American

Imperialism

Dollars in Despair?

The Untouchable US-Saudi Relation Is a Core Element of US Imperialism

It is therefore towards Riyadh that we must look in order to understand the workings of the petrodollar. 

After the dollar was withdrawn from the gold standard, Washington made an arrangement with Riyadh to price oil solely in dollars. 

In return, the Saudis received protection and were granted a free hand in the region. 

This decision forced the rest of the world to hold a high amount of US dollars in their currency reserves, requiring the purchase of US treasuries. The relationship between the US dollar and oil breathed new life to this currency, placing it at the center of the global financial and economic system. 

This privileged role enjoyed by the dollar allowed the United States to finance its economy through the simple process of printing its fiat currency, relying on its credibility and supported by the petrodollar that required other countries to store reserves of US treasuries in their basket of currencies. 

This arrangement continued to sustain itself in spite of numerous wars (the Balkans, Iraq, Afghanistan), financial crises (the Black Monday of 1987, the Dotcom bubble of 2000, and Lehman Brothers’ subprime crisis of 2008), and the bankruptcies of sovereign states (Argentina in 1998). The explanation is to be found in the credibility of the US dollar and the US itself, with its ability to repay buyers of treasury bonds. In other words, as long as the US continues to maintain its dominance of the global financial and economic system, thanks to the dollar, its supremacy as a world superpower is hardly questioned. To maintain this influence on the currency markets and the special-drawing rights (SDR) basket, the pricing of oil in US dollars is crucial. 

This explains, at least partially, the impossibility of scaling down the relationship between Washington and Riyadh. 

Nobody should delude themselves into believing that this is the only reason why Saudi-US relations are important. Washington is swimming in the money showered by Saudi lobbies, and it is doubtful that those on the receiving end of such largess will want to make the party stop.

The push to renounce the use of the dollar in financial transactions also stems from the fear that the next financial crisis may affect global debt as expressed in dollars; 

not only destroying the US economy, but dragging down with it countries that are large holders of US treasuries. 

This is not speculation or conspiracy theory but simple deduction from observing the economic situation over the last 10 years. The global economy was saved in 2008 as a result of the confidence held by citizens following the intervention of central banks. The corrosive mechanism laid out by the Fed and its partners became evident months later. Central banks started printing unlimited amounts of money at 0% interest rates and furnishing it to banks and financial institutions to cover the debts left by the bursting of speculative bubbles like the one involving subprime mortgages.

DYI:  Saudi Arabia with their massive oil reserves flooded the world market with oil and required payment in U.S. dollars.  Those reserves would be parked in U.S. Treasury securities thus anchoring the dollar as a reserve currency as other nations fell into line either by convenience or fear of America’s military might. 

Of course that was then; this is now as the U.S. government continues their relentless deficit spending – measured in trillion(s) per year with zero political will from either party to reign in this financial insanity.  Many major countries are now becoming concerned about America’s ability to repay those debts [without massive money printing].  To weather a nasty dollar decline in the future countries such as Russia and China are in the beginning stage of either strengthening their currencies by increasing their gold reserves substantially and/or attempting to sidestep transactions in dollars.   This is illustrated with their gold trading platform for trade between their respective countries.  This thought process is catching on with many other countries as they increase their gold purchases.

Unless by some miracle political will to end deficit spending and move to budget surpluses [reducing national debt] a dollar crises is in our future.  When?  This will be many years away but make no mistake the seeds are there for a dollar fall just as it happened during the 1970’s forcing in their [President Nixon – Saudi’s] oil scheme when the last vestige of the gold standard was dropped.

  DYI