The US$, Oil and War

Kissinger quote:

“Who controls the food supply controls the people;
who controls the energy can control whole continents;
who controls money can control the world.”

Sept 10, 2011
By Nalliah Thayabharan

UNDERSTANDING THE PETRODOLLAR

At the end of WWII, an agreement was reached at the Bretton Woods Conference which pegged the value of gold at US$35 per ounce and that became the international standard against which currency was measured. But in 1971, US President Richard Nixon took the US$ off the gold standard and ever since the US$ has been the most important global monetary instrument, and only the US can print them. However, there were problems with this arrangement not least of all that the US$ was effectively worthless before it reneged on the gold-standard. But more importantly because it was the world’s reserve currency, everybody was saving their surpluses in US$. To maintain the US$’s pre-eminence, the Richard Nixon administration impressed upon Saudi Arabia and therefore Organisation of Petroleum Exporting Countries (OPEC) to sell their oil only in US$. This did two things; it meant that oil sales supported the US$ and also allowed the USA access to exchange risk free oil. The USA propagates war to protect its oil supplies, but even more importantly, to safeguard the strength of the US$. The fear of the consequences of a weaker US$, particularly higher oil prices, is seen as underlying and explaining many aspects of the US foreign policy, including the Iraq and Libyan War.

The reality is that the value of the US$ is determined by the fact that oil is sold in US$. If the denomination changes to another currency, such as the euro, many countries would sell US$ and cause the banks to shift their reserves, as they would no longer need US$ to buy oil.

This would thus weaken the US$ relative to the euro. A leading motive of the US in the Iraq war — perhaps the fundamental underlying motive, even more than the control of the oil itself — is an attempt to preserve the US$ as the leading oil trading currency. Since it is the USA that prints the US$, they control the flow of oil. Period. When oil is denominated in US$ through US state action and the US$ is the only fiat currency for trading in oil, an argument can be made that the USA essentially owns the world’s oil for free. Now over $1.3 trillion of newly printed US$ by US Federal Reserve is flooding into international commodity markets each year.

So long as almost three quarter of world trade is done in US$, the US$ is the currency which central banks accumulate as reserves. But central banks, whether China or Japan or Brazil or Russia, do not simply stack US$ in their vaults. Currencies have one advantage over gold. A central bank can use it to buy the state bonds of the issuer, the USA. Most countries around the world are forced to control trade deficits or face currency collapse. Not the USA. This is because of the US$ reserve currency role. And the underpinning of the reserve role is the petrodollar. Every nation needs to get US$ to import oil, some more than others. This means their trade targets US$ countries.

Because oil is an essential commodity for every nation, the Petrodollar system, which exists to the present, demands the buildup of huge trade surpluses in order to accumulate US$ surpluses. This is the case for every country but one — the USA which controls the US$ and prints it at will or fiat. Because today the majority of all international trade is done in US$, countries must go abroad to get the means of payment they cannot themselves issue. The entire global trade structure today works around this dynamic, from Russia to China, from Brazil to South Korea and Japan. Everyone aims to maximize US$ surpluses from their export trade.

Until November 2000, no OPEC country dared violate the US$ price rule. So long as the US$ was the strongest currency, there was little reason to as well. But November was when French and other Euroland members finally convinced Saddam Hussein to defy the USA by selling Iraq’s oil-for-food not in US$, ‘the enemy currency’ as Iraq named it, but only in euros. The euros were on deposit in a special UN account of the leading French bank, BNP Paribas. Radio Liberty of the US State Department ran a short wire on the news and the story was quickly hushed.

This little-noted Iraq move to defy the US$ in favor of the euro, in itself, was insignificant. Yet, if it were to spread, especially at a point the US$ was already weakening, it could create a panic selloff of US$ by foreign central banks and OPEC oil producers. In the months before the latest Iraq war, hints in this direction were heard from Russia, Iran, Indonesia and even Venezuela. An Iranian OPEC official, Javad Yarjani, delivered a detailed analysis of how OPEC at some future point might sell its oil to the EU for euros not US$. He spoke in April, 2002 in Oviedo Spain at the invitation of the EU. All indications are that the Iraq war was seized on as the easiest way to deliver a deadly pre-emptive warning to OPEC and others, not to flirt with abandoning the Petro-dollar system in favor of one based on the euro. The Iraq move was a declaration of war against the US$. As soon as it was clear that the UK and the US had taken Iraq, a great sigh of relief was heard in the UK Banks.

