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Iran's Oil Bourse Will Not Be In Euros

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I will keep details sketchy as I don't want to give clues to who I am, but I spoke to a very senior official from Iran's oil ministry today, who told me that the oil bourse will not trade in euros after all. Iranian petroleum bourse is not going to exclusively deal with euros, but at least the option for every trader to act in any currencies they so wish.

Now if you know anything about trading you will know this will not fly.

Oh yeah, and it's meant to be open by the end of the year, "inshallah" (God willing). I wouldn't hold my breath.

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Guest Riser

The story about the Iranian oil bourse has been rumbling on for quite a few months, one question would be who would want to invest in a country that is run by an extremist religious nutter and which is likely to be bombed by Israel in the next few months. I know they have the backing of Russia and China but would you feel confident that your investment would not get tangled up in some form of sanctions. It could be argued that Bush is no less extremist but for the present investors appear to prepared to take him on his word that he will honor the Dollar.

Perhaps a more interesting threat to the reserve status of the dollar will come from the opening of a Norwegen (I think) oil bourse that will deal in Euros. There is also a question of how the back room deals on future oil supplies that China and Russia are doing with Iran will affect future oil supply.

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It'll be in Rubles or Euro's, certainly NOT dollars. Bush and his henchmen & woman will stop at nothing to prevent it happening.....nothing. Even the West are being persuaded behind the scenes that if they do not stop the Iranian Oil Bourse there will be a world financial meltdown, which is a good thing IMO if it ****'s this American administration in the ass and brings its people to its senses. Remember Germanys opposition to the Iraq war?? They are not to concerned about hitting the Iranians this time it seems. This whole Iranian war stinks to high heaven. Who bothered when India and Pakistan started letting off nuclear weapons?? Who?? They were not selling oil in Euro's, unlike Saddam, an unsavoury character it must be said, but who didn't fly airliners into buildings. Come to think of it, what happened to catching the real villains of 911?? Did the moron Bush forget??

Vladimir Putin and the rise of the petro-ruble

“If one day the world’s largest oil producers demanded euros for their barrels, it would be the financial equivalent of a nuclear strike”. Bill O’ Grady, A.G. Edwards

On May 10, Russian President Vladimir Putin ignited a firestorm that is bound to sweep across the global economy. In his State of the Nation speech to parliament,, he announced that Russia was planning to make the ruble “internationally convertible” so that it could be used in oil and natural gas transactions. Presently, oil is denominated exclusively in dollars and sold through the New York Mercantile Exchange (NYMX) or the London Petroleum Exchange (LPE) both owned by American investors. If Russia proceeds with its plan, the ruble will go nose to nose with the dollar on the open market sending several billions of surplus greenbacks back to the United States. This could potentially send the American economy into freefall; triggering a deep recession and an extended period of hyper-inflation.

“The ruble must become a more widespread means of international transactions,” Putin said. “To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in rubles."

Currently, the central banks around the world carry large stockpiles of dollars to use in their purchases of oil. This gives the US a virtual monopoly on oil transactions. It also forces reluctant nations to continue using the dollar even though it is currently underwritten by $8.4 trillion national debt.

Putin’s plan is similar to that of Iran, which announced that it would open an oil-bourse (oil exchange) on Kish Island in two months. The bourse would allow oil transactions to be made in petro-euros, thus discarding the dollar. The Bush administration’s belligerence has intensified considerably since Iran made its intentions clear. In fact, just yesterday, Secretary of State Condi Rice said that “security guarantees were not on the table” regardless of any Iranian commitment to stop enriching uranium. In other words, Washington will not provide Iran a “non-aggression pact” whether it follows UN Security Council guidelines or not.

Surely, this is a sign that Uncle Sam is on a fast-track to war.

The United States must protect its dollar-monopoly in the oil trade or it will lose the advantage of being the world’s “reserve currency”. As the reserve currency, the US can maintain its towering $8.4 trillion national debt and $800 billion trade deficit without fear of soaring interest rates or hyper-inflation. Trillions of greenbacks are constantly circulating in oil transactions just as hundreds of billions are stockpiled in foreign banks. In effect, the Federal Reserve is issuing bad checks with every dollar printed on the assumption that they will never reach the bank for collection. So far, they’ve been right, and as the price of oil continues to skyrocket, the Fed just keeps cheerily printing more worthless paper sending it to the 4 corners of the earth. Regrettably, if Russia or Iran goes ahead with their conversion plan, then the bad checks will flood back to their source and precipitate a meltdown.

America’s economic supremacy depends entirely on its ability to compel nations to make their energy acquisitions in greenbacks. If the flaccid dollar is not linked to the world’s most vital resource, then banks will dump it overnight. This extortion-racket is the system we are defending in Iraq, not “democracy”. It is a huckster’s scam designed to perpetuate American debt by forcing worthless currency on the developing world.

In a recent article by Dave Kimble, “Collapse of the petrodollar looming”, the author provides the details of Russia’s importance to the world oil market.

“Russia's oil exports represent 15.2% of the world's export trade in oil, making it a much more significant player than Iran, with 5.8% of export volumes. Russia also produces 25.8% of the world's gas exports, while Iran is still only entering this market as an exporter…. Venezuela has 5.4% of the export market.”

Obviously, it is not in Russia’s interest to trade with its European partners in dollars any more than it would be for the US to trade with Canada in rubles. Putin can strengthen the Russian economy and improve Russia’s prestige in the world as an energy superpower by transitioning to rubles. But, will Washington allow him to succeed?

A growing number of nations are now focusing on the empire’s Achilles’ heel, the dollar. Venezuela, Russia, Norway and Iran are all threatening to move away from the greenback. Is this a spontaneous uprising or is it a new type of asymmetrical warfare?

Whatever it is, Washington is bound to be reeling from the affects. After all, war maybe possible with Iran or Venezuela, but what about Russia? Would Bush be stupid enough to risk nuclear Armageddon to protect the drooping dollar?

The administration is exploring all of its options and is developing a strategy to crush Putin’s rebellion. (This may explain why Newsweek editor and undeclared spokesman for the Council on Foreign Relations (CFR), Fareed Zacharia, asked his guest on this week’s “Foreign Exchange” whether he thought Putin could be “assassinated”?!? Hmmm? I wonder if we’ll hear similar sentiments from Tom Friedman this week?)

