Wednesday, August 22, 2018

Within the Netherworld of International Currency Exchange Rates

"The Bank of Russia took another step towards a free float ruble by abolishing the dual currency soft peg, as well as automatic interventions. Before, the bank propped up the ruble when the exchange rate against the euro and dollar exceeded its boundaries....The Central Bank of Russia’s un-pegging of the ruble from the dollar and euro brings to an end two decades of exchange rate controls. The transition to a free exchange rate means monetary policy in Russia moves to interest rates and inflation targeting."
RT website, November 10, 2014

"Experts have given the petrodollar a fatal diagnosis. Falling crude prices have accelerated the petrodollar's demise, dealing a heavy blow to the system that has long facilitated the US dollar's world reserve currency status. Emerging economies are abandoning the US dollar as a means of payment for oil, having shifted to national currencies."
Sputnik International, April 2, 2016
Diminishing Gold Reserves Led to Watergate

Currency valuation set in 1945
At the close of World War II, the various economies of the world had entered into an agreement in Bretton Woods, New Hampshire, whereby a system of fixed exchange rates was established, pegging all currencies to the U.S. price of gold, which was fixed at $35 per ounce. Price increases of consumer goods, however, began during the last years of Lyndon Johnson's last term and had continued unabated through Nixon's first and into his second term. The Group of Ten met in Washington, D.C. to sign the Smithsonian Agreement on December 21, 1971, devaluing the Dollar against gold by approximately 8.5 percent-- $38 per ounce--hoping to shore up . Gold speculators, however, continued to drive the price of gold ever higher.

By 1972 inflation reached a rate of 6%, while GDP growth was less than 1%. Gold reserves backing the Dollar had collapsed from 55% down to 22%. The United States did not have enough gold to cover the volume of dollars in worldwide circulation at the rate of $35 per ounce. Because foreign traders refused to buy the dollars printed by the Fed, Nixon ordered a 10% export tax to be paid by buyers of U.S. goods in the hope that European and Asian traders would lower barriers to allow trade with America. They did not. The U.S. had no choice but to devalue the dollar, since it could not pay for its imports with the gold available valued at $35 per ounce.

Nixon's advisers tried to explain to him why America's trade imbalance existed. One major reason, as discussed here previously, was that American demand for Indochina-derived opium, refined and distributed by French mobsters, resulted in a huge flow of dollars into the European trade zone. The second reason for the inflationary rise was that American oil companies had increasingly turned to foreign countries which offered more lucrative fields for production to supply American consumers, including the  U.S. Navy's undiminished demand for oil. (See source documents cited by this article.)

Removal of gold backing of U.S. $$$
Texas lawyer John Connally, Nixon's Treasury Secretary, LBJ's knowledgeable adviser in oil matters, had made their first formal announcement in mid-August 1971 of America's intent to end the existing system of fixed exchange rates set up in the Bretton Woods Agreement. The responsibility for supporting the Bretton Woods exchange rate values fell upon the United States, which had become incapable of garnering enough gold to cover the volume of dollars in worldwide circulation at the rate of $35 per ounce, even though the government had introduced countless measures in the attempt to do so. On August 15, Nixon told the world that the dollar would no longer be convertibility into gold. More detailed terms were set forth in December at the G-10 meeting in Rome, where Connally declared:
The dollar is our currency, but it's your problem.”

At that G-10 meeting the Smithsonian Agreement was adopted, fated to last only fifteen months. In March 1973, the "G–10 approved an arrangement wherein six members of the European Community [West Germany, France, Belgium, the Netherlands, Luxembourg, and Denmark] tied their currencies together and jointly floated against the U.S. dollar, a decision that effectively signaled the abandonment of the Bretton Woods fixed exchange rate system in favor of the current system of floating exchange rates." Britain, Ireland and Italy were also members of the Common Market, but only stood and watched.

In the midst of all the worry over the international exchange rate, Nixon had a few dozen other crises to deal with, the top three being:
  • Getting out of the war in Vietnam;
  • What to do about the Spiro Agnew scandal; and
  • How eliminating the gold standard was affecting the price of oil agreed to in the Tehran Agreement of 1971.
What Senator Ervin's Watergate Committee might dig up was still only mentioned on inside pages of the news in the fall of 1973. Oil producing states were demanding a 70% increase in prices, unsuccessfully, at the time Egypt and Syria coordinated attacks of the territories occupied by Israel (see inset map) on October 6, 1973, following by an oil embargo,which forced the United Nations to step in and adopt Resolution 340, calling for a ceasefire monitored by peacekeepers.

