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Lies And Distractions Surrounding The Diminishing Petrodollar

Public Policy

There are a few important rules you have to follow if you want to join the consortium of mainstream economic con-men/analysts. Take special note if you plan on becoming one of these very “special” people:

1) Never discuss the reality that government fiscal statistics are not the true picture of the health of the economy. Just present the stats at face value to the public and quickly move on.

 

2) Almost always focus on false positives. Give the masses a delusional sense of recovery by pointing desperately at the few indicators that paint a rosier picture.  Always mention a higher stock market as a symbol of an improving economy even though the stock market is irrelevant to the fundamentals of the economy. In fact, pretend the stock market is the ONLY thing that matters. Period.

 

3) Never talk about falling demand. Avoid mention of this at all costs. Instead, bring up “rising supply” and pretend as if demand is not a factor even worth considering.

 

4) Call any article that discusses the numerous and substantial negatives in the economy “doom porn.” Ask “where is the collapse?” a lot, when the collapse in fundamentals is right in front of your face.

 

5)  Avoid debate on the health of the economy when you can, but if cornered, misrepresent the data whenever possible. Muddle the discussion with minutia and circular logic.

 

6) When a crash occurs, act like you had been the one warning about the danger all along. For good measure, make sure alternative economic analysts do not get credit for correct examinations of the fiscal system.

 

7) Argue that there was nothing special about their warnings and predictions and that “everyone else saw it coming too;” otherwise you might be out of a job.

Now, if you follow these rules most of the time, or religiously, then you have a good shot at becoming the next Paul Krugman or one of the many hucksters at Forbes, Bloomberg or Reuters. A cushy job and comfortable salary await you. Good luck and Godspeed!

However, say you are one of those weird people cursed with a conscience; becoming a vapid mouthpiece for the establishment may not sound very appealing. Or, maybe you just have OCD and you can’t stand the idea of “creative math” when it comes to economic data. Whatever the case may be, you want to outline the deeper facts of the economy because the economy is life — it is the structure which holds together our civilization, and if we lie about it in the short term, then we only set ourselves up for catastrophe in the long run. Welcome to another dimension. Welcome to the world of alternative economics.

Every aspect of the U.S. economy or the global economy can be presented two very different ways depending on whether you “interpret” the data to fit a preconceived conclusion, or simply relay it to the public as it really is.

Let’s use oil and the petrodollar as an example…

To illustrate the mainstream establishment reaction to legitimate economic concerns on oil, I highly suggest going back and reading an article by Foreign Policy, the official magazine of the Council On Foreign Relations, titled “Debunking The Dumping-The-Dollar Conspiracy,” published in 2009. The idiocy of this article was truly bewildering at the time it was released, but even more so now in retrospect.

First, it is important to note that Foreign Policy refused to even acknowledge the issue of the dollar losing petro-currency status until Robert Fisk of The Independent, someone closer to mainstream exposure, dared to broach the topic, warning that a trend was in play to dump the dollar as the petro-currency by 2018. The alternative economic community had been warning about the world moving away from U.S. oil dominance for some time beforehand.

Second, the CFR uses a typical circular fallacy when confronting the potential end of the dollar’s world reserve status; the fallacy that the dollar is the world reserve currency because “the U.S. is the preeminent world economic power.” Actually, the reverse is true — the U.S. is the world’s preeminent economic power only because the dollar has world reserve status. It was also once an industrial powerhouse after WWII, but this was ONLY because the U.S. was one of the few manufacturing hubs in the world that wasn’t demolished by years of kinetic destruction. When you are the only game in town, of course you reap huge economic benefits including massive international investment, but not forever.

Today, obviously, the U.S. is far surpassed by other nations in the area of manufacturing and production, and has also been surpassed as the largest global importer and exporter. The “preeminence” argument is unmitigated garbage.

Third, almost every danger Foreign Policy dismissed as “conspiracy” back in 2009 is now coming true. Just as Robert Fisk warned, and just as the alternative economic community warned long before him, numerous shifts in the world of oil as well as geopolitical relationships have created a spiraling nexus of anti-dollar sentiment. Is it possible that the dollar will lose petro-status by 2018? Absolutely, and here is why…

While the U.S. remains the world’s largest oil consumer according to the Energy Information Administration (EIA), American consumption of petroleum products has greatly diminished over the past few years; falling demand by increasingly destitute U.S. consumers has left oil producers searching for buyers elsewhere. The World Economic Forum noted in 2015 the drastic fall in U.S. demand since the 2008 debt crisis, but this admission went largely unnoticed in the mainstream media. Interestingly, while demand was crashing, the price per barrel continued to skyrocket because of the Federal Reserve’s inflationary QE policies. Almost immediately after the Fed began tapering QE, oil prices drastically declined in line with the lack of existing demand.

