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What insight does U.S. sovereign debt offer to
the study of the globalisation process?
A dissertation submitted to the University of Manchester for the degree of Master of Arts in the
Faculty of School of Social Sciences
2015
Omar Ghulam
School of Social Sciences

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List of contents
Abstract - 3
Declarations - 4
Intellectual property statement - 5
Introduction - 6
Interrelations of the state, labour and capital in existing globalisation literature - 10
Historical timeline - 13
Theoretical framework of the dissertation - 30
Part three - 34
Conclusion - 46

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Abstract
The study of globalisation has grown fundamentally since the increased encroachment of
global capital into the domestic terrain of sovereign nations. Many scholars have written on
what this amorphous process means for the various actors such as the contemporary state,
global capital and collective labour. Though undoubtedly crucial to forming a clear
understanding of globalisation, this paper proposes that a further factor can help provide an
illuminating insight into the origin, consolidation and the future of the globalising process. I
propose that U.S. sovereign debt, specifically the United States Treasury security, has been a
fundamental player in the formation of the economic reality witnessed worldwide today. I
make the further claim that the global financial edifice which plays such a crucial role today
is pinned on the ‘risk-free’ foundations of the U.S. Treasury security.

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Declarations
I declare that no portion of the work referred to in this dissertation has been submitted in
support of an application for another degree or qualification of this or any other university
or other institute of learning.

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Intellectual property statement
i. The author of this dissertation (including any appendices and/or schedules tothis
dissertation) owns certain copyright or related rights in it (the“Copyright”) and s/he has
given The University of Manchester certain rightsto use such Copyright, including for
administrative purposes.
ii. Copies of this dissertation, either in full or in extracts and whether in hard orelectronic
copy, may be made only in accordance with the Copyright, Designsand Patents Act 1988 (as
amended) and regulations issued under it or, whereappropriate, in accordance with
licensing agreements which the University hasentered into. This page must form part of any
such copies made.
iii. The ownership of certain Copyright, patents, designs, trade marks and otherintellectual
property (the “Intellectual Property”) and any reproductions ofcopyright works in the
dissertation, for example graphsand tables (“Reproductions”), which may be described in
this dissertation,may not be owned by the author and may be owned by third parties.
SuchIntellectual Property and Reproductions cannot and must not be madeavailable for use
without the prior written permission of the owner(s) of therelevant Intellectual Property
and/or Reproductions.
iiii. Further information on the conditions under which disclosure, publication
andcommercialisation of this dissertation, the Copyright and any IntellectualProperty and/or
Reproductions described in it may take place is available inthe University IP Policy

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Introduction
The scholarship on globalisation has spawned vast and indispensible literature illuminating
key changes within the economic, political, social as well as gendered spaces. The volume
notwithstanding, the critical perspective on globalisation, or the critical school of thought in
general, has chosen to study the nebulous phenomenon within a strict bandwidth. To
elaborate further, the amassed literature focusing on globalisation has concentrated its
efforts in a trilateral interplay between global capital, collective labour and the capitalist
state to excavate the internal logic of the globalisation process. This dissertation proposes
that a further variable, namely U.S. sovereign debt, is a kindling puzzle-piece that can add
generously to the globalisation discourse. Firstly, it’s crucial to admit humility when issuing a
proclamation of the sort I have. It’s fundamentally true that an observer cannot objectively
capture an externally-unfolding phenomenon, or a set of phenomena arising therefrom.
Quite simply, any phenomena can be recast in innumerable perspectival angles that can
equally generate valuable insights. For example, whereas Kindleberger’s (2013) highly
finance-centred account of the Great Depression presents an invaluable insight into its
historical reality, the account presented by Davis (1975) opens up a corresponding
sociological insight that hitherto remained under-research or all together benighted. In
other words, multiple accounts of a single phenomenon (such as the Great Depression or
globalisation) need not be mutually exclusive. Similarly, my dissertation doesn’t propose
that by failing to venture past the trilateral interplay of state, capital and labour the overall
body of scholarship on globalisation must be markedly revised, or worst, redrawn. I am
arguing however that the study of debt, in particular U.S. sovereign debt, is a highly
pertinent variable that is inextricably linked with the nebulous phenomenon of

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globalisation. As a result, this dissertation is best qualified as a theoretical piece. However,
this paper has no particular meta-theoretical bone to pick with any singular perspective on
globalisation, such as the Marxist or Post-structural traditions. What I am debating is the
very conceptualising of globalisation as a tug-of-war between the nodalities of state, capital
and labour. The incessant and silent battles occurring between these three actors are no
doubt indispensable to grasping the morphing economic, social and cultural shifts into what
Harvey (1989) dubs ‘postmodernity’; but they also risk a depthless, surface-view analysis of
globalisation that omit tectonic, structural factors. One such structural factor I claim is U.S.
sovereign debt. Hence, I claim that the global proliferation of U.S. sovereign debt permits an
important viewpoint on how the globalisation process first formed from its embryonic post-
war genesis, how it became consolidated, and where its future lies.
It’s important to clarify what is meant by U.S. sovereign debt. The U.S. Treasury periodically
holds auctions whereby it issues its securities to both private and public entities (Hudson
2003). Individuals then purchase the issued securities for a specified amount (say $1000) on
the legally binding agreement that the holder of the security is to receive annual interest
payments for a pre-specified number of years (Hudson 2003). Therefore, a five-year
Treasury security implies receiving a market-determined rate of return for five years, after
which the legal holder of the U.S. Treasury security (USTS) recovers the initial principle
amount, i.e. the initial price of the USTS (the $1000 paid five years ago). A USTS is therefore
a contractual agreement between the U.S. Treasury and the legal entity holding the title to
the Treasury’s prospective tax-revenue (Hudson 2003). It is my argument that studying
globalisation through the prism of (sovereign) debt one is allowed a more structural account
of how the process began, and where ultimately it’s heading. Simply, this dissertation is an

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attempt to kindle a nuanced perspectival gap, an additional proverbial window to gaze into
the structure of globalisation.
Before I proceed, I will briefly mention Sarai’s (2008) article that has served as the primary
inspiration for this paper. Sarai (2008, p.72) cites a prominent report by the International
Monetary Fund (IMF) which claims that “the U.S. Treasury market is the largest, deepest
and most liquid financial market in the world with US$ 4.84 trillion of securities and on
average US$ 531 billion transactions carried out by primary dealers daily”. The IMF report
claims further that the USTS is an integral ‘building block’ for the global financial markets
that allocate infinitely mobile capital from the numerous international financial centres in a
single blink of an eye (Sarai 2008, p.72).The report goes on to specify the attendant roles
that enable the USTS to function as the structural sinew of the globalising edifice. The roles I
will focus specifically on are the USTS’s role as a “functional substitute for bank deposits”, as
well as a “risk-free international near-money which provides an ideal safe haven for
investors during any period of instability in the financial markets” (Sarai 2008, p.72). As will
be made clearer in the historical timeline, both functions of U.S. Treasury debt served to
prevent widespread panic in global financial markets as a result of spectacular banking
failures in the newly-forged regime of floating exchange-rates. By absorbing these severe
global contagions, the financial centres of the major economies began to integrate with the
confidence that the Federal Reserve would further internalise (and privatise) any further
global market meltdowns. Moreover, the USTS served as a global reserve currency that was
able to draw newly emergent capitalist nations (such post-war Europe, Japan and now
China) into what Michael Hudson (2003, p.3) has titled the ‘U.S. Treasury bill standard’. By
internalising these payments-surplus nations into its orbit, it was able to halt the dollar-gold

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convertibility and instead issue its Treasury debt to settle international accounts; in other
words, it was able to sell its sovereign debt in return for the goods and services of other
surplus nations (Hudson 2003). I argue that the growth of U.S. sovereign debt is the
embryonic formation of the globalising phenomenon. I shall presently outline the structure
of the dissertation below.
I will firstly outline examples of globalisation literature focusing on the interplay of each
specific nodal relation (either between state, capital or labour); having done that, I will
present my cursory case as to why the build-up of debt is congruous with the globalising of
distinct national economies. The second part of the dissertation will provide a historical
timeline which will highlight the formative historical developments that enabled the process
of so-called ‘globalisation’. Within the historical timeline, I will focus on the aspects of post-
war history that shaped U.S. sovereign debt as the primary molecular blocks that wrought
the requisite monetary conditions compatible with globalisation. Furthermore, I will
proclaim the USTS as the single most formative debt-instrument that lay the groundwork for
the neoliberal globalising mission after the dissolution of Bretton Woods arrangement in
1973, when currency values were determined by private markets (Sarai 2008). After doing
so, I will explicate the theoretical position of this dissertation as being drawn heavily from
David Harvey’s formative work ‘The Limits to Capital’ (1982). Following on, the third part will
provide a more in-depth argument as to why debt, especially the USTS, will provide fruitful
avenues of critical scholarship in years to come. Of mentionable importance will be the role
of debt as debt-instruments employed by both private and sovereign entities, and the
attendant implications of these highly mobile transactional instruments on immobile
productive capital that is territorially fixed. To laser point my analysis, I shall mainly

