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  • The End of Dollar Hegemony

    HON. RON PAUL OF TEXAS
    Before the U.S. House of Representatives

    February 15, 2006


    The End of Dollar Hegemony

    The End of Dollar Hegemony

    A hundred years ago it was called “dollar diplomacy.” After World War II, and especially after the fall of the Soviet Union in 1989, that policy evolved into “dollar hegemony.” But after all these many years of great success, our dollar dominance is coming to an end.

    It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value.

    First it was simply barter of goods. Then it was discovered that gold held a universal attraction, and was a convenient substitute for more cumbersome barter transactions. Not only did gold facilitate exchange of goods and services, it served as a store of value for those who wanted to save for a rainy day.

    Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money. Sometimes governments succeeded in guaranteeing the quality and purity of gold, but in time governments learned to outspend their revenues. New or higher taxes always incurred the disapproval of the people, so it wasn’t long before Kings and Caesars learned how to inflate their currencies by reducing the amount of gold in each coin-- always hoping their subjects wouldn’t discover the fraud. But the people always did, and they strenuously objected.

    This helped pressure leaders to seek more gold by conquering other nations. The people became accustomed to living beyond their means, and enjoyed the circuses and bread. Financing extravagances by conquering foreign lands seemed a logical alternative to working harder and producing more. Besides, conquering nations not only brought home gold, they brought home slaves as well. Taxing the people in conquered territories also provided an incentive to build empires. This system of government worked well for a while, but the moral decline of the people led to an unwillingness to produce for themselves. There was a limit to the number of countries that could be sacked for their wealth, and this always brought empires to an end. When gold no longer could be obtained, their military might crumbled. In those days those who held the gold truly wrote the rules and lived well.

    That general rule has held fast throughout the ages. When gold was used, and the rules protected honest commerce, productive nations thrived. Whenever wealthy nations-- those with powerful armies and gold-- strived only for empire and easy fortunes to support welfare at home, those nations failed.

    Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: “He who prints the money makes the rules”-- at least for the time being. Although gold is not used, the goals are the same: compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses.

    Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation’s people-- just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare.

    The pressure at home to inflate the currency comes from the corporate welfare recipients, as well as those who demand handouts as compensation for their needs and perceived injuries by others. In both cases personal responsibility for one’s actions is rejected.

    When paper money is rejected, or when gold runs out, wealth and political stability are lost. The country then must go from living beyond its means to living beneath its means, until the economic and political systems adjust to the new rules-- rules no longer written by those who ran the now defunct printing press.

    “Dollar Diplomacy,” a policy instituted by William Howard Taft and his Secretary of State Philander C. Knox, was designed to enhance U.S. commercial investments in Latin America and the Far East. McKinley concocted a war against Spain in 1898, and (Teddy) Roosevelt’s corollary to the Monroe Doctrine preceded Taft’s aggressive approach to using the U.S. dollar and diplomatic influence to secure U.S. investments abroad. This earned the popular title of “Dollar Diplomacy.” The significance of Roosevelt’s change was that our intervention now could be justified by the mere “appearance” that a country of interest to us was politically or fiscally vulnerable to European control. Not only did we claim a right, but even an official U.S. government “obligation” to protect our commercial interests from Europeans.

    This new policy came on the heels of the “gunboat” diplomacy of the late 19th century, and it meant we could buy influence before resorting to the threat of force. By the time the “dollar diplomacy” of William Howard Taft was clearly articulated, the seeds of American empire were planted. And they were destined to grow in the fertile political soil of a country that lost its love and respect for the republic bequeathed to us by the authors of the Constitution. And indeed they did. It wasn’t too long before dollar “diplomacy” became dollar “hegemony” in the second half of the 20th century.

    This transition only could have occurred with a dramatic change in monetary policy and the nature of the dollar itself.

    Congress created the Federal Reserve System in 1913. Between then and 1971 the principle of sound money was systematically undermined. Between 1913 and 1971, the Federal Reserve found it much easier to expand the money supply at will for financing war or manipulating the economy with little resistance from Congress-- while benefiting the special interests that influence government.

    Dollar dominance got a huge boost after World War II. We were spared the destruction that so many other nations suffered, and our coffers were filled with the world’s gold. But the world chose not to return to the discipline of the gold standard, and the politicians applauded. Printing money to pay the bills was a lot more popular than taxing or restraining unnecessary spending. In spite of the short-term benefits, imbalances were institutionalized for decades to come.

    The 1944 Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, replacing the British pound. Due to our political and military muscle, and because we had a huge amount of physical gold, the world readily accepted our dollar (defined as 1/35th of an ounce of gold) as the world’s reserve currency. The dollar was said to be “as good as gold,” and convertible to all foreign central banks at that rate. For American citizens, however, it remained illegal to own. This was a gold-exchange standard that from inception was doomed to fail.

    The U.S. did exactly what many predicted she would do. She printed more dollars for which there was no gold backing. But the world was content to accept those dollars for more than 25 years with little question-- until the French and others in the late 1960s demanded we fulfill our promise to pay one ounce of gold for each $35 they delivered to the U.S. Treasury. This resulted in a huge gold drain that brought an end to a very poorly devised pseudo-gold standard.

    It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.

    Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it-- not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.

    Realizing the world was embarking on something new and mind boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence “backed” the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.

    This post-Bretton Woods system was much more fragile than the system that existed between 1945 and 1971. Though the dollar/oil arrangement was helpful, it was not nearly as stable as the pseudo gold standard under Bretton Woods. It certainly was less stable than the gold standard of the late 19th century.

    During the 1970s the dollar nearly collapsed, as oil prices surged and gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were required to rescue the system. The pressure on the dollar in the 1970s, in spite of the benefits accrued to it, reflected reckless budget deficits and monetary inflation during the 1960s. The markets were not fooled by LBJ’s claim that we could afford both “guns and butter.”

    Once again the dollar was rescued, and this ushered in the age of true dollar hegemony lasting from the early 1980s to the present. With tremendous cooperation coming from the central banks and international commercial banks, the dollar was accepted as if it were gold.

    Fed Chair Alan Greenspan, on several occasions before the House Banking Committee, answered my challenges to him about his previously held favorable views on gold by claiming that he and other central bankers had gotten paper money-- i.e. the dollar system-- to respond as if it were gold. Each time I strongly disagreed, and pointed out that if they had achieved such a feat they would have defied centuries of economic history regarding the need for money to be something of real value. He smugly and confidently concurred with this.

    In recent years central banks and various financial institutions, all with vested interests in maintaining a workable fiat dollar standard, were not secretive about selling and loaning large amounts of gold to the market even while decreasing gold prices raised serious questions about the wisdom of such a policy. They never admitted to gold price fixing, but the evidence is abundant that they believed if the gold price fell it would convey a sense of confidence to the market, confidence that they indeed had achieved amazing success in turning paper into gold.

    Increasing gold prices historically are viewed as an indicator of distrust in paper currency. This recent effort was not a whole lot different than the U.S. Treasury selling gold at $35 an ounce in the 1960s, in an attempt to convince the world the dollar was sound and as good as gold. Even during the Depression, one of Roosevelt’s first acts was to remove free market gold pricing as an indication of a flawed monetary system by making it illegal for American citizens to own gold. Economic law eventually limited that effort, as it did in the early 1970s when our Treasury and the IMF tried to fix the price of gold by dumping tons into the market to dampen the enthusiasm of those seeking a safe haven for a falling dollar after gold ownership was re-legalized.

    Once again the effort between 1980 and 2000 to fool the market as to the true value of the dollar proved unsuccessful. In the past 5 years the dollar has been devalued in terms of gold by more than 50%. You just can’t fool all the people all the time, even with the power of the mighty printing press and money creating system of the Federal Reserve.

    Even with all the shortcomings of the fiat monetary system, dollar influence thrived. The results seemed beneficial, but gross distortions built into the system remained. And true to form, Washington politicians are only too anxious to solve the problems cropping up with window dressing, while failing to understand and deal with the underlying flawed policy. Protectionism, fixing exchange rates, punitive tariffs, politically motivated sanctions, corporate subsidies, international trade management, price controls, interest rate and wage controls, super-nationalist sentiments, threats of force, and even war are resorted to—all to solve the problems artificially created by deeply flawed monetary and economic systems.

    In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that’s the United States. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. But this leads to a loss of manufacturing jobs to overseas markets, as we become more dependent on others and less self-sufficient. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption.

    It sounds like a great deal for everyone, except the time will come when our dollars-- due to their depreciation-- will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production. The shift in sentiment regarding the dollar has already started, but the worst is yet to come.

    The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. Last year alone M3 increased over $700 billion.

    The artificial demand for our dollar, along with our military might, places us in the unique position to “rule” the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can’t last.

    Price inflation is raising its ugly head, and the NASDAQ bubble-- generated by easy money-- has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world’s rejection of the dollar. It’s bound to come and create conditions worse than 1979-1980, which required 21% interest rates to correct. But everything possible will be done to protect the dollar in the meantime. We have a shared interest with those who hold our dollars to keep the whole charade going.

    Greenspan, in his first speech after leaving the Fed, said that gold prices were up because of concern about terrorism, and not because of monetary concerns or because he created too many dollars during his tenure. Gold has to be discredited and the dollar propped up. Even when the dollar comes under serious attack by market forces, the central banks and the IMF surely will do everything conceivable to soak up the dollars in hope of restoring stability. Eventually they will fail.

    Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged—as it already has been.

    In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O’Neill, the major topic was how we would get rid of Saddam Hussein-- though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O’Neill.

    It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.

    There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.

    In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.

    After these attempts to nudge the Euro toward replacing the dollar as the world’s reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance.

    It’s become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported.

    Now, a new attempt is being made against the petrodollar system. Iran, another member of the “axis of evil,” has announced her plans to initiate an oil bourse in March of this year. Guess what, the oil sales will be priced Euros, not dollars.

    Most Americans forget how our policies have systematically and needlessly antagonized the Iranians over the years. In 1953 the CIA helped overthrow a democratically elected president, Mohammed Mossadeqh, and install the authoritarian Shah, who was friendly to the U.S. The Iranians were still fuming over this when the hostages were seized in 1979. Our alliance with Saddam Hussein in his invasion of Iran in the early 1980s did not help matters, and obviously did not do much for our relationship with Saddam Hussein. The administration announcement in 2001 that Iran was part of the axis of evil didn’t do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn’t seem to register with those who continue to provoke Iran. With what most Muslims perceive as our war against Islam, and this recent history, there’s little wonder why Iran might choose to harm America by undermining the dollar. Iran, like Iraq, has zero capability to attack us. But that didn’t stop us from turning Saddam Hussein into a modern day Hitler ready to take over the world. Now Iran, especially since she’s made plans for pricing oil in Euros, has been on the receiving end of a propaganda war not unlike that waged against Iraq before our invasion.

    It’s not likely that maintaining dollar supremacy was the only motivating factor for the war against Iraq, nor for agitating against Iran. Though the real reasons for going to war are complex, we now know the reasons given before the war started, like the presence of weapons of mass destruction and Saddam Hussein’s connection to 9/11, were false. The dollar’s importance is obvious, but this does not diminish the influence of the distinct plans laid out years ago by the neo-conservatives to remake the Middle East. Israel’s influence, as well as that of the Christian Zionists, likewise played a role in prosecuting this war. Protecting “our” oil supplies has influenced our Middle East policy for decades.

    But the truth is that paying the bills for this aggressive intervention is impossible the old fashioned way, with more taxes, more savings, and more production by the American people. Much of the expense of the Persian Gulf War in 1991 was shouldered by many of our willing allies. That’s not so today. Now, more than ever, the dollar hegemony-- it’s dominance as the world reserve currency-- is required to finance our huge war expenditures. This $2 trillion never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do just that.

    For the most part the true victims aren’t aware of how they pay the bills. The license to create money out of thin air allows the bills to be paid through price inflation. American citizens, as well as average citizens of Japan, China, and other countries suffer from price inflation, which represents the “tax” that pays the bills for our military adventures. That is until the fraud is discovered, and the foreign producers decide not to take dollars nor hold them very long in payment for their goods. Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it. If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the world’s reserve currency.

