The Invasion of Iraq: Dollar vs Euro

[AtomHeartMother]

The Invasion of Iraq: Dollar vs Euro
Re-denominating Iraqi oil in U. S. dollars,
instead of the euro

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by Sohan Sharma, Sue Tracy, & Surinder Kumar
Z magazine, February 2004[/center]

What prompted the U.S. attack on Iraq, a country under sanctions for 12 years (1991-2003), struggling to obtain clean water and basic medicines? A little discussed factor responsible for the invasion was the desire to preserve "dollar imperialism" as this hegemony began to be challenged by the euro.

After World War II, most of Europe and Japan lay economically prostrate, their industries in shambles and production, in general, at a minimum level. The U.S. was the only major power to escape the destruction of war, its industries thriving with a high level of productivity. In addition, prior to and during WWII, due to extreme political and economic upheaval, a considerable amount of gold from European countries was transferred to the U.S. Thus, after WWII the U.S. had accumulated 80 percent of the world's gold and 40 percent of the world's production. At the founding of the World Bank (WB) and the International Monetary Fund (IMF) in 1944-45, U.S. predominance was absolute. A fixed exchange currency was established based on gold, the gold-dollar standard, wherein the value of the dollar was pegged to the price of gold-U.S. $35 per ounce of gold. Because gold was combined with U.S. bank notes, the dollar note and gold became equivalent, which then became the international reserve currency.

Initially, the U.S. had $30 billion in gold reserves. But the United States spent more than $500 billion on the Vietnam War alone, from 1967-1972. During these years, the U.S. had over 110 military bases across the globe, each costing hundreds of millions of dollars a year. These expenses were paid in paper dollars and the total number given out far exceeded the gold reserve of the U.S treasury. By then (1971-72), the U.S. Treasury was running out of gold and had only $10 billion in gold left. On August 17, 1971, Nixon suspended the U.S. dollar conversion into gold. Thus, the dollar was "floated" in the international monetary market.

Also in the early 1970s, U.S. oil production peaked and its energy resources began to deplete. Its own oil production could not keep pace with growing home consumption. Since then, U.S. demand for oil continually increased, and by 2002-2003 the U.S. imported approximately 60 percent of its oil-OPEC (primarily Saudi Arabia) being the main exporter. The U.S. sought to protect its dollar strength and hegemony by ensuring that Saudi Arabia price its oil only in dollars. To achieve this, the U.S. made a deal, some say a secret one, that it would protect the Saudi regime in exchange for their selling oil only in dollars.

Throughout the late 1950s and 1960s the Arab world was in ferment over an emerging Nasser brand of Arab nationalism and the Saudi monarchy began to fear for its own stability. In Iraq, the revolutionary officers corps had taken power with a socialist program. In Libya, military officers with an Islamic socialist ideology took power in 1969 and closed the U.S. Wheelus Air base; in 1971, Libya nationalized the holdings of British Petroleum. There were proposals for uniting several Arab states-Syria, Egypt, and Libya. During 1963-1967, a civil war developed in Yemen between Republicans (anti-monarchy) and Royalist forces along almost the entire southern border of Saudi Arabia. Egyptian forces entered Yemen in support of republican forces, while the Saudis supported the royalist forces to shield its own monarchy. Eventually, the Saudi government-a medieval, Islamic fundamentalist, dynastic monarchy with absolute power-survived the nationalistic upheavals.

Saudi Arabia, the largest oil producer with the largest known oil reserves, is the leader of OPEC. It is the only member of the OPEC cartel that does not have an allotted production quota. It is the "swing producer," i.e., it can increase or decrease oil production to bring oil draught or glut in the world market. This enables it more or less to determine prices.

Oil can be bought from OPEC only if you have dollars. Non-oil producing countries, such as most underdeveloped countries and Japan, first have to sell their goods to earn dollars with which they can purchase oil. If they cannot earn enough dollars, then they have to borrow dollars from the WB/IMF, which have to be paid back, with interest, in dollars. This creates a great demand for dollars outside the U.S. In contrast, the U.S. only has to print dollar bills in exchange for goods. Even for its own oil imports, the U.S. can print dollar bills without exporting or selling its goods. For instance, in 2003 the current U.S. account deficit and external debt has been running at more than $500 billion. Put in simple terms, the U.S. will receive $500 billion more in goods and services from other countries than it will provide them. The imported goods are paid by printing dollar bills, i.e., "fiat" dollars.

Fiat money or currency (usually paper money) is a type of currency whose only value is that a government made a "fiat" (decree) that the money is a legal method of exchange. Unlike commodity money, or representative money, it is not based in any other commodity such as gold or silver and is not covered by a special reserve. Fiat money is a promise to pay by the usurer and does not necessarily have any intrinsic value. Its value lies in the issuer's financial means and creditworthiness.

