Translated from Prometeo 17, June 1999

During 1998 the price of oil fell by 29.7% compared to 1997. This is the fifth largest drop since 1921 and means the period 1986 to date has experienced the biggest price reduction in recent times (-51.1%). Despite this, however, the economic analysts still maintain that the market is afflicted by an excess supply of around 1.5 million barrels per day. Armed with this information, those who argue that NATO’s attack on Serbia was carried out for exclusively humanitarian reasons are having a field day against those who maintain, on the contrary, that behind such a massive aerial bombardment were once again the IMF, the EEC and Russia and their plan to construct pipelines to carry oil directly from the Caucasus and the Caspian Sea to the North Sea and the Adriatic, thus bypassing the Persian Gulf. That, in short, this was the latest war of the West to have oil at low cost or, according to some, quite simply at zero cost. Certainly, it is very difficult to imagine that the gang of brigands who govern the world - who have made constant attacks on the condition of life of the weakest and poorest their own credo and who use war as their most effective tool for maintaining their class domination - could be moved to compassion for the fate of anyone. Yet it is also true that war is not unleashed so long as it is possible to achieve the desired advantage by other, less expensive, less dangerous, and perhaps also more effective, means - given that, at least in the short term, war has the opposite to the desired effect. It is enough to skim through an economics textbook to learn that the price of a commodity oscillates in direct proportion to demand and in inverse proportion to supply. So it is certainly not by bombing Iraqi oil wells, for example, (which, among others such as Saudi Arabia, have lower extraction costs and whose oil can be sold at extremely low prices) - that the tendency towards a lower oil price is brought about. Moreover, this argument ignores the contradiction of Great Britain: an oil producer and exporter but which is always at the forefront of those wars which in theory are waged to establish a price reduction. In view of this evidence, the thesis that the central concern of the West in this recent war was to bring about an extremely low oil price does not make sense, either in terms of the data or the actual structure of the market.

Unfortunately even within the fold of the internationalist communist left there are those who, probably because the contradictions are so clear and in order to sharpen their critique of the political economy of our time, reject the thesis of humanitarian war yet also maintain that the US superpower has been pushed into a war for little economic gain, at least in this circumstance, exclusively for its own political prestige. In other words, the root cause of the war is seen as the US desire to demonstrate to the whole world that no-one can lift a finger without the White House responding, as well as portraying NATO as reacting solely to an act of aggression and thereby keeping up its image of taking the side of the attacked against the aggressors. In truth, if NATO’s attack on Serbia seems to escape the rule that history has hitherto dramatically confirmed it is certainly not because capitalism has suddenly been transformed into the good Samaritan of the New Testament parable. Rather, it is because the readily available economic data is almost always interpreted in terms of old schemes which ignore the huge change in the form of imperialist domination that has taken place over the last thirty years, as a result of capitalism’s accumulation crisis. Thus, oil and all the most important raw materials are viewed in the same way as at the beginning of the century. If this were really the case: if, that is, nothing had changed over the last thirty years, all the wars which today are tearing the world apart would be quite inexplicable except in terms of categories that belong to the world of pure metaphysics, such as the “humanitarian” one. No longer would there be an explanation in terms of the economic contradictions of the capitalist system as it has developed historically. From the wars that have transformed Africa into a volcano that permanently erupts pus and violence almost as if there was a scourge over the earth or, if you prefer, a continuous cycle of butchery; to those which devastate the Far East, the states of the ex-Soviet Union, Latin America and now also Europe, there would be no explanation within the ambit of the Marxist critique of political economy. If, in fact, the purpose of war is confined to obtaining a low price for raw materials then peace should reign uncontested since this goal has been reached for some time. In fact, apart from oil, there has been a general reduction of around 30 per cent:

On average the other commodities have undergone a real price reduction equivalent to around 10% in 1998 compared to 1997; in June 1998, for instance, the price of copper, had fallen by 27% on the previous year, compared to a reduction of 10% in the price of aluminium and of gold whose price in the course of the year suffered oscillations averaging about $300 per ounce. The regions most badly stricken by the reduced price of commodities are the Middle East and Africa. ⁽¹⁾

