Re: The Iranian Oil Bourse and the Fall of the American Dollar


hrel wrote:
The Proposed Iranian Oil Bourse


Tqy kato gledam pone dvama tuk sa se izkazali pohvalno za tazi statiya
ya i az da dam moite 2 s'tinki po vqprosa. Predi da prodqlzha shte
kazha che me e sram da komentiram analiz pqlen s tolkova mnogo dupki no
kakvo da se pravi. Vse pak chovek izpitva nyakakvo vqz'hishtenie kqm
bqlgarskite pishman-ikonomisti nyakoy ot koito smelo sa napravili skoka
prez okeana (predi da gi brakuvat i vqrnat obratno v BG).

Krassimir Petrov, Ph. D.
January 17, 2006

Abstract: the proposed Iranian Oil Bourse will accelerate the fall of
the American Empire.

http://www.321gold.com/editorials/petrov/petrov011706.html
I. Economics of Empires

A nation-state taxes its own citizens, while an empire taxes other
nation-states. The history of empires, from Greek and Roman, to
Ottoman and British, teaches that the economic foundation of every
single empire is the taxation of other nations. The imperial ability
to tax has always rested on a better and stronger economy, and as a
consequence, a better and stronger military. One part of the subject
taxes went to improve the living standards of the empire; the other
part went to strengthen the military dominance necessary to enforce
the collection of those taxes.

Historically, taxing the subject state has been in various forms -
usually gold and silver, where those were considered money, but also
slaves, soldiers, crops, cattle, or other agricultural and natural
resources, whatever economic goods the empire demanded and the
subject-state could deliver. Historically, imperial taxation has
always been direct: the subject state handed over the economic goods
directly to the empire.

Interesna no v krayna smetka smeshna analogiya. Izliza che danqtsite sa
funktsiya na imperski otnosheniya. Privet na robite v BG obsluzhvashti
imperiyata narechena Republika Bqlgariya!


For the first time in history, in the twentieth century, America was
able to tax the world indirectly, through inflation. It did not
enforce the direct payment of taxes like all of its predecessor
empires did, but distributed instead its own fiat currency, the
U.S. Dollar, to other nations in exchange for goods with the intended
consequence of inflating and devaluing those dollars and paying back
later each dollar with less economic goods - the difference capturing
the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the
world economy. The U.S. dollar was tied to gold, so that the value of
the dollar neither increased, nor decreased, but remained the same
amount of gold. The Great Depression, with its preceding inflation
from 1921 to 1929 and its subsequent ballooning government deficits,
had substantially increased the amount of currency in circulation,
and thus rendered the backing of U.S. dollars by gold
impossible. This led Roosevelt to decouple the dollar from gold in
1932. Up to this point, the U.S. may have well dominated the world
economy, but from an economic point of view, it was not an
empire. The fixed value of the dollar did not allow the Americans to
extract economic benefits from other countries by supplying them with
dollars convertible to gold.

Economically, the American Empire was born with Bretton Woods in
1945. The U.S. dollar was not fully convertible to gold, but was made
convertible to gold only to foreign governments. This established the
dollar as the reserve currency of the world. It was possible, because
during WWII, the United States had supplied its allies with
provisions, demanding gold as payment, thus accumulating significant
portion of the world's gold. An Empire would not have been possible
if, following the Bretton Woods arrangement, the dollar supply was
kept limited and within the availability of gold, so as to fully
exchange back dollars for gold. However, the guns-and-butter policy
of the 1960's was an imperial one: the dollar supply was relentlessly
increased to finance Vietnam and LBJ's Great Society. Most of those
dollars were handed over to foreigners in exchange for economic
goods, without the prospect of buying them back at the same
value. The increase in dollar holdings of foreigners via persistent
U.S. trade deficits was tantamount to a tax - the classical inflation
tax that a country imposes on its own citizens, this time around an
inflation tax that U.S. imposed on rest of the world.

When in 1970-1971 foreigners demanded payment for their dollars in
gold, The U.S. Government defaulted on its payment on August 15,
1971. While the popular spin told the story of "severing the link
between the dollar and gold", in reality the denial to pay back in
gold was an act of bankruptcy by the U.S. Government. Essentially,
the U.S. declared itself an Empire. It had extracted an enormous
amount of economic goods from the rest of the world, with no
intention or ability to return those goods, and the world was
powerless to respond - the world was taxed and it could not do
anything about it.

