The worst has yet to come - Part 2
By Chris Clancy
Let's continue the story with yet another quote from Marin Katusa, not only someone who knows what he's talking about, but someone who can actually write:
This was not only the first direct revolt against the petrodollar system but also something which started a ball rolling:
When the invasion did happen, the reason given was Saddam's alleged possession of Weapons of Mass Destruction.
As we all know now, this was a complete fabrication. In reality, the invasion was supposed to accomplish two things. First, to undo any damage done to the petrodollar system; and second, to act as a deterrent to others who tried to break away.
As things turned out it failed in both respects. It was too late. The cat was out of the bag..
The next four quotes come from this article.
This challenge was far more dangerous than the first. Had he been allowed to go ahead the USD would almost certainly have collapsed. Like Saddam he also got the treatment – only this time it was far more swift – and far more brutal. The excuse for the intervention was another lie – i.e. "humanitarian" reasons – go here for the background.
The third challenge actually started in 2003 - when Iran announced its intention to abandon the petrodollar system - and has been ongoing ever since.
One cannot help being cynical about the timing of the sanctions and the reason given – Iran's nuclear ambitions.
Be this as it may, the history of sanctions is that they never work as planned – if at all. Those against Iran will go the same way. Further, there's little doubt that many other countries will be encouraged to also find other ways of paying for their oil.
Which brings us to something else which has been going on increasingly over the previous ten years or so.
I refer to the growth in "currency swap" agreements – especially in the last two years. Not only a quicker and cheaper method of doing things but also a way out of America's stranglehold on international trade and everything else to do with the USD.
This trend is not going to change. Which brings us to the heart of the matter.
The only thing which keeps the American economy going is debt. The only thing which attracts lenders is the strong dollar. The only reason for the strong dollar is the petrodollar system.
As demand for the USD drops, the government won't receive enough money to pay all its bills, interest rates start to rise and then all sorts of horrible things begin to happen.
That the dollar will collapse is inevitable. But what will it mean?
Marin Katusa, ending on an optimistic note, does not consider its demise will be such a disaster. As I've already stolen so much from him in this essay I see no reason to stop now.
So here's some more:
The key point in this quote is where he writes about, "a slow but sure decimation of the dollar". If this indeed is what happens we are left with some hope – not much – but at least a glimmer that the road ahead will not be quite so bad.
However, if this is not what happens – and the dollar collapse is sudden – then the future is grim.
And there's no way of sugar-coating it.
But, as mentioned, there is still a glimmer of hope.
To understand what and why, we need to take a few steps back in time; to something which happened back in the 1980s – on September 22nd 1985 to be precise - in the Plaza Hotel in New York City.
Chris Clancy lived in China for seven years. Most of this time was spent as associate professor of financial accounting at Zhongnan University of Economics and Law in Wuhan City, Hubei Province. He now lives in Thailand where he spends his time reading, writing, lecturing and, whenever he gets the chance, doing his level best to spread Austrian economics.