[Originally written in the early 1980's, Monetarism: Index
MONETARY COLONIALISM
One day, all the stock, commodity, and currency markets will close. While it may not be the actual cause, a justifiable cause would be the U.S. trading partners refusing any further trade with the U.S. U.S. trade deficits and inflation have brought a no-win situation for the foreign nations: they lose ground everyday. These two aspects of international fiscal irresponsibility on the part of the U.S. politicians--trade deficits and inflation--constitute "monetary colonialism." Monetary colonialism? Colonialism or imperialism refers to how one economy subjugates the economy of another country; the subjugator makes a colony of the second for the well-being of the first. Said another way, the colonizer extracts or drains buying power--goods and services--from the colonies to stimulate, sustain and eventually prop up the colonial power. This transfer of wealth continues until the colony is drained and unable to give any more. The colony collapses. This sequence can be seen throughout the history of colonialization except when the colonial power wisely ended its control at an optimal point. Colonialism is an inflationary bubble - the subgator inflates its worth. The colonized economy is not the only one to collapse. In the end, the lopsided, propped up and subjugating economy also collapses! Whereas the collapse of the colony is gradual, accompanied by increased civil strife and turmoil, the collapse of the subjugator occurs precipitously. Historically, colonialism has traditionally occurred through specific military or economic action, e.g., the Roman Empire or China trade spheres. The latest means of colonizing other economies is so subtle and general that no specific country can be pinpointed as the colony. On the other hand, the colonizer stands out once this new form of colonialism is understood. The latest, most ominous form of subjugating other nations, industries, and individuals is monetary colonialism. This mode of colonizing foreign economies, to benefit one's own economy, is accomplished through consistent inflation of the currency exported in trade for the products acquired from abroad. Every nation with inflation and foreign debt is a monetary colonialist. Only one, however, can be the winner. Who? Unfortunately, and as implied previously, a subjugator is a winner only for a while: As the trend of draining the foreign economy increases, so does the subjugator's domestic economy become imbalanced with its growing dependence on the infusion of foreign goods and services. Shortly after the collapse of the colony, the economy of the imbalanced colonial power also falls ... precipitously. The short-term winner of monetary colonialism will be the country which has the greatest amount of its national currency beyond its borders. Monetary colonialism occurs as the politicians of a country mismanages production. The economic mismanagement gives rise not only to shortage inflation but to a need for importing products in short supply. Concomitantly, rising trade deficits index a nation's reliance on monetary colonialism. The United States is the best example of a mismanaged economy that has come to rely on monetary colonialism in order to survive. Even though it was never officially appointed as such the currency of the U.S. is regarded as the international currency: "because so much of the world's business is done in dollars." Nearly 80% of the currencies traded outside their home countries are dollars. The estimates of how many dollars are involved ranges from $175 billion to $1.3 trillion depending on how one defines money. As noted previously, most, if not all, of the dollars are a result of trade-deficits. The following import-export chart shows the trade deficits for only four years. The figure of $175 billion is probably low since the accumulation for only four years is $120 billion.
