The Coming Depression

Posted on Friday, September 16 at 11:41 by Patm
After WWII, Europe lay in ruins. The United States instituted the Marshall Plan where the US loaned massive amounts of money to European nations with the condition that goods and services be purchased from the United States. It was a great success; Europe was quickly able to rebuild its infrastructure and industry while US companies made fortunes supplying Europe’s needs. Because so many countries had so many US dollars, they ended up using them to purchase goods and services from other countries as well - including oil from the Middle East. In fact, two energy exchanges, the International Petroleum Exchange (IPE) in London, and the New York Mercantile Exchange (NYMEX) emerged as the only places to trade energy products and everything was priced in US dollars. In the 1970s, after the US made deal with Saudi Arabia, virtually the only currency you could use to purchase oil was the US dollar. This made the Greenback the dominant currency in the world, used for most (Western) trade and all energy purchases. This was a great deal for the United States - the value of the US dollar gained strength rapidly and they could afford to print huge sums of money without risk of devaluing their currency. Most of the newly printed money ended up offshore, in the vaults of central banks around the world that needed it for trade and energy. Due to Free Trade, Globalization, and Reaganomics, American manufacturing fled to low-wage countries in search of higher profits. American output fell; unemployment rose, and the Federal government started borrowing madly to maintain spending levels; at the same time, their ability to pay shrank. America is now in a worse economic position than that of either Brazil or Korea when those countries’ economies melted down. The United States has an advantage that neither of those countries had though, massive amounts of their own currency sitting in other countries’ central banks collecting dust. America was able to borrow back its own currency from a multitude of countries that were happy to have their reserves earning interest instead of just laying around. This process of printing money for use outside the country and then having it come back as investments is known as “Recycling the Petro Dollar”. Most of the world now realizes that the main reason for the USA to invade Iraq was to take its oil. What most governments, but few citizens, know, is that the rush to war was due to Saddam Hussain’s committing the high crime of accepting Euro dollars for oil under the “Oil for Food” program. While oil sales from Iraq were minimal due to UN sanctions, the act of defiance did not go unnoticed. Iran, Venezuela, and North Korea all started to dump portions of their US dollar reserves, and OPEC itself received European Union representatives who gave a presentation on the advantages of using the Euro currency for oil sales. The EU today is actually a larger market than the USA. It has more people and more money, and uses more oil than the United States. As OPECs largest single customer, it makes sense to use their currency. With Europe posing a major threat to the hegemony of the US Greenback, the USA decided it had to do something drastic to show OPEC that it would not allow a switch to the Euro. This is why; shortly after Iraq’s conversion to the Euro in late 2000, the USA used the excuse of 9/11 to invade Iraq - not to fight terrorism, but to perpetrate terror itself in order to keep OPEC in line. One can understand the reticence of Germany, France, and Russia when it came to invading Iraq, as switching to the Euro would have been a strategic economic victory. In 2003, Iran began selling oil for Euros to a large number of Euro-dominated countries. The Euro was already making inroads as a replacement trade currency and this switch to the Euro for oil has played a large part in the US dollar’s declining value. As if this crime against the USA wasn’t enough, Iran also announced its intention to open its own Oil Bourse (exchange) in late 2005 (now delayed until spring 2006), competing with the two American owned exchanges, NYMEX and IPE. The last technical hurdle to the Euro taking over as both world trade and energy currency would be eliminated; the US dollar would likely go into freefall as central banks dumped their Greenbacks and bought Euros. The US has been working hard overtly, with its weapons of mass destruction smear campaign, as well as covertly, using its own cadre of terrorists, the M.E.K, to destabilize the Iranian government. The USA lacks the troops to invade and Dick Cheney has asked the Pentagon to draft a plan to use nuclear weapons against Iran. Assuming that Russia and China do not retaliate with a missile attack against the USA and its assets, using nuclear weapons against Iran could push the rest of the world to use its only real defense against the USA, dumping the Greenback and destroying the US economy. If the US does not attack, the oil bourse will open and the ultimate result will likely be the same: the end of the USA as a world power and the start of a new “Great Depression”.

