World Leaders Mull Over Dumping of US Dollar

[Shah-i-Kot]

http://hamsayeh.net/economy/2380-world-leaders-mull-over-dumping-of-us-dollar.html

World Leaders Mull Over Dumping of US Dollar

Wednesday, 10 October 2012 10:06

China, Russia, and the End of the Petrodollar

by John Rubino dollarcollapse.com October 09, 2012

Say you’re an up-and-coming superpower wannabe with dreams of dominating your neighbors and intimidating everyone else. Your ambition is understandable; rising nations always join the “great game”, both for their own enrichment and in defense against other big players.

But if you’re Russia or China, there’s something in your way: The old superpower, the US, has the world’s reserve currency, which allows it to run an untouchable military empire basically for free, simply by creating otherwise-worthless pieces of paper and/or their electronic equivalent. Russia and China can’t do that, and would see their currencies and by extension their economies collapse if they tried.

So before they can boot the US military out of Asia and Eastern Europe, they have to strip the dollar of its dominant role in world trade, especially of Middle Eastern oil. And that’s exactly what they’re trying to do. See this excerpt from an excellent longer piece by Economic Collapse Blog’s Michael Snyder:

China and Russia are not the “buddies” of the United States. The truth is that they are both ruthless competitors of the United States and leaders from both nations have been calling for a new global currency for years.

They don’t like that the United States has a built-in advantage of having the reserve currency of the world, and over the past several years both countries have been busy making international agreements that seek to chip away at that advantage.

Just the other day, China and Germany agreed to start conducting an increasing amount of trade with each other in their own currencies.

You would think that a major currency agreement between the 2nd and 4th largest economies on the face of the planet would make headlines all over the United States.

Instead, the silence in the U.S. media was deafening.

However, the truth is that both Russia and China have been making deals like this all over the globe in recent years. I detailed 11 more major agreements like the one that China and Germany just made in this article: “11 International Agreements That Are Nails In The Coffin Of The Petrodollar”.

A few of the things that will likely happen when the petrodollar dies….

-Oil will cost a lot more.

-Everything will cost a lot more.

-There will be a lot less foreign demand for U.S. government debt.

-Interest rates on U.S. government debt will rise.

-Interest rates on just about everything in the U.S. economy will rise.

So enjoy going to “the dollar store” while you can.

It will turn into the “five and ten dollar store” soon enough.

Some thoughts
Snyder goes on to note that both China and Russia are accumulating gold, which will protect them from the coming currency crisis and give the ruble and yuan greater legitimacy in global trade. In Jim Rickards’ book Currency Wars, he tells the story of financial war games conducted by the US military, in which one of the scenarios was a Russian gold backed currency that challenged the dollar. We’re apparently not far from that plan becoming feasible.

The US spends a big chunk of its $700 billion a year defense budget on dominating the Middle East in order to force the trading of oil in dollars. Let that trade be diversified into several currencies and the demand for petrodollars goes way down. Central banks and global corporations will sell part of their dollar holdings, sending the dollar’s exchange rate into a tailspin. This in turn will make it harder for the US to finance its military empire/welfare state.

The net result: America becomes Spain, no longer able to simply whip out the monetary credit card to cover its overspending. We’ll have to live within our means, cutting maybe $3 trillion a year in government largesse (including the growth in unfunded entitlements liabilities).

Cuts on this scale can’t be accomplished smoothly, as Europe is discovering. So in this scenario the coming decade will be even messier than the last one, with “Occupy” movements shutting down cities and every election producing incumbent massacres. A combination of higher prices for necessities and lower wages will demote much of the middle class to “working poor.”

Meanwhile, China and Russia will reap the rewards of stronger currencies, and will divide (or share) control over their part of the world. It’s hard to know who to feel sorrier for, Americans who thought they could depend on government programs for a middle class lifestyle, or the neighbors of China and Russia who will see the relatively light hand of the American empire replaced with something far more atavistic.

[Shah-i-Kot]

Many people will be standing in the bread lines and on welfare....thats if their respective governments even will have the money available for them.

depression, misery, and starvation will spread in the West where they will starve because their economies are collapsing one after another...this will lead to civil disorder and chaos, but the rest of the world will not care because there is no strategic importance of the West aside from land.

the petrodollar has been the barrier to peace throughout the world, and has promoted wars.

[faye]

that is a rather simplistic view. what about the ceturies of wars before oil was discovered.
it has always been about religion, delusions of superiority and booty, including possessions of others land, from what i have read.
i believe it is still about religion as well as control of oil and financial overlording.

[khushal]

This John Rubino is a conspiracy theory freak.
Its not going to be as bad as he says. Remember it was the United States that told China to open its doors to trade. If they had not done that, China would still be argueing with North Korea on who can starve their people faster.

And War is over resources or stratigic location that has access to resources. Religion, capitalism, communism, socialism, autocracy, democracy are just systems that distribute resources. Some people think one is better and others think another is better.

[faye]

so religous crusades had nothing to do with religion? their wars and invasions were solely for resources.

[Shah-i-Kot]

http://www.enterstageright.com/archi...012worstp2.htm


The worst has yet to come - Part 2

By Chris Clancy
web posted October 8, 2012

Let's continue the story with yet another quote from Marin Katusa, not only someone who knows what he's talking about, but someone who can actually write:

"Until November 2000, no OPEC country had dared to violate the US dollar-pricing rule, and while the US dollar remained the strongest currency in the world there was also little reason to challenge the system. But in late 2000, France and a few other EU members convinced Saddam Hussein to defy the petrodollar process and sell Iraq's oil for food in euros, not dollars."

