Financial Collapse Is a Mathematical Certainty: The Perfect Storm Threatening the Dollar Hedgemony (1)
Sam Parker of Behind The News Network has written an excellent commentary on the coming financial collapse and the inevitable fall of the U.S. dollar’s status as the global reserve currency.
Starting with World War II, Parker documents a historical perspective on the rise of the U.S. dollar to help the reader understand how we got to where we are today, including the role of the covid Plandemic.
The Perfect Storm Threatening the Dollar Hedgemony – Part 1 (of a 3 Part Series)
by Sam Parker
Financial Collapse Is a Mathematical Certainty
After the 2008 stock market crash, governments, because the economy collapsed globally, started spending like drunken sailors. The last 14 years have been a ballooning of the sovereign debt bond bubble.
Who’s going to save that bubble? Who’s going to be the buyer of all that debt when this bubble finally blows up?
Answer: No one.
Many who are aware of the situation are just surprised the system has lasted this long. It looked like it was ready to burst in September 2019, and then, conveniently, covid showed up, which granted emergency powers to all central banks. Governments went on another spending spree, printing money, and this allowed them to kick the proverbial can down the road for another two years.
Here we are in 2022 and it’s unraveling again. And the reason why covid was important is because the Federal Reserve was able to plug the hole in what was beginning to become a liquidity debt crisis.
They printed 65% more money. The money stock went up 65% year over year in 2020/1, and that was able to paper it over. Then, the economy was shut down, so when they reopened with all the money in the system, the US had a recovery for a year and a half. Stock markets went crazy, credit markets went crazy, back up again. But here we are two years later and we have inflation in assets, stocks and bonds.
So, when you see the dollar going up, that’s indicative of a debt crisis because money’s becoming tight. There are fewer dollars out there. People are scrambling for dollars.
Covid provided cover for the central banks and the governments, but it also allowed for a control system. If everything’s going to collapse, wouldn’t it be nice to have a control system where travel is restricted, you can blame it on a virus; you create vaccine passports, which then get linked to digital IDs, and then central bank digital currency.
So, covid was a convenient excuse. The Rockefeller and Rothschild Empires were prepared to sacrifice the globe in order to save their empires. And six months after the start of the Ukraine war, we find that the Rockefeller Empire is now doing their best to destroy the EU, along with the Rothschild Empire-whose base is Europe. It’s funny how things work.
U.S. national interests are diverging sharply from those of its NATO satellites. America’s military-industrial complex, oil and agriculture sectors are benefiting, while European industrial interests are suffering. The interruption of world energy, food and minerals supply chains and the resulting price inflation has imposed enormous economic strains on U.S. allies in Europe and the Global South.
Yet the U.S. economy is benefiting from this. As Sergey Lavrov, pointed out:
“The European economy is impacted more than anything else. The stats show that 40 percent of the damage caused by sanctions is borne by the EU whereas the damage to the United States is less than 1 percent.”
The dollar’s exchange rate has soared against the euro, which has plunged to parity with the dollar and looks set to fall further down toward the $0.80 that it was a generation ago. U.S. dominance over Europe is further strengthened by the trade sanctions against Russian oil and gas. The U.S. is an LNG exporter, U.S. companies control the world oil trade, and U.S. firms are the world’s major grain marketers and exporters now that Russia is excluded from many foreign markets.
Next to oil, agriculture is a major contributor to the U.S. balance of payments. Blocking Russian grain and fertilizer shipping threatens to create a Global South food crisis as well as a European crisis as gas is unavailable to make domestic fertilizer.
Russia is the world’s largest exporter of grain and also of fertilizer, and its exports of these products have been exempted from NATO sanctions. But Russian shipping was blocked by Ukraine placing mines in the sea lanes through the Black Sea to close off access to Odessa’s harbor, hoping that the world would blame the world’s imminent grain and energy crisis on Russia instead of the US/NATO trade sanctions imposed on Russia.
