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US Petrodollars: Economic Crash Imminent?

G.R. Editorial note:

Randall Bornemann, while presenting a short summary of some very complex economic and geopolitical processes, provides the reader with a set of footnotes, which support his summary statements. He also provides useful bibliographical references.

"In the long run, we are all dead." -John Maynard Keynes, architect of the Bretton Woods economic system

The world economy is on the brink of complete disintegration on a scale not seen since prewar Germany, and World War Three could be the result. (1)

The dollar continues to be devalued, as the Federal Reserve Bank keeps rates low, inflating the money supply to never before dreamed of levels. This, in turn, drives prices up, even as wages are falling due to the exportation of jobs overseas and the importation of cheap (often illegal) immigrant labor.


This summer, we have seen the price of gas rise to all time highs. The mainstream press blames this on factors such as the "War" in Iraq, the terrorism in Saudi Arabia, and supposed oil shortages. But is this really the case?

Actually, the price of oil is cheap in terms of the dollar of the 1980's and 1990's. In fact, in the same time period during which the price of oil has gone up in terms of the dollar, it has remained stable in terms of the EURO. (2) This has prompted speculation that OPEC will change from denominating all sales of oil in the dollar to other, more attractive currencies, like the EURO, which would be disastrous for the US economy and the dollar as world reserve currency. (3)

The US is currently attempting to get OPEC and other oil producing nations to maintain a stable price for oil, even as the value of the dollar plummets.(4) This amounts to asking other countries to accept our losses FOR us, as we continue to print more and more billions of dollars out of NOTHING to give them in exchange for their oil. Venezuela, from whom we get about 15% of our oil (and whose government we have been attempting to topple for years) is against this(5), but OPEC has agreed to 'increase output' in an effort to drive down the price. (6)


The US already has a shortage of troops to deploy to Iraq, (7) but war in other areas of the world looms as well, especially as the economic situation deteriorates. Terrorist attacks in Saudi Arabia make that key oil producing region less stable.(8) Calls for an ouster of Hugo Chavez (which are covertly supported by the US ) (9) in Venezuela increase uncertainty there.(10) Chavez has threatened to cut oil exports the the US, sending precious supplies to China instead. (11) The US already has troops deployed in the region, assigned to President Bush's PLAN COLOMBIA, which purportedly aim to fight narco-trafficking. (12) Then there is China.

China holds an unimaginably large portion of US debt.(13) Without China's continued support for the dollar, the US currency would have devalued to the point of worthlessness long ago. However, China has recently stated publicly that they are planning to diversify their holdings out of exclusively dollar denominated assets. (14) The dollar is just not a good investment anymore. (15)

These are the three major areas where the US could be forced to deploy militarily. We are already committed to Iraq due in large part to Saddam's profitable decision to sell oil in EUROs instead of dollars. (16) Where will we end up next? And where will we get the troops?

The only difference between the current geopolitical position of the US and the geopolitical position of Britain 100 years ago is that the US currently has unquestioned military dominance.


1: Let me just say from the outset that the Federal Reserve has confirmed our Stock Market Crash forecast by raising the Money Supply (M-3) by crisis proportions, up another 46.8 billion this past week. What awful calamity do they see? Something is up. This is unprecedented, unheard-of pre-catastrophe M-3 expansion. M-3 is up an amount that we've never seen before without a crisis - $155 billion over the past 4 weeks, a $2.0 trillion annualized pace, a 22.2 percent annualized rate of growth!!! There must be a crisis of historic proportions coming, and the Federal Reserve Bank of the United States is making sure that there is enough liquidity in place to protect our nation's fragile financial system. The amazing thing is, the Fed's actions mean they know what is about to happen. They are aware of a terrible, horrific imminent event. What could it be? One can draw no other conclusion except that the Fed is acting irresponsibly in its managing the money supply, in fulfilling its duty to "maintain a stable currency." I reject the notion that the Fed is acting irresponsibly. No, something is up, bigger than we have ever seen in the history of the United States.


