Buy/bye Petrodollar

The master jigsaw puzzle piece connecting US domestic and foreign policy together is the petrodollar. Federal debt production depends upon credibility in the US currency that is anchored by its privileged role in global hydrocarbons commerce. Knock out that privilege, and US dollar holdings become one speculative asset among others. The fiat house of cards begins to tumble (perhaps with shocking rapidity).

In this context, US monetary policy begins to look like a side-line of ‘friendship’ with the Saudis, which is dissolving into quick sand. Pepe Escobar at AToL explores some of the possible consequences. (It’s especially notable that the fracking revolution could accelerate a petrodollar crisis, rather than retarding it.) There’s also a China angle, which is always fun.

Disconcertingly for almost everybody, in different ways, the awkward retraction of US power from the Middle Eastern wasps’ nest tends inevitably to destabilize the global monetary regime. The more the Saudis feel jilted, the less their commitment to the petrodollar pact, but if this was ever a low-maintenance relationship, it certainly isn’t anymore.

Bomb Iran or your currency bombs. — Things might not quite reduce to that yet, but it increasingly looks as if they will.

October 27, 2013admin 25 Comments »
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25 Responses to this entry

  • Thales Says:

    If SA and the rest of the low-church Sunni’s pivot to China, Xenakis is going to look like Nostradamus, to wit:

    As I’ve been writing for years, Generational Dynamics predicts that in the approaching Clash of Civilizations world war, Saudi Arabia, Pakistan and China will be allied against Iran, India and the United States.

    Although he believes the Bear will ally with China, recent events in Iran and Syria indicate they will instead complete the Rough Triangle as they continue to pursue their own interests.

    And while basing one’s currency on energy instead of gold (sorry, Austrians) has allowed seemingly limitless monetary expansion (“Do what Krugman says! hur hur!”), the Emperor Polygon might come to regret the reality that the Spice was never under its direct control. Heretofore, the War on Terra’ has always been one of choice and crony-enrichment, but things may turn existential if interest rates come back from the dead and the zombies start to go hungry.

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    Posted on October 27th, 2013 at 4:32 pm Reply | Quote
  • orlandu84 Says:

    I would hesitate to claim that the loss of the petrodollar spells immediate doom for the US Dollar. I would claim, however, that the USD’s half-life would be quickly shortened without the political/economic reality of the petrodollar. My own thought is that once the petrodollar ends a currency war of sorts will begin in earnest amongst national governments, investment bankers, and speculators. A very interesting (but unlikely scenario) would see Wall Street financiers ditching US debt to save their financial position only to undermine the one entity that has been maintaining them (the USG). The poetry of such an end for Wall Street and Pennsylvania Avenue would be truly epic.

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    Posted on October 27th, 2013 at 8:16 pm Reply | Quote
  • Neener Says:

    That Pepe article is pretty good.

    Other data points:

    The 2011 alleged Assassination plot of a Saudi Ambassador in America by an alcoholic, bipolar, used car salesmen. As per other psyops, you shouldn’t focus so much on the magician’s trick, as to the consequences of the trick. Compare and contrast with actual assassination plots that occurred four months later.

    The Bahraini uprising that Pepe mentioned is damn interesting from a propaganda perspective too. Also, the flourishing of mercsin the middle east post-iraq war to shut down these uprisings.

    Also, Saudi support for terrorism: Fahad al Thumairy (a Saudi consulate worker), Omar al-Bayoumi (a rumored Saudi intelligence officer with ties to the two key operatives of the 9/11 hijackings, also had ties to al Thumairy), the war games by the Saudi National Guard that coincided with the Riyadh compound bombings, the funding of 9/11 hijackers via a House of Saud princess and wife of the Saudi ambassador, the world’s largest Islamic bank Al-Rajhi being used by the majority of Islamic militants and groups (bonus article on Al-Rajhi: on the US State Department and the Saudi Oil Connection), money laundering via the Saudi embassythrough the Riggs bank to extremists (a bank with heavy ties to the CIA, now read that State Department article above again), the classified 28 pages of the official 9/11 report, Adel Batterjee (a Saudi businessmen who is a major financial supporter of militants worldwide, and is living freely in Saudi Arabia), the major Islamic Charity fronts who fund militants worldwide — the Muslim World League, the International Islamic Relief Organization, the Muslim Youth — all headquartered in Saudi Arabia (and heavily funded by the Saudi government), the Saudi government funded equivalent of a “wounded warriors” program but for Islamic extremists, and on, and on, and on. That’ll be enough links from my bookmarks for today.

