its WASHINGTON — Last Wednesday,
U.S. Secretary of State Mike Pompeo gave a disturbing interview to Fox
Business Network in which he divulged his plans to form a NATO-type
alliance against Iran. The U.S. has long accused Iran
of supporting terrorism, accusations that have ramped up under the Trump
administration. Pompeo said, without a hint of irony, that Iran’s government
was leading the country into wars in Syria, Yemen, Iraq, and Lebanon, against
the will of the Iranian people. Furthermore, the absurd accusation that Hezbollah is in Venezuela seemed
a crude attempt to link the two countries in order to delegitimize both of
their governments at the same time. The announcement foreshadows the potential
for an abrupt and extreme escalation of U.S. attacks on Iran, similar to the
recent escalation of U.S.-Venezuela relations.
Washington’s
playbook for regime change has become more and more obvious as it is used more
frequently. In the cases of countries with powerful militaries like Venezuela,
Iran, North Korea, or China, outright invasion is unfeasible, as disapproving
public opinion would drag morale down. Demonizing the target via some pretext to isolate it from the
international community has been the preferred model to deal with larger
threats.
The U.S.
imposes financial sanctions under the guise of “targeting regime figureheads
and their inner circle of cronies,” and sweeping banking restrictions that cut
a country’s entire economy off from investment and foreign reserves. As the
country deteriorates under the weight of these sanctions, Washington points to
the chaos it has created and says — again, without a hint of irony — “This is
clearly a consequence of a neglectful and incompetent regime that must be
overthrown.” The time period between the present and that unknown future date
when the U.S. escalates is a crucial time for Iran to prepare itself for the
worst case scenario.
The U.S. is able to dictate these
econo-warfare policies through its disproportionate control of the world
financial system. Iran has been sounding warnings about
this strategy for some time and has been a vocal advocate of creating a new
global financial system that will bypass U.S. control of the existing global
financial system. Iran, though, is not the only country interested in such an
arrangement. Russia, China, and Venezuela have all
found themselves facing arbitrary economic penalties levied by the U.S. and
have also taken steps to weanthe world off the dollar and use alternative currencies to
conduct business, a global trend that could seriously impact U.S.
dominance over the world economy. But in order to understand where
“King Dollar” is going, we have to understand where it came from.
The
Birth of the Petrodollar
One of the first lessons we learn in
Econ 101 is that money has value only because we believe it does. In a
practical sense, this means the currencies that are most used or most needed to
purchase things are the most valuable. A reserve currency is simply a widely
accepted currency. Most countries have both a domestic currency for domestic
use and foreign reserves, which are designated for foreign trade and other
international activities. A few powerful countries issue reserve currencies, or
widely recognized and accepted currencies, and have an advantage in
international trade because they can simply print world reserve currencies
instead of exchanging currencies or selling goods to acquire that currency.
Today, the
U.S. dollar holds the status of world reserve currency because it is the most
recognizable and widely used unit of currency in the world. You can take a
dollar to any random country, any market on the side of the street, and show
them a greenback and chances are they will accept that funny little paper as
payment. If I decide to start a seashell-based currency today, chances
are I won’t be able to buy anything with my seashells.
There
is nothing inherently more special about our green piece of paper than someone
else’s blue paper, red paper, or yellow paper; the dollar is special only
because it represents a very special country, the United States of America, a
superpower the likes of which the world has never seen. Where American power
goes, its money always follows to become the region’s unit of economic
measurement. The currency that goods are priced in is very important because
if, for example, oil is priced in dollars, you need dollars to buy oil. This
creates demand for dollars and not yen or rubles, giving a tremendous advantage
to the country that prints dollars at no cost.
Before
the international dollar standard, there were other world reserve currencies.
The worldwide dominance of the Dutch East India Company made the Dutch guilder
the world reserve currency in the 17th and 18th centuries.
With the ascendance of the British Empire came the ascendance of the Pound
Sterling to world reserve currency status.
As the
world’s leading exporter of manufactured goods and services, British banks had
accumulated a large amount of gold deposits. The Bank of England issued
sterling certificates, paper that could be exchanged for gold, making the
sterling as “good as gold.” This
gave foreigners confidence that the paper sterling was not just paper but
backed up by something of tangible value. British investors chasing higher
returns expanded the reach of sterling further by making sterling-denominated
long-term investments (read loans) around the world. At its
height, over 60 percent of
world trade was denominated in pound sterling.
But, as had all empires before it, the
British Empire over-expanded and collapsed, unable to militarily control the
land it claimed as its own. However, as the British cities were reduced to
rubble in the Second World War, the United States, untouched throughout the
war, got rich selling weapons to the other allied powers. Through exporting
weapons, ammunition, equipment, and food, America’s war economy
accumulated 75 percent of the world’s gold,
making it the undisputed economic power of the capitalist world. No other
country had enough gold to back its currency’s value.
