Economic Sanctions

Venezuela Has Officially Abandoned The Petrodollar – Does This Make War With Venezuela More Likely?

September 14, 2017September 14, 2017 by Michael

Venezuela is the 11th largest oil producing country in the entire world, and it has just announced that it is going to stop using the petrodollar. Most Americans don’t even know what the petrodollar is, but for those of you that do understand what I am talking about, this should send a chill up your spine. The petrodollar is one of the key pillars of the global financial system, and it allows us to live a far higher standard of living than we actually deserve. The dominance of the petrodollar has been very jealously guarded by our government in the past, and that is why many are now concerned that this move by Venezuela could potentially lead us to war.

I don’t know why this isn’t headline news all over the country, but it should be. One of the few major media outlets that is reporting on this is the Wall Street Journal…

The government of this oil-rich but struggling country, looking for ways to circumvent U.S. sanctions, is telling oil traders that it will no longer receive or send payments in dollars, people familiar with the new policy have told The Wall Street Journal.

Before we go any further, we should discuss what we mean by the “petrodollar” for those that are not familiar with the concept. The following comes from an excellent article by Christopher Doran…

In a nutshell, any country that wants to purchase oil from an oil producing country has to do so in U.S. dollars. This is a long standing agreement within all oil exporting nations, aka OPEC, the Organization of Petroleum Exporting Countries. The UK for example, cannot simply buy oil from Saudi Arabia by exchanging British pounds. Instead, the UK must exchange its pounds for U.S. dollars. The major exception at present is, of course, Iran.

This means that every country in the world that imports oil—which is the vast majority of the world’s nations—has to have immense quantities of dollars in reserve.

As will be explained below, the fact that virtually everyone around the world has to use our currency to buy oil is a massive advantage for us. Venezuela knows this, and so in response to new sanctions being imposed upon them, they are hitting us where it hurts…

Oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.

The state oil company Petróleos de Venezuela SA, known as PdVSA, has told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner.

The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, “To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar.”

If more nations start to follow suit, it would be absolutely disastrous for the United States.

In other articles, I have detailed why the petrodollar is so incredibly important to our economy and our financial system. The following is an extended excerpt from one of those previous articles…

So why is the petrodollar so important?

Well, it creates a tremendous amount of demand for the U.S. dollar all over the globe. Since everyone has needed it to trade with one another, that has created an endless global appetite for the currency. That has kept the value of the dollar artificially high, and it has enabled us to import trillions of dollars of super cheap products from other countries. If other nations stopped using the dollar to trade with one another, the value of the dollar would plummet dramatically and we would have to pay much, much more for the trinkets that we buy at the dollar store and Wal-Mart.

In addition, since the U.S. dollar is essentially the de facto global currency, this has also increased demand for our debt. Major exporting nations such as China and Saudi Arabia end up with giant piles of our dollars. Instead of just letting them sit there and do nothing, those nations often reinvest their dollars into securities that can rapidly be changed back into dollars if needed. One of the most popular ways to do this has been to invest those dollars in U.S. Treasuries. This has driven down interest rates on U.S. debt over the years and has enabled the U.S. government to borrow trillions upon trillions of dollars for next to nothing.

But if the rest of the world starts moving away from the U.S. dollar, all of this could change.

History has shown that when the status of the petrodollar is threatened, the U.S. is swift to take action.

And it is very interesting to note that President Trump will be meeting with Latin American leaders next week, and the main topic for discussion will be “the Venezuela crisis”…

U.S. President Donald Trump has invited three Latin American leaders to dine with him next week in New York as he seeks to address the Venezuela crisis and build bridges with the region after an acrimonious start with neighbor Mexico.

The political and economic turmoil in Venezuela, source of 10 percent of the oil consumed by the United States, will almost certainly top the agenda when he receives the center-right presidents of Peru, Colombia and Brazil at Trump Tower on Monday evening, diplomats said.

Could this latest move by Venezuela be enough to potentially spark a military conflict?

The guys over at Zero Hedge seem to think so…

Having threatened China today with exclusion from SWIFT, we suspect Washington is rapidly running out of any great ally to sustain the petrodollar-driven hegemony (and implicitly its war machine). Cue the calls for a Venezuelan invasion in 3…2..1…!

It would be absolutely no surprise at all if John McCain and Lindsey Graham start appearing on the major news networks calling for war with Venezuela, but hopefully President Trump will not listen to such nonsense.

No matter how important the petrodollar is, there is absolutely no reason to go to war to protect it.

