US Capital Export = Sovereign Debts

The Origin of the Sovereign Debt Crisis

Austerity for the many in the interests of the profligate few is the order of the day; the rape of southern Europe proceeds with this magisterial hypocrisy behind it, many other nations may be forced into this new order.

The sovereign debt crisis is blamed on welfare spending, which is a paper-thin excuse given the exponential rise of debt. Capital speculation that has been wild, destructive and sustained over decades is the only thing that explains the actual magnitude of the debt—because welfare spending does not. On that point, at least, recent history, simple maths and the debt graphs all persuasively agree.

Gigantic sovereign debt was created by international loans borrowed by domestic financiers which were secured by the state—there is no mystery in this it is a well known fact. That these publicly guarantor loans were squandered in speculation, land grabs, and all forms of mis-investments, was the product of an alliance between the parties of government, and financiers (domestic and international). The same parties of government that now impose public austerity under the guise of fiscal responsibility; a responsibility they utterly failed to exercise over the loans themselves when state bonds were issued.

However, the parties of government and its friends are in the scale of things simply a matter for future judgement and judicial sanctions—the core problem remains, which is not the existence of sovereign debt, but its origin. The origin of the loans shows the actual effect of defaulting and this may, after all, be a global good, rather than any sort of catastrophe.

It is a matter of simple logic that there are two partners in any debt; the debtor and the creditor. We hear much of the ultimate debtor (the nation state), but nothing of the ultimate creditor. And in asking this the scale of the question raises well beyond the level of any nation state. The scale is planetary and involves many trillions of imported capital; the question is where did this come from?

The Graph

The ultimate creditor, the prime actor in this drama, is US capital exports, based on the monopoly of the US trading dollar in international trade and loans. The geography is pretty straightforward, but even the US government is in thrall of financiers, and the American people also likewise a victim of their predations.

The graph below of UK debt made the relationship between the US exported capital and UK debt obvious. That the UK may have incurred some other foreign debts can be discounted as the Anglo-Alliance has been extremely strong over a lengthy period. And the UK has long been a cats paw for US financial interests scratching away at Europe (the real reason the UK stayed out of the Eurozone).

 Source: MoneyWeek

Because of Britain's peculiar role in history and its decline from Imperial pre-eminence in the 20th Century and its central position in the Anglo-Alliance, the graph is particularly easy to read.

The WWI loans (1916) from the USA show up as the first bulge. The US WWII loans (1941, Lend Lease), and the Anglo-American loan (1946—2006) merge into the second bulge. These represent old fashioned capital export based on US industrial production. Lenin described this precisely in Imperialism the Highest Stage of Capitalism (1916).

However, in the 1970s (November 1973, to be exact), there is a significant anomaly, and a remarkably steep rise in capital imports begins. Moreover an exponential increase of imported capital found across many countries in the world. It is an amount of financial capital that is inexplicable in terms of industrial production, indeed an amount that grows in inverse proportion to industrial destructuring of the USA (this is a critical clue to its nature). To pose this as a result of welfare spending is a ridiculous lie.

The geographical origin of the loans was never a mystery, but where, in terms of the economy, did this excess of capital originate? Certainly not from improvements in industrial production, which since the 1970s have retracted. This is the nub of the problem, for what has happened, despite all the fraud, speculation and profiteering, is that something was unleashed that had a huge potential that was then recklessly misapplied.

In Marxist terms the potential power of production came into sustained conflict with the relations of production. In short and literally, it can be seen that the most profligate and irresponsible class attempted to realise a new potential and only succeeded in creating monumental counter-production reflecting the ruling class’ own historical limitations and perverse purposes. Ironically the rise of China, at least, became a beneficiary of this self-evisceration of the US economy and other developed economies around the world (including the UK).

However, it is not in the growth, but in the hesitations of this increasing debt, that another clue can be seen. If the debts were merely fraudulent then the small plateaus and minor debt repayments would not exist let alone correspond to important world events. The domestic thirst by speculators for evermore cheap loans cannot be said to have diminished and regulation of loans and their investment clearly never happened. Even now, in countries suffering from brutal austerity, the new loans flood the broken economies.

While there has been plenty of fraud; fraud alone cannot explain this explosion of capital funding over these last forty years. Something else was at work and part of this can be seen in the graph’s approach to the end of USSR which shows a withdrawal of available loan capital that then initiates a cliff-like surge of new loans. Then there is another withdrawal of loans used for the invasions of Iraq and Afghanistan (preceded by a plateau used for the prior military build-up for the invasions). The rest is a near vertical rise in loaned capital as mounting debt leading to the present prolonged crisis.

