Technofeudalism: What Killed Capitalism

by Yanis Varoufakis

Non-American central banks suddenly had no alternative than to use dollars instead of gold as reserves to back the value of their currency. The dollar began to resemble an…IOU. After the so-called Nixon Shock, the global financial system was, effectively, backed by IOUs issued by a hegemon who could decide what the foreign IOU-holders could do with their IOUs – and what they were not allowed to do with them. America was now a deficit country but was nothing like any other deficit country. ‘Normal’ deficit countries, such as France, Greece or India, had to borrow dollars to shore up their currency and to raise interest rates domestically to stop money outflows. America did not need to do any of that. It had, in other words, found the magic formula every empire had hitherto only dreamed of: how to persuade wealthy foreigners, and foreign central banks, voluntarily to finance simultaneously its government and its imports! This is how the Minotaur arose. Rather than sell the world goods, America offered it an alternative use for their dollars: invest them in Wall Street. They had created a mechanism that could recycle Asian and European surpluses (mainly Chinese and German) into productive investments for the USA. With these tributes to the Minotaur, peace and prosperity for all continued – until of course it all collapsed in 2008.