Pitfalls for the world's biggest debtor

EVERY day we ask ourselves how on earth did we get into this ongoing tragedy in Iraq. Senator Waxman (Oversight and Government Reform Committee) now knows how the Americans got into it. Recently he asked why, in the year ended June 2004, the Coalition Provisional Authority shipped $12bn in cash - $400,000 shrink-wrapped on to each pallet and carried on C-130 cargo planes - from the Federal Reserve in New York to Baghdad. He added, "and who in their right mind would send 363 tons of cash into a war zone?"

The answer was brief and succinct. It was Iraq's own money - part of the UN's "oil for food programme". He got no answer as to why there was no audit trail and the bulk of this money remains untraceable. This is, of course, peanuts to the cost of the Iraq war, estimated at $120bn per annum.

But don't worry, Senator, Uncle Sam isn't paying for this. It's all paid for in externalised US dollars - that is the dollar bills and "securities" held as reserves in the world's central banks - eg, Japan $670bn, China $470bn, even South Korea $220bn. If you add up all the dollar reserves they amount to some $2.2 trillion. To these IOUs you can add a mere $500bn in $100 notes also sloshing about outside the US.

When you are a reserve currency you can pay for your oil and imports with some crisp paper and a printing press, and provided you have the biggest and most powerful military in the world, no-one is likely to challenge you. But being the world's biggest debtor domestically and internationally is not a stable situation; the cracks are appearing faster than the Federal Reserve can paper over them. If even half of these dollars came home to roost the US economy would collapse.

If I were a politician genuinely concerned about the physical safety and economic welfare of the people I represented, I would be discreetly making plans and hedging my bets, perhaps taking a leaf out of Norway's book - keeping your own currency, balancing your internal and external budget and looking after your own.

There may be a time for an independent Scotland to join Euroland but I'd let the dust settle first. Already, 25% of all reserves have moved into euros. If the big boys and the unionist wannabes want to play in the dog-eat-dog global league let them get on with it - there's a much better game in town.

R F Morrison, 29 Colquhoun Street, Helensburgh

TO continue Alan Armstrong's theme (February 9) on the driving force behind "economic growth" one has to factor in the source of creation of wealth. Since the Second World War Britain has been systematically stripped of manufacturing capacity. We are now essentially a "service industry society" and "economic growth" has only been supported by the financial sector, which finds it economically advantageous to be based here; that could easily change.

The manufactured goods presented to us for purchase are almost all produced in China and other "Third World" countries and the low prices are achieved at the cost of exploitation of the labour market in these countries. This is also not sustainable unless some form of colonial subjugation of these producer countries is in the pipeline. The multinationals and investors have no loyalty; decisions are based on financial, not moral, grounds and they do not recognise geographic boundaries. We could easily lose our major source of economic prosperity if they get a better offer elsewhere. Selling burgers to each other does not generate wealth so where will we be then?

David J Crawford, Drumboe Upper, Stranorlar, Donegal