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The Real but Unspoken Reasons for the Iraq War

by W.C. Sunday, Feb. 02, 2003 at 4:32 AM
wrc92@aol.com

Although completely suppressed in the U.S. media, the answer to the Iraq enigma is simple yet shocking. The upcoming war in Iraq is actually an OIL CURRENCY war. The Real Reason for this upcoming war is this administration’s goal of preventing further OPEC momentum towards the euro as an oil transaction currency standard. However, in order to pre-empt OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves. (This is a long essay)

The Real Reasons for the Upcoming War with Iraq:

A Macroeconomic and Geostrategic Analysis of the Unspoken Truth

January 2003

"If a nation expects to be ignorant and free, it expects what never was and never will be ... The People cannot be safe without information. When the press is free, and every man is able to read, all is safe."

Those words by Thomas Jefferson embody the unfortunate state of affairs that have beset our nation. As our government prepares to go to war with Iraq, our country seems unable to answer even the most basic questions about this war. First, why is there virtually no international support to topple Saddam? If Iraq's WMD program truly possessed the threat level that President Bush has repeatedly purported, why is there no international coalition to militarily disarm Saddam? Secondly, despite over 300 unfettered U.N inspections to date, there has been no evidence reported of a reconstituted Iraqi WMD program. Third, and despite Bush’s rhetoric, the CIA has not found any links between Saddam Hussein and Al Qaeda. To the contrary, some analysts believe it is far more likely Al Qaeda might acquire an unsecured former Soviet Union Weapon(s) of Mass Destruction, or potentially from sympathizers within a destabilized Pakistan.

Moreover, immediately following Congress's vote on the Iraq Resolution, we suddenly became aware of North Korea's nuclear program violations. Kim Jong Il is processing uranium in order to produce nuclear weapons this year. President Bush has not provided a rationale answer as to why Saddam's seemingly dormant WMD program possesses a more imminent threat that North Korea’s active program? Strangely, Donald Rumsfeld suggested that if Saddam were "exiled" we could avoid an Iraq war? Confused yet? Well, I'm going to give their game away - the core driver for toppling Saddam is actually the euro currency, the €.

Although completely suppressed in the U.S. media, the answer to the Iraq enigma is simple yet shocking. The upcoming war in Iraq is mostly about how the ruling class at Langley and the Bush administration view hydrocarbons at the geo-strategic level, and the overarching macroeconomic threats to the U.S. dollar from the euro. The Real Reason for this upcoming war is this administration's goal of preventing further OPEC momentum towards the euro as an oil transaction currency standard. However, in order to pre-empt OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves. This essay will discuss the macroeconomics of the "petro-dollar" and the unpublicized but real threat to U.S. economic hegemony from the euro as an alternative oil transaction currency. The following is how an astute and anonymous friend alluded to the unspoken truth about this upcoming war with Iraq...

"The Federal Reserve's greatest nightmare is that OPEC will switch its international transactions from a dollar standard to a euro standard. Iraq actually made this switch in Nov. 2000 (when the euro was worth around 80 cents), and has actually made off like a bandit considering the dollar's steady depreciation against the euro." (Note: the dollar declined 17% against the euro in 2002.)

"The real reason the Bush administration wants a puppet government in Iraq - or more importantly, the reason why the corporate-military-industrial network conglomerate wants a puppet government in Iraq - is so that it will revert back to a dollar standard and stay that way." (While also hoping to veto any wider OPEC momentum towards the euro, especially from Iran – the 2nd largest OPEC producer who is actively discussing a switch to euros for its oil exports).

Furthermore, despite Saudi Arabia being our 'client state,' the Saudi regime appears increasingly weak/ threatened from massive civil unrest. Some analysts believe a "Saudi Revolution" might be plausible in the aftermath of an unpopular U.S. invasion of Iraq (ie. Iran circa 1979) (1). Undoubtedly, the Bush administration is acutely aware of these risks. Hence, the neo conservative framework entails a large and permanent military presence in the Persian Gulf region in a post-Saddam era, just in case we need to grab and secure Saudi's oil fields in the event of a Saudi coup by an anti-western group. But first back to Iraq, and to my friend's lucid comments on the Iraq enigma.

"Saddam sealed his fate when he decided to switch to the euro in late 2000 (and later converted his billion reserve fund at the U.N. to euros) - at that point, another manufactured Gulf War become inevitable under Bush II. Only the most extreme circumstances could possibly stop that now and I strongly doubt anything can - short of Saddam getting replaced with a pliant regime."

Big Picture Perspective: "Everything else aside from the reserve currency and the Saudi/Iran oil issues (i.e. domestic political issues and international criticism) is peripheral and of marginal consequence to this administration. Further, the dollar-euro threat is powerful enough that they'll rather risk much of the economic backlash in the short-term to stave off the long-term dollar crash of an OPEC transaction standard change from dollars to euros. All of this fits into the broader Great Game that encompasses Russia, India, China."

This information about Iraq’s oil currency is *censored* by the U.S. media and the Bush administration as the truth could potentially curtail both investor and consumer confidence, reduce consumer borrowing/ spending, create political pressure to form a new energy policy that slowly weans us off middle-eastern oil, and of course stop our march towards war in Iraq. This 'quasi state secret' can be found on a Radio Free Europe article discussing Saddam’s switch for his oil sales from dollars to the euros on Nov. 6, 2000 (2).

"Baghdad’s switch from the dollar to the euro for oil trading is intended to rebuke Washington’s hard-line on sanctions and encourage Europeans to challenge it. But the political message will cost Iraq millions in lost revenue. RFE/RL correspondent Charles Recknagel looks at what Baghdad will gain and lose, and the impact of the decision to go with the European currency."

At the time of the switch many analysts were surprised that Saddam was willing to give up millions in oil revenue for what appeared to be a political statement. However, contrary to one of the main points of this November 2000 article, the steady depreciation of the dollar versus the euro since late 2001 means that Iraq has profited handsomely from the switch in their reserve and transaction currencies. The euro has gained roughly 17% against the dollar in that time, which also applies to the billion in Iraq's U.N. "oil for food" reserve fund that was previously held in dollars has also gained that same percent value since the switch. What would happen if OPEC made a sudden switch to euros, as opposed to a gradual transition? My expert analyst friend had this to day:

"Otherwise, the effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their (central bank) reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). You;d have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there'd surely be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic 3rd world economic crisis scenario.

The United States economy is intimately tied to the dollar's role as reserve currency. This doesn't mean that the U.S. couldn't function otherwise, but that the transition would have to be gradual to avoid such dislocations (and the ultimate result of this would probably be the U.S. and the E.U. switching roles in the global economy)."

In the aftermath of toppling Saddam it is clear the U.S. will keep a large and permanent military force in the Persian Gulf. Indeed, there is no "exit strategy" in Iraq, as the military will be needed to protect the newly installed Iraqi regime, and perhaps send a message to other OPEC producers that they too might receive "regime change" if they convert their oil exports to the euro... The following is another underreported story from this summer regarding the other OPEC 'Axis of Evil' country, Iran, who is vacillating on the euro issue (3)

"Iran's proposal to receive payments for crude oil sales to Europe in euros instead of U.S. dollars is based primarily on economics, Iranian and industry sources said. But politics are still likely to be a factor in any decision, they said, as Iran uses the opportunity to hit back at the U.S. government, which recently labeled it part of an "axis of evil."

The proposal, which is now being reviewed by the Central Bank of Iran, is likely to be approved if presented to the country's parliament, a parliamentary representative said.

"There is a very good chance MPs will agree to this idea ...now that the euro is stronger, it is more logical," the parliamentary representative said."

More over, and perhaps most telling, during 2002 the majority of reserve funds in Iran’s central bank have been shifted to euros. It appears imminent that Iran intends to switch to euros for their oil currency (4)

"More than half of the country’s assets in the Forex Reserve Fund have been converted to euro, a member of the Parliament Development Commission, Mohammad Abasspour announced. He noted that higher parity rate of euro against the US dollar will give the Asian countries, particularly oil exporters, a chance to usher in a new chapter in ties with European Union's member countries.

He said that the United States dominates other countries through its currency, noting that given the superiority of the dollar against other hard currencies, the US monopolizes global trade.

The lawmaker expressed hope that the competition between euro and dollar would eliminate the monopoly in global trade."

Indeed, after toppling Saddam, this administration may decide that Iran's disloyalty to the dollar qualifies them to be the next target in the "war on terror." Iran’s interest in switching to the euro as their standard transaction currency for oil exports is well-documented. Perhaps this recent MSNBC article illustrates the objectives of the neo conservatives (5).

"While still wrangling over how to overthrow Iraq's Saddam Hussein, the Bush administration is already looking for other targets. President Bush has called for the ouster of Palestinian leader Yasir Arafat. Now some in the administration—and allies at D.C. think tanks—are eyeing Iran and even Saudi Arabia. As one senior British official put it: "Everyone wants to go to Baghdad. Real men want to go to Tehran."

Aside from these political risks regarding Saudi Arabia and Iran, another risk factor is actually Japan. Perhaps the biggest gamble in a protracted Iraq war may be Japan's weak economy (6). If the war creates prolonged oil high prices ( per barrel over several months), or a short but massive oil price spike ( to 0 per barrel), some analysts believe Japan’s fragile economy would collapse. Of the industrialized nations, Japan is the most hypersensitive to oil prices, and if its banks default, the collapse of the second largest economy would set in motion a sequence of monetary events that would prove devastating to the U.S. economy. Indeed, Japan's fall in an Iraq war could create the economic dislocations that begin in the Pacific Rim but quickly spread to Europe and Russia. The Russian government lacks the controls to thwart a disorderly run on the dollar, and such an event could ultimately force an OPEC switch to euros.

Additionally, other risks might arise if the Iraq war goes poorly or becomes prolonged, as it is possible that civil unrest may unfold in Kuwait or other OPEC members including Venezuela, as the latter may switch to euros just as Saddam did in November 2000. Thereby fostering the very situation this administration is trying to prevent, another OPEC member switching to euros as their oil transaction currency.

Incidentally, the final "Axis of Evil" country, North Korea, recently decided to officially drop the dollar and begin using euros for trade, effective Dec. 7, 2002 (7). Unlike the OPEC-producers, their switch will have negligible economic impact, but it illustrates the geopolitical fallout of President Bush's harsh rhetoric. Much more troubling are North Korea's recent actions following the oil embargo of their country. They are in dire need of oil and food; and in an act of desperation they have re-activated their pre-1994 nuclear program. Processing uranium appears to be taking place at a rapid pace, and it appears their strategy is to prompt negotiations with the U.S. regarding food and oil. The CIA estimates that North Korea could produce 4-6 nuclear weapons by the second half of 2003. Ironically, this crisis over North Korea's nuclear program further confirms the fraudulent premise for which this war with Saddam was entirely contrived.

Unfortunately, neo conservatives such as George Bush, Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and Richard Perle fail to grasp that Newton’s Law applies equally to both physics and the geo-political sphere as well:

"For every action there is an equal but opposite reaction."

During the 1990s the world viewed the U.S. as a rather self-absorbed but essentially benevolent superpower. Military actions in Iraq (90-91' & 98'), Serbia and Kosovo (99') were undertaken with both U.N. and NATO cooperation and thus afforded international legitimacy. President Clinton also worked to reduce tensions in Northern Ireland and attempted to negotiate a resolution to the Israeli-Palestinian conflict.

However, in both the pre and post 9/11 intervals, the "America first" policies of the Bush administration, with its unwillingness to honor International Treaties, along with their aggressive militarisation of foreign policy, has significantly damaged our reputation abroad. Following 9/11, it appears that President Bush's "warmongering rhetoric" has created global tensions – as we are now viewed as a belligerent superpower willing to apply unilateral military force without U.N. approval.

