Re: [Pen-l] Michael Hudson interview

["Jim Devine" <jdevine03@xxxxxxxxx>]

MW:Economist Henry Liu said in his article "Dollar hegemony enables
the US to own indirectly but essentially the entire global economy by
requiring its wealth to be denominated in fiat dollars that the US can
print at will with little in the way of monetary penalties.....World
trade is now a game in which the US produces fiat dollars of uncertain
exchange value and zero intrinsic value, and the rest of the world
produces goods and services that fiat dollars can buy at "market
prices" quoted in dollars." Is Liu overstating the case or have the
Federal Reserve and western banking elites really figured out how to
maintain imperial control over the global economy simply by ensuring
that most energy, commodities, and manufactured goods are denominated
in dollars? If that's the case, then it would seem that the actual
"face-value" of the dollar does not matter as much as long as it
continues to be used in the purchase of commodities. Is this right?

Michael Hudson: Henry Liu and I have been discussing this for many
years now. We are in full agreement. The paragraph you quote is quite
right. His Asia Times articles provide a running analysis of dollar
hegemony.

----

comment: I don't think that the key is the fact that commodities are
denominated in US$. That's secondary, a result of more fundamental
forces (see below). The price of oil is denominated in US$, but that
only means that the falling dollar implies a faster rise in the US$
price of oil than that denominated in euros. Denomination in dollar
terms doesn't protect the US economy.

Rather, the issue is that the US$ (and the euro and some others) are
_hard_ currency, convertible into almost all currencies. This
"hardness" is the reason why so many items are denominated in US$.
This "hardness" is backed by the economic, financial, and military
power of the US (or other states when we refer instead to their
currencies). Because of this hardness, other central banks hold US$ as
reserves and the US can pay its debts using its dollars (fiat money).
The US can print currency and buy real resources and goods with them.
Most countries can't.

If the current mess (including the war in Iraq) is undermining the
economic, financial, and military power of the US, then the US$ will
become more flaccid. Central Banks around the world will start using
other currencies as reserve currencies (or diversifying, as they
already are doing). Then, the US will have to start paying more of its
debt using other currencies. It will no longer have "seigneurage"
power, i.e., the ability to print paper currency to buy real
resources.

as usual, please correct me if I'm wrong.

Jim Devine
_______________________________________________
pen-l mailing list
pen-l@xxxxxxxxxxxxxxxxxx
https://lists.csuchico.edu/mailman/listinfo/pen-l