The next monetary war according to James K. Galbraith

by Mario Lettieri and Paolo Raimondi

James K. Galbraith's analysis of the upcoming monetary war in the article by Mario Lettieri and Paolo Raimondi

"Will the United States survive the rise of a multipolar world?" This question of strategic importance is not posed by some opponent of US policy, but by a leading American economist, James K. Galbraith. It reflects a very broad debate going on in the US. And that's not all.

Galbraith is the economist at the University of Austin in Texas, known for drafting the first legislative plan to save New York City from bankruptcy in 1975. He is the son of John Kenneth Galbraith, a close collaborator of many American presidents, starting with F. D. Roosevelt, for whom during the Second World War he implemented the policy of price control. A topic that is being discussed so much even today!

To the question, formulated in an article published by the Institute for New Economic Thinking, James Galbraith responds positively but adds, "not without a political upheaval, stimulated by inflation and recession and by a stock market falling in the short term and, finally, by demands for a realistic strategy in tune with the current global balance of power".

He states that "so far the dollar-based order has been supported mainly by instability elsewhere and the lack of a credible alternative." That's why U.S. Treasuries have always remained the primary safe-haven asset, even in the subprime mortgage crisis.

Today, China's economic engine, increasingly linked to Russia and the gravitational pull of the world's largest demographic, productive and commercial region, represented by the Eurasian Economic Union and the Shanghai Cooperation Organization, could become the challenge to the dollar-based international order. This is not yet the case for Galbraith. Despite China being the largest trading nation, it "plays neither the global financial nor the security role and has no obvious ambitions in this regard."

He expects China to work to "set up bilateral or multilateral payment mechanisms, with available partners, that circumvent the conventional means of the dollar." It will, however, be inevitable that the question of an alternative to the dollar reserve will be raised. In addition to the role of gold, "an international financial asset will emerge, composed of a weighted set of securities of the participating countries, as for the Eurobond ... In the reality of Eurasia, this means a bond based predominantly on the Chinese currency.

According to Galbraith, US experts have an incorrect view of Russia, anchored in Yeltsin's time. He states, with a certain irony, that "with the support of China, Iran, Belarus, Kazakhstan and the studied neutrality of India, a new international financial system is being created. It is the creation in a sense, not of Russia itself, but of the main political leaders and strategic think-tanks in the United States." His prediction is that the dollar-based financial system, with the euro acting as a junior partner, is likely to survive for now.

But there will be a significant no dollar, no euro zone, cut out for those countries, which the US and the EU consider adversaries, primarily Russia, and for their trading partners. China will act as a bridge between the two systems: it will be the staple of multipolarity. "If tough decisions were to be made against China, then a real division of the world into isolated blocs, as in the Cold War, would become a possibility."

Galbratih concludes his analysis by warning that "the next turning point in global financial tightening will come in Europe, particularly in Germany, when the implications of high energy prices and perpetually scarce supplies become apparent. Germany's competitiveness is linked to Russian raw materials and Chinese markets; its political and financial ties are with the Atlantic Alliance.

It is hard to believe that Germany permanently subordinates its industry, technology, trade, and general well-being to Washington and Wall Street. The tension between economic and political forces can only grow over time, leading it either towards deindustrialization or towards a new relationship with the Eurasian East: a new Ostpolitik.

We believe that the questions posed by Galbraith should, in truth, first of all urge the UN as a representative of as many as 192 countries to address the problems, not only financial, that concern a new multipolar overall order.                             

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