Guess What Is Keeping the US Economy Afloat. By Paul Frijters.
With no commensurate increase in the demand for money, the expansion in money supply created by American money-printing leads to all existing dollars buying fewer goods than before the money-printing. Nobody sends a bill: the tax just happens, with every clank of the government printing press. Doubling the amount of money in circulation via the printing press, and then giving the printed money to the government to buy stuff with, is basically the same as the government taxing half of private-sector income and buying stuff with it. …
This implicit tax from money-printing is known in economics as a seigniorage tax, and it doesn’t apply only to a government’s citizens. In fact, if a lot of domestic currency is held abroad, then a lot of the seigniorage tax bill created by just printing money is paid by foreigners holding that currency. …
What the table reveals is the scale of the seigniorage tax that foreign governments have paid the US in 2021, in 2022, and in the whole period of 2021-2023.
The Chinese have subsidised the US to the tune of about $400 billion of purchasing power, or close to half the FY2023 US defence budget. Japan and Switzerland have paid the US an implicit tribute of more than $250 billion between them over the 2021-23 period, and even Russia has chipped in with about $70 billion. The 27 countries in this table had about $7.2 trillion in US dollar-denominated assets in their reserves, resulting in their paying the US a total tribute over this period of nearly $1.4 trillion worth of purchasing power. …
There are more physical dollars owned by foreigners than this table shows. Also going uncounted is a large number of Eurodollars. Eurodollars are essentially rights to US dollars in banks owned and traded outside of the US. Because they are a call upon goods and services, Eurodollars have purchasing power that changes just as that of other dollars. If you extend the logic of the table to the whole of the ‘Eurodollar market’ that is believed to be worth around $20 trillion, then the US has received implicit subsidies of about $5.3 trillion from the rest of the world in the past few years. That’s almost 7 years’ worth of US military budgets. …
Since the US Federal Reserve has printed about $6 trillion in this period to be used by the US government and US institutions, it would not be wrong to say that most of the Fed’s money-printing was paid for in the form of an inflationary tribute from the rest of the world. …
Strikingly, the supposed arch-enemies of the US today — China and Russia — are contributing significantly to US financial solvency. Russia is paying the US far more than the Ukraine war is costing the US, and China is paying the US far more than the total cost of all the military bases surrounding China. … If the Russians and Chinese had then put those dollars into international equities, like shares, they would not have paid this tribute. …
While the economics of seigniorage taxation is similar to what goes on in a Viking raid, the psychology is totally different. Suppose for example that the US military had invaded part of China, robbed it of $400 billion worth of stuff, and then left. Imagine the Chinese response! Instead what actually happened is that China effectively sent lots of stuff to the US in exchange for US dollars, after which the US government (via the Fed) simply printed more dollars so that the value of Chinese dollar holdings dropped by $400 billion. The same outcome happens, in terms of who ends up paying and who ends up enjoying the goods, but the seigniorage tax method is a lot more opaque, so the Chinese feel less cheated. ..
If we include the Eurodollar market, foreign tributes have been worth almost 8 percent of GDP per year, or 25 percent of US government spending per year. This means that the US economy would crash spectacularly next year if these tributes were to come to an end. Without the tributes, the US government would have to increase taxes by as much as 25 percent, or axe an amount of spending equivalent to the entire US military (plus change), or find another way to cut spending 25 percent. It is hard to see the Biden administration surviving that kind of dramatic policy change. …
It is difficult to overestimate the importance of these tributary payments for US foreign policy and hence for current economic stability. In essence, in the table we see both the payoff to American military and economic dominance, and America’s own dependence on that payoff. The tributes permit America’s continued hold over the SWIFT system of interbank transactions, the petrodollars, the international financial institutions, and various other systems and levers of power. The size of the tributes also reveals the dependence of the whole system on them.
When students ask us what the point is of having 800 US military bases abroad, we point out to them how many of those bases are in countries that have large US dollar-denominated reserves. US military bases are plentiful in Japan, South Korea, and Saudi Arabia, all three of which make the top-10 list of tribute-payers. Of course, those military bases are purportedly there to provide local protection, but just as the mafia runs a protection racket in exchange for “contributions” from the protected, so too do those countries pay the US a hefty fee, via their US currency reserves, for the privilege of being protected.
As a form of implicit taxation, these tributes are very similar to using the WHO to force other countries into buying useless vaccines or to force allies to accept the tax evasion of big US companies. …
Without seigniorage tax tributes, much of the American house of cards would collapse. Mass unemployment and huge civil strife would break out, at least in the short run. One could argue that the US economy and the US government have become diseased systems only struggling to remain afloat via the tributes paid by the rest of the world, supported by the financial ignorance of enemies.
This confronts well-meaning US politicians with a huge dilemma. Would they actually want to dismantle this system of parasitic big government and big corporations who, as an alliance, keep the tributes flowing in on which not just themselves, but everyone in the whole system depends? Dismantle the system and tens of millions of jobs will be lost. A housing crash. International humiliation.
Pause to think the next time you read about US involvement in a war in Europe, or a skirmish in the Middle East. Is it really about freedom, peace, and justice, or is it to keep the “American way” of tributes flowing?
How the world really works. It’s right there in the open, but the media never talks about it. Hardly anyone even knows where money comes from, yet it’s not a secret.
The main export of the US are US dollars. The demand for US dollars keeps the US dollar worth more than it would otherwise be, on currency markets.
But it’s not all good for the US. In fact, in the long term it’s quite dangerous. It means that US labor is overpriced, and cannot compete internationally — which is why the US lost its manufacturing base. Want to make America great again? Reform the currency situation.
