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 The
United States is the world's most privileged nation for having
the monopoly privilege of printing the world's reserve currency
at will and at a cost of nothing but the paper and ink it is
printed on. Moreover, by doing so, Uncle Sam can export abroad
the inflation he generates by the extra dollars he prints, of
which there are already at least three times as many floating
around the world as at Uncle Sam's home. Additionally, his is
also the only country whose "foreign" debt is mostly denominated
in his own world-currency dollars that he can print at will;
while most foreigners' debt is also denominated in the same
dollar, but they have to buy it from Uncle Sam with their own
currency and real goods. So he simply pays the Chinese and
others in essence with these dollars that already to begin with
have no real worth beyond their paper and ink. So especially
poor China gives away for nothing at all to rich Uncle Sam
hundreds of billions of dollars' worth of real goods produced at
home and consumed by Uncle Sam. Then China turns around and
trades these same paper dollar bills in for more of Uncle Sam's
paper called Treasury Certificate bonds, which are even more
worthless, except that they pay a percent of interest. For as we
already noted, they will never be able to be cashed in and
redeemed in full or even in part, and anyway have the lost much
of their value to Uncle Sam already. In an earlier essay, I argued that Uncle Sam's power rests on two pillars only, the paper dollar and the Pentagon. Each supports the other, but the vulnerability of each is also an Achilles' heel that threatens the viability of the other. Since then, Iraq, not to mention Afghanistan, has shown confidence in the Pentagon not to be what it was cracked up to be; and with the in-part-consequent decline in the dollar, so has confidence in it and Uncle Sam's ability to use it to finance his Pentagon's foreign adventures (See Coup d'Etat and Paper Tiger in Washington, Fiery Dragon in the Pacific , which also conjures up the productive growth of China). Additionally we must realize that Uncle Sam's numbers above and below are also all literally relative. So far relations with other countries, in particular with China, still favor Uncle Sam, but they also help maintain an image that is deceptive. Consider the following: |
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Uncle
Sam has reneged and defaulted on up to 40% of its
trillion-dollar foreign debt, and nobody has said a word except
for a line in The Economist. In plain English that means Uncle
Sam runs a worldwide confidence racket with his self-made dollar
based on the confidence that he has elicited and received from
others around the world, and he is a also a deadbeat in that he
does not honor and return the money he has received. A toy leaving a US-owned factory in China is a shipment arriving
at San Diego . By the time a US consumer buys it for at
Wal-Mart, the US economy registers in final sales, less import
cost, for a addition to the US GDP. ( Blaming 'undervalued' yuan
wins votes, Asia Times Online, February 26, 2004) . Moreover, ever-clever Uncle Sam has arranged matters so as to earn 9% from his economic and financial holdings abroad, while foreigners earn only 3% on theirs, and among them on their Treasury Certificates only 1% real return. Note that this difference of 6 percentage points is already double what Uncle Sam pays out, and his total 9% take is triple the 3% he gives back. Therefore, although foreign holdings and Uncle Sam's are now about equal, Uncle Sam is still the big net interested winner, just like any Shylock, but no other ever did so grand a business.
But Uncle Sam also earns quite well, thank you, from other holdings abroad, eg from service payments by mostly poor foreign debtors. The sums involved are not peanuts or even small potatoes. For from his direct investments in foreign property alone, Uncle Sam's profits now equal 50%, and including his receipts from other holdings abroad now are a full 100% of profits derived from all of his own domestic activities combined. These foreign receipts add more than 4% to Uncle Sam's national domestic product. That helps nicely to compensate for the failure of domestic profits as yet to recover even their 1972 level, because Uncle Sam has failed to boost productivity sufficiently at home.
The productivity hype of president Bill Clinton's "new economy" in the 1990s was limited to computers and information technology (IT), and even that proved to be a sham when the dot-com bubble burst. Also, not only the apparent increase in "profits" but also that of "productivity" were, at the bottom, on the backs of shop-floor, office and sales-floor workers working harder and longer hours and, at the top, the result of innovative accounting shams by Enron and the like. Such factors still compensate for and permit much of Uncle Sam's 0-billion-and-still-rising trade deficit from excess home consumption over what he himself produces. That is what has resulted in the multitrillion-dollar debt. Exactly how large that debt is Uncle Sam is reluctant to reveal, but what is sure is that it is by far the world's largest, even as net debt to foreigners, after their debt to him is deducted.
How has all this come about?
The simple answer is that Uncle Sam, who is increasingly hooked on consumption, not to mention harder drugs, saves no more than 0.2% of his own income. The Federal Reserve's guru and now you see it, now you don't doctor of magic, Alan Greenspan, recently observed that this is so because the richest 20% of Americans, who are the only ones who do save, have reduced their savings to 2%. Yet even these measly savings (other, poorer countries save and even invest 20%, 30%, even 40% of their income) are more than counterbalanced by the 6% deficit spending of the government. That is what brings the average saving rate to 0.2%. To maintain that 0-plus-billion budget deficit (more than 3% of national domestic product), which is really more the 0 billion if we count, as we should, the more than 0 billion Uncle Sam "borrows" from the temporary surplus in his own Federal Social Security fund, which he is also bankrupting. (But never mind, President George W Bush just promised to privatize much of that and let people buy their own old-age "security" in the ever-insecure market).