Continuing Our Explanation

From at least the second half of the Seventies the purpose of controlling raw materials, and that of oil in particular, has no longer been exclusively to stabilise prices at their lowest levels and prevent any obstacle to supplies for the big imperialist metropoles. The oil shock of the early Seventies, though nominally driven by Opec - i.e. by the biggest oil producing countries - was already much more complex than the simple constitution of a cartel to lift the price by setting predetermined quotas based on each country’s potential production. In fact, it became immediately obvious that the high oil price not only suited the producing countries, but also favoured the financially strongest of the importing countries. ⁽²⁾

The latter were able to attract the surplus capital which other oil-importing countries poured into the major oil-producing states because they offered them higher rates of interest. Leaving aside the varying degrees of dependence of manufacturing countries on oil imports, the consequences of the unexpected price increase on the cost structure of the major industrialised countries varied, in turn, according to whether - like the United States - they were more or less self-sufficient in oil. Even as they suffered the consequences of the price rise, the countries in this position were able to recover competitiveness vis-a-vis those that were not. It was during those years that the mechanisms of imperialist domination, described so well by Lenin, became even more refined, experiencing a qualitative jump that led to the present super-sophisticated system in which the parasitic appropriation of surplus value by means of the production of fictitious capital has assumed hitherto unthinkable dimensions - something which is confirmed above all by the unbelievable expansion of the financial sphere and of its complete globalisation.

In number 14 of the Vth series of Prometeo we have already described how the parasitic systems of appropriation operate by means of the production of fictitious capital and how they led to the abandonment of the regime of financial controls and the international monetary system imposed with the Bretton Woods Agreement of 1944. ⁽³⁾

Here we will limit ourselves to emphasising the fact that the abandonment of this system has produced a deregulated financial regime and a method of international payments centred round the liberalisation of the production of credit money and a flexible exchange network. Liberalisation of the production of credit money and the deregulation of the financial markets on a world scale have put a master key into the hands of the strongest economic and financial areas - above all, into the hands of America - a master key which allows even the most inaccessible safe to be opened without so much as grazing a finger. Under this system, whoever issues a currency that is approved for international payments - when there are very few limits to the production of paper money and, above all, where there is no obligation to hold gold reserves directly proportional to the quantity of currency issued - enjoys a series of extraordinary advantages of which the most obvious are:

1. the possibility of simply paying for one’s own imports with paper;
2. of being able to influence the quantity of money in circulation not only by levering the rate of interest, but also by relying on variations in the exchange rates that are determined on the money market independently of one’s own trade balance.

Thanks to this, therefore, and within certain limits, the amount of money in circulation can run counter to interest and exchange rates. This has enormous implications for the whole process of currency management and for the appropriation of financial income. In this context, control of the oil supply today is at least as important as it used to be to control the production of gold when international payments and the foreign exchange markets were based on the Gold Standard. Just as in the past gold was more important for the effect a variation in its price could have on the quantity of money in circulation, i.e. for its existence as the only real money recognised internationally; today the importance of oil goes beyond it being an indispensable raw material in almost all industrial processes and lies in the effect that price variations have on exchange rates, the quantity of money in circulation, interest rates and ultimately on the distribution of revenues internationally. To get an idea of the extent of the interests at stake, it’s worth remembering the simple fact that the dollar is used as a means of international payment and is the most important reserve currency in the world, already procuring an income for the USA calculated several years ago at more than 500 billion dollars per year. We can assume that this has grown lately, seeing that the deficit on the US trade balance is now more than two hundred billion dollars. ⁽⁴⁾

On the other hand, purchasing goods with dollars, which brings the certainty that many of those dollars will not return to the country of origin to be exchanged with home-produced goods, is such an attractive system of payment that it is almost irresistible. And that is nothing compared to the advantages which an internationally accepted currency derives from the fact that the volume of currency in circulation can run counter to interest and exchange rates.

