THE PETRODOLLAR SYSTEM: PART 2OUTLINE OF THE CONSEQUENCES OF THE PETRODOLLAR SYSTEM
We all know that the world has changed dramatically since 1971. However even few of the opponents of the now all powerful US Empire realize that most of what we have seen in the last 40 years can be traced back directly to the introduction of the Petrodollar system. In what follows we examine many of the consequences we all live with today. The topics to be discussed in Part 2 are:
1. Dominance of Banks and Finance Capital
2. The Dominance of Finance over Production of Things
3. Examples of Traditional Capitalism and the New Financial “Entrepreneurs”
4. The Dominance of Borrowing Over Saving
5. Marx and Classical Economics on Earned and Unearned Income
6. Is There a Return to Serfdom in the Capitalist World?
7. Dominance of US Banks Over Countries and their Leaders
8. The Change in Investment Strategies by International Investors
9. Rapid Concentration of Wealth
10. Global Push for Privatization
11. Global Push for Low Tax and Austerity
12. Global Push for “Trade” Agreements
13. Increase in Speculation
14. Speculation against Currencies as Economic Warfare
1. DOMINANCE OF BANKS AND FINANCE CAPITAL The huge supply of cash held by monopoly banks of the West is not invested in production but is used instead for creating financial “products”, assets that can be sold, such as securities, loans, bonds, options, futures and derivatives.
The aim of the banks is to turn the economic surplus of all countries into interest payments to the financial sector. The usual way we understand capitalism is that companies invest money in the production of things to make a profit. Much of what banks do now is quite different from this. They create financial “products” which they can sell to make a profit.
We will see that this is actually a drain on the capitalist part of the economy, the production of things. It also results in a push for privatizing public assets rather than more investment in the production of things.
2. THE DOMINANCE OF FINANCE OVER PRODUCTION OF THINGS
Every day we hear about the economy on our media. The focus of attention is always on the world of “finance”, the world of stocks, bonds, futures, currency trading, etc. This is the paper economy of the world of finance, the economy of “Wall Street”.
Of course there is another side of the economy that is not part of the financial system as such, called “Main Street”. This is the production of things to be used by you and me in our daily lives
. So the production of cars, tyres, wheat, bread, clothes, houses, roads, coal, steel, computers etc. make up the economy of things. These two are connected, because the ownership of the economy of things takes the form of the paper world of finance and related laws.
The huge supply of cash held by monopoly banks of the West is no longer invested in the production of things as it was earlier in the century. Rather it is used in creating financial “products”, such as securities, loans, bonds, options, futures and derivatives to be sold to investors. In the vastly expanded financial world created by the Petrodollar system, the financial markets have become more important for the wealthy than the older economy of industrial and agricultural production. The growth of the paper economy of finance is one of the main reasons that the wealthy have been able to increase their percentage of the national wealth since the 1970s.
Today the “success” or “failure” of our “economy” is measured by the money made by the corporations and banks. The media never tells us how many cars have been produced this year, how many houses have been built. Reports about the “economy” are only concerned with the profits of the banks or corporations. In other words, the focus of their reporting is on the world of finance. But who really cares about the world of finance? Only the people who have their money in the financial world. The more money they have, the more interest they have in how their money is going. And who has the most money invested in the world of finance? Only the very wealthy, the top 1%, or even the top 0.01%.3. EXAMPLES OF TRADITIONAL CAPITALISM AND THE NEW FINANCIAL “ENTREPRENEURS”
One of the best examples of a capitalist success story is Henry Ford. He built his first automobile in 1996 and helped to found at least two companies to manufacture automobiles, The Detroit Automobile Company and the Henry Ford Company. In 1902 he formed a partnership with Alexander Malcomson to produce automobiles, and this was later reincorporated as the Ford Motor Company. In 1908 the famous Model T was introduced and the rest is history.
