Hunt Oil's deal with Kurds 'illegal'

[lily]

http://www.presstv.ir/detail.aspx?id=22740&sectionid=351020201
As Bush was talking about the Iraqi's finally getting an oil revenue law passed, this was already in the works.

Hunt Oil's deal with Kurds 'illegal'
Tue, 11 Sep 2007 21:20:35


Iraqi Oil Minister Hussain al-Shahristani
Iraq's Oil Minister has said that a deal signed between the US-based
Hunt Oil Co. and the autonomous Kurdish administration is illegal.

The agreement authorizing Hunt Oil to proceed with oil exploration in
Iraq was signed on the weekend.

Speaking to reporters in Vienna, Hussain al-Shahristani underlined
that the inked contract is worthless from the point of view of Iraq's
central government, given that such deals are illegal before being approved
by the federal authorities.

The private Texas-based Hunt Oil Company and the Kurdish regional
government had earlier announced that according to the mutually signed
documents, they have reached agreement on petroleum exploration in Kurdistan
region, northern Iraq.

[tony mitra]

I watched the issue of the "Oil Law" being drafted into the Iraqi constittion, and the role the US government played in deciding the future shape of oil exploration and development in Iraq for a while.

I also watched the situation with the northern regions generally called the Kurdish lands, the the tussle going on for control of towns such as Kirkuk and the yet undevelopped northern oil rich areas.

I do not find myself surprised that the Kurds will try to bypass Baghdad and sign separate oil deals with US private oil firms. Several things at work here. To me, this is a sign of things to come.

What kind of things? Well, first, this is a sign that Kurds will push for more autonomy bordering on separation from the Iraqi Government. I also see this as a sign that the US Goverment is perhaps gearing towards the possibility that Iraq as a stable unified entity is just not practical, and if things fragment, the US oil firms are better off giving up the southern oil fields near Basra and taking control of the northern fields under a more or less autonomous Kurdistan, with strong alliance with the US.

Whether this itself will be stable, and whether the rest of the Iraqi people will allow that, whether Iran (who has its own share of Kurds living in border areas) or Turkey (who has a substantial region of their country with very large Kurdish population that also want independence) will allow a free and oil rich Kurdistan within former Iraqi border to exist - is an open question. Turkey had once threatened to invade north Iraq if they see any sign of Kurdistan getting free. To complicate matters, Turkey is also part of NATO.

Another interesting thing I noted was that Hunt Oil, based in Texas, was apparently started by the original Mr. HL Hunt, from earnings from his "poker" games. Hmm ... very interesting.

The other item of intrigue here is that the Hunt Oil Co is a heavy contributor to the Bush family political platform.

Tell me again that this war was against terrorism, and not for lining your pockets. Also, from the track record of oil development deals of the kind made here with the Kurds, the locals almost never get a fair share of the oil revenue, and the contract is usually binding for a generation or two, by which time most of the reserves are expected to run out.

Another thing - for those that keep track of environment and the preservation of the Amazon basin and its indegemous cultures, might have heard of the issue of oil and gas development projects in Peru, which has come under increasing focus of environment and ecology watchers.

Hunt Oil is involved in the Lower Urubamba Basin in the south-eastern Peruvian Amazon, drilling oil and piping it through an unique biodiversity hotspot described by scientists as "the last place on earth" to drill for fossil fuels. There has been numerous oil spills recorded in the region in the last few years, giving rise to local indegemous tribes to blockade the Urubamba River in an attempt to stop foreign oil firms to damaging their habitat any more, and this is resulting in clashes with the local tribes and the army and private security forces.

I kinda feel sorry for the Kurds. They are caught between Arabs to the south, Persians to the east, Turks to the west, and USA looming larger.

The games of empire.

[heyjude]

The Kurds have been attacking their neighbors since the 16th. century. Whatever the cause. They are at this moment attacking Turkey, Iran, and Syria. From what I have read they want one third of Iraq, Iran, and Turkey. And they will not stop fighting until they get it. They haven't since the 1500's.

If we are not careful, they are going to drag us into a war that will make Iraq seem like a peaceful interlude. The Turks and Iranians are angry because the Kurds are using American weapons and bombs. Of course the government here says they don't know where they got them from. Of course the Iranians say they don't know where the insurgents in Iraq got Iranian weapons from. Sound familiar. Bush is trying to start world war three.

