2ndlook

Nixon Chop And Bush Whack

Posted in Business, Current Affairs, European History, Gold Reserves, History, Indo Pak Relations by Anuraag Sanghi on September 24, 2008
The Bush Era Balanced Score Card

The Bush Era Balanced Score Card

The Dollar-Oil Tango

From the Nixon Chop to the Bush Whack, in the final months of Dubya’s Presidency, the Bush Family has been in the Presidency for 12 years of the 37 years. And in positions of lesser power for the entire period. George Bush Sr. was the US representative to the UN during the Nixon era – when Nixon made his infamous remarks to Kissinger about the ‘sanctimonious Indians’ who had pissed on us (the US) on the Vietnam War’. George Bush Sr. was also with the CIA and the US Vice President during the 8 years of Reagan Presidency.

During these 37 years – between the Nixon Chop (1971) and the Bush Whack (2008), the world has changed significantly.

Every Few Years

Every 10-25 years, the world seems to go from one financial crisis to another. Trucks full of economic analysis follow each crisis – and everyone agrees after each meltdown, that there will not be another catastrophe. What the poor (and not so poor) economists don’t see is that the Anglo Saxon bloc with 80% of the world’s gold production in a choke-hold does what it wants. And the second element – they also control and influence 80% of the Oil production.

Why has this system been such a failure? Simple!

Oil & Dollars

After the Nixon Chop, the OPEC went into a huddle. After all they were selling a limited resource against payment through pieces of paper. After the Nixon Chop, the chain of events, post 1970 developments were as follows: –

The international monetary developments as of 15 August 1971 prompted OPEC, in its meeting in Beirut on 22 September 1971, to call for negotiations with the oil companies holding concessions in member countries. By 14 January 1972 there was no progress in negotiations. OPEC, in spite of a total loss of more than 11.5%, was asking for a hike of only 8.57% –- which was the loss in value of the US dollar relative to gold. In fact, what OPEC was asking for was very close to what the International Maritime Conference had, at the time, announced: a minimum increase in the dollar freight rates of 8.6%. Finally, an agreement was reached in Geneva on 20 January 1972 that provided an immediate increase in the posted prices by 8.49%. The settlement also included provisions for further adjustments until 1975 based on an index that reflected changes in the dollar and other key currencies.

Concurrently, on October 17th 1973, OAPEC members (OAPEC, consisting of the Arab members of OPEC plus Egypt and Syria) announced embargo against shipping oil to all countries supporting Israel in the the ongoing Yom Kippur War against Syria, Egypt and Iraq – i.e. the United States, Western Europe, and Japan. Non Arab OPEC members decided to leverage their power to raise world oil prices, after the failure of negotiations with the Oil Companies (then popularly called “Seven Sisters”).

The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. Europe tied with Russia for the trans-Europe gas pipeline. North Sea Oil production was ramped up. Norway and other countries also increased their output. Thus while not fully dependent on the OPEC, this served an important purpose – to demonstrate that the West and OPEC were on opposite sides, whereas the truth was opposite.

OPEC and West – Partners In Loot

Actually, the West saw a transfer of wealth, all over again from the Third World, via the OPEC Petro Dollars. The dollar regime was significantly beneficial to the Western World in general – and US in particular. The Oil dollar linkage allowed the US to create global reserves with other countries of US$6 trillion in just foreign exchange reserves. Other debt and trade add upto another US$14 trillion.

Approx US$20 trillion is the amount of dollars that the OPEC has managed to transfer from the Third World to the West. But the unhappy outcome of the Oil Crisis of the ’73 (for the West) was the riches and power of the Arab countries. What followed was a rising crescendo of Islamic Demonization for the last 37 years.

Oil output is currently over-valued as Western producers and OPEC jointly rig up prices. The Rest of the world pays (recently its is largely India and China) – and pays in dollars which again benefits the West.

The West limits its own output to keep up the prices. OPEC has the advantage of high oil prices. The petro dollars are reinvested back in the West. Finally, OPEC gained – and so did the West.

Who paid!

Mostly poor Indians and Chinese. And even poorer Africans.

Bush Whacked

Bush Whacked

War, Oil , Dollars & The Middle East

The justifications for invading Iraq given by the USA, were finally found to be false. The invasion was finally not related to 9/11. Iraq did not have any WMDs either. So, what was were the reasons for Iraqi invasion?

