The petrodollar is dying: what to do next?

The petrodollar is dying: what to do next?


petrodollarThere’s an old Chinese curse that seems somewhat benign on the surface — may your wishes come true.

If you’ve ever seen the movie Bedazzled — and you should — you will get the idea. It’s about a guy (Brandon Fraser) who gets three wishes from the comely devil Elizabeth Hurley, in exchange of course for his soul.

The problem is, his broad wishes get him into more trouble than he could have expected. For one wish, he asks to be wealthy and powerful and have the woman at his office he’s pining for become his wife.

The wish is granted. He’s wealthy and powerful all right… the Devil makes him a Colombian drug lord. But his wife is unfaithful and hates him, and he’s betrayed by his henchmen.

You get the idea. Everything isn’t always what you wish for.

What does it have to do with oil?

We’ve heard investors and analysts crying about “low” oil prices and the shuttering of companies in the U.S. energy patch for the past couple years.

And now the wishes for higher prices have been granted.

But will this be the game-changer we wanted? The answer is likely no.

First there are the simple issues. Higher gas prices are like a tax on business and individuals for consuming petroleum products. On the business side, that makes transporting goods more expensive, and that cost is then passed on to consumers as well. That means consumers are pay extra at the pump and extra at the store. And extra for airline tickets. And surcharges for delivering all those packages ordered online…

All this while there’s still no real evidence that the U.S. economy is in any kind of recovery. Yet now we have higher gas prices, which will raise the inflation rate, which will trigger more rate hikes from the Fed. Add to that the fact that this ‘full employment’ isn’t really what it appears.

Now, this is all on the surface. You can see it.

But deeper down lies something truly troubling.

We are at the beginning of the end of the petrodollar economy.

In 1970 the Nixon administration cut a deal with the Saudis. If we protected the Saudis from their enemies, they would price their oil in U.S. dollars.

In this way, every nation that needed to buy oil would have to have some U.S. dollar reserves. Also remember almost all commodities — industrial and agricultural — are priced in dollars as well.

But as the Chinese become more economically powerful, they see that holding U.S. dollars is not in their best interest. They are the world’s largest oil importer and they also buy massive amounts of commodities like iron, pork bellies and corn.

Most countries hold dollars in the form of U.S. Treasuries to secure their transactions. And China became the top holder of U.S. Treasuries in the 2000s.

Given their interest in getting out from under its economic rival’s monetary system, China began to open its currency and build out its markets so it could become a player on the global economic stage.

The petrodollar’s fall really started when Saddam Hussein began selling oil to all interested parties in any currency but U.S. dollars.

In 2012, Iran began taking renminbi laundered through Russian banks in exchange for oil.

Then in 2015, Russia began selling oil to China in renminbi directly. And all the while these countries began to become net sellers of U.S. Treasuries.

Now the Chinese are building up their own commodities markets and as leading producers and consumers of gold, they’ve created a Shanghai gold exchange. This effort continues as the renminbi gains more and global acceptance.

The end of the petrodollar will be a major disruption to the U.S. economy.

The best way to protect yourself is to make sure you are holding gold. Gold prices have been manipulated for decades by the Western banks.

As this old model collapses, gold prices will have to rise to their unrestricted levels. The value of the Midas metal has nowhere to go but to soar upwards.

Oil will not sustain its current levels for long, as the economy swoons again in 2017. There are plenty of things to like about what Trump is doing, but his attitude toward China will only speed the petrodollar’s death.

What’s happening is not conjecture, it’s an inevitability. Don’t wait until it’s too late. In the meantime, if you want some most excellent and complete advice on buying and keeping gold and silver, Bob Livingston has put all the details in his latest exclusive report, which you can get a copy of by going to the bottom of this page.

— GS Early

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