I have been upset by actions of the new administration and people being appointed, and the agenda it proposes. I realized there is a big story of our influence in the world, and a story about oil that I have never bothered to learn about. So I spent 2 days reading and researching. I cobbled together this story of America's strength with assets that turned into addiction to consumption that is leading swiftly to the fall of the dollar and our economy... here is the history and relevant issues that I explored in chronological order that helps me understand it better.
Bretton Woods: When the Dollar Was Gold
1. After WWII 730 delegates from 44 allied nations met in Bretton Woods, NH to regulate the international monetary and financial order. The relatively young and economically nimble U.S.A. served as a refreshing replacement to the globe’s former hegemon: a debt-ridden and war-torn Great Britain. The Bretton Woods exchange-rate system had all currencies linked to the US dollar, and the dollar linked to gold. Because the U.S. owned over half the world's official gold reserves—574 million ounces at the end of World War II—the system appeared secure. The US dollar became the “global reserve currency.” (This is also when the IMF, and what is now known as the World bank and also the WTO got created.)
2. This system was followed by two decades of rapid economic growth but in the end it proved too inflexible. From 1950 to 1969, as Germany and Japan recovered, the US share of the world's economic output dropped significantly, from 35% to 27%. Furthermore, a negative balance of payments, growing public debt incurred by the Vietnam War, and monetary inflation by the US Federal Reserve caused the dollar to become increasingly overvalued in the 1960s.
3. America was reluctant to adjust its domestic economic policy to maintain the ‘gold peg.’ Despite pressure from foreign nations to protect the dollar's value by reining in excessive government spending, Washington displayed little fiscal constraint and continued to live far beyond its means. It had become obvious to all that America lacked the basic fiscal discipline which could prevent a destruction of its own currency.
4. Many foreign nations, who had previously agreed to a gold-backed dollar as the global reserve currency, were now having serious mixed feelings toward the arrangement. Nations like Britain, France, and Germany determined that a cash-strapped and debt-crazed United States was in no financial shape to be leading the global economy. In France, the Bretton Woods system was called "America's exorbitant privilege" as it resulted in an "asymmetric financial system" where non-US citizens "see themselves supporting American living standards and subsidizing American multinationals."
5. In February 1965 President of France, Charles de Gaulle, announced his intention to exchange its U.S. dollar reserves for gold at the official exchange rate. France and other nations began demanding gold in exchange for their dollars.
The Nixon Shock: Oil for Dollars, the Fiat Currency
6. The USA did not have the gold to cover these dollars, so President Nixon abandoned the link to gold in 1971 as the main part of what was called “the Nixon Shock,” and the fixed exchange-rate system decided at the Bretton Woods Conference disintegrated. The US dollar no longer represented 1/35th of an ounce of gold. We were officially using fiat money now, instead of commodity money. “Fiat” is Latin for “let it be.” The level of the world’s currencies now depended on the amount of trust investors had in that currency. Central banks were allowed to set monetary policy based on their instincts rather than on the need to keep their currency in line with gold.
7. Two years later, in an effort to maintain global demand for U.S. dollars, another system was created called the Petrodollar system. In 1973, a deal was struck between Saudi Arabia and the United States in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Also, the Saudis would be open to investing their surplus oil proceeds in U.S. debt securities. Under this new arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia’s willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations, including Israel. By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars and to hold their surplus oil proceeds in U.S. government debt securities in exchange for weapons and military protection.
8. This petrodollar system, also known as an “oil for dollars” system, created an immediate artificial demand for U.S. dollars around the globe. And of course, as global oil demand increased, so did the demand for U.S. dollars.