Otkaza na SASHT da polzva zlato za pogasyavane na mezhdunarodni
tqrgovski smetki prez 1971 naistina e forma na "default" no nyama
ABSOLYUTNO nishto obshto s nyakavo "oblagane" na podchineni dqrzhavi s
"danqtsi". Ako Dr. (da se chete po usmotrenie ili dorkttor ili drugar)
Petrov si beshe napravil domasnoto shteshe da vidi che do tozi moment
(1971) Amerika e v "neto" kreditor a ne dlqzhnik (napr. vizh fig. 1
tuk: http://www.mises.org/story/1955), i to OGROMEN kreditor. S drugi
dumi izpolzvayki negovata logika Amerika se e grqmnala v glavata kato
napraktika e otkazala da si vzeme zlatoto dadeno pod naem na neynite
dlqzhnitsi (kolonii?).


From that point on, to sustain the American Empire and to continue to
tax the rest of the world, the United States had to force the world
to continue to accept ever-depreciating dollars in exchange for
economic goods and to have the world hold more and more of those
depreciating dollars. It had to give the world an economic reason to
hold them, and that reason was oil.

Mnogo po-logichno (i prosto) obyasnenie za uspeha na dolara sled 1971
(dokolkoto go ima) e che "ever-depreciating dollars" sa kqde kqde
po-primamlivi ot "ever-more-depreciating" frenski frankove, italyanski
liri pqk da ne govorim za indiyski rupii, arzhentinsko peso (posle
"novo peso", posle "avstral" posle pak "peso" i t.n.) - blagodarenie na
silna ikonomika i solidna anti-inflatsiona politika na Federalniya
Rezerv.


In 1971, as it became clearer and clearer that the U.S Government
would not be able to buy back its dollars in gold, it made in 1972-73
an iron-clad arrangement with Saudi Arabia to support the power of
the House of Saud in exchange for accepting only U.S. dollars for
its oil.

Tuk pqk kutsme po istoriya. Vqprosniya "pakt" datira ot 1945 a ne
1972-73. Naprotiv, 1973 e niskata tochka v otnoshenieto mezhdu
Sauditska Arabiya i SASHT (kogato SA otkazva da prodava petrol na SASHT
dali s dolari ili zlato).

The rest of OPEC was to follow suit and also accept only
dollars. Because the world had to buy oil from the Arab oil
countries, it had the reason to hold dollars as payment for
oil. Because the world needed ever increasing quantities of oil at
ever increasing oil prices, the world's demand for dollars could only
increase.

Intersno kak tazi teoriya obyasnyava oshte po-vpechatlyavashtoto
predstvavyane na (zapadno) germanskata marka prez sqshtiya period?

Even though dollars could no longer be exchanged for gold,
they were now exchangeable for oil.

Shtoto dolara stanal edinstvenata kenvertiruema valuta.


The economic essence of this arrangement was that the dollar was now
backed by oil. As long as that was the case, the world had to
accumulate increasing amounts of dollars, because they needed those
dollars to buy oil. As long as the dollar was the only acceptable
payment for oil, its dominance in the world was assured, and the
American Empire could continue to tax the rest of the world. If, for
any reason, the dollar lost its oil backing, the American Empire
would cease to exist. Thus, Imperial survival dictated that oil be
sold only for dollars. It also dictated that oil reserves were spread
around various sovereign states that weren't strong enough,
politically or militarily, to demand payment for oil in something
else. If someone demanded a different payment, he had to be
convinced, either by political pressure or military means, to change
his mind.

The man that actually did demand Euro for his oil was Saddam Hussein
in 2000. At first, his demand was met with ridicule, later with
neglect, but as it became clearer that he meant business, political
pressure was exerted to change his mind. When other countries, like
Iran, wanted payment in other currencies, most notably Euro and Yen,
the danger to the dollar was clear and present, and a punitive action
was in order. Bush's Shock-and-Awe in Iraq was not about Saddam's
nuclear capabilities, about defending human rights, about spreading
democracy, or even about seizing oil fields; it was about defending
the dollar, ergo the American Empire. It was about setting an example
that anyone who demanded payment in currencies other than
U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to
seize Iraqi oil fields. However, those critics can't explain why Bush
would want to seize those fields - he could simply print dollars for
nothing and use them to get all the oil in the world that he
needs. He must have had some other reason to invade Iraq.