The Council on Foreign Relations (CFR), the secretive organization of 4,400 American elites from industry, finance, politics, media and the military (who operate the machinery of state behind the mask of democracy) has already issued a tersely worded attack on Putin (“Russia’ Wrong Direction”; Manila Times) outlining what is expected for Russia to conform to American standards of conduct. The missive says that Russia is headed in “the wrong direction” and that “a strategic partnership no longer seems possible”. The article reiterates the usual canards that Putin is becoming more “authoritarian” and “presiding over the rollback of Russian democracy”. (No mention of flourishing democracy in Saudi Arabia or Uzbekistan?) The CFR cites Putin’s resistance to “US and NATO military access to Central Asian bases” (which are a dagger put to Moscow’s throat) the banishing of Washington’s “regime change” NGOs from operating freely in Russia (“Freedom Support Act funds”) and Russia’s continued support for Iran’s “peaceful” development of nuclear energy.

America has never been a friend to Russia. It took full advantage of the confusion following the fall of the Soviet Union and used it to apply its neoliberal policies which destroyed the ruble, crushed the economy, and transferred the vast resources of the state to a handful of corrupt oligarchs. Putin single-handedly, put Russia back on solid footing; taking back Yukos from the venal Khordukovsky and addressing the pressing issues of unemployment and poverty-reduction. He is a fierce nationalist who enjoys a 72% approval rating and does not need the advice of the Bush administration or the CFR on the best path forward for his country.

The US has purposely strained relations with Russia by putting more military bases in Central Asia, feeding the turmoil in Chechnya, isolating Russia from its European neighbors, and directly intervening in its elections.

When the G-8 summit takes place next week, we should expect a full-throated attack from the corporate media on Putin as the latest incarnation of Adolph Hitler. Watch the fur fly as the forth estate descends on its newest victim like feral hounds to carrion. (Putin’s announcement that Russia would be converting to rubles HAS NOT APPEARED IN ANY WESTERN MEDIA. Like the Downing Street Memo, the firebombing of Falluja, or the “rigged” 2004 elections, the western “free press” scrupulously avoids any topic that may shed light on the real machinations of the US government)

Putin’s challenge to the dollar is the first salvo in a guerilla war that will end with the crash of the greenback and the restoration of parity among the nations of the world. It represents a tacit rejection of a system that requires coercion, torture and endless war to uphold its global dominance. When the dollar begins its inevitable decline, the global-economic paradigm will shift, the American war machine will grind to a halt, and the soldiers will come home. Maybe, then we can rebuild the republic according to the lost values of human rights and the rule of law.

Putin’s plan is set to go into effect on June 8, 2006

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What it’s still not open ! I think it was supposed to be up and running by march 2006 so what’s stopping it because I want to buy my petrol in euros so GW-Bush does not get a boost

Once a large supply of oil can be obtained without propping up the USD$, then America is done for and they know it and that one of the lesser reasons Bush pulled off the 9/11 and we are now all paying the price.

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Vladimir Illyich Putin is an ambitious man and seeks to restore the glory days of the Soviet Empire. Gorbachev lost the Cold War and had to let go of East Europe but Putin will seek to re-establish hegemony through power over fuel supplies. IN order to do this he must control the Arab supplies and make friends of the Muslim nations with whom the Russians have been battlign for decades in Afghanistan and Chechnya.

Make no mistake about it, the re-emerging power of the Soviet regime is not a friend to the West. Joseph Stalin's dream of subjugating Europe through control of oil and the Arab supplies is still on the table. Putin is busy crushing the "mafia" in his own country by confiscating assets and rebuilding the KGB of which he was a former high ranking officer. Unfortunately for him, Russia no longer has East Germany who provided the best secret police force in the world--the successors to the Gestapo--the Stasi.

Germany is conscieous of the growing power of Russia and they will no more trust their historic enemy than to remain with the Euro if it is not in their own interests. The old alliances are reforming and buffer zones are being re-established. Russia sees the Arab nations as their buffer zones and they need to overcome their anti-Muslim bias in order to draw Iran and other nations into the net. By offering Iran nuclear weapons and up-to-date missile systems they will establish excellent allies against the interests of the West.

My view is that the "West" will have to build its own buffer with Germany-Japan and the US/UK to counter the re-emerging power of the Soviet Bloc and its Arab buffer states. Hegel once said that the one thing we learn from history is that we do not learn from history. I think this time the West has learned from history to the extent that complacency does not make peace.

What it’s still not open ! I think it was supposed to be up and running by march 2006 so what’s stopping it because I want to buy my petrol in euros so GW-Bush does not get a boost

Once a large supply of oil can be obtained without propping up the USD$, then America is done for and they know it and that one of the lesser reasons Bush pulled off the 9/11 and we are now all paying the price.

G W Bush will not be president in 2008. Vladimir Putin will still be president of the Russias. The goal of the Soviet Union was to bring down the West--they lost. What should we do to help in this process or do you think it is better to side with the West against the Soviets?

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Guest Riser

Looks like Chavez is also looking to put the boot in.

Venezuela Backs Plan to Sell Oil in Euros

Thursday June 1, 10:18 pm ET

Venezuela Supports Proposal to Sell Oil in Euros Instead of U.S. Dollars

CARACAS, Venezuela (AP) -- Venezuela supports the idea of selling oil in euros instead of U.S. dollars, a proposal also supported by fellow OPEC member Iran, the country's oil minister said.

"Iran has an initiative that we support. They are going to start to do oil transactions in euros," Oil Minister Rafael Ramirez said Thursday in an interview with state television.

Selling oil in euros would in theory boost world demand for the European currency at the expense of the dollar.

Analysts have said the proposal is highly unlikely to materialize but could in theory have serious consequences for the U.S. economy by undermining the value of the dollar and diminishing its status as the currency used in central-bank reserves.

Venezuelan President Hugo Chavez is one of the U.S. government's most vocal critics on the world stage.

