The debt-based world financial system as enabler of settler colonialism in Palestine

The fact that we are witnessing genocide taking place in Gaza in real-time with no country interfering directly to stop it from happening highlights the utter helplessness of the international community to stop Israeli crime towards Palestinians.

At the time of writing, the number of Palestinians killed by the Israeli military has exceeded 30,000, with 70 per cent being women and children, despite the decision of the International Court of Justice (ICJ), which found it plausible that Israel's acts could amount to genocide.

The ICJ also issued six provisional measures, ordering Israel to take all measures within its power to prevent genocidal acts, including preventing and punishing incitement to genocide, ensuring aid and services reach Palestinians under siege in Gaza, and preserving evidence of crimes committed in Gaza.

Israel has ignored all.

It is also important to note that in December 2023, the United Nations General Assembly (UNGA) adopted a resolution demanding an "immediate humanitarian ceasefire", the immediate and unconditional release of all hostages and "ensuring humanitarian access" to the people of Gaza. The resolution was passed with a large majority of 153 in favour and ten against, with 23 abstentions.

However, this was also ignored by Israel, which was not surprising considering that its main backer, the United States (US), was among those who voted against it. Moreover, unlike the UN Security Council, the UNGA's resolutions are non-binding.

Unfortunately, even at the UN Security Council, Israel is shielded from international actions by the US and its main allies. For example, in the case of the Gaza genocide, on Oct 16, 2023, Russia proposed a resolution that called for a humanitarian ceasefire in Gaza after thousands of Palestinians in Gaza were killed after ten days of attack by Israel. China, Gabon, Mozambique, Russia, and the United Arab Emirates supported it. However, four countries, France, Japan, the United Kingdom, and the United States, opposed it.

Four months later, on Feb 20 this year, with the number of Palestinian deaths approaching 30 thousand, the UN Security Council again deliberated on a ceasefire resolution, this time proposed by Algeria. The resolution received support from thirteen member states, who were concerned not only with the number of deaths but also the threat of famine facing two million Palestinians.

Again, the United States used her veto to stop the resolution from being adopted, thereby allowing Israel to continue its killing spree in Gaza and block humanitarian aid from reaching the hungry people of Gaza, proving yet again the helplessness of the international community when it comes to opposing the settler colonial project in Palestine.

The sentiment is not reflective of Ordinary Citizens

In reality, most ordinary citizens are sympathetic to the plight of the Palestinians. For example, even in the US, the number of people who are against what Israel is doing to the Palestinians is enormous and growing, too, especially among the youth.

According to a recent poll, half of US adults say Israel's 15-week-old military campaign in Gaza has "gone too far". Among younger Americans and along political lines, divisions are more prominent.

Almost half of those surveyed aged 18-29, 49 per cent say Israel is committing genocide, with 24 per cent disagreeing and 27 per cent uncertain. Of registered Democrats, 49 oer cent say Israel is committing genocide in Gaza.

The German government is strongly pro-Israel, but a recent poll showed that the German public is against any siding with Israel and strongly opposes military support for it. About 43 per cent of respondents to the said survey have said that Germany should stay out of the conflict, and only 34 per cent said that they agreed with the view that Germany has a special responsibility toward Israel because of its Nazi-era past.

In the UK, a poll showed overwhelming British public support for an immediate ceasefire in Gaza. The survey conducted in December 2023 found that 71 per cent of the British public believe there definitely (48 per cent) or probably (23 per cent) should be an immediate ceasefire in Israel and Palestine. Conversely, only 12 per cent of people felt that there should not (six per cent) or probably not (six per cent) be an immediate ceasefire.

Therefore, support for Israel in those countries comes mainly from the rich and powerful financial and political elites rather than from ordinary citizens.

Dependency on US Aid

A situation where the sentiment regarding the colonisation of Palestine among the rich and the powerful elites is not shared among the ordinary citizens also exists in some Arab or Muslim countries such as Egypt, Jordan, Saudi Arabia, UAE and Bahrain.

