By David J. Jonsson

March 27, 2006

In an editorial by Jennifer Hughes in the Financial Times on March 19, 2006, she commented: Is it time to dust off the dreaded “e” word—that is exuberance? The word entered the market lexicon on December 6, 1996, when Alan Greenspan asked: “How do we know when irrational exuberance has unduly escalated asset values?” The good news is cyclical and bad news is structural. Have we reached the point where the structural changes affecting the Dollar will have a long-term impact and hence the U.S. economy and the creation of a New World Order? The good news is that the cyclical upturn is continuing—at least for the time being. When they do turn and we dwell on the bad news and structural changes, they are bigger than they have ever been. Structural changes are not news and they take longer to work their way through the economy, but they are highly significant.

Contents

•         Uniting of Islamic Interests for Economic Gain

•         HRH Prince Alwaleed bin Talal on Economic Impact

•         Structural Changes

•         Factors Destabilizing the Dollar

•         The Future of Oil Trading in Euro - Creation of the Iranian Oil Bourse

•         Economic Indicators to Consider

•         Anxieties on the Dollar - The Growing Burden of U.S. Financing

•         The Role of Net Capital Inflows

•         Increasing Exports and Reducing Imports The Real Estate Bubble?

•         The China Impact

•         Potential Conflict With Iran

•         The China Issue

•         Ideology Trumps Economics and Military Strength.

•         Conclusion

Uniting of Islamic Interests for Economic Gain

In an article—Arab Boycott Campaign Worries US Business, appearing on the Palestine Solidarity Campaign website there are quotations of particular interest given below. The quotations are from billionaire Saudi businessman HRH Prince Alwaleed bin Talal. Prince Alwaleed is a major investor in Citigroup, TimeWarner, News Corp. etc. Prince Alwaleed is the Chairman of the Kingdom Holding Company headquartered in Saudi Arabia. At the inauguration of his new Four Seasons hotel in Damascus on March 24, 2006 he is seen on the right side of the Syrian President Bashar al-Assad. According to Bryan Whitman a senior Defense Department spokesman, "there's no doubt" that Iraq has experienced problems along its western border with Syria, where terrorist crossings into Iraq have been alleged to occur.

Next month when the State Department publishes its annual Patterns of Global Terrorism report, Libya will remain on the list, Henry Crumpton, the U.S. State Department's coordinator for counterterrorism, told Reuters while in Colombia for a regional security conference.

Crumpton said Sudan—which is also on the list along with Cuba, Syria, North Korea and Iran -- will not make it off this year either, despite some advances in counterterrorism cooperation. He said no new state sponsors would be added. Reuters also reported that “Earlier on Friday Libyan leader Muammar Gaddafi gave a lecture on democracy via video link to an unprecedented gathering of U.S. and Libyan academics in New York, and touted Libya's political system as superior to "farcical" and "fake" parliamentary and representative democracies in the West.”

As a run up to the launch of the IPO for 30% of Kingdom Holdings on the Saudi Bourse, Kingdom Holdings placed a full page color ad in the London Financial Times showing their major investments including their headquarters building in Riyadh, Citigroup, News Corp and Four Seasons Hotels in the United States. Prince Alwaleed said he was going ahead with the decision despite the collapse in Gulf stock markets in recent weeks. 

HRH Prince Alwaleed bin Talal on Economic Impact

Quoting from Prince Alwaleed in the article: Arab countries can influence U.S. decision-making "If they unite through economic interests, not political," he stressed. "We have to be logical and understand that the US administration is subject to U.S. public opinion," he said.

"We (Arabs) are not so active in this sphere (public opinion).”

“And to bring the decision-maker on your side, you not only have to be active inside the U.S. Congress or the administration but also inside U.S. society."

There is no subtler, surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose. –John Maynard Keynes

Structural Changes

The destruction of the Dollar is a complex issue. In most cases, the proponents of the destruction fall into the camps of marketers of gold and followers of Peak oil theories. In most instances the case is based on looking at one particular event and not connecting the dots among multiple simultaneous events. Any one event would not make the sky fall. I like many others discounted the theory on that basis. Unfortunately, the perfect storm of destruction the Dollar are also occurring at a time and contributing to the Perfect Storm which is ushering in the New World Order—the post post Cold War Era.

