- By Krassimir Petrov, Ph. D. - January 17, 2006

Abstract: the proposed Iranian Oil Bourse will accelerate the fall of the American Empire.

I. Economics of Empires

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military. One part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.

Historically, taxing the subject state has been in various forms - usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods - the difference capturing the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. The U.S. dollar was tied to gold, so that the value of the dollar neither increased, nor decreased, but remained the same amount of gold. The Great Depression, with its preceding inflation from 1921 to 1929 and its subsequent ballooning government deficits, had substantially increased the amount of currency in circulation, and thus rendered the backing of U.S. dollars by gold impossible. This led Roosevelt to decouple the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not an empire. The fixed value of the dollar did not allow the Americans to extract economic benefits from other countries by supplying them with dollars convertible to gold.

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 economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren't strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

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 went 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.

II. Iranian Oil Bourse

The Iranian government has finally developed the ultimate "nuclear" weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam's, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:

• The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead pay with their own currencies. The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the European at the expense of the Americans.
  
• The Chinese and the Japanese will be 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. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves.
  
• 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. Also, the Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold. Russians have also revived their nationalism, and if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.
  
• 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 Infidel Enemy.

Only the British will find themselves between a rock and a hard place. They have had a strategic partnership with the U.S. forever, but have also had their natural pull from Europe. So far, they have had many reasons to stick with the winner. However, when they see their century-old partner falling, will they firmly stand behind him or will they deliver the coup de grace? Still, we should not forget that currently the two leading oil exchanges are the New York's NYMEX and the London's International Petroleum Exchange (IPE), even though both of them are effectively owned by the Americans. It seems more likely that the British will have to go down with the sinking ship, for otherwise they will be shooting themselves in the foot by hurting their own London IPE interests. It is here noteworthy that for all the rhetoric about the reasons for the surviving British Pound, the British most likely did not adopt the Euro namely because the Americans must have pressured them not to: otherwise the London IPE would have had to switch to Euros, thus mortally wounding the dollar and their strategic partner.

At any rate, no matter what the British decide, should the Iranian Oil Bourse accelerate, the interests that matter-those of Europeans, Chinese, Japanese, Russians, and Arabs-will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the operation's exchange:

• Sabotaging the Exchange- this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.
  
• Coup d'état - this is by far the best long-term strategy available to the Americans.
  
• Negotiating Acceptable Terms & Limitations - this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d'etat fails, then negotiation is clearly the second-best available option.
  
• Joint U.N. War Resolution - this will be, no doubt, hard to secure given the interests of all other member-states of the Security Council. Feverish rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.
  
• Unilateral Nuclear Strike - this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The Americans will likely use Israel to do their dirty nuclear job.
  
• Unilateral Total War - this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will further alienate other powerful nations. Third, major dollar-holding countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions. Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop and a separate pact with Syria.

Whatever the strategic choice, from a purely economic point of view, should the Iranian Oil Bourse gain momentum, it will be eagerly embraced by major economic powers and will precipitate the demise of the dollar. The collapsing dollar will dramatically accelerate U.S. inflation and will pressure upward U.S. long-term interest rates. At this point, the Fed will find itself between Scylla and Charybdis - between deflation and hyperinflation - it will be forced fast either to take its "classical medicine" by deflating, whereby it raises interest rates, thus inducing a major economic depression, a collapse in real estate, and an implosion in bond, stock, and derivative markets, with a total financial collapse, or alternatively, to take the Weimar way out by inflating, whereby it pegs the long-bond yield, raises the Helicopters and drowns the financial system in liquidity, bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and business cycles teaches us that there is no in-between Scylla and Charybdis. Sooner or later, the monetary system must swing one way or the other, forcing the Fed to make its choice. No doubt, Commander-in-Chief Ben Bernanke, a renowned scholar of the Great Depression and an adept Black Hawk pilot, will choose inflation. Helicopter Ben, oblivious to Rothbard's America's Great Depression, has nonetheless mastered the lessons of the Great Depression and the annihilating power of deflations. The Maestro has taught him the panacea of every single financial problem-to inflate, come hell or high water. He has even taught the Japanese his own ingenious unconventional ways to battle the deflationary liquidity trap. Like his mentor, he has dreamed of battling a Kondratieff Winter. To avoid deflation, he will resort to the printing presses; he will recall all helicopters from the 800 overseas U.S. military bases; and, if necessary, he will monetize everything in sight. His ultimate accomplishment will be the hyperinflationary destruction of the American currency and from its ashes will rise the next reserve currency of the world-that barbarous relic called gold.

