Engdahl: FInancial Tsunami – Part 2


Richard Moore


The Financial Tsunami: The Financial Foundations of the American Century

By F. William Engdahl

Global Research, January 16, 2008

Part II

The financial foundations of the American Century

The ongoing and deepening global financial crisis, nominally triggered in July 
2007 by an event involving a small German bank holding securitized assets backed
by USA sub-prime real estate mortgages, can best be understood as an essential 
part of an historical process dating back to the end of the Second World War‹the
rise and decline of the American Century.

The American Century, proudly proclaimed by Time-Life founder and establishment 
insider, Henry Luce in a famous 1941 Life magazine editorial, was built on the 
preeminent role of New York banks and Wall Street investment banks which had by 
then clearly replaced the City of London as the center of gravity of global 
finance. Luce¹s American Century was to be built in a far more calculated manner
than the British Empire it replaced.1

A then top-secret Council on Foreign Relations postwar planning group, The War &
Peace Studies Group, led by Johns Hopkins President and geo-political 
geographer, Isaiah Bowman, laid out a series of studies designed to lay the 
foundations of their postwar world, already beginning 1939, well before German 
tanks had rolled into Poland. The American Empire was to be an empire indeed. 
But it would not make the fatal mistake of the British or other European empires
before, namely to be an empire of open colonial conquest with costly troops in 
permanent military occupation.

Instead, the American Century would be packaged and sold to the world, above all
the emerging countries of Africa, Latin America and Asia, as the guardian of 
liberty, democracy. It would clothe itself as the foremost advocate of end to 
colonial rule, a stance which uniquely benefited the only major power without 
large colonies‹namely, the United States.

The new American Century world was to be led by the champion of free trade 
everywhere, which also uniquely benefited the strongest economy in the early 
postwar years, the United States. It was a brilliant, if fatally flawed concept.
As State Department planning head, George F. Kennan wrote in a confidential 
internal memo in 1948, ³We have about 50% of the world¹s wealth but only 6.3% of
its populationŠOur real task in the coming period is to devise a pattern of 
relationships which will permit us to maintain this position of disparity 
without positive detriment to our national security.² 2

The core of the War & Peace Studies, which were designed for and implemented by 
the US State Department after 1944, was to be the creation of a United Nations 
organization to replace the British-dominated League of Nations. A central part 
of that new UN organization, which would serve as the preserver of the 
US-friendly postwar status quo, was creation of what were originally referred to
as the Bretton Woods institutions‹the International Monetary Fund and the 
International Bank for Reconstruction and Development or World Bank.3 The GATT 
multinational trade agreements were later added.

The US negotiators in Bretton Woods New Hampshire, led by US Treasury deputy 
Secretary Harry Dexter White, imposed a design on the IMF and World Bank which 
insured the two would remain essentially instruments of an ³informal² US empire,
an empire, initially based on credit, and later, after about 1973, on debt.

New York and the New York Federal Reserve Bank were the heart of the new empire 
in 1945. The United States held the overwhelming majority of world central bank 
monetary gold reserves. The postwar Bretton Woods Gold Exchange Standard 
uniquely benefited the role of the US dollar, then and even now world reserve 

All IMF member country currencies were to be fixed in value to the US dollar. In
turn, the US dollar, but only the US dollar was fixed to a preset weight of gold
at $35 per ounce of gold. At this fixed rate, foreign governments and central 
banks could exchange dollars for gold.

Bretton Woods established a system of payments based on the dollar, in which all
currencies were defined in relation to the dollar. It was ingenious and uniquely
favorable to the emerging financial power of New York, whose bankers actively 
shaped the final agreements.

In those days, in stark contrast to the present, the dollar was ³as good as 
gold." The US currency was effectively the world currency, the standard to which
every other currency was pegged. As the world's key currency, most international
transactions were denominated in dollars.