The goal of the Leftist/Marxist – Islamist Alliance is also to create a new world order. This alliance or Cabal realizes that that they may not have the military might against the greatest military power and hence plan to use economic, energy, transportation infrastructure and political action to achieve their goals. Therefore a critical element of the plan is replacing the Dollar as the world’s reserve currency. The Cabal brings together the members of Shanghai Cooperation Organization (SCO), the Organization of Islamic Conference (OIC) and its related organization the Islamic Development Bank (IDB), and Mercosur as well as other lesser participants.

The structural changes that are occurring include numerous trade agreements between members of Cabal that trade in a currency of their choice. The goal of these agreements is to develop large markets, which will ultimately equal or exceed the U.S. market thus allowing countries such as China to reduce their holding of U.S. treasuries. In many cases the market development also included arms trafficking in exchange for long-term government–to-government energy supply deals. The ultimate goal is to create the bipolar New World Order.

In a meeting at the Arab Brazilian Chamber of Commerce Jordanian Prince El Hassan Bin Talal—a Muslim and president of the Club of Rome and former Brazilian president Fernando Henrique Cardoso and with the mayor of São Paulo, José Serra on March 21, 2006, he stated that Latin America plays an important part in the strengthening of South-South cooperation. "Latin America plays an important part in bringing new dynamics to South-South dialogue. Talal believes that the countries of the so-called BRIC (Brazil, Russia, India and China) have conditions to articulate themselves to develop policies aimed at multilateralism and to influence the reform of the United Nations (UN). "The Prince was very impressed with the possibility of dialogue not only between Brazil and the Arab countries” “It is essential to fight for something,” he said, referring to a New World Order based on humanitarianism and peace.

Factors Destabilizing the Dollar

•         Oil Trading in Euro and the Iran Oil Bourse

•         The real-estate bubble starts collapsing

•         Bank of China’s decision to allow investors to buy and sell gold using their USD

•         Continued increase of U.S. public and trade deficits in 2006

•         Growing doubts in the U.S. themselves on the reliability and interpretation of US economic statistics

•         The Potential for Military Intervention in Iran

•         Increasing risk of Conflict with China

The Future of Oil Trading in Euro - Creation of the Iranian Oil Bourse

One of the elements of the plan includes the pricing and trading of oil in Euros. For the plan to work oil producing countries and purchasers will gradually convert the oil trading to alternate currencies. The primary issue is when will the Euro be a significant currency of oil trade—not specifically on the Iran Oil Bourse. With the conflicts existing between the Shia and Sunni countries, the IOB may not have the major impact some anticipate. Iran oil production amounts to 4 percent of world oil.

Iran's opening of an Oil Bourse priced in Euros (And possibly ultimately in the Islamic Gold Dinar.) was originally planned to initiate operations at the end of March 2006. According to the Iran Ministry of Petroleum the delayed opening is a result of “technical glitches.”  No new date has been set. While Pravda on January 21 indicated that the IOB opened. The opening may be the end of the monopoly of the Dollar on the global oil market and potentially impact the Dollar as the reserve currency for world trade. The longer-term result is likely to upset the international currency market, as producing countries will be able to charge their production in Euros also. In parallel, European countries in particular will be able to buy oil directly in their own currency without going though the Dollar. Concretely speaking, in both cases this means that a lesser number of economic actors will need a lesser number of Dollars. This double development will thus head to the same direction, i.e. a very significant reduction of the importance of the Dollar as the international reserve currency, and therefore a significant and sustainable weakening of the American currency, in particular compared to the Euro. The most conservative evaluations give €1 to $1.30 US Dollar by the end of 2006. But if the crisis reaches the scope anticipated, estimates for the Euro in 2007 are even higher.

Iran’s plan is to open a new oil bourse (exchange) on which countries all over the world can buy and sell oil and gas in Euros. It also establishes a new oil “ marker “ based on Iranian crude and denominated in Euros, in open rivalry to the existing West Texas, Norway Brent and UAE Dubai markers, all of which are calculated in U.S. dollars. It should be obvious that if the bourse opens as planned that it would reduce considerably, over time, the need for dollars by all the Eurozone and as well as much of the rest of the world. Russia has already moved in this direction.

