485 British & American banks & stock markets cf Rhine & Asia Model - Michael Hudson

British & American banks & stock markets cf Rhine & Asia Model - Michael
Hudson

(1) British & American banks & stock markets cf Rhine & Asia Model -
Michael Hudson
(2) Trade is moving away from $. Shifting of economic power to Asia -
Ambassador Gajendra Singh

(1) British & American banks & stock markets cf Rhine & Asia Model -
Michael Hudson

http://www.globalresearch.ca/index.php?context=va&aid=28938

How the Banks Broke the Social Compact, Promoting their Own Special
Interests

by Prof Michael Hudson

Global Research, January 28, 2012

Banks Weren't Meant to Be Like This. What will their future be – and
what is the government's proper financial role?

The inherently symbiotic relationship between banks and governments
recently has been reversed. In medieval times, wealthy bankers lent to
kings and princes as their major customers. But now it is the banks that
are needy, relying on governments for funding – capped by the post-2008
bailouts to save them from going bankrupt from their bad private-sector
loans and gambles.

Yet the banks now browbeat governments – not by having ready cash but by
threatening to go bust and drag the economy down with them if they are
not given control of public tax policy, spending and planning. The
process has gone furthest in the United States. Joseph Stiglitz
characterizes the Obama administration's vast transfer of money and
pubic debt to the banks as a "privatizing of gains and the socializing
of losses. It is a 'partnership' in which one partner robs the other."2
  Prof. Bill Black describes banks as becoming criminogenic and
innovating "control fraud."3  High finance has corrupted regulatory
agencies, falsified account-keeping by "mark to model" trickery, and
financed the campaigns of its supporters to disable public oversight.
The effect is to leave banks in control of how the economy's allocates
its credit and resources.

If there is any silver lining to today's debt crisis, it is that the
present situation and trends cannot continue. So this is not only an
opportunity to restructure banking; we have little choice. The urgent
issue is who will control the economy: governments, or the financial
sector and monopolies with which it has made an alliance.

Fortunately, it is not necessary to re-invent the wheel. Already a
century ago the outlines of a productive industrial banking system were
well understood. But recent bank lobbying has been remarkably successful
in distracting attention away from classical analyses of how to shape
the financial and tax system to best promote economic growth – by public
checks on bank privileges.

How banks broke the social compact, promoting their own special interests

People used to know what banks did. Bankers took deposits and lent them
out, paying short-term depositors less than they charged for risky or
less liquid loans. The risk was borne by bankers, not depositors or the
government. But today, bank loans are made increasingly to speculators
in recklessly large amounts for quick in-and-out trading. Financial
crashes have become deeper and affect a wider swath of the population as
debt pyramiding has soared and credit quality plunged into the toxic
category of "liars' loans."

The first step toward today's mutual interdependence between high
finance and government was for central banks to act as lenders of last
resort to mitigate the liquidity crises that periodically resulted from
the banks' privilege of credit creation. In due course governments also
provided public deposit insurance, recognizing the need to mobilize and
recycle savings into capital investment as the Industrial Revolution
gained momentum. In exchange for this support, they regulated banks as
public utilities.

Over time, banks have sought to disable this regulatory oversight, even
to the point of decriminalizing fraud. Sponsoring an ideological attack
on government, they accuse public bureaucracies of "distorting" free
markets (by which they mean markets free for predatory behavior). The
financial sector is now making its move to concentrate planning in its
own hands.

The problem is that the financial time frame is notoriously short-term
and often self-destructive. And inasmuch as the banking system's product
is debt, its business plan tends to be extractive and predatory, leaving
economies high-cost. This is why checks and balances are needed, along
with regulatory oversight to ensure fair dealing. Dismantling public
attempts to steer banking to promote economic growth (rather than merely
to make bankers rich) has permitted banks to turn into something nobody
anticipated. Their major customers are other financial institutions,
insurance and real estate – the FIRE sector, not industrial firms. Debt
leveraging by real estate and monopolies, arbitrage speculators, hedge
funds and corporate raiders inflates asset prices on credit. The effect
of creating "balance sheet wealth" in this way is to load down the
"real" production-and-consumption economy with debt and related rentier
charges, adding more to the cost of living and doing business than
rising productivity reduces production costs.

Since 2008, public bailouts have taken bad loans off the banks' balance
sheet at enormous taxpayer expense – some $13 trillion in the United
States, and proportionally higher in Ireland and other economies now
being subjected to austerity to pay for "free market" deregulation.
Bankers are holding economies hostage, threatening a monetary crash if
they do not get more bailouts and nearly free central bank credit, and
more mortgage and other loan guarantees for their casino-like game. The
resulting "too big to fail" policy means making governments too weak to
fight back.

The process that began with central bank support thus has turned into
broad government guarantees against bank insolvency. The largest banks
have made so many reckless loans that they have become wards of the
state. Yet they have become powerful enough to capture lawmakers to act
as their facilitators. The popular media and even academic economic
theorists have been mobilized to pose as experts in an attempt to
convince the public that financial policy is best left to technocrats –
of the banks' own choosing, as if there is no alternative policy but for
governments to subsidize a financial free lunch and crown bankers as
society's rulers.

The Bubble Economy and its austerity aftermath could not have occurred
without the banking sector's success in weakening public regulation,
capturing national treasuries and even disabling law enforcement. Must
governments surrender to this power grab? If not, who should bear the
losses run up by a financial system that has become dysfunctional? If
taxpayers have to pay, their economy will become high-cost and
uncompetitive – and a financial oligarchy will rule.

The present debt quandary

The endgame in times past was to write down bad debts. That meant losses
for banks and investors. But today's debt overhead is being kept in
place – shifting bad loans off bank balance sheets to become public
debts owed by taxpayers to save banks and their creditors from loss.
Governments have given banks newly minted bonds or central bank credit
in exchange for junk mortgages and bad gambles – without re-structuring
the financial system to create a more stable, less debt-ridden economy.
The pretense is that these bailouts will enable banks to lend enough to
revive the economy by enough to pay its debts.

Seeing the handwriting on the wall, bankers are taking as much bailout
money as they can get, and running, using the money to buy as much
tangible property and ownership rights as they can while their lobbyists
keep the public subsidy faucet running.

The pretense is that debt-strapped economies can resume
business-as-usual growth by borrowing their way out of debt. But a
quarter of U.S. real estate already is in negative equity – worth less
than the mortgages attached to it – and the property market is still
shrinking, so banks are not lending except with public Federal Housing
Administration guarantees to cover whatever losses they may suffer. In
any event, it already is mathematically impossible to carry today's debt
overhead without imposing austerity, debt deflation and depression.

