Neo-Conned! Again

by D Liam O'Huallachain

  There have been parallel leftward thrusts elsewhere in Latin America with varying degrees of strength. In Brazil, economically the most important country, the Partido dos Trabalhadores (Workers Party), under Lula, won the elections. And while Brazil is not (yet) thumbing its nose at the IMF (to the dismay of many of Brazil's intellectuals), it is leading the struggle against the FTAA and acquiring support in this action from governments across the continent that had been expected to react more conservatively. Indeed, Brazil's brilliant diplomatic effort is moving Latin America toward a collective autonomy it has never known before.

  If this has been possible, and this is the second reason for the change in atmosphere, it is because the United States has been so overwhelmed with its concentration on and difficulties in Iraq and the Middle East in general that it has been unable to expend the effort it traditionally did to hold Latin American resistance in check. This not only accounts for its surprisingly vacillating policy in Venezuela but also explains why it could not persuade either Mexico or Chile, among the Latin American governments most friendly toward the U.S., to support it in its quest for a Security Council resolution on Iraq in February 2003.

  Are there not any bright spots? The Bush regime thinks it can point to three: east-central Europe, India, and Israel. In general, the countries of east-central Europe have had deeply pro-American policies ever since the collapse of the Soviet Union. The United States represented for them protection against the possible resuscitation of both Communism and Russia as an imperialist state as well as the nirvana of consumer wealth. They were not at all attuned to the West European need to separate themselves culturally and politically from the United States. Quite the contrary. Such sentiments of course predate George W. Bush and, indeed, had already begun to wane in the last years of Clinton. What Bush has done is to seize the opportunity of the so-called war on terrorism to pursue an active campaign of establishing military bases and other forms of active political cooperation in this region as well as in former Soviet republics in Central Asia and the Caucasus.

  So, as the West European and the Russian reaction to these American intrusions takes concrete form, it is forcing choices on the east-central European countries that they would happily avoid. The situation is similar to the United States' forcing the end of ambiguity in the Muslim world. It amounts to a lose-lose option for the countries involved. And in the long run, Western Europe and Russia have more leverage than the United States, since the U.S. cannot supply the kind of economic assistance demanded by the populations of these countries. Nor is the U.S. ready to treat east-central Europe to the same relaxed visa arrangements it offers Western Europe, which is bitter news for these governments. Therefore, even in what seems to be the sunny climes of east-central Europe and Central Asia, the United States has set itself up for a fall that, when it occurs, will smash the possibility of the slow development of relations on which previous U.S. regimes had built their hopes and strategies.

  India is a similar case in point. The basis of an improved relationship between India and the United States has been India's hope and expectation, first, that the U.S. would reverse its historic tilt toward Pakistan and, second, that the U.S. would give India a sizable slice of the technological pie because of the latter's vast supply of skilled personnel in the most profitable sectors of the world-economy. But, as in east-central Europe and Central Asia, the United States, by implicitly over-promising, has set itself up for a fall. For India is, in the medium run, a competitor in informatics and pharmaceutics and not an ally. And the U.S. cannot afford to loosen its ties with Pakistan. Quite the contrary. Its headache is that Pakistan might decide to loosen its ties with the United States. In any case, India is now responding to Brazilian seduction to create a Third World economic alliance.

  As for Israel, the Bush administration has tied itself so closely to the fate of the Sharon/Likud regime that it risks going under when the regime does. And this is just a matter of time. The U.S. has shed the last vestige of any pretense toward being the neutral mediator. It will thereby find itself squeezed out of the equation.

  There remains one last zone, East Asia – in many respects the most crucial for the future of the United States. And here, too, the Bush regime has shown itself to be most imprudent, although perhaps a bit more wary and cautious than in other regions. China is holding a very strong hand. It is a powerhouse of industrial growth. It is steadily gaining military strength. And it is conducting a foreign policy designed to create strong ties in East and Southeast Asia. Given the Bush economic policy at home, which has led to a massive and ever-growing deficit and imbalance of trade, the United States finds itself more dependent on China than the other way around. It needs continued Chinese purchase of U.S. Treasury bonds. And while there are good reasons for China to do this in its own interests, the policy is one that has negative implications for China and, in any case, is not the only possible one. So the U.S. finds itself unable to take a tough line with China on anything really important. Meanwhile, Japan is making an economic comeback. And the two Koreas are moving very slowly, but somewhat ineluctably, toward closer ties, perhaps even reunification.

  Ten years from now it will be clear that what Bush has hastened is the creation of an East Asian zone of entente and, therefore, a powerful limit to U.S. power and authority in this region of the world. It is not that East Asia will necessarily be hostile to the United States. Rather, Bush has ensured that the future geo-political and geo-economic alliance of East Asia and the United States, faced with a resurgent Europe (which includes Russia), will be arranged more on East Asian terms than on U.S. terms.