So with this 0-billion-plus budget deficit and the above-mentioned related 0-billion-plus deficit, rich Uncle Sam, and primarily his highest earners and biggest consumers, as well as of course the Big Uncle himself, live off the fat of the rest of the world's land. Uncle Sam absorbs the savings of others who themselves are often much poorer, particularly when their central banks put many of their reserves in world-currency dollars and hence into the hands of Uncle Sam in Washington, and some also in dollars at home. Their private investors send dollars to or buy dollar assets on Wall Street, all with the confidence that they are putting their wherewithal in the world's safest haven (and that, of course, is part of the above-mentioned confidence racket). From the central banks alone, we are looking at yearly sums of more than 0 billion from Europe, more than 0 billion from poor China, 0 billion from super-saver Japan, and many 10s of billions from many others around the globe, including the Third World. But in addition, Uncle Sam obliges them, through the good offices of their own states, to send their thus literally forced savings to Uncle Sam as well in the form of their "service" of their predominantly dollar debt to him.
His treasury secretary and his International Monetary Fund (IMF) handmaiden blithely continue to strut around the world insisting that the Third - and ex-Second, now also Third - World of course continue to service their foreign debts, especially to him. No matter that with interest rates multiplied several times over by Uncle Sam himself after the Fed's Paul Volcker's coup in October 1979, most have already paid off their original borrowings three to five times over. For to pay at all at interest rates that Volcker boosted to 20%, they had to borrow still more at still higher rates until thereby their outstanding foreign debt doubled and tripled, not to mention their domestic debt from which part of the foreign payments were raised, particularly in Brazil. Privatization is the name of the game there and elsewhere, except for the debt. The debt was socialized after it had been incurred mostly by private business, but only the state had enough power to squeeze the greatest bulk of back payments out of the hides of its poor and middle-class people and transfer them as "invisible service payments" to Uncle Sam.
When Mexicans were told to tighten their belts still further, they answered that they couldn't because they had already had to eat their belts. Only Argentina and for a while Russia declared an effective moratorium on debt "service", and that only after political economic policies had destroyed their societies, thanks to Uncle Sam's advisers and his IMF strong arm. Since then, Uncle Sam himself has been blithely defaulting on his own foreign debt, as he already had several times before in the 19th century.
Speaking of that, it may be well to recall at least two pieces of advice from that time: Lord Cromer, who administered Egypt for then-dominant British imperial interests, said his most important instrument for doing so was Egypt's debts to Britain. These had just multiplied when Egypt was obliged to sell its Suez Canal shares to Britain in order to pay off earlier debts and British prime minister Benjamin Disraeli explained and justified his purchase of the same on the grounds that it would strengthen British imperial interests. Today, that is called "debt-for-equity swaps", which is one of Uncle Sam's latter-day favorite policies to use the debt to acquire profitable and/or strategically important real resources, as of course also was the canal as the way to the jewel of the British Empire, India.
Another piece of practical advice came from the premier military strategist Carl von Clausewitz: make the lands you conquer pay for their own conquest and administration. That is of course exactly what Britain did in and with India through the infamous "Home Charges" remitted to London in payment for Britain administering India, which even the British themselves recognized as "tribute" and responsible for much of "The Drain" from India to Britain. How much more efficient yet to let foreign countries' own states administer themselves but by rules set and imposed by Uncle Sam's IMF and then effect a drain of debt service anyway. Actually, the British therein also set the 19th-century precedent of relying on the "imperialism of free trade" with "independent" states as far and as long as possible, using gunboat diplomacy to make it work (which Uncle Sam had already learned to copy by early in the 20th century); and if that was not enough, simply to invade, and if necessary to occupy - and then rely on the Clausewitz rule.
We shall note several recent instances thereof, and especially the Iraqi one, in the second article in this series. After I wrote the above, I received by e-mail an excerpt from the Democracy Now! website, titled Confessions of an economic hit man: How the US uses globalization to cheat poor countries out of trillions
We speak with John Perkins, a former respected member of the international banking community. In his book Confessions of an Economic Hit Man he describes how as a highly paid professional, he helped the US cheat poor countries around the globe out of trillions of dollars by lending them more money than they could possibly repay and then take over their economies ...
John Perkins: Basically what we were trained to do and what our job is to do is to build up the American empire. To bring - to create situations where as many resources as possible flow into this country, to our corporations, and our government, and in fact we've been very successful. We've built the largest empire in the history of the world ... primarily through economic manipulation, through cheating, through fraud, through seducing people into our way of life, through the economic hit men. I was very much a part of that ... I was initially recruited while I was in business school back in the late '60s by the National Security Agency, the nation's largest and least understood spy organization ... and then [it] send[s] us to work for private consulting companies, engineering firms, construction companies, so that if we were caught, there would be no connection with the government ...
