In an age where major labels dictate that new releases from bands appear on record store shelves every 18 months or so, rare is the artist given freedom and ability to reflect and stretch out to explore creative evolution and release music as an artist, rather than the prepackaged predictability of an entertainer. Thankfully, Tool has somehow managed to circumvent these rituals, releasing a record every four to five years as they so feel the need. This ability to patiently craft their musical direction has paid off for not only the band, but for listeners, as they've been able to expand their musical vocabulary from album to album with great precision, all the while remaining true to the foundations that built such a loyal, if not cult-like, following. But with this absence comes changes to the popular music landscape, as new bands and sounds (as well as a new generation of heavy metal fans to entertain) replace and stimulate the charts. Namely: a lot can happen in five years, especially with a fickle rock audience that is overinundated with constant new bands' songs. The group defied expectations (and even got radio airplay) with Lateralus, but would fans stick with them during the hiatus? There were moments when Maynard James Keenan would emerge courtesy of A Perfect Circle, and there were also several stunning video DVDs to pacify while 10,000 Days was being written, along with cryptic messages via their website, but that was about it.
Thankfully, 10,000 Days was worth the labor pains and wait to deliver. It's not only a step forward for the band, but a re-embracing of the epic-length rock songs found at the roots of early heavy metal. The album starts out with "Vicarious," which features some of Maynard's most straightforward lyrics since Ænema's "Hooker with a Penis." Essentially a biting commentary on reality television, information stimulus overload, and living through others' experiences, it's only a brief glimpse of what's to come, as 10,000 Days also offers some of Keenan's most confessional lyrics. The 17-minute epic "Wings for Marie/10,000 Days" is an ode to his mother, who passed away during the band's hiatus after dealing with paralysis from a stroke for 27 years. In a way, it's voyeuristic to listen to someone working out family issues on disc, but Keenan does it in a way that's sensitive and honest without ever treading the careful line between melodrama and sincerity. Most of the songs are a bit long in the tooth when compared to most metal songs these days, but then again, Tool isn't exactly just another band, either. With most songs clocking in over six minutes, the exercises in songwriting wouldn't work as well with any other band. But when you have such high-caliber musicianship as Danny Carey and Adam Jones anchoring drums and guitar, respectively, it's hard to make a wrong turn. The anger that served as fuel for some of their greatest works has been replaced with calmer and more introspective moments as they patiently work out rhythm and melodic passages from one theme to the next. That's not to say the anger isn't still there; it does check in from song to song, but like most of Tool's fan base that has stuck with them through their first recordings, the group has evolved beyond that stage and has moved on to new concepts to explore. So depending upon which Tool you are looking for, you're either going to love or hate 10,000 Days. If it's the hard-driving band with an intellectually driven existential anger and fits of Hot Topic-laden angst, they've fled for other pastures (probably to Arizona Bay). But if you're looking for the Tool whose passion and introspection is complemented by intense emotion, brutal honesty, and musical maturity, you'll be hard-pressed to find a better metal album in 2006.
RT On Air
Wednesday, 3 May 2006
Monday, 1 May 2006
The End of Dollar Hegemony
by Hon. Ron Paul of Texas
[ See an online video of this presentation ]
A hundred years ago it was called "dollar diplomacy." After World War II, and especially after the fall of the Soviet Union in 1989, that policy evolved into "dollar hegemony." But after all these many years of great success, our dollar dominance is coming to an end.
It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value.
First it was simply barter of goods. Then it was discovered that gold held a universal attraction, and was a convenient substitute for more cumbersome barter transactions. Not only did gold facilitate exchange of goods and services, it served as a store of value for those who wanted to save for a rainy day.
Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money. Sometimes governments succeeded in guaranteeing the quality and purity of gold, but in time governments learned to outspend their revenues. New or higher taxes always incurred the disapproval of the people, so it wasn't long before Kings and Caesars learned how to inflate their currencies by reducing the amount of gold in each coin-- always hoping their subjects wouldn't discover the fraud. But the people always did, and they strenuously objected.
This helped pressure leaders to seek more gold by conquering other nations. The people became accustomed to living beyond their means, and enjoyed the circuses and bread. Financing extravagances by conquering foreign lands seemed a logical alternative to working harder and producing more. Besides, conquering nations not only brought home gold, they brought home slaves as well. Taxing the people in conquered territories also provided an incentive to build empires. This system of government worked well for a while, but the moral decline of the people led to an unwillingness to produce for themselves. There was a limit to the number of countries that could be sacked for their wealth, and this always brought empires to an end. When gold no longer could be obtained, their military might crumbled. In those days those who held the gold truly wrote the rules and lived well.
That general rule has held fast throughout the ages. When gold was used, and the rules protected honest commerce, productive nations thrived. Whenever wealthy nations-- those with powerful armies and gold-- strived only for empire and easy fortunes to support welfare at home, those nations failed.
Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: "He who prints the money makes the rules"-- at least for the time being. Although gold is not used, the goals are the same: compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses.
Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation's people-- just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare.
The pressure at home to inflate the currency comes from the corporate welfare recipients, as well as those who demand handouts as compensation for their needs and perceived injuries by others. In both cases personal responsibility for one's actions is rejected.
When paper money is rejected, or when gold runs out, wealth and political stability are lost. The country then must go from living beyond its means to living beneath its means, until the economic and political systems adjust to the new rules-- rules no longer written by those who ran the now defunct printing press.
"Dollar Diplomacy," a policy instituted by William Howard Taft and his Secretary of State Philander C. Knox, was designed to enhance U.S. commercial investments in Latin America and the Far East. McKinley concocted a war against Spain in 1898, and (Teddy) Roosevelt's corollary to the Monroe Doctrine preceded Taft's aggressive approach to using the U.S. dollar and diplomatic influence to secure U.S. investments abroad. This earned the popular title of "Dollar Diplomacy." The significance of Roosevelt's change was that our intervention now could be justified by the mere "appearance" that a country of interest to us was politically or fiscally vulnerable to European control. Not only did we claim a right, but even an official U.S. government "obligation" to protect our commercial interests from Europeans.
This new policy came on the heels of the "gunboat" diplomacy of the late 19th century, and it meant we could buy influence before resorting to the threat of force. By the time the "dollar diplomacy" of William Howard Taft was clearly articulated, the seeds of American empire were planted. And they were destined to grow in the fertile political soil of a country that lost its love and respect for the republic bequeathed to us by the authors of the Constitution. And indeed they did. It wasn't too long before dollar "diplomacy" became dollar "hegemony" in the second half of the 20th century.
This transition only could have occurred with a dramatic change in monetary policy and the nature of the dollar itself.
Congress created the Federal Reserve System in 1913. Between then and 1971 the principle of sound money was systematically undermined. Between 1913 and 1971, the Federal Reserve found it much easier to expand the money supply at will for financing war or manipulating the economy with little resistance from Congress-- while benefiting the special interests that influence government.
Dollar dominance got a huge boost after World War II. We were spared the destruction that so many other nations suffered, and our coffers were filled with the world's gold. But the world chose not to return to the discipline of the gold standard, and the politicians applauded. Printing money to pay the bills was a lot more popular than taxing or restraining unnecessary spending. In spite of the short-term benefits, imbalances were institutionalized for decades to come.
The 1944 Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, replacing the British pound. Due to our political and military muscle, and because we had a huge amount of physical gold, the world readily accepted our dollar (defined as 1/35th of an ounce of gold) as the world's reserve currency. The dollar was said to be "as good as gold," and convertible to all foreign central banks at that rate. For American citizens, however, it remained illegal to own. This was a gold-exchange standard that from inception was doomed to fail.
The U.S. did exactly what many predicted she would do. She printed more dollars for which there was no gold backing. But the world was content to accept those dollars for more than 25 years with little question-- until the French and others in the late 1960s demanded we fulfill our promise to pay one ounce of gold for each $35 they delivered to the U.S. Treasury. This resulted in a huge gold drain that brought an end to a very poorly devised pseudo-gold standard.
It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.
Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it-- not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.
Realizing the world was embarking on something new and mind boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence "backed" the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.
This post-Bretton Woods system was much more fragile than the system that existed between 1945 and 1971. Though the dollar/oil arrangement was helpful, it was not nearly as stable as the pseudo gold standard under Bretton Woods. It certainly was less stable than the gold standard of the late 19th century.
During the 1970s the dollar nearly collapsed, as oil prices surged and gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were required to rescue the system. The pressure on the dollar in the 1970s, in spite of the benefits accrued to it, reflected reckless budget deficits and monetary inflation during the 1960s. The markets were not fooled by LBJ's claim that we could afford both "guns and butter."
Once again the dollar was rescued, and this ushered in the age of true dollar hegemony lasting from the early 1980s to the present. With tremendous cooperation coming from the central banks and international commercial banks, the dollar was accepted as if it were gold.
Fed Chair Alan Greenspan, on several occasions before the House Banking Committee, answered my challenges to him about his previously held favorable views on gold by claiming that he and other central bankers had gotten paper money-- i.e. the dollar system-- to respond as if it were gold. Each time I strongly disagreed, and pointed out that if they had achieved such a feat they would have defied centuries of economic history regarding the need for money to be something of real value. He smugly and confidently concurred with this.
In recent years central banks and various financial institutions, all with vested interests in maintaining a workable fiat dollar standard, were not secretive about selling and loaning large amounts of gold to the market even while decreasing gold prices raised serious questions about the wisdom of such a policy. They never admitted to gold price fixing, but the evidence is abundant that they believed if the gold price fell it would convey a sense of confidence to the market, confidence that they indeed had achieved amazing success in turning paper into gold.
Increasing gold prices historically are viewed as an indicator of distrust in paper currency. This recent effort was not a whole lot different than the U.S. Treasury selling gold at $35 an ounce in the 1960s, in an attempt to convince the world the dollar was sound and as good as gold. Even during the Depression, one of Roosevelt's first acts was to remove free market gold pricing as an indication of a flawed monetary system by making it illegal for American citizens to own gold. Economic law eventually limited that effort, as it did in the early 1970s when our Treasury and the IMF tried to fix the price of gold by dumping tons into the market to dampen the enthusiasm of those seeking a safe haven for a falling dollar after gold ownership was re-legalized.
Once again the effort between 1980 and 2000 to fool the market as to the true value of the dollar proved unsuccessful. In the past 5 years the dollar has been devalued in terms of gold by more than 50%. You just can't fool all the people all the time, even with the power of the mighty printing press and money creating system of the Federal Reserve.