In order to contemplate the consequences of the opening of the Euro oil market in Iran, it is necessary to look at its origins. However surprising this may be, the man behind the idea is the British financier Chris Cook, former director of the International Petroleum Exchange in London. In 2001 he wrote a letter to the head of the Iranian Central Bank Mohsen Nourbakhsh.

The letter said that the structure of the international oil markets is closely linked to trade brokers, and especially to investment banks, which has a disadvantageous effect on states such as Iran, which are both producers and consumers at the same time. Chris Cook advised Iran to make a decision as soon as possible about creating a Middle East exchange for energy resources, which would set a new standard for oil prices in the Persian Gulf.

And not a word was said about “opposing the Atlanticists.” Ideas for shaking the dollar through unilateral efforts have always fallen apart – Iran, if anyone, should know about that.

We remember how at the end of the 1970s, when the OPEC countries agreed to sell oil for dollars and inflated the selling cost of a barrel, oil prices rocketed up by 400%. France, Germany and Japan suddenly decided to purchase oil in their own currencies and thus lower the pressure from the American currency.

According to the Pravda analysis: In reply the U.S. Treasury and the Pentagon did everything they could to ensure that this did not happen: secret diplomatic treaties, threats and military agreements were taken between the USA and the main OPEC oil producer, Saudi Arabia.

This is what started a new stage in the unlimited power of American financial system. Profit from the export of oil dollars by OPEC countries ended up in the hands of large banks in New York and London and resurfaced in the form of loans to countries experiencing an oil deficit. For example, to Brazil and Argentina, which would later be caught up in the quagmire of the tragic Latin American debt crisis.

On February 14, 2006 Syria switched all of the state's foreign currency transactions to Euros from dollars amid a political confrontation with the United States. The switch would mean Euro pricing for crude oil sales, a major foreign currency earner for Syria.

The latest official figures show Syria imported $6.7 billion goods in 2004 and exported $5.4 billion. Oil output is about 400,000 barrels a day.

Venezuela’s President Hugo Chavez is also trying to get away from the fiat Dollar. He had entered into trade agreements with other South American countries, such as Cuba, to barter services and goods for oil without the use of any currency. Bolivia’s new President Evo Morales has promised to nationalize the country’s oil fields, and has also shown tendencies to shy away from the Dollar. On December 30, 2005 Venezuela's central bank said it plans to approve the use of the Euro to service demand from foreign companies as well as to further distance the country from its dollar dealings.

If all oil producing countries switch to Euro the rest of the world would dump the Dollar causing it to drastically lose its value. To understand the seriousness of this let us look at China alone. China has an excess of $800 billion in its foreign exchange reserves and may increase to $1 trillion soon. China buys most of its oil from Saudi Arabia and trade between the two countries has exceeded $14 billion in late 2005. In 2006 China also entered into government-to-government deals with Saudi Arabia. Iran is also a major supplier. If China alone dumps the Dollar the American economy would suffer greatly. Now imagine what would happen if other countries, such as Japan, India, Pakistan, and Saudi Arabia and all the Organization of Islamic Conference (OIC) countries, would also dump the Dollar.

The IOB in itself cannot break the dollar. The long-term goal of the OIC is to ultimately convert the trading into the Islamic Gold Dinar. This of course would have greater implications if ultimately accomplished. Other countries including Norway are considering a new oil bourse to trade in Euro. The issue of currency selection for oil trading has been around for some years. However, when this issue is combined with the other events and the global alignment of nations, the issue must be considered as to its long-term implications. With over three-fifths of the world’s population within the SCO countries combined with the 200 million within Mercosur plus all the 57 countries of the OIC lining up to create a new nuclear-armed multi-polar world, we should take notice.

Whether the IOB will impact the dollar remains to be determined. The IOB may not open as scheduled and/or the IOB may not attract the trading as the Iranians anticipate. Certainly, the issues surrounding the potential sanctions on Iran may determine the near-term impact. However other factors such as the U.S. balance of trade will compound events on the IOB.

