The Oil Weapon
Commentary on the News
Saturday, April 07, 2007
Jack Kinsella - Omega Letter Editor

Until the early part of the 20th century, economic inflation was virtually unknown in the United States. In terms of purchasing power, in 1900, an 1800 dollar was worth only sixty-seven cents.


That is to say, what cost a dollar in 1800 cost only sixty-seven cents a hundred years later. Rather than losing value, the value of a US dollar went up thirty-three cents in the 19th century.
Over the 20th century, the trend reversed. Although the US grew more and more wealthy and powerful, eclipsing the rest of the world's economies early in the 20th century, the purchasing power of the dollar began to steadily decline.

What cost a dollar in 1900 costs $21.15 one hundred years later.

So, what happened? A lot of things. It will be hard to compress it all, but I will try to hit the highlights.

Early in the 20th century, the Congress authorized the creation of the Federal Reserve Banking System to serve as America's central bank. Uniquely, the Federal Reserve was not created as a US-owned central bank, but rather, is made up of a consortium of banks, most of them foreign owned.

We've discussed the conspiracy theories about the motives behind the creation of the Federal Reserve in previous volumes. What is relevant to today's topic is how its initial creation and subsequent use triggered the law of unintended consequences now facing our economy.

Until the Great Depression, the US dollar was tied to gold, as it had been since the passage of the Currency Act of 1793. A dollar was redeemable in gold, and therefore, the supply of dollars was finite.

In the 1920's, the Federal Reserve began issuing more dollars than there was gold on hand to back them to finance the booming stock market. When the market crashed in 1929, the inflation and ballooning government deficits put more money into circulation than there was gold to redeem it.

President Franklin Roosevelt ordered all privately-held gold to be confiscated to satisfy existing creditors and the Banking Act of 1933 severed the linkage between gold and the US dollar.

After the outbreak of World War Two, America became the armory to the world, selling billions and billions of dollars worth of weapons to the Allies, for which it demanded payment in gold. By war's end, the majority of the world's gold reserves were back in the United States.

The Bretton Woods Agreement in 1945 made the US dollar convertible to gold at the government level. This established the US dollar as the world's reserve currency. The twin wars on poverty and in Vietnam drained the US economy, forcing the Fed to increase the money supply, most of which ended up as foreign reserve currency holdings.

The runaway inflation caused by the artificial increase in the money supply began to worry investors. By the 1970s, foreign governments began demanding payment for their dollars in gold. On August 15, 1971, the US announced it was 'severing the link between the dollar and gold' and defaulted on its payments.

In order to keep the dollar (and the global economy) from collapsing, the US had to find some economic replacement for the gold standard. In 1973, Washington cut an iron-clad deal with the Saudis. The US would prop up the Saudi regime in exchange for a Saudi pledge to accept only US dollars in payment for oil sales. Eventually, the rest of OPEC followed suit.

The world had to buy oil. And since they could only buy them with US dollars, they needed to continue to hold US dollars in reserve.

That explains much about why every successive president since Richard Nixon pays homage to the King of Saud. And why Washington is so willing to look the other way whenever the House of Saud gets caught with its hand in the cookie jar.

It is a symbiotic, if fragile, relationship. The House of Saud needs the United States to keep its regime in power.

And the United States needs the House of Saud to keep the dollar from collapsing.

In 2005, Iran announced the creation of what he called, the "Iranian Oil Bourse". It is based on a euro-oil-trading mechanism that naturally implies payment for oil in Euros, rather than dollars. The Iranian Oil Bourse would allow anyone willing either to buy or to sell oil for Euros to transact on the exchange, thus circumventing the U.S. dollar altogether.

The Chinese and the Japanese are especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar.

The Russians have inherent economic interest in adopting the Euro – the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan.

The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversifying against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk, not to mention their jihad against the US.

Hugo Chavez, who now sits atop the world's largest proven oil reserves, announced that Venezuela was ready to move his country's foreign-exchange holdings out of the dollar and into the euro.