At his July 20, 2022 press conference Sergey Lavrov showed the hypocrisy of the public relations attempt to distort matters:
“For many months, they told us that Russia was to blame for the food crisis because the sanctions don’t cover food and fertiliser. Therefore, Russia doesn’t need to find ways to avoid the sanctions and so it should trade because nobody stands in its way. It took us a lot of time to explain to them that, although food and fertiliser are not subject to sanctions, the first and second packages of Western restrictions affected freight costs, insurance premiums, permissions for Russian ships carrying these goods to dock at foreign ports and those for foreign ships taking on the same consignments at Russian harbours. They are openly lying to us that this is not true, and that it is up to Russia alone. This is foul play”.
Black Sea grain transport has begun to resume, but NATO countries have blocked payments to Russia in dollars, euros or currencies of other countries in the U.S. orbit. Food-deficit countries that cannot afford to pay distress-level food prices face drastic shortages, which will be exacerbated when they are compelled to pay their foreign debts denominated in the appreciating U.S. dollar.
The looming fuel and food crisis promises to drive a new wave of immigrants to Europe seeking survival. Europe already has been flooded with refugees from NATO’s bombing and backing of jihadist attacks on Libya and Arab oil-producing countries. This year’s proxy war in Ukraine and imposition of anti-Russian sanctions is a perfect illustration of Henry Kissinger’s quip: “It may be dangerous to be America’s enemy, but to be America’s friend is fatal.”
The first aim is to prevent Russia and China from helping each other.
This is the old imperial divide-and-conquer strategy. Minimizing Russia’s ability to support China would pave the way for the United States and NATO Europe to impose new trade sanctions on China, and to send jihadists to its western Xinjiang Uighur region.
The aim is to bleed Russia’s armaments inventory, kill enough of its soldiers, and create enough Russian shortages and suffering to not only weaken its ability to help China, but to spur its population to support a regime change, an American-sponsored “color revolution.” The dream is to promote a Yeltsin-like leader friendly to the neoliberal “therapy” that dismantled Russia’s economy in the 1990s.
Amazing as it may seem, U.S. strategists did not anticipate the obvious response by countries finding themselves together in the cross-hairs of US/NATO military and economic threats.
On July 19, 2022, the presidents of Russia and Iran met to announce their cooperation in the face of the sanctions war against them. That followed Russia’s earlier meeting with India’s Prime Minister Modi. U.S. diplomacy is driving Russia, China, India and Iran together, and indeed to reach out to Argentina and other countries to join the BRICS-plus bank to protect themselves.
It is hard to see how driving countries out of the U.S. economic orbit serves long-term U.S. national interests. Dividing the world into two monetary blocs will limit Dollar Diplomacy to its NATO allies and satellites. America’s ultimate problem is its post-industrial economy. The failure and blowbacks of U.S. diplomacy are the result of problems that go beyond diplomacy itself. The underlying problem is the West’s commitment to financialization and privatization.
Most Asian labor can afford to work for lower wages because it has much lower housing costs and does not have to pay education debt. Health care is a public right, not a financialized market transaction, and pensions are not paid for in advance by wage-earners and employers but are public.
The aim in China in particular is to prevent the rentier Finance, Insurance and Real Estate (FIRE) sector from becoming a burdensome overhead whose economic interests differ from those of a socialist government. China treats money and banking as a public utility, to be created, spent and lent for purposes that help increase productivity and living standards (and increasingly to preserve the environment).
The global economic fracturing goes far beyond NATO’s conflict with Russia in Ukraine.
By the time the Biden administration took office at the start of 2021, Russia and China already had been discussing the need to de-dollarize their foreign trade and investment, using their own currencies. That involves the quantum leap of organizing a new payments-clearing institution.
Planning had not progressed beyond broad outlines of how such a system would work, but the U.S. confiscation of Russia’s foreign reserves made such planning urgent, starting with a BRICS-plus bank. A Eurasian alternative to the IMF will remove its ability to impose austerity “conditionalities” to force countries to lower payments to labor and give priority to paying their foreign creditors above feeding themselves and developing their own economies. Other institutions are being designed as China, Russia, Iran, India and their prospective allies represent a large enough critical mass to “go it alone,” based on their own mineral wealth and manufacturing power.
The basic U.S. policy has been to threaten to destabilize countries and perhaps bomb them until they agree to adopt western policies and privatize their public domain.
But taking on Russia, China and Iran is a much higher order of magnitude. NATO has disarmed itself of the ability to wage conventional warfare by handing over its supply of weaponry – admittedly largely outdated – to be devoured in Ukraine.