Such fiat dollars are invested or deposited in U.S. banks or the U.S. Treasury by most non-oil producing, underdeveloped countries to protect their currencies and generate oil credit. Today foreigners hold 48 percent of the U.S. Treasury bond market and own 24 percent of the U.S. corporate bond market and 20 percent of all U.S. corporations. In total, foreigners hold $8 trillion of U.S. assets. Nevertheless, the foreign deposited dollars strengthen the U.S. dollar and give the United States enormous power to manipulate the world economy, set rules, and prevail in the international market.

Thus, the U. S. effectively controls the world oil-market as the dollar has become the "fiat" international trading currency. Today U.S. currency accounts for approximately two-thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all the world exports are denominated in dollars and U.S. currency accounts for about two-thirds of all official exchange reserves. The fact that billions of dollars worth of oil is priced in dollars ensures the world domination of the dollar. It allows the U.S. to act as the world's central bank, printing currency acceptable everywhere. The dollar has become an oil-backed, not gold-backed, currency.

If OPEC oil could be sold in other currencies, e.g. the euro, then U.S. economic dominance-dollar imperialism or hegemony-would be seriously challenged. More and more oil importing countries would acquire the euro as their "reserve," its value would increase, and a larger amount of trade would be transacted and denominated in euros. In such circumstances, the value of the dollar would most likely go down, some speculate between 20-40 percent.
In November 2000, Iraq began selling its oil in euros. Iraq's oil for food account at the UN was also in euros and Iraq later converted its $10 billion reserve fund at the UN to euros. Several other oil producing countries have also agreed to sell oil in euros-Iran, Libya, Venezuela, Russia, Indonesia, and Malaysia (soon to join this group). In July 2003, China announced that it would switch part of its dollar reserves into the world's emerging "reserve currency" (the euro).

On January 1, 1999, when 11 European countries formed a monetary union around this currency, Britain and Norway, the major oil producers, were absent. As the U.S. economy began to slow down during mid-2000, Western stock markets began to yield lower dividends. Investors from Gulf Cooperation Council nations lost over $800 million in the stock plunge. As investors sold U.S. assets and reinvested in Europe, which seemed to be better shielded from a recession, the euro began to gain ground against the dollar .

After September 11, 2001, Islamic financiers began to repatriate their dollar investments-amounting to billions of dollars-to Arab banks, as they were worried about the possible seizure of their assets under the USA PATRIOT Act. Also, they feared their accounts might be frozen on the suspicion that such accounts fund Islamic terrorists. Iranian sources stated that their banking colleagues felt particularly hassled as Washington heated up its war of words and threats of military intervention. This encouraged Tehran to abandon the dollar payment for oil sales and switch to the euro. Iran also moved the majority of its reserve fund to the euro. (Iran is the latest target of the U.S., which has interfered by stirring up opposition forces, and making covert threats.)

CONTINUED:

[AtomHeartMother]

OPEC member countries and the euro-zone have strong trade links, with more than 45 percent of total merchandize imports of OPEC member countries coming from the countries of the euro-zone, while OPEC members are the main suppliers of oil and crude oil products to Europe. The EU has a bigger share of global trade than the U.S. and, while the U.S. has a huge current account deficit, the EU has a more balanced external accounts position. The EU plans to enlarge in May 2004 with ten new members. It will have a population of 45 million; it will have an oil consuming-purchasing population 33 percent larger than the U. S., and over half of OPEC crude oil will be sold to the EU as of mid-2004. In order to reduce currency risks, Europeans will pressure OPEC to trade oil in euros. Countries such as Algeria, Iran, Iraq, and Russia-which export oil and natural gas to European countries and in turn import goods and services from them-will have an interest in reducing their currency risk and hence, pricing oil and gas in euros. Thus momentum is building toward at least the dual use of euro and dollar pricing.

The unprovoked "shock and awe" attack on Iraq was to serve several economic purposes: (1) Safeguard the U.S. economy by re-denominating Iraqi oil in U.S. dollars, instead of the euro, to try to lock the world back into dollar oil trading so the U.S. would remain the dominant world power-militarily and economically. (2) Send a clear message to other oil producers as to what will happen to them if they abandon the dollar matrix. (3) Place the second largest oil reserve under direct U.S. control. (4) Create a subject state where the U.S. can maintain a huge force to dominate the Middle East and its oil. (5) Create a severe setback to the European Union and its euro, the only trading block and currency strong enough to attack U.S. dominance of the world through trade. (6) Free its forces (ultimately) so that it can begin operations against those countries that are trying to disengage themselves from U.S. dollar imperialism-such as Venezuela, where the U.S. has supported the attempted overthrow of a democratic government by a junta more friendly to U. S. business/oil interests.

