Petrodollar system.

There is a historic tavern 17 miles west of Fort Collins in Colorado, right in Cache Le Poudre Canyon. The have bands all summer long (see Website) and they have beer and Rye and Bourbon! They have lots of food! And they have lots of Boobies! The Place is called Mishawaka!

 

I don't wish to toss gasoline on this Fire-hot discussion; however, I have known several WWII Veterans who have all told me during separate occasions that Chennault was bombing the snot out of Japan -with the AVG- for months before their raid on Pearl.

 

Storm

LOL But wasn’t it John Wayne who commanded the Flying Tigers

 

I would rather you commit to a position on this issue. That's why I asked you what exactly you're confused about. But I can see that you're not about to take a position.

Anyway:

Also, So for decades, foreigners always needed more dollars. The US treasury issued extra dollars. And here it becomes very interesting. There is only one way to make these dollars available abroad. Spend them around the world! The US would purchase goods, services, shares, investments etc. But the US never had to deliver anything in return. Foreigners needed these dollars to buy oil. The purchases were just inscribed on the trade balances and the amounts added to the US foreign debt. For the US, the oil trade works like a fairy credit card. Each time more dollars are needed abroad, this means "free" shopping. Nothing can be done about it.

So: $ Collapse in Iran

Now what part do you disagree with?
____________________________________________________________________________________________________________________

Also:

Oil can be bought from OPEC only if you have dollars. Non-oil producing countries such as most underdeveloped countries and Japan, first have to sell their goods to earn dollar with which they can purchase oil. If they cannot earn enough dollars, then they have to borrow dollars from the WB/IMF, which have to be paid back, with interest, in dollars. This creates a great demand for dollars outside the U.S. In contrast, the U.S. only has to print dollar bills in exchange for goods. Even for its own oil imports, the U.S. can print dollar bills without exporting or selling its goods. For instance, in 2003 the current U.S. account deficit and external debt has been running at more than $500 billion. Put in simple terms, the U.S. will receive $500 billion more in goods and services from other countries than it will provide them. The imported goods are paid for by printing dollar bills, i.e., “fiat” dollars.

The Invasion of Iraq: Dollar vs Euro Re-denominating Iraqi oil in U. S. dollars, instead of the euro
___________________________________________________________________________________________________________________________

Also:

CALGARY – When Prime Minister Stephen Harper, standing alongside Chinese Premier Li Keqiang in Beijing’s Great Hall of the People, announced last month that a Renminbi currency trading hub would soon open in Canada, Calgary’s oil and gas sector was paying particular attention.
“I think it probably brings us to a level playing field with the U.S., because right now everything goes through U.S. dollars,” said Greg Stringham, Canadian Association of Petroleum Producers vice-president of oil sands and markets.

The Chinese currency hub, the first of its kind in either North or South America, will allow Canadian companies to deal directly in Renminbi – a move that is expected to save importers and exporters billions of dollars in transaction fees, especially in foreign exchange transactions in and out of the U.S. dollar, while also eliminating an extra layer of uncertainty in the foreign exchange market. For the first time, the Canadian dollar will be valued directly against China’s currency.

The hub would also allow Canadian energy companies to number among the very few producers in the world to sell oil in a currency other than the U.S. dollar. In August, Russia’s Gazprom Neft began accepting Rubles or Chinese currency for oil sales off its eastern coast. Russian president Vladmir Putin has recently described the international oil trade as the “dollar dictatorship.”

As University of Calgary Haskayne School of Business professor Bob Schulz explained, virtually all of the oil trading around the world is denominated in U.S. dollars, thanks in large part to “petro-dollar” agreements struck in the 1970s between the U.S. and OPEC countries like Saudi Arabia. The U.S. agreed to provide the Saudis and other countries protection in exchange for OPEC members selling their oil in U.S. dollars.

‘Level playing field’: Why a Chinese currency hub will help boost Canada’s oil sector
___________________________________________________________________________________________________________________

So, now we've established what the petrodollar system really is and what it does. Do you have any other questions?