That leaves Western democracies with the ability to fight only one kind of war: atomic war – or at least, bombing at a distance, as was done in Afghanistan and the Near East, without requiring Western manpower.
This is not diplomacy at all. It is merely acting the role of wrecker. But that is the only tactic that remains available to the United States and NATO Europe.
How then can the United States maintain its world dominance? It has deindustrialized and run up foreign official debt far beyond any foreseeable way to be paid. Meanwhile, its banks and bondholders are demanding that the Global South and other countries pay foreign dollar bondholders in the face of their own trade crisis resulting from the soaring energy and food prices caused by America’s anti-Russian and anti-China belligerence. This double standard is a basic internal contradiction that goes to the core of today’s Western worldview.
To understand the current, dysfunctional global financial equation, it would do us all well by going back to the end of World War 2, and use this dare as a starting point for our narrative. To understand the present, it is necessary to understand the past. With these two in its place, the outlook for the immediate future can be assessed.
From The Gold-Dollar to the Petro – Dollar
At the end of World War 2, in 1945, the United States became the dominant financial, economic and military power on earth. Its’ homeland was intact. Its industrial base was not destroyed.
The war brought it immense wealth- not least of which it amassed the largest reserves of gold. All of its geo-economic and geopolitical rivals were cut down to size, or eliminated. It was this position of strength that enabled it to re-format the post-war global order, which was done under the Bretton Woods agreement.
As a result, several new multi-lateral institutions were established. The UN, the IMF and the World Bank. Later would be added the GATT (General Agreement on Trade and Tariffs).
Before we go on, it would be wise to establish some basic realities of power. The United States was controlled by the financial and business elite, most of them based in New York. The leader of this elite were the 5 Rockefeller brothers. They led, and everyone else followed. This American power elite I shall call as “NEW YORK” from now on.
The Rockefeller group of international oil companies and its associated banks emerged from the Second World War in a position of enormously increased power. At the apex of this power stood the 5 Rockefeller brothers.
Because the New York Federal Reserve Bank had accumulated the bulk of the world’s official gold reserves during the war (due to many countries war spending, which had to paid in gold), and because the dollar emerged from the ravages of war as the world’s strongest currency, backed by the world’s strongest economy, few could argue with what amounted to a postwar US dollar standard.
Gold was priced at $35 an ounce, and was linked to the dollar; in other words a “gold-dollar”. And all other currencies were linked, not to gold, but to the US dollar.
The US, under Rockefeller control, called the shots for a new economic order in the world.
Several new entities came into being. These were the IMF, the World Bank, and the UN, all dominated by the Rockefeller family, and all based either in Washington or New York.
In the financial sphere, all the world’s currencies would be linked to the dollar, while the dollar was linked to gold. American oil and banking interests emerged from the war in an enormously powerful position.
The bulk of the world’s gold once again ended up in New York and the Federal Reserve Bank of New York. It was some 90% of the world’s gold, worth some $33 billion. At a price of $35 per ounce, this worked out to nearly 34,000 tons of gold!
Due to the ravages of war, the world’s economic and trading systems were shattered. America was the exception. Its land mass was not destroyed. Its infrastructure was intact and modernized. Both the American oil and banking giants were tied to the Rockefeller family.
A scarcely-noted consequence of the global market grab by the US oil companies was the parallel rise of the New York banking groups tied to the oil companies. As US oil companies became an ever larger component of the international oil supply during and after World War 2, the New York banks benefited from the capital inflows of the world oil trade.
The period from 1945 till now has been called THE AMERICAN CENTURY, and this is now coming to an end.
From 1945 till the present day, the US has been the dominant power. Its power rests on three pillars: – OIL, MILITARY FORCE, and the DOLLAR.
And New York would use all three pillars in tandem to achieve its geopolitical aims. It has used its military fist to gain control over oil flows in order to ensure global dollar domination. Whenever Wall Street finds the dollar under threat, it unsheathes these two weapons to eliminate the threat.
Furthermore, it will use its military and financial muscle to eliminate any and all competitors in its grab to control oil resources, and oil transportation corridors.
By the end of the 1950s, the world began to look promising for the first time in more than three decades. World trade in manufactured goods exceeded that of primary goods – food and raw materials. Europe began to stabilize and grow.
