GLOBAL RESOURCES ANALYSIS


EFFECTS | CURRENCY DIVERSIFICATION


The US dollar has been the currency of international trade since the end of the Second World War. Making the USA a global economic and monetary empire. A nation-state taxes its inhabitants and companies. An empire-state taxes connected nations. Having the leading world currency is the most attractive way to tax the world in a complete soft way by money supply, credits trough inflation. The so called Bretton-Woods Agreements, which are signed by 44 countries in 1944 in Bretton Woods in New Hampshire USA, had make the US dollar the post war world currency. America would keep the golden standard and all nations the dollar standard, making the dollar 'as good as gold'. Nations were allowed always to exchange dollars back for gold. But the dollar became severely overvalued by the US her expensive (external -Korean War, Vietnam War and the Cold War- and internal -Great Society-) 'war and butter' politics and got its first time trade deficit and severe larger governmental debts. Wars are capital drains: were, are and will be. Governments that forget that they are the steering of economies and thereby act as they are the motors hurt their economies severely. That this trade deficit happened was logical: unlimited availability to capital and/or purchase is equal to using it in lending and/or spending. This enormous purchase power of the USA was caused by the voluminous demand for foreign currency backing dollars and the growth of the global economy. In the same time the bad global public relations on the Vietnam War undermined severely the positive attitude of the world toward the USA. When nations started too many dollars back for gold exchange requests, the US Government defaulted on its payment on August 15, 1971, because they only had left 22% of the exchanged foreign currency in proven gold reserves left by excessive spending behavior. Better stopping payments by choice than by complete insolvency was the thought behind this decision. And also the concept that capital from abroad must run into the USA and not out of the USA. This denial of paying back gold for dollars can be seen as an own act of bankruptcy of the US and lead to the first Oil Crisis (in that period supply of oil was not the problem, dollars where the problem). In 1972 the US government made a life time deal with the Saudi Royal Family that oil only should be trade in US dollar in exchange of protection of the Saudi Royal Family. By the enormous rising oil consumption and oil prices the demand for US dollars started a run till 2008, without the golden ceiling of volume restriction. Giving the US the possibility to create a federal (state and municipal debts not mentioned in this calculation) governmental debt of 12% of the GWP (Gross World Product) and create huge a still growing trade deficits. The US could finance both their municipal, state and federal governmental budget deficits and their trade deficits by this enormous global demand for dollars. The Open Market Committee of the FED even can used digitally generated dollars to buy governmental bonds to keep the market prices on desired levels, or even influence stock indices by supporting purchases. The FED ceased the publication of M3 figures (money aggregate as in: money creation), large-denomination time deposits, RP's (Repurchase Agreements) and Eurodollars, on March, 26, 2006 (http://www.federalreserve.gov/releases/h6/discm3.htm) for 'these figures weren't as independent figures statistical valuable anymore'. The dollar has by the US/Saudi deal of 1972 become the leading currency in energy trades till 2008. But these times are changing. Due to the market polarity change caused by PeakOil. Although the ICE (formerly called the IPE) and the Nymex have US based owners. So the market polarity change will have also impact on the used trade currencies. By this the dollar reserves will be lowered and the funding of the US municipal, states and federal governmental debts will become much more harder as the US is not longer the main economic power with the main economic currency. This will not be an easy development for the US, because their debt build-up is based on the giant US dollar reserves everywhere in the world. The current ongoing currency diversification in energy trade away from the US dollar will take the US government and the US domestic banks a lot of wind out of the sails. When the energy/oil trades (as being approximately 10% of the global total GDP, also called GWP -Gross World Product-, and increasing rapidly to at least 15% end 2008, at least 20% end 2009) doesn't longer backup the US dollar, the dollar would erode in much more sever speed than it has done last years. This value reduction of the dollar will be a tailwind for the USA: it reduces their external debts severely, because the US federal, state and municipal governments, banks and companies only have debts in US dollars. Market polarity changes leads to changes in used currencies and thereby will give new leading currencies. Currencies are about inflation, an inflation is about money supply. The metal value of US nickels and pennies has over rised their currency level with more than 40%. Therefore end 2006 legislation has been installed that melting or exporting nickels and pennies made illegal. But the worst sign is that the FED has ceased to publish M3 data since March 26, 2007. M3 was mid '90ties 'only' 50% of the US GDP (Gross Domestic Product), when M3 data publishing was ceased it already had grown above 100% US GDP (one year gross domestic product) thanks to Mr. Greenspan his money printing policies. The dollar is severe (maybe terminal) ill. As stated earlier under the Wealth Redistribution header: The financers of the US governmental debts will force the US federal government in to a Chapter 11 type of scenario. This will happen when there will no buyers more for US Government Bonds, which place the US in the direct state of 'not being able to pay current expenses' as in technically bankruptcy. The foreign financers of the US will take over the FED, limited money supply severely and insure their repayments at the cost of future US life quality of current and next generations. Greenspan, Bernake and the names of the presidents that cause the huge debts will become the curse words in the US. A more likely scenario (and much more better for the US citizens and companies) is the bankruptcy of the US Government by first the devaluation or replacement of the dollar. This would clean up the foreign owned US governmental debts overnight, while keeping all the assets. This will cause huge economic damage all over the world; stop the re-distribution/export of wealth. But also would be the end of the federal government of the US. Lenin has done the same with her Bolshevik Policies since 1917, of which 'abolish all state debt' and 'nationalization of foreign assets' was a part. Beside the fear for socialism and communism this were the second and third reason why the USSR Government than had less positive foreign relations. The Bolshevik Administration had ripped of any investor in Russia and caused huge capital losses around the globe. It forced Russia in to isolation. They same will happen if the US Government would replace the dollar and cause huge (deeper than deep) economic damage around the globe. The willingness of states and companies to have relations and doing business with USA 2.0 will be low. Most likely USA 2.0 will have a short life time and separate states will become independent nations. The end of the USA as federal state will be the huge global political lesson that when the distance between government and its civilians is to wide, governments always will malfunction by huge budget deficits, excessively money creation, military over-stretchiness, impregnated corruption and monotone leader ship. The last facet (monotone leadership is a severe treat to a nation's vitality. When a president's son becomes president, and when a president's wife wants to become president, you know structures of monoculture are ruling above diversity and quality. When this applies for the presidency, what will be the status of woven in lobbyist's activities? States like California (with 17% of the USA GDP and being independent the seven largest economy of the world) maybe will decide that they can survive better both domestically and internationally without the burden of a federal government in huge debt turbulence, certainly when energy sales have past on from only market mechanism to also the granted type of distribution on top of it. And this vision maybe will grow in many other states: it's the clean way out the federal USA debt for all of the 50 US states. No foreign relation request will not be rewarded in this scenario, and trade can continue. Although the economic damage all over the world will be gigantically. This vision is not Anti American, it's the most realistic Pro American vision possible in a by irrecoverable governmental debt drowned situation.


Author: Gijs Graafland


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