  As the United States loses manufacturing and white-collar jobs (especially in information technology and even biotechnology) to East Asia and Europe, it will seek to hold on to its one remaining strength, which is in the financial arena. And here the dollar is crucial. The dollar has gone up and down vis-à-vis other strong currencies for the last fifty years, but this has been largely the United States' doing. The strength of the dollar has always been a function not of its exchange rate but of the fact that it has been the only reserve currency in the world since 1945. And the reason for this has been not U.S. economic strength but U.S. political strength. Governments and capitalists across the world have felt safest holding dollars. And they have been correct in making this judgment until now.

  The crazy economic policies of the Bush regime are bringing this political strength to an end. Given the incredible deficits that the Bush regime has been accumulating (and they are threatening to go much higher), governments and capitalists are no longer certain that the safe place to hold their money is in dollars. And of course, objectively, they are wise not to be certain. It is a matter of political and economic judgment and psychological comfort. This process is one that suddenly tilts and, once tilted, will not right itself. We can expect that this tilt will occur within the next few years. It is hard to see how it can be stopped now. After that, there will be no safe currency, with all the implications this has for economic chaos. But geo-politically, this circumstance will remove the last, surest lever with which the United States has been able to put pressure on other countries.

  None of the foregoing was, as I have said, inevitable. The trends were always there, but they were unfolding slowly. What might have taken thirty years to come to pass, Bush has ensured will occur in five or ten. And instead of the soft landing that might have been possible, the United States is in for a very hard landing. The question now is not how this situation can be reversed – it no longer can – but what would be an intelligent way to handle the very rough waters through which the ship of state is passing.

  THE EDITORS' GLOSS: William Engdahl's thesis is a controversial one, but it is no less feasible for being so. One suspects that it would prove impossible to ascribe to the dollar-euro conflict alone the ultimate cause of the invasion of Iraq. Indeed, much of what else is contained in this book would contradict that exclusive interpretation. But human actions are ra
rely the product of single motives; more often than not they stem from numerous factors. As for the Iraq war, Engdahl's point is that currency may certainly have been one of them. We spoke to Prof. William Anderson of Frostburg State University's College of Business about Engdahl's position. He had the same impression. “To surmise that it was the dollar issue that drove the invasion is tough to prove. One can talk about motives, but who knows what the real reasons were.” Nevertheless, he also said that “I do agree with the overall contention of the author. I had heard the dollar theory from someone whom I respect, so I was not surprised by what I read.”

  Some of those we know who make their living studying financial markets and money politics second Engdahl's view. One is Brad King, president of King Money Management, Inc., who had this to say: “F. William Engdahl thinks out of the box. More often than not, anything obvious is obviously wrong if it comes from the political-money axis of Washington-New York. He claims the Iraq war is much more about whether or not oil – the life blood of modern civilization – will be sold in dollars or euros. Since the Federal Reserve was founded in 1913, the dollar has lost 95% of its purchasing power, but now it is in danger of a final meltdown, resulting in sharply higher interest rates, and a skyrocketing cost of living. Enron, Worldcom, and Arthur Andersen are only the tips of the debt-bergs and cooked books. Mr. Engdahl shares the good company of Warren Buffett who also thinks we should thoughtfully prepare for a major currency devaluation of the almighty United States dollar. Like the 1970s, the price of oil and gold is rapidly rising again, and, like the 1970s, there is war on the same Middle East stage set, with the same bad actors.”

  Meanwhile Bill Murphy of the Gold Anti-Trust Action Committee notes in general that “America has become a nation of double-speak.” He explained to us that “the elitists in New York and Washington preach one thing to the world and the American public, and do another to satisfy their own hidden agendas. The surreptitious rigging of the gold price over the last decade to the detriment of the poor in sub-Saharan Africa is one example. As are the real reasons for the invasion of Iraq, so well articulated in this piece.”

  CHAPTER

  27

  A New “American Century”?

  Iraq and the Hidden Euro-Dollar Wars

  ………

  F. William Engdahl

  SOME TWO YEARS following the fall of Saddam Hussein's regime in Iraq, it is clear to most in the world that Washington did not risk such a war in order to deal with any threat from weapons of mass destruction, nor was Iraq a base for the Osama bin Laden's al-Qaeda organization. That left the very real question: why would the United States risk so much in terms of its international relations and its role as a defender of democracy and freedom to wage the brutal Iraq war?

  One very crucial reason for the U.S. action has been virtually ignored in public discussion: namely, the strategic importance of the dollar to Washington's global role, to its very ability to finance future wars. Specifically, the role of the U.S. dollar as the world's primary reserve currency for world trade and financial transactions is the crucial issue at stake.

  Despite the apparent swift U.S. military success in Iraq, the U.S. dollar has yet to benefit as a safe haven currency, two years after the fall of Baghdad. This was an unexpected development, as many currency traders had expected the dollar to strengthen on the news of a U.S. win. Capital continues to flow out of the dollar, largely into the euro. Many are beginning to ask whether the objective situation of the U.S. economy is far worse than the stock market would suggest. The future of the dollar is far from a minor issue of interest only to banks or currency traders. It stands at the heart of Pax Americana, or as it is called, the “American Century,” the system of arrangements on which America's role in the world rests.