Maintaining the role of the US dollar as world reserve currency has been the 
foremost pillar of the American Century since 1945, related to but more 
strategic even than US military superiority. How that dollar primacy has been 
maintained to now encompassed the history of countless postwar wars, financial 
warfare, debt crises, and threats of nuclear war to the present.

Important to place the emergence of the asset securitization revolution in 
global finance which is now impacting the world financial system in wave after 
wave of new shocks and dislocations, and to appreciate Alan Greenspan¹s 
substantial contribution to preserving the dominance of the dollar as world 
reserve well beyond the point the US economy ceased being the world¹s most 
productive industrial manufacturer, a brief review of the distinct phases in 
postwar dollar hegemony is useful.

The Golden Years of America¹s Century

The first phase, which we might call the postwar ³golden years,² saw the US 
emerge from the ashes of World War II as the unchallenged global economic 
Colossus. The US was the dominant world power; no one even came close. Over half
of all international money transactions were financed in terms of dollar. The US
produced more than half the world output. The US also owned about two thirds of 
the official gold reserves in the world in 1940.

When various European countries had reserve surpluses, they converted the 
surpluses into dollar reserves rather than gold because they could earn interest
on dollar assets such as US Treasury bonds and dollars could always be converted
into gold at $35 per ounce whenever it became necessary. The US dollar was at 
the center of this system.

American industry, led by General Motors, Ford and Chrysler Motors, the Big 
Three, were the world class leaders‹no one was even close back then. US Steel 
(before it became USX), machine tool manufacture, aluminum, aircraft and related
industries all set the benchmark for global excellence well into the 1950¹s.

Above all, the American oil giants‹Mobil, Standard Oil of New Jersey, Texaco, 
Gulf Oil‹those key companies dominated the unique energy source which was to 
become essential to unprecedented postwar growth rates in Europe, Japan and the 
rest of the postwar world‹petroleum.4

In this early postwar period demand for dollars in the world to finance 
reconstruction was so great that the primary economic problem faced in the 
1950¹s in Europe, Japan, South Korea and elsewhere was dollar shortages to 
finance imports of needed US capital equipment, its oil, its consumer products.

The US monetary gold stocks reached a record $24.6 billion in 1949, a huge sum 
that was comparable today to $211 billion, as gold from abroad poured into the 
US to pay the deficits in trade run up by foreign nations. New York, backed by 
gold reserves, was the unchallenged world banker.

This process began to deteriorate after a steep postwar recession in 1957-58. 
That recession should have been the alarm bell to US economic policy planners 
and industry that the unique period of profiting from the relative economic 
dislocation of a war-torn world was at its outer limits. Beginning 1957 the US 
economy was in need of a substantial regeneration, were it to remain globally 
competitive. That was not to happen.

By the time of the November 1967 British Sterling crisis, where the British 
Government was forced to violate IMF rules and devalue Sterling by 14% to 
maintain their economy amid severe recession, the focus turned on the fact that 
President Lyndon Johnson¹s Great Society and disastrous Vietnam War costs were 
causing the US government to run record budget deficits. The dollar was 
vulnerable to a run on US gold for the first time since the 1930¹s.

To hide the extent of those deficits, the Johnson Administration introduced 
creative accounting. For the first time the Budget director added the funds paid
by working Americans into the Federal Social Security Trust Fund, a surplus that
was to have been set aside to pay future retirement and related benefits for 
most Americans, to the Consolidated General Budget‹a start to budget fakery 
which by the early years of the next century were to become huge.