Even with all the shortcomings of the fiat monetary system, dollar influence thrived. The results seemed beneficial, but gross distortions built into the system remained. And true to form, Washington politicians are only too anxious to solve the problems cropping up with window dressing, while failing to understand and deal with the underlying flawed policy. Protectionism, fixing exchange rates, punitive tariffs, politically motivated sanctions, corporate subsidies, international trade management, price controls, interest rate and wage controls, super-nationalist sentiments, threats of force, and even war are resorted to?all to solve the problems artificially created by deeply flawed monetary and economic systems.
In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that's the United States. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. But this leads to a loss of manufacturing jobs to overseas markets, as we become more dependent on others and less self-sufficient. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption.
It sounds like a great deal for everyone, except the time will come when our dollars-- due to their depreciation-- will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production. The shift in sentiment regarding the dollar has already started, but the worst is yet to come.
The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. Last year alone M3 increased over $700 billion.
The artificial demand for our dollar, along with our military might, places us in the unique position to "rule" the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can't last.
Price inflation is raising its ugly head, and the NASDAQ bubble-- generated by easy money-- has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world's rejection of the dollar. It's bound to come and create conditions worse than 1979-1980, which required 21% interest rates to correct. But everything possible will be done to protect the dollar in the meantime. We have a shared interest with those who hold our dollars to keep the whole charade going.
Greenspan, in his first speech after leaving the Fed, said that gold prices were up because of concern about terrorism, and not because of monetary concerns or because he created too many dollars during his tenure. Gold has to be discredited and the dollar propped up. Even when the dollar comes under serious attack by market forces, the central banks and the IMF surely will do everything conceivable to soak up the dollars in hope of restoring stability. Eventually they will fail.
Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged as it already has been.
In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O'Neill, the major topic was how we would get rid of Saddam Hussein-- though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O'Neill.
It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.
There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.
In 2001, Venezuela's ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.
After these attempts to nudge the Euro toward replacing the dollar as the world's reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance.
It's become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported.
Now, a new attempt is being made against the petrodollar system. Iran, another member of the "axis of evil," has announced her plans to initiate an oil bourse in March of this year. Guess what, the oil sales will be priced Euros, not dollars.
Most Americans forget how our policies have systematically and needlessly antagonized the Iranians over the years. In 1953 the CIA helped overthrow a democratically elected president, Mohammed Mossadeqh, and install the authoritarian Shah, who was friendly to the U.S. The Iranians were still fuming over this when the hostages were seized in 1979. Our alliance with Saddam Hussein in his invasion of Iran in the early 1980s did not help matters, and obviously did not do much for our relationship with Saddam Hussein. The administration announcement in 2001 that Iran was part of the axis of evil didn't do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn't seem to register with those who continue to provoke Iran. With what most Muslims perceive as our war against Islam, and this recent history, there's little wonder why Iran might choose to harm America by undermining the dollar. Iran, like Iraq, has zero capability to attack us. But that didn't stop us from turning Saddam Hussein into a modern day Hitler ready to take over the world. Now Iran, especially since she's made plans for pricing oil in Euros, has been on the receiving end of a propaganda war not unlike that waged against Iraq before our invasion.
It's not likely that maintaining dollar supremacy was the only motivating factor for the war against Iraq, nor for agitating against Iran. Though the real reasons for going to war are complex, we now know the reasons given before the war started, like the presence of weapons of mass destruction and Saddam Hussein's connection to 9/11, were false. The dollar's importance is obvious, but this does not diminish the influence of the distinct plans laid out years ago by the neo-conservatives to remake the Middle East. Israel's influence, as well as that of the Christian Zionists, likewise played a role in prosecuting this war. Protecting "our" oil supplies has influenced our Middle East policy for decades.
But the truth is that paying the bills for this aggressive intervention is impossible the old fashioned way, with more taxes, more savings, and more production by the American people. Much of the expense of the Persian Gulf War in 1991 was shouldered by many of our willing allies. That's not so today. Now, more than ever, the dollar hegemony-- it's dominance as the world reserve currency-- is required to finance our huge war expenditures. This $2 trillion never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do just that.
For the most part the true victims aren't aware of how they pay the bills. The license to create money out of thin air allows the bills to be paid through price inflation. American citizens, as well as average citizens of Japan, China, and other countries suffer from price inflation, which represents the "tax" that pays the bills for our military adventures. That is until the fraud is discovered, and the foreign producers decide not to take dollars nor hold them very long in payment for their goods. Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it. If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the world's reserve currency.
It is an unbelievable benefit to us to import valuable goods and export depreciating dollars. The exporting countries have become addicted to our purchases for their economic growth. This dependency makes them allies in continuing the fraud, and their participation keeps the dollar's value artificially high. If this system were workable long term, American citizens would never have to work again. We too could enjoy "bread and circuses" just as the Romans did, but their gold finally ran out and the inability of Rome to continue to plunder conquered nations brought an end to her empire.
The same thing will happen to us if we don't change our ways. Though we don't occupy foreign countries to directly plunder, we nevertheless have spread our troops across 130 nations of the world. Our intense effort to spread our power in the oil-rich Middle East is not a coincidence. But unlike the old days, we don't declare direct ownership of the natural resources-- we just insist that we can buy what we want and pay for it with our paper money. Any country that challenges our authority does so at great risk.
Once again Congress has bought into the war propaganda against Iran, just as it did against Iraq. Arguments are now made for attacking Iran economically, and militarily if necessary. These arguments are all based on the same false reasons given for the ill-fated and costly occupation of Iraq.
Our whole economic system depends on continuing the current monetary arrangement, which means recycling the dollar is crucial. Currently, we borrow over $700 billion every year from our gracious benefactors, who work hard and take our paper for their goods. Then we borrow all the money we need to secure the empire (DOD budget $450 billion) plus more. The military might we enjoy becomes the "backing" of our currency. There are no other countries that can challenge our military superiority, and therefore they have little choice but to accept the dollars we declare are today's "gold." This is why countries that challenge the system-- like Iraq, Iran and Venezuela-- become targets of our plans for regime change.
Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar. As long as foreign recipients take our dollars for real goods and are willing to finance our extravagant consumption and militarism, the status quo will continue regardless of how huge our foreign debt and current account deficit become.
But real threats come from our political adversaries who are incapable of confronting us militarily, yet are not bashful about confronting us economically. That's why we see the new challenge from Iran being taken so seriously. The urgent arguments about Iran posing a military threat to the security of the United States are no more plausible than the false charges levied against Iraq. Yet there is no effort to resist this march to confrontation by those who grandstand for political reasons against the Iraq war.
It seems that the people and Congress are easily persuaded by the jingoism of the preemptive war promoters. It's only after the cost in human life and dollars are tallied up that the people object to unwise militarism.
The strange thing is that the failure in Iraq is now apparent to a large majority of American people, yet they and Congress are acquiescing to the call for a needless and dangerous confrontation with Iran.
But then again, our failure to find Osama bin Laden and destroy his network did not dissuade us from taking on the Iraqis in a war totally unrelated to 9/11.
Concern for pricing oil only in dollars helps explain our willingness to drop everything and teach Saddam Hussein a lesson for his defiance in demanding Euros for oil.
And once again there's this urgent call for sanctions and threats of force against Iran at the precise time Iran is opening a new oil exchange with all transactions in Euros.
Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid.
The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros. The sooner the better.
~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~
Remarkable to see this argument put forward so directly in this Special Order speech by Rep. Paul. It's been an issue of immense interest to Energy Bulletin readers, accounting for some of our most popular articles ever. William Clark has written from a similar perspective whilst incorporating Peak Oil into his analysis. Krassimir Petrov and Cóilín Nunan provide complimentary analyses. See also a counter-argument from James D. Hamilton.
Association for the Study of Peak Oil (ASPO) founder Colin Campbell wrote an article with the same title as Rep. Paul in his November 2004 newsletter.
The phrase Dollar Hegemony was coined by economist Henry C K Liu in 2002.
Ron Paul is a Republican Congressman who has been a very vocal opponent of his own party's current leadership, the neoconservatives.
[ See an online video of this presentation ]
A hundred years ago it was called "dollar diplomacy." After World War II, and especially after the fall of the Soviet Union in 1989, that policy evolved into "dollar hegemony." But after all these many years of great success, our dollar dominance is coming to an end.
It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value.
First it was simply barter of goods. Then it was discovered that gold held a universal attraction, and was a convenient substitute for more cumbersome barter transactions. Not only did gold facilitate exchange of goods and services, it served as a store of value for those who wanted to save for a rainy day.
Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money. Sometimes governments succeeded in guaranteeing the quality and purity of gold, but in time governments learned to outspend their revenues. New or higher taxes always incurred the disapproval of the people, so it wasn't long before Kings and Caesars learned how to inflate their currencies by reducing the amount of gold in each coin-- always hoping their subjects wouldn't discover the fraud. But the people always did, and they strenuously objected.
This helped pressure leaders to seek more gold by conquering other nations. The people became accustomed to living beyond their means, and enjoyed the circuses and bread. Financing extravagances by conquering foreign lands seemed a logical alternative to working harder and producing more. Besides, conquering nations not only brought home gold, they brought home slaves as well. Taxing the people in conquered territories also provided an incentive to build empires. This system of government worked well for a while, but the moral decline of the people led to an unwillingness to produce for themselves. There was a limit to the number of countries that could be sacked for their wealth, and this always brought empires to an end. When gold no longer could be obtained, their military might crumbled. In those days those who held the gold truly wrote the rules and lived well.
That general rule has held fast throughout the ages. When gold was used, and the rules protected honest commerce, productive nations thrived. Whenever wealthy nations-- those with powerful armies and gold-- strived only for empire and easy fortunes to support welfare at home, those nations failed.
Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: "He who prints the money makes the rules"-- at least for the time being. Although gold is not used, the goals are the same: compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses.
Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation's people-- just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare.
The pressure at home to inflate the currency comes from the corporate welfare recipients, as well as those who demand handouts as compensation for their needs and perceived injuries by others. In both cases personal responsibility for one's actions is rejected.
When paper money is rejected, or when gold runs out, wealth and political stability are lost. The country then must go from living beyond its means to living beneath its means, until the economic and political systems adjust to the new rules-- rules no longer written by those who ran the now defunct printing press.
"Dollar Diplomacy," a policy instituted by William Howard Taft and his Secretary of State Philander C. Knox, was designed to enhance U.S. commercial investments in Latin America and the Far East. McKinley concocted a war against Spain in 1898, and (Teddy) Roosevelt's corollary to the Monroe Doctrine preceded Taft's aggressive approach to using the U.S. dollar and diplomatic influence to secure U.S. investments abroad. This earned the popular title of "Dollar Diplomacy." The significance of Roosevelt's change was that our intervention now could be justified by the mere "appearance" that a country of interest to us was politically or fiscally vulnerable to European control. Not only did we claim a right, but even an official U.S. government "obligation" to protect our commercial interests from Europeans.