"If a market in euros is created, with the euro as a reference, we could send our supplies so they are sold under this (currency)," added Ramirez, who is also the president of the state oil company Petroleos de Venezuela SA.

Ramirez spoke ahead of a meeting of the Organization of Petroleum Exporting Countries in Caracas.

OPEC president Edmund Daukoru said afterward that while some member countries have raised the possibility, "they have not formally tabled" the proposal yet to the group.

Earlier this month, Iran's oil ministry granted a license for the creation of a euro-denominated market, an idea first floated back in 2004, though just who would trade on it remains unclear.

If Iran or Venezuela were to demand payment for oil in euros, commodities experts have said it could lead central bankers around the world to convert some dollar reserves into euros, possibly causing a decline in the dollar's value.

Oil is currently denominated in dollars around the globe, through direct sales between producers and consumers or in trades made on markets in New York and London.

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Make no mistake about it, the re-emerging power of the Soviet regime is not a friend to the West.

Completely disagree, do you know any Russians?

Times have moved on, Russia needs us as much as we need them. Time to move on from the past. Putin wants to sell his oil, but doesn't want to keep getting shafted by the West especially having to receive US dollars for it, which as we all now know are worthless. US printing presses are on constantly.

This is all about the unfair position the US is in with the dollar as the primary reserve currency. It is not a good position for the new world.

**** this american administration and wake up America!!

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RealistBear

G W Bush will not be president in 2008. Vladimir Putin will still be president of the Russias. The goal of the Soviet Union was to bring down the West--they lost. What should we do to help in this process or do you think it is better to side with the West against the Soviets?

To be honest I think I now trust the Russians more than our own government and certainly more than I trust the current American administration who are behaving like a mad dog and attacking anything that moves.

Russians lost the cold war and they did not fire a load of nukes off as it died but I’m not convince the American thugs running the country will play the same, American people need to wake up and stops what’s being do to their once proud country.

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Would someone care to explain why the trading currency of a barrel of oil is of any consequence?

Surely the Iranians can sell all of their oil in USD, then convert at spot to Euros.

Net effect = big sell off of petrodollars, USD f*cked.

?? :)

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Would someone care to explain why the trading currency of a barrel of oil is of any consequence?

Surely the Iranians can sell all of their oil in USD, then convert at spot to Euros.

Net effect = big sell off of petrodollars, USD f*cked.

?? :)

All the countries that want to buy oil have to hold reserves of US Dollars, therefore the US can just keep printing money!

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Would someone care to explain why the trading currency of a barrel of oil is of any consequence?

Surely the Iranians can sell all of their oil in USD, then convert at spot to Euros.

Net effect = big sell off of petrodollars, USD f*cked.

?? :)

I think the point is that noone in the transaction needs to hold US$ at any time. This could be problematic for the US.

JY

Edited by JustYield

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I think the point is that noone in the transaction needs to hold US$ at any time. This could be problematic for the US.

JY

PS. Riser - what's with the gold price in your sig?? Way out.

Doesn't make sense to me. say France want to buy some oil. Today they can buy dollars, pay it to the Iranians. Tomorrow the Iranians can sell the dollars for Euros. Dollars have been held for 24 hrs. This is surely not significant.

At the end of 24hrs, both parties are back to not holding dollars.

I'm kind of amazed that you guys can sit here posting reams on the importance of this matter, yet you don't seem to grasp the underlying basics. These macroeconomic threads always attract the poseurs who can write pages of seemingly intelligent analysis, based on nothing. :ph34r:

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Doesn't make sense to me. say France want to buy some oil. Today they can buy dollars, pay it to the Iranians. Tomorrow the Iranians can sell the dollars for Euros. Dollars have been held for 24 hrs. This is surely not significant.

At the end of 24hrs, both parties are back to not holding dollars.

I'm kind of amazed that you guys can sit here posting reams on the importance of this matter, yet you don't seem to grasp the underlying basics. These macroeconomic threads always attract the poseurs who can write pages of seemingly intelligent analysis, based on nothing. :ph34r:

Why read the thread then?

Edited by watchinandwaiting

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Doesn't make sense to me. say France want to buy some oil. Today they can buy dollars, pay it to the Iranians. Tomorrow the Iranians can sell the dollars for Euros. Dollars have been held for 24 hrs. This is surely not significant.

At the end of 24hrs, both parties are back to not holding dollars.

I'm kind of amazed that you guys can sit here posting reams on the importance of this matter, yet you don't seem to grasp the underlying basics. These macroeconomic threads always attract the poseurs who can write pages of seemingly intelligent analysis, based on nothing. :ph34r:

Not sure at whom the insult is aimed, but since I was trying to help you understand I shall persevere:

Think about the impact on the dollar if you don't need dollars in order to buy oil. Demand for the US$ will fall, right? What happens to the price of something when the demand falls?

JY

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Not sure at whom the insult is aimed, but since I was trying to help you understand I shall persevere:

Think about the impact on the dollar if you don't need dollars in order to buy oil. Demand for the US$ will fall, right? What happens to the price of something when the demand falls?

JY

If dollars are being bought and sold simultaneously (i.e. no one is bothering to hold them) the net effect is almost the same as not using dollars. Wasn't aiming to insult anyone, just interested. Apologies if anyone took offence. :)

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I'm interested in understanding the situation. But it seems a simple question is enough to make all the big boys put their big swinging dicks back in their thongs. :lol:

Back when oil was $20 dollars a barrel there was $1.5 trillion dollars a day moving around the world, its about $5.3 trillion at the moment. Thats $3.8 trillion more dollars printed into circulation, created by the US from nothing.

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If dollars are being bought and sold simultaneously (i.e. no one is bothering to hold them) the net effect is almost the same as not using dollars. Wasn't aiming to insult anyone, just interested. Apologies if anyone took offence. :)

Why pay for anything outside the US with US$? Who benefits from this special status other than the US (the only country who can control the supply of US$)?

Your simultaneous buy/sell of dollars has a similar effect but it still gives the dollar special "reserve" status in the oil purchase transaction (trusted payment outside the US borders).

