BRICS Wants to Get Rid of Dollar - May, 2011

Figuring out how to divorce the US dollar without suffering nasty repercussions is fast becoming a popular sport in the world these days - as well as the main hope for the new century. BRICS (Brazil, Russia, India, China and now South Africa) has again announced that they are planning to rid their financial systems of the US dollar. Despite their well justified intentions, doing such a thing won't be an easy task primarily because all roads lead to Washington.

In fact, since the financial merger of the British Empire with that of the fledgling American Empire starting some 120 years ago, coupled with the defeat of National Socialism in Europe and the collapse of the Soviet Union - all financial roads have led to the Western alliance.

Attempting to breakaway from Western hegemony has essentially been the main cause for some of the most violent wars we have experienced during the past one hundred years. Therefore, the freedom agenda of BRICS will naturally be implemented very carefully and gradually. Nevertheless, what growing economies of the world intend on doing today is a very clear sign that the decline of the West and rise of the rest is upon us.

Simply put, the world community has had enough of the US Dollar's absolute rule with its destructive and corrosive side-effects. Although still in its infancy, BRICS countries are essentially laying the very foundation of a much desirable multi-polar political system for the twenty-first century. As a result, the Anglo-American-Zionist alliance, the global financial/political order that has more-or-less exploited the globe for the past one hundred years will be left with two options: rollover and die or strike back with a vengeance. 
Having studied the modus operandi of the Western alliance, I think I will be bracing myself for major future wars. The West will go on the offensive to ensure the preservation of their wealth and power; something they have been accumulating uninterruptedly for the past several hundreds years.

What's interesting here is that nations wanting to dump the US Dollar in international trade would simply have been unthinkable just ten years ago. The mere mention of chipping away at Washington's financial death grip on the world could trigger a nasty response - either by the far reaching fangs of the US military or by Washington's other weapon-of-mass-destruction, the IMF.

Not any more!

The Western alliance has overextended itself in all respects. The Western alliance is vulnerable today. Major geopolitical shifts have caused major political realignments across the world during the past several years. In these times of great economic tension, emerging nations (primarily Russia, China and India) are now publicly discussing the prospects of dumping the US Dollar as the global reserve currency. If they prove successful, other will surely follow.

Much of Western power in the world is rooted in the US Dollar's role as the global reserve currency. This has been the case for nearly seventy years. Needless to say, the West benefited immensely as a result of this financial system it had forced upon the world, naturally at the expense of the world. Now, the West has a serious long-term predicament. With the threat of National Socialism and Communism long gone, how will the West manage to preserve its global system (as well as its living standards) in a fast changing world?

The only way the Western alliance will be able to continue maintaining its iron grip on global commerce is simply by continuing to impose the supremacy of the US Dollar - by the use of force.
In other words - by dollar imperialism! Newly formed alliances like BRICS, SCO and CIS may prove to be the desperately needed antidote against the Western alliance and its form of neo-Bolshevism, popularly known around the world as Globalism. And in a clear sign that the newly forming economic union in question is taking on political manifestations as well, BRICS nations took the opportunity at their recent meeting to speak strongly against Western aggression against Libya.

Do reasons for the Western aggression against Libya go beyond the obvious "oil" factor?
Is the neoimperialistic war currently being waged against Libya by the Western alliance a long-term measure to protect the primacy of the US dollar?

According to experts interviewed by Russia's state-funded news agency, Russia Today (RT), in addition to stealing Libya's large money reserves and its natural wealth, dollar imperialism may indeed be one of the underlying reasons behind the Western aggression against Libya. As many of us are aware, there is nothing new here in Western global affairs. Protecting the US dollar's global stature was also one of the main strategic reasons why the Western alliance destroyed Iraq. See the article posted at the bottom of this page for more information.

Anyway, leave it up to RT to publicly discuss such matters. Although it does not have the global audience of BBC or the bells-and-whistles of CNN, Russia's humble RT has become perhaps the most important English language news agency in the world today - at least for those who don't enjoy having their intelligence constantly insulted by ringmasters in Western news media. The following interviews and analysis are crucially important perspectives on current global affairs, a different perspective the American public is intentionally being deprived of by the government censored mainstream news media.

May, 2011

CrossTalk: BRICS-by-Brick:

Rise of the BRICS: 'Asian DAVOS' steps through the ropes:

Gaddafi gold-for-oil, dollar-doom plans behind Libya 'mission'?:
'Arab Spring false flag from start, Libya ultimate goal all along':

'Libya & Syria steps in West's way to challenge China':

US dollar to die out in oil deals?

Medvedev calls for use of national currencies in trade:

Putin ditches dollar, backs Euro on trip to Germany:

Max Keiser: Teutonic Genie out of bottle, America punches itself in face:

Robert Fisk on the Gulf 'ditching the dollar' in oil trade:

Max Keiser
: Dollar to be buried way before 2018:

Marc Faber Says America Will Launch More Wars to Distract from Bad Economy:

Marc Faber, Emerging Market Economies Will Challenge and Surpass the West, Sept 22, 2009:


BRICS Wants to Get Rid of Dollar
Vladimir Osakovsky, chief economist of UniCredit Bank, Russia:

Obviously, the main goal of this decision (reforming of international monetary and financial system by the BRICS countries) is to boost the international importance of the national currencies of the BRICS countries, but basically the greater usage of the national currencies in international settlement and international transactions will clearly increase the demand for these currencies and, possibly, at the expense of the global reserve currency which is the USD. So I guess one of the targets of this decision is to replace dollar as a settlement currency between these countries. This idea is not new I would say we had similar initiatives on bilateral basis between Russia and China for example or China and other countries.

This decision is a continuation of earlier efforts. Why not? I don’t see any reasons why it shouldn’t be successful, for example the yuan and Russian ruble is already actively used for the international trade between these two countries, Russia and China, and respective currencies of other BRICS can be used in international settlements between other countries as well. One of the constraining reasons could be that the trade flows between BRICS countries, that happen between China and Brazil or Brazil and India something like that, are not that significant at the moment. I think this decision might, actually, support the extension of international trade between these countries.To find out more on the issue, listen to our In Focus program from April 14, 2011 in Radio section.


BRICS Rails at Financial Status Quo
BRICS leaders lining up for a photo session in this mobile phone snapshot taken Thursday during their joint conference in the Chinese city of Sanya.

President Dmitry Medvedev and other BRICS leaders called for sweeping reforms of international financial mechanisms, hinted at displacing the U.S. dollar as the world's major trade currency and condemned the NATO bombing of Libya at a summit of leading emerging economies in China on Thursday, but there were few actions to match the words. Speaking at the summit of Brazil, Russia, India, China and South Africa in Sanya, China, Medvedev said he and his Chinese counterpart Hu Jintao had "agreed to intensify work on the eastern and western gas supply routes before the end of the year" during a bilateral meeting earlier in the day.

