A million people could walk through the streets of New York or Washington D.C. protesting the war in Iraq. No, that would not matter. But, a few thousand youth making a public nuisance in the city centre of some foreign country opposed to the West would be labelled as a “revolution” by the U.S. government. Soon, Western media will camp on the site and start providing hour-by-hour live coverage. The noisy group would be called “pro-democracy protestors.” No questions would be asked as to who brought them there or who was bankrolling their activities.

Gene Sharp is a political scientist who founded the Albert Einstein Institution, which promotes the use of nonviolent action against repressive governments. His best known book, The Politics of Nonviolent Action provides a pragmatic analysis of nonviolent action as a method for applying power in a conflict. His Civilian-Based Defense, was used by the Lithuanian, Latvian, and Estonian governments during their separation from the Soviet Union in 1991. His From Dictatorship to Democracy is a how-to manual for the non-violent revolutions. It is a kind of “regime change for dummies”.^† His works have been translated in many languages and has helped bring down many dictorial regimes.

Is Gene Sharp a modern-day Gandhi? No. Gene Sharp works for the CIA. His misleadingly named Albert Einstein Institute is funded by the National Endowment for Democracy (NED) and the Soros Foundation, both front organizations of the CIA. The CIA privatised or outsourced some of its activities into organizations like the Soros Foundation, the Freedom House, National Democratic Institute (NDI) and International Republican Institute (IRI) to keep them beyond accountability or scrutiny.

The Albert Einstein Institution’s president is Col. Robert Helvey, a former US Army officer with 30 years of experience in Southeast Asia. He has served as the case officer for youth groups active in the Balkans and Eastern Europe since at least 1999. Col. Helvey, in his own words, got involved in “strategic nonviolence” upon seeing the failure of military approaches to toppling dictators. According to B. Raman, Helvey “was an officer of the Defence Intelligence Agency of the Pentagon, who had served in Vietnam and, subsequently, as the US defence attaché in Burma (1983 to 85), during which he clandestinely organised the Myanmarese students to work behind Aung San Suu Kyi and in collaboration with Bo Mya’s Karen insurgent group… He also trained in Hong Kong the student leaders from Beijing in mass demonstration techniques which they were to subsequently use in the Tiananmen Square incident of June 1989” and “is now believed to be acting as an adviser to the Falun Gong,” the Internet-ready “religious sect” of China, in similar civil disobedience techniques.

Both Sharp and Helvey were employed by the U.S. government to effect regime changes in countries all over the globe. Sharp’s signature can be seen in the one-word/two-word names of the “pro-democracy” organisations and campaigns. In Yugoslavia, Otpor (Resistance) organisation launched the the “Gotov je” (He’s finished) campaign against Milosevic. Sharp’s mark can also be seen in the prominent use of certain colors that is used by the groups. In Ukraine, protests organised by the Pora (It’s Time) were awash with orange coloured banners and flags; hence the name Orange revolution. In Georgia, the Kmara (Enough) movement enacted the Rose revolution to bring US-coached Mikhail Shaakashvili to power. In Azerbaijan, a largely pro-American regime is in place. Just to keep the pressure up, NED, Freedom House and the many foundations of George Soros have been providing funds to Yokh! (No!), Yeni Fikir (New Thinking), Magam (It’s Time) and the Orange Movement of Azerbaijan.

Diana Johnstone in her book Fool’s Crusade (read review) explains the modus operandi of these organisations:

Fool’s Crusade

By Diana Johnstone

The U.S. NED provided millions of dollars and training in “methods of nonviolent action” to a network of young activists calling itself Otpor (resistance)^‡ with no political program other than the desire to “be normal” on Western terms. Otpor youth plastered walls with posters of clenched fists and tried to get arrested in order to denounce the “regime” as repressive.

