Political and Economic Crises (Pt 3)

On Dec. 20, 2018, it was announced that U.S. “Defense” Secretary James “Maddog” Mattis was resigning. Mattis resigned in protest over President Trump’s decision to withdraw 2,000 U.S. troops fighting in northeast Syria and cut in half the number of U.S. troops fighting in Afghanistan.

It was originally announced that Mattis would stay on until Feb. 28, which would allow time for President Trump to nominate a successor and for the successor to confirmed by the Republican Senate. Within days, however, it was revealed that “Maddog” would at the president’s insistence leave by Jan. 1. Mattis was replaced “on a temporary basis” by Patrick Shanahan, a former Boeing executive. Shanahan’s official title will be “acting” secretary of defense. Unlike Mattis, Shanahan is a civilian who comes from the industrial capitalist side of the military-industrial complex.

Since he assumed office on Jan. 20, 2017, Trump had been surrounded by a ring of generals, the most prominent of which was Mattis. General Mattis was known to be an enthusiastic supporter of the war in Afghanistan as well as all the other colonial wars the U.S. has been fighting around the world, including the war in northeastern Syria. Even more important, he is a strong supporter of NATO, which acts as the military wing of the U.S. world empire.

Trump, in contrast to Mattis and other generals who have surrounded Trump until recently, has expressed skepticism about continuing the wars in Afghanistan and Syria. According to the U.S. government, U.S. troops are in Syria to fight the remnants of ISIS and protect “our allies” the Kurds against NATO member Turkey.

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One Response to “Political and Economic Crises (Pt 3)”

  1. Noa Says:

    Dear Sam, I disagree with your analysis of the causes of the breakdown of Bretton-Woods: “The straw that finally broke the camel’s back was the Vietnam War. […] As commodity prices rose, the dollar costs of the gold-mining and refinery industries increased while the selling price of gold remained legally frozen at $35 an ounce. Gold production first stagnated and then slumped. [etc]”

    The gold industry in various countries was subsidized by the state (for example in the Philippines it was especially high, something like 70$ dollars an ounce iirc), and if the goal was to boost gold production a rise in subsidy to gold miners would have sufficed as policy. Furthermore, an artificial rise in the “gold price” (like in 1971) would seem to discourage the invention of new gold mining/refining techniques. A boost of gold production is to be achieved by the path of new techniques (and not by raising the “gold price” up to commodity prices, which in any case continued to rise after 1971). I believe the 1960s did see signs of introductions of new techniques, such as so-called heap leaching (Carlin, Nevada). These are just a couple of objections off the bat of my head.

    I re-post here also some of my points from last year in debate with Jehu on the causes of the breakdown of BW:

    The main goal was not so much stopping the gold drain, as to unilaterally and effectively (but not officially) devalue the dollar against other currencies.

    At first glance the steady decline of Treasury’s gold from over 20,000 tons (in 1958) to under 9,000 looks dramatic and casts the suspension as inevitable. However this took 12 years, i.e. it wasn’t an acute drain. Marx discusses a drain of the Bank of England in the 1847 crisis where the reserves fell by almost one-third in a couple of months. The US still had the largest gold reserves in the world in 1971. Furthermore by 1971 the only actors who could drain the US Treasury’s gold were foreign governments/central banks. Hence the (false) rumor that Britain was going to ask a huge sum of gold, which was used as an excuse/opportunity by Connally/Nixon to close the gold window. But if I’m correct, their goal was not to close the gold window as such, but to devalue the dollar.

    A rise in the free market “gold price” would just make it harder for the treasury/central bank (of all countries) to compete with private speculators to buy new gold. Though in reality the US could pressure South Africa to keep selling gold to it at $35 an ounce.

    A run on the dollar (there had also been a run on the pound in 1968) isn’t necessarily a run into gold. For example, people could equally turn to the D-Mark, which thus came under pressure to re-valuate upwards (against the dollar). At this time, in 1971, private speculators could no longer drain US Treasury gold (since the London Gold Pool closed in 1968). To buy gold on the market, they would have to move out of their dollar-denominated debts, i.e.cash in the dollars, and buy (let’s take only non-US produced) gold with these dollars. US-debt held by foreigners decreased, and the gold sellers have received dollars. They can either sit on these dollars (unlikely) or, in turn, buy dollar-denominated debt (by the US government), which brings the situation back to square one. Or, if instead they bought dollar-denominated debt issued by another (non-US) country or company, then the issuer of that debt eventually (to repay their debt) will have to demand dollars.

    1) it is not possible to redeem all US debt into even mere dollars at the same point in time,
    2) there are never enough dollars to fulfill all debt (like today just the US government debt is $20 trillion, but total dollars – including reserves held at the Fed- is only $4.4 trillion),
    3) central banks had no problem to keep increasing their dollar-denominated debt (which earned interest, unlike gold),
    4) actual dollars were needed by people outside the US to carry out international trade (which they couldn’t do with gold after all),
    5) gold hoarding, in the classical sense, is done by people in times of prosperity (whereas starting in 1958 we saw economic crises, leading eventually e.g. in France to May 68).

    In the 1960s the US had annual current account surpluses.

    During the classical gold standard Britain for 60 years (from 1854 to 1914) had a trade balance in deficit. Up to the First World War the average trade deficit was just over £100 million per annum, with a slight trend deterioration through time. So 60 years of a balance of trade deficit, and it didn’t drain Britain’s gold reserves.

    According to the usual narrative, the writing was on the wall already in the late 50s (at the mere start of currency convertibility) with the first decrease of US gold reserves by a single ounce. The whole bag of various reasons (wage-push, US industry low productivity, Triffin dilemma, etc.) already is there according to the narrative. Except perhaps LBJ’s social programs and the Vietnam war spending. Finally, a very simple cause is seen in Nixon’s appointment in 1970 of Burns as Fed chair in order to ramp up money creation. So state intervention for electoral gain.

    Against the argument that US industry’s crisis caused the drain on gold in the 1960s, I counterpose the fact that US gold reserves experienced their biggest rise in the middle of the bloody Great Depression.

    For further analysis/research, we could rather try to look at e.g. which capitalist circles/interest groups (particularly banks) were in favor of the suspension/devaluation. Clearly there were opponents (e.g Coombs) of the decision as well. The decision itself was unannounced, but there had been public debate in prior years and I imagine in its wake too.

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