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The American Empire Is Bankrupt

By Chris Hedges Posted on Jun 14, 2009

This week marks the end of the dollar�s reign as the world�s reserve currency. It marks the start of a terrible period of economic and political decline in the United States. And it signals the last gasp of the American imperium. That�s over. It is not coming back. And what is to come will be very, very painful.

Barack Obama, and the criminal class on Wall Street, aided by a corporate media that continues to peddle fatuous gossip and trash talk as news while we endure the greatest economic crisis in our history, may have fooled us, but the rest of the world knows we are bankrupt. And these nations are damned if they are going to continue to prop up an inflated dollar and sustain the massive federal budget deficits, swollen to over $2 trillion, which fund America�s imperial expansion in Eurasia and our system of casino capitalism. They have us by the throat. They are about to squeeze.

There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization. The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, �the most important meeting of the 21st century so far.�

It is the first formal step by our major trading partners to replace the dollar as the world�s reserve currency. If they succeed, the dollar will dramatically plummet in value, the cost of imports, including oil, will skyrocket, interest rates will climb and jobs will hemorrhage at a rate that will make the last few months look like boom times. State and federal services will be reduced or shut down for lack of funds. The United States will begin to resemble the Weimar Republic or Zimbabwe. Obama, endowed by many with the qualities of a savior, will suddenly look pitiful, inept and weak. And the rage that has kindled a handful of shootings and hate crimes in the past few weeks will engulf vast segments of a disenfranchised and bewildered working and middle class. The people of this class will demand vengeance, radical change, order and moral renewal, which an array of proto-fascists, from the Christian right to the goons who disseminate hate talk on Fox News, will assure the country they will impose.

I called Hudson, who has an article in Monday�s Financial Times called �The Yekaterinburg Turning Point: De-Dollarization and the Ending of America�s Financial-Military Hegemony.� �Yekaterinburg,� Hudson writes, �may become known not only as the death place of the czars but of the American empire as well.� His article is worth reading, along with John Lanchester�s disturbing expos� of the world�s banking system, titled �It�s Finished,� which appeared in the May 28 issue of the London Review of Books.

�This means the end of the dollar,� Hudson told me. �It means China, Russia, India, Pakistan, Iran are forming an official financial and military area to get America out of Eurasia. The balance-of-payments deficit is mainly military in nature. Half of America�s discretionary spending is military. The deficit ends up in the hands of foreign banks, central banks. They don�t have any choice but to recycle the money to buy U.S. government debt. The Asian countries have been financing their own military encirclement. They have been forced to accept dollars that have no chance of being repaid. They are paying for America�s military aggression against them. They want to get rid of this.�

China, as Hudson points out, has already struck bilateral trade deals with Brazil and Malaysia to denominate their trade in China�s yuan rather than the dollar, pound or euro. Russia promises to begin trading in the ruble and local currencies. The governor of China�s central bank has openly called for the abandonment of the dollar as reserve currency, suggesting in its place the use of the International Monetary Fund�s Special Drawing Rights. What the new system will be remains unclear, but the flight from the dollar has clearly begun. The goal, in the words of the Russian president, is to build a �multipolar world order� which will break the economic and, by extension, military domination by the United States. China is frantically spending its dollar reserves to buy factories and property around the globe so it can unload its U.S. currency. China is frantically spending its dollar reserves to buy factories and property around the globe so it can unload its U.S. currency. This is why Aluminum Corp. of China made so many major concessions in the failed attempt to salvage its $19.5 billion alliance with the Rio Tinto mining concern in Australia. It desperately needs to shed its dollars.

�China is trying to get rid of all the dollars they can in a trash-for-resource deal,� Hudson said. �They will give the dollars to countries willing to sell off their resources since America refuses to sell any of its high-tech industries, even Unocal, to the yellow peril. It realizes these dollars are going to be worthless pretty quickly.�

The architects of this new global exchange realize that if they break the dollar they also break America�s military domination. Our military spending cannot be sustained without this cycle of heavy borrowing. The official U.S. defense budget for fiscal year 2008 is $623 billion, before we add on things like nuclear research. The next closest national military budget is China�s, at $65 billion, according to the Central Intelligence Agency.

