GEH April 28, 2026, US swap agreements with Emirates
Radhika Desai: Hello and welcome to the 64th Geopolitical Economy Hour, the conversation that illuminates the fast-changing political economy and geopolitical economy of our times, and does so from a socialist and anti-imperialist point of view. The point of view that is of the world majority. I am Radhika Desai and you're watching Radhika Desai, Geopolitical Economist. This channel is part of my work on geopolitical economy, which I have been developing over the past two decades across all platforms. My content is free, but if you like what I'm doing, please like this video. Please subscribe to my channel and please consider supporting me on any of my platforms here on YouTube, on my website, on my Substack, on my Patreon. Now, on to the subject of the day. What's all this discussion about swap lines and what does it have to do with the so-called petrodollar and the dollar and the possibility of a financial crisis ? With me to discuss this and other developments over the past fortnight is our most regular of regular guests, Professor Michael Hudson. Welcome Michael.
Michael Hudson: Okay, well thanks Radhika. This is an important broadcast because swap lines are at the very top of the international discussion right now. Mutual lines of credit between central banks or treasuries are the path of least resistance when there's no alternative artificial currency along the lines that we've been discussing, like what Keynes discussed as an alternative to IMF SDRs. So what we're seeing is a whole laboratory of ways to cope with the balance of payments crisis that are resulting from the US war in Iran and the whole energy crisis we're seeing.
Radhika Desai: Michael, that's absolutely right. Of course swap lines have been one of the key supports of the dollar system as it operated. And I think by reminding our listeners of Keynes's proposals, which was not at all a proposal to accept the dollar, those proposals were based on a recognition that left to itself such a dollar system as the United States was insisting on would be extremely volatile and ultimately unsustainable. Something that you and I have been arguing in our writing, in our geopolitical economy hour shows, etc., over a long period of time. So let's see how these swap lines fit in.
So what's happened basically is that recently it has been reported that the UAE, the United Arab Emirates, has requested such a swap line, apparently to ensure against the possibility that it may not have enough money. And then Scott Bessent, the US Treasury Secretary, then tweeted that not only had the UAE requested this, but he was discussing extending such swap lines not only to the UAE, but to other Gulf countries and Asian allies. And Bessent said in his tweet that this would be good for the dollar system, that it would entrench dollar primacy and so on. But in reality, if you ask me Michael, what's actually going on is not reinforcing the dollar system, but is actually spelling trouble for it, for the simple reason that historically, certainly since the last oil crisis, the GCC states, the Gulf Cooperation Council states, who are the main American allies in the region in the Persian Gulf region, they have been net contributors to the dollar system.
And what we mean by that is, of course as we've been arguing, that the dollar system would not exist today were it not for vast infusions of money coming in from all over the world into the dollar-based financial system, into the dollar essentially and dollar-based assets. If it weren't for such monies, the dollar system would collapse. Now if the countries that have historically been contributors, they have been creating these infusions, now suddenly want dollars for themselves, they are extracting money from the dollar system. This does not spell, this is not good news for the dollar system.
Michael Hudson: Well let's look at the Arab Emirates swap with the Treasury in detail. The swap has become urgent because of Iran's destruction of Arab OPEC oil production and the exports, and that's part of Iran's policy of mutually assured financial and economic destruction. The Emirates and its Sunni Arab neighbors have backed the US attack on Iran. And the Emirates have a US air base there that's been reported to have four big refueling planes from America to prepare for the air attack that Trump has threatened to destroy all of Iran's bridges and electric plants and civilization, as well as its oil production. So Iran has responded to this policy by saying, all right, if other countries don't take a role in blocking the US and Israeli attacks and those of the Arab OPEC countries, then there's not going to be any OPEC oil exports.
So the destruction has already occurred in the Emirates and in Qatar and in the other countries, and that's blocked the Emirates oil export revenues. But its economy is very, very highly debt leveraged, despite all of the enormous oil savings that they've accumulated over the last half century, mainly in dollars. They've now undertaken a lot of projects domestically that are all financed by debt instead of by savings. So despite their dollar savings, they have enormous dollar debts that are corporately distinct and they've borrowed up to the very limit of what they expected their oil revenues to be.
