Things That Make You Go Hmm... Like The Death Of The Petrodollar, And What Comes After

Tyler Durden's picture

Excerpted from "Get It. Got It. Good" by Grant Williams, author of "Things That Make You Go Hmm..."

The story begins in the 1970s when Henry Kissinger and Richard Nixon struck a deal with the House of Saud — a deal which gave birth to the petrodollar system.

The terms were simple The Saudis agreed to ONLY accept U.S. Dollars in return for their oil and that they would reinvest their surplus dollars into U.S. treasuries.

In return, the U.S. would provide arms and a security guarantee to the Saudis who, it has to be said, were living in a pretty rough neighbourhood. As you can see, things went swimmingly (chart below)

Saudi purchases of treasuries grew along with the oil price and everyone was happy.  (We’ll come back to that blue box on the right shortly)

The inverse correlation between the dollar and crude is just about as perfect as one could expect (until recently that is... but again, we’ll be back to that).

And, as you can see here, beginning when Nixon slammed the gold window shut on French fingers and picking up speed once the petrodollar system was ensconced, foreign buyers of U.S. debt grew  exponentially.

Having the world’s most vital commodity exclusively priced in U.S. dollars meant everybody needed to hold large dollar reserves to pay for it and that meant a yuuuge bid for treasuries. It’s good to be the king.

By 2015, as the chart on the next page shows quite clearly, there were treasuries to the value of around 6 years of total global oil supply in the hands of foreigners (if we assume a constant 97 million bpd supply which I think is a pretty reasonable estimate).

Now... with that brief background on the petrodollar system, here’s where I need you to stick with me. I promise you it’ll be worth the mental effort

Ready? Here we go.

Now, back in 2010, then-World Bank President Robert Zoellick caused something of a commotion when he suggested that an entirely new global monetary system maybe wasn’t such a bad idea.

The system he had in mind involved a freely-convertible Yuan and, controversially was constructed around gold as its central reference point:

(Robert Zoellick, November 8, 2010): …the G20 should complement this growth recovery programme with a plan to build a co-operative monetary system that reflects emerging economic conditions. This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account.

 

The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old  money, markets are using gold as an alternative monetary asset today.

In seemingly unrelated news, two years later, Iran began accepting Yuan in payment for its oil amid US sanctions. The transactions were conducted through Russian banks:

(Financial Times, May 2012): Iran is accepting renminbi for some of the crude oil it supplies to China…

 

…Tehran is spending the currency, which is not freely convertible, on goods and services imported from China…

 

The trade is worth as much as $20bn-$30bn annually according to industry estimates…

 

The renminbi purchases began some months ago…much of the money is transferred to Tehran through Russian banks, which take large commissions on the transactions…

 

Beijing has been trying to get its trading partners to use the renminbi, in effect transferring the exchange rate risk to its counterparties, since the price of crude is set in US dollars. It also frees Beijing of the need to hold as many dollars in its reserves.

The crucial part of this deal was that, by diversifying their purchases in this way, the Chinese had found a path towards not only needing to hold fewer U.S. dollar reserves, but to circumventing the petrodollar system altogether.

By 2013, the penny had clearly dropped at the PBoC who declared an end to the era of their accumulation of U.S. treasuries:

(Bloomberg, November 2013): The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.

 

“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range

Yes, it was, apparently “no longer in China’s interest” to accumulate foreign exchange reserves.

Sure enough, in 2014, global FX reserves began to decline at the fastest rate in 80 years as you can see from this chart:

That same year, another piece of the puzzle was laid in place when Xu Luode, the Chairman of the newly-founded Shanghai Gold Exchange, explained that gold would be priced and sold in Yuan as a step towards what he called the “internationalization of the renminbi” (for those of you confused by Yuan and Renminbi, just think of them as the Chinese equivalent of ‘Pound’ and ‘Sterling’):

(Xu Luode, Speech to LBMA, May 2014): Foreign investors can directly use offshore yuan to trade gold on the SGE international board, which is promoting the internationalization of the renminbi…

 

Shanghai Gold will change the current gold market “consumption in the East priced in the West” situation.