9. In 1996, economist Paul Krugman (Nobel Memorial Prize in Economic Sciences, 2008) summarized the post-Nixon Shock era as follows:
“The current world monetary system assigns no special role to gold; indeed, the Federal Reserve is not obliged to tie the dollar to anything. It can print as much or as little money as it deems appropriate. There are powerful advantages to such an unconstrained system. Above all, the Fed is free to respond to actual or threatened recessions by pumping in money. To take only one example, that flexibility is the reason the stock market crash of 1987—which started out every bit as frightening as that of 1929—did not cause a slump in the real economy. While a freely floating national money has advantages, however, it also has risks. For one thing, it can create uncertainties for international traders and investors. Over the past five years, the dollar has been worth as much as 120 yen and as little as 80. The costs of this volatility are hard to measure (partly because sophisticated financial markets allow businesses to hedge much of that risk), but they must be significant. Furthermore, a system that leaves monetary managers free to do good also leaves them free to be irresponsible—and, in some countries, they have been quick to take the opportunity.”
10. Freed of any constraints on printing ever more money out of thin air, the United States, through the Federal Reserve, has run the printing presses with impunity (as has the rest of the world), resulting in higher inflation and an even more rapid devaluation of the currency.
11. Many central banks have started buying gold to secure their economies in the long run.
http://etfdailynews.com/2012/11/05/the-secret-return-to-the-gold-standard-gld-iau-sgol-slv/
http://www.globalresearch.ca/25-fast-facts-about-the-federal-reserve-biggest-ponzi-scheme-in-world-history/5373609
Keeping the Dollar Going as the Oil Currency
12. Libya: Some say that the USA was instrumental in the killing of Muammar al-Gaddafi of Libya by Western-backed rebels because he was proposing a whole system of oil trade and currency using a gold-backed dinar. Through declassified Hillary Clinton emails in early 2016, it was revealed that NATO invaded Libya and killed their king Gaddafi in 2011 to protect the franc valuation in Africa which would have been ruined by a switch of currency to a gold-backed dinar. Libya’s gold was accumulated prior to the current rebellion and was intended to be used to establish a pan-African currency based on the Libyan golden Dinar. This plan was designed to provide the Francophone African Countries with an alternative to the French franc (CFA). This gold and silver was valued at more than $7 billion.
See http://www.infowars.com/libya-was-invaded-to-prevent-pan-african-currency/
French intelligence officers discovered this plan shortly after the rebellion began, and this was one of the factors that influenced President Nicolas Sarkozy’s decision to commit France to the attack on Libya.
See http://thefreethoughtproject.com/declassified-emails-reveal-natos-true-motive-topple-gaddafi-stop-creation-gold-backed-african-currency/#qggFSrsHY2feQObF.99
According to more than a few observers, Gaddafi’s plan to quit selling Libyan oil in U.S. dollars — demanding payment instead in gold-backed “dinars”— was the real cause of NATO’s invasion of Libya. The regime, sitting on massive amounts of gold, estimated at close to 150 tons, was also pushing other African and Middle Eastern governments to follow suit. And it literally had the potential to bring down the dollar and the world monetary system by extension, according to analysts. French President Nicolas Sarkozy reportedly went so far as to call Libya a “threat” to the financial security of the world. The “Insiders” were apparently panicking over Gadhafi’s plan.
See https://www.thenewamerican.com/economy/markets/item/4630-gadhafi-s-gold-money-plan-would-have-devastated-dollar
- What happened to the gold?
- Here is video of Wesley Clark talking about plan to invade 7 countries in 5 years. Why are we invading countries? Wolfowitz, Cheney and Rumsfeld did a "policy coup;" want to destabilize the middle east. See https://2012patriot.wordpress.com/2011/11/08/libya-truth-2/
- Libya had plans for a debt free nation that was literate, clean with a good irrigation system for happy fed people. So the image of the USA and western countries when they bomb Tripoli and the infrastructure of Libya and take their gold.
13. Iraq: In 1999, Iraq broke ranks from trading dollars for oil, and traded with Euro currency. “Sanctions and then a US invasion followed. Coincidence? Hussein’s idea would have strengthened the euro, but Gaddafi’s idea would have strengthened all of Africa in the opinion of hard-money economists.”
