The Death of the Petrodollar

The petrodollar system is on the verge of collapse. This would mean the end of the currency of the United States. By its very definition, the killing of our national currency is an act of high treason by those involved. It undermines the very survival and sovereignty of our nation, as well as deal a destructive blow to every citizen in the US.

In the past few decades, the United States has either attacked or invaded the countries of Libya, Iraq, Afghanistan, and Yemen. United States operatives are also helping to destabilize the areas around Syria. Throughout all of this, the United States government has also been intent on disparaging Iran and its allies, despite the fact that Iran has not exercised an offensive threat to any country since the year 1798.

As astute Americans citizens, we must seriously consider what the next move of our government will be, as we support them through massive tax monies and consent through our democratic system. The current trajectory is not one that suits the best interests of the American people, individually or as a whole. The question then remains, who is benefitting from these conflicts? Looking through the lens of a public education or under the veil of the mainstream media propaganda, the path we are on is very complex and blurry in its own right. To understand the motives of the existing powers, the destination we are headed, and the path we will most likely take, we must first look at times past.

In 1944, 730 delegates from 44 nations met in Bretton Woods, New Hampshire in order to reach an agreement to govern international monetary policy among nations. “What makes the Bretton Woods Agreement so interesting to us today is the fact that the whole plan for international monetary policy was based on nations agreeing to adhere to a global gold standard. Each country signing the agreement promised to maintain its currency at values within a narrow margin to the value of gold. The IMF was established to facilitate payment imbalances on a temporary basis”[1].

During this meeting, the dollar was established as the world reserve currency. This basically means that all international commodities after this meeting were set to be priced in dollars. This agreement gave the United States a significant financial advantage. This was of course conditional. The United States dollars would redeem gold at a consistent rate of thirty-five dollars per ounce. As a token of good faith, the United States communicated that they would not print much money, and left it to the honor system to govern this agreement. The Federal Reserve to this day still does not allow any audits or public supervisions of its printing presses. Furthermore, looking into the reasoning behind leaving the gold standard, we see a total fabrication of lies. The reason behind it was to be able to provide more loans.

In the decades leading up to the 1970s, payments made during the Vietnam War made it extremely clear to the world that the United States was printing far more money than it could back up with gold.

“In addition to introducing a number of global financial agencies, the historic meeting also created an international gold-backed monetary standard which relied profoundly upon the U.S. Dollar. Initially, this dollar system worked well. However, by the 1960’s, the weight of the system upon the United States became unbearable. On August 15, 1971, President Richard M. Nixon shocked the global economy when he officially ended the international convertibility from U.S. dollars into gold, thereby bringing an official end to the Bretton Woods arrangement.”[2]

In response, countries began asking for a return of their gold. Economically speaking, this set off a rapid decline in the US dollar. In 1971, President Nixon shocked the international community when he refused to return France’s gold. On August 15th he said,

“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States. Now, what is this action — which is very technical — what does it mean for you? Let me lay to rest the bugaboo of what is called devaluation. If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less..The effect of this action, in other words, will be to steady the dollar.”[3]

Historically speaking, we see that this was nowhere near the temporary suspension that he claimed during his address. Looking back, his actions could be more aptly characterized as a permanent default. Furthermore, for the rest of the world who had trusted the United States with their gold, this was consummate theft.

Just two years later in 1973, President Nixon appealed King Faisal of Saudi Arabia to accept only US dollars as payment for Saudi Arabia’s oil. Any profits were expected to be invested in US Treasury bonds, notes, and bills. In return for their compliance, the United States, under Nixon, offered military protection for Saudi oil fields. “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.”[4]

The same offer was extended to each of the world’s key oil producing companies. By 1975, every member of OPEC (Organization of Petroleum Exporting Countries) agreed to trade their oil in United States dollar. This act has had substantially detrimental consequences since being implemented. The action of stripping US dollars of their gold foundation and tying it to foreign oil instantly forced every oil importing country in the world to begin maintaining a constant supply of Federal Reserve papers. On OPEC’s website, they state their goal as such, “OPEC states quite plainly that its goal is to manage the world’s supply of oil. It does this to make sure its members get what they consider a good price for their oil. Since oil is a fairly uniform commodity, most of its consumers base their buying decisions on nothing other than price.”[5]

In order to obtain the Federal Reserve’s currency, which at this point was being backed up by words, these oil producing countries had to trade real physical concrete goods to the United States of America. It is here where we witness the birth of the petrodollar. The United States was in essence trading pieces paper for everything it wanted. This is the period in history that we can point to when the United States reached its peak of affluence.