    It is an unbelievable benefit to us to import valuable goods and export depreciating dollars. The exporting countries have become addicted to our purchases for their economic growth. This dependency makes them allies in continuing the fraud, and their participation keeps the dollar’s value artificially high. If this system were workable long term, American citizens would never have to work again. We too could enjoy “bread and circuses” just as the Romans did, but their gold finally ran out and the inability of Rome to continue to plunder conquered nations brought an end to her empire.

    The same thing will happen to us if we don’t change our ways. Though we don’t occupy foreign countries to directly plunder, we nevertheless have spread our troops across 130 nations of the world. Our intense effort to spread our power in the oil-rich Middle East is not a coincidence. But unlike the old days, we don’t declare direct ownership of the natural resources-- we just insist that we can buy what we want and pay for it with our paper money. Any country that challenges our authority does so at great risk.

    Once again Congress has bought into the war propaganda against Iran, just as it did against Iraq. Arguments are now made for attacking Iran economically, and militarily if necessary. These arguments are all based on the same false reasons given for the ill-fated and costly occupation of Iraq.

    Our whole economic system depends on continuing the current monetary arrangement, which means recycling the dollar is crucial. Currently, we borrow over $700 billion every year from our gracious benefactors, who work hard and take our paper for their goods. Then we borrow all the money we need to secure the empire (DOD budget $450 billion) plus more. The military might we enjoy becomes the “backing” of our currency. There are no other countries that can challenge our military superiority, and therefore they have little choice but to accept the dollars we declare are today’s “gold.” This is why countries that challenge the system-- like Iraq, Iran and Venezuela-- become targets of our plans for regime change.

    Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar. As long as foreign recipients take our dollars for real goods and are willing to finance our extravagant consumption and militarism, the status quo will continue regardless of how huge our foreign debt and current account deficit become.

    But real threats come from our political adversaries who are incapable of confronting us militarily, yet are not bashful about confronting us economically. That’s why we see the new challenge from Iran being taken so seriously. The urgent arguments about Iran posing a military threat to the security of the United States are no more plausible than the false charges levied against Iraq. Yet there is no effort to resist this march to confrontation by those who grandstand for political reasons against the Iraq war.

    It seems that the people and Congress are easily persuaded by the jingoism of the preemptive war promoters. It’s only after the cost in human life and dollars are tallied up that the people object to unwise militarism.

    The strange thing is that the failure in Iraq is now apparent to a large majority of American people, yet they and Congress are acquiescing to the call for a needless and dangerous confrontation with Iran.

    But then again, our failure to find Osama bin Laden and destroy his network did not dissuade us from taking on the Iraqis in a war totally unrelated to 9/11.

    Concern for pricing oil only in dollars helps explain our willingness to drop everything and teach Saddam Hussein a lesson for his defiance in demanding Euros for oil.

    And once again there’s this urgent call for sanctions and threats of force against Iran at the precise time Iran is opening a new oil exchange with all transactions in Euros.

    Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid.

    The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros. The sooner the better.
    Last edited by xerxes; 01 Apr 07,, 23:00.

  • #2
    A sobering read, even though it's over a year old. If that was a true transcript Senator Paul is a most articulate speaker. The suggestion that oil producers want payment in Euros could lead to problems with Europes 27 members about the desirability of such a measure. Goodness knows what else is in store for us
    Semper in excretum. Solum profunda variat.

    Comment


    • #3
      I don't have time to give the Honorable Mr. Paul's speech the fisking it deserves, but I'll make just a few points.

      1. In his attempt to sell his bill of goods, he glosses over extremely important facts and uses some specious reasoning. For example, when speaking of doing oil transactions in dollars,

      In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region.
      Mr. Paul seems to ignore the fact that the radical Islamic movement had already been ignited earlier in the century during the formation of the Muslim Brotherhood, creating the ideological foundation (ironically, the impetus was because of "dirty" dancing in Colorado), and it became nascent in the ashes of pan-Arabism and the disillusion of repetitive losses to the Zionist entity, Israel. Also, Western interests had long been in the Middle East before oil transactions became a dollar standard. Oops, his argument got ahead of his reasoning.

      2. Supreme Bush Administration fan and biggest donor to the GOP, Paul Krugman, doesn't agree. Here's an article pre-OIF and then an email post-OIF laying out his position.

      Don't worry about the euro

      Who's Afraid Of The Euro ?

      Paul Krugman

      I once attended a conference at which a senior Japanese official made an impassioned speech about the need to establish the yen as an international reserve currency. When my turn came, I explained that this was silly; even if the yen did become a reserve currency, it would make virtually no difference to Japan or to anyone else. At the end of the session, the moderator thanked me for my contribution--which, he said, emphasized once again the crucial importance of the yen's role as a reserve currency. I never figured out whether this was a case of the translator having trouble with my accent, or whether it was a polite way of telling me I had said something unacceptable. But I do know that people almost always attach far more importance to the issue of reserve currencies--the role of the dollar and its rivals in international trade and finance- -than the subject deserves.

      And so it was inevitable that the coming of the euro --the common European currency that seems set to be introduced next year, and that may eventually challenge the dollar's dominance--would inspire irrational fear. Sure enough, a few weeks ago the intellectual fashion victims at one of those other business magazines ran an editorial entitled "The euro makes trade a new game." "Thanks to the dollar's role as reserve currency in world financial markets," they opined, "the U.S. has been able to do what no other country can-- consistently import more goods than it exports.... The U.S. owes some $5 trillion to dollar holders abroad, thanks to three decades of trade deficits." Gosh, what happens if those people switch to euros?

      Well, not to worry. It just isn't true that America's ability to import more than it exports is unique. Since 1980 the U.S. current- account deficit (which includes services and investment income as well as goods) has averaged 1.5% of GDP. That's about the same as Britain's average, less than Canada's 2.2%, and nothing like Australia's 4.2%. These countries paid for their excess imports the same way we did: by selling foreigners stocks, bonds, real estate, and so on. The only difference is that because their deficits were bigger, their debts are also bigger as a share of GDP. Ours, it turns out, aren't that large--at least on a net basis. While it's true we owe foreigners about $5 trillion, they owe us more than $4 trillion; the difference is about $800 billion, or 10% of GDP.

      But doesn't the dollar's special role give us some advantage? Most of the international role of the dollar comes from its use as a "unit of account"--the measuring stick for international business. When a Japanese refiner buys Kuwaiti oil, say, the contracts are in dollars. This is a testament to U.S. economic influence, but flattery aside, it's hard to see what we get out of it.

      What about our ability to borrow in dollars, to sell dollar- denominated bonds to foreigners? Hey, other countries do that too. But our debts are in our own currency! So? We still pay interest on them. True, we could inflate away our foreign debt. But we won't--and if investors thought we would, they would demand higher interest rates.

      Well, then, you may say, surely the international role of the dollar forces people out there to hold dollars for transaction purposes. Yes, but not so you'd notice. When Daewoo repays a dollar loan from Sanwa, it writes a check on its account with some international bank. True, that bank itself surely maintains an account in New York, backed in part by non-interest-bearing reserves held at the Fed. So the U.S. does in effect get a zero-interest loan out of the dollar's international role--but it probably amounts to only a few billion dollars, small change for an $8 trillion economy.

      Where the U.S. does get a significant free ride is from the willingness of foreigners to accept our currency--actual bills. Foreigners hold more than $200 billion of American money. Guess what kind of business requires payments of large sums in cash, by people unconstrained by official restrictions on possession of foreign exchange? That's right: the dollar is the world's premier medium of illicit exchange. Every year the U.S. ships foreigners $15 billion in cash (about 0.2% of GDP), and gets real goods and services in return. Better not ask what kind.

      So the threat to the U.S. from the rise of the euro is this: five years from now, when wise guys in Vladivostok make offers you can't refuse, the payoffs may be in 100- euro notes instead of $100 bills. The loss of such business might cost the U.S. economy as much as 0.1% of GDP. Somehow, I think we can live with that.
      ope-l-0407: Krugman on petrodollar and euros

      Krugman on petrodollar and euros

      From: Rakesh Bhandari ([email protected])
      Date: Thu Jul 29 2004 - 16:04:15 EDT

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      Here's Krugman's refutation that Cyrus, Paolo Giusanni and others have found persuasive.
      Yours, RB

      http://www.wws.princeton.edu/~pkrugman/oildollar.html

      NOTHING FOR MONEY (3/14/03)

      I've been getting a number of emails from people suggesting to me that this impending war is all about money - specifically, to ensure
      that the dollar, and not the euro, remains the world's #1 currency. The idea is that the US economy will be in danger if OPEC members
      start demanding payment in euros rather than dollars.

      With respect to my correspondents, this isn't a plausible argument. It's politically implausible - who, exactly, in this administration is supposed to be thinking about the role of the dollar as a key currency? The same people who invited the author of The Bible Code to
      brief the Pentagon? And anyway, the economics are wrong.

      Remember the three roles of money: medium of exchange, unit of account, store of value. The dollar plays all three roles to some
      extent on world markets. It's a medium of exchange: people converting Brazilian reais to Malaysian ringgits (or rather banks making trades in the FX market) normally do so through two transactions against the dollar. It's a unit of account: although most world prices are set in other currencies, the share of prices in both financial and goods markets specified in dollars is larger than you would expect from the raw economic weight of the United States. And the dollar is a store of value: the Fed estimates that about 60 percent of US currency - that is, actual pieces of green paper - is held outside the US.

      But why does all this matter? Does it give the US a special advantage in the world? Well, yes - but not nearly as big an advantage as
      people imagine. And a change in how OPEC gets paid would make very little difference.

      The US advantage comes to the extent - and only to the extent - that the international role of the dollar lets us borrow money more
      cheaply than we otherwise could. One component of that is clear: because foreigners hold a lot of dollar bills, which pay no interest,
      we in effect get a free loan of that much money.

      Dollar-denominated bank accounts also provide a bit of an interest-free loan, because they are ultimately backed by deposits at the Federal Reserve. But most of the accounts held by foreigners have very fractional backing - they're typically eurodollar accounts,
      which are only partly backed by accounts in the US, which are in turn only partly backed by deposits.

      It's also possible that even our interest-bearing debt commands a better price - i.e., a lower interest rate - because of the dollar's
      special role. But there doesn't seem to be any evidence of that, and it's not likely to be more than marginal. (Also, the US isn't the
      only country that can issue dollar-denominated bonds.)

      So the main thing is cash overseas - $300-350 billion of bills, mostly in large denominations, hidden under beds, being transferred
      among criminals, etc.. At an interest rate of 4 percent - say that's a normal rate - this is a subsidy to the US of $12-14 billion per
      year. Small change, for a $10 trillion economy. It's not even a significant part of our current account deficit.

      Moreover, would a change in OPEC settlements really affect this?

      There's probably some link between the dollar's role as unit of account/medium of exchange and its role as store of value. But when
      we say that Saudi Arabia is paid in dollars, what we mean is that oil is paid for with a wire transfer from a London bank, with the sum
      denominated in dollars. It doesn't mean that green pieces of paper change hands, or even that there is a stash of green paper somewhere being held to back the transaction. What really matters for the cash held overseas is which currency people who don't trust their native currencies think is a good bet. Rumor has it that the Russian mafiya is switching to euros, since Europe is where ill-gotten Russian gains get banked or spent; if so, that's a much bigger deal for seignorage than pricing of Persian Gulf oil.

      So this particular conspiracy theory is wrong. Sorry.

      Of course, you may well ask, why then are these people so determined to have their war? The answer is because. Just because.
      In case you didn't figure it out, I was being highly sarcastic. Paul Krugman is virulently anti-Bush 43, and while I respect his economics, having had to shell out money on two occasions for his international economics textbooks, I am not a fan of his rantings in NYT articles. Nonetheless, despite his desire to pounce on the Bush Administration any chance he can get, he still draws the line at the conspiracy theories surrounding the importance of the petrodollar theory.