Johnson also began manipulation of key government economic statistics used to 
compute everything from unemployment to inflation to GDP. The statistical 
manipulations, for reasons of obvious if fateful political opportunism, were 
endorsed silently by every succeeding Administration, the most egregious of them
being the present Bush-Cheney Administration. 5

The 1971 dollar coup

Despite all the manipulations, by 1971 US monetary gold reserves had reached a 
precarious low as foreign trade surplus nations, led by France, had demanded 
payment in hard gold from the US Federal Reserve for their dollar surpluses. 
Reality could not so easily be manipulated as government statistics. Europe had 
emerged, along with Japan, as powerful trade surplus, modern, fast-growing 

The United States was becoming a vast rustbelt of decaying, obsolescent 
manufacture. The spin-doctors of Wall Street and select think-tanks such as the 
Ford and Rockefeller foundations came up with a linguistic euphemism calling it 
the ³post industrial society,² but linguistics did not change the reality. By 
the late 1960¹s America¹s once-booming industrial centers from Detroit to 
Pittsburgh to Chicago had become sprawling slums of decay, crime and rising 

Were the United States to lose its last gold reserves, the role of the dollar as
unique world reserve currency‹the pillar, along with US military superiority, of
its postwar American Century imperium‹would end abruptly.

To avert such a calamity, in August 1971 President Nixon huddled with his 
closest advisers, among them a US Treasury official named Paul Volcker, then 
Under-Secretary of the Treasury for International Monetary Affairs, and a 
long-time associate of David Rockefeller and the Rockefeller family.

Their task was to come up with a solution. Volcker¹s ³solution² to the massive 
demand to redeem US dollars for gold was to be as simple as it was to prove 
destructive to world economic health.

Nixon announced to a startled world on August 15, 1971 that from that day, the 
United States would not longer honor its international treaty obligations under 
the Bretton Woods Agreement. Nixon had suspended convertibility of the dollar 
into gold. The New York Fed¹s Gold Discount Window was locked shut. World 
currencies went into a free float against an uncertain dollar, a so-called fiat 
currency. The dollar now was not backed by gold or even silver but only the 
³full faith and credit² of the US government, a commodity whose marketable value
was beginning to be questioned.

Debt becomes the vehicle

Soon, with the implicit threat of withdrawing its nuclear shield as its prime 
persuasion, successive US Administrations realized that rather than depending on
its role as the world¹s creditor as it had until 1971, the American Century 
could theoretically thrive as the world¹s greatest debtor, so long as American 
finance and the dollar dominated world finance.

As long as major US postwar satrapies 6 such as Japan, South Korea or Germany, 
were forced to depend on the US security umbrella, it was relatively simple to 
pressure their Treasuries into using their US dollar trade surpluses to buy US 
government debt. In the process, the US bond or debt markets became far and away
the world¹s largest. Wall Street primary bond dealers were replacing Pittsburg 
steel and Detroit car manufacture as the ³business of America.²

To paraphrase the famous quip of former GM president Charles Wilson from the 
1950¹s, the new mantra was, ³What¹s good for Wall Street is good for America.² 
It wasn¹t. The name financial ³industry² even became commonplace, as if to 
designate money as the legitimate successor to production of real physical 
wealth in the economy.

Debt‹dollar debt‹was to be the vehicle for a new role of New York banks, led by 
David Rockefeller¹s Chase Manhattan and Walter Wriston¹s Citibank. Their idea 
was to extend hundreds of billions of dollars in newly acquired OPEC and other 
petrodollars, which they ³persuaded² Saudi and other OPEC governments to bank 
their new oil surpluses in London or New York banks. Then those dollar deposits 
from OPEC, called by Henry Kissinger and others at the time, ³petrodollars² went
in the form of recycled loans to oil importing and dollar-starved Third World 
economies. 7

The Carter dollar confidence crisis

This second phase, the post-gold era, fuelled by the manipulated 1973 oil shock 
and US pressure on Saudi Arabia and OPEC to price oil exclusively in dollars, 
Kissinger¹s ³petro-dollar recycling,²8 rolled along without major trouble until 
early 1979 when the dollar faced a major foreign sell-off during the end of the 
Jimmy Carter Presidency. The American Century faced one of its greatest 
challenges at that juncture. German, Japanese even Saudi Arabian central banks 
began dumping US Treasury holdings in what was called a loss of ³confidence² in 
Carter¹s world leadership role.