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concentrate on the nodal interaction between global capital and collective labour, and
argue that the proliferation of corporate debt and the installation of a global market-
friendly investment infrastructure (underpinned by the dollar as the global reserve currency)
is a highly useful vantage point for comprehending the process, and the future, of
globalisation. To stress, I highlight the inherent tension between the immobility of fixed
productive capital and the instant, supersonic mobility of debt-instruments as a rationalising
lens to understand the interrelation between capital and labour. I shall now proceed to
outline the existing literature on globalisation that focuses on the interplay of state, capital
and labour.
Interrelations of the state, labour and capital in existing globalisation literature
The nodal interrelation between collective labour and the capitalist state is well captured by
Jessop (1999) who claims that the tendencial trajectory of globalisation is the transmutation
of the capitalist state from the Keynesian welfare state to a Schumpeterian workfare state.
The fundamental difference he cites between the two is the erosion of public welfare
provisions due to the presence of the omnipresent financial markets that discipline any
fiscally generous or profligate government (Jessop 1999). Inspired by Jessop’s work, Wiggan
(2007) writes that the contemporary Schumpeterian state requires greater efficiency
between the various welfare agencies, such as the Job Centre in the UK, through enhanced
coordination. Wiggan (2007) continues that the means of more efficient coordination
among welfare agencies is the creation of further state institutions that will be able to deal
with the rising complexity of a more liberalised national economy. For Wiggan (2007),
globalisation is the reconfiguration of state agencies and institutions so as to minimise the
disruptive gyrations emanating from the external global markets. However, Roberts and

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Devine (2003) argue that globalisation poses a serious threat to the wellbeing of the
exposed British workforce to the international violence of market forces. Akin to Jessop’s
(1999) argument, they propose that globalisation is in actual fact a “hollowing out of the
[Keynesian] welfare state” so as to vaunt a national commitment to a dynamic, self-reliant
and neoliberal economy and retain a crucial competitive advantage over lesser ‘globalised’
and neoliberal” economies (Roberts &Devine 2003, p.311). Roberts and Devine (2003,
p.312) associate globalisation with the devolution of “[state] powers to local agencies,
upwards to global bodies and sideways to inter-regional organisations”; the previously
centralised and universal Keynesian welfare state assigned to insulate the domestic
workforce of Depression-style economic troughs was increasingly rendered obsolete in a
hyper-market world economy.
Along similar lines, Rhodes (1994) cites the encroachment of global capital into the intimate
democratic apparatus of a representative parliamentary democracy. Rhodes (1994) claims
that the truly ‘global’ capital of today causes an undesirable and irreversible democratic
deficit stemming chiefly from the devolution of sovereign power to supranational
governance entities. He argues further that the democratic deficit is derivative of “the loss
of functions by British government to European Union institutions” as well as “the loss of
functions by central and local government departments” (Rhodes 1994, p.139). Simply,
Rhodes (1994) believes that the palpable demise of the strong, central state is symptomatic
of the rising infiltration by foreign capital that is able to supersede the local judicial
arrangement. Countering Rhodes, though still beholden to the trilateral paradigm, Holliday
(2000) argues that although the modern state is fragmenting, the fragmentation process
itself should not be viewed as a demise of a state’s sovereignty or coordinative abilities.

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Instead, Holliday (2000, p.173) claims that the on-going decentralisation of the state enables
vital bureaucratic agencies to specialise in their specific tasks, and thereby attaining
considerable efficiency gains as “the British core is fragmented; but that’s because it has
chosen to organise itself into distinct areas of business”. Bell and Hindmoor (2009, p.132) go
a step further and argue that despite the visible changes manifesting in the composition of
the capitalist state, its unwavering resilience is an ominous testament which rebuffs the
charge that “markets – or major players within them, such as business interests – have
replaced hierarchy as a key mode of governance”. Similarly, Panitch and Gindin (2005) are
vehement proponents of the thesis that the globalisation experiment/phenomenon is a
concoction devised by the pragmatism and willingness of the leading capitalist states, most
notably the U.S. government, after the unprecedented secular stagnation and rampant
inflation of the mid-to-late 1970s. All in all, the above authors place the loci of
globalisation’s genesis in the tension between the capitalist state and the global capital.
The remaining nodal relation between capital and labour is perhaps the most uniformly
treated in globalisation scholarship. Succinctly, the rise of globalisation has heralded the
decline of labour. Writers such as Harvey (2011), Bellofiore (2011), LeBaron and Roberts
(2012), have each captured that bleak reality, and further excavated crucial patterns in the
relative decline of labour. Apart from the stagnating/declining real wages despite rising
productivity, labour participation has swelled since the onset of the neoliberalism by the
inclusion of women in the labour force, thereby heightening the ‘double shift’ problem
faced by many women whose labour must extend across public as well as private and
domestic spheres (Orhangazi 2011). LeBaron and Roberts (2012) tackle the crucial issue of
indebtedness arising out of lower purchasing power and burgeoning costs of living and

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reproducing ones labour power. Further declines are seen in the evisceration of vital labour
concessions such as secure working contracts that enable future planning, and waning job
security in the face of falling profits (Orhangazi 2011). As will be covered in the third part,
the relative plight of labour can be viewed as one of spatial and territorial discord to the
global debt markets that are not constrained spatially due to instant mobility. I shall now
commence with the historical timeline that will expound how debt has shaped the
configuration of the globalisation phenomenon.
Historical timeline
Within the construction of the timeline it’s crucial to acknowledge the empire-ambitious
spirit of the post-war US administration spearheaded by Dean Acheson, as opposed to the
strictly state-centric conception of the post-war regime where national autonomy is viewed
as paramount and inviolable (Panitch and Gindin 2013). One of the most manifest
manoeuvres of the Roosevelt administration was the signing of the Lend-Lease agreement
between the ascending US empire and the descending Imperial throne of Britain (Hudson
203). Even prior to the end of the war in 1941, the U.S. presented the UK with Article VII of
the Land-Lease Agreement which effectively dismantled the Imperial Preference Trade
system (that arose as a response to the protectionist doctrine of the interwar period) for
future penetration by the burgeoning American export sector. Article VII of the agreement
urged for “the elimination of all forms of discriminatory treatment in international
commerce; and the reduction of tariff and other trade barriers”, which led Keynes to hail
the agreement as “the end of the British Empire Preference” and the Empire as a whole
(Hudson 2003, p.123). Further US imperial ambition is evidenced by the Marshal Plan which
from the outset was conceived as re-sculpting of the razed European economies in the

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image of its American patron (Panitch and Gindin 2013). Immediately upon the arrival of key
US personnel, such as the undersecretary of state for economic affairs William Clayton,
‘essentials’ were laid before their European counterparts if the preliminary estimate of $28
billion were to be transferred (Behrman 2007). Clayton’s ‘essentials’ had a character
somewhat akin to the Structural Adjustment programs attendant with the IMF’s treatment
of potential debtor nations in the 1980s and 1990s. Despite Wall Street’s lobbying for trade
liberalisation as well as capital controls elimination, the Marshal committee encouraged the
imposition of capital controls as a means “toward internal financial and monetary
stabilisation” of post-war Europe (Behrman 2007, p.109). However, Panitch and Gindin
(2005, p.50) stress that the institutionalised capital controls of the post-war regime were
nothing more than a temporary palliative since the powerful Wall Street lobby “were always
motivated by their concern to protect investors’ rights and for investors to exert discipline
on the fiscal policies of governments”. As a matter of fact the liberalisation drive was
inaugurated by the 1961 OECD agreement “under the Code of Liberalisation of Capital
Movements to progressively abolish the restrictions on capital movements to the extent
necessary for economic cooperation” (Seabrooke 2001, p.56).
As capital controls loosened gradually, “between 1955 and 1962, foreign-bond issues
offered in the US totalled US$4.2 billion, approximately US$1.3 billion more than the foreign
issues offered in the principle European countries combined”, which helped reverse the
dollar shortage of the immediate post-war years into a ‘dollar glut’ (Aquanno 2008, p.122).
Robert Triffin (1961) presciently tracked the precipitous decline of the US current account
from a healthy US$4.5 billion surplus in 1957 to a US$ 2 billion deficit in 1959. Although no
cause for concern initially, Triffin (1961, p.54) recognised that given even less than modest

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growth-rate estimates by the IMF of European and US economies, gold had “long ceased to
provide an adequate supply of international liquidity for an expanding world economy”. A
worrying sign nonetheless was the rising role of the U.S. dollar as the premier substitute for
gold as a reserve asset since “foreign countries accumulated nearly half of their reserve
increase in the form of dollar claims rather than gold” (Triffin 1961, p.55). For Triffin (1961,
p.57) “it was unlikely that the growth of dollar or sterling balances could provide a lasting
solution to the inadequacy of gold production to satisfy prospective requirements for
international liquidity in an expanding world economy”; however, to his probable dismay,
the ballooning US deficit was the contrived solution.
Triffin’s premonitions were vindicated as by the early 1960s “the US soon became a net
borrower from the Common Market nations”; and even more worryingly by 1963 the heavy
overseas military expenditure (especially in Germany) soon “threatened the gold cover of
the US dollar” (Hudson 2003, p.292). Vain attempts by France to repay segments of its Wold
War 2 reconstructions debts, as well as higher US military purchases by Germany couldn’t
halt the runaway US deficit caused primarily by profligate military expenditure. European
Common Market economists were soon cognizant of the fact that a considerable US
investment in European industries was a further factor in the burgeoning deficit. The
Common Market economists “correlated this [US] investment outflow with the size of the
overall U.S. payments deficit to demonstrate that the United States was, in effect, obtaining
a cost-free takeover of Europe’s economy” (Hudson 2003, p.296). When the U.S. dollar
recipients of the acquisitions deposited their dollar earnings with their respective central
banks, the recipients correspondingly acquired local (or non-dollar) currencies. However,
Hudson (2003, p.296) writes that the “central banks in turn were pressured by the U.S.

