War Hawks’ Drive to Expand NATO into Asia May Destroy Western Military Alliance

Yves here. I am posting this interview because we regularly feature the Michael Hudson/Radhika Desai Geopolitical Economy Report videos and NATO has become an important topic. But I have to say I stopped cold in my tracks when I read Pepe Escobar arguing that Russia was warming relations to set itself up as a broker to bring North and South Korea together in a “geoeconomic deal.” Huh?

I will admit that I only have superficial knowledge of security relations in that part of the world. However, the stereotype of North Korea, which I believe is not wrong, is that it has managed to build a pretty decent missile capability on top of its nuke program at the cost of impoverishing its people. Estimates of GDP per capita are very stale but even assuming strong growth since the last measurement attempts, it would still be under $2,000 on a PPP basis. By contrast South Korean GDP per capita in 2022 was $50,000 on a PPP basis, according to the World Bank.

That yawning gap makes any meaningful economic integration destructive to South Korea. The absorbtion of the relative much less poor East Germany into West Germany was a millstone that led to a protracted period (as long as a decade????) of subpar growth. It also led to great suppression of wages in Western Germany. One estimate comes from MarketPlace in 2019:

In the three decades since communism collapsed and Germany was re-unified, the federal government has poured more than $2 trillion into the impoverished eastern part of the country. It also allowed easterners to swap their virtually worthless currency for the deutsche mark, which at the time was one of the strongest currencies in the world…

The story was similar throughout Germany’s Eastern states. Half of all workers there lost their jobs after reunification as their companies shrank or collapsed. Many factories were heavily overstaffed, and the products they produced could not compete with Western rivals.

The killer blow, said Rolf Langhammer of the Kiel Institute for the World Economy, was the currency conversion that gave Eastern Germans one deutsch mark for one nearly worthless Ostmark.

“That conversion rate priced labor out of the market,” he said. “East German companies suddenly had to pay the same nominal wages in a currency worth much, much more than the old Ostmark. At the time, economists were unhappy about the plan. They said the shock would be too hard.”

In spite of such warnings, the German government pressed ahead with the conversion rate because it feared that most Eastern Germans would decamp to the Western states if they did not have the same money as Westerners.

Cushioning the shock of that conversion has cost a fortune. More than half of the $2 trillion pumped into the East has been spent on welfare, unemployment pay and pensions.

Billions have also been spent on railways, roads and other infrastructure.

Billions more have been spent supporting businesses.

Moreover, the US has long believed that China has influence over North Korea and if nothing else is helping subsidize it crippled economy at the margin. Last November, for instance, Biden asked Xi Jinpeng at the Bali G-20 to try to talk North Korea out of restarting nuclear tests. Other commentaries around that time point out the China is not too happy with North Korea because it was not as tractable as it once was.

On top of that, we have the long-standing and very tight US-South Korea security relationship. Having said that, unlike other close allies, South Korea has a substantial defense industry, builds most of its own arms, and has become important arms merchant.

With that 50,000 foot background, I don’t see how Russia could possibly serve as an intermediary. The US would never tolerate it, for starters. Putin is the devil, remember?

The logical path, if the US and China were on speaking terms, is the US and China to negotiate to clear a path for whatever could possibly make sense for a North-South Korea thawing. But North Korea seems to have backed itself into a corner by so impoverishing itself to become a nuclear threat, and living on presumed meager handouts. And with a population almost exactly half that of South Korea’s (26 million versus 52 million), it’s way too big to be rescued.

Without debating too many other points in this interview, another questionable moment is when Escobar gives the impression that BRICS expansion is full speed ahead. In fact, India has been insisting that the group formulate strict criteria for admissions, and it will take time to hash out those rules. That was somewhat misreported as India being opposed to BRICS expansion, as opposed to it insisting on it being deliberate. This is not an unreasonable concern. Just look at European fractures due to too little commonality of interest on key matters.

By Radhika Desai and Michael Hudson. Originally published at Geopolitical Economy Report

RADHIKA DESAI: Hello everyone and welcome to the [15th] Geopolitical Economy Hour, a program that discusses the political and geopolitical economy of our time. I’m Radhika Desai.

MICHAEL HUDSON: And I’m Michael Hudson.

RADHIKA DESAI: And today we have once again Pepe Escobar, roving reporter extraordinaire. Welcome, Pepe.

PEPE ESCOBAR: Thank you. It’s an enormous pleasure to be with you guys again.

RADHIKA DESAI: And today we are going to continue the discussion we started in the last Geopolitical Economy Hour, entitled NATO Out of Bounds, War Against Russia, War Against China.

Last time we discussed where the Vilnius Summit had left NATO and the divisions within the alliance that the summit had exposed, how the proxy war on Russia was faring, and how the Biden project of uniting so-called democracies against so-called autocracies relies so critically on the outcome of this war, which by present indications does not look good for Ukraine, and it does not look good for NATO.

We then went on to discuss how much longer Europe and other US allies could sustain the appearance of NATO unity, which is cracking as we speak, and ended with a discussion of how the Grain Deal had broken down.

Now that discussion already permitted us to expand our frame out of Europe and to take in the world as a whole, because as it became very clear in our discussion, you cannot understand the breakdown of the Grain Deal unless you put it in the larger context of how imperialism has a long and murderous history of attempting to deny food security to most of the world.

So now today we are going to continue that discussion by focusing on the danger of NATO being transformed from a North Atlantic Treaty Organization to a North and South Atlantic and Pacific Treaty Organization, as Biden leads to an ever-widening and deepening hybrid war on China with trade, technology, diplomatic and military aspects, but which is coming ever closer to some kind of military war.

So once again, we framed our discussion around several questions, so I will just begin by posing the first one.

What is the United States’ wider intention and strategy vis-a-vis China in the so-called Indo-Pacific region?

What do recent events mean for the region? I’m thinking of events such as the visit of high-ranking Chinese and Russian officials to Pyongyang to commemorate the 70th anniversary of the armistice in the Korean War.

I’m thinking of Western hysteria over the recent agreement between China and the Solomon Islands, one of a very large number of Pacific island nations.

The recent announcement of a new package of military aid to Taiwan from the United States, which essentially is going to be done by a kind of presidential decree using the same military drawdown program that President Biden has been using to fuel the war in Ukraine.