Assembly line at Ford factory in Detroit 1913
Ford did not invent either the automobile or the assembly line method of production. His real “invention” was an approach to manufacturing automobiles: mass production of inexpensive goods coupled with high wages for workers. His commitment to systematically lowering costs resulted in many technical innovations. His cars were simple to drive, cheap to repair. They were relatively inexpensive and the price fell every year.(20)
An example of the newer type of “entrepreneur” is the Australian Alan Bond, who bankrolled several challenges for the America’s Cup, which his syndicate won in1983. His beginnings were just as humble as Henry Ford’s, but he began his success in property development. He later controlled the brewing company Castemaine Tooheys, and invested in gold mining, television and airships. In 1987, Bond paid $1 billion for the Channel Nine network from Kerry Packer.
What did Bond produce? He produced the Bond Corporation, a financial structure which sold shares to investors. The Bond Corporation used this money to acquire assets which in turn paid dividends to investors in Bond Corporation. It was no accident that Bond was interested in the America’s Cup. Racing yachts is the sport of bankers and through his contacts in this field he made useful contacts with bankers in New York that could lend him money for his takeovers. Bond is still revered in Australia as being a successful “entrepreneur”.
Bond Centre in Hong Kong
Built in 1887 and sold to Lippo Group in 1988
However Bond was not a traditional capitalist like Henry Ford. He used his access to loans as a way to cobble together a company whose only “product” was shares to be sold to investors. As often happens with such a company, in 1992 Bond was declared bankrupt after failing to repay a A$194 million personal guarantee on a loan. His debts reportedly totaled A$1.8 billion, but creditors only got A$0.005 per dollar. In 1997 he was sentenced to seven years in prison for using his controlling interest in Bell Resources to siphon off A$1.2 billion into the coffers of Bond Corporation.
4. THE DOMINANCE OF BORROWING OVER SAVING
There are two very different kinds of financial activity. This difference is conveniently ignored in the mass media. Both types of activity are aimed at using money to make more money in the paper economy of finance, but the methods are totally different. The more traditional kind of “making money” in finance involves buying and holding of shares of stock in a corporation in anticipation of income from dividends and capital gains, as the value of the stock rises.
To invest in this way one must save or otherwise accumulate money to purchase stock which pays dividends and might increase in value over time.
Since the introduction of the Petrodollar system there has been a massive increase in a very different technique described in financial jargon as leveraging, a US term, or gearing, in the UK and Australia. To make money by “leveraging” or “gearing” is to borrow money to buy an asset with the expectation that the price of the asset will gain more than the cost of the loan, making more money for the person borrowing the money.
So people are encouraged to borrow money to buy investments in the hope their value will rise. In Australia people are buy houses in this way, described in financial jargon as negative gearing.
As long as interest rates are low and prices keep going higher, all is well. But in fact these conditions are not certainties. If the price of the asset, like a house, falls, eventually the value of the asset will be less than the value of the loan. If interest rates rise, eventually the investor will have to pay out more than the asset is actually worth. In either case, the investor, but not the banks, will loose money. People have been allowed to forget that the Great Depression of 1929 was caused by the fall of assets bought with borrowed money. There is absolutely nothing to stop this happening again, and critics of the current financial system insist that it is only a matter of time until it does.
5. MARX AND CLASSICAL ECONOMICS ON EARNED AND UNEARNED INCOME
Michael Hudson has written about this significant change in our economy. Today we understand a countries’ national income as the Gross Domestic Product (GDP) which treats the income from finance, real estate and insurance in the same way as income from wages and industrial profits. Marx, as well as other major classical economists like Adam Smith and John Stuart Mill, considered the income from finance and real estate as unearned, compared with the earned income from wages and industrial profits,
profits made from making the things we use in our daily lives. Marx though that capitalism would remove the role of banks charging interest and landowners collecting rent. Hudson explains:“But history has not worked out the way Marx expected. He expected every class to act in its own class interest. That is the only way to reasonably project the future. The historical task and destiny of industrial capitalism, Marx wrote in the Communist Manifesto, was to free society from the ‘excrescences’ of interest and rent (mainly land and natural resource rent, along with monopoly rent) that industrial capitalism had inherited from medieval and even ancient society. These useless rentier charges on production are faux frais, costs that slow the accumulation of industrial capital. They do not stem from the production process, but are a legacy of the feudal warlords who conquered England and other European realms to found hereditary landed aristocracies. Financial overhead in the form of usury-capital is, to Marx, a legacy of the banking families that built up fortunes by war lending and usury.”