[lily]

I don't know, Jude........it seems to me from what I've been reading the Kurds are the only ones that seem to have gotten it together. Complete with running ads to invest in "The new Iraq".

It's interesting to get two the two different viewpoints, your's and Tony's on the same thing.

.......which doesn't change the fact that while Bush was giving his speech the other night, one of what appears to be another big oil buddy, campaign contributor already had his hand in the oil cookie jar, breaking the law that Bush was saying was being implimented.

[tony mitra]

Actually Lilly, I take hejude and myself to be depicting the same issue from the same basic perspective, but highlighting two different facets of it.

He thinks the US is initiating another world war. I might ask, what the goal of the US would be, in creating such a war? Economic goals would be my guess. However, I do not believe this will cause a world war. For one thing, the parties involved other than the US does not have the fire power to match USA in a global military conflict. The time and age for old fashioned military world wars such as the last one (WWII) is gone and not going to come back. For another thing, I believe the next global war, if it could be called such, will not be a military one, but an economic one.

I cannot remember the name of the famous economist who said that all wars are fought for economic reasons, but he was so correct. Oppressed people revolt against oppressors for economic reasons, and oppressors do their thing also for economic reasons.

Looking at it from afar, these current chapters being played out in the oil rich regions are wars that are left overs of the past. Fighting for oil is so last century !

Oil supply is going to peter out sooner or later and stop being the driver of the global economy. No matter what replaces it, the times of cheap inexhaustible energy is gone, forever. Either adjust to it and convert your economy and soceity away from oil and away from debt, or you are going to go the way of the dinosaur.

America has shown great resilience in the past, and I suspect it will show resilience in future too, but current signs point to the wrong direction.

I know there are a lot of Americans that see it too and have been speaking and writing about it, but they are inexplicably blanked out from the main stream media glare. Almost no politicians ever want to address it in the open, and acknowledge that the American soceity is fatally addicted on oil, that is it going to have to turn itself away for this insane addiction. Its very future depends on it. No one really has a proper plan on how the US might do it. It has little to do with ethanol based fuel or nuclear plants. It has to do with changing the face of America, from its towns to its suberbs to its mass transit systms to its agriculture, food processing and every thing else that is quintessentially American. NO main stream politicans seem to have the family jewels to call a spade a spade.

Dennis Kucinish, Mike Gravel, and Ron Paul sort of brushes around it, but prefers to skirt the main issue, deciding to put the blame on the Neo cons or the President and the establishment, rather than on the public who is the biggest consumer of the addition. Its a taboo, to ask the population to face any sarifice. Better to blame Mr. Bush, or the Neo Cons, or some party or another. Better to blame the symptom than the decease.

Anyhow, that is how I see it. Meanwhile, this oil skirmishes will go on and the media will likely keep dancing to the music.

Cheers

[crimzonsol]

Any bets on how long it will take for Israel to get involved?

[lily]

Actually Lilly, I take hejude and myself to be depicting the same issue from the same basic perspective, but highlighting two different facets of it.

Re-reading I can somewhat see it.


Looking at it from afar, these current chapters being played out in the oil rich regions are wars that are left overs of the past. Fighting for oil is so last century !

What scares me the most is everyone has their eye on the Middle East, when in fact it's the Far East that could cost the most damage. China didn't play by the same rule book as other countries that have financed our follies. Instead of investing their money into our country by buying up realestate, banks and other investments, they invested in their own country also buying their own investments in oil, which is only part of the currency used now. We're at their whim.......if they chose to either call in our marker or change the currency to euros, something I think the Iraqis were going to do and the secret reason why we started this useless war.......we are screwed, along with many other countries and China will be the world's superpower, without even raising a gun.


America has shown great resilience in the past, and I suspect it will show resilience in future too, but current signs point to the wrong direction.

I think we've become too complacent. It will take something as drastic as another depression to wake people up.

[tony mitra]

Any bets on how long it will take for Israel to get involved?


I suspect Israel is already inovlved and has been so even before the invasion of Iraq began.

But that aside, there are and mysterious goings on, such as the recent Israeli air strike within Syrian territory. For reasons not understood by me, Syria has been keeping silent about it, as has been Israel. Strangely enough the news of the recent air attack leaked out from USA, through CNN and New York Times in a rather low key way.

