In December, Grant Williams, author of “Things That Make You Go Hmm…” offered the most comprehensive analysis yet of the rise and inevitable fall of the petrodollar (and implicitly US hegemony). In the following presentation, from Mines & Money Conference in London in December 2016, Williams focuses on gold’s performance in 2016, the reaction to Donald Trump’s election and joins a series of dots that may lead to the end of the petrodollar system and a new place for gold in the global monetary system.
Grab a glass fo wine – turn off Trump’s twitter feed for 30 minutes and enjoy. Here is the full presentation – “Get It. Got It. Good”
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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.
…click on the above link to read the rest of the article…