DEBT AND THE COLLAPSE OF GLOBAL FINANCE.

As the amount of money in circulation and consequent debt has hugely increased, we have seen the ‘financialisation’ of the economy.

Speculation in finance markets rather than investment in making things accelerated because this generated ‘easy’ profit. In money terms this increased the size of western economies but at the same time reduced the capacity to make and trade tangible products as manufacturing moved from the west to the east to take advantage of lower labour costs. This decreased economic self-reliance and the independence in ‘the west’.

The strength of the dollar is central to maintaining US ‘global primacy’. All other currencies are related to it. The US backs this primacy up with huge military spending approaching a trillion dollars a year much of which is funded by the bond market. China’s huge investment in US bonds ironically funds the US military machine which one day may be used against it.

There is now an international reaction to this – countries that form the BRICS alliance led by China and Russia are trying to reduce dollar supremacy by trading between themselves in their own currencies and by exploring alternative trading systems detached from the dollar. They may even introduce an alternative reserve currency.

China is reducing its US bond holdings. Both China and Russia are building up their reserves of gold as are others to hedge against financial instability.

The US realises that the size of its debt is a huge liability. Trump has threatened the BRICS if they try and create an alternative to the dollar but at the same time MAY be looking at a way of pioneering a new international financial system.

The USA is considering slashing social and environmental programmes and reducing military spending to reduce debt and shore up confidence in the dollar.

The Trump administration has indicated that the previous US strategy of maintaining the global order with 800 military bases around the world is no longer desirable or affordable and wants to reduce it. Countries that have relied on it for their defence are being told to increase their own defence expenditure rather than relying on the USA.

In other words, the scale of US debt is such that it can no longer be the world’s policeman. Instead of championing the neo-liberal world order in which all economies were made subject to US rules and the dollar, the Trump administration is retreating from the traditional US policy of ‘global hegemony’. This approach involved sweet talking countries with promises of ‘democracy’ and ‘human rights’ backed up by threats of military force. Now it is reverting to primitive ‘big power politics’.

This is partly the reason it is retreating from Ukraine. The EU and Ukraine are trying to drag the USA into a war because they think this is the only way Russia can be defeated. The USA does not want to do this and cannot afford it.

POLITICS IS CONCENTRATED ECONOMICS: WAR IS A CONTINUATION OF POLITICS.