War to Keep the Dollar Floating

The announcement last week by the United States of the largest military aid package in its history – to Israel – was a win for both sides.Israeli prime minister Benjamin Netanyahu could boast that his lobbying had boosted aid from $3.1 billion a year to $3.8bn – a 22 per cent increase – for a decade starting in 2019. Mr Netanyahu has presented this as a rebuff to those who accuse him of jeopardising Israeli security interests with his government’s repeated affronts to the White House. In the past weeks alone, defence minister Avigdor Lieberman has compared last year’s nuclear deal between Washington and Iran with the 1938 Munich pact, which bolstered Hitler; and Mr Netanyahu has implied that US opposition to settlement expansion is the same as support for the “ethnic cleansing” of Jews. American president Barack Obama, meanwhile, hopes to stifle his own critics who insinuate that he is anti-Israel. The deal should serve as a fillip too for Hillary Clinton, the Democratic party’s candidate to succeed Mr Obama in November’s election. In reality, however, the Obama administration has quietly punished Mr Netanyahu for his misbehaviour. Israeli expectations of a $4.5bn-a-year deal were whittled down after Mr Netanyahu stalled negotiations last year as he sought to recruit Congress to his battle against the Iran deal. In fact, Israel already receives roughly $3.8bn – if Congress’s assistance on developing missile defence programmes is factored in. Notably, Israel has been forced to promise not to approach Congress for extra funds. The deal takes into account neither inflation nor the dollar’s depreciation against the shekel. A bigger blow still is the White House’s demand to phase out a special exemption that allowed Israel to spend nearly 40 per cent of aid locally on weapon and fuel purchases. Israel will soon have to buy all its armaments from the US, ending what amounted to a subsidy to its own arms industry. Nonetheless, Washington’s renewed military largesse – in the face of almost continual insults – inevitably fuels claims that the Israeli tail is wagging the US dog. Even The New York Times has described the aid package as “too big”. Since the 1973 war, Israel has received at least $100bn in military aid, with more assistance hidden from view. Back in the 1970s, Washington paid half of Israel’s military budget. Today it still foots a fifth of the bill, despite Israel’s economic success. But the US expects a return on its massive investment. As the late Israeli politician-general Ariel Sharon once observed, ­Israel has been a US “aircraft carrier” in the Middle East, acting as the regional bully and carrying out operations that benefit Washington. Almost no one blames the US for Israeli attacks that wiped out Iraq’s and Syria’s nuclear programmes. A nuclear-armed Iraq or Syria would have deterred later US-backed moves at regime overthrow, as well as countering the strategic advantage Israel derives from its own nuclear arsenal. In addition, Israel’s US-sponsored military prowess is a triple boon to the US weapons industry, the country’s most powerful lobby. Public funds are siphoned off to let Israel buy goodies from American arms makers. That, in turn, serves as a shop window for other customers and spurs an endless and lucrative game of catch-up in the rest of the Middle East. The first F-35 fighter jets to arrive in Israel in December – their various components produced in 46 US states – will increase the clamour for the cutting-edge warplane. Israel is also a “front-line laboratory”, as former Israeli army negotiator Eival Gilady admitted at the weekend, that develops and field-tests new technology Washington can later use itself. The US is planning to buy back the missile interception system Iron Dome – which neutralises battlefield threats of retaliation – it largely paid for. Israel works closely too with the US in developing cyber­warfare, such as the Stuxnet worm that damaged Iran’s civilian nuclear programme. But the clearest message from Israel’s new aid package is one delivered to the Palestinians: Washington sees no pressing strategic interest in ending the occupation. It stood up to Mr Netanyahu over the Iran deal but will not risk a damaging clash over Palestinian statehood. Some believe that Mr Obama signed the aid package to win the credibility necessary to overcome his domestic Israel lobby and pull a rabbit from the hat: an initiative, unveiled shortly before he leaves office, that corners Mr Netanyahu into making peace. Hopes have been raised by an expected meeting at the United Nations in New York on Wednesday. But their first talks in 10 months are planned only to demonstrate unity to confound critics of the aid deal. If Mr Obama really wanted to pressure Mr Netanyahu, he would have used the aid agreement as leverage. Now Mr Netanyahu need not fear US financial retaliation, even as he intensifies effective annexation of the West Bank. Mr Netanyahu has drawn the right lesson from the aid deal – he can act against the Palestinians with continuing US impunity. - See more at: http://www.jonathan-cook.net/2016-09-19/palestinians-lose-in-us-military-aid-deal-with-israel/#sthash.fL4Eq28N.dpuf The War for the Dollar By David Hungerford October 14, 2016 "Information Clearing House" - The presidential campaign of 2016 is the most divisive in living memory. The spectacle is riveting. People all over the world tune into it as if it were their own election. Well they might.  