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Capital Deceit Part Two
Yesterday’s post summarised parts of my recent discussions with Steve Grumbine of Macro N Cheese podcast.
Today’s post concludes with the remainder of our conversation.
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Steve focused on a particular bête noir “Trained economists who make this profession absolutely a perversion talk about ‘well if you just print a bunch of money, it's going to devalue the dollar’. One of the challenges for me was to understand that spending was the birth of a Dollar and taxing was the death of a Dollar. It’s like a circuit. Steve Keen talks about circuit theory. Warren Mosler expressly states that the term revenue comes from the French word revenir, which makes the money coming back in perfectly legitimate to call it revenue. However, the purpose of that revenue is not a financing operation, it is simply the return to sender. But where did the sender get the money to begin with? The sender created it by spending it into existence I believe that skipping the money creation aspect of it leads people to believe that capital markets dominate and dictate. They do in practice, but they don't have to.”
Steve then related this to the idea of capital flight and emerging markets. Paul agreed, referencing his own experience:
“I arrived in Thailand in 1994 and therefore I got a ringside seat of the Asian financial crisis just a couple of years after I got here. I like to think that it wasn’t directly caused by me being here, but it is coincidental that it happened pretty quickly once I got here. A friend called Gerry Brady who publishes Boom Finance and Economics, a fantastic free financial newsletter, actually came up with one of the best explanations of emerging market currency weakness. Namely that if you have a soft currency and a hard currency in circulation alongside each other, then they're conditions leading to a run on the local currency because everybody will instinctively be drawn to wanting the readily convertible Dollar. If you've got the US Dollar circulating alongside the Peso, if you have a local economy that runs on two speeds, then Dollar primacy wins out for all sorts of practical reasons.”
Paul and Steve then discussed why such conditions exist - Why do you need the US Dollar circulating in Argentina or in Southeast Asia or anywhere else?
“The reality is you don't, except that's the economic and political construct that was dealt to emerging markets after World War II, when they were pretty much forced into a reliance on US Dollars. That creates the potential for capital flight because a currency pair doesn't just disappear into the ether. It must go somewhere, resulting in Thai Baht or Argentinian Peso or Turkish Lira or whichever EM currency is in question being converted en masse into hard currency. It's not because of local government mismanaging economies or currencies. We had the crisis here in 1997 because governments and corporations in the region had all been encouraged to borrow US Dollars. That level of borrowing in an alien currency becomes a threat to the local currency, ultimately resulting in currency flight to US Dollar, flight to safety. It's not necessarily a local factor at all, except having done what seemed to be the perfectly reasonable option that was offered in 1996, 1995, 1994 etc of being able to borrow in US dollars at an interest rate that the American system ensured was less than half of the interest rate charged in local markets, in local currencies.”
Paul and Steve agreed that undermining of local currencies in this way is a form of economic warfare, a stealth attack on local currencies by creating a level of debt in Dollar that ultimately becomes unserviceable and is reinforced by structural adjustments imposed by organisations like the IMF to ensure that countries aren’t able to fight Dollar hegemony. This led to a discussion of the BRICs and expanded BRICs groups as alternatives to and countervailing forces against the pressure of Dollar hegemony.
“Michael Hudson has this great phrase that debts that can't be repaid won't be repaid, but in this situation, they end up being repaid in another form;- the arrival in Southeast Asia in 1997 of the IMF with their IMF prescriptions. Their solution to having basically teased emerging markets into a Dollar addiction, was for emerging markets to bear the pain for that. The most powerful emerging markets saw all this and realised the value of their combined economic clout. One of the reasons the Dollar system so successfully imposed itself on emerging markets was the lack of collaborative bargaining, collaborative thinking between the markets. Each had its own totally unequal relationship with the west. The BRICs saw bigger emerging markets banding together to try to create an alternative pathway. Western hegemony has done pretty much everything it can to interrupt the progress of the BRICs. We see examples every day, such as the role that the West has played in trying to undermine the Turkish Lira. A chart of the South African Rand to the US Dollar over the last couple of months clearly shows the point at which American geopolitics expressed its dissatisfaction with South Africa for not following the Western prescription for how South Africa should conduct its relationships with other BRICs and particularly with Russia. Turkey has come through this, albeit with a much weaker currency. South Africa is coming through this, but suffering significant collateral damage. People lose jobs and businesses fail because western markets punish the Rand or the Lira for not following the geopolitical script that the west wants to be followed.”
Paul went on to suggest that western geopolitics in and around the Ukraine and in and around the South China Sea are attempts to prevent the diminution of western economic hegemony. – “I think we're seeing it move into a geopolitical and into a military sphere. I think that's terrifying. But it’s a logical reaction if you see it in western hegemonic terms.”
Steve quoted Thomas Sankara “under its current form that is imperialism-controlled debt is a cleverly managed reconquest of Africa aiming at subjugating its growth and development through foreign rules. Thus, each one of us becomes the financial slave, which is to say a true slave.”
Paul agreed - “Ask why western hegemonic lenders lend debts that they know can't be repaid and won't be repaid? It's because in 1997 it wasn't the western hegemonic lenders who lost out. This is a very clear way of maintaining control. You lend a debt, you increase the dependency, and then when the default happens, you send in your friends from the IMF to increase the dependency even further. It's a very clinical, possibly a cynical strategy. Not just maintaining influence, but increasing influence, increasing that inequality, that slavery between debtor and creditor.”
Steve also highlighted how this system relies on its enforcement arm, NATO - “It's very important to understand the role of the police in managing and maintaining order for capital to thrive. And this is the same role that NATO plays. Making sure renegade states toe the line so capital can do its thing.” Paul and Steve view so-called ‘Renegade states’ as entirely a media creation in the same way that criminal profiling outrightly or subliminally creates the misconception that certain racial or economic profiles are more likely to be criminals. “It goes back to what Chomsky said about the Declaration of Independence. Create a bad guy and then rip off your shirt and show that you've got a large S branded on your chest underneath so you can come and save the day.”
Societal order that clearly is manufactured wouldn't otherwise survive relies on what Chomsky calls ‘manufacturing consent’. We see this in people who maybe haven’t travelled very far from their own country or even their home state aggressively adopting Ukrainian branding on their public profiles, participating in carefully orchestrated virtue signalling. Hundreds of millions of people imagine that of their own volition they are standing up for freedom, because of the way that consent has been manufactured.
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Hopefully these discussions will help to demystify the complex dynamics between capital markets and society while probing the role of capital markets in power distribution and widening inequality and will encourage listeners to question narratives and broaden their understanding of the world around them. I’d encourage anyone interested in these topics to listen to the full episode, available at this link:
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