Economic Indicators to Consider

•         The ‘monetarisation’ of the US debt

•         Launch of a monetary policy to support US economic activity.

•         Growth of new economic trading blocks

The first two policies may to be implemented until at least the October 2006 “mid-term” elections, in order to prevent the Republican Party from being sent in reeling. The growth of the trading blocks is ongoing.

The ‘monetarisation’ of the US debt is indeed a very technical term describing a simple reality:  the United States undertakes not to refund their debt, or more exactly to refund it in "monkey currency."  We also anticipate that the process may accelerate in coincidence with the increased sale of oil in Euro and the potential launching of the Iranian Oil Bourse. These events may precipitate the sales of U.S. Treasury Bonds by their non-American holders. A drastic increase in oil price may have a similar impact as it did in 1979.

In 2005, the Federal Reserve abandoned its cheap dollar policy, and tried to defend the greenback against the Euro and Yen through a series of baby-step rate hikes, without puncturing the US stock market rally or the US housing bubble. The Fed achieved its twin objectives, because Asian central banks and Arab oil kingdoms were heavy buyers of U.S. Treasury bonds, keeping U.S. mortgage rates low.

The most notorious Asian buyers of U.S. debt were China and Japan, which recycled hundreds of billions of U.S. dollars acquired through foreign currency intervention back into the U.S. debt markets. All told, Asian central banks hold a whopping $2.75 trillion of foreign exchange reserves, led by Japan’s $851.7 billion, China’s $818.9 billion, Taiwan’s $257.3 billion, and South Korea’s $217 billion.

Beijing is on course to top $1 trillion in FX reserves this year, and wants to diversify this year’s build-up of cash away from the U.S. dollar. Beijing’s satellite colony, Hong Kong, owns another $127.8 billion of foreign currency reserves. Therefore, the U.S. Treasury is afraid to identify China as a currency manipulator, even after the U.S. rang up a $202 billion trade deficit with China, due to fear that Beijing and its satellite could retaliate by selling U.S. bonds, and driving mortgage rates higher.

Compounding the problem of the current U.S. debt of $8.27 trillion are the not included unfunded liabilities of the U.S. government, such as Social Security, Medicaid and Medicare. Including unfunded liabilities, the U.S. government is approximately $46 trillion in the hole.

The fiscal deficit means the U.S. government continually has to issue more and more debt to finance its spending and the issuance of debt means an increase in the supply of U.S. bonds that will ultimately lead to lower bond prices and higher interest rates. This is where the trade deficit and the fiscal deficit meet. Just like the trade deficit implies the dollar will fall, the fiscal deficit will ultimately cause U.S. interest rates to rise.

Recall that China, Japan, and others were buying U.S. Treasury debt (bonds) with their trade dollars instead of selling those dollars into foreign exchange markets. That is what kept the dollar afloat, but it is also what kept U.S. medium to long term interest rates so low since no matter how much more debt the government issued, these nations stood ready to buy it.

On March 16, 2005, we got the biggest number of them all when Congress agreed to a $781bn increase in the debt ceiling to almost $9,000bn, a new record. It was the fourth increase under the Bush Administration and marks a 50 percent jump from the steady $5,950bn of the 1990’s.

Looking at this I realized that we are going to witness an unexpected turn of events. When China and Japan decide to stop buying U.S. Treasuries with their trade surplus dollars, the U.S. dollar exchange rate will fall simultaneous with rising U.S. interest rates. This is not intuitive since common dogma suggests currencies rise when interest rates rise and fall when interest rates fall. Yet I believe that the U.S. dollar is going to fall while U.S. interest rates rise unless the rate increase is very large or that Cabal falls apart.

Anxieties on the Dollar - The Growing Burden of U.S. Financing

The deficit in the U.S. current account, the broadest measure of international trade, set a record $224.9 billion in the fourth quarter, meaning the U.S. needs to attract $2.5 billion daily in foreign capital to keep the dollar steady.

The U.S current account deficit suffered its fastest quarterly deterioration in the final months of last year, ballooning to a record 7 per cent of national income. The worse-than-expected deficit rekindled fears among economists that global imbalances would undermine the dollar. In the fight against terrorism the Department of Homeland Security set different colors to represent the level of the threat—green to red. One may consider applying the color to represent the risk to U.S. resulting from the magnitude of the debt.

