The Empire on Which the Dollar Never Sets

In times of yore, kingdoms would expand their influence and power by conquering territory and or controlling various trade routes. For example: Assyria conducted mass deportations of prisoners to different parts of the empire so they could grow wheat with which they paid tribute to the monarch. In more recent times, Britain, who had an empire on which the sun never set, would profit by having colonies purchase only what Britain produced in Britain or in the other colonies. Either way, any imperial model would find a way of taxing the empire to fund its activities.

If taxation is a main component of the very definition of an empire, then I contend that the United States of America is the largest empire that the world has ever seen. It fills the whole world and knows no boundary. This is because the USA taxes every country in the world all the time.

In 1971, the Bretton Woods agreement was brought to an end by President Nixon. This agreement priced gold at $35.00 an ounce and international creditors were able to demand gold for payment of debts denominated in US dollars. When the flow of gold out of the US worried the powers that be, this tie between the US dollar and gold was severed. An alternative view of what happened that day in August 1971, was that the US declared bankruptcy. The US Dollar became a fiat currency.

The same people must have known that every fiat currency eventually gets inflated into worthlessness and loses favor as a store of value. When this happens, people will favor another currency in lieu of the devalued one. The solution to this problem materialized by in decision made by OPEC in 1975. This decision mandated that from thence onward, OPEC countries would sell oil in US dollars only. In addition, the only two markets in the world where oil can be bought and sold are in New York and London. The prices are quoted in US dollars only. The prerequisite for buying oil is the purchase of US dollars.

Inflation and the required purchase of US petrodollars lays the groundwork for global taxation on the part of the US. Every country has foreign reserves. Much of these reserves have historically been held in US dollars because every needs to buy oil. When the US government spends more money into circulation, the increased money supply eventually devalues each US dollar that already exists. When the entity creating the new US dollars is the US government, this translates into an effective tax on every single person in or outside the United States who holds or uses US dollars and does not have the same power to create them. If inflation is 2% a year, every dollar loses 2% of its value every year. Where does the lost value go to? It goes to the entity creating the money, (for practical purposes) the US government. The value taken from the US dollars circulating outside the US economy finances our quality of life here in the US. The US taxes the world.

To better illustrate the the super powers of the US dollar, let's imagine having a magical checkbook. Imagine that you can write checks to pay for anything and people would accept them as payment but never send them back to the bank to be redeemed. US dollars, like magical checks are issued, spent out to the world at large and may not necessarily ever come back to our bank, the US economy.

This brings us to inflation. The true definition of inflation is the amount of money relative to the size of the economy. It isn't a consumer price index. This true definition paints a drastically different picture from the CPI. The amount of US dollars in circulation by far exceeds the size our economy and since the US dollar is tied to oil, out of our economy they will stay.

What if one day, OPEC countries (like Iraq in the year 2000) start selling oil for Euros instead of dollars? Oil buying countries wouldn't have the same incentive to hold onto a rapidly devaluing currency and allow themselves to be taxed by a country they may not like so much. The proverbial magic checks would fly to the bank as trillions of US dollars are exchanged on the currency exchange markets for other currencies. What will life be like in the USA if people have the FREEDOM to buy oil with whichever currency they so choose?

Here come the hard questions: Could US foreign policy have anything to do with Saddam Hussein's October 2000 exchange of all his dollar reserves to Euros? What about the fact that Iran announced in 2004 that it would open an oil bourse (market) where oil could be traded for Euros and sells about 57% of its oil for Euros even though the prices are officially in dollars? How about the fact that Venezuela is investing its oil profits into buying Euros?

Is it any coincidence that the countries that we are most interested in spreading democracy to (and permanent military bases) are in the Middle East and hold most of the remaining easily accessible oil reserves?

Read between the lines.