Michael Hudson: US Cryptocurrency as an Offshore Banking Center

Yves here. Although Hudson presents a negative proposition about the super neoliberal American Enterprise Institute, it is important to explain that it is based on serious misconceptions. The first is that the US needs to sell bonds to finance its operations. The youngest of both Alan Greenspan and Ben Bernanke said otherwise. The Bank of England has all the principles that explain in the same way how financing and money creation work, and make it clear that these activities do not depend on the issuance of loans. A country that creates its own currency cannot default automatically. It can always (like the Lannisters) pay its debts. It can engage in excessive spending (such as continuing very large budget deficits) and create high levels of inflation.

The second is that, as explained in great detail in Nicholas Shaxxon’s Treasure Islands, the US already has the largest “offshore” banking center, through the Caymans, Wyoming limited liability companies, and other tax havens under the American banking umbrella, even after of that. his writing is larger than UK tax havens such as the Isle of Man.

The third is that stablecoins are often a scam, as developers cannot resist the temptation to increase their profit by using insufficient cooperation of their coins.

By Michael Hudson, a research professor of Economics at the University of Missouri, Kansas City, and a research fellow at the Levy Economics Institute of Bard College. His latest book is The Destiny of Civilization.

The Wall Street Journal ran a revealing op-ed today (June 14, 2024) by Paul D. Ryan, “Crypto Could Prevent America’s Debt Crisis.”

Mr. Ryan, the 2015-2019 Republican House Speaker and now at the right-wing American Enterprise Institute, writes: “Stablecoins backed by dollars provide the US public debt and a way to keep pace with China.”

He reports that “According to the Treasury Department and DeFi Llama, a cryptocurrency analysis site, dollar-based stablecoins are becoming a significant buyer of US government debt.” If the stablecoin fund were a country, it would be in the “top ten countries holding Money – smaller than Hong Kong but bigger than Saudi Arabia.” So the result of official self-improvement “would be a rapid, permanent increase in the demand for US debt.”

Ryan says “bipartisan support in Congress … will go a long way toward expanding the use of digital dollars at a critical time.”

Here is the real logic. I have written before about c. 1966 or 1967, I was a balance of payments economist at Chase Manhattan, and a bank executive, who had apparently joined from the State Department, asked me to review a memo proposing to make the United States the “new Switzerland,” ie. , a haven for the world’s drug money and other criminal money laundering, for kleptocrats and tax evaders to help offset the US balance of payments deficit caused entirely by military spending in Southeast Asia and elsewhere around the world.

Today, as foreign countries withdraw their trade – for example, when Russia and China trade oil and industrial products in each other’s currency – American financial strategists worry about what this will mean for the dollar’s exchange rate.

In practice, doing that foreign trade in non-dollar currencies has no effect on the US balance of payments. It is not reflected in the trade balance or even in foreign investment, although the dollarization may deprive US banks of trading commissions to handle such transactions.

What affects the demand for dollars is the conversion of foreign currency assets into dollars. It was this king of secret banking that suppressed the Swiss franc so much in the 1970s and 1980s that it drove up the price of Swiss products from foreign markets. Companies like Ciba-Geigy had to move across the border to Germany to prevent the franc’s rise from making them uncompetitive. (When that company brought it to me in 1976, I found that the price of a Coke was over $10, and a regular meal was $100.)

The US wants to protect the high value of the dollar, not lower it, so it sees serving as a destination for global tax evaders, criminals and others as good national strategy. (“Kleptocracy is us.”) The plan is not to condemn tax crimes and the most violent criminal activities, but we want to profit from being the bankers of these activities. The idea is, “As the world’s leading free-market democracy, we provide security for the world’s capital, whether ‘earned’ or not.”


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