Doublethink (Part 8)

“The result of this classification mania is the division of the public into two distinct groups: those who are privy to the actual conduct of American policy, but are forbidden to write or talk about it, and the uninformed public, which becomes easy prey for the official lies exposed in the WikiLeaks documents…” – David Samuels in the Atlantic

Transparency and Accountability

"Transparency promotes accountability and provides information for citizens about what their Government is doing." –President Obama (D)[1]

In a world of Doublethink, we’re conditioned to admire the emperor’s new clothes.  In America, unlike in the children's fairy tale, if someone dares to shout that the emperor really is naked, the response isn’t laughter.  Instead, cries of treason and calls for prosecutions and executions in the name of national security fill the airwaves.

Transparency promotes accountability, but in the national security state there is no transparency.  The Obama administration, like each of its predecessors, never intended an open administration for citizens.  Public ignorance of government operations keeps our rulers in power.  Our ignorance is their strength. 

By leaking classified US government documents, WikiLeaks and Julian Assange, in cooperation with various news organizations, seem to have shined some revealing light on US government operations.[2][3]  Instead of a US government-sponsored “transparency,” WikiLeaks has promoted the kind of transparency which President Obama says “provides information for citizens about what their Government is doing.”

Only The Government May Spill Blood 

“Mr. Assange can say whatever he likes about the greater good he thinks he and his source are doing, but the truth is they might already have on their hands the blood of some young soldier or that of an Afghan family,” - Chairman of the Joint Chiefs of Staff Admiral Mullen[4]

According to US government estimates, one hundred thousand US troops oppose, at most, 100 al Qaeda operatives in Afghanistan.[5][6]  That’s one thousand US soldiers (not counting mercenaries) for each al Qaeda member.  Most of the killings in the war in Afghanistan are not of al Qaeda members—the purported reason for the war.  Most of the Afghan family blood spilled, for which the chairman of the JCS professes so much concern (video), is not from those 100 al Qaeda members, either. 

On April 5, 2010, via WikiLeaks, Julian Assange dared to release secret footage from 2007 of  US helicopters killing more than 12 Iraqi civilians, including children.  The cavalier attitude of the US forces shown in that video, as they treated the killings like a video game, spoke volumes of the banality of evil.  Assange has since released an additional several hundred thousand classified US documents on the Afghan war, the Iraq war, and US diplomatic cables.

Assange has enraged those who worship the state by daring to reveal US government treachery.  Wearing a chest full of decorations, high priest of the national security state and Chairman of the Joint Chiefs of Staff, Admiral Mullen warned Assange not to leak secrets that could spill the blood of soldiers who willingly participate in the war.  The admiral thinks only the state has the right to sacrifice individuals on the altar of the state.

Many Americans are offended by Assange—he upsets their worship of the state as god.  The US government hates Assange—his revelations end the ignorance that is its strength.

Naked Apes

"Back in the old days when men were men and countries were countries, this guy would die of lead poisoning from a bullet in the brain..." – Rush Limbaugh, “limited-government” advocate[7]

Like the scene in “2001 A Space Odyssey” (4:30 into this video) where a collection of apes mimic their leader by clubbing an already fallen, harmless opponent, others joined in, bashing Assange:

• Rush Limbaugh, a pretend, limited-government conservative, called Assange names before calling for his assassination.  Limbaugh described Assange as a sissy: “No, I just don't like the guy in general principles.  I don't like the name. I don't like the way he looks. I don't like the way he sounds. He's a sissy; he's a waif, purely and simply an Internet creation.”  Limbaugh then hoped for Assange’s life to be wrecked: “…I asked them two questions: ‘Is there a way that it can be arranged that the identity of Julian Assange could be stolen and then with that identity we wreck his life?’"
• Nouvelle, pretend,  limited-government conservative Sarah Palin asked “Why was he not pursued with the same urgency we pursue al Qaeda and Taliban leaders?”[8]
• Did pretend, limited-government conservative Senator Jon Kyl (R) suggest making an ex post facto law to target Assange?  According to Kyl: "Ben Cardin and I are going to be working on some legislation I think that would enable us to more broadly be able to charge people even if they’re not handing over information to an enemy, for example."
• Senate Minority Leader Mitch McConnell (R) called Assange a “high-tech terrorist.”
• Senator Dianne Feinstein (D) wants Assange prosecuted under the 1917 Espionage Act, ignoring the First Amendment to the US Constitution as she has ignored the rest of the Constitution throughout her career.
• Referring to a US government legal creation to avoid the Geneva conventions, neo-conservative Newt Gingrich said Assange “should be treated as an enemy combatant.”

Former candidate for the R-presidential nomination, Mike Huckabee, clamored for the blood of the source of the leaks (video).

