Michael Hudson has a new post up discussing the future of the dollar as the world’s reserve currency. Here’s taste:

“Since Roman times, creditors have forced debtors who could not repay to forfeit their assets through foreclosure or forced sale. Though the medieval age recognised the ills of debt in its injunctions against usury, capitalism resurrected this aspect of Roman law. To be sure, the tyranny of creditors was sometimes vanquished by powerful debtors: Philip IV of France destroyed his creditors, the Knights Templar and Edward III of Britain defaulted against Italian banks, bankrupting them. Overall, however, the creditor interest has asserted itself repeatedly. In the post-Civil War US, it imposed a deflation that led to widespread farm bankruptcies, impoverishing farmers in an infamous monetary deflation. This was repeated in the Great Depression of the 1930s, by President Obama after 2009, as well as by the IMF and its Structural Adjustment Programmes in the developing world in the 1980s and 1990s.

Enforcing the legal fiction of debt as an exchange relation was the necessary condition for commodifying paper money. The sufficient condition involved capitalist states imposing on themselves a monetary self-abnegation when it came to issuing money. Government-created money never needs to be paid back, and does not expand the power of private creditors. So, when governments began limiting their own issuance of money and even borrowing form private creditors, they left the overwhelming amount of money creation as a source of profits for private creditors, banks and financial institutions and founded veritable creditocracies, by backing their financial interest with political power. Such arrangements were already being made in the earliest years of capitalism, when private creditors made their pacts with states hungry for funds to fight wars. Lenders ensured that states did not tax them but borrowed from them (Ingham, 1984, 48-9, 99-100) and states often settled war loans by giving creditors monopolies, such as the East and West India Companies, South Sea Company and the Bank of England.”

This is how capitalist states have used their power to create, preserve and extend that of their financial sectors, including over themselves. There is a cost to this. Leaving the issuance of the overwhelming amount of money in circulation to competing profit-seeking private creditors makes them touts and pushers of debt and their activities regularly lead to crises, followed by state bailouts and new financial regulation.”