism that was unleashed now that the USSR was definitively out of the way.

CT: What are your thoughts on Greta Thunberg and the movement surrounding her?

DR:  It is sad and pathetic. The movement is a testament to the success of the global propaganda project that I describe in my report. The movement is also an indicator of the degree to which totalitarianism has taken hold in Western societies; wherein individuals, associations and institutions lose their ability for independent thought to steer society away from the designs of an occupying elite. Individuals (and their parents) become morality police in the service of this ‘environmentalism’.

CT: You also talk about the emergence of gender-equity (third wave feminism) and anti-racism as state doctrines. Can you say something about this?

DR: In my report, I use historical institutional records and societal data to demonstrate that a triad of ‘state religions’ was globally engendered and emerged on cue following the dissolution of the Soviet Union. This triad consists of climate alarmism, exaggerated tunnel-vision focus on gender equity and a campaign of anti-racism focused on engineering thoughts, language and attitudes.

These state ideologies were conceived and propelled by UN efforts and the resulting signed protocols. Western academia enthusiastically took up and institutionalized the program. Mainstream media religiously promoted the newly minted ethos. Political parties largely applied increased quotas of gender and race elected representatives.

These processes and ideas served to sooth, massage and occupy the Western mind, especially among the upper-middle, professional and managerial classes and the elite classes of economically occupied territories but did nothing to alleviate the most violent and globally widespread forms of actual racism and misogyny as a result of predatory globalization and militarism.

Ironically, the global attacks on human dignity, human health and the environment were in proportion to the systematic and sometimes shrill calls for gender equity, anti-racism and climate ‘action’. The entire edifice of these ‘state religions’ leaves no room for required conflicts of class and expressly undermines any questioning of the mechanisms and consequences of globalization.

CT: Can you say something about the Gilets Jaunes (Yellow Vests), Brexit and the Trump electoral phenomenon?

DR: Combine aggressive globalization, constant financial predation, gutting of the Western working and middle classes and a glib discourse of climate change, anti-racism and gender equity and something has to give. French geographer Christophe Guilluy predicted the reactions in some detail, and it is not difficult to understand. It is no accident that the revolting working- and middle-classes are critical of the narratives of climate crisis, anti-racism and gender equity; and that their voices are cast by the mainstream media as racist, misogynist and ignorant of science.

It seems that any class which opposes its own destruction is accused of being populated by racist and ignorant folks that can’t see that salvation lies in a carbon-managed and globalized world. It becomes imperative, therefore, to shut down all the venues where such an ‘ignorant lot’ could communicate their views, attempt to organize and thereby threaten the prevailing social order.

The Five Stages of Collapse, 2019 Update

Posted on by
1

By Dmitry Orlov

Source: Club Orlov

Collapse, at each stage, is a historical process that takes time to run its course as the system adapts to changing circumstances, compensates for its weaknesses and finds ways to continue functioning at some level. But what changes rather suddenly is faith or, to put it in more businesslike terms, sentiment. A large segment of the population or an entire political class within a country or the entire world can function based on a certain set of assumptions for much longer than the situation warrants but then over a very short period of time switch to a different set of assumptions. All that sustains the status quo beyond that point is institutional inertia. It imposes limits on how fast systems can change without collapsing entirely. Beyond that point, people will tolerate the older practices only until replacements for them can be found.

Stage 1: Financial collapse. Faith in “business as usual” is lost.

Internationally, the major change in sentiment in the world has to do with the role of the US dollar (and, to a lesser extent, the Euro and the Yen—the other two reserve currencies of the three-legged globalist central banker stool). The world is transitioning to the use of local currencies, currency swaps and commodities markets backed by gold. The catalyst for this change of sentiment was provided by the US administration itself which sawed through its own perch by its use of unilateral sanctions. By using its control over dollar-based transactions to block international transactions it doesn’t happen to like it forced other countries to start looking for alternatives. Now a growing list of countries sees throwing off the shackles of the US dollar as a strategic goal. Russia and China use the ruble and the yuan for their expanding trade; Iran sells oil to India for rupees. Saudi Arabia has started to accept the yuan for its oil.

