Ukraine and the fall of the US Empire

9 Jul

The ferocity of the confrontation in Ukraine shows that we’re talking about much more than the fate of the regime in Kiev. The architecture of the entire world order is at stake.”

Sergei Naryshkin, Director of Russia’s Foreign Intelligence.

The abiding image of Vladimir Putin held by Westerners, intellectuals especially, is of his penchant for riding horses while displaying his manly torso. Though the man is for the most part dufiully depicted by our supine corporate media as the (latest) New Hitler, this is the go to image when ridicule rather than vilification is the plat du jour.

I’ll heroically refrain from acid comments on the dignity and gravitas of the G7 nonentities, each with an outlandish but king sized sense of entitlement, entertaining themselves at the Russian leader’s expense. It speaks volumes to the shallowness on display in that clip that Boris Johnson, Justin Trudeau and Ursula von der Leyen can make Emmanuel Macron look almost statesmanlike – while the leader of the free world looks every bit as Out To Lunch as usual – but let’s say no more about it, eh?

Rather, let me offer this as a more revealing image of the President of the Russian Federation.

I’m no black belt but this much I can say. Judo is nothing if not the art of using your opponent’s strength against him. And isn’t this precisely what the Kremlin has done to the West, with massive help from Washington’s extraordinary hubris and Europe’s stupendous own goal in waging economic war on Russia?

I’ve written myself – here and here for instance – on the military and economic miscalculations made by the West in respect of Russia. Decades of poking the bear – decades of lies, insults and broken promises heaped upon that proud nation – finally came to fruition on February 24, 2022. While the Kremlin’s move took me by surprise – like others sympathetic to Russia’s position, I’d thought she would continue to do nothing in the face of provocations amply set out on this site and elsewhere – one thing was immediately obvious to the few who base their assessments on available evidence rather than the power-serving offerings of mainstream media.

A Washington-led West had desired precisely this outcome.

It would take a little longer for a second truth to become clear to those with eyes to see: viz, that this same Washington led West had grossly – and in all likelihood fatally – overplayed its hand. While the Ukraine conflict did not drop from a clear blue sky – the road leading to it has many milestones – it is showing every sign of being the decisive event at which not only the Project for a New American Century, and not even just the postwar order established much to the dollar’s advantage at Bretton Woods, but five centuries of Western rule of the globe went into rapid and irreversible decline.

My cue to hand over to Mike Whitney in Global Research, July 7.

The War in Ukraine Marks the End of the American Century. “What’s Left is a Steaming Pile of Dollar Denominated Debt”

Here’s your ‘reserve currency’ thought for the day: Every US dollar is a check written on an account that is overdrawn by 30 trillion dollars.

It’s true. The “full faith and credit” of the US Treasury is largely a myth held together by an institutional framework that rests on a foundation of pure sand. In fact, the USD is not worth the paper it is printed onit is an IOU flailing in an ocean of red ink.

The only thing keeping the USD from vanishing into the ether, is the trust of credulous people who continue to accept it as legal tender.

But why do people remain confident in the dollar when its flaws are known to all? After all, America’s $30 trillion National Debt is hardly a secret, nor is the additional $9 trillion that’s piled up on the Fed’s balance sheet. That is a stealth debt of which the American people are completely unaware, but they are responsible for all the same.

In order to answer that question, we need to look at how the system actually works and how the dollar is propped up by the numerous institutions that were created following WW2. These institutions provide an environment for conducting history’s longest and most flagrant swindle, the exchange of high-ticket manufactured goods, raw materials and hard-labor for slips of green paper with dead presidents on them.

One can only marvel at the genius of the elites who concocted this scam and then imposed it wholesale on the masses without a peep of protest. Of course, the system is accompanied by various enforcement mechanisms that swiftly remove anyone who tries to either break free from the dollar or, God help us, create an alternate system altogether. (Saddam Hussein and Muammar Qaddafi come to mind.) But the fact is– aside from the institutional framework and the ruthless extermination of dollar opponents– there’s no reason why humanity should remain yoked to a currency that is buried beneath a mountain of debt and whose real value is virtually unknowable.

It wasn’t always like this. There was a time when the dollar was the strongest currency in the world and deserved its spot at the top of the heap. Following WW1, the US was “the owner of the majority of the world’s gold” which was why an international delegation “decided that the world’s currencies would no longer be linked to gold but could be pegged to the U.S. dollar, “because the greenback was, itself, linked to gold.” Here’s more from an article at Investopedia:

“The arrangement came to be known as the Bretton Woods Agreement. It established the authority of central banks, which would maintain fixed exchange rates between their currencies and the dollar. In turn, the United States would redeem U.S. dollars for gold on demand….

The U.S dollar was officially crowned the world’s reserve currency and was backed by the world’s largest gold reserves thanks to the Bretton Woods Agreement. Instead of gold reserves, other countries accumulated reserves of U.S. dollars. Needing a place to store their dollars, countries began buying U.S. Treasury securities, which they considered to be a safe store of money.

The demand for Treasury securities, coupled with the deficit spending needed to finance the Vietnam War and the Great Society domestic programs, caused the United States to flood the market with paper money….

