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Source link: http://archive.mises.org/10553/the-rise-and-fall-of-the-dollar-1800-2009/

The Rise and Fall of the Dollar: 1800-2009

August 29, 2009 by

Mises Daily contributor Sean Malone has created this wonderful graphic summary of the rise and fall of the US dollar from 1800 until now:

{ 44 comments }

BioTube August 29, 2009 at 4:11 pm

There’s an impressive – and depressing – figure.

Milena Thomas August 29, 2009 at 4:46 pm

War is the enemy, it appears.

Henry Stock March 14, 2010 at 9:29 pm

While it may appear that way, I think that it would be too simplistic a conclusion. Any form of excessive spending by the government such that must borrow money would likely cause the value of the dollar to go down. Inflation caused by the FED printing fiat money that is not backed by value also lowers the value of a dollar. Wars are one way to cause this, but the current excessive spending on the so-called stimulus and on bailing out various big institutions that should by all rights have gone bankrupt also hurt the value of the dollar through the misallocation of funds.

At least that is my opinion…

John February 11, 2011 at 1:25 pm

Or the Federal Reserve !!

Sovy Kurosei August 29, 2009 at 4:55 pm

Now try to imagine what your life might be like if every dollar you had bought you 20 times as much stuff… This is the cost of inflation.

I’d likely be making 20 times less in that case. It is the people who try to save money, or throw it under their mattress, that are the real losers when it comes to inflation.

FOT August 29, 2009 at 4:55 pm

Would love to see the detail and methodology for calculation of the periodic purchasing power, and the underlying table. May use with your permission and of course with attribution to Mises.org.

Nick August 29, 2009 at 5:13 pm

Sovy, are you really under the impression that wages have kept up with consumer prices?

Do you believe that the only negative effect of inflation on the economy is the loss of purchasing power of stashed currency?

Actually, the “real losers” are anyone living under an inflationary, fiat monetary system that don’t have the connections get the new money as it’s created. So, almost everyone is a loser.

Sean W. Malone August 29, 2009 at 6:11 pm

The methodology for the underlying table merely comes from charting inflation as recorded by the Historical Statistics of the United States (USGPO, 1975) and Statistical Abstracts of the US – Though there is some slight variation in results, there are plenty of inflation calculation tools available. I was curious how far back I could go and 1800 was the end of the line.

And I should parrot what Nick just said.

One of the real harms of inflation (unless you’re first in line at the monetary spigot) is that as prices go up disproportionately to supply, wages tend not to do so. Or at least, they don’t do so at the same rate.

Obviously a perfect example of this is housing prices, especially during the recent bubble. If you ever stop and look at http://www.thepeoplehistory.com/ – you can get a sense of this by doing little experiments for yourself…

For example, the average house in 1960 cost $12,700.00 – the average wage was $5,315.00/year. That means that a house was worth 295% of a person’s annual salary – or another way to say it; in just under 3 years, a person’s total earnings would have paid for a house.

However… Look at that same idea at a later time period – take 2006 for example, even before the bubble.

The average home price was $303,516 and the average salary $48,201.00/year. Same basic math applied means that a home now costs 629% of your yearly income… What people need to realize is that this is a function of monetary tampering more than anything else (especially with housing since Fed controlled stuff primarily effects the long-term lending based purchases). Sure, homes have gotten bigger, and better in quality – but so to have the production methods gotten more efficient. By all rights, homes should have dropped substantially – and even goods that have seen marginal price decline should have seen much much more of it.

BT August 29, 2009 at 6:17 pm

Might the “-196%” be more clearly expressed so that it does not appear the author thinks the dollar lost 196 percent?

Sean W. Malone August 29, 2009 at 6:43 pm

From 1900 – 2008 with a baseline of 1800 dollars, it did lose 196% of its value. With $1 set at 1800, up to $2.04 by 1900 and plummeting all the way down to $0.08 (still in 1800 dollars mind) is that big of a drop.

