[Victoribus Spolia]

I am going to make the uneasy and controversial case that the petro-dollar was and is a sensible arrangement, has no real alternatives, and must be protected for both the sake of the U.S. and the global economy. Let me also say, that I do not like this situation as a Gold-Standard guy, but I do not think there are viable political alternatives. So, Long Live The Petro-Dollar!

I. Historical Recap.

For those of you not entirely caught up on monetary history, let me bring you up to speed. I’ll try to make this as brief as possible as monetary history is complex and can be especially difficult for people who do not understand finance or economics at all.

1. For all of human history, Gold and other precious metals of finite quantity served as money par excellence. This is because Gold and other such metals work as a medium of exchange, are fungible, portable, divisible, durable, and work as units of account. Likewise, such moneys prevent what might be called “deficit spending” as a nation could only spend what it had in actual gold & silver etc. Some nations, such as Athens in the Peloponnesian war, debased their gold by re-smelting it with copper in order to produce more coins than they had in their treasury initially. This created an inflationary situation as public trust in the currency led to its devaluation and was a contributor to the Athenian defeat in that conflict against Sparta.

2. Fast-forward to the 20th century, and European powers, as well as America, maintained the Gold Standard. During World War I the U.S. sold food and weapons to the Allies (and sometimes even to the central powers) in exchange for Gold. Because of the expensive nature of the conflict, the United States acquired nearly all of Europe’s gold reserves and would acquire more as it assumed its former role for a good portion of WWII until it entered late following the attack on Pearl Harbor in December 1941.

3. Because the world economy was dependent on Gold, and the arbitrary printing of money has always led to inflationary crash (see #1 above and apply the results to all who have tried fiat currency), a conference was called by world leaders in order to stabilize the global economy to prevent total financial collapse. In 1944 the Bretton-Woods system was devised that enthroned the American dollar. The brilliance of this system was that it allowed the Gold standard to remain globally while most countries did not have their own Gold. This was done by making the U.S. dollar the global reserve currency requiring all nations to first trade in the U.S. dollar to do global exchanges. Because the U.S. dollar was “as good as gold” nations began storing up dollars instead of physical gold given that paper dollars were guaranteed checks for physical gold.

4. The United State then cheated their dependents. The U.S. did this by printing more paper dollars then they had Gold. Essentially, the U.S. was writing bad checks in order to pay for the Vietnam War and Johnson’s “Great Society” welfare program. A bank run began as foreign investors suspicious of the con tried to exchange all of their dollars for Gold, had they succeeded, the U.S. would have fallen into economic collapse along with the entire world (as everyone who used U.S. dollars as gold would have worthless notes and would have to default on debts paid under the assumption that they were worth gold).

5. Nixon knowing the pending crisis, arbitrarily took the U.S. dollar off of the Gold Standard in 1972. The currencies of the world were now in a state of float, and OPEC, being furious over the U.S. con as well the complicity of it and other nations in supporting Israel in Yom Kippur War, placed an embargo on western nations in 1973.

6. To prevent oil from ever being used as a weapon against the U.S., to gain back the dollar’s reserve currency legitimacy, and to also allow the U.S. to spend with impunity without having to suffer any consequence, Henry Kissinger under the direction of Richard Nixon made a deal with Saudi Arabia and the OPEC nations to make the U.S. dollar the reserve currency, but instead of being so for Gold, it was now the reserve currency for oil. The reason oil was different, was because its demand would only increase, though still being theoretically “finite.” This meant, that for as long as a demand for oil increased (with more countries using petroleum based goods), the demand for U.S. dollars would increase throughout the world and therefore the U.S. could print and spend dollars and never really have to worry about “breaking the bank,” or runaway “inflation,” all while still recovering a backing for the dollar and preventing it from becoming a mere fiat currency. This situation now made the U.S. government’s spending the first fiscally legitimate form of deficit spending in human history. Saudi Arabia and various other OPEC states received U.S. protections and military investments in exchange and is why the U.S. has been involved in middle-eastern affairs ever since.

II. The Case for The Petro-Dollar.

1. Let me being by saying, that under the circumstances outlined above, I do not see how an American politician representing American interests could really have done otherwise if presented with the same options. That is, it seemed morally responsible to trade Gold for resources in aiding the allies, the Bretton-Woods system seemed to be a reasonable solution, and the Kissinger plan was equally brilliant. Obviously the U.S. should not have engaged in deficit spending while under the gold standard, but what is done is done. Given the options in 1974, the Kissinger-plan was brilliant, in fact, it was probably one of the most brilliant diplomatic moves in world history.

2. If the U.S. were to arbitrary end the petro-dollar, or if it were ended by someone else, it would invariably lead to economic collapse for both the U.S. and arguably the whole globe, and for basically the same reasons as the bank-run that led to the end of the gold-standard in 1972. Thus it is a marriage that cannot be annulled. The U.S. and the world have a vested interest in the continuation of the Petro-Dollar.

3. The Petro-Dollar has allowed spending unlike anything the world has ever seen and the dollar is not a fiat currency. That is, despite what some libertarians might say, the American dollar is NOT a fiat paper currency and if was, it would have ended before 1980. The Petro-Dollar is backed by something “better” than Gold in the sense that it still gives the dollar a real tangible backing, but unlike Gold, Oil is in continued production, continued demand, and is consumed through manufacturing and combustion. Thus, dollars can be continually printed and wealth grown beyond what physical gold could actually support. Hence, the wealth and prosperity as it currently exists in the world, could not have been achieved by a Gold standard, only by an oil standard.

4. Any instability in the middle-east that would threaten the petro-dollar, or any alliance of governments to bypass it, is by definition a threat to global stability and the actual survival of the United States. Hence, attacking the Petro-Dollar seems to be a perfectly legitimate cause for the U.S. to declare war. Likewise, and this is the most cynical conclusion of all, the U.S. and world leaders have a vested interest in NEVER making public the possible reality of a “peak oil” situation. If they did, even if the end of oil were decades away, it would lead to financial panic among investors and lead to the collapse of the Petro-dollar as public trust devalued it.