      3. No mention of the 17 UNSCRs that Saddam failed to obey over the course of nearly 13 years, which coincidentally, for most of them, preceded the Iraqi decision to sell in Euros (and curiously, no mention of the OFF scandal, either). Also, there's no discussion of Iranian plans to open their euro oil bourse and how it coincided with the nuclear showdown and the EU3 talks. I guess that these little facts might distract from his pet theory.
      Last edited by Shek; 02 Apr 07,, 02:24.
      "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

      Comment


      • #4
        Hi Shek
        Thank you for the feedback nontheless, allow me time read and digest

        Comment


        • #5
          I've learned many new things today, thanks to this thread's posters.

          Comment


          • #6
            I understand very little of economics, but if this is what is going on, then it is most distressing.

            I , however, know that it did create a flutter when Saddam and Iran wanted to change the instrument of oil trade to the Euros and it was said that this would have a serious repercussion on the US economy.

            I think I will revisit those articles in view of this article by the Senator, which was quite an eye opener.

            Does anyone have any idea where one could read the Minutes of the Brentwood Conference that made the Dollar the convertible currency?
            Last edited by Ray; 02 Apr 07,, 17:06.


            "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

            I don't have to attend every argument I'm invited to.

            HAKUNA MATATA

            Comment


            • #7
              Originally posted by Ray View Post
              I understand very little of economics, but if this is what is going on, then it is most distressing.

              I , however, know that it did create a flutter when Saddam and Iran wanted to change the instrument of oil trade to the Euros and it was said that this would have a serious repercussion on the US economy.

              I think I will revisit those articles in view of this article by the Senator, which was quite an eye opener.

              Does anyone have any idea where one could read the Minutes of the Brentwood Conference that made the Dollar the convertible currency?
              Sir,

              It's the Bretton Woods conference, which created the evil institutions of the IMF and World Bank, as well as the fixed exchange regime, with the US (and hence, the USD) being the center of the regime. Fixed exchange rate regimes along with freedom of movement for capital has proven to be a disaster, and so the collapse of the Bretton Woods regime in terms of exchange rates and the gold standard is not a surprise.

              If you have access to a library, I'd recommend "Too Sensational: On the Choice of Exchange Rate Regimes" by W. Max Corden. It provides some very cursory information on the failure of the Bretton Woods regime, and then covers in-depth while fixed or even fixed but adjustable rate schemes are unsustainable given the ability of capital to move across borders.

              As far as the effects of converting to the euro, there is also the question of international trade flows, and if you look at SE Asia, the major trading partner is the US. This is the engine of SE Asian growth and US consumption, and the good Congressman doesn't address this one bit.

              The following article explains much of the last paragraph, and curiously, these economists don't find it important to mention oil pricing in dollars a single time (it was published three years after Saddam's switch to euros, but just prior to Iran's unexecuted plans).

              http://www.frbsf.org/economics/confe...0502/w9971.pdf
              Last edited by Shek; 02 Apr 07,, 17:47.
              "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

              Comment


              • #8
                Another question.

                How much longer is Iran projected to be an oil exporter?

                What does this do with the go to war with Iran over the petrodollar theory?

                In other words, what is the monetary impact of Iran trading in euros instead of dollars?


                There is a curious lack of empirics that have been provided by the petrodollar equals war supporters, and I suspect that they fear the empirical answers that would return from the above questions.
                Last edited by Shek; 02 Apr 07,, 17:48.
                "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

                Comment


                • #9
                  Shek,

                  Thanks.

                  Wouldn't say that the Bretton Woods conference evil. Maybe the implementation got skewed through the years. Again, maybe. I am no expert to even state so.

                  I am posting some articles.

                  Since I think you teach Economics as well as being an Officer, could you analyse the same, being ideally endowed to comment?

                  Published on 2 Aug 2005 by Media Monitors Network. Archived on 8 Aug 2005.


                  Petrodollar Warfare: Dollars, Euros and the Upcoming Iranian Oil Bourse



                  by William Clark
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                  “This notion that the United States is getting ready to attack Iran is simply ridiculous...Having said that, all options are on the table.”
                  – President George W. Bush, February 2005



                  Contemporary warfare has traditionally involved underlying conflicts regarding economics and resources. Today these intertwined conflicts also involve international currencies, and thus increased complexity. Current geopolitical tensions between the United States and Iran extend beyond the publicly stated concerns regarding Iran’s nuclear intentions, and likely include a proposed Iranian “petroeuro” system for oil trade.

                  Similar to the Iraq war, military operations against Iran relate to the macroeconomics of ‘petrodollar recycling’ and the unpublicized but real challenge to U.S. dollar supremacy from the euro as an alternative oil transaction currency.

                  It is now obvious the invasion of Iraq had less to do with any threat from Saddam’s long-gone WMD program and certainly less to do to do with fighting International terrorism than it has to do with gaining strategic control over Iraq’s hydrocarbon reserves and in doing so maintain the U.S. dollar as the monopoly currency for the critical international oil market. Throughout 2004 information provided by former administration insiders revealed the Bush/Cheney administration entered into office with the intention of toppling Saddam Hussein.[1][2]

                  Candidly stated, ‘Operation Iraqi Freedom’ was a war designed to install a pro-U.S. government in Iraq, establish multiple U.S military bases before the onset of global Peak Oil, and to reconvert Iraq back to petrodollars while hoping to thwart further OPEC momentum towards the euro as an alternative oil transaction currency (i.e. “petroeuro”).[3] However, subsequent geopolitical events have exposed neoconservative strategy as fundamentally flawed, with Iran moving towards a petroeuro system for international oil trades, while Russia evaluates this option with the European Union.

                  In 2003 the global community witnessed a combination of petrodollar warfare and oil depletion warfare. The majority of the world’s governments – especially the E.U., Russia and China – were not amused – and neither are the U.S. soldiers who are currently stationed inside a hostile Iraq. In 2002 I wrote an award-winning online essay that asserted Saddam Hussein sealed his fate when he announced in September 2000 that Iraq was no longer going to accept dollars for oil being sold under the UN’s Oil-for-Food program, and decided to switch to the euro as Iraq’s oil export currency.[4]

                  Indeed, my original pre-war hypothesis was validated in a Financial Times article dated June 5, 2003, which confirmed Iraqi oil sales returning to the international markets were once again denominated in U.S. dollars – not euros.

                  The tender, for which bids are due by June 10, switches the transaction back to dollars -- the international currency of oil sales - despite the greenback's recent fall in value. Saddam Hussein in 2000 insisted Iraq's oil be sold for euros, a political move, but one that improved Iraq's recent earnings thanks to the rise in the value of the euro against the dollar [5]



                  The Bush administration implemented this currency transition despite the adverse impact on profits from Iraqi’s export oil sales.[6] (In mid-2003 the euro was valued approx. 13% higher than the dollar, and thus significantly impacted the ability of future oil proceeds to rebuild Iraq’s infrastructure). Not surprisingly, this detail has never been mentioned in the five U.S. major media conglomerates who control 90% of information flow in the U.S., but confirmation of this vital fact provides insight into one of the crucial – yet overlooked – rationales for 2003 the Iraq war.

                  Concerning Iran, recent articles have revealed active Pentagon planning for operations against its suspected nuclear facilities. While the publicly stated reasons for any such overt action will be premised as a consequence of Iran's nuclear ambitions, there are again unspoken macroeconomic drivers underlying the second stage of petrodollar warfare – Iran's upcoming oil bourse. (The word bourse refers to a stock exchange for securities trading, and is derived from the French stock exchange in Paris, the Federation Internationale des Bourses de Valeurs.)

                  In essence, Iran is about to commit a far greater “offense” than Saddam Hussein's conversion to the euro for Iraq’s oil exports in the fall of 2000. Beginning in March 2006, the Tehran government has plans to begin competing with New York's NYMEX and London's IPE with respect to international oil trades – using a euro-based international oil-trading mechanism.[7]

                  The proposed Iranian oil bourse signifies that without some sort of US intervention, the euro is going to establish a firm foothold in the international oil trade. Given U.S. debt levels and the stated neoconservative project of U.S. global domination, Tehran’s objective constitutes an obvious encroachment on dollar supremacy in the crucial international oil market.

                  From the autumn of 2004 through August 2005, numerous leaks by concerned Pentagon employees have revealed that the neoconservatives in Washington are quietly – but actively – planning for a possible attack against Iran. In September 2004 Newsweek reported:

                  Deep in the Pentagon, admirals and generals are updating plans for possible U.S. military action in Syria and Iran. The Defense Department unit responsible for military planning for the two troublesome countries is “busier than ever,” an administration official says. Some Bush advisers characterize the work as merely an effort to revise routine plans the Pentagon maintains for all contingencies in light of the Iraq war. More skittish bureaucrats say the updates are accompanied by a revived campaign by administration conservatives and neocons for more hard-line U.S. policies toward the countries…’

                  …administration hawks are pinning their hopes on regime change in Tehran – by covert means, preferably, but by force of arms if necessary. Papers on the idea have circulated inside the administration, mostly labeled "draft" or "working draft" to evade congressional subpoena powers and the Freedom of Information Act. Informed sources say the memos echo the administration's abortive Iraq strategy: oust the existing regime, swiftly install a pro-U.S. government in its place (extracting the new regime's promise to renounce any nuclear ambitions) and get out. This daredevil scheme horrifies U.S. military leaders, and there's no evidence that it has won any backers at the cabinet level.[8]



                  Indeed, there are good reasons for U.S. military commanders to be ‘horrified’ at the prospects of attacking Iran. In the December 2004 issue of the Atlantic Monthly, James Fallows reported that numerous high-level war-gaming sessions had recently been completed by Sam Gardiner, a retired Air Force colonel who has run war games at the National War College for the past two decades.[9] Col. Gardiner summarized the outcome of these war games with this statement, “After all this effort, I am left with two simple sentences for policymakers: You have no military solution for the issues of Iran. And you have to make diplomacy work.” Despite Col. Gardiner’s warnings, yet another story appeared in early 2005 that reiterated this administration’s intentions towards Iran. Investigative reporter Seymour Hersh’s article in The New Yorker included interviews with various high-level U.S. intelligence sources. Hersh wrote:


                  In my interviews [with former high-level intelligence officials], I was repeatedly told that the next strategic target was Iran. Everyone is saying, ‘You can’t be serious about targeting Iran. Look at Iraq,’ the former [CIA] intelligence official told me. But the [Bush administration officials] say, ‘We’ve got some lessons learned – not militarily, but how we did it politically. We’re not going to rely on agency pissants.’ No loose ends, and that’s why the C.I.A. is out of there.[10]



                  The most recent, and by far the most troubling, was an article in The American Conservative by intelligence analyst Philip Giraldi. His article, “In Case of Emergency, Nuke Iran,” suggested the resurrection of active U.S. military planning against Iran – but with the shocking disclosure that in the event of another 9/11-type terrorist attack on U.S. soil, Vice President Dick Cheney’s office wants the Pentagon to be prepared to launch a potential tactical nuclear attack on Iran – even if the Iranian government was not involved with any such terrorist attack against the U.S.:


                  The Pentagon, acting under instructions from Vice President Dick Cheney's office, has tasked the United States Strategic Command (STRATCOM) with drawing up a contingency plan to be employed in response to another 9/11-type terrorist attack on the United States. The plan includes a large-scale air assault on Iran employing both conventional and tactical nuclear weapons. Within Iran there are more than 450 major strategic targets, including numerous suspected nuclear-weapons-program development sites. Many of the targets are hardened or are deep underground and could not be taken out by conventional weapons, hence the nuclear option. As in the case of Iraq, the response is not conditional on Iran actually being involved in the act of terrorism directed against the United States. Several senior Air Force officers involved in the planning are reportedly appalled at the implications of what they are doing – that Iran is being set up for an unprovoked nuclear attack – but no one is prepared to damage his career by posing any objections.[11]



                  Why would the Vice President instruct the U.S. military to prepare plans for what could likely be an unprovoked nuclear attack against Iran? Setting aside the grave moral implications for a moment, it is remarkable to note that during the same week this “nuke Iran” article appeared, the Washington Post reported that the most recent National Intelligence Estimate (NIE) of Iran’s nuclear program revealed that, “Iran is about a decade away from manufacturing the key ingredient for a nuclear weapon, roughly doubling the previous estimate of five years.”[12]

                  This article carefully noted this assessment was a “consensus among U.S. intelligence agencies, [and in] contrast with forceful public statements by the White House.” The question remains, Why would the Vice President advocate a possible tactical nuclear attack against Iran in the event of another major terrorist attack against the U.S. – even if Tehran was innocent of involvement?

