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The Value of Fiat Dollars in Relation to the Sale of Crude Oil

27 Dec

Petro-dollars [courtesy Google Images]

Petro-dollars
[courtesy Google Images]

The Washington Examiner recently published an article entitled “Oil industry starts to push to end ban on exports of crude oil.”

That article reported, in part, that:

“The oil and gas industry is seizing on recent comments by [U.S. Department of] Energy Secretary Ernest Moniz to push for an end to the United States’ 40-year-old ban on crude oil exports.

“The American Petroleum Institute says the U.S. energy boom has made the ban irrelevant, citing Energy Information Administration projections this week that domestic oil production would hit a near-record 9.5 million barrels per day by 2016.”

That’s interesting—especially the fact that the ban on sale of US crude to foreign countries began about 40 years ago.

Q:  If the ban on selling US crude oil to foreign countries is lifted, what’ll it mean?

A:  There’ll be more competition as foreign countries seek to purchase US crude.  More competition to purchase US crude oil will cause the prices of US crude and US gasoline to rise.

Q:  Will rising energy prices threaten the fragile US economy?

A:  Almost certainly.

Q:  Therefore, will the national government allow US crude oil to be sold to foreign countries (and thereby raise domestic energy prices) while the economy is still struggling?

A:  You’d think the answer would be No.

But, if so, why has the Secretary of the US Department of Energy advocated an end to the ban on the sale of US crude to foreign countries?  You’d think that somebody should’ve told the Secretary of Energy that we’re not going to do anything to increase energy costs and threaten the economy at this time.  It’s hard to imagine that a prominent officer of the US government would “accidentally” advocate a policy that’s likely to cause an additional drag on the US economy.

Therefore, I’m forced to suppose that the national government may be willing to intentionally risk degrading the economy further in order to support the oil industry prices and profits.

•  This increased risk is particularly interesting to me because the ban on the sale of US crude to foreign countries started 40 years ago—about A.D. 1973.

That’s an interesting era.

Q:  What else happened back about that time?

A:  The US dollar had lost its domestic gold-backing in A.D. 1933; lost its domestic silver-backing by A.D. 1968; and lost its international gold-backing when President Nixon closed the “gold window” in A.D. 1971.  Thus, by A.D. 1972, the US dollar had become an intrinsically worthless, pure fiat currency that was likely to suffer significant inflation and devaluation—and might even become worthless and expire.

However, the Nixon administration cut deals with Saudi Arabia and OPEC whereby those oil-producing countries guaranteed to sell their crude oil for only US dollars.  By means of these deals, Nixon created “petro-dollars” that, although intrinsically worthless, were implicitly backed by foreign crude oil.

I.e., because foreign oil-producing nations had agreed to sell their crude oil for only US dollars, before the other nations of the world could buy crude oil on the international markets, they had to first have intrinsically worthless US dollars.  The resulting international demand for dollars imparted an implied value to fiat dollars.  That implied value allowed fiat dollars to continue to: 1) spend as if they were backed by gold or silver; and, 2) continue to function as the “world reserve currency”.

•  Nixon closed the gold window in A.D. 1971, cut a deal with the Saudi’s in A.D. 1972, and banned selling US crude to foreign countries about A.D. 1973.  These three events may be unrelated, but it’s reasonable to suppose that part of the A.D. 1972 deal with the Saudi’s (and, later, OPEC) to support US dollars included a US promise to stop competing with the Saudis and OPEC in the international crude oil markets.

Thus, it appears possible that, in order to protect the fiat dollar, the US government prevented most US crude oil production from being sold on international markets.

More, because the US wasn’t selling in the international crude oil market, the fiat dollars that were being pumped into foreign countries and foreign crude oil markets would not come back to the US to purchase US crude oil.  (Perhaps, the US gov-co was not about to sell US crude for something as worthless as US dollars.)

The “petro-dollar” scheme worked brilliantly until A.D. 2000 when Saddam Hussein began to sell Iraqi crude for euros.  Doing so threatened the petro-dollar’s hegemony as the only “world reserve currency” and implied value.

Under the pretext of destroying Iraq’s Weapons of Mass Destruction (WMDs), our government invaded Iraq, hanged Hussein, supplanted the Iraqi currency with fiat dollars and subjected the Iraqi people to eight years of war.  But there were no WMDs.  Our government invaded Iraq for no valid reason that was publicly disclosed.

