October 8, 2016

“… of the three powers –the power of armies, of alliances, and of money- the third is perhaps the most dependable weapon. Such accumulation of treasure is regarded by other states as a threat of war, and if it were not for the difficulties in learning the amount, it would force the other state to make an early attack.”

-Immanuel Kant, Perpetual Peace, 1795

It’s no secret that the United States –saddled with chronic trade and federal deficits- has lost its “surplus” status, and that following its unilateral termination of the Bretton-Woods system on August 15, 1971, the dollar is presently neither convertible to gold nor backed by America’s much reduced output of consumer goods. However, global demand for the greenback remains strong, for two reasons. One is that oil –a principal member of the troika of fossil fuels causing global warming- is billed in dollars and cleared through US banks. Since most nations are net oil importers, they need dollars to pay for it. The other is that, with a few notable exceptions, the world has all but outsourced security to the U.S. In this sense for example, NATO members, most of which are in the Eurozone and/or the European Union, themselves deficit countries except for Germany, are not faced with the onerous expense of maintaining what amounts to a permanent state of mobilization for war; instead, the U.S., which never really demobilized its Navy and Air Force after World War II, in effect does that for them. The drawback to this scheme is that to be of any value, these countries must be convinced that they face a chronic real and present danger to their existence. However, when the Soviet Union collapsed, NATO did not dissolve; it simply expanded east to absorb some former Warsaw Pact countries, a course of action guaranteed to provoke an eventual reaction from Russia, who views this as the biggest existential threat it’s ever faced. This reaction is now billed as the threat that justifies NATO’s existence, and by extension, the incalculable value of America’s permanent role as Europe’s protector. A similar relationship exists with the western rim of the Persian Gulf and with Southeast Asia, tectonic areas colliding with vital Chinese and Russian interests. As a result, what we have at the moment is a system of alliances and “understandings,” an immense powder keg reminiscent of the period just before World War I. All it needs is a spark, and it will go off –with nuclear weapons.

Only the Federal Reserve has the authority to create dollars from thin air; all others must earn the dollars they use to buy oil with. That unique advantage allows the U.S. government to borrow with abandon ad infinitum, to impose financial sanctions on others, and to live beyond its means. Were the dollar to lose this privilege, the government’s credit rating would instantly be severely degraded, its borrowing costs would skyrocket, and deficit spending would come to a screeching halt. The value of the greenback would collapse, inflation would explode, the steepest depression ever would follow, and the elite would lose most, if not all, of their accumulated wealth. In addition, the defense budget –currently almost as large as the rest of the world combined- as well as the entitlements on which many retirees, the disabled and others depend on for dear life would have to be severely curtailed –perhaps even eliminated. Riots and Marshal Law would surely follow, and even that might not be enough to restore order.

Externally, since so many nations have invested so much in dollar denominated assets, particularly China, Japan, Germany and the (still) United Kingdom, a sudden collapse of America’s ability to buy foreign products and services would trigger a global disaster of such magnitude that no single nation or even a group of nations would be able to contain. Like molten lava, it would overwhelm everything in its path. However, just because the entire world has a vested interest in preventing the dollar’s sudden collapse doesn’t mean everyone is happy with the existing order. Many, including within the U.S. itself and allied nations, grumble that it is rigged to benefit the few at the expense of the many, both between and within nations, and are itching to replace it with something more egalitarian and just. So far, however, no one has offered a viable, concrete and practical blueprint to do so.

Fearing an end to their ability to spend at will, influential strategic planners are doing everything in their power to perpetuate the dollar’s privileged role as the world’s reserve currency. But it is a futile effort, for the system is now archaic and obsolete. The undeniable reality of climate change means that humanity must either stop using fossil fuels and nuclear energy (Fukushima, Chernobyl and our inability to neutralize nuclear waste are stark reminders of fission’s inherent dangers) altogether or face the all too real possibility of extinction. Either way, the end of the dollar’s relationship with oil is a matter of when, not if.

It’s not enough to aim for a reduction of carbon emissions. As long as the world continues to use fossil fuels, emissions will continue to climb because the growing middle class in China, India, Africa and elsewhere will consume more. Clearly then, the only way to prevent further accumulation of anthropomorphic greenhouse gases is to stop using fossil fuels altogether, even if it’s anathema to the dollar’s needs. Accordingly, the powers that be must switch gears, now, while there’s time, to invest in -and create- a new financial system based on hydrogen, not oil. For example, a formula could be devised to establish exchange rates among all currencies pegged to their respective countries’ production of hydrogen, population, and gross national product. That would level the playing field by –in effect- giving everyone, not just the U.S., the ability to print convertible currency to encourage competition (an essential element of capitalism), expand equitable trade –and  promote a lasting peace.

Why hydrogen? Firstly because it’s virtually inexhaustible (there’s enough of it for everyone) recyclable, and readily available; secondly, because it’s the only element with the unique ability to manufacture water with the oxygen in the air –anywhere, even in the middle of the driest deserts- the only sure way to mitigate the effects of coming megadroughts throughout the world; thirdly, because it is the only energy carrier (not a fuel) that does not pollute the environment; fourthly, because it can make oil wars obsolete and unnecessary; and last but not least, because it can create a new, permanent income stream for ordinary people everywhere and anywhere to reduce the abysmal gap in the distribution of wealth and income, one of the biggest causes of terrorism and wars.