Why the "axis" is "evil"

[koan]

I was recently noting the current US Debt Clock at almost 8 Trillion and got to wondering...who do they owe all the money to? Japan and China? But Japan has a big debt so...who does Japan owe the money too? Do we all owe each other...how the hell does it work?

So I looked it up. After suffering through all the economic terms and whats owed to our own countries and a bunch of jargon that still doesn't quite make sense to me I came across a very enlightening aspect of the debt and what risks are involved.

If the US is the wealthiest country in the world yet has a USD$8 Trillion debt...they are not really that rich are they? So why are they economically powerful? Because oil is traded in $USD of which only the US has the right to print. What made Saddam suddenly intolerable and why did PNAC want him out of power before Sept 11? He converted oil to Euros.

Why is the US moving in on Iran and including them in the "axis of evil"? Because they are converting oil to Euros. If OPEC decides to convert to Euros the US economic dominance of the world is over.

read why

[Shake]

Now, I'm no expert, but it sounds like you're confusing debts. The $8 trillion figure is based on budget deficits of the federal government. Technically, the federal government owes that to the American people, not some other nation or group of nations. The trade deficit however, is a measure of how much the US imports vs. what it exports. We're increasingly a consumer nation and don't produce much. We buy Japanese, Korean, and European cars; Japanese electronics; all kinds of stuff from Hong Kong; clothes from India, Pakistan, and all sorts of other places.

This past weekend, I made a trip to Pittsburgh; formerly a big steel producing city. Hence the NFL team name, Steelers. There's a church downtown that got blackened from all of the air pollutants. Back in the day, folks in Pittsburgh were 4-5x more likely to die of some sort of respiratory illness than folks anywhere else in the country. But Pittsburgh is a nice, clean city now. Why? All the steel mills are gone. Industry and manufacturing have been on decline in this country for some time now. Many jobs have been shifted out of the country to keep costs down. We've gotten ourselves into quite a pickle.

The conversion to Euros will probably force the US to annex Mexico and Canada!

[koan]

you are right about my confusion. there are so many aspects to it. that is why i started reading up on it. The US does not owe 8 trillion to the rest of the world. the point is more about finding links to how international trade works. That is how the issue is made clear on what is so "evil" about the countries in that "axis".

regardless of how many unprinted dollars are actually owed...the success of the US economy depends on exchange happening in dollars not euros...or any other currency. The "wealth" of the country is only a result of being able to slough off inflation to other countries as they buy US dollars to trade with. Oil as a major factor in international trade has to remain in US dollars for the US to maintain the value of it's currency. The "axis" countries all threaten to convert oil values to euros.




btw I wouldn't be surprised if there is an attempt to "annex" Canada and Mexico

[godfry n. glad]

It's been a long time since I studied monetary theory....

Not only is Shake correct, I suspect you are confusing "money" with "currency", too.

I don't know if this will help, but I found what I consider to be a good beginning on understanding money at this wiki site. Not that I'm a big fan of wikipedia, as I've found some egregious mistakes therein, but it did look to have some fairly cogent explanations.

First, I suspect what you are referring to as "money" is US currency....what I would call M0 (that's M-zero). It's the amount of printed money actually circulating. The thing is, most money has no physical form at all...it's deposits in banks. That means it's just a number on their books; nowadays an electronic input attached to depositers names.

The national debt is what the national government has borrowed, above and beyond revenues taken in from taxes, tariffs and fees, to pay it's obligations. Usually, that debt is represented in the form of bonds sold on the open market, which can be purchased by anyone, including foreign investors.

I'm not so sure that oil transactions being paid out in euros, rather than dollars, is going to significantly affect the economic or political position of the United States. It would merely change the "standard" of exchange for some buyers and sellers, from dollars to euros. Since most currencies are exchanged on an open market, dollars can be exchanged for euros and vice versa. It would be a blow to the US currency's "reputation", but I don't think it would have much affect in terms of inflation or deflation.

Inflation is when the money supply expands so that, relative to the products available to purchase, buyers have more money to spend. "Too many dollars chasing too few goods." This happened in the US during the 60s and 70s as a result of the expansion of the military industrial complex (with Vietnam and nuclear proliferation) and massive entitlements to large sectors of the American economy. Result: Relatively little production of goods or services, compared to the growth in the money supply....inflation.

Deflation occurs when supply of goods exceeds demand and the money supply is constricted in an attempt to reach a balance; "too many goods, and not enough money." If deflation occurs too rapidly, it may spiral out of control in a market collapse and lead to a recession, or depression.