This is not how banking was supposed to evolve. If governments are to
underwrite bank loans, they may as well be doing the lending in the
first place – and receiving the gains. Indeed, since 2008 the
over-indebted economy's crash led governments to become the major
shareholders of the largest and most troubled banks – Citibank in the
United States, Anglo-Irish Bank in Ireland, and Britain's Royal Bank of
Scotland. Yet rather than taking this opportunity to run these banks as
public utilities and lower their charges for credit-card services – or
most important of all, to stop their lending to speculators and gamblers
– governments left these banks operating as part of the "casino
capitalism" that has become their business plan.

There is no natural reason for matters to be like this. Relations
between banks and government used to be the reverse. In 1307, France's
Philip IV ("The Fair") set the tone by seizing the Knights Templars'
wealth, arresting them and putting many to death – not on financial
charges, but on the accusation of devil-worshipping and satanic sexual
practices. In 1344 the Peruzzi bank went broke, followed by the Bardi by
making unsecured loans to Edward III of England and other monarchs who
died or defaulted. Many subsequent banks had to suffer losses on loans
gone bad to real estate or financial speculators.

By contrast, now the U.S., British, Irish and Latvian governments have
taken bad bank loans onto their national balance sheets, imposing a
heavy burden on taxpayers – while letting bankers cash out with immense
wealth. These "cash for trash" swaps have turned the mortgage crisis and
general debt collapse into a fiscal problem. Shifting the new public
bailout debts onto the non-financial economy threaten to increase the
cost of living and doing business. This is the result of the economy's
failure to distinguish productive from unproductive loans and debts. It
helps explain why nations now are facing financial austerity and debt
peonage instead of the leisure economy promised so eagerly by
technological optimists a century ago.

So we are brought back to the question of what the proper role of banks
should be. This issue was discussed exhaustively prior to World War I.
It is even more urgent today.

How classical economists hoped to modernize banks as agents of
industrial capitalism

Britain was the home of the Industrial Revolution, but there was little
long-term lending to finance investment in factories or other means of
production. British and Dutch merchant banking was to extend short-term
credit on the basis of collateral such as real property or sales
contracts for merchandise shipped ("receivables"). Buoyed by this trade
financing, merchant bankers were successful enough to maintain
long-established short-term funding practices. This meant that James
Watt and other innovators were obliged to raise investment money from
their families and friends rather than from banks.

It was the French and Germans who moved banking into the industrial
stage to help their nations catch up. In France, the Saint-Simonians
described the need to create an industrial credit system aimed at
funding means of production. In effect, the Saint-Simonians proposed to
restructure banks along lines akin to a mutual fund. A start was made
with the Crédit Mobilier, founded by the Péreire Brothers in 1852. Their
aim was to shift the banking and financial system away from debt
financing at interest toward equity lending, taking returns in the form
of dividends that would rise or decline in keeping with the debtor's
business fortunes. By giving businesses leeway to cut back dividends
when sales and profits decline, profit-sharing agreements avoid the
problem that interest must be paid willy-nilly. If an interest payment
is missed, the debtor may be forced into bankruptcy and creditors can
foreclose. It was to avoid this favoritism for creditors regardless of
the debtor's ability to pay that prompted Mohammed to ban interest under
Islamic law.

Attracting reformers ranging from socialists to investment bankers, the
Saint-Simonians won government backing for their policies under France's
Second Empire. Their approach inspired Marx as well as industrialists in
Germany and protectionists in the United States and England. The common
denominator of this broad spectrum was recognition that an efficient
banking system was needed to finance the industry on which a strong
national state and military power depended.

Germany develops an industrial banking system

It was above all in Germany that long-term financing found its
expression in the Reichsbank and other large industrial banks as part of
the "holy trinity" of banking, industry and government planning under
Bismarck's "state socialism." German banks made a virtue of necessity.
British banks "derived the greater part of their funds from the
depositors," and steered these savings and business deposits into
mercantile trade financing. This forced domestic firms to finance most
new investment out of their own earnings. By contrast, Germany's "lack
of capital ... forced industry to turn to the banks for assistance,"
noted the financial historian George Edwards. "A considerable proportion
of the funds of the German banks came not from the deposits of customers
but from the capital subscribed by the proprietors themselves.[4] As a
result, German banks "stressed investment operations and were formed not
so much for receiving deposits and granting loans but rather for
supplying the investment requirements of industry."

When the Great War broke out in 1914, Germany's rapid victories were
widely viewed as reflecting the superior efficiency of its financial
system. To some observers the war appeared as a struggle between rival
forms of financial organization. At issue was not only who would rule
Europe, but whether the continent would have laissez faire or a more
state-socialist economy.

In 1915, shortly after fighting broke out, the Christian Socialist
priest-politician Friedrich Naumann published Mitteleuropa, describing
how Germany recognized more than any other nation that industrial
technology needed long term financing and government support. His book
inspired Prof. H. S. Foxwell in England to draw on his arguments in two
remarkable essays published in the Economic Journal in September and
December 1917: "The Nature of the Industrial Struggle," and "The
Financing of Industry and Trade." He endorsed Naumann's contention that
"the old individualistic capitalism, of what he calls the English type,
is giving way to the new, more impersonal, group form; to the
disciplined scientific capitalism he claims as German."

This was necessarily a group undertaking, with the emerging tripartite
integration of industry, banking and government, with finance being
"undoubtedly the main cause of the success of modern German enterprise,"
Foxwell concluded (p. 514). German bank staffs included industrial
experts who were forging industrial policy into a science. And in
America, Thorstein Veblen's The Engineers and the Price System (1921)
voiced the new industrial philosophy calling for bankers and government
planners to become engineers in shaping credit markets.

Foxwell warned that British steel, automotive, capital equipment and
other heavy industry was becoming obsolete largely because its bankers
failed to perceive the need to promote equity investment and extend long
term credit. They based their loan decisions not on the new production
and revenue their lending might create, but simply on what collateral
they could liquidate in the event of default: inventories of unsold
goods, real estate, and money due on bills for goods sold and awaiting
payment from customers. And rather than investing in the shares of the
companies that their loans supposedly were building up, they paid out
most of their earnings as dividends – and urged companies to do the
same. This short time horizon forced business to remain liquid rather
than having leeway to pursue long term strategy.

German banks, by contrast, paid out dividends (and expected such
dividends from their clients) at only half the rate of British banks,
choosing to retain earnings as capital reserves and invest them largely
in the stocks of their industrial clients. Viewing these companies as
allies rather than merely as customers from whom to make as large a
profit as quickly as possible, German bank officials sat on their
boards, and helped expand their business by extending loans to foreign
governments on condition that their clients be named the chief suppliers
in major public investments. Germany viewed the laws of history as
favoring national planning to organize the financing of heavy industry,
and gave its bankers a voice in formulating international diplomacy,
making them "the principal instrument in the extension of her foreign
trade and political power."

