Divide and Conquer – Sunni, Shia, Salafi and the War Within Islam

Divide and Conquer – Sunni, Shia, Salafi and the War Within Islam
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Trump, Russia and the End of the Petrodollar

Trump, Russia and the End of the Petrodollar

In 1971, the global economy went through a transformation that had never been seen before.

Richard Nixon ended the gold standard and for the first time the US dollar was backed by nothing. In the 47 years, the US dollar has continued to exist with no concrete value – what’s known as fiat currency.
 
But we came up with a clever way to keep a global demand for the dollar. Rather than gold, the dollar would now be backed by oil.
 
Nixon’s Secretary of State Henry Kissinger went to Saudi Arabia to negotiate most important deals in American history – if the U.S. would indefinitely protect the Saudi monarchy then OPEC would price its oil exclusively in U.S. dollars. Thus the petrodollar was born.
 
Last week that deal ended. And with it, America’s control of the global economy.

 

 

There are two incredibly important numbers in the U.S. economy.

First – the interest rate.

Interest rates can be floated

For about 25 years the system worked fine, until the Vietnam War and Great Society programs triggered serious inflation in the United States. As America’s trade deficits with Europe and Japan grew, and dollars started piling up abroad, the Western allies rushed to redeem their dollars for gold before they were eroded by American inflation. President Nixon imposed wage and price controls to dampen inflation, but he also decided that he would devalue the dollar to make American exports cheaper and stimulate export-led growth. Since Bretton Woods barred such a devaluation, Mr. Nixon devalued Bretton Woods. He unilaterally abrogated the treaty, closed the gold window, and soon thereafter let the dollar float. In Japan, they called it the “Nixon Shocku.” – Thomas Friedman, New York Times, 1994

“Group of Seven” (G7) to coordinate interest rates, monetary and fiscal policies — and even diplomacy — to maintain a modicum of currency stability.

We are seeing a paradigm shift

Turkey “Axis of Gold” with Russia, China, Iran

Seeks trade in local currencies

Federal Reserve’s take on Hayek

Trump advisor likes gold standard

Trump wants to return to gold standard

Turkey’s President Recep Tayyip Erdogan reminded us of this when he called on his citizens to buy gold:

“Those who keep dollar or Euro currency under their mattresses should come and turn them into Liras or gold.”

////War #4 – The War for American Influence in the Middle East////

“There is nothing new in the world except the history you do not know” – Harry Truman

I debated with myself about getting into the history, but in order to really understand what the United States is doing in Syria we need to understand the history of America’s relationship with the Middle East. While it may take a second to the present day, I think you’ll notice….patterns of behavior along the way. There are three countries in particular we need to look at before we get to Syria: Saudi Arabia, Iraq and Libya.

US democracy promotion groups started Arab Spring

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Petrodollar Warfare: Oil, Iraq and the Future of the Dollar

By William R. Clark

So how did the United States first get involved in the Middle East?

The year was 1971…

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Richard Nixon and King Faisal of Saudi Arabia

(1) America’s Connection to Saudi Arabia – The Formation of the “Petrodollar”

In the heat of Vietnam War protests, the opening of Disney World and the release of Led Zeppelin IV another significant event was happening in 1971 – Richard Nixon re-wrote the global financial system by ending the convertibility of dollars to gold.

Up till 1971, any central bank with dollar bills could go to the US Treasury and exchange $35 in cash for an ounce of gold. This was the system agreed upon by world powers at the Bretton-Woods conference at the end of World War II.

In 1944 seeing that the victory of the Allied forces was inevitable, forty-four countries met in Bretton-Woods, New Hampshire to devise a scheme to regulate the international financial order after the war would end. By the end of the war the American economy was virtually the only one left standing – most of Europe and Asia lay in ruin.

As a result the Americans were largely able to dictate the terms of what the post-war world would look like. To promote the ease of international trade and to help fund postwar reconstruction, they decided that the American dollar would serve as the world’s reserve currency. 

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What is a reserve currency? This is the currency that international commodities are priced in and the currency used by countries to settle debts with each other.

