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How plausible is the end of the petrodollar as proposed in ‘The Colder War’ by author Marin Katusa?

 -- Published: Friday, 14 November 2014 | Print  | Disqus 

By Peter Cooper

This autumn’s must-read book for professional gloom and doom merchants is ‘The Colder War’ by Marin Katusa, a top analyst at Casey Research. It’s central thesis is that Vladimir Putin is using Russia’s position in the energy sector to undermine the US dollar as a reserve currency, and that this will bring about the fall of US political and economic hegemony just as the pound sterling’s decline came with the end of the British Empire.

As it emerges Dr. Putin wrote his PhD thesis on ‘Mineral and Raw Material Resources and the Development Strategy for the Russian Economy’. How many doctorate students not only get their economic theory published but get to implement it? He wants to restore the glory of Russia and the Soviet Union.

Dr. Putin

You need to read Mr. Katusa’s account yourself to get the full picture. But basically Dr. Putin realizes that developing and controlling energy, metals and other natural resources are the key to Russia’s economic success. Indeed, the past 14 years that he has been in the driving seat have seen many advances, not least a five or six-fold increase in Russian per capita GDP. The two massive pipeline projects with China are just the latest example of this plan in action.

More controversial is the claim that a part of this strategy is to undermine the reserve currency status of the US and bring about the end of the petrodollar that allows Americans to borrow and live way beyond their means. Once this economic advantage is removed the US will have no alternative but to shrink its military and the standard of living of its citizens will stagnate or decline.

You can see that many who envy the Americans their wealth and power would like to see the end of the dollar as a reserve currency, and yet today the dollar is getting stronger and not weaker. It’s Dr. Putin’s ruble that is in dire straits thanks to his adventures in the Ukraine this year. Not that the yen, euro, Canadian and Australian dollars or the dear old pound sterling are in that much better shape.

The almighty dollar stands proud. Still Mr. Katusa has a point in that direct non-dollar trade between countries in natural resouces is coming. You can see how the Chinese renminbi is becoming far more easily convertible. The recent Chinese-Russian pipeline deal spoke boldly about using the ruble-renminbi in this $400 billion project, the largest engineering project since the Great Wall perhaps.

Saudi Arabia

Could Saudi Arabia be persuaded to drop the petrodollar, a part of its 1970s defense pact with the US? Well China is the kingdom’s biggest customer for oil these days. But it is hardly likely.

Is it not more plausible to see the dollar gradually losing its dominance over a much longer period, say the 30 years that it took the British Empire to blow its inheritance? I don’t know. Mr. Katusa has a good argument for more rapid change in an interlinked global economy with trade done in seconds not months let alone years, and he is certainly right that there’s a lot of anti-American will power to make it happen.

Still analysts talked of an end of the US dollar in the 1970s when it really did look a complete shambles amid high inflation and soaring deficits, and where are we today? In currency wars there is always a winner and who’s the biggest holder of gold in the world? Uncle Sam. Russia comes fifth on this league table. It can’t win The Colder War and makes a big mistake to try.

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 -- Published: Friday, 14 November 2014 | E-Mail  | Print  | Source:

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