Well, now the oil revenues are not there. So what do they do ? Saudi Arabia has already announced a few weeks ago, "Well, we're also very highly debt leveraged for all of the real estate and other investments that we've made, and we've borrowed to invest in private capital companies in the US and information technology companies." So now we're not having the oil revenues that we need to pay all the interest and the other carrying charges of all of these projects we've started. We're going to have to begin selling these assets—the trillion dollars I think for the sovereign wealth fund of Saudi Arabia.
Well, you've just said Radhika about how this whole system of petrodollars and eurodollars and every other kind of hyphenated dollars have channeled foreign funds out of their currencies into the United States. Well now we're seeing this reversed. What happens when the holders of these US investments have to begin selling ? Well, if they sell to make expenses that are also in US dollars, there's not going to be a balance of payments effect on the dollar's exchange rate. But if they're spending in any kind of currency other than the dollars when they sell the US investments, then there's going to be a problem.
But there's a much worse problem that the US is facing. The US economy is the most highly debt leveraged economy in the world, as it was back in 1929 on the eve of the world depression. And so what happens when the Emirates say, "Well we're going to have to sell some of these investments." Maybe it's in Blackstone, who knows what else they're in. But these capital companies have already faced so many attempts by mutual funds and pension funds to withdraw the money that the funds have said, "We're not redeeming anymore, paying any more redemptions. We're freezing them in because there are so many redemptions that the price of these stocks in these funds that we've created are all going down."
So if the Emirates actually insist, well we need the money, you've got to give us the money that we've invested in the United States. The United States can't say, "Well we've frozen it all because we don't want the bond prices to go down. We don't want the stock prices to go down because that's what our economy is all about. You threaten to bring the Ponzi scheme to an end." So what does the Treasury do ? It says, "Well don't worry. We're going to save you from having to sell these investments that you've made that have gone bad." To make it quite blunt, those investments now you'll take a 30% loss or more. And if you take a loss, then that's going to crash the whole market price and the market valuation of shares in these, and the loss will spread throughout the US economy as well and there will be bank defaults and others.
So here's what we're going to do. We're going to make a swap agreement and we're just going to create dollars and you'll give us an equivalent couple of hundred billion dollars of your currency, we'll give you a hundred billion dollars and we'll just swap and lend you the money that you need to spend to keep afloat until President Trump destroys the Iranian civilization, seizes its soil like it did in Venezuela, and makes everything fine again. So that's basically what the whole plan is. The swap agreement is a way of avoiding the whole system of investment and reflux.
A swap agreement manages to cope with the freezing up of the US financial markets as a result of all of the debt leveraging and the private capital companies, and the fact that the US economy has been kept afloat for its stock prices and its bond prices by easy credit in a Ponzi scheme. And the easy credit has just created such an overhead of debt that now if you say, "Well, we want to cash out," well there's only a teeny little bit of equity for this huge pyramid of debt, and if the price of this debt goes down, then the equity is wiped out totally. That's what the US is facing and that's why it's doing this. It's creating this swap system because there isn't any other alternative.
Radhika Desai: This is exactly right, Michael. And let me put it in slightly different terms. Let me formulate what you've said in slightly different terms. What you're saying is that the very thing that the Federal Reserve has been doing domestically, which is supporting asset markets through quantitative easing, it is now going to have to do internationally. So the United States had to support swooning asset markets at home and has done so quite frankly over the last decade and a half. Now, rather than being supported by countries like the UAE and other Gulf Cooperation Council countries, it is going to have to support them. So there's going to be more funny money being created in order to support this entire Ponzi scheme that's been created to keep it going.
Now there's actually a couple of other wrinkles that I think we could introduce into this. Firstly, what we are saying here is slightly different from what a lot of people understand by the term petrodollar, because especially since the war with the attack on Iran and then Iran's retaliation against the Gulf countries, a lot of people have been talking about the demise of the petrodollar and that this somehow means the demise of the dollar. Now what they mean by the petrodollar is that back in the 1970s, it appeared as if the United States and the Gulf countries allied with the United States came to an agreement in which the United States would provide them with a security umbrella, and then in return they would deposit their oil surpluses—first of all they would sell their oil in dollars and they would deposit their oil surpluses in dollar denominated deposits in western banks, in American banks and so on.
