The U.S. government is hostage to its financial hegemony in a way that is rarely fully understood.
It is the miscalculation of this era – one that may begin the collapse of dollar primacy, and therefore, global compliance with U.S. political demands, too. But its most grievous content is that it corners the U.S. into promoting dangerous Ukrainian escalation against Russia directly (i.e. Crimea).
Washington dares not – indeed cannot – yield on dollar primacy, the ultimate signifier for ‘American decline’. And so the U.S. government is hostage to its financial hegemony in a way that is rarely fully understood.
The Biden Team cannot withdraw its fantastical narrative of Russia’s imminent humiliation; they have bet the House on it. Yet it has become an existential issue for the U.S. precisely because of this egregious initial miscalculation that has been subsequently levered-up into a preposterous narrative of a floundering, at any moment ‘collapsing’ Russia.
What then is this ‘Great Surprise’ – the almost completely unforeseen event of recent geo-politics that has so shaken U.S. expectations, and which takes the world to the precipice?
It is, in a word, Resilience. The Resilience displayed by the Russian economy after the West had committed the entire weight of its financial resources to crushing Russia. The West bore down on Russia in every conceivable way – via financial, cultural and psychological war – and with real military war as the follow-through.
Yet, Russia has survived, and survived relatively handsomely. It is doing ‘okay’ – maybe better, even, than many Russia insiders were expecting. The ‘Anglo’ Intelligence services however, had assured EU leaders not to worry; it’s ‘slam dunk’; Putin cannot possibly survive. Rapid financial and political collapse, they promised, was certain under the tsunami of western sanctions.
Their analysis represents an Intelligence failure on a par with the non-existent Iraqi weapons of mass destruction. But instead of critical re-examination, as events failed to provide confirmation, they doubled down. But two such failures are just ‘too much’ to bear.
So why does this ‘failed expectation’ constitute such a world-shaking moment for our era? It is because the West fears that its miscalculation might well lead to the collapse of its dollar hegemony. But the fear extends well beyond that too – (bad as ‘that’ would be from the U.S. perspective).
Robert Kagan has outlined how external forward motion and the U.S.’ ‘global mission’ is the lifeblood of American internal polity – more than any equivocating nationalism, Professor Paul suggests. From the founding of the country, the U.S. has been an expansionary republican empire; without this forward motion, civic bonds of domestic unity come into question. If Americans are not united for expansionary republican greatness, by what purpose Professor Paul asks, are all these fissiparous races, creeds, and cultures in America, bound together? (Woke culture has proved no solution, being divisive rather than any pole around which unity can be built).
The point here is that Russian Resilience, at a single stroke, shattered the plate-glass floor to western convictions about its ability to ‘manage the world’. After the several western debacles centred on regime-change by military shock-and-awe, even hardened neo-cons – by 2006 – had conceded that a weaponised financial system was the only means to ‘secure the Empire’.
But this conviction has now been upended – and states around the world have taken notice.
This shock of miscalculation is all the greater because the West disdainfully had taken Russia to be a backward economy, with a GDP on a par to that of Spain. In an interview with Le Figaro last week, Professor Emmanuel Todd noted that Russia and Belarus, taken together, constitute only 3.3% of global GDP. The French historian questioned therefore, ‘how then is it possible that these states could have shown such resilience – in the face of the full force of the financial onslaught’?
Well, firstly, as Professor Todd underlined, ‘GDP’ as a measure of economic resilience is wholly “fictional”. Contrary to its name, GDP measures only aggregate expenditures. And that much of what is recorded as ‘production’, such the over-inflated billing for medical treatment in the U.S.’ and (said, tongue in cheek) services such as the hundreds of economists’ and bank analysts’ highly-paid analysis, are not production, per se, but “water vapour”.
Russia’s resilience, Todd attests, is due to the fact that it has a real economy of production. “War is the ultimate test of a political economy”, he notes. “It is the Great Revealer”.
And what is it that has been revealed? It has revealed another quite unexpected and shocking outcome – one that sends western commentators reeling – that Russia has not run out of missiles. ‘An economy the size of Spain, the western media ask, how can such a tiny economy sustain a prolonged war of attrition by NATO without running out of munitions?’.
But, as Todd outlines, Russia has been able to sustain its weapons-supply because it has a real economy of production that has the capacity to maintain a war – and the West no longer does. The West fixated on its misleading metric of GDP – and with its normalcy bias – is shocked that Russia has the capacity to outpace NATO’s arms inventories. Russia was billed by western analysts as a ‘paper tiger’ – a label that now seems more likely to apply to NATO.
The import of the ‘Great Surprise’ – of Russian Resilience – resulting from its real economy of production vis á vis the evident weakness of the hyper-financialised western model scrabbling for sources of munitions has not been lost on the rest of the world.
There is old history here. In the lead-up to WW1, the British Establishment was concerned that they might lose the coming war with Germany: British banks tended to lend short-term, in a ‘pump and dump’ approach, whereas German banks invested directly in long-term real-economy industrial projects – and therefore were thought to be able to better sustain war materiel supply.
Even then, the Anglo élite had a quiet appreciation of the inherent frailty to a heavily financialised system for which they compensated by simply expropriating the resources of a huge Empire to finance preparation for the coming Great War.