This was not only the first direct revolt against the petrodollar system but also something which started a ball rolling:

"In the time between then and the March 2003 American invasion of Iraq, several other nations hinted at their interest in non-US dollar oil trading, including Russia, Iran, Indonesia, and even Venezuela."

When the invasion did happen, the reason given was Saddam's alleged possession of Weapons of Mass Destruction.

As we all know now, this was a complete fabrication. In reality, the invasion was supposed to accomplish two things. First, to undo any damage done to the petrodollar system; and second, to act as a deterrent to others who tried to break away.

As things turned out it failed in both respects. It was too late. The cat was out of the bag..

The next four quotes come from this article.

"The system would be [directly] challenged a second time, this time by Libya. In February of 2009, Muammar Gaddafi was elected the chairman of the African Union and would continue the effort to create the United States of Africa, which among other things, would include a unified currency, a dinar based on gold. Gaddafi went so far as to suggest that the African nations' oil trade would be switched from the dollar to this new gold currency."

This challenge was far more dangerous than the first. Had he been allowed to go ahead the USD would almost certainly have collapsed. Like Saddam he also got the treatment – only this time it was far more swift – and far more brutal. The excuse for the intervention was another lie – i.e. "humanitarian" reasons – go here for the background.

The third challenge actually started in 2003 - when Iran announced its intention to abandon the petrodollar system - and has been ongoing ever since.

"Early in 2008, Iran launched a new commodity exchange known as the Iranian Oil Bourse. The intent was to allow for Iranian oil to be priced and traded with multiple currencies. As the system was ramped up, initially the exchange limited its trade to secondary petroleum products, with crude oil to be added "when the system was ready." Iran … announced it would be ready on March 20, 2012. This was a declaration of war on the petro dollar!"

In response:

"The U.S. along with the EU then implemented a defense. Just prior to the expansion of the Iranian exchange, on March 17, the EU carried out orders to expand sanctions against Iran by removing Iranian banks from the international bank-wire transfer system known as SWIFT. Furthermore, any banks caught doing business with Iran would be sanctioned as well. It seems Iran's entire international commerce engine has been halted and its oil industry crushed."

However:

"Japan, China, India and Turkey are among the countries who've been dependent on Iranian oil to some degree. Various discussions have been taking place between Iran and its trading partners on the possibility to enlist trade for other commodities such as gold or grain."

One cannot help being cynical about the timing of the sanctions and the reason given – Iran's nuclear ambitions.

Be this as it may, the history of sanctions is that they never work as planned – if at all. Those against Iran will go the same way. Further, there's little doubt that many other countries will be encouraged to also find other ways of paying for their oil.

Which brings us to something else which has been going on increasingly over the previous ten years or so.

I refer to the growth in "currency swap" agreements – especially in the last two years. Not only a quicker and cheaper method of doing things but also a way out of America's stranglehold on international trade and everything else to do with the USD.

This trend is not going to change. Which brings us to the heart of the matter.

The only thing which keeps the American economy going is debt. The only thing which attracts lenders is the strong dollar. The only reason for the strong dollar is the petrodollar system.

As demand for the USD drops, the government won't receive enough money to pay all its bills, interest rates start to rise and then all sorts of horrible things begin to happen.

That the dollar will collapse is inevitable. But what will it mean?

Marin Katusa, ending on an optimistic note, does not consider its demise will be such a disaster. As I've already stolen so much from him in this essay I see no reason to stop now.

So here's some more:

"2012 might end up being most famous as the year in which the world defected from the US dollar as the global currency of choice. Imagine the rest of the world doing the math and, little by little, beginning to do business in their own currencies and investing ever less of their surpluses in US Treasuries. It constitutes nothing less than a slow but sure decimation of the dollar.
That may not be a bad thing for the United States. The country's gargantuan debts can never be repaid as long as the dollar maintains anything close to its current valuation. Given the state of the country, all that's really left supporting the value in the dollar is its global reserve currency status. If that goes and the dollar slides, maybe the US will be able to repay its debts and start fresh. That new start would come without the privileges and ingrained subsidies to which Americans are so accustomed, but it's amazing that the petrodollar system has lasted this long. It was only a matter of time before something would break it down."

The key point in this quote is where he writes about, "a slow but sure decimation of the dollar". If this indeed is what happens we are left with some hope – not much – but at least a glimmer that the road ahead will not be quite so bad.

However, if this is not what happens – and the dollar collapse is sudden – then the future is grim.

And there's no way of sugar-coating it.

But, as mentioned, there is still a glimmer of hope.

To understand what and why, we need to take a few steps back in time; to something which happened back in the 1980s – on September 22nd 1985 to be precise - in the Plaza Hotel in New York City.

Chris Clancy lived in China for seven years. Most of this time was spent as associate professor of financial accounting at Zhongnan University of Economics and Law in Wuhan City, Hubei Province. He now lives in Thailand where he spends his time reading, writing, lecturing and, whenever he gets the chance, doing his level best to spread Austrian economics

[Shah-i-Kot]

http://www.businessinsider.com/trade-balance-2012-10