WBD674 Audio Transcription
Can Bitcoin Fix the IMF & World Bank with Alex Gladstein & Natalie Smolenski
Release date: Wednesday 21st June
Note: the following is a transcription of my interview with Alex Gladstein & Natalie Smolenski. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
Alex Gladstein is Chief Strategy Officer at the Human Rights Foundation & Natalie Smolenski is an Executive Director of the Texas Bitcoin Foundation. In this interview, we discuss Alex’s new book: ‘Hidden Repression: How the IMF and World Bank Sell Exploitation as Development’. We talk about debt traps, western support for dictators, US and UK culpability, and what freedom means.
“The incentives are such that it keeps going: the Ponzi keeps growing, the debt trap keeps growing, and countries keep falling into deeper and deeper subservience to the Western powers or to China… The only way you break this is with changing the monetary paradigm. I really do think as Bitcoin grows over the next few decades… a lot of this becomes unsustainable and ends.”
— Alex Gladstein
Interview Transcription
Peter McCormack: Alex, good morning, how are you?
Alex Gladstein: I'm great. Thanks for having us, Peter.
Peter McCormack: Always. Natalie, how are you?
Natalie Smolenski: Yes, doing great.
Peter McCormack: So, when we were planning this trip, this was this is the one we wanted to do most. We for a while realised we have to get you two together. I don't know, have you guys spoken much outside of this?
Natalie Smolenski: A little.
Alex Gladstein: Not much, but we were on a panel with Warren Davidson a couple of years ago, which was a lot of fun.
Natalie Smolenski: Yes, first Texas Blockchain Summit. I made sure to get this guy.
Alex Gladstein: Yeah, and he talked about 6102, and he talked about whatthefuckhappenedin1971.com on stage! It was amazing to see a congressman talk about it. So, fond memories of that, but I've been following her work and reading all the amazing stuff she's doing. So, this will be fun.
Peter McCormack: Yeah, so really, really glad to get you together. Natalie, it's been great to see what you've been getting up to over the last year, becoming more and more involved, which is amazing. How's it been for you?
Natalie Smolenski: Oh, busy. This is kind of my first, I would say, tour year. So, I've been doing a lot of speaking and travelling and trying to get the word out, and now it's time to actually produce some serious intellectual work. So, I'm working on a book and several articles.
Alex Gladstein: Exciting.
Natalie Smolenski: Yeah!
Peter McCormack: Can we get an exclusive on the book; what's it about?
Natalie Smolenski: Yeah, absolutely. Anthropology of Value. So, social scientific theory of value.
Peter McCormack: Wow, interesting. Is there a Bitcoin lens to it?
Natalie Smolenski: There is, Bitcoin's a case study.
Peter McCormack: All right. How long is it going to take?
Natalie Smolenski: Oh, a year or two.
Peter McCormack: Right. Well listen, we're hosting a conference next year in the UK in April.
Alex Gladstein: I'm coming.
Peter McCormack: Well, there we go. There's the first exclusive, Alex is one of our keynotes! We're going to try and get you over as well. But listen, look, really glad to get you together. Alex, I don't know how you do it. We're convinced there are Alex Gladstein clones, like there's another one back at home working on a book right now while you're here. I don't know how you do it, man, but another fantastic book, congratulations. We covered this topic before, but me and Danny said now the book's out, we could cover it again. Also wanted to bring Natalie in because me and Natalie have had a couple of great interviews, and we just think her understanding of geopolitics as well would add to this conversation.
But let's do almost a TL;DR because we did the previous interview, we'll have it in the show notes so people can check it out, but tell people what this book's about.
Alex Gladstein: Yeah, so obviously when you start looking at Bitcoin, you start looking at the world a little differently, you start asking different questions. And one of the big questions that people don't ask traditionally about the international monetary system is basically very much at all about the IMF and World Bank, which is weird, meaning there isn't like a Michael Lewis style, Big Short style book about the IMF or World Bank, there's no curiosity culturally in them. They're not very approachable subjects, and yet they're probably two of the most important financial systems or institutions in the world. When the US and its allies created the Bretton Woods system in 1944, they were two of the pillar organisations that the world was built on.
So for me, I started digging around last summer a little bit, because people were like slipping me things here and there about the IMF and I'm like, "Is this true; could this really be true?" I had seen that they were involved in the French monetary colonialism that I'd studied and written about and spoken about, because the IMF basically was a tool that France used to devalue currency and kind of restrict these economies in Africa, so I dove in and I just couldn't believe what I started to read about when I found all these old JSTOR articles. I would go and read Curtis and Sci-Hub.
There's this amazing Kazakh communist woman who runs this website called Sci-Hub, where you can get free access to all the world's academic articles which are normally behind these crazy paywalls. So, please donate to her, you can donate Bitcoin to her. You can't use fiat because they closed it down. But it's amazing, you read about like there's great pieces from the 1950s, 1960s, 1970s, 1980s, that are just buried and people have forgotten, but there's vivid details about what the IMF and World Bank did and continue to do.
That's why the book is called Hidden Repression, is because the repression is hidden. And I guess just the zoom out TL;DR would be that I think that it's true that western societies, US, UK, and its allies, have been successful because of our values, this is entirely true, for sure. Free speech, private property, freedom of assembly, freedom of religion, there's all kinds of cultural productivity stuff, it's true, we should be proud of those things. But what people don't talk about or don't know about is that we've also been successful because we've stolen a lot of resources and labour from poor countries, and that's just left out of the history books, you just don't read about that, and it's especially left out of the economics history books. So, that's a simple way of explaining the book in a nutshell and we can go from there, but that's the jarring reality, is that we rely on exploiting poor nations, and that's just a very uncomfortable truth.
Peter McCormack: And whilst these are international institutions, how much are they really American institutions?
Alex Gladstein: Oh, very much so. I mean look, again, the US won the discussion at Bretton Woods in New Hampshire, in a very beautiful hotel that I've been in, and they out-muscled Keynes and the British and all the other delegates, and they got their way. The others wanted to have this internationally managed kind of basket of different currencies to be the international trade settlement medium. And we said, "No, it's going to be dollars backed by gold". And, we got to have the IMF and World Bank headquarters in Washington, DC. They're not somewhere else, they're right there in DC, they're connected, which shows you how close the two organisations are. And they were originally set up to be the lender of last resort for the world's financial system, I mean these are reasonable things, and then a development bank to pay for things that private capital didn't want to fund in war-torn countries.
