Trump’s Brilliant Strategy to Dismember U.S. Dollar Hegemony
By Michael Hudson
The end of America’s unchallenged global economic dominance has arrived sooner than expected, thanks to the very same Neocons who gave the world the Iraq, Syria and the dirty wars in Latin America. Just as the Vietnam War drove the United States off gold by 1971, its violent regime change warfare against Venezuela and Syria – and threatening other countries with sanctions if they do not join this crusade – is driving European and other nations to create their alternative financial institutions.
This break has been building for quite some time, and was bound to occur. But who would have thought that Donald Trump would become the catalytic agent? No left-wing party, no socialist, anarchist or foreign nationalist leader anywhere in the world could have achieved what he is doing to break up the American Empire.
The Deep State is reacting with shock at how this right-wing real estate grifter has been able to drive other countries to defend themselves by dismantling the U.S.-centered world order. To rub it in, he is using Bush and Reagan-era Neocon arsonists, John Bolton and now Elliott Abrams, to fan the flames in Venezuela. It is almost like a black political comedy. The world of international diplomacy is being turned inside-out. A world where there is no longer even a pretense that we might adhere to international norms, let alone laws or treaties.
The Neocons who Trump has appointed are accomplishing what seemed unthinkable not long ago: Driving China and Russia together – the great nightmare of Henry Kissinger and Zbigniew Brzezinski. They also are driving Germany and other European countries into the Eurasian orbit, the “Heartland” nightmare of Halford Mackinder a century ago.
The root cause is clear: After the crescendo of pretenses and deceptions over Iraq, Libya and Syria, along with our absolution of the lawless regime of Saudi Arabia, foreign political leaders are coming to recognize what world-wide public opinion polls reported even before the Iraq/Iran-Contra boys turned their attention to the world’s largest oil reserves in Venezuela: The United States is now the greatest threat to peace on the planet.
Calling the U.S. coup being sponsored in Venezuela a defense of democracy reveals the Doublethink underlying U.S. foreign policy. It defines “democracy” to mean supporting U.S. foreign policy, pursuing neoliberal privatization of public infrastructure, dismantling government regulation and following the direction of U.S.-dominated global institutions, from the IMF and World Bank to NATO. For decades, the resulting foreign wars, domestic austerity programs and military interventions have brought more violence, not democracy.
In the Devil’s Dictionary that U.S. diplomats are taught to use as their “Elements of Style” guidelines for Doublethink, a “democratic” country is one that follows U.S. leadership and opens its economy to U.S. investment, and IMF- and World Bank-sponsored privatization. The Ukraine is deemed democratic, along with Saudi Arabia, Israel and other countries that act as U.S. financial and military protectorates and are willing to treat America’s enemies are theirs too.
A point had to come where this policy collided with the self-interest of other nations, finally breaking through the public relations rhetoric of empire. Other countries are proceeding to de-dollarize and replace what U.S. diplomacy calls “internationalism” (meaning U.S. nationalism imposed on the rest of the world) with their own national self-interest.
This trajectory could be seen 50 years ago (I described it in Super Imperialism  and Global Fracture .) It had to happen. But nobody thought that the end would come in quite the way that is happening. History has turned into comedy, or at least irony as its dialectical path unfolds.
For the past half-century, U.S. strategists, the State Department and National Endowment for Democracy (NED) worried that opposition to U.S. financial imperialism would come from left-wing parties. It therefore spent enormous resources manipulating parties that called themselves socialist (Tony Blair’s British Labour Party, France’s Socialist Party, Germany’s Social Democrats, etc.) to adopt neoliberal policies that were the diametric opposite to what social democracy meant a century ago. But U.S. political planners and Great Wurlitzer organists neglected the right wing, imagining that it would instinctively support U.S. thuggishness.
The reality is that right-wing parties want to get elected, and a populist nationalism is today’s road to election victory in Europe and other countries just as it was for Donald Trump in 2016.
Trump’s agenda may really be to break up the American Empire, using the old Uncle Sucker isolationist rhetoric of half a century ago. He certainly is going for the Empire’s most vital organs. But it he a witting anti-American agent? He might as well be – but it would be a false mental leap to use “quo bono” to assume that he is a witting agent.
After all, if no U.S. contractor, supplier, labor union or bank will deal with him, would Vladimir Putin, China or Iran be any more naïve? Perhaps the problem had to erupt as a result of the inner dynamics of U.S.-sponsored globalism becoming impossible to impose when the result is financial austerity, waves of population flight from U.S.-sponsored wars, and most of all, U.S. refusal to adhere to the rules and international laws that it itself sponsored seventy years ago in the wake of World War II.
Dismantling international law and its courts
Any international system of control requires the rule of law. It may be a morally lawless exercise of ruthless power imposing predatory exploitation, but it is still The Law. And it needs courts to apply it (backed by police power to enforce it and punish violators).
Here’s the first legal contradiction in U.S. global diplomacy: The United States always has resisted letting any other country have any voice in U.S. domestic policies, law-making or diplomacy. That is what makes America “the exceptional nation.” But for seventy years its diplomats have pretended that its superior judgment promoted a peaceful world (as the Roman Empire claimed to be), which let other countries share in prosperity and rising living standards.
At the United Nations, U.S. diplomats insisted on veto power. At the World Bank and IMF they also made sure that their equity share was large enough to give them veto power over any loan or other policy. Without such power, the United States would not join any international organization. Yet at the same time, it depicted its nationalism as protecting globalization and internationalism. It was all a euphemism for what really was unilateral U.S. decision-making.
Inevitably, U.S. nationalism had to break up the mirage of One World internationalism, and with it any thought of an international court. Without veto power over the judges, the U.S. never accepted the authority of any court, in particular the United Nations’ International Court in The Hague. Recently that court undertook an investigation into U.S. war crimes in Afghanistan, from its torture policies to bombing of civilian targets such as hospitals, weddings and infrastructure. “That investigation ultimately found ‘a reasonable basis to believe that war crimes and crimes against humanity.’”1
Donald Trump’s National Security Adviser John Bolton erupted in fury, warning in September that: “The United States will use any means necessary to protect our citizens and those of our allies from unjust prosecution by this illegitimate court,” adding that the UN International Court must not be so bold as to investigate “Israel or other U.S. allies.”
That prompted a senior judge, Christoph Flügge from Germany, to resign in protest. Indeed, Bolton told the court to keep out of any affairs involving the United States, promising to ban the Court’s “judges and prosecutors from entering the United States.” As Bolton spelled out the U.S. threat: “We will sanction their funds in the U.S. financial system, and we will prosecute them in the U.S. criminal system. We will not cooperate with the ICC. We will provide no assistance to the ICC. We will not join the ICC. We will let the ICC die on its own. After all, for all intents and purposes, the ICC is already dead to us.”
What this meant, the German judge spelled out was that: “If these judges ever interfere in the domestic concerns of the U.S. or investigate an American citizen, [Bolton] said the American government would do all it could to ensure that these judges would no longer be allowed to travel to the United States – and that they would perhaps even be criminally prosecuted.”
The original inspiration of the Court – to use the Nuremburg laws that were applied against German Nazis to bring similar prosecution against any country or officials found guilty of committing war crimes – had already fallen into disuse with the failure to indict the authors of the Chilean coup, Iran-Contra or the U.S. invasion of Iraq for war crimes.
Dismantling Dollar Hegemony from the IMF to SWIFT
Of all areas of global power politics today, international finance and foreign investment have become the key flashpoint. International monetary reserves were supposed to be the most sacrosanct, and international debt enforcement closely associated.
Central banks have long held their gold and other monetary reserves in the United States and London. Back in 1945 this seemed reasonable, because the New York Federal Reserve Bank (in whose basement foreign central bank gold was kept) was militarily safe, and because the London Gold Pool was the vehicle by which the U.S. Treasury kept the dollar “as good as gold” at $35 an ounce. Foreign reserves over and above gold were kept in the form of U.S. Treasury securities, to be bought and sold on the New York and London foreign-exchange markets to stabilize exchange rates. Most foreign loans to governments were denominated in U.S. dollars, so Wall Street banks were normally name as paying agents.
That was the case with Iran under the Shah, whom the United States had installed after sponsoring the 1953 coup against Mohammed Mosaddegh when he sought to nationalize Anglo-Iranian Oil (now British Petroleum) or at least tax it. After the Shah was overthrown, the Khomeini regime asked its paying agent, the Chase Manhattan bank, to use its deposits to pay its bondholders. At the direction of the U.S. Government Chase refused to do so. U.S. courts then declared Iran to be in default, and froze all its assets in the United States and anywhere else they were able.
This showed that international finance was an arm of the U.S. State Department and Pentagon. But that was a generation ago, and only recently did foreign countries begin to feel queasy about leaving their gold holdings in the United States, where they might be grabbed at will to punish any country that might act in ways that U.S. diplomacy found offensive. So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. U.S. officials pretended to feel shocked at the insult that it might do to a civilized Christian country what it had done to Iran, and Germany agreed to slow down the transfer.
But then came Venezuela. Desperate to spend its gold reserves to provide imports for its economy devastated by U.S. sanctions – a crisis that U.S. diplomats blame on “socialism,” not on U.S. political attempts to “make the economy scream” (as Nixon officials said of Chile under Salvador Allende) – Venezuela directed the Bank of England to transfer some of its $11 billion in gold held in its vaults and those of other central banks in December 2018. This was just like a bank depositor would expect a bank to pay a check that the depositor had written.
England refused to honor the official request, following the direction of Bolton and U.S. Secretary of State Michael Pompeo. As Bloomberg reported: “The U.S. officials are trying to steer Venezuela’s overseas assets to [Chicago Boy Juan] Guaido to help bolster his chances of effectively taking control of the government. The $1.2 billion of gold is a big chunk of the $8 billion in foreign reserves held by the Venezuelan central bank.”2
Turkey seemed to be a likely destination, prompting Bolton and Pompeo to warn it to desist from helping Venezuela, threatening sanctions against it or any other country helping Venezuela cope with its economic crisis. As for the Bank of England and other European countries, the Bloomberg report concluded: “Central bank officials in Caracas have been ordered to no longer try contacting the Bank of England. These central bankers have been told that Bank of England staffers will not respond to them.”
This led to rumors that Venezuela was selling 20 tons of gold via a Russian Boeing 777 – some $840 million. The money probably would have ended up paying Russian and Chinese bondholders as well as buying food to relieve the local famine.3 Russia denied this report, but Reuters has confirmed is that Venezuela has sold 3 tons of a planned 29 tones of gold to the United Arab Emirates, with another 15 tones are to be shipped on Friday, February 1.4 The U.S. Senate’s Batista-Cuban hardliner Rubio accused this of being “theft,” as if feeding the people to alleviate the U.S.-sponsored crisis was a crime against U.S. diplomatic leverage.
If there is any country that U.S. diplomats hate more than a recalcitrant Latin American country, it is Iran. President Trump’s breaking of the 2015 nuclear agreements negotiated by European and Obama Administration diplomats has escalated to the point of threatening Germany and other European countries with punitive sanctions if they do not also break the agreements they have signed. Coming on top of U.S. opposition to German and other European importing of Russian gas, the U.S. threat finally prompted Europe to find a way to defend itself.
Imperial threats are no longer military. No country (including Russia or China) can mount a military invasion of another major country. Since the Vietnam Era, the only kind of war a democratically elected country can wage is atomic, or at least heavy bombing such as the United States has inflicted on Iraq, Libya and Syria. But now, cyber warfare has become a way of pulling out the connections of any economy. And the major cyber connections are financial money-transfer ones, headed by SWIFT, the acronym for the Society for Worldwide Interbank Financial Telecommunication, which is centered in Belgium.
Russia and China have already moved to create a shadow bank-transfer system in case the United States unplugs them from SWIFT. But now, European countries have come to realize that threats by Bolton and Pompeo may lead to heavy fines and asset grabs if they seek to continue trading with Iran as called for in the treaties they have negotiated.
On January 31 the dam broke with the announcement that Europe had created its own bypass payments system for use with Iran and other countries targeted by U.S. diplomats. Germany, France and even the U.S. poodle Britain joined to create INSTEX — Instrument in Support of Trade Exchanges. The promise is that this will be used only for “humanitarian” aid to save Iran from a U.S.-sponsored Venezuela-type devastation. But in view of increasingly passionate U.S. opposition to the Nord Stream pipeline to carry Russian gas, this alternative bank clearing system will be ready and able to become operative if the United States tries to direct a sanctions attack on Europe.
I have just returned from Germany and seen a remarkable split between that nation’s industrialists and their political leadership. For years, major companies have seen Russia as a natural market, a complementary economy needing to modernize its manufacturing and able to supply Europe with natural gas and other raw materials. America’s New Cold War stance is trying to block this commercial complementarity. Warning Europe against “dependence” on low-price Russian gas, it has offered to sell high-priced LNG from the United States (via port facilities that do not yet exist in anywhere near the volume required). President Trump also is insisting that NATO members spend a full 2 percent of their GDP on arms – preferably bought from the United States, not from German or French merchants of death.
