U.S. DOLLAR PEGGED TO OIL?
On the start of the Iranian New Year – March 20, 2006 on our calendar, Iran intends to open its own commodity market for oil and gas. This new bourse will be similar to markets in NY and London with one critical exception…
Trades will be conducted in Euros, not dollars.
“This is why Dick Cheney and the Bush administration are rushing to validate some kind of attack on Iran, not the supposed Nuclear capability. It’s another red herring to prevent an Oil power from going Petro-Euro on the U.S.Dollar.
“Ever since Nixon refused to pay Gold in exchange for the Dollar, The American dollar has been been backed by an agreement with OPEC to price oil exclusively in U.S. Dollars. So in effect, Oil backed the U.S. dollar since that time.
“This is one of the primary reasons Foreign countries like China have been hoarding U.S. Treasuries for the past 20 years. At this time last year, China was spending 7.8 million an hour, 187 million a day, buying U.S. treasuries and dollars and holds in excess of 120 Billion in U.S. treasuries, not to mention what the Saudis own as well.
“This is the ONLY reason our economy HAS NOT Collapsed into a major recession for the past ten years. The foreign money has been propping up our economy as we rack up record National Debt and Trade deficits under the “Conservative” policies of the Bush administration.
“Saddam threatened to pull the plug on the U.S. dollar in 2000 and we ousted him. Venezuela’s ambassador spoke to Russia of doing the same in 2001. Within a year there was a coup attempt against Chavez, reputed to be supported by the CIA. The coup failed, but Chavez pulled back against moving to the Euro.”
“As Congressman (R) Ron Paul states in The End of The Dollar Hegemony :
“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 the 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 didn’t do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn’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 she’s 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.”
“So, here we are, with Iran threatening to move against the already weakened U.S. Dollar. How dare they try to do business with Europe after America has been so good to them? We may start bombing Iran soon – But don’t pretend it’s to Defeat Terror or anything LIKE that. Its simply a stopgap measure to prevent the dollar from collapsing completely into insolvency. Your Thoughts?”
excerpt from COMMENT #2
“Their blood lust for the dollar will be left holding the bag once the dollar goes up in flames. They have already sold the US gold reserves to the Federal Reserve and the 13 richest families who OWN that PRIVATE CORPORATION.”
excerpt from COMMENT #3 – by MythicFade
“Fascism is for dumbfucks.”
HOW TO MAKE 84%, 225%, EVEN 794% WHEN IRAN
LAUNCHES ITS ATTACK ON THE DOLLAR
“In this letter you’ll learn four ways to protect the value of your hard-earned wealth from Iran’s attack on the American economy. You’ll also discover how one group of investors is taking advantage of growing geopolitical volatility and seeing 18% to 58% returns–in anywhere from a single day to six weeks…and longer term gains of as much as 794%!
The petro-euro is the biggest threat to your wealth since the last world war. In fact, some people think it could start the next one.
By the start of the Iranian New Year–March 20, 2006 on our calendar–Iran intends to open its own commodity market for oil and gas. This new bourse will be similar to markets in New York and London with one critical exception…
Trades will be conducted in euros, not dollars!
Why does this have oil-backed U.S. leaders like Dick Cheney contemplating a nuclear strike against Iran? Because Ahmadinejad’s economic ploy threatens the U.S. dollar’s monopoly in the global energy market.
Oil is traded in dollars on the New York and London exchanges, and oil-exporting countries deposit much of the proceeds–commonly called “petrodollars”–into western banks. That gives the U.S. a huge advantage when prices go up…it can simply print more paper dollars to pay for oil.
It’s also a big reason foreigners have been stockpiling dollars and dollar-denominated assets like Treasury bills. But once foreigners no longer have as big a need for dollars, they may stop buying our dollar-denominated debt.
Not only will we no longer be able to finance our runaway trade and budget deficits with printing presses, international demand for the greenback–and the buck’s value–will drop like a stone. Already, the central banks of China, Japan, Taiwan and Korea have announced intentions to lighten up on their U.S. dollar holdings in their currency reserves.
And the moment oil becomes denominated in a different currency, such as the euro, the U.S. becomes like every other country in the world. We would have to earn euros in order to pay for energy instead of simply printing more dollars…not a happy prospect when you consider that the dollar has plunged 27% against the euro in the last 4 years.