And if war talk does begin, the American people need to make their voices heard very, very loudly. We have been in useless wars before, and we certainly do not need another one.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar

May 13, 2014 by Michael

Is the petrodollar monopoly about to be shattered? When U.S. politicians started slapping economic sanctions on Russia, they probably never even imagined that there might be serious consequences for the United States. But now the Russian media is reporting that the Russian Ministry of Finance is getting ready to pull the trigger on a “de-dollarization” plan. For decades, virtually all oil and natural gas around the world has been bought and sold for U.S. dollars. As I will explain below, this has been a massive advantage for the U.S. economy. In recent years, there have been rumblings by nations such as Russia and China about the need to change to a new system, but nobody has really had a big reason to upset the status quo. However, that has now changed. The struggle over Ukraine has caused Russia to completely reevaluate the financial relationship that it has with the United States. If it starts trading a lot of oil and natural gas for currencies other than the U.S. dollar, that will be a massive blow for the petrodollar, and it could end up dramatically changing the global economic landscape.

The fact that the Russian government has held a meeting to discuss “getting rid of the US dollar in Russian export operations” should be front page news on every mainstream news website in the United States. That is how big this is. But instead, we have heard nothing from the big mainstream news networks about this so far. Instead, we have only heard about this from Russian news sources such as the Voice of Russia…

Russian press reports that the country’s Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is “ready to handle the increased number of ruble-denominated transactions”.

According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.

The “de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar.

So will Russia go through with this?

After all, this wouldn’t just be a slap in the face. This would essentially be like slamming an economic fist into our nose.

You see, Russia is not just a small player when it comes to trading oil and natural gas. The truth is that Russia is the largest exporter of natural gas and the second largest exporter of oil in the world.

If Russia starts asking for payment in currencies other than the U.S. dollar, that will essentially end the monopoly of the petrodollar.

In order to do this, Russia will need trading partners willing to go along. In the article quoted above, the Voice of Russia listed Iran and China as two nations that would potentially be willing to make the switch…

Of course, the success of Moscow’s campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.

And the reality of the matter is that China has seemed ready to move away from the U.S. dollar for quite some time. In a previous article, I included a quote from a French news source that discussed how China’s official news agency has even called for a “new international reserve currency… to replace the dominant US dollar”…

For decades the US has benefited to the tune of trillions of dollars-worth of free credit from the greenback’s role as the default global reserve unit.

But as the global economy trembled before the prospect of a US default last month, only averted when Washington reached a deal to raise its debt ceiling, China’s official Xinhua news agency called for a “de-Americanised” world.

It also urged the creation of a “new international reserve currency… to replace the dominant US dollar”.

For much more on what China is thinking, please see my previous article entitled “9 Signs That China Is Making A Move Against The U.S. Dollar“.

So why is the petrodollar so important?

But if the rest of the world starts moving away from the U.S. dollar, all of this could change.

In order for our current standard of living to continue, it is absolutely imperative that everyone else around the globe continues to use our currency.

So if Russia really does pull the trigger on a “de-dollarization” strategy, that would be huge – especially if the rest of the planet started following their lead.

The U.S. economy is already teetering on the brink of another major downturn, and there are a whole host of indications that big trouble is on the horizon. For much more on this, please see the article that I posted on Monday entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“.

Just about the last thing that we need right now is for our petrodollar monopoly to be threatened.

It would be nice if things would calm down in Ukraine and the relationship between the United States and Russia could go back to normal.

Sadly, that does not appear likely any time soon.

In fact, the Ukrainian government has already admitted that “we are essentially at war“, and on Tuesday six Ukrainian soldiers were killed and eight were wounded in a convoy attack in eastern Ukraine.

The regions in eastern Ukraine that have just declared independence have given the government in Kiev until Wednesday to pull their forces out of eastern Ukraine or else face war.

If a full blown civil war does erupt in Ukraine, it is going to take this crisis to a completely new level.

Unfortunately, most Americans are incredibly apathetic at this point and know very little about what is going on.

But in the end, this could have dramatic implications for all of us.

