Transcription
Uh, having inherited essentially, uh, the British Empire after the British Empire went bankrupt, uh, the Truman Doctrine, uh, went hand in hand with the Bretton Woods system. So, essentially, it was all about maintaining the very intense production of American manufacturing after 1945. Their great fear at the time was that, uh, with a war ending, uh, and the necessity of producing at more than 100% of capacity, uh, essentially the United States faced the serious threat of going back to 1929, to a great recession, the Great Depression. And the way to stop that was to ensure that, uh, uh, the United States would be a net exporter, uh, because of the same model, if you want, as that of China today.
Uh, and but they, they were nuanced enough and smart enough to understand that, uh, uh, you can't maintain net exports forever unless you transfer part of your surpluses to the deficit regions of your global economic system in order to maintain the demand for your net exports. So, Europe and Japan were dollarized either through the Marshall Aid plan or credits or, uh, loans that were private or public, didn't matter. I mean, there was a large chunk of American surpluses that were being sent to Europe and to Asia so that they could maintain the net exports of the United States. This was the Bretton Woods system.
That system was bound to die once the United States no longer had a surplus. And that's when, uh, the Trump of that time, a gentleman that you will remember as Richard Nixon, blew up the monetary system and the world trading system that the Americans had created. So, it's, you know, what Trump is doing has been done before. An American president has blown up the American-designed and constructed global financial and trading system. And the result was a period, since from the mid-1970s onwards, uh, of an inverted global recycling mechanism. Instead of American surpluses being recycled to the rest of the world, American deficits provided the, uh, massive aggregate demand which was necessary for the German economic miracle to continue, for the Japanese economic miracle to continue, then for the Chinese economic miracle to take root and to grow.
Uh, so to put it very vulgarly, but I think in a manner which is not misleading, uh, essentially the American economy was, uh, producing aggregate demand for the German, the Japanese, and the Chinese exporters. They were being paid in, now use gold dollars, and those dollars went back to the United States through Wall Street to finance the American government, the American stock exchange, and American real estate. That was the situation. And of course, that tsunami of capital that was going into Wall Street required the deregulation of Wall Street. Uh, the bankers went berserk. Uh, they started building huge, gigantic, um, piles of toxic derivatives on top of that. And that collapsed in 2008. And that whole system enters a very serious crisis. This very weird recycling system.
And, you know, the combination of, um, socialism for the bankers, that's quantitative easing, money printing for the bankers, and austerity for almost everybody else, the vast majority, uh, that created, uh, a very significant collapse in investment in, um, the United States, in Europe. The only people who actually invested some of the money, a lot of the money that was being printed by the central banks, were the big tech owners, you know, the Amazons and the Googles and the Metas and so on. That's why we have a new form of capital, I call it cloud capital, which doesn't produce anything except power to extract rents from the rest of the economy.
And in this context, uh, with the United States being utterly decimated in terms of the de-industrialization process, because the American class was doing really very well, people who lived off the financial markets and real estate did brilliantly with all this recycling of other people's money or profits that the United States trade deficit maintained. Uh, but if you were a construction worker or a manufacturing worker, you know, blue-collar worker in the Midwest, you were decimated. And then Trump comes along and says, "Well, that can't continue. We overdid it." Uh, and, um, "I'm going to make America great again." In other words, I'm going to rebalance the, uh, disproportionate relationship between the dollar world and the American manufacturing capacity, which became totally disproportionate. To put it differently, American finance, the dollarized world, became a gigantic parasite that was parasitic on a tiny little organism, American manufacturer, which was shrinking.
Now, um, that doesn't mean that what Trump is promising, he's going to accomplish. It doesn't mean that because Nixon was successful with his shock, that Trump will be successful with his shock. Uh, it doesn't mean that, uh, uh, there's going to be the continuity, because it's not just a question of what Trump does. For this project to work, uh, the next administration and the one after that will also have to participate. Nixon didn't do it on his own. Carter and Reagan and then Bush continued that policy. So, yeah, we're living in very interesting times.