For example, if Mexico wanted to buy a car from Japan then it would pay for it in dollars rather than exchanging their money from pesos to yen to buy Japanese goods. You may be thinking – well don’t they still have to exchange pesos to dollars to make the purchase? Yes they would, but this is why foreign countries try and hold large amounts of dollars in reserve so they always have cash on hand to make international purchases. Precisely why it’s called the “reserve currency”.

After placing the dollar as the world’s reserve currency, the nations at Bretton-Woods agreed to tie the dollar’s value to a set amount of gold at a fixed exchanged rate – $35 for an ounce of gold. This created a stable platform for the global economy because now the exchange rates for all currencies had a fixed value in terms of gold. The US Treasury had close to 2/3rds of the world’s gold supply at the time so this was an easy promise for the US to keep if someone wanted to cash in dollars for gold.

The Bretton-Woods conference also created the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) both of which are now under the umbrella of the World Bank Group.

If you’re wondering where Russia was during all of this given that they were also one of the Allied powers (and a major reason we even won World War II), they were actually in attendance at Bretton-Woods. But they declined to ratify the final agreements, charging that the institutions created were “branches of Wall Street”. 

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–Quick  (but important) aside —

The dollar being the international reserve currency is an incredibly important part of our global financial system and deserves an entirely separate article written about it. But one fundamental aspect of it is that its created a conflict-of-interest for the United States which has been termed the Triffin dilemma. (Good video on it here)

The US has an incentive to run massive trade deficits with other countries because they are always demanding more US dollars to hold in reserve – it’s the only way they can buy major goods internationally. Thus America is forced to spend more dollars than it takes in, in order to keep more dollars in circulation (if you’ve heard the word ‘liquidity‘ before). So to keep the global financial system moving, America has to run a huge deficit, which in turn creates other problems for the dollar…thus the dilemma.

But this set up is also why America can import goods so cheaply! Everything is priced in dollars and we don’t need to exchange our currency/hold reserves like other countries do. To anyone who’s travelled abroad you may have noticed it’s actually more expensive to buy things in Europe and even in parts of Asia than it would be in America. We’re basically one of the cheapest places to buy electronics in the world.

After the 2008 financial crisis the People’s Bank of China in fact explicitly named the Triffin dilemma as the root cause of the economic collapse because it led to a hoarding of cash causing the Global Savings glut. 

China argues for a gradual move away from the U.S. dollar and towards the use of IMF special drawing rights (SDRs) as a global reserve currency. British economist John Maynard Keynes actually lobbied for this system the whole time at Bretton-Woods in 1944 but was overruled by the Americans during negotiations.

The large global trade deals we see passed in Congress like NAFTA and the TPP (ratified 3 months ago) are at their core, vehicles to maintain the dollar as the principal means of trade around the world. Thus continuing to fulfill the artificial demand for dollars only because it’s the reserve currency…we’re not really an export economy anymore so people don’t need to buy things from us.

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Bretton-Woods Conference in New Hampshire – 1944

Okay great, so what does any of this have to do with Saudi Arabia?

Remember I delved into all of this because Nixon eliminated the Bretton Woods dollars-for-gold system in 1971. Instead, he reached an agreement with Saudi Arabia to tie the value of the dollar to a different commodity – the price of oil. 

Before we get there, why did Nixon find this necessary to do this in the first place?

With the United States spending a massive amount of money on the war in Vietnam along with a ballooning trade deficit, it became clear to other countries that the US was printing more currency than it had redeemable in gold. In economic terms it means they thought the dollar was “overvalued” and started withdrawing gold for dollars. This set off a run on the dollar with everyone dumping the dollar for gold. This climaxed in 1971 when France attempted to withdraw its gold and Nixon refused.

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Gold bullion at Fort Knox, Tennessee

In August 1971, Nixon made a televised speech which came to be known as the “Nixon Shock

“I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators. I have directed Secretary Connolly to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interest of United States.”

This was not a temporary suspension as Nixon claimed, but rather a permanent default. For the nations of the world who entrusted the United States with their gold, this was outright theft.  Thus marked the end of the nearly 30 year Bretton-Woods financial system – the international reserve currency was no longer tied to a fixed asset. Overnight, the US dollar transformed into what is called “fiat currency” – intrinsically valueless money used as currency because of government decree. Since other major currencies were convertible only into dollars, they too became fiat money.

