4-11-2004 Global Macroeconomics or: How I Learned to Stop Worrying and Love the Bomb

As Larry Schultz so often says, and I quote: "That's neat."

This e-mail is neat:


I know u're a big Bush supporter and I'm not looking to lock horns. Before the Iraq war, I was leaning toward voting for him despite being a democrat. Since the war and the daily debate over it-I don't know what to think anymore. To date there is no WMD. There is no clear link between Saddam and Al Queda. I doin't belive that we went in there for oil. I don't belive we're settling old scores. I don't belive that we're there cause Bush I wanted it. I don't know what to believe anymore. Why are we there? Is the war on terror justified when it has us Americans starting to scratch our heads in droves? Despite evidence to the contrary you seem to support this no matter what. Why?*******

I've been called every name in the book lately and "Big Bushie" is probably the least offensive one yet tendered. It's not so much that I 100% support Bush as much as it is my finding the groundswell of folks spewing vile lies and distortions every day, only to benefit themselves. If anyone honestly believes that John Kerry, Ted Kennedy, or George Soros gives a flying f**k about them, they've sniffed way too much balsa sealer. It's almost over for them.

There are links between Saddam and terrorism. Very, very obvious links. But let's not re-examine all of that today. There were trucks dispatched in the middle of the night to both Iran and Syria on the eve of the war. Some intelligence types think those trucks spirited the WMD out of the country. Are they correct? We might never know. And if we don't know, why the rush to convict? The "War for Oil" charge offered only because Bush has ties to oil men was convienient as all hell for his political foes, but the proof is in the pudding. One of Clinton's biggest campaign contributors was Tyson, the gigantic company known for it's chicken products. If one of Bill's numerous cruise missiles launched here, there, and seemingly everywhere had landed in a country that exported chickens, the "War for Chicken" accusations would have sounded equally preposturous when stacked against the dribble they accuse Bush of. Then there's the ridiculous "Daddy told him to do it," and "Junior is avenging his Dad" bullspit. You'd have to be a complete moron to have either of those accusations pass through your flapping lips. Lately, it seems as if we're living among quite a few morons.

Whacking Iraq was a two-pronged strategic move. The stated objective was that is necessary as part of the continuing war on terror. It's obvious that we could debate that until the camels come home, but I think it's already been done to death. It's a polarizing issue and it has many of us at each others throats as it is. I happen to believe that our intelligence agencies, our president, and his immediate underlings thought that this was the logical next step. And it would have sweeping and positive effects upon Iraq's neighbors if democracy actually one day graced a Middle Eastern country. With all of that said, let's move on to the other reason for the Iraq invasion. The other tip of the prong.

What we have here is a "War for Petrodollar Recycling." It's not a war for oil, it's a war to ensure that the U.S. dollar hegemony remains intact from the threat of the euro as an alternative oil transaction currency. The Euro, a common currency for 11 of the 15 member countries of the European Union, was launched on paper in 1999, marking an end to the US dollar's century-old hegemony as the leading reserve and trading unit. In 2001, the euro first appeared in wallets and cash registers. The occasion was heavily covered by the world media, but it's intent and the possible ramifications for this country were never once explained to the American public.

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.--Dr. Henry C.K. Lui

Our nationally elected leaders know the real deal. The European Union sure as hell understands what's afoot. OPEC knows what's going on. Our national politicos yammer on about social spending programs and pander for votes, while the greastest threat to this country's economic future recieves nary a mention. If OPEC as a group were to drop the dollar for the euro, this economy of ours would tank the very next day never to return anywhere near it's former might. In 2000, Saddam Hussein switched from the dollar to the euro as an act of defiance to the U.N. sanctions imposed upon Iraq and lobbied the remaining members of OPEC to follow suit, sooner rather than later. The countries hostile to the US are leaning towards making the switch. Others are biding their time as events play out all the while still contemplating it. Venezuela, a major oil exporter, dumped the dollar, ignored the euro and barters it's oil for imports. Many other countries are currently replacing the dollar with the euro, albeit incrementally. The result of this sea change that the American public knows little or nothing about is that the dollar is becoming less and less attractive and for every dollar replaced by the euro, more pressure is put on the dollar making further dumping of dollars the logical choice for foreign countries. It's a dangerous cycle and it will undermine our economy completely if the current trends proceed unabated.

Consider how our biggest European "allies" stood on the question of whether to invade Iraq. The French and the Germans dropped their currencies in favor of the euro. They were also dead set against the invasion. On the other hand, Britian did not abandon it's currency in favor of the euro and British troops rolled into Iraq with us. Why? Because if Iraq were to be turned into a stable democratic country free to ignore the oil producing quotas imposed upon it by OPEC, that would in affect drive a stake through the heart of OPEC and the oil quotas would be no more. The price of a barrel of crude oil would plummet to lows not seen since the early '70s according to most experts, and the switch as a group from the dollar to the euro would never come about. And the dollar hegemony would remain intact for the foreseeable future ensuring our economic might.

From what I've read, if OPEC were to switch to the euro, many of our major trading partners would be forced to follow suit and we would be in dire straights from an economic standpoint. The PHD bean counters mention massive inflationary pressures, a major upward spike in interest rates, a severe downward stock market correction, and a possible mass suicide at The Federal Reserve. Most also claim that Japan's fragile banking system would then go belly-up unless Japan immediately liquidated the 15% of the US securities it currently owns. That move would put even more downward pressure on the dollar. Is any of this starting to sound like fun?