For the first few decades, that's what they did. And, you know what? I think even in a sound-money standard, these could exist. Countries could pull together resources to put out a fire in case something goes wrong in a country. At the beginning, they were created to stabilise exchange rates, at least the IMF was. The job was, if a country, like Britain for example or France, fell out of its balance of payments and couldn't afford to import anymore and basically went bankrupt, the IMF existed to go in and stabilise that country, because the goal of Bretton Woods was to make sure that the 1930s didn't happen again in terms of a breakdown in global trade. The spice must flow, it was the idea, right? That's why they exist. These neoliberal institutions that were created were meant to keep global trade going.
At the beginning, that's what they did. They helped western countries recover from World War II. They would step in and stabilise usually an advanced economy when it started to have a problem, and The World Bank would fund infrastructure in Japan and Europe, basically. I don't think there was malice necessarily there, and they did do what they were promised to do. The problem is that when Nixon took us off the gold standard, all these economists were like, "Why do we need the IMF anymore? It was supposed to stabilise exchange rates, but we're no longer pegged to anything, so why do we need it?"
What ends up happening, at least in my thesis, is that the bank and the funds pivoted late 1960s, early 1970s, from stabilising and helping the rich countries get back on their feet, to targeting and exploiting poor countries. And this is a transition that happens at the end of colonialism. Colonialism is ending in around 1960, it's basically declared extinct at that time. There's a couple of countries that persist, but basically you had this conveyor belt of cheap resources and goods coming into the heart of the western economic Empire of Britain for centuries, I mean and going back even further. I think about the conquistadors. I mean, what were these empires doing? What was colonialism really all about? It was about going to get the gold and cheap stuff from elsewhere to input into the British and French economies, for example, to raise quality of life at home in London or Paris. I mean, that's what colonialism was all about.
The amount of stuff they looted from India was just unbelievable. I mean, a lot of British people don't understand how much British civilisation is thanks to things stolen from India. I mean, it's unbelievable. India was the richest country in the world, and it was reduced to basically a subject of this small island in the North Sea, it's unreal. So that started to break down. And when you have a breakdown in a conveyor belt of cheap labour and resources, you start to have economic problems. So, that's one major reason why the Great Depression happened. That's something I advance in the book, off the back of some interesting thinkers, is that one of the reasons we had the Great Depression and so much economic trouble is because the colonial flow started to basically trickle and stop.
You could say the same thing about the 1970s. One of the reasons we had so much inflation in the United States is because we lost control over energy. Energy used to be controlled by western companies through the Seven Sisters, western corporations. Because of the end of colonialism, we had to give up control over energy production to these countries that actually owned the oil, OPEC, and they decided to raise the cost, right? So, the end of colonialism meant more inflation here, economic crisis here. You're almost seeing another wave of that now where globalisation is breaking down and you're going to see economic crises in the West. So this is history rhymes, right?
But basically, my thesis is that you had this colonial drain dynamic that's been very, very lucrative for western countries, and we figured out how to replicate that without the warship and the sword and the bayonet; we figured out how to do it with debt, and that's what we started to do with the IMF and World Bank. They're not the only actors in the system, but they're very, very important. And I'll finish with this before we get Natalie's thoughts on this, but I think a lot of people on the left have been criticising IMF for a long time. Confessions of an Economic Hitman, The Shock Doctrine, there were tons of conferences and movements in the 1980s and 1990s. They were mainly Marxist leftist folks, but there's some libertarian criticism too that's really good in the 1990s.
The problem with a lot of this criticism is it basically says the IMF and World Bank are like wasteful, corrupt, bureaucratic, waste of taxpayer money, and they hurt poor countries. This is all true, but they miss, I think, the biggest thing, that they're incredibly beneficial for us, the West. It's not just that they're inefficient or corrupt or that they hurt poor countries, that's true, but they benefit us, and they do that in three ways: interest payments, they make billions of a year off interest. Rich countries give money to the IMF and World Bank, and then that money is deployed at a very high cost. There's a spread, there's a Cantillon effect.
Peter McCormack: State-level loan sharks.
Alex Gladstein: Absolute predatory lendings, number one. Number two is the cheap resources and labour I described. I mean, basically you get all kinds of minerals, fossil fuels, timber, cheap agricultural products, and then you also get deflated labour, meaning the labour in these countries, the wages are brought down by IMF policies. So to give you an idea, in 2015, there was a study done where it's estimated that about 50% of all of the resources we consume in the West are from global South countries and about 30% of the labour. So just think about it this way. What if we woke up tomorrow and we had half the resources and the cheapest end of our labour spectrum was gone, meaning the cheapest one-third of the labour that we used to make our stuff and push our societies forward every day was gone? We'd have massive fucking inflation. So that's the idea, is we rely on these countries to subsidise our way of life.
Then the third way it's lucrative is control. I mean, we get political control over these countries and we engineer them so that they're dependent on us. This is done mainly through agriculture. Like Africa imports 85% of its food. It should be exporting food, it should be a net exporter. But basically what we do is in the West, we highly subsidise our agriculture so that we end up exporting food and then we withhold that food if a country misbehaves. We've done this many times. So, we wanted to be food sovereign, so we changed the rules of international trade, and we subsidised industries to crowd out these Third World countries, so they end up having to basically do monocrop agriculture and raw materials exports to earn dollars so they can pay back their debt. And this is the whole thesis, is that these institutions are not just harmful for poor countries, that they're very, very beneficial for us.
Peter McCormack: Natalie, we recorded a show based on an article you wrote, the Refounding of the American Dream.
Natalie Smolenski: Yeah.
Peter McCormack: And we covered a lot of the collapse in the values and the almost corruption within the US politics, but I wonder if there's exact parallels between what's happened within the US Government and what's happening within these institutions. It almost feels like it's the same incentive models which have become aligned.