This new policy came on the heels of the "gunboat" diplomacy of the late 19th century, and it meant we could buy influence before resorting to the threat of force. By the time the "dollar diplomacy" of William Howard Taft was clearly articulated, the seeds of American empire were planted. And they were destined to grow in the fertile political soil of a country that lost its love and respect for the republic bequeathed to us by the authors of the Constitution. And indeed they did. It wasn't too long before dollar "diplomacy" became dollar "hegemony" in the second half of the 20th century.
This transition only could have occurred with a dramatic change in monetary policy and the nature of the dollar itself.
Congress created the Federal Reserve System in 1913. Between then and 1971 the principle of sound money was systematically undermined. Between 1913 and 1971, the Federal Reserve found it much easier to expand the money supply at will for financing war or manipulating the economy with little resistance from Congress-- while benefiting the special interests that influence government.
Dollar dominance got a huge boost after World War II. We were spared the destruction that so many other nations suffered, and our coffers were filled with the world's gold. But the world chose not to return to the discipline of the gold standard, and the politicians applauded. Printing money to pay the bills was a lot more popular than taxing or restraining unnecessary spending. In spite of the short-term benefits, imbalances were institutionalized for decades to come.
The 1944 Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, replacing the British pound. Due to our political and military muscle, and because we had a huge amount of physical gold, the world readily accepted our dollar (defined as 1/35th of an ounce of gold) as the world's reserve currency. The dollar was said to be "as good as gold," and convertible to all foreign central banks at that rate. For American citizens, however, it remained illegal to own. This was a gold-exchange standard that from inception was doomed to fail.
The U.S. did exactly what many predicted she would do. She printed more dollars for which there was no gold backing. But the world was content to accept those dollars for more than 25 years with little question-- until the French and others in the late 1960s demanded we fulfill our promise to pay one ounce of gold for each $35 they delivered to the U.S. Treasury. This resulted in a huge gold drain that brought an end to a very poorly devised pseudo-gold standard.
It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.
Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it-- not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.
Realizing the world was embarking on something new and mind boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence "backed" the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.
This post-Bretton Woods system was much more fragile than the system that existed between 1945 and 1971. Though the dollar/oil arrangement was helpful, it was not nearly as stable as the pseudo gold standard under Bretton Woods. It certainly was less stable than the gold standard of the late 19th century.
During the 1970s the dollar nearly collapsed, as oil prices surged and gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were required to rescue the system. The pressure on the dollar in the 1970s, in spite of the benefits accrued to it, reflected reckless budget deficits and monetary inflation during the 1960s. The markets were not fooled by LBJ's claim that we could afford both "guns and butter."
Once again the dollar was rescued, and this ushered in the age of true dollar hegemony lasting from the early 1980s to the present. With tremendous cooperation coming from the central banks and international commercial banks, the dollar was accepted as if it were gold.
Fed Chair Alan Greenspan, on several occasions before the House Banking Committee, answered my challenges to him about his previously held favorable views on gold by claiming that he and other central bankers had gotten paper money-- i.e. the dollar system-- to respond as if it were gold. Each time I strongly disagreed, and pointed out that if they had achieved such a feat they would have defied centuries of economic history regarding the need for money to be something of real value. He smugly and confidently concurred with this.
In recent years central banks and various financial institutions, all with vested interests in maintaining a workable fiat dollar standard, were not secretive about selling and loaning large amounts of gold to the market even while decreasing gold prices raised serious questions about the wisdom of such a policy. They never admitted to gold price fixing, but the evidence is abundant that they believed if the gold price fell it would convey a sense of confidence to the market, confidence that they indeed had achieved amazing success in turning paper into gold.
Increasing gold prices historically are viewed as an indicator of distrust in paper currency. This recent effort was not a whole lot different than the U.S. Treasury selling gold at $35 an ounce in the 1960s, in an attempt to convince the world the dollar was sound and as good as gold. Even during the Depression, one of Roosevelt's first acts was to remove free market gold pricing as an indication of a flawed monetary system by making it illegal for American citizens to own gold. Economic law eventually limited that effort, as it did in the early 1970s when our Treasury and the IMF tried to fix the price of gold by dumping tons into the market to dampen the enthusiasm of those seeking a safe haven for a falling dollar after gold ownership was re-legalized.
Once again the effort between 1980 and 2000 to fool the market as to the true value of the dollar proved unsuccessful. In the past 5 years the dollar has been devalued in terms of gold by more than 50%. You just can't fool all the people all the time, even with the power of the mighty printing press and money creating system of the Federal Reserve.
Even with all the shortcomings of the fiat monetary system, dollar influence thrived. The results seemed beneficial, but gross distortions built into the system remained. And true to form, Washington politicians are only too anxious to solve the problems cropping up with window dressing, while failing to understand and deal with the underlying flawed policy. Protectionism, fixing exchange rates, punitive tariffs, politically motivated sanctions, corporate subsidies, international trade management, price controls, interest rate and wage controls, super-nationalist sentiments, threats of force, and even war are resorted to?all to solve the problems artificially created by deeply flawed monetary and economic systems.
In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that's the United States. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. But this leads to a loss of manufacturing jobs to overseas markets, as we become more dependent on others and less self-sufficient. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption.
It sounds like a great deal for everyone, except the time will come when our dollars-- due to their depreciation-- will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production. The shift in sentiment regarding the dollar has already started, but the worst is yet to come.
The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. Last year alone M3 increased over $700 billion.
The artificial demand for our dollar, along with our military might, places us in the unique position to "rule" the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can't last.
Price inflation is raising its ugly head, and the NASDAQ bubble-- generated by easy money-- has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world's rejection of the dollar. It's bound to come and create conditions worse than 1979-1980, which required 21% interest rates to correct. But everything possible will be done to protect the dollar in the meantime. We have a shared interest with those who hold our dollars to keep the whole charade going.
Greenspan, in his first speech after leaving the Fed, said that gold prices were up because of concern about terrorism, and not because of monetary concerns or because he created too many dollars during his tenure. Gold has to be discredited and the dollar propped up. Even when the dollar comes under serious attack by market forces, the central banks and the IMF surely will do everything conceivable to soak up the dollars in hope of restoring stability. Eventually they will fail.
Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged as it already has been.
In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O'Neill, the major topic was how we would get rid of Saddam Hussein-- though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O'Neill.
It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.
There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.
In 2001, Venezuela's ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.
After these attempts to nudge the Euro toward replacing the dollar as the world's reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance.
It's become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported.
Now, a new attempt is being made against the petrodollar system. Iran, another member of the "axis of evil," has announced her plans to initiate an oil bourse in March of this year. Guess what, the oil sales will be priced Euros, not dollars.
Most Americans forget how our policies have systematically and needlessly antagonized the Iranians over the years. In 1953 the CIA helped overthrow a democratically elected president, Mohammed Mossadeqh, and install the authoritarian Shah, who was friendly to the U.S. The Iranians were still fuming over this when the hostages were seized in 1979. Our alliance with Saddam Hussein in his invasion of Iran in the early 1980s did not help matters, and obviously did not do much for our relationship with Saddam Hussein. The administration announcement in 2001 that Iran was part of the axis of evil didn't do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn't seem to register with those who continue to provoke Iran. With what most Muslims perceive as our war against Islam, and this recent history, there's little wonder why Iran might choose to harm America by undermining the dollar. Iran, like Iraq, has zero capability to attack us. But that didn't stop us from turning Saddam Hussein into a modern day Hitler ready to take over the world. Now Iran, especially since she's made plans for pricing oil in Euros, has been on the receiving end of a propaganda war not unlike that waged against Iraq before our invasion.
It's not likely that maintaining dollar supremacy was the only motivating factor for the war against Iraq, nor for agitating against Iran. Though the real reasons for going to war are complex, we now know the reasons given before the war started, like the presence of weapons of mass destruction and Saddam Hussein's connection to 9/11, were false. The dollar's importance is obvious, but this does not diminish the influence of the distinct plans laid out years ago by the neo-conservatives to remake the Middle East. Israel's influence, as well as that of the Christian Zionists, likewise played a role in prosecuting this war. Protecting "our" oil supplies has influenced our Middle East policy for decades.
But the truth is that paying the bills for this aggressive intervention is impossible the old fashioned way, with more taxes, more savings, and more production by the American people. Much of the expense of the Persian Gulf War in 1991 was shouldered by many of our willing allies. That's not so today. Now, more than ever, the dollar hegemony-- it's dominance as the world reserve currency-- is required to finance our huge war expenditures. This $2 trillion never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do just that.
For the most part the true victims aren't aware of how they pay the bills. The license to create money out of thin air allows the bills to be paid through price inflation. American citizens, as well as average citizens of Japan, China, and other countries suffer from price inflation, which represents the "tax" that pays the bills for our military adventures. That is until the fraud is discovered, and the foreign producers decide not to take dollars nor hold them very long in payment for their goods. Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it. If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the world's reserve currency.
It is an unbelievable benefit to us to import valuable goods and export depreciating dollars. The exporting countries have become addicted to our purchases for their economic growth. This dependency makes them allies in continuing the fraud, and their participation keeps the dollar's value artificially high. If this system were workable long term, American citizens would never have to work again. We too could enjoy "bread and circuses" just as the Romans did, but their gold finally ran out and the inability of Rome to continue to plunder conquered nations brought an end to her empire.
The same thing will happen to us if we don't change our ways. Though we don't occupy foreign countries to directly plunder, we nevertheless have spread our troops across 130 nations of the world. Our intense effort to spread our power in the oil-rich Middle East is not a coincidence. But unlike the old days, we don't declare direct ownership of the natural resources-- we just insist that we can buy what we want and pay for it with our paper money. Any country that challenges our authority does so at great risk.
Once again Congress has bought into the war propaganda against Iran, just as it did against Iraq. Arguments are now made for attacking Iran economically, and militarily if necessary. These arguments are all based on the same false reasons given for the ill-fated and costly occupation of Iraq.
Our whole economic system depends on continuing the current monetary arrangement, which means recycling the dollar is crucial. Currently, we borrow over $700 billion every year from our gracious benefactors, who work hard and take our paper for their goods. Then we borrow all the money we need to secure the empire (DOD budget $450 billion) plus more. The military might we enjoy becomes the "backing" of our currency. There are no other countries that can challenge our military superiority, and therefore they have little choice but to accept the dollars we declare are today's "gold." This is why countries that challenge the system-- like Iraq, Iran and Venezuela-- become targets of our plans for regime change.
Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar. As long as foreign recipients take our dollars for real goods and are willing to finance our extravagant consumption and militarism, the status quo will continue regardless of how huge our foreign debt and current account deficit become.
But real threats come from our political adversaries who are incapable of confronting us militarily, yet are not bashful about confronting us economically. That's why we see the new challenge from Iran being taken so seriously. The urgent arguments about Iran posing a military threat to the security of the United States are no more plausible than the false charges levied against Iraq. Yet there is no effort to resist this march to confrontation by those who grandstand for political reasons against the Iraq war.
It seems that the people and Congress are easily persuaded by the jingoism of the preemptive war promoters. It's only after the cost in human life and dollars are tallied up that the people object to unwise militarism.
The strange thing is that the failure in Iraq is now apparent to a large majority of American people, yet they and Congress are acquiescing to the call for a needless and dangerous confrontation with Iran.
But then again, our failure to find Osama bin Laden and destroy his network did not dissuade us from taking on the Iraqis in a war totally unrelated to 9/11.
Concern for pricing oil only in dollars helps explain our willingness to drop everything and teach Saddam Hussein a lesson for his defiance in demanding Euros for oil.
And once again there's this urgent call for sanctions and threats of force against Iran at the precise time Iran is opening a new oil exchange with all transactions in Euros.
Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid.
The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros. The sooner the better.
~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~
Remarkable to see this argument put forward so directly in this Special Order speech by Rep. Paul. It's been an issue of immense interest to Energy Bulletin readers, accounting for some of our most popular articles ever. William Clark has written from a similar perspective whilst incorporating Peak Oil into his analysis. Krassimir Petrov and Cóilín Nunan provide complimentary analyses. See also a counter-argument from James D. Hamilton.
Association for the Study of Peak Oil (ASPO) founder Colin Campbell wrote an article with the same title as Rep. Paul in his November 2004 newsletter.
The phrase Dollar Hegemony was coined by economist Henry C K Liu in 2002.
Ron Paul is a Republican Congressman who has been a very vocal opponent of his own party's current leadership, the neoconservatives.
EcoEthanol - Iogen Corporation - Canada's New Alchemists
Iogen Corporation is a leading industrial biotechnology company specializing in EcoEthanol - a clean, zero-net-CO2-emission fuel that can be blended with gasoline and used in cars today. Based in Ottawa, the company has built the world's first and only demonstration-scale facility to convert cellulose material such as wheat straw into bioethanol using its patented enzymes manufactured in an adjacent enzyme manufacturing facility. It employs about 140 people and generates revenues around $10-12 million per year, mostly from the sale of its industrial-use enzymes.
For more information, see www.iogen.ca
When it comes to curbing pollutants, EcoEthanol, Iogen's unique bioethanol product, is a very exciting fuel. Emissions of the greenhouse gas carbon dioxide (CO2) are significantly cut when vehicles fill up with fuel containing ethanol, which is produced from plant life rather than hydrocarbons.
For more information, see www.iogen.ca
When it comes to curbing pollutants, EcoEthanol, Iogen's unique bioethanol product, is a very exciting fuel. Emissions of the greenhouse gas carbon dioxide (CO2) are significantly cut when vehicles fill up with fuel containing ethanol, which is produced from plant life rather than hydrocarbons.
But the bioethanol used in most "green" gasoline mixes offered at gas stations is produced from grains such as wheat or corn. The downside to ethanol produced from these grains is that it steals from the planet's stock of food resources. Ottawa-based Iogen Corporation avoids that by producing bioethanol from the stalks of grains and other waste biomass, such as straw, grass, etc., instead of from the grain kernels themselves.
When people talk about Canadian-based firms built around innovation, Iogen Corporation appears on everybody's list. In the words of Jeff Passmore, Iogen's executive vice-president, "We are the only company in the world up to now that has been able to take by-product fibre and turn it into a form of bioethanol with 90 percent lower greenhouse gas emissions than gasoline."
Not only has Iogen been able to make breakthroughs in alternative fuels - to the point that it now has a $40-million demonstration plant up and running on the outskirts of Ottawa - it has also produced breakthroughs in the textile, pulp-and-paper, beverage and livestock feed industries. The type of enzymes that Iogen develops as catalysts capable of turning plant waste into fermentable alcohol can also be used to break down fibres and produce useful products in these other industries. In fact, Iogen has helped keep its ethanol research and development (R&D) going by selling these enzymes to companies in other industries.
"People usually think of ethanol when they think of us, which is just fine," says Patrick Foody Sr., the visionary founder of Iogen, now retired. "But if you read magazines or books, drink fruit juices or beer, or wear jeans or T-shirts, there is a good chance that Iogen has made direct contact with you, most days of your life." Iogen's patented enzymes are used to reduce chlorine content in pulp and paper while producing the same level of whiteness, to prewash denim, and to improve the digestibility of feed for chickens and pigs.
Today, Iogen is still mainly a family-owned company, with annual revenues estimated at around $10-12 million a year. But the company is poised to make a much bigger dent on the marketplace. In January 2003 the firm announced that its EcoEthanol demonstration facility was successfully processing 25 tonnes of wheat straw per week into fermentable sugar and was on track to produce 320 000 litres of ethanol annually. No one has ever used modern enzyme technology to successfully convert cellulose material such as straw into fermentable sugar on this scale before, and Iogen's success has affirmed its global leadership in a highly complex biotechnology process.
"This is a major first for Iogen, and a major first for green fuels," says Iogen president Brian Foody. "This brings us one step closer to commercialization, and one step closer to a truly green fuel at the pump." How Iogen got to this stage after Patrick Foody Sr.'s vision first came to him in 1978, and where Iogen will go from here, are both worth pondering for anyone interested in translating innovation into profits.
At the BeginningPatrick Foody Sr. emigrated from Ireland in 1952 and was trained as an engineer. He had become a multimillionaire through investments made through his Montréal-based holding company, Techcapital Group. Foody Sr. had been involved in start-ups in several areas, including engineering, software and biotechnology. Iogen began as a hobby for him. It turned into an expensive hobby. Of the more than $85 million it has cost to get Iogen to the stage it is now at, more than $20 million came from Foody Sr.'s own pockets. One area of biotechnology - renewable energy - was to become as much a passion for him as an investment.
In 1973 the big fear was that the world was going to run out of food, as the prestigious Club of Rome had direly predicted. If the world wasn't producing enough food for humans and animals, Foody Sr. wondered whether the coarse, brittle fibres in wood chips could be softened somehow and made into edible animal feed. Since the chemical fingerprints of wood and starch were remarkably similar, he hypothesized that wood chips could be converted into a food source, if he could solve the fibre problem. In 1974, he started Iotech Corporation, with three employees, to pursue this potentially lucrative opportunity. The food crisis didn't happen, but, a few years later, by using steam explosion, Iotech did find a way to convert wood chips into animal feed. The technology evolved into a leading method for treating fibre to make it more digestible to enzymes.1 As it turns out, this is also one of the key technologies in the cost-effective manufacturing of bioethanol, although Foody wouldn't start thinking about making alcohol fuel until 1978.
That year, he was introduced, through his son, to Henry Bungay, a chemical engineering professor at Rensselaer Polytechnical Institute who also happened to be head of a research program on alcohol fuel for the United States government. As it turns out, the technology Foody Sr. had developed provided a solution to a problem U.S. university researchers were working on in converting fibres to sugar and then to alcohol fuel. When Foody Sr. presented Bungay with some mushy bits of wood, cooked in steam to break them down, and told him his assessment of how important this concoction could be if mixed with the proper enzymes to produce alcohol, Bungay was quick to grasp the importance of the concept. They started to work together on the problem of genetically modifying micro-organisms to produce more durable enzymes that could resist the high temperatures in the steaming process. "The work we did to understand how enzymes break down fibres had allowed us to identify solutions to the puzzle of producing ethanol," comments Foody Sr.
By the late 1970s, it appeared that the world's oil supply might be running dangerously low. Foody Sr., compelled by this second global crisis, was ready to take on the mission of producing a green fuel. With funding from his own company, Foody Sr. sought alliances with oil and other biotechnology companies to further develop bioethanol technology. In 1983 the Foody family built the world's first fully integrated pilot plant to convert one tonne per day of wood chips into ethanol using enzyme-based technology. The cost of the project came to $7.8 million, $2.7 million of which came from Natural Resources Canada. However, the prediction of a global oil shortage too proved to be off the mark. In 1986 oil prices collapsed, interest in the bioethanol solution waned and Foody Sr. eventually ran out of both potential markets and eager financial partners for his plant.
A Business, Not a Hobby
A shift of gears was needed in the 1990s to save the company, but, as Passmore points out, that wasn't as difficult as it might have been. "Oil didn't go to $80 a barrel, but, in the process of making ethanol from fibre, we learned a lot about enzyme technology. And enzymes, of course, attack and break down natural fibres, and a lot of companies (especially in the fields of pulp and paper, beverages, textiles and livestock feed) need to do that. So we, fortuitously, backed into an enzyme business.... We employed the same kinds of micro-organisms that secrete enzymes to attack fibre in these other areas as we did in turning fibre into sugar to create clean fuels," he says. Forced to look for markets to survive, the company quickly worked to secure government research contracts for possible industrial uses for the company's enzyme technology. It was six years before Iogen introduced its first commercial product: an enzyme to help clarify apple juice. Then, in 1994, the National Research Council Canada partnered with Iogen to develop genetically engineered enzymes for the pulp and paper industry.By the late 1990s, Iogen led the world in manufacturing and selling enzymes for specialty applications in pulp and paper, textiles, and animal feed markets. It now racks up sales close to $12 million a year doing this. In the meantime, not much was happening in its ethanol plant, but Foody Sr. was hooked on the idea of renewable energy sources. Then, in the late 1990s, people started to worry about climate change caused by the emission of greenhouse gases. And Iogen found its market.
Foody Sr. had always been worried about the environmental impact of burning fossil fuels, but suddenly lots of influential people started to worry along with him. If the first and second crises that seemed to cry out for Iogen had faded into the background, the world environmental crisis appeared like it would be on the front burner for centuries to come. With the signing of the Kyoto protocol, Iogen's bioethanol technology once again rose in prominence.
Financing the Dream
Foody Sr. could not fully fund this process himself without risking his family's finances, including, as he points out, the education of his six children. Some funding came from the sale of enzymes, but Iogen's revenues from enzyme sales weren't enough to cover the full cost of its ethanol R&D. Other backing came from research partnerships with government institutions such as the National Research Council Canada, Natural Resources Canada, and Agriculture and Agri-Food Canada, with each side typically investing 50 percent of research costs. Total government funding is estimated to have been about $18 million. Significant amounts also came from strategic partnerships with oil and gas companies such as Petro-Canada and the Royal Dutch/Shell Group.By 1997, Iogen, whose offices were housed on a 1.2-hectare site next to Ottawa's Macdonald-Cartier International Airport, was producing enzymes that most energy analysts agreed were superior to anything the company's competitors had developed.
