Ron Paul Warns: "Watch The Petrodollar"

Tyler Durden's picture

Submitted by Nick Giambruno via,

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

Ron Paul is calling for the end of the petrodollar system. This system is one of the main reasons the U.S. dollar is the world’s premier reserve currency.

Essentially, Paul is saying that understanding the petrodollar system and the forces affecting it is the best way to predict when the U.S. dollar will collapse.

Paul and I discussed this extensively at one of the Casey Research Summits. He told me he stands by his assessment.

Nick Giambruno and Ron Paul

This is critically important. When the dollar loses its coveted status as the world’s reserve currency, the window of opportunity for Americans to protect their wealth from the U.S. government will definitively shut.

At that point, the U.S. government will implement the same destructive measures other desperate governments have used throughout history: overt capital controls, wealth confiscation, people controls, price and wage controls, pension nationalizations, etc.

The dollar’s demise will wipe out the wealth of a lot of people. But it will also trigger political and social consequences likely to be far more damaging than the financial fallout.

The two key takeaways are:

  1. The U.S. dollar’s status as the premier reserve currency is tied to the petrodollar system.
  1. The sustainability of the petrodollar system relies on volatile geopolitics in the Middle East (where I lived and worked for several years).

From Bretton Woods to the Petrodollar

The Bretton Woods international monetary system, which the Allied powers created in 1944, turned the dollar into the world’s premier reserve currency.

After WWII, the U.S. had by far the largest gold reserves in the world (around 706 million ounces). These large reserves - in addition to winning the war - allowed the U.S. to reconstruct the global monetary system around the dollar.

The Bretton Woods system tied virtually every country’s currency to the U.S. dollar through a fixed exchange rate. It also tied the U.S. dollar to gold at a fixed exchange rate.

Countries around the world stored dollars for international trade or to exchange with the U.S. government at the official rate for gold ($35 an ounce at the time).

By the late 1960s, excessive spending on welfare and warfare, combined with the Federal Reserve monetizing the deficits, drastically increased the number of dollars in circulation relative to the gold backing them.

Naturally, this made other countries exchange more dollars for gold at an increasing rate. This drained the U.S. gold supply. It dropped from 706 million ounces at the end of WWII to around 286 million ounces in 1971 (a figure supposedly held constant to this day).

To stop the drain, President Nixon ended the dollar’s convertibility for gold in 1971. This ended the Bretton Woods system.

In other words, the U.S. government defaulted on its promise to back the dollar with gold. This eliminated the main motivation for other countries to hold large U.S. dollar reserves and use the U.S. dollar for international trade.

With the dollar no longer convertible into gold, demand for dollars by foreign nations was sure to fall, and with it, the dollar’s purchasing power.

OPEC, a group of oil-producing countries, passed numerous resolutions after the end of Bretton Woods, stating its need to maintain the real value of its earnings. It even discussed accepting gold for oil. Ultimately, OPEC significantly increased the nominal dollar price of oil.

For the dollar to maintain its status as the world’s reserve currency, the U.S. would have to concoct a new arrangement that gave foreign countries a compelling reason to hold and use dollars.

The Petrodollar System

From 1972 to 1974, the U.S. government made a series of agreements with Saudi Arabia. These agreements created the petrodollar system.

The U.S. government chose Saudi Arabia because of its vast petroleum reserves, its dominant position in OPEC, and the (correct) perception that the Saudi royal family was corruptible.

In essence, the petrodollar system was an agreement that the U.S. would guarantee the survival of the House of Saud. In exchange, Saudi Arabia would:

  1. Use its dominant position in OPEC to ensure that all oil transactions would happen in U.S. dollars.
  1. Invest a large amount of its dollars from oil revenue in U.S. Treasury securities and use the interest payments from those securities to pay U.S. companies to modernize the infrastructure of Saudi Arabia.
  1. Guarantee the price of oil within limits acceptable to the U.S. and prevent another oil embargo by other OPEC members.

Oil is the world’s most traded and most strategic commodity. Needing to use dollars for oil transactions is a very compelling reason for foreign countries to keep large U.S. dollar reserves.

