Thom riffs on the dollar and asks Robert Fisk about its demise, 07 October 2009

Thom Hartmann: Let's talk about the dollar, our currency. This medium of exchange. You know, the whole idea of a dollar in the first place was so that if you and I have a deal that I'm going to wash your car if you'll mow my lawn, that we can do it in a way that rather simply the barter, let's just value them both at ten bucks, and if one day I don't wash your car but you mow my lawn, you get ten dollars and you can go out and buy a sandwich.

You know, money represents energy. It's real simple. My old friend Jack Vance, one of my, absolutely one of the most brilliant science fiction writers of all times, in a series of science fiction novels, had what he called the SVU - the Standard Value Unit - it was the unit of currency throughout the Gaean Reach; throughout the universe, or the human-inhabited universe. And each SVU represented one hour of labor at the lowest level of human labor. And, you know, what a cool idea!

The whole point is that a currency is simply a way of reflecting energy; of reflecting the value of a person's work in some way, or how they think, what they're doing. And that we have a banking system to facilitate the movement of that, not to simply make money off it but to facilitate the movement of that. And that a nation prices its currency generally speaking as some very simple division between the total wealth of the nation, in other words, all the assets, all the stuff that we have, all the ore that we've got in the ground, and the forests that we have, and the productive capacity of our factories and the intellectual capacities of our minds, and you add all that stuff up and you divide it by the population and you come up with some sort of a number. And you say, 'ok, this what our currency is going to be worth.'

And over time as the number of resources increases, as the country becomes richer, as we become more efficient at producing things. Go back to Adam Smith, "The Wealth of Nations" 101. Adam Smith pointed out a stick on the ground has no value. If you pick that stick up and you add 2 hours of labor by whittling it into an axe handle, it now has the value of a few pounds, of a few British pounds. In other words, it has acquired value because you've added labor to it. And so by adding labor to something, what we're doing is increasing its value. So as the nation's economy grows, as we get more and more efficient at making computers, as we get more and more efficient at making things, doing things, or the population grows, then you have to grow the money supply so that the value of the currency remains the same.

And this is the job of the Treasury Department that has been taken over by the Fed, our central bank. But the bottom line is that the dollar should be a reflection of the total assets of this country divided by the population in some way. You following this? I mean, this is a pretty simple straightforward thing, that every nation's currency in some way is a reflection, if you could take all that money and aggregate it, some way a reflection of the wealth of that nation.

Now, what the United States has done since the late 19th, certainly early 20th century, by having oil denominated in dollars, keep in mind the first commercial oil well was drilled in 1865 by Colonel Drake in Titusville, Pennsylvania. We kind of got the jump on everybody on this thing. What we have done is essentially, and a lot of this came out of Bretton Woods, and certainly much of it came out of the end of World War II, is we've basically required, or set up a system that requires the rest of the world to pay for oil in dollars.

You know, when I was flying home from Germany last week, on channel 9 on United Airlines they've got this really cool thing. Not all the pilots turn it on, but many of them do, where you can listen to air traffic control. And I was listening to the air traffic control as we were taking off from Germany, and English is the international language of air traffic control. So here's all these controllers and they're speaking in these terrible accents. I mean, you know, the Chinese pilot talking to the German air traffic controller with a Danish pilot, "flight number", well I'm not even going to try to imitate some of their accents. But the point is, it was all in English.

Well, we've done the same thing with oil. Oil is all traded in dollars. Now what that has done, it's a two-edged sword for the United States. What it has done it has strengthened the economic power of the United States in some very real ways, because every country in the world if they want to be able to buy and sell oil has to have a reserve of dollars. So they have to, you know, to get those dollars, they have to interact with us. But at the same time, the sword of Damocles hanging over us is that the number of dollars out there is hugely inflated as a consequence of oil being denominated in dollars all over the world. And so, it's not just our currency, it has become a world currency. So what happens if the world says, 'you know, we're not going to use dollars any more to buy oil'. What does that do to the dollar. What does that do to the United States?

Robert Fisk is one of my favorite writers. One of the most brilliant investigative writers and journalists in the English language. He’s the Middle East correspondent for “The Independent” newspaper in the United Kingdom. His most recent book for Nation Books, “The Age of the Warrior”. You can find his writings over at independent.co.uk or nationbooks.org And he wrote a brilliant piece recently, called “The demise of the dollar”. In fact it was published, what, the day before yesterday, Robert Fisk?

Robert Fisk: Yes, hi.

Thom Hartmann: First of all, welcome to the show and thank you so much for being on the air with us, all the way from Beirut, Lebanon. Welcome.

Robert Fisk: Thank you.

Thom Hartmann: Your article, “The Demise of the Dollar”, that appeared in “The Independent”, which basically, well, I’m going to ask you to lay out what it lays out, but I understand the kind of back alley talk is that your article caused the dollar to crash and gold to jump to $140.

