Podcast Summary
Understanding Economic Hitmen and their Impact on Developing Countries: Economic hitmen manipulated developing countries into debt, diverting resources from essential services to infrastructure projects that primarily benefited the rich and powerful.
Learning from this episode of the Bitcoin Fundamentals podcast is the discussion about economic hitmen and their role in the global economy, as explained by author John Perkins. Economic hitmen were individuals who worked for international consulting firms, identifying developing countries with valuable resources and arranging loans from institutions like the World Bank. However, the funds didn't go to the countries but rather to construction companies, leading to massive infrastructure projects. While the rich and powerful benefited, the majority of the population suffered as resources were diverted from essential services like healthcare and education to pay off debt. Perkins' books, "Confessions of an Economic Hitman," provide a profound insight into how this scheme has played out for the past half-century. This conversation is particularly relevant now, as the world grapples with economic instability and resource extraction.
Expanding Influence through Debt: The Debt Trap: The US used debt as a tool to expand influence, imposing stringent conditions on loans to foreign govts, leading to economic imperialism, climate change, income inequality, and unrest.
During the late 20th century, the United States used debt as a tool to expand its influence and build a corporate empire around the world. This practice, known as the debt trap, involved offering loans to foreign governments, but with the implicit threat of force or intervention if they couldn't repay. The United States would then step in, often through the International Monetary Fund, to refinance the debt under stringent conditions. These conditions could include selling natural resources to American corporations at low prices, deregulating industries, and even allowing military bases on their soil. This economic imperialism was pre-planned, with the collateral for the loans often being the very resources that would be taken when the country couldn't repay. This system, while helping to fuel economic growth in the short term, ultimately contributed to a death economy causing climate change, income inequality, and unrest around the world.
Economic imperialism: The relationship between Western countries, international financial institutions, and developing countries: Economic imperialism results in unequal growth, favoring the wealthy and powerful, and perpetuating dependence through loans and resource extraction, often influenced by Western countries and their organizations.
The relationship between Western countries, international financial institutions like the IMF and World Bank, and developing countries involves complex economic transactions that often result in significant debt and resource extraction. This process, known as economic imperialism, can lead to economic growth but primarily benefits the wealthy and powerful in those countries. The United States, through organizations like USAID, plays a role in influencing how these loans are used, often favoring projects that benefit American companies and further entrenching the power of local elites. The end result is a rigged system that perpetuates inequality and dependence.
Securing power access for oil extraction leads to complex financial deals: Oil companies secure power access through loans from international institutions, leading to diversion of funds from essential services and potential IMF intervention, creating economic and political consequences for developing countries.
The process of extracting natural resources, in this case oil, from developing countries often involves securing access to power first. This is typically achieved through loans from international financial institutions like the World Bank, which require the resource as collateral. The construction of infrastructure projects like hydroelectric plants to access power also benefits oil companies by enabling easier access to oil deposits. However, the cost of these loans often leads to diversion of funds from social services and other essential programs, making it difficult for the country to repay the loan. In such cases, international organizations like the IMF step in to restructure the loan, often imposing additional conditions that can further burden the country. This complex web of financial deals and geopolitical maneuvers can result in significant economic and political consequences for the borrowing country.
Exploring Investment Tools and Strategies: Utilize AI-powered research tools like Makea and consider alternative investments for potentially higher returns and unique opportunities. Institutions like the IMF provide stability, but managing inflation and debt in advanced economies remains a challenge.
There are powerful tools and strategies available for investing, such as Makea, an AI-powered stock research assistant, and alternative investments like private equity and real estate. Makea provides nearly instant access to financial data and insights, while alternative investments offer potentially higher returns and unique opportunities. Additionally, institutions like the IMF act as a safety net for lenders in the global economy, allowing them to extend loans to developing countries with the confidence that the IMF will step in if needed. However, the continual decrease in interest rates over the past few decades has allowed countries to accumulate debt more easily, and it remains to be seen whether advanced economies will be able to effectively manage inflation and debt moving forward. The Holy Grail of Investing by Tony Robbins and Christopher Zook provides insights from investing titans on how to navigate these complexities and maximize returns.
Lower interest rates enable larger debts, acting like an 'economic hitman': Countries take on larger debts due to lower interest rates, but as rates rise, they may reconsider and explore alternatives like El Salvador's Bitcoin adoption or China's economic model
The lower interest rates facilitated by the economic system have allowed countries to take on larger debts, acting like an "economic hitman" offering loans that may not have been feasible before. However, as interest rates rise, countries may begin to question the sustainability of this model and explore alternatives, such as El Salvador's adoption of Bitcoin as legal tender. The Washington Consensus' grip on the global economy could be challenged by China, which offers more favorable terms and has lifted hundreds of millions out of poverty, making its economic model increasingly appealing to developing countries.
China's Economic Strategies: Adapting to Avoid Backlash: China offers less intrusive, more beneficial alternatives to Western economic tactics, expanding influence through initiatives like the Belt and Road Initiative.
