The Petro Currency System

The reserve currency issue is an issue that should transcend partisan politics, as leaders of both parties have ignored this issue over the years to our country’s possible peril.  I want everyone to really think about this issue, because the financial storm that would ensue following the end of our reserve currency status and the eventual collapse of the dollar would make the 2008 housing crisis look like a spring shower. Here’s an excerpt from a 2011 article from CNBC warning of the prospects of losing reserve currency status:

“I think you could see a 25 percent reduction in the standard of living in this country if the US dollar was no longer the world’s reserve currency. That’s how valuable it is.”

That was a comment made back in 2011, and since then we have added a few more trillion dollars of debt, and printed a few more trillion dollars of QE (quantitative easing), “stimulus” money. For those of you unfamiliar with QE – this is a policy that started in 2009 wherein the federal reserve is literally printing and pumping into the economy approximately $80 billion a month, and the mere mention from Bernanke that he was going to slow down the printing presses made the DOW tumble a few hundred points. He quickly backed off that statement. QE is not only used to prime the DOW but it is also used to keep inflation and interest rates in check. In the article, it is mentioned that if the CPI were adjusted for actual economic realities, we would see 5% – 7% inflation on food and energy prices.

Fast forward to 2013. Recent international economic signals do not bode well for the continuance of our reserve currency status:

– China’s subtle dumping of the dollar — using bilateral trade agreements with other developing nations and, more recently, major economic powers like Germany and Japan

– The massive gold-buying spree undertaken by China and Russia — even in the face of extreme market manipulation by JPMorgan Chase and Co. and CME Group Inc.

– The dumping of long-term U.S. Treasuries by foreign creditors in exchange for short-term Treasuries that can be liquidated at a moment’s notice.

– The fact that bonds now are supported almost entirely by Fed stimulus. When the stimulus ends, America’s ability to honor foreign debts will end and faith in the dollar will crumble.

–  Blatant statements by the International Monetary Fund calling for the end of the dollar’s world reserve status and the institution of special drawing rights (SDRs) as a replacement.

These bullet points were taken from another excellent article on this issue found here, (hat tip to Spook for sending me this article) and it is a must read. Why the loss of faith in the US dollar? The fact that our government spends approx. $1 trillion more than it brings in, the fact that our government does not work within a defined budget and funds the government from continuing resolution to continuing resolution (CR’s), the fact that our debt to GDP ratio is now 101%, and the fact that there are no imminent signs of financial discipline or restraint by our federal government. This year our federal government is expected to bring in approx. $2.5 trillion in revenue, which would equal an historical high, yet they are spending $3.6 trillion and they say they need more. So the next time you hear a politician say that we need more money for education, and/or more “investment” in infrastructure, know that they are pushing us closer to the brink of financial collapse.

In spite of all of this, I remain the eternal optimist. We can avoid the loss of reserve currency status and the eventual collapse of the dollar but it will require that our elected officials define our nations priorities, put in place a budget that reflects those priorities and operate within it. It will also require that we aggressively act upon the impending economic boom of the 21st century and that is – energy. We must tap into our domestic crude oil and natural gas reserves to not only fuel our current society, but also to become a net exporter of these resources. That will generate the money necessary to put our country back on sound financial footing, but will also fuel the eventual transition to a new, greener, more sustainable energy platform.

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23 thoughts on “The Petro Currency System

  1. Norma Stitz August 27, 2013 / 11:55 am

    It is a truism that at SOME time in the future the US Greenback will not longer be the sandard cuurency. Past standards – Spanish doubloon, British Pounds Sterling, etc. – all fell from being stadards as their superpowers behind them waxed in power.

    Likewise,the U.S. will one day not be the juggernaut it has been the last century or two. Maybe hat time is upon us, maybe not, only history will tell. No modern superpower has retained position mre than a century – the last western multi-century superpower was the Holy Roman Empire, pre-Thirty Years War.

    The real question is how gracefully we will make that transition. Will we come out like England (which retained its world position in a diminshed state, allied with the next superpower) or like Spain (which lost all its holdings from conquest and is now just another country with no sign of their once-dominance)?

    An abrupt move off the Federal Reserve wuld be catastrophic, everone agrees on that. So how would that transition happen? What stages could bring about such a radical change on a non-radical way?

    I don’t know the answers to these question but I know they need answers before anyone could reasonably consider removal of the Fed system.

    • Norma Stitz August 27, 2013 / 12:00 pm

      Yes, I know Spain was part of the HRE but the history of Spain post-1492 was fairly independent of the HRE in general, as the HRE constantly fought to control Spain.