A ring side observer, former Indian Ambassador to Iraq, Ranjit Singh Kalha’s book, ‘The Ultimate Prize’ makes some interesting observations on the genesis of the Iraq invasion.

“The first mistake Saddam made was when he decided in October 2000 to move away from using US dollars as the currency for oil exports, …under the UN ‘oil-for-food’ programme.” Saddam also converted Iraq’s USD 10 billion reserve fund from US dollars to Euros. “Although this act of Saddam was not of very great economic significance in overall terms, it represented for the United States a direct challenge to the use of the dollar as a currency for transactions,” … in his just-released book, “The Ultimate Prize”. Iran followed Saddam’s move and Venezuela started initiating barter deals outside the dollar system. “If most other Organisation of Petroleum Exporting Countries (OPEC) followed the Iraqi and Iranian example, the stability of the US dollar would be at stake,” Kalha, who was posted in Baghdad during the tumultuous 1992-94 period, says.

Sidelined to the (Indian) National Human Rights Commission, Kalha’s book was also buried under a mound of silence, not reviewed and made no impression in the popular media. One press release by PTI was recycled by The Economic Times, Outlook, Sahara Samay, The Hindu, India Today, and NDTV. Google and Live Search hardly turned up anything. Yahoo.co.in showed some these links.

Bush Whacking Iraq

Bush Whacking Iraq

Iran and Venezuela followed Iraq and also moved away from designating oil sales in US dollars. After the Bretton Woods-I collapse, instead of gold, it was oil that anchored the US currency. West Asian Oil producers agreed to denominate oil in dollars after the Nixon Chop – and in turn there was no real resistance by the West to OPEC oil cartel increase oil prices by a factor of 10.

Western Oil companies also acted in concert with OPEC by limiting their own oil production. From around 4 dollars a barrel to US$40. The West was relatively unscathed – as these petro-dollars were re-invested back in the West. Europe managed to insulate itself with the North Sea Oil (Britain, Norway were the main producers along with Germany and Denmark. Europe also concluded a deal with Russia for a pipeline into Europe. North Sea Oil Production peaked in 1999-2000 with a 6 million barrels per day.

India was also not highly impacted as Bombay High started production in 1974. It was the rest of the Third World which paid this bill.

Bretton Woods – I & II

As Ron Paul noted,

“The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year.”

The Bretton Woods-I system worked for from 1945-1971 (26 years) years because Indians were not allowed to buy gold. India’s finance minster during that crucial period, Morarji Desai, (allegedly on CIA payroll during Lyndon Johnson’s Presidency 1963-1968), presented a record 10 budgets, between February 1958, up to 1967.

Bretton Woods-II, based on oil-dollar anchor, worked for another 35 years (1973-2008) till now. Oil exploration is a 5-10 year investment. Oil should be made another commodity. An easy option is to create a Republic of Pacific Islands – Haiti, Cuba, Grenada, and other West Indies. These islands can become vast oil production centres – that will help them raise their economies and can feed Asia with oil, peacefully.

The third currency bloc is essential – and it can happen only if India and South Africa decide to make it happen.

What Now, Ben?

Posted in America, Business, Current Affairs, Gold Reserves by Anuraag Sanghi on September 24, 2008

The whole world seems to be blaming US, Ben Bernanke for the global economic – aka Great Recession. Is it fair? Look at his record below.

Helicopter Ben has been transformed to Santa Ben! (Cartoon - Gary Varvel; Pub. Date - 2008-12-17; source and courtesy - cartoonistgroup.com). Click for a larger picture.

Helicopter Ben has been transformed to Santa Ben! (Cartoon - Gary Varvel; Pub. Date - 2008-12-17; source and courtesy - cartoonistgroup.com). Click for a larger picture.

Thus Spake Ben Bernanke

Remarks by Governor Ben S. Bernanke, Before the National Economists Club, Washington, D.C. November 21, 2002 (ellipsis mine)

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press … that allows it to produce as many U.S. dollars as it wishes at essentially no cost. … …the Fed could find other ways of injecting money into the system–for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities … If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

A terse anouncement by the Federal Reserve Board said,

“On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.

On November 10, 2006 Ben Bernanke justified,

“As I have already suggested, the rapid pace of financial innovation in the United States has been an important reason for the instability of the relationships between monetary aggregates and other macroeconomic variables.”

