[Carlhole]

F. William Engdahl is a great explicator on anything related to the oil business including the knotty subject of currencies. This paper is worth reading and re-reading: http://www.currentconcerns.ch/archive/2 ... 030409.php

His 2004 update of "ACentury of War: Anglo-american oil politics and the New World Order" is due out in a week or two. I'm reading Mike Ruppert's "Crossing the Rubicon" right now and let me tell you, an F. William Engdahl he is NOT! It's a little on the murky side so far.

I've been thinking lately that the U.S. is giving the Chinese the shotgun they're going to blow our heads off with as soon as they're finished sucking all our technology up. And the trigger of that weapon will be currency warfare.

[MonteQuest]

This whole issue has been covered at length in my post here:

http://www.peakoil.com/fortopic1545.html

[skateari]

Yes you did cover the current aspects of the euro vrs. dollar currency war but that paper outlined a lot of the history behind it. Good post CarlHole that was a very interesting read.

[Barbara]

An interesting article on Chossudovsky's globalresearch.ca about the coming Iranian oil Bourse trading oil in euros:

http://globalresearch.ca/articles/CLA410A.html

Here is the synopsis:

$this->bbcode_second_pass_quote('', '
')Synopsis

Regardless of whatever choice the U.S. electorate makes in the upcoming Presidential Election a military expedition may still go ahead.

This essay was written out of my own patriotic duty in an effort to inform Americans of the challenges that lie ahead. On November 25, 2004, the issues involving Iran's nuclear program will be addressed by the International Atomic Energy Agency (IAEA), and possibly referred to the U.N. Security Council if the results are unsatisfactory. Regardless of the IAEA findings, it appears increasingly likely the U.S. will use the specter of nuclear weapon proliferation as a pretext for an intervention, similar to the fears invoked in the previous WMD campaign regarding Iraq.

The Bush administration could undertake a desperate military strategy to thwart Iran's nuclear ambitions while simultaneously attempting to prevent the Iranian oil Bourse from initiating a petroeuro system for international oil trades. The later would require forced "regime change" and the U.S. occupation of Iran. Obviously this would require a military draft. Objectively speaking, the post-war debacle in Iraq has clearly shown that such Imperial policies will be a catastrophic failure. Alternatively, perhaps a more enlightened U.S. administration could undertake multilateral negotiations with the EU and OPEC regarding a dual oil-currency system, in conjunction with global monetary reform. Either way, U.S. policy makers will soon face two difficult choices: monetary compromise or continued petrodollar warfare.

[Mower]

The world is NOT going to just stand by and watch the US invade Iran. The US government is freaking stupid if they think they can get away with it without serious intervention.

[jpatti]

Would this be the same world that didn't just stand by and watch the US invade Iraq?

What exactly do you expect them to do?

[Mower]

Well for one, the PRC is quite cozy with Iran for obvious reasons and has much to lose with a US occupation of its oil wells.

[lowem]

Eurasia-Eastasia's first alliance against Oceania?

*shrug* I dunno, it *is* one possible scenario ...

And will one of the most famous quotes of them all, "Bring 'em on!" yet be uttered again?

[backstop]

Barbara - interesting peice, thanks for the link.

One small sidelight on it is that UK forces hold southern Iraq and its only seaport, while Turkey has denied airborne US military thruput to the theatre. Any invasion of Iran would thus require UK approval, or it would break the veneer of a US-led coalition.

In this context Blair recently responded to a question from the UK press corps by saying that attacking Iran "wasn't on the agenda."

In reality, the Pentagon would resolutely object to any such invasion as it would shatter NATO and lead inevitably to the loss of US bases across Europe, as well as some in Asia, Africa and elsewhere.

The brazen lie that country Y "might get a nuclear weapon and we've only got 15,000 of them so they pose a terrible threat to us" is not going to work a second time. If they push this bluff too hard, they're likely only to cause the dollar's creditors (such as PRC) to cease rolling over their loans.

regards,

Backstop

[The_Virginian]

actualy this time they have europe on thier side. If they get a "legitamite" UN Resolution, based on facts, they have a pretext to invade w/ Europes approval.

