When Mike Wallace sat down with Iranian President Mahmoud Ahmadinejad last week, the 88-year-old journalist found him to be rather tame.

"He's an impressive fellow, this guy. He really is. He's obviously smart as hell," Wallace opined in the aftermath.

Amazingly, Wallace went on to remark that, "I expected more of a firebrand. He comes across as more rational than I had expected."

Now, how Wallace could have possibly found the Iranian President to be rational is a complete mystery to me. The Iranian President, after all, is a man who says that Israel should be "wiped off the map" and that the holocaust was a "myth."

This is a man that simply oozes hatred and the very specter of his persona seems to foreshadow evil itself. All of this was apparently lost on the affable Mr. Wallace.

I wonder how he would of felt about Hitler had he interviewed him in 1936. I suspect that he would have found him to be quite a fellow too.

The inability to recognize danger is as hazardous as the danger itself.

But while we are all familiar with the danger that the Iranian president presents in the form of a nuclear armed madman, few realize the danger the madman represents to the U.S. dollar.

You see, armed conflict and terror isn't the only point of contact in the Iranian war against the United States. The Iranians are also seeking to inflict war upon us by other means -- principally economically.

Unbeknownst to many, Iran and their new partners, Venezuela, have joined forces in an effort to undermine the U.S. dollar.

In fact, just two weeks ago Venezuelan President Hugo Chavez sat down with Mr. Ahmadinejad in what became a mutual pledge for one another.

Following the talks Chavez pledged that his country would "stay by Iran at any time and under any condition."

Ominously Mr. Ahmadinejad was later quoted as staying, "I feel I have met a brother and a trench mate after meeting Mr. Chavez."

Needless to say, this is the unholiest of alliances.

But what these "trench mates' have planned for the dollar is even more troubling.

Their plan began to unfold last October when President Chavez announced that Venezula was ready to move the country's foreign-exchange holdings out of the dollar and into the euro.

This followed the Iranian demand in 2003 that its oil payment be received in euros, not U.S. dollars.

Since then Iran has announced its intention to open an Iranian Oil Bourse to challenge the New York Mercantile Exchange and London's International Petroleum Exchange. What makes this a problem is this... The oil bourse will price the commodity only in euros.

While this may seem to be a minor change it will have the maximum impact on the U.S. dollar . In short, it may forerun the downfall of the dollar itself.

It may do so due to a little known fact...

Since 1973 the U.S. dollar has been backed by oil.

It was then, in the aftermath of the severing of the gold standard, that the dollar became the sole currency accepted for the payment of oil.

At that time an iron-clad agreement was reached with Saudi Arabia to support the House of Saud in exchange for accepting only U.S. dollars for its oil.

When the rest of OPEC followed suit the dollar became in effect the coin of the empire.

To buy oil the rest of world needed dollars... lots and lots of dollars.

Without them there would be no oil.

Because of this the dollar quickly assumed its role as the world's reserve currency.

In fact, most nations now stockpile their foreign exchange holdings in primarily U.S. dollars. As such, the dollar accounts for more than two thirds of the reserves of all central banks worldwide.

This reserve status means that the dollar is constantly in demand regardless of the underlying strength of the U.S. economy.

And in a true economic sense, the result of this arrangement has been that the dollar is now backed by oil.

This arrangement continues to this day and is one of the primary reasons foreign governments continue to purchase our debt through U.S. Treasuries.

They may not want to, but in the end they have to in order to gain the dollars they need to purchase oil on the world markets.

This is why the pricing of oil by the Iranian Oil Bourse in euros is so dangerous to the dollar. Simply put, it has the potential to eliminate the dollar's hegemony in world oil markets.

And if this dream of the dollars demise is realized, foreign governments will no longer be chained to the dollar in order to purchase oil.

Because of this the demand for dollars themselves would plummet world wide.

This is especially problematic in regards to China and Japan. As the top two holders of U.S. treasuries, these two countries would likely eagerly adopt the new exchange in order to diversify their holdings into Euros and diminish their exposure to the dollar.

In fact, this move is already underway. In January 2006, China announced its intention to reduce 75% of its currency reserves currently held in dollars.

With an estimated $1 trillion dollars on hand, this Chinese diversification is likely to keep the dollar under pressure for some time.

Unfortunately, China's not the only country to diversify into other currencies. Others intend to follow suit.

The end result of this could be the end of dollar's preeminence as the world's currency.

This could devastate the bond market as foreign governments are no longer compelled to purchase U.S debt. This would cause a rapid escalation of interest here at home regardless of what the Fed has planned.

In short, it would thrust the U.S. economy into recession or worse.

Furthermore it would represent the end of an age.

And it is this that makes the Iranian leader and his cohorts giddy with anticipation.

In the end it might not be a nuclear weapon from Iran that cripples us but something as simple as an oil exchange traded in Euros.

Sadly, it's the dollar that is the soft underbelly of the empire.

Anybody that "smart as hell" can figure that out.

Just ask Mike Wallace.

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