And of course, everybody regards this as this great win for the United States, but in reality it created a lot of problems. But let me bracket that for a moment. So what people are saying is that this system has held the dollar up and it is now disintegrating. But of course, the 1970s were the heyday of the petrodollar. Even though it was supported by these machinations, in reality during the 1970s the dollar kept going down to the point where at the end of the 1970s, around 1980, it was worth $800 an ounce. That's how far down it had gone from $35 an ounce—more than 20 times, 22 times it had depreciated despite the support provided by the so-called petrodollar circulation of money. And it took the Volcker shock to bring the system back up.
But in reality today, what makes the dollar system function are these infusions of money that we've talked about into the dollar system. So that's one thing. As we were talking earlier, there's this Financial Times article and Brendan Greeley, who's apparently written a new book which is coming out soon about the dollar. He's saying this is the reality. He's agreeing with us. Unfortunately, he's telling only part of the story because the part of the story he's not telling is that these infusions of money, which he claims are just the work of private financial markets and private advisers, no, they have been the work of a lot of government engineering, government policies and government agreements like the one I just mentioned.
And so if this money stops coming into the system, this spells trouble for the dollar even according to his own arguments. And this money is stopping, and you ain't seen nothing yet because right now we've had almost a three-week pause in the Iran war. But as we know now, it seems that the Trump administration has rejected Iran's latest offer of peace. And if the Trump administration and Israel continue their war with Iran, Iran will surely retaliate once again and more forcefully now, precisely against US bases, US assets and US allies in the region, creating even greater difficulties for this region, which means that the drain of dollars will be greater.
So that's one thing. And the second thing is that quite frankly, the other big source of the infusion of dollars into the system has been America's European allies and Japan. And if these monies stop coming into the system—and they are now on a precipice. All the mainstream press in the western media outside the United States and some inside as well are talking about how long the western alliance can last, and if the western alliance does not last then I think the days of the dollar again are certainly more limited.
Michael Hudson: Yeah. Well, you use the term US providing security as part of the agreement that was made with the OPEC countries in 1974. Well, what does providing security mean ? It meant we won't attack you. The deal with OPEC was, yes, you can charge whatever you want for your oil but you have to not only price your oil in dollars, of course, because all raw materials at that time of a major character were priced in dollars, but you have to spend all of your export earnings by investing them in US bonds and other securities and US banks and other securities. So there was an influence: all of what other countries, non-dollar countries mainly, were spending on oil for the OPEC countries was, at least for the Arab OPEC countries like Saudi Arabia, was a balance of payments inflow to the United States at that time. That was the deal.
Well, it was this providing security was a euphemism for: we have military control over you. You know what you do with your oil earnings and what your price is up to what we tell you to do. Your security is our happiness with your subservience to us. They say, "Okay, you know, we're happy to be subservient. We certainly don't want you to attack us. You know, we're going to be part of the US financial system and the military system."
So what these swaps agreements have done is preserve this geopolitical control. In other words, just like the International Monetary Fund lent dollars to countries that are in a problem like they're having right now, the Global South countries—how are they going to pay the higher prices for their fertilizer, for their oil, for all of the oil and the products that are being interrupted by the US war to conquer Iran and control the world oil trade ? Well, the US has replaced the IMF and made the whole idea of international lending political.
In other words, we will make a swap agreement and we're going to help countries. You don't have to devalue your currency. You don't have to go without and lower your living standards and you can afford to subsidize the oil and the gas and the fertilizer that you provide your economy with if you are part of our happy alliance. But of course, we're not going to lend to countries that are not subservient to us. They're not part of the alliance. So the swap agreement is to say: we can either save you or we can let you sink.
Radhika Desai: And you see, this is where, back when the special military operation that Russia had launched against Ukraine started and the Biden administration sequestered, and the western countries generally sequestered Russian assets that were in western banks and then threatened to expel Russia from the SWIFT system, threatened to reduce the ruble to rubble and halve the size of the Russian economy. Even back then, people were already talking about the weaponization of the dollar system. Now, mind you, such so-called weaponization had already been going on. I mean, this had been used against countries like Venezuela and Afghanistan. But when it was used against Russia—a major nuclear superpower, permanent member of the Security Council, etc.—people sort of stood up and took notice. Like, if they can do it to Russia, they can do it to anybody. So this began to become a major issue and it began even to prompt countries to start thinking about how can they get out of the dollar system and so on.
