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Category Archives: Petro-dollars

Grandmaster Putin’s Golden Trap II


Chessmaster?? [courtesy Google Images]

Chessmaster??
[courtesy Google Images]

As I’ve written previously, Russian writer Dmitry Kalinichenko wrote an article entitled “Grandmaster Putin’s Golden Trap”.  I view that article as generally brilliant.  Here are some more of my comments on Mr. Kalinichenko’s observations.

 

Mr. Kalinichenko’s article focused on what he believed to be Russian President Vladimir Putin’s most brilliant financial strategy: buying gold with US fiat dollars.

On the face of it, that “strategy” doesn’t sound like much. Buying gold with fiat dollars?   It’s done every day. What’s so brilliant about that?

Well, the brilliance (or just common sense) behind Putin’s strategy is based on two fundamental premises:

 

1) The fiat dollar is significantly overvalued and thus able to purchase more than it’s really worth; and,

2) The price of physical gold has been artificially suppressed and is therefore far lower than its true price would be in a “free” (rather than “manipulated”) market.

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“Unbelievable Trust” II


A New Fiat Currency for You? [courtesy Google Images]

A New Fiat Currency for You?
[courtesy Google Images]

Last week, I wrote an article based on former Congressman Ron Paul’s comments on the world’s “unbelievable trust” in fiat dollars.  Essentially, Mr. Paul argued that trust is crucial to maintain a fiat dollar’s perceived value.  More, the world’s current trust in fiat dollars was not merely surprisingly strong but “unbelievable” given the dollar’s fundamental disabilities and future prospects.

This week, I’ll gild that lily with a few more comments on that “unbelievable trust” in the fiat dollar.

 

I can remember that back in the 1950s and ‘60s, the paper dollar was described as being “good as gold” because foreign-held dollars could still be redeemed with gold.  People trusted the paper dollar because it was “good as gold”.  They’d become habituated to trusting in paper dollars because they were still backed by gold (at least, internationally).  However, it’s important to recall that although people seemingly “trusted” in paper dollars, they really trusted in the gold that backed paper dollars.

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The Ultimate Prize: Control of Petroleum—or Control of Petro-Currency?


[courtesy Google Images]

[courtesy Google Images]

“. . . they have seduced my people, saying, Peace; and there was no peace . . . .” Ezekiel 13:10)

 

The Muslim faith is divided into two primary sects: Sunni and Shiite. They’ve been at each other’s throat since the death of the prophet Mohammed in the 7th century. Their disagreement is religious and goes to which sect acquired legitimate authority over the entire Muslim faith after Mohammed died. The two sects can go through generations of peaceful coexistence. But every so often, they wage holy war against each other.

ZeroHedge.com recently commented on rising Middle East tensions:

 

“What’s changed [in the Middle East] is the perception that the USA has any role to play any longer even in the diplomatic theatrics. The Middle East is disintegrating faster than any polity in historical memory. It appears that, if anything, the USA has only succeeded in accelerating the process wherever we turn our attentions.”

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The Ultimate Prize: Control of Petroleum— or Control of Petro-Currency?


A New War for a New Petro-currency? [courtesy Google Images]

A New War for a New Petro-currency?
[courtesy Google Images]

“. . . they have seduced my people, saying, Peace; and there was no peace . . . .” Ezekiel 13:10)

 

The Muslim faith is divided into two primary sects: Sunni and Shiite. They’ve been at each other’s throat since the death of the prophet Mohammed in the 7th century. Their disagreement is religious and goes to which sect acquired legitimate authority over the Muslim faith after Mohammed died. The two sects can go through generations of peaceful coexistence. But every so often, they wage holy war against each other.

ZeroHedge.com recently commented on rising Middle East tensions:

 

“What’s changed [in the Middle East] is the perception that the USA has any role to play any longer even in the diplomatic theatrics. The Middle East is disintegrating faster than any polity in historical memory. It appears that, if anything, the USA has only succeeded in accelerating the process wherever we turn our attentions.”

 

The US government directly supports the Sunni rebels in Syria and thereby indirectly supports the Sunni rebels in Iraq—all the while claiming to support the Shiite government of Iraq.

Our gov-co is playing both ends against the middle. It’s fanning the flames of war from both sides. I see only two plausible explanations for this seemingly contradictory behavior:

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Fiat Dollars Could Soon See Significant Decline


[courtesy Google Images]

[courtesy Google Images]

After the dollar went completely off the gold standard in A.D. 1971, the Nixon administration cut a deal with Saudi Arabia whereby we’d guarantee Saudi national security so long as the Saudi’s guaranteed to sell their crude oil only for US dollars.  Soon after, OPEC entered into a similar treaty whereby they guaranteed to sell their crude oil for only US dollars.

Result?  Because you couldn’t purchase crude oil on the international market without first acquiring some US dollars, the fiat dollar–no longer backed by gold or silver and intrinsically worthless–became implicitly backed by crude oil.

Result?  “Petro-dollars”.

Result?  The “petro-dollar” was recognized as the World Reserve Currency.

For the past 40 years, the fiat dollar’s perceived value has been primarily based on its standing as World Reserve Currency, which, in turn, was largely based on the dollar’s standing as “petro-dollar“.

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Economic Blackmail at the Ukraine


Ukrainians are proud of their country--but it takes more than pride to hold  a nation together. [courtesy Google Images]

Ukrainians are proud of their country–but it takes more than pride to hold a nation together.
[courtesy Google Images]

The Ukraine has dominated the news in the first part of March.  It’s been a fascinating sideshow marked by criticism, hyperbole, comedy and blackmail.

 

Criticism

For example, The Washington Examiner reported that:

 

“House Intelligence Committee Chairman Mike Rogers (R-Mich.) said the naivete of President Obama’s national security advisers about Russian President Vladimir Putin’s  motivations is allowing Russia to outmaneuver the U.S. in the Ukraine and other hot spots around the globe.

“Putin is playing chess and we’re playing marbles.  . . . As you move down the list in Syria and the Ukraine and other areas,” he said, “they’ve been running circles around us.”

 

I agree that Putin is playing chess.  But Obama is not playing “marbles” so much as playing without all of his “marbles”.

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Government To Cut Size of US Military


Fighting for your freedoms?  Or for your currency? [courtesy Google Images]

Fighting for our freedoms? Or for our currency?
[courtesy Google Images]

Prior to A.D. 1933, the paper dollar was backed by both gold and silver.  That meant that if you had a paper dollar in your pocket, you could trade it for a silver dollar.  If you had twenty paper dollars in your pocket, you could trade them in for an ounce of gold.

In A.D. 1933, President Roosevelt removed gold coins from domestic circulation and the domestic paper dollar was backed only by silver.  Foreign-held paper dollars could still be redeemed with gold.

The government stopped redeeming domestic paper dollars with silver in A.D. 1968 and stopped redeeming foreign-held paper dollars with gold in A.D. 1971.  At that point the dollar became pure fiat without any intrinsic value.  We could’ve expected significant inflation (devaluation of the paper dollar) at that time, but the Nixon administration cut extraordinary deals with Saudi Arabia and then OPEC whereby both of those entities guaranteed to sell their crude oil for U.S. dollars only.

Net result?  If any nation wanted to purchase crude oil on the international market, they had to use US dollars to do so.   Given that most nations needed to purchase crude oil, most nations therefore needed fiat dollars. The resulting demand created the “petro-dollar”—US dollars that were no longer backed by gold or silver, but were implicitly backed by crude oil.

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