The demand for gold was such that President Richard Nixon was forced to intervene and de-link the dollar from gold, which led to the floating exchange rates that exist today. Although there have been periods of stagflation, which is defined as high inflation and high unemployment, the U.S. dollar has remained the world’s reserve currency.” (“How the U.S. Dollar Became the World’s Reserve Currency”, Investopedia)

But now the gold is gone and what’s left is a steaming pile of debt. So, how on earth has the dollar managed to preserve its status as the world’s preeminent currency?

Proponents of the dollar system, will tell you it has something to do with “the size and strength of the U.S. economy and the dominance of the U.S. financial markets.” But that’s nonsense.

The truth is, reserve currency status has nothing to do with “the size and strength” of America’s post-industrial, service-oriented, bubble-driven, third-world-sh**hole economy. Nor does it have anything to do with the alleged safety of US Treasuries” which– next to the dollar– is the biggest Ponzi flim-flam of all time.

The real reason the dollar has remained the world’s premier currency is because of the cartelization of Central Banking.

The Western Central Banks are a de facto monopoly run by a small cabal of inter-breeding bottom-feeders who coordinate and collude on monetary policy in order to preserve their maniacal death-grip on the financial markets and the global economy. It’s a Monetary Mafia and– as George Carlin famously said: “You and I are not in it. You and I are not in the big club.” Bottom line: It is the relentless manipulation of interest rates, forward guidance and Quantitative Easing (QE) that has kept the dollar in its lofty but undeserved spot.

(For more on this I highly recommend Ellen Brown’s 2434 word piece: The Coming Gloal Revolution: Russia is following the American Playbook.)

But all that is about to change due entirely to Biden’s reckless foreign policy which is forcing critical players in the global economy to create their own rival system. This is a real tragedy for the West that has enjoyed a century of nonstop wealth extraction from the developing world.

Now– due to the economic sanctions on Russia– an entirely new order is emerging in which the dollar will be substituted for national currencies (processed through an independent financial settlement system) in bilateral trade deals until– later this year– Russia launches an exchange-traded commodities-backed currency that will be used by trading partners in Asia and Africa.

Washington’s theft of Russia’s foreign reserves in April turbo-charged the current process which was further accelerated by banning of Russia from foreign markets. In short, US economic sanctions and boycotts have expanded the non-dollar zone by many orders of magnitude and forced the creation of a new monetary order.

How dumb is that? For decades the US has been running a scam in which it exchanges its fishwrap currency for things of genuine value. (oil, manufactured goods and labor) But now the Biden troupe has scrapped that system altogether and divided the world into warring camps.

But, why?

To punish Russia, is that it?

Yes, that’s it.

But, if that’s the case, then shouldn’t we try to figure out whether the sanctions actually work or not before we recklessly change the system?

Too late for that. The war on Russia has begun and the early results are already pouring in. Just look at the way we’ve destroyed Russia’s currency, the ruble. It’s shocking! Here’s the scoop from an article at CBS:

“The Russian ruble is the best-performing currency in the world this year….

Two months after the ruble’s value fell to less than a U.S. penny amid the swiftest, toughest economic sanctions in modern history, Russia’s currency has mounted a stunning turnaround. The ruble has jumped 40% against the dollar since January.

Normally, a country facing international sanctions and a major military conflict would see investors fleeing and a steady outflow of capital, causing its currency to drop….

The ruble’s resiliency means that Russia is partly insulated from the punishing economic penalties imposed by Western nations after its invasion of Ukraine…” (Russia’s ruble is the strongest currency in the world this year“, CBS News)

Huh? You mean the attack on the ruble didn’t work after all?

Sure looks that way. But that doesn’t mean the sanctions are a failure. Oh, no. Just at look at the effect they’ve had on Russian commodities. Export receipts are way-down, right? Here’s more from CBS:

“Commodity prices are currently sky-high, and even though there is a drop in the volume of Russian exports due to embargoes and sanctioning, the increase in commodity prices more than compensates for these drops,” said Tatiana Orlova, lead emerging markets economist at Oxford Economics.

Russia is pulling in nearly $20 billion a month from energy exports. Since the end of March, many foreign buyers have complied with a demand to pay for energy in rubles, pushing up the currency’s value.” (“Russia’s ruble is the strongest currency in the world this year“, CBS News)

You’re kidding me? You mean the ruble is surging and Putin is raking in more dough on commodities than ever before?

Yep, and it’s the same deal with Russia’s trade surplus. Take a look at this excerpt from an article in The Economist:

“Russia’s exports… have held up surprisingly well, including those directed to the West. Sanctions permit the sale of oil and gas to most of the world to continue uninterrupted. And a spike in energy prices has boosted revenues further.

As a result, analysts expect Russia’s trade surplus to hit record highs in the coming months. The IIF reckons that in 2022 the current-account surplus, which includes trade and some financial flows, could come in at $250bn (15% of last year’s GDP), more than double the $120bn recorded in 2021. That sanctions have boosted Russia’s trade surplus, and thus helped finance the war, is disappointing, says Mr Vistesen. Ms Ribakova reckons that the efficacy of financial sanctions may have reached its limits. A decision to tighten trade sanctions must come next.

