Ron Paul Warns: "Watch The Petrodollar"
Submitted by Nick Giambruno via InternationalMan.com,
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:
- The U.S. dollar’s status as the premier reserve currency is tied to the petrodollar system.
- 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:
- Use its dominant position in OPEC to ensure that all oil transactions would happen in U.S. dollars.
- 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.
- 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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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.
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.
1000+ up votes for the nail on the head.
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.
The Criminal Fraud UNITED STATES, CORP. INC. can also trade oil for Gold. We have plenty of it in Fort Knox. Oh, wait! Sarcasm off.
The Criminal Fraud UNITED STATES, CORP. INC. can also trade oil for Gold. We have plenty of it in Fort Knox. Oh, wait! Sarcasm off.
here is the ultimate conspiracy theory. japan has had very close relations with iran because of the need for oil. japan was iran's biggest customer(iran has the cleanest oil) before the embargo. they made an agreement to exchange yen for oil. this was part of koizumi's manifesto to break from the usa. i have heard darpa supposedly caused the 2011 earthquake to punish japan for its close ties to iran and trading for oil in yen.
i don't believe it because i don't know if it is possible to cause the earthquake purposely but if it were possible it did what it was suppose to do which was to scare the japanese back into the clutches of the usa.
The lower the oil price goes the less petrodollar it needed to buy oil.
Wish I could give you 100 up votes there. You hit the current nail right on the head. Saudi's aren't getting all that money to buy those treasury bonds, nor hire all those American companies to work on their infrastructure or build their defensive weapons. The velocity of money is grinding to a painful halt, and when it stops, the financial world stops.
the yuan is now used in more transactions then the yen. while the yuan is used in less than 4% of global transactions currently, it is being adopted rapidly. the asian developemnet bank has already loaned 25 billion equivalenbt in loans to asian neighbors. it has reached critical mass in acceptance by everyone, even the phillipines. this is an exponential curve that is still horizontal but beginning to rise rapidly. at some point there will be a critical nexus with dollar use that will cause a rather rapid collapse in the dollar. that is the end game of the sco.
The problem is that the squid has thousands and thousands of tentacles and hundred of trillions of dollars that they can use to accomplish whatever they want to. There will always be people of whatever nationality who will sell their soul for money, or failing that, will sell their soul to save their life or their families lives. We are faced off against the most diabolical, evil force to have ever been assembled on the face of the earth. And winning is not going to be easy, not by a long shot.
I think Gheddafi wanted gold for oil .. and Saddam Euros for oil ....
And look how they ended up. Is it really to far fetched to see WWIII coming along the trail?
Many countries think ww3 has already started.
With the sanctions of the First Gulf War, Saddam had no choice but to make a deal with the UN and Clinton with the Food-For-Oil deal to make an impossible recovery. He hated the dollar and what it stood for politically and dropped the support of the dollar and supported the Euro in 2003. Not long after, he was invaded by Bush-led coalition.
Gaddafi had a large gold reserve and wanted to create an African-based currency with gold called the Dinar. With Hillary's recent email scandal being unveiled, it's obvious now that France was also behind Hillary's war crime.
US won't get far with their gold coated tungsten bars !
There are two other issues (that this article don’t seems to mention) that also can ruin the petro dollar system.
These issues both come from news that the establishment of rulers around the world (The NWO) has officially issued. These issues are:
The introduction of a common electronic worldwide currency where the use of all other currencies will be banned.
The banning (and/or dramatic price increase) of oil and gass related articles as part of the worlds agreement to save the environment on Earth.
Currency traders have lobbyists.
Great Article : Thumbs up to the Author
It deserves to be taught to courses of economics, politics & MBA
& should be engraved in stone
-----------------------------
Basically, the Arabs were fooled into the dollar regime
Towelheads , as always (period)
Now they have been fooled again to lower (or crash) price of oil
due to american fixation for Russia thru Ukraine
(& arabs greed for oily lands of Syria & Iran)
but less dollars means less welfare
that means a revolution in Saudi Arabia (period)
& when price of oil crashes too low , say $15 or $17
the OPEC may even consider selling oil in other currencies
for higher prices
I urge various countries (BRICS, Europe,Japan etc) to offer
higher prices in their own currencies say 1.25 times than dollar (hah ha ;-)
and if that happens (inevitable)
the dollar will tank
Damn you are devious. I did not even think of an international "oil auction"......hope the towel heads don't think of that one.
All direct taxes must be apportioned among the States. Never forget this and study to understand it.
All direct taxes must be apportioned among the States. Never forget this and study to understand it.
All direct taxes must be apportioned among the States. Never forget this and study to understand it.