 

So the issue seems to be that some people feel there is a risk to the US economy of other countries moving away from the dollar as the international reverse currency.

So what could be done to lessen this risk, well first the US could start by trying to bring down the US debt.

Rescind the Trump tax cuts

Put up taxes on the richest especially inheritance tax

Cut the military budget

Bring in a Tobin tax on market speculation

Work with other countries to bring in internationally tax regulation

Are just a few ideas on that?

Next campaign to get the US involved in a new Bretton Woods agreement but this time get it right. I’ve been pushing for it for years and I think it is on many the wish list of left leaning and liberal economists.

Thing is that most of these ideas would be supported by many on the left and opposed by those on the right so it seems to me that probably the best thing to do to get the ball rolling is to vote for left leaning candidate.

 

Storm

Sounds great and the next time I’m in Colorado it’s a date.

 

Firstly, the U.S. dollar is not the reserve currency because it is valuable; it's valuable because it is the reserve currency.

Secondly, this thread is about the implications of the rest of the world being forced to acquire U.S. dollars in order to purchase oil. I've made that abundantly clear, and have provided sources to back my case. If you don't care to discuss that issue, perhaps you could discuss Colorado, bourbon, boobies, etc. in another thread.

 

What sources, I’ve seen opinions but not sources

What ‘implications’ are you talking about?

And LOL beer, bourbon and boobies are a lot more interesting than your hectoring

 

So for decades, foreigners always needed more dollars. The US treasury issued extra dollars. And here it becomes very interesting. There is only one way to make these dollars available abroad. Spend them around the world! The US would purchase goods, services, shares, investments etc. But the US never had to deliver anything in return. Foreigners needed these dollars to buy oil. The purchases were just inscribed on the trade balances and the amounts added to the US foreign debt. For the US, the oil trade works like a fairy credit card. Each time more dollars are needed abroad, this means "free" shopping. Nothing can be done about it.

So: $ Collapse in Iran

Now what part do you disagree with?
____________________________________________________________________________________________________________________

Also:

Oil can be bought from OPEC only if you have dollars. Non-oil producing countries such as most underdeveloped countries and Japan, first have to sell their goods to earn dollar with which they can purchase oil. If they cannot earn enough dollars, then they have to borrow dollars from the WB/IMF, which have to be paid back, with interest, in dollars. This creates a great demand for dollars outside the U.S. In contrast, the U.S. only has to print dollar bills in exchange for goods. Even for its own oil imports, the U.S. can print dollar bills without exporting or selling its goods. For instance, in 2003 the current U.S. account deficit and external debt has been running at more than $500 billion. Put in simple terms, the U.S. will receive $500 billion more in goods and services from other countries than it will provide them. The imported goods are paid for by printing dollar bills, i.e., “fiat” dollars.

The Invasion of Iraq: Dollar vs Euro Re-denominating Iraqi oil in U. S. dollars, instead of the euro
___________________________________________________________________________________________________________________________

Also:

CALGARY – When Prime Minister Stephen Harper, standing alongside Chinese Premier Li Keqiang in Beijing’s Great Hall of the People, announced last month that a Renminbi currency trading hub would soon open in Canada, Calgary’s oil and gas sector was paying particular attention.
“I think it probably brings us to a level playing field with the U.S., because right now everything goes through U.S. dollars,” said Greg Stringham, Canadian Association of Petroleum Producers vice-president of oil sands and markets.

The Chinese currency hub, the first of its kind in either North or South America, will allow Canadian companies to deal directly in Renminbi – a move that is expected to save importers and exporters billions of dollars in transaction fees, especially in foreign exchange transactions in and out of the U.S. dollar, while also eliminating an extra layer of uncertainty in the foreign exchange market. For the first time, the Canadian dollar will be valued directly against China’s currency.

