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I cannot help but think of the great poem by Henry Wadsworth Longfellow  when I consider the world today. Paul Revere, that famous Patriot who rode so valiantly to warn of the impending attack by the then enemy. The British.  

Yet today, we are faced with a far greater enemy and this enemy is attacking with much more vigour and cunning.

And it all comes down to money. The fiat petrodollar. Where Paul Revere was a Silversmith, it is gold that today may be our salvation – but it still requires a rider of enormous stamina and bravery to bring us all to that place we wish to call home.  And so I will tell you a story about money. Because it is ALWAYS about money. Just with the British in the War of Independence, everything is always about money.

The petrodollar is any U.S. dollar paid to oil-exporting countries in exchange for oil. The dollar is the preeminent global currency. As a result, all international transactions, including oil, are priced in dollars. Oil-exporting nations must receive dollars for their exports, not their own currency.

President Trump has always been keen to return to the Gold standard. He said:

“Bringing back the gold standard would be very hard to do—but boy, would it be wonderful. We’d have a standard on which to base our money.”

I will try and explain this as simply as possible because I have spent days trying to get my head around it. It started with the The Bretton Woods Agreement, which  was negotiated in July 1944 to establish a new international monetary system. Under the Bretton Woods System, gold was the basis for the U.S. dollar and other currencies were pegged to the U.S. dollar’s value.

In a nutshell, the dollar was an equity based asset because it was tied to the price of gold and a country’s gold reserves. The strength of a currency would rise and fall, depending on the level of gold reserves.

The International Monetary Fund and the World Bank were both set up under the Bretton Woods Agreement.

According to Investopedia, The purpose of the IMF was to monitor exchange rates and identify nations that needed global monetary support. The World Bank, was established to manage funds available for providing assistance to countries devastated by World War II. In the twenty-first century, the IMF has 189 member countries and still continues to support global monetary cooperation. Tandemly, the World Bank helps to promote these efforts through its loans and grants to governments.

Countries started printing more money than could be covered by their gold reserves.

When Nixon abandoned the Gold Standard in 1971, America had fought a series of long and expensive wars – such as Korea and Vietnam. If the money in circulation had been called in there simply were not enough gold reserves to cover the dollars that had been printed.

It could be argued that this was a form of fraud – like writing IOU’s when you had no reasonable expectation of every being able to pay on the IOU if someone called it in.

So, instead of making the dollar a promise in expectation of gold, the American government guaranteed the dollar – they “bought the IOU “ and it became the property of the American federal Government. Nixon explained it by saying that as long as Americans continued to buy American cars, American refrigerators and holidayed in America, their dollar would be worth the same. It was only going to be an issue if Americans failed to support American!

That led to the creation of the fiat ( of no value ) petrodollar system, where the U.S. and Saudi Arabia agreed to set oil prices in U.S. dollars. That meant any other country that purchased oil from the Saudi government would have to exchange its currency into U.S. dollars before completing the sale. That led the remaining OPEC countries to follow suit and price their oil in U.S. currency.

Venezuela dropped the petrodollar in 2017 and began pricing oil in euros and the yuan. Well, that went well, didn’t it?

Due to the collapse of economic activity as a result of the global impact of the Wuflu, aka Chinese Coffin Flu,  much more oil is currently being produced than can be consumed as travel has been massively curtailed. When there is more oil being produced than the demand requires, it is customary to store the excess. However, America’s oil reserves are full to the brim and storage is at capacity.

Can this virus cause the collapse of the fiat petrodollar? If so, how would this impact upon China,  a major importer of oil? Probably quite favourably if we don’t change back to the Gold Standard. But if we do, then this could lead to a huge change in world economic terms.

In August 2019, China announced that it was almost ready to launch its fiat Yuan.

Can you imagine how their plans could be scuppered if America returned to the gold Standard?

Oil would have to be bought with Gold reserves. So would Coal.

 

The Trump appointees to the American Federal Reserve are largely pro return to Gold.

China is the biggest importer of oil in the world… if oil was tied to gold, boy this would be a gamechanger.

I am not sure how this is going to pan out, but it sure is an exciting time to be alive.

No matter what, I fear that we are in for a hell of a ride and I am glad that Trump is leading the charge.

Like Paul Revere who road through the night to warn that the British were coming, I wonder if our modern day rider is warning us, around the globe that the Chinese are coming and it is time to put out our lanterns and be prepared.

“ So through the night rode Paul Revere;
And so through the night went his cry of alarm
To every Middlesex village and farm,—
A cry of defiance, and not of fear,
A voice in the darkness, a knock at the door,
And a word that shall echo forevermore!
For, borne on the night-wind of the Past,
Through all our history, to the last,
In the hour of darkness and peril and need,
The people will waken and listen to hear
The hurrying hoof-beats of that steed,
And the midnight message of Paul Revere. “

For more information check out this great piece.

 

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