The Secret Reason Trump Is So Cozy With Saudi Arabia

Tyler Durden's picture

Authored by Nick Giambruno via InternationalMan.com,

As a candidate, Donald Trump used uncommonly harsh language to criticize Saudi Arabia—the world’s largest oil exporter.

He called the Saudi regime the world’s biggest funder of terrorism.

He also said the Saudi government uses “our petro dollars—our very own money—to fund the terrorists that seek to destroy our people, while the Saudis rely on us to protect them!”

At another point, Trump said, “Who blew up the World Trade Center? It wasn’t the Iraqis, it was Saudi [Arabia].”

Trump also criticized Hillary Clinton for taking Saudi money for the Clinton Foundation. (They were its biggest “donors.”) He even challenged her to return the money.

He also famously got into a Twitter spat with a prominent member of the Saudi royal family, Alwaleed bin Talal.

As a candidate, Trump blasted the Saudis countless other times.

But, after he took office, Trump did a complete 180. He stopped criticizing the Saudis. In fact, he’s now singing their praises.

It’s bizarre… as if someone put a severed horse head in his bed.

Mere months after criticizing the Saudis, he was on Air Force One headed to Saudi Arabia to do the sword dance with his new friends.

It was his first foreign trip as president.


President Trump with King Salman

Trump’s about face was astounding. But his newly adopted deference to the Saudis is no different than Obama’s, Baby Bush’s, or any previous president’s.


President Obama with King Abdullah


President G.W. Bush with King Abdullah

Today, I’ll tell you why Trump made such an abrupt turnaround.

I’ll also explain why the Saudis get special treatment from the US Deep State.

“As Good As Gold” - From Bretton Woods to the Petrodollar

It’s been rightly said that he who holds the gold makes the rules.

After World War 2, the US had the largest gold reserves in the world, by far. Along with winning the war, this let the US reconstruct the global monetary system around the dollar.

The new system, created at the Bretton Woods Conference in 1944, tied the currencies of virtually every country in the world to the US dollar through a fixed exchange rate. It also tied the US dollar to gold at a fixed rate of $35 an ounce.

The dollar was said to be “as good as gold.”

The Bretton Woods system made the US dollar the world’s premier reserve currency. It effectively forced other countries to store dollars for international trade, or to exchange with the US government for gold.

However, this pseudo gold standard was doomed to fail.

Not surprisingly, runaway spending on warfare and welfare caused the US government to print more dollars than it could back with gold at the promised price.

By the late 1960s, the number of dollars circulating had drastically increased relative to the amount of gold backing them. This encouraged foreign countries to exchange their dollars for gold, draining the US gold supply. It dropped from 574 million ounces at the end of World War 2 to around 261 million ounces in 1971.

To plug the drain, President Nixon “temporarily” suspended the dollar’s convertibility into gold in 1971. This ended the Bretton Woods system and severed the dollar’s last tie to gold.

The “temporary” suspension is still in effect today.

This is why the Fed can print as much paper money as it pleases.

The death of the Bretton Woods system had profound geopolitical consequences. Most critically, it eliminated the main reason foreign countries stored large amounts of US dollars and used the US dollar for international trade.

At this point, oil-producing countries began to demand payment in gold instead of rapidly depreciating dollars.

It was clear the US would have to create a new monetary system to stabilize to the dollar.

So, the US government concocted a new scheme—the petrodollar system. It gave foreign countries another compelling reason to hold and use the dollar.

The new arrangement preserved the dollar’s special status as the world’s top reserve currency.

For President Nixon and Secretary of State Henry Kissinger, it was a geopolitical and financial masterstroke.

From 1972 to 1974, the US government made a series of agreements with Saudi Arabia that created the petrodollar system.

The US handpicked Saudi Arabia because of the kingdom’s vast petroleum reserves and its dominant position in OPEC—and because the Saudi royal family was (and is) easily corruptible.

In essence, the petrodollar system was an agreement that the US would guarantee the House of Saud’s survival.