Now jump ahead a few years to the arms race with the former Soviet Union. The US gambled with military disbursements, which they had vast amounts of. Accompanied now with the petrodollar, the US was able to take on more risk than any other country. This led to a rise in military growth, a growth that has not be rivaled by any other nation’s armed forces to this day. The Soviet Union was in fact playing a game they had no shot at winning. After the fall of the Soviet Union in 1991, the United States stood alone as a military superpower on the world stage.

As can be expected, Americans believed this to be the start of a new age. This age would be of economic boom and international peace. However as we have see through the history of Rome and Greece, a centralized power has a great chance of becoming corrupt. In 1991, The US invaded Iraq in the first Gulf War, and after dismantling their substructure which included water systems, and healthcare facilities, the United States imposed sanctions which made it nearly impossible to re-erect these edifices. Both Republican and Democratic presidents promoted these policies that lasted for over a decade. The damage can be calculated to be 500,000 deaths, mostly children.

“During the sanctions, Secretary of State Albright, the first woman to serve in that capacity, appeared on C.B.S.s program, 60 Minutes, in 1996. This preceded the U.N.I.C.E.F. report but was clearly after much speculation about the infanticide consequences of these draconian sanctions. Secretary Albright was told on the program that 500,000 Iraqi babies under five had died as a result of American-initiated economic sanctions. While I do not know if the figure is accurate, the secretary did not dispute the figure or even engage the issue of the killing of innocents. Her response was: “We think the price is worth it.”[6]

As never ending students of politics and history, we must ask ourselves what could be worth the deaths of 500,000 children?

“America’s oil addiction had been causing trade problems, along with environmental and other ones, at least since 1973, the year the first OPEC oil crisis hit.”[7] In November of 2000, Iraq decided to trade for oil in euros instead of dollars. The United States would not stomach any attempts at damaging its supremacy. In response, the US government, with the help of the mainstream media, began a campaign to spread lies to the world about the “dire” potential of Iraq obtaining weapons of mass destruction and using them on US soil. In 2003 United States military forces invaded Iraq and oil was again sold in the dollar. This is remarkable because this act of switching back to dollars led to a 15-20% loss in returns due to the euro’s greater value.

In an interview with four-star General Wesley Clark on “Democracy Now”, Clark laid out a warning for the Pentagon’s plan in the Middle East.

“About ten days after 9/11, I went through the Pentagon and I saw Secretary Rumsfeld and Deputy Secretary Wolfowitz. I went downstairs just to say hello to some of the people on the Joint Staff who used to work for me, and one of the generals called me in. He said, “Sir, you’ve got to come in and talk to me a second.” I said, “Well, you’re too busy.” He said, “No, no.” He says, “We’ve made the decision we’re going to war with Iraq. ” This was on or about the 20th of September. I said, “We’re going to war with Iraq? Why?” He said, “I don’t know.” He said, “I guess they don’t know what else to do… So I came back to see him a few weeks later, and by that time we were bombing in Afghanistan. I said, “Are we still going to war with Iraq?” And he said, “Oh, it’s worse than that.” He reached over on his desk. He picked up a piece of paper. And he said, “I just got this down from upstairs” — meaning the Secretary of Defense’s office — “today.” And he said, “This is a memo that describes how we’re going to take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran.” I said, “Is it classified?” He said, “Yes, sir.”[8]

The events of the past decade have been following suit with what the General predicted. In Libya, Gadhafi’s regime was attempting to back certain African countries to create a new gold backed currency, which would topple the dollar in that area. However, US and NATO forces invaded the Libyan country in 2011 and executed Gadhafi. “According to more than a few observers, Gadhafi’s plan to quit selling Libyan oil in U.S. dollars — demanding payment instead in gold-backed ‘dinar’” (a single African currency made from gold) — was the real cause. 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.”[9]

Iran has been trying to wean itself off the dollar when dealing with oil for a long time. The United States media has been recently supportive of military action to combat a potential nuclear program. “The U.S. and the European Union have imposed trade and financial sanctions against Iran over its nuclear work, which they say is aimed at developing atomic weapons.”[10] Iran is also one of the only nations with a state owned central bank. Syria is one Iran’s best allies, and they have bound themselves to mutual defense agreements. “Iran and Syria heightened tension across the Middle East and directly confronted the Bush administration yesterday by declaring they had formed a mutual self-defense pact to confront the ‘threats’ now facing them.”[11] Syria was destabilized with assistance from NATO, and the amount of foreign fighters found in the country was astonishing and mysterious. “Addressing this issue of where all these foreign fighters came from, Dr. Webster Griffin Tarpely during a Press TV interview accused the Central Intelligence Agency (CIA) of orchestrating events in that war and forming what he calls a “secret army” inside the country. He went so far as to call the Syrian civil war “a CIA covert operation.”[12]

The motivations for the actions in these countries become pure when you take a step back and consider all the incentives. If oil begins to be sold in other currencies, a response will alter the economy and the dollar will be rendered obsolete. The price of oil is the main catapult for the dollar at this time in history, and seeing as how we have no gold to back up our currency (thanks Nixon), any serious blow dealt to the dollar will be catastrophic. It can be inferred that the military is being used as a tool (or more specifically, a hammer, as laid out by General Clark) to crush regimes that go against our current economic system, and are being regarded as national security threats of the highest degree.

