Dollar vs. Euro - Hegemony?
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  1. #1
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    Dollar vs. Euro - Hegemony?

    I came across this article during a search and aside from the misspelling (hegemoney vs. hegemony), what say you. Is it plausible and if so, is it reason to support or deride the administration for trying to protect the US from economic/monetary terrorism? I found it to be an interesting theory and further justification for taking Saddam out of power. I guess it's just the neocon in me, but protecting the US and probably the World economy from disaster, should be considered a good thing :O) Also would the American people understand this? Would they see it in a good or bad light? Can the US just come out and say it? Even though all the players know this may have been an impetus for the US to go to war and for France, Germany and Russia to want to keep Saddam in power, should it be left unspoken or should it be articulated?

    http://www.apfn.net/messageboard/4-2...on.cgi.23.html

    Dick Eastman
    Dollar vs. Euro - Hegemoney.
    Mon Apr 21 03:20:59 2003
    208.152.73.69

    Dollar vs. Euro - Hegemoney.
    http://www.praesentia.us/archives/2003_01.html#000227

    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.

    This unique geo-political agreement with Saudi Arabia dating from 1971 has worked to our favor for the past 30 years, as this arrangement has raised the entire asset value of all dollar denominated assets/properties. This is sustainable as long as

    1) nations continue to demand and purchase oil for their energy/survival needs, and...
    2) that the fiat reserve currency for global oil purchases remain the U.S. dollar. (and dollar only)

    The introduction of the euro is a significant new factor, and appears to be the primary threat to U.S. economic hegemony.

    Growing evidence suggests the post WWII dynamic regarding currency is changing with the advent of the euro, and the belligerent actions of the Bush administration appear to be accelerating some countries to switch to the euro as an alternative to the dollar. In December 2002 ten additional countries were approved for full membership into the E.U. This will result in a combined GDP of $9.6 trillion, and 450 million people, directly competing with the U.S.

    However, the question remains - will events in Iraq, Venezuela or perhaps Japan provide the impetus for OPEC act on their “internal discussions” and switch to the euro as the new fiat currency for oil?

    Japan’s fragile economy could implode from a spike in oil prices during the Iraq war, but the switch could also be triggered if the OPEC cartel felt threatened the Bush junta’s long-term intention of breaking–up the decision making process of OPEC. Such a decision by OPEC to switch to the euros could create the dreaded domino effect described in the opening paragraphs, and the date of such a decision would mark the end of U.S. dollar hegemony, and thus the end of our precarious economic superpower status.

    How would this administration break the OPEC cartel in a post Saddam Iraq? First, after converting Iraq back to the dollar standard, they hope to quickly increase the production of Iraq oil, quadrupling or quintupling Iraq’s oil output to drive down prices. Ultimately this would result in the dissolution of the OPEC cartel. Dr. Nayyer Ali offers an excellent and succinct analysis of what the neocons want to do with OPEC..
    ---------------------------------
    SEE TIME, NOVEMBER 13, 2OOO Pg. 34
    Saddam Turns His Back on Greenbacks
    by William Dowell/New York City

  2. #2
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    I think we need TJ back to explain it to us...

    The euro is certainly poised to be an alternative to the US dollar as a world currency. The euro area economy is larger than the US economy. But I suspect any switch from dollar to euro will be gradual. All the oil economies are dollar-based. Any move that weakened the dollar would weaken their current holdings proportionally.

    And it's a gamble that the euro will remain stronger than the dollar. The euro's been weaker for most of its existence, and the euro is susceptible to possible shocks, such as if France or Germany bails out because they want to run Bush-style deficits.

    Finally, I wonder whether the euro is a great world currency without a strong military to back it. That's odd sounding, but the Europeans have no real defense without the US. There are no current threats to their borders, but they have no real ability to maintain shipping lines or defend oil countries from places like Iraq (back when it WAS a threat). If the US pulled out of NATO, European governments would face big increases military expenses... and still wouldn't get up to US military capabilities.

    So maybe there's not much risk...

  3. #3

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    I've read conspiracy theories that say this is exactly why the Iraq war was really fought. It wouldn't be good if they switched, but what can we do about it other than start some more wars and intimidate them into not switching.
    Insanity in individuals is something rare - but in groups, parties, nations and epochs, it is the rule.
    Friedrich Nietzsche

  4. #4
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    Huh? Why would it be good if they switched? Do you have anything of substance to offer? Even though the author put a negative spin on it from this administrations perspective, I find the reasoning behind it, if true, was justifiable. Again why would it be good, if that is what you think?

