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The Attack on the U.S. Dollar and Energy Needs It’s bad enough that the Middle East has us over a barrel of oil thanks to our continued dependency on access to its huge reservoirs of crude, but largely unknown to most Americans, the Organization of Islamic Conference (OIC) and the Islamic Development Bank have a long-term goal of replacing the U.S. dollar as the reserve currency for world trade. In March the Iranians will open an Iran Oil Bourse that will trade oil and products in the Euro, not the dollar. They will not be alone in pegging their nation’s currency to the Euro. Syria already does and Venezuela, another major oil producer, has announced plans to do so as well. As David J. Jonsson, the author of "Clash of Ideologies", pointed out in a recent article, the United States "relies on approximately 70 percent of all foreign-exchange currency to be held in dollars because we sell Treasury debt into that foreign-exchange market." A flight of foreign-exchange reserves away from the dollar would depress its value and, conversely potentially increase the value of the Euro by 20 to 40 percent. This is extremely bad news for the United States. While Americans focus on the shooting war in Iraq, we are in an even more serious economic war with an axis that spreads from South America to the Middle East. Bear in mind that many South American nations have been electing Socialist governments and that some Middle Eastern nations have flirted with socialism for decades. The Baathist Party in Saddam’s Iraq is an example of this. Calls for oil independence in the U.S. have been heard and largely ignored for the three decades we have known about the vast reserves in Alaska’s ANWR or those trapped in shale in Utah and Colorado. Congress has blocked ANWR drilling and in known offshore reserves despite the increasingly volatile Middle Eastern situation. The economy of the United States is, in many ways, quite fragile. Just how broke is America? A new book, "Empire of Debt: The Rise of an Epic Financial Crisis", by Addison Wiggin and Bill Bonner, answers that question saying, "It is deeply unpleasant to consider the fact that the U.S. continues to rack up another $80 million of debt every hour, or that our trade deficit has hit an all time high of $725.8 billion." That represents a significant vulnerability. The authors note that, "The renowned Levy Institute estimates that the United States will owe foreigners $8 trillion by 2008, a breathtaking 60 percent of our gross domestic product. " That level of financial vulnerability is frightening enough, but key elements of our economy are also vulnerable. As Jonsson points out, the high cost of natural gas, the key component in the production of ammonia and urea, the "fertilizers that drive the agricultural sector of the United States and the rest of the Western nations", has caused the shutdown of ammonia production here and seen it move to nations with lower costs such as those in the Middle East. Today, more than half of the urea used for U.S. agricultural production is imported. In the United Kingdom, nearly a third of its power generation depends on natural gas. In 15 years, the UK will be dependent on Russia for 90 percent of its imported gas. Japan is almost totally dependent on imported energy sources and is heavily invested in Iran’s Azadegan oil field. China has major investments in Iran, importing 13.6 percent of its oil requirements from that nation and, overall, 45 percent of its oil imports from the Middle East. China is also investing in Canadian tar sands projects.
The strategy is there for anyone to see. Control the oil and eliminate the U.S. dollar as the world’s currency of choice. The Islamic-Socialist coalition is well on its way to putting a choke-hold in the New York Mercantile Exchange and London’s International Petroleum Exchange, currently the world’s leading commodity markets for energy. Jonsson calls it "the currency bomb." About the only good news is that such efforts have been tried in the past and failed. This time, though, European nations will, thanks to the Iranian Oil Bourse, not have to buy and hold U.S. dollars to secure the payment for oil. Right now, thanks to the indebtedness of the U.S., many in the financial world are anticipating a devaluation of the dollar. Jonsson believes it could fall as much as 40 percent or more, if that occurs. If the United States does not embark on an aggressive program to find and develop its own energy sources, and to develop its own production of liquid fuels, natural gas, and fertilizers, it is going to find itself in deep trouble. The good news is that we have centuries of coal and still untapped oil, and gas hydrates. We could accelerate the building of more nuclear energy facilities. We could do much to insure a greater degree of energy independence if we have the will and foresight to do so. However, the federal budget for fiscal 2007 "cuts overall funding for natural gas research" in order get the independent oil and natural gas companies to pick up the tab. "President Bush is proposing to zero out the entire natural gas technology program, which includes gas hydrates." This is the same President who told the nation that America is "addicted to oil." America is at a critical crossroads for its financial and energy policies and, so far, it appears to be making some very bad choices. It seems to this observer that it is depending heavily on its military strength to threaten and/or transform the Middle East. That option may prove to be an illusion if Iran is permitted to become a nuclear power. Ultimately, as Jonsson points out, "If regimes like those in Iran, Venezuela, Syria, Burma, Sudan and Nigeria have the benefit of $60 oil for ten years, the democratic process, which occurred in post-Cold War years, will end. The totalitarian regimes with the most repressive governments will control the energy infrastructure and the access to freedom and liberty." The American Empire is running out of cheap energy and easily borrowed money. If you have sent your check to the IRS to pay your 2005 taxes, you need to know that your money was spent long ago and that the Treasury Department is borrowing more at a rate of $80 million a day. The United States of America is broke. Congress just raised the debt limit to nearly $9 trillion! It was the fourth major hike in the last five years. By 2011, it is likely to reach $12 trillion. It took 42 Presidents 224 years to run up $1 trillion of external debt. President Bush has more than doubled that in five years. Who owns that debt? Japan currently owns around $685 billion. China owns over $250 billion. The United Kingdom owns more than $230 billion. Caribbean banking centers own over $100 billion. Sen. Kent Conrad (D-North Dakota), the ranking member of the Senate Budget Committee, said in early March, "We are on a fiscal course that is utterly unsustainable." In what passed for the debate on the latest debt limit increase, Sen. Conrad at one point said, "We might as well put up a big ‘For Sale’ sign on America." He’s right, but he is a lonely voice in the Senate. The Cato Institute recently reviewed President Bush’s proposed federal budget for 2007. "The budget would extend the president’s income tax cuts and continue his policies of excess spending and large deficits." That’s pretty concise, but consider for example that, among the billions of dollars allocated under the budget, every single department and agency will receive increases. Agriculture will increase 41% to the tune of 95.7 billion. Education (without student aid) will increase 68% to 37.1 billion. Student aid will increase 376% for a total of 37.1 billion. Homeland Security, the new kid in the cabinet, will increase 163% to 27.9 billion, not including FEMA, whose budget brings the increase to a mind-boggling 784% when you add in its 38.9 billion. In terms of the proposed federal spending outlined in the 2007 budget, the total increase is 50% over 2006.