I hope I’m wrong, but I don’t think I am……so sing along with me: “Long Live The Petro-Dollar and The Pax Americana!”

[B0ycey]

Who benefits from the Petro-Dollar? Oil is traded in Dollars whilst the Saudis allow it to do so. But oil is not finite. And when it does eventually run out, then what? The Dollar is a ticking time bomb. Only far Eastern investment in it has kept it alive since 2008. Should the Dollar collapse another currency will take over. Perhaps it is only a matter of time before everything is traded in Yaun. American bankers and their thirst for a quick buck by lending money they never had will ultimately destroy their financial sector. And if that occurs, that is the end of the Petro-Dollar.

[Victoribus Spolia]

Who benefits from the Petro-Dollar? Oil is traded in Dollars whilst the Saudis allow it to do so. But oil is not finite. And when it does eventually run out, then what? The Dollar is a ticking time bomb. Only far Eastern investment in it has kept it alive since 2008. Should the Dollar collapse another currency will take over. Perhaps it is only a matter of time before everything is traded in Yaun. American bankers and their thirst for a quick buck by lending money they never had will ultimately destroy their financial sector. And if that occurs, that is the end of the Petro-Dollar.

Be honest, you didn't read my post.

I already outlined that the Petro-Dollar benefits everyone because it saved all world currencies from becoming devalued globally and also enable the U.S. to generate global wealth on a level Gold-backed currencies never could have.

I am also open to peak oil being a reality, but as I stated, if news got out that we had reached peak oil it would create a world-wide collapse as investors would panic and public trust in the currency would cause it to crash. You must understand, after Bretton-Woods, all global currencies traded in U.S. dollars as if they were gold (because we had all the gold), but gold would not allow us to spend more than we had without destroying our currency's value (and therefore the value of all world currencies that were tied to us), but tying our currency to oil does allow us spend with impunity without our currency's value plummeting because oil, unlike gold, has increased production, demand, and consumption, thus we can print more without an immediate crash due to inflationary related public devaluation.

If the Petro-dollar were to end, all currencies would likely collapse and the global economy would likely collapse. America would, naturally, be hit the hardest and would likely dissolve as a state. That is my point, we are in this marriage to the petro-dollar and there is no way out without our own self-destruction. It is in America's interest, and the world's interest, to protect this petro-dollar whether we like it or not. China and Russia are trying to hedge against such a possible end-game, but ultimately, if something happens to the Petro-dollar, the sinking of the entire western economy would still crush their economies as well.

[B0ycey]

I have read you post @Victoribus Spolia, but I don't agree that the Petro-Dollar benefits anyone except the US. Perhaps confidence in the Dollar might be important to global financial sector/nations that have invested in it. And yes, as the financial crash in 2008 proves, the global banking sector seems to be in a knotted web that relies on the US economy more than we can ever imagine. But any currency will always reset itself to a true value if artificially inflated and the only consequence is inflation. However perhaps we are on borrowed time for the next crash which might untie nations from US dominance and if that occurs, there REALLY IS no benefit to anyone for the Petro-Dollar to exist any longer and even OPEC nations might look at Far Eastern currencies as a new reserve currency for oil.

Nonetheless, like the Dutch and their tulips, the Petro-Dollar does unfortunately have an end date that cannot be saved regardless of your desire to do so or the impact it might have to our pockets - and that will be when demand or confidence runs out with oil or we trade oil for universal currencies rather than just Dollars. However oil does have one advantage over gold that might keep this system running for a while yet. Gold is a useless element. Its demand is more due to history value rather than actual value. Nonetheless global warming is making advancements in energy saving technology high so again world oil wells will be like the UK and their coal pits in a few decades time perhaps and become obsolete. And then this really could be the end of the Petro-Dollar. At least the US is high in minerals and food productivity to truly send it into complete economic meltdown (even when oil ceases to be traded in high volume) so I wouldn't have sleepless nights worrying about the future per se. However their global dominance and influence would end should confidence in their currency evaporate and that might result in less foreign intervention and make the world a safer place perhaps.

[SolarCross]

Gold is a useless element. Its demand is more due to history value rather than actual value.

This is objectively not true but I do wonder on the psychology that produces this subjective statement. Care to elaborate?

[B0ycey]

This is objectively not true but I do wonder on the psychology that produces this subjective statement. Care to elaborate?

Perhaps useless was the wrong word to use. 'Isn't essential and can be easily substituted' would have been better. Even advancements in graphene are leading gold to be essentially jewellery candy.

[Victoribus Spolia]

I have read you post @Victoribus Spolia, but I don't agree that the Petro-Dollar benefits anyone except the US. Perhaps confidence in the Dollar might be important to global financial sector/nations that have invested in it. And yes, as the financial crash in 2008 proves, the global banking sector seems to be in a knotted web that relies on the US economy more than we can ever imagine. But any currency will always reset itself to a true value if artificially inflated and the only consequence is inflation. However perhaps we are on borrowed time for the next crash which might untie nations from US dominance and if that occurs, there REALLY IS no benefit to anyone for the Petro-Dollar to exist any longer and even OPEC nations might look at Far Eastern currencies as a new reserve currency for oil.

