Real men go to Tehran

Please, no country bashing on either side. The reason I am posting this article is because the author has some very good points.


Real Men Go to Tehran

By M. SHAHID ALAM



"Anyone can go to Baghdad. Real men go to Tehran."

Senior Bush Official, May 2003

The United States and Israel have been itching to go to Tehran since the Islamic Revolution of 1979. That Revolution was a strategic setback for both powers. It overthrew the Iranian monarchy, a great friend of the US and Israel, and brought to power the Shi'ite Mullahs, who saw themselves as the legitimate heirs of the Prophet's legacy, and, therefore, the true defenders of Islam.

As a result, the Iranian Revolution was certain to clash with both the US and Israel, as well as their client states in the Arab world. Israel was unacceptable because it was an alien intrusion that had displaced a Muslim people: it was a foreign implant in the Islamic heartland. But the US was the greater antagonist. On its own account, through Israel, and on the behalf of Israel, it sought to keep the Middle East firmly bound in the chains of American hegemony.

The US-Israeli hegemony over the Middle East had won a great victory in 1978. At Camp David, the leading Arab country, Egypt, chose to surrender its leadership of the Arab world, and signed a separate 'peace' with Israel. This freed Israel to pursue its plans to annex the West Bank and Gaza, and to project unchecked power over the entire region. The Arab world could now be squeezed between Israel in the West and Iran to the East, the twin pillars of US hegemony over the region's peoples and resources.

The Iranian Revolution of 1979 ended this partnership. At that point, real men in Washington would have loved to take back Tehran from the Mullahs but for the inconvenience of Soviet opposition. But great powers are rarely stymied by any single development however adverse. It took little encouragement from Washington to get Iraq to mount an unprovoked invasion of Iran. In the twenti-eth century, few Arab leaders have seen the difference between entrapment and opportunity.

The war between Iran and Iraq served the United States and Israel quite well. It blunted the energies of Iran, diverting it from any serious attempts to export the revolution, or challenging American influence in the region. The Israeli gains were more substantial. With Egypt neutered at Camp David, and Iraq and Iran locked in a bloody war, Israel was free during the 1980s to do what it pleased. It expanded its settlements in the West Bank and Gaza, destroyed Iraq's nuclear reactor at Osirak, expelled the Palestinian fighters from Lebanon, and established a long-term occupation over much of Southern Lebanon. Israel was closer to its goal of commanding unchallenged power over the Middle East.

The end of the Cold War in 1990 offered a bigger opening to the United States and Israel. Freed from the Soviet check on their ambitions, and with Iran devastated by the war, the United States began working on plans to establish a military control over the region, in the style of earlier colonial empires. This happened quickly when, with American assurance of non-intervention in intra-Arab conflicts, Iraq invaded Kuwaiti in August 1990.

The US response was massive and swift. In January 1990, after assembling 600,000 allied troops in Saudi Arabia * about half of them American * it pushed Iraq out of Kuwait, and mounted massive air strikes against Iraq itself, destroying much of its industry, power-generating capacity and infrastructure. The US had now established a massive military beachhead in the oil-rich Persian Gulf. It established permanent military bases in Saudi Arabia, continued its economic sanctions against Iraq, created a Kurdish autonomous zone in the north of Iraq, and, together with Britain, continued to bomb Iraq on a nearly daily basis for the next thirteen years.

With the US beachhead in place, where did the real men in the US and Israel want to go next? There was no secrecy about their plans. At a minimum, the Neoconservatives in the US and their Likud allies in Israel wanted 'regime change' in Iraq, Syria and Iran. This would be delivered by covert action, air strikes, or invasion * whatever it took * to be mounted by the US military. Israel would stay out of these wars, ready to reap the benefits of their aftermath.

The Likud plans were more ambitious. They wanted to redraw the map of the Middle East, using ethnic, sectarian, and religious differences to carve up the existing states in the region into weak micro-states that could be easily bullied by Israel. This was the Kivunim plan first made public in 1982. It would give Israel a thousand years of dominance over the Middle East.

The attacks of September 11, 2001 were the 'catalyzing event' that put these plans into motion. The US wasted no time in seizing the moment. Instantly, President George Bush declared a global war against terrorism. The first target of this war was Afghanistan, but this was only a sideshow. On January 29, 2002, the President announced his initial targets for regime change: the 'axis of evil' that included Iraq, Iran and North Korea.