In 2017, the EIA claims there has been a rise in global demand since the second quarter.  And has “projected” increasing demand including higher U.S. demand going into 2018, outpacing supply.

Yet, at the same time the EIA admits a frustrating stagnation in global oil demand, with the U.S. being the primary drag on consumption since 2010.

So, which trend are we supposed to believe? The one that is right in front of us, or the one that is optimistically projected? It is clear, even according to “official” statistics on crude oil imports, that the U.S. market began sinking in 2009 to levels not seen since the 1990’s and has not recovered since. Everyone knows that each new year is supposed to bring exponential demand, like clockwork. But this has not been the case at all in the U.S.

Meanwhile, China has recently surpassed the U.S. as the world’s largest oil importer, even though the EIA lists the U.S. as the world’s largest oil “consumer.”

The argument mainstream analysts would probably make here is that imports of oil are diminishing because U.S. shale oil is filling demand domestically. This argument overlooks the overall process of declining demand, though.  The US is the largest consumer of oil NOW, but will that pace continue?  According to the data, the answer is no.   Americans are buying less petroleum products since the 2008 credit crisis, regardless of where they come from, and oil producers are seeking to diversify into other markets, and other currencies.

On top of that, even if it were true that imported oil is crumbling because US domestic oil is filling rising demand, this still begs the question – Why would oil producing nations stick with the dollar as the petrocurrency when the US has decided to take its ball and go home? 

The US has now become a COMPETITOR in the oil market with shale, so why would OPEC nations and others also continue to give the US the enormous advantage of owning petrocurrency status?

In the meantime, the geopolitical situation grows more unstable. I believe the Iranian sanctions issue has gone ignored far too long, and this has direct repercussions on the dollar’s petro-status. How? Well, consider this — Europe continues its appetite for Iranian oil, with 40 percent of Iran’s oil exports going to the EU. With the very oddly timed U.S.-led effort by the Trump administration to renew sanctions, Europe has been caught in a catch-22; either defy sanctions and upset relations with the U.S. or lose a significant source of petroleum imports. For now it appears that the EU will support sanctions, but this time solidarity on the issue is nowhere near as strong as it was back in 2012.

With Iran as a major supplier for Europe as well as China, and overtaking Saudi Arabia as the top oil supplier for India, Trump’s latest call to put economic pressure on the nation may add more fuel to the accelerating rationale against the dollar as the primary trade mechanism for oil. The question becomes, who benefits from American influence in oil, and who suffers? The more countries that suffer because of a world reserve dollar, the more likely they will be to look for an alternative.

China has deepened ties to Russia for this exact reason. With Russia supplanting Saudi Arabia as China’s largest petroleum source, and bilateral trade between Russia and China cutting out the dollar as world reserve, this is just the beginning of the shift.  In the past week it has been hinted that China will be shifting in the next two months into using its OWN currency, the Yuan, to price oil instead of using the dollar.

Saudi Arabia, America’s longtime partner in the oil dominance chain, is now moving away from the old relationship. Tensions between the Saudis and the U.S. State Department over the rather surreal Qatar embargo are just part of a series of divisions. With China’s influence in the region increasing, the mainstream has finally begun to acknowledge that Saudi Arabia may be “compelled” to trade oil in currencies other than the dollar.

Why is oil so important? Because energy, along with currency, is the key to understanding the state of the economy. When demand for energy goes stagnant, this usually means the economy is stagnant. When a nation has maintained a monopoly on global energy trade by coupling its currency to oil, an addiction can be formed and its financial structure becomes dependent in that addiction being continuously satiated.