In spite of the skyrocketing economy, the value of the US dollar it is based on continues to decline in value against other currencies, especially the euro. And, for the first time since the First World War, the value of the European stock market has passed that of the United States.

European market capitalization rose to $1.57 trillion, passing the US market value of $1.56 trillion. European market shares are outperforming the US by a margin of almost two to one. And since 2003, the euro has risen 26 percent against the dollar.

Back in 1969, Hal Lindsey wrote in the Late Great Planet Earth that he believed something had to happen in the near future, if indeed these are the last days as foretold by Scripture. Somehow, he said, something had to happen to cause the decline or fall of both the Soviet Union and the United States, to make way for the rise of a European superstate.

Remember, in 1969, America was at the height of its power and the Cold War was at its hottest. Western Europe was still struggling with post war reconstruction and Eastern Europe was firmly under the heel of Soviet domination.

The idea of a European superstate rising to eclipse both the United States and the Soviet Union in our lifetimes was laughable.

But the Bible said that the same generation that witnessed the restoration of Israel would see the revival of the old Roman Empire, the annihilation of Russia at the head of a Persian-led Islamic confederation on the mountains of Israel and says nothing at all about the existence of a global superpower resembling the United States of America.

Hal had witnessed the restoration of Israel --the budding of the fig tree.

"Now learn a parable of the fig tree; When his branch is yet tender, and putteth forth leaves, ye know that summer is nigh: So likewise ye, when ye shall see all these things, know that it is near, even at the doors. Verily I say unto you, This generation shall not pass, till all these things be fulfilled."

So, based on the Bible he fully expected to witness the rise of a revived Roman Empire and the decline and fall of the Soviet and American empires. That was thirty-eight years ago.

Now, Hal is seventy-seven. Two out of three events are a reality. The economic war now being waged against the United States could give him three for three -- in his lifetime.


........................................................benny

ENER - U.S. cities cut services, raid reserves on fuel cost

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U.S. cities cut services, raid reserves on fuel cost
Fri Jun 20, 2008 2:48pm EDT
By Rebekah Kebede

NEW YORK (Reuters) - Surging fuel prices are forcing cities across the United States to cut back on services and dip into cash reserves to keep their fleets on the road, according to a survey released on Friday.

Ninety percent of the 132 mayors surveyed by the U.S. Conference of Mayors reported that climbing fuel prices have had a significant impact on city budgets and operations.

The average retail price of diesel used in city buses and garbage trucks has shot up 65 percent over the past year. Gasoline prices jumped about 35 percent over the same period, as many local governments are feeling the pinch of the wider nationwide economic slowdown.

"It's just a snowball. It all hits at once. So, governments, mayors are having to make tough choices," said Mayor Douglas Palmer of Trenton, New Jersey.

"Everything is on the table except for a reduction in public safety."

Just under a quarter of the mayors surveyed -- 23 percent -- said they have been forced to slash spending for other programs in order to pay mounting fuel costs.

Seattle Mayor Greg Nickels said his city has raised its fuel budget by about 50 percent at the expense of other services including the police department.

"We could have added more police officers to the budget. We're having to look real closely at our parks program," Nickels said, adding Seattle might be forced to cut back on community centers and library hours if prices continue to rise.

Twenty-six percent reported dipping into cash reserves to pay higher fuel costs.

But one area where most cities have not been able to cut back is the number of miles city fleets travel: just 13 percent of mayors reported reduced driving due to high fuel prices.

"It's pretty hard to do that. Police cars are going to have to do what they do. You still have to pick up garbage," Palmer said.

RENEWED SENSE OF URGENCY

With fuel prices so high, cities across the U.S. have also seen a spike in the number of public transit riders.

And although using mass transit may reduce the dent that soaring pump prices are making in city residents' pocketbooks, the jump in public transportation use can also stretch city resources.