But such measures could take time to take effect. Even if the EU enacts its proposal to ban Russian oil, the embargo would be phased in so slowly that the bloc’s oil imports from Russia would fall by just 19% this year, says Liam Peach of Capital Economics, a consultancy. The full impact of these sanctions would be felt only at the start of 2023—by which point Mr Putin will have amassed billions to fund his war.” (Russia is on track for a record trade surplus”, The Economist)

Let me get this straight: The sanctions are actually hurting the US and helping Russia, so the experts think we should impose more sanctions? Is that it?

Precisely. Now that we have shot ourselves in the foot, the experts think it would be wise to shoot the other one too.

Am I the only one who is struck by the insanity of this policy? Check out this clip from an article at RT:

Russia could earn a record $100 billion from gas sales to European countries in 2022 due to the sharp rise in energy prices, French newspaper Les Echos reported this week, citing Citibank analysts.

According to the paper, the projected income from gas sales will be almost twice as much as last year. The analysis does not take into account profits from the sale of other Russian commodities, such as oil, coal, and other minerals.

Les Echos reports that, despite sanctions and warnings of a sweeping embargo on Russian energy, the 27 EU countries continue to send roughly $200 million per day to Gazprom.”(“Russian gas revenues projected to hit new highs”, RT)

So the revenues from gas and oil sales are literally flooding Moscow’s coffers like never before. Meanwhile, energy prices in the EU and America have skyrocketed to 40-year highs.

Can you see how counterproductive this policy is?

The EU is sinking into recession, supply lines have been severely disrupted, food shortages are steadily emerging, and gas and oil prices are through-the-roof. By every objective standard, the sanctions have not only failed, but backfired spectacularly. Can’t the Biden people see the damage they’re doing? Are they completely divorced from reality?

Imagine if the Ukrainians use Biden’s new artillery battery (HIMARS) to shell cities in Russia? Then what?

Then Putin takes off the gloves and shuts off the flow of hydrocarbons to Europe immediately. That’s what’s going to happen if Washington continues to escalate. You can bet on it. If Russia’s “Special Military Operation” suddenly becomes a war, the lights across Europe will go dark, homes will begin to freeze, factories will go silent, and the continent will slide headlong into a protracted and painful depression.

Does anyone in Washington think about these things or are they all so drunk on their own press clippings they’ve completely lost touch with reality?

Here’s more from an article at RT:

“Even as the collective West continues to insist – against all observable reality – that the conflict in Ukraine is going well for Kiev, major media outlets are becoming increasingly uneasy with the situation on the economic front. More and more observers are admitting that the embargoes imposed by the US and its allies aren’t crushing the Russian economy, as originally intended, but rather their own.

“Russia is winning the economic war,” the Guardian’s economics editor Larry Elliott declared on Thursday. “It is now three months since the west launched its economic war against Russia, and it is not going according to plan. On the contrary, things are going very badly indeed,” he wrote…

In a May 30 essay, Guardian columnist Simon Jenkins also said that the embargo had failed…

As Jenkins points out, the sanctions have actually raised the price of Russian exports such as oil and grain – thus enriching, rather than impoverishing, Moscow while leaving Europeans short of gas and Africans running out of food.” (As sanctions fail to work and Russia’s advance continues, Western media changes its tune on Ukraine”, RT)

Did you catch that part about “Russia winning the economic war”? What do you think that means in practical terms?

Does it mean that Washington’s failed attempt to maintain its global hegemony by “weakening” Russia is actually putting enormous strains on the Transatlantic Alliance and NATO that will trigger a re-calibration of relations leading to a defiant rejection of the “rules-based system.”

Is that what it means? Is Europe going to split with Washington and leave America to sink beneath its $30 trillion ocean of red ink?

Yes, that’s exactly what it means.

Uncle Sam’s 30 Year Bender

Proponents of Washington’s proxy-war have no idea of the magnitude of their mistake or how much damage they are inflicting on their own country. The Ukraine debacle is the culmination of 30 years of bloody interventions that have brought us to a tipping point where the nation’s fortunes are about to take a dramatic turn-for-the-worse. As the dollar-zone shrinks, standards of living will plunge, unemployment will soar, and the economy will go into a downward-death spiral.

Washington has greatly underestimated its vulnerability to catastrophic geopolitical blowback that is about to bring the New American Century to a swift and excruciating end.

A wise leader would do everything in his power to pull us back from the brink.

24 Replies to “Ukraine and the fall of the US Empire

  1. Oh my God, Phil, you nailed it ! It’s all in there, even if a lot that has to do with monetary policy is still beyond my full grasp. I do get the gist of it tough. This is the largest and most elaborate con in history we’re talking about, and it’s now being seen as such by all the actors on the wordly stage. We can now expect a total reshuffling of the cards in the times to come. Those who will live this moment will see everything they took for granted their entire life unravel before their very eyes, day after day. No large institution I can think of hasn’t been corrupted or captured to accommodate the wishes of those in command of this con, and we’ve seen how the knot around their neck has been tightening in the last couple of years. Never has there been so much propaganda and lies coming from the West than during the Covidscam and the Ukraine invasion. We should feel grateful to live what we are about to see, even tough it’ll be a very rough time. Thank you for laying it out so brillantly !