I have no doubt that the real reasons for the Iraqi War were: 1) to stop Iraq from selling its crude oil for currencies other than fiat dollars; and, 2) send a message to every other oil-producing country that if they dared to sell their crude for currencies other than dollars, they’d get a dose of the same “shock and awe” that terrified Iraq.    But if these were the true reasons, the invasion of Iraq failed.

Today, ten years after the A.D. 2003 invasion, the dollar’s value as measured on the US Dollar Index has declined from 125 to 80—a loss of 36%.  Given that the US Dollar Index calculates the value of the fiat dollar against six other fiat currencies that are also falling in value, the real loss in US dollar purchasing power over the past ten years is probably somewhere between 50% and 70%.  Thus, the invasion of Iraq did not succeed in protecting the value of the fiat dollar.

In the last five years, some nations have begun to follow Iraq’s example and are selling their crude oil and other products to other nations without any intervening use of fiat dollars.  As a result, the US dollar’s status as World Reserve Currency has been diminished.  The invasion of Iraq failed to fully protect the “world reserve currency”.

Because the fiat dollar has lost much of its purchasing power and is certain to continue to do so, the fiat dollar is no longer deemed to be “good as gold”.  People, institutions and governments that were once content to store their wealth in the form of fiat dollars are beginning to doubt that the dollar can protect their wealth and are therefore dumping dollars.  As a result, the flood of fiat “petro-dollars” that we pumped out into the world since A.D. 1972 have begun to stream back into the US as foreigners buy US land, resources, buildings and infrastructure.  The cultural norms of this nation will be compromised by the inflow of foreign-held dollars.  Our petro-dollars are coming home to roost.

•  The purpose for the previous stroll down memory lane is to illustrate that, since A.D. 1972, the perceived value of the US fiat dollar has been largely dependent on the dollar’s relationship to the sale of crude oil.  That relationship included a ban on the sale of US crude to foreign countries.

But today, the US oil industry and the US Secretary of the Department of Energy are advocating a restoration of the sale of US crude to foreign countries.

Q:  If that restoration takes place, will it constitute a break in the former agreements with the Saudi’s and OPEC?

Q:  If so, will those agreements therefore die?

Q:  If those agreements die, will the US fiat dollar lose its last vestige of support as a “petro-dollar”?

Q: Will the fiat dollar’s status as World Reserve Currency be further compromised?

A:  Yes, Yes, Yes, and, umm, Yes.

• But, more importantly, if (as implied by the US Energy Secretary’s remarks) the US is:

1) Preparing to allow the sale of US crude oil to foreign countries; and,

2) If such sales will strip the fiat dollar of much of its apparent value; then,

3) Does that mean that the US is approaching a moment when government will intentionally allow the value of the fiat dollar to fall dramatically?

If so, does government’s apparent intention to lift the ban on selling US crude to foreign countries signal that government is getting ready to let the fiat dollar die?

I.e., if the original, A.D. 1972 deal with the Saudi’s and OPEC included a promise to ban selling US crude on foreign markets, but the US government now opts to lift that ban, does that lift break the original deal?  If so, will the Saudi’s and OPEC begin to sell their crude for currencies other than fiat dollars?  If the US dollar is no longer required to purchase foreign crude oil, what will remain to sustain the illusion of fiat dollar value?  Without the implicit backing by crude oil, won’t the fiat dollar lose much more value and perhaps die?

If the gov-co is ready to intentionally precipitate that chain of events, does that signal that gov-co has decided to intentionally collapse the fiat dollar?

 
26 Comments

Posted by on December 27, 2013 in Energy, Money, Values

 

Tags: , ,

26 responses to “The Value of Fiat Dollars in Relation to the Sale of Crude Oil

  1. Adrian

    December 27, 2013 at 1:19 PM

    The US dollar is getting globalized like all other commodities.
    Uniformities will be the norm on the global scale.Very soon our standard of living will have to mach
    China’s.
    Most of America’s manufacturing is gone to China.
    We are a welfare society now.

     
  2. bobby90247

    December 27, 2013 at 1:22 PM

    We ALL know invading Iraq was for the benefit of Bush…alone! AND, their “money-mongering” empire! NOTHING MORE…NOTHING LESS! However, this CULT of Islam has entered the picture and thrown a “monkey-wrench” into the machinery. There is no longer a NWO “hold” on the World especially with China in the picture…now!