Natalie Smolenski: Yeah, so I loved Alex's historical summary. There's another dimension to that, which is that after the Second World War, the United States' foreign policy was completely consumed by the fight against communism. And so our rebuilding efforts for allied countries and the so-called Third World was always packaged as, how can we fight communism by providing this aid? And so USAID, the primary government-led aid organisation, was actually set up to fund anti-communist activity politicians in countries that say weren't the recipients of fully interest-free loans, like the Marshall Plan, which we basically we gave that to our friends. But if you if you weren't in the inner circle, then you got loans or you got USAID, which was in effect military aid for anti-communist factions, but under the guise of philanthropy.
So, we subsidised the economic growth of countries around the world in two ways, or more than two ways: one is through the establishment of these international lending institutions; one is through direct aid, USAID; and another is through the balance of trade. So, the United States chose to actually run a structural deficit vis-à-vis many of the countries that we wanted to recruit as allies in the Cold War, so that they could begin earning dollars and build up an economy. But we didn't do this equally or evenly or with some kind of consistent application of principles. And so to Alex's point, we have some industries that we just sacrificed in the United States, like manufacturing, we basically gave that to other countries. Other industries, like agriculture, we have protected very jealously and vociferously. And so we've kind of picked and chosen winners.
The other element to this international lending structure is that by the late 1970s, you had an overclass of hyper-wealthy individuals in many countries around the world, but particularly in the Gulf, as a result of the growing oil wealth. If you have billions of dollars, you can't just park that in cash. You have to find financial institutions and vehicles who are able to securitise that for you and create investment contracts, so that that money is making money for you so that you're not precarious.
As we were talking about with Lyn and Jeff the other day, there literally isn't enough cash collateral in the world if everybody wanted to redeem their balances. And so, these lending programmes were established in part through some of the sovereign wealth that was generated by resource-rich countries who, yeah, they were doing dollar recycling by plugging some of that back into the US Economy, but they literally couldn't do it with all of their money. They had so much money. And so some of that went to these international lending institutions who then had to deploy that capital. And so how did they do that? Well, by creating loans. Well, the rich countries don't need loans, the poor countries need loans. And so, there is a class element to this as well, where the wealthiest people in the world are constantly in search of safe places to park all their capital in a way that's going to return capital. Every wealthy family has a hedge fund or multiple hedge funds and that has created a fully striated economic system.
Peter McCormack: Danny and I were discussing this beforehand and we were discussing the idea that at a nation level, you essentially you have different classes. And it's almost at an international level, you now have the bourgeoisie and the proletariat and there's no upwards mobility available to these smaller countries because they're constantly being held back.
Alex Gladstein: Yeah, well they're stuck in what are known as debt traps.
Peter McCormack: Yeah.
Alex Gladstein: And it is interesting that the petrodollar system is very relevant to this. It's almost the foreign lending bubble that we still live in is almost an outcome of it. And I'll explain, like, basically what happened was due to the end of colonial control over energy, OPEC was able to raise the price of oil dramatically. And as Natalie was saying, not just individuals, but sovereigns in the Gulf had this just enormous, historically crazy amount of cash in the early to mid-1970s, so much so that they didn't know what to do with it. They couldn't just hold it in cash, they had to go put it somewhere. And even though the US had just basically been on the other side of a war with some of these Gulf countries over Israel in 1973, Nixon and Kissinger were like, "We've got to get somebody to buy our debt". This was a problem.
The US dollar lost 50% of its value versus the German mark in the three years after Nixon took the dollar off the gold standard, the dollar had a major crisis, we had huge inflation in the United States. Obviously, a lot of it was tied to energy, a lot of it was tied to just our spending, our reckless spending in Vietnam and our social programmes, but basically we needed to find someone to buy our debt to help bring those interest rates down.
So basically, we hired a guy off Wall Street named William Simon. He became Treasury Secretary, he flew out to Saudi Arabia, this was all documented, and they ironed out this deal where the Saudis would, again, price oil in dollars and then take the petrodollars, just the dollar earned by selling oil, they would take the petrodollars and invest them either into the growing eurodollar banking system in Europe or into the American banking system. And then as she was saying, a lot of this then made its way into these IFIs, these International Financial Institutions, and were lent to the Third World. So, in a lot of ways, the petrodollar system juiced up the banking system in a major, major way and then that led to this just crazy amount of lending to poorer countries.
So by the end of the 1970s, you had a 300%, 400% increase in loans to Latin America, Africa. You had – I mean we talk about bubbles, the stock market bubble, the dotcom bubble. I mean, you had mom-and-pop small banking institutions in the United States in the middle of nowhere making loans to countries in Africa. It was crazy. So there was this huge, huge bubble and then it popped. So what happened was, we had major, major inflation throughout the 1970s, and then we brought in Volcker. And much like Jay Powell is doing today, he tried to kill inflation inside the United States by raising interest rates really aggressively and really quickly. He raised rates all the way up to close to 20%.
This did indeed reduce inflation over time in the US, but what it also did is it popped this gigantic sovereign lending bubble to the Third World. And all these countries, all of their debt that they've acquired from IFIs, the World Bank and the IMF are dollar denominated, and they print weak currency. So, when the cost of capital goes up and the dollar gets stronger, they can't afford to pay anything back. So Mexico was the first one to go. They defaulted, I think it was in 1882. And then what happens is, everybody's caught with their pants down, because the US banking system was so over-levered on loans to these poor countries that we had to go bail them out.
This is a very important point. We didn't bail out Mexico in the 1980s or in 1994; we didn't bail out the Asian countries during the Asian Financial Crisis; we didn't bail out the Europeans in the 2010/11 Sovereign Debt Crisis; we didn't bail out Russia in the late 1990s, for altruistic reasons. This wasn't to save the Mexicans and Russians and Indonesians, this was to save our banks that had lent to these climates. And if we didn't do it, then what would have happened is those countries would have defaulted and then every loan is an asset on the western bank's balance sheet in this arrangement, and that would go to zero. And they don't like that very much because that causes a massive reduction of their balance sheet.
So, the incentives were for our system, which again is backed by these western creditors, our incentives were to say, "Look, we can do one of two things. We can accept a bankruptcy and we can write down the loan, or we can just make another loan", and they much rather would make the loan. This is the game, this is why it's a debt trap. So, because of this dynamic, you had exponential rise in Third World debt from the early 1970s to today. It literally is an exponential chart. I mean you had mid-sized countries, large, Global South countries, even Bangladesh, let's say, who would maybe have $100 million of external debt in the early 1970s; now they have $100 billion of external debt.