Here’s just a taste of the implications–and opportunities–this new energy economy could create:
* Soaring gasoline prices, driven by an ever-widening gap between the euro and the dollar
* A spectacular rise in gold as investors flee the dollar…it’s already projected to go to $600 an ounce or more this year…perhaps even $800 an ounce if Iran implodes. Some analysts even speculate that oil will be denominated in gold, not euros, by the end of the decade!
* More expensive goods and services as the dollar’s value declines, higher energy costs create a de facto “consumption tax” on everything that must be transported or manufactured
* Less American influence over global oil, plus more competition as OPEC forms new alliances with developing nations like India, Pakistan, and China
America’s rivals have been trying to shift the oil economy toward the euro for years. They hope that if enough major oil producers switch, the rest will flee the dollar like rats leaping off a sinking ship, weakening the U.S. role in global oil and gas markets in the process.
A major shift in the global energy economy is now underway. And if you think a military attack on Iran will automatically solve the problem, think again…
Why a U.S. attack on Iran won’t save the dollar
President Ahmadinejad is far more threatening than Saddam Hussein ever was. The U.S. Department of Energy puts Iraq’s sustainable production capacity at no higher than 2.9 million barrels per day. Yet, Iran produces 4.1 million barrels per day.
Overall, Iran is now the fourth-largest oil-exporting nation in the world. It also holds 25% of the world’s natural gas reserves.
The U.S. doesn’t buy any of this oil, but many other nations do–to the tune of 2.6 million barrels per day. That means we can’t bully Iran as easily as we could Iraq.
It’s a Catch 22. The threat of nuclear weapons in Iran is real this time. Yet an embargo or a military attack against Iran could leave key U.S. allies and trading partners facing an even greater energy crisis.
On January 31, 2006, The Financial Times put it this way…
“Iran is OPEC’s 2nd largest oil producer. A halt in its oil production would send international oil prices to more than $100 a barrel, analysts predict.”
“If Iran were to pull all of its supply off the market, world oil prices might well flirt with the record reached after the last Iranian crisis. In gas-guzzling America, that oil shock was followed by the worst recession since the second world war.” –The Economist
Any disruption of the Iranian oil supply would create critical shortages worldwide. Countries that depend on Iranian oil will have to look elsewhere…creating more competition with the U.S. and sending prices skyrocketing. China currently imports more than 13% of its oil from Iran…an estimated 300,000 barrels per day in 2005. And they’ve recently signed the biggest oil and gas deal in Chinese history, cementing their energy relationship with Iran for the next 30 years.
Russia also has multibillion-dollar deals with Iran, including LUKOIL’s minority stake in the Anaran field near the Iraqi border. Iran has a $40 billion natural gas deal with India, and Iranian crude is critical to Japan, South Korea, Taiwan and parts of Europe.
Ahmadinejad knows the world needs his oil more than he needs them, and he’s threatened to cut off the supply himself if Iran’s nuclear ambitions are thwarted. His threat is a serious one, because other oil-producing nations aren’t prepared to take up the slack if the Iranian oil faucet is shut off…
Oil demand will skyrocket–no matter what happens in Iran
A Morgan-Stanley report has predicted that global demand for oil will outpace the total supply capacity by 2-to-1 in either 2006 or 2007. Another recent report by Goldman-Sachs predicts that oil could go as high as $105 a barrel.
There are plenty of reasons for these kinds of predictions…
Saudi Arabia–the world’s largest producer–is already producing at maximum capacity. Yet, in July it told the world that OPEC will not be able to meet Western oil demand in 10-15 years. It was the first time OPEC had ever made such an announcement.
Central Banks Dump the Dollar
The Washington Post recently reported that China, which holds the world’s 2nd-largest foreign currency reserves, plans to “optimize the structure” of its reserves. Translation: they’re going to dump dollars in favor of other currencies. The central banks of Japan, Taiwan and Korea have also made moves away from the dollar in the last year.
At the same time, China recently overtook Italy as the world’s sixth-largest economy. At its current growth rate of 9.4%, it will bypass the U.K. and France by the end of this year. Its oil consumption has doubled in recent years and could double again by 2020.