Nonetheless, like the Dutch and their tulips, the Petro-Dollar does unfortunately have an end date that cannot be saved regardless of your desire to do so or the impact it might have to our pockets - and that will be when demand or confidence runs out with oil or we trade oil for universal currencies rather than just Dollars. However oil does have one advantage over gold that might keep this system running for a while yet. Gold is a useless element. Its demand is more due to history value rather than actual value. Nonetheless global warming is making advancements in energy saving technology high so again world oil wells will be like the UK and their coal pits in a few decades time perhaps and become obsolete. And then this really could be the end of the Petro-Dollar. At least the US is high in minerals and food productivity to truly send it into complete economic meltdown (even when oil ceases to be traded in high volume) so I wouldn't have sleepless nights worrying about the future per se. However their global dominance and influence would end should confidence in their currency evaporate and that might result in less foreign intervention and make the world a safer place perhaps.

This is still meaningless jibber-jabber, and avoids the point that if the Petro-Dollar is devalued it will lead to a crash, why do you think it was instituted in the first place? For shits and giggles?

1. Please understand my point, as an American, who would still like to be on this forum instead of looting, fighting-off looters, and having to live in the woods against my will:

P1: Global/American Economic Crash is Bad.
P2: End of Petro-Dollar is Global/Economic Crash Causing.
C: Therefore, End of Petro-Dollar is Bad.

Does that make it clear to you?

2. Without a Gold Standard following Nixon's ending of the Bretton-Woods System, the entire world economy would have crashed within a few years once the public realized that the currencies were worthless, it would have been a chain-reaction that would have destroyed the entire global finance sector. Oil was an ingenious and superior replacement that would enable the U.S. to reclaim its "good as gold" throne, but also allow it to spend at insane levels to create prosperity and power (which Gold could not do because of its production limitations).

ALL NATIONS are tied to our currency, we are still the reserve currency just as we were under Bretton-Woods, let me explain this since you still seem to be struggling.

P1. All Nations are Non-Crash Interested (because who wants to wreck their own nation)
P2. Petro-Dollar-Ending is Global-Crash-Causing. (because nearly all global currencies are tied to Petro-Dollar as reserve currency)
C. Global-Crash-Causing is NOT Non-Crash-Interested. (That would be a contradiction)
Corollary: All Nations are NOT Petro-Dollar-Ending (Interested). (Thus, nations have no interest in ending the Petro-Dollar if they are sane).

3. That a new "currency" will reemerge after inflationary crash is not a contended point (Gold would likely be it), but you would have to make the political-diplomatic argument as a nation that we must willfully crash our own economy in order for a "different" currency to emerge. What politician or diplomat could seriously sell that argument? Especially when the survival of the state would not be guaranteed by such a risk?

4. The climate-change technologies-development argument is a REALLY bad one to make. Here is why: Green technologies are still dependent on petroleum for their production, and i'm not even talking about how the U.S.'s printing of petro-dollars to subsidize these projects (which could not have happened before the petro-dollar because the tech would have been too expensive and deficit spending as all nations can do now is dependent of the petro-dollar-system). You cannot make advanced solar grids, gigantic wind mills, etc., without machining, trucking, plastic bushings (which are made by petroleum), grease lubrication (also made by petroleum), etc., etc., etc.,

5. If oil failed, Gold would reemerge as the base again, China, Russia, and India have been buying insane amounts of market-gold for their own reserves, which can only be a bad thing. Perhaps they know something about the amount of oil under Saudi Arabia that we do not? Who knows....but the fact is, it is in the economic interest of the United States and all of the nations stuck in this global-system to protect the Petro-Dollar and ride it out into the sunset. If people think it will crash because of peak oil, we are talking about depression, chaos, and collapse the likes of which have not been seen since 1170 B.C., and any scenario that has the Petro-Dollar ending more-or-less has this same result.

6. There will not be an alternative to Gold or Silver etc., the only reason Gold is jewelry candy (commodity-based goods) is because Gold became a subject of exchange instead of a medium of exchange with the rise of the Petro-dollar. Once Oil is gone, Gold will reemerge because Gold has ALWAYS reemerged when other currencies have failed, and ALL, and I mean ALL, non-backed currencies have failed at one time or another. There is no historical exception to this.

[Victoribus Spolia]

@SolarCross,

So, what do make of my thesis? I am legitimately curious.....

[Nonsense]

Well, you are WRONG.

As you say, oil is a finite commodity, when the oil runs out, the $ will no longer be a 'petro-currency' & there will be a run on the currency.

America will be forced to repay it's unsustainable debt due to the 'loans' made by these foreign investors, mainly China & they will not accept paper money in return either.

America will have a number of choices to make, it will have to raise interest rates to maintain the value of the $, which will choke off growth, allowing the $ to fall is not an option for the reasons you set out.

It will have to sell off state assets, including it's gold reserves in order to pay for it's debts, it will have to stimulate growth, as well as choke off domestic spending, to pay for it's debts abroad(raising prices of those exports to reduce the cost will not work).

Against such a background American wealth will diminish(will the rich pay their dues at that point) will the massive increase in division between Americans boil over into civil war?

A 'debt' is a 'debt', which will have to be repaid, foreign countries will both benefit & pay a price for the scenario, which will come about if it's not addressed sooner rather than later.
Russia, China & India will not want to allow a devalued dollar to repay American debts to them.

In fact, Russia & China are continuously exploring their own avenues to undermine the petro-currency status of the Dollar.

That's because of it's dominance of global political power that it bestows on it as the most prolifigate spending country in the world, which achieved super power status on the basis of never repaying it's debts, it's exposure as a 'Fiat' currency will be exposed for all & sundry to see.

This game of 'Monopoly Capitalism' will finally end, the world trading system will become more democratic.

As we say in this country, "From Bond Street to a pi** hole", so too with America, "From Wall Street to a Walmart Bazaar".

ALL national banks are built on DEBT, issuing Bonds to 'foreign' investors or pension funds(good old workers-their savings invested in governments creating the inflation that undermines their pension pots- capitalised on by pension fund companies
paying themselves with the money that Additional Pension Contribution Reliefs have provided them with-never give the suckers an even break)they do NOT own any assets, ALL banks are bad, particularly 'national' ones.