Some think this attack was against weapons route for funnelling Russian hardware to the Hezbollah in Lebanon. Others think this was against defence installations within Syria that are being augmented with fresh Russian equipment. Still others think this was a test run against an eventual and imminent air war against Iran. Still others think this is testing out new and secret air attack systems by Israel against new systems in Syria. No one seem to clarify what is going on.

I can understand why Israel should keep silent about it, but haven't figured out why Syria should not be protesting, unless there is something that everyone wants to keep out of public eye.

It is a known fact by now that both Syria and Israel have been regrouping their defense forces for an eventual confrontation between each other shortly. While on the political front they keep talking peace, and Syria has once again asked for the return of the Golan Heights which was taken by Israel in their 1967 war, in private both nations have been gearing up for a war.

So, there is more to the goings on than what meets the eye, and Israel is most definitely not an innocent bystander. Neither is anybody else in this geopolitical chess game.


I think we've become too complacent.


I personally do not believe so. I think the American public has been manipulated to be complacent. That however, is just my belief.

There is another way I often end up seeing things differently than most Americans when it comes to this democrat/republican spat, and the habit of blaming someone.

This is how I look at it : in a country where the people are not free, one can blame the ruler for the ills of the nation. For example, one could blame Saddam for this and that, because the Iraqi people did not have a fair and open election to chose the Government of their liking under Saddam.

But in democratic free nations, the equation, in my eyes, should be different. The leader, and the party in power, is directly chosen by the people. So the people get what they deserve. Therefore, again in my eyes, the blame goes to the root and not the symptom. Blaming republicans or democrats or big corporations or media empires or whatever, is finding an easy excuse. The blame in a truly democratic and free society must always go to the people. Likewise, credit too should go directly to the people.

This is where I often get into trouble with my American friends, and I have plenty of them, having lived there for many years. They like blaming everyone else except themselves. As if they have a god given right to have to do nothing, and yet expect every other entity, be it political party, President, or media, or corporations, or military industrial complex or justice system or social welfare or the economy etc etc, to always do the correct thing for their personal benefit.

I mean, many of my enlightened friends do not even bother to vote, let alone take responsibility for shaping their Government and their future. Many of them know that some sections of the public at the lower rungs are effectively disenfranchised and are not able to properly represent themselves in the democratic process, but would rather conduct academic discussions about it than do anything tangible.

Anyhow, I better shut up before I get blasted out of this thread.

Cheers. I am actually having fun on a very un-American issue - a world cup series currently going on in South Africa in the game of Cricket, something most Americans likely have not even heard of.:peace:

[crimzonsol]

So, there is more to the goings on than what meets the eye, and Israel is most definitely not an innocent bystander. Neither is anybody else in this geopolitical chess game.

Good Thing 75% of world chess champions are Jewish.:)

The Article you are talking about, I haven't heard about it, could you give me the link?

[tony mitra]

The Article you are talking about, I haven't heard about it, could you give me the link?


Sure, just google "Israeli air attack on Syria" and you will note that the cacophony has picked up a decibel or two in the last 48 hours, including Syria talking about taking the matter to the UN etc.

Chuckles about your pun that 75% of the chess champions are Jewish. I thought they were Russian. :cool:

[Buck Laser]

As I understand it, most of the oil in Iraq is in the Kurdish areas. If that's the case, the Sunni and Shi'a areas are gonna be very reluctant to see a partition of the country, which seems to be everyone's favorite solution right now.

Does anyone know if there is oil in the Kurdish areas of Turkey and Iran as well? If there is, it would certainly account for the reluctance of either nation to divest itself of troublesome citizens.

[tony mitra]

Its an intelligent question, Buck Laser

From what I know, High level oil exploration has not been conducted in Iraq for quite some time, since Saddam ran out of western help in equipment etc during the long Sanction period. Also, there are tell tale signs that the Kurdish area might be sitting on mega-oil deposits, based on some initial explorations conducted after Americans got there in the past few years.

But then, the already established large oil fields are all in the south in Shia controlled regions at the mouth of Persian Gulf. There too, additional explorations have not been conducted in recent years. So, I do not know if Kurdish region really has the largest potential chunk of Iraq oil or not.