India is close behind with a projected growth rate of 6.8% in 2006…and its energy needs are also expected to double by 2020.
Russia, the Middle East, and Venezuela haven’t invested in enough resources to maintain a supply cushion. Americans haven’t cut back on gas purchases or switched to more fuel-efficient vehicles. And they don’t expect that to happen until pump prices hit $4 a gallon!
But by that time, it will be too late for most investors.
What the plunging value of the dollar doesn’t drain away could quickly be gobbled up by soaring energy costs. Those costs will not only make it more expensive to drive and heat your home, they’ll drive up the cost of everything that is shipped or manufactured.
But if you are willing to act now, there’s a safe haven strategy that could protect your wealth from the coming crisis…and even score you substantial profits!
How to make 84%, 225%, even 794% when Iran launches its attack on the dollar
With a combined fiscal and trade deficit exceeding $1 trillion…record national debt of $8.1 trillion… and central banks beginning to shift away from the dollar…the U.S. currency has been heading towards crisis for years.
Since 2002, it has lost over 22% against major rivals. But that’s only a hint of things to come…
Now, the escalating energy crisis and Iran’s launch of a euro-priced oil market on March 20th promise to prick the dollar bubble once and for all.
Fortunately, however, you could protect your wealth and even make substantial profits during the coming storm.
That’s because whenever one currency goes down, others go up…and volatile times like these create the profit opportunities of a lifetime in the world’s single largest financial market.
I’m not talking about stocks, bonds, or even commodity futures. I’m referring to the foreign exchange market.
The World’s Largest and Most Liquid Financial Market Offers Extraordinary Profit Opportunities in 2006
Most people know very little about the foreign exchange (or “forex”) market. Yet over $1.9 trillion changes hands here every day–more than the volume of all the stock markets in the world combined!
The forex market is where savvy traders with an eye for current events regularly make large returns. And the opportunities for profit are greater today than at any time in the last 25 years…
* Make 255% from the “Oil See-Saw”: When President Ahmadinejad pulls the petroeuro trigger, this oil- and gas-rich currency could shoot up to parity against the dollar–gaining 25.5%–while another super oil-dependent currency plummets. Your total profits could be 255% or more in a matter of weeks!
* 84% Potential Profits in Less than a Week from the Oil Superspike: J.P. Morgan Securities recently predicted that gold will hit $600 an ounce by the end of 2006…and it could go as high as $800 if the geopolitical situation in Iran drives the price of oil to $100 a barrel. That would send another currency sky-high, because it’s the #2 producer of gold in the world. We booked 21% gains in just three weeks the last time we played it, but could easily make four times that amount if a “superspike” in oil drives up the price of gold.
* Back in 2001, We Recommended this Currency for 794% Gains; Here’s Your Opportunity to Do the Same: When geopolitical crisis looms, there’s one “safe haven” currency the wealthy investors of the world flock to. Our Sovereign Individual readers once had the opportunity to play this currency for gains of 794% in over a 2-year period…but it could go even higher if the Iranian threat continues to escalate.
These returns aren’t flukes. A select group of investors have seen gains like these on a regular basis…
The Forex Market: Lower Costs, Lower Minimums and Far Greater Profit Opportunities than Stocks
Here are just a few reasons why the forex market presents the greatest profit opportunities in the face of geopolitical uncertainty:
* Liquidity: In the currency market, there are no daily limits. You can trade 24 hours a day, five days a week. This gives you total access to your money whenever you want or need it–and the ability to change your holdings immediately in response to breaking events–while still delivering powerful gains.
* Easy Access: You can access the foreign exchange market from any computer terminal, 24 hours a day, five days a week. No need for banks or brokers. Just log on, click, and buy or sell.
* Earn Double-digit Yields: You already know about the “miracle of compound interest”–well, now you can quicken the pace of such a miracle. When you trade in the currency market, you not only earn profits from the spread, you can also earn more on the interest rates extended by the central banks in charge of the currency you’re holding. In these days of dwindling equity dividends, currency trading can bolster your passive monthly income in addition to enhancing your overall portfolio.
