A war in defense of the dollar?
| AN OUTSIDERS VIEW |
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| Ken Fuller |
Last week, this column mentioned an article by Alexander Cockburn in which it’s suggested that the Nato attack on Libya has more to do with international banking than the oil industry. However, before the promise to discuss this in greater detail is fulfilled, we need some background.
In his 2008 book, The Predator State, James K. Galbraith explains that under the international financial system devised at Bretton Woods in 1944, if the USA ran a trade deficit foreign central banks could demand payment in gold. This was not a problem for the USA, as it had accumulated much of the world’s gold as a result of two world wars, and in the immediate postwar period was able to achieve trade surpluses.
Circumstances changed in the 1960s when, with full employment and the rising costs of the Vietnam War, the USA incurred trade deficits and, thus, an accelerating outflow of gold. Richard Nixon therefore devalued the dollar and “closed the gold window,” virtually ending the Bretton Woods regime. These actions, says Galbraith, “were to make balancing the budget an obsolete policy goal, and actual budget balance something that could be achieved only on a very short-term basis.” Moreover, after 1974 the US economy was “almost never again to be in surplus with respect to the rest of the world.”
At first, the world was plunged into economic turmoil, but then Ronald Reagan’s high interest-rates, although destroying whole swathes of the US economy, created “a new dollar-based system that became the foundation of the world economy. From a purely national perspective, this would lead to huge benefits to the United States, at everyone else’s expense.”... MORE
Source: The Daily Tribune
URL: http://www.tribuneonline.org/commentary/20110503com4.html
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