Maybe (s)Kerry is more credible for this, being that Bush has been seen "growing a nose."

[Carlhole]

(from Amazon.com)

The invasion of Iraq may well be remembered as the first oil currency war. Far from being a response to 9-11 terrorism or Iraq's alleged weapons of mass destruction, Petrodollar Warfare argues that the invasion was precipitated by two converging phenomena: the imminent peak in global oil production, and the ascendance of the euro currency.

Energy analysts agree that world oil supplies are about to peak, after which there will be a steady decline in supplies of oil. Iraq, possessing the world's second largest oil reserves, was therefore already a target of U.S. geostrategic interests. Together with the fact that Iraq had switched to paying for oil in euros -- rather than U.S. dollars -- the Bush administration's unreported aim was to prevent further OPEC momentum in favor of the euro as an alternative oil transaction currency standard.

Meticulously researched, Petrodollar Warfare examines U.S. dollar hegemony and the unsustainable macroeconomics of 'petrodollar recycling,' pointing out that the issues underlying the Iraq war also apply to geostrategic tensions between the U.S. and other countries including the member states of the European Union (EU), Iran, Venezuela, and Russia. The author warns that without changing course, the American Experiment will end the way all empires end - with military over-extension and subsequent economic decline. He recommends the multilateral pursuit of both energy and monetary reforms within a United Nations framework to create a more balanced global energy and monetary system - thereby reducing the possibility of future oil- and oil currency-related warfare.

A sober call for an end to aggressive U.S. unilateralism, Petrodollar Warfare is a unique contribution to the debate about the future global political economy.

William Clark is Manager of Performance Improvement at Johns Hopkins University School of Medicine. His research on oil depletion, oil currency issues and U.S. geostrategy received a 2003 Project Censored award, published in Censored 2004. He lives in Columbia, Maryland.

http://www.amazon.com/exec/obidos/tg/de ... ce&s=books

[MonteQuest]

I posted a thread on this issue a while ago. Finding a reason to invade Iran is not hard. All we need is a another 911 terrorist attack that we can blame on Iran this time.

The euro vs the petrodollar
http://www.peakoil.com/fortopic1545.html

[gg3]

I think Backstop's appraisal is pretty realistic there (sounds like he also has military background).

Also it would be interesting if Iran were to make the case about peak oil, at the United Nations, that Dr. Bakhtiari has been making here. Though on second thought, if Iran were to say "we believe oil is about to peak, so we're building nuclear plants for domestic energy while we sell our oil to the rest of you at sky-high prices as the market goes scarce..." that might result in a global backlash against the whole idea of preparing for PO, which could be seriously counterproductive.

Best bet for Iran, if the "nuclear self-reliance / sell oil at high PO prices" scenario is in fact the truth, would be to agree to all manner of international inspections. Something along the lines of, "We are standing firm on having self-sufficient nuclear power including fuel reprocessing, but we are more than glad to have international inspectors living at all of our nuclear industry sites, as our honored guests with full access to everything." That would take the fangs out of US arguements about nuclear weapons, and put an end to any pretext for invasion.

In order for this to work, though, they should make a major public statement, for example, buy the back page of the front section of the New York Times and run a full-page statement in unambiguous language, so it can't be brushed under the rug or ignored.

OTOH, if they're really after nuclear weapons, then yeah the world is in a bit more trouble than it was yesterday.

[Kris]

A similar piece I just read regarding dollar warfare, and even more disturbing...

