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.
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...