The plan was to invade and consolidate control over Iraq as a base for operations against Iran, Syria and perhaps Saudi Arabia. This sequencing was based on two assumptions: that the invasion of Iraq would be a cake-walk and American troops would be greeted as liberators. The US invaded Iraq on March 20, 2003 and Baghdad fell on April 9, 2003. It was indeed a cake-walk, and it appeared to television audiences that American troops were also being greeted as liberators. Understandably, the mood in Washington and Tel Aviv was triumphant. The US is unstoppable: it was time for real men now to go to Tehran.

Nearly three years after the Iraqi invasion, the real men are still stuck in Baghdad. Yes, there has been a great deal of talk about attacking Iran: plans in place for air strikes on Iran's revolutionary guards, on its nuclear installations and other WMD sites, and even talk of a ground invasion. There have been reports of spy flights over Iran and operations by special forces inside Iran. Israel too has been goading the US to strike, and if the US shrinks from this duty, threatening to go solo.

What has been holding back the real men in Washington and Tel Aviv? One reason of course is that the cake walk very quickly turned into a quagmire. The apparent Iraqi welcome was replaced by a growing and hardy insurgency, which has exacted a high toll on US plans for Iraq even though it was led mostly by Sunni Arabs. As a result, close to 150,000 US troops remain tied down in Iraq, with little prospect that they can be freed soon for action against Iran. Most Shi'ites aren't resisting the American occupation, but they are ready to take power in Iraq, and want the Americans to leave.

While the US cannot mount a full-scale invasion of Iran without a draft, it does possesses the capability * despite the Iraqi quagmire * to launch air and missile strikes at Iranian targets, using nuclear weapons to destroy underground weapon sites. On the other hand, despite its saber rattling, most analysts agree that Israel does not possess this capability on its own. Unlike Iraq, Iran has dispersed its nuclear assets to dozens of sites, some unknown. Then, why hasn't the US mounted air attacks against Iran yet? Or will it any time soon?

More and more, as the Americans have taken a more sober reckoning of Iran's political and military capabilities, they realize that Iran is not Iraq. When Osirak was attacked by Israel in June 1981, Iraq did nothing: it could do nothing. One thing is nearly certain: Iran will respond to any attack on its nuclear sites. Iran's nuclear program has the broadest public support: as a result, the Iranian Revolution would suffer a serious loss of prestige if it did nothing to punish the attacks. The question is: what can Iran do in retaliation?

Both the CIA and DIA have conducted war games to determine the consequences of an American air attack on Iran's nuclear facilities. According to Newsweek (September 27, 2004), "No one liked the outcome." According to an Air Force source, "The war games were unsuccessful at preventing the conflict from escalating." In December 2004, The Atlantic Monthly reported similar results for its own war game on this question. The architect of these games, Sam Gardner, concluded, "You have no military solution for the issues of Iran."

What is the damage Iran can inflict? Since preparations for any US strike could not be kept secret, Iran may choose to preempt such a strike. According to the participants in the Atlantic Monthly war game, Iran could attack American troops across the border in Iraq. In responding to these attacks, the US troops would become even more vulnerable to the Iraqi insurgency. One participant expressed the view that Iran "may decide that a bloody defeat for the United States, even if it means chaos in Iraq, is something they actually prefer." Iran could also join hands with al-Qaida to mount attacks on civilian targets within the US. If Iranian losses mount, Iran may launch missiles against Israel or decide to block the flow of oil from the Gulf, options not considered in the Atlantic Monthly war game.

What are the realistic options available to the US? It could drag Iran to the UN Security Council and, if Russia and China climb on board, pass a motion for limited economic sanctions. Most likely, the US will not be asking for an Iraq-style oil embargo. Not only would this roil the markets for oil, Iran will respond by ending inspections, and accelerate its uranium enrichment. If Iran is indeed pursuing a nuclear program, then it will, perhaps sooner rather than later, have its bomb. Once that happens, one Israeli official in the Newsweek report said, "Look at ways to make sure it's not the mullahs who have their finger on the trigger." But the US and Israel have been pursuing that option since 1979.

