America’s Growing Cancer Part I

The Financialist Paper


On a cloudless, sunny day in September, 2001, two commercial airplanes hit the World Trade Center in New York. A terrorist organization, Al Qaeda, was quickly blamed. Military spending was bumped up once again, and soldiers on standby were deployed. The U.S. could not declare war on a definitive country since Al Qaeda was a terrorist organization and not a government, so they declared war on the government that housed Al Qaeda. This was the Taliban, who were sympathetic to Al Qaeda’s cause. After a year in Afghanistan, America and its allies had overthrown the government, and installed another where terrorists wouldn’t be protected. America had seemingly won, but the violence never stopped. The Taliban continued fighting for twenty years to win back the country that had been theirs. At any point during those twenty years, the United States could have pulled out realizing it was not their war to fight, but they continued on, growing the national debt. 

Over the past century, the United States had been rapidly militarizing, and was becoming accustomed to fighting intercontinental wars. They had built up a huge military budget, without the means to pay for it. Their continued presence in the Middle East did not help to solve this budgeting problem.

In 2003, the U.S. accused Iraq of having weapons of mass destruction, even though after an international investigation, most agreed they did not. They invaded Iraq, and in three weeks, they had overthrown yet another government in the middle east.  Not so coincidentally, Iraq had huge oil fields, which they moved to seize very quickly.  After this harsh and unfair invasion, the U.S. had not found any nuclear weapons, they caused a civil war, and they made deals with Iraq’s oil industry. America’s intentions were never to take away Iraq’s non-existent nuclear weapons, it was to establish another sphere of influence, protect our oil supply, and feed the military industrial complex.

The previous leader of Iraq, Saddam Hussein, had been a very popular leader.  He united the two branches of Islam, the Shiites and Sunnis, who had previously been clashing over who got to control the government. He established secular Iraqi nationalism, along with a strong central government, which effectively stopped all infighting. When the U.S. forcefully removed him following the invasion, they created democratic instability. The Shiites who made up 69% of the population were now in control, and they began persecuting the Sunnis. America continued to maintain a huge military budget and presence in Iraq, but they had no good reason to do so. There was no threat to their national security at all. A country with nuclear weapons will never be invaded, because it would reply with mass destruction. The real reason America stayed in Iraq was to use it as a launchpad for possible conflicts with Iran. They never cared about how Iraq would function as a democracy. All they saw was a strategic military station.

Even though it seemed like the U.S. was a beneficiary of these wars, there was something more ugly going on behind the scenes. To keep a steady stream of government funds going to the military, the U.S. was having to sell government bonds to countries like China. A bond is a type of long term monetary investment in a government. By selling bonds to China, the United States was agreeing to pay China $1000 in ten years if they could have $500 now. If the United States sold hundreds of bonds to China every month, it would not take long for national debt to become insurmountable. Sure enough, as war and occupation continued, national debt began to spiral out of control.  But why was this happening?

Back in 1971, the U.S. made an agreement with the oil rich Saudi Arabia. The United States agreed to protect their country in exchange for a huge discount on oil, and most importantly, the creation of Petrocurrency.  Petrocurrency is a type of money that you need to purchase oil. In this case, it was the U.S dollar. This meant that before other countries bought oil, they had to exchange their currency for American Dollars. This stabilized the American economy and currency because other countries would always be willing to exchange their money for American money. This deal kept the USD extremely valuable. The USD was now directly linked to the value of oil in the same way it was linked to the value of gold before the end of the gold standard. The gold standard also ended in 1971, and from here it is not hard to connect the dots.

After the U.S. went off the gold standard, American currency depreciated. There was nothing left to prevent natural inflation, because the money wasn’t tied to anything. There was no longer any restraining force like gold to prevent the Federal Reserve from printing too much money. Since the U.S. dollar was no longer tied to gold, other countries had a hard time finding a fair and steady exchange rate for their currency, especially when the USD’s value fluctuated. There was nothing to compare the value of the American dollar to. This is what led to the 1971 agreement with Saudi Arabia, and the creation of Petrocurrency.

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure… It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.

— Barack Obama

The U.S. has felt invincible for so long, but soon everything will come crumbling down. With the increased production of clean energy machinery and vehicles, it is likely that oil will become a dated commodity. As I explained above, if the oil market collapses, so will the U.S. dollar. Once that happens, the debt will finally catch up to America. When American currency becomes unstable, big holders of U.S. debt like China and Japan will want their bonds paid up, afraid that they might lose their money due to inflation. Without the link to oil, the United States wouldn’t have enough money to pay off China or Japan, as American money wouldn’t be as valuable anymore. America would either have to cut their spending and raise taxes in an effort to pay off debt, or completely refuse to pay the bonds back, which has some potentially scary repercussions. If other countries see the U.S. refuse to pay back Chinese debt, they will be less likely to lend America money of their own. Even more seriously, this could aggravate the relationship between the two countries and lead to war. In theory China could feel justified in seizing U.S. territories in exchange for debt.

How does the U.S. prevent this eventual disaster? There are two solutions that I can see. One which is likely; and the other which is not.

Continued in Part II