There are three categories of the balance-of-payment deficits. America imports more than it exports. This is trade. Wall Street and American corporations buy up foreign companies. This is capital movement. The third and most important balance-of-payment deficit for the past 50 years has been Pentagon spending abroad. It is primarily military spending that has been responsible for the balance-of-payments deficit for the last five decades. Look at table five in the Balance of Payments Report, published in the Survey of Current Business quarterly, and check under military spending. There you can see the deficit.

To fund our permanent war economy, we have been flooding the world with dollars. The foreign recipients turn the dollars over to their central banks for local currency. The central banks then have a problem. If a central bank does not spend the money in the United States then the exchange rate against the dollar will go up. This will penalize exporters. This has allowed America to print money without restraint to buy imports and foreign companies, fund our military expansion and ensure that foreign nations like China continue to buy our treasury bonds. This cycle appears now to be over. Once the dollar cannot flood central banks and no one buys our treasury bonds, our empire collapses. The profligate spending on the military, some $1 trillion when everything is counted, will be unsustainable.

�We will have to finance our own military spending,� Hudson warned, �and the only way to do this will be to sharply cut back wage rates. The class war is back in business. Wall Street understands that. This is why it had Bush and Obama give it $10 trillion in a huge rip-off so it can have enough money to survive.�

The desperate effort to borrow our way out of financial collapse has promoted a level of state intervention unseen since World War II. It has also led us into uncharted territory.

�We have in effect had to declare war to get us out of the hole created by our economic system,� Lanchester wrote in the London Review of Books. �There is no model or precedent for this, and no way to argue that it�s all right really, because under such-and-such a model of capitalism ... there is no such model. It isn�t supposed to work like this, and there is no road-map for what�s happened.�

The cost of daily living, from buying food to getting medical care, will become difficult for all but a few as the dollar plunges. States and cities will see their pension funds drained and finally shut down. The government will be forced to sell off infrastructure, including roads and transport, to private corporations. We will be increasingly charged by privatized utilities�think Enron�for what was once regulated and subsidized. Commercial and private real estate will be worth less than half its current value. The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses. There will be block after block of empty stores and boarded-up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless. Our corporate-controlled media, already banal and trivial, will work overtime to anesthetize us with useless gossip, spectacles, sex, gratuitous violence, fear and tawdry junk politics. America will be composed of a large dispossessed underclass and a tiny empowered oligarchy that will run a ruthless and brutal system of neo-feudalism from secure compounds. Those who resist will be silenced, many by force. We will pay a terrible price, and we will pay this price soon, for the gross malfeasance of our power elite.

Can you provide a link to the original article?

I do believe this administration will get around to selling off public lands.

Sounds like a Radical's wishful thinking, but who knows.

I think that might be helpful, but can't see the administration giving up control of that land,

Thanks.

Chinese president attends BRIC meeting in Yekaterinburg
www.chinaview.cn 2009-06-16 20:28:29 Print
YEKATERINBURG, Russia, June 16 (Xinhua) -- Chinese President Hu Jintao and other leaders of the BRIC countries, namely Brazil, Russia, India and China, met in Yekaterinburg in central Russia Tuesday to discuss the global financial crisis and economic issues.

This is the first formal meeting of the BRIC leaders.

At the meeting, the leaders of the emerging economies will discuss issues including the current economic slowdown, restructuring of the financial system, energy security, climate change and trade, sources close to the meeting said.

"We expect the BRIC meeting to expand strategic consensus, consolidate mutual trust, coordinate to cope with the global financial and economic crisis and lay out the blueprint for its future development," said Chinese Vice Foreign Minister He Yafei last Tuesday.

Speaking at a meeting of BRIC senior representatives on security issues on May 29, Chinese State Councilor Dai Bingguo said the BRIC countries should work together to enlarge their consensus, exchange views on major international and regional issues of common concern, strengthen coordination and cooperation, and facilitate the settlement of problems.

At present, Dai said, the countries should reinforce their cooperation in dealing with the economic downturn, enhance coordination on macro-economic policies, jointly oppose protectionism in any form, speed up the reform of the international financial system, and advance the creation of an international cooperation mechanism conforming to globalization and multipolarization.

