Mokhtari

The Pyramid III

The Pyramid

Part III: The Quest

By: Kian Mokhtari

Within any pyramid scheme the movement of true wealth is to the zenith or to the tip. Little thought is given to the multitudes making up the bases of the pyramid. And accordingly the closer the blocks to the top the greater would be their share of wealth and benefits.

Without the questionable doctrine for the existence of the US dollar's dominance, placing a man on the moon, global positioning satellites(GPS), and a whole host of scientific, medical and political achievements attributed to the US would simply not have been possible. The huge amounts of money and resources required would have placed impassable obstacles in the way of any nation's attempt to proceed.

Realizing the possibilities that a dollar type scheme could have brought to the British Empire, Winston Churchill said on the eve of India's independence, that the 1924 return to the gold standard had been his life's "biggest mistake."

Churchill realized that owning large chunks of land around the globe under an Imperial flag meant little compared to the audacious scheme that had given rise to the dollar; a scheme that could humble the entire world into submission without nations realizing they were under imperial rule of another country, and believing instead they enjoyed freedom and independence.

But the problem with a pyramid system is that ultimately there can only be one benefactor –the one at the very top- and even blocks closest to the top of the pyramid aiding the system would eventually fail.

So how else could humanity have achieved all the cultural and technological accomplishments in the short space of a century? The answer is that in the absence of one nation able to dominate all the world markets printing yet more cash out of thin air to pay for grand schemes, all the world nations would have to become involved: in other words the birth of true commerce and trade.

All nations would have to contribute and get something of equivalent value, be it in technology or goods in return; rather than be exploited and sold advertising bill board dreams for the resources they blindly give up in order to reach such well choreographed pictorial delusions.

Accordingly all nations would become equals; there would not be a first, a developing and a third world. There would only exist two types of worlds: a developed world and a developing world very close behind. There would not be a right of veto at the United Nations based on self interests of a few nations that set themselves apart from the rest of the world community because they make up the blocks closest to the top of the pyramid through possession of massive nuclear weapon stockpiles or through being a part of the pyramid scheme itself.

It would be feasible to speculate at this stage that the appearance of the euro has much to do with the realization that through the US pyramid scheme there can only be one ultimate survivor. The volume of international trade conducted in euros is still miniscule compared to the mighty dollar but throughout its existence the euro has gained against the dollar and has remained steady and reliable in value.

This is no coincidence!

Alan Greenspan, as we mentioned in part II of this article has already suggested that a reason for the fall of the dollar is its decreasing role as the world's reserve currency. The success of the dollar depends on the domination of the world markets by the US, so the country can pay back interest on the bonds purchased by other countries, based on which yet more dollars were printed.

The follies of Afghan and Iraq invasions by the Bush administration have cost the US more dearly in economic terms than anyone has managed to imagine. Although there is ample reason to believe that Paulson and Bernanke are aware of the gravity of the situation facing the US and its dollar based system.

Should we count the current crisis in the US markets as a recession it would be the tenth US recession since WWII. Among the previous 9 recessions, the longest recession lasted 16 months and the shortest for 6 months, with an average length of 11 months. However the US has managed to emerge in its leading position each time previously.

But that may well not be the case this time around. No other economic downturn has exposed the dire weaknesses as well as the unholy nature of the US economic hegemony like the current recession. The US will not emerge unscathed in any way shape or form, from the current crisis. The Bush administration's smash and grab policies have backfired on America and on the world's leading currency the US dollar.

Early on, in every new century, human societies go through a period of transition and growth. Our understanding of the world around us grows and becomes more focused.

A Communist Chinese society on bicycles, roughly making up one sixth of the world population, has become a heaving hub of pollution having become mobilized with the motor car to keep the US pyramid scheme going.

Meanwhile in Antarctica one of the biggest ice shelves has melted and is hanging by a thread as a direct result of global warming brought on by greenhouse gases.

It seems that human survival itself upon this lonely planet is likely to dictate the course of events from now on, outmoding the US "enterprises of great pitch and moment."  

+ Nader Mokhtari ; ٤:٢٥ ‎ب.ظ ; جمعه ٢۸ تیر ،۱۳۸٧
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The Pyramid II

The Pyramid

Part II: Everyman for Himself

By: Kian Mokhtari

 

President Bush and Henry Paulson’s application of political leverage for financial gain on China and Russia may seem a little over the top and premature but then again the true nature of dollar itself needs to be understood.

Adopted by the US Congress of the Confederation of the United States on July 6, 1785, the US dollar is the currency most used in international transactions. Several countries use the US dollar as their official currency, and many others use it in a de facto –peg- capacity.

