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The Story of the US Empire: Military and Monetary Hegemony

October 4, 2018

 

JULY 22, 1944 – 730 delegates of 44 allied nations met in the Mount Washington Hotel, New Hampshire, to discuss the founding of a post-war international economic order. America’s newly acquired imperial power radiated in the room, as the delegates were signing the Bretton Woods agreement.

 

America’s geographic segregation from Europe had saved it from the plunder of the Nazis. The untouched yet boosted wartime production of the United States made it an economic powerhouse, with the Dollar becoming the safest post-war currency, whereas Europe’s old imperial powers were struck by the Nazis. The war was a strategic, political, and economic asset to the New Dealer Regime of Roosevelt; now was the time to invest in the economy, to create jobs in the war production sector, hence lifting the United States out of the Great Depression, and bribing the working class away from a proletarian revolution in America. The war metastasized the old tumour of militarization, spreading it throughout the American society, giving the military-industrial complex opportunity for ever greater expansion.

 

Yet, the Americans and the British, from the experience of the Great Depression had learned the hard way, that not establishing a well-designed international economic order has the cost of unpredictable business cycles of recessions, and/or inflation. They sought to contain the working class movement by regulating Wall Street and saving capitalism. As such, John Maynard Keynes of the UK and Harry Dexter White met to sign the Bretton Woods agreement.

 

Keynes argued that a single currency, namely bancor, should become the official currency of the nations signing the agreement. In addition, the surplus nations would be financially punished if they would surpass a certain level of exports; this would prevent the deficit nations from being harmed significantly by lowering tariffs. It would also create stability and predictability in the market, while ensuring that the production of the countries involved would be capable of supporting, at least to some extent, the common currency. Keynes’ goal clearly stemmed from the fact he represented the United Kingdom. To propose an international currency union that includes the US would be like proposing equality to the privileged. Clearly, Uncle Sam was not willing to accept a system that would prevent the projection of US monetary power worldwide – especially when the US Dollar had become the world’s safest currency.

 

The US sought to utilize its monetary and economic advantage as a leverage for making the Dollar the world’s reserve currency. The first step was to implement the plan in Europe.

 

As such, Harry Dexter White proposed the establishment of a gold exchange standard. Every ounce of gold would be worth $35. Other imperialist countries such as France, Germany, and Britain would adjust their currencies accordingly, by buying or selling financial assets, and by keeping reserves of Dollars in their financial sector, so to manage the supply and demand of currencies and to fix exchange rates accordingly. Those nations would also base their currency on the gold standard. H. D. White’s proposal became the accepted term of the deal, as opposed to that of John Maynard Keynes. As such, there came a Euro-American consensus for an exchange regime, fixed and relying upon gold.

 

Yet there was another aspect of the will of the Americans that was not formalized in the agreement – the surplus-deficit relations. American New Dealers formulated a strategy to direct their surplus to Europe, to invest in the deficit countries, to rebuild and reconstruct Europe, and to create a source of demand for USA’s manufacturing industries that exported their goods to Europe. The United States, as such, was able to stabilize the exchange rate regime because the industries of Europe flooded with American surplus would be capable of supporting their currencies, while creating economic growth and reducing unemployment. The result was the lowest level of income inequality in the history of capitalism, because of the constant equalization payments from the rich countries, and their transfers to the poorer regions.

 

This Euro-American relationship based on surplus and deficit has been most commonly known as the “Marshall Plan.” In this process, the US exports helped Americanize Europe, spreading American culture. Furthermore, it gave the US leverage over Europe’s political processes. It ensured that the communists would not gain more power in West European states, because capitalism was presented in a labour-friendly fashion. Most importantly, it was part of the grand design to contain the Soviet Union, by pulling the Europeans to satisfaction in an economic and military alliance with the US. Numerous US military bases were established in Europe to further contain the Soviets and to obtain full-spectrum dominance over the region.

