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America’s real adversaries are its European and other allies

by Michael Hudson 

Part 5 - U.S. demands are driving its allies out of the dollar-NATO trade and monetary orbit

As in a classical Greek tragedy, U.S. foreign policy is bringing about precisely the outcome that it most fears. Overplaying their hand with their own NATO allies, U.S. diplomats are bringing about Kissinger’s nightmare scenario, driving Russia and China together. While America’s allies are told to bear the costs of U.S. sanctions, Russia and China are benefiting by being obliged to diversify and make their own economies independent of reliance on U.S. suppliers of food and other basic needs. Above all, these two countries are creating their own de-dollarized credit and bank-clearing systems, and holding their international monetary reserves in the form of gold, euros and each other’s currencies to conduct their mutual trade and investment.

This de-dollarization provides an alternative to the unipolar U.S. ability to gain free foreign credit via the U.S. Treasury-bill standard for world monetary reserves. As foreign countries and their central banks de-dollarize, what will support the dollar? Without the free line of credit provided by central banks automatically recycling America’s foreign military and other overseas spending back to the U.S. economy (with only a minimal return), how can the United States balance its international payments in the face of its de-industrialization?

The United States cannot simply reverse its de-industrialization and dependence on Chinese and other Asian labor by bringing production back home. It has built too high a rentier overhead into its economy for its labor to be able to compete internationally, given the U.S. wage-earner’s budgetary demands to pay high and rising housing and education costs, debt service and health insurance, and for privatized infrastructure services.

The only way for the United States to sustain its international financial balance is by monopoly pricing of its arms, patented pharmaceutical and information-technology exports, and by buying control of the most lucrative production and potentially rent-extracting sectors abroad – in other words, by spreading neoliberal economic policy throughout the world in a way that obliges other countries to depend on U.S. loans and investment.

That is not a way for national economies to grow. The alternative to neoliberal doctrine is China’s growth policies that follow the same basic industrial logic by which Britain, the United States, Germany and France rose to industrial power during their own industrial takeoffs with strong government support and social spending programs.

The United States has abandoned this traditional industrial policy since the 1980s. It is imposing on its own economy the neoliberal policies that de-industrialized Pinochetista Chile, Thatcherite Britain and the post-industrial former Soviet republics, the Baltics and Ukraine since 1991. Its highly polarized and debt-leveraged prosperity is based on inflating real estate and securities prices and privatizing infrastructure.

This neoliberalism has been a path to becoming a failed economy and indeed, a failed state, obliged to suffer debt deflation, rising housing prices and rents as owner-occupancy rates decline, as well as exorbitant medical and other costs resulting from privatizing what other countries provide freely or at subsidized prices as human rights – health care, education, medical insurance and pensions.

The success of China’s industrial policy with a mixed economy and state control of the monetary and credit system has led U.S. strategists to fear that Western European and Asian economies may find their advantage to lie in integrating more closely with China and Russia. The U.S. seems to have no response to such a global rapprochement with China and Russia except economic sanctions and military belligerence. That New Cold War stance is expensive, and other countries are balking at bearing the cost of a conflict that has no benefit for themselves and indeed, threatens to destabilize their own economic growth and political independence.
 
Without subsidy from these countries, especially as China, Russia and their neighbors de-dollarize their economies, how can the United States maintain the balance-of-payments costs of its overseas military spending? Cutting back that spending, and indeed recovering industrial self-reliance and competitive economic power, would require a transformation of American politics. Such a change seems unlikely, but without it, how long can America’s post-industrial rentier economy manage to force other countries to provide it with the economic affluence (literally a flowing-in) that it is no longer producing at home?
 
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