I mean, people knew that this was never going to be paid back. I mean, it's not designed to be paid back. It's a Ponzi scheme. The only possible way all these countries can pay back their debt is with more debt, and that's how the system keeps moving along, and that's why it's a debt trap. And it's very similar to a drug addict, actually. There's a lot of people have made this comparison, but it's very much these western lenders at the sovereign level are drug dealers and the drug is debt, and these poor countries, which again are almost always led by dictators or unaccountable rulers, they're the addicts and there's no one trying to take them to therapy or to rehab, it's not happening.
So, there's no incentive to change, there's just more and more and more debt, and that's one of the reasons why there's such limited international financial mobility and why there's such great inequalities in the system, is because you have all these different currency regimes. And we live in the dollar system or the pound system, and that's kept separate from the naira system or the peso system, and that allows us to crush the peso or the naira, to squeeze it to get more value out of it for us. But if we all, and this is where Bitcoin comes in in the book at the end, and what I'm going to say later on stage, if we're all in one open, neutral monetary network and language, you can't quite have these disparities in labour forces around the world. I mean, there will still be disparities, but they'll be basically arbitrage, it'll tighten a little bit faster. If everybody's using the same currency, it's not possible to have this system.
I mean, think about Africa today, it has 45 different currencies. What a nightmare is that? Imagine if each state in the United States had a different currency. We'd be so much more inefficient. That's what Africa is. So if it could be united around one currency, I think we could change the world.
Peter McCormack: When you talk about these leaders, these dictators being the addicts, but isn't there a difference spin to this in that they're open, well, I say open, but they're corrupt, another huge loan can come in, they know they can skim that off the top?
Alex Gladstein: Well, they don't have to pay it back personally.
Peter McCormack: Yeah, so they get to skim off the top and export the misery.
Alex Gladstein: Totally, they take 20%.
Peter McCormack: Yeah, and they export the misery to the country.
Alex Gladstein: Totally, and let's say, and to Natalie's point, a lot of these leaders were Cold War allies; not all of them, which was really interesting. The Cold War paradigm is a necessary, but not sufficient, way to explain this, because we ended up giving a lot of money to leftist leaders too through these institutions. So, I think the Cold War is a very important lens, but there's a bigger lens, and that's just the powerful exploit the weak, like biblical stuff, that's just the bigger picture. And that's why we were giving money to Ceaușescu in Romania, Mengistu in Ethiopia, Nyerere in Tanzania, the CCP. I mean, the IMF was funding the CCP. So, you can't just use the right-left paradigm to explain this.
I mean, there's a good book, called Perpetuating Poverty, that came out in the 1990s, about the IMF and World Bank, and there's a line in there about, "The IMF never met a dictator it didn't like", and that's what sent me down this rabbit hole in the first place. But I mean, it's true that it takes two to tango, and there has to be someone to accept the loan. I mean, the problem with this whole system, though, from the beginning has been that none of these leaders accepting these loans were democratically elected, or very few of them were, and that these loans were basically illegitimate. And when the leader was toppled, like for example in the Philippines in the 1980s, they got rid of Marcos, who had borrowed billions and billions from the IMF and the World Bank at high interest rates, it's not like the IMF goes, "Okay, you guys can have a Jubilee, you guys can have a write-off". No, they're like, "You still owe this". And the people of the Philippines were like, "Wait, but we didn't borrow it", and the IMF says, "I don't care if this is what you owe". And so 40% of the national earnings of the Philippines, the year after Marcos was ousted, went to paying back his debt. So it's this burden that they carry for decades.
Danny Knowles: But why at that point would they not then default on the debt?
Alex Gladstein: Well, again, the new leader comes in and what are their choices? I mean, you have to think about it this way. If you default on your debt, it's not just that people in suits rush in to convince you that here's more money. That's very appealing. But it's also not just political, but there's market stuff here. if your country is defaulting, no one wants to do business with you, so these are very tough choices, there's nothing easy here, you know what I mean?
Natalie Smolenski: Yeah, absolutely. And so, one of the one of the toxic elements of this structure is that the multilateral institutions had so indebted many countries rising in the mid-20th century, post Second World War, and propped up these unaccountable dictatorial regimes who actually were never going to pay back this debt, and so no private lenders or even other countries wanted to lend to these countries either. So, the alternative always became another multilateral institution. Like, the IMF was the lender of last resort because there was no other lender. And so they kept coming back to the IMF, because what private company or what other government would want to do a bilateral loan to these dictatorial kleptocratic regimes? Well, they wouldn't. And so that then further entrenches the cycle.
Peter McCormack: How much of this is malice and how much is this is a poorly incentivised system? Because I don't imagine you go to the World Bank or the IMF and they're full of evil people.
Alex Gladstein: No, I think it's very much the banality-of-evil thing. Most people who work at these institutions, they want to go change the world for the good, I think, overwhelmingly. Look, I think a lot of this is an outcome of our way of life and system, it's not necessarily conspiracy where you get around the table and say, "We're going to screw these people over". I think it's more of an outcome of the way of life we have.
But some of it is definitely ranging from uncaring to malice. I mean, the amount of money we gave Mobutu and Zaire, what he did to the Zairean people, I mean we were not ignorant of this, we knew exactly what was going on. And that is anywhere from uncaring to malice to evil basically, our support for him. This is just a shocking stat, I'll share it later today, but when structural adjustment, which is basically the process through which a country, when they borrow money from the IMF or World Bank, they have to follow conditions, conditionality, and those things are often currency devaluation, raising taxes, ends to subsidies on food and energy, basically sending the country into a recession, you have to think about it this way, they're trying to cut any expenses.
These countries in the Global South aren't allowed to have free healthcare, education, retirement; that's only for rich countries. For these countries, when we go in to develop them, we say, "Oh, no, you can't have any sort of state spending on anything, because we need you to export cheap stuff to us". I mean, it is malicious, I think, because it does the double standard. I mean the UK has free healthcare, etc, but none of the British colonies, they were never allowed to have those things, so this is a huge double standard. And I'm a classic liberal, I think that probably subsidies on these things are probably not a good idea, but you can't have the powerful country subsidising everything and then all the weak countries having nothing. I mean that causes terrible unequal exchanges, is what it's known as.