"We are talking about this year, I mean the basic conditions for approval. Naturally, the deliveries will begin later," he told reporters, adding that, although each side would push its own business interests in price negotiations, positions had generally moved closer. China is a growing foreign policy priority for Russia. It is the world's biggest energy consumer and became Russia's main trading partner last year. Medvedev promised during a visit to Beijing in September to supply China with all the gas it needs for economic development.

In 2009, China extended a $25 billion preferential-rate loan to Rosneft and Transneft in exchange for a 20-year oil supply contract. Medvedev will go on an extended visit to China, following the BRICS meeting, with an appearance at China's Boao Forum and a visit to Hong Kong on Saturday. Although the BRICS forum had criticized the world's reliance on the U.S. dollar, Medvedev played down speculation that the five countries might adopt the Chinese yuan as a trade currency.

"Of course, the Chinese economy is huge, and in this sense the role of the yuan is growing, but we haven't made any special decisions regarding the yuan, nor are they being discussed," he told reporters.

Earlier Thursday, the five countries signed a memorandum on cooperation among their national financial development institutions that paves the way for the countries to grant one another loans in their national currencies. Vladimir Dmitriyev, head of Vneshekonombank, told Interfax that the document marked "the first practical step toward using national currencies in economic cooperation between these countries." China Development Bank was the first institution to take advantage of the new measures, saying it was ready to extend 10 billion yuan in loans to Brazil, Russia, India and South Africa.

The loans are expected to focus on large oil and natural gas projects. China Development Bank chief Chen Yuan cited deepening cooperation with Brazil's Petro Bas when asked for specifics, Reuters reported. No specific deals relating to Russian companies have emerged so far. Medvedev also held bilateral meetings with Hu, Brazilian President Dilma Rousseff, Indian Prime Minister Manmohan Singh and South African President Jacob Zuma during the meeting. Thursday's was the first summit since South Africa joined the club of emerging economies, prompting Medvedev to make a flat joke.

"I don't know who came up with the BRIC abbreviation … but we've come up with a different acronym, and it has already become quite popular." "After the accession of South Africa, the Russian abbreviation BRYuKI emerged," Medvedev told reporters in Sanya, China. Bryuki means "pants" in Russian.

It may have been a weak joke, but he was right to say the group has changed. BRIC — Brazil, Russia, India and China — was born as an acronym thought up by Goldman Sachs economist Jim O'Neill as shorthand for the world's leading emerging markets. But it has become a club for countries — including now South Africa — with a common interest in turning their growing economic strength into political clout on the world stage. All five are currently members of the UN Security Council.

In this spirit, the five issued a joint statement calling for an overhaul of the international financial system and reform of the International Monetary Fund, criticizing dependence on traditional reserve currencies like the U.S. dollar and condemning NATO-led air strikes against Libya.

"This is not a format where countries decide things; it is much more about showing the emergence of new structures as opposed to old organizations," said Fyodor Lukyanov, editor-in-chief of Russia in Global Affairs. Nonetheless, there are differences in the group. In the March 17 Security Council vote authorizing military action in Libya, Brazil, Russia, India and China abstained. South Africa voted in favor, along with other African Union countries.


BRICS Growing in Stature

A couple of years ago, when we offered a BRIC MarketSafe CD… I would talk to groups of people, and warn them that the BRICs not only hold the reserves of the world, but have a large percentage of the world’s population, and they would love nothing more than to be looked at as the “leaders of the world”… OK… There’s a BRIC Conference going on, so let’s see what’s on their minds… But first, let’s look at the markets – specifically those of currencies and metals… Well, that bias to sell dollars that I talked about yesterday didn’t last too long into the morning, and by noon, the currencies were weaker. Gold and silver remained bid, but not well bid, as they had been in the early morning. In the overnight markets, the currencies have been all over the place… The trading ranges have been blown out, and one minute you see the currencies rally, and the next you see them sell off… It’s been pretty amazing watching this since I arrived here and climbed into the saddle this morning.

And… We got to see the color of the president’s plan to cut the deficit… The president unveiled a framework Wednesday to reduce borrowing over the next 12 years by $4 trillion – a goal that falls short of targets set by his deficit commission and House Republicans – and called for a new congressional commission to help develop a plan to get there. In his most ambitious effort to claim the mantle of deficit cutter, Obama proposed sharp new cuts to domestic and military spending, and an overhaul of the tax code that would raise fresh revenue. But he steered clear of fundamental changes to Medicare, Medicaid and Social Security – the primary drivers of future spending.

So… We get another “commission” to develop the plan.. What happened to the previous commission? Hey, as I shrug my shoulders, at least someone in Washington DC is looking at this ever exploding deficit, and thinking that something should be done about it… And the overhaul of the tax code? Oh brother! Did he really say that “we all have a secret desire to pay more taxes”? Can I answer that one? NOT! In the case of the deficit, personally, I believe it needs to start at the annual budget… When you can tame that monster, then it will flow to the national deficit… But that’s just me thinking logically…because… If you don’t tame the monster at the budget level, you won’t make the necessary cuts on the national debt level… It’s that simple… Or at least that’s how I see it…

OK… Let’s get to the BRICs, and see what’s up with these wild and crazy guys! Well… First of all, the BRIC countries (Brazil, Russia, India and China) have added a new member, and now they are the BRICS with a capital “S” representing South Africa… And they are pounding their chests with new data that shows that the BRICS’ combined economies will eclipse the US economy in 2014, and by 2016, they will be putting 100 miles of desert between their economies and that of the US ($21 trillion versus $18.8 trillion)… Of course those are projected numbers, so there could be some changes…

But nonetheless, these countries are the straws that stir the global growth drink… Their problem, though, is how they act as a group, when they have very different political systems and economies? But for now the BRICS are feeling strong, and making statements like: The BRICS want to put an end to the dominance of the Western economies… And “the BRICS oppose use of force in Libya.” This just shows me that they are feeling like they are strong enough now to direct things… I don’t think that the time is here… The most important thing about the strength of the BRICS is that they will have a lot of pull in the future, to demand what currency is considered the reserve currency of the world… Think about that for a minute, folks… I don’t know about you, but it puts shivers down my spine!