                  Perhaps one of the answers relates to the same obfuscated reasons why the U.S. launched an unprovoked invasion to topple the Iraq government – macroeconomics and the desperate desire to maintain U.S. economic supremacy. In essence, petrodollar hegemoy is eroding, which will ultimately force the U.S. to significantly change its current tax, debt, trade, and energy policies, all of which are severely unbalanced. World oil production is reportedly “flat out,” and yet the neoconservatives are apparently willing to undertake huge strategic and tactical risks in the Persian Gulf. Why? Quite simply – their stated goal is U.S. global domination – at any cost.

                  To date, one of the more difficult technical obstacles concerning a euro-based oil transaction trading system is the lack of a euro-denominated oil pricing standard, or oil ‘marker’ as it is referred to in the industry. The three current oil markers are U.S. dollar denominated, which include the West Texas Intermediate crude (WTI), Norway Brent crude, and the UAE Dubai crude. However, since the summer of 2003 Iran has required payments in the euro currency for its European and Asian/ACU exports – although the oil pricing of these trades was still denominated in the dollar.[13]

                  Therefore a potentially significant news story was reported in June 2004 announcing Iran’s intentions to create of an Iranian oil bourse. This announcement portended competition would arise between the Iranian oil bourse and London’s International Petroleum Exchange (IPE), as well as the New York Mercantile Exchange (NYMEX). [Both the IPE and NYMEX are owned by a U.S. consortium, and operated by an Atlanta-based corporation, IntercontinentalExchange, Inc.]

                  The macroeconomic implications of a successful Iranian bourse are noteworthy. Considering that in mid-2003 Iran switched its oil payments from E.U. and ACU customers to the euro, and thus it is logical to assume the proposed Iranian bourse will usher in a fourth crude oil marker – denominated in the euro currency. This event would remove the main technical obstacle for a broad-based petroeuro system for international oil trades. From a purely economic and monetary perspective, a petroeuro system is a logical development given that the European Union imports more oil from OPEC producers than does the U.S., and the E.U. accounted for 45% of exports sold to the Middle East. (Following the May 2004 enlargement, this percentage likely increased).

                  Despite the complete absence of coverage from the five U.S. corporate media conglomerates, these foreign news stories suggest one of the Federal Reserve’s nightmares may begin to unfold in the spring of 2006, when it appears that international buyers will have a choice of buying a barrel of oil for $60 dollars on the NYMEX and IPE - or purchase a barrel of oil for €45 - €50 euros via the Iranian Bourse. This assumes the euro maintains its current 20-25% appreciated value relative to the dollar – and assumes that some sort of US "intervention" is not launched against Iran.

                  The upcoming bourse will introduce petrodollar versus petroeuro currency hedging, and fundamentally new dynamics to the biggest market in the world - global oil and gas trades. In essence, the U.S. will no longer be able to effortlessly expand its debt-financing via issuance of U.S. Treasury bills, and the dollar’s international demand/liquidity value will fall.

                  It is unclear at the time of writing if this project will be successful, or could it prompt overt or covert U.S. interventions – thereby signaling the second phase of petrodollar warfare in the Middle East. Regardless of the potential U.S. response to an Iranian petroeuro system, the emergence of an oil exchange market in the Middle East is not entirely surprising given the domestic peaking and decline of oil exports in the U.S. and U.K, in comparison to the remaining oil reserves in Iran, Iraq and Saudi Arabia.

                  What we are witnessing is a battle for oil currency supremacy. If Iran’s oil bourse becomes a successful alternative for international oil trades, it would challenge the hegemony currently enjoyed by the financial centers in both London (IPE) and New York (NYMEX), a factor not overlooked in the following (UK) Guardian article:


                  Iran is to launch an oil trading market for Middle East and Opec producers that could threaten the supremacy of London's International Petroleum Exchange.

                  …Some industry experts have warned the Iranians and other OPEC producers that western exchanges are controlled by big financial and oil corporations, which have a vested interest in market volatility.

                  The IPE, bought in 2001 by a consortium that includes BP, Goldman Sachs and Morgan Stanley, was unwilling to discuss the Iranian move yesterday. “We would not have any comment to make on it at this stage,” said an IPE spokeswoman. [14]



                  During an important speech in April 2002, Mr. Javad Yarjani, an OPEC executive, described three pivotal events that would facilitate an OPEC transition to euros.[15] He stated this would be based on (1) if and when Norway's Brent crude is re-dominated in euros, (2) if and when the U.K. adopts the euro, and (3) whether or not the euro gains parity valuation relative to the dollar, and the EU’s proposed expansion plans were successful.

                  Notably, both of the later two criteria have transpired: the euro’s valuation has been above the dollar since late 2002, and the euro-based E.U. enlarged in May 2004 from 12 to 22 countries. Despite recent “no” votes by French and Dutch voters regarding a common E.U. Constitution, from a macroeconomic perspective, these domestic disagreements do no reduce the euro currency’s trajectory in the global financial markets – and from Russia and OPEC’s perspective – do not adversely impact momentum towards a petroeuro. In the meantime, the U.K. remains uncomfortably juxtaposed between the financial interests of the U.S. banking nexus (New York/Washington) and the E.U. financial centers (Paris/Frankfurt).

                  The most recent news reports indicate the oil bourse will start trading on March 20, 2006, coinciding with the Iranian New Year.[16] The implementation of the proposed Iranian oil Bourse – if successful in utilizing the euro as its oil transaction currency standard – essentially negates the previous two criteria as described by Mr. Yarjani regarding the solidification of a petroeuro system for international oil trades. It should also be noted that throughout 2003-2004 both Russia and China significantly increased their central bank holdings of the euro, which appears to be a coordinated move to facilitate the anticipated ascendance of the euro as a second World Reserve Currency. [17] [18]

                  China’s announcement in July 2005 that it was re-valuing the yuan/RNB was not nearly as important as its decision to divorce itself from a U.S. dollar peg by moving towards a “basket of currencies” – likely to include the yen, euro, and dollar.[19] Additionally, the Chinese re-valuation immediately lowered their monthly imported “oil bill” by 2%, given that oil trades are still priced in dollars, but it is unclear how much longer this monopoly arrangement will last.

                  Furthermore, the geopolitical stakes for the Bush administration were raised dramatically on October 28, 2004, when Iran and China signed a huge oil and gas trade agreement (valued between $70 - $100 billion dollars.) [20] It should also be noted that China currently receives 13% of its oil imports from Iran. In the aftermath of the Iraq invasion, the U.S.-administered Coalition Provisional Authority (CPA) nullified previous oil lease contracts from 1997-2002 that France, Russia, China and other nations had established under the Saddam regime. The nullification of these contracts worth a reported $1.1 trillion created political tensions between the U.S and the European Union, Russia and China.

                  The Chinese government may fear the same fate awaits their oil investments in Iran if the U.S. were able to attack and topple the Tehran government. Despite U.S. desires to enforce petrodollar hegemony, the geopolitical risks of an attack on Iran’s nuclear facilities would surely create a serious crisis between Washington and Beijing.

                  It is increasingly clear that a confrontation and possible war with Iran may transpire during the second Bush term. Clearly, there are numerous tactical risks regarding neoconservative strategy towards Iran. First, unlike Iraq, Iran has a robust military capability. Secondly, a repeat of any “Shock and Awe” tactics is not advisable given that Iran has installed sophisticated anti-ship missiles on the Island of Abu Musa, and therefore controls the critical Strait of Hormuz – where all of the Persian Gulf bound oil tankers must pass.[21]

                  The immediate question for Americans? Will the neoconservatives attempt to intervene covertly and/or overtly in Iran during 2005 or 2006 in a desperate effort to prevent the initiation of euro-denominated international crude oil sales? Commentators in India are quite correct in their assessment that a U.S. intervention in Iran is likely to prove disastrous for the United States, making matters much worse regarding international terrorism, not to the mention potential effects on the U.S. economy.


                  …If it [U.S.] intervenes again, it is absolutely certain it will not be able to improve the situation…There is a better way, as the constructive engagement of Libya’s Colonel Muammar Gaddafi has shown...Iran is obviously a more complex case than Libya, because power resides in the clergy, and Iran has not been entirely transparent about its nuclear programme, but the sensible way is to take it gently, and nudge it to moderation. Regime change will only worsen global Islamist terror, and in any case, Saudi Arabia is a fitter case for democratic intervention, if at all.[22]



                  A successful Iranian bourse will solidify the petroeuro as an alternative oil transaction currency, and thereby end the petrodollar's hegemonic status as the monopoly oil currency. Therefore, a graduated approach is needed to avoid precipitous U.S. economic dislocations. Multilateral compromise with the EU and OPEC regarding oil currency is certainly preferable to an ‘Operation Iranian Freedom,’ or perhaps another CIA-backed coup such as operation "Ajax” from 1953. Despite the impressive power of the U.S. military, and the ability of our intelligence agencies to facilitate ‘interventions,’ it would be perilous and possibly ruinous for the U.S. to intervene in Iran given the dire situation in Iraq. The Monterey Institute of International Studies warned of the possible consequences of a preemptive attack on Iran’s nuclear facilities:

                  An attack on Iranian nuclear facilities…could have various adverse effects on U.S. interests in the Middle East and the world. Most important, in the absence of evidence of an Iranian illegal nuclear program, an attack on Iran’s nuclear facilities by the U.S. or Israel would be likely to strengthen Iran's international stature and reduce the threat of international sanctions against Iran.[23]



                  Synopsis:
                  It is not yet clear if a U.S. military expedition will occur in a desperate attempt to maintain petrodollar supremacy. Regardless of the recent National Intelligence Estimate that down-graded Iran’s potential nuclear weapons program, it appears increasingly likely the Bush administration may use the specter of nuclear weapon proliferation as a pretext for an intervention, similar to the fears invoked in the previous WMD campaign regarding Iraq.

                  If recent stories are correct regarding Cheney’s plan to possibly use another 9/11 terrorist attack as the pretext or casus belli for a U.S. aerial attack against Iran, this would confirm the Bush administration is prepared to undertake a desperate military strategy to thwart Iran’s nuclear ambitions, while simultaneously attempting to prevent the Iranian oil Bourse from initiating a euro-based system for oil trades.

                  However, as members of the U.N. Security Council; China, Russia and E.U. nations such as France and Germany would likely veto any U.S.-sponsored U.N. Security Resolution calling the use of force without solid proof of Iranian culpability regarding a terrorist attack in the U.S. A unilateral military strike on Iran would isolate the U.S. government in the eyes of the world community, and it is conceivable that such an overt action could provoke other industrialized nations to strategically abandon the dollar en masse.

                  Indeed, such an event would create pressure for OPEC and Russia to move towards a monopoly petroeuro system in an effort to cripple the U.S. dollar and thwart the U.S. global military presence. I refer to this in my book as the “rogue nation hypothesis.” (A similar tactic was used by the U.S. to end the 1956 Suez crisis.)

                  While central bankers throughout the world community would be extremely reluctant to ‘dump the dollar,’ the reasons for any such drastic reaction are likely straightforward from their government’s perspective – the global community is dependent on the oil and gas energy supplies found in the Persian Gulf.

                  Hence, industrialized nations would likely move in tandem on the currency exchange markets in an effort to thwart the neoconservatives from pursuing their desperate strategy of dominating the world’s largest hydrocarbon energy supply. Any such efforts that resulted in a dollar currency crisis would be undertaken – not to cripple the U.S. dollar and economy as punishment towards the American people per se – but rather to thwart further unilateral warfare and its potentially destructive effects on the critical oil production and shipping infrastructure in the Persian Gulf.

                  Barring a U.S. attack, it appears imminent that Iran’s euro-denominated oil bourse will open in March 2006. Logically, the most appropriate U.S. strategy is compromise with the E.U. and OPEC towards a dual-currency system for international oil trades.