The Apparent Paradox of the Dollar

According to traditional bourgeois economic theory, demand for a foreign currency is higher or lower according to the level of demand for goods in the country that issues it. This means that under the reign of free competition oscillations in the value of a currency will be directly proportional to the growth of exports and inversely proportional to that of imports. The currency of a country that imports more than it exports should, therefore, tend to depreciate and vice versa in a country that exports more than it imports. Thus, according to the theory, the dollar should tend to depreciate. In reality, however, it continues to receive higher quotations against almost all the most important currencies in circulation, including the newborn Euro which represents the world’s largest economic area. For bourgeois economics this is an inexplicable paradox or else a short-term deviation of practice from theory which is not of critical significance; but in reality things are otherwise. As we can see, the theoretical scheme completely ignores monetary movements which are exclusively financial: those resulting from differential rates of interest amongst the various areas and those determined by demand for a currency to use as international payment. This is certainly not due to a bad formulation of the theory. It is rather because the theory was formulated when currency movements were strictly connected to the course of the so-called real economy, where issuing counterfeit coins was illegal. The paradox of the dollar reveals that this is no longer the case and that in this final quarter of the century there have been radical and sophisticated changes in the forms of parasitic appropriation of surplus value extorted on a world scale.

Clearly, it is only by assuming the demand for dollars is not directly connected to US imports/exports (and that its origins are exclusively financial) that it possible to explain the upward trajectory of the dollar in the presence of such a massive trade deficit. Moreover, it is not true that this discrepancy is more apparent than real. The current notion that elevated exchange rates for the dollar reflect the higher productivity of the American economy as regards all others, and the European one in particular, is false. Rather, a comparison between the GDP per hours worked of the United States with that of the other G7 countries over the last quarter century shows a constant recovery of productivity of the latter. So much so that,

If in 1973 the hourly productivity of the other nations of the G7 were around two thirds of the American one, in 1995 France and Germany had already reached and even gone a little beyond the American levels. ⁽⁵⁾

In reality, the dollar is worth more than it would be if its value were determined by economic factors alone. Its role has become very much more complex than that of a pure medium of exchange, and it is oil which is the fulcrum on which this complex force rests.

The Money Supply and the Economic Cycle

In general, the central banks have a single instrument they can use as a last resort to control the money supply and counter the effects of the economic cycle: the discount rate. ⁽⁶⁾

If the economy is stagnating the discount rate is lowered. Once money costs less the system tends to absorb more and the volume of money in circulation tends to grow, with an accompanying increase in overall demand. The opposite is the case when the economy “overheats”, as the bourgeois economists say, and inflation tends to rise. Obviously, each variation in the discount rate affects every aspect of the macro economy, effects which are not always desired. Given the present structure of the international financial market, if the discount rate is raised, for example, it is very probable that this will be translated into a greater influx of capital from abroad and into a further rise in the exchange rate. For some sectors of the economy that is certainly an advantage, but not for those with foreign debts, or for exporters who would see their goods lose competitiveness etc. Likewise, the effects are reversed in the opposite case. If for example, it was impossible to raise the discount rate without this having repercussions beyond a higher exchange rate, then the unwelcome effects would be very severe and would not only hit the national economy, but also all other economies related to it. This is true, not just for this example, but in every instance where it is necessary to make an adjustment to one particular aspect of the macro economy. Obviously there are so many cases that it is practically impossible to describe them all. Here we want to stress that any alteration to the macro economy thus obtained results in a transfer of value, or rather of surplus value, from economies where the exchange rate cannot be altered without this also involving a corresponding adjustment to the discount rate to those which, on the contrary, enjoy this advantage.

