Breaking free from dollar hegemony

Tag : Low Volume Production


The vast expansion of US-led globalized trade since the Cold Warended in 1991 had been fueled by unsustainable serial debt bubblesbuilt on dollar hegemony, which came into existence on a globalscale with the emergence of deregulated global financial marketsthat made cross-border flow of funds routine since the 1990s.

Dollar hegemony is a geopolitically constructed peculiarity throughwhich critical commodities, the most notable being oil, aredenominated in fiat dollars, not backed by gold or other speciessince then president Richard Nixon took the US dollar off gold in1971. The recycling of petro-dollars into other dollar assets isthe price the US has extracted from oil-producing countries for UStolerance of the oil-exporting cartel since 1973. After that,everyone accepts dollars because dollars can buy oil, and every



economy needs oil. Dollar hegemony separates the trade value ofevery currency from direct connection to the productivity of theissuing economy to link it directly to the size of dollar reservesheld by the issuing central bank. Dollar hegemony enables the US toown indirectly but essentially the entire global economy byrequiring its wealth to be denominated in fiat dollars that the UScan print at will with little in the way of monetary penalties.

World trade is now a game in which the US produces fiat dollars ofuncertain exchange value and zero intrinsic value, and the rest ofthe world produces goods and services that fiat dollars can buy at"market prices" quoted in dollars. Such market prices are no longerbased on mark-ups over production costs set by socio-economicconditions in the producing countries. They are kept artificiallylow to compensate for the effect of overcapacity in the globaleconomy created by a combination of overinvestment and weak demanddue to low wages in every economy.

Such low market prices in turn push further down already low wagesto further cut cost in an unending race to the bottom. The higherthe production volume above market demand, the lower the unitmarket price of a product must go in order to increase sales volumeto keep revenue from falling. Lower market prices require lowerproduction costs which in turn push wages lower. Lower wages inturn further reduce demand.

To prevent loss of revenue from falling prices, producers mustproduce at still higher volume, thus further lowering market pricesand wages in a downward spiral. Export economies are forced tocompete for market share in the global market by lowering bothdomestic wages and the exchange rate of their currencies. Lowerexchange rates push up the market price of commodities which mustbe compensated for by even lower wages. The adverse effects ofdollar hegemony on wages apply not only to the emerging exporteconomies but also to the importing US economy. Workers all overthe world are oppressed victims of dollar hegemony, which turns thelabor theory of value up-side-down.

In a global market operating under dollar hegemony, the world'sinterlinked economies no longer trade to capture Ricardiancomparative advantage. The theory of comparative advantage asespoused by British economist David Ricardo (1772-1823) assertsthat trade can benefit all participating nations, even those thatcommand no absolute advantage, because such nations can stillbenefit from specializing in producing products with the lowestopportunity cost, which is measured by how much production ofanother good needs to be reduced to increase production by oneadditional unit of that good.

This theory reflected British national opinion at the 19th centurywhen free trade benefited Britain more than its trade partners.However, in today's globalized trade when factors of productionsuch as capital, credit, technology, management, information,branding, distribution and sales are mobile across national bordersand can generate profit much greater than manufacturing, the theoryof comparative advantage has a hard time holding up againstmeasurable data.

Under dollar hegemony, exporting nations compete in the globalmarket to capture needed dollars to service dollar-denominatedforeign capital and debt, to pay for imported energy, raw materialand capital goods, to pay intellectual property fees andinformation technology fees. Moreover, their central banks mustaccumulate dollar reserves to ward off speculative attacks on thevalue of their currencies in world currency markets. The higher themarket pressure to devalue a particular currency, the more dollarreserves its central bank must hold. Only the Federal Reserve, theUS central bank, is exempt from this pressure to accumulate dollarsbecause it can issue theoretically unlimited additional dollars atwill with monetary immunity. The dollar is merely a Federal Reservenote, no more, no less.

