Semula saya tidak berniat mempublish tulisan non-original pratolo.com, but after I read this article I decided to make exception. When you finish reading this article, you will find out the reason why U.S invaded Iraq, why U.S President hates Iran and Venezuela, and why the oil price continues to soar. You may change the way you invest.

———————-

WHEN BAD IS GOOD; What is Money Anyway?

By Dan Eden

This information is not new. International bankers and politicians know these facts all too well. It’s the ordinary people — the little guys like us — who are told that these things are too complex for us to understand; yet it is because of “global currency” that we invaded Iraq, Afghanistan and, perhaps soon, also Iran. Sure, it’s all about oil — but not the way you think.

What is “money?”

At the dawn of civilization, the earliest way to get something that you needed was called barter. I give you a cow and you build me a hut to live in. But what if I want a tiny hut? Do I give you half a cow? Placing a standard value on goods and services was first achieved through the use of currency, or money. Almost every culture has money. Ancient cultures used everything from sea shells and beads to huge circular stones to buy and sell. Eventually, precious metals were used and more recently the standard currency has been based on gold.

The value of precious metal is determined by its weight. Instead of carrying chunks or nuggets of gold and silver, early empires made standard “coins” of the metals and set a standard value in the marketplace. Coins were great for most transactions, but they were heavy and wore out your pants pockets quickly. Soon a new idea, paper money, was invented.

The original idea behind paper money was convenience. Each piece of paper represented a specific weight of a precious metal, usually silver or gold, that was kept somewhere in a treasury. If an individual wanted to, he could exchange the paper money for the gold or silver that it represented. It was all based on trust and a promise. In fact, the early paper money in America was called a “promisary note.”

If you can find old dollar bills, you will read the promise written on each note. You will also notice that the notes are numbered. In this way, each note is unique and represents a corresponding weight of silver or gold in the US Treasury vaults.

On a global scale, when someone in America bought something from a foreign country, they would pay in US dollars. The foreign company would then go to their local bank and exchange the dollars for their local currency. When foreign banks had a surplus of US dollars, they would then exchange them for gold. This meant that the US Treasury was always needing to acquire more gold to replenish its vaults and maintain the “gold backed” dollars in circulation.

Prior to 1971 the dollars of the US were trusted all over the world. Each dollar was based on 1/35th ounce of gold, held in the US Treasury. The value of gold was fixed by law at 35 dollars = 1 ounce, so the value of each dollar was very stable. This made the dollar attractive as an international currency. But in 1971 this all changed.The Nixon Legacy — fiat moneyThe Vietnam War was a painful time for America. We’re still paying for the sins of our past leaders — quite literally. The war was so expensive (estimated at $500 Billion) that America didn’t have sufficient dollars in print to pay the bills for the disaster (The gold reserve only had about 30 Billion). But Nixon had a plan. Why not just print more dollars? Never mind that there isn’t enough gold on reserve to back each note. Just print as much as you need to pay the bills.To do this he needed to change the law. So he did. The new system is called “fiat money” and is defined as follows: “Definition: Fiat money is money that is intrinsically useless; is used only as a medium of exchange.” He ended the system of “promisary notes,” ended the fixed value of gold and allowed the system of “supply and demand” to set the value of both gold and American currency. But wait! There’s more!

Enter Oil: Black Gold

Back in the early 1970’s, America produced most of the oil it needed. Texas oil fields were active and a far cry from the rusted rigs you can still see there today. We imported a fixed amount, about 25%, from foreign countries, but our thirst for oil was getting stronger. Nixon knew that America and every developing nation in the world would need more oil in the future. He also knew that OPEC, the handful of countries that produced foreign oil, wanted the limits of American imports lifted so they could sell more. So he cut a deal.

The cap on 25% imported oil was lifted in exchange for the agreement that oil, purchased from any country in the world, would be bought only with American dollars. OPEC agreed and almost immediately there was a strong demand for dollars throughout the globe. This demand was not based on the value of gold but on the value that each dollar had in the marketplace. Since anyone who wanted oil had to have dollars, the dollar remained strong.

Another thing that helped pull this scheme off was the fact that gold, held by the US Treasury, went from its fixed value of $35/ounce to its present value of over $600/ounce. Of course a cup of coffee was once 5¢ and now my Starbucks Latte-Macchiato-double-Skim is close to $5!

Coffee, Automobiles and Computers: The Plot Thickens

Oil is a big import but not the biggest. Americans buy so many things from foreign countries that it is staggering to imagine. In 1973 the US sold more goods to foreign countries than it bought. But in each successive year the tables have turned.