So, I mean the cycle just gets deeper and deeper, and I think there is, I mean, malice here, and just to finish with the Zaire example. 1972 is when the structural adjustment really kicked in and 1995 is when the conflict started to break out that ended up deposing Mabutu, but he was in power that whole time and they accepted more than close to $2 billion of money from the IMF, and then of course a lot more from other IFIs. But the point is that during that time of adjustment, the Zaire currency that they used there was worth $1 in 1972. By 1995, it was worth one-billionth of a dollar, and that's just the squeezing of the national economic lifeblood and the constricting of it. The real GDP of this country, even though the population exploded, declined by 40% during structural adjustment.
What happens is, when you have precipitous declines in GDP while your population is growing, people die, tons of people die. A good example, based on Mexico, which is a pretty good proxy for most of these countries, it's a large, medium-sized, large Global South country. When there's a 2% decline in GDP, the mortality rate goes up by 1%, so you can start thinking about a 40% decline in GDP. So, I mean tens of millions of people were killed by these policies, but no one will ever go to prison, there'll never be any justice.
Larry Summers was head of the World Bank's economic wing in early 1990s, he was the Chief Economist. He's on Twitter telling us what to do, he was in the White House, he's going to live in a mansion, he'll retire nicely. But none of these people will ever face any justice for what they did in these policies, which is of course an outrage, but it is what it is. I mean, we're not going to be able to take them to the Hague or whatever. I think that Bitcoin is a way out. It's interesting and maybe they'll be some justice there in some ways, but it is just something that we must reckon with.
Peter McCormack: Nathalie, we had an interview this week where part of the conversation was just discussing the economic success of the US and they said, "Well, why do you think the US is such a successful economy?" and they wanted me to say, "Property rights", and yes, I think that is part of the picture, everything you brought up at the start. I said, "Sure, I know what you want to say, but ever since I've discussed with Alex what's happened with the IMF and the World Bank, the economic imperialism, I think a lot of the success has come from that. And if the UK has also benefited from it, I actually just feel a lot of shame in this".
So, I don't know how to reconcile the two, but do you think we are too ashamed to admit this, and do you think we should be making this part of the conversation? I mean, do countries like the US and the UK actually have to take responsibility for this, or will they ever?
Natalie Smolenski: Oh, that's such an important question. The logic of power is to run out the clock. So, like Alex was saying, the powerful people who are responsible, directly and personally, for specific atrocities, sure, they're part of a larger structure, they're part of a machine, but they have participated actively in that machine. Their logic is to simply kick the can, create FUD, fight court battles, exit, make themselves inscrutable until they die, and to secure their inheritance and future generations in such a way that they're largely insulated from any blowback.
So then, the question becomes, like in the Philippines, well, who is responsible? Marcos is dead now, the people didn't take out these loans. I mean, the American people can be convinced to support various wars, but they're not the ones directing the national security apparatus to like, "Okay, let's go for Angola now. Okay, now let's do Iraq. Okay, now we've got to go to Indonesia". They're not the ones coming up with these plans, they are conscripted into strategies that they don't have really any visibility into. And so there is absolutely a truth-telling that has to happen about the colonial past of the United States, the UK.
Peter McCormack: The UK has faced its colonial past with India, they have faced that and dealt with that.
Natalie Smolenski: But the question is, what is to be done? I think that's really what you're getting at. So, now that we've told the truth about the role, let's say, of the United States in oppressing and extracting resources from these other countries, now what do we do as a people? Because that is what you and I and people in power today have agency over. And that gets at the question of, who are we as a republic? What values are we going to be guided by; and what are our policy priorities going to be?
Alex Gladstein: Yeah, and I would just say that, look, again, we have a lot to be proud of and we have a lot to be ashamed of. I mean, it's a nuanced picture. But I think that one thing that's distressing is to see people, if you think about why are you successful, you have values that are harmonious and productive and based on freedom, and then you have exploitation, right? But both domestically and abroad, I mean, let's not forget the history of African Americans in the United States.
But the point is that the sad part is, instead of realising this and as Americans confronting our history and saying, "We need to be less exploitative and focus more on our founding values", you see a lot of people, a lot of Americans, a lot of bitcoiners, a lot of libertarians simping for dictators. And this is just the worst, because the enemy is exploitation, and dictators are negative on both counts. Not only are they exploitative towards foreign countries, but they're also exploitative versus all of their own people. So, it's distressing to see people cheering de-dollarisation as if that's going to be good for the CCP or Putin, or whatever. It's distressing to me to see people promoting the UAE's structure of government as superior to the American structure of government. I really think this is important.
The way forward is to reform liberal democracies and improve them, it's not to give up on the idea of limited government power and go simp for some authoritarian. This is just very distressing. I don't know, I don't know if you've seen that, but it just really irks me.
Natalie Smolenski: Absolutely, and it gets at different understandings and conceptions of freedom. And this has been a problem as long as we have recorded history. In the ancient world, we often saw two different conceptions of freedom expressed in various legal, social, spiritual texts. One conception of freedom, actually, in the English-speaking world, so the word, "freedom", in English comes from an old Germanic word for friend. And so it is, you are free when you are a fully self-responsible, morally autonomous individual capable of friendship with others. And so, if you're a slave, if you're in a relation of subjugation, you have a much more limited capacity to do that. You can't freely enter into contracts, transact, your moral autonomy is always circumscribed, and so you can't be free.
In the Roman tradition, however, in the late Republic, we start to see a definition of freedom that increasingly means, the power of the Lord, the Dominus, to dispose however he will with his private property, and that property includes the people who are part of his household, including his slaves, his children, his women. And so, in the medieval period, for example, it was common to speak of the liberty of the gallows, which was every lord's right to have their own private execution station where they would execute people. And so there's, I think, a tension always politically between those who see freedom as their license to amass however much power they want personally and then behave with full impunity within their sphere of ownership versus a freedom that respects the moral autonomy of others, and sees my part in the social world as a relation of respect and morality with you.
