The relationship between the dollar, oil, and fascistic power

Dollar, Oil, Economy

Analyzing the Dollar, Oil, and the Economy

The relationship of the U.S. dollar to oil and the economy is as tenuous as the dollar itself. With the Federal Reserve's power to print fiat currency comes inflation, and with inflation comes the devaluation of the dollar. This is, of course, dangerous to the world's economy -- but it does not altogether explain the incredibly rapid rise of gasoline in recent years. Matt Taibbi (2010) shows, rather, that the rise in the price of oil stems from another point -- the Commodities Futures Trading Commission. Meanwhile, politicians like Ron Paul have observed that the economy is in a poor state for a number of reasons: first, Wall Street has the government in its back pocket and neither are willing to let the economy correct itself: instead they allow the Fed to pump into the economy billions and billions of more dollars, deepening the debt, which is then in turn monetized; second, billions of dollars are being used to fund wars in the Middle East, which serve the interests of several parties, including Big Oil. In a way, all of this is connected -- the dollar, oil, and the economy. But to truly understand the nature of the problem, one must realize that what is called the dollar is really nothing more than a Federal Reserve Note; and that the Federal Reserve Note, like oil, is simply being used as a means of control. The type of control that we today are witnessing is nothing more than the merger of state and corporate powers -- also known as Fascism. This paper will show how the one idea that ties the dollar to oil and the economy is fascistic power.

Oil Independence

Some libertarians and right-wing conservatives view the problems lurking behind the devaluation of the dollar, the destabilization of the economy, and the rising price of oil as one of "oil dependence" -- dependency, in other words, on the Middle East. As Ryan Dawson (2011) has noted, one of the major reasons for U.S. occupation in the Middle East is the laying of oil pipelines: "Afghanistan is…positioned as the final slot for the TAP pipeline, the equivalent of an Eastward BTC line to feed oil hungry Asia," the pipeline sponsored by BP and the West. However, the problem of oil independence is a complex one -- and is not the solution that some think it is. Julie Borowski (2011) of Freedom Work attempts to unravel the complexity, but fails to fully explain the issues: true, "Americans are feeling the pain at the pump and the grocery store…[as] gasoline prices have soared by 13.7%…[and] food prices rose 3.9% last month which is the largest gain since November 1974," as Borowski notes; but while her observations are correct, she asserts that overregulation is to blame.

Yet, anyone familiar with the Gulf Oil spill, or the devastation that occurs daily in the Niger Delta, will assert that the oil industry is not a victim of overregulation. Borowski laments the fact that the free market is not really free -- but that is not the fault of regulation. Regulation is necessary, and, in fact, as Matt Taibbi (2010) shows, deregulation is what has caused prices to soar -- not the gas tax or overregulation. And it has nothing really to do with the oil industry itself. Again, the problem can be traced right back to Wall Street and its trading of commodities.

Taibbi notes that John McCain used oil independence as part of his campaign pledge in 2008 before he lost to Obama. Oil independence might not be a bad thing. But even that does not get to the heart of the reason why gas prices and food prices have gone up dramatically. The two are linked for a reason. And it is this particular issue that Tea Party proponents often miss. As right as the Tea Party is about many issues, the commodities trade often slips under its radar -- simply because people like Borowski fail to see how it truly affects the market. Taibbi is one of the few people to actually have a line on the problem: "Gas prices were going up for reasons completely unconnected to the causes these candidates were talking about. What really happened was that Wall Street had [initiated]…commodity index investing" (p. 129).

Commodity index investing was the fruit of a 1991 agreement between a Goldman Sachs subsidiary and the Commodity Futures Trading Commission, which allowed speculators to "be recognized as 'bona fide hedging' -- and…this was the beginning of the end for position limits and for the proper balance between physical hedgers and speculators in the energy markets" (p. 131). Index speculation became a new investment vehicle. Essentially, investors were able to act as speculators (through Goldman Sachs) by investing in the S&P Goldman Sachs Commodity Index, "buying monthly futures contracts for each of the (24) commodities (cocoa, coffee, crude, gasoline, copper, etc.)" (p. 136). Taibbi gives the following example to simplify how commodity index investing (banned, once upon a time, in 1936) works:

Imagine if someone continually showed up at car dealerships and asked to buy $500,000 worth of cars. This mystery person doesn't care how many cars, mind you, he just wants a half million bucks' worth. Eventually, someone is going to sell that guy one car for $500,000. Put enough of those people out there visiting car dealerships, your car market is going to get very weird very quickly. Soon enough, the people who are coming into the dealership looking to buy cars they actually plan on driving are going to find that they've been priced out of the market (p. 143).

The reason is simply this: speculators, buying from physical hedgers, have driven up the price of commodities. Speculators win every time the price goes up. And currently it is going up and up.