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  1. Fri Sep 16, 2005 7:31 pm
    Well if that is what it takes to wake the yanks up and bring them in line, then let it happen... we all be living on the same page then. I am tired of being blackmailed and milked to death by politicians who are nothing more than legalized crooks.




    ---
    Good government is not a party government

  2. Fri Sep 16, 2005 9:48 pm
    >>T he United States instituted the Marshall Plan where the US loaned massive amounts of money to European nations<<<br />
    <br />
    A loan huh? Does that mean we will be getting that money back one day? With interest? <br />
    <br />
    >> American output fell; unemployment rose,<<<<br />
    <br />
    Lets see some 3rd party statistics on that. <br />
    <br />
    >> Most of the world now realizes that the main reason for the USA to invade Iraq was to take its oil.<<<br />
    <br />
    Yeah, that is what you said about Afghanistan. If we had wanted to invade a country for oil there are ones closer, ones that want to break up anyway, ones that wouldn’t have anything other then a “phony polite insurgency”. <br />
    <br />
    >> With Europe posing a major threat to the hegemony of the US Greenback, the USA decided it had to do something drastic to show OPEC that it would not allow a switch to the Euro.<<<<br />
    <br />
    Did you ever use one of these? <br />
    <br />
    <a href="http://www.xe.com/ucc/">http://www.xe.com/ucc/</a><br />
    <br />
    Or one of these? <br />
    <br />
    <a href="http://www.lehigh.edu/~jps3/.images/credit-card-white-bg.jpg">http://www.lehigh.edu/~jps3/.images/credit-card-white-bg.jpg</a><br />
    <br />
    Did you have to hold huge currency reserves in order to use that credit card? <br />
    <br />
    <br />
    >> The last technical hurdle to the Euro taking over as both world trade and energy currency would be eliminated; the US dollar would likely go into freefall as central banks dumped their Greenbacks and bought Euros.<<<br />
    <br />
    LoL! Nothing of a leap of faith there. <br />
    <br />
    >> the end of the USA as a world power and the start of a new “Great Depression”.<<<<br />
    <br />
    Seems like you are rooting for that to happen. What do you think the result for Canada would be? Big time profit and happy days? <br />

  3. Fri Sep 16, 2005 9:55 pm
    >>and bring them in line,<<<

    AAAh yes, the never ending wish of the petty person. To straighten out the other guy. Straighten yourself out first.

    >>. we all be living on the same page then.<<

    No, we all will be lowered equaly. We will drop by x amount and you will drop by x amount. whatever difference between us would still be there, meaning you will be deeper in the gutter. That is just the start, Since we wont have any cash to buy the 85% of your exports you will heading even lower.

  4. by RPW
    Fri Sep 16, 2005 10:51 pm
    If the world is heading towards Armaggedon, it is almost de rigeur that we have a depression beforehand. When people have nothing to lose, they are much more amenable to standing up in front of machineguns..........

    ---
    RickW

  5. Sat Sep 17, 2005 1:46 am
    Well I not sure about that, but I would be up for a fight, one might as well go down swinging, hoping you drag a few on the other side with you.

    Then again the liberals will have all of our gins, so they think!!

  6. Sat Sep 17, 2005 1:47 am
    If we are heading for Armageddon? I suspect some people are trying very hard to make sure we do. Keep people living in fear and they'll do anything you want, take away their hope and future and they will just live for today. Spending whatever they have because, why save for tomorrow, why worry about recycling, just use it all up, cause there won't be a tommorrow and sure enough if we keep thinking like that there won't be! I think we are wise to see the writing on the wall if we keep going the way we are, but I also think we need to be hopeful and to project hope in our decisions, plan for the future and make wise decisions for the environment etc, rather than just excepting that we are doomed, because we are not,....unless we chose to be...or if God Almighty decides to end it, but that could happen whenever...but you can't live in fear....people do not make wise decisions in fear, we only react in fear.

    ---
    If I stand for my country today...will my country be here to stand for me tomorrow?

  7. Sat Sep 17, 2005 6:54 am
    A country's wealth is not measured by its money supply, but by its resources and the inventiveness of its people.

