The economic aspects of the Russian-Ukraine war
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. He is the author of Killing the Host (published in e-format by CounterPunch Books and in print by Islet). His new book is J is For Junk Economics
Dr. Radhika Desai is Professor at the Department of Political Studies, and Director, Geopolitical Economy Research Group, University of Manitoba, Winnipeg, Canada
Cross-posted from Michael’s website
Danny Haiphong: Greetings everyone. [We] have two very special guests today.
[This] is the first conversation of a series that we will be having on The Left Lens leading into the one year anniversary of the official beginning — or at least what the mainstream may say is the beginning — of the Ukraine proxy war — really the beginning of Russia’s special military operation — but we’re gonna have great conversations here.
And our first two guests are two premier [geopolitical] economists. They are Radhika Desai, who is a friend of the show and former guest, as well as Michael Hudson, also a friend of the show and prior guest. They also are doing a podcast together on Geopolitical Economy Report bi-weekly (every two weeks).
You can catch their books in the links in the description because they are also prolific authors on the very questions we will speak about today.
Good afternoon Radhika. Good afternoon Michael. Thanks for joining me.
Radhika: Thanks very much Danny, great to be here.
Danny: Great, great. So I wanted to just kick off and ask [if] you could give us some reflections on the economic impact of the Ukraine proxy war; because [this] is not talked about so often.
Much has been made about, of course, things like the energy crisis, things like Ukraine’s economic situation, but there hasn’t been really in-depth analysis, at least from the perspective of where you two may come from with this question.
What do you feel like are the most important economic impacts of the Ukraine proxy war, and what has changed?
Maybe we can start with Michael and then Radhika you can follow up right after.
Michael: Well the whole purpose of the war is economic, but it’s not economic just about Ukraine and the winners and losers of the United States and Europe.
President Biden has said this is a ten- or a twenty-year war, and it’s [a war] for what kind of economy [the world is] going to have.
Is it going to be a finance-based neoliberal rentier economy centered in the United States, with the United States controlling all of the monopoly rents: for oil, for raw materials, for technology, for computer information, for pharmaceuticals?
[Or, on the other hand,] will other countries have a chance to be independent?
Ukraine is just sort of the first joust in this long long war and [the war is] over the economy.
Everything that’s happening right now is just sort of a squiggle over the really big picture, which is how the world is going to be structured economically.
Radhika: Absolutely. I think I’d just like to add that, if you look at the biggest picture, basically the world is dividing — exactly as Michael says — into two.
What’s really interesting now, [compared to the] centuries-long dominance of the West — which basically is coterminous with the rise of capitalism — [is that] in a certain sense you’re beginning to see its demise.
Because, if you look at a map of the world, of all the countries in the world that are imposing sanctions on Russia [and] supplying arms to Ukraine — what you see is essentially the core of world capitalism as it was in 1914, with a few little additions — very tiny, very insignificant, not very economically important [additions].
Whereas the entire rest of the world is going in the other direction, and the divide between this “West” and “the rest” is growing precisely in the ways that Michael is saying.
The West [has basically been] in a long-term trend of decline, but the Western leaders have continued to pursue the policies that are responsible for the decline, because even though [those policies] are not good for the economy, they are great for the monopoly financialized corporations of the West which, as Michael says, have become more and more reliant on rentier income — on rent and interest — rather than profits from production.
That’s really the key. [The world economy] is dividing [because so many countries in] the rest of the world — in the third world, etc. — are not doing so well, thanks to the pandemic crisis, thanks to the economic difficulties created by the Ukraine war.
Nevertheless the one thing that that is happening is that — even though they may not be doing well — what they are beginning to realize is that the West has very little to offer them.
Meanwhile, particularly China, and of course, given the energy situation, Russia, may have a lot more to offer them, and they are beginning to exercise their national sovereignty, and [make] choices which are actually not very favorable to continuing Western dominance.
Michael: Well that’s the whole point. The war, in terms of the long perspective, is: How does the United States prevent other countries from developing their own sovereignty and becoming independent of Reliance on the United States for oil, for technology, for credit, for money, for using the dollar. How does the U.S prevent them?
Ukraine is sort of just sort of the opening statement saying: “Just as we’re fighting to the last last Ukrainian, if anybody else wants to go it alone we can fight to [for instance] the last Taiwanese, the last Japanese. So who wants to be our ally?”
Danny: Well let’s bring in sanctions here because, early on, after Russia launched a special military operation there was a flurry and they’re still — they’re still piling on the sanctions as we speak but the EU and the United States especially began to pile on sanctions onto Russia, which made Russia the most sanctioned country in the world.
There was a lot made about the impact of these sanctions, especially on energy, [and] especially when it comes to Europe, since Europe depends a lot on Russian gas and Russian oil. What has been the impact of these sanctions?
Can you talk about this maybe historically over the course of the last year? Because it felt like there’s been waves of various interpretations of how it would go — there was a lot of Doomsday about it. There was a lot of [talk that] Europe was going to be in big trouble — it seems like there’s been just a lot of various shifts in how this has gone for Europe and how this has gone for the world.
What is your take on the impact of the sanctions — such a big economic weapon — as a part of this war?
Michael: We’d have to discuss sanctions on a region by region basis.
Obviously the United States has become the big winner in all of this, in the sense that the sanctions have turned Western Europe into a dependency. Western Europe is now an economic colony.
It’s dependent on the United States for oil and gas and for fertilizer that is so much more expensive than what was available in Russia. German, French, and Italian industry are saying: “Well in order to remain in business we have to move to the United States.”
They’re not talking about moving to Russia or moving to other places, but the United States, [which] because of the sanctions has solidified its economic stranglehold on Europe.
The [other] big winner of the sanctions, next to the U.S, is of course Russia. [Despite] the fact that President Putin has wanted to break away from the neoliberal philosophy, he [hasn’t been] willing to impose protective tariffs and to really protect Russian agriculture, Russian industry, [or] Russian manufacturing.
The sanctioning basically has [been like saying]: “We want to help you develop, Russia. Because you won’t protect your agriculture — like the Common Agricultural Policy (CAP) protected the European Community — we’re going to sanction you and we’re going to force you to become independent, grow your own food. We’re going to force you to produce everything that you were dependent on the West [for], before, so that you won’t need the West anymore, so that you can work with China and Iran and the rest of the world. We’re really helping you to become independent from all of this. We’ll take Europe — you won’t have Europe anymore — but Europe isn’t going to count for very much because it’s sort of a dead zone now.”
So basically there’s been this shift of Russia eastward.
Of course [what’s] up for grabs — and I think what we should talk about in this show — is the southern countries [in] South America, Africa, the rest of Asia, [where] energy prices, food prices, and fertilizer prices [have gone] up so much. The U.S dollar — in which all of these goods are priced —[has gone] up so much.
What are they going to do? Are they going to essentially realize that [they’re] going to [be able] to survive only by not repaying the foreign debt, only by protecting [their] own agriculture? Or are they going to succumb?
