According to John Ross (Peoples Dispatch 12 October 2022) the inflation hitting the world’s economies has its origin in the United States manipulation of the financial system to export its own problems to other nations. He outlines how the exchange value of the Greenback is artificially lifted and debt created to ring profit to financial institutions. These have become the bedrock of the American economy. They benefit and others pay the price. Those paying the highest price are developing nations and those heavily ties to the United States economy like Australia. This shows the world needs a new financial system not in control of a superpower. John Ross is a senior fellow at Chongyang Institute for Financial Studies, Renmin University of China.

An inflationary tsunami is passing through the world economy, creating economic disorder—in some cases acute political crisis—in every country it touches. This is gathering momentum as the U.S., which is leading other Global North economies, attempts to control inflation by rapidly raising interest rates—forcing the Global North economies into recession.

Photo by D-Keine

The Global South economies have been thereby struck by a quadruple whammy producing still more severe stagflation, rising inflation, and slowing growth than in the Global North. 

• First, rising U.S. interest rates force up the dollar’s exchange rate against the currencies of developing countries, increasing import prices that are usually set in dollars, thereby worsening inflation for these developing countries. 
• Second, the dollar’s climb against the currencies of developing countries increases the cost in their currencies of repaying international debts, which are dollar-priced. 
• Third, to attempt to prevent a very sharp fall in their exchange rates, and to try to prevent capital from flowing out of their economies into the U.S., the Global South countries raise interest rates—pushing their economies toward recession. 
• Fourth, the Global North’s recession lowers the demand for Global South exports, putting further downward pressure on their economies.

Politically, this situation creates crises for several right-wing regimes in the Global South, but also adds negative pressure on the policies of progressive left governments and leads to the threat of “color revolutions.”

U.S. Inflation

The U.S. claims that this global inflation, and the downward pressure on living standards it creates, is due to the Ukraine war—and that therefore, countries should blame and unite against Russia. But a brief look at the facts refutes this claim.

The Ukraine war started on February 24, 2022, but U.S. inflation had already been rising sharply for nearly two years before that. U.S. price rises were 0.1 percent in May 2020, but by January 2022, before the Ukraine war, prices had risen to 7.5 percent—U.S. inflation rose by 7.4 percent before the war. In August 2022, U.S. price rises were 8.3 percent, a rise of only 0.8 percent since the war began.

More than 90 percent of the U.S. price rises took place before the Ukraine war. Therefore, it is important to think critically when the U.S. blames Russia for the worldwide inflation and the resulting reduction in living standards. The huge U.S. inflationary wave, which spread globally with only a two- to-three-month delay, since the U.S. is the world’s largest economy, took place before the Ukraine war. As the Wall Street Journal editorial board noted: “This isn’t Putin’s inflation… This inflation was made in Washington.”

Photo by R Miller

What Caused the U.S. Inflation?

It is easy to explain in technical economic terms why U.S. inflation soared—it was analyzed as it occurred by U.S. economists such as former Treasury Secretary Larry Summers. In May 2021 Summers warned: “We’re taking very substantial risks on the inflation side… The Fed’s idea used to be that it removed the punchbowl before the party got good… Now, the Fed’s doctrine is that it will only remove the punchbowl after it sees some people staggering around drunk… We are printing money, we are creating government bonds, [and] we are borrowing on unprecedented scales.”

The U.S. budget deficit rose to 26 percent of GDP and the annual increase in U.S. money supply reached 27 percent—both by far the highest in U.S. peacetime history. With a huge surge in demand taking place, and no major increase in supply, soaring U.S. inflation was inevitable.