Petrodollar system.

Discussion in 'Politics' started by storch, Mar 6, 2019.

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  1. Okiefreak

    Okiefreak Senior Member

    Thanks for clarifying. The question remains the same. What, if anything, should we or the United States do about it? If nothing, I guess we can go on to other topics.
  2. storch

    storch The compliant

    You're asking me what the U.S. should do about what will happen if oil producing nations begin accepting other currencies for their oil? It's a little late to be thinking about that. Perhaps if we invade any oil-producing nations who attempt to do so using some pretext to justify such an invasion.
    Last edited: Mar 9, 2019
  3. Okiefreak

    Okiefreak Senior Member

    So the purpose of your thread is to prepare us for our doom? I think the military option would be a bad idea, considering that the BRIC countries and Iran are leading the charge on this, and that would mean World War III, but if the situation is as bad as you say, that would be the likely outcome. I'd say, at minimum, we need to have somebody in the Oval Office who's competent, informed, rational, and level-headed, which would rule out the incumbent. I think we should also not get too excited about future contingencies that depend on a variety of unpredictable variables. Have you built your bunker yet?
    Last edited: Mar 9, 2019
  4. storch

    storch The compliant

    The point of this thread was to show you and others what the petrodollar system is. And the initial mockery from the peanut gallery here confirmed my suspicions concerning their ignorance on the subject.
    Last edited: Mar 9, 2019
  5. Okiefreak

    Okiefreak Senior Member

    Gee, thanks.
  6. storch

    storch The compliant

    Always happy to help.
  7. Okiefreak

    Okiefreak Senior Member

    What a genius! So misunderstood! I'm sure this exercise has done wonders for your reputation among those of us who'd thought you were a disagreeable crank. You can go back to your bunker now.
    Last edited: Mar 10, 2019
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  8. Meliai

    Meliai Senior Member

    Its ok now though. We've been taking notes
    Balbus likes this.
  9. storch

    storch The compliant

    Ah, ridicule; the last refuge of losers. Now, lest visitors think that this thread is a dumping ground for troll shit, let's get back to where we left off:

    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!
  10. Asmodean

    Asmodean Slo motion rider

    Never too late. You sound a bit defeatist if you mean that literally
  11. tumbling.dice

    tumbling.dice I Am Only An Egg Lifetime Supporter HipForums Supporter

  12. storch

    storch The compliant

    Are you implying that Iraq was invaded for accepting other than Federal Reserve notes for their oil?
  13. Okiefreak

    Okiefreak Senior Member

    Not quite. I'm implying that a strain of conspiracy theorists make that allegation.
  14. storch

    storch The compliant

    Oh, that's right. I forgot all about the WMDs over there . . . oh wait, there weren't any. You don't think . . . nah, it's too crazy. Never mind.

    What do you believe will happen should all of those Federal Reserve notes come back home when they're no longer needed to purchase oil?

    No idea?
    Last edited: Mar 10, 2019
  15. Irminsul

    Irminsul Valkyrie

    I give you 1 Irmin buck.

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  16. Okiefreak

    Okiefreak Senior Member

    For other theories as to why we invaded Iraq, see
    Why Did We Go To War? | Truth, War And Consquences | FRONTLINE | PBS
    Why Did We Invade Iraq? | National Review
    Why Did We Invade Iraq? - The Atlantic
    America's unlearned lesson: the forgotten truth about why we invaded Iraq
    What Is the Real Reason George Bush Invaded Iraq? | HuffPost
    Or read Jane K. Cramer, ed. Why Did the United States Invade Iraq.(2011), with articles by five expert analysts who don't place petero dollars high on the list of causes.

    What do I believe would happen if those notes came in? Since it would be an unprecedented situation, hard to tell. I suspect much would depend on the quality of our statesmanship at the time and what currency (euro or yuan) would take the dollar's place as a reserve currency. If the current crew of leaders or one like them is still in office, we're in deep doo doo. If it's people of the caliber of Kennan or Kissinger, maybe they could come up with a creative solution we haven't thought of yet.

    The United States wouldn't be the first nation to default on its debts. Ordinarily, the outcome depends on the relative power relations between debtor and creditors. This may be especially true if the debtor is a nuclear superpower. If the debt is large enough, the debtor has some leverage over creditors (e.g., like the U.S. over China) who wouldn't want to see their investment go up in smoke. Before that would happen, the United States might try to head the situation off by negotiating a deal with all or some oil producing countries like Saudi Arabia, as it did in the first place in 1971. Remember, the original quid pro quo was protection for petrodollars. The burgeoning rivalry between the Saudis and Iran, with Israel in the mix creates a potential situation for Realpolitik to exploit. The Middle East is still a rough neighborhood and the Saudis and oil monarchies are still vulnerable. If diplomacy fails, there's a real possibility of another cold war, or a hot one, or even World War III. How would countries like Japan, Germany, Australia, and France fit into the picture? Or it may just be that the U.S. economy collapses and we enter another Dark Ages. Empires come and go. I n our interdependent world, it is unlikely that if a superpower the size of the United States gets the flu, the rest of the world can escape getting sick.
    Last edited: Mar 10, 2019
  17. storch

    storch The compliant

    The progressive, chronological record of quotes from U.S.Administration officials after the invasion of Iraq shows their claim concerning WMDs to be a glaring embarrassment to the Administration. So . . .

    And Kissinger is one of the crew who struck the petrodollar deal with the Saudis in the first place. What do you think he, or anyone like him, can do to convince all of the nations who are preparing to dump the dollar to not do so? The dumping is a slow process, but it is happening.

