Nexus - 1201 - New Times Magazine-pages

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June 5, 1933, Congress enacted a joint resolution outlawing all gold clauses in contracts. Henceforth, for the next 40 years in the US, a dual monetary sys- tem would prevail which denied gold redeemability to Americans while retaining it for foreigners. a ae eae eee ee eee eee clauses in contracts. The members of the US-dominated consensus, while agreeing to Henceforth, for the next 40 years in the US, a dual monetary sys- cooperate, still had their own interests at heart and sought advan- tem would prevail which denied gold redeemability to Americans tages wherever possible. F. William Engdahl, in an essay in while retaining it for foreigners. Current Concerns titled "Iraq and the Hidden Euro-Dollar Wars" (http://www.currentconcerns.ch/archive/2003/04/20030409.php), The Dollar Triumphant describes the subsequent unravelling: This brings us to the story of the dollar's rise to international "All during the 1960s, France's de Gaulle began to take...dollar prominence. export earnings and demand gold from the US Federal Reserve, legal Prior to World War II, the British pound sterling came close to under Bretton Woods at that time. By November 1967 the drain of being a globally accepted standard currency, largely as a result of gold from US and Bank of England vaults had become critical. The the fact that it was issued by an Empire upon which the Sun never weak link in the Bretton Woods Gold Exchange arrangement was set. However, neither the Empire nor the British economy survived Britain, the 'sick man of Europe’. The link broke as Sterling was the war intact. The US economy, meanwhile, though having been devalued in 1967. That merely accelerated the pressure on the US hammered by the Depression, emerged from World War II more dollar, as French and other central banks increased their call for US robust than ever. gold in exchange for their dollar reserves. They calculated that, with A postwar economic and geopolitical regime gradually emerged the soaring war deficits from Vietnam, it was only a matter of months during the years 1944 to 1948. Postwar geopolitics would consist of | before the United States itself would be forced to devalue against a long political Cold War (which was also an economic war between _ gold, so better to get their gold out at a high price.” the US and the USSR, itself a major oil producer and goods exporter By May 1971, even the Bank of England was demanding gold for within its sphere); meanwhile, the non-Soviet-dominated global dollars, and the drain on US reserves had become intolerable. economy would be shaped in agreements settled on at international Nixon did the only thing he could under the circumstances: he meetings held in Bretton Woods, New abandoned the Gold Exchange program Hampshire. ; ; The Bretton Woods altogether, and in August of that year a The Bretton Woods meetings of 1944 . system of floating currencies was led to the establishment of the meetings of 1 944 led to instituted. Engdahl again: Ineatoml Bark of Revonseton | the establishment of the fT hak wt gllopne do the World Bank) and the International International Bank of American Century. In this new phase, nthe chief feature of the Bretton Reconstruction and effet, privatize, with age intemation Woods system consisted of the obliga- Development (which later al banks such as Citibank, Chase tion for each country to maintain the became the World Bank) Manhattan or Barclays Bank assuming exchange rate of its currency within a the role that central banks had in a gold fixed range—plus or minus 1%—in and the IMF. system, but entirely without gold. terms of gold. This well suited the "Market forces’ now could determine the United States, which at the time happene dollar. And they did with a vengeance." to have the largest gold reserves of any nation. In 1973, with the dollar now floating freely, the Arab nations of The arrangement worked reasonably for all concerned, as long as OPEC embargoed oil exports to the US in retaliation for American America remained the world's foremost energy producer and goods support for Israel in the Ramadan/Yom Kippur War. By this time it exporter—which permitted it, in turn, to maintain its gold reserves. was clear that US oil production had peaked and was in permanent The US extended dollar credits by way of the Marshall Plan to decline, and that America would become ever more dependent upon finance the rebuilding of postwar Europe, while American oil com- petroleum imports. As oil prices soared 400%, the US economy panies (and the Texas Railroad Commission) maintained stable took a nosedive. prices for petroleum globally. The US and Saudi Arabia had formed a cooperative partnership in During this period, US foreign policy and domestic policy were 1945, following meetings between FDR and King Ibn Saud. US oil characterised by liberalism: at home, economic inequality was at companies (Exxon, Mobil, Chevron, and Texaco) were already con- the lowest point in modern American history; while abroad, the trolling Saudi discovery and production through a partnership with United States maintained minimal trade barriers between itself and the Kingdom, the Saudi Arabian Oil Company (Aramco). In 1973, Western Europe, Japan and South Korea. It could easily afford to the Saudi government increased its partner's share in the company to absorb exports from these nations in return for their commitment of 25%, and then 60% the next year. In 1980, the Saudi government support for the duration of the Cold War. retroactively gained full ownership of Aramco with financial effect The US exercised leadership by consensus—again, because it as of 1976. could easily afford to do so. This consensus evolved through both In 1975, the Saudis agreed to export their oil for US dollars exclu- GATT trade negotiations and geostrategic Bilderberg meetings, in sively. Soon OPEC as a whole adopted the rule. As a result, the which the main Western powers conspired to effectively control the dollar was backed not by gold but in effect by oil. Had the US per- economies and political destinies of most of the rest of the world's mitted the Saudis to nationalise their oil industry in return for this nations. extraordinary favour? Because the Saudi royal family and the oil However, this first relatively benign phase of what Henry Luce companies are all notoriously tight-lipped, we may never know. called "the American Century" came to an end as a result of the con- In any case, the oil shock created enormously increased demand fluence of three factors: the decline of US oil production, spiralling for the floating dollar. Oil importing countries, including Germany national debt brought on by the Vietnam War, and increasing and Japan, were faced with the problem of how to earn or borrow European and Japanese economic strength. dollars with which to pay their ballooning fuel bills. Meanwhile, meetings of 1944 led to the establishment of the Development (which later became the World Bank) ---bab. nar and the IMF. NEXUS +13 1973-1999: The Petrodollar Era The Bretton Woods International Bank of Reconstruction and DECEMBER 2004 — JANUARY 2005 www.nexusmagazine.com