 

After the victory of Chairman Mao in China, the Korean War began. The Chinese and the Soviets provided support for the Democratic People's Republic of Korea (DPRK). The Americans rapidly moved Japan to strict anti-communism, and extended the Marshal Plan to the country. Japan was to become the local hegemon, which the US would use as an outpost against growing Socialist Bloc influence. To reinforce this outpost, the US heavily invested in Japan, boosting its manufacturing industries. America drove the North Koreans back and after a series of conflicts with the Chinese and the Koreans, there was a peace treaty in 1953.

 

Yet, that did not end. The United States sought to contain China through Vietnam. Thus, the US financed its war on Vietnam. America extended the US Marshal Plan to its local allies treating them as economic and military outposts, thus fostering bourgeois "growth" in countries like Singapore. As well, in 1967, there was a coup d’etat in Indonesia toppling the Non-Aligned leader Sukarno and installing the Suharto Regime. Immediately, the American finance-monopoly bourgeoisie entered the country and stole their resources.

 

But the era of prosperity was marked by another America – a kind described by Michael Harrington. 25% of Americans lived below the poverty line. The 1960s was marked by the resurgence of the left, and anti-war currents. To counter this menace, the Johnson Administration financed the "Great" Society, a bourgeois welfare project meant to bribe the proletariat away from a revolution. However, financing the "Great" Society, the "War on Poverty," and the Dirty War on Vietnam as well as the support for numerous fascist regimes in Latin America was too costly. The US Imperialists had begun to borrow from Europe for these very projects! This made it clear that the US was not able to pay back its debt at least for the short run, thereby breaking its unofficial promise that the US would be a surplus zone. But as the deficits grew further and further, America entered a vicious cycle. The US began printing money – thereby violating the principles of the Bretton Woods agreement – in order to make gold more expensive, to pay back its debt with gold. But the deficits had still increased dramatically.

 

So American imperialists under President Nixon created a fraudulent international regime. In August 15, 1971, the so-called Nixon Shock occurred. The US shifted out of the gold standard “temporarily.” This “temporarily” meant “never.” America’s new commodity for backing its currency was silver. Then, very quickly, the US Dollar became a fiat currency – a kind of money that relied on the trust of the public and the legitimization of the government, rather than relying on a real commodity. As a result, the US dollar was, metaphorically speaking, based on thin air; it had no value as a physical entity; its value was based solely on trust.

 

But the US made an ever more genius move. America’s greed extended to the Middle East also. American policy-makers had realized that the most important strategic commodity that the US had, that the Europeans and the Japanese lacked, was oil! The US had close ties to Saudi Arabia and Iran, and had oil itself. 

 

In 1973, Nixon asked the Saudi King to only accept US Dollars for its oil exports. Soon other major oil-exporting countries join in as well. 

 

The US then asked Saudi Arabia and Pahlavi Iran to cut their production and to raise oil prices, with the excuse of sanctioning Europe and Japan for their support for Zionist Entity! Punishing the West for its support for Israel's war crimes was just an excuse. In reality, the Saudis and Americans wanted high oil prices for Europe so that the Saudis would gain massive profits, while the US would further its petrodollar agenda.

 

What is the petrodollar agenda? Well, Europe and Japan were in a crisis. To reduce the prices of energy for themselves, there were two main options at the time: (1) to somehow convince the Saudis and Iranians to increase their oil supply to make oil cheaper; or (2) to raise the value of the US Dollar so that the price of oil goes down, because of the fact that oil was sold in US Dollars.

 

Given the Iranian-Saudi stubbornness, Europe and Japan had to choose the second option. The Europeans began sending capital to the US, hence purchasing their financial assets. In doing so, they first exchanged their currencies – whether Franc, Mark, Yen, etc. – for US Dollars. This created greater demand for US Dollars, resulting in the appreciation of the US Dollar. All in all, European companies increased savings in Wall Street, causing the inflow of capital, greater financialization, and tremendous wealth for Wall Street bankers. On the other hand, the Europeans benefited by having cheaper oil - given the sale of energy in US Dollars and the appreciation of the Dollar through the inflow of European and Japanese financial capital.

