One of the greatest powers of the United States, one which was hardly used before Clinton, is the ability to freeze people out of the payments system. When Argentina had its previous debt crisis, it cut a deal with investors: They took a haircut, and the government agreed to pay them the haircut. Some investors refused.
Later, that deal was effectively destroyed, because Argentina lost in a US court. As a result, they could not pay the investors who had taken the haircut–a US judge was able to cut a sovereign state off from paying its debtors. Argentina could only have access if it paid both those who took the haircut and those who didn’t.
Over the last 20 years, in particular, the US has enforced financial sanctions against a bewildering number of people and states. Right now, it is disallowing Venezuela from buying many foreign goods. (When “socialism” doesn’t collapse fast enough, the US is always on hand to give it a shove.)
During the Iran sanctions period, before the Iran nuclear deal, the US and the EU cut Iran off from the payments system, virtually wholesale. SWIFT, the electronic payments system headquartered in Brussels refused to cooperate, saying that it should not be used as a tool of politics.
But the EU threatened the board and senior SWIFT executives with criminal charges, and SWIFT folded.
Lots of Iranians died and suffered under those sanctions, just like Iraqis did under the sanctions in the 90s.
When the Iran deal was cut, the sanctions were eased.
But Trump, when he tore up the Iran deal, re-imposed sanctions. The EU disagreed, but many EU companies are obeying the American order because America has said that it will sanction both companies and individuals who disobey.
And even if SWIFT doesn’t cooperate as a body, the problem is that most payments at some point touch American banks. The moment they do, America jurisdiction cuts in. (This is how FIFA got hit for corruption by US law enforcement. None of the bribes had anything to do with the US, but payments went thru US banks.)
So Europe is considering creating a payments system which does not ever touch US jurisdiction:
Germany’s foreign minister has called for the creation of a new payments system independent of the US as a means of rescuing the nuclear deal between Iran and the west that Donald Trump withdrew from in May…
…“For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system,” he wrote.
This adds Europe to a group which includes Russia and China, along with virtually every nation who has been subject to US sanctions.
The thing is that such sanctions used to be fairly rare. But Clinton weaponized them against Iraq and every President since them has used them as a bludgeon. They are a way, like drones to punish countries and individuals and to ignore sovereign rights.
The MMT types go on and on about being sovereign in one’s currency, but the fact is that you aren’t sovereign if another country can cut you out of the payments system. And right now the only countries in the world that are sovereign in that sense are America, the EU and China. And the EU and China are only somewhat sovereign.
These punishments are extra-territorial, they are an imposition of US law on non US countries and citizens. They are possible only because the US is the world hegemonic power, and sits at the center of the world payments system. Venezuela can sanction, but no one cares unless they have assets actually in Venezuela.
This power has been abused, repeatedly, to interfere in business that is none of America’s business. One can say that it might have been used acceptably when the entire UN security council agreed (I disagree), but when it doesn’t, the US has acted anyway.
And so, now, every great power in the world, with the possible exception of Japan, wants to take that power away from the US.
About time, but it will take time. It isn’t just about virtual links, it is about physical links: it must be done over continental cables and thru satellites which are not American. The way current software acts doesn’t take that in account, and physical infrastructure as well as software needs to be built.
But I hope that Europe is serious, because combined with China and Russia this is something which can be done, and done fairly fast (within a decade, I’d guess.) The only problem is that the EU, too, likes having this power. Are they really willing to give it up? Because the best way to do this would be to create a system which cannot be sanctioned without the agreement of all the powers who create: a system which cannot be sanctioned unilaterally. Everyone involved should have a veto.
Time will tell if Europe and, indeed, other nations, truly want a system that none of them can use to punish others.
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Webstir
This brings to mind an article I believe I posted here some time back: https://bostonreview.net/class-inequality/j-w-mason-market-police#.Wxo5fSgGrnM.twitter
My takeaway from the article is that the greatest trick the neoliberals pulled was the global establishment extra-national institutions that bind sovereign nations to agreements that make it extremely difficult to pursue a sovereign economic policy. This is exactly the lesson Britian is learning from Brexit. Buck the system and you’re screwed.