U.S. overplaying its position is leading to the Mackinder-Kissinger-Brzezinski Eurasian nightmare that I mentioned above. In addition to driving Russia and China together, U.S. diplomacy is adding Europe to the heartland, independent of U.S. ability to bully into the state of dependency toward which American diplomacy has aimed to achieve since 1945.
The World Bank, for instance, traditionally has been headed by a U.S. Secretary of Defense. Its steady policy since its inception is to provide loans for countries to devote their land to export crops instead of giving priority to feeding themselves. That is why its loans are only in foreign currency, not in the domestic currency needed to provide price supports and agricultural extension services such as have made U.S. agriculture so productive. By following U.S. advice, countries have left themselves open to food blackmail – sanctions against providing them with grain and other food, in case they step out of line with U.S. diplomatic demands.
It is worthwhile to note that our global imposition of the mythical “efficiencies” of forcing Latin American countries to become plantations for export crops like coffee and bananas rather than growing their own wheat and corn has failed catastrophically to deliver better lives, especially for those living in Central America. The “spread” between the export crops and cheaper food imports from the U.S. that was supposed to materialize for countries following our playbook failed miserably – witness the caravans and refugees across Mexico. Of course, our backing of the most brutal military dictators and crime lords has not helped either.
Likewise, the IMF has been forced to admit that its basic guidelines were fictitious from the beginning. A central core has been to enforce payment of official inter-government debt by withholding IMF credit from countries under default. This rule was instituted at a time when most official inter-government debt was owed to the United States. But a few years ago Ukraine defaulted on $3 billion owed to Russia. The IMF said, in effect, that Ukraine and other countries did not have to pay Russia or any other country deemed to be acting too independently of the United States. The IMF has been extending credit to the bottomless it of Ukrainian corruption to encourage its anti-Russian policy rather than standing up for the principle that inter-government debts must be paid.
It is as if the IMF now operates out of a small room in the basement of the Pentagon in Washington. Europe has taken notice that its own international monetary trade and financial linkages are in danger of attracting U.S. anger. This became clear last autumn at the funeral for George H. W. Bush, when the EU’s diplomat found himself downgraded to the end of the list to be called to his seat. He was told that the U.S. no longer considers the EU an entity in good standing. In December, “Mike Pompeo gave a speech on Europe in Brussels — his first, and eagerly awaited — in which he extolled the virtues of nationalism, criticised multilateralism and the EU, and said that “international bodies” which constrain national sovereignty “must be reformed or eliminated.”5
Most of the above events have made the news in just one day, January 31, 2019. The conjunction of U.S. moves on so many fronts, against Venezuela, Iran and Europe (not to mention China and the trade threats and moves against Huawei also erupting today) looks like this will be a year of global fracture.
It is not all President Trump’s doing, of course. We see the Democratic Party showing the same colors. Instead of applauding democracy when foreign countries do not elect a leader approved by U.S. diplomats (whether it is Allende or Maduro), they’ve let the mask fall and shown themselves to be the leading New Cold War imperialists. It’s now out in the open. They would make Venezuela the new Pinochet-era Chile. Trump is not alone in supporting Saudi Arabia and its Wahabi terrorists acting, as Lyndon Johnson put it, “Bastards, but they’re our bastards.”
Where is the left in all this? That is the question with which I opened this article. How remarkable it is that it is only right-wing parties, Alternative for Deutschland (AFD), or Marine le Pen’s French nationalists and those of other countries that are opposing NATO militarization and seeking to revive trade and economic links with the rest of Eurasia.
The end of our monetary imperialism, about which I first wrote in 1972 in Super Imperialism, stuns even an informed observer like me. It took a colossal level of arrogance, short-sightedness and lawlessness to hasten its decline — something that only crazed Neocons like John Bolton, Elliott Abrams and Mike Pompeo could deliver for Donald Trump.
The author has granted this website permission to reprint selected essays. The views expressed by the author do not necessarily reflect those of APS Radio News or its afilliate, APS Radio News.
Trump is Obama’s Legacy: Will this Break up the Democratic Party?
By Michael Hudson
Nobody yet can tell whether Donald Trump is an agent of change with a specific policy in mind, or merely a catalyst heralding an as yet undetermined turning point. His first month in the White House saw him melting into the Republican mélange of corporate lobbyists. Having promised to create jobs, his “America First” policy looks more like “Wall Street First.” His cabinet of billionaires promoting corporate tax cuts, deregulation and dismantling Dodd-Frank bank reform repeats the Junk Economics promise that giving more tax breaks to the richest One Percent may lead them to use their windfall to invest in creating more jobs. What they usually do, of course, is simply buy more property and assets already in place.
One of the first reactions to Trump’s election victory was for stocks of the most crooked financial institutions to soar, hoping for a deregulatory scythe taken to the public sector. Navient, the Department of Education’s knee-breaker on student loan collections accused by the Consumer Financial Protection Bureau (CFPB) of massive fraud and overcharging, rose from $13 to $18 now that it seemed likely that the incoming Republicans would disable the CFPB and shine a green light for financial fraud.
Foreclosure king Stephen Mnuchin of IndyMac/OneWest (and formerly of Goldman Sachs for 17 years; later a George Soros partner) is now Treasury Secretary – and Trump is pledged to abolish the CFPB, on the specious logic that letting fraudsters manage pension savings and other investments will give consumers and savers “broader choice,” e.g., for the financial equivalent of junk food. Secretary of Education Betsy DeVos hopes to privatize public education into for-profit (and de-unionized) charter schools, breaking the teachers’ unions. This may position Trump to become the Transformational President that neoliberals have been waiting for.
But not the neocons. His election rhetoric promised to reverse traditional U.S. interventionist policy abroad. Making an anti-war left run around the Democrats, he promised to stop backing ISIS/Al Nusra (President Obama’s “moderate” terrorists supplied with the arms and money that Hillary looted from Libya), and to reverse the Obama-Clinton administration’s New Cold War with Russia. But the neocon coterie at the CIA and State Department are undercutting his proposed rapprochement with Russia by forcing out General Flynn for starters. It seems doubtful that Trump will clean them out.
Trump has called NATO obsolete, but insists that its members up their spending to the stipulated 2% of GDP — producing a windfall worth tens of billions of dollars for U.S. arms exporters. That is to be the price Europe must pay if it wants to endorse Germany’s and the Baltics’ confrontation with Russia.
Trump is sufficiently intuitive to proclaim the euro a disaster, and he recommends that Greece leave it. He supports the rising nationalist parties in Britain, France, Italy, Greece and the Netherlands, all of which urge withdrawal from the eurozone – and reconciliation with Russia instead of sanctions. In place of the ill-fated TPP and TTIP, Trump advocates country-by-country trade deals favoring the United States. Toward this end, his designated ambassador to the European Union, Ted Malloch, urges the EU’s breakup. The EU is refusing to accept him as ambassador.
Will Trump’s victory break up the Democratic Party?
At the time this volume is going to press, there is no way of knowing how successful these international reversals will be. What is more clear is what Trump’s political impact will have at home. His victory – or more accurately, Hillary’s resounding loss and the way she lost – has encouraged enormous pressure for a realignment of both parties. Regardless of what President Trump may achieve vis-à-vis Europe, his actions as celebrity chaos agent may break up U.S. politics across the political spectrum.
The Democratic Party has lost its ability to pose as the party of labor and the middle class. Firmly controlled by Wall Street and California billionaires, the Democratic National Committee (DNC) strategy of identity politics encourages any identity except that of wage earners. The candidates backed by the Donor Class have been Blue Dogs pledged to promote Wall Street and neocons urging a New Cold War with Russia.
They preferred to lose with Hillary than to win behind Bernie Sanders. So Trump’s electoral victory is their legacy as well as Obama’s. Instead of Trump’s victory dispelling that strategy, the Democrats are doubling down. It is as if identity politics is all they have.
Trying to ride on Barack Obama’s coattails didn’t work. Promising “hope and change,” he won by posing as a transformational president, leading the Democrats to control of the White House, Senate and Congress in 2008. Swept into office by a national jjunkeconreaction against the George Bush’s Oil War in Iraq and the junk-mortgage crisis that left the economy debt-ridden, they had free rein to pass whatever new laws they chose – even a Public Option in health care if they had wanted, or make Wall Street banks absorb the losses from their bad and often fraudulent loans.
But it turned out that Obama’s role was to prevent the changes that voters hoped to see, and indeed that the economy needed to recover: financial reform, debt writedowns to bring junk mortgages in line with fair market prices, and throwing crooked bankers in jail. Obama rescued the banks, not the economy, and turned over the Justice Department and regulatory agencies to his Wall Street campaign contributors. He did not even pull back from war in the Near East, but extended it to Libya and Syria, blundering into the Ukrainian coup as well.
Having dashed the hopes of his followers, Obama then praised his chosen successor Hillary Clinton as his “Third Term.” Enjoying this kiss of death, Hillary promised to keep up Obama’s policies.
The straw that pushed voters over the edge was when she asked voters, “Aren’t you better off today than you were eight years ago?” Who were they going to believe: their eyes, or Hillary? National income statistics showed that only the top 5 percent of the population were better off. All the growth in Gross Domestic Product (GDP) during Obama’s tenure went to them – the Donor Class that had gained control of the Democratic Party leadership. Real incomes have fallen for the remaining 95 percent, whose household budgets have been further eroded by soaring charges for health insurance. (The Democratic leadership in Congress fought tooth and nail to block Dennis Kucinich from introducing his Single Payer proposal.)
No wonder most of the geographic United States voted for change – except for where the top 5 percent, is concentrated: in New York (Wall Street) and California (Silicon Valley and the military-industrial complex). Making fun of the Obama Administration’s slogan of “hope and change,” Trump characterized Hillary’s policy of continuing the economy’s shrinkage for the 95% as “no hope and no change.”
Identity Politics as anti-labor politics
A new term was introduced to the English language: Identity Politics. Its aim is for voters to think of themselves as separatist minorities – women, LGBTQ, Blacks and Hispanics. The Democrats thought they could beat Trump by organizing Women for Wall Street (and a New Cold War), LGBTQ for Wall Street (and a New Cold War), and Blacks and Hispanics for Wall Street (and a New Cold War). Each identity cohort was headed by a billionaire or hedge fund donor.
The identity that is conspicuously excluded is the working class. Identity politics strips away thinking of one’s interest in terms of having to work for a living. It excludes voter protests against having their monthly paycheck stripped to pay more for health insurance, housing and mortgage charges or education, or better working conditions or consumer protection – not to speak of protecting debtors.
Identity politics used to be about three major categories: workers and unionization, anti-war protests and civil rights marches against racist Jim Crow laws. These were the three objectives of the many nationwide demonstrations. That ended when these movements got co-opted into the Democratic Party. Their reappearance in Bernie Sanders’ campaign in fact threatens to tear the Democratic coalition apart. As soon as the primaries were over (duly stacked against Sanders), his followers were made to feel unwelcome. Hillary sought Republican support by denouncing Sanders as being as radical as Putin’s Republican leadership.
In contrast to Sanders’ attempt to convince diverse groups that they had a common denominator in needing jobs with decent pay – and, to achieve that, in opposing Wall Street’s replacing the government as central planner – the Democrats depict every identity constituency as being victimized by every other, setting themselves at each other’s heels. Clinton strategist John Podesta, for instance, encouraged Blacks to accuse Sanders supporters of distracting attention from racism. Pushing a common economic interest between whites, Blacks, Hispanics and LGBTQ always has been the neoliberals’ nightmare. No wonder they tried so hard to stop Bernie Sanders, and are maneuvering to keep his supporters from gaining influence in their party.
When Trump was inaugurated on Friday, January 20, there was no pro-jobs or anti-war demonstration. That presumably would have attracted pro-Trump supporters in an ecumenical show of force. Instead, the Women’s March on Saturday led even the pro-Democrat New York Times to write a front-page article reporting that white women were complaining that they did not feel welcome in the demonstration. The message to anti-war advocates, students and Bernie supporters was that their economic cause was a distraction.
The march was typically Democratic in that its ideology did not threaten the Donor Class. As Yves Smith wrote on Naked Capitalism: “the track record of non-issue-oriented marches, no matter how large scale, is poor, and the status of this march as officially sanctioned (blanket media coverage when other marches of hundreds of thousands of people have been minimized, police not tricked out in their usual riot gear) also indicates that the officialdom does not see it as a threat to the status quo.”
Hillary’s loss was not blamed on her neoliberal support for TPP or her pro-war neocon stance, but on the revelations of the e-mails by her operative Podesta discussing his dirty tricks against Bernie Sanders (claimed to be given to Wikileaks by Russian hackers, not a domestic DNC leaker as Wikileaks claimed) and the FBI investigation of her e-mail abuses at the State Department. Backing her supporters’ attempt to brazen it out, the Democratic Party has doubled down on its identity politics, despite the fact that an estimated 52 percent of white women voted for Trump. After all, women do work for wages. And that also is what Blacks and Hispanics want – in addition to banking that serves their needs, not those of Wall Street, and health care that serves their needs, not those of the health-insurance and pharmaceuticals monopolies.