One cannot fault Borowski for attempting to pin the rise in prices on the gas tax or America's dependence on foreign reserves. After all, such is the message of politicians.

The Monopoly

Still, there is more going on than simply that. Big government is working hand in hand with corporations in order to establish monopolies. Adam Smith writes that "The monopolists, by keeping the market constantly understocked by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate" (Smith, 2005, p. 56). Some economists think big government is being unfair to Wall Street by breaking monopolies like Roosevelt once did. Monopolies, however, are not good for the economy and Smith knows as much: "Such enhancements of the market price [by monopolists] may last as long as the regulations of policy which give occasion to them" (Smith, 2005, p. 57). The economic policies of today essentially serve the monopolists, and many consumers are outraged by the way big government kowtows to big banking by rewriting legislation that has been in place for years to safeguard the economy from ruin. Smith expresses as much when he states, "Our merchants… complain much of the bad effects of high wages in raising the price…. They say nothing concerning the bad effects of high profits; they are silent with regard to the pernicious effects of their own gains; they complain only of those of other people" (Smith, 2005, p. 86). No less is true today.

Again, it is Matt Taibbi who points the finger at the 1991 letters written by the Commodity Futures Trading Commission (CFTC) which allowed Goldman Sachs subsidiary J. Aron to call itself "a physical hedger," thus sidestepping the rules meant to keep speculators from driving up market prices. Nonetheless,

On the October 18, 1991, the CFTC -- in the person of Laurie Ferber, an appointee of the first President Bush -- agreed with J. Aron's letter. Ferber wrote that she understood that Aron was asking that its speculative activity be recognized as 'bona fide hedging' -- and, after a lot of jargon and legalese, she accepted that argument. This was the beginning of the end for position limits and for the proper balance between physical hedgers and speculators in the energy markets (Taibbi, 2010, p. 133).

It is precisely this kind of backdoor agreement that has allowed the price of oil to skyrocket. Speculators are acting as hedgers and are thus rigging the prices of commodities like oil and driving them up for greater and greater profits for themselves. It has less to do with oil dependence than with political legalese and the monopolists who know how to pull the strings.

The Collapse of the Dollar

When the reality of Big Oil's use of American military is related to the usurpation of America's money supply by the Federal Reserve, one sees the monolithic role of Fascism very clearly. First, let us consider the reality of the dollar -- or what is really called the Federal Reserve Note. The creation of money "out of thin air" (Paul, 2009, p. 150), or fiat currency, and the monetization of debt, have all changed the way we think of money. Today, paper money is no longer tied to the precious metals it once represented. Inflationary practices have resulted in a steady decline in the value of paper money around the world.

As Paul states, "The convenience of the Federal Reserve monetizing the debt satisfies a lot of people -- until the day comes that we suffer the consequences with an economic downturn and higher prices" (p. 120). That day is essentially here what with the tanking of the world economy and entire nations stuck with outrageous debts that are virtually impossible to pay back. One need only look at Greece, Spain, Portugal, or Ireland to realize this. The United States may well soon join that list because the way we have been using money in the past century is now having real consequences.

Paper money was originally nothing more than a receipt for gold left with the goldsmiths (the original bankers in England). Thus, paper money was never intended to have an intrinsic value: the value belonged to the gold, for which the paper was a receipt. Over time, various political influences tried to remove paper money from the gold standard. That finally happened in 1971 when President Nixon eliminated the gold standard, since there was simply not enough gold to back up all the paper currency that had been printed by the Federal Reserve bank. Even before then, in 1933, President Roosevelt had confiscated the gold of Americans and devalued their returns. The Great Depression had seen an economic crash on par with the one we are experiencing today: the problem was that banks had over-extended themselves with borrowed money. In other words, there were more IOUs than actual physical wealth -- and when the IOUs could not be repaid, the entire system collapsed.

Conclusion

Today, our nation operates on an economic system supported by fiat money. Fiat money is money that is not representative of gold, silver, or any other physical commodity. What could once be redeemed for its representative value in gold is now nothing more than a Federal Reserve Note that is, in reality, not backed by anything. Even though Federal Reserve Notes are recognized by the government as legal tender, the fact remains that as more and more Federal Reserve Notes are printed and circulated, the value of those already held in possession decreases. If money in ancient times was equal to the coinage of precious metals, today it is not. Today money comes from the central bank. Essentially, fiat currency is responsible for runaway inflation. As more paper currency is printed, the value of that already in circulation goes down. When this point is related to the fact that oil prices are run up by speculators pretending to be hedgers, and that wars are promoted by corporations so that they can secure pipelines, it is not difficult to see that the merger between state and corporate powers has been completed. In other words, America is now a Fascist country -- and that is the basis for the relation of the dollar to oil and the economy.

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