In August 1979, to restore world ³confidence² in the dollar, President Jimmy 
Carter, himself a hand-picked protégé of David Rockefeller¹s Trilateral 
Commission, was forced by the big New York banks, led by David Rockefeller¹s 
Chase Manhattan, to accept Paul Volcker, a protégé of Rockefeller¹s from Chase 
Manhattan Bank, as new Chairman of the Federal Reserve with an open mandate to 
do what was necessary to save the dollar as reserve currency.

On taking office, Volcker bluntly announced, "the standard of living for the 
average American has to decline." He was Rockefeller¹s hand-picked choice to 
save the New York financial markets and the dollar at the expense of the 
nation¹s welfare.

The Volcker Œshock therapy¹

Volcker¹s shock therapy, begun in October 1979, lasted until August 1982. 
Interest rates shot through the roof to double digits. The US and world 
economies were plunged into a monster recession, the worst since World War II. 
Within a year, the prime rate had shot up to the unheard-of level of 21.5%, 
compared to an average of 7.6% for the fourteen previous years, a more than 
threefold rise in weeks. Official US unemployment peaked at 11%, while 
unofficially when those who simply had given up seeking work were counted, it 
was far higher.

Source: AngryBearBlogspot.com

The Shock Therapy of Volcker doubled US official unemployment

The Latin American debt crisis, an ominous foretaste of today¹s USA sub-prime 
crisis, erupted as a direct result of the Volcker shock. In August 1982 Mexico 
announced it could no longer pay in dollars the interest rate service on its 
staggering debt. It, as most of the Third World from Argentina to Brazil, from 
Nigeria to Congo, from Poland to Yugoslavia, had fallen for the New York banks¹ 
debt trap. The trap was in borrowing what amounted to recycled OPEC petrodollars
invested in the major New York and London banks, the Eurodollar banks, which 
lent the dollars to desperate Third World borrowers initially at ³floating 
rates² tied to London LIBOR rates.

When Libor rose some 300% within months as a result of the Volcker shock 
therapy, those debtor countries were unable to continue. The IMF was brought in 
and the greatest looting binge in world history, misnamed the Third World Debt 
Crisis, was on. Volcker¹s shock policy, predictably, triggered the crisis.

After seven years of relentlessly high interest rates by the Volcker Fed, sold 
to the gullible public as ³squeezing inflation out of the US economy,² by 1986 
the internal state of the US economy was horrendous. Much of America came to 
resemble a Third World country, with its growing slums, double-digit 
unemployment and growing crime and drug addiction problems. A Federal Reserve 
study showed that 55% of all American families were net debtors. Federal budget 
deficits were running at then-unheard-of levels of more than $200 billion 

In reality, Volcker, a personal protégé of David Rockefeller from Rockefeller¹s 
Chase Manhattan Bank, had been sent to Washington to do one thing‹save the 
dollar from a free fall collapse that threatened the role of the US dollar as 
global reserve currency.

That dollar reserve currency role was the hidden key to American financial 

By letting US interest rates go through the roof, foreign investors flooded in 
to reap the gains by buying US bonds. Bonds were and are the heart of the 
financial system. Volcker¹s shock therapy for the economy meant soaring profits 
for the New York financial community.

Volcker succeeded only too well in his mission.

The dollar rose to all-time highs against the currencies of Germany, Japan, 
Canada and other countries from 1979 through the end of 1985. The over-valued US
dollar made US manufactured exports prohibitively expensive on world markets and
led to a dramatic decline in US industrial exports.

