Sunday, July 13, 2008

The Road to Ruin and Irrelevancy

After spending 536 billion dollars and loosing over 4,100 service members it appears that the writing is on the wall for the exit of American forces in Iraq. Reports now suggest the U.S. is considering accelerated withdrawal ostensibly for increased deployment in Afghanistan where the war also is not going well.

In Iraq the Shia supported government of Al-Maliki has made known its objections to the Bush administration's plans for long-term deployment and accompanying bases.The only people who seem not to recognize the implications of this nascent nationalism in what had previously been a relatively compliant Iraqi state are U.S. politicians and the ever-malinformed American public. While the Bush administration attempts to down play the differences the strain is quite obvious. This was vividly displayed during an interview on Aljazeera, with ambassador Ryan Crocker.

The interview is also significant for the intense scrutiny the has been absent in the U.S. press as well as from the supine Democratic opposition. Truth be told, it probably makes no difference what anyone in the U.S., including the marginalized anti-war movement, the presidential candidates of either party, or the present administration, thinks about the Iraq situation. The U.S. has succeeded in becoming irrelevant in it's own war.

Iraq symbolizes not only the intellectual and moral bankruptcy of George Bush but the literal financial bankruptcy of the country itself. Iraq has accelerated a process of slow-motion collapse of the financial and energy infra-structure that has been developing over the last 30 years or more. Massoud Hedeshi sums it up quite clearly and illustrates what most of the world already knows except the American public:

"The US economic power horse is running out of ideas and cash as it jostles with a massive national debt, housing and financial crises, rising inflation, and a depreciating currency.

This has all contributed to a growing tendency to live off credit amassed through petrodollars and foreign loans, leaving repayment for future generations.

Today, in much of America, communities and suburbs are dealing with a drastic increase in foreclosures and short sales. This has not been helped by the fact that gas is selling at over $1 a litre ($4 a gallon).

Standard monetary tools such as lowering or increasing interest rates can no longer provide quick fixes to the situation for both economic and political reasons.

Raising interest rates would compound the mortgage crisis while lowering it would drive the value of the US dollar abroad even lower.

But exercising control over the money supply could also damage the US economy: increasing the supply would lower the dollar's value even more, while decreasing supply would exacerbate the loans crisis.

In any case, control over the money supply would be anathema to US economic policy given the country's 'addiction' to deficit financing and run-away consumerism in recent decades.

So the US Federal Reserve is left virtually helpless........."

And so further devaluation of the dollar and American influence appears unavoidable as developing countries look for stability elsewhere.

"As America struggles to avoid recession, the world economic order appears to be heading for a drastic overhaul.

Despite a trend by some economists and politicians to blame the current food and energy commodity price hikes on Opec or overpopulation, there is a clear picture emerging of deep structural problems in the world economy.

In particular, the main currency used for global trade in commodities, the US dollar, has been in steady decline not just against the Euro, but also against most other convertible currencies.

According to the US Federal Reserve, the dollar has dropped by around 65 per cent against the Euro, 31 per cent against the British Sterling, 45 per cent against the Canadian Dollar, and by 59 per cent against the Australian Dollar over the eight-year period since June 2000.

While the causes for this slide are debatable (and largely attributed to poor fundamentals in the US economy), the global impact of such a major drop in the value of the dollar is undeniable for two important reasons.

First, most global commodities traders utilise - and favour - the greenback over other currencies, despite a severe decline in its purchasing power.

Secondly, most countries - mainly in east Asia and among the major oil and gas exporters of the Arab Middle East - use the dollar as their reserve currency.

But they are paying the price. Despite their booming economies and elevated public spending, they are experiencing depreciating terms of trade and rising inflation.

More importantly, they have seen the value of their strategic currency reserves drop with the dollar's waning global strength."

Meanwhile the U.S. and it's allies shift their efforts for a "last stand " of sorts in the wilds of Afghanistan and Pakistan.

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