Here's a scalding review of the current goings-on, but it does illustrate that our economy is a house of cards to some degree. You'll never hear that coming out of the mouths of our politicians. I regret that I lost the scrap of paper with the author's name on it, but here it is anyway:

One of the dirty little secrets of today's international order is that the rest of the globe could topple the United States from its hegemonic status whenever they so choose with a concerted abandonment of the dollar standard. This is America's preeminent, inescapable Achilles Heel for now and the foreseeable future.

That such a course hasn't been pursued to date bears more relation to the fact that other Westernized, highly developed nations haven't any interest to undergo the great disruptions which would follow -- but it could assuredly take place in the event that the consensus view coalesces of the United States as any sort of `rogue' nation. In other words, if the dangers of American global hegemony are ever perceived as a greater liability than the dangers of toppling the international order. The Bush administration and the neo-conservative movement has set out on a multiple-front course to ensure that this cannot take place, in brief by a graduated assertion of military hegemony atop the existent economic hegemony.

There are many who claim that an agreement can be negotiated whereas both the euro and the dollar capture an equal share of the world's petrodollars and such, but the fact is, Europe as a whole faces an impending financial nightmare of it's own after decades of failed and expensive socialist policies. One only needs to investigate the European, government-paid pension plans to see the writing on the wall. The euro was introduced for a reason and that reason was to bail Europe out of it's financial morass at our expense.

More from our aforementioned, yet unknown author:

A multilateral approach to these core problems is the only way to proceed. The US is strong enough to dominate the world militarily. Economically it is in decline, less and less competitive, and increasingly in debt. The Bush peoples' intention appears to be to override economic realities with military ones, as if there were no risk of economic retribution.

Therein lies a Catch-22 of sorts. The Euro was originally launched to directly challenge the dollar hegemony, and the numbers show it's gone from 15% of all reserves and trading in 2001, to 25% in 2003. It is slowly, but surely erroding our economic might. Would negotiating with the European Union cause them to suddenly abandon their plan to replace the dollar with the euro? I may not be an economist, but I'm not feeling very optimistic about that coming about in this lifetime. And yet, if we work to stop OPEC from adopting the euro, an economic backlash could come about in response to those efforts.

Short of driving a stake through the heart of OPEC and their expected switch to the euro, what other options do we have to protect our economy from the slipping dollar and the increasing strength of the euro? All of the data I've read points to three things that are absolutely crucial to continue our economic health in the face of the euro challenge. Are you ready for this?

1. The US must produce nothing but balanced budgets for the foreseeable future and then some.

2. The US must commit itself to reducing it's overall debt for the foreseeable future and then some.

3. The US must reduce it's dependancy on foreign oil almost overnight.

Okay. Back to reality, kiddies. Be honest with yourself. Are those three things even remotely possible right now? Politicos have been reduced to producing pork for their constituents and little else these days. Is our congressman or senator gonna tell us that we'll have to put up with less for years on end while everyone seems to be clamoring for more and more from Washington? Ain't gonna happen.

How do we balance our budget while politicos are promising free this, that, and everything to the folks too lazy, or too stupid to provide it for themselves. How do we acccomplish any serious reduction in debt when our politicos are dreaming up new spending programs at a rate faster than the speed of light? And how the heck do we reduce our dependency on foreign oil in a major hurry when we can't even allow ourselves to drill for oil, build a nuclear plant, or utilize cleaner coal technology?

Can we foresee 50% of all Americans driving hydrogen-powered cars, or whatever muckity-muck thingie they dream up within five years or so? How about riding mountain bikes to work? Try to erect a few wind turbines on your property to produce your own electricity. The zoning laws will shoot that down in a heartbeat. Our politicos have yammered on and on about alternative fuel sources for thirty years or so, but what have they done to make that happen in any significant sense? Try next to nothing. A few have in the past, but it never seemed to be a pressing priority to the majority of them while the dollar dominated the world. Now, the dollar is being seriously challenged and in effect, so is our entire economic base.

So, what to do about it? Should we negotiate with the Europeans who are quietly working to replace us as the world's pre-eminent economic power? Do we continue to pretend that we're really not OPEC's hostage any time they so choose (oil embargo). Should we consider any impending switch by OPEC to the euro has a hostile act? As far as the latter is concerned, it depends on who you might consult with.

Three of the last remaining holdouts, I believe them to be England, Belgium, and Switzerland with be jumping on the euro train soon enough; and then a more unified European Union should be expected to put even more downward pressure on the dollar. What should we do about it at that point? Have John Kerry reverse that trend with a major waffling initiative? Send Bill Clinton and Jesse Jackson to talk them out of it? Have Jimmy Carter lean on them?

I am by no means suggesting that we need to expand our economy by expanding our military objectives, I'm just pointing out that there's more going on here than most Americans realize. And that's their own fault. If we watch CNN for an hour each day and tend to believe what some politician has to say in a ten second soundbite, we are extremely ill-informed, if not downright ignorant of the bigger picture.

And even if our sole purpose for invading Iraq was to reverse the growing influence of the euro, no one can point at George Bush and call him a liar. Every single one of our elected officials worth his weight in anthracite knows whats going on. They simply neglected to mention it to any of us. What do we care anyway? We've got our Hummers, and our beer, and our NASCAR on Sundays. We're the United States. No one could ever take any of that away from us. Right? Euro, schmeuro! Supreme Elimination Challenge is coming on. It's time to watch those Japs make asses of themselves.

A war for oil? Daddy told him to do it? A long-standing vendetta? Before spouting off in the future, before repeating what you heard on MSNBC, do a minimal bit of homework first. Geopolitics is much, much too complicated to be fully explained in one edition of Crossfire.

Did I give ya'll something else to think about?

Happy Easter!