Saturday, April 26, 2008

America and its one bad apple



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America and its one bad apple


Old pre-1970 US Dollar bill with promisory note.



New post-1970 US Dollar bill; where's the promise?


At the dawn of civilization, the earliest way to get something that you needed was called barter. I give you a cow and you build me a hut to live in. But what if I want a tiny hut? Do I give you half a cow? Placing a standard value on goods and services was first achieved through the use of currency, or money. Almost every culture has money. Ancient cultures used everything from sea shells and beads to huge circular stones to buy and sell. Eventually, precious metals were used and more recently the standard currency has been based on gold.

The value of precious metal is determined by its weight. Instead of carrying chunks or nuggets of gold and silver, early empires made standard "coins" of the metals and set a standard value in the marketplace. Coins were great for most transactions, but they were heavy and wore out your pants pockets quickly. Soon a new idea, paper money, was invented.

The original idea behind paper money was convenience. Each piece of paper represented a specific weight of a precious metal, usually silver or gold, that was kept somewhere in a treasury. If an individual wanted to, he could exchange the paper money for the gold or silver that it represented. It was all based on trust and a promise. In fact, the early paper money in America was called a "promissory note."

If you can find old dollar bills, you will read the promise written on each note. You will also notice that the notes are numbered. In this way, each note is unique and represents a corresponding weight of silver or gold in the US Treasury vaults.

On a global scale, when someone in America bought something from a foreign country, they would pay in US dollars. The foreign company would then go to their local bank and exchange the dollars for their local currency. When foreign banks had a surplus of US dollars, they would then exchange them for gold. This meant that the US Treasury was always needing to acquire more gold to replenish its vaults and maintain the "gold backed" dollars in circulation.

Prior to 1971 the dollars of the US were trusted all over the world. Each dollar was based on 1/35th ounce of gold, held in the US Treasury. The value of gold was fixed by law at 35 dollars = 1 ounce, so the value of each dollar was very stable. This made the dollar attractive as an international currency. But in 1971 this all changed.

The Nixon Legacy -- fiat money

The Vietnam War was a painful time for America. We're still paying for the sins of our past leaders -- quite literally. The war was so expensive (estimated at $500 Billion) that America didn't have sufficient dollars in print to pay the bills for the disaster (The gold reserve only had about 30 Billion). But Nixon had a plan. Why not just print more dollars? Never mind that there isn't enough gold on reserve to back each note. Just print as much as you need to pay the bills.

To do this he needed to change the law. So he did. The new system is called "fiat money" and is defined as follows: "Definition: Fiat money is money that is intrinsically useless; is used only as a medium of exchange." He ended the system of "promissory notes," ended the fixed value of gold and allowed the system of "supply and demand" to set the value of both gold and American currency. But wait! There's more!

Enter Oil: Black Gold

Back in the early 1970's, America produced most of the oil it needed. Texas oil fields were active and a far cry from the rusted rigs you can still see there today. We imported a fixed amount, about 25%, from foreign countries, but our thirst for oil was getting stronger. Nixon knew that America and every developing nation in the world would need more oil in the future. He also knew that OPEC, the handful of countries that produced foreign oil, wanted the limits of American imports lifted so they could sell more. So he cut a deal.

The cap on 25% imported oil was lifted in exchange for the agreement that oil, purchased from any country in the world, would be bought only with American dollars. OPEC agreed and almost immediately there was a strong demand for dollars throughout the globe. This demand was not based on the value of gold but on the value that each dollar had in the marketplace. Since anyone who wanted oil had to have dollars, the dollar remained strong.

Another thing that helped pull this scheme off was the fact that gold, held by the US Treasury, went from its fixed value of $35/ounce to its present value of over $600/ounce. Of course a cup of coffee was once 5¢ and now my Starbucks Latte-Macchiato-double-Skim is close to $5!

Coffee, Automobiles and Computers: The Plot Thickens

Oil is a big import but not the biggest. Americans buy so many things from foreign countries that it is staggering to imagine. In 1973 the US sold more goods to foreign countries than it bought. But in each successive year the tables have turned.