                  Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes...known instruments for bringing the many under the domination of the few…No nation could preserve its freedom in the midst of continual warfare.
                  – James Madison, Political Observations, 1795



                  ***
                  Footnotes:
                  [1] Ron Suskind, The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O’ Neill, Simon & Schuster publishers (2004)
                  [2] Richard A. Clarke, Against All Enemies: Inside America’s War on Terror, Free Press (2004)
                  [3] William Clark, “Revisited - The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth,” January 2003 (updated January 2004)
                  Revisited - The Real Reasons for the Upcoming War in Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth, by William Clark, updated: Jan 2004

                  [4] Peter Philips, Censored 2004, The Top 25 Censored News Stories, Seven Stories Press, (2003) General website for Project Censored: Project Censored Media Democracy in Action
                  Story #19: U.S. Dollar vs. the Euro: Another Reason for the Invasion of Iraq
                  Project Censored Media democracy in action

                  [5] Carol Hoyos and Kevin Morrison, "Iraq returns to the international oil market," Financial Times, June 5, 2003
                  [6] Faisal Islam, “Iraq nets handsome profit by dumping dollar for euro,” [UK] Guardian, February 16, 2003
                  observer.guardian.co.uk/iraq/story/0,12239,896344,00.html
                  [7] “Oil bourse closer to reality,” IranMania.com, December 28, 2004. Also see: “Iran oil bourse wins authorization,” Tehran Times, July 26, 2005

                  [8] “War-Gaming the Mullahs: The U.S. weighs the price of a pre-emptive strike,” Newsweek, September 27 issue, 2004. Online: War-Gaming the Mullahs - Newsweek: World News - MSNBC.com

                  [9] James Fallows, “Will Iran be Next?,” Atlantic Monthly, December 2004, pgs. 97 – 110

                  [10] Seymour Hersh, “The Coming Wars,” The New Yorker, January 24th – 31st issue, 2005, pgs. 40-47
                  Posted online January 17, 2005. Online: Annals of National Security: The Coming Wars: The New Yorker

                  [11] Philip Giraldi, “In Case of Emergency, Nuke Iran,” American Conservative, August 1, 2005

                  [12] Dafina Linzer, “Iran Is Judged 10 Years From Nuclear Bomb U.S. Intelligence Review Contrasts With Administration Statements,” Washington Post, August 2, 2005; Page A01

                  [13] C. Shivkumar, “Iran offers oil to Asian union on easier terms,” The Hindu Business Line (June 16, 2003). The Hindu Business Line : Iran offers oil to Asian union on easier terms

                  [14] Terry Macalister, “Iran takes on west's control of oil trading,” The [UK] Guardian, June 16, 2004
                  Iran takes on west's control of oil trading | | Guardian Unlimited Business

                  [15] “The Choice of Currency for the Denomination of the Oil Bill," Speech given by Javad Yarjani, Head of OPEC's Petroleum Market Analysis Dept, on The International Role of the Euro (Invited by the Spanish Minister of Economic Affairs during Spain's Presidency of the EU) (April 14, 2002, Oviedo, Spain)
                  http://www.opec.org/NewsInfo/Speeche...SpainApr14.htm

                  [16] “Iran's oil bourse expects to start by early 2006,” Reuters, October 5, 2004 Iran Oil Gas Network

                  [17] “Russia shifts to euro as foreign currency reserves soar,” AFP, June 9, 2003
                  Euro - Johnson's Russia List 6-9-03

                  [18] “China to diversify foreign exchange reserves,” China Business Weekly, May 8, 2004
                  China to diversify foreign exchange reserves

                  [19] Richard S. Appel, “The Repercussions from the Yuan’s Revaluation,” kitco.com, July 27, 2005
                  Kitco - Exclusive Commentaries

                  [20] “China, Iran sign biggest oil & gas deal,” China Daily, October 31, 2004. Online: China, Iran sign biggest oil & gas deal

                  [21] Analysis of Abu Musa Island, GlobalSecurity.org - Reliable Security Information
                  Abu Musa Island - Iran Special Weapons Facilities

                  [22] “Terror & regime change: Any US invasion of Iran will have terrible consequences,” News Insight: Public Affairs Magazine, June 11, 2004 The Public Affairs Magazine- Newsinsight.net

                  [23] Sammy Salama and Karen Ruster, “A Preemptive Attack on Iran's Nuclear Facilities: Possible Consequences,” Monterry Institute of International Studies, August 12, 2004 (updated September 9, 2004) cns.miis.edu/pubs/week/040812.htm

                  ~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~

                  William Clark has recently published, via New Society publishers, Petrodollar Warfare - Oil, Iraq and the Future of the Dollar.


                  The invasion of Iraq may well be remembered as the first oil currency war. Far from being a response to 9-11 terrorism or Iraq’s alleged weapons of mass destruction, Petrodollar Warfare argues that the invasion was precipitated by two converging phenomena: the imminent peak in global oil production, and the ascendance of the euro currency.

                  Energy analysts agree that world oil supplies are about to peak, after which there will be a steady decline in supplies of oil. Iraq, possessing the world’s second largest oil reserves, was therefore already a target of U.S. geostrategic interests. Together with the fact that Iraq had switched its oil currency trade to euros — rather than U.S. dollars — the Bush administration’s unreported aim was to prevent further OPEC momentum in favor of the euro as an alternative oil transaction currency standard.

                  Meticulously researched, Petrodollar Warfare examines U.S. dollar hegemony and the unsustainable macroeconomics of ‘petrodollar recycling,’ pointing out that the issues underlying the Iraq War also apply to geopolitical tensions between the U.S. and other countries including the member states of the European Union (EU), Iran, Venezuela, and Russia. The author warns that without changing course, the American Experiment will end the way all empires end – with military over-extension and subsequent economic decline. He recommends the multilateral pursuit of both energy and monetary reforms within a United Nations framework to create a more balanced global energy and monetary system – thereby reducing the possibility of future oil depletion and oil currency-related warfare.

                  A sober call for an end to aggressive U.S. unilateralism, Petrodollar Warfare is a unique contribution to the debate about the future global political economy.



                  About the Author: William Clark has received two Project Censored awards for his research on oil currency conflict, and has recently published a book, Petrodollar Warfare: Oil, Iraq and the Future of the Dollar (New Society Publishers, 2005). He is an Information Security Analyst, and holds a Master of Business Administration and Master of Science in Information and Telecommunication Systems from Johns Hopkins University. He lives near Bethesda, Maryland.
                  Website: Petrodollar Warfare - Home
                  Copyright © 2003-2005 William Clark
                  Reprinted for Fair Use Only
                  Petrodollar Warfare: Dollars, Euros and the Upcoming Iranian Oil Bourse | EnergyBulletin.net | Peak Oil News Clearinghouse


                  "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

                  I don't have to attend every argument I'm invited to.

                  HAKUNA MATATA

                  Comment


                  • #10
                    Death of the Dollar

                    William Thomas

                    11/29/05

                    In the year of Allah 1385, a 2,500 year-old Islamic nation will begin pricing its oil in euros. On that day in March 2006, the industrial world will shift on its axis with the launch of the Iranian oil bourse (IOB). Just about everyone on the planet will benefit by the ascendancy of the euro and liberation from the declining dollar. Except the United States. [aljazeera.com Sept 14/05]

                    Weary of watching its increasingly valuable black crude perversely decline in value along with the diving dollar tendered by its buyers, the second largest OPEC producer is making good on a promise first floated in 1999 to demand payment for its oil to euros. As William Clark noted in his landmark essay, “The Real Reasons for the Upcoming War With Iraq”, the Iranian lawmaker expressed hope that competition from the strengthened euro would eliminate the unfair US monopoly in global trade—unfair because its currency is backed by other people’s oil, who must buy non-US crude with dollars. [Iran Financial News Aug 25/02; William Clark Jan 2003]

                    Branded by Bush as an “Axis Of Evil” in 2001, Teheran converted more than half of Iran’s Forex Reserve Fund assets from dollars to euros the following year, with dramatic consequences for both currencies—called “products” in inner banking circles—which continued their movement in opposite directions. The MIBs (Men In Banks) were delighted. As Iranian Parliamentarian Mohammad Abasspour explained, the rising parity of the euro against the dollar “will give the Asian countries, particularly oil exporters, a chance to usher in a new chapter in ties with European Union’s member countries.” [“Deep Pockets interviews 2004-2005 by William Thomas]

                    Outside an imploding Fortress America, economists fed-up with that nation’s global bullying, and anxious over America’s endless wars are hailing the pre-emptive impact of the Iran oil bourse on the US dollar and economy as more devastating than if Iran launched a “direct nuclear attack.” [aljazeera.com]

                    But their glee could be short-lived, if Iran’s announced move to a “petroeuro” triggers a long-expected Israeli-American attack. As The Guardian warns, “Even a conventional weapon fired at a nuclear research center—whether or not a bomb was being made there - would almost certainly release radioactivity into the atmosphere, with consequences seen worldwide as a mini-Hiroshima.” [Guardian Aug 31/05]

                    Former British MP and cabinet minister Tony Benn speaks for many when he says of the former deserter in the White House: “He’s not going to invade Iran because he hasn’t got enough troops. Instead, he will bomb installations in Iran where nuclear work is going on. Just imagine an American bomb landing on a nuclear power station. [BigIssueScotland.com Oct22/05]

                    With their recently demonstrated capability to reach Israel, Iran’s modern missiles must be “launched on warning” or risk being destroyed in place. Are they nuclear-tipped? Though Iran announced its legal resumption of uranium enrichment for “peaceful purposes” last August, being firmly in US and Israeli crosshairs makes its leadership as remiss as North Korea’s if it does not acquire the only effective deterrent to an American attack.

                    MASS MURDER “ON THE TABLE”
                    As Bush assured reporters last February, “This notion that the United States is getting ready to attack Iran is simply ridiculous. And having said that, all options are on the table.”

                    Speaking the day before Bush’s “all options” threat, Israeli Air Force commander Major General Eliezer Shakedi announced that Israel must be prepared for an air strike on Iran “in light of its nuclear activity.”

                    But as Ray McGovern points out, Iran fears Israel at least as much as Israel fears it. McGovern, who served as a CIA analyst for 27 years, from the administration of John F. Kennedy to George Bush 1, reminds us, “Iranians also remember how Israel was able to acquire and keep its nuclear technology.”

                    Iranians also recall and resent how, in 1953 the USA and Great Britain overthrew Iran’s democratically elected Premier Mohammad Mossadeq to “un-nationalize” US and UK corporate oil interests there. “They then emplaced the young Shah in power who, with his notorious secret police, proved second to none in cruelty,” McGovern relates. “Iranians also remember Washington’s strong support for Saddam Hussein’s Iraq after it decided to make war on Iran in 1980.” Saddam’s use of chemical weapons supplied by the United States “was perhaps the crucial factor in staving off an Iranian victory,” McGovern adds. “Imagine then, the threat Iranians see, should the Bush administration succeed in establishing up to 14 permanent military bases in neighboring Iraq.” [TomDispatch Mar 2/05]

                    Designed to alert the president of national security developments and help guide policy, the latest US National Intelligence Estimate projects that Iran is about a decade away from manufacturing the key ingredient for a nuclear weapon—unless ancient and proud Persia has already acquired atomic warheads from its Shiite pals in Pakistan. Or the Russian mafia. [Le Devoir Aug 10/05; Washington Post Aug 2/05]

                    We may soon find out. As al Jazeera warns, “Without some form of U.S. intervention, the euro is going to establish a firm foothold in the international oil trade.” [aljazeera.com]

                    THE IRAQ EURO WAR

                    THE IRAQ EURO WAR
                    No mullah in Teheran will soon forget the fate of Saddam Hussein, after Iraq’s dictator moved the world’s second biggest oil reserves from the dollar to the euro in November 2000. With the euro reaching record lows as it traded at 82 cents to the dollar—down 30% since its launch the previous year—White House officials collapsed with laughter over Saddam’s seeming ineptitude. “The move will cost Iraq millions in lost revenue,” advised European pundits. “Currency traders say they don’t expect a rebound soon.” [Radio Free Europe; Radio Liberty Nov 2000]

                    The laughter stopped when the euro zoomed to over $1.05. [Common Dreams Nov 15/04]


                    OPEC took notice. Producing about one-third of world oil production, the Saudi-led oil-producing cartel quadrupled the price of their oil in 1973-74 and agreed to price it in dollars only—re-investing their “petrodollar” proceeds in US Treasury Bills. In return, the US government agreed to “protect” the Saudi royals from all threats, foreign and domestic. Since that year, the world’s so-called “fiat” currencies have been backed not by gold but by faith and oil. Other people’s oil. [PD Scott: http://ist-socrates.berkeley.edu/~pdscott/iraq.html; Globalist Perspective June 2/03]

                    In 1997, a report from the James Baker Institute of Public Policy prophetically warned that the US faced imported oil shortages as world oil supplies failed to keep up with world demand. The report emphasized “the Threat of Iraq and Iran” to the free flow of Middle East oil.