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    VXXC Reply:

    @Neener,

    Are you suggesting the Kingdom has something to do with terrorism?

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    Neener Reply:

    The Saudis are a kingdom of peace, lol (don’t get me started on the Pakistani ISI).

    Allow me to move into deep paranoia land with respect to psyops again, isn’t it interesting how the the majority of the 9/11 truth movement is in the complete other direction? That subset of society who like to dig into events deeper than what the press does, now has the dominant meme of an inside job. Bin Laden, al Qaeda, and the various tentacles spreading out into the Saudis, Pakistan, and the CIA are now put on the backburner. Notice also that the source of some of the major truther views are from former government insiders or people connected to the establishment. Examples abound: Morgan Reynolds (controlled demolition proponent, and former chief economist in the department of labor during the Bush administration), Eric Hufschmid (the original controlled demo proponent, his sister is married to James Murdoch and has ties to the Clinton administration), David Shayler (former MI5, proponent of various wacky ideas including holographic planes),
    Bill Christison (27 year veteran of the CIA), Major-General Albert Stubblebine (32 year veteran of US Army intelligence), Paul Craig Roberts (former economist in the Reagan administration, heavily tied to establishment media, and one of the proponents that bin Laden is “myth”).

    Now others might be thinking, “but people in government can be crazy conspiracy theorists too!” They might be right, and we might never know. But we do have a historical analogue for this type of milieu involving black projects and conspiracy theory. During the Cold War the US intelligence community was involved in various black projects involving surveillance and aircraft tech, like Project Mogul. For instance, we now know through official sources (from July this year) that Area 51 really was a testing ground for surveillance and aircraft technology. Yet for 50 years it persisted of rumors of aliens within the wider UFO community like NICAP and CAUS. Now why would that be? Again, look at some of the people that infiltrated within NICAP (the premier civilian UFO group during the cold war). Individuals include: Roscoe H. Hillenkoetter (board of directors of NICAP, also the very first CIA director), Colonel Joseph Bryan III (former director of NICAP, was involved in the CIA’s psychological warfare division), Dr Bruce Maccabee (former US Navy employee, part of NICAP and its various subgroups, spread rumors of alien bases all over the United States). We know some of this through official channels too. The CIA sponsored Robertson Panel has documentation from officials that these groups like NICAP should be monitored, because of “national security” and “subversion.” Roswell is an excellent comparison to truther’s controlled demolition. As that link above on Project Mogul shows, the Roswell crash was most likely a top secret surveillance platform used to monitor cold war era nuclear tests. That is why there was so much secrecy around it, and an initial cover up. Yet Roswell ends up becoming the most prominent issue within the UFO community, and eventually in the public (by the 1980s and 1990s books, tv shows, and movies were done on Roswell). It even gave rise to the most prominent hoax in the UFO community:
    the MJ-12 documents. Again, people could say, “ah, but these could just be hoaxers and pranksters,” but like the Robertson Panel above we know that the US Air Force Office of Special Investigations (AFOSI, the counterintelligence and security wing of the US Air Force) via Richard Doty deliberately engaged in disinformation (Doty — an admitted former member of AFOSI — was at the center of the MJ-12 hoax, and also tried to feed disinformation to several others in the UFO community, including the documentary maker Linda Howe, and the lawyer for CAUS Peter Gersten). We also know various actual former and serving members of the military were feeding this bullshit to the UFO community. People like Captain Robert Collins (an air force officer, and one of the key individuals apart from Doty to spread the MJ-12 hoax), Cmdr. C.B. Scott Jones (former US Naval Intelligence), Major Edward Dames (the major proponent of secret underground bases in New Mexico. Dames also worked with Stubblebine, who was mentioned above as one of the 9/11 disinformation guys, at Dames’ company PsiTech), and Major Ernest Edwards (an officer in the 1608th Security Police Squadron). We also know that the US Air Force released an approximately 1000 page report on Roswell that admits it was to do with Project Mogul (synopsis here). The report and investigation also tried to get to the bottom of where the Roswell-Alien rumors came from. Doty, among others, weren’t mentioned a single time. And if you think, “well maybe Doty wasn’t a major player,” then check out historian
    Curtis Peebles’ book Watch the Skies! Peebles is the Smithsonian Institution’s official aerospace historian. Peebles names Doty as one of the major players in spreading the Roswell-Alien connection. An official historian from the Smithsonian can pinpoint Doty, but the official investigation omitted him.