For example, if Italy wants to buy oil from Kuwait, it has to purchase U.S. dollars on the foreign exchange market to pay for the oil first. This creates an artificial market for U.S. dollars that would not otherwise exist.

The demand is artificial because the U.S. dollar is just a middleman in a transaction that has nothing to do with a U.S. product or service. Ultimately, it translates into increased purchasing power and a deeper, more liquid market for the U.S. dollar and U.S. Treasuries.

Additionally, the U.S. has the unique privilege of not having to use foreign currency to buy imports, including oil. Instead, it gets to use its own currency, which it can print.

It’s hard to overstate how much the petrodollar system benefits the U.S. dollar. It’s allowed the U.S. government and many Americans to live beyond their means for decades.

What to Watch For

The geopolitical sands of the Middle East are rapidly shifting.

Saudi Arabia’s strategic regional position is weakening. Iran, which is notably not part of the petrodollar system, is on the rise. U.S. military interventions are failing. And the emerging BRICS countries are creating potential alternatives to U.S.-dominated economic/security arrangements. This all affects the sustainability of the petrodollar system.

I’m watching the deteriorating relationship between the U.S. and Saudi Arabia with a particularly close eye.

The Saudis are furious because they don’t think the U.S. is holding up its end of the petrodollar deal by more aggressively attacking their regional rivals.

This suggests that they might not uphold their part of the deal much longer, namely selling their oil exclusively in U.S. dollars.

The Saudis have even suggested a “major shift” is under way in their relationship with the U.S. To date, though, they haven’t matched their words with action, so it may just be a temper tantrum or a bluff.

The Saudis need an outside protector. So far, they haven’t found any suitable replacements for the U.S. In any case, they’re using truly unprecedented language.

This situation may reach a turning point when U.S. officials start expounding on the need to transform the monarchy in Saudi Arabia into a “democracy.” But don’t count on that happening as long as Saudi oil sells exclusively for U.S. dollars.

Regardless, the chances that the Kingdom might implode on its own are growing.

For the first time in decades, observers are calling into question the viability of the Saudi currency, the riyal. The Saudi central bank currently pegs the riyal at a rate of 3.75 riyals per U.S. dollar.

The Saudi government spends a ton of money on welfare to keep its citizens sedated. Lower oil prices plus the cost of their mischief in the region are cutting deep into government revenue. So there’s less money to spend on welfare.

There’s a serious crunch in the Saudi budget. They’ve only been able to stay afloat by draining their foreign exchange reserves. That threatens their currency peg.

Recently, Saudi officials have begun telling the media that the currency peg is fine and there’s nothing to worry about. That’s another clue that there’s trouble. Official government denial is almost always a sign of the opposite. It’s like the old saying: “Believe nothing until it has been officially denied.”

If there were a convenient way to short the Saudi riyal, I would do it in a heartbeat.

Timing the Collapse

Long before Nixon ended the Bretton Woods system in 1971, it was clear that a paradigm shift in the global monetary system was inevitable.

Today, another paradigm shift seems inevitable. As Ron Paul explained, there’s one sure way to know when that shift 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.

It’s very possible that, one day soon, Americans will wake up to a new reality, just as they did in 1971 when Nixon severed the dollar’s final link to gold.

The petrodollar system has allowed the U.S. government and many U.S. citizens to live way beyond their means for decades. It also gives the U.S. unchecked geopolitical leverage. The U.S. can exclude virtually any country from the U.S. dollar-based financial system…and, by extension, from the vast majority of international trade.

The U.S. takes this unique position for granted. But it will disappear once the dollar loses its premier status.

This will likely be the tipping point…

Afterward, the U.S. government will be desperate enough to implement capital controls, people controls, nationalization of retirement savings, and other forms of wealth confiscation.

I urge you to prepare for the economic and sociopolitical fallout while you still can. Expect bigger government, less freedom, shrinking prosperity…and possibly worse.

It’s probably not going to happen tomorrow. But it’s clear where the trend is headed.

Once the petrodollar system kicks the bucket and the dollar loses its status as the world’s premier reserve currency, you will have few, if any, options to protect yourself.

This is why it’s essential to act before that happens.

