"Super Imperialism - The Economic Strategy of American Empire"

Michael Hudson’s controversial book, “Super Imperialism - The Economic Strategy of American Empire”, Pluto Press, New Edition March 2003, offers a no-holds-barred elucidation of a plausible American Grand Design to rule the world through calculated “Monetary Imperialism”. Click here

Hudson explains how, when America was the creditor to the world, the old European powers were bankrupted with mountains of American debt during and in between two world wars, from which America emerged with holding three-quarters of the world’s gold, as an unrivalled global exporter of goods and finance, and as the issuer of the world’s leading and indispensable reserve currency – the US dollar.

This dominance has been consolidated by an international economic and monetary order underpinned by US-centric Bretton Woods institutions - the International Monetary Fund (IMF) and the World Bank. Under the banner of a “Washington Consensus” model of development, they served to anchor the US dollar as a global currency and expanded markets and access to resources for American businesses. This gradually helped America to dismantle the Sterling Bloc and eventually displace the British Empire as the global hegemon.

After becoming a budget-deficit and debtor nation in the wake of the Korean War, America has turned what would be a weakness into a hegemonic strategy that seeks “to oblige other governments to finance the deficit by lending their surpluses to the US government, and in the process, to finance its domestic budget deficit, or to let the dollar depreciate and thus favour US exports” as well as dissipate the value of America’s external debt. What is sometimes called a “benign neglect” of payment deficits has been quietly transformed into a wilful policy.

This proactive “dollar-debtor standard” interacts with powerful banking elites and an ubiquitous “military-industrial complex’, creating the largest war machine the world has ever known. The rising influence of this complex was flagged up by President Eisenhower at his farewell address in 1961. Needless to say, after the collapse of the former Soviet Union, this war machine without peer has greatly empowered American hegemony.

What is more, the costs of this militarism are increasingly being financed by the inflow of foreign surplus capital into US Treasuries as a relatively secure haven for excess national liquidity. This helps to prop up the strength of the dollar and enables America to continue to spend by exercising the unique power of seigniorage in printing as much greenback as America pleases.

This underpinned former US Treasury Secretary John Connally’s famous remark in 1971 that "The dollar is our currency, but it’s your problem.”

That remark is also the title of an April, 2005 article for the Hoover Institution by Niall Ferguson. He reckoned that the Bush administration’s combination of tax cuts and a global war on terror was being financed with a multibillion-dollar overdraft facility at the People’s Bank of China (through China’s huge purchase of Treasury bills), a kind of Chinese ‘tribute’ to the ‘American Empire’. Click here

In April, 2009, Paul Krugman, New York Times Op-ed columnist and Novel Prize laureate, called this China’s ‘Dollar Trap’.

Under a “Structuralist Rationale”, some academics tried to justify this as part and parcel of a global “liberal capitalism” where the US government is merely acting as a trusted global banker attracting deposits from national savers across the globe. Credit is expanded and invested in ways that boost the strength of this global banking system.

As regards military hegemony, well, this is what is required to maintain a safe and stable international order, which is essential for global commerce and prosperity.

Regardless of recent defence budget cuts and growing concern with mounting US national debt, it seems that the above thinking is at least lurking if not very much alive in the minds of some US national planners.

However, since the two world wars, a great deal of water has passed under the bridge. The tide has now turned and the world is a very different place. While US leadership and the US dollar may still look unassailable, how long this position may last is increasingly debatable.

The following developments are instructive -

(a) Not only has the United States lost its position as the world’s largest creditor since the Korean War, it has now lost its position as the world’s largest exporter. While there are still a range of American goods and services that the world remains loyal to, the world is no longer captive to American exports.

(b) Instead of America, China is increasingly becoming the heart of a world production and supply chain where resources, components, technologies, skills, freight and finance may congregate from all corners of the earth.

(c) Unlike the years before the Second World War, Europe is now very much a unified market, if not yet a compete financial, let alone political union. It has now displaced the United States as China’s largest trading partner and in turn China has now become Europe’s largest trading partner ahead of the United States.

(d) There is also a trend of reducing dependence on trade with America amongst developing countries. Since 1990 the average annual growth rate of trade between developing countries grew twice the rate of growth of world trade. Developing-country trade with each other is now 39% of their total trade. See an article by Mari Pangestu, Indonesia’s Trade Minister “APEC and the new dynamics of world trade”, dated December 5th, 2010 on East Asia Forum, an online platform for Economics, Politics and Public Policy in East Asia and the Pacific. Click here

(e) The faith in the greenback as a long-term storage of value for national savers is beginning to frail. Why should surplus countries continue to put all their eggs in a greenback basket when they can now deploy more of their hard-earned cash to acquire assets and resources across the globe or in other global currencies less prone to devaluation through the printing press? Despite the Euro crisis, the euro or at least other European currencies including the Swiss franc, other international currencies like the Japanese yen , as well as emerging currencies like the Chinese yuan, may in due course offer asset classes with more attractive returns.

(f) Albeit remaining non-convertible on the capital account, the Chinese yuan (RMB) is being aggressively internationalized for bilateral trade settlements, the issuance of RMB-denominated bonds and other financial products, cross-border investments, including mergers and acquisitions, and foreign direct investments (FDI) in and outward direct investments (ODI) from China. It is now beginning to be bought, though still in relatively small quantities, by some central banks including Japan and Malaysia as part of their foreign currency reserves. The day when the Chinese yuan becomes at least one of a number of leading international currencies does not look very far away.

See my recent presentation "Securing renminbi via the private sector- Renminbi Internationalization: Opportunities and Policy Implications for Central Banks" at a seminar for central banking executives in Kuala Lumpur. click here

(g) As forewarned in the National Intelligence Council Report “Global Trends 2025 – A Transformed World”, dated 21 November 2008, Click here the United States will be able to continue to lead the world in the coming decades but its capacity to lead is declining. More reliance has to be placed on multilateral efforts and sharing of responsibilities as the world has become more interdependent and complex, with new asymmetric forces and new state and non-state actors. The time for a hegemonic mindset is past.

(g) As tried in various quarters, hard power is not always effective in resolving conflicts or threats, whether global or regional. Eleven aircraft carrier battle groups may be of no avail in stamping out global terrorism or arresting the spread of nuclear weapons. Indeed, hard power may well prove to be counter-productive.

The Era of Multilateralism has arrived. While the world in many ways is still looking up to America for  leadership, there is risk that such leadership could be compromised, rather than enhanced, by a zero-sum hegemonic mindset.

To attain global peace, stability, and prosperity, and to address the many economic, financial, security, and ecological challenges the world is facing, there is room for more shared leadership and responsibility with the world’s rising powers on the basis of equality, mutual benefit, and respect for diversity instead of a winner-takes-all end-game.

Best regards,

Andrew

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