the dollar as reserve currency…


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The Dollar Reigns Supreme, by Default

There are tangible and intangible benefits to a country whose currency serves as a reserve currency. In addition to the prestige conferred by this status, it also means access to cheap financing in the country’s domestic currency and the benefit of seigniorage revenue—the difference between the purchasing power of money and the cost of producing it—which can be extracted from both domestic and foreign holders of the currency.­

Other major advanced economies either have much smaller financial markets or, as in the case of Europe and Japan, have relatively weak long-term growth prospects and already high levels of public debt. As a result these currencies are unlikely to return to their former glory anytime soon. But because of the benefits that have accrued to the dollar from its reserve currency status, there should, in principle, be new competitors seeking a share of those benefits.­

One putative competitor to the dollar, which has been the subject of considerable attention, is the Chinese renminbi. China’s economy is the second biggest in the world and is on track to become the largest over the next decade. The Chinese government is taking many steps to promote the use of the renminbi in international financial and trade transactions. These steps are fast gaining traction given the economy’s sheer size and prowess in international trade. As restrictions on cross-border capital mobility are removed and the currency becomes freely convertible, the renminbi will also become a viable reserve currency.­

However, the limited financial market development and structure of political and legal institutions in China make it unlikely that the renminbi will become a major reserve asset that foreign investors, including other central banks, turn to for safekeeping of their funds. At best, the renminbi will erode but not significantly challenge the dollar’s preeminent status. No other emerging market economies are in a position to have their currencies ascend to reserve status, let alone challenge the dollar.­

Of course, the dollar’s dominance as a store of value does not necessarily translate to continued dominance in other aspects. The dollar’s roles as a medium of exchange and unit of account are likely to erode over time. Financial market and technological developments that make it easier to conduct cross-border financial transactions using other currencies are reducing the need for the dollar. China has signed bilateral agreements with a number of its major trading partners to settle trade transactions in their own currencies. Similarly, there is no good reason why contracts for certain commodities, such as oil, should continue to be denominated and settled only in dollars.­

By contrast, because financial assets denominated in U.S. dollars, especially U.S. government securities, remain the preferred destination for investors interested in the safekeeping of their investments, the dollar’s position as the predominant store of value in the world is secure for the foreseeable future.­ ­

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The next crisis…

The Next Crisis

To know what the next crisis might look like we first have to look at the conditions today that will form its starting point. Necessarily everything from here on is speculation, nevertheless even when we can’t know what people will do and what ‘events’ will overtake us, we can, I think,  discern quite a bit of the general topography, the landscape, of the future.

The first thing we should bear in mind is that however it starts, the next crisis will be another debt-crisis like the current one. This is because debt is now the global currency and global financing mechanism. Once it starts, however, one thing will be very different from the last time – this time nearly all nations are already heavily indebted. Last time they were not. And this is what changes everything for the over-class.

Contrary to the endless misinformation repeated at every juncture by austerity politicians and bankers alike, the debt load of most nations at the beginning of the present crisis was not already out of control before the banks blew up.

Dark Age America: The End of the Old Order

Let’s start by reviewing some basics. As I pointed out in a paper published online back in 2005—a PDF is available here—the process that drives the collapse of civilizations has a surprisingly simple basis: the mismatch between the maintenance costs of capital and the resources that are available to meet those costs. Capital here is meant in the broadest sense of the word, and includes everything in which a civilizations invests its wealth: buildings, roads, imperial expansion, urban infrastructure, information resources, trained personnel, or what have you. Capital of every kind has to be maintained, and as a civilization adds to its stock of capital, the costs of maintenance rise steadily, until the burden they place on the civilization’s available resources can’t be supported any longer.

The only way to resolve that conflict is to allow some of the capital to be converted to waste, so that its maintenance costs drop to zero and any useful resources locked up in the capital can be put to other uses. Human beings being what they are, the conversion of capital to waste generally isn’t carried out in a calm, rational manner; instead, kingdoms fall, cities get sacked, ruling elites are torn to pieces by howling mobs, and the like. If a civilization depends on renewable resources, each round of capital destruction is followed by a return to relative stability and the cycle begins all over again; the history of imperial China is a good example of how that works out in practice.

If a civilization depends on nonrenewable resources for essential functions, though, destroying some of its capital yields only a brief reprieve from the crisis of maintenance costs. Once the nonrenewable resource base tips over into depletion, there’s less and less available each year thereafter to meet the remaining maintenance costs, and the result is the stairstep pattern of decline and fall so familiar from history: each crisis leads to a round of capital destruction, which leads to renewed stability, which gives way to crisis as the resource base drops further. Here again, human beings being what they are, this process isn’t carried out in a calm, rational manner; the difference here is simply that kingdoms keep falling, cities keep getting sacked, ruling elites are slaughtered one after another in ever more inventive and colorful ways, until finally contraction has proceeded far enough that the remaining capital can be supported on the available stock of renewable resources.

That’s a thumbnail sketch of the theory of catabolic collapse, the basic model of the decline and fall of civilizations that underlies the overall project of this blog.

