On Contact: Richard Wolff & the precarious state of the US economy

A bipartisan group of senators are crafting legislation to impose sweeping sanctions on Russia if it engages in what they consider hostile action of any kind against the Ukraine. New Jersey Senator Robert Menendez, the chair of the Foreign Relations Committee, calls the legislation “the mother of all sanctions bill.” The bill led in the House by Gregory Meeks of the House Foreign Affairs Committee, like Menendez a Democrat, demands that the administration “not cede to the demands of the Russian Federation regarding NATO membership or expansion.” They are the most extensive economic sanctions the US has attempted to deploy since the post-Cold War global economy was constructed.

This cuts off the ability to discuss Moscow’s core demands, including a ban on future NATO membership for Ukraine. The proposed sanctions target Russian banks, state-owned enterprises, government debt, energy firms, and the Nord Stream 2 pipeline, as well as many individual members of the government and military.

The sanctions, if enacted, would remove Russia from SWIFT, the international financial transaction system that uses the US dollar as the world’s reserve currency. The proposal to cut Russia off from SWIFT, while it will certainly hurt the Russian economy, will also further push Russia, along with China and other countries, especially those such as Cuba and Iran that are also targeted by the United States, to create their own global monetary exchange system.

If the US dollar is no longer the world’s reserve currency, it will seriously erode the already precarious health of the US economy, not only because the dollar would significantly decline in value, but because the treasury bonds sold to fund the huge US deficits would no longer be attractive investments.

The US is already reeling under the ascent of the People’s Republic of China, whose economy will be larger in terms of its footprint in the global economy than the US by the end of this decade. The desperate financial tricks, flooding the global market with new dollars, and lowering interest rates, which staved off a major depression after the 2000 dotcom crash and 9/11, were accelerated after the 2008 global financial meltdown.

Easy access to money at unprecedentedly low interest rates incentivized every corporation in the country to borrow massively from the Federal Reserve, often to paper over shortfalls and bad investments. The result is that US businesses are deeper in debt than at any time in history.

Added to this morass is rising inflation, caused by businesses that have increased prices in a desperate effort to make up for lost revenue from the economic downturn caused by the pandemic. This inflation has forced the Fed to curtail the growth of the money supply and raise interest rates, which then pushes corporations to further raise prices. No matter which way you look, serious financial dislocation in the United States seems inevitable.

Chris is joined by Richard Wolff, visiting professor in the Graduate Program in International Affairs of the New School in New York, who has also taught economics at Yale University and the Sorbonne. He can be found at Democracy at work.

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