A similar contrast existed in the stock market. British brokers were no
more up to the task of financing manufacturing in its early stages than
were its banks. The nation had taken an early lead by forming Crown
corporations such as the East India Company, the Bank of England and
even the South Sea Company. Despite the collapse of the South Sea Bubble
in 1720, the run-up of share prices from 1715 to 1720 in these
joint-stock monopolies established London's stock market as a popular
investment vehicle, for Dutch and other foreigners as well as for
British investors. But the market was dominated by railroads, canals and
large public utilities. Industrial firms were not major issuers of stock.

In any case, after earning their commissions on one issue, British
stockbrokers were notorious for moving on to the next without much
concern for what happened to the investors who had bought the earlier
securities. "As soon as he has contrived to get his issue quoted at a
premium and his underwriters have unloaded at a profit," complained
Foxwell, "his enterprise ceases. 'To him,' as the Times says, 'a
successful flotation is of more importance than a sound venture.'"

Much the same was true in the United States. Its merchant heroes were
individualistic traders and political insiders often operating on the
edge of the law to gain their fortunes by stock-market manipulation,
railroad politicking for land giveaways, and insurance companies, mining
and natural resource extraction. America's wealth-seeking spirit found
its epitome in Thomas Edison's hit-or-miss method of invention, coupled
with a high degree of litigiousness to obtain patent and monopoly rights.

In sum, neither British nor American banking or stock markets planned
for the future. Their time frame was short, and they preferred
rent-extracting projects to industrial innovation. Most banks favored
large real estate borrowers, railroads and public utilities whose income
streams easily could be forecast. Only after manufacturing companies
grew fairly large did they obtain significant bank and stock market credit.

What is remarkable is that this is the tradition of banking and high
finance that has emerged victorious throughout the world. The
explanation is primarily the military victory of the United States,
Britain and their Allies in the Great War and a generation later, in
World War II.

The regression toward burdensome unproductive debts after World War I

The development of industrial credit led economists to distinguish
between productive and unproductive lending. A productive loan provides
borrowers with resources to trade or invest at a profit sufficient to
pay back the loan and its interest charge. An unproductive loan must be
paid out of income earned elsewhere. Governments must pay war loans out
of tax revenues. Consumers must pay loans out of income they earn at a
job – or by selling assets. These debt payments divert revenue away from
being spent on consumption and investment, so the economy shrinks. This
traditionally has led to crises that wipe out debts, above all those
that are unproductive.

In the aftermath of World War I the economies of Europe's victorious and
defeated nations alike were dominated by postwar arms and reparations
debts. These inter-governmental debts were to pay for weapons (by the
Allies when the United States unexpectedly demanded that they pay for
the arms they had bought before America's entry into the war), and for
the destruction of property (by the Central Powers), not new means of
production. Yet to the extent that they were inter-governmental, these
debts were more intractable than debts to private bankers and
bondholders. Despite the fact that governments in principle are
sovereign and hence can annul debts owed to private creditors, the
defeated Central Power governments were in no position to do this.

And among the Allies, Britain led the capitulation to U.S. arms billing,
captive to the creditor ideology that "a debt is a debt" and must be
paid regardless of what this entails in practice or even whether the
debt in fact can be paid. Confronted with America's demand for payment,
the Allies turned to Germany to make them whole. After taking its liquid
assets and major natural resources, they insisted that it squeeze out
payments by taxing its economy. No attempt was made to calculate just
how Germany was to do this – or most important, how it was to convert
this domestic revenue (the "budgetary problem") into hard currency or
gold. Despite the fact that banking had focused on international credit
and currency transfers since the 12th century, there was a broad denial
of what John Maynard Keynes identified as a foreign exchange transfer
problem.

Never before had there been an obligation of such enormous magnitude.
Nevertheless, all of Germany's political parties and government agencies
sought to devise ways to tax the economy to raise the sums being
demanded. Taxes, however, are levied in a nation's own currency. The
only way to pay the Allies was for the  Reichsbank to take this fiscal
revenue and throw it onto the foreign exchange markets to obtain the
sterling and other hard currency to pay. Britain, France and the other
recipients then paid this money on their Inter-Ally debts to the United
States.

Adam Smith pointed out that no government ever had paid down its public
debt. But creditors always have been reluctant to acknowledge that
debtors are unable to pay. Ever since David Ricardo's lobbying for their
perspective in Britain's Bullion debates, creditors have found it their
self-interest to promote a doctrinaire blind spot, insisting that debts
of any magnitude could be paid. They resist acknowledging a distinction
between raising funds domestically (by running a budget surplus) and
obtaining the foreign exchange to pay foreign-currency debt.
Furthermore, despite the evident fact that austerity cutbacks on
consumption and investment can only be extractive, creditor-oriented
economists refused to recognize that debts cannot be paid by shrinking
the economy.5 Or that foreign debts and other international payments
cannot be paid in domestic currency without lowering the exchange rate.

The more domestic currency Germany sought to convert, the further its
exchange rate was driven down against the dollar and other gold-based
currencies. This obliged Germans to pay much more for imports. The
collapse of the exchange rate was the source of hyperinflation, not an
increase in domestic money creation as today's creditor-sponsored
monetarist economists insist. In vain Keynes pointed to the specific
structure of Germany's balance of payments and asked creditors to
specify just how many German exports they were willing to take, and to
explain how domestic currency could be converted into foreign exchange
without collapsing the exchange rate and causing price inflation.

Tragically, Ricardian tunnel vision won Allied government backing.
Bertil Ohlin and Jacques Rueff claimed that economies receiving German
payments would recycle their inflows to Germany and other debt-paying
countries by buying their imports. If income adjustments did not keep
exchange rates and prices stable, then Germany's falling exchange rate
would make its exports sufficiently more attractive to enable it to earn
the revenue to pay.

This is the logic that the International Monetary Fund followed half a
century later in insisting that Third World countries remit foreign
earnings and even permit flight capital as well as pay their foreign
debts. It is the neoliberal stance now demanding austerity for Greece,
Ireland, Italy and other Eurozone economies.

Bank lobbyists claim that the European Central Bank will risk spurring
domestic wage and price inflation of it does what central banks were
founded to do: finance budget deficits. Europe's financial institutions
are given a monopoly right to perform this electronic task – and to
receive interest for what a real central bank could create on its own
computer keyboard.

But why it is less inflationary for commercial banks to finance budget
deficits than for central banks to do this? The bank lending that has
inflated a global financial bubble since the 1980s has left as its
legacy a debt overhead that can no more be supported today than Germany
was able to carry its reparations debt in the 1920s. Would government
credit have so recklessly inflated asset prices?