Hudson points out the way that power has been given to banks in virtue of the huge supply of money they get from Petrodollars. He also explains how the way money is tied up in financial “products” works as a drain on the workings of traditional capitalism, the production of things.“We can see in America and Europe how interest charges, stock buybacks, debt leveraging and other financial manoeuvrings eat into profits, deterring investment in plant and equipment by diverting revenue to economically empty financial operations. Marx called finance capital “imaginary” or “fictitious” to the extent that it does not stem from within the industrial economy, and because – in the end – its demands for payment cannot be met. Calling this financial accrual a “void form of capital.” It was fictitious because it consisted of bonds, mortgages, bank loans and other rentier claims on the means of production and the flow of wages, profit and tangible capital investment.”
In the examples given above, the money made by Henry Ford, a traditional capitalist, is earned income, while the money made by Alan Bond is unearned income. The difference between these to activities is not widely discussed because the “official” understanding of our economic system, devised in the 1960s and 1970s by the “Chicago School” of economics. This is a system of thought which deliberately hides both the simple realities explained by the classical economists and the dangers of an economy which rests on an ocean of debt. There are several other ways to understand our economy, but they are all now considered “old-fashioned” and discredited. Critics of our present economic system like Durden and Hudson work with a totally different, and in fact more traditional frameworks.
6. IS THERE A RETURN TO SURFDOM IN THE CAPITALIST WORLD?
In a capitalist society, traditional capitalists acquire a surplus from the sale of commodities their workers have made. Now, in addition to this, a surplus is taken from all people, not just workers, in the form of interest on loans and interest and profits from privatization, as well as the surplus from the monopoly pricing of oil. Many see this is a kind of serfdom where, as in medieval times, peasants had to supply a surplus to their lords simply because the lord was deemed to own the land. The lords had to do nothing in return. This is why they could build elaborate castles and churches and make expensive weapons used to fight each other for land. Toyota produces cars we drive around in. What do banks produce? They give us little plastic cards that make it very easy to get a loan from a bank, usually at a rather high rate of interest. The only “work” they have to do is run a complex computer system to keep track of these loans and interest payments. Banking, not singing rock music, is the perfect example of money for nothing.
In fact traditional capitalists are actually threatened by this financial system unless they are in the position of being monopolies and can dominate the market. What bank is going to take a risk on a new enterprise producing things when they can put their money into low risk loans like housing or those involved in privatization? 7. DOMINANCE OF US BANKS OVER COUNTRIES AND THEIR LEADERS
In 1970 the US was not only broke and divided, but it was isolated from Europe, USSR and China. When China became capitalist and the USSR broke up into many smaller countries, this allowed the US to increase their influence in these countries. But the introduction of the Petrodollar system shaped the US relations with all other countries. The new system was first applied to Chile after the brutal coup by General Pinochet in September 1973. The economic “reforms” the new government introduced were based on the ideas of Milton Friedman and the Chicago School. These “reforms” included privatizing all industries nationalized by former President Allende, privatizing the social security system, and opening up assents to US investors. As explained by AA these changes were “part of a global trend, as investors everywhere felt shackled by the old statist model of development” which encouraged the local production of goods and import substitution.(25a)
General Pinochet meets his supporter Henry Kissinger in 1976
For some time "world leaders" praised the changes Pinochet introduced:
"Initially the economic reforms were internationally praised. Milton Friedman wrote in his Newsweek column on 25. January 1982 about the Miracle of Chile. British Prime Minister Margaret Thatcher credited Pinochet with bringing about a thriving, free-enterprise economy, while at the same time downplaying the junta's human rights record, condemning an 'organized international Left who are bent on revenge.'"
