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Analysis Last Updated: Mar 1st, 2006 - 00:35:41

Threatening imperial income
By Hal O'Boyle
Online Journal Contributing Writer

Mar 1, 2006, 00:34

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Saddam Hussein once toyed with the notion of pricing his country�s oil in euros rather than dollars. It wasn�t long before George II began chanting �Axis of Evil� and �WMDs.� The U.S. Air Force created a steel thunderstorm over Baghdad. A hundred thousand Iraqis, electricity and indoor plumbing became memories in Mesopotamia. The U.S. Army dug Saddam out of a hole in his uncle�s backyard. He is now a prisoner. The U.S. Army occupies his palace.

You would think Saddam�s neighbors would take the hint. But leaders in Iran are finishing plans to trade Iranian oil in euros. It�s not a coincidence that Baby Bush is whooping us up for an invasion.

Expect to hear a lot of reasons Iran needs to be democratized. Iran has THE BOMB. Iranians are terrorists. They are not nice to women. They are heavy smokers. They don�t have handicap ramps. But George II could forgive all those sins if those camel jockeys would just keep swapping oil for dollars.

Not long ago I wrote about America�s peculiar empire. I thought the business model was all wrong. Imperial countries tax the conquered; they don�t subsidize them. Taxpayers in the Imperial Homeland are supposed to get fat off the sweat of outlanders. The American Empire appears to have it all wrong. As soon as America conquers a foreign land, American taxpayers start printing election posters and building shopping centers for the vanquished. Where�s the profit in that?

What I hadn�t considered was the role of the Imperial Currency. The dollar standard changes all the old rules. Old fashion empires looted their subjects directly. Gold and silver were preferred, but slaves, women, horses, cattle, grain, silverware or whisky would do. The American Empire of IOUs is the first in human history to tax its subjects indirectly through inflation. The Empire buys the world�s wealth with paper tokens -- official promises to pay nothing at all. It�s easier and more efficient than old-fashioned looting.

This scheme didn�t come about overnight. Our first experiments with international inflation ended in the Great Depression. To force Americans into the New Deal, Franklin Roosevelt denied us the refuge of gold in the 1930s. In 1945, the Bretton Woods agreement denied gold to everyone but foreign governments. Governments could exchange dollars for the barbaric relic until 1971.

That was the year Richard Nixon realized his government was bankrupt. He �closed the gold window,� stiffing the foreigners who held boatloads of paper dollars just as Roosevelt had stiffed Americans 40 years earlier. Americans had exchanged an enormous number of paper dollars for an enormous amount of the world�s wealth. Nixon finally admitted we weren�t going to pay up.

Nixon�s default precipitated the �oil crises� of the early 70s. It was really a dollar crisis. The Arabs, particularly the royal family of Saud, were not keen to trade oil for paper. We struck a deal with the sheiks that saved the Empire.

In exchange for military protection, the Saudis, and with them OPEC, would trade oil only for dollars. The deal would keep the Saud family in power and the world in need of lots of dollars. The dollar was suddenly backed by oil instead of gold.

While America appears to send help to those it conquers, it taxes the entire world to do so. America taxes the world through inflation. There is no need to invade a country to loot its natural resources if you can simply buy them with worthless paper chits.

Because everyone needs oil these days, the rest of the globe pays tribute to the Empire of IOUs by using only dollars to buy oil. Creating dollars out of thin air makes the U.S. government the game�s big winner. Other governments loot their own countries and subsidize the Empire by using accumulated dollars and Uncle Sam�s IOUs as �reserves� to inflate their own currencies.

When a major oil producer breaks ranks to trade oil for euros, or, heaven help us all, gold, it threatens the mechanism by which the Empire collects tribute.

If people didn�t need dollars to buy oil what would they need them for? There is little demand for money-losing American businesses with more pensioners than employees. Foreigners already buy all the Brittany Spears albums and Ipods they want. Americans make little else that the world cannot buy cheaper from Asian suppliers. Americans may be saddled with �legal tender� laws that force us to accept dollars, but foreigners are not.

Empires only go to war for two reasons, to conquer new lands or to protect income. The leaders of the American Empire have invaded one country to enforce the use of dollars. There is little doubt they will do so again.

What should be most troubling for Imperial America is that yet another pipsqueak, backwater sand patch is willing to risk invasion to break the stranglehold of the Imperial Dollar. There are many countries holding many, many, many depreciating dollars. More than a few of them would welcome the chance to diversify. We can�t invade them all.

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