How debt creation has fueled asset-price inflation since the 1980s

Banking in recent decades has not followed the productive lines that
early economic futurists expected. As noted above, instead of financing
tangible investment to expand production and innovation, most loans are
made against collateral, with interest to be paid out of what borrowers
can make elsewhere. Despite being unproductive in the classical sense,
it was remunerative for debtors from 1980 until 2008 – not by investing
the loan proceeds to expand economic activity, but by riding the wave of
asset-price inflation. Mortgage credit enabled borrowers to bid up
property prices, drawing speculators and new customers into the market
in the expectation that prices would continue to rise. But hothouse
credit infusions meant additional debt service, which ended up shrinking
the market for goods and services.

Under normal conditions the effect would have been for rents to decline,
with property prices following suit, leading to mortgage defaults. But
banks postponed the collapse into negative equity by lowering their
lending standards, providing enough new credit to keep on inflating
prices. This averted a collapse of their speculative mortgage and stock
market lending. It was inflationary – but it was inflating asset prices,
not commodity prices or wages. Two decades of asset price inflation
enabled speculators, homeowners and commercial investors to borrow the
interest falling due and still make a capital gain.

This hope for a price gain made winning bidders willing to pay lenders
all the current income – making banks the ultimate and major rentier
income recipients. The process of inflating asset prices by easing
credit terms and lowering the interest rate was self-feeding. But it
also was self-terminating, because raising the multiple by which a given
real estate rent or business income can be "capitalized" into bank loans
increased the economy's debt overhead.

Securities markets became part of this problem. Rising stock and bond
prices made pension funds pay more to purchase a retirement income – so
"pension fund capitalism" was coming undone. So was the industrial
economy itself. Instead of raising new equity financing for companies,
the stock market became a vehicle for corporate buy-outs. Raiders
borrowed to buy out stockholders, loading down companies with debt. The
most successful looters left them bankrupt shells. And when creditors
turned their economic gains from this process into political power to
shift the tax burden onto wage earners and industry, this raised the
cost of living and doing business – by more than technology was able to
lower prices.

The EU rejects central bank money creation, leaving deficit financing to
the banks

Article 123 of the Lisbon Treaty forbids the ECB or other central banks
to lend to government. But central banks were created specifically – to
finance government deficits. The EU has rolled back history to the way
things were three hundred years ago, before the Bank of England was
created. Reserving the task of credit creation for commercial banks, it
leaves governments without a central bank to finance the public spending
needed to avert depression and widespread financial collapse.

So the plan has backfired. When "hard money" policy makers limited
central bank power, they assumed that public debts would be risk-free.
Obliging budget deficits to be financed by private creditors seemed to
offer a bonanza: being able to collect interest for creating electronic
credit that governments can create themselves. But now, European
governments need credit to balance their budget or face default. So
banks now want a central bank to create the money to bail them out for
the bad loans they have made.

For starters, the ECB's 489 billion euros in three-year loans at 1%
interest gives banks a free lunch arbitrage opportunity (the "carry
trade") to buy Greek and Spanish bonds yielding a higher rate. The
policy of buying government bonds in the open market – after banks first
have bought them at a lower issue price – gives the banks a quick and
easy trading gain.

How are these giveaways less inflationary than for central banks to
directly finance budget deficits and roll over government debts? Is the
aim of giving banks easy gains simply to provide them with resources to
resume the Bubble Economy lending that led to today's debt overhead in
the first place?

Conclusion

Governments can create new credit electronically on their own computer
keyboards as easily as commercial banks can. And unlike banks, their
spending is expected to serve a broad social purpose, to be determined
democratically. When commercial banks gain policy control over
governments and central banks, they tend to support their own
remunerative policy of creating asset-inflationary credit – leaving the
clean-up costs to be solved by a post-bubble austerity. This makes the
debt overhead even harder to pay – indeed, impossible.

So we are brought back to the policy issue of how public money creation
to finance budget deficits differs from issuing government bonds for
banks to buy. Is not the latter option a convoluted way to finance such
deficits – at a needless interest charge? When governments monetize
their budget deficits, they do not have to pay bondholders.

I have heard bankers argue that governments need an honest broker to
decide whether a loan or public spending policy is responsible. To date
their advice has not promoted productive credit. Yet they now are
attempting to compensate for the financial crisis by telling debtor
governments to sell off property in their public domain. This "solution"
relies on the myth that privatization is more efficient and will lower
the cost of basic infrastructure services. Yet it involves paying
interest to the buyers of rent-extraction rights, higher executive
salaries, stock options and other financial fees.

Most cost savings are achieved by shifting to non-unionized labor, and
typically end up being paid to the privatizers, their bankers and
bondholders, not passed on to the public. And bankers back price
deregulation, enabling privatizers to raise access charges. This makes
the economy higher cost and hence less competitive – just the opposite
of what is promised.

Banking has moved so far away from funding industrial growth and
economic development that it now benefits primarily at the economy's
expense in a predator and extractive way, not by making productive
loans. This is now the great problem confronting our time. Banks now
lend mainly to other financial institutions, hedge funds, corporate
raiders, insurance companies and real estate, and engage in their own
speculation in foreign currency, interest-rate arbitrage, and
computer-driven trading programs. Industrial firms bypass the banking
system by financing new capital investment out of their own retained
earnings, and meet their liquidity needs by issuing their own commercial
paper directly. Yet to keep the bank casino winning, global bankers now
want governments not only to bail them out but to enable them to renew
their failed business plan – and to keep the present debts in place so
that creditors will not have to take a loss.

This wish means that society should lose, and even suffer depression. We
are dealing here not only with greed, but with outright antisocial
behavior and hostility.

Europe thus has reached a critical point in having to decide whose
interest to put first: that of banks, or the "real" economy. History
provides a wealth of examples illustrating the dangers of capitulating
to bankers, and also for how to restructure banking along more
productive lines. The underlying questions are clear enough:

* Have banks outlived their historical role, or can they be restructured
to finance productive capital investment rather than simply inflate
asset prices?

* Would a public option provide less costly and better directed credit?

* Why not promote economic recovery by writing down debts to reflect the
ability to pay, rather than relinquishing more wealth to an increasingly
aggressive creditor class?

Solving the Eurozone's financial problem can be made much easier by the
tax reforms that classical economists advocated to complement their
financial reforms. To free consumers and employers from taxation, they
proposed to levy the burden on the "unearned increment" of land and
natural resource rent, monopoly rent and financial privilege. The
guiding principle was that property rights in the earth, monopolies and
other ownership privileges have no direct cost of production, and hence
can be taxed without reducing their supply or raising their price, which
is set in the market. Removing the tax deductibility for interest is the
other key reform that is needed.