In a market such as the present, where financial capital is free to move every hour of every day from one corner of the world to the other, it is easy to understand that the military equivalent of this economic advantage would be possession of the atomic bomb. Just as with the atomic bomb, unlimited use of the weapon is strongly advised against because there is no guarantee that an excess of radiation won’t also strike whoever launched it, so the exchange rate can only be used as a tool of parasitic appropriation within certain limits because the collapse of the weakest would also damage whoever had provoked it in the first place. However, the advantage is still an enormous one and is enough to determine the hierarchy of power worldwide.

Dollars and Oil

We have already stated that oil nowadays plays a role similar to gold in the days of the Gold Standard. In reality, though, oil has characteristics that gold never had. Gold came to be appreciated because it was unalterable over the course of time, because its malleability made it an excellent metal for minting coins and because its scarcity made it precious; but it could act like this so long as, ultimately, it was only the central banks who accumulated it in their own coffers. Moreover, variations in the price of gold were reflected in the value of the coins, but even if economists of the monetarist school attribute the Great Depression of the Thirties to the automatic transfer of changes in the value of gold to that of the coinage, in reality these variations didn’t have any impact on the structure of the costs of production and could be easily amortised. Variations in the value of gold were thus transmitted to only a limited fraction of the world’s currencies so that speculation over these variations did not become very important.

By contrast with gold, oil is a raw material that is truly universal. From Alaska to Patagonia, from the North Cape to the extreme south of Africa there isn’t a human being who to some extent makes use of it. Every variation in the oil price immediately affects production costs of the more industrialised countries and of the poorest, of large scale and handicraft production, agricultural and industrial; not to mention the service sector where oil is practically irreplaceable as a source of energy within the present relations of production. Thus every price change has repercussions for the economy of the whole planet and alters the value of currencies of the entire world. Within this, the exchange relations of each currency vis-a-vis all the others are modified in inverse proportion to the strength of the individual currency, since the weakest have little possibility of absorbing the price rise by raising productivity with the existing productive apparatus.

But oil is bought and sold in dollars and therefore the dollar is the currency which is most sensitive to variations in its price. If the dollar, in line with theory, had the same weight as the other currencies on the international money markets then at some point in the economic cycle its character as the most widespread means of international payment would constitute a strong disadvantage since the price of oil - with variations determined automatically by variations in its value, as happened with the Gold Standard - would rob the US Central Bank of a great part of its capacity to manipulate the money supply as a tool against the economic cycle. Since every increase in the price of oil brings a corresponding increase in demand for dollars, when the oil price rose so too the value of the dollar would climb and vice versa, even when the US economy was in need of inverse movements. In sum, the privilege the dollar enjoys by virtue of its role as the most widespread means of international payment would be entirely theoretical if this role didn’t also include the ability to regulate the price of oil on the part of the United States.

By its influence over the oil price the US can, within certain limits, modify the terms of exchange between the dollar and all the other currencies. Thus interest rates can be altered independently even of the state of the real economy. In this way the cost of the adjustments to its own economy can be transferred to the whole world economy. Regulating the price of oil has thus become enormously important because with this comes the ability to influence the parameters of the whole world economy and orient them in one’s own favour. This is extremely important in an epoch where financial capital is free to move uninterruptedly day and night, every day of the year, from one part of the globe to the other. And in the domain of finance the key to the struggle for the control of the market is oil.

Inflation in the USA and Increase in the Oil Price

Last April in the United States, unexpectedly but predictably, inflation re-emerged with the monthly index showing a rise of 0.7 per cent. Aside from inflation, the major economic indicators for the US have been signalling for some time that the economy is marching dangerously towards a substantial slowdown that would bring it in line with the rest of the international economy which is already moving towards stagnation. Though many analysts draw an economic picture of stabilisation for 1999, from the magazine Surplus we learn that:

As far as world economic growth for 1999 is concerned, the more authoritative projections agree on a low growth rate of about 1.25%. It is necessary to go back to at least 1982 to find such a depressed growth rate.

This forecast, however, takes the revival of Asia for granted and is based,

on the assumption that there are no further crises and that the West accepts it must bear the weight of Asia’s revival on its own foreign bills of exchange. ⁽⁷⁾

Given this overall context there are even those who fear the risk of a depression like the Thirties. Probably the perspective of a catastrophe of these dimensions is exaggerated, but the fear is not at all unfounded.

