Empires: rises and falls, so now what?

The US was the dominant world power after WWII but has been failing, compounded by desperate plans for hegemony compounded by declining culture and values. Many other countries are falling under the same spell.

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Lockdown Lunacy: Your US Government Ordered Depression Has Arrived

Editor’s note: Download the PDF copy using the link below to view the charts.

Lockdown Lunacy. Your US Government Ordered Depression Has Arrived  By David Stockman, 2 August 2020

 Well, the Virus Patrol sure has done it. In a fit of reckless overkill they have managed to vaporize six years of economic growth during the last 90 days. And that’s just by the mechanical reckoning of the GDP accounts, where total output in Q2 weighed in at essentially the same level as Q4 2014.

The real damage is far deeper, however, and is reflected in millions of small businesses permanently destroyed, tens of millions of households wiped-out financially and the vicious daisy chain of delinquencies, deferrals and defaults just beginning to rip through the $78 trillion edifice of debt which entombs the US economy.

Real GDP Level

Of course, most of the Wall Street talking heads were nonplussed by this morning’s release because, well, Q2 results are claimed to be ancient history: Reality is purportedly the “V”-shaped recovery on their spreadsheets, which really can’t fail to happen because it’s always two quarters out regardless of conditions at the moment.

So let’s get something straight. What is happening is an economic catastrophe the likes of which we have never seen before, even during the Great Depression of the 1930s.

In fact, the worst annual decline back then was a 14.8% drop in 1932, while the entire peak-to-trough real GDP decline between 1929 and the 1933 bottom was 30.5%.

So it would be fair to say that measured at an annualized rate, the idiotic Dr. Fauci and his Virus Patrol have now delivered a 32.9% GDP plunge, which single-handedly tops the entire contraction of the Great Depression.

Needless to say, the Q2 result also leaves the recessionary drops since 1950 way back in the dust. Even the auto industry induced plunge of Q1 1958 didn’t make the double-digit threshold. It clocked in at a 9.986% annualized decline or less than one-third of today’s cliff dive.

What was especially notable, however, was the vaporization of personal consumption spending on services, which ordinarily accounts for upwards of 70 percent of total PCE; and which is also ballyhooed by the paint-by-the-numbers Wall Street economist as the ballast the keeps GDP moving ever higher.

Not this time!

Services spending literally fell through the trapdoor, contracting at a 43.4% annualized rate. That compares with the 11 recessions since 1950 where real spending on services never went negative, save for the pinprick decline of -1.6% annualized during the Q1 2009 bottom of the Great Recession.

By every account, the economic plunge in the winter of 2008-2009 was the worst since the 1930s, but today the Commerce Department reported a PCE-services drop that was 28X deeper!

Our purpose here is not to marshal scary numbers, even as they surely are. Rather, our point is that what is coursing through the Q2 numbers is not anything that resembles a normal chain-of-reactions macroeconomic cycle. For instance, where job losses cascade through to shrinking incomes, thereby causing consumer confidence and spending wherewithal to diminish and household spending to be curtailed.

To the contrary, what is depicted below is essentially economic marshal law. Agencies of the state commanded airports, restaurants, bars, hair salons, gyms, movies, dentist offices, theme parks, sporting events etc. to close or operate at drastically reduced capacity, which meant, in turn, that day-in-and-day out commerce and economic output vanished instantly.

Stated differently, this 43% plunge in services spending didn’t happen for the ordinary reason that people were short on cash. As we show below, personal income during the quarter – thanks to the massive flow of free stuff from Washington (aka government transfer payments) – clocked in at a record level!

Consequently, there will be no rebound in the plunging red line below no matter how much fiscal and monetary “stimulus” Washington pumps into the main street economy.

The services sector accounts for nearly 66% of total PCE, which, in turn, accounts for 68% of measured GDP. So the latter will not recover until the Virus Patrol gets its foot off the neck of what we call the social congregation activities of daily economic life; and also until it and its MSM collaborationist desist from fanning the false claim that the Covid is the equivalent of the Black Plague, thereby causing people to voluntarily quarantine out of misplaced fear.

Of course, you don’t have to listen to Dr. Fauci and the Scarf Lady for long – yes, they have not yet been locked up in padded cells where they belong – to realize that the Virus Patrol is on a once-in-a lifetime power trip.

In ultra-busy body/Nanny State fashion they are virtually regimenting the comings and goings of a $20 trillion economy – even as they keep the US economy on indefinite idle waiting for the vaccines and antivirals from their allies in Big Pharma and the Gates Complex to ride to the (mandatory) rescue.

Annualized Change In Personal Consumption Expenditures, Services, 1950-2020

We don’t expect the Virus Patrol to be put out of business any time soon because the Donald is too confused and weak to shut them down.

Moreover, if he keeps shooting himself in the kneecaps via tweets like today’s “lets-postpone-the-election” numbskullery, he will guarantee an even worse scenario: Namely, that while Sleepy Joe is being oxygenated and propped-up behind the Resolute Desk for daily Oval Office photo ops, the left-wing health Nazis who surround him will really go to town on Lockdown Nation.

Nor is that any kind of unhinged trashing of the camarilla of out-and-out statists who will form the core of the Biden Administration. The fact is, the Donald’s malpacticing doctors, the MSM and the Blue State mayors and governors have now unleashed a full-on public hysteria that is self-fueling.

It is now transforming ordinary sheeples into obedient and unquestioning brown-shirts. Even in the purportedly enlightened, socialist republic of Aspen, where we are sheltering for the duration, we see them “mask-up” even with no one in sight, while pumping strenuously up the mountain side on a fat-tired bike.

On manifestation of the Covid-Hysteria is the soaring level of “testing” going on as people either try to get a hall pass in order to return to work or just plain run to the nearest testing station every time the media sends off new alarm bells.

During April, for instance, which was the very worst month of the contagion in terms of serious illnesses and deaths, 5.2 million new tests were reported or 175,000 per day.

By contrast, in July to date (thru the 29th), there have been 21.5 million new tests reported or an average of 745,000 per day.

In a population that has been thoroughly exposed to the virus after five months, it is a given that with the number of tests soaring, the number of positive cases will rise proportionately. But that’s a misdirection because the real issue is the true medical severity of the new cases, and that has dropped precipitously.

