how to stop the war...

  1. 2,154 Posts.
    the article deserves a cut and paste job, imho..

    The article that follows was commissioned by Resurgence magazine but, in
    view of its urgency and potential importance, the editor, Satish Kumar, has
    decided that its publication cannot wait until the next available issue
    appears. It is therefore being placed on the Resurgence website, and distributed on several Internet lists. It
    may be reproduced freely provided Resurgence is mentioned. Comments to the
    author are welcome.

    How to stop the war Richard Douthwaite

    So far, the main actions open to people keen to stop the United States and
    Britain invading Iraq have been limited to street protests, writing letters
    to editors, signing petitions on the Internet or voting on a BBC website.
    None of these seem likely to achieve very much but there's another avenue
    to make one's views felt which, if enough people took it up, could be very
    effective indeed.

    The precedent is certainly promising. In 1956, after bombing Egyptian
    airfields and destroying its airforce, British and French forces began
    landing at Port Said and Port Fuad on November 4th in an attempt to seize
    the Suez Canal which the Egyptian leader, Colonel Nasser, had nationalised
    earlier in the year. The troops were making good progress moving south down
    the waterway, occupying both banks, and were only two or three days from
    reaching their objective, Port Suez on the Red Sea, when, all of a sudden
    on November 6th, they were ordered to halt. Less than four weeks later they
    began to withdraw and by December 22nd, they were all gone.

    So what happened? How was the invasion stopped so quickly? The answer is
    that the Americans pulled the monetary plug - a technique that can now be
    used on them.

    Britain in 1956 was in a much healthier financial state than the US is
    today when you consider that its exports exceeded its imports whereas
    America's imports now exceed its exports by a massive 50%. Nevertheless,
    the Bank of England was having to fight off currency speculators the
    famous Gnomes of Zurich who were borrowing pounds and using them to buy
    dollars. Their aim was to run down the country's dollar reserves to such an
    extent that sterling would have to be devalued from its fixed rate of $2.80
    to the pound.

    Such a devaluation would have been highly profitable for the Gnomes because
    afterwards they could have used some of the dollars they had bought to
    purchase enough of the now-cheaper pounds to repay their loans and pocketed
    the difference. Even if the Bank of England was able to resist their
    attack, they would not lose much because, thanks to the fixed exchange
    rate, they could always buy sterling to repay their pound debts at the
    price they had received for those they had sold apart, that is, from the
    currency dealers' commission. So the most they could lose was the
    commission plus the difference between the interest rates they had to pay
    on their sterling loans and the rate they had earned on their dollar
    deposits. They were taking an almost riskless bet.

    The Bank of England reckoned it could fight off the Gnomes' speculative
    attacks if it had at least $ foreign exchange in its war chest. By
    September 1956, however, as a result of the speculation its dollar holdings
    were slipping uncomfortably close to the danger level. The speculators knew
    this, of course, which caused them to redouble their efforts. Accordingly,
    the British Chancellor of the Exchequer, Harold Macmillan, decided that the
    country had to borrow a sum so large that it was bound to cause the Gnomes
    to back off. He asked the IMF for a $1.3bn. loan.

    US approval was needed, however, as it would be the biggest loan the IMF
    had ever made and far above Britain's automatic entitlement. But when the
    attack on Egypt brought matters to a head by increasing the speculative
    attack with the result that the reserves fell sharply, the US Treasury
    Secretary, George Humphrey, made it clear he would not give his approval
    unless Britain not only obeyed a UN resolution calling for a cease fire but
    pulled its troops out as well.

    The British Cabinet regarded giving in to the speculators and devaluing the
    pound as a worse fate than losing the Suez Canal, so the Prime Minister,
    Sir Anthony Eden, felt he had no option but order the invasion to stop. On
    December 3rd, the British told the Americans that all the troops would be
    withdrawn by December 22nd and the full $1.3bn loan was approved the same
    day. The crisis was over and the pound was saved.