  5. #5
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    Quote Originally Posted by Live Steam
    Why would it be good if they switched? Do you have anything of substance to offer?
    Um, did someone say it would be good?

  6. #6
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    True. I am sorry I took my glasses off and misread Bo's post (wouldn't vs would). My eyes are going buggers today. I usually wear contacts, but was too lazy to put them on today. Should I edit or retract my post?

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    So no one has addressed the real issues here. Is economic terrorism, or the threat of it, reason to go to war? Does this further justify the Iraq war? And, would the American people understand and accept this as a justified reason? I think both liberals and conservatives alike desire to keep their financial futures stable and secure. They also know that a financially strong America is better positioned to aide others. As PDX stated, a severly weakened America is dangerous to World safety and order. Everyone loses then.

  8. #8

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    Quote Originally Posted by Live Steam
    So no one has addressed the real issues here. Is economic terrorism, or the threat of it, reason to go to war? Does this further justify the Iraq war? And, would the American people understand and accept this as a justified reason? I think both liberals and conservatives alike desire to keep their financial futures stable and secure. They also know that a financially strong America is better positioned to aide others. As PDX stated, a severly weakened America is dangerous to World safety and order. Everyone loses then.
    If you look at the root causes of most wars they are mostly fought over economic interests--whether that be land or natural resources. I don't think you could sell a war to the public based on "economic terrorism" alone though. The public tends to like to have some humanitarian reason to hang its collective hat on--whether that reason is the "real" cause of the war or whether fighting the war ever accomplishes that humanitarian goal is up for debate.
    Insanity in individuals is something rare - but in groups, parties, nations and epochs, it is the rule.
    Friedrich Nietzsche

  9. #9
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    Quote Originally Posted by Live Steam
    So no one has addressed the real issues here. Is economic terrorism, or the threat of it, reason to go to war? Does this further justify the Iraq war? And, would the American people understand and accept this as a justified reason? I think both liberals and conservatives alike desire to keep their financial futures stable and secure. They also know that a financially strong America is better positioned to aide others. As PDX stated, a severly weakened America is dangerous to World safety and order. Everyone loses then.
    Wow. I said that? In this thread?

    Besides missing what I said, I guess I also missed that the real issue is whether economic terrorism, or the threat of it, is a reason to go to war. You actually mean justifying war because a country choses to price its goods on a currency other than the dollar? And calling it terrorism!?

    Steam, Steam, Steam... I can let lots of your hateful, angry, distorted nonsense slide, but this is plain CRAZY! You do much better when you post unreadably long stuff that other people wrote.

    Wow. I'm at a loss where to start.

    Calling economic choice terrorism basically allows you and the rest of your neocon nut house to call ANYTHING terrorism. Pricing in euros rather than dollars is terrorism. Wow. Most of Europe is committing terrorism against the US by doing that. Especially France, of course. And the european economy is many times bigger than Iraq's, so the threat to us is that much greater.

    What a great way to start selling [email protected] GM cars, too... Buying Toyota is economic terrorism too, even if they are made in the US...

    As I said in the earlier post, the euro is poised to be an alternative to the US dollar as a world currency. Everyone knew that from Day One. I suggested reasons why it might not be great for the world to do that, but they are free to do so. And I very well might be wrong. I'm just trying to think this through. But justifying a war over a choice of currency!? Wow.

    So much for free trade. Each country is free to trade on whatever open terms it wants, but price your stuff in euros and the 3rd Infantry Division will be dropping by for a visit!?

    As for using it as another justification for war against Iraq. Well that at least makes sense. Because you need another justification for war against Iraq. You don't have WMDs. You don't have an Al Qaeda connection. You don't have a threat to the US. All you have is freeing the oppressed people of Iraq, who the neocon nuts could not have cared less about at anytime ever before in the history of time before George ran out of unsupported excuses for his war. And now the economically crushing threat that Iraq would post prices for its oil in euros.

    To answer another of your questions... the dopes in the red states would probably buy it.

    You are one scarey man.

  10. #10
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    I truly hope that we didn't go to war over such a fluffy issue. Sovereign nations have the right to sell to whomever they want to for any rate and use any currency as the basis. We, as a sovereign nation, have the choice to buy. If this was a significant cause for the war then we should be ashamed of participating in economic imperialism.

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