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The US Will Experience Its Big Surprise

The dollar devaluation has to do with many things, above all with the double deficit. The US must become indebted more and more. China or Dubai could go on a shopping spree in the US and buy oil companies or other things. The US must earn euros to pay for the oil to be imported.

Interview with political economist Elmar Altvater on world currency competition, the economic situation of the US and the European Union, the "point of no return" and possible alternatives

[This interview published in the German-English cyber journal Telepolis, 1/22/2008 is translated from the German on the World Wide Web,  http://www.heise.de/tp/r4/artikel/27/27109/1.html. Elmar Altvater is an emeritus professor of political science at the Free University of Berlin and author of several books.]

Telepolis: In your latest book "Competition for Empire," [1] you describe the beginning conflict between the euro and the dollar over the position of world currency. [2] What is the advantage for an economic block when its currency becomes the key currency?

Elmar Altvater: There are many advantages. At present, the US has the great advantage that it can pay its oil bills in dollars and print dollars itself as though it had a source of oil in the cellar of the Federal Reserve Bank. The Chinese and others who have hundreds to thousands of billions of dollars in reserves because the dollar is the key currency, credit the consumer frenzy of the American middle class and now have problems divesting from the dollar. If they sell them very quickly, the dollar's value would crash and both the Americans and the Chinese would be poorer.

These many advantages are also described as "senor-advantages" [3} (Senor is the lord or master) joined with a key currency. Today we already have a multiple currency standard. The dollar is still the key world currency. Seventy percent of currency reserves are held in dollars but the euro is becoming stronger every year. Several regional currencies, above all for mammoth countries like China, play a substantial role.

In the Arab realm, a "Gulf Council of Cooperation" [4] is forming a common regional currency, a common currency mix in which the oil reserves can be handled. Still the US dollar is the leading oil currency. In the first oil crisis of 1973, the petro-revenues of oil exporters could be "recycled" in dollars. Today there are several other currencies, not only the petro-dollar. This is a rather unstable and unpleasant situation for the US that it tried to correct with the invasion in Iraq. In May 2003, OPEC resolved to maintain the US dollar as the oil currency. It is an advantage when a country or an economic block like the EU has a key currency since more possibilities exist for a "shopping spree" with this currency. This would be impossible with a weak currency.


Elmar Altvater: The other side cannot be disregarded when the euro becomes stronger and a global reserve currency. Certain disadvantages occur for the export economy. This has great advantages for the import economy; everything becomes cheaper. In this connection, Germany spent a billion less euro for oil imports in 2007 despite the high price of oil. This was because the oil price calculated in euro was much lower, not because less oil was consumed. In this situation, countries without a strong currency would be disadvantaged and have great problems in financing their imports. Lastly, a whole series of countries cannot pay their oil bills and fall behind in their production possibilities. In some African countries, trucks are often camped off the roads because there is no oil.

Why is the dollar in a downswing and the euro in an upswing? What will the further development look like in your opinion?

Elmar Altvater: The dollar devaluation has to do with many things, above all with the double deficit [5] in the United States. Both the state budget and the balance of payments are in a high structural deficit. In 2007 the balance of payments deficit was $800 billion. This has to be financed by foreign countries. Thus the US must become indebted more and more. Other countries with China at the top build up massive dollar reserves and can use this over against the US. For example, China or Dubai [6] could go on a shopping spree in the US, buy oil companies or other things. Both are big surplus countries in relation to the US. Dubai tried to buy American east coast harbors from Miami to New York [7] which was then stopped politically by the US. China sought to acquire a Californian oil company. "Strategic" objects are not easily given to "state funds." A new economic nationalism is now arising in the age of globalization.


