Comrades,

This is the full length article. A shorter version was first
published in the latest Scottish Socialist Voice (issue 266 – 26th
May 2006).

comradely - Steve

---------------------------------------

Why the Dollar Bubble is about to Burst

Steve Masterson, London - 24 May, 2006

The Scottish Socialist Voice (issue 264 - 11th May) ran an article
beginning, "Iran has really gone and done it now. No, they haven't
sent their first nuclear sub into the Persian Gulf. They are about
to launch something much more deadly … next week the Iran Bourse
will open to trade oil, not in dollars but in euros." This
apparently insignificant event has consequences far greater for the
US people, indeed all for us all, than is imaginable.

Currently almost all oil buying and selling is in US-dollars through
exchanges in London and New York. It is not accidental that they are
both US-owned.

The Wall Street crash in 1929 sparked off global depression and
World War II. During that war the US supplied provisions and
munitions to all its allies, refusing currency and demanding gold
payments in exchange.

By 1945, 80% of the world's gold was sitting in US vaults. The
dollar became the one undisputed global reserve currency – it was
treated world-wide as `safer than gold'. The Bretton Woods agreement
was established.

The US took full advantage over the next decades and printed dollars
like there was no tomorrow. The US exported many mountains of
dollars, paying for ever-increasing amounts of commodities, tax cuts
for the rich, many wars abroad, mercenaries, spies and politicians
the world over. You see, this did not affect inflation at home! The
US got it all for free! Well, maybe for a forest or two.

Over subsequent decades the world's vaults bulged at the seams and
more and more vaults were built, just for US dollars. Each year, the
US spends many more dollars abroad that at home. Analysts pretty
much agree that outside the US, of the savings, or reserves, of all
other countries, in gold and all currencies – that a massive 66% of
this total wealth is in US dollars!

In 1971 several countries simultaeously tried to sell a small
portion of their dollars to the US for gold. Krassimir Petrov, (Ph.
D. in Economics at Ohio University) recently wrote, "The US
Government defaulted on its payment on August 15, 1971. While
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 US Government." (1) The 1945 Bretton Woods
agreement was unilaterally smashed.

The dollar and US economy were on a precipice resembling Germany in
1929. The US now had to find a way for the rest of the world to
believe and have faith in the paper dollar. The solution was in oil,
in the petrodollar. The US viciously bullied first Saudi Arabia and
then OPEC to sell oil for dollars only – it worked, the dollar was
saved. Now countries had to keep dollars to buy much needed oil. And
the US could buy oil all over the world, free of charge. What a
Houdini for the US! Oil replaced gold as the new foundation to stop
the paper dollar sinking.

Since 1971, the US printed even more mountains of dollars to spend
abroad. The trade defecit grew and grew. The US sucked-in much of
the world's products for next to nothing. More vaults were built.

Expert, Cóilín Nunan, wrote in 2003, "The dollar is the de facto
world reserve currency: the US currency accounts for approximately
two thirds of all official exchange reserves. More than four-fifths
of all foreign exchange transactions and half of all world exports
are denominated in dollars. In addition, all IMF loans are
denominated in dollars." (2)

Dr Bulent Gukay of Keele University recently wrote, "This system of
the US dollar acting as global reserve currency in oil trade keeps
the demand for the dollar `artificially' high. This enables the US
to carry out printing dollars at the price of next to nothing to
fund increased military spending and consumer spending on imports.
There is no theoretical limit to the amount of dollars that can be
printed. As long as the US has no serious challengers, and the other
states have confidence in the US dollar, the system functions." (3)

Until recently, the US-dollar has been safe. However, since 1990
western Europe has been busy growing, swallowing up central and
eastern Europe. French and German bosses were jealous of the US
ablility to buy goods and people the world over for nothing. They
wanted a slice of the free cake too. Further, they now had the power
and established the euro in late 1999 against massive US-inspired
opposition across Europe, especially from Britain - paid for in
dollars of course. But the euro succeeded.

