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The decline of the international dollar system and the new realities of global governance from the "Smithsonian agreement" of 1971, before the global financial crisis in 2008
Material posted: Publication date: 13-05-2012

Until 1958 dollars outside of America were rare. However, the wars in Korea and Vietnam and the arms race in outer space has led to their rapid spread around the world, because the U.S. imported equipment and natural resources" [2, c. 37]. Moreover, "within the country krepnuvšej the belief that poverty can be defeated by the arbitrary action of the government, resulted in the creation of special programs, like Medicare and had a purpose of building a "Great society" that also "was funded by newly printed dollars" [5, c. 86].

Since Bretton woods where the dollar was declared the reserve currency of the world, America was forced to incur large trade deficits to satisfy the rest of the world liquidity necessary for the functioning of the global economy [19]. This phenomenon was described by the economist from Yale University R. Trifina in "Gold and the dollar crisis: the future of convertibility" (1960). Triffin warned: "if the U.S. refuses deficit of the balance of payments, the international community will lose the largest source of increase its reserves; as a result, the lack of liquidity will cause unprecedented instability". Wall Street got a warning that sounded in 2011 especially severely: "Excessive balance of payment deficits caused the dollar glut in the long term undermine confidence in the U.S. currency that (significantly reducing the value of the dollar) will deprive of its global status" [18]. This "paradox, called "the dilemma of Triffin", has now acquired a burning topicality", although not "culminated" [2, c. 35].

 

1. The reasons for the decline of the global position of the dollar

A surge of dollars in the 1950-1960-ies "has increased the demand for gold, and in 1968 the Central banks of the world have recognized the failure of their attempts to manage the national currency" [5, c. 86]. Economic system of West was paralyzed: inflationary pressures stimulated a "flight from the dollar" and prompted U.S. President Nixon to sign the "Smithsonian agreement" abolishing in August 1971 the direct convertibility of dollars into gold.

According to American economist William Engdahl, "the real architects of the Nixon strategy were in an influential commercial banks in the city of London. Sir Sigmund Warburg, Edmond de Rothschild, and Jocelyn Hambro and others will see unprecedented opportunities in nikonovka failure in the summer of 1971 from the Bretton woods gold standard". London once again became the main center of world Finance and again on "borrowed money", this time in the U.S. Eurodollar. After August 1971, Engdahl continues, "when the White House adviser for national security Henry Kissinger, the dominant U.S. policy was the control and not the development of economies around the world." Official U.S. policy began to proudly call themselves "malthusians". According to Engdahl, "the first priority during the 1970s, resulted in the decrease of the population in developing countries, and not the technology transfer and industrial growth strategies - another relapse of the British colonial thinking of the sample of the XIX century" [11, p. 137].

Given what's happening in that period of events is hard not to agree with the position of W. Engdahl that "the demonetization of the dollar in August 1971 was used in London and new York financial circles to win the precious time, while policy prepared a bold new monetarist design, a "paradigm shift", as some". Engdahl believes that "influential voice in the Anglo-American establishment came up with the strategy, regenerating a strong dollar to re-strengthen its political power in the world at that moment, when their defeat seemed inevitable" [11, p. 141].

Live the writing style of W. Andhala coupled with convincing facts only reinforces the desire to reach the true causes: "In may 1973, when the dramatic fall of the dollar was still a fresh memory, a group of 84 people in the world's financial and political elite, gathered in Sweden, the secluded island resort of Saltsjöbaden, owned by the Swedish family of bankers of Vallenberga. This meeting of the Bilderberg group, Prince Bernard zu Lippe heard a statement by the American party, in which he outlined the "script" the inevitable five-fold increase in OPEC oil revenues. The purpose of the secret Saltsjöbaden meeting was not to prevent the expected shock of increase in oil prices, but rather plan to manage the expected influx of oil dollars - the process of "recycling petrodollars," as later said Secretary of state Kissinger" [11, p. 143-145].

The American, speaking at the Bilderberg meeting "an Atlantic-Japanese energy policy", has spoken very clearly. After claims that future world oil needs would be provided by a small number of exporting countries of the Middle East, the speaker prophetically stated: "the Price of this imported oil will increase manifold with complex consequences for the balance of payments of consuming countries. Serious problems arise due to the unprecedented amount of foreign currency, accumulated by countries such as Saudi Arabia and Abu Dhabi". The speaker added: "there is a complete change in political, strategic and power relations between transnational oil companies and oil importing countries and national oil companies of producing and importing countries". Then he gave estimates for growth of oil revenues of middle East OPEC members, which meant an increase of over 400 % [11].

