I have an online friend in the financial world named Ari who is a currency trader that sent me an article I’d like to share with people because it refers to one of the symptoms of a mental illness Ari and I refer to as Republican Induced Schizophrenia. In an article written by Robert Kiyosaki for Yahoo Finance, the Last Days of the Dollar is the subject of probably the best explanation for how our currency trading system operates as I have ever seen written.
Over the years Ari and I have debated on all manner of topics and whenever he would start getting on a roll about Nixon’s decision to remove our currency from the gold standard my eyes would glaze over and I would nod in agreement as if I knew what he was talking about without actually having a clue as to what he meant. Then one day I got the nerve to have Ari explain it to me, along the lines of the way Kiyosaki did in that article there.
In 1971, President Richard Nixon changed everything by removing the U.S. dollar from the gold standard. Suddenly, the dollar was still the world’s currency, but now it was backed by nothing. The United States was free to print as much money as it wanted, and the world went along.
Because of this change, understanding foreign exchange became a bit more complex. Today, to understand the world of currency, you need to think a little differently — essentially because things don’t make sense.
For example, today, the United States is perceived to be the richest country in the world. In reality, though, we’re the biggest debtor nation in the world. And who are we indebted to? What many consider to be a Third World country: China.
In overly simplistic terms, China and many countries in the world today lend us billions of dollars to buy their goods. They send us products like computers, televisions, cars, candies, and wines, and we send them funny money in return.
Since they can’t spend those dollars at home, they simply lend them back to us so we’ll buy more of their products. That would be like me going to my local grocery store and asking them for a loan so I could buy their tomatoes. A logical person would say, “That makes no sense.” Yet it’s exactly what happened after 1971, and to many highly educated people — bankers and politicians, for instance — it somehow does make sense.
This is a primary symptom of the sort of mental illness that is caused by Republican Induced Schizophrenia. Republicans run off and do something crazy, in this case removing the dollar from the gold standard, and the consequences of that horrible policy choice do not present themselves for quite a while. Because no one was paying close attention to the ultimate consequences of that policy, we now find our children’s future imperiled by recession or depression because of a collapsing dollar and a domestic market awash in petrodollars which could burn us all in a blaze of glory simply because some Middle Eastern oil regime may decide to quit letting us buy their oil in dollars.
A few months ago, when the war drums for Iranian adventure started beating steadily, I remember reading about an Iranian plan to launch a Middle Eastern oil bourse. Krassimir Petrov, PhD had an article on the Information Clearinghouse website back in January that explains how we got into our predicament:
Economically, the American Empire was born with Bretton Woods in 1945. The U.S. dollar was not fully convertible to gold, but was made convertible to gold only to foreign governments. This established the dollar as the reserve currency of the world. It was possible, because during WWII, the United States had supplied its allies with provisions, demanding gold as payment, thus accumulating significant portion of the world’s gold. An Empire would not have been possible if, following the Bretton Woods arrangement, the dollar supply was kept limited and within the availability of gold, so as to fully exchange back dollars for gold. However, the guns-and-butter policy of the 1960’s was an imperial one: the dollar supply was relentlessly increased to finance Vietnam and LBJ’s Great Society. Most of those dollars were handed over to foreigners in exchange for economic goods, without the prospect of buying them back at the same value. The increase in dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax-the classical inflation tax that a country imposes on its own citizens, this time around an inflation tax that U.S. imposed on rest of the world.
When in 1970-1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payment on August 15, 1971. While the popular spin told the story of “severing the link between the dollar and gold”, in reality the denial to pay back in gold was an act of bankruptcy by the U.S. Government. Essentially, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods, and the world was powerless to respond- the world was taxed and it could not do anything about it.
From that point on, to sustain the American Empire and to continue to tax the rest of the world, the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil.
In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.
The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush’s Shock-and-Awe in Iraq was not about Saddam’s nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.
Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can’t explain why Bush would want to seize those fields-he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.
History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have gone into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished-he had successfully defended the U.S. dollar, and thus the American Empire.
That article goes on to explain what an Iranian Oil Bourse really means for the American Empire. Therefore, we begin to find explanations for some of the decisions made by the Decider. Now that RIS has been diagnosed in the American voter patient, we can begin a course of treatment that will eradicate the RIS symptoms currently afflicting the patient.
- The patient should immediately quarantine his or herself from all Republican officeholders at every level of government. In addition to RIS, Republican officeholders are known disease carriers, spreading other diseases such as paranoia, pedophilia, delusions of grandeur and hypertension. May also induce vomiting, see a doctor if symptoms persist for more than a few days.
- The patient should obtain a copy of the United States Constitution and read the entire document, memorizing the Bill of Rights along the way. This will begin to innoculate the patient against the illogical symptoms brought on by RIS.
- Patients should expect to feel side effects of this treatment including, but not limited to: outrage, anxiety and a strong sense of urgency toward voting immediately for non Republican candidates.
- Should the patient encounter others who are exhibiting symptoms such as listening to Sean Hannity and taking him seriously, viewing the Bill O’Reilly program, espousing the views of Ann Coulter or praising the writings of Jonah Goldberg, a simple smile and nod with a well placed pat on the head and the phrase “there there, now now” should suffice in aiding you in escaping these patients who have yet to undergo treatment and detoxification from RIS.