The governments of these countries may not be strong supporters of Israel but are nevertheless having diplomatic relations with Israel or are planning to normalise relations with Israel. Democratic freedoms do not exist in these countries, which explains why ordinary citizens' views are not translated into the official stance of the countries.

An important factor is economic dependency on the US. This applies to Egypt, the second largest receiver of US foreign aid after Israel. The aid is both economic and military.

For 2022, the Biden administration requested a total of USD 1.4 billion in bilateral assistance for Egypt and provided grant aid that Egypt can use to purchase and maintain US-origin military equipment.

Turkey has had diplomatic relations with Israel since 1949. Despite strong words of condemnation of Israel, including regarding the genocide in Gaza, Turkey is still not willing to cut diplomatic ties with Israel.

One of the most important reasons is the strong economic ties between the two countries.

Two days before the Hamas attack on Israel on Oct 7, the Turkish Energy Minister announced his plan to visit Israel in November to discuss the shipment of natural gas to Europe through Turkey as well as domestic consumption. The plan is now suspended due to the current situation in Gaza.

Nevertheless, it will likely be resumed since Turkey is keen to increase total trade between the two countries to improve its economy, which has been in a doldrum over the last decade.

Another example of a country that is highly dependent on the US is Fiji. The US provides numerous types of assistance to Fiji, including financial grants, support for early weather warning systems, technical assistance for development programs, support for forest and land management, conservation, funds to support the Fiji Election Office, and funds to help address violence against Fiji women.

The U.S. also contributes US Coast Guard and US Navy air assets to help Fiji protect earnings from fishing licenses in the country’s exclusive economic zone (EEZ). Most importantly, Fiji receives from the US Foreign Military Financing (FMF) to equip its military, including sending Fijian officers and senior enlisted personnel to professional military education and leadership development courses in the United States.

Therefore, it is not surprising that the only two countries that urged the International Court of Justice not to issue an opinion that declares the nearly six-decade occupation of Palestinian territory illegal are the US and Fiji.

External Debts

Another critical factor that has weakened many Muslim countries is the problem of unmanageable external debt, primarily denominated in US dollars. The best example of how external debts forced a change in policy regarding Palestine is the case of Sudan, which was experiencing economic problems under the rule of previous President Omar Al Bashir, who was very corrupt and deeply unpopular.

In 2019, the Sudanese military realised that the situation was untenable and decided to overthrow and have him imprisoned. However, Sudan’s economic problems remain unresolved, including inflation, which worsened when the value of the Sudanese currency depreciated against foreign currencies, thereby increasing the cost of imported goods. The government also faced a severe debt problem.

The new Sudanese government under Prime Minister Abdalla Hamdok is, therefore, in a very tight spot and facing the growing anger of his people.

Exploiting this situation, the Trump administration offered Sudan financial assistance, provided Sudan recognises the state of Israel. The then US Secretary of State Mike Pompeo, relayed the message during his August 2020 meeting with Abdalla Hamdok in Khartoum.

The Sudanese government capitulated to the conditions imposed by the US and agreed to recognise and normalise relations with Israel in October 2020. Of course, many Sudanese, especially the Islamist groups, do not agree with this decision.

However, the Sudanese government felt that, despite widespread disagreement among many Sudanese with the normalisation move with Israel, the people's anger over economic problems was the more severe threat to its hold on power.

They thought that normalisation with Israel would help to solve their economic problems. Unfortunately, that is not the case. Sudan is now in a worse situation due to the civil war that has been ongoing for the last few years.

Pakistan is another weak country due to external debt. Since its formation, Pakistan has been characterised by political instability and economic problems. Moreover, Pakistan is notorious for its culture of corruption. In 2017, Transparency International (T.I.) listed it among Asia’s five most corrupt countries. Corruption and abuse of power are rampant, especially among the ruling elites.