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Treasury to refrain from cashing in their dollars for U.S. gold, on the ground that this might
disrupt world financial conditions”. Indeed, by 1961 Germany was purchasing large stocks of
U.S. Treasury securities as a means to stabilise the dollar as well as aid in the rising costs of
US military assistance in Germany (Seabrooke 2001). Inevitably, both the German and
French representatives at the 1963 IMF meetings expressed serious unease at the
untrammelled US profligacy due to the dollar’s structural centrality in the post-war financial
architecture (Hudson 2003). It soon became clear to the Europeans that “U.S. Treasury
bonds were being exchanged for higher-paying direct ownership of European assets”
(Hudson 2003, p.296).
The Kennedy administration, however, were soon alarmed by the dollar glut sloshing in the
European equity markets (Seabrooke 2001). The 1963 Interest Equalisation Tax was
administered so as to “reduce capital outflows by taxing interest income on securities issued
by foreign borrowers in the US market” (Aquanno 2008, p.122). A further 30% withholding
tax “on purchases of US corporate bonds by non-residents” had the critical effect of shifting
international financial activity away from the US capital markets and into the nascent and
unregulated London market (Aquanno 2008, p.122). Although the Kennedy policies weren’t
directly causal to the unregulated London offshore market for US dollar bonds
(Euromarket), they were however necessary for funnelling global money capital into an
anonymous arena that “offered an open meeting ground for international debtors and
creditors of both public and private origin” (Aquanno 2008, p.123). Such was the extent of
the anonymity it offered to global investors that both Soviet and Chinese officials were lured
to invest their reserves in the Euromarkets since it was near-impossible to trace the
identities of the bonds sellers as well as purchasers (Seabrooke 2001). Of crucial importance

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to the success of the Euromarkets was not only the luxury “to avoid the type of disclosure
rules imposed by domestic regulators”; but also the “absence of interest rate ceilings, which
meant that rates in the Eurodollar markets were higher than those in the US markets”
(Aquanno 2008, p.123). A further boon to the Euromarket phenomena was the inability of
state agencies to impose taxes on the issuance of bonds or securities in the markets by the
offering companies, which thereby lowered the borrowing costs of many multinational
corporations (MNCs) at the time. In short, the Euromarket offered investors a haven to
transact without the fear of state intervention. Inevitably, the growth of the Euromarket
also paved the way for US banks to circumvent the thorny vestiges of the New Deal
legislation which took the form of stringent interest-rate ceilings known as Regulation Q
(Panitch & Gindin 2005). Driven by the high competitive pressures of fellow US banks, “the
percentage of external liabilities represented by Euromarket assets of US banks operating in
Britain grew from 23 per cent in 1963 to 43 per cent in 1968 to 49 per cent in 1969”
(Seabrooke 2001, p.67).
As the American war machine in Vietnam began assuming a definite form it also surfaced by
1964 that “foreign dollar holdings grew to exceed the U.S. gold stock” (Hudson 2003, p.296).
As the US economy was reaching full-employment by the mid-1960s, the Kennedy
administration knew it couldn’t borrow the necessary war funds from the domestic
economy since the competing demand for debt from the private sector would undoubtedly
cause a credit crunch (Helleiner 1994). To circumvent such difficulties, Washington decided
to borrow the funds from the Euromarket (as a politically sensitive manoeuvre) and
consequently cemented the role of the Euromarket as the premier source of debt (Helleiner
1994). It soon crystallised that the unprecedented military expenditure in Vietnam was the

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principle source of the US payments deficit. Hudson (2003, p.299) estimates that the annual
cost of the Vietnam war exceeded US$4.5 billion, which was further complicated by the fact
that “the United States simply did not want to pay for its war in Vietnam”. Senator Hartke of
Indiana put it starkly in 1967; “Vietnam ruined any chance we might have had for attaining
equilibrium in our balance of payment, and until recently there was curiously little official
acknowledgement that after all Vietnam is the real culprit” (Hudson 2003, p.305). Despite
the vociferous outcries from the European leaders for monetary discipline and an end to the
costly Vietnam conflict (financial, human as well as reputational), the United States
unwaveringly argued that as the world economy was expanding, so was the need for an
expanding (dollar-denominated) pool of liquidity to accommodate that growth (Helleiner
1994). The dilemma Triffin posed for the liquidity requirements of a growing world economy
found its solution in U.S. Treasury debt (Hudson 2003). It was a solution however not
favoured by the French who “not only opposed the war, on grounds of historical stupidity as
much as on the moral issues involved, but actively showed its opposition to it by drawing
down the U.S. monetary gold stock” (Hudson 2003, p298). The Vietnam War now
threatened the financial primacy of the U.S. due to the accelerating outflow of gold mainly
into the European vaults, much to the satisfaction of De Gaulle. Simultaneously, the U.S.
monetary strategists perceived the gold outflow as equally alarming to the long-term
interests of the US, and as a result “attempted to shift the basis of financial power away
from gold toward [U.S. Treasury] debt” (Hudson 2003, p.299). However, the unrelenting
strain of the European gold demand on U.S. monetary gold (exasperated by the expanding
U.S. payments deficit) began to cause underlying volatility in the dollar price of gold, as by
late 1967 the US$35 price per ounce was exceeding US$40 in the private London markets
(Seabrooke 2001). Despite the 1961 formation of the Gold Pool as a cartel-like organisation

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charged with maintaining the US$35 price of gold by the OECD nations, real volatility in the
private gold market was threatening its very existence.
It will be useful here to further outline the core functions of the Gold Pool as well as the
deeper tensions its institutionalisation was fostered to resolve. At the heart of the Gold
Pool’s raison d’être was simply the attempt to resolve Triffin’s dilemma of an expanding
world economy and a stagnant global production of monetary gold. To foster the illusion of
an increasing global economy matched by a stable supply and price of monetary gold, the
US monetary officials requested Britain, Switzerland, and the Common Market nations to
“accept the burden of meeting 50 per cent of the Pool’s net sales or, alternatively, of
purchasing half the gold offered to the Pool so as to maintain a stable price by supplying or
buying the metal at US$35 an ounce” (Hudson 2003, p.301). The Gold Pool was in effect
supressing the market price of gold via numerous questionable outlets so as to persuade
individual investors as well as nations to continue accumulating U.S. Treasury debt as
opposed to converting them into a non-interest bearing metal. However, despite the
manifest gold-market rigging and the herculean effort of maintaining the Pool, on March
17th 1968 the Gold Pool was disbanded and the global financial system found itself, for all
intents and purposes, without a metallic anchor that served as the objective measure of
value external to the purview of any individual state or central bank (Hudson 2003). It’s
crucial to note the U.S. Treasury was the most vehement proponent, among the U.S. state
agencies, for the dissolution of the Gold Pool since the resultant gold-dollar inconvertibility
would “remove the immediate constraints on the U.S. balance of payments position” (Sarai
2008, p.79). The dissolution of the Gold Pool spawned a wave of speculative pressures on
particular currencies, and the Bundesbank was compelled in May 1969 to purchase US$4.4

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billion in the currency markets so as to prevent the deutschmark from appreciating in value
thereby blunting Germany’s export competitiveness (Seabrooke 2001). The German dollar-
buying could last only so long, and in April 1971 the Bundesbank let the deutschmark float
which ultimately led to upward revaluation. Matters soon worsened in March when De
Gaulle demanded the repatriation of US$282 million of monetary gold on the ostensible
grounds of paying its IMF debts (Seabrooke 2001). Emboldened by De Gaulle Switzerland,
the Netherlands and Belgium collectively requested US$210 million of gold as trust waned
on America’s highly bandaged promise of gold-dollar convertibility. The U.S. Treasury was
compelled to announce on May 14th 1971 “that it only had $10 billion of gold at the official
rate, and $18.5 billion of hard currency” (Seabrooke 2001, p.77); heralded by the
announcement, the $35 per-ounce-gold convertibility was officially disbanded on August
15th 1971 which essentially sounded the death knell of the Bretton Woods financial regime.
The gradual, though inevitable, break from gold betokened the shift from a global financial
regime grounded on an objective measure of value to one where U.S. Treasury debt
inherited the keystone role in an ever more volatile and complex financial architecture. The
viability of the post-Bretton Woods regime lay on the debt issuing abilities of the U.S.
Treasury to continually expand liquidity (through USTS) in a rising world economy that was
ever more dependent on the financial sector (Hudson 2003). Concurrently, the end of the
Gold-Exchange Standard led to the privatisation and socialisation of currency risks “as
private markets now determined currency values” (Sarai 2008, p.79). The U.S. Treasury
security was bequeathed not only with the role of being a ‘risk-free’ interest-bearing asset,
but also an indispensable constant in a new financial horizon set to be marked by fleeting
investor sentiment and high currency volatility. So critical is its role that the USTS “provide

