The Petrodollar & Gold. Will 2018 Be the End of U.S. Dollar Hegemony?

France and other nations began to demand gold for dollars at $35/oz. in the late 1960s into 1971 as the U.S. began printing money to pay for Lyndon Johnson’s Great Society and the Vietnam War. Gold was leaving the U.S. Treasury so rapidly that the value of the dollar would soon evaporate! Something had to be done to save the dollar!

Nixon’s Options:

1) Retain a gold backing of the dollar and a fixed rate system by engaging in responsible fiscal policy (tax the American people to pay for wars and socialism). Or, 2) Take the easy way out by defaulting on the U.S. obligation to exchange one ounce of gold for every $35 sent back to American shores.

But why would other nations accept a dollar without gold backing since it would no longer have any intrinsic value? That question was answered by Secretary of State Henry Kissinger who arranged military protection for Saudi King Faisal in exchange for Saudi Arabia and all other OPEC demanding payment for oil in U.S. dollars.  

This bit of history is extremely important 45 years later because our monetary system, which is based on debt not gold (an asset), has not only grown exponentially and set the stage for a bankrupt world, but it has also enabled the U.S. to aggressively destroy cultures and the sovereign rights of many nations around the world. The 2008-09 financial crises along with ongoing military might applied by the U.S. to force nations to accept dollars has lead powerful nations to fight back with non-military means such as trade and infrastructure measures to bypass the U.S. dollar. Wishing to retain their sovereignty and avoid an inevitable world financial crisis caused by the massive creation of dollars out of thin air since 1971 (see chart on right), China, Russia, Iran and a growing number of other countries are shunning the dollar and in defense of their own economic interest moving toward the Yuan. This is lessening dollar hegemony. Space here prevents the listing of many rapidly evolving examples, but one such dynamic that is important to note is that China, not the U.S., is Saudi Arabia’s largest crude oil customer. China wants to pay in Yuan, not U.S. dollars. If Saudi Arabia refuses to accept Yuan, China can get all the oil it wants from Iran and Russia. To make the Yuan more palatable, Saudi Arabia can exchange its Yuan in Shanghai or Hong Kong for gold, a far superior store of value than an intrinsically worthless U.S. dollar.

In 1988, The Economist (a publication of the deep state?) predicted that the world would be on the verge of a new currency by 2018. An inspection of the many economic and geopolitical dynamics playing out as 2017 nears its end suggests the people behind that magazine were quite prescient and perhaps rendering some level of control in reordering our monetary future. If, in fact, the dollar loses its value in a major way in 2018, then we most certainly need to transfer dollars to gold and other tangibles post haste.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.