And generally, I’m thinking of rising tensions in the region thanks to the announcement of AUKUS a couple of years ago and the reactivation of the so-called Quad Alliance or Incipient Alliance, whatever you want to call it, between the United States, South Korea, Japan and India.

And of course, there has been the recent NATO declaration that it considers China a threat. U.S. strategy is not easy to understand.

Because while on the one hand, there seems to be some effort to promote dialogue with the visits of recent high-ranking U.S. officials, such as Antony Blinken and Janet Yellen, while on the other hand, U.S. actions continue to ratchet up tensions across all the fronts.

So, Michael, why don’t you start us off with your views on this matter?

MICHAEL HUDSON: Well, today’s just two years since America was driven out of Afghanistan and we’re seeing a repeat of the defeat in Ukraine. So the U.S. and NATO have lost Ukraine, but they want to keep the fighting going because Biden said this is a fight against China that’s going to take two decades, maybe three decades.

So it looks like the Pacific and even the Arctic may become the new U.S. disruption zone.

Now, especially since Russia and China are working with North Korea to develop ports for the new trade from the Pacific via the Arctic to Northern Europe. So the United States is losing militarily, but it looks like it’s going to lose Europe in a few years.

And the American strategic plan since the 1990s was to absorb the Warsaw Pact into NATO. And it’s done that, but now it looks like it’s overplaying its hand. And the cost ultimately may be to lose Western Europe, headed by Germany, France and Italy.

And we’re already seeing in the last few days, just since our last broadcast, we’re seeing riots throughout Europe as the economy and unemployment are declining.

And there’s discussion as to where the German chemical industry led by the BASF company going to go? They’ve announced they are not going to make any further capital investments in Germany. They say that they’re being pressured to move their facilities to the United States. And they already have facilities in China.

So where will the German industrial population go when it abandons the country, just like Latvia, Estonia and Lithuania’s population have fallen by about one third since 1990? When you look at how this all works out geopolitically, the Baltics and Central Europe are not important economically. Their population is declining.

And only Poland has a military value because of its dreams of recovering where it was in the 16th century when it controlled most of Scandinavia and the Baltics.

So the U.S. is pushing the insistence, either you’re with us or against us. And the break that’s coming may move Western Europe into the Russian and SCO, Shanghai Cooperation Organization orbit.

When they finally make the decision, if they do decide, gee, we shouldn’t have lost the trade with Russia. And now we’re being told to stop trading with China. Maybe we shouldn’t have made that. If they reverse their decision, this is going to be irreversible.

And you could say the same of the global South countries that are being pressured. And indeed, most of the global majority, they’re being forced to choose either you’re with the U.S., whose industrial economy is shrinking, or you’re with the expanding BRICS Plus, plus the Shanghai Cooperation Organization.

So where are these countries going to realign over the next few years?

The U.S. can keep England as a dependency. And England’s fate is, I think, going to be a warning to what happens to countries that adopt U.S. style finance capitalism instead of socialist industrialization and public services as a human right.

PEPE ESCOBAR: Michael gave us the big picture, right? I would like to focus on something that happened these past few days, which is enormous. And I would say for most of the planet, quite unforeseen, which is Russia bringing back North Korea, the DPRK, to the rank of a very important Global South power with enormous reach.

So we have Ministry of Defense, Sergei Shoigu, received like Mick Jagger in Pyongyang. He got a true rock star welcome.

The whole thing, including a private audience with Kim Jong-un and obviously the whole leadership of the DPRK.

What leaked, of course, was the possibility of many military agreements and increasing their military collaboration. What did not leak is the best part of them all, because it’s the geoeconomic part.

What do the Russians really want to do with Pyongyang? They want to integrate Pyongyang with South Korea, with Seoul. And of course, this will mean Russia developing a sort of go-between, diplomacy between both. And they have the possibility to do both, because they are also respected in Seoul.

And something that has already been discussed at the Eastern Economic Forum in Vladivostok. These discussions, they started at least three or four years ago in Vladivostok. And what they’re all about basically is to build a trans-Korean railway, which is going to connect with the trans-Siberian and connect both Koreas to the Russian Far East and then all the way across Eurasia.

So imagine that you are a Samsung businessman in Seoul. You look at that and say, wow, I don’t need to use cargo tankers anymore. I can have direct access to the enormous developing market in the Russian Far East, not to mention the whole of Eurasia via Russia, just by building a railway. Very, very simple.

Which sooner or later, and I would say with Chinese input, could become a high-speed rail. Considering that the Chinese are already investing in high-speed rail in Russia and considering that if there is a duplication of the trans-Siberian into a trans-Siberian high-speed rail is going to be built by the Chinese, this trans-Korean railway could also be built with Chinese input, technical input as well.

And financed via a Chinese Silk Road Fund, the BRICS Development Bank, Russian banks, etc. It could be a reorganization of finance, East Eurasia style.

So they were discussing that, of course, and this is going to be re-discussed and they’re going to get deeper into it at the next Eastern Economic Forum in Vladivostok in early September. So it’s around the corner, literally.

So the fact that this is happening now, it’s very, very important because this is a sort of a preamble to what they’re going to get into at the next Eastern Economic Forum. So everybody is happy with this arrangement.

North Korea, because they are brought back to the forefront of trade in the parts of Eurasia. The possibility of having some sort of geoeconomic deal between North Korea and South Korea.

Russia developing the Far East and integrating the Far East with the Koreas. And China, of course, because this also integrates this part of Eurasia, this Northern Eurasia framework.

And it’s part of BRICS. It’s part of the Shanghai Cooperation Organization. And this opens, I would say, this leaves us with the possibility of North Korea sooner or later getting integrated into the Eurasia Economic Union.

And that’s fantastic because I see that happening in at least two stages. The first stage, the EAEU strikes free trade agreement with North Korea, just like the ones they have with Cuba or with Vietnam in Southeast Asia.

And they are also working with Indonesia to have an EAEU free trade deal with Indonesia. They could also do the same thing with North Korea.

And fantastic, this bypasses US sanctions because it’s going to be, EAEU basically, Russia is 80% of the firepower of the EAEU. They can devise a settlement mechanism involving North Korea that bypasses the US dollar completely.

