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Hegemony’s Cost

By Paul Craig Roberts

11/02/07 "ICH" --- - When he departs the White House on 20 January, 2009, the current resident will bequeath to the American people and the next administration an interminable war in the Middle East and a depreciated currency.

And that’s the good news.  It assumes there is a successor administration and that no Cheney-contrived “national emergency” will make it possible for Bush to test drive National Security Presidential Directive/NSPD-51 and Homeland Security Presidential Directive/HSPD-20 to cancel the 2008 election.

Neoconservatives led by vice president Dick Cheney remain determined to effect “regime change” in Iran. The allegation of weapons of mass destruction falsely brought against Iraq is now being deployed against Iran.  

The International Atomic Energy Agency says that there is no evidence that Iran has a nuclear weapons program. The IAEA is the institution that polices the Nuclear Non-proliferation Treaty by inspecting the nuclear facilities of the signatories to the treaty of which Iran is one.  However, the neocon/Cheney/Bush regime is prepared to bomb Iran on the basis of fibs alone.

Faithfully repeated by the propaganda ministry that masquerades as the “mainstream media,” those fibs have been trotted out so many times in recent months that significant numbers of Americans now believe themselves to be in peril from nonexistent Iranian nukes. 

In this way the regime gains the complicity of the American people and their representatives in Congress for what will be unprovoked aggression against a third Middle Eastern country, a third war crime under the Nuremberg standard.

The “war on terror” is a hoax.  It serves as a cover for the drive for US and Israeli hegemony in the Middle East.  Iraq, Iran, and Syria became neoconservative targets, because they were the only Middle Eastern countries that are not American puppet states or dependencies.  

Afghanistan was attacked, because the Taliban were uniting the country under the banner of Islam, a development that, if successful, could lead to the overthrow of the governments in America’s puppet states and dependencies.

The war rhetoric against Iran ratcheted up when the White House belatedly realized that the result of “bringing democracy to Iraq” was to empower the majority Shi’ites, thereby creating a Shi’ite crescent from Iran to southern Lebanon and alarming America’s Sunni Saudi Arabian dependent.

Israel’s goal is to have the Americans eliminate the Muslim states that support Hamas and Hezbollah’s opposition to Israel’s theft of the remainder of Palestine and southern Lebanon, whose water resources Israel covets. Israel’s goal thus precisely coincides with that of the Cheney regime.

The “Cakewalk War” in Iraq was supposed to be over in a few weeks and to pay for itself out of Iraqi oil revenues. The war is now five years old and has cost American taxpayers, and those left dependent on government programs by decades of a welfare state, $1 trillion in out-of-pocket and already incurred future costs. 

As large and troublesome as this cost is, it pales in comparison to the damage the war has done to the value of the dollar and its role as reserve currency. Since 2001, the Euro has risen 60 percent against the dollar. 

This means much more to Americans than the higher cost of a European vacation and status symbol German cars.  The US dollar is losing its reserve currency role when the Euro, the currency of a nonexistent country--Europe--becomes so much more desirable than the dollar that it rises 60 percent in value.

The Euro is a monetary unit that has run far ahead of the political entity whose currency it is.  Europe still consists of separate sovereign states, and many of them are unhappy with the Euro.  Yet, since 2001 people throughout the world have been shifting from dollars to Euros.

It is not normal for people to flee from the reserve currency.  It only happens when people believe it cannot continue to fill that role.

The US dollar is under double assault.  One assault is from the offshoring of American jobs, which turns US GDP into foreign GDP and worsens the US trade deficit.  It is not possible to achieve a trade balance when the production of goods and services for the US market is being moved offshore by US corporations.

The other assault is from the US budget deficit.  Americans have become so hard pressed that their savings rate is negligible. The US government has to rely on foreigners to lend it money for its annual expenditures.  Washington’s two biggest bankers are China and Japan, the countries with the largest trade surpluses with the US.  

The transformation of the Iraq “cakewalk” into an interminable war has run up a one trillion dollar price tag, and an even larger war with Iran is looming.  US generals and neoconservative ideologues predict a decade or multi-decade long war in the Middle East. Washington’s bankers are waking up to the reality that they will not be repaid. 

The only reason the dollar has not already lost its reserve currency role is that the only alternative is the currency of a non-existent political entity.  Yet, even the Euro, a virtual currency, may have taken the dollar’s role by the end of 2008.

Full of hegemonic hubris, the US government does not understand that US power and hegemony have always depended, not on missiles and military force, but on the financial power conveyed by the dollar’s role as reserve currency.  

The reserve currency is world money, good in any country to pay any bill.  The reserve currency country is not a debtor in the usual sense. As the reserve currency can be used to settle international accounts, the reserve currency country can borrow at will until lenders lose confidence in the currency.

There is abundant evidence that the loss of confidence in the dollar is underway.  When it is complete, the US will no longer be a superpower.

The decline in American power and influence could be dramatic.  Part of America’s power results from European countries going along with Washington.  However, the sharp rise in the Euro’s value has hurt European exports, squeezing profit margins, wages, and encouraging offshore production.  Fights over monetary policy between European capitals could doom both the EU and the Euro, leaving the world with no reserve currency and America with embittered former allies. 

By going to war for hegemony, the Bush Regime has brought about American decline.  While the neocons have spent two administrations trying to deracinate Islam, real threats to America’s power have been neglected. Offshoring, which turns US GDP into imports and larger trade deficits, together with war debts, has eroded the dollar’s status as reserve currency, undermining the foundation of American power. 

Paul Craig Roberts wrote the Kemp-Roth bill and was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is author or coauthor of eight books, including The Supply-Side Revolution (Harvard University Press). He has held numerous academic appointments, including the William E. Simon Chair in Political Economy, Center for Strategic and International Studies, Georgetown University and Senior Research Fellow, Hoover Institution, Stanford University. He has contributed to numerous scholarly journals and testified before Congress on 30 occasions. He has been awarded the U.S. Treasury's Meritorious Service Award and the French Legion of Honor. He was a reviewer for the Journal of Political Economy under editor Robert Mundell. He is the co-author of The Tyranny of Good Intentions. He is also coauthor with Karen Araujo of Chile: Dos Visiones – La Era Allende-Pinochet (Santiago: Universidad Andres Bello, 2000).

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