According to Andala, at the meeting in Saltsjöbaden was attended by Robert Anderson from "Atlantic Richfield oil"; Lord Greenhill of "British petroleum"; sir Eric Roll of "es. JI. Warburg", Creator of Eurobonds; George ball of investment Bank "Lehman brothers", the man who ten years before that as assistant Secretary of state advised his friend-banker Sigmund Warburg to create the Eurobond market in London; David Rockefeller Bank "chase Manhattan"; Zbigniew Brzezinski, soon became the national security Advisor under President Carter; among others was attended by the head of automobile concern "Fiat", Gianni Agnelli and the head of the concern "Otto wolf", the first German who entered the Board of Directors of "Esso", perhaps the most influential financier in postwar Germany Otto Wolff von Amerongen. Henry Kissinger was a regular participant at the Bilderberg meetings.

To summarise, U. Andal concludes that "influential people from the Bilderberg club, obviously, decided to start a Grand offensive against world industrial growth, in order to tip the scales in favor of the dollar and Anglo-American financial circles." To achieve this, "they chose their most famous weapon - control over the world's oil flows". The policy of the Bilderberg club "was to create conditions for a global oil embargo that would have led to a dramatic surge in world oil prices". Turning to history, Engdahl explains complicated for the layman the logic of thinking financiers: "since 1945, world oil trade is usually conducted in dollars because the post-war market was dominated by American oil companies. The sharp increase in world oil prices, thus, meant equally rapid increase in the demand for US dollars required to pay for this oil" [11, p. 151-156].

From this moment the fed starts printing dollars in increasing amounts, adjusting it to depreciate: reaching to 1973, the mark of 42,22 USD. per ounce of gold, US apply a powerful blow to middle East countries, depreciating their income from the sale of oil, causing the first oil shock and the Arab-Israeli war (throwing, thereby, the indignation of the world community regarding the increase of oil prices on the Arab countries). By 1980 in America comes a deep economic crisis: the dollar has fallen, the country ceased to be a leading car exporter; the U.S. share in the world market of heavy machinery fell from 25 to 5% compared with 1950, while the share of Japan - new world power - in this area increased from 0 to 22% [2, c. 38].

Paradoxically, the program "Star wars", proposed by U.S. President Ronald Reagan, has preserved the championship of America in the world economy that was already ready to move from new York to Tokyo, and ended up centered around California, in Silicon valley. Wall Street has also retained its financial power and the dollar in relation to gold has tripled [2, c. 40]. Bipolar confrontation allowed America to extend its leadership in international relations and the global economy. In this regard, the collapse of the Soviet Union, designed from the outside, only complicated the search for external enemies, under the pretext of which the American financial aristocracy poured money into the military industry, maintaining a delicate balance between real production and the so-called "new economy".

Once in the spring of 2000 burst the bubble (equilibrium in the economy turned out to be illusory) on the market of high-tech companies, obliged, according to J. Stiglitz and P. Krugman, his appearance, the head of the fed Alan Greenspan in the period from March 2000 to October 2002, stocks of American corporations fell by 78% [4, p. 32]. March 2001 becomes the reference date of the recession caused by the fact that in the high-tech sector had invested huge amounts of money. Suddenly everyone thought that the Pax Americana is becoming a thing of the past. However, the September 11 attacks radically changed the situation. The US war in Afghanistan and Iraq that has cost Washington 1,15 trillion. $ . outshine former Pentagon spending during the wars in Korea and Vietnam (662 billion). The economy of America, which received an impressive defense orders, returns investors ' confidence in the dollar "since 1971, has lost 90% of its value relative to gold and 70% of its purchasing power" [5, c. 88].

Using the recession to promote programs to reduce the tax burden for the rich [4, p. 32], the US government together with the fed lowers interest rates, which led to excess liquidity in the market. Given the overcapacity, it is not surprising that low interest rates have not led to growth of investment in fixed capital: on the one bursting the bubble began to inflate another real estate market that has caused the growth of consumption and construction boom [4].

