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The Dollar-Oil peg and War

Original post made by the dollar hegemony war, Palo Alto Hills, on Mar 23, 2008

The dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged-as it already has been.

In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O'Neill, the major topic was how we would get rid of Saddam Hussein-- though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O'Neill.

It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.

There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.

In 2001, Venezuela's ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.

After these attempts to nudge the Euro toward replacing the dollar as the world's reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance.

It's become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported.

Now, a new attempt is being made against the petrodollar system. Iran, another member of the "axis of evil," has announced her plans to initiate an oil bourse in March of this year. Guess what, the oil sales will be priced Euros, not dollars.

Most Americans forget how our policies have systematically and needlessly antagonized the Iranians over the years. In 1953 the CIA helped overthrow a democratically elected president, Mohammed Mossadeqh, and install the authoritarian Shah, who was friendly to the U.S. The Iranians were still fuming over this when the hostages were seized in 1979. Our alliance with Saddam Hussein in his invasion of Iran in the early 1980s did not help matters, and obviously did not do much for our relationship with Saddam Hussein. The administration announcement in 2001 that Iran was part of the axis of evil didn't do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn't seem to register with those who continue to provoke Iran. With what most Muslims perceive as our war against Islam, and this recent history, there's little wonder why Iran might choose to harm America by undermining the dollar. Iran, like Iraq, has zero capability to attack us. But that didn't stop us from turning Saddam Hussein into a modern day Hitler ready to take over the world. Now Iran, especially since she's made plans for pricing oil in Euros, has been on the receiving end of a propaganda war not unlike that waged against Iraq before our invasion.

It's not likely that maintaining dollar supremacy was the only motivating factor for the war against Iraq, nor for agitating against Iran. Though the real reasons for going to war are complex, we now know the reasons given before the war started, like the presence of weapons of mass destruction and Saddam Hussein's connection to 9/11, were false. The dollar's importance is obvious, but this does not diminish the influence of the distinct plans laid out years ago by the neo-conservatives to remake the Middle East. Israel's influence, as well as that of the Christian Zionists, likewise played a role in prosecuting this war. Protecting "our" oil supplies has influenced our Middle East policy for decades.

But the truth is that paying the bills for this aggressive intervention is impossible the old fashioned way, with more taxes, more savings, and more production by the American people. Much of the expense of the Persian Gulf War in 1991 was shouldered by many of our willing allies. That's not so today. Now, more than ever, the dollar hegemony-- it's dominance as the world reserve currency-- is required to finance our huge war expenditures. This $2 trillion never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do just that.
- Ron Paul

Comments (31)

 +   Like this comment
Posted by a
a resident of Adobe-Meadows
on Mar 24, 2008 at 8:34 am

McCain, the war advocate, will probably cause the dollar to stabilize. Obama, who is anti-war, will probably cause the dollar to fall in value because the U.S. will finally begin to respect our allies and no longer seek world dominance. American will then will actually have to work. Novel idea - actually work for what we have rather than steal. I'm all for peace on earth rather than war for wealth.


 +   Like this comment
Posted by Walter E. Wallis
a resident of Midtown
on Mar 24, 2008 at 9:30 am

When did the US take from any other country without paying market rate?


 +   Like this comment
Posted by R Wray
a resident of Palo Verde
on Mar 24, 2008 at 9:35 am

I've wondered if Obama supporters just admire his style or if they actually agree with his ideas. In this case at least, it looks like the latter.


 +   Like this comment
Posted by Bob
a resident of Barron Park
on Mar 24, 2008 at 10:31 pm

Walter. What is your point? Do you agree or disagree with Ron Paul's statements?


 +   Like this comment
Posted by The Illiterate Interventionalist
a resident of Another Palo Alto neighborhood
on Mar 24, 2008 at 11:38 pm

Obama's foreign policy team a paper hat bunch of Reverends

Hillary's foreign policy team a bunch of code pink tampons

McCain's foreign policy team a group of old gropers looking for some action.