A rent tax holds down housing prices and those of basic infrastructure
services, whose untaxed revenue tends to be capitalized into bank loans
and paid out in the form of interest charges. Additionally, land and
natural resource rents – along with interest – are the easiest to tax,
because they are highly visible and their value is easy to assess.

Pressure to narrow existing budget deficits offers a timely opportunity
to rationalize the tax systems of Greece and other PIIGS countries in
which the wealthy avoid paying their fair share of taxes. The political
problem blocking this classical fiscal policy is that it "interferes"
with the rent-extracting free lunches that banks seek to lend against.
So they act as lobbyists for untaxing real estate and monopolies (and
themselves as well). Despite the financial sector's desire to see
governments remain sufficiently solvent to pay bondholders, it has
subsidized an enormous public relations apparatus and academic junk
economics to oppose the tax policies that can close the fiscal gap in
the fairest way.

It is too early to forecast whether banks or governments will emerge
victorious from today's crisis. As economies polarize between debtors
and creditors, planning is shifting out of public hands into those of
bankers. The easiest way for them to keep this power is to block a true
central bank or strong public sector from interfering with their
monopoly of credit creation. The counter is for central banks and
governments to act as they were intended to, by providing a public
option for credit creation.

Notes
2 Joseph E. Stiglitz, "Obama's Ersatz Capitalism," The New York Times,
April 1, 2009
http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html.
3 http://neweconomicperspectives.blogspot.com , and The Best Way to Rob
a Bank is to Own One (2005).
4 George W. Edwards, The Evolution of Finance Capitalism (New York:
1938):68.
5 review the literature from the 1920s, its Ricardian pedigree and
subsequent revival by the IMF and other creditor institutions in Trade,
Development and Foreign Debt: A History of Theories of Polarization v.
Convergence in the World Economy (1992; new ed. ISLET 2010). I provide
the political background in Super Imperialism: The Economic Strategy of
American Empire (New York: Holt, Rinehart and Winston, 1972; 2nd ed.,
London: Pluto Press, 2002),

(2) Trade is moving away from $. Shifting of economic power to Asia -
Ambassador Gajendra Singh

Fro: Israel shamir <israel.shamir@gmail.com> Date: 30 January 2012 19:19

Our Indian friend, Ambassador Gajendra Singh, wrote this long exposition
of Iran-US conflict and the travail of Europe:

http://tarafits.blogspot.com/2012/01/post-bretton-woods-emerging-outlines-of.html


Post Bretton Woods; Emerging Outlines of New International Monetary Order

Amb. (Retd.) K. Gajendra Singh

, January 29, 2012

Petrol Bourses are Modern Silk Routes

"History is ruled by an inexorable determinism in which the free choice
of major historical figures plays a minimal role", Leo Tolstoy

"Keynes's collective work amounted to a powerful argument that
capitalism was by its very nature unstable and prone to collapse. Far
from trending toward some magical state of equilibrium, capitalism would
inevitably do the opposite. It would lurch over a cliff," --- Hyman Minsky.

In 1960s, while returning from Algiers by boat via Marseilles, I found
that the French shop keepers were very reluctant to accept US dollars,
preferring Algerian Dinars .It was said that the French were converting
their reserves of US dollars into gold .Why were the French and
president Gen De Gaulle doing so! ( It became clear by 1971)

Because at the end of WWII in 1944, agreements were drawn up at Bretton
Woods, New Hampshire, USA to establish a new monetary management system
to avoid worldwide economic disasters like the great depression
experienced in the 1930's. Under this agreement the International
Monetary Fund was set up along with the World Bank. Both the
institutions have been used to maintain and expand US financial hegemony
around the world.

Bretton Woods established the US dollar as the reserve currency of the
world, replacing the British pound sterling and required world
currencies to be pegged to the dollar rather than gold.

The demise of Bretton Woods began in 1971 when Richard Nixon took the US
off of the Gold Standard to stem the outflow of gold. But the dollar has
remained a 'fiat currency," backed by nothing but the promise of the US
federal government." But the 1971 US action, referred to as the Nixon
shock, created a situation in which the United States dollar remains the
sole backing of currencies and a reserve currency for the member states.

Thus USA which had promised an ounce of Gold for US$ 35 went back on its
international commitment , causing loss to those who held US dollars and
not gold as reserves .So do not be surprised if Washington devalues $ or
even refuses to reimburse trillions of dollars of debt , many countries
hold in US dollar denominated securities .

In any case by 1976 the principles of Bretton Woods were abandoned all
together and the world currencies again became free floating. But
Bretton Woods remains an important template for forex traders.

At the Bretton Woods II conference in New Hampshire in April last year
funded by US speculator billionaire George Soros , who finances regime
changes in US favour , he admitted that "The big question is whether the
U.S. dollar should be the reserve currency; and, added that in fact, it
no longer is." The Nobel Prize winning economist Joseph Stiglitz,
Columbia University professor, and former Senior Vice President and
Chief Economist of the World Bank admitted that the US dollar as the
reserve currency is hurting the entire world. The US Federal Reserve has
failed, and inequality in the US was reaching a tipping point that hurts
the economy and society, with policymakers sending the US further in the
wrong direction.

Stieglitz who also chairs the U.N. General Assembly on Reforms of the
International Monetary and Financial System, has argued  for "a global
reserve currency and  called for a new "global system," saying the
current one is "fundamentally unfair because it means that poor
countries are lending to the U.S. at close to zero interest rates.""

During the last few years many countries including the five BRICS
nations – Brazil, Russia, India, China and South Africa have held many
meetings including at the summit level and called "for a restructuring
of the World War II-era global financial system and an eventual end to
the long reign of the U.S. dollar as the world's reserve currency."

Petrodollars; US-Ibn Saud dynasty nexus;

Since the 1930s after the discovery of oil in the Arab peninsula, a
critical development in the history of oil industry, there is the nexus
between US and Saudi Arabia and a compact between the Saudi ruling elite
and the puritan Wahabis, to handover the peninsula's oil wealth and
revenues for western exploitation and benefit in return for protection
to the Saud dynasty. This nexus has stood the test of time between
successive Saudi and US governments. Washington has done everything to
maintain the feudal regime in power, a regime which controls "the
largest family business" in the world and lacks any popular mandate. (
It has not stopped Riyadh from interfering in other nations affairs
across the Muslim world for greater freedoms and 'democracy 'i.e. in
Syria , earlier in Libya etc)

This nexus began with first Franklin Roosevelt, then Dwight Eisenhower
to Jimmy Carter to George H.W. Bush. Declared Roosevelt after meeting
Saudi Arabia's king aboard a warship in 1945, "I hereby find that the
defense of Saudi Arabia is vital to the defense of the United States."
Carter, in 1980, put it even more forcefully: "Let our position be
absolutely clear. Any attempt by any outside force to gain control of
the Persian Gulf region will be regarded as an assault on the vital
interests of the United States." It was clear even before WWII that oil
had become the vital strategic commodity for expanding military and
economic clout .During WWII, the Nazis occupied Romania for its oil and
went for the oil fields in Azerbaijan, both countries then big oil
producers.