The sad truth is, most people have no idea how bad things could get, let alone how to prepare…

Yet there are straightforward steps you can start taking today to protect your savings and yourself from the financial and sociopolitical effects of the collapse of the petrodollar.

This recently released video will show you where to begin. Click here to watch it now.

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Fester's picture

35 year experiment?

Fester's picture

For you math majors.


besnook's picture

explain that to me in common core math. i don't recognize that equation.

August's picture

Q.  If you had a small town of 2,016 residents, and 45 of them were visible minorities, how many hateful white people live in the town?

A. 1,971.  You may now alert the Southern Poverty Law Center.

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) August Jan 15, 2016 5:14 AM

Q. If you had a fractional reserve money counterfeitting operation, and jews represented 2% of the population, how many jews (in a row), would chair that central bank position?

A. Well, you'd get to 45, then you'd just keep going because it was such a success!

MontgomeryScott's picture

Repeat after me: "These are not the 'droids you're looking for".

'These are not the 'droids we're looking for.'


Now that we've got THIS question settled, wouldn't you rather be on Tatooine, shooting wombats?

You CAN!

 Thanks to Khazari Kruises, YOU TOO can take a vacation from the 'daily' battle (be sure to ask about our NEW 'NIRP' policy when booking your Kruize).

 Don't let that Godman-Sachs thing bother you (I renounced my Canadian citizenship almost 14 months ago). IF you decide to donate to MY Kampaign, I sincerely promise you that i will NOT 'flip-flop' on the REAL ISSUES (too much).


     Ted (born in Kanada) Kruz (Janet's sister/brother thingie)

(Was the cutesy 'K' usage a little too much for all you Meshuginah tuckesses? Does the Wall Street marketing of your LANGUAGE and SPELLING bother you THAT MUCH? WAIT! WE have an answer! WELCOME to 'KOMMON KORE'!)

We're "JEWS IN SPACE!" Mel brooks was really an honest guy, you know (not one of them 'Kike Sheenies' that 'Archie Bunker' talked about on the Communist Broadcasting Stations).


MANvsMACHINE's picture

The experiment ended 10 years ago. At that point, everyone knew the conclusion.



Kirk2NCC1701's picture

Ah, but the question is: Which key takeaway is more important? #1, or the other #1?

Pumpkin's picture

That was a cheap parlor trick, no way you could do it again.

doctor10's picture

The whole Mid-East mess is owned by Hillary.

20 years-from Albright to Clinton-of sending women-even a black women-to do men's jobs in the Middle east

ya'd think if its so damn imprtant for Muslim men to sell their oil in USD-we'd at least the foresight and judgment to do them the courtesy of sending a Trump-type or our own Putin-type out to negotiate on our behalf.

Instead we send women. And wonder why the rest of the world sees Americans as "arrogant" and "clueless" -and then pretend we really just can't figure out what happened over there-"nobody could see it coming" etc

And all the while Putin is laughing in his sleeve-and Bibi is raging-and all the Muslim Leaders of consequence are dead-humiliated in the eyes of their own countrymen by being forced to kowtow to American women. They are deposed and killed by their countrymen.

Any REAL politician and female American leader -knowing how critical the region is to American interests-should be able to see and appreciate the damage to American interests of forcing Muslim men to openly negotiate American interests with women. And should have declined the position in the best interests of the country.

There are very good reasons Muslim tradition and customs are considered Medieval. Simply desiring them not so does not make it not so-regardless of what Foggy Bottom would like to believe. The PC ideology infesting the American oligarchy has cost America the PetroDollar.

order66's picture

Why does ZH allow this type of advertising? Reeks of douche.

tarabel's picture



It's called monetizing your investment.

Sure you can put your infomercial here on my website.

Provided, of course, that you give me...

weburke's picture

ron paul is a total tool of the elites. .   

lose reserve currency status, oh yeah, an idiot move. 

The Saint's picture
The Saint (not verified) weburke Jan 15, 2016 12:04 AM

Ron Paul is right that the loss of petro-dollar status would mark the beginning of the end of the Dollar's dominance but the problem I have with him is that he seems to relish the thought of America in such pain if that happens.  Why does he want America to fail so badly?  Just so he can be right?