    War, in the case of the U.S., is too expensive not to wage. In 2001, Iraq began selling their oil in the Euro. We invaded. In 2010 Gaddafi proposed a new currency called the Gold Dinar to replace the dollar for oil sales. We bombed the **** out of his country, killed him, and effected a regime change. Syria moved away from the Dollar in 06, and Iran in 08. The threat of having oil priced in other than U.S. dollars is what this is all about. There are other geopolitical objectives, sure, such as the pipeline that Syria signed with Iran instead of the U.S.- friendly Qatar, but the Petrodollar is the thing. It is literally the only reason the dollar and US economy is stable.
    Last edited: Mar 10, 2019
  18. tumbling.dice

    tumbling.dice I Am Only An Egg Lifetime Supporter HipForums Supporter

    What's an Irmin buck equal to in dice bucks?
  19. Okiefreak

    Okiefreak Senior Member

    What claim? The "weapons of mass destruction" claim? Who said anything about that. None of the explanations I mentioned feature it. Besides, hindsight and Monday morning quarterbacking tell us nothing about what decision makers at the time were thinking.

    Well, from all reports Kissinger struck a deal that benefited the U.S. considerably, albeit at the expense of the rest of the world. What deal someone like him might strike in the future would be hard for me to predict, since I'm not Kissinger. But the political situation in the Middle East, the vulnerability of the Sunni states to Shia advances, etc., present fertile ground in which a Metternich type might operate. Yes the dumping is a slow process--a comparative trickle--really no basis for linear projections. If China does to petroyuan holders what the U.S. did to petrodollar holders, don't you think some of these countries might put on the brakes. Relatively speaking, China doesn't have the reputation of being a more benevoent and trustworthy trading partner than the U.S..

    Sounds like you may have answered your own question. The U.S. is unlikely to stand idly by while the Lilliputians tie it up. But if it does, c'est la vie.

    As for the petrodollar being "the thing", that's an opinion that isn't widely shared among world politics experts. There's good reason to think that the petrodollar theory is myth, or at least greatly exaggerated.
    Why The Petro-Dollar Is A Myth, And The Petro-Yuan Mere Fantasy
    Debunking the Dumping-the-Dollar Conspiracy
    Oil isn't the commodity it was in Nixon's day. It now accounts for less than 10% of world trade. The oil and gas drilling sector make up between 4.6% and 6.5% of the global economy. I find it hard to believe that petrodollars are the lynch pin of our economy and currency. While it is true that most oil is traded in dollars, the impact of the oil trade is unlikely to be a big factor affecting the value of the dollar. China alone holds over $1 trillion in currency reserves, " more than 200 times the transaction demand for oil. If China reduced its holdings of dollars by just 0.5 percent, it would have more impact on the demand for dollars than if all oil exporters suddenly stopped accepting dollars for oil."A switch away from the dollar would lower its value, to be sure, but it isn't petrodollars per se that are necessarily the problem, and it isn't necessarily a problem for the United States. A weak dollar can be an advantage in stimulating exports, and both the Bush and Obama administrations pursued that policy objective.

    I know that Ron Paul tells it differently. His conflict of interest in selling doomsday currency theories to promote Stansberry Research investment strategies makes his advice suspect.
    Ron Paul Ads Warn of Financial Crisis
    Ron Paul's apocalypse is now - CNNPolitics
    It does give one a sense of security and importance to know the key thing governing U.S. policy, but it's simplistic nonsense. As one commentator remarks
    "Those who believe that oil being traded in U.S. dollars gives the U.S. economy a unique advantage in the global economy have it exactly the wrong way around. The U.S. economy is the central economy in the global system because it is the most open, innovative, and productive economy in the world, and because of this, the U.S. dollar is the most convenient, liquid and reliable medium of exchange. One can imagine another currency challenging it at some point in the future, but only on the basis of the openness of its underlying economy, and the depth of the capital markets denominated in it. And if the euro can't do it yet, why does anyone imagine the yuan is up to the job?" Why The Petro-Dollar Is A Myth, And The Petro-Yuan Mere Fantasy
    Last edited: Mar 10, 2019
  20. storch

    storch The compliant

    Yes, we do know what the decision makers were thinking at the time. They needed to do something about Iraq's decision to accept another currency besides the dollar for their oil. And they used a bullshit WMD claim.

    China holds $1.17 trillion of U.S. government debt. If there is a trade war, China could reduce its U.S. debt holdings a weapon. If that happens, the dollar could fall. Other countries could follow suit and sell their holdings. If China reduces its buying at a time when the U.S. is increasing its supply of new Treasuries, what do you think the effect of that would be? China and Russia are already involved in bypassing the dollar.

    It is unfortunate that the U.S. had to close the gold window because of its debts. It is also unfortunate that its only solution to that problem was to create an oil for dollars system, thereby creating an artificial demand for dollars. As I said before, the U.S. basically taxed the world when it comes to oil purchases. It was only a matter of time before it would end. And the only way to forestall the demise of the petrodollar is to militarily enforce the petrodollar system that is a detriment to those who have to acquire U.S. dollars. How do you think that will end. You refer to the efforts of the rest of the world to untie themselves from the petrodollar scam as them tying up the U.S. But who is the aggressor here?

    Pakistan is ditching the dollar for trade with China — 24 hours after Trump denounced the country
    • A day after President Donald Trump slammed Pakistan on Twitter, the South Asian nation announced it will replace the dollar with yuan for bilateral trade with Beijing
    • As U.S.-Pakistan relations grow increasingly strained, China has been pursuing closer links with the country
    Pakistan is ditching the dollar for trade with China — 24 hours after Trump denounced the country

    This dumping of the dollar is happening. War is the only answer. Do you agree?
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