Bulldog manifesto took a crap on the facts. Why is the Kos community so supportive of conspiracy theory bullshit? This list of gross errors in the post is so long, that it is going to take half a diary just to list them all.
Sorry, there's no other word, not even shit. It's just crap.
1. The US Dollar was the important currency in 1945 because the US was the only major industrialized nation not bombed and burned by the war. The US had half of GDP, and most of the world's industrial base.
2. The US Dollar had been an important currency before the war because the US ran a surplus with the rest of the world - we were the China and Saudi Arabia of the day. But petroleum was not as important in 1920 or 1945 as it is today. What was important was that the US had surplus capital. We bankrolled the Dawes Plan to keep Europe afloat in the 1920's. Keynes - who had critiqued international monetary policy in that era (The economic consequences of the peace) designed Bretton Woods not around oil, but around capital flows, which were to be restricted in order to produce comparative advantage.
3. Between 1945 and 1972 US supremacy is based on the availability of capital, our place as a consumer market, and our exports of capital goods - as well as our military. Oil is not priced in dollars at that this time, and it is not until the late 1960's that the US has finished coopting France and Britain in control of the oil reserves in the rest of the world - the turning point being in the late 1950's with consolidation of the US position in Iran.
4. It is not until the lifting of oil import quotas in 1971 that there is a significant petro-dollar interest, it is not until the oil embargo of 1973 that OPEC has significant leverage on US economic policy. Oil as the dominant monetary reality US policy was not understood until the Iranian Revolution of 1979. The US would overthrow governments to keep reserves open, but it did not fight one war in the 1946-1989 period over oil, but worked by proxy. Oil is a problem now, but it is a tremendous mistake to project this backwards in US strategic thinking. In the 1945-1971 period oil is one strategic resource out of many.
Summary of points 1-4 Bulldog Manifesto gets basic economic history post war dead wrong.
5. The position of the US Dollar as a unit of account adds little to GDP. Conversion of countries such as Venezuela, which use the dollar as a unit of account, and do not have significant wealth to store, means very little. If the world were to go on to the Euro as a unit of account tomorrow it would alter US GDP by a fraction of a percent per year, simply because the amount that is held as part of this "reserve currency" function is rather small.
It doesn't matter what currency Chavez does business in as a unit of account, so long as he sells to the US at the same world market price, and as long as Venezuela buys American goods. What would disrupt the US position is if a seperate non dollar denominated market for oil developed. More on this below.
6. It is the position of the US Dollar as a store of wealth that is important. Remember oil is central not because it takes up a large fraction of GDP, but because it is insanely profitable relative to its capital base. A country can be oil rich without a large skilled labor force, a developed banking system, or just about any of the other accoutrements of a modern society. It just needs engineers, some hard labor and a police force willing to beat the crap out of anyone who causes problems. If you want to know why Texas and Louisiana and Saudi Arabia and Irag and Nigeria look like they do, there is why.
This means that Venezuela or Iraq doing business in Euros means very little, because they are going to be buying, not investing, in the world market.
7. Which leads to the worst part, the conspiracy theory bullshit that Iraq converting to Euros had any part in causing the invasion. It did not trouble the sleep of even the little-est neo-con. It was not in the thinking of any of the ponyhawks. It meant zero. Instead, it was an effect, not a cause, of the march towards war, as Saddam tried to curry favor with the Europeans to get them to pressure the US to lift oil for food quotas, and to get his hands on a different currency to buy black market military equipment in. The world arms trade is moving towards Euros - partially because the largest Euro note is the 500, where as the largest US note in circulation is the 100 - the Euro is worth about $600 USD and is easier to transport.
Summary of 5,6 and 7: the alarmism over Venezuela's shift, and its treatment of it as some sort of push to the tipping point is nonsense, and its implication that we are going to consider invading Venezuela over it is a very sorry one indeed. The US might well engineer a coup there, but not over such pinpricks as this. And we aren't invading, because an insurgency in the interior of Venezuela would be impossible to root out, for copious examples, see next door Columbia.
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The reality of Chavez and Venezuela is this: the US gets much of its crude from Venezuela. More over, Chavez and his government represent a thorn in the side of US policy. However, unlike Haiti or Panama, it is not a walk in invasion away from being taken over, and its major asset, the oil fields, cannot be attacked without the potential of being sabotaged or destroyed. Chavez survived one US backed coup attempt, and has been working double overtime to prevent any more. He finds the US a convenient target for his people's anger - and they have a lot to be angry about, with spiralling poverty rates, poor economic development and an entrenched upper class that owns the media and the oil companies.