That’s the real aim of the war in Ukraine. it’s not fought over Ukraine. It’s fought over Africa, South America, and East Asia.
Radhika: There’s a lot of really good points there Michael, and I would add a few things.
If you were to just say one word about the sanctions which are imposed by the West, I would say that the word that simply describes what has happened as a result of sanctions is: Boomerang. The sanctions were advertised as [a way to] lay waste to [the] Russian economy, [and make its economy a] basket case, [and] the big nuclear option of freezing Russia’s reserves [were] going to bring Russia to its knees. None of this has happened. I think this is really interesting to sit back and observe why that is so.
If you look back at the history of sanctions — which goes back to the early days of the First World War, what you find is that, basically, the application of sanctions was an attempt to bring to Europe — and essentially an attempt to use everywhere else — measures that had been used by imperial countries against their colonies to bring them to submission.
But the fact of the matter is that we have come a long way from that world, and even the relatively weaker economies of the world are not so easily damaged without inflicting damage on yourself.
Of course, Russia is not at all a weak economy. Russia is not only a strong economy but remember, given that the West has been imposing sanctions on Russia at least since 2014, the Russians have become used to handling sanctions. They have become used to responding to sanctions by finding alternatives, and by strengthening domestic production.
One really good example of this is that, after the agricultural sanctions imposed on Russia in 2014 —and later basically — Russian agriculture has turned right around. These sanctions have made Russia into a major agricultural exporter.
I agree of course with Michael and I think Michael’s done a great job of explaining how much Europe is hurting. But the United States is also hurting. The inflation in the United States is directly connected with the disruption of supply chains which has to do with sanctions.
The United States tried to create a world in which it could dominate, imposing on it various so-called globalization rules. But what’s happening now is that particularly China, but a few other countries as well, are basically beating the U.S. at its own game. The United States is now having to disrupt those rules and to impose sanctions and engage in protectionism. So I would say the U.S is also a loser.
I would also say a couple of other things about Europe. To this day, Europe and various European countries are applying sanctions selectively in ways that make a big bang, but the buck is small, so to speak. So they don’t lose that much. For example, today’s headline — the Europeans still can’t decide what sort of oil price cap to put on Russian oil, because each country has different considerations and so on. So they’re applying sanctions selectively. But yes, Europe is hurting.
[European countries] have been helped a great deal by a mild winter. Everybody thought, if the winter is bad, Europe is going to have a really tough time. But [there turned out to be a] mild winter. But mild winter is not going to save Europe for a long time, because these sanctions have forced Europe to buy more expensive gas.
Right now their coffers are full, their gas reserves are full, but a lot of people are saying that, come next winter, that will be the real test of all this. Will they actually be able to continue to cooperate — or even appearing to cooperate — with American sanctions, as they seem to be doing right now?
Remember, all the major European countries know who blew up the Nord Stream pipeline. [They know] that the United States is so ruthless in its efforts to achieve the goals that Michael just outlined that they are willing to go as far as actually blow up a [so-called] friendly country’s infrastructure. So that’s what you’re looking at.
One final thing I’ll say. In recent months — I think it’s [been] a couple of months since Merkel’s interview took place — everybody is telling us that Merkel said, “We only engaged in the Minsk Accords in order to buy time for Ukrainians.” I have read the German version of that interview. Merkel does not say that. What Merkel says is, “Yes, in retrospect, signing those Accords gave Ukraine time.” [That] is a very different statement from saying, “We intended to fool Russia all along.”
Because if [they intended to fool Russia all along,] why would Merkel have engaged in Nord Stream One, Nord Stream Two, and various other measures to make friendly relations with Russia?
Remember, the desire to connect Germany to lands eastward — to Eastern Europe and Russia — goes back at least a century, if not more. Just the other day I was reading about the Dreikaiserbund [also known as the League of the Three Emperors] which is, the [German, Russian and Austro-Hungarian Empires] would create a sort of alliance, which would actually make Germany unbeatable because Germany [had] all this technology, plus all these resources of these big parts of the world.
So I don’t think that these divisions are going to remain underwater for long. They are going to surface. I think in the coming year the big headline that everybody should be looking for is: the disruption of the much-trumpeted Unity of the West
Danny: All of those are really good points. Continuing on with this discussion of sanctions it seems like you both outlined winners and losers and also kind of the dialectic between the two — you can both be a winner and you can be a loser — the United States seemingly fitting that description. But I wanted to ask you, what made Europe and the United States so confident about this form of economic Warfare against Russia?
Because we know there are twenty-plus, [or] thirty-plus countries around the world that experience some form of sanctions imposed on them by the U.S, the EU, or some attendant institution connected to them. but at the same time it seems like there was so much confidence that Russia was going to fall, that its economy would become a basket case, and therefore that would greatly facilitate the U.S.’s and the E.U.’s goals when it came to this proxy war in Ukraine, which was to destabilize Russia.
What happened? Why did that not happen? You touched a little bit on this, Radhika, but maybe Michael if you want to take that question and any other further reflections on that.
Michael: How on earth can we explain how Americans or anyone else make a mistake about viewing the future? We can’t explain the logic behind their mistake. There is no particular logic behind it. The fact is, they didn’t care about Russia. This isn’t about Russia. They didn’t care whether Russia would recover.
I think they sat down in Washington, they [realized] that there’s no way that they can prevent what is happening now — [that is, prevent] the Russia-China-Iran-India axis from developing — and they’ve decided, What we’re going to do is a holding operation. [That is:] What can we hold? We can hold on to Europe.
The one economic effect of the war in Ukraine is to completely disarm Europe. Europe has no more tanks, no more rifles, no more ammunition. It’s a huge market now for American arms, if the United States can continue to keep the current European political leaders in power. The United States has solidified its hold on Europe, and it had hoped that the sanctions would put such an economic squeeze on debtor countries — on Latin America, Africa, and South Asia — that they would be forced into higher reliance on the dollar
It’s sort of a myth to think they say we’ll break up Russia. That’s simply political talk to sell it in the United States. They keep talking about dividing Russia into five or six countries, but that’s so unrealistic that you have to look at that as distracting patter talk. They’re looking at what they can absolutely hold on to, and they’re trying to hold on to the world outside of Russia, not to defeat Russia itself.
It’s a fight over how America can control and essentially dominate its allies, not it’s non-allies
Radhika: I’d actually like to add a couple of things that I’m always just struck by.
We’ve now been watching this conflict for nearly a year. What I’m just amazed at is the extent to which the United States is — you know you talked about U.S confidence, but I think U.S confidence is itself a bit of a con.
What do I mean by that? What I mean by that is that, first of all, different parts of the U.S. state are pulling in different directions. Different parts of the Western Alliance are pulling in different directions.
For example, whatever confidence there may be [is] basically a result of the pronouncements made by those in whose material interests — you know if you go by the “follow the money” principle — in whose material interest the war is. So they of course want to sound totally confident that, yes, the war can be won.
