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World Tired of Paying Bill for US Military
 The Real News Network
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December 27, 2010
Bio: Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971). ISLET engages in research regarding domestic and international finance, national income and balance-sheet accounting with regard to real estate, and the economic history of the ancient Near East. Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law.
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Transcript
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.
End of Transcript
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.
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