    So how can this technique be used to stop the Americans in their tracks?
    The first thing to recognise is that the reason the US, a country with 283
    million people, is a superpower, able to spend more on arms than the next
    20 biggest arms spenders put together, because it has been getting a
    massive subsidy for many years from the rest of the world. The counties
    that it outspends have a total population of over 3 billion people and
    include Russia, China, India, Iran, Israel, Britain, France, and Germany.

    The subsidy has come about because the rest of the world has allowed the US
    to import very much more than it has exported since 1982. In that period,
    countries receiving dollars for the goods and services they have supplied
    have only spent a proportion of them on imports from the US. Most of the
    remainder has been loaned back to America, typically by being used for the
    purchase of US Treasury bills or shares in companies quoted on the US stock
    exchange. $2,500 bn, roughly half the rest of the world's total savings,
    have been invested and lent in this way.

    Amazingly, this huge inflow of funds has cost America nothing - so far.
    True, interest has been paid on the loans and dividends on the shares but
    both payments have been in dollars that have simply been added to the
    outstanding debt. The US has not had to supply anything that cost it real
    resources to make for the use of this massive amount of capital. Moreover,
    the bigger its trade deficit has been, the more dollars foreigners have had
    to invest and the higher they have pushed Treasury Bond prices and the Dow
    Jones share price index, making investment in America seem very attractive.
    Even more foreigners have consequently been keen to get hold of dollars to
    put their savings there.

    Last year, the US spent. $379bn., almost exactly the amount of its trade
    deficit the previous year, on its armed forces. In other words, all the
    resources required to run the US military machine can be considered to be
    coming from the rest of the world rather than America itself. Some
    commentators realise this. In a revealing article published by the U.S.
    Naval Institute in January 2002, Professor Thomas Barnett of the US Naval
    War College, wrote: "We trade little pieces of paper (our currency, in the
    form of a trade deficit) for Asia's amazing array of products and services.
    We are smart enough to know this is a patently unfair deal unless we offer
    something of great value along with those little pieces of paper. That
    product is a strong US Pacific Fleet, which squares the transaction nicely."

    At the moment, the US trade deficit is running at much higher levels and
    America is having to borrow around $1.25bn every single day. So the way to
    stop George Bush's war machine in its tracks is not only to refuse to lend
    it its daily bread but for everyone with savings invested in the US to take
    their money back. Very few of us have direct investments in America, of
    course, but anyone who does should sell them immediately and repatriate the
    proceeds. If they fail to do so they will be complicit in whatever happens.

    People saving for their retirement through a life assurance company or some
    other financial institution will almost certainly have indirect investments
    in the US. The problem is to get them out. All they can do is to write to
    the company urging it to rapidly reduce the share that transatlantic
    investments make up in its portfolio because international outrage over
    Iraq is likely to cause a sharp fall in the value of those investments and
    of the dollar itself. The fact that they are personally against a war and
    don't want to be invested in it will cut little ice.

    They could add, however, that several American commentators expect the
    value of the dollar to fall by at least 25% when the market makes its
    inevitable adjustment to correct the present trade gap. For example, as
    long ago as 1999, Catherine L. Mann, a professor at Vanderbilt University,
    investigated current account corrections in industrialised countries in the
    previous two decades. She concluded that a current account deficit of over
    4.2% of the Gross Domestic Product (GDP) was unsustainable and that a large
    and rapid fall in the value of the US currency was likely within two or
    three years.

    "The US cannot live beyond its long-term means forever, nor will US
    assets always be so favored by global investors" she wrote in an article
    'Is the US Current Account Deficit Sustainable?' published by the IMF in
    March 2000. "When a change in investor sentiment comes, it could be
    dramatic. What would happen if the dollar depreciated by a significant
    amount, say 25 percent?"

    Caroline Freund of the Federal Reserve researched the same ground as Mann
    and also found that the US deficit was unsustainable except that she
    reckoned that the markets normally bring these corrections about when the
    deficit rises above 5% of GDP rather than 4.2%. It is now at the 5% level.