Recommended Reading:

William Clark The Real Reasons for the Upcoming War in Iraq
William Clark The Real Reasons Why Iran is the Next Target

Krassimir Petrov
E-mail: Krassimir_Petrov@hotmail.com
Petrov Archives

About the Author:
Krassimir Petrov has received his Ph. D. in economics from the Ohio State University and currently teaches Macroeconomics, International Finance, and Econometrics at the American University in Bulgaria. He is looking for a career in Dubai or the U.A.E.

IRAN, BOURSE AND THE U.S. DOLLAR

Comment: It's all about money, of course...

- - When bullets become the commodity to secure a currency, it is a clear sign of devastating calamity looming. To ignore the warning signs, is to suffer like you have never suffered before, or to die. Harsh words, but true - -.

- By Ed Haas From: Don Stacey - January 28, 2006 - NewsWithViews.com

On November 10th 2005, the Muckraker Report published an article that described one of the unspoken reasons why the United States had to invade Iraq; to liberate the U.S. dollar in Iraq so that Iraqi oil could once again be purchased with the petrodollar. See The liberation of the U.S. Dollar in Iraq

In November 2000, Iraq stopped accepting U.S. dollars for their oil. Counted as a purely political move, Saddam Hussein switched the currency required to purchase Iraqi oil to the euro. Selling oil through the U.N. Oil for Food Program, Iraq converted all of its U.S. dollars in its U.N. account to the euro. Shortly thereafter, Iraq converted $10 billion in their U.N. reserve fund to the euro. By the end of 2000, Iraq had abandoned the U.S. dollar completely.

Two months after the United States invaded Iraq, the Oil for Food Program was ended, the country’s accounts were switched back to dollars, and oil began to be sold once again for U.S. dollars. No longer could the world buy oil from Iraq with the euro. Universal global dollar supremacy was restored. It is interesting to note that the latest recession that the United States endured began and ended within the same timeframe as when Iraq was trading oil for euros. Whether this is a coincidence or related, the American people may never know.

In March 2006, Iran will take Iraq’s switch to the petroeuro to new heights by launching a third oil exchange. The Iranians have developed a petroeuro system for oil trade, which when enacted, will once again threaten U.S. dollar supremacy far greater than Iraq’s euro conversion. Called the Iran Oil Bourse, an exchange that only accepts the euro for oil sales would mean that the entire world could begin purchasing oil from any oil-producing nation with euros instead of dollars. The Iranian plan isn’t limited to purchasing one oil-producing country’s oil with euros. Their plan will create a global alternative to the U.S. dollar. Come March 2006, the Iran Oil Bourse will further the momentum of OPEC to create an alternate currency for oil purchases worldwide. China, Russia, and the European Union are evaluating the Iranian plan to exchange oil for euros, and giving the plan serious consideration.

If you are skeptical regarding the meaning of oil being purchased with euros versus dollars, and the devastating impact it will have on the economy of the United States, consider the historic move by the Federal Reserve to begin hiding information pertaining to the U.S. dollar money supply, starting in March 2006. Since 1913, the year the abomination known as the Federal Reserve came to power, the supply of U.S. dollars was measured and publicly revealed through an index referred to as M-3. M-3 has been the main stable of money supply measurement and transparent disclosure since the Fed was founded back in 1913. According to Robert McHugh, in his report (What’s the Fed up to with the money supply?), McHugh writes, “On November 10, 2005, shortly after appointing Bernanke to replace Greenbackspan, the Fed mysteriously announced with little comment and no palatable justification that they will hide M-3 effective March 2006.” (To learn more about Robert McHugh's work, please visit [Read]

Is it mere coincidence that the Fed will begin hiding M-3 the same month that Iran will launch its Iran Oil Bourse, or is there a direct threat to the stability of the U.S. dollar, the U.S. economy, and the U.S. standard of living? Are Americans being set up for a collapse in our economy that will make the Great Depression of the 1930’s look like a bounced check? If you cannot or will not make the value and stability of the U.S. currency of personal importance, if you are unwilling to demand from your elected officials, an immediate abolishment of the Federal Reserve Act of 1913 and the fiat money scheme that the banking cartel has used for nearly a century now to keep our government and our people in a state of perpetual debt, than you are faced with but two alternatives, abject poverty, or invading Iran.