Bernie did not choose to run on a third-party ticket. Evidently he feared being accused of throwing the election to Trump. The question is now whether he can remake the Democratic Party as a democratic socialist party, or create a new party if the Donor Class retains its neoliberal control. It seems that he will not make a break until he concludes that a Socialist Party can leave the Democrats as far back in the dust as the Republicans left the Whigs after 1854. He may have underestimated his chance in 2016.
Trump’s effect on U.S. political party realignment
During Trump’s rise to the 2016 Republican nomination it seemed that he was more likely to break up the Republican Party. Its leading candidates and gurus warned that his populist victory in the primaries would tear the party apart. The polls in May and June showed him defeating Hillary Clinton easily (but losing to Bernie Sanders). But Republican leaders worried that he would not support what they believed in: namely, whatever corporate lobbyists put in their hands to enact and privatize.
The May/June polls showed Trump and Clinton were the country’s two most unpopular presidential candidates. But whereas the Democrats maneuvered Bernie out of the way, the Republican Clown Car was unable to do the same to Trump. In the end they chose to win behind him, expecting to control him. As for the DNC, its Wall Street donors preferred to lose with Hillary than to win with Bernie. They wanted to keep control of their party and continue the bargain they had made with the Republicans: The latter would move further and further to the right, leaving room for Democratic neoliberals and neocons to follow them closely, yet still pose as the “lesser evil.” That “centrism” is the essence of the Clintons’ “triangulation” strategy. It actually has been going on for a half-century. “As Tanzanian President Julius Nyerere quipped in the 1960s, when he was accused by the US of running a one-party state, ‘The United States is also a one-party state but, with typical American extravagance, they have two of them’.”
By 2017, voters had caught on to this two-step game. But Hillary’s team paid pollsters over $1 billion to tell her (“Mirror, mirror on the wall …”) that she was the most popular of all. It was hubris to imagine that she could convince the 95 Percent of the people who were worse off under Obama to love her as much as her East-West Coast donors did. It was politically unrealistic – and a reflection of her cynicism – to imagine that raising enough money to buy television ads would convince working-class Republicans to vote for her, succumbing to a Stockholm Syndrome by thinking of themselves as part of the 5 Percent who had benefited from Obama’s pro-Wall Street policies.
Hillary’s election strategy was to make a right-wing run around Trump. While characterizing the working class as white racist “deplorables,” allegedly intolerant of LBGTQ or assertive women, she resurrected the ghost of Joe McCarthy and accused Trump of being “Putin’s poodle” for proposing peace with Russia. Among the most liberal Democrats, Paul Krugman still leads a biweekly charge at The New York Times that President Trump is following Moscow’s orders. Saturday Night Live, Bill Maher and MSNBC produce weekly skits that Trump and General Flynn are Russian puppets. A large proportion of Democrats have bought into the fairy tale that Trump didn’t really win the election, but that Russian hackers manipulated the voting machines. No wonder George Orwell’s 1984 soared to the top of America’s best-seller lists in February 2017 as Donald Trump was taking his oath of office.
This propaganda paid off on February 13, when neocon public relations succeeded in forcing the resignation of General Flynn, whom Trump had appointed to clean out the neocons at the NSA and CIA. His foreign policy initiative based on rapprochement with Russia and hopes to create a common front against ISIS/Al Nusra seemed to be collapsing.
Tabula Rasa Celebrity Politics
U.S. presidential elections no longer are much about policy. Like Obama before him, Trump campaigned as a rasa tabla, a vehicle for everyone to project their hopes and fancies. What has all but disappeared is the past century’s idea of politics as a struggle between labor and capital, democracy vs. oligarchy.
Who would have expected even half a century ago that American politics would become so post-modern that the idea of class conflict has all but disappeared. Classical economic discourse has been drowned out by their junk economics.
There is a covert economic program, to be sure, and it is bipartisan. It is to make elections about just which celebrities will introduce neoliberal economic policies with the most convincing patter talk. That is the essence of rasa tabla politics.
Can the Democrats lose again in 2020?
Trump’s November victory showed that voters found him to be the Lesser Evil, but all that voters really could express was “throw out the bums” and get a new set of lobbyists for the FIRE sector and corporate monopolists. Both candidates represented Goldman Sachs and Wall Street. No wonder voter turnout has continued to plunge.
Although the Democrats’ Lesser Evil argument lost to the Republicans in 2016, the neoliberals in control of the DNC found the absence of a progressive economic program to less threatening to their interests than the critique of Wall Street and neocon interventionism coming from the Sanders camp. So the Democrat will continue to pose as the Lesser Evil party not really in terms of policy, but simply ad hominum. They will merely repeat Hillary’s campaign stance: They are not Trump. Their parades and street demonstrations since his inauguration have not come out for any economic policy.
On Friday, February 10, the party’s Democratic Policy group held a retreat for its members in Baltimore. Third Way “centrists” (Republicans running as Democrats) dominated, with Hillary operatives in charge. The conclusion was that no party policy was needed at all. “President Trump is a better recruitment tool for us than a central campaign issue,’ said Washington Rep. Denny Heck, who is leading recruitment for the Democratic Congressional Campaign Committee (DCCC).”
But what does their party leadership have to offer women, Blacks and Hispanics in the way of employment, more affordable health care, housing or education and better pay? Where are the New Deal pro-labor, pro-regulatory roots of bygone days? The party leadership is unwilling to admit that Trump’s message about protecting jobs and opposing the TPP played a role in his election. Hillary was suspected of supporting it as “the gold standard” of trade deals, and Obama had made the Trans-Pacific Partnership the centerpiece of his presidency – the free-trade TPP and TTIP that would have taken economic regulatory policy out of the hands of government and given it to corporations.
Instead of accepting even Sanders’ centrist-left stance, the Democrats’ strategy was to tar Trump as pro-Russian, insist that his aides had committed impeachable offenses, and mount one parade after another. “Rep. Marcia Fudge of Ohio told reporters she was wary of focusing solely on an “economic message” aimed at voters whom Trump won over in 2016, because, in her view, Trump did not win on an economic message. “What Donald Trump did was address them at a very different level — an emotional level, a racial level, a fear level,” she said. “If all we talk about is the economic message, we’re not going to win.” This stance led Sanders supporters to walk out of a meeting organized by the “centrist” Third Way think tank on Wednesday, February 8.
By now this is an old story. Fifty years ago, socialists such as Michael Harrington asked why union members and progressives still imagined that they had to work through the Democratic Party. It has taken the rest of the country half a century to see that Democrats are not the party of the working class, unions, middle class, farmers or debtors. They are the party of Wall Street privatizers, bank deregulators, neocons and the military-industrial complex. Obama showed his hand – and that of his party – in his passionate attempt to ram through the corporatist TPP treaty that would have enabled corporations to sue governments for any costs imposed by public consumer protection, environmental protection or other protection of the population against financialized corporate monopolies.
Against this backdrop, Trump’s promises and indeed his worldview seem quixotic. The picture of America’s future he has painted seems unattainable within the foreseeable future. It is too late to bring manufacturing back to the United States, because corporations already have shifted their supply nodes abroad, and too much U.S. infrastructure has been dismantled.
There can’t be a high-speed railroad, because it would take more than four years to get the right-of-way and create a route without crossing gates or sharp curves. In any case, the role of railroads and other transportation has been to increase real estate prices along the routes. But in this case, real estate would be torn down – and having a high-speed rail does not increase land values.
The stock market has soared to new heights, anticipating lower taxes on corporate profits and a deregulation of consumer, labor and environmental protection. Trump may end up as America’s Boris Yeltsin, protecting U.S. oligarchs (not that Hillary would have been different, merely cloaked in a more colorful identity rainbow). The U.S. economy is in for Shock Therapy. Voters should look to Greece to get a taste of the future in this scenario.
Without a coherent response to neoliberalism, Trump’s billionaire cabinet may do to the United States what neoliberals in the Clinton administration did to Russia after 1991: tear out all the checks and balances, and turn public wealth over to insiders and oligarchs. So Trump’s his best chance to be transformative is simply to be America’s Yeltsin for his party’s oligarchic backers, putting the class war back in business.
What a truly transformative president would do/would have done
No administration can create a sound U.S. recovery without dealing with the problem that caused the 2008 crisis in the first place: over-indebtedness. The only one way to restore growth, raise living standards and make the economy competitive again is a debt writedown. But that is not yet on the political horizon. Obama’s doublecross of his voters in 2009 prevented the needed policy from occurring. Having missed this chance in the last financial crisis, a progressive policy must await yet another crisis. But so far, no political party is preparing a program to juxtapose to Republican-Democratic austerity and scale-back of Social Security, Medicare and social spending programs in general.
Also no longer on the horizon is a more progressive income tax, or a public option for health care – or for banking, or consumer protection against financial fraud, or for a $15-an-hour minimum wage, or for a revived protection of labor’s right to unionize, or environmental regulations.
It seems that only a new party can achieve these aims. At the time these essays are going to press, Sanders has committed himself to working within the Democratic Party. But that stance is based on his assumption that somehow he can recruit enough activists to take over the party from Its Donor Class.
I suspect he will fail. In any case, it is easier to begin afresh than to try to re-design a party (or any institution) dominated by resistance to change, and whose idea of economic growth is a pastiche of tax cuts and deregulation. Both U.S. parties are committed to this neoliberal program – and seek to blame foreign enemies for the fact that its effect is to continue squeezing living standards and bloating the financial sector.
If this slow but inexorable crash does lead to a political crisis, it looks like the Republicans may succeed in convening a new Constitutional Convention (many states already have approved this) to lock the United States into a corporatist neoliberal world. Its slogan will be that of Margaret Thatcher: TINA – There Is No Alternative.
And who is to disagree? As Trotsky said, fascism is the result of the failure of the left to provide an alternative.
The author has granted this website permission to reprint selected articles.
The view expressed in this essay represent those of the author and do not necessarily reflect those of APS Radio News.
Michael Hudson is research professor of economics at University of Missouri, Kansas City (UMKC) and a research associate at the Levy Economics Institute of Bard College. He is a former Wall Street analyst and consultant as well as president of the Institute for the Study of Long-term Economic Trends (ISLET) and a founding member of International Scholars Conference on Ancient Near Eastern Economies
Celebrating the One Percent: Is Inequality Really Good for the Economy?
By Michael Hudson
To paraphrase Mark Twain, everyone complains about inequality, but nobody does anything about it.
What they do is to use “inequality” as a takeoff point to project their own views on how to make society more prosperous and at the same time more equal. These views largely depend on whether they view the One Percent as innovative, smart and creative, making wealth by helping the rest of society – or whether, as the great classical economists wrote, the wealthiest layer of the population consist of rentiers, making their income and wealth off the 99 Percent as idle landlords, monopolists and predatory bankers.
Economic statistics show fairly worldwide trends in inequality. After peaking in the 1920s, the reforms of the Great Depression helped make income distribution more equitable and stable until 1980. Then, in the wake of Thatcherism in Britain and Reaganomics in the United States, inequality really took off. And it took off largely by the financial sector (especially as interest rates retreated from their high of 20 percent in 1980, creating the greatest bond market boom in history). Real estate and industry were financialized, that is, debt leveraged.
Inequality increased steadily until the global financial crash of 2008. Since then, as bankers and bondholders were saved instead of the economy, the top One Percent have pulled even more sharply ahead of the rest of the economy. Meanwhile, the bottom 25 percent of the economy has seen its net worth and relative income deteriorate.
Needless to say, the wealthy have their own public relations agents, backed by the usual phalange of academic useful idiots. Indeed, mainstream economics has become a celebration of the wealthy rentier class for a century now, and as inequality is sharply widening today, celebrators of the One Percent have found a pressing need for their services.
A case in point is the Scottish economist Angus Deaton, author of The Great Escape: Health, Wealth, and the Origins of Inequality. (2013). Elected President of the AEA in 2010, he was given the Nobel Economics Prize in 2015 for analyzing trends in consumption, income distribution, poverty and welfare in ways that cause no offense to the wealthy, and in fact treat the increasingly inequitable status quo as perfectly natural and in its own kind of mathematical equilibrium. (This kind of circular mathematical reasoning is the criterion of good economics today.)
His book treats the movie The Great Escape as a metaphor. He deridingly pointed out that nobody would have called the movie “The prisoners left 2KillingTheHost_Cover_rulebehind.” Describing the escapers as brilliant innovators, he assumes that the wealthiest One Percent likewise have been smart and imaginative enough to break the bonds of conventional thinking to innovate. The founders of Apple, Microsoft and other IT companies are singled out for making everyone’s life richer. And the economy at large has experienced a more or less steady upward climb, above all in public health extending lifespans, conquering disease and pharmaceutical innovation.
I recently was put on the same stage as Mr. Deaton in Berlin, along with my friend David Graeber. We three each have books translated into German to be published this autumn by the wonderful publisher Klett-Cotta, who organized the event at at the Berlin Literaturfestival in mid-September.