You have expansion of EAEU to Northeast Asia, which is very important. The Chinese are going to love it as well because they can also, even if they’re not part of the EAEU, don’t forget that Putin and Xi have already said and the directives are already there.

The Belt and Road Initiative, BRI and EAEU, they have to converge. And this would be a perfect example of convergence between BRI and EAEU.

So that’s why, the way I see this visit by Shoigu as Mick Jagger, it extrapolates it everywhere, geoeconomically and geopolitically. And it’s no wonder that it was not even mentioned, I would say, or barely mentioned in Western mainstream media.

RADHIKA DESAI: That’s absolutely so true.

And I mean, the more one thinks about it, the fact of the matter is that it is only a matter of time when the US’s strategy will stop working in the region.

So first of all, I mean, this idea that the United States can extend NATO to the Pacific is not going to wash because the Pacific region has historically focused on its own economic development.

The Chinese are essentially pitting their own strategy of proposing economic development to the NATO strategy of securitizing everything and essentially turning everything into a military conflict or a military alliance. We’re going to see the contestation of these two visions in the region.

And I would say, basically, it’s a matter of time before everybody begins to realize that what the United States is doing in Asia, what the United States has been doing around the world, at least since the Second World War, if not before, is essentially, well, the United States says it is providing protection to the world.

In reality, the United States has been running a protection racket. What is a protection racket? A protection racket is to promise to provide security against dangers that you have yourself created so that your promise to provide security appears credible and attractive.

So, for example, the United States has continued to foment disunity on the Korean Peninsula. The fact of the matter is that the vast majority of Koreans, North and South, deeply yearn for some form of unification. There is absolutely no doubt.

And this is attested to by the fact that periodically governments come to power that have advanced progress towards unification, but the United States then comes in and disrupts it. It’s only when Koreans realize this that they will stop voting for those forces. And I think it’s a matter of time.

Similarly, in the case of Taiwan, already we are seeing in the run-up to the elections that are due, I think, in a few months, you have in the appearance, side by side with the KMT that wishes to promote peaceful reconciliation with China, the emergence of a new party that is going to do the same.

This is going to essentially push the DPP out of the picture. So they’re not going to win. Similarly, also you read in the papers, although Japan has signed, has pronounced a new military policy in recent years that people say should be unthinkable in a country with a pacifist constitution, but in reality you see that the overwhelming majority of the Japanese are not going to join any kind of US-led war against Taiwan.

And so finally, what I’m really driving at is that the wonderful specifics that you gave about what can happen just in the case of North Korea, this is part of a wider set of pressures that I like to think of as the exertion of the economic magnetism, the economic gravity of China.

And no country can afford not to respond to that. And so we are going to see a shift, but at the same time, in terms of what we can expect to happen in the next few years, maybe even few decades, is an attempt on the part of the United States to stop this inexorable development from occurring.

And you were saying, Michael, that I agree with you that at one level, it looks as the United States is looking at a multi-decade war. But we also read in the papers that the United States feels compelled to do something now because they think that they have up to 2027 before China will become capable of really resisting US forces.

But yeah, I mean, this is a kind of a segue into the next question, which is basically, what can the US expect from its allies?

MICHAEL HUDSON: Japan has sort of a Stockholm syndrome and it identifies with the United States because the US bombed it. And despite its export trade opportunities with China, its right-wing government is still willing to lose this market and sacrifice its economy as the United States once again, just as it did in the Plaza and Louvre Accords.

And South Korea is really the key to all of this, partly because it’s so important in ship making and it’s being pressured to continue cutting back its export of sophisticated ships to China. The Wall Street Journal just had a long report on that.

But as it sees the promise of the Chinese market, and as Pepi’s explained, the whole Eurasian market, thanks to the railroad, it’s going to decide what it is going to choose. The export markets to resolve the military overhead and the threat of North Korea, or is it just going to continue to back the US?

It’ll probably have to tell the US to remove its occupation troops because I think the Korean War still is legally on. So we may finally see an end of the Korean War that began in 1950.

PEPE ESCOBAR: Your question is what America will do essentially. Just look around and see what they are incapable of doing in several parts of the global South or the global majority.

For instance, Southeast Asia. Well, I lived in South, it’s my home. I moved to Southeast Asia in 94, a long time ago. So I followed the relationship between the ASEAN 10, the 10 members of Southeast Asia, with Russia, China, India, and the US on the spot.

And nowadays, everybody knows that the number one trade partner of all ASEAN is China. We also know that the U.S. has more margin of maneuver in some of the Southeast Asian nations than in others.

For instance, Singapore, we usually joke that Singapore is an American aircraft carrier station in Southeast Asia, side by side with Indonesia and Malaysia.

More and more relations between Indonesia and China are being, finally, there was a lot of mutual suspicion during the times of Suharto, of course, and immediately afterwards.

And the Chinese have been very, very clever to explain to Indonesia, look, we don’t have any designs on your islands, the Natuna Islands in the South China Sea. So the Indonesians are more relaxed. So now they are talking business, for instance, like, you know, Chinese investments, part of Belt and Road Initiative across Indonesia.

Philippines, we all know, it remains an on-off American colony. But the Americans, for instance, have absolutely zero penetration in, for instance, Myanmar, Laos and Cambodia. This is Chinese territory. And this is Belt and Road Initiative projects all over the space, like the absolutely extraordinary high-speed rail that the Chinese built from Yunnan to Vientiane.

I saw that being built in the middle of the forest across the Mekong River. It’s something that only the Chinese are capable of pulling off. And they did in record time on top of it because the Laos government said, OK, come here, do everything, and it’s the way to go.

In Thailand, where there’s going to be an extension because, of course, of foreign interference, because of Thai lobbies fighting among themselves, the Thais haven’t even started to finish their own stretch, you see.

But this proves that Southeast Asia, in terms of Chinese-U.S. relations, it’s a balancing act. But most of these nations know exactly what’s going to happen from now on.

Their number one trade partner is China. And Chinese influence in all of them will continue to be very, very strong directly and indirectly via the Chinese diaspora in all of them, what we call the bamboo internet, which is strong in all of these nations.

South America. South America, what they basically, against Argentina and Brazil, of course, the Americans have tactical victories. In case of Argentina, for instance, they forced Argentina to get a loan to pay another IMF loan.