OK… Let’s talk about something else besides BRICS! Let’s see… Oh! Here we go… You’re going to like this one, kids… European Central Bank (ECB) Board member Bini Smaghi was talking last night and said that further ECB rate hikes would depend on “the economy and inflation.” He went on to note that, in trade-weighted terms, the euro (EUR) is roughly in line with its level in 2005 and in real effective terms is still 10% below the level at that time. Personally, I think that we’re hearing central bank parlance from this ECB member that the euro doesn’t enter into the decision for rate moves. That’s a good thing to know up front, because with the euro above 1.40 (currently 1.44), it’s above the ECB’s comfort level for the currency, but that did not enter into the discussion of the recent rate hike… I like knowing that, for when we get to June or July, and the ECB is greasing the tracks of another rate hike, if the euro is stronger than it is now, we don’t have to worry about that getting in the way!

And, there was an interesting thing that happened overnight in Asia… The Monetary Authority of Singapore (MAS) announced that they would re-center the currency band, and allow faster appreciation of the Singapore dollar (SGD), to help combat inflation. This was in reaction to the news that the Singapore economy grew at an annualized rate of +23.5%, more than double the forecasts for +11.4% growth! WOW! The Sing dollar rallied on the announcements. For some time now, I’ve stated at this time and place, with the Chinese renminbi (CNY) still manipulated every day and traded on a non-deliverable forward, that I prefer the Sing dollar as a proxy for Chinese renminbi appreciation… These Asian countries will all keep their currencies going in the same direction, as they are all in competition for exports… And the MAS does something that most countries don’t have a clue about, and that is… Using the Sing dollar’s strength to help offset inflation.

I also saw a blurb go across the screens yesterday regarding Indian investors and silver… According to the FT, Indian investors, long known for their enthusiasm for gold, are switching to silver bullion, as they expect it to generate higher returns… I wonder if they read that in the Pfennig, or the NewsMax story that I appeared in, claiming that silver was the new gold? HA! This morning, the US data cupboard will print March PPI, which is expected to continue to show increases in wholesale inflation… Yesterday, the data cupboard printed March retail sales, which were less than forecast at 0.4%, less autos they were 0.8%… A major contributor to the sales were gas receipts… Which is not a good thing for our economy, as we’re spending our disposable income on gas, which lasts about a week in the gas tank, and then is gone, used up… And all the other things that consumers would normally be spending their hard earned cash on, get passed by, because there’s nothing left for them…

Speaking of gas… Have you heard of the new “gas coupon”… You probably already have a few of them in your pocket, and didn’t realize that they were “gas coupons”… Look again, they have President Lincoln on the face… OOPS! Those are $5 bills! HA! There will be some Fed Heads on the speaking circuit today… They are all hawks, so look for more talk about ending QE2 early… It’s not going to happen, but they can talk about it to make themselves feel good… Sort of like buying a HYBRID SUV… HA! Then there was this… From The Telegraph, as quoted by Bill Bonner in his essay “Government Spending and the Path to Money Printing” in yesterday’s Daily Reckoning
The Centre for Economics and Business Research (CEBR) said soaring inflation coupled with low pay rises means household peacetime disposable income is at its lowest since 1921. Rising food, clothing and energy prices mean the average British family will have £910 less to spend this year than they did in 2009. The CEBR calculates that household disposable income will fall by 2pc this year, more than double last year’s fall of 0.8pc and the biggest drop since the savage 1919 to 1921 post-First World War recession. It forecasts inflation will average 3.9pc in 2011, its highest since 1992, as January’s increase in VAT from 17.5pc to 20pc and the rising cost of oil and other commodities continue to drive up prices. At the same time, salaries will rise just 1.9pc as unemployment remains high and the public sector makes cutbacks.
Geez, Louise… This is not getting any better is it? To recap… The bias to sell dollars was taken off the table yesterday mid-morning. I think it’s more of a reaction to the fact that the currencies moved too far, too fast, and needed to retrace some steps… The president announced a plan to reduce the deficit by $4 trillion over 12 years… UGH! The BRIC countries added an “S” to make BRICS, with the “S” representing South Africa. The BRICS just concluded a meeting of the countries, and they are feeling their oats a bit, making statements about the West, etc. Indians are opting for silver this year, instead of gold, and the MAS will allow faster appreciation of the Singapore dollar after Singapore’s economy grew +23%!


Leaders at BRICS Summit speak out against airstrikes in Libya

A leadership summit of five emerging economic powers took a decidedly political turn on Thursday, going beyond customary economic issues with a joint declaration against Western-led airstrikes in Libya and urging a peaceful solution to the conflict. "We share the principle that the use of force should be avoided," the heads of state of Brazil, Russia, India, China and South Africa declared in the Sanya Declaration, which was issued at the conclusion of the annual BRICS Summit in this southern China resort city.

Earlier this year, Brazil, Russia, India and China abstained from voting on a United Nations Security Council resolution that authorized a no-fly zone over Libya. By contrast, South Africa had voted in favor of the resolution. This is the third annual BRICS Summit, which adopted a new acronym after South Africa joined Brazil, Russia, India and China for the first time. Chinese President Hu Jintao chaired the one-day meeting, which was also attended by South African President Jacob Zuma, Russian President Dmitry Medvedev, Brazilian President Dilma Rousseff, Indian Prime Minister Manmohan Singh and a host of cabinet-level representatives.

This year, the BRICS countries angled for greater collective influence in political affairs. Hu, China's president, called for cooperation to increase the influence of emerging economies in international institutions such as the United Nations and the World Bank. In the joint declaration, the five countries specifically called for reform and diversification of the UN Security Council by adding more emerging economies so "it can deal with today's global challenges more successfully."

"We underscore our support for multilateralism and the UN system but also agree on the need for the UN, including the UN Security Council, to make it more representative and effective," said South African President Jacob Zuma. Indian Minister of Commerce Anand Sharma agreed. "This platform as such can make a significant and defining contribution to the global architecture as the world is seeing a major shift," Sharma told CNN. The BRICS countries also agreed to use their own currencies in place of the U.S. dollar when issuing credit or grants to one another. The declaration, which called for a broad-based international reserve currency system, asserted that such a move would provide more stability and certainty for emerging economies.

While the summit focused on major areas of agreement between the five countries, it was apparent that the meeting purposefully steered clear of controversial topics that still plague this diverse group of nations. Controversial issues directly related to trade, including currency valuation, were pointedly avoided on Thursday. "As of now, there has been no debate on this issue," Yu Ping, Vice Chairman of the China Council for the Promotion of International Trade, told CNN on Thursday. Brazil, which has been sharply critical of the way China values its currency, avoided direct comment.

"Brazil has to do what Brazil has to do," said Luciano Coutinho, President of the Brazilian National Development Bank. "We cannot expect others to take care of our problems." Together, the BRICS countries account for 40% of the world's population, and their combined economic output neared one-fifth of global GDP in 2010. The BRICS countries are expected to pass the G-7's output by 2035, according to official statistics published by the summit. Next year's BRICS Summit will be hosted in India.