The payment system is just the biggest stick in that web of extra-national agreements. It wouldn’t work if the extra-national institutional agreements couldn’t be used as leverage to tear the whole arrangement apart. Now, it appears with the shift in American politics to full crazy — instead of just greedy and evil — that these other countries are willing to tear it down.
Good. You said long ago that one of the best things to come of a Trump presidency would the fact that he tore the clothes from the emperors facade. Add a major financial collapse on Trumps watch and the ground is primed for an institutional shift that world would never have even conceived of during the term of our nobel prize president.
Webstir
As an aside in support of my last comment — The Trump presidency has essentially shredded the concept of American exceptionalism in the eyes of the other nations of the world. If nothing else, the U.S. could at least be depended upon to be predictable among the world plutocrat class (default to greed). Under Trump, the ground is too unpredictable.
The institutional world will not be the same after the next market collapse. Fascinating to watch all this play out in real time. Trump’s legacy will be that of the man who irredeemably broke the longstanding previous world order. A pariah. But what won’t be mentioned is the fact that he unwittingly unleashed a flood of change that has been straining to burst from behind the dam of 100 years of institutional pedantry.
Tom
The EU needs to expand its blocking statutes to include US Companies doing business in the EU and forbid them from complying with US Sanctions on Iran and make the penalties for doing so harsh. How harsh? The Company gets seized by the EU and its board of directors thrown in prison.
While this goes on, Turkey continues to shore up its Lira and attack the dollar in retaliation.
Erdogan has refused to allow Interest Rates to rise and thus kill the real gains in wages his electorate have made and he is refusing advice to seek an IMF bailout. Turkey did that in the past and it won’t make that mistake again after Erdogan paid off all that debt.
So far, the Lira is holding and rebounding as Turkey goes after the dollar and counter-sanctions US Companies.
If Turkey leaves NATO, Europe is indefensible to Russia and the US can’t maintain control in the Middle East.
Daniel A Lynch
“You aren’t sovereign if another country can cut you out of the payments system.”
Exactly. Your nation is not truly free if it is economically dependent on other nations.
I advocate national self-sufficiency, even if it causes some discomfort in the short run. A country should strive to grow its own food, produce its own energy, control its own monetary system, etc., etc..
This is not the same thing as mercantilism, which strove to maximize exports and minimize imports in an attempt to accumulate gold. Self-sufficiency does not require exports and does not require gold. Self-sufficiency is about being free and independent.
Phil Perspective
Tom:
How would Turkey leave NATO? We have nuclear missiles stationed there. Erdoğan will be forced from office before that happens. The only way a right-wing leader would be deposed by the CIA.
Mandos
Germany is not serious. Yet, at least. Merkel downplayed Heiko Maas’ proposal, as I recall.
Chiron
Hey Ian, did you saw the latest Tweet from the Israeli PM? Is something that Hitler should have said.
Willy
Good stuff Webstir. I’m hopeful that down in the trenches, the entire modern American conservative cult (especially the white evangelicals and their sanctioned pundits) will be able to fully ‘know’ that they’ve been stripped of credibility as well.
someofparts
It is so reassuring that my fellow citizens have absolutely no interest in anything beyond their own driveways, much less anything beyond our national borders. If our misleaders stop being able to prop up this Potemkin economy because we lose the ability to freeload and bully other nations, people in this place will tear each other to bits. All those awful things that have heretofore happened to everyone except us will finally happen to us. I guess the handful of us who may survive the carnage might finally wake up and become fit to share the planet with everyone else. Or not. You guys should probably close the border to us, Ian, the sooner the better for your sakes.
someofparts
“I advocate national self-sufficiency, even if it causes some discomfort in the short run. A country should strive to grow its own food, produce its own energy, control its own monetary system, etc., etc.. ”
Word is that, as the planet heats up, it will be Canada and Russia that feed the rest of us. I guess needing to import food to feed ourselves will be another new experience for the U.S.
Hugh
Dollar denominated transactions and financial instruments. Yes, I know there has been some nibbling round the edges. But as long as these dominate so much of international finance and trade, the Fed remains the world’s de facto world bank. It still makes a lot of sense for many companies, banks, and financial institutions to denominate parts of their business in dollars. The dollar and its associated institutions are known quantities. Also as much as I blame the Fed in the run up to the 2008 meltdown and how it ran its dollar swaps programs, there was simply no central bank, not the JCB nor the ECB, that had the power and the willingness to shore up not just the American but the world financial system.
