Gaza and the US Dollar Hegemony

An Israeli mobile artillery unit fires towards the Gaza Strip
An Israeli mobile artillery unit fires towards the Gaza Strip, July 21, 2014. REUTERS/Nir Elias

The power of images coming out of Gaza, and their role in effecting global public opinion on the war should not be underestimated. Beyond the information reported by the mainstream media, it seems that the most profound reactions were actually elicited by images not text. Brian Eno, for instance, was compelled to write an open letter about what he described as the loss of civilisation after he saw a photograph from the conflict in Gaza:

“Today I saw a picture of a weeping Palestinian man holding a plastic carrier bag of meat. It was his son. He’d been shredded (the hospital’s word) by an Israeli missile attack – apparently using their fab new weapon, flechette bombs. You probably know what those are – hundreds of small steel darts packed around explosive which tear the flesh off humans. The boy was Mohammed Khalaf al-Nawasra. He was 4 years old.”

In this context, it is noticeable that perhaps the politically most effective images were not as much published via the mainstream media, but they were shared and circulated via social media: footage of Christopher Gunness, a UNRWA Spokesman advocating for Palestine refugees, breaking into tears after a TV interview, the one minute time lapse video which shows the destruction of an entire Gaza neighbourhood in the course of one hour, or the thousands of photographs shared on Twitter under the GazaUnderAttack feed. The emergence of this new image democracy on social media, which sometimes connects image makers (photojournalists, activists, bloggers) directly with a global audience, stands in complete contrast to the images controlled and distributed by traditional Western mainstream media. This seems crucial considering that rarely has the objectivity of this media been questioned as much as today.

Middle East News - July 20, 2014
A Palestinian boy receives treatment at al-Shifa hospital in Gaza City July 20, 2014. Ali Jadallah/APA Images/ZUMA Wire – This image was widely shared on Twitter

In light of the atrocities in Gaza, the slogan ‘Never Again!’ currently being circulated by Western governments in remembrance of World War I is revealed as utterly hollow. Commentators ask how it could come to this ‘situation’ where (at the time of writing) 1868 Palestinians have been killed, the vast majority of which were civilians including 426 children and 246 women? How can the world stand by and watch this mayhem get out of control with everyday passing? How do we find reason and rationality in this insanity? The divisions in the conflict can be analysed on a variety of levels: religiously, ethnically, culturally, politically, ideologically, historically, economically, socially and so forth. Every one of those angles will try to explain why two peoples are so diametrically opposed each other. However, in the media and public discourse, the role of a third entity, namely the role of the US Dollar as a global reserve currency is rarely if ever mentioned.

It is quite evident that the sophistication of the Israeli military apparatus is not just supported, but it is actually facilitated by huge amounts of American ‘military aid’ – a highly misleading term that makes light of militarisation on a massive scale. The United States gives Israel approximately $3.1 billion in military aid a year, which, in turn, supports the military industry in the US. The hypocrisy of the US government is there for everyone to see: while on one hand a spokeswoman for the US State Department describes the recent shelling of yet another UN school in Gaza as ‘disgraceful’, on the other hand weapon systems that are either produced in the US, created through US military ‘innovation’, or manufactured with the direct financial support of US military aid kept raining down on Gaza. The grotesque relationship between US military aid and the killing of innocents must be emphasised because it implicates entities that create revenue for the US government: from large corporations to individual taxpayers.

In his Farewell Speech to the Nation, on January 17, 1961, President Eisenhower clearly warned about what he described as the emergence of the military-industrial complex (a term which gained more and more traction in recent years) and how it exercises influence on the US government:

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military–industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals so that security and liberty may prosper together.”