For at least two years Wall Street has been inundated by an enormous influx of capital fleeing from the areas involved in the financial crisis of the previous year. This has strengthened the tendency for the stock market index to rise: a tendency which has already lasted several years and which also involves attracting capital from Europe, a tendency which has given way to the biggest speculative bubble in the era of globalised finance. Amongst other things, this mighty influx of capital has allowed a high exchange rate for the dollar to continue. This, despite the general fall in raw material prices, including oil, as a result of both the reduction in demand following the Asian crisis and overproduction on the part of some of the oil-producing countries, one of them Russia. (They want to increase their own earnings to meet the cost of servicing their foreign debt.) A sky high dollar and increased stock market earnings have encouraged a surge in US domestic demand. The ensuing consumption boom has lately given rise to cries of “miraculous” by economists and opinion makers alike who conclude that the problems of the European economy can only be resolved by imitating the American model.

The movement has been so strong that it really seemed as though printing dollars was all that was required to increase available wealth. The commentators overlooked the fact that even in the best of all possible worlds there is a limit to everything. To be able to sustain this infernal mechanism and withstand the financial crisis that hit Asia, then Russia and finally Brazil and the whole of Latin America, first the Japanese Central Bank and then the Fed pumped in money at top speed. Between April 1997 and January 1999 in the USA alone, the money supply grew by more than one thousand billion dollars. There was no corresponding growth in either the US economy or that of Japan, nor of the world economy as a whole. ⁽⁸⁾

It was almost inevitable that this should give birth to inflation. Only hypocrisy, intellectual dishonesty and the myopia of the bourgeois economist accustomed to seeing inflation as only the product of wages’ growth, could allow it to be excluded. In practice, though, inflation does not only arise from “labour costs”, as the managing director of Moody’s points out, but there also exists:

an inflation derived from the over-valuation of assets. These can be houses, but they can also be shares. And here it seems to me that we have reached this point, even if we have been saying for three years that Wall Street is over valued. ⁽⁹⁾

Inflation stemming from an excessive increase in speculation is an ugly beast which, if abandoned to itself, can truly overwhelm the entire world economy, starting with its principal motor force, the US economy itself. But how to control and contain it before it explodes? Clearly, removing the oxygen of financial speculation [of which stock market speculation is only the tip of the iceberg] would necessitate reabsorbing the excess money that nourishes the uncontrolled growth of US domestic demand - as demonstrated by the fact that this is growing at a rate of 3% more than productivity, despite real wages continuing to fall and nominal wages remaining essentially unchanged for ages. (Up to April hourly pay had increased by only three cents). To do that would necessitate raising the discount rate by at least two or three points. This doesn’t seem very much but in fact it would be a massive rise, especially since real interest rates worldwide are generally higher than the average growth in gross world product and that US rates have already surpassed, albeit by a small margin, those in Europe. Even if a three point rise would favour the easy reabsorption of excess liquidity it could engender a spiral in which the collapse of domestic demand would be followed by that of Wall Street. Moreover, this would trigger a further crisis of the ex-Tigers and of the entire Asian area that now aims for export growth to the United States as a means of escaping the dreadful financial crisis that overwhelmed them last year. A scenario to make the pulse tremble, even if Greenspan is the navigator. In fact, for over a year now while he has remained in office, he hasn’t done anything other than issue warnings about the need to put a brake on the growth of Wall Street for fear that the inauspicious events of 1929 might be repeated.

