Now, I will repeat the main mechanisms of the model. I will not repeat everything so for more details, please read earlier posts.
Notez bien : This model may be difficult for some to accept. It is not easy to have our beliefs shattered. But my only goal is to make the truth stand out, and only the truth. It should be based on verifiable facts. If I got something wrong, please point it out and prove where i am wrong so we can correct the model.
Here is how our economical world works:
The USA has dollar hegemony. This means that their currency is wanted by all countries in the world. Countries want these US dollars because it allows them to repay debts allocated from the IMF in USD, buy commodities transacted in USD such as oil and value their own currency, in case they plunge in the market place.
The only issuer of USD is the United States of America. So, to get USD, countries must produce goods, which are sold to the USA. The USA, because it is the creator of the money, can print and create out of thin air the required funds to buy the goods. This money has value because the world recognizes it. The receiving country will most likely keep these dollars for future use. Now, because the money is given to another country, it becomes his, and this avoids the USA from diluting their money, even as they create new money.
Plus, they get the goods, which allow them to transform them and resell them. This mechanism makes investors happy, and it prevents the interest rates from rising, hence increasing inflations. As long as other countries need USD, the USA can print new money without deadly inflation.
Also, because the USA are the providers of money for the rest of the world, the banks are happy. The international monetary fund provides its loans in USD, so, for a country to avoid currency conversion costs, it is better off paying in USD. And to get USD,, must sell goods to the USA and provide the banks. So, this “vicious circle” keeps the USA going and productive, which makes the banks happy and allow the USA to keep borrowing money, greatly increasing the debt. In short, the banks make money by lending to the USA.
The USA currently have a massive trade deficit, which means they buy much more than they export, which means that in theory, they make no money. But, they can sustain their activities with the mechanism above. In fact, the US dollar makes up to 70% of the world reserve currency. This means that the world has a lot of US dollars, and keeps pumping them in. This mechanism is recognized by investors and since the US goes well under these conditions, they keep investing. In short, the USA are economically healthy even if the debt grows and trade deficit is important. (as long as the hegemony lasts)
Now, lets see what would happen if the euro (or another currency) was to become a major reserve currency and an oil trade currency.
Again, to buy oil, a country would not need USD anymore, but rather euro. So, they would basically either transform their dolalrs to euros, or begin using these dollars in the USA and buying goods. The first main effect would be that the other countries, to have euros instead of USD would begin exporting goods to Europe instead. This would make a drop in USD imports. Then, the USA would also begin needing euros for oil, because the dollar is not the defacto standard anymore, so it would need to also begin exporting goods to Europe. This would be very difficult with the trade deficit they have, because they would need to have a trade surplus. Also, the debt would begin being important, because the flow of free money would stop, scaring investors. Banks will now want to get paid, the vicious circle being broken.
Also, all the US dollars that would begin to flow out of the other country’s reserves would flood the US market, diluting the dollar and dramatically lowering its value. This would in turn generate high inflation.
All these factors put together do not look good from an investor’s point of view. IN fact, if all this happens too quickly, the USA would surely crash, and so would the rest of the world. So, it must be gradual. But, it would also mean that the USA would become a smaller country, and no more a super power. Luckily for the USA, the IMF still loans in USD for now, so the dollar would maintain a certain reserve to repay loans and would smooth the impact of the euro. But, if the IMF was to become like the World Bank and accept many currencies, the dollar would fall even more.
So, to protect their economy, the US must absolutely ensure the hegemony continues. And, well I guess in this case, the end justifies the means…
So, this means that the theory of the petroeuro crashing the USA is true. I will let you pull you own conclusions and links as with the wars and US foreign policy, but they certainly seem to have good reasons to defend their hegemony…