BRIC becoming BRICS is a development of geopolitical significance

The world's four main emerging economic powers, known by the acronym BRIC, standing for Brazil, Russia, India and China, now refer to themselves as BRICS. The capital S in BRICS stands for South Africa, which formally joined the four on December 24th 2010, bringing Africa into this important organization of rising global powers from Asia, Latin America and Europe.

Mr Jacob Zuma President of South Africa is expected to attend the BRICS April meeting in Beijing as a full member. This is a development of geopolitical significance, and it has doubtless intensified frustrations in Washington. The US has been concerned about the growing economic and political strength of the BRIC countries for several years. In 2008, for instance, the National Intelligence Council produced a document titled Global Trends 2025 that predicted:

The whole international system, as constructed following WW II, will be revolutionized. Not only will new players, Brazil, Russia, India and China, have a seat at the international high table, they will bring new stakes and rules of the game. More recently, the US edition of the conservative British weekly The Economist noted in its January 1st 2011 issue that America's influence has dwindled everywhere with the financial crisis and the rise of emerging powers.

The US is still the dominating global hegemon, but a swiftly changing world situation is taking place as Washington’s economic and political influence is declining, even as it remains the unmatched military superpower. America suffers from low growth, extreme indebtedness, imperial overreach, and virtual political paralysis at home while spending a trillion dollars a year on wars of choice, maintaining the Pentagon military machine, and on various other national security projects.

The BRICS countries, by their very existence, their rapid economic growth and degree of independence from Washington, are contributing to the transformation of today's unipolar world order, still led exclusively by the United States, into a multipolar system where several countries and blocs will share global leadership. This is a major aim of BRICS, which recognizes it's a rocky, long road ahead because those who cling to empire are very difficult to dislodge before they swiftly disintegrate.

Looking down that road the next few decades, it is imperative to contemplate two potentially game changing events that will heavily impact global politics, and the future of world leadership.

1. The rate of petroleum extraction will soon reach the beginning of terminal decline, known as peak oil. This means more than half the world's petroleum reserves will have been depleted, leading inevitably to much higher oil prices and severe shortages. Under prevailing global conditions, this will greatly exacerbate tensions between major oil consuming countries leading to wars for energy resources

One resource war already has taken place, the Bush Administration’s bungled invasion of Iraq, which possesses the world's fourth largest reserves of petroleum and tenth largest of natural gas. Since the US with less than 5% of world population absorbs nearly 30% of the planet’s crude oil, who's Washington's next target Iran? Behind the U.S.-Israeli smokescreen of alleged Iranian aggression and supposed nefarious nuclear ambitions, repose the world's third largest proven oil reserves and second largest natural gas reserves.

In 2009, the US, with a population of 300 million, consumed 18.7 million barrels of oil a day, the world’s highest percentage. The second highest, the European Union with a population of 500 million, consumed 13.7 barrels a day. China with a population of 1.4 billion people was third, consuming 8.2 million barrels. BRICS, incidentally, includes the country with the world's first largest natural gas reserves, Russia.

2. Equally dangerous, and perhaps much more so, is the probability of disastrous climate change in the next few decades, the initial effects of which have already arrived and are causing havoc with weather patterns. This situation will get much worse since the industrialized world, following slothful US leadership, has done hardly anything to reduce its use of coal, oil and natural gas fossil fuels that are mainly responsible for climate change.

Another climate question is whether the capitalist system itself is capable of taking the steps necessary to dramatically reduce dependence on greenhouse gas emissions as the socialists maintain. Eventually, under far better global leadership, some serious action must be taken, but the damage done until that point may not be rectified for centuries, if not longer. The question of better global leadership depends to a large degree on the outcome of the uni polar multi polar debate.

Returning to the immediate problem, Washington not only opposes BRICS' preference for multipolarity, but is disgruntled by some of its political views. For instance, the group does not share America's antagonism toward Iran, President Mr Barack Obama's whipping boy of the moment. BRICS also lacks enthusiasm for America's wars in Central Asia and the Middle East and maintains friendly relations with the oppressed Palestinians. The five nation emerging group further leans toward replacing the US dollar as the world's reserve currency with a basket of currencies not preferential to any one country, as is the present system toward the US, or perhaps even a non national global reserve legal tender.

BRICS, as an organization, had a most unusual birthing. The group was brought into the world, so to speak, without the knowledge of its members. The event took place in 2001 when an economist with the investment powerhouse Goldman Sachs created the BRIC acronym and identified the four countries together as a lucrative investment opportunity for the company’s clients based on the enormity of their combined Gross Domestic Products and the probability of increasing growth.

Neither Brazil, Russia, India nor China played a role in this process, but they took note of their enhanced status as the BRICs and recognized that they shared many similarities in outlook as well as significant differences in their types of government and economic specialties.

The main similarity was that they were emerging societies with growing economies and influence, and they viewed Washington’s unilateral world leadership as a temporary condition brought about by accident two decades earlier due to the implosion of the Soviet Union and most of the socialist world. They all seek a broader, more equitable world leadership arrangement within which they and others will play a role.

All five BRICS states, three of whom possess nuclear arsenals, maintain essentially cordial relations with the U.S. and try to avoid antagonizing the world superpower.

Despite productive working relations between the US and Russia, Moscow justly perceives Washington to be an implicit threat that seeks to neutralize, if it cannot dominate, it is now reviving former Cold War opponent. The Russian leadership seems to view the US as a strategically declining imperialist power, perhaps all the more dangerous for its predicament.



The Demise of the Dollar

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars. The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East. China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets. "These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
Report: Secret Plot Against Dollar

A report published Tuesday by a British newspaper sent shockwaves across the world. The Independent story, entitled "The demise of the dollar," claimed that several key governments around the world were conspiring in secret meetings to stop trading oil in U.S. federal reserve notes. Calling it a “graphic illustration of the new world order,” the paper reported that Arab governments, China, Russia and even France and Japan would drop the dollar and start pricing oil with a basket of currencies — the Japanese yen, Chinese yuan, the euro and a new currency being created for members of the Gulf Co-operation Council that includes Saudi Arabia, Kuwait, and Qatar. The report was mostly based on unnamed Arab and Chinese banking sources.