* Low Trading Costs: You can start trading with as little as $300. What’s more, your only cost is the narrow “spread” between the buy price and the sell price. There are no brokerage fees or commissions to pay. * Versatility: You don’t even have to be a dollar bear to profit in the forex market. You can trade any two currencies against each other. Even if you open your account with a dollar deposit, you can trade Canadian dollars against the yen one day and euros against Swiss francs, the other. The choice is yours.
They could have doubled their money in 72 weeks playing the Eurodollar in April 2005…made 203% gains on the Swiss Franc in 8 weeks in February, 2005…168% on the Canadian dollar in 3 weeks in November, 2004…50% on the Euro in four months in February, 2005…69% on the Canadian dollar in 5 weeks in October, 2005…106% on the British pound in 15 days in December, 2004…and many more profitable plays each year!
Now, you can take advantage of the same kind of gains week after week as the Iranian crisis unfolds…
Two of the world’s top-rated currency traders are ready to show you how to “bulletproof” your hard-earned wealth
My name is Erika Nolan. I’m the Executive Director of the Sovereign Society. Since 1998, we’ve scoured the world for the best global investment and asset protection strategies.
Along the way, we discovered the amazing profit potential of the forex market with two spectacular currency trades, resulting in gains of 794% and 1,794% respectively!
Naturally our readers called for more…
That’s why we created The Money Trader, a currency-trading service written exclusively for individual investors. It’s written by two of the world’s top forex traders, Kathy Lien and Boris Schlossberg. And their experience in these markets is second to none…
Kathy is the Chief Currency Strategist at a major NY foreign exchange firm and a seasoned forex analyst and trader. She has vast experience with the interbank market, using both technical and fundamental analysis to trade forex spot and options.
Boris serves as Senior Currency Strategist for the same firm, and is also a seasoned independent trader. He works “London hours”, trading currencies while many U.S. traders are asleep. He’s also a recognized expert in risk management, trader psychology and market structure.
You could learn the top strategies of currency trading from either of our editors, but together they’re a practically unbeatable team. Their winning combination has made them two of the most profitable and highly respected advisors in the market today.
Defend Your Wealth Against The Most Dangerous Man in the World
President Ahmadinejad has a long history of confrontation. He was a member of the Islamic Revolution in 1979. Some have accused him of being part of the group that took 52 Americans hostage in the American Embassy in Tehran that year.
More recently, he raised international tensions when he described the Holocaust as “a myth” and said Israel and America “must be wiped off the map.”
In January, he broke the U.N.’s seal on Iran’s Natanz uranium enrichment facility, drawing immediate protests from the U.S., Europe, and Japan. Later in the same month, he tried to get OPEC to cut oil production to wring concessions from the major powers.
Make no mistake about it. Ahmadinejad’s plans to launch the world’s first non-dollar oil exchange on March 20th should not be taken lightly. He’ll do everything in his power to strike that blow against the U.S. economy…that is, if the U.S. or Israel do not attack first. Either way, the U.S. dollar is in deep trouble. And the single best way to protect your wealth and even profit as events unfold is through the foreign exchange markets. Here you can collect much higher yields than on your dollar deposits, own currencies that are rising in the oil crisis, diversify away from the debt-plagued dollar, protect your purchasing power, and take advantage of select trading strategies that have produced gains of 85% to 203% and more for Money Trader subscribers.
But don’t take my word for it…just do a Google search on either of their names, and watch the hit counter go through the roof. You’ll find that they’ve been published and quoted by nearly every major publication and website that deals with currency trading…
Their articles and columns regularly appear in Stocks and Commodities, CBS Market Watch, ActiveTrader, Futures and SFO Magazine. They’re consulted by Bloomberg, Reuters, and other major news services on an almost daily basis. They’re active on many major trading sites too, including DailyFX, EliteTrader, eSignal, and FXStreet.
They’ve also earned a reputation for protecting the assets of their clients when geopolitical events cause volatile swings in currency values…just as we’re facing now with the uncertainty in Iran.
But with The Money Trader, you’ll get something you won’t find in any of the sources I mentioned above…their recommendations for the world’s most profitable currency market opportunities.
What’s advice like this worth?
In a recent issue of FX Week, Boris and Kathy were rated as the world’s most accurate forecasters, beating the track records of Citigroup, Merrill Lynch, Barclays, JP Morgan Chase and other major money center banks.