    • As regards the con aspect, Alan, it was one of your compatriots – chap named Charles de Gaulle if memory serves – who nailed it. Pegging the world’s currencies to the dollar, he declared, was “America’s exorbitant privilege”.

      And that was before two events in the 70s: Nixon decoupling the dollar from gold, and the agreement thrashed out after the OPEC crisis allowed oil producers to set production caps and therefore barrel prices for crude, so long as it was traded in US dollars. This obliged all net oil importers to stockpile dollars – artificially strengthening the greenback regardless of the state of the US economy.

      Incidentally, Mike Whitney is correct in saying one reason – not the only one – Saddam and Gaddafi had to be taken out is that – like Venezuela – they were planning to abandon petrodollars and reinstate a gold standard.

  2. Does anyone in Washington think about these things or are they all so drunk on their own press clippings they’ve completely lost touch with reality?

    As that nice Mr Rove pointed out to Ron Suskind all those years ago ‘we are an empire now and we make our own reality.’

    That massive sound wave you can hear is the reality based community munching its way through a Himalayan sized pile of pop corn.

    • I hardly dare articulate my wayard thoughts. Should Russia cut off the gas to Europe, the pressure on the EU to break with Washington could lead to the latter going literally nuclear . I think that unlikely, but none of us should underestimate the lengths a declining superpower might go to.

      Incidentally, the otherwise excellent piece by Ellen Brown, linked from the above post – here it is again – ends rather lamely in my view by concluding that after a brief moment of pain, the US will recover from its own hollowing out of domestic industry by rebuilding its manufacturing base. This seems to me a failure of nerve and consequent refusal to take in the scale of what is happening. That misreading is common to all who do not truly grasp the nature of modern imperialism becuse they do not fully understand capitalism, period.

  3. Andrei Martyanov points in his site to an article which will soon become a meme (if you believe in ‘memes’) in the western press. Some pundits are beginning to twig that things aren’t going as predicted. I’ve read two or three articles along the same lines so far, including the ones mentioned above in the Guardian, but these few will soon become a flood. Unfortunately for the west, it will all be too little and too late. Russia has succeeded in its ‘special action’ so far, and will go on to succeed in its other aims of de-nazification of Ukraine, the destruction of NATO as a credible force, and the discrediting of the dollar and western ‘civilisation’ (Mahatma Gandhi will be pleased). Why would they stop half way?

  4. Dear SCS, I barely know where to start….

    Knowing your political leanings and that your heart is clearly in the right place, yet seeing you hitching your wagon to Gold Standard, “sound money” policy, indicates to me that you – sorry, I dont know how to put this more politely – have unfortunately allowed yourself to be totally misinformed about macroeconomics, and the money creation process.

    Just because you want to, quite rightly, rail against the system, getting into bed with rightwing, libertarian, ‘zero-hedge’, goldbuggery(!) is just about the worst thing you could do – because re-introducing a commodity-based currency would contract the economy beyond recession, to depression and slump.

    The following will attempt to explain how the money creation system really works – at least for the UK, but the US is not dissimilar – and why a budget deficit and the (so-called) National Debt is actually good for us…..

    What gives a modern sovereign fiat currency its ‘value’ if you like, is that the government imposes taxes, on pain of property confiscation or imprisonment for non-payment, in the sole denomination that it creates. Only that denomination is acceptable; people must get hold of that currency to settle their tax liabilities. This insures ubiquitous acceptance of the national currency – which is essential for economic stability.

    In order to get hold of this currency for the payment of taxes, people need to go out to work to earn it. This allows the government to purchase whatever real resources (labour, materials, energy, land…) it needs for its purposes; what we know as public spending, on public services. So the state can then provision itself with as many teachers, doctors, nurses, police, soldiers, schools, hospitals, houses, roads, etc as there people and materials available. This is a good thing!!!

    In a commodity-based currency, or perhaps worse, in a currency peg to a commodity-based currency, the government is limited to how much it can spend – being directly connected to how much Gold it has in its vaults, or how much it can tax. And, if in a currency peg, it has to be prepared to impose damagingly high interest rates to defend a pre-determined exchange rate (see e.g. ’91 ERM debacle, ’76 Healey IMF loan crisis).

    A nation (such as the US, UK, Japan, China, etc, but notably *not* eurozone nations), with its own sovereign, fiat, free-floating currency can *always* pay its public ‘debts’, as long as those debts are denominated in that currency – because it is the creator of that currency. It need never default – so those debts can always be paid.

    Currency (and let’s not worry unduly about coins and notes) comes from two sources in our economy: government spending, and private bank lending. But private bank lending is just *credit* and must be repaid – and at interest, so the only source of any *net* financial assets (i.e. savings) must come from the currency that the government spends, and that has not yet been spent by the recipients.

    The government creates the national currency not by *printing* it per se (yes, there are some notes in circulation..), but, counter-intuitively perhaps, by *spending* it into existence. In the case of the UK, this begins by Parliament voting on an annual Budget, which determines the departmental spending arrangements for the coming year.

