Re: [Marxism] Declining fortunes of a late imperial power

["Joaquin Bustelo" <jbustelo@xxxxxxxxx>]

Louis quotes at us from something on tomdispatch.com: "How, then, will the
United States deal with the uncertainty attendant on its present declining
fortunes? A "virtual" history of parallel events featuring a new American
president is not hard to imagine, with the weak dollar playing a starring
role similar to that of the vulnerable pound back in 1956."

I can't figure out how this would work. In the British case, Eisenhower
threatened to withdraw from the pound sterling the support of what was by
then the world's main reserve currency, the dollar, which carried with it
the much greater financial resources of the United States, compared to
Britain, resources backed by the only major industrial economy that had
escaped completely unscathed from World War II, and which, within months of
the war's end, went into an unprecedented boom that lasted a quarter
century. And the dollar was ALSO backed by the gold in Fort Knox, much of it
formerly Britain's, the rest of it formerly belonging to other imperialist
powers (after they stole it from the natives, of course). 

What currency could play the role of that 1956 dollar against this 2008
dollar of today? The Euro? Depending on how much further the crisis deepens,
I think it could well become an open question whether the Euro will survive
at all. I don't think it was JUST atavistic sentimentality that led Britain
to keep its own diminished yet respectable pound sterling, backed by its
diminished but nevertheless respectable British State. If push comes to
shove, just how many "bodies of armed men" are there to enforce the Euro's
status as legal tender for all debts public and private within Euroland? And
under whose command? Where are the Euroland cops and courts and nuclear
bombs to maintain the Euro's status as money BY FORCE if it comes to that?

And in all the wheeling and dealing and shoveling dollars by the planeload
into the financial system, it's always the fed that's backing the operations
being carried out by some other central bank, never the bank of England or
Japan or the Euro central bank that's extending lines of credit to the fed.
WHY? Because the Fed creates money by fiat. The dollar is the "moneyest"
money there is today, it is that simple. 

And that is not changing, not in the short term. The news I hear, at least
from Latin America, is not a flight FROM the dollar to "stronger" currencies
but a flight TO the dollar because despite everything, it is the strongest
currency, not in exchange rates, but in what really backs a "fiat" currency,
which is the state, i.e., "bodies of armed men."

The Mexican, Argentinian and other central banks haven't been selling Euros
to maintain stable exchange rates. What the private sector Mexicans,
Argentines, Chinese and others want is dollars, preferably in the form of
U.S. Treasuries, if for no other reason than that they're easier to handle
than suitcases full of cash.

Today's dollar may be a tattered bit of tissue paper splattered with
delicate pastel salmons and pinks compared to yesterday's robust greenback.
But I suspect that at least until someone else is able to float a few
nuclear powered, nuclear armed aircraft carrier strike groups, compared to
the 12 or 15 the U.S. has on patrol, and at least one brigade-size Marine
expeditionary forces with its own tanks, artillery, general staff, logistics
and intelligence, and significant air assets, compared to the three or four
Washington has at its command, all this talk about "dollar weakness" will
remain strictly limited to exchange rates, and not who rules the world.

We should remember that all this talk of the U.S. being skinned alive by the
Chinese through their exports works out rather differently if at the Chinese
receiving end of this torrent of dollars is the Chinese office, subsidiary,
or sock-puppet of some U.S.-dominated multinational firm. Which appears to
be true to a very significant extent on everything from computers to apparel
to toys. And to the degree it isn't true, then there are the central banks.
If anything, the current crisis has convinced central banks everywhere in
the Third World of the need to keep even larger and even more highly liquid
(and thus lower yielding) dollar reserves to prevent and face up to panic
selling of THEIR OWN currencies when a financial crisis in the dollar sphere
erupts.

The fear promoted by the vulgar bourgeois press that "the Chinese" or "the
Saudis" are going to buy up every last square inch of "America" should be
tempered by the thought that, had they actually DONE that, right now it
would be those countries selling controlling shares over themselves to the
U.S. Treasury in exchange for a few billion dollars to stay afloat a few
more months, in the hope the storm will pass before the capital infusion
runs out, instead of the major U.S. banks. 

On the contrary, this crisis has been a lesson to central-bank-controlled or
-influenced "sovereign funds" that, to the extent they don't simply dump all
their money into short-term Treasury bills for 0% interest or as close to as
makes no difference, the overwhelming majority of the rest should go into
U.S. government bonds, praying that US inflation will moderate and thus the
miserable interest rates these bonds currently offer will mostly make up for
the decline in the dollar's value. ONLY to the extent that those funds could
not conceivably, under the most catastrophic of circumstances, be needed to
beat back a concerted attack on the currency should they be considered 

What is ACTUALLY going on in world  financial markets RIGHT NOW is that
everyone is lending the U.S. government money at NEGATIVE real interest
rates, negative AFTER you subtract inflation. China, Argentina, Mexico and
countless other countries RIGHT NOW are, in effect, PAYING the United States
for the "privilege" of NOT GETTING BACK from the United States an equal (in
value) amount of goods IN EXCHANGE for the real material goods those
countries have GIVEN the United States. What a racket!

It seems incredibly perverse but it is nevertheless true: a WEAKENING or
CRISIS of the dollar leads to an even bigger crisis of confidence in third
world currencies, leading to increased demand for the dollar and thus part
of the dollar's weakness is lifted from its shoulders and placed on those of
weaker currencies. And as part of this transfer of weakness, the U.S. gets
to import all sorts of goodies just in exchange for its own currency, which
costs a couple of pennies at most to print but is worth many thousands of
dollars when in the form of treasury obligations. 

This is my point:

I think as top imperialist dog, the U.S. has significant, substantial
subsidies (transfers of value) from the rest of the world, or at least the
Third World, that run counter to the simplistic notion that U.S. economic
and financial pre-eminence will simply collapse. I don't know how deep this
crisis can sink the U.S. economy, but I'm pretty sure however deep the U.S.
sinks, the rest of the world, and especially the Third World, will sink even
deeper due to those subsidies cushioning the fall for the U.S. and deepening
it for all countries that remain within the capitalist orbit. 

Joaquin


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