The petrodollar system entails that oil can be bought or sold only in dollars.
As a result, most countries need (a) to acquire dollars through trade with the US and (b) to keep reserves of dollars in order to meet their oil demand. The net effect is to create global demand for dollars which is anchored in global demand for oil.
Global demand for dollars creates upward pressure on their value which protects (to some significant extent) against losses in purchasing power associated with inflation. This allows the US to pursue policies which might otherwise erode the value of the dollar and accrue large debts without foreign creditors losing confidence in the value of the repayments.
Countries which have attempted to leave the petrodollar system by trading oil in other currencies (Iraq and Libya) have shortly afterward been targeted by the US in military interventions. Some commentators have posited a connection, arguing that the real goals of US foreign policy are to protect the petrodollar system rather than to locate WMDs or fight terrorism. Whether or not this view can be substantiated, it is probably true to say that the collapse of the petrodollar system would be very damaging to the US economy.
Inflation would increase substantially, increasing the cost of business and the cost of living. Foreign countries may no longer be willing to accept dollars in exchange for their exports to the US. This would adversely affect import-based industries. Additionally, foreign creditors may lose confidence – impairing the ability of the US to roll over or its national debt. This could lead to a default, an inability of the government to meet social security obligations and possible civil unrest. In order to offset these effects the US may try, as has been said already, to become more self-sufficient and less dependent on foreign imports. This could be achieved through reversing the balance of trade; shifting from an import-based consumer economy to an export-based manufacturing economy. However, kickstarting a manufacturing base within the US may be difficult as this requires investment and with dollars losing purchasing power, there would be little capital available to invest.
Just my two cents (no pun intended)
Thank you for the most current topic of the century. The narrator could have mentioned why the change and shift. It is because the misuse and abuse of dollar power by US administration- military, sanction, regime change, interference. etc.
Amazing video. While researching the petrodollar, I discovered that it is the single most potent weapon the United States use to gain power over the global economy. Interesting times ahead.
Using USD as a weapon was the original sin. now everyone lost confidence in the dollar as “reserve currency”Investing in other countries’ currencies is sadly not really a great hedge against the dollar given USD is the world’s reserve currency; if the dollar falls, all currencies tied to it will also probably fall. Moreover they are probably all fiat for which they don’t hold any intrinsic value and can be devalued at their associated government’s will.
It is in best interest for everyone for USD not to collapse in a breath. The U.S debt will not be servicable and limitless printing will cease. High interest rates will be needed and liquidity will be squeezed out of the market.
Alex Gladstein joins me for a deep-dive into the petrodollar system and its many hidden costs.
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00:00:00 “What is Money?”
The Dollar’s Pursuit to Peg Itself to Energy
00:06:14 Gold: The Base-Layer of Human Action Historically
00:10:29 The Cost of War and the Suppression of the Gold Price
00:24:47 Gresham’s Law
00:34:17 Gold’s Shortcomings
00:39:24 The Dollar in Search of a New Anchor & The Rise of OPEC
00:48:14 Cementing the Power of the Dollar Abroad
00:52:32 The Dark-Side of Imperialism & The T-Bill Standard
01:01:28 Exacerbation of Wealth Disparity
01:04:35 Fueling War
01:10:21 Oil-Denominated Currency War
01:16:54 Follow the Money!
01:19:37 Flawed Incentives and Rent-Seeking Behavior
01:29:10 Raw Material Surplus and Inflating Food Prices by Design?
01:34:34 Peace Theory and Satoshi’s Appreciation for Gold
01:42:20 Bitcoin: The Most Expensive Property to Violate
01:47:22 Bitcoin Price Manipulation and Suppression?
01:52:40 Theirs’ Law: Bitcoin Driving out the Bad Money
02:00:07 Bullish on America, the Navajo, El Salvador, and Nigeria
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China chosen by Taliban to rebuild Afghanistan another nail in the Dollar & Inflation will get worse