Thus was laid the basis for the global financial crisis of 2008 Already in mid 2000s it was obvious that to determine world economic growth will global demand, and so long as the world economy becomes strong, the United States will be difficult to achieve sustainable recovery and prevent painful conditions in the Japanese style [4, p. 22]. In this context, an indicative statement of the economist P. Krugman: "the Military campaign in Iraq and Afghanistan - small wars, insufficient for lifting of the U.S. economy, which needs something larger and more solid" [3]. Despite the fact that the hypothesis of Krugman set out in comic form, it does not lose its meaning: "to persuade politicians that we are threatened by aliens from outer Space and force them to spend money on for defense from outsiders of the infrastructure and weapons, it will give a huge impetus to the economy. But if then we will say that any aliens and was not, then everything will be all right - the economy will recover" [3].

For anybody not a secret that the stability of the dollars-centered world based on policies of the Bretton woods institutions - the IMF and the world Bank (hereinafter - IBRD), guides a large-scale monetary flows into a region, causing an increase in the external debt of States that, ultimately, forces them to carry out Pro-American foreign policy to the detriment of its own national interests. For example, under the influence of the IMF and IBRD countries in Latin America increased its external borrowing quadrupled from 75 to 315 billion. for the period from 1975 to 1982, the Situation reached its climax after Mexico in August 1982 announced that it could no longer service its debt.

Putting "the entire continent to the brink of bankruptcy", financial police (IMF and IBRD) proposed by debtors the program, later called "Washington consensus" . First on the list was the requirement to adhere to fiscal discipline (to reduce deficit). The tax base had to be expanded, and the taxes reduced. Exchange rate and interest rates relegated to the market. The borders were opened and, most importantly, for foreign capital. "Hot money" which have been almost banned during the Bretton woods system, came back to life [6, c. 329]. Thus, American corporations would have strengthened the position of the U.S. Federal reserve and received a wide access to the resources of Latin American countries, imposing neo-liberal rules of the game.

One of the known participants of these manipulations is chief economist of the consulting company "Charles T. Maine" by G. Verdi. Perkins writes that his goal was to money the IMF and IBRD, lends Panama and Ecuador, was spent on the purchase of goods supplied by us corporations. According to Perkins, such "economic hit men" were trained for the construction of the American Empire, the creation of an environment in which all battered American companies, and government: "My true purpose was to provide loans, much larger than the country could pay. We provides loan, the lion's share of which later turned out to be in the United States. Debt and interest on it turned another country into our handmaid. Two opinions can not be, this is the Empire" [6, c. 330].

The accusations against international financial organizations also joined the American economist Dzh. Stiglitz, stating that the IMF "enforces the idea of superiority of the market", making his role as "obvious signs of imperialism". According to Stiglitz, many of the proposals, which insisted that the IMF, such as premature capital market liberalization, has led to instability in the world. Jobs have been permanently reduced because the inflow and outflow of speculative money, that often accompany market liberalization, leaving no stone unturned in the economy; even in countries where there was growth, he brought the fruits and the rich, especially very rich [17, p. 12, 14, 15]. An example of these destructive actions is the Nobel laureate believes the 1997 crisis that engulfed Asian countries.

In global terms, we are talking about crisis management of modern States, which in its scope is unprecedented in history. In addition to these institutions, considerable advances in this direction demonstrates the Organization for economic cooperation and development (OECD), which develops since 1995 Multilateral agreement on investment (MAI), is still not signed. The purpose of the Treaty was declared "the achievement of new standards of liberalization that could cover all stages of the investment process and to eliminate existing restrictions imposed by national governments". The original plan was designed for the "production" of the agreement for ISI in the WTO. However, these efforts were blocked by third world countries, especially India and Malaysia, which recognized that the proposed measures will enable them to apply the tricks used by the rich for the sake of winning their own place in the sun. Then the negotiations were transferred to safer departments of the OECD where, as delicately wrote the London Economist, one would hope to reach an agreement, "to which want to join the developing countries" who fear that they will not be allowed to market and rich resources [7, c. 33].

 

2. The global economic crisis in 2008 and new vectors of global construction

By early 2008 the U.S. economy was a "market awash with liquidity", which is the accompaniment of low interest rates and a bubble in the property market, bloated on a global scale [4, p. 29]. These trends gained momentum in the backdrop of the fact that the incomes of most Americans for a long time didn't grow, and corporations - has been repeatedly increased, exposing "the erosion of the" purchasing power of the population.

