We’ve lived so long under the spell of hierarchy—from god-kings to feudal lords to party bosses—that only recently have we awakened to see not only that “regular” citizens have the capacity for self-governance, but that without their engagement our huge global crises cannot be addressed. The changes needed for human society simply to survive, let alone thrive, are so profound that the only way we will move toward them is if we ourselves, regular citizens, feel meaningful ownership of solutions through direct engagement. Our problems are too big, interrelated, and pervasive to yield to directives from on high.
—Frances Moore Lapp√©, excerpt from Time for Progressives to Grow Up

Sunday, November 21, 2010

Dollar War in Detail

by Michael Hudson from his blog

I think that this is the most important article that I've read in some time--a must-read article of the month. It is not easy reading if you don't have a fairly strong background in economics, finance, and currency trading. Like most people, I don't have this strong background; thus with a light background I've had to spend a considerable amount of time studying the article. I continue to believe that Hudson has a sound grasp of the issues, although he often has difficulty in explaining the issues in terms that ordinary people can understand. I think he succeeds very well in this piece. 

There are so many insightful gems in this article that I'm not sure where to start. I have the sort of mind that likes to integrate or consolidate ideas. Here is a summary of my current understanding of how we have arrived at this currency war.

In the 20th century the US rose to prominence in the world largely due to its abundance of natural resources that was turned into wealth--goods, growth in technological knowledge, and services all created by working people to make their lives fuller and comfortable. Because the economy of the US was organized under the system of capitalism, a large part of this wealth came under the control of a few people whose primary interest was in accumulating wealth and the power that wealth brings with it.

Capitalist ruling classes clashed for dominance beginning with WWI and continued with WWII. After the devastating effects of the latter war on most of the world, the US's economy was intact having suffered no damage from the war. Driven by the engine of capitalism that serves the profit needs of a small class of owners, the US economy produced prodigious amounts of goods that required huge amounts of resources from all over the world. Americans consumed the great majority of these goods and enjoyed a very high (some would describe it as "profligate") standard of living. This activity, it turn, consumed much of the energy and other resources in the US. 

With a powerful economy and a powerful military, the US ruling capitalist class took control of most of the non-Soviet-communist controlled world and sought to impose its dominance on the latter through various smaller proxy wars in Asia, Latin America, and Africa. The collapse of Soviet style communism which occurred in 1989 left a vacuum for the capitalist classes which they eagerly filled.

However, the Cold War proved very costly for the US also. Shortly after the Vietnam War they had to go off the gold standard as backing for US currency. Instead, in a crucial move to insure its own currency as the prime world currency, they made a mostly secret agreement with the rulers of that oil rich, Medieval-like Kingdom of Saudi Arabia. In this agreement, negotiated by Kissinger, the US guaranteed the security of the Kingdom and, in return, the Saudis agreed to sell oil only in US dollars and to recycle those dollars into US Treasury bonds and US stocks. This effectively backed the US dollars with oil. This explains Hudson's statement, 
Saudi Arabia realizes that it exists only with U.S. support. Doing what U.S. diplomats tell them to do lets them keep their oil resources rather than being treated like Iraq and Iran. 
As resources have become increasingly scarce and costly to obtain, the US ruling class became even more concerned with the control of resources abroad and pursued more aggressive campaigns to bring them under control. They organized the Western capitalist countries under NATO to move from the West into eastern Europe and the Middle East. They have also colluded with Zionists to insure Israel's military superiority in the Middle East. Today they occupy Iraq and Afghanistan and have over 700 military bases in the world. It is a US lead capitalist empire.   

The Empire has also employed two primary financial weapons to dominate other countries and to gain access to their markets, resources, and cheap labor. The use of debt against other countries through the US dominated IMF and World Bank has been used for some time. See this and this, and read Confessions of an Economic Hit Man by J. Perkins. (They have recently used this debt weapon against its own citizens in the Western countries during this current economic collapse. For US citizens see this article.) 

Currency manipulation is the other weapon and Hudson describes the current currency war in great detail in this article. He describes how the currency war that Geithner, Obama, and Bernanke have launched will impact other countries. The US ruling class is starting to see opposition from members of its own Empire who wish to protect their currencies and  maintain control over their economies. Like Rome, the center of the current Empire, the US, is starting to show opposition from its satellites. I think that we are at a crucial turning point in the history of the world, and it would be a good idea for all of us to pay attention.