If you bypass the dollar completely, it loses this status. Ultimately dollars held off-shore (and there are a lot of them) will become less valuable to anyone outside the US - so they will be sold if they are no longer needed in exchange for reserve currencies more acceptable to the exporting countries. So you see this goes a bit further than your FX scenario.

JY

Edited by JustYield

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Why pay for anything outside the US with US$? Who benefits from this special status other than the US (the only country who can control the supply of US$)?

Your simultaneous buy/sell of dollars has a similar effect but it still gives the dollar special "reserve" status in the oil purchase transaction (trusted payment outside the US borders).

If you bypass the dollar completely, it loses this status. Ultimately dollars held off-shore (and there are a lot of them) will become less valuable to anyone outside the US - so they will be sold if they are no longer needed in exchange for reserve currencies more acceptable to the exporting countries. So you see this goes a bit further than your FX scenario.

JY

Thanks guys. That's crystal now. :)

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Completely disagree, do you know any Russians?

Times have moved on, Russia needs us as much as we need them. Time to move on from the past. Putin wants to sell his oil, but doesn't want to keep getting shafted by the West especially having to receive US dollars for it, which as we all now know are worthless. US printing presses are on constantly.

This is all about the unfair position the US is in with the dollar as the primary reserve currency. It is not a good position for the new world.

**** this american administration and wake up America!!

I am a student of history and rarely does a Leopard change its spots. The Russian Czars, Dictators and "Presidents" have changed very little over the centuries. They do not understand Western style democracy or business. They "take" what they want and price does not come into it as its power they are after. Russia has always felt slighted by the West and they have remained deeply jealous over the power and wealth the West has enjoyed.

The new world is just a rehash of the same worlds we have seen since time immemorial. Its the old East-West conflict with a fewe name chnages but the goals and conflicts remain the same. The current US administrration is no different to the Administration of Franklin Roosevelt who, with Winston and Uncle Joe Stalin tried to carve up the world between the 3 Empires to ensure peace in our time. Uncle Joe did not want to play ball and took what he wanted which led to the annexation of Eastern Europe by force of arms. THe UK and US assisted Europe to recover from WW2 by rebuilding it and allowing self-government. The result is a free France and Germany and the EU. Had it not been for the UK and US alliance Europe would be Soviet territory today.

It is strange that so many see the Soviets as some form of benign democracy willing to "help" out Europe by supplying oil and gas at fair prices. The US-UK-Holland pay for the oil that is supplied by the Arab nations and the price paid is far from exploitation. The Arabs have grown rich and build fabulous palaces and cities from US-Uk-Dutch money (Exxon-BP-Shell).

To wish to see the US fail and for the Ruble to dominate the world seems a little odd coming from a Western perpsective. Putin will not be shafted by the West as he controls the oil now that it has been confiscated from what he described as the Russian "Mafia." The oil is now in "KGB" hands and these are ruthless people who will use it for political advantage. Guess who caused the spike in natural gas prices in the UK recently? The "evil Bush administration"--no--Putin and his new Soviet Union.

WE are re-entering another form of cold war but the sides remain the same. Its East against West once again after a brief break and my guess is that the UK will not be too quick to support Russian dominance over that of the US and the Western oil companies of which the UK and Dutch control a considerable portion.

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The new world is just a rehash of the same worlds we have seen since time immemorial. Its the old East-West conflict with a fewe name chnages but the goals and conflicts remain the same. The current US administrration is no different to the Administration of Franklin Roosevelt who, with Winston and Uncle Joe Stalin tried to carve up the world between the 3 Empires to ensure peace in our time. Uncle Joe did not want to play ball and took what he wanted which led to the annexation of Eastern Europe by force of arms. THe UK and US assisted Europe to recover from WW2 by rebuilding it and allowing self-government. The result is a free France and Germany and the EU. Had it not been for the UK and US alliance Europe would be Soviet territory today.

...quite so,but with the proviso hitler had been a little more cautious.

the EU are but a chapter of "mein kampf",the agenda is broadly similar to that of USSR,but a little more covert.....if socialism of the eastern bloc taught us one thing it is there is a dark,sinister side to communism which ought to be avoided.....that's why I expect the EU to say very little about the current arab conflict,but deliberately go out of their way to sabotage any peaceful solution.

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snip

WE are re-entering another form of cold war but the sides remain the same. Its East against West once again after a brief break and my guess is that the UK will not be too quick to support Russian dominance over that of the US and the Western oil companies of which the UK and Dutch control a considerable portion.

I dont believe we can be sure what Putins intentions or motives are, but one thing I am sure of is that having British Troops in Afghanastan and Iraq is morally wrong. We were lied to regarding WMD's, Iraq didn't have them.

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Would someone care to explain why the trading currency of a barrel of oil is of any consequence?

Surely the Iranians can sell all of their oil in USD, then convert at spot to Euros.

Net effect = big sell off of petrodollars, USD f*cked.

?? :)

Try reading this for starters

The reason you don't hear about this in the sheeple media is the same reason that you won't hear the BBC talking about the massive houseprice bubble or how badly the economy is really doing. Don't panic the sheeple at all costs.

A New American Century? Not!

By F. William Engdahl. Posted 1/19/2004 10:40:00 PM

By: F. William Engdahl

Iraq is really the battlefield for the hidden Euro-Dollar war....a war that was inevitable given the loss of the dollar's purchasing power worldwide.

Despite the apparent swift U.S. military occupation in Iraq, the U.S. dollar has yet to benefit as a safe haven currency. This is an unexpected development, as many currency traders had expected the dollar to strengthen on the news of a U.S. presence. Capital is flowing out of the dollar, largely into the Euro. Many are beginning to ask whether the objective situation of the U.S. economy is far worse than the stock market would suggest. The future of the dollar is far from a minor issue of interest only to banks or currency traders. It stands at the heart of Pax Americana, or as it is called, The American Century, the system of arrangements on which America's role in the world rests.

Yet, even as the dollar is steadily dropping against the Euro, Washington appears to be deliberately worsening the dollar fall in public comments. What is taking place is a power game of the highest geopolitical significance, the most fateful perhaps, since the emergence of the United States in 1945 as the world's leading economic power.

