National Security State,
Nixon and Bretton Woods
excerpted from the book
Gods of Money
Wall Street and the Death of the
by F. William Engdahl
edition.engdahl, 2009, paperback
Leo D Welch, Treasurer of Standard Oil Company, 1946
As the largest source of capital, and
the biggest contributor to the global mechanism, we must set the
pace and assume the responsibility of the majority stockholder
in this corporation known as the world.., nor is this for a given
term of office. This is a permanent obligation.'
George F. Kennan, in a confidential internal State Department
[W]e have about 50% of the world's wealth
but only 6.3% of its population .... In this situation, we cannot
fail to be the object of envy and resentment. Our real task in
the coming period is to devise a pattern of relationships which
will permit us to maintain this position of disparity without
positive detriment to our national security. To do so, we will
have to dispense with all sentimentality and day-dreaming; and
our attention will have to be concentrated everywhere on our immediate
national objectives. We need not deceive ourselves that we can
afford today the luxury of altruism and world benefaction.
The true postwar [WWII] goal of the US elite was US domination
of the world, or at least as much of it as it could seize and
hold onto in 1948.
The single largest expenditure for [European] countries receiving
Marshall Plan aid [after WWII] was for the purchase of American
oil - oil supplied by the Rockefeller Standard Oil companies at
highly inflated prices paid for in US dollars.
President Harry Truman announcing the Truman Doctrine to the US
Congress on March 12, 1941
I believe that it must be the policy of
the United States to support free peoples who are resisting attempted
subjugation by armed minorities or by outside pressures.
Containment of the Soviet Union served the useful purpose for
the US power establishment and their military industry of creating
a permanent national security state with what later were revealed
as fictional images of an aggressive, threatening Soviet Union.
US foreign policy was being significantly
shifted from an alliance with the Soviet Union against the German
threat to one of gradual alliance with a postwar humiliated Germany
against the alleged Soviet threat.
For the Rockefeller faction and their allies in American finance
and industry, the mere fact that state socialism in the Soviet
Union  and China  effectively removed more than one-fifth
of the planet's land mass and untold treasures of raw materials
and resources as well as potential markets from their grip was
sufficient grounds to declare them the new "enemy image."
Their problem was how to sell it to a skeptical American population,
how to sufficiently mobilize fear and anxiety in the American
public to justify financing a permanent war state directed against
the new "absolute evil, Godless Communist Totalitarianism."
Leading circles in and around the Truman Administration concluded
by late 1949 that the only means to mobilize a sense of sacrifice
from the American population for vastly larger military spending
... would be a new war. The ideal war would be one that could
be managed, and one that posed no direct threat to the United
States or the still-fragile Western Europe.
... For various reasons, Korea was chosen
as the ideal place to stage a limited war designed to mobilize
popular support for a permanent national security state. The goal
was the enormous expansion of military industry on a permanent
basis - what financier and Truman adviser Bernard Baruch labeled
a "Cold War".
In late 1948 Washington announced plans
for the creation of a new Atlantic military alliance with its
Marshall Plan partners, in return for permanent US bases in western
European countries The legal instrument to create a North Atlantic
Treaty Organization, NATO, was signed in April 1949, with Belgium,
Luxembourg, the Netherlands, France and Britain joining Washington.
Within months, the Korean War would galvanize
NATO members to accept an active, permanent military defense organization
in Western Europe under the control of Washington, with headquarters
in Brussels. A war weary Europe was drawn into Washington's Cold
War strategy via a military alliance.
In 1949, a year after the creation of NATO, a top secret group
within the US State Department convened to formulate a new US
strategic policy. Their report, "NSC 68: United States Objectives
and Programs for National Security," argued for a US military
buildup to confront what it claimed was an enemy "unlike
previous aspirants to hegemony... animated by a new fanatic faith,
antithetical to our own."