Lamentably, the tremendous amount of international sympathy that we witnessed in the immediate aftermath of the September 11th tragedy has been replaced with fear and anger at our government. This administration’s bellicosity has changed the worldview, and "anti-Americanism" is proliferating even among our closest allies (8). Even more alarming, and *completely unreported* in the U.S media, are some monetary shifts in the reserve funds of foreign governments away from the dollar with movements towards the euro (9). It appears that the world community may lack faith in the Bush administration's economic policies, and along with OPEC, seems poised to respond with economic retribution if the U.S. government is regarded as an uncontrollable and dangerous superpower. The plausibility of abandoning the dollar standard for the euro is growing. An interesting U.K. article outlines the dynamics and the potential outcomes ('Beyond Bush’s Unilateralism: Another Bi-Polar World or A New Era of Win-Win?') (10)

>>

"The most likely end to US hegemony may come about through a combination of high oil prices (brought about by US foreign policies toward the Middle East) and deeper devaluation of the US dollar (expected by many economists). Some elements of this scenario:

1) US global over-reach in the "war on terrorism" already leading to deficits as far as the eye can see -- combined with historically-high US trade deficits – lead to a further run on the dollar. This and the stock market doldrums make the US less attractive to the world's capital.

2) More developing countries follow the lead of Venezuela and China in diversifying their currency reserves away from dollars and balanced with euros. Such a shift in dollar-euro holdings in Latin America and Asia could keep the dollar and euro close to parity.

3) OPEC could act on some of its internal discussions and decide (after concerted buying of euros in the open market) to announce at a future meeting in Vienna that OPEC's oil will be re-denominated in euros, or even a new oil-backed currency of their own. A US attack on Iraq sends oil to €40 per barrel.

4) The Bush Administration's efforts to control the domestic political agenda backfires. Damage over the intelligence failures prior to 9/11 and warnings of imminent new terrorist attacks precipitate a further stock market slide.

5) All efforts by Democrats and the 57% of the US public to shift energy policy toward renewables, efficiency, standards, higher gas taxes, etc. are blocked by the Bush Administration and its fossil fuel industry supporters. Thus, the USA remains vulnerable to energy supply and price shocks.

6) The EU recognizes its own economic and political power as the euro rises further and becomes the world's other reserve currency. The G-8 pegs the euro and dollar into a trading band -- removing these two powerful currencies from speculators trading screens (a "win-win" for everyone!). Tony Blair persuades Brits of this larger reason for the UK to join the euro.

7) Developing countries lacking dollars or "hard" currencies follow Venezuela's lead and begin bartering their undervalued commodities directly with each other in computerized swaps and counter trade deals. President Chavez has inked 13 such country barter deals on its oil, e.g., with Cuba in exchange for Cuban health paramedics who are setting up clinics in rural Venezuelan villages.

The result of this scenario? The USA could no longer run its huge current account trade deficits or continue to wage open-ended global war on terrorism or evil. The USA ceases pursuing unilateralist policies. A new US administration begins to return to its multilateralist tradition, ceases its obstruction and rejoins the UN and pursues more realistic international cooperation.“

>>

As for the events currently taking place in Venezuela, items #2 and #7 on the above list may allude to why the Bush administration quickly endorsed the failed military-led coup of Hugo Chavez in April 2002. Although the coup collapsed after 2 days, various reports suggest the CIA and a rather embarrassed Bush administration approved and may have been actively involved with the civilian/military coup plotters. (11)

"George W. Bush's administration was the failed coup's primary loser, underscoring its bankrupt hemispheric policy. Now it is slowly filtering out that in recent months White House officials met with key coup figures, including Carmona. Although the administration insists that it explicitly objected to any extra-constitutional action to remove Chavez, comments by senior U.S. officials did little to convey this."

"The CIA's role in a 1971 Chilean strike could have served as the working model for generating economic and social instability in order to topple Chavez. In the truckers' strike of that year, the agency secretly orchestrated and financed the artificial prolongation of a contrived work stoppage in order to economically asphyxiate the leftist Salvador Allende government."

"This scenario would have had CIA operatives acting in liaison with the Venezuelan military, as well as with opposition business and labor leaders, to convert a relatively minor afternoon-long work stoppage by senior management into a nearly successful coup de gráce."

Interestingly, according to an article by Michael Ruppert, Venezuelan’s ambassador Francisco Mieres-Lopez apparently floated the idea of switching to the euro as their oil currency standard approximately one year before the failed coup attempt. Furthermore, there is evidence that the CIA is still active in its attempts to overthrow the democratically elected Chavez administration. In fact, this December a Uruguayan government official exposed the ongoing covert CIA operations in Venezuela (12):

"Uruguayan EP-FA congressman Jose Bayardi says he has information that far-reaching plan have been put into place by the CIA and other North American intelligence agencies to overthrow Venezuelan President Hugo Chavez Frias"

"Bayardi says he has received copies of top-secret communications between the Bush administration in Washington and the government of Uruguay requesting the latter's cooperation to support white collar executives and trade union activists to "break down levels of intransigence within the Chavez Frias administration"...

Venezuela is the fourth largest producer of oil, and the corporate elites whose political power runs unfettered in the Bush/Cheney oligarchy appear interested in privatizing Venezuela’s oil industry. Furthermore, the establishment might be concerned that Chavez's "barter deals" with 12 Latin American countries and Cuba are effectively cutting the U.S. dollar out of the vital oil transaction currency cycle. Commodities are being traded among these countries in exchange for Venezuela's oil, thereby reducing reliance on fiat dollars. If these unique oil transactions proliferate, they could create more devaluation pressure on the dollar. Continuing attempts by the CIA to remove Hugo Chavez appear likely.

The U.S. economy has acquired significant structural imbalances, including our record-high trade account deficit (now almost 5% of GDP), .3 trillion dollar deficit (55% of GDP), and the recent return to annual budget deficits in the hundreds of billions. These are factors that would devalue the currency of any nation under the "old rules." Why is the dollar still predominant despite these structural flaws?

Well, the elites understand that the strength of the dollar does not merely rest on our economic output per se. The dollar posses two unique advantages relative to all other hard currencies. The reality is that the strength of the dollar since 1945 rests on being the international reserve currency and thus fiat currency for global oil transactions (ie. "petro-dollar"). The U.S. prints hundreds of billions of these fiat petro-dollars, which are then used by nation states to purchase oil/energy from OPEC producers (except Iraq, to some degree Venezuela, and perhaps Iran in the near future). These petro-dollars are then re-cycled from OPEC back into the U.S. via Treasury Bills or other dollar-denominated assets such as U.S. stocks, real estate, etc.

The "old rules" for valuation of our currency and economic power were based on our flexible market, free flow of trade goods, high per worker productivity, manufacturing output/trade surpluses, government oversight of accounting methodologies (ie. SEC), developed infrastructure, education system, and of course total cash flow and profitability. While many of these factors remain present, over the last two decades we have diluted some of these "safe harbor" fundamentals. Despite vast imbalances and structural problems that are escalating within the U.S. economy, the dollar as the fiat oil currency created "new rules". The following exerts from an Asia Times article discusses the virtues of our fiat oil currency and dollar hegemony (or vices from the perspective of developing nations, whose debt is denominated in dollars). (13)

>>

"Ever since 1971, when US president Richard Nixon took the dollar off the gold standard (at per ounce) that had been agreed to at the Bretton Woods Conference at the end of World War II, the dollar has been a global monetary instrument that the United States, and only the United States, can produce by fiat. The dollar, now a fiat currency, is at a 16-year trade-weighted high despite record US current-account deficits and the status of the US as the leading debtor nation. The US national debt as of April 4 was .021 trillion against a gross domestic product (GDP) of trillion."

"World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies.To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger.

*This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars.* Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973."

"By definition, dollar reserves must be invested in US assets, creating a capital-accounts surplus for the US economy. Even after a year of sharp correction, US stock valuation is still at a 25-year high and trading at a 56 percent premium compared with emerging markets."

"The US capital-account surplus in turn finances the US trade deficit. Moreover, any asset, regardless of location, that is denominated in dollars is a US asset in essence. When oil is denominated in dollars through US state action and the dollar is a fiat currency, the US essentially owns the world's oil for free. And the more the US prints greenbacks, the higher the price of US assets will rise. Thus a strong-dollar policy gives the US a double win."

>>

This unique geo-political agreement with Saudi Arabia in 1973 has worked to our favor for the past 30 years, as this arrangement has raised the entire asset value of all dollar denominated assets/properties, and allowed the Federal Reserve to create a truly massive debt and credit expansion (or ‘credit bubble’ in the view of some economists). These structural imbalances in the U.S. economy are sustainable as long as:

1) Nations continue to demand and purchase oil for their energy/survival needs

2) The fiat reserve currency for global oil transactions remain the U.S. dollar (and dollar only)

These underlying factors, along with the "safe harbor" reputation of U.S. investments afforded by the dollar’s reserve currency status propelled the U.S. to economic and military hegemony in the post-World War II period. However, the introduction of the euro is a significant new factor, and appears to be the primary threat to U.S. economic hegemony. More over, in December 2002 ten additional countries were approved for full membership into the E.U. In 2004 this will result in an aggregate GDP of .6 trillion and 450 million people, directly competing with the U.S. economy (.5 trillion GDP, 280 million people).

Especially interesting is a speech given by Mr Javad Yarjani, the Head of OPEC’s Petroleum Market Analysis Department, in a visit to Spain (April 2002). He speech dealt entirely on the subject of OPEC oil transaction currency standard with respect to both the dollar and the euro. The following exerts from this OPEC executive provide insights into the conditions that would create momentum for an OPEC currency switch to the euro. Indeed, his candid analysis warrants careful consideration given that two of the requisite variables he outlines for the switch have taken place since this speech in early 2002. These *vital stories are discussed in the European media, but have been censored by our own mass media* (14)

>>

"The question that comes to mind is whether the euro will establish itself in world financial markets, thus challenging the supremacy of the US dollar, and consequently trigger a change in the dollar's dominance in oil markets. As we all know, the mighty dollar has reigned supreme since 1945, and in the last few years has even gained more ground with the economic dominance of the United States, a situation that may not change in the near future. By the late 90s, more than four-fifths of all foreign exchange transactions, and half of all world exports, were denominated in dollars. In addition, the US currency accounts for about two thirds of all official exchange reserves. The world's dependency on US dollars to pay for trade has seen countries bound to dollar reserves, which are disproportionably higher than America's share in global output. The share of the dollar in the denomination of world trade is also much higher than the share of the US in world trade.

Having said that, it is worthwhile to note that in the long run the euro is not at such a disadvantage versus the dollar when one compares the relative sizes of the economies involved, especially given the EU enlargement plans. Moreover, the Euro-zone has a bigger share of global trade than the US and while the US has a huge current account deficit, the euro area has a more, or balanced, external accounts position. One of the more compelling arguments for keeping oil pricing and payments in dollars has been that the US remains a large importer of oil, despite being a substantial crude producer itself. However, looking at the statistics of crude oil exports, one notes that the Euro-zone is an even larger importer of oil and petroleum products than the US."

"From the EU’s point of view, *it is clear that Europe would prefer to see payments for oil shift from the dollar to the euro, which effectively removed the currency risk.* It would also increase demand for the euro and thus help raise its value. Moreover, since oil is such an important commodity in global trade, in term of value, if pricing were to shift to the euro, it could provide a boost to the global acceptability of the single currency.

There is also very strong trade links between OPEC Member Countries (MCs) and the Euro-zone, with more than 45 percent of total merchandise imports of OPEC MCs coming from the countries of the Euro-zone, while OPEC MCs are main suppliers of oil and crude oil products to Europe."