The graph shows, by the recording in UK debt, the ebb and flow of US exported capital affected by periodic politico-military ventures. That this all makes chronological sense in the context of historical events, but also shows there is an underlying logic, other than the fraud involved—actual labour values are being transferred, if it were all fraud there would no periodic interruptions.

Money Becomes Labour Credits

In November 1973 the US currency was completely freed of its reliance on a gold reserve. The immediate cause was the rising price of gold, which likewise increased the value of USD (a by-product of increased world production and the need to buy and store gold). Through the reduction of gold reserves, as against currency in circulation, had been progressively diminished the final separation from gold had a magical effect. The USD no longer anchored to any kind of fixed value, the value of the currency could reflected overall production and trade unrestrained by hordes of metal.

However, the USD was also the world trading dollar, and that makes a good deal of difference (noting that this pre-eminence is backed by military might).

In terms of international trade the USD became the new gold reserve. Hence there was a commensurate demand for the dollar as a trading horde. A surplus of capital generated by trade fixed the dollar almost regardless of the amount of dollars in circulation.

Cheap loans became possible because the amount was no longer tied to gold reserves, or indeed to domestic production, and this appeared as an economic miracle. So long as there was an international market for cheap loans then values shifted from the indebted country to the USA, what is more it was often paid in USDs. Each new loan required new government bonds and finding new ways to use the capital to provide the high profits needed to acquire other new loans.

The sovereign debt bubble grew, without apparent limits and it even appeared possible to buy-out of the cycles of financial trade crisis for a smooth continuation of this mounting debt.

But what is a currency’s value if not precious metals buried in vaults? It is a credit call based on past production for a similar proportion of future production. As such, as a proportion rather than as relationship to hoarded metal, labour credit unleashes a far greater proportion of national commonwealth than selling off lumps of metal.

A national currency no longer tied to stored precious metals has an enormous social power, if used wisely, it is in effect a commonwealth in a public treasury transformed via wages into living labour being applied to future production for reasons less narrow than profit taking.

Labour credit currencies (now the de facto reality) retain this potential, but as potential it needs to be realised by a common interest that far exceeds the scope, intellect and ability of the present ruling class—a now proven redundant class.

Look again at the US Imperial hyper-power, unrestrained by competing powers. Ruled by the courtiers of financial capital who saw capital circulating in domestic production as lucrative loan money that would perform better for them as export capital. That is if production was offshored and dismantled in the home state:

1. The USD, by international consent and necessity, remains at a more or less fixed value. Maintained in value by trading countries as a whole tro preserve their USD reserves.
2. The capital circulating in actual production within the USA is seen by the ruling financial class as something that can better be used as export capital.
3. Reducing domestic productive capital also reduces the value of the USD as a labour credit although the value stays high because of (1). 
4. The difference between value of the USD, as a domestic labour credit, and the same USD as an international trading currency amounts to a tax by the USD monopoly on world trade. Value willing transferred by non-US traders in every transaction to support the overvalued-USD.

Basically the less that the USD is actually worth increases the proportion of value transfer from non-US production to the USD monopoly. America becomes thus poorer as it becomes richer, the wealth accumulating to be sent overseas in order to accumulate more without it ever trickling down. The world struggles to maintain a value in order to safeguard idle wealth (USD reserves) by sacrificing part of the value of its production.

It is not labour credit currencies that cause the problem, but this combined with the imperialist monopoly of the USD in world trade (especially in critical energy resources) backed by huge military might needed to maintain the monopoly.

At the same time the American people suffer as their prosperity (once the mainspring of US imperialism), is now merely a cost to be diminished.

Finally there is the effect of the loans themselves on developed economies which replicate the US condition in miniature. Capital imports erode productive capital, which being employed productively returns a smaller proportion of profit than speculation. The productive use of capital is eliminated, making the need for more imported capital all the more critical and means to pay for it an impossibility. Current austerity policies promise no end to sovereign debt, but an increase in it—no means of economic recovery—it is an end of a stage of history, there is no recovery, no prosperity, no hope of a future under the rule of this class.

Ironies abound.

There is of course an upside, unintended as it may have been, that the forty-year export of jobs from the developed world gravitated to cheap labour regions. Making China the world leading trading partner well outpacing the USA itself, which has now next to nothing (discounting war machinery) to sell.

The repudiation of debts would have a number of beneficial effects as Iceland has shown, but when this can be achieved in a more widespread fashion the USD monopoly dies, the financial system if not nationalised will be as heavily regulated as if it has (it has been paid for many times over by the public).

However for this to happen the old political parties, the present ruling class will have to be pushed aside.

The potential of modern production to confront human needs and environmental damage may be unleashed with purpose and direction once the dead hand of speculative profiteering is removed.

This current crisis is the beginning of the end of an important stage of history we should all be eager to bury.