And of course, as you know, recently there has been a Rand Corporation report — the Rand Corporation being very close to the U.S. administration— which has been interpreted in very different ways. The warmongers say [that] the Rand Corporation says, we have to continue this war and intensify it and prolong it and so on. Others are saying it means something completely different
So I think that what we have to realize is that the U.S. is trying to achieve a whole range of conflicting objectives. I think one [objective] is obviously to try and retain its purchase on world affairs, [and] try and retain its dominance on world affairs. It’s not succeeding but that’s what the effort is about.
At the same time the US is also trying to profit. The military-industrial complex is profiting. It’s making money hand over fist. Not only right now, but we should watch the coming U.S. budget. Basically it looks as though the Pentagon and associated interests are going to use the Ukraine war as a way of essentially increasing the contracts being given to the five major U.S corporations [which have dominated] over the 20 years or 30 years since the end of the Cold War.
What used to be dozens and dozens of military suppliers have become condensed into five. You can imagine if there are only five, they find it very easy to talk to the American government. They are making money, [and] they are going to take long term contracts under the guise of — Obviously people like them want to prolong the Ukraine war.
But there are also a whole bunch of other things. For example, we are being told [that] the United States is “aiding Ukraine.” And in order to aid Ukraine the United States has passed a new version of the Lend-Lease Act through which it had “aided” European countries during the [Second] World War. But if you look more closely at the Lend-Lease Act, what you see very clearly is the opposite of that.
Most people, when they hear the word “aid,” they think that the United States is giving money to Ukraine. It’s not giving money to Ukraine. If you look at this text of the [Ukraine Democracy Defense Lend-Lease Act of 2022] that was passed and look at clause 3, it says very clearly,
“(3) CONDITION.—Any loan or lease of defense articles to the Government of Ukraine under paragraph (1) shall be subject to all applicable laws concerning the return of and reimbursement and repayment for defense articles loaned or leased to foreign governments.”
Ukraine is going to have to pay for this.
Now let me also tell you one other thing. In any such situation — as was the case in the First and Second World Wars, so it is now — the United States is profiting from Wars very far away.
The United States is also sending two kinds of weapons. Number one: obsolete weapons that it needs to get rid of anyway. This way it gets to make money out of assets that they would have had to write off otherwise. [Number two:] it wants to send those weapons which its military industrial complex corporations want to have tested in “battle conditions.”
In all of these ways the United States under the rhetoric of “aid” is actually using Ukraine.
I don’t think it cares a farthing about what happens to Ukrainians, as Michael has also said and reminded us, as John Mearsheimer keeps saying, the Americans want to fight the Ukraine war against Russia to the last Ukrainian.
So I think these sorts of things should give us an idea that different parts of the U.S. administration are pulling in different directions. As always, there are many pigs feeding at the trough and they are all getting their bid. But in the meantime, the trough is Ukraine. They are emptying Ukraine.
Michael: Well let’s take that to the next step. You mentioned the effect of Lend-Lease especially on England in the Second World War. The Lend-Lease made England pay by essentially emptying out the Sterling Area reserves that India and other raw materials producers had put in London during the war.
All this money that was accumulated by the British colonies ended up opening up the Sterling Area to the United States [by] saying, these countries can spend their money anywhere, not only in England. So there was a huge [increase in foreign] demand for the United States. Essentially the Lend-Lease broke the British Empire.
Let’s look at what’s happening in Ukraine. How could Ukraine possibly repay more than ten dollars of the debt that it owes for the arms and others? Well, the idea is that — obviously there’s a reason that in the last couple of weeks you’ve had Blackstone going back and forth to Ukraine, you’ve had Lincoln going around, you’ve had George Soros talking. In the last year of the war, Ukraine has sold its farmland, its mineral resources — it’s sold almost all of its raw materials and agriculture to American firms.
Now the problem is, how can a puppet government such as Zelenskyy actually have the authority to sell [those resources]? You’ve had in the last week hilarious talks, suggestions, even in the Washington Post by supposed leaks, saying that, “Well the United States State Department is willing to talk to Russia to make a settlement on all of this. And maybe [the State Department is] even willing to give Russia the Luhansk and the Donetsk regions.
I can imagine what the discussion would be between the State Department and Russia.
[Secretary of State] Blinken would say, “Well, Russia, you can have these regions. It’s okay if they’re part of Russia now. But you have to respect the international private property rules, and you have to realize that the the titanium resources in this region that we need for our airlines, the agricultural land that’s so fertile that we need to control the export trade, that your oil and gas and all of your minerals, have really been bought up by the Americans from Mr. Zelenskyy’s regime. Are you willing to obey the rules-based order that says we stole it fair and square?”
Well obviously Russia is not going to do this. It’s only a ploy to pretend to Europe, to pretend to the world that the United States is willing to give Luhansk and Donetsk to Russia. Of course it’s even willing to let it keep Crimea as long as the United States private sector owns most of this property, which of course is inconceivable in principle.
Radhika: People don’t understand what imperialism is really about, and also what control of territory is about. Let me explain.
Russia is generally portrayed in the Western media [as attacking,] taking over Ukraine, [expanding], as [imperialistic]. But what Russia is trying to do is defend its national community. That’s what it’s trying to do, [to defend] those members of its national community which are part of Ukraine.
It tried through the Minsk Accords — Minsk One, Minsk Two — to secure their interests within Ukraine. It was not insisting that it wants to incorporate them into Russia. Since this has proved impossible they are now doing the next best thing, which is to incorporate them in Russia and consolidate that national community.
But the United States, which is the real imperialist — it doesn’t care about controlling territory. In fact, controlling territory is a bit of a headache. [For example] you have to take responsibility for people.
What [the U.S. actually wants] — this is what Michael says — is that other countries should simply do [the U.S.’s] bidding and deal with the political consequences of that. For example, by repressing their national population because [the population is] bound to oppose the policies that the United States wants these countries to impose, [because those policies] are not in the interests of ordinary people of any country.
Quite frankly they’re not even in the interest of ordinary Americans, as ordinary Americans are finding out with all these demands, [asking, for example,] Why are we sending so many billions to Ukraine?
Of course the United States is not sending billions to Ukraine. It’s indebting the Ukrainians, but it is certainly refusing to address domestic problems, including those of shocking and scandalous levels of poverty.
That’s the first thing I wanted to say, which is this contrast — we’ve been running a national economy which is kind of what Russia is doing to some, to significant extent — and essentially running an imperial economy which is at the expense of your own people as well as the people of the rest of the world.
When we talk about the political economy of the Ukraine war one can talk about a lot of things, as we have.
Indeed, we’ve talked about the effects on the United States, on Europe, on the rest of the world, on China and Russia relations, and so many different things.
But one really important piece of this puzzle is what’s going on domestically in Ukraine.
Since the end of the Soviet Union — of course there was “shock therapy” and privatizations and so on — but you also have to remember that as these things unfolded — and particularly as people realized — people were actually disillusioned by the end of the Soviet Union — because one thing people forget is that people of the Soviet Union did not want the end of the Soviet Union.