Gorniya primer e nay-silnoto dokazatelskto za nesqstoyatelnostta na
tezata na Dr. Petrov. Ako negovata teoriya be vyarna chovek bi
predrekql che sled kato amerikantsite razbivat Sadam i premahvat
negovata prodazhba na petrol samo sreshtu evro kursa na evroto spryamo
dolara bi tryabvalo da padne (mozhe bi ryazko). Obratnoto obache e
fakt. Mezhdu nachalto na voynata i karya na 2004 evroto se kachi
spryano dolara ot 1.05 do 1.35 dolara za evro. Yadets!


History teaches that an empire should go to war for one of two
reasons: (1) to defend itself or (2) benefit from war; if not, as
Paul Kennedy illustrates in his magisterial The Rise and Fall of the
Great Powers, a military overstretch will drain its economic
resources and precipitate its collapse. Economically speaking, in
order for an empire to initiate and conduct a war, its benefits must
outweigh its military and social costs. Benefits from Iraqi oil
fields are hardly worth the long-term, multi-year military
cost. Instead, Bush must have went into Iraq to defend his
Empire. Indeed, this is the case: two months after the United States
invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro
accounts were switched back to dollars, and oil was sold once again
only for U.S. dollars. No longer could the world buy oil from Iraq
with Euro. Global dollar supremacy was once again restored. Bush
descended victoriously from a fighter jet and declared the mission
accomplished - he had successfully defended the U.S. dollar, and thus
the American Empire.

II. Iranian Oil Bourse

The Iranian government has finally developed the ultimate "nuclear"
weapon that can swiftly destroy the financial system underpinning the
American Empire. That weapon is the Iranian Oil Bourse slated to open
in March 2006. It will be based on a euro-oil-trading mechanism that
naturally implies payment for oil in Euro. In economic terms, this
represents a much greater threat to the hegemony of the dollar than
Saddam's, because it will allow anyone willing either to buy or to
sell oil for Euro to transact on the exchange, thus circumventing the
U.S. dollar altogether. If so, then it is likely that almost everyone
will eagerly adopt this euro oil system:

* The Europeans will not have to buy and hold dollars in order to
secure their payment for oil, but would instead pay with their
own currencies. The adoption of the euro for oil transactions
will provide the European currency with a reserve status that
will benefit the European at the expense of the Americans.

* The Chinese and the Japanese will be especially eager to adopt
the new exchange, because it will allow them to drastically lower
their enormous dollar reserves and diversify with Euros, thus
protecting themselves against the depreciation of the dollar.

Tozi chovek kak mozhe da ima doktorat po ikonomika ako rqsi podobni
gluposti? V momenta NRK ima rezerv ot nad $100 milyarda. Yaponiya pak
nyakqde tam. Ako ima drugi strani na tozi svyat (bez da broim SASHT)
koito biha zagubili poveche ot sriva na dolara nyakoy bi li mi kazal
koi sa te? Nyamali tqrpenie, 'basi prostotiyata!

One
portion of their dollars they will still want to hold onto; a
second portion of their dollar holdings they may decide to dump
outright; a third portion of their dollars they will decide to
use up for future payments without replenishing those dollar
holdings, but building up instead their euro reserves.

* The Russians have inherent economic interest in adopting the Euro
- the bulk of their trade is with European countries, with
oil-exporting countries, with China, and with Japan. Adoption of
the Euro will immediately take care of the first two blocs, and
will over time facilitate trade with China and Japan. Also, the
Russians seemingly detest holding depreciating dollars, for they
have recently found a new religion with gold. Russians have also
revived their nationalism, and if embracing the Euro will stab
the Americans, they will gladly do it and smugly watch the
Americans bleed.

* The Arab oil-exporting countries will eagerly adopt the Euro as a
means of diversifying against rising mountains of depreciating
dollars. Just like the Russians, their trade is mostly with
European countries, and therefore will prefer the European
currency both for its stability and for avoiding currency risk,
not to mention their jihad against the Infidel Enemy.

Kato imame predvid sqbitiyata ot poslednite nyakolko dena ne e yasno
koy spored arabite, Amerika ili Evropa, e po-golemiya "Infidel Enemy",
ama neyse.


Only the British will find themselves between a rock and a hard
place. They have had a strategic partnership with the U.S. forever,
but have also had their natural pull from Europe. So far, they have
had many reasons to stick with the winner. However, when they see
their century-old partner falling, will they firmly stand behind him
or will they deliver the coup de grace? Still, we should not forget
that currently the two leading oil exchanges are the New York's NYMEX
and the London's International Petroleum Exchange (IPE), even though
both of them are effectively owned by the Americans. It seems more
likely that the British will have to go down with the sinking ship,
for otherwise they will be shooting themselves in the foot by hurting
their own London IPE interests. It is here noteworthy that for all
the rhetoric about the reasons for the surviving British Pound, the
British most likely did not adopt the Euro namely because the
Americans must have pressured them not to: otherwise the London IPE
would have had to switch to Euros, thus mortally wounding the dollar
and their strategic partner.