Avert Your Gaze as the Naked Emperor Passes

“Because they don't lie in diplomatic cables. The odds are that what we're getting here is the raw truth.” – Rush Limbaugh while decrying “evil Julian Assange” who dared give Americans the raw truth.

The US government, embarrassed by the leaks, has strong-armed the Domain Name Server for WikiLeaks, Amazon, and Paypal in an effort to cut off the funding and operation of WikiLeaks (see list of WikiLeaks mirrors).  The US government warned federal employees not to read WikiLeaks.[9]  Columbia University warned students that they endanger future job prospects if they download the publicly available material.[10]  Raytheon, as did other military contractors, warned employees:

"U.S. Government agencies are releasing guidance to contractors. Reviewing information on WikiLeaks or subsequent disclosures is strictly prohibited. As a contractor to the Federal Government, this means ... personnel are prohibited from accessing WikiLeaks whether on company-issued or on personal equipment."[11]

The emperor has commanded that people must pretend that the emperor’s new clothes are marvelous, when all the world should know: “The emperor has no clothes.”

President Obama (D) and his open administration (Doublethink translation—he lied to you, he didn’t close Guantanamo, he didn’t end the war in Iraq, and he doesn’t have an open administration) threaten to prosecute Assange:

“Published reports suggest that a joint Justice Department-Pentagon team of investigators is exploring the possibility of charging Assange under the Espionage Act, which could lead to decades in jail. "This is not saber-rattling," said Attorney General Eric Holder, commenting on the possibility that Assange will be prosecuted by the government.”[12]

The US government pressured other countries to expel Assange:

“…American ambassador to Switzerland, Donald S. Beyer Jr., responded to signs that Mr. Assange and WikiLeaks might seek refuge in that country, warning in the weekly magazine NZZ am Sonntag that the Swiss ‘should very carefully consider whether to provide shelter to someone who is on the run from the law.’”[13][14]

On December 7, 2010, Assange appeared before a magistrate in London and faced extradition to Sweden for rape charges.  He is being held without bail.  According to Swedish authorities, the charges had nothing to do with the WikiLeaks website.[15][16]

On the same day Assange was jailed, the US Department of State released a press statement about hosting a planned World Press Freedom Day event May 1-3, 2011 in Washington, D.C.:

“We mark events such as World Press Freedom Day in the context of our enduring commitment to support and expand press freedom and the free flow of information in this digital age.”[17]

The US government mocks us by pretending to support the free flow of information while the government:

• Forces businesses to refuse service to those who disagree with it
• Warns employees and contractors not to read the leaked information on company or personal equipment
• Threatens students not to read the leaked information at the price of future job prospects
• Threatens nations harboring individuals who reveal the dirty laundry of the US government
• Threatens the individuals who reveal classified information—information classified only because it embarrasses the US government.

Classified Documents No Longer Hidden From Our Prying Eyes

“The prying eyes that caused Dulles most concern belonged not to the president, Congress, or the press—all of whom, if for different reasons, tended to defer to the CIA—but to the American people.” – Andrew Bacevich describes the formation of the CIA–one-third of the US national security state[18]

Assange has not given in to the threats of prosecution or assassination.[19]  WikiLeaks distributed an encrypted “insurance file”  over the internet containing more than 250,000 US diplomatic cables.[20]  In a news conference, Assange warned that if he is imprisoned or killed, “the key parts will be released automatically.”[21]

In a world of Doublethink, our ignorance is the government’s strength.  Releasing information to end that ignorance gives power back to the people.

Why else would Assange be such a danger to the state?

________________________________________

[1] “Transparency and Open Government,” Memorandum for the Heads of Executive Departments and Agencies, (Accessed at http://www.whitehouse.gov/the_press_office/TransparencyandOpenGovernment/ on Dec 7, 2010).

[2] “Respected media outlets collaborate with WikiLeaks,” AP News, Dec 3, 2010, (Accessed at http://www.google.com/hostednews/ap/article/ALeqM5i0Vruimmvy8loGklsz34QyGDKMDA?docId=120c7bf5d3a34dbaadf1280dace2e456 on Dec 7, 2010).

[3] “WikiLeaks Founder Julian Assange Tells TIME: Hillary Clinton 'Should Resign',” By Howard Chua-Eoan, Time, Nov. 30, 2010, (Accessed at http://www.time.com/time/nation/article/0,8599,2033771,00.html on Dec 7, 2010).

[4] “Gates Calls on FBI to Join Leak Investigation,” By Jim Garamone, American Forces Press Service, July 29, 2010, (Accessed at http://www.jcs.mil/newsarticle.aspx?ID=341 on Dec 7, 2010).