Julien Couvreur August 29, 2009 at 11:23 pm

Isn’t the FED’s charter to keep prices stable?
Beyond the deeper (but harder to explain) distortions it creates in the economy, this seems incontrovertible evidence of its failure even by its own standards, no?

“The goals of monetary policy include the promotion of sustainable economic growth, full employment, and stable prices. Through monetary policy, the Fed is most able to maintain stable prices, thereby promoting economic growth and maximum employment.”
– from FED 101, linked at http://www.federalreserve.gov/aboutthefed/default.htm

John February 11, 2011 at 1:45 pm

Who Owns The Federal Reserve? The Fed is privately owned. Its shareholders are private banksWith these two statements being true; the question must be asked ” Whose interests do these people serve? ”
Go here to see how they create and devalue the dollar:
http://www.globalresearch.ca/index.php?context=va&aid=10489

Jim August 30, 2009 at 11:28 am

Hmmm….This almost looks like an inverted chart of the dow. My question is haven’t asset prices risen inversley ?

I’ve been trying to work this out for a while,since I as an American have lots of “stuff” house, cars, investment properties, stocks (401k), and little cash money (comparitivley). Don’t I really in a way, strange as it may seem have a vested intrest in a weaker or at least a stable dollar?

Maybe this is all cause and effect of messing with money supply,but the reality is that I have in example
rental property that currently is profitable. Should we experiance deflation or a rising dollar. The potential is for rent to go down but my payment stays the same. Likewise my property value goes down possibly to the point that value is less than the note. Not good.

My point is, right or wrong this is the boat not just myself,but millions are in. we have “stuff” not dollars.

In my veiw The wealthy/rich have the ability to ride this scenario out where as many, myself included, do not, ergo “the rich get richer the poor get poorer”

Thinker August 30, 2009 at 11:53 am

A good, demonstrative graph.

My only problem with it is that the fall in value sometimes anticipates the stated cause. For example:

1805-drop in value preceding the war of 1812
1850-drop in value preceding the Civil War; likely caused by the California Gold Rush of 1849
1900-drop in value preceding the creation of the Fed

The 1850 drop I think I have figured out; any clarification on the other two would be appreciated.

Sean W. Malone August 30, 2009 at 12:56 pm

Thinker:

You’re correct, but keep in mind this is just a graphic. I’d love to expend 1500 words covering just the fluctuations in the Great Depression, or provide side-by-side comparison charts of money supply leading up to various important historical events. There are other factors in play too, time-lag in monetary printing, social unrest/”belief” in the value of the money, etc. A big factor in and around 1805 was no doubt the Louisiana Purchase, which effected the nation’s economy to a large degree.

Likewise, 1850 saw the Alamo & Mexican/American War as well as the gold rush, and in 1898, we had the Spanish-American War, and of course the Philippine-American War. Also, the rise of “trust buster” Teddy Roosevelt (and more-so William Howard Taft), an increase in government spending across the board, some higher taxes, and other growing pains courtesy of the industrial revolution.

When you get into the details of these things, they are of course much more complex than I could make in an infographic. However, I’m not a professional economist or a historian, but a professional creator of media. I am neither capable nor especially qualified to give a detailed lecture of American monetary, geo-political, or military history. That’s not the goal though – the goal is to help get people thinking about things that they probably have never heard of or seen before, and if I’m lucky, convince people that it’s time to do a more critical review of their own conceptions about how & why the world is what it is today.

This is another topic entirely – but the thing that attracts me to sites like mises.org is it’s attention to rigorous academic standards. Facts are endlessly parsed, theories dissected, debates are weighty and well constructed. This attention to detail and reality is one of the greatest strengths of “our” ideas and the culture of libertarian thought. But it’s also a tremendous weakness when it comes to connecting with the average person who hasn’t had the luxury of spending 200 hours reading Rothbard, Reisman, Block and others. One of my broader goals is to try to start disseminating information in a way that actually reaches a lay-audience. This graph is, hopefully, an example of that. It’s meant to be a springboard for discussion and thought, not as a substitute for deeper study.