Now that the dollar was no longer backed by any tangible good, the US Federal Reserve and American banking system was free to print money out of thin air. Which they gladly did instead of taking steps to ease the US trade deficit which would require the US to stop printing money.  However, the ability to print money freely comes with a danger –  each new printed dollar devalues the existing money supply already in circulation, resulting in inflation. And that’s precisely what happened two years after Nixon’s decree. In 1973, the US entered a devastating period of “stagflation” where both inflation AND unemployment was high causing the deepest recession since the Great Depression. To keep the American economy afloat there needed to be a new demand for dollars to counterbalance the newly issued currency.

Enter the world’s first global oil crisis. 

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OPEC oil embargo – 1973

The oil embargo of 1973 is one of the defining events of world history and has guided American foreign policy in the Middle East since. The infamous event when OPEC spiked oil prices from around $3/gallon to over $12/gallon created economic shockwaves in America and around the world. Oil is perhaps the most important shared commodity in the world other than water. Without oil not only is there no transportation anywhere but hundreds of other daily-use products. We are literally surrounded by products made from oil.

“A century ago, petroleum – what we call oil – was just an obscure commodity; today it is almost as vital to human existence as water”

The oil embargo prompted a global recession so severe that the UK even instituted a three-day work week and speed limits on US highways were reduced from 75 mph to 55 mph in order to get drivers to conserve gas. For the developing world, the effect of the embargo was staggering – in order to purchase more expensive oil, Asian and African countries went into a colossal debt that affected their development for years to come.

While it has been traditionally thought that the oil squeeze was a punishment from Saudi Arabia and OPEC for America supporting Israel in the 1973 Yom Kippur Warthe embargo was actually a very deliberate calculation made by the American banking system and Secretary of State Henry Kissinger to create demand for the faltering US dollar. 

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Secretary of State Henry Kissinger, 1973-1977

Due it’s importance to the global economy, oil had principally been bought and sold in the global reserve currency. But Nixon’s abrupt end to the dollars-for-gold exchange system set off a massive depreciation in the dollar’s value and oil-producing countries began suggesting a move away from the unstable dollar as the reserve currency. This meant countries would now try to buy and sell oil outside of US dollars. 

The price of oil rarely wavered. From 1947 to 1967, the dollar price of oil had risen by less than two percent per year.  But in 1973, the United States led by Henry Kissinger orchestrated the OPEC price increase through Shah Pahlavi, the leader of Iran. The 400% increase in oil prices left the world scrambling to quickly accumulate more US dollars to afford the more expensive oil – all discussion of moving away from the dollar was tabled. 

“Why are you against the increase in the price of oil? That is what they want. Ask Henry Kissinger—he is the one who wants a higher price.” – Iranian President Reza Shah Pahlavi to Saudi oil minister Sheikh Yaki Yamani, 1973

Once Kissinger ensured a sharp global demand for dollars, he went to Saudi Arabia with a proposal to lock in this demand for decades to come – the “petrodollar”. In 1974, Kissinger met with the Saudi Kingdom’s ruling House of Saud to offer a largely unpublicized four-part deal called the US-Saudi Arabian Joint Commission on Economic Cooperation.

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Henry Kissinger meeting with Saudi King Faisal – 1974

—The U.S. government would do the follow things— 

(1) Provide military protection for Saudi Arabia from Israel and any other Middle Eastern state, such as Shiite Iran, that might attempt to destabilize the Sunni kingdom.

(2) Sell the Saudis any weapons they needed. 

(3) Provide technical assistance in building infrastructure and a modern state

(4) Secure the Saud family’s place as rulers of the country indefinitely.

—In return, Saudi Arabia would do the following:—

(1) They would make all oil sales in US dollars only.

(2) They would invest their surplus oil proceeds in U.S. Treasuries.This was a perfect arrangement for both parties.

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Riyadh, Saudi Arabia

Saudi Arabia is a sparsely populated country with an incredible amount of wealth. It sits in a dangerous neighborhood in the Middle East surrounded by powerful nations where religious squabbles frequently turn violent. Thus it welcomed unconditional protection from one of the world’s preeminent militaries and America’s help in modernizing their country.