Also dont forget, it is the general perception that the large dusty desert of the central Iraq under control of thinly populated Sunni clan does not have much oil, but here too, heavy exploration has not been conducted as far as I know.

So, it is possible that the final equation is not known. But meanwhile the US involvement has better chance of having a relatively peaceful presence in Kurdistan, than anywhere else in Iraq. Also, their presence might keep the Turks and the Iranians as well as the rest of the Arabs in check, which is one very big reason the Kurdish people are more or less pro-US at this point of time.

Add to it the fact that Oil Companies and even oil exporting nations routinely like to over estimate and over-represent their potential reserve, and even falsify documents to show a reserve to be larger than it is. The reason is very simple. As long as OPEC exists in its current form, there is a quota system of how much oil each party can sell every day. That quota is a percentage in proportion to the total reserve a party has, compared to the total output OPEC wishes to market. Therefore, larger your given "estimate of reserve" more you are allowed to sell. Oil firms like to sell as fast as possible, collect their profit, and leave, rather than drag it out for a hundred years of uncertain future.

There is also a financial reason for over-estimation of reserve. Banks give more money for development of a region that reportedly has huge potential, rather than one that has moderate potential. Once the loan is secured, if the field ends up producing less rather than more, then the burden of an absurdly high loan repayment is usually passed to the nation of the region rather than to the Oil Corporation. Its all in the way laws are written, grants are made and the game is played. So, if someone says Kurdistan is floating on oil, take that with a pinch of salt.

Regarding Kurdish lands in Turkey or Iran, I do not know if they hold any oil. Turkey has been sniffing around for a very long time to fiind oil in their territory and has been cooperating with western corporations - so my guess is that Turkey has not much of it.

The problem with Turkey is different. If Kurdistan gets oil rich, they will support their brothers across the border to secede from Turkey and merge with Kurdistan, which makes Turkey smaller and Kurdistan bigger. Same logic applies to Iran as well.

[potter]

I'm finding this discussion of control of the Iraqi oil pretty interesting in light of Greenspans comments regarding Iraqi oil today on MSM.

http://www.msnbc.msn.com/id/20817260/

"Greenspan, who wrote in his memoir that “the Iraq War is largely about oil,” said in a Washington Post interview that while securing global oil supplies was “not the administration’s motive,” he had presented the White House before the 2003 invasion with the case for why removing the then-Iraqi leader was important for the global economy.

“I was not saying that that’s the administration’s motive,” Greenspan said in the interview conducted on Saturday. “I’m just saying that if somebody asked me, ’Are we fortunate in taking out Saddam?’ I would say it was essential.”

I'm not so sure he was speaking about actually controlling the oil production but moreso controlling the currency in which the oil is traded. Shortly before the invasion of Iraq Saddam was in the process of switching from American pertro dollars to Euro petro dollars. This would have disrupted the value of the dollar significantly.

http://www.gold-eagle.com/editorials_05/petrov011606.html

"The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren't strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush's Shock-and-Awe in Iraq was not about Saddam's nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can't explain why Bush would want to seize those fields-he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have gone into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished-he had successfully defended the U.S. dollar, and thus the American Empire."

Now we have this threat from Iran which so far has not been proven. Iran is also moving to trading oil in a currency other than US dollars.

"The Iranian government has finally developed the ultimate "nuclear" weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam's, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:

The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead pay with their own currencies. The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the European at the expense of the Americans.

The Chinese and the Japanese will be especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves.

The Russians have inherent economic interest in adopting the Euro - the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, the Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold. Russians have also revived their nationalism, and if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.

The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversifying against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk, not to mention their jihad against the Infidel Enemy. "

I suspect that the infighting over who controls the oil in Iraq will be left to work intself out. As long as Iraq continues to trade in dollars (and perhaps US companies have development rights) we'll let Iraq plod along.

More on the subject:

http://www.globalresearch.ca/articles/CLA410A.html

http://www.informationclearinghouse.info/article11613.htm

[lily]

The Chinese and the Japanese will be especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves.

Like I said, this is what scares me the most and with Russia and China both backing Iran, anything could happen, while we keep ignoring the problem and crying "nukes" as a diversion.

Thanks for posting that about Iraq, Potter. I knew we discussed it, but I forgot most of it.

