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Are Major Countries Preparing to Financially Dismantle the United States and its Empire?

Posted by Admin on February 18, 2010

Are Major Countries Preparing to Financially Dismantle the United States and its Empire?

By Richard Clark (about the author)

For OpEdNews: Richard Clark – Writer

Here are the main points of an important answer to that question by economist and former Wall Street honcho, Michael Hudson:

The six-nation Shanghai Cooperation Organization (SCO) is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It was joined recently by Brazil, for trade discussions among the BRIC nations (Brazil, Russia, India and China), all of which seek a multi-polar world.

If it’s not a move to make US hegemony obsolete, then what’s the purpose of this new organization? US diplomats may well wonder. After all, this is exactly what a multi-polar world means: no hegemony by any one country. Another clue as to what’s about to happen: in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia.

It seems that the US has inadvertently driven Russia, China and their neighbors to find common ground by developing an alternative to the dollar as a dominant or reserve currency, and hence an end to the US ability to run balance-of-payments deficits ad infinitum.

Mr. Medvedev called for China, Russia and India to “build an increasingly multi-polar world order.” What this means in plain English is: We have reached our limit in subsidizing the United States’ military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate — in exchange for paper money of questionable long-term worth!

“The artificially maintained unipolar system,” Mr. Medvedev says, is based on “one big center of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks.” At the root of the global financial crisis, he concluded, is simply that the United States manufactures too little and spends too much. Especially upsetting to Russia is U.S. military spending, such as the stepped-up US military aid to Georgia, the NATO missile shield in Eastern Europe and, to all the other BRIC and SCO members as well, the huge US military and commercial buildup in the oil-rich Middle East and Central Asia.

The main worry of all these countries is America’s ability to print unlimited amounts of dollars. Overspending by US consumers on imports (way in excess of US exports), US buy-outs of foreign companies and real estate, and the many billions of dollars that the Pentagon spends abroad . . all end up in foreign central banks. These central banks then face a hard choice: either recycle these dollars back to the United States by purchasing US Treasury bills, or to let the “free market” force up their currency relative to the dollar thereby pricing their exports out of world markets and hence creating domestic unemployment and business insolvency.

So, when China and other countries recycle their dollar inflows by buying US Treasury bills to “invest” in the United States, this buildup is not really voluntary. It does not reflect faith in the U.S. economy enriching foreign central banks for their savings, or any calculated investment preference, but simply a lack of alternatives. “Free markets,” US-style, has maneuvered many countries into a system that forces them to accept dollars without limit. But now they want out.

Central banks now hold $4 trillion of U.S. bonds in their international reserves and these huge loans to the U.S. have financed most of the US Government’s domestic budget deficits for over three decades! Consider that about half of US Government discretionary spending is for military operations including the operation of more than 750 foreign military bases as well as increasingly expensive operations in the oil-producing and oil-transporting countries.

The international financial system is organized in a way that finances the Pentagon, along with US buyouts of foreign assets expected to yield much more than the Treasury bonds that foreign central banks hold. Therefore, the main political issue confronting the world’s central banks is this: How to avoid adding yet more dollars to their reserves and thereby financing ever more US deficit spending including military spending on their borders.

For starters, the six SCO countries, plus the BRIC countries, intend to trade in their own currencies so as to get the benefit of mutual credit that the United States until now has monopolized for itself. Toward this end, China has struck bilateral deals with Argentina and Brazil to denominate their trade in renminbi rather than the dollar, sterling or euros, and two weeks ago China reached an agreement with Malaysia to denominate trade between the two countries in renminbi.

China, Russia and other countries would no doubt like to get the same kind of free ride that America has been getting. As matters stand, they see the United States as a lawless nation, financially as well as militarily. How else to characterize a nation that holds out one set of laws for others on war, debt repayment and treatment of prisoners but ignores those very laws in regard to itself? The United States is now the world’s largest debtor, yet has avoided the pain of the “structural adjustments” that it so rigorously imposes on other debtor economies. In view of the austerity programs that Washington forces on other countries via the IMF and other Washington vehicles, US interest-rate and tax reductions (in the face of exploding trade and budget deficits) are seen as the height of hypocrisy.

The United States tells debtor economies to sell off their public utilities and natural resources, raise their interest rates and increase taxes while gutting their social safety nets so as to squeeze out money to pay creditors. And at home, Congress blocked China’s CNOOK from buying Unocal on grounds of national security, much as it blocked Dubai from buying US ports and other sovereign wealth funds from buying into key infrastructure. Foreigners are invited to emulate the Japanese purchase of white elephant trophies such as RockefellerCenter, on which investors quickly lost a billion dollars and ended up walking away.