The Europeans might want a saner US policy toward Iran, but they are not going to go to the mat for Iran. Indeed I don’t know a bigger loser from Trump’s stupid renewal of sanctions than Boeing. I think Stirling nailed it in the last thread when he said the reaction to Trump is: stall. The midterms are coming, then investigations, investigations, investigations, veto on legislation, and possibly impeachment. Kavanaugh is Trump’s last hurrah. After that, he’s a lame duck, and not just lame but mortally wounded.
Note too that Argentina, Venezuela, Iran, and Turkey are in the great scheme of things, and despite Tom’s grandiose image of Turkey, marginal players in the world economy.
Finally, we need to always keep in mind the watershed year 2030. After 2030, much of the effects of our failure to deal with overpopulation and climate change will be baked in. Payment systems will be the least of our worries.
The Heretic
Good article, but you made an error on MMT in the following sentence..
‘The MMT types go on and on about being sovereign in one’s currency, but the fact is that
you aren’t sovereign if another country can cut you out of the payments system.”
Iran and Venezuela are both sovereign in local currencies, and can always pay for work and resources sourced from companies within their respective countries. The problem is that international trade is conducted in US dollars, adminstered over a US dollar clearing system that must involve the US banks, (and the US federal reserve) and since IRan and Venezeula must buy foreign goods and respurces to survive, they are completely vulnerable to US imposed financial sanctions. Note however, a large, resource rich and technology capabable country is not as vulnerable to these fianancial sanction, hence the Russia economy continues to survive, and its war capabilty has not at all been affected, despite US imposed sanctions.
China, when it completes some of the silk road initiatives, will no longer be vulnerable to US sanctions. Pity its neighbours….
Tom
@Phil Perspective
Erdogan easily quelled a coup and the Turkish People have shown they will tear down any attempt to do a Coup. Turkey is a functioning Democracy in which 80%+ of the population votes unlike most of the EU and the US. The Turkish Public is increasingly anti-American and increasingly calling for the US to be kicked out.
As things stand Turkey has options outside of the Dollar and holding the second largest NATO Army, the water sources to the Middle East, and controlling the only shipping lane into the Black Sea, and being the land bridge into Europe, Turkey can and will leverage this make their opponents pay if they continue to mess with them. Hence its massive military build up in Idlib and moving air defense systems into said province and working to decapitate and remove HTS from the Province or use them as meat shields.
Since FETO is fully purged from the Military and Government and CIA Agents like Brunson have been tossed in jail awaiting trials, Erdogan no longer has to fear an internal coup attempt and is fully free to act in accordance with Parliament which has sided behind him.
V
Effectively, the U.S. has already lost control of the world payment system.
BRICS Plus, the SCO, AIIB, Petro-Yuan, and replacement of the SWIFT currency transfer system (to name a few), all add up to a diminishing US dollar in the energy markets and general trade of goods.
China’s BRI is another step away from the dollar and with China’s expanded naval presence, the maritime silk road is alive and well.
The biggest mistake the US made was to weaponize the dollar. It directly attacks a nations sovereignty; the last thing the US wants are sovereign states; it’s anathema to unipolarity.
The Heartland, Rimland theories have a new relevance (not that they ever lost it), only now in spades
Phil Perspective
Note too that Argentina, Venezuela, Iran, and Turkey are in the great scheme of things, and despite Tom’s grandiose image of Turkey, marginal players in the world economy.
Y9u’re wrong, especially about Iran and Venezuela. Why? A three letter word, of course. It’s also funny you mention Venezuela because “Little” Marco Rubio is now beating the war drums re: Venezuela. Seriously. See his Twitter account. And the are rumblings on Twitter that people in the ForRel community are hearing quiet rumblings about Venezuela too. Sounds like that drone attack was just the start.
Stirling Newberry
Climate Change and Enough Children.
Stirling Newberry
MMT = Nazinomics. When they leave planet earth, call me.
Stirling Newberry
Venezuela can get rid of hyperinflation any time it wants, just charge the real price for oil.
The problem is the government goes away – it is Marxist (eg undemocratic). Socialism only works if it is democratic. They chose the wrong horse.