[5] “New Estimate of Strength of Al Qaeda Is Offered,” By DAVID E. SANGER and MARK MAZZETTI, NY Times, June 30, 2010, (Accessed at http://www.nytimes.com/2010/07/01/world/asia/01qaeda.html?_r=1 on Dec 7, 2010).

[6] “President Obama's Secret: Only 100 al Qaeda Now in Afghanistan,” By RICHARD ESPOSITO, MATTHEW COLE and BRIAN ROSS, ABC News, Dec. 2, 2009, (Accessed at http://abcnews.go.com/Blotter/president-obamas-secret-100-al-qaeda-now-afghanistan/story?id=9227861 on Dec 7, 2010).

[7] “Rush Analyzes the WikiLeaks Waif,” Nov 29, 2010, (Accessed at http://www.rushlimbaugh.com/home/daily/site_112910/content/01125107.guest.html on Dec 7, 2010).

[8] “Exclusive: Sarah Palin Under Cyber-Attack from Wikileaks Supporters in 'Operation Payback'*,” Jake Tapper, ABC News, Dec 8, 2010, (Accessed at http://blogs.abcnews.com/politicalpunch/2010/12/exclusive-palin-under-cyber-attack-from-wikileaks-supporters-in-operation-payback.html on Dec 9, 2010).

“’No wonder others are keeping silent about Assange's antics,’ Palin emailed ABC News. ‘This is what happens when you exercise the First Amendment and speak against his sick, un-American espionage efforts.’”

Palin is a mistress of Doublethink.  She cries about her First Amendment rights, but had no problem seeing them denied to Australian Assange.

[9] “Don’t Look, Don’t Read: Government Warns Its Workers Away From WikiLeaks Documents,” By ERIC LIPTON, NY Times, December 4, 2010, (Accessed at http://www.nytimes.com/2010/12/05/world/05restrict.html?ref=world on Dec 6, 2010).

[10] “Columbia students told job prospects harmed if they access WikiLeaks cables,” Ewen MacAskill, guardian.co.uk, 5 December 2010, (Accessed at http://www.guardian.co.uk/media/2010/dec/05/columbia-students-wikileaks-cables on Dec 6, 2010).

[11] “Raytheon forbids employees to access WikiLeaks website,” By Muhammed El-Hasan, Daily Breeze, 12/03/2010, (Accessed at http://www.dailybreeze.com/latestnews/ci_16762048?source=email on Dec 6, 2010).

[12] “The Shameful Attacks on Julian Assange,” Dec 3 2010, David Samuels, The Atlantic, (Accessed at http://www.theatlantic.com/international/archive/2010/12/the-shameful-attacks-on-julian-assange/67440/ on Dec 6, 2010).

If Obama has an open administration, it is only due to Assange:

“For his part, Assange has not been shy about expressing his contempt for the failure of traditional reporting to inform the public, and his belief in the utility of his own methods. ‘How is it that a team of five people has managed to release to the public more suppressed information, at that level, than the rest of the world press combined?’ he told The Sydney Morning Herald. ‘It's disgraceful.’"

[13] “Hundreds of WikiLeaks Mirror Sites Appear,” By RAVI SOMAIYA, NY Times, December 5, 2010, (Accessed at http://www.nytimes.com/2010/12/06/world/europe/06wiki.html?hp on Dec 5, 2010).

[14] “Homeland Security seizes domain names,” By Sara Jerome, The Hill, 11/26/10, (Accessed at http://thehill.com/blogs/hillicon-valley/technology/130763-homeland-security-dept-seizes-domain-names- on Dec 7, 2010).

Each time the government arrogates power to protect people from some abuse, they also gain power to inflict their own abuse.  This is part of Freedom is Slavery double-thinking.

[15] “The Wikileaks sex files: How two one-night stands sparked a worldwide hunt for Julian Assange,” By Richard Pendlebury, 7th December 2010, Daily Mail, (Accessed at http://www.dailymail.co.uk/news/article-1336291/Wikileaks-Julian-Assanges-2-night-stands-spark-worldwide-hunt.html?ito=feeds-newsxml on Dec 7, 2010).

[16] “Assange Vows To Fight On After Bail Refusal,” Alison Chung and Richard Williams, Sky News Online, Dec 07, 2010, (Accessed at http://news.sky.com/skynews/Home/UK-News/Julian-Assange-WikiLeaks-Founder-Meets-Police-In-Britain-Over-Sexual-Assault-Claims-In-Sweden/Article/201012115849036?lpos=UK_News_Carousel_Region_1&lid=ARTICLE_15849036_Julian_Assange%3A_WikiLeaks_Founder_Meets_Police_In_Britain_Over_Sexual_Assault_Claims_In_Sweden on Dec 7, 2010).

