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old new lefty

old new lefty
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September 16
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virgin novelist, middle school teacher for the morally handicapped, government bureaucrat, most famous unknown photographer in LA, PhD dropout, coat hanger sorter, presidential campaign worker, sewer worker, and retired guy -- but not in that order.


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FEBRUARY 8, 2012 1:11AM

Another Way for the American Empire to Die

Rate: 16 Flag

As citizens of the American Empire, we enjoy all sorts of benefits that other countries just don't have.  George W. Bush could let the Chinese pay for the Iraq War, as their holdings of Treasuries were effectively a credit card for his little military adventure. But other things fall our way because the dollar is the effective world currency.

 It's estimated that a full 85% of all foreign exchange currency transactions are from one national currency or another being changed into greenbacks.  The US Treasury and Federal Reserve Board (as well as our banks) benefit from this fact.   Since commodities are priced in dollars, and countries that produce them are dependent on the price they get for them, -- commodities are played like a violin in the USA.  A perk that the 1% has in this country is to manipulate the price of oil, wheat, and other commodities on Wall Street, the Chicago Board of Trade, etc. Remember when oil was $144 a barrel, or when corn was over $7 a bushel?  Well, the speculators sure do.  And our speculation makes the whole world dance to our tune.

I know.  Your eyes glaze over when someone  gives a lecture on the variabilities in the pricing of commodities from the persectives of different national currencies.  But there's a wake up call coming, and it's coming from the way the price of oil will be priced in the next nine years. Imagine what would happen one day if the price of everything in Wal Mart was  suddenly 20-40% more expensive, along with the price of gasoline and anything else that needs to be imported into the USA. That's exactly what would happen if the dollar were no longer the standard currency immediately, and the world was suddenly operating on a market basket of a number of currencies instead. 

Of course, this would be disastrous both for China and the US.  Because of this, any change away from the system established by the original Bretton Woods agreement will have to be introduced very slowly over a nine year time period.  One pressure point for change will be the International Monetary Fund, where an over-reliance on the dollar will be lessened over time with other currencies.  A critical component will be China's plans to internationalize the yuan.  Once the yuan becomes more convertible, it can more easily go into the IMF mix. 

Robert Fisk wrote a piece called The Demise of the Dollar in The Independent  in October, 2009. He talked about how Russia, China, Japan, France, Saudi Arabia, and some of the smaller Persian Gulf Arab states had been conferring on moving  the world pricing of oil towards a currency basket that included the  dollar with the euro, Japanese yen, Chinese yuan, and gold.  The finance ministers of Russia, China, Japan, and Brazil  met at the London G-20 meetings to discuss how this would be implemented, and India was expressing interest in the scheme as well.

I scanned some of the G-20 material since then, and found that they have been moving cautiously but steadily in the direction towards implementing the move away from the dollar.  The  material for the June meeting of the G-20 is in Cabo San Lucas indicates that once again, movement on the market basket of currencies for oil is a priority item, more on the front burner than the back.

It will be important to look through the official communiques from Cabo to see how the market basket evolves.  To be sure, these things are influenced by the ups and downs of the economy, and admittedly the euro and Chinese yuan are having their own concerns now.  But we can be certain that over the long term, as the dollar depreciates the momentum towards moving towards a completely different approach than the old Bretton Woods agreement will accelerate.

And that's how the world works.

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Just when I thought there could not be anything else your brilliant perception raises to the occasion.

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Unfortunately, most people like getting fucked over which makes us helpless in stopping the demise. Prices are already overvalued from speculation. So switching away from the dollar would only add costs on top of that.

There is much abuse of the term "free market". We do not have free markets, we have manipulated markets. What the crooks want is a market where they are free to manipulate and that is what they call "free markets". This means the absence of competition, removal of consumer protection and carte blanche for all executive decisions for everything from compensation to the environment - even if the fuckers are being bailed out!
yep! Who's behind the attack on the euro, I wonder? It wasn't long ago that the oil producing countries had more than just a thought about tying the oil to the euro......
Exactly. I cannot for the life of me figure out why we can have a surplus of oil and let the speculators raise the price. It's nuts!
Wouldn't a global currency make more sense than a lot of competing currencies? Maybe not in China yet, but certainly in the U.S. the national governments are not the major players any more: The money people and the big corporations are.
From cheap gas prices to the growth of the suburbs to our extensive use of air travel, all of this has been dependent on the pricing of oil with our global currency. So you can see some of the things that will change in the USA as the water slowly heats up this lobster on the giant pot on the stove.