The group, chaired by former Wall Street
banker Paul Nitze, argued that the Soviet Union and the United
States existed in a polarized world in which the Soviet Union
wished to "impose its absolute authority over the rest of
Following proclamation of the Truman Doctrine, a creation of Secretary
of State Dean Acheson, the Administration's propaganda apparatus
tried to drum up popular support for their Cold War against the
'evil, Godless' communists in the Soviet Union. They believed
that they could win popular voter support for huge increases in
Federal defense spending by "scaring the hell out of America,"
as one of Truman's advisors put it --perhaps by engendering a
"war scare to deceive the nation."
General MacArthur had demanded of Truman that US forces under
his command use the pretext of the Korean conflict to launch a
direct military attack on China itself, one using nuclear weapons.
... MacArthur, US Chief of Joint Chiefs
of Staff General Omar Bradley, Defense Secretary Johnson and Rockefeller
lawyer and State Department consultant John Foster Dulles, all
wanted to use Korea as a stepping stone for a direct war not just
against China, but ultimately against the Soviet Union itself
... Korea's war was a matter of US geopolitical
grand strategy to shift the pieces on the Asian chess board and
mobilize Cold War fears within NATO and the US population, in
order to provide the pretext for creating an enormous, permanent
US national security state... The Korean War led most Americans
to conclude that the Soviet Union was indeed bent on world domination.
It was the needed catalyst to justify mobilization of the nation's
significant resources to counter the perceived threat.
... The Korean War served the agenda of
the Washington Cold War faction masterfully. The US Defense budget
soared 400% from less than $13 billion at the start of the war
to more than $60 billion by war's end in 1953. US puppet regimes
under Chiang Kai-shek in Taiwan and Syngman Rhee in South Korea,
and a US Military Government in Japan under Douglas MacArthur,
would provide the basis for America's Cold War presence in East
Asia. Under MacArthur's occupation, assisted by a young New York
banker named John D. Rockefeller, III, Japan's industry was allowed
to reorganize into giant conglomerate groups to provide a 'bulwark
against communism' in Asia.
... In the domestic US economy, politicians
quickly realized that they could get almost any program passed
by Congress if they argued 'US national security' and 'defense
against totalitarian Godless communism.'
In 1953, the war and national security
anxiety of the American public had been raised to such a fever
pitch that retired wartime General Eisenhower was elected President.
It was the Rockefellers initially who had convinced Eisenhower
to run and who organized Wall Street money behind his campaign.
Republican Senator Robert Taft, 1952
Every Republican candidate for President
since 1936 has been nominated by the Chase Bank.
In addition to dominating the two largest banks in New York -
Chase Bank and National City Bank of New York - Rockefeller controlled
the largest oil companies in the world, the Standard Oil group,
and numerous strategic military industries, chemical companies,
and agribusiness firms. In addition [Rockefeller] controll[ed]
the CFR through the Dulles brothers, the Central Intelligence
Agency and State Department.
James Burnham, co-founder of the National Review magazine, in
a1947 book titled 'The Struggle for the World'
The United States cannot within the allotted
time win the leadership of a viable world political order merely
by appeals to rational conviction... Power must be there, with
the known readiness to use it, whether in the indirect form of
paralyzing economic sanctions, or in the direct explosion of bombs.
As the ultimate reserve in the power series there would be the
monopoly control of atomic weapons.
The United States  held extraordinary power over much of
the world in an informal economic empire. It had done so by using
the mechanisms of the Bretton Woods institutions, the IMF and
World Bank, through its control of broad western European economic
policy via the Marshall Plan and the Paris-based Organization
for Economic Cooperation and Development (OECD), through the role
of the dollar as the world reserve currency and the heart of world
finance, and above all, through the Money Trusts New York banks
and their allied civil servants in Washington.
As President, [John] Kennedy earned many powerful enemies during
his few months in office, from the head of US Steel to CIA chief
Allen Dulles and the Pentagon. Perhaps no one opposed Kennedy
more strongly than the powerful bankers of Wall Street.