For countries providing the status of reserve currency status, such as currently the U.S. is, a 5 percent ratio may be considered as “amber” warning and a 7 percent ratio as a flashing “red stop light.” If the world should decide that the Dollar is no longer the world reserve currency, obviously the U.S. should take heed.

Indeed it is estimated that one-third of this debt is the result of oil imports. There is little indication that this component will drop significantly in the near future and depending on the outcome of Iran nuclear issue may increase significantly. As long as the foreign policy and hence energy policy is to pursue energy interdependence rather that energy independence, the trade gap will continue to grow. See: Give Me Energy Security And I Will Give You A Foreign Policy.

The Role of Net Capital Inflows

Another marker to watch is the ratio of the net capital inflows to the U.S. vs. the trade deficit.  In January the Treasury data showed that $66bn of net capital inflows to the U.S. failed to match the trade deficit of $68bn (itself a record) for the second month. Currency watchers look for inflows to more than cover trade outflows as a reassurance of ongoing demand for U.S. assets. If demand drops, the dollar will drop, perhaps sharply.

In an effort to encourage net capital inflows, the Administration is seeking to reduce barriers to foreign investment. Recent events surrounding the acquiring of U.S. ports indicate the difficulty in utilizing this approach.  These actions result in the sale of basic energy and transportation infrastructure, which in turn may impact our security. The availability of the all this cash has also allowed the acquisition and control of global energy and air and sea transportation assets.

Economists believe that this deficit will become ever larger as the impact of years of net selling of U.S. assets is felt.

Utilizing ‘Open Borders’ to Reduce Trade Imbalance

The Administration is favoring ‘open borders’ supported by companies utilizing undocumented workers to reduce the costs of labor—although many deny this is the case. Business groups acknowledge that some kind of crackdown is inevitable. For years, lax federal and state enforcement of existing laws has given employers virtual carte blanche to hire illegals. This presents the classic case of trying to reduce imports and/or increase exports in a globalized world.

A voluntary program operated by the U.S. Citizenship & Immigration Services (USCIS) known as the Basic Pilot, has garnered little support from business. Only 2,900 of the nation's estimated 7 million employers participate in the program. And the government is ill-prepared to handle more. Of 73,000 employee checks referred to USCIS last year, a third required case officers to investigate further because the agency lacked sufficient data about employees' status.

Increasing Exports and Reducing Imports

Total U.S. exports are 10.5 per cent of GDP. In order to eliminate the deficit, exports would need to increase by 70 per cent. This is clearly not going to happen. Instead it will require big dollar depreciation alongside much weaker domestic demand for imports. It should also be noted that our agricultural exports also depend on importing 50% of urea fertilizer used to grow these crops. Use of ethanol derived from corn also requires the use of imported urea.

Aside from a fall in the dollar, the deficit could be narrowed if U.S. consumers cut back purchasing foreign products and reduce outsourcing to foreign nations in coming years. Another very worthwhile approach would be to promote energy independence rather than interdependence. Such a policy would increase the U.S. security and reduce imports.

The Real Estate Bubble?

Sales of new U.S. homes fell 5% in January to a 1.233 million unit pace, their slowest pace in a year while the number of homes on the market hit a record high, according to a government report on February 27^th that signaled a further cooling in the housing market. The number of new homes available for sale at the end of January rose to a record 528,000. At the current sales pace, that represented 5.2 months' supply, the largest inventory since November 1996. On March 24, 2006, it was reported that sales of new U.S. homes slumped by the most in nine years. Home purchases fell 10.5 percent to an annual rate of 1.08 million, causing prices to fall and leaving more houses on the market, the Commerce Department said in Washington.

On Tuesday, March 21, 2006 the U.S. Census Bureau reported that housing starts were down 7.9 percent from January to February and had declined 4.8 percent from February 2005, indicating less demand for new construction.

On Monday, March 20, 2006 Federal Reserve Chairman Bernanke argued that even an expected decline in the housing sector would not sufficiently hurt consumption to derail the country's solid economic growth.