                    When the Bush regime “took” office in 2001, Vice-President Cheney’s Energy Task Force highlighted a follow-up study outlining “Strategic Energy Policy Challenges for the 21st Century”—which slammed Saddam for using his own euro-dominated export program “to manipulate oil markets.” In response, Cheney stated, “The Gulf will be a primary focus of US international energy policy.”

                    Anthony Cordesman, senior analyst at Washington’s Center for Strategic and International Studies, translated the new policy: “Regardless of whether we say so publicly, we will go to war, because Saddam sits at the center of a region with more than 60% of all the world’s oil reserves.”

                    “This war in Iraq will not be based on any threat from Saddam’s old WMD program, or from terrorism,” predicted Dr. Paul Isbell. “This war will be over the global currency of oil. A war intended to prevent oil from being priced in euros.” [William Clark Jan 2003]

                    “Saddam sealed his fate when he decided to switch to the euro in late 2000, and later converted his $10 billion reserve fund at the UN to euros,” William Clark observed. “The reason why the corporate-military-industrial network conglomerate wants a puppet government in Iraq—is so that it will revert back to a dollar standard and stay that way.”

                    But the Federal Reserve’s greatest nightmare was OPEC following suit and switching its international transactions from a dollar to a euro standard. As Clark cautioned:

                    The effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their (central bank) reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value You’d have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there’d surely be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic Third World economic crisis scenario.

                    In January 2003, officials from the White House, State Department, and Department of Defense continued meeting informally with executives from Halliburton, Schlumberger, ExxonMobil, ChevronTexaco and ConocoPhillips to plan the post-war expansion of oil production from Iraq. With proven reserves of 113 billion barrels, the second largest in the world after Saudi Arabia and 11% of the world’s total, Iraq’s “sweet crude” was easy and cheap to extract. At least, if angry Iraqis weren’t blowing up its pipelines every second day. [Wall Street Journal Jan 16/03; Scott; All Fall Down: The Politics of Terror and Mass Destruction by William Thomas]

                    Like a consumption junkie faced with withdrawal, the US had to invade Iraq. As Pakistan’s national newspaper, The Hindu noted, “An economy that is powered by debt-laden consumption growth, that has low or negative savings, that keeps running up huge current account deficits and can afford to do all this solely because of foreigners’ preference for its currency has everything to lose from even the smallest of threats… [The Hindu Apr 12/03]

                    Once and for all, the fundamentalists in the White House saw that conquering the ruins of a sanctions-ravaged Iraq could be an OPEC breaker. They never dreamed their ill-advised invasion could be—like the Soviets in Afghanistan before them—a US breaker.

                    US Dollar/Euro/OPEC/Iran War/Iran Oil US Dollar/Euro Replacing US Dollar For Oil/Death Of The Dollar
                    These are all dated articles and so the situation would have changed.

                    However, Shek, request analyse the issues these articles have propounded and would appreciate the same.

                    While I have read the connection of oil, the requirement to break the OPEC cartel etc, the true economic connection seems to have gone over my head. Therefore, do explain all this as to a layman, if I can request for such an indulgence inspite of your busy schedule.


                    "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

                    I don't have to attend every argument I'm invited to.

                    HAKUNA MATATA

                    Comment


                    • #11
                      The Real Reasons Why Iran is the Next Target:
                      The Emerging Euro-denominated International Oil Marker

                      by William Clark



                      GlobalResearch.ca - Centre for Research on Globalization 27 October 2004

                      The URL of this article is: The Real Reasons Why Iran is the Next Target:

                      The Iranians are about to commit an "offense" far greater than Saddam Hussein's conversion to the euro of Iraq’s oil exports in the fall of 2000. Numerous articles have revealed Pentagon planning for operations against Iran as early as 2005. While the publicly stated reasons will be over Iran's nuclear ambitions, there are unspoken macroeconomic drivers explaining the Real Reasons regarding the 2nd stage of petrodollar warfare - Iran's upcoming euro-based oil Bourse.



                      In 2005-2006, The Tehran government has a developed a plan to begin competing with New York's NYMEX and London's IPE with respect to international oil trades - using a euro-denominated international oil-trading mechanism. This means that without some form of US intervention, the euro is going to establish a firm foothold in the international oil trade. Given U.S. debt levels and the stated neoconservative project for U.S. global domination, Tehran's objective constitutes an obvious encroachment on U.S. dollar supremacy in the international oil market

                      "Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes...known instruments for bringing the many under the domination of the few. . . No nation could preserve its freedom in the midst of continual warfare."

                      - James Madison, Political Observations, 1795

                      Madison’s words of wisdom should be carefully considered by the American people and world community. The rapidly deteriorating situation on the ground in Iraq portends an even direr situation for American soldiers and the People of the world community - should the Bush administration pursue their strategy regarding Iran. Current geopolitical tensions between the United States and Iran extend beyond the publicly stated concerns regarding Iran’s nuclear intentions, and likely include a proposed Iranian "petroeuro system" for oil trade. Similar to the Iraq war, upcoming operations against Iran relate to the macroeconomics of the `petrodollar recycling’ and the unpublicized but real challenge to U.S. dollar supremacy from the euro as an alternative oil transaction currency.

                      It is now obvious the invasion of Iraq had less to do with any threat from Saddam’s long-gone WMD program and certainly less to do to do with fighting International terrorism than it has to do with gaining control over Iraq’s hydrocarbon reserves and in doing so maintaining the U.S. dollar as the monopoly currency for the critical international oil market. Throughout 2004 statements by former administration insiders revealed that the Bush/Cheney administration entered into office with the intention of toppling Saddam Hussein. Indeed, the neoconservative strategy of installing a pro-U.S. government in Baghdad along with multiple U.S. military bases was partly designed to thwart further momentum within OPEC towards a "petroeuro." However, subsequent events show this strategy to be fundamentally flawed, with Iran moving forward towards a petroeuro system for international oil trades, while Russia discusses this option.

                      Candidly stated, ‘Operation Iraqi Freedom’ was a war designed to install a pro-U.S. puppet in Iraq, establish multiple U.S military bases before the onset of Peak Oil, and to reconvert Iraq back to petrodollars while hoping to thwart further OPEC momentum towards the euro as an alternative oil transaction currency. [1] In 2003 the global community witnessed a combination of petrodollar warfare and oil depletion warfare. The majority of the world’s governments – especially the E.U., Russia and China - were not amused – and neither are the U.S. soldiers who are currently stationed in Iraq.

                      Indeed, the author’s original pre-war hypothesis was validated shortly after the war in a Financial Times article dated June 5th, 2003, which confirmed Iraqi oil sales returning to the international markets were once again denominated in US dollars, not euros. Not surprisingly, this detail was never mentioned in the five US major media conglomerates who appear to censor this type of information, but confirmation of this vital fact provides insight into one of the crucial - yet overlooked - rationales for 2003 the Iraq war.

                      "The tender, for which bids are due by June 10, switches the transaction back to dollars -- the international currency of oil sales - despite the greenback's recent fall in value. Saddam Hussein in 2000 insisted Iraq's oil be sold for euros, a political move, but one that improved Iraq's recent earnings thanks to the rise in the value of the euro against the dollar." [2]

                      Unfortunately, it has become clear that yet another manufactured war, or some type of ill-advised covert operation is inevitable under President George W. Bush, should he win the 2004 Presidential Election. Numerous news reports over the past several months have revealed that the neoconservatives are quietly - but actively - planning for the second petrodollar war, this time against Iran.

                      "Deep in the Pentagon, admirals and generals are updating plans for possible U.S. military action in Syria and Iran. The Defense Department unit responsible for military planning for the two troublesome countries is "busier than ever," an administration official says. Some Bush advisers characterize the work as merely an effort to revise routine plans the Pentagon maintains for all contingencies in light of the Iraq war. More skittish bureaucrats say the updates are accompanied by a revived campaign by administration conservatives and neocons for more hard-line U.S. policies toward the countries"…"Even hard-liners acknowledge that given the U.S. military commitment in Iraq, a U.S. attack on either country would be an unlikely last resort; covert action of some kind is the favored route for Washington hard-liners who want regime change in Damascus and Tehran."

                      "…administration hawks are pinning their hopes on regime change in Tehran - by covert means, preferably, but by force of arms if necessary. Papers on the idea have circulated inside the administration, mostly labeled "draft" or "working draft" to evade congressional subpoena powers and the Freedom of Information Act. Informed sources say the memos echo the administration's abortive Iraq strategy: oust the existing regime, swiftly install a pro-U.S. government in its place (extracting the new regime's promise to renounce any nuclear ambitions) and get out. This daredevil scheme horrifies U.S. military leaders, and there's no evidence that it has won any backers at the cabinet level." [3]

                      To date, one of the more difficult technical obstacles concerning a euro-based oil transaction trading system is the lack of a euro-denominated oil pricing standard, or oil ‘marker’ as it is referred to in the industry. The three current oil markers are U.S. dollar denominated, which include the West Texas Intermediate crude (WTI), Norway Brent crude, and the UAE Dubai crude. However, since the spring of 2003, Iran has required payments in the euro currency for its European and Asian/ACU exports - although the oil pricing for trades are still denominated in the dollar. [4]

                      Therefore, a potentially significant news development was reported in June 2004 announcing Iran’s intentions to create of an Iranian oil Bourse. (The word "bourse" refers to a stock exchange for securities trading, and is derived from the French stock exchange in Paris, the Federation Internationale des Bourses de Valeurs.) This announcement portended competition would arise between the Iranian oil bourse and London’s International Petroleum Exchange (IPE), as well as the New York Mercantile Exchange (NYMEX). It should be noted that both the IPE and NYMEX are owned by U.S. corporations.

                      The macroeconomic implications of a successful Iranian Bourse are noteworthy. Considering that Iran has switched to the euro for its oil payments from E.U. and ACU customers, it would be logical to assume the proposed Iranian Bourse will usher in a fourth crude oil marker – denominated in the euro currency. Such a development would remove the main technical obstacle for a broad-based petroeuro system for international oil trades. From a purely economic and monetary perspective, a petroeuro system is a logical development given that the European Union imports more oil from OPEC producers than does the U.S., and the E.U. accounts for 45% of imports into the Middle East (2002 data).

                      Acknowledging that many of the oil contracts for Iran and Saudi Arabia are linked to the United Kingdom’s Brent crude marker, the Iranian bourse could create a significant shift in the flow of international commerce into the Middle East. If Iran’s bourse becomes a successful alternative for oil trades, it would challenge the hegemony currently enjoyed by the financial centers in both London (IPE) and New York (NYMEX), a factor not overlooked in the following article:

                      "Iran is to launch an oil trading market for Middle East and OPEC producers that could threaten the supremacy of London's International Petroleum Exchange."

                      "…He [Mr. Asemipour] played down the dangers that the new exchange could eventually pose for the IPE or Nymex, saying he hoped they might be able to cooperate in some way."

                      "…Some industry experts have warned the Iranians and other OPEC producers that western exchanges are controlled by big financial and oil corporations, which have a vested interest in market volatility.