... Five months before his assassination
by what was decades later revealed to have been a CIA hit team,"
Kennedy issued an all-but unknown proclamation which may have
cost him his life.
Much as Abraham Lincoln did when he avoided
dependence on London bank loans to finance the Civil War and instead
issued interest-free US Treasury notes, Greenbacks, to finance
the war, President Kennedy issued Executive Order 11110 on June
4, 1963. Kennedy's EO 11110, which did not require a vote of Congress,
mandated the US Treasury "to issue silver certificates against
any silver bullion, silver, or standard silver dollars in the
This meant that for every ounce of silver
in the US Treasury's vault, the government could introduce new
money into circulation. In all, Kennedy brought nearly $4.3 billion
in US notes into circulation in $2 and $5 denominations. The $10
and $20 United States Notes were just in the process of being
printed by the Treasury Department when Kennedy was assassinated.
They were never circulated. It was the first time since Lincoln
that a President had issued interest free money and the first
time a President had challenged the sole money power of the private
... After JFK's death, E011110 was put
into abeyance, no more silver certificates were issued and those
that had been issued were removed from circulation. The very existence
of E011110 was hidden from the public, and forgotten or ignored
by most historians.
Shortly before he was assassinated, JFK issued United States Notes,
interest free and independent of the Federal Reserve. At the top
it says, United States Note, not Federal Reserve Note. The Notes
were immediately recalled by his successor.
The Vietnam War strategy had been deliberately designed by Defense
Secretary Robert McNamara, National Security Adviser McGeorge
Bundy, along with Pentagon planners and key advisers around Lyndon
Johnson, to be a "no-win war" from the onset, in order
to ensure a prolonged buildup of the military sector of the US
Beginning in the late 1950s the major New York banks had greatly
increased their power and influence through a series of bank mergers.
Rockefeller's Chase National Bank had merged with the Bank of
Manhattan to form Chase Manhattan Bank headed by John J. McCloy,
Rockefeller's attorney and a Rockefeller Foundation Trustee as
well as Chairman of the New York Council on Foreign Relations...
The National City Bank of New York took over the First National
Bank of New York to form City Bank of New York, later Citibank,
under the chairmanship of James Stiliman Rockefeller.
... According to a 1961 US Department
of Justice report, the five largest New York banks, dominated
by the two Rockefeller banks, controlled 75% of all deposits in
the nation's largest city, the world's international financial
... To facilitate this extraordinary concentration
of financial power, the US Government exempted banks from US anti-trust
laws prohibiting undue concentration or cartelization.
A confidential internal memo [at the Rockefellers' Chase Manhattan
Bank] was circulated within the bank in 1966 on the subject of
the disadvantages that American, i.e. New York, banks had in capturing
the lucrative international market for 'flight capital.' The memo
pointed to the advantages enjoyed by Swiss banks that dominated
the lucrative market in managing and profiting from the hidden
fortunes of dictators like Marcos in the Philippines, Saudi princes,
drug barons and the like. The memo proposed that Chase open up
a foreign entity to capture a major share of the booming offshore
flight capital, or 'hot money,' for itself.
Offshore banking [1960s] marked a sea change in New York banking
practice that would explode in importance during the next three
decades and beyond. Chase Manhattan, Citibank and other major
US money center banks were to launder hundreds of billions of
dollars of illicit hot money, no questions asked, whether the
funds originated from US-friendly dictators like the Philippines'
Ferdinand Marcos, Iran's Shah Reza Pahlavi, Mexico's Rañl
Salinas de Gortari, or Juárez drug cartel money being transferred
to Uruguay and Argentina, or from countless other controversial
and politically sensitive transactions."
On August 15, 1971 President Richard Nixon announced to the world
that he had ordered the Gold Discount Window of the New York Federal
Reserve to be permanently shut. Foreign holders of dollars had
without warning been robbed of their right to gold by the unilateral
act of the US President, and in violation of a treaty obligation
of the United States.