[17] “U.S. to Host World Press Freedom Day in 2011,” US Department of State Press Statement, Philip J. Crowley, Assistant Secretary, Bureau of Public Affairs, Washington, DC, Dec 7, 2010, (Accessed at http://www.state.gov/r/pa/prs/ps/2010/12/152465.htm on Dec 7, 2010).

[18] Washington Rules, Andrew Bacevich, Holt and Company, NY, NY, 2010, p. 42.

[19] “WikiLeaks founder Julian Assange 'will release poison pill of damaging secrets if killed or arrested',” By Ian Drury, 6th December 2010, (Accessed at http://www.dailymail.co.uk/news/article-1335888/WikiLeaks-Julian-Assange-release-damaging-secrets-killed-arrested.html on Dec 7, 2010).

[20] “WikiLeaks Ready to Release Giant 'Insurance' File if Shut Down,” Foxnews, Dec 05, 2010, (Accessed at http://www.foxnews.com/world/2010/12/05/wikileaks-ready-release-massive-insurance-file-shut/ on Dec 7, 2010).

[21] “WikiLeaks Founder Warns About More Dispatches,” By SCOTT SHANE, NY Times, Dec 6, 2010, (Accessed at http://www.nytimes.com/2010/12/07/world/europe/07assange.html?nl=todaysheadlines&emc=a22 on Dec 7, 2010).

The Limits of Power (Part 3)

Today another President wants to "give" Americans both guns and butter as LBJ did over 40 years ago. President Obama wants to re-form America while fighting two foreign wars. The financial system is collapsing, and yet many Americans still haven't looked behind the curtain, many still believe the magic of something for nothing.

Ironically Moyers, who was a part of LBJ's administration, still doesn't get it: he still believes the magic. Now a journalist, Moyers still believes the federal government can re-form society. In an August 28, 2009 interview on HBO's "Real Time With Bill Maher", Moyers said he wants the Obama administration to battle Rs for healthcare "reform":

"I think if Obama fought, instead of finessed so much, he stood up and declared for what is really the right thing to do and what is really needed instead of negotiating the corners away, instead of talking about bending the curve, and talking about actuarial rates, if he were to stand up and say, 'We need this because we're a decent country', I think it would change the atmosphere."

Moyers misleads in a manner common to "Great Society" advocates: they ignore the reality of scarce resources and pretend the government really has magical powers. Economist Thomas Sowell warns against this in his book, Basic Economics: A Citizen's Guide to the Economy:

"Too often a false contrast is made between the impersonal marketplace and the compassionate policies of various government programs. But both systems face the same scarcity of resources and both systems make choices within the constraints of that scarcity. The difference is that one system involves each individual making choices for himself or herself, while the other system involves a smaller number of people making choices for others."[1]

Finding the Right Metaphor: Uncle Sam as the Candy Man

Moyers hasn't learned from his past nor has he applied the lessons of the "limits of power" to the current situation as he encourages Obama to be profligate with other people's money. Ever the press secretary, Moyers believes Obama has to "find the right metaphor" to sell Americans on another government encroachment into healthcare:

"He didn't find the right metaphors ... and he didn't speak in simple powerful moral language."

Moyers was "intrigued" by Bacevich's metaphor of the federal government engaging in a "de facto Ponzi scheme," but not enough to convince himself that more meddling in healthcare by the federal government is doomed to failure:

BILL MOYERS: And you use this metaphor that is intriguing. American policy makers, quote, "have been engaged in a de facto Ponzi scheme, intended to extend indefinitely, the American line of credit." What's going on that resembles a Ponzi scheme?

ANDREW BACEVICH: This continuing tendency to borrow and to assume that the bills are never going to come due. I testified before a House committee six weeks ago now, on the future of U.S grand strategy. I was struck by the questions coming from members that showed an awareness, a sensitivity, and a deep concern, about some of the issues that I tried to raise in the book.

"How are we gonna pay the bills? How are we gonna pay for the commitment of entitlements that is going to increase year by year for the next couple of decades, especially as baby boomers retire?" Nobody has answers to those questions. So, I was pleased that these members of Congress understood the problem. I was absolutely taken aback when they said, "Professor, what can we do about this?" And their candid admission that they didn't have any answers, that they were perplexed, that this problem of learning to live within our means seemed to have no politically plausible solution.

Obama may not have found the right metaphor, but Tim Hawkins has. Watch his three-minute video. Even Moyers might understand this one.

_____________________________

[1] Basic Economics: A Citizen's Guide to the Economy, Thomas Sowell, Basic Books, New York, N.Y., 2000, pp. 49-50

The Limits of Power (Part 2)

When it comes to bailouts and government programs, doesn't money seem to appear by magic? Congress and the President, and their well-paid magician's helpers think they can solve any problem. Those in the audience just have to reach out a hand and grab what they need. Do any of those with their hands out ever wonder what’s going on behind the curtain?