The BRIC countries are all important emerging nations and driving forces for the world's common development. They share the same or similar opinions on many international issues and all have the political desire for further cooperation and communication.

In recent years, the four countries have exchanged views on world economic and developing issues of common concern through various channels.

The BRIC countries account for 42 percent of the world's population, 14.6 percent of global Gross Domestic Product (GDP) and 12.8 percent of the global trade volume in 2008.

Source: http://news.xinhuanet.com/english/2009-06/16/content_11552492.htm

Appointment in Yekaterinburg The Ending of America's Financial-Military Empire By MICHAEL HUDSON
Appointment in Yekaterinburg
The Ending of America's Financial-Military Empire

By MICHAEL HUDSON

The city of Yekaterinburg, Russia�s largest east of the Urals, may become known not only as the end of the road for the tsars but of American hegemony too; as the place not only where US U-2 pilot Gary Powers was shot down in 1960, but where the US-centered international financial order was brought to ground.

Challenging America is the prime focus of extended meetings in Yekaterinburg, Russia (formerly Sverdlovsk) today and tomorrow (June 15-16) for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO). The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It will be joined on Tuesday by Brazil for trade discussions among the so-called BRIC nations --Brazil, Russia, India and China.

The attendees have assured American diplomats that it is not their aim to dismantle the financial and military empire of the United States. They simply want to discuss mutual aid � but in a way that has no role for the United States, for NATO or for the US dollar as a vehicle for trade. US diplomats may well ask what this really means, if not a move to make US hegemony obsolete. After all, that is what a multipolar world means. For starters, in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia. Two years later the SCO countries formally aligned themselves with the former CIS republics belonging to the Collective Security Treaty Organization (CSTO), established in 2002 as a counterweight to NATO.

Yet the Yekaterinburg meeting has elicited only a collective yawn from the US and even European press despite its agenda -- nothing less than the replacement of the global dollar standard with a new financial and military defense system. A Council on Foreign Relations spokesman has said he hardly can imagine that Russia and China can overcome their geopolitical rivalry, suggesting that America can use the divide-and-conquer that Britain used so deftly for many centuries in fragmenting foreign opposition to its own empire. But George W. Bush (�I�m a uniter, not a divider�) built on the Clinton administration�s legacy in driving Russia, China and their neighbors to find a common ground when it comes to finding an alternative to the dollar and hence to the US ability to run balance-of-payments deficits ad infinitum.

What may prove to be the last rites of American hegemony began already in April at the G-20 conference, and became even more explicit at the St. Petersburg International Economic Forum on June 5, when Mr. Medvedev called for China, Russia and India to �build an increasingly multipolar 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 worth.

The artificially maintained unipolar system,� Mr. Medvedev spelled out, 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 the fact that the United States makes too little and spends too much, particularly its vast military outlays, such as the stepped-up US military aid to Georgia announced just last week, the NATO missile shield in Eastern Europe and the US buildup in the oil-rich Middle East and Central Asia.

The sticking point for all these countries is the ability of the United States to print unlimited amounts of dollars. Overspending by U.S. consumers on imports in excess of exports, U.S. buy-outs of foreign companies and real estate, and the dollars that the Pentagon spends abroad all end up in foreign central banks. These banks then face a hard choice: either to 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.

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 ability of the U.S. economy to enrich foreign central banks for their savings. Nor does it represent any calculated investment preference. It is simply a matter of a lack of alternatives. U.S.-style �free markets� hook countries into a system that forces them to accept dollars without limit. Now they want out.

This means creating a new alternative. Rather than making merely �cosmetic changes as some countries and perhaps the international financial organisations themselves might want,� said Mr. Medvedev at the end of his St. Petersburg speech, �what we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries will not dominate.�

When foreign military spending forced the US balance of payments into deficit and drove the United States off gold in 1971, central banks were left without the traditional asset used to settle payments imbalances. The alternative was to invest their subsequent inflows of US dollars in US Treasury bonds, as if these still were �as good as gold.� Central banks now hold $4 trillion of these bonds in their international reserves. These loans have financed most of the US Government�s domestic budget deficits for over three decades now! Given the fact that about half of US Government discretionary spending is for military operations � including more than 750 foreign military bases and increasingly expensive operations in the oil-producing and transporting countries � the international financial system is organized in a way that finances the Pentagonand also US buyouts of foreign assets expected to yield much more than the Treasury bonds that foreign central banks hold.

