High levels of global debt are likely to turn what could be a controllable shift from expansion to contraction into a blowout of unfulfilled expectations and obligations, leading to widespread suffering.
An enormous debt bomb threatens the U.S. federal government and the nation’s financial system unless warring politicians can agree on a plan to defuse it. However, there are even bigger debt bombs ticking away beneath us all, of which fewer people are aware. It may be impossible to disarm all of them, but action is required to minimize the casualties.
Let’s start by focusing on the immediate U.S. debt threat, then widen our view to take in longer-term and more serious liabilities that have the potential to bring down the entire global industrial economy.
We are delighted and very grateful to receive the 2022 AIPEN Richard Higgott Prize for our article “COVID-19 and the failure of the neoliberal regulatory state,” published in the journal,Review of International Political Economy. It is getting harder to remember just how extraordinary, and extraordinarily awful, the response to COVID-19 was in so many countries, and the sense of shock and disbelief that accompanied every step towards lockdowns and closed borders in the early months of 2020. This article documents our real-time effort, through the ‘fog of war’ of the pandemic’s first year and in the darkness of lockdown, to make sense of a reality that we were living through that seemed to make little sense: How come the world’s richest societies, governed by states rated by international technocrats and scientists as being among the best prepared for a pandemic, failed so abysmally to respond to a challenge they had notionally been anticipating for many years? In short, how did we end up in this mess?
The IMF managing director Kristalina Georgieva has now openly admitted that the year 2023 will witness the slowing down of the world economy to a point where as much as one-third of it will see an actual contraction in gross domestic product. This is because all the three major economic powers in the world, the US, the European Union, and China, will witness slowdowns, the last of these because of the renewed Covid upsurge. Of the three, Georgieva believes, the US will perform relatively better than the other two because of the resilience of its labour market; indeed the greater resilience of the US labour market provides some hope for the world economy as a whole.
There are two ironical elements in Georgieva’s remarks. The first is that the best prospects for the world economy today, even the IMF concedes if only implicitly, lie in workers’ incomes in the US not falling greatly. For an institution that has systematically advocated cuts in wages, whether in the form of remunerations or of social wages, as an essential part of its stabilisation-cum-structural adjustment policies, this is a surprising, though welcome, admission. Of course Georgieva, many would argue, is seeing US labour market resilience only as the result of US’s economic performance and not as its cause. But her considering it a “blessing” (though not an unmixed one for reasons we shall soon see) leaves one in no doubt that the demand-sustaining role of workers’ incomes is also being recognised by her.
After the World War II, the role of the dollar has grown significantly in global trade. Since then, the American currency has been used not only for transactions in foreign markets but also for transactions within countries. The collapse of the USSR has made the dollar an informal tender (vs legal tender) across the territories of the former Soviet republics for many years. The similar situation happened in Zimbabwe when its national currency underwent severe inflation. Zimbabweans preferred the US dollar and other foreign currencies for their private purposes.
Che Guevara’s speech on behalf of the Cuban government to the ministerial meeting of the Inter-American Economic and Social Council (CIES), sponsored by the Organization of American States (OAS) at Punta del Este, Uruguay, on August 8, 1961. Head of the US delegation, Douglas Dillon, presented Washington’s recently proclaimed Alliance for Progress for official ratification by the meeting. The conference was presided over by Uruguayan President Eduardo Haedo.
Mr. President; Distinguished delegates:
Like all the delegations, we must begin by expressing our appreciation to the government and people of Uruguay for the cordial reception they have given us during this visit. I would also like to personally thank the distinguished presi dent of this gathering for the gift he made to us of the com plete works of Rodó, and would like to explain to him the two reasons why we are not beginning this presentation with a quotation from that great Latin American. The first is that I went back to Ariel after many years, looking for a passage that would express, at the present time, the ideas of someone who is, more than a Uruguayan, a man of our Americas, an American from the Río Bravo to the south. But Rodó expresses throughout his Ariel the violent struggle and the contradictions of the Latin American peoples against the nation that 50 years ago was already interfering in our economy and in our political freedom. And it was not proper to quote this in someone else’s house.
Each quarter, Patreon Plus supporters can ask Michael questions. Here is a transcript of the most recent one, just in time for our next Q&A this Thursday. Please support Michael’s work via his Patreon page.
Karl Fitzgerald: Alright, let’s get into it. We’ve got lots of good questions. Welcome, everyone. My name is Karl Fitzgerald. I’ve been Michael’s webmaster for over a decade now and yes, we’re so lucky to have Michael Hudson with us today. We’ve all read his books. We’ve all seen his whirlwind approach to unveiling the reality of economics so yes, Michael, great to have you here. I wanted to start off with just a nice easy one. I’m sure you could answer this in your sleep but for you, what are some of the guiding principles that listeners should really grasp in terms of just how rigged our economic system is today? What’s the handful of principles that you think are a useful barometer for people to grasp just how off-kilter our economic system is?