    What happens next, and throughout the year, is the the Paymaster General instructs the BoE to add reserves (these are just number entries on a computer) to the reserve accounts of the banks (eg Barclays, etc) where the initial recipients of public spending hold their accounts. The relevant government departments will issue a cheque or bank transfer to those recipients, but the essential thing is that the BoE has just created the reserves *out of thin air* to cover those payments. (The BoE will never refuse an instruction from the Paymaster General, because it’s wholly owned by the Treasury, in the form of the Treasury Solicitor, since 1946, when it was nationalised).

    Note that there has been no recourse *whatsoever* to any funds from prior taxation at this point; **in the UK, taxes *do not fund* spending!** After the initial govt departmental spend, however, taxes *will be imposed*, not only on the initial transaction, but on all subsequent transactions as the money flows through the economy, so that, at any positive tax rate, every single pound of the original spend will have returned (“revenue”) to the Exchequer.

    What this does, apart from ensuring that the national currency is ubiquitously accepted, is ensure that inflation will not occur as a result of continuous government spending of currency into the economy, which would soon increase demand over supply and push up prices. So taxes also serve to hoover up excess currency to prevent inflation, so that government spending can continue – ad infinitum, hopefully!

    The only currency that will *not* be subject to taxation is whatever currency happens to be *saved* by the initial or subsequent recipients of that spending, i.e. the private sector – at least, until those savings get spent, in which case they will get taxed on their journey round the economy in the usual way.

    If a government were to run a *balanced budget*, with no residual budget deficit at year end, then clearly it would have to tax away *every pound* that it had spent. A government running a balanced budget means that, in aggregate, there can be no private sector savings that year, because every pound spent must be taxed away. Running a government budget *surplus* means that not only will there be no aggregate savings in the private sector, but that it will have to either raid prior savings, or borrow currency from banks to meet its tax liabilities. So…the only way that the private sector, in aggregate, can save, is if the government runs a *budget deficit* – i.e. it has not taxed away every pound it has spent.

    This shows that *government budget deficits must be exactly equal to the savings of the non-government sector*! That’s all they are. Government deficits (and their accumulation over the years in the form of the “National , so-called, Debt”) are nothing more to worry about than worrying that Barclays is in debt to you because you have savings with them! Consider who holds Gilts, Premium Bonds, other NS&I products, and why? They are the very safest savings vehicle in the country; the Govt can always honour them because it creates the currency in which those savings are denominated – it need never default.

    So all that the National “Debt” represents – be it the UK, US, Japan, etc – is the savings of the private (non-government) sector. The funny thing is, that the only way of “getting rid of it” (though why would you want to?) is *taxing it out of existence* – because even if the holders of govt “Debt” preferred to be given their cash back (why woud they?), it would still be considered as Govt “Debt” because the repaid cash deposits sitting in the banks of those Gilt or Premium Bond sellers would *still be a government liability in the BoE’s reserve accounts*!

    Why on earth would you want to tax the private sector’s savings out of existence??? This is what the dumb libertarians bemoaning the levels of US/UK/Jap etc. Government Debt (aka. Private Sector Savings) are asking for – having the net savings of the private sector taxed away into oblivion! I’m not sure they, or, I’m sorry to say, you in this case, have really thought it through.

    Best, Mr S.

    PS. I tried to include some links to the following for reference, but your site considers them as spam. You can look ’em up if your curiousity has been aroused, which I hope it has ; )

    • ‘Return to a gold standard – don’t even think about it’
    Blog article: bilbo (dot) economicoutlook (dot) net/blog/?p=20754

    • ‘The Deficit Myth’ by Stephanie Kelton

    • ‘Macroeconomics’ by Bill Mitchell, Randall Wray, Martin Watts

    • gimms (dot) org (dot) uk/wp-content/uploads/2021/02/An-Accounting-Model-of-the-UK-Exchequer-2nd-edition.pdf

    • … seeing you hitching your wagon to Gold Standard, “sound money” policy …

      No I haven’t. On what do you base this extraordinary claim? My point is a seismic shift in geopolitical power, one important aspect of which is that Eurasia is breaking with the petrodollar, with large parts of the global south likely to follow suit. You have simply missed this, and decided to treat me to a primer in Modern Monetary Theory, of whose strengths and weaknesses I am quite aware, thank you.

      Your standard spiel on MMT lacks critical reflection, an absence familiar to me from engagements with MMT zealots who think they’ve found the Holy Grail. I too am familiar with the sources you cite as though sacrosanct: Bill Mitchell and Stephanie Kelton.

      In these writers I find both merit and extraordinary naivety. Ms Kelton’s Deficit Myth is a good read, but it is risible of her to state over and over – as she does – that by adopting MMT the US could have full employment. Full employment is anathema to capitalism! It reduces the bargaining power of capital vis a vis labour. Duh!

      Another MMT pundit worth reading is Richard Murphy. I subscribe to his Tax Research UK blog and have made more than one reference to it – what I like and what I find naive – on this site. Here’s one. You can find others using the search tool.

