by From Radhika Desai and Michael Hudson As a new Cold War against China began, it was clear that the pandemic was altering the international balance of power fundamentally. For former US Treasury Secretary, Lawrence Summers, it was likely a “hinge of history”: “[i]f the 21st century turns out to be an Asian century as the 20th was an American one, the pandemic may well be remembered as the turning point”. It would erase 9/11 and 2008 from memory and rank alongside “the 1914 assassination of the Archduke, the 1929 stock market crash, or the 1938 Munich Conference” (Summers, 2020). However, Professor Summers misses the point. The twentieth century actually was more an attempted American Century than an accomplished one (Desai, 2013) and the shift away from it is looking more certain and
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from Radhika Desai and Michael Hudson
As a new Cold War against China began, it was clear that the pandemic was altering the international balance of power fundamentally. For former US Treasury Secretary, Lawrence Summers, it was likely a “hinge of history”: “[i]f the 21st century turns out to be an Asian century as the 20th was an American one, the pandemic may well be remembered as the turning point”. It would erase 9/11 and 2008 from memory and rank alongside “the 1914 assassination of the Archduke, the 1929 stock market crash, or the 1938 Munich Conference” (Summers, 2020).
However, Professor Summers misses the point. The twentieth century actually was more an attempted American Century than an accomplished one (Desai, 2013) and the shift away from it is looking more certain and decisive than the “ifs” in his assessment let on. The pandemic is less a hinge than an acceleration of the decline of US power based on financialised neoliberal capitalism (Desai, 2020a). The structure of world domination that the US had sought to foist on the world in recent decades is breaking down. The US never succeeded; the structure was too unstable and volatile to work. Therefore, one cannot blame the pandemic for reversing even its limited successes. The reversal is rooted in a geopolitical economic earthquake whose rumblings date back decades. They have loosened more and more countries from the contradictory and crisis-prone structures of US domination.
The core of all international power structures of the capitalist “mode of foreign relations” (Van der Pijl 2014) lies in the international monetary system – what James Steuart called “the money of the world” in 1767, referring to the means by which countries settle their trade or financial imbalances among one another. The domination the US sought to exert was no different. At its heart lay the dollar-denominated international financial system that we call the Dollar Creditocracy. It has undergirded the dollar’s world role since the early 1970s and its unravelling leads to the denouement of US power.
The financial commentariat is already expressing foreboding of the dollar’s coming doom. “The decline of the US dollar could happen at ‘warp speed’”, warns Market Watch, while Reuters reports more sedately on how “King dollar’s decline ripples across the globe”. While set-tos between dollar boosters and gloomsters have long been a feature of the crises that have regularly punctuated the dollar system, what was remarkable is how many are changing sides. Benjamin Cohen (2020) warned of the end of the dollar’s “exorbitant privilege” and Stephen Roach (2020) warned of a 35 percent drop in the dollar index over the coming two to three years. Although some boosters such as Barry Eichengreen (2020) stuck to their guns, they were clearly low on ammunition, unable to find solace in anything other than lack of alternatives.
Such commentators sense that doom lies ahead. However, they are far from explaining why. Cohen blamed it on Trump’s disastrous pandemic management, added to his tendency to weaponise the dollar, and Roach blames it on increased US borrowing. However, these explanations, like most commentary on the dollar’s world role, is tangled in that combination of wishful thinking and wager that one of us identified as the international financial intermediation hypothesis (IFIH) (Hudson, [1972]2003). It emerged from the difficulties that ended the dollar’s link to gold in 1971 to conjure up a new basis for the dollar’s world role. By making the so-very-clever argument that the US was no ordinary indebted country but the world’s banker and that its deficits were loans to the world, a public service the world should accept gratefully by lifting capital control and deregulating finance. This attempt to normalise the transformation of the US economy from super creditor to super debtor was never more than a barely adequate fig-leaf.
In this article, we cut through this understanding, which, despite its faults, dominates our understanding of the dollar system. We wish to replace it with one that accords with the historical record, a geopolitical economy of international monetary system of modern capitalism. Read more : Beyond dollar creditocracy: A geopolitical economy