    After WW2 we had tons of money in Europe, no inflation in most countries,the industrial infrastructure was relatively little damaged, but we were starving because we had no resources to build with, except scraps and ruins. As a refugee, I lived in barracks and camp conditions for 5 out of 6 postwar years, 3 in Austria, 3 in England.

    Although we were paid with worthless money, it was only good
    for buying the small rations. The underground economy, the black market, was based on cigarettes. E.g. American cigarettes had double the value of domestic, or Turkish and so on. All values were expressed in smokes. 500 grams of butter 80 cigarettes, the same as a pair of old boots. A Leica camera 6 cartons of Lucky Strikes.

    The lesson of this is that multinationals are fighting to buy Canada's resources so they can control them when the monetary crash comes and they can deny the right of Canadians to benefit from them. Those guys know exactly what's going on and are ready for it, while our stupid governments are dying to play along with their expropriation games.
    Ed Deak, Big Lake, BC.

  8. Sat Sep 17, 2005 8:04 am
    "A loan huh? Does that mean we will be getting that money back one day? With interest?" *** How many times over does the US expect to get paid. They have military posts all over the world and many,many more business interests. Americans are making money hand over fist in every country on the face of the planet. They deal in Euros as well. If they can't buy it, they will take it and concoct some reason to do it but this time no Marshall Plan. The Capitalist system Americans call Democracy, puts profit far ahead of any other reasoning.

  9. by Patm
    Sat Sep 17, 2005 12:36 pm
    For those that think the US economy is on solid footing, here's what a Reagan economist has to say about what he calls the "Economic September 11th".<br />
    <br />
    <a href="http://www.theaustralian.news.com.au/common/story_page/0,5744,16416680%5E28737,00.html">http://www.theaustralian.news.com.au/common/story_page/0,5744,16416680%5E28737,00.html</a>

  10. Sat Sep 17, 2005 12:57 pm
    "Yeah, that is what you said about Afghanistan. If we had wanted to invade a country for oil there are ones closer, ones that want to break up anyway, ones that wouldn’t have anything other then a “phony polite insurgency”.
    ///
    You may recall that there was a pipeline issue with the Taleban. As far as invading the Canuckistanians, if you are in any way serious, it is one thing to shred and poison brown skinned untermenschen and quite another to try the same with fine white skinned christians. Your masters do know how to pick their victims.
    Personally I am quite willing to live on roots and berries if it means bringing down your corrupt, cruel and bigotted empire-- supported by the most ignorant and self righteous people to be found anywhere.

