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(The Economic Collapse Blog)—This month, rumors about the petrodollar have spread like wildfire all over the Internet. Some of what is being said is true, and some of what is being said is false. When other sources were reporting on “the death of the petrodollar”, I was asked why I was not writing about it. Well, the truth is that I was not writing about it because the petrodollar is not dead. It is certainly in trouble, but it is not dead. Today, most oil continues to be sold in U.S. dollars, and most global trade continues to be conducted in U.S. dollars. But that could change as other countries lose faith in our currency. In particular, we will want to carefully watch what the BRICS nations choose to do. 45 percent of the world’s inhabitants live in the BRICS nations, and they have been implementing strategies that are designed to promote their own currencies and reduce dependence on the U.S. dollar. As U.S. relations with leading BRICS nations continue to deteriorate, I would expect that trend to accelerate.
So I am not optimistic about the future of the petrodollar at all.
But what some other sources reported about the petrodollar earlier this month was simply not accurate.
Let me start at the beginning. According to Investopedia, petrodollars are “simply U.S. dollars accepted as payment by an oil exporter”…
Petrodollars are oil export revenues denominated in U.S. dollars. Petrodollars are not a distinct currency; they are simply U.S. dollars accepted as payment by an oil exporter.
Global crude oil exports averaged approximately 88.4 million barrels per day in 2020. That pace would generate annual global petrodollar supply of more than $3.2 trillion a year, assuming an average price of $100 per barrel.
Petrodollars are the primary source of revenue and wealth for many members of the Organization of Petroleum Exporting Countries (OPEC) as well as non-OPEC oil and gas exporters including Russia, Qatar, and Norway.
The fact that so many other countries all over the globe use the U.S. dollar to buy and sell oil is a major advantage to us.
Earlier this month, there was a flood of reports that the “50 year petrodollar agreement” between the United States and Saudi Arabia had expired and that the petrodollar was now dead.
But that wasn’t true.
As Peter C. Earle has accurately pointed out, there never was a formal treaty, there never was a formal expiration date, and Saudi Arabia has been trading oil for other currencies for a very long time…
Last week several reports suggested the termination of a US-Saudi petrodollar agreement, and speculated a Saudi Arabian move to sell oil on world markets in various currencies, including the Chinese yuan. The accounts were rife with inaccuracies: the Saudis’ have transacted in non-dollar currencies for decades, and there has never been a formal treaty, much less with a specified expiration date, governing the loose arrangement that has come to be called the ‘petrodollar system.’
Unfortunately, many of the false reports went viral, and Google searches for “petrodollar” spiked to unprecedented levels…
Almost immediately, Google searches for the term “petrodollar” spiked to the highest level on record dating back to 2004, according to Google Trends data.
But as speculation about an imminent end to the U.S. dollar’s global dominance intensified, several Wall Street and foreign-policy experts emerged to point out a fatal flaw in this logic: The agreement itself never existed.
At least, not in the way it was being described in the posts that had gone viral on social media.
This is why I take my time and do my research before I report something. It is so easy to be wrong, but it takes real work to develop a reputation for accuracy.
According to UBS Global Wealth Management chief economist Paul Donovan, the false story about the expiration of the petrodollar agreement “seems to have started in the crypto world”…
Paul Donovan, the chief economist at UBS Global Wealth Management, in a blog post said that the story had gained unexpected traction, serving as yet another example of the dangers of “confirmation bias.”
“The story seems to have started in the crypto world. Many crypto speculators desperately want to believe in the dollar’s demise,” said Donovan.
It is true that a “Joint Commission on Economic Cooperation” was established in 1974.
Originally it was only supposed to last for five years, but it was “repeatedly extended”…
The agreement referred to by Donovan is the United States-Saudi Arabian Joint Commission on Economic Cooperation. It was formally established on June 8, 1974, by a joint statement issued and signed by Henry Kissinger, the U.S. secretary of state at the time, and Prince Fahd, the second deputy prime minister (and later king and prime minister) of Saudi Arabia, according to a report found on the Government Accountability Office’s website.
The agreement, as initially envisioned, was intended to last five years, although it was repeatedly extended. The rationale for such a deal was pretty straightforward: Coming on the heels of the 1973 OPEC oil embargo, both the U.S. and Saudi Arabia were eager to flesh out a more formal arrangement that would ensure each side got more of what it wanted from the other.
At that time, the U.S. and Saudi Arabia very much needed one another.
Today, circumstances are quite different.
The U.S. is now much less dependent on foreign oil, and the Chinese have become one of the primary purchasers of oil from the Middle East.
Over time, more oil will be bought and sold in other currencies, but for the moment it is pretty much business as usual…
Oil has always traded in non-dollar currencies. In January 2023, Saudi indicated it was happy to negotiate oil sales in other currencies. The possibility changes little for financial markets. Saudi Arabia’s riyal remains pegged to the dollar, and its stock of financial assets are dollar focused. The dollar’s reserve status depends on how money is stored, not how transactions are denominated.
However, as I noted earlier in this article, we need to keep a very close eye on what the BRICS nations are doing.
Saudi Arabia has been deepening relationships with China, Russia and India, and that is definitely bad news for the U.S. dollar…
Owing to the US and Western Europe’s increasingly entangled alliances, and its own efforts to diversify away from dependence upon energy exports, Saudi Arabia has been increasing its diplomatic and economic engagements with China, Iran, Russia, nations considered primary US foreign policy adversaries. Recent moves toward accepting non-dollar currencies reflects broader geopolitical shifts away from US currency hegemony.
Of course the truth is that if we want to find the biggest enemy of the U.S. dollar all we need to do is to look at ourselves.
The rest of the world is rapidly losing faith in our currency because of what are own leaders are doing to it.
The U.S. dollar is no longer a stable currency. We are creating, borrowing and spending trillions upon trillions of dollars, and if we continue to act with such extreme irresponsibility everyone else will eventually be forced to switch to new reserve currencies.
According to USdebtclock.org, our national debt will hit 46 trillion dollars on this day in 2028 if we continue to borrow money at the rate we are right now.
That is madness.
We are literally committing economic suicide, but most of the U.S. population is not interested in such warnings.
They just want our leaders to keep flooding the system with more money so that the party can continue.
Yes, the party will continue for a little while longer, but once the lights are finally turned off nobody will ever be able to turn them back on again.
Michael’s new book entitled “Chaos” is available in paperback and for the Kindle on Amazon.com, and you can subscribe to his Substack newsletter at michaeltsnyder.substack.com.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
Michael,
What will be your reason for the world ending next week?