However in the last 30 years most commentators have see the changes as a disaster for Chile. Consider the following graph which compares the rates of growth in Chile with the average growth in South American countries from 1971 to 2007. (The rate for Chile is in red.) Using this standard measure of economic success - the growth rate of a country - Chile performed below the regional average. Pinochet's human rights performance was even worse. More than 3000 people were killed and over 30,000 imprisoned and tortured.
The US gained control over other Anglo-Saxon countries and Europe through absorbing or taking over the major banks in these countries. The leaders of these countries were already close to the US in any case, but the creation of the European Union and its banking and currency system tightened the grip of the US banks on European banks and shifted economic policy toward tax cuts, austerity and privatization.
The disaster which just overtook Greece was set up by its own politicians and major US banks. The trap into which Greece fell was put into place years ago. The current situation in Europe is described rather graphically by Peter Koenig, an economist and geopolitical analyst. He was also on the staff of the World Bank and has worked extensively around the world in the fields of environment and water resources.“Europe has been ‘bought’, coerced and manipulated into this humiliation. The European Union is a sham. The European Commission is a deceit. There is not one non-neoliberal country in the entire 28 member European non-union. How is this possible? – A uniform world view whether your label is ‘right’ or ‘left’ – all meaningless.“Universal election fraud is presented on a silver platter like the severed head of democracy, but nobody wants to see it. It’s like admiring the emperor’s wonderful clothes, not wanting to admit that he is stark naked. We keep talking about democratic elections. Nonsense. There is no democracy anymore as it was crafted 2500 years ago by the minds of the philosophers of Delphi in ancient Greece. Most all and everybody in our western world is buyable. Rare is the politician who isn’t. He won’t last. Money reigns.”
The recent NATO military adventures are another consequence of the tight grip of the US banks over these once independent countries. All the “old” imperialist powers, Spain, the Dutch Republic, the UK, Italy, Germany, France and Japan have now been united under the control of the US Empire. They no longer fight each other as they have for hundreds of years. They now work together as US puppets to control much of the modern world
. This is the New World Order.
8. THE CHANGE IN INVESTMENT STRATEGIES BY INTERNATIONAL INVESTORS:
After World War II, the victors not only sat down together to create an international finance system based on the value of the US dollar being pegged to gold. They also mapped out the investment strategy for the Free World in the face of the devastation created by the war. As explained by AA the policy of US investors at the time was“…to encourage regimes to develop and industrial base and a prosperous middle class that could sustain stable political authority without creating an opening for leftist movements. (…) The prevailing orthodoxy was that national states could intervene extensively in economic affairs to support and develop productive industry.”
(27) “US investors wanted countries to replace imported goods by goods made in individual countries, which meant that each country would increase their domestic industries.”
(28)The history of Australia after World War II provides an excellent example of this policy.
Many companies, often connected to similar companies overseas began to produce cars, televisions, refrigerators and all manner of consumer items. However AA notes that in the 1970s, when the Petrodollar system was established, US investors changed their policies. They wanted to get rid of import substitution and local manufacturing. US economic aid and IMF loans were now to be used as levers to force countries to open up their economies to global markets...
(29) Current government policies by all major parties now follow this new directive from Wall Street.
Rather than supporting local manufacturers in Australia, it appears the current government couldn’t get rid of them fast enough. Of course the politicians, like the bankers in New York, don’t worry about where the sacked workers will find another job. And if they do find another job, perhaps they won’t be so hostile to the new, lower rates of pay.Other changes demanded by banks included privatization, subsidy cuts, public sector wage-freezes, and deregulation, known as “structural adjustment”.
(30) Countries are now expected to develop export oriented industries instead of import replacement.