It would appear that US-Israeli power over the Middle East, which had been growing since World War II, may have finally run into an obstacle. And that obstacle is Iran, a country the CIA had returned to a despotic monarch in 1953. Paradoxically, this has happened when American dominance over the region appears to be at its peak; when its troops occupy a key Arab country; when it has Iran sandwiched between US troops in Iraq and Afghanistan; and when it has trapped Iran inside a ring of US military bases running from Qatar, through Turkey and Tajikistan, to Pakistan.

Could it be that al-Qaida's gambit is beginning to pay off? It had hoped that the attacks of September 11 would provoke the US into invading the Islamic heartland. That the US did, but the mass upheaval al-Qaida had expected in the Arab streets did not materialize. Instead, it is Iran that has been the chief beneficiary of the US invasion. As a result, it is Iran that now possesses the leverage to oppose US-Israeli aims in the region. Al-Qaida had not planned on a Shi'ite country leading the Islamic world.

It is possible that the US, choosing to ignore the colossal risks, may yet launch air attacks against Iran. President Bush could be pushed into this by pressure from messianic Christians, by Neoconservatives, by Israelis, or by the illusion that he needs to do something bold and desperate to save his presidency. By refusing to wilt under US-Israeli threats, it appears that the Iranians too may be following al-Qaida's logic. We cannot tell if this is what motivates Iran. But that is where matters will go if the US decides to attack or invade Iran.

No one have yet remarked on some eerie parallels between the US determination to deepen its intervention in the Islamic world and Napoleons' relentless pursuit of the Russian forces, retreating, drawing them into the trap of the Russian winter. It would appear that the United States too is irretrievably committed to pursuing its Islamic foe to the finish, to keep moving forward even if this risks getting caught in a harsh Islamic winter. On the other hand, the Neoconservatives, the messianic Christians, and the Israelis are convinced that with their searing firepower, the US and Israel will succeed and plant a hundred pliant democracies in the Middle East. We will have to wait and see if these real men ever get to add Tehran to their next travel itinerary * or they have to give up the comforts of the Green Zone in Baghdad.

M. Shahid Alam teaches economics at a university in Boston. Some of his previous essays are available in a book, Is There An Islamic Problem (IBT Books, 2004). He may be reached at [email protected].

© M. Shahid Alam

Intresting post, but in my heart, i just cant see the US being pressurised by Israle as much as what people make out. I think in this day and age, powers dont go to war unless they have the possibility to make a profit from it.

This is what i believe is the real reason:

Title: The Proposed Iranian Oil Bourse

Commissioned by: J. Douglas Bowey and Associates

Analysis by: Krassimir Petrov, Ph.D.
Austrian Macro Economist/Investment Strategist

Date: 16 January 2006

Abstract: The American Empire depends on the U.S. dollar. The proposed Iranian Oil Bourse will accelerate the fall of the U.S. dollar and hence the fall of the American Empire.

Page 1 of 8
I. Economics of Empires

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations or of their subjects. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military that peacefully or militarily enforced the tax. One part of those taxes went to improve the living standards of the empire and the other part went to reinforce the military dominance necessary to enforce those taxes.

Historically, taxing the subject state has been in various forms, usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, the taxation has always been direct: the subject state handed over the money (gold/silver) or the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly—not by enforcing the direct payment of taxes like all of its predecessor empires did, but by distributing its own currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of devaluing over time those dollars and paying back later each dollar with less economic goods. The difference between the value of the dollar during the initial purchase and the devalued dollar during the repayment was the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. At the time the U.S. dollar was tied to gold, so that the dollar neither increased, nor decreased its value, but was always convertible into the same amount of gold. The Great Depression with its the preceding inflation from 1921 to 1929 substantially increased the amount of paper money in circulation without the correspondent increase in gold. This rendered the effective backing of the U.S. dollar by gold impossible. As a consequence, President Franklin Delano Roosevelt decoupled the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not technically an empire. The fixed value of the dollar for gold did not allow the Americans to extract economic benefits from other countries by supplying them with gold-backed dollars.

Economically, the American Empire was born with the establishment of the Bretton Woods system in 1945. The dollar was made only partially convertible to gold—convertibility to gold was available to foreign governments only, but not to private institutions. At this time the US dollar was established as the international reserve currency. This was possible, because during WWII, the United States had supplied its allies with food and military provisions, accepting gold as payment, thus accumulating significant portion of the world’s gold.