 

The European and Japanese governments in the crisis of the late 1970s, when the oil skyrocketed again, also began to purchase US bonds. Again, to do so, they had to supply their own currencies while exchanging them and creating demand for US Dollars, which led to the rise in the value of the US Dollars. This caused oil to become cheaper for European and Japanese manufacturers. The bonds purchased were the IOUs for financing US deficits. This international mechanism of Europeans purchasing USA's financial capital to raise the value of the US Dollar, and to thereby make oil cheaper for themselves is the petrodollar mechanism.

 

Now that the US had begun selling bonds, and was in deficit, guess where the budget was spent? What sector of the US economy were the deficits directed to? The US deficits were directed by the Reagan Administration to military spending! During the 1980s, the oil prices were very high, as were US deficits. The large deficit, which was directed to military spending made the United States the greatest military power in the world. While much of the decline of the USSR is due to the revisionist degeneration of the Soviet State and the domestic betrayals of Communist Party of the Soviet Union (CPSU) members, externally, the rise of the US imilitary did contribute to the downfall of the USSR. The Soviets, worrying a global American dominance, sought to re-balance power by entering new levels in the arms race. Yet, Soviet overspending on the military reduced the budget for other essential goods and services. This caused internal dissent to expand, which led to the collapse of the "Soviet Bloc."

 

It is also worth noting that during the late 1970s, with the increase in oil prices and stagflation – the simultaneous rise in unemployment and inflation – the US Federal Reserve raised the interest rates from 8% to 23%, as means of curbing inflation. The result was huge unemployment domestically, but the stabilization of prices. In foreign policy, on the other hand, the consequence served strategic purposes. It caused many Eastern European governments –  which while having ties to the USSR, collaborated with the West as well especially during Détente – to panic. Many of these countries financed their welfare projects through Western loans. Yet, they no longer could borrow from the West given such high interest rates. For this reason, such countries as Romania imposed austerity measures; they cut spending on healthcare and education and thereby gave rise to CIA-backed colour-revolutionary elements that sought to exploit the proletariat's genuine grievances against the revisionist regimes. Years later, these colour-"revolutionaries" toppled the East European states and helped their American and European bosses take over and exploit Eastern Europe.

 

The "Soviet Bloc" completely dissolved in 1991 and the United States became the world’s supreme hegemon. Many, such as Francis Fukuyama called this the “end of history,” the time when the projection of American power would spread freedom and democracy worldwide, when the most backwards places of the world, under American policeman-ship and humanitarian intervention could be saved from tyranny and disaster. Alas, the American imperialists who ran the show had other thoughts in mind.

 

In the early 2000s, oil prices again skyrocketed – so did US deficits under Bush, as did military spending! This time the goal was not the war on communism. The objective was the War on Terror.

 

In 2000, Saddam Hussein whose regime was sanctioned heavily by the US since the 1991 Gulf War, was convinced by European leaders to sell oil exclusively in Euros. This would have led to the decline of American monetary hegemony and would have gotten the EU more powerful against the US. It would also have caused a domino effect, encouraging other oil-rich regimes to also shift away from selling oil in US Dollars.

 

America could not tolerate losing its monetary power, which financed its deficits and military spending. Thus, while Hussein’s shift to Euros for oil was not the sole reason for the US invasion, it certainly was one of the many reasons.

 

Saddam Hussein was the first to take such a bold step. Other countries followed afterwards: Libya in 2011, and Iran, Syria, Russia, and China in recent years. 

 

So far, Syria, Libya, Iraq, and Iran which have stood against the US Dollar have suffered terrible consequences do to their revolt against American imperialism. The de-Dollarization cannot be tolerated by the leaders of the American Empire. For this reason, the US has recruited gangs of foreign mercenaries referred to as "moderate" "Syrian" rebels, as means of conspiring against the Syrian Arab Republic. Similar events occurred in Libya under Muammar Qadhafi when he sought to financially and monetarily unite all of Africa. America's constant use of force is a sign of fear and weakness. 

