The Economics of Oil Wars
From the June 2012 PNL # 815
It is obvious that the wars are connected to oil; but we are not going to war just for oil companies’ profits, but also to ensure that oil is only sold for dollars.
If you look at the history of the oil wars, a clear pattern comes to light. In the ‘70s, a deal was made with Saudi Arabia. The US supplied weapons to the royal family, and in return, they agreed to sell oil only for dollars. This maintained the dollar’s status as the world reserve currency.
The US is fighting to maintain this dominant global economic position. The invasion of Iraq occurred after Saddam started selling oil for the euro. Iran has made moves to sell oil for the euro. The US has backed three coup attempts in Ecuador, Venezuela, and (with success) in Honduras—all member states of the Bolivarian Alliance for the Americas, an organization that uses their own international currency, the SUCRE, as a medium of exchange instead of the dollar.
The Price of Peace
Activists need to come to terms with this reality and its consequences; ending the oil wars could result in loss of the dollar’s reserve currency status. In turn, this could lead to a devaluation of the dollar. The costs of borrowing to cover the US debt would skyrocket, leading to more severe austerity, privatization, and concentration of power in financial elites. Who benefits from the petro-dollar system? The people receive some benefit through increased purchasing power. This has led, however, to a trade imbalance in which we import more than we export. The trade imbalance is then offset by borrowing from foreign countries like China, creating massive dollar reserves and massive US debt.
The high dollar has also undermined our manufacturing base as companies leave for cheaper areas abroad. As US manufacturing jobs decline, workers turn to lower paying jobs in the service industries. Meanwhile, the high dollar benefits the financial oligarchs through an endless line of credit and cash bailouts from the Federal Reserve. The military-industrial complex also benefits from the deficit financing of foreign wars. Clearly, the benefits of the petro-dollar accrue to the ultra rich.
Who Controls the Money Supply?
Now let’s look at who controls the money supply. There are two commonly held myths about money.
Myth #1: The government controls the money supply. Truth: The Federal Reserve (the Fed), which prints our money, is controlled by private banks. The Federal Open Market Committee (FOMC) of the Fed is the body responsible for expanding and contracting the money supply (by purchasing and selling government debt) and determining interest rates. The FOMC is composed of seven governors and five Reserve Bank Presidents. The governors are appointed by the president of the US. The regional Federal Reserve Bank Presidents are elected by the board members of the 12 regional Federal Reserve banks. The board members of the 12 Federal Reserve banks are elected by the private member banks. Therefore, control of the FOMC, and consequently the money supply, is largely in the hands of private banks.
Myth #2: Banks loan us money from deposits that they hold. Truth: When banks make loans they essentially create the money using the “fractional reserve” system, which means the banks retain actual deposits totaling 10% or less of what they lend. Between the FOMC’s creation of money and the private banks’ creation of new money through fractional reserve lending, our money supply is almost completely in the hands of the private banks. This massive power is abused, funding speculative gambling, real-estate bubbles, oil price volatility, hostile takeovers, and other drains on the real economy of production of goods and services.
Legislation for Peace and Prosperity
How do we end the wars without triggering a sovereign debt crisis followed by draconian austerity measures? The answer is twofold: we must reduce our dependence on oil and foreign goods, and we must produce goods for the global market that will generate demand for dollars. These goals are not likely to be met while our monetary system is in the hands of bankers who refuse to invest in the real economy.
The beauty of the answer is that all we have to do to take back our monetary system is change it to the way that people already think that it is; i.e. restore the money creation power to the government and require banks to lend only the savings that they hold.
Representatives Dennis Kucinich and John Conyers have submitted a House bill that would achieve these goals: The National Emergency Employment Defense Act of 2011 would make the Fed part of the Treasury. This would give the government the power to employ the whole nation to rebuild our infrastructure, fully fund education and healthcare, rebuild our manufacturing base, convert war production to civilian production, and transition to sustainable industries.
What could this look like? The government could spend money into circulation and loan money to banks, expanding and contracting the money supply to stabilize prices. For example, given 17% real unemployment in March 2012 (including involuntary part timers and discouraged workers) and a $15 trillion GDP for 2011, $2.55 trillion dollars (17% of $15 trillion) could be printed and spent to fully employ the nation and grow the economy 17% without inflation. This is roughly $100,000 each for pay and materials for the 26.7 million currently unemployed. So long as the money is used to grow the real economy of production of goods and services, inflation would not be a concern. We could easily transition to renewable energy and locally produced goods, ending our dependence on oil and foreign goods. We could let freedom reign in oil producing nations, without collapsing the dollar.
Find out more at monetary.org.