So basically, the plan is to get Argentina to keep begging for IMF loans ad infinitum. So this is plan A. There’s no plan B.

Brazil is much more complicated. But for the moment, it’s a tactical victory because the margin of maneuver of the Lula government is very, very slim. And we have the famous list of what you’re going to do. That’s Jake Sullivan went personally to Brasilia to hand out to the new Brazilian government.

So obviously, Lula inside BRICS has to be very, very careful. Every time that he opens his mouth and he talks about de-dollarization, we see people shrinking in the beltway. So very complicated.

And across Africa, of course, which I’m sure we’re going to discuss, we are watching basically a second wave of decolonization. And now, finally, the real thing with a new generation of young African patriots in Burkina Faso, in Mali, in Niger, in Gambia.

And of course, with very, very important allies, not only Russia and China outside, but Algeria in the Maghreb, who plainly supports all these new governments in the Sahel area.

So in terms of not only the U.S., but the collective West as a whole, they’re being expelled little by little with or without AFRICOM from Africa.

And of course, in West Asia, they still cling to, for instance, Syria. Everybody seems to forget nowadays with the war in Ukraine that one third of Syria is still occupied by the Americans. And they are plundering oil virtually on a daily or weekly basis and wheat. And this disappeared completely from the narrative anywhere.

Even in West Asia, people, the war in Syria is not over. The war in Syria continues and there is an illegal occupation of one third of the Syrian territory. So we have tactical victories.

At the same time, we have Hezbollah growing stronger and stronger by the day. So the Americas are losing terrain everywhere.

Tactical victories in Europe, of course, they managed to get Germany and the EU separated from Russia. But this is not eternal. This is a tactical victory for the moment. This could change in a matter of a few years only.

And of course, across Eurasia, we all know what’s happening. Shanghai Cooperation Organization, BRICS Plus, Greater Eurasia Partnership conducted by Russia, Belt and Road Initiative. We’re going to have a forum in Beijing in October. This is it.

Eurasia now is Eurasia controlled by Eurasians and without foreign interference. Of course, we still have attempts at color revolution.

I’m going back to Central Asia soon. I’m going to see what’s happening in Kazakhstan now that Kazakhstan, they are so uncomfortable. They’re trying to hedge their bets, considering that they suffered the color revolution a year and a half ago. And there are sequels. This thing is not controlled yet. So it’s a very mixed picture, guys.

I think we all agree that in terms of tactical victories, the Americans have some serious ones. But in terms of the overall strategy, they are losing virtually in every continent.

RADHIKA DESAI: And the very fact that Kazakhstan would be having second thoughts about this is a very important thing. Because from what I understand, of all the Central Asian republics, it is the most pro-Western.

It is the most penetrated by American capital and so on and so forth. So that’s really fascinating. And you’re absolutely right that the picture is very complex.

But we can see where the undercurrent of history is going. It’s going away from the United States and towards China and Russia and so on. But at the same time, the undercurrent is one thing.

But on the surface, the United States will continue to try and make attempts to block this from happening. There will be vain attempts, but they will be made. People will pay the price for it, et cetera.

But still, if you try to, you know, as you say, the United States’ ability to conduct all this is in danger. One indication of this, as we’ve discussed in the past, is that the U.S. cannot, you know, today it’s in the news that the U.S. is going to use the drawdown facility that has been created for Ukraine to send weapons to Taiwan.

But the fact of the matter is what’s also being reported in the U.S. media itself, let alone elsewhere, is that the U.S. ability to produce the sort of arms that are necessary for theater operations today is actually very weak. It is not able to produce.

The United States provides vast quantities of money to its pampered military industrial complex to produce weapons that are no use. Or they are not sufficiently, you know, they’re very good at producing high priced, high big ticket items that cannot be used on the battlefield.

Now, this is really a fascinating comment on capitalism, on American-style monopoly capitalism, that you have a pampered military industrial complex that cannot produce what you do and use what you need and you still keep supporting them. So that’s one contradiction.

And of course, there are also many others, you know, within an election campaign about to go into high gear in the United States. The unpopularity of the war, even in the U.S., will be clear every other day.

There is some item in some or the other newspapers saying, you know, why are we sending so much money to Ukraine when we could have, you know, when we can invest in the U.S., etc. So what are the U.S.’s options?

I mean, Michael, you recently wrote a paper in which you said that the United States has lost any rational, any capacity to rationally calculate what you know what it ought to do, what strategy will win. Perhaps you can say something about that.

MICHAEL HUDSON: Well, the U.S. chip makers like Intel are protesting very loudly that China represents one third of their market.

And so if they’re told by the Biden administration to stop selling sophisticated chips to China, then the government is going to be told, well, you’ll have to make up maybe a 50 billion dollar subsidy to us.

And will the U.S. Treasury really be asked to replace the China market? That’s what’s already being debated in Congress.

So if it does that, how is this kind of giveaway going to affect the U.S. presidential and the congressional elections just next year? This is already an issue.

And business donors are not giving money to the Biden administration and the Democratic Party because they’re wondering what to do. And on the other hand, you have Donald Trump trying to get votes by being even more anti-China than the Democrats.

So the great unknown is how China is going to respond to this U.S. shooting itself in the foot. Is it going to be willing to turn the tables and retaliate by imposing its own sanctions?

And it has a much stronger ability to impose sanctions on the U.S. than the U.S. has to impose sanctions on China. And it fired a warning shot a week ago by stopping the exports of gallium. It produces 80 percent of the world’s supply and titanium or I’m sorry, germanium, which does 60 percent.

And on August 1st, China just stopped, announced that it has limitations on rare earth exports. And rare earths are a key to making the magnetic characteristics that are required for sophisticated chip technology.

So China can simply impose sanctions on trade that doesn’t have much monetary value, but a key technology value, and can limit the trade in raw materials only to its Shanghai Cooperation Organization allies.

And said, well, look, I’ll provide you with all the materials and you can make what the United States and Western Europe are no longer able to make, because they don’t have what only we can supply.

So the question is, when will China’s political mentality decide to actually fight the U.S. type of negative war with sanctions instead of the competitive cost cutting high technology war that economic trade is supposed to fight?

That’s the issue.

