"What's going to happen to the dollar?" MAIN president Jake Dauber asked rhetorically, not long after that momentous 1971 decision to abandon the gold standard. "In the end, I suspect its value will be determined by oil."
I had been invited to join the Daubers for dinner at the Hotel Intercontinental Indonesia, a stopover for them on their way to the Middle East.
"Nixon's got a pretty smart team in Kissinger, Shultz, and Cheney." Jake squeezed his wife's hand and looked into her eyes. "I anticipate the day when you and I'll sit back on our sofa and say we were part of this great adventure. The U.S. is launching a new period in world history and we've got front-row seats."
Jake did not live to see the day he had hoped to share with his wife. He died not long after that trip—and was replaced as MAIN'S president by his protégé, Bruno Zambotti. However, his analysis of the dollar's future turned out to be accurate. Nixon's team was not merely smart; it was cunning.
Washington's first ally in the struggle to defend the sovereignty of the dollar was Israel. Most people, including the majority of Israelis, believed that Tel Aviv's decision to launch preemptive attacks against Egyptian, Syrian, and Jordanian troops along its borders in what came to be known as the Six-Day War of 1967 was driven by Israel's determination to protect its borders. Territorial expansion was the most obvious outcome; by the end of that bloody week, Israel had quadrupled its land holdings, at the expense of people living in East Jerusalem, parts of the West Bank, Egypt's Sinai, and Syria's Golan Heights. However, the Six-Day War served another purpose.
Arabs were humiliated and infuriated by the loss of their territories. Much of their anger was aimed at the United States; they knew that Israel could never have succeeded without American financial and political support, as well as the not so veiled threat that our troops were standing by in the unlikely event that Israel needed them. Few Arabs understood that Washington had motives that were far more selfish than defending the Jewish homeland, or that the White House would turn Arab anger to its advantage.
Nixon's second, and wholly unsuspecting, ally was the entire Islamic Middle East. In response to the Six-Day War of 1967, Egypt and Syria simultaneously attacked Israel on October 6, 1973 (Yom Kippur, the holiest of Jewish holidays). Knowing that strategically he was on shaky ground, Egypt's President Anwar Sadat pressured Saudi Arabia's King Faisal to strike against the United States (and therefore Israel) in a different way—by employing what Sadat referred to as "the oil weapon." On October 16, Saudi Arabia and four other Arab states in the Persian Gulf announced a 70 percent increase in the posted price of oil; Iran (which is Muslim but not Arab) in an act of Islamic solidarity joined them. During the ensuing days, Arab oil ministers, agreeing that the United States should be punished for its pro-Israel stance, unanimously backed the idea of an oil embargo.
It was a classic game of international chess. President Nixon asked Congress for $2.2 billion in aid to Israel on October 19. The next day, led by Saudi Arabia, Arab oil producers imposed a total embargo on oil shipments to the United States. At the time, few people perceived the cunning behind Washington's move, or the fact that it was driven by a determination to shore up a weakened dollar.
The impact was immense. The selling price of Saudi oil leaped to new records; by January 1, 1974, it had soared to nearly seven times its price four years earlier. The media warned that the U.S. economy was on the verge of collapse. Long lines of cars formed at gas stations across the nation, while economists expressed fears of the possibility of another 1929-style depression. Protecting our oil supplies had been a priority; suddenly, it became an obsession.
We know now that the corporatocracy played an active role in driving oil prices to these record highs. Although business and political leaders, including oil executives, feigned outrage, they were the puppet masters pulling the strings. Nixon and his advisors realized that the $2.2 billion aid package to Israel would force the Arabs into taking drastic actions. By supporting Israel, the administration engineered a situation that generated what was the craftiest and most significant EHM deal of the twentieth century.
The U.S. Treasury Department contacted MAIN and other firms with proven records as corporatocracy henchmen. Our assignment was twofold: to formulate a strategy to ensure that OPEC would funnel the billions of dollars we spent on oil back to U.S. companies and to establish a new "oil standard" that would replace the former "gold standard." We EHMs knew that the key to any such plan was Saudi Arabia; because it possessed more oil than any other country, it controlled OPEC; the Saudi "royal" family was corrupt and highly vulnerable. Like other "kings" in the Middle East, the Sauds understood the politics of colonialism. Royalty had been bestowed on the House of Saud by the British.
Details behind the strategy I helped engineer—the Saudi Arabian Money- laundering Affair (SAMA)—are provided in Confessions of an Economic Hit Man. In summary, as far as the media was concerned, the House of Saud agreed to three important conditions; it would: 1) invest a large portion of its petrodollars in U.S. government securities; 2) allow the U.S. Treasury Department to use the trillions of dollars in interest from these securities to hire U.S. corporations to westernize Saudi Arabia; and 3) maintain the price of oil within limits acceptable to the corporatocracy. For its part, the U.S. government promised to keep the Saud family in power.
There was an additional agreement, one that made few headlines but was crucial to the corporatocracy's need to maintain the dollar as the standard global currency. Saudi Arabia committed to trading oil exclusively in U.S. dollars. With the scratch of a pen, the dollar's sovereignty was reestablished. Oil replaced gold as the measure of a currency's value.
As I mentioned in the Prologue, a side benefit—one appreciated only by the most savvy economists—also allowed Washington to continue imposing a hidden tax on every foreign creditor. Because the dollar reigned supreme, we bought their goods and services on credit. By the time they used that credit to purchase oil (or something else) from our
companies, the value of their funds had diminished, due to inflation; the difference between these amounts was cash-in-the-pocket for the corporatocracy—a tax without the need for tax collectors.
Jake Dauber's prediction that the dollar's value would be determined by oil proved correct. When Tel Aviv and Washington drove the Arab world into a corner, Arabs had little choice but to strike back, in the Yom Kippur War and through the OPEC embargo. This propelled the U.S. Treasury Department into action. EHMs were enlisted to forge a deal with Saudi Arabia that wed the dollar to oil. The dollar was crowned king, and has reigned supreme ever since.
SAMA changed geopolitics. It helped bring down the U.S.S.R., established the United States as an unchallenged superpower, and angered Osama bin Laden, the Saudi millionaire who would mastermind 9/11.
As I look back at it, I am amazed by the gall we had in those days. I often think about the role fate plays in our lives—fate and the way we react to it. I personally could never have taken on an assignment as complex as SAMA without the training I had received a few years earlier in Lebanon.