Does Bush attack the world because the status of the US $ is threatened?

Great Debates
21

I that is so, than please consider the following quotes from the article:

On the contrary, America rests on two - maybe three- pillars: 1.The DOLLAR as the world currency whose monopoly privilege the US has to print at will, and 2. The PENTAGON with its unrivalled military capacities. 3. A third pillar perhaps is the government, educational and media fed IDEOLOGY that obscures these simple facts from public view.

(…)

The answer is simple and resolves not only that puzzle but what could otherwise appear as a rather confused and confusing US foreign policy: [1.] Iraq changed the pricing of its oil from dollars to Euros in 2000. [2] Iran threatens to do so. [3] North Korea has changed to deal only in Euros. [4] Venezuela has withdrawn some of its oil from dollar pricing and is instead swapping it for goods with other third world countries.

end quote.

22

The only way to ensure the safety and stability of the world is to select an independent, neutral currency for worldwide use. I hereby propose to use the Uruguayan peso as this future universal patron. You won’t even have to change printed forms and computer programs because everybody can still use the prefix U$S.

23

It seems unlikely to me that we would attack NK simply because they decided to switch to Euros.

What difference does it make? North Korea doesn’t spend enough on oil (or anything else) to make much difference in the world economy.

So I don’t believe the author’s theory on why we would attack North Korea, especially since there is a much more convincing set of reasons (nuclear arms, a history of aggression against other countries, a horrific record on human rights, instable behavior by NK leadership, etc.).

Add to that the fact that the author blames the economic turmoil in Russia during the 90s, not on the breakup of the Soviet Union and the switch to capitalism, but on US economic policy, and that the author no longer considers Japan to be an ally of the US, and we have a theory that is not very well supported.

I would also like to see some support for the notion that an OPEC switch to Euros would lead to the kind of economic collapse in the US that the author predicates, and that the world (apart from the US, Canada, and Western Europe) is in depression.

Finally, some statements in the article - for instance:

are simply wrong.

Perhaps Mr. Frank is a good economist - I can’t tell. But I hope he isn’t basing his reputation on this article.

Regards,
Shodan

24

I just showed there is no need to hoard dollars at all and if any dollars are hoarded it is totally unrelated to what currency the contract is denominated in.

In other words, the link is only indirect and not direct as you think. In the measure in which a currency is considered stable and desirable it will used for hoarding (reserves) and for denominating contracts. But one is not consequence of the other. There is no causal relationship that I can see.

The Euro was used as a unit of count long before it existed as a paper currency. Companies were counting in Euros even though the Euro did not exist as something you could actually pay with.

In any case the article does not say denominating contracts in dollars has any effect. At least I cannot see it.

25

If you get to be Luthor, I get to be von Doom–the real one, not Kristoff or a robot.

26

sailor, have a look at the link to The Observer I posted.

27

While the theory US decisions to go to war is being driven by dollar weakness or strength is quite silly, the choice of currency denomination of contracts does have an effect on dollar holdings in the aggregate.

The fact much commerce is denominated in dollars does indeed effect overall dollar demand vis-a-vis all other currencies, as at some point all foreign dollar denominated currencies, ex-dollarized economies, are converted over. Thinking of situations I am more fam. with net settlements tracked by the CB show an aggregate demand for currency X (home country) versus currency Y (say dollar), the CB of country X will need to maintain the ability to buy or actually hold reserves in country Y currency in order to settle transactions or ensure FC liquidity in settling transactions.

Should all dollar denominated commerce be changed over to Euro, for example, that would have some effect on demand for the dollar and lead to a downward pressure (ceteris paribus) on $/FC ex rates - I mean a weakening. In turn this could make it more difficult to finance US deficits as US assets returns, ceteris paribus, would look less attractive.

Rather more important of course are net FDI into the US, and my instinct is, w/o bothering to look at any data, to think all the above is not as important as other demand drivers, for all that it probably is important on the margins in influencing $ ex rates in unstable periods.

28

North Korea is switching to the Euro? Heaven forfend. Of course, this completely misses the point that North Korea is probbly the most autarkic country on the planet. They have no trade with other countries. Nothing comes out, and the only thing that comes in is food aid and their extortion payments.

29

The previous threads (there may have been more):

The real reason US wants to invade Iraq (2/15)
The Euro: An unspoken reason for the war in Iraq? (2/21)
The Euro Effect: The Real Reason for the War in Iraq (3/24)

30

I think this is more a case of cause and effect. The dollar is used in contracts because it is strong and stable. The stregnth and stability have many factors that contribute to it. That it is used in oil contracts could be a part in the stability, but it would seem insignificant compared to money supply, overall economy, federal reserve actions, and tax policy.