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war crimes: beyond rhetoric…

After the Ceasefire

On 26 August a ceasefire between Israel and Hamas was agreed, bringing a fragile end to a war that killed 2150 Palestinians (mostly civilians) and 73 Israelis (mostly soldiers). Since then Hamas has not fired a single rocket, attacked an Israeli target, or done anything to break the terms of the ceasefire. Israel has done the following:
1. Annexed another 1500 acres of West Bank land
2. Seized $56 million of PA tax revenue
3. Not lifted the illegal blockade (as required by the ceasefire)
4. Broken the ceasefire by firing at fishermen on four separate occasions
5. Detained six fishermen
6. Killed a 22-year-old, Issa al Qatari, a week before his wedding
7. Killed 16-year-old Mohammed Sinokrot with a rubber bullet to the head
8. Tortured a prisoner to the point of hospitalisation
9. Refused 13 members of the European Parliament entry into Gaza
10. Detained at least 127 people across the West Bank, including a seven-year-old boy in Hebron and two children, aged seven and eight, taken from the courtyard of their house in Silwad – and tear-gassed their mother
11. Continued to hold 33 members of the Palestinian Legislative Council in prison
12. Continued to hold 500 prisoners in administrative detention without charge or trial
13. Destroyed Bedouin homes in Khan al Ahmar, near Jerusalem, leaving 14 people homeless, and unveiled a plan to forcibly move thousands of Bedouin away from Jerusalem into two purpose-built townships
14. Destroyed a dairy factory in Hebron whose profits supported an orphanage
15. Destroyed a family home in Silwan, making five children homeless
16. Destroyed a house in Jerusalem where aid supplies en route to Gaza were being stored
17. Destroyed a well near Hebron
18. Set fire to an olive grove near Hebron
19. Raided a health centre and a nursery school in Nablus, causing extensive damage
20. Destroyed a swathe of farmland in Rafah by driving tanks over it
21. Ordered the dismantling of a small monument in Jerusalem to Mohamed Abu Khdeir, murdered in July by an Israeli lynch mob
22. Continued building a vast tunnel network under Jerusalem
23. Stormed the al Aqsa mosque compound with a group of far right settlers
24. Assisted hundreds of settlers in storming Joseph’s Tomb in Nablus
25. Prevented students from entering al Quds University, firing stun grenades and rubber bullets at those who tried to go in
26. Earned unknown millions on reconstruction materials for Gaza, where 100,000 people need their destroyed homes rebuilt. The total bill is estimated at $7.8 billion

US Guilty of War Crimes in Palestine

The U.S. is not a neutral mediator in the Palestinian-Israeli conflict; it is an active participant and is guilty of the crimes being committed by Israel against Palestinians, most recently, the mass killings and destruction Israel wrought on the Gaza Strip during the summer. The reality that the U.S. is an active supporter of unimaginable suffering may very well be the motivating force behind the U.S.’s adamant attempts to block the Palestinians from using any of the internationally recognized tools of accountability to hold Israel responsible, such as the International Court of Justice and the International Criminal Court. When an indigenous, stateless population is blocked access to opportunities for justice by superpowers like the U.S., something is wrong—deadly wrong.

While Israeli bombs were hammering Gaza, Alice Lynd with the assistance of Staughton Lynd, drafted a 32-page pamphlet which was published by the Palestine-Israel Working Group of Historians Against the War (HAW) titled, Violations by Israel and the Problem of Enforcement (August 2014). The policy paper places the U.S. in front of its own mirror and meticulously documents how one hand of the U.S. government systematically documents Israeli violations of U.S. law and international law, while the other hand unconditionally dishes out financial, military, and diplomatic support to Israel.

The study notes that “United States law states that no military assistance will be provided to a government that engages in a consistent pattern of gross violations of internationally recognized human rights. Yet the United States gives more military assistance to Israel than to any other country, currently in excess of $3.1 billion per year. The U.S. participates in joint military exercises, military research, and weapons development.”

This contradiction of its own policy would seem incriminating enough, but if all the other means of U.S. support to Israel are added—especially the U.S.’s unwavering role in the UN Security Council as a proxy for Israel’s interests by vetoing and thereby blocking international steps for justice—the evidence that the U.S. is an active player in Israel’s onslaught and continued military occupation becomes overwhelming.

INTERNATIONAL
HUMAN RIGHTS LAW: Violations by Israel and the Problem of Enforcement

United States law states that no millitary assistance will be provided to a government engages in a consistent pattern of gross violations of internationally recognized human rights. Yet the United States gives more military assistance to Israel than to any other county, currently in excess of $3.1 billion per year. The U.S. participates in joint military exercises, military research, and weapons development. According to the Congressional Research Service,

U.S. military aid has helped transform Israel’s armed forces into one of the most technologically sophisticated militaries in the world. U.S. military aid for Israel has been designed to maintain Israel’s “qualitative military edge” (QME) over neighboring militaries. The rationale for QME is that Israel must rely on better equipment and training to compensate for being much smaller geographically and in terms of population than its potential adversaries. U.S. military aid, a portion of which may be spent on procurement from Israeli defense companies, also has helped Israel build a domestic defense industry, which ranks as one of the top 10 suppliers of arms worldwide.