The hub would also allow Canadian energy companies to number among the very few producers in the world to sell oil in a currency other than the U.S. dollar. In August, Russia’s Gazprom Neft began accepting Rubles or Chinese currency for oil sales off its eastern coast. Russian president Vladmir Putin has recently described the international oil trade as the “dollar dictatorship.”

As University of Calgary Haskayne School of Business professor Bob Schulz explained, virtually all of the oil trading around the world is denominated in U.S. dollars, thanks in large part to “petro-dollar” agreements struck in the 1970s between the U.S. and OPEC countries like Saudi Arabia. The U.S. agreed to provide the Saudis and other countries protection in exchange for OPEC members selling their oil in U.S. dollars.

‘Level playing field’: Why a Chinese currency hub will help boost Canada’s oil sector

 

My Dear Mister B, John Wayne was the quiet man!

 

I like what you say … I think there is merit in it. I will be reading up some more on this topic.

 

So it seems to me there are three main issues –

1) The problem that the US might face if the dollar stopped been the reserve currency

2) People being misled by government and wealth sponsored propaganda (partially covered in Conspiracy or Lobbying and other posts in thread)

3) The US is using its power to pursue its own interests

*

Reserve currency

That has been covered above and as pointed out the solutions to the problem would seem to be coming from the left (Rescind the Trump tax cuts, Put up taxes on the richest especially inheritance tax, Cut the military budget, Bring in a Tobin tax on market speculation, Work with other countries to bring in internationally tax regulation, pushing for a new Bretton Woods agreement)

Propaganda

On the government side we need more transparency and accountability (something that seems very lacking on the right at the moment) and we need to get the influence of money out of politics (again the push for this seems to be coming from the left not the right).

Imperial power

The US is using its power to pursue its own interests well yes – as I’ve said the US is not exceptional so from its inception it has acted like every other state in history, so it seems strange to me that some people have only just woken up to this fact and even more bizarre that they somehow seem to think it only started in the 1970’s with the petrodollar agreements.

Anyway what would people do if they wanted to tackle this? Well they would need to start voting for politicians that were opposed to imperialism and had an internationalist outlook rather than a nationalistic ‘America First’ viewpoint. We live in a much smaller world and also many of the problems facing nation states are global and need global not national solutions.

So it would be about the US trying to pull nations together into something akin to a global governance, dropping its imperialist outlook and thinking in more cooperative ways.

 

This thread is about the petrodollar system; the one that started in the 70s. It concerns how it came about, why it came about, and what it means for all oil exporting nations. If you want to discuss U.S. imperialism, or getting the influence of money out of politics, start your own thread. So far in this thread, you haven't even acknowledged that it exists as I have described it despite numerous, credible sources; you've called it opinion.

In 1944, at the Bretton Woods conference, a new fixed exchange rate was established. All global currencies were pegged to the U.S. dollar. The reason that the rest of the world went along with this arrangement is because if at any time a nation didn’t feel comfortable with the dollar, they could easily convert their dollar holdings into gold at a rate of thirty-five dollars per ounce. Of course, this created a global demand for dollars, which gives the Federal government the “right” to print more dollars. I’m sure that you’re not ignorant of the fact that Washington’s preferred method of dealing with its economic problems is to print more dollars.

By 1971, with a two-hundred billion dollar price tag on the Viet Nam war, other countries were getting nervous because of the growing imbalance between U.S. gold reserves and U.S. debt. The U.S. did not have the money to pay its debts. To add insult to injury, its gold reserves were at an all-time low because other countries started asking for gold in exchange for their U.S. dollars. But instead of doing something about its debt, the U.S. continued to rack up more debt, which in turn increased other countries’ demand for more gold from the U.S. In response, and in contravention of the Bretton Woods agreement, Washington decided to end the convertibility of the dollar to gold.

This brings us to the issue of the petrodollar, which is, for all practical purposes, a “dollars for oil” arrangement to replace the “dollars for gold” arrangement.

