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 Lumocolor
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Registered: 08/03/04
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 The War To Save The U.S. Dollar 
#2983817 - 08/09/04 10:33 PM (19 years, 8 months ago) |
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Interesting article, well worth the read.
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The War To Save The U.S. Dollar
(First released March 26, 2003; revised April 18, 2003.)
http://us.altnews.com.au/article.php?sid=4645
The URL for this article is: www.trinicenter.com/oops/iraqeuro.html
The Americans could live with Saddam until he started selling oil for euros instead of U.S. dollars. Then the Europeans could live with him.
by Gavin R. Putland putland@bigpond.com
GOOD AS GOLD
At the end of World War II, the USA was the world's biggest national economy and the only great power whose industrial base was not damaged by the war. America's huge productive capacity made the U.S. dollar the easiest currency to spend in the global market and consequently the most acceptable foreign currency outside the USA. By the late 1950s, however, the recovery of Europe and Japan caused a suspicion that there were too many dollars in circulation. Central bankers began to exchange their dollars for gold under the terms of the 1944 Bretton Woods treaty, whereby the currencies of participating countries were backed by gold. In 1971, in response to the depletion of U.S. gold reserves, President Richard Nixon announced that the dollar would no longer be redeemable for gold. So the system of fixed exchange rates via gold-backing fell apart. It was thought that the dollar would decline in value as traders relied less on the dollar and more on the emerging European and Asian currencies. But support for the dollar came from an unlikely quarter.
GOLD TURNS BLACK
In 1973, the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil but continued to accept only U.S. dollars in payment, so that demand for dollars soared. From then on, the dollar was effectively backed by oil instead of gold -- and the U.S. government didn't even have to own the oil!
Because dollars can buy oil, exporters in countries that need to import oil -- i.e. most developed countries -- will accept dollars for their exports. Hence everyone who needs to buy from those exporters will accept dollars as payment for other things, and so on. To pay their bills, importers must have reserves of dollars. To prop up their currencies against speculative attacks, the central banks of all countries must have reserves of dollars. To get capital, poor countries must borrow dollars, and to service these debts they must export goods to obtain more dollars. About 2/3 of all currency reserves, more than 4/5 of all currency transactions, more than half of the world's exports, and all loans from the International Monetary Fund (IMF) are denominated in dollars. As these things create demand for the dollar and shore up its value, oil exporters are the more willing to accept payment in dollars. So the process is self-reinforcing; it's called "dollar hegemony".
In the late 1970s, falling oil prices reduced demand for the dollar while mounting third-world debt reduced confidence in dollar-denominated deposits. The U.S. Federal Reserve defended the dollar by raising interest rates to record levels. Heavily indebted poor countries are still paying for that episode. But the second oil-price shock (1979-80) restored demand for the dollar.
So America can export dollars, which cost nothing to produce, and receive real goods and services in return. When those dollars eventually find their way into foreign reserves, they can be invested only in American assets. This creates a demand for U.S. treasury bills without high interest rates, and inflates the U.S. property market and stock market -- to the benefit of current owners of land and shares, and to the detriment of the working poor who live in caravans ("trailers") on the fringes of American cities because they do not "earn" enough to buy or rent a home. Ordinary home owners may think they benefit from rising property values; but in fact, every time an owner moves to a new home, the higher sale price of the old home is offset by the higher purchase price of the new one. The real winners are the big investors.
But this continuous inflow of foreign investment (on the "capital account") is needed to balance America's mammoth trade deficit (on the "current account"). America's imports now exceed its exports by almost 50%, or 5% of GDP. Its net foreign debt is more than a quarter of annual GDP, and its public debt is about 60% of annual GDP.
CLEAR AND PRESENT DANGER
The main threat to the global hegemony of a single currency is the desire for diversity in investment. Dollar hegemony was secured by the size of the U.S. economy and the pricing of oil in dollars. But if a second currency were allowed into the oil market, it would soon become a general-purpose trading and reserve currency, especially if it were legal tender in an economy comparable in size to the USA.
In 1999, eleven member states of the European Union (EU) adopted the euro as a common accounting currency. Greece joined the Euro Zone a year later. On January 1, 2002, the twelve countries withdrew their old money from circulation, completing the biggest currency reform in history.