Rising up the real estate prices allowed homeowners to receive money on the security of their assets. These loans are issued against a pledge of designated property, the volume of which for the year reached 975 billion, or more than 7% of GDP, allowed borrowers to make initial payments for the purchase of new cars but also over time to count on receiving funds for pension provision. However, all these borrowings were made on the basis of one risky assumption that housing prices will continue to rise or at least will not fall [4: 30].

Eventually the bubble burst "thanks to his Majesty the occasion": "people are suddenly beginning to realize the impossibility of existing debt" and "financial elite tried to get out of a bad system, causing a panic" [2, c. 146]. Given the fact that "everyone runs out of debt and looking for cash" the bankers "blocked financial system," purposefully "keeping money and making money", just, "as in Soviet times, warehousing of consumer products caused the deficit". It "strangled the economy, which slipped into recession" and later "depression"[2].

The underlying cause of these processes - the monetary policy of the Federal reserve system and expanding the money supply in the economy (M 2), which allows us to serve a huge public debt of America who have reached as at 18 April 2011, 14,270 trillion. $ . (96.5% OF U.S. GDP). Inflation in this case - the only tool "to get rid of the excessive debts accumulated by households and countries, to pay which otherwise is not possible" [2, c. 123]. The result is rising prices for energy and food, provoking, in the opinion of the CG. Brzezinski, "the growing conflict between the classes, a heated mass unemployment leading to riots" [8]. It is noteworthy that this scenario was predicted in 2009, renowned economist and theorist of the "new world order" Jacques Attali: "Huge financial resources, a glove in the world economy after the crisis, will lead to a sharp increase in oil prices, dragging down the money spiral", which, in turn, "will trigger unprecedented political riots and violence, flavored with a return to class hatred" [2, c. 123-130]. The journal "foreign Affairs", reflecting the opinion of the American political elite, was also in solidarity with such causes, which spurred "popular protests from Morocco to Oman" [13]. Even the U.S. military, known for its endurance, described the painting in dark colors: the Chairman of the joint chiefs of staff, Admiral M. Mullen stated that "the financial crisis is the most important threat to U.S. national security, eclipsing challenges coming from Iraq and Afghanistan", and its consequences can lead to even "greater instability" [14].

World political system has demonstrated its instability: riots swept across the Muslim world, Israel, EU countries (in debt distress), then exchanged to the United States, where the geography of the protests spread to new York, Washington, Boston, Chicago, Los Angeles and St. Louis. For the first time since the 1930s, the citadel of global capitalism stormed the protesters who lost during the crisis most of their savings and home, they were dreaming about. The growth of world inflation, inflate food prices, risks to change the world beyond recognition, causing a surge of ethnic and religious identity even in the most remote corners of the planet.

These events once again prove the divergent interests of elites (global managers) and citizens of Western States. Participants of the action "Occupy wall Street" share a common sense of injustice, sound, economic (against the activities of the financial elite, unemployment, etc.) and political slogans. In the same context, an additional example is the riots in Greece, due to the dissatisfaction of the citizens about cuts in social spending due to fiscal austerity in the crisis period. What it is: the next planned move of the global political spin or objective, beyond their control, spontaneously-revolutionary tendency to the active opposition to the existing system of global governance, in which the rich thrive and the poor are losing the remnants of his hopes for the future? Global awakening covers rich and poor countries, representing the first adequate reaction of the world community on the created system of supranational governance mechanisms global, political and economic processes.

In addition, the inflationary policy of America, reducing the value of the dollar, provokes similar action by the Bank of England, European Central Bank, the Bank of Japan and people's Bank of China aimed at stimulating economic growth and to fight growing deflation.

Due to the fact that the cheap dollar is becoming a heavy burden for developing countries, coups in Tunisia, Egypt, Yemen and Libya - not that other, as a preemptive strike the United States by the elites of the Middle East and North Africa, aimed at extending the hegemony of the American currency. The choice of these regions as the targets is not accidental: it is the Muslim countries that export energy, concentrate in themselves the overwhelming amount of dollars.

Filling with them, the Arab States, America reinforce inflationary burden on these economies, causing significant political problems. Given the fact that low cost energy "plays a key role in ensuring the legitimacy of these regimes," governments resort to "subsidize the price of gasoline, diesel fuel and electricity to maintain the material welfare of its citizens", "increasing the level of domestic consumption of oil" (from 4.8 million barrels in 2000 to 7.8 million in 2010 in the Gulf countries). In the end, declining exports raise the minimum price of oil, allowing oil producing countries to recoup the cost of mining and production" [15]. It follows from this that the civil war in Libya that reduced the supply of oil on the world market in the short and long - term perspective is a powerful catalyst of political change in the Arab-Muslim countries.