[Victoribus Spolia]

@Nonsense,

I guess I don't see the disagreement here? I completely agree with everything you said, so what is the objection? The issue isn't that the Petro-dollar is exploitative, or that it allows deficit spending, etc (I acknowledged all of that). The issue is that unless a nation WANTS to collapse, than it is in the nation's best interests to protect the arrangement.

China, Russia, and India are trying to bypass the Petro-dollar, but it will not prevent their economies from imploding, for if the Petro-Dollar were to collapse, it would sink the west, and since the "developing" economies of India and Russia and the western-dependent export economy of China is also dependent on the west, the end of the petro-dollar would collapse them too because it would collapse all of their main trading partners.

To say that somehow the collapse is beneficial "in the long run" is not the point, you are probably right, but please tell me how a politician could sell to his population that they must weather a devastating collapse just to shake the untenable amount of wealth they are currently experiencing under the ever abundant petro-dollar system? That would be a great campaign platform:

"Onward to Collapse! Its For Your Own Good! Down With The Petro-Dollar!"

My argument is that it is in a government's best interests to preserve the petro-dollar if the maxim is held that a collapse is NOT good for the state in a general sense. That is all.

Thus, we can bitch about the petro-dollar all day long, but unless we want a chaotic collapse, we ought to ensure its continued existence for as long as we can.

[B0ycey]

This is still meaningless jibber-jabber, and avoids the point that if the Petro-Dollar is devalued it will lead to a crash, why do you think it was instituted in the first place? For shits and giggles?

The Petro-dollar is a system of payment. It's value is pegged to the dollar. The price of oil is determined by supply and demand. So the Petro-dollar itself can't create a crash. But yes, because of the reasons I have outlined, should the Dollar devalue it would lead to a crash because global financial systems rely on the US economy more than we can ever imagine.

1. Please understand my point, as an American, who would still like to be on this forum instead of looting, fighting-off looters, and having to live in the woods against my will:

I have stated before that our views are more likely to conflict. But your writing style and clear understanding of history/current political events means I actually think you are a worthy poster and something that, to be frank, PoFo needs. I have lost count the amount of times I have read things that are 'not true' from people who consider themselves superior on here. I have a good knowledge of history, but I am sure you know more than me on a number of topics. So please don't think I'm looting you. Just do what you have been doing. Say I'm writing shit and explain why. And I will do likewise.

P1: Global/American Economic Crash is Bad.
P2: End of Petro-Dollar is Global/Economic Crash Causing.
C: Therefore, End of Petro-Dollar is Bad.

How does a system of payment result in a crash? A lack of confidence in the dollar would perhaps. So yes, whilst OPEC consider the Dollar a stable currency they will continue to trade oil for Dollars. Nonetheless it isn't likely to be the Petro-Dollar that will cause an economic crash, when or if one occurs, to reduce confident in the dollar and sent the global economy into meltdown. It is more likely to be toxic assets, unpaid debts, along with a spiralling increase in national debt that will do it. i.e. Trump building walls that has no economic value to it and tax relief for the rich whilst the US poor get loans they can't afford.

2. Without a Gold Standard following Nixon's ending of the Bretton-Woods System, the entire world economy would have crashed within a few years once the public realized that the currencies were worthless, it would have been a chain-reaction that would have destroyed the entire global finance sector. Oil was an ingenious and superior replacement that would enable the U.S. to reclaim its "good as gold" throne, but also allow it to spend at insane levels to create prosperity and power (which Gold could not do because of its production limitations).

Sure, if a currency is linked solely to a 'Gold Standard' system and your nation has no gold in the vault, your nations currency is essentially worthless. But really money is an IOU and gold is more of a reserve because of its rareness. Golds value is historically high for this reason and always the go-to element in times of hardship. However yes, nations do hold Dollar reserves and perhaps this is tied to the Petro-Dollar in some way. But if there was a crash and every single currency devalued, savings and your wealth is a problem, but essentially global currencies will reset themselves and you'll have some new high digit notes to work will. So yes, perhaps a crash would have occured soon after 1971, but only if investors believed that there was a chance that nations would be unable to pay back their debts and didn't have the reserve as collateral. But life and the ability to buy things would continue nonetheless. Your possessions are worth something after all. And nations have natural resources and productivity in ideas that, in many ways, have a greater value to them than gold anyway.

ALL NATIONS are tied to our currency, we are still the reserve currency just as we were under Bretton-Woods, let me explain this since you still seem to be struggling.

P1. All Nations are Non-Crash Interested (because who wants to wreck their own nation)
P2. Petro-Dollar-Ending is Global-Crash-Causing. (because nearly all global currencies are tied to Petro-Dollar as reserve currency)
C. Global-Crash-Causing is NOT Non-Crash-Interested. (That would be a contradiction)
Corollary: All Nations are NOT Petro-Dollar-Ending (Interested). (Thus, nations have no interest in ending the Petro-Dollar if they are sane).

[/quote]

True in terms of the Dollar. But the Petro-Dollar will die and there is nothing we can do to stop it. It's a question of when not if. But this is something the bankers need to worry about or nations who hold a lot of Dollars. I suppose that is the problem will an imaginary concept of something, that is essentially worthless - money.

3. That a new "currency" will reemerge after inflationary crash is not a contended point (Gold would likely be it), but you would have to make the political-diplomatic argument as a nation that we must willfully crash our own economy in order for a "different" currency to emerge. What politician or diplomat could seriously sell that argument? Especially when the survival of the state would not be guaranteed by such a risk?

America have already crashed their economy and created toxic assets and unpayable debt. Has things improved? Time will tell. I hope that another crash isn't imminent but that relies on illegal practices of the traders and bankers doesn't it. Is temptation for a quick buck and wealth on paper still inbedded in wall street I wonder?