The campaign is different because it is driven by a deep and bitter divide among the capitalist class: whether to risk war with Russia, or not. There is also a real danger of war with China. Not since 1860 has a presidential election been affected by a basic divide among the propertied classes. There is a War Party that is tremendously strong. Its candidate is Hillary Clinton. Wall Street and Big Oil are among its constituents. The New York Times runs one Clinton campaign piece after another in the guise of “news articles.” The rest of the mainstream media do the same.  Speaking to the American Legion on August 31 in Cincinnati, Hillary Clinton said, “As President, I will make it clear that the United States will treat cyberattacks just like any other attack. We will be ready with serious political, economic, and military responses . . . You’ve read reports. Russia’s hacked into a lot of things, China has hacked into a lot of things.” (1) But there is no evidence against Russia or China. What Hillary Clinton says is that she will militarily go after whomever she wants based on nothing other than her say-so. The mainstream media gave no coverage to her recklessly provocative remarks. Donald Trump, for his part, told the “Commander in Chief” forum that, “I think I would have a very, very good relationship with Putin, and I think I would have a very, very good relationship with Russia.” (2) He speaks for a faction of the capitalist class that sees the risk of war with Russia and China as just too dangerous. Both candidates speak for opposed factions of the ruling class. In no way can these statements be treated as “personal opinions.”  Why is the War Party bent on a hideously dangerous course? The political reasons are easy to see. After the dismemberment of the Soviet Union in 1991 the United States emerged as an unrivaled “superpower.” But now, the key element of U.S. dominance in the Middle East and the Persian Gulf is slipping. The decline of U.S. power in the Middle East is primarily due to the long, dogged resistance of the peoples. Added to that, Russia’s part in resisting regime change in Syria is taken by U.S. imperialism as an acute challenge. Russia also has close relations with Iran. Threats against Russia and China but won’t change that. So far the U.S. has worked things out with Germany. It works things out with Japan. Why not work things out with Russia and China? It is because other things are at work. There are economic developments that contribute to the growth of tensions. They are not always so easy to see. The care and feeding of the Almighty Buck, the United States dollar itself, is of foremost and fundamental importance. For decades the U.S. dollar has been unrivaled as the world’s main reserve currency. U.S. financial institutions swing enormous power and profits from it.  This is capitalistic stuff par excellence. Most of us aren’t capitalists. Hence the issue is not obvious to us. Let’s have a closer look. Countries keep foreign currencies in reserve for use in international trade. By far the largest reserves are in U.S. dollars. There are a number of reasons. Some countries have large trade surpluses with the United States. If they exchange the dollars for their own currency their goods will become more expensive in the United States Instead they keep the money in reserve. Or, they can use their dollars on international markets. Dollars can always be used to buy oil, for instance. It may be advantageous in multilateral trade involving more than two countries to use dollars rather than the countries’ own currencies.  At the end of 2014 the US dollar comprised 63.1% of world foreign reserves. The euro was a distant second at 22.1%. (3) At the end of 2015 world reserves stood at around $13.1 trillion in dollar equivalents. China and Japan held $3.3 trillion and $1.26, respectively. The Euro Zone came in at $761.7 billion. In 2014 the U.S. trade deficit came in at $760 billion. U.S. trade deficits have been the case since the 1970s. What is supposed to happen is goods imported to the U.S. become more expensive, U.S. goods sold abroad get cheaper, and trade comes back into balance. But it doesn’t happen that way! It isn’t just a matter of how the United States can manage such a thing. It is a question of how it can be handled on all sides. It’s mainly possible because other countries hang on to upwards of $8 trillion in reserves, of which over $6 trillion is in U.S. Treasury bills. (4) One advantage to the United States is that we can go on buying huge amounts of goods from other countries without the prices rising. But if import prices rose we’d make more stuff here. There would be more jobs, employers would make more money. Why don’t we do that? A big part of the answer is that the dollar’s unchallenged status as a reserve currency enables the big banks and financial companies to make much a great deal more money than they otherwise could.  International trade must be brokered, i.e., managed with the help of financial intermediaries. Brokerage is commonly needed in domestic commerce, and is a necessity for international trade. Suppose Alice in Iowa contracts with Bob in Paris to buy 1000 boxes of French chocolates for $10,000 American. She sends a check. Bob takes the check to the bank and cashes it for the equivalent in French francs. No problem. But: Bob never sends the chocolates. Paris is a long way to go for Alice. She doesn’t speak the language. She must find an attorney. Repayment of her money will take a long time and little will be left after expenses. She’s stuck. Sam knows the pitfalls of foreign trade. He makes the same deal with Bob. Before he sends any money, he goes to the local branch of Citigroup and pays the bank to post a performance bond on the deal. If Bob doesn’t send the chocolates, the bank reimburses Sam. Bob is now messing with Citigroup. He’s toast. The next time, if there is a next time, he sends the chocolates. Sellers can also purchase performance bonds or other financial instruments to secure their interests. As