Those competing definitions of freedom have been calcified from time to time in political ideologies, but I think that's done a disservice, because neither the left nor the right actually has a monopoly on either one of these definitions. They sort of slip between them, based on who they think the good guy is. And so I would suggest that a self-consistent morality and political philosophy actually emerges from this descriptive sense of a commitment to individual moral autonomy universally for everyone, regardless of station or background.
Alex Gladstein: And that has to remain our compass. Look, I mean, I would challenge any of the critics out there who are typical anti-American types who are simping for some dictator. I mean, I doubt they've written a more devastating criticism of the American state and project than that book that's sitting in front of you. But what you have to understand is that the answer is not to give up on, again, limited government power and personal freedoms in exchange for law and order statism. That's not the answer, the police state is not the answer. the police state's the enemy. So, let's make sure America doesn't become more a police state. Let's not give up on the American idea and project and go live in Dubai and praise an absolute monarchy. I mean, that's going back in time. That's more primitive.
We need to find ways to protect personal freedom, we need to find ways to make the American project less vampiric on poor countries, and I think we can do that by reforming our currency, to be honest. It will just happen over time if what we see in the world starts to, or continues to happen with Bitcoin becoming a bigger and bigger piece of the global economy.
Peter McCormack: This simping for dictators is something I've personally found particularly troubling.
Alex Gladstein: And thank you for speaking up on this, Peter, by the way, you've been a big voice here on this.
Peter McCormack: I want to come back to Bukele and discuss it with you because that's one I struggle with. But I've particularly been troubled by the same people call me a statist cuck simping for dictators. It's definitely the same crowd, there's an overlap.
Alex Gladstein: So, the people calling you a statist are typically lionising actual statists, that's the moral inconsistency here.
Peter McCormack: Yeah.
Alex Gladstein: Look, if they're willing to say Putin is evil, Ukraine is not a fake nation, in fact, its democracy is older than the United States; if they're willing to say the CCP is committing genocide; and if they're willing to say that only 10% of the population of the UAE are actual citizens, and that the whole thing is built on basically servitude and forced labour, then we can have a conversation. If they're not willing to say those things, then you know that they're just hiding.
Peter McCormack: Well, I've run into it a couple of times recently. So, I ran into it on Twitter yesterday with Zuby, and I like Zuby, I think Zuby is an interesting guy, says some interesting things, but I think I'm pretty sure he's talking about Saudi Arabia. And more broadly, I mean he was saying, "If you have to pay 20% to 60% of all your money you earned to the government or go to jail, then are you free?" and I was troubled by that because my response to him was, "There are places where you pay 0% tax, but you can go to jail for criticising the government".
Alex Gladstein: Sure.
Peter McCormack: It's like, "At least, pick your poison". But he also discussed the idea, he brought up a lot of 0% statistics in relation to Saudi Arabia, the crime rates, etc, but left out other statistics that are really important, and the nuance has been lost sometimes for people to make a specific argument, with skewed data or one data set but not the whole picture. And I've become particularly troubled by it, and I don't understand how some people can have such conflicting views.
Alex Gladstein: Well it shouldn't be.
Peter McCormack: I know it shouldn't be.
Alex Gladstein: It's confusing, a police state has low crime rate. How much petty crime do you think happens in Xinjiang, where the Chinese Government is committing genocide?
Peter McCormack: Pretty close to zero.
Alex Gladstein: Very low. How much petty crime do you think happens in Saudi Arabia or in, I don't know, Pyongyang in North Korea? Very, very low. The state has a total monopoly on violence in these countries and exerts it at without any impunity whatsoever. So, to the El Salvador point, it's entirely true, you can make a safer society by decreasing the amount of freedom that people have, that's entirely accurate. I mean, there are problems with that model, certainly, which is one of the reasons I don't think it's a good model, because it actually, over time, it can increase terrorism and it can increase violent opposition to the government if you crack down too hard. You see this in many, many, many countries. But ultimately, it comes down to what do you stand for?
If you want to come out and say that you are okay with sacrificing liberty for security, and you want to be consistent with that, that's totally fine. The problem is with people who are larping for freedom, who are okay sacrificing liberty for security, those people are just hypocrites.
Peter McCormack: Yeah, so the El Salvador one I find tricky because I agree with everything you're saying, and at the same time I've visited the country and it is still a democratic nation. I know he's shifted the constitution to run again, but I'm saying it's still a democratic nation, he is popular, he has dealt with a specific very, very bad problem of gangs and he's shifted that. He's also challenging --
Alex Gladstein: Remember democracy's not just about voting.
Peter McCormack: I know, just bear with me, he has also challenged the IMF and the World Bank; he's run up against them, which is a good thing. Can there ever be a middle ground where a benevolent dictator can improve the country and then restore maybe some of the institutions that he broke down? Can this happen?
Alex Gladstein: What do you think?
Natalie Smolenski: I think it's necessary, actually. So, the act of founding something is a dictatorial act. You don't ask permission to fight a revolution to found the United States of America. You get your people together and you, through violence, instantiate a new political reality. But the question is then, what do you do after that once your Republic is founded? Do you build the institutions that then can hold and steward this new political reality, without reference to any specific political personality; or, do you create a cult of personality that you then subordinate all of the structures of government to, to create an ongoing dependency on your particular self?
Alex Gladstein: That's Bukele, what she just said!
Peter McCormack: Exactly, and that's why I worry. I mean, my biggest question for him, if I got to interview him again, would be, what next?
Alex Gladstein: And Venezuelans can tell you this because they lived through this, but Chávez was enormously popular. Democracy, at least properly understood in my perspective, I know that everybody's got a different perspective on democracy, it literally just means, "Ruled by the people" in Greek. So, I mean it could be however you want to take it. But I prefer to look at it as liberal democracy, which marries rule of law with free and fair elections. I mean, that's what I think is the best way to govern in today's world. And what Bukele is doing is he's continuing to have elections, but he's destroying the rule of law and he's removing all checks on his power, and eventually the elections won't be fair.