... Nixon was acting on the advice of
a small circle of Rockefeller -linked advisers, including Secretary
of State Henry Kissinger, a life-long appendage of the Rockefeller
interests, and budget adviser George Shultz, later Secretary of
State and chairman of the vast Bechtel construction giant.
Under Secretary for International Monetary Affairs and former
Chase Manhattan Bank executive, Paul Volcker [was] a life-long
enabler of Rockefeller interests. Volcker went on ... at the urging
of David Rockefeller, to become Jimmy Carter's nominee to head
the Federal Reserve.
In May 1973 on a resort island outside Stockholm, a highly secret
meeting took place that gave the dollar a new lease on life, a
lease at the expense of world industrial growth.
Wall Street and Washington power elites
around Secretary of State Henry Kissinger decided to impose a
dramatic shock on the world economy in order to rescue the falling
dollar as the asset of world trade and finance, and restore it
as a pillar of the American economic imperial strategy.
In May 1973, with the dramatic fall of the dollar still vivid,
a group of 84 of the world's top financial and political insiders
met at the secluded island resort of the Swedish Wallenberg banking
family, at Saltsjoebaden, Sweden. This gathering later came to
be known as Prince Bernhard's Bilderberg Group. At the meeting,
the group heard an American participant outline a 'scenario' for
an imminent 400% increase in OPEC petroleum revenues.
In May i972 a year before the Bilderberg Saltsjoebaden [Sweden]
talks, the Shah had met with [Henry] Kissinger and President Nixon
in Teheran. Nixon and Kissinger promised the Shah he could buy
any US military equipment he wanted from the US defense arsenal
except nuclear weapons, and he would be permitted to do it without
US Congressional OK.
In order to finance the huge purchases,
the Shah would need vastly higher oil revenues. Chase Manhattan
Bank, of course, was Iran's bank, the Shah's personal bank, National
Iranian Oil Company's bank, the Pahlavi family bank, and the Pahlavi
Foundation's bank. The entire financial empire of the Pahlavi
regime was a Rockefeller operation from top to bottom.
Present at Saltsjoebaden [Sweden] for the May 1973 gathering were
David Rockefeller of Chase Manhattan Bank, by then the acknowledged
'chairman of the board' of the American establishment; ... Zbigniew
Brzezinski, the new Executive Director of David Rockefeller's
private Trilateral Commission and soon to be President Carter's
National Security Adviser ... Henry Kissinger had also been invited
to the gathering.
The powerful Bilderberg elite group that
met in Sweden in May 1973 had decided to launch a colossal assault
against industrial growth in the world, in order to tilt the balance
of power back to the advantage of American Wall Street financial
interests, and specifically to support the vulnerable dollar,
the heart of their global financial and economic power. In order
to do this, they would use their most valuable strategic weapon-their
control of the world's oil flows.
The Bilderberg policy was put into effect
six months later in October 1973 when US diplomacy was deployed
to trigger a global oil embargo, shockingly enough, in order to
force the intended dramatic increase in world oil prices. Since
1945, world oil trade had by international custom been priced
in dollars because American oil companies dominated the postwar
market. A sharp and / sudden increase in the world price of oil,
therefore, meant an equally dramatic increase in world demand
for US dollars to pay for that necessary oil. In addition 1 to
making Exxon, Mobil Oil and the other Rockefeller companies into
the largest corporations in the world, it would make their banks-Chase
Manhattan, Citibank and a handful of others-into the world's largest
The Rockefeller-dominated American financial
establishment had resolved to use their oil power in a manner
no one could imagine possible. The very outrageousness of their
scheme was to their advantage. No one could conceive that such
a thing could possibly be deliberate. It was.
In October 6, 1973, Egypt and Syria invaded Israel, igniting what
became known as the 'Yom Kippur' war. The Yom Kippur war was not
the simple result of miscalculation, blunder, or an Arab decision
to launch a military strike against the state of Israel. The entire
series of events leading up to the outbreak of the October war
had been secretly orchestrated by Washington and London, using
powerful 'back door' diplomatic channels developed by Nixon's
National Security Adviser, Henry Kissinger.