Recognizing
this, the leaders of the European capitalist powers agreed to make the dollar
the new world reserve currency by pegging the dollar to gold at a fixed exchange rate of 35 dollars
per ounce of gold. Other countries could exchange their currency for
dollars instead of gold, the logic being the dollar was as good as gold. The
International Monetary Fund was set up to ensure the U.S. maintained this
exchange rate and the IMF acted as a lender of last resort if a country’s
currency value fell too low compared to the dollar.
This
was not just a convenient arrangement but a necessary one, as the European
capitalist empires had fallen and needed to pass their power on to an heir. It
was the recognition that now the United States was the only country powerful
enough to organize and enforce worldwide markets. In addition, the use of
nuclear weapons to wipe Hiroshima, Nagasaki, and 200,000 Japanese civilians off
the map sent a message to the world that the United States was more militarily
advanced and ruthless than any other country on the planet. A new global empire was born.
The United States immediately embarked
on a series of invasions, mass killings, and covert regime-change operations in
places like Korea, Guatemala, Iran, and Vietnam, to expand its spheres of
influence. In order to fund these excursions, the United States began
printing dollars, a privilege enjoyed solely by the United States. Since
a dollar represented 1/35th of an ounce of gold, the United States was
essentially printing claim checks for gold, gold that the United States didn’t
actually have. A number of countries began to suspect that there were more than
35 dollars per ounce of gold in existence and began to turn in their dollars
and ask for gold. French President, Charles De Gaulle famously remarked:
The fact
that many countries accept as a principle, dollars as good as gold for the
payment of the differences existing to their advantage in the American balance
of trade, this very fact, leads Americans, to get into debt and to get into
debt for free at the expense of other countries. Because, what the U.S. owes them,
it is paid, at least in part, with dollars they are the only ones allowed to
emit.
Considering the serious
consequences a crisis would have in such a domain, we think that measures must
be taken in time to avoid it. We consider necessary that international trade be
established — as it was the case, before the great misfortunes of the World —
on an indisputable monetary base, and one that does not bear the mark of any
particular country. Which base? In truth, no one sees how one could really have
any standard criterion other than gold.“
The
erosion of confidence in the dollar-gold peg was called the Triffin Dilemma. To
understand how quickly the U.S. undermined the exchange rate, consider that
from 1790 to 1944, the U.S. accumulated around $200 billion dollars of debt.
From 1944 to 1971, the debt doubled to around $400 billion, at least
part of which was simply printed. The Nixon administration devalued the dollar
a few times before suspending the convertibility of
the dollar into gold completely on August 15th, 1971, holding
the world’s gold and leaving them with pieces of green paper.
Over
the next decade, the price of gold steadily increased to all-time highs. Nixon’s move, a desperate
attempt at stopping inflation, failed to do so, as the
world rejected the dollar. In order to avoid global loss of confidence in the
dollar, the dollar needed to be tied to a new commodity, something equally as
universally demanded.
The
U.S. found that commodity in 1973 during the Saudi-imposed oil embargo. Saudi
Arabia was infuriated by U.S. support for Israel in the Yom Kippur War and
imposed an oil embargo on the U.S. as punishment. Henry Kissinger led the diplomatic effort to
end the embargo. In 1974, a deal was struck to end the Saudi embargo and bring
U.S.-Saudi relations to previously unseen heights. John Perkins, author
of Confessions of an Economic Hitman and former economic
hitman himself, summarized the deal aptly:
In the
early 70s, OPEC didn’t like what we were doing in Israel, same old story. So
they cut off our oil supplies. So some of you will remember these long lines at
the gas stations and we feared, we were gonna have another depression like the
1929 depression. So the U.S. Treasury Department came to me and other economic
hitmen and said, ‘Listen, you know, we can’t allow OPEC to blackmail us
anymore. You guys gotta come up with a plan so this doesn’t happen again.’
We knew this plan had to involve Saudi
Arabia because it had more oil than anybody else and it also, the House of
Saud, was corrupt and corruptible. The long version is explained in the book
but the short version of what we did, the deal we finally struck with the House
of Saud, was a deal whereby they would return almost all the money they made
from selling to the U.S., invest it in U.S. government securities.
The
U.S. Treasury Department would use the interest from those securities, which
over the years amounted to trillions of dollars, to hire us companies to
westernize Saudi Arabia. Build petrochemical complexes, desalination plants,
whole cities out of the desert, McDonalds and all the other things that go
along with our western culture. The House of Saud would also agree to keep the
price of oil within limits acceptable to the oil companies, possibly not
acceptable to you and me, but acceptable to the oil companies.