You are going to have a tough time in El Salvador today if you're very critical of the government, which is why a lot of people just self-censor. And even people I know down there are just like, "Yeah, we're not going to speak out too much about the government. That would cause problems". People know what's happening. And again, that might be worth the trade-off, but don't pretend you're a freedom maximalist. If you're okay with locking up tens of thousands of people without due process, I will accept that argument to increase public order and safety, but you cannot be larping as a freedom maximalist anymore. You are now a law-and-order Republican. Go for it, you know?
Peter McCormack: I've been there and I've been in protests, and people can openly protest, in a way you can't in maybe other countries.
Alex Gladstein: That's true, I was with you at one. That was two years ago, we'll see!
Peter McCormack: Yeah, so, but that's my question.
Alex Gladstein: It gets worse over time, is my point.
Peter McCormack: Of course, and I know the trajectory and that's why my biggest questions are, what happens to the Constitution now? Is it a third election, fourth election? I actually felt like the job can't be done in five years.
Alex Gladstein: He's ripping it up, he's going to run again, even though it says in the Constitution he can't.
Peter McCormack: Of course, yeah, and maybe that's his version of a revolution, is doing it from inside the government.
Natalie Smolenski: FDR. I mean, the United States --
Peter McCormack: He served a third term, didn't he?
Natalie Smolenski: Yeah.
Peter McCormack: Did he serve a fourth term?
Alex Gladstein: Yes, but we didn't change that law until after him. But I would agree FDR's regime was terrible actually, especially when it comes to money and how he ruined the money standard in the United States.
Natalie Smolenski: Yeah, and I mean back in those days, even the government stated more plainly what things were. So, during the Second World War, FDR established an office of censorship, that's literally what it was called, and it specified very clearly what the rules were for journalists writing about the war, "You can write about these topics, you can't write about these topics", and the press largely complied. They followed these rules. The only major exception was when they started to break the story of Los Alamos. They didn't know what was happening there, they started writing about it. And so this gets at the question of, what is sovereignty?
So, the Nazi political theorist, Carl Schmitt, famously defined sovereignty in the 1930s as, "He is sovereign who decides on the state of exception". So, there is the rule of law and then there are exceptions. Who decides? The sovereign. And, Schmitt's attraction to the Nazi party at that time was that he saw it as the personal dictator, as the only way to break through the inability of parliament, of the Weimar Parliament, to get anything meaningful done. And so, there is a kind of overlap between the desire for the personal authority of the great man and authoritarianism.
But they don't necessarily have to overlap. For example, any company is a hierarchical enterprise. It is not a democracy, it is often led by, in effect, a dictator, a Chief Executive Officer, who makes decisions and takes responsibility for the direction of the firm. If you tried to do commercial enterprises as direct democracies, and this has been tried many times, there are certain limitations you run into really quickly. And so what does that mean? Hierarchy is a social technology. The military functions from hierarchy because you're not going to deliberate in the field, in the battlefield, over every little thing. You have to have an executive decision and implement it.
This is one of the reasons that I'm doing work in anthropology again, is because I think people have a lot of categories that are conflated, where they're seeing Bukele as Elon Musk, as Donald Trump, as Viktor Orbán, and they're conflating different structures of government, different corporate forms, and they don't have a coherent theory of how all this holds together and what these different forms do.
Alex Gladstein: I would also just add that I would make a call or a plea for nuance. Obviously I'm very critical of Bukele's governing style and I'm concerned about it, but I think it's awesome that he adopted Bitcoin for the country, I think it's a great move. I think it's awesome that he's trying to challenge the IMF. I maybe would contest just how much he's challenging it, given that they're still participating in all these programmes and they're a dollarised country, right. But I think it's cool to experiment with volcano bonds, renewables.
I think with FDR, it's worth pointing out that he did a lot of very, very positive things. He also stole the savings of America to fund the New Deal; nuance. I think RFK Jr has some interesting positions, I also think he has some bad ones. He thinks the Ukraine war is the NATO proxy war; that's crazy. So, he has crazy positions, he has good ones. We've entered into a culture where if I share a link about RFK Jr, I mean I I'll get cancelled by a lot of people in the centre left, I've seen this happen before. And this is what happened with Ron Paul, 15, 20 years ago, or even more recently than that. Again, I don't agree with all of Ron Paul's positions, but he had some really good ones. But if I were to say, "Oh, I think Ron Paul's thing on this is good", immediately people associate you with all of their positions. So I just think nuance is very important.
That brings us back to the book. I mean, I think that it's about nuance, it's about being able to tell the difference between features of the American system, the global system that are exploitative, and features that are good. And it's about us working together to try to reduce exploitation and improve cooperation. And I think that giving up on the project of America, just because it has had bad externalities, is not a good idea. I think we need to work to correct those externalities.
Peter McCormack: By the way, I've got Danny to bring me the book because there was a bit I wanted to read earlier. I'm sorry, I'm going to be jumping around because we're going to finish up soon.
Alex Gladstein: Go ahead, yeah, sure.
Peter McCormack: But this is my favourite bit, "The IMF basically exists to prevent the free market from working as it normally would. It bails out countries that would normally go bankrupt, forcing them instead deeper into debt. The IMF makes the impossible possible. Small countries hold so much debt, they can never pay it all off". Me and Danny were like, "The IMF is like a global Fed".
Alex Gladstein: Well, actually the Fed, I mean again, there's a lot of important financial institutions. I'd argue the IMF and World Bank are very important, but the Fed might take the cake. And the Fed has these things called swap lines, which are just basically they're bailouts for our allies. When there is a crisis in Japan or in France or something like that, we can establish a swap line so that those countries can exchange different kinds of financial collateral for US Treasuries or dollars, etc. So, they can basically take their assets, which are trading at like 60 cents on the dollar, and we'll take them for something that's worth a dollar. It's basically the BTFP programme, but globally, some of these swap line type things.
So, we're willing to do that to keep our own political allies more stable, and in a way it's sort of similar with the way IMF bails out countries, with the major exception that the Fed does not impose conditionality on these countries, because our wealthy allies were never going to get structural adjustment, this is not going to happen. I mean, in fact in the UK right now, there's a price cap on energy, right, or very recently.
Peter McCormack: Yeah.
Alex Gladstein: That would never happen in a country that's being structurally adjusted. No, they get rid of the price cap and it goes through the roof and then you just don't have electricity. That's what happens in a country like Egypt.