                      The IPE, bought in 2001 by a consortium that includes BP, Goldman Sachs and Morgan Stanley, was unwilling to discuss the Iranian move yesterday. "We would not have any comment to make on it at this stage," said an IPE spokeswoman. "[5]

                      It is unclear at the time of writing, if this project will be successful, or could it prompt overt or covert U.S. interventions - thereby signaling the second phase of petrodollar warfare in the Middle East. News articles in June 2004 revealed the discredited neoconservative sycophant Ahmed Chalabi may have revealed his knowledge to Iran regarding U.S. military planning for operations against that nation.

                      "The reason for the US breakup with Ahmed Chalabi, the Shiite Iraqi politician, could be his leak of Pentagon plans to invade Iran before Christmas 2005, but the American government has not changed its objective, and the attack could happen earlier if president George W. Bush is re-elected, or later if John Kerry is sworn in."

                      "….Diplomats said Chalabi was alerted to the Pentagon plans and in the process of trying to learn more to tell the Iranians, he invited suspicions of US officials, who subsequently got the Iraqi police to raid the compound of his Iraqi National Congress on 20 May 2004, leading to a final break up of relations."

                      "While the US is uncertain how much of the attack plans were leaked to Iran, it could change some of the invasion tactics, but the broad parameters would be kept intact." [6]

                      Regardless of the potential U.S. response to an Iranian petroeuro system, the emergence of an oil exchange market in the Middle East is not entirely surprising given the domestic peaking and decline of oil exports in the U.S. and U.K, in comparison to the remaining oil reserves in Iran, Iraq and Saudi Arabia. According to Mohammad Javad Asemipour, an advisor to Iran’s oil ministry and the individual responsible for this project, this new oil exchange is scheduled to begin oil trading in March 2005.

                      "Asemipour said the platform should be trading crude, natural gas and petrochemicals by the start of the new Iranian year, which falls on March 21, 2005.

                      He said other members of the Organization of Petroleum Exporting Countries - Iran is the producer group's second-largest producer behind Saudi Arabia - as well as oil producers from the Caspian region would eventually participate in the exchange." [7]

                      (Note: the most recent Iranian news report from October 5, 2004 stated: "Iran's oil bourse will start trading by early 2006" which suggests a delay from the original March 21, 2005 target date). [8] Additionally, according to the following report, Saudi investors may be interested in participating in the Iranian oil exchange market, further illustrating why petrodollar hegemony is becoming unsustainable.

                      "Chris Cook, who previously worked for the IPE and now offers consultancy services to markets through Partnerships Consulting LLP in London, commented: "Post-9/11, there has also been an interest in the project from the Saudis, who weren't interested in participating before."

                      "Others familiar with Iran's economy said since 9/11, Saudi Arabian investors are opting to invest in Iran rather than traditional western markets as the kingdom's relations with the U.S. have weakened Iran's oil ministry has made no secret of its eagerness to attract much needed foreign investment in its energy sector and broaden its choice of oil buyers."

                      "…Along with several other members of OPEC, Iranian oil officials believe crude trading on the New York Mercantile Exchange and the IPE is controlled by the oil majors and big financial companies, who benefit from market volatility."[9]

                      One of the Federal Reserve’s nightmares may begin to unfold in 2005 or 2006, when it appears international buyers will have a choice of buying a barrel of oil for $50 dollars on the NYMEX and IPE - or purchase a barrel of oil for €37 - €40 euros via the Iranian Bourse. This assumes the euro maintains its current 20-25% appreciated value relative to the dollar - and assumes that some sort of "intervention" is not undertaken against Iran. The upcoming bourse will introduce petrodollar versus petroeuro currency hedging, and fundamentally new dynamics to the biggest market in the world - global oil and gas trades

                      During an important speech in April 2002, Mr. Javad Yarjani, an OPEC executive, described three pivotal events that would facilitate an OPEC transition to euros. [10] He stated this would be based on (1) if and when Norway's Brent crude is re-dominated in euros, (2) if and when the U.K. adopts the euro, and (3) whether or not the euro gains parity valuation relative to the dollar, and the EU’s proposed expansion plans were successful. (Note: Both of the later two criteria have transpired: the euro’s valuation has been above the dollar since late 2002, and the euro-based E.U. enlarged in May 2004 from 12 to 22 countries). In the meantime, the United Kingdom remains uncomfortably juxtaposed between the financial interests of the U.S. banking nexus (New York/Washington) and the E.U. financial centers (Paris/Frankfurt).

                      The implementation of the proposed Iranian oil Bourse (exchange) in 2005/2006 – if successful in utilizing the euro as its oil transaction currency standard – essentially negates the necessity of the previous two criteria as described by Mr. Yarjani regarding the solidification of a "petroeuro" system for international oil trades. [10] It should also be noted that during 2003-2004 Russia and China have both increased their central bank holdings of the euro currency, which appears to be a coordinated move to facilitate the anticipated ascendance of the euro as a second World Reserve currency. [11] [12] In the meantime, the United Kingdom is uncomfortable juxtaposed between the financial interests of the U.S. (New York/Washington) banking nexus and that of the E.U. financial center (Paris/Frankfurt).

                      The immediate question for Americans? Will the neoconservatives attempt to intervene covertly and/or overtly in Iran during 2005 in an effort to prevent the formation of a euro-denominated crude oil pricing mechanism? Commentators in India are quite correct in their assessment that a U.S. intervention in Iran is likely to prove disastrous for the United States, making matters much worse regarding international terrorism, not to the mention potential effects on the U.S. economy.

                      "The giving up on the terror war while Iran invasion plans are drawn up makes no sense, especially since the previous invasion and current occupation of Iraq has further fuelled Al-Qaeda terrorism after 9/11."

                      "…It is obvious that sucked into Iraq, the US has limited military manpower left to combat the Al-Qaeda elsewhere in the Middle East and South Central Asia,"…"and NATO is so seriously cross with America that it hesitates to provides troops in Iraq, and no other country is willing to bail out America outside its immediate allies like Britain, Italy, Australia and Japan."

                      "….If it [U.S.] intervenes again, it is absolutely certain it will not be able to improve the situation – Iraq shows America has not the depth or patience to create a new civil society – and will only make matters worse."

                      "There is a better way, as the constructive engagement of Libya’s Colonel Muammar Gaddafi has shown…."Iran is obviously a more complex case than Libya, because power resides in the clergy, and Iran has not been entirely transparent about its nuclear programme, but the sensible way is to take it gently, and nudge it to moderation. Regime change will only worsen global Islamist terror, and in any case, Saudi Arabia is a fitter case for democratic intervention, if at all." [13]

                      It is abundantly clear that a 2nd Bush term will bring a confrontation and possible war with Iran during 2005. Colin Powell as the Secretary of the State, has moderated neoconservative military designs regarding Iran, but Powell has stated that he will be leaving at the end of Bush’s first term. Of course if John Kerry wins in November, he might pursue a similar military strategy. However, it is my opinion that Kerry is more likely to pursue multilateral negotiations regarding the Iranian issues.

                      Clearly, there are numerous risks regarding neoconservative strategy towards Iran. First, unlike Iraq, Iran has a robust military capability. Secondly, a repeat of any "Shock and Awe" tactics is not advisable given that Iran has installed sophisticated anti-ship missiles on the Island of Abu Musa, and therefore controls the critical Strait of Hormuz. [14] In the case of a U.S. attack, a shut down of the Strait of Hormuz – where all of the Persian Gulf bound oil tankers must pass – could easily trigger a market panic with oil prices skyrocketing to $100 per barrel or more. World oil production is now flat out, and a major interruption would escalate oil prices to a level that would set off a global Depression. Why are the neoconservatives willing to takes such risks? Simply stated - their goal is U.S. global domination.

                      A successful Iranian bourse would solidify the petroeuro as an alternative oil transaction currency, and thereby end the petrodollar's hegemonic status as the monopoly oil currency. Therefore, a graduated approach is needed to avoid precipitous U.S. economic dislocations. Multilateral compromise with the EU and OPEC regarding oil currency is certainly preferable to an ‘Operation Iranian Freedom,’ or perhaps an attempted CIA-sponsored repeat of the 1953 Iranian coup – operation "Ajax" part II. [15] Indeed, there are very good reasons for U.S. military leaders to be "horrified" at the thought of a second Bush term in which Cheney and the neoconservatives would be unrestrained in their tragic pursuit of U.S. global domination.

                      "NEWSWEEK has learned that the CIA and DIA have war-gamed the likely consequences of a U.S. pre-emptive strike on Iran's nuclear facilities. No one liked the outcome. As an Air Force source tells it, "The war games were unsuccessful at preventing the conflict from escalating." [16]

                      Despite the impressive power of the U.S. military and the ability of our intelligence agencies to facilitate "interventions," it would be perilous and possibly ruinous for the U.S to intervene in Iran given the dire situation in Iraq. The Monterey Institute of International Studies provided an extensive analysis of the possible consequences of a preemptive attack on Iran’s nuclear facilities and warned of the following:

                      "Considering the extensive financial and national policy investment Iran has committed to its nuclear projects, it is almost certain that an attack by Israel or the United States would result in immediate retaliation. A likely scenario includes an immediate Iranian missile counterattack on Israel and U.S. bases in the Gulf, followed by a very serious effort to destabilize Iraq and foment all-out confrontation between the United States and Iraq's Shi'i majority. Iran could also opt to destabilize Saudi Arabia and other Gulf states with a significant Shi'i population, and induce Lebanese Hizbullah to launch a series of rocket attacks on Northern Israel."

                      "…An attack on Iranian nuclear facilities…could have various adverse effects on U.S. interests in the Middle East and the world. Most important, in the absence of evidence of an Iranian illegal nuclear program, an attack on Iran's nuclear facilities by the U.S. or Israel would be likely to strengthen Iran's international stature and reduce the threat of international sanctions against Iran. Such an event is more likely to embolden and expand Iran's nuclear aspirations and capabilities in the long term"…"one thing is for certain, it would not be just another Osirak. " [17]

                      Synopsis

                      Regardless of whatever choice the U.S. electorate makes in the upcoming Presidential Election a military expedition may still go ahead.

                      This essay was written out of my own patriotic duty in an effort to inform Americans of the challenges that lie ahead. On November 25, 2004, the issues involving Iran's nuclear program will be addressed by the International Atomic Energy Agency (IAEA), and possibly referred to the U.N. Security Council if the results are unsatisfactory. Regardless of the IAEA findings, it appears increasingly likely the U.S. will use the specter of nuclear weapon proliferation as a pretext for an intervention, similar to the fears invoked in the previous WMD campaign regarding Iraq.

                      Pentagon sources confirm the Bush administration could undertake a desperate military strategy to thwart Iran’s nuclear ambitions while simultaneously attempting to prevent the Iranian oil Bourse from initiating a euro-based system for oil trades. The later would require forced "regime change" and the U.S. occupation of Iran. Obviously this would require a military draft. Objectively speaking, the post-war debacle in Iraq has clearly shown that such Imperial policies will be a catastrophic failure. Alternatively, perhaps a more enlightened U.S. administration could undertake multilateral negotiations with the EU and OPEC regarding a dual oil-currency system, in conjunction with global monetary reform. Either way, U.S. policy makers will soon face two difficult choices: monetary compromise or continued petrodollar warfare.

                      "I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts."

                      - Abraham Lincoln

                      "Whenever the people are well-informed, they can be trusted with their own government. Whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights."

                      - Thomas Jefferson



                      References:

                      [1] "Revisited - The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth," January 2003 (updated January 2004) Revisited - The Real Reasons for the Upcoming War in Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth, by William Clark, updated: Jan 2004

                      [2] Hoyos, Carol & Morrison, Kevin, "Iraq returns to the international oil market," Financial Times, June 5, 2003 http://www.thedossier.ukonline.co.uk...l%20market.htm

                      [3] "War-Gaming the Mullahs: The U.S. weighs the price of a pre-emptive strike," Newsweek, September 27 issue, 2004. War-Gaming the Mullahs - Newsweek: World News - MSNBC.com

                      [4] Shivkumar, C., "Iran offers oil to Asian union on easier terms," The Hindu Business Line (June 16, 2003). The Hindu Business Line : Iran offers oil to Asian union on easier terms

                      [5] Macalister, Terry, "Iran takes on west's control of oil trading," The [UK] Guardian, June 16, 2004 Iran takes on west's control of oil trading | | Guardian Unlimited Business

                      [6] "US to invade Iran before 2005 Christmas," News Insight: Public Affairs Magazine, June 9, 2004 The Public Affairs Magazine- Newsinsight.net

                      [7] "Iran Eyes Deal on Oil Bourse; IPE Chairman Visits Tehran," Rigzone.com (July 8, 2004) RIGZONE - Article Not Found

                      [8] "Iran's oil bourse expects to start by early 2006," Reuters, October 5, 2004 Iran Oil Gas Network

                      [9] "Iran Eyes Deal on Oil Bourse, IPE Chairman Visits Tehran," ibid.