      Since he, like Mitchell and Kelton, shows zero awareness of imperialism – the export of monopoly capital from global north to south, and repatriation from south to north of profits, all underpinned by armed might – it is unsurprising that they fail to see why the dollar is a fiat currency. Kelton, for instance, shows zero awareness of the significance for the dollar of two 70s events: Nixon’s 1971 decoupling of it from gold (to pay for Vietnam) which he got away with because Bretton Woods had made it the world’s reserve currency, a status cemented two years later by the OPEC agreement which enforced oil trade in dollars, obliging oil importers to hold large stockpiles of the greenback and artificially inflate its value. (One reason – not the only one – Saddam and Gaddafi were Taken Out is that both attempted to move away from petrodollars.)

      The point you spectacularly miss is that this arrangement is now under threat because, the US-led West having overplayed its hand in forcing Russia (and encouraging China) to give up on its attempts to do business, the world is breaking away from the petrodollar and from SWIFT. Few realise it yet, because the US Empire has been kept invisible by its supine media, but the dollar’s free ride is over. And as the consequences of the West’s folly and hubris make themselves known in energy (hence food) shortages, the power of a ruble (or yuan or Turkish lira) linked to gas will become increasingly evident. How else do you suppose Biden’s declared aim of toasting that currency – “rouble to rubble” – has not only failed but boomeranged so decisively?

      One big question is whether Europeans can force their corrupt leaders to break with the USA, rebuild manufacturing and do business with the new superpowers. Mitchell and Kelton may not get this, but had it not been for the postwar order laid down at Bretton Woods, we wouldn’t even be speaking of MMT at all!

      (And the MMT theorists I have read all make clear that their ideas don’t really hold much currency – forgive the pun – in countries which do not have a fiat currency.}

      We could talk a good deal more about this, if you like, but my point here is that you have misread what my post is about. How long have you been aware of MMT? Your comment strikes me as the work of one given a new tool – a hammer, say – and proceeding to view every problem as though it were a nail!

  5. Dear SCS, believe me, I am completely aware of all the geopolitical points you have raised, including the issue regarding the petrodollar and reserve currency status, together with Nixon’s true motivations for abandoning the Gold Standard. I also fully understand the ridiculous machinations that the US and EU are up to re: Russia/Ukraine. What is giving Russia its power is its real resources; it doesn’t matter if the Ruble is strong or not; it is the largest country in the world in area, and sits on valuable deposits of real stuff. I can see that full employment would be anathema to NAIRU-loving capitalists.

    But you will never, ever achieve the kind of society you want to see by returning to the Gold Standard. Free-floating currencies give governments the ability to deficit spend, without needed to hike up interest rates to please money markets. Why would you want to pander to them? Yet this is precisely what ‘sound money’ does. Japan has a 250% Debt to GDP ratio; but the trade in betting against JGBs is not known as the ‘widowmaker’ for nothing!

    I have been aware of MMT for many years, seeing both Murphy and Mitchell speak in London in Sept 2015, and having had dialogues with Neil Wilson on CiF in the years preceeding that, and read literature by Mitchell, Murphy, Randall Wray, Kelton and Tchernova. If I simplified some of its principles it’s because I assumed, from your favourable quoting of Gold Standard deficit hawks, that you were unaware.

    There are of course limits to spending that MMT recognises, whether that’s inflation, lack of real resources, of inability to create the national currency. But that doesn’t mean MMT is wrong. What MMT says is that it’s idiocy for a country to not create its own currency (Greece, Italy), it’s idiocy to destroy the productive capacity of your domestic economy (whether you’re Mugabe… or Thatcher/Osborne), and it’s idiocy to borrow money in a currency that you don’t create (Argentina). MMT is not a prescription, is a description – so it’s not a case of its “ideas don’t really hold much currency… …. in countries which do not have a fiat currency”. It ably describes the problems that countries *without* their own fiat currencies (or lack of real resources, or foreign debts) will face – and why!

    If you are on the left, and do not understand how money creation works through an MMT lens, then you are condemned to do nothing but handwringing – because for as long as you think that the money supply has to be tied to a limited commodity like gold, or that taxes fund spending, or that national debt and deficits are necessarily bad things, you will always be playing away on neoliberal turf. Go ahead though… be my guest!

    • “If you are on the left, and do not understand how money creation works through an MMT lens, then you are condemned to do nothing but handwringing – because for as long as you think that the money supply has to be tied to a limited commodity like gold, or that taxes fund spending, or that national debt and deficits are necessarily bad things, you will always be playing away on neoliberal turf. Go ahead though… be my guest!”

      This strikes me as straw man as I cannot find any statement in which this is explicitly claimed.

      What you fail to distinguish is the differing impacts upon which the purpose of printed out of thin air fiat money is used.

      Where it is utilised for productive purposes the general process you outline will occur.

      However, that is not what is happening. The fiat money creation is merely being used to financialise economic activity via pure rent seeking. Hence the nonsense of QE enabling a small corporate oligarchy to buy back their own shares to keep them at inflated prices and other such unsustainable bubbles which inevitably collapse. Impoverishing both the majority of the citizenry and the economy.

      Indeed the historical record of this is so well documented I am surprised you overlook it (assuming of course that is the case rather than it not actually being factored in?).

