The End Of An Era!
50 years ago, the U.S. government, through Secretary of State Henry Kissinger, signed a pact with Saudi Arabia that would see the Saudis sell their oil in exchange for ONLY U.S. dollars. Why?
In August 1971, President Nixon decoupled the dollar from gold backing, making it a free floating currency, backed only by the good faith of the American government. That didn’t sit well with its trading partners who expected to be reimbursed with hard currency.
The 1970s was a decade of high inflation that eventually led to a 20% or higher interest rate environment by 1980. The USD nearly lost its status as reserve currency of the world but somehow it managed to cling to its status, to this day.
Oil is one of the hottest, if not THE hottest commodities in the world. Kissinger managed to convince the Saudis to accept the deal to exchange their oil for dollars only, in return for military protection. If anyone or any country attacked their oil infrastructure or ships, the USA would deal with it, not the Saudis.
They took the bait and enjoyed the last half century with full military protection from the Americans. All countries needing oil from Saudi Arabia would now have to keep USD in reserves for their oil needs. As a result, the USD has had the privilege of being the world’s reserve currency, although it has no real backing, for the previous 50 years. This is why it’s been referred to as the ‘Petrodollar’.
On June 9, 2024 this agreement between the Americans and Saudis expired and by the looks of it, it really is ‘dead in the water’. It’s official. The USD is NO LONGER a ‘petrodollar’. It is now something else. It is once again a free floating currency and we can expect wild exchange rates going forward and not in the USD’s favor.
While it is still ‘KING DOLLAR’, it won’t be for much longer, I suspect. Saudi Arabia is already accepting Chinese Yuan and Russian Rubles as payment for their oil. The BRICS aligned countries are also stocking up on gold at a record pace. They know what’s coming.
They want to be paid with a hard currency, backed by tangible assets and gold is a primary asset. The USA has not audited its gold holding in 70 years and to the best of my knowledge, has made no purchases during this time. Trust in the U.S. government is on the decline. No one will want to sell to America if payment is in the form of paper, literally. Paper is not money. Gold is!
In 1980, the U.S. debt was around $800 billion. Today, that debt is approaching $35 trillion! Summer, 2024 will be the first summer in 50 years without the ‘Petrodollar’. What’s to come is a wild guess as I don’t have a crystal ball but I do sense we are about to see a wave of inflation we’ve not seen in our lifetimes.
The bank failures actually began last year starting with Silicon Valley Bank. Yesterday’s big news was that one of Japan’s largest banks has announced it is selling some $60 billion in US treasuries and bonds to make up for unrealized losses. It is very likely that this will spread, sending billions, if not trillions of dollars flowing back to the USA, sparking a hyperinflationary event.
Who’s going to want to buy U.S. debt in the form of treasuries if the dollar is backed by nothing. Do you see where this is going yet?
In the last year, gold has gone up $400 per ounce and at one point, gained as much as $540 before settling a bit. Truth is, it didn’t get more expensive, it’s your dollar’s purchasing power that decreased. Gold is nemesis to the present incarnation of the dollar.
As already stated, we’re heading into our first summer in 50 years WITHOUT the petrodollar. Changes are coming and it will likely be very sudden and catch most people by surprise. Those of us who do understand are better prepared and equipped to navigate these choppy waters. Gold is like a lighthouse, guiding us, helping us to avoid crashing ashore, seeing our ship crumble into pieces.
I suspect the next couple of years are going to be tough but together we can get through this tough period. It’s not the first time. Up until 1934, we had the ‘gold standard’. A $20 bill could be exchanged for a one ounce gold coin. Once Roosevelt’s famous ‘gold confiscation’ was completed, he revalued gold at $35 per ounce but you could not exchange for any gold. The dollar instantly lost over 70% of its value. That was the first financial paradigm shift of the 20th century. What followed? The Great Depression and then, a world war.
The second financial paradigm shift was in 1944, nearing the end of WWII with the introduction of the Bretton Woods Agreement which solidified the USD as reserve currency of the world as it had partial gold backing. By the end of the war, the USA had amassed some 28,000 tons of gold, the most any country has ever held.
The third financial paradigm shift of the 20th century, of course was when Nixon decoupled the dollar from gold entirely. They’d squandered some 20,000 tons of gold fighting needless wars, primarily, Vietnam. By decoupling from gold, the FED could now print into infinity. Many expensive and deadly wars later, we’ve finally reached the point of no return.
Now, the world is entering a new era, the first new financial paradigm shift of the 21st century and most people are totally unaware this is happening. As of June 9, 2024 we are effectively ‘inbetween’ paradigms. By this, I mean that it will likely take a few years for the new paradigm to take hold.
Will it be a new CBDC, Bitoin, gold, other commodities or a combination thereof? Will it be the skills you have to offer? In a barter system, just about anything can be used for trade.
In the meantime, stock up on extra foods like canned goods, rice and oats, sugar and salt, flour and other baking supplies like baking powder. Buy seeds to grow your own foods. Do some canning and jarring this year. Do it like your life depended on it.
Does the house need fixing or the car need new tires or brakes? Don’t hesitate. Do it as soon as possible because as I’ve mentioned, we may be facing a hyperinflationary event like we’ve never seen before. Translation: Everything’s about to get way more expensive or your dollar’s purchasing power is collapsing, depending on how you look at it.
This change is coming whether we like it or not but it doesn’t have to be all doom and gloom. A little bit of prep work is all it takes. Stay close to your family and know who your friends are. Get to know your neighbors. Trading within your own neighborhood could be a lifeline. In fact, just last weekend, my neighbor gave me a big pile of good, scrap wood after he build 5 raised beds from wood he reclaimed from old skids he got from his employer. I can now use this wood to make campfires and enjoy cookouts in my own backyard.
Stay safe, be wary and most of all, be prepared!
References:
https://www.usfunds.com/resource/is-this-the-end-of-the-petrodollar/
https://www.investopedia.com/articles/economics/09/1970s-great-inflation.asp
https://www.britannica.com/event/Arab-oil-embargo
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