The embargo imposed by OPEC cut supplies of oil while the price per barrel of crude was increased, a situation which continued into March of 1974, when thirteen western nations met in Washington, D.C. to discuss the situation. The Arabs planned to hold an oil summit but repeatedly delayed it. Then President Nixon, having first me with King Faisal in June 1974, sent Salomon Brothers-bond trader William E. Simon, his "energy czar," to Saudi Arabia, trailed by Gerald Parsky, with orders to finalize the terms of the two leaders' verbal agreement.

Gerald Parsky
Nixon had recruited Parsky, a native of West Hartford, Connecticut from his "obscure" New York law firm (Nixon Mudge Rose & Guthrie), which hired Parsky straight out of law school. From the firm he was hired in November, 1971 by the Tax Legislative Council to be the executive assistant to his University of Virginia Law School professor, Edwin Cohen, a tax expert. During this time, Parsky was also "mentored" by Treasury Secretary George Shultz. Cullen Crouch wrote of the UVA alumnus in 2007:
Time magazine called him “Treasury’s Wunderkind,” a “lean, tireless, dapper, and serenely poised” public servant who was “one of the administration’s most powerful bright young men.”
Birth of the Petrodollar

King Faisal signed the agreement Parsky worked out, thus bringing a temporary settlement to the crisis. However, the King insisted that the underlying promises be kept secret, that is "King Faisal bin Abdulaziz Al Saud demanded the country’s Treasury purchases stay 'strictly secret,' according to a diplomatic cable obtained by Bloomberg from the National Archives database." Consequently, how much U.S. debt the Saudis held would be classified top-secret for 41 years. As summarized by the Bloomberg article:
The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending....By 1977, Saudi Arabia had accumulated about 20 percent of all Treasuries held abroad, according to The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets by Columbia University’s David Spiro.
 Stated somewhat differently by Andrea Wong in the Independent:
Treasury officials solved the dilemma by letting the Saudis in through the back door. In the first of many special arrangements, the US allowed Saudi Arabia to bypass the normal competitive bidding process for buying Treasuries by creating “add-ons.” Those sales, which were excluded from the official auction totals, hid all traces of Saudi Arabia’s presence in the US government debt market....Instead of disclosing Saudi Arabia’s holdings, the Treasury grouped them with 14 other nations, such as Kuwait, the United Arab Emirates and Nigeria, under the generic heading “oil exporters” – a practice that continued for 41 years.
The New York Times reported in its February 22, 1974 edition about a speech given to a merchant marine executives' luncheon meeting at the local Propeller Club. The speaker, Michael Mohamed Ameen Jr., a vice president of Saudi Aramco (who, according to Lawrence Wright in his book, The Looming Tower at page 55, had known Mohammed bin Laden [fn-Osama was his 17th child out of 54 born] during the 1950s), told his  listeners:
King Faisal of Saudi Arabia “told us, in August, 1973, there would be another war within six months, and that he would have no alternative but to use oil as a weapon. His warnings went unheeded.”**

A Republican Game of Musical Chairs

Bush campaign 1970
In the interim between the end of President Nixon's first term and his resignation in 1974, George (Poppy) Bush, was a busy man. Having been defeated for election to the U.S. Senate against Democratic candidate Lloyd Bentsen in 1970, Bush was quickly appointed by President Nixon to be Ambassador to the United Nations, which was then overseeing the ending of the Arab-Israeli War. Bush must, therefore, have been annoyed when Nixon summoned him back to Washington in January 1973 to clean up CREEP's fiasco as Watergate plumbers were about to go on trial.

Editorial - January 6, 1973
Bush was  chair of the Republican National Committee as columnists were speculating about how Bernard Barker ended up with money "laundered" through a Mexican bank in his Florida bank account. The column from Smith Hempstone (above right) concluded on a somewhat positive note by opining that the trial would be "quick, tidy, [and] antiseptic," adding that Nixon hoped the trial would be over and rumors squelched before his upcoming January 20 inauguration. But it was not to be.