RADHIKA DESAI: Absolutely. And, you know, I mean, what as you were talking, Michael, I was reminded of the fact that, of course, sanctions against Russia were supposed to, you know, reduce the ruble to rubble and, you know, push the Russian economy back into the stone age and whatnot.

And, of course, if they didn’t win against Russia, they are not going to win against China. We know that you know, as you say, rightly, that perhaps China should engage a little bit more in the kind of action that it has just undertaken to deny the West important inputs that it needs, important raw materials that it needs.

But even without such restrictions, China is already making U.S. sanctions useless because it has rapidly accelerated its innovation in chip technology and so on. And you know that if the Chinese really roll up their sleeves and say we are going to attack this problem, that problem will be solved in relatively short time.

If the Taiwanese can do it, why can’t the Chinese? It’s not you know, the Chinese have been happy to rely on imports since they were easily available. But if they are not, they will develop their own.

So the sanctions are going to boomerang big time vis-a-vis China as well. In fact, in a much bigger way. And so the thing that becomes very clear is that it’s very unlikely that there’s going to be anything like an Asian NATO.

In fact, given the failure of the war, as I’ve argued before, in Ukraine, the real question will become whether even a European NATO can survive.

PEPE ESCOBAR: Radhika, can I change the subject a little bit? But touching on what Michael just said, it dawned on me that the ultimate form of sanctions against the empire is de-dollarization.

Because if you don’t change the geoeconomic paradigm, nothing’s going to happen in terms of multipolar integration.

So I’d like a little introduction and then I’m going to ask Michael a direct question. Because he’s probably the number one specialist in the world that can give us, without being part of the negotiations, that can give us, OK, what are they planning to do?

It’s about the so-called BRICS new currency. What I learned from BRICS Sherpas is that there won’t be an announcement of a BRICS new currency in South Africa in three weeks for a number of very complex reasons.

First of all, they don’t have time. Second, their negotiations started only a few months ago. And this is something that I discussed in Moscow. You need five, six, seven years to design a system like that, if not 10 years, and start to implement it and test it with businesses first and then with nation states.

What is going to happen in South Africa is they’re going to announce an increase in bilateral trade in their own currencies, which is something that they already do. And they are already working on alternative settlements.

So using, basically, starting with the five BRICS currencies, which significantly, they all start with an “R”. That’s very, very quirky, isn’t it? Obviously, if we use renminbi instead of yuan. So we have renminbi, real, rand, rupee, and what is the last one? Ruble.

So we’re going to have the R5 together, organizing an alternative settlement system of payments. And this will be the first step towards multilateral trade in their own currencies, the five. Don’t forget that we’re going to have BRICS Plus. So we’re not going to have five. We’re going to have maybe seven, eight, nine, or even 10, depending on the first wave and the second wave of candidates to become parts of BRICS Plus.

And then expanding multilateral trade with these national currencies. And, of course, building, okay, let’s start designing a system. And let’s try to sell this to our businesses in our individual nations and then to other ones as well. And that will mean Shanghai Cooperation Organization, Eurasia Economic Union, etc.

The Eurasia Economic Union, they have already started discussing an alternative currency three years ago, at least. And they’re still discussing it. Like, you know, two months ago, Sergey Glazyev went to Beijing to discuss this with the Chinese.

Essentially, it’s an extremely complex thing. And, of course, taking into consideration that the Chinese are terrified of American secondary sanctions, especially. So this is all extremely complicated.

So my question to Michael would be, what would be the ideal path in terms of elaborating an alternative payment system inside BRICS first, then expanding to BRICS Plus, and then selling this system of payments, considering that the Chinese have their own payment system.

The Russians have their own payment system. Iran have their own payment system. So getting these all together so you can settle trade within this new framework, bypassing the U.S. dollar. And then you’re going to have your big enterprises, your big companies, individual nations say, well, this is an excellent deal. Fantastic.

So now if we’re a company in Turkey, we can do business with a Russian company and we use an alternative payment system. What would be the best way to proceed ahead? And when would we reach a stage where we can actually discuss an alternative currency in terms of bypassing the U.S. dollar and the euro?

MICHAEL HUDSON: Well, actually, Radhika and I have devoted two programs of this series to just that question. And we pointed out that what people think of when they say BRICS currency is something like a euro that you can use for buying and selling things, either buying steel or spending at the grocery store.

You’re absolutely right. That’s far away, because you need political integration to have that.

But what we’re really talking about and what the kind of currency that’s being talked about isn’t really a currency. It’s a bank credit, a bank settlement system, very much like the SDRs for the IMF, except it won’t be controlled by the U.S. But most of all, this is what Keynes supported in 1944 with the bancor.

It’s a means of settlement only for spending among central banks. So it’s not a general currency. It’s a means of settling credits among central banks. And the credits are apparently going to be based on the artificial bank currency tied to the price of raw materials that the member countries all support.

And it’ll be very much like paper gold. Right now, the alternative to holding each other’s currencies or U.S. dollars is gold, because gold is an asset without a liability. It’s just something that you can invest in. But you have to somehow earn the money to buy the gold.

Many countries have left their gold since the pre-1991 movement devaluation. Countries used to leave their gold with the U.S. Federal Reserve to settle, buy and sell in the gold market to stabilize their exchange rates. They never asked for their gold back.

Finally, Germany asked a few years ago, and the Fed said, I’m sorry, all your gold is gone. We’ve kept down the price of gold to prevent people from moving away from the U.S. dollar by pledging it to commodity dealers. And we don’t have any gold to give you.

And how much of the world’s gold has been left with the Federal Reserve? We don’t know.

So to avoid the problem of how to really settle new gold, the BRICS bank will create a credit system where all the countries have credit to buy and sell with each other to be settled in their own currency so that China, for instance, won’t hold too much Argentinian currency, especially since Argentina has just done the currency swap to pay the IMF for its foreign debt that it should have simply wiped out.

So we’re talking about a central bank special currency, not a general spending currency. There are two different things that are often confused in the public discussion.

RADHIKA DESAI: And if I may add to that, because, you know, Michael and I have done work on this together in our programs, in a paper that we jointly wrote. And then also, of course, in my and then also independently. So Michael’s done his work in Super Imperialism and so on.

And my own work on geopolitical economy is really, it’s primarily in the book called Geopolitical Economy. It’s primarily a critique of the US dollar system, which I argue has never worked stably. So it has always required, it has always run into crisis.