Already high interest rates from the Volcker Fed since October 1979 had led to a
major decline in domestic construction, the ultimate ruin of the US automobile 
industry and with it, steel, as American manufacturers moved to outsource 
production offshore where the cost advantages were greater. Referring to Paul 
Volcker and his free-market backers inside the Reagan White House, Republican 
Robert O. Andersen, then chairman of Atlantic Richfield Oil Co. complained, 
³they¹ve done more to dismantle American industry than any other group in 
history. And yet they go around saying everything is great. It¹s like the Wizard
of Oz.² 9

By early 1987 the nation¹s traditional mortgage banks, the Savings & Loan banks,
were in a liquidity crisis that was to ultimately cost US Taxpayers hundreds of 
billions in government bailouts. The Congress¹ GAO watchdog agency declared that
the Federal Savings & Loan Insurance Corporation, the guarantor against S&L bank
panic, was insolvent. Yet under pressure from the S&Ls, huge bank losses were 
allowed to build as insolvent institutions were allowed to remain open and grow,
allowing ever increasing losses to accumulate. The ultimate cost of the 1980¹s 
S&L debacle came to more than $160 billion. Some calculated real costs to the 
economy ran as high as $900 billion. Between 1986 and 1991, the number of new 
homes constructed dropped from 1.8 to 1 million, the lowest rate since World War

America¹s Second Revolution: the eyes on the Prize

Federal Reserve monetary policy has been typically misrepresented as a series of
ad hoc pragmatic responses to recurring crises in post-war banking and finance. 
The reality is that it has faithfully followed a coherent hidden thread of 
policy that was first laid out in 1973 by the spokesman then for America¹s most 
powerful establishment family.

The policy was outlined in a little-noted book titled, ominously enough, ³The 
Second American Revolution.² It was written by John D. Rockefeller III, scion of
the powerful Standard Oil and Chase Manhattan Bank empire, and, along with his 
three brothers‹David, Nelson and Laurance‹architect of the world arrangement 
after 1945 known as the American Century.

In his book, Rockefeller declared the establishment¹s determination to roll back
concessions grudgingly granted by the wealthy and powerful during the Great 
Depression. Rockefeller issued the call in 1973, long before Jimmy Carter or 
Margaret Thatcher came to office to implement it. He called for a ³deliberate, 
consistent, long-term policy to decentralize and privatize many government 
functionsŠto diffuse power throughout the society.² 10 The latter was a witting 
deception as his intent was not to diffuse power, but just the opposite‹to 
concentrate that economic and banking power into the hands of a tight-knit 

Privatization of essential and socially useful government functions that had 
been established often with great social agitation and political pressure during
the difficult crises of the 1930¹s, was the Rockefeller agenda. In brief, it was
the removal of Depression era government regulations on all aspects of economic 
and social life in America.

Above all, deregulation of Wall Street and financial markets was the goal, along
with a radical reduction in the equalizing of wealth, as seen by Rockefeller and
friends, inherent in such programs as Social Security. The George W. Bush ³tax 
cuts for the wealthy² were just a continuation of a three decade agenda of the 
powerful establishment circles.

Hard as it may be to believe, all major US policy from the 1970¹s through the 
misnamed sub-prime crisis today, had a connecting continuous thread. Key Fed and
Treasury and other US policymakers always held their ³eyes on the Prize.²

The ³Prize² was untold financial gains to be won through a rollback of major 
concessions to the working blue collar and middle income Americans, concessions 
granted during the Great Depression by powerful establishment circles led by the
Rockefeller and Morgan banking groups, to forestall a more radical revolt.

Social Security was one target for rollback. Financial deregulation and above 
all repeal of the 1933 Glass-Steagall Act, was another. Here a well-connected 
Wall Street banker named Alan Greenspan was to play the decisive role on behalf 
of the financial deregulation agenda in his tenure as Federal Reserve Chairman 
lasting from 1987 through 2006. Securitization of sub-prime or junk mortgages 
was to have been his crowning legacy. As it looks at this writing, it certainly 
will be, though perhaps not as he and others in Wall Street intended. It will 
more likely be a crown of disgrace.