All of these goods are bought with "fiat dollars," meaning that the currency itself is worthless since it can never be exchanged for gold or silver. Of course, a foreign country could exchange it for something else -- something that was produced by America, like... hmm... (anyway). As the chart above shows, American exports, although representing 1.25 million dollars every two seconds, are insignificant.

Fiat dollars remain in circulation mainly because they are needed to buy oil. For this reason lots of countries keep huge supplies of dollars in their reserves. It has become a way of storing their national wealth. The fact that US dollars represent foreign national wealth adds to their value.

Good Is Bad: Bad Is Good

This kind of system turns traditional logic on its head. Like, a trade deficit is supposed to be a bad thing, right? Wrong. It's actually good for the dollar! Imagine what would happen if everyone started using their dollars to buy things from America. The US would be flooded with dollars which would cause inflation and, besides, we don't have enough goods and services to exchange for all those foreign US fiat dollars! In fact, America is technically, as of last year, bankrupt!

And what about higher oil prices... bad? No way. That keeps those pesky foreign flat US dollars "out there" and in high demand. It's very good for the dollar. Globalization, Nafta and Free Trade? Yep, they're also good for the dollar since they perpetuate the demand for greenbacks.

The whole system is kept running smoothly by global central banks who monitor the supply and demand for dollars on a daily -- even hourly -- basis. If there are too many dollars "out there" in the world, the US buys its own currency to create a scarcity. If there are too few, it sells more dollars or buys more foreign goods to replenish the supply.

If this is beginning to sound like a classic "pyramid scheme," you're starting to get the picture. But sooner or later, someone has to pay.

Houston, we have a problem!

Imagine what would happen if the oil producing countries in OPEC decided to sell oil in some other currency besides US dollars! What if they changed the system to use the Euro, the Franc or the Yen? What would happen if no one needed US dollars anymore? Hang on tight, it's already started.

Iraq

On November 6, 2000, Saddam Hussein switched the oil currency from the US dollar to the Euro. Two years later the Euro was rising in value while the dollar was sinking so low that the International Monetary Fund warned of the dollar's imminent collapse. The solution: Iraq was invaded on the pretext of developing weapons of mass destruction, the oil fields were seized and the newly installed government returned to the US dollar standard on March 19, 2003. Other nations, who held large dollar reserves, joined the coalition and contributed troops to pull this off.

Venezuela

Hugo Chavez has recently announced plans to nationalize the country's oil industry. Although Venezuela is a major oil producer and a member of OPEC, they have sold their oil to Cuba and other regional countries without the use of dollars and often in a barter exchange for domestically produced products. In 2001, Venezuela's ambassador to Russia announced that Venezuela was considering switching to oil sales in the Euro. Within one year the American government was seeking a regime change and America has been accused by Chavez of attempting to assassinate him in a failed coup attempt backed by the CIA.

Russia

Since June 8, 2006, Russia's Putin has been selling its reserves of US dollars. This has been done slowly to diminish any dramatic effect on the global supply, but it represents a decision of Russia to divest itself of a dollar reserve. The world market has taken notice.

China

An unprecedented signal from senior Chinese leaders that the Asian economic giant might abandon the U.S. dollar sent shock waves through the markets today as the Dow Jones Industrial Average lost 360 points and the greenback fell to a record low against the euro.

November 19,2007:

Xu Jian, a Chinese central bank vice director, told a conference in Beijing, "The dollar is "losing its status as the world currency." Meanwhile, at the same meeting, Cheng Siwei, vice chairman of China's National People's Congress, said, "We will favor stronger currencies over weaker ones, and will readjust accordingly."

Craig R. Smith, CEO of Swiss America Trading Corp., told WND he's been in the investment business for 30 years and has "never seen people more nervous."

Alarmed by today's economic news, he dispatched a note to brokers with a warning of ominous potential consequences if China and other trading partners abandon the dollar.

"If that were to happen, all bets are off, and we will be in a depression that makes 1929 look like child's play," he said, "or we will experience Weimar Republic inflation as the dollar makes extreme moves toward devaluations."

India

The Taj Mahal may have been built as a testament to love but some hard-headed business decisions are now holding sway at India's most famous monument. First among them is that the US dollar is no longer welcome.