Within the US, Wall Street had not upgraded its factories, while Europe and Japan had built brand new plants, with a higher level of efficiency. With higher interest rates and profits (15% against 5%) to be earned abroad, Wall Street began to turn its back on US industry.
In late 1957, the US underwent the first phase of a deep recession, a recession which was saved by the “Vietnam Option”.
New York viewed the entire world as their domain in the 1950s, not the narrow confines of the US. By the late 1950s, more funds began to flow out of the US than was coming in. US banks kept their dollars in Europe rather than repatriate the profits to invest in American development. When the Bretton Woods Agreement was signed in 1944, the gold-dollar ratio was at $35 per ounce. This ratio was not altered in 25 years, despite a world war and the dramatic postwar developments in the world economy.
As long as the US remained the only strong economy in the world, these flaws could be ignored. But, by the beginning of the 1960s, as Europe began to grow at faster rates than the US, it was becoming clear something had to change in the fixed gold-dollar ratio.
Yet, Washington refused to play by the very rules it had imposed on its allies in 1944. Within the US, inflation was creeping up, and the average man in the street did not notice. Due to over-valued dollar (gold was still at $35 instead of $50-$70), the inflation within the American economy was shifted to the rest of the world.
If a given national economy produces the same value of goods under the same technological basis over a period of 10 years, and prints double the amount of money for the same volume of goods as at the beginning of the decade, the “consumer” notices the effect as a significant price inflation. He pays $2 for a loaf of bread, which costs him only $1 in 1950. But when this effect is spread around the entire world economy by virtue of the dominant position of the dollar, the inflated reality could be masked for a bit longer. The results, however, were every bit as destructive.
Nixon Pulls the Plug
The Vietnam War pushed its external spending up greatly. By 1967, the US external liability had increased to $36 billion, while her gold reserves shrank to $12 billion. By 1967 the US entered into another recession. Speculative money began to dump the dollar in record amounts. This resulted in increasingly unstable short-term currency speculation.
In May 1971, the US recorded its first monthly trade deficit. That triggered an international panic sell off US dollars. The situation was becoming desperate. US gold reserves represented less than 25% of her liabilities.
June 1971 was a breaking point for the British.
The British economy was in trouble, again. And London wanted to cash in its surplus dollars for gold.
So, on Friday, August 12, 1971, a senior Bank of England delegation visited Nixon in the White House, with a document, demanding that the US pay them the sum of $3 billion, which it owed to Britain. Britain wanted payment in gold.
The White House listened, incredulously, and told them to return on Monday.
David Rockefeller’s team, headed by Paul Volcker prepared a response. On that fateful Monday, August 15, 1971, Nixon announced a move that rocked the world: formal suspension of the dollar convertibility into gold, effectively putting the world into a direct dollar standard, with no gold backing.
The British were furious! As long as gold was part of the international system, then London was still in the game. Without this, Britain was in danger of becoming a 3rd-rate power.
A senior Wall Street operative told a friend how, in the future, this would work for Wall Street, and said:
“We pulled off the biggest rip-off in history! We’ve run rings around the British Empire!”
Foreign holders of gold could no longer redeem their paper for US gold. New York set a series of events into motion which would rock the world as never before. The suspension of gold redemption, and the resulting “floating exchange rates” of the early 1970s, solved nothing. It only bought time.
Wall Street won, and its rationale was that the power of its financial domain must be untouched, even at the expense of economic production and prosperity.
New York followed the same policy as London did a century earlier, but after August 1971, US foreign policy fell under another Rockefeller agent, Henry Kissinger. His mandate was to control, not develop, economies throughout the world. World trade was simply another arena of speculation on which direction various currencies would speculate.
Massive capital flows again left the dollar for Europe and Japan. In 1972, the dollar fell 40% against major currencies. The design behind the August 1971 dollar strategy did not emerge until October 1973, and even then, few people, outside a handful of insiders grasped the connection.
Now, one may ask what all of this has got to do with finance, and its modern-day operations.
It is very simple. Here, we are showing methodologies, or the “modus operandi”, of how these power brokers think, plan and act. Consider it as a template. Once we understand the “tic-tac-toe” of geopolitics, it makes explaining the future articles easier, and shorter.
Read the second part of the article
December 1, 2022