According to The Independent, the secret meetings between finance ministers and central bankers have already been held. The transition should be complete following a nine-year timeline, with a deadline of 2018. And American officials know of the plan and the meetings, though not the details, the paper reported. "These plans will change the face of international financial transactions," an anonymous Chinese banker told The Independent. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

Immediately after the news broke, representatives from at least Kuwait and Saudi Arabia claimed that the report was inaccurate. "At our level, no," said Kuwait’s oil minister, Sheik Ahmed Al Abdullah Al Sabah, according to an Associated Press report entitled ‘Officials deny UK media report on move from dollar.’ "I didn't even dream about it." Gold hit a record high at over $1,040 an ounce amidst the news, while the dollar fell sharply against world currencies. A Reuters analysis of the report about the secret meetings claimed it was “a potentially major sign of the greenback's fading status.” The research director from called it “another chapter in the plot against the dollar as the world’s most dominant reserve currency.”

This would certainly not be the first call to end the dominance of U.S. currency in world trade. The United Nations recently called for creating a new global monetary system, while Russia and China have both called for an end to dollar hegemony. Officials around the world have also expressed deep concern about the Federal Reserve’s inflationary policies and artificially low interest rates. The Independent article also highlighted an alleged potential for military and economic confrontations between the United States and China, citing statements made by government officials. "Bilateral quarrels and clashes are unavoidable," China’s former special envoy to the Middle East told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

Diversifying away from the dollar will be a tricky undertaking for countries like China, Japan, and the Gulf Arab states. They hold trillions of dollars in reserves, and if they started selling rapidly, the price would tank, eroding a significant part of the value of their reserves. But it is not impossible, or even unthinkable. If and when the world does ultimately abandon the dollar, it will be bad news for the American economy. Faced with the prospect of rising prices for imports and a manufacturing base that has been shipped abroad, consumers will find themselves increasingly strapped for purchasing power. But with the Federal Reserve printing debt-money like it’s going out of style, can anyone really blame other countries for wanting to get out?


Time For a Gold Rouble?

There used to be a habit of framing old Tsarist bonds and putting them on the wall. Lenin's decision to renege on the Russian imperial debt meant that it became mere paper, interesting only as a historical relic. In the light of the recent financial crisis in the USA, could the same thing happen now to the bonds issued by the American government, and could the country which has dominated the world for the last half century now enter history as a bankrupt state? And what can Russia do in the circumstances?

The decision by the US government to inject $700 billion into the financial system means that the already gigantic annual budget deficit of the American state (previously some $450 billion a year) will now rise by a factor of three. The total state debt of the USA will rise to well over $11 trillion. It is obvious that such a colossal debt can never be repaid. Instead, it will be serviced by more debt in the future. The contrast with Russia, which has painstakingly sanitised its state finances to the point that it now has more money to lend than the IMF, could hardly be greater. The recent financial crisis itself grew out of this American culture of debt. To some extent, all countries share it: since 1914, all countries use paper currencies, i.e. debt instruments which are never redeemed. Whereas before the First World War, bank notes were essentially vouchers for specific amounts of gold cash, now the "promise to pay the bearer" (which remains inscribed on British bank notes) is in fact hollow.

In America, this basic culture of debt is aggravated by the fact that other countries use the dollar itself as a reserve. This means that the United States can export dollars in order to pay for its imports without the dollar losing value. Other states also need dollars to buy key commodities like oil. The USA can therefore export paper currency almost indefinitely - the famous "deficit without tears" analysed by the great French economist, Jacques Rueff. Naturally, if the state itself encourages such a culture of debt by issuing unredeemable paper currency to pay for imports, and by accumulating such mountains of debt, then it is no surprise if the American financial markets themselves operate on the same basis. But the collapse of those markets is only a symptom of a much deeper problem, the basic insolvency of the American state itself.

What can Russia do about this? At first sight, Russia's role in the international financial system does not seem very large. However, as a major exporter of hydrocarbons, her role in the world economy is actually very important. As the age of the dollar draws to a close, Russia will have to consider selling her oil and gas not in the devalued American currency, but instead in the euro used by most of her customers. It is surely unnatural for two geographical neighbours to do such large volumes of business using the currency of a distant and now ailing nation. Second, the Russian leaders might also consider making their own currency, the rouble, convertible into gold. The idea of gold convertible currencies is extremely unpopular among most economists: they dismiss gold as a "barbarous relic" (to use the famous phrase of John Maynard Keynes) and suggest either the present regime of paper currencies or, at best, a link to a basket of commodities.

Both these solutions are highly artificial and based on the same level of state control which has now just so spectacularly failed. Indeed, which is more "barbarous" - the reintroduction of gold as an instrument of payment, or the practice of amassing huge quantities of the precious metal to keep it locked underground in the vaults of central banks? The contempt of the Keynesians notwithstanding, it is an indisputable fact that gold does remain the ultimate store of value, which is precisely why states own so much of it. Russia has less to fear than other countries from the introduction of a currency convertible into gold. Governments are typically hostile to gold because it reduces their discretionary power over the currency and the economy: they say that the money supply cannot be made dependent on the production of gold mines. In reality, this argument is bogus because the amount of mined gold already in existence vastly exceeds the yearly production, so mining does not in fact have an appreciable impact on supply. But, as it happens, Russia is a major producer of gold anyway and therefore to some extent controls production.

Secondly, Russia is vulnerable to her status as an exporter of primary materials - and as an exporter generally - especially in the age of inflation which is about to dawn. The more the Russian economy exports, the more her national paper currency will rise, making those exports more expensive. This is bad for an export-oriented economy. By contrast, the value of a gold rouble would depend not on the trade balance of the Russian economy at all, but instead simply on the price of gold itself which generally remains stable with relation to other commodities. Russia has shown surprising success in putting an end to the unipolar world of which American strategists have dreamed now for over a decade. There are no permanent victories in diplomacy, however, but a shift in the structure of the world financial system would help to entrench recent gains.


Moscow Says U.S. Leadership Era Is Ending

Perhaps inevitably for a country often lectured by the United States about its own economy, Russia is using the occasion of the American financial crisis to do some lecturing of its own. President Dmitri A. Medvedev has blamed what he called financial “egoism” for the crisis and said it should be taken as a sign that America’s global economic leadership was drawing to a close. Along with some European leaders, Mr. Medvedev has called for greater multilateralism in financial regulation, echoing a Russian position on international relations generally. “The times when one economy and one country dominated are gone for good,” he said Thursday at St. Petersburg State University during the eighth annual Petersburger Dialog, a forum devoted to developing relations with Germany. After the American banking collapses, he said, the world does not want America as a “megaregulator.”