This too would sound familiar to Australians. As we have seen, US investors began to use debt as a mechanism to incorporate countries into the global economy, and policies contrary to the interests of US investors could be 'punished' by capital flight, or ruled out of bounds by global institutions.(31) The result of these new policies is explained by AA as follows:
“South America serves as a good example of how the US uses economic ‘force’ to get what their investors want. Big US banks made many significant loans to South American countries in the 1970s. Then the Federal Reserve Chairman Paul Volker decided to make significant increases in interest rates. As a result most Latin American export income was consumed by debt repayments, leaving the region dependent on bailouts from the IMF. However the IMF attached conditions to these bailouts including ‘structural adjustments’ like those used on Chile under Pinochet. The prescriptions of the IMF involved the by now familiar mix of privatization, subsidy cuts, wage restraint, and consummation of the long-term transition to ‘export-led growth’, in which domestic consumption was suppressed so that goods could be produced for export."
Many people in countries like Australia might think policies like privatization, cuts in government support (subsidies) for pensioners, health care and education, wage restraint and a push for export-led growth are new. They are of course new to us, but they have been the policies of international investors and the IMF for the last 40 years.
They have been forced on countries for decades, and now they have arrived in Australia, supported by all major parties.
As Koenig explained above, whether the political label of “your” party is ‘right’ or ‘left’, the policies are the same. Every government and every party must have the policies which maximize the profits for international investors.
9. RAPID CONCENTRATION OF WEALTH
There has been a rapid concentration of wealth in the last 30 years. In 2014 Oxfam revealed that some 85 of the world’s richest people now had as much wealth as the poorest half of humanity. A few weeks later after this report was published, Forbes magazine updated that estimate to just 67 people. Then, within days, they corrected that estimate on their website to 66 people.(33) In Australia, the top 1% earned 4.8% of the country’s income in 1980. Their share of the countries’ income doubled and grew to more than 9% by 2010.(34)
From a 2013 report by Oxfam:“Over the last thirty years inequality has grown dramatically in many countries. In the US the share of national income going to the top 1% has doubled since 1980 from 10 to 20%. For the top 0.01% it has quadrupled to levels never seen before. (…) This is not confined to the US, or indeed to rich countries. In the UK inequality is rapidly returning to levels not seen since the time of Charles Dickens. In China the top 10% now take home nearly 60% of the income. Chinese inequality levels are now similar to those in South Africa, which are now the most unequal country on earth and significantly more unequal than at the end of apartheid.”
This concentration of wealth comes from the power of the investors in the financial system.
Through access to very large loans, one corporation can buy out, and therefore own, many smaller companies. Over time, fewer and fewer people own a larger share of existing corporations. The chart below shows how 37 separate US banks in 1996 were reduced to 4 in 2009.
There has been a similar concentration in the ownership of media outlets in the US:
However nothing new is created other than bigger and bigger corporations, like the Bond Corporation. The system drains wealth from ordinary people and concentrates it in the hands of investors. This process has been facilitated by politicians in all parties and has resulted in increased speculation, corruption, low tax and austerity policies, privatization, and bogus “trade” agreements.
In the first graph given below we see the percentage of the national income of the US which came from the financial industry as a proportion of the national income, the GDP, for the last 150 years. The first peak us just before the stock market crash of 1929. It falls until the end of World War II and increases slowly until the 1980s when it rises much more quickly into higher levels than ever seen before. In the second graph we see the change in the levels of income inequality in the Anglo-Saxon world, where the largest banks are located. The share of the wealth held by the top 1% in these countries fell from the beginning of World War II until the 1970’s when it began increasing in a trend which still continues today.
Share of US GDP from finance vs
share of US wealth held by top 1% over last 100 years.
Clearly as the wealth of the top 1% increases, there is a concentration of a countries’ wealth in fewer and fewer hands. These graphs also show that the increasing wealth of the 1% since the 1970s is due in large part to the growth of the financial sector, the paper economy. Remember that traditional manufacturing has declined in all these countries over the same period. The increasing wealth of the 1% does not come from the production of things via capitalism, but the use of the financial system to turn money directly into more money while producing nothing for the Main Street economy we live in.10. GLOBAL PUSH FOR PRIVATIZATION
There has been a tsunami of privatization of public assets around the world. Some of the things privatized include, banks, rail networks, electricity generation, water and sewerage supplies, telephone companies, as well as a range of activities usually performed by the government, such as running prisons, dealing with the unemployed or disadvantaged, or constructing roads and bridges.