An economic Empire would not have been possible if the dollar remained fully backed by gold, i.e., if the dollar supply was kept limited and within the availability of gold, so as to exchange back dollars for gold at the pre-agreed exchange ratio. However, the dollar supply was actually increased far beyond its gold backing and handed over to foreigners in exchange for economic goods. There was no prospect of buying back those dollars at the same value—the amount of gold was not sufficient to redeem those dollars, while the quantity of dollars continually increased, so that those dollars constantly depreciated. The constant depreciation of the increasing dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax—an inflation tax.

When in 1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payments on August 15. The popular spin of this default was that “the link between the dollar and gold was severedâ€. The proper interpretation is that the U.S. Government went bankrupt, just like any commercial bank is declared bankrupt.

However, by doing so, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods. The world was effectively taxed and it could not do anything about it: it could not force the U.S. in bankruptcy proceedings and take possession of its gold and other assets for payment, nor could it take forcefully what it was owed by declaring war and winning it. Essentially, the U.S. imposed on the world an inflation tax and collected an imperial seigniorage!

From that point on, to sustain the American Empire and to continue to tax the rest of the world via inflation, the United States had to force the world to continue to accept ever depreciating dollars in exchange for economic goods and to have the world hold more and more of those dollars, while those dollars depreciated. It had to give the world an economic reason to hold dollars, and that reason was oil.

In 1971, as it became clear that the U.S. Government would not be able to buy back its dollars for gold, it prepared an alternative arrangement to hold the world hostage to its fiat dollar: during 1972-1973 it struck an iron-clad arrangement with Saudi Arabia—to support the rule of the House of Saud in exchange for accepting only dollars as a payment for Saudi oil. By imposing the dollar on the OPEC’s leader, the dollar was effectively imposed on all OPEC members. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at an ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars were no longer exchangeable for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because those dollars were needed to buy oil. As long as the dollar was the only payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist, because it would no longer be able to tax the world by making them accumulate ever more dollars. Thus, Imperial survival dictated that oil be sold only for dollars. It also implied that oil reserves were spread around various sovereign states that none was strong enough, economically or militarily, to demand payment for oil in something other than dollars. If someone demanded a different payment, he had to be convinced, either by political or by military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in late 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant his demand and even converted his $10 billion reserve fund at the U.N. into Euro, political pressure was exerted to change his mind. Other countries, like Iran, also wanted payment in other currencies, most notably Euro and Yen. The danger to the dollar was clear and present, so a punitive action was in order. Bush’s war in Iraq was not about existing weapons of mass destruction, about defending human rights, about spreading democracy, or even about seizing oil fields. It was about defending the dollar, ergo the American Empire; it was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can’t explain why Bush would need to seize those fields—he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire goes to war for one of two reasons: (1) to defend itself or (2) benefit from war. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Bush went into Iraq to defend the American Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was ended, the country’s accounts were switched back to dollars, and oil began to be sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended from a fighter jet and declared himself the victor: the mission was indeed accomplished—Bush successfully defended the U.S. dollar, and thus the American Empire.

II. Iranian Oil Bourse

The Iranian government has recently proposed to open in March 2006 an Iranian Oil Bourse that will be based on an euro-based oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam’s, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that much of the world will eagerly adopt this euro-denominated oil system:

* The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead use with their own currency.
* The Chinese and the Japanese will be especially eager to adopt the new exchange. It will allow them to drastically lower their enormous dollar reserves and diversify them with Euros. One portion of their dollars they will still want to hold onto; another portion of their dollar holdings they may decide to dump outright; a third portion of their hoards they will decide to use up for future payments without replenishing their dollar holdings, but building up instead their euro reserves.
* The Russians have economic interest in adopting the Euro – the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold: their central bank is diversifying out of dollars and accumulating gold. Russians have also revived their nationalism; if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.
* The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversification against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk.

Only the British will find themselves between a rock and a hard place. They have had a strategic partnership with the U.S. forever, but have also had their natural pull from Europe. So far, they have had many reasons to stick with the winner. However, when they see their century-old partner falling, will they firmly stand behind him or will they deliver the coup de grace? Still, we should not forget that currently the two leading oil exchanges are the New York’s NYMEX and the London’s International Petroleum Exchange (IPE), even though both of them are effectively owned by Americans. It seems more likely that the British will have to go down with the sinking ship, for otherwise they will be shooting themselves in the foot by hurting their own London IPE interests. It is here noteworthy that for all the rhetoric about the reasons for the surviving British Pound, the British most likely did not adopt the Euro namely because the Americans must have pressured them not to: otherwise the London IPE would have had to switch to Euros, thus mortally wounding the dollar and their strategic partner.