In exchange, Saudi Arabia would:

  1. Use its dominant position in OPEC to ensure that all oil transactions would only happen in US dollars.

  2. Recycle the many billions of US dollars from oil revenue into American weapons manufacturers and infrastructure companies—and critically, into US Treasuries. This let the US issue more debt and finance previously unimaginable budget deficits. By 1977, at least 20% of all Treasuries held abroad were in Saudi hands.

  3. Guarantee the price of oil within limits acceptable to the US and prevent another oil embargo.

Oil is the largest and most strategic commodity market in the world.

As you can see in the chart below, it dwarfs all other major commodity markets combined.

Every country needs oil. And if foreign countries need US dollars to buy oil, they have a very compelling reason to hold large dollar reserves.

Think about it… If Italy wants to buy oil from Kuwait, it has to purchase US dollars on the foreign exchange market to pay for the oil first.

This creates a huge artificial market for US dollars.

In part, this is what differentiates the US dollar from a purely local currency, like the Mexican peso.

The dollar is just a middleman. But it’s used in countless transactions amounting to trillions of dollars that have nothing to do with US products or services.

Since the oil market is so enormous, it acts as a benchmark for international trade. If foreign countries are already using dollars for oil, it’s just easier to use the dollar for other international trade.

In addition to nearly all oil sales, the US dollar is used for about 80% of all international transactions.

This gives the US unmatched geopolitical leverage.

The US can sanction or exclude virtually any country from the US dollar-based financial system at the flip of a switch. By extension, it can also cut off any country from the vast majority of international trade.

The petrodollar system is why people and businesses everywhere in the world take US dollars. Other countries have had little choice over this.

Today, the biggest US exports are dollars and government debt. The US government can create unlimited quantities of both… from nothing.

It requires no effort to create US dollars, which can then be exchanged for real things like French wine, Italian cars, electronics from Korea, or Chinese manufactured goods.

Ultimately, the petrodollar boosts the US dollar’s purchasing power. It entices foreigners to soak up many of the new currency units the Fed creates.

The system helps create a deeper, more liquid market for the dollar and US Treasuries.

It also helps the US keep interest rates artificially low. This allows the US government to finance enormous and permanent deficits. Otherwise, this would be impossible without destroying the currency through money printing and inflation.

The petrodollar allows the US to finance the world’s largest military, which is bigger than the next seven largest militaries combined.

The petrodollar has also allowed the US to spend astronomical amounts of money on welfare and other benefits for over half of its population. It gives Americans a much higher standard of living than they would have otherwise.

In short, the petrodollar is the ultimate enabler of big government.

The US government could never have become as powerful without it.

It’s hard to overstate how much the petrodollar system benefits the US. It’s the bedrock of the US financial system.

And it’s the reason the US political elite pamper the Saudis.

Bretton Woods lasted 27 years. So far, the petrodollar has lasted over 40 years.

I think we’re on the cusp of another paradigm shift in the international financial system. It will be at least as fundamental as the end of Bretton Woods in 1971.

For decades, the petrodollar system has allowed the US government and many Americans to live way beyond their means.

The US takes this unique position for granted. But it will disappear once the petrodollar system breaks down.

When that happens, I expect severe inflation.

This will likely be the tipping point…

Afterward, the US 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 probably won’t happen tomorrow. But it’s clear where this trend is headed.

One day soon, Americans may wake up to a new reality.

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.

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.

We recently released a special Guide to Surviving and Thriving During an Economic Collapse. Click here to download the PDF now.

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More_sellers_than_buyers's picture

Goodbye ZH... its been a good run. Goodbye to hedgeless and the other friends i have met here.. this website just jumped the shark!

Vlad the Inhaler's picture

Wtf are you talking about, this is all very mainstream stuff that everyone already knows, it's so mainstream it's even on Investopedia  https://www.investopedia.com/articles/forex/072915/how-petrodollars-affe...

Brazen Heist's picture

Was it too much of a revelation or too much of an affirmation for him?

