Loading...
Loading...

David N. Gibbs is professor of history at the University of Arizona. Prof. Gibbs discusses the historical parallels between the coming crisis and the 1973 oil crisis.Follow Prof. Glenn Diesen: Substack: https://glenndiesen.substack.com/ X/Twitter: https://x.com/Glenn_DiesenPatreon: https://www.patreon.com/glenndiesen Support the research by Prof. Glenn Diesen: PayPal: https://www.paypal.com/paypalme/glenndiesenBuy me a Coffee: buymeacoffee.com/gdiesengGo Fund Me: https://gofund.me/09ea012fBooks by Prof. Glenn Diesen: https://www.amazon.com/stores/author/B09FPQ4MDL
Welcome back. We are joined today by David Gibbs, a professor of history at the University of Arizona.
So thank you for coming back on the program.
Thanks for having me, Ben.
So you focus a lot on the geopolitics and the economics of it.
And I was hoping, yeah, you could shed some light on in terms of the comparisons of where we are now.
If we've seen anything similar in the past, that is, you know, the scale of this energy crisis in the world.
It's well deeply disturbing, to some extent, unprecedented.
Yet we had a crisis back in 1973, of course, with this oil shock.
And I was wondering if this gives us some context about also the possible socio-economic, as well as the political consequences of what we're seeing today.
Well, yes, that's right. There is a very close parallel, actually, if you know what is happening now or happen over a half a century ago, beginning in 1973, which is an oil crisis and energy crisis, emitting from the Persian Gulf.
And Iran was deeply involved in both, and that person, the current one, as well as in the past one.
And, you know, before I go into the details, I will note that the energy crisis that resulted from the events of 73 triggered with the main trigger to a major recession.
That was the worst economic downturn, up until I point in time until the night from since the 1930s.
It also resulted in decades-long malaise economically of basically flat rates of productivity growth in the United States.
And, you know, greatly reduced the performance and most of the rest of the world.
And so in some respects, actually, you can, if you look at wrong term rates of GDP growth, you know, it was relatively, it was quite high up until 1973, the 1973, you see a big drop.
And rates of economic performance have never fully recovered from the early period.
So this is something of a historic break point.
And, you know, it's very unsettling when you think about the fact that something very similar is calculating right now before rise.
Before I go on the details, do you want to ask any more questions, before I head to the historical background?
No, no, it's a historical background, which would be fascinating because I kept thinking that we haven't seen anything like this.
That is first, yeah, Russia was taken off the grid to some extent with all these economic sanctions.
Well, but not not completely in Europe, for example, we still buy the gas just through Indian mediator, for example.
Yeah, of course, they want their markup.
And sorry, the oil as well.
But now with this shutdown of the Middle East, and given that it's not even as temporary, it seems to be more prolonged.
I do not sure how long it would take to fix these things, but even political settlements after this war, it doesn't seem like Iran is prepared to go back to the way things were.
That they are looking for a massive disruption to the former status quo.
And indeed, in the wider context of what we're seeing in the world, that is that the unipolar world has ended.
Now you have a multipolar world, which, you know, you can say yes, it will be more balanced, but it's also less organized it would seem if you have more actors.
So, no, if again, the historical background would be would be great.
Well, let me say that this is based upon what I just give you here is based upon research I've done on this topic in the National Archives and that's for the book I published last year on the topic.
And it, you know, what you had is two phase oil crisis first phase again with the October 1973 Arab Israel war again Israel is front and center in both events the current one as well as the last one.
And in 1973, Israel went to war or was invaded first and went in one with theory and Egypt.
And as a result of that war, the Arab world basically or much of the Arab world imposed an oil embargo using the OPEC oil cartels and instruments to basically embargo the United States for its very close ties to Israel and its military support for Israel.
The first phase was led by Saudi Arabia, which on religious grounds objective the idea of a Jewish state in the Middle East and the idea of Zionism and it was ideological in character.
And then there was a second phase, though, after a few months until the end quote-unquote moderate Arab country from the Brazilian countries, which are so not Arab led by Iran close US ally, realized that they could make a lot of money from oil price increases Iran did not have any real interest in the Arab is relevant to have business like relations with Israel they were major supplier of oils at Israel.
They wanted to increase their revenues the shavu one had ambitious plans of building up a vast military apparatus which he was rapidly doing and to pay for it through oil revenue.
And so this was a very attractive idea to him.
And so in the second phase, you had continued oil in price increases that leave was about 400% oil prices increased 400% to the United States.
And states was it was had much oil production internally Europe and Japan will have even not around the side of the atmosphere are still so it was a global event.
What I do want to emphasize is that what has come out and more recently out of the archive does not know you for is the United States government led by Richard Nixon and we kiss and you're encouraged this price increase they did not oppose it they encouraged it.
