by Eric Margolis
June 30, 2008
PARIS – The French and the rest of Europe are up in arms over soaring gas and food prices. Truckers, taxi drivers, farmers and fishermen across the continent are blocking roads and raising hell.
Gas and diesel cost 2.5 to 3 times more here than in North America, where prices are still a bargain compared to the rest of the developed world.
Frightened politicians from Baltimore to Bangkok are pretending they can do something about high energy and food prices, or desperately seeking scapegoats. Evil speculators or Arabs are the current favorite.
So who is responsible for oil that has now broken $140 per barrel from $40? The principal villain is the once mighty US dollar.
Most of oil’s price surge has been caused by the US dollar’s steady loss of value caused by Washington’s bungled foreign policy and orgy of debt. Increased demand from India, China, and other Asian nations, where gas prices are kept below world prices by government subsidies, have played an important but secondary role. Diesel prices in China and India, which import most of their oil, are 33-40% cheaper than in North America.
Since 2002, the US dollar has fallen nearly 40% against the Euro, nearly as much against the Canadian dollar, and about 15% against the Japanese yen. Canada is the US’s leading oil supplier. Once the world’s leading oil producer, the US now imports 66% of its oil. Thanks to the eroding US dollar, Americans must constantly pay more for imported oil.
Former US Federal Reserve Chairman Alan Greenspan admitted in 2007 that the 2003 US invasion of Iraq had been about seizing oil. The Bush-Cheney strategy was aimed at seizing Iraq’s oil, then boosting production to break up the oil cartel, OPEC. The result was a disaster. In spite of 14,000 mercenaries guarding Iraq’s pipelines, its oil production is actually lower than before the US invasion, adding to the growing supply shortage on the world market.
In his excellent new book, `Bad Money,’ political analyst Kevin Phillips explains how the Clinton and Bush administrations allowed, and even aided, the unregulated finance industry to create the giant bubble of largely worthless securities that is now bursting.
Phillips points out that finance has become America’s leading industry while manufacturing has shrunk to only 12%. Public and private debt has grown from $10.5 trillion in 1987 to $43 trillion. The housing bubble stimulated by the crack cocaine of absurdly low interest rates accounts for 40% of America’s gross domestic product.
America’s reckless debt orgy is ending, bringing recession in its wake. The collapse of Wall Street’s house of cards continues, with half of bank profits going up in smoke. Soaring oil prices are so far the most painful symptom of America’s economic and geopolitical decline under the Bush administration.
The next shoe to drop will be when oil producers start demanding payment in Euros or a basket of currencies. Interestingly, Saddam’s Iraq, Venezuela and Iran all began doing this, and quickly hit the top of Washington’s enemies list.
Control of Mideast oil is one of the main pillars of US world power. Breaking the half-century old link between the US dollar and oil will further accelerate America’s decline as a great power.
Two thirds of the world’s hard currency reserves are now held in Asia. China and Japan alone hold 47% of US foreign debt. As the US dollar weakens, Asian and Mideast nations will feel growing pressure to reduce their holdings of US dollars and debt and move to stronger currencies. If this happens, the US economy will be in for a huge crisis and face sharp interest rate hikes.
World oil productions is stagnating while demand rises. By 2030, China will have as many cars as the US. Most analysts believe oil will stay above $100 from now on.
Meaning North Americans better get used to small cars, small portions, small homes and smaller waistlines.
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