    In ALL actuality, the “playing field” is, leveling out! Sure, there are “still” a couple of “key” entities involved, but they are at “odds” with one another.

    Mark my words…There IS another “entity”…outside of ALL the entities known to us “nudging” thing “here & there” in the direction “they” want things to go! It is “ever so gently” so as NOT to raise suspicion among any of the existing “entities.”

    Call it “intuition”, if you want. BUT, in a speech to the World from the U.N., that Obama made, soon after his first election to office, for those that were “paying attention”…it was clear that he did not know what he was saying but the “word” was clear…this “other” entity…IS IN CONTROL!

    NOT…the entities of this World.

     
    • Applessence

      December 27, 2013 at 10:32 PM

      I am thinking you are probably correct, and those ‘entities’ have been manipulating for a very, very long time…..but most people, probably even here on Alfred’s page, still won’t be paying attention. Good that you are! I don’t feel so all alone now ; )

       
      • bobby90247

        December 28, 2013 at 12:17 PM

        NO! You are NOT all alone, Applessence! There are a few of us that have risen or can see, through all the propaganda that is being spewed out by government, BIG Business, and Main Stream Media every day! The propaganda is simply becoming so BLATANT in recent days, that it is mind-boggling to some of us, as to “Why” so many people ARE BLIND TO IT!

        “YOU” know what I’m talking about! The ONLY reason I don’t worry about all of this, IS my “knowledge” of Jesus Christ!

        Take Care and God Bless!

         
    • kanani

      December 29, 2013 at 10:17 AM

      China is owned by the west. What style of dress do top politicians and businessmen wear? A suit and tie.

      Plus the Jesuits have been there for a couple hundred years.

       
      • bobby90247

        January 1, 2014 at 12:27 AM

        “…West…???” What makes up the “West?” The “Chinese” own “hands-down” MOST of the California “Farm Lands”…a little known FACT!

         
    • Art Simpson

      December 31, 2013 at 12:43 PM

      The other entities are principalities and powers of darkness ie: Satan

       
      • kanani

        January 1, 2014 at 8:18 AM

        The Western Empire.

         
    • J.M.

      January 8, 2014 at 5:55 PM

      bobby90247
      @ > this “other” entity
      Tell me more about this “other entity.”

       
      • bobby90247

        January 10, 2014 at 6:14 AM

        “Wish I could…wish I could…”

        Ask yourself, “Why not?”

         
  3. Martens

    December 27, 2013 at 4:58 PM

    If US oil becomes globally available, this will increase the supply of oil in the global market, pushing oil prices down.

    An increase in supply causes a decrease in price. This could be the real reason for the policy change.

    As to the real reasons for the war in Iraq, they had little to do with oil. Regime change in Iraq, Libya, Syria and Iran was publicly called for by the Project for the New American Century (PNAC) think tank founded by William Kristol and Robert Kagan, which George Jr. brought with him to the White House to 2001. This is where to look, for those genuinely interested in the truth.

    In 2007, Gen. Wesley Clark gave a revealing speech about this undue influence of PNAC, videos of which are all over the internet.

     
    • Adask

      December 28, 2013 at 8:04 AM

      You make a good point about the supply of oil on the global market increasing and the global price going down. But, at the same time, the demand for US oil might go up and therefore, the price of US oil might increase.

       
  4. tom

    December 27, 2013 at 5:58 PM

    1.) If there is to be true liberty, e en the oil companies should be allowed to sell to whomever they choose but, this just further proves they are arms of nwo imperialism.
    2.) Oil is an abundant resource, could it be they want to destroy incentives of others researching and becoming energy independent therefore rejecting climate lies, imf banking, and world government?
    3.) More demand for energy does in the immediate cause prices to rise but competition spurs more technological development and eventually makes drilling more efficient and prices begin to fall relative to true value of money.

     
  5. Jetlag

    December 27, 2013 at 6:38 PM

    Adask asked, “If the US dollar is no longer required to purchase foreign crude oil, what will remain to sustain the illusion of fiat dollar value?”