However according to the BusinessWeek Business Outlook of March 27, 2006, Construction payrolls once again posted a strong gain, producing 41,000 new jobs in February. But now that the housing market has peaked, construction jobs won't be as plentiful heading into the summer building season.

Over the past year the booming housing market translated into big gains in construction payrolls. Building jobs accounted for over 17% of all new jobs in the U.S. despite accounting for only 5.4% of total payroll. But, the National Association of Realtors' March housing forecast projects a 7.7% fall in new home sales this year. Economists also expect February home sales to run below the previous-year pace for the first time in 18 months.

Construction hiring as a share of total job growth, however, varies among the states with the hottest housing markets. The biggest gains in building jobs over the 12 months through January were concentrated in the West, with increases in California, Idaho, Montana, and Nevada all above 22%. Other states that could feel the pinch of fewer jobs in the sector include New Hampshire, Massachusetts, and Missouri, which saw hiring exceed 24% despite 2005 home price gains that were below the 13% national average reported by the Office of Federal Housing Enterprise Oversight.

The Fed’s rate hike campaign failed to slow the US appetite for foreign made goods, as Americans extracted $600bn of home-owners equity to meet their expenditures. Rising interest rates will impact ability to repay loans.

The China Impact

If the wages of U.S. workers were rising at 10 percent per year, you can be sure that the economists would be sounding alarm bells. But, what if Chinese wages are escalating at the rate of 10 percent per year. The U.S. imported $240bn from China in 2005—which exceeds the revenues of the U.S. securities industry. With that large an impact, it wouldn't be a surprise if soaring wages in China translated to higher import prices and faster inflation in the U.S. It appears that in spite the wage increases, the prices have not increased but have actually fallen. It appears that the Chinese want to maintain market share.

However there is a labor shortage in China and the impact will be felt around the world. China no longer seems to have an inexhaustible supply of cheap labor. This is like the other factors mentioned result in a slow process. Productivity gains are getting harder to find, and manufacturers who are seeing their margins hit, they can hold out for only so long before they have to try to raise prices. As the prices increase, the importers will have to adjust. The impact will ultimately influence the inflation in the West and for the U.S. further increase the trade deficit. It is unlikely that the gradual rise in prices will increase U.S. exports since so much of the basic manufacturing has been transferred offshore. China will still be the world's workshop.

Changing the exchange rate will not significantly impact the balance of trade with China. The Yuan at 8.027 to $1 is already valued at twice the purchasing-power-parity gap of 4 between it and the dollar within their respective economies. Wage disparity between China and the US ranges from 20 to 50 times in various sectors, and an exchange rate that reflected such a wide disparity would border on the ridiculous.

Potential Conflict With Iran

Iran holds some significant geo-strategic assets in the current crisis, such as its ability to intervene easily and with a major impact on the oil provisioning of Asia and Europe (by blocking the Strait of Hormuz), on the conflicts in progress in Iraq and Afghanistan, not to mention the possible recourse to international terrorism. But besides these aspects, the growing distrust towards Washington creates a particularly problematic situation. Far from calming both Asian and European fears concerning the accession of Iran to the statute of nuclear power, a military intervention against Iran would result in an quasi-immediate dissociation of the European public opinions which, in a context where Washington has lost its credibility in handling properly this type of case since the invasion of Iraq, will prevent the European governments from making any thing else than follow their public opinions. In parallel, the rising cost of oil which would follow such an intervention will lead Asian countries, China first and foremost, to oppose this option, thus forcing the United States (or Israel) to intervene on their own, without UN guarantee, therefore adding a severe military and diplomatic crisis to the economic and financial crisis. Such a conflict would increase the potential for a currency crisis.

The China Issue

As a military power, the United States of America is without peer; for a foreign government to launch an attack on the U.S. would be suicide. But war is seldom initiated by direct military conflict—especially for the Chinese. Their most famous general, Sun Tsu, wrote in The Art of War: “In antiquity, those that excelled in warfare first made themselves unconquerable in order to await the moment when the enemy could be conquered.”

