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dollars, the euro and war in iraq.

  1. chris

    3,600 Posts.
    Forwarded article

    ----- Original Message -----
    From: B
    To: Undisclosed-Recipient:;
    Sent: Monday, February 10, 2003 8:34 PM


    This story is based on material posted by Richard Douthwaite on the FEASTA
    list in Ireland.

    It presents a devastating insight into President Bush's belligerent stance
    towards Iraq, one which would appear to be based totally on the economic
    self interest of the US.

    The dollar is the world reserve currency. This gives a huge subsidy to the
    US economy because if a country wants to hold lots of dollars in reserve
    they must supply the US with goods and services in return for those
    dollars. In return the US creates a bit more credit. The more dollars there
    are circulating outside the US, the more goods and services the US has
    imported virtually for free. This is how the US manages to run a huge trade
    deficit year after year without apparently any major economic consequences.
    No other country can run such a large trade deficit with impunity. It is in
    effect getting a massive interest-free loan from the rest of the world.

    One of Europe's primary objectives, if not the primary objective, of
    setting up the Euro was to try and get some of this free lunch for Europe.
    If the Euro became a major reserve currency, or better still replaced the
    dollar as the major reserve currency, then Europe too could get something
    for nothing.

    This would be a disaster for the US. Not only would they lose their
    subsidy, which has been increasing in size and in importance to American
    economic well being as the years have gone by, but countries switching to
    Euro reserves from dollar reserves would start spending their dollars in
    the US. In other words the US would have to start paying its debts to other
    countries. As countries converted their dollar assets into Euro assets the
    US property and stock market bubbles would, without doubt, burst. The
    Federal Reserve would no longer be able to print more money to reflate the
    bubble as it is currently openly considering doing,
    There is, however, one major obstacle to this happening: OIL! Oil is of
    course by far the most important commodity traded internationally, and if
    you want to buy oil on the international markets you usually have to have

    Until recently all OPEC countries agreed to sell their oil for dollars
    only. This meant that oil importing countries, like Japan, needed to hold
    dollar reserves in order to be able to buy oil. So long as this remained
    the case, the Euro was unlikely to become the major reserve currency. There
    is not a lot of point to stockpiling Euros if every time you need to buy
    oil you have to change them into dollars. But in November 2000 Iraq
    switched to the euro, with potentially perilous consequences for the US.
    Only one country has the right to print dollars: the US! If OPEC were to
    decide to accept euros only for its oil, then American economic dominance
    would be over. Not only would Europe not need dollars anymore, but Japan
    which imports over 80% of its oil from the Middle East would have to
    convert most of its dollar assets to Euro assets (Japan is of course the
    major subsidiser of the US). The US on the other hand, being the world's
    largest oil importer would have to acquire Euro reserves, i.e. it would
    have to run a trade surplus. The conversion from trade deficit to trade
    surplus would have to be done at a time when its property and stock market
    prices were collapsing and its own oil supplies were contracting. It would
    be a very painful conversion; potentially disasterous.

    The purely economic argument for OPEC converting to the Euro, at least for
    a while, seem very strong. The Eurozone does not run a huge trade deficit
    like the US, nor is it heavily indebted to the rest of the world like the
    US. Nearly everything you can buy for dollars you can also buy for Euros.
    Furthermore, if OPEC were to convert their dollar assets to Euro assets and
    then require payment for oil in euros, their assets would immediately
    increase in value. Also, since oil importing countries would be forced to
    convert their reserves into euros, whose price would therefore be driven
    up. OPEC could then at some later date back some other currency, maybe the
    dollar again, and again make huge profits. This would offer a virtually
    inexhaustible source of profit for OPEC.

    But of course it would not be a purely economic decision. The Eurozone
    countries do not threaten Middle Eastern countries militarily as the US does.

    One article, written at the time the decision was made, claimed it made no
    financial sense and would cost Iraq millions. According to this "expert"
    the decision to convert was made by people who "are not experts, they are
    not central bankers, they are not even oil men". At the time the article
    was written, the euro was worth 82 US cents. It is now worth about $1.05.
    So on economic grounds alone, the Iraqi decision has been a huge success
    (the $10 billion Iraqi fund at the UN, mentioned in the article, has
    apparently also since been converted). There may however be military
    consequences to it. The economic threat to the US may be influencing it in
    its belligerent stance towards Iraq.

    One other OPEC country has been talking publicly about possible conversion
    since 1999: Iran. And of course it has since been included in the "axis of

    So this threatened war does not serve continental Europe's growth interests
    at all. But a far better reason for opposing the war is that it is a
    blatant case of mass murder for profit

    Further information about this matter can be found at:


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