All of these goods are bought with “fiat dollars,” meaning that the currency itself is worthless since it can never be exchanged for gold or silver. Of course, a foreign country could exchange it for something else — something that was produced by America, like… hmm… (anyway). As the chart above shows, American exports, although representing 1.25 million dollars every two seconds, are insignificant.Fiat dollars remain in circulation mainly because they are needed to buy oil. For this reason lots of countries keep huge supplies of dollars in their reserves. It has become a way of storing their national wealth. The fact that US dollars represent foreign national wealth adds to their value.Good Is Bad: Bad Is GoodThis kind of system turns traditional logic on its head. Like, a trade defecit is supposed to be a bad thing, right? Wrong. It’s actually good for the dollar! Imagine what would happen if everyone started using their dollars to buy things from America. The US would be flooded with dollars which would cause inflation and, besides, we don’t have enough goods and services to exchange for all those foreign US fiat dollars! In fact, America is technically, as of last year, bankrupt!

And what about higher oil prices… bad? No way. That keeps those pesky foreign flat US dollars “out there” and in high demand. It’s very good for the dollar. Globalization, Nafta and Free Trade? Yep, they’re also good for the dollar since they perpetuate the demand for greenbacks.

The whole system is kept running smoothly by global central banks who monitor the supply and demand for dollars on a daily — even hourly — basis. If there are too many dollars “out there” in the world, the US buys its own currency to create a scarcity. If there are too few, it sells more dollars or buys more foreign goods to replenish the supply.

If this is beginning to sound like a classic “pyramid scheme,” you’re starting to get the picture. But sooner or later, someone has to pay.

Houston, we have a problem!

Imagine what would happen if the oil producing countries in OPEC decided to sell oil in some other currency besides US dollars! What if they changed the system to use the Euro, the Franc or the Yen? What would happen if no one needed US dollars anymore? Hang on tight, it’s already started.

Iraq

On November 6, 2000, Saddam Hussein switched the oil currency from the US dollar to the Euro. Two years later the Euro was rising in value while the dollar was sinking so low that the International Monitary Fund warned of the dollar’s imminent collapse. The solution: Iraq was invaded on the pretext of developing weapons of mass destruction, the oil fields were seized and the newly installed government returned to the US dollar standard on March 19, 2003. Other nations, who held large dollar reserves, joined the coalition and contributed troops to pull this off.

Venezuela

Hugo Chavez has recently announced plans to nationalize the country’s oil industry. Although Venezuela is a major oil producer and a member of OPEC, they have sold their oil to Cuba and other regional countries without the use of dollars and often in a barter exchange for domestically produced products. In 2001, Venezuela’s ambassador to Russia announced that Venezuela was considering switching to oil sales in the Euro. Within one year the American government was seeking a regime change and America has been accused by Chavez of attempting to assassinate him in a failed coup attempt backed by the CIA.

Russia

Since June 8, 2006, Russia’s Putin has been selling its reserves of US dollars. This has been done slowly to diminish any dramatic effect on the global supply, but it represents a decision of Russia to divest itself of a dollar reserve. The world market has taken notice.

China

An unprecedented signal from senior Chinese leaders that the Asian economic giant might abandon the U.S. dollar sent shockwaves through the markets today as the Dow Jones Industrial Average lost 360 points and the greenback fell to a record low against the euro.

November 19,2007:

Xu Jian, a Chinese central bank vice director, told a conference in Beijing, “The dollar is “losing its status as the world currency.” Meanwhile, at the same meeting, Cheng Siwei, vice chairman of China’s National People’s Congress, said, “We will favor stronger currencies over weaker ones, and will readjust accordingly.”

Craig R. Smith, CEO of Swiss America Trading Corp., told WND he’s been in the investment business for 30 years and has “never seen people more nervous.”

Alarmed by today’s economic news, he dispatched a note to brokers with a warning of ominous potential consequences if China and other trading partners abandon the dollar.

“If that were to happen, all bets are off, and we will be in a depression that makes 1929 look like child’s play,” he said, “or we will experience Weimar Republic inflation as the dollar makes extreme moves toward devaluations.”

India

Dollar no longer welcome at Taj Mahal
By Andrew Buncombe in Delhi
Published: 19 November 2007

The Taj Mahal may have been built as a testament to love but some hard-headed business decisions are now holding sway at India’s most famous monument. First among them is that the US dollar is no longer welcome.

With parts of the American economy in turmoil and the dollar rapidly losing its long-held position as the currency of choice, Indian authorities have calculated they are losing considerable sums of money by allowing foreign tourists to pay using greenbacks.

A statement by India’s Ministry for Tourism and Culture said the government had decided to act “in view of the international practices and also to avoid any anomaly on account of falling exchange rates of the US dollar vis-a-vis the rupee and the consequent fall in revenues”.