The death rate has dropped from 1,800 per day in April to 780 in July; and whereas 15-20% of new cases were being hospitalized in most states during April, that figure has now fallen to 2-4%.

That is, after the Grim Reaper’s original romp through the most vulnerable populations – especially the nursing homes and long-term care facilities in March/April – the preponderant share of the remaining populations being infected and testing positive appear to have stronger immune defenses, and are mainly either asymptomatic or treating and recovering at home in the normal flu-season manner.

So on the facts, the Hysteria should be dying out, but, alas, the facts are of small moment in the context of a runaway public hysteria that is being turbocharged by a severely aggravated anti-Trump partisanship that has no modern precedent, or any at all.

We are constantly reminded that there are less than 100 days until the election, but probably of even more salience is that the next flu season will be arriving even sooner in October. And it won’t matter whether the obvious herd immunities building up against the SARS-Cov-2 cause the next flu season to be unusually mild or not.

That’s because the Virus Patrol will be at shrill alert for the “second wave” in the run-up to October, keeping the suffocated economy evident in today’s GDP report on its back foot for the balance of the year, at least. That means the ballyhooed V is now surely dead-as-a-door nail.

In this context, it needs be recalled that the services sector of the US economy is bearing the brunt of the Lockdown orders, but that it now counts for fully $8.7 trillion or 45% of GDP. That compares to a mere 26% back in the days of America’s industrial might in the mid-1950s.

In the big picture context, therefore, national policy – especially at the Eccles Building – caused the off-shoring and hollowing-out of the US industrial economy over the last three decades. In turn, that has left main street especially vulnerable to a state-orchestrated attack on its new services sector center of gravity such as outpatient surgery clinics, Pilates studios and tapas bars.

Again, an economic marshal law attack on the new epicenter of the US economy means that the issue is not traditional stimulus, but clearing the decks and clearing the air of the Virus Patrol orders and Covid-Hysteria, which was the real culprit behind the Q2 GDP disaster.

Nominal GDP (light brown) Versus Service Sector PCE (dark brown), 1955-2020

Perhaps nowhere is the impact of economic marshal law more evident, ironically, than in the health care sub-sector of the services economy.

The former, of course, has been the workhorse of US GDP growth for decades. However, after peaking at $2.50 trillion in Q4 2019, it weighed in at just $1.89 trillion in Q2 2020. That’s a $608 billion decline, reflecting an astounding -24% contraction.

And this is supposed to be the worst medical crisis to hit America since the Spanish Flu of 1918!

But, actually, the government’s data mill is telling an absolutely opposite, nay crazy, story. Namely, that the single largest sector of the US economy plunged at a 61.6% annualized rate in Q2 – meaning that the figure gives the notion of being “off the charts” of history an altogether new definition.

Needless to say, health care spending is not now and never has been amenable to Washington’s vaunted stimulus machines. The overwhelming share of spending is government funded directly through Medicare/Medicaid et al or through the $300 billion per year tax shelter for employer health plans; and whether public or private, consumer health payments are overwhelming made by third-parties, thereby further limiting the efficacy of the cheap money from the Fed and free money from Uncle Sam.

The plunging red line below, therefore, is the doing of the Virus Patrol and its orders to shutdown most so-called discretionary healthy care services, such as cancer screenings? So until it is put out of business and the public Covid-Hysteria is substantially abated, the rebound of the health services sector is likely to the contained and protracted.

In short, what we have is a government-ordered depression, not a macroeconomic recession that is purportedly remediable by a huge dose of monetary and fiscal stimulus. So the truth is, the Virus Patrol, not the Fed and Washington’s everything bailout brigade, is in charge of the recovery from the Q2 disaster, and they are not much interested in letting it happen.

To take another salient example, the go-to strategy of the Virus Patrol has been to shutdown large scale public gatherings entirely, but that’s obviously the venue of the recreation sector.

So it is not surprising that the PCE spending rate for this sector has given “cliff-diving” a run for its money. Compared to the $590 billion annualized rate of spending in Q4 2019, the current quarter clocked in at just $272 trillion.

The amounted to a 53.4% decline from Q4 and an out-of-this-world contraction of 61% annualized in the current quarter. Or alternatively, recreation spending in Lockdown Nation during Q2 reverted to the level first crossed in Q2 2002.

That’s 18 year’s worth of growth gone in a virtual economic heartbeat.

Of course, there was one thing that was way up in Q2 – transfer payments and personal income. And every dime of the massive increase in transfer payments shown below was borrowed by Uncle Sam and monetized by the Fed.

Yet the only thing it accomplished was to further balloon the public debt because the current depression does not flow from the want of means or desire to spend: It’s the product of economic marshal law ordered up by the Virus Patrol.

Still, it is worth noting that wage and salary income (brown line) was down by $680 billion at an annual rate in Q2, while the Washington spending machine boosted transfer payments at a $2.4 trillion annual rate, or by nearly four times more!

Once upon a time, that would have been considered insane overkill, and at least caused Republicans to screech at the top of their lungs about fiscal profligacy.

Alas, as they put up their $1.2 trillion Everything Bailout 5.0 against the House Dems’ $3.3 trillion alternative in the days just ahead, the chart below will be nowhere seen in the porkers’ lounges of Capitol Hill.

Change From Prior Quarter In Billions: Transfer Payments (purple line) Versus Wages and Salaries (brown line)


Reprinted with permission from David Stockman’s Contra Corner.

The Best of David Stockman

Former Congressman David A. Stockman was Reagan’s OMB director, which he wrote about in his best-selling book, . His latest books are and . He’s the editor and publisher of the new David Stockman’s Contra Corner. He was an original partner in the Blackstone Group, and reads LRC the first thing every morning.

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The Bretton Woods Dollar System and pending collapse of the fiat US dollar

The Bretton Woods Dollar System and pending collapse of the fiat US dollar  By F William Engdahl, 7 July 2020 


Editor’s note:  This book by F William Engdahl explains how the US powerbrokers orchestrated the USD ascendancy and hegemony by a mixture of lies and bullying, many focused on the infamous Bretton Woods agreement in 1944. Chapter 11 provides a basis for understanding why the US dollar is rapidly collapsing, as do all fiat currencies, and possibly what will follow shortly.