Webstir
“The dollar and its associated institutions are known quantities.”
Are you sure about that, of late, Hugh?
“Your nation is not truly free if it is economically dependent on other nations. I advocate national self-sufficiency, even if it causes some discomfort in the short run. A country should strive to grow its own food, produce its own energy, control its own monetary system, etc.”
But then, as I argue above, Daniel Lynch, the plutocrats would no longer be in control of said country’s destiny. I assume we’re all agreed that the plutocrats, not the people, know what’s best for the people. It is known.
V
Further musings from Pepe Escobar re: geo-politics which necessarily includes economics;
https://www.zerohedge.com/news/2018-08-31/escobar-get-ready-major-geopolitical-chessboard-rumble
Hugh
Phil, how has that three letter word been working out for Iran and Venezuela anytime the last 20 years?
Tom is, if nothing else, entertaining. His Turkish hasbara convinces no one, quite the reverse, but still he shares it with us.
As for V, his anti-Americanism distorts his views so much that you would think that the silk road was already up and running. And that the BRIC were all humming along nicely and even more than that ready to displace the US.
generic
Germany is not serious. There is an European payment system that is independent of the US. The very SWIFT system you mention. Currently the US has access to all SWIFT transactions on the basis of a treaty with the EU. The EU parliament hated it for a long time: https://www.dw.com/en/european-parliament-rejects-swift-deal-for-sharing-bank-data-with-us/a-5239595
If the grumbling out of Europe meant anything, this treaty would be the first on the chopping block.
nakabroto
There’s already an international payment system that can’t be censored by the US, or any other nation for that matter.
It’s called Bitcoin.
If you’ve dismissed this already, you probably haven’t understood it yet, nor will you — not if your tendency is to form opinions on complex matters after consuming a few thousand words of corporate news media.
There are of course the Warren Buffets of the world, who know that they don’t understand it, but understand enough to sense that it may threaten their investments.
Don’t listen to these oligarchic dinosaurs, or their mouthpieces. They don’t want you to know another way is possible.
(Read “Mastering Bitcoin” by Andreas Antonopoulos)
Ten Bears
I don’t know, SoP, how Canada and Russia can feed the world population when they have been over-run by the world population. Can’t stop the migration, ask the Neanderthal.
Peter
Many people on the Left would celebrate if the US was stripped of its power to punish bad actors with our control of the global reserve currency and any payments made with that currency. The autocrats, dictators and mercantilists, of the world, would also celebrate if China gained control of the global reserve currency at least until they saw how China would use that hegemonic power to expand their control and dominance. The Europeans may be chafed by their vassal status under US hegemony but most seem wise enough to realize that becoming Chinese vassals would not be an improvement. The notion that US/UN sanctions were the cause of people dying in Iran doesn’t hold much water when Iran found billions of dollars to prop up Assad, arm Hezbollah and Ansar Allah.
StewartM
Daniel A. Lynch
I advocate national self-sufficiency, even if it causes some discomfort in the short run. A country should strive to grow its own food, produce its own energy, control its own monetary system, etc., etc..
I completely agree. The irony is that our Wall Street Lords and Masters, who only think paper assets and transfers are “real wealth”, have been systematically gutting the US’s actual ability to make the real things a nation needs to be truly self-sufficient since the time of St. Ronnie Raygun. You’d think a country that was the “Arsenal of Democracy” during WWII and who helped keep other countries (especially Britain) who couldn’t grow enough food and couldn’t produce enough of their own supplies afloat would have taken this lesson to heart, but no, our geniuses think they know better (witness Mittens in 2009 wanting the US auto industry, which makes our tanks and other military vehicles, to go under–who does he think will make our M-1s, Hyundai??).
The reason why the current system of US domination will fail is because eventually, reality catches up with you. Recall Britain’s former industrial preeminence was destroyed by free trade, and England had lost its preeminence as the world’s foremost industrial power to the US and Germany and had become a financial power instead by the early part of the 20th century. Come WWI, the power has started to shift to the US, the word’s rising industrial power, and by the end of WWII, Britain is neither a first-rank industrial power nor the number one financial power.