You can never be told the shabi rod you can raise oil prices as much as you like in the United States for a lot of direct to it and we.
I get into the reasons why in a moment again this is really very surprising because in the oil shock devastate the West economy said it was expunged down to the U.S. and cognates and the US was deeply complicit in it.
It was at the self destruction by the Nixon administration and the question of course why but price I go into why let me just note that after a few months there was a factional dispute within the Saudi elite.
And there was a shall we say a another faction of the Saudi elites have seemed to come to the fore and wanted to repair the damage they did the United States and offered privately to work with the United States to lower oil prices.
Amazingly the United States refused to do this they do not want to look like prices of the both the salaries to be astonishment to the sellers.
And you know we have letters from Ahmed Zakaimani who was the Saudi minister of petroleum who expressed astonishment that the United States was not interested in his law for it and on your scores the fact the United States was committed to raising oil prices and damaging their own country which is what they did and.
Now the question is why I don't want to keep going on and on do you want to interject anything at this point you're asking questions no otherwise quite interesting want to get into the other number of reasons that I think one was that the United States have been building up the Shahza Iran with the Guardian of American and Western interests and the Gulf the British have pulled out of the Gulf.
After 1967 and they 68 were you and they on the United States was not able to basically insert military forces in the Gulf to go to the Vietnam debacle and so we relied upon the shot to do it for us and so building up this military was functional from that standpoint in addition Nixon was very eager to increase American military sales and benefit of American military exports exporters we've been heard by severely by the Vietnam well which has taken American.
We've taken American weapons sales we just lost from you are so nobody wanted to buy our weapons but the Shah wanted to buy our weapons and that was a good thing furthermore the Shah have been carefully building up support the US political and bill and and economic elite for decades and the embassy the Iranian embassy in Washington had gone around giving expensive gifts to hundreds of top tier journalists in the United States as a kind of method of if you will bind them off which produced funding coverage at the Shah.
You know the shot employed the wife of the top senator on the foreign relations committee as a publicist.
In addition to that American companies benefited considerably the major oil companies five of which were American owned the seven sisters they were called five of the seven sisters were American oil companies they benefit from the increase of oil prices and increase their profits.
The very powerful Rockefeller family was historically very friendly socially with the Palavi Dynes near everyone and you know there was a whole series of business interests that benefited considerably from the economic boom going on anyone thanks to high oil prices.
And so I think these considerations what the future considerations as well as the you might say more grubby economic considerations was what sprayed mix and Kissinger kissinger by the way himself is very close to the shoppers and he was also a bit of an acolyte of a rather follows the story.
So I think all of these kinds of connections was what drove me was policy even though by any reasonable standard this was a self-destructive policy music following whatever the cause of policy.
What we now know is the United States to courage this oil price and freeze and the results were quite devastating.
But if we draw parallel to today there there's no real why anymore there's no interest for the United States to drive this price up indeed the prices goes up we see the main countries benefiting will be Iran Russia these are the adversaries the adversaries of the United States.
If this conflict continues it could you know it could wipe away some of these Gulf nations which are well to some extent are if not assets at least close allies of the United States which a partnership the U.S. benefits from so there they wouldn't did it from this perspective it's not it's well did this company comparable given that it's not an interest today I assume.
Yes the motive is very different and see any evidence in states encourage the oil price increase quite the contrary.
And you're quite right of course it goes against the market's interests at every level including interest from to self which see as clear which is that every minds of managers.
America's global influence as well as undermines American living stampers now they I think we're the lessons people are drawing more should drop from this war is a line with the United States does not answer security weakens are clearly just look at all the Gulf states that lied with the United States that allow us bases now they're being attacked by Iran that wouldn't have happened that they haven't aligned with the United States.
You know the European countries or would have to ask themselves if they were smart is it so is it so why is to align with the United States where it's cutting off all sorts of energy first from Russia and now from the Persian Gulf.
You know this American alliance has been a disaster for you for you for you whether they realize it or not we're seeing a real irrationality on part of the European elite particularly in the Scandinavian countries that's absolutely me stumbling.
But nevertheless i'm looked at for a rational scan for it we're seeing here is that there's no benefit whatsoever for those or its allies from what's happening in the Gulf this has been a fortuitous occurrence for two it is released in the sense that it wasn't expected I was by Donald Trump.
I know he expected to win the war expected a short easy and glorious victory that will make him a great president like Abraham Lincoln I suppose we put him out wash more.
And that hasn't happened he miscalculated very badly here but the causes of the oil prices are somewhat different from the 1970s the effects could be so much sender and that this could be very devastating on the same scale as the 70s or possibly worse.