Russia Threatens To Abandon The U.S. Dollar And Start Dumping U.S. Debt

March 4, 2014 by Michael

The Obama administration and the hotheads in Congress are threatening to hit Russia with “economic sanctions” for moving troops into Crimea. Yes, those sanctions would sting a little bit, but what our politicians should be made aware of is the fact that Russian officials are promising “to respond” if economic sanctions are imposed on them. As you will read about below, one top Kremlin adviser is even suggesting that Russia could abandon the U.S. dollar and start dumping U.S. debt. In addition, he is also suggesting that if sanctions are imposed that Russian companies would not repay the debts that they owe U.S. banks. Needless to say, Russia could do far more economic damage to the United States than the United States could do to Russia. The U.S. financial system relies on the fact that the rest of the planet is going to use our currency to trade with one another and lend gigantic piles of it back to us at super low interest rates. If the rest of the world starts changing their behavior, we are going to be in a massive amount of trouble. Those that believe that the United States is “economically independent” are being quite delusional.

In order for U.S. economic sanctions against Russia to be effective, Europe would also have to get on board.

But that simply is not going to happen.

As I noted yesterday, Russia is the largest exporter of natural gas on the planet. And Russia is also Europe’s largest supplier of energy.

There is no way that Europe could risk having Russia cut off the gas, especially considering the economic condition that Europe is currently in.

To get an idea of just how incredibly dependent the rest of Europe is on Russian natural gas, check out the chart in this article. A whole bunch of European nations get more than half their natural gas from Russia.

And according to the Telegraph, even the UK has already completely ruled out economic sanctions…

Europe would be pushed back into recession, Russia into financial meltdown. This is not the sort of self harm Europe is prepared to contemplate right now. Indeed, thanks to the indiscretion of a UK official, who was snapped going into Downing Street with his briefing documents on display for all the world to see, we know this to be the case. Trade and financial sanctions have already been ruled out.

So the U.S. can do whatever it wants, but Europe is not going to be any help. Perhaps Canada will stand with the U.S., but that will be about it.

On the flip side, the Russian Foreign Ministry is promising “to respond” if the United States does impose economic sanctions…

Russia said on Tuesday that it would retaliate if the United States imposed sanctions over Moscow’s actions in Ukraine.

“We will have to respond,” Foreign Ministry spokesman Alexander Lukashevich said in a statement. “As always in such situations, provoked by rash and irresponsible actions by Washington, we stress: this is not our choice.”

So what would the response look like?

Lukashevich did not say, but top Kremlin adviser Sergei Glazyev is suggesting that Russia could abandon the U.S. dollar and refuse to pay back loans to U.S. banks…

“In the instance of sanctions being applied to stated institutions, we will have to declare the impossibility of returning those loans which were given to Russian institutions by U.S. banks,” RIA quoted Glazyev as saying.

“We will have to move into other currencies, create our own settlement system.”

He added: “We have excellent trade and economic relations with our partners in the east and south and we will find a way to reduce to nothing our financial dependence on the United States but even get out of the sanctions with a big profit to ourselves.”

Glazyev also stated that Russia could start dumping U.S. debt and encourage other nations to start doing the same. The following comes from a Russian news source…

“We hold a decent amount of treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” he said. “We will encourage everybody to dump US Treasury bonds, get rid of dollars as an unreliable currency and leave the US market.“

Clearly Russian officials understand the economic leverage that they potentially have. In fact, Glazyev seems fully convinced that Russia could cause “a crash for the financial system of the United States”…

“An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system.”

On that last point Glazyev is perhaps overstating things.

On their own, the Russians could do a considerable amount of damage to the U.S. financial system, but I doubt that they could completely crash it.

However, if much of the rest of the world started following Russia’s lead, then things could get very interesting.

Just yesterday, I wrote about how China has chosen to publicly stand in agreement with Russia on the Ukrainian crisis.

If China also decided to abandon the U.S. dollar and start dumping U.S. debt, it would be an absolute nightmare for the U.S. financial system.

And keep in mind that the Chinese were already starting to dump a bit of U.S. debt even before this latest crisis. In fact, China dumped nearly 50 billion dollars of U.S. debt in December alone.

The only way that the current bubble of debt-fueled false prosperity in the U.S. can continue is if the rest of the world continues to lend us trillions of dollars at ridiculously low interest rates that are way below the real rate of inflation.

If the rest of the world stops behaving in such an irrational manner, interest rates on U.S. government debt would rise dramatically and that would also mean that interest rates on virtually all other loans throughout our financial system would rise dramatically.

And if that happened, it would be a complete and utter nightmare for our economy.

Unfortunately, most Americans have no understanding of these things. They just assume that we are “the greatest economy in the world” and that nothing is ever going to threaten that.

Well, the truth is that we are rapidly approaching a “turning point”, and after this bubble of false prosperity pops things will never be the same in the United States again.