Now the same weaponization is being taken a step further and that is so in two ways at least. One is an error of commission and the other is an error of omission. The commission error is that the new swap lines that are being announced, the ones that Scott Bessent announced, are to be given by the Treasury. Now, this is different from what has happened in the past. The Federal Reserve has been the agency that has supplied swap lines on the basis of who is systemically important, who could go down if we don't give them the swap lines, and that's how it's operated in the past. That's how it operated in 2008, that's how it operated back in 1997-98 East Asian financial crisis and all such things. But now with the Trump administration, which is at war with the Federal Reserve, and even though it's appointed this Warsh guy—and we must discuss Warsh in another one of our geopolitical economy conversations, but let's bracket that for now—but the new appointee, let's see what he does. But the fact that the Treasury is now issuing these swap lines makes these swap lines something much more controlled by the extremely capricious Trump administration.
And the first time this was used, at least as far as I know this was the first time the Treasury swap line was used, is when last year the Trump administration extended some—I forget what the exact amount was, was it 20 billion or something like that—swap line to the Argentine government in order to allow Javier Milei to win the elections there. This was a clearly partisan, overly political move. Now, in that sense, we are already seeing a greater politicization. This is the act of commission. The act of omission is that, of course, the Europeans who are having a tougher and tougher time dealing with the Trump administration are watching what's going on and they must be thinking: if these swap lines are also going to be weaponized like this, then to what extent can we rely on the Trump administration and should we be weaving our own financial nets as closely with the US as we've been doing since this century really, since before the 2008 crisis?
Michael Hudson: Well, this political question is the key. What if Arab countries are going to begin to do what Venezuela and Iran have done ? What if they price their oil in China's RMBs and what if they save in the form of claims denominated in RMBs, basically in Chinese currency in Chinese financial assets ? Well, that would create a China RMB sort of like the Chinese Eurodollar. It'll be the OPEC RMB. Well, and what the United States will then do is turn to these countries and say, "Well, we're not going to lend you money if you don't price your oil in dollars and invest here. If you price your oil in Chinese currency and invest in that, then you know we're not going to lend you money and we're going to impose the usual export sanctions and financial sanctions against you to prevent you from moving out of the dollar, to lock you into the dollar once you're in. We're like the roach motel: you go in but you don't go out."
So the US basically is going to tell countries, well if you don't borrow, if you don't tide yourself over this oil price import crisis, you're going to have to begin selling your assets at a discount in a distressed condition because the whole world financial system is now plunged into a desperate position by Trump's actions. And the result is going to be very much like the Asia currency crisis of 1998 that led Asian currencies to essentially crash. And the crash of their currencies enabled US and other investors to come in and buy up Asian companies and stocks in Asian companies and bonds and whole sectors at pennies on the dollar, as they say, at great discount prices. Well, that's what they're faced with if they don't negotiate a swap. So the solution probably is: where can they otherwise get money from ? Well, China of course is the key thing. And I think, so you won't think that we're speculating, I want to say just a word about the eurodollars.
All of this didn't begin, as you pointed out, not with the petrodollar but with the eurodollars. And what happened was that European banks, especially British banks but also German banks, wanted to keep investments in dollars because the dollar was at that time, in the 1960s, the strongest currency and also the safest currency. That was before it had weaponized world trade. Now in 1965, I was working at Chase Manhattan as their balance of payments economist following the flow of these eurodollars. And the single largest depositor at Chase Manhattan was the London branch. And the London branch had been—there were investors who had their money in sterling. They said, "Well, we don't want a claim in sterling given how England has mismanaged its economy. We want to lend us money in sterling but we want to invest denominated in dollars." So the Chase Bank and other American banks and bank branches said, "We'll lend you sterling, we create money, you'll convert them into dollars." And then the Chase Bank sent all of these deposits to the head office and this became a dollar inflow. The great support of the dollar long before OPEC was the Eurodollar trade.
And just like countries can create their own credit—it is a pyramid; it's sometimes miscalled reserve requirements—but they create their own credit. And the credit they create takes the form of dollar claims, not claims in their own currency. And so the Financial Times article that you mentioned points out that 40% of the claims on dollars in today's economy are created by other countries. Other countries create these dollar claims, not the US banking system. So they've all created part of the dollar debt pyramid.