And the reason I say that is that the 70s would the financial system was much more regulated than it is today the possibility of to lapse the financial system was reduced giving a high level of regulation at least in the United States now that's not true anymore the financial system is substantially regulated also the level of debt is much higher.
Particularly the level of household debt personal debt by individual Americans is much higher that means a higher level of vulnerability and that that that that both very that does not vote well through the economic future in terms of the secondary effects of this oil price increase also i'm very worried that everyone else should be very worried about what's going to help in next.
Well the European irrationality it's not just losing access to Russian and Middle Eastern energy it's also deliberately reducing the tech cooperation with China I mean no one suggesting they should only do trade with economic well technological cooperation with the Americans but if there was more than one partner one would be in a more beneficial position.
Also in regards to the relationship with the Russians a large reason why we're in this conflict to begin with it seems was the decision to expand NATO as I should go back to block politics I think this was a price many were willing to pay the alienating Russia restarting the logic of the cold war because NATO at least it cemented America in Europe and it's it's good to have the Americans in Europe in terms of you know having the pacifier of course having the most
powerful military as a close ally these are all good things but now that the US is going away more and more and one have to ask you know if we have just a you know a cold headed non emotional kissing a type in Europe you know he would say well the situation has changed now perhaps we should the we don't need to do the block politics and more we can find a way of ending the dividing lines in Europe and cooperating more with with the Russians indeed Americans wouldn't object to the
either if this means Russia not leaning that heavily towards China but we have we don't have any kissing a type we have a very you know angry emotional politicians who as you suggested don't start sound very rational at all and but one thing that's different from 73 though would be the alternatives it seems in the energy markets so we have the US
share production we have diversification for example not just of suppliers but also the means of energy so renewables for example we're China's leading the way do you see this impacting either reducing the blow or countries shifting faster for example into renewables well in a tall fragment is made in point he's known that right the
great which were energy dependent was dependent on fossil fuels today is less than upwards of the 70s due to precisely all the things have been to renewables as well as increased efficiency of use this kind of thing all of this is reduced our energy into our energy dependence but we're still highly dependent upon fossil fuels not as much as the 70s and but given our lower level of dependence we could say
that the the blow will be softer in that respect but in other aspects is much more vulnerable financially because financially the regulation and household debt and so the latter I fear as a secondary effect of the energy crisis could make the crisis the overall crisis motionless fear economy became financialized in the United States and in Britain I drew many maybe is a separate case but they were tamed in this true and that may change now but
the United States and Britain became financialized to a considerable to believe in the United States move this is something again I can discuss historically with the role of the U.S. dollar if the United States moved from being an industrial some power but it was
saying one or two in Charles de Gaulle reports the extraordinary productive capacity of the United States by you know beginning the 70s U.S. emerged as a financial support power as it is today and the downside of that is domestically we're so dependent on finance
that it could become a house of cards and if you get a real shock like an envy shock it could produce a financial crisis as well and so it's hard to say are we more or less vulnerable that we were in the 70s my guess is probably more so given the financial the financial fragility we're in today I actually think how it will play out we'll see it's going to be bad no matter what and the question is how bad
I often think when you know Trump has a slogans make America great again I keep thinking this would mean putting America back to 1973 actually because this is when after this oil shock it appears that this is when things began to go a bit wrong indeed you see this what what some refer to as the you know the great decoupling when you know companies kept making more profits but you know the salaries were kept stagnant you saw that that levels getting out of control
like all of this economic consequences really a lot of this began after the oil crisis of 73 right right it's absolutely right you know if you look at some of the happy decades the French referred to the count we were all used the 30 glorious years it was actually 23 glorious seniors from 1950 to 73 look at the data but that ended the 30 glorious years ended in 1973 for the United States and Europe and it was an error of
first of all lowered economic performance permanently more economical families but also much more concentration of wealth United States from seeing an extraordinary concentration of wealth at least agonization of wages of living standards most Americans today are with paycheck to paycheck they have no reserves was going to be interesting to see what happens is they've no reserves if their income goes down because of inflation that that that's going to be an interesting result on more thing of course also is the historical response to inflation in the 70s was in the 70s
austerity to increase unemployment as it means control and inflation and those you know in reducing living standards basically as a means of controlling prices that occurred in the United States particularly towards the end of the decade again with devastating consequences it's introduced him even deeper recession by the end of the 70s and much of that came from the oil policies and you know so we could be in for a massive bout of inflation we're already seeing it and I
