The impact of the petrodollar system is so utterly fantastic, that it’s hard to fit it all together in a way that makes sense. This is part of the reason why I’ve spent so much time on this subject.
The other part of the problem is that I, myself, have been working my way through this puzzle, and writing about it has helped me see new aspects. You might say that I write these articles to wrestle with difficult ideas. And, the petrodollar is one of the most important ideas that I’ve run into.
So, let’s go wrestle with the petrodollar idea in part two of this series.
Orders from Riyadh – Part 2 – Petrodollar Slavery
Yesterday, we talked about how and why the Petrodollar System started. It was the brainchild of one of the most diabolical men in US history, Henry Kissinger, and his petrodollar idea rescued America from the consequences of the corruption of Lyndon Johnson and paved the way for America to become the greatest empire the world has ever known – making slaves of anyone who wanted oil.
But, I’m getting ahead of myself, because I haven’t shown you how this worked out so dramatically in America’s favor.
Remember that the deal America made with Saudi Arabia in 1973 – and then OPEC in 1975 – meant that no one in the world – NO ONE – could buy oil in any currency, except the US dollar. If you didn’t have oil, you needed US dollars to buy it.
Please keep that thought firmly in mind as we talk about how important oil is.
The Importance Of Oil
You’ve heard me rant on and on about the importance of oil, how vital it is to the continued existence of our civilization – at least, as it is organized now. So, humor me as I talk a bit more about how important it is. When we get to the end of this discussion, you will be blown away as the pieces come together for you.
(And no, you do NOT need to believe in Peak Oil
to understand the significance of what I am talking about.)
to understand the significance of what I am talking about.)
I know of no better discussion on the importance of oil than this video:
YouTube shortlink: http://youtu.be/VOMWzjrRiBg
That video is a masterpiece in describing just how vital oil is to our society. Other films and videos might be more thorough or comprehensive, but none communicate the fundamental facts and ideas better than this one – in such a short amount of time.
And, like I said, you do not need to agree with the Peak Oil conclusion to understand the film’s point about how important oil is. (But, you will forgive me if I question your sanity in refusing to see the obvious.)
Oil And Population Size
To put the importance of oil in an even broader perspective, just take a look at this picture:
A Brief History of Oil & Humans (peakprosperity.com)
You can argue all you want about all the other factors that led to the current size of the human population, but you CANNOT ARGUE with the fact that oil is the chief cause. Everything else is just detail.
So… to make the understatement of the year… oil is important.
Because Oil Is About Food
According to agweb.com, the average US farmer feeds 155 people. But, that wasn’t always the case. In 1940, one farmer could feed 19 people. More than a century ago, one farmerfed two and a half.
The difference?
Oil.
Without oil…
…a farmer cannot produce enough food to support all the factory workers, teachers, engineers, scientists, judges, policemen, garbage collectors, sewage workers, physicians, hospital administrators, day care workers, film makers, programmers, librarians, writers (especially writers), construction workers, soldiers, pilots, truck drivers, sailors, plumbers, newscasters, and anyone else that I missed.
Without oil, all those people (at least 90%) need to become farmers.
That’s right. Without oil, we go back to what life was like back in the 1790s when 90% of the population were farmers. Although, a nation of clever farmers might be able to produce enough food so that only a little over 50% of the nation were farmers – like it was in the 1870s.
The Farm Tractor
By then, the first farm tractor had already been produced. And, in 1901, we had the first commercially successful light-weight petrol-powered general purpose tractor. And, once THAT happened, it was all over. Oil was here to stay.
Oil-powered tractors gave farmers a decisive advantage over farmers without them.
From that point on, a nation without oil could not compete with a nation that had it…
…because everyone needs to eat. Everyone.
So, you got it. Oil is important… no… VITAL if a country wants to prosper.
Here Comes The Petrodollar
Fast forward from 1901 to the 1970s and the petrodollar system.
This petrodollar system meant that, if you wanted to buy oil to fuel farm tractors (and anything else) , you had to have US dollars to buy your oil.
Why?
Because Henry Kissinger convinced the Saudis in 1973 (and then OPEC in 1975) to ONLY accept US dollars for their oil. No other currency would be allowed. If you didn’t have dollars, you didn’t get oil. And, if you wanted dollars, there was only one place that you could go to get them:
The United States of America
How You Get US Dollars To Buy Oil
Okay, so all you have to do, to get US dollars is to go and ask for them.
Right?
