"These Are the Mistakes a Dying Empire Makes"

Glenn Diesen
Welcome back. We are joined today by Professor Richard Wolff to discuss ​“Economic Fury,” the new arm of the U.S. war against Iran.

Richard Wolff
Glad to be here, Glenn.

Diesen
[Treasury Secretary] Scott Bessent has now complemented [“Operation Epic Fury”] with ​“Economic Fury,” the sanctions policies against Iran. It’s been a bit confusing, because first there’s a sanction on all Iranian oil, then they open up the Iranian oil to help stabilize the markets. Then there’s a blockade on Iranian ports. How do you assess this new effort to strangle Iran?

Wolff
Well, we have stopped following the kind of herky-jerky, on-again off-again statements, because they are so often inconsistent one with the other. Either you are going to take the steps that make oil supply more plentiful and drive down the price, or you’re not. 

By the way, Mr. Bessent is now going to have to decide on the request of the Gulf states for what are called dollar swaps. This is not unimportant. The reason you establish [a dollar swap] is you have reason to believe that there’s going to be a shortage of dollars. 

All the swap means is that a foreign central bank doesn’t have to go into the market and buy dollars if it’s short of them. It can simply grab a bunch from a swap agreement. It used to be that this was done on a weekly basis. Now it is done on a daily basis, which is already a warning sign: Somebody is very worried about access to dollars. 

You discover who’s worried, which shouldn’t surprise you: The Gulf states. Many of them have now put pressure on the United States to give them credit swap facilities, or if they do have them, to make them much larger. 

Why would they do that? They have dollar-denominated debts. They expected to be able to pay off their dollar-denominated debts around the world, with the dollars coming in from oil and gas. But there are no dollars coming in because the Strait of Hormuz is shut, and the blockade makes it worse. So they can’t pay off their debts.

I’m going to guess that they’re going to start selling their ownership of [U.S.] assets. They’re going to sell Treasury securities. A fire sale of Treasury securities brings their price down, and that raises the interest rate. 

We are on the edge of a recession right now. If the Gulf states, en masse, were to sell lots of treasuries, you’re going to see a dangerous spike in interest rates in this country at a time when the Trump administration wants everything other than that. 

You’re beginning to see why a significant number of commentators are waving their fingers warning that this event, which seems to be localized in the Persian Gulf and the [Arabian Sea] and so on, is in fact, dangerous for the whole world economy. 

Diesen
So essentially, the petrodollar is being unraveled to some extent. The Gulf states are not exporting, which means they’re not getting the dollars, which means they’re not reinvesting them into the United States. 

How long can the United States hold on to this position? 

Wolff
I don’t have a crystal ball. But Mr. Trump has lost a great deal of his base. People who voted for him because of one or two or three issues — those people, he has now lost. Trump cannot afford a spike in interest rates. He is, at this point in my judgment, relying on two things to survive politically: Whatever remains of the MAGA base, and the richest 10% of the United States. 

The stock market is very high. It took a momentary dip with the Iran war, but it basically presumes that this war will be over soon and it will not cost any rich person anything. 

Therefore, Glenn, here is the closest I’m going to come to a prediction. My guess is the government will give the states all the swap they want, give them access to as many dollars as they need to pay off as many debts as they have without selling treasuries or disinvesting in the U.S. stock market, because it’s too dangerous. 

They told themselves that they could go into Iran and decapitate the Ayatollah and kill a few other leading generals and advisors, and that the system would collapse. [The] United States could then dictate terms for a new government, regime change and a new Shah of Iran, replicating more or less what the Shah of Iran used to do for the United States.

There’s a clip of Vance [almost] a year ago talking about war in Iran. It has Vance explaining why going into the war with Iran is a good idea. A very strong endorsement by the vice president, in which he says [something like] the following: Previous presidents all knew that Iran was a disaster for the United States, but they were too dumb to do anything about it. The difference is, Trump isn’t too dumb, and we’re going to do it when, well, Obama didn’t and Bush didn’t, and Clinton didn’t, and we’re going to do it. 

That’s why, when Tulsi Gabbard and other intelligence officials told them they were wrong about Iran, they just didn’t listen. It was too attractive. And now the on again, off again oil management. This is a desperate government whose plan is shot, whose opportunities in that direction are all gone, and it’s trying desperately to figure out how to get out of this.