The #1 product from abroad responsible for the trade deficits was oil. The dollars on the Eurobond market are sometimes referred to as "petrodollars". In 1980, oil imports for the US were $78.6 billion (ibid.). The #1 product exported by the US was a scribbled-on paper product known as dollars that become petrodollars. Both the continued export of these scribbled-on paper products (dollars) and their subsequent cheapening by continual inflation provide the basis by which the U.S. colonizes all of its trading partners. To more fully appreciate the mechanism of monetary colonialism, a more descriptive term is needed. The term for this mass of dollars and dollar loans must describe more than the mere the foreign, geographical location where they are transacted. Trilateral Loan Reserve A proper name for this foreign debt which describes its nature is the Trilateral Reserve Loan, or TRL for short. The trade, production; and legislative deficits behind the mass of dollars in the so called "Euromart" reflect the philosophy of a business cartel known as the Trilateral Commission, thus the use of the word Trilateral. The use of the word "loan" reflects how foreign industries and individuals have loaned us their goods and services--their production time--in exchange for scribbled-on paper products called dollars. As with the Federal Reserve System which can suddenly flood or drain the US economy of dollars, so the billions of dollars on the Euromart are an unregulated, reserve of dollars. And as will be shown repeatedly, these dollars constitute loose cargo on the economic ships of state, which batter and disable the ships when the seas of commerce become rough. The loan and reserve nature of the TRL will be returned to later and will be expanded upon. Humm ... $235 Billion Many people deplore the trade deficits which the U.S. continues to have. Few have analyzed the nature of deficits in conjunction with inflation as the means by which the U.S. is able to colonialize the rest of the world through its money supply. For arguments' sake, consider an inflation rate of 18% on $1.3 trillion (the possible dollars in the TRL as of fall 1981). In a year's time, an 18% inflation rate constitutes a cheapening of the $1.3 trillion by approximately $235 billion dollars worth of goods and services. Said another way, the $1.3 trillion will not buy the original amount of production time given in exchange for the dollars by foreign producers. (The 18% inflation figure was used because of the figure in spring of 1980 which the authors regretfully expect to return barring massive unemployment. In addition, it better dramatizes the consequences of monetary colonialism at its worse.) The $235 billion figure works out to a daily loss of purchasing power for the foreign producers of about $650 million. Humm ... $235 billion? The U.S. exports for 1979 were 7.7% of the Gross National Product (a total of 2.5 trillion) or about 190 billion dollars. Our imports, of course, were more--$28 billion more. The difference was paid for with more promissory notes: dollars. While the years are not the same, simple mathematics should reveal that the U.S. may not have paid for most of the imports: Its promised production repayment--in the form of the TRL--was cheapened to the same degree as the cost of imports. This is analogous to not making a payment on a large loan from an appliance store and using the payment to purchase another product. In one sense, rather than having a trade deficit, we had a trade surplus since--in the measurement of production TIME owed--we did not really have any losses because we wrote off 18% of our former debt to foreign economies. In the sense of time owed to other people, the U.S. ends up owing less time each year. Monetary colonialism (trade deficits coupled with domestic inflation) reduces the actual debt in production time. If there was no long-term disaster in such de facto trade surpluses, there would be no better place to live than the U.S. The short-term gains from trade deficits, cheapened by home-grown inflation, delays recessions and causes depressions, terrorism, and wars. Humm ... $235 billion? In 1979, the official U.S. foreign aid to economically impoverished countries was $13.8 billion. Since World War II, total U.S. foreign aid has been about 190 billion dollars. Herein should be an explanation and an exasperation for the concerned reader. U.S. monetary colonialism last year provided the U.S. with more de facto foreign aid to the U.S. itself than the U.S. has given away in the last 35 years! Could this be why the U.S. had a "peek-a-boo" recession during the Carter administration. Think of it, writing off 18% of a $1.3 trillion debt would be like giving yourself a lot of dollars and the production time which the dollars represent. This self-given foreign aid amounted to a per capita subsidy from foreign economies for the American way of life to the "tune" of approximately $1,000 per American. How many sports spectaculars, multi-million dollar media creatures, and MacDonald hamburgers were paid for by nations that have less per capita income