The simple answer is that Uncle Sam, who is increasingly hooked on consumption, not to mention harder drugs, saves no more than 0.2% of his own income. The Federal Reserve’s guru and now you see it, now you don’t doctor of magic, Alan Greenspan, recently observed that this is so because the richest 20% of Americans, who are the only ones who do save, have reduced their savings to 2%. Yet even these measly savings (other, poorer countries save and even invest 20%, 30%, even 40% of their income) are more than counterbalanced by the 6% deficit spending of the government. That is what brings the average saving rate to 0.2%. To maintain that $400-plus-billion budget deficit (more than 3% of national domestic product), which is really more the $600 billion if we count, as we should, the more than $200 billion Uncle Sam "borrows" from the temporary surplus in his own Federal Social Security fund, which he is also bankrupting. (But never mind, President George W. Bush just promised to privatize much of that and let people buy their own old-age "security" in the ever-insecure market).
So with this $600-billion-plus budget deficit and the above-mentioned related $600-billion-plus deficit, rich Uncle Sam, and primarily his highest earners and biggest consumers, as well as of course the Big Uncle himself, live off the fat of the rest of the world’s land. Uncle Sam absorbs the savings of others who themselves are often much poorer, particularly when their central banks put many of their reserves in world-currency dollars and hence into the hands of Uncle Sam in Washington, and some also in dollars at home. Their private investors send dollars to or buy dollar assets on Wall Street, all with the confidence that they are putting their wherewithal in the world’s safest haven (and that, of course, is part of the above-mentioned confidence racket). From the central banks alone, we are looking at yearly sums of more than $100 billion from Europe, more than $100 billion from poor China, $140 billion from super-saver Japan, and many 10s of billions from many others around the globe, including the Third World. But in addition, Uncle Sam obliges them, through the good offices of their own states, to send their thus literally forced savings to Uncle Sam as well in the form of their "service" of their predominantly dollar debt to him.
His treasury secretary and his International Monetary Fund (IMF) handmaiden blithely continue to strut around the world insisting that the Third – and ex-Second, now also Third – World of course continue to service their foreign debts, especially to him. No matter that with interest rates multiplied several times over by Uncle Sam himself after the Fed’s Paul Volcker’s coup in October 1979, most have already paid off their original borrowings three to five times over. For to pay at all at interest rates that Volcker boosted to 20%, they had to borrow still more at still higher rates until thereby their outstanding foreign debt doubled and tripled, not to mention their domestic debt from which part of the foreign payments were raised, particularly in Brazil. Privatization is the name of the game there and elsewhere, except for the debt. The debt was socialized after it had been incurred mostly by private business, but only the state had enough power to squeeze the greatest bulk of back payments out of the hides of its poor and middle-class people and transfer them as "invisible service payments" to Uncle Sam.
When Mexicans were told to tighten their belts still further, they answered that they couldn’t because they had already had to eat their belts. Only Argentina and for a while Russia declared an effective moratorium on debt "service", and that only after political economic policies had destroyed their societies, thanks to Uncle Sam’s advisers and his IMF strong arm. Since then, Uncle Sam himself has been blithely defaulting on his own foreign debt, as he already had several times before in the 19th century.
Speaking of that, it may be well to recall at least two pieces of advice from that time: Lord Cromer, who administered Egypt for then-dominant British imperial interests, said his most important instrument for doing so was Egypt’s debts to Britain. These had just multiplied when Egypt was obliged to sell its Suez Canal shares to Britain in order to pay off earlier debts and British prime minister Benjamin Disraeli explained and justified his purchase of the same on the grounds that it would strengthen British imperial interests. Today, that is called "debt-for-equity swaps", which is one of Uncle Sam’s latter-day favorite policies to use the debt to acquire profitable and/or strategically important real resources, as of course also was the canal as the way to the jewel of the British Empire, India.
Another piece of practical advice came from the premier military strategist Carl von Clausewitz: make the lands you conquer pay for their own conquest and administration. That is of course exactly what Britain did in and with India through the infamous "Home Charges" remitted to London in payment for Britain administering India, which even the British themselves recognized as "tribute" and responsible for much of "The Drain" from India to Britain. How much more efficient yet to let foreign countries’ own states administer themselves but by rules set and imposed by Uncle Sam’s IMF and then effect a drain of debt service anyway. Actually, the British therein also set the 19th-century precedent of relying on the "imperialism of free trade" with "independent" states as far and as long as possible, using gunboat diplomacy to make it work (which Uncle Sam had already learned to copy by early in the 20th century); and if that was not enough, simply to invade, and if necessary to occupy – and then rely on the Clausewitz rule. We shall note several recent instances thereof, and especially the Iraqi one, in the second article in this series.