[tony mitra]

Well, I read this from Ron Paul Last year: http://www.lewrockwell.com/paul/paul303.html


The End of Dollar Hegemony

by Ron Paul

Before the US House of Representatives, February 15, 2006

A hundred years ago it was called “dollar diplomacy.” After World War II, and especially after the fall of the Soviet Union in 1989, that policy evolved into “dollar hegemony.” But after all these many years of great success, our dollar dominance is coming to an end.

It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value.

First it was simply barter of goods. Then it was discovered that gold held a universal attraction, and was a convenient substitute for more cumbersome barter transactions. Not only did gold facilitate exchange of goods and services, it served as a store of value for those who wanted to save for a rainy day.

Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money. Sometimes governments succeeded in guaranteeing the quality and purity of gold, but in time governments learned to outspend their revenues. New or higher taxes always incurred the disapproval of the people, so it wasn’t long before Kings and Caesars learned how to inflate their currencies by reducing the amount of gold in each coin – always hoping their subjects wouldn’t discover the fraud. But the people always did, and they strenuously objected.

This helped pressure leaders to seek more gold by conquering other nations. The people became accustomed to living beyond their means, and enjoyed the circuses and bread. Financing extravagances by conquering foreign lands seemed a logical alternative to working harder and producing more. Besides, conquering nations not only brought home gold, they brought home slaves as well. Taxing the people in conquered territories also provided an incentive to build empires. This system of government worked well for a while, but the moral decline of the people led to an unwillingness to produce for themselves. There was a limit to the number of countries that could be sacked for their wealth, and this always brought empires to an end. When gold no longer could be obtained, their military might crumbled. In those days those who held the gold truly wrote the rules and lived well.

That general rule has held fast throughout the ages. When gold was used, and the rules protected honest commerce, productive nations thrived. Whenever wealthy nations – those with powerful armies and gold – strived only for empire and easy fortunes to support welfare at home, those nations failed.

Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: “He who prints the money makes the rules” – at least for the time being. Although gold is not used, the goals are the same: compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses.

Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation’s people – just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare.

The pressure at home to inflate the currency comes from the corporate welfare recipients, as well as those who demand handouts as compensation for their needs and perceived injuries by others. In both cases personal responsibility for one’s actions is rejected.

When paper money is rejected, or when gold runs out, wealth and political stability are lost. The country then must go from living beyond its means to living beneath its means, until the economic and political systems adjust to the new rules – rules no longer written by those who ran the now defunct printing press.

“Dollar Diplomacy,” a policy instituted by William Howard Taft and his Secretary of State Philander C. Knox, was designed to enhance U.S. commercial investments in Latin America and the Far East. McKinley concocted a war against Spain in 1898, and (Teddy) Roosevelt’s corollary to the Monroe Doctrine preceded Taft’s aggressive approach to using the U.S. dollar and diplomatic influence to secure U.S. investments abroad. This earned the popular title of “Dollar Diplomacy.” The significance of Roosevelt’s change was that our intervention now could be justified by the mere “appearance” that a country of interest to us was politically or fiscally vulnerable to European control. Not only did we claim a right, but even an official U.S. government “obligation” to protect our commercial interests from Europeans.

This new policy came on the heels of the “gunboat” diplomacy of the late 19th century, and it meant we could buy influence before resorting to the threat of force. By the time the “dollar diplomacy” of William Howard Taft was clearly articulated, the seeds of American empire were planted. And they were destined to grow in the fertile political soil of a country that lost its love and respect for the republic bequeathed to us by the authors of the Constitution. And indeed they did. It wasn’t too long before dollar “diplomacy” became dollar “hegemony” in the second half of the 20th century.

This transition only could have occurred with a dramatic change in monetary policy and the nature of the dollar itself.

Congress created the Federal Reserve System in 1913. Between then and 1971 the principle of sound money was systematically undermined. Between 1913 and 1971, the Federal Reserve found it much easier to expand the money supply at will for financing war or manipulating the economy with little resistance from Congress – while benefiting the special interests that influence government.

Dollar dominance got a huge boost after World War II. We were spared the destruction that so many other nations suffered, and our coffers were filled with the world’s gold. But the world chose not to return to the discipline of the gold standard, and the politicians applauded. Printing money to pay the bills was a lot more popular than taxing or restraining unnecessary spending. In spite of the short-term benefits, imbalances were institutionalized for decades to come.

