Good point Dave. Here is part 1.
In the final days of WW2, 44 Allied Leaders met in Bretton Woods. From this meeting the USA emerged as the worlds’ new economic leader, replacing Great Britian which was debt-ridden and war-torn. New global financial agencies were created at this meeting as well as the adoption of the ‘gold monetary standard’, which relied heavily on the dollar. By the 1960's, the weight of the system upon the United States became unbearable.
On August 15, 1971, President Richard M. Nixon shocked the global economy when he ended the international convertibility from U.S. dollars into gold, bringing an end to the Bretton Woods arrangement.
In 1973, a deal was struck between Saudi Arabia and the U.S. in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Under this new arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia's willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations, including Israel.
Two years later, in an effort to maintain global demand for U.S. dollars, another system was created called the petrodollar system. By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in exchange for weapons and military protection.
This petrodollar system, or more simply known as an "oil for dollars" system, created an immediate artificial demand for U.S. dollars around the globe. And of course, as global oil demand increased, so did the demand for U.S. dollars.
Several oil-producing countries began to question the wisdom of accepting increasingly worthless paper currency for their oil supplies. Today, several countries have attempted to move away, or already have moved away, from the petrodollar system. Examples include Iran, Syria, Libya, Venezuela, and North Korea. Additionally, other nations are choosing to use their own currencies for oil like China, Russia, India, among others.
Expect massive inflationary pressures to strike the U.S. economy as more Nations opt out of the Petrodollar system. Some measures that could emerge include, an increase in taxes, issuance of government bonds (borrowing money), cuts in spending by reducing benefits, printing still more paper money.
More later.
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