Hello dear Reader,

For this letter I have decided to share with you the complete eleventh chapter of my book, The Gods of Money: Wall Street and the Death of the American Century. The book, one of my most detailed, traces the emergence of an international banking cabal following the US Civil War, first led by J.P. Morgan, later by the family Rockefeller. History is very concrete and my experience suggests that it is most important to detail precisely who did what to whom and why. In this selection from my book, I describe the process that created the 1944 Bretton Woods System designed by those Wall Street bankers and by their man in Washington’s US Treasury, to be the basis of a postwar informal American Empire. To comprehend what is taking place today, history is essential.

I hope you enjoy this excerpt and that you will consider buying the complete book. You will be amazed perhaps at what you learn about the true US history.

Please see the attachment for the complete chapter in .pdf-file format.

If you like the book, it would mean a lot to me if you leave a review on amazon. This helps me continue to create great content for you.

                                                                                   — F William Engdahl

Chapter Eleven:

Creating the Bretton Woods Dollar System

We, my dear Crossman, are Greeks in this American Empire. You will find the Americans much as the Greeks found the Romans—great big, vulgar, bustling people, more vigorous than we are and more idle, with more unspoiled virtues but also more corrupt.

–Harold Macmillan, wartime adviser to Churchill, on the reality of the postwar Anglo-American relationship [1]

An American Dollar Standard

As war erupted in Europe in September 1939 with Hitler’s and Stalin’s dismemberment of Poland, European gold was flooding into the United States. In 1935 US official gold reserves had been valued at just over $9 billion. By 1940 after the onset of war in Europe, they had risen to $20 billion. As desperate European countries sought to finance their war effort, their gold went to the United States to purchase essential goods. By the time of the June 1944 convening of the international monetary conference at Bretton Woods, the United States controlled fully 70% of the world’s monetary gold, an impressive advantage.[2]  That 70% did not even include calculating the captured gold of the defeated Axis powers of Germany or Japan, where exact facts and data were buried in layers of deception and rumour.

By 1945 the United States Federal Reserve controlled the overwhelming share of the world’s monetary gold.

The major Wall Street financial powers intended to use their advantage to the full in creating their postwar American Century. The American dollar, under the postwar system constructed by Washington and Wall Street banks, would be the mechanism for US control of global money and credit.

Beginning as early as 1941, calculating that Hitler’s march against the Soviet Union would destroy Germany, US policy circles began laying the basis for their postwar economic hegemony.  They would be remarkably effective in maintaining that hegemony for the first two decades after the end of the war.

The centerpiece of US economic strategy for shaping its dominance of the postwar world was called the Bretton Woods Agreements — the promotion of an American-defined ‘free trade’ and of the US dollar as the sole currency of that world trade.

World War II had caused enormous destruction of infrastructure, industry and populations throughout the Eurasian landmass from the Atlantic to Vladivistock. The only major industrial power in the world to emerge intact—indeed, greatly strengthened from an economic perspective—was the United States.

As the world’s greatest industrial power, physically unscathed by the war, the United States stood to gain enormously from opening the entire world to unfettered trade. The US industrial sector would have a global market for its exports, and it would have unrestricted access to vital raw materials from countries that were former colonies of Britain, France and the other European powers. Little wonder that ‘free trade’ assumed the dimension of religious dogma in postwar Washington.

‘Free trade’ involved lowering tariffs and removing national protections that hindered the flow of goods, especially US exports, into global markets, or removed barriers to US import of cheap raw materials from former or existing European colonial territories in Africa or Asia.

As the British well understood, ‘free trade’ or a ‘level playing field’ was the rallying cry of the strongest, most advanced economies, seeking to open up less developed markets for their goods. A century earlier, in 1846 with the repeal of their Corn Laws, Britain had been in a similar position to demand that the rest of the world open its borders to a British version of ‘free trade.’ Now, in 1945, the tables had turned. Washington’s vision of free trade meant economic ruin for much of what remained of British industry.

The European economies, devastated by almost six years of war, had little choice but to agree with the US vision of postwar international economic management. Even Great Britain, which saw itself as at least an equal of the United States at the bargaining table, was forced to take a bitter lesson in humility before harsh US demands.

The final agreement for a postwar New World Order in monetary and economic affairs was reached following months of bitter infighting, especially between British and US negotiators. US negotiators, led by the Treasury’s Harry Dexter White, pushed through a system different from all previous gold standard currency exchanges that had existed before.

Under the 19th Century British Gold Standard, and even in the New York version after 1919 until the British left in 1931, each national currency was backed by a given reserve of national monetary gold. If a country suffered an imbalance in its foreign trade, in theory, it would automatically be corrected by the workings of the gold standard as the country would lose or gain gold depending on whether it had a trade deficit or surplus. Under the new rules of the Bretton Woods, Washington imposed a system where only one currency—the US dollar—would be backed by gold. All other currencies were fixed in value in relation to the dollar.

It was a coup for the United States and for the Wall Street banks behind the Bretton Woods negotiations. The dollar became the world’s reserve currency, required by all trading nations to conduct trade with one another after 1945. The US dollar, not gold, under the Bretton Woods Gold Exchange Standard, became at one and the same time a ‘world currency’ or more accurately, The world currency. Yet, as pointed out, the US Treasury also had unlimited power to create dollars, and it did so. Because its currency, the dollar, was the world reserve currency, the world was more or less forced to accept the inflated dollars. No other country enjoyed that enormous advantage.

The fateful Bretton Woods signing

The final agreement was signed by representatives of 29 nations in December 1945 at the Mount Washington Hotel in Bretton Woods, New Hampshire. It was a crowning moment for the members of the Council on Foreign Relations’ War & Peace Studies project—their dream of postwar economic empire had been successfully achieved. Their institution, the International Monetary Fund, would now be able to reorganize much of the world under the sovereignty of the dollar.