In early 1991, at the end of which year the Soviet Union was dissolved, there was a poll conducted in the Soviet Union and 80% of the people voted to retain the Soviet Union. They did not want its breakup.
Ukrainians have also fought back against privatization and neoliberalism and shock therapy and so on.
One very important consequence of this fight back was to stop the sale of land. Foreigners couldn’t buy land in Ukraine. But in 2021 —precisely around the time when the Americans started stepping up their attention to Ukraine and so on — this law was repealed and since then you can buy land.
What’s really shocking is that in the context of the war, where you might think that — normally when nations fight wars they actually pass solidaristic legislation to help the weakest, rationing, to tax the strongest, and so on — so that the nation is united and it’s more equal.
In Britain for example this went so far that actually longevity increased during [WWII] — when Britain was losing lives in the war, longevity increased because people were getting enough to eat.
If you’re looking at Ukraine and looking for this sort of solidarity, you don’t find it. In fact, the war is being used as an excuse to do the opposite. All sorts of extremely anti-labor legislation has been passed, privatization legislation has been passed, and of course, amid all this, opposition has been silenced. Zelenskyy has banned a number of the left-wing parties.
This is in a context where Ukraine was already, next to Moldova, the second poorest nation in Europe. In the name of de-sovietization, there is even more privatization going on.
In the design of this privatization — what I read for example in an article in Open Democracy — is that some of the most recent legislation was — and this is just one little instance — it was developed and designed by a Ukrainian NGO which calls itself — listen to this — the Office of Simple Solutions and Results.
It is set up by the former Georgian president Mikheil Saakashvili, along with Ukrainian employers associations, and — get this — a USAID program. If you actually read the whole article, NGOs — which basically represent the interests of big multinationals abroad who want a piece of Ukraine — they are helping design these legislations, scrapping labor protections, increasing working hours, increasing privatization including of land. Really horrific.
Michael: So you’ve described Ukraine as a dress rehearsal for what the United States would like to promote all over the rest of the world.
Radhika: Absolutely. So for example in the middle of the war, Zelenskyy — and I’m reading one of the articles that I found —Zelenskyy announced government plans to launch large-scale privatizations beginning September 1.
Subsequently on 28 July the Ukrainian Parliament adopted draft No. 7451 on amendments to the Law of Ukraine “On the Privatization of State and Communal Property, which is intended to simplify the privatization process. It will make large-scale privatizations and online auctions, shortening the terms of conducting privatization auctions.
And then we are told later on that all of this is very good because it will help municipalities and local governments make up for the revenue shortfall caused by the war. Go figure.
So now, if you go back, follow the money. How is the war being financed and funded? Privatizations have now become essentially a way — allegedly — of financing this war which is destroying Ukraine in the name of saving it. The hypocrisy just makes me cry sometimes.
Danny: Those are great points. I think you both outlined just how much this proxy war has affected Ukraine. That’s not talked about so much.
Sometimes you get in the media that [for instance] the economy contracted by [about] a third. You get this information haphazardly about just how much foreign aid, [in particular U.S. aid], has been so important now to the government’s entire budget.
It is just astounding. You outlined, Radhika, quite clearly in that Lend-Lease Act that these are debts that will be paid back, or at least if they’re not paid back, there will be heavy costs to Ukraine in the future. Of course right now there are huge consequences.
Maybe we can segue to a topic that you two have been covering a lot lately which is, this kind of broader macroeconomic situation with inflation, but in particular the U.S. dollar. One thing I’ve noticed over the course of the last year is that more and more countries are being very vocal, and even starting to put together the foundations for de-dollarization.
So, while the U.S. dollar has indeed strengthened off the backs of Europe there’s also been a lot of talks — even from countries like Saudi Arabia trading in RMB with China around the oil trade between the two countries — you also have BRICS expanding over the course of the last year including countries, not only Saudi Arabia having interest, but Türkiye, Algeria, Argentina, Iran —
I’m wondering what you make of this trend toward de-dollarization. Maybe Michael you can begin when it comes to how the Ukraine proxy war has affected it.
Michael: Well the sanction that we did not mention of course was the Americans grabbing all of Russia’s foreign exchange dollar holdings in the United States and Europe. Whatever Russia held — or Russian agencies held — in Europe or the United States was simply confiscated, and the American State Department said, “We are going to give that to Ukraine.”
Well of course, you give it to Ukraine to do what? To pay back the United States for all of the foreign aid that we’ve given it and letting them fight our proxy war.
What this has done, in conjunction with the Bank of England’s seizure of Venezuela’s gold stock, is letting every country know: “You’ve seen what we’ve done to Ukraine if you get us angry at you, if you don’t play by our “rules-based order”, then we can simply grab your money. We grabbed Iran’s money right after the Shah was overthrown and made it a financial pariah. If you continue to use the U.S. dollar we’re holding you hostage, we’re holding the dollars hostage.”
This has led every country outside of the United States and Western Europe to say, “How do we handle our trade without using the dollar?” Well obviously the very first attempts are currency swaps: “Let’s do trade in our own currencies.”
And then they’re trying to create some means of mutual obligations for deficits in the trade between, let’s say, the Near East, South Asia, Africa, and Latin America. The problem is, if you de-dollarize, how can you create a currency to take its place?
You can’t do it through the International Monetary Fund (IMF) because the United States has veto power in it, and the IMF is really a branch of the U.S State Department and military. That’s why the IMF is giving grants to Ukraine.
But one of the nice things about the IMF’s new loans to Ukraine is the IMF said, “We don’t have to obey our rules at all if we’re doing something that the United States wants. Our rules say that we cannot make a loan to a country in a war. But Ukraine, we can make a loan to Ukraine.”
“Our second other rule — which is what led to much of our staff resigning in the Argentine financial crisis a few decades ago — was, we cannot make a loan to a country that can’t afford to pay back.”
Well obviously Ukraine is not going to be in any position at all to pay back.
This double standard [with] Ukraine enables all of the countries who owe the the IMF money — Latin America, Argentina, Brazil, South Asia — to say, “Well now that you’ve made it clear that the IMF is simply a branch of the United States Treasury and, we can’t afford to pay you and still afford to import our oil and gas, now that you’ve imposed sanctions that have raised the prices, now that we we can’t afford to pay the dollar debts [since] the dollar has raised its interest rates and gone way up against Global South currencies — in order to survive we’re going to make trade among ourselves and we can get the money to finance our our trade among [ourselves] by not paying the dollar debts.”
Well the United States is going to respond by saying, “If you go to other means of payments besides the dollar then we will simply sanction you like we’ve sanctioned Russia and we will cut you off from World Trade.”
