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Distributed quarterly by mail and email, the Conservative Caucus of Delaware's newsletter contains relevant information and insights from noted leaders, authoritative stakeholders and like-minded members who demonstrate their passion for the truths we hold dear by putting pen to paper!

The End of the Petrodollar Will Fuel Our Decline 


     On June 9th, 2024, the 50-year The Petrodollar Agreement between the United States and Saudi Arabia expired and was not renewed by Saudi Arabia. The key provision was the promise that the U.S. would provide Saudi Arabia military support and protection in exchange for Saudi Arabia requiring that it accept only dollars in payment for oil. It’s easy to see why Saudi Arabia would desire such an agreement, but why would the U.S. desire it?

     The answer is simplicity itself. Worldwide demand for dollars would increase, meaning that all nations would have to hold dollars as reserves in order to settle international trade accounts, allowing the U.S. to print dollars almost with impunity.

     And that’s exactly what the U.S. did. In June 1974 the U.S. Monetary Base, actual cash and bank reserve balances held at the Fed that can be exchanged for cash, was $103 billion. Today it is $5,800 billion! That’s a fifty-six times increase. The Petrodollar Agreement may not have been the only culprit

contributing to this “privilege” of the dollar, but it was the main culprit.

     But now the Saudis are accepting other forms of payment for oil, primarily Chinese Yuan. Undoubtedly, over time Saudi Arabia will sell more oil for Yuan and other currencies that will hold their purchasing power. This may happen quickly as the BRICS nations gather in October in Russia to discuss

economic cooperation.  

Oil price cap concept. Petroleum, petrodollar and crude oil concept. Oil pump on backgroun

     It is well known that Russia, the chairman of the BRICS group this year, will try to work out an international

settlement system among its members that bypasses the dollar completely. It is also well known that any such settlement

system would include a large role for gold. Without going into too much monetary theory, suffice it to say that most of the world’s gold has move east to China, Russia, India, the Arab countries, et cetera…in other words, the BRICS countries.

     There is no chance that The Petrodollar Agreement will be revived. The world is moving away from the dollar. In 1971, when the U.S. suspended the right of central banks to redeem dollars for gold, the price of gold was $45. Today it is $2,332. That means that the dollar has lost 98% of its purchasing power in the last fifty-odd years, and the rate of debasement is increasing. Major holders of dollars are selling them, not buying them. They are trading their dollars for gold.

     The average American may be upset over the rapidity of price increases in 

recent years, but the irreversible trend is for the dollar to fall in value at an even faster clip, mainly due torecent years, but the irreversible trend is for the dollar to fall in value at an even faster clip, mainly due to monetization of our three trillion dollar annual budget deficit. The rise in the price of goods and services is the flip side of the fall in the value of the dollar. There is almost no consensus to cut government expenses, because the entire population is its beneficiary in one form or another. Just ask yourself when the last time a politician vowed to cut any spending program.

      This is a topic for another time, but we may be seeing the beginning of the end of fiat currencies in general and a return to a worldwide gold standard. Although the U.S. has substantial gold reserves on its books at the Fed, no audit has been conducted in decades to find out if the gold actually is there. The discovery that it is gone would collapse the dollar overnight.

     Any bets otherwise? ■ 

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