The following is the original draft of the article published in the renowned “Blue Chip” journal as an Op-Ed in the “Critical Observations” section alongside the write-up of Honorable Dr. Ishrat Hussain in its January – March 2016 Edition
By: Omer Zaheer Meer
Preamble:
One can and should follow the money trail to reach the underlying root-cause(s) of almost anything in the present day world. This is an undeniable reality requiring us to let go of the emotions that often clog our judgement in favor of a rational examination of the realities. The point stated simply is that it all comes down to economics.
The recent inhumane and highly condemnable acts of terrorism in Paris resulting in violation of the teachings of Holy Prophet PBUH of not harming the non-combatant particularly elderly, women and children. Similarly the consequential increase in the already prevalent Islamophobia which is a violation of basic human rights is equally appalling and condemnable. There are two theories that are doing rounds on social media as to the possible causes of the Paris attacks.
The Two Propositions:
The first one stemming from far-right and now engulfing centre-right in the west is that the attackers represents a faith which is intent on destroying everything they hold dear including their freedoms and all that out of a sadistic hate, though no fault of theirs. It points a black a white picture of the world in a very simplistic assertion giving moral high ground to the west.
The second proposition argues that while the attacks are undoubtedly condemnable for targeting civilians, they’re possibly a reaction against oppression of the western establishments particularly France against the Islamic faith ranging from the Setif and Guelma massacres in Algeria to more recently becoming part of the coalitions attacking Muslim countries. The recent the ban on the Muslim Hijab by the French authorities was shocking for most of the Muslim world, more so when taken in the context of the freedoms the French revolution itself vied to protect which was quoted recently when Charlie-Hebdo was felicitated instead of prosecuted under hate-speech and/or incitement to violence legislations on account of publishing despicable caricatures of the most beloved and sacred personality on Earth today, the Prophet Muhammad PBUH.
Hornet’s Nest:
There is also a third, less popular theory on social media claiming that the attacks maybe an inside job with misguided Muslims used to carry out the black-op by certain elements within the power establishment of the western countries. The proponents of this theory points towards the infamous Wikileaks’ claims about ISIS being a CIA sponsored Mossad creation as outlined in the leaked files titled “Hornets’ Nest”. This is dismissed as naïve and a conspiracy theory for the lack of credible evidence and material motive.
Manufactured Consent:
We’re well aware that there can be no action without a cause and often the causes we are shown or bombarded with from the mainstream media are not exactly the true underlying facts but the ones driven by the needs of the vested interests controlling them. This proposition that “the mass communication media are effective and powerful ideological institutions that carry out a system-supportive propaganda function, by reliance on market forces, internalized assumptions, and self-censorship and without overt coercion, by means of the propaganda model of communication” is discussed in detail in Manufacturing Consent: The Political Economy of the Mass Media (1988), by Edward S. Herman and the renowned Noam Chomsky.
While we may never know the real motives and reasons behind such attacks with absolute surety but one thing that is beyond any doubt is that attacks like those in Paris give rise to Islamophobia and further propel an already in motion never-ending cycle of violence. It has led to wider divisions across the globe with the world a much less peaceful place than it was before the infamous 9/11 attacks in USA. It is rightly said that in order to plan the future one should analyze the present and for that to be done, one needs to learn about and from the past.
Bretton Woods System:
Before proceeding further, let us take a moment to go back to World War II (WWII) to unravel the current global economic order. 730 delegates representing 44 allied nations converged at Mount Washington Hotel in Bretton Woods, New Hampshire, USA for the Bretton Woods Conference during 1st to 22nd July 1944 aimed at “rebuilding” international monetary system.
A key move was to establish dollar as a reserve currency pegged to gold as an alternativet to gold standard for the closing of international contracts. The fact that USA controlled almost two-third of the worlds’ gold reserves at that time certainly helped instill confidence. Moreover USA at that time was enjoying the cutting-edge of technological advancements resulting in huge balance of trade surpluses and consequently its reserves were immense and constantly growing. For global economic stability and USA’s own growth it was deemed necessary to reverse this flow. Although all western nations wanted to buy US exports, US $ had to be accessible to them in order for them to do so. All this together led to the majority ratifying an agreement on the final day setting up the new rules of the game including the setting up of “International Monetary Fund” and the “International Bank for Reconstruction and Development” which culminated in the present day “World Bank”.
USSR declined to ratify the accord alleging it to be an extension of the Wall Street. The Bretton Woods System (BWS) was established in 1945. Post BWS conference, the allies who ratified the BWS discontinued linking their currencies with gold and instead recognized US$ as reserve currency which was still pegged with gold. USA followed the benchmark of 35 US$/oz of gold from till 1971.
Nixon Shock:
The BWS worked as intended for the first few years with Japan and Europe rebuilding under the Marshal plan and the global demand for US exports including machinery, stell, cars, technology, e.t.c. being high. However as Japan and Germany recovered, the US’s share of global economic output dropped to 27% from a high of 35% at the inception of BWS. The costly Vietnam war further worsened the matters for USA with growing public debt, monetary inflation and a negative balance of payments in the 1960’s.