First Iraq and then Libya decided to challenge the petrodollar system and stop selling all their oil for US$, shortly before each country was attacked. The cost of war is not nearly as big as it is made out to be. The cost of not going to war would be horrendous for the US unless there were another way of protecting the US$’s world trade dominance. The US pays for the wars by printing US$ it is going to war to protect.

After considerable delay, Iran opened an oil bourse which does not accept US$. Many people fear that the move will give added reason for the USA to overthrow the Iranian regime as a means to close the bourse and revert Iran’s oil transaction currency to US$. In 2006 Venezuela indicated support of Iran’s decision to offer global oil trade in euro. In 2011 Russia begins selling its oil to China in rubles.

6 months before the US moved into Iraq to take down Saddam Hussein, Iraq had made the move to accept Euros instead of US$ for oil, and this became a threat to the global dominance of the US$ as the reserve currency, and its dominion as the petrodollar.

Muammar Qaddafi made a similarly bold move: he initiated a movement to refuse the US$ and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Muammar Qaddafi suggested establishing a united African continent, with its 200 million people using this single currency. The initiative was viewed negatively by the USA and the European Union (EU), with French president Nicolas Sarkozy calling Libya a threat to the financial security of mankind; but Muammar Qaddafi continued his push for the creation of a united Africa.

Muammar Gaddafi’s recent proposal to introduce a gold dinar for Africa revives the notion of an Islamic gold dinar floated in 2003 by Malaysian Prime Minister Mahathir Mohamad, as well as by some Islamist movements. The notion, which contravenes IMF rules and is designed to bypass them, has had trouble getting started. But today Iran, China, Russia, and India are stocking more and more gold rather than US$.

If Muammar Qaddafi were to succeed in creating an African Union backed by Libya’s currency and gold reserves, France, still the predominant economic power in most of its former Central African colonies, would be the chief loser. The plans to spark the Benghazi rebellion were initiated by French intelligence services in November 2010.

In February 2011, Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), has called for a new world currency that would challenge the dominance of the US$ and protect against future financial instability. In May 2011 a 32 year old maid, Nafissatou Diallo, working at the Sofitel New York Hotel, alleges that Strauss-Kahn had sexually assaulted her after she entered his suite.

On Aug 18 2011, Venezuelan President Hugo Chavez announces a plan to pull Gold reserves from US and European Banks .Venezuela reportedly has the largest oil reserves in the world. Venezuelan President Hugo Chavez has been a strong proponent for tighter Latin America integration – which is a move away from the power of the US banking cartels.

Venezuelan President Hugo Chavez formed oil export agreements with Cuba, directly bypassing the Petrodollar System. Cuba was among those countries that were later added to the “Axis of Evil” by the USA. Venezuelan President Hugo Chavez has accused the US of using HAARP type weapons to create earthquakes.

On Aug 24, 2001 a 7 magnitude earthquake rocks Northern Peru bordering Venezuela which doesn’t use the Petrodollar system and Brazil which has been engaged in discussions to end US$ denominated oil transactions. Is it a coincidence that these uncommonly powerful earthquakes are occurring in historically uncommonly large numbers during such a short period of time?. And that they are occurring in or close to countries that have been seriously discussing plans to leave the Petrodollar system, or are already outside it?

HAARP stands for High Frequency Active Auroral Research Program. It is an ionospheric research program that is jointly funded by the US Air Force, the US Navy, the University of Alaska and the Defense Advanced Research Projects Agency. The HAARP program operates a major Arctic facility, known as the HAARP Research Station. It is located on an US Air Force owned site near Gakona, Alaska. HAARP has the ability to manipulate weather and produce earthquakes. It is capable of directing almost 4 Mega Watts of energy in the 3 to 10 MHz region of the HF band up into the ionosphere. This energy can be bounced off of the ionosphere and directed back down at the earth to create earthquakes. Patents have been applied for discussing such applications. HAARP could potentially be used by adversaries to produce such events. [1]

HAARP based technology is being actively used to emit powerful radio waves that permeate the earth and subsequently cause strong enough oscillations along fault lines of targeted areas to produce earthquakes.

The radio waves of HAARP can be used to produce such intense vibrations as to cause an earthquake. HAARP based technology can be used to encourage/produce various weather phenomena such as hurricanes, flooding, or drought through manipulation of the ionosphere. Already Russia, China and Venezuela have suggested that a HAARP type technology weapon is capable of such and attack and possibly been used against several countries.

