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3/12/08

AxisofLogic: EURO versus DOLLAR: Iraq, the US trump to avoid a dollar collapse - by Alberto Cruz

For the complete report from the AxisofLogic click on this link

EURO versus DOLLAR: Iraq, the US trump to avoid a dollar collapse - by Alberto Cruz

With an exchange rate over US$1.51 against the Euro and a continuing depreciation against the Yen, the dollar is close to collapse. This is a theory that has been repeated for some time now (1) although it doesn't mean we are in the twilight of the current economic system nor in the antechamber of a crisis in capitalism's nerve centre. But we are witnessing a progressive weakening of the United States and this provokes movement, sometimes small but still significant, in what is really important : the progressive reduction of various countries' dollar reserves (right now 64.8% of the world's monetary reserves are held in dollars) and their transfer into other stronger currencies like Euros or Yen. That means fewer dollars in circulation and less financing for the US external debt of about 9 trillion dollars. In fact the dollar as the main currency for international trade and as the main reserve currency for different countries' Central Banks has lost almost 7 percentage points since 1999, dropping from 71% of all reserves that year to the current 64.8% now, which indicates that more and more countries are reducing their dependency on the US currency.

For the US to staunch this constant financial bleeding only one life raft remains : Iraq. That means increasing oil production in that country at all costs, ensuring its definitive return to OPEC on the same terms as OPEC's other members - since Iraq was paralyzed by the UN during the government of Saddam Hussein following the sanctions the country was subjected to - and above all, with Iraq's presence, reinforcing Saudi Arabia, which is under more and more pressure from the oil cartel's other member countries to stop using dollars as the only currency for oil transactions. When Ahmadinejad and Chavez made their proposal, the Saudis were the most reluctant to accept it or even to discuss it and managed to avoid even a tangential reference to the issue in the final declaration of that OPEC summit. But the reality is much more obstinate. Maintaining the alliance with the US is ever more costly in political and economic terms. In Saudi Arabia current inflation rates are the highest since 1980, running currently at 7%. In the United Arab Emirates, inflation is even higher at 9.3%. (3) The reason is none other than the weakness of the dollar in economies completely dollarized as those countries' are. That is what has led the Saudis finally to let their arm get twisted and to accept now a discussion about the dollar in the terms proposed by Venezuela and Iran.

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