In the first round held on 24 September 2000, Milosevic failed to gain re-election. Official results gave Kostunica over 48 per cent of the vote in a five-man race. This fell slightly short of the 50 per cent required to win, but indicated an almost certain landslide in the runoff against Milosevic, who trailed by some ten percentage points. (Yugoslav electoral law calls for a second round if no candidate wins an absolute majority in the first round.) Not satisfied with this prospect of a certain victory at the ballot box, DOS (democratic opposition of Serbia) claimed a first round victory and announced it would boycott the second round. This heightened tension and provided an opportunity for the Otpor agitators to take matters into their own hands. The DOS thereby moved the contest from the ballot box onto the streets. The result was the spectacle of the 5 October ‘democratic revolution’, when a large crowd stormed the Skupstina, the parliament building in the center of Belgrade. Presented to the world public in the as a spontaneous act of self-liberation, the event was staged for television cameras, which filmed and relayed the same scenes over and over again: youths breaking through windows, flags waving, flames rising, smoke enveloping the parliament building, described as “the symbol of the Milosevic regime”.

To say that Milosevic’s downfall was solely caused by Otpor would be a travesty of truth. It is true that the one-sided war the the United States^* had left him considerably weakened. The reason for his defeat lay elsewhere. Americans had taken charge and were running a parallel election process.

U.S. Advice Guided Milosevic Opposition

Political Consultants Helped Yugoslav Opposition Topple Authoritarian Leader

By Michael Dobbs

In the 12 months following the strategy session, U.S.-funded consultants played a crucial role behind the scenes in virtually every facet of the anti-Milosevic drive, running tracking polls, training thousands of opposition activists and helping to organize a vitally important parallel vote count. U.S. taxpayers paid for 5,000 cans of spray paint used by student activists to scrawl anti-Milosevic graffiti on walls across Serbia, and 2.5 million stickers with the slogan “He’s Finished,” which became the revolution’s catchphrase.

While NDI worked closely with Serbian opposition parties, IRI focused its attention on Otpor, which served as the revolution’s ideological and organizational backbone.

In March, IRI paid for two dozen Otpor leaders to attend a seminar on nonviolent resistance at the Hilton Hotel in Budapest, a few hundreds yards along the Danube from the NDI-favored Marriott (hotel).

While Otpor members were putting their training to action, a bunch of foreigners were doing their internship. These foreigners would then go back to their countries (Georgia, Ukraine, and other former Warsaw Pact constitutents) and stage the “colour revolutions” or “velvet revolutions.”

The war in the Balkans turned out to be a grand 50th anniversary for NATO. Before the war, uncomfortable questions were asked about the huge expenditure on maintaining the NATO force and the enormous bureacracy that went with it. There was also talk among Francois Mitterand of France and Helmut Kohl of Germany about an European army. Absurd as it seems, it got Washington extremely alarmed nevertheless. The Americans tried whining but that provided the Frenchies and the Jerries more encouragement. As a compromise, the U.S. then offered both countries spheres of influence in the Balkans after the breakup of Yugoslavia. Apparently, France and Germany, and the rest of Old Europe, bought the line, sinker, and bait whole. Mitterand really tried to push his luck only to get a upsetting reality check when he was nearly ambushed on a visit to the Balkans. German Mark replaced the dinar inside Yugoslavia. Resource-rich republics like Slovenia became client states. Croatia, even though it had allowed itself to go under American tutelage, sent its soldiers to massacre Muslims to increase the body count.

† – Revolution, Geopolitics, and Pipelines by F William Engdahl

‡ – After the “pro-democracy demonstrators” proved their usefulness by bringing down Milosevic and placing a pro-U.S. stooge in power, the U.S. decided that Otpor had become obsolete. Before Otpor could become a problem for the new regime, the U.S. cut funding for the group. The Otpor website contains a blank webpage. It will last until the payment for the hosting and domain name runs out.

