US diplomacy as Greek Tragedy

Still from the Sophoclean drama, Oedipus the King, snapped on its opening night in Athens, 429 BC

Amazing as it may seem, U.S. strategists did not anticipate the obvious response by countries finding themselves together in the crosshairs of US/NATO military and economic threats. On July 19, 2022, the presidents of Russia and Iran met to announce their cooperation in the face of the sanctions war against them. That followed Russia’s earlier meeting with India’s Prime Minister Modi. In what has been characterized as “shooting itself in its own foot,” U.S. diplomacy is driving Russia, China, India and Iran together, and indeed to reach out to Argentina and other countries to join the BRICS-plus bank to protect themselves.

The above, from a piece by Michael Hudson yesterday (July 29, 2022), revisits a theme he has set out before. See what he had to say in my post of March 9 this year, Sanctions: America’s Greek Tragedy.

The piece, just shy of 5,000 words, opens:

As in a Greek tragedy whose protagonist brings about precisely the fate he has sought to avoid, the US/NATO confrontation with Russia in Ukraine is achieving just the opposite of America’s aim of preventing China, Russia and their allies from acting independently of U.S. control over their trade and investment policy. Naming China as America’s main long-term adversary, the Biden Administration’s plan was to split Russia away from China and then cripple China’s own military and economic viability. But the effect of American diplomacy has been to drive Russia and China together, joining with Iran, India and other allies. For the first time since the Bandung Conference of Non-Aligned Nations in 1955, a critical mass is able to be mutually self-sufficient to start the process of achieving independence from Dollar Diplomacy.

It goes on to skewer the dangerous absurdity of the mendacious narrative on Russia:

Russia has no discernable economic interest in mounting a new occupation of Central Europe. That would offer no gain to Russia, as its leaders realized when they dissolved the old Soviet Union. In fact, no industrial country in today’s world can afford to field an infantry to occupy an enemy. All that NATO can do is bomb from a distance. It can destroy, but not occupy. The United States found that out in Serbia, Iraq, Libya, Syria and Afghanistan. And just as the assassination Archduke Ferdinand in Sarajevo (now Bosnia-Herzegovina) triggered World War I in 1914, NATO’s bombing of adjoining Serbia may be viewed as throwing down the gauntlet to turn Cold War 2 into a veritable World War III. That marked the point at which NATO became an offensive alliance, not a defensive one.

How does this reflect European interests? Why should Europe re-arm, if the only effect is to make it a target of retaliation in the event of further attacks on Russia? What does Europe have to gain in becoming a larger customer for America’s military-industrial complex? Diverting spending to rebuild an offensive army – that can never be used without triggering an atomic response that would wipe out Europe – will limit the social spending needed to cope with today’s Covid problems and economic recession.

The only lasting leverage a nation can offer in today’s world is trade and technology transfer. Europe has more of this to offer than the United States. Yet the only opposition to renewed military spending is coming from right-wing parties and the German Linke party. Europe’s Social Democratic, Socialist and Labour parties share American neoliberal ideology.

To that last grouping he might have added Europe’s self avowedly Green parties …

The carbon footprint of bombing, arms manufacturing and military bases is strikingly absent from today’s discussion about global warming and the need to cut back on carbon emissions. The German party that calls itself Green is leading the campaign for sanctions against importing Russian oil and gas, which electric utilities are replacing with Polish coal and even German lignite. Coal is becoming the “fuel of the future.” Its price also is soaring in the United States, benefitting American coal companies.

In contrast to the Paris Club agreements to reduce carbon emissions, the United States has neither the political capability nor the intention to join the conservation effort. The Supreme Court recently ruled that the Executive Branch has no authority to issue nation-wide energy rules; only individual states can do that, unless Congress passes a national law to cut back on fossil fuels.

That seems unlikely in view of the fact that becoming head of a Democratic Senate and Congressional committee requires being a leader in raising campaign contributions for the party. Joe Manchin, a coal-company billionaire, leads all senators in campaign support from the oil and coal industries, enabling him to win his party’s auction for the Senate Energy and Natural Resources committee chairmanship and block any seriously restrictive environmental legislation.

… before returning to the Greek Tragedy theme: the protagonist’s efforts to ward  off that which it most fears serving only to bring about that very outcome:

America’s international diplomacy aims to dictate financial, trade and military policies that will lock other countries into dollar debt and trade dependency by preventing them from developing alternatives. If this fails, America seeks to isolate the recalcitrants from the U.S.-centered Western sphere.

America’s foreign diplomacy no longer is based on offering mutual gain. Such could be claimed in the aftermath of World War II when the United States was in a position to offer loans, foreign-aid and military protection against occupation – as well as manufactures to rebuild war-torn economies – to governments in exchange for their accepting trade and monetary policies favorable to American exporters and investors. But today there is only the belligerent diplomacy of threatening to hurt nations whose socialist governments reject America’s neoliberal drive to privatize and sell off their natural resources and public infrastructure.

