The Tragedy of the US Dollar as Global Reserve Currency

Here is an outline of some of the history behind the US dollar:

      1. During WWI, the US was initially neutral and made a lot of money selling goods to Europe. The US insisted on being paid in gold.
      2. During WWII, the US sold a lot to Europe and was paid in gold.
      3. At the end of WWII, the US held 80% of the world’s gold.1
      4. Bretton Woods: Mount Washington
        Bretton Woods: Mount Washington Hotel

        At Breton Woods, the US set up a self-interested system and was able to get international support for it through sleight of hand in which it labeled the proposed currency a “gold-convertible currency” and then later surreptitiously renamed this the “us dollar” right before the paperwork was signed.

        1. The British (Keynes) told the Americans that there would be bad long-term consequences to the US holding the exclusive global reserve currency. He proposed the BANCOR instead. (1)
        2. Keynes argued that an exclusive US-centric system would distort the American economy by increasing the value of the dollar, (benefiting the finance sector), but hurting exports (manufacturing)
          • This prophecy about the export costs was one of the factors that led to Trump’s rise
      5. The US build the system to be “rigged” in its favor, thinking it would always have a favorable trade balance, but instead, because of the Korean and Vietnamese Wars, as well as the Great Society programs, it ran deficits which created a crisis of confidence with its allies. In essence the US couldn’t follow the rules of its own “rigged” system it had designed.
      6. In Aug 1971, France called the US’s bluff by loading up its dollar bills and sending a “battleship” to New York to retrieve its gold. Did you ever hear press reports about the French battleship retrieving French gold right before Nixon got off the gold standard?
        1. Brittan and Germany were going to follow suit by retrieving their gold, but Nixon took the US off the gold standard first.
      7. Henry Kissinger
        Henry Kissinger

        The US currency was now unbacked, which meant that there was less reason for other countries to use it (or to hold our debt), so Henry Kissinger (and others) developed a scheme to tie the dollar to oil. They did this by negotiating a deal that Saudi Arabia and OPEC agree to require that oil purchasers use dollars for oil purchases.2

        1. Saudi Arabia also agreed to recycle their oil profits into purchases of US Treasuries. This means:
        2. The US prints paper money and uses it to buy oil
      8. Saudi Arabia gets paper in return and buys US debt
      9. A significant demand for US debt comes from oil-related US Treasury purchases, both from oil producers and oil consumers wanting to maintain currency reserves
      10. Horrible Consequences for US and World
        • The US has an interest in maintaining an oil-based system because it backs the US as a global reserve currency.
          1. This leads to disincentives to develop electric cars and alternative energy
            1. Enormous Climate-change consequences which will lead to more refugees and resource wars
          2. This leads to wars in Iraq (2) and Afghanistan (20 years)
            1. Carter DoctrineDid you know that the Carter Doctrine of 1979 proclaims that the US will use military force to “defend its national interests in the Persian Gulf”.
          3. This leads to an alliance with Saudi Arabia because their decision to keep oil priced in dollars keeps the US dollar a reserve currency and generates demand for our debt (US Treasuries)
          4. Saudia Arabia uses oil to fund the military industrial complex ($350 billion over 10 years) by agreeing to purchase US-made weapons
          5. We overlook killing of Jamal Kashoggi
          6. We overlook treatment of women which we claim to care about in Afghanistan
          7. We overlook 9-11,
          8. America is able to borrow more cheaply because the dollar is the global reserve currency. American debt is already high and would be untenable at higher interest rates.
      11. Mark Carney
        Mark Carney

        Alternatives: Former governor of the Bank of Canada and Bank of England – Mark Carney has proposed revising Keynes’s BANCOR idea and developing an alternative to the US dollar

        1. The Council of Foreign Relations said it would be in the interests of the population to give up the reserve currency voluntarily
        2. This likely won’t change because the US leadership has a veto at the IMF (and change is not in the interest of the elite).

  1. Some of that gold was held as safekeeping for European countries.

  2. The US did this through carrots and sticks. They sticks included a threat to invade.