After I wrote the above, I received by e-mail an excerpt from the Democracy Now! website, titled Confessions of an economic hit man: How the US uses globalization to cheat poor countries out of trillions.
We speak with John Perkins, a former respected member of the international banking community. In his book Confessions of an Economic Hit Man he describes how as a highly paid professional, he helped the US cheat poor countries around the globe out of trillions of dollars by lending them more money than they could possibly repay and then take over their economies...
JOHN PERKINS: Basically what we were trained to do and what our job is to do is to build up the American empire. To bring – to create situations where as many resources as possible flow into this country, to our corporations, and our government, and in fact we’ve been very successful. We’ve built the largest empire in the history of the world ... primarily through economic manipulation, through cheating, through fraud, through seducing people into our way of life, through the economic hit men. I was very much a part of that ... I was initially recruited while I was in business school back in the late ‘60s by the National Security Agency, the nation’s largest and least understood spy organization ... and then [it] send[s] us to work for private consulting companies, engineering firms, construction companies, so that if we were caught, there would be no connection with the government...
I became its chief economist. I ended up having 50 people working for me. But my real job was deal-making. It was giving loans to other countries, huge loans, much bigger than they could possibly repay. One of the conditions of the loan – let’s say a $1 billion to a country like Indonesia or Ecuador – and this country would then have to give 90% of that loan back to a US company, or US companies ... a Halliburton or a Bechtel ... A country today like Ecuador owes over 50% of its national budget just to pay down its debt. And it really can’t do it. So we literally have them over a barrel. So when we want more oil, we go to Ecuador and say, "Look, you’re not able to repay your debts, therefore give your oil companies your Amazon rain [forests], which are filled with oil." And today we’re going in and destroying Amazonian rain forests, forcing Ecuador to give them to us because they’ve accumulated all this debt ... [We work] very, very closely with the World Bank. The World Bank provides most of the money that’s used by economic hit men, it and the IMF.
Last but not least, oil producers also put their savings in Uncle Sam. With the "shock" of oil that restored its real price after the dollar valuation had fallen in 1973, ever-cleverer-by-half Henry Kissinger made a deal with the world’s largest oil exporter, Saudi Arabia, that it would continue to price oil in dollars, and these earnings would be deposited with Uncle Sam and partly compensated by military hardware. That deal de facto extended to all of the Organization of Petroleum Exporting Countries (OPEC) and still stands, except that before the war against Iraq that country suddenly opted out by switching to pricing its oil in euros, and Iran threatened do the same. North Korea, the third member of the "axis of evil", has no oil but trades entirely in euros. (Venezuela is a major oil supplier to Uncle Sam and also supplies some at preferential rates as non-dollar trade swaps to poor countries such as Cuba. So Uncle Sam sponsored and financed military commandos from its Plan Colombia next door, promoted an illegal coup and, when that failed, pushed a referendum in his attempt at yet another "regime change"; and now along with Brazil all three are being baptized as yet another "axis of evil").
After writing this, I found that the good (hit) man Mr. Perkins was in Saudi Arabia too:
Yes, it was a fascinating time. I remember well ... the Treasury Department hired me and a few other economic hit men. We went to Saudi Arabia ... And we worked out this deal whereby the Royal House of Saud agreed to send most of their petrodollars back to the United States and invest them in US government securities. The Treasury Department would use the interest from these securities to hire US companies to build Saudi Arabia – new cities, new infrastructure – which we’ve done. And the House of Saud would agree to maintain the price of oil within acceptable limits to us, which they’ve done all of these years, and we would agree to keep the House of Saud in power as long as they did this, which we’ve done, which is one of the reasons we went to war with Iraq in the first place. And in Iraq we tried to implement the same policy that was so successful in Saudi Arabia, but Saddam Hussein didn’t buy. When the economic hit men fail in this scenario, the next step is what we call the jackals. Jackals are CIA-sanctioned people that come in and try to foment a coup or revolution. If that doesn’t work, they perform assassinations. Or try to. In the case of Iraq, they weren’t able to get through to Saddam Hussein. He had – his bodyguards were too good. He had doubles. They couldn’t get through to him. So the third line of defense, if the economic hit men and the jackals fail, the next line of defense is our young men and women, who are sent in to die and kill, which is what we’ve obviously done in Iraq.
To return to the main issue and call a spade a huge spade, all of the above is part and parcel of the world’s biggest-ever Ponzi-scheme confidence racket. Like all others, its most essential characteristic is that it can only continue to pay off dollars and be maintained at the top as long as it continues to receive new dollars at the bottom, voluntarily through confidence if possible and by force if not. (Of course, the Clausewitz and Cromer formulas result in the poorest paying the most, since they are also the most defenseless: so that the ones sitting on/above them pass much of the cost and pain down to them.)