This analogy predicts China, superseding the US in industrial strength, will eventually supersede us financially, though I am doubtful whether China can really be an industrial/scientific superpower and yet continuing to double-down on its mass surveillance and punishing doubleplusbadthink policies. Plus climate change is going to flood much of China’s livable and arable land.
Catullus
I second what nakabroto just said.
Bitcoin.
China and the EU will not behave much better than the US when they set up their payment system separate from SWIFT. Absolute power corrupts absolutely. If you think other countries will behave better than the US, dream on. Perhaps yes in the beginning after the US ends its Empire (it’s coming and I actually think Trump is doing it ON PURPOSE due to Triffin’s Dilemma) but power corrupts.
Bitcoin belongs to all and nobody in particular. Very neutral vs governments! It is still early days but I have seen enough to think Bitcoin is more robust than SWIFT in terms of functioning regardless of what governments say so. Governments can ban Bitcoin and Bitcoin will continue to function, nonetheless. And many will begin to use Bitcoin despite it being possibly illegal simply because… it will work regardless of what governments say so.
Consistency is an important feature. If your payments suddenly stop going out or coming in because of government behaviors… you will end up stopping using government fiat and use Bitcoin instead. Because of this, I do not think the EU or China or anyone else will succeed in replacing SWIFT… Bitcoin will replace SWIFT. The US Dollar is likely the last great fiat currency and there won’t be a successor to it. Triffin’s Dilemma ensures this, too.
StewartM
Catullus and nakabroto:
1) Bitcoin, as many of its advocates claim at least, cannot be inflationary. In fact, if one presumes that the number of bitcoins is fixed, and the amount of goods and services produced increases, then it is intrinsically deflationary. This is a *bad* thing, not a good thing.
2) Mining bitcoins uses more electricity than some countries. That’s also a bad thing, not a good thing.
Bitcoin seems to be analogous to the precious metals money fetish, it appears to me–and gold and silver are also bad ways to back money. But you can feel free to reply with your counter-arguments.
V
Hugh as usual, is operating above his pay grade; BRICS-Plus is up and running. Smoothly, not so much. But, nothing of that size ever does from the start; it is working.
But Hugh doesn’t address SCO, AIIB, BRI, Petro-Yuan, or Russia’s replacement for the SWIFT system, et al; but rather resorts to name calling; unAmerican?
Just how is wanting to see a weaponized dollar replaced/neutralized unAmerican? The U.S. is in serious decline because of that very policy, cannot be in doubt.
Make America great again by stopping its war on the planet.
Like it or not; multi-polarity is here to stay; the U.S. can choose to be a part of this or not…
The later will be at its peril…
StewartM
Peter:
The Europeans may be chafed by their vassal status under US hegemony but most seem wise enough to realize that becoming Chinese vassals would not be an improvement.
Though China, unlike the West, has never aspired to world domination, even when it could have made the attempt. Not even direct domination over East Asia in most cases, save over Tibet, Mongolia*, and Vietnam (so my Vietnamese friends worry, and they have every right to do so). (*Mongolia was controlled as a result of the conquest of China by the Mongols, so it almost doesn’t count). And in its foreign policies, China doesn’t attach as many strings to its aid insofar as domestic policies as does the US or the West.
So while things may change, being a “vassal” to China could turn out way better than having corrupt bankers looting your economy. Just ask Russia.
Catullus
StewartM –
Why is a deflationary money bad? Sure, it’s bad if you keep taking out debt. Is debt good? It seems that everybody is trying to short fiat by borrowing money and paying it back in more worthless fiat. Sounds good but look at the masses today. Inflationary money is not looking good to me these days. Don’t forget that the real hard core deflation is caused by excessive borrowing that suddenly cannot be paid back. By thinking that an inflationary currency is better, you are inviting severe deflation! Everybody talks about the Great Depression… but conveniently ignore the excessive borrowing/printing of WWI and the 1920s. I have noticed history books tend to leave that out. It’s real important.
Just look at the debt levels of most countries today. Look at the promises made that likely won’t be kept. Then look at the behavior of the US that prompted this article by Ian Welsh. The power of creating money is corruptible and should be avoided.
Remember that Bitcoin is very deflationary… when compared to fiat today or soonish. When everybody uses Bitcoin, there won’t be that much inflation or deflation because nobody is monkeying around with the supply. One Bitcoin is divisible into 1 million bits, called satoshi. This can be further divided up so supply with Bitcoin is not really a problem.