What are “internationally recognized human rights”? What constitutes “torture” or “other cruel, inhuman or degrading treatment”? What is “collective punishment”? What evidence is there that Israel has engaged in a consistent pattern of gross violations of internationally recognized human rights such that the U.S. should not be providing military assistance? What is our responsibility to ensure that universally recognized humanitarian princiiples are applied?

As historian Robin D. G. Kelley says, “Determining next steps requires that we go back many steps – before the siege, before the election of Hamas, before the withdrawal of Jewish settlements in Gaza, before the Oslo Accords, even before the strip came under Israeli occupation in 1967.”

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From outside Scotland, different views…

Scotland Must Vote Yes! For All Of Us

Our political and economic model is well and truly broken. All that’s been keeping our nation states, and the organizations they have signed up to, alive over the past 3 or 4 decades, is the – seemingly – never-ending growth of additional debt. This is a very crucial point I think you should lock into your memory and never forget as long as you live: in our growth driven and obsessed economic model there’s only one thing left that actually grows, and that is our debt.

The only way our present leaders can even imagine boosting economic growth – against the tides – is by heaping more debt upon the already, certainly by historical standards, flabbergasting levels of it.

Why would anyone want to remain part of that model, in which, moreover, many if not most of the important decisions affecting their lives are taken by distant others, if they have a choice not to? The only people who choose to do that are those who don’t understand what happens to them and the world around them.

Is Scotland Big Enough To Go it Alone?

Even among linguistic siblings the differences are stark: Germany is poorer than the small German-speaking states (Switzerland, Austria, Luxembourg, and Liechtenstein), France is poorer than the small French-speaking states (Belgium, Andorra, Luxembourg, and Switzerland again and, of course, Monaco). Even Ireland, for centuries ravaged by the warmongering English, is today richer than their former masters in the United Kingdom, a country 15 times larger.

Why would this be? There are two reasons. First, smaller countries are often more responsive to their people. The smaller the country the stronger the policy feedback loop. Meaning truly awful ideas tend to get corrected earlier. Had Mao Tse Tung been working with an apartment complex instead of a country of nearly a billion-people, his wacky ideas wouldn’t have killed millions.

Second, small countries just don’t have the money to engage in truly crazy ideas. Like Wars on Terror or world-wide daisy-chains of military bases. An independent Scotland, or Vermont, is unlikely to invade Iraq. It takes a big country to do truly insane things.

Vote No in the Scottish referendum: Fight for a Socialist Britain!

The Socialist Equality Party (UK) calls for a resounding No vote in today’s referendum on Scotland’s separation from the United Kingdom. Our appeal is based on the fundamental principle of the unity of the international working class.

This does not imply any support for the official “Better Together” No campaign. We are implacably hostile to this pro-business alliance of warmongers and advocates of austerity who have united to defend the UK state.

We are for a revolutionary struggle of the working class against all of the representatives of British imperialism and the financial oligarchy. We advocate a workers’ government and a socialist Britain.

We see this as inseparable from the fight for the United Socialist States of Europe.

We are equally opposed to all those tendencies that have rallied behind the Scottish National Party (SNP) and the creation of a Scottish capitalist state. All efforts to equate anger towards the ruling elite with support for national separatism are fraudulent.

A Scottish state will be no less beholden to the banks and major corporations than the UK. Its creation would signal a mad scramble to the bottom, as the governments in Westminster and Holyrood compete to cut the corporation tax and further slash wages and working-class conditions.

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About ISIS…

Someone’s Already Fighting ISIS: The Syrian Arab Army

If the West was truly interested in fighting ISIS, it can find only one ally in the region – the Syrian Arab Army that has fought ISIS and its affiliates fiercely since 2011, and its predecessors for decades.

That the West instead proposes further arming and funding so-called “moderates” from which ISIS, Al Nusra and an innumerable amount of other extremist factions have risen from exposes a lack of sincerity and in fact, utter duplicity amidst its intentions in the Middle East and North Africa (MENA) region. It is a geopolitical arsonist seeking to extinguish the flames of its crime by emptying a barrel of gasoline Indeed, since 2011, the so-called “moderates” of the “Free Syrian Army” were openly collaborating with LIFG, a US designated terrorist organization. It would also be confirmed that the “Free Syrian Army” was fighting alongside (if not entirely a component of) Al Qaeda’s al Nusra franchise all throughout territory now allegedly held by ISIS. ISIS in fact did not mutate from idealistic moderates – only the narrative covering up the existence and extent of ISIS’ foreign-backed operation in Syria and now in Iraq and Lebanon has changed. From the very beginning, and in fact, proceeding the ongoing war in Syria, a sectarian driven, genocidal mercenary force designed for ravaging the entire region on behalf of the US and its regional partners was the stated plan as early as 2007.

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