Much has been written about the advantages or disadvantages of privatization, but the focus here will be simply on the role of banks in this process. Suppose a country wants to privatize an electricity generation system. Who are they going to sell or lease it to?
Is there anyone on your street, in your suburb, or even in your country who has this kind of money? Of course not. A company may be formed to make a bid, but they must first obtain large loans from banks. How many banks can provide money for such a loan? Only the biggest in New York, London, Germany, or Japan. If they make such a loan, they will demand interest be paid. Second, the people who organize the bid will take money for putting together the offer, and the company created will need to make their own profit as well. Whether the new privatized company delivers better service or not, whether the costs to the consumer fall or rise, the company will make its profit and the banks will get their interest. This is definitely a win for investors. For big banks, privatization is a perfect example of money for nothing.
Banks also play a central role in forcing countries to privatize public services. While countries in the West already have a water and sewerage system in place, many third world countries do not. "Countries faced with large debts are forced by the World Bank and IMF to privatize water. Water deregulation is a common demand of the World Bank and IMF as part of their loan conditions. In 2000, out of 40 IMF loans distributed through the International Finance Corporation, 12 had requirements of partial or full privatization of water supplies. They also insisted on the creation of policies to stimulate “full cost recovery” and the elimination of subsidies. "
The following chart shows that countries which approach the World Bank or the IMF for loans to improve the supply of clean water to their citizens have been increasingly forced to accept privatization. In Ghana, the World Bank and IMF policies insisted that water be sold at market rates, so the poor had to spend up to 50 percent of their earnings on water purchases.(36b)Privatization is one of the reasons Michael Hudson sees the world sliding into a 21st century version of serfdom. Like the medieval lords, the big banks skim money from every transaction of a privatized service.
So when you pay your water bill, your electricity bill, you phone bill, some of each payment will go the big banks that made the loans necessary for privatization. Hudson also points out that the economic advances made by the leading industrial nations of the West came from their policy of government-owned infrastructure. "Government-owned infrastructure provides basic services at low cost, on a subsidized basis, or freely. That is what has made the United States, Germany and other industrial lead nations so competitive over the past few centuries. But this positive role of government is no longer possible under World Bank/IMF policy."
In other words, when major Western investors demand developing countries establish privatized rather than public, government owned infrastructure, they are actually holding back their development. This is why third world countries need to be forced to privatize. They know that this policy is not in their best interest. Privatization adds interest rates and other financial charges to the basic cost of the facility, and privatized companies have a history of charging prices as high as the market can bear.
As examples he cites Carlos Slim’s telephone monopoly in Mexico and the high costs of America’s health care system. And we noted above that in Ghana the price of water was pushed to absurd levels. This is the reality of privatization throughout the world today.
11. GLOBAL PUSH FOR LOW TAX AND AUSTERITY
Slowly, since 1971, the economic policies of the international investors codified by the IMF called the “Washington Consensus” has been compulsory policy for any politician in the West who hopes to enter the parliaments of our democratic system. All must adhere to the dictum of Margaret Thatcher: There Is No Alternative (TINA). This in effect says that no further discussion of these policies is allowed. Talking about alternatives is forbidden. The people who benefit from these policies of course accept this, but should the rest of us?
Most of these austerity policies will be recognized as the kinds of demands made by politicians in all Western countries today. In fact no politicians in any Western country can resist promoting these policies because the banks and the representatives of the US Empire like the IMF enforces them:
1. cut spending on education and health,
2. introduce "user fees" for health and education (user pays),
3. increase the price of public services,
4. reduce government borrowing and debt levels,
5. demand higher taxes on ordinary people and lower government spending,
6. cut the government bureaucracy,
7. use private capital for the development of infrastructure like roads, airports,
8. remove trade and investment rules,
9. promote export-orientated and resource extraction industries instead of industries which primarily serve domestic markets,
10. provide tax breaks and subsidies to export industries,
11. remove tariffs and allow failing firms to go bankrupt,
12. deregulate financial intuitions,
13. privatize national assets like electricity, water, transport, telecommunications,
14. freeze or reduce wages.(36d)What these policies all have in common is that they increase the profitability of investments in the countries that adopt them.