>> Yeah, to say the least. Well, as you know, Trump appears to want to try to make America great again. You have these efforts to re-industrialize, do something with the debt. And I agree, I think Trump got some of it right by having the finger on the pulse, recognizing that this is unsustainable. But I'm a bit critical of his initiatives in terms of how he aims to carry through the shock, as you say. But what does this mean for Europe? Because since the World War, since World War II, we had kind of preferable access to the US market also for political purposes, and we enjoyed cheap energy from the Russians. How, how are the Europeans reorganizing or what are they doing in this trade war to, to essentially build a new economic model in which they can prosper?
Well, not much is the answer. Whatever it is they're doing, they are doing it in a state of panic without any planning. There is, um, look, the world that the Nixon shock created was the world that begat the euro, the eurozone, because, come to think of it, what Nixon did in 1971 was to expel Europe from the dollar zone. But in 1971, we had fixed exchange rates with the dollar. Okay? In other words, we had a dollar, we were part of the dollar zone, even though we had our own national currencies in our pockets. You know, think about it. For 30 years, 20 years, we didn't have to check the, um, the exchange rates because they were the same. Interest rates were more or less what, between four and 5% constant. It was a magnificently boring world. It was the world in which the German manufacturing machine became so substantially successful. And you know what the Americans did in 1971 was to chuck us out. They threw us out effectively to the wolves. Uh, remember the US Treasury Secretary who visited on behalf of Richard Nixon, the Europeans in 1971, John Connally, who went around and said, "I don't care what your problem is, mate. Um, the dollar is our currency, but it is your problem."
Um, and in a state of complete panic back in the '70s, the Europeans started to create, they started attempting to create their own burden system, their own fixed exchange rate regime. The reason why they needed it because is because the European Union, Glenn, was constructed like a cartel of big business. I mean, the first name was the European Communities of Coal and Steel. So it was like what OPEC does with oil. They wanted to do it with coal and steel. That is to, uh, limit competition, to have steady prices, agreed prices, cartel prices. And then, of course, they brought in the farmers with the Treaty of Rome, to whom they offered a chunk of the profits of heavy industry. That's, that, you know, that's what a common agricultural policy is.
Now, for the cartel to work, as we know from OPEC, they need to have a common, a common currency or fixed exchange rates, because if the exchange rates fluctuate, it's really very hard to keep the, um, the collusion going, because in a cartel, as we all know, and our students know from economics 101, cartels are unstable. They are centrifugal forces. Uh, and if you allow for prices to vary because inter, because exchange rates vary, then you can't maintain the cartel. Uh, so Europe needed that construction, cartel-like construction of the European Union required the common currency. So we went into this process of, you know, first it was the snake, if you remember, then it was the European Monetary System, then it was the exchange rate mechanism. Everything we did failed. And so we decided we will federate our money, create a common money, the euro. But in the process, we forgot to create a common treasury. We forgot to create democratic institutions that can manage, uh, the monetary policies in a way that is remotely democratic.
The result, of course, was the euro crisis. And how did they deal with the euro crisis? Crisis, by means of harsh, unbelievably harsh austerity, uh, and a lot of money printing, which, of course, meant that Volkswagen didn't invest anything, because if they get all of this free money and the customers don't have money to buy expensive Volkswagens or, you know, Tesla-like machines, new generation cars, then they don't invest it. They take the money that the ECB printed, they go to the Frankfurt stock exchange and they buy their own shares back. The share price goes up, the directors of Volkswagen make a mint because their salaries are linked to the share price. And for 15 years, we had no investment.
Meanwhile, the politics becomes toxified, because when you are applying austerity on the German people, the French people, the Greek people, and so on, so now everybody hates everyone. You go to Europeans, even progressive Europeans, and you say to them, you know, how about we federate now? They say, go away. Just go away. I don't, just don't tell me about this. People that wanted a European federation some time ago. So the politics has become toxic. There's no coordination. We have no leadership. And once upon a time, you know, I'm famously opposed to somebody like Angela Merkel, right? But at least she was a leader. At least she had political capital. Now we have headless chickens running around like, you know, what's this guy Merch, who failed even to get elected first time around as Chancellor of Germany. We have Macron, lame duck. Um, when I was in government, there was a very severe clash between the north and the south. Now we have an even worse clash between the east and the west. Why am I telling you all this?