 

When China will have a right to speak in the international gold market, pricing will get revealed…

 

Interestingly, Luode acknowledged what he accurately described as the “consumption in the East, priced in the West” situation and assured the world that the ‘real’ price of gold would become apparent once China took its rightful place at the centre of the gold market.

We can but hope he is correct. When that day comes, the change on the world's gold markets will be unprecedented.

In 2015, another announcement slipped by the world when it was revealed that Russia’s Gazprom would also begin selling oil to the Chinese in exchange for yuan and that they were negotiating further agreements to use rubles and yuan to settle natural gas trading directly, without the need for dollars:

(Moscow Times, June 2015): “Two state energy companies, gas producer Gazprom and its oil arm Gazprom Neft, said they would use more Chinese currency in trade, while Russia’s largest bank, Sberbank, has also promoted the use of the yuan…

 

Gazprom Neft announced that it began settling shipments of oil to China in yuan. And previously, the head of Gazprom, Alexey Miller, said in a TV interview that the company was negotiating with China to use yuan and rubles for gas deliveries via a planned pipeline in Western Siberia.

OK... hands up if you’re still with me... great!

Oh... you’re reading this so I can’t see you but hopefully you’re following the dots...

For those of you who aren’t, here’s a little recap of where we are so far to help you get things into the right order before we push on to the end:

Get it? Got it? Good.

So... here we are, in 2016 and, as it turned out, April was a hell of a month if you were paying attention.

Firstly, the Saudis threatened to sell almost a trillion dollars of U.S. assets—including over $300 billion of treasury bonds—should a bill be passed by the congress allowing the Saudis to be held responsible for the 9/11 attacks:

NY Times, April 16, 2016): Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the 9/11 attacks.

 

Adel al-Jubeir, the Saudi foreign minister, delivered the kingdom’s message personally last month during a trip to Washington, telling lawmakers that Saudi would be forced to sell up to $750B in treasury  securities & other assets in the US before they could be in danger of being frozen by American courts.

In a rare show of bipartisanship, the bill was subsequently passed before being vetoed by President Obama who then had to watch in ignominy as he suffered the first veto override of his presidency.

Just days later, the Saudis were the cause of a seemingly surprise failure by OPEC to agree a production cut as the oil price languished in the low-$30s:

(Wall Street Journal, April 17, 2016): DOHA, Qatar—Oil producers that supply almost half the world’s crude failed Sunday to negotiate a production freeze intended to strengthen prices.

 

The talks collapsed after Saudi Arabia surprised the group by reasserting a demand that Iran also agree to cap its oil production.

 

Oil prices had rallied in recent weeks on speculation that Saudi Arabia might successfully lead an initiative between members of the Organization of the Petroleum Exporting Countries and Russia, which joined the talks. 

 

A deal would have marked a new level of cooperation between non-OPEC countries and OPEC members that producers hoped would keep prices above January lows of $26 a barrel.

Just 48 hours after that surprise, the Chinese finally launched their twice daily gold fixing, setting the price at 256.92 yuan per gram:

(Bloomberg, April 19, 2016): China, the world’s biggest producer and consumer of gold, started a twice-daily price fixing on Tuesday in an attempt to establish a regional benchmark and bolster its influence in the global market.

 

The Shanghai Gold Exchange set the price at 256.92 yuan a gram ($1,233.85 an ounce) at the 10:30 a.m. session after members of the exchange submitted buy and sell orders for metal of 99.99 percent purity.

 

“This is a very important development and will obviously be very

 

closely watched,” said Robin Bhar, an analyst at Societe Generale SA in London. “But as long as it exists inside a closed monetary system it will have limited global repercussions. It could be a very important development if the new benchmark is a precursor to greater use of gold in the Chinese monetary system, Kenneth Hoffman…said by e-mail on Monday. It may also boost interest in the Shanghai free-trade zone, he said.