American hegemony over the world financial and trading system was central to the Bretton Woods agreement. The crucial terms had already been hammered out in a series of private negotiations beginning in 1943 between Britain’s Lord Keynes, Advisor to the UK Treasury, and Harry Dexter White, US Assistant Secretary of the Treasury under Secretary Henry Morgenthau. [3]

The Bretton Woods talks, which began in June 1944, were intended as the first institutional component of a new postwar United Nations organization (UN) that would replace the British-dominated League of Nations. The UN, unlike the League, was to be a US-dominated agency, under a concept created by the authors of the War & Peace Studies to advance the US agenda in the postwar world.[4] The Rockefeller brothers who financed the studies even donated the land for construction of UN headquarters in Manhattan. The resulting rise in adjacent land values, as foreign diplomats descended on Manhattan, more than made up in gain for their original generosity.

One of the reasons the US version of Bretton Woods prevailed over the alternative British version argued by John Maynard Keynes for the British Government, was the simple fact that the US was the most powerful country at the table, ultimately able to impose its will on the others. At the time, a senior official at the Bank of England described Bretton Woods as, “the greatest blow to Britain next to the war.” [5] It demonstrated the dramatic shift in financial power from the UK to the USA.

The Bank of England, as well as influential Round Table members such as Leo Amery and Churchill’s old ally, Lord Beaverbrook, correctly saw the US proposal for the International Monetary Fund as a device intended to make the US dollar the primary currency of world finance and trade, a shift that would come at the expense of the vital role of the City of London as well as undermining the British Sterling Area and Imperial Preference trade links. [6]

In order to secure the desired US version of the Bretton Woods agreement, however, Washington urgently required the bloc of votes that were represented by the nations of Latin America. Here Nelson Rockefeller, Roosevelt’s wartime intelligence coordinator for Latin America, played a key role in manipulating the votes with deals using his far-reaching influence in Latin America.

Nelson buys some UN votes

The Yalta agreement signed by the US, Great Britain and the Soviet Union in 1945, had stipulated that only those countries that had formally declared war on Germany could be founding members of the postwar United Nations organization. To be one of the select UN founding members suggested a better ‘seat at the Big Table’ in terms of trade privileges especially with the large and booming United States market, something most Latin American countries were desperate to have.

In order to insure it had enough votes in forming the UN to assure its Bretton Woods agreement, Nelson Rockefeller personally organized a ‘packing’ of the votes in favor of the US plan by securing the votes of all 14 nations of the Pan American Union, seven of which, including Argentina, had been neutral countries during the war.

Nelson Rockefeller, having just been named by the President as Assistant Secretary for Latin America, gave the nations of Latin America an ultimatum that unless they formally declared war on the Axis Powers by February 1945, they would not be allowed to participate in the creation of the new United Nations Organization, nor to share in the postwar trade bonanza it promised.

That formal declaration of war against the Axis powers was necessary to comply with the just-agreed Three Power Yalta agreements.

Only Argentina remained neutral, but its vote was also needed to counter the balance of British votes. Rockefeller persuaded the ailing FDR to authorize inviting Argentina to join the UN as a founding member, even though it violated the Yalta agreements with Britain and the USSR that only nations that had declared war on Germany could be founding members. The gesture was meaningless in military terms, as the war was already over in a practical sense.

It was a ploy by Nelson Rockefeller to pack the votes against the British who used Britain’s dominions and commonwealth countries to beef up her votes. Stalin was furious at the obvious move by Washington to control the voting members in a way that allowed Washington to dominate the key decision making bodies of the new United Nations. [7]  It confirmed Stalin’s apprehensions that Washington was using the UN, as well as its new IMF and World Bank organizations, as disguised tools for an American economic postwar imperium. His fears were well justified.

The Bretton Woods Dollar System

The Bretton Woods System was to be built around the three pillars: an International Monetary Fund, whose member countries would contribute to an emergency reserve available in times of balance of payment distress; a World Bank, or International Bank for Reconstruction and Development, which would provide loans to member governments for large public projects; and, somewhat later, a General Agreement on Tariffs and Trade, designed to manage ‘free trade’ through multinational tariff reduction talks.

Each member country would be assigned a quota, an amount to pay into a common IMF fund, in currency and gold. According to its share of the overall IMF quota, each would have a proportionate voting right in the Board of Governors. It was a US-dominated game from the outset. The US, as the strongest economy with the largest gold reserves, ended up with some 27% of total votes; the UK had 13%; by contrast and France had a meagre 5%. Thus the new IMF was an American instrument to shape their form of postwar world economic development. [8]

In the end, over the objections of the British, Washington got its way in terms of voting rights, rules and other vital aspects of the new institutions, the IMF and World Bank. The US Treasury would de facto control the new IMF. Voting rights were proportional to a country’s IMF contribution. The US, as the strongest economic power among the initial 29 founding nations, was by far the largest contributor, gaining the largest bloc of votes in the board.

Under the bylaws of the new IMF the US was in a position to block any decision it opposed by virtue of its vote share. By virtue of its large vote, Washington would also be able to control the decisive IMF Executive Board, directing overall policy to the wishes of the US Treasury and Wall Street. To make the US control of the rules of the new postwar monetary game clear, IMF headquarters were located in Washington, close to the US Treasury. Small wonder that Stalin decided not to join the IMF after 1945.

Dollar Standard replaces gold

Very few people, other than a handful of international monetary experts, grasped how skillfully the United States negotiators at Bretton Woods had structured an institutional base for a postwar dollar imperium. Bretton Woods changed the international currency system in a way that was congenial for the United States and an improvement, from their perspective, over the earlier gold standard. The new agreement required all member countries to fix the value of their currencies not to a weight of gold, but to the US dollar. The supply of US dollars in the world would, conveniently, be determined by Washington—the US Treasury and the Federal Reserve.

In 1945 it was argued—as the British had said about the pound sterling a century before—that the dollar was ‘as good as gold.’ Within two decades that axiom of international financial stability was to prove a tragic delusion. In 1945, however, it was the reality. European countries were starved for dollar credits to rebuild their ravaged infrastructures. Their currencies were not convertible and their economies were in ruins.

The New York Federal Reserve Bank, the private institution controlled by the Wall Street Money Trust since its creation in 1913, was the heart of the system that would now control the majority of the non-communist world’s monetary gold.

For the US, the Bretton Woods currency system had unique and obvious advantages. In practice, since the principal reserve currency would be the US dollar, other countries would have to peg their currencies to the dollar, and—once their free currency convertibility was restored—they would buy and sell those dollars to keep their market exchange rates within plus or minus 1% of their initial 1945 value in relation to that US dollar, as required by IMF rules.