think you fill up your gas tank in the United States we see your gas prices have already gone up by about a third I suspect that just the beginning extra food prices go up because agriculture is very energy dependent and so the next phase could be falls for austerity to have the less central bank the Federal Reserve increase interest rates increase employment and low living standards as it means means control and inflation that should get very excited people hate it one of the good standards with all of it and for good reason
overall I think we're seeing is our foreign policy is framed with social fabric in the United States and also in Europe you know you've had to cut off of energy in Europe or parts of side off of energy in Europe from Russia a is a lemma of their own making you might say but it's a lower living standards and for sure and to a limited extent in the United States as well now we're seeing a secondary curve and and also calls of course to increase military spending some cases dramatic lead broke
and this is going to really fray the social fabric of the other prices we're paying to pay to increase social turmoil and social problems in Europe and the rise in the far right parties like the off day in Germany you know the reform party in Britain we're rising rapidly and that's a consequence of decisions made by the European elites seem to learning nothing for the past mistakes
yeah I can argument which I remember so I think was made in financial times but then repeated among political elites in Europe in different forms was because of the war against Russia in Ukraine Europe would have to ban then its welfare state in order to build the warfare state so you know as another say I just shift money to the military but that money overall now seems to be disappearing so whatever economic problem there was you know a month ago
this is going to get much much worse and you said as all of these things are going wrong they're also going to militarize so it just seems that it's not just the economic aspect but how all this impacts society because suddenly we won't have the welfare state essentially the way the other side has been organized in the second world war we'll have to come to an end we're going to see more militaristic language from leaders
how does this play into I guess the change in society I was going to ask you if if if our economy some more resilient today but you can answer that already again with the US 39 trillion dollar now in the whole and Europe also doing extremely poorly it doesn't seem like we prepared but again if we go away from the economic issue how does the economics of it impact the societal component
nature society is a part predictably all the most unhealthy things you're going to have is stress especially financial stress it's not good for you physically and mentally and you're going to see a lot more of that in the United States and Europe with very negative results you know the United States is an interesting country in a way it's a very wealthy country it has this you know unmatched military power everyone knows that but if we're on the American cities it's a country that's broken down in other countries very well you see immense social problems
massive homeless camps including right in front of my house and two sonars in it infrastructure that's totally broken down it doesn't work you know if you fly from the United States you might very well land it can be international airport in New York has been the most beat up airports I've ever seen my life it's completely this from Shema and most American airports are like that and a train station subway stations but roads don't work this is a country that simply doesn't work anywhere
and there are a lot of reasons for that but one of the reasons is overspending on the military we've been favoring guns over butter now for decades and it's catching up with us and Europe is a much nicer place to live my son relocated permanently to the Netherlands partly for that reason I visit in there I'm very impressed by the fact that quality of life is visibly much higher I haven't been to Japan but I understand that Japan it's even better organized than it is in Europe
and I guess what I'm expressing the stonestment that Europe somehow imagines if you'd like to become more like the United States well good luck with that good luck with that you know if you want to become more like the United States you should your kid leaders should go and walk around the American cities and see if they look like these days and they're tired they want to become more like that well
and you see a psychiatrist perfect
yeah so Hegseth he made the one or two days ago this comment that the problem with Iran was that to keep using their money on weaponry instead of spending it on their people and I thought you know what a wonderful thing to say because that is key of the part of the problem there but do you I think you're very correct because in Europe this is kind of a thing they off the Europeans often point out and break the Americans about that is you know
why spend so much on the military instead of spending spending it on your society but but now it's essentially going the other way the Europeans will now emulate the American model take away from societal spending
otherwise I agree with you very much I'm yeah I did one of my PhDs in Netherlands yeah great calm society though I don't I am a big fan at least
but one thing we saw in 73 though was that all this oil producing states they were able to use the well limits the supply of energy in the markets in order to achieve different geopolitical goals
how do you see oil and gas being used this time as a weapon because again they're not all on the same side they might use it for a different reason but also we're in a very different time now it seems that is the whole world is trying to well navigate away from the hegemonic system
so essentially since World War II the U.S. has dominated all the main maritime transportation corridors all the key straits the technologies the main industries it's all this is slipped of course the last few years the main development banks dominate the global currency
so across the board but but now of course there's a lot of countries trying to shift and diversify away from this which means that there's a lot of more geopolitical aims or due economic aims one can have for limiting energy supplies or limiting access to corridors be it into the red sea or through the street of our moves so how do you how do you see eggs for a very long question how do you see oil and gas being used and as a political weapon this time around