The documents and communiques of the IMF and the G-20 are some of the few visible points where we can see how the lobster is being cooked, and believe me -- the information presented for all to see is opaque, technical, and not easily understood by a layman.
Much more significant are the invisible pieces of information that are not accessible even to our government. Here I'm talking about the internal accounting infrastructure of the world's finance houses and multinationals. The other stealth moves are the national finances of China and the GCC states for example.

Ultimately boys and girls, it's all about the whims and movements of capital by the 0.00001%.
Well, this discussion is certainly above my pay grade, but it seems to me this experiment has already been tried, and at the moment at least has been found wanting. The euro is in essence a basket currency, with the British abstaining of course.

Surely, designing a mechanism that floats all major currencies is going to be controversial and contentious, particularly since countries like ours operate with a banking system that is nominally independent, while many other nations operate State banks. Or am I missing something here?
for both Myriad & Tom,

One of the problems that the current world economic system has is in the many different types of currency floating around. However has the world benchmark currency has all sorts of advantages that other countries don't. See the Spanish and British Empires for example.

The imbalances of different currencies between each other (too high, too low) sets up economic instability, speculation, and depression. And the Bretton Woods agreement in 1944 set up the current system that underwent a significant modification in 1971 when Nixon stopped the ability of foreign governments to convert dollars (silver certificates) to gold. Nixon's actions set up the greatest economic downturn since the 1930s with the slump of 1973-74.

Since then, the euro has become a major currency that integrated into the world monetary system pretty well up until lately. And then, there's the Peoples Republic of China. Unlike any other major world currency, the Chinese yuan is not readily convertible or exchangeable. It's only good in China and Hong Kong.

The growing power of China and OPEC states is coupled with the declining economic power of the USA. After all, we no longer have 50% of all the money in the world like we did when Bretton Woods was formed.

For the benefit of the world economy (screw the United States!) there is general consensus among the powers that be that a market basket of currencies for pricing oil and other things is the way to go. Admittedly, this is only an interim measure in the long term play books of the true rulers of the earth.

I believe the ultimate long, long term goal is a single global unit of currency. Call it the Fred or Wilma or whatever. But as this blog has already pointed out, many of the powers that be (not in the US government) feel that the market basket is the way to go for now.

The US government can slow the process down because of its disproportionate influence on the G-20, World Bank, IMF, etc. But as my last comment shows -- Uncle Sam can't stop steps from being made in this direction. The best they/we can hope for is to slow things down.

But that's worth a couple of blogs down the road.
For those who haven't seen it -- or haven't seen it in awhile, the Jensen Speech from the movie Network would seem to apply here.

Jensen Speech
The US dollar is sinking like a stone. It has lost 16% of its value relative to the New Zealand dollar in six months.
Pretty much true, Tom. The bidness of the world is bidness. But it doesn't hurt once in a while to show the man behind the curtain working the machinery.
Thanks for the response re global currency.

What often bothers me is that life here on the surface of the earth can be pretty good and people are, for the most part, pretty nice, and it's all cozy and stuff. At the same time, those people who dwell at loftier altitudes can ignore or play with or demolish our little lives with their military wonders and their financial machinations.
I hadn't realized that the movement to de-dollarize was that advanced onl, but I still don't see it happening in the next few years. Market baskets aren't as easy to administer and as you say, it's a peculiar world if the Euro and the dollar are both over-valued.

A few years ago I read an article trying to reassure that the Chinese wouldn't take any drastic action to destabilize the dollar. That would reduce the value of a large chunk of their foreign reserves. The article used the metaphor of the frog carrying the scorpion across the river.
I thought the move would happen with the Euro, but current events will keep the dollar an important reserve currency for decades. After all, if the Euro falls, along with the return of the D-Mark will come the return of the Drachma and Euro denominated contracts will probably deliver both D Marks and Drachma.