* – During the war, NATO claimed to have virtually destroyed all of Yugoslavia’s armor. When ceasefire was established and Yugoslav army trooped out of Kosovo, military observers counted over 1000 tanks and artillery pieces, almost exactly the same number that went in. Yugoslavians had smaratly used decoys made from simple materials like aluminium sheets and plastic covers. NATO had bravely showen night-vision videos captured by their aircraft to buttress the claims. These video clips were shown daily in Western media and rest of the world. In another incident, an infantry soldier used a hand-held anti-aircraft missile launcher to down a “stealth” aircraft.

Also read:

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  Meet Mister Massacre by Mark Ames & Matt Taibbi

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Meet Mister Massacre

Mark Ames & Matt Taibbi

Years from now, when the war in Serbia is over and the dust has settled, historians will point to January 15, 1999 as the day the American Death Star became fully operational. That was the date on which an American diplomat named William Walker brought his OSCE war crimes verification team to a tiny Kosovar village called Racak to investigate an alleged Serb massacre of ethnic Albanian peasants. After a brief review of the town’s 40-odd bullet-ridden corpses, Walker searched out the nearest television camera and essentially fired the starting gun for the war.

“From what I saw, I do not hesitate to describe the crime as a massacre, a crime against humanity,” he said. “Nor do I hesitate to accuse the government security forces of responsibility.” We all know how Washington responded to Walker’s verdict; it quickly set its military machine in motion, and started sending out menacing invitations to its NATO friends to join the upcoming war party.

…

Walker’s record as Ambassador to El Salvador is startling upon review today, in light of his recent re-emergence into the world spotlight as an outraged documenter of racist hate-crimes. His current posture of moral disgust toward Serbian ethnic cleansing may seem convincing today, but it is hard to square with the almost comically callous indifference he consistently exhibited toward exactly the same kinds of hate crimes while serving in El Salvador.

In late 1989, when Salvadoran soldiers executed six Jesuit priests, their housekeeper, and her 15 year-old daughter, blowing their heads off with shotguns, Walker scarecely batted an eyelid. When asked at a press conference about evidence linking the killings to the Salvadoran High Command, he went out of his way to apologize for chief of staff Rene Emilio Ponce, dismissing the murders as a sort of forgiveable corporate glitch, like running out of Xerox toner. “Management control problems can exist in these kinds of these kinds of situations,” he said.

In discussing the wider problem of state violence and repression — which in El Salvador then was at least no less widespread than in the Serbia he monitored from October of last year until March of this year — Walker was remarkably circumspect. “I’m not condoning it, but in times like this of great emotion and great anger, things like this happen,” he said, apparently having not yet decided to audition for the OSCE job.

Finally, in what may be the most amazing statement of all, given his current occupation, Walker questioned the ability of any person or organization to assign blame in hate crime cases. Shrugging off news of eyewitness reports that the Jesuit murders had been committed by men in Salvadoran army uniforms, Walker told Massachusetts congressman Joe Moakley that “anyone can get uniforms. The fact that they were dressed in military uniforms was not proof that they were military.”

Later, Walker would recommend to Secretary of State James Baker that the United States “not jeopardize” its relationship with El Salvador by investigating “past deaths, however heinous.”

…

There is a widespread belief not only in Russia, but in other countries, that Walker’s role in Racak was to assist the KLA in fabricating a Serb massacre that could be used as an excuse for military action. Already, two major mainstream French newspapers — Le Monde and Le Figaro — as well as French national television have run exposes on the Racak incident. These stories cited a number of inconsistencies in Walker’s version of events, including an absence of shell casings and blood in the trench where the bodies were found, and the absence of eyewitnesses despite the presence of journalists and observers in the town during the KLA-Serb fighting.

Eventually, even the Los Angeles Times joined in, running a story entitled “Racak Massacre Questions: Were Atrocities Faked?” The theory behind all these exposes was that the KLA had gathered their own dead after the battle, removed their uniforms, put them in civilian clothes, and then called in the observers. Walker, significantly, did not see the bodies until 12 hours after Serb police had left the town. As Walker knows, not only can “anybody have uniforms”, but anyone can have them taken off, too.

