U.S. KLEPTOCRACY
{I made a transcript of this video, but I left out the first part of it. Economist Michael Hudson seems pretty smart, but Rodger Mitchell might be smarter at https://mythfighter.com/. I think Hudson does a pretty good job explaining the U.S. government’s financial aggression and crimes. — By the way, I edited the first half of the video myself, but it got tedious, so I went to ChatGPT to see if it could edit the rest okay. It did, but I had to feed it just a few sentences at a time. I think it did a real good job. It actually paraphrased the transcript, instead of just editing it.}
NY Times is wrong on dedollarization: Economist Michael Hudson debunks Paul Krugman's dollar defense
QUESTION.
... Krugman referred to the so-called rule of law; Krugman wrote (quote) "Unless you're a dictator planning to commit major war crimes, you need not fear that the US government will impound your assets." So what do you make of Krugman's argument, citing Kindleberger, that those three main points, incumbency, open financial markets, and rule of law, are what undergird the hegemony of the US dollar?
U.S. FINANCIAL AGGRESSION.
MH: Well, I've met over the years a number of classmates of Krugman in Kindleberger's class and one of them told me that he had a conversation with Krugman and Krugman said the one thing we're told is don't discuss money, don't discuss the character of money. And so he he never did. Don't question things that will somehow rattle the status quo narrative. It's true that there's inertia for using the dollar. That was America's great strength. It's really hard to replace one financial system and economic system and political system with another. It takes a huge effort to sort of get over the hump and say we're actually going to design a different system. Well, it was easier once the United States threatened to cut Russia and other Eurasian countries off from the SWIFT {an electronic system used by banks and financial organizations worldwide for sending payments to each other}, or the bank-clearing settlement system. China put money into developing their own alternative system. Now they've done it. They've also developed their own credit card system domestically, so they don't have to use the dollarized Visa system or MasterCard system. They're now developing another system. Krugman has adopted the language of President Biden, who says the world is dividing between democracy and autocracy. So when a Kindleberger or Krugman say, well, China and Russia are run by autocrats, they try to convince people to use this terminology, where countries trying to protect their economy from American financial aggression of cutting off their banking system, cutting off their credit card system, seizing their foreign reserves, imposing sanctions against them, that somehow they're autocrats, instead of saying they're trying to defend their economy against the American NATO financial aggression.
U.S. CRIMINAL ECONOMY.
The other point he makes is that, well, we have an open economy; people can put all their money into dollars; they can't put them into China and keep their money safe. China has no need for the kleptocrats of the world, the drug dealers, the criminals, the warlords, to lend their money to China. It's not going to do them the favor of protecting their money the way the United States did them. I've described in a number of my books how I was working for Chase Manhattan Bank in 1967 and a former State Department person came to me and gave me a document, explaining that the United States wanted to become the new offshore banking center, the new Flight Capital Center, saying that America could become a Switzerland. They asked me to calculate how much the United States could get, if it provided safety to the world drug dealers, to the world's criminals, to the world tax avoiders, to the world dictators. They said if we can have the United States set up banks offshore in the Caribbean and other countries, then we can have Chase Manhattan and other banks set up offices in these countries to take the deposits and send them to the head office. And that is how we're going to finance the Vietnam War and foreign military spending. That's exactly what the United States did by having an open economy, saying we will protect all of the savings of the criminals of the world, the kleptocrats, the client dictators that we support, the money that President Zelensky of Ukraine keeps, and that's true. America is the protector of dictators; China doesn't protect them. And that indeed makes the dollar more attractive to dictators, because the United States has criminalized the financial system. It's criminalized the balance of payments as a means of financing its military spending abroad. And I quote the documents in the various books that I've written. They were handed to me in an elevator and I gather they're not really secret. So I was able to discuss them. There was a book by Tom Naylor of Canada called Hot Money where he describes exactly how it was the United States that set up the offshore banking centres, making America to be the safe haven for criminals throughout the world. And Paul Krugman says this is what's saving the dollar. Criminals are us. If we can attract all the criminal capital to the United States, there's so much crime that we support by supporting our dictators and calling them Democrats. Or we can stabilize the dollar by criminalizing the entire dollarized economy. That's Krugman's defense of the dollar in a nutshell. And of course he's right, when he says that, if America can criminalize the global economy and destroy any attempt by Russia, China, Iran, the Eurasian countries, Pakistan, India, Saudi Arabia to be economically independent, if it can insist that there's only one currency and a unipolar economy, then America will win and it can reduce the entire world economy to feudalism. That's certainly the neocon ideal. Let the global majority of the world reject this ideal, but what they're saying again is not fit to be seen in print in the New York Times or other media, so you're not getting the context.