See http://www.infowars.com/libya-was-invaded-to-prevent-pan-african-currency/
2003: "There are many things driving President Bush and his administration to invade Iraq, unseat Saddam Hussein and take over the country. But the biggest one is hidden and very, very simple. It is about the currency used to trade oil and consequently, who will dominate the world economically, in the foreseeable future -- the USA or the European Union. Two years after Iraq started trading oil for euros, alarm bells were sounding; the euro was rising against the dollar, Iraq had given itself a huge economic boon by switching. Iran started thinking about switching too; Venezuela, the 4th largest oil producer, began looking at it and started cutting out the dollar by bartering oil with several nations including Cuba. The dollar’s grip on oil trading and consequently on world trade in general, was under serious threat. If America did not stamp on this immediately, this economic brushfire could rapidly be fanned into a wildfire capable of consuming the US's economy and its dominance of world trade."
See https://www.globalpolicy.org/component/content/article/173/30447.html
"Iraq is a European Union beachhead in that confrontation. America had a monopoly on the oil trade, with the US dollar being the fiat currency, but Iraq broke ranks in 1999, started to trade oil in the EU's euros, and profited. If America invades Iraq and takes over, it will hurl the EU and its euro back into the sea and make America's position as the dominant economic power in the world all but impregnable. If the US is in control of Iraqi supplies, either directly or through a puppet, it would be in a much better position to block any currency shift by the OPEC countries."
See http://www.monetary.org/was-the-iraqi-shift-to-euro-currency-to-real-reason-for-war/2010/12
14. Other countries are moving away from the petrodollar system including Iran, Syria, Venezuela, India, and North Korea. Additionally, other nations are choosing to use their own currencies for oil like China, Russia, and India, among others. In 2014, India wanted to buy oil from Iran but after sanctions were put on them, feared repercussions from the USA in dealing with Iran. But finally they were able to buy oil for rupees... another sign of movement away from petrodollars.
Petrodollar Decline: China and Russia
15. China overtook the U.S. this year as the top importer of crude oil, and as major producers compete for market share from Chinese buyers, they have been willing to do deals in yuan. Both Russia and Iran are accepting the yuan for oil, as are Angola, Venezuela and Sudan. Others are likely to follow. The growing use of the yuan in oil trading represents the decline of the petrodollar—dollars earned by producers through the sale of petroleum—and also signify China’s growing importance in the world economy. These shifts will have major implications for the geopolitical backdrop, while also providing a boost to the new crude futures exchange. China’s forthcoming launch of a crude futures contract to be traded with the yuan is another major step to cement itself as a global economic powerhouse and challenge the U.S. currency’s dominance in oil markets. While China has a long road to travel if it wishes to unseat the dollar, the Asian juggernaut has taken a number of steps to boost its currency’s standing in the global marketplace, but the move to establish a crude futures exchange is among the most significant.
See http://energyfuse.org/chinas-currency-on-track-to-challenge-the-u-s-dollar-in-oil-markets/
16. China and Russia have paired up to create the petroyuan. This, after USA and Europe imposed sanctions… but it didn’t work. The economic sanctions imposed by Washington and Brussels drove the Russians to eliminate the dollar and the euro from their commercial and financial transactions. From mid-2015, the hydrocarbons that China buys from Russia are paid in yuans, not in dollars, information that has been confirmed by high executives of Gazprom Neft, the petroleum branch of Gazprom[5]. This has lead to the use of the “people’s currency” (‘renminbi’) in the world oil market and at the same time allows Russia to neutralize the economic offensive launched by the United States and the European Union. The underpinnings of a new financial order supported by the petroyuan is emerging: the Chinese money is preparing to become the axis of commercial exchanges of the Asian-Pacific region with the principal petroleum powers.
See http://www.globalresearch.ca/the-petro-yuan-versus-dollar-hegemony-china-and-russias-big-bet/5526236
In 2016, Nigeria of OPEC started selling oil in petroyuans. Iran announced they were no longer selling their oil in dollars in the wake of the U.S. removing them from economic sanctions, and would be transacting oil sales using the Euro as their primary currency.
There is general agreement among economists that China’s yuan will eventually rival the U.S. dollar, whether as a secondary reserve currency or at the very top. In fact, a cycling of reserve currency status is the historical norm: Since the 1400s, six different currencies have held the designation as their parent country has ceded status as a global hegemonic power. Beijing’s political will to internationalize its currency will be a key factor in this likely shift.