The 1944 Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, replacing the British pound. Due to our political and military muscle, and because we had a huge amount of physical gold, the world readily accepted our dollar (defined as 1/35th of an ounce of gold) as the world’s reserve currency. The dollar was said to be “as good as gold,” and convertible to all foreign central banks at that rate. For American citizens, however, it remained illegal to own. This was a gold-exchange standard that from inception was doomed to fail.

The U.S. did exactly what many predicted she would do. She printed more dollars for which there was no gold backing. But the world was content to accept those dollars for more than 25 years with little question – until the French and others in the late 1960s demanded we fulfill our promise to pay one ounce of gold for each $35 they delivered to the U.S. Treasury. This resulted in a huge gold drain that brought an end to a very poorly devised pseudo-gold standard.

It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.

Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it – not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.

Realizing the world was embarking on something new and mind-boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence “backed” the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.

This post-Bretton Woods system was much more fragile than the system that existed between 1945 and 1971. Though the dollar/oil arrangement was helpful, it was not nearly as stable as the pseudo–gold standard under Bretton Woods. It certainly was less stable than the gold standard of the late 19th century.

During the 1970s the dollar nearly collapsed, as oil prices surged and gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were required to rescue the system. The pressure on the dollar in the 1970s, in spite of the benefits accrued to it, reflected reckless budget deficits and monetary inflation during the 1960s. The markets were not fooled by LBJ’s claim that we could afford both “guns and butter.”

Once again the dollar was rescued, and this ushered in the age of true dollar hegemony lasting from the early 1980s to the present. With tremendous cooperation coming from the central banks and international commercial banks, the dollar was accepted as if it were gold.

Fed Chair Alan Greenspan, on several occasions before the House Banking Committee, answered my challenges to him about his previously held favorable views on gold by claiming that he and other central bankers had gotten paper money – i.e. the dollar system – to respond as if it were gold. Each time I strongly disagreed, and pointed out that if they had achieved such a feat they would have defied centuries of economic history regarding the need for money to be something of real value. He smugly and confidently concurred with this.

In recent years central banks and various financial institutions, all with vested interests in maintaining a workable fiat dollar standard, were not secretive about selling and loaning large amounts of gold to the market even while decreasing gold prices raised serious questions about the wisdom of such a policy. They never admitted to gold price fixing, but the evidence is abundant that they believed if the gold price fell it would convey a sense of confidence to the market, confidence that they indeed had achieved amazing success in turning paper into gold.

Increasing gold prices historically are viewed as an indicator of distrust in paper currency. This recent effort was not a whole lot different than the U.S. Treasury selling gold at $35 an ounce in the 1960s, in an attempt to convince the world the dollar was sound and as good as gold. Even during the Depression, one of Roosevelt’s first acts was to remove free market gold pricing as an indication of a flawed monetary system by making it illegal for American citizens to own gold. Economic law eventually limited that effort, as it did in the early 1970s when our Treasury and the IMF tried to fix the price of gold by dumping tons into the market to dampen the enthusiasm of those seeking a safe haven for a falling dollar after gold ownership was re-legalized.

Once again the effort between 1980 and 2000 to fool the market as to the true value of the dollar proved unsuccessful. In the past 5 years the dollar has been devalued in terms of gold by more than 50%. You just can’t fool all the people all the time, even with the power of the mighty printing press and money creating system of the Federal Reserve.

Even with all the shortcomings of the fiat monetary system, dollar influence thrived. The results seemed beneficial, but gross distortions built into the system remained. And true to form, Washington politicians are only too anxious to solve the problems cropping up with window dressing, while failing to understand and deal with the underlying flawed policy. Protectionism, fixing exchange rates, punitive tariffs, politically motivated sanctions, corporate subsidies, international trade management, price controls, interest rate and wage controls, super-nationalist sentiments, threats of force, and even war are resorted to – all to solve the problems artificially created by deeply flawed monetary and economic systems.

In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that’s the United States. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. But this leads to a loss of manufacturing jobs to overseas markets, as we become more dependent on others and less self-sufficient. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption.

