While the US invasion of Iraq about a decade ago was based on public-facing lies about nonexistent weapons arsenals, the underlying reasons for the invasion were much more dire. Iraq had found the US’ Achilles Heel, and would bankrupt the US if not stopped.

When the United States President “Not-a-Crook” Nixon unilaterally declared that the United States would not pay back its loans on August 15, 1971, it sent shockwaves through the financial world. Normally, this would have been a declaration of bankruptcy. Instead, the world seemed to accept Nixon’s statement that the rest of the world could trade their unfulfilled financial claims on the US between them as they pleased, and maybe hope to recover some of it.

This set off the greatest experiment in global economics ever conducted. Some claim that our economy is based on centuries-old principles dating back to the 1600s; that’s factually wrong. The principles under which the global economy operates are merely 40 years old – half of a human lifetime – and there are increasing signs of ponzification, which, if bursting, would be a bubble-burst the likes of which has never been seen.

Before this so-called Nixon Shock, the US Dollar was based on gold. Every U.S. Dollar was an IOU issued by the United States, redeemable for one-thirty-fifth of an ounce of gold at any time.

Regrettably, the war devastated the US Economy. The Vietnam war, that is. As a result, the US did the predictable and stupid thing and just started printing more money to finance the war. Before the war, coverage for the gold-for-dollar debt had been reasonable, but some countries – France, in particular – saw where things were heading. Charles de Gaulle insisted on having the French USD reserves redeemed for gold, as had been promised. This exchange also took place, causing the back-end gold coverage for the dollar to drop from about 50% to about 20%, past the economic breaking point.

Seeing that the US couldn’t possibly pay back its issued IOUs as promised, Nixon decided to… not do that, and just cancelled their validity unilaterally, as has already been stated. This had a number of effects: first, it caused currencies to start floating against each other, rather than all being tied to the dollar which was in turn tied to gold. Second, it allowed the US to start printing dollars like there was no tomorrow, and encouraging other countries to buy as much as they could, to just stockpile US Dollars.

This also happened, and is known as currency reserves. The USD, being the world’s dominant currency, holds two immense advantages of being held in currency reserves: first, each dollar bought and stockpiled in a non-US country is one dollar that gave the US citizens (or government) that purchasing power against other nations for free. (If I print money for fun that you buy with your money, I can use your money to buy your shiny things.) The second is the status of being the world’s international trade currency, meaning that if I want to buy something from you in China, I need to first buy US Dollars with my money, and then exchange those US Dollars for your goods that I want.

These two mechanisms create an external demand for the US Dollar that props up the United States’ grotesque overconsumption and feeds its ridiculously oversized military. (How grotesque is the overconsumption, you ask? The US federal deficit is 50%. For every two dollars the US Government spends, one of them needs to be borrowed from somewhere.) This deficit is absorbed by countries that stockpile an increasing number of US Dollars in their currency reserves, predominantly in east Asia. This group of countries has been derogatorily called ODIC, Organization of Dollar-Importing Countries.

We observe here, that if another currency should begin to threaten the dominance of the USD in key international trade, the currency reserves would be rebalanced to reflect that fact. It would not merely cause less US overconsumption to be absorbed – rebalancing currency reserves would mean that countries started selling USD instead of just not buying, replacing a portion of their USD holdings with something else. Seeing how precarious the US financial situation is, this could well set off a selloff avalanche that would re-balance the USD down to a fraction of today’s value. In economic terms, this is called a “correction”. (I’ve written a previous piece on this that’s easy to read.) Such an avalanche would be the definite end of the United States as a superpower and largely mirror the collapse of the Soviet Union, which was similarly overextended. It would also bring a lot of suffering to the already-overexploited middle and lower economic classes in the US.

So, back to Iraq and the United States invasion. What could Iraq possibly have done from the other side of the planet that warranted a global campaign of lies to build political support for a military invasion that still kills people, one decade later? Why was it rational for the US Administration to spend one trillion or so dollars – more accurately described as “a shitload of money” – on going to war with a small country on the other side of the planet, one that had nothing at all to do with the September 11 attacks? On observing the facts on the table, it was perfectly rational to do so, all the deaths and suffering notwithstanding. It was likely a matter of life and death for the US as a nation:

Iraq had suddenly started selling its oil for Euros instead of for US Dollars.

The United States invaded three years later, which was about the necessary time to build public global opinion (based on false pretexts, also technically known as “lies”, about weapons stockpiles) for a full-scale ground invasion. It also had considerable help from the lack of nuance following the September 11 attacks in 2001 in pushing aggression against a country that was unrelated to those attacks.

Predictably, after the invasion was over, one of the very first actions taken by the interim US-led administration was to revert to selling oil in US Dollars instead, closing the circle and ending the imminent threat to the United States’ existence as a superpower.

Obviously, it could be asked why I’m bringing this up now. I’ll be following up with articles related to this topic – but it has to do with bitcoin, the yuan, Iran and its similar position, and the overall global financial crisis bubble. Hint: Iran is already selling oil in yuan and is moving ahead with a Euro-based stock exchange in Tehran.

Telegraph: “Iran Presses Ahead With Dollar Attack”

Prudent Investor: “Iranian Oil Bourse Could Kill The US Dollar”

And again, the US beats the drums of war. Very predictable.