By Goodwin Ginger
In the newly released issue of the Post-Autistic Economics Review, Margaret Legum argues that the real motivation of current US posturing towards Iran may have more to do with Iran’s plan to open an oil market denominated only in Euros. This is a credible argument insofar as a shift to a Euro denominated oil market would undermine the US dollar as the central global currency and thereby undermine its capacity to finance both the largess of Empire and domestic spending.
Some caution should be exercised in reading such analyses for they are closely linked and in some respects are a twin of the Gold Bugs. Who are the Gold Bugs? Well they are a subculture in the world of financial analysts. In short, they have been predicting doom since the end of the gold standard. Oil Bugs view oil as the underlying international value asset i.e., international commodity money (taking the place of gold).
Most credible observations on the likely impact of Iranian move to open a bonafide bourse denominated in Euros suggest that it will cause some strain on the value of the US dollar and some strain on the ability of the US to finance its twin deficits.
However, as the movement off the gold standard demonstrated long ago the move to a credit based financial order did not bring an end to the world as we know it. Nor do we suspect would an end to the monopoly the US currently enjoys on the denomination of oil in US dollars. If the end of the US as a hyper-power could be brought about by simply re-denominating oil in another foreign currency it would have happened long ago. That it has not happened also suggests that oil producing countries get something out of the current arrangement so there is more than just coercion at play here. In any case, a grain of salt is as always the curative for any analysis which concludes with the sky is falling.
– How Close Are We To ‘Sudden Disorderly Adjustment’?
Margaret Legum (SANE, South Africa) …………………………………………………..
William Clark made this such argument back in 2004 in his article published at the Centre for reasearch on globalisation. See The Real Reasons Why Iran is the Next Target:
Canadian Observer 
July 5, 2006 at 11:42 pm
but it seems the argument is not so much that the sky is falling but that the u.s will declare war on iran, which is somewhat more likely.
or perhaps you mean the Oil Bugs treat the implications of euro-based oil markets for the u.s being equivalent to the sky falling, which you don’t think it is. plus euro market = sky is falling = war on iran is a radically deterministic explanation.
perhaps iran shifting to a euro based oil market is like a little piece of the sky falling, which seems in combination with other pieces to be enough for the u.s. to declare war.
July 6, 2006 at 12:45 am
The argument seems to be that the real reason the US will invade Iran is over the Iranian move to open an oil bourse. To be sure it is one more spur in the side of the US but I do not think that it can be construed as THE REAL reason. Similar such stories were told about Iraq. And I understand that Chavez has already started pricing in Euros.
The thing to keep in mind is that almost all commodities are priced in US dollars from Coffee to Copper. As such even if 50% of global oil was Euro denominated the US would still retain its role as the dominant international reserve currency because nations would still need to hold US dollars. This need to hold US dollars is what would have to be undone. Perhaps Iran’s move would be viewed as the starting point of the unwinding of the US dollar as the international reserve currency. And in that sense the US would probably work to undermine Iran’s opening of a Euro denominated oil bourse .
Keep in mind that the unwinding of the US dollar would take years and evolve slowly as a rampage on the dollar would hurt all the major economies of the world including India and China.
What the Oil Bugs share in common with the Gold bugs is that they tend to see events unwinding in an almost instantaneous fashion of catastrophic proportions. And it is only if you view it in this manner that you can get to the conclusion that such a move by Iran would precipitate a declaration of war. Also the US does not do that any more. They prefer to stay outside the rule of law and simply invade:)
July 7, 2006 at 7:37 pm
What about this observation?
“…on the other hand, there is the decision of the American Federal Reserve to stop publishing M3 figures (the most reliable indicator on the amount of dollars circulating in the world) from March 23, 2006 onward…
…The end of the publication by the American Federal Reserve of the M3 monetary aggregate (and that of other components), a decision vehemently criticized by the community of economists and financial analysts, will have as a consequence to lose transparency on the evolution of the amount of Dollars in circulation worldwide. For some months already, M3 has significantly increased (indicating that « money printing » has already speeded up in Washington), knowing that the new President of the US Federal Reserve, Ben Bernanke, is a self-acknowledged fan of « money printing ». Considering that a strong fall of the Dollar would probably result in a massive sale of the US Treasury Bonds held in Asia, in Europe and in the oil-producing countries, LEAP/E2020 estimates that the American decision to stop publishing M3 aims at hiding as long as possible two US decisions, partly imposed by the political and economic choices made these last years:
– the ‘monetarisation’ of the US debt
– the launch of a monetary policy to support US economic activity.