The U.S. also wants to create a new oil cartel in the Middle East and Africa to replace OPEC. To this end the U.S. has been pressuring Nigeria to withdraw from OPEC and its strict production quotas by dangling the prospects of generous U.S. aid. Instead the U.S. seeks to promote a "U.S.-Nigeria Alignment," which would place Nigeria as the primary oil exporter to the U.S. Another move by the U.S. is to promote oil production in other African countries-Algeria, Libya, Egypt, and Angola, from where the U.S. imports a significant amount of oil-so that the oil control of OPEC is loosened, if not broken. Furthermore, the U.S. is pressuring non-OPEC producers to flood the oil market and retain denomination in dollars in an effort to weaken OPEC's market control and challenge the leadership of any country switching oil denomination from the dollar to the euro.

To break up OPEC and control the world's oil supply, it is also helpful to control Middle East and central Asiatic oil producing countries through which oil pipelines traverse. The first attack and occupation was of Afghanistan, October 2001, in itself a gas producing country, but primarily a country through which Central Asia and the Caspian Sea oil and gas will be shipped (piped) to energy-starved Pakistan and India. Afghanistan also provided an alternative to previously existing Russian pipelines. Simultaneously, the U.S. acquired military bases-19 of them-in the Central Asian countries of Uzbekistan, Tajikistan, Kyrgyzstan, and Turkmenistan in the Caspian Basin, all of which are potential oil producers. After the invasion and occupation of Afghanistan and Iraq, the U.S. controlled the natural resources of these two countries and, once again, Iraq's oil began to be traded in U.S. dollars. The UN's oil for food production program was scrapped and the U.S. Iaunched its Iraqi Assistance Fund in U.S. dollars. In December 2003, the U.S. (Pentagon) announced that it had barred French, German, and Russian oil and other companies from bidding on Iraq's reconstruction.

How would a shift to the euro affect underdeveloped countries, most of which are either non-oil producing or do not produce enough for their home consumption and development? These countries have to import oil. One of the advantages that may accrue to them is that they are likely to earn more euros than dollars since much of their trade is with the European countries. On the other hand, a shift to euro will pose a similar dilemma for them as dollars. They will have to pay for oil in euros, have enough euros deposited-invested in EU treasuries, and borrow euros if they do not have enough for their oil purchases. If, as is projected, the dollar and euro are in a price band (that is, prices will stay within an agreed upon range), they may not have much of a bargaining position.

Oil for euros would be far more helpful if oil-importing underdeveloped countries could develop some form of barter arrangement for their goods to obtain oil from OPEC. Venezuela (Chavez) has presented a successful working model of this. Following Venezuela's lead, several underdeveloped countries began bartering their undervalued commodities directly with each other in computerized swaps and counter trade deals, and commodities are now traded among these countries in exchange for Venezuela's oil. President Chavez has linked 13 such barter deals on its oil; e.g., with Cuba in exchange for Cuban doctors and paramedics who are setting up clinics in shanty towns and rural areas. Such arrangements help underdeveloped countries save their hard currencies, lessening indebtedness to international bankers, the World Bank, and IMF, so that money thus saved can be used for internal development.

Sohan Sharma is a professor emeritus at California State University in Sacramento. Sue Tracy is a hazardous waste material scientist in Sacramento. Surinder Kumar is professor of economics In Rohtak, Inala.

www.thirdworldtraveler.com/Iraq/Iraq_dollar_vs_euro.html

[AtomHeartMother]

What You Didn't Know About the Dollar & Iraq
by Mark Owen

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The Federal Reserve is a system of private banks separate and distinct from the U.S. government. This banking system was originally conceived by John D. Rockefeller and J.P. Morgan. The FED, as it it known, is listed in the white pages along with Federal Express, the Federal Deposit Insurance Corporation, and other businesses. The bank produces Federal Reserve Notes. They use these notes/dollars to purchase government bonds. These notes are a fiat currency. Historically, all fiat currencies eventually crash due to hyperinflation from over-issuance. The supply of paper is limitless. There is no intrinsic value in paper currency after delinking from a gold standard. This is why they are referred to as bank notes. Legally, they can't be referred to as 'money.' They are mere tickets/tokens. Forced tender laws were passed in order to give the paper currency legitimacy. The only thing giving bank notes value is TAXATION. Gold and silver have intrinsic value due to scarcity and the fact that it takes work to produce them (mining, smelting etc). This is why they have been used as money for 5000 years. Precious metals are a good store of value. They retain their value over time and aren't subject to inflation. The fiat paper system is designed to create debt through inflation (devaluation of currency). Whenever there is an increase in the money supply without a corresponding increase in gold or silver backing, inflation results. Inflation is a subtle form of theft banks impose upon citizens.