In a certain way I find Deaton’s analogy with the movie The Great Escape appropriate. The wealthy have escaped. But the real issue concerns what have they escaped from. They have escaped from regulation, from taxation (thanks to offshore banking enclaves and a rewriting of the tax laws to shift the fiscal burden onto labor and industry). Most of all, Wall Street banksters have escaped from criminal prosecution. There is no need to escape from jail if you can avoid being captured and sentenced in the first place!
A number of recent books – echoed weekly in the Wall Street Journal’s editorial page – attribute the wealthiest One Percent to the assumption that they must be smarter than most other people. At least, smart enough to get into the major business schools and get MBAs to learn how to financialize corporations with zaitech or other debt leveraging, reaping (indeed, “earning”) huge bonuses
The reality is that you don’t have to be smart to make a lot of money. All you need is greed. And that can’t be taught in business schools. In fact, when I went to work as a balance-of-payments analyst at Chase Manhattan in 1964, I was told that the best currency traders came from the Brooklyn or Hong Kong slums. Their entire life was devoted to making money, to rise into the class of the proverbial Babbitts of our time: nouveau riches lacking in real culture or intellectual curiosity.
Of course, for bankers who do venture to “stretch the envelope” (the fraudster’s euphemism for breaking the law, as Citigroup did in 1999when it merged with Travelers’ Insurance prior to the Clinton administration rejecting Glass-Steagall), you do need smart lawyers. But even here, Donald Trump explained the key that he learned from mob lawyer Roy Cohn: what matters is not so much the law, as what judge you have. And the U.S. courts have been privatized by electing judges whose campaign contributors back deregulators and non-prosecutors. So the wealthy escape from being subject to the law.
Although no moviegoers wanted to see the heroes of the Great Escape movie captured and put back in their prison camp, a great many people wish that the Wall Street crooks from Citigroup, Bank of America and other junk-mortgage fraudsters would be sent to jail, along with Angelo Mazilo of Countrywide Financial. Little love is given to their political lobbyists such as Alan Greenspan, Attorney General Eric Holder, Lanny Breuer and their hirees who refused to prosecute financial fraud.
Deaton did cite “rent seekers” – but in the sense that his predecessor Nobel prizewinner Buchanan did, locating rent seeking within government, not real estate, monopolies such as pharmaceuticals and information technology, health insurance, cable companies and high finance. So any blame for poverty falls on either the government or on the debtors, renters, unemployed and not-wellborn who are the main victims of today’s rentier economy.
Deaton’s Great Escape sees some problems, but not in the economic system itself – not debt, not monopoly, not the junk mortgage crisis or financial fraud. He cites global warming as the main problem, but not the political power of the oil industry. He singles out education as the way to raise the 99 Percent – but says nothing about the student loan problem, the travesty of for-profit universities funding junk education with government-guaranteed bank loans.
He measures the great improvement in well-being by GDP (gross domestic product). Lloyd Blankfein of Goldman Sachs notoriously described his investment bank’s managers and partners of being the most productive individuals in the United States for earning $20 million annually (not including bonuses) – all of which is recorded as adding to the financial sector’s “output” of GDP. There is no concept at all that this is what economists call a zero-sum activity – that is, that Goldman Sachs’s salaries may be unproductive, parasitic, predatory, and the rest of the economy’s loss or overhead.
Such thoughts do not occur in the happy-face views promoted by the One Percent. Deaton’s praise-hymn to the elites assumes that everyone earns what they get, by playing a productive role, not an extractive one.
An even more blatant denial of rent-seeking is a new book by one of the founders of Bain Capital (Mitt Romney’s firm), Edward Conard, The Upside of Inequality attacking the “demagogues” and “propagandists” who claim that the winnings of the One Percent are largely unearned. Curiously, he does not include Adam Smith, David Ricardo or John Stuart Mill as such “propagandists.” Yet that is what classical free market economics was all about: freeing economies from the unearned rental income and rising land prices that landlords make “in their sleep,” as John Stuart Mill put it. This propaganda book thus misrepresents the program that the major founders of economics urged: public ownership or collection of land rent, natural resource rent, and pubic operation of natural monopolies, headed by the financial sector.
For Conard, the reason for the soaring wealth of the One Percent is not financial, real estate or other monopolistic rent seeking, but the wonders of the information economy. It is Josef Schumpeter’s “creative destruction” of less productive technology, by hard working and dedicated innovators whose creativity raises the level of everyone. So the wealth of the One Percent is a measure of society’s forward march, not a predatory overhead extracted from the economy at large.
Conard’s policy conclusion is that regulation and taxation slows this march of economies toward prosperity as led by the One Percent. As a laudatory Wall Street Journal review of his book summarized his message: “Redistribution – whether achieved through taxation, regulatory restrictions, or social norms – appears,” he asserts, “to have large detrimental effects on risk-taking, innovation, productivity, and growth over the long run, especially in an economy where innovation produced by the entrepreneurial risk-taking of properly trained talent increasingly drives growth.” His solution is to lower taxes on the rich!
My friend Dave Kelley notes the policy message that is being repeated ad nauseum these days: the assertion that “progressive moves like taxation end up hurting the economy rather than helping it. This ‘I would feed you but you might become dependent on food’ theory is central in showing how consumer societies like ours are returning to feudal distributions of wealth.” This seems to be the policy proposal of the three leading candidates for U.S. President – in our modern post-Citizens United world where elections are bought in much the way that consulships were back in the closing days of the Roman Republic.
 Anthony B. Atkinson, author of Inequality: What Can Be Done? coined the phrase “Inequality Turn” to describe when economic inequality began to widen around 1980. He was a mentor of Thomas Piketty, and together they worked with Saez to create an historical database on top incomes.
 Richard Epstein, “The Necessity of the Rich,” Wall Street Journal, September 15, 2016. The libertarian reviewer’s only criticism is hilarious: “Mr. Conard overlooks vast numbers of possible reforms. He never, for instance, discusses the weakening of patent law (a real inhibitor of innovation), or the arduous compliance culture that has grown up in the wake of Dodd-Frank and ObamaCare, or how zoning, rent stabilization and affordable-housing laws strangle the housing market. By ignoring the threat that regulation increasingly poses to the economy, his case for the upside of inequality is far weaker than it should be.” Join the debate on Facebook
Michael Hudson’s new book, Killing the Host is published in e-format by CounterPunch Books and in print by Islet. He can be reached via his website, email@example.com
The Author has granted this website permission to reprint selected essays.
The views expressed by the author do not necessarily reflect those of APS Radio News.
The Silence of the Left: Brexit, Euro-Austerity and the T-TIP
By Michael Hudson
The media in the United States have treated the British vote against remaining in the European Union (EU) as if it is populist “Trumpism,” an inarticulate right-wing vote out of ignorance at being left behind by the neoliberal economic growth policy. The fact that Donald Trump happened to be in Scotland to promote his golf course helped frame the U.S. story that depicts the Brexit vote as a “Trump vs. Hillary” psychodrama – populist anger and resentment vs. intelligent policy.
What is left out of this picture is that there is a sound logic to oppose membership in the EU. It is Nigel Farage’s slogan, “Take Back Control.”
The question is, from whom? Not only from “bureaucrats,” but from the pro-bank, anti-labor rules written into the eurozone’s Lisbon and Maastricht treaties.
The British tabloids opposed EU membership by depicting unelected Brussels bureaucrats as making laws binding on Britain. The argument was largely a nationalistic plea for “British laws to help the British people.”
The real problem is not merely that bureaucrats are making the laws, but the kind of laws they are making: pro-bank, anti-labor austerity. Tax and public spending policy has been taken out of the hands of national governments and turned over to the banking centers. They insist on austerity and scaling back pensions and social spending programs.
The Maastricht and Lisbon treaties – along with the German constitution –deprive the 2KillingTheHost_Cover_ruleeurozone of having a central bank to spend money to revive the European economy. Instead of working to heal the economy from the debt deflation that has occurred since 2008, the European Central Bank (ECB) finances banks and obliges governments to save bondholders from loss instead of writing down bad debts.
To top matters, Brussels bureaucrats seem quite bendable to U.S. pressures to sign the T-TIP: the Obama Administration’s neoliberal Transatlantic Trade and Investment Partnership. This is a corporatist program shifting regulatory policy into corporate hands, away from government: environmental policy, public health policy and food labeling for starters.
The Brussels bureaucracy has been hijacked not only by the banks, but by NATO. It pretends that there is a real danger of Russia mounting a military invasion of Europe – as if any country in the world today could mount a land war against another.
This fictitious threat is the excuse for 2% of European budgets earmarked for spending on arms purchases from the U.S. military-industrial complex and its counterparts in France and other countries. Brussels-NATO war-mongering is used to depict the pro-labor left as “soft” on national security – as if Europe really faces a problem of Russian invasion. Opponents of euro-austerity are depicted as agents of Putin.
The dissenting voice has been Le Pen’s National Front party in France. She decries French participation in NATO, on the ground that it relinquishes military control to the U.S. and its adventurism.
What used to be a socialist left has been silent about the fact that there are very good reasons for people to say that this is not the kind of Europe they want to be a part of. It is becoming a dead zone. And it cannot be “democratized” without replacing the Lisbon and Maastricht treaties on which it is founded, and removing German opposition to public spending on recovery for Spain, Italy, Portugal, Greece and other countries.
What is remarkable is that in the face of rising resentment by the “losers” from neoliberalism – the 99 Percent – only the nationalist right-wing parties have criticized the EU’s neoliberalism and the T-TIP. The formerly left-wing Socialist parties of France and Spain, German Social Democrats, Greek Socialists and so forth have endorsed the neoliberal, pro-financial program of austerity and rollbacks on labor union power, wages and pensions.
So the riddle is, how did originally pro-labor parties become anti-labor?
Bureaucratic corruption of all parties over time
The 14th-century Islamic philosopher of history, Ibn Khaldun, estimated that every dynasty runs its course in about 120 years (four generations). The tendency is to start out with a progressive “group feeling” of mutual aid. But in time, dynasties succumb to luxury and greed, and become corrupt and easily manageable by special interests.
The same thing may be said of political parties. Every party that identified with the left in the Progressive Era – the Labour and Socialists parties of Europe, and the progressive Democrats in the United States – have now moved to the neoliberal right as it has become part of “the establishment.”
It is as if left and right parties have switched positions politically. The socialist left is not protesting against eurozone austerity, but is applauding it. Like Tony Blair and Gordon Brown in Britain, they have become Thatcherite, pushing privatization and corporatism.
At least Europe’s political system offers a way out: New parties can be formed to replace the old, and parliamentary representation reflects approximately the public vote. That is what enabled Italy’s Five Star movement, Spain’s Podemos and even Greece’s Syriza to organize and win parliamentary seats. Their program is to restore a left-wing, pro-labor government regulating the economy to raise wages and living standards, not siphon off income to pay the financial centers and the One Percent.
What blocks a progressive U.S. Political Left?
The United States is locked into a two-party system that blocks opponents of neoliberalism. Our presidential election system was warped at the outset by the favoritism for southern slaveowners. It fixed their representation to reflect a slave population that could not vote, but was counted in the South’s Congressional representation, and in presidential elections via the electoral college.
I won’t go into the details here, but the way in which the two-party system has emerged blocks a third party from gaining control of key congressional committees or other nitty-gritty instruments of government. That is why Bernie Sanders found it necessary to run as a Democrat – despite the fact that the Democratic Party apparatus if firmly controlled by its main Wall Street and corporate campaign contributors.
Just as the EU is non-reformable under the Lisbon and Maastricht treaties – the U.S. political system seems unreformable. In the hands of neoliberals it favors Wall Street over labor, and corporate power over environmental protection, public health and economic recovery.
For example, last week the Democratic National Committee rejected Bernie Sanders’ urging that the platform for this year’s elections reject the TPP and TTIP. These trade policies have been called “NAFTA on steroids.” While Hillary initially supported them, she is making a left-wing feint claiming to oppose them – but won’t permit this to be put in writing in the platform, even though it is “only a piece of paper,” as Jane Sanders has said.
This leaves it to Donald Trump to denounce the Democrats as supporting corporatism at the expense of labor. It puts him in the position of Nigel Farage in Britain or Marine Le Pen in France, or the nationalists in Austria and Hungary.
And it puts the Democrats as solidly on the neoliberal, anti-labor, anti-regulatory side of the political equation as are the French Socialists and their right-wing counterparts in other countries Lorrie Wallach, Paul Craig Roberts and others are making the case against TPP and TTIP, but only Mr. Trump seems able to play this key political card.
So the great problem of our time is how to create an alternative to neoliberalism, the TPP and TTIP that is pro-labor and pro-environmental. Why can’t America create a party that has a realistic ability to set government policy? Many Green Party members seek to do this. But the U.S. two-party system marginalizes them.