"Of major importance to the ultimate success of the euro, in terms of the oil pricing, will be if Europe's two major oil producers — the United Kingdom and Norway join the single currency. Naturally, the future integration of these two countries into the Euro-zone and Europe will be important considering they are the region’s two major oil producers in the North Sea, which is home to the international crude oil benchmark, Brent. *This might create a momentum to shift the oil pricing system to euros*."

"In the short-term, OPEC MCs, with possibly a few exceptions, are expected to continue to accept payment in dollars. Nevertheless, I believe that OPEC will not discount entirely the possibility of adopting euro pricing and payments in the future. The Organization, like many other financial houses at present, is also assessing how the euro will settle into its life as a new currency. The critical question for market players is the overall value and stability of the euro, and whether other countries within the Union will adopt the single currency."

"Should the euro challenge the dollar in strength, which essentially could include it in the denomination of the oil bill, it could be that a system may emerge which benefits more countries in the long-term. Perhaps with increased European integration and a strong European economy, this may become a reality. Time may be on your side. I wish the euro every success."

>>

Based on this important speech, momentum for OPEC to consider switching to the euro will grow once the E.U. expands in May 2004 to 450 million people with the inclusion of 10 additional member states. The aggregate GDP will increase from trillion to .6 trillion. This enlarged E.U. will be an oil consuming purchasing population 33% larger than the U.S., and over half of OPEC crude oil will be sold to the E.U. as of mid-2004. This does not include other potential E.U. entrants such as the U.K., Norway, Denmark and Sweden. I should note that since this speech the euro has been trading at parity or above the dollar since late 2002, and analysts predict the dollar will continue its downward trending in 2003 relative to the euro.

It appears the final two pivotal items that would create the OPEC transition to euros will be based on if and when Norway’s Brent crude is re-dominated in euros, and when the U.K. adopts the euro. Regarding the later, Tony Blair is lobbying heavily for the U.K. to adopt the euro, and their adoption would seem imminent within this decade. If and when the U.K. adopts the euro currency I suspect a concerted effort will be quickly mounted to establish the euro as an international reserve currency. Again, I offer the following information from my astute acquaintance who analyzes these monetary matters very carefully:

>>

"The pivotal vote will probably be Sweden, where approval this next autumn of adopting the euro also would give momentum to the Danish government's strong desire to follow suit. Polls in Denmark now indicate that the euro would pass with a comfortable margin and Norwegian polls show a growing majority in favor of EU membership. Indeed, with Norway having already integrated most EU economic directives through the EEA partnership and with their strongly appreciated currency, their accession to the euro would not only be effortless, but of great economic benefit.

As go the Swedes, so probably will go the Danes & Norwegians. It's the British who are the real obstacle to building momentum for the euro as international transaction & reserve currency. So long as the United Kingdom remains apart from the euro, reducing exchange rate costs between the euro and the British pound remains their obvious priority. British adoption (a near-given in the long run) would mount significant pressure toward repegging the Brent crude benchmark - which is traded on the International Petroleum Exchange in London - and the Norwegians would certainly have no objection whatsoever that I can think of, whether or not they join the European Union."

"Finally, the maneuvers toward reducing the global dominance of the dollar are already well underway and have only reason to accelerate so far as I can see. An OPEC pricing shift would seem rather unlikely prior 2004 - barring political motivations (ie. from anxious OPEC members) or a disorderly collapse of the dollar (ie. Japanese bank collapse due to high oil prices following a prolonged Iraq conflict) but appears quite viable to take place before the end of the decade."

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Facing these potentialities, I hypothesize that President Bush intends to topple Saddam in 2003 in a pre-emptive attempt to initiate massive Iraqi oil production in far excess of OPEC quotas, to reduce global oil prices, and thereby dismantle OPEC's price controls. The end-goal of the neo-conservatives is incredibly bold yet singular in purpose, to use the "war on terror" as the premise to finally dissolve OPEC's decision-making process, thus ultimately preventing the cartel’s inevitable switch to pricing oil in euros.

How would the Bush administration break-up the OPEC cartel's price controls in a post-Saddam Iraq? First, the newly installed leader (apparently a U.S. General during the first several months) will convert Iraq back to the dollar standard. Next, with the U.S. military protecting the oil fields, the new ruling junta will undertake the necessary steps to rapidly increase production of Iraq oil, quintupling Iraq’s current output – well beyond OPEC’s 2 million barrel per day quota.

Dr. Nayyer Ali offers a succinct analysis of how Iraq’s underutilized oil reserves will not be a 'profit-maker' for the U.S. government, but it will serve as the crucial economic instrument to leverage and hopefully dissolve OPEC's price controls, thus fulfilling the long sought after goal of the neo conservatives to collapse the OPEC cartel (15):

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"Despite this vast pool of oil, Iraq has never produced at a level proportionate to the reserve base. Since the Gulf War, Iraq's production has been limited by sanctions and allowed sales under the oil for food program (by which Iraq has sold 60 billion dollars worth of oil over the last 5 years) and what else can be smuggled out. This amounts to less than 1 billion barrels per year.

If Iraq were reintegrated into the world economy, it could allow massive investment in its oil sector and boost output to 2.5 billion barrels per year, or about 7 million barrels a day. Total world oil production is about 75 million barrels, and OPEC combined produces about 25 million barrels.

What would be the consequences of this? There are two obvious things.

First would be the collapse of OPEC, whose strategy of limiting production to maximize price will have finally reached its limit. An Iraq that can produce that much oil will want to do so, and will not allow OPEC to limit it to 2 million barrels per day. If Iraq busts its quota, then who in OPEC will give up 5 million barrels of production? No one could afford to, and OPEC would die.

This would lead to the second major consequence, which is a collapse in the price of oil to the 10-dollar range per barrel. The world currently uses 25 billion barrels per year, so a 15-dollar drop will save oil-consuming nations 375 billion dollars in crude oil costs every year."

"The Iraq war is not a moneymaker. But it could be an OPEC breaker. That however is a long-term outcome that will require Iraq to be successfully reconstituted into a functioning state in which massive oil sector investment can take place."

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The American people are largely oblivious to the economic risks regarding President Bush’s upcoming war. Not only is Japan’s weakened economy at grave risk from a spike in oil prices, but additional risks relate to Iran and Venezuela as well, either of whom could move to the euros, thus providing further momentum for OPEC to act on their "internal discussions" and switch to the euro as their new oil currency. The Bush administration believes that by toppling Saddam they will remove the juggernaut, thus allowing the US to control Iraqi’s huge oil reserves, and finally break-up and dissolve the 10 remaining countries in OPEC.

This last issue is undoubtedly a significant gamble even in the best-case scenario of a quick and relatively painless war that topples Saddam and leaves Iraq's oil fields intact. Undoubtedly, the OPEC cartel could feel threatened by the goal of the neo conservatives to break-up OPEC’s price controls (- per barrel). Perhaps the Bush administration’s ambitious goal of flooding the oil market with Iraqi crude may work, but I have doubts. Will OPEC simply tolerate quota-busting Iraqi oil production, thus delivering to them a lesson in self-inflicted hara-kiri (suicide)?

Contrarily, OPEC could meet in Vienna and in an act of self-preservation re-denominate the oil currency to the euro. Such a decision by would mark the end of U.S. dollar hegemony, and thus the end of our precarious economic superpower status. Again, I offer the astute analysis of my expert friend regarding the colossal gamble this administration is about to undertake:

"One of the dirty little secrets of today's international order is that the rest of the globe could topple the United States from its hegemonic status whenever they so choose with a concerted abandonment of the dollar standard. This is America's preeminent, inescapable Achilles Heel for now and the foreseeable future.

That such a course hasn't been pursued to date bears more relation to the fact that other Westernized, highly developed nations haven't any interest to undergo the great disruptions which would follow - but it could assuredly take place in the event that the consensus view coalesces of the United States as any sort of 'rogue' nation. In other words, if the dangers of American global hegemony are ever perceived as a greater liability than the dangers of toppling the international order (or, alternately, if an 'every man for himself' crisis as discussed above spirals out of control and forces their hand).

The Bush administration and the neo conservative movement has set out on a multiple-front course to ensure that this *cannot* take place, in brief by a graduated assertion of military hegemony atop the existent economic hegemony.

The paradox I've illustrated with this one narrow scenario is that the quixotic course itself may very well bring about the feared outcome that it means to preempt. We shall see!"

Under this administration we have returned to massive deficit spending, and the lack of strong SEC enforcement has further eroded investor confidence. Regrettably, the flawed economic and tax policies and of the Bush administration may be exacerbating the weakness of the dollar, if not outright accelerating some countries to diversify their central bank reserve funds with euros as an alternative to the dollar.

From a foreign policy perspective, the terminations of numerous international treaties and disdain for international cooperation via the UN and NATO have angered even our closest allies. Lastly, and despite President Bush’s attempt to use the threat of applying military force to OPEC producers who may wish to switch to the euro for their oil payments, it appears their belligerent neo conservative policies may paradoxically bring about the dire outcome they hope to prevent – an OPEC currency switch to euros.

Synopsis

It would appear that any attempt by OPEC member states in the Middle East or Latin America to transition to the euro as their oil transaction currency standard shall be met with either overt U.S. military actions or covert U.S. intelligence agency interventions. Under the guise of the perpetual "war on terror" the Bush administration is manipulating the American people about the unspoken but very real macroeconomic reasons for this upcoming war with Iraq. This war in Iraq will have *nothing* to with any threat from Saddam’s old WMD program. This war will be over the global currency of oil.

Sadly, the U.S. has become largely ignorant and complacent. Too many of us are willing to be ruled by fear and lies, rather than by persuasion and truth. Will we allow our government to initiate the dangerous "pre-emptive doctrine" by waging an unpopular war in Iraq, while we refuse to acknowledge that Saddam does not pose an imminent threat to the United States?

Furthermore, we seem unable to address the structural weakness of our economy due to massive debt manipulation, unaffordable 2001 tax cuts, massive current account deficits, trade deficits, corporate accounting abuses, unsustainable credit expansion, near zero personal savings, record personal indebtedness, and our dependence and over consumption of cheap Middle Eastern oil. How much longer can we reliably import our oil from middle eastern states that dislike or despise us because of our overtly biased foreign policy towards Israel?

Regardless of whatever Dr. Blix finds or doesn't find in Iraq regarding WMD, it appears that President Bush is determined to pursue his "pre-emptive" imperialist war to secure a large portion of the earth’s remaining hydrocarbons, and then use Iraq’s underutilized oil to destroy the OPEC cartel. Will this gamble work? That remains to be seen. However, I predict our nation will suffer not only economic retribution from the international community, but also from increased Al-Qaeda sponsored terrorism as well. Will we stand idle and watch CNN, as our government becomes an international pariah by discarding International Law as it wages a unilateral war in Iraq?

We must ask ourselves this fundamental question - Is it morally defensible to deploy our brave but naïve young soldiers around the globe to enforce U.S. dollar hegemony for global oil transactions - via the barrels of their guns? Shall we accept the grave price of an unjust war over the currency of oil? Will we allow imperialist conquest in the Middle East to feed our excessive energy consumption, while ignoring the duplicitous overthrowing of a democratically elected government in Latin America? We must not stand silent and watch our country become a ‘rogue’ superpower, relying on brute force, thereby forcing the industrialized nations or OPEC to abandon the dollar standard - thus with the mere stroke of a pen - slay the U.S. Empire? Informed citizens believe this administration is pushing us towards that dire outcome. I firmly believe at this critical juncture that remaining silent is not only misguided, but false patriotism.