The backdrop then, is that the U.S. inherited the Anglo financialising approach which it subsequently turbo-charged when the U.S. was forced off the gold standard by ballooning budget deficits. The U.S. needed to attract the world’s ‘savings’ into the U.S., by which to finance its Vietnam war deficits.
The rest of Europe from the 19th century outset had been wary of Adam Smith’s ‘Anglo-model’. Friedreich List complained that the Anglos assumed that the ultimate measure of a society is always its level of consumption (expenditure – and hence the GDP metric). In the long run, List argued, a society’s well-being and its overall wealth were determined not by what the society can buy, but by what it can make (i.e. value coming from the real, self-sufficient economy).
The German school argued that emphasizing consumption would eventually be self-defeating. It would bias the system away from wealth creation, and ultimately make it impossible to consume as much, or to employ so many. Hindsight suggests List was correct in his analysis.
‘War – is the ultimate test – and Great Revealer’ (per Todd). The roots to an alternative economic view had lingered on in both Germany and Russia (with Sergei Witte), despite the recent preponderance of the hyper-financialised Anglo-model.
And now with the ‘Great Reveal’, the focus on the real economy is seen as a key insight underpinning the New Global Order, differentiating it sharply in terms both of economic systems and philosophy from the western sphere.
The new order is separating from the old, not just in terms of economic system and philosophy, but through a reconfiguring of the neurons through which trade and culture travels. Old trade routes are being bypassed and left to wither – to be replaced by waterways, pipelines and corridors that avoid all the choke points by which the West can physically control commerce.
The north-east Arctic passage, for example, has opened an inter-Asian trade. The untapped oil and gas fields of the Arctic eventually will fill the gaps in supplies resulting from an ideology that seeks to end investment by western oil and gas majors in fossil fuels. The North-South corridor (now open) links St Petersburg to Bombay. Another component links waterways from northern Russia to the Black Sea, the Caspian and from thence to the south. Yet another component is expected to pipe Caspian gas from the Caspian pipeline network south to a Persian Gulf gas ‘hub’.
Look at it in this way, it is as if the neural connectors in the real economic matrix are, as it were, being lifted up from the west, and are being set down in a new location to the East. If Suez was the waterway of the European era, and the Panama Canal represented that of the American Century, then the north-east Arctic waterway, the North-South corridors and the African railway nexus will be that of the Eurasian era.
In essence, the New Order is preparing to sustain a long economic conflict with the West.
Here, we return to the ‘Egregious Miscalculation’. This evolving New Order existentially threatens dollar hegemony – the U.S. created its hegemony through demanding that oil (and other commodities) be priced in dollars, and by facilitating a frenetic financialisation of asset markets in the U.S. It is this demand for dollars which alone has allowed the U.S. to fund its government deficit (and its defence budget) for nothing.
In this respect, this highly financialised dollar paradigm possesses qualities reminiscent of a sophisticated Ponzi scheme: It pulls in ‘new investors’, attracted by zero-cost credit leverage and the promise of ‘assured’ returns (assets pumped ever upwards by Fed liquidity). But the lure of ‘assured returns’ is tacitly underwritten by the inflation of one asset ‘bubble’ after another, in a regular sequence of bubbles – inflated at zero cost – before being finally ‘dumped’. The process then, is ‘rinsed and repeated’ ad seriatim.
Here is the point: Like a true Ponzi, this system relies on constant, and ever more, ‘new’ money coming into the scheme, to offset ‘payments out’ (financing U.S. government expenditure). Which is to say, U.S. hegemony now depends on constant overseas dollar expansion.
And, as with any pure Ponzi, once ‘money in’ falters, or redemptions spike, the scheme collapses.
It was to prevent the world quitting the dollar scheme for a new global trading order that the signal was ordered to be promulgated, via the onslaught on Russia, to warn that to quit the scheme would bring U.S. Treasury sanctions upon you, and to crash you.
But then came TWO game-changing shocks, in close succession: Inflation and interest rates spiralled, devaluing the value of fiat currencies such as the dollar and undermining the promise of ‘assured returns’; and secondly, Russia DID NOT COLLAPSE under financial Armageddon.
The ‘dollar Ponzi’ falls; U.S. markets fall; the dollar falls in value (vis á vis commodities).
This scheme might be felled by Russian Resilience – and by much of the planet peeling away into a separate economic model, no longer dependent on the dollar for its trading needs. (i.e., new ‘money in’ to the dollar ‘Ponzi’ turns negative, just as ‘money out’ explodes, with the U.S. having to finance ever bigger deficits (now domestically)).
Washington clearly made a stratospherically bad error in thinking that sanctions – and the assumed collapse of Russia – would be a ‘slam dunk’ outcome; one so self-evident that it required no rigorous ‘thinking through’.
Team Biden thus has painted the U.S. into a tight Ukraine ‘corner’. But at this stage – realistically – what can the White House do? It cannot withdraw the narrative of Russia’s ‘coming humiliation’ and defeat. They cannot let the narrative go because it has become an existential component to save what it can of the ‘Ponzi’. To admit that Russia ‘has won’ would be akin to saying that the ‘Ponzi’ will have to ‘close the fund’ to further withdrawals (just as Nixon did in 1971, when he shut withdrawals from the Gold window).
Commentator Yves Smith has provocatively argued, ‘What if Russia decisively wins – yet the western press is directed to not notice?’ Presumably, in such a situation, the economic confrontation between the West and New Global Order states must escalate into a wider, longer war.