THE ERA OF FICTITIOUS CAPITALISM
by Addison Wiggin
Perspective.
While doing radio interviews this fall regarding themes in our book, Financial Reckoning Day: Surviving The Soft Depression of the 21st Century, the question invariably arises: "France? Nice place to visit, but why the heck do you live there?"
The short answer is, of course, the wine is cheap and the woman are...um, elegant. The long answer is, we gain perspective. It's the long answer, because it requires an explanation. One could gain perspective from just about anywhere, of course...but why not do it in a place where the wine is cheap and the women pleasing to look at?
An English reader, who also lives in France, recently passed on an interesting article written by a Chinese bureaucrat, published on a non-profit website hosted in Italy, sponsored by the government of Singapore. The aim of the site is to increase amicable relations between Asia and Europe in a U.S.-centric world. The purpose of the article: A strategic recommendation on how China ought to position itself while the United States and Europe - as the major players in the two-bloc international system the author predicts will eventually emerge - gear up for eventual war.
If we were writing our daily missives from our offices in Baltimore, would such a site, and such an article, be interesting? Probably. But we'd likely judge the origin of the site through Murdoch's lens at Fox News, like so many TV-addled minds do, and dismiss it out of hand. Away from influence, living as foreigners, in a country where they don't pronounce words as they are spelled, we take to the extraordinary like gnats to a sugar bowl. We are addicted to the taste and go there often to get a buzz going. But we are under no illusions that it has nutritional value.
What could possibly interest us about a Chinese bureaucrat's white paper on impending global war? First of all, his conclusion: "In the last century," writes Wang Jian, "American people were pioneers of system and technology innovation. However, the interests of a few American financial monopolies now lead this country to war. This is such a tragedy for the American people.
"Clouds of war are gathering. Right now, the most important things to do for China are:
1.) Remain neutral between two military groups while insisting on an anti-war attitude. 2.) Stock up in strategic reserves 3.) Get ready for a short supply of oil 4.) Strengthen armament power 5.) Speed up economic integration with Japan, Hong Kong, Korea and Taiwan..."
It's a rather unsettling idea. China as the neutral power in a war between the United States and a united Europe. How did Wang get there? That's the subject of the second part of the article, which we find intriguing...and even more unnerving. Wang's view is disturbingly similar to our own understanding of the way the global economy works.
"War is the extension of politics and politics is the extension of economic interests," Wang asserts. "America's wars abroad have always had a clear goal, however, such goals were never made obvious to the public. We need to see through the surface and reach the essence of the matters. In other words, we need to figure out what the fundamental economic interests of America are. Missing this point, we would be misled by American government's shows and feints."
Wang's argument in a nutshell: By the mid 1970s, the United States, the United Kingdom, France, Germany, Italy, Japan and other major capitalist countries had completed the industrialization process now underway in China. In 1971, when Nixon closed the gold window, the Bretton Woods system collapsed, and the dollar - the last major currency to be tethered to gold - came unstuck. Economic growth as measured by GDP was no longer restricted by the growth of material goods production. Toss in a few financial innovations, like derivatives, and the "fictitious" economy assumed the central role in the global monetary system.
"Money transactions related to material goods production," writes Wang, "counted 80% of the total [global] transactions until 1970. However, only five years after the collapse of the Bretton Woods, the ratio turned upside down - only 20% of money transactions were related material goods production and circulation. The ratio dropped to .7% in 1997."
As we note in our book, since Greenspan assumed the central role at the most powerful central bank in the world, he has expanded the money supply more than all other Fed chairmen combined. From 1985-2000, production of material goods in the United States has increased only 50%, while the money supply has grown by a factor 3. Money has been growing more than six times as fast as the rate of goods production. The results? Wang's research reveals that in 1997, before the blow-off in the U.S. stock market, mind you, global "money" transactions totaled $600 trillion. Goods production was a mere 1% of that.
"People seem to take it for granted that financial values can be created endlessly out of nowhere and pile up to the moon," our friend Robert Prechter writes in his book, Conquer the Crash. "Turn the direction around and mention that financial values can disappear in into nowhere and they insist that it isn't possible. 'The money has to go somewhere...It just moves from stocks to bonds to money funds...it never goes away...For every buyer, there is a seller, so the money just changes hands.' That is true of money, just as it was all the way up, but it's not true of values, which changed all the way up."
