“The real rulers in Washington are invisible and exercise power
from behind the scenes.” Felix Frankfurter, United States Supreme Court
The U.S. dollar is the very heart of the empire. The military, the
media and the political establishment are merely the tributaries which flow
away from the center. Any plan to restore America’s democratic values
and end our foreign wars must focus on the dollars’ dominant role in the
global economy and its adverse affects on the people at home.
Presently the dollar is underwritten by $8.3 trillion of debt. The US trade
deficit is running at $800 billion per year which is 6.4% of GDP. The trade
deficit is large enough to cover the yearly costs of the war in Iraq, the defense
budget, and Bush’s lavish tax cuts. In other words, America’s war
machine is lubricated with money borrowed from the developing world.
Despite the enormity of America’s debt, foreign nations still accept
our fiat money in exchange for their resources and manufactured goods. That’s
because the American consumer market has been the main engine for global growth
for more than 25 years. Only recently have other countries started to shy-away
from the dollar, recognizing the tell-tale signs that the over-leveraged American
consumer is nearing the end of his spending spree. As consumer spending gradually
slows, recession will set in, and investors will shift capital to foreign markets.
These developments will make it more difficult for the dollar to maintain its
Typically, foreign-owned US dollars are used to purchase American securities
or US Treasuries. It takes roughly $2.5 billion per day of foreign net-inflows
to cover the burgeoning deficit. These infusions help to keep interest rates
low in the short term, but they come at a hefty price. America is placing its
future in the hands of its creditors who now own more than $3 trillion of American
assets and securities. We saw how explosive this situation can be in the case
of the Dubai Port deal. Middle Eastern businessmen wanted to purchase American
seaports with US dollars. The transaction set off a political firestorm even
though the Dubai businessmen were operating entirely within the legal confines
of current international trade law. As more of America’s wealth is transferred
to foreigners, we can expect similar situations will arise.
The massive trade deficit serves the narrow interests of western elites and
the Federal Reserve, but is destructive to the working class. It allows the
shifting of wealth from one class to another via tax cuts, “no-bid”
contracts, and other contrivances which escape public notice behind the smokescreen
of low interest rates. It also allows the Fed to keep increasing the money supply
(which has doubled in the last 7 years) to meet the requirements of expanding
It's no wonder Washington politicians and banking giants plan to prolong this
system as long as possible. Their power and personal wealth are only enhanced
by the process. The exchange of paper scrip for valuable commodities, resources
and manufactured goods is the best deal around. It is the equivalent of having
a mint in one’s own backyard. Last year’s trade deficit with China
alone (which was $200 billion) would have paid for 2 full years of the war in
War is considerably less painful when someone else is paying the bill.
Although the current deficits are “unsustainable,” (according to
former Fed-chief Alan Greenspan) foreign countries continue to accept greenbacks
in exchange for their goods; sucking hundreds of billions of dollars from the
poorest countries on the planet to sustain the living standards of people in
the world’s biggest “debtor nation”. The brisk pace of international
trade keeps trillions of dollars in circulation preventing the hyper-inflation
it would cause if the money was returned to America.
As America’s debt has continued to balloon, there are signs that nation’s
around the world are beginning to diversify their stockpiles of US dollars.
If they reduce their holdings too quickly, the dollar could free-fall and precipitate
a widespread sell-off.
According to Arab News, nearly $4 trillion in US dollars is currently held
in central banks around the world; nearly 70% of all their holdings. This is
as close to a monopoly as it gets. If even a fraction of those greenbacks are
traded for euros or some other currency, the effects on the American economy
would be catastrophic.
To a large extent, the supremacy of the dollar depends on the oil trade. Oil
is the largest commodity in the world and its trade is almost exclusively denominated
in dollars through the New York Mercantile Exchange (NYMEX) or London’s
International Petroleum Exchange (IPE). Foreign countries must maintain large
stockpiles of US Dollars in order to meet their energy needs. It is estimated
that approximately $2.6 trillion is circulating in the oil trade alone.
This vice-like grip on the oil market is now being challenged by a number of
countries including Russia, Venezuela and Iran. These three nations produce
25% of daily global output and pose a direct challenge to the dollar’s
continued dominance. This explains why these three have fallen out of grace
with Washington. The US cannot maintain its superpower status unless it can
control the lion’s-share of world’s oil and force the world to use
its currency. By 2030 60% of the world’s oil will come from the Middle
East. The US will have to assert control over the resources of the entire Caspian
Basin if it intends to keep the dollar as the de-facto international currency.
Imperial rule requires a “coin of the realm”. Even as the American
consumer market loses steam; western elites are planning to preserve US dollar
hegemony in order to continue their control of the global economic system. Their
objectives foreshadow even greater reliance on military force and intimidation.
America is now engaged in a transition that has never before been attempted.
It has hollowed out its manufacturing sector (more than 3 million manufacturing
jobs have been lost since Bush took office) looted its treasury, and plunged
the country into irreversible debt. Its major corporations and banks have disconnected
from the mainland and operate as sovereign islands protected by the US military
and international trade law. They have no allegiance to America and are unaccountable
to anyone except their own shareholders.
Dollar-hegemony is critical to their ongoing success as it keeps the basic
unit of exchange; paper money, in the control of fellow-elites at Federal Reserve.
Absent that power, American plutocrats would be unable to perpetuate the system
of trading debt (US dollars) for resources and manufactured goods. If Bush succeeds
in his global resource war, then countries will be forced to use the dollar
regardless of how much debt it has accumulated.
The most effective strategy for bringing the dollar into balance with the other
currencies is to “democratize” the system and allow the free exchange
of goods and resources in one’s own currency. This would eliminate the
dependence on a reserve currency and make the United States accountable for
its own prodigious debt. This, in turn, would force American leaders to revitalize
the manufacturing sector as a way of restoring economic solvency.
The dependence on a “reserve currency” inevitably creates winners
and losers. It is an invitation to massive account imbalances as well as corruption
and exploitation. Greater parity among the currencies should be encouraged as
a way of strengthening democracies and invigorating markets. It promises to
breathe new life into international trade by allowing other political models
to flourish without fear of being subsumed into the capitalist prototype.
The dominance of the greenback has created a global empire which is
controlled by a small group of corporatists and autocrats who depend on bullying
and brute force to maintain their supremacy. The only way to restore the republic
is to topple the empire, dislodge the dollar from its lofty perch, and even
the playing field with the other currencies.