Petrodollar – The Untold Story

The Rise of the Petrodollar System

The petrodollar system originated in the early 1970s in the wake of the Bretton Woods collapse.

President Richard M. Nixon and his globalist sidekick, Secretary of State, Henry Kissinger, knew that their destruction of the international gold standard under the Bretton Woods arrangement would cause a decline in the artificial global demand of the U.S. dollar. Maintaining this “artificial dollar demand” was vital if the United States were to continue expanding its “welfare and warfare” spending.

In a series of meetings, the United States — represented by then U.S. Secretary of State Henry Kissinger — and the Saudi royal family made a powerful agreement.

According to the agreement, the United States would offer military protection for Saudi Arabia’s oil fields. The U.S. also agreed to provide the Saudis with weapons, and perhaps most importantly, guaranteed protection from Israel.

The Saudi royal family knew a good deal when they saw one. They were more than happy to accept American weapons and a U.S. guarantee to restrain attacks from neighboring Israel.

Naturally, the Saudis wondered how much was all of this U.S. military muscle was going to cost…

What exactly did the United States want in exchange for their weapons and military protection? 

The Americans laid out their terms. They were simple, and two-fold.

  1. The Saudis must agree to price all of their oil sales in U.S. dollars only. (In other words, the Saudis were to refuse all other currencies, except the U.S. dollar, as payment for their oil exports.)
  2. The Saudis would be open to investing their surplus oil proceeds in U.S. debt securities.

You can almost hear one of the Saudi officials in a meeting saying: “Really? That’s all? You don’t want any of our money or our oil? You just want to tell us how to price our oil and then you will give us weapons, military support, and guaranteed protection from our enemy, Israel? You’ve got a deal!”

However, the U.S. had done its economic homework. If they could get the Saudis to buy into this deal, it would be enough to launch them into the economic stratosphere in the coming decades.

Fast forward to 1974 and the petrodollar system was fully operational in Saudi Arabia.

And just as the United States had cleverly calculated, it did not take long before other oil-producing nations wanted in.

By 1975, all of the oil-producing nations of OPEC had agreed to price their oil in dollars and to hold their surplus oil proceeds in U.S. government debt securities in exchange for the generous offers by the U.S.

Just dangle weapons, military aid, and guaranteed protection from Israel in front of third world, oil-rich, Middle East nations… and let the bidding begin.

Nixon and Kissinger had successfully bridged the gap between the failed Bretton Woods arrangement and the new Petrodollar system. The global artificial demand for U.S. dollars would not only remain intact, it would soar due to the increasing demand for oil around the world.

And from the perspective of empire, this new “dollars for oil” system was much more preferred over the former “dollars for gold” system as its economic requirements were much less stringent. Without the constraints imposed by a rigid gold standard, the U.S. monetary base could be grown at exponential rates.

It should come as no surprise that the United States maintains a major military presence in much of the Persian Gulf region, including the following countries: Bahrain, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, Egypt, Israel, Jordan, and Yemen.

The truth is easy to find when you follow the money…

The important concept here is that a growing demand “permits” the producer to increase his supply.

Now, let’s conclude our hamburger illustration by imagining that an up and coming rival hamburger company becomes a major competitor with your hamburger restaurant chain. As many of your customers begin visiting your new competitor, the demand for your hamburgers begins to wane. As the demand for your burgers drops, you no longer have a “permission slip” to buy as many frozen patties as you had before. As demand for your burgers continues to fall, it makes little sense to hire more workers. Instead, to remain competitive, you must lay off workers and buy fewer frozen patties just to keep your company afloat. Furthermore, you may even need to sell your existing burgers at a discount before they spoil.

If you decided to ignore the warning signs and continue hiring new employees and buying more patties than were actually demanded by your customers, you would soon find your company nearing bankruptcy.

At some point, logic would dictate that you must decrease your supply.

How it all applies to the U.S. Dollar: Now, let’s apply the same economic logic that we used to explain the increasing and decreasing demand for your hamburgers to the global demand for U.S. dollars.

If it is only Americans who “demand” U.S. dollars, then the supply of dollars that Washington and the Federal Reserve can “supply”, or create, is limited to our own country’s demand.

However, if Washington can somehow create a growing global demand for its paper dollars, then it has given itself a “permission slip” to continually increase the supply of dollars.

This is exactly the type of scenario that the petrodollar system created in the early 1970’s. By creating incentives for all oil-exporting nations to denominate their oil sales in U.S. dollars, the Washington elites effectively assured an increasing global demand for their currency. As the world became increasingly dependent on oil, this system paid handsome dividends to the U.S. by creating a consistent global demand for U.S. dollars.

And, of course, the Federal Reserve’s printing presses stood ready to meet this growing dollar demand with freshly printed U.S. dollars. After all, what kind of central bank would the Federal Reserve be if they were not ready to keep our dollar supply at a level consistent with the growing global demand?

 

Source : http://www.financialsense.com/

To be continued in part 2 Insha Allah

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