well, brokerages offer many other services. They are absolutely necessary to the world market. Bank of America describes its services as follows: “Leverage our comprehensive platform to connect with institutions or individuals in more than 140 currencies and 200 countries while increasing your speed, efficiency and visibility. With our on-the-ground presence in 44 countries, direct membership in multiple clearing systems around the world, and a multi-year commitment to expanding our banking platform, we are uniquely positioned to enable local access and direct connectivity wherever you do business. In addition, we offer leading-edge solutions to help you collect, process, apply and report on your global receivables and migrate from paper to electronic processing with guidance at every step.” (5) Citigroup describes its operations similarly, and adds: “Citi Transaction Services is the trusted custodian of over U.S. $12.8 trillion in assets, resulting from our full range of world-class domestic and global custody services.” (6) Profits of .1% against total assets under management would come to $12.8 billion. Not bad. The other U.S. bank holding companies of similar in size are Wells Fargo and JP Morgan Chase. All four offer the same services for international trade. International trade and brokerage are glued together by financial electronic messaging networks. The largest is the Society for Worldwide Interbank Financial Telecommunications system, or SWIFT. It was started in 1974. Previous communication systems were slow, insecure, and subject to human error. SWIFT assigns each bank or other institution with a unique eight-character identification code to ensure accuracy. Message encryption and authentication are offered. Financial messaging networks handle not only bank, but also securities and treasury transactions. SWIFT transmits payments, transfers, and instructions to nearly 10,000 institutions around the world. Volume is around 24,000,000 messages per day. Total world export trade has increased by more than 45 times in constant prices since 1974. (7) That degree of growth would not have been possible without the networks. At times, however, it appears that the messaging networks are not so secure. It is by means of surveillance of messaging networks that the U.S. government, the hitman and enforcer of the big banks, can unilaterally impose sanctions on whatever country or individual that it sweet pleases. In 2015 the French bank BNP Paribas, the fourth largest bank in the world, was penalized $9 billion by action brought against it in the U.S. District Court of the Southern District of New York, the court having jurisdiction over Wall Street. A Reuters report said, “Prosecutors said BNP also evaded sanctions against entities in Iran and Cuba, in part by stripping information from wire transfers so they could pass through the U.S. system without raising red flags.” (8) Oh. That’s interesting. The messaging networks are supposed to be secure. How did the U.S. Department of Justice find that out? Is the financial integrity of the networks compromised? Do the institutions served by the network know the U.S. Department of Justice surveils their messages? Maybe BNP did not. That’s only the start. BNP was convicted of “conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) by processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian and Cuban entities subject to U.S. economic sanctions.” (9) These are United States laws. BNP broke no French laws. (During WW II U.S. corporations flouted the TWEA at will. New Jersey Standard Oil, IBM, Ford, and GM and many others traded with the Nazis all during the war.) The prosecution accused BNP of “falsifying” transactions with Iran and Cuba. How could BNP “falsify” business that was legal in France? And if it concealed its business from U.S. scrutiny, so what, the U.S. has no legitimate interest in the matter. Nonetheless BNP was forced to eat humble pie and play along with the farce. Not even France, a NATO “ally” of the United States and the sixth largest country in the world economically, was immune to this shocking violation of its sovereignty. Even worse, the so-called “violations” involved transactions with Cuba, Iran and Sudan. The harm done the first two countries by U.S. imperialism need not be repeated here. Sudan has been wracked for decades by civil and ethnic conflicts. Millions have died or been displaced Sudan is rich in oil, natural gas, copper and uranium ores. The United States has long been deeply entangled in the carnage. Sara Flounders wrote in 2006 that: “U.S. policy revolves around shutting down the export of oil through sanctions and inflaming national and regional antagonisms. For over two decades U.S. imperialism supported a separatist movement in the south of Sudan, where oil was originally found. This long civil war drained the central government’s resources. When a peace agreement was finally negotiated, U.S. attention immediately switched to Darfur in western Sudan.” (10) Even so, the Justice Department charged BNP with harming people in Sudan by doing business that U.S. imperialism does not like. The hypocrisy and lawbreaking are breathtaking.  The interlock of U.S. brokerages and messaging networks allows the United States to impose sanctions worldwide, unilaterally, and in specificity.  The Department of the Treasury maintains a Specially Designated Nationals (SDN) list. It is “a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.” (11) The SDNs have their assets blocked, and “U.S. persons are generally prohibited from dealing with them.” There are so many SDN entries that Treasury maintains a search tool on them that uses “fuzzy logic” to match inexact search terms. A list of SDNs in Russia and Ukraine was published on Sep. 1, 2016. It included 17 individuals including Eduard Basurin, Defense Minister of the Donetsk People’s Republic, an insurgent region that rebelled against the fascist regime in Ukraine imposed by the United States in 2014. The list also includes an engineering company in St. Petersburg, shipyards, the Salvation Committee of Ukraine, which calls for elections to replace the U.S.