Readers of The Money Trader know that this rating means more than praise…it also means profits. In 2005, Kathy and Boris scored an 75% winning percentage with plays like these:
* July 20: Boris and Kathy recommended the Japanese yen. On the following day, they cashed in for 85% gains!
* August 31: Recommended the euro against the dollar, gaining 22% in 24 hours
* October 26: Another one-day euro/dollar trade netted 25% gains
* July 18: Played the “loonie” (Canadian dollar) against the yen, booking 29% in six weeks
* October 19: Bought the loonie with the euro, pocketing 23% in five days
* December 7: Traded the euro against the dollar again, scoring gains of 23% in one day
* November 7: Rode the loonie’s rise against the dollar for gains of 21% in 24 hours
* November 18: Played the loonie against the dollar a second time for an additional 20% in four days
* September 7: Traded the British pound for 36% gains in five days
That’s just a sampling of the many successful trades Boris and Kathy conducted in 2005. But all these were just warm-up exercises for what’s about to come. You see, 2005 was paradise compared to the trouble that’s ahead. That’s why The Money Trader is introducing a new way to play the forex market…
Create a safe haven for your cash before the crisis comes
The majority of Boris and Kathy’s winners have been short-term plays designed to generate quick profits. But if 2005 was a year not to be missed, then 2006 is the year that you cannot afford to be caught unprepared. Volatility in the global economy means opportunity in the forex market, and if this year’s start is any indication, opportunities will be great indeed.
Now, for the first time ever, Boris and Kathy have devised a long-term currency portfolio to take maximum advantage of these trends…and to protect your wealth in the event of geopolitical crisis.
It’s a brand-new report titled A Bulletproof Portfolio for Volatile Times. Hopefully, these volatile times will remain trade wars in 2006 and won’t turn “hot.” But either way, Boris and Kathy will give you the top currency trades for financial protection and profits as the oil crisis unfolds.
The portfolio includes the seven currencies that stand to benefit from not only the coming oil crisis, but the new rookie chairman, increased gold prices and higher interest rates. The portfolio also reveals the currencies that are likely to suffer most, and how to play them against each other for maximum profits.
Even if diplomacy triumphs in Iran or the new rookie chairman lives up to Greenspan’s legacy, you can still profit from the secret strategies revealed in this exclusive report. A Bulletproof Portfolio for Volatile Times has a retail value of $99, but I’ll send it to you free of charge when you accept a risk-free trial subscription to The Money Trader for just $375 a quarter.
As a Money Trader subscriber, you’ll get weekly updates on the currency market, complete with Boris and Kathy’s latest currency recommendation, the technical and fundamental analysis behind it, simple instructions on how to place the trade, and updates on currently open positions.
In addition, you’ll have full access to our members-only website, where you’ll find profit-generating reports and a complete archive of past recommendation. You’ll receive additional periodic e-mail alerts from Boris and Kathy whenever current events make a sudden turn…ensuring that you’re always able to respond quickly to new opportunities or close out of a position for maximum profits.
What’s more, you won’t be starting cold. In addition to Boris and Kathy’s weekly recommendations, you’ll receive a complimentary copy of our best-selling report Secrets of the Spot Market: How to Make 18% to 58% Returns on Your Cash. This exclusive guide reveals the top profit-generating tricks of the trade used by the world’s top currency traders:
* How you can use the same strategy that enabled George Soros to pocket a cool billion dollars in less than a month in 1992!
* Why professional traders care about currency yields–even though they can make dozens of times the yield in appreciation–and why you should too.
* Why the “international carry trade” has been the core profit strategy for professional hedge funds around the world–and how to use the same strategy to grow your own account by 25% to 50% a year.
* The #1 mistake committed by amateurs in the Spot Market… and the #1 Success Secret of the Pros.
* Why many currencies provide far greater yields than stocks, while at the same time providing greater liquidity and the potential for high double- and triple-digit gains.
* Why currencies trade 24 hours a day–and why that means you’re not nearly as likely to see the big gaps in price that frequently occur during stock market opens.
* How to practice-trade the currency market–without risking any money.