  11. Sat Sep 17, 2005 2:30 pm
    Here is the text of an article I published February 19, 2003 ... pre-Iraq invasion (Part Deux). Pat is right that we are heading ever closer to a showdown between the Euro and the dollar and it takes an incredible leap of faith to believe the dollar will win: America’s war against Europe There are many reasons for George Bush’s single-minded drive toward Baghdad. In other articles I have written for YellowTimes.org I hinted that a not so obvious reason for the drive against Iraq is Bush’s war against Europe. In fact, I have now come to believe that is the primary reason for his Iraqophenia. Whenever a nation decides to go to war, there are plans made for who is going to win and who is going to lose; no one goes to war expecting to lose but it isn’t always the obvious target of the aggression that is the real thrust behind the war. Sometimes, it isn’t a case of what you expect to win from a war but rather a case of what you hope someone else loses; and it doesn’t have to be your stated enemy who you hope will sustain the losses. In this case, Bush’s hoped-for victim is the European economy. It is robust, and is likely to become much stronger in the easily foreseeable future. Britain’s entry into the European Union is inevitable, Scandinavia will join sooner rather than later. Already, even without those countries, there will be 10 new member nations in May 2004 which will swell the GDP of the EU to about $9.6 billion with 450 million people as against $10.5 billion and 280 million people in the United States. This represents a formidable competing block for the United States but the situation is significantly more complex than what is revealed just by those numbers. And much of it hinges on the future of Iraq. I have written before, as have many others, that this upcoming war is about oil. To be sure there are other reasons, but oil is the single most impelling force. Not in the way you might expect, however. It isn’t so much that there are believed to be huge untapped oil reserves in Iraq, untapped only due to outdated technology; it isn’t so much an American desire to get its grubby hands on that oil; it is much more a question of whose grubby hands the Americans want to keep it out of. What precipitated all of this was not September 11, nor a sudden realization that Saddam was still a nasty guy, nor just the change in leadership in the United States. What precipitated it was Iraq’s November 6, 2000 switch to the euro as the currency for its oil transactions. At the time of the switch, it might have seemed daft that Iraq was giving up such a lot of oil revenue to make a political statement. But that political statement has been made and the steady depreciation of the dollar against the euro since then means that Iraq has derived good profits from switching its reserve and transaction currencies. The euro has gained about 17% against the dollar since that time, which also applies to the $10 billion held in Iraq's United Nations ‘oil for food’ reserve fund. So the question arises, as it did for George Bush, what happens if OPEC makes a sudden switch to euros? In a nutshell, all hell breaks loose. At the end of World War II, an agreement was reached at the Bretton Woods Conference which pegged the value of gold at $35 per ounce and that became the international standard against which currency was measured. But in 1971, Richard Nixon took the dollar off the gold standard and ever since the dollar has been the most important global monetary instrument, and only the United States can produce them. 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, 2002 was $6.021 trillion against GDP of $9 trillion. Trade between nations has become a cycle in which the US produces dollars and the rest of the world produces things that dollars can buy. Nations no longer trade to capture comparative advantage but rather to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves in order to sustain the exchange value of their domestic currencies. In an effort to prevent speculative and potentially harmful attacks on their currencies, those nations’ central banks must acquire and hold dollar reserves in amounts corresponding to their own currencies in circulation. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold even more dollar reserves, making the dollar stronger still. 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 reality is that the strength of the dollar since 1945 rests on being the international reserve currency for global oil transactions (i.e. ‘petro-dollar’). The US prints hundreds of billions of these fiat petro-dollars, which are then used by nation states to purchase oil and energy from OPEC producers (except presently Iraq and, to some degree, Venezuela). These petro-dollars are then re-cycled from OPEC back into the US via Treasury Bills or other dollar-denominated assets such as US stocks, real estate, etc. The recycling of petro-dollars is the price the US has extracted since 1973 from oil-producing countries for US tolerance of the oil-exporting cartel. Dollar reserves must be invested in US assets which produces a capital-accounts surplus for the US economy. Despite poor market performance during the past year, 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 finances the US trade deficit. Since it is the US that prints the petro-dollars, they control the flow of oil. Period. When oil is denominated in dollars through US state action and the dollar is the only fiat currency for trading in oil, an argument can be made that the US essentially owns the world's oil for free. So what happens if OPEC as a group decides to follow Iraq’s lead and suddenly begins trading oil on the euro standard? Economic meltdown. Oil-consuming nations would have to flush dollars out of their central bank reserves and replace them with euros. The dollar would crash in value and the consequences would be those one could expect from any currency collapse and massive inflation (think of Argentina for an easy example). Foreign funds would stream out of US stock markets and dollar denominated assets, there would 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. And that’s just in the United States. Japan would be particularly hard hit because of total dependence on foreign oil and incredible sensitivity to the US dollar. If Japan’s economy tumbles, so does that of many other countries, especially the United States in a crescendo of dominos. Now this is the potential effect of a ‘sudden’ switch to euros. A more gradual shift might be manageable but even that would change the financial and political balance of the world. Given the size of the European market, its population, its need for oil (it actually imports more oil than the US), it may be rapidly approaching that the euro will become the de facto monetary standard for the world. There are some good reasons for OPEC as a group to follow Iraq and begin to valuate oil in euros. There seems little doubt that they would relish the opportunity to make a political statement after years of having to kow-tow to the US. But there are solid economic reasons as well. The mighty dollar has reigned supreme since 1945, and in the last few years has gained even more ground with the economic dominance of the United States. By the late 1990s, more than four-fifths of all foreign exchange transactions, and half of all world exports, were denominated in dollars. In addition, 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 disproportionately higher than America's share of global output. It is important to note that the euro is not at any disadvantage versus the dollar when one compares the relative sizes of the economies involved, especially given the EU enlargement plans. Moreover, the EU has a bigger share of global trade than the US and while the US has a huge current account deficit, the EU has a more 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 producer itself. But the EU is an even larger importer of oil and petroleum products than the US, and represents for OPEC a more attractive market, closer and less domineering. The point of Bush’s war against Iraq, therefore, is to secure control of those oil fields and revert their valuation to dollars. Then to increase production exponentially and force prices to drop. Finally, to threaten significant action against any of the oil producers who would switch to the euro. In the long run, then, it is not really Saddam who is the target; it is the euro and, therefore, Europe. There is no way the United States will sit by idly and let those upstart Europeans take charge of their own fate, let alone of the world’s finances. Of course, all of this depends on Bush’s insane plan not becoming the trigger for a Third World War, as it so readily might. Paul Harris

