Michael Hudson: Trump Floundering Efforts to Shore Up US Hegemony

Yves here.  Michael Hudson provides a useful update on Trump’s continuing efforts to shore up US primacy in both military and economic spheres via an extract from an upcoming article.  I hate to have to be a stickler, but I am bothered by Hudson taking up the trope that the US will be unable to pay principal and interest on Treasuries. A sovereign currency issuer will never need to default. It can always satisfy obligations in its own currency. It can overspend and generate too much inflation. That will lead the value of its currency to fall in relation to other currencies, reducing the value of that currency  to foreign holders.

The US may choose to stiff creditors, say by force extending maturities of Treasuries. But it can always pay dollar obligations.

And the reason central banks accumulated dollars was in large measure because they set the value of their currencies low so as to run trade surpluses and accumulate foreign exchange reserves. That was deliberate policy across Asia after the 1997 Asian financial crisis. Countries like the Republic of Korea and Thailand went through IMF bailouts and did not want to be on the receiving end of its ministrations ever again. A big FX reserve means that the country can defend its currency on its own without external help during a financial crisis.

Even as late as the Obama Administration, the Treasury was criticized for not designating China as a currency manipulator for running a pegged currency pegged too low relative to the greenback. That charge continued to be made into the 2010s, when China changed to a dirty float policy and allowed  gradual appreciation of the renminbi to make that claim no longer true.

I also must note that SWIFT is not a clearing system. SWIFT is messaging only; clearing and settlement is not a part of SWIFT and in the dollar, happens via Fedwire.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is The Destiny of Civilizatio

The National Security Strategy’s Drive to Shed the Costs of Imposing Its U.S. Unipolar Empire

The one area in which the National Security Strategy makes a claim to be realistic is to recognize that the United States cannot directly be seen to impose its control by force. This task is to be delegated more to client oligarchies and their governments, by assigning responsibility (and most important, the military costs) on a regionwide basis along lines similar to how the European Union’s foreign and domestic political policies have been made subordinate to NATO Cold War policy controlled by the United States.

Replacing at least the anti-Russian rhetoric of Biden’s and the EU’s support for the war against Russia, the NSS proposes dividing the world into spheres of influence for the major regional powers: the United States (monopolizing control of all of Latin America and the Caribbean for itself), Russia (with its Central Asian and other former Soviet republics, including what formerly was eastern Ukraine), and China over mainland Asian neighbors. A Pacific NATO-like arrangement to be shepherded (and financed) by Japan, with India as the wild card. The EU under NATO are dismissed as a waning power with little influence.

This plan is not really a division of spheres of regional influence at all, in the sense that World War II’s 1945 Yalta conference was. It does carve out a uniquely U.S. control over Latin America and the Caribbean. European and Asian countries are to keep away from investing in the major resources of these countries.[1] This is Trump’s travesty of the Monroe Doctrine. That doctrine called for a reciprocity with foreign countries: Europe would stay out of political control of Latin American countries, and the United States would not interfere in European affairs. But U.S. officials had no problem with the newly independent Latin American countries going deeply into debt to British and other foreign creditors who imposed debt dependency, much as France did with Haiti as the price of its buying its political freedom to abolish domestic slavery. The effect was for many of these countries obtained political freedom from colonialism only to fall into debt dependency. But the Monroe Doctrine was only concerned with direct political and military control.

The major U.S. violation of the original Monroe Doctrine has been to maneuvere to control Eurasian affairs. It has meddled in European elections, most notably in Italy and Greece after World War II by mounting right-wing challenges to their rising Communist parties. And it has ringed Eurasia with U.S. military bases and mounted regime change coups. The effect is that U.S. diplomats have been trying for eighty years to turn the entire world into a unipolar U.S. region of influence. But the military and related costs of this effort have been largely responsible for the U.S. balance-of-payments deficit since the Korean War, and also the U.S. domestic budget deficit (at least until the neoliberal tax cuts on the revenue side of the budget). These costs are to be shifted onto foreign countries. And the NSS realizes that the costs are beyond the ability of individual nations to bear. The costs of maintaining the U.S. diplomatic empire must be assigned on a region-wide basis under the leadership of particularly loyal U.S. proxies, much as is the case with NATO countries Europe under British, French and German dominance.