So that in order to de-dollarize, given the military and the political maneuvering that the United States is going to do, they have to become commercially independent of the United States and Western Europe for almost all of their imports: their food, their cars, their telephones, their electronics
Everything that they basically need they have to be able to make sure that there is no choke point in their trade, of dependency on the United States, that enables the United States to say, “We can use this choke point to make your economy halt if you don’t agree to trade in dollars and open your markets to the United States and pay these unpayably-high dollarized debts by essentially privatizing your industry and selling it off. You can pay the debts by selling what’s left of your public infrastructure, your land, your raw materials resources, your oil and gas and minerals — you’ll get that money and you’ll use that money to pay American bondholders and the IMF and the World Bank that has been giving you all the bad advice to become dependent on U.S grain exports and general economic trade.”
The de-dollarization isn’t simply a technical issue of what kind of currency or arrangement you are going to make. It involves the whole economic system, which is why the Ukraine war has become so much more than a military confrontation and has forced countries to think in terms of totally restructuring their economy in a way that’s independent from Western Europe and the United States — from the “golden billion” as President Putin likes to call them.
Radhika: I’d like to say something about de-dollarization as well. But before I do that I just want to say one thing about a subject we were discussing earlier because it’s really pertinent.
Everybody will remember that some months ago, Western powers were making a big deal about permitting grain shipments from Ukraine. Everything was couched in terms [of] Ukraine [being] the “breadbasket of Europe” [and] all these poor third world countries depend on Ukrainian grain shipments.
What was the real reason? It’s not like Western countries’ hearts are bleeding for Third World countries — I mean, they’ve been squeezing Third World countries for two centuries now. [The point is], the main reason why they are so eager to get grain shipments out of Ukraine is a fact that few people know.
A large part of the farming — even before Ukrainian land could be sold it was allowed to be leased. As a consequence, big Western agribusiness corporations are heavily invested in Ukraine and even many corporations that are apparently Ukrainian [and] are [even] headquartered [there] involve Western interests. So it was the grain of this agribusiness that had to get out. We always have to look for the real motivations.
I think people should really understand [that] all these pronouncements about aiding Ukraine and so on — they’re all hollow in some respect or another.
Anyway, coming to de-dollarization, let me also plug the fact that [around this time] next week Michael and I are going to record our program on de-dollarization, so if you’re interested please listen to that.
I would like to start at a very fundamental level, because we we will not understand what is happening under the rubric of de- dollarization — or not fully understand it — unless we consider a very simple point, [which is]: it is not possible to have the currency of one country be the currency of the world.
People say, “What about the dollar and what about Sterling?” Well, the point is, each of these has not only had special circumstances — in the case of Sterling, Britain was [essentially] providing the world with liquidity by exporting the surpluses it extracted from its Empire — both directly as taxation and indirectly in the sense that all the trade surpluses that its Empire was incurring with the rest of the World by essentially producing their guts out to send food and tea and all sorts of raw materials and cotton to the rest of the world market.
India was the second biggest exporter in the world at the time and so it was earning a lot of foreign exchange and capital for Britain. All of this was being sent — so Britain could do it because it had an Empire, otherwise what was tiny little Britain ever going to do even at the height of its industrial power?
[Likewise,] the dollar never really succeeded in the post-war period. It spent basically a crisis-ridden period in the 1950s and 1960s and then the gold link had to be broken. Since then, the dollar has only remained the world’s currency by creating artificial demand for the dollar by expanding financialization.
[Of course another] thing, which is essentially preventing Third World development, because what Third World development would do — if Third World countries really develop — is increase the competition to purchase commodities. Increased competition to purchase commodities would mean higher prices of commodities. Higher prices of commodities, as those who have watched these things know, is inversely related to the value of the dollar. So in this sense, this is the most fundamental point I want to make.
And then of course I would say I completely agree with everything that Michael said. I would add to it that, basically: What is it about the Ukraine war that has done this? If you take what I said seriously, then you will also understand that the dollar’s position has been weakening for some time now.
[The Ukraine war] has accelerated that position, and that weakening comes from a multitude of sources, including the fact that the financialization scheme — the idea that we can simply expand international demand for the dollar by expanding financialization and inviting everybody into the giant casino that is the dollar-denominated financial system — even this is not working, because after 2008 foreign money has basically not been coming in, which is partly why the Federal Reserve has had to support all these asset markets. So in that sense [the dollar’s position] has been weakening.
What has also happened is that the rest of the world has seen — that the rest of the world had many complaints about the dollar system anyway because it works completely in ways that are governed by the U.S requirements. [For instance,] when U.S interest rates are low, money floods out of the U.S. into the so-called “emerging markets,” driving up the value of “emerging market” currencies. Then, when [the Federal Reserve] increases interest rates, the money rushes back to the United States.
So this kind of dollar system is no good. It does not provide stable finance.
The big thing that’s driving the de-dollarization is that now there are alternatives. China is an alternative source of finance which is far superior to anything the U.S. can offer.
And, as Michael says, countries are also realizing that they cannot rely on this crazy casino system and they need more stable arrangements amongst themselves, and they are creating them.
One final point [is] that the weaponization of the dollar system, not only in the case of Russia, but remember [that] they sequestered Afghan reserves and they are subjecting Afghanistan to the most inhuman forms of starvation, lack of medical equipment, etc. They’ve done similar things to Venezuela, Argentina, and so on.
Danny: Those are all great points. It just goes to show how connected what’s going on Ukraine is to the rest of the world and how much — China calls them headwinds — there’s been a huge fallout from the Ukraine proxy war, and de-dollarization is for sure one of them.
Michael, how do you think this will play out? There’s a lot of different theories about how fast this will go — whether the dollar will be replaced the next five, ten, years, or maybe it’ll take several decades.
How do you see this development moving forward, given that it feels like we’re going to be in the midst of this proxy war for some time, despite whatever references to a peace deal, and to peace, that the U.S. and NATO have been making of late?
It feels like this is going to go on for quite a while, so how do you see this going? I know we can’t predict the future but there are some trends that maybe can point the way forward?
Michael: The dollar is not going to be replaced [or] disappear. The dollar will remain the center of the American and the European trade. The problem is, what can take its place?
Well, what can take its place has to be a systemic answer. Any foreign currency is given value by being accepted as payment for debt or payment to the government. If the government accepts the currency, that creates a demand for the money that [the government itself] creates.
If the key is [that] you establish a currency’s value by taxes, [then] taxes are something that are political. In order to have a common currency, you need to have an intergovernmental arrangement or a political agreement on what the taxes will be paid for [and] who will receive the taxes.
It almost imposes a political union among the countries that are using a foreign currency, unless what they arrange is simply a group of bilateral swap agreements like Saudi Arabia is making with Russia and various countries are making with China. Or [if what they arrange is] a kind of artificial — something like Keynes’s proposal for Special Drawing Rights (SDR) — new alternative to the IMF that will create artificial currency.
The question is, how do you give this artificial currency a value outside of the countries that are using it?
You’re going to have two different — you can almost say two different civilizations, which is how Lavrov and Putin have been saying it. You’re going to have one part of the world — developing independently of the United States — with a mixed economy, basically moving towards socialism, and [for the other part of the world], the neoliberalized, financialized United States.