Although the value of dollar is measured in its equivilant value in grains of gold and silver, it became apparent at the end of WWI that there would not be enough gold or silver to allow the volumes of dollar required in international trade.  

One of the major opponents of the new thinking was Winston Churchill who was appointed Chancellor of the Exchequer in 1924 under Stanley Baldwin and oversaw Britain's return to the Gold Standard. His decision, announced in the 1924 Budget, came after long consultation with various economists including John Maynard Keynes, the Permanent Secretary to the Treasury, Sir Otto Niemeyer and the board of the Bank of England. The decision was generally popular and seen as “sound economics.”

In his speech on the Bill he said, "I will tell you what it -the return to the Gold Standard- will shackle us to. It will shackle us to reality."

The advocates of US dollar as world reserve currency on the other hand, also had a good argument: Paper money’s value has nothing to do with reality so economic realities dictate the value of any currency. In other words dollar did not need to be supported by gold or silver for as long as it remained the world’s reserve currency. This means that for as long as gold, oil and most other precious commoditiers were traded in dollars, each and every country in the world would need to hold dollar reserves, be it in $100 denominations, notes or bonds.

The US Federal Reserve would then print dollars to the value of the bonds or notes -10-year, twenty-year etc- and pay an amount of interest on such bonds or notes. The world countries would then purchase the dollar and hold it as reserve currency if only to be able to continue trading in the international markets.

Economist Paul Samuelson and others maintained for sometime that the system would be full proof. That the overseas demand for dollars would allow the United States to maintain persistent trade deficits without causing the value of the currency to depreciate and the flow of trade to readjust. Paul Samuelson has now changed his mind however saying he believes that at some stage in the future a run against the US dollar would begin with serious global financial consequences.

Alan Greenspan however, suggestsed that another reason for the fall of the dollar is its decreasing role as the world's reserve currency. The dollar sank to new lows against the euro in the days following 4 March 2008, with the Federal Reserve continuing to slash interest rates.

So US Treasury Secretary Henry M. Paulson’s decision to deregulate the banking institutions could mean only one thing: that things are about to go belly up for the dollar’s long reign and it would be every man for himself, as the US Treasury Department would no longer be able to maintain the dollar as the world’s reserve currency given dollar’s rollercoaster ride in value particularly since the disastrous US invasion of Iraq in 2003.

This latest twist is astonishing because the dollar was only worth the value it had printed on it, for as long as the greater majority of world trade was conducted in dollars forcing world countries to invest in US bonds and notes, facilitating thereby the printing of more paper dollars or cash.

As we mentioned in part one of this article China is holding in notes and bonds close to $1.5 trillion dollars and is not only unwilling but unable to purchase more dollars from the US. So China is now being urged by Mr. Paulson to spend its money so at least the US can get some liquidity back into its own banking system. And other countries are at present being gently –for the time being- nudged by the US to spend more.

Perhaps Winston Churchill was right in believing that any currency had to possess suitable support or backing in order to remain credible in the real world, since the US dollar is roughly based on the outlawed pyramid business scheme. It can only work for as long as the bases of the pyramid, being the world trade volumes, expand and redouble at breakneck speeds and the trade is mainly conducted in US dollars.

This would allow the US to surge ahead as the world’s leading nation with the base of the pyramid made up of the third world countries, and accordingly such scheme would require globalization as a business doctrine in order for the dollar based trade system to run ahead of others indefinitely.

+ Nader Mokhtari ; ٤:٢٢ ‎ب.ظ ; جمعه ٢۸ تیر ،۱۳۸٧
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The Pyramid I

The Pyramid

Part I: The Double Act

By: Kian Mokhtari

US Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben Bernanke accomplished what can only be described as an astonishing double act to deceive the world markets last week.

On Monday, the last day of the first financial quarter, Treasury Secretary Henry Paulson elaborated on his plan to overhaul US market regulation, overshadowing the manufacturing data from the US Midwest: The National Association of Purchasing Management – Chicago, released its report on business activity in the Chicago-area manufacturing sector in the month of March, showing that activity contracted for the second consecutive month.

In a speech delivered in Washington Monday morning, Paulson called for sweeping changes to government regulation of financial markets, giving the Federal Reserve additional authority while proposing the streamlining of other government agencies in the “largest overhaul of bank supervision since the Great Depression.”

Mr Paulson’s performance was followed by a two-day trip to China later in the week where he urged China –at Tibet and Olympics boycott gunpoint- to move ahead with financial market changes, despite growing concerns about the economic downturn in the United States. In other words Mr Paulson told the Chinese they had little choice but to purchase yet more US bonds so the Fed can print more dollars to assist a cash-starved US financial market.