I became its chief economist. I ended up having 50 people working for me. But my real job was deal-making. It was giving loans to other countries, huge loans, much bigger than they could possibly repay. One of the conditions of the loan - let's say a billion to a country like Indonesia or Ecuador - and this country would then have to give 90% of that loan back to a US company, or US companies ... a Halliburton or a Bechtel ... A country today like Ecuador owes over 50% of its national budget just to pay down its debt. And it really can't do it. So we literally have them over a barrel. So when we want more oil, we go to Ecuador and say, "Look, you're not able to repay your debts, therefore give your oil companies your Amazon rain [forests], which are filled with oil." And today we're going in and destroying Amazonian rain forests, forcing Ecuador to give them to us because they've accumulated all this debt ... [We work] very, very closely with the World Bank. The World Bank provides most of the money that's used by economic hit men, it and the IMF.
Last but not least, oil producers also put their savings in Uncle Sam. With the "shock" of oil that restored its real price after the dollar valuation had fallen in 1973, ever-cleverer-by-half Henry Kissinger made a deal with the world's largest oil exporter, Saudi Arabia, that it would continue to price oil in dollars, and these earnings would be deposited with Uncle Sam and partly compensated by military hardware. That deal de facto extended to all of the Organization of Petroleum Exporting Countries (OPEC) and still stands, except that before the war against Iraq that country suddenly opted out by switching to pricing its oil in euros, and Iran threatened do the same. North Korea, the third member of the "axis of evil", has no oil but trades entirely in euros. (Venezuela is a major oil supplier to Uncle Sam and also supplies some at preferential rates as non-dollar trade swaps to poor countries such as Cuba. So Uncle Sam sponsored and financed military commandos from its Plan Colombia next door, promoted an illegal coup and, when that failed, pushed a referendum in his attempt at yet another "regime change"; and now along with Brazil all three are being baptized as yet another "axis of evil").
After writing this, I found that the good (hit) man Mr Perkins was in Saudi Arabia too:
Yes, it was a fascinating time. I remember well ... the Treasury Department hired me and a few other economic hit men. We went to Saudi Arabia ... And we worked out this deal whereby the Royal House of Saud agreed to send most of their petrodollars back to the United States and invest them in US government securities. The Treasury Department would use the interest from these securities to hire US companies to build Saudi Arabia - new cities, new infrastructure - which we've done. And the House of Saud would agree to maintain the price of oil within acceptable limits to us, which they've done all of these years, and we would agree to keep the House of Saud in power as long as they did this, which we've done, which is one of the reasons we went to war with Iraq in the first place. And in Iraq we tried to implement the same policy that was so successful in Saudi Arabia, but Saddam Hussein didn't buy. When the economic hit men fail in this scenario, the next step is what we call the jackals. Jackals are CIA-sanctioned people that come in and try to foment a coup or revolution. If that doesn't work, they perform assassinations. Or try to. In the case of Iraq, they weren't able to get through to Saddam Hussein. He had - his bodyguards were too good. He had doubles. They couldn't get through to him. So the third line of defense, if the economic hit men and the jackals fail, the next line of defense is our young men and women, who are sent in to die and kill, which is what we've obviously done in Iraq.
To return to the main issue and call a spade a huge spade, all of the above is part and parcel of the world's biggest-ever Ponzi-scheme confidence racket. Like all others, its most essential characteristic is that it can only continue to pay off dollars and be maintained at the top as long as it continues to receive new dollars at the bottom, voluntarily through confidence if possible and by force if not. (Of course, the Clausewitz and Cromer formulas result in the poorest paying the most, since they are also the most defenseless: so that the ones sitting on/above them pass much of the cost and pain down to them.)
What if confidence in the dollar runs out?
Things are already getting shakier in the House of Uncle Sam. The declining dollar reduces the necessary dollar inflows, so Greenspan needs to raise interest rates to maintain some attraction for the foreign dollars he needs to fill the trade gap. As a quid pro quo for being reappointed by President George W Bush, he promised to do that only after the election. That time has now arrived, but doing so threatens to collapse the housing bubble that was built on low interest and mortgage - and remortgage - rates.
But it is in their house values that most Americans have their savings, if they have any at all. They and this imaginary wealth effect supported over-consumption and the nearly as-high-as-GDP household debt, and a collapse of the housing price bubble with increased interest and mortgage rates would not only drastically undercut house prices, it would thereby have a domino effect on their owners' enormous second and third remortgages and credit-card and other debt, their consumption, corporate debt and profit, and investment. In fact, these factors would be enough to plummet Uncle Sam into a deep recession, if not depression, and another Big Bear deflation on stock and de facto on other prices, rendering debt service even more onerous. (If the dollar declines, even domestic price inflation is de facto deflationary against other currencies, which Russians and Latin Americans discovered to their peril, and which we observe below.)