See http://energyfuse.org/chinas-currency-on-track-to-challenge-the-u-s-dollar-in-oil-markets/
Russia and China: selling US Treasury debt and Buying Gold
18. According to Treasury Department records, Russia in March 2014 sold off one-third of its U.S. Treasury debt holdings. Russia reduced its U.S. Treasury holdings from $153 billion in March 2013 to $100.4 billion in March 2014. The Russian sell-off of U.S. Treasury debt has been widely interpreted as reflecting Moscow’s adverse reactions to economic sanctions the Obama administration imposed on Russia as punishment for taking over Crimea and threatening military involvement in Ukraine.
See http://www.wnd.com/2014/08/putin-the-petrodollar-must-die/#lA44ZhohVzYPCQsr.99 and http://www.wnd.com/2014/08/putin-the-petrodollar-must-die/
Japan and China are also dumping US Treasury holdings, and now Japan is in the lead followed by China.
See http://money.cnn.com/2017/01/19/investing/china-sells-us-debt-japan-russia/
Now in 2017, Russia is increasing investment in US Treasury, an upswing that started in May 2015. Why is that?
19. Russia and China are buying gold. According to a report released by the OMFIF think tank in September, central banks are turning back to gold purchases following four decades of attempted demonetization. Central banks have been net bullion buyers every year since the 2008 financial crisis, adding more than 2,800 tons or 9.4 percent to their reserves. The past eight years has seen the longest protracted spell of gold accruals since 1950-65.
See http://www.hangthebankers.com/russia-precious-metals-market-buys-tons-gold/
20. The Russian Central Bank has quietly been buying huge volumes of gold over the last 10 years. This diversification into gold accelerated since the financial crisis and since relations with the U.S. deteriorated in recent years. Russia bought gold systematically both when the ruble was strong and when it was weak. In 2015, Russia added a record 208 tons of gold to her reserves compared with 172 tons for 2014.
21. According to the World Gold Council, only the central banks of the U.S., Germany, Italy, France and China currently hold larger gold reserves than Russia. The Central Bank of Russia has outpaced the People's Bank of China (PBOC) by nearly 150 tonnes in the last seven years, and has been the world’s largest central bank buyer of gold reserves for some time. This trend is expected to continue. Total gold mining production globally is around 3,200 metric tonnes per year. Thus, Russia's purchase of 48 metric tonnes is around 1.5% of total annual global gold production. This is a very large amount for one country to buy in just one month. Some of the gold bought will have come from Russian gold production which is currently at about 26 metric tonnes per month. In 2014, Russia was the third largest gold miner in the world at 266.2 tonnes, just six tonnes short of Australia in second place and China in first place.
See http://www.zerohedge.com/news/2016-11-23/putin-buys-dip-russias-gold-buying-october-largest-millenium
22. In October 2016, the yuan - also known as the renminbi, or "people's money" - was added as a reserve currency by the International Monetary Fund. It joins the U.S. dollar, the euro, the yen and British pound in the IMF's special drawing rights (SDR) basket, which determines currencies that countries can receive as part of IMF loans. It marks the first time a new currency has been added since the euro was launched in 1999.
see http://fortune.com/2016/10/02/china-yuan-imf-currencies/
The bottom line
After WWII the USA had the largest proportion of gold and the strongest currency, so countries agreed to peg their currency values to it. But when USA society started overspending (Vietnam was expensive) and other economies (Japan and Germany especially) started producing more, the dollar value went down, so Nixon broke it’s tie to gold in 1971, making it a “fiat” currency instead of a commodity currency. In 1973 the USA convinced Saudi Arabia to value it’s oil in US dollars and only sell the oil to everyone in our currency in exchange for military equipment and protection. Now the USA is using military power around the world to maintain our artificially high standard of living which is based on artificial valuation of our dollar that depends on controlling other countries’ use of our dollar to buy oil, and to keep oil going as the most important source of energy, and keeping the dollar going as the global reserve currency, and to keep increasing demand for dollars by increasing demand for oil and American goods, to feed our insatiably growing consumer economy.