Radhika Desai: So let me add three points to what you're saying because I think that it's important. So first of all, I agree with you that the origin of extraterritorial dollar deposits created by extraterritorial financial institutions—that is to say outside the United States—lies in the emergence of the so-called Eurobonds. Here's a really interesting tidbit: part of the story of Eurobonds, if not the origin of Eurobonds, actually lies in the fact that the Soviet Union, which had dollar assets, wished to keep its dollar assets in banks that were not US banks. So British banks essentially created for them the facility of holding dollars in British banks. And I think that all of this took place, we have to remember, at the time when the United States, thanks to depression-era banking legislation, had one of the most heavily regulated financial systems in the world—you know, with the Glass-Steagall Act and Regulation Q and what have you—whereas the UK had one of the least regulated. So all of this dollar market could emerge as eurodollars, that is in Europe, in the UK in particular, thanks to this difference.
But at the same time, I would say that the Eurodollar market was puny compared to what oil surpluses, the petrodollar, made it. So the origins were quite tiny but it only exploded with the vast amounts of money that were made available thanks to the rise in the prices of dollars. And in those days, by the way, these countries, these oil exporting countries—by the way, I'm just reading that the UAE, partly as a result of this precarity of its situation, has left OPEC. The Financial Times is reporting that just now. But anyway, the point I'm trying to make is that these countries were basically just oil-based monarchies. They had no developmental dreams or anything, so they had nothing to do with these surplus of dollars. So they were happy to deposit them in these western financial institutions.
Anyway, the point I'm trying to make is that these deposits themselves then sitting there became the source of a huge problem because, of course, it's one thing—the ordinary person on the street may think it's a great thing that these banks are getting all these big deposits, but if they were bankers they'd be sitting there worrying: "What are we going to do with these deposits ? How are we going to pay interest on these deposits?" In order to pay interest on these deposits, you have to lend them. And most of the western world was at this time in a recession. There was no great demand for funds to be borrowed or anything like that. So at that time then, these banks went on a lending spree. They were lending to anybody who would borrow. And those people who were borrowing at that time were Third World and even some socialist governments that were engaged in a process of a huge industrialization push.
So that all these surplus dollars so many people think it was a stroke of Machiavellian genius to get OPEC countries to deposit money in the dollar system because this boosted the dollar system. But in reality, in the short run at least, or in fact in reality, it undermined it because these same banks then went on a lending spree which was financing industrialization in Third World countries. It was helping socialist countries and all of this. And the dollar, despite all of this activity as I was saying earlier, sank to a new low and it took the Volcker shock, the huge recession-inducing Volcker shock, about which Robert Solow said that if this is a way of ending inflation, it is as much a way of ending inflation as it is to burn down your house to roast a pig. So all of this created even more trouble for the dollar system. And the kind of dollar system we were talking about earlier with all these infusions of money didn't begin to get created until the 1990s. But go ahead, Michael.
Michael Hudson: You're right, Radhika, to point out that: what did the banks do with all of this huge dollar inflow ? Well, the first thing they did—I was set to work calculating the balance of payments of Argentina, Brazil, and Chile to say: how much money can these countries afford to pay, what's their export potential so we can afford to get repaid the loans we send to them. You're right, the eurodollar inflow into the US dollars was recycled to Global South countries, or as they were called at that time, the developing countries. The euphemism for countries that were not developed but developing. You said that this was to finance their industry. No, Chase did not make any loans at all to finance industry in the Global South countries except for US parent companies that were located in these countries. The loans that led to the Latin American debt bomb that exploded in 1982, starting with Mexico defaulting on its Tesobonos and spreading right through Argentina and Brazil and other countries, was a result of the fact that these loans were financing their balance of payments deficits resulting from their failure to develop their industry, and especially their failure to develop their own food production under IMF and World Bank pressure not to invest in their economy in any sector that competed with US farm exports or any other exports.
So the function of these loans to the Global South countries was to finance backwardness. The World Bank under, I think, McNamara published an awful report called Partners in Development, which I called "Partners in Backwardness." And I have a whole chapter in my book Super Imperialism on this. And when you have countries running chronic balance of payments and trade deficits, you're subject to the International Monetary Fund that forces you to take an anti-labor position, block unionization, and just keep being more competitive by cutting back government spending. Don't have any subsidy for industry. Don't subsidize agriculture. Don't raise living standards and productivity. Make them even more crippled than they were before.