That year, Iogen signed a deal with Petro-Canada for $15.8 million that would let Iogen buy more land and build the commercial demonstration plant that is now the company's centrepiece, converting 25 tonnes of straw a week into bioethanol. An additional $10 million in funding, in the form of repayable loans from future profits, came from Technology Partnerships Canada, a branch of Industry Canada. The remainder of the $30 million required came from Iogen itself.
Iogen's good relationship with the Canadian government continued to bear fruit. In March 2002, the company was awarded a three-year, $2.7-million, cost-shared research contract to develop improved enzymes, with Iogen putting up $2.7 million of its own in funding. Government participants in the project included Technology Early Action Measures, a component of the Climate Change Action Fund; Natural Resources Canada; and Agriculture and Agri-Food Canada.
But, as market production came closer to becoming a reality, it became clear that Iogen needed a significant new injection of funding. Later in 2002, after eight months of negotiations, Iogen and the Royal Dutch/Shell Group announced that Shell would pay $45.5 million for a 22-percent interest in Iogen. Foody Sr. called the partnership "one of the most important milestones" in the history of his company, and the "beginning of a new era" in the production of environmentally friendly vehicle fuels. The deal with Shell has helped Iogen complete the demonstration phase and is funding market and feasibility studies in five European countries.
With the Shell announcement, Patrick Foody Sr.'s 30-year-old dream appeared to be on the brink of becoming a marketplace reality.
What Made It Work?
The road to Iogen's current position has been paved with technological challenges. The R&D process of its ethanol business has gone through four stages:
- R&D with test tubes and beakers;
- Bench testing using 14-litre tanks;
- Batch processing in a pilot production plant, using 1500-litre tanks; and
- The current demonstration stage, involving completion of a $40-million plant in Ottawa processing 25 tonnes of wheat straw per week.
Passmore explains that it can get complicated. "We start with bales of wheat straw or cobs of corn. We bring them into the plant and add enzymes, which turns the straw to sugar, and the sugar is converted to alcohol - ethanol for use in cars. The process that we have to make the enzymes work as efficiently as they can is very complicated," he says. "Enzymes are just catalysts - proteins, like you find in your saliva that help you break down bread and digest it. Enzymes break down dead trees in nature, but we are trying to speed up nature. We design the engineering around the enzyme process and the enzymes around the engineering process. Sometimes the enzymes don't perform as well as we had hoped they would, so that means adjusting the engineering process. Our scientists have to keep talking to our processing engineers, and vice versa, in order to come up with the optimal commercial development."
At the beginning of 2003, Iogen employed 140 people, almost half of them involved in the laboratory process of extracting the best kinds of enzymes, and many others working in engineering, building systems to make those enzymes produce the best bioethanol product most efficiently. Iogen continues to focus on solving engineering problems around how enzymes work to convert fibre to sugar, and scaling up the production process toward commercial viability.
The demonstration facility provides the opportunity to assess what works and what doesn't, and to prove the technology. "We always knew you could take enzymes to treat fibre and turn wood into sugar. That's not the issue," says Passmore. "It's at what cost and whether it can be done in an industrial-scale environment quickly. We need supplies of straw, financing, an off-take for the ethanol, a market and an affordable price. The total cost of a commercial bioethanol plant would be about $200 million." The final stage for Iogen, of course, will be full commercialization. "We are at that point now with Shell," says Passmore. "If the technology works, we can build a business case for commercial viability in at least three countries. But making the transition to commercialization depends on the world's willingness to go to bioethanol." Iogen envisions a commercial facility with the capacity to process more than 2000 tonnes of feedstock per day to produce more than 220 million litres of bioenthanol per year.
Passmore has several explanations for what has brought Iogen to the brink of success. The first, of course, is the vision of the man company employees call "our patriarch" - Patrick Foody Sr. "He is a man with a vision. He wanted to see the world go to a cleaner energy fuel. This vision inspires a whole bunch of people at Iogen," says Passmore.
Then there is the flexibility the company showed when it became apparent that the spectre of dwindling food stocks and oil stocks was overstated, and would not bring in the investment cash needed to keep the company going. Selling enzymes to other industries helped get it over that hurdle.
Good patent protection - both for the enzymes themselves, and the engineering process to convert them for gasoline products - was also vital. "Our discovery patents have been very important," says Passmore. "We have patented pretreatment, enzyme technologies and enzymatic hydrolysis. As a result of these patents, we are putting more fibre through our plant than anybody else in the world."
The willingness to go out and partner with a big firm when the time came also proved vital to Iogen. "Don't be afraid to go out and seek strategic investments," Passmore advises. "Realize that you're going to have to give something up to get them to invest, but make sure you have some good, smart people on your side of the negotiating table."
Passmore believes that Iogen's focus on hiring smart people was crucial. By this, he not only means the scientists and engineers, but also the negotiators, marketers and communicators with the savvy to keep reminding government how important the technology could be to Canada's future, and business experts who understand something about rolling out commercial develoment plans and getting them into the marketplace. "All of these skill sets are important to get the product into the marketplace," says Passmore, who adds that finding skilled people remains a challenge.
In any discussion of what is important to Iogen's future, Passmore underlines how important it is for the Canadian federal government to make a strong push toward environmental reform. "The issue [for us] now is market pull... and often that pull is created by government policy," he says. Passmore notes that European governments, in particular, are creating pro-environment policies, and explains that Iogen is looking at the various value propositions offered by governments in European countries in deciding where to set up future commercial facilities.
The Future
Iogen's future is now - or at least not too long off. Passmore says the company expects to become part of an operating company to produce EcoEthanol for the mass marketplace. However, he says, "Once we've got one or two plants under our belts, Iogen intends to focus on licensing bioethanol technology broadly through turnkey plant construction partnerships." The company will earn additional income from licence fees and the supply of enzymes designed for its licensees' plants.
A 30-year-old gamble, built on a dream and fuelled by passion, finally looks close to paying off - for Iogen's founder, his family and everyone who likes to breathe.
Sunday, 30 April 2006
The Paradigm Is The Enemy
The State of the Peak Oil Movement at the Cusp of Collapse
A Speech by Michael C. Ruppert for the Local Solutions to the Energy Dilemma Conference
April 27-29, New York City, at Cooper Union
As a matter of necessity, in the course of a turbulent and often very difficult life, I have developed a pretty warped sense of humor. As most police officers, nurses, ER doctors, paramedics, and military combat veterans know, the best time to find humor is when things are at their worst. Sometimes the humor that emerges from these situations is strange, to say the least. And yet sometimes it remains the most memorable humor of a lifetime - humor that can actually sustain you in tough times. Humor is energy.
A Speech by Michael C. Ruppert for the Local Solutions to the Energy Dilemma Conference
April 27-29, New York City, at Cooper Union
As a matter of necessity, in the course of a turbulent and often very difficult life, I have developed a pretty warped sense of humor. As most police officers, nurses, ER doctors, paramedics, and military combat veterans know, the best time to find humor is when things are at their worst. Sometimes the humor that emerges from these situations is strange, to say the least. And yet sometimes it remains the most memorable humor of a lifetime - humor that can actually sustain you in tough times. Humor is energy.
Too often Peak Oil activism reminds me of a statement that I found a long time ago in a book of famous quotations. In the section containing the last recorded words of famous people I found a quote that has stayed with me ever since.
The quote was simply, "We've got them now."
The person who wrote those last "recorded" words on a dispatch to his commanding officer, General George Crook, was George Armstrong Custer.
During the course of this conference I have heard precious little attention paid to events in the world around us indicating that Peak Oil is about to have its global "coming out party" and what that might mean. In almost every nook, cranny and corner of the planet, stress points are beginning to fracture. For the past five years I have argued, emphasized, and repeated endlessly that perhaps the biggest mistake of all time was made on September 11th 2001, when the only real global operational plan to deal with Peak Oil was put into effect. On September 11th we began a war, now infamously known as "the war which will not end in our lifetimes," to decide who will control the last remaining oil and gas reserves on the planet.
In Crossing the Rubicon I wrote, "Events in the five-year period that began on September 11th, 2001 will determine the course of human history for several centuries to come. - We are just months away from the end of that five-year period. What has been accomplished?
The painful answer is: not enough.
Where are we in the real world and how do we judge our current activities in light of real-world events? To sum it up in the words of one of the most senior members of the Peak Oil movement I know, Jay Hanson, "I see my worst fears unfolding right in front of my face." Jay wrote those words just about a week ago.
Jay started the first Peak Oil website in the 1980s, almost even before there was a web. We should listen to Jay, and I could not agree more with his assessment; my worst fears are unfolding right in front of my face.
Perhaps the greatest flaw in the Peak Oil movement's current operating paradigm is that, a part of the movement at least, instead of building lifeboats in the face of an immediate disaster, is delusionally focused on trying to build alternative-powered luxury liners that operate just like the paradigm we as a species need to be abandoning. Not only is this a futile effort, it may well be responsible for killing or destroying the lives of people who at least partially understand Peak Oil and who are trying to find the best courses of immediate action for themselves and their families.
Some parts of this movement however - and tonight I intend to honor two men who are leading the way - have seen the writing on the wall and are independently taking appropriate courses of action that demonstrate both the kind of incisive thinking and leadership that will be needed in very short order.
Before I tell you about these men I think it's a good idea to stop for a minute and take an inventory of the world in which we live today - right now.
THE STATE OF THE WORLD'S ENERGY
I have observed that almost every Peak Oil conference, whether this one, or the Association for the Study of Peak Oil, or ASPO-USA, makes only the most superficial attempt to evaluate geopolitical and economic conditions. These conditions, more than the rate at which supplies are depleted, will determine how Peak Oil and collapse manifest in our lives.
* The Times of London on April 8th ran a story that should have pre-empted every other major story that day. Headlined "World cannot meet oil demand". The story's first sentence read, "The world lacks the means to produce enough oil to meet rising projections for demand for fuel, according to Cristophe de Margerie, head of exploration for Total." Later the story quoted Margerie as saying, "Numbers like 120 million barrels per day will never be reached, never" he said.
* In the last year we have seen the collapse of Kuwait's super-giant field Burgan; accelerated decline in the world's second-largest field, Mexico's Cantarell; and an overall global decline rate approaching 8%. We have seen Saudi Arabia fail to increase production while at the same time finding it more difficult to hide deteriorating reservoir conditions in all of its mature fields, including Ghawar. As of tonight, more than 30 of the world's largest producing nations have entered steep decline.