This need not be our fate. When will we demand that our government begin the long and difficult journey towards energy conservation, the development of renewable energy sources, and sustained balanced budgets to allow real deficit reduction? When will we repeal of the unaffordable 2001 tax cuts to create a balanced budget, enforce corporate accounting laws, and substantially reinvest in our manufacturing and export sectors to gradually but earnestly move our economy from a trade account deficit position back into a trade account surplus position? Undoubtedly, we must make these and many more painful structural changes to our economy and our society if we are to restore our “safe harbor” investment status.

Equally important, we must bear in mind the wisdom of the founding fathers such as Thomas Jefferson’s who insisted that a free press is vital, as it is our best, and often the only mechanism to protect democracy. The American people are not aware of the issues discussed in this essay due to the U.S. mass media, which has been reduced to a handful of consumption/entertainment and profit-oriented conglomerates that filter the flow of information within the U.S. The Internet is now the only source of unfiltered "real news." Sadly, part of today’s dilemma lays within the US media conglomerates that have failed in their responsability to inform the American People.

Undoubtedly we will have to make some sacrifices in our standard of living by reducing our excessive energy consumption. It is imperative that our government also begins economic and monetary reforms immediately. We must adopt our economy to accommodate the inevitable competition to the dollar from the euro as an alternative international reserve currency and oil transaction currency. The Bush administration’s seemingly entrenched political ideology appears quite incompatible with these necessary economic reforms. Ultimately We the People must demand a new and more responsible administration. We need leaders who are willing to return balanced budgets, conservative fiscal policies, and to our traditions of engaging in multilateral foreign policies while seeking broad international cooperation.

It has been said that all wars are fought over resources or ideology/religion. It appears that this administration may soon add "oil currency war" as a third paradigm. I fear that the world community will not tolerate a U.S. Empire that uses its military power to conquer sovereign nations who decide to sell their oil products in euros instead of dollars.

Likewise, if President Bush pursues an essentially unilateral war against Iraq, I suspect the historians will not be kind to him and his administration. Their agenda is clear to the world community, but when will U.S. patriots become cognizant of their modus operandi?

"If you tell a lie big enough and keep repeating it, people will eventually come to believe it."

"The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State."

- Joseph Goebbels, German Minister of Propaganda, 1933-1945

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Background Information on Hydrocarbons

To understand hydrocarbons and how we got to this desperate place in Iraq, I have listed four articles in the Reference Section from Michael Ruppert’s controversial website: ‘From the Wilderness.’ Although some of Ruppert’s articles are overwrought from time to time, their research detailing the issues of hydrocarbons, and the interplay between energy and the Bush junta’s perpetual “war on terror” is quite informative. Other than the core driver of the dollar versus euro currency threat, the other issue related to the upcoming war with Iraq appears related to the Caspian Sea region. Since the mid-late 1990s the Caspian Sea region of Central Asia was thought to hold approx. 200 billion barrels of untapped oil (the later would be comparable to Saudi Arabia’s reserve base)(16). Based on an early feasibility study by Enron, the easiest and cheapest way to bring this oil to market would be a pipeline from Kazakhstan, through Afghanistan to the Pakistan border at Malta. In 1998 then CEO of Halliburton, Dick Cheney, expressed much interest in building that pipeline...

In fact, these oil reserves were a *central* component of Vice President Cheney’s energy plan released in May 2001. According to his report, the U.S. will import 90% of its oil by 2020, and thus tapping into the reserves in the Caspian Sea region was viewed as a strategic goal that would help meet our growing energy demand, and also reduce our dependence on oil from the Middle East (17). According to the French book, The Forbidden Truth (18), the Bush administration ignored the U.N. sanctions that had been imposed upon the Taliban and entered into negotiations with the supposedly 'rogue regime' from February 2, 2001 to August 6, 2001. According to this book, the Taliban were apparently not very cooperative based on the statements of Pakistan’s former ambassador, Mr. Naik. He reports that the U.S. threatened a "military option" in the summer of 2001 if the Taliban did not acquiesce to our demands. Fortuitous for the Bush administration and Cheney's energy plan, Bin Laden delivered to us 9/11. The pre-positioned U.S. military; along with the CIA providing cash to the Northern Alliance leaders, led the invasion of Afghanistan and the Taliban were routed. The pro-western Karzai government was ushered in. The pipeline project was now back on track in early 2002, well, sort of...

After three exploratory wells were built and analyzed, it was reported that the Caspian region holds only approximately 10 to 20 billion barrels of oil (although it does have a lot of natural gas) (16). The oil is also of poor quality, with high sulfur content. Subsequently, several major companies have now dropped their plans for the pipeline citing the massive project was no longer profitable. Unfortunately, this recent realization about the Caspian Sea region has serious implications for the U.S., India, China, Asia and Europe, as the amount of available hydrocarbons for industrialized and developing nations has been decreased downward by 20%. (Global estimates reduced from 1.2 trillion to approx. 1 trillion) (18, 19). The Bush administration quickly turned its attention to a known quantity, Iraq, with it proven reserves totaling 11% of the world's oil reserves. Our greatest nemesis, Bin Laden, was quickly replaced with our new public enemy #1, Saddam Hussein...

For those who would like to review the impact of depleting hydrocarbon reserves from the geo-political perspective, and the potential ramifications regarding how these developments may erode of our civil liberties and democratic processes, retired U.S. Special Forces officer Stan Goff offers a sobering analysis in his essay: ‘The Infinite War and Its Roots’ (20). Likewise, for those who wish to review some of the unspeakable evidence surrounding the September 11th tragedy, the controversial essay “The Enemy Within” by the famous American writer Gore Vidal offers a thorough introduction. Although Gore Vidal’s essay was published in Italy and a major UK newspaper, The Observer, you will not find it printed in U.S. media. {Note: Gore Vidal’s latest book, ‘Dreaming War’ features this as the opening essay (21)}. Finally, ‘The War on Freedom” by British political scientist Nafeez Ahmed asks disconcerting questions about the 9/11 tragedy (22).



References

(1) London, Heidi Kingstone, ‘Middle East: Trouble in the House of Saud’ (January 13, 2003) http://www.jrep.com/Mideast/Article-0.html

(2) Recknagel, Charles, 'Iraq: Baghdad Moves to Euro' (November 1, 2000) http://www.rferl.org/nca/features/2000/11/01112000160846.asp

(3) Gutman, Roy & Barry, John, Beyond Baghdad: Expanding Target List: Washington looks at overhauling the Islamic and Arab world (August 11, 2002) http://www.unansweredquestions.net/timeline/2002/newsweek081102.html

(4) 'Economics Drive Iran Euro Oil Plan, Politics Also Key' (August 2002) http://www.iranexpert.com/2002/economicsdriveiraneurooil23august.htm

(5) ‘Forex Fund Shifting to Euro,’ Iran Financial News, (August 25, 2002) http://www.payvand.com/news/02/aug/1080.html

(6) Costello, Tom, ‘Japan’s Economy at Risk of Collapse’ (December 11, 2002) http://www.msnbc.com/news/845708.asp?0cl=cR

(7) Gluck, Caroline, ‘North Korea embraces the euro’ (December 1, 2002) http://news.bbc.co.uk/1/hi/world/asia-pacific/2531833.stm

(8) ‘What the World Thinks in 2002 : How Global Publics View: Their Lives, Their Countries, The World, America’ (2002) http://people-press.org/reports/display.php3?ReportID=165

(9) ‘Euro continues to extend its global influence’ (January 7, 2002) http://www.europartnership.com/news/02jan07.htm

(10) Henderson, Hazel, ‘Beyond Bush’s Unilateralism: Another Bi-Polar World or A New Era of Win-Win?’ (June 2002) http://www.hazelhenderson.com/Bush's%20unilateralism.htm

(11) Birms, Larry & Volberding, Alex, ‘U.S. is the Primary Loser in Failed Venezuelan Coup,’ Newsday (April 21, 2002) http://www.coha.org/COHA%20_in%20_the_news/Articles%202002/newsday_04_21_02_us__venezuela.htm

(12) ‘USA intelligence agencies revealed in plot to oust Venezuela's President,’ (Dec 12, 2002) http://www.vheadline.com/0212/14248.asp (link now dead)

(13) Liu, Henry C K, 'US Dollar hegemony has got to go,’ (Asia Times, April 11, 2002) http://www.atimes.com/global-econ/DD11Dj01.html

(14) ‘The Choice of Currency for the Denomination of the Oil Bill,’ Speech given by Javad Yarjani, Head of OPEC’s Marketing Analysis Department (April, 2002) http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueSpainApr14.htm

(15) Dr. Ali, Nayyer, ‘Iraq and Oil,’ (December 13, 2002) http://www.pakistanlink.com/nayyer/12132002.html

(16) Pfeiffer, Dale, ‘Much Ado about Nothing -- Whither the Caspian Riches? ‘ (December 5, 2002) http://www.fromthewilderness.com/free/ww3/120502_caspian.html

(17) Ruppert, Michael, ’The Unseen Conflict,’ (October 18, 2002) http://www.fromthewilderness.com/free/ww3/101802_the_unseen.html

(18) Jean Charles-Briscard & Guillaume Dasquie, ‘The Forbidden Truth: U.S.-Taliban Secret Oil Diplomacy, Saudi Arabia and the Failed Search for bin Laden’, Nation Books, 2002.

(19) Ruppert, Michael, ‘Colin Campbell on Oil.’(October 23, 2002) http://www.fromthewilderness.com/free/ww3/102302_campbell.html

(20) Golf, Stan, ‘The Infinite War and its Roots,’ http://www.fromthewilderness.com/free/ww3/082702_infinite_war.html

(21) Vidal, Gore, ‘Dreaming War: Blood for Oil & the Cheney-Bush Junta,’ Nation Books, 2002. His essay, ‘The Enemy Within’ was first printed in the UK’s Observer (Oct 27, 2002) http://www.ratical.org/ratville/CAH/EnemyWithin.html

(22) Ahmed, Nafeez, ‘The War on Freedom: How and Why America was Attacked, September 11, 2001’, Tree of Life Publications, 2002. http://www.amazon.com/exec/obidos/tg/detail/-/0930852400/ref=pd_bxgy_img_2/104-0999265-3121549?v=glance&s=books

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Addendum to above essay on Iraq

by W.C. Sunday, Feb. 02, 2003 at 4:33 AM
wrc92@aol.com

After completing my essay, I began to read in late January some interesting international monetary developments and the related opinions of currency analysts. These recent developments warrant inclusion as an addendum.

The following two articles relate to the rapid devaluation of the dollar in late January relative to the euro. This occurred in the week immediately preceding President Bush’s State of the Union address. Both of these articles suggest Russia -a traditional holder of dollar reserves - may be linking "political overtones" to their exchanges of dollars for euros. The below article may illustrate things to come if President Bush continues on his present unilateral position on Iraq. ‘US dollar on shaky ground’ (January 24, 2003) (23)

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"The dollar remained on the ropes on Thursday, buffeted by some hawkish remarks from the US administration about the standoff with Iraq. It was also stung by a pointed signal from Russia's central bank that the appeal of dollar-denominated assets is waning

Oleg Vyugin, first deputy chairman at the Russian central bank, said the bank plans to cut the share of US dollars in its foreign exchange reserves and increase the share of other currencies.

*Some analysts questioned whether there may be political overtones to Vyugin's remarks, that could be related to the widening rift between the US and some other potential allies about how to persuade Iraq to comply with UN weapons' inspectors requirements.*

Although Russia's own foreign exchange reserves are fairly small by comparison with the world's biggest central banks, the question is, "Will other central banks follow and what does this do to the ability of the US to finance its current account deficit?" said Marc Chandler, chief currency strategist with HSBC in New York.

That deficit is currently around 5% of gross domestic product and proving to be an increasingly heavy millstone around the dollar's neck."