Goodbye gold-

In the 1960s Lyndon Johnson borrowed billions from the French Rothschilds so he wouldn't have to raise taxes to finance the Viet Nam war. Rothschild agent Charles de Gaulle demanded repayment in gold, not greenbacks. When Richard Nixon was elected he noted that the treasury was almost depleted of gold and he removed the dollar from the gold standard. But the debt still stood. Nixon collateralized the debt with the mineral estate of the western U.S. and a land-for-debt swap was initiated. Much of the western States were given to the banks. This is when Nixon created the Environmental Protection Agency. Their mandate was/is to PREVENT American citizens from logging, farming, ranching or otherwise exploiting these lands being held for the banks. The Bureau of Land Management and other agencies are used to harass ranchers and farmers from the land.

So, what does the foregoing have to do with Middle East? Plenty.

All central banks of the world hold U.S. dollar reserves equivalent to the local currency in circulation to facilitate trade. The dollar is the biggest American export. It is impossible to overstate this. Also, when any country wishes to purchase oil, they must first convert their local currency to U.S. dollars and then purchase oil from the cartels. This is the arrangement hammered out between the U.S. and Saudi Arabia in 1974. The quid pro quo was that the U.S. armed the Saudis to the teeth.

In the last two years the euro currency has gained 30% relative to the U.S. dollar. The European banks are seeking to have the euro accepted as the new world reserve currency. Countries like China and Japan are sitting atop mountains of U.S. dollars that are being daily devalued. Since the U.S. dollar is printed by the FED at will and without restraint (and is not linked to gold), Americans are essentially getting the world's oil for free (it costs the FED around 4 cents to print a one hundred dollar Federal Reserve note). France and Germany would like a piece of the free oil pie.

FED chairman Alan Greenspan is forced to feed the recovery myth or risk a panic sell-off of dollars. This past spring he tripled the money supply to $50 billion per week. This is making even seasoned economists nervous. In August, Morgan Stanley chief economist Stephen Roach predicted a stock market crash on the scale of 1987s Black Monday. "The funding of America is an accident waiting to happen," he declared.

In speeches made outside of the U.S. (and only then) Greenspan has repeatedly warned of a possible 'systemic collapse' of the financial system. The printing of all of this paper is leading to massive inflation. All commodities have spiked from 10 to 90% over the last year. $15 dollar jeans available from Wal-Mart produced by slave labor in China somewhat disguise this fact. Another trick the money masters use to lull citizens is to periodically and surreptitiously ditch dinosaur industries from the DOW (like Kodak, this past spring) and supplant them with high-tech earners like Verizon, for instance. This is not to say that U.S. companies aren't investing billions of dollars in new production; they are. It's just that it's in China, not Ohio. China's quarter-trillion dollar export boom is America's import deficit. The debt-based credit inferno must create ever larger volumes of debt (credit) to prevent a financial implosion. The entire world growth since 2003 depends on the record FED money supply. Total U.S. debt now stands at $34 trillion. The U.S. GDP is $11 trillion. This means that debt is 3 times GDP, greater even than the depression of the 1930s. But happily for American citizens, the Federal Reserve of Cleveland commissioned a study recently on ways to diffuse this massive debt bomb. Options discussed included:

Enter Saddam-

In November 2000 Saddam Hussein tried to barter Iraq's oil directly for euros. This would have cut America out of its enormous subsidy and started a stampede of other OPEC members to embrace the euro. This simply would not stand. 9-11 was the pretext used to boot Saddam. Bush couldn't get America's moms to sacrifice their children for dollar hegemony and the terrorist bogey was activated.

Fourteen huge, permanent bases are currently under construction in Iraq, along with the world's biggest embassy in Baghdad (3,500 employees, and counting). Bush will continue on a permanent war footing in the Middle East in order to protect U.S. dollar hegemony. There is no other option. All future wars will be run out of Iraq. Iran has been making noises lately about ditching the U.S. dollar in favor of the euro, as have the Saudis. They're next. The U.S. will dismantle OPEC and surround Saudi Arabia, keeping their hand firmly on the oil spigot. This is the essence of the petro-dollar warfare that we are witnessing, in a nutshell....

69.28.73.17/thornarticles/dollariraq.html