Foreign Policy argued in 2009 that oil trade in dollars is “nothing more than a convention.” I would actually agree with that in part; it is indeed a convention that can change dramatically at any given moment. But, Foreign Policy asserts that there would be no consequences for the U.S. if and when the change takes place and the dollar loses petrostatus. This is absurd. Trillions in dollars are held overseas and the singular function of those dollars is to fulfill international trade based on the “convention” of the dollar’s world reserve status. What purpose do those dollar’s serve if world reserve status is abandoned? The answer is none.

All of those dollars would come flooding back into the U.S. through various channels. Market psychology would immediately trigger a massive loss in the dollar’s international value, not to mention incredible inflation would be spiking here at home. This process has already begun, and it is looking more and more like the next couple of years will bring a vast “reset” (as the IMF likes to call it) in the hegemony of certain currencies.

Some people believe this will be a wellspring, a change for the better. They think the death of the dollar will lead to “decentralization” of the global economy and a “multipolar world,” but the situation is far more complex than it seems. I will go into greater detail in my next article as to why the dollar and the U.S. economy in general has actually been slated for deliberate demolition and how this will likely come about.

As far as oil and petro-status are concerned, the mainstream media is perfectly willing to report on the developments I have mentioned here in a fleeting manner, but at the same time they are completely unwilling to account for the effects that will result or the deeper meaning behind these events.  They will report on the smaller stories, but refuse to acknowledge the bigger story. It is quite a contradiction, but a contradiction with a purpose.

Alt-Market.com



62 Comments on "Lies And Distractions Surrounding The Diminishing Petrodollar"

  1. Davy on Sat, 28th Oct 2017 4:54 am 

    “Mad kat, the gold is likely there.”
    “How do you know, Davy? Do you have EVIDENCE to support your big mouth?”
    Derdumbass, what is the difference between “is” and “likely” and get back to me on the hypocrisy accusation.

  2. Davy on Sat, 28th Oct 2017 4:56 am 

    “According to The Economist, the gold bars that Bundesbank repatriated from the US have different labels suggesting that the US replaced the German bullion with different gold bars bought from the market.”

    Derdumbass, give me the link with the corresponding written evidence otherwise you are talking out your ass.

  3. makati1 on Sat, 28th Oct 2017 4:56 am 

    Der, Davy never apologizes. He cannot admit he was wrong. He just never replies or he changes the subject.

  4. Davy on Sat, 28th Oct 2017 5:39 am 

    “Der, Davy never apologizes. He cannot admit he was wrong. He just never replies or he changes the subject.”

    I am sure and the hell not going to apologize to either of you stupid old men who can’t keep you facts straight and post per an agenda. Nether of you care one bit about the truth. I continuously catch the both of you dementia posting bullshit. You are all about your emotional attachments. Pathetic

  5. Cloggie on Sat, 28th Oct 2017 6:45 am 

    https://sputniknews.com/business/201702111050571970-us-germany-gold-repatriation/

    Sputnik refers to the Economist as well and the story that the gold the Germans received was different gold.

    “There are a lot of signs that the gold was not physically presented in the New York vaults when Germany called it back. Of course, the US began to return it to Germany but there is one interesting detail. When you leave your suitcase in the luggage storage you expect to get back the same suitcase. But Germany took the wrong ‘suitcase,'” Katasonov told Radio Sputnik.

    Derdumbass, give me the link with the corresponding written evidence otherwise you are talking out your ass.

    I see you have trouble finding links if you want them, Daver boy. Early onset of dementia?

    I am sure and the hell not going to apologize to either of you stupid old men who can’t keep you facts straight and post per an agenda. Nether of you care one bit about the truth. I continuously catch the both of you dementia posting bullshit. You are all about your emotional attachments. Pathetic

    Says Davy with foam on his lips.

  6. Davy on Sat, 28th Oct 2017 7:08 am 

    “When you leave your suitcase in the luggage storage you expect to get back the same suitcase. But Germany took the wrong ‘suitcase,’” Katasonov told Radio Sputnik.”
    Who says? Do you know the arrangement the Germans had with the Americans? The Fed vaults are not the same as Fort Knox either so I would not use that to compare gold storage. The fed has been known to lease gold so this very well could be different gold. Gold is gold and I am sure the Germans tested it. If there were a problem the German government would have said something….don’t ya think dumbass?
    IMA, sputnik news is not an impartial source don’t ya think extremist?

