End of the Petrodollar Will Be the End of the USA as We Know It!

In a major shift, Saudi Arabia has let the petrodollar agreement expire, opting to sell oil in multiple currencies instead of exclusively using the US dollar.

What happens when people stop using the dollar for oil?

What happens globally and what happens to people here in the US?

The natural reaction of the dollar creating hyperinflation, being dumped across the globe, hitting our shores in a tsunami of inflation would be a massive spike in interest rates.

The dollar would collapse.

The stock market would collapse.

The bond market would collapse.

Banking system would collapse.

The insurance companies would collapse.

Everything.

In the shadowy corridors of global finance, a seismic shift is underway, threatening to upend the very foundations of American economic power.

Saudi Arabia, long a cornerstone of US financial hegemony, is poised to abandon the petrodollar system, a move that could send shockwaves through the global economy and potentially herald the end of the dollar's reign as the world's reserve currency.

This is not a distant threat or a hypothetical scenario, but a clear and present danger that could reshape the economic landscape for posterity and generations to come.

The numbers paint a stark and sobering picture of the potential impact of this shift.

According to the Federal Reserve and the US Department of the Treasury,

Foreign countries held a total of US$8 trillion in US Treasury securities as of January 2024.

Of the total held by foreign countries, Japan and mainland China held the greatest portions, with China holding US$797.7 billion in US securities.

The unraveling of the petrodollar system could lead to a massive sell-off of these holdings, potentially triggering a crisis in the US bond market and sending interest rates soaring.

Saudi Arabia alone holds a significant sum of $127.5 billion in its reserve.

Even more alarming is the scale of global oil trade conducted in US dollars.

The International Monetary Fund estimates that approximately 59% of global foreign exchange reserves are held in dollars, largely due to the petrodollar system.

A shift away from dollar-denominated oil trades could dramatically reduce demand for the greenback, potentially leading to a sharp devaluation of the US currency.

Perhaps most concerning of all is the potential impact on U.S. government spending.

The Congressional Budget Office projects that net interest spending of $12.9 trillion over 10 years grows from $892 billion or 3.1% of GDP in 2024 to $1.7 trillion or 4.1% of GDP in 2034.

If the abandonment of the petrodollar leads to higher interest rates, these costs could skyrocket, potentially forcing painful cuts to government programs or dramatic tax increases.

In this video, we'll delve deep into the potential ramifications of Saudi Arabia's move to abandon the petrodollar system and what it means for the US economy and the global financial landscape.

The US economy is indubitably passing through a phase.

It's a tough row to hoe, but it's one we can't ignore.

The long-standing petrodollar deal between the United States and Saudi Arabia expired on Sunday, June 9, 2024.

Originally signed on June 8, 1974, this agreement had been a key part of US global economic influence.

Saudi Arabia ditching the greenback has ricocheted throughout commodity and currency trading rooms.

Apparently, a cataclysmic event is about to end American economic hegemony.

the petrodollar system itself refers to the global practice of conducting oil trades in u.s dollars this arrangement ensures a constant demand for u.s currency as any country wishing to purchase oil must first acquire dollars to do so this artificial demand for dollars allows the united states to maintain large trade deficits without experiencing a significant devaluation of its currency and it helps keep interest rates lower than they might otherwise

For the average American, the petrodollar system has far-reaching positive implications.

It allows the U.S. to borrow money more cheaply, which in turn enables higher government spending on everything from social programs to military expenditures.

It also helps keep the cost of imports, including consumer goods, lower than they would be if the dollar were to significantly weaken.

In essence, the petrodollar system has been a key pillar supporting the American standard of living for decades.

The roots of the petrodollar system can be tracked back to the early 1970s, when the world was grappling with the collapse of the Bretton Woods monetary system.

Half a century ago, the Saudis had lots of money and little domestic capacity to absorb it.

In 1974, the country's current account surplus was worth more than 50% of its gross domestic product.

The US didn't benefit because Saudi Arabia placed its oil in dollars, but because it recycled those funds into the American debt market.

The natural outcome of those flows would go on to herald a more robust American currency.

To shore up the dollar's position, President Richard Nixon's administration struck a deal with Saudi Arabia in 1974.

Under this agreement, the Saudis would price their oil exclusively in U.S. dollars and invest their surplus oil proceeds in U.S. Treasury securities.

In exchange, the United States offered military protection to Saudi Arabia and other Gulf oil states.

This arrangement was soon adopted by other OPEC nations, cementing the dollar's role in global oil trade.

The benefits of this system for both parties were substantial.

For Saudi Arabia and other oil-producing nations, it provided a stable currency for oil transactions and a secure place to invest their oil wealth.

For the United States, it created an artificial demand for dollars and US debt securities, allowing the country to run large trade deficits without suffering the usual consequences of currency depreciation.

Over the decades, this system has underpinned American economic dominance.

It has allowed the US to finance its massive military presence around the world, run persistent trade deficits, and maintain lower interest rates than would otherwise be possible.

The petrodollar system has, in essence, given the United States an exorbitant privilege, as former French President Valéry Giscard d'Estaing once described it.

The quiet truth is, unlike its counterparts, the US doesn't primarily produce major commodities for export.

Technically, the country's currency, the dollar, serves as the gargantuan monetary tool for the country.

This status as the world's reserve currency provides the US with unique economic advantages, such as the ability to borrow at lower costs and exert significant influence over global financial markets.

The dollar's dominance in international trade and finance allows the US to run larger trade deficits and print money without immediate repercussions that other countries might face.