The Tipping Point

In 1964 LBJ (D) announced his vision of the "Great Society," a continuation of FDR's socialization of America.[1] LBJ wanted to "re-form" America using the magical power of the federal government. He signed legislation to end racial injustice and poverty, create a permanent food stamp program, protect the environment, supply federal aid to public schools, fund the arts, create public television, create consumer protection laws, create the Department of Housing and Urban Development, create the Department of Transportation, fund mass transit, and create Medicare and Medicaid. If it was possible to legislate utopia, why hadn't anyone done all of this before?

The Social Security Act of 1965 created Medicare and Medicaid, America's first public health "insurance" and LBJ's proudest moment. Today out of control Medicare spending is one of the Obama (D) administration's excuses to "re-form" healthcare again. The chart shows federal healthcare spending as a percentage of GDP. The percentage starts increasing after 1965. This also marks the start of Bacevich's tipping point, when the US government started spending more dollars than it was taxing, Americans demanded services they couldn't afford, and the magical ability of the federal government to create wealth out of nothing started to go out of control.

Federal Government Spending in inflated dollars as a percent of GDP, source www.usgovernmentspending.com

While massively increasing spending at home for his "Great Society," LBJ was also busy escalating spending on a foreign war. To work his magic, LBJ wanted lots of guns and lots of butter.[2] He left his successor a bloated federal bureaucracy, a war in Vietnam, and the seeds of a bad economy. Americans picked a new magician and substituted an R for a D. Nixon (R) continued LBJ's policies, just as today Obama continues Bush's (R) policies.

Tipped Over

On August 15, 1971, Nixon halted US Treasury payouts of gold for foreign central bank dollars, preventing the French and the Swiss from depleting the US Treasury by redeeming their dollars for gold. In 1944, the Bretton-Woods agreement of fixed currency exchange rates based on a gold-backed dollar had created a system of US dollar hegemony. The almighty US dollar was the preeminent currency--as good as the US Treasury gold that backed it. The French and Swiss central banks must not have believed the magic of all those dollars the US government created for its "Great Society" and the war in Vietnam.

Unhindered by foreign central bank redemptions of dollars for the limited supply of US-held gold, the federal government could continue to inflate the US money supply at an even faster rate. The politicians began to truly create wealth from nothing. That was really magical!

But if the dollar was no longer backed by gold and the US was flooding the world with it, why would anyone accept it for real goods?

Behind the Curtain: Black Gold and the Petrodollar

The dollar is still accepted because the U.S. government made a deal. In exchange for US military protection for some of the oil-rich kingdoms in the Middle East, particularly Saudi Arabia, OPEC agreed to price oil in US dollars. Since 1972, OPEC oil has been priced in US dollars. Oil--black gold--backed the dollar. Now everyone in the world would need dollars to purchase oil. Dollar hegemony was saved. The world would still use dollars, but instead of gold-backed dollars, they would be oil-backed petrodollars.[3][4] The artificial demand for the dollar, due solely to US military might, put the US in a position to “rule” the world.[5][6] The global dollar flood could continue.

The oil price shock of the mid-70s marks the end of Bacevich's tipping point and the beginning of the full-scale slide to the destruction of the American financial system. The price of a barrel of oil tripled in 1973-4 and doubled in 1979-80 when OPEC reduced production in reaction to both US support of Israel and continuing US government dollar inflation.[7] The Nixon administration figured the price shock would hurt their trading partners, and now economic rivals in Europe and Japan, worse than it would hurt the US. In his memoirs, Henry Kissinger confirmed the view that the US government welcomed the oil price rise in 1973 as an economic blow to the strengthening economies of Europe and Japan.[8] It didn't matter to Kissinger that everyday Americans suffered the consequences of the 1970s stagflation.

From 1972 on, oil had to continue to be priced in dollars to maintain the magic of dollar hegemony: any threats to this arrangement were forcefully suppressed by the US military. Recognizing where the magic for the fiat dollar came from, then President Carter (D) created the Rapid Deployment Force in 1977. The US military had to be available for police work wherever the oil was. The Iraq invasion, US saber rattling against Iran, and a coup attempt in Venezuela are the most recent examples of the US government using force to maintain dollar hegemony.[9]

Of course dollar hegemony isn't really magic, and we can't continue to expect to flood the world with worthless paper forever. But the US government and many people continue to believe we can: for the last four years, the trade deficit, Bacevich's symptom of America's unhealthy financial system, has averaged over $700 billion. The national debt of the US government is $11.8 trillion and growing. Instead of the French dumping dollars, today our largest trading partner, the Chinese, don't want to hold dollars; they're converting theirs to gold. Because there is no longer a gold standard, they're buying gold on the open market. If they dump all of their dollars at once, the US economy will collapse. The petroeuro is now challenging the dying petrodollar to be the new exchange currency.[10]

Soon the dollar will be worthless and everyday Americans will suffer. The magic show is over, most just don't know it yet.