This led to doubts been cast upon USA’s ability to fulfill its’ obligations to convert US Dollars into gold. French started to become particularly critical of what they say as an “exorbitant privilege” for Americans where their citizens had to subsidize American multinationals. These sentiments were economically defined by an American economist Barry Eichengreen as “It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one”.
This led to French president Mr. Charles de Gaulle announcing in the February of 1965 that he intended to exchange the French U.S. dollar reserves for gold. It was a significant move as in 1966, USA’s gold reserves stood at a mere $13.2 billion of which only $3.2 billion were able to cover foreign holdings as the rest covered the domestic holdings. In short, USA simply did not have enough gold holdings to cover its’ dollar liabilities.
The 1970’s started with worrying troubles for USA. West Germany left BWS in May 1971 to revalue its’ currency which actually led to a strengthening of its economy and a drop in the value of US $ by 7.5% against Deutsche Mark. Other nations saw the purpose and began demanding redemption of their US $ reserves into gold. France and Switzerland redeemed and acquired millions of US $ worth of gold. In August 1971, Switzerland also left BWS.
Something needed to be done to save the American economic clout and it was done through what became known as the Nixon Shock. Nixon Shock refers to a series of economic measures by President of USA Mr. Richard Nixon, the most significant of which was the unilateral cancellation of the direct convertibility of the US $ on 15th August 1971, breaking up the Bretton Woods System. The move was complemented with the freezing of American wages and prices for a period of ninety days to combat potential inflationary effects along-with the introduction of an import surcharge of 10 % with the aim of preventing a run on the dollar, stabilizing of the US economy, and a decrease in the US unemployment and inflation rates. It was termed by some circles as a “technical” default by Nixon and thereby USA owing to the fact that it came on the back of the demands by several countries for the redemption of dollar into gold which just was not possible for the USA.
Petro Dollar:
The Nixon shock led to the end of an era where the US economy reaped rich dividends from the US $ being an internationally accepted alternative to the previously prevalent gold-standard. While other countries needed to generate net output and exports for their currencies to be in demand for the global trade, the USA was indifferent to this as the US $ was needed by all the countries to settle their international liabilities.
With the Nixon shock, the era of US $ being the gold standard was over but the era of another phenomenon, the black-gold in the shape of the oil was gaining momentum. While the ashes of WWII gave rise to US economic clout thanks to BWS, another war in the 1973 between the Arabs and Israel gave rise to the phenomenon of petro-dollars. Petro-dollars refer to the dollars earned by selling of oil.
What used to happen was that USA was the largest importer of crude oil and although the global oil trade was priced in US $ since WWII, there was no qualification on settling the contracts in the local currencies.
However, as a result of the USA’s and Western Europe’s support of Israel in the 1973 Arab-Israel war, Organization of Petroleum Exporting Countries (OPEC) declared an oil embargo leading to fears that US $ would now become irrelevant in the global oil trade and hence lead to an era of irrelevance of the US $ thereby causing irreparable damage to the US economy.
On the contrary USA President Richard Nixon somehow managed to deliver an outstandingly brilliant deal for the American people from the ashes of yet another war. He successfully negotiated an agreement with Saudi Arabia for denominating all its future oil sales in US $ in exchange for the right to purchase of arms and protection from USA which inevitably was for the payment of the agreed prices. Other OPEC countries then agreed to similar deals leading to US $ again becoming the global reserve currency, thereby also allowing USA to export some of the inflation.
This meant that anyone who wanted to buy oil, and every country in the world needed to do so to meet its energy needs, now needed US $. Overnight, US $ became the currency in demand. This artificial demand was not based on economic variables or global trade balances but rather the importance of global oil trade allowed USA to issue/export its’ paper currency as reserve currency to be held by all countries. This has also allowed USA to achieve faster economic development on exorbitant levels of borrowed capital despite an ever rising trade deficit. USA could once again print US $ 100 bills for a few cents while the rest of the world needed to deliver actual goods or services worth of US $ 100 to USA.
On the other hand, the large inflows of petro-dollars in any country impacted the value of the local currency negatively. This made the local economies less competitive due to the inherent disadvantage vs US $.
With the ever rising demand for crude oil over past decades, the OPEC has been fixing the oil prices at very leisurely margins to support a luxurious and non-taxed life-style for its’ people until recently when the advent of Shale gas and other geo-political factors led to OPEC slashing the oil prices.
Bubbled-up Economy:
The above should make it obvious that the USA administrations have used their military muscle to reap rich economic dividends. Wars have suited their economic designs and helped maintain their hegemony across the globe.
Traditionally economists have argued building the fundamentals for an economic rise. However USA has somehow managed to successfully develop a system where the whole world is reliant on the pieces of paper it prints at a minimal cost and ends up subsidizing the high standard of living of its’ citizens and its’ costly wars at the expense of their own citizens.
The gold-standard reserve currency status till 1971 and petro-dollar privilege since 1973 has given the otherwise un-impressive US economy a boost unlike any. The latter has ensured that the fortunes of global economies are tied up with the USA and any damage to the latter’s economy would spiral into a global crises as was evident from the global financial credit crunch in the last decade.