It sounds like a great deal for everyone, except the time will come when our dollars – due to their depreciation – will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production. The shift in sentiment regarding the dollar has already started, but the worst is yet to come.

The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. Last year alone M3 increased over $700 billion.

The artificial demand for our dollar, along with our military might, places us in the unique position to “rule” the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can’t last.

Price inflation is raising its ugly head, and the NASDAQ bubble – generated by easy money – has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world’s rejection of the dollar. It’s bound to come and create conditions worse than 1979–1980, which required 21% interest rates to correct. But everything possible will be done to protect the dollar in the meantime. We have a shared interest with those who hold our dollars to keep the whole charade going.

Greenspan, in his first speech after leaving the Fed, said that gold prices were up because of concern about terrorism, and not because of monetary concerns or because he created too many dollars during his tenure. Gold has to be discredited and the dollar propped up. Even when the dollar comes under serious attack by market forces, the central banks and the IMF surely will do everything conceivable to soak up the dollars in hope of restoring stability. Eventually they will fail.

Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged – as it already has been.

In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O’Neill, the major topic was how we would get rid of Saddam Hussein – though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O’Neill.

It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.

There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.

In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.

After these attempts to nudge the Euro toward replacing the dollar as the world’s reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance.

It’s become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported.

Now, a new attempt is being made against the petrodollar system. Iran, another member of the “axis of evil,” has announced her plans to initiate an oil bourse in March of this year. Guess what, the oil sales will be priced Euros, not dollars.

Most Americans forget how our policies have systematically and needlessly antagonized the Iranians over the years. In 1953 the CIA helped overthrow a democratically elected president, Mohammed Mossadeqh, and install the authoritarian Shah, who was friendly to the U.S. The Iranians were still fuming over this when the hostages were seized in 1979. Our alliance with Saddam Hussein in his invasion of Iran in the early 1980s did not help matters, and obviously did not do much for our relationship with Saddam Hussein. The administration announcement in 2001 that Iran was part of the axis of evil didn’t do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn’t seem to register with those who continue to provoke Iran. With what most Muslims perceive as our war against Islam, and this recent history, there’s little wonder why Iran might choose to harm America by undermining the dollar. Iran, like Iraq, has zero capability to attack us. But that didn’t stop us from turning Saddam Hussein into a modern day Hitler ready to take over the world. Now Iran, especially since she’s made plans for pricing oil in Euros, has been on the receiving end of a propaganda war not unlike that waged against Iraq before our invasion.

It’s not likely that maintaining dollar supremacy was the only motivating factor for the war against Iraq, nor for agitating against Iran. Though the real reasons for going to war are complex, we now know the reasons given before the war started, like the presence of weapons of mass destruction and Saddam Hussein’s connection to 9/11, were false. The dollar’s importance is obvious, but this does not diminish the influence of the distinct plans laid out years ago by the neo-conservatives to remake the Middle East. Israel’s influence, as well as that of the Christian Zionists, likewise played a role in prosecuting this war. Protecting “our” oil supplies has influenced our Middle East policy for decades.

But the truth is that paying the bills for this aggressive intervention is impossible the old-fashioned way, with more taxes, more savings, and more production by the American people. Much of the expense of the Persian Gulf War in 1991 was shouldered by many of our willing allies. That’s not so today. Now, more than ever, the dollar hegemony – it’s dominance as the world reserve currency – is required to finance our huge war expenditures. This $2 trillion never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do just that.

For the most part the true victims aren’t aware of how they pay the bills. The license to create money out of thin air allows the bills to be paid through price inflation. American citizens, as well as average citizens of Japan, China, and other countries suffer from price inflation, which represents the “tax” that pays the bills for our military adventures. That is, until the fraud is discovered, and the foreign producers decide not to take dollars nor hold them very long in payment for their goods. Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it. If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the world’s reserve currency.

It is an unbelievable benefit to us to import valuable goods and export depreciating dollars. The exporting countries have become addicted to our purchases for their economic growth. This dependency makes them allies in continuing the fraud, and their participation keeps the dollar’s value artificially high. If this system were workable long term, American citizens would never have to work again. We too could enjoy “bread and circuses” just as the Romans did, but their gold finally ran out and the inability of Rome to continue to plunder conquered nations brought an end to her empire.

