Rickards: Petrodollar 2.0 is Coming
Rickards To Bannon: Petrodollar 2.0 Is Coming
Authored by Adam Sharp via DailyReckoning.com,
Our friend and colleague Jim Rickards was on Steve Bannon’s War Room show Tuesday, and it may be the most important interview Jim has done this year.
In this fascinating discussion, Jim starts with the history of the original petrodollar system. And he knows the subject well, having helped create it.
The premise of the 1974 petrodollar agreement was that Saudi Arabia would only sell oil in dollars, which would stimulate demand for greenbacks as a reserve currency.
Here’s Jim explaining the basics to Steve Bannon’s audience:
“We had a carrot and stick approach. Bill Simon, who was Secretary of the Treasury, went to the Saudis and said ‘everybody in the world needs oil, and if you price oil in dollars, then everybody needs dollars.’
And that basically underpins the role of the dollar today as the world’s reserve currency.
The stick was, if you don’t do it we’re going to invade Saudi Arabia and take over oil production.
The carrot was, if you price oil in dollars, we’ll give you a security umbrella.
It’s rare to hear such candor coming from someone who was directly involved in the formation of the petrodollar system.
Needless to say, the petrodollar system was successful and led to a resurgence in the American dollar as the world’s key reserve currency (despite Nixon ditching the gold standard just 3 years earlier).
At this point, Steve Bannon interrupted with an insightful question (paraphrased):
“Wait, you say the petrodollar system is still in place, but the Saudis are now selling oil to China for yuan. Aren’t cracks showing in the petrodollar system?”
Jim responded that yes, cracks are starting to show in the system, and that’s why Trump was in Saudi Arabia, to seal a “Petrodollar 2.0” agreement. Jim also points out that, at least for now, the amount of oil Saudi Arabia is selling for yuan and other currencies is miniscule compared to dollar-based sales.
Jim proceeds to lay out the purpose of Petrodollar 2.0:
“The U.S., by strengthening its relationship with Saudi Arabia, and creating Petrodollar 2.0, puts the pressure on China to reduce their tariffs and meet Trump’s requirements. Otherwise they don’t have a source of dollars.”
This time around, Trump is using a strictly carrot-based approach. He’s on a charm offensive and looking to build strong, lasting ties with Saudi Arabia and the broader Middle East. This is a smart approach and we expect it will bear fruit in the near future.
Had President Trump taken a threatening approach to Saudi Arabia, it almost certainly would have driven the country into China’s waiting arms. And America can’t afford to let that happen.
It’s an excellent interview, and you can watch the entire thing here (free) on Rumble. Jim also gets into Russia vs. Ukraine with Steve, and brings an insightful and unique perspective as always.
Also, be sure to follow Jim’s new account on X (formerly Twitter)!
With all due respect to Jim Rickards, and I have read his books and many papers, but he is a one trick pony. While he may have been part of the Kissinger team that developed the Petrodollar system of the 70's, the main purpose was to support our UST market. He did not mention that once in the conversation with Steve, that is almost disingenuous. We needed buyers of our UST's to support our addictive penchant of spending money we did not have - Full stop! We were a true super power, only the USSR was close but that was only in the number of nuclear weapons, otherwise there was no match. We were able to easily offer a safety umbrella. Foreigners with surplus dollars had to buy UST's to neutralize their own currencies from appreciating. PLUS, we as a country were in a much better fiscal situation, and even though we went through the "malaise" as per Carter and I remember sitting in line for gas with my dad on even days (remember that), Volcker was able to snuff it out with 20% interest rates. The dollar roared back.
Petrodollar 2.0 - I call bullshit on that? With the dire fiscal situation we are in today, and no gold backing who the hell would want a depreciating piece of printed paper for an appreciating hard asset, especially knowing what is too come in the next 2 decades (massive entitlement spending)! Going in with any kind of stick now would have been a miserable failure. We are certainly not as powerful of a Super Power as we were 50 years ago, we have NOT won a war in 70 years, our military has atrophied and we would not be a match for the combined China/Russia tag team. As a patriot this is painful to say, but it is true as it became apparent by getting our ass kicked in Ukraine. Twenty years ago, all you could get was cheap plastic shit from China, today the quality of their manufactured products are as we would have (even though we make little) and now their technology is almost as good as ours. So to ask what are they going to do with all that yuan? also disingenuous. And besides, any leftover yuan they go the SGE and trade them for gold! Trump and Bessent's biggest mistake was NOT taking down the debt/gdp (like < 80) or significantly bringing the USD down (like DXY < 90) before imposing these tariffs. Without these adjustments first, we go into a debt spiral. We can not handle a 10Yr much greater than 4.5% and we folded like a cheap suit within days as our UST market could not handle the stress after implementing tariffs. They both know we need a much weaker dollar and they do not want the UST as a world's reserve asset. The dollar will continue to be the world's reserve currency as there is so much of it, but only for transactional purposes. It certainly is not a store of value.
If he had something else in mind, he should have spelled it out. But rebranding the same thing as Petrodollar 2.0 - no way.
Anyone interested in Jim's books:
https://u.pcloud.link/publink/show?code=kZT92h5Z8fx6QN2XhDXOSF2jPj9YbSJvgSxV
This smacks of desperation. Trump is trying to blow hot air into a baloon that has a fucking hole in it. Why would the Saudi’s want Shit dollars and shitty US IOU’s when they can have gold without the risk?
You can tell Trump is on the ropes, he has trashed bibi to cut the deal with the Arabs. There is no honour among thieves. Between the Jews, the Arabs and Trump if they all told me each day of the week ended in “day” I would not believe them.