Michael Hudson: I’ve been working on a vocabulary to describe these principles. There are a number of seemingly opposing forces at work. I think we should call the inflation, The Biden Inflation, because the inflation that we’re seeing is almost entirely the result of Biden’s inaugurating a new 20- to 30-year cold war with Russia. He’s announced that it’s going to take 20 or 30 years. He said Ukraine is only the opening. His sanctioning of Russian oil, gas and food is pushed up by inflation by about at least 10% from Europe all the way to the United States. So, on the one hand, this inflation that people are saying is the problem has led the Federal Reserve to say, “Well, there’s a cure to that Biden inflation. Let’s have a depression and lower wage rates. If only we have more unemployment, we can cure the inflation.”
The reaction to the sabotage of three of the four Nord Stream 1 and 2 pipelines in four places on Monday, September 26, has focused on speculations about who did it and whether NATO will make a serious attempt to discover the answer. Yet instead of panic, there has been a great sigh of diplomatic relief, even calm. Disabling these pipelines ends the uncertainty and worries on the part of US/NATO diplomats that nearly reached a crisis proportion the previous week, when large demonstrations took place in Germany calling for the sanctions to end and to commission Nord Stream 2 to resolve the energy shortage.
The German public was coming to understand what it will mean if their steel companies, fertilizer companies, glass companies and toilet-paper companies were shutting down. These companies were forecasting that they would have to go out of business entirely – or shift operations to the United States – if Germany did not withdraw from the trade and currency sanctions against Russia and permit Russian gas and oil imports to resume, and presumably to fall back from their astronomical eight to tenfold price increase.
It is impossible to track the geoeconomic turbulence inherent to the “birth pangs” of the multipolar world without the insights of Professor Michael Hudson at the University of Missouri, and author of the already seminal The Destiny of Civilization.
In his latest essay, Professor Hudson digs deeper into Germany’s suicidal economic/financial policies; their effect on the already falling euro – and hints at some possibilities for fast integrating Eurasia and the Global South as a whole to try to break the Hegemon’s stranglehold.
That led to a series of email exchanges, especially about the future role of the yuan, where Hudson remarked:
“The Chinese whom I’ve talked to for years and years did not expect the dollar to weaken. They’re not crying about its rise, but they are concerned about flight capital from China as I think after the Party Congress [starting on October 16] there will be a crackdown on the Shanghai free-market advocacy. Pressure for the coming changes has been long building up. The spirit of reform to rein in ‘free markets’ was spreading among students over a decade ago, and they have been rising in the Party hierarchy.”
Western governments and corporations met in Switzerland to plan harsh neoliberal economic policies to impose on post-war Ukraine, calling to cut labor laws, “open markets,” drop tariffs, deregulate industries, and “sell state-owned enterprises to private investors.”
While the United States and Europe flood Ukraine with tens of billions of dollars of weapons, using it as an anti-Russian proxy and pouring fuel on the fire of a brutal war that is devastating the country, they are also making plans to essentially plunder its post-war economy.
Representatives of Western governments and corporations met in Switzerland this July to plan a series of harsh neoliberal policies to impose on post-war Ukraine, calling to cut labor laws, “open markets,” drop tariffs, deregulate industries, and “sell state-owned enterprises to private investors.”
Ukraine has been destabilized by violence since 2014, when a US-sponsored coup d’etat overthrew its democratically elected government, setting off a civil war. That conflict dragged on until February 24, 2022, when Russia invaded the country, escalating into a new, even deadlier phase of the war.
The de-dollarization or decline of dollar hegemony will put the United States in a slow crash and make everyday Americans poorer. Other countries have to de-dollarize because of American foreign policy, which forces them to create an alternative, said Michael Hudson, professor of economics at the University of Missouri-Kansas City.
“Any country that supported land reform, any country that protected its economy and grew its own food, and any country that did anything the United States didn’t like, they have all the foreign exchange, and all the savings stolen,” Hudson said, adding that “so obviously, this has led countries no longer to keep their savings in the form of U.S. dollars.”
Dollar hegemony is the system where U.S. overseas military spending and other spending deficits result in U.S. dollar savings in foreign countries. Then, foreign central banks recycle their reserves in dollars in the form of purchasing U.S. treasuries. Dollar hegemony enabled Americans to have high living standards and to become rich even though the U.S. is de-industrialized.