The coalition of interests which converged on war against Iraq as a strategic necessity for the United States, included not only the vocal and highly visible neo-conservative hawks around Defense Secretary Rumsfeld and his deputy, Paul Wolfowitz. It also included powerful permanent interests, on whose global role American economic influence depends, such as the influential energy sector around Halliburton, Exxon Mobil, Chevron Texaco and other giant multinationals. It also included the huge American defense industry interests around Boeing, Lockheed-Martin, Raytheon, Northrup-Grumman and others. The issue for these giant defense and energy conglomerates is not a few fat contracts from the Pentagon to rebuild Iraqi oil facilities and line the pockets of Dick Cheney or others. It is a game for the very continuance of American power in the coming decades of the new century. That is not to say that profits are [not] made in the process, but it is purely a byproduct of the global strategic issue.

In this power game, least understood is the role of preserving the dollar as the world reserve currency, as a major driving factor contributing to Washington's power calculus over Iraq in the past months. American domination in the world ultimately rests on two pillars -- its overwhelming military superiority, especially on the seas; and its control of world economic flows through the role of the dollar as the world's reserve currency. More and more it is clear that the Iraq war was more about preserving the second pillar -- the dollar role -- than the first, the military. In the dollar role, oil is a strategic factor.

American Century: the three phases

If we look back over the period since the end of World War II, we can identify several distinct phases of evolution of the American role in the world. The first phase, which began in the immediate postwar period 1945-1948 and the onset of Cold War, could be called the Bretton Woods Gold Exchange system.

Under the Bretton Woods system in the immediate aftermath of the World War, the order was relatively tranquil. The United States had emerged from the War clearly as the one sole superpower, with a strong industrial base and the largest gold reserves of any nation. The initial task was to rebuild Western Europe and to create a NATO Atlantic alliance against the Soviet Union. The role of the dollar was directly tied to that of gold. So long as America enjoyed the largest gold reserves, and the U.S. economy was far the most productive and efficient producer, the entire Bretton Woods currency structure from French Franc to British Pound Sterling and German Mark was stable. Dollar credits were extended along with Marshall Plan assistance and credits to finance the rebuilding of war-torn Europe. American companies, among them oil multinationals, gained nicely from dominating the trade at the onset of the 1950's. Washington even encouraged creation of the Treaty of Rome in 1958 in order to boost European economic stability and create larger U.S. export markets in the bargain. For the most part, this initial phase of what Time magazine publisher Henry Luce called 'The American Century', in terms of economic gains, was relatively 'benign' for both the U.S. and Europe. The United States still had the economic flexibility to move.

This was the era of American liberal foreign policy. The United States was the hegemonic power in the Western community of nations. As it commanded overwhelming gold and economic resources compared with Western Europe or Japan and South Korea, the United States could well afford to be open in its trade relations to European and Japanese exports. The tradeoff was European and Japanese support for the role of the United Sates during the Cold War. American leadership was based during the 1950's and early 1960's less on direct coercion and more on arriving at consensus, whether in GATT trade rounds or other issues. Organizations of elites, such as the Bilderberg meetings, were organized to share the evolving consensus between Europe and the United States.

This first, more benign phase of the Ameri-can Century came to an end by the early 1970's.

The Bretton Woods Gold Exchange began to break down, as Europe got on its feet economically and began to become a strong exporter by the mid-1960's. This growing economic strength in Western Europe coincided with soaring U.S. public deficits as Johnson escalated the tragic war in Vietnam. All during the 1960's, France's de Gaulle began to take its dollar export earnings and demand gold from the U.S. Federal Reserve, legal under Bretton Woods at that time. By November 1967 the drain of gold from U.S. and Bank of England vaults had become critical. The weak link in the Bretton Woods Gold Exchange arrangement was Britain, the 'sick man of Europe'. The link broke as Sterling was devalued in 1967. That merely accelerated the pressure on the U.S. dollar, as French and other central banks increased their call for U.S. gold in exchange for their dollar reserves. They calculated with the soaring war deficits from Vietnam, it was only a matter of months before the United States itself would be forced to devalue against gold, so better to get their gold out at a high price.

By May 1971 the drain of U.S. Federal Reserve gold had become alarming, and even the Bank of England joined the French in demanding U.S. gold for their dollars. That was the point where rather than risk a collapse of the gold reserves of the United States, the Nixon Administration opted to abandon gold entirely, going to a system of floating currencies in August 1971. The break with gold opened the door to an entirely new phase of the American Century. In this new phase, control over monetary policy was, in effect, privatized, with large international banks such as Citibank, Chase Manhattan or Barclays Bank assuming the role that central banks had in a gold system, but entirely without gold. 'Market forces' now could determine the dollar. And they did with a vengeance.

The free floating of the dollar, combined with the 1973 rise in OPEC oil prices by 400% after the Yom Kippur War, created the basis for a second phase of the American Century, the Petrodollar phase.

Recycling petrodollars

Beginning the mid-1970's the American Century system of global economic dominance underwent a dramatic change. An Anglo-American oil shock suddenly created enormous demand for the floating dollar. Oil importing countries from Germany to Argentina to Japan, all were faced with how to export in dollars to pay their expensive new oil import bills. OPEC oil countries were flooded with new oil dollars. A major share of these oil dollars came to London and New York banks where a new process was instituted. Henry Kissinger termed it, 'recycling petrodollars'. The recycling strategy was discussed already in May 1971 at the Bilderberger meeting in Saltsjoebaden, Sweden. It was presented by American members of Bilderberg, as detailed in the book Mit der Ölwaffe zur Weltmacht.[1]

OPEC suddenly was choking on dollars it could not use. U.S. and UK banks took the OPEC dollars and relent them as Eurodollar bonds or loans, to countries of the Third World desperate to borrow dollars to finance oil imports. The buildup of these petrodollar debts by the late 1970's laid the basis for the Third World debt crisis in the 1980's. Hundreds of billions of dollars were recycled between OPEC, the London and New York banks and back to Third World borrowing countries.

