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OPEC oil countries were inundated with oil dollars. Many of these the maximum rate in order to pay for the escalating arms race with oil dollars ended up in accounts in London and New York banks, America and the US-fomented Afghan war, while reducing oil where a new process—which Henry Kissinger dubbed "recycling income to the Soviets by asking the Saudis to keep world oil prices petrodollars"—was instituted. low. As foreseen by the CIA, Soviet oil production peaked; and, as The process worked like this. OPEC countries were receiving it declined, the nation's economy imploded. The Cold War had been billions of dollars they could not immediately use. When American won. and British banks took these dollars in deposit, they were thereby The petrodollar era had worked to the American financial elite's presented with the opportunity for writing more loans (banks make advantage, but at an horrendous cost to the people of the Third their profits primarily from loans, but they can only write loans if World and to those of the former Soviet Union as well. Living they have deposits to cover a certain percentage of the loan— standards declined in all of these countries as IMF "structural usually 10% to 15%, depending on the current fractional reserve adjustment" policies opened markets to the predatory process of requirements issued by the Fed or Bank of England). Since the globalisation led by US-based multinationals seeking cheap labour economies of industrialised nations were in no position to take on and raw materials. The people of the US suffered also, as America's much new debt, the banks were faced with a problem: to whom manufacturing base was "hollowed out" through outsourcing. While could they lend a boatload of new petrodollar-based money? a quarter-century previously 60% of the world's export goods had Kissinger, an adviser to David Rockefeller of Chase Manhattan carried a "Made in USA" label, now American companies were Bank, suggested the bankers use OPEC dollars interested primarily in "branding" products made as a reserve base upon which to aggressively in China or Central America. Jobs for US "sell" bonds or loans, not to US or UK workers were consequently downsized. corporations and investors but to Third World During the petrodollar era, American foreign countries desperate to borrow dollars with which economic policy and military policy continued to to pay for oil imports. be dominated by the voices of the traditional lib- By the late 1970s, these petrodollar debts had The petrodollar era eral consensus, which required that the US act in laid the basis for the Third World debt crisis of h concert with its allies. But this was about to for ad worked to the the 1980s (after interest rates exploded). Most . . . change. of that debt is still in place and is still strangling American financial j f th ations. Hundreds of bil- A 1 Present: Hegemonic Declin lions of dollars were recycled in this fashion, | lite's advantage, bUt | jimperia Hubris, (Incidentally, the borrowed money usually found | at an horrendous cost As the Cold War ended, Europe was in the its way back to Western corporations or rocess of forging political and economic banks jn any event, either by way of con- to the people of the unity, Today the European Union and the tracts wt western construction companies Third World and to euro—an entirely nn pan-European or simple theft on the part of indigenous th currency—present a subtle but serious threat ose of the former Soviet Union as well. officials with foreign bank accounts.) to continued American monetary hegemony. Also during the 1970s and 1980s, the This challenge has developed slowly over Saudis began using their petrodollar sur- the past 15 years, but its effects are pluses to buy huge inventories of unusable cascading into view. In the US/UK invasion weaponry from US arms manufacturers. and occupation of Iraq we see the dynamics This was a hidden subsidy to the US econo- of this new challenge at play, including the my and especially to the so-called Defense American response to it. The Washington Department. neo-conservatives have a term for this As Engdahl points out, the petrodollar response: "democratic imperialism". era was characterised by the US attempt to As Jeremy Rifkin documents in his new slow its geopolitical decline (arising from imperial overextension book, European Dream: How Europe's Vision of the Future is abroad and resource depletion at home) by making the dollar an Quietly Eclipsing the American Dream, Europe is ever less a collec- hegemonic currency: tion of squabbling nations and ever more a cohesive economic "The IMF 'Washington Consensus' was developed to enforce dra- superpower—one that exceeds the US in GDP, population and pro- conian debt collection on Third World countries, to force them to ductivity. Europe shares America's dependency on depleting for- repay dollar debts, prevent any economic independence from the eign sources of oil and gas, and will likely be hit hard by the effects nations of the South, and keep the US banks and the dollar afloat. of global climate change. Thus, over the long term, Europe's The Trilateral Commission was created by David Rockefeller and prospects are dim—though no dimmer necessarily than those of any others in 1973 in order to take account of the recent emergence of other region. Japan as an industrial giant and try to bring Japan into the system. However, in the short term, Europeans will enjoy some advan- Japan, as a major industrial nation, was a major importer of oil. tages over their American counterparts, including much greater Japanese trade surpluses from export of cars and other goods were energy efficiency (Europeans use energy at one-half the per-capita used to buy oil in dollars. The remaining surplus was invested in rate as Americans) and much less debt, resulting partly from much US Treasury bonds to earn interest. The G-7 was founded to keep smaller military budgets. Moreover, Europe sits next to Russia, Japan and Western Europe inside the US dollar system. From time which still has considerable quantities of exportable oil and gas and to time into the 1980s, various voices in Japan would call for three stockpiles of nuclear and conventional weapons. currencies—the dollar, German mark and yen—to share the world A Eurasian alliance between Russia, Germany and France would reserve role. It never happened. The dollar remained dominant." be a geopolitical nightmare for Washington—and such an alliance is Simultaneously during the 1980s, the US effectively bankrupted beginning quietly and tentatively to emerge. Europe is also geo- the Soviet Union by forcing the Soviets to pump their oil reserves at —_ graphically closer to the oil and gas reserves of the Middle East and the maximum rate in order to pay for the escalating arms race with America and the US-fomented Afghan war, while reducing oil income to the Soviets by asking the Saudis to keep world oil prices low. As foreseen by the CIA, Soviet oil production peaked; and, as it declined, the nation's economy imploded. The Cold War had been The petrodollar era had worked to the to the people of the Third World and to 14 = NEXUS American financial those of the former ; www.nexusmagazine.com DECEMBER 2004 — JANUARY 2005