Imagine this: you are deep in debt but every day you write checks for millions of dollars you don't have -- another luxury car, a holiday home at the beach, the world trip of a lifetime. Your checks should be worthless but they keep buying stuff because those checks you write never reach the bank! You have an agreement with the owners of one thing everyone wants, call it petrol/gas, that they will accept only your checks as payment. This means everyone must hoard your checks so they can buy petrol/gas. Since they have to keep a stock of your checks, they use them to buy other stuff too. You write a checks to buy a TV, the TV shop owner swaps your checks for petrol/gas, that seller buys some vegetables at the fruit shop, the fruit seller passes it on to buy bread, the baker buys some flour with it, and on it goes, round and round -- but never back to the bank.

You have a debt on your books, but so long as your checks never reaches the bank, you don't have to pay. In effect, you have received your TV free.
This is the position the USA has enjoyed for 30 years -- it has been getting a free world trade ride for all that time. It has been receiving a huge subsidy from everyone else in the world. As its debt has been growing, it has printed more money (written more checks) to keep trading. No wonder it is an economic powerhouse!

Then one day, one petrol seller says he is going to accept another person's checks, a couple of others think that might be a good idea. If this spreads, people are going to stop hoarding your checks and they will come flying home to the bank. Since you don't have enough in the bank to cover all the checks, very nasty stuff is going to hit the fan!
_________________________________________________________________________________________________________________________________

If you have a problem with any of that, let's have it. So, which point would you like to start with?

 

Storch

You haven’t proven anything you have given us some opinions that all.

So are you saying you think ‘very nasty stuff is going to hit the fan’ but have never thought about how to stop or lessen the harm from that?

 

Dick Bove, vice president of equity research at Rafferty Capital Markets, said, "If the dollar loses status as the world's most reliable currency the United States will lose the right to print money to pay its debt. It will be forced to pay this debt."

https://www.usnews.com/opinion/blogs/on-energy/2013/02/27/the-dollars-domination-could-be-ending
______________________________________________________________________________________

Oil can be bought from OPEC only if you have dollars. Non-oil producing countries such as most underdeveloped countries and Japan, first have to sell their goods to earn dollar with which they can purchase oil. If they cannot earn enough dollars, then they have to borrow dollars from the WB/IMF, which have to be paid back, with interest, in dollars. This creates a great demand for dollars outside the U.S. In contrast, the U.S. only has to print dollar bills in exchange for goods. Even for its own oil imports, the U.S. can print dollar bills without exporting or selling its goods. For instance, in 2003 the current U.S. account deficit and external debt has been running at more than $500 billion. Put in simple terms, the U.S. will receive $500 billion more in goods and services from other countries than it will provide them. The imported goods are paid for by printing dollar bills, i.e., “fiat” dollars.

The Invasion of Iraq: Dollar vs Euro Re-denominating Iraqi oil in U. S. dollars, instead of the euro

The above article was written by Sohan Sharma, Sue Tracy, and Surinder Kumar. Sharma is a professor emeritus. Surinder Kumar is professor of economics.
______________________________________________________________________________________

CALGARY – When Prime Minister Stephen Harper, standing alongside Chinese Premier Li Keqiang in Beijing’s Great Hall of the People, announced last month that a Renminbi currency trading hub would soon open in Canada, Calgary’s oil and gas sector was paying particular attention.
“I think it probably brings us to a level playing field with the U.S., because right now everything goes through U.S. dollars,” said Greg Stringham, Canadian Association of Petroleum Producers vice-president of oil sands and markets.

The Chinese currency hub, the first of its kind in either North or South America, will allow Canadian companies to deal directly in Renminbi – a move that is expected to save importers and exporters billions of dollars in transaction fees, especially in foreign exchange transactions in and out of the U.S. dollar, while also eliminating an extra layer of uncertainty in the foreign exchange market. For the first time, the Canadian dollar will be valued directly against China’s currency.

The hub would also allow Canadian energy companies to number among the very few producers in the world to sell oil in a currency other than the U.S. dollar. In August, Russia’s Gazprom Neft began accepting Rubles or Chinese currency for oil sales off its eastern coast. Russian president Vladmir Putin has recently described the international oil trade as the “dollar dictatorship.”

