However, the Federal Reserve, being a privately owned bank and not answerable to the US government, did start overprinting paper dollars, and much of the perceived prosperity of the 1950s and 1960s was the result of the obligation that foreign nations had, to accept its paper notes as being worth gold at the rate of $35 an ounce. But then, in 1970, France looked at the huge piles of US paper notes sitting in its vaults, for which real French products like wine and cheese had been traded, and decided to call America's bluff: they notified the United States government that they would like to exercise their option under Bretton Woods to exchange these paper notes for gold at the agreed-upon $35 per ounce exchange rate.
Problem was, the United States had nowhere near enough gold to redeem all these paper notes. So, on August 15th, 1971, President Richard Nixon "temporarily" suspended the gold convertibility of US Federal Reserve Notes. This "Nixon shock" effectively ended the Bretton Woods agreement, and many global currencies started to delink from the US dollar. Worse, since the United States had collateralized their loans with the nation's gold reserves, it quickly became apparent that the US Government did not in fact have enough gold to cover the outstanding debts. As a result, foreign nations began to get very nervous about their loans to the US (via their purchase of US Treasury bonds) and were understandably reluctant to loan any additional money to the US without being provided with some form of collateral.
The origins of the petrodollar
The US Government then embarked on a new program to shore up sagging international demand for the dollar. The US approached the world's oil producing nations, mostly in the Middle East, and offered them a deal. In exchange for only selling their oil for dollars, the US would guarantee the military safety of those oil-rich nations and supply them with all the armaments and military training that they might want. In return, the oil rich nations would agree to spend and invest their US paper dollars inside the United States, in particular in US Treasury Bonds, redeemable through future generations of hardworking US taxpayers. The agreement centered around what came to be known as the "petrodollar." In effect, the US, no longer able to back the dollar with gold, was now backing it with oil. Other peoples' oil. And that necessity, to keep control over these oil nations, and to prop up the dollar, has shaped America's foreign policy in the region ever since.
However, as America's manufacturing and agriculture declined, the oil producing nations faced a dilemma. Those piles of US Federal Reserve notes were not able to purchase as much from the United States because the United States had ever less (other than real estate) that anyone wanted to buy. Europe's cars and aircraft were superior and less costly, while experiments with GMO food crops led to nations refusing to buy US food exports. Israel's constant belligerence against its neighbors caused those neighbors to wonder if the US could actually keep their end of the petrodollar agreement. Oil producing nations started to talk of selling their oil for whatever currency the purchasers chose to offer. Iraq, already hostile to the United States following Desert Storm, demanded the right to sell their oil for Euros in 2000 and in 2002, but the United Nations agreed to allow it only under the "Oil for food" program instituted following Desert Storm. One year later, the United States re-invaded Iraq, arranged to have Saddam Hussein lynched, and placed Iraq's oil back on the world market, to be sold only for US dollars.
The clear US policy shift following 9-11, away from being an impartial broker of peace in the Mideast, to one of unquestioned support for Israel's aggressions, only further eroded confidence in the Petrodollar deal, and even more oil-producing nations started openly talking about trading oil for other global currencies.
In Libya, Muammar Gaddafi had instituted a government-owned central bank (blasphemy!) and a value-based (not an interest-based) trade currency, the Gold Dinar. Gaddafi announced that Libya's oil was for sale, but only for the Gold Dinar. Other African nations, seeing the rise of the Gold Dinar and the Euro, even as the US dollar continued its inflation-driven decline, flocked to the new Libyan currency for trade. This move therefore had the potential to seriously undermine the global hegemony of the dollar. French President Nicolas Sarkozy reportedly went so far as to call Libya a "threat" to the financial security of the world. So, the United States assisted the invasion of Libya, arranged for the brutal murder of Qaddafi (the object lesson of Saddam's lynching not being enough of a message, apparently), and then imposed a privately-owned central bank, simultaneously returning Libya's oil output to be sold for US dollars only. The gold that was to have been made into the Gold Dinars is, as of last report, unaccounted for.
The master plan for the "dollarification" of the world's oil nations
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