    The US dollar has plenty going for it besides oil sales to sustain its value. For example, from the article What is the status of the international roles of the dollar?:

    – Dollar holdings make up a large share of official foreign exchange reserves, the foreign currency deposits and bonds maintained by central banks and monetary authorities.

    – In international trade, the dollar is widely used for invoicing and settling import and export transactions around the world.

    – The dollar is a major form of cash currency around the world. The majority of dollar banknotes are estimated to be held outside the US. More than 70% of hundred-dollar notes and nearly 60% of twenty- and fifty-dollar notes are held abroad, while two-thirds of all US banknotes have been in circulation outside the country since 1990.

    – The dollar remains prominent in exchange rate arrangements. While the dollar was the central currency in the Bretton Woods period, today there are alternative choices available. Nevertheless, many countries have dollar-based exchange rate arrangements. With exchange-rate regimes defined according to the Reinhart and Rogoff (2004) approach, seven countries currently are dollarised or have currency boards using the dollar and eighty-nine have a pegged exchange rate against the dollar. The share of countries linking their currency to the dollar in some manner has been stable since 1995, and this group represents more than a third of world GDP (excluding the US).

    – The dollar remains the dominant currency in foreign exchange reserve accounts. Foreign governments’ foreign exchange reserve accounts, essentially the governments’ foreign currency savings, can be large. In 2009, dollar assets accounted for about two-thirds of the reserve assets of industrialised and developing countries.

    – The dollar is a leading transaction currency in the foreign exchange markets. With an 86% share in the volume of international trade and financial markets – more than twice the share of the euro – the dollar continues to dominate these markets. Turnover volumes in the foreign exchange markets have more than doubled in the past decade, implying large numbers of transactions measured in reference to, or involving, the dollar.

    – Another likely contributor to the dollar’s leading role in foreign exchange transactions is the currency’s widespread use in the invoicing of international trade. As shown in Goldberg and Tille (2008), the use of the dollar in export invoicing is substantial and far exceeds what could be explained by country exports to the US. Some of the countries with strong dollar use are in proximity to the US (Canada, Mexico). Latin American, and Asia, or are commodity-intensive exporters.

    – The dollar also serves as a prominent currency in the international debt markets (European Central Bank 2009, Couerdacier and Martin 2007, and Thimann 2008). One measure is the share of all outstanding debt securities, issued anywhere in the world, denominated in dollars. According to this measure, the dollar’s share stands at approximately 39%, down only slightly from a high of 42% in 1999. The dollar remains the primary financing currency for issuers in the Middle East, Latin America, Asia, and the Pacific area. The euro dominates issuances in Scandinavia, the UK, and the new member states of the European Union. Issuers in Africa have roughly an equal reliance on dollars and euros.

    http://www.voxeu.org/article/dollar-s-international-roles

    These important roles of the US dollar will remain to sustain its value after the arrival of new alternatives for oil purchases.

     
    • J.M.

      December 28, 2013 at 10:48 PM

      What is a “U.S. Dollar?”

       
      • Pat Fields

        December 28, 2013 at 11:48 PM

        The best I can determine, J.M., it’s a word divorced from anything in reality, which government has taken proprietary interest in.

        A few years back, a Michigan Judge was logically forced to concede that the word ‘dollar’ can be ascribed any conceivable meaning. When asked if a coffee bean would meet that criteria, he stipulated to it on the record (inadvertently) and the defending litigant then ‘paid’ the claim against him in coffee beans, which had to be upheld by the court!

        At the time, it became a celebrated case within the ‘Patriot Community’ and the Barristocracy quickly made it vanish from the record. Even now, the Michigan court system won’t issue a transcription of the case … at any price offered for the service.

         
      • Jetlag

        December 30, 2013 at 6:24 PM

        @J.M. > What is a “U.S. Dollar?”

        Wikipedia has a good article with an interesting historical section which goes into the Spanish milled dollar, etc.:

        “The United States dollar (sign: $; code: USD; also abbreviated US$), is referred to as the U.S. dollar, or Federal Reserve Note. It is the official currency of the United States and its overseas territories. It is divided into 100 smaller units called cents.”

        http://en.wikipedia.org/wiki/United_States_dollar

        Note the ISO 4217 code of the US dollar. From a different article:

        “ISO 4217 is a standard published by the International Standards Organization, which delineates currency designators, country codes (alpha and numeric), and references to minor units…”

        http://en.wikipedia.org/wiki/ISO_4217

        So perhaps the most precise way to identify what is generally referred to as a “US dollar” is: ISO 4217 code 840.