At any rate, no matter what the British decide, should the Iranian Oil Bourse gain momentum and accelerate, the interests that matter—those of Europeans, Chinese, Japanese, Russians, and Arabs—will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the exchange’s operations:

· Sabotaging the Exchange—this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.

· Coup d’état—this is by far the best long-term strategy available to the Americans.

· Negotiating Acceptable Terms & Limitations—this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d’etat fail, then negotiation is clearly the second-best available option.

· Joint U.N. War Resolution—this will be, no doubt, hard to secure given the interests of all other members of the Security Council. Recent rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.

· Unilateral Nuclear Strike—this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The American will likely use Israel to do their dirty nuclear job.

· Unilateral Total War—this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will alienate other powerful nations. Third, major reserve countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions. Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop.

Whatever the strategic choice, from a purely economic point of view, should the Iranian Oil Bourse gain momentum, it will be eagerly embraced by major economic powers and will precipitate the demise of the dollar.

III. The Demise of the Dollar

The collapsing dollar will dramatically accelerate U.S. inflation and will pressure short-term and long-term interest rates much higher. At this point, the Fed will find itself between two equally disastrous options—deflation or hyperinflation. The first option, deflation, known in the international finance literature as the “classical medicineâ€, requires stopping the monetary expansion and raising interest rates, thus inducing a major economic depression, a collapse in real estate prices, and an implosion in bond, stock, and derivative markets, most likely precipitating a total financial collapse. The alternative option is to take the easy way out by inflating, whereby the Fed pegs the long-bond yield, raises the Helicopters and drowns the financial system in liquidity, bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and the business cycle teaches us that ultimately there is no in-between the mythological Scylla and Charybdis scenario—between deflation and hyperinflation. Sooner or later, as pressure on the dollar rises and inflation rears its ugly head, the monetary system must swing one way or the other, forcing the Fed to make its choice. There is no doubt that the newly-appointed Commander-in-Chief of the Federal Reserve, Ben Bernanke, an renowned scholar of the Great Depression and an adept helicopter pilot, will choose the latter course of action—hyperinflation. Bernanke has learnt well the lessons of the Great Depression and the destructiveness of deflations. He has also learnt well from the Maestro the panacea of every financial problem—to inflate his way out, come hell or high water. He has even devised ingenious unconventional ways around the deflationary liquidity trap and teaches the Japanese how to apply them. To avoid deflation, he has publicly stated that he will accelerate the printing presses and “drop money from helicoptersâ€. If necessary, he will monetize everything in sight. He will ultimately destroy the American currency in Hyperinflation.

Hyperinflations, however, do not happen in an instant. It usually takes years before the final collapse. The Weimar hyperinflation began around 1920 and ended in 1923 with the total destruction of the currency. Similar was the fate of some post-communist countries: it took Russia and Bulgaria 7-8 years to hyperinflate their currencies before they ultimately destroyed them.

However, because the dollar is the reserve currency of the world, hyperinflating the dollar will be fundamentally different in two ways from all hyperinflations in history. On the one hand, there are tens of trillions of dollar-denominated debt and hundreds of trillions of dollar-denominated derivatives. Given that the ratio of currency to debts and derivatives is tiny, the coming hyperinflation must be necessarily of epic proportions. On the other hand, central banks around the world will fight tooth and nail to support the dollar, so that world financial system does not collapse and that their reserves do not evaporate into the nothingness. Many central banks will choose willy-nilly to support the dollar by inflating their own currencies. Thus, these two powerful forces will drive the dollar in opposite directions. Its inevitable demise may be swift and sudden, or it may be protracted and painful.