* And the #1 Secret of the Spot Market: “Option X”: a synthetic currency option that can pay you interest, has No expiration date, is far more liquid than most options, is cheaper to trade, and has limited risk yet unlimited upside!
Plus, you’ll also get The Dollar Anthology, a chart-filled report that documents the dollar’s historical performance against other currencies. Prepared exclusively for Money Trader subscribers, this report reveals how the forex market typically behaves over the long term, reducing your chances of missing a buying opportunity or selling too quickly in the heat of the moment. And like the other reports I’ve mentioned, it’s yours absolutely Free when you try The Money Trader.
Your complete satisfaction with The Money Trader is 100% guaranteed. If you’re not satisfied with the way you are protecting your savings, seeing your profits climb, and trading as a far more resourceful investor, you may cancel your subscription within the first 90 days for a full refund. You may also cancel at any time thereafter and receive a refund for the unused portion of your subscription. Your three special reports–A Bulletproof Portfolio for Volatile Times, Secrets of the Spot Market, and The Dollar Anthology are yours to keep whatever you decide.
March 20th could well mark the end of an era, and draw the final curtain on the dollar’s monopoly on energy. I urge you to act now to protect your savings and turn potential losses into significant profits…while there’s still time.
Erika Nolan, Executive Director of The Sovereign Society
Publisher, The Money Trader
February 7, 2006
P.S. The situation in Iran is highly unstable. Sanctions may or may not be imposed, and it is too soon to know whether this would have a positive effect or create a radicalized society amongst the Iranians. But the danger of the dollar’s plunge is very real…even if crisis is averted in the Middle East. I urge you to respond today so that you’ll be well prepared by March 20th…when Ahmadinejad launches his attack on the U.S. dollar.
The End of Dollar Hegemony
By Congressman Ron Paul, 2/16/2006
A hundred years ago it was called “dollar diplomacy.” After World War II, and especially after the fall of the Soviet Union in 1989, that policy evolved into “dollar hegemony.” But after all these many years of great success, our dollar dominance is coming to an end.
It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value.
First it was simply barter of goods. Then it was discovered that gold held a universal attraction, and was a convenient substitute for more cumbersome barter transactions. Not only did gold facilitate exchange of goods and services, it served as a store of value for those who wanted to save for a rainy day.
Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money. Sometimes governments succeeded in guaranteeing the quality and purity of gold, but in time governments learned to outspend their revenues. New or higher taxes always incurred the disapproval of the people, so it wasn’t long before Kings and Caesars learned how to inflate their currencies by reducing the amount of gold in each coin– always hoping their subjects wouldn’t discover the fraud. But the people always did, and they strenuously objected.
This helped pressure leaders to seek more gold by conquering other nations. The people became accustomed to living beyond their means, and enjoyed the circuses and bread. Financing extravagances by conquering foreign lands seemed a logical alternative to working harder and producing more. Besides, conquering nations not only brought home gold, they brought home slaves as well. Taxing the people in conquered territories also provided an incentive to build empires. This system of government worked well for a while, but the moral decline of the people led to an unwillingness to produce for themselves. There was a limit to the number of countries that could be sacked for their wealth, and this always brought empires to an end. When gold no longer could be obtained, their military might crumbled. In those days those who held the gold truly wrote the rules and lived well.
That general rule has held fast throughout the ages. When gold was used, and the rules protected honest commerce, productive nations thrived. Whenever wealthy nations– those with powerful armies and gold– strived only for empire and easy fortunes to support welfare at home, those nations failed.
Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: “He who prints the money makes the rules”– at least for the time being. Although gold is not used, the goals are the same: compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses.
Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation’s people– just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare.
The pressure at home to inflate the currency comes from the corporate welfare recipients, as well as those who demand handouts as compensation for their needs and perceived injuries by others. In both cases personal responsibility for one’s actions is rejected.
When paper money is rejected, or when gold runs out, wealth and political stability are lost. The country then must go from living beyond its means to living beneath its means, until the economic and political systems adjust to the new rules– rules no longer written by those who ran the now defunct printing press.