About the energy costs of Bitcoin, the arguments about it is lazy. Efficiency is improving rapidly and… people tend to forget the costs of running banks, printing currency, employing the “smart” (not really) central banker, the costs of having to hedge different currencies and so on.. tally all of that and I bet Bitcoin ends up consuming less energy.
StewartM
Catullus
My reply.
Why is a deflationary money bad?
Lots of answers to that:
https://www.bbc.com/news/business-30778491
https://www.thebalance.com/what-is-deflation-definition-causes-and-why-it-s-bad-3306169
In short, why buy anything when you expect the price to fall later? But not buying anything eventually starves supply as well as chokes demand.
By thinking that an inflationary currency is better, you are inviting severe deflation!
Empirical evidence for that?
I have a graph of the estimated US inflation rate from 1650 to today (calculated by John J. McCusker). There are numerous upturns and downturns; there is inflationary spikes up to 40 % inflation (!!) in the 1740s, 1770s, 1790s, early 19th century, 1830s, 1860s, WWI, WWII (more modest). There are almost equally severe deflationary spikes in the 1680s, 1710s, 1740s (after the runaway inflation, there’s a crash), 1780s, 1820s, a prolonged milder period from 1870-1900, and the post-WWI depression and the Great Depression. The period between 1870-1900, more recent in the graph, was a period of prolonged high employment (estimated values between 10-15 % in the 1870s and 1890s, not lasting a mere year or two, but sustained for the better part of a decade).
A similar graph of the delta GDP I have shows that the deflationary periods were not good times, and that the economy was far more unstable when backed by precious metals under a more laissez-faire philosophy, than it was post-WWII paper money managed economy (the spikes are dampened). The idea that a fixed currency limited by precious metals stabilizes the economy and prevents hyperinflation or severe deflation is not borne out by the evidence. Even the 1970s inflation looks pretty mild in the context of the overall US experience.
Mind you, in a more agrarian economy where the things one needs to live can be had without money, the impact of such price swings is mitigated. But with increasing urbanization and modernization and its increased fictionalization, economic instability causes mass suffering. The period of prolonged deflation from c. 1870-1900, in part caused by the fixed supply of gold, is remembered because of the suffering it inflicted on both urban workers and on the rural poor alike (William Jenning’s Bryan’s “Cross of Gold Speech”). Economic instability will cause political instability; count on it.
Everybody talks about the Great Depression… but conveniently ignore the excessive borrowing/printing of WWI and the 1920s. I have noticed history books tend to leave that out. It’s real important.
My history books did not neglect it–in fact, avoiding the ponzi schemes of war debts and repayments was one of the reasons they US did not demand its allies pay us back after WWII. But the
About the energy costs of Bitcoin, the arguments about it is lazy. Efficiency is improving rapidly
Is it? We’ve already hit a wall on disk storage (not much room for improving cramming more data there), and processors may follow.
https://www.technologyreview.com/s/601441/moores-law-is-dead-now-what/
Nor will bitcoin do away with banks for financial institutions. As for energy costs, it takes less than 5 cents to make a dollar bill and 12.5 cents to make a $100 bill, and even saying ALL of that cost is energy (it’s not), that correlates to < 0. 5 kilowatt hour for the $1 and about 1 kilowatt hour while a single bitcoin costs 215 kilowatt-hours, so at least 215-430 times more.
I've read the arguments of some bitcoin advocates like this one:
https://fee.org/articles/bitcoin-mining-is-costly-just-like-gold-mining/
that pooh-pooh the costs by saying "hey, it's just like gold mining" which displays vast ignorance about the damage done to both environment and peoples by gold and precious metals mining and acquisition (just ask Native Americans). Nor does bitcoin seem likely to solve the problems of private sleaze or government manipulation any more than using gold or silver did. Some of the problems that bitcoin advocates seem to want to solve with bitcoin (say transaction fee gouging) are really failures by governments to regulate financial institutions (which we once did, to a much greater extent, and can do again).
And to me, the way to solve the weaponization of finance is to construct a new financial system, which I hope will be done.
V
StewartM
Bitcoin seems to be analogous to the precious metals money fetish, it appears to me–and gold and silver are also bad ways to back money.
