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Is the Dollar Hegemony Ending?

The demand for dollars will fall significantly when oil is transacted in euros. The US must control its twin deficits and reduce its footprint to keep the confidence of foreign creditors. Radical restructuring and removal of incompe-tent, corrupt leadership could avert global depression.

By Volker Brautigam

[This article published in: Ossietzky 10/2006 is translated from the German on the World Wide Web,  http://sopos.org/aufsaetze/44765a6fee908/1.phtml.]

Whoever goes shopping in the People's Republic of China sees top-flight products comparable with western goods. The difference is they cost merely a tenth of what we in the West must pay. Because of this difference, goods from China arrive in the US in abundance at unbeatable cut-rate prices.

For equalization, Peking must make its currency freely convertible or at least upgrade the Yuan in relation to the dollar. As an immediate result, fewer Yuan and more US dollars will flow into the Chinese state treasury. Where will the enormous amount of stored dollars be invested? How can Peking separate itself at least from part of its dollar reserves without sustaining great loss?

This question leads us directly to the cause of the highly infectious monetary instability in the whole Far East.

One answer could be that Peking changes to the "Petro-Euro." If that happens and oil business is transacted at Euro-prices and not in dollars as in the past, oil would be more inexpensive at least temporarily which would not only be interesting for China. Experts expect the price drop because the euro offers greater stability compared to the US dollar. Instead of $60 per barrel, the oil could be purchased for 42 to 45 euro. Referring to the current oil price of $75 a barrel, a price of 54 to 57 euro could be expected. The countries of the euro zone could buy oil with their own money weakening the US dollar. This could even lead to a devaluation spiral for the US dollar. Thus the prognosis is well founded that the US dollar will not maintain its role as the leading currency of the world any more.

Big banks and international investment companies (including Citi-bank and Goldman Sachs) see a potential for considerable Far East economic and political conflict in the conceivable fall of the dollar. On the other hand, Europe could protect its economies relatively well on the euro basis. Europe's monetary stability even provides a certain guarantee against a world recession of catastrophic dimensions. The People's Republic of China also has considerable surpluses in the euro currency though far less than in the US dollar. Europe's economic interactions concentrate on the inner-European exchange of goods and services. Beside several oil states, the Russian Federation increasingly turns to Europe. Europe's global exchange of goods excepting the US could be organized on the euro basis without great conversion problems.

New monetary policy scenarios are possible. Only a few experts believe in radical changes. Outsiders like the macro-economist Krassimir Petrov think the Euro could gradually establish itself as the leading currency of the world alongside or even replacing the US dollar.

In the opinion of the majority of economists, the danger for the global economy threatens from the imminent drying up of oil wells, not from the US currency and the US debt mountain. Why is this? If there is no oil any more, whether the nothing is paid in dollars or euros makes no difference.

Who wonders about this? Even in Germany, the theme "energy supply of the future" is not on the agenda. In Germany, oil and oil products have the lion's share in primary energy consumption: 36.4 percent. Coal is only 24.9 percent and natural gas 22.4 percent of total consumption. Nuclear energy amounts to 12 percent and renewable energy almost six percent (statistical data from 2004).

Energy consumption altogether has slightly declined while renewable energy's share in the energy supply has slowly risen. However the German government only prepares for a 20 percent share of renewable energy in its energy supply. This goal should be reached within the next 15 years. When no oil is available any more, the gap will not be covered with greater use of coal, more gas or more nuclear energy. What will happen? What should happen? Berlin owes us an answer.

A permanent and adequate energy supply is only possible with conversion to ethanol (bio-alcohol) and hydrogen as sources of energy. Hydrogen can only be produced by means of nuclear energy or fossil fuels. Hydrogen production must run through renewable energy. This can only be reasonably financed through supra-national cooperation (cf. "Is Hydrogen the Future?" Ossietzky 2002, 15 and 16).

In the absence of supporters, Sweden is attempting a single state solution. The ministry for sustainable development in Stockholm plans to completely renounce on oil as a source of energy by the year 2020. At the same time, the consumption of other fossil sources of energy should be drastically reduced. Sweden will entirely renounce on nuclear power. The complete supply is planned with renewable energy from wind power, solar power, waterpower, biogas and tidal power plants combined with a strict energy savings program. The ambitious concept was presented at the beginning of March 2006.

Let me sum up the discussion about the US dollar, US hegemony and global energy questions. The US gave an inestimable gift to humanity with the revolution of 1776, contributed to the end of the era of mysticism and helped the European enlightenment breakthrough. The US never tried to do justice to its ideals. Instead the American dreams has long been changed into a nightmare, as in the past in the times of genocide on the aboriginal American population and in the times of "slavery." This time they drag the rest of humanity with them into this nightmare. They will not lose their role as world ruler on account of their inner social contradictions, trifling economic output, debts, ailing currency or because they could not win in the struggle for the remaining oil despite all their military superiority. The last wars for oil will not only be waged by states with armies and weapons. The US will not break down because it bled itself white financially with its mad weapons reaching to outer space. The ever-stronger rival the People's Republic of China will not defeat them. They will not come to nothing on account of the inhumanity of capitalism. The US was the central home of that inhumanity. US world domination will not end because the US fettered its own citizens with laws like the "Patriot Act" and delivered them up to a band of arch-reactionary, deceitful-lying, murderous-selfish, Christian-fundamentalist fanatics and oil lobbyists like Dick Cheney and Donald Rumsfeld. None of these reasons alone will bring the end of the US era but rather all of them together.

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