Financing the empire.

• Author: Hudson, Michael
• Position: Climate Economics: Sense & Nonsense

I am traveling in Europe to discuss the global financial crisis with government officials, politicians, and labor leaders. What is most remarkable is how differently the financial problem is perceived over here. It's like being in another economic universe, not just another continent.

The US media are silent about the most important topic policy makers are discussing here (and I suspect in Asia too): how to protect their countries from three inter-related dynamics:

1. the surplus dollars pouring into the rest of the world for yet further financial speculation and corporate takeovers;

2. the fact that central banks are obliged to recycle these dollar inflows to buy US Treasury bonds to finance the federal US budget deficit; and most important (but most suppressed in the US media),

3. the military character of the US payments deficit and the domestic federal budget deficit.

Strange as it may seem--and irrational as it would be in a more logical system of world diplomacy--the "dollar glut" is what finances America's global military build-up. It forces foreign central banks to bear the costs of America's expanding military empire--effective "taxation without representation. " Keeping international reserves in "dollars" means recycling their dollar inflows to buy US Treasury bills--US government debt issued largely to finance the military.

To date, countries have been powerless to defend themselves against the fact that this compulsory financing of US military spending is built into the global financial system. Neoliberal economists applaud this as "equilibrium," as if it is part of economic nature and "free markets" rather than bare-knuckle diplomacy wielded with increasing aggressiveness by US officials. The mass media chime in, pretending that recycling the dollar glut to finance US military spending is "showing their faith in US economic strength" by sending "their" dollars here to "invest." It is as if a choice is involved, not financial and diplomatic compulsion to choose merely between "Yes" (from China, reluctantly); "Yes, please" (from Japan and the European Union); and "Yes, thank you" (Britain, Georgia and Australia).

It is not "foreign faith in the US economy" that leads foreigners to "put their money here." That's a silly cartoon of a more sinister dynamic. The "foreigners" in question are not consumers buying US exports, nor are they private-sector "investors" buying US stocks and bonds. The largest and most important foreign entities putting "their money" here are central banks, and it is not "their money" at all. They are sending back the dollars that foreign exporters and other recipients turn over to their central banks for domestic currency.

When the US payments deficit pumps dollars into foreign economies, these banks are being given little option except to buy US Treasury bills and bonds, which the Treasury spends on financing an enormous, hostile military build-up to encircle the major dollar-recyclers--China, Japan and Arab OPEC oil producers. Yet these governments are forced to recycle dollar inflows in a way that funds US military policies which they have no say in formulating, and which threaten them more and more belligerently. That is why China and Russia took the lead in forming the Shanghai...