Death of the Petro Dollar-Birth of Hyperinflation. How did America get to the “out of control inflation” inflexion point?

After decoupling the dollar/gold relationship in 1971, the purchasing power of the dollar eroded rapidly due to massive money printing. To strengthen the dollar in world trade, Nixon sent Kissinger to Saudi Arabia in 1973 and a petro dollar system was born.

The petro dollar agreement stipulated the U.S. would protect Saudi Arabia from any military attack and sell military equipment to Saudi Arabia in dollars. In return, Saudi Arabia and OPEC nations agreed to sell oil to other nations ONLY with the use of the dollar.

This agreement created an immediate and tremendous demand for dollars throughout the world and it solidified the dollar as the reserve currency used for international trade.

The US gold bonds (dollars) to foreign nations in gigantic amounts without fear of a blacklash because nations needed dollars to buy oil run their economy. Foreign nations quickly tired of holding dollars being devalued daily.

In 2010, 5 nations formed the BRIGS Alliance to trade internationally using their own currency. These 5 countries (Brazil, Russia, India, China, South Africa) abruptly weakened the petro dollar system and the demand for dollars internationally.

In 2022, Saudi Arabia ignored Biden and American and sold oil to other countries using their respective currencies; essentially ending the petro dollar system. Additional countries like Egypt, United Arab Emirates and Iraq are also abandoning dollar dependency.

Sixty percent of international trade is in dollars, but that percentage is shrinking rapidly. Foreign nations are selling back massive sums of bonds to the US as they no longer require them to buy oil or trade. This abandonment of bonds jeopardizes the Reserve Currency status of the dollar and increases inflation.

How did we get here? Uncontrolled spending, limitless money printing, and 35 trillion dollars in debt mostly due to the now defunct petro dollar system.

Our government is trapped: If we raise interest rates, it slows growth; if we lower interest rates it increases inflation. America is in stayflation — slow growth, increased costs.

Sadly for all of us, we can expect inflation to get much worse faster.

Terrence Watto (USN Ret’d)

Lehighton