    “I see you have trouble finding links if you want them, Daver boy. Early onset of dementia?”
    That is not my job dementia man. If you are going to throw around wild assertions give the link with the words that reference your assertions. You are a fraud, mad kat is a fraud, and Derdumbass is a fraud and your words cannot be trusted.

    “Says Davy with foam on his lips.”
    The truth and honesty has a way of doing that to people clogged fraud

  7. makati1 on Sat, 28th Oct 2017 7:29 am 

    Cloggie, there is never enough proof for Davy. You are correct that he appears like a rabid dog with every attempt you make to point out reality. You can fill the screen with refs and he will ignore them. Or twist them to fit his Davy World view.

    I have chosen to put him in the ‘not worth my time’ basket. His 1%er mindset is too ingrained to ever admit he could be wrong or that there are better places to live than in the US.

  8. Davy on Sat, 28th Oct 2017 8:23 am 

    Mad kat, lol, if I am in your “not worth my time basket” why did you make it worth your time to comment. You just told on yourself dumbass.

  9. rockman on Sat, 28th Oct 2017 11:33 am 

    Davy – I think you have a good handle on the petrodollar situation. But let’s make sure everyone does. The nature of the “petrodollar” (which IS NOT necessarily the US dollar) is far more complex then many understand. From

    https://en.m.wikipedia.org/wiki/Petrocurrency

    Petrocurrency is a neologism used with three distinct meanings, often confused:

    A)Trading surpluses of oil producing nations, referred to as petrodollar recycling.

    B)Currencies of oil producing nations which tend to rise in value against other currencies when the price of oil rises (and fall when it falls).

    C)Currencies used as a unit of account to price oil in the international market.

    Oil producers’ trading surpluses:

    Petrocurrency” or (more commonly) “petrodollars” are popular shorthand for revenues from petroleum exports, mainly from the OPEC members plus Russia and Norway. Transactions can occur in a variety of currencies, some pegged to the US dollar and some not.

    Currencies correlated with oil prices:

    The pound sterling has sometimes been regarded as a petrocurrency as a result of North Sea oil exports. The Dutch guilder was once regarded as a petrocurrency due to its large quantities of natural gas and North Sea oil exports. The Dutch Guilder strengthened greatly in the 1970s, after OPEC began a series of price hikes throughout the decade that consequently increased the value of all oil producing nations’ currencies. However, as a result of the appreciation of the Guilder, industrial manufacturing and services in the Netherlands during the 1970s and into the 1980s were crowded out of the larger national economy, and the country became increasingly non-competitive on world markets due to the high cost of Dutch industrial and service exports . This phenomenon is often referred to in economics literature as Dutch disease.

    The Canadian dollar is increasingly viewed as a petrocurrency in the 21st Century. Generally speaking, as the price of oil rises, oil-related export revenues rise for an oil exporting nation, and thus constitute a larger monetary component of exports. Thus it has been for Canada. As their tar sands oil deposits have been increasingly exploited and sold on the international market, movements of the Canadian dollar have become increasingly correlated with the price of oil. For example, the exchange rate of Canadian dollars for Japanese yen (99% of Japan’s oil is imported) is 85% correlated with crude prices. As long as oil exports remain a strong component of Canada’s exports, oil prices will influence the value of the Canadian dollar. If the share of oil and gas exports increases further, the link between oil prices and the exchange rate may become even stronger.

    Currencies used to trade oil:

    Since the agreements of 1971 and 1973, OPEC oil is generally quoted in US dollars, sometimes referred to as petrodollars.

    Euros used for oil price quotation and purchase are sometimes referred to as petroeuros. Since the beginning of 2003, Iran has required euro in payment of exports toward Asia and Europe. The government opened an Iranian Oil Bourse on the free trade zone on the island of Kish, for the express purpose of trading oil priced in other currencies, including euros. As of 2005, OPEC continues to trade in US Dollars, but some OPEC members (such as Iran and Venezuela) have been pushing for a switch to the euro.”

    Now as far as the yuan becoming the DOMINANT petrocurrency (yes, there can be multiple petrocurrencies at the same time) here’s one person’s view of a possible future. From

    https://www.usatoday.com/story/money/2017/10/11/dollar-value-drop-china-compel-saudi-arabia-trade-oil-yuan/754788001/

    “China will “compel” Saudi Arabia to trade oil in yuan and, when this happens, the rest of the oil market will follow suit and abandon the U.S. dollar as the world’s reserve currency, a leading economist told CNBC on Monday. Carl Weinberg, chief economist and managing director at High Frequency Economics, said Beijing stands to become the most dominant global player in oil demand since China usurped the U.S. as the “biggest oil importer on the planet.”

