Newsbud: Oil on Gold: The Demise of the Ponzi Petrodollar

… and why it makes a hell of a lot of difference to you:

Much of the US dollar’s global hegemonic status as both perennial transnational reserve currency, most common means of value storage, means of exchange and even economic weapon, is based upon a nearly half-century old collusive political arrangement made between the Nixon administration and the Saudi Arabian government involving the necessary monetary means of pricing, trading, storing and investing with energy resources – The petrodollar standard, or petrodollar recycling, for shorthand.  Said standard is increasingly under threat from various economic and political alignments globally, thereby begging significant questions not only about whichinstitutions and old, private, hyper-wealthy families sit at the top of western political power structures, but what they’re threatened by, and who or what are doing the threatening.

History:  Gold Standard Ends, Oil Standard Begins

Petrodollar recycling and its resulting standard in many critically functioning fiscal ways effectively replaced the U.S. gold standard as it had existed from a post-World War II-established Bretton Woods Agreement until August 15, 1971, when Nixon closed the nation’s gold window to exchanges for increasingly worthless dollars.  The US government essentially defaulted on its obligations to deliver gold to foreign asking parties under Bretton Woods.  Hence Nixon, under abiding orders from Wall Street and, in many respects, the City of London banking establishment, ordered the multi-decade linking of the dollar to gold at $35/oz. to cease ‘temporarily’ (hint: it became permanent, by longer term design).  The gold standard had provided fiscal discipline in rebuilding the economy after WWII, yet excessively powerful domestic (I.E. President Johnson’s Great Society domestic spending program) and foreign (I.E. Vietnam War) spending needs, as perceived by Washington, required ultimately shifting the backing of the US dollar’s credibility from one commodity – gold (which is the core global money, rather than merely “commodity”) – to another, much more industrially vital one – oil.  Hence the quiet agreements made between Henry Kissinger and the US Treasury Department on one side, and Saudi oil minister Yamani, finance ministers and, ultimately, the House of Saud itself, on the other.  Saudi Arabia was then the largest OPEC oil producer and exporter, with the largest proven reserves, hence its price standard setting role within the group.  Petrodollar recycling, then became the politically engineered means by which oil producers (OPEC and non-OPEC), Atlanticist banking institutions, the largest industrialized economies (the OECD), newly industrialized and less developed nations, would all rely upon the dollar as the sole global currency for, at core, purchasing oil and housing their monetary savings.


NICs = Newly Industrialized Countries

LDCs = Less Developed Countries [i]

The US Treasury would greatly benefit, as would NY and London banks, because earned billions in oil revenues would then be forced to purchase US Treasury Bonds.  For the Saudis, said oil-for-Treasury paper arrangement guaranteed US military protection of the House of Saud.  For Washington, said scheme practically ensured the ability to run hypothetically infinite debts and deficits … because significant global oil supplies could not be recalled by other nations like gold could, and was, in the late 1960s and very early 1970s.  Petrodollar recycling was and remains, essentially, the largest institutionalized Ponzi Scheme in history because artificial demand for a currency (the dollar) “is created at the expense of the purchasing power of other currencies”.

The dollar gets to be debased in unprecedented fashion without solvency checks against it due to imperial military threats posed by noncompliant nations (I.E. Iraq and Libya, the maverick anti-Washington Consensus leaders of each of which sought immediate, direct petrodollar recycling circumvention), while the US Treasury bill becomesthe de facto global investment to be held, not just by OPEC and OECD nations, but by any nation seeking oil and natural gas, other vital industrial resources, trade and general economic development.


Long-term, Systemic Economic Risks Triggered

The mentioned sense of nonstop dollar printing and debasement has its long-term costs and consequences for its printers, as does the current state of predominantly Anglo-American financial alchemy, which involves inventions and usages of dollar-denominated, highly risky synthetic financial hedging and investment instruments such as derivatives. [ii]  Globally combined, the anticipated volume of derivatives contracts number north of $1 quadrillion.

Most career, status and wage-beholden finance executives and Federal Reserve-tethered academia and punditry routinely claim that said collective volume is a notional (or “gross”) figure, and that most derivatives contracts thus essentially cancel each other out (hence, ‘worries are overblown by alarmists who do not understand what we do.’).  Yet the definitively chaos-theory-like nature of how derivatives actually can, and sometimes do, avalanche under truly systemically dangerous events (a la the 2008 Global Financial Crisis, or the 1998 collapse of Long Term Capital Management) – where, as economist, banker and lawyer Jim Rickards reveals, seemingly innocuous “net” risks become “gross” fairly promptly, thus wiping out whole financial institutions – begs deeper questions over methodology, requisite opacity, and the truly desperate straits wildly over-leveraged global finance finds itself in today. [iii]  We are bound for the dropping of the ‘second leg’ of the 2008 financial crisis, which Western-based global monetary authorities no less influential than the International Monetary Fund and secretively run, Swiss-based Bank for International Settlements have even warned about. …..

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