That countries would switch to the euro says that people see the euro as also strong and stable.

Furthermore, several of the countries that you cite as switching to the euro have long been hostile to the US. It’s much more likely that they switched to the euro because they don’t like the US’s position toward them than the US starting a war because of some contract terms.

Especially because many in the US gov’t would like to see the stregnth of the dollar drop in order to boost manufacturing exports.

31

I don’t buy the argument that the US, or for that matter, any country with a strong currency, has a license “to print currency at will.” After all, if there was too much US currency in circulation, the net result would be inflation (I know there are other factors involved, but that’s a pretty straightforward cause-and-effect). And inflation would damage the US economy badly. High inflation would also wreck any chances Bush would have of being re-elected, so why risk it?

Furthermore, if the US $ is really in competition with the Euro for being the stable currency of choice, you would think that the US Treasury would be doing everything in its power to enforce that stability. The last thing that would do that would be to print it “at will.”

32

Well I got a question then. If the real reason for this war is that Iraq was the first middle eastern country to convert dollars to euros, where are the huge stashes of Euros?

We found a nearly a billion US dollar bills to be used in cases of extreme emergency by Saddam Regime loyalists, how come we didnt find any huge stashes of Euro dollars?

Someone please explain the economic significance of using one standard from the other when the 2 standards are inter-related. How is Iraq, a country under strict UN sanctions going to affect world markets or even US markets?

Heres a better rationale. All wars are based on economics. Forget the naive propaganda that wars are made to gain peace, save the women or remove a terrible despot. All very good reasons but nothing that would justify billions of dollars in expenditure and possible loss of life, credibility, respect and property. To go thru that much sacrifice, gains must be made. It is not an either peace or economic gain, its both and a great deal many others.

The US economy determines the value of the dollar (not Iraq) If the economy of the US is strong, so is the value of the dollar. Its is not so strong now so the value is not so strong either. What is slowing the US economy down is lack of consmer confidence. No one here wants to buy anything coz theyre afraid some terrorist will blow something up and screw up the economy again. Terrorism was quoted to be one of the main causes for the lack of consumer confidence. Granted it is not the only reason, just one of the main ones. Who is responsible for all this terrorism?

Well that OBL guy is still out there but we got most of his main buddies and we havent stopped looking for him. He’s so busy hiding that he cant effectively plan any more terror or organize well enuf to impliment any plan. We have our ear and eyes open for anything that may come from his way.

Who else?

Syria is mostly and exporter of terrorism to Israel. The Israelis have a handle on Assad. Let them work it out.

Saudi is a strange place. We both love and hate this country. Most of the international terrorists come from or thru this place but we treat this place as if they were the only arab friends we’ve got. Very strange…

Pakistan? working on that. :rolleyes:

Egypt is a loud and boisterous place of discontentment against the US. Funny thing is they dont seem to export much terrorism.

Iran is a prime target for the cause of anti-terrorism. Problem is that they have of late been moving into the moderate side and the US does not want to curtail what it believes is a progressive movement. Of course that nuclear reactor thing is bothersome and quite problematic.

That leaves good ol Saddam. Belligerant, arrogant, very anti-american, professed supporter of suicide bombers, and to his great misfortune the only viable anti-terrorist target. Why? because he is in non-compliance with a lot of UN resolutions stemming back to his little field trip into Kuwait.

So what are the gains to be made with a war in Iraq?
*Economic stability in the US (stability does not mean it was threatened but was impeded)
*Peace in this region which would mean prosperity for all US allies un this region which means a big potential market. We could drop the china market for this place.
*removal of a very real threat to US interests.
*set an example to terrorists throughout the world.
*liberate an arab nation (good PR)
*Political shift in favor of the US in the middle east. (need lotsa work for this one)
*Oil production will increase, lower oil prices, help US economy even more.

So what are the down side?
*France hates us (but they already did even before all of this)
*Lose credibility with Arab nations (not much there to lose)
*lose lives and property
*step on UN credibility
*might make region even more volatile

Big gains, small controllable risks. That is the real reason why the US attacked Saddam.

33

Fact checking the uninformed:

Syria supports Hizbullah and other proxy war actors, they’e not been active in the international field for quite a while. Their support for ‘terror’ is pure state versus status contest of power.