_____________________________

[1] "No Good Choices LBJ and the Vietnam/Great Society Connection," (pdf) Francis Bator, expanded version of a Presidents’ Week Lecture given at the American Academy of Arts and Sciences on February 28, 2006, p.14.

Bator was a deputy national security adviser to Johnson.

[2] Bator, Ibid., p.12.

[3] "The End of Dollar Hegemony," Speech by Congressman Ron Paul, February 16, 2006.

According to Paul:

"...elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence 'backed' the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished."

[4] The Hidden Hand of American Hegemony, David E. Spiro, Cornell University, 1999, p. 121.

William Clark summarizes:

"In 1974 the Nixon administration negotiated assurances from Saudi Arabia to price oil in dollars only, and invest their surplus oil proceeds in U.S. Treasury Bills. In return the U.S. would protect the Saudi regime. The purchases were done in relative secrecy and created the phenomenon known as 'petrodollar recycling.' "

[5] Petrodollar definition:

"A petrodollar is a dollar earned by a country through the sale of oil. In 1972-74 the US government concluded a series of agreements with Saudi Arabia to support the power of the House of Saud in exchange for accepting only US dollars for its oil. Saudi Arabia has been the largest oil producer and the leader of OPEC."

A December 2006 NY Fed article: "Recycling Petrodollars" explains how it works:

"A look at how oil exporters 'recycle' their revenues reveals that roughly half of the petrodollar windfall has gone to purchase foreign goods, especially from Europe and China, while the remainder has been invested in foreign assets. Although it is difficult to determine where the funds are first invested, the evidence suggests that the bulk are ending up, directly or indirectly, in the United States."

A pre-Iraq invasion article in The Observer, "When will we buy oil in euros?", explains the motivation of US government to use the military to pay for its profligacy:

"Oil trading, whether from Norway to the Netherlands, Britain to Bermuda, or Bahrain to Bangladesh, operates through the US greenback.

"The oil-dollar nexus is one of the foundations of the world economy that inevitably filters through to geopolitics. Recycling so-called petrodollars, the proceeds of these high oil prices, has helped the United States run its colossal trade deficits. But the past year has seen the quiet emergence of the 'petroeuro'.

"Effectively, the normal standards of economics have not applied to the US, because of the international role of the dollar. Some $3 trillion (£1,880 billion) are in circulation around the world helping the US to run virtually permanent trade deficits. Two-thirds of world trade is dollar-denominated. Two-thirds of central banks' official foreign exchange reserves are also dollar-denominated.

"Dollarisation of the oil markets is one of the key drivers for this, alongside, in recent years, the performance of the US economy. The majority of countries that require oil imports require dollars to pay for their fuel. Oil exporters similarly hold, as their currency reserve, billions in the currency in which they are paid. Investing these petrodollars straight back into the US economy is possible at zero currency risk.

"So the US can carry on printing money - effectively IOUs - to fund tax cuts, increased military spending, and consumer spending on imports without fear of inflation or that these loans will be called in. As keeper of the global currency there is always the last-ditch resort to devaluation, which forces other countries' exporters to pay for US economic distress. It's probably the nearest thing to a 'free lunch' in global economics."

The Saudis are the staunchest allies of the US government in OPEC:

" 'The Saudis are holding the line on oil prices in Opec and should they, for example, go along with the rest of the Opec people in demanding that oil be priced in euros, that would deal a very heavy blow to the American economy,' Youssef Ibrahim, of the influential US Council on Foreign Relations, told CNN.

"Last year the former US Ambassador to Saudi Arabia told a committee of the US Congress: 'One of the major things the Saudis have historically done, in part out of friendship with the United States, is to insist that oil continues to be priced in dollars. Therefore, the US Treasury can print money and buy oil, which is an advantage no other country has. With the emergence of other currencies and with strains in the relationship, I wonder whether there will not again be, as there have been in the past, people in Saudi Arabia who raise the question of why they should be so kind to the United States.' "

[6] "The End of Dollar Hegemony," Ibid.

Congressman Paul makes Bacevich's point, connecting the money system to its domestic effect--enabling businesses and everyday Americans to get something for nothing:

"Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation’s people-- just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare.

"The pressure at home to inflate the currency comes from the corporate welfare recipients, as well as those who demand handouts as compensation for their needs and perceived injuries by others. In both cases personal responsibility for one’s actions is rejected."