 

America is declining and if this trend of de-Dollarization becomes global, investors would lose trust in the US financial market: deficits and financialization won’t expand and the US would face severe inflation, perhaps to the scale of that of Germany after World War I. The Chinese have begun to make massive investments into the green technology sector as means of shifting away from expensive oil energy sources. The country's leaders are envisioning the One Belt One Road project, a 1.3 trillion Dollar project for global investments, the creation of ports and infrastructure, and the gradual replacement of US Dollars with Chinese Yuans, the replacement of the old empire with a new empire. The export of green energy and de-Dollarization worldwide would further undermine the USA’s petroleum-based monetary hegemony. The result would again be catastrophic.

 

To prevent this from occurring, it may be that US imperial leaders have entered a confrontation with China and Russia. Yet, they are currently losing in Syria and much of the Middle East. Turkey is shifting towards the Eastern Bloc, and the Saudis are losing in their Dirty War on Yemen. 

 

Other events resulting from the petro-monetary hegemony have been economic inequality and the rise in housing prices.

 

Countries around the world lack oil and sufficient energy supplies. To make oil cheaper for themselves, they depreciate their currencies against the US Dollar, thereby causing the relative appreciation of the US Dollar, which allows them to purchase cheap oil. The depreciation of third world nations’ currencies creates cheaper exports to the US, benefiting American consumers to some extent. However, the other side of the coin is that cheaper exports also imply relatively cheap labour. Companies move out of the US for that reason and trade deals further their cause. The moving out of companies, the process of the exports of finance-monopoly capital from the US is neoliberal imperialism in the third world, and implies the loss of jobs for American workers. The US working class consequently is impoverished and immiserated further. Real wages have reduced in recent years, the bourgeoisie have profited. The long-term unemployment rate is around 25% (note that the normal unemployment rate does not take into account workers discouraged for searching for jobs; thus, the 5% unemployment rate does not account for those who have lost hope). With such massive misery, no wonder how populist leaders like social democrat Sanders and far-right Trump have emerged, both of whom seek to save capitalism and imperialism, while pretending to be "anti-establishment."

 

Another consequence has been the high housing prices. In the third world, the bourgeois exploitation of labour yields the migration of peasants from the rural areas to their transformation into urban proletariats. The incredible misery of these people living in the cities comes along with the low-quality healthcare services, which boosts the birth rates. Higher population, in return causes cheaper labour and higher housing prices worldwide. Similarly in America, foreign inflow of capital causes the purchases of houses as means of generating long-term wealth for investors, which also results in the appreciation of US Dollars; the foreign investors exchange their currencies with and raise the value of the US Dollar, sending the capital to Wall Street. Thanks to the boosted money supply, Wall Street speculators can then purchase houses thereby raising the housing prices. This, not only increases the percentage of homelessness in the long run, but also causes citizens in the US to have to borrow more. Add the high housing prices with income inequality and financialization in Wall Street, and you will get the 2008 Financial Crisis!

 

America is stepping towards disintegration. It is losing its position in the world as the supreme bully who spreads democracy through setting up fascist dictatorships. 

 

 

References

 

Ghizoni, S. K. (n.d.). Creation of the Bretton Woods System. Retrieved May 04, 2017, from https://www.federalreservehistory.org/essays/bretton_woods_created

 

Varoufakis, Y. (2011). The global Minotaur: America, the true origins of the financial crisis and the future of the world economy. London & New York: Zed Books.

 

Paul Buchheit / AlterNet. (2015, December 14). Half of America Is in or Damn Near Close to Living in Poverty. Retrieved May 04, 2017, from http://www.alternet.org/economy/half-america-or-damn-near-close-living-poverty 

 

 

 

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