The U.S. Recession, the Dollar and Why Bush Wants to Bomb

I had a chance to talk about the U.S. economy, the dollar and oil as it relates to Iraq and Iran this week with Afshin Rattansi on Iran's press TV (oh yea, and the possibility of bombings).

here's the transcript;

Afshin Rattansi: Live from Paris, Max Keiser, journalst and broadcaster, joins me now. Max, there's been higher inflation, there's been talk of the death of liquidity, easy money in the markets. You've been predicting a recession in the US for some years, do you think the root cause are decisions in the US to print money? It's a bit like Weimar Germany which, of course, led to World War II.

Max Keiser: Well, the analogy to the Weimar Republic and Weimar Germany is a good one. The US is attempting to inflate its way out of the dollar crisis. And this is only causing the price of commodities priced in dollars, like food and oil, to continue to go up. So when people look at the price of oil and they say, 'well, why is the price going up?' The answer, primarily, is because the increase in money supply of US dollars as banks try to bail themselves out of all their bad mortgage debt. You know the story you just did about the housing crisis - that has everything to do with securitizing mortgage debt. Now that those debts have gone bad, the banks are trying to bail themselves out. Print more money. Makes the price of oil and food go up. It's as simple as that.

Afshin Rattansi: Was no one counting how much money was being printed at the Federal Reserve?

Max Keiser: (laughs) Afshin, the Federal Reserve used to carry something called the M3, which was the number that tracked the money supply in the system in its broadest measure. They stopped publishing M3 because it got to scary. People looked at the increase in the money supply and they fainted. They were shocked. It became like a horror movie. So they no longer publish M3 anymore.

Afshin Rattansi: Senator Barack Obama said he'll curb the speculators. This, of course, after that Opec emergency summit in Saudi. Can you just take us back to the Clinton era and the Glass Steagall Act and explain how legislation has got the US into such a mess.

Max Keiser: Well, you're asking two different questions there, but let's talk about speculation. The speculators are the scapegoat for this current run up in energy prices. The commodity traders are not really causing the run up in prices. If you want to point to a speculator and say, 'here's a bad speculator making the market behave in bad ways,' that would be Ben Bernanke and the Federal Reserve Bank. He's speculating with the nation's money supply. He's the speculator in chief. And Hank Paulson, over there at the Treasury. Those guys are speculating and they're speculating that betting that American economy is going to suddenly have a spurt in growth to bail out all this, to clean up all this excess money supply. But the chances of that are very, very slim to zero. I would say at this point.

Afshin Rattansi: Some believe that corporations wield more power than people on Capitol Hill or in Brussels, but how do they benefit out of this crisis and on the foreign policy agenda, how would they benefit from more sanctions on Iran. I know I'm giving you two questions at a time. Because of course the EU has announced sanctions.

Max Keiser: You're giving me multiple questions, Afshin.

Afshin Rattansi: That's right.

Max Keiser: Look, if we're going to talk about Iran, for example. You know, Iran committed a boo-boo. They said that they were going to price oil in euros. Now, if you remember, Saddam Hussein said he was going to price oil in euros and, shortly thereafter, America paid a visit to Iraq with a little calling card called 'shock and awe.' Shortly thereafter in Iran they said, 'we're going to price our oil in euros' and suddenly America's "oh my goodness gracious, we have to focus on this suddenly.' So it all has to do with the dollar. The dollar is really key to understanding all this geo-politics. The US dollar has had sixty years as the world reserve currency and that era is coming to a close. The US dollar is giving up its position as a world reserve currency and this is causing tremendous dislocations around the world. The US is scrambling to defend the dollar by trying to amass as much oil as they possibly can - in Iraq and Iran principally - to try to buttress the oil. Goldman Sachs, if I may say, has a huge oil position on Wall Street, that they're using to support the dollar as well. So it's all about the dollar. I hope that answers your question.

Afshin Rattansi: Just, finally Max, why the recent summit in Saudi Arabia to talk about supply problems? And that Saudi was going to increase production. Why do most media outlets seem to talk about it's something to do with the lack of supply of oil and much less about the weaker dollar?

Max Keiser: Well, the media, as we know, is corporate media. And who are the biggest corporations? Oil companies. So the message is convenient for them. It's not a transparent media. It's not a media driven by any journalistic standards. It's a media driven by ratings, corporate ratings, so naturally the story that plays well, the wedge issue that plays well on the Fox News in what are called the Red States in America, these are people that are not known for their nuance in interpreting the news. This is what they go with. And I feel bad because many, many Americans are left completely bewildered why their standard of living is collapsing, why the price of oil is skyrocketing. The price of oil is going to $160 next on its way to $200. Goldman Sachs has a report saying it's going to $200 and above. It's no secret that the price of oil is going to $200. That means the price of gas is going to 5, 6, 7 dollars a gallon in the US. If you live in the suburbs, how are you going to drive from the grocery store back to your home, you can't afford transportation. It's complete, utter lunacy. But there you have it.

Afshin Rattansi: Max Keiser, journalist and broadcaster, live from Paris. Thank you for joining me.

Comments

[ptah]

On watching your excellent interview, the question i ask is when will Europe wake up to the opportunity it is presented with. Being saddled with loads of US debt itself, the notion of siezing the mantle of reserve currency from the US via the Euro and setting up some decent deals with OPEC would attract the old-school statesmen, but not the current bunch of neo-trash. Daily news reports cover speech-bubbles of support for US policy and Gordon Broon is blindly stumbling around Zimbabwe looking for financial opportunity (er... development ) when any decent politician would see the golden egg laid right in their face.

Of course if this were to happen the US could threaten to bomb Europe... but that is not very likely.

[Henry]

Weimar had mostly to do with war debts imposed on the Krauts by Victors.
As the debts were paid to Gr Brit and France the flood of exchange into respective home
denomination sent a flood of deutch marks back to the home country sinking the
foreign exchange value of the mark and making the homeland a bargain.
This could indeed happen to America if the central banks of the respective holders
(china, russia, japan, taiwan, hong kong, singapore etc) of the U.S. dollar dump the
dollar. The flood of chickens coming home to roost would test the mettle of the Fluff-binders
at the FED. And then... wthe Weimar analogy would have some pertinence.

[ndem]

what Keiser is saying is what no one has been talking about...the fact that when we went off the gold standard, the standard became oil and the dollar pricing (which the US maNipulated the saudis into agreeing to way back when) linked to oil. The biggest threat to the US would be changing that pricing to another currency specifically euros. The Goldman Sachs comments about $200 a dollar a gallon oil come from people there buying futures at that price specifically the GS commodity guy who used to work for Talisman in Sudan! In the UK last Nov. Gordon Brown held an emergency meeting of his ministers as they heard about speculators buying at $200 a barrel back then...this is surely to try to shore up the dollar. If Obama threatens to touch the oil revenue or limit it in any way he will end up like the Kennedys! If Iran truely tries to change the oil standard to the dollar they will be bombed! Keiser is right on!!!

[Henry]

The specific point, however, was that there is no analogy between the current position of the USA and the Weimar Republic. Take a look at the money supply, the "printed" money supply.
http://www.federalreserve.gov/releases/h6/

The Weimar Republic horrendous inflation came from an external shock, and that was printing Deutch Marks to pay war debts. The only way this matches America is if all the central banks of the world liquidate their holdings of U.S. Treasury notes and those Notes are forced to come "home" to find a place to roost.