This change has many knock-on effects. If the dollar is no longer needed to conduct international trade, other nations no longer have hold large quantities of it in reserve. Consequently, there is no longer a need to buy up large quantities of US Treasury notes. Therefore, it becomes unnecessary to run large trade surpluses with the US, essentially conducting trade at a loss. Further, the attractiveness of the US as an export market drops and the cost of imports to the US rises, thereby driving up cost inflation. A vicious spiral ensues in which the ability of the US government to borrow internationally to finance the gaping chasm of its various deficits becomes impaired. Sovereign default of the US government and national bankruptcy then follow.

The US may still look mighty, but its dire fiscal predicament coupled with its denial of the inevitability of bankruptcy, makes it into something of a Blanche DuBois from the Tennessee Williams play “A Streetcar Named Desire.” She was “always dependent on the kindness of strangers” but was tragically unable to tell the difference between kindness and desire. In this case, the desire is for national advantage and security, and to minimize risk by getting rid of an unreliable trading partner.

How quickly or slowly this comes to pass is difficult to guess at and impossible to calculate. It is possible to think of the financial system in terms of a physical analogue, with masses of funds traveling at some velocity having a certain inertia (p = mv) and with forces acting on that mass to accelerate it along a different trajectory (F = ma). It is also possible to think of it in terms of hordes of stampeding animals who can change course abruptly when panicked. The recent abrupt moves in the financial markets, where trillions of dollars of notional, purely speculative value have been wiped out within weeks, are more in line with the latter model.

Stage 2: Commercial collapse. Faith that “the market shall provide” is lost.

Within the US there is really no other alternative than the market. There are a few rustic enclaves, mostly religious communities, that can feed themselves, but that’s a rarity. For everyone else there is no choice but to be a consumer. Consumers who are broke are called “bums,” but they are still consumers. To the extent that the US has a culture, it is a commercial culture in which the goodness of a person is based on the goodly sums of money in their possession. Such a culture can die by becoming irrelevant (when everyone is dead broke) but by then most of the carriers of this culture are likely to be dead too. Alternatively, it can be replaced by a more humane culture that isn’t entirely based on the cult of Mammon—perhaps, dare I think, through a return to a pre-Protestant, pre-Catholic Christian ethic that values people’s souls above objects of value?

Stage 3: Political collapse. Faith that “the government will take care of you” is lost.

All is very murky at the moment, but I would venture to guess that most people in the US are too distracted, too stressed and too preoccupied with their own vices and obsessions to pay much attention to the political realm. Of the ones they do pay attention, a fair number of them seem clued in to the fact that the US is not a democracy at all but an elites-only sandbox in which transnational corporate and oligarchic interests build and knock down each others’ sandcastles.

The extreme political polarization, where two virtually identical pro-capitalist, pro-war parties pretend to wage battle by virtue-signaling may be a symptom of the extremely decrepit state of the entire political arrangement: people are made to watch the billowing smoke and to listen to the deafening noise in the hopes that they won’t notice that the wheels are no longer turning.

The fact that what amounts to palace intrigue—the fracas between the White House, the two houses of Congress and a ghoulish grand inquisitor named Mueller—has taken center stage is uncannily reminiscent of various earlier political collapses, such as the disintegration of the Ottoman Empire or of the fall and the consequent beheading of Louis XVI. The fact that Trump, like the Ottoman worthies, stocks his harem with East European women, lends an eerie touch. That said, most people in the US seem blind to the nature of their overlords in a way that the French, with their Gilets Jaunes movement (just as an example) are definitely not.

Stage 4: Social collapse. Faith that “your people will take care of you” is lost.

I have been saying for some years now that within the US social collapse has largely run its course, although whether people actually believe that is an entire matter entirely. Defining “your people” is rather difficult. The symbols are still there—the flag, the Statue of Liberty and a predilection for iced drinks and heaping plates of greasy fried foods—but the melting pot seems to have suffered a meltdown and melted all the way to China. At present half the households within the US speak a language other than English at home, and a fair share of the rest speak dialects of English that are not mutually intelligible with the standard North American English dialect of broadcast television and university lecturers.

