PAUL JAY, SENIOR
EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay and we're
in New York City. Joining us again now is Michael Hudson. He's a former
Wall Street economist, a distinguished research professor at the
University of Missouri - Kansas City, and the author of Super Imperialism: The Economic Strategy of American Empire and Trade, Development, and Foreign Debt. Thanks for joining us again.MICHAEL HUDSON, RESEARCH PROFESSOR, UMKC: Thank you.
JAY: So, first of all, tell us a little bit of background of you, in terms of your work on Wall Street.
HUDSON:
Well, I was Chase Manhattan's balance of payments economist during the
1960s, and that was at a time when the balance of payments became very
important, because during the '60s and '70s the entire US balance of
payments deficit was military. The private sector was exactly in
balance, and government foreign aid actually made a surplus because all
we gave was tied aid and other countries had to pay us interest. But the
entire deficit was military in character. So today when people talk
about the declining dollar--.
JAY: So by that you mean the cost of the Vietnam War.
HUDSON:
The Vietnam War and other spending in Asia and Europe. Right now
America has over 850 military bases abroad. All of these military bases
have huge spending. In Afghanistan and in Iraq, they're sending hundred
dollars bills by the cartload, literally, to give away. So there's a
huge deficit for military spending.
JAY: Let's dig into
that a bit, because I know while it gets positioned rhetorically as
defense of American safety and against foreign threats and terrorism and
all the rest, and perhaps there's some element of that, certainly
there's a big piece of that that this helps, this military footprint
helps to protect or advance American commercial interest. So even though
it may be a big cause of debt, does it have such a plus side in terms
of commercial endeavor?
HUDSON: Well, as you know, in 1971,
President Nixon had to take the dollar off gold. So it was the Vietnam
War that forced the dollar off gold and ended its role as a monetary
standard as good as gold. I've just got back from a tour of Asia and
Brazil, and these countries are saying, because the dollar is being used
so much to fund the military deficit, when we run a balance of payments
surplus with America, we get dollars, we export, the dollars are turned
over to the central bank. There's nothing central banks can do with
dollars but buy US Treasury bonds. And we've been financing, with our
Treasury bond purchases, the military spending that's responsible for
the US federal deficit, for our encirclement. So by keeping the dollar,
we're keeping ourselves encircled. We don't want any more dollars.
That's what I'm told--Brazil, China, even Australia.
JAY: Yet everybody's buying American Treasury bonds.HUDSON:
That's because they're still making exports to the United States.
They--in the last year you've had the BRIC countries--Brazil, Russia,
India, and China--saying, we're trying to avoid using the dollar anymore
so that we don't have to buy Treasury bills. And when they say, we
don't want to hold dollars, they mean, we don't want to finance our
military encirclement, which is what the dollar standard has financed.
So two weeks ago, China and Russia made a deal to transact all of their
mutual trade and investment in their own currencies, rubles and RMB, not
dollars. The president, Hu, of China had just got back from Turkey and
negotiated a similar swap agreement there. So China and other
countries--Brazil, Venezuela, the oil-producing countries--are all now
shunning the US dollar. That means that the whole world economy is
fragmenting into a dollar bloc, meaning--.
JAY: You can't
say--they haven't shunned the dollar. They may be trying to wean off a
little bit, but, I mean, the dollar is still the dominant reserve
currency.
HUDSON: They have made a policy decision not only
to avoid holding the dollar but to decouple their economies from the
dollar area. Now, that's not good for the American economy.JAY: Now, this has to be a very long--like, for China, a very long-term issue. They hold trillions of American dollars.HUDSON:
Yes. These things usually happen fairly rapidly, much more rapidly than
people think. China holds $4 trillion of foreign exchange reserves now.
JAY: Mostly American.
HUDSON:
About two point--about half of that is in American dollars [snip] euros
and others. China has said, we don't want to make any more foreign
exchange reserve of any paper currency, because all the paper currencies
are government debt currencies. So what are they going to do? The way
you avoid getting foreign currency is to export less. They've made a
policy decision in China: now that we have got in place productive
power, we're going to use our factories and our productive power to
begin raising living standards, we're going to raise wages, we're going
to raise living standards and consume our own output, rather than
exporting them for paper dollars or electronic dollars [inaudible]
JAY:
That's a 15-, 20-year plan. And not only that, let's see if they can
actually accomplish it, because a lot of the big Chinese capitalists may
not be so happy to go along with that.