‘Level playing field’: Why a Chinese currency hub will help boost Canada’s oil sector

What do you imagine Stringham is saying. Read the boldened print. Does that tell you anything about whether or not other oil producers sell their oil in other than U.S. dollars? Regardless of how the deal was arranged, or whether or not it was recorded, the fact remains that a country must acquire U.S. dollars to purchase OPEC oil.
_________________________________________________________________________________

From the same article:

As University of Calgary Haskayne School of Business professor Bob Schulz explained, virtually all of the oil trading around the world is denominated in U.S. dollars, thanks in large part to “petro-dollar” agreements struck in the 1970s between the U.S. and OPEC countries like Saudi Arabia. The U.S. agreed to provide the Saudis and other countries protection in exchange for OPEC members selling their oil in U.S. dollars.
__________________________________________________________________________________

Now, in order to deny that the petrodollar system is exactly what I said it is, you can add professor Shulz to the growing list of conspiracy theorists whom you must believe don't understand what you do.
___________________________________________________________________________________

Now, if you have nothing to rebut anything I've presented, then why don't you just own up to it and stop making a fool of yourself.

 

Storch

The US is using its power to pursue its own interests well yes – as I’ve said the US is not exceptional so from its inception it has acted like every other state in history, so it seems strange to me that some people have only just woken up to this fact and even more bizarre that they somehow seem to think it only started in the 1970’s with the petrodollar agreements.

Anyway - So are you think bad things will happen if countries stop using the dollar as the reserve currency but have never thought about how to stop or lessen the harm from that?

I’ve already given some thoughts on that what about yours?

 

So, it would appear that you have changed you mind. Do you acknowledge that what I've been showing you is not simply the opinion of confused people who know nothing about the issue?

 

Storch

Not sure what you mean – I’ve always been telling people that US governments far too often try and push what they believe is best for US interests (the problem often been in the belief) rather than working for the common good.

But I don’t believe there are secret ‘producers of the soap opera’ working things from the shadows as you seemed to imply and I don’t think that all US foreign policy is dictated solely by the petrodollar.

But again - you think bad things will happen if countries stop using the dollar as the reserve currency but have you ever thought about how to stop or lessen the harm from that happening?

 

All nations generally pursue their own national interests defined in terms of power. There's even a school of thought that that's exactly what they should do, and that when they do otherwise, as under Woodrow Wilson or G.W. Bush, they cause trouble for their countries and the world. It's called Realism. (See Hans Morgenthau, Politics Among Nations).

 

That's why it's so hard to discuss anything with you rationally, Storch. You're so prone toward over-generalization and black and white dichotomies that you distort what we're saying. I agree with Professor Shulz that "virtually all of the oil trading around the world is denominated in U.S. dollars, thanks in large part to “petro-dollar” agreements struck in the 1970s between the U.S. and OPEC countries like Saudi Arabia." I'm inclined to be skeptical, though, of the notions that this was some kind of grand conspiracy to dominate the world; that it was the driving force behind U.S. military intervention in Iraq, Libya and Syria; that it's demise alone will bring about the downfall of the U.S.; or that it ties into some broader conspiracy by a power elite. One version of that theory has been put forward by the Mises Institute and its leading disciple Ron Paul, who link it to a critique of the Fed , certain elements of the banking community, and fiat currency. On another thread, you present a full exposition of their ideas about the Fed, the gold standard, and our currency. Yet you won't make the connection here. I wonder why? My interest in sources stems from my discovery that some sites that push the same theory theory are Russian (e.g., Pravda; Sputnik) , while others are Anti-Semitic (e.g., Real Jew News). So I'm cautious about what I believe on the Internet.

Also, I share Balbus' concern that your theory is long on diagnosis but short on cure. Even the guys with the signs "The World Will End Tomorrow!" generally have some sage advice to offer: REPENT!