Starting in the 1980s, the United States accrued debts that easily dwarfed those of the entire Third World combined – mainly fueled by military spending. The U.S. foreign debt, though, takes the form of treasury bonds held by institutional investors in countries (Germany, Japan, South Korea, Taiwan, Thailand, the Gulf States) that are in most cases, effectively, U.S. military protectorates, most covered in U.S. bases full of arms and equipment paid for with that very deficit spending.
So what is the status of all this money continually being funneled into the U.S. treasury? Are these loans? Or is it tribute? In the past, military powers that maintained hundreds of military bases outside their own home territory were ordinarily referred to as “empires,” and empires regularly demanded tribute from subject peoples. The U.S. government, of course, insists that it is not an empire – but one could easily make a case that the only reason it insists on treating these payments as “loans” and not as “tribute” is precisely to deny the reality of what’s going on.
– ‘Debt: the first 5000 years’ by David Graeber, p6.
If the study of history shows us anything, it’s that it all comes down to power. The people on the top know that everything is negotiable. If there’s a real problem, you can always work something out – which is what we saw in 2008, when the financial establishment effectively convinced both political parties to step in and take care of several trillion dollars of their gambling debts.
The same thing goes for international relations. If Mozambique owes the US 10 billion dollars, Mozambique has a big problem. If the US owes Japan 10 billion dollars, then Japan has a problem, because there’s no way it can force the US to do anything it doesn’t want to.
Or even France: in 1971 when Charles de Gaulle tried to call in his US debt in gold, which he was legally entitled to do, Nixon just shrugged his shoulders said “fine, then I’ll go off the gold standard.” What was France going to do? Nuke us?
Actually, most of those countries that own all those treasury bonds know they are losing money by sitting on them (the yields are less than inflation), and they’ll never get all their money back. But most of them – Japan, South Korea, the Gulf States – are regimes under US military protection, in fact, with huge US military bases sitting right on top of them, so really we’re talking about protection money—in whatever sense of the term.