(ii). Dollar Imperialism & the universally-applied model of debt-based money creation by private banks

In short, the US is able to finance unlimited trade deficits with the rest of the world. Financial liberalisation, such as through the emergence of the Eurodollar market in the 1960s, has meant that speculative flows have increased massively since then to the extent that they have drowned out the US trade deficit of $445 billion, which is largely financed by financial inflows as well as the forced holdings of high levels of US dollar reserves abroad (for an explanation of both, see below). Financial capital and the interests of shareholders are ordained a predominance of extraordinary weight due to financial deregulation, to the extent that whilst in 1970, 90% of total world financial flows were specifically trade related (trade in actual goods or services), by 1990, 90% of these financial flows were purely speculative.

The US economy's departure from the Gold Standard in 1971 to flexible interest rates and exchange rates came about for reasons not normally mentioned in the conventional explanation. Between 1944 and 1971 America lost more than half of its gold reserves. This crisis brought about a new and just as pragmatic solution. If gold reserves were the problem, the government reasoned, then just get rid of the gold standard, while the world financial markets sustain confidence in the dollar - the world's most widely used currency. The lack of constraint on America's ability to create their own currency at will correlates directly with both the rate of money-creation in the banking system and the rate of increase in the national debt of the US.

As the Dollar has remained the international medium of exchange used by foreign business, in order for investors to buy American stocks or bonds, they exchange their currency for U.S. dollars and so, these countries have to hold more U.S. dollars in reserves to accommodate all the exchanges, just as they had held gold in the past during the Gold Standard (before 1971). Unlike Gold, however, a paper dollar is not a product and does not contain value in itself. A paper dollar is a promissory note to be redeemed by some good or service at some future time. That is why every dollar overseas is a loan waiting to be called in and so citizens of the US are ultimately the ones who are liable for the debt. As long as the dollars stay out of America, they are g etting a free loan. This situation could only exist with unbacked paper money (as is the case with any other national currency). Prices are stable only as long as the p opulation in countries such as Japan, China and Singapore continue to save large amounts of money which is flowing back to the US, savings which are based upon these large reserves of dollars and US bonds. This situation in the global economy is completely unsustainable, as savings rates in these countries in Asia will likely come down to European or US levels, as Asian consumers spend more. Infact, in January 2002, Japanese investors made their largest net sales of foreign bonds in four years - US$24 billion (Ref: New Economics Foundation/Jubilee Research).

Without this extraordinary power of money creation by international and large commercial banks, financial markets would not operate to such a massive extent. The very creation of large amounts of debt allows corporate financiers to lodge hedge funds and other forms of speculation. In terms of this exponential growth in the money supply (and debt) translating to the stock market, it is obvious that as the amount of debt that can be recycled into loans increases, this generates greater and greater capital for speculative investment. The frequency of leveraged ta ke-overs would be greatly reduced were it not that the banking system is able to create the huge sums of money required for them through loans at interest. Companies can even use this 'easy credit' to borrow money to buy their own stock which drives the price up, making fortunes for the stockholders (at least on paper). Of course these companies are greatly increasing their debt which will have to be paid back out of future profits. In the first quarter of 1999, IBM spent $2.1 Billion buying its own stock. At the same time IBM had increased its outstanding debt to $30 billion dollars. (from New York Times 22/4/99).

The consequences of easy credit are distortions in the economy. It misleads businessmen to expand when there is no market for their goods. It causes stock speculation to drive the market to unrealistic heights (e.g. the 'net bubble'). There is left a massive susceptibility to the whims of the market and the threat to people's livelihoods through a recession or market crash. Meanwhile, the money-creation process concentrated within the private banking sector continues to drive the engine of financial capitalism without being able to take it's foot off of the accelerator pedal - meaning the goldrush of financial capitalism is driven forward without regard to the misallocation of resources that private investment tends towards due to public investment being crowded out by private capital. In the absence of long-term investment decisions (for e.g. in poorer regions of the world, investment in infrastructural projects specifically beneficial to corporate developments such as in oil exploration or luxury apartment dwellings seem to mushroom whilst investment in smaller community enterprises or public infrastructural projects tend to be neglected, so further restricting the assumed 'trickledown' of wealth). The attempts of borrowers to repay debt that grows at compound interest by investing in physical assets that display precisely the opposite tendency of compound decrement means that substantial resource depletion occurs. For example, multinationals who are driven by their pressure to achieve rapid rates of return on their shareholders' investment capital and interest-bearing bank credit such as the "goldrush" of mineral extraction by Rio Tint o in countries like West Papau which occurs with scant regard for local indiginous populations and environmental limits, results in a trail of environmental devastation (unless it is severely regulated against, which is currently a practice that doesn't even happen in industrialised countries and is currently something which is now perceived as "anti-free trade" by the WTO trade regime).