China's economic strategies have learned from the mistakes and successes of Western developed economies, and they have made alterations to the traditional economic hitman tactics, particularly in the area of divide and conquer. Instead of focusing on bilateral trade and imposing their will on countries, China offers to connect them with the world through initiatives like the Belt and Road Initiative. This approach is more appealing to countries and helps China avoid the backlash that Western powers have faced for their past interventions. The fear, debt, anxiety over insufficiency, and divide and conquer tactics are still present, but China has adapted them to be less intrusive and more beneficial to the targeted countries. This approach has helped China expand its influence and build strong economic relationships around the world.
Pressure to Inflate Growth Forecasts in the 1970s: Consultants were incentivized to inflate growth forecasts, leading to excessive debt accumulation in countries. Belief in infrastructure growth's positive impact on GDP obscured the truth, making it difficult for professionals to accept the fallacy.
The incentive structure in the economic consulting industry during the 1970s encouraged consultants to inflate growth forecasts, leading to excessive debt accumulation in countries. Preston and David were discussing Preston's experience working for a consulting firm where his boss pressured him to make higher electrical growth forecasts than a more experienced colleague. Preston believed he was doing the right thing, as he had a strong belief in the positive relationship between infrastructure growth and GDP growth. However, he later realized that GDP growth is a poor measure of true prosperity and that the industry's top executives were promoting a false narrative. Preston found it difficult to accept the truth and continue living a luxurious lifestyle that came with his newfound success. This situation is not unique, as many professionals in the industry may still believe they are making a positive impact, unaware of the fallacies in the system.
Public.com's High-Yield Cash Account and Shopify's Global Commerce Platform: Public.com offers a high-yield cash account with a 5.1% APY, while Shopify is a global commerce platform that helps businesses sell and grow with an all-in-one ecommerce solution and POS system. In the past, the US economy relied on Saudi Arabia for oil and prevented a potential crisis through a deal involving US treasuries.
Public.com offers a high-yield cash account with an impressive 5.1% APY as of March 26, 2024, which is significantly higher than many other financial institutions. This account is a secondary brokerage account with Public Investing, which partners with banks to offer variable interest rates and FDIC insurance. Meanwhile, Shopify is a global commerce platform that helps businesses of all sizes sell and grow, with an all-in-one ecommerce platform, POS system, and converting checkout. In the past, the US economy faced a critical moment during the oil embargo by OPEC, led by Saudi Arabia, which led to the transition to a petrodollar system and Saudi Arabia buying US treasuries. This deal was crucial for the US economy as it secured a dependence on Saudi oil and prevented a potential economic crisis.
The petrodollar system: A historical US-Saudi relationship: The petrodollar system, a US-Saudi agreement from the 70s, is losing significance due to China's rise and Saudi Arabia's diversification, strained by geopolitical tensions and economic shifts.
The relationship between the United States and Saudi Arabia, established in the 1970s, was a mutually beneficial agreement known as the petrodollar system. This deal required Saudi Arabia to sell oil only in US dollars and reinvest most of their petrodollars in US treasuries. In return, the US protected Saudi Arabia and helped modernize their country. However, this agreement is losing its significance as China emerges as a strong global power and Saudi Arabia seeks to diversify its customer base. Additionally, tensions between the US and Islamic countries over issues like Israel and China's treatment of Muslim groups have strained the relationship. The net producers versus net consumers dynamic in the world economy, as highlighted by Preston Pysh, may be contributing to geopolitical tensions, and the compressed yields and high debt prices leading up to COVID-19 may be accelerating the unraveling of this system. Ultimately, it's crucial for the US and other global powers to find peaceful solutions to these complex geopolitical issues and work together to address common challenges like climate change.
Competition between US and China: A complex relationship: Competition between nations drives progress and can lead to collaboration, despite interconnected economies and financial systems. The rise of cryptocurrencies may challenge traditional economic models, but powerful economies adapt.
Competition between countries, such as the United States and China, can be beneficial if it drives innovation and improvement. However, the demonization or definition of competition as an enemy or economic war is a mistake. The US-China relationship is complex, with interconnected economies and financial systems, and both countries are highly competitive. Competition can lead to progress and collaboration, like two tennis players striving to be the best and eventually forming a strong doubles team. The rise of cryptocurrencies like Bitcoin, which can't be controlled or printed by any country, may challenge the traditional economic imperialism model. However, powerful economies have historically found ways to adapt and co-opt new technologies. The future of cryptocurrencies and their impact on economic systems remains to be seen.
Transitioning from the death economy to a system that pays for environmental solutions: We need to shift from our current economic system to one that values and pays for solving environmental problems, leading to a better understanding of success and humanity.
That we are living in a time of crisis and opportunity. John Perkins, the author of "The New Confessions of an Economic Hit Man," emphasizes that we cannot continue with our current economic system, which he calls the "death economy." Instead, we need to transition to a system where we pay people to solve environmental problems, such as mining plastic in the oceans and planting trees. This shift presents an incredible opportunity for humanity to move to a new level of consciousness and action, leading to a better understanding of success and what it means to be human. Trey Lockerbie, from 3sixtyFourteen, strongly recommends Perkins' book as one of the top reads in the past five years. The conversation also highlights the importance of awareness and taking action, as well as the value of education and continuous learning. Listeners are encouraged to search for "We Study Billionaires" and leave a review if they find the content valuable.