well the large issue that everyone knows it's just many many times in your show is the issue of the fine of American in Germany and the rise or multiple the world in other desperate efforts by the United States to prevent that for both reasons of so tried and render also the fact that there's a large network of interconnected interests led by the military industrial complex that benefit from not going to Germany
and so the U.S. establishment not just the governments but the larger establishment is very committed it has been committed to prevent the collapse of U.S. of Germany using desperate measures I think the first one's talking about the question is indeed by the United States if you look at the diplomatic record if we look at that belt that to look at it coldly and objectively
and now basically there's the effort by Donald Trump ironically want to break with this sort of you know idea of endless wars and so on but in the second term he's furthering the idea of endless wars now what he won I see this is much more consistent with American presidents before such as Joseph Biden that was using he saw to use a glorious
as a means of gaining further cementing U.S. control of world oil gaining established United States is a reestablished United States the primary edge on the Persian Gulf and thereby being able to
gain leverage over China and the process of doing so and you know this follows again it we see a clear thread here which is under under Biden we saw an effort basically to shatter Russia also break it up into pieces to cut Europe off of Russian energy
and thus to establish the United States the total power and that that failed badly and now we saw a similar effort to gain control of the Persian Gulf to the war and that's going to fail even worse even more dramatically and so I think what you have here is you had a gradual decline of the place of Germany
and in trying to stop that decline instead it's accelerated the United States has put its foot on the accelerator and accelerator you must decline and the end result and questionably will be to increase the speed at which we're alive in a Muslim poor world
and well I can see the objective of Trump there he again you break Iran your store the primacy of the region but it appears now that it's failing and Iran will be in a position to not dictate necessarily the outcome but have more influence than it before this war
if I was advising the Iranian government I would suggest you know perhaps you should you know limit the access to the straightover moves you know you can tax the countries who at least attacked you or contributed to it so as a former reparation you know you could condition access to the straightover moves based on not hosting hostile or American military bases you can
well there's a lot you can do you can ask them not to sell their oil in dollars if they want to pass to the straight I mean there's a lot of power you can have by controlling the straightover moves and conditioning the access
it just seems to me well that's you know if I would advise the Iranians if I'd advise the Russia and also the Americans you know I would suggest if they can't win this war then at least the second best thing would be to incentivize some kind of a or encourage some kind of power
or encourage some kind of a collective security institution in the region that is that the Iranians could work with the Gulf states to manage it together the straight something that would I guess let the insure the Iranians that they wouldn't be attacked again
but also make sure that the whole straight then on the other hand the Iranians would have to give something and that would be the straight not being sold in their control
so it would be used to in a zero sum game against America's allies but again it's a little bit like the problem in Europe there's the language the politician speaking it's so emotional and heated it's so you know they're fighting God's war against the mullahs who wants to destroy the world
it doesn't seem there's any climate to just have a relaxed discussion about you know where's the Iranian security concerns legitimate where's the Gulf states America's you know what area can we actually align our interests and you know where do we have to manage the competition
there's no discussion at all everything is all or nothing which is not conducive to stability of course but sorry were
Scott made his comment on that the I think we have seen it's a much more emotional tone during the Cold War for us and he always have emotional tones in foreign policy discussions that's not new
the post-World War World has seen a much more emotional tone than they're going to run out of the number of people who work
there's a little bit more of a detached analysis and a calm discussion more than today
that I think one of the things that's happened is the for some reason the wars of the Balkans particularly in Bosnia
here to the Vienna to a lesser extent in Kosovo the juice that tremendous kind of emotional almost religious
enthusiasts in foreign invention that was very
self-righteous a tone of moral self-righteousness in place any kind of real real analysis
the whole idea is that if you engaged in dispassionally analysis and showed you were a bad person you were somehow engaging in an active immorality
if you try to look at you strategic empathy say how is the other side looking at this and showed what an immoral person who
were and therefore to be this would harder that kind of language emerged in the 90s in response to the Balkans
and it's been with us ever since and I think it very much infuses discussion
first in Europe even more so that here that's mind-crash him a Europe especially in Germany it's extraordinary
and I think that you know it fuses discussion about Russia and Ukraine and means we can't do proper analysis and why we have that move
and so it fuses in the discussion of what's going on in Iran I think that even though I think many people in the United States and Europe
and comfortable with Trump and his very strange style of communication and erratic behavior and all that that's recognized by most people
I think there's still a certain sense that Iran is burned by such evil regime when it persecutes women when it persecutes gays and so on
which it does by the way but so much so that going to what with them is maybe a good thing I would find them would be a delightful outcome
and the view of many without any analysis of what would happen if they were overthrower what would it is asked through that would be if they were thrown in eligibility
we can't ask that question because that cannot show you're an immoral person and so I do think you have this kind of emotionalism that has taken over as a substitute for analysis
one more thing I do want to discuss though since about halfway through the interview is the role of the dollar