This is why many who come to America from Saudi Arabia may feel this way –

“If you were a U.S. businessperson doing business in Saudi Arabia, the apparatus there would be entirely familiar to you because it looks and operates very much like its counterpart agencies in the U.S.”….”Arriving in Saudi Arabia, going through customs and immigration, is just like arriving in the U.S.” The Saudi banking system, financial markets and many other governmental practices and institutions, all were shaped or influenced by advisers hired under the Joint Commission.

The United States on the other hand was able to accomplish two critical goals at once that allowed it to ascend as the world’s pre-eminent power over the last 40 years: it was able to sustain a new demand for the US dollar as the world’s reserve currency AND was able to secure a vital energy resource more cheaply than the rest of the world. 

If you’re a country that doesn’t produce oil, then you have to buy it. And if you’re buying it on the world market then you’re probably getting it from one of the OPEC nations. After Kissinger’s visit, Saudi Arabia and shortly thereafter all OPEC nations, would only sell you oil in dollars indefinitelyOther countries now had no choice but to buy and hold large reserves of unstable dollars because they would not be able to purchase oil without dollars. As a result of this agreement, the dollar then became the only medium in which energy exchange could be transacted. This underpinned its reserve currency status through the need for foreign governments to hold dollars; recirculated the dollar costs of oil back into the U.S. financial system and — crucially — made the dollar effectively convertible into barrels of oil. The dollar was moved from a gold standard onto a crude oil standard. Thus the creation of the “petrodollar” – a vehicle to guarantee a constant demand for dollars whose value was linked to oil through the OPEC pricing standards.

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But even more so, if you’re an oil producing nation then any surpluses generated from selling oil had to be invested back into the United States by buying US Treasury bonds. This was the second term of the agreement and was a means to create value for the dollar that was demanded by the large financial institutions working with Kissinger. The forced investment of surplus oil profits into the US banking system came to be known as “petrodollar recycling” – a practice that the New York Federal Reserve even admitted was enriching US coffers.

However, these investments have also acted as “hostage capital“. In the event of a political conflict between the United States and an oil-exporting nation, the US can confiscate or freeze these invested assets. Despite its obvious betrayal of free-market principles, the US used this tactic twice in the 1980s against Iranian and Libyan assets, in the 90’s against Iraq and Kuwait and again in 2003 against Iraq.

The most important lesson in all of this, however, is the importance of the institution that controls the US dollar in shaping American foreign policy – the US Federal Reserve.

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US Federal Reserve Bank, Washington DC

But above all, Kissinger’s petrodollar scheme established perhaps the most vital pillar in American global power more than its military strength – dollar hegemony. The ability to shape the world order as the backbone of the global economy.

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Now with this new alliance between the United States and Saudi Arabia held together by the petrodollar system, the oil embargo ended. America’s hold on the global financial system and its need for cheap, abundant energy would not be threatened again.  More importantly, the shock of the oil embargo on the American public would help the US government justify future interventions as a means to prevent such an energy crisis from ever happening again.

As such, since the oil embargo and Saudi Arabian-US agreement there has been an interesting trend amongst oil-producing nations who have tried to move away from the petrodollar system.


(2) The Invasion of Iraq and (Neo) Conservative Interventionism – Intervening to Explicitly Expand American Interests

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After the fall of the Berlin Wall in 1989 and the ensuing collapse of the Soviet Union, America arose as the sole global power. It had no rival.

From this shift in the balance of power in the world, the neo-conservative (“neocon”) ideology began to gain traction in foreign policy circles. Neoconservatives advocate for the promotion of democracy and American national interest in global affairs – including by means of military force.

This ideology believes that authoritarian states are inherently destabilizing and dangerous, and that it is both a moral good and a strategic necessity for America to replace those dictatorships with democracy. They see America’s role to be the world’s unquestioned moral and military leader.

Despite the name, the neoconservative ideology actually has its roots with American socialists in the 1960’s who opposed Soviet communism (socialism vs communism). They criticized the liberal anti-war activism against Vietnam as non-interventionist and anti-American when communism was threatening to spread.  Thus, they came to be known as “neo” or “new” conservatives.