Throughout its history as a British colony and as a nation the US has been dominated by the Anglo ethnos. The designation “ethnos” is not an ethnic label. It is not strictly based on genealogy, language, culture, habitat, form of government or any other single factor or group of factors. These may all be important to one extent or another, but the viability of an ethnos is based solely on its cohesion and the mutual inclusivity and common purpose of its members. The Anglo ethnos reached its zenith in the wake of World War II, during which many social groups were intermixed in the military and their more intelligent members were allowed to become educated and to advance socially by the GI Bill.

Fantastic potential was unleashed when privilege—the curse of the Anglo ethnos since its inception—was temporarily replaced with merit and the more talented demobilized men, of whatever extraction, were given a chance at education and social advancement by the GI Bill. Speaking a new sort of American English based on the Ohio dialect as a Lingua Franca, these Yanks—male, racist, sexist and chauvinistic and, at least in their own minds, victorious—were ready to remake the entire world in their own image.

They proceeded to flood the entire world with oil (US oil production was in full flush then) and with machines that burned it. Such passionate acts of ethnogenesis are rare but not unusual: the Romans who conquered the entire Mediterranean basin, the barbarians who then sacked Rome, the Mongols who later conquered most of Eurasia and the Germans who for a very brief moment possessed an outsized Lebensraum are other examples.

And now it is time to ask: what remains of this proud conquering Anglo ethnos today? We hear shrill feminist cries about “toxic masculinity” and minorities of every stripe railing against “whitesplaining” and in response we hear a few whimpers but mostly silence. Those proud, conquering, virile Yanks who met and fraternized with the Red Army at the River Elbe on April 25, 1945—where are they? Haven’t they devolved into a sad little subethnos of effeminate, porn-addicted overgrown boys who shave their pubic hair and need written permission to have sex without fear of being charged with rape?

Will the Anglo ethnos persist as a relict, similar to how the English have managed to hold onto their royals (who are technically no longer even aristocrats since they now practice exogamy with commoners)? Or will it get wiped out in a wave of depression, mental illness and opiate abuse, its glorious history of rapine, plunder and genocide erased and the statues of its war heroes/criminals knocked down? Only time will tell.

Stage 5: Cultural collapse. Faith in “the goodness of humanity” is lost.

The term “culture” means many things to many people, but it is more productive to observe cultures than to argue about them. Cultures are expressed through people’s stereotypical behaviors that are readily observable in public. These are not the negative stereotypes often used to identify and reject outsiders but the positive stereotypes—cultural standards of behavior, really—that serve as requirements for social adequacy and inclusion. We can readily assess the viability of a culture by observing the stereotypical behaviors of its members.

• Do people exist as a single continuous, inclusive sovereign realm or as a set of exclusive, potentially warring enclaves segregated by income, ethnicity, education level, political affiliation and so on? Do you see a lot of walls, gates, checkpoints, security cameras and “no trespassing” signs? Is the law of the land enforced uniformly or are there good neighborhoods, bad neighborhoods and no-go zones where even the police fear to tread?

• Do random people thrown together in public spontaneously enter into conversation with each other and are comfortable with being crowded together, or are they aloof and fearful, and prefer to hide their face in the little glowing rectangle of their smartphone, jealously guarding their personal space and ready to regard any encroachment on it as an assault?

• Do people remain good-natured and tolerant toward each other even when hard-pressed or do they hide behind a façade of tense, superficial politeness and fly into a rage at the slightest provocation? Is conversation soft in tone, gracious and respectful or is it loud, shrill, rude and polluted with foul language? Do people dress well out of respect for each other, or to show off, or are they all just déclassé slobs—even the ones with money?

• Observe how their children behave: are they fearful of strangers and trapped in a tiny world of their own or are they open to the world and ready to treat any stranger as a surrogate brother or sister, aunt or uncle, grandmother or grandfather without requiring any special introduction? Do the adults studiously ignore each others’ children or do they spontaneously act as a single family?

• If there is a wreck on the road, do they spontaneously rush to each others’ rescue and pull people out before the wreck explodes, or do they, in the immortal words of Frank Zappa, “get on the phone and call up some flakes” who “rush on over and wreck it some more”?