These will be rival political systems and really a whole different way of organizing the economy, politics, and values. That’s going to be much harder to put in place than simply doing a technical financial arrangement.
It was easy for countries to break away from the SWIFT bank clearing system, [especially since] the United States’s threats had given Russia and China time to put in place their own bank currency system, their own credit card system, [and] all of the financial details.
But to have the balance of debt between countries — when countries have an imbalance in trade and investment — [for instance, if] China is going to develop infrastructure all along the Belt and Road Initiative, other countries are not going to be able to pay immediately. Ultimately these equity investments that China is making will generate enough revenue to pay them off, but how are you going to handle this in currency — these mutual debts — in the interim?
That’s what has to be developed, and it’s a political question that most countries have not asked, especially if they’ve sent their students to the United States or England to learn economics, [where] the economic curriculum doesn’t even discuss the kind of things that we’ve been discussing here for the last hour.
They don’t discuss the political context for what a market is. They don’t discuss how a group of governments can create their own market relations and means of payment and means of debt settlement.
All of this is going to be linked to: How do you handle the imbalances in trade and investment that develop among countries that decide, “We’ve got to go it by ourselves. We’ve got to be independent from the United States.”
If the United States says, “If you don’t use the dollar then you can’t import anything from us and Europe,” [those countries have] to be prepared to really start all over. The good thing is, if they start all over, it doesn’t have to be the way that the United States and Europe developed. It doesn’t have to be Margaret Thatcher’s way that Europe and Ukraine and the United States have followed. Iit doesn’t have to be the neoliberal way.
It can be the way in which socialists have talked about for the last 150 years.
Radhika: If I may add to that: Danny, your original question was, Do you think the dollar system will go away now sooner or later?
Part of Michael’s answer was that it’s quite possible that it will remain the currency of this Western bloc. But remember, the Western bloc already has in it the Euro and also of course other stronger currencies, so I think that that’s something we have to bear in mind. [Also], financial relations between Europe and the United States are not as strong as you might think.
In the first decade of the 21st century, as the U.S financial system was inflating those crazy asset bubbles based on the mortgage-backed securities and so on, the big buyers of these asset-backed securities, these toxic securities — of course American corporations and and financial corporations were among the big buyers — but, outside the United States, U.K. and Eurozone financial institutions bought into this market in a big way.
And in fact, that is why they were the ones that were hurt the most [in the 2008 financial crisis]. So, when people refer to what happened in 2008 as the “global” financial crisis, I always say. there was nothing “global” about it. It was a “North Atlantic” financial crisis.
Interestingly, as the English expression goes, “once bitten, twice shy,” what we have seen thereafter, as various reports have pointed out, is that European countries have not been investing in American financial markets quite as much. They have sort of retracted. The flow of money from Europe to the United States is massively down.
That means that the United States — for the U.S to function as a dollar system it has to actually have inflows from elsewhere, which are not coming. which [in turn] requires the Federal Reserve to support asset markets. Now that is proving difficult in the present inflationary context. The U.S is caught in a vice, and as a result of that I think there may be some dysfunction there which may lead to a collapse of the dollar. We don’t know.
I also agree with Michael that of course the other thing that is accelerating the move away from the dollar — and that acceleration can suddenly become very significant — is the availability of alternatives.
Earlier I had said that a national currency cannot be the world currency. Keynes knew that, and he arrived at the Bretton Woods conference with proposals for the bancor — not SDR, bancor — which is just the name he gave to this currency. The key thing about this currency was that it was not a currency you and I could use to buy a chocolate bar, [for instance]. It was a currency only to be used between central banks.
I think this kind of arrangement can be made on a bilateral, multilateral — many different types of — of basis. For example, the Argentine and Brazilian arrangement that has recently been made has been criticized by people who don’t know these sorts of things and say that it’s just a central bank currency, it can’t be worth much.
But no, money is national. Keynes understood this. What we need is a way of settling imbalances between central banks. That’s what world money needs to do primarily. We don’t need world money to pay for restaurant meals or buy a chocolate bar or shop for shoes or whatever. That money can remain national, and I think that that’s what Keynes understood.
That has been forgotten with all the hype about how natural it is for the U.S to be the world’s money. It’s not natural at all. It’s based on a whole bunch of shenanigans, some of which we don’t even know about.
I think that as these arrangements multiply, which I think they will for reasons we’ve already talked about, there’s also going to be a move away from the dollar, and at that point we will not really even care what the dollar is worth. [In the sense of,] how much do we care about the worth of the Korean [currency, the] won? We don’t worry about it. Koreans worry about it. And that’s what will happen.
Michael: Well, what are we going to do about the backlog of dollarized debt that countries have? Their foreign debt has been denominated in dollars. These debts cannot be repaid and [at the same time] have these countries develop independence from the United States: something has to give.
[If] not paying the foreign debt [is given priority] — because you’re using your money to develop your own economic independence, your agricultural independence, your industrial independence — if that is given priority, then the United States is going to force a split. That’s the problem that has to be solved.
Radhika: Yes, and I think that you’re right, the United States will try to resolve this by force. I think what may also happen is that, if countries stop incurring new debt in dollars, then this will look very different.
Michael: Yes, that’s true.
Danny: We’ve gone through the specifics and now we’re getting to the general. I’d like your reactions to [the fact that] the IMF, major financial institutions, and big banks are all predicting a very slow 2023 economically.
When it comes to the US’s numbers in particular, if we just take the mainstream definition of a recession we would say that the condition of the United States — given that it’ll have less than one percent growth predicted in 2023 — is recession. How do you feel like this global economic — or world economic — slowdown is related? How has the Ukraine proxy war impacted this, and how do you see the U.S. and the E.U. in particular reacting?
China for example is going to grow four or five times the rate. Russia, although it may not experience that kind of growth, it’s not falling apart, so it seems like big trouble in terms of the geopolitical agenda moving forward on this economic point alone.
Michael: Well, we’re not in a world of business cycles anymore. We have entered a period — by “we” I mean the United States and Western Europe — are in a permanent chronic debt deflation — a chronic depression.
I think we’ve discussed before [that] every business cycle recovery since1945 has started from a higher and higher amount of debt. Usually the function of a business cycle crash is that you wipe out the debts. Bankruptcies transfer property from weak to strong hands. That didn’t happen after 2008 — you can call it the Obama Depression.
Obama had a choice. The bank fraud in the United States — as Bill Black at [UMKC] has explained — was so great that — Citibank was insolvent, all the big New York Banks and firms were technically insolvent. Normally they would have gone broke. They would have wiped out all of the One Percenter holdings. They would have wiped out the stockholders. They’d end up basically with a debt cancellation.
But Obama said, “No. We’re going to save the banks, but we’re going to kick 10 million American families out [of their homes]. The economic war is on and the race war is on. All of these victimized Black, Hispanic, and low-income borrowers with junk mortgages are going to be evicted and wiped out.”
