Although still in its infancy, BRICS countries are essentially laying the very foundation of a multi-polar in the 21th century. As a result, the Anglo-American-Zionist alliance, the corrosive/destructive global financial/political order that has ruled the globe for the past one hundred years will be left with two potions in the future: rollover and die or strike back with a vengeance.
Wanting to divorce the US dollar would have been unthinkable just ten years ago. The mere mention of breaking away from Washington's financial death grip on the "free world" could trigger a nasty response. For many stuck in its trap, it was simply unthinkable. As we are currently seeing, not any more. In these times of great economic tension, emerging nations are now publicly discussing the prospects of dumping the US dollar as the global reserve currency. The only way the Western alliance could continue maintaining its iron grip on global commerce is by imposing the US dollar's supremacy by the use of force. Therefore, observing modus operandi of the aforementioned global alliance, I will be embracing myself for a major future wars.
Nonetheless, BRICS may just prove to be the antidote the global community needs against the Western alliance's neo-Bolshevism, popularly known as Globalism. And in a clear sign that the economic union is becoming a political one as well, BRICS nations took the recent opportunity at a meeting to speak strongly against Western aggression against Libya.
Is the neo-imperialistic war currently being waged against
Anyway, leave it up to RT to discuss such matters. Although it does not have the audience of BBC or the bells-and-whistles of CNN, Russia's RT is becoming 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. 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. by the Western alliance a long-term measure to protect the primacy of the US dollar? According to experts interviewed by Russia's RT, in addition to stealing Libya's large money reserves and natural wealth, dollar imperialism may indeed be one of the underlying reasons for the Western aggression against Libya. Nothing new here in Western global affairs because protecting the US dollar was also one of the strategic reasons why the Western alliance and friends destroyed . See the below posted article for more information.
Gaddafi gold-for-oil, dollar-doom plans behind Libya 'mission'?: http://www.youtube.com/user/RussiaToday#p/search/15/GuqZfaj34nc
'Arab Spring false flag from start, Libya ultimate goal all along': http://www.youtube.com/user/RussiaToday#p/u/3/3T8_cH2n9CI
'Libya & Syria steps in West's way to challenge China': http://www.youtube.com/user/RussiaToday#p/u/21/PEV5r7hAzx4
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.
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.
Obama’s Trade Strategy Runs Into Stiff Resistance
Each rejected core elements of Mr. Obama’s strategy of stimulating growth before focusing on deficit reduction. Several major nations continued to accuse the Federal Reserve of deliberately devaluing the dollar last week in an effort to put the costs of America’s competitive troubles on trading partners, rather than taking politically tough measures to rein in spending at home. The result was that Mr. Obama repeatedly found himself on the defensive. He and the South Korean president, Lee Myung-bak, had vowed to complete the trade pact by the time they met here; while Mr. Obama insisted that it would be resolved “in a matter of weeks,” without the pressure of a summit meeting it was unclear how the hurdles on nontariff barriers to American cars and beef would be resolved.
Mr. Obama’s meeting with China’s president, Hu Jintao, appeared to do little to break down Chinese resistance to accepting even nonbinding numerical targets for limiting China’s trade surplus. While Lael Brainard, the under secretary of the Treasury for international affairs, said that the United States and China “have gotten to a good place” on rebalancing their trade, Chinese officials later archly reminded the Americans that as the issuers of the dollar, the main global reserve currency, they should consider the interests of the “global economy” as well as their own “national circumstances.” The disputes were not limited to America’s foreign partners. Treasury Secretary Timothy F. Geithner got into a trans-Pacific argument with one of his former mentors, Alan Greenspan, the former chairman of the Federal Reserve, after Mr. Greenspan wrote that the United States was “pursuing a policy of currency weakening.” Mr. Geithner shot back on CNBC that while he had “enormous respect” for Mr. Greenspan, “that’s not an accurate description of either the Fed’s policies or our policies.” He added, “We will never seek to weaken our currency as a tool to gain competitive advantage or grow the economy.”