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the basic building blocks for the increasingly complex and sophisticated financial
instruments which are key to the operation of global financial markets” (Sarai 2008, p.72). In
addition, Sarai (2008, p.80) adds that “there was an increased need for banks and financial
institutions to develop adequate liquidity and risk-management techniques due to the
pronounced volatility of flexible exchange rates and competitive pressure”; and the U.S.
Treasury security was the ideal instrument . As a result, its role as an international, risk-free
near-money was further consolidated.
Despite the USTS’s navigating role in the stormy financial waters, the mid-to-late 1970s was
characterised by stagnant Western economies and runaway inflation (stagflation) (Panitch
and Gindin 2005). The dominant factor behind the unprecedented inflation was the
constant stream of funds circulating in the Euromarkets which the banks could instantly
draw upon for domestic commercial use (Konings 2008). The unintended consequence of
the New Deal Regulation Q (which placed strict interest-rate ceilings on deposits to limit
bank competition) was that large corporations who would otherwise deposit significant
sums in the U.S. banks found that they could earn higher returns by investing them in the
Euromarkets (Konings 2008). Since the banks were prohibited to raise interest rates to
attract greater deposits, and major depositors shifted to the offshore European markets, the
fate of the U.S. banking system rested on their ability to adapt to the ever-shifting contours
of the global money markets. As a result, the seeds of future inflation were sewn by the
paradigmatic shift in the practice of U.S. banking “which turned the old paradigm upside
down: instead of managing assets on the basis of a given liability structure, the burden of
securing liquidity and profitability shifted towards the management of a bank’s liabilities”
(Konings 2008, p.46). Whereas traditional banking practices were premised upon the

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deposited savings-pool of the local constituency of workers to finance local entrepreneurial
projects, the emergent banking paradigm “started to function as a market where banks sold
obligations and ‘bought money’” (Konings 2008, p.46). As a direct result of the
disintermediation of traditional banking actors, U.S. banks had an endless supply of credit to
allocate for the domestic economy, which unsurprisingly stoked inflation despite the lagging
growth (Konings 2008). Another notable factor in inflation was the unprecedented mobility
of global money capital and of investor sentiment. President Carter’s Keynesian undertones
at the 1978 G7 Bonn Summit to foster a renewed locomotive (fiscal) effort towards
economic growth led to a disciplining reaction, if not an outright reproach, from the global
financial markets which saw an aggressive dollar sell-off (Panitch and Gindin 2013). Despite
the iconic 1979 ‘Crisis of Confidence’ speech by Carter, “it was effectively an admission that
the joint international stimulus strategy had proved unviable” (Panitch and Gindin 2013,
p.167). Adding woes to the double-digit inflation of the late 1970s was the further
deterioration of the U.S. dollar against gold. After the high of US$195.25 per ounce on
December 30th 1974, the dollar price of gold eased to US$104 on August 31st 1976 (Rickards
2014). However, the dollar price of gold began to rise precipitously in August 1979 when it
reached US$300 per ounce; unthinkably, only a matter of months later on January 21th
1980, the dollar price of an ounce of gold reached US$850 (Rickards 2014). Furthermore, it
was widely acknowledged that by the late 1970s the Federal Reserve reluctantly yielded to
the reality that it could no longer track, supervise and target the growth trends of the
aggregate money supply in the domestic economy due, simply, to the bottomless well of
credit and liquidity in the offshore Euromarket (Newstadt 2008).

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What the precipitous rise in the dollar-value of gold reflected was the growing perception by
investors that the dollar couldn’t rise to the task of underpinning the global financial edifice.
The Federal Reserve faced a historical dilemma presaged by Triffin; should the burden of
global liquidity fall on a single currency, a basket of currencies or a supra-national entity
(such as the IMF’s Special Drawing Rights). The appointment of Paul Volcker as the
Chairman of the Federal Reserve in 1979 sealed the fate of the dilemma as he increased the
Federal Reserve discount rate (the rate at which U.S. banks borrow funds from the Federal
Reserve) to a high of %21.5, plunging the U.S. into a deep recession in 1982 (Aquanno 2008).
Crucially, Volcker even mentioned in his memoirs that a strong motivation for the record
high discount rates was to render the holding of gold by investors as unattractive as possible
by the unprecedented yield generated by dollar-denominated debt and USTS (Volcker
1993). In addition, the period of intense Volcker rate-hikes from 1979-1982 is best seen as
the Federal Reserve signalling to global capital that it’s willing and capable of assuming the
mantle of being the guarantor, underwriter and safe haven at times of volatility and crises.
Volcker’s move indeed echoed Kindleberger’s (2013) assessment that in order to avoid the
ravaging realities of a possible global economic depression, a hegemon is needed to provide
leadership at times of global financial uncertainty, or even panic (known as the Hegemonic
Stability Theory). The Federal Reserve didn’t have to wait long to feel the burden of the
crown when the 1982 Latin American Debt Crisis unfolded as higher interest rates on US
dollar-denominated debts to the region, compounded by a stronger dollar due to the higher
rates, essentially rendered the recipient economies insolvent (Kapstein 1996). When on
August 12th Silva Herzog, the Mexican Finance Minister, announced that Mexico could no
longer service its debt repayments, Volcker was threatened with a global financial
meltdown since the large U.S. banks could not realistically absorb the losses of a possible

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Latin American default (Kapstein 1996). According to Kapstein (1996, p.88) “the United
States led the central banks of the richest nations in providing nothing less than lender-of-
the-last-resort support to ailing Mexico, injecting the liquidity needed to keep the
international financial system in order”. The rescue package comprised a US$3.5 billion fund
raised by the central banks of the G7 nations, though disproportionately represented by the
Federal Reserve’s selling of USTS to the Mexican monetary authorities (Kapstein 1996). The
indispensable role of U.S. Treasury debt as prime collateral for the global banking system, as
mentioned by Sarai (2008) in part one of the dissertation, prevented a worldwide contagion
of crippling fear within the financial and banking system thereby further solidifying the
emergent U.S. Treasury bill standard. I shall presently outline the first of two core roles
played by the U.S. Treasury in buttressing, consolidating and overseeing the then nascent,
though irreversible, process of financial-product-innovation arising out of the ashes of the
former Gold-Exchange Standard of Bretton Woods. I will firstly outline how the USTS
functioned as the premier source of bank collateral at times when bank insolvencies (private
or sovereign) threatened to raze the entire financial architecture were it not for the
injection of the USTS by the Federal Reserve. By acting as the lender-of-last-resort, and the
overseer of any potential source of instability (as the case of Herstatt Bank will illustrate),
the Federal Reserve was the primary calming navigator in an otherwise tempestuous ocean
of floating currency volatility and foreign exchange speculation. In short, the liberalisation
and integration of global capital markets, headquartered in Wall Street, could not have
occurred without the leadership and insurance of U.S. Treasury debt and the Federal
Reserve. Having done that, I shall then move onto the second core role of the U.S. Treasury
security as a risk-free, interest bearing asset that incorporates surplus nations into the U.S.
Treasury bill standard.