So what about the dollar? US debt is massive and the only thing keeping confidence in the Dollar that I can see is East Asia's investment in it. Should the dollar crash, I expect people will turn to buying gold. Either that or the Yuan.

4. The climate-change technologies-development argument is a REALLY bad one to make. Here is why: Green technologies are still dependent on petroleum for their production, and i'm not even talking about how the U.S.'s printing of petro-dollars to subsidize these projects (which could not have happened before the petro-dollar because the tech would have been too expensive and deficit spending as all nations can do now is dependent of the petro-dollar-system). You cannot make advanced solar grids, gigantic wind mills, etc., without machining, trucking, plastic bushings (which are made by petroleum), grease lubrication (also made by petroleum), etc., etc., etc.,

True. I think we are a long way from Being oil absent. But the quanity we use is debatable. And that will have an effect on the price of a barrel. After all, we still use coal. But not as much as we did during the industrial revolution.

5. If oil failed, Gold would reemerge as the base again, China, Russia, and India have been buying insane amounts of market-gold for their own reserves, which can only be a bad thing. Perhaps they know something about the amount of oil under Saudi Arabia that we do not? Who knows....but the fact is, it is in the economic interest of the United States and all of the nations stuck in this global-system to protect the Petro-Dollar and ride it out into the sunset. If people think it will crash because of peak oil, we are talking about depression, chaos, and collapse the likes of which have not been seen since 1170 B.C., and any scenario that has the Petro-Dollar ending more-or-less has this same result.

Everyone knows oil is running out. Fracking has delayed it somewhat but not forever. As for gold, we had a crash in 2008 and gold went crazy since then. Any nation with half a brain would do likewise so don't read too much in China, Russia and India buying it. Not that Gold has much value to it in my eyes. Well, not to the extend of total investment anyway. Personally if I was a nation I would invest in technology and industry - the German model. Whilst you can create ideas that people want, you can always trade and create wealth in some form. Gold is only rare to make it worthwhile in investment and in comparison to Carbon a mediocre element at best.

6. There will not be an alternative to Gold or Silver etc., the only reason Gold is jewelry candy (commodity-based goods) is because Gold became a subject of exchange instead of a medium of exchange with the rise of the Petro-dollar. Once Oil is gone, Gold will reemerge because Gold has ALWAYS reemerged when other currencies have failed, and ALL, and I mean ALL, non-backed currencies have failed at one time or another. There is no historical exception to this.

Gold is shiny, soft and great as part of an alloy. But if we lost all the Gold on the earth tomorrow, Gold can be substituted with something else. You couldn't say that about Carbon. Golds strength is being rare. But technology and ideas are worth more than investing in gold. And if you have an economy based on industry, people will always have confidence in your currency in some degree, even if you hold no gold.

[Victoribus Spolia]

@B0ycey,

ummmm....by looting, I meant the consequence of a collapse....you know, people looting shops and stuff....Haha. I wasn't calling you a looter lol. Thanks for the compliments tho! Haha.

The Petro-dollar is a system of payment. It's value is pegged to the dollar. The price of oil is determined by supply and demand. So the Petro-dollar itself can't create a crash. But yes, because of the reasons I have outlined, should the Dollar devalue it would lead to a crash because global financial systems rely on the US economy more than we can ever imagine.

You are misunderstanding a bit, I think, so let me be clear. Whatever role Gold played when we were on the Gold standard, oil plays now. Oil is our reserve for our currency's value because in order to get oil, nations must trade in dollars which increases the demand for dollars, and as demand for oil increases, so does the rate of demand for dollars. And as long as there is a demand for dollars worldwide (in order to get oil), then the U.S. can print as much as it wants to build walls, pay for welfare, pay for foreign aid, etc, etc, etc. America can take out debts and it doesn't matter, wage wars and it doesn't matter, because everyone is trading in its currency WHICH IS ESSENTIALLY THE SAME as trading in oil itself just as before 1972 trading in dollars was the same as trading in Gold itself because we had all the gold. When Saudi Arabia agree to make us the reserve currency for oil, it was as if all the oil belonged to us and everyone else had to come to us to get it (which is why that diplomatic move was so fucking genius besides the fact it literally saved the world after we screwed up the Gold standard)

If you understand that relationship, you will know why we ARE ALL FUCKED. The Petro-Dollar (and I cannot stress this enough) is not merely the system of payment, it is the reserve currency, the only currency with an actual (not fiat value) that keep all other currencies from becoming fiat and becoming publicly devalued. That is, the only reason the Euro is not worthless paper, is because it is tied to the Petro-dollar, which is tied to oil. Oil is what make the dollar worth anything and it is the dollar that makes all other currencies worth anything. If oil runs out, the dollar crashes and all other currencies crash because now the currency is just paper.

This is what people do not understand, the dollar is not just as medium of exchange, it is the only currency that has actual intrinsic value because of its connection to oil, and for all other currencies in the world to get value (because they neither have Gold or oil) they have to tie their currencies to ours in order for them not to crash.

Thus, if oil or the petro-dollar goes down, we go down, and the world goes down with us. IT is this premise that needs to be refuted in light of my points.

Sure, if a currency is linked solely to a 'Gold Standard' system and your nation has no gold in the vault, your nations currency is essentially worthless. But really money is an IOU and gold is more of a reserve because of its rareness. Golds value is historically high for this reason and always the go-to element in times of hardship. However yes, nations do hold Dollar reserves and perhaps this is tied to the Petro-Dollar in some way. But if there was a crash and every single currency devalued, savings and your wealth is a problem, but essentially global currencies will reset themselves and you'll have some new high digit notes to work will. So yes, perhaps a crash would have occured soon after 1971, but only if investors believed that there was a chance that nations would be unable to pay back their debts and didn't have the reserve as collateral. But life and the ability to buy things would continue nonetheless. Your possessions are worth something after all.