“We’re going to impose a depression on the American economy to bail out the Democratic party’s backers — the large Wall Street firms and the One Percent.”
And so, since 2008, the One Percent have had an enormous increase in wealth in the value of stocks, bonds — you’ve had the largest bond rally in history — since 2008 an enormous wealth at the top.
And what form does this wealth take? It takes the form of the debt of 90% of the population. In the United States now, 90% of the people cannot afford to increase their purchase of goods and services —which is what a recovery is — and at the same time pay their mortgage debt, their credit card debt, their auto debt, their student loans. All of these debts are increasing, making a recovery of the real economy impossible.
The same thing of course is happening in Germany, now that you have the industrial sector basically wiped out by the American sanctions. You’re going to have the West in a shrinking economy.
The only way that the One Percent — and 10% — can continue to get rich is by exploiting the rest of the world economy and the rest of the world. If [the rest of the world] lets this happen, it is going to itself be forced into a chronic depression and that really is the political issue.
In terms of the coming year I can guarantee you that there’s not going to be a recovery, because how can you have a recovery in goods and services if your money is going to pay debts, to pay higher monopoly rent for oil and gas, higher monopoly rent for food prices, for healthcare?
How can the economy do all of these things at once? It can’t. And I think most of Wall Street knows it, and certainly, the United States State Department and Treasury people know it. All they can try to do is say, “Well let’s get everything we can to the last minute and then take what we have and basically take the money and run.”
“Where do we run? Maybe we can buy Ukrainian land or New Zealand land or Australian land. What can we do?” That’s the question they have.
There’s all of these American dollars that are going to want to convert into Chinese currency, Indian currency, Turkish currency, to buy foreign assets in countries that are not subject to the same debt deflation that is plaguing the West.
The question is, how are the countries going to avoid their own debt deflation, that is completely or not domestic so much, as owed to their foreign creditors for bad debts? The only answer that I can see is, these bad debts are really bad loans. They’re bad loans because they can’t be paid, and a loan that can’t be paid should be wiped out, [which] is what has been happening for the last three thousand years of civilization.
The dollar debts will have to go, and if that goes, there goes the underpinning of the American banking system, the financial system, and there’s really nothing that the United States can do about it.
It doesn’t have a military solution, it doesn’t have an acceptable economic solution. There’s really nothing that their economies can do. Except, the upper 10% knows that the economy can’t recover, so [for them] the trick is to convince the 99% or the 90% percent that somehow everything’s going to be alright, [that] the economy can indeed recover — even though we’re going to cut back Social Security and Medicare.
To answer your question, you’re now seeing the Republicans joined by the right wing of the political spectrum, which is the Democratic Party, wanting to cut back Social Security and Medicare in order to balance the budget. Imagine what’s going to happen in the United States, if the United States says, “Now we have to have an enormous military expenditure because of the war against Russia. We have to defend Europe and re-arm Europe. We’re going to have to vastly increase the American military budget so that Russia can’t do to us what it did to Ukraine.”
That’s how President Biden will speak, and if there’s this increase in military spending of the United States budget then something has to give. The Democrats have agreed with the Republicans that what has to give is Social Security, just like [French President] Macron is raising the retirement age in France. You’ve seen the riots over there. You’re going to have all sorts of gimmicks in cutting back Social Security, the post office that’ll be privatized, medical care.
What they are not going to do is make Social Security payments be paid by the One Percent. There will be a cut off. Only the wage earners and the middle class have to make Social Security contributions at present. The rentier class — the wealthy people — do not have to pay social security in proportion to their own income, unlike the rest.
So you’re going to have the class war in the United States back in business, and as usual it’ll probably take a racial form. It’ll be an ethnic war. It’ll be a geographic war between various parts of the United States.
So all of this is going to be the backlog of having basically followed the dissolution of the Soviet Union with a “cold war economy” instead of an economy of economic growth.
Finally the Americans and Europeans are going to say, “Do we want to grow or do we want a military economy?” The vote will be overwhelming: We [(the elites)] would rather have a military economy and sacrifice and not grow, as long as all of the pain is felt by the 99% and by the wage earners, but not us.
Radhika: I just want to say, Michael said the class war is back. The class war never went away. Neoliberalism has been nothing but a class war by the One Percent — by the rich against the working people of the United States. We are probably going to, at least now, begin finally to see — I mean the class war has never been completely unresisted — that is, the capitalists’ class war has been resisted by working people — but I think now we are going to see a turnaround.
For example, this morning I [saw] that in the United Kingdom, where there have been a series of strikes, yesterday they had a sort of mini general strike. It has just been reported that Shell made some astronomical amount of profit — meanwhile ordinary British people do not have the money to buy enough heat, enough electricity, to heat themselves.
Electricity companies are sending people to barge into poor people’s homes and install these meters into which you have to pay in advance. You put coins into it. It’s coin-operated. It’s horrific. But it’s a coin-operated electricity meter and poor people have to use that, and if they don’t have the coins to put in that machine they don’t get heat.
Ordinary people can see the obscenity of this and of a government that refuses to increase corporate taxes on these huge monopolistic rentier profits, which needs to happen.
Nurses, railway workers, teachers, and everybody who is striking are basically asking, “You’re telling us there is no money? Look at these profits. That’s where the money is. If you want the money, [you know] where to get it.” So I think that there’s no doubt that there will be an intensification of the class struggle right now, and it will be now more two-sided than it’s been through the bulk of neoliberalism.
Your original question was, How seriously do we take the IMF’s very very dire projections about world growth? I’d just like to say one thing. In this world growth, whatever projections the IMF is making, the bulk of the contribution to growth will be from China.
Why? For the simple reason — if I were to summarize all the different things that Michael is saying — it is because the overwhelming majority of countries — and that includes, I’m sorry to say, many countries that are part of “the rest” so to speak, for example India — are pursuing horrifically neoliberal policies, and neoliberal policies are not about growth, they are about transferring income from ordinary people to a tiny ever-narrower elite. This is what’s happening in India on a massive scale, and on a tragic scale.
By contrast, the election of Lula in Brazil has been a breath of fresh air — and I think as more and more people realize that they have to elect governments that are going to run economic policy in the interests of the majority as opposed to a tiny minority, in the interest of production and environmentally sustainable production as against environmentally ravaging predation and rentier income —
Because, one thing people don’t realize — people oppose production versus environment. Actually that’s not it.
If you look at the graph of practically any environmental damage that you may see, it shoots up in the neoliberal period. The neoliberal period has been a period of low growth, but the environmental devastation has actually gone up. What this tells you is that you can have a better pattern of growth. By “growth” we don’t mean that we should consume more and more resources. We just mean there must be ways to increase people’s welfare — their access to the basics: food, education, housing.
I think as more and more people around the world realize that there is nothing to be gained from the neoliberal model and they start demanding other economic policies, I think that things will change.