QUESTION.
I wanna also briefly respond to Krugman's follow-up article that he published in the New York Times in May. And it was even more dismissive in tone. The headline is what's driving dollar doomsaying. And here you can see this kind of neoconservative ideology that you mentioned. He blames the increasing discussion of the dollarization on what he calls Putin sympathizers who want us to believe that America will be punished for, as they see it, weaponizing the dollar in scare quotes. So very dismissive of the idea, which is an objective fact that the US government uses its currency as a geopolitical weapon. He also ironically blames dedollarization on the crypto cult. We've been very critical of the crypto Ponzi scheme. So the idea that anyone who is critical of U.S. dollar hegemony is a crypto supporter is laughable. And you know he blames Elon Musk. It's a very similar article, but he makes two other main points I want to ask you about. The first point he makes is he says, again, U.S. dollar hegemony is not in danger. But even if it were, he says, (quote) "The importance of controlling the world's reserve currency is greatly overrated." And then he says "Why should it matter to the US if a contract between Chinese exporters and Brazilian importers is written in dollars as opposed to yuan or Reals?" And he says "How does the fact that the US dollar as the global reserve currency benefit the US economy?" He said "Considering altogether, dollar dominance isn't worth more to America than a fraction of 1% of GDP." What is your response to that argument?
DOLLAR DOMINANCE VALUE.
Well, basically he's criticizing the Biden administration and the entire American government policy to say why are you fighting so hard to preserve the dollar? I ask, if it's only 0.1%, why did you bomb Libya and steal all of its gold? When president Gaddafi said he wanted to have a gold-based currency for the African countries, why did you go to war with them? If it's only 0.1% why is NATO going to war with Russia over Ukraine and threatening China for using their own currency. If it's only 0.1%, why is America spending 4% of its GDP on militarily fighting countries that are seeking to become independent of U.S. financial domination? If it's only 0.1%, what is Krugman missing here? Well, it used to be they'd call their critics Commies. Well, you don't call them Commies anymore, because there isn't any Communism really. You call them Putin-sympathizers. But the fact is the CIA itself calls themselves Realists. Are you going to be a realist? The reality is what Putin is saying. Then for reality, read Putin speeches and especially read the speeches of Foreign Secretary Sergei Lavrov. That spells out exactly what the logic is for dedollarizing. This is what the Realist school is talking about and they call themselves the Realist school in the United States. They're the school that are being sidelined by Mr. Blinken and Victoria Newland and Biden's foreign State Department and CIA group.
USING OTHER CURRENCIES.
The rest of the world prefers their governments to have their own currency. Consider the impact of China and Saudi Arabia trading oil in yuan instead of dollars. When trading in dollars, countries must acquire and hold them, which supports the dollar's exchange rate. This benefits the US, allowing it to fund military operations globally. In contrast, using currencies like yuan or ruble leads to mutual savings inflows, supporting respective economies. This approach bypasses US banks, affecting global currency dynamics significantly. If Saudi Arabia trades its oil using Chinese yuan, it will need to accumulate yuan as reserves rather than holding dollars. This leads to a mutual flow of savings into each other's currencies, supporting domestic investment. Unlike transactions routed through US banks like Silicon Valley Bank or Chase Manhattan, these savings won't contribute to the US Treasury's foreign exchange reserves. This distinction becomes apparent when considering economies without extensive military expenditures and global military bases, highlighting the significant impact on exchange rates and international economic influence.
U.S. UNFAIR ADVANTAGE.
