Gold and the end of dollar hegemony, part III

METALS COMMENTARY

The following is the last of three parts of a speech delivered to the U.S. House of Representatives on Feb. 15, 2006. We printed the first part in our Feb. 24-March /06 issue. The other appeared in the March 10-16/06 issue.

A new attempt is being made against the petrodollar system. Iran, another member of the “axis of evil,” has announced plans to initiate an oil bourse in March. Guess what? The oil sales will be priced in 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 American 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 further worsened diplomatic relations between our two countries. Recent threats over nuclear power, while ignoring the fact that Iran is surrounded by countries with nuclear weapons, don’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 it 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 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 our willing allies. That’s not so today. Now, more than ever, the dollar hegemony — its dominance as the world reserve currency — is required to finance our massive spending on war. This US$2-trillion, never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do that.

For the most part, the true victims aren’t aware of how they pay the bills. The licence 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 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 that suffer from it. If oil markets replace dollars with euros, it would, in time, curtail our ability to continue to print the world’s reserve currency without restraint.

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 Rome’s inability to continue to plunder conquered nations brought an end to its 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. 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 US$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 (Department of Defense budget: US$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; 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 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. 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.

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

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 over oil pricing explained our willingness to drop everything and teach Saddam Hussein a lesson for demanding euros for oil.

Once again, there’s an 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 is an economic law that cannot be repealed. The chaos that one day will ensue from our 35-year ex
periment 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.