Chancellor Angela Merkel of Germany, in Russia for the forum, said Germany, too, would “always support a multilateral approach” to market regulation. Along with the Germans and others, Russian leaders contend that poorly regulated American markets caused the current crisis. While it is hardly a new sentiment, in Russia there is a gloating quality, as the American crisis deepens. There has been a drumbeat of pronouncements in recent days on this theme. Prime Minister Vladimir V. Putin made a speech about what he called American financial “irresponsibility” on Wednesday, blaming non-Russian causes for Russia’s stock plunge of more than 50 percent. Of the financial crisis, he said, “This is not the irresponsibility of some people but the irresponsibility of the system, which as it is known, claimed to be the leader.” In contrast to the Europeans who have also criticized lax American regulation, however, Russians are facing a financial system that has been in such chaos that regulators suspended trading on the stock market three times last month. The global credit crisis could trim about 1 percent from Russian growth next year, said the finance minister, Aleksei L. Kudrin.

As in other emerging markets, investors are pulling money out of Russia and depositing it in United States Treasury securities because they are considered the safest place to park money. By the time Mr. Medvedev spoke on Thursday, investors had pulled about $52 billion in net private capital out of Russia since the second week of August, when the war in Georgia and political tension with the West heightened concern about political risk here. The criticism of American finance coincided with a rise in Russian military bluster that has been viewed by some in the West as a resurgence of the Kremlin’s cold-war mentality. On Thursday, Russian generals announced plans for the largest air force exercise since the collapse of the Soviet Union, called Stability 2008, to be held next week. Also on Thursday, the deputy commander of Russia’s navy said the country would build eight new nuclear submarines before 2015.


After Financial Crisis, Uncertainty and Lectures From Abroad

As America’s financial crisis was gathering speed, Brazil’s president seemed dismissive, almost gleeful, about the troubles up north. “What crisis?” said the president, Luiz Inácio Lula da Silva, when asked last month about the financial maelstrom. “Go ask Bush about that.” Like a number of South American countries, Brazil had been flashing a new found confidence, one born of a deliberate push to decrease political and economic reliance on the United States. But on Monday, shortly after Congress rejected a proposed $700 billion bailout package, Mr. da Silva struck a very different tone, saying in his weekly radio address that Brazil was not immune from the spreading woes after all. “A recessionary crisis in a country like the United States,” he explained to Brazilians, “can bring problems to all countries.” In only a few days, Latin American leaders have gone from schadenfreude to fear. Despite strong economic growth this decade and some aggressive efforts to break free of the American orbit, there is a growing nervousness that once again Latin America cannot escape the globalized connections in the financial sector that run through the United States. After seeming to revel in the collapse of Lehman Brothers, Hugo Chávez, Venezuela’s president, skipped the opening of the United Nations General Assembly last week to visit China instead, saying that Beijing was now much more relevant than New York.

But by Tuesday, after the American stock market plunged nearly 778 points, dragging down Latin American exchanges with it, New York, and Wall Street in particular, had suddenly become relevant once more, with Mr. Chávez saying at a summit meeting in Brazil that the financial crisis would have the force of “one hundred hurricanes.” A number of governments in the region have been working for the past decade to reduce their dependence on the American economy. They have diversified trade with the rest of the world, while also making efforts to save tens, and sometimes hundreds, of billions of dollars for times when international conditions turn sour. As their economies strengthened and their political cooperation took off, it seemed the United States was being rapidly pushed out of the picture. Latin American leaders were standing up to America with growing bravado. In the past month, both Venezuela and Bolivia expelled the American ambassadors to their countries. Not only did Brazil, thought to be among America’s strongest allies in the region, support the expulsion by Bolivia, a major source of natural gas, but Mr. da Silva also railed against an American naval presence in the region, warning that his nation needed to put its own warships on alert in response.

Such anti-American sentiment reflects a longstanding bitterness over Washington’s economic prescriptions for Latin America, policies that some countries in the region blame for undercutting them. As Wall Street itself started to unravel, some leaders seemed to feel vindicated by the collapse. “We are witnessing the First World, which at one point had been painted as a mecca we should strive to reach, popping like a bubble,” Cristina Fernández de Kirchner, Argentina’s president, said two weeks ago. But the financial crisis has exploded far beyond Wall Street. Whipsawing global markets are already having a ripple effect across Latin America. As nervous investors pulled money out of emerging markets, Brazil’s currency, the real, plunged 16 percent against the dollar last month, resulting in hundreds of millions of dollars in losses at large food and eucalyptus-pulp exporters that placed bad bets on the direction of the real. In Mexico, falling remittances from the United States are also raising concern, with Finance Minister Augustín Carstens warning that money sent home from across the border could decline by $2.8 billion, or 8 percent, this year. In Venezuela, a sharp drop in the value of the country’s bonds in the last two weeks reflects fears about plunging oil prices, especially since the United States remains by far the largest buyer of Venezuelan oil despite the deterioration of relations between the countries.

The issue, economists say, is largely about access to credit, which is needed to keep Latin America’s export-oriented economies humming along. “The credit crunch and the liquidity constraints we are seeing are going to affect everyone in the world,” said Alfredo Coutiño, a senior economist at Moody’s, the credit-rating agency. “That means that the cost for Latin American companies, particularly for those with the need for external funds, is going to be higher.” Plummeting commodity prices could also hamper growth in countries like Argentina and Ecuador, while the psychological effect of a crash in the United States is already reverberating through Latin American stock exchanges. That could lead to a reining in of household spending, which has driven much of the recent growth in Brazil’s economy, especially, economists said. Some governments are also directly tied to the American institutions they have derided, as in Venezuela, where the government has lost about $300 million in Lehman-related investments. Ricardo Sanguino, director of the finance committee in Venezuela’s National Assembly, said the losses were minor compared with the Central Bank’s reserves of more than $30 billion and previous decisions to shift some of those reserves into gold and out of American investment banks into Swiss banks. “The crisis affects us because we’re not a completely closed economy, but the impact won’t be disastrous,” Mr. Sanguino said.

With increased fiscal discipline, some countries have built up stabilization funds that should help them weather the fallout from the Wall Street mess, economists said. Brazil’s government has directed its national development bank, the BNDES, to extend $2.5 billion in credit to agricultural exporters for the next harvest to try to prevent a major slowdown. Other countries in the region may struggle more. Before the crisis, foreign investment had already dwindled in Bolivia and Ecuador, where governments flush with revenues before commodities prices began declining had nationalized foreign companies and clashed with multinationals. Argentina, still weighed down by debt, saved much less than Brazil or Chile during its economic expansion. Now it faces declining commodity prices, especially for soybeans, its main export, and will have less flexibility to infuse cash into its industries, analysts said. In recent weeks, the Argentine government, realizing it may face a fiscal shortfall, has been focused on international investors to gain new funds, and has leaned on Venezuela to refinance billions of dollars in debts. But with oil prices plummeting, Venezuela may impose harsher conditions on lending to Argentina. Even before the Wall Street meltdown, the region’s Achilles’ heel — high inflation — was rearing its head in several countries, notably in Venezuela, Bolivia and Argentina. Economists had been warning for months that Argentina could be headed toward a financial crisis of its own if it could not get rising inflation under control.