This quote above makes me think must sort-of understand, but it does not seem to suggest actual disagreement that the end of the Petro-dollar would lead to crash from currency devaluation, only you seem to take it lightly?

I am legitimately confused as to what your disagreement is with my argument, I know there must be one, but what is it? Why do you think we should actively pursue ending the Petro-dollar knowing it will cause a global crash, or what is your actual alternative to get off of it?

[B0ycey]

You are misunderstanding a bit, I think, so let me be clear. Whatever role Gold played when we were on the Gold standard, oil plays now. Oil is our reserve for our currency's value because in order to get oil, nations must trade in dollars which increases the demand for dollars, and as demand for oil increases, so does the rate of demand for dollars. And as long as there is a demand for dollars worldwide (in order to get oil), then the U.S. can print as much as it wants to build walls, pay for welfare, pay for foreign aid, etc, etc, etc. America can take out debts and it doesn't matter, wage wars and it doesn't matter, because everyone is trading in its currency WHICH IS ESSENTIALLY THE SAME as trading in oil itself just as before 1972 trading in dollars was the same as trading in Gold itself because we had all the gold. When Saudi Arabia agree to make us the reserve currency for oil, it was as if all the oil belonged to us and everyone else had to come to us to get it (which is why that diplomatic move was so fucking genius besides the fact it literally saved the world after we screwed up the Gold standard)

If you understand that relationship, you will know why we ARE ALL FUCKED. The Petro-Dollar (and I cannot stress this enough) is not merely the system of payment, it is the reserve currency, the only currency with an actual (not fiat value) that keep all other currencies from becoming fiat and becoming publicly devalued. That is, the only reason the Euro is not worthless paper, is because it is tied to the Petro-dollar, which is tied to oil. Oil is what make the dollar worth anything and it is the dollar that makes all other currencies worth anything. If oil runs out, the dollar crashes and all other currencies crash because now the currency is just paper.

Surely all currencies are Fiat today. The Petro-Dollar has little impact on this. It's just the way capitalism has evolved.

Anyway, I understand the demand for dollars plays for supply of oil. And I agree this has kept the dollar artificially high and has allowed America to spend without consequence. Perhaps we are all fucked. But only in terms of inflation. After all, oil isn't the only factor in a currency value, certainly not anything that isn't US $ anyhow. So no, even when the Petro-Dollar does end, money won't be completely worthless, just not as valuable as it is today. After all the US are lucky to have a industrial modern country high in natural minerals and is a net food exporter. And so to some extend is Europe. They both will always have something to trade. So it will never be the complete end of capitalism for the Western world.

This is what people do not understand, the dollar is not just as medium of exchange, it is the only currency that has actual intrinsic value because of its connection to oil, and for all other currencies in the world to get value (because they neither have Gold or oil) they have to tie their currencies to ours in order for them not to crash.

Oil has value. The dollars value is determined by confidence. It, like ever single other currency, is determined by demand for it. So while The dollar has the luxury of being traded for oil, it is artfically high. Nonetheless I am not a fan of pegging currencies, but smaller nations do so for trade and tourism reasons, not oil.

So for example in regards of demand for currency with no natural reserve, the Euro remain quite stable regardless of turmoil within Europe. Why? Because Germany (a nation that doesn't have the natural resources of the US or its reserve) has a strong industrial economy that will still be strong regardless if we have a major economic crash or not. And that keeps confidence with the Euro high even when Greece was in the verge of bankruptcy.

This quote above makes me think must sort-of understand, but it does not seem to suggest actual disagreement that the end of the Petro-dollar would lead to crash from currency devaluation, only you seem to take it lightly?

I am legitimately confused as to what your disagreement is with my argument, I know there must be one, but what is it? Why do you think we should actively pursue ending the Petro-dollar knowing it will cause a global crash, or what is your actual alternative to get off of it?

Actually I don't like the Petro-Dollar but I know that it is better to keep the system alive if we can for as long as possible. And the reason would be economics. But I don't fear a major economic crash. When Sterling fell during Brexit, people regarded it as bad. But the reality is, Sterling was far too high at the time. It was having an impact on our exports and many expenses such as rent/morgages/loans/taxes/debt are fixed to sterling anyway so inflation hasn't gone much above 3%. Should a MAJOR crash occur due to the end of the Petro-Dollar, all US goods would still be traded at roughly the same value in dollars as before the crash I suspect. Only imports and minerals would shoot up in value. Rents and any debts would remain the same. And US debt would in real terms reduce in value. The only major impact would be inflation. But we on the West have had it far too easy for far too long. Perhaps a more sober way of life that reduces living standards to the basics wouldn't be all bad. I suppose it really depends on what you want out of life I guess.

[SolarCross]

@SolarCross,

So, what do make of my thesis? I am legitimately curious.....

Economics is very complex, interdependent and reflexive and so almost everyone gets it wrong so I hesitate to make too much comment, also I'm feeling a bit burned out. Some random points:

1. I think fiat money can hold a notional value in perpetuity as long as the issuers maintain trigger discipline and avoid inflating the supply excessively and there are some major players who create a baseline artificial demand for it, usually this is done by tax offices though in the case of the dollar it also done by the petro-economies. So certain floating fiat monies like for example GBP, Euro, Yen actually maintain their value without the help of the USD, simply be avoiding excessive inflation and creating their own demand for it through their tax offices.

2. The petro-dollar was more important for the US than anyone else is my guess and that has to more to do with the US's very peculiar (read nonsensical) way of doing empire. If the petro-dollar collapsed it may or may not be catastrophic for the US and have numerous bad effects for all those holding US dollar or dollar denominated assets and would be somewhat disruptive to international trade but in general the world economy will adapt, because there are alternatives.