    The timing might therefore be right to try to prevent the war by using a
    financial strategy almost exactly the same as that used by the Gnomes of
    Zurich half a century ago. Go to your bank and tell them that you want to
    sell $5,000 (or $10,000 or as much as you can afford) in three or six
    months' time and that you would like fix the exchange rate now. The bank
    will quote you the rate at which it will purchase those dollars from you
    and give you a contract to that effect. This is a perfectly standard
    banking arrangement. Businesses expecting payments in foreign currency do
    it all the time. If your credit record is good, you won't have to pay
    anything at all.

    Should the bank be unable to match your sale of dollars in three months'
    time with an order for dollars from somebody wanting to buy them then, it
    will borrow the dollars you intend to sell from a bank with which it has
    links in the US and sell them now. It will then lend out the proceeds of
    the sale until it has to pay them over to you in exchange for your dollars,
    which it will use to pay off its American loan. In other words, through the
    agency of your bank you will be doing exactly what the Gnomes did in 1956 -
    borrowing dollars in the US, selling them, and hoping to repay the loan at
    a profit if the dollar falls in value.

    You get the dollars you need to hand over to the bank in three month's time
    by buying them from the bank at whatever rate is ruling on the day the
    contract falls due. If thousands upon thousands of ordinary people join you
    in protesting in this way, the value of the dollar will be forced down over
    the next few weeks as banks borrow dollars in the US and sell them on
    behalf of their customers. So, when the three months are up, the chances
    are that you will be able to buy the dollars you need for less than the
    price you agreed with the bank for selling them. In other words, if this
    form of direct action becomes wildly popular or the dollar falls for other
    reasons you should end up with a small profit. Of course, if the dollar
    stays where it is you will show a small loss and in the unlikely event that
    it rises, a rather bigger one. Your assessment of how much of a loss you
    can risk having to shoulder will obviously determine how many dollars you
    can sell.

    In 1956, two big battalions stopped the British - the US government and
    professional speculators employed by the Swiss banks. This time, if the
    strategy I've outlined above is taken up, it will be more of a guerrilla
    action and the outcome will depend largely on the numbers of people who get
    involved. But we may just find that we have powerful allies fighting beside
    us. For example, in order to minimise their dependence on the dollar a
    group of Islamic countries led by Malaysia is introducing the Islamic gold
    dinar later this year for trading amongst themselves. Moreover, several
    OPEC countries are considering quoting the price of oil in euros rather
    than dollars. And as long ago as last August, the Financial Times reported
    that the Saudis had sold an estimated $200bn. of their US assets. The
    Kuwaitis have also withdrawn hundreds of millions of dollars from America
    having decided that, despite the threat of a war next door spilling over
    the border, it is better to invest at home.

    Within the past few months the dollar has already lost 26% of the maximum
    value it held against the euro in 2001 and a smaller amount against the
    pound. Our small gestures coupled with the actions of much bigger players
    could continue this fall which, almost certainly, still has some way to go.
    The Economist magazine believes that a further 20% drop against the euro is
    'not unthinkable'. Moreover, just as there was a virtuous circle on the
    way up, with the increasing US trade deficit providing foreign investors
    with extra funds to push the dollar and Wall Street higher and higher,
    there will be a similar effect on the way down. Falling stock markets and a
    depreciating dollar caused by investors moving out will panic others into
    getting out too, thus accelerating both markets' decline.

    Consequently. the more people you can persuade to join you in becoming a
    Gnome for Peace, the better the chance there is of weakening the dollar and
    the American economy by enough to prevent or limit a war. That's the real
    profit. Of course, if investor sentiment does really change - helped in
    part by your actions - virtue would not have to make do with merely being
    its own reward. Besides peace, it would bring something of a financial
    bonus too.

    Richard Douthwaite, Cloona, Westport, Ireland. [email protected]t

    Richard Douthwaite is an economist living in Ireland. He is the author of
    The Growth Illusion: How Economic Growth has Enriched the Few, Impoverished
    the Many and Endangered the Planet, The Ecology of Money, and Short
    Circuit: Strengthening Local Economies for Security in an Unstable World.
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.