The Euro Zone already has a bigger share of world trade than the USA. In particular, it imports more oil than the USA and is the main trading partner of the Middle East. It offers higher interest rates than the USA, but does not have a huge foreign debt or trade deficit. Member states must accept tight constraints on budget deficits, and the European Central Bank has an exceptionally strong mandate to preserve the purchasing power of its currency. These things inspire confidence in the euro. In 2002, the central banks of Russia, China, Taiwan and Canada converted some of their reserves from dollars to euros. The strength of the euro also encourages expansion of the EU and puts pressure on current members Denmark, Sweden and the U.K. to join the Euro Zone. In December 2002, ten new countries were accepted for EU membership with effect from May 2004. This will create a common market of 450 million people, which will buy more than half of OPEC's oil.
So the only argument for preferring dollars to euros is that dollars can buy oil. As that argument does not affect oil exporters, it would make sense for OPEC members to convert most of their reserves to euros by mid 2004. Then if they were to price their oil in euros, at least for exports to the Euro Zone, they would increase global demand for the euro, causing a handsome increase in the value of their new euro reserves. Similar arguments apply to non-OPEC oil exporters such as Norway and Russia.
If the euro becomes a global currency to rival the dollar, central banks and other traders will sell down their dollar reserves, causing the value of the dollar to plummet (and devaluing the debts of poor countries at the expense of their creditors). The unwanted dollars will be withdrawn from the U.S. asset market and will flood the market for U.S. goods and services. The U.S. property market will deflate (so that poor Americans can more easily afford homes, at the expense of current property owners). The U.S. stock market, being more volatile than the property market, will fall faster. The real prices of property and shares will fall further than the dollar prices because the dollar itself will be devalued. The additional dollars chasing U.S. goods and services will fuel domestic inflation. They will also increase exports, reducing the current account deficit to compensate for the slowdown of foreign investment, and reducing domestic living standards as measured by consumption of goods and services. Inevitably, the Federal Reserve will raise interest rates in order to reduce the inflation, support the dollar, attract more foreign investment, and delay the day of reckoning on which America will have to export real goods and services to pay for its imports, service its foreign debt, and accumulate reserves of euros. But that will not rescue the landowners and shareholders and bond holders, because their assets can be devalued not only by reduced foreign investment, but also by higher interest rates.
And of course the price of oil in U.S. dollars will increase; but this time there will be no compensating increase in the global demand for dollars.
ROGUE STATES
The first OPEC member to show serious disloyalty to the dollar was Iran, which has expressed interest in the euro since 1999. In January 2002, George W. Bush named Iran in his "axis of evil", provoking a wave of anti-American demonstrations reminiscent of the Khomeini era, and undoubtedly setting back the political and religious liberalization of that country. Undeterred, Iran converted most of its currency reserves to euros during 2002, and a proposal to price Iran's oil in euros has been submitted to the central bank and the parliament.
Let us see whether the Americans find an excuse to destabilize Iran's toddling democracy in favor of a dictatorship that just happens to prefer dollars to euros.
The second offender was Venezuela. In 2000, Venezuela's President Hugo Chavez convened a conference on the future of fossil fuels and renewable energy. The report of the conference, delivered by Chavez to the OPEC summit in September 2000, recommended that OPEC set up a computerized barter system so that members could trade oil for goods and services without the use of dollars or any other currency. The chief beneficiaries would be OPEC's poorer customers, who did not have large currency reserves. Chavez made 13 barter deals. In one of them, Cuba provided health services in Venezuelan villages.
In April 2002 there was a coup against the twice-elected President Chavez. The coup was welcomed by the Bush administration and by editorials in numerous American newspapers, but collapsed after two days, leaving evidence that the U.S. administration was behind it [1].
The third and most blatant offender was Iraq. In October 2000, Iraq persuaded the United Nations to allow Iraqi oil to be sold for euros instead of dollars, with effect from November 6. Iraq then converted its entire $10 billion "oil for food" reserve fund from dollars to euros. These events went unreported in the U.S. media.