What would the probable response be to such an attack be? An armed conflict with the US? Or perhaps something more within reach and even more damaging at this point, the elimination of the Petrodollar system and a subsequent dumping of surplus US$ into the international and US financial markets resulting in the quick collapse of the US$. Attacking these countries with HAARP would destabilize their economies and currencies and prevent a move away from the US$ and the Petrodollar system.

Related

Ben Fulford: “90% of the dollars are not owned by Americans.”

[1] Dr Brooks Agnew explains HAARP earthquakes

About these ads

2 responses to “The US$, Oil and War

  1. Nalliah Thayabharan

    U.S. economy is struggling and the U.S. government is absolutely drowning in debt. Unfortunately, the Federal Reserve has decided to recklessly print money out of thin air, and in the short-term some positive things have come out of it. But quantitative easing worked for Gernany almost 100 years ago.. At first, more money caused economic activity to increase and unemployment was low. But all of that money printing destroyed faith in German currency and in the German financial system and ultimately Germany experienced an economic meltdown that the world is still talking about today. This is the path that the Federal Reserve is taking the USA down, but most Americans have absolutely no idea what is happening.

    It is really easy to start printing money, but it is incredibly hard to stop. Like any addict, the Federal Reserve is promising that they can quit at any time, but they refuse to even start tapering their money printing a little bit. Federal Reserve seems to be convinced that any “tapering” could result in the bursting of the massive financial bubbles that it has created. Federal Reserve beleives as the market seems not to, that the current “recovery” could not survive without continuation of massive monetary stimulus. Federal Reserve is usually very careful not to do anything which will hurt the short-term interests of the financial markets and the big banks. If Federal Reserve continues to pump, the financial bubbles that it has created will get even worse. If Federal Reserve stops, those bubbles will burst. But it is inevitable that these financial bubbles will burst at some point one way or another. The Federal Reserve is trapped and can’t end tapering or else the bond and stock markets will blow up. The longer this continues the bigger the inevitable burst. While the Federal Reserve has been recklessly printing money out of thin air, household incomes have actually been going down for five years in a row… The employment to population ratio fell from about 63% before the last recession down to underneath 59% at the end of 2009 and it has stayed there ever since. So if quantitative easing has not been good for average Americans, who has it been good for? The wealthy, of course. This is fantastic for every rich person – This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.
    The implication of the Federal Reserve’s policy is that the rich will spend their wealth and create jobs—essentially betting on “trickle-down economics.” But it hasn’t worked for five years. We have now entered a money printing spiral from which there is no easy exit. Federal Reserve has “crossed the Rubicon” and we are now “in the End Game”… If tapering even $10-15 billion per month from $85 billion month quantitative easing programs would damage the economy, then we’re all up you know what creek without a paddle. Here we are, five years after 2008, and the Federal Reserve is stating point blank that the economy would absolutely collapse if it spent any less than $85 billion per month. This admission has proven just how long ago we crossed the Rubicon. We’re already in the End Game. Period. Most Americans don’t really understand what quantitative easing is, and most don’t really try to understand it because “quantitative easing” sounds very complicated. But it really isn’t that complicated. The Federal Reserve is creating gigantic mountains of money out of thin air every month, and the Federal Reserve is using all of that newly created money to buy government debt and mortgage-backed securities. Over the past several years, the value of the financial securities that the Federal Reserve has accumulated is greater than the total amount of publicly held debt that the U.S. government accumulated from the presidency of George Washington though the end of the presidency of Bill Clinton…

    US dollar supply is beginning to grow at an exponential pace. So far, complete and total disaster has not struck, so most people think that everything must be okay. But it is not.
    It is simply not rational for other nations to continue to lend USA money at less than 3% a year when reckless money printing by the Federal Reserve threatens to greatly accelerate the devaluation of our currency.

    Right now, the Federal Reserve is buying roughly half a trillion dollars worth of U.S. Treasuries a year, but the U.S. government issues close to a trillion dollars of new debt and must roll over about 3 trillion dollars of existing debt each year. If the Federal Reserve eventually decides to buy all of the debt, then interest rates won’t be a major problem. But if the Fed goes that far our financial system would be regarded as a total joke by the remainder of the globe and we would reach hyperinflation much more rapidly. If the Federal Reserve stops buying debt completely, the financial bubbles that they have created will burst and we will rapidly be facing a financial crisis even worse than what we experienced back in 2008. The Federal Reserve is systematically destroying what was once the strongest financial system in the world, and in the end we are all going to pay the price

  2. Nalliah Thayabharan

    War is used as a continuous foreign policy with the USA in present egregious and unlawful abuse of their superpower status.

