Last week several reports suggested the termination of a US-Saudi petrodollar agreement, and speculated a Saudi Arabian move to sell oil on world markets in various currencies, including the Chinese yuan. The accounts were rife with inaccuracies: the Saudis’ have transacted in non-dollar currencies for decades, and there has never been a formal treaty, much less with a specified expiration date, governing the loose arrangement that has come to be called the ‘petrodollar system.’

But even the fragments of broken mirrors reflect reality, and despite their fundamental errors a significant trend is in evidence: Saudi Arabia is progressively reducing its dependence on the United States. Quite possibly reflective of its recent admittance to the expanded BRICS block it is exhibiting a greater inclination to settle oil transactions in currencies other than the US dollar. Owing to the US and Western Europe’s increasingly entangled alliances, and its own efforts to diversify away from dependence upon energy exports, Saudi Arabia has been increasing its diplomatic and economic engagements with China, Iran, Russia, nations considered primary US foreign policy adversaries. Recent moves toward accepting non-dollar currencies reflects broader geopolitical shifts away from US currency hegemony.

The concept of the petrodollar, established in the 1970s, was an informal arrangement where Saudi Arabia agreed to sell oil exclusively in US dollars in exchange for US military protection and investment in US Treasury securities. In the immediate wake of the collapse of the Bretton Woods system in 1971, the arrangement bolstered the value of the US dollar and secured US military support for Saudi Arabia. It also ensured relatively consistent demand for US government debt, a windfall which five decades later has become a millstone of damning heft.

…click on the above link to read the rest of the article…

The End Of The Petrodollar

June 13, 2024

The End Of The Petrodollar

The Saudis, New Chapter in Energy Economics, De-dollarization, and the American-Made Pressure Cooker

“Oil is too important a commodity to be left in the hands of the Arabs.”
~ Henry Kissinger

Just last Sunday, one of the most significant economic deals of the century came to an end. The long-standing petrodollar agreement between Saudi Arabia and the United States officially expired on June 9th, 2024.

This system, which has been in place for 50 years, is now gone.

Despite what the mainstream media might have you believe, yes, it does point to a big change in global economics, and yes, it could seriously affect every American’s life.

So this week, I want to break down exactly what’s happening, why it’s happening, and how it will impact us and generations to come.

But first, let’s set the stage with some context, because it’s crucial…

"Rise" of the Dollar

You’ve probably heard the saying, “The one with the gold makes the rules,” right?

This was the position the U.S. was in after World War II.

The U.S. had won the war and boasted the world’s largest gold reserves. This allowed it to reshape the global monetary system around the dollar.

The new system, created at the Bretton Woods Conference in 1944, tied almost every nation’s currency to the U.S. dollar at a fixed rate. It also pegged the U.S. dollar to gold at a fixed rate of $35 an ounce.

This arrangement made the U.S. dollar the world’s premier reserve currency, effectively forcing other countries to hold dollars for trade or redeem them with the U.S. for gold.

But, by the late ’60s, splurging on welfare and the Vietnam War, along with printing money to cover the deficit, pumped tons more dollars into circulation compared to the gold reserves backing them.

…click on the above link to read the rest of the article…

World War Three Chronicles, Part 2

April 23, 2023

World War Three Chronicles, Part 2

As World War Three progresses with the proxy war in Ukraine grinding the nation and its war weary people into dust, we need to pay close attention to the second front. The systematic demolition of US Dollar Hegemony.

Part one of this series is embedded here: World War Three Chronicles, Part1

We are witnessing epochal changes in the global economy with the independent states, centred around the BRIC’s nations, now trading oil in their own currencies.
This development represents an existential threat not ‘just’ for US Dollar hegemony but for US military and industrial hegemony in what has rapidly become a multi-polar world.
China and to a lesser extent Russia are masters of “Soft Power”. The controlled demolition of US dollar hegemony is clearly underway.

Let’s take a field trip to the frontlines. Batton down the hatches, it’s going to be one hell of a transition, let’s hope we survive it! I would rate our chances as slim because of the mendacity existing in the USA and the impossibility of it meeting it’s debt obligations once the Greenback is no longer the worlds reserve currency.

