In addition to nuclear weapons threats, Iran apparently has begun an economic offensive against America. According to Israel Insider (and several other publications), the Mullahs plan to open an international oil bourse (a European term for trading exchange) on March 20 that would trade petroleum using euros as currency. Currently the entire world uses American dollars for such trading, and Iran believes a euro-based exchange will encourage other nations to withdraw their ample dollar reserves involved. This, the Mullahs hope, would trigger massive dollar inflation and greatly increase the cost of and risk of default on foreign debt, sending the U.S. economy into a tailspin.
The article's author believes America is vulnerable both because foreign nations have accumulated large dollar reserves to help finance petroleum purchases and because America borrows large sums from these same nations to support its own budgetary overspending. With the euro available as an alternate currency, the foreigners will want to diversify so to hedge against any dollar depreciation, and the necessary dollar dumping will flood the U.S. market causing hyperinflation. Furthermore, without such high reserves, the foreigners will become less inclined to lend to America, and the cost of said borrowing (and hence the default risk) will rise. Collectively, the author predicts, this will lead to long term stagflation and the end of American economic dominance.
So now we must ask - is this threat legit? Does Iran really have such power over us? The possibility certainly seems alarming, but I wouldn't be so sure. Surely Iran aims to harm us, but whether their plan will succeed is another matter entirely. I believe Iran's strategy will fail due to several key factors the article's author overlooks.
First, oil trading is not a large part of our economy. Even if foreigners decide to trade oil entirely in euros, they are still likely to maintain their dollar reserves as backup for their enormous investments in U.S. stocks, funds, real estate, and other equities.
Secondly, even if they do begin to dump dollars, long-term inflation is no sure bet. America can always counter by lowering the cost of using dollars on its own NYMEX exchange, and naturally the foreigners will return to greenbacks to get a better deal. (See the first comment at the end of this article.)
In addition, a rise in the cost of foreign debt (unlikely anyway due to the two above principles) would have far less impact on the economy than the author conveys, because compared to GDP the debt itself is actually minimal. As long as GDP growth keeps up with debt percentage-wise (and we have little reason to believe it won't), we should run no greater risk of default than ever before.
Iran may intend to undercut the U.S. economy, but I don't believe their strategy will work. That's not to say they won't hurt us at all, but it shouldn't be nearly as catastrophic as they hope. The Mullahs may be overconfident as always, but then again, they haven't exactly been known for levelheaded political thinking. America must monitor this situation intently and respond as necessary, but market principles and our internal productivity should allow us to strongly pull through.
If we attack Iran, it will be motivated not by oil or economics, but to stop a fanatic regime from threatening the world with WMDs. As opposed to the oil bourse situation, on this issue we must hurry and act accordingly.
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Most Americans don't buy the liberalism put out by the mainstream media, but I'm not surprised that the media doesn't get it.
It's very similar, I think, to the mainstream record companies who in recent years have been faced with a digital music explosion. CDs had been overpriced for a long time, and once consumers showed their preference for digital music through illegal dowloading, you would think the record companies would have taken advantage by offering a legal download service. But instead, they couldn't see the forest for the trees and tried to place all sorts of restrictions on digital music. Of course, consumers hated it, and then Apple swooped in with iTunes and took a vast majority share of the market.
Similarly, the mainstream media doesn't get the fact that their news reporting is out of touch with the views of the nation. But instead of shedding their liberal bias, they have remained entrenched in it, which has allowed alternative media (blogs, satellite radio, etc.) to come in and grab a large share of the market. Just like the record companies (who, not coincidentally, have been run by mainsteam media-types), the mainsteam media's information monopoly has been broken, and I certainly don't see it coming back.
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