The US dollar thereby took over the role that gold had played under the gold standard in the international financial system before the war. In practice it meant that world trade was almost exclusively transacted in dollars, a decisive advantage for the US, who had unlimited power to print new dollars, unfettered by having to hold gold reserves against new dollar issue. Never had the British in the height of their financial power had such one-sided power over world money as Washington and Wall Street enjoyed after 1945.

The two pillars of American power

The unchallenged role of the US dollar as the world’s reserve currency was one of two fundamental pillars of American power after the war. The second pillar was the unchallenged role of the United States as military superpower, a superiority that not even the Soviet Union during the Cold War was able to successfully challenge.  The military pillar was obvious to all. Not so obvious was the dollar pillar, especially in the days after World War II.

The nations of Western Europe involved in World War II were deeply in debt after the war. They had been forced to finance their war efforts, especially Britain, as well as numerous exile regimes in London, to transfer large amounts of their gold reserves into the United States, a fact that contributed to the supremacy of the United States as the ‘leader of the Free World’ after 1945. The exact details of the transfer of billions of dollars in foreign central bank gold to the New York Federal Reserve during the war remain buried in secrecy to the present. [9]

Under the Bretton Woods system, after 1945 each member country’s national currency would be pegged to the US dollar. The US dollar was in turn set at an official rate of $35 per fine ounce of gold, the rate set by President Roosevelt in 1934 during the depths of the Great Depression and before the major inflationary effects of a world war. The dollar had inflated enormously during the war years, but was still fixed at $35 per fine ounce of gold, a rate greatly advantageous to the dollar and to Wall Street international banks. Fewer dollars bought more gold.

The distinction from the earlier Gold Exchange system created by J.P. Morgan and Wall Street between 1919-1934 was the fact that this time the United States had no rival, either politically or militarily, for world hegemony. Washington and Wall Street could literally dictate the terms. They did just that.

While the role of the dollar as reserve currency gave US capital an advantage over potential rivals such as British Sterling, the German Mark or French Franc during the postwar period, more importantly, it allowed the US Treasury and Federal Reserve the uncontrolled power to issue virtually unlimited dollars for international lending, regardless of gold backing, as the dollar and not gold was the world reserve commodity.

Because of the unique role of the American dollar as world reserve currency, the United States was able to finance its growing military expenses abroad by issuing new dollars rather than increasing its own gold reserves. To get gold was not easy in a world where gold was sought by most other central banks, but dollars could be created by the US Treasury more or less at will.

Washington’s unique advantage after 1945 was having the US dollar as ‘key currency’ or the cornerstone of world money flows and trade settlement. If the US Government was forced to run a deficit to finance costs of its expanding network of military bases abroad, in effect, outposts of a new informal empire, disguised as defence against Communist expansionism, it could simply issue debt in the form of US Treasury bonds.

Foreign central banks holding surplus trade dollar accumulations had little recourse but to invest their surplus trade dollars in US Treasury debt, in effect financing the US military expansion globally. As the deficits grew, the relation of the dollar supply to a fixed reserve of gold diverged dramatically. In effect the US, as the ‘key currency’ country, was able to export its inflation onto its trading partners in the form of de facto devalued dollars.

Under previous Gold Standard systems — both the interwar years as well as the pre-1914 British Gold Standard — each nation fixed its own currency to gold. Gold was the bedrock of stability, not the Pound Sterling, the dollar or any other single currency. Given its strong position in 1945, for the first time in history, one nation, the United States, was able to impose not gold but its own national currency on the world as the ‘dollar standard.’ Moreover, the supply of those dollars was a question of political will and not of physical supply, as with gold. As Soviet economists rightly pointed out, no other country had such a luxury.[10]

Initially, the IMF and World Bank played only a small role as a slightly modified strategy of geopolitics took shape under the Truman Administration after the death of FDR in April 1945.

The initial idea of Isaiah Bowman’s War & Peace Studies group at the Council on Foreign Relations was that the US would ally with Russia and the other Allied nations after the war to prevent a re-emergence of a strong Germany. China as well as Russia would be an American ally against a potential resurgence of Japan.

However, Truman was influenced by former Moscow Ambassador and Wall Street banker Averell Harriman and by Secretary of State Dean Acheson, both of whom urged stronger opposition to Stalin’s activity in Eastern Europe, even though Truman thereby  violated the agreements reached at Yalta on division of postwar Europe among the three major war powers—Russia, Britain and the USA.

In February 1945 Roosevelt, Churchill and Stalin had met at Yalta on the Black Sea to discuss the postwar occupation of Germany. Among the agreements signed by the three was an explicit recognition of the fact the Soviet Red Army had liberated Poland and would play a key role in a new Polish government. The three agreed to move the Polish eastern boundary westward to the 1919 Curzon Line and to restore western Byelorussia and the western Ukraine to the Soviet Union. Germany would be ‘temporarily’ divided into three zones of occupation, with France invited to become a fourth occupying power.

Stalin, for his part, promised at Yalta that the Soviet Union would enter the war against Japan after the fighting ended in Europe. Stalin’s terms for this were accepted by Roosevelt and Churchill, as follows: the southern Sakhalin and adjacent islands to be returned to the Soviet Union; Darien to be internationalized; Port Arthur to be leased as a naval base to the Soviet Union; Chinese-Soviet companies to operate the Chinese Eastern and the South Manchurian railroads; Outer Mongolia to remain independent of China; and the Kurile Islands to be handed over to the Soviet Union. China would be sovereign in Manchuria.

The man in charge of working out the details of Yalta for Roosevelt was then-US Ambassador to Moscow, Averell Harriman, the man whose investment bank had had extensive wartime involvement with the Nazi Reich.

FDR’s grandiose plans for using the United Nations to extend the American Lebensraum were put on hold by Truman, who preferred that Washington would pursue the same goals bilaterally instead. Rather than build on their wartime cooperation with the Soviet Union in defeating Nazi Germany, the United States would team up with Britain against their wartime ally. By rolling back the Yalta agreements, Washington could be assured Stalin would react aggressively to defend what he saw as Russia’s vital security interests in Eastern Europe by force if necessary. Such was the trap set for Stalin by Churchill and later by Washington. Stalin took the bait.