Another Economic War:
As per data released by St. Louis Federal Reserve, the total US debt including that owed by its government, businesses and people is now approaching $ 60 trillion, the highest by any country in human history and negative economic indicators like trade deficits, rising unemployment, inflation, e.t.c. one should not be penalized to analyze the past patterns and see potential economic benefits for USA from another major war or sets of war. While the federal US borrowing is less than a third of this total figure, the total shows the impact of an economy risen to un-comparable heights all from very weak foundation of fundamentals and artificially supported by post-war measures as gold-standard and now petro-dollars.
Chinese Challenge:
The spectacular economic rise of China particularly over the past two decades and the recent assertion of the military might by her in the South China Sea region have posed serious challenges to the American dominated world economic order.
China has made inroads in Africa and trying to gain a foothold in the energy-rich Central Asia. Meanwhile it has already tapped the Middle East with its positive trade balances with them and is now positioning itself for a more strategic role. Should China be able to gain a foothold in the Middle East and most importantly a key position in Central Asia, the American hold on the global oil market would be in danger. This threat is further exacerbated by the Chinese strategic mega-project of China-Pakistan Economic Corridor (CPEC) which will not only give it an access to the world from its western underbelly but also a key port at Gwadar from where it can control the majority of the global oil trade undertaken via sea. Pakistan of-course has a central key role in this new great-game. Furthermore the Chinese-Russian alliance further complicates the matters for USA.
The USA came up with the strategy of containing China a part of which was to encircle it by using regional allies like Japan and Philippines who have territorial and historical disputes with China. This was addressed by the Chinese counter-strategy of strings of pearl which has culminated into “one road, one belt” vision resulting in the now infamous China-Pakistan Economic Corridor (CPEC) strategic initiative.
Iraq, Syria, Libya, e.t.c. – Maintaining hold on oil:
It is in this context that one can appreciate the pretext and acceptance Islamophobia provides as the justification of strategic wars for protecting the economic interests of USA. While the masses in USA and Europe would otherwise not agree to bombing of civilians with deaths in millions, such acts are made acceptable by the fear-mongering of Islamophobia.
While most other wars maybe justified under some pretext despite the havoc wreaked in previously stable and peaceful countries now turned into a quagmire of destabilized militias like Syria and Libya, the case of Iraq is unique. Not only was it attacked under false and artificially created pretexts leading to the murders and humiliation of millions of civilians and destabilization of the whole region, it has led to public admission of the “mistake” and apology by several characters involved, most importantly Mr. Tony Blair the PM of UK at that time. It is that the “fairytale” of “weapons of mass destruction” was concocted after Iraq made the grave mistake of announcing that it intended to break the “code” of petro-dollars by allowing trade of its oil in Euros.
What is unjustifiable to a rational mind is that despite this admission and series of evidences over the years proving the concocted nature of accusation leading to the Iraq misadventures and the war crimes committed there on the likes of the infamous Abu-Gharib prison and millions of civilians causalities, no one responsible has been and seems likely to be prosecuted for their wrong doings.
While the human costs of these wars and resulting tragedies have been astounding, they have helped maintain the US grip on the global oil markets and therefore the international economic order.
Economic cost for the World:
While in the shorter term, these strategies may seem plausible particularly with the war industry been an important part of the US economic apparatus, the implications need to be analyzed carefully.
The constant rise of Islamophobia is pushing Muslim youth towards radicalization with questions seeking answers as to why the disputes involving Muslims are not resolved be it Kashmir, Palestine, Burma, Kosovo, e.t.c. but the likes of East Taimur or South Sudan with Muslims on the wrong side are promptly settled.
Similarly while Muslims came whole-heartedly to condemn the inhumane attacks in France they were also right to question whether the blood of Muslims is worthless as the daily deaths of thousands of them across the globe in Palestine, Kashmir, Burma, Afghanistan, Iraq, Syria, Libya, e.t.c. never derived the kind of solidarity the Paris attacks did.
In crux, these rising tensions can lead to a scenario where the sense of disillusionments, hatred, bias and injustice can play into the hands of global strategic interest and lead the world towards world war III. Such a situation will be disastrous for the global economy with very high human costs.
Islamophobia, a net loss game:
Global powers need to understand that hatred breeds hatred and the divisions being caused by Islamophobia will become entrenched in our psychology just like the crusades’ impact which still lasts to date. Just like crusades ended up wasting valuable resources on warfare and slowing down the global GDP growth, the present day’s interlinked economies will be hampered by the impact of wars.
While in the past a few nations have reaped the fruits of the misery of others, the present scenario is building towards a situation where that may not be the case and the world as a whole may witness the destruction of a third global war. This can end up being disastrous not just for rest of the world but the USA’s own economic prowess. Avoiding this may be the best course of action for us all, collectively as one species.
The author is Director of the think-tank “Millat Thinkers’ Forum” and a regular contributor in various national English language dailies. He is a leading economist, CFA Charterholder, experienced fellow Chartered Certified Accountant and certified Anti-Money Laundering Expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or ozmeer@mlcc.pk
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