• If there is a flood or a fire, do the neighbors take in the people who are rendered homeless, or do they allow them to wait for the authorities to show up and bus them to some makeshift government shelter?

It is possible to quote statistics or to provide anecdotal evidence to assess the state and the viability of a culture, but your own eyes and other senses can provide all the evidence you need to make that determination for yourself and to decide how much faith to put in “the goodness of humanity” that is evident in the people around you.

USA in a Debt Trap Death Spiral

Posted on by
2

By F. William Engdahl

Source: New Eastern Outlook

The US economy and its financial structures have never recovered from the great financial meltdown of 2008 despite the passage of ten years. Little discussion has been given to the fact that the Republican Congress last year abandoned the process of mandatory budget cuts or automatic sequestration that had been voted in a feeble attempt to rein in the dramatic rise in US government debt. That was merely an added factor in what soon will be recognized as a classic debt trap. What is now looming over not just the US economy but also the global financial system is a crisis that could spell the end of the post-1944 dollar system.

First some basic background. When President Nixon, on advice of Paul Volcker, then at US Treasury, announced on August 15, 1971 the unilateral end of the Bretton Woods gold-dollar system, to replace it with a floating dollar, Washington economists and Wall Street bankers realized that the unique role of the US dollar as leading reserve currency held by all central banks and the currency for world commodity and other trade, especially oil, gave them something that appeared to be a gift from monetary heaven.

So long as the world needed US dollars, Washington could run government deficits without end. Foreign central banks, especially the Bank of Japan in the 1980’s and since the turn of the century, the Peoples’ Bank of China, would have little choice but to reinvest their surplus trade dollar earnings in interest-bearing AAA-rated US Treasury securities. This perverse dollar system allowed Washington to finance its wars in faraway places like Afghanistan or Iraq with other peoples’ money. During the Administration of George W. Bush, when Washington’s annual budget deficit exceeded annually one trillion dollars, Vice President Dick Cheney cynically quipped, “debt doesn’t matter; Reagan proved that.” Up to a point that appeared so. Now we are getting dangerously near to that “point” where debt does matter.

Federal Debt Rise

There are generally speaking three major divisions of debt measured in the US economy: Federal debt of Washington, corporate debt and private household debt. Today, owing in large part to ten years of historic low interest rates following the largest financial crisis in history–the 2007-2008 sub-prime crisis that became a global systemic crisis after September 2008–all three sectors have borrowed as if there was no tomorrow because of the near-zero Federal Reserve interest rates and their various Quantitative Easings. Nothing so radical can last forever.

Since the financial crisis erupted in 2008 US Federal debt has more than doubled from $10 trillion to over $21 trillion today. Yet conditions were made manageable by a Federal Reserve emergency policy that dealt with the financial and banking crisis by buying almost $500 billion annually of that debt. Much of the remainder was bought by China, Japan and even Russia and Saudi Arabia. Further debt levels were restrained by the bipartisan spending caps established in the Budget Control Act of 2011 that had kept recent deficits partially in check.

Now conditions of future US Federal debt and deficit growth are pre-programmed for systemic crisis over the next several years.

‘Trumponomics’ Disaster

The economics of the Trump Tax Cuts Act of 2017, signed in December, dramatically cut certain taxes on business corporations from 35% to 21%, but did not offset that with revenue increases elsewhere. The promise is that cheaper taxes will spur economic growth. This is a myth under present economic conditions and overall public and private debt burdens. Instead, the new tax law, assuming ideal economic conditions, will decrease expected revenues by a total of $1 trillion over the next 10 years. If the economy goes into severe recession, highly likely, tax revenues will plunge and the deficits will explode even more.

What the new Trump tax cut act will do is dramatically increase the size of the US annual budget deficit. The Congressional Budget Office estimates that as early as Fiscal Year 2019 the annual deficit that must be financed by debt will reach $1 trillion. Then the Treasury Borrowing Advisory Committee expects government debt issues of $ 955 billion for FY2018, compared with $ 519 billion in FY 2017. Then for FY 2019 and 2020 the deficit will exceed $1 trillion. By 2028, ten years from now, under mild economic assumptions, the size of the USA Federal debt will rise to an untenable $34 trillion from roughly $21 trillion today, and the deficit in 2028 will exceed $1.5 trillion. And this year 2018 alone, with historically low interest rates the cost of interest only on the total Federal debt will reach $500 billion.