This is a bizarre mishmash of half-udnerstood facts. Most of the 11 September crews came from SA – a fact likely made by the ease in which SA nationals obtained visas up to that date, in comparision with other Arab nationals. An issue of work driven immigration.

There is nothing strange about US policy vis-a-vis KSA, the Ibn Saud have a long relationship with the USA and have been a moderating force in the oil markets. Until recently their theological base was viewed with aplomb, as in coop re Afghan war, as an anti-Left force. It was, of course, but with a price.

However, Gulf and SA nationals have not historically been personally involved in terror organizations.

Quite the contrary, Egyptian Ikhouan are the intellectual driving force behind al-Qaeda and allied organizations, and the influence and prestige of Egyptian Islamists is much greater than Saudi Wahhibism. Better intellectual pedigrees. Osama bin Laden himself was recruited by Egyptian Ikhouan.

The State is a compliant ally of the US, in a feeble and corrupt manner, but then that is half the problem.

Iran’s connexion is similar to Syria’s – litle recent signs of free lancing outside a narrowly defined realm.

The reactor is under international supervision and may or may not prove to be problematic.

Supporter of suicide bombings by Palestinians against Israelis, again within a defined realm. The terror angle is and always was an utter crock.

I won’t bother with your ‘analysis’ of risks and gains, other than to note it is as learned as your above characterizations.

34

Sailor , while you outline is OK up to that point, that’s not how settlement works.

It might work that way if both parties were using spot rates with the same bank and needed their own currency. (but when was the last time you heard of a bank using one fee earning transaction when it could charge for two?).

In most cases the purchaser buys the required USD at a time of their chosing (factors include the relative exchange rates and relative interest rates) and transfers the USD to the bank of the seller based on the payment terms. The seller may exchange the USD for their own (or other) currency, or they may hold the USD to use for their own purchases.

Working in a small trading company, to fund our purchases it’s not unusual for us to maintain USD1-2mil in our USD accounts (We also maintain Euro and Yen accounts). Mostly the currency is purchased, with exchange rate cover, at the time the transaction is agreed which is weeks, if not months before the date of settlement.

The Reserve Bank of Australia, like the other central banks maintains a substantial reserve of USD in much the same manner.

35

No, you did not “show”. You “said”, there is a difference between saying and “showing”. Well, I am not convinced, and apparently the banks are not either, else they wouldn’t buy billions of dollars to do transactions in dollars.

36

All you guys who think that Bush is this evil monster run amok with a war machine need to look at how the US works. There’s a thing called the Democratic Party that, while not having a majority in Congress, still has enough clout to thwart most anything Bush wants to do. So, you’d have to believe that not only are Bush’s Cabinet Members in on the “evil plan” but that the Democrats are as well.

Yeah, if Bush wants to declare the peacock the national bird, he might be able to get that to sail thru congress, but just look at the dificulty he’s having with his tax cut if you don’t think the Dems have any power.

37

Here is Paul Krugman’s take on this issue. Since Krugman is a very smart economist, is strongly against the Iraq war (see this excellent recent column by him), and no fan of Bush, to put it mildly, I would tend to trust his conclusion that “this particular conspiracy theory is wrong”.

Comment added in preview: John Mace - I think the fact that Bush has had as much success as he has with his crazy tax cut policies is actually evidence of how weak the Dems are and how narrow the political spectrum is. Clearly, it depends on you point of view!

38

Thanks, jshore. Good to see that Krugman agrees with my post in the second of SmackFu’s linked threads.

39

It is difficult to contradict your argument since you don’t have one but maybe you would care to point out where you think my example is wrong? Or are we just supposed to take your word for it?

Have you evr heard “correlation does not prove causality”? Do you know what it means?

BTW, the idea you propose is supported by only a small fringe. It does not enjoy any wide support, so it is up to you to defend it on its merits. Can you make a case for it which we can judge on its merits? So far you have shown nothing except a couple of articles which do not really support your position as much as you think.

Please explain your theory so we can better judge it.

40

jshore:

Bush got absolutely everything he wanted re: Iraq from congress. It’s unclear what he’s going to get on the “crazy” tax cut.

BTW, regardless of how much the gov’t cuts your taxes, you are free to send in more if you feel the tax cut was “crazy”. In fact, you are free to send in more even w/o a tax cut. Considereing that you could count the number of people who do this on one hand (with a few fingers missing), I have a hard time taking serious anyone who claims taxes are too low.