    • Cluster August 27, 2013 / 12:36 pm

      Norma,

      Granted that no other country has retained it’s dominance, or reserve currency status for more than a century, but there is no reason why we couldn’t. It’s not a given. If we were to become fiscally sound and prudent by prioritizing our needs and operating within a sensible budget, while embarking upon becoming a net exporter of energy, it can be done. Think positively.

      • neocon01 August 27, 2013 / 12:59 pm

        cluster

        it is one thing for your partner to smear some one with vicious lies that was posted from a hacked account 16 years ago,, now to publish names with those lies makes you two LIABLE!!
        REMOVE IT and CEASE or I will proceed litigation against you. 😦

      • Amazona August 27, 2013 / 10:47 pm

        neo, it remains to be seen if Cluster has merely indulged in a spasm of horrible judgment or if he has truly found common ground with the scum of the earth. If he refuses to rein them in and control their libelous antics, we will know.

  2. M. Noonan August 27, 2013 / 12:06 pm

    I’m not so interested in our being the reserve currency – I’m more interested in our currency being a store of value for the actual productive work we do, rather than an easily manipulated, fiat currency which has as its primary purpose keeping Banksters from bankruptcy. Remember, we became the world’s reserve currency post-WWII because we were the last major world currency to be backed by gold…there was intrinsic value in the US dollar. Of course, that started to erode within 20 years of the end of WWII but, meanwhile, the world had simply got used to the dollar being the standard.

    My plan would be to cash in our fake dollars for gold dollars at a 100-1 ratio; all prices to be adjusted on the same ratio. A million dollar home will now become a $10,000.00 home. A $20 an hour wage will become 20 cents an hour. A $1,500.00 ounce of gold will become a $15 ounce of gold…and then we issue our currency in gold and silver. Dimes, quarters, half dollars and dollars in silver; pennies and half pennies (we’ll need them, again) in copper; nickels in, well, nickel; $20 gold pieces. We’d still use paper currency, as well – $1, $5 and $10 bills as silver certificates, $20 and above as gold certificates. Money will retain its intrinsic value over time and just as it was prior to 1913, if productivity increases over time then the prices for goods will go down. No more Bankster manipulation – and our currency will once again be the only currency in the world with intrinsic value…people will flock to it for security.

    • Count d'Haricots (@Count_dHaricots) August 27, 2013 / 12:57 pm

      Mark,
      No country holds sufficient gold reserves to keep up with economic growth. Gold never lasts long as a basis for currency in the modern world. We’re not Mesopotamia, we’re never going back to the gold standard.

      China going to the Gold standard will be a hoot! their citizens aren’t nearly starving enough, just wait until they try to build a bond market deep enough to make their currency readily available for exchange. Grab the popcorn, it’s gonna be epic tomfoolery!

      • neocon01 August 27, 2013 / 1:02 pm

        it’s gonna be epic tomfoolery!
        the sooner they follow the old soviet union and collapse and we get to watch another communist empire circle the bowl.

      • Norma Stitz August 27, 2013 / 3:30 pm

        It seems doubtful China will collapse. They are a ruthless regime but are making all the right (long term) moves economically.

      • M. Noonan August 28, 2013 / 12:48 am

        Norma,

        Actually, they aren’t – they are grossly misallocating resources via corruption. They are honeycombed with bad debt and it will all come crashing down…delayed for a while because the Chinese government reserves the right to shoot anyone who reports or acts upon the actual, bad economic news.

      • Count d'Haricots (@Count_dHaricots) August 27, 2013 / 4:27 pm

        Who said anything about collapse?

        China is the most unethical, secretive and corrupt economic models. To convert to a Gold Standard is the epitome of hypocrisy; where as much as one-tenth of their entire economy is dedicated to graft, kickbacks and corruption the valuation of the gold reserves, even the fact of the reserves existence is questionable.

        How much of their human capital will be sacrificed to maintain a Chinese-Gold-Standard-Farce?