Churchill had come to Truman’s home state of Missouri in 1946 to deliver his famous ‘Iron Curtain’ speech in the small town of Fulton, proclaiming that a new division of Europe was underway. Since at least 1943 Churchill and the British Round Table circles near him calculated they needed to create a new conflict with the Soviets in order to make Britain indispensable to the inexperienced Washington as the ‘mediator’ between the Soviets and the United States.

Early in 1945, before the German surrender, Churchill had ordered captured German divisions to be maintained intact, along with their weapons, for possible further deployment against the Soviet Red Army. This was an extraordinary and unprecedented procedure. The plan was vetoed on military grounds by General Eisenhower and the White House. It revealed however that the British were already preparing the ground for the next phase in their ‘Balance of Power’ world.[11] Washington and London were already secretly back-stabbing their ally Russia.

By 1945 Churchill had realized that Britain would have to put up a hard fight with Washington to maintain even a semblance of its pre-war power. Truman made clear very early in his Administration that such would be the case.

When Truman unexpectedly canceled Lend-Lease aid to Britain just after the Japanese surrender in August 1945, and demanded repayment of Britain’s war credits, Washington signaled the new postwar order. By war’s end Britain’s gold and dollar reserves were down to less than $1,500 millions and her short term debt stood at a staggering $12 billion. England’s non-war related industry was in desolate condition. Coal production had fallen dramatically; electricity blackouts were common. Millions of returning soldiers had to be reintegrated into a tattered civilian economy.

If Churchill and the British could lure Truman into a new confrontation with Russia, there was a chance that Britain would become indispensable to Washington and at least preserve a semblance of its former Great Power standing. That at least was the logic in London.[12]

Canceling Lend-Lease was clearly hostile to London, particularly as Truman made an exception in continuing Lend-Lease aid to China at the same time.[13]  The cancellation of US credits and supplies to Britain was consistent with the CFR’s strategy of maintaining the weakened position of America’s one potential economic rival for the postwar era—Great Britain—especially its Sterling Preference agreements with its dominions and vast number of colonies around the world. The architects of the American Century had no intention of dealing with anyone, not even its old ally Great Britain, as an equal.

Roosevelt and the Rockefellers clearly had not gone to war in order to save the British Empire. Exactly the opposite. Roosevelt and Truman both knew that Britain would have to be brought to her knees before she would agree to be junior partner in an Anglo-American ‘Special Relationship.’ As Britain’s Harold Macmillan, wartime emissary of Winston Churchill, expressed the new reality to Richard Crossman, a prominent British Social Democrat,

We, my dear Crossman, are Greeks in this American Empire. You will find the Americans much as the Greeks found the Romans—great big, vulgar, bustling people, more vigorous than we are and more idle, with more unspoiled virtues but also more corrupt. We must run Allied Forces Headquarters as the Greek slaves ran the operations of the Emperor Claudius. [14]

Churchill’s April 1946 Iron Curtain speech in Fulton Missouri marked the turning point in swinging Washington behind England’s confrontationist policy towards Stalin and the Soviet Union. The Anglo-American postwar ‘special relationship’ was not to be a marriage of equals no matter how much London wished. But at least they were still in the game as they saw it, even if it was an American game.

That American ‘game’ was to use its military and economic power to create a new economic imperium using the manufactured threat of Soviet spread of communism as the new global threat replacing Hitler’s armies.

[1] Harold Macmillan, quoted in Christopher Hitchens, Blood, Class and Nostalgia: Anglo-American Ironies (New York: Farrar, Straus & Giroux, 1990), p. 23.

[2] Phillip Cagan, Determinants of Change in the Stock of Money: 1875-1960 (New York: Columbia University Press, 1965), p. 341.

[3] In a curious footnote to the history of Bretton Woods, following the opening of secret Soviet archives after 1991, it was confirmed that White, as later US intelligence circles suspected, had indeed been a member of the Silvermaster Soviet spy ring within the US Government. On reports of his possible Soviet role, Truman rescinded his nomination as first Director General of the new International Monetary Fund, without explanation.

White had played a role in formulating the notorious Morgenthau Plan for the deindustrialization of postwar Germany, a plan which makes more sense as a Soviet rather than US goal, though Roosevelt, a fervent Germanophobe, heartily backed the idea until his death. The plan, under US military directive JCS (Joint Chiefs of Staff) 1067, would allow the Western occupation powers and the Soviet Union dismember German industrial plant and turn the nation into a ‘pastoral’ food supplier. In March 1945 just days before his death, when Roosevelt was warned that the JCS was not workable, unless he were ready to eliminate 25 million Germans, his response was ‘Let them have soup kitchens! Let their economy sink!’ Asked if he wanted the German people to starve, he replied, ‘Why not?’ FDR also reportedly told Morgenthau, ‘We have got to be tough with the Germans and I mean the German people not just the Nazis. We either have to castrate the German people or you have got to treat them in such a manner so they can’t just go on reproducing people who want to continue the way they have in the past.’ On May 10, 1945, following the death of FDR, Truman signed the JCS 1067. It remained in effect for two brutal years, despite the strong protest of Churchill and others. See Michael R. Beschloss, The Conquerors: Roosevelt, Truman and the Destruction of Hitler’s Germany, 1941–1945, p. 196 for the FDR quote.  See Allen Weinstein & Alexander Vassiliev, The Haunted Wood, 1999, Random House, New York, p. 90 for the details of Harry Dexter White’s KGB activities as revealed in declassified Soviet archives after the end of the Cold War.

[4] Neil Smith, American Empire: Roosevelt’s Geographer and the Prelude to Globalization (Berkeley:  University of California Press, 2003),  p. xii.

[5] Cited in Gideon Rachman, The Bretton Woods Sequel will Flop, London Financial Times, November 10, 2008.

[6] M.W. Kirby, op. cit., pp. 91-92.

[7]  Peter Collier & David Horowitz, The Rockefellers: An American Dynasty (New York: Holt Rinehart & Winston, 1976), pp. 234-235.

[8] Victor Argy, The Postwar International Monetary Crisis (London: George Allen & Unwin, 1981), p. 24.