Zombie borrowers…time bombs

Now after almost a decade of unprecedented low interest rates to bail out Wall Street and create new asset inflation in stocks, bonds and housing, the Fed is in the early stages of what some call QT or Quantitative Tightening. Interest rates are rising and have been for the past year, so far very gradually as the Fed is being cautious. The Fed however is continuing to raise rates, and now the Fed Funds stands at 1.75% after nearly ten years at effectively zero. Were they to stop now it would signal a market panic that the Fed knew something far worse than they say.

Because never in its history has the Federal Reserve indulged in such a monetary experiment with so low rates so long, the effects of reversing are going to be as well unprecedented. At the onset of the 2008 financial crisis the Fed rates were around 5%. That is what the Fed is aiming at to return to “normal.” However, with rising interest rates, the lowest credit sector, so-called non-investment grade or “junk bonds” face domino style defaults.

Moody’s Credit Rating has just issued a warning that, barring some sort of miracle, as US interest rates rise, and they are, as much as 22% of US corporations that are being kept alive borrowing at historically low interest, not only in shale oil but in construction and utilities, so-called “zombie” corporations, will face an avalanche of mass defaults on their debt. Moody’s writes that, “low interest rates and investor appetite for yield has pushed companies into issuing mounds of debt that offer comparatively low levels of protection for investors.” The Moody’s report goes on to state some alarming numbers: since 2009, the level of global non-financial junk-rated companies has soared by 58%, representing $3.7 trillion in outstanding debt, the highest ever. Some 40%, or $2 trillion, are rated B1 or lower. Since 2009, US corporate debt has increased by 49%, hitting a record total of $8.8 trillion. Much of that debt has been used to fund stock repurchases by the companies to boost their stock price, the main reason for the unprecedented Wall Street stock market bubble.

Fully 75% of federal spending is economically non-productive including military, debt service, social security. Unlike during the 1930s Great Depression when levels of Federal debt were almost nil, today the debt is 105% of GDP and rising. Spending on national economic infrastructure including the Tennessee Valley Authority and a network of federally-build dams and other infrastructure resulted in the great economic boom of the 1950s. Spending $1.5 trillion on a dysfunctional F-35 all-purpose fighter jet program won’t do it.

Into this precarious situation Washington is doing its very best to antagonize the very countries that it needs to finance these deficits and buy the US debt—China, Russia and even Japan. As financial investors demand more interest to invest in US debt, the higher rates will trigger the default avalanche Moody’s warns. This is the real backdrop to the dangerous US foreign policy actions of the recent period. No one in Washington seems to care and that’s the alarming fact.

Demise Of The Petrodollar Has The Potential To Reshape The Geopolitical World

Posted on by
2

By James ONeill

Source: New Eastern Outlook

In the early 1970s President Richard Nixon instigated two changes that had profound effects. The first of these was taking United States off the gold standard; i.e. henceforth US dollars would no longer be convertible to Gold. Ordinarily this might have been expected to have significant ramifications for the value of the US dollar.

Deleterious effects however, were avoided by another equally profound change. Nixon’s National Security Adviser Henry Kissinger negotiated an agreement with Saudi Arabia that henceforth all oil(initially from Saudi Arabia but rapidly extended to all OPEC) countries would be traded only in US dollars, the birth of the so called petrodollar.

It was a classic mafia style arrangement. In exchange for Saudi Arabia’s agreement to the sole use of the dollar for oil transactions, the US underwrote Saudi Arabia’s security thereby ensuring the continuity of one of the world’s most corrupt and repressive regimes.

Also unknown at the time, the US and Saudi Arabia entered an arrangement whereby Islamist terrorist groups (as long as they were Sunni) would be financed by Saudi Arabia and armed by the Americans and then used in pursuit of US geopolitical goals. Operation Cyclone, begun under the Carter administration in the 1970s was an early forerunner of this tactic, but it has been refined and utilized in different formats in a wide number of countries ever since.