“Brian Berletic and Danny Haiphong discuss the HUGE implications of Saudi Arabia taking steps to join China in forging peace in the Middle East.”

“The BRICS collective, comprising Brazil, Russia, India, China and South Africa, is working on a common currency in an attempt to ditch the US dollar and push back against America’s dominance. The move comes as Moscow and Beijing call for de-dollarisation in the face of Western sanctions”.
Dumping the Dollar: Will a new BRICS currency replace the US currency for trade?

“As the United States combats a recent flood of countries ‘de-dollarizing‘ – trading commodities in other currencies, the last thing that was needed was French President Emanuel Macron amplifying this message.“

…click on the above link to read the rest…

Role Reversal: The Collapse of the Dollar-Enforced Empire

April 10, 2023

Role Reversal: The Collapse of the Dollar-Enforced Empire

The Soviet empire started to crumble around 1989. The time period between the forming of the North Atlantic Treaty Organization (NATO) in the late 1940s and the retreat of Russia from Eastern Europe with the eventual collapse of communism in Russia is known as the Cold War. There was a great power confrontation in Europe that did not result in war.

Essentially, US-led NATO stood its ground to prevent further Soviet expansion from the territory it occupied at the end of World War II and waited for the inevitable collapse. Now, perhaps not everyone saw the collapse of the Soviet empire as inevitable. But all one had to do was view the Soviet empire for oneself, up close and personal, which is what I did in the early 1970s as a young Air Force officer.

The State of the Communist Economy

The Russian economy at that time is painful to describe. Moscow and Leningrad (Saint Petersburg), the so-called jewels of the Soviet Union, were depressing. Everything was shoddily built. There were very few cars on the streets. There were no retail shops deserving of the name. Lines formed in the middle of the night awaiting the opening of the few bakeries. I saw this for myself from my hotel window on the Nevsky Prospekt in Leningrad. GUM, the “world’s largest department store” near Moscow’s Red Square, sold nothing that was equal to what could be found in any garage sale in the West.

Actually, that should not be a surprise since at one time all those garage-sale goods were marketable. I did not visit Berlin, but those who did say that crossing the Brandenburg Gate from West Berlin to East Berlin was shocking…

…click on the above link to read the rest…

Why the End of the Petrodollar Spells Trouble for the US Regime

February 2, 2023

Why the End of the Petrodollar Spells Trouble for the US Regime

On January 17, the Saudi minister of finance, Mohammed Al-Jadaan, announced that the Saudi state is open to selling oil in currencies other than the dollar. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal,” Al-Jadaan told Bloomberg TV.

If the Saudi regime does indeed embrace substantial trade in currencies other than the dollar as part of its oil-export business, this would signal a shift away from the dollar as the dominant currency in global oil payments. Or measured another way, this would signal the end of the so-called petrodollar.

But how large of a shift is this? With the increasingly frequent Saudi comments about trading in nondollar currencies, we’ve also seen an increasing number of pundits announcing the “collapse” of the dollar or the imminent implosion of the dollar’s currently outsized global power.

Will a shift away from the dollar in the global oil trade really lead to a big relative decline in the dollar? Probably and eventually. But a number of other dominoes would need to fall first, most especially the domino we call “Eurodollars.”

On the other hand, it would be foolish to simply dismiss the potential end of the Saudi preference for the dollar with hand-waving. The end of the petrodollar would indeed weaken the dollar, even if this would not be a mortal blow in itself. Moreover, it is especially foolhardy to ignore the status of the petrodollar because that status also has geopolitical implications. Saudi comments on the dollar signal that the Saudis no longer consider its alliance with the United States to be as important as it has been since the 1970s…

…click on the above link to read the rest…

A Dollar Collapse Is Now In Motion – Saudi Arabia Signals The End Of Petro Status

January 27, 2023

A Dollar Collapse Is Now In Motion – Saudi Arabia Signals The End Of Petro Status

The decline of a currency’s world reserve status is often a long process rife with denials. There are numerous economic “experts” out there that have been dismissing any and all warnings of dollar collapse for years. They just don’t get it, or they don’t want to get it. The idea that the US currency could ever be dethroned as the defacto global trade mechanism is impossible in their minds.