Still lower real US investment would reduce its industrial productivity and competitiveness even more - probably to a degree lower than can compensated for by further devaluing the dollar and making US exports cheaper, as is the confident hope of many, probably including the good Doctor. Until now, the apparent inflation of prices abroad in rubles and pesos and their consequent devaluations have been a de facto deflation in terms of the dollar world currency. Uncle Sam then printed dollars to buy up at bargain-basement fire-sale prices natural resources in Russia (whose economy was then run on 0 bills), and companies and even banks, as in South Korea. True, now Greenspan and Uncle Sam are trying again to get other central banks to raise their own interest rates and otherwise plunge their own people into even deeper depression.
But even if he can, thereby also canceling out the relative attractiveness of his own interest-rate hike, how could that save Uncle Sam? What remains the great unknown and perhaps still unknowable is how a more wounded, Ponzi-less Uncle Sam would react with more "Patriotic" acts at home and abroad with the weapons - including the now almost ready "small" nukes - he would still have, even if his foreign victims no longer paid for new ones. So, to compensate for less bread and civil rights at home, an even more patriotic, nay chauvinist, circus at the cost of others abroad is the real danger of the current policies to "defend freedom and civilization".
So, far beyond Osama bin Laden, al-Qaeda and all the terrorists put together, the greatest real-world threat to Uncle Sam is that the inflow of dollars dries up. For instance, foreign central banks and private investors (it is said that "overseas Chinese" have a tidy trillion dollars) could any day decide to place more of their money elsewhere than in the declining dollar and abandon poor ol' Uncle Sam to his destiny. China could double its per capita income very quickly if it made real investments at home instead of financial ones with Uncle Sam. Central banks, European and others, can now put their reserves in (rising!) euros or even soon-to-be-revalued Chinese yuan. Not so far down the road, there may be an East Asian currency, eg a basket first of ASEAN + 3 ( China, Japan, South Korea) - and then + 4 (India). While India's total exports in the past five years rose by 73%, those to the Association of Southeast Asian Nations (ASEAN) rose at double that rate and sixfold to China. India has become an ASEAN summit partner, and its ambitions stretch still further to an economic zone stretching from India to Japan. Not for nothing, in the 1997 East Asian currency and then full economic crisis, Uncle Sam strong-armed Japan not to start a proposed East Asian currency fund that would have prevented at least the worst of the crisis. Uncle Sam then benefited from it by buying devalued East Asian currencies and using them to buy up East Asian real resources, and in South Korea also banks, at bargain-basement reduced-price fire sales. But now, China is already taking steps toward such an arrangement, only on a much grander financial and now also economic scale.
A day after writing the above, I read in The Economist (December 11-17, 2004) a report on the previous week's summit meeting of ASEAN + 3 in Malaysia. That country's prime minister announced that this summit should lay the groundwork for an East Asian Community (EAC) that "should build a free-trade area, cooperate on finance, and sign a security pact ... that would transform East Asia into a cohesive economic block ... In fact, some of these schemes are already in motion ... China, as the region's pre-eminent economic and military power, will doubtless dominate ... and host the second East Asia Summit." The report went on to recall that in 1990, Uncle Sam shot down a similar initiative for fear of losing influence in the region. Now it is a case of "Yankee Stay Home".
Or what if, long before that comes to pass, exporters of oil simply cease to price it in ever-devaluing dollars, and instead make a mint by switching to the rising euro and/or a basket of East Asian currencies? That would at one stroke vastly diminish the world demand for and price of dollars by obliging anyone who wants to buy oil to purchase and increase the demand price of the euro or yen/yuan instead of the dollar. That would crash the dollar and tumble Uncle Sam in one fell swoop, as foreign - and even domestic - owners of dollars would sell off as many of them as fast as they could, and other countries' central banks would switch their reserves out of dollars and away from Uncle Sam's no-longer-safe haven. That would drive the dollar down even more, and of course halt any more dollar inflow to Uncle Sam from the foreigners who have been financing his consumption spree. Since selling oil for falling dollars instead of rising euros is evidently bad business, the world's largest oil exporters in Russia and OPEC have been considering doing just that. In the meantime, they have only raised the dollar price of oil, so that in euro terms it has remained approximately stable since 2000. So far, many oil exporters and others still place their increased amount of dollars with Uncle Sam, even though he now offers an ever less attractive and less safe haven, but Russia is now buying more euros with some of its dollars.
So also many countries' central banks have begun to put ever more of their reserves into the euro and currencies other than Uncle Sam's dollar. Now even the Central Bank of China, the greatest friend of Uncle Sam in need, has begun to buy some euros. China itself has also begun to use some of its dollars - as long as they are still accepted by them - to buy real goods from other Asians and thousands of tons of iron ore and steel from Brazil, etc. (Brazil's president recently took a huge business delegation to China, and a Chinese one just went to Argentina. They are going after South African minerals too.)