Television commercials are so much a part of the noise coming from the box that we tend to pay them scant attention, but consider how one cannot watch the Fox News Channel, MSNBC or other stations without being besieged by lending companies and credit card companies? The constant message is to borrow and spend. Americans have gotten that message. A terrifying new book, "Empire of Debt: The Rise of an Epic Financial Crisis", written by Bill Bonner and Addison Wiggin, ($27.95, Wiley), notes that Americans are "borrowing and spending as if there were no tomorrow, and they are investing as though there were no yesterday." Bonner is president and CEO of Agora, Inc., one of the world’s largest financial newsletter companies. Wiggin is the editorial director and publisher of the "Daily Reckoning", a newsletter read by more than 500,000 people in the U.S. and Great Britain, and translated into French, German, and Spanish. The title of their book reflects the heart of the problem we face. The neoconservatives who took office with President Bush see America as an empire and he has repeatedly told us that it is our duty to insure that democracy and freedom takes hold in every nation of the world. That is his agenda. That’s going to be impossible to achieve if America is broke and, thanks largely to the President’s and Congress’s profligate spending, that’s where we are today. Consider our recent past. For nearly fifty years, U.S. policy concerning the threat of Soviet Communism was to contain it. When we did fight wars, Korea was a stalemate and Vietnam was a defeat. We spent billions to insure we would win the Cold War. In retrospect it was a good investment. We are in a similar position today with a new ideological enemy. With the advent of 9-11, U.S. policy changed. In Afghanistan, we bought the services of local warlords and their forces on the ground and did what we do best these days; bomb the hell out of the enemy when we can find them. We had two swift victories in Iraq because Saddam Hussein was an idiot. Trying to establish a Western-style democracy in Iraq has been the problem ever since. "Expensive foreign wars, expensive bread, expensive circuses—these are, of course, what bankrupted almost every empire from Rome to London," the authors remind us, but who is listening? For some time now, I have bought into the notion that the master plan of the neoconservatives made sense. I now have some severe second thoughts. "The United States pays the direct costs of globalization—a military budget greater than the combined military spending of all the rest of the world combined," note Bonner and Wiggin, "Plus, it bears the indirect costs of its own consumerist excesses—another $700 billion or so per year in trade deficit." "Asians now own enough U.S. dollar assets to buy a controlling interest in every company on the Dow. They have enough T-bonds to destroy the U.S. economy on a whim," write Bonner and Wiggin. "What will shatter America’s confidence is probably a combination of financial crisis. The dollar is vulnerable. So are Treasury bonds. So are stocks and house prices." Right now, Americans are beginning to register concern about the President and the direction in which he has taken the nation. The midterm elections in November will be an indicator of how much confidence they have. The irony is that, should he be rendered a true lame duck—a weakened presidency—for the remaining years until 2008, the enemies of America will take that as a signal to increase their efforts to harm us all. The National Anxiety Center continues to need your support to underwrite our communications programs, including this website. If you feel you have benefited from reading "Warning Signs", please take a moment to make a donate to the Center or, if you prefer, send your check to The Caruba Organization, 29 West Third Street, Suite 1321, South Orange, NJ 07079. Thank you.
©
2006 Alan Caruba. |
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At present, three-quarters of China’s currency reserves are invested in U.S. Treasury bills and other dollar-dominated assets. If the U.S. dollar begins to slip in value versus the Euro, guess where China’s money will go. Currently, its reserves "are growing at an average rate of $15 billion every month." 
Republicans cannot muster enough votes to reflect anything even suggesting fiscal restraint and prudence. How long ago 1994 seems when the Contract for America swept a Republican majority into office. On the other hand, when President Clinton left office, the government had a surplus.