After 50 years, end of petrodollar agreement.

 ANOTHER SHIFT IN GLOBAL ECONOMY

MAY REQUIRE FISCAL RESTRAINT IN UNITED STATES

The last balanced budget in the United States was 1969, just a few years after the introduction of the Great Society social programs introduction.  The U.S. then ended its policy of the dollar being anchored to gold and that dollars were no longer redeemable for gold in 1971.This resulted in the increase in inflation to double digits in the 1970's. The Oil exporting countries were then receiving $3.25 for a barrel of oil. With the increase in inflation OPEC became more aggressive in controlling the value of oil and in several years the price increased to over $11.00.

In 1974 Saudi Arabia, the leading OPEC member, agreed to a 50 year deal to price all oil in dollars, thus creating the petrodollar system. This agreement has come to an end on June 9. 2024.

Saudi Arabia now a member of the BRICS economic group is now selling oil in members currencies and the BRICS is developing a payment system that will not be dollar dominated. Oil is still traded in dollars, but now also in other currencies. BRICS is developing a system that will not have a dominating national currency, but a yet to be developed currency backed by gold or other commodities. 

The United Sates has enjoyed the status of the dollar being the international reserve currency since the end of WW2. This coupled with the petrodollar status has allowed the government to abuse that privilege by engaging in deficit spending for over 50 years. It has in effect been able to enjoy the increase in dollar creation and to export the inflation or devaluation of the currency to the rest of the world. The reserve currency and petrodollar have forced anyone desiring to engage in international trade to hold dollars, engage in purchasing the exploding U.S. debt and is in effect an ability to buy resources and goods with continually declining in value dollars. While that system has not ended completely, it is in the process of ending.

The fact that the United States has, in effect, been sort of commiting fraud and engaging in a ponzi scheme with this arrangement and then the use of this dollar system to sanction, punish, threaten and extort others has now resulted in much of the world seeking an alternative system not controlled by the United States. That is a developing reality that will unlikely be reversed.

The question is, will the U.S. policy makers adjust to this new reality or do they believe that they can enforce is continued existence by economic force or even war? Fiscal responsibility and sound economic policy would be a better alternative for both the United States and the rest of the world.