The first aim is to prevent Russia and China from helping each other. This is the old imperial divide-and-conquer strategy. Minimizing Russia’s ability to support China would pave the way for the United States and NATO Europe to impose new trade sanctions on China, and to send jihadists to its western Xinjiang Uighur region. The aim is to bleed Russia’s armaments inventory, kill enough of its soldiers, and create enough Russian shortages and suffering to not only weaken its ability to help China, but to spur its population to support a regime change, an American-sponsored “color revolution.” The dream is to promote a Yeltsin-like leader friendly to the neoliberal “therapy” that dismantled Russia’s economy in the 1990s.

Amazing as it may seem, U.S. strategists did not anticipate the obvious response by countries finding themselves together in the crosshairs of US/NATO military and economic threats. On July 19, 2022, the presidents of Russia and Iran met to announce their cooperation in the face of the sanctions war against them. That followed Russia’s earlier meeting with India’s Prime Minister Modi. In what has been characterized as “shooting itself in its own foot,” U.S. diplomacy is driving Russia, China, India and Iran together, and indeed to reach out to Argentina and other countries to join the BRICS-plus bank to protect themselves.

The Trump Administration took a major step to drive countries out of the dollar orbit in November 2018, by confiscating nearly $2 billion of Venezuela’s official gold stock held in London. The Bank of England put these reserves at the disposal of Juan Guaidó, the marginal right-wing politician selected by the United States to replace Venezuela’s elected president as head of state. This was defined as being democratic, because the regime change promised to introduce the neoliberal “free market” that is deemed to be the essence of America’s definition of democracy for today’s world.

This gold theft actually was not the first such confiscation. On November 14, 1979, the Carter Administration paralyzed Iran’s bank deposits in New York after the Shah was overthrown. This act blocked Iran from paying its scheduled foreign debt service, forcing it into default. That was viewed as an exceptional one-time action as far as all other financial markets were concerned. But now that the United States is the self-proclaimed “exceptional nation,” such confiscations are becoming a new norm in U.S. diplomacy. Nobody yet knows what happened to Libya’s gold reserves that Muammar Gadafi had intended to be used to back an African alternative to the dollar. And Afghanistan’s gold and other reserves were simply taken by Washington as payment for the cost of “freeing” that country from Russian control by backing the Taliban. But when the Biden Administration and its NATO allies made a much larger asset grab of some $300 billion of Russia’s foreign bank reserves and currency holdings in March 2022, it made official a radical new epoch in Dollar Diplomacy. Any nation that follows policies not deemed to be in the interests of the U.S. Government runs the risk of U.S. authorities confiscating its holdings of foreign reserves in U.S. banks or securities.

This was a red flag leading countries to fear denominating their trade, savings and foreign debt in dollars, and to avoid using dollar or euro bank deposits and securities as a means of payment. By prompting other countries to think about how to free themselves from the U.S.-centered world trade and monetary system that was established in 1945 with the IMF, World Bank and subsequently the World Trade Organization, the U.S. confiscations have accelerated the end of the U.S. Treasury-bill standard that has governed world finance since the United States went off gold in 1971.

Since dollar convertibility to gold ended in August 1971, dollarization of the world’s trade and investment has created a need for other countries to hold most of their new international monetary reserves in U.S. Treasury securities and bank deposits. As already noted, that enables the United States to seize foreign bank deposits and bonds denominated in U.S. dollars.

Most important, the United States can create and spend dollar IOUs into the world economy at will, without limit. It doesn’t have to earn international spending power by running a trade surplus, as other countries have to do. The U.S. Treasury can simply print dollars electronically to finance its foreign military spending and purchases of foreign resources and companies. And being the “exceptional country,” it doesn’t have to pay these debts – which are recognized as being far too large to be paid. Foreign dollar holdings are free U.S. credit to the Unites States, not requiring repayment any more than the paper dollars in our wallets are expected to be paid off (by retiring them from circulation). What seems to be so self-destructive about America’s economic sanctions and confiscations of Russian and other foreign reserves is that they are accelerating the demise of this free ride.

The piece ends by reminding us that the drivers of such self destructive Greek Tragedism go way deeper than diplomatic ineptitude. Anyone taking the trouble – few do of course – to study the speeches and interviews of Vladimir Putin, Sergei Lavrov and Maria Zhakarova in Russia; Xi Jinping and Wang Yi in China, is struck by their gravitas, and how poorly it reflects on the sound byte driven short termism of the West’s figurehead and increasingly clownish ‘leaders’.