**This is important because neoconservatism is a fundamentally liberal idea formed by Democrats who viewed non-interventionism as a failure of the US to promote liberal ideals globally. As a result, when it comes to foreign policy this ideology continues to permeate BOTH political parties** 

Invincible Spirit Exercise In East Sea

One of the defining works of the neoconservative ideology was a report published by a conservative think-tank called the Project for a New American Century (PNAC). They published a report in 2000 called “Rebuilding America’s Defenses:  Strategy, Forces and Resources For a New Century

The report contained key tenets of the neoconservative ideology like:

“[What we require is] a military that is strong and ready to meet both present and future challenges; a foreign policy that boldly and purposefully promotes American principles abroad; and national leadership that accepts the United States’ global responsibilities.

The report also contained some oddly prophetic sections….like this blurb under the chapter titled “Creating Tomorrow’s Dominant Force”

Further, the process of transformation, even if it brings revolutionary change, is likely to be a long one, absent some catastrophic and catalyzing event – like a new Pearl Harbor. 

And this section under the chapter titled “Repositioning Today’s Force”

After eight years of no-fly-zone operations, there is little reason to anticipate that the U.S. air presence in the region should diminish significantly as long as Saddam Hussein remains in power. Although Saudi domestic sensibilities demand that the forces based in the Kingdom nominally remain rotational forces, it has become apparent that this is now a semi-permanent mission. From an American perspective, the value of such bases would endure even should Saddam pass from the scene. Over the long term, Iran may well prove as large a threat to U.S. interests in the Gulf as Iraq has. And even should U.S.-Iranian relations improve, retaining forward-based forces in the region would still be an essential element in U.S. security strategy given the longstanding American interests in the region.

A completely reasonable question after reading these passages would be – Why we are talking about the possibility of a catastrophic new Pearl Harbor-like attack and Saddam Hussein being removed from power in the year 2000? 

These may have been legitimate academic questions at the time, especially given Bush Sr’s Gulf War in the 90s. But to many, these statements eerily foreshadowed the events that would follow one year after George W. Bush assumed office. The World Trade Center was attacked in 2001 and the United States invaded Iraq in 2003 to remove Saddam Hussein from power.

Why does this matter at all? Several key authors of this report turned up in high places in the Bush administration.

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Paul Wolfowitz – #2 man at The Pentagon

Paul Wolfowitz – Deputy Defense Secretary under Donald Rumsfeld (later President of the World Bank, and interestingly enough a Steering Committee member of the Bilderberg Group)

John Bolton – Undersecretary of State and Ambassador to the United Nations

Lewis (“Scooter”) Libby – Chief of Staff to Vice President Dick Cheney

Eliot Cohen – Counselor to Secretary of State Condoleezza Rice

Michael Vickers – Assistant Secretary of Defense

Stephen Cambone – Undersecretary of Defense for Intelligence

The report even self-admittedly describes itself as “building upon the defense strategy outlined by the Cheney Defense Department in the waning days of the Bush Administration.” (Dick Cheney was the Defense Secretary in Bush Sr’s administration)

But imagine these connections being made in real-time in 2002-2003, leading up to the decision to invade Iraq.

You have an academic report published from one of the highest profile research think-tanks in America which: outlines a strategy for US military dominance globally, openly postulates a new Pearl Harbor event, and considers the possibility of removing Saddam Hussein from power. Then half of the authors who wrote that report went to go work in the White House and Pentagon the next year where all of those things happened.  

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Secretary of Defense Rumsfeld, VP Cheney and President Bush

When you string all those events together, it seems less surprising why the Bush administration made the decisions it did.

These neo-conservative minds, and Wolfowitz in particular, were inspired by a book from Laurie Mylroie titled “The War Against America: Saddam Hussein and the World Trade Center Attacks: A Study of Revenge”.  

The book made a litany of alleged linkages between Saddam’s Iraqi intelligence and the 9/11 hijackers as well as the 1993 World Trade Center bombing (yeah there was two…). Her claims were refuted by counter-terrorism experts Peter Bergen and Daniel Benjamin who also said the CIA, FBI and other intelligence agencies looked extensively into her claims and did not corroborate them. I’ve written about the role of the Saudi Arabian government in supporting the 9/11 hijackers here. Many have said the neo-conservative “obsession” with Mylroie’s work was not born out of a true belief in her claims but rather that it fueled the narrative they pushed to create national support for the invasion of Iraq.