Um… no. If you want US dollars from America, you’ve got to offer Americans something that they want, at a price that they like. If Americans don’t like what you have, you don’t get US dollars.
Well, how about the foreign exchange markets?
That’s just the same thing, except this time you have to go to ANOTHER country that has been selling stuff to America and get THEM to cough up their dollars. And, they won’t do that, unless you offer to give them something that they want more than oil – since they are using those dollars to buy oil.
You Need To Please America To Get US Dollars
All of this means that you have to be really clever and work really hard if you want…
- …your farmers to produce more food (farm tractors need fuel).
- …more workers for your factories so that they can make things that Americans want.
- …better education so that your workers can make better stuff that Americans want.
- …good healthcare so that your workers can keep making stuff that Americans want.
You get the picture. From the moment of the birth of the petrodollar, if you didn’t please America, you didn’t get oil, and that meant you stayed an under-developed country.
Why do I say that you stayed under-developed?
Otherwise You Stay Under-Developed
Without oil to power tractors, your farms produce only enough food to feed the farmer and just two or three other people. And, THAT means you have a highly agrarian society without sophisticated healthcare, education or manufacturing.
Really, it’s as simple as that.
Track the progress of technological development and you will find that it closely follows the agricultural yield curve. Or, maybe I should put it another way:
Everyone needs to eat, especially scientists, engineers and doctors.
Let’s Make This Personal
Now, my lovely wife ambushed me today with a rather thorny question:
No one is going to understand all that, if they aren’t a currency trader.
Why did I have to marry such a smart woman?
So, let’s try to work our way through an example of how this works. And, since I live in Taiwan, and since Taiwan has essentially no crude oil reserves, let’s use Taiwan.
The Taiwan Example
Taiwan buys a little over 400 million barrels of oil a year. The price of oil is about $106 a barrel, which means that Taiwan needs $42.4 billion. Taiwan has a population of about 23.34 million. This means that each and every man, woman and child needs to come up with $1,816.62 – each.
That’s a lot of money for the average citizen of Taiwan, but you hafta do what ya hafta do. So, that would be about NT$54,500… but, wait… Americans don’t want New Taiwan dollars.
What? Really?
Yes. Really. Americans can’t buy anything with New Taiwan dollars. They can’t buy eggs, milk or steak with the currency of Taiwan. (Remember that the Arabs won’t give you oil if you don’t give them US dollars.)
So, what are the Taiwanese going to do?
Hey. Maybe the Japanese would give Taiwan some US dollars. A lot of Japanese come here for visits and…
What? Why are youe giving me that look again?
Let me repeat this again. The Arabs ONLY take US dollars, and the Japanese have the same problem that the Taiwanese do. They need to get their US dollars from the only people who print them: The US.
Oh.
So, how do you get dollars from the US?
You sell them stuff. And, right now, America likes the electrical machinery made by Taiwan.
Doesn’t America make electrical machinery?
Taiwan MUST Sell Stuff To America
Of course. But, remember that Taiwan needs dollars to buy oil, so the Taiwanese work really, REALLY hard to make the best and cheapest machinery that they can so that they can sell it to the US and get dollars. To get an idea of what that means, per capita GDP for Taiwan is US$20,900, while for America its US$53,100. The average American, even now, makes more than two and a half times more money than the average Taiwanese.
Or, maybe I should put it this way…
…The average Taiwanese is two and a half times POORER than the average American – partly because Taiwan must get as many US dollars as she can, so that she can buy oil. And yes, I can personally tell you that the Taiwanese are much, much poorer than the average American, and work absolutely insane hours for what little money they get.
Are you starting to see how America has enslaved the world?
America Has Enslaved The World
It has, more powerfully than any other empire has ever enslaved the world. The Petrodollar shackles that America put on the world are truly amazing. But, there’s something else that happened as a result of this fantastic Petrodollar System.
The Petrodollar Is Why US Manufacturing Died
As you think about the need for the world to manufacture stuff to get US dollars to buy oil…
Could this explain why all the manufacturing jobs in America left the United States?
The only way that ANY country in the world was going to get ANY US dollars to buy ANY oil… was to take manufacturing jobs away from Americans. So, if you want to blame someone for the hollowing out of the US manufacturing sector, the one to blame is Henry Kissinger.
But wait, there’s more.
Henry was very, very clever in how this diabolical agreement was set up. So, you do NOT want to miss the next installment in this series. And yes, all of this will be leading up to those Orders from Riyadh that will lead us straight to nuclear war.
Credit to The Omega Shock
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