Even a major reason for the partition of Hindustan was to protect
western oil wells in the Middle East. Late Indian diplomat Narendra
Singh Sarila in his well researched book 'The Shadow of the Great Game:
The Untold Story of India's Partition', documents how the British
leadership across the political spectrum , Conservatives and Labour ,
intrigued ,told lies , divided the Indian subcontinent and created a
weak state of Pakistan which would be reliant on the West. Because
Mahatma Gandhi with this opposition to violence and war, and emphasis on
peaceful means to resolve all disputes and Jawaharlal Nehru with his
non-real politic idealism and vision of creating friendship and
understanding among colonized and exploited people of Asia, Africa,
Middle east and elsewhere, would not join Western military pacts to
protect from the Soviet Union, the oil wells in the Middle East
dominated by Western oil companies.

Washington backed its commitment to protect Saudi Arabia with military
treaties reaching into the Middle East. Apart from NATO and CENTO, U.S.
military bases are stretched into east Africa, the Indian Ocean, and the
Gulf to protect ME oil. Then came the Rapid Deployment Force and the
U.S. Central Command and the U.S. 5th Fleet, now based in Bahrain. The
1991 Gulf War led to a massive expansion of the U.S. military presence
in the region, including putting US troops on sacred Saudi soil, a major
cause of anguish and deep resentment among conservative Muslims,
specially the likes of the recently assassinated Osama bin Laden and Al
Qaida and other such outfits.

Then came the 2003 illegal US led invasion of Iraq for its oil ,
publicly proclaimed by powerful deputy defense secretary Paul Wolfowitz
and others like Alan Greenspan  .The invasion and brutal occupation has
resulted in the death of over a million Iraqis , devastated the people
,divided and destroyed the state .But the outcome has been discomforting
and to the contrary .The fierce Iraqi resistance has 'broken the US
army' on the ground , making Washington to think many times to land
large body of troops elsewhere. A Shia led pro-Tehran elite now controls
Baghdad .Thus Iran's position has been strengthened against which
Washington has developed a visceral hatred since West's gendarme in the
region ,Shah of Iran was ousted in 1979 and US diplomats in Tehran
Embassy held hostage .

All efforts are now being made to weaken Iran, directly or by weakening
its allies; the Hezbollah in Lebanon and Assad regime in Damascus. But
Russia and China are offering strong resistance, especially Moscow,
against regime change of its ally Bashar Assad in Syria, since it will
adversely affect its strategic position in the Mediterranean after the
loss of Libyan ports. Washington with Saudi (and Qatari) finances has
been exploiting the revolt of Arabs in north Africa against US puppet
rulers of Egypt, Tunisia, Yemen and elsewhere by promoting Muslim
Brotherhood and other religious groups, as it has always done ie against
nationalist and socialist regimes of Nasser in 1950s and 1960s and
recently Saddam Hussein in Iraq and Muammer Gaddafi in Libya.

US remains determined that the business and trade in petroleum and gas
is carried out and nominated in dollars, not only by Saudi Arabia but
other five members of the Gulf Cooperation Council (GCC) as ordained but
by others too. It is this template which acts as the spine for dollar as
the reserve currency. But major changes are emerging.

Shifting of Economic Power from West to Asia

John Embry, Chief Investment Strategist of $9 billion strong Sprott
Asset Management, said last year "When you look at the financial
condition of the United States at the federal level, at the state level
and at the municipal level, I don't see any way out of this.  There's
too much debt, interest rates are far too low.  If interest rates really
reflected what's going on, this risk in the debt and the risk of
inflation, they would be hundreds of basis points higher and under that
event the debt couldn't be serviced.  So there will be some form of
default." Financial Times (London) warned last year that the US dollar
will lose its status as the reserve currency in 25 years and would be
replaced by a portfolio of currencies according to a survey of central
bank reserve managers who collectively control more than $8,000 billion,
unlike in the past when they said the dollar would retain its status as
the sole reserve currency. -- The dollar would be replaced by a
portfolio of currencies within the next 25 years. Central banks have
bought about 151 tons of gold so far this year, led by Russia and
Mexico, according to the World Gold Council, and are on track to make
their largest annual purchases of bullion since the collapse in 1971 of
the Bretton Woods system, which pegged the value of the dollar to gold.
The Yellow metal Would be the best performing asset class over the next
year, citing sovereign defaults as the chief risk to the global economy.
  US debt now amounts to over $ 14 trillion , equal to its GDP .Even in
this GDP , the financial industry contributes 40%.The US economy is now
20-25 % of world GDP unlike 50% after WWII and is being artificially
sustained by a stimulus of  $ 2.8 trillion .There are no green shoots of
revival , unemployment continues to rise . US economy remains in
recession .The 1930s recession was overcome by WWII which allowed its
protected ( from war) industry to run full steam and indebt European and
other countries .With many industries disappearing or in decline , even
the automobile one ,the US economic downhill can only worsen.

For the first time ever, the United States lost its perfect credit
rating as Standard & Poor's reduced its long-term debt assessment in
August last year from AAA to AA+ with a negative outlook.

In announcing the move, the ratings agency said a deal that week to
reduce the nation's debt did not go far enough and exposed paralyzing
political dysfunction. The downgrade could cost the government and
ordinary consumers billions of dollars by jacking up interest rates the
U.S. must pay on its $14.4 trillion debt and a host of rates consumers
pay for items such as mortgages, car loans and credit cards.

Has the Critical moment of Paradigm Shift Arrived

In an article of 26 October, 2011, titled 'The End of the American Era',
Prof Stephen M. Walt stated that 'THE AMERICAN ERA' began immediately
after World War II. Europe may have been the center of international
politics for over three centuries, but two destructive world wars
decimated these great powers. So is USA in many wars .Paul Kennedy's
best-selling Rise and Fall of the Great Powers, had argued in 1985 that
America was in danger of "imperial overstretch." He believed that Great
Britain returned to the unseemly ranks of mediocrity because it spent
too much money defending far-flung interests and fighting costly wars,
and he warned that the United States was headed down a similar path.