Natalie Smolenski: Done!
Alex Gladstein: I mean, no, it's just like, if it got bad enough in the UK, they would put a price cap on bread, for example, 100%; that would totally happen. Yet in Egypt today, because it's being currently structurally adjusted by the IMF, a country that's larger than Britain, by the way, there is no price cap on bread, and it's skyrocketing in price, and it's just sad. And there's not a whole lot that you and I and we can do about it now. This system, again, the incentives are such that it keeps going. The Ponzi keeps growing, the debt trap keeps growing, and countries keep falling into deeper and deeper subservience to the western powers. Or to China. I mean, China's got its own system going.
So, I think the only way you break this is with changing the monetary paradigm. I really do think, as Bitcoin grows over the next few decades and becomes a bigger piece of the puzzle, that a lot of this becomes unsustainable and ends, and that gives me a lot of hope.
Peter McCormack: If the US stopped doing this, would this leave a vacuum which China would fill?
Alex Gladstein: It's hard for China to fill it. I mean, they've tried. China has lent enormous amounts of money to the developing world. The problem is, China doesn't mint the reserve currency. So when a country goes bankrupt or can't pay China back, it's just a big problem. China can seize collateral, it can take over a telecom or something, but it doesn't necessarily want to do that. So, they're having a lot of problems with their lending programme and it's stalling, it's slowing down. Meanwhile, ours are ramping up because we can just do paperwork. $30 billion to Brazil for us is paperwork. For the Chinese, $30 billion to Indonesia is not paperwork, that's a big deal.
So, they're going to encounter issues because they don't have the same kind of privilege we have, but it doesn't mean that they won't try. Until, again, until or if we do move to something like a Bitcoin standard, these structures will continue to perpetrate, because this is what you can do with fiat currency.
Peter McCormack: Tell Alex about the HSBC ad you saw at the airport.
Danny Knowles: Oh shit, yeah. I think it was HSBC, or maybe it was Santander. It was a big bank on the airport in Australia when I was on the way here. And on the walkway down to the plane where they have all the posters, at the bottom right-hand corner it said, "Supporting the Belt and Road Initiative".
Alex Gladstein: Oh!
Peter McCormack: Yeah.
Danny Knowles: They're advertising that like it's a good thing.
Alex Gladstein: Yeah, and trust me, the Chinese lending scheme is even worse than the IMF's and World Bank. It's higher interest rates, more exploitative, and that's bad news. Again, I don't want to fall into this trap of criticising America and then boosting its enemies, I think we need to be equal opportunity critics and criticise what needs to be criticised. I mean, again, the number of people who will make arguments like mine, but then go turn around and simp for some dictator, is the majority of people, honestly. They loved Hugo Chávez, maybe they'll love Putin, it's just very, very sad. So, I'm asking for us to just be consistent anti-authoritarian here. And if we are willing to call out America's crimes and bad behaviour, then you certainly shouldn't remain silent about the UAEs or Singapore's or China's or anyone else.
Peter McCormack: Okay, so what now; what do we do; what is the action on this?
Alex Gladstein: I think, for me, it's doing whatever I can to just continue to support Bitcoin adoption. I mean, if you look at the data, the countries that got structurally adjusted the most, these big, meaty, industrial, Global South countries, like Argentina, Nigeria, Pakistan, Turkey, Brazil, Indonesia, those are the countries that have gotten the roughest part of this treatment, they have highest rates of Bitcoin and cryptocurrency adoption in the world.
Peter McCormack: Pakistan has just banned crypto, did I hear this week?
Alex Gladstein: That's the Streisand effect, that's not going to work, we've seen that before. Look at Nigeria, look at Argentina. Basically, these bigger industrial, Global South countries, they have really high rates of Bitcoin and cryptocurrency adoption. It's interesting, people are escaping. I think inarguably, Bitcoin allows individuals to escape from the system in a way that they couldn't 30 or 40 years ago. If you were being structurally adjusted in Peru in the 1980s, you were stuck. You only had your local fiat currency, there was no digital international financial system for you to escape into. Today there is. On your phone, you can escape, and that's a big deal. What we don't know -- and that's worth pursuing and celebrating. It can help individuals get out of that trap.
We don't know if nations can get out of it, we don't know what that's going to look like, but I mean it's worth thinking about in my opinion.
Peter McCormack: All right, before we close out, Natalie, do you have any final comments, because I think we're going to head out to the conference?
Natalie Smolenski: Yeah, so in the ancient world, pretty much every revolutionary programme can be summarised as, cancel the debt and redistribute the land. So, debt jubilees became routinised every 7, 10, 15 years, whenever a new sovereign took over, because the levels of debt would become so unsustainable and the social, I mean, these were slavery societies. So, if you couldn't pay your debts, your children were enslaved or your wife was enslaved, or your land was seized and now you're landless, or you personally were enslaved. And so, in order to prevent actual violence, rulers had to kind of do a reset every once in a while.
Our last big reset was the Second World War, and we no longer have debt cancellation as a political programme in any country anywhere in the world. And so my concern is, while Bitcoin is a sound money standard, it is not a programme of debt cancellation, it is not a programme to redistribute any wealth. Bitcoin is just a form of sound collateral. And the vast majority of people are going to have very little Bitcoin because they're going to have very little money in general. And so, we actually have to look at the destabilising effects that such large amounts of debt have on the societies of the world. And my fear is that if we don't actually adopt some programme of debt cancellation, then we're going to create war to cancel that debt.
Peter McCormack: Okay. It's kind of a sad end really, isn't it? Okay, well listen, Alex, another brilliant book, Hidden Repression: How the IMF and World Bank Sell Exploitation as Development. It's available everywhere. Is there an audio book?
Alex Gladstein: Coming soon.
Peter McCormack: Coming soon.
Alex Gladstein: You can get it on Bitcoin Magazine store or on Amazon.
Peter McCormack: Great, go get the book. Also check out Alex's previous book, Check Your Financial Privilege. We will link both in the show notes. And whatever Natalie writes over this next year or two, definitely check that out as well. Love you both, thank you both for this, really appreciate it, and continue your amazing work, thank you.
Alex Gladstein: Thank you.
Natalie Smolenski: Thank you.