The deficit in the state budget that corresponds to the balance of payments deficit came about through the rearmament policy of the Bush administration. With Bill Clinton, the state budget was balanced or even posted a surplus but has been in massive deficit during the Bush administration. Add to that, the neoliberal ideology and policy urges remitting taxes from the rich or the achievers so they will invest and create new jobs. The hope is that new tax revenues will arise in this way to close the deficit. Taxes should be lowered since the additional private income will contribute to additional investments, growth, higher income and taxes at lower rates. People believed in this connection even though it was blatant nonsense. The rich profited. The tax cuts plus the increased spending for the wars led to the deficit state budget of the US. There are limits because the deficits must be financed by foreign countries. The US will experience its big surprise when foreign countries are no longer ready to finance these deficits. Then the dollar will be greased and the "point of no return" will come. The American middle class that had a negative savings rate through deficits for years consumed more than was produced. This will not be possible any more.

What will it mean when the dollar loses its key currency dignity?

Elmar Altvater: The US will have great problems in paying its oil bill when the dollar no longer has the function of key currency because it is not accepted any more and oil countries no longer factor their oil bills in dollars but in other currencies. Then the US must first earn euros to pay for the oil that has to be imported. The US imports seventy percent of its oil consumption. This is also a sign for peak oil. Up to the early seventies, the US had an oil surplus and could produce and export more oil than was consumed.


This is long past. If the US must now import and cannot pay with dollars any more, they must gain other currencies by increasing exports to settle the oil account. Export revenues only increase when the dollar is devalued. This naturally has consequences for the whole world economy including Europe. Therefore a very new question results for Germany in this situation. Should the German future be dependent on export revenues or should domestic purchasing power be strengthened to become somewhat independent of the turbulences that are expected and already occur on the world markets?

Can you name social actors (economists, theoreticians, movements and civil initiatives)
that defy the neoliberal development?

Elmar Altvater: Answering that question is both easy and hard. It is easy because there are a host of groups occupied with alternatives like the "Memorandum Group" that publishes its memorandum for a different economic policy every year and offers very concrete ideas and proposals. A "Euro-Memorandum-Group" does something similar on the European plane and shows where European economic policy is faulty, where it is inconsistent and where social conditions are not considered. There are many groups that urge radical alternatives whether in the direction of a communalization or of a so-called solidarity economy. Social movements plead for these alternatives.


Electricity supply is one example. Local and regional electricity providers are organized cooperatively. The water supply and sewage disposal are similar examples. While these are small examples, experiences are gained that are important for alternatives altogether. These are serious attempts at changing the world, not great battles of the working class. Attac should not be forgotten. Attac is an organization that arose ten years ago in 1998 as an answer to the massive 1997 Asian crisis. "Throwing a monkey wrench in the finance markets," the formula of James Tobin from the early 1970s, was reformulated in politics. Secondly, Attac is an expression of the French strike movement in the factories. All this is now taken up by Attac.

Attac has developed many more demands on the finance markets and world trade, European integration, working- and living conditions in Germany, the climate crisis and so forth. Several alternative movements exist. The deadlock at the universities must be decried. Almost no critical economic theories and analyses are pursued at the universities because of the adoption of the Bologna process and the introduction of BA and MA-degrees. Political economy and criticism of political economy, the tradition that refers to Marx and others, is nearly completely stamped out at German universities so little can be expected from the universities and the academic world today. This could change. However change will only occur when a student movement coalesces. Otherwise there will be much movement outside the universities while prospects for the universities remain gloomy.

(1)  http://www.freitag.de/2007/43/07430701.php
(2)  http://www.heise.de/tp/r4/artikel/27/27076/1.html
(3)  http://www.index-handel.de/media/derglobalekriegumsoel.pdf
(4)  http://de.wikipedia.org/wiki/Golf-Kooperationsrat
(5)  http://www.spiegel.de/wirtschaft/0,1518,406454,00.html
(6)  http://www.heise.de/tp/r4/artikel/27/27009/1.html
(7)  http://www.de.all-biz.info/news/index.php?newsid=298
Telepolis Artikel-URL:  http://www.heise.de/tp/r4/artikel/27/27109/1.html

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