For several months, they would kill two or three people in a boat near Venezuela. No arrests, no trial, no lawyer. When we arrest people for drug traffic, which we do inside the United States, they automatically are entitled to a lawyer, a trial, to defend themselves. So here we have a complete negation of the entire legal apparatus, and that is too much for a significant number of people who otherwise would like Trump, but they can’t go with this.

Diesen
If the war continues, the United States will suffer immensely. However, if Trump leaves, and the Strait of Malacca is under Iranian control then Iran has already announced its measures. It has now set up a toll which it will get its reparations from, so it can rebuild from the U.S. attack. No matter what the United States does now, there’s no going back to the way things were.

Wolff
Trump has declared that the assassination of the Ayatollah equals regime change. He’s made that simple equation so he can repeat over and over again. He is going to overwhelm the media.

He’s probably going to have some dramatic maneuver that he can sell as a victory. There’ll be some Marines who take over an island somewhere in the Persian Gulf. At the same time, you and Israel bomb a few bridges, an electric plant, maybe a desalination plant, who knows? And then say, The Iranians have asked us to have peace, and now that there’s a new regime, we change the regime and we punish them.

That will be the best he can do. Tucker Carlson isn’t that stupid, nor is Marjorie Taylor Greene, nor are all the others who are critical. So he will suffer. But that will be the comic book story that will be told to large numbers of people – even those who don’t like him– because it conforms. Let me give you the proof: When I travel around the country, and I’m asked to give a talk about the 20^th and 21^st century U.S. economic development, I mention the war in Vietnam. ​“In 1975, the war ended. The United States lost, and the Communist Party of North Vietnam won. And how do you know they won? Because they’re the ones in charge of Vietnam now, and that’s a big clue.” The students laugh, but I would bet my money that more than half of the students in the room, if asked by questionnaire in the next 10 minutes who won the war in Vietnam, they would answer the United States.

It’s not because they never studied the war, it’s that in the United States, America wins. When the President of the United States says that ever since World War II, the European nations have taken advantage of the United States, that’s what most Americans probably believe. We won World War II, then the Marshall Plan was our extraordinary kindness in helping you over there rebuild after the war, and some of those debts you haven’t even paid back. And when I explained to people that the Marshall Plan required that the dollars given to Europe be spent on American exports, and therefore it was a kind of Keynesian stimulus, they know what I’m saying, but they don’t want to go there. They resist. That’s what I think he’s going to do. He’s going to play the one hand he has left: the American desire for a victory.

Diesen
The history in Europe isn’t always well-remembered. There’s very interesting polling in France from 1945. They asked who was mostly responsible for defeating Nazi Germany, and there’s an overwhelming majority saying that was the Soviet Union. In 2018 only 15% of the French believed that it was the Soviet Union who contributed the most. If you challenge this, people will go to great lengths to ignore it. 

Wolff
We have a senator from Alabama, Tommy Tuberville. When he ran for office, he gave a speech saying he was proud of his father, who fought in World War II against the communists, and he had to wait until the reporters explained to him, the communists were our allies. Fascists were the enemy.

Diesen
Do you see any ways of saving the petrodollar where we are now?

Wolff
The way I make sense of the larger context of what’s going on is the decline of the American empire. You go to war in Iran, you think it’ll have no more effect than snatching Mr. Maduro and his wife from their bedroom, you’re making unbelievable mistakes. In my judgment, those are the mistakes a declining empire makes, and those are the mistakes that accelerate the decline. The dollar is not playing the role it once did. The Iranians are accepting payment not in dollars anymore for oil. I don’t see any reason to suspect that other countries won’t do that. I don’t see any strategy in the United States that can cope with that. 

The promise of the last 10 presidents was to reverse the decline of American manufacturing. None of them delivered it. Mr. Trump is not delivering it either. Manufacturing is being handled by China and a few other places. In China, inflation for the last several years has been less than 1%. They are producing enough material that they can produce drones and missiles forever. They have an immense border with Russia so they can share all of that with Russia. And Russia has the Caspian Sea, which allows it to share it with Iran. Of course Iran isn’t going to run out. If Russia and China help, which they are, you have to face that. Venezuela had none of that. And for me, these are symptoms of a declining empire whose people have never been prepared to imagine that their empire would decline. The United States is at the top, and so it will be forever. Once you lay it out, it’s so crazy that you realize the denial is also a part of the decline.