However, in recent years, cracks have begun to appear in this system.

Saudi Arabia, along with other major oil producers, has started to question the wisdom of maintaining such close ties to the US dollar.

Several factors have contributed to this shift in thinking.

Foremost among these factors is the rise of the BRICS nations, Brazil, Russia, India, China, and South Africa, as a counterweight to Western economic dominance.

In June 2023, Saudi Arabia officially joined the BRICS group, signing its intention to diversify its economic and strategic relationships beyond its traditional Western allies.

The BRICS nations have long sought to reduce their dependencies on the US dollar and create alternative financial systems.

In 2015, they launched the New Development Bank, and in 2023, they announced plans to create a new reserve currency backed by a basket of their national currencies.

These moves are seen as direct challenges to the dollar-dominated global financial system.

Saudi Arabia's decision to join BRICS is driven by several strategic considerations.

First, the kingdom sees the potential for significant economic benefits from closer ties with these rapidly growing economies.

Data from the Chinese side showed that Saudi Arabia has been the largest trading partner of China in the Middle East since 2001, and bilateral trade reached $107.23 billion in 2023.

Moreover, Saudi Arabia has been increasingly uncomfortable with its reliance on the United States for security.

Disagreements over issues such as human rights, the war in Yemen and U.S. energy policy have strained the relationship between Riyadh and Washington in recent years.

By diversifying its strategic partnerships, Saudi Arabia aims to reduce its vulnerability to U.S. pressure and increase its geopolitical flexibility.

The potential abandonment of the petrodollar system by Saudi Arabia could have far-reaching consequences for the United States and its citizens.

The immediate impact would likely be felt in the currency markets.

If Saudi Arabia begins to price its oil in currencies other than the dollar, it could trigger a significant sell-off of US dollars in global markets.

The scale of this potential sell-off is staggering.

In 2022, total petroleum exports were about 9.52 million barrels per day.

At current prices, this represents over $180 billion in annual oil sales, all of which are currently conducted in US dollars.

If even a fraction of these sales were to shift to other currencies, it could lead to a substantial decrease in demand for dollars.

A rapid devaluation of the dollar would have immediate consequences for American consumers.

The cost of imports would rise sharply, leading to higher prices for everything,

from electronics to clothing to automobiles.

According to the U.S. Census Bureau, the United States imported $3.3 trillion worth of goods in 2022.

A significant drop in the dollar value could make many of these imported goods unaffordable for average Americans, leading to a decline in living standards.

The impact on the U.S. government's ability to finance its operations could be even more severe.

In May 2024, the public debt of the United States was around $34.55 trillion, a slight decrease from the previous month.

Much of this debt is financed through the sale of Treasury securities to foreign investors, with the petrodollar system ensuring a steady demand for these securities.

If Saudi Arabia and other oil producers move away from the dollar, it could lead to a sharp decrease in demand for U.S. Treasury securities.

This would likely result in higher interest rates as the U.S. government would need to offer higher yields to attract investors.

The Congressional Budget Office projects that every one percentage point increase in interest rates adds approximately $185 billion to the annual deficit by 2027.

A significant rise in interest rates could therefore lead to a fiscal crisis, forcing painful cuts to government programs or large tax increases.

The ripple effects throughout the US economy could be profound.

Higher interest rates would make borrowing more expensive for businesses and consumers alike.

Mortgage rates, which are closely tied to Treasury yields, could spike, potentially triggering a housing market crash.

According to the National Association of Realtors, the median existing home price in the United States was $412,100 in April 2024.

A sharp rise in mortgage rates could put home ownership out of reach for millions of Americans, potentially leading to a wave of defaults and foreclosures.

The stock market would likely experience significant turbulence as well.

The S&P 500, currently valued at 5,537.02 as of July 3, 2024, could see a sharp correction as investors grapple with the implications of a weaker dollar and higher interest rates.

This could wipe out trillions of dollars in household wealth with knock-on effects on consumer spending

and economic growth.

The impact on the global influence of the US could be equally profound.

The dollar's status as the world's reserve currency has long been a cornerstone of American power, allowing the country to exert economic pressure on adversaries through sanctions and other financial measures.

If the petrodollar system unravels, this tool of US foreign policy could be significantly weakened.

Moreover, the psychological impact of such a shift should not be underestimated.

The dollar's global dominance has long been seen as a symbol of American economic might.

Its decline could shake confidence in U.S. leadership and potentially accelerate the trend toward a more multipolar world order.

The potential for economic instability could also have serious social and political ramifications within the United States.

Economic hardship often leads to political polarization and social unrest.

A sharp decline in living standards brought about by the end of the petrodollar system

could exacerbate existing tensions and potentially lead to political instability.

Americans are on the brink of yet another sea change.

The potential end of the petrodollar system represents a watershed moment in global economic history.

For decades, this system has underpinned American prosperity and global influence.

Its unraveling, while not inevitable, would mark the end of an era and usher in a period of significant economic and geopolitical uncertainty.

As Saudi Arabia and other nations consider their options, the United States finds itself at a crossroads.

The choices made in the coming years will determine whether the country can navigate this transition

maintain its economic strength or whether it will face a period of decline and diminished global influence.

The stakes could not be higher.

The end of the petrodollar system would not just be an economic event, but a geopolitical tremor that could reshape the global order.

For every American, from Wall Street bankers to Main Street shopkeepers, the implications of this shift would be profound and far-reaching.

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