Much of the rest of the world seemed to share Mr. Greenspan’s assessment. Moreover, Mr. Obama seemed to be losing the broader debate over austerity. The president has insisted that at a moment of weak private demand, the best way to spur economic growth is to have the government prime the pump with cheap credit and government stimulus programs. He quickly found himself in an argument with Prime Minister David Cameron of Britain and Chancellor Angela Merkel of Germany. “You do hear the argument made sometimes: If you have a deficit, put off the action to deal with it because taking money out of the economy will reduce your growth rate,” Mr. Cameron said at the meeting. “I simply don’t accept that.” Even as he spoke, back home his ministers were announcing new cuts in Britain’s famed welfare system.
Mrs. Merkel, reflecting a more traditional German view born of her country’s history of hyperinflation before World War II, was equally adamant. “I am not one, and Germany is not one, who says growth and fiscal consolidation are contradictory,” she said during a lunchtime address in Seoul. “They can go together, and it is essential to return to a sustainable growth path.” She also suggested that it was the job of deficit countries — like the United States and Britain, though she diplomatically avoided citing them — to increase their competitiveness rather than put limits on countries that had figured out how to get the world to buy their goods. “In the task ahead, the benchmark has to be the countries that have been most competitive, not to reduce to the lowest common denominator,” she said. The differences with Mr. Cameron and Mrs. Merkel were particularly striking because during Mr. Obama’s first Group of 20 meetings — in London, Pittsburgh and Toronto — he managed to get all of the major economies to pursue something of a coordinated stimulus strategy.
But that consensus began fracturing at the June meeting in Toronto. While the administration had warned that rolling back fiscal stimulus programs too quickly could endanger the fragile recovery, the pressure on European nations to slash their deficits was becoming overwhelming. Ultimately the Group of 20 countries committed to cutting government deficits in half by 2013, a goal the United States insists it will meet. But much has now changed. Mr. Cameron is following his conservative instincts and has made budget-cutting a signature issue. Mrs. Merkel is credited with avoiding spending heavily on stimulus programs and emerging with the most successful recovery in Europe. And Mr. Obama faces new political constraints. Jeffry A. Frieden, a political scientist at Harvard, noted Thursday that the administration “feels it does not have the domestic political support for embarking on potentially difficult cooperative measures.”
The White House decided it was smarter for Mr. Obama to return home with no free trade accord than with one in which it could be accused of making concessions at a time that the consensus on trade has been shattered, particularly within the Democratic Party. Similarly, accusations that China has manipulated its currency for its own advantage — and now the countercharge that the Fed is doing the same — are part of what Mr. Frieden calls an argument over “who will bear the burden of adjustment.” “Will it be the creditor or debtor countries?” he said. “Who’s going to take a hit for our debt?” Indeed, the struggle for advantage, which ultimately may be a struggle to set the rules for a new global financial order, was the unspoken subtext of the meeting between Mr. Obama and Mr. Hu.
Mr. Hu, in the most indirect terms, told Mr. Obama that Beijing was focused on the Fed’s role in pushing down interest rates, and its effect on weakening the dollar. The code words were obvious. For days Chinese officials have characterized the Fed’s actions as an effort to drive “hot money” to developing nations, pushing up their currencies and their interest rates, and perhaps fueling inflation. Mr. Obama had hoped to make the meeting about a related subject: China’s continuing refusal to allow rapid appreciation of its currency, which fuels its huge trade surplus. At a press briefing in Seoul, Zheng Xiaosong, director general of the Chinese Ministry of Finance’s international department, indirectly accused the United States of ignoring its international responsibilities. “The major reserve-currency issuers, while implementing their monetary policies, should not only take into account their national circumstances but should also bear in mind the possible impacts on the global economy,” he said.
How to Make the Dollar Sound Again
BY disclosing a plan to conjure $600 billion to support the sagging economy, the Federal Reserve affirmed the interesting fact that dollars can be conjured. In the digital age, you don’t even need a printing press. This was on Nov. 3. A general uproar ensued, with the dollar exchange rate weakening and the price of gold surging. And when, last Monday, the president of the World Bank suggested, almost diffidently, that there might be a place for gold in today’s international monetary arrangements, you could hear a pin drop. Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it. It was simplicity itself. National currencies were backed by gold. If you didn’t like the currency you could exchange it for shiny coins (money was “sound” if it rang when dropped on a counter). Borders were open and money was footloose. It went where it was treated well. In gold-standard countries, government budgets were mainly balanced. Central banks had the single public function of exchanging gold for paper or paper for gold. The public decided which it wanted.