"The problem is that the fuel cost for the transit system is going up, just as everyone else's (fuel costs) are," Nickels said. "So, just at the time when more people are coming on, the operating costs are going up so they can't put more service out on the street."

More than half of the mayors surveyed said they are making changes to city transit, with nine in 10 saying they were investigating ways to promote alternatives to driving.

For instance, in Seattle, which already has a large fleet of hybrid Priuses and dispatches its parking officers on Segway scooters, plans are under way to begin using hybrids for police patrol, Nickels said.

"One of the effects of the fuel increase is a renewed sense of urgency -- rather than just talk about the problem, actually start funding and building ... so that people have a long-term alternative," Nickels said.

"Nobody thinks those prices are going down."


http://www.reuters.com/articlePrint?...48442020080620
..................................................benny

Military Spending and America's Decline

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snippet:

"America's decline can be traced to one overriding factor: a military budget that comprises nearly half of the world's military spending. For decades, as the late Professor Seymour Melman showed [that] the Pentagon has been draining not just money but also the engineering, scientific and business talent that Europe and Japan have been using for civilian production."

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http://atimes.com/atimes/Global_Economy/JF20Dj01.html

Guns blight US energy choices

By Jonathan Rynn

When New York City wanted to make the biggest purchase of subway cars in US history in the late 1990s, more than US$3 billion worth, the only companies that were able to bid on the contract were foreign. The same problem applies to high-speed rail today: only European or Japanese companies could build any of the proposed rail networks in the United States.

The US has also ceded the high ground to Europe and Japan in a broad range of other sustainable technologies. For instance, 11 companies produce 96% of medium to large wind turbines; only one, GE, is based in the United States, with a 16% share of the global market. The differences in market penetration come down to two factors: European and Japanese companies have become more competent producers for these markets, and their governments have helped them to develop both this competence and the markets themselves.

Take Germany as an example. Even though the sun is not so shiny in that part of Europe, Germany has put up 88% of the photovoltaics for solar power in Europe. Partly, this was the result of a feed-in tariff; that is, Germany guarantees that it will pay about 0.10 euro (15 US cents) per kilowatt/hour of electricity to whoever produces wind or solar electricity. The average for electricity that is paid for nonrenewable sources is about 0.05 euro per kwh, so Germany is effectively paying double for its renewable electricity in a successful effort to encourage its production. Every year, the guaranteed price is lowered, so that the renewable sector can eventually compete on its own, having gotten over the hump of introducing new technology.

Germany's other advantage is that it is a world leader in manufacturing renewable technology equipment - 32% of the solar equipment manufacturers in the world are located in Germany. In addition, almost 30% of global wind turbine manufacturing capacity is German.

In Denmark we can see the advantages of good policy plus competence in building machinery. The world's largest wind turbine manufacturer, Vestas, is Danish. According to the Earth Policy Institute, "Denmark's 3,100 megawatts of wind capacity meet 20% of its electricity needs, the largest share in any country." The Danes have created a fascinating experiment in democracy by building most of their wind turbines through the agency of wind cooperatives, which may be joined by individuals and families.

Spain has undertaken one of the most ambitious programs in wind, solar, and high-speed trains. The Gamesa Corporation is the second-largest wind turbine manufacturer, and Acciona Energy is the largest wind-park developer. The Spanish government has very ambitious plans for wind production, and occasionally wind power provides as much as 30% of the country's electrical power.

Spain is also the world's fourth-largest producer of solar energy equipment and is a leader in the development of concentrated solar power - a form of solar power obtained by using a very large quantity of mirrors, typically, to concentrate solar rays onto a tower that produces steam, which then turns a turbine, generating electricity. They are often built in deserts and can spread over several acres. These new solar technologies will probably result in lower-cost electricity for long-distance applications than photovoltaics.