Here is a reality check on the above mentioned $1.5 trillion created from the year 2000. First, I will refer to the U.S. money supply (M2) in 1980. It was $1.5 trillion. All the tangible wealth in the United States, every bridge, office building, home, car, television, plane, everything was created over 200 years with a money supply that ended up at $1.5 trillion. 200 years of blood, sweat and tears [Ed: including our war between the states and 2 world wars] to create all the tangible wealth in the U.S. Our country in a bit more than four years has created the same amount of money! $1.5 trillion! This new money has not created anything near the tangible wealth of the first 200 year's $1.5 trillion. This is currency depreciation on a grand scale.


2: As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.



How long before Opec decides to price oil in euros?

ARCHIVED: Coup d'Etat in Washington and "The Dollar Paper Tiger", Fiery Dragon in Asia and the Pacific by Andre Gunder Frank


4: Rice hopeful that OPEC pledge will cut oil prices



Ramirez did not specify the proposed price increase, because that request must generate consensus among OPEC members, but he tied the increase to this year's devaluation of the dollar with respect to the Euro.

Energy & Mines Minister Ramirez: Venezuela will seek an increase in the oil price range



Saudi oil minister Ali al-Naimi said on Wednesday that extra oil output might not immediately bring down high prices.



The shortage of troops was made clear in the newly announced rotation schedule, which reveals the Army's dependency on National Guard and non-U.S. troops.


CRUDE Oil, Gold Prices Rise After Terror Attack in Saudi Arabia


Saudi attacks weaken dollar's footing ARCHIVED:


Venezuela coup linked to Bush team


``When we established the first band, there were differences of opinion but we came to an conclusion,'' Ramirez said. ``The falling dollar is raising our real costs,'' boosting the funds needed to invest in oil fields.


In spite of a robust and energetic press conference held recently in New York, which was wide open to the public, a spokesman for Venezuela's President Hugo Chavez reiterated Chavez's promise that he would cut off crude oil supplies from the US's 3rd largest producer in the event of any US-sponsored attempts to destabilize his government.


11: The war in Iraq and instability and threats from Hugo Chavez in Venezuela that if the US threatens the country they would cut US exports (Venezuela is, for the US, their fourth largest oil importer of approximately 1.2 million barrels per day).



 Plan Colombia and the Andean Initiative: Counter-terrorism or State Terrorism? Stopping the hard drug trade, ending a 35 year-old civil war, eliminating human rights abuses and returning political stability to one of the oldest democracies in the Americas all sound like good ideas, but the bottom line in Plan Colombia has more to do with big business, and particularly the oil business, than any of the above.

13: If, or when, the rest of the world decides to stop funnelling the $US2 billion per working day that the US needs to pay for its spending, Henry says we're all in for "an economic adjustment of major proportions".


14: China to diversify foreign exchange reserves ARCHIVED:

15: Here's the truth: We have the trade advantage with China. We send a little paper dollars that they cannot use, and we get a lot of great stuff that we buy and use continually. We give paper money that is an unjust weight and measure, an abomination. We are cheating them; they are not cheating us. ARCHIVED:

16: Europe versus the Anglo-American Alliance. New Political Alignments and the "Big Game". What lies behind the diplomatic rift at the UN Security Council? The Anglo-American Military Axis by Michel Chossudovsky The Real Reasons for the Upcoming War With Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth by William Clark A New American Century? Iraq and the hidden euro-dollar wars by F. William Engdahl Dollar against Euro: The War on Iraq: US and Europe clash for World Economic Dominance by Geoffrey Heard BUSH'S DEEP REASONS FOR WAR ON IRAQ: OIL, PETRODOLLARS, AND THE OPEC EURO QUESTION , Iraq war: dollar vs euro?

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Randall Bornemann may be contacted at

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