As Soc Gen’s Robin Bhar correctly identified, if the ability to trade gold for yuan exists within a closed monetary system, its importance will be limited BUT, as Bloomberg’s Ken Hoffman also correctly pointed out, if this was the thin end of the wedge, things could get very interesting indeed. Now, this chart shows the oil price going back to before the U.S. Civil War:

Between 1865 and 1973, the price of oil was incredibly stable against a backdrop of perhaps the greatest simultaneous economic, demographic and technological expansion in human history.

How was that possible?

Well simply put, because oil was effectively priced in gold.

However...

Once the gold window closed and the petrodollar system was implemented, the price of oil soared 50-fold in just 35 years.

The move on the right? With the question mark against it? We’re getting there, I promise.

Now, you remember this next chart and the yuuuuuge supply of treasuries which exists compared to oil now? Well, when we add in the roughly $100 trillion in boomer entitlements that will need to be paid for by issuing—you guessed it, more treasuries—the chart changes somewhat:

That red circle down at the bottom of the second chart is the spike you see on the first chart.

Ruh-roh!

It’s safe to say that, relative to even oil, and without any infrastructure spending by Donald Trump, treasuries are going to be.... abundant in the coming years.

Conversely, if we look at the value of gold relative to foreign-held treasuries, we see an altogether different story unfold.

During Reagan’s presidency, US treasuries were backed 132% by the market value of the country’s gold reserves.

Today, that number has fallen to just 4.7%

If we do the same thing and account for the $100 trillion in entitlement promises, as you can see from the chart on the next page, the number falls to 0.3% in 2025.

So the second chart (below, right) should come as no surprise to anybody.

Yes, the Chinese have started to do what they promised to start doing, when they promised to start doing it.

Now, this next part of the presentation was a rattle through a whole bunch of charts showing the recent activity in the U.S. treasury, corporate bond, agency bond and securities markets so you’ll have to brace yourself.

The charts will appear on the next page.

Chinese sales of US treasuries (1) have been consistent for the last three years...

...as have their sales of US securities (2) since 2015 after plateauing in 2013 when treasury divestiture began Concurrently, Chinese sales of corporate bonds (3) have accelerated over the same period...

...though agency sales (4)—despite a few periods of consistent selling—have yet to follow suit.

But now, as tensions rise and the cross-currents get harder to discern, guess who else has showed up as a seller?

That’s right, the Saudis are now steady sellers of US treasuries (5)...

...and even more aggressive sellers of U.S. securities (6)...

Meanwhile, taking a broader view, net foreign purchases of treasuries, according to the TIC data, have been in a clear downtrend since 2009 (7) and have been largely outflows for the last three years.

If we look at the 12-month sum of sales (8), we see an even sharper decline...

...and if we take the trailing net official demand chart for treasuries back to 1979, the scale and extent of the change is evident—as are the catalysts for the acceleration (and we’re back on this page once  again):

Take a long, hard look at that last chart folks—particularly within the context of the bond bull market and the ‘bid’ for treasuries we’ve seen throughout 2015 and 2016...

Meanwhile, the Russians—who, as we’ve seen are now selling oil for yuan to the Chinese, remember?— have been picking up the pace of their accumulation of gold reserves yet again, with the most recent monthly data setting yet another record...

...and the pick up in pace is evident when we look at average monthly purchases prior to 2013 and post the agreements put in place around that time between the various parties. Now, the next chart (top of the following page) is crucial to understand because a look at the market value of Russia’s gold reserves shows just how crucial their ongoing accumulation of bullion has been for the country’s finances over the last two years...

...and that increase in value has cushioned the effects of, amongst other things, the bailing out of the ruble.