* Discoveries continue to fall off a cliff. Over the last four years the world has been consuming 6 barrels of oil for every new one found. Publicity stunts, such as the recent attempt to reclassify Venezuelan tar as oil - even when applauded by dilettantes like Gregg Palast - are having no impact on markets, prices or public policy. I think we can safely say at this point that we will soon see an end to the influence of charlatans and schemers like Daniel Yergin of Cambridge Energy. (Now there's at least one bright note.) At this point, the Peak Oil movement should avoid expending needless energy on any arguments about whether Peak Oil is real or not. That precious energy is needed elsewhere. We have won that debate.
* Soaring commodity prices for everything from copper, to uranium, to cement and steel are not only hampering needed infrastructure investment, they are also making it almost impossible to build new drilling rigs, especially deep water rigs. Commodity scarcities are the result of overpopulation, hoarding, over consumption and nothing else. Drilling rigs themselves are in extremely short supply around the world and I believe we should also stay away from any debates about whether new oil supply will even make a difference. It will not and we need only continue to breathe in and out to see this position vindicated also.
* The US government continues an unwinnable war in Iraq while building massive permanent bases and the largest embassy compound ever built. Not only does the US have no intention of leaving Iraq , it has committed - whether under Republican or Democratic leadership - to staying forever - whatever that means. The Empire's position is clear, not as a result of what it says, but as a result of what it has done. America's primary plan to deal with Peak Oil is to fight or intimidate for energy supplies wherever it deems necessary. That, of course, has forced the rest of the world - with a few notable exceptions like Norway and Brazil - to dance to the same sheet music. As a result, I would estimate that of every ten units of energy (or money) expended preparing for Peak Oil today, nine are spent preparing for war while only one is spent building lifeboats and teaching people how to survive. This is sheer insanity.
* The US government is playing a bluff hand over an attack against
* In the face of this, the entire world, and especially China, Russia, India, Germany and Japan are pouring hundreds of billions of dollars of investment into Iran. This is one of many sure signs that the American Empire's weaknesses are becoming visible. There is blood in the water and blood in the water usually leads to a fight. The world, at least as far as its pocketbook is concerned, is betting on Iran.
* Russia is selling Iran lots of Tor M1 anti-aircraft missile systems and cruise missile and high-speed torpedo technologies. China also is flooding Iran with advanced military systems.
* The US has stepped up deliveries of weapons systems and military advisors to oil-producing regions around the world. This has been matched by similar deliveries to the same regions by Russia, China, Pakistan, Saudi Arabia, Venezuela, France, Britain, India and many other countries. A best-selling novel in China , The Battle in Protecting Key Oil Routes, has the Chinese navy destroying a US carrier battle group. The popular book documents a bloody contest over control of the Straits of Malacca, that narrow channel through which most of China's, Japan's, and Korea's energy passes.
* China's Hu Jintao, clearly one of the world's only major leaders with both plans and choices, is making direct calls on Saudi Arabia and Nigeria as George W. Bush haplessly points to hydrogen fuel cell cars as a solution. Don't worry about how many American people will buy into such Bush nonsense. Worry about how many world leaders are watching these same clips and asking, "Is that the best he can do? America is in deep shit."
* In Nigeria'the US's fifth largest oil supplier and the world's eighth - groups of well-organized and supplied rebels are using high-tech email, bombs, bullets and kidnapping to terrorize major oil companies. Production is threatened on a daily basis. In a world where there is no place else to go to replace even 50,000 barrels a day - out of the 84 million needed - the totally corrupt regime of Olusegun Obasanjo is besieged by rebel and dissident groups on many fronts. I have no doubt that several of these groups are being financed, trained, led and supplied through covert arms of the US, Chinese, Russian, British, Saudi, Pakistani and/or Indian governments.
* In nearby Chad - which is the source-country for the Chad-Cameroon pipeline delivering 160,000 barrels a day into the global mouth - as he attempts to ward off an aggressively hungry World Bank, President Idriss Deby is literally holding oil hostage. Knowing full well that to shut down the pipeline would cause an estimated $10 jump in the price of oil, he is literally telling the west, "Come any closer and I'll shoot the oil."
* At the same time, Chad is beset by rebel insurgents from neighboring Sudan, which is China's fifth-largest oil supplier. Both the US and China are hip-deep in covert operations in Sudan.
* On April 18, Secretary of State Condoleezza Rice met with one of Africa's most brutal dictators, Teodoro Nguema of Equatorial Guinea - Africa's third-largest oil exporter, calling him a good friend of the US. With institutional memories as short as they are, few remember that Sir Mark Thatcher, son of Britain's Margaret Thatcher, was nabbed last year in the middle of a coup intended to oust Nguema.
* All of Africa, especially West Africa - exactly as I predicted in 2003, in Crossing the Rubicon and in last year?s lecture series which became our newest DVD Denial Stops Here - is exploding with armed insurrections from the Western Sahara region to Angola. It is West Africa where I believe we will see proxy wars likely intensifying this year, which could trigger a global nuclear exchange in very short order.
* But murder, far more callous, is about to be perpetrated by the Democratic Party as it enters the 2006 midterm campaigns with what is surely - barring a miracle - going to be one of its major planks in 2008: "Don't worry," they will promise, "the Democrats will restore cheap gasoline for all and find a no-pain answer to all of our energy woes. High prices are the fault of greedy oil companies and price gougers, not a lack of supply." I can promise you now, Hillary Clinton, that if the Democratic Party adopts this approach it will find in me an enemy that will make FTW's editorial posture towards the Bush administration over the last five years look like abject friendship.
* American mainstream media has become absolutely and certifiably schizophrenic on the issue of Peak Oil. Within the space of an hour, one can watch segments acknowledging Peak Oil and Gas and the insoluble problems they bring, and segments assuring us that there is no problem at all if we just fix a few little things.
* On April 11th The Financial Times reported that Russian production is falling and expected to decrease - rather than increase - rapidly over the next four years.
* On April 21, Russia's giant, Gazprom - for the second time in less than a year - threatened to shut off Europe's only major source of natural gas. Just a month previously, a desperate and hobbled Britain surrendered its energy sovereignty to the European Union in the hopes of getting better energy prices at the end of Russia's long natural gas supply line.
* On April 24th, just a few days ago, during his state visit to Saudi Arabia, Chinese President Hu Jintao signed a series of accords in which China, in exchange for a larger portion of Saudi oil exports, agreed to transfer high-tech weapons and other technologies to the Saudi monarchy in exchange.
* At the same moment that George W. Bush has announced that he will stop refilling the US Strategic Petroleum Reserve in an ill-conceived attempt to lower pump prices - a completely shortsighted and self-serving gesture - China is in negotiations with Saudi Arabia to begin filling a new one.
* Climate Change and hurricanes not only continue apace but have accelerated. Now that we are just weeks away from a new hurricane season, fully 23% of Gulf of Mexico production remains shut-in after last year's hurricanes. Recently the Department of Energy acknowledged that most of that would never be rebuilt due to high investment costs at mature and post-mature reservoirs. Aside from the fact that it's not cost effective, this is also because of rig shortages. This is what FTW warned you about almost a year ago. When and if we ever have a chance to look back we will historically mark Katrina and Rita as the singular moment in time when a true US economic and military resurgence became impossible; the moment when the Empire began it's collapse. In other words, that was the moment when the Empire passed from decline to terminal status.
* On April 4th, Dow Jones - MarketWatch reported that $6 to $7 gasoline might be coming this summer. Is there anyone in this room tonight who does not believe that $6-$7 gasoline would be an unmistakable sign of collapse?
* And let me add an observation here. I think a good part of this unseasonable spike in American oil prices is both caused by the switch out from MTBE to ethanol and a classic political strategy which is to create a bad problem and then appear to solve it so that people will accept an otherwise unacceptable solution. This is an election year. The elections are not for seven months. I for one do NOT think we will see $6 or $7 gasoline this summer. I think gas prices may reach $4 or even $5 for a short period, after which the Bush administration (say sometime between July and September) will again tap the Strategic Petroleum Reserve and his oil industry base will - they hope - be able to find a few million barrels to temporarily drive prices down, give Republicans a desperately-needed electoral boost, and feed another dose of valium to the increasingly worn out American consumer.
* But to assume that the current high prices are solely caused by the MTBE/Ethanol switchover is to miss the fact that Britain is now experiencing it's highest-ever gasoline prices averaging more than $8 per gallon or that Japan - according to the news agency Chugoku - has now reached it's highest-ever price for diesel fuel at almost $4.00 per gallon. These countries do not have MTBE rules to be concerned with. Peak Oil is here.
There is an enormous risk lurking in all this. I mean a potentially deadly risk.
As the effects of Peak Oil intensify there is less and less wiggle room on the planet for any miscalculation. Worse, there is less and less room to recover from or adjust to any "surprises" that might come along.
SURPRISES
What are some of these possible surprises?
* Just one more major hurricane
* A major earthquake in any oil producing region or pipeline corridor from Russia's far east, to Iran, to Alberta
* Any one of a dozen possible side effects from global warming, whether from melting tundra that might sink pipelines, to rising sea levels that might endanger offshore production
* Civil unrest in any oil-producing region that gets out of control and damages more infrastructure than can be quickly repaired
* A decision by Venezuela's Hugo Chavez to redirect just 10 or 15% of his US exports to other customers
* A successful attack on Saudi Arabia's Abqaiq terminal
* Political unrest in our second-largest oil supplier, Mexico
* Major unrest in the Caspian basin - another region where covert operations are now probably the second or third-largest GDP component for several nations.
As I speak tonight, India is moving to supply MiG 29s to Tajikistan at the same time that Kyrgyzstan is threatening to revoke permission for US bases. This is a building vacuum that China, India, Russia and Pakistan (all nuclear powers) are eager to fill. Add Iran to the list of nations seeking increased influence in the Caspian Basin.
Another one of many reasons why the US cannot and will not attack Iran is that - unreported by the major media - the US military has undertaken quiet but significant military build ups in both West Africa and in the Caspian. US military personnel have been dispatched to Nigeria and NATO and the US Navy have begun moving into to the Gulf of Guinea. This is pulling ever tighter on the already over-stretched rubber band holding the US military together as it experiences a continuing, unmitigated and unprecedented defeat in Iraq .
There are many more possible precipitating events that could push the first dominoes in the chain of collapse. Any one of them could trigger a massive and sudden descent into chaos that would catch all of us by surprise. My position is that we cannot afford to be unprepared for surprises. And it's probably an event we haven't thought of that will ultimately do it. These are only a few possibilities.