With parts of the American economy in turmoil and the dollar rapidly losing its long-held position as the currency of choice, Indian authorities have calculated they are losing considerable sums of money by allowing foreign tourists to pay using greenbacks.

A statement by India's Ministry for Tourism and Culture said the government had decided to act "in view of the international practices and also to avoid any anomaly on account of falling exchange rates of the US dollar vis-a-vis the rupee and the consequent fall in revenues".

Until the change, foreign tourists visiting the Taj Mahal in Agra, south-west of Delhi, could enter by paying a fixed $5 (£2.45) fee Ð a price that was set when the dollar was worth around R50. But with the dollar having fallen by 12 per cent this year against the rupee and the current exchange rate closer to R39 to the dollar, the government has now fixed the entry price for foreigners at R250 Ð more than $6.

"These rates have been fixed in line with international practices," a ministry spokesman said. "It will avoid any anomaly on account of falling dollar-rupee exchange rates."

The ruling will affect around 120 sites overseen by the Archaeological Society of India, of which 27 Ð including the Taj Mahal Ð are World Heritage sites. The new rates are expected to be introduced as soon as this week to avoid a loss of income as the value of the dollar continues to fall.

Indonesia, Malaysia and Libya

Other oil producing countries have already stated that they will begin moving from the dollar to the Euro. Indonesia, Malaysia and Libya have already started this transition. Other countries like China and Japan are also beginning to convert a portion of their reserves to the Euro.

Iran

The US buys no oil from Iran following the hostage crisis in the 1970s. But Iran is a major global oil producer and, therefore, a major player in the "fiat dollar" scheme. In 1999 Iran announced plans to sell its oil in Euros. It actually started doing this in the spring of 2003. Iran sells about a third of its oil to European countries, the remaining share is largely bought by China. Following the announcement by Iran, the country was called an "axis of evil" by Bush and is currently the target of threats over its development of nuclear energy. At this writing, the US Navy has a large fleet in the Persian Gulf with contingency plans for an attack. Undoubtedly the desired outcome is regime change and re-establishment of the fiat dollar scheme.

UPDATE!

TEHRAN, December 8 (RIA Novosti) - Iran has stopped selling its oil for U.S. dollars, the Iranian ISNA news agency said on Saturday, citing the country's oil minister.

"In line with a policy of selling crude oil in currencies other than the U.S. dollar, the sale of our country's oil in U.S. dollars has been completely eliminated," ISNA reported Oil Minister Gholamhossein Nozari as saying.

He also said "the dollar is no longer a reliable currency."

Iran is the world's fourth-largest crude oil producer.

At a November summit of Organization of the Petroleum Exporting Countries heads of state, Iran proposed that oil sales be carried for a variety of currencies, excluding dollars, but was not supported by any other members except Venezuela.

Iranian President Mahmoud Ahmadinejad had previously called the U.S. currency a "worthless piece of paper."

2007 has seen a significant fall in the value of the U.S dollar against other major world currencies.

Tensions remain high between Iran and the U.S., which has accused the Islamic Republic of attempting to build a nuclear weapon, as well as providing insistence to insurgents in Iraq.

The U.S. National Intelligence Estimate (NIE), published on Monday, stated that Tehran had put a stop to weapons production in 2003, although it was continuing to enrich uranium.

The report contradicted a previous U.S. intelligence assessment in 2005 which said that Iran was actively pursuing a nuclear bomb.

U.S. President George W. Bush remained hawkish, despite the report, saying on Tuesday that, "Iran was dangerous, Iran is dangerous and Iran will be dangerous if they have the know how to make a nuclear weapon."

When asked if military action remained an option, the president answered, "The best diplomacy - effective diplomacy - is one in which all options are on the table."

OPEC

Oil leaders' private debate televised by mistake!

[Sunday November 18, 2007]


'Kill the cable, kill the cable,' shouted the security guard as he burst through the double doors into the media room at the Intercontinental Hotel in Riyadh, followed by Saudi police. It was too late.

A private meeting of OPEC leaders, gathered this weekend in Riyadh for the cartel's third meeting in its 47-year history, had just been broadcast to the world's media for more than half an hour after a technician had mistakenly plugged the TV feed into the wrong socket. The facade of unity that the cartel so carefully cultivates to a world spooked by soaring oil prices was shattered.