Well, let's see what happens if this concept of the swap agreements would be applied by China. You and I have spoken before how there's not going to be in the foreseeable future any kind of a BRICS currency, because how can there be a BRICS currency without governments agreeing: "Well, who's going to get the benefit of issuing this money and who's going to be responsible for paying it?" So for the time being we're in a currency swap agreement. And how is China and other non-dollar countries that are now making their faced with the fact that how are they going to relate to countries that all of a sudden are forced into dependency as a result of Trump's actions ? Well, they themselves this is going to be a geopolitical decision that they make on what policies are you countries that are borrowing the Chinese RMB going to follow that dovetail with not only creating the world that we want to see, but a solvent world, a world where we're not lending you money to finance your dependency and backwardness and balance of payments deficits, but a world where we're actually extending credit to you to help develop so you won't need any more credit, so we can restore balance in the world economy. That's really the big question behind all this technicality that we're talking about about swaps. But swaps for the time being are going to be the technical facilitator of this transformation of intergovernmental credit.
Radhika Desai: Michael, I would just beg to differ with you in one small respect. I mean, I don't doubt that—I haven't looked at the cases of Brazil and Argentina and Chile as closely, but I'd say two things. Number one, first of all, while of course they may have charged you with finding out how much of a debt burden these countries could bear, quite frankly the lending of this time, which has been documented in several books that I've read not too long ago, was really desperate on the part of these western financial institutions. So that even if countries were shown not to be able to bear much debt, they were lent to. Of course, there is the added complication that at the time when the lending took place, interest rates were very low. Sometimes they were even in real terms negative, in the sense that the rates of inflation were so high that they were very often higher than the nominal interest rate. So that you got, in real terms, you got negative interest rates. And so from negative or very low interest rates, suddenly with the Volcker shock the countries concerned were faced with enormous debt burdens. And that's what led to the crisis, not necessarily the developmental aspects, because remember this was a different time; it was a time when many of these countries did have developmentalist governments and certainly many Asian countries did use the funds concerned to finance development and not only development but what's often called second-stage import-substituting industrialization. So all of that did happen, but that's a small point.
And so what I want to do is kind of bring—because we have now limited time left—we want to bring the conversation back to what's going on today and the whole issue of the swap lines. Because, and by the way also a quick point about Chinese swap lines: I think Chinese, they have already provided many countries with swap lines, but China's position is completely different. It is a net creditor to the rest of the world; it is not a net debtor. So that China and the United States in this respect cannot be compared, and China can afford to give some swap lines and so on. But what's happening with the swap lines here is that the very foundation, what their extension to certain countries reveals, is that already the foundations of the dollar system are being undermined. And what's more, the foundation is the continuous infusion of dollar credit from the rest of the world. The rest of the world is a creditor; the dollar system is the debtor that is receiving the money. And this is happening at a time when all governments in the western world are borrowing more and more. So public debt is rising, private debt is rising, plus the big corporations are making a bet on investing in AI in particular, which is absolutely capital hungry. They want enormous amounts of investment. So the call—and all of this, by the way, is completely speculative and predatory lending calls; none of this is productive lending. So all this enormous demand for unproductive borrowing is going to give rise to higher interest rates.
And of course the war on Iran, like I was saying earlier, it's not over. If the Americans refuse to accept Iran's conditions, the warlike situation will remain. I don't know when military activity will commence again. But if the United States acts to attack Iran again, there will be retaliation which will create even greater hunger for capital.
Michael Hudson: Well, the important point you make is the key. Most borrowing is for unproductive spending. The borrowing is not to be invested in creating the output and investment to repay the loan with its interest rates. Most people tend to call all foreign lending "development lending," but it's not development lending as we've pointed out. It's lending to finance the failure to develop to the point where you are independent of having to borrow to finance the structure of your foreign trade with other countries as it's evolved under the international system. And I can see how political all of these swap agreements are going to be. I think in 1966, for instance, there was the main country that I analyzed that was so disturbing to US foreign policy was Britain. And I pointed out that I didn't see any way that Britain could pay the debts that it owed to keep its currency afloat. And just before Harold Wilson, the destructive Labour Party leader, devalued the pound, I remember on a Friday Harold Wilson said he absolutely is going to support and keep the pound sterling, it won't devalue. Chase Manhattan bought pounds forward. Citibank Uptown sold pounds forward. And John Exter, who was in charge of it all, laughed and laughed, saying, "Well, Chase wanted to be patriotic, we wanted to make money." And Chase was known as sort of the government bank.