It is a scenario that probably would already be reality if the USA had not been in total control of the oil market, including the process of price setting and thus too, of a large portion of the world’s financial flows. From last January, between bombardments on Iraq and threats from Saudi Arabia (faithful ally of the US) to the other oil producers to make them cut production - by threatening to put oil onto the largest markets at $5 a barrel - the oil price began to rise again. Until just before the outbreak of war against Serbia there was a modest increase. However this was enough, combined with minor adjustments to the discount rate, to induce sufficiently high quotations for the dollar to prevent domestic demand from spiralling out of control with an accompanying explosion of inflation - in fact up until April the average monthly rise in inflation was 0.1%, equivalent to an annual increase of 2.3%. In practice, by raising the exchange rate which only partly affects the discount rate, the Federal Reserve has been able to unload part of American inflation onto whoever has paid more for oil. Contrary to appearances, therefore, the USA has everything to gain from a rise in the price of oil: at least until the US itself has to face up to the problem of absorbing the excess liquidity which it introduced to the market to deal with the consequences of last year’s international financial crises without inflicting severe jolts to Wall Street and without applying very restrictive monetary policies. It is worth remembering that the International Monetary Fund had to lend more than £60bn to Brazil alone to prevent its debt exposure toward foreign banks and financial institutions, above all American ones, giving way to a dangerous chain of bankruptcies. But if the April inflation figure is confirmed as the annual trend that would mean a year on year figure of above 4%, compared to 1.6% in 1998. This suggests that something else - and something more incisive - is required and it is therefore easy to predict that in future the price of oil will assume an even higher value than today. ⁽¹⁰⁾

For whoever controls a currency which is also the main medium of international payment, the options which spring from controlling a strategic raw material like oil are not limited to ensuring it is available and at a low price. They also include being able to influence the setting of that price from time to time: allowing the US to maximise its financial returns in relation to national and world economic trends. For example, immediately after the first oil shock - when the Fed raised interest rates through the roof and the dollar reached its post-1945 high thus attracting the avalanche of petrodollars destined to finance the US public debt from flowing into the coffers of the Opec countries - US policy also aimed at a gradual lowering of the oil price whilst encouraging the search for new deposits. This was the logical consequence of the sudden increase in the exchange rate that had forced the indebted oil producing countries to increase production so that they could service their growing foreign debts. (Which were naturally calculated in dollars.) And it was exactly this change in strategy of US oil policy that provoked the fierce drive to restructure which has literally transformed the oil market and ensured that it is increasingly part of the financial market.

Changes in the Oil Market

The oil crisis of the early 1970s pushed both the major industrialised countries and the biggest oil companies to intensify their search for new deposits and reduce extraction costs of the least efficient. In 1973 Great Britain, in particular, accelerated exploration in the North Sea: so much so that by 1975 the first wells had already come on stream. By 1983, with the programme completed, production equalled that of Libya, Algeria and Nigeria put together. On top of this there was the economic crisis of the ex-Soviet Union which, by the early 1980s, was already obliged to increase gold and oil exports to get the necessary foreign currency to cope with an increasing trade deficit. At the end of this process, around 1983, Opec production had been reduced to 40% of the total. The oil companies, who in turn were hit by the reduced prices, modified their strategy. Instead of making extraction their overriding concern, they began to concentrate on refining and distributing the product.

Since 1983 - with the passage to forward contracts, made possible by deregulation and the increasing globalisation of the international financial market as well as the incapacity of the Opec countries to impose a regime of price controls - the oil market has increasingly resembled a stock market where the most substantial profits are derived not so much from the real trading of stocks and shares as from speculation on the oscillations in their prices. For years the big oil multinationals, endowed with enormous financial means, have realised dizzying profits with annual increases of as much as 100%. The mutual interests of the big companies and the Federal Reserve, combined with the tendency towards “financification” of the economy brought about by the crisis of the average rate of industrial profit which appeared forcefully in the early Seventies, have further magnified the already extensive interests associated with oil. The outcome is that the oil market is the pivot around which all the most important parameters of the modern economy spin. At this point the pure and simple control of an oil field, or even of the majority of them, has lost a great deal of its significance. It is much more effective to control the routes oil has to take before it can reach the market.