Why might that be? Though Mr Hudson doesn’t address this question directly, the Russian and Chinese leaders are more in control of their ship – hence their routine denunciation in the West as authoritarian or even, see this Economist piece of two days ago, “fascist” – than are the figureheads of what is routinely depicted as The Free World but is in reality ruled by  cabals whose self serving stupidity and cynicism leave them incapable of distinguishing ‘democracy’ from ‘free markets’ (which in any case are anything but).

The failure and blowbacks of U.S. diplomacy are the result of problems that go beyond diplomacy itself. The underlying problem is the West’s commitment to neoliberalism, financialization and privatization. Instead of government subsidy of basic living costs needed by labor, all social life is being made part of “the market” – a uniquely Thatcherite deregulated “Chicago Boys” market in which industry, agriculture, housing and financing are deregulated and increasingly predatory, while heavily subsidizing the valuation of financial and rent-seeking assets – mainly the wealth of the richest One Percent. Income is obtained increasingly by financial and monopoly rent-seeking, and fortunes are made by debt-leveraged “capital” gains for stocks, bonds and real estate.

U.S. industrial companies have aimed more at “creating wealth” by increasing the price of their stocks by using over 90 percent of their profits for stock buybacks and dividend payouts instead of investing in new production facilities and hiring more labor. The result of slower capital investment is to dismantle and financially cannibalize corporate industry in order to produce financial gains. And to the extent that companies do employ labor and set up new production, it is done abroad where labor is cheaper.

Most Asian labor can afford to work for lower wages because it has much lower housing costs and does not have to pay education debt. Health care is a public right, not a financialized market transaction, and pensions are not paid for in advance by wage-earners and employers but are public. The aim in China in particular is to prevent the rentier Finance, Insurance and Real Estate (FIRE) sector from becoming a burdensome overhead whose economic interests differ from those of a socialist government.

China treats money and banking as a public utility, to be created, spent and lent for purposes that help increase productivity and living standards (and increasingly to preserve the environment). It rejects the U.S.-sponsored neoliberal model imposed by the IMF, World Bank and World Trade Organization.

The global economic fracturing goes far beyond NATO’s conflict with Russia in Ukraine. By the time the Biden administration took office at the start of 2021, Russia and China already had been discussing the need to de-dollarize their foreign trade and investment, using their own currencies. That involves the quantum leap of organizing a new payments-clearing institution. Planning had not progressed beyond broad outlines of how such a system would work, but the U.S. confiscation of Russia’s foreign reserves made such planning urgent, starting with a BRICS-plus bank. A Eurasian alternative to the IMF will remove its ability to impose neoliberal austerity “conditionalities” to force countries to lower payments to labor and give priority to paying their foreign creditors above feeding themselves and developing their own economies. Instead of new international credit being extended mainly to pay dollar debts, it will be part of a process of new mutual investment in basic infrastructure designed to accelerate economic growth and living standards. Other institutions are being designed as China, Russia, Iran, India and their prospective allies represent a large enough critical mass to “go it alone,” based on their own mineral wealth and manufacturing power.

The basic U.S. policy has been to threaten to destabilize countries and perhaps bomb them until they agree to adopt neoliberal policies and privatize their public domain. But taking on Russia, China and Iran is a much higher order of magnitude. NATO has disarmed itself of the ability to wage conventional warfare by handing over its supply of weaponry – admittedly largely outdated – to be devoured in Ukraine. In any case, no democracy in today’s world can impose a military draft to wage a conventional land warfare against a significant/major adversary. The protests against the Vietnam War in the late 1960s ended the U.S. military draft, and the only way to really conquer a country is to occupy it in land warfare. This logic also implies that Russia is no more in a position to invade Western Europe than NATO countries are to send conscripts to fight Russia.

That leaves Western democracies with the ability to fight only one kind of war: atomic war – or at least, bombing at a distance, as was done in Afghanistan and the Near East, without requiring Western manpower. This is not diplomacy at all. It is merely acting the role of wrecker. But that is the only tactic that remains available to the United States and NATO Europe. It is strikingly like the dynamic of Greek tragedy, where power leads to hubris that is injurious to others and therefore ultimately anti-social – and self-destructive in the end.

How then can the United States maintain its world dominance? It has deindustrialized and run up foreign official debt far beyond any foreseeable way to be paid. Meanwhile, its banks and bondholders are demanding that the Global South and other countries pay foreign dollar bondholders in the face of their own trade crisis resulting from the soaring energy and food prices caused by America’s anti-Russian and anti-China belligerence. This double standard is a basic internal contradiction that goes to the core of today’s neoliberal Western worldview.

For a fine Sunday morning read over your coffee, download the full piece at CounterPunch or Naked Capitalism. You’re welcome. Have a good weekend.

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