As you can see from the green line, Russia’s gold reserves in Ruble terms have soared as the country’s currency has weakened—something which confounded all the doommongers who called Game Over for Russia amidst sharply declining oil revenues:

(Bloomberg, April3, 2015): Here’s why Governor Elvira Nabiullina is in no haste to resume foreign-currency purchases after an eight-month pause: gold’s biggest quarterly surge since 1986 has all but erased losses the Bank of Russia suffered by mounting a rescue of the ruble more than a year ago.

 

While the ruble’s 9 percent rally this year has raised the prospects that the central bank will start buying currency again, policy makers have instead used 13 months of gold purchases to take reserves over $380 billion for the first time since January 2015.

Hmmm...

Now, crucially, being given the ability to sell oil to the Chinese for yuan and buy gold with that same yuan directly through the Shanghai Exchange has completely changed the game for the Russians and those changes are being reflected where they matter most—in the energy markets, the supply/ demand dynamics of which are quietly morphing in plain sight.

By August of this year, Russia had overtaken Saudi Arabia as the largest exporter of oil into China...:

(Al Awsat, August 3, 2016): During the first seven months of this year, China imported about 30.5 million metric tons of Saudi oil, a 0.4% decrease than that of last year. Whereas, China imported about 29.5 million metric tons of Russian oil with 27% increase than last year.

...and that wasn’t something the Saudis could take lying down:

Amid this fierce competition, it is important for Saudi Arabia to fortify its oil position in China with more political and strategic support

On the contrary, they rededicated their efforts to increase what they call “political and strategic support” for China.

Now, I hope you’re all still with me because here’s where we get to the final piece of this glorious puzzle—the piece that ties all these seemingly unrelated threads together: China’s own crude oil futures contract, to be priced in Yuan and traded at the Shanghai International Energy Exchange—a yuan contract which will be made fully-convertible:

(Bloomberg, November 5, 2015): By the end of 2015, China, the world’s No. 1 oil importer as of April, may start its own crude futures contract.

 

The idea is to establish a Chinese rival to the world’s two most traded oil contracts: West Texas Intermediate, housed on the New York Mercantile Exchange, and Brent Crude Futures, owned by ICE Futures Europe in London.

 

The yuan-based contract will trade on the Shanghai International Energy Exchange and will be among the first Chinese commodity contracts available to foreign investors as China promotes global use of its currency…

 

Participation will be open to all foreign investors and the yuan will be fully convertible under the contract, according to Song Anping, the chairman of the Shanghai Futures Exchange.

As you can see from the date of the article, this contract has been postponed several times— ostensibly for reasons such as stock market volatility in China, but perhaps there is more going on behind the scenes that is causing the delay because, once this contract is in place, things change.

Dramatically.

In the interim, China has supplanted the U.S to become the world’s biggest importer of oil, which serves to increase both its importance in the oil markets and the likelihood of it launching its own yuan-denominated contract at some point in time:

(Bloomberg, October 13, 2016): China is now the world’s biggest oil importer, unseating the U.S. The country’s crude imports climbed to a record 8.08 million barrels a day in September, a year-on-year increase of 18 percent, customs data released Thursday showed.

So, the world’s largest exporter of oil is now dealing with the largest importer directly in yuan and it has the ability to convert those yuan proceeds into physical gold through the Shanghai exchange— which the data suggest it is doing as fast as possible.

Currently, the bilateral oil for gold trade is only available to what the U.S. would no doubt consider a 'basket of deplorables' in Iran and Russia...but just think what happens once that fully convertible oil contract is up and running...?

Suddenly, the availability to price oil in gold is available to everybody and, given rising Saudi/U.S. tensions and the Middle East nation’s recent rededication to providing “political and strategic support” to China it’s easy to see why this would be attractive to the Saudis, for example.

Whatever happens, opening that contract creates a market-wide arbitrage opportunity which affords anybody with oil to sell the ability to exchange said oil for gold and anybody wanting oil to acquire it cheaply by buying cheap gold in the West and shipping it to Shanghai or HK where it can be sold for yuan.