So what will happen to the rich on top of Uncle Sam's Ponzi scheme when the confidence of poorer central banks and oil exporters in the middle runs out, and the more destitute around the world, confident or not, can no longer make their in-payments at the bottom? The Uncle Sam Ponzi Scheme Confidence Racket would - or will? - come crashing down, like all other such schemes before, only this time with a worldwide bang. It would cut the present US consumer demand down to realistic size and hurt many exporters and producers elsewhere in the world. In fact, it may involve a wholesale fundamental reorganization of the world political economy now run by Uncle Sam.
The center of the doughnut
All Ponzi schemes build a financial pyramid. Many who pay into them also live in a financial world themselves, but others need to derive their in-payment through earnings from production in the real world. In today's world of financial transactions that every day are a hundredfold more than all payments for real goods and services put together, the financial ones put the real ones into the shadow behind their brilliance.
Moreover, to oversimplify a very complex matter into more intelligible layperson's language, options, derivatives, swaps and other recent financial instruments have been ever much further compounding already compounded interest on the real properties in which their stake and debts are based, which has contributed to the spectacular growth of this financial world. Nonetheless, the financial pyramid that we see in all its splendor and brilliance, especially in its center at Uncle Sam's home, still sits on top of a real-world producer-merchant-consumer base, even if the financial one also provides credit for these real-world transactions.
Now, what if we look at the world as a doughnut, analogous to so many cities in the US rust belt. The center is derelict and hollowed out as production and consumption have moved to the surrounding suburbs (in automobile capital Detroit, the windows of the principal department store Hudson's have been boarded up for years, even as the city has built an expensive "Renaissance Center" to re-gentrify the center, a process that has "succeeded" in some other cities). General Motors' derelict Flint, Michigan, gave us Michael Moore, who featured it in Roger and Me (a reference to GM chief executive officer Roger Smith). We might look at the entire world in doughnut terms, with the whole of Uncle Sam in the empty hole in the middle that produces almost nothing it can sell abroad. The main exceptions are agricultural goods and military hardware that are heavily subsidized by the US government from its taxpayers and its dollar-printing press, and even so Uncle Sam runs a US0-billion-plus budget deficit.
Should the dollar crash ...
The big difference in this US doughnut is that both the budget deficit and the 0-billion-plus trade deficit are financed by foreigners, as we have seen. Uncle Sam would exclude most of them as persons, but gladly receives the real goods they produce. As world consumer of last resort, as already suggested, Uncle Sam performs this important function in the present global political economic division of labor: everybody else produces and needs to export, and Uncle Sam consumes and needs to import. The crash of the dollar would (will?) crumble this entire world-embracing and -organizing political economic doughnut and throw hundreds of millions of people, not to mention zillions of dollars and their owners, into turmoil, with unforeseen and perhaps unforeseeable consequences.
Many people, high and low on the world totem pole, have a big stake in avoiding that, even if it requires continuing to blow an empty Uncle Sam up like a balloon. Or to refer to a well-know metaphor, to continue to pretend that the emperor with no clothes is dressed up. That still includes China, for which a financial showdown with Uncle Sam would be a blessing in disguise: it would oblige China to change its political economic course, and instead of giving its goods away for free to Uncle Sam, to turn production and consumption inward to its poor interior and outward to its neighbors in East Asia, all of which it could and should be doing already. (The latter China has recently begun to do, but not yet the former.)
Of course, crashing the dollar would finally also in one fell swoop wipe out, that is default, Uncle Sam's debt altogether. Thereby, it would simultaneously also make all foreigners and rich Americans lose the whole of their dollar-asset shirt, of which they are still desperately trying to save as much as possible by not so doing. In fact, this historically necessary transition out from under the US-run doughnut world could bring the entire world into the deepest depression ever - and in all of them the poorest suffer the most. Only East Asia could save itself with greatest ease, but also after paying a high cost for this transition - toward itself! Thus, the Uncle Sam Ponzi Scheme poses the world's biggest and craziest Catch-22 since MAD (mutually assured destruction).
However, even this would not be historically new. Recall how much the transition to Uncle Sam cost: another 30 Years' War from 1914 to 1945 with the intervening second Great Depression in a century that cost 100 million lives lost to war, more than in all of previous world history, not to mention the millions who suffered and died from unnecessary starvation and disease. Or the previous transition to Britain cost the Napoleonic Wars, the Great Depression of 1873-95, colonialism and semi-colonialism, to name a few, and their human costs, especially combined with the most pronounced El Nino climatic changes in two centuries, which ravaged Indians, Chinese and many others with famines. But these were in turn magnified by the imperial colonial powers and used in their own interests, eg increased export of wheat from India especially during years of famine.
The parallels with today, including even again taking advantage a century later of renewed stronger El Ninos, are too horrifying and guilt-generating for hardly anybody to make with Uncle Sam's International Monetary Fund-imposed "structural adjustment" that obliges Mexican peasants to have already eaten the belt that the IMF wants them to tighten still further. And that is not to mention 3 million dead in Rwanda and Burundi, and then some in neighboring Congo, first after IMF-imposed strictures and the cancellation primarily by Uncle Sam of the Coffee Agreement that had sustained its price for these producers. And then we get the scramble for and production and sale there of gold for Uncle Sam's Fort Knox, titanium so we can communicate by mobile telephone, diamonds forever, and so on.