At any rate, no matter what the British decide, should the Iranian
Oil Bourse accelerate, the interests that matter-those of Europeans,
Chinese, Japanese, Russians, and Arabs-will eagerly adopt the Euro,
thus sealing the fate of the dollar. Americans cannot allow this to
happen, and if necessary, will use a vast array of strategies to halt
or hobble the operation's exchange:

* Sabotaging the Exchange - this could be a computer virus,
network, communications, or server attack, various server
security breaches, or a 9-11-type attack on main and backup
facilities.

* Coup d'état - this is by far the best long-term strategy
available to the Americans.

* Negotiating Acceptable Terms & Limitations - this is another
excellent solution to the Americans. Of course, a government coup
is clearly the preferred strategy, for it will ensure that the
exchange does not operate at all and does not threaten American
interests. However, if an attempted sabotage or coup d'etat
fails, then negotiation is clearly the second-best available
option.

* Joint U.N. War Resolution - this will be, no doubt, hard to
secure given the interests of all other member-states of the
Security Council. Feverish rhetoric about Iranians developing
nuclear weapons undoubtedly serves to prepare this course of
action.

* Unilateral Nuclear Strike - this is a terrible strategic choice
for all the reasons associated with the next strategy, the
Unilateral Total War. The Americans will likely use Israel to do
their dirty nuclear job.

* Unilateral Total War - this is obviously the worst strategic
choice. First, the U.S. military resources have been already
depleted with two wars. Secondly, the Americans will further
alienate other powerful nations. Third, major dollar-holding
countries may decide to quietly retaliate by dumping their own
mountains of dollars, thus preventing the U.S. from further
financing its militant ambitions. Finally, Iran has strategic
alliances with other powerful nations that may trigger their
involvement in war; Iran reputedly has such alliance with China,
India, and Russia, known as the Shanghai Cooperative Group,
a.k.a. Shanghai Coop and a separate pact with Syria.

Whatever the strategic choice, from a purely economic point of view,
should the Iranian Oil Bourse gain momentum, it will be eagerly
embraced by major economic powers and will precipitate the demise of
the dollar. The collapsing dollar will dramatically accelerate
U.S. inflation and will pressure upward U.S. long-term interest
rates. At this point, the Fed will find itself between Scylla and
Charybdis - between deflation and hyperinflation - it will be forced
fast either to take its "classical medicine" by deflating, whereby it
raises interest rates, thus inducing a major economic depression, a
collapse in real estate, and an implosion in bond, stock, and
derivative markets, with a total financial collapse, or
alternatively, to take the Weimar way out by inflating, whereby it
pegs the long-bond yield, raises the Helicopters and drowns the
financial system in liquidity, bailing out numerous LTCMs and
hyperinflating the economy.

The Austrian theory of money, credit, and business cycles teaches us
that there is no in-between Scylla and Charybdis. Sooner or later,
the monetary system must swing one way or the other, forcing the Fed
to make its choice. No doubt, Commander-in-Chief Ben Bernanke, a
renowned scholar of the Great Depression and an adept Black Hawk
pilot, will choose inflation. Helicopter Ben, oblivious to Rothbard's
America's Great Depression, has nonetheless mastered the lessons of
the Great Depression and the annihilating power of deflations. The
Maestro has taught him the panacea of every single financial
problem-to inflate, come hell or high water. He has even taught the
Japanese his own ingenious unconventional ways to battle the
deflationary liquidity trap. Like his mentor, he has dreamed of
battling a Kondratieff Winter. To avoid deflation, he will resort to
the printing presses; he will recall all helicopters from the 800
overseas U.S. military bases; and, if necessary, he will monetize
everything in sight. His ultimate accomplishment will be the
hyperinflationary destruction of the American currency and from its
ashes will rise the next reserve currency of the world-that barbarous
relic called gold.


Abe paranoichnoto mislene e tqzhna kartinka. Kakvo poveche mozhe da
kazhe chovek?


Krassimir Petrov

About the Author

Krassimir Petrov has received his Ph. D. in economics from the Ohio
State University and currently teaches Macroeconomics, International
Finance, and Econometrics at the American University in Bulgaria.

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