BennyBoy's picture

 

Hey Nicky,

Yeah, the petrodollar is doomed. Soon to be replaced by the CO2dollar. Or whatever shit Goldman comes up with. Like shit (All your poop is a drug according to the FDA, google it) .

Crap that backs the dollar comes and goes. Again and again.

But the real culprit is the exponential debt based financial system.

Pinto Currency's picture

Another strange Saudi occurrence recently.

Prince Al Waleed (in jail in Saudi) is majority owner of Four Seasons that owns the upper floors of Mandalay Bay Hotel in Las Vegas.

https://www.reddit.com/r/conspiracy/comments/74tihq/saudi_prince_al_waleed_bin_talel_majorirty_owner/

Alleged Saudi elements used security firm ETS Risk Management in Las Vegas shooting assault.

https://www.peterdegedo.com/2017/11/06/former-intelligence-analyst-saudi-based-risk-management-company-was-on-the-ground-during-las-vegas-massacre-the-daily-sheeple/

Billy the Poet's picture

You have meddled with the primary forces of nature, Mr Beale, and I won't have it! Is that clear?

Network - Money speech

https://www.youtube.com/watch?v=zI5hrcwU7Dk

WordSmith2013's picture

As always, there's much more to the story....

 

http://themillenniumreport.com/2017/11/whats-really-going-on-in-saudi-ar...

 

What’s really going on in Saudi Arabia? How’s it connected to the Vegas mass shooting?
Post-Truth Society's picture

The real secret reason Trump is so cozy with the Saudis:

TRUMP IS A FUCKING MUSLIM !!!!

Get it through your heads, ZHombies!

 

philipat's picture

Wow Nick, thanks for letting us in on that "secret".

PS. Shouldn't this piece be labeled as an "advertorial"?

PPS. As we all also already know, the crack really starts when the Saudis agree to Beijing paying paying for oil in CNY. Given that China is the largest oil importer, expect this soon. Beijing is playing a clever game of attrition with Riyadh, which has already "lost" 5 percentage share points of the Chinese market; a trend that will continue until the CNY is accepted. When oil is the only game in town, what would you do if you were the Saudis, especially knowing that the US still needs you for nefarious ME geopolitical games?

peddling-fiction's picture

I thought everybody here at ZH knew these basics...

Are we getting another virtual censhorhip corral fed to us or what?

Sandboxed with the toddlers.

philipat's picture

"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.

We recently released a special Guide to Surviving and Thriving During an Economic Collapse. Click here to download the PDF now."

 

 

Endgame Napoleon's picture

I guess I am a toddler then, learning something by playing in the sand. For one thing, I did not know that they demanded payment in gold. Interesting. I do know that—regardless of what motivates them—Trumpian reversals, especially on core economic issues like mass immigration, likely showed up in last night’s election turnout.

MEFOBILLS's picture

Post Bretton Woods there was a trading gold standard.

That means imbalances in trade were consumated by gold flows.  For example, Japan is mercantile, and exports too much to America.  Japan then holds dollars.  

These excess dollars then buy gold from America.  America then notices it is losing its gold.  America adjusts its exchange rate DOWN, to devalue the dollar.

America's goods are now priced lower relative to other countries, and she can eventually recover her gold.

This trading system worked pretty well.  All goods trade between nations is only barter.  

Nixon deficit spent on Vietnam, which meant that excess dollars accrued in foreign Central Banks.  These banks then bought gold with their dollars.  

Nixon went off of the gold trading standard.  Many of the dollars spent in French Indochina, ended up in French Central Bank, and France then bought American gold.

old naughty's picture

quitting? going back to being US-evil idiots?

or, you know what the master's plan for us now?