“Dollar Diplomacy,” a policy instituted by William Howard Taft and his Secretary of State Philander C. Knox, was designed to enhance U.S. commercial investments in Latin America and the Far East. McKinley concocted a war against Spain in 1898, and (Teddy) Roosevelt’s corollary to the Monroe Doctrine preceded Taft’s aggressive approach to using the U.S. dollar and diplomatic influence to secure U.S. investments abroad. This earned the popular title of “Dollar Diplomacy.” The significance of Roosevelt’s change was that our intervention now could be justified by the mere “appearance” that a country of interest to us was politically or fiscally vulnerable to European control. Not only did we claim a right, but even an official U.S. government “obligation” to protect our commercial interests from Europeans.
This new policy came on the heels of the “gunboat” diplomacy of the late 19th century, and it meant we could buy influence before resorting to the threat of force. By the time the “dollar diplomacy” of William Howard Taft was clearly articulated, the seeds of American empire were planted. And they were destined to grow in the fertile political soil of a country that lost its love and respect for the republic bequeathed to us by the authorsof the Constitution. And indeed they did. It wasn’t too long before dollar “diplomacy” became dollar “hegemony” in the second half of the 20th century.
This transition only could have occurred with a dramatic change in monetary policy and the nature of the dollar itself.
Congress created the Federal Reserve System in 1913. Between then and 1971 the principle of sound money was systematically undermined. Between 1913 and 1971, the Federal Reserve found it much easier to expand the money supply at will for financing war or manipulating the economy with little resistance from Congress– while benefiting the special interests that influence government.
Dollar dominance got a huge boost after World War II. We were spared the destruction that so many other nations suffered, and our coffers were filled with the world’s gold. But the world chose not to return to the discipline of the gold standard, and the politicians applauded. Printing money to pay the bills was a lot more popular than taxing or restraining unnecessary spending. In spite of the short-term benefits, imbalances were institutionalized for decades to come.
The 1944 Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, replacing the British pound. Due to our political and military muscle, and because we had a huge amount of physical gold, the world readily accepted our dollar (defined as 1/35th of an ounce of gold) as the world’s reserve currency. The dollar was said to be “as good as gold,” and convertible to all foreign central banks at that rate. For American citizens, however, it remained illegal to own. This was a gold-exchange standard that from inception was doomed to fail.
The U.S. did exactly what many predicted she would do. She printed more dollars for which there was no gold backing. But the world was content to accept those dollars for more than 25 years with little question– until the French and others in the late 1960s demanded we fulfill our promise to pay one ounce of gold for each $35 they delivered to the U.S. Treasury. This resulted in a huge gold drain that brought an end to a very poorly devised pseudo-gold standard.
It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.
Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it– not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.
Realizing the world was embarking on something new and mind boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence “backed” the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.
This post-Bretton Woods system was much more fragile than the system that existed between 1945 and 1971. Though the dollar/oil arrangement was helpful, it was not nearly as stable as the pseudo gold standard under Bretton Woods. It certainly was less stable than the gold standard of the late 19th century.
During the 1970s the dollar nearly collapsed, as oil prices surged and gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were required to rescue the system. The pressure on the dollar in the 1970s, in spite of the benefits accrued to it, reflected reckless budget deficits and monetary inflation during the 1960s. The markets were not fooled by LBJ’s claim that we could afford both “guns and butter.”
Once again the dollar was rescued, and this ushered in the age of true dollar hegemony lasting from the early 1980s to the present. With tremendous cooperation coming from the central banks and international commercial banks, the dollar was accepted as if it were gold.
Fed Chair Alan Greenspan, on several occasions before the House Banking Committee, answered my challenges to him about his previously held favorable views on gold by claiming that he and other central bankers had gotten paper money– i.e. the dollar system– to respond as if it were gold. Each time I strongly disagreed, and pointed out that if they had achieved such a feat they would have defied centuries of economic history regarding the need for money to be something of real value. He smugly and confidently concurred with this.
In recent years central banks and various financial institutions, all with vested interests in maintaining a workable fiat dollar standard, were not secretive about selling and loaning large amounts of gold to the market even while decreasing gold prices raised serious questions about the wisdom of such a policy. They never admitted to gold price fixing, but the evidence is abundant that they believed if the gold price fell it would convey a sense of confidence to the market, confidence that they indeed had achieved amazing success in turning paper into gold.