Whatever the speed of hyperinflation, ordinary Americans will have few available options to protect themselves—during crises, peoples’ first instinct is to resort to more “stable†fiat currencies of neighboring countries, like the Canadian Dollar and the Mexican Peso, but their availability will prove limited and complicated as people will most likely have to cope with governmentally-imposed capital controls. Next, people instinctively convert hyperinflating currencies to hard assets like land and real estate, but sellers refuse to accept the hyperinflating currency and quickly disappear from the market. Having run out of meaningful options to protect themselves, ordinary people will have little choice, but to convert their dollars to hard currencies like gold and silver, thus driving their prices much higher. On the other hand, central banks have no other options but gold. First, in times of crises, central banks fear the risk inherent in all fiat currencies. Moreover, not even the largest fiat currencies will accommodate their need to convert their reserves. Also, it is not practical for central banks to hold real estate and land. Thus, central banks will have no alternative, but to scramble to convert their reserves to the only hard currency known to man—gold. Historically, in times of crises, gold has always been the ultimate safe haven. When people and central banks flee en masse to gold, its value has always skyrocketed. This time, it will be no different.

Tommy gun the Chinese and Arabs are already diversifing and dumping dollars for gold and other precious and important metals

Nigeria and Iran cast a deepening shadow across commodity markets on Monday, pushing oil and gold higher.

Following an attack by militants on one of Royal Dutch Shell’s facilities in Nigeria, the company evacuated staff from four oil production platforms and said it was considering a total staff withdrawal from the west of the country’s delta region.

“The current spate of attacks does seem to be a significant escalation and is creating the impression that the security of Nigerian exports is being compromised,” said Kevin Norrish of Barclays Capital.

IPE February Brent rose 64 cents to $62.90 a barrel while the US markets were closed for the Martin Luther King holiday. Tensions over Iran’s nuclear programme also boosted prices.

“The situation with Iran has raised the volatility of both oil and gold. People are now talking about the possibility that oil could go to $80 a barrel and asking what the reaction will be in the gold market,” said Jon Bergtheil, metals strategist at JPMorgan.

Gold pushed through the $560 level, rising 0.9 per cent to $561.70/$562.50 a troy ounce. There is growing evidence that Middle Eastern investors are recycling petrodollars into other commodities and targeting precious metals.

There was talk on Friday of a significant buyer in the gold market, possibly a Middle Eastern central bank. Diversification of foreign exchange reserves by central banks into other assets is expected to provide further support for gold.
China announced over the weekend that its foreign exchange reserves had increased to a record high of $819bn.

“This underlines the potential significance of China’s asset allocation decisions in driving global financial markets,” said Julian Jessop, chief international economist at Capital Economics.

Gold sentiment has been encouraged by recent rumours that the Chinese central bank may have already amassed more than 1,000 tonnes of gold reserves, far higher than the 600 tonnes reported in June last year.Upward momentum in metals prices also is being supported by new money entering the market. Bloomsbury Mineral Economics estimated that investment by commodity index funds could rise around $80bn to $105-$115bn by the end of 2006 and to $140-$150bn by late 2007.

Platinum rose 1.4 per cent to $1,047 a troy ounce after hitting a record $1,049 with a supply deficit forecast for this year while the growing popularity of low emission cars is expected to support demand.

Copper remained strong at $4,595 a tonne, just short of Friday’s record close of $4,615, while zinc traded 0.8 per cent firmer at $2,077.5 a tonne after it hit a fresh record high of $2,089, supported by a further 1,750 tonne decline in LME inventories.

Lead rose 2.8 per cent to $1,237.5 a tonne helped by talk of strong demand from the US industry battery sector. Aluminium edged 0.1 per cent lower to $2,409.5 amid speculation that plans by Chinese smelters to reduce output because of high raw materials costs were just an attempt to talk the market down.

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Interesting to see the Arabs are invested money in Gold and other important commoditees. My point is are the Arabs in the GCC speculating on military action? because in times of crisis gold and other precious metals are seen to be safe stocks unlike dollar holdings, which could theorically collapse, maybe they are just being shrewed economist, but i heard the Saudis have been warned about any military action in advance.
Unnerving times u could say the fog of war has already decided on us. ok i am scare mongering but unless there is a deal that satifies the US then we can relax.

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Too many things can go wrong. One is that, It's very possible the U.S. may lose an aircraft carrier in the Persian Gulf or Arabian Sea to Iranian Kilo sub. After reading posts about how Swedish and Austrialian diesel-electric subs can easily penetrate U.S. carrier battle groups, one can conclude the Iranians can do the same with their Kilo subs ... :coffee:

The article posted by TommyGun was Brilliant. It is one of the best articles I have ever read.