Even though Pakistan’s leaders have changed numerous times, the problem of corruption remains endemic. In the meantime, Pakistan’s economic situation deteriorated. In the early 2000s, government debt climbed to the highest in South Asia at 99.3 per cent of GDP.

Pakistan’s dependence on external financial assistance, especially from American financial institutions, resulted in Pakistan becoming indebted to the American government. As a result, it often acquiesced to American demands, including in military aspects, angering Conservative groups in Pakistan, some of which decided to resort to violent means, attacking government institutions such as mosques and universities, leading to many deadly encounters.

By 2013, the country’s debt situation was critical. Nawaz Sharif had to borrow US$6.6 billion from the International Monetary Fund (IMF) in 2013 to prevent the country from defaulting on its debt. In July 2017, he was forced to resign as prime minister again when the Supreme Court of Pakistan ruled that he was corrupted and unfit to hold the post.

In July 2018, Imran Khan won the general election and immediately faced the problem of high external debt. By 2021, the Pakistan government had doubled its external debt to USD 85.6 billion. Pakistan’s total debt and liabilities jumped to a record PKR 50.5 trillion at the end of September 2021.

Imran Khan was toppled in 2023 and is now in jail. However, the country’s indebtedness to the IMF and other American financial institutions means that it will never dare challenge the US’s policy on Israel other than the customary vote in support of resolutions condemning Israel.

Why are lenders able to lend so much money?

Some people may wonder where the sources of money are for governments, corporations, and individuals to borrow. It must be remembered that money is no longer physical and can now be created out of thin air, which most people, whether political analysts or economists are unaware of.

As explained by the Bank of England:

In the modern economy, most money takes the form of bank deposits. However, how those bank deposits are created is often misunderstood: the principal way is through commercial bank reserves making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.

The system where banks can create money as they issue loans has facilitated the growth of the banking industry worldwide. However, the biggest is the US banking industry, which has issued dollar-denominated currency to governments and corporations worldwide.

The only limit to the ability of the banking industry to issue loans is the ability of the borrowers to pay back the loans. If borrowers fail to repay their loans, the banks’ assets will disappear, causing them to become insolvent. The banking industry will then suffer a crisis.

To be sure, there have been many crises in the past. The last major one was the 2008 subprime banking crisis in the US because banks can lend money so easily, the total global debt has increased to more than USD300 trillion.

Who are the Main Creditors

Approximately half of all cross-border loans, international debt securities, and trade invoices are denominated in US dollars, while roughly 40 per cent of SWIFT messages and 60 per cent of global foreign exchange reserves are in dollars.

F.X. transactions are also heavily dollar-based, with nearly 90 per cent of all currency trades having the dollar as one leg of the transaction. The US dollar remained by far the most traded currency according to the latest Bank for International Settlements (BIS) Triennial Survey in 2019, and it has steadily increased its share of representation on one side of an F.X. trade to almost 90 per cent.

As the Bank of England explained earlier, almost all new currencies are created when commercial banks make loans. As a corollary, almost all new US dollars are created when US commercial banks give out loans. That explains why the US banks are among the biggest in the world.

Sources of funding for the US government

The previous discussions highlighted that the US government has been providing a lot of aid to many countries and is also the biggest funder of the IMF. In addition to the countries mentioned above, it is common knowledge that the US provides a huge amount of financial and military assistance to Israel.

According to one report, the US has given Israel more than $260 billion in combined military and economic aid since World War II, plus about $10 billion more in contributions for missile defence systems like the Iron Dome, the U.S. That is the most granted to any country throughout that time frame and around $100 billion more than Egypt, the second-highest recipient historically. [9]

The U.S. government may seem to have enough money to afford to provide all that aid. In reality, it does not have the money. However, it can do that because it has been able to continue to borrow a considerable amount of money from various sources, such as investment funds, pension funds, and the central banks of other countries.