But Chavez' action does not accelerate the desire of the Neocons, or any other member of the reactionary coalition, to invade. An invasion is impossible. Not merely improbable, impossible. This is why there is such a war of words and symbolic moves - each side has to deal with the other. The current executive would love to overthrow Chavez, but it cannot have US military personnel involved, the consequences would be far worse than the advantages.
There is a great deal of jumping at shadows on the left, looking for "the next war." The reality is that there is going to be no next war, the US military has been pulverized from the inside. While getting the US out of Iraq with all due speed is a moral, and military, imperative - the reactionary's day is done. The ponyhawks and conservatives will not shill for the next war as they did for Iraq.
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Now for the real problem: China. China's shifting its store of wealth away from dollars, and ending the peg to the dollar, is going to have a larger impact on the US than anything Chavez does with his unit of account. Here we are not talking about the small effects of a slightly different flow of money.
First because China holds huge dollar denominated reserves, and along with other Asian central banks is holding down long term rates, allowing the US to develop. This is ending, and is going to cause a major shock to the US economy over the course of years.
Second, because China is now working on acquiring direct access to oil, at rates not pegged to the world market. As long as there is one world market for oil, it does not matter much which currency it is denominated in. However, if access to future oil is not denominated in dollars - that is, if US and European companies do not dominate exploration and exploitation, that is a larger concern. And that process is accelerating. Right now, despite high prices, there is not an exploration boom going on, because most of the world's undeveloped reserves are not under the control, nor accessible too, the US.
When Chalabi wanted the US to invade Iraq, he didn't say "Saddam is going to go Euros", he had his nephew put out pie in the sky estimates of the quantity and quality of Iraqi oil reserves. It was that - access to a Saudi Arabia sized pool of oil - that drew people like flies into the Iraq venture.
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It is important to understand what the basis for the US dollar as an anchor currency is.
- The US is the most stable store of wealth in the world.
- The US has a military engine that protects trade and capital flows.
- The US has a consumer base willing to borrow up to their eyeballs to buy junk.
The world economy is basically selling junk to the US, getting dollars, buying oil and using that to maintain an internal economy. Shifting to Euros won't change this much, because it won't be Europeans buying junk. Instead countries will sell junk to the US, get dollars, buy Euros to buy oil. It will increase currency risk, but not their target market, and not where they store their money.
The key pins are US security policy, the viability of US assets, and the willingness of the US consumer to overpay for stuff. Recent events have called each of these into question.
Iraq was the first blow - it made it clear that US security policy was run by a group of lower order simians. This, was, one should note, not enough to shake faith in the US.
The second blow is in process - there is a general disenchantment with US assets. This has only settled in in the last month since Katrina. This is because it calls into question the quality of US leadership in economic affairs.
The third is the shoe everyone is waiting to drop. If the US consumer retrenches, this is what will set off a chain reaction. As soon as other countries don't need to sell to the US, they won't see the need to prop up the US consumer, or that consumer's appetite for debt. It is very profitable to loan people the money to buy your junk - this is effectively marking up the price. However, once they don't it is time to cut them off.
The process to watch is China's move to the world stage. As China can strengthen the Yuan, it can buy, not only oil, but access to it. This creates a second world market in oil - one where one sells in Yuan to by oil in this second system. While China was thwarted in a recent bid to acquire oil assets, this was only temporary. As the US continues to eat its seed corn by repatriating profits for a temporary hit of prosperity, this process will continue.
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Summary - Bulldog gets basic economic history wrong, gets macro-economic currency theory wrong, history of the march to Iraq wrong, and therefore, surprise surprise, draws a conspiracy theory bullshit conclusion from it. While it is possilble, even likely, that the US will continue its efforts to remove Chavez, the recent actions by Chavez do not materially change the state of affairs. If Korea dumps all of its dollars, notice. If China dumps all of its dollars, worry. If Saudi Arabia dumps all of its dollars, panic. But Chavez dumping dollars is less important than the oil ceilings for OPEC, which are currently at "pedal to the floor" ratios.
The reality is that visible pinpricks don't set off economic meltdowns - nor is the economy held together by a big conspiracy. Instead it is long term macro-choices, made by millions of people, that drive economic structures. Policy makers are often given choices of which bad thing will happen, or which good thing out of a list will happen. Occasionally they can screw things up completely and cause problems all by themselves. Right now it is the US drive to prop up assets which is both holding our economy up, and destroying it. This is the trade off we are making - destroying capital formation to prop up rent. As a result we are continuing a bad expansion now, at the cost of a longer and deeper recession later.