Ben Bernanke has given ample (and more) indications about what he will do. In fact, more than indications, he was brazen enough to say, what exactly he would do!

How can the world blame him now?

Economy seemed to smooth, then. (Cartoonist - Karl Wimer; Pub. Date - 2009-07-31; source and courtesy - cartoonistgroup.com). Click for larger image.

Economy seemed to smooth, then. (Cartoonist - Karl Wimer; Pub. Date - 2009-07-31; source and courtesy - cartoonistgroup.com). Click for larger image.

What Did Others Do

Some other countries tried feebly, and failed, in creating a third currency bloc as an alternative to the US dollar and the Euro.

Japan and ASEAN tried setting up the Asian Monetary Fund – after 1997, currency crisis – and were arm twisted by the US to drop the idea. Malaysia proposed The Gold Dinar in 2002-2003. This was initially limited to the Islamic World only. Neither of the proposals got far.

What would be the US reaction to this such attempts?

War, Oil , Dollars & The Middle East

Cut to the Iraqi invasion by the USA.

The justifications for invading Iraq given by the USA, were finally found to be false. The invasion was finally not related to 9/11. Iraq did not have any WMDs either. So, what was were the reasons for Iraqi invasion?

A ring side observer, former Indian Ambassador to Iraq from 1992 to 1994, Ranjit Singh Kalha’s book, ‘The Ultimate Prize’ makes some interesting observations on the genesis of the Iraq invasion.

“The first mistake Saddam made was when he decided in October 2000 to move away from using US dollars as the currency for oil exports, …under the UN ‘oil-for-food’ programme.” Saddam also converted Iraq’s USD 10 billion reserve fund from US dollars to Euros. “Although this act of Saddam was not of very great economic significance in overall terms, it represented for the United States a direct challenge to the use of the dollar as a currency for transactions,” … in his just-released book, “The Ultimate Prize”. Iran followed Saddam’s move and Venezuela started initiating barter deals outside the dollar system. “If most other Organisation of Petroleum Exporting Countries (OPEC) followed the Iraqi and Iranian example, the stability of the US dollar would be at stake,” Kalha, who was posted in Baghdad during the tumultuous 1992-94 period, says.

Sidelined to the (Indian) National Human Rights Commission, Kalha’s book was also buried under a mound of silence, not reviewed and made no impression in the popular media.

One press release by PTI was recycled by The Economic Times, Outlook, Sahara Samay, The Hindu, India Today, and NDTV. Google and Live Search hardly turned up anything. Yahoo.co.in showed some these links.

Bush Whacking Iraq

Bush Whacking Iraq

Another post which made waves was posted in currencytrading.net – which highlighted how some countries were possibly moving away from the dollar peg or /and diversifying dollar reserves.

These 7 countries were Saudi Arabia, South Korea, China, Venezuela, Sudan, Iran and Russia. Venezuela and Iran have already moved away from designating oil sales in US dollars.

The only plausible reason why US worked so hard to get the 123 Agreement for India was to keep India (and hence, South Africa also) away from any third currency bloc efforts – for some time at least .

Let The Games Begin

In the last 5 years, more than US$10 trillion were printed and the world is awash with dollars.Where did this money go? How was this used?

Lendings by US commercial banks in the period 2000 to 2004 soared by altogether USD 1,500bn to USD 6,750bn. In the European Monetary Union lending to the private sector by monetary financial institutions (MFI) climbed from roughly EUR 6,200bn end-1999 to not quite EUR 8,700bn at the end of last year.” Allianz Report, Dresdner Bank.(Links mine)

The recipients of this largesse, mainly Western banks have made (it is whispered) bad loans worth 300-400 billions dollars. I am confident that the actual figure is much higher.

The loans story does not end there.

These loans were in turn sold and re-sold, then packaged and mortgaged, derived and contrived – finally ballooning into the sub-prime’ crisis. Are these welfare payouts by another name? Who will pay for this “lending”? US Consumers are not repaying their housing loans.

Some one has to!

Whats Happening Helicopter Ben?

What's Happening Helicopter Ben?

The Federal Reserve & Ben Bernanke

From March 23, 2006, information regarding M3 data was no longer published. The US printing presses started working 24 x 7 x 365.

From there it was a short step away to predict a financial crisis. Nouriel Roubini started off with an estimate of US$1 trillion to US$2.7 trillion write offs. Charles Morris wrote a book, “The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash”.