Under pressure from Zionists, Reza Pahlavi has been adopted by the U.S. government as the head of a future democratic regime that is expected to be put in place in Iran after overthrowing the current dispensation of the mullahs. However, by “democratic regime”, one must not think that Reza Pahlavi will have to contest elections. No, that would put an effective test of his popularity. The American government is afraid of real democracy. Their guy does not stand a chance. Pahlavi will return only as a monarch – the uncontested ruler in perpetuity. Big Oil hates uncertainity.

Washington is extremely upset. Iran has dared to conduct elections. Worse, they did that when the whole world was watching. How dare they? The American government has carefully projected an image of Iran being ruled by crazy mullahs, who have absolutely no respect for democracy. Presidential elections conducted last week has destroyed all that. In frustration, Bush had described the election as “an exercise in futility” because Iran’s real power rests with the nonelected Islamic clerics, who can override the president and parliament. Iranian dissidents^* theorised that people in Iran were fed up with the regime and were going to boycott the elections. Western media, which has been very conservative in covering Iraq war protests in their own countries, showed none of those inhibitions when dealing with dubious demonstrations by Iranian groups.

Next, it was the turn of “Iran experts” in the Western media to predict a low voter turnout. Almost 63% of eligible voters cast their votes. In India and in the U.S., voter turnouts are always around 50%. The experts also opined that a low voter turnout would turn out to be a big embarrassment for the ruling theocracy. Reality however has turned out a big embarrassment for the doubting West. Iran’s spy chief Ali Yunesi said, “I say to Bush: ‘Thank you.’ He motivated people to vote in retaliation.”

Now, why would Bush say bad things about Iranian elections? The conservatives in Iran have been doing what they could to prevent U.S. from bankrolling politicians and then take over the country’s oil wealth. Experiences in Russia, Yugoslavia, Georgia, Afghanistan, Ukraine, etc., have shown that the U.S. is willing to pump millions of dollars in campaign funds and buy election outcomes wholesale. The candidates promoted by the Americans serve foreign interests than those of their electorate. Iran has a lot of oil and the United States is like a wolf that wants to gobble it all up. Iran’s conservatives have done the best they could do given the circumstances they were in.

CNN sought out Reza Pahlavi, the son of the late Shah of Iran, to denounce the Iranian regime and the elections. The choice is very odd and a very disgusting one too. Reza Pahlavi is the son of the late Shah of Iran.

The Shah was a widely despised monarch. Iran was a pioneer in democracy in the Middle East but its elected Prime Minister Mohammed Mossadegh was overthrown by the American CIA and the British MI6 in a coup. The coup restored the Shah to power. Mossadegh had nationalised the Anglo-Iranian Oil Company and had earned the ire of the West. Shah of Iran was more accommodative in letting the West plunder Iranian oil wealth and had became a symbol of foreign exploitation. The Shah’s secret service SAVAK was involved in the torture and execution of thousands of political prisoners, suppression of dissent, and alienation of the religious masses. The United States reinforced its position as the Shah’s protector and supporter, sowing the seeds of the anti-Americanism. The Islamic Revolution led by the Ayotollah Khomenei overthrew the Shah, who later died in exile in France.

Reza Pahlavi lives in the U.S. and even served in the U.S. military as a pilot. Today, he is the leading spokesman for sanctions against Iran. American legislators, whose campaign funds are supported by Israeli and Jewish organisations, are not averse to addressing Reza Pahlavi as “Your Majesty” – sad for a country whose founding fathers decided that the head of state should be addressed simply as “the President of the United States”, shorn of any royal pretensions. Pehlavi also says that Iran does not need nuclear power and that it is attempting uranium enrichment only to attack Israel with nuclear bombs. This is interesting for two reasons. One – no real Iranian cares for Isreal. Two – because nuclear research has universal support in Iran. Even Pahlavi’s own father had had been a great supporter of nuclear research. Thanks to this, Iran has been involved in nuclear development for several decades now. Besides that, Iran’s internal oil consumption is expected soar so much that in the near future oil Iran will become a net importer. If this is the case, would anyone who is really interested in Iran’s interest advocate sanctions? Only Reza Pahlavi would.