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Although the 1982 Debt Crisis represented the Federal Reserve’s first market stabilisation of
sovereign debt, the Fed as a matter of fact oversaw several crises emanating from the highly
risky commercial operations of private banks. Unsurprisingly, the key systemic source of
vulnerability for commercial banks came with the attendant volatility of floating exchange
rates after 1973 (Kapstein 1996). On June 26th 1974, Bankhaus I. D. Herstatt of Cologne was
forced to close in the afternoon as German banking authorities discovered that “the bank
had suffered huge losses in its foreign exchange department, which it had covered up with
fraudulent bookkeeping”; a fact that was further compounded as “the bank had speculated
wildly in currency markets, borrowing in different currencies from banks around the world”
(Kapstein 1996, p.28). At the time of the bank’s official closure in the afternoon, inter-bank
trading in the U.S. markets had officially began, and several U.S. banks sent the foreign
exchange requested by the Herstatt bank without the knowledge of its collapse. As news of
the bank’s insolvency trickled over the Atlantic, widespread panic befell the U.S. banking
institution and inevitably “Wall Street cried ‘mayday’ to Washington” (Seabrooke 2001,
p.89). As smaller, less reliable banks were excluded from foreign exchange access due to the
perceived risk, the response from the German banking regulators was that “it wanted to
teach speculators, as well banks dealing with speculators, a lesson” (Kapstein 1996 p.40). Of
course, once the Federal Reserve perceived the structural risks to the U.S. banking sector, it
ordered the instant honouring of the outstanding liabilities sent to Herstatt bank by the U.S.
banks, lest a worldwide contagion should paralyse global credit relations (Seabrooke 2001).
Despite the possible international implications involved, “the Herstatt failure was handled
very much as a German internal matter” (Kapstein 1996 p.40). However, merely a few
months after the Herstatt failure, the Federal Reserve was embroiled in the ‘managed
collapse’ of the U.S. Franklin National Bank, whose “aggressive management techniques

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inevitably found their way to the trading floor, where Franklin bankers became avid
speculators in currency markets” (Kapstein 1996, p. 41). Furthermore, the Franklin bank
overextended loans of questionable repayment-ability to creditors of excessive credit risk,
with funds it had purchased on the international money market (notably the Euromarket)
(Seabrooke 2001). As the U.S. regulatory bodies unearthed the grim financial reality beneath
the window-dressed accounts, “the Federal Reserve authorities acted to prop up the ailing
institution” (Kapstein 1996, p.41). Of uttermost importance was the US$1.7 billion stockpile
of USTS endowed to Franklin Bank along with further lender-of-last-resort provisions to
overseas branches, followed by a swift guarantee of reimbursement to all international
creditors of the bank (Kaprstein 1996). Simply, the Federal Reserve reassured global markets
that it was business as usual.
In early 1984, America’s eighth largest bank Continental Illinois was facing severe liquidity
challenges as “rumours about asset quality were leading institutional investors to withdraw
their deposits” (Kapstein 1996, p.108). The chronicle of Continental Illinois’s downfall is a
clear embodiment of a highly leveraged (high ratio of debt relative to earnings) institution
that forwent due prudence in volatile financial climes in search of ever greater market
share; with the ultimate consequence of insolvency (Helleiner 1994). Again, the Federal
Reserve stepped in and infused US$ 6 billion worth of USTS into its accounts so as to “meet
its immediate financial obligations” and stave off a global depositor stampede capable of
rupturing investor confidence in the U.S. sponsored global financial system (Kapstein 1996,
p.109). What the previous examples of Federal Reserve rescue-packages show is the
compulsory coordinating and underwriting abilities of a single monetary institution to deal
with the integration of various equity and debt markets (such as the North American, East

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Asian and European stock exchanges) with the global money market where banks purchase
funds (or manage liabilities). In other words, without the Federal Reserve rescue-packages,
the post-Bretton Woods financial regime would not have survived due to the overwhelming
volatility it was constructed to manage. Were it not for USTS and the regulatory role of the
Federal Reserve, the process of financialisation (so synonymous with globalisation) could
not have matured as the unprecedented level of instant credit available in the Euromarkets,
and the allurement of making fortunes from betting on certain foreign currency
movements, was too systemically destructive.
I shall presently adumbrate the second core role of USTS which is to bring surplus nations,
such as Germany, Japan or the oil rich Organisation of Petroleum Exporting Countries
(OPEC) nations, into the U.S. Treasury bill standard by reinvesting those surpluses into U.S.
Treasury bills thereby enabling larger and larger payments deficits by the U.S economy. In
other words, the USTS serves as a store of monetary value printable by the U.S. Treasury
exchangeable for the reserves of surplus-yielding nations that, in turn, become politically
and economically bound to that specific standard of value; the U.S. Treasury bill standard.
The reinvestment of foreign surpluses into the USTS grants the U.S. Treasury to incur a
corresponding deficit on the assumption that future redemption of the initial offering will be
honoured. The early 1960s saw signals that the U.S. administration would proceed to forge
a U.S. Treasury bill standard by compelling central banks (predominantly European) to
absorb huge quantities of USTS (Seabrooke 2001). Already pressured by the U.S. monetary
authorities to purchase huge quantities of U.S. Treasury bills to maintain the value of the
dollar in 1961, the Bundesbank was under further severe pressure by the late 1960s to
absorb U.S. Treasury bills “to prevent US domestic inflation” (Seabrooke 2001, p.75). Once

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the London Gold Pool was officially disbanded due to overwhelming physical gold demand
in March of 1968, “the United States now asked Europe, Japan and Canada to reinvest their
central bank dollar holdings in the U.S. economy, specifically in U.S. Treasury securities, in
order to recycle the funds thrown off by the U.S. deficit” (Hudson 2003, p.312). European
nations (especially surplus-prone Germany) proposed a series of global institutional
arrangements that “would run not on an established currency [U.S. dollar] but a medium of
exchange independent of any state’s treasury” (Seabrooke 2001, p.84). The major European
powers lobbied for the IMF’s Special Drawing Rights as the ‘principle reserve asset’ as the
object of accumulation by surplus-yielding central banks, and, as a result bypassing
completely the U.S. dollar and the USTS as the global reserve asset (Seabrooke 2001). The
singular motivation behind these arrangements was that Europe was unwilling to be drawn
into the orbit of the emergent U.S. Treasury bill standard, which inevitably meant
reinvesting further payments surpluses back into purchasing greater quantities of USTS. The
ultimate concession by the U.S. was unlimited access to its vast markets to German and
Japanese goods, and when Nixon threatened 10% surcharges at the time of the European
proposals for the SDR, Germany and Japan yielded to their inclusion to the U.S. Treasury bill
standard (Hudson 2003). The USTS is therefore an indispensable debt-instrument that
enabled the integration of European, Japanese and U.S. economies, since the absorption of
Treasury debt allowed ever greater U.S. deficits to continually import from Europe and
Japan (Hudson 2003). The interlocking of the American, European and Japanese economies
bound by “their liquid claims on the U.S. Treasury was not because that was their first
preference, but simply because they feared to do otherwise, fearing bringing about a
breakdown in international finance and trade” (Hudson 2003, p.324).

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As the size of the U.S. deficit was a function of global demand for its Treasury securities
(however politically contrived), greater inclusion of other surplus-yielding economies into
the U.S. Treasury bill standard was thereby essential if the U.S. was to enjoy prolonged
deficit manoeuvrability. The first of such inclusion was the oil-rich OPEC nations who
accrued vast surpluses with the oil hikes of 1974 (Kapstein 1996). Crucially, Kapstein (1996,
p.62) notes that “ following the oil shocks of 1974 and 1978, about 10 per cent of OPEC
money was invested in U.S. Treasury bills of one type or another”. Fully cognisant of the
greater deficit-generating capabilities of a higher global demand for USTS, “the United
States government actively lobbied the Saudis and other oil producers to continue their
purchases of Treasury bills, and to keep denominating oil sales in dollars” (Kapstein 1996,
p.63). Hudson (2003) adds that the funnelling of OPEC surpluses into U.S. financial
instruments operated by Wall Street was a mutually reinforcing symbiosis between the U.S.
government and Wall Street interests. Furthermore, at the inauguration of the 1984 Basle
Accord which aimed at the harmonisation of accounting and regulatory standards between
the advanced economies, the USTS (with intense pressure from the U.S. monetary
authorities) was awarded the much coveted zero risk-weighting, which meant that
commercial banks could freely accumulate USTS without incurring a higher risk-rating from
the regulatory bodies (Helleiner 1994). As a direct result, “Japan purchased US$21.8 billion
of U.S. Treasury notes and bonds” following the Accord; and it would continue recycling its
substantial surpluses back into the USTS for the rest of the decade (Seabrooke 2001, p.139).
Interestingly, Rickards (2014) claims that China has amassed an absurd amount of USTS on
its way to becoming the world’s second largest economy; and although the figures are not
transparently disclosed, they could be in the range of US$6-8 trillion worth of dollars
(Rickards 2014). This again confirms the USTS’s second crucial role in integrating surplus

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nations into the U.S. Treasury bill standard. Having completed the historical timeline, I shall
now begin expounding the theoretical position of the dissertation.
Theoretical framework of the dissertation
The theoretical underpinning for my argument that the USTS is an integral keystone to the
process of globalisation comes mainly from Harvey’s Limits to Capital (1982). Crucially,
Harvey too spots Triffin’s ineluctable dilemma of rising global growth noosed by a stationary
production of monetary gold by claiming that “the capacity to supply gold is governed by
concrete conditions of production, and since any money commodity must be rare and of
specific qualities, we find that the supply of gold is not instantaneously adjustable” (Harvey
1982, p.243). To note, the ‘money commodity’ mentioned is the historically accepted
measure of value enshrined in gold, whose universal embodiment as monetary (and
reserve) value is echoed by numerous religious scriptures as well as civilizational norms. As a
result of gold’s ability to calibrate monetary value across commodity categories and its
timeless reserve asset function, Harvey (1982 p.241) resurrects Marx’s term for gold as the
‘universal equivalent’. Furthermore, as ‘the supply of gold is not instantaneously adjustable’
to a rising volume of global production and trade, inevitably, monetary claims to value will
naturally cease to be backed by their physical counterpart once gold supply cannot align
with global GDP. Harvey’s claim has important implications as to the inevitable disbanding
of the Gold Pool, and the thereafter complete abandonment of the Gold-Exchange Standard
in 1971. In other words, the very success of Bretton Woods in fostering an effective engine
for global growth bore a latent contradiction that would manifest once global economic
growth outpaced gold production growth. Interestingly, both Kindleberger’s (2013) and
Davis’s (1975)analysis of the Great Depression focused heavily on the tension that the