In the fictitious economy, the values for paper assets are only derived from the perceptions of the buyer and seller. A man may believe he is worth a million dollars, because he holds stocks or bonds generally agreed in the market to hold that value. When he presents his net worth to a lender, a mortgage banker for example, and wishes to use the financial assets as collateral for a loan, his million dollars is now miraculously worth two. If the market drops, the lender, now nervous about his own assets, calls in the note...the borrower once thought to be worth two million discovers he is broke.
"The dynamics of value expansion and contraction explain why a bear market can bankrupt millions of people," Prechter explains. "When the market turns down, [value expansion] goes into reverse. Only a very few owners of a collapsing financial asset trade it for money at 90 percent of peak value. Some others may get out at 80 percent, 50 percent or 30 percent of peak value. In each case, sellers are simply transforming the remaining future value losses to someone else."
As we saw in the 2000-2002 bear market, in such situations, most investors act as if they were deer being approached by a speeding truck at night. They do nothing. And get stuck holding financial assets at lower - or worse, non-existent - values. Anyone suffering glances at their pension statements over the past few years knows their prior "value" was a figment of their imagination.
Back to Wang: "In the era of fictitious capitalism, a fictitious capital transaction itself can increase the 'book value' of monetary capital; therefore monetary capital no longer has to go through material goods production before it returns to more monetary capital. Capitalists no longer need to do the 'painful' thing - material goods production."
Real-life owners of stocks, bonds, foreign currency and real estate have increasingly taken advantage of historically low interest rates and applied for mortgages backed by the value of these financial assets. Especially since the rally began 8 months ago, they then turn around and trade the new capital on the markets. "During this process," writes Wang, "the demand of money no longer comes from the expansion of material goods production, and instead it comes from the inflation of capital price. The process repeats itself."
Derivative instruments, themselves a form of fictitious capital, help investors bet on the direction of capital prices. And central banks, unfettered by the tedious foundation set by the gold standard, can print as much money as is required by the demands of the fictitious economy. You can, of course, trade the marginal values of these fictitious instruments and do quite well for yourself.
But Wang sees a darker side to the equation. "Fictitious capital is no more than a piece of paper, or an electric signal in a computer disk. Theoretically, such capital cannot feed anyone no matter how much its value increases in the marketplace. So why is it so enthusiastically pursued by the major capitalist countries?"
The reason, at least until recently, is that the "major capitalist countries" have been using their fictitious capital to finance consumption of "other countries'" material goods. Thus far, the most major of the capitalist countries, the United States, has been able to profit from the system because since the establishment of the Bretton Woods system, and increasingly since its demise, the world has balanced its accounts in dollars.
"Until now," writes Wang, "U.S. dollars [have counted] for 60-70% in settlement transactions and currency reserves. However, before the 'fictitious capital' era, more exactly, before the fictitious economy began inflating insanely in the 1990s, America could not possibly capture surplus products from other countries on such a large scale simply by taking advantage of the dollar's special status in the world...Lured by the concept of the 'new economy', international capital flew into the American securities market and purchased American capital, thus resulting in the great performance of U.S. dollar and abnormal exuberance in the American security market."
And here we arrive at the crux of Wang's argument that a war is brewing. "While [fictitious capital] has been bringing to America economic prosperity and hegemonic power over money," he suggests, "it has its own inborn weakness. In order to sustain such prosperity and hegemonic power, America has to keep unilateral inflow of international capital to the American market...If America loses its hegemonic power over money, its domestic consumption level will plunge 30-40%. Such an outcome would be devastating for the US economy. It could be more harmful to the economy than the Great Depression of 1929 to 1933."
Japan's example suggests, as your editors have oft reminded you, that a collapse in asset values in a fictitious economy can adversely affect the real economy for a long time.
In the era of fictitious capital, Wang surmises, America must keep its hegemonic power over money in order to keep feeding the enormous yaw in its consumerist belly. Hegemonic power over money requires that international capital keep flowing into the market from all participating economies. Should the financial market collapse, the economy would sink into depression.
America's reigning financial monopolies, he believes, (whoever they may be), would not stand for it.
Addison Wiggin
The Daily Reckoning
Editor's note : Addison Wiggin is the editorial director of the Daily Reckoning. He is also the author, with Bill Bonner, of the New York Times Business best-seller Financial Reckoning Day: Surviving The Soft Depression of the 21st Century, (John Wiley & Sons). For more, see:

