[Originally written in the early 1980's,
also a chapter in Currency: Symbols or Substance]
[Update, 2010--see Lasting Legacy of Living Beyond Means]


A subtle, no-win situation exists for foreign nations because of consistent U.S. trade deficits and inflation. These international acts of fiscal irresponsibility on the part of the U.S. politicians constitute "monetary colonialism." Before describing monetary colonialism, some general features of colonial relationships will be presented.

Colonialism or imperialism describes how one economy subjugates the economy of another country; the colonizer extracts 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 is 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.

The colonized economy is not the only one to collapse, for the subjugating, lopsided and propped up 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 major 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 is accomplished through consistent inflation of the currency which is exported in trade for the products acquired from abroad. Every nation that has inflation and has a foreign debt from accumulated trade deficits 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, the domestic economy of the subjugator becomes 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. All forms of colonialism involve inflationary bubbles in which the imperial power inflates its worth relative to the colony; and as with all inflationary pyramids, colonialization eventually fails.

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 will occur to the degree that the politicians of a country mismanage a system of production. The economic mismanagement gives rise not only to shortage inflation, but to a need for importation of the products in short supply. Concomitantly, rising trade deficits index a nation's reliance on monetary colonialism.

The United States epitomizes the mismanaged economy which relies on monetary colonialism in order to survive. Even though it was never officially anointed as such, the U.S. currency functions 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.

If acquisitionism and nationalism were not occurring at rising frequencies, the workers out in the heartland would not be suffering the loss of buying power that guarantees that Montgomery Wards and other companies to lose customers and solvency. Mobil is but one oil company using "wind-fall profits" for something other than capitalizing cheaper energy. Like GM, Ford, and Chrysler expanding into the financial markets, the oil companies have in their private name Abroad",

Year 1977   1978   1979   1980  
Exports $121 $144 $182 $221
Imports $150 $175 $210 $245
Deficit -$29 -$31 -$28 -$24
Accumulaated     $29  $60  $88 $112

The #1 imported product responsible for the trade deficits is oil for which the U.S. exports its #1 item, namely, a scribbled-on paper product called dollars. The exchange relationship between oil and dollars appears in what the latter is frequently called: petrodollars. In 1980, oil imports for the U.S. were $78.6 billion.

Trilateral Loan Reserve

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 for the mass of accumulated dollars and loans, and the term should describe more than the mere foreign, geographical location of dollar transaction; "eurodollars" and "petrodollars" are insufficient as descriptive tools.

A better name for this foreign debt could be 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 Trilateral. The use of 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 the Federal Reserve System can suddenly flood or drain the U.S. economy of dollars so the billions of dollars in the TRL affect the economy; the dollars on the Euromart are an unregulated reserve of dollars. And as will be shown repeatedly, these exported dollars are loose cargo on the economic ships of state, battering and disabling 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 continuing U.S. trade deficits: However, few analyze the nature of deficits in conjunction with inflation as the means by which the U.S. is able to monetarily colonialize the rest of the world. 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 the peak rate in Spring of 1980; these figures better dramatizes the consequences of monetary colonialism at its worse. The $235 billion annual devaluation of our foreign debt works out to a daily loss of $650 million for the foreign producers.

Humm . . . $235 billion? The U.S. exports for 1979 were about $190 billion while imports were $218 billion--$28 billion more than imports. The difference was paid for with more promissory notes: dollars.

Simple mathematics reveals 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 by an amount equal to the cost of imports. This is analogous to not making a payment on a large loan and then using the payment to buy something else.

In the sense of production time owed to foreign economies, we probably had a trade surplus because we wrote off 18% of our former foreign debt. In the sense of time owed to other people, the U.S. ends up owing less time each year, for 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 in the U.S.

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 is an explanation for the "peek-a-boo" recession during the Carter administration. Monetary colonialism 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! Writing off 18% of a $1.3 trillion debt would be like giving yourself a lot of economic stimulation which would delay a recession.

This self-given foreign aid amounted to a subsidy 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 this self-aid. The bloated lifestyle based in trade deficits has been characterized as rich nations "avoiding 'sacrifices' that get shunted to poor countries. What will happen to the U.S. economy when the foreign colonies can no longer make "donations", or, in self-preservation, they refuse to donate?

