What If This Price Rise Reflects a Move from Petrol Dollar to Petro Gold?

I have talked with David Jensen on many podcasts which you can still listen to at JayTaylorMedia about the emergence of a new monetary regime in which petro gold replaces the current post-1971 petrodollar system. There have been so many events taking shape in recent years and accelerating in recent months that one has to wonder if oil breaking out above those moving averages even as the global economy continues to slow down, may be signaling the emergence of a tectonic shift in the global monetary system, away from the illicit petrodollar system set in place by Kissinger to replace an otherwise post-August 15, 1971, worthless dollar.

Indeed today, a breakfast meeting was arranged in Washington by the World Gold Council (WGC) to discuss with “a select group of central banks and other official-sector institutions,” “gold, the renminbi, and the multicurrency system,” in conjunction with the spring meeting of the International Monetary Fund and World Bank Group, a United Nations agency. Discussions are to be held under Chatham House Rules, which means that content from the meeting is allowed to be discussed but cannot be attributed to any one speaker. In other words, there will be no responsibility assumed by any of the attendees in this meeting. I wonder why.

Rest assured that this meeting is up to nothing good in hosting a gold and currency related breakfast discussion involving the IMF, because the WGC is in fact a “world anti-gold council” (WAGC). The Council was created as a propaganda tool to keep people from thinking of gold as money which is what it gives the yellow metal its true value. Rather the WGC has promoted gold as jewelry, which is correlated with lower gold prices rather than higher gold prices. With the exception of Robert McEwen, who once headed up Goldcorp, most gold mining CEOs are ignorant about the product they sell. They don’t understand that they, not the Fed are producing honest and real money. By avoiding promoting gold as money the WGC is showing its true stripes. It is a servant of an existing illicit petrodollar system and not a true free market, gold-based monetary system.

But the BRICS and no doubt a growing number of U.S. and NATO allies are getting sick and tired of being abused by the petrodollar system because it is a system that reduces their sovereignty and ties their economic hands by forcing them to engage in endless wars and economic sanctions aimed at keeping the petrodollar system in place. And that is costly for all those except a few elite who control the Federal Reserve and other central banks. But regardless of efforts on the part of the U.S. and NATO to retain the privilege of printing claims against the world’s wealth, the petrodollar system is rotting from inside out with massive debt loads and an economy that is becoming ever more insolvent.

If you want evidence of rot from with the western world, just this morning there was news that Putin’s Russia is offering a favorable gas deal to Greece that will be a much better deal for the Greek people than the continuous loans made to Greece by the IMF which is essentially only bailing out European banks to keep the whole western world’s petrodollar banking system from collapsing. In fact this deal which is expected to be signed next Tuesday, would provide Greece with $5 billion euros in exchange for an agreement to run a Russian gas pipeline through Greece.

On the other hand, the BRICS are setting up their own banking and trading system, which, given massive imports of gold into China, Russia, and India and out of the West, suggests they have the ability to return at least their part of the world back to a much sounder monetary system than the one Kissinger and Nixon forced us to use after Nixon took us off the gold standard in 1971 which is now in its terminal state. There are many events in recent months that may indicate a move from petrodollar to petro gold whether the World Gold Council and the ruling elite of the West like it or not as various nations look after their own interests and are less willing to be servants of a small ruling Western elite that controls major institutions of post World War II like the World Bank, IMF and United Nations.

How this plays out is anybody’s guess. But a deal between Russia and Greece for example is likely to anger the West which wishes to keep Greece as its own servant as it squeezes the life out of the Greek people for its own economic gain and political power. And also it should be noted that Turkey, which is a NATO country with the second largest troop commitment to NATO, has recently been warming up to Russia as it agreed several months ago to the pipeline deal with Russia that would traverse through Greece as per the agreement that is expected to be signed next Tuesday.

This Greek wheel is just one wheel that seems to be falling off the petrodollar wagon. Iran and China have already started the oil-for-gold trade with currency payment from China to Turkey, and subsequent bullion delivery from Turkey to Iran.

Over the past year, America’s closes allies like Australia, New Zealand, Canada and the U.K. have made arrangements with the largest BRIC economy, namely China to exclude dollars in their commercial trade with China. The City of London has made arrangements to sell Chinese bonds in renminbi, not in dollars. And more recently, much to the anger of the U.S., virtually all of our closest allies (U.K., Australia, New Zealand, Germany and France) have sought to join China’s Asian Infrastructure Investment Bank (AIIB) which was set up to compete with the World Bank and the IMF.