[7] "Petrodollar Recycling And Global Imbalances," Presentation by Saleh M. Nsouli, Director, Offices in Europe International Monetary Fund, At the CESifo's International Spring Conference, Berlin, March 23-24, 2006.

Chart 7 from the presentation shows two sharp increases in the oil price of approximately 250% and 125% in the 1970s.

[8] "The Global Minotaur Or how the voracious US deficit causes wars, economic domination, and pushes ‘old’ Europe into an embrace with Peace activists," by Joseph Halevi and Yanis Varoufakis.

"The American quagmire in Indochina was giving rise to two antagonistic effects. On the one hand it was generating the quantitative conditions for global growth but, on the other hand, it was creating acute rivalries between the US and its two major protégés (Europe and Japan) in the context of the former’s balance of payments deficit and the ensuing pressure on the dollar.

"In his 1982 memoirs Henry Kissinger said quite categorically that the push to increase oil prices came from the US. It is now well accepted (see Oppenheim, 1976/7) that Kissinger’s memoirs impart quite accurately the manner in which US decision makers seized upon the OPEC-imposed embargo to push for a sharp increase in oil prices, well beyond OPEC’s planned price rises. The aim was to redress the balance of payments situation between the three major zones: the US, Europe and Japan. The basic assumption here was that, in the estimation of the US authorities, both Japan and Western Europe would find it much harder than the US to deal with a significant increase in oil prices."

[9] "The End of Dollar Hegemony," Ibid.

Congressman Paul gives examples of military intervention to defend dollar hegemony:

"In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O’Neill, the major topic was how we would get rid of Saddam Hussein-- though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O’Neill.

"It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.

"There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.

"In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.

"The military might we enjoy becomes the “backing” of our currency. There are no other countries that can challenge our military superiority, and therefore they have little choice but to accept the dollars we declare are today’s “gold.” This is why countries that challenge the system-- like Iraq, Iran and Venezuela-- become targets of our plans for regime change.

"Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar. As long as foreign recipients take our dollars for real goods and are willing to finance our extravagant consumption and militarism, the status quo will continue regardless of how huge our foreign debt and current account deficit become."

[10] "Petrodollar or Petroeuro? A new source of global conflict," Cóilín Nunan, from November 2004 Feasta Review online.

"Were the euro to become a reserve currency equal to, or perhaps even instead of, the dollar, countries would reduce their dollar holdings while building up their euro savings. Another way of putting this would be to say that Eurozone countries would be able to reduce their subsidy to American consumption and would find that other countries were now subsidising Eurozone consumption instead.

"A move away from the dollar towards the euro could, on the other hand, have a disastrous effect on the US economy as the US would no longer be able to spend beyond its means. Worse still, the US would have to become a net currency importer as foreigners would probably seek to spend back in the US a large proportion of the estimated three trillion dollars which they currently own. In other words, the US would have to run a trade surplus, providing the rest of the world with more goods and services than it was receiving in return. A rapid and wholesale move to the euro might even lead to a dollar crash as everyone sought to get rid of some, or all, of their dollars at the same time. But that is an outcome that no-one, not even France or Germany, is seeking because of the huge effect it would have on the world economy. Europe would much prefer to see a gradual move to a euro-dollar world, or even a euro-dominated one."

The Limits of Power (Part 1)

In the US, many consider the "Department of Defense" a misnomer. For a country with troops in over 100 nations, "Department of Offense" seems more accurate. In truth, US military troops overseas aren't intended to defend America or Americans. Under the guise of defending America, they defend the fiat dollar. To actually defend America, a much smaller military would do.

In The Limits of Power: The End of American Exceptionalism, author Andrew Bacevich, a modern day Smedley (War is a Racket) Butler and Professor of International Relations at Boston University, predicts the end of the American Empire caused by a misguided foreign policy based on "an outsized confidence in the efficacy of American power as an instrument to reshape the global order."[1] Bacevich decries a US foreign policy that uses military power to prop up a financial system enabling continual overindulgence by Americans: what Bacevich calls "the crisis of profligacy."

In an August 15, 2008 interview by award winning journalist and former Johnson administration press secretary, Bill Moyers, Bacevich elaborated on "the crisis of profligacy":

BILL MOYERS: And this is connected, as you say in the book, in your first chapters, of what you call "the crisis of profligacy."

ANDREW BACEVICH: Well, we don't live within our means. I mean, the nation doesn't, and increasingly, individual Americans don't. Our saving - the individual savings rate in this country is below zero. The personal debt, national debt, however you want to measure it, as individuals and as a government, and as a nation we assume an endless line of credit.