Robert Fisk: Well, just briefly, it might have done, when the Saudis denied it, it went back to normal again. I have to say that since I’m actually paid my salary in Sterling, it wasn’t going to affect me, but it might affect you. Yes, I rather suspected something like this might happen because quite clearly, although we’re talking long term, that the de-dollarization of oil, if you like, the project to bring this about would not actually be fulfilled until the contemporary deadline of about nine years time. A lot of politicians have been talking their way round this. I’m talking about outside the United States.

Thom Hartmann: Right.

Robert Fisk: Without being too specific about what kind of currency would replace the dollar. President Sarkozy of France has talked about the need for a new financial system, and a move away from the dollar. So has Mr. Putin, so has Mr. Medvedev in Russia. So indeed has the Chinese Prime Minister. But what I’ve been amassing over the last week and a half are the kind of details that fill in the shadowy background a little bit, even though as I’ve been the first to say, quite a lot of people, including the Saudis, have denied it.

Thom Hartmann: Right. In other words, the world is the… the major economic powers of the world, and certainly the major oil-consuming economic powers of the world, really are seriously planning on, or are laying the foundations for, moving away from the dollar.

Robert Fisk: I would say laying the foundations. I mean for a long time now, the Chinese have been faced with a major problem in that they are becoming the economic superpower, and I think the United States, or most people in the States, certainly in Washington, would realize that that’s the case. But they’re holding reserves of a huge amount.

Thom Hartmann: 2 trillion is it?

Robert Fisk: 2.3 trillion dollars, and the question is, you know, of which seventy percent is actually in dollar currency, and the question is, what are they going to do? You can’t get rid of it without devaluing the dollar, at the same time, China, Russia, the Gulf states, France, Germany, they’re all looking to the idea of having a basket of currencies to deal in oil, including the Euro, and gold perhaps, as a transition currency, a new Gulf Arab currency.

Thom Hartmann: Right.

Robert Fisk: And using Chinese and Japanese currencies, in order to get away from the dollar, and stop finding that it is America, and America alone, that controls the financial system of the world.

Thom Hartmann: Right, and there’s even discussion of a Gold Rial coming out of the Middle East. Robert Fisk, can you stick around during the break here?

Robert Fisk: Of course.

Thom Hartmann: Great, thank you so much, and we can pick up this conversation cause I’d like to ask you, what is this going to mean for the average American, when there’s all these dollars floating around out there, and there’s no more demand for them, at a whole bunch of different levels? Our ability to fund things, finance things, and, you know, the wealth of our nation. Robert Fisk is with us. We'll be right back.

...

Thom Hartmann: We’re talking with Robert Fisk, one of the world’s best writers, best investigative reporters, writing for “The Independent”. I encourage you to go to independent.co.uk and read his article, “The Demise of the Dollar”, for all the details, and just an extraordinary piece, and he’s kind enough to take our call all the way into Beirut, Lebanon, which is where he is at the moment. And Robert Fisk, let me just cut to the chase on this. What does it mean to America, and Americans, if the world stops denominating oil in dollars?

Robert Fisk: Well, it rather depends on America’s reaction as the build up comes to this transition, as I believe it will, eventually. I mean, it might be in ten years, it might be in eight years.

Thom Hartmann: Are you talking about the Saddam Hussein phenomenon, where he said that he was going to trade in Euros, and got invaded him?

Robert Fisk: Well, yes, he decided to go across to Euros, and he got invaded. And I should add that Ahmadinejad of Iran announced on September 12th that he was going over to the Euro for oil dealing. So, are we going to invade Iran next? I doubt it, frankly, but there we go. Look, I think that if America’s reaction is a measured one, there’s no reason why of course Americans can’t use other currencies as well, and there’s no reason to think that European nations for example, and the Chinese in particular, are not going to deal in the dollar in their own reserves. I think that if you really want to cut to the chase, it’s nothing that is going to have a huge effect on ordinary Americans in the United States.

The real problem is that the Chinese seem to believe that there's going to be some form of economic conflict, and that it’s going to center on the Middle East. I notice that the former special envoy for China to the Middle East actually said a few days ago, I quote, “Bilateral quarrels and clashes are unavoidable. We cannot lower vigilance against hostility in the Middle East over energy interests and security.” Now the problem here, you see, is that the Middle East is a very incendiary area as you don’t need me to tell you. But that it needs, if you like, justice and injustice and compromise to be resolved. If the Middle East is going to become a conflict center for an economic war between China and the United States, then the Middle East situation is going to get worse not better. And I think it’s the Middle East, we have to cut to the chase of the Middle East to see where the real effects of this clash, if you like, of monetary systems might occur. And that, of course, is where most of the oil is.

Thom Hartmann: Right. Well, I was in south Sudan last year, we did our show from the border with Darfur, and we kept bumping into Chinese all over south Sudan. They’re buying oil like crazy there. They’re all over the world buying oil.

