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Ron Paul Says: Watch The Petrodollar
Submitted by Nick Giambruno via CaseyResearch,
The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.—Ron Paul
Dr. Paul is referring to the petrodollar system, one of the main pillars that’s been holding up the US dollar’s status as the world’s premier reserve currency since the breakdown of Bretton Woods.
Want to know when the fiat US dollar will collapse? Watch the petrodollar system and the factors affecting it. This is critically important, because once the dollar loses its coveted reserve status, the consequences will be dire for Americans.
At that moment, I believe Washington will become sufficiently desperate to enforce the radical measures that governments throughout world history have always implemented when their currencies were threatened—overt capital controls, wealth confiscation, people controls, price and wage controls, pension nationalizations, etc.
And there’s more. The destruction of the dollar will wipe out most people’s wealth, leading to political and social consequences that will likely be worse than the financial consequences.
From Bretton Woods to the Petrodollar
The dollar’s role as the world’s reserve currency was first established in 1944, with the Bretton Woods international monetary system. The US—victorious in WWII, and possessing the overwhelmingly largest gold reserves in the world (around 717 million ounces)—could reconstruct the global monetary system with the dollar at its center.
The Bretton Woods arrangement linked another country’s currency to the US dollar at a fixed exchange rate, and the US dollar was tied to gold, also at a fixed exchange rate. Countries accumulated dollars in their reserves to engage in international trade or to exchange them with the US government for gold at $35 an ounce.
By the late 1960s, exuberant spending from welfare and warfare—combined with the Federal Reserve monetizing the deficits—drastically increased the number of dollars in circulation in relation to the gold backing it.
This monetary inflation caused nervous countries to accelerate their exchange of dollars for gold at $35. The result was a serious drain on the US gold supply (from 20,000 tonnes to around 290 million ounces by 1971, an amount it supposedly still holds).
With gold reserves shrinking rapidly, President Nixon officially ended convertibility of the dollar to gold, thus ending the Bretton Woods system on August 15, 1971. It was a default, and it took with it the main reason countries primarily held their reserves in dollars. The buck’s preeminent value in international trade was gone. Demand for dollars by foreign nations was sure to fall, along with its purchasing power.
That hurt OPEC, whose members were the world’s leading suppliers of a commodity even more valuable than gold: oil. OPEC countries needed a way to retain the real value of their earnings in the face of a declining currency, without having to jack the price of oil sky high.
If the dollar was to remain strong, it had to reinvent its status as the world’s reserve currency, and that required a new world financial arrangement, one which would give foreign nations an ironclad reason to hold and use dollars. Nixon dispatched his National Security Advisor Henry Kissinger to Saudi Arabia.
The Petrodollar System
Between 1972 and 1974, the US and Saudi governments created the petrodollar system.
Saudi Arabia was chosen because of its vast petroleum reserves, its dominant influence in OPEC, and the (correct) perception that the Saudi royal family was corruptible.
Under the new petrodollar system, the US guaranteed the survival of the House of Saud by providing a total commitment to its political and military security. In return, Saudi Arabia agreed to:
- Use its dominant influence in OPEC to ensure that all global oil transactions would be conducted only in US dollars.
- Invest a large amount of its oil revenue in US Treasury securities and use the interest income from those securities to pay US companies to modernize the infrastructure of Saudi Arabia.
- Guarantee the price of oil within limits acceptable to the US and act to prevent another oil embargo by other OPEC members.
No dollars, no access to the world’s most important commodity. It’s a very compelling reason to hold your reserves in dollars.
For example, if Italy wants to buy oil from Kuwait, it has to first purchase US dollars on the foreign exchange market to pay for the oil, thus creating an artificial demand for US dollars that wouldn’t exist if Italy could pay in euros.
The US is just a toll collector in a transaction that has nothing to do with a product or service. But that translates into increased purchasing power and a deeper, more liquid market for the dollar and Treasuries.
Additionally, the US has the unique privilege of using its own currency—which it can print at will—to purchase its imports, including oil.
The benefits of the petrodollar system to the US are impossible to overstate.
What to Watch For
Today, the geopolitical sands of the Middle East are rapidly shifting.
The faltering strategic regional position of Saudi Arabia, the rise of Iran (which is not part of the petrodollar system), failed US interventions, Russia’s increasing power as an energy giant, and the emergence of the BRICS nations (which offer the potential of future alternative economic/security arrangements) all affect the sustainability of the petrodollar system.
My colleague Marin Katusa’s mentioned in his book; The Colder War, you need to be aware of what Vladimir Putin is doing. Putin would like nothing more than to sabotage the petrodollar, and he’s forging alliances across the planet that he hopes will help him achieve his goal.
At the same time, you should watch the relationship between the US and Saudi Arabia, which has been deteriorating.