Oil Pipelines and the Struggle to Control Them

It is far from surprising, therefore, that as early as 1980 Carter considered the Persian Gulf a strategically important area and threatened the massive use of force against whoever tried to assume control of it. Since then, all the wars fought over oil - starting with the Iran/Iraq war, then the war against Iraq and finishing with today’s war in the Balkans - have been for control of the oil pipeline routes. And, as the ever-present player, the United States is concerned to see that these do not diverge very much from the Persian area or that they go by set paths under the control of one of their faithful allies. From time to time, also, the US opposes attempts to draw up alternative pipeline routes.

However, there was an even stronger motive force behind the war against Serbia which broke out the day after an event that could lead to new upheavals in the oil market. In fact, the birth of the Euro has not only spurred on the search for and construction of alternative routes to those which today are controlled by the United States; but it has also opened up the possibility of a new market, a market in petroeuros, that would again bring into question the whole of the present imperialist power balance and the entire system of alliances on which the current uncontested, though tottering, hegemony of the United States rests. A glance at the map is sufficient to show the elaborate plans the United States and the EEC have had for some years now. The struggle is, on the one hand, to concentrate oil routes from the Caucasus towards the area between Turkey and Afghanistan and centred round the Persian Gulf which would exclude the Russian pipeline system; on the other, the aim is to diversify these routes by means of the construction of an integrated system of transport, the famous Traceca plan (Transport Corridor Europe-Caucasus-Asia) drawn up by the EU in 1993. The plan - which goes by the name of Inogate - anticipates the construction of harbours, railways, roads and canals integrated within a single network of oil and gas pipelines. It is viewed positively by Russia since, in contrast to the American plans, Russia is not excluded. At issue is a struggle based on the deepest economic and financial clash of interests ever seen in the history of modern capitalism. The clash is so great and widespread that it signals nothing less than an inter-imperialist struggle. It is one in which the international proletariat will be called to contribute: with intensified exploitation of the labour force to pay for the increasing burden of finance capital’s fictitious income. It also means paying with our own flesh and blood in the innumerable wars that will continue to be fought under the false flags of nationalism or humanitarianism.

(1) “Raw Material Prices”, Surplus 1, 1999.

(2) In fact this is the situation we have returned to. Since this article was written the price of oil has surged to the highest it has been since the Gulf War - over $25 per barrel. This does not alter our argument one jot. At the time of the Kosovo crisis the oil price was around $10 a barrel - in real terms a post-war low.

(3) In “Il Dominio della Finanza”, available from the PCInt. address.

(4) This assumption is not wrong as the Financial Times showed towards the end of 1999. Interestingly, on 27th November an article described how the US Federal Reserve, supported by the Bank of England, had spent a good part of 1999 manipulating the price of gold, not for its own sake but in order to keep up the value of the dollar. Thus, while...

The Americans are burying the world in dollars through a trade deficit of $300 bn (£186 bn) a year, rising fast. They’re desperate to destroy the image of gold as a sounder long-run store of value.

This tactic was countered by the European central banks who...

cut off the supply of metal to the market and undermined the vast carry trade which was based on loaned gold.

Barry Riley, “The Long View”.

(5) “The Productivity Now Reached by the USA”, ibid.

(6) Also known as the “base rate” or “bank rate”, the discount rate is broadly the minimum rate charged by a central bank when it lends to banks and other financial institutions.

(7) “Oh Still Fragile World!”, ibid.

(8) E. Occorsi, “Federal data - USA, Prices At Risk”, in La Repubblica - Affari e Finanza, May31 1999. In case there is any doubt that this formed part of a massive and expanding world debt, we can note that:

Between 1997 and 1999 total world debt (of households, businesses and governments) increased from $33,100bn to $37,100bn. That is an annual exponential growth of 6.2%, three times that of world GDP.

Frederic Clairmont in Le Monde Diplomatique, December 1999

(9) Ibid.

(10) In fact, as the article predicts, the oil price has increased dramatically since the beginning of the year (see footnote 2) while US inflation has been limited to an official rate of around 2.5% (according to a Financial Times report on the US economy, 17-12-1999).