         
  6. Yartap

    December 27, 2013 at 10:20 PM

    As the United States has increased domestic crude oil production, which has caused net crude oil importation to decline; China has surpassed the United States in net importers of crude oil, thus becoming the world’s largest importer of crude oil. But, what else that has caused China to become the leader in imported crude, is the fact, that it has had a 20% increase in two years by either, consumption or storage.

    China has big plans for their future as seen by the large number of crude oil refineries it has, which only refines at 50% of capacity. Crude oil refineries make up 78% of its liquid fuels, while 22% is supplied by fuel oil refineries. It is these fuel oil market’s supply that are so unreliable, that causes China to lean towards more of the crude oil market for supply.

    So, as the United States decreases it imports of crude oil, China is ready to step-in as a buyer for what America left. And the United States government and oil producers see this and the trend of China’s consumption increase. Thus, the call for lifting the U.S. band on exporting crude oil. It’s mainly about gov-co. making money, and the U.S. oil producers gaining more market share with the next largest consumer of oil, China.

    Don’t worry about the Saudis, they are part of the PTB. Selling crude oil to the Chinese only brings them back into using the dollar.

     
  7. Applessence

    December 27, 2013 at 10:38 PM

    uhhhhhhh, does this mean GovCo lied and the Keystone Pipeline is not about benefitting We the People at all ? (What a surprise,,,,,,,)

     
    • J.M.

      December 30, 2013 at 8:33 PM

      Applessence,

      uhhhhh, EVERYTHING GovCo does is for the purpose of benefiting We the People & none other.. This is true because GovCo thinks whoever comprises IT, are, We The People. Take a look sometime at the monuments,etc in front of the I.R.S. Headquarters in New Carrollton, Maryland.

      It is a government building that, despite being constructed with public funds, contains art referring to elite secret societies. More importantly, the art conveys a strange message about the U.S. Constitution, and the American people in general. We’ll look at the symbolic meaning of the art found in front of the IRS headquarters in Maryland. (Source below)
      Read more at http://vigilantcitizen.com/sinistersites/sinister-sites-irs-headquarters-maryland

       
  8. Pat Fields

    December 28, 2013 at 3:56 AM

    All paper currency is worthless anyway because of the fundamental way the banknote (or government Treasury Note clone) scheme has to be constructed by necessity. It automatically inflates and concurrently increases indebtedness … infinitely. They’re ALL mathematically doomed to self-destruction in an exponential pattern that inexorably culminates by hyper-inflation.

    The most odious feature, however, is that a borrowed Plantation Scrip stamp, cannot be held in absolute Title of incontestable ownership At Law as In Equity. The things are ‘Private Intellectual Property’ of their issuing entity. Thus, it’s Lawfully IMPOSSIBLE to acquire such Title in things acquired through them. Regardless of what perceived or decreed ‘value’ may be ascribed to them … the plain FACT OF REALITY … is that they cannot extinguish debt, only defer it.

    The ESSENTIAL objective of trading is not to merely to possess things, but to possess Title of Ownership in those things.

     
    • J.M.

      December 30, 2013 at 5:42 PM

      Pat Fields,
      Thank you for your answer re:What is a U.S. Dollar? It seems to me the Judge gave the proper/correct answer. It seems the I.R.S. would really have a problem on their hands IF others started using the “coffee bean” method & based on how the Judge defined “Dollar.” . If you loan me 5 Federal Reserve Notes,there is no way I can pay you back 5 dollars. I came across a case sometime back and the Court said, anything unreasonable is unlawful. But, it’s probably not a “holding case” anywhere,anymore. I LOVE your photo & you have a sharp mind !!! Thanks again.

       
  9. EarlinOregon

    January 3, 2014 at 1:22 PM

    Basic Principles of “money” in modern society.

    When money Flows – Business Grows.
    When money Slows – Business Slows.
    When money Flops – Business Stops.

    From the Book ” Wampum to Legal Tender – History of Money”

     
    • J.M.

      January 5, 2014 at 6:02 AM

      Hi Earl out in Oregon,
      AND NEVER FORGET THIS >>> A business with no sign is a sign of no business.

       

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