  12. Sat Sep 17, 2005 2:32 pm
    "Did you have to hold huge currency reserves in order to use that credit card? "

    I'm not sticking up for everything posted above, but this requires correction. All nations who consume petroleum do hold significant U.S. dollar reserves because that is the currency in which almost internationlly traded oil is priced and transacted. This is one of the factors which allows the U.S. to run a trade deficit that other countries would not survive long with. I'm not hacking on the U.S. here, it's a fact and grows no more or less true based on your opinion of the U.S. in general.

    It is also true that several OPEC nations have flirted with the idea of pricing and selling oil in euro, Iraq being the only nation that actually did it, Iran being the only one with a serious project to do so (discounting Venezuela's various ad hoc trading projects).

    It is also true that a decline in the neccessity of holding U.S. dollar reserves would be very bad for the North American economies (and others that enjoy the high value of the U.S. dollar). And no, not just the U.S. so it is foolish for Canadians to "root" for it. It is also foolish to not recognize and plan for it, or refuse to admit such planning is occurring. I'd almost guarantee that many of those patriotic, flag-waving (and thus highly cynical) multinationals currently enjoying this U.S. administration's global adventure are.

  13. by mk
    Sat Sep 17, 2005 3:52 pm
    Hmm. I thought I was logged in there.

    Further advice to the other anon, who gives the impression he is a patriot to the current U.S. administration, if not the U.S. in general: should you awaken in an unlit room and someone with whom you generally disagree tells you it is day, you do not automatically assume it is night. Open the door and look outside.

    Now, the following is admittedly pure speculation, but worth consideration: of all the U.S. dollars (tax and otherwise) currently flowing out of the nation in this grand expression of patriotism and democratic export--to permanent, expatriate, non-dollar military assets, to finance multinational hard asset acquisitions in foreign lands (aka "reconstruction")--how much of this outflow ends up getting repatriated to the domestic economy? How much ends up in foreign assets that might just as easily show book value in other currencies?

    If one accepts, as many economists and finaciers do (including such knee-jerk left wing conspiracy buffs as Warren Buffet and George Soros), that U.S. dollar stability is at risk due to various global structural factors such as strength of the euro and the Iranian oil bourse, then the true American patriot (and by proxy, Canadian patriot since we are heavily invested) owes it to themselves to find out where all this outflow involving these so-called patriotic multinationals is going, especially the billions that cannot be accounted for. My hypothesis is that if the risk is real, the most prudent route for a multinational would be to diversify one's balance sheet into as currency-neutral an asset base as possible, quietly so as not to spook the herd.

    So, is this current outflow repatriating *as real domestic captial*, domestic hard assets and production capacity? (aside, like eurodollars did under the Marshall plan) If not--and again, this is pure speculation--a grand, cynical, deception is afoot, wave the flag or burn it all you like.

  14. Sat Sep 17, 2005 8:24 pm
    Coming from a "Yank", I'm tired of being milked to death by the politicians, too! However, we've got quite a mess on our hands now with the victims of Katrina and the lack of response from the United States Gov't. One can only imagine (in a horrified way) what would happen to folks if a man-made crisis came upon us again (i.e. 9-11).

    Not all Yanks are for the Bush admin. Many of the people I know DID NOT VOTE for this incompetent megalomaniac! How do we change things here...we've not even gone through our first year of his second term? It's pretty scary...we're under the control of a police state. It's the rich vs. poor (and the middle class is really getting the squeeze). I guess we need a French Revolution! Where is Madame Lafarge when we need her?



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