The objective was always fundamentally the same: to undermine and if necessary replace governments that were insufficiently compliant with US geopolitical aims. As and when necessary, US troops and their “coalition” allies would be inserted into the target countries. The destruction of Afghanistan (2001 and continuing) Iraq (2003 and continuing) Libya (2011 and continuing) are only three of the better-known examples.

The huge financial cost of these military and geopolitical ventures did not impose a proper price upon the US because of the hegemonic role of the US dollar. The US, in effect, had their multiple wars of choice paid for by other countries as the dollar’s role in world trade created a constant demand for US Treasury bonds.

The role of the US dollar also permitted the US to impose sanctions on recalcitrant countries. The selective nature of the sanctions, always directed toward a US geopolitical or commercial advantage, were clearly an instrument of repressive power. Notwithstanding claims that they were to “punish” the alleged misconduct of the specified country, their actually use betrayed their geopolitical purpose.

Sanctions against Russia for its” invasion” of Ukraine “annexation” of Crimea, and against Iran for its “nuclear program” are two of the better known illustrations of sanctions being justified on spurious grounds..

The use and abuse of the dollar’s power is clearly unacceptable, but the capacity to invoke countermeasures was until quite recently severely limited. The single most important countervailing force is the rise of China as the economic powerhouse of the world, and importantly, the creation of alternative structures in trade, finance and security, that translate China’s economic power into a force for major change.

That change is assisted by the number of collateral developments. In 1990, the G7 nations (Canada, France, Germany, Italy, Japan, the US and UK) had a combined GDP approximately six times greater then the seven economically most important emerging nations (Brazil, China, India, Indonesia, Mexico, Russia and South Korea).

By 2013 the “emerging seven” had surpassed the G7’s GDP total and according to the IMF’s estimates for 2017, the GDP of the two groups will be $47 .5 trillion and $37.8 trillion for the emerging seven and the G7 respectively. Turkey, which is growing at 5% per annum, has replaced Mexico in the top emerging seven.

BRICS, which contains four of the emerging seven nations and the Shanghai Corporation Organisation (SCO), which includes China, India and Russia, are working together on the architecture of a monetary alternative to the dollar. The SCO alone contains 42% of the world’s population.

India’s role in BRICS and the SCO is one reason it is being assiduously cultivated by Australia, Japan and the United States in an attempt to set up a “quadrilateral four” to slow and undermine the role of China and Russia in creating an alternative to longstanding western domination and exploitation.

It was in this context that Russia’s President Putin at the recent BRICS meeting in Xiamen, China said that

“Russia shares the BRICS countries concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies.”

This speech developed a theme that Putin had developed in an article published prior to the BRICS meeting. Putin bluntly vowed to destroy the US led financial system, aiming to reform a system that gives excessive domination to a limited number of reserve (i.e. predominantly western) currencies.

China has developed a new Cross Border Interbank Payments System (CIPS) to replace the US dominated SWIFT system, itself used as a tool for financial bullying by the US. Russia has also taken steps to insulate itself from the ill effects of being excluded from SWIFT.

Other major changes are also occurring. Venezuela, with the world’s largest known oil reserves, has ceased accepting payment in US dollars. In the past US retaliation through regime change would have been immediate as happened to Libya’s Gaddafi (confirmed by Clinton’s leaked emails) and the Iraq’s Saddam Hussein who had announced that he would henceforth accept payment in euros and not dollars.

China and Qatar recently concluded a $50 billion deal denominated in Yuan. There were immediate threats and absurd demands from Saudi Arabia, undoubtedly acting as the voice of the US administration, but nothing more serious. The lack of military intervention or attempted regime change was probably attributable to Turkey’s military intervention, a series of agreements with Iran, and the probable implied threat of Chinese intervention should the Saudis further demonstrate their military incompetence (as in Yemen) by anything as rash as direct military moves against Qatar.

Saudi Arabia is rapidly reaching a crunch point in its relationship with China, a huge purchaser of Saudi Arabia’s oil. It is widely known that China wants future oil contracts denominated in Yuan. The attraction for Saudi Arabia is that the Chinese guarantee their Yuan with gold traded on the Hong Kong and Shanghai exchanges. Ironically, this puts China in the same position as the United States prior to Nixon’s withdrawal from the gold backed dollar.