Although the Socialist and other third-party movements a century ago ended up influencing the Democratic Party, the Sanders campaign shows how little chance there is of this happening today. Hillary’s corporate donors have tightened their stranglehold on the party apparatus. They have hijacked Progressive Era rhetoric and slogans, to wrap around right-wing neoliberal policies.
So there are two problems with countering austerity and debt deflation. First of all, the U.S. electoral system prevents an alternative.
Second, the former left-wing parties have stultified and rejected their pro-labor origins to support Thatcherism, privatization, balanced budgets and pro-bank austerity. Rejecting Marx, they have joined the New Cold War.
There is another European economy that is possible. But it cannot be built on the current foundations. It is necessary to break up the eurozone to rebuild a pro-labor Europe.
Michael Hudson is research professor of economics at the University of Missouri, Kansas City and a research associated at the Levy Economics Institute of Bard College. He is a former Wall Street analyst and consultant as well as president of the Institute for the Study of Long-term Economic Trends and a found member of International Scholars Conference on Ancient Near Eastern Economics.
The author has granted this website permission to reprint selected articles.
The views expressed are soley those of the author and do not necessarily reflect the views of APS Radio News.
Revolts of the Debtors: From Socrates to Ibn Khaldun
by Michael Hudson
Last week I attended a wonderful conference in the university town of Tübingen, Germany, on “Debt: The First 3500 Years,” to bring ancient historians together to discuss David Graeber’s book Debt: The First 5000 Years.
I was enlightened by two papers in particular. Doctoral fellow Moritz Hinsch from Berlin collected what Socrates (470-399 BC) and other Athenians wrote about debt, and the conference’s organizer, Prof. John Weisweiler, presented the new view of late imperial Rome as being still a long way from outright serfdom. The 99 Percent were squeezed, but “the economy” grew – in a way that concentrated growth in the hands of the One Percent. In due course this bred popular resentment that spread in the form of debtor revolts, not only in the Roman Empire but that of Iran as well, leading to religious reforms to limit the charging of interest and self-indulgent greed in general.
I had not been in Tübingen since 1959, and it was my first chance to meet with David Graeber since he moved to England to teach at the London School of Economics after being hounded out of his apartment in New York City in the wake of the police and FBI crackdown against Occupy Wall Street. Our mutual German publisher, Klett-Cotta, sent its senior editor from nearby Stuttgart to discuss their German translation of my Killing the Host, to appear in November, as Der Sektor: Warum die Globale Finanzwirtschaft uns Zerstört.
Socrates’ views on whether bad debts should be paid
In Book I of Plato’s Republic (380 BC), Socrates discusses the morality of repaying debts. Cephalus, a businessman living in the commercial Piraeus district, states the typical ethic that it is fair and just to pay back what one has borrowed or received. Socrates replies that it would not be just to return weapons to a man who has turned into a lunatic. Because of the consequences, paying back the debt would be the wrong thing to do.
At issue is not the micro-economic morality of paying a debt, but how this act affects society. If a madman is intent on murder, returning his weapon to him will enable him to commit unjust acts. The morality of paying back all debts is not necessarily justice. We need to take the overall consequences into account.
A similar logic may apply to today’s debate over whether Greece should pay back the IMF and European Central Bank (ECB) for the money that they have provided since 2010 to save bondholders from losses on loans (largely by French and German banks). The terms oblige the Greek government to pay in full instead of writing down debts to reflect the actual ability to pay.
The IMF staff calculated repeatedly that Greece had no way of paying off these debts, so the IMF violated its own articles of agreement (and its “No More Argentinas” rule) that it should not lend to countries which, in the judgment of its research staff, have no foreseeable means to pay. IMF board members also protested to the bondholder bailout – all to no avail.
The morality of paying off the IMF and ECB is analogous to paying off the madman discussed by Socrates. At issue is what should be saved: wealthy creditors from loss (and the2KillingTheHost_Cover_rule morality that all debts should be paid), or the overall economy from unemployment and misery leading to emigration, worse health and shorter lifespans. They have used their debt leverage to demand that Greece impose austerity, increase unemployment (now running at an enormous 25 percent for IV-2015 – I-2016), scale back pensions to retirees, and privatize public infrastructure to pay creditors – while running a budget surplus to suck even more money out of the economy.
When the Greek people voted in 2015 to reject these demands, the ECB and European Union insisted that referendums didn’t matter. Shifting economic policy from voters to bankers already had led Frank Schirrmacher to write an article in the Frankfurter Allgemeine Zeitung, “Democracy is Junk.”
What really is at issue is the selfish and abusive behavior of creditors. Later in the Republic (Book VIII, 555d-556b), Socrates talks with Glaucon, pointing to the “negligence and encouragement of licentiousness in oligarchies.” Their greed, Socrates explains, inserts the parasitic “sting of their money into any of the remainder who do not resist.” The effect is to burden many Athenians with debt, to suffer foreclosure on their land and disenfranchisement, fostering “the drone and pauper element in the state.” This leaves the people (the demos) to “conspire against the acquirers of their estates and the rest of the citizens, and be eager for revolution.”
The way to quench this disaster in the making, Socrates suggests, is to enact “a law prohibiting a man from doing as he likes with his own, or in this way, by a second law that does away with such abuses.”
“What law?” asks Glaucon.
“The law that is next best … commanding that most voluntary contracts should be at the contractor’s risk. The pursuit of wealth would be less shameless in the state and fewer of the evils of which we spoke just now would grow up there.”
This obligation of creditors to share in the risk of non-payment is precisely what the IMF staff and other critics of the European Central Bank’s pro-creditor line are now belatedly insisting. It is the principle that American bank reformers urged after the 2008 crash: Banks that made junk mortgage loans beyond the ability of debtors to pay should have their reckless and often fraudulent “liars’ loans” downsized to reflect reasonable rental values and real estate prices instead of being allowed to foreclose and push the U.S. economy into debt deflation.
Concentration of wealth by Rome’s One Percent leads debtors to revolt
Roman emperors sponsored a market economy that aimed at producing a fiscal surplus, which was used largely to pay mercenaries. Wealth and political power were concentrated in the imperial bureaucracy, army leaders, and their suppliers and provisioners. The tax reform of Diocletian (ruled 284-305), enacted in 297, taxed the hitherto exempt wealthy landowners as well as the rest of the economy. His successor, Constantine (ruled 306-337), enacted a monetary reform in the 310’s, basing the military-fiscal state on the gold solidus.
The effect was monetary deflation. “Like the gold standard of the nineteenth and twentieth centuries,” Prof. Weisweiler explained in his paper on the Late Roman economy, “the introduction of the solidus was a golden age for capital-owners but a dark period for lower strata of the population.” Yet Medium-sized farms survived without being reduced to serfdom, and wage labor was available for hire at harvest time. The proportion of Italy’s population enslaved is now deemed to have been around 15 percent.
There were no slave revolts, but debtors rebelled or defected to invaders, as they had done earlier in antiquity. Prof. Weisweiler described how, when a Gothic army defeated that of Rome at Adrianople (eastern Turkey) in 378, local guides brought the victors “to the villas of great landowners, who were then plundered by a coalition of Gothic soldiers and local residents. When in 408 the Romano-Gothic military leader Alaric for the first time besieged the city of Rome, his forces were swollen by many debtors who left the imperial capital to join his army.”
Richard Payne of the University of Chicago gave a paper explaining how peasant revolts against Persia’s Sasanian rulers a century later sought to “restore” an egalitarian Zoroastrian order as a protest against the extreme polarization that widened the gap between luxury and poverty. The new morality of economic balance rejected silk garments, silver wine vessels and other status symbols of the elites. Interest was condemned, as it had been under Christianity and would be under Islam. All religious urged mutual aid and warned about abusive wealth-seeking by the elites. What occurred culturally was a revulsion against luxury and hubris – a Greek word that connoted not only arrogance, but arrogance that took the form of injuring others.
Ideology and antiquity
Creditors were the typical class singled out as oppressive and destructive of society. Their self-centered wealth addiction was seen as stripping society to serve their own compulsive drives. It was to praise moderation and even to prefer a poverty of equality to indulgence in luxury that Christianity, Islam and other religious movements of the early first millennium AD took root.
By the 14th century the great Tunisian Islamic philosopher of history, Ibn Khaldun, described societies gaining prosperity through “group feeling,” only to lose it within about 120 years as the ruling dynasty succumbed to self-indulgence and greed – paving the way for their land to be conquered from without or taken over from within.
My own paper for the conference described how Ibn Khaldun’s “rise and fall” view of history in The Muqaddimah was echoed in Giambatisto Vico’s The New Science (1725), and later by the French and Scottish Enlightenment by writers such as Adam Ferguson, who endorsed Montesquieu’s statement in Spirit of the Laws (1748): “Man is born in society, and there he remains.” To survive, people need to cooperate in a system of mutual aid. “Man is, by nature, the member of a community; and when considered in this capacity, the individual appears to be no longer made for himself. He must forego his happiness and his freedom, where these interfere with the good of society.”
All this teaches the opposite of today’s two guiding economic premises: “Greed is good,” and “There is no such thing as society.” Economics used to be called moral philosophy, but it has succumbed to individualistic extremism. Homo economicus has replaced zoon politikon. Debts are supposed to be paid without concern for how this impoverishes the economy.
It was to resist personal gain-seeking at the expense of the body politic and group solidarity that the world’s major philosophies and religions for the past two thousand years urged self-control, generosity, care for the weak and poor, and rules to limit the luxurious self-indulgence and anti-social egotism it bred in ruling elites. Excluding this intellectual legacy from the curriculum has paved the way for inverting today’s moral attitude upholding creditor claims against the rest of society.
It should not be surprising that modern financial elites are fighting back against democratic moves to limit their wealth, adopt progressive taxation, write down debts by bankruptcy reform, and shift control of government away from landed aristocracies and banking centers. These vested interests are behaving exactly as Ibn Khaldun described the terminal decadent generation of dynasties as acting with anti-social selfishness.
Ferguson described how prosperity lay the groundwork for undermining the commercial stage: “man is sometimes found a detached and a solitary being: he has found an object which sets him in competition with his fellow creatures, and he deals with them as he does with his cattle and his soil, for the sake of the profits they bring. The mighty engine which we suppose to have formed society, only tends to set its members at variance, or to continue their intercourse after the bonds of affection are broken.”
The financial takeover of government is not new. Ibn Khaldun described how what today is called the “deep state” (often run by foreigners or other interlopers) gains control of dynasties. Lacking traditional royal authority, they must work outside or behind the scene of politics, as finance does today:
In gaining control, he does not plan to appropriate royal authority for himself openly, but only to appropriate its fruits, that is, the exercise of administrative, executive, and all other power. He gives the people of the dynasty the impression that he merely acts for the ruler and executes the latter’s decisions from behind the curtain. He carefully refrains from using the attributes, emblems, or titles of royal authority. He avoids throwing any suspicion upon himself in this respect, even though he exercises full control. … He disguises his exercise of control under the form of acting as the ruler’s representative.
Today’s Treasury Secretaries, central bank heads, IMF economists and client academics serve the world’s cosmopolitan financial ideology that money and credit, debt and taxes are purely technocratic, and hence beyond the sphere of voters or the politicians they elect to “interfere” with. We are back with the Thatcherite financial Taliban (the Arab word for “students”): There Is No Alternative.
That is the protective myth that elites have wrapped around themselves and their privileges from time immemorial. To succeed, it must erase knowledge of history and live in a highly censored “present” in which the financial class takes the land, public infrastructure and government into its own hands.
It has all happened before – and so have revolts by debtors and other exploited victims of such “economism.”
The author has granted this website permission to reprint selected articles.
The views expressed are solely those of the author and do not necessarily reflect those of APS Radio News.
Dr. Hudson is a financial economist and historian. He is President of the Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972 book, Super-Imperialism: The Economic Strategy of American Empire. He is also author of Trade, Development and Foreign Debt and The Myth of Aid, among many others. Dr. Hudson acts as an economic advisor to governments worldwide, including Iceland, Latvia and China on finance and tax law. Visit his website at Michael-Hudson.com.
The Atlanticist Tactic Revisited
By Paul Craig Roberts and Michael Hudson
Two years ago, Russian officials discussed plans to privatize a group of national enterprises headed by the oil producer Rosneft, the VTB Bank, Aeroflot, and Russian Railways. The stated objective was to streamline management of these companies, and also to induce oligarchs to begin bringing their two decades of capital flight back to invest in the Russia economy. Foreign participation was sought in cases where Western technology transfer and management techniques would be likely to help the economy.
However, the Russian economic outlook deteriorated as the United States pushed Western governments to impose economic sanctions against Russia and oil prices declined. This has made the Russian economy less attractive to foreign investors. So sale of these companies will bring much lower prices today than would have been likely in 2014.
Meanwhile, the combination of a rising domestic budget deficit and balance-of-payments deficit has given Russian advocates of privatization an argument to press ahead with the sell-offs. The flaw in their logic is their neoliberal assumption that Russia cannot simply monetize its deficit, but needs to survive by selling off more major assets. We warn against Russia being so gullible as to accept this dangerous neoliberal argument. Privatization will not help re-industrialize Russia’s economy, but will aggravate its turn into a rentier economy from which profits are extracted for the benefit of foreign owners.