Kissinger effectively controlled the Israeli
policy response through his intimate connection with Israel's
Washington ambassador, Simcha Dinitz. Kissinger had also cultivated
channels to the Egyptian and Syrian side. His method was simply
to misrepresent to each party the critical elements of the other's
position, ensuring the outbreak of war and the subsequent Arab
... The war brought about the very oil
price shock discussed at the Bilderberg deliberations of the previous
May in Saltsjoebaden [Sweden], some six months before the outbreak
of the war.
OPEC and the Arab oil-producing nations
would be the scapegoats for the coming rage of the world over
the resulting oil embargo to the United States and Europe and
an ensuing huge increase in oil prices, while the Anglo-American
interests that were actually responsible, stood quietly in the
background, ready to reap the windfall.
... One enormous consequence of the ensuing
400% rise in OPEC oil prices was that the risky North Sea investments
of hundreds of millions of dollars by British Petroleum, Royal
Dutch Shell and other Anglo-American petroleum concerns could
produce oil at a profit. It was a curious fact of the time that
the profitability of the new North Sea oil fields was not at all
secure until after Kissinger's oil shock. At pre-1973 world oil
prices, the North Sea projects would have gone bankrupt before
the first oil could flow.
... The US Treasury 'arrangement' with
Saudi Arabia on dollar pricing of oil was finalized February 1975...
Under the terms of the agreement, the huge new Saudi oil revenue
windfall would be channeled largely into financing the US government
... The Bilderberg scheme was operating
fully as planned. The Eurodollar market that had been built up
over the previous several years was to play a decisive role in
the offshore petrodollar 'recycling' strategy. Subsequently, Rockefeller's
Chase Manhattan Bank estimated that between 1974 and the end of
1978 the oil producing countries of OPEC generated a surplus from
oil exports of $185 billion, more than three-fourths of which
passed through Western financial institutions, the lion's share
through Chase and allied banks in New York and London, and from
thereon as loans to the Third World.
... From 1949 until the end of 1970, Middle
East crude oil prices had averaged approximately $1.90/barrel.
They had risen to $3.01 in early 1973, the time of the fateful
Saltsjoebaden meeting of the Bilderberg group who discussed the
imminent 400% future rise in OPEC's price. By January 1974 that
400% increase was a fait accompli.
... After Nixon had eliminated the gold
exchange mechanism in August 1971, the offshore Eurodollar market
exploded ... by the mid-1970s in the wake of the 400% OPEC oil
price rise the Eurodollar market reached an estimated $1.3 trillion
pool of 'hot money. Interestingly, by the end of the 1980s, the
volume of international narcotics revenues alone - which had to
be laundered through such offshore 'hot money' banks - exceeded
an estimated $1 trillion a year. The big New York and London banks
made sure they got the lion's share of drug money.
The London Eurodollar banking market became
the centerpiece of the huge Petrodollar recycling operation, lending
OPEC oil revenue deposits from banks 'offshore' in London, to
Argentina, Brazil, Poland, Yugoslavia, Africa and other oil importing
nations that were starved for dollars with which to import the
more expensive OPEC oil after 1974.
The dollar system ... a paper or fiat currency, went through several
phases after August 1971. The first phase could be called)the
'petrodollar' currency phase in which the strength of the dollar
rested on the 400% rise in oil on the world market priced in dollars,
and on the highly profitable recycling of those petrodollars through
the US and UK and a select handful of other international banks
in the City of London, the offshore haven for Eurodollars. That
phase lasted until about the end of the 1970s.
The second phase of the post-1971 dollar
system was sustained on the Voicker interest rate coup of October
1979 and lasted until approximately 1989 when the fall of the
Berlin Wall opened a vast new domain for dollarization and asset
looting by Wall Street banks. That opening, combined with the
colossal economic growth of China as a member of the WT O, opened
the world economy to a drastic lowering of wages across the board,
most dramatically in the industrial countries.
