The War On Another Battlefield

I don’t know about you, but I continue to remain skeptical about the timing of the latest NIE report declaring that Iran halted its nuclear weapons program in 2003 (here).

Some think the report was floated by our intelligence services to head off a confrontation with Iran. That may be so; regardless of the reason, though, the report was good news then and remains good news today.

But being the fundamentally corrupt capitalists that they are, I don’t imagine that the Bushco regime acted in anything but its own self-interest here, as usual, either in controlling the release of the report or going along as actors after it emerged when they discovered a way to use it to their advantage.

And in the event that the former case is true, I want to suggest that they did so in an attempt to appease Iran to the point where that country would continue to transact oil using the dollar as currency and thus stabilize or lower the price of oil. Our ruling cabal would surely know that a continuing rise in the price of that commodity (currently trading at about $90 a barrel) would accelerate and deepen the economic recession that many financial experts anticipate (peachy), with predictable electoral consequences for Republicans next November, so that is why they tried to “cool things off” a bit with the latest NIE release (my theory, anyway).

But as you can see here, that didn’t work.

And of the many stories that our corporate media refuses to report, I would add that the consequences of our government’s inability to get its financial house in order on the world financial markets is one of the big ones.

Indeed, as this Moscow Times story notes (reading about Putin and Medvedev and came across it)…

Today, with the U.S. current account deficit running at well over 6 percent of gross domestic product, necessitating net financing of about $2 billion per day, the United States is fortunate that Russia, China and other oil-producing nations have continued to return all its payments for imports in the form of loans -- generally, purchases of U.S. treasury bonds.

And this link provides more information; I try to stay away from sites that blend news information with apocryphal forecasts of doom, but sadly, this information all seems to fit…

The root cause of the problem can be summed up in one word, debt. Americans have been overspending for decades, both at the governmental and personal levels. More recently, that debt has been financed by other countries. Only the United States could do this, precisely because the dollar is the world's trading currency. Other countries would accept U.S. dollars as payment for goods and were happy to bank those dollars to pay for their own future needs.

But this is no longer the case. Increasingly of late, there is a realization around the world that those dollars are decreasing in value. Consequently, countries want to divest themselves of their U.S. dollars, but they want to do it slowly, to avoid a panic that might wipe out the value altogether.

That's exactly what China is doing—diversifying into other currencies.

Such good friends of ours, aren’t they (certainly not stupid, anyway)…

Besides being a hard currency (meaning that it can be traded almost anywhere), the U.S. dollar is the world's reserve currency. Many commodities, including oil, are priced in U.S. dollars. This is to America's advantage. If the American media is anything to go by, few people in the United States realize the consequences of this changing. But it almost happened the weekend of Nov. 18.

OPEC countries meeting in Riyadh (last month) heard some of their members calling for oil to be priced in euros or a basket of other currencies. Only the intervention of the Saudi delegation stopped this from happening.

This just explained why we suck up to our “friends” in the Middle East the way we do (as opposed to our Asian “friends” noted earlier).

When Rafael Correa, the president of Ecuador, stated that "OPEC needed to sell its oil in a 'strong currency,' he summed up the discontent widely shared by other OPEC members and expressed most volubly by Iran and Venezuela. 'If we continue to trade in a weak currency [the dollar]…we will need to sell more of our oil to buy the same amount of goods and services'" ("OPEC Looks at Switch to Strong Currency," Financial Times, Nov. 19, 2007).

If oil were priced in euros, it would cost Americans more to buy it. Further, if the dollar should ever become a soft currency due to its unreliability, the United States would have to actually pay in euros or another hard currency. For example, that could mean that the United States would have to sell sufficient goods to Europe to buy oil from the Mideast.

Americans have had the luxury of enjoying cheap oil partly because the precious liquid was priced in dollars. Other countries have seen wild fluctuations and shortages of supply because they have not only had to contend with price increases in dollars, but they have also had the problem of coming up with dollars in the first place. The United States could soon have that problem with euros.

Where would the euros come from? Especially now, when, according to Fareed Zakaria in Newsweek, "The United States is the only major country in the world to which travel has declined amid a tourist boom… Every American who has a friend abroad has heard some story about the absurd hassle and humiliation of entering or exiting the United States" ("America the Unwelcoming," Nov. 11, 2007).

…

Most Americans seem blissfully unaware of the dollar's decline or of the likely repercussions for them on a very personal level. At the very least, the fuel they need to get to work is set to substantially increase in cost. This will, in turn, affect food prices. Ironically, neither fuel nor food is included when the government reports the core inflation rate, which may be used to determine an annual cost of living increase…

This also gives the U.S. Federal Reserve Bank a headache. Wall Street is calling for a further drop in interest rates, which are set by the Fed at its monthly meetings. However, the rest of the world wants to see interest rates either held or raised so as to stabilize the dollar. This dilemma led to the following front-page news item in the Nov. 17 issue of the Financial Times, "Fed and Markets set to Clash on Rates."

And revisiting Iran, it sounds like Bushco is trying to ratchet up the rhetoric again (placating the neocons as always who want All War, All The Time), switching back from this mode of trying to do something in support of the dollar that entails calmer relations with that member of Dubya’s “Axis of Evil.”

So on the one hand, our government wants to push its agenda as far as it can in pursuit of empire in the Middle East, but on the other hand, it wants to “pull back the reins” some times to try and stabilize our currency before other countries abandon it in favor of some kind of a “basket” of other international security types (that will do more to accelerate a legitimate recession in this country, and probably the world, than anything our corrupt and incompetent ruling cabal could do on its own).

As we are in Iraq, whatever “success” we may enjoy in the effort to protect our currency is due to forces out of our control under this regime. And I’m afraid many of us won’t know this battle has even taken place until after it is already lost.

Update 5/14/09: What Nouriel Roubini sez here (in the NY Times)...