NATALIE DAVIS

The American petrodollar is nearing the end of its existence and its imminent collapse will usher in a tidal wave of reform for the global economy. We need to be aware of the worldwide monetary situation with respect to the end of the petrodollar, especially if we expect to improve it.

The petrodollar can be defined as a notional monetary unit earned by a country from the export of petroleum. Petro-currency has been the main method of world trade for the last 40 years.

In 1971, the petrodollar system was introduced by President Richard Nixon. It removed the United States from the remnants of the Bretton Woods System which had been in effect since 1944. The former system was a global finance plan that emerged from the Bretton Woods conference — a gathering of all 44 Allied Nations in Bretton Woods, N. H. that lasted from July 1 – 22, 1944.

The main goal of the conference was to re-stabilize a global economy that had suffered ruin during the Great Depression and the Second World War. Two major institutions still in use that emerged from the Bretton Woods Conference are the World Bank and the International Monetary Fund.

The major outcome of the conference was the emergence of a gold-backed currency and the agreement that the U.S. dollar would be the world reserve currency.

The Bretton Woods system worked smoothly for some time but encountered difficulty during the Vietnam War. The American government was funnelling their money into a war with a country that had no natural resources to speak of and was thus looked at by most world leaders as a useless conquest.

Leaders of countries like France and Spain began to doubt the stability of the U.S. dollar, which apparently could be printed out of thin air and used as real cash. The French President at the time, Charles de Gaulle, made the astute observation that the U.S. was bankrupting itself with this action due to the fact that they did not have enough gold to back their dollar.

De Gaulle saw this development start to unfold and famously asked the U.S. government to kindly exchange all the U.S. dollars that France had on reserve for gold bars of equal value. He’s quoted in a 1965 speech as saying that “a monetary system based on a single nation’s currency is a danger to the world.”

Nixon, under the terms of Bretton Woods, had no choice but to oblige and France subsequently sat on a hefty sum of gold — a concrete currency backed by thousands of years of trade.

De Gaulle stated during the following press conference that “the gold standard is the ultimate economic system because gold is a neutral judge of the exchange of wealth.” Of course, this irked the American government immensely and they reacted by placing a moratorium on the other country’s ability to do as France had done.

It would seem that Nixon himself realised the U.S. dollar was not as all powerful as he wanted it to be. Nixon paired up with globalist Henry Kissinger and introduced the petrodollar. This series of economic measures taken by the president has since been known as the Nixon Shock. In 1975, every member of the Organization of Petrol Export in Countries agreed to sell their oil only in U.S. dollars.

King Faisal of Saudi Arabia was on board with the plan as he had been promised protection of his oil store by the American military.

The birth of the petrodollar essentially marks the start of a death-backed dollar, meaning that the dollar currently in use is being held in place by sheer force and American military presence in over 150 nations. It is intrinsically worthless and if the U.S. dollar was not the world reserve currency it would literally be impossible for America’s debt to be as high as it is.

This lack of foresight filters down to every American with an overdrawn bank account and maxed-out Visa.

The machine fuelling the intrinsically worthless dollar in America — and globally, when used for trade — is the Federal Reserve Bank. When the American government and banks need money, they don’t issue American notes backed by their own credit, they issue treasury bonds.

So the Federal Reserve creates money from thin air, lends the money to the U.S. and then charges interest on the money. With this system, there will never be enough U.S. currency in existence to pay back the debt it creates.

Since the introduction of the Federal Reserve in 1913, the dollar has lost 95 per cent of its value. The world is becoming disenchanted with this nonsensical method of business and gold and silver are making a comeback. That’s why Russia and China are hoarding gold: they currently have to deal with American inflation whenever they use the petrodollar and obviously that is a negative for them.

This could create a crisis in America in a few years similar to the one Japan has recently been enduring. The loss of Japan as America’s second largest creditor will be detrimental, though Japan is not in as bad of a situation as the U.S. In 2009 they had a trade surplus of $56.2 billion compared to America’s trade deficit of $374.9 billion.

Both countries import most of their oil, but the U.S. can’t afford to pay for their own while Japan can through the export of automobiles and televisions. America has the blessing of agriculture, however, and could be self-sufficient as long as they have oil to run the machinery.

If the U.S. can’t afford to import oil then they won’t be producing any agricultural goods. This massive problem is much less well known by the general public than it ought to be.

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Graphic: Cody Schumacher