Robert Fisk: Well, I'd have to say that I’ve just bought a new alarm clock in Beirut. It turns out to be from China, as so many things are, Chinese cars all over Lebanon, absolutely, absolutely.

Thom Hartmann: Yeah, surprise, surprise. But right now, there’s an enormous number of dollars in circulation in the world. In some part, because countries have to have dollars in order to buy oil, to exchange in oil. If they no longer have to have those dollars, is it conceivable that the United Stated could find itself in the position of the dollar being dramatically devalued, there being basically an inflation that's the consequence of too many dollars chasing too few goods and services, cause now the dollar is only chasing things made in the United States?

Robert Fisk: Look, I think you’ve probably over-egging the pessimism there. So many foreign nations hold so much currency, China especially, in dollar reserves, in dollar currency. I mean not just trillions of dollars worth of reserves, but actually holding it in dollar currency. They’re not going to unload it all of a sudden, and depreciate the US dollar in barrows.

Thom Hartmann: Might they use to simply start buying American industry, and we end up, the United States ends up…..

Robert Fisk: I thought they already were buying American industry. I thought they already were buying American industry.

Thom Hartmann: They are. Thirteen trillion dollars so far, you know, since Reagan...

Robert Fisk: Exactly. Look, I think that, I don’t think the Chinese want to bankrupt the dollar. What I do think is happening, and I don’t think that Americans realize this, is that the rest of the world is not as dependent on dollars as it was before. You know, up to two years ago, here in Lebanon, for example, if I went out to dinner, I either paid in US dollars which they accepted, or I paid in Lebanese pounds, which is one thousand five hundred to the US dollar. Now, I’m often paying when I go out to dinner or I buy something, I’m paying in Euros, and the Lebanese accept it just like they used to accept the dollar. The dollar is still being used. I saw dollars in peoples hands today. I’ve got dollars in my own pocket here in Beirut. But I’ve also got Euros and I can use them too. Now, what we’re going to see is a world where people can use different currencies. They’re not going to be so dependent on the dollar. They will not want dollars to lose in value because they have that too.

Thom Hartmann: And yet, here in the United States, we have a banking system that is rather bizarre. You know, I was in Germany last week. And I went into my local bank and said, you know, I’d like to buy some Euros, and they said sorry, takes two weeks, we've got to run that through the central thing and there’s a request and there’s a fee and I come back with a bunch of Euros, I can’t use them. We are dollar-xenophobic, I guess.

Robert Fisk: Yeah, I think you are, and that is not a problem that I have, for example, in the European Union. I’m a Brit, so I’m a member of the European Union. I’m a citizen of the EU, and I can go and change money at any bank in the EU or indeed I can in Lebanon, as a matter of fact, at any exchange store in the street, and nobody tells me to fill out any forms. I just get the relevant amount.

Thom Hartmann: Right.

Robert Fisk: I think that the other thing that you have to remember in all of this story, is that the Chinese have a very deep interest in the Middle East itself, whatever the currencies turn out to be in the basket they produce. You know the Chinese have been selling Silkworm missiles to the Saudis. They’ve got a huge amount of dollars involved in deals. An eight billion dollar agreement with Iran, for example, to develop refining capacity, gas resources. They even have oil production concessions in Iraq, which were blocked by the US until this year.

But I get the point, you know. What will happen to our dear old beloved dollar? I don’t think that it’s going to collapse and go through the floor, but I do think that just as your banks resisted regulation, when we Europeans were pleading for it, and we still believe the contagion was started on your continent, not on ours, although it might have started in China, for all the reasons that we won’t bother to go into now. The fact is that I think that in future, American political power is going to be less because they’re going to have to say, look, China’s now the new economic giant.

Thom Hartmann: Right. And could it...

Robert Fisk: Yeah, go on.

Thom Hartmann: We only have 20 seconds left. Much like when the UK ceased to become the world’s dominant superpower a century and a half ago, their currency became…. Could it be the United States is going to become a little incrementally poorer, as it were?

Robert Fisk: Well, I’ll just say, to get my own back on you. London remains the dollar market capital of the world, unfortunately for London, unfortunately for London.

Thom Hartmann: You're right. Yeah. Yeah. Excellent point. Excellent point. So, we’ll see how this all shakes out. Robert Fisk, you can read his writings over at "The Nation", of course, and also "The Independent", independent.co.uk. His most recent article “The Demise of the Dollar”. It is absolutely brilliant. I encourage you to check it out. Robert, thank you so much for dropping by.

Robert Fisk: You’re very welcome. Thank you.

Thom Hartmann: Very good speaking with you today, and fascinating.

Transcribed by Gerard Aukstiejus.

Comments

Jim (not verified) 12 years 31 weeks ago
#1

I hope the gold investment people are paying Thom well. He sure sells it hard.

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