(Part III will deal with the Greenspan creation of the securitization revolution
and its subsequent demise)


1 Luce, Henry, The American Century, reprinted in The Ambiguous Legacy, M. J. 
Hogan, ed. Cambridge, UK: Cambridge University Press, 1999.

2 Kennan, George F., 1948, ³PPS/23: Review of Current Trends in U.S. Foreign 
Policy², Foreign Relations of the United States, Volume I.

3 New York Council on Foreign Relations, undated, The War & Peace Studies, 

4 Engdahl, F. William, A Century of War: Anglo-American Oil Politics and the New
World Order, London, Pluto Press, 2004, pp. 88-9.

5 For an excellent historical account of the impact of those systematic 
government statistical manipulations, see John Williams¹ 
http://www.shadowstats.com/. John has been tracking the manipulations for well 
over two decades, the only systematic attempt I know of.

6 The term ³satrapy² to describe US relations with Japan, Germany and other 
postwar allies is used by Zbigniew Brzezinski in his book, The Grand Chessboard:
American Primacy and its Geostrategic Imperatives, New York, Basic Books, 1997.

7 The best treatment of this new role of endless debt creation backed by US 
military power as the foundation for the US domination, see the excellent 
personal account in the remarkable work by Michael Hudson, Super Imperialism: 
The Economic Strategy of American Empire, London, Pluto Press, 2nd Ed.2003, 
www.michael-hudson.com. p.289 ff.

8 See Engdahl, op.cit., pp.130-141 for an unusual account of the role of 
then-Secretary of State Kissinger in the events leading to the 400% OPEC oil 
price rise in 1974.

9 Anderson, Robert O., cited in Greider, William, Secrets of the Temple: How the
Federal Reserve runs the country, Simon & Schuster, New York, 1987, p. 648.

10 Rockefeller, John D. III, The Second American Revolution, Harper & Row, New 
York, 1973.

F. William Engdahl is the author of  A Century of War: Anglo-American Oil 
Politics and the New World Order,Pluto Press. His most recent book published by 
Global Research is Seeds of Destruction: The Hidden Agenda of Genetic 
Manipulation, www.GlobalResearch.ca.

Contact at: www.engdahl.oilgeopolitics.net

Click to order William Engdahl's

Seeds of Destruction

F. William Engdahl is a leading analyst of the New World Order, author of the 
best-selling book on oil and geopolitics, A Century of War: Anglo-American 
Politics and the New World Order,¹ His writings have been translated into more 
than a dozen languages.

Reviews of Engdahl's Seeds of Destruction

What is so frightening about Engdahl's vision of the world is that it is so 
real. Although our civilization has been built on humanistic ideals, in this new
age of "free markets", everything-- science, commerce, agriculture and even 
seeds-- have become weapons in the hands of a few global corporation barons and 
their political fellow travelers. To achieve world domination, they no longer 
rely on bayonet-wielding soldiers. All they need is to control food production. 
(Dr. Arpad Pusztai, biochemist, formerly of the Rowett Research Institute 
Institute, Scotland)

If you want to learn about the socio-political agenda --why biotech corporations
insist on spreading GMO seeds around the World-- you should read this carefully 
researched book. You will learn how these corporations want to achieve control 
over all mankind, and why we must resist... (Marijan Jost, Professor of 
Genetics, Krizevci, Croatia)

The book reads like a murder mystery of an incredible dimension, in which four 
giant Anglo-American agribusiness conglomerates have no hesitation to use GMO to
gain control over our very means of subsistence... (Anton Moser, Professor of 
Biotechnology, Graz, Austria).

© Copyright F. William Engdahl, Global Research, 2008
© Copyright 2005-2007 GlobalResearch.ca

newslog archives: 

Escaping the Matrix: http://escapingthematrix.org/
cyberjournal: http://cyberjournal.org

The Phoenix Project:

rkm blog: "How We the People can change the world":

The Post-Bush Regime: A Prognosis

Community Democracy Framework: 

Moderator: •••@••.•••  (comments welcome)