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The next day (January 25, 2003) some analysts reiterated that these monetary movements may be related not only to the current geo-political tensions, but may also indicate political motivations. Is this perhaps a 'warning shot over the bow' for the Bush administration regarding their position on Iraq? The following are exerts from the article: 'Dollar's Decline Starting To Accelerate, Rattling Nerves' (24)

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"All of a sudden, the dollar's supposedly slow and gradual decline isn't looking so slow, or gradual.

In fact the speed of the dollar's slide, against the euro in particular, has taken even the most seasoned analysts by surprise: a Dow Jones Newswires foreign exchange survey just ten days ago showed the major currency trading banks forecasting the euro climbing to .06 by the middle of February and not coming near .10 until the end of the year.

Instead, the euro has leaped to highs of around .0850 on Friday and has already gained 4% on the dollar this year, leaving strategists increasingly scrambling to update their forecasts. The Swiss franc keeps reaching fresh four-year highs, and the dollar is on the ropes against sterling and a host of other key rivals."

"Perhaps a more important barometer of broader confidence in U.S. markets is the Treasurys market. With the dollar falling, gold spiking and stocks under pressure, Treasurys continue to retain their safe haven appeal.

But there are warning signals here, too, that are beginning to get more attention. This week, the Russian central bank said it was lowering the U.S. asset portion of its foreign exchange reserves - in other words selling Treasurys- calling the dollar a low-yielding currency."

*Analysts believe some of the large Asian central banks - that between them hold the lion's share of the world's dollar reserves - are also considering rejigging their Treasury holdings. A U.S.-led war in Iraq could further accelerate that trend."*

Indeed, *some political analysts believe that U.S. policy over Iraq may already be having a direct impact on holdings of U.S. assets, particularly with much of the rest of the world so opposed to war.* "It's hard for me to believe that the flow of capital cannot help but be affected by how the U.S. is perceived around the world," said Larry Greenberg, an international economist at Ried Thunberg & Co. in Westport, Conn.

"Today if you have the U.S. acting (in Iraq) against world opinion, there could be an even faster pullback out of dollar-denominated assets," said Joseph Quinlan, global economist with Johns Hopkins University, in Washington. "How we go to war influences the rate of decline of the dollar," he said.

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Furthermore, Mr. Will Hutton of the UK’s Observer wrote a forceful article against Bush’s unilaterism. This article further emphasizes the unfortunate economic imbalances of the U.S. economy, and suggests that the potential geo-political fallout of a unilaterist war in Iraq could create a devastating divestiture of U.S. dollar denominated assets. The article was entitled: 'Why Bush is sunk without Europe.' (25)

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"The US's economic position is far too vulnerable to allow it to go war without cast-iron multilateral support that could underpin it economically as well as diplomatically and militarily. The multi-lateralism Bush scorns is, in truth, an economic necessity."

"On latest estimates, its net liabilities to the rest the world are more than .7 trillion, nearly 30 per cent of GDP, a scale of indebtedness associated with basket-case economies in Latin America."

Its industrial base is so uncompetitive that it consistently imports more than it exports; its current-account deficit, the gap between all its current foreign earnings and foreign spending, is now a stunning 5 per cent of GDP, continuing a trend that has lasted for more than 25 years and which is the cause of all that foreign debt. As a national community, it has virtually ceased to save so that government and individuals alike live on credit. To finance the current-account deficit, a reflection of the lack of saving, the US relies on foreigners supplying it with the foreign currency it can't earn itself.

*But if foreigners got windy about the prospects for share and property prices and stopped buying, or began to withdraw some of the trillions they have invested in the US economy, then the dollar would collapse. Already, it has fallen nearly 10 per cent against the euro over the last six weeks, but that could just be the beginning. Economists at the Federal Reserve have estimated that the dollar needs to fall by 30 per cent to bring the flow of imports and exports into balance, but in today's markets such a fall doesn't happen gradually. It happens precipitately.*

If America and Britain spurn a second UN Resolution and go to war with the active opposition of key members of the Security Council like France and Russia, be sure the flow of dollars into the US will slow down dramatically, and be sure there will be a stampede of foreigners trying to sell. Shares on Wall Street that Bush is so anxious to prop up are still massively overvalued. *Against this background, there could be a devastating sell-off, with all the depressing knock-on consequences for American consumer confidence and business investment.*

What the markets were signaling last week was that this is sufficiently within the bounds of possibility that it was worth taking precautionary action, hence the selling. If the war was over in a few weeks, the risks would be containable, and there will be some shares well worth buying at today's prices. But if the war was prolonged or the subsequent peace unstable, then the pressure on the dollar and Wall Street could become very severe indeed, reinforcing the depressive influences on an economy where the underlying imbalances are so extraordinary.

"The US approach has been unilateralist here as everywhere else: it does what it likes as it likes, a policy that is now showing its limits. Bush needs badly to change course, which Tony Blair should be urging on him. The UN process needs to be respected and reinforced, not least to reassure the markets, and better systems of economic governance need to be put in place. The US's military capacity may allow unilateralism; its soft economic underbelly, we are discovering, does not."

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These articles indicate that the world community is reducing its reliance on dollars in their central banks, and thus quite possibly sending a message about their opposition to the U.S.'s position on Iraq.

Commentary from an Irishman on my Essay: 'The Real Reasons for the Upcoming War With Iraq'

In January 2003, Mr. Coílín Nunan reviewed a draft of my essay on an Internet forum. He subsequently published an exceptional summary of this research on an Irish website (http://www.feasta.org). Hopefully my essay along with his article may create additional public awareness, and thus facilitate a real debate regarding the Iraq issues. Below are exerts from his article 'Oil, Currency, and the War on Iraq' (26)

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"One of the stated economic objectives, and perhaps the primary objective, when setting up the euro was to turn it into a reserve currency to challenge the dollar so that Europe too could get something for nothing.

This however would be a disaster for the US. Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. As countries and businesses converted their dollar assets into euro assets, the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble, as it is currently openly considering doing, because, without lots of eager foreigners prepared to mop them up, a serious inflation would result which, in turn, would make foreigners even more reluctant to hold the US currency and thus heighten the crisis.

There is though one major obstacle to this happening: oil. Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If you don’t have oil, you have to buy it. And if you want to buy oil on the international markets, you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. So long as this remained the case, the euro was unlikely to become the major reserve currency: there is not a lot of point in stockpiling euros if every time you need to buy oil you have to change them into dollars. This arrangement also meant that the US effectively part-controlled the entire world oil market: you could only buy oil if you had dollars, and only one country had the right to print dollars - the US.

If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidizer of the US because it holds so many dollar investments). The US on the other hand, being the world's largest oil importer would have, to run a trade surplus to acquire euros. The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. It would be a very painful conversion.

The purely economic arguments for OPEC converting to the euro, at least for a while, seem very strong. The Euro-zone does not run a huge trade deficit nor is it heavily indebted to the rest of the world like the US and interest rates in the Euro-zone are also significantly higher. The Euro-zone has a larger share of world trade than the US and is the Middle East’s main trading partner. And nearly everything you can buy for dollars you can also buy for euros - apart, of course, from oil."

"All of this is bad news for the US economy and the dollar. The fear for Washington will be that not only will the future price of oil not be right, but the currency might not be right either. Which perhaps helps explain why the US is increasingly turning to its second major tool for dominating world affairs: military force."

>>

It appears that Mr. Nunan concurs with my hypothesis with respect to the euro and this upcoming war. Tragically, President Bush and his administration do not appear willing to initiate the arduous structural changes that our economy must undertake if we are to adapt and compete with the euro. Instead, they intend to enforce U.S. dollar hegemony for oil transactions via the application of superior U.S. military force. However, in my opinion, the Bush administration's dangerous strategy will most likely result in failure, as monetary maneuvers against the U.S. dollar by the international community indicate they will not tolerate aggressive U.S. imperialism over Iraq’s oil and its choice of oil currency.

References: Addendum Section

(23) 'US Dollar on Shaky Ground' (January 24, 2003)

http://onebusiness.nzoom.com/onebusiness_detail/0,1245,163754-3-168,00.html

(24) McCarthy, Grainne , 'Dollar's Decline Starting To Accelerate, Rattling Nerves' (January 25, 2003)

http://sg.biz.yahoo.com/030124/15/36tiv.html

(25) Hutton, Will, 'Why Bush is sunk without Europe' Observer, (January 26, 2003) http://www.observer.co.uk/comment/story/0,6903,882358,00.html

(26) Nunan, Coílín, 'Oil, Currency, and the War on Iraq' (January 2003)

http://www.feasta.org/documents/papers/oil1.htm)

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Kudos

by Diogenes Sunday, Feb. 02, 2003 at 5:58 AM

Thank you Professor. An excellent analysis; accesible to someone moderately informed in such matters. My only cavil so far would be why not put a specific name on the interests most responsible the International Banking Cartel i.e., the Fed and it's masters - the Rothshilds, Rockefellers, et. al., ...?

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International Banking Cartel

by Bohemian Grove Thursday, Feb. 06, 2003 at 10:09 AM

"Thank you Professor. An excellent analysis; accesible to someone moderately informed in such matters. My only cavil so far would be why not put a specific name on the interests most responsible the International Banking Cartel i.e., the Fed and it's masters - the Rothshilds, Rockefellers, et. al., ...?"

Yeah, and don't forget to mention the Illuminati, Skull and Bones, and the Trilateral Commission. Also possible are the Bilderburgs and the secret Knights Templar roundtable.

These New World Order Globalist Elite Conspirators must be exposed for all the world to see!

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You left out the tinfoil hat

by Diogenes Thursday, Feb. 06, 2003 at 5:51 PM

You Shills are such a riot. If anything gets too close to home the immediate response is to attack the person not the facts. Fact: The Ownership of the Federal Reserve Bank (a PRIVATE Bank) is dominated by the Rothschild Family and a few of the "Old Money" elitists of the Northeast.

Fact: The printing and distribution of lawful money is assigned by the U.S. Constitution to the Congress.

Sadly people will commit great evils for money and power. To think that their are no machinations out of public view is to assume that we can disregard the last 2 thousand years of recorded history.

Your comment translates as: "PAY NO ATTENTION TO THAT MAN BEHIND THE CURTAIN!"

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board up the windows

by they are coming.... Thursday, Feb. 06, 2003 at 9:22 PM

board up the windows...
nightlivdead.jpg, image/jpeg, 468x349

anon from nm.indymedia "night of the livind dead"

anybody know "NEFF" http://nm.indymedia.org/usermedia/image/10/large/nightlivdead.jpg

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Tin Foil Cranks

by Bohemian Grove Sunday, Feb. 09, 2003 at 9:59 AM

"You Shills are such a riot. If anything gets too close to home the immediate response is to attack the person not the facts. "

That's fucking funny. The only shill are the cranks and disinformationalists who are always spewing their "New World"/Globalist Conspiracy crap. Its hilarious that every major issue that comes along--9/11, the colonization of Iraq, the Phony War of Terror--is seized by your parasites as fodder for your fantasy world ideologies.

Ultimately, you people are supremely arrogant to believe that a only Select Few of you have The Truth about how the world works, and that anyone who disagrees with you is somehow misguided. I believe that psychologists call this disorder Paranoid Delusion.

"Fact: The Ownership of the Federal Reserve Bank (a PRIVATE Bank) is dominated by the Rothschild Family and a few of the "Old Money" elitists of the Northeast.

Fact: The printing and distribution of lawful money is assigned by the U.S. Constitution to the Congress."

Oh yeah, its the Rothschild Family (and other "Old Money Elitists" whatever the hell that means) who secretly dominate the Federal Reserve. They probably also control the Treasury Department, the IMF, World Bank, and the United Nations as well. Where is your documentation? Where is your evidence? You seem to delude yourself into believing that simply because you know how to label one of your assertion as FACT (IN CAPITAL LETTERS no less) that this makes it true.