There are many ways government can be forced to adopt these policies by the banks. If a country or state has a loan, this loan has a credit rating set by the three main agencies: Moody’s, S&P, and Fitch. Each has a somewhat different system, but at the top of the rating are “prime” or ‘high grade” loans, and the bottom has ratings like “highly speculative” and “default imminent”. The problem is that recent events have shown that these ratings agencies are actually owned by the big banks themselves, and the agencies are not immune from pressure from the US government. Before the 2008 crash the ratings agencies were giving high ratings for what turned out to be “sub-prime” investments based on home mortgages for people who were known to be unable to pay them. Such investments should have been rated as “substantial risks” but then who would buy them? In the same way, a government that did not do what investors want can have the ratings of their loans downgraded, which means that the interest the government needs to pay will increase.
There is no review or appeal against these judgments, as investors take them to be gospel truth.
12. GLOBAL PUSH FOR “TRADE” AGREEMENTS
The wave of “trade” agreements sweeping the West allow for the complete subordination of the governments who adopt them to the demands of the largest multinationals in the West. Some examples include the TPP (Trans-Pacific Partnership) and the TAFTA (Trans-Atlantic Free Trade Area). While they are called "free trade" agreements, the deal with much more than simple trade issues. One central feature of these agreements is the introduction of the Investor-State Dispute System (ISDS) in which corporations can challenge laws and decisions of individual states, but states cannot use this system to challenge actions of corporations.
Instead of convincing or bribing politicians in the West to facilitate their investment plans, agreements like the TPP mean that the companies can simply challenge any political decision or policy using their own brand of “kangaroo” court, in which they write the rules and make all decisions. These agreements amount to enforced deregulation. “Market forces”, that is, the profits of the multinationals, determine what will happen and what will not happen. Why do individual countries accept these agreements so quietly? Behind the agreements stand the monopoly banks. They can speculate against a countries currency, withdraw their investment, raise interest rates, downgrade credit ratings and refuse loans. There Is No Choice for Western governments, even if they wanted to reject them. Of course they are not going to explain this to the voters,
as it would reveal that they are not representatives of the people but puppets who represent the big banks. As in the case of privatization discussed above, the biggest banks have the power to make individual countries accept policies which are a disaster for their citizens. Only countries who are under the control of these banks would enter into these harmful "trade" agreements.
13. INCREASE IN SPECULATION
In the last 30 years there has been a massive increase in speculation on financial instruments such as foreign exchange, stocks, bonds, and commodities like oil, wheat, etc. Speculation is the practice of engaging in risky financial transactions in an attempt to profit from fluctuations in the market value of an asset.
The way to make a profit is simple: Buy low. Sell high. The focus of such speculation is in the area of futures trading. In futures trading a contract is made between two parties to buy or sell an asset for a price agreed upon today, the futures price, with delivery and payment occurring at a future point, the delivery date.
The original use of futures contracts was to mitigate the risk of changes in the price of agricultural products or exchange rate movements by allowing parties to fix prices or exchange rates in advance for future transactions. For a century after organized futures exchanges were founded in the mid-19th century, all futures trading was solely based on agricultural commodities. However since the introduction of the Petrodollar system most of trading on the futures markets is in financial futures contracts—based on such things as interest rates, currencies, or equity indices.(37) The following graphic shows how the huge volume of cash coming to banks from the Petrodollar system since 1973 has changed the nature of futures trading. In 1970 more than 75% of futures contracts were for agricultural products. By 2004, about 75% of such contracts were for financial instruments.
Change in the nature of futures trading from 1970 to 2004.
The massive increase in futures trading has two important consequences. First, a futures contract is in effect a gamble or bet. Now Billions of dollars are tied up in such bets, which is why our current economic system is called a casino.