In Asia, U.S. diplomacy relies on the Quad (Japan, Australia, India and the United States) along with friendly governments in South Korea and the Philippines to prevent their economies and those of China and other countries in the region from obtaining oil and gas from Russia, Iran and Venezuela to install military basis ringing China. Much as U.S. neocons are trying to convince NATO allies that these adversaries pose an imminent military threat, Asian countries are being mobilized to support a separatist political movement in Taiwan.

How does the notion of a Chinese or Russian sphere of influence cited by the NSS deal with the problem of who is to control the islands that Japan seized from Russia after its 1905 war, and the string of islands in the China sea extending southward toward Taiwan? The United States has proposed installing missiles and other arms on these islands, as it has done in Okinawa. This interference in the promised U.S. downsizing of its empire actually shifts the costs of military confrontation with China onto Japan and other countries continuing to adhere to the U.S. bloc. Will the Japan’s LDP government agree to fight to “the last Japanese,” as that of Ukraine has forced its population to fight to the last Ukrainian?

Japan has long been viewed as a candidate for establishing its own Monroe Doctrine over China and neighboring Asia on behalf of the United States. A few years ago the United States tried to add Japan to the UN Security Council. Russia opposed this, saying that this was simply giving the United States another automatic vote.[2]Just as U.S. diplomacy has used the NATO-EU and Britain as proxies: against Russia, Japan is to lead the fight against China, while the Trump Administration renews its attempts to stir up an Indian conflict with China.

The NSS strategy seeks to shoehorn Japan into what it proposes to be a five-nation leadership in a coordinated regional diplomatic alliance headed by the United States, with its two major adversaries China and Russia, The aim is to pry Russia away from China by offering to end the trade and financial sanctions against it – and even the promise of U.S. investment in its mineral development (as if this is not Russia’s nightmare, given the history of Michael Khodorkovsky, Browder and their fellow kleptocrats and U.S. sponsors).

Within the Western Hemisphere, the U.S. policy thrust is to block China, Russia and Iran from investing in and supporting Venezuela, Cuba, Brazil and other Latin American and Caribbean countries that U.S. diplomacy aims at dominating by installing or continuing to support its own client oligarchies, kleptocrats and military dictatorships.

Trump’s dream goes beyond getting other countries to support current U.S. industry. His hope is to escalate the Biden administration’s confrontational stance by imposing high enough U.S. tariffs – along with sanctions against Russia and China – to steer other countries to relocate their industry and financial fortunes to the United States. This policy was initiated by the destruction of the Nord Stream pipeline raising European energy prices to make Germany’s auto, steel, glass and other industries no longer profitable. Trump, like Biden, hopes that this will lead major German industrial companies to move to the United States, along with their technology and even much of their skilled labor. But China, with its less financialized and lower-cost economy, is the more attractive place for relocation of German industry, whose companies already have built major steel plants in Wuhan and Shanghai. Ironically, China thus may prove to be the ultimate beneficiary from the Nord Stream affair.

Dedollarization, and Trump’s Drive to Counteract It

To cap matters foreign investors are supposed to keep their savings in the United States, or at least in dollarized investments, and even to shift their stockholdings to the U.S. market. The guiding fantasy is that trade policy and investment inflows by themselves can make U.S. industrial production more competitive.

The United States has become financially dependent on other countries to invest their foreign-exchange reserves in U.S. Treasury securities to prevent the dollar’s exchange rate from plunging as a result of the monetary drain flowing from America’s foreign military spending that has been mainly responsible for its balance-of-payments deficits since 1950 (and which today is supplemented by its spending to import the manufactures that its deindustrialized economy no longer produces).