than what the world is giving us in buying power through monetary colonialism? When a rich country has a current account deficit bigger than its oil gap "it is absorbing real resources from the rest of the world," thus avoiding "sacrifices" that get shunted to the poor countries ... It "seems very ironic" that they [the countries with deficits] should thus "be allowed to maintain a higher standard of living" that way. What will happen when the foreign colonies can no longer make donations, or, in self-preservation, refuse to donate? Humm ... $235 billion? What was the cost of U.S. oil recently? In 1980, the cost in dollars was 80 billion. Measured in time at an average of about $8 per hour, the cost of oil imports was 10 billion workhours. Whether measured in dollars or lifehours at work, the oil will not cost a thing in the long-run if monetary colonialism proceeds unstopped. The politicians will inflate and cheapen the oil dollars. What an irony, the countries straining the most, the Least Developed Countries (LDCs), will pay the cost of U.S. oil imports. This is oil that they themselves cannot afford. Humm ... $235 billion? Monetary colonialism is a tax that the U.S. imposes on world trade, eighty percent of which is transacted in dollars. Quite an expensive service fee. An international, non-colonializing monetary system could be run for less than a few F-14s. Humm ... $235 billion? Monetary colonialism is a form of reparation payments which the U.S., the major victor of WW II, exacts upon both foe and ally. As the specific reparation payments demanded of Germany in the 1920s nurtured economic instability and political turmoil, so does the general reparation of U.S. monetary colonialism fuel the economic mess and political extremism of today. Humm ... $235 billion? The politicians of America chastise American allies for not bearing a "fair share" of the defense of the "free" world, e.g., paraphrase"Must Give `Fair Share' U.S. Tells NATO Allies". In 1980, the U.S. defense budget was approximately 150 billion dollars, a figure quite below the possible returns from inflating the Trilateral Reserve Loan. One can view the TRL and monetary colonialism as the means by which the U.S. has its defense bill paid with a surplus in excess of the GNP of most countries. This "free" ride by the U.S. would be nice except that the economically-weakened "donors" collapse under the weight of monetary colonialism. TRL Semantic Origins: Loan Nature The Trilateral Reserve Loan constitutes a loan very similar to the national debt, and both are more than $1 trillion in size. Only instead of being borrowed directly through the Treasury as the National Debt is, the TRL is borrowed from foreign nations through trade and financial deficits. The TRL is called a loan because it represents how foreign nations, industries, and producers have lent the U.S. tangible goods and services--real products--in exchange for dollars. As symbols of U.S. production time, the dollars serve as collateral on this loan of foreign production time. Dollars are functional promissory notes which imply a promise to repay to the lender an equal amount of production or products by the borrower. Given the nature of the Euromart, the foreign product debt of the U.S. could be as high as $1.3 trillion. In terms of production time, this debt is about 200 billion workhours if one assumes that the average hourly wage for a factory worker is $7-$8 per hour. The Trilateral Reserve Loan signifies that the U.S. has through trade or financial deficits borrowed upwards of 200 billion hour's worth of production rather than produce the goods and services itself. As collateral for this massive loan of production from abroad, the U.S. has given dollars which it is now depreciating. Effectively, the U.S. is refusing to repay an hour's worth of labor for an hour's worth of production. In terms of time, an 18% inflation rate cheapens the production time value of this 200 billion hour debt by almost 40 billion workhours. Time Lag Destructiveness of Exported Inflation Budget deficits and inflationary expansion of the money supply constitute a dilution of a nation's currency. As with watered down corporate stocks, the real worth of the diluted national stock certificates--its currency--is traded at a face value above what it is worth. The main reason for the currency being watered is the inevitability of future deficits and inflation that will cheapen the real product value. It is toward this real product value that the certificates drift. The holder of the currency loses real wealth each day that the abused symbols of wealth are held. A person, industry or nation will lose if it trades some production for the overvalued certificates. For a given rate of inflation, the extent of the loss will depend on how long the certificates are held. If the transaction involves delayed payment and if the profit margin for the recipient is smaller than the percentage drop in the diluted certificates' value, then the recipient will become bankrupt. But the recipient of over-valued currency--a victim of monetary colonialism--is