aaus-list @ ukrainianstudies.org -- [aaus-list] Ukraine's US lobby

[stephen velychenko <velychen@chass.utoronto.ca>]

I would very much like to see someone analyze what benefit a
neo-con/neo-lib lobby in the US can bring Ukraine given the disasters
they have wrought in the US and the rest of the world. Such policies
only feed Russian imperialism and make Ukrainians pro-Russian.


Appointment in Yekaterinburg
The Ending of America's Financial-Military Empire
By MICHAEL HUDSON

http://www.counterpunch.org/hudson06152009.html

The city of Yekaterinburg, Russia’s largest east of the Urals, may
become known not only as the end of the road for the tsars but of
American hegemony too; as the place not only where US U-2 pilot Gary
Powers was shot down in 1960, but where the US-centered international
financial order was brought to ground.

Challenging America is the prime focus of extended meetings in
Yekaterinburg, Russia (formerly Sverdlovsk) today and tomorrow (June
15-16) for Chinese President Hu Jintao, Russian President Dmitry
Medvedev and other top officials of the six-nation Shanghai
Cooperation Organization (SCO). The alliance is comprised of Russia,
China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with
observer status for Iran, India, Pakistan and Mongolia. It will be
joined on Tuesday by Brazil for trade discussions among the so-called
BRIC nations --Brazil, Russia, India and China.

The attendees have assured American diplomats that it is not their aim
to dismantle the financial and military empire of the United States.
They simply want to discuss mutual aid – but in a way that has no role
for the United States, for NATO or for the US dollar as a vehicle for
trade. US diplomats may well ask what this really means, if not a move
to make US hegemony obsolete. After all, that is what a multipolar
world means. For starters, in 2005 the SCO asked Washington to set a
timeline to withdraw from its military bases in Central Asia. Two
years later the SCO countries formally aligned themselves with the
former CIS republics belonging to the Collective Security Treaty
Organization (CSTO), established in 2002 as a counterweight to NATO.

Yet the Yekaterinburg meeting has elicited only a collective yawn from
the US and even European press despite its agenda -- nothing less than
the replacement of  the global dollar standard with a new financial
and military defense system. A Council on Foreign Relations spokesman
has said he hardly can imagine that Russia and China can overcome
their geopolitical rivalry, suggesting that America can use the
divide-and-conquer that Britain used so deftly for many centuries in
fragmenting foreign opposition to its own empire. But George W. Bush
(“I’m a uniter, not a divider”) built on the Clinton administration’s
legacy in driving Russia, China and their neighbors to find a common
ground when it comes to finding an alternative to the dollar and hence
to the US ability to run balance-of-payments deficits ad infinitum.

What may prove to be the last rites of American hegemony began already
in April at the G-20 conference, and became even more explicit at the
St. Petersburg International Economic Forum on June 5, when Mr.
Medvedev called for China, Russia and India to “build an increasingly
multipolar world order.” What this means in plain English is: We have
reached our limit in subsidizing the United States’ military
encirclement of Eurasia while also allowing the US to appropriate our
exports, companies, stocks and real estate in exchange for paper money
of questionable worth.

The artificially maintained unipolar system,” Mr. Medvedev spelled
out, is based on “one big center of consumption, financed by a growing
deficit, and thus growing debts, one formerly strong reserve currency,
and one dominant system of assessing assets and risks.” At the root of
the global financial crisis, he concluded, is the fact that the United
States makes too little and spends too much, particularly its vast
military outlays, such as the stepped-up US military aid to Georgia
announced just last week, the NATO missile shield in Eastern Europe
and the US buildup in the oil-rich Middle East and Central Asia.

The sticking point for all these countries is the ability of the
United States  to print unlimited amounts of dollars. Overspending by
U.S.  consumers on imports in excess of exports, U.S. buy-outs of
foreign companies and real estate, and the dollars that the Pentagon
spends abroad all end up in foreign central banks. These banks  then
face a hard choice: either to recycle these dollars back to the United
States by purchasing US Treasury bills, or to let the “free market”
force up their currency relative to the dollar – thereby pricing their
exports out of world markets and hence creating domestic unemployment
and business insolvency.

When China and other countries recycle their dollar inflows by buying
US Treasury bills to “invest” in the United States, this buildup is
not really voluntary. It does not reflect faith in the ability of the
U.S. economy to enrich foreign central banks for their savings. Nor
does it represent any calculated investment preference. It is  simply
a matter of a lack of alternatives. U.S.-style “free markets” hook
countries into a system that forces them to accept dollars without
limit. Now they want out.

This means creating a new alternative. Rather than making merely
“cosmetic changes as some countries and perhaps the international
financial organisations themselves might want,” said  Mr. Medvedev at
the end of  his St. Petersburg speech, “what we need are financial
institutions of a completely new type, where particular political
issues and motives, and particular countries will not dominate.”