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The same individuals who earnestly supported Mylroie’s work also supported a series of articles from now disgraced New York Times reporter Judith Miller about the presence of WMD materials in Iraq.

Suffice it to say the two reasons American’s were told why we were invading Iraq – that Saddam Hussein was in any way connected to the 9/11 plot and/or harbored weapons of mass destruction – have been widely discredited as faulty information, even by our own government

Let’s also take a brief moment to see which of our 2016 presidential candidates voted for this war and which did not when given all the same information. 

Many of these leading neo-conservatives (including Mylroie) currently hold positions at the American Enterprise Institute (AEI), a public policy think tank in DC. Almost all worked at the Council on Foreign Relations (CFR)….an organization Ted Cruz called “a pit of vipers” (despite his wife having worked there?). Many were also a part of Jeb Bush’s foreign policy team (shocking).

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Sec of State Colin Powell’s now discredited WMD speech at the UN

Digression for an anecdote –

I actually have one distinct memory from when I was like 10 or 11 when I saw my first anti-war protest. I was visiting New York or Pennsylvania (I think..) and my family happened upon a protest. When we stopped to watch this small group of people protesting, one of the protesters handed me a case with two CDs (with badly sharpie’d titles) and said we should look into 9/11 and Iraq. And then he said all the answers were on there if we wanted to know what happened.

I don’t know how I remember this event because I never ended up seeing what was on the CDs, but I think it stuck in my mind because I remember being stunned that there were actually people who thought we needed to question something like 9/11 or invading Iraq. I mean duh, I was in the 6th grade.

But the most disturbing revelation in all my research was seeing that the neocon imagination for US global dominance was never intended to end with Iraq.

In a memoir written by 4-star General Wesley Clark, he tells a story of speaking with a “senior general” at the Pentagon ten days after the 9/11 attack. The general told him, “We’re going to attack Iraq. The decision has basically been made.

Six weeks later, Clark returned to Washington to see the same general and inquired whether the plan to strike Iraq was still under consideration. This was the general’s response:

“‘Oh, it’s worse than that,’ he said, holding up a memo on his desk. ‘Here’s the paper from the Office of the Secretary of Defense outlining the strategy. We’re going to take out seven countries in five years.”

These are the seven countries that Defense Secretary Donald Rumsfeld allegedly outlined back in 2001 to “take out”: Iraq, Libya, Syria, Lebanon, Somalia, Sudan, Iran

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Let’s pretend for a moment that this entire story is made up and there was no such memo ever written. How are these seven countries doing today?

Iraq – Invaded in 2003

Libya – Invaded in 2011

Syria – Global proxy war since 2011

Lebanon – War with Israel in 2006 and embroiled in Syrian conflict

Somalia – Failed state until 2015

Sudan – Fragmented into two countries creating South Sudan in 2011

Iran – Under global sanctions until the nuclear deal with the United States in 2015

Awesome… 

But other than being in the Middle East/North Africa and having been in a near constant state turmoil, observers have noted that these 7 countries have one particular thing in common – none are members of the Bank for International Settlements. 

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Bank for International Settlements (BIS) – Bazel, Switzerland

The Bank for International Settlements is an international financial institution

BIS in Middle East

Does the invasion of Iraq have anything to do with the “petrodollar” system?

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Iraq was the only place that would survive Peak Oil

In 1988 he faced economic-reconstruction costs of $230 billion in the aftermath of his war with Iran; Iraq’s annual oil revenues of $13 billion did not even cover current expenditures

Breakout investigative book revealing how the US armed Iraq covertly through the CIA in the Iran-Iraq War from 1980-1988.

America supported Saddam using chemical weapons

As Iraqi foreign minister Tariq Aziz commented, “It was inconceivable that a regime, such as that in Kuwait, could risk engaging in a conspiracy of such magnitude against a large, strong country such as Iraq, if it were not being supported and protected by a great power; and that power was the United States.”

Why did America engage in the Gulf War?

Saddam Hussein (Iraq): Removed from power and killed

Invading Iraq – AJC

Iraq and petrodollar

Switched from dollars to euros

These people disagree agree this was the reason