The events in Ukraine unfolding at the moment could spell economic collapse for the USA and the majority of the western world, and Russia could wield the economic sword. This is why.. Right now, the US dollar makes up nearly two-thirds of global currency reserves. The status was formalized in 1944 with the Bretton-Woods System, a post-war agreement between 44 allied nations to tie the exchange rate of their currencies to the US dollar. At the time, it made sense; the Dollar was tied to the gold standard and the United States was economically dominant where most of the European economies were in shambles. In 1971, the Nixon administration formally took the US Dollar off of the gold standard, ending the Bretton-Woods System. There was simply too much money being spent on the Vietnam War and the bloating programs of Lyndon B. Johnsons Great Society for the standard to be practical, and nations such as France were gradually exchanging their reserves of Dollars for physical gold, reducing the USs economic influence. The United States entered a recession and growth slowed from 7.2% to -2.1%. There was too much money being spent to tie down the value of the dollar to a specific number, although the process was tried for a couple years under the Smithsonian Agreement. In 1973 Henry Kissinger, then the Secretary of State and National Security Adviser, hatched a plan to maintain the status of the US dollar as the worlds reserve currency and travelled to Saudi Arabia. An arrangement was made whereby the Saudis would sell their oil in USD, and then invest some of their surpluses in US debt securities, a process known as petrodollar recycling. The agreement was mutually beneficial, the United States brought stability to the dollar and allowed it to remain as the global reserve currency, and the United States began providing significant military protection from that point forward, in terms of arms sales, military bases and more, from that point forward. By 1975, the rest of OPEC had followed suit. Thus, the petrodollar was born, and it is the reason that the US Dollar accounts for nearly 2/3rds of the worlds currency reserves. Russias involvement as the ringleader of an economic association of countries known as BRICS: Brazil, Russia, India, China, and South Africa. All in all, these countries represent 21% of world oil output. Russia also has some other relevant allies, namely, Iran and Syria. Iran is the fourth largest crude oil producer in the world, at 5% of production. Beyond simply accounting for over a quarter of the worlds oil production, they represent the worlds largest emerging economies and significant holders of the US dollar as the world reserve currency. There are indications that Russia and China have been planning the switch for some time now, such as China consistently making moves to settle trades in Yuans, as well as speculation regarding their gold buying, though I dont know enough about that particular topic to say anything concrete. And when Russia says they are prepared to weather the storm and emerge victorious from the switching of the world reserve currency, that is not a statement we should disregard. The sanctions applied to Russia truly could be one of the first dominos that that leads to a complete economic collapse scenario in the US and perhaps the wider western world. Remember, it is not who actually produces the oil that is important, but the fact that the oil is sold in U.S. dollars. With such a sizable amount of powerful economies, representing not only 25% of oil production by also a significant portion of oil buying and economic leverage. It would, without exaggeration, EASILY cause the U.S. economy to crash from its already precarious position. The ultimate result would likely be wider warfare.
Posted on: Sat, 08 Mar 2014 04:15:58 +0000
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