I note that in many of the sites, there was discussion as to whether credit could be considered money. I learned that extension of credit, rather than actually printing more currency, is the largest source of the increase in the money supply, at the M4 level. Control of the money supply in the US is done by the Federal Reserve determining how banks may extend additional credit to commercial and personal creditors.

By the way, there are markets in money for money, complete with futures trading, thanks to the variance in changes in money supply and expectations of demand worldwide.

[koan]

ok.

the topic here is not my lack of understand of debt, or currency. that understanding is not essential to understanding what is happening here. did y'all read the OP link?

here's another link to the concept

At the end of World War II, the USA was the world's biggest national economy and the only great power whose industrial base was not damaged by the war. America's huge productive capacity made the U.S. dollar the easiest currency to spend in the global market and consequently the most acceptable foreign currency outside the USA. By the late 1950s, however, the recovery of Europe and Japan caused a suspicion that there were too many dollars in circulation. Central bankers began to exchange their dollars for gold under the terms of the 1944 Bretton Woods treaty, whereby the currencies of participating countries were backed by gold. In 1971, in response to the depletion of U.S. gold reserves, President Richard Nixon announced that the dollar would no longer be redeemable for gold. So the system of fixed exchange rates via gold-backing fell apart. It was thought that the dollar would decline in value as traders relied less on the dollar and more on the emerging European and Asian currencies. But support for the dollar came from an unlikely quarter.

GOLD TURNS BLACK

In 1973, the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil but continued to accept only U.S. dollars in payment, so that demand for dollars soared. From then on, the dollar was effectively backed by oil instead of gold -- and the U.S. government didn't even have to own the oil!

[godfry n. glad]

Originally Posted by koan

ok.

the topic here is not my lack of understand of debt, or currency. that understanding is not essential to understanding what is happening here. did y'all read the OP link?

Yep... I sure did. And I was not impressed.

I also tried checking the sources cited, only to find most of them inaccessible. What do remain do not support the contentions of the OP.

I found the "other" sources link to the article by William Clark to be most interesting and highlighting a problem of much greater magnitude than the conversion of dollars to euros: The heavy investment of petrodollars (US dollars spent to purchase oil) in the US economy (in government bonds and private stocks) seem to pose a much greater risk to the US economy than does a switch to euros. Any punctuated selloff of massive amounts of assets invested in the US economy by petrodollar holders (primarily the Saudis) could destabilize the US economy by rapid devaluation. Clark cites the likelihood of a continued presence of Allied military in the Persian Gulf to be high and its primary rationale being to have an immediate presence to seize and protect the Arabian oil fields in the event of civil unrest and instability around the Saudi royal family (a growing reality).

Keep in mind that this policy of buying Middle East oil with dollars was considered to be smart strategy back in the 1970s, when American oil production was relatively high, but slipping. If I remember correctly, the idea was to use their plentiful oil first, and save our oil reserves relatively untouched. It seems nobody had any idea of what that meant in terms of the scale of investment in the US economy over the following 30 years.

We have truly screwed ourselves by not allowing the price of oil to float to its true value, thereby effectively euthanizing alternative energy programs, perpetuating our long-standing international trade debt, and handing over control of a significant portion of the US economy to foreign powers. At least that's my perspective.

But money is money. One just trades one for the other. I don't think it really matters as to whether future oil sales are denominated in dollars or euros. We're screwed either way.

[koan]

From wikipedia:

U.S. Treasury statistics indicate that, at the end of 2004, foreigners held 44 percent of federal debt held by the public. [3] About 64% of that 44% was held by the central banks of other countries. A large portion was held by the central banks of Japan and China. This exposes the United States to financial or political risk that either bank will stop buying Treasury securities—or start selling them heavily. In fact, the debt held by Japan reached a maximum in August of 2004 and has fallen nearly 3 percent since then. [4] This may change, of course, but it does underscore the risk.

Some who study geopolitics and creditary economics are greatly concerned by this. With strong financial ties, others believe that there is an incentive for the U.S. to be protective of the respective nations. For instance, military strategist Thomas Barnett believes that the world's nations are essentially paying the United States to be the world's policeman. There is a risk that military confrontations could occur between the U.S. and its debtors if the country cannot repay the debts, though most analysts believe that any confrontations would be entirely economic.

A risk of even greater magnitude is the possibility that OPEC will begin to price petroleum in Euros, as Saddam Hussein began to do in 1998—until this decision was reversed by the 2003 invasion of Iraq.

bold type my addition