The intensity of US efforts to foment conflict in Ukraine and the Middle East continue to be treated by Mr. Market as a nothingburger, as witnessed by a continued slide in oil prices and continued complacency in global stock markets. Yet it’s hard to miss that there are significant microeconomic implications of the uptick in warmongering. The Administration is clearly going all in for the guns part of the classic guns versus butter budgetary tradeoff.
But what is the underlying logic of this foreign policy stance? It has become commonplace to depict Obama as weak and overly reactive to Republican and media pressure. But that view conveniently ignores that Obama is a Republican in Democratic clothing.
This Real News network interview with Andrew Levine of the Institute of Policy Studies endeavors to shed some light on the increase in US foreign policy aggressiveness. Levine focuses squarely on the fact that, contrary to the Reagan and Bush the Senior administrations, which took pains to handle the USSR carefully, the Clinton Administration showed no respect for Russia’s geopolitical position and repudiated security promises made to Russia.Russia’s reactions to US provocations are entirely predictable.
Levine argues that Obama has continued Clinton policies if nothing else because he has brought so many Clinton operatives into his Administration, starting with Hillary. The talk also extends into other ways that Obama is triangulating among his various financial backers.
One area that this talk does not address is whether and how escalation of global tensions serves the banking industry. On a mundane level, central bank backstopping of risk has produced a low volatility environment which makes for fewer trading opportunities, so a moderate uptick in uncertainty would probably suit financial intermediaries just fine. But on a broader basis, the US has long pressed for financial liberalization of both advanced and emerging economies (the World Bank’s International Finance Corporation spearheaded the latter effort), which was intended to make the world safer and more profitable for US investment banks. The Robert Rubin strong dollar policy was also designed to help US financial firms at the expense of real economy players.
I doubt the bank boosters in the Clinton Administration foresaw that creating larger international capital flows and having foreign banks become more significant dollar currency players could enable the US to use its role in the dollar payments system as a foreign policy weapon. My guess is that the success of sanctions against Iran, in terms of inflicting real economic costs on that economy, demonstrated that finance could serve as a weapon in a way that it hadn’t before (note that in the past folks like Marc Rich, who ironically was pardoned by Clinton for tax evasion, and Adnand Khashoggi made fortunes by arranging barter deals, which showed that past sanctions often were leaky enough so as to be more inconveniently and costly than damaging). A 2011 Bank of International Settlements paper found that international capital flows were over 60 times trade volumes, so do not labor under the misapprehension that the rise in money sloshing around the world is the result of trade liberalization. I welcome reader input on how banking plays in, if at all, in the US shift to a more aggressive foreign policy posture.