                      [10] "The Choice of Currency for the Denomination of the Oil Bill," Speech given by Javad Yarjani, Head of OPEC's Petroleum Market Analysis Dept, on The International Role of the Euro (Invited by the Spanish Minister of Economic Affairs during Spain's Presidency of the EU) (April 14, 2002, Oviedo, Spain)
                      http://www.opec.org/NewsInfo/Speeche...SpainApr14.htm

                      [11] Russia shifts to euro as foreign currency reserves soar," AFP, June 9, 2003
                      Euro - Johnson's Russia List 6-9-03

                      [12] "China to diversify foreign exchange reserves," China Business Weekly, May 8, 2004 China to diversify foreign exchange reserves

                      [13] "Terror & regime change: Any US invasion of Iran will have terrible consequences," News Insight: Public Affairs Magazine, June 11, 2004 The Public Affairs Magazine- Newsinsight.net

                      [14] Analysis of Abu Musa Island, GlobalSecurity.org - Reliable Security Information Abu Musa Island - Iran Special Weapons Facilities

                      [15] J.W. Smith, "Destabilizing a Newly-Free Iran," The Institute for Economic Democracy, 2003 Destabilizing Emerging Democracies Worldwide

                      [16] "War-Gaming the Mullahs: The U.S. weighs the price of a pre-emptive strike," ibid.

                      [17] Salama, Sammy and Ruster, Karen,"A Preemptive Attack on Iran's Nuclear Facilities: Possible Consequences," Monterry Institute of International Studies, August 12, 2004 (updated September 9, 2004) CNS - A Preemptive Attack on Iran's Nuclear Facilities: Possible Consequences - August 12, 2004 - Research Story

                      [18] Philips, Peter, "Censored 2004," Project Censored, Seven Stories Press, (2003) Project Censored Media Democracy in Action

                      Story #19: U.S. Dollar vs. the Euro: Another Reason for the Invasion of Iraq Project Censored Media democracy in action



                      William Clark is the author of an award-winning essay published online in early 2003 entitled: 'The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth.’

                      Revisited - The Real Reasons for the Upcoming War in Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth, by William Clark, updated: Jan 2004 , also published by Global Research at Centre for Research on Globalisation (CRG) This essay received a 2003 ‘Project Censored’ award, and was published in the book, Censored 2004) [18] This pre-war essay hypothesized that Saddam sealed his fate when he announced in September 2000 that Iraq was no longer going to accept dollars for oil being sold under the UN’s oil-for-food program, and switch to the euro as Iraq’s oil export transaction currency.

                      Note: Below is a description of this author’s upcoming book: (Available spring 2005.)

                      Petrodollar Warfare
                      Oil, Iraq and the Future of the Dollar
                      William Clark

                      The invasion of Iraq may well be remembered as the first oil currency war. Far from being a response to 9-11 terrorism or Iraq's alleged weapons of mass destruction, Petrodollar Warfare argues that the invasion was precipitated by two converging phenomena: the imminent peak in global oil production, and the ascendance of the euro currency.

                      Energy analysts agree that world oil supplies are about to peak, after which there will be a steady decline in supplies of oil. Iraq, possessing the world's second largest oil reserves, was therefore already a target of U.S. geostrategic interests. Together with the fact that Iraq had switched its oil transaction currency to euros -- rather than U.S. dollars -- the Bush administration's unreported aim was to prevent further OPEC momentum in favor of the euro as an alternative oil transaction currency standard.

                      Meticulously researched, Petrodollar Warfare examines U.S. dollar hegemony and the unsustainable macroeconomics of 'petrodollar recycling,' pointing out that the issues underlying the Iraq war also apply to geopolitical tensions between the U.S. and other countries including the European Union (E.U.), Iran, Venezuela, and Russia. The author warns that without changing course, the American Experiment will end the way all empires end - with military over-extension and subsequent economic decline. He recommends the multilateral pursuit of both energy and monetary reforms within a United Nations framework to create a more balanced global energy and monetary system thereby reducing the possibility of future oil-depletion and oil currency-related warfare.

                      A sober call for an end to aggressive U.S. unilateralism, Petrodollar Warfare is a unique contribution to the debate about the future global political economy.
                      The Real Reasons Why Iran is the Next Target:
                      From Canada's global research.


                      "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

                      I don't have to attend every argument I'm invited to.

                      HAKUNA MATATA

                      Comment


                      • #12
                        Sir,

                        I don't have much time right now, but I'll add more depth to my questions for now and hopefully can get to your questions later.

                        First, it is expected that Iran's will begin importing, instead of exporting, oil, by 2015 (I believe the assumptions are based on the fact that Iran hasn't and won't be able to develop their reserves because of their international position, and because of their increasing domestic consumption of their extracted oil). Thus, it begs the question of how such a short window of petroeuros would be the straw that precipitated war.

                        For a more in-depth look at Iran's energy export sector: http://www.house.gov/jec/studies/rr109-31.pdf

                        Second, I read the words in the article, but there are no numbers (but one, which is unsourced, unmodeled, and speaks only to the value of the dollar, but not how this impacts the US). Where are the models that predict these numbers. Who ran them? What are the sources?

                        Lastly, while it certainly leaves a lot to be desired in terms of illustrating the proper impact of the swtich to euros, I'll usethe single reference to any empirical results from a switch over, which is described as a 20-40% decline in the dollar. As a crude yardstick, since the article has been published, the dollar has weakened by 13.5% against the euro. Last time I checked, the US is still chugging along at about 3.5% real growth during the same time period. Let's look back further at how the dollar has weakened since 9/11 - it's weakened by 47% against the euro. Same story as before - the US economy has been chugging away in the 3-4% real growth range. So, in a seemingly bait and switch tactic by our socialistic friends at Global Research, they talk about the ill effects (bait) and then cite only a statistic on the dollar, not on the US economy (switch). Once again, the above comparison is very crude as it doesn't correctly model the petroeuro switch, but it does give us a benchmark to grade our hypotheses against.

                        EDIT: I found the actual report that predicts that Iran's oil exports will dry up by 2015.

                        http://www.pnas.org/cgi/reprint/0603903104v1.pdf
                        Last edited by Shek; 02 Apr 07,, 20:43.
                        "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

                        Comment


                        • #13
                          Shek,

                          Sounds valid.

                          Are you an economist by scholarship?


                          "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

                          I don't have to attend every argument I'm invited to.

                          HAKUNA MATATA

                          Comment


                          • #14
                            Originally posted by Ray View Post
                            Shek,

                            Sounds valid.

                            Are you an economist by scholarship?
                            Sir,

                            I was an econ undergrad, although 8 years of infantry had resulted in nearly complete atrophy of what I had learned. My MA is in strategic studies, although the majority of my courses in grad school were actually econ courses. So, the answer is both yes and no. If I continued to teach econ and began doing research in some of my interest areas, then I might be prone to calling myself an economist by scholarship. However, at this time, I wouldn't label myself as such. I guess I'm a guy who still doesn't know what to do in life and am not ready to grow up, and so I remain in the Army ;)
                            "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

                            Comment


                            • #15
                              Originally posted by Shek View Post
                              Another question.

                              How much longer is Iran projected to be an oil exporter?

                              What does this do with the go to war with Iran over the petrodollar theory?

                              In other words, what is the monetary impact of Iran trading in euros instead of dollars?


                              There is a curious lack of empirics that have been provided by the petrodollar equals war supporters, and I suspect that they fear the empirical answers that would return from the above questions.
                              What is the monetary impact of Iran trading in euros instead of dollars?

                              This is how I see it.

                              As you know, dollar is a currency and any currency is a product just as any other goods. So, US dollar as a product has a price on the world market and also it has a certain value.
                              So if the value of US dollar is big its price will be also big cause as any quality product it costs more than the low quality product. The value of one currency in the old days was measured by the quantity of gold reserves that one country has. In todays market the value of one currency is measured by a strength of a whole economy that one country has. Virtually everything goes in that value. The end point is that you need to have something that is fixed and sturdy which will be a foundation value for your currency. The foundation for the strong US dollar is based on many factors. First thing in the US dollar strength is the geographical position of United States. US is simply too far away from others and others cannot endanger US like they can countries that are close to each other. That is why on the begging of world war one all the treasuries from Europe transfered their wealth into the US banks and US banks charged them for that which gave US initial means to start massive industrial progress and with rich natural resources soon it shaped the foundation of US might. With the technological advancements pure geographical distance was not enough to keep the enemies form reaching for the US. Army was needed to protect US and being big as a US is a big army was required for protection. So the US military gave another point to the Dollar value. But you see, except soldiers which usually run on canned meat bread and water, tanks airplanes and ships run on various forms of fuel which,usually is made from one thing and that is crude oil. After the second world war, US economy, its production facilities, workforce, knowledge base etc remained untouched by war and the fact that it was preserved and going stronger by the day, plus it was geographically distant from any threat and it had advanced and large army to protect it, kind of made US dollar an ideal candidate for the world's currency.
                              Actually it was the only candidate. So ruined world war economies began to trade in us dollars cause it was the only worthy thing at the time. And us began donating and helping, well not helping more like investing, into the ruined economies of the world. That situation created a base for the "service" based type of economy. That means that, since US dollar is a product and it is the only product in the market, whom ever buys or sell in US dollar actually makes US economy stronger cause the trade has been made in US product aka the US dollar and US dollar is made in USA. It doesn't matter what they are buying or selling the only thing that matters is that they buy or sell in US dollars.This whole situation lead to the thinking that US doesn't need the most of its industrial aka "production" facilities and began to export its production to the cheaper areas. By exporting the production to the third world countries the US made production cheap and available to the majority of people. Since US exported most of its production lines to third world countries the only source for domestic economy production was the real state market, military industry,banking transactions and perhaps movie industry.

                              So the ruined countries which took credits form the US are going to return those credits with interest rates over the years, domestic production has been moved outside and made cheap and real state market boomed thanks to the gigantic wealth that was coming from the outside. But there was a catch to this paradise.
                              The economy, based on service model strongly depends on credibility of firms and companies that provide those services. If the credibility of those companies is shaken the whole system has a good chance to collapse since although it is powerful it is incredibly fragile.
                              The 9/11 attacks showed the world that the US is no longer safe and ruined the credibility of US power as something sturdy and constant, sending the US dollar down. As US dollar lost its value that meant that the price of oil needed to go up to make up for that. Higher oil prices meant higher costs of life. But you see, it was the real estate market that made the mess. The real estate market in the US works, as I see it, like this. You want to buy a house, the house has its price. The credit you get form a bank is lower than the value of the house so if something goes wrong and you can't pay off to the bank the bank can always take the house back and sell it to someone else without loosing any profit since the price of the house is larger than the credit that is given for the house. But over the years, US systematically was cutting the branch on which it was sitting on. Exporting production to other countries and by making the products cheap made the houses cheap and the value of the house could not cover the credit that bank was issuing meaning that if you can't pay off the house the bank will take it form you but since the house value is lower than the credit the bank loses money. So the way to make this to work was to overprice the real estate but growing costs of life prevented the new expensive real estate to be bought and that lead to the real estate bubble to burst.And with real estate mortgage banking in crisis dollar lost more value which lead to the rising oil prices and higher costs of life. The higher costs of life, combined with the war in Iraq and its cost and to add weather problems and political problems (Iran, Venezuela) set the oil prices higher than ever. All that mean that the value of US dollar will go down and that US economy is in big trouble. Transferring the oil transactions to Euro could be a death blow for the US dollar and US Economy.

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