Note his statement at the beginning of the article, "The sooner the better."

Go screw yourself Paul.  You sound like Obama.

MANvsMACHINE's picture

Should he begin every sentence with, "I certainly don't hope for this but..."

Superdave532's picture

When he says the sooner the better, it's in the sense that it's ultimately inevitable, and the longer it takes to happen, the worse it will be. 

I understand why you get that impression of him, that he wants it to happen so he can be right. If you listen to more of his thought process though, it's not that he desperately wants to be right, it's that he's convinced that he is, that fiat money is a failure by way of corruption and mismanagement, and that once we're past this system, we can go back to sound money and stay that way, living within our means. 

Whether he's right or not, time will tell. 

Mr. Cynic's picture

Would you rather that it happen later when you are old and feeble and you have lost your ability to fend for yourself, defend yourself and provide for your offspring? *

I think it's better if it happens now while we still have a modicum of our 1st and 2nd amendment rights.


*disclaimer: I have no f***ing clue how old you are.

thinkmoretalkless's picture

You can "want" to not have cancer, but you should still have that growing mole on your back checked out....or not...we all got to go sometime. Pass the Black Label

boattrash's picture

The Petrodollar is burning like an Oil-Soaked Tampon. That's why...

JohnGaltsChild's picture

But what country is more solid than Saudi Arabia?

Crap.....we're in trouble.

Fed_is_Love's picture

Doing regime change in Iran would help the dollar hegemony but that's really risky.

Jack Oliver's picture

Good article and Russia really has set the 'Cat amongst the Pigeons' as far as Saudi/US relationships go - Saudi's have sponsored terrorism and crushed the oil price at the behest of the Zionist/US all to get a piece of Syria and Iraq - That won't be happening now and the Saudis are PISSED !

coast's picture

I have read and enjoyed a couple of Ron Pauls' books...They are so perfectly concise, easy for te layman to understand...And Ron Paul was the only presidential candidate I ever supported in my 58 years...He is intelligent, a family man, honest, and I just simply like him very much...ok then...thats all.. Ron Paul/Paul Craig Roberts 2016.....i wish :-)   by the way, I heard the left say that Ron Paul was too old.  Ron Paul runs miles a day, whereas HIllary and Sanders look as tho they are on their death bed...But now the left says nothing about age or health...I kid you not, both hillary and sanders look like corpses....just sayin...

Seek_Truth's picture

+1,000, Coast!


If Ron got elected, he would've been JFK'd.

Otrader's picture

Anyone who dares get close or attempt to expose the truth gets JFK'd.   Remember, Michael Hastings and his new TYCO remote controlled Mbenz?

Gadfly's picture

The Illuminati don't want the Ron Pauls of the world. They want corruptible puppets like Bush and Obama and Hilary and on and on.  They don't want anyone they don't own and control.  Period.

OldPhart's picture

Which is why this particular election may totally expose the oligarchs.  Trump wins the popular with a Reaganesc Mandate loses in the brokered convention.  That will wake up a LOT of people.

atthelake's picture

It's unlikely they'll let Trump live.

iClaudius's picture

He'll be strangled by his wig.

CoolHandLuke's picture

Testafy! Yes, I've read several of his books and am a long time follower. The man is a SAINT. Although he never intended to win the presidency, just shed light on the farce of it all. He did that quite well. If you're not corropt and  don't have anything the CIA CAN embarress you with, you're not getting into that office. It will take an uprising before that happens, IMO.

coast's picture

agree and at the same time, I wont try to beat you at an egg eating contest coolhand lol...hah :-)  I loved that movie...maybe I should change my screenname to steve mcqueen...if only he could have made his motorcycle over that last fence....grrrr..  thanks coolhandluke...