As individuals, the line of credit is not endless, that's one of the reasons why we're having this current problem with the housing crisis, and so on. And my view would be that the nation's assumption, that its line of credit is endless, is also going to be shown to be false. And when that day occurs it's going to be a black day, indeed.

The Limits of Power Overseas

In The Limits of Power, Bacevich describes the folly of military officers and national security experts who propagate a fantasy of a military so powerful and with bombs so smart, that war is quick, clean, and effective.[2] A West Point graduate and 20-plus-years career soldier, Bacevich writes that:

"...events in Iraq and Afghanistan have demonstrated definitively that further reliance on coercive methods will not enable the United States to achieve its objectives."[3]

Now that Gen. Stanley A. McChrystal's "confidential memo" calling for more troops in Afghanistan has been leaked to the public, President Obama (D) would do well to listen to Bacevich:

"America doesn't need a bigger army. It needs a smaller- that is, more modest-foreign policy, one that assigns soldiers missions that are consistent with their capabilities. Modesty implies giving up on the illusions of grandeur... reining in the imperial presidents who expect the army to make good on those illusions. "[4]

The Limits of Power at Home

Bacevich wrote The Limits of Power before the 2008 election, but his logic applies to any administration. They all try to give Americans something for nothing, and fail miserably every time. Bacevich's description of the existing system in Washington, D.C. as a "gang that couldn't shoot straight" forecasts ominous prospects for the future of healthcare after it is re-formed by bureaucrats:

"Regardless of which party is in power, the people in charge don't know what they are doing. As a consequence, policies devised by Washington tend to be extravagant, wasteful, ill-conceived, misguided, unsuccessful, or simply beside the point. To cite examples drawn from just the past several years, think of the bungled efforts to 'reform' the Social Security and health care systems or to fix immigration policy. Think of the inanity of the never-ending 'war on drugs.' "[5]

Bacevich sees symptoms of American overindulgence in the trade imbalance in manufactured goods as Americans export fiat dollars and import manufactured goods (pdf). Bacevich calls the time from 1965 to 1973 a "tipping point" in American history, the start of an excessive consumption by Americans enabled by the US military presence overseas:

BILL MOYERS: You say in here that the tipping point between wanting more than we were willing to pay for began in the Johnson Administration. "We can fix the tipping point with precision," you write. "It occurred between 1965, when President Lyndon Baines Johnson ordered U.S. combat troops to South Vietnam, and 1973, when President Richard Nixon finally ended direct U.S. involvement in that war." Why do you see that period so crucial?

ANDREW BACEVICH: When President Johnson became President, our trade balance was in the black. By the time we get to the Nixon era, it's in the red. And it stays in the red down to the present. Matter of fact, the trade imbalance becomes essentially larger year by year.

So, I think that it is the '60s, generally, the Vietnam period, slightly more specifically, was the moment when we began to lose control of our economic fate. And most disturbingly, we're still really in denial. We still haven't recognized that.

Just as Bacevich predicts the end of the American empire caused by a misguided foreign policy based on force, I predict the end of the fiat dollar and our financial system caused by misguided domestic policies based on “an outsized confidence in the efficacy" of government power "as an instrument to reshape the domestic order." Policy experts, government bureaucrats, and profligate Americans, who want something for nothing, continue to believe an illusion of an all-wise and capable federal government with unlimited resources to solve all problems, despite all evidence to the contrary.

Let's see what happens when the "gang that couldn't shoot straight" gets its hands on healthcare "re-form."

_____________________________

[1] The Limits of Power: The End of American Exceptionalism, Andrew Bacevich, Metropolitan Books, N.Y., N.Y., p. 7.

[2] Ibid. p. 127. Listen to any politician bloviate on strategy and you'll hear about "surgical strikes." E.g. This September 22, 2009 NY Times article, "Obama Strategy Shift in Afghan War," outlines V.P. Joe Biden's proposal, which is just what Bacevich is talking about:

"Mr. Biden proposed scaling back the overall American military presence. Rather than trying to protect the Afghan population from the Taliban, American forces would concentrate on strikes against Qaeda cells, primarily in Pakistan, using special forces, Predator missile attacks and other surgical tactics."

More current examples of defense policy experts: "So Who Were the Advisers for McChrystal’s 60-Day Afghanistan Review?" and "Meeting the Challenge: Time Is Running Out."

[3] Ibid. pp. 162-163. While Bacevich explicitly acknowledges the limits of coercive methods in the Middle East, and sees the flaws of the imperial presidency, he doesn't connect the dots and acknowledge that domestic coercion is an equally limited strategy. E.g. He concedes there are arguments with "indisputable merit" for a draft on page 155.

[4] Ibid. p. 169.

[5] Ibid. p. 71.