That is why the CNN, the BBC, Newsweek, Washington Post and Wall Street Journal think Reza Pahlavi has an important viewpoint on Iranian politics. Anyone who has any doubts of the Zionist stanglehold on Western media can do some introspection now.

 

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This is not the first time CNN gets it wrong. When elections in Iraq were around the corner, the CNN predicted big wins for the likes of Iyyad Allawi and Adnan Pachachi. Why would the CNN put its credibility on the line unless they were reading a script written by the American government? Why else would scum like Reza Pahlavi be speaking on behalf of the Iranian people?

News organisations like the CNN mislead their audience about Iran. Tehran is a very urbanised city. Everyone drives cars – man, woman, kid and dog. In fact, Tehran has one of the highest density of cars in the world. People living in urban areas, particularly the youth, are clamouring for greater freedom and relaxation of curbs that have been placed in the name of religion. The conservatives are always at war with these people. They try very hard to keep people away from what they see as the decadence of the West. When European football matches are shown on TV, the spectators will be seen wearing winter clothes even when the matches are held in summer. It is a subtle editing work by the censors. The conservatives have tried to ban TV satellite dishes but it did not work. Here is an incident reported by Indian journalist who went to the Tehran Indian embassy for the Independence celebrations. A large number of Iranian guests were present. Women were all covered from top to toe in burqas. Officials from the Iranian government who were at the party left en masse at a particular time, as if by clockwork. The moment they were gone, the women removed their burqas and veils, revealing smart t-shirts and jeans. They then took out their makeup kits and went to work. Soon, they were partying like normal. However, the fact that the mullahs have lost their shine doesn’t mean all of Iran is rooting for the return of the Pehlavis.

Iranians know that Reza Pahlavi is a stooge of the West, just like his father before him was. And, it has not escaped them that the only reason the former royals are shedding so many tears for Iran is the presence of the huge reserves of oil and gas in the country. For all their faults, the mullahs have made sure that whatever money was made from the country’s mineral wealth, despite all the sanctions and curbs placed by Washington, it was all spent on the Iranian people and did not end up in secret Swiss bank accounts. As a result, Iranians have abandoned the Pehlavis and that too LONG AGO. But, if CNN is still fascinated by the Pehlavis, it is because they are anxious to please lobbies in the US and Israeli governments. When it comes to derrière-kissing, CNN sure sets the standard for American journalists doing international reporting.

Suggested Reading: Demands from Reza Pahlavi by Kobra Khanom.

UPDATE (06/07/05): Here is an excerpt from an Asia Times article.

The American Hand In Iran

By Trish Schuh

Tasked by the Bush administration with sending that message from America to Tehran, and “winning hearts and minds” is author and “Swiftboat Veterans for Truth” member Jerome Corsi. On May 16, Corsi’s NGO, the Iran Freedom Foundation (IFF)^†, inaugurated a 12-day “Iran Freedom Walk” from Philadelphia’s Liberty Bell to Washington, DC.

Dipping two fingers in red paint, Corsi waved a peace sign in solidarity “with the blood of oppressed Iranians” and called on “the spirit of Mahatma Gandhi and Martin Luther King”. He declared, “I love the Iranian people. America does not hate the Persian people. We love the Persian people. We want peace and we love the Persian people.” Corsi’s voice then dropped to a whisper; “We stand here today and we pray in the name of the gods. I embrace Jesus Christ as my savior – and we also pray in the name of Allah, Zoroaster and the B’hai.”

But Corsi has expressed very different opinions on Islam in the past. According to his own postings on FreeRepublic.com, on November 18, 2001 Corsi used a racial slur to define Arabs: “Ragheads are boy-bumpers [sodomizers] as clearly as they are women haters – it all goes together.”