    So what we have are ominous parallels. We have two events separated in time but connected via a similar modus operandi. The public start snooping around outside of official channels, then parts of the intelligence community infiltrate the subcultures and spread as much disinformation as possible. The intelligence community thus controls the direction these subcultures take.

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    VXXC Reply:

    Your thesis is probably correct. The Truther link to USG/Intel I did not know.

    Useful.

    If I could toot my horn for a moment, I had an instinct in the early 90s that the entire Area 51 and UFO meme was an Intel Blow Job [as I then put it]. I was already a Veteran in the Military, so while not inside information insight apparently served.

    Neener Reply:

    Members of the mainstream right might be reading your blog comments: http://nypost.com/2013/12/15/inside-the-saudi-911-coverup/

    http://www.rightsidenews.com/2013121833615/us/islam-in-america/28-pages-later-shrouding-an-act-of-war.html

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    admin Reply:

    Congratulations on the forthcoming NYT opinion column.

    [Reply]

    Neener Reply:

    The “9/11 conspiracy theory” conspiracy theory I outlined above doesn’t seem so crazy now, given the latest Snowden revelation (spread disinformation, including conspiracy theories).

    https://prod01-cdn00.cdn.firstlook.org/wp-uploads/2014/02/deception_p12.png

    Neener Reply:

    Another interesting update RE: the Saudis and 9/11: http://www.reddit.com/r/news/comments/29o8lr/freshly_released_but_heavily_censored_fbi/

    Posted on October 28th, 2013 at 1:56 am Reply | Quote
  • VXXC Says:

    Fascinating post.

    It may well be the master piece. I would have said the Doomsday machine of interlocking Debt.

    Digesting.

    Absolutely being the Kingdom’s Blue Eyed Slaves summoned at a clap of hands by the stupid genie of the American Ambassador – are the fights to walk away from…

    Syria: If there’s one thing Obama deserves credit for, it’s the masterful way it was done. He castled to Congress. I can’t recall an American President ever being astute enough to do it.

    When he did it he was brave even if unintentionally. He made many wallets lighter.

    As events develop that may be what dooms him. In my eyes it’s to his credit, those I care for suffer less.

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    Posted on October 28th, 2013 at 10:01 am Reply | Quote
  • VXXC Says:

    But the key question: Is Al-Saud pivoting away from the petro-dollar ? is not answered.

    Are they?

    It’s been demonstated conclusively that Saud can’t count on it’s whores to deliver until Jan 2017 at the earliest. * The whores are slaves to the lever of money, but the yeomanry refused the call, and the whores completely missed that possibility.

    As to the Apocalypse of the US economy..it’s the Apocalypse of USG INC and ACELA global economy, aka the Global Financial System. Which is Neo-Liberalism on coke.

    A system not developed in Latin America but the good ol’ Rust Belt. For their sin the Rust Belt was subjected to the Morgenthau plan.

    The Sin being misplaced Trust.

    The collapse of this is the liberation of my people and allows the actual looted, pillaged and maruaded against real American economy to rejuvinate, it’s natural course. Like a river misdirected – to ruinous ends – the collapse of the dikes of debt will allow us to prosper again.
    ===================================================
    *It is fascinating to at least me that a Muslimist raised by Communists to be a Diplomat but who chose power instead was the one to refuse the clap of the Kingdom’s hand. Perhaps we have stumbled into an actual Gorbachev. A Gorby more than once in a thousand years is the Hand of God himself, no matter what the motive.

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    Posted on October 28th, 2013 at 11:02 am Reply | Quote
  • admin Says:

    It’s going to take me days to work out what’s already happened in this thread … [I’ll just stagger off stunned to mumble about it on Twitter]

    [Reply]

    Posted on October 28th, 2013 at 2:19 pm Reply | Quote
  • SOBL1 Says:

    The Saudis do not have to dump the petrodollar entirely to make a damaging move since they could just accept yuan for the 1.3 mbpd they sell to China in exports to get a message across to the USA. By virtue of massive US$ holdings, China and the KSA have aligned interests, which continue to expand. The petrdollar is the new gold backing but is also reliant on low inflation to encourage use and recycling of dollars into American assets. News articles from the ’70s show how the Iranians and KSA flirted with diversifying their holdings even after the petrodollar’s creation until Volcker took a hammer to inflation. Maybe the Saudis are touchy because they don’t have a Bush lined up to be their hand holding pal in charge of the military muscle.