One silver lining for some countries could be China, which has become a strong export partner for South American soybeans, oil and other commodities. If China’s growth remains robust, the country will continue to lean on Brazil and Argentina for the crop. By traveling to China last month to sign a deal aimed at tripling oil exports to the country, Mr. Chávez may end up reducing his country’s dependence on the American market. “The world will never be the same after this crisis,” Mr. Chávez told reporters in Brazil. “A new world has to emerge, and it is a multipolar world. We are decoupling from the wagon of death.” Other leaders, like Mr. da Silva, have gone from being dismissive of the crisis to outright incensed at Wall Street and Washington for it. “We did what we were supposed to do to get our house in order,” an angry Mr. da Silva said Monday. “They spent years telling us what to do and they themselves didn’t do it.”


Merkel Calls U.S. Irresponsible

The U.S. government was irresponsible in regard to world markets when it allowed its largest banks and financial institutions to operate without sufficient oversight, German Chancellor Angela Merkel said at a meeting of conservative leaders in Linz, Austria, the Associated Press reports. "Anyone who makes a real product knows how it is supposed to look and what standards are expected. In financial markets you also need to know what is being traded. Otherwise, things happen that we all end up paying for," Merkel said. Somewhat earlier, in an interview with German media, Merkel said that she sympathizes with people who wonder if the world economy is “fair.” Problems on the mortgage market and interbank crediting practically paralyzed the U.S. financial system earlier this year and caused a number of large companies to close. Federal authorities closed the IndyMac bank, with assets of $32 billion, in July. On September 15, Lehmann Brothers, one of the oldest American investment banks, filed for bankruptcy. The U.S. government nationalized major mortgage companies Fannie Mae and Freddie Mac to avoid the collapse of credit markets. Along with the bad news in the United States, a series of painful collapses began around the world. The Russian stock market was rescued from danger by massive financial support from the government and Central Bank.


Russia: Pushing the Ruble


Russia and its former Soviet neighbors are meeting to discuss a proposal to carry out energy transactions in rubles instead of U.S. dollars. The plan theoretically offers an economic benefit to importer states, but they might not go for it given the political strings attached.


National bank chiefs and finance ministers from the Commonwealth of Independent States (CIS) — which includes Russia, Belarus, Moldova, Armenia, Azerbaijan, Kazakhstan, Uzbekistan, Tajikistan and Kyrgyzstan — are meeting Nov. 17 to discuss the possibility of using the Russian ruble for payment of energy deliveries from Russia. This initiative has been on the table for some time, but now Moscow is pushing the plan in order to prop up its own currency and solidify its control over other CIS countries. Currently, Russia accepts energy payments in U.S. dollars from its export customers and then converts the money to rubles. However, Russia tacks on a hefty fee for the currency conversion, making energy imports from Russia just that much more expensive. The offer on the table is to allow importers of Russian energy (at least within the CIS) to pay in rubles, which Moscow says will help eliminate that costly conversion fee for those states.



The Invasion of Iraq: Dollar vs Euro

Re-denominating Iraqi oil in U. S. dollars, instead of the euro

What prompted the U.S. attack on Iraq, a country under sanctions for 12 years (1991-2003), struggling to obtain clean water and basic medicines? A little discussed factor responsible for the invasion was the desire to preserve "dollar imperialism" as this hegemony began to be challenged by the euro. After World War II, most of Europe and Japan lay economically prostrate, their industries in shambles and production, in general, at a minimum level. The U.S. was the only major power to escape the destruction of war, its industries thriving with a high level of productivity. In addition, prior to and during WWII, due to extreme political and economic upheaval, a considerable amount of gold from European countries was transferred to the U.S. Thus, after WWII the U.S. had accumulated 80 percent of the world's gold and 40 percent of the world's production. At the founding of the World Bank (WB) and the International Monetary Fund (IMF) in 1944-45, U.S. predominance was absolute. A fixed exchange currency was established based on gold, the gold-dollar standard, wherein the value of the dollar was pegged to the price of gold-U.S. $35 per ounce of gold. Because gold was combined with U.S. bank notes, the dollar note and gold became equivalent, which then became the international reserve currency.

Initially, the U.S. had $30 billion in gold reserves. But the United States spent more than $500 billion on the Vietnam War alone, from 1967-1972. During these years, the U.S. had over 110 military bases across the globe, each costing hundreds of millions of dollars a year. These expenses were paid in paper dollars and the total number given out far exceeded the gold reserve of the U.S treasury. By then (1971-72), the U.S. Treasury was running out of gold and had only $10 billion in gold left. On August 17, 1971, Nixon suspended the U.S. dollar conversion into gold. Thus, the dollar was "floated" in the international monetary market. Also in the early 1970s, U.S. oil production peaked and its energy resources began to deplete. Its own oil production could not keep pace with growing home consumption. Since then, U.S. demand for oil continually increased, and by 2002-2003 the U.S. imported approximately 60 percent of its oil-OPEC (primarily Saudi Arabia) being the main exporter. The U.S. sought to protect its dollar strength and hegemony by ensuring that Saudi Arabia price its oil only in dollars. To achieve this, the U.S. made a deal, some say a secret one, that it would protect the Saudi regime in exchange for their selling oil only in dollars.


Throughout the late 1950s and 1960s the Arab world was in ferment over an emerging Nasser brand of Arab nationalism and the Saudi monarchy began to fear for its own stability. In Iraq, the revolutionary officers corps had taken power with a socialist program. In Libya, military officers with an Islamic socialist ideology took power in 1969 and closed the U.S. Wheelus Air base; in 1971, Libya nationalized the holdings of British Petroleum. There were proposals for uniting several Arab states-Syria, Egypt, and Libya. During 1963-1967, a civil war developed in Yemen between Republicans (anti-monarchy) and Royalist forces along almost the entire southern border of Saudi Arabia. Egyptian forces entered Yemen in support of republican forces, while the Saudis supported the royalist forces to shield its own monarchy. Eventually, the Saudi government-a medieval, Islamic fundamentalist, dynastic monarchy with absolute power-survived the nationalistic upheavals. Saudi Arabia, the largest oil producer with the largest known oil reserves, is the leader of OPEC. It is the only member of the OPEC cartel that does not have an allotted production quota. It is the "swing producer," i.e., it can increase or decrease oil production to bring oil draught or glut in the world market. This enables it more or less to determine prices.


