- Ron Paul Says to Watch the Petrodollar
by Nick Giambruno, Senior Editor, http://www.internationalman.com/
The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better. – Ron Paul
Ron Paul is calling for the end of the petrodollar system. This system is one of the main reasons the U.S. dollar is the world’s premier reserve currency. Essentially, Paul is saying that understanding the petrodollar system and the forces affecting it is the best way to predict when the U.S. dollar will collapse. Paul and I discussed this extensively at one of the Casey Research Summits. He told me he stands by his assessment.
This is critically important. When the dollar loses its coveted status as the world’s reserve currency, the window of opportunity for Americans to protect their wealth from the U.S. government will definitively shut.
At that point, the U.S. government will implement the same destructive measures other desperate governments have used throughout history: overt capital controls, wealth confiscation, people controls, price and wage controls, pension nationalizations, etc. The dollar’s demise will wipe out the wealth of a lot of people. But it will also trigger political and social consequences likely to be far more damaging than the financial fallout.
The two key takeaways are:
1. The U.S. dollar’s status as the premier reserve currency is tied to the petrodollar system.
2. The sustainability of the petrodollar system relies on volatile geopolitics in the Middle East (where I lived and worked for several years).
From Bretton Woods to the Petrodollar
The Bretton Woods international monetary system, which the Allied powers created in 1944, turned the dollar into the world’s premier reserve currency.
After WWII, the U.S. had by far the largest gold reserves in the world (around 706 million ounces). These large reserves – in addition to winning the war – allowed the U.S. to reconstruct the global monetary system around the dollar.
What to Watch For
The geopolitical sands of the Middle East are rapidly shifting.
Saudi Arabia’s strategic regional position is weakening. Iran, which is notably not part of the petrodollar system, is on the rise. U.S. military interventions are failing. And the emerging BRICS countries are creating potential alternatives to U.S.-dominated economic/security arrangements. This all affects the sustainability of the petrodollar system.
I’m watching the deteriorating relationship between the U.S. and Saudi Arabia with a particularly close eye. The Saudis are furious because they don’t think the U.S. is holding up its end of the petrodollar deal by more aggressively attacking their regional rivals. This suggests that they might not uphold their part of the deal much longer, namely selling their oil exclusively in U.S. dollars.
The Saudis have even suggested a “major shift” is under way in their relationship with the U.S. To date, though, they haven’t matched their words with action, so it may just be a temper tantrum or a bluff. The Saudis need an outside protector. So far, they haven’t found any suitable replacements for the U.S. In any case, they’re using truly unprecedented language.