Already, places like Tokyo, Seoul and Dubai are opening physical gold markets and discussing linking their nascent markets for bullion to the Shanghai exchange which has rapidly become the largest physical delivery market in the world.

Now, were this arbitrage to begin happening in any meaningful size, with the market for oil far bigger than that for gold, it would immediately be evident in the ratio between the two commodities...

...which, interestingly, is precisely what has happened since the peak of global reserves in 2014 and the Sino-Russian agreement to essentially transact oil for gold. With those conditions in place, the gold/oil ratio has broken out to its highest level in 80 years (chart, next page):

...which brings us right back to the question mark on the second chart which we left hanging like a matzah ball earlier in this presentation

The recent move in the oil price looks to me suspiciously like a sign that a move has started to return to pricing oil in gold.

That move, if indeed it is happening beneath the surface, allied with the endless possibilities enabled by the potential full convertibility of the yuan under the Shanghai-based oil contract leaves oil producing nations with a rather obvious choice for the first time in almost half a century—a choice made perfectly clear by the two charts on the next page:

If you are an oil producing country, do you...:

MINIMIZE your production in order to MAXIMIZE your holdings of one of the most abundant and easily-produced commodities in the world—U.S. treasuries—as has been the case for the last 40 years... knowing full well that, with the level of entitlements due in the next decade, more will need to be printed like crazy?

Or......

Do you MAXIMIZE production in order to gain the largest possible market share in the biggest oil market in the world and, through the ability to buy gold for yuan, thereby maximize your reserves of a scarce, physical commodity which is impossible to produce from thin air and which happens to be not only the most undervalued asset on the planet, but is trading at its most undervalued relative to U.S. treasuries in living memory?

With an annual production of $170bn, gold is by far the largest metal market by value.

However, that figure is dwarfed by the oil market which is 10x the size of the gold market on an annual production basis.

If we throw in the average annual foreign holdings of U.S. treasuries over the last 2 years, we see that the ‘other’ commodity is at a different magnitude altogether.

So, which one of these commodities has any scarcity value? Given the choice, which one would you seek to maximize your holdings of?

U.S. treasuries which can be conjured out of thin air by the U.S. government and which, are described thus by The Securities Industry and Financial Markets Association:

Because these debt obligations are backed by the “full faith and credit” of the government, and thus by its ability to raise tax revenues and print currency, U.S. Treasury securities – or “Treasuries” – are generally considered the safest of all investments. They are viewed in the market as having virtually no “credit risk,” meaning that it is highly probable your interest and principal will be paid fully and on time.

Or how about oil? Which the Saudis, for example, can simply print pull out of the ground at will at a cost of a little under $10/barrel?

Or gold? A commodity which is limited in availability, trading at its all-time low relative to U.S. treasury supply and is not only getting harder and more expensive to produce, but which is also catching the eye not only of the central banks of the world’s two largest producers, but of the largest importer and largest exporter of oil?

* * *

Much more in the full PDF below

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Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Dec 27, 2016 9:10 PM

Bitcoin will replace all nations fiat currencies.

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) This Might Hurt Dec 27, 2016 9:27 PM

I don't think so.. You see, the global elite are dealing in fantasies where all their currencies crash. But by some miracle that has never occurred before in history, they maintain control and power. Of course this is absurd, when the currencies crash these people will be hunted and killed.

Heavy's picture

cant fap to those comments, and i am here for the monetary theory porn

Donnie Duvanie's picture

I had to do a double-take on those black charts - a couple of them looked like my forex charts when I was on the wrong side of the trade. 

wwzmach's picture

heard it all before, seen it all before... back in 2001-2004, Iran was accepting Euros for Oil, the Euro was going to be the new USD, even Jay-Z had a case full of euros in his pop video. The Euro was the new big thing. And then along came the USA, it's buddy GS and crash bang wallop, the Euro is a peseta, meets lira, meets drachma. Oil is still traded in USD and nothing has changed - although it easily could have BUSH stopped it.