Using the incendiary style he perfected for “Swiftboat veteran” television attack advertisements, Corsi declares, “Islam is a peaceful religion as long as the women are beaten, the boys buggered and the infidels killed.” Comparing Islam to a disease, he added, “How’s this for an analogy? The Koran is simply the ‘software’ for producing deviant cancer cell political behavior and violence in human beings’ and Islam is like a virus. It affects the mind. Maybe even better as an analogy: it is a cancer that destroys the body it infects. No doctor would hesitate to eliminate cancer cells from the body.” In April 2004 Corsi said, “Let’s see why it isn’t the case that Islam is a worthless, dangerous, Satanic religion. Where’s the proof to the contrary?”

Surrounding Corsi at his walk were three dozen Los Angeles Iranian dissidents and pro-monarchists interviewed by an Orthodox Jewish journalist and by the CIA-backed Voice of America and Radio Free Europe/Radio Farda.

* – Israel bankrolls many Iranian dissident groups. (Its pals in the West make sure that these groups get adequate attention in the media.) The broad indicator of this support is seen when the groups denounce anti-Israel comments as anti-semitism. It is simply impossible to find sympathisers of Israel among Arabs and other Muslims.

† – The Asia times article also notes that the IFF’s efforts are supplemented by an array of related sister organizations, such as Regime Change Iran, Alliance for Democracy in Iran, Iran of Tomorrow Movement, the Iranian Opposition Council, and The 70 Million People of Iran, which are organizing an election for a secular interim government in exile “ready to assume Iran’s governmental functions.”

Comments

1. Narayanee (12/01/06): by coincidence, there is identity in our thinking…still We can not forget that Bush is doing a wonderful job in ensuring election process set in motion, which is unheard by Iraqis or Iranians..or afghans..bitter pill agreed..but disease is being fixed…I appreciate Bush otherwise…
2. Moral Volcano (13/01/06): The recent elections in Iran were not the first nor the last. As mentioned in the article, Iran was a pioneer in democracy in the region and elections are not new to them. Even Iraqis are not new to democracy. They even had a communist party. Because of the oil in the country and the absence of a phony royal family (unlike other Gulf states), it has seen a large number of coups, assassinations, and dictatorships. Landlocked and resourceless Afghanistan is a victim of the Great Game (read North West Frontier by Arthur Swinson). British wanted to keep the country as a buffer against the Soviets. Pakis does not want Afghanistan go very far because Pathans living in NWFP have more in common with their kinsmen in Afghanistan than with other Pakistanis. The only chance for real progress for Afghans came when the communists came to power. Unfortunately, Americans decided to repay the USSR for their defeat in Vietnam and decided to make an example out of Afghanistan. They first lured the Russians into invading Afghanistan. Then, they plunged the country into civil war by supporting the Mujahideen. They also encouraged poppy cultivation to buy arms and ammunition for the Mujahideen. (The narcotics, of course, ended up in North America and Europe, and sure the authorities there knew all about it but were powerless to do anything.) When the Russians left, the only thing most Afghan men knew was either fighting or cultivating poppy. With Russians gone, America lost interest in Afghanistan and the country returned to anarchy. But the possibilities of American oil and gas pipelines (built by Unocal) bypassing Iran and Russia brought them back. No wonder that a former advisor to Unocal (Mohammed Karzai) is the President of the country today. Another former advisor to Unocal (Zalmay Khalilzad) was until recently the American ambassador to Afghanistan. (Interestingly, this guy is now in Iraq as the U.S. Ambassador.) American support for democracy is simply an alternative arrangement. They need a cover for unfettered exploitation. Why are they not supporting democracy in other countries in the Midddle East, say for example Saudi Arabia?

Americans are fond of saying, ‘If life gives you a lemon, make lemonade.” With Bush in the White House, the United States has become the world’s leading producer of lemonade.