3. The US can't use the co-operation of the petro-economies to print an excess of free money without causing devaluation any more than they could when they had everyone's gold. The inflation will show up as devaluation eventually.

4. Gold could indeed return as an international reserve currency but in the internet age it is equally possible that certain new money technologies like blockchain money, bitcoin or similar, would better fit that role given they can be transmitted electronically. I would bet that Gold and other PMs role as money is probably permanently over.

[Nonsense]

[quote="Victoribus Spolia"]@Nonsense,

"To say that somehow the collapse is beneficial "in the long run" is not the point, you are probably right, but please tell me how a politician could sell to his population that they must weather a devastating collapse just to shake the untenable amount of wealth they are currently experiencing under the ever abundant petro-dollar system? That would be a great campaign platform".

The depletion of oil reserves will trigger the collapse, even though there has been some temporary 'adjustment' brought about by ' fracking '.

Economies do 'adjust' to adverse events or course changes such that which oil depletion will bring about, that has to be a 'good' thing.
You cannot hang on to 'wealth', like oil, it's continuously being depleted through deficit spending by the state as a result of the inflation that,that spending or borrowing has caused.

Printing more dollars will not compensate, it makes matters worse because it heaps more inflation on top of existing inflation.

ALL 'national' banks should be privatised, because they hold no real wealth, just DEBT, which needs to be sold, let states borrow money according to the law of supply & demand.
If 'printed' money was stamped with an identifier to known for what it is, no one would buy or accept it, no customs border would allow it through, the carrier would be arrested for carrying 'counterfeit' money, THAT'S WHAT IT IS-NOT 'REAL' MONEY.


In the UK, we hardly produce much coal, what is used is imported, ask any miner to speak truthfully & I feel that the majority would say that their own quality of living has improved as a result.
Which makes the struggles to save mining jobs under THATCHER, an exercise in how the English working class lost everything on that toss-of-a-coin, thank you Mr SCARGILL, what an 'anorak', sacrifice all that the working class struggled for, just for a few miners in his union, which split down the middle anyway over the jobs issue.

Politically speaking, as THATCHER has demonstrated, it's far better to embrace the future than to hang on to the past.

Any politician, here or in America should not be afraid of explaining that to the electorate.

[Victoribus Spolia]

@Nonsense, @SolarCross, @B0ycey,

I really don't think you guys are getting my "hingepin" point on this.

All of you, in your last posts, argued that the dollar is a fiat currency. That is what my thesis "fundamentally" denies.

The petro-dollar arrangement was done TO PREVENT the dollar, and therefore the world monetary system that was tied to it, from becoming a fiat currency and collapsing. The petro-dollar is superior to the gold standard in one sense only, that it allows the dollar to act like a fiat currency in all of the ways a government would want it too, while technically being a stable based-currency and that is because of the ways OIL differs from GOLD as reserve and for no other reason than this.

Under these assumptions, the end of the "petro" aspect of the petro-dollar would make the dollar a fiat currency instantly and collapse it because of the volume of dollars already printed (instant hyper-inflation, devaluation, and default), and would collapse all other currencies that are tethered to it as they have been since the Bretton-Woods arrangement for the global gold-dollar system.

Lets discuss that aspect. I am arguing the dollar is not a fiat currency, it is a reserve currency only with oil instead of Gold, and all other nations still have to trade in dollars as they did in the bretton-woods system (generally speaking) and thus if the petro-dollar goes down, the world goes down.

[B0ycey]

Lets discuss that aspect. I am arguing the dollar is not a fiat currency, it is a reserve currency only with oil instead of Gold, and all other nations still have to trade in dollars as they did in the bretton-woods system (generally speaking) and thus if the petro-dollar goes down, the world goes down.

Firstly I will echo something @SolarCross said and that is economics is complex and even the experts get things wrong. But from my understanding, what you are presenting is an economic theory that the Dollar is hinged to oil. Being that the price of oil alters in a trend that doesn't coincide with the Dollar, this is something I cannot agree with, but would make an interesting dissertation to read I'm sure.

Instead I would argue that the Petro-Dollar is an arrangement that keeps demand (and ultimately the value) for Dollars high. Also because of the size of the US economy, its natural and physical reserve and its globalisation domination from the capitalism model, the Dollar is a currency that oozes the confidence required as a major monetary player that nations will now keep it as a reserve today instead of a commodity of some form. So I would predict that when the oil runs out, perhaps this would cause an economic fallout of some form due to global demand reducing for Dollars and nations holding something that would have reduced its value rapidly (and no longer being able to be used as fallback) and being no more as useful as a commodity than being used as toliet paper. Perhaps a scenario similar to that of the Dutch Tulips crisis occuring maybe?

Now I have got that out of the way, let me return to The Dollar being hinged to oil. Firstly, if I accept this thesis, how do you believe that the Petro-Dollar system is SUPERIOR to that of Gold Standard? Oil is not finite and it literally disappears into smoke. Gold retains its structure and can be traded continuously. It will always have a value. If we accept that the Dollar is not Fiat and is a commodity currency, what you are suggesting is that because oil WILL run out one day and become CO2 instead, it is only a matter of time until the Dollar becomes worthless and toxic too. I don't accept that. The dollar is Fiat. It's value is detemined by the US economy and not oil. When the oil runs out, the dollars demand probably will reduce significantly, but the US do have other things to offer to keep the Dollars from becoming monopoly money and keep confidence in it strong. So I doubt you will need to worry about looters or anarchy. Just the price of imports and minerals instead. Nonetheless from my research on this subject there is a notion put forward by Iran and Venezuela to replace the price of barrels from Dollars to Euros that could end the petro-dollar system in the near future. If that occurs it will be interesting to see if YOUR armageddon of global financial destruction occurs or that MY notion of a short period of slight global hyper inflation that would reduce national and personal debt (in real terms) and that would also force a reset of national currencies valuation (where the rich and savers lose out in wealthy nations) occurs instead.

