Dollar vs. Euro - Hegemoney
Mon Sep 17, 2007 14:52

POSTED AT: http://www.apfn.org/apfn/iraq_reason.htm

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... January 01, 2003 Dollar vs. Euro - Hegemoney. The Federal Reserve ... international transactions from a dollar standard to a euro standard. Iraq actually made ... administration. Further, the dollar-euro threat is powerful enough that ...
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Dollar vs. Euro - Hegemoney.

The Federal Reserve's greatest nightmare is that OPEC will switch its international transactions from a dollar standard to a euro standard. Iraq actually made this switch in Nov. 2000 (when the euro was worth around 80 cents), and has actually made off like a bandit considering the dollar's steady depreciation against the euro.

The real reason the Bush administration wants a puppet government in Iraq - or more importantly, 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." (While also hoping to veto any wider OPEC momentum for the switch from Iran - which is seriously considering switching to euros as their oil transaction currency as of Sept 2002 - and other OPEC members including Saudi Arabia whose regime appears increasingly weak/threatened from an internal coup).

This administration is acutely aware of this and in preparation for invading Iraq we will create a huge and permanent military presence in the Persian Gulf region, just in case we need to grab Saudi's oil fields as well as Iraq’s…

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 U.N. to euros) - at that point, another manufactured Gulf War become inevitable under Bush II. Only the most extreme circumstances could possibly stop that now and I strongly doubt anything can - short of Saddam getting replaced with a pliant regime.

Big Picture Perspective: Everything else aside from the reserve currency and the Saudi/Iran oil issues (i.e. domestic political issues and international criticism) is peripheral and of marginal consequence to this administration. Further, the dollar-euro threat is powerful enough that they'll rather risk much of the economic backlash in the short-term to stave off the long-term dollar crash of an OPEC transaction standard change from dollars to euros. All of this fits into the broader Great Game that encompasses Russia, India, China.

The effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). 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 3rd world economic crisis scenario.

The United States economy is intimately tied to the dollar's role as reserve currency. This doesn't mean that the U.S. couldn't function otherwise, but that the transition would have to be gradual to avoid such dislocations (and the ultimate result of this would probably be the U.S. and the E.U. switching roles in the global economy).

The following two recent articles discuss Iran’s vacillating position about switching to the euro as their standard currency for oil exports, and this may help explain Bush’s sudden urgency to topple Saddam. In the aftermath of toppling Saddam it is clear the U.S. will keep a large and permanent U.S. military force in the Persian Gulf. Indeed, the Bush administration has no “exit strategy” in a post-Saddam Iraq, as a permanent U.S. military force will be needed to "maintain order" (ie. to protect the newly installed puppet regime).

Paradoxically, if the war in Iraq goes poorly or becomes prolonged, it is possible that Iran and other OPEC members may do exactly what Saddam did, thus creating the very situation this administration is trying to prevent, an OPEC switch to the euros as their oil transaction currency standard.

'Economics Drive Iran Euro Oil Plan, Politics Also Key' (August 2002)

'Iran may switch to the euro for crude sale payments' (Sept 2002)

USA intelligence agencies revealed in plot to oust Venezuela's President’ (Dec 2002)

Venezuela is the fourth largest producer of oil, and the corporate elites appear interested in privatizing Venezuela’s oil industry as that outcome would become lucrative to the U.S. based oil conglomerates.

Additionally, the Bush junta may be concerned that Chavez’s “barter deals” with 12 Latin American countries as well as Cuba are effectively cutting the U.S. dollar out of the vital oil transaction currency cycle. Commodities are being traded among these countries in exchange for Venezuela’s oil, and thus dollars are not being used in these barter agreements. If these unique oil transactions proliferate, they will create more devaluation pressure on the dollar. Continuing attempts to remove Chavez appear likely.

Why is the dollar still strong? Well, the elites understand that the strength of the dollar does not rest on our economic output per se, as our historically high trade account deficit (almost 5% of GDP) and $6.3 trillion dollar deficit (55% of GDP) are factors that would devalue the currency of any nation under the “old rules.”

The truth is that the strength of the dollar rests on being the reserve fiat currency for global oil/energy transactions (ie. “petro-dollar”). The U.S. prints fiat reserve dollars, hundreds of billions of these petro-dollars are used by all nation states to purchase oil/energy from OPEC producers (except Iraq and Venezuela, and perhaps Iran in the near future). These billions of petro-dollars are consumed by oil-consuming nations, and re-cycled from OPEC back into the U.S. via Treasury Bills or other dollar-denominated assets such as U.S. stocks, real estate, etc. (this is item #3 on the above list on how to end U.S. hegemony)

The “old rules” for valuation of our currency were based on our flexible market, per worker productivity, trade exports and manufacturing output, free flow of trade goods, established and transparent accounting methodologies, proper government oversight (ie. SEC), and of course profitability, total cash flow, etc. While many of these factors remain present, over the last twenty years our economic structure has broken some of these principles. Despite the numerous technical weakness in the U.S. economy from an export/trade account deficit perspective, and related issues of debt, the dollar as the fiat oil currency has remained strong, creating “new rules”.

The following article discusses the virtues of our fiat oil currency (or vices from the perspective of developing nations, whose debt is denominated in dollars, and must acquire dollars for oil, and dollars to prop-up their domestic currencies).

'US Dollar hegemony has got to go" (Asia Times, June 2002)

Ever since 1971, when US president Richard Nixon took the dollar off the gold standard (at $35 per ounce) that had been agreed to at the Bretton Woods Conference at the end of World War II, the dollar has been a global monetary instrument that the United States, and only the United States, can produce by fiat. The dollar, now a fiat currency, is at a 16-year trade-weighted high despite record US current-account deficits and the status of the US as the leading debtor nation. The US national debt as of April 4 was $6.021 trillion against a gross domestic product (GDP) of $9 trillion.

World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies.

To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger.

This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973."

By definition, dollar reserves must be invested in US assets, creating a capital-accounts surplus for the US economy. Even after a year of sharp correction, US stock valuation is still at a 25-year high and trading at a 56 percent premium compared with emerging markets.

The US capital-account surplus in turn finances the US trade deficit. Moreover, any asset, regardless of location, that is denominated in dollars is a US asset in essence. When oil is denominated in dollars through US state action and the dollar is a fiat currency, the US essentially owns the world's oil for free. And the more the US prints greenbacks, the higher the price of US assets will rise. Thus a strong-dollar policy gives the US a double win.


Dr. Hooman Peimani content@atimes.com
Sat Apr 5 23:30:12 2003

In the pipeline: More regime change
By Hooman Peimani


Dollar vs. Euro - Hegemoney


Europe's dream of promoting the euro as a competitor
to the U.S. dollar may get a boost from SADDAM HUSSEIN.
Iraq says that from now on, it wants payments for its
oil in euros, despite the fact that the battered
European currency unit, which use to be worth quite
a bit more than $1, has dropped to about 82 cents.
Iraq says it will no longer accept dollars for oil
because it does not want to deal "in currency of the


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