and how the oil crisis of the 70s produced a new ball for the dollar do you want to have a forego issue that do you want to ask me
no actually that's where I was going to go because on the on the yeah the Iranians closing the straight over moose
I assume that one of their objectives when they're pushing for sales in non well in other currencies other than the dollar
I assume that this is an effort to not just remove the military base of the United States but indeed the couple the security interest of the US in the region
because a lot of the reason why the Americans are in the region is because they're then providing security to the Gulf States
has kind of been the condition for them selling the oil in dollars so if you want to really divorce the US from the region
you can't just you know bomb their bases or chase them out of Iraq for example then you have to decouple the dollar as well
it seems you know that's the thinking in Iran again speculating but I thought for that reason I really wanted to ask you
about a petrodollar system that is the historical relationship between oil pricing and the US dollar after Bretton Woods system collapsed
well the contacts in the mid 70s was again from found US meekness equi-ness or in from well first of all the economic weakness associated with the oil prices
but also impending defeating Vietnam that the United States is clearly being defeated in Vietnam was defeated in 75 in Vietnam
and for major power tools or war is a big deal is the humiliating event
and associated with that economically was in 1971 the United States the first time over a sustained period emerged as a deficit country in its trade balance
okay the United States traditionally a very strong exporter of industrial products and farm products moved into deficit that was importing more than it was export
all right and that's a real problem because well first of all you have to you have to eventually balance your trade
but also the United States dollar was since 1944 established as the world's currency was the world's currency got that in
and so the status of the dollar was seen as being under threat and it was open discussion and they can I saw this in the documents for the period
it was open discussion with maybe we would have to consider a new world in order based on some global currency not based on the dollar given American economic weakness
and that was avoided and that was avoided because the dollar is a source of power to the United States
okay that because the US is the unique in issuing the world's currency it controls the monetary policy of the whole world not just the United States
and so the United States was very reluctant to partner with this great privilege the exorbitant privilege all right at the French called it
and so the something a deal was made and involved petro-dollars in 1974 the US Treasury Secretary William Simon flew secretly to Jetta Saudi Arabia
it's only came out recently by the way was classified for a long time and cut a deal with the Saudis
and the deal was that the Saudi elite had enormous reserves from their greatly increased profits from oil exports
and they were just sitting in banks burning interest and so the deal was that Saudi Arabia would plow their surplus into buying US Treasury bonds as a way of financing the US debt
and furthermore it would use its clout with the smaller gold states like Qatar of Kuwait UAE to do the same thing
and then they did that and because they were buying US Treasury bonds and again it wasn't recognized at the time but this was part of an explicit deal
it sent a signal to central banks and private bankers all over the world to plow their money into US Treasury bonds
thus financing the US debt and so this was a way of compensating for US economic weakness
and it also ensured that the United States moved from getting any dust fuel power to being a financial tower
that America was just seen as a safe haven for spare dollars that were now used basically to finance the debt
and that basically gave a new lease on life to American economic and Germany
the United States was able to finance hundreds of what we see as bases that might have become non-viable otherwise
the United States of this enormous interest could use to control other countries including by the way to operationalize sanctions against countries
which is enormous source of power including against Iran, Venezuela, Cuba
at enormous cost by the way there was at least a study by the land set in Britain
which found that an average 500,000 people a year died of the last 50 years because we were sanctions
and that was made possible by the dollar and by the renew lease on life of the dollar given by the Saudis
in exchange by the way with the Saudis got was US political protection
they got massive arms sales by the way from the United States
and cooperation with the United States for by their intelligence centers would be able to contribute
and all over the Middle East Africa cooperation with the CIA
and exchange also they had to basically close their eyes and accept the fact that the United States was going to be allied with Israel
and they would have to tolerate that fact as they did
and so this was a deal and it's lasted basically ever since and that's a deal that now could very well be unraveling
yeah well the as just began saying the death today is very different and it was in 73 again $39 trillion
I remember back in 2008 when the global financial crisis began I think was about $9 trillion
now it's 39 so the problem is now that the debt is unsustainable
and as you said it's also being weaponized by having well the dollars being weaponized by
through sanctions it creates a big old demand for alternatives especially for big powers like China and Russia
because by holding a lot of dollars they also allow themselves effectively to be taxed by the United States
because if they print new money the United States government has more money but the holdings of China and Russia
they're worth less so there's a way of taxing countries so the taxing their own adversaries to contain them
so it seems to be a very strong incentive to move away from this dollar so they're at least have alternatives
so given that there's now this challenge to the well possible challenge to the petrodollar system
at least that could happen one of the scenarios or the possible outcomes of the war against Iran
how important do you think this is though to American power and I mean what what what would happen if I guess
the the war in Iran would then intensify the erosion of the US dollar