Sometimes, such innocent mistakes can have far-reaching economic and political consequences. Commodity and currency traders said this weekend that oil prices would surge again tomorrow - possibly breaking the $101 per barrel record set in the late 1970s - while the already battered dollar would fall further on the back of the unintentional broadcast.

On Friday night, during what the participants thought were private talks, Venezuela's oil minister Venezuela Rafael Ramirez and his Iranian counterpart Gholamhossein Nozari, argued that pricing - and selling - oil using the crippled dollar was damaging the cartel.

They said OPEC should formally express its concern about the weakness of the dollar when the cartel makes its official declaration at the close of the summit today. But the Saudis, the world's largest oil producers and de facto head of OPEC, vetoed the proposal. Saud al-Faisal, the Saudi foreign minister, warned that even the mere mention to journalists of the fact that leaders were discussing the weak dollar would cause the US currency to plummet.

Unfortunately his words and those of everyone at the meeting were being broadcast via a live television feed to a group of astonished reporters. 'I couldn't believe it,' said one who was there. 'When I realized they didn't know they were being broadcast live, I frantically started taking notes.'

OPEC only realized that the leaders' row was being broadcast to the world when the Reuters news agency put out a report of the argument.

The weakness of the dollar is one reason why oil prices are so high, as cartel members seek to compensate for their lower earnings. This means a further drop in the dollar is likely to be accompanied by a rise in oil prices.

Afghanistan

Afghanistan does not produce oil; however they are strategically located in an area where a proposed pipeline from the oil rich regions in the Caspian Sea would deliver the oil to the Indian Ocean. In his previous article, Rudo de Ruijter outlined how resistance to this plan triggered the American war with Afghanistan.

What Does It All Mean?

I used to believe that politicians and big business were evil. They always seemed to act without regard for the common people. It's always the innocent families and civilians that are left homeless, killed or maimed because of some decision made behind closed doors. I used to think it was the elite, super-rich who were protecting their wealth and greed for oil money at our expense. I blamed them for everything from wars to preventing the development of free energy.

While I still believe this is true, I now see the big picture and it frightens me.

Oil and dollars have become the blood of our present civilization. A collapse of this fiat dollar system will not only destroy America's economy and lifestyle but it will have devastating impact throughout the entire planet. Since virtually all wealth is based on this dollar-for-oil scheme, a collapse of the system will send the entire world into an economic depression. This is what the politicians and decision makers are trying to avert. But the collapse is predictable and inevitable.

Forecast: U.S. dollar could plunge 90%

Published: Nov. 19, 2007 at 2:16 PM

RHINEBECK, N.Y., Nov. 19 (UPI) -- A financial crisis will likely send the U.S. dollar into a free fall of as much as 90 percent and gold soaring to $2,000 an ounce, a trends researcher said.

"We are going to see economic times the likes of which no living person has seen," Trends Research Institute Director Gerald Celente said, forecasting a "Panic of 2008."

"The bigger they are, the harder they'll fall," he said in an interview with New York's Hudson Valley Business Journal.

Celente -- who forecast the subprime mortgage financial crisis and the dollar's decline a year ago and gold's current rise in May -- told the newspaper the subprime mortgage meltdown was just the first "small, high-risk segment of the market" to collapse.

Derivative dealers, hedge funds, buyout firms and other market players will also unravel, he said.

Massive corporate losses, such as those recently posted by Citigroup Inc. and General Motors Corp., will also be fairly common "for some time to come," he said.

He said he would not "be surprised if giants tumble to their deaths," Celente said.

The Panic of 2008 will lead to a lower U.S. standard of living, he said.

A result will be a drop in holiday spending a year from now, followed by a permanent end of the "retail holiday frenzy" that has driven the U.S. economy since the 1940s, he said.

3 comments:

Lemar Lopez said...

All hell is quietly about to bust loose... we're all sitting ducks folks!

Olademeji said...

As it was with Rome so shall it be with America the Ugly, and all for the sake of Israel.

Steward Oginja said...

This is the unfolding story of foolish American pride coming before its fall.