One of the key pillars keeping the dollar in place as the world reserve is its petro-status, and this factor is often held up as the reason why the Greenback cannot fail. The other argument is that the dollar is backed by the full force of the US military, and the US military is backed by the US Treasury and the Federal Reserve – In other words, the dollar is backed by…the dollar; it’s a very circular and naive position.

These sentiments are not only pervasive among mainstream economists, they are also all over the place within the alternative media. I suspect the main hang-up for liberty movement analysts is the notion that the globalist establishment would ever allow the dollar or the US economy to fail. Isn’t the dollar system their “golden goose”?

The answer is no, it is NOT their golden goose. The dollar is just another stepping stone towards their goal of a one-world economy and a one-world currency. They have killed the world reserve status of other currencies in the past, why wouldn’t they do the same to the dollar?

Globalist white papers and essays specifically outline the need for a diminished role for the US currency as well as a decline in the American economy in order to make way for Central Bank Digital Currencies (CBDCs) and a new global currency system controlled by the IMF…

…click on the above link to read the rest…

Poszar Was Right: Saudis Confirm Non-Dollar Oil Trade Plans In Davos

January 18, 2023

Poszar Was Right: Saudis Confirm Non-Dollar Oil Trade Plans In Davos

Earlier this month, former NY Fed repo guru Zoltan Pozsar wrote one of his most important reports of 2022, in which he described how Putin could unleash hell on the Western financial system by demanding that instead of dollars, Russian oil exporters are paid in gold, effectively pegging oil to gold and launching Petrogold.

Then, China’s President Xi visit with Saudi and GCC leaders marked the birth of the petroyuan and a leap in China’s growing encumbrance of OPEC+’s oil and gas reserves: that’s because with the China-GCC Summit, “China can now claim to have built a ‘special relationship’ not only with the ‘+’ sign in OPEC+ (Russia), but with Iran and all of OPEC+.”

At the time, Zoltan urged the reader to think of the timing of this statement in a diplomatic sense:

“President Xi communicated his message on “renminbi invoicing” not during the first day of his visit – when he met only the Saudi leadership – but during the second day of his visit – when he met the leadership of all the GCC countries – to signal the following:

GCC oil flowing East + renminbi invoicing = the dawn of the petroyuan.“

And now, according to Bloomberg, Saudi Arabia is open to discussions about trade in currencies other than the US dollar, according to the kingdom’s finance minister.

“There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal,” Mohammed Al-Jadaan told Bloomberg TV on Tuesday in an interview in Davos.

“I don’t think we are waving away or ruling out any discussion that will help improve the trade around the world,” Al-Jadaan said.

And echoing Poszar’s comments above, Al-Jadaan appeared to confirm The Kingdom’s goal seeking to strengthen its relationship with crucial trade partners, most notably China:

…click on the above link to read the rest…

Running on Empty, Part V

July 23, 2022

Running on Empty, Part V

When the Dollar is Broken, What Does One Do to Not Go Broke? (Guest Post)

Gary Brode of Deep Knowledge Investing was kind enough to share my series Running on Empty with his readers. This afternoon I’ve invited him to offer his thoughts for my readers, focusing on the implications that Running on Empty has for investments in the years ahead. After you’ve finished here, be sure to check out Gary’s own Deep Knowledge Investing for more insight.

Overview

Contemplations on the Tree of Woe wrote Running on Empty, a three-part analysis of the petrodollar system that was so full of woe that it ran a full four parts. That’s 33% more woe than had been promised. Because we thought the series represented the kind of deep-dive analysis that we admire, we asked the Tree if we could print Part I as a guest post. You can find that piece along with links to parts II, III, and IV here.

Part I of the series explained the origins of the petrodollar system, and noted that it’s the first reserve currency not backed by gold or other precious metals. We’ve made similar comments about the disaster started when US banks in conjunction with the government created the Federal Reserve, and then took the US off the gold standard in 1971.

Part II of the series explained how the system enabled the Federal Reserve to print increasing amounts of currency and enabled Congress to run increasing deficits. Because the US could print dollars for free, we did so and sent them overseas in exchange for foreign goods. This hollowed out the manufacturing base of the US and led to a decline in living standards for many Americans at the same time that the people decrying inequality were pursuing policies that led to more of it.