Mr. Paulson drove the point home to a China already sitting on a 1.5 trillion dollar mountain of US currency and bonds, he said: “I expressed our concern about the violence and urged a peaceful resolution through dialogue.”

Although Mr. Paulson graciously admitted, “There’s no doubt what is happening in the U.S. markets clearly has to give the Chinese pause,” he also gave the game away when he added: “For China, the challenge is to save less and spend more.”

Bernanke on the other hand, testifying before the congressional Joint Economic Committee on Wednesday, called to examine whether the Fed was justified in providing up to $30 billion to facilitate the sale of Bear Stearns Cos. to JP Morgan Chase & Co, had other concerns on his plate.

The Federal Reserve moved to assist the Wall Street investment bank on the brink of bankruptcy.

The US’ fifth largest investment bank became the biggest victim of a severe credit crunch that has finally turned the tables round on US free-wheeling ‘creditism’ or was that capitalism?

Democrats on the Senate Banking Committee said they wanted to find out what pressures the Bush administration had brought to close the sale and whether big investment banks were getting preferential treatment over millions of Americans in danger of defaulting on their mortgages and inevitably losing their homes.

Senate Banking Committee Chairman Christopher Dodd asked at the beginning of the hearing: "Was this a justified rescue to prevent a systemic collapse of financial markets or a $30 billion taxpayer bailout for a Wall Street firm while people on Main Street struggle to pay their mortgages?"

Sen. Jim Bunning, R-Ky., asked, "How big do you have to be to be too big to fail? ... Who let our financial system become so fragile that one failure jeopardizes the health of the entire system?"

Bernanke said that if Bear Stearns had been allowed to fail, it would have led to a "chaotic unwinding" of Bear Stearns investments held by individuals and other financial institutions.

Bernanke added, "Moreover, the adverse impact of a default would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability."

So Mr Paulson is actually preaching deregulation at a time when regulating US financial institutions is the only viable –and peaceful, from a US foreign policy perspective- solution.

The Housing bubble in the US was $8 trillion with only around $2 trillion available in cash and there were no regulations to oblige sub-prime lenders to show they had the means to lend in the first place!

Would that not be a major lack of regulation contributing to "chaotic unwinding"? So why is Paulson delivering numerous sermons on deregulating further?

President Bush is also busy pressing Russia to increase its trade in US dollars via saber rattling on possible Ukraine/Georgia NATO membership at the minute.

Interested to find out more?

 

 

+ Nader Mokhtari ; ٤:۱٧ ‎ب.ظ ; جمعه ٢۸ تیر ،۱۳۸٧
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Chain

Chain

By: Kian Mokhtari

 

Have you ever wondered why oil price is linked to precious metals?

The answer to the question begins with the Arab producers’ wish to receive gold in exchange for oil dating date back to 1933, when King Ibn Saud demanded payment in gold for oil concession in Saudi Arabia.

Oil, gold and commodities have all been priced in US dollars since 1975 when OPEC officially agreed to sell its oil exclusively for US dollars. From 1944 until 1971, US dollars were convertible into gold by central banks in order to adjust for any trade imbalances between countries. Once the US ceased gold convertibility in 1971, OPEC producers were forced to convert their excess US dollars by purchasing gold in foreign marketplaces. This resulted in price increases for both oil and gold: current oil prices stand at around $115 per barrel and gold recently reached $900-1000 per ounce.

Gold and oil are both finite commodities so what logic constituted the relationship between oil and gold prices?

Annual gold production is approximately $35 billion; annual oil production is $1.5trillion, by far the largest-trading world commodity. Oil price increase and demand for US dollar diversification, will create an ever-expanding number of petro dollars chasing a relatively small amount of gold bullion. With an ever-increasing US money supply, growing triple deficits and mounting debt at all levels, hyperinflation is sure to follow to blight many unprepared economies. This is while foreign holders of US dollar assets have already lost 33 percent of their investment since 2001.

Today with ‘Peak Oil’ and increasing demand from developing countries, the price of both gold and oil can be expected to increase and the US dollar to continue its decline. But what if oil goes up to $200 per barrel? Will the current oil/gold ratio hold at such levels?

Current logic of gold/oil relationship says it will, hence the world of Islam will be left with little choice other than to gain a credible foothold in the global gold market.

So the main question transmutes into how long would Arab oil producers be able to maintain US dollars as their reserve currency? And it would no longer be a matter of national political choice!

The most important of all for the world of Islam are current discussions among Arab nations about pricing oil in Islamic gold and silver dinars and creating a common regional currency.

If other producers like Russia seriously opt out of accepting US dollars for oil, demand for the currency will plummet, sending the dollar into a freefall while demand for gold and silver will soar: at which point holding local Islamic gold and silver standards will hedge the region against inflationary pressures caused by turmoil in the foreign markets.