When foreign military spending forced the US balance of payments into
deficit and drove the United States off gold in 1971, central banks
were left without the traditional asset used to settle payments
imbalances. The alternative was to invest their subsequent inflows of
US dollars  in US Treasury bonds, as if these still were “as good as
gold.” Central banks now hold $4 trillion of these bonds in their
international reserves. These loans have financed most of the US
Government’s domestic budget deficits for over three decades now!
Given the fact that about half of US Government discretionary spending
is for military operations – including more than 750 foreign military
bases and increasingly expensive operations in the oil-producing and
transporting countries – the international financial system is
organized in a way that finances the Pentagonand also US buyouts of
foreign assets expected to yield much more than the Treasury bonds
that foreign central banks hold.

The main political issue confronting the world’s central banks is
therefore how to avoid adding yet more dollars to their reserves and
thereby financing yet further US deficit spending – including military
spending on their borders.

For starters, the six SCO countries and BRIC countries intend to trade
in their own currencies so as to get the benefit of mutual credit that
the United States until now has monopolized for itself. Toward this
end, China has struck bilateral deals with Argentina and Brazil to
denominate their trade in renminbi rather than the dollar, sterling or
euros, and two weeks ago China reached an agreement with Malaysia to
denominate trade between the two countries in renminbi. Former Prime
Minister Tun Dr. Mahathir Mohamad explained to me in January that as a
Muslim country, Malaysia wants to avoid doing anything that would
facilitate US military action against Islamic countries, including
Palestine. The nation has too many dollar assets as it is, his
colleagues explained. Central bank governor Zhou Xiaochuan of the
People's Bank of China put  an official statement on the bank’s
website, explaining  that the goal is now to create a reserve currency
“that is disconnected from individual nations.” This is the aim of the
discussions in Yekaterinburg.

Aside from no longer financing the U.S. buyout of their own industries
 and the U.S. military encirclement of the globe, China, Russia and
other countries would no doubt like to enjoy the same kind of free
ride that America has been getting. As matters stand now, they see the
United States as a lawless nation, financially as well as militarily.
How else to characterize a nation that proclaims a set of laws for
others – on war, debt repayment and treatment of prisoners – but
flouts them itself? The United States is now the world’s largest
debtor yet has avoided the pain of “structural adjustments” imposed on
other debtor economies. U.S. interest-rate and tax reductions in the
face of exploding trade and budget deficits are seen as the height of
hypocrisy in view of the austerity programs that Washington forces on
other countries via the IMF and other Washington vehicles.

The United States tells debtor economies to sell off their public
utilities and natural resources, raise their interest rates and
increase taxes while gutting their social safety nets to squeeze out
money to pay creditors. And at home, Congress blocked, on grounds of
national security, China’s CNOOK from buying Unocal, much as it
blocked Dubai from buying US ports and blocked other sovereign wealth
funds from buying into key infrastructure. Foreigners are invited to
emulate the Japanese purchase of white elephant trophies such as
Rockefeller Center, on which investors quickly lost a billion dollars
and ended up walking away.

In this respect the US has given China and other payments-surplus
nations no alternative but to find a way to avoid further dollar
buildups. To  date, China’s attempts to diversify its dollar holdings
beyond Treasury bonds have not proved very successful. For starters,
Hank Paulson of Goldman Sachs steered its central bank into
higher-yielding Fannie Mae and Freddie Mac securities, explaining that
these were de facto public obligations. They collapsed in 2008, but at
least the U.S. Government took over these two mortgage-lending
agencies, formally adding their $5.2 trillion in obligations to the
national debt. In fact, it was largely foreign official investment
that prompted the bailout. Imposing a loss for foreign official
agencies would have broken the Treasury-bill standard then and there,
not only by utterly destroying US credibility but because there simply
are too few Government bonds to absorb the dollars being flooded into
the world economy by the soaring US balance-of-payments deficits.

in late 2007, seeking more of an equity position to protect the value
of their dollar holdings as the Federal Reserve’s credit bubble drove
interest rates down, China’s sovereign wealth funds sought to
diversify. China bought stakes in the well-connected Blackstone equity
fund and Morgan Stanley on Wall Street, Barclays in Britain,  South
Africa’s Standard Bank (once affiliated with Chase Manhattan back in
the apartheid 1960s) and in the soon-to-collapse Belgian financial
conglomerate Fortis. But the US financial sector was collapsing under
the weight of its debt pyramiding, and prices for shares plunged for
banks and investment firms across the globe.