NOW we see exactly why Trump got elected. We will see more 9/11 type false flag / excuses to wage war and start geopolitical turmoil. Wars played out in the financial markets aka. the Bush era and most likely the USD will come out on top - That is what Trump is all about - he's basically an oil man in disguise - and thus no surprise that he choose and Exxon man for his secretary of state to fly around the world and put an end to all the Shenanigans and dreamers who think that anything other than USD hedgemony will rule the next 2 decades.

If necessary they will crash the chinese markets and start a revolution before letting go of the USD status quo. Fantasies of bitcoin or chinese gold to oil futures contracts are just that... nothing more than a teenage third world countries wet dream. NEVER GOING TO HAPPEN. 

The only good thing to come out of this article is seeing why Trump was put in. All the hysteria around Clinton and the media was a circus side show so they could get an oil man into power for the battle ahead. Simple. Great article - wrong conclusions.

 

 

 

Paul Kersey's picture

"The only good thing to come out of this article is seeing why Trump was put in."

In the election I just watched, Trump wasn't "put in". Trump won one of the hardest fought elections in U.S. History. Almost all the forces that could "put" a person into the White House, fought as hard as they could to keep Trump out.

Another thing not mentioned in your I've-seen-this-all-before scenario is enormity of the contingent multi-trillion dollar cost liability of fulfilling the USG mandated social programs over the next ten years. If there is any connection between supply and demand, then the next ten years could see the growth of U.S. Treasury debt expand exponentially, while the international demand for said Treasuries rapidly diminishes.

wwzmach's picture

you forget your history - Bush was also shoe horned into the white house amid huge popular protest and essentially a rigged election.

the pussy driven media can kick out like a bitch all it wants - it's just a side show to keep you distracted from the real situation. Exxon Mobile for Secretary of State - come on - wake up and smell the coffee. It's all a put up job.

 

Oldwood's picture

Bit coin won't be worth anything if the bottom falls out of our confidence scheme. We will revert to traditional values durring stress, not to more tech security. Confidence loss pushes us back, not forward.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) Oldwood Dec 27, 2016 10:05 PM

Exactly

 

What these bitcoin clowns don't realize is that fiat currencies are precisely what gives their dumb ass bitcoins perceived value.

 

I fucking laugh my ass off everytime I think about it. If paper money suddenly & exponentially becomes worth less, people are gonna rush to buy hard goods (food, staples, whatever)... Nobody's gonna be running around trying to buy fucking bitcoins.

 

How many Venezuelan or Argentinian bitcoin millionaires do you know?

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Holy hand grenade of Antioch Dec 27, 2016 10:22 PM

Bitcoin is booming in Venezuela and Argentina you fool. As a matter of fact, urban parts of South America are in many cases more technically literate and sophisticated than dumb Bubbas in the USA.

sinbad2's picture

You can be technically literate, and still be a fool.

Bitcoin was, and always will be a con to fleece the suckers.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) sinbad2 Dec 28, 2016 4:13 AM

"Bitcoin is booming in Venezuela and Argentina you fool"

 

Prove it

stecha's picture

but if bitcoin becomes valued paralel to gold or according to gold value percentage, we have a new ball game. go alt-coin!!

El Vaquero's picture

This.  People don't get what happens to the US (and a lot of multinational corporations) if the petrodollar dies and is not immediately replaced with something that keeps the US on top.  We import a large portion of the oil that we consume, and without the petrodollar system in place, a lot of that goes away.  This is a huge blow to anything that uses petrochemicals and it is a huge blow to anything that needs to be transported.  Not all forms of energy are fungible, and oil is the keystone to our economy.  Against that kind of backdrop, people aren't going to be trading in digital currencies.  This is the kind of thing that can shatter supply chains, and we have put ourselves into a position where we depend on long ones.  