Today, more than half a century after this speech was presented, the foresight and validity of Eisenhower’s observations have become abundantly clear as financial support from the US government inadvertently also supports the relentless shelling of Gaza. Yet in addition to the emerging might of the military-industrial complex, it is vital to understand the role of the US Dollar in the establishment of a global hegemonic system that promoted the rise of the US as the world’s only ‘superpower’. In 1944, in accordance with the Bretton Woods system, the US Dollar effectively became the world’s reserve currency. As the American economy boomed and European nations rebuilt themselves after World War II, by the 1960s it became clear to European allies that the status of the US Dollar as reserve currency provided the US government with a tremendous economic and therefore also militaristic advantage over other nations. Valéry Giscard d’Estaing, the Finance Minister of France from 1969 to 1974, spoke of the Dollar’s ‘exorbitant privilege’ in this new global economic system.

In the late 1960s the US created greater and greater trade imbalances with European countries who, instead of demanding payment for these imbalances in US Dollars, asked for trade to be settled with gold which was then pegged to the Dollar at a rate of 35 Dollars per ounce of gold. With an escalating war in Vietnam, the US Treasury was seriously stretched and fulfilling the debt obligations became increasingly difficult. Faced with the prospect of a panic run on the US gold reserves, on the 15th of August 1971 President Nixon closed the ‘gold window’ – ending the opportunity for other nations to be paid their debts in gold. The ending of the ‘gold window’ was the start of an unprecedented monetary experiment on a global scale: every currency in the world, led by the US Dollar, became a fiat currency. Derived from the Latin word fiat which can be translated as ‘let it be done’, the US Dollar was no longer backed by the physical existence of gold as a historically proven storer of value, but rather, it was backed by something altogether more intangible: confidence in the US economy.

14 Dec 1973, Riyadh, Saudi Arabia, U.S. Secretary of State Henry Kissinger meets 12/14 with King Faisal of Saudi Arabia

In order to maintain the status of the Dollar as the world’s reserve currency, in 1974 Secretary of State Henry Kissinger successfully negotiated a deal with Saudi Arabia that oil trade with OPEC (Organization of the Petroleum Exporting Countries) member countries is to be settled in US Dollars. The ‘exorbitant privilege’ has since then become even more extreme as demand for US Dollar as a currency is virtually synonymous with the rising global demand for oil: the latter had to be settled with the former. The effect that this generous deal had for the US economy can be observed in the accumulation of Gross Federal Debt (see chart below). If the US government needed more currency it could simply issue more bonds which were, in turn, sold in the international financial markets. To put the extreme rise of US debt into perspective: in 1974, when the so-called Petrodollar was first introduced, gross debt stood at 483.9 Billion US Dollars. Since then, debt soared exponentially to levels that are quite staggering: in 2013, debt stood at 16.7194 Trillion US Dollars. That represents an increase of 3355% of the gross debt compared to 1974. It is widely believed that by the end of Obama’s 8-year term as President, gross debt will stand at 20 Trillion US Dollars. By 2016, President Obama will have accumulated more debt than all of his 43 predecessors combined – from George Washington onwards.


The vast amount of US government debt, which is based on the misplaced confidence that the US government will be able to pay back this debt in the future, financed a huge military empire consisting of a vast network of military bases in more than 150 countries in the world. The US debt financed wars and military interventions: the most costly of which was the 2003 invasion of Iraq which is estimated to have cost more than 2 Trillion US Dollars. Indeed, many believe that Saddam Hussein’s decision in October 2000 to accept payments for oil in the then-newly introduced multilateral currency Euro – rather than US Dollar – was one of the key drivers for the invasion of Iraq. The paradigm established through the war in Iraq was that any regime that openly questions the hegemony of the US Dollar (and that was also a large oil producer) would soon find itself in trouble.

Fast forward to today and we can see how the ‘exorbitant privilege’ of the US Dollar has had massively destructive effects over large parts of the world. Take for example Egypt which is now ruled by the former army chief Abdul Fattah al-Sisi, whose regime is far more brutal and repressive than it was under Hosni Mubarak originally ousted in the 2011 revolution. On the 21st of June this year Egyptian courts sentenced 183 supporters of the Muslim Brotherhood to death. The following day, as if to declare their agreement with the Egyptian courts, the US revealed it had released $575m in military aid to Egypt that had been frozen since the ousting of the democratically elected President Mohammed Morsi last year.

