This author is a widely respected economist on the left end of the liberal spectrum of capitalist thought. Thus, he might best be labeled as a social democrat--one who believes in a kinder, gentler capitalism--if only people would behave better. People who believe that are probably fooling themselves because they are well paid by the existing system. Nevertheless, I think that one can learn a lot from this author who is far more honest and insightful than most economists.
I will not pretend to understand everything he writes, but I think I get the gist of it. I mostly differ from him in this article in what he leaves out of the picture--the two fundamental bases of the power of the US dollar.
The first one is the US's overwhelming ability to use military force against its adversaries. Increasingly all the world's capitalists rely on the US military along with NATO to intimidate the rest of the world into using US dollars which the Federal Reserve "creates out of thin air", or on their computers. In an article published last year Hudson does elaborate on this:
When the U.S. payments deficit pumps dollars into foreign economies, these banks are being given little option except to buy U.S. Treasury bills and bonds – which the Treasury spends on financing an enormous, hostile military build-up to encircle the major dollar-recyclers – China, Japan and Arab OPEC oil producers. Yet these governments are forced to recycle dollar inflows in a way that funds U.S. military policies in which they have no say in formulating, and which threaten them more and more belligerently. That is why China and Russia took the lead in forming the Shanghai Cooperation Organization (SCO) a few years ago.The second reason the world accepts US dollars is because of the deal in June 1974 negotiated by Secretary of State Henry Kissinger, America's most distinguished war criminal, when he established the US-Saudi Arabian Joint Commission on Economic Co-operation. Essentially this deal guaranteed US protection of this medieval kingdom of Saudi Arabia and, in exchange, the Saudis agreed to sell their oil in US dollars only. The next year all of OPEC, probably due to Saudi Arabia's dominant influence, decided to sell only in US dollars. See this excellent article by William Engdahl which explains the effects of the arrangement:
The crucial shift took place when Nixon took the dollar off a fixed gold reserve to float against other currencies. This removed the restraints on printing new dollars. The limit was only how many dollars the rest of the world would take. By their firm agreement with Saudi Arabia, as the largest OPEC oil producer with a swing role. Washington guaranteed that the world's largest commodity, namely oil, could be purchased on world markets only in dollars. Oil was essential for every nation's economy, being the basis of all transport and much of the industry.
The deal had been fixed in June 1974 by Secretary of State Henry Kissinger when he established the US-Saudi Arabian Joint Commission on Economic Co-operation. In effect, the US Treasury and New York Federal Reserve “allowed” the Saudi central bank, SAMA, to buy US Treasury bonds with Saudi petrodollars. In 1975, OPEC officially agreed to sell its oil only for dollars. A secret US military agreement to arm Saudi Arabia was the quid pro quo.