Humm . . . $235 billion? What was the cost of U.S. oil recently? In 1980, the cost in dollars was $78.6 billion. Measured in time at an average rate 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 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 which 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.

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. Just as the specific reparation payments demanded of Germany in the 1920s fueled economic instability and political turmoil, so does the general reparation by 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. 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. The TRL and monetary colonialism are means by which the U.S. has its defense bill paid and has 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. Through trade or financial deficits, the Trilateral Reserve Loan signifies that the U.S. has 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 nature of the transaction involves a delay in 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 colonizier becomes dependent and addicted to imports with its economy increasingly imbalanced. The budget deficits result in trade deficits, especially in certain essential goods, e.g., textiles and clothing. The sequence of recessed production, trade deficits and imbalanced production is seen in the following conclusion: "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." A vicious cycle develops in which the colonial power has to run deficits in order to end a recession. This imbalances trade and production even more. Over time, as has occurred with the U.S., imports rise at a faster rate than exports.

TRL Semantic Origin: Reserve Nature

As stated previously, the TRL is a reserve of money quite akin to the Federal Reserve System and competes in controlling the domestic money supply. Both can inject money into the U.S. economy so as to stimulate business and inflation. As a reserve of buying power competing against the Fed, the TRL dwarfs the Fed in size and rate of growth.

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, however, neither restrict the money supply nor stop inflation, given the existence of currency outside the country of origin. If, in an attempt to control rising inflation, the Fed allows high interest rates, the dollars in the TRL will return, since foreigners will seek the advantage of the high-interest on lending money here in the United States. The ability to control the money supply and inflation is denied to the Fed by the TRL.

A nation's money supply cannot be controlled by the central bank through high interest rates, a situation acknowledged by a deputy governor of the Bank of England in regards to "hot money" that flows to nations with high interest rates. Hot money, especially the mismanaged U.S. dollar, decapitalizes economies when "major industrial countries suffer disruptive outflows."

Blame: General And Specific

In a sense, monetary colonialism by the U.S. is taxing the foreign poor in order to appease the underprivileged in America. Who are the underprivileged, that is, those without "private laws"? The people lacking privileges are those unable to monopolize the ears of the politicians for special, private laws. The blame for monetary colonialism rests with the top policy-makers of the #1 nation abusing and debasing its currency.

Legisflation is a domestic form of colonialism. Those able to monopolize the ears of the politicians are able to extract and drain wealth from fellow citizens through the law process. Through the law process a special few are able to increase their wealth by favorable tax or economic regulations.

Beneficiaries of legisflated wealth escape bearing the cost of maintaining the nation which 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: a lesser part becomes addicted to consuming the greater whole on which its very existence depends.

Strained Western Alliance

The blame for monetary colonialism belongs foremost to the American politician. The Trilateral Loan Reserve causes economic disruption in many nations, even within the Western Alliance. For good reasons, some of our traditional allies have expressed hostility toward U.S. monetary policy. A French spokesman has decried the high interest rates that have the dollar "floating in the stratosphere." Herman Schmidt, the leader of another European ally, has been cited as speaking unfavorably of U.S. interest rates.

All economies are suffering from a new kind of colonialism which is decapitalizing civilization. Monetary colonialism drags down all economies to a poverty line. Previously, the Least Developed Countries slipped, but, now in the 1980s, our European allies are about to go under.

The Western Alliance is a car straining in third gear to go faster without consideration of shifting into the more economical fourth gear. Unfortunately, the drivers of the world's economies do not know about the existence of fourth gear, let alone know how to find it. Unless the leaders of the Western alliances correct the short-comings of the international monetary system, they shall have worthless paper products at best, Liberian Beach Parties at the middling, and crispy critters if worse comes to worst. And the worse is approaching, faster and faster each day.

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, a very self-defeating path for any nation to follow, even for the U.S. which holds the key position. Or, the leaders can understand and stop monetary colonialism.

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, since as a form of inflationary returns, it benefits the powers that be. 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.

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