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Emerging Outlines of New International Monetary Order

PetrolPetrol Bourses are Modern Silk Routes

 "History is ruled by an inexorable determinism in which the free choice of major historical figures plays a minimal role", Leo Tolstoy
 
“Keynes's collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff," --- Hyman Minsky.

In 1960s, while returning from Algiers by boat via Marseilles, I found that the French shop keepers were very reluctant to accept US dollars, preferring Algerian Dinars. It was said that the French were converting their reserves of US dollars into gold. Why were the French and president Gen De Gaulle doing so! (It became clear by 1971)

Because at the end of WWII in 1944, agreements were drawn up at Bretton Woods, New Hampshire, USA to establish a new monetary management system to avoid worldwide economic disasters like the great depression experienced in the 1930's. Under this agreement the International Monetary Fund was set up along with the World Bank. Both the institutions have been used to maintain and expand US financial hegemony around the world.

Bretton Woods established the US dollar as the reserve currency of the world, replacing the British pound sterling and required world currencies to be pegged to the dollar rather than gold.

The demise of Bretton Woods began in 1971 when Richard Nixon took the US off of the Gold Standard to stem the outflow of gold. But the dollar has remained a 'fiat currency,” backed by nothing but the promise of the US federal government." But the 1971 US action, referred to as the Nixon shock, created a situation in which the United States dollar remains the sole backing of currencies and a reserve currency for the member states. 

Thus USA which had promised an ounce of Gold for US$ 35 went back on its international commitment , causing loss to those who held US dollars and not gold as reserves .So do not be surprised if Washington devalues $ or even refuses to reimburse trillions of dollars of debt , many countries hold in US dollar denominated securities .

In any case by 1976 the principles of Bretton Woods were abandoned all together and the world currencies again became free floating. But Bretton Woods remains an important template for forex traders. 

At the Bretton Woods II conference in New Hampshire in April last year funded by US speculator billionaire George Soros , who finances regime changes in US favor , he admitted that “The big question is whether the U.S. dollar should be the reserve currency; and, added that in fact, it no longer is.” The Nobel Prize winning economist Joseph Stiglitz, Columbia University professor, and former Senior Vice President and Chief Economist of the World Bank admitted that the US dollar as the reserve currency is hurting the entire world. The US Federal Reserve has failed, and inequality in the US was reaching a tipping point that hurts the economy and society, with policymakers sending the US further in the wrong direction.

Stieglitz who also chairs the U.N. General Assembly on Reforms of the International Monetary and Financial System, has argued  for “a global reserve currency and  called for a new “global system,” saying the current one is “fundamentally unfair because it means that poor countries are lending to the U.S. at close to zero interest rates.””

During the last few years many countries including the five BRICS nations – Brazil, Russia, India, China and South Africa have held many meetings including at the summit level and called “for a restructuring of the World War II-era global financial system and an eventual end to the long reign of the U.S. dollar as the world’s reserve currency.”

Petrodollars; US-Ibn Saud dynasty nexus;

Since the 1930s after the discovery of oil in the Arab peninsula, a critical development in the history of oil industry, there is the nexus between US and Saudi Arabia and a compact between the Saudi ruling elite and the puritan Wahabis, to handover the peninsula's oil wealth and revenues for western exploitation and benefit in return for protection to the Saud dynasty. This nexus has stood the test of time between successive Saudi and US governments. Washington has done everything to maintain the feudal regime in power, a regime which controls "the largest family business" in the world and lacks any popular mandate. ( It has not stopped Riyadh from interfering in other nations affairs across the Muslim world for greater freedoms and ’democracy ‘i.e. in Syria , earlier in Libya etc)

This nexus began with first Franklin Roosevelt, then Dwight Eisenhower to Jimmy Carter to George H.W. Bush. Declared Roosevelt after meeting Saudi Arabia's king aboard a warship in 1945, "I hereby find that the defense of Saudi Arabia is vital to the defense of the United States." Carter, in 1980, put it even more forcefully: "Let our position be absolutely clear. Any attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States." It was clear even before WWII that oil had become the vital strategic commodity for expanding military and economic clout .During WWII, the Nazis occupied Romania for its oil and went for the oil fields in Azerbaijan, both countries then big oil producers.

Even a major reason for the partition of Hindustan was to protect western oil wells in the Middle East. Late Indian diplomat Narendra Singh Sarila in his well researched book 'The Shadow of the Great Game: The Untold Story of India's Partition', documents how the British leadership across the political spectrum , Conservatives and Labour , intrigued ,told lies , divided the Indian subcontinent and created a weak state of Pakistan which would be reliant on the West. Because Mahatma Gandhi with this opposition to violence and war, and emphasis on peaceful means to resolve all disputes and Jawaharlal Nehru with his non-real politic idealism and vision of creating friendship and understanding among colonized and exploited people of Asia, Africa, Middle east and elsewhere, would not join Western military pacts to protect from the Soviet Union, the oil wells in the Middle East dominated by Western oil companies.