And in order to appear to function, it has required the inflation, particularly after 1971, of very dangerous bubbles of financial activity. So the reason for that is very simple.

The you know, the loose talk, which, by the way, includes a lot of academics who engage in loose talk, loose talk of the naturalness of the sterling system and then the dollar system has given everybody to understand that somehow, yes, of course, the currency of the most powerful country should be the world’s currency.

But this is, in fact, as we’ve shown, an extremely unstable situation. It cannot obtain.

And that’s why Keynes in 1944, speaking on behalf of his country, not willing his country to be subject to the external authority of the dollar, knowing that the sterling can no longer perform the role it once used to perform, knowing intimately well why that was so, proposed the bancor because.

Essentially this completely separates out the issue of international settlement of imbalances from the ordinary requirements of money within a society. So within a society, money has to be run in order to create a full employment, productively dynamic, ecologically sustainable currency, money that will work domestically.

But often the requirements of that may go directly counter to the need to maintain its international value. You know, the reason and gold, by the way, gold often people confuse gold is not money. When gold is used as money, it shows that there is no money.

Gold is a commodity. You know, Michael said it’s an asset without liabilities, but maybe it’s even more pertinent to say it’s a commodity. So it’s a bit like, you know, going back to barter.

So you give me steel and I’ll give you gold. That’s the exchange of two commodities. It just happens to be a widely accepted commodity. But people have proposed other things.

But essentially, the resort to gold, the Germans and others saying we want our gold back, etc. It’s one of the signs, one of the many signs, by the way, that the American dollar system is not working.

So essentially, the point that I’d like to make, therefore, is that what would need to happen? You know, your original question was, you know, how will these currency plans work, etc.? So I would say that the first step would be to, of course, create a relatively stable system of exchange rates between these.

Let’s just assume it’s the five Rs. So let’s say, you know, what is the mutual exchange rate of the five hours and to try to stabilize them and so on. And then in the long run, I mean, you know, this kind of system can work.

They can even create a sort of bancor based on the five hours, although originally Keynes had said that let’s not even not use any currencies. Let’s just tie the value of bancor to a basket of a few dozen most widely traded commodities, because that’s what ultimately matters in international trade.

So you could do that or you could and maybe you can get there, but you can begin by stabilizing the values. But then I think the big step would have to be, you would have to try and create relatively balanced trade among all the trading partners.

Why is that? Because for, you know, Michael said, you know, there is a you know, that we have to ensure that, you know, China does not end up with too much Argentinian currency or whatever, or any one of the five does not end up with too much of the currency of the other, because what it shows is that they one country has, you know, buys a lot from another country.

But that country, which is exporting a lot, has no use for its export revenues. Now, that would require a development plan among the holders of the five Rs so that, for example, let’s assume a trade relationship between China and Russia.

Well, China and Russia have to ensure that each would want to buy things with what it earns from the other country. So if it’s absent, then maybe there should be investment and opportunity to develop the capacity to produce the thing.

Because you see the genius of Keynes’s arrangement was that it had mechanisms within it to force people, force countries to move towards balance. Surplus countries were equally responsible, as were deficit countries, to try to address imbalances, both in terms of capital flows and in terms of trade.

So once you create those mechanisms and you create an incentive for, say, if China has too many rubles, then China says, OK, Russians, we are going to help you develop this productive capacity so that you can export more of X, Y, Z to us, etc.

So I think that’s what needs to be done. And just one final point, Keynes’s genius is really apparent in our time because just as Keynes said that a stable system should try to eliminate persistent imbalances.

Move your eyes to the dollar system, what is the one thing it primarily relies on is the generation of persistent imbalances, because to provide the world with money on the basis of your persistent trade deficits and the current account deficits with the rest of the world means that the whole system is reliant on imbalances, which means it is volatile and unstable.

So, I mean, as you rightly say, Pepe, this is a very complex thing and it’s going to take, you know, it’s going to take time to work out, but it won’t be worked out if people are laboring under misapprehension, such as that, you know, we need to create a currency like euro rather than a currency like bancor.

MICHAEL HUDSON: Just one thing about the dollar you just mentioned, and everybody who discusses the dollar system talks about, the US has been providing dollars.

In Super Imperialism and my work for Arthur Anderson years ago, the US private sector is exactly in balance since 1950, year after year, from the Korean War to the Vietnam War, the private sector trade and investment is just in balance, hasn’t provided any extra dollars at all to the world.

The entire US deficit has been supplying dollars to the world has been military. It used to be called the dollar glut. It was to stop that, that General de Gaulle kept cashing in French gold. What the new system of the BRICS and the R, the five R’s are going to cure is that the credit is not going to be paid by building 800 military bases around the other countries to lock them into a dependency system.

You’ll have the international payment settlement system demilitarized. That’s the basic aim of all this. The US dollar system is a militarized system. The dollars are US military spending abroad.

That’s the number one reason for world peace, that the dollar system should be superseded.

RADHIKA DESAI: I agree that in terms of trade, the US trade was balanced for a long time, like longer than you might imagine.

But certainly starting in the 1980s, the US trade deficit also made its own contribution to the current — US trade deficit is today between three and four percent of US GDP.

MICHAEL HUDSON: No, that’s absolutely fictitious. It’s based on fictitious statistics.

Much of the trade deficit is in oil. When the oil comes in, it’s counted as a trade deficit. But only about 10 percent of the price of this oil is paid in non-dollars. All the oil that’s imported is from US oil companies.

And the offset is the earnings on this. The interest paid or the cost of producing this oil are all made in the United States. So you have investment inflows on capital account and on income account to offset the fictitious payments of oil imports that don’t involve foreign currency at all.

RADHIKA DESAI: OK, I’m not quite sure what you mean, because the fact of the matter is that the whole point is that the United States pays for this oil in dollars.

But let me just make another further point, which is that, you know, people tend to focus on the US trade deficit and then they say, look, you know, the Chinese are buying so many US treasuries and so they are essentially financing the trade deficit.

And so this is a kind of a mutually supportive system, Chimerica and all that. But in reality, what people forget is that what’s really keeping the dollar system going is not Chinese financing, not Chinese purchases of US treasury securities.

What keeps the dollar system going is the vast expansion of financial activity, which goes in both directions.