It is well known that the world finances the US annual fiscal deficit,(thats why consumption is so high there) and that if it stops doing so, (albeit for a loss), the bigger implication would be that inflation in the US would rise, the US consumption would go down, the US economy would collapse, and the world will be free from the economic bondage of the US.

But the world continues to do so. The reason for that is not oil, or military power. It is technology. How that forces the other nations to keep fuelling US fiscal deficit is a matter of another debate.

I also always had the feeling that Gulf War II on Iraq was not about Oil atleast. That no WMD were found was surprising however. I thought that Saddam Hussein must really have been upto no good, then.

However, it is USA's ultimate aim to hunt for allies against ever increasing powers like China, the Muslim world, and any other nation that presents a potential threat.
It is for this reason that India is "The One".

Israel has been the USA's representative in the Arab world, and India shall be so in Asia. The returns for this shall be technology (10-year defence pact, Nuclear deal), and many economic benefits. Thus, the value of Chinese goods comes down, trade deficit between US and China is lessened, and the US gets more bargaining power vis-a-vis China.

We can thus expect India to be the 21st century Israel.

Are you hullucinating Indian Fighter u r making rash statements?

Does India want to be Americas bitch?

India is a rising power but they tend to overplay thier rise. They need to sort out the many insurgecies that plague a large number of states. these Indian populations feel maginalised. Apart from Kashmir insurgency, they got problems with Nauxites a so called maosist group who recently lauched a thousand man raid of the state of Bihars capital to release prisioners. whos active in 8 states. also theres tribal insurgencies in Assam.

India also sort out its obsolete transportation systems. the rapid rise of airlanes have led to the railways being neglected.

Just some constructive criticism, no personal offence its true India is a rapidly developing (GDP of 7% thats good), above al politics in India is pretty complicated i not gonna talk about the number of socialist/communists in the Indian goverment who do not like privatisation.

Indianfighter said:

Israel has been the USA's representative in the Arab world, and India shall be so in Asia. The returns for this shall be technology (10-year defence pact, Nuclear deal), and many economic benefits. Thus, the value of Chinese goods comes down, trade deficit between US and China is lessened, and the US gets more bargaining power vis-a-vis China.

We can thus expect India to be the 21st century Israel.

Click to expand...

The U.S. is adamantly opposed to the big Iran-Pakistan-India Oil Pipeline Project. India said it's going ahead with the deal. How's India going to reconciliate with the U.S. over this impasse?

Indianfighter said:

The article posted by TommyGun was Brilliant. It is one of the best articles I have ever read.

It is well known that the world finances the US annual fiscal deficit,(thats why consumption is so high there) and that if it stops doing so, (albeit for a loss), the bigger implication would be that inflation in the US would rise, the US consumption would go down, the US economy would collapse, and the world will be free from the economic bondage of the US.

But the world continues to do so. The reason for that is not oil, or military power. It is technology. How that forces the other nations to keep fuelling US fiscal deficit is a matter of another debate.

I also always had the feeling that Gulf War II on Iraq was not about Oil atleast. That no WMD were found was surprising however. I thought that Saddam Hussein must really have been upto no good, then.

However, it is USA's ultimate aim to hunt for allies against ever increasing powers like China, the Muslim world, and any other nation that presents a potential threat.
It is for this reason that India is "The One".

Israel has been the USA's representative in the Arab world, and India shall be so in Asia. The returns for this shall be technology (10-year defence pact, Nuclear deal), and many economic benefits. Thus, the value of Chinese goods comes down, trade deficit between US and China is lessened, and the US gets more bargaining power vis-a-vis China.

We can thus expect India to be the 21st century Israel.

Click to expand...

you seem awfully confident about indias future...despite the fact it has the highest proportion of poor people in the entire world.
China is not just going to collapse like that. Chinese goods still domintate the market, and Indias technology sector hasn ot boomed yet, so perhaps you should wait until it does. even india's president has admitted indias democratic government has to much beareaucratics to accomplish an economic spurt in such a short time.

do you realize the instant india becomes too powerful, the u.s will treat it like an enemy?

back on topic...is israel might be itching to go to tehran, but i dont think it has the guts to go in without america's promise of help. israel could not defend itself from saddam, and cannot aginast a much more powerful iran.

Quoted by Baibar of Jalat
_____________________
India is a rising power but they tend to overplay thier rise. They need to sort out the many insurgecies that plague a large number of states. these Indian populations feel maginalised.
_____________________
Except Kashmir, there is no significant insurgency in India.

