Thursday, July 26, 2018

The Petro dollar and You



 

Not interested in the Petro dollar because we don’t use Petro dollars?  We use Canadian or US dollars here?  But these currencies are, more or less, riding on the broad back of Petro dollars.  And I want to suggest to you that these currencies may be on the verge of losing about half of their value in the not too distant future. How come? And how would I know to even suggest such a thing?

 

Because any ole kind of computer search engine will take you to the international agreement at Bretton Woods in New Hampshire in 1944 that made the US dollar the reserve currency for most of the economic world. At the time the US dollar had gold behind it.  And then just stay with your search engine to see when the US departed from the gold standard (1971).  And then…the coup d’état.  

 

In 1971 President Richard Nixon, with presidential adviser and Sec. of State Henry Kissinger made a deal with Saudi Arabia.  Saudi Arabia would sell their oil to the US to be paid, not in their own currency, but in American dollars. And then Saudi Arabia had to agree to buy US bonds with the US dollars they got for their oil. This way the US got both the oil and their American dollars back. Soon all of the oil was globally traded in this way and came to be called the US Petrodollar.

 

However, this kind of a one-sided deal is just not designed to last forever.  Eventually, a few countries started to object to the deal. In 2001 Iraq was the first to ditch the Petrodollar. Saddam Hussein, as president of Iraq, began selling their oil in Euros, which did not require that they buy US bonds or any other kind of bonds in return. But Saddam did not realize that the broad back that held up the Petrodollar had hardened with use into hell fire and brimstone and would cost him his life and his country.  First came the sanctions on Iraq. Then came the bombs.  You already know the outcome of Saddam Hussein’s final struggle against the Petrodollar, but there are some things that probably weren’t brought to your attention…next time.

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