Yet there are also others in the world who do not (yet) feel all caught in this trap. Just before the 2004 US election, one of them said so out loud in a video broadcast to the world. It seems to have been least publicly noted by its principal addressee, Uncle Sam, who should have been the most interested party, for it was none other than Osama bin Laden himself who announced that he was "going to bankrupt the Uncle Sam". In view of Uncle Sam's deliberate blindness to the shakiness of his real-world foundation abroad, so massive a collapse may not be more difficult to arrange than it was to topple its Twin Towers symbol.
How Uncle Sam spends your dollars
Meanwhile, back at the ranch, as the saying goes in Texas, what does Uncle Sam himself blithely do with the world's hard-earned savings and money? His consumers still over-consume it without 99.9% of them knowing what they are doing, since hardly anyone tells them. And Uncle Sam's government uses much if not all of its increased hundreds of billions of dollars for the Pentagon. It does not, however, spend it to pay its poor professional soldiers, who come mostly from small-town rural America and took the only job they could get, and even less to its hapless reservists. No, better increasingly to privatize war in Iraq as well as at home. The military-industrial complex against which General Dwight Eisenhower warned in his 1958 parting presidential address is alive and kicking, more than ever under the stewardship of Vice President Richard Cheney and Defense Secretary Donald Rumsfeld (with their jobs disastrously well done, both are being kept on for a second term. So is Douglas Feith, with Paul "Wolfowitz of Arabia" one of the duo at the Pentagon who went to Israel and who the commander of the Iraq invasion, Tommy Franks, has been quoted as calling "the greatest total idiot that there is on God's Earth, with whom I have to battle almost every day").
Between 1994 and mid-2003, Uncle Sam's Pentagon made more than 3,000 contracts valued at more than 0 billion with 12 US private military companies (PMCs) out of the 35 estimated by the New York Times, others of which are small and offer mercenary services. But more than 2,700 of those contracts were given to only two companies: Kellogg Brown & Root (KBR), a subsidiary of Cheney-connected Halliburton, and Booz Allen Hamilton, according to the Center for Public Integrity's International Consortium of Investigative Journalists. In Iraq these PMCs now have as many mercenaries as US and UK troops combined. But of course that is still "small" potatoes, since the bulk of Pentagon money is used to buy expensive weapons systems from only four major US "defense" contractors and the likes of Halliburton.
Uncle Sam then uses these arms unilaterally to twist others' arms by blackmail, to lord it over and invade the world that provided the money in the first place. After all, Uncle Sam has to do what it must to keep it coming. US unilateralism is not so much, as often mistakenly supposed, just going it alone. Yes, it is to proclaim fighting for "freedom" (whose, we may ask?) and "saving civilization", as President George W Bush and his even more eloquent British mouthpiece Tony Blair proclaim every day. The simplest way to "save" civilization was by simply abolishing in a day its most precious gift of the whole body of international law to keep the peace, which the West had taken centuries to develop, admittedly also in its own imperial interests. Still, it was the best and only international law we had, and at the very least better than nothing at all. Now the only "Law of the West" that remains is indeed "the law of the west": The spaghetti-western vigilante law of posses that, with or without a conniving judge, take the "law" into their own hands to form a lynch party and go after whomever and where and when they please, alas now on a much grander scale than any spaghetti western ever imagined.
That also means disemboweling and paralyzing the institution of the United Nations that was established to guard the peace, except when Uncle Sam after its own wars always recycles the UN to pick up the pieces he shattered in Yugoslavia, Afghanistan and now Iraq. But in so doing, it also means to dupe, threaten, cajole and blackmail all others - friends and foes alike - to do his bidding on every issue, big and small. He has trained a whole civilian army of officials to do that. That way, Uncle Sam can "unilaterally" always throw around his still-apparent weight in all other international institutions that deal with endeavors from agriculture and aviation to zoology. But Uncle Sam extorts real unilateral favors for himself even more through his bilateral relations. That is why the World Trade Organization was dead on arrival. Indeed, Uncle Sam now prefers to use bilateral relations unilaterally, as he increasingly isolates himself internationally. Thus he can exercise even more military, political and economic bargaining power over his bilateral "partners" than he could over all or even many in international institutions.