THE STATE OF THE AMERICAN AND WORLD ECONOMIES
* General Motors, as it stands on the brink of bankruptcy, has announced that it lost $106 billion last year.
* Ford and Daimler Chrysler are teetering not far behind GM as Toyota is poised to become the largest auto maker in the world, bigger in terms of sales than America's Big Three combined.
* As US News told us last December 19th, 800,000 jobs were going to be cut last winter. The final numbers aren't in yet, but it looks like that happened.
* According to an MS-NBC story dated April 24, "The Housing Bubble Has Popped" as inventories swell, sales decline, prices soften, lenders are raising rates and the first signs of panic start to appear. For those who have followed the housing bubble closely, you know that this is a global housing bubble and that these trends have become apparent from the UK, to Australia, to Japan. Along with falling house prices and a drying up of credit, over-stretched consumers now face very difficult choices as they are forced to decide between driving, eating, paying their bills, or having a place to live. This particular collapse is just beginning and the world economy must follow its lead.
* New stories are reporting that some Americans are pawning precious objects for gas money.
* Consumer debt continues to skyrocket as the
* Bankruptcies are at an all-time high.
* As Reuters told us on April 22, the Finance Ministers of the G7 nations have just announced after their recent meeting in Washington that the dollar is going into decline.
* On April 24th, Qatar announced that it will begin diversifying out of dollars and into Euros.
* On April 4th, according to Reuters, the Vice Chair of the Chinese parliament urged that China reduce its holdings of US debt.
* On February 22, the director of Norway's stock exchange recommended that Norway drop out of the London Petroleum Exchange (priced in dollars) and open an oil trading bourse priced in Euros.
* On January 12, Britain's Independent announced that Norway had begun preparations for a global environmental and economic collapse. The story reported that - Norway has revealed a plan to build a "doomsday vault" hewn out of an Arctic mountain to store two million crop seeds in the event of a global disaster. The store is designed to hold all the seeds representing the world's crops and is being built to safeguard future food supplies in the event of widespread environmental collapse.
* In a sign of pending inflation, the Federal Reserve last month stopped telling us what the M3 money supply was in a surefire indication that inflation is on the way. This came conveniently after further inflationary indicators were hidden by removing the cost of gasoline and food from the Consumer Price Index.
* On March 28, Al Jazeera warned that Asia must be prepared for an imminent dollar collapse.
* On March 26, India moved to relax all currency controls for the Rupee. This suggests that India knows a dollar crash is coming and hopes that the Rupee will enjoy the bounce.
* China has made another adjustment re-evaluating the Yuan, accelerating the dollar's decline.
* The Asian Development Bank has announced plans to develop a regional currency index as a preliminary step in the creation of a Euro-like currency for Asia.
* The dollar has lost six cents against the Euro in the last six weeks.
* Gold, which I have and still devotedly endorse as a safe haven for either rich or poor, has broken through to highs not seen in 18 years. I had not expected gold to break $600 an ounce until at least this fall. It happened weeks ago. Notwithstanding the predictable price corrections that we will see, as a failed and broken system of gold price suppression loses control, I think the path is now fairly clear to $800 gold within two years or less. When Peak Oil becomes aggressive, within the next five years, I think $1,000 gold is a certainty. As always, I encourage FTW subscribers and anyone who will pay attention to continue to invest in gold. To be precise, I encourage them to invest in physical, tangible, gold bullion or bullion coins like the Maple Leaf or Krugerand that can be kept close to home and hearth. Small gold purchases can be made for as little as a few hundred dollars. All of the struggling FTW subscribers who have made even tiny purchases have benefited by seeing even their meager investments double in four years and increase by 50% in value in just the last 18 months.
* Morgan Stanley's Stephen Roach - who last year warned of an economic Armageddon is now warning, "I continue to believe that the American consumer is the weak link in the global daisy chain. The combination of rising long-term interest rates and higher oil prices puts an unmistakable squeeze on discretionary income - the last thing overly indebted, savings-short US consumers need"...
So why then has the Dow recently reached six-year highs? It's simple, and I know that my good friend and colleague, Catherine Austin Fitts will agree, that the DOW Jones Industrial Average has absolutely nothing to do with measuring the quality of American life. I am reminded of one of the most important quotes I have ever obtained for a story, that of Dutch economist Martin Van Mourik who told the Paris ASPO Conference in 2003, "It may not be profitable to slow decline."
Indeed ladies and gentlemen, we have reached the point where every increase in the Dow will mean that life has actually gotten worse for Americans and riskier for the world as a whole. I described the endgame of this irony in one of my favorite essays of all time Globalcorp. As M. King Hubbert wrote, and as Catherine Austin Fitts teaches, and as I have said for so long, "Until you change the way money works, you change nothing."
It is a shame that much of the Peak Oil movement that understands this problem is foolishly trying to change the way money works systemically, instead of trying to change it in the only way that time and circumstance now permit - individually, locally and regionally. The first and primary requirement for that to occur is for people to disengage from the global paradigm.
TWO LEADERS POINTING THE WAY
During my eight-month hiatus from public speaking, I have watched the Peak Oil movement morph from its general status as a "lunatic fringe" group to acceptance and even recognition and honor as an "influential special interest group." (That's what they call groups like us on Capitol Hill and in the mainstream press). Many members of congress, business leaders, and even the major media listen to us now. To the organizers of this conference and to all of us who have labored on the Peak Oil field for years - like Jay Hanson, Richard Duncan, Walter Youngquist, Ken Deffeyes and Colin Campbell, for decades - there is some relief in seeing growing public (and even governmental) acknowledgment of Peak Oil. Of course, most of us have known that all we had to do was keep breathing in and out for a while and we would be vindicated on the issue.
But now what?
Before I continue, let me stop and acknowledge that the backbone of this section of my speech tonight was derived from a series of original From The Wilderness articles published almost a year ago. Our then Science Editor, Dale Allen Pfeiffer, brought to my attention a brilliant Russian writer named Dmitry Orlov who - having experienced the collapse of the Soviet Empire - thought that there might be some lessons to learn if rational minds compared what looked to be the ever-more-certain coming collapse of the American Empire. After listening to Dale and corresponding with Dmitry - who presented here yesterday with my good friend, and a great Peak Oil leader, Matt Savinar - I instantly commissioned a three-part series for FTW titled Post-Soviet Lessons for a Post-American Century.
That series is probably the single most eloquent and cogent piece of writing FTW has published in its eight-plus years. And if you are familiar with FTW writers like Stan Goff, Jamey Hecht, Carolyn Baker, and Michael Kane you know that's a heck of a compliment. You can still read Dmitry's stories on our site and if you have not, I beg that you do.
So let me acknowledge right now, that our next important lesson tonight was first articulated by Dmitry - Dmitry, if you're here, please stand up. I'm going to quote Dmitry quite a bit as I add my own observations and updates about the biggest challenges lying in front of us and how we might deal with them.
At the start of his series, Dmitry observed that when he started looking for stories connecting economic collapse to Peak Oil in October 2004 there were 16,300 such documents listed on search engines. Less than a year later, by April 2005 there were 4,220,000. He pointed out correctly that the reason why such stories had not been discussed in the media was attributable to only one cause: denial.
Denial.
Let's take a look at just a few of the most important quotes from Dmitry's essays. You really need to read the entire set. And even though these quotes are clipped from disparate sections, when strung together they speak for themselves admirably and paint a deeply-moving picture.
* "Instead, there is much discussion of policy: what "we" should do. The "we" in question is presumably some embodiment of the great American Can-Do Spirit: a brilliantly organized consortium of government agencies, leading universities, research centers, and major corporations, all working together toward the goal of providing plentiful, clean, environmentally safe energy, to fuel another century of economic expansion. Welcome to the sideshow at the end of the universe!"
* "The next circle of denial revolves around what must inevitably come to pass if the Goddess of Technology were to fail us: a series of wars over ever-more scarce resources. Paul Roberts, who is very well informed on the subject of peak oil, has this to say: 'what desperate states have always done when resources turn scarce' [is] fight for them.' Let us not argue that this has never happened, but did it ever amount to anything more than a futile gesture of desperation? Wars take resources, and, when resources are already scarce, fighting wars over resources becomes a lethal exercise in futility. Those with more resources would be expected to win. I am not arguing that wars over resources will not occur. I am suggesting that they will be futile, and that victory in these conflicts will be barely distinguishable from defeat. I would also like to suggest that these conflicts would be self-limiting: modern warfare uses up prodigious amounts of energy, and if the conflicts are over oil and gas installations, then those installations will get blown up, as has happened repeatedly in Iraq . This will result in less energy being available and, consequently, less warfare."
* "While the United States used to have far more goodwill around the world than the Soviet Union, the "evil empire" gap has narrowed since the Soviet Union disappeared from the scene. Now, in many countries around the world, including Western countries like Sweden , the United States ranks as a bigger threat to peace than Iran or North Korea . In the hated-empire race, the United States is now beginning to look like the champion. Nobody likes a loser, but especially if the loser is a failed superpower. Nobody had any pity for the poor defunct Soviet Union; and nobody will have any pity for poor defunct America either."
* "The United States is now facing a current account deficit that cannot be sustained, a falling currency, and an energy crisis, all at once. It is now the world's largest debtor nation, and most people do not see how it can avoid defaulting on its debt. According to a lot of analysts, it is technically bankrupt, and is being propped up by foreign reserve banks, which hold a lot of dollar-denominated assets, and, for the time being, want to protect the value of their reserves. This game can only go on for so long. Thus, while the Soviet Union deserves honorable mention for going bankrupt first, the gold in this category (pun intended) will undoubtedly go to the United States , for the largest default ever."
* "Both countries replaced family farms with unsustainable, ecologically disastrous industrial agribusiness, addicted to fossil fuels. The American ones work better, as long as energy is cheap, and, after that, probably not at all."
* I'll have to paraphrase Dmitry on race and violence. But in that section he noted that not only was race not an important stress line in the collapse of the Soviet Union, there were also virtually no firearms in private hands. His advice for minorities in America was to find either an ethnically homogeneous community "while the rest would be well-advised to look for the few communities where inter-ethnic relations have been cemented through integrated living and intermarriage, and where the strange and fragile entity that is multi-ethnic society might have a chance of holding together."
* "Another key difference between the US and the USSR : in the Soviet Union, nobody owned their place of residence. What this meant is that the economy could collapse without causing homelessness: just about everyone went on living in the same place as before. There were no evictions or foreclosures. Everyone stayed put, and this prevented society from disintegrating."
