The End of the Dollar

Yesterday on C-Span Representative Ron Paul from Texas spoke about the coming end of the domination of the U.S. dollar in world markets.

It was all about what we have been discussing here at the Armchair Economist. Basically, he told the congress that the wars we have been fighting are not so much about terrorism as they are about regime change. The US intends to maintain its position of supremacy in the world, both militarily as well as economically. In order to maintain that position, the rest of the world has to agree to take dollars in trade for natural resources. It is the only way we can continue to live beyond our means.

When a country threatens to switch to another currency, lets say Euros, it could weaken the dollar and cause major problems for the US. Iraq threatened to start accepting Euros for oil before Gulf War II and look what happened. We accused them of sponsoring terrorism. We somehow linked them to the events of 9/11. Something we now know was not true. We accused them of trying to purchase materials to build weapons of mass destruction. We now know that those documents were false. And we attacked Iraq and removed Saddam from power.

Fast forward to today. Iran is getting ready to open a world oil market where anyone can buy and sell oil in Euros. The propaganda machine is in full swing, making Iran out to be the next evil country that is in need of a regime change.

Mr. Paul then explains for all of us why this continues today. We have a military machine that is unmatched and we are not afraid to use it to get our way. These countries that have an abundance of natural resources do not dare to make us mad by accepting another currency. They know what we will do to them.

Ron Paul sees all of this military action as a way to keep the game going. Recent comments by Donald Rumsfeld about the "war on terror" being a long war would seem to support that viewpoint.

We have been a part of a grand experiment for the last 35 years. It started in 1971 when Richard Nixon closed the gold window and allowed the dollar to float. At that point in time, the dollar became nothing more than a piece of paper. It has no intrinsic value. Prior to 1971 any country in the world could present dollars to the US and demand gold in exchange. At the rate of $35 per ounce. When a country prints extra money and sends it around the world to pay for things like cars and oil, the gold supply can quickly be depleted. So we closed the window and the rest, as they say, is history.

At some point in the near future, this experiment will come to an end. It always has in the past and it will here in the US. When it does, the countries of the world will stop accepting dollars for the goods we buy. They will demand hard currency and we will be up to our chins in dollar bills and have no where to spend them.

Representative Paul hopes that this happens sooner rather than later because the longer it continues; the worse it will be for us. Just like a party, the longer the booze lasts, the worse the hangover the next morning.

We, my friends, are in for a whale of a hangover.