If reference to Nagaland is made, then the rebel leadership is in New Delhi as of now.

Quoted by Baibar of Jalat:
_____________________
Apart from Kashmir insurgency, they got problems with Nauxites a so called maosist group who recently lauched a thousand man raid of the state of Bihars capital to release prisioners. whos active in 8 states. also theres tribal insurgencies in Assam.
_____________________
Please note that the Naxals operate in remote tribal areas only. They do not "control" or "run" any state or district.

Assamese tribes keep fighting amongst each other. Recently the army had to be brought in to control these tribes.

Quoted by Baibar of Jalat:
______________________
India also sort out its obsolete transportation systems. the rapid rise of airlanes have led to the railways being neglected.
______________________
Indian transportation facts:

4th largest railways in the world.
Much higher private airlines than China (3-4 new players every year).

The Mumbai local trains probably carry more passengers daily (on time) than entire Pakistani railways do daily.

Quoted by Baibar of Jalat:
______________________
above al politics in India is pretty complicated i not gonna talk about the number of socialist/communists in the Indian goverment who do not like privatisation.
______________________
India is a multi-party Parliamentary democracy. The Hindu-hardline BJP overnment was overthrown in 2004.

The Secular Congress+ allies supported by Communist parties are in power.

Quoted by coolieno99:
______________________
India said it's going ahead with the deal. How's India going to reconciliate with the U.S. over this impasse?
______________________
It shall be seen.

Iran must be told that it has no territorial, economic or any such disputes with any country in the world, including Israel.So it does not have to develop nuclear weapons or any WMD at all.

Regarding the sympathy with Palestinians, a roadmap for peace is on that shall be acceptable to Palestinians and Israelis alike.

Quoted by MiGLeader:
_______________________
you seem awfully confident about indias future...despite the fact it has the highest proportion of poor people in the entire world.
_______________________
The gap between the poor and rich in China is higher than in India.

Quoted by MiGLeader:
_______________________
China is not just going to collapse like that.
_______________________
Chinese banks have bad-loans upto $1 trillion. India's banks are utopian in comparison.

Besides, its working age population is declining, (rising for India) in the next 25years.

Quoted by MiGLeader:
_______________________
Chinese goods still domintate the market, and Indias technology sector hasn ot boomed yet, so perhaps you should wait until it does.
_______________________
India's Info-tech industry is 5 years ahead of China.

Quoted by MiGLeader:
_______________________
do you realize the instant india becomes too powerful, the u.s will treat it like an enemy?
_______________________
The largest and oldest democracies are natural allies. USA did not attack Japan or Germany. It wont do so for India.

Quoted by MiGLeader:
_______________________
back on topic...is israel might be itching to go to tehran, but i dont think it has the guts to go in without america's promise of help. israel could not defend itself from saddam, and cannot aginast a much more powerful iran.
_______________________
According to me, NO war shall take place. No nation/ coalition of nations can afford a war against a strong nation such as Iran. Only the US can afford regime changes in countries run by warlords like Taliban or Ba'ath party.

The nuclear impasse will be resolved soon. I believe that Iran is not developing nuclear weapons.

Nations like Brazil, Argentina, surrendered their covert nuclear weapons program because they dont have any reason to fight each other (No territorial disputes, no economic or any such disputes).

Iran falls in the category of these 2 countries. It too can be convinced to give up its nuclear weapons program (if its developing one).

As for Iran's request to trade oil in Euros, it has the sovereign right to do so.
It need not trade according to US consumption patterns, because the US i unlikely to be its major trading partner.

I believe that there must be an exchange rate mechanism between any 2 countries, instead of pegging all the currencies to the US dollar. Once that is done, there shall be more economic independence in the world.

coolieno99 said:

The U.S. is adamantly opposed to the big Iran-Pakistan-India Oil Pipeline Project. India said it's going ahead with the deal. How's India going to reconciliate with the U.S. over this impasse?

Click to expand...

The USA maybe a superpower, but India is an independent state with an independent foreign policy. India's economy is more important than ties with America. Iran is not afraid of America, so why should India be? After all, we are not living in the Colonial Ages where the US Navy can sail to another country and force them to open up trade with America using guns like they did in Japan over a century ago.