Bush officially left the U.N. on January 16, but he was already present in Washington earlier. Nevertheless, the scandal continued to increase even after E. Howard Hunt and his Cuban associates pled guilty and the jury in the Gordon Liddy and James McCord trial convicted the last two burglars on January 30. The Senate Judiciary Committee then began its investigation of bugging activities, appointing Senator Sam Ervin to name a Select Committee for that purpose. McCord's sentencing was held up as he considered whether or not to testify in the Senate hearings. As the scandal played out on national television, Bush supposedly encouraged Nixon to tell all so the party could put the grubby "Mickey Mouse" caper to rest. The rest is, as we say, history.

Musical chair shifts began: Spiro Agnew resigned, and was replaced by Gerald Ford. Nixon resigned, and Ford was sworn in, naming Nelson Rockefeller Vice President. On September 26, 1974, after appointment by the new President Gerald Ford, Bush took the oath as replacement for David K. E. Bruce, first Liaison Officer to Beijing. Bruce at that time became U.S. Representative to NATO in Brussels, thus replacing Donald Rumsfeld, who then became President Ford's new chief of staff. Was there a method to that madness?

David Bruce had been called back from China to Washington in February 1974 to consult with Kissinger about energy matters, discussed above, which were approaching a crisis. As former head of the Economic Cooperation Agency (ECA) in France after WWII, Bruce, former Treasury Secretary Mellon's son-in-law, had helped to design counterpart funds for the Marshall Plan's foreign aid program. The underlying concern in both situations was how to prevent inflation while tinkering with international monetary exchange values (See Harry Bayard Price, The Marshall Plan & Its Meaning, pages 99 and 105).

By the time Nixon's resignation was announced in August 1974, Bush, having just celebrated his 50th birthday, was groomed and ready to fill David Bruce's shoes in China. The more experienced Bruce flew to Brussels to work out the petrodollar exchange ratios with the North Atlantic Treaty Organization (NATO) western European countries. Bruce, by then 76 years old, returned from Europe in February 1976, only a few weeks following Ford's appointment of George Bush to be Director of the Central Intelligence Agency. Bruce died the following year.

The first crisis of the Nixon administration in August 1971 had foretold these events. Ten years earlier, in fact, US Treasury’s Exchange Stabilization Fund (ESF), with the Federal Reserve Bank of New York acting as its agent, had begun participating in the London Gold Pool to maintain the price of gold at $35 an ounce. In 1968 France withdrew from the pool, just as Lyndon Johnson was about to leave office--bombarded as he was by critics against the war in Vietnam.

QJ posted excerpts from The Great Heroin Coup under the heading "Changing the Middle Man," about the real reason Nixon, inaugurated as President in January 1969, began his so-called "war on drugs". There we said:
Since three Cabinet officials were cooperating in this effort, a committee of those officials was created September 7, 1971, called the Cabinet Committee on International Narcotics Control (CCINC). The timing of this occurred almost simultaneously with President Nixon's revelation that he was considering a devaluation of the dollar as well as cutting the connection of the value of gold from the value of the dollar. (See AP article at bottom of this post.) The two issues--international narcotics trade and protecting the American trade balance were, in fact, inextricably intertwined, and the Central Intelligence Agency worked covertly on both issues through the various agencies administered by the executive branch of the U.S. government.
Safari Club's History

The secret deal Parsky had negotiated came into play in what was dubbed the Halloween Massacre, when William Colby was replaced by George (Poppy) Bush as Director of the CIA. Peter Dale Scott explained in his book, The Road to 9/11: Wealth, Empire, and the Future of America (2007), that Bush's move to DCIA put him in charge of a newly minted covert agenda in which he coordinated CIA activities among Safari Club's member countries--France, Egypt, Saudi Arabia, Morocco and Iran. Joseph Trento wrote in Prelude to Terror (2005), p. 314 that: 
"The Safari Club was run by the Saudis. It was a club to serve their purposes through the CIA."
Trento claimed their first face-to-face meeting had been held in Kenya at the exclusive African hotel by that name.

Holden sold to Khashoggi.
Earl Wilson gossiped in his column in September 1977 that actor William Holden, who had owned the Safari Club in Kenya with two partners since 1959, sold his share of the Club to "some Arabs" who just happened along. However, on October 12 the Philadelphia Daily News disclosed the sale had been made to Adnan Khashoggi, who was so unknown in those days his name was often misspelled.