Foreigners see the IMF, World Bank and World Trade Organization as
Washington surrogates in a financial system backed by American
military bases and aircraft carriers encircling the globe. But this
military domination is a vestige of an American empire no longer able
to rule by economic strength. US military power is muscle-bound, based
more on atomic weaponry and long-distance air strikes than on ground
operations, which have become too politically unpopular to mount on
any large scale.

On the economic front there is no foreseeable way in which the United
States can work off the $4 trillion it owes foreign governments, their
central banks and the sovereign wealth funds set up to dispose of the
global dollar glut. America has become a deadbeat –a militarily
aggressive one -- as it sruggles to hold onto the immense power it
once earned by economic means. The problem for the rest of the world
is how to constrain its behavior. Yu Yongding, a former Chinese
central bank advisor now with China’s Academy of Sciences, suggested
that US Treasury Secretary Tim Geithner be advised that the United
States should “save” first and foremost by cutting back its military
budget. “U.S. tax revenue,” he said, “is not likely to increase in the
short term because of low economic growth, inflexible expenditures and
the cost of ‘fighting two wars.’”

At present foreign savings are what finance the US budget deficit by
buying most Treasury bonds. The consequence is taxation without
representation for foreign voters as to how the US Government uses
their forced savings. It therefore is necessary for the financial
diplomats to broaden the scope of their policy-making beyond the
private-sector marketplace. Exchange rates are determined by many
factors besides “consumers wielding credit cards,” the usual euphemism
that the US media cite for America’s balance-of-payments deficit.
Since the 13th century, war has been a dominating factor in the
balance of payments of leading nations – and of their national debts.
Government bond financing consists mainly of war debts, as normal
peacetime budgets tend to be balanced. This links the war budget
directly to the balance of payments and exchange rates.

Foreign nations see themselves stuck with unpayable IOUs under
conditions where, if they move to stop the US free lunch, the dollar
will plunge and their dollar holdings will fall in value relative to
their own domestic currencies and other currencies. If China’s
currency rises by 10 per cent  against the dollar, its central bank
will show the equivalent of a $200 million loss on its $2 trillion of
dollar holdings as denominated in yuan. This explains why, when bond
ratings agencies talk of the US Treasury securities losing their AAA
rating, they don’t mean that the government cannot simply print the
paper dollars to “make good” on these bonds. They mean that dollars
will depreciate in international value. And that is just what is now
occurring. When U.S. Treasury Secretary Geithner assumed an earnest
mien and told an audience at Peking University in early June that he
believed in a “strong dollar” and China’s US investments therefore
were safe and sound, he was greeted with derisive laughter.

Anticipation of a rise in China’s exchange rate provides an incentive
for speculators to seek to borrow in dollars to buy renminbi and
benefit from the appreciation. For China, the problem is that this
speculative inflow would become a self-fulfilling prophecy by forcing
up its currency. So the problem of international reserves is
inherently linked to that of capital controls. Why should China see
its profitable companies sold for yet more freely-created US dollars,
which the central bank must use to buy low-yielding US Treasury bills
or lose yet further money on Wall Street?

To steer round this quandary it is necessary to reverse the philosophy
of open capital markets that the world has held ever since Bretton
Woods in 1944. On the occasion of Mr. Geithner’s visit to China, Zhou
Xiaochuan, minister of the Peoples Bank of China, the country’s
central bank, said pointedly that this was the first time since the
semiannual talks began in 2006 that “China needed to learn from
American mistakes as well as its successes” when it came to
deregulating capital markets and dismantling controls.

So an era is winding to its end. In the face of continued US
overspending, de-dollarization threatens to force countries to return
to the kind of dual exchange rates common between World Wars I and II:
one exchange rate for commodity trade, another for capital movements
and investments, at least from dollar-area economies.

Even without capital controls, the nations meeting at Yekaterinburg
are taking steps to avoid being the unwilling recipients of yet more
dollars. Seeing that U.S. global hegemony cannot continue without the
spending power that they themselves supply, governments are attempting
to hasten what Chalmers Johnson has called “the sorrows of empire” in
his book by that name – the bankruptcy of the US financial-military
world order. If China, Russia and their non-aligned allies have their
way, the United States will no longer live off the savings of others
in the form of its own recycled dollars, nor have the money for
unlimited military expenditures and adventures.

US officials wanted to attend the Yekaterinburg meeting as observers.
They were told No. It is a word that Americans will hear much more in
the future.

--
Stephen Velychenko
CERES Associate;
Research Fellow,Chair of Ukrainian Studies;
Munk Center
University of Toronto
Devonshire Place
Toronto M5S 3K7



-- 
Stephen Velychenko
CERES Associate;
Research Fellow,Chair of Ukrainian Studies;
Munk Center
University of Toronto
Devonshire Place
Toronto M5S 3K7