And so, for example, if you look at the statistics, the financial statistics about all the international capital flows that were going on, the bulk of them being in dollar denominated assets in the run up to the 2008 financial crisis, the foreign exchange, the Chinese played hardly any role in it.

The biggest role that was played, the part of the world that was most fully integrated into the US financial system, which was producing these toxic securities that led to the 2008 financial crisis, was Europe. And therefore, it is no wonder that Europe was the part of the world that suffered the most from the 2008 crisis.

The 2008 crisis set the foundation for the 2010 eurozone crisis and so on and so forth. And that is why I really find it important to correct people when they term what happened in 2008, a global financial crisis. There was nothing global about it. It was a North Atlantic financial crisis.

PEPE ESCOBAR:  I want to pose a question to both of you. Because I was reminded of something very clever that the Chinese are doing and maybe they are setting an example for the whole global south.

You know that they have now oil futures being traded at the Shanghai bourse, especially GCC. It’s fascinating. So the GCC goes to the Shanghai bourse. They sell their oil futures. The Chinese buy it. They pay yuan.

But then the GCC says, look, we don’t want all that yuan. You know, what are you going to do with so much yuan?

The Chinese said, no problem. You can trade your yuan with gold using the Shanghai exchange, a clearing house or in Hong Kong if you want.

This is absolutely brilliant. Do you think that this could be expanded to the other BRICS, starting with the other BRICS, and then if we have, for instance, Iran and Saudi Arabia being part of BRICS Plus, adopting the same mechanism?

RADHIKA DESAI: I think that can work. I would say that, you know, the role of gold, as I see, is always residual. If all the money in the world were actually backed by gold, we would suffer massive deflation because there wouldn’t be enough money in the world because there isn’t enough gold in the world.

MICHAEL HUDSON: Gold only finances international balances, not general activity as the gold exchange standard, not the gold standard. And again, the gold is an alternative, the easiest alternative to the dollar because everybody accepts it.

It’s taken a couple of thousand years, but they finally decided something that they can accept as an alternative. It’s a transition to the BRICS artificial currency. It’s a transition to something away from gold. The idea of an international currency that is not the embodiment of not the U.S. trade deficit, but U.S. military spending.

RADHIKA DESAI: So then to further add to that, so I would say that essentially, when people buy gold, what they’re saying is they don’t want money. They want a commodity, want that commodity, etc., an easily tradable commodity. So some kind of asset in which they can keep.

So in that sense, you know, it’s a good idea. You know, the function of gold, I often like to say that, you know, the sterling standard in the late 19th and early 20th centuries, the sterling exchange standard was often called the gold standard, you know, because sterling was backed by gold.

But two things. Number one, the genius of the system actually lay in creating such wide international acceptability for the sterling that it was rarely exchanged for gold. And the reason and the mechanisms by which this was done, we can talk about it.

But the point is, it was rarely exchanged for gold. Keynes writes in his Indian Currency and Finance, which is actually a primer on the functioning of the international gold standard, the sterling standard. And I’ll come in a minute to why a book on Indian currency and finance should serve as the primer on the gold standard. But let me just finish this point.

He makes the point that the Bank of England had less gold than the [unclear] of Argentina. OK, that is. And he prided himself on that. And he also used to berate the French, you know, for holding gold and so on. He says, look, you don’t need to, et cetera. But that’s the whole other set of questions.

Now, let me come to how the British were able to do this. It’s because they drew, I mean, the so-called gold standard was actually had very little to do with gold, except for the fact that gold was the benchmark of the value.

The price of gold was the benchmark of the value of sterling. And sterling was occasionally exchanged into gold. And there was, you know, in those days, some gold coins did circulate. But that was really a very limited role.

The real foundation of the sterling gold standard was the surpluses that the British drew from their colonies, chiefly British India, which is why a book on Indian currency and finance, which is really a description of how surpluses were transferred from India to the UK, what were the mechanisms employed in order to do this?

So my point being that that is why this book is a primer on the gold standard. And the real foundation of the gold standard was the surpluses Britain extracted from its colonies and then exported as capital exports.

To where? To Europe, to North America and Oceania, and to some extent to South Africa, that is to say, to all its settler colonies. So if you think about it in a different way, Britain drew surpluses from her non-settler colonies, British India, Africa, the Caribbean, and exported them as capital exports to her settler colonies.

This is really, it’s quite a racialized thing, but that is the way it was. It is primarily where the money went. And so Britain provided the world with liquidity by exporting capital, not by running deficits as the US would do later.

The US had no choice. The US didn’t have colonies which it could squeeze to provide surpluses to export to the rest of the world. So the US had to take a different role.

So to come back to your question, I think that the Chinese strategy of allowing, you know, things to be exchanged for gold is a good confidence building measure.

And they should, you know, at the moment, there is the transactions are few enough that it can do so. I mean, ultimately, the system should work so well that it does not need gold.

Now, there again, the question is, if China tried to internationalize its currency on the model of the dollar, it would actually create it would actually reduce China to the sort of economy the US has, a deindustrializing aging infrastructure. So it will not do.

So that is why Michael and I and anyone who thinks about it always says you should not internationalize your currency in that way, not to any significant extent. Instead, you need this kind of artificial currency that will help settle international imbalances.

PEPE ESCOBAR: So you’re right, Radhika. And this is the official position in Beijing. They want to go very, very slow with the internationalization of yuan.

RADHIKA DESAI: Yes, yes, exactly. So, folks, I should say, you know, we’ve had a really wide ranging discussion, as usual, absolutely fantastic.

We’re about an hour and we’d like not to go too much over an hour. So let me ask you both to say any closing remarks you want to say.

MICHAEL HUDSON: Well, you’ve been brought back to the point that we’ve been making in part one of this discussion, which is the U.S. sanctions were designed to isolate Russia, raw materials and China’s information technology and shipmaking.

These are not in the economic interest of America’s allies or of China’s Asian neighbors or even the United States. Europe is being told to buy its oil and gas from the U.S., Korea and Japan and Taiwan.

Basically we’re back to the issue of whether trade is going to be economic or national security in nature. And it seems now, given the U.S. military presence, it’s going to be both. It’s going to be economic with national security.