Only months after the euro-launch, Saddam's Iraq announced it was
switching from selling oil in dollars only, to euros only – breaking
the OPEC agreement. Iran, Russia, Venezuela, Libya, all began
talking openly of switching too – were the floodgates about to be
opened?

Then aeroplanes flew into the twin-towers in September 2001. Was
this another Houdini chance to save the US (petro)dollar and the
biggest financial/economic crash in history? War preparations began
in the US. But first war-fever had to be created – and truth was the
first casualty. Other oil producing countries watched-on. In 2000
Iraq began selling oil in euros. In 2002, Iraq changed all their
petro-dollars in their vaults into euros. A few months later, the US
began their invasion of Iraq.

The whole world was watching: very few aware that the US was
preparing for the first oil currency, or petrodollar war. After the
invasion of Iraq in March 2003, remember, the US secured oil areas
first. Their first sales in August were, of course, in dollars,
again. The only government building in Baghdad not bombed was the
Oil Ministry! It does not matter how many people are murdered – for
the US, the petrodollar must be saved as the only way to buy and
sell oil – otherwise the US economy will crash, and much more
besides.

In early 2003, Hugo Chavez, President of Venezuela talked openly of
selling half of its oil in euros (the other half is bought by the
US). On 12 April 2003, the US-supported business leaders and some
generals in Venezuela kidnapped Chavez and attempted a coup. The
masses rose against this and the Army followed suit. The coup
failed. This was bad for the US.

In November 2000 the euro/dollar was at $0.82 dollars, its lowest
ever, and still diving, but when Iraq started selling oil in euros,
the euro dive was halted. In April 2002 senior OPEC reps talked
about trading in euros and the euro shot up. In June 2003 the US
occupiers of Iraq switched trading back to dollars and the euro fell
against the dollar again. In August 2003 Iran starts to sell oil in
euros to some European countries and the euro rises sharply. In the
winter of 2003-4 Russian and OPEC politicians talked seriously of
switching oil/gas sales to the euro and the euro rose. In February
2004 OPEC met and made no decision to turn to the euro – and yes,
the euro fell against the dollar. In June 2004 Iran announced it
would build an oil bourse to rival London and New York, and again,
the euro rose. The euro stands at $1.27 and has been climbing of
late. See the European Central Bank history of the euro/dollar:
http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-
usd.en.html#1999

But matters this month became far, far worse for the US dollar. On
5th May Iran registered its own Oil Bourse, the IOB. Not only are
they now selling oil in euros from abroad – they have established an
actual Oil Bourse, a global trading centre for all countries to buy
and sell their oil!

In Chavez's recent visit to London he talked openly about supporting
the Iranian Oil Bourse, and selling oil in euros. When asked in
London about the new arms embargo imposed by the US against
Venezuela, Chavez prophetically dismissed the US as "a paper tiger".

Currently, almost all the world's oil is sold on either the NYMEX,
New York Mercantile Exchange, or the IPE, London's International
Petroleum Exchange. Both are owned by US citizens and both sell and
buy only in US dollars. The success of the Iran Oil Bourse makes
sense to Europe, which buys 70% of Iran's oil. It makes sense for
Russia, which sells 66% of its oil to Europe. But worse for the US,
China and India have already stated they are very interested in the
new Iranian Oil Bourse.

If there is a tactical-nuclear strike on - deja-vu - `weapons of
mass destruction' in Iran, who would bet against a certain Oil
Exchange and more, being bombed too?

And worse for Bush. It makes sense for Europe, China, India and
Japan – as well as all the other countries mentioned above – to buy
and sell oil in Euro's. They will certainly have to stock-up on
euros now, and they will sell dollars to do so. The euro is far more
stable than the debt-ridden dollar. The IMF has recently highlighted
US economic difficulties and the trade deficit strangling the US –
there is no way out.