A new Reserve currency to challenge the dollar – What's really going on
in the Straits of Hormuz.

http://mycatbirdseat.com/2012/01/a-new-reserve-currency-to-challenge-the-dollar-whats-really-going-on-in-the-straits-of-hormuz/

Speculation and talk about a Settlement or Reserve Currency has been
going for quite some time, especially in the last few years. David
Malone, author of the "The Debt Generation" has focused considerable
attention on the financial systems. The Settlement Currency just means
the currency both parties agree is stable, internationally trusted and
accepted, and in plentiful supply which may not be the case for their
own currencies. China and some other countries want to challenge the US
and dollar hegemony with the eventual goal of creating an alternative
reserve currency backed by gold rather than the dollar or by debt. These
countries have been buying lots of gold and include Russia, China and
India among others .They are talking about the need for a new reserve
currency to replace the dollar.

Malone noted media reports that India was talking to Iran about moving
out of dollar settlements so as to be able to buy Iranian oil despite a
US embargo. India said it was discussing settling payments in Gold since
Iran does not buy much from India unlike from China. India has also
signed a settlement agreement with China to use the Yuan. China and
Russia have been trading directly in their own currencies and using them
both interchangeably for settlement for over a year. As the "The China
Daily "article reported that Beijing is allowing greater use of its
currency for cross-border transactions to reduce reliance on the US
dollar, after Premier Wen Jiabao said in March last year that he was
"worried" about holdings of assets denominated in the greenbacks.

Then on 26th December 2011 Bloomberg reported, Japan and China will
promote direct trading of the yen and Yuan without using dollars and
will encourage the development of a market for companies involved in the
exchanges. China is Japan's largest trading partner. Japan will also
start in 2012 buying Chinese debts. How much Dollar debt will either of
them buy? They have both already been buying less.

On Dec.28 last year the Iranian news service reported that Iran and
China signed two agreements on expansion of trade ties and joint
investments. These trades too will not be settled in Dollars or in Euros.

  "The China Post" reported that on the last day of 2011, US President
Obama had signed a new law imposing sanctions on banks dealing with
Iran….Sanctioned institutions would be frozen out of U.S. financial
markets. But as the article went on to report, with only barely
concealed delight, the threat may be as hollow as the dollar itself. The
law comes with exemptions which may eventually highlight America's
plight rather than its might.

"The Iranian oil embargo blowback "

While events and changes have been taking place as do all major
historical movements and changes, perhaps the US and EU decision to put
more sanctions against Iran and for EU not to buy Iran oil from July may
be one of the straws that breaks the US Camel of Dollar Reserve
Currency. Iran is an important oil supplier to emerging Asian countries
like China, Japan, South Korea and India.

India whose prime minister committed Indians of deep love for George
Bush, a few years ago, as a result of one harmful policy after another
against India by Washington, finding its back stretched has decided that
New Delhi, faced with difficulties to make payment by banks for Iranian
oil will even settle the accounts in gold bullion, according to media
reports including one close to Israel.

Veteran journalist Pepe Escobar puts it colourfully in his Asia Times
column "The Iranian oil embargo blowback";

"Russian Foreign Minister Sergey Lavrov said, "Unilateral sanctions
don't help matters". The Ministry of Foreign Affairs in Beijing,
exercising immense tact, nevertheless was unmistakable; "To blindly
pressure and impose sanctions on Iran are not constructive approaches."

Turkey's Foreign Minister Ahmet Davutoglu said, "We have very good
relations with Iran, and we are putting much effort into renewing Iran's
talks with the 5+1 [Iran Six - the United Nations Security Council
permanent members plus Germany] mediators' group. Turkey will continue
looking for a peaceful solution to the issue."

BRICS member India - alongside Russia and China - also dismissed
sanctions. South Korea and Japan will inevitably extract exemptions from
the Barack Obama administration.

All across Eurasia trade is fast moving away from the US dollar. The
Asian Dollar Exclusion Zone, crucially, also means that Asia is slowly
disengaging itself from Western banks.

The movement may be led by China - but it's irreversibly transnational.
Once again, follow the money. BRICS members China and Brazil started
bypassing the US dollar on trade in 2007. BRICS members Russia and China
did the same in 2010. Japan and China - the top two Asian giants - did
the same only last month.

Only last week, Saudi Arabia and China rolled out a project for a giant
oil refinery in the Red Sea. And India more or less secretly is deciding
to pay for Iranian oil in gold - even bypassing the current middleman, a
Turkish bank.

Asia wants a new international system - and it's working for it.
Inevitable long-term consequences; the US dollar - and, crucially, the
petrodollar - slowly drifting into irrelevance. "Too Big to Fail" may
turn out to be not a categorical imperative, but an epitaph." concluded
Escobar.

Under US pressure ,EU declared economic war in the form of an Iranian
oil embargo , beginning July , never mind many of their refineries are
suited to light Iranian oil , although Libya can make up for some of the
loss, the only thing the invaders have set right since Gaddafi lynching
. Libya remains chaotic, with torture and strong trends towards a
possible civil war, showing that West was only interested in stealing
Libyan oil, having earlier gulped its assets in Western banks.

Against ill thought bluff moves, chess players in Iran have acted fast.
The Majlis (Iranian parliament) is discussing  the matter of sanctions
and EU embargo on 29 January and may decide  to cancel right away all
oil exports to any European country that approved the embargo .A member
of Parliament Nasser Soudani: declared "Europe will burn in the fire of
Iran's oil wells."

Wrote Ambassador M.K.Bhadrakumar in his recent blog;

"The week ahead promises to be of momentous importance for the Middle
East - and for international security. Two templates are overlapping in
Tehran. One, Iran's Majlis is voting today on a legislation to put
embargo on oil exports to Europe w.e.f coming week. The indications are
that the law will sail through and may forthwith secure the approval of
the Guardian Council.

Iran's retaliation has huge implications for international security. Put
simply, we are all wading into unchartered waters. There is high
probability of a chain reaction with oil price skyrocketing. The
analysts have only been dabbling in the subject, as the latest
disclosure by Reuters from Tehran suggests.

"The Reuters report says that all European companies with pending oil
contracts with Iran are going to be hit. For Italy's Eni, for instance,
the buyback contracts are worth $1.5 billion. Again, around 70
refineries in Europe will need to be shut down if the light, 'sweet'
crude from Iran is unavailable. So, it all goes far beyond a matter of
shortages in crude supply that Saudi Arabia can somehow make up.

Significantly, Saudi FM Prince Saud Al-Faisal has been quoted as saying
that there is no 'binding decision' by the GCC countries in response to
the EU's sanctions against Iran and adding, most interestingly, that
they will only defer to decisions made by the UN. The FM underscored the
importance of a "balanced market" for oil.

Riyadh is obviously having a multitude of considerations, which
certainly includes Saudi Arabia's long-term relationship with Iran and
the logic of geography that places the two countries as neighbours.
Prince Faisal was speaking on the sidelines of a GCC-Turkey conference
in Istanbul on Saturday where Turkish FM Ahmed Davutoglu categorically
distanced his country from sanctions against Iran.

