Iran is next..........?

Why is the US in the Persian gulf? To secure oil supplies for its population might be the obvious answer. But is that the only reason? After Saddam refused to accept dollars in payment for Iraq's oil, the US was left with no alternative but to invade Iraq although there were no WMDs there. Because the US dollar's status as the world's reserve currency was being jeopardized.

Now what does the Iranian Oil Bourse at Kish island stand for? Its primary reason for existence is to unseat the USD's dominance of the oil markets. The Iranian authorities have stated that the bourse will trade in oil and derivatives in Iranian Rials, Yens, Euros and even Russian Roubles. For the record, Iran stopped accepting dollars in payment for oil in Dec. 2007. And is thus currently the greatest threat to the American Empire.

Economically, the American Empire was born with Bretton Woods in 1945. The U.S. dollar was not fully convertible to gold, but was made convertible in gold only to foreign governments. This established the dollar as the reserve currency of the world. In essence, what this meant was that the US could buy goods globally by printing out more of its own currency.

And in 1971, the US unilaterally broke the agreement when it was asked for payment in gold. That should have spelt the end of the American Empire but the US had another card up its sleeve.

The US, in 1972-73 made an arrangement with leading OPEC members for accepting only U.S. dollars for their oil exports. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from OPEC countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil. This is what perpetuated the USD as the world's reserve currency and allowed the American Empire to buy up the world's economic resources by printing out more of its own currency.

Why does an empire go to war? Either to defend itself against a real or perceived threat, or perhaps to benefit from war. The US is in Iraq not to benefit from its oilfields but to neutralize a threat to the USD's reserve currency status.

And that will be the reason the US might be tempted to attack Iran. General Petraeus has been setting up the stage for this in his testimony to the US Congress. Let us see how the future unfolds....

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The future is bleak.......?

Food riots in Haiti……. Crude oil prices hovering at 110 and likely to push higher…….. US, the world’s largest economy, in recession and perhaps pushing other economies around the world into depression…..

The reasons for this have already been analyzed by a lot of people. What I am concerned about is the effect this global upheaval is going to have on us. And that depends on how the crisis unfolds in the near future. What I see at the moment is the Fed keeping up its efforts to avoid a catastrophic event like a major Bank failure, by providing liquidity injections and keeping interest rates at low levels. I tend to think that accelerated inflation is the most possible outcome of the Fed’s current efforts.

This means that commodity prices around the world will shoot up, which will make it harder for the world’s poor to feed themselves and might cause political uncertainties in developing countries. Economies around the world that have been doing well because of their hard or soft exports to the US will go into recession, which may lead to political upheavals. Imagine the Chinese leadership turning hardline and perhaps instigating a war against Taiwan or another of its neighbors to divert its populace’s attention from internal matters. Or perhaps India and Pakistan going to war over Kashmir………. The possibility of a nuclear confrontation is horrifying, but cannot be ruled out.

I would love to be optimistic, but until someone provides me with a reasonable argument of why such a scenario should be ruled out, I will assume the worst can happen and will prepare accordingly.

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