by Michael Krieger, Liberty Blitzkrieg:
It’s our currency, but it’s your problem.
– U.S. Treasury Secretary John Connelly to European Finance Ministers, 1971
Today’s post will cover a topic that consumed my thoughts for many years, but one I haven’t discussed much lately. Namely, the terminal nature of a global financial system being propped up artificially by central bank shenanigans.
First, it’s crucial to understand that at the very core of our global economy is a financial system dominated by the U.S. dollar. The USD is a fiat currency directly backed by nothing, the supply of which can be arbitrarily altered and manipulated by a group of unelected bureaucrats in charge of the Federal Reserve. This money system represents the most powerful tool of centralized power on planet earth.
The USD is unique in that it grants the U.S. the “exorbitant privilege” of having a national currency which at the same time serves as the global reserve currency. This was solidified toward the end of World War 2 with the Bretton Woods agreement, and was accepted because the U.S. agreed to offer sovereign nations holding dollars a right to exchange these dollars for gold at a fixed price. This fell apart in 1971, but was shortly replaced with an unofficial “petrodollar” system, which allowed the USD to remain the world reserve currency despite no longer being redeemable in gold.
Before moving on, I want to share a few excerpts from an article I read yesterday titled, The De-Dollarization in China:
Petrodollars emerged when Henry Kissinger dealt with King Fahd of Saudi Arabia, after “Black September” in Jordan.
The agreement was simple. Saudi Arabia had to accept only dollars as payments for the oil it sold, but was forced to invest that huge amount of US currency only in the US financial channels while, in return, the United States placed Saudi Arabia and the other OPEC neighbouring countries under its own military protection.
Hence the turning of the dollar into a world currency, considering the importance and extent of the oil market. Not to mention that this large amount of dollars circulating in the world definitely marginalized gold and later convinced the FED that the demand for dollars in the world washuge and unstoppable.
An unlimited amount of liquidity that kept various US industrial sectors alive but, above all, guaranteed huge financial markets such as the derivatives – markets based on the structural surplus of US liquidity.
Pricing key commodities such as oil, which everyone in the world needs, in USD creates a massive structural support for the dollar versus other government fiat currencies. If other nations constantly have to convert to USD before purchasing commodities, there’s a constant underlying global demand to buy USD on a daily basis. No other country has this sort of structural support for its currency, and it allows the U.S. to be far more fiscally irresponsible than other countries without suffering devastating currency devaluations on the global market.