Michael Hudson: Washington can't call the shots anymore

By Michael Hudson
Financial Times, London
Monday, June 15, 2009

http://www.ft.com/cms/s/0/16e9f3e8-5944-11de-80b3-00144feabdc0.html?ncli...

Challenging the American empire will be the focus of meetings in Yekaterinburg, Russia, today and tomorrow for Chinese President Hu Jintao, Russian President Dmitry Medvedev, and other leaders of the six-nation Shanghai Co-operation Organisation. The alliance comprises Russia, China, Kazakhstan, Tajikistan, Kyrgyzstan, and Uzbekistan, with observer status for Iran, India, Pakistan, and Mongolia.

The attendees (who will be joined on Tuesday by Brazil for trade discussions) have assured American diplomats that dismantling the US financial and military hegemony is not their aim. They simply want to discuss mutual aid -- but in a way that has no role for the US or for the dollar as a vehicle for trade among these countries.

The meeting is an opportunity for China, Russia and India to "build an increasingly multipolar world order,",as Mr Medvedev put it in a St Petersburg speech this month. What he meant was this: We have reached our limit in subsidising the US military encirclement of Eurasia while allowing the US to appropriate our exports, companies, and real estate in exchange for paper money of questionable worth.

An "artificially maintained unipolar system," Mr Medvedev said, was based on "one big centre 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."

Keen observers of America, if not effective managers of their own economies, these countries argue that the root of the global financial crisis is that the US makes too little and spends too much. Especially upsetting is US military expenditure -- such as military aid to Georgia or the presence in the oil-rich Middle East and central Asia -- using money that foreign central banks recycle.

Overconsumption by US citizens, US buyouts of foreign companies, and dollars the Pentagon spends abroad all end up in foreign central banks. These governments face a hard choice: either recycle the dollars back to America by buying US Treasury bonds or let the "free market" force up their currencies relative to the dollar -- thereby pricing their exports out of world markets, creating domestic unemployment and business failures. US-style free markets hook them into a system that forces them to accept unlimited dollars. Now they want out.

This means creating an alternative. Rather than making merely "cosmetic changes as some countries and perhaps the international financial organisations themselves might want," Mr Medvedev concluded 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."

For starters, the six countries intend to trade in their own currencies so as to get the benefit of mutual credit, rather than give it to the US. In recent months China has struck bilateral deals with Brazil and Malaysia to trade in renminbi rather than the dollar, sterling or euros.

Many foreigners see the US as a lawless nation. How else to characterise a country that holds out a set of laws for others -- on war, debt repayment, and the treatment of prisoners -- but ignores them itself?

The US is the world's largest debtor, yet has avoided the pain of "structural adjustments" imposed on other debtor nations. US 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 programmes that the "Washington consensus" has forced on other countries via the International Monetary Fund and other vehicles. The US 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.

It is no mystery to other countries how the US remains above the law. Foreigners see a financial system backed by American aircraft carriers and military bases encircling the globe. The IMF, World Bank, World Trade Organisation, and other Washington surrogates are seen as vestiges of a lost American empire no longer able to rule by economic strength, left only with military domination.

The countries that are gathering today are convinced that this hegemony cannot continue without adequate revenues and are attempting to hasten the bankruptcy of the US financial-military world order. If China, Russia, and their allies have their way, the US will no longer live off the savings of others, nor have the money for unlimited military spending.

US officials wanted to attend Yekaterinburg as observers. They were told no. It is a word that Americans will hear much more in the future.

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The writer is professor of economics at the University of Missouri.

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