Touching naivete

The naivete of Washington's chosen puppets in Baghdad is touching, just touching.  "Iraqi officials say that, last year, they wanted to diversify their holdings out of the dollar, as it depreciated, into other assets, such as the euro, more likely to hold their value," reports Patrick Cockburn of London's Independent. "This was vetoed by the US Treasury because American officials feared it would show lack of confidence in the dollar."

This telling tidbit was tucked into the second-day follow-up of Cockburn's revelation that the pending "security agreement" between Washington and Baghdad will leave Iraq with only the vestiges of sovereignty.  If you missed it, here's Cockburn's Cliff's Notes version: "The US will keep more than 50 military bases. American forces will be able to carry out arrests of Iraqi citizens and conduct military campaigns without consultation with the Iraqi government. American soldiers and contractors will enjoy legal immunity." 

These are the terms Team Bush is dictating — and to make sure the new regime complies, Cockburn reports that Washington is holding hostage some $50 billion in Iraq's foreign exchange reserves currently held in the Federal Reserve Bank of New York — which have sat there going back to the days of sanctions against the Saddam regime.

So Washington has the new Iraqi government by the short hairs.  And to think its leaders — who exercise no authority beyond the confines of the Green Zone — wanted to diversify out of the dollar!  Surely they knew that Saddam wanted to start selling oil in euros back in 2000, and that was one of the lesser-known rationales for regime change, right?

In any event, Iraqi leaders figure they've lost $5 billion in wealth since last year simply because Washington put the kibosh on their currency diversification plans.  They'll surely lose much more as the dollar's slide progresses in the years ahead… even if Team Bush's attempts to ram this agreement into force by the end of July don't incite widespread revolt across Iraq.

And that's an iffy proposition.  As I write, Friday prayers have wrapped up and a second week of street protests against the agreement are underway.  Not that you'll see any of it in U.S. media.  We have too many of our own problems on this Friday.  Look out below.

The Daily Reckoning