    Saudi Arabia has “to pay attention to this because even as much as one or two years from now, Chinese demand will dwarf U.S. demand,” Weinberg said. “I believe1 that yuan pricing of oil is coming and as soon as the Saudis move to accept it — as the Chinese will compel them to do — then the rest of the oil market will move along with them.”

    In recent years, several nations opposed to the dollar being the world’s reserve currency have progressively sought to try and abandon it. For instance, Russia and China have sought to operate in a non-dollar environment when trading oil. Both countries have also increased their efforts to mine and acquire physical gold if, or perhaps when, the dollar collapses.

    OPEC kingpin Saudi Arabia is at the crux of the petrodollar. Since a 1974 agreement between U.S. President Richard Nixon and Saudi King Faisal, Saudi Arabia has accepted payments for nearly all of its oil exports in dollars. However, as China imports more and more oil from countries across the world, the idea of having to purchase that same oil in dollars has become increasingly irritable to Beijing.

    In recent years, China has sought to ratchet up the pressure on Saudi Arabia over the form of currency in which their oil trade is conducted, with Riyadh now enjoying less and less oil purchases from Beijing.”

    Again, that’s just one person’s OPINION. Given the volatility in the Middle East and the Saudi/US relationship (especially on a military basis) the future of the US dollar remaining the DOMINANT global petrocurrency may hinge more on politics then economics. Of course TPTB in Riyadh shouldn’t forget the fates of other ME leaders, such as the Shah of Iran and Saddam H, that once had US political backing.

    I also doubt the two largest suppliers of US oil imports will ever refuse to accept payments in US dollars. Also let’s not forget the US is the largest supplier of refinery products to the world. And while Canada and Mexico are the two largest importers about 70% of the total is exported to dozens of countries around the global. And the world also purchases a fairly large amount of agricultural products from the US. Perhaps one day we’ll be focused on the graindollar as much as the petrodollar. Especially since in 2012 China became the leading U.S. agricultural export destination, replacing Canada.

    You can’t eat oil and China can’t feed the members of OPEC.

  10. jawagord on Sat, 28th Oct 2017 1:42 pm 

    A point of order, the Canadian dollar is a commodity currency with oil being an important commodity, perhaps the dominate commodity at $100 a barrel but much much less so at $50 a barrel. Refer to article below, follow copper prices if you want to know where the Canadian dollar is headed.

    “The commodity that has the tightest correlation with the Canadian dollar in recent years is copper — not oil, not gas, not lumber and not gold,”

    http://www.cbc.ca/news/business/which-way-is-the-loonie-headed-watch-the-price-of-copper-1.2700932

  11. rockman on Sat, 28th Oct 2017 4:37 pm 

    Jaw – Interesting conclusion given that in 2015 Canada exported $92 billion in all mineral commodities (copper and everything else) compared to the $57 billion in oil it exported that same year.

  12. jawagord on Sun, 29th Oct 2017 12:41 pm 

    Rockman, I would add the CAD currency driver from the oilsands are sales + investments, at $50 a barrel investment is small but when oil gets above say $80 a barrel, investment goes crazy, add in $50 billion a year in investment, much of it foreign currency which gets converted to Canadian dollars and this drives demand for the Canadian dollar way up, a double whammy. Below this investment threshold price the oil currency effect on CAD is more muted.

    Comparing exports of KSA to Canada in 2016. Over 70% of KSA exports are petroleum and products of petroleum. Canada’s exports of petroleum make up 10% of total exports and are further balanced off by imports of crude and refined products equal to 5% of exports. Hence the copper/dollar proxy is probably more accurate over the long term than oil/dollar for Canada, as we know how fleeting very high oil prices can be.

    I do agree Canadian companies and their shareholders will be quite happy to continue to accept payment in USD!

    https://atlas.media.mit.edu/en/profile/country/sau/

    https://atlas.media.mit.edu/en/profile/country/can/

    https://beta.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/investment-by-canadian-oil-firms-may-never-again-hit-2014-peak-report-says/article23611384/?ref=https://www.theglobeandmail.com&

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