The Saudis are furious at what they perceive to be the US not holding up its end of the petrodollar deal. They believe that as part of the US commitment to keep the region safe for the monarchy, the US should have attacked its regional rivals Syria and Iran by now. And they may feel they are no longer obliged to uphold their part of the deal, namely selling their oil only in US dollars.
They’re already heavily involved with China and could also tilt toward Russia. Oil traded in rubles or yuan could be the future result—a death knell for the petrodollar.
Conclusion
It was evident long before Nixon closed the gold window and ended the Bretton Woods system in 1971 that a paradigm shift in the global monetary system was inevitable.
Now another shift also seems inevitable. Ron Paul’s words alert us as to when a dollar collapse is imminent.
“We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros.”
Someday, perhaps soon, Americans will wake up to a new reality, like they did on August 15, 1971.
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What RON seems to forget is that we are the BADDEST MUTHERFUCKER IN THE NEIGHBORHOOD AND IF NEEDED WE WILL DESTROY ANYONE WHO TRIES TO FUCK WITH US .... at the appropriate time... keep yur dickskinners off my petrodolla ..... last warning....
I'm not sure what the Saudi's have to bargain with.
There is ample evidence the GaWar oil field is running out of oil. The saudis have been in secondary
recovery for a long time, raising their costs of production.
Also Fossil fuels are a dying business. Renewable energy is coming fast against Fossil fuels.
The Saudi's are in end game, i'm not sure what they expect.
Will they have more $69.00 one way trips with those solar powered 737's?
Every passenger has to pedal.
OT a little:
Today my wife bought one quart real Maple syrup: $18.48
That was Grade B, Grade A was $24.
A few days ago, I pulled some old spray paint out of my garage to do a small paint project. It was Krylon paint bought 10-12 years ago. The price tag still on the can said 89¢. I kid you not.
Neither Russia or China are stupid enough to spend trillions on defending Sauds likw we did in Iraq.
Russia and China don't rent-for-free. Now if you offered them equity in your prized oil fields, their militaries would roll in a New York minute.
Who gives a rip what that insane old coot says?
The guy does not mention or explain once the basket of currencies of the BRICS!
Barter!
Exchange of goods and services without using another subterfuge.
An exchange between sovereign countries and decent, who value the welfare of its population.
I'm feeling great - and some information - that monetary equation of BRICS is very close, already talked about it here.
Involves hours / man worked, availability of commodities in the market, investment in infrastructure etc. .
hehe.
The day they take down ZH will be an indication the big game is about to start. It is then you should pack your bags and be ready to run.
All the crazies that lurk/comment here will have nothing to do and will actually leave their "compunds" aka The Basement?
I got a basement?
*while stomping around on the bunker floor*
The Sauds would be wise to examine what happens when you try to move away from the petrodollar. Ask Sadaam or Muammar how that works out for ya'.
They are currently wanting less fiat for their oil. They are in on the fraud.
I believe the price of oil is down because Japan can't afford higher prices. Once they get more nuclear reactors on line prices will go up. IMO.
There is some potential for shale plus continued increases in fuel efficiency to make the sandbox much less strategic to the US in the future. Regardless of what global power polices the world and strikes down the most brazen thefts, muslims gonna muslim, so there will always be war or a prelude to war in that region. You cant settle the world's oil trade in gold, there isn't enough gold, unless you want to elevate the value of oil to that of tulips, circa 1634.
There is always enough gold. Gold can be broken down into tinier and tinier pieces.
The is always enough gold, all that happens is that it becomes more value dense.
The name Cheney even makes the Devil's skin crawl.
The flood of USD coming home in panic wont allow for a nice even rationalisation of the montery system aka USD. The avalanche would make USD a thing to be rid of instantaneously less it lose value over the following few hours.
Make mine Bitcoin.
Last Price: $347
Petrodollar is backed up by Pentagon and will rule for quite sometime.
Nobody cares about the White House
Pentagon is Permanent
President is Transitory
They really showed what they could do in Iraq. Such peace and tranqulity.
Juat stop the MSM reporting and it is peace an tranquility, like ths ban on reporting suspected Ebola cases.
There is no such thing as peace and tranquillity on planet earth
Especially in the wake of the US military-industrial complex.
Especially anywhere that's been bombed into democracy.
ekm1 is annoying
no objection
Pure nonsense that overlooks the American military response to any refusal to exchange oil for FRNs at a value deemed fair by the political elite. Like the fantasy that if you own gold you will suddenly be wealthy. The gold will be confiscated and outlawed, and resistance to the USD will be crushed.
Just sayin. Telling Americans they have to pay the Saudis (or anyone else) too much for oil will trigger WWIII! Big time.
Once upon a time, I was a Ron Paul acolyte. These days, I don't give the least fuck about him, or what he might say. He is just a gatekeeper, and his son Rand is a typical piece of shit produced for your consumption. Trust me on this, if there are leaders out there who will actually represent you, their names will never be heard.