Nobodys Home's picture

What's the matter? Your mother don't love you?
I had a beat cop ask me that at 3 in the morning back in the 70's as he followed me up the sidewalk. I turned around and said..No, I actually think she doesn't. He then left me alone.
edit: The site changed hands and is now using Amazon servers for quite a while now. Don't pussy out! Stay the course! Be who you always have been and don't quit now! You're already on the list.

evoila's picture

Thanks for the article. Tell us something every person here doesn't know. The point is, people are upset because we rely on crap like the petrodollar system to create demand, whereas people would rather see demand be based on things like fiscal responsibility, social responsibility, no/low debt, prudent governance, a stable tax and political system, and a political system that hasn't been inundated with special interests like AIPAC, the Saudis, the pharma lobby etc.

 

 

HRClinton's picture

Indeed. I was hoping for some new insight, but... Noooo... got suckered into a B&W B-Movie.

That's time I won't get back. But, hey, all click bait is good for business. Right? 

Escrava Isaura's picture

evoila: ……we rely on crap like the petrodollar system to create demand, whereas people would rather see demand be based on things like fiscal responsibility, social responsibility, no/low debt,…… 

Gosh. Conservatives just can’t help.

You point only works abstractly. To be discussed in an academic conference, because it’s not reality.

We live in an industrialized world. US alone imports over 9 million barrels of crude oil a day and over a trillion cubic feet of natural gas.

Without the Petrodollar US is a third world nation.

Without globalization most Americans will starve to death.

 

Dalai Lama: Donald Trump's MAGA Catchphrase 'Isn't Relevant'

When the president says ‘America First,’ he is making his voters happy. I can understand that. But from a global perspective, this statement isn’t relevant. In today’s global world, everything is interconnected. America’s future is dependent on Europe, and Europe’s future is dependent on the Asian countries. The U.S. is still very powerful. The motto of the forefathers of modern Americans was democracy, freedom, and liberty. Totalitarian regimes don’t have a future.”

 

Archibald Buttle's picture

today's global world ain't gonna last, long term, unless tmoseley's bitcoin proceeds can fund all those robot astroid miners that will crush the price of PMs in the long run. and that fusion power is only 10-20 years away because "progress." 

"In today’s global world, everything is interconnected. America’s future is dependent on Europe, and Europe’s future is dependent on the Asian countries." 

it works for now, but i think EROEI will have something to say about this down the line, no matter how much digital "wealth" is amassed in the meantime. 

as LoP would say, infinite growth on a finite planet...

Brazen Heist's picture

If something is good, it doesn't need to be shoved down people's throats. Example; dumbocracy.

The empire extorts its way to artificial demand for its currency at the barrel of a gun.

This is more of a curse, because the Petro-dollar actually encourages runaway splurging on bullshit projects and discourages prudence and fiscal responsibility. The elites are milking the system into oblivion i.e. bankruptcy.

earleflorida's picture

how do you expect the average layperson to understand how money works via petrodollars than explaining the other side of the ledger that they've never been exposed to?

all the genuis on zh that find this article foolish should get fucking lost and open their own financial blogs instead of feeding off TD/ZH for their personal clicks`shit mr. know-it-all...[s]!

earleflorida's picture

oh, and btw, ussa numbers for current wars from '911' to present stands at a conservative $5.7 trillion,... but you knew that?

right...

1 Alabama's picture

This trying to live in 3 times zones all the time is just nearly impossible.

Chupacabra-322's picture

Arming, funding & training I CIA SIS terror since the days of the Mujahaideen payoff nicely.

You do not understand why we import the people who will destabilize our society because no one has showed you the secret government funding formula:

1 imported muzzie = $10,000,000 in secret police funding + (Constitutional Rights - square root of hyper fear + docile population living in confusion and poverty) + unlimited Zionist jew and Saudi graft = 1%. Using this formula, you will have enough information to understand forever war, unlimited military spending, and $21,000,000,000,000 in debt and massive prozac and opiod usage. Alcohol and small pox took care of the indigenous North American population 200 years ago. Muzzie and Zionist Jew invasion + massive drug addiction and a Pure Evil War Criminal Treasonous Seditious Tyrannically Lawless Psychopathic leadership will take care of the current population.

1 Alabama's picture

cool rant but i missed the point.