[9] A. Stadnichenko, Monetary Crisis of Capitalism, (Moscow: Progress Publishers, 1975), pp. 88-101.

[10] Ibid, pp. 100-103.

[11] Fraser J. Harbutt, The Iron Curtain: Churchill, America and the Origins of the Cold War (Oxford:  Oxford University Press, 1986), pp. 101-149.

[12] Sir Richard Clarke, Anglo-American Economic Collaboration 1942-1949 (Oxford: Clarendon Press, 1982),  pp. 21-26.

[13] Richard N. Gardner, Sterling-Dollar Diplomacy (Oxford: Clarendon Press, 1956), pp. 184-186.

[14] Harold Macmillan, op. cit.


What Happens Next for China—Collapse or War with the US?

What Happens Next for China. Collapse or War with the US  by Doug Casey, InternationalMan.com, 2 July 2020

International Man: While many have been distracted by the unrest in the US, tensions with China are soaring.

Recently, Beijing passed a national security law that would undermine Hong Kong’s autonomy. What comes next for US-China relations?

Doug Casey: I lived in Hong Kong, on and off, from 1985 to 2005. When I first moved there, it was a Chinese city, but there were a lot of Western expats.

When I returned most recently, it had transformed into a Chinese city with very few expats. They’d all gone to Singapore.

What’s happening in Hong Kong is unfortunate, but frankly, it’s none of our business. Unfortunate things are happening in a hundred places around the world. You just can’t solve other people’s problems for them, nor should you try. Nobody likes a busybody.

As I’ve said so many times in the past, the US government has got to stop sticking its nose in other people’s business. The US has been acting as the world’s self-appointed cop since at least WWII, as often as not stepping in on the side of the bad guys—whether it knew it or not— and bankrupting itself while making enemies in the process.

In the case of Hong Kong, my view is that the Beijing regime is totally wrong, but it would be a disastrous error for us to get involved.

The same goes for the South and East China Seas, which were in the news a few years back. The US is sending a bunch of aircraft carriers there to show the flag, which is dangerous and provocative and none of our business. Just as it would be none of China’s business if the US decided to make the Gulf of Mexico its own private backyard sea. Should China try to contest that? Should China step in if Mexico decided the Gulf is really its territorial water?

The fact is that Chinese and US businessmen get along just fine. If the Chinese prove to be unethical or dishonest, a US business should just stop working with the firm that cheats them. Why should the US government be involved?

The US and Chinese governments are posturing at each other like a couple of angry chimpanzees. The Chinese government and the US government are both dead hands on their economies. Neither serves a useful purpose. They’re the problem, not Chinese and American businessmen.

Taiwan is another simmering problem.

The Chinese government sees Taiwan as a breakaway secessionist province. They don’t recognize its independence, much as Lincoln didn’t recognize the Confederacy. I think it’s great the Taiwanese are independent, but it’s not our problem. It’s just as stupid for the US government to chance a war there as it would be for the Brazilian government to make Taiwan its business.

International Man: What does it mean for the economy and US politics?

Doug Casey: Well, there’s a huge trade deficit between the US and China, which Trump loves to point out.

I don’t see that as a problem at all.

The Chinese produce stuff and the US consumes it. It’s one-sided—to the American consumer’s benefit. We pay them in US dollars, which will soon be treated like Old Maid cards, created by the trillions. If the US government wants the deficit to stop, it only has to stop its printing presses.

The fact is that the Chinese economy has been tremendously successful because it dumped communism starting in 1980 and free-marketized. The progress that they’ve made in the last 40 years is totally unprecedented in world history as a result. Well, unprecedented for a country that size—because Singapore, Hong Kong, Dubai, all city-states—have done at least as well by implementing low taxes and almost no regulations.

That said, the Chinese economy could actually collapse. Why? Because the expansion that they’ve gone through over the last 40 years has been financed by hundreds of millions of Mrs. Wongs saving half of their income. They save it in Chinese yuan, and they put it in the banks. The banks lend it to governmental entities and businesses.

It’s a debt-driven economy, not an equity-driven economy. The PRC has made huge progress, but—unlike Hong Kong, Singapore, or Taiwan—it’s built on bank debt. The yuan isn’t a sound currency.

China has an active stock market, and it’s true that Mrs. Wong is involved in the stock market. But the Chinese stock market doesn’t raise capital so much as substitute for a casino. Mrs. Wong trades the stock market but treats it like a version of the Macau casinos.

Because the Chinese economy is built on debt from the banks, and because the government controls so much of the economy, a lot of that debt has been misallocated. And can’t be repaid. Remember, whenever the State is involved, things are done mainly for political, not economic, reasons. And there’s always corruption whenever government is involved.

How so? Everybody’s heard about the scores of new Chinese cities that have been built but largely unoccupied, combined with roads and bridges that go nowhere. Is it brilliant strategic thinking or a gigantic example of State “planning” and bureaucratic stupidity? I can’t say from a current boots-on-the-ground standpoint because it’s been about five years since I’ve been to China proper. But I believe that there’s been a huge waste of capital—because it’s being politically allocated.

If Mrs. Wong goes to take her yuan out of the bank and she can’t because it has been put into uneconomic projects or if she gets her yuan back and they’re worth nothing—there could be a revolution in China.

As the US descends into the Greater Depression, a lot of Chinese factories producing for the US market are going to be in trouble. That will result in a lot of Chinese unemployment, mostly urban. China has had one of the great mass migrations of history since 1980—most peasants have moved from the countryside into the city.

If people in the cities become unemployed, they’re going to blame the government, and their government will blame the US. The whole world revolves around government today. It’s not just true in the US and China, but all countries.

What’s the upshot of this? Will manufacturing return to the US? I don’t think so because the US isn’t very business-friendly. For one thing, taxes in the US are going to go up.

Most governments—the US government, the states, cities, and local governments—are more bankrupt than ever before because of the COVID hysteria. These governments are also adding regulations—they’re not deregulating. Why should businesses come back to the US and be subject to vastly more regulations than in the Orient? US labor costs are also higher, even though labor is less and less an element in manufacturing.

