Sunday, June 19, 2005

a call for an end to dollar hegemony.

i am of the opinion that the deficits will last as long as the kissinger
deal that underpinned o p e c and set up the system whereby oil is
bought for dollars. oil bought only for euros - if that ever came about -
would cause exactly the same problem for europe.

i am making a call for the ending of dollar hegemony, and an
end to the threat posed by united states policy to free markets
and the capitalist system. . .

bernanke - a possible successor to greenspan as the united
states federal reserve bank chairman - speaks of a 'global
savings glut'. this is relevant to all, because it has by most
accounts resulted in a global property bubble. everyone
anywhere who has a loan or a mortgage should pay attention
to this -

in the wake of the first oil crisis in 1974 henry kissinger fixed
up a deal that was of historic importance - submission to the
o p e c oil cartel, on condition that the oil was sold in dollars.

this 'dollar hegemony' came to mean that the united states fed
could print - or cause to come into existence - dollars, and buy
real goods in return for these from the rest of the world, who
might not like it but nevertheless had to obtain dollars for oil

thus there is much grumbling on irish sites about the free ride that
america gets on the backs of the rest of the world's trading nations.

but money flows are circular, not linear. those dollars get spent
again. the free ride generated by issuing fiat dollars for real
goods has to result in there being more dollars in the world than
would otherwise be the case, in a regime of fully free markets. (the
o p e c cartel, and the kissinger deal making america an accessory
to that cartel, are essentially anti-capitalist in that they interfere with
free markets.) the excess dollars have to be spent abroad to get
any value out of them. so excess goods are imported, and excess
reserves are accumulated by the exporting countries.

thus the free ride has an inevitable side effect, it is - excess dollars
in the global economy.

this in turn has further implications. either the dollar must gently and
progressively decline in value against other currencies, or those
currencies' central banks will print their own stuff to keep pace, and
thus even further multiply the excess currency in the global system.

so the free ride is not free.

the incidental cost is the presence of the excess currency in the
global system, whether hoarded as reserves ( central banks of
japan, china, south korea, norway etc. etc.) or returned to the
global commodity or real property markets, to cause ' bubbles.'
the counterpart of those surpluses is united states deficits - so these
are also an inevitable result of the 'free' ride.

in fact, where reserves are reinvested in u s bonds - they do both
of these things, by driving down the general cost of borrowing in
the u s, and causing asset inflation. savings are sucked into property
investment, which is smarter - at least to begin with - than cash.

by pegging to the dollar - the chinese authorities, (accused of unfair
practice), - are in fact trying to counterbalance the u s free ride and
the excess dollar printing. but if they somehow managed to shut out
the dollar flood - liquidity levels would simply start to rise elsewhere.
in fact the fuss about china smokescreens the trading deficits with
canada, which is neither a developing country, nor a geopolitical
rival, nor pegged to the united states dollar.

if the o p e c producers underwent some kind of revolutionary policy
change, and only sold oil for euros - the glut of liquidity would simply
be released in euros, and flood the global economy from there. the
problem would be shifted, not solved.

it is the very fact of an oil cartel which is the first link of the chain of
events which leads to excess prices for oil, and then excess dollars in
the global financial system. the united states federal reserve, and the
oil companies who at times have greater influence on the administration
than the pentagon itself, have not wished to tackle the high oil price
scenario which has benefitted them all so well.

so the 'global savings glut' - which is largely an asian immune system
reaction to counteract the excess printing of dollars that is enabled by
the 1974 kissinger/ o p e c deal - lies at the door of 'dollar hegemony.'

as long as dollar hegemony is maintained - the problems will not
be solved, however much they mutate from one region to another,
from one investment bubble to the next.

and lowering the federal reserve interest rate only stimulates borrowing,
the majority of which goes into mortgage borrowing to purchase property.

so the time has come to face up to this -

the 'global savings glut' is the other side of the coin to the extra
purchasing power of the dollars printed as the ultimate result of
the dollar's monopoly of the oil market . . .

and monopoly - although the dream of many a market operator -
is anti-capitalist. a perversion and a frustration of free market

kissinger and greenspan are smart enough to know that they
have perverted the smooth operation of capitalist market systems.
there is an inevitable price to pay for a 'free ride'. they and others
like them at the heart of american policy making would do well to
wake up to this before the markets wake up to it -

this is a call for the ending of 'dollar hegemony' on the grounds
that it is a threat to capitalist free markets, a greater one than ever
posed by the communists of the soviet union at the height of the
cold war, let alone the current anti-market exchange rate manipulation
by the peoples' bank of china.


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