Hey monkeys,
Was browsing through Quora and found this really interesting piece written by Mr Robert Parker, the CEO of Holborn Assets:
Background
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The USD was chosen (forcefully imposed) as the world reserve currency back in 1944 at Bretton Woods. This is because the US had over 20,000 tons of gold - the biggest gold reserve at that time (70% of all the gold from global reserves).
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The US was decided to pay $35 for an ounce of gold.
Preconditions of the "scam"
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The USD acted as a "scam" even at that early stage. The Fed (US Central Bank) printed money out of control and the US gave these papers in exchange for real goods. Now, the essence of this "scam" here and later is this - to print money (just some fake papers made of textile) in exchange for real goods. To avoid inflation inside the country, the US exported its inflation in Europe and Japan under the Marshall Plan and other projects, providing grants that totaled $50 billion within some years. So, the US printed papers and granted Europe only with certain conditions of course (they shaped the EU politics in fact).
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The French President de Gaulle and other leaders from other countries wanted back their gold in exchange for USD at $35 per ounce, as agreed earlier. This is where the US gold reserves got reduced and the US was scared, so that it wanted to get out of Bretton Woods agreement. In 1971, Nixon announced that the US won’t give its gold in exchange for USD and the latter has value by itself (see Nixon shock). Basically, the US printed so much money that its gold couldn't back even a small portion of USD supply. The US tricked the world.
The "scam" rises under petrodollar
- So, the US basically betrayed the world, renouncing international gold standard. Under these conditions, the inflation would go so high that the US dollar would lose the biggest part of its value. But this can’t happen when the smart guys manage the US. So, while the US dollar was not backed by gold and the US decided its dollar can be a floating currency (fiat money), the US decided to make some agreements with Saudi Arabia. The US would give Saudis a lot of stuff (much of which is secret till today) and all the Arabs had to do was this:
- The Saudis agreed to price all of their oil sales exclusively in USD
- The Saudis would be open to investing their surplus oil proceeds in US debt securities
Soon, more OPEC (oil producers) countries joined and they benefited from US protection in exchange for selling their oil exclusively for USD.
The "scam"
Now, here is how the "scam" works. Since the US saved its ‘thing’ by replacing gold with oil, it could print money at will, and it never stopped since then. The US prints papers and can buy as much oil as they want. Also, the US could print money to buy all the stuff on earth. How did this happen? Well, think about China - it’s a big country that required huge investments in infrastructure. In short - it required “infinite” oil. So, China would go to the Arabs and would ask for oil - the Arabs would say they sell only for USD - the Chinese would go to the US and would ask for USD so that they could buy oil from Arabs - and finally, the US could print its money and buy everything China has to offer. The same is true about Japan and many other countries that don’t have oil. So, since Japan and China needed so much oil, they said to the US - let us sell all of our stuff to your country so that we could accumulate more USD. And the US said - yes! that’s what we wanted! So, this is why China-US economies are so tied.
And this is why the US is called a consumption economy (consumption accounts for 70% of the US GDP) while China is called a production economy (consumption accounts for only 34% of Chinese GDP)
And this is why the US consumes a quarter or a fifth of all the oil produced globally (even if represents 5% of world population)
And when you know that all of this is achieved only by printing money, you understand how well this scam works!
Sources: Why is the US Dollar Still the Reserve Currency of the World?
Final thoughts: I really think that this is a relatively controversial article written by him; what do you monkeys think?
You listen to too much Peter Schiff
Just wanted to note that I didn't write the article. Read this off on Quora and thought it was interesting enough to share it on Wall Street Oasis..
Well if you deduct things like "betrayed" and "scam" this is accurate. Anyone who claims to know how the financial system works knows these things. That is also why the US debt doesn't really matter. US played it nice, every empire needs a mean to keep control. US uses Finance. Everyone knew what Nixon shock was but no one could antagonise US at that time
I need to add more tinfoil to my hat to get on your level.
Exchange all of your WORTHLESS dollars for CANNABIS. Much better INVESTMENT!
LOL and I even know what cannabis microcaps we all have to trade to make a fortune!
This is WSO, not Zerohedge. GTF outta here.
Everything you've said here is just fact with the exception that Bretton Woods forced the world to accept the USD as the world reserve currency. the USD gained de facto vehicle currency status after WW1 when the UK set an artificial exchange rate between the pound and USD (5 USD to for 1GBP), not backed by actual British gold reserves.
I would also like to add the Chinese demand for USD (for reasons noted in your post) is what props up our bond market and keeps our yields low. The USD world reserve currency status ensures that American's act as the world's consumers, face perpetually low yields (facilitating credit expansion and internal investment) and the trade deficit generates significant foreign direct investment. This is why I laugh every time American's complain about the trade deficit - it is a symptom of our privileged status.
It’s not right because it takes advantage of a class of people that is worked so many hours for so little pay. We role out the red carpet for commie China in Ca, but treat Russia as if it were the devil himself. It’s not hard to see why. We don’t control or benefit from anything they do.
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