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Running on Empty, Part IV

Running on Empty, Part IV

How the War between Russia and Ukraine is Destroying the Petrodollar System

Welcome to Part IV of Running on Empty, my four-part analysis of the Petrodollar system.

Part I of this series explained that the US dollar is the world’s first reserve currency that is not backed by precious metals. Instead it is backed by other people’s oil. Because of a secret treaty between the US and Saudi Arabia, petroleum can only be purchased with dollars. Every country needs oil, so everyone country needs dollars and sells imports to the US to get them. Demand for dollars has made the USD the primary American export, allowing the US to deindustrialize and financialize its economy.

Part II explained how the petrodollar has grossly enriched American asset holders (stocks, bonds, and real estate) and painfully impoverished American wage earners. Under the petrodollar system, dollars are created by private banks for profit. These dollars are recycled into the economy by OPEC nations, causing stocks, bonds, and real estate to rise. This profitable exchange is enforced by American military might, which punishes any country that seeks to exit the petrodollar system.

Part III explained that for the petrodollar system to function, America needs to be able to project power worldwide to secure international trade and enforce the system. America secures global commerce and projects military power by commanding the World Ocean, by which 90% of all goods are trafficked. To overcome America’s naval supremacy, both Russia and China have sought to establish control of the World Island, the Eurasian supercontinent that houses most of the world’s population and resources. The Russo-Ukraine War is a proxy war between the uncontested master of the World Ocean (America) and the would-be masters of the World Island (China and Russa).

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Running on Empty, Part III

Running on Empty, Part III

The Implications of the Petrodollar System for America and World Geostrategy

Welcome to Part III of Running on Empty, my three-part analysis of the Petrodollar system. Part I of this series explained what the petrodollar system is, how it came to be, and what its financial effects have been on the United States. Part II explained the petrodollar’s implications for foreign policy in the Middle East. If you haven’t read those yet, check them out!

In Part III, below, we look at how those implications scale to at the geostrategic level. In Part IV, we’ll discuss how the sanctions brought about by the Russo-Ukraine War might cause the petrodollar system to break down. (I’d hoped to wrap up the series in three parts, but due to length, I had to break it up.)

Ruler of the World Ocean

Many of history’s leading nations — and all of its commercial empires — have been thalassocracies. For the last 207 years, the globe has been dominated by maritime powers. The United Kingdom began the trend in 1815. Emerging as the winner of the Napoleonic Wars, the UK established the so-called Pax Britannica and enforced it with the world’s greatest navy. While Britannia ruled the waves, the sun never set on her flag. Germany tried twice to unseat Britain at sea, and failed both times. Japan tried to turn the Pacific into its own thalassocracy in the form of the “Greater East Asian Co-Prosperity Sphere,” but suffered defeat at the hands of the UK and the US. Since 1945, the UK has gradually ceded control of the oceans to the US. America rules the waves today. The World Ocean is mare nostrum, our pond.

…click on the above link to read the rest of the article…

Running on Empty, Part II

Running on Empty, Part II

How the Petrodollar Poisoned Foreign Policy with Financial Profiteering

Welcome to Part II of Running on Empty, my three-part analysis of the Petrodollar system. Part I of this series explained what the petrodollar system is, how it came to be, and what its financial effects have been on the United States. In Part II, I’ll explain the petrodollar’s implications for foreign policy. In Part III, I’ll show how those implications paved the way for the Russo-Ukraine War, and why that’s causing the system to break down.

America’s Chief Export is the US Dollar

As explained in the previous installment, the petrodollar system is based on an agreement between the US and Saudi Arabia. Under the terms of the deal, the US guarantees the security of Saudi Arabia and in exchange, Saudi Arabia guarantees that all petroleum is sold by OPEC for US dollars, with the US dollars re-invested into America via petrodollar recycling. The result: Since everyone needs petroleum, everyone needs US dollars. Oil replaces gold as the hard backing for the dollar. 1

Since the petrodollar system was put in place, the US has enjoyed a comparative advantage in manufacturing currency that no other nation enjoys. Under conditions of free trade, a country produces and exports more of a good for which it a comparative advantage, and produces less and imports more of the goods for which it doesn’t. And that’s what has happened: Since the petrodollar system was put in place in 1973, America has produced more and more dollars and produced less and less of everything else. The dollar is today our nation’s #1 export.

How large is the circulation of US dollars? As of April 2022, the American money supply, which economists call M2, stands at $21,728 Billion Dollars. M2 includes three types of money:

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Tyranny, Inc.

Tyranny, Inc.

What government wants to do but cannot, it can require corporations to do for it

If you’ve read the Parable of the Seasteader, you’ll already know that at sufficient scale the public/private distinction collapses — a private entity of sufficient size can have all the power of a public entity. It is certainly arguable that Facebook and Google have reached such size. Here, however, I want to discuss a different dilemma – government’s use of private entities to regulate freedoms it cannot directly abridge.

We’re going to look at one specific right (the right to free speech) and one specific set of Federal regulations (§ 1604.11) but the pattern I’m describing here has become ubiquitous in our country. Nowadays, almost anything government is forbidden to regulate, it can require corporations to regulate for it. The government has outsourced tyranny. Let’s see how this black magic is performed.

Expression of Viewpoints is Guaranteed to be Free from Government Abridgement, Even if the Viewpoints are Hateful…

The First Amendment to the United States Constitution is a remarkable provision that has, for centuries, protected Americans from the abridgment of their freedom of speech by their government. Even so-called “hate speech” is protected.

The relevant provision states that “Congress shall make no law abridging the freedom of speech.” As written, the guarantee of free speech originally applied only to the federal government. However, the Supreme Court ruled in Gitlow v. New York that the guarantee had been “incorporated” in the Fourteenth Amendment and the guarantee is now applied to all state and local governments as well.

Now, in practice, there are laws regulating speech (you cannot shout “fire” in a crowded theater, and so on), but such regulations are generally “time, place, and manner” restrictions. Our Courts have universally frowned on what is called viewpoint discrimination:

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Olduvai IV: Courage
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Olduvai II: Exodus
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