[SolarCross]

@Victoribus Spolia
I have thought a bit about this but I am convinced the petro-dollar is really not any less a fiat money than say GPB, Euro or Yen, for the reason that oil is NOT a direct substitute for gold for the post gold-standard dollar. Prior to the termination of bretton woods, a dollar was more or less a receipt for some small quantity of gold, it is effectively a deed to a piece of property held in trust by someone else. The petro-dollar is not this! A dollar is not a receipt for a quantity of oil, it is not a title to a quantity of oil.

Fiat monies exchange values are maintained by a regulated supply and an artificial demand. For the GBP, Euro and Yen that demand comes from domestic tax offices mainly while for the "petro" US dollar that demand comes from domestic tax offices and also certain international oil exchanges. The petro-dollar then is a trans-national fiat money but it is not a commodity money nor is it even a pseudo-commodity money. The role that the oil exchanges play in maintaining the value of the petro-dollar is exactly equivalent to role tax offices play in maintaining the value of other fiat monies.

Note the value of the dollar floats against the value of oil, this would not be the case if oil was a substitute for gold in a gold-standard.



See that flat line for gold vs dollar prior to 1973? That's what a commodity standard looks like.



Compare with dollar-oil prices subsequent to 1973... There is no standard, that is a highly volatile float.

The wider artificial demand the petro-dollar achieves helps to spread the impact of inflation across the world thereby softening the impact of inflation on devaluation but it does not cancel it.

[Victoribus Spolia]

@SolarCross, @B0ycey,

Here is how I think a fiat currency should be properly defined: "A Currency that derives its existence purely by the will and power of the state and its value purely by the public trust in the state's imputation of value to that same currency." Thus, the value of a currency is determined purely by the public and its creation is "ex nihilio."

The gold dollar was not fiat because it derived its existence in relation to the amount of Gold in reserve and its value was based upon its correspondence to those reserves and international demand for those reserves.

The petrodollar is not fiat, because its creation is tied to its international demand (which is likewise linked to its value), the value of the petrodollar is based upon its necessity for trading in oil, and; therefore, the dollar's value is based on its correspondence to the "theoretical" reserves of oil in existence (hence serving as a functional equivalent to gold, but with added benefits of ever increasing demand).

Thus, if oil fails to exist, the value by which the dollar is sustained shall cease to exist and it will devolve to a currency that has a value purely determined by the public trust and which is created by the government. Thus its value will no longer be based on its very existence to meet international demand based on a corresponding demand for oil, but on the whim of the state. Thus, for the Petro-dollar to be a fiat currency, it must drop the "petro" aspect. Hence, the petro-dollar is not a fiat currency.

But to answer the objections, The reason we can discuss dollars in terms of the value of oil AND vice-versa is because not only is the dollar the reserve for oil, but America still purchases oil in its own dollar. This, however, is a poor criticism and would have been like criticising the claim of a gold-standard in 1950 by pointing to a slight change in the value of a gold-bar in Nigeria that had been priced in dollars. This fact would not negate the fact that the dollar was based in Gold anymore than saying that the value of a barrel of oil in dollars fluctuating can disprove the fact that the petro-dollar is, essentially, an oil-base currency.

Clear evidence of this can be seen in the U.S. response, with general international "indifference" or support, with attacking nations in relation to their threat to trade in something other than the dollar for oil. Ghadafi tried to create a gold-based-currency alliance, similar to the Euro, for Northern Africa and portions of the middle-east. This is why we bombed him. Suddam Hussein also threatened the petro-dollar before we wiped him out, because he attempted to bypass the Petro-dollar by allowing oil to be traded in Euros directly.

The U.S. actions towards these nations is evidence that if the petro-dollar arrangement is threatened, we respond devastatingly. If we were merely a fiat currency already, none of that would be necessary. But it is.

Let me also address the confusion of increasing oil prices in dollars and the claim that this disproves oil as a functioning base to the dollar: Just because a country has a gold standard, does not mean that it cannot still inflate its currency. America printed more dollars than it had Gold when it was on the Gold standard between 1950 and 1972. Notice this chart of how Gold fluctuated when we were still a Gold-standard currency:

http://www.macrotrends.net/1333/histori ... year-chart

How is this different than the fluctuating price of oil in dollars? This does not negate my claim that the Petro-dollar is an oil-backed and therefore non-fiat currency.

[Nonsense]

The US Dollar's value is directly related to the fact that oil is traded in the US Dollar, were it not, the US Dollar would collapse.

It's NOT because America has oil that gives it value, that's FALSE.

Whether oil, gold, Frankincense or Myrrh, no single country has sufficient supplies or reserves to influence the global price of any commodity over the duration.
The US Dollar will be exposed as a fiat currency when oil reserve depletion exceeds demand for it.
The US Dollar will then NOT be 'pegged' to oil, it's status will then collapse, it will collapse because no other global commodity exist that requires itself to be traded by the US Dollar.

A currency ONLY has 'real' value when it is supported by 'real' assets exceeding the debt created within that currency.

America has for too long dominated the global economy through it's political & economic hegemony, created out of what is essentially worthless paper, alleviated only by it's gold reserves.

To survive economically, it has to do what all other nations do, NOT print money, but create net new wealth out of production & trading.
The FACT is, American products are excessively expensive, too expensive for overseas markets & delivery cost to overseas customers greatly exceed the value of the products themselves in many cases.

Americans got rich during WW2, by selling junk to the UK to counter the fascist threat to the world & what good did it do to the UK?

America is becoming a global joke, it's presidents are a joke, like tin-pot dictators, trigger happy or shirt-lifting to left-wing appeasement with terrorist fascist.

'Democracy' is a SHAM in the West , where politicians suck up to ideological minority groups & ignore absolutely the majority values.