Gold for payment of Oil .... what an interesting concept.
That's how you get murdered.
I have a PetroDollar demise chart. $GOLD:$WTIC
Oil getting hammered tonight over lifting of Iran sanctions LOL.
Ok the wrap-up: Take out Saudi Arabia and watch the petro-dollar dominoes fall. Great.
Fact: The petro-dollar was used to expand the US dollar across the world, not act as its foundation. The petro-dollar is important to maintaining the dollar's status, but losing it will not cause an automatic collapse.
Reducing, or losing the petro-dollar will not change the fact that the US dollar would still be the widest used currency (Reserve Currency) in the fucking world. Their is no alternative even close, so far.
However, do we even need a global reserve currency anymore?
Fact: We will see a world with crypto-currency, or multiple currencies (i.e., SDR Basket) that take the place of the dollar. All large transaction and exchange is done electronically today, not in paper as it was the last five centuries, or in PMs the last five millennia.
It is a fantasy to expect the US Dollar, and its economy to crumble and fall over a cliff because of the petro-dollar decline.
Gold for Oil.
Let's have the oil guy go straight to the gold guy. Fuck the markets and the parasitic bankers. We can put oil where gold used to be and gold where oil used to be so the fucking space aliens can have a laugh about how stupid we are.
But wait...
If the true strategy is to take out the US as a global super power, stop buying their Treasuries, murder the central bankers, murder the investment bankers, and launch a missile with an Electro-Magnetic Pulse from a barge floating in the Gulf of Mexico, and watch the fireworks with cocktails in the Caymans, with a quick get away to Southern Chile.
Otherwise, shut the fuck up.
My question is: Who is Ron Paul's audience in his statement?
Is it TPTB, who don't care and have a Plan A and Plan B?
Is it the BRICS and others, who are already de-dollarizing anyway?
Or is he ringing the alarm bell of what's coming, to increase awareness in his grassroots support?
he is still preaching to the grassroots who are awakening.........the rest be damned.
This is a great article guys and I must say the quality of the comments are also superb. I have studied this stuff all my life and have you any idea how isolated one feels when everyone around is totally oblivious to whats going on. Brightened my day no end.. cheers guys
www.teamramgold.com/about-us
Mr. Iris is selling bollix here.
if yout gold, go out a buy some, do NOT contact mr. Irish.
teamramgold is a scam if I've ever seen one.
Squid
oil doesnt have that much value anymore maybe the fed should peg the USD to unicorn farts and cop-a-feel-cards
" Yet there are straightforward steps you can start taking today..."
WHAT?!?! WHAT ARE THEY?!?! THAT'S THE END OF THE ARTICLE??? =P
If you don't know I can't tell ya......
Ron can't be very popular with the elitists with that statement. But if what he says about foreign sellers accepting only gold or another currency instead of dollars occurred, gold inventories in the US would drop like a Stuka dive bomber. The game would be over quickly, and I'm certain from all I've read that US gold inventories are nowhere near what is claimed.
From Article: "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."
Just like all the manufacturing we sent to China. The equation we used to run on was Manufacturing = Work = Gold = Power. China has our equation now. Uncle SHAM GAVE it to them through "Free" Trade. Now we are LOVIN IT! We are the "Middle" man in everything we do, the easiest to eliminate? Our government sold the American People OUT! THEY ARE FUCKING SCUM!
Federal Reserve act 1913, Federal Income tax act 1913-14. The Federal Income tax was and is suppose to do one thing and that is too pay for the cost of the phony money created by the Fed. to loan to the US goevrnment with an interest charge - aka National debt = $18.5 Trillion today. The fed. and Wall St. are no more than the Jewish crime syndicate that also controls the US government, our education system, pushing the gay/ transvestite agenda. For those who do not know Communism was created by the Jews back in the 1,700.
Federal Reserve act 1913, Federal Income tax act 1913-14. The Federal Income tax was and is suppose to do one thing and that is too pay for the cost of the phony money created by the Fed. to loan to the US goevrnment with an interest charge - aka National debt = $18.5 Trillion today. The fed. and Wall St. are no more than the Jewish crime syndicate that also controls the US government, our education system, pushing the gay/ transvestite agenda. For those who do not know Communism was created by the Jews back in the 1,700.
The Fed decided that they wanted to cause a DEPRESSION when they put the rates up when everyone knows we are already in a RECESSION.
There must be a reason for this, but I surely cannot believe that sane people would wilfully do this to their own businesses and workers.
In conditions like this I hope you all have converted your "PET PAPER" & "PET DIGITS" into "PET ROCKS" which should hold their value during this coming FED CREATED DEPRESSION. _JOHNLGALT