Rise of US economy

after WW-II

Gold for Dollars

Peripeteia : Falling USD

Oil for Dollars

At the end of world war-II, USA emerges as a leader of global economy

Reason: USA was having 80% of world gold reserves at thattime, Gold was supposedly the most stable tradingcommodity.

Earlier superpower Britain had become debt-ridden and wartorn by the end of WW-II.

Rise of US economy

after WW-II

Gold for Dollars

Peripeteia : Falling USD

Oil for Dollars

In 1944, At United Nations Monetary & Financial Conference (Bretton woods Conference)- US dollar was accepted unanimously as a means to trade against Gold.

WHY: Two Reasons:1) US Dollar was the most stable currency at that time,

because of high gold reserves of USA.

2) USA offered fixed trading rate for Gold: 35 $ per ounce of gold, Many countries became overwhelmed by this kind of financially stable opportunity.

Rise of US economy

after WW-II

Gold for Dollars

Peripeteia : Falling USD

Oil for Dollars

American Consumers

Federal Government

US Federal Reserves

“Gold for US Dollars” accepted, and USA successfully created a strong demand for its currency in global markets.

Sudden rise of demand for USD resulted into Inflated asset prices in ecomonies worldwide.

By 1971, weights of ‘Gold for USD’ system upon US economy became unbearable.

Nations were demanding more and more US Dollars to trade against Gold. This led to shortage of US dollar liquidity in Global economy.

Rise of US economy

after WW-II

Gold for Dollars

Peripeteia : Falling USD

Oil for Dollars

Rise of US economy

after WW-II

Gold for Dollars

Peripeteia : Falling USD

Oil for Dollars

Way to survive for USA

Raise Taxes

Cut Spending

Print more

Dollars

Borrow more

money

US government had only 4 ways to tackle with this issue.. But they did something which shocked the world.

By 1971, US economy was suffering from High trade deficits and High spending on Vietnam war.

Which resulted into improper balance in US Gold Reserves to Debt Levels.

USA had Large debts, they finally got caught in their own trap.

They fell short of their own currency to pay off their debts.

Things got reversed, other nations started trading against their USD reserves for

Rise of US economy

after WW-II

Gold for Dollars

Peripeteia : Falling USD

Oil for Dollars

On Aug 15,1971 US President Nixon changed the game completely.They announced the end of ‘USD convertibility for Gold’ making US Dollar and other global currencies almost- Floating Currencies.

Rest of world currency dependence on USD started decreasing.

Now, USA wanted to increase the demand for USD by some another means.

They Introduced “ Oil for Dollars”

Rise of US economy

after WW-II

Gold for Dollars

Peripeteia : Falling USD

Oil for Dollars

US offered a two criterion deal to saudiarab:

1) Sell your Oil in exchange of only one currency US dollars.

2) Surplus Oil reserves should be invested back into US debt securities.

In exchange, USA offered them ‘Guaranteed Protection against their neighbour enemy- ISRAEL’.

So, USA finalised ‘Oil for Dollar’ deal in exchange for weapons.

OPEC countries accepted this lucrative offer.

Benefits of Petrodollar System

Global Demand for Dollar

• Artificial Demand for dollars created

• By providing incentives to countries that conduct oil trade to dollars

• Demand for dollars increas-Permission slip to print in Dollars

Global Demand for US Debt Securities

• Recycle Petrodollar by encouraging investment of profits made from oil sales in US Debt securities

• Money comes back-Dream come true for a country like US that has huge expenses.

• Distorts the true demand for Debt securities-Hence an artificially low interest rate maintained that will vanish once the petrodollar system collapses

Buy Oil in Domestic Currency

• USA ‘s consumption of Oil is greater than it’s doemestic supply

• Hence US buys oil from other countries using dollars that it can print at will.

• Cause an increase in demand for dollars and Debt securities by Oil buying countries.

Consequences of the petrodollar collapse

Petrodollar Collapses : USA loses

ability to print dollars

Supply of Dollar greater

than the demand

All dollars across the

globe rushes back to US

from foreign nations

Hyperinflation in USA;

Subsequent increase in

interest rates.

Oil related prices sky

rocket in USA

Massive reduction in

supply of dollars

attempted by USA.

Massive reduction in

value of assets.

Massive layoffs in businesses.

A recovering economy

which will be much smaller

due to drastically reduced

money supply

US in Afganistan: Why?

Aim declared by the United States: “liberate”

Afghanistan from the terrorist network, Al

Qaeda, headed by Osama Bin Laden

Name of the Operation: Operation Enduring

Freedom

The Bush Years

• The Bush administration swore up and down that Iraq had weapons of mass destruction and that Saddam Hussein was intimately connected to the attacks of 9/11 and to Al Qaeda itself.

Reality:

15 of the 19 alleged 9/11 hijackers were citizens of Saudi Arabia, not Afghanistan or Iraq.

Iraq had no WMDs and, despite massive intelligence efforts, no connection could be found between Iraq and Osama Bin Laden.

Al Qaeda: Just Another CIA Creation

Operation Cyclone

Extent to which USA can go for Oil Security

• Iraq War: Leveraging on the world trade center attack USA Created false attack to Conquer Iraq for its Oil Reserves.

• Afgan War: With motives to establish peace USA Spends $2 billion per week, but the ulterior motives here are to establish control over the Country’s Oil Reserves.

Timeline Of the WarApril 1995- The U.S. State Department, the CIA, and the National Security Council formed a working group to study U.S. oil and gas interests in the Caspian Sea region.

October 1995-Turkmenistan’s president, Saparmurad Niyazov, signed an agreement with Unocal and the Saudi Arabian Delta OilCompany.Developmentof the Trans-Afghanistan pipeline

Pakistani offi cials claimed the Bush administration informed them fi ve weeks before 9/11 that they would begin military operations in Afghanistan against the Taliban in October of that same year.

Critical Analysis:

• 1. the dominance of petrodollar penetrates all the economies.• 2. Petrodollar seems the primary force driving the oil trade accross

the world• 2. One single country with it's brilliant economic move of

petrodollar has not let countries like EuroZone and Opec dominate the oil sector.

• 3. Opec Countries who have a monopoly in supply of Oil across globe also are a big drivers of Petrodollar System. It could be possible for them to create their own currency system of oil trading but they haven't.

• 4.Euro Currency is still not in demand as much as the dollar despite entire europe trading in it.