BabyBoomers learn the impact of the Petrodollar on Acts of War: Mom and Dad Normal Part 4

This is Part 4 in the Money Series.

U.S. depends on petrodollars, not Middle East gas itself

U.S. depends on petrodollars, not Middle East gas itself

“I’m really glad America was able to help everybody in the world get back on their feet after World War II,” Mom Normal said to her family. “That was a great thing, that we agreed to keep everybody’s gold safe for them, so they wouldn’t have to worry about pirates stealing it.”

“Yes,” said Dad Normal.  “Then all the other countries could put their savings into U.S. Treasury Bonds, which are the safest investment in the world.”

“You do know that buying a U.S. Bond is like loaning money to America, don’t you?” Sue asked. “So nations all over the world have their savings in loans to the US Government.”

“Sure,” said Dad. “That makes sense.  Those other countries can feel good about their savings, because America is Exceptional.”

__________________________________

OPEC and the Petro-Dollar, by Sue B. Normal

Richard Nixon, Tribal Chief of America in 1971, was not a stupid man. As much as he knew he had to disconnect the U.S. Dollar from the gold in Fort Knox, because the vault didn’t have enough gold in it, he also knew this was a BIG problem. Yeah, yeah, yeah, those TV pundits were going to tell the world it didn’t matter, but hell-in-a-hand-basket, it did matter. It mattered a whole lot. Because the reason the gold was all gone was that America was running a trade deficit.

America was buying more goods than it was selling. It was that simple. Other countries were using their national savings to buy U.S. Treasury Debt; that is, they were loaning money to the USA.  And the USA was spending it all, without producing enough goods to pay it back.

Once the Chief closed the wampum window, the dollar began to free fall. Inflation was up. Unemployment was up. Those two are supposed to run opposite each other, but now they weren’t. Something had to be done. The US Dollar could not be a “fiat currency.” It was too important for the global economy.  If the Dollar operated without the backing of Gold, the USA risked its position in world dominance.

So Henry Kissinger, Advisor to the Tribal Chief, thought of something. He went to Saudi Arabia. He offered them United States military protection of their oil fields in return for making Black Gold (Oil) the backing for the U.S. Dollar. If the Saudi’s would agree to accept only U.S. Dollars to buy oil, then the U.S. would protect the oil fields militarily and also protect the price of oil in the market.  Every country that wanted OPEC oil would have to pay for it in U.S. Dollars.  That meant the nations of the world would continue to loan money to America by buying U.S. Dollars through the purchase of Treasury Bonds.

So the price of oil went up, and all the countries of the world could only buy oil through their purchase of U.S. Debt.

What did this mean, in the end?  In the end of the end, it meant the United States of America could print money with nothing to back it. No other country could do that, because they all had to buy their oil by purchasing U.S. Treasury Bonds.  Dollars became themselves the wampum of value.  It meant that the Banksters of the Federal Reserve could print money, loan it to the U.S.Treasury, and keep doing that without limit.  The debt ceiling could always be raised. There was no limit to how much money could be printed. There was nothing to physically stop the printing of more money.  The word for “The U.S. Treasury is printing more money” became “Quantitative Easing.”

And why could the Banksters print more money? Because all they really had to do was raise the price of oil.  It was floating value. Abracadabra. Magic Straw turned into Black Gold. This is why we say “Float a Bond Issue.”

__________________

“Whoa, there, Sue B.” said Dad Normal.  “OPEC decides the price of oil. Not the U.S.Treasury or the Federal Reserve.”

“Sorry, Dad,” said Sue.  “The Banksters decide. You see, nations everywhere must build up a trade surplus, by selling more things to the USA than they buy.  It’s necessary, in order for them to get oil. If they can’t get oil, they can’t develop their economy.  The only way for them to get oil is to have some dollars to buy it with. They can only get dollars by having some savings to buy U.S. Treasury Bonds. It’s not as complicated as it sounds. The system’s rigged so that the USA runs a constant trade deficit, borrows money from all the other countries who want oil, and they all  have to have savings while the USA lives on credit.”

“Sweet deal,” Abe inserted.  “Sweet, sweet deal for the USA.”

“Sweet until it’s over,” piped in Mom.

“Bingo,” said Sue.  “Like every Ponzi scheme, it’s going great until the day some crazy oil-producing country decides it’s going to sell oil to people who don’t have any U.S. Dollars. The Number One Export of the United States, since the advent of the Petrodollar is what?”

“Debt,” said Abe.

“You got it,” Sue told him.  “The US Exports Dollars in the form of government bonds, which are loans to the US Treasury. And in the year 2000, Mr. Saddam Hussein made the mistake of thinking he was going to cleverly bust out of the mold. He tried to make a deal to sell his oil for Euros, instead of dollars.”

“Blam. Gotta slam that move into the ground.” Said Abe, smacking his hand on his knee.

“You betcha, as we say in Alaska. Why do you think we call it Wall Street?”

“Because it’s where Humpty Dumpty sat!” shouted Abe.

Next: What happens when the PetroDollar currency collapses.

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One comment

  1. This also explains the reasons why Gaddafi lost favor with the USA. He wanted to use gold as the standard for African nations in their trading deals with the rest of the world.

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