To be sure, President Putin set a number of conditions on February 1 to prevent new privatizations from being like the Yeltsin era’s disastrous selloffs. This time the assets would not be sold at knockdown prices, but would have to reflect prospective real value. The firms being sold off would remain under Russian jurisdiction, not operated by offshore owners. Foreigners were invited to participate, but the companies would remain subject to Russian laws and regulations, including restrictions to keep their capital within Russia.
Also, the firms to be privatized cannot be bought with domestic state bank credit. The aim is to draw “hard cash” into the buyouts – ideally from the foreign currency holdings by oligarchs in London and elsewhere.
Putin wisely ruled out selling Russia’s largest bank, Sperbank, which holds much of the nation’s retail savings accounts. Banking evidently is to remain largely a public utility, which it should because the ability to create credit as money is a natural monopoly and inherently public in character.
Despite these protections that President Putin added, there are serious reasons not to go ahead with the newly-announced privatizations. These reasons go beyond the fact that they would be sold under conditions of economic recession as a result of the Western economic sanctions and falling oil prices.
The excuse being cited by Russian officials for selling these companies at the present time is to finance the domestic budget deficit. This excuse shows that Russia has still not recovered from the disastrous Western Atlanticist myth that Russia must depend on foreign banks and bondholders to create money, as if the Russian central bank cannot do this itself by monetizing the budget deficit.
Monetization of budget deficits is precisely what the United States government has done, and what Western central banks have been doing in the post World War II era. Debt monetization is common practice in the West. Governments can help revive the economy by printing money instead of indebting the country to private creditors which drains the public sector of funds via interest payments to private creditors.
There is no valid reason to raise money from private banks to provide the government with money when a central bank can create the same money without having to pay interest on loans. However, Russian economists have been inculcated with the Western belief that only commercial banks should create money and that governments should sell interest-bearing bonds in order to raise funds. The incorrect belief that only private banks should create money by making loans is leading the Russian government down the same path that has led the eurozone into a dead end economy. By privatizing credit creation, Europe has shifted economic planning from democratically elected governments to the banking sector.
There is no need for Russia to accept this pro-rentier economic philosophy that bleeds a country of public revenues. Neoliberals are promoting it not to help Russia, but to bring Russia to its knees.
Essentially, those Russians allied with the West—“Atlanticist Integrationists”— who want Russia to sacrifice its sovereignty to integration with the Western empire are using neoliberal economics to entrap Putin and breach Russia’s control over its own economy that Putin reestablished after the Yeltsin years when Russia was looted by foreign interests.
Despite some success in reducing the power of the oligarchs who arose from the Yeltsin privatizations, the Russian government needs to retain national enterprises as a countervailing economic power. The reason governments operate railways and other basic infrastructure is to lower the cost of living and doing business. The aim of private owners, by contrast, is to raise the prices as high as they can. This is called “rent extraction.” Private owners put up tollbooths to raise the cost of infrastructure services that are being privatized. This is the opposite of what the classical economists meant by “free market.”
There is talk of a deal being made with the oligarchs. The oligarchs will buy ownership in the Russian state companies with money they have stashed abroad from previous privatizations, and get another “deal of the century” when Russia’s economy recovers by enough to enable more excessive gains to be made.
The problem is that the more economic power moves from government to private control, the less countervailing power the government has against private interests. From this standpoint, no privatizations should be permitted at this time.
Much less should foreigners be permitted to acquire ownership of Russian national assets. In order to collect a one-time payment of foreign currency, the Russian government will be turning over to foreigners future income streams that can, and will be, extracted from Russia and sent abroad. This “repatriation” of dividends would occur even if management and control remains geographically in Russia.
Selling public assets in exchange for a one-time payment is what the city of Chicago government did when it sold the 75 year revenue stream of its parking meters for a one-time payment. The Chicago government got money for one year by giving up 75 years of revenues. By sacrificing public revenues, the Chicago government saved real estate and private wealth from being taxed and also allowed Wall Street investment banks to make a fortune.
It also created a public outcry against the giveaway. The new buyers sharply raised street parking fees, and sued Chicago’s government for damages when the city closed the street for public parades or holidays, thereby “interfering” with the rentiers’ parking-meter business. Instead of helping Chicago, it helped push the city toward bankruptcy. No wonder Atlanticists would like to see Russia suffer the same fate.
Using privatization to cover a short-term budget problem creates a larger long-term problem. The profits of Russian companies would flow out of the country, reducing the ruble’s exchange rate. If the profits are paid in rubles, the rubles can be dumped in the foreign exchange market and exchanged for dollars. This will depress the ruble’s exchange rate and raise the dollar’s exchange value. In effect, allowing foreigners to acquire Russia’s national assets helps foreigners to speculate against the Russian ruble.
Of course, the new Russian owners of the privatized assets also could send their profits abroad. But at least the Russian government realizes that owners subject to Russian jurisdiction are more easily regulated than are owners who are able to control companies from abroad and keep their working capital in London or other foreign banking centers (all subject to U.S. diplomatic leverage and New Cold War sanctions).
At the root of the privatization discussion should be the question of what is money and why should it be created by private banks instead of central banks. The Russian government should finance its budget deficit by having the central bank create the necessary money, just as the US and UK do. It is not necessary for the Russian government to give away future revenue streams in perpetuity merely in order to cover one year’s deficit. That is a path to impoverishment and to loss of economic and political independence.
Globalization was invented as a tool of American Empire. Russia should be shielding itself from globalization, not opening itself to it. Privatization is the vehicle to undercut economic sovereignty and increase profits by raising prices.
Just as Western-financed NGOs operating in Russia are a fifth column operating against Russian national interests, so are Russia’s neoliberal economists, whether or not they realize it. Russia will not be safe from Western manipulation until its economy is closed to Western attempts to reshape Russia’s economy in the interest of Washington and not in the interest of Russia.
The authors have given this website permission to reprint selected articles.
Paul Craig Roberts, formerly Assistant Secretary of the US Treasury for Economic Policy, Associate Editor, Wall Street Journal, Senior Research Fellow, Stanford University, William E. Simon Chair in Political Economy, Center for Strategic and International Studies, Georgetown University, Washington, D.C.
Dr. Hudson is a financial economist and historian. He is President of the Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972 book, Super-Imperialism: The Economic Strategy of American Empire. He is also author of Trade, Development and Foreign Debt and The Myth of Aid, among many others. Dr. Hudson acts as an economic advisor to governments worldwide, including Iceland, Latvia and China on finance and tax law. Visit his website at Michael-Hudson.com.
IMF Washington, DC Wikipedia Commons
The IMF Changes its Rules to Isolate China and Russia
By Michael Hudson
The nightmare scenario of U.S. geopolitical strategists seems to be coming true: foreign economic independence from U.S. control. Instead of privatizing and neoliberalizing the world under U.S.-centered financial planning and ownership, the Russian and Chinese governments are investing in neighboring economies on terms that cement Eurasian economic integration on the basis of Russian oil and tax exports and Chinese financing. The Asian Infrastructure Investment Bank (AIIB) threatens to replace the IMF and World Bank programs that favor U.S. suppliers, banks and bondholders (with the United States holding unique veto power).
Russia’s 2013 loan to Ukraine, made at the request of Ukraine’s elected pro-Russian government, demonstrated the benefits of mutual trade and investment relations between the two countries. As Russian finance minister Anton Siluanov points out, Ukraine’s “international reserves were barely enough to cover three months’ imports, and no other creditor was prepared to lend on terms acceptable to Kiev. Yet Russia provided $3 billion of much-needed funding at a 5 per cent interest rate, when Ukraine’s bonds were yielding nearly 12 per cent.”
What especially annoys U.S. financial strategists is that this loan by Russia’s sovereign debt fund was protected by IMF lending practice, which at that time ensured collectability by withholding new credit from countries in default of foreign official debts (or at least, not bargaining in good faith to pay). To cap matters, the bonds are registered under London’s creditor-oriented rules and courts.
On December 3 (one week before the IMF changed its rules so as to hurt Russia), Prime Minister Putin proposed that Russia “and other Eurasian Economic Union countries should kick-off consultations with members of the Shanghai Cooperation Organisation (SCO) and the Association of Southeast Asian Nations (ASEAN) on a possible economic partnership.” Russia also is seeking to build pipelines to Europe through friendly instead of U.S.-backed countries.
Moving to denominate their trade and investment in their own currencies instead of dollars, China and Russia are creating a geopolitical system free from U.S. control. After U.S. officials threatened to derange Russia’s banking linkages by cutting it off from the SWIFT interbank clearing system, China accelerated its creation of the alternative China International Payments System (CIPS), with its own credit card system to protect Eurasian economies from the shrill threats made by U.S. unilateralists.
Russia and China are simply doing what the United States has long done: using trade and credit linkages to cement their geopolitical diplomacy. This tectonic geopolitical shift is a Copernican threat to New Cold War ideology: Instead of the world economy revolving around the United States (the Ptolemaic idea of America as “the indispensible nation”), it may revolve around Eurasia. As long as the global financial papacy remains grounded in Washington at the offices of the IMF and World Bank, such a shift in the center of gravity will be fought with all the power of the American Century (indeed, American Millennium) inquisition.
Imagine the following scenario five years from now. China will have spent half a decade building high-speed railroads, ports power systems and other construction for Asian and African countries, enabling them to grow and export more. These exports will be coming on line to repay the infrastructure loans. Also, suppose that Russia has been supplying the oil and gas energy needed for these projects.
To U.S. neocons this specter of AIIB government-to-government lending and investment creates fear of a world independent of U.S. control. Nations would mint their own money and hold each other’s debt in their international reserves instead of borrowing or holding dollars and subordinating their financial planning to the IMF and U.S. Treasury with their demands for monetary bloodletting and austerity for debtor countries. There would be less need for foreign government to finance budget shortfalls by selling off their key public infrastructure privatizing their economies. Instead of dismantling public spending, the AIIB and a broader Eurasian economic union would do what the United States itself practices, and seek self-sufficiency in basic needs such as food, technology, banking, credit creation and monetary policy.
With this prospect in mind, suppose an American diplomat meets with the leaders of debtors to China, Russia and the AIIB and makes the following proposal: “Now that you’ve got your increased production in place, why repay? We’ll make you rich if you stiff our New Cold War adversaries and turn to the West. We and our European allies will help you assign the infrastructure to yourselves and your supporters, and give these assets market value by selling shares in New York and London. Then, you can spend your surpluses in the West.”
How can China or Russia collect in such a situation? They can sue. But what court will recognize their claim – that is, what court that the West would pay attention to?
That is the kind of scenario U.S. State Department and Treasury officials have been discussing for more than a year. The looming conflict was made immediate by Ukraine’s $3 billion debt to Russia falling due by December 20, 2015. Ukraine’s U.S.-backed regime has announced its intention to default. U.S. lobbyists have just changed the IMF rules to remove a critical lever on which Russia and other governments have long relied to enforce payment of their loans.
The IMF’s role as enforcer of inter-government debts
When it comes down to enforcing nations to pay inter-government debts, the International Monetary Fund and Paris Club hold the main leverage. As coordinator of central bank “stabilization” loans (the neoliberal euphemism for imposing austerity and destabilizing debtor economies, Greece-style), the IMF is able to withhold not only its own credit but also that of governments and global banks participating when debtor countries need refinancing. Countries that do not agree to privatize their infrastructure and sell it to Western buyers are threatened with sanctions, backed by U.S.-sponsored “regime change” and “democracy promotion” Maidan-style.
This was the setting on December 8, when Chief IMF Spokesman Gerry Rice announced: “The IMF’s Executive Board met today and agreed to change the current policy on non-toleration of arrears to official creditors.” The creditor leverage that the IMF has used 2KillingTheHost_Cover_ruleis that if a nation is in financial arrears to any government, it cannot qualify for an IMF loan – and hence, for packages involving other governments. This has been the system by which the dollarized global financial system has worked for half a century. The beneficiaries have been creditors in US dollars.
In this U.S.-centered worldview, China and Russia loom as the great potential adversaries – defined as independent power centers from the United States as they create the Shanghai Cooperation Organization as an alternative to NATO, and the AIIB as an alternative to the IMF and World Bank tandem. The very name, Asian Infrastructure Investment Bank, implies that transportation systems and other infrastructure will be financed by governments, not relinquished into private hands to become rent-extracting opportunities financed by U.S.-centered bank credit to turn the rent into a flow of interest payments.
The focus on a mixed public/private economy sets the AIIB at odds with the Trans-Pacific Partnership (TPP) and its aim of relinquishing government planning power to the financial and corporate sector for their own short-term gains, and above all the aim of blocking government’s money-creating power and financial regulation. Chief Nomura economist Richard Koo, explained the logic of viewing the AIIB as a threat to the US-controlled IMF: “If the IMF’s rival is heavily under China’s influence, countries receiving its support will rebuild their economies under what is effectively Chinese guidance, increasing the likelihood they will fall directly or indirectly under that country’s influence.”