Antifaschistische's picture

and to double (or triple) the pain, our city planners are funded by the developers, who promote increasing suburbia living...thus greater dependence on gasoline.  The same developers get highways, freeways, and toll roads built to their projects to facilitate the 50 mile one-way commute.   They make their billions and everyone's happy as long as gasoline is cheap.   In China, as insane as their development has been...most can still fall back on a robust mass transit network in a heartbeat if gasoilne shot to 10 bucks a gallon.  In the US...we would just be screwed.  Our negative ROI Public Transit systems could not respond without MASSIVE additional dollars from the taxpayer...and the excess capacity simply doesn't exist in most US cities.  It would take at least 5 years go add enough to the bus networks to make a real dent.  But the cost of riding would probably need to triple to cover operating costs.

For now...enjoy the good days while we have them and hope the Petrodollar lives forever.  

sinbad2's picture

The US could become a major oil exporter if the US dollar was to collapse. The high value US dollar is why the US cannot export.

OK so you might not be able to afford a new iPhone, or any of the other high tech Chinese stuff, but is that the end of the world?

squid's picture

The USA won't be exporting oil....

It will be unable to import due to a collapsing USD. As such, All domestically produced oil will be used for farming and lubricant/plastics production. Bread will be $500 a loaf and rising.

 

That pile of treasuries that need to be created to pay bubus americanus says so.

 

Squid

stecha's picture

in that I believe much of thi to be true, think of this. If i start stamping a coin or coins outt gold that is rated more value than my currency, what do you think will happen?

wwzmach's picture

The ruse is pretty simple.... Bush II made a huge fuss and a huge mess to stop oil being traded in Euros. Trumps job is to do the same to China that Bush did to the EU / Euro. It's all doublespeak and hidden agendas - NOT conspiracy - simply raw power plays hidden from main sight. Yellow Cake in Iraq = Oil traded in Euros - must be stopped. Lost jobs in Ohio - CHina / Russia threat = Yuan and gold traded for oil - must be stopped. Easy to understand.

 

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Oldwood Dec 27, 2016 10:09 PM

Who is "we"? Technology is going to come even faster and harder after the collapse. And what exactly do "values" have to do with anything?

Oldwood's picture

Why is the first tendency to ignore history and assume that because we are more modern that everything will be different? I talk to people about these issues all the time and it would be an exaggeration to suggest that one in ten even knew what Bitcoin is. How is Bitcoin going to be a dominant currency of CONFIDENCE when hardly anyone knows what it is?

You're dreaming.

Everyone past the age of five knows what gold and silver are....Even if they don't know what it's worth (like any of us do).

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Oldwood Dec 27, 2016 10:19 PM

Maybe you just happen to live in an area that has relatively low IQ? Pretty much everyone where I live has heard of Bitcoin. Not many people own it but 3 people I work with do. And even if that were the case, 500 highly technical and advanced people's wishes are more important than 5,000,000 unskilled fools.

Oldwood's picture

Yes, I just live around a bunch of Dallas Hicks....People who own and run multi million dollar businesses and shit . Nothing important like working as a tech geek in an "office" somewhere.

What you describe sounds like another financial tool for the .001%. Five hundred out of five million?

All us ignorant rubes will just have to use gold.

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Oldwood Dec 27, 2016 11:08 PM

I've known a few millionaires in my area. They are happy to capitalize on other people's bright ideas but they don't have the foggiest clue about the technologies themselves.

Bill Gates even came out saying that "he doesn't think Bitcoin will be the future of digital payments" LOL! Everything this man says turns out to be wrong, so I made sure I went out and bought some more Bitcoin the same day I heard that!

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Oldwood Dec 27, 2016 11:13 PM

...and being an ignorant rube is a lifestyle choice. Like being a socialite, being a junkie or being a criminal is a choice. You could have spent that quality time studying computer code, networking, etc instead of with the fam and friends.

squid's picture

Draybin you should quit while you're behind.

 

He gave you an honorable out and you keep digging yourself deeper.

 

You have 'young' written all over you.