  Yet, even as the dollar continues steadily dropping against the euro, Washington appears to be deliberately worsening the dollar's fall by its calculated public comments. What is taking place is a power game of the highest geopolitical significance, the most fateful perhaps since the emergence of the United States in 1945 as the world's leading economic power.

  The coalition of interests which converged on war against Iraq as a strategic necessity for the United States included not only the vocal and highly visible neoconservative hawks around Defense Secretary Rumsfeld and his deputy, Paul Wolfowitz. It also included powerful interests on whose global role American economic influence depends – such as the influential energy sector around Halliburton, ExxonMobil, ChevronTexaco, and other giant multinationals. It also included the huge American defense industry interests around Boeing, Lockheed-Martin, Raytheon, Northrup Grumman, and others. The issue for these giant defense and energy conglomerates is not simply a few fat contracts from the Pentagon to rebuild Iraqi oil facilities and line the pockets of Dick Cheney or others. It is a game for the very continuance of American power in the coming decades of the new century. That is not to say that profits are not made in the process, but those are purely by-products of the global strategic issue.

  In this power game, least understood is the role of preserving the dollar as the world reserve currency as a major driving factor contributing to Washington's power calculus over Iraq in the past months. American domination in the world ultimately rests on two pillars – its overwhelming military superiority, especially on the seas; and its control of world economic flows, through the role of the dollar as the world's reserve currency. More and more it is clear that the Iraq war was more about preserving the second pillar – the dollar role – than the first, the military. In the dollar role, oil is a strategic factor.

  “American Century”: The Three Phases

  If we look back over the period since the end of World War II, we can identify several distinct phases of evolution of the American role in the world. The first phase, which began in the immediate post-war period (1945–1948) and the onset of the cold war, could be called the Bretton Woods Gold Exchange system.

  Under the Bretton Woods system, in the immediate aftermath of the war, the order was relatively tranquil. The United States had emerged from the war clearly as the sole superpower, with a strong industrial base and the largest gold reserves of any nation. The initial task was to rebuild Western Europe and to create an Atlantic alliance against the Soviet Union. The role of the dollar was directly tied to that of gold. So long as America enjoyed the largest gold reserves, and the U.S. economy was the most productive and efficient producer, the entire Bretton Woods currency structure, from French Franc to British Pound Sterling and German Mark, was stable. Dollar credits were extended, along with Marshall Plan assistance and credits, to finance the rebuilding of war-torn Europe. American companies, among them oil multinationals, gained nicely from dominating the trade at the onset of the 1950s. Washington even encouraged creation of the Treaty of Rome in 1958 in order to boost European economic stability, and create larger U.S. export markets in the bargain. For the most part, this initial phase of what TIME Magazine publisher Henry Luce called the “American Century,” in terms of economic gains, was relatively “benign” for both the U.S. and Europe. The United States still had the economic flexibility to move.

  This was the era of American liberal foreign policy. The United States was the hegemonic power in the Western community of nations. As it commanded overwhelming gold and economic resources, compared with Western Europe or Japan and South Korea, the United States could well afford to be open in its trade relations to European and Japanese exports. The trade-off was European and Japanese support for the role of the United Sates during the cold war. American leadership was based during the 1950s and early 1960s less on direct coercion and more on arriving at consensus, whether in GATT trade rounds or on other issues. Organizations of elites, such as the Bilderberg meetings, were organized to share the evolving consensus between Europe and the United States.

  This first, more benign phase of the “American Century” came to an end by the early 1970s.

  The Bretton Woods Gold Exchange
began to break down as Europe got on its feet economically and began to become a strong exporter in the mid-1960s. The growing economic strength of Western Europe coincided with soaring U.S. public deficits, as Johnson escalated the tragic war in Vietnam. All during the 1960s, France's de Gaulle began to take its dollar export earnings and demand gold from the U.S. Federal Reserve, legal under Bretton Woods at that time. By November 1967 the drain of gold from U.S. and Bank of England vaults had become critical. The weak link in the Bretton Woods Gold Exchange arrangement was Britain, the “sick man of Europe.” The link broke when Sterling was devalued in 1967. That merely accelerated the pressure on the U.S. dollar, as French and other central banks increased their call for U.S. gold in exchange for their dollar reserves. They calculated that with the soaring deficits from the war in Vietnam, it was only a matter of months before the United States itself would be forced to devalue against gold, so better to get their gold out at a high price.

  By May 1971 the drain of U.S. Federal Reserve gold had become alarming, and even the Bank of England joined the French in demanding U.S. gold for their dollars. That was the point where, rather than risk a collapse of the gold reserves of the United States, the Nixon administration opted to abandon gold entirely, going to a system of floating currencies in August 1971. The break with gold opened the door to an entirely new phase of the “American Century.” In this new phase, control over monetary policy was, in effect, privatized, with large international banks such as Citibank, Chase Manhattan, or Barclays assuming the role that central banks had had in the gold system, but entirely without gold. “Market forces” now could determine the dollar. And they did so with a vengeance.