well I want to it should be noted that the economic benefits of this have been greatly overstayed
I just heard Jeffrey Sachs basically was a clone of this to force
basically say that the economic benefits to the United States are are as I said overstayed
and I think there's a strong tendency in economic fashion on general to agree with this
and you can see it basically that it doesn't really contribute that much to American prosperity
on the contrary you could say America would be better off devaluing the dollar
having a weaker dollar to encourage exports and to re-industrialize
the benefit is strategic okay it's strategic and that it's a weapon the United States can use against other countries
and an instrument to enhance American power
for example the fact basically we're able to you know punish Iran over decades
would be for not the universal of the United States was made possible because of the dollar
we tried that with Russia I guess they were just a bit too big a powerful for that to work
but we thought it would work with Russia you thought we could destroy them by the economic sanctions thanks to the dollar
and so there's that but again it's not clear that this is a great benefit to the American public
in terms of economic prosperity I don't think it produces prosperity at all
it is good for the financial sector by the way and financial sector benefits for this
right and that it pumps lots of dollars into the US economy and financial sector can show a play with
or it and helps to supercharge finance
but again that's not really in the interest of the American public more broadly
because financialization has been a major driver of de-industrialization in the United States
the denuding of high-paying union jobs for example has gone hand in hand with financialization
so I'm not sure any of this is really beneficial to the American public
but again we're sacrificing prosperity and high living standards for
not international ground euro and power all right which is what we've been doing since 1945
you might say and but we are seeing it unravel as with notice
countries are starting to recognize that this is an intolerable system
countries such as China and Russia are powerful enough to resist it
I'm sure China is rapidly diversifying at a US dollar denominated assets
because they don't want to be vulnerable to sanctions or US control
I'm not seeing a lot of evidence that China is trying to establish the one or the revenue be
as a global currency to replace the dollar
I think what you're seeing much more are sort of bilateral relationships
for countries essentially are trading with each other also the form of bond
or you multiply the currencies as far as I can tell I'm not seeing a global replacement
for the dollar anytime soon at least if there's any tendency that direction I have
I haven't seen it you know perhaps you could ask Jeffrey Sachs that question
we could probably give you a more informed answer but nevertheless
you are seeing as de-dollarization I think is inevitably going to be one of the main results
of America's recent foreign adventurers first again in Ukraine and Russia
and now now in the Persian broth
I think you're right though and often I think the challenges to the dollar
in terms of rivals being set up it's a threat which is maybe not a threat
but it's a challenge which is often overstated
because for China I think they would agree with you that is
the holding the world reserve currency would come at a significant price
that is in terms of economic development so they seem to be well reluctant essentially
to take on that role so I think rather than Chinese taking over the dollar status
as a reserve currency I think it's more likely to see more
simply trade maybe more in national currencies or something tied up to gold
I'm not sure but either way it doesn't seem like having the dollar as a reserve currency
are only benefits but that's a last question though
how do you see the current tensions now with Iran to what extent do you link this
or see this impacting the oil and currency system we have today
I'm sorry can you resist I still have a friend
the oil and the currency system we have today
to what extent do you think this would be impacted by the war we're seeing now in Iran
or is this merely threats you think or consequences
or do you think there's a greater push or wider strategy there
well Iran is every incentive now only for them to move away from any kind of dollar
denominated trade or to force other countries to do so as well
and to the extent that they now have significant control over what passes through the streets
or for moves they're in a position to do that
and so I'm assuming given their control of streets of the street of Iran moves
they're going to force countries not to basically trade in dollars as much as possible
and China of course is going to back them Russia is going to back them
not only militarily but also they're going to encourage de-dollarization
they have an incentive to do that
so I think there's every reason to think again what we've had here
is a broad tendency away from America with Germany with the potential
now being accelerated by desperate moves to sort of preserve an arc in Germany
first again by Biden now by Trump
this is such an ironic consequence of the Trump administration
because I one of the reasons I was optimistic about Trump is because in this very turbulent time
I thought he would be in a signal that he was capable of transitioning into a more
multipolar system which would be beneficial for the U.S. as well
that is instead of you know holding on to the global hegemon
which would continue to exhaust the U.S. of its resources
you know go further into debt and see the rest of the international system collectively balance it
he seemed to argue you know through the new security strategy
suggesting that you know if we just pull a bit back to the western hemisphere
they're focusing on China and you know if we pull back
don't pursue global primacy then the other great powers will begin to balance each other
you know we can regain our strength you know it would be good for the United States to recover
the rest of the world would be you know wonder a balance of power and
and it could have been ideals of to see this war against Iran now
which will then for all the mistakes of Biden this just puts it on further steroids
it's quite remarkable to see it's I don't understand it to be honest
according to how he communicated essentially what the grand strategy for the U.S. should be moving forward
compared to what he's actually doing it's very hard to make sense of
