Trump’s Brilliant Strategy to Dismember U.S. Dollar Hegemony - 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 sponsorship and funding of violent
regime change wars 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 nightm1are 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
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
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 “cui bono” to assume that he is a witting
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
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.’”
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
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.”
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. 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. 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
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.”
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, Eliot Abrams and Mike Pompeo could
deliver for Donald Trump.
Michael Hudson is President of
The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street
Financial Analyst, Distinguished Research Professor of Economics at the
University of Missouri, Kansas City. His most recent books are Killing the Host: How Financial
Parasites and Debt Destroy the Global Economy and J Is for Junk Economics – A
Guide to Reality in an Age of Deception .