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classical Gold Standard bore on the ability of the world economy to expand given a static
supply of monetary gold in Western central bank vaults. The painfully high rates of interest
held by the Bank of England during the early 1930s so as to attract monetary gold, and
consequently reassure investors in the integrity of the pound sterling as a global reserve
asset, chocked vital demand for both domestic and foreign goods which further contributed
to the deflationary spiral (Kindleberger 2013). Once Great Britain ominously went off the
Gold Standard on 21st September 1931, the global monetary order began to break down,
thus, rendering acts of nationalistic self-interest (such as currency devaluations and higher
trade tariffs) more attractive (Kindleberger 2013). As the major economies engaged in
competitive devaluations and protective trade measures (such as the notorious Smoot-
Hawley Tariff Act) in the wake of the British exit from the Gold Standard, the question is why
the repeat didn’t occur either at the dissolution of the Gold Pool in March 1968, or at the
official abandonment of the Gold-Exchange Standard in 1971. Harvey (1982 p.248) offers an
intriguing insight by claiming that “when most of the world’s gold reserves were locked up
in Fort Knox and the United States had a dominant position in terms of balance of payments
and world trade, the dollar standard (fixed under the Bretton Woods Agreement of 1944)
could prevail and the dollar became, in effect, the universal equivalent”. Simply, the
immediate post-war conception of the dollar-gold convertibility implied an inseparable
identity between the two asset classes. As one U.S. dollar represented 1/35 an ounce of
gold, the USTS represented a debt-instrument that had certain exceptional features. Debt-
instrument, however, is an insufficiently precise term and instead I shall adopt Harvey’s
(1982) concept of a credit-money. Simply put, a credit-money is a contractual agreement
between a lender and a debtor that represents a legal claim to a pre-specified portion of the
future revenue (interest payments) of the borrower’s prospective economic enterprise

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(Harvey 1982). As an example, Harvey (1982, p.267) presents the case of a “producer who
receives credit against the collateral of an unsold commodity”; who then purchases the
prerequisite labour power, means of production and input factors from the marketplace. As
a result, Harvey (1982, p.p.267) crucially adds that “the lender holds a piece of paper, the
value of which is backed by an unsold commodity”; however, the same paper title can still
circulate freely in the economy as a viable commercial paper bearing monetary value.
Crucially, a certain distortionary “gap is thereby opened up between credit-moneys (which
always have a fictitious, imaginary component) and ‘real’ moneys tied directly to a money
commodity [gold]” (Harvey 1982, p.267). To ensure confidence in the creditworthiness of
such paper titles, a central bank is therefore required to monitor and regulate the quality of
the commercial paper that circulates in its province. According to Harvey (1982, p.247), the
central bank assumes the highest monetary mantle since “from these commanding heights
the central bank seeks to guarantee the creditworthiness and quality if private bank
moneys”.
What is exceptional in the case of the USTS is that it’s a sovereign credit-money whose
repayment credibility and creditworthiness stems from the economic dynamism of its
domestic economy and the attendant tax revenue of its subjects. In the immediate post-war
reality, the U.S. emerged as the single largest industrialised economy whose size and scale
eclipsed that of the empire-stripped Britain (through Land Lease Agreements mentioned
above) and the rest of war- and death-ravaged Europe (Hudson 2003). As a result, the U.S.
sovereign credit-money seemed the most secure. A further integral allure of the USTS was
that it was able to yield a considerable interest, something its physical counterpart, gold,
could not since its price was held constant at US$35 dollar an ounce. Prior to the difficulties

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the dollar faced at the inception of the Gold Pool in 1961, it was near-insanity to hold gold,
and consequently forgo the significant interest payments accruable from the USTS. Such
odds undoubtedly proliferated the demand for USTS which soon formed the non-resident
(dollar-denominated) market for funds circulating in the City of London (Seabrooke 2001).
As the war-costs mounted and inflation began to gradually rise towards the late 1960s,
Harvey’s distortionary gap appeared between the ‘money commodity’ (which bore no
counter-party risk) and the sovereign credit-money whose ultimate embodiment of value
was confidence in the viability in the American economy. After the dissolution of the Gold-
Exchange Standard, and the unprecedented phenomenon of stagflation enveloping Western
economies, the U.S. Treasury bill standard was truly inaugurated when Fed chairman
Volcker decided to simultaneously check inflation and render the Treasury security a must-
own asset yielding, at its height, 21.5 per cent interest (Sarai 2008). By successfully
decoupling with gold whilst emerging triumphantly as the dominant global reserve asset,
the Federal Reserve signalled to current and prospective USTS investors (both governments
and private entities alike) that it would unequivocally prioritise the quality of the dollar by
targeting inflation at any cost (Harvey 2011). The period following the Volcker rate-hikes
coincided with the intensification of the neoliberal ideological onset marked by inflation-
fighting, reduced government outlays and privatisation of state enterprises (Harvey 1989).
Conceived differently, the Anglo-American alliance of Thatcher and Reagan sought to
actively discipline collective labour in order to crystallise its intentions of remaining
creditworthy debtors (Harvey 2011). Just as Wall Street always lobbied for the ‘right’ to
discipline profligate governments with expanding fiscal accounts, the post-Volcker financial
architecture was pioneered in the Anglo-American world, and mainly on American and
British labour unions. The abstract process of ‘globalisation’ could then take form as the

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USTS offered highly attractive, yield-bearing and risk-free assets, which could then function
as the ideal (and universal) bank collateral in the case of global financial panics. The
collapses of Herstatt Bank de Cologne, National Franklin Bank and Continental Illinois attest
to the unique ability of the U.S. Treasury to soothe global financial panics by issuing credit-
money of ever increasing amounts. Though one is aware of the futile nature of speculating
in counterfactuals, it is nevertheless difficult to envision a globalising order akin to our own
without the building block of a universal equivalent that isn’t bound by the geological
constraints of scarcity found in gold. In other words, the ability to print the global universal
equivalent, as ordained by the U.S. Treasury, enabled the growth of an unregulated
supranational money market that served as “a laboratory for American financial
innovations”, built on the risk-free foundations of the USTS (Seabrooke 2001, p.145). This
Euromarket slosh of dollar-denominated assets fundamentally altered the relations
between collective labour, capital and the state as the overseer of the internal
contradictions of neoliberal capitalism. I shall presently commence the third part of the
dissertation which will present the case as to why U.S. Treasury debt is an important
gateway to understanding the process of globalisation.
Part three
I am unfortunately constrained by space to deal with the interrelation of each specific node,
so I will mainly focus on the dynamic and constantly reconstituting processes that shape the
conditions of collective labour and global capital. Literature on the plight of collective labour
since the onset of the neoliberal order in the mid-1970s, though vast, pivots mainly around
the issues of stagnant wages, eroded labour gains in the workplace precipitated by thinning
union participation, increased private indebtedness, and the scaling back of social security

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(Harvey 2011) (Orhangazi 2011) (Bellofiore 2011) (LeBaron and Roberts 2012) (McNally
2009). By no means exhaustive, the prevalent contemporary conditions of the ‘post-
industrial worker’ are well captured by the aforementioned themes of insecure work and
insecure safety nets when out of work. Furthermore, LeBaron and Roberts (2012) draw the
crucial link between receding welfare support and the compulsion to incur debt merely to
sustain the reproduction of labour power. In other words, the post-industrial worker must
either accrue debt or risk jeopardising his sole source of value on the labour market. The
global mobility of productive capital is explicated by McNally (2009) who renders the
geographical and territorial expansion of productive capital to the East as a necessary
condition for reigniting the latent growth potentials of stagnation-riddled advanced
economies. McNally (2009) adds that the further proletarianisation of Chinese rural
peasants was instrumental in deflating the global price of labour and, as a result, carved
open greater tributaries of profitable investment for stagnant capital to be funnelled into. In
quick summary, McNally (2009) states that the circumvention of traditional obstacles to
profitable investment (namely persistent wage-growth clawed by powerful unions, costly
workplace regulations regarding the health and safety of workers and worker militancy)
engendered genuine growth in the advanced economies without the dreaded inflation.
Simply, movement of productive capital to areas of excess (mainly rural and female) labour
was necessary to the disciplining of an overly powerful and unionised labour, and ultimately
to the preservation of the capitalist system itself.
Such scholarship is indispensable to understanding the sequential set of phenomena we
refer to as ‘globalisation’, therefore it would be inaccurate to claim that my
conceptualisation of globalisation (as the formation of a U.S Treasury bill standard) is