I wanted to believe in Ron Paul, too. Unfortunately, he is a piece of shit, too.
We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.—Ron Paul
Love Ron Paul, but stopped reading at this point, they will never allow wholesale payment in Gold, it would be currency death.
Who is this 'they' to which you refer?
If China or Russia want to trade using gold
Who will stop them?
November/ 1950 [Truman Administration/ Korea War June/1950- July/1953!?!] was a good year for Saudi Arabia? It brought about what was known then as the 'Golden Gimmick', which... by the way, prevented 'Saudi Aramco' from Nationalization! {a pre-requisite of Nassers Nationalization of the Suez Canal july/1956?, but Nasser didn't have Oil?}
Ref: "From Arab Nationalization to Organization of Petroleum Exporting Countries"--- "Fifty-Fifty: The New Deal in Oil"
A 'Foreign Tax Credit'[?], quite similar to the Ottoman Empire 'Capitulations', during the late 19thc. til the end of WWI and beyond [1920?] including the notorious British/ French secret 'Sykes-Picot Agreement'?!? with Mr.5% [ http://en.wikipedia.org/wiki/Calouste_Gulbenkian ]?... why I mention the above is quite similar to Venezuela's situation today in a round-about-way???
The John D. Rockefeller 'FamilyUSSA' was/is the bossman from Teddy[*?]Rosevelt, Taft, Harding, Wilson, Coolidge, Hoover, FDR, Truman, Eisenhower and all future presidents... period!
The 'Golden Gimmick' wasn't about Gold, but the Petro$$$Dollar and Treasuries under a well defined and crafted evolving script of deception.
Did the Saudi's cash-out? again, reference links below:
http://en.wikipedia.org/wiki/ExxonMobil
http://en.wikipedia.org/wiki/Saudi_Aramco
http://en.wikipedia.org/wiki/Golden_gimmick
http://www.digplanet.com/wiki/Foreign_tax_credit
http://www.digplanet.com/wiki/Saudi_Aramco
http://www.digplanet.com/wiki/Golden_gimmick
http://www.e-education.psu.edu/egee120/node/256
jmo
ps. some duplications, but pay attention to small details, and footnotes--- why did saudi aramco eventually gain control of aramco in 1980?, revelant!?! why is this date significant,...
Yeah, well there is a monster innovation and technology headwind supporting a bright future. Crop yields up in near linear fashion 250% in North America over last 50 years. Actual reforestation occuring in America. Energy from solar crossing rubicon NOW and you WILL get your electricity more cheaply from panels on your roof over next 20 years. Battery and nano technologies about to breakout in expoential Moores law style kinda way... etc. yada yada. Even fossil fuel energy production - soon to drop as a percentage of our overall energy need mix - is experiencing renaissance and growth. All true. Yeah they gonna draw line thru your pension and savings, but they can't stop the bright future our kids gonna have. Go for walk and relish in it. Enjoy the day.
Yep, the dollar is collapsing, gold is soaring, hyperinflation is coming. The end is nigh. I come to Zerohedge for my daily dose of reality,
Ron is starting to remind me a lot of Jimmy Carter
.
The Petro-dollar has served its purpose for the US elite. The Petro-dollar will be abandoned soon for some other gimmick that will continue to serve the US elite. It may be the WalmartO. Since soon all purchases may very well be made at a local WalMart anyway, it would make good sense for Walmart to issue a currency called WalMartO. Who needs a dollar, petro-dollar, euro or anything else. Just use a WalmartO. It can even be pegged to some sort of commodity found in the inventory of the behemoth WalMart.
Forget bitcoin, I would happily take my paycheck in the almighty WalmartO.
Oooooo! Ron Paul said something!
No. Wait. That's all he's ever done. Ron Blah Blah Blah Paul.
ANd what's he supposed to do, drive a tank onto Capitol Hill?
US$ is still the cleanest dirty shirt around. No alternatives emerging in today's G Zero World. Global markets are getting weaned into US$ a medium of exchange and not as a store of value.
US & EC are too indebted to have the flexibility to intervene in the global markets. Fed can only accommodate with their insiders (the 1%). The 99% is just collateral damage.
All the pieces are already in place. Looking to Ron Paul for guidance is well, way behind the curve.
Yuan swap lines, Russia strategic shift to China, Eurasia trade zone developments, silk road infrastructure built out, African build out, BRICS alternatives to the IMF world bank Asian development bank, Massive gold accumulation etc all point to the setup that will replace the dollar reserve infrastructure.
War is indeed on the cards as the US has and always will be a war mongering empire. Thing is you can't go to war when your bankrupt, thus a total knockout of the dollar system is in order to prevent psycho blowback.
You cannot replace a failed fiat system with another, thus the kill job will be gold. The only thing to determine it's whether it will be a peaceful migration or a bloody one. Right now things are pointing to the latter, but then things are never what they seem. Only time will tell.