And, this
is very very important. They agree that they will never ever sell oil for
anything other than U.S. dollars. This happened in the early 70’s right after
we had went off the gold standard because we were bankrupt. Because we could
not pay our debts to the European countries in gold, Nixon took us off the gold
standard. And then we were stuck with the situation ‘why would anyone in the
world use U.S. dollars?’ So then we came up with this plan, which in essence,
put the dollar on the oil standard.
You cannot buy oil on the world
market for anything other than dollars. And that’s very important for
corporatocracy. We, our part of the bargain was we agreed to keep the House of
Saud in power, in control. It was an amazing deal, the deal of the century. It
was history-making, incredibly powerful deal that we struck with Saudi Arabia
and it’s held.”
Crude
oil is the most traded commodity in the world;
every country needs it. The petrodollar system requires every country to have
U.S. dollars on hand to buy oil. It keeps demand for the U.S. dollar as high as
it was when the dollar was the only currency that could buy gold. If a country
needs oil, it will have to manufacture and export a tangible good of value,
like a car or a refrigerator, to the United States, while the U.S. can simply
print or borrow paper dollars to use as immediate payment.
Even
more advantageous to the U.S., OPEC nations take the profits from their oil
sales to buy U.S. securities (read: lend America money), a system called petrodollar recycling.
The deal with Saudi Arabia allowed the U.S. to continue being the only country
able to print the world reserve currency and run massive deficits to
become the consumer capital of the world.
The
Petrodollar and The Empire
The takeaway from the petrodollar
phenomenon is that as long as countries need oil, they will need the dollar. As
long as countries demand dollars, the U.S. can continue to go into massive
amounts of debt to fund its network of global military bases, Wall Street
bailouts, nuclear missiles, and tax cuts for the rich.
But what
happens if countries catch on to the scheme and try to break free of the
petrodollar system?
The most notable example of this is
Iraq, which began selling its oil for Euros instead
of dollars, which Iraq called the currency of an “enemy state,” in
the year 2000. This was a logical move for Iraq as the country was under a
brutal, U.N. sanctions regime, which caused 500,000 Iraqi children to die of
malnutrition, a price acceptable to U.S. Ambassador to the United
Nations Madeleine Albright. Iraq knew that the U.S. could use its control over
the international financial markets to further punish a dollar-dependent
country. Its ditching of the dollar was just another reason why Iraq ended up
in George Bush’s so-called “Axis of Evil.” Only weeks before the
invasion of Iraq, Saddam Hussein boasted that Iraq’s Euro-filled oil account
was earning a higher interest rate than
it would have had it been stuffed with dollars. The United States promptly
turned Iraq into a Hell-on-Earth, overthrowing Saddam’s government and
leaving over a million dead Iraqis in
its wake. Iraq’s oil supply was back under U.S. corporate control and, by extension,
under control of worldwide dollar hegemony as well.
Libya also had plans to undermine the
dollar’s grip over the global oil trade. An email from Hillary Clinton advisor and
ally Sidney Blumenthal, which was scrubbed from the State Department’s website,
revealed that French intelligence had discovered Libya’s vast gold and silver
reserves and feared they would be used to back a pan-African currency, the
Dinar, to rival the French franc, the Euro, and the dollar. The email goes on
to casually describe France’s motivations for intervening — oil,
unsurprisingly, topping the list:
·
A desire to gain a greater share of Libya
oil production
·
Increase French influence in North Africa
·
Improve his internal political situation in
France
·
Provide the French military with an
opportunity to reassert its position in the world
·
Address the concern of his advisors over
Qaddafi’s long term plans to supplant France as the dominant power in
Francophone Africa
While the initial efforts to destroy
Libya were spearheaded by France and Britain, none of these goals were in any
way objectionable or contrary to U.S. foreign policy objectives and the
interest of maintaining the petrodollar system, which is why the U.S. quickly
became a leader in the assassination campaign. Despite mass pro-government protests of over a million people against the NATO
intervention, which went nearly unreported in the corporate media, in the
following months, Libyan leader Muammar Gaddafi was beaten to death by NATO-armed rebels in
the streets of Tripoli.
Part of the reason the United States
continues to maintain such a heavy military presence in Bahrain, Iraq, Kuwait,
Oman, Qatar, Saudi Arabia, United Arab Emirates, Egypt, Israel, Jordan, Yemen,
Syria, and so on is that U.S. bases in these countries serve as launching padsfor
invasion against the next oil-bearing country that tries to defy the global
financial order. Where oil is buried, in a way, the U.S. must go in order to
ensure the petrodollar system is preserved. Oil quite literally guides U.S.
foreign policy. However, more and more people are seeing America’s financial
trickery for what it is and America can force the world to comply only for so
long.
Creating
a new global financial system
Today, two
OPEC countries are trying to shake loose the petrodollar system: Venezuela and
Iran.