Dollar hegemony has created a built-in support for a strong dollarthat in turn forces the world's other central banks to acquire andhold more dollar reserves, making the dollar stronger, fueling amassive global debt bubble denominated in dollars as the US becomesthe world's largest debtor nation. Yet a strong dollar, whileviewed by US authorities as in the US national interest, in realitydrives the defacement of all fiat currencies that operate asderivative currencies of the dollar, in turn driving the currentcommodity-led inflation. When the dollar falls against the euro, itdoes not mean the euro is rising in purchasing power. It only meansthe dollar is losing purchasing power faster than the euro. Astrong dollar does not always mean high dollar exchange rates. Itmeans only that the dollars will stay firmly anchored as the primereserve currency for international trade even as it falls inexchange value against other trading currencies.

In recent decades, central banks of all governments, led by the USFederal Reserve during Alan Greenspan's watch, had bought economicgrowth with loose money to feed debt bubbles and to containinflation with "structural unemployment", which has been defined asup to 6% of the workforce, to keep the labor market from beinginflationary. Central banking has mutated from being an institutionto safeguard the value of money so as to ensure wages from fullemployment do not lose purchasing power into one with a pervertedmandate to promote and preserve dollar hegemony by releasing debtbubbles denominated in fiat dollars. (See Critique of Central Banking , Asia Times Online, November 6, 2002.)

Despite all the talk about globalization as an irresistible trendof progress, the priority for the United States in the finalanalysis has been to advance its superpower economic objectives,not its obligations as the center of the global monetary system.This superpower economic objective includes the global expansion ofUS economic dominance through dollar hegemony, reducing alldomestic economies, including that of the US, to be merely localunits of a global empire. Thus when the US asserts that a healthyand strong economy in Europe, Japan and even Russia and China, allformer enemies, is part of the Pax Americana, it is essentiallydeclaring a neocolonial claim on these economies.

The concept of "stakeholder" in the global geopolitical-economicorder advanced by Robert B Zoellick, former US deputy secretary ofstate and now president of the World Bank, is a solicitation fromthe US to emerging economic powerhouses to support this PaxAmericana. The device for accomplishing this neo-imperialism is acoordinated monetary policy managed by a global system of centralbanking, first adopted in the US in 1913 to allow a financial eliteto gain monetary control of the US national economy, and after theCold War, to allow the US as the sole remaining superpowercontrolled by a financial oligarchy to gain monetary control of theentire global economy.

With the help of supranational institutions such as theInternational Monetary Fund and the Bank of InternationalSettlements, the US aims to negate national economic sovereigntywith globalization of unregulated trade conducted under dollarhegemony. Unregulated trade globalization in the 21st century aimsto neutralize national economic sovereignty to preempt nationaldevelopment financed by sovereign credit. Trade through export hasbecome the sole operative path for national economic growth in apolitical world order of sovereign nation states that has existedsince the Treaty of Westphalia of 1648. No national domesticeconomy can henceforth prosper without first adding to theprosperity of US-controlled global economy denominated in dollars.

Holy Dollar Empire
Echoing the Holy Roman Empire, the global economy has beenoperating as a global Holy Dollar Empire with the Federal Reserveas the Holy Dollar Emperor. Similar to the Holy Roman Empire, whichdisintegrated from the rise of Lutheran nationalism, this HolyDollar Empire will eventually disintegrate from progressivecentrifugal forces of a new populist economic nationalism. This newnationalism is not to be confused with regressive tradeprotectionism. The formation of the new Group of Five (G5 - China,Brazil, India, Mexico and South Africa) in the 2008 Group of EightSummit in Tokyo (G8 - the US, UK, Germany, France, Italy, Japan,Russia and the European Union) is a sign of this new trend ofprogressive economic nationalism. The 2008 US presidential electionmay herald in a new populism in US history to reform the structureof US debt capitalism.

In his speech to the G5 leaders, China's President Hu Jintao said:"It is necessary to take into full account the issue of foodsecurity in tackling the challenges in energy, climate change andother fields." Apart from calling for the setting up of an UN-ledinternational co-operation mechanism and a global food-securitysafeguard system, Hu said all countries should strengthencooperation in grain reserves, a process of proven success in Chinabut not recommended by the UN Food and Agriculture Organization,which views such scheme as a distortion of trade.

Liberation from this Holy Dollar Empire of dollar hegemony can onlycome from sovereign nations withdrawing from the global centralbanking regime to return to a national banking regime within aworld order of sovereign nation states to put monetary policy backin its proper role of supporting national development goals, ratherthan sacrificing national development to support global dollarhegemony through wage-suppressing export-led growth.