MW: Wouldn't it be better for the world if there were no "reserve currency" at all and the value of money was simply dependent on economic strength and balanced budgets? As long as there is an "international currency," like the dollar, there will be an Empire, because the paper money of one country (US) dominates all others. Is democracy really possible without greater parity between the world's currencies? Michael Hudson: Exchange rates are independent of political systems. That being said, oligarchic economies tend to go bust as a result of shifting the tax burden off real estate, monopolized and privatized infrastructure, and onto labor and industry. This makes them uncompetitive. For instance, the military-industrial complex operates on a cost-plus basis rather than a cost-minimizing basis. The question therefore is whether they can extort foreign tribute from other countries by enough to compensate. Spain couldn't do this from the New World after 1492, and Rome earlier simply destroyed Asia Minor and other imperial appendages. Can the United States succeed better today? Dollar hegemony looks like the only way it can pull it off. By definition, a reserve currency is a loan from one government to another. This ends up becoming taxation without representation. It's inherently inequitable. There are two reasons for central banks to hold dollars. One is for stabilization purposes to prevent currency raids such as occurred in Asia in 1997. The other is that keeping dollar receipts in the form of dollar-loans back to the United States holds down the price of their own currencies, and hence the price of their exports. This effect also could be achieved by imposing a floating tariff against imports from countries whose currencies are depreciating, with the money provided as a subsidy to exporters. But foreign countries aren't yet ready for this great a quantum political leap out of the American financial empire. Regarding tax policy, there's not really a need for balanced budgets. Starting with the greenbacks during the Civil War years, the United States has demonstrated that governments don't have to raise taxes to spend money. They can simply print it. That's what the commercial banking system does, after all. In either case, the money is created spontaneously. The Treasury and Federal Reserve created $1 trillion in bailout credit for the financial sector in April alone ­ while making the hypocritical asymmetrical claim that Social Security will be broke in 40 years because of ITS trillion-dollar deficit. Iraq added another trillion or so. The moral is that economic strength consists of the ability to create credit that fuels economic growth. But the privatized banking sector is crippling this strength in the United States these days. Instead of creating credit to fund industrial capital formation, the banking system is lending to bail out bad financial pyramiding. MW: Do you see the growth of the financial sector as a positive development, or not? Michael Hudson: Its behavior has become antithetical to the development of industrial capitalism. 19th century reformers inspired by Henri St. Simon in France sought to reorganize finance from debt financing to equity financing. But today's economy is going in just the opposite direction. It's replacing stocks with bonds and loans by banks and buyout funds, creating debt that is not being used to build up the productive capacity to pay back this debt with its interest charges. The result is what classical economists called unproductive debt.
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