In the last decade, Beijing has made a concerted effort—a highly successful one at that—to control shipping lanes around the world. A Chinese company controls the entrance and exit points of the Panama Canal. China controls the Seagate at Freeport, Bahamas. A Chinese firm is financing the building of a Pakistani port at Gwadar. From Europe to Latin America, from California to Hong Kong, the Chinese have aggressively moved to buy controlling interests in the world’s major seaport facilities.

As Sun Tsu said:

“Whoever occupies the battleground first and awaits the enemy will be at ease; whoever occupies the battleground afterward and must race to the conflict will be fatigued. Thus one who excels at warfare compels men and is not compelled by other men.”

Washington is doing little to prevent the Chinese from achieving a major, bloodless victory in this strategic arena.

On March 16, 2006, the Pentagon began moving strategic bombers to Guam and aircraft carriers and submarines to the Pacific as part of a new "hedge" strategy aimed at preparing for conflict with China.

China's arms buildup in recent years altered the U.S. "strategic calculus" for defending Taiwan from a mainland attack and shows that "a prudent hedging policy is essential."

The placement of about 700 Chinese missiles opposite Taiwan has changed the status quo between the non-communist island and the communist mainland.

Ideology Trumps Economics and Military Strength

A full challenge to the domination of the dollar as world central bank reserve currency entails a de facto declaration of war on the ‘full spectrum dominance’ of the United States today. The members of the European Central Bank Council well know this. The heads of state of every EU country know that. The Chinese leadership as well as Japanese and Indian know that. So does Vladimir Putin.

Until some combination of those powers congeals in a cohesive challenge to the unbridled domination of the U.S. as sole superpower, there will be no Euro or Yen or even Chinese Yuan challenging the role of the dollar. The issue is of enormous importance, as it is vital to understand the true dynamics bringing the world to the economic conditions of today.

In the world today, we are not facing a clash of civilizations or a clash of cultures but we are facing a clash of ideologies. Islam is more than just another religion—it is a way of life. Muhammad set out to establish the Islamic kingdom of God on earth. This sets the stage for the clash of ideologies. Islam is therefore, like no other religion a political religion vs. an apolitical religion. The riots following the ‘cartoon’ events have established the willingness of Muslims of multiple sects coming together against a common cause. The Islamist goal is world domination and the desire to bring all non-believers into submission and hence to become dhimmi.

The goal of a nuclear-armed Cabal is just such a grouping, bringing together the Islamic countries with the Leftist/Marxist countries to reestablish a bipolar world. The Islamists bring the passion and ideology they are willing to die for and Leftists/Marxists bring the manpower, market, political and public opinion access in the Western countries. Jointly they bring control of the world energy, financial and transportation infrastructure. The U.S. and Western European foreign, domestic and energy policies have allowed the massive accumulation of the foreign debt and funds that allowed the Cabal to pay for and hence acquire the control of global the energy, transportation and manufacturing infrastructure. The control of the infrastructure is necessary to ultimately defend the security of the West.

The SCO brings together China, Russia, Kazakhstan, Tajikistan and Kyrgyzstan along with Iran, India and Pakistan as observers. The SCO is essentially a ‘Warsaw Pact’ grouping with the goal of building military strength capable of countering NATO. Combining the other members of the Cabal, the OIC and Mercosur, they have jointly initiated a de facto declaration of war on the ‘full spectrum dominance’ of the United States today.

This is not to say that the Cabal will succeed to accomplishing their goal. The issue at hand is whether the U.S. is willing to accept the economic sacrifices and to defend the hegemony of the U.S. with war if necessary. Many will say it is not worth fighting for and some will initiate demonstrations and marches in the Western world capitals. 

On an optimistic note, the Cabal is indeed an alliance of unusual participants. The Leftists and liberals may realize that they are not willing to live as dhimmi and to submit to the restrictions of Shariah law. Similarly the Islamist may realize that they cannot tolerate the liberal life style. Dubai is a case in point. The UAE is a member of the OIC and the Arab League. On March 1, 2006 the Bush administration said it is pressing the United Arab Emirates to drop its economic boycott of Israel. Can Dubai continue indefinitely to serve two masters—subservient to Shariah law on the one hand and mammon on the other? Can an Islamic country have tolerance of drinking, prostitution and bare midriffs in a region otherwise more obedient to Islam’s strictures and not ultimately succumb.