A country pays for its imports with hard currency. It obtains hard currency from exports, remittances by expatriates and foreign investments. Even European countries with hard currencies on their own operate in this manner. The only exception to this rule is the United States of America. The U.S does not have to export anything to pay for its imports. They simply have to print more dollars. Surprised?

If an Indian oil company needs to buy crude from the Gulf, it has to pay in U.S. dollars. For this, the oil company pays Indian rupees to a bank and gets US dollars in return. The bank has a supply of U.S. dollars from exporters, foreign investors, expatriates and foreign tourists. If the demand for U.S. dollar is high and not enough to meet supply, then the dollar value in relation to the Indian Rupee will rise. If there is a huge inflow of U.S. dollars and there is not enough demand from Indian importers, then the value of the Indian Rupee will increase against the U.S. dollar. To prevent the value of the Indian rupee from fluctuating wildly and thereby affecting the health of the Indian economy, the RBI accumulates foreign currencies in its forex reserve. When the value of the rupee falls against the dollar (and hurts importers), then the RBI will sell dollars from its reserves. If the value of the rupee rises against the dollar (and hurts exporters), then the RBI will “mop up” or buy dollars from the open market. The ability of the RBI to protect the currency against wild swings is directly linked to the size of our forex reserves.

But the hundreds of billions of dollars in the reserve is not in the form of currency bills. No, there is just not enough room for that. When someone sells dollars to a bank, all it gets is an assurance from a foreign bank that a given number of dollars has been transferred. When the RBI buys dollars from the market, it in effect buys this assurance. The RBI then sells this assurance and buys low-yield American Treasury bonds. These bonds are nothing
but I-Owe-You (IOU) notes. Thus, nothing of real value ever leaves the shores of the U.S.; only assurances. Unlike people in the rest of the world, Americans can go on accumulating huge debts while the world gobbles up ever-increasing amount of counterfeit portraits of dead American presidents.

The central banks of Japan, China, Taiwan, South Korea, India and several other nations have been subsidizing American profligacy by mopping up huge amounts of dollars from the market. The Federal Reserve (the American central bank) had steadily decreased interest rates to 1%. Low interest rates meant that there was no incentive for Americans to save money. Low interest rates also also meant that they could afford to borrow more and care less. Inevitably, the U.S. dollar sank against the Euro. It seemed initially that the Federal Reserve was trying to support American exporters and hurt Eurozone exporters. Unfortunately for the Federal Reserve, European Central Bank did not blink first. Rising oil prices and mounting deficits had their effect and forced the Federal Reserve to increase interest rates.
Although interest rates have moved up since then, the increases have been very marginal. Yet, it has already started hurting. A record number of American citizens and businesses have filed for bankruptcy. Horrified credit card companies have forced the Bush administration to take steps to make it harder for individuals to declare bankruptcy.

Outside the U.S., the world has started showing signs of shifting away from the dollar. Diversification of foreign exchange reserves is the new mantra. The strongest signal so far has come from the Russian central bank, which openly said it was reducing the shares of dollars in its reserves and increasing the share of Euros. Similar but less clear signals have come from Japan,^‡ Korea, and even China.^† There is now more than $1.5 trillion of American treasury bonds in the reserves of Asian central banks around the world. Should they move even a small portion of this hoard to the Euro, the U.S. dollar will start to depreciate even faster than it does now. It will also make the recovery of the American economy even harder. Even though the price of oil has increased with the fall of the dollar, many Gulf governments are finding the value of their dollar investments^* slide. They might also try to shift trade in crude oil to the Euro. Trade in crude oil is invoiced in U.S. dollars and this is the main reason for its strength and prominence. So, when Iraq threatened to shift to Euro, U.S. President Bush launched a war and occupied that country. The same thing cannot be repeated with every other oil producer, as the American military is already stretched thin (The U.S. has troops stationed in over 120 countries.) and the U.S. government has run up a huge deficit, which is slated balloon uncontrollably in future.