…click on the above link to read the rest of the article…

Running on Empty, Part IV

June 16, 2022

Running on Empty, Part IV

How the War between Russia and Ukraine is Destroying the Petrodollar System

Welcome to Part IV of Running on Empty, my four-part analysis of the Petrodollar system.

Part I of this series explained that the US dollar is the world’s first reserve currency that is not backed by precious metals. Instead it is backed by other people’s oil. Because of a secret treaty between the US and Saudi Arabia, petroleum can only be purchased with dollars. Every country needs oil, so everyone country needs dollars and sells imports to the US to get them. Demand for dollars has made the USD the primary American export, allowing the US to deindustrialize and financialize its economy.

Part II explained how the petrodollar has grossly enriched American asset holders (stocks, bonds, and real estate) and painfully impoverished American wage earners. Under the petrodollar system, dollars are created by private banks for profit. These dollars are recycled into the economy by OPEC nations, causing stocks, bonds, and real estate to rise. This profitable exchange is enforced by American military might, which punishes any country that seeks to exit the petrodollar system.

Part III explained that for the petrodollar system to function, America needs to be able to project power worldwide to secure international trade and enforce the system. America secures global commerce and projects military power by commanding the World Ocean, by which 90% of all goods are trafficked. To overcome America’s naval supremacy, both Russia and China have sought to establish control of the World Island, the Eurasian supercontinent that houses most of the world’s population and resources. The Russo-Ukraine War is a proxy war between the uncontested master of the World Ocean (America) and the would-be masters of the World Island (China and Russa).

…click on the above link to read the rest of the article…

Running on Empty, Part III

June 9, 2022

Running on Empty, Part III

The Implications of the Petrodollar System for America and World Geostrategy

Welcome to Part III of Running on Empty, my three-part analysis of the Petrodollar system. Part I of this series explained what the petrodollar system is, how it came to be, and what its financial effects have been on the United States. Part II explained the petrodollar’s implications for foreign policy in the Middle East. If you haven’t read those yet, check them out!

In Part III, below, we look at how those implications scale to at the geostrategic level. In Part IV, we’ll discuss how the sanctions brought about by the Russo-Ukraine War might cause the petrodollar system to break down. (I’d hoped to wrap up the series in three parts, but due to length, I had to break it up.)

Ruler of the World Ocean

Many of history’s leading nations — and all of its commercial empires — have been thalassocracies. For the last 207 years, the globe has been dominated by maritime powers. The United Kingdom began the trend in 1815. Emerging as the winner of the Napoleonic Wars, the UK established the so-called Pax Britannica and enforced it with the world’s greatest navy. While Britannia ruled the waves, the sun never set on her flag. Germany tried twice to unseat Britain at sea, and failed both times. Japan tried to turn the Pacific into its own thalassocracy in the form of the “Greater East Asian Co-Prosperity Sphere,” but suffered defeat at the hands of the UK and the US. Since 1945, the UK has gradually ceded control of the oceans to the US. America rules the waves today. The World Ocean is mare nostrum, our pond.

…click on the above link to read the rest of the article…

Running on Empty, Part II

June 2, 2022

Running on Empty, Part II

How the Petrodollar Poisoned Foreign Policy with Financial Profiteering

Welcome to Part II of Running on Empty, my three-part analysis of the Petrodollar system. Part I of this series explained what the petrodollar system is, how it came to be, and what its financial effects have been on the United States. In Part II, I’ll explain the petrodollar’s implications for foreign policy. In Part III, I’ll show how those implications paved the way for the Russo-Ukraine War, and why that’s causing the system to break down.

America’s Chief Export is the US Dollar

As explained in the previous installment, the petrodollar system is based on an agreement between the US and Saudi Arabia. Under the terms of the deal, the US guarantees the security of Saudi Arabia and in exchange, Saudi Arabia guarantees that all petroleum is sold by OPEC for US dollars, with the US dollars re-invested into America via petrodollar recycling. The result: Since everyone needs petroleum, everyone needs US dollars. Oil replaces gold as the hard backing for the dollar. 1

Since the petrodollar system was put in place, the US has enjoyed a comparative advantage in manufacturing currency that no other nation enjoys. Under conditions of free trade, a country produces and exports more of a good for which it a comparative advantage, and produces less and imports more of the goods for which it doesn’t. And that’s what has happened: Since the petrodollar system was put in place in 1973, America has produced more and more dollars and produced less and less of everything else. The dollar is today our nation’s #1 export.

