Sunday, June 15, 2008

When First We Practice To Deceive - Lies Part 2

Everything has to be paid for though in the end. Or does it? If there were only something that could keep investors interested in buying dollars... Of course it's oil, having replaced gold and completed the transition of the dollar, a fiat currency, into a quasi-backed currency. Of course you need people to trust that this will continue and that dollars will always be needed. Thus the boom and bust cycle of the past century, with the battle for oil at it's centre and war as it's engine.

Who controls the food supply controls the people; who controls the energy can control continents; who controls money can control the world - Henry Kissinger

Gallipoli was an early British loss in WWI trying to secure access to the oil fields of Baku (1/5 of the world supply at the time). I know that most textbooks claim that war was ignited by the assassination of Archduke Ferdinand, but in reality it was due to British fear of a German Berlin to Baghdad railway giving them land access to the oil of the region. Things haven't changed much for the past 100 years of the reign of oil as the lies leading up to the Iraq invasion have been exposed, the objective clear. Things aren't looking so good for the plan as the price per barrel of crude rockets to weekly new highs with talk of 'peak oil' which could cause a greater disaster than war; people getting out of their car...

The British may have deviously beat the rest to most of the Arabian peninsula after WWI, but it was America that grabbed the then unknown gem of the region, Saudi Arabia. The Brits, and by default much of the world they controlled, also put themselves immensely into debt with Wall Street to pay for the war. JP Morgan and the rest got rich on the spoils, with onerous demands on not only the vanquished Germans, helping ensure WWII, but the Brits too. While the British managed to maintain control over much of the Middle East until the next war could be fought, such conglomerates as Royal Dutch Shell and the Anglo-Persian Oil Company that became the Anglo-Iranian Oil Company and is now British Petroleum(BP) rose to power. Of course WWII had many causes, but not the least of which was the oil embargo imposed by the US on Japan, at the time it was reliant on the Americans for 80% of their oil. The end of the war brought us the Bretton Woods accords which sealed American hegemony for the next 30 years by linking the U$ to gold, and creating the IMF, World Bank and "managed" free trade through GATT. At the time the US held most of the world's gold reserves, so all was good with big business on Wall Street. The Marshall Plan to rebuild western Europe also gave a huge boost to the oil companies as it ensured growing demand for crude.

The American relationship with Saudi Arabia has proven crucial ever since the government of Ibn Saud was recognized by the US in 1931. Standard Oil began searching for oil in the 30's and by 1938, the Arabian American Oil Company, later to become Aramco, first struck the black gold in commercial quantities. The relationship has had a long and winding path, but both countries have played each other for their own interests; the Saudi's needing protection, and the American's needing cheap oil. Thanks to Bretton Woods, the dollar was as good as gold, and people bought it for almost 30 years. Predictably however, America printed more dollars than there was gold to back it, which worked until the French and a few others began demanding the US pay back gold for dollars it brought to the US Treasury. Of course they couldn't pay and on August 15th, 1971 Nixon ended the repayment of gold, in essence declaring insolvency. Needing to do something, the US along with money managers struck a deal with OPEC, of which Saudi Arabia was a founding member, to exclusively price oil in US dollars in return for American guarantees to protect the kingdoms of the Persian Gulf against the threat of invasion or domestic coup. At the same time, the price of oil was allowed to increase from about $3.50 to $39.50 so the oil producing nations could buy American debt. source - The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets (Cornell Studies in Political Economy)

Like kids in a candy store the US government had been on a spending spree, particularly under LBJ. Claiming that America could afford both guns and butter, he escalated the war in South-East Asia and launched the Great Society movement. By 1979, gold had skyrocketed to over $800/ounce and interest rates reached 21% to fight inflation. The only way to safeguard dollar hegemony is military threat, and the 80's brought us rapid growth in military spending under Reagan. The petrodollar-recycling system allows the Federal Reserve to effortlessly expand global credit to enforce US financial control and continue massive debt-financing to pay for US military control. If petrodollar-recycling begins to break down, then financial and military control will also begin to decline. When Saddam Hussein began demanding payment for oil in euros in 2000, the US had him removed. To pay for it, the US simply has to print more money, which can continue as long as people are willing to buy dollars, which is why the fashionable lie of the past few weeks is that the US is committed to a strong dollar and will fight inflation. As long as people buy it, the cycle will be allowed to continue, and, if McBush is elected in the fall, US troops can take out the next threat, Tehran. But will it stop there, the axis of oil includes Iran, Venezuela and Russia. Could Caracas be next, or how about Moscow? When great powers begin to decline, they almost invevitably resort to war and beligerency, thereby accelerating their demise. Source - The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000

Of course oil politics has had it's obvious fallout. The radical Islamic movement was born out of resentment of American influence in the Middle and Near East, while at the same time returning immense financial benefits to big business. However, these benefits have also given rise to a thirst for ever greater returns, greed. We are witnessing what can only be called a commodity shock as oil and other resources, most importantly the food we eat, are seeing prices rise out of control and the main culprit is price speculation. As the G8 meeting wrapped up in Osaka yesterday, news of an Italian plan for regulation of this market leaked out. Of course the US and British opposed it as this would be seen as putting constraints on the free market system, the main pillar that globalization is built on. Sounds like part III of lies will have to wait until the next post.