Will the U.S. Wage War Against Russia?


How “hawkish” will the next president be?

Business Insider is reporting that Russia is gradually moving away from trade denominated in U.S. dollars to trade denominated in the Chinese yuan:

“ ‘Two state energy companies, gas producer Gazprom and its oil arm Gazprom Neft, said they would use more Chinese currency in trade, while Russia’s largest bank, Sberbank, has also promoted the use of the yuan,’ The Moscow Times’ Peter Hobson writes. The Russian Central Bank said it was working to create a new funding instrument in yuan, and the Finance Ministry said it was considering issuing debt in the currency.”

This move by the Russian authorities is largely the result of economic sanctions that the U.S. and its NATO allies have placed on Russia over its alleged bad behavior in the Ukraine. Here, again, we see the use of force (sanctions are a form of force) backfiring against the United States. Why? Global trade is conducted in U.S. dollars. As such, whenever a country wants to purchase a commodity on the world market, that country must convert its local currency into U.S. dollars—i.e. purchase USD from the U.S.—and use those dollars to purchase the needed commodity. Because global trade is USD-based, every central bank in the world must have a USD reserve. Every country in the world must, therefore, purchase USD from the U.S. Federal Reserve Bank. This is a bonanza for the U.S. The U.S. can simply print money while the rest of the world absorbs it. The rest of the world acts as a sponge for excess USD, and this in turn reduces the likelihood of inflation in the U.S. It is no accident that the Federal Reserve has been able to pump nearly $13 trillion into the moribund U.S. economy without even a hint of increased inflation. Project Censored succinctly sums up the benefits to the U.S.:

“President Richard Nixon removed U.S. currency from the gold standard in 1971. Since then, the world’s supply of oil has been traded in U.S. fiat dollars, making the dollar the dominant world reserve currency. Countries must provide the United States with goods and services for dollars – which the United States can freely print. To purchase energy and pay off any IMF debts, countries must hold vast dollar reserves. The world is attached to a currency that one country can produce at will. This means that – in addition to controlling world trade – the United States is importing substantial quantities of goods and services for very low relative costs.”

The U.S. has vigorously guarded the privilege of having a “world currency,” often going to war to protect it. For example, part of the reason why the U.S. invaded Iraq in 2003 was to deny Saddam’s government the ability to sell Iraqi oil for euros instead of USD. When the euro debuted in 1999, Saddam Hussein decided to sell oil—under the UN sanctioned oil-for-food program—for euros. At the time, one euro was equal to 80 cents. Analysts thought that Saddam was crazy to do such a thing. By the middle of February 2003, one euro was equal to $1.08. The USD lost 28 cents of its value against the euro in a matter of four years. Saddam’s move netted Iraq a very handsome profit while bypassing the power of the United States. Other oil-producing countries that the U.S. considers to be enemies (Venezuela and Iran) started exploring similar moves to Iraq’s government. As Faisal Islam of the Guardian put it,

“Iraqi oil, two-thirds of which is being snapped up by US companies, can only be paid for in euros…That move was made in the same week that the euro reached its historic low of $0.82 in October 2000. The subsequent 30 per cent rise in the euro has greatly helped the United Nations’ oil-for-food programme in Iraq…Javad Yarjani, a senior Iranian oil diplomat, said: ‘It is quite possible that as bilateral trade increases between the Middle East and the European Union, it could be feasible to price oil in euros.’”

While there were other reasons for invading Iraq, the U.S. feared that selling oil for euros would undermine USD primacy and would constrain the U.S. government’s ability to print unlimited currency. If the euro became a rival to the USD, central banks the world over would dump USD and purchase euros. The value of the USD would plummet, bringing a serious reduction in the capability of Americans to consume and a consequent reduction in economic growth and corporate profits. Coilin Ninan sums it well:

“Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards.”

The war against Libya in 2011 also fits in the same paradigm of maintaining USD global financial dominance. Libya’s moves not only angered the U.S., but also angered the Europeans. Gaddafi wanted to move Libya and Africa away from USD and the euro. He wanted Africa to have its own golden dinar, backed by the 144 tons of gold the Libyan central bank had in its vaults. Asia Times author, Ellen Brown, tells the story:

“According to a Russian article titled ‘Bombing of Libya – Punishment for Ghaddafi for His Attempt to Refuse US Dollar,’ Gaddafi made a similarly bold move: he initiated a movement to refuse the dollar and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Gaddafi suggested establishing a united African continent, with its 200 million people using this single currency.”

That ill-fated move sealed Gaddafi’s fate, even though the West was happy to trade with Libya and sell it all sorts of military hardware. For the West, challenging USD/euro supremacy is far more important than selling Libya $610 million of military hardware.

The big question is whether or not the U.S. will risk a war with Russia. The answer depends. If Russia and China continue to shift their trade towards the Chinese yuan and the Chinese yuan becomes a fully convertible currency (as well as a reserve currency), then it is entirely plausible that the U.S. could wage war against Russia to defend the dominance of the dollar. Will U.S. decision makers be so bold or foolish to wage a war against Russia? President Obama has been very cautious when it comes to Russia. He has consistently refused to send troops to the Ukraine to support the current government in its conflict with Eastern Ukraine and Russia. Despite that NATO has been adding equipment in neighboring East European Nato countries. Russia has responded that it will match NATO buildup with its own.

Obama’s term is about to end and it is very rare that a president from the same party wins an election following a two-term president from that party. All Republican presidential candidates (except Rand Paul) are well known for their hawkishness on foreign policy. One candidate went as far as to tell the voters not to vote for him if they are worn out by war. Even if Hillary Clinton, a Democrat, is elected president, it is entirely plausible that she will wage war on Russia given her hawkish foreign policy views. The record shows that the U.S. is willing to go to war against weak countries to defend the dominance of the dollar in world trade. Less clear is whether the U.S. will wage war against a major world power with nuclear arms to defend the primacy of its currency.

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