Thursday, June 14, 2007

"The Nation" Gets Real

Here's an article by a Wall Street private equity investor that was published in yesterday's issue of "The Nation." The author describes the connections between the invasion of Iraq, the decline in worldwide oil production (dare we call it by its name?), and the falling dollar. In sum, it describes some of the financial symptoms of the decline of the American empire. This is not typical stuff for "The Nation," to worry about America's fiscal solvency (many of their normal domestic policy fantasies, oops, I mean proposals, would only add to our national fiscal woes), but it's a telling one. The article is one more piece of evidence that elements of the Left and the Right are becoming indistinguishable in their decrial of the short-sighted policies of the past eight years - and let's be honest, the past 30, at least - that have doomed our children to a life of hardship. This article might just as easily have appeared in "The American Conservative" (or here, by a former Reagan hand and National Review author), and touches on many themes that have been discussed in some previously linked writing by Andrew Bacevich.

The article is better than most at articulating the close connection between the weakening dollar, our debt regime and the perils of declining worldwide oil production (others do a good job, however). In short, we are facing the decline of the purchasing power of our currency as a result of our ongoing spree to finance (mostly by debt) our happy motoring paradise in the face of declining worldwide oil reserves and our incapacity to control what remains. For several decades we have relied upon the recycling of petro-dollars to prop up the American economy, even as the republic has shipped most of its actual production overseas and has transformed itself into a "consumer nation." Our only real collateral during this spending and borrowing spree has been our currency, the default world reserve currency for the purchase of, above all, petroleum.

In an understated moment, the author notes that "certain nations are evidencing a declining interest in accepting the dollar as a medium of exchange. It was in October 2000 that Saddam insisted that Iraq’s oil be paid for in euros. But now Russia wants payment for the energy it exports in rubles. Venezuela and Iran insist on euros. Kuwait has recently unpegged its dinar from the dollar in favor of a basket of currencies." To anyone who thinks that there wasn't a weapon of mass destruction in Iraq, just bear in mind that in 2000 Iraq effectively pushed the self-destruction of the American economy to its next logical step. Imagine if we couldn't just print dollars to buy oil anymore! Imagine if we had to buy Euros or Rubles or Dinars in order to purchase our favorite drug! Imagine if other countries didn't have to buy dollars anymore when they wanted to buy oil! Guess what would happen when all those bonds held in Asia started flooding the market in a scramble to get out of a worthless currency? People might actually discover that we're broke!! In effect, the linking of the dollar and international trade in oil has provided an actual source of value for the dollar - something akin to a gold standard - making it possible for the U.S. to run up its fabulous levels of unrepayable debt that would have forced any other nation to declare bankruptcy. Iraq's intention to sell oil in Euros was effectively the brandishing of an actual weapon of mass destruction (as far as the American economy was concerned) before 9/11, and the house of cards might have held up a few more decades if only we had successfully scared the rest of the world away from even thinking of trading oil in a currency other than petro-dollars. Oh well. Too bad for the kids. My advice to the youngsters: learn a skill. We're going to have to start making things again, because we're not going to be able to buy them on the cheap anymore.

UPDATE:
In a shocking development, China is selling off American bonds. Stock up on those plastic goodies while you can - prices at Wal-Mart are about to change direction, not to mention your house...

3 comments:

Black Sea said...

The relationship between the need to control production levels within the petroleum market, the need to dictate the type of currency used in that market, and the need to prop up the exorbitant levels of US debt seems to me the most plausible explanation for our continuing and disasterous involvement in Iraq.

Unfortunately, it's also a good bit more complicated than the fear of another 9/11, and the pious wish for a new Middle East, whose political profile would resemble that of Switzerland.

Furthermore, most Americans are very uncomfortable with the idea that their country would instigate a war simply in a bid to maintain economic dominance.

It seems to me that the petro-dollars connection to the war in Iraq deserves far wider exposure in America.

sharinlite said...

It truly must be wonderful to be not an American and throw garbage out and take garbage in. I want to know precisely who, what, when, where and how. Don't give me this "instigate a war...." business. Give me hard, readable by me facts and figures to support your contention. If you can, print 'em, if you can't put a sock in it. Just remember, we will not be there to help you all out of your messes, again!!

Black Sea said...

Sharinlite,

The post by Mr. Deneen links to two articles on the connection between petro-dollars and the war in Iraq. The second article has seven linked references and one long article for suggested further reading. If you are interested in more information, it's not difficult to locate through a search engine.

Perhaps this will slake your thirst for "hard, readable by me facts and figures to support your contention." Perhaps not. The "petro-dollars theory" is just that, a theory, an attempt to explain America's mysterious, costly, and highly controversial invasion and occupation of Iraq.

Nowhere in my comment did I claim that this theory has been proven. I said it was the most plausible theory that I had seen to date. The reality is that we are highly unlikely to learn from our government the exact details of "who, what, when, where, and how," and so as private citizens we must fill in the blanks as best we can in an attempt to understand the actions of our elected representatives.

I would like to share with you two quotations from a longer list compiled on my website:

"Regardless of whether we say so publicly, we will go to war, because Saddam sits at the center of a region with more than 60 percent of all the world's oil reserves."
--Anthony H. Cordesman, Senior Analyst at the Center for Strategic and International Studies

"I now regret that I did not more openly challenge those who were determined to invade a country whose actions were peripheral to the real threat—al-Qaeda. … [T]he Pentagon's military leaders … with few exceptions, acted timidly when their voices urgently needed to be heard. When they knew the plan was flawed, saw intelligence distorted to justify a rationale for war, or witnessed arrogant micromanagement that at times crippled the military's effectiveness, many leaders who wore the uniform chose inaction. … It is time for senior military leaders to discard caution in expressing their views and ensure that the President hears them clearly. And that we won't be fooled again."
--Retired Lt. Gen. Greg Newbold, former operations director for the Joint Chiefs of Staff

The work of both of these gentleman may be familiar to you. At the time of his resignation, Gen. Newbold was considered a strong candidate to become the next Marine Corps Commandant, which may be or particular interest to you.

As a final note, I can't say whether or not it is wonderful to be "not an American," since my ancestry in America pre-dates the foundng of the Republic.

I am, however, sorry to learn that you will not be there to help (me? us?) out of our messes again. I suppose we'll have to muddle along as best we can on our own.