Washington backed its commitment to protect Saudi Arabia with military treaties reaching into the Middle East. Apart from NATO and CENTO, U.S. military bases are stretched into east Africa, the Indian Ocean, and the Gulf to protect ME oil. Then came the Rapid Deployment Force and the U.S. Central Command and the U.S. 5th Fleet, now based in Bahrain. The 1991 Gulf War led to a massive expansion of the U.S. military presence in the region, including putting US troops on sacred Saudi soil, a major cause of anguish and deep resentment among conservative Muslims, specially the likes of the recently assassinated Osama bin Laden and Al Qaida and other such outfits.

Then came the 2003 illegal US led invasion of Iraq for its oil , publicly proclaimed by powerful deputy defense secretary Paul Wolfowitz and others like Alan Greenspan  .The invasion and brutal occupation has resulted in the death of over a million Iraqis , devastated the people ,divided and destroyed the state .But the outcome has been discomforting and to the contrary .The fierce Iraqi resistance has ‘broken the US army’ on the ground , making Washington to think many times to land large body of troops elsewhere. A Shia led pro-Tehran elite now controls Baghdad .Thus Iran’s position has been strengthened against which Washington has developed a visceral hatred since West’s gendarme in the region ,Shah of Iran was ousted in 1979 and US diplomats in Tehran Embassy held hostage .

All efforts are now being made to weaken Iran, directly or by weakening its allies; the Hezbollah in Lebanon and Assad regime in Damascus. But Russia and China are offering strong resistance, especially Moscow, against regime change of its ally Bashar Assad in Syria, since it will adversely affect its strategic position in the Mediterranean after the loss of Libyan ports. Washington with Saudi (and Qatari) finances has been exploiting the revolt of Arabs in north Africa against US puppet rulers of Egypt, Tunisia, Yemen and elsewhere by promoting Muslim Brotherhood and other religious groups, as it has always done i.e. against nationalist and socialist regimes of Nasser in 1950s and 1960s and recently Saddam Hussein in Iraq and Mummer Gaddafi in Libya.

US remains determined that the business and trade in petroleum and gas is carried out and nominated in dollars, not only by Saudi Arabia but other five members of the Gulf Cooperation Council (GCC) as ordained but by others too. It is this template which acts as the spine for dollar as the reserve currency. But major changes are emerging.

Shifting of Economic Power from West to Asia

John Embry, Chief Investment Strategist of $9 billion strong Sprott Asset Management, said last year “When you look at the financial condition of the United States at the federal level, at the state level and at the municipal level, I don’t see any way out of this.  There’s too much debt, interest rates are far too low.  If interest rates really reflected what’s going on, this risk in the debt and the risk of inflation, they would be hundreds of basis points higher and under that event the debt couldn’t be serviced.  So there will be some form of default.” 

Financial Times (London) warned last year that the US dollar will lose its status as the reserve currency in 25 years and would be replaced by a portfolio of currencies according to a survey of central bank reserve managers who collectively control more than $8,000 billion, unlike in the past when they said the dollar would retain its status as the sole reserve currency. -- The dollar would be replaced by a portfolio of currencies within the next 25 years. Central banks have bought about 151 tons of gold so far this year, led by Russia and Mexico, according to the World Gold Council, and are on track to make their largest annual purchases of bullion since the collapse in 1971 of the Bretton Woods system, which pegged the value of the dollar to gold. The Yellow metal

Would be the best performing asset class over the next year, citing sovereign defaults as the chief risk to the global economy. 

US debt now amounts to over $ 14 trillion , equal to its GDP .Even in this GDP , the financial industry contributes 40%.The US economy is now 20-25 % of world GDP unlike 50% after WWII and is being artificially sustained by a stimulus of  $ 2.8 trillion .There are no green shoots of revival , unemployment continues to rise . US economy remains in recession .The 1930s recession was overcome by WWII which allowed its protected ( from war) industry to run full steam and indebt European and other countries .With many industries disappearing or in decline , even the automobile one ,the US economic downhill can only worsen. 

For the first time ever, the United States lost its perfect credit rating as Standard & Poor's reduced its long-term debt assessment in August last year from AAA to AA+ with a negative outlook.

In announcing the move, the ratings agency said a deal that week to reduce the nation's debt did not go far enough and exposed paralyzing political dysfunction. The downgrade could cost the government and ordinary consumers billions of dollars by jacking up interest rates the U.S. must pay on its $14.4 trillion debt and a host of rates consumers pay for items such as mortgages, car loans and credit cards. 

Has the Critical moment of Paradigm Shift Arrived

In an article of 26 October, 2011, titled ‘The End of the American Era’, Prof Stephen M. Walt stated that ‘THE AMERICAN ERA’ began immediately after World War II. Europe may have been the center of international politics for over three centuries, but two destructive world wars decimated these great powers. So is USA in many wars .Paul Kennedy’s best-selling Rise and Fall of the Great Powers, had argued in 1985 that America was in danger of “imperial overstretch.” He believed that Great Britain returned to the unseemly ranks of mediocrity because it spent too much money defending far-flung interests and fighting costly wars, and he warned that the United States was headed down a similar path.


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