At gold’s present valuation there isn’t enough physical gold to be able to back the worlds currencies. Possibly including just the U.S.D. also.
The SCO uses gold in trade between currencies like the Ruble and Yuan for oil, gas, and other trade commodities. If Russia sells oil in Yuan, they can exchange the Yuan for gold.
I recently read an article regarding gold backed currencies and they said (because not enough physical gold) that gold would have to be valued at something like $220,000 per ounce.
Unfortunately I cannot find the article, but I believe it was at Zero Hedge.
Webstir
I don’t think anyone will have a handle on what bitcoin is, where it going, or what it will do if it gets there until some high courts have a say in the matter. The reason so many people get their money carts before their money horses is that they forget what money is.
As a preliminary matter, does anyone dispute that bitcoin, as the name implies, is at least “money-like”? No? Ok.
Let’s review:
1) Money is property. If you don’t believe me, try and take some from somebody.
2) It therefore springs from, is a subset of, and is subject to the laws that govern property.
Now here’s where people get lost. What’s property?
3) Property, and lawyer will tell you, is a bundle of sticks. To own it, we submit ourselves to a socially agreed upon bundle of rights and duties, that vary with the form of the property, and the manner in which it is possessed. We rely upon the power of the state enforce our socially agreed upon rights.
Point being, bitcoin creates a fundamental legal paradox at this point. How do you force someone to submit to the power of the state, when the state doesn’t recognize your right. This is known as standing. And until someone who’s been screwed enforces a judgment against the screwor, bitcoin is still just dream.
A really risky dream.
Webstir
Ok, sorry. Not every lawyer will agree with my thumbnail definition of property.
The folks at CATO and their ilk seem to believe God created it.
Webstir
Finally, the money/property relationship applies to the MMT back and forth as well.
People typically argue back and forth about bitcoin and MMT from technical perspectives, while neglecting the foundational arguments for their existence …
Law.
Any commenter on here has probably called out our macroeconomic system as fraudulent at some point or another. We know perfectly well it’s a belief system, adherence to which, is mandatory simply because it’s the law and there are repercussions if you don’t.
So too, MMT and bitcoin, but without the law’s backing.
But, if enough people believe in them enough, new laws get passed.
Revolutionary concept, really.
jonst
when they (China Russia, Eastern Europe, especially newly formed Balkans States, newly formed Central Asian as well, to say nothing of Latin America et al) stop parking their get away money in US Banks, and stop buying RE in the US for potential escape hideaways/in the mean time investment properties,, when they stop sending their kids to US Master’s Degree Programs et al, you will know the power of the US is at its low ebb. And all the talk in the world will mean little, till the above mentioned behaviors stop.
Tom
https://www.forbes.com/sites/francescoppola/2018/08/31/the-terrible-human-cost-of-greeces-bailouts/#75938b944b31
Damn, Greece really took a beating from Austerity. And its Government didn’t have the guts to hardball the EU and betrayed their constituents.
someofparts
“Ok, sorry. Not every lawyer will agree with my thumbnail definition of property.
The folks at CATO and their ilk seem to believe God created it.”
lol
the Divine Right of Thieves
Peter
@Stew
China is expanding its military footprint along with its economic expansion. Bases in Africa and now in Afghanistan are an integral part of their New Silk Road and their expansion into the SCS has driven Vietnam into a new alliance with the US. China’s aid/development loans don’t have human rights or political strings attached but do have economic strings that allow them to take ownership of the projects if the vassal country fails to pay back the loans. Believing that China will be a benelovent imperialist power is foolish and ahistorical and it was Russians who looted Russia after the fall of communism not Western bankers. The BRICS, or what is left of it, is a Chinese financed and controlled tool of their expansion and we will have to wait and see how they use that power when their vassal states default on their loans.
StewartM
Webstir
Let’s review:
1) Money is property. If you don’t believe me, try and take some from somebody.
2) It therefore springs from, is a subset of, and is subject to the laws that govern property.
(….Đ
3) Property, and lawyer will tell you, is a bundle of sticks. To own it, we submit ourselves to a socially agreed upon bundle of rights and duties, that vary with the form of the property, and the manner in which it is possessed. We rely upon the power of the state enforce our socially agreed upon rights.