Jim August 30, 2009 at 2:05 pm

Jim <———- “lay-audience”

What would the price of an asset purchased with one dollar in 1800 be now ?

Did one dollar purchase one ounce of gold ?

Jim August 30, 2009 at 2:21 pm

Sorry if my questions seem inane to you.

I’m part of that “lay audience”

They seem like relatively good points to me.

maybe you guys are so advanced that they seem pointless and not worth answering to you ?

Artisan August 30, 2009 at 3:23 pm

No Jim – though the word dollar comes from the old German weighting unit “thaler” which suggests you could be right somehow…
it was worth 19.39$ in 1800 and stayed under 21$ for 130 years … please look here: http://www.nma.org/pdf/gold/his_gold_prices.pdf

(If one 1800 dollar drops to 0,08$ than everything costs 12.5 times more today… according to CPI)

Jim August 30, 2009 at 3:56 pm

So at an inverse rate of 12.5% gold should be $242.375

Gold is actually $958.80 (Bloomberg)

So Gold assets have increased 3.95 times more than
the dollar has declined. a rate of 48.75% ?

Is this correct ? I am no mathamatician.

I doubt it would be fair to say that all asset classes have outpaced inflation,but providing my math is correct it is interesting.

Sean W. Malone August 30, 2009 at 4:14 pm

Jim;

If you provide an email address, I have a more complex answer to your questions… Let me know.

Jim August 30, 2009 at 4:20 pm

Sure Sean it’s

blastor8or@hotmail.com

Love to hear from you as I’m really trying to get a good grasp of this dollar/asset relationship

Steve Clay August 30, 2009 at 5:33 pm

Can you please remove the hugely deceptive paragraph where you asking the reader to imagine if $1 would buy 20x as much stuff (without mentioning she’d likely earn 1/20th as many dollars)?

Otherwise, can I please work in this world, but shop in a world where all products/services require 1/20th the natural resources and labor to produce/render? :)

This is worse than the FairTax’s “keep 100% of your paycheck” trickery.

Gerry Flaychy August 30, 2009 at 6:30 pm

If the value of every dollar fall to 10¢ over the years, but in the same time the number of dollars we have raise to 10, then there is no problem for us: our purchasing power would still be the same as when we had the old dollar.

So why all those complaints about the falling of the dollar ? I would understand if the number of dollars always stay the same, but it is far to be the case.

mpolzkill August 30, 2009 at 6:40 pm

Steve,

“she’d likely earn 1/20th as many dollars”

You think that the Fed and the State took 95% of the value of the dollar, threw much of it away on sensless wars and insanely wasteful programs, while putting much of it in their own and their cronies pockets; you think this had no effect on real wages? (not to mention that the main evil of the process: that they making saving for the average person exceedingly difficult)

I wouldn’t accuse you of being deceptive as you so cavalierly do to the author. I’d accuse you of not knowing what you’re talking about.

mpolzkill August 30, 2009 at 6:49 pm

* senseless

Steve and Gerry,

Guys, please read this short introduction to what inflation really is:

http://mises.org/daily/908

Steve Clay August 30, 2009 at 9:37 pm

@mpolzkill: I definitely recognize that in our current system wealth inevitably leaks into the hands of war profiteers, bankers, etc. and of course this has an effect on real wages. I’m still waiting to read an actual plan or realistic depiction of how we could return to sound money without a massive disruption in the economy. Right now it seems like the path not taken and the road back is long swept away, but I intend to read more Austrian school stuff.

