Dollar Empire

Written by: Stephen Hsu

Primary Source:  Information Processing

This speech emphasizes an under-recognized motivation for US adventurism abroad: local military and geopolitical conflicts enhance the strength of the US dollar as a reserve currency in the face of global volatility. The essay is long but worth reading as it gives a fresh look at superpower competition across multiple arenas, and some insight into the Chinese worldview. However, I think the general overestimates the level of long term thinking and financial-economic-geopolitical-military coordination within US leadership.

One Belt, One Road

General Qiao Liang’s speech, which we’ve been allowed to publish, was delivered at the University of Defense, China’s top military school. It casts a light on China’s new strategic thinking.

… the August 15, 1971 decoupling of dollar and gold. Since then, humanity saw the emergence of a financial empire, and this financial empire took all of the humanity race into its financial system. In fact, the so-called dollar leadership began at this moment. Today it is about 40 years old. After that day, we entered into an era of real paper notes, but behind the dollar there is no longer a precious metal—it uses entirely the government’s credibility and support from all over the world to gain profits. Simply put, the Americans can use a piece of printed green paper to get physical wealth from all over the world. We never had such a thing in human history. There were a lot of ways to make profits in human history, sometimes with money exchange, sometimes by using gold or silver; at other times countries used war to gain plunders, but the cost of war remained enormous. But after the appearance of the dollar as simply a green paper, the cost-benefit ratio for the United States we can say became extremely low.

… The reason is very simple. Because in order to control the world, the United States needs the world to use dollars. In order to let the world use dollars, the Americans made a very clever move in 1973: they linked the dollar and oil by forcing the leading OPEC country, Saudi Arabia, to conduct its global oil transactions in dollars. If you understand that global oil transactions are in US dollars, you can understand why the Americans fight for oil. A direct consequence of war in the oil-producing countries is the surge in oil prices, and a surge in oil prices means that the demand for dollars increases. Before the war, for example, if you had $38, in theory, you can buy a barrel of oil from an oil company. With the war, oil prices have more than quadrupled, reaching $149. So, $38 is only enough to buy a quarter of a barrel of oil, and for the remaining 3/4 of the barrel you are short more than 100 dollars. What to do then? You can only go to the Americans with your own products and resources and hand them out in return for American dollars. And then the US government can confidently, openly, and justifiably print dollars. It is through war—war against the oil-producing countries, creating high oil prices—that the US creates a high demand for dollars.

The American war in Iraq had more than just one goal. It was also about maintaining the dollar leadership. Why then did George W. Bush insist on war in Iraq? Now we can very clearly that Saddam did not support terrorism or al-Qaeda, nor did he weapons of mass destruction—why was Saddam finally brought to the gallows? Because Saddam thought himself smart, and played with fire with superpowers. At the official launch of the euro in 1999, Saddam Hussein seized the opportunity to play with fire between the dollar and the euro—the United States and the European Union—and he could not wait to announce that the Iraqi oil transactions would occur in euros. This is what angered the Americans, in particular, it produced a chain reaction. Russian President Vladimir Putin, Iranian President Mahmoud Ahmadinejad, and Venezuelan President Hugo Chavez, also announced the settlement of their country’s oil exports would be in euros. Was this not a stab in American backs? Some people think it is too far-fetched to say that after this war in Iraq was mandatory. Then please take a look at this: what did the Americans do after winning Iraq? Even before seizing Saddam, the Americans set up an Iraqi interim government whose first decree was to declare Iraqi oil exports would be accounted in dollars and not in euros. That’s why Americans are fighting for dollars.

… On last year’s “double 11” [November 11, Chinese Valentine day], online shopping reached 50.7 billion yuan in a day for Alibaba’s Taobao. Over the three days after the Thanksgiving holiday, US online and on-the-ground store sales had a total equivalent to 40.7 billion yuan, less than Alibaba sales in one day. And China was not even counting Netease, Tencent, Jingdong, or revenue from malls. This means that a new era has already arrived, while the American reaction is still slow. Alibaba deals were all made directly with Alipay. What does direct pay mean? It means that the currency is already out of the transaction stage, and the American leadership is built on the dollar. What is the dollar? It is a currency. In the future, when we no longer use money, traditional money settlement will become useless. When money becomes useless, will an empire built on money still exist? That is the question to be considered by the Americans.

Major General Smedley Darlington Butler (USMC), author of War is a Racket:

WAR is a racket. It always has been. It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives. A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small ‘inside’ group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many.

I spent 33 years and four months in active military service and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902-1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went on its way unmolested. Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.

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Stephen Hsu
Stephen Hsu is vice president for Research and Graduate Studies at Michigan State University. He also serves as scientific adviser to BGI (formerly Beijing Genomics Institute) and as a member of its Cognitive Genomics Lab. Hsu’s primary work has been in applications of quantum field theory, particularly to problems in quantum chromodynamics, dark energy, black holes, entropy bounds, and particle physics beyond the standard model. He has also made contributions to genomics and bioinformatics, the theory of modern finance, and in encryption and information security. Founder of two Silicon Valley companies—SafeWeb, a pioneer in SSL VPN (Secure Sockets Layer Virtual Private Networks) appliances, which was acquired by Symantec in 2003, and Robot Genius Inc., which developed anti-malware technologies—Hsu has given invited research seminars and colloquia at leading research universities and laboratories around the world.
Stephen Hsu

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