In 1997 yet another phase in the post-1971
dollar system was initiated with a politically-driven hedge fund
attack on the vulnerable currencies of the high-growth 'Tiger'
economies of east Asia, beginning with Thailand, the Philippines,
Indonesia and spreading to South Korea. That phase was in large
part responsible for a massive inflow of Asian central bank dollars
into the US dollar to build dollar reserves as defense against
a possible new speculative attack. The inflow of hundreds of billions
of dollars of Asian capital after 1998 fuelled the US IT stock
market bubble of 1999-2002.
The final phase of the dollar system after
August 1971 was the Alan Greenspan Revolution in finance, which
he launched after the collapse of the IT stock market bubble in
2001-2002, By his strong support of the revolution in finance,
mortgage and other assets as security to issue new bonds, Greenspan
helped engineer the 'securitization revolution' which ended with
the collapse of his real estate securitization bubble in 2007.
The agenda of the US establishment had been announced [in 1973]
by David Rockefeller's brother John D. III, in a book modestly
titled, 'The Second American Revolution'.
... The book called for a radical reduction
in the powers of government for expanded 'privatization' of functions
long performed by the state, "moving as many government functions
and responsibilities toward the private sector as possible."
It was a clear call for abandonment of New Deal Keynesian policies-at
least the use of the state to correct imbalances in social distribution
of jobs and income that had existed since the 1930s.
Rockefeller's 1973 call served as the
signal for launching a national media propaganda campaign against
alleged Government inefficiency, incompetence, and obstruction,
using the inevitable bureaucratic inefficiencies of social services
as a smoke screen to end all oversight and regulation of banking
and large commercial transactions. The book used carefully selected
examples that every citizen could recognize to build support for
essentially destroying the traditional and necessary role of the
state in regulating commerce and the pubic welfare, to the advantage
of the pure and unfettered profit-maximization of private companies
and banks financing those companies. It was a Darwinian world
they unleashed where the fittest were the biggest and naturally
the ones with the clout to destroy their competitors.
In 1976, the Rockefeller agenda for a 'second American revolution'
made a significant advance: David Rockefeller's protégé
at the Trilateral Commission, Georgia peanut farmer turned Governor,
Jimmy Carter, won an upset election against incumbent Gerald Ford
who had taken over when Nixon was driven from office by the Watergate
scandals. Carter promptly went on to staff his key cabinet positions
with 26 members of Rockefeller's Trilateral Commission, including
Vice President Walter Mondale, Secretary of State Cyrus Vance,
Defense Secretary Harold Brown, and Treasury Secretary Michael
As President, Carter's entire foreign
policy, much of his election strategy, and some of his domestic
policy came directly from Rockefeller's Trilateral Commission.
The architect of Carter's foreign policy from 1975 was his National
Security Adviser Zbigniew Brzezinski who had resigned as Trilateral
Commission Executive Director in order to take the post.
... It was Carter who began the Rockefeller
group's long process of Government deregulation and privatization
that his successor, Ronald Reagan, would make the centerpiece
of his Presidency.
The deepening US economic crisis of the 1970s was the motivation
for the Rockefellers and other US establishment leaders to come
up with radical new strategies. The US was faced with stagnation
or even decline of its market strength and corresponding profit
share globally and within the United States.
... From this crisis emerged a new social
vision or political philosophy called "neoliberalism."
... The neoliberal revolution that was
launched in the mid-1970s was a project of the US establishment
and their British counterparts. Specifically, it was a concoction
of the Rockefeller brothers, based on the radical free market
dogma of Milton Friedman, a member of the arch-conservative Mont
Pelerin Society and then professor of Economics at the University
of Chicago, an institution founded decades earlier with Rockefeller
Standard oil money. Neoliberalism could more accurately have been
Echoing John D. Rockefeller's 1973 manifesto,
Friedman's neoliberalism, enshrined in his popular book, 'Free
to Choose', called for untrammeled free markets and free trade,
and attacked trade unions as a "throwback to a preindustrial
The neoliberal revolution was, in essence,
a globalized version of John D. Rockefeller's Second American
Revolution... It was the initial phase of what two decades later
would be called "globalization."
