What happens when the petrodollar collapses? Mom and Dad Normal part 5. Baby Boomers and debt ceiling.

dollars

 Part 5 in the Money Series

 

“So let me get this straight,” Dad Normal said.  “The U.S. Dollar is not backed by gold, but it is backed by oil, is that what you’re saying?”

“In the sense that you mostly have to have U.S. Dollars to buy oil,” said his schoolteacher daughter, Sue. “All over the world, people can only buy oil with U.S. Dollars. Venezuela made a few agreements to let Latin American countries barter with them for oil. OPEC, however, still requires payment in US Dollars. Even Russia, the world’s second largest oil producer, requires payment in US Dollars.  The U S Dollar is the world’s global reserve currency. That means nations keep their savings in U S Treasury Bonds, thereby loaning money to America.”

“But I don’t get it,” Mom Normal interjected.  “Why would Russia agree to do that? Why would Middle East countries agree to do it? Those countries hate us! Why would they keep loaning us money?”

“More importantly,” Abe added, swigging his morning breakfast Red Bull, “why do all those other countries have money to loan, while we’re a country with this mega-trillion dollar debt?”

“Well,” said Sue, getting out her flipchart easel and hoisting  her pad of flipchart paper on top, “there is a difference between deciding to do something, and deciding to stop doing something. The entire world started buying oil with U.S. Dollars back when the Dollar was backed by gold, in 1944.  That continued by fiat, when the currency went off the gold standard, and OPEC demanded that the US Dollar payments continue. Times have changed. The world demand for oil has changed. The geopolitics of the world has changed. It looked like a good idea at the end of World War II, when the U S economy was strong relative to the rest of the world? That’s when currency exchanges effectively based themselves on a global standard, the U S Dollar. It doesn’t look like such a good idea now, now that the US exports so much less than it imports.

“We’re basically almost 70 years into a global plan to price trade in U S Dollars. National treasuries all over the world are chock full of United States Government Bonds, which are debt.  So what will happen if those people who are holding the debt, all decide to stop the train.  What if Russia says, “in the future, I will accept payments only in Russian rubles for my oil?”

Abe raised his hand.  “Oooh, oooh, oooh,” he grunted, while stamping his feet up and down.

Sue called on him.

“It depends on how much it happens, and how confident the buyers are in the Russia ruble. If a big oil producer like Russia does it, people will decide whether they want the debt of Russia, or the debt of America. If countries need rubles to buy oil, they have to buy rubles by buying the debt of Russia.”

“Whoa,” said Dad.  “Like that would happen.”  Dad and Mom both chuckle.

“Ha, ha,” laughed Mom.  “Nobody would buy the debt of Russia.  That would be stoopit!”

Sue nodded.  “Exactly.  This system was in place since 1944. So, you see, other countries have to feel comfortable that the debt they are buying is solid debt, that they will be able to get their money back. So they keep buying U S Dollars, because they have confidence in the American economy.  Who would buy the debt of Greece? Or of Spain?”

Abe raised his hand again. “Why can’t countries buy oil in their own currency? Why do they have to change their currency into the currency of another country?”

“Oh, I get that,” Dad told Abe.  “Because the seller of the oil wants to be confident that the currency is sound.”

“We’re back to confidence in the soundness of the currency again,” added Mom.

“There’s that word.  Confidence.  And what puts the Con in Confidence?” Sue asked.

“Public perception,” Abe answered.  “Worldwide public perception.”

“So what did the U S Treasury Secretary, Henry Paulson, think, on that night in 2008 when  he realized Lehman Brothers was bankrupt and the U S economy ran out of money?” asked Sue.

“He thought, OMG, the Tribal Chiefs of the world are going to look in the hole and realize there’s no wampum in there. Then they’re all going to go crazy and declare war on the Banksters and the Banksters are going to be pummeled into oblivion and disappear from the face of the earth.  And I’m a BANKSTER, he thought.”

“Do you think he considered what would happen to the poor people?  All those people who depended on wampum to buy food and shelter? Do you think he worried about whether or not there would still be PopTarts on WalMart shelves?”

“What? The poor people?  No, the poor people don’t need wampum. The poor people operate their economy on Magic Straw.  If they have no bread, let them eat cake, the Banksters said.”

“The important people aren’t poor,” Mom added.  “The important people are the ones who put that money in the hole.  They are the Wampum Makers.  The Banksters worry about the Wampum Makers, not the Poor People. So all the Bankster could think about was: where can I get some wampum to push into that hole.  Fast.”

“Hold it,” Dad interrupted. “The Wampum Makers. Didn’t they give that money to the United States of America in the beginning? Back when there was no country, and a few patriots were trying to start a revolution? The new government needed gold, and the only place to get it was from the Pirates, right?”

“Yeah, yeah, I get it,” added Abe. “The original gold came from the Pirates/Wampum Makers. And then over time, the Federal Reserve started creating money out of Thin Air. “

“So when the Banker needed more money, where did he get it?” Sue asked.

“He had the Federal Reserve print some,” answered Dad.

“And when the Federal Reserve prints money, to stuff into the hole of the Banks, that  means the banks can lend out 100 times more than actually exists. Creating a new $700 Billion by the Federal Reserve, becomes $70 Trillion circulating in the economy,” Mom figured out.

“In the world of digital electronic wampum,” Dad added.

“And where is this world?” Sue asked.

“It’s Wally World!” shouted Abe, pleased with his powers of observation.

“It’s in the mind’s eye,” said Mom.

“It’s in public perception,” nodded Dad.

“Exactly,” Sue affirmed. “The world monetary system is Pretend -Bizzarro World. It exists as a myth, which must be protected.  It’s Santa Claus. As long as everybody keeps believing, those gifts show up under the tree on Christmas morning. But as soon as you stop believing, the magic ends.”

“So Russia can’t switch to rubles for their oil pricing until the whole world believes that the ruble is a stable currency.”

“And no one can risk selling their U S Bonds in any great quantity, because that in itself would de-stabilize the Dollar, which would make all their nation’s stores of Dollars worthless.”

“The world is between a rock and a hard place. The whole world has a vested interest in keeping the dollar strong.”

“No,” said Sue.  “The whole world has a stake in keeping the perception that the dollar is strong. It doesn’t matter what is real. It just  matters that a whole lot of people don’t show up at the Wampum Window asking  for Cash. And why is that, Big Brother?”

And Abe answered, “Because the Cash isn’t there.”

Next: How the Ghost of the Wampum Makers Stole the Global Economy

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