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somehow better, or ‘more correct’. I claim that conceiving globalisation through the prism
of U.S. Treasury debt is another useful gateway of observing an incessantly shifting
sculpture whose form is as different as the angle it’s depicted from. Simply, my
conceptualisation is neither more illuminating nor better, but simply perched on the
vantage point of U.S. sovereign debt. I stress this point as I wish to maintain a grave humility
and not overstate my aims. Having said that, I believe an advantage is to be had if
globalisation is treated as the acquiescence of the USTS as the universal equivalent capable
of drawing surplus-nations into the orbit of an American-sponsored financial architecture.
The main reason is that such a perspective provides a structural account of globalisation
that renders the antagonistic relations between collective labour and mobile capital as
logically prefigured into the DNA of the U.S. Treasury bill standard. In other words, the
centrality of sovereign Treasury debt renders the interrelation between (mobile) capital and
(immobile) labour as structurally necessary if the global neoliberal structure is to function
viably. By opening the Pandora ’s Box of debt, the inquirer of neoliberal globalisation will
inevitably stumble into debt-innovations that absorbed and contained the rising complexity
of a volatile U.S. Treasury bill standard. It is these debt-innovations that hold the key to the
future direction of globalisation since the viability of the neoliberal architecture rests on its
ability to internalise its inherent and latent contradictions. I propose the USTS since it is the
constitutive molecule that forms the interdependent and inter-dynamic global economic
organism that uses further, increasingly complex debt-innovations to internalise her
unresolvable contradictions by merely moving the contradictions elsewhere (Harvey 2011).
As an example, the contradiction (lamented by Triffin) of stagnant global gold production
projected against the rising growth of global economic activity wasn’t resolved in the 1970s
when chairman Volcker rendered the USTS the de facto universal equivalent, but merely

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transferred the contradiction to the surplus-yielding nations that exported cars, computer
systems, crude oil and foodstuffs merely to receive a sovereign promise in the form of a
paper with a dead U.S. president. By externalising the contradictions to her trading partners
the U.S. (unwittingly or otherwise) heightened the scale and severity of the contradiction by
pegging all global currencies to her Treasury’s promise to pay. In other words, America’s
woes stemming from balance of payments deficits in the late 1960s/early 1970s were
shifted to the holders of her sovereign debt. Furthermore, by focusing on the structural
necessity of the U.S. absorbing the foreign exchange reserves of surplus nations by
exporting her sovereign debt through the USTS, we are inevitably confronted with the
fundamental role of private debt of the domestic U.S. economy vis-à-vis the U.S. Treasury
bill standard. As Krippner’s (2005) research reveals the dwarfing role of the U.S. financial
industry relative to its manufacturing since the neoliberal onset, the role of household
indebtedness has not only maintained the locomotive demand in the economy, but has also
generated huge profits for the large U.S. financial players through the commercialisation of
private American debt. The securitisation of private U.S. debt, especially U.S. mortgages,
through mortgage-backed-securities further entrenched the hegemonic role of the U.S. as a
global exporter of debt. Again, debt-innovations were indispensable for the shaping of the
U.S. Treasury bill standard. I will return to the crucial role of labour once I further explicate
the connection between the divergent mobility of financial and fixed productive capital. I
shall firstly begin by expounding how the creation of the Eurodollar money market served as
the catalysing prime-mover for the geographical expansion of capital (financial and
productive) that is symbolically articulated as ‘globalisation’. The formation of the
supranational and unregulated London market therefore transformed the very constitutive
essence of debt as a liability into an asset, and subsequently reshaped the political contours

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between debtor and creditor nations. I shall henceforth refer to it as the dual
transformation of debt.
Dual transformation of debt and the geographical spread of fixed productive capital
The embryonic transformation of debt occurred in the 1950s when the overall risk structure
and banking paradigm within the U.S. was fundamentally uprooted. Instead of a territorially
finite and locally indexed bank attracting the savings of its constituents with a view to
allocating its local capital to entrepreneurial demands, banks in the U.S. saw savings
deposits dwindle as larger corporations opted to park their reserves in an offshore market
devoid of federal regulations and crucially higher returns (Konings 2008). As a result of
Regulation Q interest-rate ceilings designed to curb excessive bank competition in the
fallout of the Great Depression, the local banks were therefore precluded from increasing
their deposits by increasing rates and attracting local savings (Konings 2008). Compelled by
competitive pressures, the U.S. banks had no alternative but to flock to the offshore London
market (which harboured substantial dollar and USTS holdings) and indeed purchase dollar-
denominated assets to then reallocate domestically through lending (Konings 2008). Simply,
instead of managing individual and corporate savings (and hence assets) to reallocate into
productive entrepreneurial uses, banks acquired external offshore liabilities to create
domestic liabilities in the form of domestic loans. The post-Bretton Woods banking
paradigm, as a result, evolved disintermediation tendencies which bypassed “traditional
financial intermediaries in favour of direct borrowing or lending in [international] financial
markets” (Konings 2008, p.45). Due to these imperceptible, though paradigmatically
momentous, shifts the very nature of debt too shifted from a liability into an asset. The
implications too are momentous.

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The reconstitution of debt into an asset had ineluctable effects on the regionality and
territorial locality of banks since the source of banking collateral, savings, was superseded
by the highly mobile Euromarket dollars, USTS and dollar-denominated debt. In effect, a
highly mobile variable entered a hitherto (relatively) immobile Bretton Woods economic
system. It is my claim that the insertion of the Eurodollar liquidity slosh of credit-moneys,
i.e. USTS and dollar denominated debt, ignited the disequilibriating spark within the Bretton
Woods order that kick-started the chain of structural contradictions (stagflation of late
1970s) which propagated the attendant neoliberal resolution of the Volcker shock. Initially,
not only being “a headache for the Treasury”, the Federal Reserve was “concerned with the
ways in which banks tapped into this pool to buy funds for domestic use, allowing them to
circumvent the Fed’s attempts to control the creation of credit and money” (Konings 2008,
p.49). It was due to the opaque maelstrom of liquidity in the Euromarket that U.S. firms
could “secure funding for domestic operations” and thereby inflate the domestic money
supply in the face of fixed productive capital that was welded to the regionality of the local
economy. As more and more credit was fuelling domestic operations, the internal money
supply was increasing unchecked which resulted in the double digit inflation of the late
1970s. A clear contradiction lay between the electron-like credit-moneys whizzing
supersonically in the invisible, latticed infrastructure of internationalised banking (where
debt-instruments were shorn of any national or individual identity) and the territorially fixed
productive capacity housing immobile workers. It is this incongruence which set forth in
motion the structural contradictions of the 1970s.
If one is willing to entertain the above assumption, then a partial resolution to the
contradiction would be to align the mobility of both financial and productive capital. To

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repeat, I will get to the disciplining of collective labour later in the dissertation. The above
implication is that the amorphous process of globalisation is fertilised into existence at the
inception of the Eurodollar market whose constituent molecules are credit-moneys in the
form of USTS. It is the congealed body of the constituent molecules, USTS, circulating
outside the purview of a single regulatory state body that incrementally evolved into a
deeper and more sophisticated maelstrom of liquidity for Western credit demands. As a
result, the building block of the globalisation edifice is debt; debt issued by the U.S.
Treasury. The post-‘Volcker shock’ crusade of neoliberal market reforms that consecrated
investor rights can be seen as the attempt to resolve the mobility incongruence between
fixed productive capital and financial capital. To stress, the attempt at such a resolution
must be seen structurally, i.e. done so as to alleviate the high inflationary pressures in the
advanced economies wrought by a swelling money supply funnelled by private banks. In
other words, the drive to heighten the global mobility of private fixed capital (and
concomitantly tap the vast reserves of politically exposed labour) in the late 1970s was
necessary if the system was to escape the inflationary mire that threatened the global
monetary system. The inner logic of the capitalist system took hold, so to speak, when the
universal equivalent, the dollar, was being eroded by double digit inflation.
The first manifestations of a world architecture designed to accommodate the expansionary
territorial needs of fixed productive capital was the 1977 Bilateral Investment Treaty
Program whose principles designed to establish “codified state commitments to specific
standards of investment protection, and binding depoliticised quasi-juridical dispute-
resolution procedures” (Panitch and Gindin 2013 p.230). The treaty heralded the
introduction of trade mechanisms that sought to sever and severely weaken the host state