However, the most serious consequence is the ever-increasing level of international debt charged at compound interest (owed by the less-developed nations - debt which is altogether different than national debt which is not owed to outside financial institutions or overseas economies). Poor countries are borrowing at interest rates as high as 18%, while the US borrows through US Treasury bonds at 3%, which means that borrowing countries in crisis have to repay more when their capacity to repay is less. (Ref: New Economics Foundation/Jubilee Research, "The US as an HIPC or 'heavily indebted prosperous country'" April 2002). But even while this money is effectively causing there to be a net-inflow of money into the economies of the wealthier natio ns which causes further advancement of these countries' money stock, the result is no more beneficial for developed countries than it is for developing nations. Mike Rowbotham explores this point in his book "The Grip of Death", where he makes the point that debt has turned "Third World countries into fierce industrial competitors, desperate for export revenues to finance their debt repayments" (p-143). This forces the wealthy nations (who themselves aggressively pursue export sales due to the never-ending pursuit of trying to cancel out their own further-increasing unpayable debts within their own banking systems which operate from a position of insolvency) into "standards lowering competition" with cheap foreign produce. The result is a global economy that is a "financially-driven tangle of production and distribution", in which domestic production everywhere is constantly threatened by the drive for mass-produced exports.

This abhorrent flow of money from the indebted countries in the south was successfully flagged up by the momentum of the Jubilee 2000 movement. However, the perverse irony is that this call for de bt-cancellation which culminated in the G8/World Bank-initiated compromise deal for the most heavily indebted nations - the HIPC (the Highly Indebted Poor Countries) programme - has proved to be nothing more than a brief period of respite to prepare the ground for a new round of corporate enclosure through a more robust version of SAPs which are largely targeted to greater liberalisation and privatisation.

Even this "respite" in debt has been remarkably lacking in progress. Figures from the year 2000 show that the total reduction in debt repayments delivered for all 41 countries since the adoption of the HIPC in 1996 amounted to only US$1.1 billion. In that time, the 41 HIPC countries paid a total of US$35 billion towards their outstanding debts (only 4 of the 41 countries have had a portion of their debt written off, at the time). Therefore, the HIPC programme is nothing more than a small necessary sacrifice to ensure the economic path of each country is financially secure enough to pave the way for the final stage in the transformation of corporate globalisation.

The debt merry-go-round comes round ag ain where as soon as the debt-relief programme (Highly Indebted Countries Initiative) has begun to be implemented, the country is locked into new debt commitments, effectively the re-mortgaging of the original debt. It is a perversely underhand deceit that this debt-relief is conditional on not only economically-dubious structural adjustment policies (see point-iii below), but also new loans (though they have been charged at low interest) required to finance the achievement of particular policy targets on health and education, however valiant that is. It is underhand, not for the fact that they are loans per-say, but because of the bankrupt financial institutions that are financing them - namely the IMF and World Bank.

The World Bank and IMF, like any other banking institution, create the money they continually loan out of nothing! The World Bank actually creates money through drawing up bonds which it sells to commercial banks, which these banks actually pay for through their own process of fractional reserve themselves (their own depositers' money does not reduce itself). Meanwhile, the IMF operates a system called "Special Drawing Rights", which serve as an additional currency convertible to any national currency, another form of money which was originally a debt converted to money. With greater outflows of money than inflows affecting the indebted nations of the south due to the continuation of their debt-repayment schedules - this continued flow of money perversely continues to prop up the world financial system to a small extent, as this flow of money is a part of the total amount of reserves which sustain the money creation process which the banking system requires to continue into perpetuity.

So, for those countries with this international debt, these chains of debt keep going round a fairytale roundabout of economic progress, which only goes to create ever spiralling debt as it moves round, and so, these chains can never be disentangled within a system which keeps moving forward with it's own self-generating momentum. To use another analogy, the spiralling distortion of this system means that the manner in which indebted nations are increasing economic growth to pay off their debt is akin to them running up a downward moving escalator.

What the World Bank and IMF is effectively complicit in suggesting, then, is that in refusing to bail out these countries, what it is doing is rather-like consigning these countries to the lower deck of the slave ship, and so while it periodically checks to see if her crew is showing any signs of physical exhaustion, they are given just enough scraps from the dining table to keep them in toil to keep the slave ship on course. And of course, if the slaves all refused to stop rowing, what then for the Capitalist voyage? Well the rich elites' bounty would be at risk. Captain of the ship - the WB & IMF - would lose their bearings as the seas got rough - the ship might even completely lose course? Then anything could be possible - even a mutiny ...and the slaves could even achieve liberation within the new order!

Mike Rowbotham in "The Grip of Death": "The failure by the Western world to grasp the validity and importance of the criticisms put forward by Douglas and the other monetary reformers must rank as a terrible missed opportunity for us to steady our own social development. But history will surely one day draw attention to the gre atest missed opportunity of all time: a missed opportunity which has had the most tragic consequences for generations in the Third World. There was a chance for the imperial powers to end their imperialism with a gift; a gift which is truly beyond measure, and which would have cost the western powers absolutely nothing. The chance existed for the developing nations to learn from our history ; to see us choose a different path to economic progress and themselves take a less destructive and more peaceful path to development"( p-257, [1998]).

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