Farqued Up's picture

Sanders is already dead, all now required is to lay down.

tenpanhandle's picture

If that is the case, his mortician should do something about his hair and makeup.

bamawatson's picture

mr coast sir, here is my problem with paul. all talk, yes great books, wonderful "thoughts", excellent ideas, ZERO results.

a lifetime, a lifetime living off the people, never hitting a lick at a snake, never accomplishing ANYthing. talk talk talk , lots of talk.

all he has done is convince millions of good people, like you, that he should be your guy. the elite love him, he lets the air out of the 'opposition'.

he gives you the illusion something will be accomplished, keeping you from venting through other avenues. the elites know he will babble and pontificate; then when it really matters, he will toe their line.

the garbage in this aricle is already old news. an after the fact warning. once again, he will change nothing, prevent nothing. he will have zero impact

Mr. Cynic's picture

Damn straight Coast.

Which is partly why I support Rand.  I figure the apple doesn't fall far from the tree and I like a lot of what he says and does.

He just needs to be more bold.

caesium's picture

The US to modernize SA's infrastucture? Is this a joke?

CoolHandLuke's picture

No, it's not, regarding its weapoons, the US weapons suppliers have been selling SA weapons for years and are not abating. Hell, that's a VERY good portion of our economy. *rolleyes*

bunnyswanson's picture

Corraling the herd via restructuring the infrastructure.

Best speech nobody heard. (couple of minutes)

Beowulf55's picture

do you have her name and address?  I want to start courting her to be my future wife.

Arrowshot's picture

"We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros."


Think Iraq and Lybya already tried that and didn't fare well. That said the reported trade between Turkey and Iran was for gold and here we are snuggling up to the Iranians (or at least this administration is).

Niall Of The Nine Hostages's picture

Even in gold terms oil producers are being ripped off. Gold/oil ratio right now is 35 to 1. It should be 16 to 1, tops.

The US economy is still one of the largest on the planet. I don't see the USD losing reserve currency status in my lifetime, short of a Soviet-style breakup of the United States.

Forced to choose between reneging on their own promises to the proles and a hyperinflation, Wall Street and DC will simply stiff us. A hyperinflation would wipe out the debts of the proles too---and it's easier for the proles to hedge against it in 2016.

Hyperinflations only happen these days in countries that are either at war (and losing), or governed by savages who think they can just print all the money they need to buy off their enforcers and pay for their mistresses' spending sprees.

Vlad the Inhaler's picture

The U.S. takes this unique position for granted. 


Not at all, look at the Pentagon and NSA budgets.

Baron von Bud's picture

The petrodollar doesn't own the oil market anymore. With oil prices so low the producing nations will take any currency they can buy or sell on an exchange. The Saudis are pumping to hurt Russia, the world's biggest energy seller, at America's demand. But here's the blowback. Those oil producing nations will quickly develop the habit of selling for any currency and that undermines the petrodollar. American shale producers are collateral damage in a high stakes game. Much like the 3,000 Americans on 9/11 and, no, I don't believe the offical story for a second.

HenryHall's picture

Correct, it really doesn't matter what currency the oil is priced in or paid for.

What matters is the question of what the oil exporter does with the funds when they are received.

If the funds are "invested" in T-Bills then the petrodollar is sustained.

If the funds are immediately spent on buying as much physical gold as can be had then the dollar price of gold goes sky high.

If the funds are mostly used to buy exported tangibles from USA then there is a false boom and dollar inflation as the dollars received (as payment for exports) become less and less valuable to buy imports (imports to America).

It all depends on what the oil exporter does with the funds when they are received.

groundedkiwi's picture

1000+ up votes for the nail on the head.

falak pema's picture

Yep, the initiative lies with the Creditor, BUT the FDR handshake is not negotiable.

If Saud moves to other currencies the US will launch "operation Desert storm" this time not on Saddam but on Saud.

That still is the bottom line.

Until the "massive military supremacy" mantra is dumped by the US the FDR handshake is literally poured in concrete; or petrodollar hegemony.

Only the Sauds can change that so it will never be allowed.

China will not budge on that issue on its own basis, but will play a long term game as a net USD holder, using its entry to IMF basket and its own rival bank to IMF/WB monopoly to move away from USD over a longer period, UNLESS the geo-political stand-off goes military in SE Asia and LEAVES IT NO CHOICE...

The urgency is in Saud and US to avoid the decay of current debt based fiat conundrum. Not in the rival China camp.