Increasing gold prices historically are viewed as an indicator of distrust in paper currency. This recent effort was not a whole lot different than the U.S. Treasury selling gold at $35 an ounce in the 1960s, in an attempt to convince the world the dollar was sound and as good as gold. Even during the Depression, one of Roosevelt’s first acts was to remove free market gold pricing as an indication of a flawed monetary system by making it illegal for American citizens to own gold. Economic law eventually limited that effort, as it did in the early 1970s when our Treasury and the IMF tried to fix the price of gold by dumping tons into the market to dampen the enthusiasm of those seeking a safe haven for a falling dollar after gold ownership was re-legalized.
Once again the effort between 1980 and 2000 to fool the market as to the true value of the dollar proved unsuccessful. In the past 5 years the dollar has been devalued in terms of gold by more than 50%. You just can’t fool all the people all the time, even with the power of the mighty printing press and money creating system of the Federal Reserve.
Even with all the shortcomings of the fiat monetary system, dollar influence thrived. The results seemed beneficial, but gross distortions built into the system remained. And true to form, Washington politicians are only too anxious to solve the problems cropping up with window dressing, while failing to understand and deal with the underlying flawed policy. Protectionism, fixing exchange rates, punitive tariffs, politically motivated sanctions, corporate subsidies, international trade management, price controls, interest rate and wage controls, super-nationalist sentiments, threats of force, and even war are resorted to—all to solve the problems artificially created by deeply flawed monetary and economic systems.
In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that’s the United States. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. But this leads to a loss of manufacturing jobs to overseas markets, as we become more dependent on others and less self-sufficient. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption.
It sounds like a great deal for everyone, except the time will come when our dollars– due to their depreciation– will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond ourmeans and our production. The shift in sentiment regarding the dollar has already started, but the worst is yet to come.
The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. Last year alone M3 increased over $700 billion.
The artificial demand for our dollar, along with our military might, places us in the unique position to “rule” the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can’t last.
Price inflation is raising its ugly head, and the NASDAQ bubble– generated by easy money– has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world’s rejection of the dollar. It’s bound to come and create conditions worse than 1979-1980, which required 21% interest rates to correct. But everything possible will be done to protect the dollar in the meantime. We have a shared interest with those who hold our dollars to keep the whole charade going.
Greenspan, in his first speech after leaving the Fed, said that gold prices were up because of concern about terrorism, and not because of monetary concerns or because he created too many dollars during his tenure. Gold has to be discredited and the dollar propped up. Even when the dollar comes under serious attack by market forces, the central banks and the IMF surely will do everything conceivable to soak up the dollars in hope of restoring stability. Eventually they will fail.
Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged—as it already has been.
In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O’Neill, the major topic was how we would get rid of Saddam Hussein– though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O’Neill.
It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.
There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.
In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.
After these attempts to nudge the Euro toward replacing the dollar as the world’s reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance.
It’s become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported.
Now, a new attempt is being made against the petrodollar system. Iran, another member of the “axis of evil,” has announced her plans to initiate an oil bourse in March of this year. Guess what, the oil sales will be priced 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 the 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 didn’t do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn’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 she’s 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, like the presence of weapons of mass destruction and Saddam Hussein’s connection to 9/11, 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 many of our willing allies. That’s not so today. Now, more than ever, the dollar hegemony– it’s dominance as the world reserve currency– is required to finance our huge war expenditures. This $2 trillion never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do just that.
For the most part the true victims aren’t aware of how they pay the bills. The license 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 price 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 who suffer from it. If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the world’s reserve currency.
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 the inability of Rome to continue to plunder conquered nations brought an end to her 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 of the world. 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 $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 (DOD budget $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, and therefore they have little choice but to accept the dollars we declare aretoday’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 false 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.
It seems that the people and Congress are easily persuaded by the jingoism of the preemptive war promoters. It’s only after the cost in human life and dollars are tallied up that the people object to unwise militarism.
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.
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 for pricing oil only in dollars helps explain our willingness to drop everything and teach Saddam Hussein a lesson for his defiance in demanding Euros for oil.
And once again there’s this 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 cannot be repealed. The chaos that one day will ensue from our 35-year experiment 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.