Given America's record of toppling elected governments whose policies it didn't like (as in Chile, Nicaragua, and almost Venezuela), it is hard to believe that the motives of Operation Iraqi Freedom were as pure as its name suggested, especially considering how cheap "freedom" has become in U.S. domestic politics [see the Appendix]. The test of America's sincerity will be whether the new regime in Iraq continues to sell oil for euros.
Having occupied Iraq, America then stepped up its rhetoric against neighboring Syria. Coincidentally, Syria would like to sell oil for euros because most of its imports are purchased with euros.
* * *
If this oil-currency-war theory is a delusion, the U.S. administration can easily discredit it -- by declaring that the USA has no objection if oil exports to the Euro Zone are denominated in euros.
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BleaK
paradox
Registered: 06/23/02
Posts: 1,583
Last seen: 10 years, 4 months
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Re: The War To Save The U.S. Dollar [Re: Lumocolor]
#2984687 - 08/10/04 02:30 AM (19 years, 8 months ago) |
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fuckin credit seems WAAAY outa control....
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"You cannot trust in law, unless you can trust in people. If you can trust in people, you don't need law." -J. Mumma
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 kaiowas
lest we baguette
Registered: 07/14/03
Posts: 5,501
Loc: oz
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Re: The War To Save The U.S. Dollar [Re: Lumocolor]
#2984798 - 08/10/04 03:40 AM (19 years, 8 months ago) |
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Annnnnnd I had a light saber and my friend was there and I said "you look like an indian" and he said "you look like satan" and he found a stick and a rock and he named the rock ooga booga and he named the stick Stick and we both thought that was pretty funny. We got eaten alive by mosquitos but didn't notice til the next day. I stepped on some glass while wading in the swamp and cut my foot open, didn't bother me til the next day either....yeah it was a good time, ended the night by buying some liquor for minors and drinking nips and going to he diner and eating chicken fingers, and then I went home and went to bed.
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Lumocolor
Stranger
Registered: 08/03/04
Posts: 20
Last seen: 19 years, 7 months
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Re: The War To Save The U.S. Dollar [Re: kaiowas]
#2984949 - 08/10/04 06:06 AM (19 years, 8 months ago) |
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You know what, I did not realise there was a politics section, I am very sorry :-| move it accordingly. (somebody)
Edited by Lumocolor (08/10/04 05:24 PM)
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CJay
Dark Stranger
Registered: 02/02/04
Posts: 931
Loc: Riding a bassline
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Re: The War To Save The U.S. Dollar [Re: Lumocolor]
#2985552 - 08/10/04 10:43 AM (19 years, 8 months ago) |
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I'll second that - great article.
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Annapurna1
liberal pussy
Registered: 05/21/02
Posts: 5,646
Loc: innsmouth..MA
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Re: The War To Save The U.S. Dollar [Re: Lumocolor]
#2990739 - 08/11/04 10:49 AM (19 years, 8 months ago) |
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its prolly not too far from the truth to say that fiat dollars are actually backed by neocon policies in general..with oil being the biggest part of that...
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psilomonkey
Twisted brainwrong of a oneoff man mental
Registered: 08/08/03
Posts: 812
Loc: Airstrip One
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Re: The War To Save The U.S. Dollar [Re: Lumocolor]
#2991775 - 08/11/04 03:19 PM (19 years, 8 months ago) |
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Good article, I had seen this theory before.
Thing that gets me, is how short term thinking it is. Oil will still run out at some point. But before that point how far will the US go? War with India, China and Europe?
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BleaK
paradox
Registered: 06/23/02
Posts: 1,583
Last seen: 10 years, 4 months
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Re: The War To Save The U.S. Dollar [Re: psilomonkey]
#2991896 - 08/11/04 03:50 PM (19 years, 8 months ago) |
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Quote:
psilomonkey said:
Good article, I had seen this theory before.
Thing that gets me, is how short term thinking it is. Oil will still run out at some point. But before that point how far will the US go? War with India, China and Europe?
i wonderd too.
i cant imagine the world powers are as stoopid as they seem
thats why i lean toward the aliens harvesting us senario.
were just being built up to be brought down.