…two policies to be implemented until at least the October 2006 « mid-term » elections, in order to prevent the Republican Party from being sent reeling.
This M3-related decision also illustrates the incapacity of the US and international monetary and financial authorities put in a situation where they will in the end prefer to remove the indicator rather than try to act on the reality.”
http://www.europe2020.org/en/section_global/150206.htm
July 12, 2006 at 4:37 am
There is what is possible and what is probable. This scenario is possible but not probable because it predicts utter collapse. So if you are a betting type it is a long shot. But hey if you are convinced take up a massive short position in the markets.
July 12, 2006 at 5:39 pm
There’s also this little nugget from a Kiplinger Magazine article reviewing VP Cheney’s investments…
“Vice President Cheney’s financial advisers are apparently betting on a rise in inflation and interest rates and on a decline in the value of the dollar against foreign currencies. That’s the conclusion we draw after scouring the financial disclosure form released by Cheney this week.
As of the end of last year, Cheney and his wife, Lynne, held between $10 million and $25 million in Vanguard Short-Term Tax-Exempt fund (it’s impossible to be more precise because the disclosure form lists holdings within ranges). The fund’s holdings of tax-free municipal bonds mature, on average, in a little more than a year — meaning that the fund should hold up well if rates rise. The Cheneys held another $1 million to $5 million in Vanguard Tax-Exempt Money Market fund, which is practically risk-free and could benefit from continued increases in short-term interest rates. And the couple had between $2 million and $10 million in Vanguard Inflation-Protected Securities fund. The principal and interest payments of inflation-protected bonds rise along with consumer prices, making them good inflation hedges.
The Cheneys also had between $10 million and $25 million in American Century International Bond. The fund buys mainly high-quality foreign bonds (predominantly in Europe) and rarely hedges against possible increases in the value of the dollar. Indeed, its prospectus limits dollar exposure to 25% of assets and the fund currently has only 6% of assets in dollars, according to an American Century spokesman.”
Seems like they don’t have much confidence in the greenback.
July 12, 2006 at 5:58 pm
Ok, sure. But a hedge against inflation and a decline in the value of the US dollar is a rational investment strategy at this time. Serious market watchers have been telling their clients to adjust their portfolios as such for a while. But for you to believe that Cheney believes the US and by extension the Global economy is in for a serious realignment due to a sudden unwinding of international US financial hegemony you would have to show that Cheney has moved his entire portfolio in that direction and not just changed his existing portfolio to price in higher annual inflation, interest rates and a declining US dollar. All your quote reveals is that Cheney picked a competent wealth management service. Which of course is somewhat surprising given his general incompetence in other endeavors.
February 26, 2007 at 5:16 pm
The US severed its last times to gold only in 1972. 35 years isn’t exactly a long time in the history of the world. Gold has been undervalued as an investment tool by main stream financial analysts because they look back 200 years. Since the dollar was tied to gold until 1972 going back 200 years in an irrelevant comparison. Take a look at the dow jones industrial average from 1972 to present. Take a look at the price of gold from 1972 to present. How do you explain that? Let me also point out that it is impossible for the government to track gold sales. I haven’t paid a cent to the US government in gold sales. I am highly invested in Uranium, gold, and silver. When this house of cards collapses and everybody is investing in metals and energy…I’ll start investing in the Dow again. I am 100 percent convinced that the way to make money is to position yourself ahead of the herd. People call me a goldbug but I have no loyalty to gold. I just know that the world’s financial institutions have placed unquestioning faith in the US political leaders to keep this house of cards together. That faith in misplaced. After this house of cards collapses is the time to invest in the Dow again. Until then…I remain a gold bug. If you are too lazy to look up the charts I’ll summarize. From 1972 to 1984…gold beats dow. From 1984 to 2000 dow beats gold. From 2000 to present gold beats dow. Capital gains on gold….easy to avoid paying taxes. I rest my case.