We kill leaders of countries that threaten to abandon the US dollar as the currency for purchasing oil including Muammar al-Gaddafi of Libya (he had $7B worth of gold and a plan to create an African currency: the gold-backed dinar with which oil and everything else would be purchased) and Saddam Hussein (he moved from using the US dollar to the Euro for oil purchasing and he invaded Kuwait giving him 20% of global oil reserves so he was a threat to the value of the US dollar). We bribe the Saudis to keep their dollar assets (though in 2016 they threatened to sell $750B of US Treasuries and dollar assets if the US declassified 11 pages of the 9/11 report that implicated the royal family).
It used to be that whoever controls the Persian Gulf controls the value of the US dollar. Following the Iraqi invasion of Kuwait, Dick Cheney said : “Once Hussein acquired Kuwait ... he was clearly in a position to dictate the future of worldwide energy policy, and that gave him a stranglehold on our economy and on that of most of the other nations of the world as well.”
But governments are quickly abandoning the US dollar as they create alliances with countries that are accessing their own oil and gold supplies.
A shift by OPEC to the euro or yuan is rapidly confronting the US with an economic “nightmare scenario.” Major oil importers would need to transfer some of their funds from US dollars reserves—stocks, bonds and other assets—into euro or yuan reserves. This would see a sharp fall in the value of the dollar, possibly setting in motion a further withdrawal of funds as investors became nervous over the value of their dollar assets. Suddenly the burgeoning US debt, which at present plays little or no role in day-to-day financial calculations, would become a factor of considerable importance.
The Federal Reserve Bank and the dollar as the global currency is basically a Ponzi scheme that depends on constant increased demand for oil or dollars.
Because the U.S. currently controls nearly all mechanisms within the global financial system, they have embarked on policies which almost always begin with economic sanctions, and a freezing of assets for any nation it determines to be in opposition to the will of Washington, and of U.S. foreign policy agendas. And we still see this today in regards to nations like Russia and Iran, and in a more subtle way for most of the nations of Europe (through Fed swap lines).
The bottom line is that the U.S. has crossed the Rubicon one too many times by unilaterally inflicting economic warfare on any and all nations that do not cede to their will, and they have been able to do this through the petrodollar system originally created through a partnership with the House of Saud. But as both Russia and China have shown over the past four years, the effects of sanctions can be mitigated through strong coalitions that are willing to participate outside dollar hegemony, and even turn the tables on the U.S. by offering the world an alternative to the current dollar based financial system. And it appears that the Saudi's know this, and know that it is now possible to break away from Washington at any time.
see https://www.roguemoney.co/stories/2016/4/21/0ju3x7cq89ea59kz8n1qo5olv729np
We keep wondering why Trump wants to be good friends with Russia and now I see that we are no longer the power leaders with our dollars…. Russia and China are finding their own way forward without need of dollars or fear of our military force. They are big enough to stand up to us.
So, a note on my sources... I found most of this information in non-mainstream media, and I searched mainstream media for these stories, but found very few and those I did find were complexly written with financiers or economists as the audience. I can't stand by this research as absolutely true, but noticed multiple stories supporting the same information, and in general I feel that most of this is true.
I am understanding much more why so many non-western countries would hate the USA. We are no longer the helpers of the world, but the bullies that are trying to keep people dependent on our currency that we need to keep our wasteful spending going. It seems the US dollar is headed for collapse as the yuan and rouble gain momentum in the world as the international currencies.
http://www.informationclearinghouse.info/article1554.htm
https://ftmdaily.com/preparing-for-the-collapse-of-the-petrodollar-system-part-1/
https://en.wikipedia.org/wiki/Nixon_shock
http://www.economist.com/blogs/economist-explains/2014/06/economist-explains-20
http://www.financialsense.com/contributors/jerry-robinson/the-rise-of-the-petrodollar-system-dollars-for-oil
#petrodollars #petroyuan #libyainvaded #federalreserve
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