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

Fiat money or currency (usually paper money) is a type of currency whose only value is that a government made a "fiat" (decree) that the money is a legal method of exchange. Unlike commodity money, or representative money, it is not based in any other commodity such as gold or silver and is not covered by a special reserve. Fiat money is a promise to pay by the usurer and does not necessarily have any intrinsic value. Its value lies in the issuer's financial means and creditworthiness. Such fiat dollars are invested or deposited in U.S. banks or the U.S. Treasury by most non-oil producing, underdeveloped countries to protect their currencies and generate oil credit. Today foreigners hold 48 percent of the U.S. Treasury bond market and own 24 percent of the U.S. corporate bond market and 20 percent of all U.S. corporations. In total, foreigners hold $8 trillion of U.S. assets. Nevertheless, the foreign deposited dollars strengthen the U.S. dollar and give the United States enormous power to manipulate the world economy, set rules, and prevail in the international market.


Thus, the U. S. effectively controls the world oil-market as the dollar has become the "fiat" international trading currency. Today U.S. currency accounts for approximately two-thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all the world exports are denominated in dollars and U.S. currency accounts for about two-thirds of all official exchange reserves. The fact that billions of dollars worth of oil is priced in dollars ensures the world domination of the dollar. It allows the U.S. to act as the world's central bank, printing currency acceptable everywhere. The dollar has become an oil-backed, not gold-backed, currency. If OPEC oil could be sold in other currencies, e.g. the euro, then U.S. economic dominance-dollar imperialism or hegemony-would be seriously challenged. More and more oil importing countries would acquire the euro as their "reserve," its value would increase, and a larger amount of trade would be transacted and denominated in euros. In such circumstances, the value of the dollar would most likely go down, some speculate between 20-40 percent.


In November 2000, Iraq began selling its oil in euros. Iraq's oil for food account at the UN was also in euros and Iraq later converted its $10 billion reserve fund at the UN to euros. Several other oil producing countries have also agreed to sell oil in euros-Iran, Libya, Venezuela, Russia, Indonesia, and Malaysia (soon to join this group). In July 2003, China announced that it would switch part of its dollar reserves into the world's emerging "reserve currency" (the euro). On January 1, 1999, when 11 European countries formed a monetary union around this currency, Britain and Norway, the major oil producers, were absent. As the U.S. economy began to slow down during mid-2000, Western stock markets began to yield lower dividends. Investors from Gulf Cooperation Council nations lost over $800 million in the stock plunge. As investors sold U.S. assets and reinvested in Europe, which seemed to be better shielded from a recession, the euro began to gain ground against the dollar .


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


OPEC member countries and the euro-zone have strong trade links, with more than 45 percent of total merchandize imports of OPEC member countries coming from the countries of the euro-zone, while OPEC members are the main suppliers of oil and crude oil products to Europe. The EU has a bigger share of global trade than the U.S. and, while the U.S. has a huge current account deficit, the EU has a more balanced external accounts position. The EU plans to enlarge in May 2004 with ten new members. It will have a population of 450 million; it will have an oil consuming-purchasing population 33 percent larger than the U.S., and over half of OPEC crude oil will be sold to the EU as of mid-2004. In order to reduce currency risks, Europeans will pressure OPEC to trade oil in euros. Countries such as Algeria, Iran, Iraq, and Russia-which export oil and natural gas to European countries and in turn import goods and services from them-will have an interest in reducing their currency risk and hence, pricing oil and gas in euros. Thus momentum is building toward at least the dual use of euro and dollar pricing.


The unprovoked "shock and awe" attack on Iraq was to serve several economic purposes:


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


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


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


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


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


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Dear reader,

Arevordi will be taking a sabbatical to tend to personal matters. New blog commentaries will henceforth be posted on an irregular basis. Please note that the comments board however will continue to be moderated on a regular basis.

The last 20 years has helped me see the Russian nation as the last front on earth against the scourges of Westernization, Americanization, Globalism, Zionism, Islamic extremism and pan-Turkism. I have also come to see Russia as the last hope humanity has for the preservation of classical western/European civilization, Apostolic Christianity and the traditional nation-state. These sobering realizations compelled me to create this blog in 2010. Immediately, this blog became one of the very few voices in the vastness of Cyberia that dared to preach about the dangers of Globalism and the Anglo-American-Jewish alliance, and perhaps the only voice preaching about the strategic importance of Armenia's close ties to the Russian nation. From about 2010 to 2015, I did monthly, at times weekly, commentaries about Russian-Armenian relations and Eurasian geopolitics in general. It was very difficult for me as I had no assistance in this endeavor. The time I put into this blog therefore came at the expense of work and family. But a powerful feeling, dare I say voice, inside me urged me to keep going; and I did.

When Armenia finally joined the EEU and fully integrated its armed forces into Russia's military structures a couple of years ago, I finally felt a deep sense of satisfaction and relief, as if a very heavy burden was lifted off my shoulders. I finally felt that my personal mission was accomplished. I therefore felt I could take a step back, as I really needed the rest. Simply put: I have lived to see the institutionalization of Russian-Armenian alliance. Also, I feel more confident now that generally speaking Armenians are collectively recognizing the vital/strategic importance of Armenia's ties with the Russian nation. Today, no man, no political party is capable of driving a wedge between Armenia and Russia. That danger has passed. Anglo-American-Jewish agenda in Armenia failed. As a result, I feel a strong sense of mission accomplished. I feel satisfied knowing that, at least on a subatomic level, I had a hand in the outcome. I therefore no longer have the urge to continue as in the past. In other words, the motivational force that had propelled me in previous years has been gradually dissipating because I feel that this blog has lived to see the realization of its stated goal.

Going forward, I do not want to write merely for the sake of writing. Also, I do not want to say anything if I have nothing important to say. I feel like I have said everything I needed to say. Henceforth, I will post seasonal commentaries about topics I find important.

To limit clutter in the comments section, I kindly ask all participants of this blog to please keep comments coherent and strictly relevant to the featured topic of discussion. Moreover, please realize that when there are several "anonymous" visitors posting comments simultaneously, it becomes very confusing (not to mention extremely annoying) trying to figure out who is who and who said what. Therefore, if you are here to engage in conversation, make an observation, express an idea or simply insult/attack me, I ask you to at least use a moniker to identify yourself. Moreover, please appreciate the fact that I have put an enormous amount of information into this blog. In my opinion, most of my blog commentaries and articles, some going back ten-plus years, are in varying degrees relevant to this day and will remain so for a long time to come. Articles in this blog can therefore be revisited by longtime readers and new comers alike. I therefore ask the reader to treat this blog as a historical record and a depository of important information relating to Eurasian geopolitics, Russian-Armenian relations and humanity's historic fight against the evils of Globalism and Westernization.

Thank you as always for reading.