[seahorse]

Addison,

I often read the Daily Reckoning and believe that in concept you all are correct in stating that there could be a finanical reckoning for America vis a vis the dollar hedgemony. However, I don't agree that, at this point in time, the rising value of the Euro will stop the massive buying of U.S. treasuries by the Chinese and Japanese, which as you know, is what finances our massive deficits. I believe the most immediate threat to the dollar hedgemony comes from the possible switch of seeling oil in Euros by Russia, and some talk of this by Venezuela.

As long as America is the biggest consumer of Chinese and Japanese goods, then the Chinese and Japanese are forced, even unwillingly, to finance our budget deficits. Although the Europeans would and are actively courting the east, the European buying market just doesn't compete with the American buying market. Maybe, though, as the Euro gains buying power, the Europeans will be able to afford more and begin the massive comsumption that has plagued Americans, which would in turn allow the Chinese and Japanese to divest themselves of the U.S. and switch over to the Euro, but that day doesn't even appear on the horizon. Further, I'm not sure Europeans, culturally, would ever become the spendthrifts that the Americans are (which is a good thng).

I think its more likely that a Chinese market will replace the American buying market, and thus the Chinese won't need to buy our bonds. The Chinese populace is showing a love for the Western goods and style of life, (SUV sales are rising in China along with the nonstop building of Wal-Marts, with massive credit expansion), all classic signs of U.S. consumption disease. So, I'm not sure the Europeans will emerge as the next big threat, economically.

So long as oil production declines, and Europeans and the U.S. are addicted to it, they will continue together as unwilling allies to keep regions like the middle east open for oil export (that's why we are united with the Europeans, at least so far, on the Iranian issue).

The biggest threat to the dollar comes from talk of trading oil in Euros by the Russians and some talk of this by Venezuela, that could really hamper the dollar, but again, I think the Chinese and Japanese would be forrced to continue to buy our bonds, to buy their goods, to keep them going as well as us, until someone else buys their stuff.

So, I agree that someday there will be a day of reckoning, that it can't go on forever, it seems it will go on until there is another buyer to replace America, and that emerging buyer(s) will probably come from some developing part of the world like China or India, and not The Europeans. Look at where all the American jobs are being shipped, India and factories and Wal-Marts being built in China, these are the growing threats, always follow the money.

[Kingcoal]

I have a question. I can understand why the dollar is depreciated. Why is the euro so valuable? Is it backed by gold?

[MonteQuest]

King Coal,

I invite you to read my thread on euro vs the petro dollar. Some sharp minds debated the issue at length. Here's quote from that thread to answer your question:

$this->bbcode_second_pass_quote('', 'F')or several reasons: There is already a move towards the euro by many investors. The EU is, or soon will have the largest GDP, and is, or soon will be the largest importer of oil and raw materials. OPEC will feel great pressure to move to the euro for oil sales, especially because it will give them better purchasing power in the EU. The US has little they want except Disneyland. The dollar denominated assets are scary business as of late. The US deficit and the huge trade imbalance are ominous. 80% of the world's savings are tied up in the dollar denominated assets. Something has to give. People are going to be looking for a more financially sound currency, and as bad as the dollar is, the euro looks appealing, albeit it has many problems as well. Also look for a lot of funds to go into precious metals. The only thing keeping the dollar afloat is that the rest of the world goes with us if we crash. Not a good situation.

[savethehumans]

The BBC noted on Monday that the dollar continues its free fall against the euro...AND the yen...and the yuan, for all I know. (China's playing its cards sooooooooooo well these days.)

I'm working out a debt elimination deal next week. I was going to wait until after the first of 2005, but I no longer think that very smart....

[The_Virginian]

seahorse wrote:
$this->bbcode_second_pass_quote('', 'I') think its more likely that a Chinese market will replace the American buying market, and thus the Chinese won't need to buy our bonds.

[The_Virginian]

please replace "lystyle" with "Lifestyle"

-and we thank you for your support.