"Your comment translates as: 'PAY NO ATTENTION TO THAT MAN BEHIND THE CURTAIN!'"

No, my comments translate to: Spewing some tripe that you probably culled and read on the Internet somewhere does not comprise any sort of concrete evidence, argumentation, or reasoned logic.

Your assertions are about as thin and as unconvincing as Colin Powell's plagiarized "Intelligence" dossier [sic] at the U.N. on "Iraqi Weapons of Mass Destruction"

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Ignorance is curable

by Diogenes Sunday, Feb. 09, 2003 at 4:24 PM



"There is a self-satisfied dogmatism with which mankind at each period of its history

cherishes the delusion of the finality of existing modes of knowledge."


Alfred North Whitehead

No age has been without it’s criminals. Some families have established it as their “family calling”. I think one of the problems that some people are unwilling to think big when it comes to criminal enterprise. They are able to conceive of the corner “stick-up artist” or even as big as a citywide “Insurance Operation”. However, really big criminal enterprises, particularly “white-collar” criminals, boggle their mind, they get scared, and won’t even look. They then cover up this fear by ridiculing anyone intrepid enough to “look behind the curtain”. This is of course helped along by the enterprises themselves who do not wish to be uncovered - the darkness of ignorance is their ally.

In some cases such knowledge is “forbidden” and does not show up in the history books. You will find no reference to the 1932 plot by the wealthy Brown family (surprise a banking family) to stage a military coup of the U.S. Government - it is well documented in the Newspapers of the day. It’s cover was blown when they approached former Commandant of The USMC Smedley Butler to run the military operation and he, being an actual Patriot, went to the New York Times with the story and blew the whistle. Congressional hearings were begun but were abruptly tabled. You can find great detail about the First and Second Banks of the United States, but no reference in “standard” sanitized History Books as to the machinations which brought about the Federal Reserve. Hmmm?

You will find no reference to Representative James T. McFadden’s (Chairman of House Banking and Commerce Committee for 10 Years) speeches before Congress detailing the abuses of the Fed. Link to text below.

It would seem that for some people that when a criminal organization reaches a certain size that it has become too large for them to conceive. This is when they start coming up with derisive labels such as “Conspiracy Theory” even though a little digging reveals the truth of the matter. The thought process seems to be “it can’t be therefore it isn’t”. End of story and don’t try to confuse me with the facts.

Because you are unaware is not my responsibility. However here is a little data if you have the courage to look:

Top 12 Owners of the Fed:

Rothschild Bank of London (Rothschild Family)

Warburg Bank of Hamburg (Warburgs tied to Rothschilds by Marriage)

Rothschild Bank of Berlin

Lehman Brothers of New York

Lazard Brothers of Paris

Kuhn Loeb Bank of New York

Israel Moses Seif Banks of Italy

Goldman, Sachs of New York

Warburg Bank of Amsterdam

Chase Manhattan Bank of New York (Rockefeller Family)

Most all of these families have ties by blood and marriage going back at least as far back as the 1700’s when the Rothschild Family first came to prominence.

Link to Representative Louis T. McFadden’s Speeches before the House of Representatives: http://www.rense.com/general27/gad.htm

The following link is to a well documented article which gives the basics of the Federal Reserve Scam: http://www.rense.com/ufo2/fedrez.htm

There are other large scale criminal operations but central to all of the most evil machinations is banking. After all in the end it is all about money and power. Remain ignorant if you choose, but don’t try to hold me accountable for YOUR ignorance.
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What happened to the Shill?

by Enquiring Mind Wednesday, Feb. 12, 2003 at 6:06 AM

What happened to my pet shill. You were giving me so many good excuses to post hard data.

Here boy! Phweet, phweet. Nice Shill. Come here shill.

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American

by Erik Petroni Wednesday, Feb. 12, 2003 at 6:10 AM
petronierik@hotmail.com

It just seemed strange, George Bush (father) wanting a New World Order and he was an oil man. His "son", well, that has a lot in it right there. And... like Abraham Lincon said.. " When we see a lot of framed timbers, different portions of which we know have been gotton out of different workmen, and when we see these timbers joined together and see that they exactly make the frame of a house or mill, all the lengths and proportions of the different pieces exactly adapted to their respective pieces, and not a piece too many or too few, not omitting even scaffolding, or if a single piece be lacking, we can see the place in the frame exactly fitted and prepared to yet bring such a piece in; in such case, we find it impossible to not believe that they all understood one another from the beginning, and all worked upon a common plan or draft drawn up before the first lick was struck.

Joseph Kennedy, the father of the late president John Kennedy, identified the number of individuals who run America. He said: "Fifty men have run America and that's a high figure"

Benjamin Franklin explained the Conspiracy and it's connection between money and power when he said: "There are two passions which have a powerful influence on the affairs of men. These are....love of power and love of money....When united...they have the most violent effects."

However, power itself has a corrupting influence on those who seek it. In an oft-quoted truth, Lord Acton explained power thus: "Power corrupts; absolute power corrupts absolutely"

Those who seek power will be corrupted by it. They will be willing to intentionally cause depressions, revolutions, and wars in order to further their desire for more power. This corrupting nature of the very pursuit of power explains why themoral mind of the individual who neither desires power over others nor understands the desire for such power cannot fathom why power-seekers would want to creat human misery through wars, depressions, and revolutions.

In other words, the conspirators are successful because the moral citizen cannot accept the conclusion that other individuals would actually wish to create incredibly destructive acts against their fellow citizens.

Another power seeker, the Russian anarchist Bakunin, explained that this process of corruption even affected those dedicated to freedom who were given power to protect the powerless. He wrote "....the possession of power transformed into a tyrant even the most devoted friend of liberty"

The delight in the possession of power over others was explained by another observer of the power-seeking person Joseph Kennedy: "I like Joe Kennedy enjoy the sheer sense of control? He would say: "Let me see any other motive in the people who command."

So the motive of the Conspirators has been identified:

It is Power!

I did vote for George W. Bush, and I do feel that he has many great qualities, but now there seems as if something is off. It would be better for the American people to be told the entire truth. Let our country work hard, take care of our people in our country and once we are strong and stable take care of others. We must always be a carring Nation but soon our frivolous ways will weaken us till we can no longer give, then we will be easy game to be taken over.

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American

by Erik Petroni Wednesday, Feb. 12, 2003 at 6:41 AM

I strongly recommend that anyone interested get a copy of the book:

"The Unseen Hand"

A Introduction to the Conspiratorial View of History

by A. Ralph Epperson

Library of Congress Card Number: 84-06227

International Standard Book Number 0-9614135-0-6

( ISBN - Number )

Published by:

Publius Press

3100 South Philamena Place

Suite B

Tucson

Arizona 85730

Phone numbers (please check to see if they are still correct as I have not contacted the above address or following phone numbers in several years:

(602) 886-4380

(800) 442-3888

I strongly recommend the book as one of my favorites. What was written before by me was quoted from his book. That was from just one page, it has 488 pages and starts with the,

Introduction: History Defined. Then Chapter...

1. God or Government,

2. Freedom

3. Forms of Government

4. Economic terms

5. Inflation

6. Money and Gold

7. Additional Economic Terms

8. The Secret Societies

9. Communism

10. The Russian Revolution

11. The Cuban Revolution

12.. The American Revolution

13. The Rothschild family

14. The Monroe Doctrine

15. The Civil War

16. The Federal Reserve

17. Graduated Income Taxes

18. Non-Violent Organizations

19. Population Control

20. The Tri-Lateral Commission

21. The Purpose

22. Iron Mountain

23. World War I

24. World War II

25. Communist Betrayals

26. The Atomic Bomb

27. The Exposers

28. The Korean War

29. Aid and Trade

30. Treason

31. Science versus Reason

32. Abortion and Laetrile

33. World Government

34. Peace

35. Humanism

36. Education

37. Victories

38. The Greatest Victory

39. Removal

40. Assistance

41. The Responsibility

Footnotes, Selected Bibliography, Glossary, Index.

Perhaps also do a internet search under the title of the title of the book etc.

Report this post as:

American

by Erik Petroni Wednesday, Feb. 12, 2003 at 6:42 AM

I strongly recommend that anyone interested get a copy of the book:

"The Unseen Hand"

A Introduction to the Conspiratorial View of History

by A. Ralph Epperson

Library of Congress Card Number: 84-06227

International Standard Book Number 0-9614135-0-6

( ISBN - Number )

Published by:

Publius Press

3100 South Philamena Place

Suite B

Tucson

Arizona 85730

Phone numbers (please check to see if they are still correct as I have not contacted the above address or following phone numbers in several years:

(602) 886-4380

(800) 442-3888

I strongly recommend the book as one of my favorites. What was written before by me was quoted from his book. That was from just one page, it has 488 pages and starts with the,

Introduction: History Defined. Then Chapter...

1. God or Government,

2. Freedom

3. Forms of Government

4. Economic terms

5. Inflation

6. Money and Gold

7. Additional Economic Terms

8. The Secret Societies

9. Communism

10. The Russian Revolution

11. The Cuban Revolution

12.. The American Revolution

13. The Rothschild family

14. The Monroe Doctrine

15. The Civil War

16. The Federal Reserve

17. Graduated Income Taxes

18. Non-Violent Organizations

19. Population Control

20. The Tri-Lateral Commission

21. The Purpose

22. Iron Mountain

23. World War I

24. World War II

25. Communist Betrayals

26. The Atomic Bomb

27. The Exposers

28. The Korean War

29. Aid and Trade

30. Treason

31. Science versus Reason

32. Abortion and Laetrile

33. World Government

34. Peace

35. Humanism

36. Education

37. Victories

38. The Greatest Victory

39. Removal

40. Assistance

41. The Responsibility

Footnotes, Selected Bibliography, Glossary, Index.

Perhaps also do a internet search under the title of the title of the book etc.

Report this post as:

American

by Erik Petroni Wednesday, Feb. 12, 2003 at 6:42 AM

I strongly recommend that anyone interested get a copy of the book:

"The Unseen Hand"

A Introduction to the Conspiratorial View of History

by A. Ralph Epperson

Library of Congress Card Number: 84-06227

International Standard Book Number 0-9614135-0-6

( ISBN - Number )

Published by:

Publius Press

3100 South Philamena Place

Suite B

Tucson

Arizona 85730

Phone numbers (please check to see if they are still correct as I have not contacted the above address or following phone numbers in several years:

(602) 886-4380

(800) 442-3888

I strongly recommend the book as one of my favorites. What was written before by me was quoted from his book. That was from just one page, it has 488 pages and starts with the,

Introduction: History Defined. Then Chapter...

1. God or Government,

2. Freedom

3. Forms of Government

4. Economic terms

5. Inflation

6. Money and Gold

7. Additional Economic Terms

8. The Secret Societies

9. Communism

10. The Russian Revolution

11. The Cuban Revolution

12.. The American Revolution

13. The Rothschild family

14. The Monroe Doctrine

15. The Civil War

16. The Federal Reserve

17. Graduated Income Taxes

18. Non-Violent Organizations

19. Population Control

20. The Tri-Lateral Commission

21. The Purpose

22. Iron Mountain

23. World War I

24. World War II

25. Communist Betrayals

26. The Atomic Bomb

27. The Exposers

28. The Korean War

29. Aid and Trade

30. Treason

31. Science versus Reason

32. Abortion and Laetrile

33. World Government

34. Peace

35. Humanism

36. Education

37. Victories

38. The Greatest Victory

39. Removal

40. Assistance

41. The Responsibility

Footnotes, Selected Bibliography, Glossary, Index.

Perhaps also do a internet search under the title of the title of the book etc.

