[FoRK] the euro as a possible reason for Iraqi invasion

Geege geege4 at bellsouth.net
Thu Feb 19 04:58:30 PST 2004


http://goldmoney.com/en/commentary.php#current

in language even a monkey can understand.

-----Original Message-----
From: fork-bounces at xent.com [mailto:fork-bounces at xent.com]On Behalf Of
Paul Sholtz
Sent: Tuesday, February 17, 2004 8:36 PM
To: fork at xent.com
Subject: [FoRK] the euro as a possible reason for Iraqi invasion


Hi,

Not sure if this has been forked yet, but I thought I'd pass it around
anyway..

Like many people, I've been trying to make sense of the recent U.S. war in
Iraq. To say that the war was waged for oil is one thing, but it seems to me
that something more subtle is probably at work as well.

Recently, I came across the following article, I think describes very
convincingly some of the economic arguments for way the U.S. invaded Iraq:

http://home.hiwaay.net/%7Ebecraft/IraqWarFRN.pdf

Basically, the gist of the argument is as follows:

It's well known that the U.S. maintains (and has for years) an enormous
trade imbalance w/ the rest of the world, importing and consuming many times
more than what it produces. What's not so well known is how the U.S. is able
to sustain this trade imbalance without spiraling off into hyper-inflation
the way any other, normal economy would.

The reason for this has everything to do with U.S. currency policy, and
indirectly, it has everything to do with oil. So long as the U.S. dollar
remains the de facto world "reserve" currency (meaning that all things being
equal, debts between two (international) trading partners will usually be
settled in U.S. dollars - even if no U.S.-produced goods are involved in the
exchange), demand for U.S. dollars will remain high (globally). Because of
the high demand for U.S. currency abroad (which costs the Fed nothing to
produce), the U.S. is able to maintain an artificially high trade imbalance
(w/ seemingly no ill effects).

So suppose that an Indonesian company produces Widget X, and suppose a
Japanese import/export outfit pays for Widget X in U.S. dollars. Even though
no U.S. product or service was involved in the exchange, the net result of
such a transaction is a (seemingly) positive *uptick* for the U.S. dollar,
and hence the U.S. economy as a whole. Extrapolate such transactions across
all the commercial transactions between the 200+ some odd nations in the
world (excluding the U.S.), and you'll see why the U.S. not only is so
ridiculously powerful economically, but also why the U.S. is able to
maintain such a position, seemingly "for free".

It turns out that the most important commodity in this somewhat delicate
state of affairs is (surprise surprise) oil. Oil is the single most
important commodity traded on the international markets. Oil is an essential
commodity in the modern world: if you don't have it, you have to import it,
and (here's the key(!)) if you import it, you HAVE to pay for it in U.S.
dollars. Per the above example, if Indonesia produces oil, Japan pays for it
in U.S. dollars (which in turn produces the resulting, magical "uptick" to
the U.S. economy). The reason for this is that U.S. is in the somewhat
lucky, luxurious position whereby ALL OPEC nations have (rather magically)
decided that they'll only trade their oil supplies for U.S. dollars.

All OPEC nations, that is, except Iraq.

Way back in November 2000 - long before Sept 11, long before the fake "War
on Terrorism", long before WMD were an issue in the Middle East - way back
when Americans were still trying to figure out who had who the 2000
presidential election, Iraq quietly but firmly switched off the dollar and
began trading oil in Euros. There were both economic (interest rates are
higher in the Euro-zone) and political (Saddam hates the U.S.) reasons for
this, but the significance of the move should not be underestimated. Iraq
commands the largest proven oil reserves in the world; economists estimate
that the Euro experienced a (stunning) ~50% appreciation in value due to
simply the Iraqi switchover. Of course, the appreciation of the Euro only
further weakened the already ailing U.S. economy, driving the U.S. deeper
into recession in 2001.

Any ideas/throughts about that?
Paul Sholtz
http://www.paulsholtz.com/

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