Former National Security Advisor Speaks
About The Dollar
Todd Stein & Steven McIntyre
Extracted from the December issue of The Texas Hedge Report
December 16, 2005
Courtesy of www.texashedge.com
Brzezinski served as United States National Security Advisor
to President Jimmy Carter from 1977 to 1981. Dr. Brzezinski is
a co-founder of the Trilateral Commission, a group of prominent
political and business leaders and academics from the United
States, Western Europe and Japan. He is currently a professor
of American foreign policy at Johns Hopkins SAIS, a scholar at
the Center for Strategic and International Studies, and a member
of various boards and councils. His most recent book, The
Choice: Global Domination or Global Leadership, was published
by Basic Books in March 2004.
In your most recent book,
you suggested that it is in China's interest to "subtly
promote a distinctive Asian political identity through the cultivation
of an Asian economic community that eventually entices Japan."
Given that America needs $1 million of Asian capital every minute
in order to maintain its current standard of living, there could
be painful consequences in the form of a Dollar devaluation should
China, Korea or Japan reassess their appetite for US Treasuries.
If an independent and powerful Asian community emerges, should
policymakers be concerned about one or all of these countries
using the "Dollar weapon" against America? After all,
they hold over $2 trillion of our greenbacks.
In the long run, one
certainly cannot exclude that risk. But in the short run, apart
from some prematurely loud speculation on the part of some South
Koreans, the policymakers in these countries recognize the fact
that they have a very major stake in American financial stability.
They know that they would derive no real economic benefit from
upsetting the applecart. At some point in the future, political
pressures or ambitions or even conflicts could precipitate some
temptation to exploit that potential American vulnerability.
But I think in the short run, there is still too much dependence
on their part in global stability, derived in large measure from
American stability, for them to do something that could turn
so much against their own interests.
Do you think the first potential
catalyst might be the Taiwan issue?
That is an example of something
that could be extremely inflammatory. But one can never exclude
some other unexpected developments - for example a Chinese-Japanese
naval collision over the undersea oil assets in the Senkaku Islands
with America naturally and necessarily siding with Japan. Things
of that sort could of course precipitate the surfacing of political
passions to obscure economic reality.
Another historical pillar
of support for the Dollar has been the recycling of so-called
"petrodollars" from OPEC nations into our securities
markets. Since oil is priced and traded in Dollars, many producing
nations will take their proceeds from petroleum sales and invest
them in US Treasuries. In 2000, Iraq switched to pricing their
oil in Euros and came out ahead as the Dollar depreciated significantly
in 2001 & 2002. Next year, Iran is slated to open its Iranian
Oil Bourse and will price transactions in Euros - a move that
seems logical for Iran as almost half of its trade is with countries
in the Euro zone. If other OPEC nations were to follow suit and
price their oil in currencies other than Dollars, should America
use carrots, sticks or neither to prevent such a scenario?
Well, first of all, I think one has to bear in mind the very
important difference between Iran and other OPEC nations. Iran
is both ostracized by the United States and essentially self-sustaining
insofar as its security is concerned. The majority of the OPEC
nations in the Persian Gulf region are highly dependant on American
political and military support. And the growing uncertainty regarding
Iraq's longer range prospects combined with the increased role
of Iran in the area as supporter of Shiite aspirations, if anything,
reinforces the security and political dependence of these countries
on the United States. If we do not pursue in an irrational fashion
our sloganeering about democracy, which for many of them is a
formula for destabilization, then I think for some time to come
they will still be very sensitive to our interests. On the other
hand, if we begin to be totally unresponsive to their concerns,
then they'll have to try to secure their own interests in a manner
that is more effective in advancing their well-being. But I think
that really does depend a great deal on how we conduct ourselves
in the region and my expectation is that we will be sensitive
to the degree to which their dependence on us involves actually
the reality of interdependence. And it is not in our interest
to jeopardize that.
Five years ago, the Council
on Foreign Relations conducted a policy simulation in which a
small number of experienced policymakers worked through the options
and constraints facing the U.S. government in the aftermath of
a sudden and significant stock market decline. The objective
of this project was to help prepare for an unexpected financial
mishap, and perhaps take steps to mitigate its adverse consequences,
both at the domestic and international level. Do you think the
health of the U.S. securities markets is a national security
issue in the same league as terrorism and nuclear proliferation?
I would differentiate
not just between those two, but between all three. That is to
say nuclear proliferation is a long-range danger because it will
take time for nuclear proliferation to go beyond states and to
make nuclear weapons available to terrorist groups. So that is
a very long-range risk. Terrorism would be a very serious national
security risk if [the terrorists] had access to weapons of mass
destruction. For the time being at least, terrorist activities
around the world still rely largely on the same tools that they
did some fifty or even one hundred years ago, that is to say
explosives and fire weapons. The [health of] securities markets
is a national security issue in the sense that if there was a
really significant unexpected financial mishap, the consequences
of that for America's position in the world and for Americans'
self-confidence would be dynamic and highly inimical to our overall
national security. So of those three, this is the one that potentially
has the greatest shorter-term impact, but that depends on factors
that I am not in the position to judge as to their likelihood.
I suspect that a sudden and significant stock market decline
is unlikely to be precipitated by factors originating from America's
internal conditions. It would be more likely to originate from
some totally unexpected massive catastrophic event that jolts
the entire international community and precipitates widespread
panic and irrationality.
more follows for subscribers
. . .
December 16, 2005
Todd Stein & Steven McIntyre
Texas Hedge Report
& Steven McIntyre
For more information, go to http://www.texashedge.com.
|Recent Gold/Silver/$$$ essays at 321gold:
Aug 15 Nine-Week Run in Precious Metals Bob Hoye 321gold
Aug 14 Gates and Fauci Belong in Prison for Murder Bob Moriarty 321gold
Aug 14 Gold Stocks: Filling A Key Price Gap Morris Hubbartt 321gold
Aug 14 Gold Miners' Q2'20 Fundamentals Adam Hamilton 321gold
Aug 11 Gold & Silver: The Range Trade Stewart Thomson 321gold
Aug 10 Inca Kola, the Dr. Pimple Popper of South America Bob Moriarty 321gold