      • Dear Dave Hansell,

        My response was in regard to the very long quotes in the original article bemoaning the level of US National Debt, and advocating a return to the Gold Standard, and the principle of ‘sound money’.

        Seeing the money creation through an MMT lens is necessary, but not sufficient.

        Politically, you can do what you want with the knowledge of how a sovereign free-floating fiat money system works. After all, that’s the system we have had since ’71, and no-one, apart from, arguably, Sunak in the depths of the pandemic, has really made good use of the opportunities – but if you want to prioritise well-being in the public realm, then moving away from Thatcherite, ‘taxpayers’ money’, ‘Govt as Household’, handbag economics is key – partly because the majority of people, when the chips are down, are not going to vote for us all to have nice things if they believe that it can only happen if their taxes increase. Yes, more tax will be collected – but only as a result of the larger and more frequent transactions that will occur as a result of increased public spending – akin to paying more tax after a substantial pay rise. And who would refuse that?

        MMT tells us that the limit to public spending is the capacity of the real economy to absorb it without overheating and cauising inflation. The limit is reached at full employment – after which, you can run a balanced budget if you like. But isn’t it far better to fix your spending limits at the level at which you have full employment, rather than to the amount of Gold there is in the BoE/FortKnox vaults?

        On QE, MMT would not see QE as the way to deficit spend. Firstly, it sees no reason to issue Gilts, other than one method to maintain an interest rate above zero if central bank reserves are too high – which BoE interest on excess reserves could equally do – and to offer a safe savings product to the private sector. They certainly are not required to enable the Govt to spend.

        In which case, re-purchasing of Gilts (QE) is also unnecessary. The (Govt-owned) BoE can simply extend an overdraft facility to the (Govt-owned) Treasury. The mothballed Ways & Means A/C would do nicely, especially ex-EU (where treaties prohibit direct govt overdrafts at their central banks).

        *** Don’t forget that the BoE repo’ing Gilts (QE) doesn’t give the ex-Gilt holders any more in the way of financial assets than they already had in the first place! *** It’s simply an asset swap; a high(-ish) interest account (Gilts), for a low interest rate account (cash deposits). The currency has already been spent by government, *and saved by the Gilt holders* – which financial assets are what the original Gilt holders used to buy them in the first place!!! Gilt issuance & QE etc just reconcile the national accounts *after* the Govt spends.

        The way to really reduce all the undesirable activities that you mention is by regulation, legislation, and taxation. Fixing the currency to the Gold Standard will not improve things for the greater public in any way whatsoever; it will severely curtail the money supply, restrict growth, and ensure austerity on steroids. Retail banks will love it though, because they will issue the private debt that will, by necessity, replace much government spending.

        I am not suggesting that MMT-informed change to improve the public realm and public well-being will happen in reality any time soon; there are powerful forces objecting to these ideas – that taxes don’t fund spending and that the govt is actually resource constrained, not financially constrained. But if anything is to substantively improve, “Govt as household”, or Gold Standard economics will certainly not be the way that that improvement will come about – only MMT can really liberate us from ‘tax funds spending’, ‘sound money’ thinking.

        Best, Mr S

        • “My response was in regard to the very long quotes in the original article bemoaning the level of US National Debt, and advocating a return to the Gold Standard, and the principle of ‘sound money’.”

          It seems reasonable to surmise that the ‘original article’ referred to here is the one from Mick Whitney.

          In the quoted extracts from the article reproduced on this blog Whitney certainly bemoans the level of the US debt – for very sound reasons. However, nowhere in the extracts quoted in this blog article is there a passage which could even remotely be interpreted as advocating the principle of sound money in the terms you have defined.

          Seems to me that someone is engaged in the activity described here in this article:

          https://thesaker.is/in-search-of-enemies/

          What is really funny is that the process you have just criticised in your response to me is in essence fully agreeing with my comment you have replied to – as well as Mick Whitney’s criticism.

          The system process is not working. Whitney, among others – Tarik here – https://thesaker.is/the-stupendous-tale/

          is another – has explained why. In essence It is because, as I previously pointed out, the printing of money and accumulation of debt has not been used productively – as MMT would require – but instead used to finacialise Western economies to the point that they are incapable of any internal recovery.

          On that system process point there is fundamentally no difference between what you have argued and what Whitney has argued. Both of you are saying that the system is not working for the same reasons as I previously laid out – ie the purpose for which the fiat debt economy is constructed and the processes involved.

          For MMT to work what you and Whitney identify as the problem processes and mechanisms of the system need to be altered . MMT money printing cannot work if the right system processes are not adopted. That is in essence the meaning of the argument you have put forward (as well as the criticisms of policies and processes which have produced the unsustainable debt which those such as Micheal Hudson and Richard Murphy consistently make).

          Now Tarik (above) does argue along the lines you have suggested and it would be interesting to see a debate along these lines on that article on the Saker site.

          However, this is not the case here and it would perhaps be more useful to engage with what has been argued here rather than constructing straw men from which to pursue ones favourite hobby horse paradigm.

          • Thanks Dave. I was about to reply to Mr S that I have at no point advocated a return to the gold standard – then I saw your own reply.