I would add to this excellent summary the classical economic perspective that money functions as a curtain behind which goods and services are produced exchanged. It is a means to an end, not the end itself. The problem is that more people pay attention to the curtain rather than what’s behind it, including our Summers and Geithners. A healthy economy can survive a financial panic, it’s the equivalent to a bad cold. An economy that is losing the ability to produce things, by contrast, has the equivalent of cancer. What has happened to the US since the philosophy of Reagan-Thatcher took hold, we’ve gutted the real economy to boost the paper asset one.
That’s what our economy has, and in 2009 Obama and his ilk were far more interested in patching up the financial system to keep our “useless eater” rich afloat rather than fixing the problems in the underlying economy. They treated the cold, but left the cancer untreated (and actually, made it worse). As long as we have Wall Street (i.e., capitalism) directing the economy, this trend will not change. As long as the government doing the things that need to be done is by default considered “socialist” and therefore bad, the things that need to be done will not be done (because capitalism with its fixation on short-term rewards is incapable of it). And this is why I predict America’s being dethroned as the world’s superpower, as insofar as I can recall—and I think my grasp of history dating back to ancient times is at least fair—no country has ever been able to maintain itself as a preeminent power by basing its power solely on finance. I can think of no exceptions.
BTW, just for complete disclosure, some graphs I referenced:
Historical inflation rate of the US (there’s a better one, showing more detail, but I can’t find it now):
https://www.innovativewealth.com/us-historical-inflation-rates/
This one has a shorter historical range but has more detail:
http://visualizingeconomics.com/blog/2008/05/27/us-inflation-annual-percent-change-1774-2007
Here is a graph of real GDP per capital since 1790. Again, look at the volatility which was dampened after leaving a fixed-money standard and a more managed economy.
StewartM
Oops, forgot to include the last link (real GDP per capita:
http://www.organissimo.org/forum/index.php?/topic/35931-us-economic-history-real-gdp-per-capita-growth/
scruff
A question regarding the deflationary nature of bitcoin: isn’t this quality countered by the fact that bitcoin is not the only blockchain currency? I don’t even know how many there are, but every year people invent new ones, and some of them do pretty well value-wise.
nihil obstet
Both money laundering by criminal enterprises and income hiding by the rich seem to work quite well through the current payments systems. Why do they work and regular payments by U.S. declared undesirables don’t? How does Saudi Arabia blithely finance terrorism if the U.S. doesn’t want it to?
Stirling Newberry
Bitcoin = lose your money
Stirling Newberry
Their is a difference between wanting something tacitly allowing something. And you know the difference NO.
e. a. foster
Lets hope the E.U. gets with an agenda and gets this done within a year or so. With Trump in office it really is hard to know what he will do next and why. It is as if the President of the U.S.A. says what can and can not be done in the world and they aren’t everyone. So its best to clip their wings and let other countries grow, such as Iran. Iran signed a deal, the U.S.A. broke it. How can you trust the U.S.A.? We may not like IRAN, but they aren’t the worst of the bunch out there. Iran in my opinion is better than Saudi Arabia, yet the U.S.A would try to stifle everything in Iran. In my opinion, they are no longer fit to have control over anything in the world. Time for the world to deal with business themselves and make their own decisions. All countries have a right to be sovereign nations and only the U.N. has the authority to say different.
e. a. foster
Lets hope the E.U. gets with an agenda and gets this done within a year or so. With Trump in office it really is hard to know what he will do next and why. It is as if the President of the U.S.A. says what can and can not be done in the world and they aren\’t everyone. So its best to clip their wings and let other countries grow, such as Iran. Iran signed a deal, the U.S.A. broke it. How can you trust the U.S.A.? We may not like IRAN, but they aren\’t the worst of the bunch out there. Iran in my opinion is better than Saudi Arabia, yet the U.S.A would try to stifle everything in Iran. In my opinion, they are no longer fit to have control over anything in the world. Time for the world to deal with business themselves and make their own decisions. All countries have a right to be sovereign nations and only the U.N. has the authority to say different.
Hugh
While I agree that the US under Trump is a spectacular disaster, I would note that Europe under the likes of Merkel, Macron, and May and the slow motion train wreck they are overseeing has nothing to feel superior about.