The maintenance of the petrodollar requires the U.S. to continue to control the oil markets such that oil is paid for in dollars and not gold or other major currencies. But when, in 2008, the U.S. started to print trillions of dollars of new money to bail out banks that should have failed, a slow process of growing complaint against the unfair advantage the U.S. has enjoyed by “owning” the world’s reserve currency started to accelerate into action against the U.S. system of global theft.

To keep Putin from selling his energy products into Western Europe, and thus undermine the petrodollar system, the U.S. started propaganda wars, sanctions and actual hot wars against Russia through its Ukraine proxy government. That in turn has led to a rift among European nations who are being hurt economically by a cessation of trade between European countries and Russia. And increasing bellicose rhetoric from America’s neocons has also caused Europe to rightfully fear prospects of a nuclear war. So it is no mystery why the leaders of Germany and France excluded Obama as they met secretly with Putin several weeks ago. As representatives of sovereign nations they have a right and obligation to protect their citizens.

GUSDSo as the existing petrodollar structure is rotting away, some of America’s closest allies are now daring to stand up against the U.S. because the petrol dollar system is rotting from within and is inflicting economic harm on them. A most obvious sign of western monetary decay is the 2008-09 financial crisis and its aftermath which continues. As a measure of a loss of respect for the petro dollar and a loss of its dominance as the world’s reserve currency, check out the chart on your left which displays the percentage decline of holdings of dollars by foreign central banks relative to the total Global U.S. Dollar Liquidity (GUSDL), a metric created by Charlie Clough of Merrill Lynch during the Asian Crisis. Foreign central banks now own less that 45% of GUSDL than they did just before the Lehman failure in 2008.

So Why is Oil Breaking Out Now?

I’m not convinced that oil’s rise is anything but a normal bounce. Indeed the latest comments from Michael Oliver suggest that is the case. But I also think that when a new currency regime is orchestrated—and for reasons discussed above—I think that is likely to happen sooner rather than later, oil may be signaling a change in the geopolitical and global monetary order. And I think it is possible a few special interests around the world may be starting to play for that possibility.

As Eisenhower warned many years ago, great nations generally are destroyed from within, not from foreign powers. The U.S. has abused its privilege of printing money which was made possible because of its post World War II status and military power, which by the way was never removed from its “friends” in Europe and Japan. The BRICS were the first to object to this abuse of power but now as the system begins to decay, increasingly Europeans are starting to object as well.

So now, Russia which is in much better financial condition than America (Russia has virtually no debt but lots of natural resources) is in a position to rescue Greece and it is making friends with Turkey because Turkey sees it is better off economically with Putin than the West. Keep in mind that Russia has also been buying important large amounts of gold even as the U.S. has imposed sanctions.

The handwriting is on the wall. The petrodollar is in its last days because the western world and its economic system is rotting from within. Indeed the petrodollar is itself a pathological construct that denies the workings of free markets as a gold-backed system did much more. Now, as the BRICS pull together large parts of the world into an economy that uses a currency other than dollars, the dollars needed to buy oil decline sharply and the dollar vis-à-vis other currencies and oil declines sharply. It may well be that some very insightful major investors who see the imminent decline of the petrodollar are already trading in dollars for oil as the world goes from a petrodollar to a gold dollar once again.

With an acceleration of events taking place of late, it could very well be that the World Gold Council’s meeting with the IMF was an attempt to deal with these realities and cut its losses as much as possible by no doubt proposing a return to SDR’s rather than a Chinese renminbi backed by gold. What seems clear to me is that the BRICS with all of their problems (China’s debt load is a disaster), are in a stronger position economically than the U.S. /NATO alliance. And as virtually all the world except the U.S. and Japan have joined the AIIB, the BRICS are no doubt moving toward the day when they openly announce a new currency system with the gold-backed renminbi taking the lead. And given the momentum of countries joining an alliance with the BRICS and moving away from the U.S. and NATO, the Chinese who along with the Russians and Indians own most of the world’s gold, may indeed be ready to pull the plug on the dollar. When that day comes, gold in dollar terms will rise to levels unfathomable now because we have been convinced to believe the big lie—that the petrodollar is as good as the gold dollar. When the petrodollar system breaks, untold hundreds of dollars may be required to buy a barrel of oil. Could it be that some very smart investors see that handwriting on the wall and have started bidding the price of oil higher to get a head start on the rest of us? Time will tell. Stay Tuned.

By the way, be sure to listen to my interview with Richard Maybury on my radio show next week. The topic of our show is “The End of Washington as Superpower.”

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.