      • M. Noonan August 28, 2013 / 12:57 am

        Count,

        There would be sufficient gold reserves if we re-valuate our currency…which is why I say we turn it in at a 100-1 ratio. This essentially strips away the 100 years of inflation created by the Federal Reserve…and that inflation, my friend, was created for the sole purpose of preventing the banking system from feeling the full heat of their own idiocy. Gotta remember what happened just prior to the creation of the Fed – the Panic of 1907. There was plenty of gold currency, but the Banksters back then were, well, just as stupid as the Banksters we have now…they have lent themselves more money than they had in order to speculate in stocks (sound familiar?) and the whole system seized up one, fine day…they were truly cooked and were going to go bankrupt. J. P. Morgan (the actual person, not the bank) figured out how to paper over the cracks – with what amounted to paper, fiat money. It couldn’t last, of course, and so they set about working on getting a Federal Reserve which could magically print up money at need, for the banks, every time they over extended themselves with stupid loans. You’ll notice that even during the Great Depression they really large banks managed to stay afloat – with fake money. Of course, the place they get this fake money is out of your pocket…when the banks mess up, they call on the Fed, which magically prints up some money and loans it to the banks for nothing. Of course, when the Fed does that, it devalues the money you already have. Essentially, our pockets get regularly picked by the Fed to make sure the banks stay solvent.

        I want to end that – end the terrible thing called inflation (they are proud when they can keep it to 3% per year – meaning they are only stealing 3% of our money, each year!) and have a rock-solid store of wealth. Now, to be sure, there will be some fabulous economic crashes because bankers will remain as stupid as they’ve always been (over history, only a very few people have ever known how to handle really large sums of money – most people make a hash of it, as it true when ever anyone gets more of anything than they should properly have), but that will just screw the bankers, not you and me. Our money is solid gold – the $100 you saved last month out of your earnings is still worth $100 and no one can take it from you, ever.

      • Count d'Haricots (@Count_dHaricots) August 28, 2013 / 1:59 pm

        Mark,

        Thanks for researching your position so well, complete with history …nice.

        1) Inflation is inevitable, with or without a Fed.
        2) The amount of currency in circulation must expand as the economy expands.
        3) Revaluation of the $ to a benchmark of 100 years ago throws all currencies into chaos as they are all benchmarked to the Reserve Currency ($).
        4) With a static amount of gold backing a static currency, the economy cannot expand; think of an island where 100 people live. They base their barter system on coconuts and gather 1,000 coconuts, mark each with the Chief’s Handprint then distribute 10 each to every villager. They trade their coconuts among themselves for services and handcrafted devices. Soon they have children, but before those money-sucking little black-holes of poopy diapers and ear-piercing caterwauling can begin to drain their parent’s assets the village is joined by other villages that want to trade among the happy villagers. The villagers trade their coconuts with the visitors for the trinkets the visitors have to offer by spreading their 1,000 coconuts to the new merchants and soon each coconut is worth much more in goods and services than can be reasonably spread around. With 1,000 coconuts (with the Chief’s Handprint upon it) are now being spread to 500 people and each pair have 3.5 carpet-crawling crumb-snatchers who want a piece of that coconut action.

        So the Chief Economist now says they’ll trade all the coconuts for 1,000 banana leafs per coconut and hold the coconuts in reserve as a foundation for the banana leaf currency. (See where this is going?) Soon the villagers are ramping up their labors for more banana leafs by inventing bamboo cars (like Gilligan’s Island) and seashell telephones. With their new communication devices they contact other islands and invite a new clique of consumers and merchants. They’ve learned their lesson about a finite banana leaf currency so they print more banana leafs until WHOOPSIE! They suddenly realize the amount of banana leafs printed far exceeds the valuation of the original coconuts. No one in their right mind would forfeit so many man hours for 10,000 banana leaf’s worth of 1/100th of a coconut.

        Unless they can find more coconuts with the chief’s Handprint upon it so many years after the Chief has assumed room-temperature, their economy is doomed to remain small-potatoes with villagers holding banana leafs that have no real value or selling tickets to see the amazingly valuable yet completely worthless coconuts with the dead Chief’s Handprint upon them.

        We will never return to the Gold Standard, their just ain’t enough gold to support an ever expanding economy.

      • M. Noonan August 28, 2013 / 2:45 pm

        There is about $8.2 trillion in physical gold in human hands, and about $1.2 trillion in actual US currency. There is plenty of gold,especially when you also use silver. And paper currency would still exist – for the reason you have detailed; but at a fixed ratio of paper dollars to gold/silver dollars…because a paper dollar is, actually, a zero interest loan to the government but it does make transactions so easy that it is worthwhile for everyone to use them, especially as they are receivable for taxes. But with gold-backed currency, the Federal Reserve would not be able to willy-nilly print up money just to keep banks from going insolvent. Uncle Sam could only print more by obtaining more gold and silver to be on deposit in the Federal Reserve Bank.