And when bargaining is not enough, or even if it could be, Uncle Sam simply attacks when he feels like it, invading little Grenada (population all of 300,000), Nicaragua (with the help of arch-enemy Iran), Panama (7,000 civilians killed in one night to capture one man only, Daddy Bush's onetime friend and ally Manuel Noriega - there is an all-smiles photo of them shaking hands), Iraq (that was even a money-making venture as Uncle Sam extorted more dollars from his allies to pay for the war than it actually cost him), Somalia, and Yugoslavia, which was attacked in part to make an example out of what can happen when one is weak and yet in abject defiance of Uncle Sam and his IMF, maintaining some state ownership of important means of production and social-welfare state protection of the population, like Belarus today, where Uncle Sam also tried to get "regime change", but military action is more difficult on the border of Russia, unless it is an accord as against Afghanistan or bought off. Moreover, Yugoslavia gave up only when Russia withdrew support after Uncle Sam successfully blackmailed political economically and partly bought it off in Berlin. Then there is Afghanistan (again with the help of Iran and Russia), and now again Iraq. Who's next, Iran? Syria? Not Libya, it is now obediently making oil deals with Uncle Sam; and not North Korea, which made nukes to protect itself against precisely that.
Simple inspection of the facts on the ground reveals that, except for little Grenada, not a single one of these or any other US wars was ever won by military force, unless it be the Pacific one against Japan (World War II was won in Europe at Stalingrad in 1943 by Russian troops who would have reached Berlin even if Uncle Sam had not arrived later). Nonetheless, Uncle Sam has now already built 800 military bases around the world. Apart from that Bush has a new "Plan for the Middle East", which now stretches from Morocco beyond Pakistan - to Muslim Indonesia? Just what this plan involves is not yet clear, other than that Israel is to remain Uncle Sam's political and military stalking horse in the region as it has always been. Only now it's assigned its own reach and may also expand further. Bush himself went to Africa, especially West Africa, to look at its oil. In the Americas, his Plan Colombia (it has oil too) has been extended to the whole Andean region (Ecuador also exports oil), he has yet another plan for the Amazon (maybe some is to be found there and in the meantime he built a huge base there, allegedly for NASA, which is not unknown also to engage in military ventures), a plan to "take care of" with World Bank help the world's largest underground deposit of sweet water under Iguazu Falls, where Brazil, Argentina and Paraguay meet, and is already again training 40,000 Latin American military personnel at a time on US bases.
All this is a giant global military-political economic foundation on which to maintain Uncle Sam's financial Ponzi Scheme Confidence Racket, and cheap at twice the price for those that end up with the dollars and as long as he can pay for it all with the self-made paper dollars that so far also maintains the global Ponzi business. Well, to be honest, it's not only for the dollars. After all, they are only useful if you can actually buy something with them, especially the oil that keeps the foundation running.
All about oil
Not only does Uncle Sam have to buy ever more oil, today with self-printed dollars, but perhaps tomorrow with euros or yuan, he also has to try to make sure to have his hand on every spigot so he can control who else can, and especially who cannot, buy it. So that is why we now find him attempting political and financial control of the oil spigots, wherever he still can, and going in also for military presence as in Central Asia, or using military power to go in, as Iraq. That is both to use it as a lever of control and/or to warn its neighbors what may happen to them if they fail to continue to play along with Uncle Sam. Fortunately for him, most of East Asia and especially China also seem to be obliged to buy foreign oil, even if tomorrow perhaps no longer with dollars but with yuan/yen. On the other hand, sad but true, the world's biggest seller of oil is Russia, whose spigots remain beyond Uncle Sam's control. But how could Uncle Sam continue to pay for and maintain all these bold ventures in defense of freedom with those self-made paper dollars if nobody accepts them anymore?
The December 10 Financial Times (FT) offered some additional tip-of-the-iceberg examples of Uncle Sam's Defense of Freedom in Iraq. Though poor Iraq sits on top of the world's largest still-unexploited pool of ever-more-precious oil, it remains in the background or only at the bottom of this story that barely mentions it and, like the present essay, focuses instead on dollars. In two different reports, it relates how three helicopters flew 14 tons of 0 bills in to the Kurds. The money, much of the .8 billion US payoff to the Kurds, was part of Iraq's earnings under the UN "oil for food" program. Initially, of course, the bills simply were the product of the self-same US printing press, for which Iraq had exported real oil. It did not come from the billion that Uncle Sam's Congress appropriated for "reconstruction" of Iraq. As an FT graph graphically shows, no more than 8 million - or 2.15% - of that US money had yet been spent, and only billion of it having even been budgeted by Uncle Sam in Iraq by the time US proconsul L Paul Bremer went home from a job well done. No, instead in his wisdom the Good Uncle had thought it best to spend billion of the billion of Iraqi funds. That was 65% of the Iraqi money compared with the still only 2% of the nearly equivalent amount of original US money.
By the time the new Iraqi government took over some tasks from Uncle Sam, it discovered that a full billion of their funds had been spent, billion from sales of oil, according to the International Herald Tribune. Why? Simple, is the answer of the "responsible" finance officer, Admiral David Oliver, "I know we spent some money from [the Iraqi] fund. It was purely the matter that we'd run out of US money" - of which there was only another .5 billion-plus unspent. We might wonder whether the good admiral was schooled in Clausewitz and happened also to discover his good advice about making the conquered victim pay for his own military occupation, in this case by Uncle Sam.