“You can’t go back,” today’s central bankers are wont to protest, before adding, “And you shouldn’t, anyway.” They seem to forget that we are forever going back (and forth, too), because nothing about money is really new. “Quantitative easing,” a k a money-printing, is as old as the hills. Draftsmen of the United States Constitution, well recalling the overproduction of the Continental paper dollar, defined money as “coin.” “To coin money” and “regulate the value thereof” was a Congressional power they joined in the same constitutional phrase with that of fixing “the standard of weights and measures.” For most of the next 200 years, the dollar was, in fact, defined as a weight of metal. The pure paper era did not begin until 1971. The Federal Reserve was created in 1913 — by coincidence, the final full year of the original gold standard. (Less functional variants followed in the 1920s and ’40s; no longer could just anybody demand gold for paper, or paper for gold.) At the outset, the Fed was a gold standard central bank. It could not have conjured money even if it had wanted to, as the value of the dollar was fixed under law as one 20.67th of an ounce of gold.
Neither was the Fed concerned with managing the national economy. Fast forward 65 years or so, to the late 1970s, and the Fed would have been unrecognizable to the men who voted it into existence. It was now held responsible for ensuring full employment and stable prices alike. Today, the Fed’s hundreds of Ph.D.’s conduct research at the frontiers of economic science. “The Two-Period Rational Inattention Model: Accelerations and Analyses” is the title of one of the treatises the monetary scholars have recently produced. “Continuous Time Extraction of a Nonstationary Signal with Illustrations in Continuous Low-pass and Band-pass Filtering” is another. You can’t blame the learned authors for preferring the life they lead to the careers they would have under a true-blue gold standard. Rather than writing monographs for each other, they would be standing behind a counter exchanging paper for gold and vice versa.
If only they gave it some thought, though, the economists — nothing if not smart — would fairly jump at the chance for counter duty. For a convertible currency is a sophisticated, self-contained information system. By choosing to hold it, or instead the gold that stands behind it, the people tell the central bank if it has issued too much money or too little. It’s democracy in money, rather than mandarin rule. Today, it’s the mandarins at the Federal Reserve who decide what interest rate to impose, and what volume of currency to conjure. The Bank of England once had an unhappy experience with this method of operation. To fight the Napoleonic wars of the early 19th century, Britain traded in its gold pound for a scrip, and the bank had to decide unilaterally how many pounds to print. Lacking the information encased in the gold standard, it printed too many. A great inflation bubbled.
Later, a parliamentary inquest determined that no institution should again be entrusted with such powers as the suspension of gold convertibility had dumped in the lap of those bank directors. They had meant well enough, the parliamentarians concluded, but even the most minute knowledge of the British economy, “combined with the profound science in all the principles of money and circulation,” would not enable anyone to circulate the exact amount of money needed for “the wants of trade.” The same is true now at the Fed. The chairman, Ben Bernanke, and his minions have taken it upon themselves to decide that a lot more money should circulate. According to the Consumer Price Index, which is showing year-over-year gains of less than 1.5 percent, prices are essentially stable. In the inflationary 1970s, people had prayed for exactly this. But the Fed today finds it unacceptable. We need more inflation, it insists (seeming not to remember that prices showed year-over-year declines for 12 consecutive months in 1954 and ’55 or that, in the first half of the 1960s, the Consumer Price Index never registered year-over-year gains of as much as 2 percent). This is why Mr. Bernanke has set out to materialize an additional $600 billion in the next eight months.
The intended consequences of this intervention include lower interest rates, higher stock prices, a perkier Consumer Price Index and more hiring. The unintended consequences remain to be seen. A partial list of unwanted possibilities includes an overvalued stock market (followed by a crash), a collapsing dollar, an unscripted surge in consumer prices (followed by higher interest rates), a populist revolt against zero-percent savings rates and wall-to-wall European tourists on the sidewalks of Manhattan. As for interest rates, they are already low enough to coax another cycle of imprudent lending and borrowing. It gives one pause that the Fed, with all its massed brain power, failed to anticipate even a little of the troubles of 2007-09.