The problem for so many countries now is, how to get rid of their
vaults full of dollars, before it crashes? And the US has bullied so
many countries for so many decades around the world, that many will
see a chance to kick the bully back. The US cannot accept even 5% of
the world's dollars – it would crash the US economy dragging much of
the world with it, especially Britain.

To survive, as the Voice article stated, "the US, needs to generate
a trade surplus to get out of this one. Problem is it can't." This
is spot on. To do that they must force US workers into near slavery,
to get paid less than Chinese or Indian workers. We all know that
this will not happen.

What will happen in the US? Chaos for sure. Maybe a workers
revolution, but looking at the situation as it is now, it is more
likely to be a re-run of Germany post-1929, and some form of extreme-
right mass movement will emerge.

Does Europe and China/Asia have the economic independence and
strength to stop the whole world's economies collapsing with the US?
Their vaults are full to the brim with dollars.

The US has to find a way to pay for its dollar-imperialist
exploitation of the world since 1945. Somehow, eventually, it has to
account for every dollar in every vault in the world.

Bombing Iran could backfire tremendously. It would bring Iran openly
into the war in Iraq, behind the Shiite majority. The US cannot cope
even now with the much smaller Iraqi insurgency. Perhaps the US will
feed into the Sunni v Shiite conflict and turn it into a wider
Middle-East civil-war. However, this is so dangerous for global oil
supplies. Further, they know that this would be temporary, as some
country somewhere else, will establish a euro-oil-exchange. Perhaps
in Brussels.

There is one `solution' – scrap the dollar and print a whole new
currency for the US. This will destroy 66% of the rest of the
world's savings/reserves in one swoop. Imagine the implications?
Such are the desperate things now swimming around heads in the White
House, Wall Street and Pentagon.

Another is to do as Germany did, just before invading Poland in
1938. The Nazis filmed a mock Polish Army attack on Germany, to win
hearts and minds at home. But again, this is a finger in the dam.
So, how is the US going to escape this time? The only global arena
of total superiority left is military. Who knows what horrors lie
ahead. A new world war is one tool by which the US could discipline
its `allies' into keeping the dollar in their vaults.

The task of socialists today is to explain to as many as possible,
especially our class, that the coming crisis belongs purely to
capitalism and (dollar) imperialism. Not people of other cultures,
not Islam, not the axis of evil or their so-called WMDs. Their
system alone is to blame.

Our first experiment with socialism failed in the last century and
turned into the horror of stalinism. Maybe technology and people had
not developed enough at the time to sustain and internationalise the
Russian revolution.

However great were the minds and actions of Marx, Lenin and Trotsky,
they all stated wrongly in their times, that capitalism was
definitely on its last legs. But it wasn't, not then. Today, now, is
the time for socialist resurgence, for ditching the sectarianism
that has plagued us for a century and more. Steps need to be taken
now towards a, multi-tendency, broad world party of socialism!
Coming events will harden it with time. If we don't succeed this
time, then the coming barbarism will flourish for a long long time.

The new Iranian Oil Bourse, the IOB, is situated in a new building
on the free-trade-zone island of Kish, in the Persian Gulf. It's
computers and software are all set to go. The IOB was supposed to be
up and running last March, but many pressures forced a postponement.
Where the pressure came from is obvious. It was internationally
registered on 5th May and supposed to open mid-May, but its opening
was put off, some saying the oil-mafia was involved, along with much
international pressure. Just google `pertroeuro', and the story lies
before you.

From now on, anyone in the know will wake up every morning and, even
before coffee, will check out the latest exchange rate between the
euro and dollar.

(1) The Proposed Iranian Oil Bourse (Krassimir Petrov, Jan 2006)
http://www.countercurrents.org/us-petrov200106.htm

(2) Oil, Currency and the War on Iraq (Cóilín Nunan, Scotland, Dec
2003)
http://www.feasta.org/

(3) Petrodollar Became the Essential Basis for the US Economic
Hegemoney in the 1970s. (Bulent Gokay, Keele University, May 2006)
http://english.pravda.ru/topic/petrodollar-138/