Well, we had a meeting with the Federal Reserve, and the Federal Reserve of New York, which is in charge of American foreign financial policy, said, "Well, according to your analysis Britain is insolvent. Isn't that right?" And I said, "Well, I don't see how it can pay the debts that it has." And they said, "But we're going to keep it afloat, aren't we ? Aren't we going to lend them the money?" And I said, "Yes, politically you're going to lend them the money. That's how you solve the problem." And they said, "Well, that's the whole point. As long as Britain is our ally we're going to lend them the money to keep them afloat. So your economic analysis of their inability to pay the debt doesn't really matter." And of course the bank agreed with that and lost a lot of money continuing to believe that the US would always sustain an unsustainable economy. Well, that's going to happen this year and next year and the next few years as the United States tries to make swap agreements with its allies to keep them the fig leaf that the international system and neoliberalism and the American way of life internationally works, when actually it doesn't work without all of this artificial money creation which you and I have been talking about for the last two years.
Radhika Desai: Yeah, absolutely. And what this reveals is that the entire dollar system has actually been based not on the spontaneous desire of markets to invest in the dollar system, but by friendly countries deregulating their own financial markets or being encouraged to deregulate their own financial markets in a way that keeps money flowing into the dollar system as well. And so today, we are looking at a very, very precarious situation for the dollar, especially because Trump is getting rid of, or creating more and more trouble among allies. So the sum total of what we are trying to say is that this news about the swap lines actually—rather than being good news for the dollar system, somehow being part of the genius of the Federal Reserve or the Treasury in giving support where it is needed—it actually shows that the critical supplies of money from outside the dollar system on which it depended are now drying up. And so this is going to be deeply, deeply problematic. So Michael, if you wanted to say anything else to round off the discussion, we should be ending.
Michael Hudson: That's the whole point. Where are the dollars going to come from to keep the Ponzi scheme that the US economy has become afloat ? In order to avoid a crash, there has to be new investment coming in. Well, I can't figure out why the stock and bond markets have been holding up despite the fact that what we're talking about is this looming financial crisis caused by the fact that Iran is going to say, "Well, as long as the Arab OPEC countries are so closely linked with the US economy—not only by investing their money in the US but having US investments of, for instance, the artificial intelligence firms that want to make all of their computer systems run on cheap energy in the Arab OPEC countries—well we're going to insist that we're going to blow one of the reasons we're blowing up your oil exports is so you're not going to be able to continue this symbiotic relation with the hostile and destructive United States unless you reorient your economies outside of the United States." And you can just imagine, this is their wakeup call to say, "What is your future going to be ? Is it going to be with the US and England and Europe, or is it going to be with Asia?"
Radhika Desai: And you made a sorry, you actually reminded me, I forgot that I was going to make this point as well, that stock markets today are completely off the whack. They have been going up when the reality of the economy is going in the opposite direction. So this idea that somehow stock markets reflect fundamentals has completely been shot out of the water. And basically, the reason for that is very simple: there's just way too much money and all this money has to go somewhere. So if it's not one thing it's another. And basically of course, some people say that the stock markets are paying no attention to Trump because of his unpredictability and so on, and that may be part of the story, but the biggest part of the story is that there is just so much money sloshing around looking for a return, looking desperately for a return. So again, this further underlines the fact that as money stops flowing in, there's going to be a huge correction. And by the way, the Deputy Governor of the Bank of England a few days ago basically said—she said it in very sanitized language—she said a correction is due, but of course a correction can mean anything from a long slow decline to a big crash. But either way, she said this correction is not only coming, it is imminent.
So, well, that's all for now. Thank you for listening, folks. I hope that this was illuminating. Please remember to like this video, to subscribe to the channel, and to support it in any way you can. And until next time, goodbye.