yeah I was wondering if you have any final thoughts on this before you wrap up
yeah I do us some thoughts on now I think basically what I'm seeing in front was for
there's a very big difference between Trump's phone call soon first turn this afternoon
in the first term he did a lot of very destructive things including carrying up
the agreement that had been worked out two nights they've sent
and he won with the Guaranteed Nuclear Enrichment
and he assassinated an Arabian General General Sué Mane
and he did all sorts of very destabilizing things around the world
one thing he did not do started a new mess
and I would say he's the first American president and his first term
since 1945 we did not start any new mice every single American president
other than first jump Trump did but he did not
and so in that sense he boys indeed a less aggressive less militarily aggressive
less militaristic American president than any we've had before
and let me go into it there's a larger issue there so I'll go into a moment
but obviously in the second term he's showing an opposite tendency of
following very much a neo-conservative playbook that he previously had disparaged
I found very much the positions of a Secretary of State Markov Rubio
so it seemed and I was very neo-conservative in his orientation
and he's becoming extremely aggressive and showing
a level of aggression comparable to his predecessors including Biden
that's really remarkable and a very kind of bloodthirsty language
that's disturbing to hear when I was playing
because beyond anything he said was first term
and a question is why did he change
and that's a difficult question to answer
because you have to read his mind the best I can make out of it is Trump and his
megalomania and he certainly is very as a certain extraordinary narcissistic
tendency is that he not only wanted to be a two-term president
he wanted to be a truly great president and he comes from the viewpoint
that a great president is one who wins war and obviously he's not going to win
this war but he assumed he would and that I think I assume that that's the
main motive here is to leave a legacy of greatness
and so this is the ticket to that legacy
let me have there's a larger issue of sort of this popular base
and you do one of the reasons Trump was elected
one of them is it was indeed a popular desire
for an end to American expansion overseas
the phrase America first means a lot of things
one of the things it means I think for many people
is more emphasis on butter and less on guns
and an end to constant overseas wars
and overseas adventures
I can give a little bit of personal insight into this
because teaching in southern Arizona where these are very heavy military
presence I've over the years and decades had many military personnel
in my classes and I do recall after the war on terror I just sense
a distinctive tone of bitterness among a men and women who come
back from that those wars and a certain sense they've been lied to
and mistreated by the system and they were very
resentful of the whole idea of constant
addiction to the war as something that really has to start
and I think one of the appeals of Trump as he seemed to channel
that resentment and so I think what you're getting here
is a lot of going to get a lot of political turmoil in the United States
is Trump's coalition breaks apart
and it's already breaking apart we've seen Tucker Carlson
the famous conservative pundit
a very strongly criticized the war you've seen many others
and so I think as the war increasingly goes badly
it has Americans start to die larger numbers
if Trump has marched to ground forces as he needs to be able to do
I think you're going to get a lot of political turmoil
with very uncertain results
the Democrats of course also are committed to precisely this kind of policy
at least in general many of them support the war need one
and they're opposition to Trump I think is largely just part of it
he's this Trump doing it not but not the more itself
do they really object to
now again how this is going to play out is the public tires of these policies
it's going to be very hard to put it
yeah I think well the Europeans now they they appear to be very critical of the war
but I think that's not a moral stance
it's just they were more optimistic when this saw the war going well
that's my theory at least if Trump would have asked them to join
in the first day or two then they would have joined
but he asked them too late when things were falling apart
and then and then asking them to essentially carry the burden
and I heard that's part of the concern from the Gulf States as well
if they join in fully on this war as well
that could actually give Trump the opportunity to actually step back
and say well you know this is a conflict between the Sunnis and the Shiites
it's been here for a thousand years nothing to do with me
you know dump it over to them like he outsourced the Ukraine war to the Europeans
but overall I suspect you're right on this
yeah about his motivations I think success probably has a price
that was the main lesson that for me I think after the Cold War
that is one you know one comes out of the Cold War victorious
Soviet Union collapses and then you know this hubris
if you think you can absorb all costs
it lets you do silly things
I heard for example Biden made you know some interviews saying
we can confront Russia, China, Iran same time
where the greatest power there ever was
I mean when you start to talk like this you know that success has a cost
and anyways the point I was getting to I think the Trump success in Venezuela
I think that got to his head as well
if you just show extreme force confidence then your adversary will kneel before you
and then of course he goes to Iran
which the comparison made no sense at all
there's no flying into Tehran and kidnapping anyone
or even murdering a president in the country you know
falls at your feet I mean it was a crazy thing to believe
but I think he was probably
yes I remember Putin made a speech once
where he made that point as well
that once you're an empire if you think you can take on everything
you can absorb any cost after a while
you know speaking from his own experience in you know the Soviet Empire
the Corsky building and building until you know finally that final straw
which breaks the camel's back but it that could be
but again I don't have a window into Trump's head either
so it's hard to say
anyways thank you very much for taking the time
I thought yeah that comparison or with 1973
it was quite informative and interesting
so thank you very much
thank you very much
Glenn Diesen - Greater Eurasia Podcast