Both China and Russia have made it clear that they will not allow any sort of military action against Iran or Syria. Iran is a major ally to both China and Russia. They provide stability in an otherwise chaotic region. However Putin has worked cooperatively with America in opposing nuclear proliferation in Iran. “We are categorically opposed to the enlargement of the club of nuclear states.”[13] Now why could this be? Perhaps because Russia is trying to maintain its clout in the concert of nuclear nations. Iran is also one of the last autonomous oil manufacturers in the Middle East, so Russia could perhaps also want them dependent on Russian defense against the United States.

We must now look at who would be most affected if the dollar collapses, and who would benefit from the current state of dependency and economic polarity. The power that prints the money would seem to be the power that would want to stop the collapse more than anyone else. Look no further than the Federal Reserve. The Federal Reserve is neither federal nor a reserve. The Federal Reserve is not a government agency. The Federal Reserve is actually an incorporation of the most authoritative banks on this planet. The leaders of those banks are at the forefront of people who control the actions of not only the government but of the people. The incentive here is the control of the global financial system, nothing more and nothing less. This problem cannot be blamed on one president or presidents, this goes much higher, deeper and in order to find out for who to blame, we must follow the money.

To find out how far along we are on this path to destruction and to see what is currently happening, we must look to Russia and China.

“China and Russia signed a $400 billion gas deal on Wednesday, giving Moscow a mega market for its leading export and linking two major powers that, despite a rocky history of alliances and rivalries, have drawn closer to counter the clout of the United States and Europe..They have similar views of the United States, however, including opposition to its unilateral military actions in Kosovo, Iraq and Libya, and wanted to “take Uncle Sam down a peg or two,” Mr. Talbott said. Mr. Putin, in particular, wanted to make a point of showing that the United States and its NATO partners were in decline.”[14]

The deal is being downplayed by the West. We are now seeing a transition from the petrodollar to the petro ruble. For decades, the price of oil and gas has been priced in US dollars. With this $400 billion dollar deal with China and Russia, we now see a shift of the pricing in energy toward Russia and China. The US dollar’s days as a world reserve currency are numbered. This is also manifest in the recent actions by Russia to almost quadruple their purchase of gold. “Since Russia annexed the Black Sea peninsula of Crimea from Ukraine in March, drawing international condemnation and a raft of economic sanctions from Western powers, Russia’s gold reserves have soared beyond those of Switzerland and China. Its gold holdings stand at the highest level for more than two decades and are currently the fifth largest reserves in the world.”[15]

It is evident that Russia is getting ready for the dollar to begin to rapidly lose value against other world currencies. As that happens, gold will start to mark up aggressively. Between buying gold and pricing energy in something other than US dollars, the petro ruble is now coming to the forefront. China and Russia could not agree on a price for a long time, and it is still a somewhat commercial secret on how they achieved the agreement. More importantly though, on a larger scale, the US dollar is now poised to lose its world reserve currency status. This fact is extraordinarily significant in the post WWII era, where the US has used the dollar as a weapon to increase its global hegemony. The United States, for many decades, was actually buying things with Federal Reserve notes and never making good on their deals! The Federal Reserve was running rampant on the international scene by printing more money and issuing more dollars. Once the dollar loses its place in the world market the price of energy in America will double and triple. These assumptions must be made by the US and its economists. Unfortunately the media is laying a blind eye to these groundbreaking stories.

The fracking occurring in California, which accounts for two thirds of America’s fracking production, seems to be the US answer to the deal between Russia and China to supply the US with sustainable energy. However there is a humungous problem with this assumption. The amount of gas that California will generate through its use of fracking has been reportedly overstated on a scale of epic proportion. “If you were celebrating U.S. energy independence, you can blow the candles out, for now. If you were a Californian clicking your heels at having two-thirds of all the shale oil in the lower 48 states, you can stop clicking. Why? The U.S. government says it has overestimated–by 96 percent–the amount of recoverable shale oil California has.”[16] This has been interpreted by many that America’s fracking industry is dead in the water. Producing enough gas to sustain America’s future at the rate being predicted is impossible, to say the least. China and Russia have an opportunity to completely monopolize the entire world’s gas industry, by having the ability to price it in something other than US dollars.