As taxes and regulation grow, at some point the US is likely to have foreign exchange controls to keep capital from leaving. A word to the wise on that subject—diversify abroad. In any event, during a depression, the general standard of living goes down. It’ll go down both for the Chinese, who will be producing less. And for the Americans, who’ll be consuming less.

International Man: What are your thoughts on China’s future overall?

Doug Casey: First, I’d like to point out that a lot of people still refer to the country as “Communist China.” That’s a huge misnomer.

It hasn’t been a communist system for 40 years, since Deng Xiaoping reformed the economy. China may still have pictures of Mao on their currency, but it has nothing to do with communism anymore.

The Communist Party is just a scam, benefitting its members alone. They get to live high off the hog. The Communist Party is nothing more than the Chinese Deep State. It no longer has anything to do with Marx, Lenin, or Mao—an unexpected plus.

We shouldn’t call it communist China, because it’s not communist. It’s not even socialist. They have a fascist system, just like we have in the US. In other words, business is privately owned, and consumer goods are widely available—but it’s all controlled by the State. It’s an authoritarian system. The Chinese have moved towards the US system, even while the US is moving towards the Chinese system.

What’s next for China?

There’s an excellent chance China will go the way of Yugoslavia, which broke up into six smaller countries, or the USSR, which broke into 15. Czechoslovakia broke up into two. Or the United Kingdom, for that matter, which is probably going to become disunited. This is a trend all over the world today. Countries are subdividing into smaller ethnic-based units. It could happen in China. And the US as well—but that’s a whole different conversation.

About 80% of the people in China are ethnic Han Chinese; most speak Mandarin as their mother language as well.

At the same time, there are scores of other languages and cultures within China, representing over 300 million—that’s a lot of people.

For instance, in Southern China—Hong Kong, Guangzhou—the native language isn’t Mandarin. It’s Cantonese. They use the same ideograms as Mandarin does, but the language is as unintelligible to a native Mandarin speaker as, say, Danish is to an English speaker.

We’re talking about 68 million native Cantonese speakers. That’s a huge number. It’s larger than most countries in Europe.

The same is true of the Shanghai-ese.

I’m not even counting Mongolia, Tibet, and Xinjiang—which are all actually separate countries with ethnically, culturally, and linguistically different natives. They’re being purposefully overwhelmed, demographically conquered, by the Han Chinese. There are a dozen other seriously different countries within China itself.

I don’t doubt that when the going gets tough, they’re going to look to independence, as opposed to being bossed by Beijing. Of course, the central government will resist violently, the same way the Russians recently did with the Chechens, the Burmese did with the Karens and Rohinga, or the Indonesians with the East Timorese. But there are scores of other examples.

It’s not unlikely China will break up into autonomous regions run by warlords, much the way it was during the 1930s. As outlandish as that might sound.

International Man: What are the odds of a military clash over Taiwan, Hong Kong, or the South China Sea, and what would be the consequences of that?

Doug Casey: Well, it’s quite possible. But why does that have to be the problem of the US?

It’s almost impossible for the US to invade China. What kind of attack can the US mount? Is the US going to launch a bunch of ICBMs onto Chinese cities?

That makes no sense because the Chinese have their own ICBMs to fire back. That’s not what World War III is likely to look like. And there will be something resembling World War 3. History hasn’t ended, contrary to Fukuyama’s silly book of some years ago.

So if the US can’t and won’t invade China and won’t do an ICBM strike, what will they do? If it comes to a hot war, it will look like what I described in our recent interview.

But, along the way, the US government will try to destroy the Chinese economy.

Getting into a military dust-up with the Chinese—using aircraft and aircraft carriers—would be a catastrophe for the Americans. The Chinese have sophisticated bases all along their shore. This makes the dozen or so US aircraft carriers nothing but sitting ducks.

They’d be turned into artificial reefs. I’m sure divers of the next century will enjoy that—but today’s Americans won’t. A war is not out of the question, but, again, it won’t be a conventional war using today’s military junk. It’s not really feasible, although the generals and admirals will be the last ones to figure that out.

International Man: Recent polls suggest that nearly 2/3 of Americans have a negative view of China. What role will China play in the upcoming presidential election?

Doug Casey: That is an interesting question, especially in the context of the race riots now taking place in the US right now.

When the going gets tough in any country, it makes all the sense in the world for that country’s government to find a foreign enemy to unite the people. In the case of the US, they’d hope to change the equation from whites versus blacks and browns, to Americans against the Chinese.

Of course, they’ve played this card against Iraq and Iran. They played it against Russia.

When we talk about racism, the fact is that almost every ethnic group considers itself to be special or superior. That absolutely includes the Chinese. In fact, the Chinese, as a group, probably have more belief in their racial superiority than any other group. That augurs poorly for world peace.

But will the Chinese have anything to do with the coming election? I’d say very little. In so far as they do, however, they’re going to be Democrat-leaning. The US still thinks it has a monopoly on interfering with other countries’ elections and governments.

The Chinese dislike nationalists such as Trump. Trump is capable of all kinds of foolishness, as he’s already shown, with import duties and quotas. They’d much rather have a globalist who would try to cooperate with them.

As you know, I made a money bet that Trump would win in 2016. This time, I don’t care about Trump losing, per se. He’s a guy with no philosophical core, although he is a cultural conservative, and against PC types and cultural Marxists on a gut level.

What I really care about is the Democrats not winning, because that would be a catastrophe. Unfortunately, however, the collectivists have momentum on their side. Why? They have an actual philosophy, even if it’s a very bad one. The Republicans, however, have none. They only counter by saying their enemy is going too far, too fast. That’s why they always come off as confused and weak hypocrites.

If I was going to put money on it this time, the winner is likely to be whoever cheats best. Both sides are going to stuff the ballot boxes and do all kinds of things with electronic voting and voting by mail.

The Democrats, however, are much more professional and experienced at this type of thing than the Republicans. They’re likely to win.

Editor’s Note: The US empire has overstretched itself across the world. Today, the US is actively at war in about half a dozen countries. But perhaps the biggest danger is the rivalry with China, which has the potential to dethrone the US as the top global power.

China has a secret weapon that could bring the US to its knees. China can cut off the supply of rare commodities that are crucial to powering modern life. The US is scrambling to find a way to neutralize this threat before it’s too late.


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