    The US manufacturers who can’t compete with low priced Chinese goods must either lower their costs or go bankrupt. To lower their costs, many US manufacturers are outsourcing to India and China, adding more unemployment in the USA. Manufacturing jobs in the USA declined 35% between 1998 and 2010. Since manufacturing industries declined in the USA, the US competitiveness in the global marketplace is also declined.

    The US economy is in a deep hole and US shouldn’t dig any more. Reckless money printing known as “Quantitative Easing” and economical stimulus packages introduced in the aftermath of the Credit Crunch, has made very little impact on the growth of the US economy. Current US economical growth is not adequate enough to create jobs and to get an economy back on track. The USA is living beyond its means and cannot cut expenditures or increase taxes to narrow the deficit. Now the banks are under enormous pressure to lend more money but reckless lending by banks got the US into this mess in the first place.

    The credit crunch initiated in 2007 in the subprime mortgage market in the US had devastating spill-over effects for China’s exports. The scarcity of US$, due to the repatriation and deleveraging flows into the US financial system caused a sudden plunge in the external demand for goods manufactured by China and triggered the consequent lay-off of several millions of workers in China. This experience encouraged China to use its own currency in trade.

    The US may have averted a debt default by compromising on how to cut the US budget deficit, but underlying problems remain and those economic woes are driving a global search for an alternative reserve currency. The USA now needs a net inflow of several billions US$ a day to cover its deficit.

    The US President Barack Obama launched his primary anti-foreclosure plan, the Home Affordable Modification Program (HAMP) in 2009 to encourage the US banks to rewrite mortgages of about 4 million homeowners at risk of losing their homes. But the fight against foreclosures continues to muddle and underwhelm. Only 300,000 homeowners received a mortgage modification in the first six months of 2011, while 600,000 houses fell into foreclosure.

    The political and economical leadership of the US has chosed to cartel profits and transformed the US economy to serve the colluding and unlawful oligarchy. The US banks are borrowing money at near zero interest from the US government, then lending it to the US government at even mere fractions higher interest than they are paying. The net interest margin made by the US banks by lending the money back to the US government in the first 6 months of 2011 is $211 billion. The financial crisis was created by the biggest US banks to consolidate power. The top 6 US banks had assets of less than one fifth of US GDP in 1995. Now they have two third of US GDP. The big banks became stronger as a result of the bailout. They’re turning that increased economic clout into more political power. Due to oligarchs’ rapacious looting and their purchase of a politically-protected luxurious lifestyle, the US citizens are on the road to permanent serfdom under a police state.

    The economical problems in Greece, Spain, Portugal and Italy are very precarious. The bailout phenomenon is not working in Greece which is on the brink of defaulting on its debt. It is impossible for the EU to bailout Italy which is the third largest economy in Europe. Recently the head of the European rescue fund Klaus Regling said that the EU could issue bonds in Chinese renminbi(yuan) and not in euro.

    India, 4th largest GDP and populous democracy in the world has joined with China and Russia questioning US$ as reserve currency. India’s famed white marble monument to love “Taj Mahal” had charged US$15 or 750 Indian rupees as entry fee for each tourist, has been not accepting US$ anymore. Brazil, Russia, India and China (BRIC)are buying each other’s bonds and swapping currencies to lessen dependence on the US$. These four countries are among the biggest holders of US Treasuries and have combined reserves of almost 3,000 billion US$.

    The value of the US$ declined significantly during the last 70 years. The value of the US$ in 1940 was worth 2,000% more than the value of the US$ now. The day OPEC stops pricing oil in fiat dollars, is the day the USA will collapse completely. The reason the fiat dollar game has gone on as long as it has the US$ as the global reserve currency. In 2011 Russia began selling its oil to China in rubles. The US debt crisis adds new urgency to the China’s efforts to promote its currency renminbi as an alternative reserve currency. China has already signed bilateral currency swap agreements with several countries ranging from Indonesia to Belarus and Argentina to promote its currency renminbi as a means of settlement in international trade. China’s growing trade and financial links with the rest of the world will make the renminbi more acceptable. If countries continue to lose their willingness to hold the US$ the impact to the US$ and the collapse of the US$ could be very dramatic.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s