HUDSON: The Chinese
capitalists see that they're able to make more money in China than they
are here, just like the American capitalists. American, European, and
Latin American capitalists are putting their money into Asia because
that's where the growth is, because Asia is the only part of the world
left with a mixed economy, government and private, public and private.
And the way America got rich was by a government acting as a subsidizer,
building internal improvements, supplying the infrastructure, supplying
the subsidy to industry. That's how America got rich in the 19th and
20th century. It's how England got rich in the 18th and 19th century.
You need a mixed economy in order to get rich. But if in the process of
fighting labor you say, oh, it's socialism to have government, then
you're not going to have the government able to help industry as well as
able to help labor, and the economy's going to shrink. So you have a
kind of junk economics that's in the mind of the policymakers today that
by cutting away government, they prevent the infrastructure from
essentially enabling this economy to lower its costs.
JAY:
Now, let's go back to the issue of the military budget and the reason
for 800-plus bases, and maybe a trillion-dollar military budget if you
throw everything in. It was pretty clear, you know, in the older days of
American Empire, and you go back to Latin America in--say, in the
1930s, you know, we want this country--we want this country's bananas;
we will have the government we want so we can get this country's
bananas. But has anything really changed, in the sense--does the US
elite not see that even if this is a big cause of American debt, for the
purpose of commercial advantage this dominant role the US is able to
play because of this military is worth it?
HUDSON: What's
changed is the technology of military strategy. In the 1930s, when a
country was a military power, they were talking of sending in the
Marines, sending in the gunboats, and sending in people. America is
musclebound, which is why Mao called it a paper tiger. There's only one
kind of war that a democracy can afford: atomic war. A democracy can
only afford hydrogen bombs. It can't afford fighting with real bullets.
In Vietnam, every soldier in Vietnam used one ton of copper per year.
You'd think they were fighting each other with ingots over there.
There's not enough copper to produce the bullets. You don't have a draft
anymore. That's different from the 1930s. You don't have a population
that's willing to go to war. So the American war in the Middle East is
basically an air war. You can bomb people, but you can't occupy them,
you can't fight them, you can't do what was realized in the 19th and
20th century, you can't have an army that actually fights. It's an
eating army or a bribing army or a military-industrial complex without
the ability to fight a war,--
JAY: Why?
HUDSON:
--what America has. We can't invade a country like Ecuador. I made a
list of countries that America could invade. Grenada was one of the top
of the lists, and I met with the State Department and they agreed and
they invaded Grenada. That's about what America can do--old-time army.
But you have to realize how the Grenadian revolution occurred. The
revolutionaries sent a trumpeter outside of the police station at four
in the morning, blew the "come out and stand at attention"; they all
came out and stood at attention and were arrested. You needed 10 people
for a revolution. That's the kind of revolution that America, with maybe
20 or 30 people [inaudible]JAY: So then what's the point
of the 800 bases, then? I mean, when Britain was in a somewhat analogous
situation with these colonies costing so much, they said, well, let's
get rid of the colonies 'cause they're like boat anchors.HUDSON: That's right.
JAY:
Well--but you don't hear that in the United States very--I mean, you
hear it from very few people saying, let's get rid of 800-plus military
bases 'cause they're boat anchors.HUDSON: The reason you
don't is, in the past, all of the money that the military spent abroad
would be spent on foreign economies, and then they'd siphon up into the
central banks. And the central banks would have nothing to do with these
dollars but to keep their currency stable by recycling the dollars into
US Treasury bills. If it weren't for the military deficit, America
would have had to finance its own domestic budget deficit. It's been
foreigners that are financing the budget deficit. Now that foreigners
are essentially saying, we don't want any more dollars, we're not going
to fund your deficit, all of a sudden they think: who's going to fund
the deficit if not foreign central banks? The answer is: American labor,
the American middle class and working families are going to fund it,
not the military.
JAY: Thanks for joining us. Thank you for joining us on The Real News Network.