not the only one who suffers. The colonizer becomes dependent and addicted to imports with an increasingly imbalanced economy. The lopsided economy collapses when the foreign colonies can no longer give. The following quotations reveal how the budget deficits result in trade deficits, especially in certain essential goods and services. Our federal-budget deficits are now running at 40 to 50 billion dollars a year. It's very hard to foresee a non-inflationary business recovery that doesn't immediately start sucking in imports again, increase pressure on the dollar and raise interest rates--which slows the economy down again. One of the above quotations notes the relationship between an expansion of a money supply and its effects on foreign production--"start sucking in imports again." The imports compound the problems of a federal deficit by imbalancing both the U.S. and foreign economy. Recessed domestic production does not have a chance to expand because foreign imports stifle the demand. The short-term gains by foreigners are long-term losses for them. The dollars which they accept for production are cheapened each day that they have them. In addition, their own economies are skewed so as to provide products for U.S. tastes. This imbalancing directs foreign workers away from producing goods and services relevant to their own needs. TRL Semantic Origin: Reserve Nature As stated previously, the TRL is a reserve of money quite akin to the Federal Reserve System. Both can inject money into the U.S. economy so as to stimulate business and inflation. With its reserve of Eurodollars and petrodollars, the TRL competes with the official U.S. central bank reserve in controlling the U.S. money supply. As a reserve of buying power competing against the Fed, the TRL dwarfs the Fed. and is growing multiples of the domestic US money supply. The capacity of the TRL to inject money into the U.S. economy exceeds any monetary growth rates so far discussed by the monetarists in charge of the Fed. The TRL works against the nature of the Fed or any central bank which tries to control the growth of a money supply with high interest rates. Fighting inflation is the explanation given by the head of the Fed for restricting the money supply through high interest rates. High interest rates neither restrict the money supply nor stop inflation. If, in an attempt to control rising inflation, the Fed prompts high interest rates, the dollars in the TRL will begin to return from abroad. Foreigners seek the advantage of the high-interest return on lending money here in the United States. The returned dollars denies the Fed the ability to control the money supply and inflation. The high interest rates draw in foreign currency and cause domestic recessions that lead to shortage inflation. The following quotation is an example of how a nation's money supply is not under control of its central bank and how a money supply cannot be controlled by interest rates. Given this situation, "hot money" sometimes floods into countries with high interest rates, exacerbating currency instability. But, Mr. McMahon [a deputy governor of the Bank of England] concedes that "we can't do much about it," adding that a major reform of the international system is unlikely in this decade. Other sources can be cited that imply the time bomb nature of the mismanaged U.S. dollar upon worldwide production, e.g., when "major industrial countries suffer disruptive outflows" [of dollars]. This reduction of production occurs not only abroad but in the U.S. High-interest rates, triggered by the Fed or others, cause suffering among those industries that have low profit margins, e.g., food growers and food processors. As a result of the "hot money" in the TRL, total world-wide production grows cold. Do not mistake the return of dollars as a stimulus for U.S. production; simultaneous with the rise in the interest rate is the rise of interest on Treasury Securities, which fund no production and which absorbs foreign money fed. Or, the money merely ends up in speculation. Such speculation inflates real estate prices and stock prices so that fewer Americans can buy homes or businesses. Blame: General and Specific How did the United States become an "economic junkie"? What or who addicted America to the exportation of inflationary suffering through monetary colonialism? Why did the U.S. have to institute the first instance of monetary colonialism since the decline of civilization under the Roman Empire? How was it that the U.S. has come to abuse its allies and institute a tax on world trade? The reasons are simple: an unwillingness to confront and resolve the injustices and inequalities within the U.S. system of production. Rather than end the injustices and ignorance, the politicians found it easier to run budget and trade deficits. Domestic Monetary Colonialism Even if the trilateral aliens did not inflate domestic prices with their TRL dollars, inflationary suffering would still plague the U.S. economy. As stated elsewhere, the central bank of the U.S. makes no qualitative distinction between speculative, inflationary