At last week’s world economic summit meeting in South Korea, finance ministers and central bankers chewed over the perennial problem of “imbalances.” America consumes much more than it produces (and has done so over 25 consecutive years). Asia produces more than it consumes. Merchandise moves east across the Pacific; dollars fly west in payment. For Americans, the system could hardly be improved on, because the dollars do not remain in Asia. They rather obligingly fly eastward again in the shape of investments in United States government securities. It’s as if the money never left the 50 states.
So it is under the paper-dollar system that we Americans enjoy “deficits without tears,” in the words of the French economist Jacques Rueff. We could not have done so under the classical gold standard. Deficits then were ultimately settled in gold. We could not have printed it, but would have had to dig for it, or adjusted our economy to make ourselves more internationally competitive. Adjustments under the gold standard took place continuously and smoothly — not, like today, wrenchingly and at great intervals. Gold is a metal made for monetary service. It is scarce (just 0.004 parts per million in the earth’s crust), pliable and easy on the eye. It has tended to hold its purchasing power over the years and centuries. You don’t consume it, as you do tin or copper. Somewhere, probably, in some coin or ingot, is the gold that adorned Cleopatra.
And because it is indestructible, no one year’s new production is of any great consequence in comparison with the store of above-ground metal. From 1900 to 2009, at much lower nominal gold prices than those prevailing today, the worldwide stock of gold grew at 1.5 percent a year, according to the United States Geological Survey and the World Gold Council. The first time the United States abandoned the gold standard — to fight the Civil War — it took until 1879, 14 years after Appomattox, to again link the dollar to gold. To reinstitute a modern gold standard today would take time, too. The United States would first have to call an international monetary conference. A chastened Ben Bernanke would have to announce that, in fact, he cannot see into the future and needs the information that the convertibility feature of a gold dollar would impart.
That humbling chore completed, the delegates could get down to the technical work of proposing a rate of exchange between gold and the dollar (probably it would be even higher than the current price of gold, the better to encourage new exploration and production). Other countries, thunderstruck, would then have to follow suit. The main thing, Mr. Bernanke would emphasize, would be to create a monetary system that synchronizes national economies rather than driving them apart. If the classical gold standard in its every Edwardian feature could not, after all, be teleported into the 21st century, there would be plenty of scope for adaptation and, perhaps, improvement. Let the author of “The Two-Period Rational Inattention Model: Accelerations and Analyses” have a crack at it. James Grant, the editor of Grant’s Interest Rate Observer, is the author of “Money of the Mind.”
Fresh Attack on Fed Move
The Federal Reserve's latest attempt to boost the U.S. economy is coming under fire from Republican economists and politicians, threatening to yank the central bank deeper into partisan politics. A group of prominent Republican-leaning economists, coordinating with Republican lawmakers and political strategists, is launching a campaign this week calling on Fed Chairman Ben Bernanke to drop his plan to buy $600 billion in additional U.S. Treasury bonds. "The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment," they say in an open letter to be published as ads this week in The Wall Street Journal and the New York Times.
The economists have been consulting Republican lawmakers, including incoming House Budget Committee Chairman Paul Ryan of Wisconsin, and began discussions with potential GOP presidential candidates over the weekend, according to a person involved. The increasingly loud criticism of the Fed comes as some economic officials outside the U.S. are criticizing the central bank's move to effectively print money, which has the side effect of pushing down the dollar on world currency markets. President Barack Obama last week defended the Fed. The move to buy more bonds, known as quantitative easing, "was designed to grow the economy," not cheapen the dollar, he said.
The Fed, despite frequent criticism from both parties, has enjoyed considerable independence from politicians on monetary policy for the past three decades. Organizers of the new campaign predicted the Fed will increasingly find itself caught in the political crosshairs, though. A tea party-infused GOP is eager to heed voters' rejection of big-government programs, and conservatives say a new move by the Fed to essentially print more money make it ripe for scrutiny by the incoming Republican House majority and potentially an issue in Mr. Obama's 2012 re-election campaign.