By August 1982 the chain finally broke and Mexico announced it would likely default on repaying Eurodollar loans. The Third World debt crisis began when Paul Volcker and the U.S. Federal Reserve had unilaterally hiked U.S. interest rates in late 1979 to try to save the failing dollar. After three years of record high U.S. interest rates, the dollar was 'saved', but the entire developing sector was choking economically under usurious U.S. interest rates on their petrodollar loans. To enforce debt repayment to the London and New York banks, the banks brought the IMF in to act as 'debt policeman'. Public spending for health, education, welfare was slashed on IMF orders to ensure the banks got timely debt service on their petrodollars.

The Petrodollar hegemony phase was an attempt by the United States establishment to slow down its geopolitical decline as the hegemonic center of the postwar system. The IMF 'Washington Consensus' was developed to enforce draconian debt collection on Third World countries, to force them to repay dollar debts, prevent any economic independence from the nations of the South, and keep the U.S. banks and the dollar afloat. The Trilateral Commission was created by David Rockefeller and others in 1973 in order to take account of the recent emergence of Japan as an industrial giant and try to bring Japan into the system. Japan, as a major industrial nation, was a major importer of oil. Japanese trade surpluses from export of cars and other goods was used to buy oil in dollars. The remaining surplus was invested in U.S. Treasury bonds to earn interest. The G-7 was founded to keep Japan and Western Europe inside the U.S. dollar system. From time to time into the 1980's various voices in Japan would call for three currencies -- dollar, German mark and yen -- to share the world reserve role. It never happened. The dollar remained dominant.

From a narrow standpoint, the Petrodollar phase of hegemony seemed to work. Underneath, it was based on ever-worsening economic decline in living standards across the world, as IMF policies destroyed national economic growth and broke open markets for globalizing multinationals seeking cheap production outsourcing in the 1980's and especially into the 1990's.

Yet, even in the Petrodollar phase, American foreign economic policy and military policy was dominated by the voices of the traditional liberal consensus. American power depended on negotiating periodic new arrangements in trade or other issues with its allies in Europe, Japan and East Asia.

A Petro-euro rival?

The end of the Cold War and the emergence of a new Single Europe and the European Monetary Union in the early 1990's, began to present an entirely new challenge to the American Century. It took some years, more than a decade after the 1991 Gulf War, for this new challenge to emerge full-blown. The present Iraq war is only intelligible as a major battle in the new, third phase of securing American dominance. This phase has already been called, 'democratic imperialism', a favorite term of Max Boot and other neo-conservatives. As Iraq events suggest, it is not likely to be very democratic, but definitely likely to be imperialist.

Unlike the earlier periods after 1945, in the new era, the U.S. freedom to grant concessions to other members of the G-7 is gone. Now raw power is the only vehicle to maintain American long-term dominance. The best expression of this argument comes from the neo-conservative hawks around Paul Wolfowitz, Richard Perle, William Kristol and others.

The point to stress, however, is that the neo-conservatives enjoy such influence since September 11 because a majority in the U.S. power establishment finds their views useful to advance a new aggressive U.S. role in the world.

Rather than work out areas of agreement with European partners, Washington increasingly sees Euroland as the major strategic threat to American hegemony, especially 'Old Europe' of Germany and France. Just as Britain in decline after 1870 resorted to increasingly desperate imperial wars in South Africa and elsewhere, so the United States is using its military might to try to advance what it no longer can by economic means. Here the dollar is the Achilles heel.

With creation of the Euro over the past five years, an entirely new element has been added to the global system, one which defines what we can call a third phase of the American Century. This phase, in which the latest Iraq war plays a major role, threatens to bring a new, malignant or imperial phase to replace the earlier phases of American hegemony. The neo-conservatives are open about their imperial agenda, while more traditional U.S. policy voices try to deny it. The economic reality faced by the dollar at the start of the new Century, defines this new phase in an ominous way.

There is a qualitative difference emerging between the two initial phases of the American Century -- that of 1945-1973, and of 1973-1999 -- and the new emerging phase of continued domination in the wake of the 9.11 attacks and the Iraq War. Post-1945 American power before now was predominately that of a hegemon. While a hegemon is the dominant power, in an unequal distribution of power, its power is not generated by coercion alone, but also by consent among its allied powers. This is because the hegemon is compelled to perform certain services to the allies such as military security or regulating world markets for the benefit of the larger group, itself included. An imperial power has no such obligations to allies, and not the freedom for such, only the raw dictates of how to hold on to its declining power -- what some call 'imperial overstretch'. This is the world which neo-conservative hawks around Rumsfeld and Cheney are suggesting America has to dominate, with a policy of pre-emptive war.

A hidden war between the dollar and the new Euro currency for global hegemony is at the heart of this new phase.

To understand the importance of this unspoken battle for currency hegemony, we first must understand that since the emergence of the United States as the dominant global superpower after 1945, U.S. hegemony has rested on two unchallengeable pillars. First, the overwhelming U.S. military superiority over all other rivals. The United States today spends on defense more than three times the total for the entire European Union, some $ 396 billion versus $118 billion last year, and more than the next 15 largest nations combined. Washington plans an added $ 2.1 trillion over the coming five years on defense. No nation or group of nations can come close in defense spending. China is at least 30 years away from becoming a serious military threat. No one is serious about taking on U.S. military might.

The second pillar of American dominance in the world is the dominant role of the U.S. dollar as reserve currency. Until the advent of the Euro in late 1999, there was no potential challenge to this dollar hegemony in world trade. The Petrodollar has been at the heart of the dollar hegemony since the 1970's. The dollar hegemony is strategic to the future of American global predominance, in many respects as important if not more so, than the overwhelming military power.

Dollar fiat money

The crucial shift took place when Nixon took the dollar off a fixed gold reserve to float against other currencies. This removed the restraints on printing new dollars. The limit was only how many dollars the rest of the world would take.

By their firm agreement with Saudi Arabia, as the largest OPEC oil producer, Washington guaranteed that the world's largest commodity, oil, the essential for every nation's economy, the basis of all transport and much of the industrial economy, could only be purchased in world markets in dollars. The deal had been fixed in June 1974 by Secretary of State Henry Kissinger, establishing the U.S.-Saudi Arabian Joint Commission on Economic Cooperation. The U.S. Treasury and the New York Federal Reserve would 'allow' the Saudi central bank, SAMA, to buy U.S. Treasury bonds with Saudi petrodollars. In 1975 OPEC officially agreed to sell its oil only for dollars. A secret U.S. military agreement to arm Saudi Arabia was the quid pro quo.