Until the change, foreign tourists visiting the Taj Mahal in Agra, south-west of Delhi, could enter by paying a fixed $5 (£2.45) fee Ð a price that was set when the dollar was worth around R50. But with the dollar having fallen by 12 per cent this year against the rupee and the current exchange rate closer to R39 to the dollar, the government has now fixed the entry price for foreigners at R250 Ð more than $6.

“These rates have been fixed in line with international practices,” a ministry spokesman said. “It will avoid any anomaly on account of falling dollar-rupee exchange rates.”

The ruling will affect around 120 sites overseen by the Archaeological Society of India, of which 27 Ð including the Taj Mahal Ð are World Heritage sites. The new rates are expected to be introduced as soon as this week to avoid a loss of income as the value of the dollar continues to fall.

Indonesia, Malaysia and Lybia

Other oil producing countries have already stated that they will begin moving from the dollar to the Euro. Indonesia, Malaysia and Lybia have already started this transition. Other countries like China and Japan are also beginning to convert a portion of their reserves to the Euro.

Iran

The US buys no oil from Iran following the hostage crisis in the 1970s. But Iran is a major global oil producer and, therefore, a major player in the “fiat dollar” scheme. In 1999 Iran announced plans to sell its oil in Euros. It actually started doing this in the spring of 2003. Iran sells about a third of its oil to European countries, the remaining share is largely bought by China. Following the announcement by Iran, the country was called an “axis of evil” by Bush and is currently the target of threats over its development of nuclear energy. At this writing, the US Navy has a large fleet in the Persian Gulf with contingency plans for an attack. Undoubtedly the desired outcome is regime change and re-establishment of the fiat dollar scheme.

(You can finish reading the complete article here)

For advanced readers, please read further about these in “Bad Money; Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism” by Kevin Phillips (especially if you are a fan of Noam Chomsky)

facilitated by http://pratolo.com

1. Ojat Says:
   September 5th, 2008 at 7:33 am

   walopun ga sepenuhnya ngerti, tapi kalo baca artikel ini, ternyata…oh ternyata…parah banget

2. pratolo Says:
   September 5th, 2008 at 9:51 am

   @ojat
   iya gitu deh … tapi buat yg masih honeymoon gak parah-parah amat koq

3. faris Says:
   September 5th, 2008 at 12:44 pm

   yup…napa kita masih pake dollar ya…..berhenti aja tuh di glodok di hotel2 ganti pake Euro…Dinar…AS pasti deh bangkrut n ngemis2 minta kita pake dollar lagi…
   kalo diancam dengan kekuatan militer, ya gak masalah apalagi sekarang AS udah bangkrut…jadi kalo membiayai perang dengan dollar udah gak laku lagi, gimana dia mau membiayai….
   Bayangkan kita menjual barang ke AS dengan segitu murahnya dengan mata uang tanpa back up hanya selembar kertas yang tidak berguna, tetapi kita masih juga pake dollar….pusing deh….

   pratolo.com
   pakai euro pun saya pikir tidak akan menyelesaikan kompleksitas finansial dunia yg sejatinya dipicu oleh:
   - penggunaan fiat money (dollar, euro, etc)
   - meruyaknya investasi non riil macam futures trading, forex, options put & call
   keduanya menyebabkan laju jumlah uang beredar lebih cepat daripada jumlah produksi barang, akibatnya terjadi (hiper) inflasi.
   sebuah penelitian yg dilakukan oleh David Dreman menemukan bahwa pasca PD 2, laju inflasi di AS meningkat dibanding sebelum masa perang.
   menariknya, inflasi sebelum PD 1 justru yg paling kecil. secara tidak langsung ini bahwa perang memperburuk perekonomian global.

4. Japemethe Says:
   September 15th, 2008 at 4:05 pm

   Ed,skrg kmu kok jd menekuni ekonomi,tp mantap ulasannya,gak kalah sm para begawan ekonomi. Saluut…
   Mari kita bangun indonesia dg pola pikir yg lbh luas…Jangka panjang dan multi sektor,mas edy tolong dibantu mengubah pola pikir lwt blog ini
   Barakallah.

   pratolo.com
   Segala puji bagi Allah. Terimakasih mas Edwin Risananto. Jangan bikin GR begitu, ilmu saya masih jauh dgn Begawan Boediono.
   Saya orang pertama yg mencalonkannya jadi presiden 2009 bersama Pak Kusmayanto atau Kuntoro Mangkusubroto…hehe
   Ada partai yg mendukung nggak ya??

Name (required)

Mail (will not be published) (required)

Website