The Iraqi representative on the funding disbursement and oversight committee attended all of one out of its 43 meetings; but then why bother with more, when most expenditures were authorized without any meeting at all. So although US funds were budgeted for all sorts of projects, they were nonetheless paid out of Iraqi funds. Of these, many disbursements were even made without any contract whatsoever, in one case a mere .4 billion. Most others occurred without any multiple competitive, nor even any previously vetted or subsequently evaluated, bids. The US funds, on the other hand, remained virtually unspent in Iraq. Maybe Admiral Oliver had "run out of US money" in Iraq because it remained at home in Washington; and if disbursed at all, it simply changed hands and bank accounts right there. After all, that is much more efficient than it would have been to send it back and forth, and a bit of it might not even get back. After all, it has long since been standard practice for the bulk of the dollars that Uncle Sam lends or even "gives" to Third World countries to stay at home, where it belongs and would return to anyway. No matter; Congress has already appropriated another billion to "prepare for transition to elections" in Iraq this month.
All that being the case, it would of course be altogether undesirable for Iraqi, let alone Uncle Sam's, funds to be squandered on any Iraqi service of old foreign debt to others. So it was only logical to strong-arm "allies" who can't help already losing US debt to them also to forgive the Iraqi debt. This, as we may recall from above, while Uncle Sam still insists that the rest of the Third World must continue servicing their debts to him. For God forbid that any repayment of Iraqi debt should go instead to those ungodly Russians, traitorous Frenchmen or even to the Chinese best friend indeed, who most invested in Iraq, a dastardly thing to do in the first place, when Uncle Sam has much more worthy causes for the Iraqi money.
And what were and still are these grander, worthy causes? The largest single payment of .4 billion was to whom else but the self-same Vice President Cheney's Halliburton. Yet we now know that at the same time it was also cheating even its generous benefactor Uncle Sam out of hundreds of millions more dollars on the side, buying petrol for $X in Kuwait and selling it in Iraq for -10X and other shenanigans. Altogether, Halliburton got Iraq contracts for a cool billion plus change, according to the IHT.
Without the shadow of a doubt, most of the other Iraqi and US dollars went to other crony US - and some crumbs off the table for the UK - corporations and even to private and military individuals who have their fingers in the till. But alas, we will never know who they all are, since as per Uncle Sam's inspector general, "I was, candidly, not interested in having army auditors because I thought we had to slide into the Iraqi system as quickly as possible."
Rewards of conquest
Frankly, being both non- and anti-military, I have not myself read Clausewitz. So I do not know what, if any, good advice he gives about relying on corruption as the first principle in cutting and dividing up the conquered pie.
All of the above speculation was written before the UN International Advisory and Monitoring Board for Development in Iraq (IAMBDI) issued a report on its findings about US stewardship. Before we get to the report, we should keep in mind that the FT observes diplomatically that "the UN has been reluctant to take the US to task publicly over its spending of Iraqi funds". The FT quotes directly from the report: "There were control weaknesses ... inadequate accounting systems, uneven application of agreed-upon contracting procedures and inadequate record keeping." The IHT also makes its own summary of the same report: "There had been widespread irregularities, including financial mismanagement, a failure to cut smuggling [outward of oil and other Iraqi physical property; nobody knows at what price and to whose benefit] and over-dependence on no-bid contracts." The FT, for its part, offers a few more specifics from the report: "Of particular concern ... were contracts with sometimes billions of dollars that were awarded to US companies such as Halliburton from Iraqi funds without competitive tender."
Last month Bush gave Uncle Sam's highest civilian award, the Medal of Freedom, to L Paul Bremer III, the US civilian proconsul who oversaw it all, and to General Tommy Franks, who led the invasion that made it all possible in the first place. George Tenet, the director of the Central Intelligence Agency (CIA) that provided all the bogus information to "legitimate" the whole enterprise to begin with and has since been discredited and forced to resign was not forgotten either and received the third award. The IHT published a ceremonial photograph of the three, all smiles with George W, who was smiling too. We may rest pretty well assured that of the recipients of their beneficence and service to "freedom" (for whom and what, we may ask?), 99.99% were among the ones at whom the US Federal Reserve's Alan Greenspan had already pointed his finger as the most privileged over-consumers who are totally responsible for US under-saving and whom he labeled simply as the upper 20% of US income earners. It is also they, he said, who are the most responsible also for the growing trade deficit about which the Doctor recently complained in Berlin. If we examine US income distribution, we may well learn also that among these 20%, the lion's share of this money, like most of that from the Pentagon, ended up in the pockets or accounts of the upper 2% most super-privileged, so they can over-consume yet still more of the fat of the whole Earth. Who would deny that this is a worthy cause?
But as Bush himself told the world, it is only right that "we" exclude other countries from the trough and till in Iraq. After all, he explained, when the Iraqis accepted his invitation, it was "our boys who put their lives on the line". Alas, the personification of Uncle Sam neglected also to explain for what and for whom.
By Andre Gunder Frank - Atimes