In fact, Krugman is challenging the concept of "exorbitant privilege," coined in the 1960s by French finance minister Valéry Giscard d'Estaing. This term suggests that the US benefits unfairly because the dollar serves as the global reserve currency and only the US can print dollars. Krugman disputes this, arguing that the dollar's status doesn't enable the US to sustain large balance of payments deficits. He points out that countries like Britain, Australia, and Canada have larger current account deficits relative to their GDPs than the United States does. However, Krugman's argument overlooks crucial elements of the balance of payments, including the capital account and transfer payments, which are excluded when focusing solely on the reported current account deficit from trade and services, such as the substantial deficit in oil trade. Yet, despite the majority of oil being imported by US firms, the payment for this oil largely circumvents foreign currency. Instead, these firms repatriate profits to the United States, where they purchase imported capital goods, pay US-based management, and cover other expenses domestically. I have extensively studied the financial dynamics of balance of payments versus GDP approaches, emphasizing their monetary implications. Krugman's argument overlooks how the US capital account generates substantial income. For example, many global debts are denominated in dollars, not the debtor countries' own currencies. This situation compels institutions like the IMF to enforce currency depreciation and perpetuate inflation in Latin American and African debtor nations. This oversight also disregards significant capital inflows, including illicit funds through offshore banking networks. Then you'll grasp that the balance of payments is fundamentally different from what Mr. Krugman portrays. A quick look at the Treasury Bulletin reveals US liabilities to foreign entities, including their own branches in Caribbean and other offshore banking centers, showing a substantial influx of foreign currency into the headquarters' dollar accounts of these banks. These statistics are readily available and highlight a critical aspect often overlooked. Instead of focusing on the Treasury Bulletin, Krugman directs attention to the Commerce Department's trade and current account data, which distracts from what truly matters. Currency values are shaped not just by trade in goods and services, but significantly by capital investment, debt servicing, capital flight, and illicit activities. Ignoring these factors leads to the same misunderstanding as Krugman's, which oversimplifies the US economy by focusing solely on banks financing factories and ignoring broader financial sectors like the stock market, bond market, real estate, commercial banking, private capital, and more — a blind spot in Krugman's analysis.
QUESTION.
It's quite remarkable to see a Nobel Prize-winning economist writing for the New York Times and completely omitting any reference to the capital account. Not once does he mention it in this extensive article. Yet, any student of introductory macroeconomics understands that the current account and the capital account are interrelated. There's no acknowledgment of how these dollars circulate back into the United States. Despite the US maintaining a significant trade deficit, these dollars circulate globally and eventually return to purchase assets within the US, thereby sustaining the economic bubble.
KRUGMAN'S NOBEL PRIZE.
That's why he received the Nobel Prize — because he crafted a seemingly plausible fairy tale about an economy without money, debt, military interventions, crime, or financial sector influence over government. In this narrative, governments would solely serve the people's interests, improving wages and living standards. It's an appealing mythology that garners praise and positions within media outlets that often reflect the financial elite governing the nation.
QUESTION.
Well put. Lastly, Michael, I'd like to highlight what I find to be the most shallow and frankly nonsensical aspect of Krugman's article. His central argument seems to boil down to the idea that the dollar's power stems from its existing power. Krugman concludes by asserting that the dollar's widespread use perpetuates its dominance — a circular reasoning that amounts to a tautology.
IGNORING REASONS FOR REJECTION.
This mindset is emblematic of figures like Paul Krugman and Charles Kindleberger, who receive accolades in US media circles precisely for promoting this perspective. However, it also underscores the lack of substance in their arguments. Deep down, perhaps Krugman recognizes the flimsiness of his position. If a philosophy professor were to scrutinize such reasoning, it would likely be swiftly discredited. Yet, within the realm of economics, especially among neoclassical and neoliberal economists, such notions often find serious consideration. Consider what "widely used" truly implies. Why doesn't Venezuela adopt the dollar? Why did Russia and China move away from it towards the euro or their own currencies? Why did Saudi Arabia negotiate agreements with China and other BRICS nations to trade in their respective currencies rather than in dollars? These questions challenge the oversimplified view of currency dominance touted by Krugman. If you dismiss others' perspectives, you're displaying bias. Why are central banks worldwide, including those in Russia and China, significantly increasing their gold reserves in recent months? Why are countries choosing to reduce their dollar holdings in favor of acquiring gold? There must be rationale behind these decisions. It's essential to acknowledge that different viewpoints exist. Krugman seems to suggest there's no valid reason for countries to move away from the dollar. However, speeches by foreign ministers and central bankers reveal clear motivations for their actions — yet, mainstream outlets like the New York Times often overlook these explanations, much like they ignore analyses such as Seymour Hersh's insights into geopolitical decisions.
CLOSING.
To wrap up, I want to extend my gratitude to Michael Hudson, an esteemed economist and author, for joining me. You can find more of Michael's insightful analysis and his program, Geopolitical Economy Hour with Radhika Desai, linked in the description below. It's been a pleasure discussing these critical issues.