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"You cannot trust in law, unless you can trust in people. If you can trust in people, you don't need law." -J. Mumma
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Lumocolor
Stranger
Registered: 08/03/04
Posts: 20
Last seen: 19 years, 7 months
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Re: The War To Save The U.S. Dollar [Re: BleaK]
#2997286 - 08/12/04 07:23 PM (19 years, 8 months ago) |
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Yeah, it makes you wonder. :-P To me, it seem's as though they are merely slowing the inevitable... However who knows what will happen over the next hundred years or so.
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Ed1
member
Registered: 07/03/04
Posts: 150
Last seen: 19 years, 7 months
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Re: The War To Save The U.S. Dollar [Re: Lumocolor]
#2997437 - 08/12/04 07:55 PM (19 years, 8 months ago) |
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You people really are stupid as shit to believe that.
Read these links carefully:
http://www.ccc.nps.navy.mil/rsepResources/si/nov03/middleEast.asp
http://europe.tiscali.co.uk/index.jsp?section=Business&level=preview&content=160462
It appears that the real reason Russia wants to sell oil to Europe in Euros is to make more money at the expense of the Europeans. I'm surprised that many of you fell for this nonsense. You obviously know very little about economics.
Conclusions
Several general propositions emerge as to the likely introduction of a petroeuro and the U.S. motivation for the Iraq War:
1. For a number of technical reasons OPEC is unlikely to shift markets to euro-priced oil. There would be costs and inefficiencies involved, with no real significant benefits gained. The same applies to the buyers of oil.
2. There is good reason to believe that the euro's current appreciation vis-?-vis the dollar will not be sustained?the currency will have a hard time maintaining its current parity with the dollar. The euro's current strong value is taking a toll on euroland economic performance.
3. Even if the euro were to maintain its parity with the dollar, this would not cause the dollar to cease to be the international reserve currency. A two international reserve currency system is more unstable[24] than one dominated by a single currency. Markets will move toward stability?and a currency with a historical track record.
4. The fate of the dollar and hence its use as an international reserve currency is largely in the hands of the United States?budget and trade deficits and low savings pose a greater threat to the use of the dollar as a reserve currency than any actions the EU or OPEC could undertake with regard to oil pricing.
5. Even though the United States may derive some economic benefit from having its currency serve as the dominant international reserve currency, the gains are not nearly as great as is often assumed?around 0.5% of GDP at best, much of which is offset by lost manufacturing exports and jobs associated with the strong dollar.
It follows that the notion the United States undertook the Iraq war over its concern with the consequences of Saddam Hussein denominating Iraq's oil sales in euros (and the direction that might move other producing countries) is little more than another web-based conspiracy theory.
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Ed1
member
Registered: 07/03/04
Posts: 150
Last seen: 19 years, 7 months
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Re: The War To Save The U.S. Dollar [Re: Lumocolor]
#2997466 - 08/12/04 08:04 PM (19 years, 8 months ago) |
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Quote:
The current discussion surrounding the Russian government's interest in pricing the country's oil exports in euros provides a good illustration of the issues involved in creating a petroeuro. The debate over euro oil pricing was set off in mid-October 2003 when Russian President Valdimir Putin indicated that Russia was considering pricing its crude exports in euros rather than dollars. One has to appreciate his frustration during the current period of dollar weakness. The dollar's 8 percent drop against the euro in August and September 2003 translates roughly into an 8 percent revenue loss for Russia. More importantly, the country is concerned over the dollar's 35 percent drop against the euro since January 2003.
At first sight, a shift in the pricing of Russian oil to the euro makes a certain amount of sense. The eurozone is the largest oil importer in the world, and a full 45 percent of Middle Eastern oil goes to Europe. Moreover, after falling steadily from its January 1999 flotation, the euro has managed a strong rebound in the past two years, regaining its losses, which suggests that the euro is a world-class currency able to hold its value.
Yet, several days after President Putin floated the idea of euro priced oil, Prime Minister Mikhail Kasyanov said his government would not take any decisions on transferring oil settlements into euros. "This topic can not even be discussed. There can be no administrative decisions here. The market decides?oil is a commodity that is traded for dollars, and if it is sold for dollars, it means that suits the buyers and sellers."[17] By the end of October 2003 the Putin idea appeared dead in the water.
http://www.ccc.nps.navy.mil/rsepResources/si/nov03/middleEast.asp
It sounds like if Europeans payed for oil in Euros they would end up paying more for oil if the dollar declines more.
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