Report this post as:

Contributor

by Richmond, VA Thursday, Feb. 13, 2003 at 2:44 AM

:: our country seems unable to answer even the most basic questions about this war. First, why is there virtually no international support to topple Saddam? If Iraq's WMD program truly possessed the threat level that President Bush has repeatedly purported, why is there no international coalition to militarily disarm Saddam?

Clear misinformation. In fact, more NATO countries support disarming Iraq than don't. Unfortunately, some of the most politically powerful nations in NATO oppose military force. Of course, influential China and Russia also oppose it, but there are many 'unimportant' countries that support action, as well as Britain.

:: Secondly, despite over 300 unfettered U.N inspections to date, there has been no evidence reported of a reconstituted Iraqi WMD program.

The use of the word 'unfettered' here seems highly questionable, when Hussein clearly prohibited closed-door discussions with Iraqi scientists. Iraq, at approximately 168,000 square miles is larger than California (164,000 sq. m. ). Anyone who thinks that a determined, wealthy dictator cannot play hide and seek with mobile weapons and plants in home turf larger than California, with 10 years to plan, is not really thinking well.

::the CIA has not found any links between Saddam Hussein and Al Qaeda

Okay. We haven't found Osama bin Laden yet, either. We couldn't prove OJ guilty either. I wouldn't want OJ, Osama or Saddam to go walking around free and in charge of chemical weapons.

::President Bush has not provided a rationale answer as to why Saddam's seemingly dormant WMD program possesses a more imminent threat that North Korea’s active program?

When we started banging the gong of war, NK was not making the noise it is now. We need to have an accurate time-table. Aside from this, it is not a matter of imminence, but of practicality: we have no current practical way to handle NK, but we do Iraq.



In regards to the whole currency switch issue, the writer quotes som source:

::"Otherwise, the effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their (central bank) reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). You;d have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there'd surely be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic 3rd world economic crisis scenario

The first sentence is ludicrous. "Reserve Funds?" There is no such thing, unless the writer refers to hard currency, which is a pitifully small amount compared to the US economy. And why would we have to "flush dollars"? Why would we have to replace them with euros? The whole idea is completely unfounded. And the second sentence becomes even more of an air argument ... crash 20-40% in value - based on what? The rest of the doomsday scenario just builds more crap from there.



::He said that the United States dominates other countries through its currency, noting that given the superiority of the dollar against other hard currencies, the US monopolizes global trade.

Although this is a believable quote, it is not necessarily a quote that is correct. The US 'monopolizes' global trade becuase we consume so much; we're the Wal-Mart of the world economy. We don't need political pressure; just high volume. That was the whole dea of the euro: to create a rival volume leader.



::Aside from these political risks regarding Saudi Arabia and Iran, another risk factor is actually Japan. Perhaps the biggest gamble in a protracted Iraq war may be Japan's weak economy (6). If the war creates prolonged oil high prices ( per barrel over several months), or a short but massive oil price spike ( to 0 per barrel), some analysts believe Japan’s fragile economy would collapse. Of the industrialized nations, Japan is the most hypersensitive to oil prices, and if its banks default, the collapse of the second largest economy would set in motion a sequence of monetary events that would prove devastating to the U.S. economy. Indeed, Japan's fall in an Iraq war could create the economic dislocations that begin in the Pacific Rim but quickly spread to Europe and Russia. The Russian government lacks the controls to thwart a disorderly run on the dollar, and such an event could ultimately force an OPEC switch to euros.

I'm just not sure what to make of this. Is he saying that the US won't attack Iran or Saudi Arabia because japan's economy might collapse which would force OPEC to switch to euros??



:: Additionally, other risks might arise if the Iraq war goes poorly or becomes prolonged, as it is possible that civil unrest may unfold in Kuwait or other OPEC members including Venezuela

Too late for Venezuela.

::Even more alarming, and *completely unreported* in the U.S media, are some monetary shifts in the reserve funds of foreign governments away from the dollar with movements towards the euro

I'm still unclear as to why this is alarming. Maybe everyone else is too. Maybe that is the real reason nobody's reporting it.

::Again, I offer the astute analysis of my expert friend regarding the colossal gamble this administration is about to undertake:

"One of the dirty little secrets of today's international order is that the rest of the globe could topple the United States from its hegemonic status whenever they so choose with a concerted abandonment of the dollar standard. This is America's preeminent, inescapable Achilles Heel for now and the foreseeable future

Again, this groundless assertion. The 'dollar standard' is an effect of a strong and stable US economy, not the cause of it.

Report this post as:

INFOSEC man

by W.Clark Sunday, Feb. 16, 2003 at 4:16 AM

I don't have time to addres all your questions, but central banks around the world are dumping dollars quite precipitiously (For example, Russia, a traditional holder of dollars droped 10% last month, their reserves are about billion).

As for Japan here's s brillant analysis from a friend of how Japan's falter in the Iraq war could result in an OPEC switch to euros. The Treasury has models to show the impact, it's quite interesting, if not alarming..

>

…So turning now to the macropolitical situation, which in near certainty will prove more decisive toward ’04, ’06, and ’08 than any other factor. First and foremost, I don't think anyone will disagree that the state of the economy should exercise a preeminent role in deciding the 2004 outcome on every level. How's this for a plausible, quite ominous extreme-case scenario?

One of several reasons why the Iraq adventure is fraught with peril obviously relates to the potential for oil price shock – almost certain in the event of any prolonged Gulf conflict. Indeed, it's this fear of economic disruption that has compelled the administration to build up military forces in such an incremental, almost invisible fashion.

Similarly, this desire to avoid sudden fluctuations in oil prices is why they’ve entertained such ridiculous notions as paratrooping a quick-strike force into Baghdad as opposed to a full-frontal attack with overwhelming force. Aside from the historical reference of the ’91 recession following Gulf War I, it’s no secret that the anemic U.S. economic ‘recovery’ presently stands ill equipped to handle significant economic tensions.

At first glance this wouldn’t appear too daunting a prospect; the trillion American economic powerhouse could absorb a relatively brief rise in oil prices without too great dislocation – in part with the assistance of the National Petroleum Reserve. Granted, even a ’91 style recession with 7.5% unemployment and so on wouldn’t exactly suggest a promising political setting for Dubya's 2004 campaign, but even so there’s the parallel war on terrorism, military affairs, and domestic security issues to ride back into office.

However, the nightmare economic scenario which may well unfold in the aftermath of a Gulf War Part Deux doesn’t originate with America, but rather the greatest danger appears within: Japan.

To begin with, here’s a recent MSNBC overview regarding the alarming state of Japan’s moribund economy as well as the persistent inability of that nation to confront its structural impediments:

‘Japan’s Economy at Risk of Collapse’ (December 11, 2002) http://www.msnbc.com/news/845708.asp?0cl=cR

Japan’s banking system has been teetering on the verge of collapse for years now. Even having discharged over trillion of nonperforming loans during this past decade, that nation’s financial houses are still carrying at least another trillion of dead weight on the books. Once accounting for several hundreds of billions in various assets, you’re still left with a system deep in red ink negative worth. Indeed, the implosion of the world’s second largest economy is now seemingly inevitable, within at most 4-6 years national debt service – already at 140% of national GDP – will rise high enough to crash its bond markets forcing the banks to divert sufficient reserves to service their institutional debt which would drive their equity capital below operational levels.

In fact, it’s this imminent specter of Japan Inc.’s ultimate liquidation that likely more than any other factor drives the administration’s Mideast policies. The hope is that dropping oil prices can both jumpstart a renewed American boom cycle and give the Japanese industrial/consumer base some breathing room in which to eventually enact imperative reforms. In theory, American consumers would once again propel their buying power to an altogether unprecedented level which coupled with the American worker’s unmatched productivity would fuel a resurgence in the European & Japanese export sectors. This would encourage a renewed round of investment in developing Latin American, Eastern European, and Asian economies which would consequently set the stage for the next expansion in global consumer demand.

Toward these broad ends, the U.S. establishment views (and rightly so) a combination of stable Persian Gulf oil production & orderly shipping lanes as critical – which in turn according to the neocon geostrategic framework requires American hegemonic direction of the region.

To go way back and finally clarify my comments regarding the significance of the dollar/euro international transaction & reserve standard toward this present conflict, it is not directly *because* of Iraq’s switch (to the euros in November 2000) but rather to *prevent* any future moves toward a general OPEC transition. It is toward this foremost end, among other less compelling factors, that the U.S. desires to finally seize control of OPEC’s decision-making process – and Saddam Hussein currently stands directly in the path of that juggernaut. The reasons should become clearer in a moment, but first, back to Japan.

Japan’s import dependence on oil is extreme – far and away when compared to other developed nations – with its frail economy acutely susceptible to even minor fluctuations in the oil supply. There’s good reason to believe that a barrel oil (such as that seen during the *buildup* to Gulf War I) would convulse its economy back over the precipice, a sustained period of such price hikes or anything approaching the to 0 a barrel some have speculated would plunge the Japanese economy into death throes. The immediate effect would include a run on the banks and the yen, which would make the Argentine debacle of this past spring resemble a sunny day at the beach. A Japanese meltdown would spark a predictable chain reaction that should prove nothing short of Armageddon for the post-war capitalist economic order.

The immediate effect on the global economy would be seen with an instantaneous devaluation of the Chinese yuan followed by comparable markdowns of the won, the baht, and other Far East currencies which would reverberate onward to the Indian rupee, the South African rand, the Brazilian real, and then permeate throughout the developing world. Meanwhile, the Japanese maelstrom would soon begin sucking in America’s financial institutions, with Japan forced to withdraw its funds invested here to cover the domestic fiscal collapse. Japan remains the largest foreign investor in U.S. Treasuries, and this enormous capital flight – easily exceeding 0 billion – would naturally collapse the U.S. bond markets and crash U.S. stock exchanges (well, equities would already be crashing hard by this point).

Eventually, this would render the huge current account deficit unsustainable and also lead to a government default on the Federal debt, however, as ugly a portrait as we have already, much of the economic devastation is still fairly containable to this point – now, add to this equation: the Russians.

The Russian people are without parallel the greatest holders of hard dollars outside the Americans themselves – estimated at upward of 0 billion. As Japanese capital streamed out of the U.S., you’d have a situation with the dollar spiking mightily against the yen (because domestic hyperinflation in Japan should far outstrip the devaluing impact of liquidating U.S. assets – which if nothing else would bring Japan’s deflationary spiral to a spectacular close...) while the dollar should be sinking against the euro. This would place immediate exchange cost pressures on European investors to withdraw funds from the United States, but again, this could perhaps get contained.

However, with most of their life savings held in dollars stuffed inside mattresses, the Russians would storm the currency exchanges at the snap of two fingers the moment they saw the numbers scrolling wildly on the local obmen valyutyi...

In brief, the United States and the European Union have a number of mechanisms by which they can strive to keep the dollar/euro exchange rate stable enough to contain much of the economic fallout to the Pacific Rim, however they can’t control the Russian man on the street. The risk of a general Russian bolt to the exchanges is quite genuine, leading the Kremlin for example to coordinate a public confidence campaign this past summer when fears grew of such a development. A Russian dollar panic could alone easily drive the dollar down 10 cents or more against the euro, which in turn would have European investors facing an exchange rate sinkhole of losses in their U.S. assets.

In very short order – especially combined with all the turmoil already described above – the exchange costs would drive the Europeans to abruptly repatriate funds back to Europe, further driving up the euro against the dollar. It’s at this critical juncture that both OPEC and Russia would come under intense pressure to switch their international oil transaction currency standard from the dollar to the euro or face severe losses in their own finances.