Archibald Buttle's picture

maff iz hard. u need to drink more beer.

1 Alabama's picture

here is something we dont know, the country is reproducing retards faster than we can afford them, bet u didnt know that.

Archibald Buttle's picture

the proliferation of retards has to be, at this point, obvious to even the average retard. you are getting my greenie for the salient point that even as we are overrun with retards, nobody is making the point that retard infestations come with price tags.

Son of Captain Nemo's picture

Because they carry more than 1/3 of the U.S.'s debt!

Son of Captain Nemo's picture

Not that cozy considering Al-Waleed was just imprisoned by the President of the United States who received 2 loans from the Saudi Royal to bail his real estate "empire" out of Chapter 7 debt in the 90s!!!...

WillyGroper's picture

read what you just wrote.

imprisoned?  in the fkn ritz?

bailout or not, this is nothing but more theater.

Son of Captain Nemo's picture

Agreed WG

It's an elegant "timeout corner" that should see every member of the Royal Family in Saudi Arabia, U.K. Parliament, Israeli Knesset and U.S. House of Representatives, Senate, Judicial and Executive "disemboweled" with their heads displayed on wooden poles!

Imagine what this World would look like after those ritual sacrifices!...

I would gladly pose for a picture in front of our Nation's Capitol with that hanging in the background!

Chupacabra-322's picture

@ Son,

You’ve just described the perpetrators of the Global

Tyrannical Lawlessness

we find ourselves in.

Son of Captain Nemo's picture

Chup

The only problem is they are still in their "guilded cage(s)" without the honors being DONE/"executed"!!!

ParticularlyStupidHumanoid's picture

Stupid subtitle. People aren't going to start understanding the monetary system. Ever.

Nobodys Home's picture

Huh? The treasury sells bonds. The Fed "buys" them. They then print fiat dollars that in reality only the treasury has the right to create money of gold and/or silver, but paper is now accepted from a private unconstitutional corporate bureaucracy. So then they charge us interest for the free bonds we gave them to print our fiat fractional reserve notes and all the banks create money from nothing because loans are an asset and no longer a liability, which create more money from nothing and the rest of the world invests in our debt because the fed backs it on the back of the world's reserve currency. The petro dollar. And we are all in debt because of it.

edit: So I grudgingly guess you're right.

Slippery Slope's picture

May the Orb be with you.

stinkhammer's picture

Patrick, you know that thing's turned off, right? Patrick? Yoo-hoo? Patrick?!

Nobodys Home's picture

and also with you.
All of you WAPs get off of my lawn!

totenkopf88's picture

Petrobitcoin, Peanutz! 

Winston Churchill's picture

You might be on to something there, but not at all in the  way you think.

4shzl's picture

Occam's explanation: when they finish sweating Talal and some of the other greasy sleazeballs, the Crown Prince will be able to hand Trump the smoking gun that he needs to put crooked Hillary away.  We should all be grateful.

totenkopf88's picture

LOL.  Hillary, Drumpf, The House of Saud-  they're all in The Big Club and you ain't! 

Nobodys Home's picture

I sure am! I'm a U.S. citizen!!!

Brazen Heist's picture

Old news...

Policies towards Israel and Saudi Arabia don't change with presidents.

Saudis should go for the Petro-Yuan and give the dollar a run for its money by diversifying its "Petro" currencies. You know, shop around a bit.

Nobodys Home's picture

As the world turns...Now, yah. But don't forget that without the petro dollar enterprise you would still be camel traders and the rest of the world would have ripped you off. Never mind the new 350 billion of death dealing fun you were recently allowed. Now Go kill some Houthis!

screw face's picture

...what Orb?

 

...ohhhh that Orb.

any_mouse's picture

Afterward the orb, into the orgasmatron.

RubyPetunia's picture

OK, what are the differences between the photos of Bush and Trump vs Obama?

Bush and Trump are being honored by the Saudis i.e. they are being given a medal.

Obama is just bowing.