This is one of the ways that money is used for the “paper” economy rather than productive economic activity. Further, such speculation can be used for manipulation of the price of the asset. This is a form of corruption.
A market for anything is only “fair” if it is properly regulated, but now the name of the game is deregulation.
14. SPECULATION AGAINST CURRENCIES AS ECONOMIC WARFARE
One of the many consequences of the Petrodollar system has been the phenomenal growth and acceptance of speculation against individual countries. One analyst has coined the term "monetary terrorism" for these attacks. Two features of the Petrodollar system make these attacks possible. When the US abandoned the gold standard most other currencies followed suit. This means that the value of each currency is not fixed but "floated", so its value is determined by foreign-exchange market mechanisms. Thus the action of the US to "float" the US dollar forced other countries to "float" their currencies as well.
The other feature of the new system which facilitates speculation is the buckets of cash in the Western banks. One of the simplest ways to attack a currency uses the method of "short selling". The key element in "short selling" is that speculators can sell a currency they do not own but agree to buy at a later time. If the currency falls in value, then speculators make a profit, because they had sold short the currency at a high price, but can repurchase at a lower price.
(38) This is of course a gamble, since the speculators will incur a loss if the currency rises in value. However if a large amount of the currency is "sold" in this way, it can itself influence the market and cause the value to fall.
If speculators see a time when a currency might be coming under threat their actions can precipitate a fall in its value. After the Wall Street crash in 1929 short selling in a falling market was made illegal in the US. However on 3 July 2007 this restriction was removed by the Securities and Exchange Commission.
In a famous example, George Soros became notorious for "breaking the Bank of England" on Black Wednesday of 1992, when he sold short more than $10 billion worth of pounds sterling. He is said to have made £1 billion profit on this occasion. In December 2015 Soros was the 25th richest person in the world. He is a perfect example of the useless parasites that have grown fat from the Petrodollar system. Only a society which considers the accumulation of money as the greatest human achievement could consider such people respectable.
Floating exchange rates for national currencies and a huge supply of cash that can be loaned to speculators has"lead to phenomenal growth in speculation against international currencies, which later led to massive economic and social crises in various countries that were speculated against. Examples include the Mexican Peso crisis of 1994-95, the Asian financial crisis of the late 1990s, followed by the Russian ruble crisis. Since the death of the gold standard and the floating of most major currencies we have seen currency speculation increase to an astonishing 98% of all international transactions. This means that "real economic" transactions account for a mere 2% of international transactions, and we truly live in the midst of a global casino."
(40)THE PETRODOLLAR SYSTEM: PART 3
15. Bank Fraud before 2008 Was Punished
16. Crime and Corruption in 2008 with No Penalties
17. Petrodollar System a Disaster for 3rd World
18. Huge US Military Build-up
19. Energy Wars: Unocal Pipelines through Afghanistan
20. Energy Wars: Pipelines through Syria
21. Energy Wars: Iraq Challenges the Petrodollar System
22. Energy Wars: Petrodollars and Libya
23. The Financial Battle Between the US Empire and Russia and China: Can there be an Alternative to the Dollar as a Reserve Currency?THE PETRODOLLAR SYSTEM: APPENDIX
A1. Multinational Oil Companies and OPEC Agree to Fix World Oil Prices and Oil
A2. Who Are the Winners in this New System of Petrodollars?
A3. “Australian” Banks Are a Foreign-Owned MonopolyFootnotes:
25a. The WikiLeaks Files
(TWF), London, Verso Books, 2015, p. 69.
27. TWF p. 50.
28. TWF pp. 42-43.
29. TWF p. 45.
30. TWF p. 47.
31. TWF p. 53.
32. TWF p. 59.
36d. Some sources on problems with the IMF are: http://www.economicshelp.org/blog/glossary/imf-criticism/
40. Smithy, Wizards of Money
, 1999-2002, Ch. 5. Monetary Terrorism, http://www.robinupton.com/people/WizardsOfMoney/
, quoted in https://wikispooks.com/wiki/Petrodollar;