How Paul Volcker Devised a Way for the US to Maintain Financial Dominance, despite US Deficits
Weaponizing Wall Street to Recycle Foreign Surpluses and the Petrodollar
SUMMARY:
Paul Volker is most know for crushing interest rates in the late 1970s and early 1980s.
Less well know is Volker’s work to continue US financial dominance while the US maintained deficits. Previously American dominance was made possible by US surpluses. The transcript described how “Wall Street was weaponized to recycle the surpluses of Germany, of Japan and later China.”
TRANSCRIPT:
22:46
Okay. Uh so the dollar was the anchor that um uh held down a system whereby America’s surpluses were recycled to Europe and to Japan in order to maintain them. Okay. Uh and as Rick said, the Vietnam War must not be underestimated because it was two things, the Vietnam War and the Great Society program by LBJ that um which were of course related one to another. there was a a causal uh dialectical relations between the two. But those two things together uh together with the fact that uh the Japanese and the German capitalists boosted productivity well beyond American productivity um American capitalist production productivity. The result was that that by 1968 1969 the United States had slipped from a surplus position to a deficit position. And it was then that Henrik Kissinger who was at the NSE at that at that time the National Security Council before he moved over to the state department put a question to his team. He said how can we maintain our hegemony now that uh we are a deficit country and a young man called Paul Volkar who worked for him at the time 1970 I slipped him a note and said we’ll make the capitalists of the rest of the world pay for our deficits. We have to increase our deficits and have the capitalists of the rest of the world pay for them. And this is the post 1971 period. The period of financialization, neoliberalism, all those words that we use often with good cause describe a system where the recycling mechanism of the postwar period was inverted. We between the 50s and the 197 late 60s, early 1971, American surpluses were being sent over to Germany and to and to um France and to Japan and uh after that once America became a deficit country, Wall Street was weaponized to recycle the surpluses of Germany, of Japan and later China. Now again as Rick said before, petro dollar the Arab states effectively the Arab state the OPEC states uh played a very important role in this because to begin with um from 1946 1947 onwards under the Turman doctrine in particular um essentially Saudi Arabia would not have existed without uh a deal a quit pro between uh the CIA between the the State Department and the Saudi royal family. Uh you do as you’re told and you we will let you keep a substantial part of the oil ends. But of course it will all be part of the dollar system which was of course absolutely straightforward back then because even the French Frank even the dodge mark was part of the dollar system as part of the bread and wood system. um soon after that. Um the problem the problem the the interesting thing however was that remember Breton Woods was predicated on capital controls because Washington wanted to control the um movement of uh dollar funds uh across the borders of the bread and wood system.
26:06
QUESTIONS:
Did you ever wonder how the US is able to persist in running deficits for long? US deficits are necessary for the system to function the way that it does. It’s by design. What questions does that raise for you?
Would you be surprised if the CIA, Pentagon, an Executive branch offered Saudi Arabia a combination of threats an bribes to engineer a financial system in which oil was sold in dollars, generating demand for dollars, after the US went of the gold standard?
I often hear lip service paid to balancing the budget. How often have you heard “mainstream news sources” acknowledge that the US needs to run deficits if it is gong to continue to maintain the world’s reserve currency?