-installed government, and many other entities. It would be cumbersome have to enforce so many sanctions, but the treatment of BNP stands as a warning.  Opposition is rising, however. In 2015 the United States imposed penalties on Volkswagen for violations of emissions requirements. The scandal was a great setback to the manufacturer. The settlement may cost Volkswagen more than $13 billion. The European Union—read Germany—then imposed a $14.5 fine on Apple for taxes not paid in Ireland. Going back to the mortgage bubble in the U.S. that burst in 2006, the U.S. Justice department is now seeking penalties as high as $14 billion against Deutsche Bank for its practices in the bubble. Political consequences are part of the picture, as Germany has become increasingly critical of cold war-style U.S. actions against Russia. Also, China’s rise poses an emergent challenge to dollar dominance. In January of this year China launched a new international development bank called the Asian Infrastructure Investment Bank (AIIB) at a ceremony led by Chinese President Xi Jinping. It would fund projects like roads, hydropower and urban development. It is expected to lend $10 billion-$15 billion a year for the first five or six years. While loans at first would be made in U.S. dollars, the bank may raise capital in other currencies including the euro and yuan. China has stated that it opposes a global financial order that it says is dominated by the United States and does not adequately represent developing nations. Its success would be as much a political as an economic achievement, a sign that U.S. financial domination of the world is coming to an end. The new bank is generally recognized as a challenge to U.S.-dominated International Monetary Fund (IMF) and World Bank (WB.) U.S. allies including Australia, Britain, German, Italy, the Philippines and South Korea have agreed to join. So far thirty founding countries have ratified the AIIB agreement. Other countries have until the end of the year to join. U.S. imperialism is not sitting by. In June of this year, the United States sent a carrier task force into the South China Sea in defiance of China’s claims to sovereignty in those waters. Admiral John Richardson, U.S. Chief of Naval Operations, was aboard the carrier John C. Stennis. (12) Richardson told the media that the task force was surrounded by Chinese naval vessels, some passing by on regular business but others specifically shadowing the US task force. He said “there were dozens of encounters” between the two fleets that were “by and large, performed according to a ruleset that had been established” between US and China called the Code for Unplanned Encounters at Sea (CUES). That the CNO was on hand shows that Washington well understood the challenge it was giving to China. At about the same time an international tribunal in The Hague was convened on charges brought against China concerning the South China Sea. Issues included China’s construction of artificial islands, and claims to sovereignty in the sea. China’s construction of a large artificial island on an atoll known as Mischief Reef was cited. China built a military airstrip, naval berths and sports fields on the island. On July 12 the tribunal found that China’s claims of historic rights over most of the South China Sea and sovereignty over the region had no legal basis. The decision is considered legally binding but there is no mechanism for enforcing it. China did not bow down. It had refused to participate in the tribunal, and it said it would not abide by the decision. The economic prospects of loss of empire added to the political ones explain the full scope of the rise in tensions with Russia and China. The War Party arises, driven mad. Another faction of the capitalist ruling class reacts, seeing a retrenchment to America First as preferable to war with Russia and China. The latter are right, but the crazed don’t care. The issue invades the presidential election. Even if the America Firsters win, there is no guarantee the War Party will concede anything; and vice-versa. We must be prepared for anything. David Hungerford is a political activist who lives in New Jersey. His concerns include civil and human rights, problems of war and peace, and political economy. NOTES 1. http://www.ibtimes.co.uk/clinton-us-should-use-military-response-fight-cyberattacks-russia-china-1579187 2. http://www.ibtimes.co.uk/putin-better-leader-obama-says-trump-while-clinton-defends-her-emails-1580259 3. https://en.wikipedia.org/wiki/Reserve_currency#Global_currency_reserves 4. https://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves 5. http://baml.bankofamerica.com/gtscapabilities/#capabilities_solutions 6. https://www.citibank.com/mss/products/investor_svcs/globalcustody/ 7. https://ourworldindata.org/international-trade#the-value-of-global-exports-has-grown-constantly-over-2-centuries 8. http://www.reuters.com/article/us-bnp-paribas-settlement-sentencing-idUSKBN0NM41K20150501 9. https://www.justice.gov/opa/pr/bnp-paribas-sentenced-conspiring-violate-international-emergency-economic-powers-act-and 10. http://www.workers.org/2006/world/darfur-0608/ 11. https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20160901.aspx 12. http://breakingdefense.com/2016/09/weve-got-to-continue-to-engage-cno-richardson-on-china/  http://www.informationclearinghouse.info/article45677.htm