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    Posted on October 28th, 2013 at 2:38 pm Reply | Quote
  • VXXC Says:

    At his Fathers direction, “W” was trained in politics by Bandar.

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    Posted on October 28th, 2013 at 3:29 pm Reply | Quote
  • Handle Says:

    I dissent. Neither the Petrodollar nor Eurodollar underpins the value or credibility of U.S. Currency. Look at the list of Major Foreign Holders. All of OPEC combined holds merely 246 Billion of US debt, less than even Brazil. East Asian exporters and major U.S. trading partners (China, Hong Kong, Taiwan, Japan, Singapore, South Korea) hold 12 times as much – a combined $2,860 Billion – which will climb to three trillion next month as the Treasury restores its cash balance after the debt-limit circus.

    The value of a currency is a combination of the open-deep-and-liquid marketplace for its exchange, and the comparative credibility of its management relative to that of other regimes. Who do you trust more not to manipulate / debate their currency? The British? Japanese and Abenomics? Euros? Chinese? (Ha! No one trusts them at all) There’s only one country in the world that has shown it is willing (to the point of folly) to absorb excess global demand, and that nation gets the honor (and burden) of hosting the global reserve currency.

    [Reply]

    admin Reply:

    The petrodollar is a flow quantity, rather than a stock quantity, so looking at reserves isn’t necessarily the way to estimate its importance. Still, I don’t disagree with you about the trust factor you stress, except to say it is coupled-up in a tangled, highly-nonlinear system, so that saying where ‘credibility’ begins or ends is at least difficult — and perhaps impossible in principle.

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    Thales Reply:

    Yeah, I think the issue of alternatives is the best argument against a preference cascade rather than holdings. q.v.: Gresham’s Law.

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    Grotto Reply:

    I agree with Handle’s larger point that being the world’s reserve currency is no blessing, merely that America has the temporary and dubious privilege of buying the cheapest goods on store credit.

    But I disagree that the Asian currency reserves are proof that the petrodollar is not an underpinning-factor. The Asian nations are uniquely dependent on Middle East oil, and for Japan in particular, the OPEC embargo left lasting psychological trauma. For a time, they thought it was the end of the world. Much of their massive build-up of US currency is a hedge against the petrodollar.

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    Posted on October 28th, 2013 at 11:51 pm Reply | Quote
  • Blogospheroid Says:

    I concur with Handle’s dissent.

    The power to dump the dollar remains with the largest holders of the currency, which is east asia. And a quick dump is strategically terrible for them. China cares about continuing its domination of the export oriented industries. They simply have not created the internal structures to move the yuan to reserve currency status. If the gulf countries ditch the dollar, then Japan and China have little choice but to pick up the slack.

    A wild card here could be really good economic reforms happening in India, after the Hindu nationalists coming to power in 2014. This would have the potential to boost growth and keep the oil price up despite a recession in the western world. But the chances of reform are relatively slim. Every party’s rhetoric in India is socialist.

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    Posted on October 29th, 2013 at 8:12 am Reply | Quote
  • VXXC Says:

    [If you’re reading this, you should not take this personally. Unless you’re Cathedral]

    Look at how slim a thread all these fortunes hang on…Blackmail by morally feral, physically craven, personally vile lightweights in contest .

    Their plan is the Doomsday Device, but it doesn’t destroy the world. It destroys the Cathedral.

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    Posted on October 29th, 2013 at 11:11 am Reply | Quote
  • Nick B. Steves Says:

    Seems like the end of US Dollar hegemony would do wonders for domestic production. What’s not to like?

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    pseudo-chrysostom Reply:

    the chief importance of the petrodollar system is that it is effectively a tax, by america, on the rest of the oil using world. this transferal of capital is what sustains americas phantom economy along with the parasitic sovereign monetary cartel.

    certainly its end would necessitate change (or fall if not), but its not like it hasent been good for america.

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    Lesser Bull Reply:

    Tribute tends to bankrupt a nation’s vigor. We can’t afford to keep skimming off the world.

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    Posted on October 29th, 2013 at 4:51 pm Reply | Quote
  • VXXC Says:

    Don’t ignore the Cathedral has skimmed us pretty good, skinned actually.

    It’s not just about bad ideas commanded by peer pressure, engineering social catastrophe, undermining civilization.

    They’ve also made a lot of money – and mainly off us.

    They were quite happy to have their minions – they are – on Wall Street take trillions by taking down our industries. Creative Destruction my @zz.

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    Posted on October 30th, 2013 at 2:08 am Reply | Quote

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