The Illiterate Interventionalist

The absence of any revolutionary ideas the only change we are going to have is maybe the change in our pockets.


 +   Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Mar 25, 2008 at 3:14 am

I do not agree that US support of US interests is at the root of all the world problems, or that we have resorted to military or quasi-military action rather than compete in the market. Suppressing piracy is not an act of imperialism.


 +   Like this comment
Posted by Am I really your neighbor
a resident of Another Palo Alto neighborhood
on Mar 25, 2008 at 7:18 am

Reading these postings makes me realize why the rest of the world hates America so much. But then I guess you don't care what the rest of the world thinks.


 +   Like this comment
Posted by Paul
a resident of Downtown North
on Mar 25, 2008 at 9:43 am

"When did the US take from any other country without paying market rate?" - Walter E. Wallis

Iraq. 2003 and continuing.


 +   Like this comment
Posted by Mike
a resident of College Terrace
on Mar 25, 2008 at 11:07 am

Give this link a listen
Web Link

Bilmes and Steiglitz (a Nobel Prize winner) are not lightweights. The *true* cost analysis of the war is stunning. (btw, this is the kind of analysis that most municipalities have yet to do on the cost of deleted services, or the benefits of invested services - we will, soon enough, because it's a coming trend in the business world, finally)

Note that Chevron is now looking for distribution rights in Iraq. This war is about oil; it always has been.

Note that many countries are now pegging, or talking about pegging their currency to the Euro.

Note that the entire up front cash cost of the war has been *borrowed*, with interest payments, and interest-on-interest payments, and so on, accruing.

The problem for America is that international structural fundamentals - assumed by the ignorant Bush administration to be the same as they were in the last three decades - have changed.

America is in for a world of hurt for the next decade or two. We're all partly to blame, because we've assumed that change will not happen; it has.


 +   Like this comment
Posted by Paul
a resident of Downtown North
on Mar 25, 2008 at 12:59 pm

I didn't say we were paying LESS than market rate in Iraq. We are paying much more and receiving very little. Mike's got this one pegged.


 +   Like this comment
Posted by Gary
a resident of Downtown North
on Mar 25, 2008 at 1:29 pm

Mike, as usual, you fail to see the big picture.

Steiglitz, a former Clinton advisor, is opposed to the liberation of Iraq. No flies on his stance, although I disagree with it, however his economic model is off the mark.

The most obvious question to ask is the cost of failure in Iraq. It would be huge, but probably hard to quantify in $$, at this point..., but much higher than Steiglitz's high-end figure of $5T.

Steiglitz fails to take into account the cost of the larger standing army that he seems to desire (in order to displace inflated costs of private contractors). Specifically, what are the extended costs of a national draft?

Steiglitz seems to feel that $5T over many years, is too high a cost for freedom, in a nation that has a $13.8T economy. The U.S. national debt is lower, as a fraction of the economic pie, compared to several European nations ( Web Link )

Steiglitz also fails to factor the stimulation effect of war spending. Those dollars provide jobs that pay wages and taxes.

He ( Steiglitz ) failed to provide context. If he applied his own economic analysis to WWII, adjusted to today's economy, what would the $$ figure be? $100T? More? Who cares, really, we won, and the Nazis and Imperial Japan lost. Then we grew our selves out of that debt, as free people.

This war is not about oil. It is about freedom. Sadly, you don't comprehend the ceoncept. Stalinists never have.


 +   Like this comment
Posted by Mike
a resident of College Terrace
on Mar 25, 2008 at 1:48 pm

Gary, perhaps you should read the facts in the book and lecture i pointed to.

btw, what you completely fail to address is the mounting loss of hegemony of the middle class in America. We're talking about *real debt, right now*, not some fantastical abstract that you and other Neocons want to make seem like the more appropriate reality.