"Printing money is no substitute for pro-growth fiscal policy," said Rep. Mike Pence, an Indiana Republican who has been privy to early discussions with the group of conservatives rallying opposition to the Fed plan. He said the signatories to the letter "represent a growing chorus of Americans who know that we should be seeking to stimulate our economy with tax relief, spending restraint and regulatory reform rather than masking our fundamental problems by artificially creating inflation."
The Fed faces potential pressure of a different sort from the left as well. Some prominent Democratic congressmen, including the current chairman of the House Financial Services Committee, have endorsed the quantitative-easing move. But if the economy continues to disappoint as November 2012 approaches, the White House and Democrats in Congress may be pressing the Fed to do more to sustain the recovery as well. Some prominent liberal economists, including Nobel laureates Joseph Stiglitz and Paul Krugman, already have challenged the efficacy of quantitative easing, arguing that more fiscal stimulus is needed to restore the economy to health.
Signers of the new manifesto criticizing the Fed include: Stanford University economists Michael Boskin, who was chairman of President George H. W. Bush's Council of Economic Advisers and John Taylor, a monetary-policy scholar who served in both Bush administrations; Kevin Hassett of the conservative American Enterprise Institute; Douglas Holtz-Eakin, former Congressional Budget Office director and adviser to John McCain's presidential campaign; David Malpass, a former Bear Stearns and Reagan Treasury economist who made an unsuccessful run for a U.S. Senate seat from New York; and William Kristol, editor of the Weekly Standard and a board member of e21, a new conservative think tank seeking a more unified conservative view on economic policy.
A spokeswoman for the Fed said Sunday, "The Federal Reserve...will take all measures to keep inflation low and stable as well as promote growth in employment." She noted that the Fed "is prepared to make adjustments as necessary" to its bond-buying and "is confident that it has the tools to unwind these policies at the appropriate time." "The Chairman has also noted that the Federal Reserve does not believe it can solve the economy's problems on its own," she added. "That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators, and the private sector."
Criticism of the Fed broke out amid the unpopular bailout of Wall Street and the Senate fight over Mr. Bernanke's second term early this year. The critiques had ebbed until its new move to buy bonds. But last week, potential GOP presidential candidate Sarah Palin delivered a stinging speech on the move and then, in a Facebook post, criticized Mr. Obama for defending the Fed. Last Tuesday evening, about 20 economists and others met over sea bass at the University of Pennsylvania Club in Manhattan and hashed out a broad strategy. Mr. Ryan, who has gained notice for a plan to balance the federal budget through deep spending cuts, joined the group as they discussed ways to encourage the GOP's new House majority to unite behind what they describe as a "sound money policy."
"We talked about the importance of the right being outspoken and unified on this," said a participant. Mr. Ryan couldn't be reached Sunday. Over the weekend, organizers began discussions with possible GOP presidential candidates, including former Massachusetts Gov. Mitt Romney and former House Speaker Newt Gingrich. On Tuesday, Mr. Boskin and another signer, Paul Singer, head of hedge fund Elliott Management, will brief GOP governors at a conference in San Diego. "It is unfortunate that economists are over-hyping this and trying to politicize it," said Bob McTeer, former president of the Federal Reserve Bank of Dallas and a backer of the Fed's latest step. Mr. McTeer, a fellow at the National Center for Policy Analysis, a right-leaning think tank, added: "What populists on the right and the left have in common is a distrust of the establishment, and to them the Fed personifies the establishment."
To fight a deep recession provoked by a global financial crisis, the Fed has been keeping its target for overnight interest rates near zero since December 2008, and bought $1.7 trillion in U.S. Treasury debt and mortgage securities to push down long-term interest rates, hoping to spur borrowing and spending. That program ended in the spring. With unemployment at 9.6%, well above its mandate of "maximum sustainable employment," and inflation running under its target of a bit below 2%, the Fed policy committee voted to resume bond-buying to try to move inflation up a bit and unemployment down. Signatories to the letter criticizing the Fed insisted they aren't trying to undercut the central bank's independence. "It's fair to have a public debate about what the right monetary policy is," Mr. Holtz-Eakin said. "I'm a long way away from being comfortable with the idea of the Congress running monetary policy."
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.
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.