Contrary to what we’ve been taught to
believe, they don’t do these things because they “hate America” or “hate
freedom” but because they’re forced to. Both countries have faced decades of
slander and, in recent years, outright economic warfare in the form of
restrictive financial sanctions that limit their access to international
markets. As mentioned in the beginning of the article, these sanctions
are designed to limit Venezuela and Iran’s ability to
acquire foreign reserves, and by extension, import things
like medicine.
This isn’t even a secret — it’s an openly stated goal of the sanctions
policy. Donald Trump’s lawyer, Rudy Giuliani celebrated the success of the
sanctions after reports stated Iranians were selling their
organs and begging for food. In a particularly genocidal episode, Mike Pompeo
said that the Iranian leadership would have to “make a decision that they want
their people to eat,” meaning install a U.S.-aligned government
or continue to starve under the sanctions regime.
Faced with no good options, both
countries have been experimenting with more creative ways of transacting with
international trade partners. Most obviously, both countries have
dropped the dollar from their international exchanges, pricing goods in other
reserve currencies like Euros and Yuan. This means you cannot import goods from
these countries with dollars.
Furthermore,
both countries are trying to repopularize gold as a means of international
payment. As sanctions crashed the value of the Iranian rial, demand for gold in
Iran hit four-year highs. Iran is
relying more heavily on its gold reserves to conduct trade. Iran is exploring
exporting oil products to various African nations in
exchange for gold. Iran has made similar agreements with India and Turkey.
Similarly,
Venezuela is attempting to use its gold to acquire foreign reserves.
Venezuela recently tried to withdraw $1.2 billion worth of its own gold stored
in the vaults of the Bank of England, only to be denied. In
response to Caracas’ attempts to subvert financial sanctions, Venezuela’s
enemies — namely the Lima Group, a U.S. sponsored organization of Latin
American countries — have insisted that Venezuela should be prevented from using oil and gold
to conduct international trade. The U.S. has already imposed sanctions on Venezuela’s gold
mining industry, which prevent American individuals and companies
from buying Venezuelan gold.
Finally, both countries have created
gold-backed cryptocurrencies, which will be used as alternatives to the dollar
as means of payment. Venezuela’s crypto, Petro, is backed by Venezuela’s natural
resource wealth: gold, diamonds, oil, iron and so on. Western pundits wasted no
time warning people on the internet that Petro was a bad investment —
the only problem being that Petro wasn’t created as a vehicle for money-making
as most Western cryptos are.
Petro
was created solely for the purpose of being a currency for Venezuelans to send
to other countries to buy goods they could not buy
under the sanctions regime. With oil and gold backing, Petro’s value
is largely decided by the global oil and gold prices; you won’t make a lot of money
speculating on the value of Petro. Iran recently unveiled its own gold-backed
cryptocurrency, the PayMon, weeks ago.
Similar to Petro, PayMon gives Iran the ability to get around U.S. financial sanctions.
Iran and Venezuela’s maneuvers have
raised eyebrows but in the context of the larger global trend of
de-dollarization, they pose a much greater threat than as individual
occurrences. Much larger economies are also moving to end their dependence on
the dollar and are seriously considering creating multilateral trading blocks
free of the dollar.
After
Washington tightened sanctions on Russia regarding Russia’s activities in
Crimea, Russian President Vladimir Putin said that Russia would work
towards completely dumping the dollar.
So far, Russia has made good on this promise, dumping 84 percent of its U.S. debt
holdings and massively increasing its gold reserves in
the last two years. As Russian Foreign Minister Sergey Lavrov once stated:
Washington immediately stops servicing any banking operations in dollars
in relation to both the country that they want to punish and also all those who
have some kind of relationship with it.”
China
and Japan, America’s biggest foreign-debt holders, have also been shedding U.S. debt
holdings, albeit at a steady pace. Turkey and India have also lowered their U.S. bond
holdings by similar amounts in recent months. Each country in the Shanghai Cooperation
Organization has eliminated the use of the dollar in trade with at least one
other country in the organization. It’s hardly inconceivable that eventually
these countries will conduct deeper, more robust trade within the organization
without the dollar. Even the EU is considering asserting the
Euro’s role on the international stage. Last year, China, What do
all of these actions amount to? As discussed earlier, at its root, money has power because people
believe it does. Each of these small changes reduces the belief in the dollar’s
hegemony just a little bit. Eventually, in theory, these small material changes
will lead to a larger qualitative change in the world financial system.
This type of massive change will not
happen overnight but the world financial system may encounter a series of
unrectifiable challenges in the next decade. But, of course, as any empire
would, the U.S. will not simply allow the world to trigger a second Triffin
Dilemma while it sits silently and watches; it will fight to maintain the
status quo that made it an empire.