Ending the Dollar's Tyranny
By Mike Whitney
"The real rulers in Washington
are invisible and exercise power from behind the scenes." Felix Frankfurter,
United States Supreme Court Justice
09/18/06 "Information
Clearing House" -- -- The U.S. dollar is the very heart of the empire.
The military, the media and the political establishment are merely the
tributaries which flow away from the center. Any plan to restore America’s
democratic values and end our foreign wars must focus on the dollars’ dominant
role in the global economy and its adverse affects on the people at home.
Presently the
dollar is underwritten by $8.3 trillion of debt. The US trade deficit is running
at $800 billion per year which is 6.4% of GDP. The trade deficit is large enough
to cover the yearly costs of the war in Iraq, the defense budget, and Bush’s
lavish tax cuts. In other words, America’s war machine is lubricated with money
borrowed from the developing world.
Despite the
enormity of America’s debt, foreign nations still accept our fiat money in
exchange for their resources and manufactured goods. That’s because the American
consumer market has been the main engine for global growth for more than 25
years. Only recently have other countries started to shy-away from the dollar,
recognizing the tell-tale signs that the over-leveraged American consumer is
nearing the end of his spending spree. As consumer spending gradually slows,
recession will set in, and investors will shift capital to foreign markets.
These developments will make it more difficult for the dollar to maintain its
supremacy.
Typically,
foreign-owned US dollars are used to purchase American securities or US
Treasuries. It takes roughly $2.5 billion per day of foreign net-inflows to
cover the burgeoning deficit. These infusions help to keep interest rates low in
the short term, but they come at a hefty price. America is placing its future in
the hands of its creditors who now own more than $3 trillion of American assets
and securities. We saw how explosive this situation can be in the case of the
Dubai Port deal. Middle Eastern businessmen wanted to purchase American seaports
with US dollars. The transaction set off a political firestorm even though the
Dubai businessmen were operating entirely within the legal confines of current
international trade law. As more of America’s wealth is transferred to
foreigners, we can expect similar situations will arise.
The massive trade
deficit serves the narrow interests of western elites and the Federal Reserve,
but is destructive to the working class. It allows the shifting of wealth from
one class to another via tax cuts, “no-bid” contracts, and other contrivances
which escape public notice behind the smokescreen of low interest rates. It also
allows the Fed to keep increasing the money supply (which has doubled in the
last 7 years) to meet the requirements of expanding foreign trade.
It's no wonder
Washington politicians and banking giants plan to prolong this system as long as
possible. Their power and personal wealth are only enhanced by the process. The
exchange of paper scrip for valuable commodities, resources and manufactured
goods is the best deal around. It is the equivalent of having a mint in one’s
own backyard. Last year’s trade deficit with China alone (which was $200
billion) would have paid for 2 full years of the war in Iraq!
War is
considerably less painful when someone else is paying the bill.
Although the
current deficits are “unsustainable,” (according to former Fed-chief Alan
Greenspan) foreign countries continue to accept greenbacks in exchange for their
goods; sucking hundreds of billions of dollars from the poorest countries on the
planet to sustain the living standards of people in the world’s biggest “debtor
nation”. The brisk pace of international trade keeps trillions of dollars in
circulation preventing the hyper-inflation it would cause if the money was
returned to America.
As America’s debt
has continued to balloon, there are signs that nation’s around the world are
beginning to diversify their stockpiles of US dollars. If they reduce their
holdings too quickly, the dollar could free-fall and precipitate a widespread
sell-off.
According to Arab
News, nearly $4 trillion in US dollars is currently held in central banks around
the world; nearly 70% of all their holdings. This is as close to a monopoly as
it gets. If even a fraction of those greenbacks are traded for euros or some
other currency, the effects on the American economy would be catastrophic.
To a large extent,
the supremacy of the dollar depends on the oil trade. Oil is the largest
commodity in the world and its trade is almost exclusively denominated in
dollars through the New York Mercantile Exchange (NYMEX) or London’s
International Petroleum Exchange (IPE). Foreign countries must maintain large
stockpiles of US Dollars in order to meet their energy needs. It is estimated
that approximately $2.6 trillion is circulating in the oil trade alone.
This vice-like
grip on the oil market is now being challenged by a number of countries
including Russia, Venezuela and Iran. These three nations produce 25% of daily
global output and pose a direct challenge to the dollar’s continued dominance.
This explains why these three have fallen out of grace with Washington. The US
cannot maintain its superpower status unless it can control the lion’s-share of
world’s oil and force the world to use its currency. By 2030 60% of the world’s
oil will come from the Middle East. The US will have to assert control over the
resources of the entire Caspian Basin if it intends to keep the dollar as the
de-facto international currency.
Imperial rule
requires a “coin of the realm”. Even as the American consumer market loses
steam; western elites are planning to preserve US dollar hegemony in order to
continue their control of the global economic system. Their objectives
foreshadow even greater reliance on military force and intimidation.
America is now
engaged in a transition that has never before been attempted. It has hollowed
out its manufacturing sector (more than 3 million manufacturing jobs have been
lost since Bush took office) looted its treasury, and plunged the country into
irreversible debt. Its major corporations and banks have disconnected from the
mainland and operate as sovereign islands protected by the US military and
international trade law. They have no allegiance to America and are
unaccountable to anyone except their own shareholders.
Dollar-hegemony is
critical to their ongoing success as it keeps the basic unit of exchange; paper
money, in the control of fellow-elites at Federal Reserve. Absent that power,
American plutocrats would be unable to perpetuate the system of trading debt (US
dollars) for resources and manufactured goods. If Bush succeeds in his global
resource war, then countries will be forced to use the dollar regardless of how
much debt it has accumulated.
The most effective
strategy for bringing the dollar into balance with the other currencies is to
“democratize” the system and allow the free exchange of goods and resources in
one’s own currency. This would eliminate the dependence on a reserve currency
and make the United States accountable for its own prodigious debt. This, in
turn, would force American leaders to revitalize the manufacturing sector as a
way of restoring economic solvency.
The dependence on
a “reserve currency” inevitably creates winners and losers. It is an invitation
to massive account imbalances as well as corruption and exploitation. Greater
parity among the currencies should be encouraged as a way of strengthening
democracies and invigorating markets. It promises to breathe new life into
international trade by allowing other political models to flourish without fear
of being subsumed into the capitalist prototype.
The dominance of the greenback has created a global empire which is controlled by a small group of corporatists and autocrats who depend on bullying and brute force to maintain their supremacy. The only way to restore the republic is to topple the empire, dislodge the dollar from its lofty perch, and even the playing field with the other currencies.