Such a development would strike a dagger in the heart of the American economic order – already reeling with the aftermath of the Japanese dissolution. Citigroup and J.P. Morgan should have by now burst apart at the seams, taking out a few other flagship corporations and the finance industry as a whole right along with them. Several economic sectors, such as telecommunications, would near certainly have to get nationalized, at least for the intermediate term. General price/wage controls & rationing would probably follow as well; after a run on the banks which would make 1932 look like a picnic...

Hard as it might be to believe in the midst of all this economic, political, (and probably societal) chaos, the U.S. economy of its own accord still would possess most of the necessary elements to pull itself back out of the gutter – particularly in light of the dollar as international reserve currency. That's America's ace in the hole.

The problem here, though, is that in such a close-to-worst-case sequence as outlined above, the dollar’s leverage to preserve its standing as a reserve currency would require that it remain the international transaction currency which by extension requires that it remain the OPEC standard. As various nations, including Europe and China which for very different reasons would relatively best weather the crisis (even with their own major dislocations) moved to reorganize their economic houses, the use of the dollar in reserves (even if on an inferior basis to the euro) would offer one key pivot on which to rebuild the American economy as well.

Otherwise, should the dollar get comprehensively flushed out of every nation’s reserves, the U.S. could become an economic backwater for a generation or more, easily eclipsed by an ascendant Europe & China.

This is the potential scenario which awaits whenever (if ever) Japan finally plunges into the crucible, dragging the rest of the globe right along in its wake. Granted, there are some alternatives which may stanch the bleeding well short of this outline, or even some that could plumb darker depths (Chinese civil warfare & the European Union spinning apart) magnifying the impact even further. So this is just my latest shot across the bow of idle speculation regarding Jeb Bush’s 2008 campaign, by example.

To paraphrase Watson, exactly 5 years, 11 months, 4 days, and 19 ½ hours separated the panzerkreuzer Schleswig-Holstein opening fire on Danzig’s Westerplatte and ‘Little Boy’ reaching critical mass as the Enola Gay streaked away from Hiroshima. And, with a little twist on the proverbial Chinese curse: May you not live through interesting times...

WATSON’s question #1 - "Let's assume that you are right, and the U.S. dollar is significantly weakened. So what? Why is that going to lead to another great depression?"

Hmmm.. I'm not completely certain what you're asking; in the scenario I've described above, you would have far more taking place than just a weakening dollar (in itself a mixed bag). The loss of wealth from collapsing bond, equity, and real estate values would probably stand somewhere between trillion to trillion once that cycle had run its course. We wouldn't be talking about a 4000 Dow but something closer to a 400 Dow (actually, the New York Stock Exchange would probably have to get shut down for some while). I've outlined a fairly disastrous scenario in which the weakness of the dollar is just one of several key components.

The greater relevance to the scenario above is that contemporary American economic dominance is based almost entirely on two factors: (1) the dollar's leverage as international reserve & transaction currency standard; (2) the U.S. financial markets acting as global 'safe haven' which permits the servicing of a massive current account deficit. Toward the end of this scenario, I've removed both these overarching factors upon which America vaulted to global economic hegemony since the Second World War ended.

It's not so much a problem of natural resources, worker productivity, education levels, infrastructure development, or technological advancement (most of the typical guideposts of a nation's economic potential); it's a problem (at least in the sense discussed here) that the United States dominated economic order is premised on and structured about those two prime factors above.

In short, the United States economy would have to get restructured in some fashion to account for the absence of those two pivotal advantages. Incidentally, this would follow a necessary government default on the national debt in accordance to the scenario I've outlined above, with its associated dislocations as well. You would have other major dislocations follow in addition: much of the current military superstructure would become financially unsustainable, you'd probably have some "brain drain" from the U.S. to at least Europe, the financial reserves of several economic sectors would fall below operating levels - they'd have to get nationalized for a time.

I'm not saying that the United States would not reemerge from such a debacle, but that it would take a generation or two which would include a significant depressionary cycle (worse than the 1930s in this scenario).

I suspect a good comparison would be either the post-Versailles Weimar Republic before the rise of Hitler or perhaps the post-Cold War remnants of the Soviet Union, without the additional burden of transition from a command economy toward a market economy. As I stated in my original scenario, I've constructed close to a worse case scenario (it's not worst-case, because I've preserved China & Europe with sufficient economic stability to fuel a more rapid global recovery; and Japan would also rise again alongside the United States).

In brief, I've compressed much of what's happened to Japan over the course of this past decade's 'soft landing' into a very 'hard landing' transposed to the unique circumstances of America.

As for where the geopolitical order should stand forty years following such a sequence of events as that outlined, you'd probably have the European Union in relative equivalence to the present United States, China roughly equivalent to the Soviet Union of the 1960s, Japan returned to its 1990s status sans malaise, and with the United States taking the place of contemporary Europe in the global ordering. Of course, that's a rather superficial & limited projection, but it'll suffice I think for the purpose at hand.

One of the dirty little secrets of today's international order is that the rest of the globe could topple the United States from its hegemonic status whenever they so choose with a concerted abandonment of the dollar standard. This is America's preeminent, inescapable Achilles Heel for now and the foreseeable future.

That such a course hasn't been pursued to date bears more relation to the fact that other Westernized, highly developed nations haven't any interest to undergo the great disruptions which would follow - but it could assuredly take place in the event that the consensus view coalesces of the United States as any sort of 'rogue' nation. In other words, if the dangers of American global hegemony are ever perceived as a greater liability than the dangers of toppling the international order (or, alternately, if an 'every man for himself' crisis as discussed above spirals out of control and forces their hand). The Bush administration and the neocon movement has set out on a multiple-front course to ensure that this *cannot* take place, in brief by a graduated assertion of military hegemony atop the existent economic hegemony.

The paradox I've illustrated with this one narrow scenario is that the quixotic course itself may very well bring about the feared outcome that it means to preempt. We shall see!

WATSON’s question #2:

1) Realistically, how much could the dollar be driven down against (to stick to a currency rate I follow almost daily) the euro? In other words, what are you saying the dollar could reach compared to the euro? 75 cents? 50 cents? 25 cents? 5 cents? What's the conversion rate dollar to euro?

The response…

1) The dollar could easily get driven down to the 80-85 euro cent range, indeed a number of currency analysts expects this to happen sometime over the course of the next few years. In more severe scenarios involving such things as a protracted U.S. recession with a comparably milder European pullback, then I'd say the dollar could fall as low as the 55-65 euro cent range - however, this would have long since placed intense pressure on its reserve currency status. If the dollar standard were abruptly abandoned, then without exchange controls the dollar would probably hyperinflate for a time versus the euro and this comparison would be fairly meaningless

2) Hmm.. The initial benefit of a gradual, limited depreciation rests with the competitive trade advantage for American exporters and the manufacturing base. The foreign operations of U.S. multinational corporations also become more profitable because their repatriated earnings gain in worth. The first problem of a weakening dollar is that U.S. equities become steadily more unattractive to foreign investors; conversely, European securities become more appealing for non-European investors, including Americans. Furthermore, with a weakening dollar you confront the danger of sparking broad price inflation, particularly in the case of a disorderly depreciation.

The primary reasons why the United States must maintain a highly appreciated dollar are twofold, and revisit the issues I broached above. (1) Steady foreign investments in dollar-denominated equities and securities are necessary in order to service the current account deficit; (2) an exchange-rate advantage over the long run is necessary in order to justify the dollar's reserve currency status. Over these past twenty years, the Federal Reserve has engaged in a dramatic expansion of the money supply in order to maintain the dollar's value (among other reasons), which steadily increases the risks of hyperinflation in the event of a disorderly correction; moreover, this drastically overvalues equities thus increasing the risk of sudden market crashes.

East Asian competitors - particularly Japan - require a strong dollar in order to maintain their own more heavily export-based economic structuring. A broadly weakening dollar steadily moves Japan closer to general insolvency and the devaluation crisis scenario which I've described above. The more the dollar falls, the harder it becomes for Japan to enact the necessary structural reforms, and the longer that Japan cannot enact these reforms, the more unavoidable its ultimate collapse.

As I tried to vividly explain above, Japan is obviously the weakest link in the current global economic order; there's rather little reason to believe this structure can stand in the event that one of its three pillars suddenly crumbles away.



WATSON’s question #3:

2) If the dollar gets low, why is that bad? I don't what this to get confused, but after you answer my last post, take a look at this. You say:

>

and

>

These are actually pretty small numbers compared to a trillion annual GDP and our national net worth. I don't see how either of those things leads to a Dow of 400. Or a depression that would last a generation.

Response:

Well, lemme address your initial questions in reverse order:

1) Japan: The annual GDP of the United States slightly exceeds trillion dollars, but the American GDP of the average fortnight wherein this Japanese withdrawal would take place is roughly 5 billion. Moreover, an abrupt Japanese rotation out of U.S. Treasuries would not halt at 0 billion in such a meltdown scenario, but rather extend both in the sense of continuing withdrawals as well as sharply reduced (i.e. nonexistent) reinvestment. Finally, what you'd have is a global financial crisis panic which would hardly stop at simply Japanese withdrawals, but accelerate into a generalized washout of U.S. equities & securities.

2) Russia: First of all, under normal circumstances, a random Russian dollar panic could (a) get mitigated by a coordinated central bank currency market intervention; (b) get absorbed by the global economy within a few months time. Aside from the fact that the Federal Reserve & European Central Bank would hardly be in a position to intervene in this scenario (much less the suddenly insolvent Bank of Japan), the key matter at hand involves exchange rate pressures.

A sudden spike of tens of billions of dollars exchanged for euros would ignite a disorderly, generalized currency market depreciation of the dollar which should well exceed the 10% or so impact of just the Russians alone. The Kremlin could of course attempt to intervene by shutting down the exchanges, although they would risk large-scale rioting & potential mutiny of the armed forces (their savings are mostly in dollars too..)

>

It's a combination of many things which essentially add up to a global financial panic. I suppose I could go down the list of the 30 Dow components to project how each of them would likely fare through our little doomsday scenario, but it seems that J.P. Morgan and Citigroup in liquidation with several other Dow companies (e.g. AT&T, Intel) insolvent should suffice. Let's just say it'd be a good time to invest in some R.J. Reynolds stock....



>

Japan's slow-motion collapse has already lasted half a generation, and the United States could very well follow a quite similar course. The comparisons between the U.S. of 2002 and the Japan of 1991 have been tossed about here before, and there's plenty of business journal commentary in that respect. The dissolution of -45 trillion worth of bond, stock, and real estate value may sound extraordinary, but perhaps it seems more realistic (as it should) once mentioning that Japan's economy has lost about trillion in value during the past 12 years.

A depressionary cycle would certainly follow in the wake of such a development, probably much deeper & more extended than Japan's in the case of disorderly overcorrection such as that hypothesized above. Japan has had the benefit of white-hot American consumer spending and a spectacular U.S. bull market run to soften its landing thus far; the United States would probably find no equivalent crutch.



Let's just hope we don't have to find out...

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The Real but Unspoken Reasons for the Iraq War

by William A Swan IV Monday, Feb. 24, 2003 at 12:25 PM
iamcygnus4@aol.com 206 527 2938 5259 Brooklyn Ave NE///Seattle WA 98105-3515

Uhh, thanks...a lot...this article is truly frightening in the range and scope of its implications and the concommitant future(s) that lie before us...I don't

think America is going to enjoy the velocity of nor

the duration of the fall that we could find ourselves

experiencing if all that is written above is correct and

where I see it ending up if our "leaders" don't

adjust fast enough and wisely enough to the path that

they embarked upon and taken us along for the ride...

NOW I am truly scared...it used to be only heights...

good work though...in talking to others about your

article, I have described it as what you can get from the

media when they actually do that which we hope they

will and what we need them to do, regardless of whether we like it or not...Swan

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