But now the international financial system has become multipolar as other countries respond to U.S. weaponization of trade and imposition of financial sanctions by decoupling from U.S. dollar. The U.S. strategy of working with its European allies to confiscate Russian and Venezuelan official monetary reserves held in Belgium’s Euroclear system (in the case of Russia’s reserves) or the Bank of England (in the case of Venezuela’s gold) has undermined confidence in the dollar as a vehicle for holding foreign-exchange reserves and the United States and Europe as places in which to hold official monetary savings. Germany asked for its gold holdings in the United States to be physical returned to it, and other countries are refraining from increasing their holdings of central-bank monetary reserves in dollars (and now in euros in light of Euroclear’s seizure of Russian savings).

Dedollarization is a defensive policy to avoid the U.S. weaponization of international finance and banking. Most central bank dollar holdings since the 1970s have been in the form of U.S. Treasury securities. But in addition to the U.S. weaponization of the dollar, there are rising worries that America’s rising foreign debt and dangerously debt-leveraged domestic economy may make these Treasury IOUs ultimately unpayable.

So the world trend toward dedollarization is proceeding on two fronts. On the one hand, countries are settling their trade balances by trading in each other’s currencies, and holding such currencies in their foreign-exchange reserves in accordance with swap agreements. This avoids the exchange-rate for such payments. In addition, countries are holding a rising proportion of their monetary reserves in gold as a long-established international standard for settling payments balances instead of buying U.S. government bonds and notes, or even leaving their gold reserves on deposit with the New York Federal Reserve or Bank of England.

The United States itself has been the great catalyst in forcing the shift to trade in non-dollar currencies. The Bank of England has confiscated Venezuela’s gold holdings kept in Britain as collateral to back its foreign-exchange credit to support its exchange rate. A few years ago Germany asked for its gold reserves to be returned from the United States. It seems that there has been some stalling in this, as financial reporters have been unable to find any information on how much gold has actually been transported back to Germany. It has become obvious that physical ownership is needed as protection against U.S., British and EU confiscation, especially since the EU has frozen Euroclear holdings of Russia’s foreign-currency reserves held in Belgium and other countries under NATO control.

Another dynamic driving countries to withdraw the dollar-centered financial system has been the U.S. threats to abruptly exclude them from being able to process bank payment transfers through the European SWIFT bank-clearing system. Russia was excluded in February 2022 when it started its special military operation to protect Russian speakers in eastern Ukraine. The aim was to paralyze its ability to process trade and investment payments. But Russia survived, of course. And a benefit to other countries shifting away from this Western system is that China has created its own electronic payments system, which charges lower fees for processing payments and exchange-rate fees for trade and other payments other than in dollars

            But on the deepest level the greatest threat to dedollarization is that the dollars that are being pumped into the international economy are largely the result of America’s foreign military spending. Nations that hold U.S. Treasury securities as the main component of their central bank reserves provide an international free lunch for the United States. When gold ceased to be a politically acceptable vehicle for holding foreign-exchange reserves after the United States stopped settling its deficits in gold in 1971, the world’s central banks had no alternative to holding their foreign-exchange reserves the form of U.S. Treasury bills, notes and longer-term bonds.

What made this arrangement so predatory was that by holding central bank savings in U.S. government debt, , other countries have been financing the U.S. military spending that has been surrounding them with bases and also U.S. regime change activities. Instead of selling gold or other assets to finance its balance-of-payments deficits as other countries have to do, the United States has been able to pay for this foreign military spending – and increasingly also the industrial imports of products that it no longer produces at home – simply by issuing IOUs.

Until recently there has been seemingly no limit to this exploitative unilateral “exorbitant privilege.” Yet President Trump has floated the suggestion for a Mar-a-Lago Accord in which foreign government holdings of dollar reserves should be converted into hundred-year notes, avoiding any pressure for the United States to redeem these dollars in the foreseeable future.[3] As President Nixon’s Treasury Secretary, John Connally, quipped at a meeting of European finance ministers shortly after the United States went off gold, “It’s our dollar, but your problem.” The present U.S. position is to tell foreign central banks and other dollars to trade U.S. government IOUs among themselves as means of payment, but that actual requests for meaningful redemption will be viewed as an unfriendly act.