I have a bit of trouble seeing countries come to an agreement on a basket of currencies. First, gold is very volatile and usually rises with inflation, providing an accelerator effect, as oil prices often cause/track inflation.
Second getting the Russians to agree that the Yuan is a world currency and the Ruble not might be a tricky proposition.
NOL: You wrote:

"I believe the ultimate long, long term goal is a single global unit of currency. Call it the Fred or Wilma or whatever. But as this blog has already pointed out, many of the powers that be (not in the US government) feel that the market basket is the way to go for now."

Hard for me to visualize in the wake of the disaster that the Euro is currently undergoing. This is exactly what they tried in Brussels and now the Euro is slip sliding all over the place. Not even Turkey is interested in joining the EU anymore. You can't have a basket of currencies when no one can control the sovereignty of each of the member currencies. Look what's going on in Greece!

The fact remains that the planet STILL relies on the USA as a stable place to put assets. That's why our bonds yield practically nothing. As long as that continues it seems to me that the buck will still be the reserve currency to the world.
RW, for America's militarism, I see the US under two kinds of pressure. On the one hand are the hogs feeding at the trough. They luvs their defense contracts, and they will do anything to keep them! On the other hand, our defense bill is just getting too damn fat. Our entire debt problem could be solved if we cut defense as severely as the cons would like to cut Social Security, etc. And with humanity's fight against global warming, we will all collectively have to figure out whether we want to save our species or our defense contracts.

Abrawang, similarly the Chinese are in a quandry. On the one hand, they have the huge dollar disposal problem. On the other hand, they want to be more of an international player. The ultimate success or failure of the market basket scheme depends on what China wants to do. Period.

Malusinka, you're certainly correct about the fallacy of including gold in the market basket approach, as gold is priced in dollars. Circular logic at work there.

Flylooper, one world federalists are still alive, but they're idealists and you and I will be dead a long time before that happens. But world government is still the ultimate objective with a world currency to go along with it. So the market basket proponents are the hard headed realists in comparison.
You wrote: "Our entire debt problem could be solved if we cut defense..."

I agree. I wrote essentially the same as a comment to your previous post.

And I think that you could achieve that, if Americans really wanted it. You simply needed to get rid of both republican and democrat presidents... A new kind of mass movement tho change the power structure...
There has been talk about replacing the dollar as the unit for international commerce for decades, assuming memory is serving me correctly. One of the initial goals of the Euro was to move in that direction, but weakness against the dollar stopped that kind of speculation for a while. As the Euro rebounded, before current crisis, talk resumed. Now the Euro's existence hangs in the balance.

If nothing else, the weakness of Europe's southern economies should stick in the mind of folks for some time. Further, Europe is up against some challenging demographic trends that require considerably more creative solutions than tinkering around the edges by raising retirement ages and cutting public pension benefits. If it's a stable currency that's needed, I don't think the Euro is it.

An international currency makes a degree of theoretical sense. But as a political (possible) reality? Ay-yi-yi.
[r] Saddam Hussein's unpopularity had much to do with his serious threat to the dollar, as did Gadaffi's. The bankers play murderous hardball with the US/NATO-WarMachine! All that weaponry going to Saudi Arabia is a bribe to keep on keeping on with the petrodollar! Thanks for the reminder of what the big chess game is really about, realpolitik. libby
I couldn't agree more. In fact, I have for some time. The US dollar is the New Gold. Whenever the Euro starts to go in the tank, Treasuries go through the roof.

With the effective demise of B-W with the first oil embargo, the USofA lost control of exchange rates. We got that control as a back repayment for both WWII and the Marshall Plan.

I've started working on a piece, if I can find the data (no guarantee), which puts this in perspective. If one believes in Adam Smith (the real one), then exchange rates will level the playing field among countries, based on production. In other words, among other things, middle class standard of living would be the same everywhere. It isn't, of course. In the past B-W allowed Americans (4% of the planet) to scarf up 24% of the planet's resources. That the distribution of this largess with the USofA is badly skewed toward the 1% and .1% doesn't cause the Rest of the World to have much sympathy for our ravaged middle class.
Very informative. Thanks!