And I think it’s hard to see getting the U.S. using any military leverage at all, given the failure of the NATO tanks and the missiles and the anti-aircraft. And the idea is that basically the U.S. is, the dollar is being rejected.

And at first glance, the thought of the BRICS and the global majority emerging may seem outrageous, but it’s no more outrageous than the thought that the Nobel —

I want to make a suggestion that just as the Nobel Peace Prize was given to Henry Kissinger for destroying Laos and Cambodia and covering Vietnam’s forest with Agent Orange, or Obama was given the Peace Prize for destroying Libya and confiscating its gold that Gaddafi had hoped to use for an African gold-based currency and turning it over, and the final Obama act starting today’s crisis with organizing the pro-Nazi coup in Ukraine, I think that America’s trying to force Europeans to believe that war is peace in the same sense that Tacitus described a British chieftain of saying that Rome was making a desert and calling it peace.

But in view of what we’re seeing in the last year and a half, I could imagine President Biden getting this year’s Nobel Peace Prize. It would fit in perfectly. It meets the traditional qualifications of destroying a country, Ukraine.

But actually, there’s another reason which he can get it. Biden and Blinken and their neocon team have driven most of the entire global majority together to create an alternative to the U.S.-centered world that has become increasingly one-sided.

And under the Biden administration, the United States is forcing the entire rest of the world, except for its NATO satellites, to create a new economic order. And that’s what we’ve been discussing.

And this new international economic order is on the lines that the United Nations was supposed to be created in the first place before it was taken over by the U.S.

Self-sufficiency in food production for each country. They won’t have to run a trade deficit to import food, because just like Russia was able to make itself independent in grain and become a grain exporter, other countries can do the same thing when it’s freed from the World Bank and the International Monetary Fund trying to block it.

The new economic order will be a mixed economy along socialist lines to uplift the entire economy, at least of the expanded BRICS and the Shanghai Cooperation Organization. And there will be a focus more on peaceful integration instead of military and financial integration.

So it turns out that the NATO war in Ukraine has turned out to be this grand catalyst for this new world order. And just because this wasn’t Biden’s and Blinken’s original intention doesn’t mean that it’s not the effect in practice.

And remember, Talleyrand, the French official in the 18th century, said of one policy, it’s worse than a crime, it’s a blunder. And you could say that that describes American policy perfectly.

But let’s give it credit for this fortuitous blunder that’s driven the whole global majority together to make an alternative to the World Bank, an alternative to the IMF, and an alternative to the failed U.S.-centered unipolar order.

PEPE ESCOBAR: Well, I am in touch with a group of Chinese writers and scholars, and they are always absolutely fascinated. And one of them, in fact, Michael was just talking about blunder.

They said, this is the number one blunder in the history of the empire, and they won’t be able to recover. And the Chinese have a little bit of experience with blunders, right?

Well, I would like to finish basically saying that in three weeks we’re going to have the BRICS Summit. So everything that Michael was telling us a little while ago is going to be discussed at the BRICS Summit.

And this is what the Sherpas have been doing these past few weeks. The Sherpas were actually organizing and designing the proceedings, what’s going to happen, the agenda, and the procedures for BRICS Plus, the expansion.

So in three weeks, we’re going to have a geopolitical, geoeconomic earthquake. There’s no question about that. Just to remind all of you, there is a list of potential members of BRICS Plus.

This is fascinating because these are part of an organization parallel to BRICS called Friends of BRICS. Whenever there is a BRICS Summit, you have Friends of BRICS Summit as well. They interact and they also have their own mini summit.

And this is exactly what happened in South Africa, what, two weeks ago, maximum. I’ll give you the list. Iran, Saudi Arabia, United Arab Emirates, Cuba, Democratic Republic of Congo, Comoros, Gabon, and Kazakhstan.

So probably the first tier, the first wave of BRICS Plus is going to come from these guys to one, two, three, or four of these. And there’s also Belarus, which was not in Friends of BRICS, but it’s very close to Russia. And Belarus also applied for BRICS.

You will notice that in this list, there’s no Argentina, unfortunately. And this, I think we discussed this in our previous, because Argentina, basically, they were, I would say, forced to withdraw their application towards BRICS. And this, they didn’t know how to explain that in Buenos Aires. But this is what it is at the moment.

So can you imagine if we have just in terms of the brand new world ahead? Iran and Saudi Arabia and the United Arab Emirates as a member of BRICS.

So we’re going to have BRICS Plus directly linked to OPEC Plus, directly linked to major sources of energy to China, directly linked to that mechanism at the Shanghai bourse of the GCC selling oil. And if you want gold, you can have your gold as well.

So can you imagine this in a matter of two or three days? We’re going to have this thing turning upside down. And then maybe this is the beginning of the new world economic order. Voila.

RADHIKA DESAI: Yeah, absolutely, folks. And so, yeah, let me just wind this down by making just a couple of remarks. Number one, I think that, you know, you were talking about blunders.

But if you look at the long term historical point of view, the whole project of American hegemony has been a blunder. We are just seeing the latest and ever more desperate blunders of the United States in trying to keep it going.

This has been my argument for a very, very long time. And bringing the matter back to NATO, which was at least formally the subject of our thing, NATO has always, of course, been an instrument of U.S. hegemony.

But if you cast your mind back a couple of decades, you will see that people, very few people really talked about NATO very much. Because U.S. hegemony was much more extensive. NATO was one part of a larger structure of U.S. hegemony.

Now we’ve come to a point where the U.S.’s purchase on world events relies on NATO to such an extent that it has become the mainstay of U.S. power. And this mainstay of U.S. power was, you know, part of the reason people didn’t talk about it very much is because it was always fractious.

There were always tensions between the Europeans and the Americans and so on. So there was not much to see there in terms of U.S. hegemony. And now that so-called U.S. hegemony has become reliant on reliance on this outfit is really telling, is really telling about how far, how low U.S. power has sunk.

So perhaps with that, I think we should end today’s today’s show. Please look forward to more shows with us.

Hopefully, Pepe, we will have you back another time.

PEPE ESCOBAR: Thank you so much. My pleasure. After these upcoming summits or something like that to assess them. But thanks very much. And thanks again to our videographer, Paul Graham.

And of course, as always, to Ben Norton for hosting our show. Goodbye, everyone. And see you next time. Bye bye.