By F. William Engdahl and cross-posted from New Eastern Outlook
The role as world reserve currency is something no financial hegemon in history has willingly surrendered. It took two world wars for the City of London and Bank of England to reluctantly concede hegemony of the Pound Sterling to the Dollar. As Henry Kissinger is said to have remarked decades ago, “If you control the money, you can control the entire world.” Whether or not Kissinger ever said that publicly, he and his patron, David Rockefeller, certainly believed it. Now, with US government debt shooting past $19 trillion and the true state of the American economy and its infrastructure at its worst since the Great Depression, with most Americans living on the brink of financial disaster, the brilliant financial engineers of Wall Street and Washington have once again come up with a scheme to prolong the role of Dollar as King in the world economy.
The recent Panama Papers revelations by a select group of Western mainstream media including the New York Times, BBC and Süddeutsche Zeitung, were notable as a brazen attempt to attack foreign leaders such as Russia’s Vladimir Putin and China’s Xi Jinping for alleged corruption. Notably, the leaked files of the Panama law firm, Mossack Fonseca, so far have failed to leak even one significant name of a US citizen hiding money in offshore accounts of the Panama facilitators.
While the world’s eyes were on the identities of alleged offshore money holders, they failed to consider the longer-term consequence of the huge revelations. The one country so far to benefit from the Panama Papers revelations is the country that is rapidly becoming the new “Panama” or better, the new Switzerland, namely the United States of America, the initiator of attacks on other hot money havens offshore over the past two decades.
Golden Dollar Era
Over the past seventy two years ever since the US and select wartime allied governments met in Bretton Woods, New Hampshire in 1944 to decide the shape of the postwar monetary order, the US dollar has reigned supreme in the world economy. By end of the War in 1945 the US Federal Reserve held the overwhelming bulk of world monetary gold.
As war erupted in Europe in September 1939 with Hitler’s and Stalin’s dismemberment of Poland, European gold was flooding into the United States. In 1935 US official gold reserves had been valued at just over $9 billion. By 1940 after the onset of war in Europe, they had risen to $20 billion. As desperate European countries sought to finance their war effort, their gold went to the United States to purchase essential goods. By the time of the June 1944 convening of the international monetary conference at Bretton Woods, the United States controlled fully 70% of the world’s monetary gold, an impressive advantage. That 70% did not even include calculating the captured gold of the defeated Axis powers of Germany or Japan, where exact facts and data were buried in layers of deception and rumor.
For the following quarter century, the gold-backed US dollar reigned supreme as the rest of the world, especially war-ravaged Western Europe, scrambled to find dollars to pay US imported goods to rebuild their industrial base. The dollar was literally “as good as good,” much as the Pound Sterling had been a century earlier.
Yet by the end of the 1960’s the dollar world had undergone significant change. The economies of France and especially of West Germany had emerged with a new state-of-the-art industrial base and was rapidly becoming an export power challenging American obsolescent industrial goods. The US industrial base had last undergone substantial modernization some three decades before. Europe and later Japan, were posing a competitive challenge to US industry. More alarming for Wall Street banks like David Rockefeller’s Chase Manhattan, Citibank or JPMorgan, as US trade dollar earnings of German companies like Mercedes, VW or BMW or Siemens were accumulating in the coffers of the German Bundesbank or Bank of France during the 1960’s an alarming change in policy emerged.
French President Charles de Gaulle, acting on advice of his conservative financial adviser, Jacques Rueff, ordered the Bank of France to begin to redeem its rapidly accumulating trade surplus dollars for gold, something then legal under the rules of Bretton Woods. The conservative German Bundesbank followed in demanding US gold for dollars. In 1968 in one of the first crude versions of their Color Revolutions, the CIA and US State Department toppled President de Gaulle in the events known as the May 1968 student revolt. Despite the replacement of de Gaulle by former Rothschild banker, Georges Pompidou, the foreign demand for Federal Reserve gold redemptions increased as Washington budget deficits to finance the ill-conceived Vietnam War exploded.
By August 1971, President Nixon was advised by his Assistant Treasury secretary, Paul Volcker, a former executive at Rockefeller’s Chase Manhattan Bank, to essentially tear up the Bretton Woods Treaty and declare the US dollar a free-floating paper no longer redeemable in gold. The Federal Reserve’s gold reserves over the previous several years had been drained by foreign central banks fearful of the import of US dollar inflation as Washington refused pleas to devalue the dollar to re-stabilize the system. Rueff and France were calling for a 100% dollar devaluation against the Franc or Deutschmark.
Petrodollar era is born
By 1973, in developments I describe in detail in my book, A Century of War, as well as in Myths, Lies & Oil Wars, Wall Street and the Federal Reserve “solved” the problem of a dollar in free-fall—it had devalued some 40% against the Franc, D-mark and Yen after August, 1971—by orchestrating, with the skillful and deceitful diplomacy of then-Secretary of State, Henry Kissinger, an OPEC oil price embargo following outbreak of the October, 1973 Yom Kippur War. By early 1974 the price of OPEC oil had been set some 400% above that of 1971. The dollar value soared against other major currencies as Germany, France and the rest of the oil-hungry world scrambled to find 400% more dollars to import their oil. Kissinger at the time wrote about “recycling petrodollars.” The dollar would be backed, not by gold, but by oil…