Russian Finance Minister Anton Siluanov accused the IMF decision of being “hasty and biased.” But it had been discussed all year long, calculating a range of scenarios for a long-term sea change in international law. The aim of this change is to isolate not only Russia, but even more China in its role as creditor to African countries and prospective AIIB borrowers. U.S. officials walked into the IMF headquarters in Washington with the legal equivalent of financial suicide vests, having decided that the time had come to derail Russia’s ability to collect on its sovereign loan to Ukraine, and of even larger import, China’s plan for a New Silk Road integrating a Eurasian economy independent of U.S. financial and trade control. Anders Aslund, senior fellow at the NATO-oriented Atlantic Council, points out:
The IMF staff started contemplating a rule change in the spring of 2013 because nontraditional creditors, such as China, had started providing developing countries with large loans. One issue was that these loans were issued on conditions out of line with IMF practice. China wasn’t a member of the Paris Club, where loan restructuring is usually discussed, so it was time to update the rules.
The IMF intended to adopt a new policy in the spring of 2016, but the dispute over Russia’s $3 billion loan to Ukraine has accelerated an otherwise slow decision-making process.
The Wall Street Journal concurred that the underlying motivation for changing the IMF’s rules was the threat that Chinese lending would provide an alternative to IMF loans and its demands for austerity. “IMF-watchers said the fund was originally thinking of ensuring China wouldn’t be able to foil IMF lending to member countries seeking bailouts as Beijing ramped up loans to developing economies around the world.” In short, U.S. strategists have designed a policy to block trade and financial agreements organized outside of U.S. control and that of the IMF and World Bank in which it holds unique veto power.
The plan is simple enough. Trade follows finance, and the creditor usually calls the tune. That is how the United States has used the Dollar Standard to steer Third World trade and investment since World War II along lines benefiting the U.S. economy.
The cement of trade credit and bank lending is the ability of creditors to collect on the international debts being negotiated. That is why the United States and other creditor nations have used the IMF as an intermediary to act as “honest broker” for loan consortia. (“Honest broker” means in practice being subject to U.S. veto power.) To enforce its financial leverage, the IMF has long followed the rule that it will not sponsor any loan agreement or refinancing for governments that are in default of debts owed to other governments. However, as the afore-mentioned Aslund explains, the IMF could easily change its practice of not lending into [countries in official] arrears … because it is not incorporated into the IMF Articles of Agreement, that is, the IMF statutes. The IMF Executive Board can decide to change this policy with a simple board majority. The IMF has lent to Afghanistan, Georgia, and Iraq in the midst of war, and Russia has no veto right, holding only 2.39 percent of the votes in the IMF. When the IMF has lent to Georgia and Ukraine, the other members of its Executive Board have overruled Russia.
After the rules change, Aslund later noted, “the IMF can continue to give Ukraine loans regardless of what Ukraine does about its credit from Russia, which falls due on December 20. 
Inasmuch as Ukraine’s official debt to Russia’s sovereign debt fund was not to the U.S. Government, the IMF announced its rules change as a “clarification.” Its rule that no country can borrow if it is in default to (or not seriously negotiating with) a foreign government was created in the post-1945 world, and has governed the past seventy years in which the United States Government, Treasury officials and/or U.S. bank consortia have been party to nearly every international bailout or major loan agreement. What the IMF rule really meant was that it would not provide credit to countries in arrears specifically to the U.S. Government, not those of Russia or China.
Mikhail Delyagin, Director of the Institute of Globalization Problems, understood the IMF’s double standard clearly enough: “The Fund will give Kiev a new loan tranche on one condition that Ukraine should not pay Russia a dollar under its $3 billion debt. Legally, everything will be formalized correctly but they will oblige Ukraine to pay only to western creditors for political reasons.” It remains up to the IMF board – and in the end, its managing director – whether or not to deem a country creditworthy. The U.S. representative naturally has always blocked any leaders not beholden to the United States.
The post-2010 loan packages to Greece are a notorious case in point. The IMF staff calculated that Greece could not possibly pay the balance that was set to bail out foreign banks and bondholders. Many Board members agreed (and subsequently have gone public with their whistle-blowing). Their protests didn’t matter. Dominique Strauss-Kahn backed the US-ECB position (after President Barack Obama and Treasury secretary Tim Geithner pointed out that U.S. banks had written credit default swaps betting that Greece could pay, and would lose money if there were a debt writedown). In 2015, Christine Lagarde also backed the U.S.-European Central Bank hard line, against staff protests.
IMF executive board member Otaviano Canuto, representing Brazil, noted that the logic that “conditions on IMF lending to a country that fell behind on payments [was to] make sure it kept negotiating in good faith to reach agreement with creditors.” Dropping this condition, he said, would open the door for other countries to insist on a similar waiver and avoid making serious and sincere efforts to reach payment agreement with creditor governments.
A more binding IMF rule is that it cannot lend to countries at war or use IMF credit to engage in warfare. Article I of its 1944-45 founding charter ban the fund from lending to a member state engaged in civil war or at war with another member state, or for military purposes in general. But when IMF head Lagarde made the last IMF loan to Ukraine, in spring 2015, she made a token gesture of stating that she hoped there would be peace. But President Porochenko immediately announced that he would step up the civil war with the Russian-speaking population in the eastern Donbass region.
The problem is that the Donbass is where most Ukrainian exports were made, mainly to Russia. That market is being lost by the junta’s belligerence toward Russia. This should have blocked Ukraine from receiving IMF aid. Withholding IMF credit could have been a lever to force peace and adherence to the Minsk agreements, but U.S. diplomatic pressure led that opportunity to be rejected.
The most important IMF condition being violated is that continued warfare with the East prevents a realistic prospect of Ukraine paying back new loans. Aslund himself points to the internal contradictions at work: Ukraine has achieved budget balance because the inflation and steep currency depreciation has drastically eroded its pension costs. The resulting lower value of pension benefits has led to growing opposition to Ukraine’s post-Maidan junta. “Leading representatives from President Petro Poroshenko’s Bloc are insisting on massive tax cuts, but no more expenditure cuts; that would cause a vast budget deficit that the IMF assesses at 9-10 percent of GDP, that could not possibly be financed.” So how can the IMF’s austerity budget be followed without a political backlash?
The IMF thus is breaking four rules: Not lending to a country that has no visible means to pay back the loan breaks the “No More Argentinas” rule adopted after the IMF’s disastrous 2001 loan. Not lending to countries that refuse in good faith to negotiate with their official creditors goes against the IMF’s role as the major tool of the global creditors’ cartel. And the IMF is now lending to a borrower at war, indeed one that is destroying its export capacity and hence its balance-of-payments ability to pay back the loan. Finally, the IMF is lending to a country that has little likelihood of refuse carrying out the IMF’s notorious austerity “conditionalities” on its population – without putting down democratic opposition in a totalitarian manner. Instead of being treated as an outcast from the international financial system, Ukraine is being welcomed and financed.
The upshot – and new basic guideline for IMF lending – is to create a new Iron Curtain splitting the world into pro-U.S. economies going neoliberal, and all other economies, including those seeking to maintain public investment in infrastructure, progressive taxation and what used to be viewed as progressive capitalism. Russia and China may lend as much as they want to other governments, but there is no international vehicle to help secure their ability to be paid back under what until now has passed for international law. Having refused to roll back its own or ECB financial claims on Greece, the IMF is quite willing to see repudiation of official debts owed to Russia, China or other countries not on the list approved by the U.S. neocons who wield veto power in the IMF, World Bank and similar global economic institutions now drawn into the U.S. orbit. Changing its rules to clear the path for the IMF to make loans to Ukraine and other governments in default of debts owed to official lenders is rightly seen as an escalation of America’s New Cold War against Russia and also its anti-China strategy.
Timing is everything in such ploys. Georgetown University Law professor and Treasury consultant Anna Gelpern warned that before the “IMF staff and executive board [had] enough time to change the policy on arrears to official creditors,” Russia might use “its notorious debt/GDP clause to accelerate the bonds at any time before December, or simply gum up the process of reforming the IMF’s arrears policy.” According to this clause, if Ukraine’s foreign debt rose above 60 percent of GDP, Russia’s government would have the right to demand immediate payment. But no doubt anticipating the bitter fight to come over its attempts to collect on its loan, President Putin patiently refrained from exercising this option. He is playing the long game, bending over backward to accommodate Ukraine rather than behaving “odiously.”
A more pressing reason deterring the United States from pressing earlier to change IMF rules was that a waiver for Ukraine would have opened the legal floodgates for Greece to ask for a similar waiver on having to pay the “troika” – the European Central Bank (ECB), EU commission and the IMF itself – for the post-2010 loans that have pushed it into a worse depression than the 1930s. “Imagine the Greek government had insisted that EU institutions accept the same haircut as the country’s private creditors,” Russian finance minister Anton Siluanov asked. “The reaction in European capitals would have been frosty. Yet this is the position now taken by Kiev with respect to Ukraine’s $3 billion eurobond held by Russia.”
Only after Greece capitulated to eurozone austerity was the path clear for U.S. officials to change the IMF rules in their fight to isolate Russia. But their tactical victory has come at the cost of changing the IMF’s rules and those of the global financial system irreversibly. Other countries henceforth may reject conditionalities, as Ukraine has done, and ask for write-downs on foreign official debts.
That was the great fear of neoliberal U.S. and Eurozone strategists last summer, after all. The reason for smashing Greece’s economy was to deter Podemos in Spain and similar movements in Italy and Portugal from pursuing national prosperity instead of eurozone austerity. Opening the door to such resistance by Ukraine is the blowback of America’s tactic to make a short-term financial hit on Russia while its balance of payments is down as a result of collapsing oil and gas prices.
The consequences go far beyond just the IMF. The fabric of international law itself is being torn apart. Every action has a reaction in the Newtonian world of geopolitics. It may not be a bad thing, to be sure, for the post-1945 global order to be broken apart by U.S. tactics against Russia, if that is the catalyst driving other countries to defend their own economies in the legal and political spheres. It has been U.S. neoliberals themselves who have catalyzed the emerging independent Eurasian bloc.
Countering Russia’s ability to collect in Britain’s law courts
Over the past year the U.S. Treasury and State Departments have discussed ploys to block Russia from collecting under British law, where its loans to Ukraine are registered. Reviewing the repertory of legal excuses Ukraine might use to avoid paying Russia, Prof. Gelpern noted that it might declare the debt “odious,” made under duress or corruptly. In a paper for the Peterson Institute of International Economics (the banking lobby in Washington) she suggested that Britain should deny Russia the use of its courts as an additional sanction reinforcing the financial, energy, and trade sanctions to those passed against Russia after Crimea voted to join it as protection against the ethnic cleansing from the Right Sector, Azov Battalion and other paramilitary groups descending on the region.
A kindred ploy might be for Ukraine to countersue Russia for reparations for “invading” it, for saving Crimea and the Donbass region from the Right Sector’s attempt to take over the country. Such a ploy would seem to have little chance of success in international courts (without showing them to be simply arms of NATO New Cold War politics), but it might delay Russia’ ability to collect by tying the loan up in a long nuisance lawsuit.
To claim that Ukraine’s debt to Russia was “odious” or otherwise illegitimate, “President Petro Poroshenko said the money was intended to ensure Yanukovych’s loyalty to Moscow, and called the payment a ‘bribe,’ according to an interview with Bloomberg in June this year.” The legal and moral problem with such arguments is that they would apply equally to IMF and US loans. Claiming that Russia’s loan is “odious” is that this would open the floodgates for other countries to repudiate debts taken on by dictatorships supported by IMF and U.S. lenders, headed by the many dictatorships supported by U.S. diplomacy.
The blowback from the U.S. multi-front attempt to nullify Ukraine’s debt may be used to annul or at least write down the destructive IMF loans made on the condition that borrowers accept privatizations favoring U.S., German and other NATO-country investors, undertake austerity programs, and buy weapons systems such as the German submarines that Greece borrowed to pay for. As Foreign Minister Sergei Lavrov noted: “This reform, which they are now trying to implement, designed to suit Ukraine only, could plant a time bomb under all other IMF programs.” It certainly showed the extent to which the IMF is subordinate to U.S. aggressive New Cold Warriors: “Essentially, this reform boils down to the following: since Ukraine is politically important – and it is only important because it is opposed to Russia – the IMF is ready to do for Ukraine everything it has not done for anyone else, and the situation that should 100 percent mean a default will be seen as a situation enabling the IMF to finance Ukraine.”
Andrei Klimov, deputy chairman of the Committee for International Affairs at the Federation Council (the upper house of Russia’s parliament) accused the United States of playing “the role of the main violin in the IMF while the role of the second violin is played by the European Union. These are two basic sponsors of the Maidan – the symbol of a coup d’état in Ukraine in 2014.”