What can America do to combat this impending doom? The historic tactics of bombing and invading have been the status quo for the US government for decades. The Pentagon and the dollar have been used as tools to reach global hegemony and secure the world’s oil supply. Now the US is busy in Africa trying to secure oil while China is bringing countries to the bargaining table. Seeing how China now has the greatest GDP on the planet, they have the reserves to write numerous checks. The only recourse for the US is to accept that the world reserve currency is shifting. Before the US had the world reserve currency it was Britain. Before that, various countries took turns, from France to Portugal to Spain. The United States is now in the process of unwillingly handing over the rights to the world reserve currency to either China, Russia, both, or the Shanghai Cooperation Organization (SCO), which encompasses China, Russia, and Iran. These countries now have the ability to set the price of oil in the near future. The days of US hegemony are now looking numbered.

In conclusion, the petrodollar’s days seem to be coming to a close. After decades of military conquest and manipulation of certain countries, the United States is now reaching a point of no return. Thanks in part to the parting from the gold standard, the Federal Reserve was able to, through quantitative easing, print money out of thin air and surge America into massive debt. The reliability of the dollar is now being called into question. This spells massive trouble for the petrodollar and the US holding of the world’s reserve currency. Economist Dick Bove said, “If the dollar loses status as the world’s most reliable currency, the United States will lose the right to print money to pay its debt,” [17]. He continued, “It will be forced to pay this debt. The ratings agencies are already arguing that the government’s debt may be too highly rated. The United States Congress, in both its houses, as well as the president, are demonstrating a total lack of fiscal credibility.” All of this accompanied with the fact that US fracking isn’t producing nearly enough and that China and Russia are taking over the game on a world stage, the petrodollar seems to be coming to an end with American hegemony by its side. The United States has nobody to blame but itself.

 

 

References

[1] http://www.dailyreckoning.com.au/bretton-woods-agreement/2006/11/29/

[2] Preparing for the Collapse of the Petrodollar System.” FTMDailycom RSS. N.p., n.d. Web. 08 Dec. 2014.

[3] “Nixon Ends Convertibility of U.S. Dollars to Gold and Announces Wage/Price Controls – A Detailed Essay on an Important Event in the History of the Federal Reserve.” Nixon Ends Convertibility of U.S. Dollars to Gold and Announces Wage/Price Controls – A Detailed Essay on an Important Event in the History of the Federal Reserve. N.p., n.d. Web. 08 Dec. 2014.

[4] “Preparing for the Collapse of the Petrodollar System.” FTMDailycom RSS. N.p., n.d. Web. 10 Dec. 2014

[5] What Does OPEC Stand For? Who Are OPEC Members?” About. http://useconomy.about.com.OPEC.htm N.p., n.d. Web. 08 Dec. 2014.

[6] “Secretary of State Madeleine Albright, the Iraq Sanctions and the Deaths of Children.” Peter N Kirstein. N.p., n.d. Web. 10 Dec. 2014.

[7] Jentleson, Bruce W. American Foreign Policy: The Dynamics of Choice in the 21st Century. New York: Norton, 2004. Print.

[8] “General Wesley Clark’s Warning about the Pentagon’s Plan for the Middle East.” – Democratic Underground. N.p., n.d. Web. 10 Dec. 2014.

[9] “Gadhafi’s Gold-money Plan Would Have Devastated Dollar.”Thenewamerican.com. N.p., n.d. Web. 09 Dec. 2014.

[10] “‘Crippling’ U.S. Sanctions Aim to Topple Iran Regime, Mehr Says.” Bloomberg.com. Bloomberg, n.d. Web. 10 Dec. 2014.

[11] Syrian-Iran Defense Pact.” Http://www.theguardian.com/world/2005/feb/17/usa.syria. N.p., n.d. Web.

[12] “Foreign Fighters in Syria Recruited by NATO Intelligence in CIA Operation.” Examiner.com. N.p., n.d. Web. 10 Dec. 2014.

[13]  Jentleson, Bruce W. American Foreign Policy: The Dynamics of Choice in the 21st Century. New York: Norton, 2004. Print.

[14] Perlez, Jane. “China and Russia Reach 30-Year Gas Deal.” The New York Times. The New York Times, 21 May 2014. Web. 10 Dec. 2014.

[15] “Russia’s Gold Rush: Putin Orders Gold Reserve Buying Spree To Beat Western Sanctions.” International Business Times RSS. N.p., n.d. Web. 10 Dec. 2014.

[16] “Fracked: California’s Shale Oil Payday Overstated By 96 Percent.” ABC7 Chicago. N.p., n.d. Web. 10 Dec. 2014.

[17] “Dick Bove: US Dollar Will Be ‘Overthrown’ as World’s Reserve Currency.” Moneynews. N.p., n.d. Web. 11 Dec. 2014.