In The Devil’s Dictionary by Ambrose Bierce, an alliance is defined as the
union of two thieves who have their hands so deeply inserted in each other’s pocket they cannot separately plunder a third. The situation with the dollar is similar to that. The fortunes of Japan and China are so deeply wedded to the American economy that they are unlikely to dump the dollar in a flash. But, things are so bad that the dollar will crash even if there is no diversification i.e., it will crash if either central bank stops its purchase of American treasury bonds. Strangely, if the U.S. dollar does crash in the end, the American economy will not be the one that is most affected. Surprised?

When you owe a bank a thousand dollars, the bank owns you. When you owe the bank a billion dollars, you own the bank. If the US Federal Reserve goes bust, then central banks holding American treasury bonds^¤ will have no option but to recyle American money into toilet paper, much like what Russia did with the Soviet Rouble. And, we in the Third World have the most to suffer because governments never go bankrupt; they force others into bankruptcy.

UPDATE (11/04/05): I found this article about Jim Rogers in Corporate Dossier of The Economic Times. Rogers is a (former?) associate of George Soros. George Soros is famous for his bet against the British Pound in the early 90s when the Britain had entered the European Exchange Rate Mechanism (ERM). Had the arrangement been successful, Britain would have eventually adopted the Euro. When Britain was forced out of the ERM, Soros supposedly earned $2 billion. While many people remember Soros on this bet, a lesser known fact is that he lost $2 biilion when Russia defaulted on its debts in 1998. He later lost $700 million when he predicted that dotcom stocks would go bust and they failed to do so. He then made huge purchases in the same group of stocks and when the boom eventually did go bust, Soros had lost almost $3 billion. Now, that should have made me think twice before quoting Jim Rogers. Rogers is also an eccentric analyst and many of his world views are a bit bizarre. Anyway, I am going ahead with quoting him, as I had forgotten about the derivatives timebomb in my article. Derivates are complex financial products. They have become extremely controversial after the failures of Long Term Capital Management (LTCM) (run by Nobel Prize winning economists) and the 233-year-old (British) Barings Bank. The Clinton administration took the unusual step of intervening in the market to prevent the LTCM failure from having a cascading effect on the U.S economy.

The American economy may well go down just like the Roman or the British Empire did. America owes to the rest of the world $8 trillion (trillion with a “t” as in tandoori) and it’s a very serious debt.
(Semi-government mortgage) Companies like Fannie Mae and Freddie Mac have over one trillion dollars in debt, and they don’t even know how much debt they have. They have so many derivatives that they don’t know about that too. Companies like GE are carrying on a sham, it’s not a real company — there’s huge financial engineering and the largest bank, JP Morgan Chase, owns trillions and trillions of derivatives and we can have a gigantic debt collapse soon.
The worst-case scenario maybe that we fall into some kind of debt crisis both due to the gigantic foreign debt as well as huge internal debt. I’m not saying that it’s going to happen, but if something precipitates America can go bankrupt very quickly. The currency will lose a whole lot of value, there’ll be exchange control in America and that’ll be very bad for the world.

* – With rising interest rates, General Motors is close to going bust. It has $300 billion in debt. What’s bad for General Motors is bad for America?

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p class=”notes”>‡ – On 11/03/05, Japanese Prime Minister Junichiro Koizumi addressing the parliamentary budget committee said “I think that diversification of the reserves is necessary. We should decide what investments are profitable and dependable at the same time.”

† – Ukraine has dropped its dollar peg and has linked its currency to a basket of currencies, which includes the Euro.

¤ – Recently, Indian goverment mooted the idea of using a portion of the forex reserves to fund infrastructure projects. This makes sense because the dollar has lost 30% of its value in the last few years. Alarmed at the prospect of having to pay on its debts, the U.S. government got the International Monetary Fund (IMF) to warn India against tapping the foreign exchange reserves. Rating agency Standard & Poors (S&P) threatened to downgrade India’s investment ratings. Both China and Thailand, which were also thinking along the same lines, have received similar warnings.