Only days later, however, one of Holden's three partners died in a car bomb explosion. Raymond J. Ryan had been fighting to stay out of jail for more than a decade as a result of accusations against him--comping memberships to the Club to Mafia members, shredding evidence, tax evasion, and refusing to answer FBI questions. Ryan had been long suspected of ties to organized crime. Three months after his murder, the Seventh Circuit decided against him and his wife in his last appeal (568 F.2d 531, 1977). In that case Ryan had refused to answer a question propounded to him about his deposits in Handelskredit Bank in Zurich (page 536), a bank mentioned nine years later by Jack Anderson as being a bank the CIA used to store secret offshore slush funds.

Ryan's attorneys for this trial and previous cases were named partners---Herbert J. Miller, Raymond G. Larroca, and Nathan Lewin--of the firm Miller, Cassidy, Larroca & Lewin, Washington, D. C. Orrick, Herrington, Rowley & Sutcliffe, San Francisco, Cal., handled the appeal. One case was cited as 455 F.2d 728 (No. 71-1165); United States Court of Appeals, Ninth Circuit. Dec. 13, 1971. As Modified on Denial of Rehearing March 7, 1972.

A previous case was cited 430 F.2d 658 - In the Matter of the Grand Jury Subpoena Duces Tecum of Raymond J. RYAN, Appellant. No. 23343. United States Court of Appeals, Ninth Circuit. Decided May 19, 1970. Rehearing Denied July 29, 1970. Further examination reveals these attorneys to be the same ones chosen by Richard Nixon in 168 U.S.App.D.C., cited as 513 F.2d 430. No. 75-1063. Argued Feb. 1, 1975. Decided Feb. 14, 1975. In 1960 both Miller and Larroca constituted the Board of Monitors assigned to Jimmy Hoffa.

A third founding partner of the Kenyan Safari Club was Swiss-born Carl W. Hirschmann, a banker, who had in April 1969 been indicted for contempt for failing to appear at a grand jury investigating Ryan. Hirschmann is first mentioned in American newspapers in 1966.  He was said to be a land developer based in Long Island, NY, who had built a five-store industrial office building ten miles east of Los Angeles--9550 Flair Drive, El Monte CA. The international headquarters of Hirschmann Industrial Corporation, "specializing in precision machinery and equipment," was placed on the top floor of the building at that location. Also located in this building was a branch of the United California Bank, which would later become Security Pacific Corporation.

Years later it would be revealed in British press in 1984 that Hirschmann's grown son, trained in his father's Swiss bank, had a power of attorney from the Sultan of Brunei to act as a go-between with Egyptian mogul, Mohamed al-Fayed and his two brothers, who acquired Harrods from the House of Fraser and thus prevented Tiny Rowland of Lonrho (formerly London and Rhodesian Mining and Land Company) from obtaining the coveted department store, a prize Tiny had hoped would give him a step up to achieving British citizenship. Calling him a "Phony Pharoah," Rowland accused Fayed of using the Sultan's money to gain Harrods.

While Egypt was a member of the Safari Club, working with the CIA, Brunei was aligned with the British. What's more, Mrs. Mohamed al-Fayed was Adnan Khashoggi's sister, and everyone knew that Khashoggi amassed his great wealth from acting as arms broker between wealthy Saudis and weapons dealers.

Trump admired Khashoggi.
Donald Trump was also on the scene in those days, finding much to admire and emulate. Trump once said "Khashoggi understood the art of bringing people together and putting together a deal better than almost anyone – all the bullshitting part, of talk and entertainment." Henry Wilkins in the Gentleman's Journal (March/April 2016) described Trump thus:
Trump, like so many business tycoons of the era, seemed to have inherited some of Khashoggi’s panache for making deals and some of his taste for garish decadence. He also inherited his multi-million dollar super-yacht, Nabila. Trump bought it from the Sultan of Brunei who seized it from Khashoggi when he defaulted on a loan secured by the boat.
William Holden, like his close friend, Ronald Reagan, had an almost charmed life until his own death in 1980. A short biography of him states:
Although never involved in politics himself, he was best man at the marriage of his friend Ronald Reagan to Nancy Davis in 1952. He maintained a home in Switzerland and also spent much of his time working for wildlife conservation as a managing partner in an animal preserve in Africa. His Mount Kenya Safari Club in Nanyuki, Kenya, (founded 1959) became a mecca for the international jet set.
In 1974, he began a relationship with actress Stefanie Powers which sparked her interest in animal welfare. After his death, Powers set up the William Holden Wildlife Foundation at Holden’s Mount Kenya Game Ranch.
Holden did live long enough to see his friend elected to the Presidency, but died before Reagan's inauguration in January 1981.