The main political issue confronting the world�s central banks is therefore how to avoid adding yet more dollars to their reserves and thereby financing yet further US deficit spending � including military spending on their borders.

For starters, the six SCO countries and 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. Former Prime Minister Tun Dr. Mahathir Mohamad explained to me in January that as a Muslim country, Malaysia wants to avoid doing anything that would facilitate US military action against Islamic countries, including Palestine. The nation has too many dollar assets as it is, his colleagues explained. Central bank governor Zhou Xiaochuan of the People's Bank of China put an official statement on the bank�s website, explaining that the goal is now to create a reserve currency �that is disconnected from individual nations.� This is the aim of the discussions in Yekaterinburg.

Aside from no longer financing the U.S. buyout of their own industries and the U.S. military encirclement of the globe, China, Russia and other countries would no doubt like to enjoy the same kind of free ride that America has been getting. As matters stand now, they see the United States as a lawless nation, financially as well as militarily. How else to characterize a nation that proclaims a set of laws for others � on war, debt repayment and treatment of prisoners � but flouts them itself? The United States is now the world�s largest debtor yet has avoided the pain of �structural adjustments� imposed on other debtor economies. U.S. interest-rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programs that Washington forces on other countries via the IMF and other Washington vehicles.

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 to squeeze out money to pay creditors. And at home, Congress blocked, on grounds of national security, China�s CNOOK from buying Unocal, much as it blocked Dubai from buying US ports and blocked other sovereign wealth funds from buying into key infrastructure. Foreigners are invited to emulate the Japanese purchase of white elephant trophies such as Rockefeller Center, on which investors quickly lost a billion dollars and ended up walking away.

In this respect the US has given China and other payments-surplus nations no alternative but to find a way to avoid further dollar buildups. To date, China�s attempts to diversify its dollar holdings beyond Treasury bonds have not proved very successful. For starters, Hank Paulson of Goldman Sachs steered its central bank into higher-yielding Fannie Mae and Freddie Mac securities, explaining that these were de facto public obligations. They collapsed in 2008, but at least the U.S. Government took over these two mortgage-lending agencies, formally adding their $5.2 trillion in obligations to the national debt. In fact, it was largely foreign official investment that prompted the bailout. Imposing a loss for foreign official agencies would have broken the Treasury-bill standard then and there, not only by utterly destroying US credibility but because there simply are too few Government bonds to absorb the dollars being flooded into the world economy by the soaring US balance-of-payments deficits.

in late 2007, seeking more of an equity position to protect the value of their dollar holdings as the Federal Reserve�s credit bubble drove interest rates down, China�s sovereign wealth funds sought to diversify. China bought stakes in the well-connected Blackstone equity fund and Morgan Stanley on Wall Street, Barclays in Britain, South Africa�s Standard Bank (once affiliated with Chase Manhattan back in the apartheid 1960s) and in the soon-to-collapse Belgian financial conglomerate Fortis. But the US financial sector was collapsing under the weight of its debt pyramiding, and prices for shares plunged for banks and investment firms across the globe.

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. US military power is muscle-bound, based more on atomic weaponry and long-distance air strikes than on ground operations, which have become too politically unpopular to mount on any large scale.

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 �a militarily aggressive one -- as it sruggles to hold onto the immense power it once earned by economic means. The problem for the rest of the world is how to constrain its behavior. Yu Yongding, a former Chinese central bank advisor now with China�s Academy of Sciences, suggested that US Treasury Secretary Tim Geithner be advised that the United States should �save� first and foremost by cutting back its military budget. �U.S. tax revenue,� he said, �is not likely to increase in the short term because of low economic growth, inflexible expenditures and the cost of �fighting two wars.��

At present foreign savings are what finance the US budget deficit by buying most Treasury bonds. The consequence is taxation without representation for foreign voters as to how the US Government uses their forced savings. It therefore is necessary for the financial diplomats to broaden the scope of their policy-making beyond the private-sector marketplace. Exchange rates are determined by many factors besides �consumers wielding credit cards,� the usual euphemism that the US media cite for America�s balance-of-payments deficit. Since the 13th century, war has been a dominating factor in the balance of payments of leading nations � and of their national debts. Government bond financing consists mainly of war debts, as normal peacetime budgets tend to be balanced. This links the war budget directly to the balance of payments and exchange rates.