The same thing will happen to us if we don’t change our ways. Though we don’t occupy foreign countries to directly plunder, we nevertheless have spread our troops across 130 nations of the world. Our intense effort to spread our power in the oil-rich Middle East is not a coincidence. But unlike the old days, we don’t declare direct ownership of the natural resources – we just insist that we can buy what we want and pay for it with our paper money. Any country that challenges our authority does so at great risk.

Once again Congress has bought into the war propaganda against Iran, just as it did against Iraq. Arguments are now made for attacking Iran economically, and militarily if necessary. These arguments are all based on the same false reasons given for the ill-fated and costly occupation of Iraq.

Our whole economic system depends on continuing the current monetary arrangement, which means recycling the dollar is crucial. Currently, we borrow over $700 billion every year from our gracious benefactors, who work hard and take our paper for their goods. Then we borrow all the money we need to secure the empire (DOD budget $450 billion) plus more. The military might we enjoy becomes the “backing” of our currency. There are no other countries that can challenge our military superiority, and therefore they have little choice but to accept the dollars we declare are today’s “gold.” This is why countries that challenge the system – like Iraq, Iran and Venezuela – become targets of our plans for regime change.

Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar. As long as foreign recipients take our dollars for real goods and are willing to finance our extravagant consumption and militarism, the status quo will continue regardless of how huge our foreign debt and current account deficit become.

But real threats come from our political adversaries who are incapable of confronting us militarily, yet are not bashful about confronting us economically. That’s why we see the new challenge from Iran being taken so seriously. The urgent arguments about Iran posing a military threat to the security of the United States are no more plausible than the false charges levied against Iraq. Yet there is no effort to resist this march to confrontation by those who grandstand for political reasons against the Iraq war.

It seems that the people and Congress are easily persuaded by the jingoism of the preemptive war promoters. It’s only after the cost in human life and dollars are tallied up that the people object to unwise militarism.

The strange thing is that the failure in Iraq is now apparent to a large majority of American people, yet they and Congress are acquiescing to the call for a needless and dangerous confrontation with Iran.

But then again, our failure to find Osama bin Laden and destroy his network did not dissuade us from taking on the Iraqis in a war totally unrelated to 9/11.

Concern for pricing oil only in dollars helps explain our willingness to drop everything and teach Saddam Hussein a lesson for his defiance in demanding Euros for oil.

And once again there’s this urgent call for sanctions and threats of force against Iran at the precise time Iran is opening a new oil exchange with all transactions in Euros.

Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid.

The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros. The sooner the better.

February 17, 2006

Dr. Ron Paul is a Republican member of Congress from Texas.



I believe there is also a video or two where he explains the same thing.

Cheers

[potter]

Thanks for that post Tony. Ron Paul is an interesting character. His writings are insightful and well done....if only he could work on his on camera image :ponder:

Too bad the GOP is pushing him out of the spotlight. Must not be a "team" player, which unfortunately, is exactly what American needs right now.

Regarding the M3 and the printing of hundreds of billions of dollars, I note that last year the government quit releasing auction results of who is buying those dollars.

Wonder why? And wonder what they are hiding. Methinks we are about to be screwed....

[heyjude]

Republicans don't like Ron Paul because he really isn't one. He is a realistic Libertarian. I think that this whole Kurdish thing with Hunt Oil is going to blow up in Bush's face. He might have some cred if they hadn't financed all his campaigns.

[potter]

Republicans don't like Ron Paul because he really isn't one. He is a realistic Libertarian.

While I don't necessarily agree with the Libertarian line of privatize everything, at this point looking at the alternative of continuing on "business as usual" the Libertarian stance seems more and more attractive.


I think that this whole Kurdish thing with Hunt Oil is going to blow up in Bush's face. He might have some cred if they hadn't financed all his campaigns.


One can hope.....

[lily]

Regarding the M3 and the printing of hundreds of billions of dollars, I note that last year the government quit releasing auction results of who is buying those dollars.

Do you have anything I can read up on this, potter?[hr]
Republicans don't like Ron Paul because he really isn't one. He is a realistic Libertarian.

I wish he'd run under either Libertarian or strict Independent.

I think that this whole Kurdish thing with Hunt Oil is going to blow up in Bush's face. He might have some cred if they hadn't financed all his campaigns.

WHo's going to say anything?