 

Squid

Global Douche's picture

I like your optimism, but I don't see that happening, however, Bitcoin is a good way of escaping the Borg, and it's day to shine is coming. In fact, I'm looking at $952 USD for 1BTC now as I type, and I expect BTC to correct some with 875 USD as hard support. China is fueling most of it, and their economy hasn't yet crashed hard. 2017 will be exciting to watch. My holdings in BTC have done way the hell better than everything except the three-bagger on Nevada's GSV I scored. Both select PM equities and BTC I believe are going to shine in their own way, the former resumes it's bull when Trump's Honeymoon becomes a Bitchslap heard coast to coast! 

Bottom Line? If the Internet gets shut down due to desperation to keep the Status Quo, then we have way worse problems than Bitcoin may solve. I've lost not a snore of sleep over it

 

This Might Hurt's picture

Hmmm not sure how to reply to that one. 

.National Suicide 1980's picture

No real way to respond, unless you have a shovel and a location. Then you could go and dig up his parents and piss on them for creating him.

Dubaibanker's picture

Petrodollar will be the end of domination of USD currency because it's demand will plunge along with petrodollar countries.

tazs's picture

Those countries can switch to Yuan. No biggie.

Dubaibanker's picture

That's the point, however these tiny countries in Middle East who survive purely on oil and money laundering won't be able to link to the yuan because China does not offer a quid pro quo.

US provided unparalleled security for 40 years, China has no such thing on offer.

Yen Cross's picture

 

Arable land and gold. [ lots of snipers to protect the aforementioned]

King Tut's picture
King Tut (not verified) Dec 27, 2016 9:24 PM

The House of Saud is dumb enough to bite the hand that feeds

sinbad2's picture

When the master stops feeding his dog, the dog will either leave, or bite off the hand.

Lynx Dogood's picture

So what currency does the worlds governments issue debt in at the drop of a hat? Until that changes, the dollar ain't going no where. China is not about to allow india to issue debt in the Yaun.

fbazzrea's picture

the way i understand it, this author suggests settlements in a flow-thru oil-for-gold exchange between the world's largest gold producer and the world's largest oil exporter are growing, with other nations joining the party. that's a solid foundation from which to build a competing global reserve currency. at least, for a significant portion of the globe, admittedly, mostly Eastern. but USD demand only has to continue falling, not be replaced, to begin eroding the West's USD ponzi scheme to the point of collapse. there is only so much debt the Fed can hold on its books before no one will accept our bogus Monopoly money for international trade. at that point, inflation will be a pipe dream. we're talking hyper-inflation almost overnight--at least in America.

much of the EM world will celebrate.

stecha's picture

ding ding ding, we have a winner!!!

HRH Feant's picture
HRH Feant (not verified) Dec 27, 2016 9:45 PM

Gosh is it time to invest in the Ruble? I don't care for the Yuan / Renminbi but the Ruble is starting to look interesting.

BlindMonkey's picture

Thank God the US hates the Russians.  The average Joe I talk too is all about nuking the ruskies right now because they've been worked into a lather.

 

The last thing we need is for the rubes to get wise to the Ruble.  So be kind and STFU.  Thanks mi amigo.

hairball48's picture

Still stackin' here..and glad that I am. Fuck the central bankers.

hairball

DarkPurpleHaze's picture

The death of the petro-dollar? Are you kidding me?

Who the heck still believes in that decades old crap doomer theory? If anything, the so-called petro-dollar is going to become more relevant as US shale exports start to return serious amounts of cash from abroad that'll need to be paid in USD back to us.

I've gotta' laugh at this point about the narrowly thought out premise that the USD is about to become irrelevant. Nothing factual actually substantiates the claim at this point and in fact the USD is still solidly the reserve currency and there's a physical shortage of USD abroad.

People actually want more of it despite what some doomer bloggers would have you believe. The petro-dollar meme is old and weak and doesn't take into acvount whats actually taking place in the U.S. energy market.