Asia is an important producer of renewable energy and train equipment as well. As of 2006, Japan produced about 39% of the solar cells in the world and has encouraged solar energy in Japan with subsidies for purchasing the equipment as well as generous research budgets. Japan's Shinkansen high-speed rail network covers much of the country. China is set to take off as one of the world’s biggest producers of solar and wind equipment owing to its rise as a manufacturing nation.

Europe sets the pace

But Europe and Japan's dominance in renewable technologies is really based in a broader domain of competitive competence. They dominate the most fundamental sector of the economy, namely the production of machinery for manufacturing industries in general (often referred to as the mechanical engineering sector).

The European Union produces almost twice as much industrial equipment overall as the United States, according to data compiled by the EU, Japan produces almost as much as the US, with about half the population. The split among the EU, US, and Japan, which together produce most of the world's machinery, is 52%, 27% and 21%, respectively.

A robust industrial sector is the infrastructure we need for building the tools that will help us to avert climate catastrophe. Think of the industrial sector of an economy as an ecosystem. Instead of the grass and leaves that feed the plant-eaters that feed the meat eaters, a modern economic ecosystem contains industrial equipment that makes production technology that creates the goods and services that people consume.

The different niches of an economic ecosystem, such as the various machinery and equipment sectors, thrive as a self-reinforcing web of engineers, high-skill production workers, operational managers and factories. As of 2003, Europe's manufacturing sector made up 32% of its nonfinancial economy, while the manufacturing sector of the United States comprised only 13% of its nonfinancial sectors. The decline of American machinery and manufacturing sectors, in conjunction with the on-again/off-again nature of American renewable energy policy, explains why Europe and Japan are so far ahead of the United States in the transition to a more sustainable economy.

And America's decline can be traced to one overriding factor: a military budget that comprises nearly half of the world's military spending. For decades, as the late Professor Seymour Melman showed in many books (such as After Capitalism) and in numerous articles, the Pentagon has been draining not just money but also the engineering, scientific and business talent that Europe and Japan have been using for civilian production. As Melman often pointed out, the US military budget is a capital fund, and American citizens can use that fund to help finance the construction of the trains, wind and solar power, and other green technologies that will help us to avoid economic and environmental collapse.

That economic collapse, if it comes, will be caused by two major factors: the end of the era of cheap oil, coal and natural gas; and the decline of the manufacturing and machinery base of the economy. Both problems can be addressed simultaneously, as Europe and Japan are showing, by moving the economy from one based on military and fossil fuel production to one based on electric transportation and the generation of renewable electricity.

Jonathan Rynn, PhD, is a frequent contributor to the Grist environmental blog and a contributor to Foreign Policy In Focus.

................................................benny

Muslim Terrorists Trying To Sink the Dollar
June 27….(IsraelNN.com) Mujahedeen Muslim terrorists may be behind the sinking American dollar as part of a campaign to cripple the American economy, the Middle East Media Research Institute reported. The media watch group, which also tracks Arabic language websites, said that postings on websites the past two years reflects a move towards waging an economic war against the United States. Mujahedeen terrorist groups that operate in Afghanistan, Pakistan and other countries "have come to the conclusion that it is financial, rather than military, losses that will prompt the US to change its policies in the Middle East and elsewhere," according to MEMRI. An article recently posted in Sada Al-Jihad (Echo of Jihad) magazine and posted on several Muslim websites, discusses the September 11 attacks on the US as having influenced the decline in the dollar. It also cited the cost of the war in Iraq and Afghanistan as draining the American economy. Another recent posting stated, "The dollar can expect two additional blows that will break its back, namely the announcement of the return of the religious rule of the Caliphate..." and the reinstatement of the gold standard in international monetary trade. It urged Mujahedeen "to get rid of American dollars" before an "imminent" terrorist attack that "will put an end to the so-called United States of America and destroy its economy completely." MEMRI concluded, "Given that it is highly atypical for Al-Qaeda to give prior of its attacks, the message is probably an attempt to pressure Muslims to sell dollars, in order to generate pessimism in the dollar market and thus accelerate the drop in its value."

.................................................benny