The powerful circles around the Rockefellers
within the US financial establishment called explicitly for a
global restructuring to their benefit, including:
new discipline of labor and management
to the benefit of lenders and shareholders; the diminished intervention
of the state concerning development and welfare; the dramatic
growth of financial institutions; the implementation of new relationships
between the financial and non-financial sectors to the benefit
of the former; a new legal stand in favor of mergers and acquisitions;
the strengthening of central banks and the targeting of their
activity toward price stability, and the new determination to
drain the resources of the periphery toward the center.
The predominant feature of the new neoliberalism
was not just its structural arrangements, but the creation of
mechanisms to extend the dollar's reach to the rest of the planet,
the globalization of the dollar and of US finance behind it. The
destructive process of market liberalization spread with devastating
speed and efficiency, assisted by creation of new multinational
institutions such as the World Trade Organization and massive
trade pressures from Washington and its free market allies, especially
Milton Friedman's dogma of monetarism
was the theoretical expression of the new revolution, or more
accurately, counter-revolution. The decisive year in the economic
counter-revolution was 1979 when David Rockefeller got President
Carter to name his protege, Paul Volcker, to become Chairman of
the Federal Reserve. In October 1979 Volcker imposed the most
radical monetarist policy in the history of the Federal Reserve
as he allowed interest rates to soar by more than 300% into the
20% range, and held them high until the resulting inevitable Third
World debt crisis erupted by August 1982, prompting him to reverse
the rate policy.
... The high interest policy was imposed
by the wealthiest members of the establishment as part of their
long-term strategy of clawing back the concessions forced from
them during the Great Depression in terms of the creation of the
Keynesian social welfare state, social security, and Government
support for labor union organization.
Confronted with stagnating domestic markets, declining absolute
profits and the need to invest huge sums in order to bring their
domestic US industries up to world standards, the Rockefeller
circles opted instead to walk away from renewing their domestic
US economic base, leaving it to become what their think-tanks
called a 'post-industrial society.'
[Paul] Volcker's interest rate policy
led to 'real'- that is, corrected-for-inflation - interest rates
of 6-8%, a staggering windfall boon for wealthy bond holders,
the center of the financial system. It also created a recession
and with it, a rising wave of unemployment in Europe and in the
United States, which created the conditions for a new crackdown
on labor implemented by both Reagan and Thatcher in the early
1980s, dramatically weakening the influence of trade unions on
wage levels for decades to come.
By 1973 the US trade position with respect to its major allies
in Western Europe and Japan was taking form. The terms of the
'grand bargain' would be that the US would open its borders to
almost unlimited Japanese or European imports of products such
as cars, steel, and later, electronics. In return, the foreign
countries would agree to purchase US defense equipment, US agricultural
products and US aircraft for its national airlines.
But the most far-reaching aspect of the
new regime implemented after 1973 by Washington and adhered to
by every Administration since then was the idea that, because
of the unique role of the dollar as world foreign exchange reserve
under a floating-rate exchange regimen -- and the fact that the
dollar could no longer be redeemed for gold -- foreign nations
that built up a surplus of dollars exporting to the United States,
especially Japan and Germany, would be forced to reinvest those
dollar trade surpluses in US Government debt, in order to earn
interest and hold them in a safe repository.
... The United States, led by Wall Street
banks that held the monopoly on buying and selling US Treasury
debt, would emerge as the world's greatest capital market during
the 1980s, as US deficits exploded and its internal industry went
into malign neglect as a result of the decision. Wall Street bond
brokers reaped the gains. Ronald Reagan's Presidency was chosen
by the establishment to implement this 'greatest rip-off.'
Gods of Money