The plans to invade Iran are unspoken, but unfolding before our very eyes. The media has been reporting on Iran more often, and increasingly harshly. For the U.S. government to justify invading Iran, it must first begin to phase out the War in Iraq, which it is already doing. Next, it must portray the Iranian President, Mahmoud Ahmadinejad, as a threat to the region and the world. Finally, once naive American people are convinced the “weapons of mass destruction” that were to be found in Iraq are actually in Iran, coupled with the almost daily media coverage of Iran’s nuclear power / weapons program aspirations, and what we will soon have on our hands is another fabricated war that will result in tens of thousands of civilian lives being lost, all because the political elected pawns in Washington DC lack the discipline to return our currency to a gold or silver standard, end the relationship with the foreign banking cartel called the Federal Reserve, and limit the activities of the U.S. government to those articulated in Article I Section 8 of the Constitution for the United States of America.

When a wayward and corrupt fiscal policy and fiat currency, coupled with runaway government spending, forces a nation to only be able to sustain the value of its currency with bullets, the citizenry of the country involved in wars primarily to sustain its currency have historically first became slaves to their government, and then to the nations that finally conquer them. If you question the validity of such a premise, or whether it could happen to the United States of America, study the fall of the Roman Empire. If you read the right books on the subject, you’ll quickly discover that towards the end of the Roman reign, the Roman Empire was doing exactly what America is doing today; attempting to sustain a failed fiat money system with bullets.

Understanding fiat money is not an easy task, and the Federal Reserve, World Bank, and International Monetary Fund have purposely made it that way. They do not want the American people to realize that the money in their wallet loses its value with each new dollar that they print. They do not want people to understand that our money does not become money until it is borrowed. When the Federal Reserve has money printed, when it is in uncut sheets of paper, it is not yet money. After it is cut, bundled, and placed into the Federal Reserve vaults, it still is not money. It only becomes money once it is borrowed. Consequently, if all debt were to be paid, if the United States didn’t have an $8 trillion national debt and the American people were debt free, and if all loans of U.S. dollars made to foreigners were paid in full, there would be exactly zero U.S. dollars in circulation because it will have all been returned to the vaults of the Federal Reserve. This might seem hard to fathom, but it is the gospel of fiat money.

The major news media in the United States, fed by Washington DC which in turn is fed by the Federal Reserve, literally, has already begun conditioning the American people for invading Iran. Media accounts of Iran’s nuclear ambitions along with amplification of the potential instability and core evilness of Iran’s president, Mahmoud Ahmadinejad, is setting the stage to spring the invasion of Iran on the American people. There does appear to be a direct correlation between the winding down effort underway in Iraq and the increase of anti-Iran rhetoric. How American soldiers ultimately arrive in Tehran is uncertain at this time, but it is reasonable to expect that if the Iran Oil Bourse opens for business in March 2006 as planned, it will only be a matter of time before the United States will have to blow it up.

If the United States invades Iran, or if Israel starts military actions by launches missiles at Iran’s nuclear power facilities, which then opens the door for the United States to intervene, most Americans will believe that our military actions in Iran will be to defend freedom and liberty while spreading democracy, when the truth is that we’ll be fighting a war in Iran because of our nation’s relationship with the Federal Reserve, a so-called bank that is not owned by the federal government, maintains no reserve, and isn’t a bank at all, but a cartel.

Just like our war in Iraq, Americans and foreigners will die in battle so that the historical power bankers and brokers; cartel members such as Rothschild, Morgan, Lehman, Lizard, Schrader, Lobe, Kuhn, and Rockefeller to name a few, can continue collecting interest on every single U.S. coin and dollar bill in circulation, while controlling the U.S. Congress to the extent that the U.S. taxpayer becomes the collateral and lender of last resort to cover bad loans and unpaid debts that these institutions create by loaning money to third world countries, some of which are devout enemies of the United States. Remember the $400 billion savings & loan bailout approved by the U.S. Congress during the Reagan Administration? America is still paying for it ­ you and me, and so will our children and grandchildren.

It is well overdue for Americans, every American, to do whatever it takes to fully understand the relationship between the United States and the Federal Reserve, along with the grave consequences of our current fiat money system; for even if the United States wanted to continue to sustain the supremacy of the U.S. dollar with bullets, it is historically, impossible. When bullets become the commodity to secure a currency, it is a clear sign of devastating calamity looming. To ignore the warning signs, is to suffer like you have never suffered before, or to die. Harsh words, but true.

© 2006 Ed Haas - All Rights Reserved

Ed Haas is a freelance writer and author originally from Mt. Penn, Pennsylvania. He currently resides in beautiful Mt. Pleasant, South Carolina. To learn more about Ed's work, please visit www.craftingprose.com.

E-Mail: efhaas@comcast.net