            The increasing risk of holding international savings in the form of U.S. dollar debts has led countries to return to gold as a politically safer settlement vehicle. That is why its price is rising. China has not reduced its dollar holdings by much in quantitative terms, but all the increase in its foreign reserves have been in the form of gold and the currencies of its major trading partners, or capital investments in the countries of its Belt and Road initiative – its port development and other internal Asian transportation, and even the Panama Canal and Middle Eastern and European ports. It seems likely that capital investments in non-Western economies will be added to the repertory of non-dollar options in which China and other governments central banks can hold their international capital reserves.

Trump’s drive to attract foreign financing to the U.S. debt market via cryptocurrency

In seeking to counter other countries’ moves away from the dollar, the most recent U.S. tactic is to try to surreptitiously get other countries to hold dollars by persuading them to invest in stablecoins – cryptocurrency that is invested in U.S. Treasury securities, not bonds of China or other countries. That would support the dollar’s exchange rate. Martin Wolf in the Financial Times points out that the largest holder of U.S. debt no longer is Japan, but stablecoin. Wolf’s fellow Financial Times columnist Gillian Tett has cited Standard Chartered bank’s prediction that “the stablecoin sector will grow from $280bn to $2tn by 2028.”[4]

The problem is that rising interest rates would reduce the price of the U.S. bonds in which stablecoins are invested, leading to negative equity. Investors would sell off their holdings, moving funds out of the U.S. economy and its dollar. The Trump Administration has raised this risk by exerting pressure to prevent regulation of cryptocurrencies as financial securities by the Securities and Exchange Commission and other oversight agencies. This deregulation (“clearing away the bureaucracy”) increases the risk of defaults as market declines cause insolvency by banks that make loans backed by stablecoins. They are not regulated, are not transparent, and their valuation tends to swing wildly, as that of bitcoin has shown with its fall of over 20% in recent months.

And a major aim of cryptocurrencies is, of course, to facilitate tax evasion and criminal activities through libertarian “privacy” (that is, secrecy from public authorities) and criminal management of such currencies themselves. The Trump Administration’s support for cryptocurrencies actually is a new version of the U.S. drive to promote offshore banking centers in the 1960s.

At that time I was working at Chase Manhattan Bank and asked to estimate the balance-of-payments inflow to the dollar from U.S. moves to attract the world’s criminal income, kleptocratic embezzlement and flight capital to such locations. U.S. banks were urged to set up branches in the Caribbean and other such centers to provide safe havens for tax evaders, embezzlers, other criminals, kleptocrats and government officials to attract their “hot money” to help offset the U.S balance-of-payments deficit. Inasmuch as criminals traditionally are the most liquid business class, they are a natural target for attracting monetary inflows.

The analogue of such havens today is cryptocurrency such as stablecoin, whose sales proceeds are invested in U.S. Treasury securities as a means of attracting foreign savings to the U.S economy to support the dollar. The hope, of course, is to avoid a selloff of such cryptocurrency leading to sale of Treasury bills and bonds, driving the dollar’s exchange rate down and interest rates up.

[1] The most notable recent example is Venezuela. Trump’s insistence on monopolizing and privatizing control its oil has led him to block Chinese and Russian investment and military support, just as Trump is insisting that China divest itself of its Panama Canal port development.

[2] General Douglas MacArthur used the Japanese criminal gangs to fight the socialists to prevent a socialist government from gaining office in Japan. The NDP is a U.S. satellite, willing to sacrifice the country at the Louvre and Plaza accords in the 1970s.

[3] The proposal was designed by Stephen Miran, the head of Trump’s Council of Economic Advisors to arm-twist “allies to hold century bonds (100-year Treasuries) as a condition of continued U.S. security support.” See Mario Solovievo and Andrew Foran, “The Non-Starter Playbook of the Mar-a-Lago Accord,” https://economics.td.com/us-mar-a-lago-accord, May 1, 2025. All this requires a constant hundred-year belief that Russia, China or other adversaries pose an imminent military threat to European and other holders of such securities out of fear of losing U.S. protection against such imaginary aggression.

[4] Martin Wolf, “Why we should worry about stablecoins,” Financial Times, December 10, 2025,