China is working to end the petrodollar. Don't know what the petrodollar is? Ben Swann did a report on the petrodollar and what is taking place will have significant and devastating consequences for the U.S. and the underlying issue stems from the fact that we abandoned a gold standard and in its place we substituted foreign oil.
Here's the highlights of Swann's report.
The U.S. Dollar became the world's reserve currency in 1944. At that time the dollar became the most important currency in the world. What was the reason for this? America had vast amounts of gold and power.
August 15, 1971 came and President Richard M. Nixon detached the dollar from the gold standard. Thus, since 1971 the dollar has not have gold as its backing.
In order to keep the dollar from crashing, since it was not attached to gold, they had to attach it to something else: oil.
Between 1972-1974 the U.S. government worked with Saudi Arabia to create the petrodollar system. Every barrel of oil that the Saudis sold had to be in U.S. dollars. Saudi Arabia was chosen for this because of the vast amount of petroleum reserves that it has and also because of the dominant influence it has in Organization of the Petroleum Exporting Countries (OPEC).
Swann gives an example of how this works. If Italy wants to buy oil from Kuwait, it would have to purchase U.S. dollars on the foreign exchange market first to pay for the oil. This is one of the reasons that foreign countries keep dollars in their reserves, which is part of the reason we sell so many bonds around the world. It's to finance our debt.
The U.S. has maintained this economic power for thirty-eight years. Now that power is being threatened by a country that has huge gold reserves, a booming economy and they consume large amounts of oil. Enter China.
The Chinese have entered into eleven international agreements to trade products, including oil, without dollars. these deals include Brazil, Japan, Australia, Russia and Iran.
According to Swann the deal with Iran is for crude oil, since they don't refine anything. The trade is "junk" for oil. Under the sanctions imposed on them, which our own government has encouraged, dollars cannot be used to purchase oil from Iran. However, it does not mean that Iran cannot and is not selling oil. They are.
In fact, they are accepting wheat, soybean meal, and consumer products are traded by China and India for oil. That's what free markets are all about.
For 38 years the Saudis have been the ones that have protected the petrodollar. However, the problem is this: The world's largest oil refinery is now under construction in Saudi Arabia and guess who is building it? The Chinese.
The fact is that China now imports more oil from Saudi Arabia than the U.S. does. If China becomes the Saudi's biggest oil partner, then the right question to ask is why should the Saudis only sell oil in U.S. dollars?
Here's what all this means for you and me.
If China is successful in moving the world away from the petrodollar, then everything that is made from petroleum products will cost more. Cheap products from overseas that Americans love to purchase will not be cheap anymore. Gasoline will be significantly more. If you think gas prices are high now.......just wait.
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