Yet $1 trillion is the amount of defaults and writedowns Americans will likely witness before they emerge at the far side of the bursting credit bubble, estimates Charles R. Morris in his shrewd primer, “The Trillion Dollar Meltdown.” That calculation assumes an orderly unwinding, which he doesn’t expect. “The sad truth,” he writes, “is that subprime is just the first big boulder in an avalanche of asset writedowns that will rattle on through much of 2008.” wrote Roubini.

Asians Are Funding the US

Total US debt has crossed 300% of GDP (all sectors). What this means is that if every income earning member of the US were to assign 30% of their income, every year, for the next 25 years (at current interest rates and borrowing rates), US debt will come to possible close to zero level. Government debt in comparison to GDP is fluctuating between 50% to now nearly 100%. Some claim that the debt burden is actually declining.

Who is stuck with this hoard of dollars – getting devalued daily. China (with more than 2 trillion dollars), Japan (another trillion dollars), Russia (400 billion dollars), India (300 billion dollars) are the top 4 countries.

Asia lost last year (my estimate) more than US$300 billion dollars due to the monetary policy of the USA. Deliberate, well thought out monetary policy by the USA Government.

The truth is that American lifestyle is being maintained due to Asian stupidity. The Chinese, Japanese, Indian, and other ASEAN countries have lent the USA – which is in the hock by over, US$4 trillion dollars. They will lose US$ 400 billion for the privilege of lending US$4 trillion to the USA. They designate trade in US dollars worth another few trillion dollars a year – which is zero-cost-to-US depreciating currency ‘float’ that the US benefits from.

The Big Mac index (based on two simple ideas of PPP and a standard industrial product) shows the dollar is overvalued against most currencies of the world. This over-valuation range is about 53% in case of India. What that means is that the US pays India only half the amount of what it should actually pay. And India pays double for whatever it buys from the USA.

The Tail That Wags The Dog

Kenichi Ohmae made his reputation with many books at the height of the Japanese boom – holding forth to spell bound audiences on the ‘miracles of Japanese management.’ One of his interesting observations was the quantification of currency trading – which he saw as a positive. “As Kenichi Ohmae observes in his book The Borderless World, the “tail” of foreign exchange trading has in recent years vastly outgrown the original “dog” (Money Meltdown, By Judy Shelton, Page 104).

Living upto his reputation, ” Kenichi Ohmae, nicknamed “Mr. Strategy” during his 23 years as a McKinsey & Co. partner, called for a $5 trillion “international facility” to be made available to financial institutions.” as a solution to the 2008 US-dollar crisis.

What has happened as a result of unsustainable policies (simultaneous budget and current account deficits, and loose monetary and fiscal policies) in the US is that a huge liquidity bubble of $7-10 trillion has caused massive inflation in global prices for all asset classes: property, stocks, commodities, etc. – Percy S Mistry / New Delhi February 28, 2008 (bold letters mine).

The ICBC IPO received subscriptions of half a trillion dollars! IMF estimates of funds with Sovereign Wealth Funds (SWFs) is US$2-3 trillion – and “foreign assets under management of SWFs could reach US$6–10 trillion by 2013“. The same IMF study also estimates that global financial assets are currently valued at US$190 trillion. Commodity prices are going through the roof.

Very soon, major movements will be measured in trillions – thanks to the humongous printing presses, that the US has used in the last few years. Daily trading volumes total US$1.5 trillion in the Forex Markets. To that add trading volumes of debt markets, stock markets and commodity markets. Combined global trading volumes now cross US$3.0 trillion – and growing. This degree of hysterical trading had made the US$ into a giant wrecking ball – which goes out of control very few years.

To overcome this crisis, Kenichi Ohmae says it will require another US$ 5 trillion. The bill for US$ 62 trillion of CDS (Credit Default Swaps) write downs, has just started coming in. Credit card debt of another US$ 10 trillion has just started.

Does George Bush Even Know How Many Zeroes In Trillion?

Does George Bush Even Know How Many Zeroes In Trillion?

How Many Zeroes In A Trillion?

Does Dubya know?

To put it in perspective. The whole of India, produced last year, goods and services worth US$1 trillion. And the US – US$14 trillion.

Did banks lend out 7-10 trillion US$ in doubtful loans (Why didnt I get any of this?)? Who will pay the price for this? How will this get financed? Can we continue running the world financial system like this?

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