From a historical point of view, the global economic crisis of 2008, provoking the current turmoil in Western Europe, America, the middle East and North Africa, appears analogous to globalized crisis of 1847 in Europe, then caused "a wave of unrest across the continent: in France - attacks on carriers of grain in württemberg - hunger riots in Genoa uprisings demanding bread, in Vienna, looting bakeries" [1, p. 110]. And, in that period the growth of prices for agricultural products (famine claimed the lives of over half a million people) were accompanied by "overproduction of industrial goods, the bankruptcy of factories and large scale unemployment" [1]. The only difference is that in 1848, thirty philosopher Karl Marx wrote "the Communist Manifesto", thus laying the Foundation of scientific communism, and the current theorists of globalization still has not proposed a universal concept, capable of leading the poor and the rich.

Before the revolutionary events of 2011, the ruling circles of America and Europe engaged in the intensive care unit of the Western economy from the crisis, faced the choice: "return to national markets, that is, to protectionism and competitive devaluation, or create a legal framework for global scale - global management system" [2, c. 147]. The thesis of the leader of the financial aristocracy of America D. Rockefeller that "rational people prefer internationalism and irrational - nationalism" [16], have had due effect on the ideological elite of the United States and the European Union.

The bet was made on the model, which presupposes "the existence of a police force and a truly planetary justice, able to control and to punish any deviation from the rules" [2, c. 148]. Thus, Jacques Attali advocates for "the expansion of G-8 (group of eight) to G-24, and creation, based on G-24 and the UN security Council, one Council management with economic powers and carrying out legitimate political regulation". For Attali, the new body must take "full control of the IMF, the world Bank and other international financial institutions" [2, c. 165], and to reform the composition and voting procedure within them. Moreover, capable of global sovereignty, is able to balance the market and democracy is inextricably linked with the presence of "Parliament, government, applications to the universal Declaration of human rights, the realization of the ILO in labour law, Central Bank, common currency; the planetary system of taxation, of police and of justice" [2, c. 162].

Under the influence of the fall in the purchasing power of the dollar, louder calls for creating a "new world currency issued by a global Central Bank, with a solid governance and institutional features" which "must serve as the lender acting as the last financial safe havens" [9]; at the same time emphasizes that "the world is still too far from such level of global cooperation" [9] and, probably, "will have to wait even more terrible war" (the Second world), "to the prospect of such reforms are taken seriously" [2, c. 163].

In this regard, multivalue position of the former Prime Minister of great Britain G. brown - a synthesis of Anglo-American ideas about the contours of the future system: "a New Bretton woods should be built for global governance defining in the years ahead financial architecture of the world" in which "a reformed IMF will turn into a planetary Central Bank carefully monitors the development of the international economy and financial system" [21]. Bold steps in this direction was done by China, proposed creating a new global currency based on SDRs , (special drawing rights) currency issued by the IMF. At the end of March 2009 a group of economic experts, the UN supported the project, recommended "a new global reserve currency, which "will replace the dollar" and will be "freed from national control" [20].

That is, it is proposed to do quantitative easing, transnational, bringing it beyond the bounds of monetary policy by the fed, ECB, Bank of England and other regulators. On an ironic assessment of the Washington post, the IMF transformed in a sort of "UN for the world economy": "will Be greatly expanded powers for the implementation of the global banking system to poor and rich governments. The system's flexibility will allow you to effectively print its own currency, saturating the world markets the liquidity that is now the prerogative of the fed. As a result, the IMF will begin to play a Central role in the world economy, and Washington will have another chance to become a center of power that govern the global financial system" [12].

It is believed that universal mechanisms of control over the world's development will allow to overcome the "dilemma of Triffin" and give the world stability. The Thesis Of Th. Schumpeter that economic development is the result of disorder, takes on a new meaning. Recognizing the existence of chaos, we also have to consider the financial-economic management of global processes such as the struggle for order, new world order, which will dominate the global Manager class.

 

The list of references


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Source: http://www.georgefilimonov.com/articles/decline-of-international-dollar-system/

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