The dilemma for the Saudis is that if they comply with the Chinese demands they risk losing the Americans underwriting their security. US instigated regime change in Saudi Arabia is a very real possibility and the recent maneuverings by Mohammad bin Salman to consolidate his power can be interpreted as a response to that possibility.

Typically, the western media focused on relative trivialities, such as women being able to drive motor vehicles from 2018 (in limited circumstances), rather than examining the underlying geopolitical power struggle.

The other major development worth mentioning in this context is the rapid increase in the number of countries doing deals with China using the Yuan or their own national currencies as the medium of exchange. China’s Belt and Road Initiative, currently involving 65 nations, will undoubtedly accelerate this trend. Russia and China are already each other’s critically important trading partners and all agreements between them are being denominated in either Yuan or Rubles.

It would be naïve to assume that this is all going to occur without a massive rearguard action by the Americans who know full well that their ability to defy economic logic is only possible because of the dollar’s unique role, allowing in turn military interventions to prop up their now rapidly declining power.

The United States’ aggressive and provocative actions in the South China Sea, North Korea, Ukraine, Syria and elsewhere our best interpreted as the flailing’s of a declining empire. The real question is will the United States accept the disappearance of the unique power that it has wielded since the Bretton Woods agreement of 1944 and adjust its policies accordingly, or destroy us all in their attempts to recapture a lost world.

Dollar As World’s Reserve Currency Threatened

Posted on by
1

dollar_2977362b

By Stephen Lendman

Source: Stephen Lendman Blog

US dollar dominance finances Washington’s reckless spending, global militarism, its empire of bases, endless wars, corporate takeovers, as well as speculative excess creating bubbles and economic crises – at the expense of democratic freedoms and beneficial social change.

China, Russia and other nations increasingly trading in their own currencies pose a significant threat to dollar dominance. Mahdi Darius Nazemroaya explained Washington’s currency war on China, saying:

“The Chinese are in the process of displacing the monopoly of the US dollar. They are dropping their US Treasury bonds, stockpiling gold reserves, and opening regional distribution banks for their own national currency.”

“This will give them easier access to capital markets and insulate them from financial manipulation by Washington and Wall Street.”

China bashing by public and private US officials is part of a campaign to denigrate its government – making inflammatory accusations without proof about hacking, defying its legitimate right to do what it wishes in its own waters, and threatening sanctions – legal only by Security Council members, never by individual countries against others, Washington’s longstanding weapon against independent governments.

“As the financial architecture of the world is being altered by China and Russia, the US dollar is gradually being neutralized as one of Washington’s weapon of choice,” Nazemroaya explained.

The post-WW II US-dominated international monetary system is threatened with unraveling. Washington is fighting back with propaganda, energy, financial, economic and currency wars against China and Russia, said Nazemroaya.

Russia sold a fifth of its $125 billion in US Treasuries holdings last March. China’s US Treasuries holdings exceed $1 trillion dollars. It’s been aggressively dumping them.

It’s gone from the world’s largest buyer to its biggest seller. Will other countries follow suit? Nations are increasingly trading in their own currencies. Weakening America’s financial strength is the best way curb its imperial ambitions.

Russia drafted legislation aimed at eliminating dollars and euros in trade between Commonwealth of Independent States (CIS) countries: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Russia, and other former Soviet republics.

A Kremlin statement said “(t)his would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets.”

It would facilitate regional trade and help achieve economic stability. It would reduce dependency on the world’s two dominant currencies.

China’s central bank launched a Heilongjiang Province yuan/ruble program – Russia’s currency replacing the dollar.

Both countries are increasingly trading in their own currencies – bypassing dollar transactions. If enough other countries follow suit, dollar strength will weaken. Its hegemonic ambitions will be curbed – how much, how soon remains to be seen.

 

Stephen Lendman lives in Chicago. He can be reached at lendmanstephen@sbcglobal.net.

His new book as editor and contributor is titled “Flashpoint in Ukraine: US Drive for Hegemony Risks WW III.”

http://www.claritypress.com/LendmanIII.html

Visit his blog site at sjlendman.blogspot.com.