First, here's the VHeadline article:
What is behind the constant manipulation, the virulent hostility, the verbal abuse, and the probable (I admit, not yet proven) support to Colombian paramilitaries who recently invaded [Venezuela]? I believe that the answer, albeit complicated, is to be found in the interesting thesis constructed by a Californian lawyer by the name of William Clarke, and which, obviously, has not been given wide coverage in the news media. I say interesting, because this plausible and well-constructed analysis allows us inter alia to understand primarily the real reasons behind the attack on Iraq, as well the hostility towards Iran and North Korea, the so-called Axis of Evil.
...He deftly argues that the economic problem plaguing the US at the moment is the financing of a huge external trade deficit (almost $500 billion per annum), not to speak of the total debt, which has reached more than US $7 trillion [iii]. His thesis is made more plausible when one considers that other countries, especially China, now hold an economic club over the head of the US because of their holdings of US treasury bills [iv].
But how has the US managed to live so “high off the hog” and run up such a massive debt? Primarily, it has been made possible by the use of the US dollar as the favored petro-currency. In other words, all oil bought and sold on the world market is done through the exchange of the commodity for US dollars, allowing the US to run this huge deficit. Basically a long-term strategy, it began with a deal struck with Saudi Arabia in the 1970s. Writes Clark:
“According to research by Dr. David Spiro, in 1974 the Nixon administration negotiated assurances from Saudi Arabia to price oil in dollars only, and invest their surplus oil proceeds in U.S. Treasury Bills. In return the U.S. would protect the Saudi regime. According to his book, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets, these purchases were done in relative secrecy. These agreements created the phenomenon known as "petrodollar recycling." In effect, global oil consumption via OPEC provides a healthy subsidy to the U.S. economy. Hence, the Europeans created the euro to compete with the dollar as an alternative international reserve currency. Obviously the E.U. would also like oil priced in euros as well, as this would reduce or eliminate their currency risk for oil purchases.” [v]
In January 2003, before the invasion of Iraq, Clark outlined his thesis. Basically, he argued that the attack was due to fears in the US administration that 1) future oil supplies had to be ensured since the arrival of Peak Oil (after which production will begin to decline) was approaching, and 2) it had to keep OPEC from following Iraq’s lead and converting to the Euro as favored petro-currency.
...Were oil-producing nations to start converting to sales in Euros, the oil-consuming countries would have to sell their US dollar holdings and buy Euros instead. This would have the dramatic effect of causing a crash in the value of the US dollar on world markets (estimated at between 20-40%) and produce massive inflation. The consequence of that would be a run on the markets and a flight of bond and security holders out of the US dollar and into other currencies [vii].
It is interesting to note that the conversion to Euros was precisely what Iraq did in 2002, followed by Iran, where half the central banks assets were converted to Euros in the same year. Effective December 2002, North Korea, although not an oil-producing country, did the same. Just coincidentally these three are part of what the US president called the Axis of Evil. Does it start to make sense?
...He deftly argues that the economic problem plaguing the US at the moment is the financing of a huge external trade deficit (almost $500 billion per annum), not to speak of the total debt, which has reached more than US $7 trillion [iii]. His thesis is made more plausible when one considers that other countries, especially China, now hold an economic club over the head of the US because of their holdings of US treasury bills [iv].
But how has the US managed to live so “high off the hog” and run up such a massive debt? Primarily, it has been made possible by the use of the US dollar as the favored petro-currency. In other words, all oil bought and sold on the world market is done through the exchange of the commodity for US dollars, allowing the US to run this huge deficit. Basically a long-term strategy, it began with a deal struck with Saudi Arabia in the 1970s. Writes Clark:
“According to research by Dr. David Spiro, in 1974 the Nixon administration negotiated assurances from Saudi Arabia to price oil in dollars only, and invest their surplus oil proceeds in U.S. Treasury Bills. In return the U.S. would protect the Saudi regime. According to his book, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets, these purchases were done in relative secrecy. These agreements created the phenomenon known as "petrodollar recycling." In effect, global oil consumption via OPEC provides a healthy subsidy to the U.S. economy. Hence, the Europeans created the euro to compete with the dollar as an alternative international reserve currency. Obviously the E.U. would also like oil priced in euros as well, as this would reduce or eliminate their currency risk for oil purchases.” [v]
In January 2003, before the invasion of Iraq, Clark outlined his thesis. Basically, he argued that the attack was due to fears in the US administration that 1) future oil supplies had to be ensured since the arrival of Peak Oil (after which production will begin to decline) was approaching, and 2) it had to keep OPEC from following Iraq’s lead and converting to the Euro as favored petro-currency.
...Were oil-producing nations to start converting to sales in Euros, the oil-consuming countries would have to sell their US dollar holdings and buy Euros instead. This would have the dramatic effect of causing a crash in the value of the US dollar on world markets (estimated at between 20-40%) and produce massive inflation. The consequence of that would be a run on the markets and a flight of bond and security holders out of the US dollar and into other currencies [vii].
It is interesting to note that the conversion to Euros was precisely what Iraq did in 2002, followed by Iran, where half the central banks assets were converted to Euros in the same year. Effective December 2002, North Korea, although not an oil-producing country, did the same. Just coincidentally these three are part of what the US president called the Axis of Evil. Does it start to make sense?
This is exactly the conclusion that came to me shortly after we invaded Iraq when I read something about Hugo Chávez tossing the word euro around and noted that Hussein had decided to sell oil in euros. Washington's attempts to smear Chávez with talk that he was a friend of the tyrant Hussein are explained by the absolute need to stop the switch from dollars to euros for oil sales, as I imagine the two leaders did meet to discuss such an idea. Another problem Washington has with Chávez is that he makes direct trades to poor Latin American and Caribbean countries, as in the case of his trade of oil for doctors and educational supplies from Cuba, thereby bypassing the flow of dollars.
I do think that it's not likely the switch will be made, at least until the euro can become strong enough and widespread enough to support the global economy. And I have no idea how close or far away from that eventuality we might be. Trashing the dollar wouldn't just destroy the American economy, it would take the whole globe down with it at this point. Which is ironically why it's good for us to have such a huge debt. When other countries can afford to write off our debt and trade around us, then we're in big trouble. And this is also why BushCo was so quick to try to drive a wedge between "Old Europe" and "New Europe" when we invaded Iraq - to keep the European Union, and therefore the euro, weakened. Unfortunately, they totally screwed up in Iraq.
Personally, I think it's the rise of the euro and the necessity of keeping the dollar as the global exchange medium that is ultimately behind our Middle East policies, and it's probably why the Senate was so quick to go along with the invasion and why I don't think John Kerry is going to give us much of a different foreign policy. He has very little choice under the circumstances. I don't know enough about finances - lord knows I haven't had any to practice with - but I wonder how much the U.S. is invested in euros - just in case.
Anyway, I have been keeping some links to this idea on my webpage here.
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