Martin Parr 2009. UNITED ARAB EMIRATES. Abu Dhabi. The IDEX Arms Fair

Even a cursory glance at repressive regimes all across the globe – overtly or covertly propped up and financed through the expansion of US debt – reveals the corrupting effect of the US Dollar hegemony. In light of this, those that have financed the expansion of US debt are also, albeit more indirectly, accountable for the destabilising effects of this hegemonic monetary system in places such as Gaza. In other words, purchasers of US debt actually contribute to the global reach of the US military-industrial complex.
Protesters shout slogans in support of former US spy Edward Snowden as march to the US consulate in Hong Kong on June 13, 2013.

For some time now, but certainly since the damaging revelations of Edward Snowden in June 2013, it has become clear that the political leadership of China and Russia had enough of supporting the expansion of US debt (and by extension the US Dollar hegemony) and actively started to reduce their holdings of US Treasury securities. Since November 2013, when its total holdings peaked at 1.316 Trillion US Dollars, China has begun to gradually reduce their exposure. As the largest foreign holder of US Treasury securities, this is a significant development – the ramifications of which must not be underestimated. Although a relatively small holder of US Treasury securities, Russia has reduced its exposure to US debt far more drastically from a peak of nearly 150 Billion US Dollars in October 2013 to as little as 100 Billion US Dollars in March this year. Any diplomatic disputes with China over military hacking, or economic sanctions with Russia over the situation in Ukraine must be considered in relation to a silent and largely unreported form of monetary warfare that is taking place behind the scenes. Confidence in the US economy is evaporating quickly and those holding the largest US debts fear that they will be left empty handed.

BRICS leaders in collective handshake.

With Russia and China, a powerful new partnership is emerging that is actively dismantling the hegemony of the US Dollar. China is creating currency swaps with a growing number of central banks across the world at a rapid pace. The BRICS nations recently announced a new development bank that will function as an alternative to the hothouse of neoliberal economic ideology – the International Monetary Fund IMF. Encouraged by the confidence of their BRICS partnership, India ditched talks with the World Trade Organization WTO, not just putting into question their role in the organisation, but actually questioning the entire globalist agenda of the organisation itself. These are unprecedented attacks against neoliberal institutions that for decades have aided the US Dollar hegemony. In other words, it’s not just the US Dollar, but it’s also the very institutions that support the US Dollar that are in a period of major transformation.

At this moment in time it is difficult to ascertain what will replace the US Dollar as global reserve currency: perhaps the Chinese Yuan or so-called Special Drawing Rights SDRs which is a basket of global currencies. Whatever it is, this new system will be accompanied by a major global economic reset in the not too distant future – some say it is imminent others say it will be a more gradual process within this decade. Hopefully, instead of promoting war and conflict, this new economic system shall respect equality, it shall be environmentally and socially sustainable, perhaps it can even promote peace and lasting prosperity not just for a privileged few. Only future will tell.

Start watching at 10 mins 30 secs

As I began this blog post with an analysis of images, allow me to end this blog post (by far my longest ever and thank you for reading this far) with an analysis of an image of an entirely different sort. In the now famous White House press conference last week Friday, a tired and worn out looking President Obama addressed the assembled press corps with the stunning declaration that ‘some folks were tortured’ under CIA special interrogation programs. His rambling responses in the press conference stood in sharp contrast to the impeccable orator promoting ideas about ‘hope’ and ‘change’ in 2008. Here, instead, we have a man whose presidency is now best characterised with this jingoistic term ‘folks’.

In the press conference a CBS reporter asked the question why the US government’s appear unable to resolve global conflicts such as in Gaza through diplomatic means: ‘Has the United States of America lost its influence in the world? Have you lost yours?’ Obama was visible frustrated by the question, providing his position to the contrary. Yet his protracted answers to such questions, often interrupted by long pauses in which he seems to search for ways to describe the chaotic conditions of the present geopolitical situation, give credence to the claim implied by the question itself: the US Dollar hegemony, and with it the destructive forces of the military industrial complex, are in terminal decline and those in power know it.

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