How large is the circulation of US dollars? As of April 2022, the American money supply, which economists call M2, stands at $21,728 Billion Dollars. M2 includes three types of money:

…click on the above link to read the rest of the article…

The Petrodollar Collapse is Here! Disaster for U.S.

March 19, 2022

The Petrodollar Collapse is Here! Disaster for U.S.

US dollar’s dominance in oil markets may face challenge as Saudis reportedly eye yuan-based sales deal with China

March 16, 2022

US dollar’s dominance in oil markets may face challenge as Saudis reportedly eye yuan-based sales deal with China

HANGZHOU, CHINA - SEPTEMBER 04: Chinese President Xi Jinping (right) shakes hands with Saudi Arabian Deputy Crown Prince and Minister of Defense Mohammed bin Salman bin Abdulaziz Al Saud to the G20 Summit on September 4, 2016 in Hangzhou, China. World leaders are gathering in Hangzhou for the 11th G20 Leaders Summit from September 4 to 5. (Photo by Lintao Zhang/Getty Images) — Saudi Crown Prince Mohammed bin Salman and Chinese President Xi Jinping.

Saudi Arabia is in talks to sell oil to China and be paid in yuan, according to the Wall Street Journal.
For nearly 50 years, the world’s top oil exporter has traded crude exclusively in US dollars.
Relations between Saudi Arabia and the US have deteriorated under the Biden administration.

Saudi Arabia is in talks to sell oil to China and be paid in yuan instead of dollars, according to a Wall Street Journal report.

About 80% of global oil sales are done in dollars, and Saudi Arabia has conducted its deals exclusively in the greenback since 1974. So if a Saudi-yuan deal were to be made, it would bolster China’s currency at the expense of the dollar as Beijing looks to challenge US leadership in financial markets.

The likelihood of a potential deal between Saudi Arabia and China has picked up recently, according to the Journal. The longtime Mideast ally has grown unhappy with the US due to the Biden administration’s reluctance to do more in the Yemen civil war and its push to revive the Iran nuclear deal.

In 2020, Biden also promised to make Saudi Arabia a “pariah” over the murder of a journalist. And since becoming president, he has made it clear that he doesn’t consider Saudi Arabia as an ally, but rather as a partner.

What’s more, Saudi Crown Prince Mohammed bin Salam reportedly rejected a request for a call with Biden to discuss Ukraine and boost oil production amid the West’s sanctions against Russia.

…click on the above link to read the rest of the article…

American Exceptionalism Is on the Ropes and the End of the Petrodollar Is Nigh

June 21, 2020

American Exceptionalism Is on the Ropes and the End of the Petrodollar Is Nigh

From the border wall rhetoric to trade wars, Trump is effectively setting up the implosion of the dollar and couching it as pseudo nationalistic populism.

The pressure on the global economy imposed by the measures to curb the COVID-19 pandemic threatens to erode whatever confidence the world still has in the U.S. dollar as a viable reserve currency. A shortfall in U.S. domestic savings, dropping to 1.4 percent of national income, brought on by the drawn-out shutdowns and structural changes to the ways of doing business, such as the phasing out of brick-and-mortar business establishments and the substitution of human labor with robotics, may be the canary in the coal mine of the upcoming economic paradigm shift.

Among the visible signs that a global monetary reset is in the offing is the state of currency speculation markets, which are progressively moving away from the dollar as illustrated by the $1.5 billion slash in short positions in the previous week, the largest in six weeks. A more inconspicuous red flag might be the decreasing power of the U.S. Federal Reserve to affect markets as it has over its relatively short existence with a mere word here or the moving of an interest rate point there.

Just five days ago, Fed chair Jerome Powell declared in a press conference that the U.S. banking system was “so much better capitalized, so much stronger, better aware of its risks, better at managing its risks, [and] more highly liquid…”, that it represented a “source of strength” in this environment of widespread economic pain. In former years, just these words from the head of the U.S. central bank would have been enough to shore up any misgivings by market participants. But exactly the opposite occurred.

…click on the above link to read the rest of the article…

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