* "One more difference: the place where they stayed put was generally accessible by public transportation, which continued to run during the worst of times. Most of the Soviet-era developments were centrally planned, and central planners do not like sprawl: it is too difficult and expensive to service. Few people owned cars, and even fewer depended on cars for getting around. Even the worst gasoline shortages resulted in only minor inconveniences for most people"
* "Most people in the U.S. cannot survive very long without an income. This may sound curious to some people - how can anyone, anywhere survive without an income? Well, in post-collapse Russia, if you didn't pay rent or utilities - because no-one else was paying them either - and if you grew or gathered a bit of your own food, and you had some friends and relatives to help you out, then an income was not a prerequisite for survival. Most people got by, somehow."
* "A collapsing economy is especially hard on those who are accustomed to prompt, courteous service. In the Soviet Union, most official service was rude and slow, and involved standing in long lines. Many of the products that were in short supply could not be obtained even in this manner, and required something called blat: special, unofficial access or favor. The exchange of personal favors was far more important to the actual functioning of the economy than the exchange of money. To Russians, blat is almost a sacred thing: a vital part of culture that holds society together. It is also the only part of the economy that is collapse-proof, and, as such, a valuable cultural adaptation."
* And finally, Dmitry wrote, "In all, I expect drugs and alcohol to become one of the largest short-term post-collapse entrepreneurial opportunities in the United States, along with asset stripping, and security."
As Dmitry wrote in his series, the collapse of Empires, as with Rome, has in the past sometimes taken centuries. In the case of the Mayans it happened in a much shorter period. But Dmitry was quick to observe that the first stages of collapse are often the most dislocative, painful, and demanding because that's when the first psychological and physical shocks hit hardest. And I would argue - along with the likes of Joseph Tainter - that the collapse of modern, highly-complex empires is both accelerated and far more aggravated than what happened 1600 years ago in Rome.
The Soviet Empire collapsed and disappeared in less than four years and the devastation for the Russian people was both profound and deadly. I have been to Russia and I will never forget a little piece of Russian humor left over from the siege of Leningrad (now St. Petersburg) in the Second World War. I told my Russian hosts that I wanted to get a little outside of the cosmopolitan center of Moscow and see some "real Russia ".
The first thing they said was, "If you go into a restaurant, don't order chicken."
I hesitated and then asked, "Why"?
"Because", they said, "ever since the Germans laid siege to Leningrad, chicken is what we have called it when we had to eat our comrades to stay alive and in the fight. In some parts of Russia one is still never sure."
Do we dare assume that Americans are special and somehow exempt from all the vicissitudes that have befallen every other collapse of empire in history?
For those of you who chided me last year for predicting an American economic collapse this last winter, which some argue - in spite of this evidence - failed to materialize, let me point out that - and we will talk about it tonight - there are strong signs that collapse has already begun. I never said the collapse would be over last winter, I only said that it would begin. That collapse will most certainly be here - in emerging bloom and for all to see - this summer. No one will remain unaffected by it. Whenever it ends, it is not going to end prettily.
When one is preoccupied with survival, anything beyond survival becomes an imponderable luxury. And to mistakenly label a luxury a necessity makes it impossible to survive. The Peak Oil movement needs to ask itself now: what are its necessities and what are its luxuries? There is precious little room for error now. These decisions will be hard but they must be made.
If some Latin scholar had predicted the day that the barbarians would sack, loot, and occupy Rome and missed it by only four months, he or she today would be regarded as a prophet. I am content tonight, to just be the same asshole many of you have come to know and love - or hate - over the years. I'm just doing my job as I see it needs to be done. That is all I have ever done.
POST CARBON
And now we come to the second man I would like to honor tonight, Julian Darley of Global Public Media and the Post Carbon Institute.
Put simply, the Post Carbon Institute's mission is to save lives. Put a little more succinctly, the Post Carbon Institute's mission is to work with local groups around North America and the world to facilitate their construction of their own lifeboats, specifically tailored to the strengths and weaknesses faced by each unique locale that presents itself for help.
To facilitate this, the Post Carbon Institute has adopted a unique approach. Rather than dictate top-down policies or provide cookie-cutter solutions which may or may not prove helpful as collapse accelerates, the Institute facilitates relocalization by insisting that each Post-Carbon "outpost," as it calls them, operate autonomously while receiving only guidance, support, and updated information and news from the Institute itself. Each outpost then has only one mission, to focus on immediate improvements to its community such as, but certainly not limited to: local farming, car sharing, local currencies and event organization. As Julian puts it, "the stakes are the survival of this project we call civilization."
Since beginning its work in the second half of 2003, the Post Carbon Institute has fostered the creation of more than 90 local groups all over the US and Canada, as well as in the UK, Australia, Sweden and even Yemen. It has grown explosively as small, aware groups of citizens have seen the wisdom of Julian's approach which begins with one of the first rules in any survival situation: Let the people on the ground make the decisions according to their own judgment, in their own place.
Instead of 90 Post Carbon groups around the world there should be 9,000. These are the kinds of numbers we need to see if we are to really make a difference in helping to decide who eats and stays warm, who lives and who dies.
If you have not yet visited the Post Carbon web site, you must.
If this conference has motivated you to start preparing for the challenges that lie ahead, you need to begin by accepting the head start that the Post Carbon Institute has given you. Richard Heinberg - another great hero of this movement - has said, "The Post Carbon Institute is clearly the first medic on the scene - the first organized response to Peak Oil."
About a year and a half ago, seeing what was coming, I looked around and saw a crying need for someone to take the lead on this challenge. Before that, my expertise and that of From the Wilderness had been geopolitical and economic analysis. I had precious little experience or training on issues of sustainability, agriculture, water, alternative construction, and all the other things we need to learn.
Nevertheless I was willing to take FTW and my writings in that direction even though I knew that there had to be others far more capable than I was. I am happy to report to you tonight that I and FTW no longer need to go in that direction. An expert - and I know Julian will protest that label - has arrived and this has made a huge difference for us. It is now vastly more effective for me and FTW to say that on the key issues of relocalization, downsizing and sustainability, we encourage everyone to look to the Post Carbon Institute for guidance and leadership. Julian has invented that wheel for us. We only need a few more and we can make a wagon to take us down survival's path.
As a result, I and FTW are free to return to what we do best: geopolitical and macro-economic analysis. Since our recent move to Ashland,
This is the way in which those who see Peak Oil for what it is can plan, prepare, and respond as needs dictate. This is the way in which true leadership, whether it be visionary and analytical as is the case with Dimity Orlov, or organizational and educational as with Julian Darley, can make a difference. This is the living embodiment of Catherine Austin Fitts maxim that "No one is as smart as all of us."
Ladies and gentlemen, I would like to present to you my good friend, a man who I respect and admire, Mr. Julian Darley.
CONCLUSION
A well-known Peak Oil activist has already moved into a post-oil paradigm. He has no car. He has no cell phone. He travels only by train to avoid leaving a large energy footprint. Yet at the same time he tries to organize conferences around the country, leaving people who depend on quick responses and decision making to operate at levels not seen since the 1940s or 50s.
Does anyone here believe that Dick Cheney or Hillary Clinton or Fed Chairman Ben Bernanke or any of the world's business leaders are making such self-sabotaging choices now? They may have to, someday. But for now they are taking every possible advantage, using whatever energy is needed, to prepare and position themselves to stay ahead of what are now certain coming events.
I hate to say it, but perhaps we should take a lesson from our enemies here.
Let us not forget that in order to get to the Post-carbon world that is inevitable we must first survive the collapse and the die off that is inevitable. The challenges of the transition period will be completely different from the challenges of living in a world without cheap energy.
It is the almost complete failure of the Peak Oil movement in the United States - and around the world - to grasp, ponder or even acknowledge these transitions that are pointing to a needed evolution in our approach to education, research, networking, and organizing. Psychologically it is always easier to plan along the lines of a single challenge rather than to try to prepare for chaos on a fluid, multi-dimensional field where serious challenges may be completely different from one day to the next. But the easiest path is not always the best choice.
The maxim that I live by is that what we need today, right now, is not a plan, but options. Plans do not bend well. They tend to break. And with breaks in plans come break downs in function. The only plan that I live by today - the only plan that I recommend to our subscribers - is to increase one's options as much as possible and to selectively choose those options based upon what is happening in the world now and what those developments might mean for the future.
I would submit to you tonight that perhaps a more important question that needs to be answered first is: "How do we get from a civilization where collapse and dislocation is just beginning to a place where we can prepare to transition away from oil and gas when the time is appropriate?"
John Lennon once wrote that "Life is what happens to you while you were busy making other plans." This movement needs to reflect on that.
A dear friend of mine, Dr. Faiz Khan, once said that a paradigm is what you think about something before you think about it.
If the global economic paradigm that we live under dictates infinite growth, then we must disengage individually and by community from that paradigm.
If the activist paradigm that we live under says that we must slow down the process of reform and planning to make room for all and offend no one, no matter how much they may slow down or confuse the process, then we must disengage from that paradigm. This is no longer about protracted - and almost always ineffective - social change. This is about survival. I refuse to die, and I refuse to encourage anyone else to risk death or to slow down for or argue with people who are either incapable of understanding, too lazy to do the necessary homework, or too tightly wedded to old ideas.
Are these old ideas and cherished values and principles now luxuries or necessities? We will each make our own decisions, and in a world that will give us near instantaneous feedback. We will suffer or prosper, we will stop or continue, we will live and die accordingly.
Buddhist philosophy teaches us that life is suffering. It is amazing how much joy and liberation can be achieved from that viewpoint. It has to do with lowering expectations so that little pieces of joy and cause for celebration are more accessible to our hearts and minds.
Judeo-Christianity, as practiced in America, tends to make us all believe that if we are spiritually and morally correct, we will be rewarded with abundance. As Dmitry Orlov observed, Christianity in other parts of the world teaches that the path to salvation and redemption lies through suffering and denial. Which is it then?
If the spiritual or religious paradigm that you live under influences your thinking in either direction, then that paradigm is your enemy and my enemy. What is it that you think about before you think? Find it, identify it, and discard anything that is not a survival necessity.
The only thing that the universe is offering the human species now is the opportunity to change - to evolve - or to perish.
Perhaps there is a new understanding of God awaiting those who survive. I have long held the personal belief that religion is for people who are afraid of going to Hell and that true spirituality is for those who have already been there.
What I do know, because I have faced many survival challenges in my life, is that the less baggage one takes into any survival situation, the more likely one is to survive.
Perhaps this philosophy is best summed up by one of my favorite quotes of all time. In his classic science fiction novel Dune, Frank Herbert wrote:
I must not fear.
Fear is the mind killer.
Fear is the little death that brings total obliteration.
I will face my fear.
I will permit it to pass over me and through me.
And when it has gone past, I will turn the inner eye to see its path.
When the fear has gone there will be nothing.
Only I will remain.
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