Editorial Comment

	Vol. 227 No. 2
PERRY A. FISCHER, EDITOR

The plot thickens. It reads like a cheap dime-store mystery novel, you know, the ones that start out:

There was a blood – stained women’s nightgown on the floor of the conservatory; a piece of duct tape with lipstick and a few strands of blond hair on it, stuck to a nightshade plant in the garden; a shovel with some still-wet dirt on it was standing in the corner of the foyer; a bottle of drain cleaner and three ticket stubs to Phantom of the Opera were on the kitchen table. And a jar of petroleum jelly propped open the cellar door. And then Chapter 1 abruptly ends.

You hope that in Chapter 2, all of these disparate, but nonetheless intriguing, events somehow come together. But mostly, you wonder, “How does the petroleum jelly tie in?”

Although mostly ignored by the mainstream media, in the real world, there’s an odd collection of events brewing that, taken together, are as intriguing as any cheap mystery novel. The Internet press, and a legion of blog zombies and conspiracy theorists, have been having a wonderful time with it. Not since the gathering in Europe in the year 1000, to witness the end of the world, have so many been convinced that the end of the present form of the oil world and the demise of the US economy, as we know it, is at hand.

So, with that in mind, here are the elements of today’s mystery:

In 1971, the US discontinues gold-exchanged money.

The UN imposes sanctions against Iraq in 1990, and again in 2002, at the urging of the US.

In November 2000, Iraq switches oil sales and its $10-billion UN account to euros. The US subsequently slips into a recession, the euro’s fall versus the dollar is halted, and the euro bull market begins. The US begins a prolonged saber-rattling campaign against Iraq.

The US, together with the UK, invades Iraq in March 2003. Within two months after declaring victory over Saddam’s army, the US switches Iraqi oil sales back to the dollar.

In June 2004, Iran announced its intention to establish a major oil-trading market, the Iran Oil Bourse, to be dominated by euros.

The US increases its saber rattling against Iran, saying it must not even think about possessing a nuclear weapon.

The US Federal Reserve Board (a.k.a., the Fed) announced last November that it will abandon publishing the M3 money supply.

Last month, British Prime Minister Tony Blair called for Iran to be referred to the UN Security Council over its resumption of nuclear research. Also, China said that it would begin to diversify its foreign exchange reserves – a massive $800 billion – away from the dollar, which means that they view the future of the dollar as weak.

Recall that the US is running enormous, record annual budget deficits, as well as record cumulative debt. Also realize that the US, indeed the world, has abandoned any hard standard for currency in favor of what was already the de facto case, namely oil and, of course, faith.

In a remarkably terse, explanation-free statement, the Fed announced that, as of March 2006 (the same month that Iran will open its Oil Bourse), it will stop publishing M3. M3 consists of another money supply indicator, M2, which will still be published, but gone will be large overnight and term repurchase agreements and similar transactions in euros held by US residents.

Eventually, after some clamor, the Fed offered an explanation: “The costs of collecting the data now appear to outweigh the benefits.” That excuse is worthy of induction into The Hall of Lame. It’s like a billionaire saying that he’s decided to drink his tea black because of the cost of cream and sugar. Not many folks can fathom the US central bank worrying about the cost of collecting data and issuing a weekly report. It’s a lot rubbish to swallow without chasing it with at least 8 ounces of single malt. Do you see how these conspiracy theories get started?

It’s true that M3 is not the most renowned indicator, now that another indicator, M2 has gained favor, but it’s hardly worthless, or expensive to obtain. Also, over time, the three money-supply indicators, M1, M2 and M3 have ebbed and flowed in prominence. Perhaps M3 would have seen better days in a future spotlight, but not now.

The key questions become: “Doesn’t this make it easier to simply create money in secret, to buy dollars in secret, to prop up its value against, say, the euro, so that it would not lose the faith? Is the Oil Bourse a real threat, an unspoken reason for the saber-rattling? Will the US ask Israel to bomb Iran, as a pretext for war? Are China, Russia and Europe really giving the Oil Bourse “serious consideration?” Since the dollar now enjoys universal support in oil transactions, is it possible that US leaders are just shrugging their shoulders, saying, “So what, who cares?”

Is the saber-rattling toward Iran sincerely about uranium enrichment? I’ve always been perplexed at the rules the West dictates to the world. Somehow, it’s perfectly alright for Israel to have a stockpile of nuclear weapons – well, not officially, but let’s be real – and to not even be expected to sign the Non-Proliferation Treaty. But if Iran or any Middle Eastern country even thinks about a uranium-enrichment program, which is permitted under the treaty, it should be sanctioned and, if need be, bombed.

How many Americans would be OK with a doctrine, demanded by some foreign government, that Canada or Cuba can have as many nuclear weapons as they want, but the US can have none? After seeing how much respect North Korea got, what self-respecting citizen of any Middle Eastern country would not want nuclear parity with Israel? Some things are just too simple to understand.

The bloggers and Internet press are aghast. As one writer put it, “A renunciation of the dollar is worse than an Iranian nuclear attack.” Another said, “A move away from the dollar towards the euro could have a disastrous effect on the US economy, as it would no longer be able to spend beyond its means.”

I’m not enough of an economist to know whether these disparate facts are truly related – they don’t call economics the “dismal science” for nothing. But I can’t wait to see how all this works out in Chapter 2.