If the dollar's value was simply determined according to America's national debt, the faltering dollar would sink like a stone. As it stands, foreign countries are still willing to take checks (dollars) from a nation that is drowning $8.3 trillion of red ink.
Traditionally, American leaders have understood the great advantages of controlling the world's reserve currency. It allows the Federal Reserve to create money out of thin air and pass it off to foreign countries for their valuable resources and manufactured goods. As one critic noted, "It's like having a mint in your back yard."
The system, however, has been thoroughly abused by the Bush administration which has borrowed trillions from the treasury for lavish tax cuts, "no bid" contracts, and endless wars. With a trade deficit currently running at $800 billion per year -- which is 6.4% of GDP, most of these expenses are being financed by countries in the developing world. The trade deficit with China alone was nearly $200 billion last year, which means that China unwittingly paid for two years of the war in Iraq!
Never the less, the present system is ideal for extortion, expropriation, and exploitation, which is why it is so popular in Washington. Many believe that we are fighting in Iraq to defend dollar hegemony. That may not so farfetched. Saddam switched to the euro just six months before he was pelted with laser-guided munitions in Shock and Awe. Similarly, the war drums have been beating ferociously since Iran announced the opening of its oil bourse which would trade oil in euros rather than dollars. Putin and Chavez have also fallen from grace with Washington since they've shown an eagerness to ditch the dollar and sell oil in either euros or rubles.
So, what is the relationship between the dollar and the oil trade and how crucial is it to America's continued control over the global economic system?
By 2030 60% of the world's oil will come from the Middle East. The only way that western elites and banking giants can maintain their superpower role is by asserting direct control over the resources of the entire Caspian Basin. This will ensure that the dollar remains the as the de-facto international currency regardless of America's profligate spending and prodigious debt. Foreign nations will have no choice but to continue to purchase oil in US dollars.
To some people, this will sound conspiratorial. But that is because critics of the war in Iraq have focused all of their attention on oil as the primary objective. There is a linkage between oil and the dollar, between the banking establishment and the oil giants; they are two spokes on the same wheel. Oil underwrites the dollar in the same way that gold did 40 years ago. It is the new standard for legitimizing the currency.
Oil is critical to the maintenance of the system, but the dollar is the system. It is the means of extorting valuable resources and manufactured goods through the issuance of worthless, green paper backed by nothing but $8.3 trillion of debt.
America is now engaged in a transition that has never before been attempted. It has hollowed out its manufacturing sector (more than three million manufacturing jobs have been lost since Bush took office) looted its treasury, and plunged the country into irreversible debt. Its major corporations and banks have disconnected from the mainland and operate as sovereign islands protected by the US military and international trade law. They have no allegiance to America and are unaccountable to anyone except their own shareholders.
Dollar-hegemony is critical to their ongoing success as it keeps the basic unit of exchange; paper money, in the control of fellow elites at Federal Reserve. Absent that power, American plutocrats would be unable to perpetuate the system of trading debt for goods and resources.
The dependence on a "reserve currency" inevitably creates winners and losers. It invites huge account imbalances as well as corruption and exploitation. Greater parity among the currencies should be encouraged as a way of strengthening democracies and invigorating markets. It's a way to breathe new life into international trade by allowing other political models to flourish without fear of being subsumed into the capitalist prototype.
The dominance of the greenback has created a global empire which is controlled by a small group of corporatists and autocrats who depend on intimidation and brute force to maintain their supremacy. The quickest way to establish greater equity among the nations of the world is to dislodge the dollar from its lofty perch and "even the playing field" with the other currencies.