It’s important to look at the link between what post-Keynesians call ‘high-powered money,’ and the military, imperial militaries in particular. The Bank of England for example, was created by a loan to King William III to fight a war in France. He then granted the bankers who lent him the money the right to take the money that he owed them for his war debt and monetise it, to take that debt and lend it to other people in the form of bank notes. That’s what bank notes actually are, why if you take a tenner from your pocket, it has a picture of the Queen, and next to it, ‘I promise to pay’ the bearer the sum of ten pounds. It’s not ten pounds. It’s a promise.
Since 1972 when Nixon went off the gold standard, the world reserve currency has been the US dollar, but what ultimately backs the US dollar? People say nothing, it’s ‘fiat money’ but I don’t think this is true. It’s a credit system based on the circulation of debt. Of course the US has the enormous advantage of being able to write checks that are never actually cashed: US treasury bonds have become the basic reserve currency for the central banks and as Michael Hudson originally pointed out, most of these American treasury bonds are never really cashed in. They’re rolled over year after year to buy new ones, and these holders are taking a loss on them as they pay interest lower than inflation. So why are they doing that? Well, if you look at the size of US deficit it corresponds almost exactly to the real saw military budget. If you look at graphs showing the growth of the US deficit, and the percentage of it held overseas, and the US military spending—basically, you see almost exactly the same curve. So basically, foreign governments and institutional lenders are buying US treasury bonds and paying for this enormous military spending. So, who are the guys doing it? Well during the cold war it was especially West Germany, now, apart from China, the most important are places like Japan, South Korea, Taiwan, the Gulf states. What do these states have in common? They’re all covered in US military bases, or under US military protection. The US is borrowing the money to create these military bases from the very countries that the US military is sitting on top of. In the past, such arrangements were called ‘empires’ and the money sent over was referred to as ‘tribute.’ Now apparently your not allowed to use that language, so it’s called a ‘loan.’ Nonetheless, that link between the military and the core of the financial system remains, it’s the thing we’re not supposed to think about.
In a way the language we use to describe this in the US or UK is self-evidently absurd. We talk of ‘trade deficits,’ i.e., ‘oh for some reason, people all over the world send us stuff worth far more than anything we send them. Isn’t that a problem?’ If you suggest this has anything to do with the fact that the countries that seem to be getting the inflow of goods (and not getting in trouble for it, anyway), are those which also are massive military powers bestraddling the world, people look at you as if you’re practically lunatic fringe. On some level, of course, everyone does have to admit there’s a link between who is a military power, who consumes the bulk of the world’s resources, and whose money just happens to be the world reserve currency, but it’s somehow taboo to try to work out exactly what those connections are.
- David Graeber, from this interview. The interview is wide ranging and the best interview with Graeber I've read to date.