            • Dear SCS,

              “I have at no point advocated a return to the gold standard”

              Very glad to hear that…. so why do this in your blog post? :

              “My cue to hand over to Mike Whitney in Global Research, July 7.”?

              Which article begins with this nonsense:

              “Here’s your ‘reserve currency’ thought for the day: Every US dollar is a check written on an account that is overdrawn by 30 trillion dollars.

              It’s true. The “full faith and credit” of the US Treasury is largely a myth held together by an institutional framework that rests on a foundation of pure sand. In fact, the USD is not worth the paper it is printed on; it is an IOU flailing in an ocean of red ink.

              The only thing keeping the USD from vanishing into the ether, is the trust of credulous people who continue to accept it as legal tender.

              But why do people remain confident in the dollar when its flaws are known to all? After all, America’s $30 trillion National Debt is hardly a secret, nor is the additional $9 trillion that’s piled up on the Fed’s balance sheet. That is a stealth debt of which the American people are completely unaware, but they are responsible for all the same.”

              ….and then goes on to bemoan the abandonment of the Gold Standard:

              “It wasn’t always like this. There was a time when the dollar was the strongest currency in the world and deserved its spot at the top of the heap. Following WW1, the US was “the owner of the majority of the world’s gold” which was why an international delegation “decided that the world’s currencies would no longer be linked to gold but could be pegged to the U.S. dollar, “because the greenback was, itself, linked to gold.”

              OK, benefit of the doubt granted, but why then extensively quote someone who does, without any critique? That’s what initiated my antagonistic response!

              Forgive me, but I would rather not engage on the Saker’s blog, Russian Orthodox Christianity isn’t really my bag. I’ll read Hudson in my own time, and have in the past – although he was rather defensive when I corrected him for incorrectly stating in a blog post that it was Labour(!) who privatised British Rail in the 1990s. My faith in him subsided somewhat after that.

              MoA suffices for some perspective on Russia/Ukraine, but once off that subject, there are plenty of ZeroHedge-following nutters BTL who expose themselves for their goldbug small-state libertarianism, if ever the subject turns to macro.

                • It can. This is one reason SCS does not describe himself as a contrarian. Yet again you put two and two together to get a figure to the north of four.

              • Mr S, I say often on this site – see for instance my many remarks on WSWS – that my posting extracts from a third party source is not to be taken as endorsing the entirety of their views. Most readers I deem sufficiently nuanced to get this. Yet you offer this (draped in sarcasm) non sequitur:

                “I have at no point advocated a return to the gold standard”

                Very glad to hear that…. so why do this in your blog post?

                “My cue to hand over to Mike Whitney in Global Research, July 7.”?

                Are you arguing in good faith, Mr S? Why did you skip over the paragraph immediately preceding, and giving the context for, that “my cue to hand over …”?

                Here is that paragraph again:

                It would take a little longer for a second truth to become clear to those with eyes to see: viz, that this same Washington led West had grossly – and in all likelihood fatally – overplayed its hand. While the Ukraine conflict did not drop from a clear blue sky – the road leading to it has many milestones – it is showing every sign of being the decisive event at which not only the Project for a New American Century, and not even just the postwar order established much to the dollar’s advantage at Bretton Woods, but five centuries of Western rule of the globe went into rapid and irreversible decline.

                My cue to hand over …

                I rest my case. Nothing I said in my post advocates a return to a gold standard. And your quoting Mr Whitney in the context of Bretton Woods is confused. You make no distinction between fiat and non fiat currencies – the MMT writers I mention do make this key distinction – and you conflate MMT within a sovereign currency state with a postwar Western order which had good reasons for pegging pounds, francs, deutschmarks etc to the US dollar on condition the latter was itself tethered to gold. Previously the Western ruling classes, and the comprador classes of the global south, had stored their surpluses as gold bullion in American vaults. Soon they would be storing them, much to Uncle Sam’s advantage – what de Gaulle would call America’s “exorbitant privilege” – at home as dollars and US Treasury IOUs, which truth takes us back to the point of Mr Whitney’s article: viz, that the dollar’s global ponzi scheme is collapsing as a direct consequences of its measures to keep it going by punishing the most powerful challenger to date.

                Here’s how another commentator describes the unfolding situation:

                The collapse of US power is in the loss of US dollar dominance in trade transactions. Of Russia’s natural resource exports – No US$s accepted. Think uranium, timber, rare earths, titanium, platinum, palladium and more. Expect the food sector to go that way – fish, wheat, grains, vegetables. A Made In Washington affair. When they realize their position of lost dominance is irreversible, will they pull the pin and go nuclear? Depends who is “in the room”. Much talk has attended usable nuclear weapons and tactical strikes.

                I agree. But it takes the reductivism of a MMT zealot to completely disregard both this and Whitney’s central arguments, while sniffing out heresy at no matter how many steps removed!

                By the way, can you refer me to your own writings on the economic war I speak of in the context of Ukraine? It would be good to know a little more of where you’re coming from. Meanwhile I consider this matter closed and will not engage further on a topic which may be your personal hobby horse but is not the subject of this post.

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