In the Russian case — to come back to our political economy of the Ukraine conflict — what’s really interesting to me, if you focus on Russia for a second, President Putin said things like, “Those who do not lament the demise of the Soviet Union have no heart, but those who want to bring it back have no head.” So you can see a complex view. But he has always been basically running the economy for oligarchs on a broadly neoliberal model.
But what the sanctions — and subsequently now the war sanctions from 2014 — have forced him to do is to actually pay attention to the productive aspects of the economy and make the Russian economy more resilient.
Now that [Russia] is coming so close to China in many ways, I am sure that the “demonstration effect” of running essentially what is a socialist economy — yes, there are capitalists in China but they are under the overall direction of the Communist Party and the economic policies it makes — as this model which has proven so successful is also seen as a something to, if not emulate, [then] at least to learn from. I think that this is where things will change.
The next year is nothing. I mean, the next year is not going to be particularly pretty in terms of growth, but I think in the long run this is the source of hope, if I may put it that way.
Michael: Two days ago Foreign Secretary Lavrov made an interesting point about this. He said that this alternative to the neoliberal model has to be based on historical analysis. He pointed to an article that [Jake Sullivan] wrote in 2019 in the Atlantic. Sullivan said, “No vision of American exceptionalism can succeed if the United States does not defeat the emerging vision that emphasizes ethnic and cultural identity.”
Well, Lavrov called this remark terrible because he said this denies other people the right to remember their history, and their cultural identity is the culture of not letting the financial sector dominate the entire country — the identity of having a society that is more egalitarian and does not permit a whole class of landlords and monopolists and bankers to have a free lunch of exploiting income without producing anything.
That’s the basically the United States — to prevent any alternative to this neoliberalism, to say the market means that the rich people get to control what’s bought,,to control politics, to control the tax laws, and to control the country just like the United States does. That’s what America does and we have to spread that all over the world and any country that does not accept what we’re doing can look at Ukraine to see what might happen to them.
Danny: I want to ask one final question for both of you before we end the interview portion and then I’ll get to some announcements.
We’ve had Jens Stoltenberg — he’s traveling all around Asia, he’s been making this connection between Russia and China and their strategic partnership as being a huge threat to the values of NATO and the values of this “rules-based international order.”
Of course throughout this special military operation waged by Russia we’ve heard a lot also about China and Russia and their closeness, their relationship, and what it means in connection not only to the political and military situation around the world but specifically economically as well.
So what exactly is the thread here? What do they mean by “values and interests”? What are Russia and China doing together — [or] maybe apart as well — that sparks this huge concern? Of course, this predates the Ukraine proxy war, but it feels like it has accelerated this fear, this sounding the alarm. and even at times I think scapegoating as well.
Radhika: So your question is, “What is the concern vis-a-vis China?”
Danny: Yes, China and Russia. Their strategic partnership — what’s the threat here?
Radhika: [Throughout] the whole last decade, more and more what you find in official documents of the United States, there is this creeping intensification of identifying China as a threat.
The reason is very simple. China is a threat because [in] particular in the 1980s and 1990s, as the United States and China seemed to be sort of working together cooperatively after Nixon’s visit and the normalization of relations at the end of the 1970s — the expectation of the U.S ruling establishment was that China [would] simply become almost like a colony — a subordinated neoliberal economy.
But it soon became clear — actually it was already becoming clear from the middle of the first decade of the 21st century but certainly after 2008 and the increasing talk of multipolarity and so on — it became very clear that in fact China was sticking to its own guns. It was going its way.
Yes, it was happy to cooperate with the United States, happy to get investment, happy to get export markets, and all these things, but as far as it was concerned it was continuing its a socialist path. The socialist path was paying big dividends in terms of increasing — basically the Communist Party of China has executed over the past many decades the greatest Industrial Revolution in the world. No country has become so industrialized, not only in terms of quantity but in terms of quality of products in such a short period.
So basically China has emerged as a rival to the United States and that is what the United States cannot suffer. So of course people in the United States who particularly want to keep the military industrial complex going and don’t have too many gray cells to figure out that they are actually endangering the world — they are going to talk up [this] coming war [with] China.
Recently, two or three days ago, a major — like a general in the U.S Army — was talking in really lurid terms about how Americans should prepare for war with China in the next two or three years and so on. They think that they’re going to provoke — just as they are creating a proxy war against Russia over Ukraine — they’re going to create a proxy war against China over Taiwan. But I think they will find that the scenario is very very different.
Number one: China is a much more formidable enemy. Number two: I don’t think Taiwan will be that easily manipulated. Number three: I don’t think the Europeans who have been — as I have underlined — reluctant to go along even on the Ukraine matter — although they have gone along sort of — I think they [will] be even more reluctant to go along on the Taiwan issue.
[This does] not preclude the possibility that the United States will initiate some sort of war, try to provoke China in various ways and so on — but honestly — and that can have horrific consequences — but I would say that the picture is very complex.
Michael: I think the threat is not simply GDP growth, but it’s systemic economic organization.
The threat of China is: not letting U.S investors buy control of their economy, not letting U.S banks create their bank credit at interest, but keeping money and banking as a public utility by the state, not private creditors, and for creating money to essentially create new means of production, not simply for creditors to buy existing housing, existing plant and equipment, existing production, and then loading it down with debt to extract all of its surplus value.
And the threat is that China will tax away the free lunch, it’ll tax away economic rent, it will prevent super billionaires from developing — unlike the United States, it won’t favor absentee landlords and favor monopolists and financial investors and let them take over the economy. All of these things are what the United States says is a free market and is a work of nature itself. So the real threat is doing things in a different way than the United States’s self-destructive finance-oriented way has been developing.
Danny: Well we have covered a lot in this conversation and I really appreciate you two taking the time out this afternoon. As a reminder you can find the links to Michael’s website, it’s a link to his latest book. And you can find also a link to Radhika’s latest book as well, which is free on Open Access.
Do you two want to just let people know where they can find you and anything else you’d like to to mention?
Michael: www.michael-hudson.com is my website, and I’m on a number of others.
I’ve outlined most of these ideas in the recent book The Destiny of Civilization and I’m about to have another book out next month, The Collapse of Antiquity, which is really how Western civilization itself took a wrong track 2500 years ago.
Radhika and I are frequently together, as you mentioned at the beginning, on our geopolitical discussions on the Ben Norton site.
Radhika: The discussion that Michael mentioned, it’s called Geopolitical Economy Hour. It appears on the website of Geopolitical Economy Report, which is the recast version of Ben Norton’s website.
As far as I’m concerned, please check out my book. It’s called Capitalism, Coronavirus and War: A Geopolitical Economy. It was just published in December and it’s available, as Danny said, Open Access. If you’re interested further please also check out Geopolitical Economy: After US Hegemony, Globalization and Empire which was published by Pluto in 2013, and I think its analysis has really stood the test of time.
Or google my name and you will see a lot of YouTube videos, a lot of articles, many of which are available open access.
Danny: Okay well thanks so much to both of you.
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