This is a debt unlike any other that America has incurred, because it comes at a time when we are *losing* international hegemony - economically, and otherwise. When in your memory has so much American debt paper been held by economies that we're so closely entwined with, but are fundamentally opposed to, in terms of political philosophy.

Your stance is essentially hypocritical, because you tout your imagined American ideals, when it's those very ideals that give economic and other advantage to people you consider to be our enemies (e.g. China).

Stop trolling, and throw out some cogent analysis.


 +   Like this comment
Posted by Gary
a resident of Downtown North
on Mar 25, 2008 at 2:24 pm

Mike, ...there you go again. You diminish the enormous value and potential of free peoples (no surprise, of course). Iraq is on the verge of becoming an enormousley wealthy, and free nation, if the jihadists and Iranians can be stopped. Just in terms of economic mutlipliers, the U.S. will benefit in so many ways. Europe, however, will benefit much less, even though its own security was secured by the U.S. Another word for this state of affairs, Mike, is "hegemony".

My 26 year old "middle class" daughter is now earning more salary, in real terms, than I ever earned. She worked hard, studied hard, and continues to do so, even with two kids. There is enormous oppotunity in this country, probably more than ever. What are you talking about, Mike? Just becasue most of us average Americans reject your Stalinist model, does not make us stupid.

The USA has experienced many crises in its history, and we shall experience many many more in our future. But we are FREE PEOPLE! There is no price tag on freedom, becasue it cannot be overvauled. This is an alien concept to you, Mike, nevertheless it is true. Get over it, because it is not going away.



 +   Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Mar 25, 2008 at 3:27 pm

Imagine a world where the US trades at the pleasure of the Grand Mufti, subject to restrictions like those now proposed for the ECM restrictions on freedom of press and speech. There is a value to our culture that transcends dollars. If our culture is negotiable, nothing else matters because we are outvoted by people to whom our values are anathema. If you sell your children down the rathole of accomodation they will curse you, at least those fortunate enough to remember freedom. And I still do not see how buying someone's goods at a voluntarily agreed price is looting.


 +   Like this comment
Posted by a
a resident of Adobe-Meadows
on Mar 25, 2008 at 3:46 pm

Gary and Walter have lost their minds. No point in debating with them. Thank goodness for the rest of you.


 +   Like this comment
Posted by Gary
a resident of Downtown North
on Mar 25, 2008 at 4:11 pm

a resdient, argumentum ad hominem is not convincing. Surely, you can do better than this.

It it takes some effort, but it is worth it. Give it a try...you will feel better about yourself.


 +   Like this comment
Posted by Paul
a resident of Downtown North
on Mar 25, 2008 at 4:22 pm

"Iraq is on the verge of becoming an enormousley [sic] wealthy, and free nation, if the jihadists and Iranians can be stopped." - Gary

But stopping the jihadists and Iranians is precisely what the monumentally inept Cheney-Bush administration has failed to do for 5 years, and that failure will continue and our money will keep going down their rathole.

It seems to me that Saddam, Chavez, and any other oil producers who wish to price their oil in Euros are exercising their basic rights under a free-market capitalist system. On the other hand, the objectors are seeking to socialize and Sovietize the free market.

A competent capitalist nation would figure out how to compete successfully and to boost its own currency on the open market. Military and covert action market solutions are not solutions; they are evidence of continuing failure at our supposedly own game.


 +   Like this comment
Posted by Gary
a resident of Downtown North
on Mar 25, 2008 at 4:50 pm

Paul, surely you jest. Why would any rational capitalist decide to invest in the Euro, while Europe is one gas valve away from economic collapse? The Balkans are about to blow up (again). Europe could not defend itself from any invasion, including internal invasions from jihadists. Basically, Europe is history, unless it decides to grow up. The USA does not need to listen European lectures on anything about morality, ethics, justice, economics, family values, etc. Europe, however, does need to learn from us. Socialism is a dead concept, even though Europe continues to suck at its left hind tit.