Until November 2000, no OPEC country dared violate the dollar price rule. So long as the dollar was the strongest currency, there was little reason to as well. But November was when French and other Euroland members finally convinced Saddam Hussein to defy the United States by selling Iraq's oil-for-food not in dollars, 'the enemy currency' as Iraq named it, but only in euros. The euros were on deposit in a special UN account of the leading French bank, BNP Paribas. Radio Liberty of the U.S. State Department ran a short wire on the news and the story was quickly hushed.[2]

This little-noted Iraq move to defy the dollar in favor of the euro, in itself, was insignificant. Yet, if it were to spread, especially at a point the dollar was already weakening, it could create a panic selloff of dollars by foreign central banks and OPEC oil producers. In the months before the latest Iraq war, hints in this direction were heard from Russia, Iran, Indonesia and even Venezuela. An Iranian OPEC official, Javad Yarjani, delivered a detailed analysis of how OPEC at some future point might sell its oil to the EU for euros not dollars. He spoke in April, 2002 in Oviedo Spain at the invitation of the EU. All indications are that the Iraq war was seized on as the easiest way to deliver a deadly pre-emptive warning to OPEC and others, not to flirt with abandoning the Petro-dollar system in favor of one based on the euro.

Informed banking circles in the City of London and elsewhere in Europe privately confirm the significance of that little-noted Iraq move from petro-dollar to petro-euro. 'The Iraq move was a declaration of war against the dollar', one senior London banker told me recently. 'As soon as it was clear that Britain and the U.S. had taken Iraq, a great sigh of relief was heard in London City banks. They said privately, “now we don't have to worry about that damn euro threat”'.

Why would something so small be such a strategic threat to London and New York, or to the United States that an American President would apparently risk fifty years of alliance relations globally, and more to make a military attack whose justification could not even be proved to the world?

The answer is the unique role of the petro-dollar to underpin American economic hegemony.

How does it work? So long as almost 70% of world trade is done in dollars, the dollar is the currency which central banks accumulate as reserves. But central banks, whether China or Japan or Brazil or Russia, do not simply stack dollars in their vaults. Currencies have one advantage over gold. A central bank can use it to buy the state bonds of the issuer, the United States. Most countries around the world are forced to control trade deficits or face currency collapse. Not the United States. This is because of the dollar reserve currency role. And the underpinning of the reserve role is the petrodollar. Every nation needs to get dollars to import oil, some more than others. This means their trade targets dollar countries, above all the U.S.

Because oil is an essential commodity for every nation, the petrodollar system, which exists to the present, demands the buildup of huge trade surpluses in order to accumulate dollar surpluses. This is the case for every country but one -- the United States which controls the dollar and prints it at will or fiat. Because today the majority of all international trade is done in dollars, countries must go abroad to get the means of payment they cannot themselves issue. The entire global trade structure today works around this dynamic, from Russia to China, from Brazil to South Korea and Japan. Everyone aims to maximize dollar surpluses from their export trade.

To keep this process going, the United States has agreed to be 'importer of last resort' because its entire monetary hegemony depends on this dollar recycling.

The central banks of Japan, China, South Korea, Russia and the rest all buy U.S. Treasury securities with their dollars. That in turn allows the United States to have a stable dollar, far lower interest rates, and run a $ 500 billion annual balance of payments deficit with the rest of the world. The Federal Reserve controls the dollar printing presses, and the world needs its dollars. It is as simple as that.

The U.S. foreign debt threat

But, not so simple perhaps. This is a highly unstable system, as U.S. trade deficits and net debt or liabilities to foreign accounts are now well over 22% of GDP as of 2000, and climbing rapidly. The net foreign indebtedness of the United States -- public as well as private -- is beginning to explode ominously. In the past three years since the U.S. stock collapse and the re-emergence of budget deficits in Washington, the net debt position, according to a recent study by the Pestel Institute in Hanover, has almost doubled. In 1999, the peak of the dot.com bubble fury, U.S. net debt to foreigners was some $ 1.4 trillions. By the end of this year, it will exceed an estimated $ 3.7 trillion! Before 1989, the United States had been a net creditor, gaining more from its foreign investments than it paid to them in interest on Treasury bonds or other U.S. assets. Since the end of the Cold War, the United States has become a net foreign debtor nation to the tune of $3.7 trillion! This is not what Hilmar Kopper could call 'peanuts'.

It does not require much foresight to see the strategic threat of these deficits to the role of the United States. With an annual current account (mainly trade) deficit of some $500 billion, some 5% of GDP, the United States must import or attract at least $1.4 billion every day, to avoid a dollar collapse and keep its interest rates low enough to support the debt-burdened corporate economy. That net debt is getting worse at a dramatic pace. Were France, Germany, Russia and a number of OPEC oil countries to now shift even a small portion of their dollar reserves into euro to buy bonds of Germany or France or the like, the United States would face a strategic crisis beyond any of the postwar period. To pre-empt this threat, was one of the most strategic hidden reasons for the decision to go for 'regime change' as it is known, in Iraq. It is as simple and as cold as this. The future of America's sole superpower status depended on pre-empting the threat emerging from Eurasia and Euroland especially. Iraq was and is a chess piece in a far larger strategic game, one for the highest stakes.

The euro threatens the hegemony

When the euro was launched at the end of the last decade, leading EU government figures, bankers from Deutsche Bank's Norbert Walter, and French President Chirac went to major holders of dollar reserves -- China, Japan, Russia -- and tried to convince them to shift out of dollars at least a part of their reserves, and into euros. However, that clashed with the need to devalue the too-high euro, so German exports could stabilize Euroland growth. A falling euro was the case until 2002.

Then, with the debacle of the U.S. dot.com bubble bursting, the Enron and Worldcom finance scandals, and the recession in the U.S., the dollar began to lose its attraction for foreign investors. The euro gained steadily until the end of 2002. Then, as France and Germany prepared their secret diplomatic strategy to block war in the UN Security Council, rumors surfaced that the central banks of Russia and China had quietly began to dump dollars and buy euros. The result was a dollar free-fall on the eve of war. The stage was set should Washington lose the Iraq war, or it turn into a long, bloody debacle.