Foreigners see the IMF, World Bank and World Trade Organization as Washington surrogates in a financial system backed by American military bases and aircraft carriers encircling the globe. But this military domination is a vestige of an American empire no longer able to rule by economic strength. On the economic front there is no foreseeable way in which the United States can work off the $4 trillion it owes foreign governments, their central banks and the sovereign wealth funds set up to dispose of the global dollar glut. America has become a deadbeat and indeed, a militarily aggressive one as it unrealistically seeks to hold onto the great power it once earned by economic means.

At present it is foreign savings, not the savings of Americans, that are financing the US budget deficit, by buying most Treasury bonds. The effect is taxation without representation for “foreign voters” no representation with regard to how the US government uses their forced savings. Meanwhile the US national debt continues into the stratosphere. Example: Fannie Mae and Freddie Mac were recently taken over by the US, thereby formally adding their $5.2 trillion in obligations onto our national debt.

So where is all this money coming from that the Fed is spending and therefore adding onto the already frightening national debt?

We are of course borrowing it from the central banks of Japan and China, and from other investors the world over. And, as investors around the world become ever more reluctant to buy our treasury notes — at the interest rates being offered — our own Federal Reserve is loaning money to the Treasury Dept by buying those notes (i.e. treasury certificates and bonds). In other words the US government is loaning money to the US government! This boggles the mind of any sane person because what this amounts to is that the US has started to simply create a kind of ‘magic’ money out of thin air — which means that the value of the dollar must continue to fall internationally as investors around the world become ever more reluctant to buy US Treasury certificates and bonds — which means that interest rates will have to rise in order to get people to buy them — which means that interest rates, generally, will rise (on mortgages, auto loans, business loans etc., which in turn means that businesses will be ever more reluctant (at those high interest rates) to borrow money for new equipment, employees and expansion, which then means ever higher unemployment rates and ever lower wages.

“In 2008 and 2009, 50 separate Federal programs offered $23 trillion in loans, grants, or asset guarantees to the financial sector.” This statement was buried in paragraph 11 of 12 paragraphs in a joint statement that California Senator Barbara Boxer and Virginia Senator Jim Webb issued demanding taxing TARP monies executives used to compensate themselves. That’s more than 30 times more than the official $700 billion that Congress authorized to bail out the big banks and failed Wall Street financial houses. The $700 billion figure tossed out quickly became etched in financial stone.President Bush, President Obama, Congress, Wall Street and the banking industry, and every financial pundit, duly cited the $700 billion payout as the maximum that taxpayers would be stuck with. Now, almost as an afterthought, Webb and Boxer casually toss out the $23 trillion number. What kind of sleight of hand is going on here?

The agencies that seem to have shoved vastly more money to the banks than widely disclosed, were known as early as April, 2009. In testimony before the House Oversight and Government Reform Committee Tarp’s Inspector General listed the agencies and the projected dollar amounts.

Federal Reserve — 6.8 trillion

Treasury Non-Tarp — 4.4 trillion

National Credit Union, Veterans Affairs, the Government National Mortgage Assn, the Federal Housing Administration, Federal Housing Finance Agency — 7.2 trillion

Federal Deposit Insurance Corp (FDIC) — 2.3 Trillion

US Treasury — 7.4 trillion

Several house reps screamed loud then that the treasury had stonewalled every effort to find out exactly how much of the cash the treasury actually doled out to the banks and financial houses. Nearly a year later they still really don’t know. The issue from the beginning has been transparency or the absence of it by the treasury.Congress has failed to force the federal agencies to tell what they have spent and how they spent it. At the time of his congressional testimony last April, the Tarp inspector general had 35 criminal and civil investigations of banks and financial houses for accounting fraud, securities fraud, insider trading, mortgage service misconduct, mortgage fraud and public corruption false statement and tax investigations going.But this wasn’t enough to trigger bells and whistles that treasury had grossly low balled the figures on the bailout.

Because of all this, foreign nations are starting to see themselves as likely being stuck with largely worthless IOUs under conditions where, if they move to stop the US free lunch, the dollar will plunge and their dollar holdings will fall in value relative to their own domestic currencies and other currencies.

So when Mr. Geithner put on his serious face and told an audience at Peking University in early June that he believed in a “strong dollar” and China’s US investments therefore were safe and sound, he was greeted with derisive laughter.

The nations meeting at Yekaterinburg are taking steps to avoid being the unwilling recipients of yet more dollars. Seeing that US global hegemony cannot continue without spending power that they themselves supply, governments are attempting to hasten what Chalmers Johnson called “the sorrows of empire” in his book by that name he’s referring of course to the bankruptcy of the US financial-military world order. If China, Russia and their non-aligned allies have their way, the United States will no longer live off the savings of others (in the form of its own recycled dollars) nor have the money for unlimited military expenditures and adventures.

US officials wanted to attend the Yekaterinburg meeting as observers. They were told No. it’s a word that Americans will hear much more in the future.

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