        Also, inflation is not baked in to the economy – in fact, a growing economy (meaning growing in productive capacity, which is the only measure that counts) results in steadily decreasing prices. The prices Americans paid for goods continually dropped from 1800 until 1913…when the Federal Reserve was created – and except for a brief period at the start of the Great Depression, prices have steadily risen since then as the Federal Reserve has steadily devalued our currency not to spur growth, but to provide low-cost money to banks to cover their idiotic investments.

      • Count d'Haricots (@Count_dHaricots) August 28, 2013 / 5:07 pm

        Okay, $8.2 Trillion $ -DOLLARS in gold. But, that’s at current price of gold calculated based on a floating DOLLAR.

        Prices dropped from 1840 to 1913 because of the Industrial Revolution …

        Gold is finite; therefore it cannot sustain economic growth regardless of the value you assign to it, eventually it would become worth more than it’s actual value as a commodity.

        There is no other outcome available.

        But, i’ll leave it at that, the sermon is ended, go in peace. .

    • Norma Stitz August 27, 2013 / 3:34 pm

      The US became the standard, not because we had the gold but because we had something far more valuable backing our dollars. We had the largest, most stable economy on Earth backing our dollars.

      • Cluster August 27, 2013 / 3:56 pm

        And most resilient economy, and still do.

  3. Count d'Haricots (@Count_dHaricots) August 27, 2013 / 12:44 pm

    Okay, now that we’ve wondered off into the tall weeds of bizarre alternate-historical diversions and anarcho-syndicalist pitches, let’s focus on the real world for a change, eh?

    Rumors of the USD ($) eminent demise are greatly exaggerated. The main reason for the $ as reserve is the inherent stability and relative ease in fungibility, additionally, because a large portion of our debt is still held by the shareholders (Americans) there is a trust in our currency as demonstrated by the 2008 fiscal mess. Because other currencies are suspect in valuation few other nations would take risks on currencies like the Yuan or Euro, which are suspect in the nations that issue them. Our distrust of the Fed is a pimple on a fiduciary ass compared with the constant in-fighting among the Euro nations, and don’t get me started on the Black-Market underground trade within china.

    As to the Fed; close it, fire Bernanke, establish monetarist methodology for adding new currency and replacing old currency, and move on. There will be no financial collapse should we shutter their doors forever ~ except among the government bureaucrats and well-heeled investment insiders.

    Banksters? What are we Beverly Hillbillys?

    • neocon01 August 27, 2013 / 12:55 pm

      Rumors of the USD ($) eminent demise are greatly exaggerated.

      but the left is trying their damnedest to bring that about…..

      • Count d'Haricots (@Count_dHaricots) August 27, 2013 / 1:19 pm

        Like Man fooling himself into thinking he can change the earth’s Climate, they’re just not important enough to crash & burn the dollar.

      • Cluster August 27, 2013 / 1:25 pm

        Count,

        There is currently not a single viable world currency to replace the dollar, however losing reserve currency status is not an unthinkable event, and we seem to be doing everything financially possible to bring about that event. SDR’s, created in 1969, would be the replacement and a precursor to a globalized currency, which I am sure the global elites and power brokers would love. I am not a conspiracist, but this is an issue to very mindful of.

      • Count d'Haricots (@Count_dHaricots) August 27, 2013 / 1:43 pm

        Cluster,

        Valid points all, and the article from Spook and your explanation to Amazona on Petrol dollars was clear and concise.

        The issue with any other currency is the ease with which it can be exchanged; unless there’s a revolution in a violent fashion, the US has the trust to continue as reserve.

        SDRs require a reserve for exchange in one of four or five currencies; a run on currencies for the purpose of shoring up a nation’s economy (think 2008) would require a Bond Market deep enough to sell off assets to cover the losses. SDRs would have to draw on the four or five currencies (I forget which) which means each of them would have to hold Bonds in sufficient quantities to supply the SDR.

        Certainly, for routine exchanges members can go to that particular well. But, unless we “Noonan” our economy by going back to the Gold Standard, making the $ temporarily unstable due to lack of availability, we have sufficient reserves to handle just about anything. Besides, imagine a German woman using SDRs at the local geschäft; unthinkable!

      • neocon01 August 27, 2013 / 1:44 pm

        Like Man fooling himself into thinking he can change the earth’s Climate, they’re just not important enough to crash & burn the dollar.

        WHAT?? you mean the army private-divinity school drop out and the serial rapist aren’t the smartest people in the world????
        say it aint soooo

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