This reveals a certain schizophrenic character to Dubai as a microcosm of the Cabal. But in Dubai the cracks are beginning to appear. But the concerns of the local Emirati population have remained barely audible. Many of the well-to-do are happy to wander among the many worlds on their doorstep. But others worry that their privileged place in a Dubai society that provides jobs, homes and welfare for life will eventually dissolve in the melting pot around them.

This is the country that the U.S. is selling 80 F16 e/f combat aircrafts from the United States at a cost of some $6.4 billion. One has to ask is this part of the plan to ‘outsource’ America’s security as a part of the Bush Administration plan to create a New World Order? Emirates Airlines, one of UAE`s national carriers, has placed an order with Boeing for $20 billion. It should be noted that the airliner purchases are utilizing Sukuk (Shariah compliant financing) bonds.  Is the U.S. looking at the Dollar rather than potential for the UAE to eventually succumb to Islamist dogmas? America’s Homeland Security Director, Michael Chertoff said, “We have to balance the paramount urgency of security against the fact that we still want to have a robust global trading system.” Chertoff defended the security review of Dubai Ports World of the United Arab Emirates in granting them permission to take over the port operations.

When addressing a clientele outside the region, the Dubai’s image launderers like to promote the idea that it has outgrown its turbulent neighborhood and now lies somewhere beyond. Thus Dubai has doubled up as a Costa del Sol for the British package holidaymaker, a seven-star destination for the super-rich global jet set and a parachute for Iranians and Saudis hedging against future turmoil in their own countries.

On a pessimistic note. A country does not maintain reserve currency status by the democratic vote of the world central banks, they fight wars for it as the British Empire did in the 19^th century and in some cases endure financial sacrifices as occurred in 1979 following the rise to power in 1979 of Ayatollah Khomeini in Iran when the rise in oil prices again in 6 years shot through the roof.  In October 1979 Paul Volcker gave the dollar another turbo-charge by allowing interest rates in the U.S. to rise some 300% in weeks, to well over 20%. That in turn forced global interest rates through the roof, triggered a global recession, mass unemployment and misery. It also ‘saved’ the dollar as sole reserve currency.

Conclusion

The long-term goal of the Leftist/Marxist – Islamist Alliance is world domination. The control of the economic, political, energy and transportation infrastructure is a key element in accomplishing this goal. The replacement of the Dollar as the reserve currency is a critical element.

Economics and energy policy must be a part of the U.S. foreign policy going forward. Military strength is necessary and will contribute to but will not be sufficient for the future security of the U.S. and the West. Domestic policy is linked to our security. Fighting terrorism, spreading democracy and attention to the Middle East are important but the economic and energy issues must be addressed domestically and worldwide and this also means in Latin America. Europe recognized the importance of energy security and is doing something about it. The U.S. needs to do likewise.

Recognizing the importance of energy to security, on Tuesday, on March 21, 2006 European Union president challenged the 25-nation bloc's leaders to lay the foundations for a new era of cooperation on energy policy at an economic summit this week. Austrian Chancellor Wolfgang Schuessel urged the bloc to develop a policy, which ensured security of supply, environmental sustainability and the conditions for a competitive energy market. Energy security has shot up the list of world leaders' priorities following the gas disruptions in Europe, soaring oil prices, attacks on oil installations in Nigeria and tensions over Iran's nuclear ambitions.

The European Commission proposed this month that the bloc should adopt a common external energy policy, new rules for storing gas and oil and action to boost energy efficiency.

David J. Jonsson is the author of Clash of Ideologies —The Making of the Christian and Islamic Worlds, Xulon Press 2005. His next book: Islamic Economics and the Final Jihad: The Muslim Brotherhood to the Leftist/Marxist - Islamist Alliance will we released in spring 2006. He received his undergraduate and graduate degrees in physics. He worked for major corporations in the United States and Japan and with multilateral agencies that brought him to more that fifteen countries with significant or majority populations who are Muslim. These exposures provided insight into the basic tenants of Islam as a political, economic and religious system. He became proficient in Islamic law (Shariah) through contract negotiation and personal encounter. David can be reached at: djonsson2000@yahoo.co.uk