We are now depleting global reserves at an annual rate of 6 percent, while demand is growing at an annual rate of 2 percent: with the growth rate expected to triple over the next 20 years. This means we must increase world reserves by 8 percent per annum simply to maintain the status quo, and we are nowhere near achieving that goal: the world consumes four barrels of oil for every one it discovers as things stand at present.

While the US accounts for only 5 percent of the world's population, it consumes 25 percent of the world's fossil fuel-based energy. It imports about 75 percent of its oil, but owns only 2 percent of world reserves. Because of this dependency, any increases in price or supply disruptions will negatively impact the US economy to a greater degree than any other nation.

Once a supply shortfall materializes, the US will be in competition with China, India, Japan and other importing countries for available oil and we must shield Islamic economies against the backlashes of the inevitable clash and competition for the remaining resources in our region.

At some point, the tangible decision to abandon the US dollar in favor of local gold standards and a single regional currency will have to arrive. If we in the Middle East hold the most precious and finite commodity, why should our customers possess control over the gold standards through which they can retain control over our markets?

+ Nader Mokhtari ; ٤:۱٢ ‎ب.ظ ; جمعه ٢۸ تیر ،۱۳۸٧
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The oil Arguement

The Oil Argument

By: Kian Mokhtari

The recent meeting in Saudi Arabia failed as an initiative to end the world oil/dollar related dilemma mainly because a traditional view of supply and demand was reviewed in order to find the possible solutions to the oil price hike conundrum.

Speculators were blamed, and so was the weak dollar and OPEC quite correctly said there is no shortage of oil on the world markets to justify greater production.

But that in our opinion is not the way to look at things as things stand all over the globe. The supply and demand equation has gone into reverse somewhat.

Let us try to explain the problem: All the world oil resources are now mapped. Some oil resources lie in areas that cannot be economically tapped; in other words the cost of exploration, location and extraction outweigh the economic gains. So we have recognized almost all the oil reserves around the globe and the volume of the accessible reserves have been accurately estimated. Such precedence for the accuracy of available estimates has never existed to this degree before because new methods of exploration and location have never included dozens of satellites gauging the geographic position and volume of oil reserves before.

To put this in more simple terms, imagine that all the available oil in the world can be placed into a tank of predetermined volume. Also imagine that the rate of consumption per day of oil from the hypothetical tank is predetermined. Since the quantity of oil in the tank is finite the more you extract the more expensive the commodity gets because you are likely to run out of the available resource a lot quicker. So by upping production the prices also go up in direct contrast to the traditional view that more oil availability means cheaper prices.

So the only factor remaining that can lower prices is taking less out of the tank and consuming less so the precious resource lasts longer.

This is where the speculators’ argument becomes absolute!

The second problem is the relationship between the price of gold and oil. We explained this in a previous article (“Chain”, Kayhan international 30-04-2008). The rate by which the price of gold rises corresponds to the rise in the price of oil. However this relationship is relative, in other words the mathematical link between the gold/oil price rises is variable. In the highly unlikely event of the US dollar keeping its present value, should oil go to $200 , gold prices will not be able to keep up because investors in gold will not be able to make a viable profit on gold should they be forced to buy gold at crazy prices. Also, gold is finite like oil, but as an element does not burn into thick smog and hence its price hikes cannot be justified.

With the US dollar in a nose dive due to natural prevailing economic conditions throughout the globe the oil/gold price link can be kept up for a little longer but the two precious commodities will eventually have to divorce and breakaway from their bilateral relationship.

In such a scenario what can possibly determine the price of world’s leading currencies?

One suggestion is that energy reserves can replace gold as backing for the world currencies. Allow us to explain again before we get red flagged by the chief economists.

Levels of energy production can also act as currency reserves. Now this energy maybe nuclear, solar, wind or water generated. But because it is infinitely expandable through advances in science the world economy can expand alongside infinitely, making high credit levels a viable option again.

This solution is the only viable solution for future determination of the value of the world currencies while simultaneously the level of available credit is kept in check without world recessions emanating from over borrowing by overzealous lenders. But this solution may also mean a massive tectonic economic shift in global polarity, because it is the countries first to the post that will be the future’s leading nations.

In our scenario, countries with wasteful unreasonable energy consumption and gas guzzling cars will also possess weaker currencies and will be less creditworthy, but countries that produce much more energy reserves through any method (solar, wind, nuclear etc) than they consume themselves, will not only possess stronger currencies but will be able to draw more credit to fund their future developments.

 

 

 

 

+ Nader Mokhtari ; ٤:٠٦ ‎ب.ظ ; جمعه ٢۸ تیر ،۱۳۸٧
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