But Washington, leading New York banks and the higher echelons of the U.S. establishment clearly knew what was at stake. Iraq was not about ordinary chemical or even nuclear weapons of mass destruction. The 'weapon of mass destruction' was the threat that others would follow Iraq and shift to euros out of dollars, creating mass destruction of the United States' hegemonic economic role in the world. As one economist termed it, an end to the dollar reserve role would be a 'catastrophe' for the United States. Interest rates of the Federal Reserve would have to be pushed higher than in 1979 when Paul Volcker raised rates above 17% to try to stop the collapse of the dollar then. Few realize that 1979 dollar crisis was also a direct result of moves by Germany, and France, under Schmidt and Giscard, to defend Europe together with Saudi Arabia and others who began selling U.S. Treasury bonds to protest Carter Administration policy. It is also worth recalling that after the Volcker dollar rescue, the Reagan Administration, backed by many of today's neo-conservative hawks, began a huge U.S. military defense spending to challenge the Soviet Union.

Eurasia versus the Anglo-American Island Power

This fight over petro-dollars versus petro-euros, which started in Iraq, is by no means over, despite the apparent victory of the United States in Iraq. The euro was created by French geopolitical strategists for establishing a multipolar world after the collapse of the Soviet Union. The aim was to balance the overwhelming dominance of the U.S. in world affairs. Significantly, French strategists rely on a British geopolitical strategist to develop their rival power alternative to the U.S., namely Sir Halford Mackinder.

This past February, a French intelligence-connected newsletter, Intelligence Online, wrote a piece, 'The Strategy Behind Paris-Berlin-Moscow Tie'. Referring to the UN Security Council bloc of France-Germany-Russia to try to prevent the U.S.-British war moves in Iraq, the Paris report notes the recent efforts of European and other powers to create a counterpower to that of the United States. Referring to the new ties of France with Germany and more recently with Putin, they note, 'a new logic, and even dynamic seems to have emerged. An alliance between Paris, Moscow and Berlin running from the Atlantic to Asia could foreshadow a limit to U.S. power. For the first time since the beginning of the 20th Century, the notion of a world heartland -- the nightmare of British strategists -- has crept back into international relations.'[3]

Mackinder, father of British geopolitics, wrote in his remarkable paper, 'The Geographical Pivot of History' that the control of the Eurasian heartland, from Normandy France to Vladivostock, was the only possible threat to oppose the naval supremacy of Britain. British diplomacy until 1914 was based on preventing any such Eurasian threat, that time around the expansion policy of the German Kaiser eastwards with the Baghdad Railway and the Tirpitz German Navy buildup. World War I was the result. Referring to the ongoing efforts of the British and later Americans to prevent a Eurasian combination as rival, the Paris intelligence report stressed, 'That strategic approach (i.e. to create Eurasian heartland unity) lies at the origin of all clashes between Continental powers and maritime powers (UK, U.S. and Japan) ... It is Washington's supremacy over the seas that, even now, dictates London's unshakeable support for the U.S. and the alliance between Tony Blair and Bush.'

Another well-connected French journal, Reseau Voltaire.net, wrote on the eve of the Iraq war that the dollar was 'The Achilles heel of the USA'.[4] That is an understatement to put it mildly.

Iraq was planned long before

This emerging threat from a French-led Euro policy with Iraq and other countries, led some leading circles in the U.S. policy establishment to begin thinking of pre-empting threats to the Petro-dollar system well before Bush was even President. While Perle, Wolfowitz and other leading neo-conservatives played a leading role in developing a strategy to preserve the faltering system, a new consensus was shaping which included major elements of traditional Cold War establishment around figures like Rumsfeld and Cheney.

In September 2000, during the campaign, a small Washington think-tank, the Project for a New American Century, released a major policy study: 'Rebuilding America's Defenses: Strategies, Forces and Resources for a New Century'. The report is useful in many areas to better understand present Administration policy. On Iraq, it states, 'The United States has sought for decades to play a more permanent role in Gulf regional security. While the unresolved conflict with Iraq provides the immediate justification, the need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein.'

This PNAC paper is the essential basis for the September 2002 Presidential White Paper, 'The National Security Strategy of the United States of America'. The PNAC's paper supports a 'blueprint for maintaining global U.S. pre-eminence, precluding the rise of a great power rival, and shaping the international security order in line with American principles and interests. The American Grand Strategy must be pursued as far into the future as possible.' Further, the U.S. must, 'discourage advanced industrial nations from challenging our leadership or even aspiring to a larger regional or global role.'

The PNAC membership in 2000 reads like a roster of the Bush Administration today. It included Cheney, his wife Lynne Cheney, neo-conservative Cheney aide, Lewis Libby; Donald Rumsfeld; Rumsfeld Deputy Secretary Paul Wolfowitz. It also included NSC Middle East head, Elliott Abrams; John Bolton of the State Department; Richard Perle, and William Kristol. As well, former Lockheed-Martin vice president, Bruce Jackson, and ex-CIA head James Woolsey were on board, along with Norman Podhoretz, another founding neo-con. Woolsey and Podhoretz speak openly of being in 'World War IV'.

It is becoming increasingly clear to many that the war in Iraq is about preserving a bankrupt American Century model of global dominance. It is also clear that Iraq is not the end. What is not yet clear and must be openly debated around the world, is how to replace the failed Petro-dollar order with a just new system for global economic prosperity and security.

Now, as Iraq threatens to explode in internal chaos, it is important to rethink the entire postwar monetary order anew. The present French-German-Russian alliance to create a counterweight to the United States requires not merely a French-led version of the Petro-dollar system, some Petro-euro system, that continues the bankrupt American Century, only with a French accent, and euros replacing dollars. That would only continue to destroy living standards across the world, adding to human waste and soaring unemployment in industrial as well as developing nations. We must entirely rethink what began briefly with some economists during the 1998 Asia crisis, the basis of a new monetary system which supports human development, and does not destroy it.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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