Foreign nations see themselves stuck with unpayable 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. If China�s currency rises by 10 per cent against the dollar, its central bank will show the equivalent of a $200 million loss on its $2 trillion of dollar holdings as denominated in yuan. This explains why, when bond ratings agencies talk of the US Treasury securities losing their AAA rating, they don�t mean that the government cannot simply print the paper dollars to �make good� on these bonds. They mean that dollars will depreciate in international value. And that is just what is now occurring. When U.S. Treasury Secretary Geithner assumed an earnest mien 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.

Anticipation of a rise in China�s exchange rate provides an incentive for speculators to seek to borrow in dollars to buy renminbi and benefit from the appreciation. For China, the problem is that this speculative inflow would become a self-fulfilling prophecy by forcing up its currency. So the problem of international reserves is inherently linked to that of capital controls. Why should China see its profitable companies sold for yet more freely-created US dollars, which the central bank must use to buy low-yielding US Treasury bills or lose yet further money on Wall Street?

To steer round this quandary it is necessary to reverse the philosophy of open capital markets that the world has held ever since Bretton Woods in 1944. On the occasion of Mr. Geithner�s visit to China, Zhou Xiaochuan, minister of the Peoples Bank of China, the country�s central bank, said pointedly that this was the first time since the semiannual talks began in 2006 that �China needed to learn from American mistakes as well as its successes� when it came to deregulating capital markets and dismantling controls.

So an era is winding to its end. In the face of continued US overspending, de-dollarization threatens to force countries to return to the kind of dual exchange rates common between World Wars I and II: one exchange rate for commodity trade, another for capital movements and investments, at least from dollar-area economies.

Even without capital controls, the nations meeting at Yekaterinburg are taking steps to avoid being the unwilling recipients of yet more dollars. Seeing that U.S. global hegemony cannot continue without the spending power that they themselves supply, governments are attempting to hasten what Chalmers Johnson has called �the sorrows of empire� in his book by that name � 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 is a word that Americans will hear much more in the future.

Source: http://snuffysmithsblog.blogspot.com/2009/06/appointment-in-yekaterinburg-ending-of.html

We watched the opening ceremonies on Russia Today. It looks like the S is about to HTF. All of our stuff is paid for,but it looks like hard times are a coming.

Yeah, that episode has brought out the worst fears in quite a few on the net.

I do agree that the importance of the dollar is set to diminish. But I don't see a replacement... which is kind of a precursor to the kind of doomsday apocalypse scenario the many talk of. A basket of currencies, a few commodities thrown in, maybe an IMF security of some kind thrown in. This is kind of what many of those who despise the dollar hegemony have reconciled that they will have to settle for.

Although I agree wholeheartedly that the dollar is going to have to diminish, I disagree wholeheartedly on the source of the problem. The budget deficit, and our military spending, plays its part, but the source of the dollars is the trade deficit. They go overseas where foreign central banks trade them and recycle them for US treasuries and American assets. This is done to keep an artificial lid on their own currencies.

It is currency manipulation on their part and I have no pity for them.

But this cycle tends to enrich the American power brokers while inflicting great harm on the working class. Hence the political refusal to even broach the subject. But the trade deficit is the key. Until that is addressed all the rest is just an exercise in increasing debt to the American citizen, the only source of growth for our economy.

Will

No one can live on borrowed money forever..Not an indivual, not a family or not a country. It will come home to roost eventually. I have been angry for years with the deficit spending our governemnet has continued to endorse because our politicians can't say no.. They don't want to offerend any potential voter for them.

This Chris Hedges ain't some ignorant duffer: http://www.truthdig.com/about/staff/70 .

What is also surprising about this article is that Hedges' personal beliefs appear to be way more liberal than apolitical.

If this is as well-researched and factual as it appears to be, we are in serious trouble.