On the 6th of June 1974, the Watergate scandal was in full bloom, the global economy was in the crapper, and I was anxiously awaiting my 13th birthday to become a full-fledged teenager. President Nixon had instituted a national 55mph speed limit, which essentially pissed off everyone who lived west of the Mississippi River. Japan was the China of the day and the Vietnam war was nearing the end of its decade-long stranglehold on Merkin culture.
At that moment, Prince Fahd ibn Abdel Aziz and US Secretary of State Henry Kissinger were sitting down to change the world and create an empire. The Petrodollar Pact, among other things, forced the world to buy oil and gas in US dollars, and created Saudi Aramco, the single most powerful energy company ever.
At the same time, Nixon had ended the Bretton Woods agreement and closed the gold window at the Federal Reserve Bank, thus severing US currency from its Constitutional link to precious metals. This event tied the dollar’s value to energy instead of gold and allowed the dollar to be inflated to unimaginable levels as a debt instrument.
Suddenly, the world desperately needed dollars to buy energy for economic growth, and the US had the power to hand out “aid” and loans — through the IMF created by Bretton Woods — which meant the politicians could go on an economic binge unlike anything seen before, and the inflationary consequences could be exported and amortized over the entire planet.
Fifty years later, the US has $34 trillion in public debt, not to mention the untold trillions in global private debt (namely the Eurodollar) denominated in dollars and tied intricately to US control over energy and the means to pay for it.
And it all ended on Monday.
With the US dollar no longer tied to gold and no longer needed to buy energy, Congress no longer controls global economic growth. Who will buy US Treasuries if they don’t need dollars to buy energy? How will the US be able to sanction its opposition if it cannot hold the dollar up as coercion and incentive? How will Wall Street dominate global finance if the dollar imperative is lost?
The most destructive part is what will happen when nations begin to sell off US Treasuries to diversify their foreign currency reserves and promote their own currencies on a suddenly-level playing field?
The net effect will likely be that the US will no longer be able to export its inflation, and the domestic economy will inflate like a massive balloon, as the politicians scramble to avoid anything sharp. Government spending will perforce come to an inglorious halt, as Congress’ ability to borrow funds dries up. Social safety nets will crater and the country’s socio-economic free ride of the past half century will abruptly end.
On the global stage, US Treasuries will become nearly worthless, and private debt will simply roll over into alternative currencies, such as yuan, rupee and Swiss franc. There will be some amount of turmoil as everyone scrambles to re-denominate contracts and loan agreements, but it will stabilize relatively quickly, especially with the introduction of the BRICS’ new blockchain payment system that circumvents the SWIFT system that has dominated global banking and trade since the introduction of the Petrodollar.
Gloom and doom?
Hard to say. I think life in the US, and especially for the Political Class, is going to get mighty uncomfortable. With crushing debt and waning global influence, the feds will not be able to buy loyalty from anyone, and especially folks at home. The profligate lifestyle that most Merkins have grown up with is coming to a swift (pun intended) and messy end. Certainly the Bumbledicks will no longer have any carrots with which to entice compliance.
The world, on the other hand, will undergo a recession, but it will end quickly as markets are suddenly unshackled by the Petrodollar and vast new opportunities open up for trade and finance.
It seems to me that the spread of Fascism that I’ve railed against for years will be stalled, as the vast buckets of dollars poured into the NGOs and quasi-governmental organizations dry up, along with their influence. All of these interlocking hydras have built their cages on US dominance and the universal need for dollars. This eventuality has likely been the impetus for megacorps like Vanguard and BlackRock to rapidly adopt and expand their crypto ETF holdings.
The most interesting development to watch will be how the Central Banking cabal adjusts (or doesn’t). They have been pushing their CBDCs with fear and panic behind their eyes, but the CBDC system is simply a desperate ploy to compete with blockchain systems and maintain the Petrodollar hegemony under a digitized guise. All indications are that this effort will fail miserably, and national banking systems will be freed of this monkey on their backs.
The direct and iterative effects of the Petrodollar demise are myriad and reach into every aspect of global economic activity.
The Russians have been discussing and planning for the demise of the Western financial system since at least the late 1990s. This is likely the primary impetus behind the current Western war on Russia and its allies. Anyone who has played king of the hill knows that “when you reach the top, you’re on the bottom.” Sitting on a throne is the very definition of paranoia, and the US has become the very definition of complacency after 50 years of inhabiting the High See.
It may take as long to unwind the Petrodollar as it took to build it. There is no telling what the outcome will be, since history has a habit of being non-linear. That it represents the end of a long-standing regime is without a doubt, but how it will shake out in our daily lives belongs to future generations.
With the death of Henry Kissinger last year, everyone who created our current world order is dead, and perhaps that’s a sign that it’s time to move on. It will be a century or more before humanity has a grasp on where we are, much less on where we are going. Profound shifts in power structures have far-reaching and incomprehensible ripples through human events. Western legal systems still use Latin, after all.
What we can say with authority is that the world has irrevocably changed in a way that is and will continue affecting all of us. The severity and benefits depend heavily on our individual abilities to adapt and prosper in the midst of turbulence. Like the recent Singapore Airlines tragedy, where the plane suddenly dropped nearly 200 feet, some will die, some will be injured, and some will survive and sell the rights to their stories.
It behooves us to buckle up and try our best to read the tea leaves. We can assess the most likely scenarios and perform a cost/benefit analysis for each of them. My perspective and experience in Indonesia will likely differ widely from someone in Peoria, but we will all lose something and gain something else.
As the Mandarin proverb says, “乱中有机" (luàn zhōng yǒu jī) — in chaos there is opportunity.
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If death of the dollar stranglehold frees up markets as you say, and hopefully unleashes creativity too, then projects like exploring the solar system might help mankind to rally and refocus. We've been so indoctrinated by the Malthusians that it is difficult to even contemplate what the world would be like without the ghouls who run it now. I literally jumped for joy when Kissinger died, and will do so again when George Soros goes to meet his Maker.
My generation, I'm about 7 years younger than you, was raised on Star Trek among other things. And it was from that corny scripwriting that many of us clamped on to a hopeful future, dreaming of a day when mankind could somehow get along with each other, warp to other planets, and stop our obsession with money. Dialing up dinner on a food replicator or sleeping with sexy aliens were just a bonus. One thing I would miss though, is the cars. Then again, the transport pods we have now don't do much for me so maybe i'm just being nostalgic.
In 1974, I was 22 and hauling garbage on my shoulder for Joey Filiberto Sanitation in Northern, New Jersey. I remember the oil embargo that winter and Americans scrambling to find gasoline for their cars. Long lines and rationing at the gas stations in New Jersey.
The 1970s were a terrible time of high inflation and stagflation in the economy. And at the end was the depression of 1981-82 with 20% interest rates. There was no work at the seaplane base for us mechanics. Airplane sales ended with a thud. No one was even flying or maintaining their planes.
I don't want to go through that again.