Meanwhile, the IAEA inspectors have arrived in Tehran. Iran's dialogue
with the IAEA is resuming after a gap of 3 years. Most western
assessments are already pessimistic about the prospects of the talks,
while Iranian FM Ali Akbar Salehi has sounded hopeful.

The IAEA director-general Yukiya Amano, ominously, has dimension "to
Iran's nuclear programme. Unlike Mohammed ElBaradei, who had a mind of
his own, Amano holds the American brief and seems to be working toward
the objective of referring Iran to the UN Security Council.

Ironically, he acknowledges that he has no proof in hand that there is
any military content to Iran's nuclear programme. Equally, the renowned
former IAEA director Hans Blix has suggested that there is still room
for diplomacy.

But if the intention is to browbeat Iran, the inspectors aren't going to
get anywhere. The supreme leader's advisor and elder statesman Ali Akbar
Velayati has forewarned that Iran won't blink. Tehran is on guard that
the IAEA inspectors are possibly holding a western brief. Velayati
said:"We [Iran] have always been open with regard to our nuclear issues
and the IAEA team coming to Iran can make the necessary inspections. We
will, however, not withdraw from our nuclear rights as we have
consistently acted within international regulations and in line with the
laws of the non-proliferation treaty. Furthermore, wherever Iran has any
nuclear activities, the IAEA cameras have constant monitoring ,adds Amb
Bhadrakumar.

If EU hopes that Saudi Arabia will bail out , whatever the spin in
Western corporate media – Riyadh does not have the spare capacity.
Saudis will be happy with higher prices  is high oil prices, as they
have indicated ,to bribe - apart from repressing - its own population
into forgetting about Arab revolts against US puppets in Arab states in
north Africa and Yemen. It is likely that the Europeans will be
compelled to buy oil at higher prices indirectly through intermediaries.
This will hit Club Med countries such as Spain, Italy and Greece, having
little time to find a possible alternative to Iran's light, high-quality
crude.  Greece - already facing the abyss - has been buying heavily
discounted oil from Iran. The oil embargo may even precipitating a Greek
government bond default - and have even cascading effect in the
Euro-zone (Ireland, Portugal, Italy, Spain – and even beyond)

Reaction to sanctions and embargo

Russian Foreign Minister Sergey Lavrov said, "Unilateral sanctions don't
help matters". Foreign Ministry in Beijing, said "To blindly pressure
and impose sanctions on Iran are not constructive approaches."

Even Turkey which has been cajoled and enticed into supporting Saudi
policies by Yesil Surmaye aka Green Money from Riyadh since 2001 , finds
that its  Foreign Minister Ahmet Davutoglu policy of 'Zero friction with
neighbours ' has ended in  tensions with all its neighbours and the
passage of Armenian genocide bill in French Parliament . Davutoglu, who
recently visited Tehran to sort out differences said  "We have very good
relations with Iran, and we are putting much effort into renewing Iran's
talks with the 5+1 [Iran Six - the United Nations Security Council
permanent members plus Germany] mediators' group. Turkey will continue
looking for a peaceful solution to the issue."

BRICS member India - alongside Russia and China – is opposed to
sanctions according the media including a website close to Israel. India
will keep buying Iranian oil and paying in rupees or even in gold. After
being led by the noose and hood winked by Washington on Indo-US Nuclear
Treaty which has given no freedom from NSG regime or access to advanced
technology, not allowed to work out an energy security policy with Iran
and others, New Delhi is moving away from total obedience to Washington,
since the replacement of a policeman National Security Adviser by a
strategic expert.

Oil Bourses

West controls the oil trade via three current oil markers, all US dollar
denominated: North America's West Texas Intermediate crude (WTI), North
Sea Brent Crude, and the UAE Dubai Crude. The two major oil bourses are
the New York Mercantile Exchange (NYMEX) in New York City and the
Intercontinental Exchange (ICE) in London & Atlanta.

US led west and its oil companies manipulate oil prices .Now the
stimulus of over three trillion dollars is used to play around the
stocks in the world and use this vast almost interest free sum for
speculating in commodities and oil .Energy expert and economist William
Engdahl has proved clearly, how a large portion of high oil prices paid
by the world goes into the pockets of western speculators who have free
access to massive funds from US and allied banks.

A defiant president Saddam Hussein of Iraq had converted in 2000, all
its oil transactions under the Oil for Food program to Euros. When U.S.
invaded Iraq in 2003, it returned oil sales from the euro to the USD .It
is now clear that the invasion of Iraq had little threat from Saddam's
so called WMD program but with gaining strategic control over Iraq's
hydrocarbon reserves and in doing so maintain the U.S. dollar as the
monopoly currency for the critical international oil market.

Iran has been planning its own independent oil bourse since 2005 .In
middle ages when trade was mostly done by caravans along Silk Routes ,
the empires vied with each other to control them and fought wars (See
War Over Silk Routes and Petro-Bourses: Would History Repeat Itself ?)

http://tarafits.blogspot.com/2010/08/war-over-silk-routes-and-petro-bourses.html

The Iranian Oil Bourse in Kish took some time to develop as a Petro
bourse ,a fourth oil market, denominated by the Iranian rial, the euro
and other major currencies. It opened for business on February 17, 2008,
a joint venture between Iranian ministries, the Iran Mercantile Exchange
and other state and private institutions. It is located at the Persian
Gulf island of Kish and is designated by Iran as a free trade zone.

During 2007, Iran asked its petroleum customers to pay in non US dollar
currencies. By December 8, 2007, Iran was reported to have converted all
of its oil export payments to non-dollar currencies. The Kish Bourse was
opened in a videoconference ceremony on February 17, 2008, despite last
minute disruptions to the internet services to the Persian Gulf regions.

According to Iran's Press TV, Iran's international oil bourse was
officially inaugurated in July 2011.   The opening ceremony was attended
by Iran's First Vice President Mohammad Reza Rahimi, Economy Minister
Shamseddin Husseini, and Caretaker of the Oil Ministry Mohammad Aliabadi.

National Iranian Oil Company (NIOC) was expected to offer 600,000
barrels of heavy crude oil for sale on the first day launch of the
bourse. Ali Akbar Hashemian, the managing director of Iran Mercantile
Exchange, said the NIOC planned to offer 50,000 barrels of Iran's crude
on the bourse on a regular daily basis, once all the necessary
requirements are satisfied. Iran, OPEC's second-largest oil producer,
has the world's second largest natural gas reserves after Russia.

Conclusion

US led West and the world itself is entering an unknown territory. The
only definite outcome is the reduction and perhaps elimination of US led
Western hegemony since WWII and almost a rogue elephant like run in the
world since the Fall of the Berlin Wall .But how long will it take US to
be reduced in influence and economic and military reach !The first shoe
fell in September 2008 .