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from any interference in the internal affairs of the foreign firm. Within these highly
politicised dispute-resolution mechanisms, the host state was frequently reduced to a
private agent devoid of sovereign mandates and at a legal parity with the foreign firms
(Panitch and Gindin 2013). Exceptional stress was laid on the principal “that the
expropriation of foreign investment was unlawful unless accompanied by a prompt,
adequate and effective compensation”; the precise quantification of the monetary
compensation further attenuated the sovereignty of the state as a serious actor in the
economy (Panitch and Gindin 2013, p.230). As a result of the structural alignment of
financial and productive capital, the national border was transformed and almost subverted
from its legal definitional provenance in the 1944 Bretton Woods Agreement. The nation
state as the self-contained, internal circuitry of capital coordinated by the institutional-legal
arrangement was increasingly compelled to internalise and rationalise the emergent post-
Volcker landscape of ever-encroaching capital mobility and fluidity. The dawning new
horizon of investor rights fully embodied in the ambitious trade liberalisation treaties
entailed the export of the market friendly law structure found in the U.S. law system itself.
Interestingly, Keleman and Sibbit’s (2004) study reveals the number of overseas American
lawyers working for U.S. firms rose from 803 in 1985 to 4,319 in 1999; the number of U.S.
law firm offices increased from 80 in 1985 to 245 within the same time range.
Unsurprisingly, the cases of successful asset nationalisation by sovereign entities declined
from 375 in 1981 to a mere 7 in 1998 (Panitch and Gindin 2013). The bridging of the mobility
gap between the productive and financial factions of capital that served as the partial
resolution to stagflation required a complete reconstruction of international law as
pertaining to foreign direct investments. The 1982 Debt Crisis was the ideal platform to
incinerate any vestiges of nationalistic overtones in the indebted nations and to solidify

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further the neoliberal paradigm of unfettered invertor access to all parts of the globe.
Kapstein (1996) details how the apparent unwillingness of U.S. banks to lend to the already
debt-riddled Latin America nations in the wake of the 1978 oil crisis was overruled by higher
chains of commands, especially the IMF, to lend irrespective of repayment credibility. Once
the IMF voiced support to the lending programmes, private U.S. banks issued large loans to
Latin America knowing fully that the U.S. Treasury and the Federal Reserve would intervene
in the contingent case of loan-payment difficulties. (Kapstein 1996). The Debt Crisis locked
Latin America into the neoliberal paradigm of ultimate capital mobility. Once fixed
productive capital had greater territorial spread to invest in profitable outlets, a synergetic
growth in the sheer scale of credit-moneys multiplied so as to fund these newly liberalised
ventures. I shall now aptly return to the second transformation of debt referred in the
subheading above.
The second in the duality of debt-transformation focuses on the inherent relation between a
debtor and a creditor. Once the U.S. monetary authorities decided to disband the Gold Pool,
the delicate interdependence between the surplus nations and the structurally deficit
nation, the U.S., began to coevolve with the diminished role of gold as the universal
calibrator of credit-moneys. Once gold was officially dethroned from the universal
equivalent role held for five millennia, the U.S. Treasury and the Federal Reserve, through
Nixon’s policy of Benign Neglect, began constructing a global financial edifice orbiting
around the centrality and hegemony of the U.S. dollar and the USTS. Internalising Japan into
the U.S. Treasury bill standard through an unprecedented accumulation of USTS by the Bank
of Japan, and denominating OPEC petrol sales in dollars ensured a persistent demand for
U.S. sovereign debt, and concomitantly, the ability to run enormous deficits. Another crucial

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factor in the dollar-denominated global financial regime was the further deregulation of the
London Euromarket widely referred to as ‘the Big Bang’ on October 27 1986 (Seabrooke
2001). Heralded by the Financial Services Act of 1986, the enactment “removed high entry
barriers to trading on securities markets and liberalised brokerage commissions” (Seabrooke
2001, p.130). As a result of the financial deregulation on a firm’s ability to issue and trade
securities, “capitalisation on the NYSE [New York Stock Exchange] tripled, increased fourfold
on the LSE [London Stock Exchange], tenfold on the TSE [Tokyo Stock Exchange] and
threefold on the FSE [Frankfurt Stock Exchange]” (Seabrooke 2001, p.131). Seemingly, the
rise in fixed capital’s global mobility was reinforced by a manifold increase in the volume of
credit-moneys trading on the stock exchanges in the various global financial centres. A
synergetic co-dynamic arose whereby a Western firm could, with relative confidence, raise
sufficient financial capital on global capital markets and invest that capital in an oil plant or
copper mine in previously nationalised sites ,say, in Chile or Iraq. Thanks to the U.S.-
sponsored international law and trade infrastructure, any investment disputes between
private capital and national state would be resolved in avowedly pro-market courts of
supranational law. An important example is the foreign investment deals struck between
Western oil companies and the Iraqi state after the 2003 invasion. Most illustrative of the
neoliberal reconfiguration of the international investment paradigm regarding the
inviolability of contracts and investor rights, the Iraqi state was compelled under contractual
terms to pay the private companies for any potential loss of revenue arising from extremist
sectarian violence, and even any ‘Acts of God’ like natural disasters (Muttitt 2012, p.50).
Since the foreign investment was redefined as ‘Production Sharing Agreements’, the Iraqi
state was rendered powerless with regards to the future of what the Iraqi population saw as
its collective national wealth (Muttitt 2012, p.58). The gradual yet unrelenting process of

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achieving maximum geographical mobility for fixed productive capital, hitherto enjoyed by
its financial variant, wrought unimaginable social fissures for any nation state caught in the
trail.
The plight of labour
Documenting the plight of labour is made easier once conceptualised in terms of the
convergent mobility between the financial and fixed factions of capital. That mobility
convergence portended the inevitable fragmentation of a once collectivised and organised
labour into a politically subservient arm of transnational capital. In the simplest terms, once
local banks no longer depended on the savings (surplus) of their local workers, and instead
could raise financial capital in the unregulated Euromarket, the Keynesian capital-labour
compromise was reneged. Once Western banks restructured their internal models so as to
adapt in the volatile post-Bretton Woods financial reality, they were able to earn huge sums
in intermittent currency swings by betting on certain currency movements. Needless to
mention the inherent risk of collapse, as National Franklin Bank and Herstatt Bank de
Cologne clearly illustrate, the source of savings for banking collateral shifted from the
individual worker to a vast and faceless (dollar-denominated) money-market dwelling in
London. Currency arbitrage and the attendant volatility in value terms of other credit-
moneys meant fortunes could be amassed by sophisticated bets on price movements. Who
needs the puny savings of a factory-worker in Trafford when a single bet on the
deutschmark can earn his respective life-earnings. In short, the worker became
disintermediated from the newly emergent neoliberal paradigm. Debt-innovations were key
to the accrual of super profits, and it helps explain why many non-financial firms (like

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General Electric, General Motors and Ford) established subsidiaries specialising in financial
operations which earned higher profits than the initial core enterprise (Krippner 2005).
The study of (corporate or sovereign) debt as the genetic driver of globalisation however
unveils a deeper and far more worrying trend developing in the global economy. Since the
previous Federal Reserve discount rate hike back in 2004, central banks worldwide have cut
their discount rates 697 times and have purchased more than US $ 15 trillion worth of
financial assets (primarily credit-moneys such as sovereign and municipal bonds) (Rickards
2014). Harvey (2011) dubs this phenomenon the ‘capital absorption problem’ whereby a
lack of profitable outlet for capital galvanises the various international central banks into
cutting their discount rates and thereby injecting further liquidity into the global markets.
The net effect is the absurdity of unleashing ever-greater masses of liquidity in order to
absorb ever greater quantities of idle liquidity. In short, to combat lack of profitable outlet
for capital, more capital is unleashed to absorb the initial amount; which has the deleterious
(and absurd) effect of adding to the overall global pool of anxious liquidity looking for a
viable, productive and profitable outlet. Other commentators such as Rickards (2014) have
conceived of the ‘capital absorption problem’ simply as a concurrence of various global
super-bubbles in the sovereign bond markets, various real-estate markets and the major
stock markets. As a result of numerous rounds of ‘Quantitative Easing’ by central banks,
credit-moneys (in the form of sovereign bonds) have helped sustain the largest global
bubbles ever seen since the fallout of the Great Recession (Rickards 2014). By concentrating
on debt, and the attendant credit-moneys, one can trace the heart of darkness and thereby
presage (if not prophesise) future developments as a result of the insight provided by debt.
In short, the study of debt lays bare and agape the internal logic of the globalisation

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phenomenon. At the current time of writing (September 2015), one can already see the
effects of the Central Bank-pumped credit-moneys in the Chinese and U.S. equity markets;
and by focusing on debt, one can then truly grapple with the capital absorption problem
which will swarm over the global economy in the coming months.
Conclusion
I have argued that an important insight can be had into the process of globalisation if U.S.
sovereign debt (mainly the USTS) is seen as the enabling structural unit. My main argument
consisted in outlining the historical timeline where the USTS attained the prerequisite status
as the world reserve currency, or the universal equivalent, which allowed the U.S. to shape
the global economy in its own pro-market, globalising image. After the historical timeline, I
adumbrated the theoretical underpinning for my theory, which I explained stemmed
primarily from Harvey’s eminent work ‘The Limits to Capital’ (1982). Having done so, I gave
my main reasons as to why the ‘U.S. Treasury bill standard’ conception of globalisation
would give valuable insight into the dynamic interrelation between global capital and
labour. At the heart of that argument lay the inherent contradiction between the instant
mobility of financial capital against the relative immobility of fixed productive capital that is
welded to its immediate surroundings. By exploring tension, one thereby attains a
marginally nuanced into the constantly shifting process of globalisastion.

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