BTW, Paul, Saddam is not pricing his oil in Euros, becasue he was, very justifiably, hanged for crimes against his own people.

I like this ideological stuff. Lots of fun!


 +   Like this comment
Posted by Paul
a resident of Downtown North
on Mar 25, 2008 at 5:20 pm

All that, and the dollar still slides against the Euro? It's worse than I thought.


 +   Like this comment
Posted by a
a resident of Adobe-Meadows
on Mar 25, 2008 at 5:22 pm

Gary & Walter, forgive me. Although I do think you need a reality check and someone to take the blinders off your eyes - what I think you really need is a big hug, a big dose of love. Love thy neighbor as thyself. Love is the only answer.


 +   Like this comment
Posted by Gary
a resident of Downtown North
on Mar 25, 2008 at 6:13 pm

"a big hug, a big dose of love"

a resident, great idea!

I like mine from the woman I still love. However, when I was young and foolish, and a committed socialist, I would take it from the cause I was blinded by. Shame on me.

I have since grown a brain, and my heart has been revealed to me. How about you?


 +   Like this comment
Posted by Gary
a resident of Downtown North
on Mar 25, 2008 at 7:03 pm

"All that, and the dollar still slides against the Euro? It's worse than I thought."

Paul, when the Euro bubble bursts, it will make the current mortgage deflation in this country look like puppy piddle.

Bet on the dollar for the long run. I am.


 +   Like this comment
Posted by Mike
a resident of College Terrace
on Mar 25, 2008 at 8:10 pm

"However, when I was young and foolish, and a committed socialist, I would take it from the cause I was blinded by. Shame on me."

Gary, what you've experienced is called "giving up one cult, for another". There's a difference between capitalism and empire.


 +   Like this comment
Posted by Walter E. Wallis
a resident of Midtown
on Mar 25, 2008 at 8:14 pm

Chickens do not look to Wall Street before ovulatin.


 +   Like this comment
Posted by Gary
a resident of Downtown North
on Mar 25, 2008 at 9:24 pm

"Gary, what you've experienced is called "giving up one cult, for another". There's a difference between capitalism and empire."

Mike, as a Stalinist, yourself, you are hardly in a position to define who is, or who is not a cult member.

America is semi-capitalist. It should be more capitalist, but the socialist elements, in this country, have prevented such an expansion of economic freedom, regretably. However, there is still enough punch left in the tank, so there is still reason to believe in freedom.

Empire? Where? An empire takes what it wants to take. Did we take Kuwait's oil, once we secured it from the Saddam attack? We could, easily, take over Saudi Arabia, and takes its oil, but we have not. We could blackade Europe with our navy, yet we are too lame to act like real imperialists. We defeat our enemies, then only ask for enough land to bury our dead. This is empire?

Mike, you are delusional. All Stalinists are.


 +   Like this comment
Posted by Mike
a resident of College Terrace
on Mar 25, 2008 at 9:37 pm

Gary: "America is semi-capitalist"

Please describe a nation that ever was a pure capitalist nation.


 +   Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Mar 26, 2008 at 4:01 am

Nations are not pure anything.


 +   Like this comment
Posted by Paul
a resident of Downtown North
on Mar 26, 2008 at 8:50 am

Nazi Germany and Maoist China were not pure evil? What was good about them?


 +   Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Mar 26, 2008 at 9:01 am

Autobahns, space flight, defeating Imperial Japan.


 +   Like this comment
Posted by Paul
a resident of Downtown North
on Mar 26, 2008 at 9:56 am

Six million Jews died for bigger highways, and that's good? I'm very sorry I asked.


 +   Like this comment
Posted by Walter E. Wallis
a resident of Midtown
on Mar 27, 2008 at 3:50 am

Paul, reality is a bitch. If you pretend that my response in any way rationalized the Holocaust, you need remedial. Hitler was a non-smoking vegetarian too. Does that make all non-smoking vegetarians complicite in killing Jews? Sheesh!


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