As a result of the massive borrowings by the U.S. federal government, its total accumulated debt in 2023 was approximately $33.1 trillion. [10]

Regarding the main components of that debt, about US$26.5 trillion is held by the public and US$12.1 trillion in intragovernmental debt. `The public' refers to foreign investors and foreign governments (30 per cent of the debt), individual investors and banks (15 per cent of the debt), and the Federal Reserve (12 percent). States and local governments hold five per cent of the debt.

China, Japan, Brazil, Ireland, the UK, and others are the major foreign governments that have lent money to the US via their central banks. In 2023, the total amount of debt owed by the US to the central banks of China and Japan is US$2.2 trillion.

In 1980, the total US federal government debt was less than one trillion (30 per cent of GDP). By 2000, the total US Federal government debt was USD5.6 trillion (55 per cent of GDP); now, it is more than USD33 trillion (120 per cent of GDP).

Based on the growth trajectory of US federal government debt, many experts, including Professor Kotlikoff of Boston University, believe the US government will never be able to settle its debt.

Any attempt to reduce the debt will require a cut in government spending and an increase in the tax rates. That will cause a recession and will be deeply unpopular.

In other words, the US government is technically bankrupt but since it is not a corporation, it will continue to operate. However, the American masses will be pressured to help the government manage its debt.

The bottom level of society suffers the most.

Implication for the Colonisation of Palestine

Historically, any military endeavours are expensive. Therefore, colonisation via military efforts, such as the one that is ongoing in Palestine, is a costly exercise.

The Israeli government is spending a considerable amount of money to maintain the state of Israel. The amount is getting more expensive due to the heroic resistance by the Palestinians.

The reason why Israel can continue with their Zionist settler colonialism project for more than 75 years now is simply due to its ability to obtain a continuous supply of resources to fund its military operations.

The primary funder of those resources are the United States government, private sector lenders, and tax-exempt donations, mainly from the United States. As long as the United States government is willing to borrow money in order to fund Israeli military efforts, there will be no end to the genocide and apartheid in Palestine.

However, the huge financial resource that funds Israeli military efforts is made possible by a financial system that can create money from thin air, which is then lent to borrowers. Over time, the system will create super-rich classes of people, while the vast majority will face an acute problem of the cost of living.

At the same time, the debt burden of the US will keep increasing. There will come a time when the US public will no longer tolerate the situation since ordinary Americans are suffering from a variety of economic problems due to this situation, including worsening cost of living problems, unemployment problems and worsening public services provided by the government. When this will happen is difficult to predict since the financial institutions are still finding it lucrative for the situation to continue.

Unfortunately for Palestinians, it so happens that almost all US and European financial institutions are strong supporters of Israel, as evidenced by their statements of support for Israel in the aftermath of the Oct 7 military raid by Hamas.

Moreover, the super-rich and powerful financial elites in America, Europe and many other countries are also sympathetic to the Zionists, which is one crucial reason why the settler colonial project in Palestine is still ongoing after 75 years.

Conclusion

Many analyses of the ongoing genocide in Palestine have failed to factor in the economic and financial dimensions. Many focus on the policies of various governments, especially the US government, without explaining how the financial elites in the US have influenced its policy decisions.

The fact of the matter is that without financial resources, Israel cannot continue to commit horrible atrocities towards Palestinians. Israel can do it because the US has been able to borrow a considerable amount of money, created from thin air, from the US financial industry.

As long as the system allows this to happen, the ongoing atrocities will continue to occur even though the resulting outcome is a huge debt burden on the US government, which is impossible to repay. As a result, US citizens, especially the weak and the poor, are also victims of the situation.

To redress the situation, the masses need to do more than shout and protest against the ongoing injustice. They also need to dismantle the current financial system. Nevertheless, that will require an understanding of the unjust financial system and a change in their value system, which, unfortunately, currently supports and strengthens it.

Prof Nazari Ismail is from the Hashim Sani Centre for Palestine Studies at Universiti Malaya, Kuala Lumpur. The views expressed in this article are the author's own and do not necessarily reflect those of Sinar Daily.