Putin’s counter-strategy and the blowback on U.S.-European and global relations
As noted above, having anticipated that Ukraine would seek reasons to not pay the Russian loan, President Putin carefully refrained from exercising Russia’s right to demand immediate payment when Ukraine’s foreign debt rose above 60 percent of GDP. In November he offered to defer payment if the United States, Europe and international banks underwrote the obligation. Indeed, he even “proposed better conditions for this restructuring than those the International Monetary Fund requested of us.” He offered “to accept a deeper restructuring with no payment this year – a payment of $1 billion next year, $1 billion in 2017, and $1 billion in 2018.” If the IMF, the United States and European Union “are sure that Ukraine’s solvency will grow,” then they should “see no risk in providing guarantees for this credit.” Accordingly, he concluded “We have asked for such guarantees either from the United States government, the European Union, or one of the big international financial institutions.” 
The implication, Putin pointed out, was that “If they cannot provide guarantees, this means that they do not believe in the Ukrainian economy’s future.” One professor pointed out that this proposal was in line with the fact that, “Ukraine has already received a sovereign loan guarantee from the United States for a previous bond issue.” Why couldn’t the United States, Eurozone or leading commercial banks provide a similar guarantee of Ukraine’s debt to Russia – or better yet, simply lend it the money to turn it into a loan to the IMF or US lenders?
But the IMF, European Union and the United States refused to back up their happy (but nonsensical) forecasts of Ukrainian solvency with actual guarantees. Foreign Minister Lavrov made clear just what that rejection meant: “By having refused to guarantee Ukraine’s debt as part of Russia’s proposal to restructure it, the United States effectively admitted the absence of prospects of restoring its solvency. … By officially rejecting the proposed scheme, the United States thereby subscribed to not seeing any prospects of Ukraine restoring its solvency.”
In an even more exasperated tone, Prime Minister Dmitri Medvedev explained to Russia’s television audience: “I have a feeling that they won’t give us the money back because they are crooks. They refuse to return our money and our Western partners not only refuse to help, but they also make it difficult for us.” Adding that “the international financial system is unjustly structured,” he promised to “go to court. We’ll push for default on the loan and we’ll push for default on all Ukrainian debts.”
The basis for Russia’s legal claim, he explained was that the loan was a request from the Ukrainian Government to the Russian Government. If two governments reach an agreement this is obviously a sovereign loan…. Surprisingly, however, international financial organisations started saying that this is not exactly a sovereign loan. This is utter bull. Evidently, it’s just an absolutely brazen, cynical lie. … This seriously erodes trust in IMF decisions. I believe that now there will be a lot of pleas from different borrower states to the IMF to grant them the same terms as Ukraine. How will the IMF possibly refuse them?
And there the matter stands. As President Putin remarked regarding America’s support of Al Qaeda, Al Nusra and other ISIS allies in Syria, “Do you have any idea of what you have done?”
Few have calculated the degree to which America’s New Cold War with Russia is creating a reaction that is tearing up the world’s linkages put in place since World War II. Beyond pulling the IMF and World Bank tightly into U.S. unilateralist geopolitics, how long will Western Europe be willing to forego its trade and investment interest with Russia? Germany, Italy and France already are feeling the strains. If and when a break comes, it will not be marginal but a seismic geopolitical shift.
The oil and pipeline war designed to bypass Russian energy exports has engulfed the Near East in anarchy for over a decade. It is flooding Europe with refugees, and also spreading terrorism to America. In the Republican presidential debate on December 15, 2015, the leading issue was safety from Islamic jihadists. Yet no candidate thought to explain the source of this terrorism in America’s alliance with Wahabist Saudi Arabia and Qatar, and hence with Al Qaeda and ISIS/Daish as a means of destabilizing secular regimes seeking independence from U.S. control.
As its allies in this New Cold War, the United States has chosen fundamentalist jihadist religion against secular regimes in Libya, Iraq, Syria, and earlier in Afghanistan and Turkey. Going back to the original sin of CIA hubris – overthrowing the secular Iranian Prime Minister leader Mohammad Mosaddegh in 1953 – American foreign policy has been based on the assumption that secular regimes tend to be nationalist and resist privatization and neoliberal austerity.
Based on this fatal long-term assumption, U.S. Cold Warriors have aligned themselves not only against secular regimes, but against democratic regimes where these seek to promote their own prosperity and economic independence, and to resist neoliberalism in favor of maintaining their traditional mixed public/private economy.
This is the back story of the U.S. fight to control the rest of the world. Tearing apart the IMF’s rules is only the most recent chapter. The broad drive against Russia, China and their prospective Eurasian allies has deteriorated into tactics without a realistic understanding of how they are bringing about precisely the kind of world they are seeking to prevent – a multilateral world.
Arena by arena, the core values of what used to be American and European social democratic ideology are being uprooted. The Enlightenment’s ideals of secular democracy and the rule of international law applied equally to all nations, classical free market theory (of markets free from unearned income and rent extraction by special vested interests), and public investment in infrastructure to hold down the cost of living and doing business are to be sacrificed to a militant U.S. unilateralism as “the indispensible nation.” Standing above the rule of law and national interests, American neocons proclaim that their nation’s destiny is to wage war to prevent foreign secular democracy from acting in ways other than submission to U.S. diplomacy. In practice, this means favoring special U.S. financial and corporate interests that control American foreign policy.
This is not how the Enlightenment was supposed to turn out. Classical industrial capitalism a century ago was expected to evolve into an economy of abundance. Instead, we have Pentagon capitalism, finance capitalism deteriorating into a polarized rentier economy, and old-fashioned imperialism.
The Dollar Bloc’s financial Iron Curtain
By treating Ukraine’s nullification of its official debt to Russia’s Sovereign Wealth Fund as the new norm, the IMF has blessed its default on its bond payment to Russia. President Putin and foreign minister Lavrov have said that they will sue in British courts. But does any court exist in the West not under the thumb of U.S. veto?
What are China and Russia to do, faced with the IMF serving as a kangaroo court whose judgments are subject to U.S. veto power? To protect their autonomy and self-determination, they have created alternatives to the IMF and World Bank, NATO and behind it, the dollar standard.
America’s recent New Cold War maneuvering has shown that the two Bretton Woods institutions are unreformable. It is easier to create new institutions such as the A.I.I.B. than to retrofit old and ill-designed ones burdened with the legacy of their vested founding interests. It is easier to expand the Shanghai Cooperation Organization than to surrender to threats from NATO.
U.S. geostrategists seem to have imagined that if they exclude Russia, China and other SCO and Eurasian countries from the U.S.-based financial and trade system, these countries will find themselves in the same economic box as Cuba, Iran and other countries have been isolated by sanctions. The aim is to make countries choose between impoverishment from such exclusion, or acquiescing in U.S. neoliberal drives to financialize their economies and impose austerity on their government sector and labor.
What is lacking from such calculations is the idea of critical mass. The United States may use the IMF and World Bank as levers to exclude countries not in the U.S. orbit from participating in the global trade and financial system, and it may arm-twist Europe to impose trade and financial sanctions on Russia. But this action produces an equal and opposite reaction. That is the eternal Newtonian law of geopolitics. The indicated countermeasure is simply for other countries to create their own international financial organization as an alternative to the IMF, their own “aid” lending institution to juxtapose to the U.S.-centered World Bank.
All this requires an international court to handle disputes that is free from U.S. arm-twisting to turn international law into a kangaroo court following the dictates of Washington. The Eurasian Economic Union now has its own court to adjudicate disputes. It may provide an alternative Judge Griesa‘s New York federal court ruling in favor of vulture funds derailing Argentina’s debt negotiations and excluding it from foreign financial markets. If the London Court of International Arbitration (under whose rules Russia’s bonds issued to Ukraine are registered) permits frivolous legal claims (called barratry in English) such as President Poroshenko has threatened in Ukrainian Parliament, it too will become a victim of geopolitical obsolescence.
The more nakedly self-serving and geopolitical U.S. policy is – in backing radical Islamic fundamentalist outgrowths of Al Qaeda throughout the Near East, right-wing nationalist governments in Ukraine and the Baltics – the greater the catalytic pressure is growing for the Shanghai Cooperation Organization, AIIB and related Eurasian institutions to break free of the post-1945 Bretton Woods system run by the U.S. State, Defense and Treasury Departments and NATO superstructure.
The question now is whether Russia and China can hold onto the BRICS and India. So as Paul Craig Roberts recently summarized my ideas along these lines, we are back with George Orwell’s 1984 global fracture between Oceanea (the United States, Britain and its northern European NATO allies) vs. Eurasia.
Michael Hudson is research professor of economics at University of Missouri, Kansas City (UMKC) and a research associate at the Levy Economics Institute of Bard College.
Mr. Hudson is a former Wall Street analyst and consultant as well as president of the Institute for the Study of Long-term Economic Trends (ISLET) and a founding member of International Scholars Conference on Ancient Near Eastern Economies (ISCANEE).
The author has granted this website permission to repring selected essays.
 Anton Siluanov, “Russia wants fair rules on sovereign debt,” Financial Times, December 10, 2015.
https://www.rt.com/business/324747-putin-tpp-bloc-russia/. The Eurasian Economic Union was created in 2014 by Russia, Belarus and Kazakhstan, soon joined by Kyrgyzstan and Armenia. The SCO was created in 2001 in Shanghai by the leaders of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. India and Pakistan are scheduled to join, along with Iran, Afghanistan and Belarus as observers, and other east and Central Asian countries as “dialogue partners.” ASEAN was formed in 1967, originally by Indonesia, Malaysia the Philippines, Singapore and Thailand. It subsequently has been expanded. China and the AIIB are reaching out to replace World Bank. The U.S. refused to join the AIIB, opposing it from the outset.
 Richard Koo, “EU refuses to acknowledge mistakes made in Greek bailout,” Nomura, July 14, 2015. Richard Koo, firstname.lastname@example.org, jp
 Ian Talley, “IMF Tweaks Lending Rules in Boost for Ukraine,” Wall Street Journal, December 9, 2015.
 Anders Aslund, “The IMF Outfoxes Putin: Policy Change Means Ukraine Can Receive More Loans,” Atlantic Council, December 8, 2015. On Johnson’s Russia List, December 9, 2015, #13. Aslund was a major defender of neoliberal shock treatment and austerity in Russia, and has held up Latvian austerity as a success story rather than a disaster.
 Ian Talley, op. cit.
 Anders Åslund, “Ukraine Must Not Pay Russia Back,” Atlantic Council, November 2, 2015 (from Johnson’s Russia List, November 3, 2015, #50).
 Anders Aslund, “The IMF Outfoxes Putin,” op. cit.
 Quoted in Tamara Zamyantina, “IMF’s dilemma: to help or not to help Ukraine, if Kiev defaults,” TASS, translated on Johnson’s Russia List, December 9, 2015, #9.
 I provide a narrative of the Greek disaster in Killing the Host (2015).
 Reuters, “IMF rule change keeps Ukraine support; Russia complains,” Dec 8, 2015. http://www.reuters.com/article/us-ukraine-crisis-imf-idUSKBN0TR28Q20151208#r8em59ZOcIPIkqaD.97
 Anders Aslund, “The IMF Outfoxes Putin,” op. cit.
 Anna Gelpern, “Russia’s Bond: It’s Official! (… and Private … and Anything Else It Wants to Be …),” Credit Slips, April 17, 2015. http://www.creditslips.org/creditslips/2015/04/russias-ukraine-bond-its-official-and-private-and-anything-else-it-wants-to-be-.html
 Anton Siluanov, “Russia wants fair rules on sovereign debt,” Financial Times, December 10, 2015. He added: “Russia’s financing was not made for commercial gain. Just as America and Britain regularly do, it provided assistance to a country whose policies it supported. The US is now supporting the current Ukrainian government through its USAID guarantee programme.”
 John Helmer: IMF Makes Ukraine War-Fighting Loan, Allows US to Fund Military Operations Against Russia, May Repay Gazprom Bill,” Naked Capitalism, March 16, 2015 (from his site Dances with Bears).
 “Ukraine Rebuffs Putin’s Offer to Restructure Russian Debt,” Moscow Times, November 20, 2015, from Johnson’s Russia List, November 20, 2015, #32.
 “Lavrov: U.S. admits lack of prospects of restoring Ukrainian solvency,” Interfax, November 7, 2015, translated on Johnson’s Russia List, December 7, 2015, #38.
 Vladimir Putin, “Responses to journalists’ questions following the G20 summit,” Kremlin.ru, November 16, 2015. From Johnson’s Russia List, November 17, 2015, #7.
 Anton Tabakh, “A Debt Deal for Kiev?” Carnegie Moscow Center, November 20, 2015, on Johnson’s Russia List, November 20, 2015, #34. Tabakh is Director for regional ratings at “Rus-Rating” and associate professor at the National Research University Higher School of Economics, Moscow.
 “Lavrov: U.S. admits lack of prospects of restoring Ukrainian solvency,” November 7, 2015, translated on Johnson’s Russia List, December 7, 2015, #38.
 “In Conversation with Dmitry Medvedev: Interview with five television channels,” Government.ru, December 9, 2015, from Johnson’s Russia List, December 10, 2015, #2