loans and investitive, productive loans. Dollars are not lent on the basis of promoting production; they are, instead, lent solely for the production of dollars with little or no question as to their impact on production. When loans are merely collaterized by dollar return, the efficient thief will have a better credit rating than the efficient producers: one can legally and illegally steal more money in a day than one can produce. As a result of few restrictions on counterproductive loans, sinflationary price rises are inevitable. The same lack of qualification exists in the halls of Congress when it comes to the passage of laws for tax-supports, tax-exemptions and business regulations. These laws vary in their content as to whether they raise or lower the production of goods and services, that is, whether they invigorate or metastasize the American Economic System Of Production. Through legisflation--legalized inflation--the politicians imbalance an economy by generating opportunities to acquire income by producing less and less. Legisflation is a domestic form of colonialism. Those who monopolize the ears of the politicians extract and drain wealth from fellow citizens through the law process. Through the law process a special few, relative to the majority, are able to increase their wealth by favorable tax or economic regulations. Beneficiaries of legisflated wealth escape bearing the cost of maintaining the nation. The cost devolves upon the over-taxed citizen. Or, the legisflated overprivileged persons benefit from some regulation that allows them to overcharge for their goods or services, thus draining wealth from their fellow citizens who suffer the legisflated losses. But as international monetary colonialism cannot go on, nor can domestic colonialism continue. Both are forms of economic cancer in which a lesser part becomes addicted to consuming the greater whole on which its very existence depends. Civilization's Recession Civilization has already started the slide that marked the onset of the great 1930 depression. This new depression began in 1965 in the oil-poor LDCs; its onset coincided with Lyndon Johnson financing the Vietnam War without raising taxes--he exported the inflation of his deficit spending. Because of monetary colonialism, Americans have been isolated from the slide; their economy is propped up from abroad. The props will not last for two reasons. The slide will continue; the world economies are not as strong as they were during the 1973-74 recession because of intervening colonial extraction by the U.S. Secondly, the world leaders will not allow this propping to continue, for their people will not allow them. How well will the U.S. weather a financial crisis with the withdrawal a foreign subsidy (monetary colonialism) which constitutes almost 10% of the GNP. History will show that the second Great World depression of the 1900s began in the mid-1960s. It began with non-ending recessions in a growing number of foreign economies. Unfortunately, instead of other nations ending the causes for non-ending recessions in the poorer nations, the surviving nations sought to remain afloat by aggravating the harsh conditions of the poorer people, e.g., monetary colonialism. In every nation, more inflationary activity occurs today than did in the early 1970s. Today, fewer nations can be drained. Each day, the leaders of the Western Alliance are faced with a simple choice. The leaders can continue to compete as monetary colonial powers which is a very self-defeating path for any nation to follow, even the U.S. which holds the key position. Or, the leaders can understand and stop monetary colonialism. Who lost America (1776), Russia (1917), China (1949), Cuba (1959), Vietnam (1974), Iran (1979), Nicaragua (1979), Liberia (1980), Korea (1980), Finlandized Europe (1980), and America (today)? Who or what did? The politicians in all cases, and the people who tolerated internal and external injustices. Summary All economies are suffering from a new kind of colonialism, from monetary colonialism which is decapitalizing civilization. Even the chief benefactor, who drains the economies of the world by inflating its currency, does not escape the ravages of economic injustices: for the US, dollars return and disrupt its money supply. These "alien" dollars cause inflationary speculation and generate international turmoil leading to terrorism or warfare. People will be amazed how quickly the world's economies will spring back once monetary colonialism is put to rest. The miracles of Germany and Japan after the elimination of their despotic policy makers will be petit miracles in comparison. However, laying monetary colonialism to rest will not be easy. As a form of inflationary returns, it benefits too many. Few of the world's politicians are not in the pockets of the big chasers of inflationary returns, e.g., the prevalence of the Trilateral Commission and mentality in the top echelons of the Western Alliance. Monetary colonialism is the decapitalism of the whole world.
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