The Yekaterinburg Turning Point:
De-Dollarization and the Ending of America’s Financial-Military Hegemony

Michael Hudson

Challenging the American Empire will be the prime focus of extended meetings in Yekaterinburg, Russia (formerly Sverdlovsk) this coming Monday and Tuesday for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO). The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. The SCO countries include former Soviet and CIS republics belonging to the Collective Security Treaty Organization (CSTO), established in 2002 as a counterweight to NATO. The two overlapping groups, formally aligned in 2007, will be joined on Tuesday by Brazil for trade discussions among the BRIC nations (Brazil, Russia, India and China).

The attendees have assured American diplomats that dismantling the US financial and military empire is not their aim. They simply want to discuss mutual aid – but in a way that has no role for the United States, NATO or the US dollar as a vehicle for future trade among these countries. US diplomats may well ask what this really means, if not a move to make US hegemony obsolete. That is what a multipolar world means, after all. For starters, indeed, in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia.

As in most summits, key agreements already have been worked out and are ready for ceremonial signing. Yet the meeting has elicited only a collective yawn from the US and even European press despite its agenda is to replace the global dollar standard with a new financial and military defense system.

The last rites of American hegemony began in April at the G-20 conference. This week’s meeting is for China, Russia and India to take the lead in “build[ing] an increasingly multipolar world order,” as Mr. Medvedev expressed it in his plenary address to the St. Petersburg International Economic Forum last Saturday, June 5.

Translation: We have reached our limit in subsidizing the United States’ military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate in exchange for paper money of questionable worth. “The artificially maintained unipolar system,” Mr. Medvedev continued, is based on “one big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks.”

Keen observers of America (if not effective managers of their own economies to date), these countries are claiming that what triggered the global financial crisis is that the United States makes too little and spends too much. Especially upsetting is the military expenditure the U.S. makes with the money that foreign central banks recycle, highlighted by the stepped-up US military aid to Georgia announced just this week, or the US buildup in the oil-rich Near East and Central Asia.

The sticking point with all these countries is the United States ability to print unlimited amounts of dollars. The excess spending by US citizens for imports in excess of exports, US investor buy-outs of foreign companies and real estate, and dollars the Pentagon spends abroad all end up in foreign central banks. These governments face a hard choice: Either they recycle these dollars back to the United States by purchasing US Treasury bills, or they let the “free market” force up their currency relative to the dollar – thereby pricing their exports out of world markets, creating domestic unemployment and business insolvency. “Free markets” American-style hook them into a system that forces them to accept dollars without limit. And now they want out.

This means creating a new alternative. Rather than making merely “cosmetic changes as some countries and perhaps the international financial organisations themselves might want,” Mr. Medvedev concluded his St. Petersburg speech this week, “what we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries will not dominate.”
For starters, the SCO and BRIC countries intend to trade in their own currencies so as to get the benefit of mutual credit that the United States until now has monopolized for itself. In recent months China has struck bilateral trade deals with Brazil and Malaysia to denominate their trade in renminbi rather than the dollar, sterling or euros.

Foreign countries see the United States as a lawless nation, not only financially but also militarily. How else to characterize a nation that holds out a set of laws for other countries but ignores them itself? Laws about aggressive war, debt repayment, and treatment of prisoners seem to be proclaimed only for other countries.

The US is now the world’s largest debtor nation, yet has avoided the pain of “structural adjustments” imposed on other debtor nations. US interest-rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programs that the Washington Consensus has forced on other countries via the IMF and other vehicles. The US tells debtor economies to sell off their public utilities and natural resources, raise their interest rates and increase taxes while gutting their social safety nets to squeeze out money to pay creditors.

It is no mystery to other countries how the United States remains above the law. Foreigners see a financial system under-girded by American aircraft carriers and military bases encircling the globe. The IMF, World Bank, World Trade Organization and other Washington surrogates are now seen as vestiges of a lost American Empire no longer able to rule by economic strength, left only with military domination. They see that this hegemony can’t continue without adequate revenues and are attempting to hasten what Chalmers Johnson has called “the sorrows of empire” in his book by that name – the bankruptcy of the US financial-military world order. If China, Russia and their non-aligned allies have their way, the United States will no longer live off the savings of others nor have the money for unlimited military expenditures and adventures.

US officials asked to attend the Yekaterinburg meeting in an observer status. They were told “No.” It is a word that Americans will hear much more in the future. Yekaterinburg may become known not only as the death place of the czars but of the American empire as well. It is, after all, where U-2 spy-plane pilot Gary Powers was shot down in 1960.