My point was that it’s flatly deceptive to the layman to suggest that, if no inflation took place since 1915 (due to sound money/freezing the money supply/whatever), that we’d all have 20 times the purchasing power (see Seans last paragraph on the right).

mpolzkill August 30, 2009 at 10:51 pm

Steve,

OK, well that makes me happy that you see that. Yes, I read it; I don’t think you give “laymen” enough credit. I’m a layman. He simply said imagine your dollar bought twenty times as much. Imagine if more families had saved for the last hundred years, that’s what would be far more common if not for the banking cartel. Imagine your great-grandfather chose to save a 20 dollar bill and it was passed on to you and it still bought a fine suit. Things would be different, would they not? I don’t take it that the author means we’d be exactly 20 times better off without the Fed, perhaps he could reword it (“that’s A cost”, perhaps) to eliminate that connotation. (I actually believe though, but can’t prove it, that we’d be far better off than that, materially and more importantly spiritually)

We’re going to get that massive disruption no matter what, anyway. I’m also glad you’re planning on reading more Austrian school literature, the more the merrier, it would be nice to rebuild on a sensible foundation. If you follow my name/link to my YouTube channel, my featured video is an awesome performance by Bob Higgs on BookTV that I think you would appreciate. Pleasure speaking with you.

Gil August 31, 2009 at 3:14 am

Yeah, mpolzkill, why imagine your purchasing power going up 20x for no apparent reason? Why should somone necessarily have the same purchasing power over 100 years just a blacksmith expecting his skills to be just as valuable today though horses are now hobby animals? Deflation doesn’t create wealth, productivity growth creates wealth. The wealth gain from deflation is a one-off event – you can get for that $1000 you almost forgot but to save up the next $1000 is more difficult as you are now earning less dollars (but look on the bright side your purchasing power is the same). Ultimately, why just say “let’s go back to gold coins” and be done with it? Anyone who has the power to print money is going to print some on the side for themselves and their friends. So let people ‘print’ money by taking their chances by fossicking in their spare time.

Deflation bugs are as bad as inflation bugs – both are in love with the currency and forgetting about the good & services in the economy. Deflation no more creates wealth because your savings got a little better in the same way inflation no more creates wealth because your mortgage got a little better. Both give a bonus to those at the right end of the stick.

Besides gold’s only halfway near the dizzying heights of 1980.

mpolzkill August 31, 2009 at 8:07 am

Quoting Michael Clem very recently: “Gil, you read, but you still do not understand.” At least I haven’t heard you claim to be a libertarian. What bizarre places you try to take things in your attempts to defend the regime.

“why imagine your purchasing power going up 20x…”

Who imagined that? I imagined it staying the same, and I imagined the great grandson of perhaps a blacksmith, today doing whatever he wanted but retaining his family’s savings. And I imagined it because it is in fact what your great grandfather could have received from HIS great grandfather.

“Deflation doesn’t create wealth”

Who said that? One certainly can better RETAIN wealth when it’s not stolen and poured down sink-holes.

“Why should somone necessarily have the same purchasing power power over 100 years…”

It’s not “necessarily” as I clearly said, it’s probably, and I say it because it’s what happened in the preceding 100 years. The 100 years where we still fought off central bankers to basically a draw. But today you geniuses have reinvented the wheel, I know. Great job: living standards slowly deteriorate, while families work more and more hours with women forced into the market whether they want to go or not. All this despite the most incredible advances of technology, which, with the tiny amount of freedom to profit still allowed, is the only reason we stay afloat (they’re actually the same thing. Oh there is one other reason the average American has retained most of their living standard: their government forcing their paper on the rest of the world through their puppet foreign governments and the monstrous Chinese government. The primary history of the American military and the entire history of the CIA is the history of the attempt to keep our field slaves down.

“but to save up the next $1000 is more difficult”

Why would your next thousand be more difficult? Expound please. It was more difficult in 1885 to earn 1000 dollars than it was in 1785? The history of the Industrial Revolution runs counter to your pro-bankster derived theories.

“in love with the currency”

Total ignorance.

“Both give a bonus to those at the right end of the stick”

What is the “stick” in the scenario of not allowing banksters to siphon off the nation’s true wealth for for cronies and themselves, for the purposes of perpetual war and for redistribution in the form of bribes to voters?

charles platt August 31, 2009 at 8:38 am

The chart is good-looking and useful, but any chart of this type should state the source of its data. Without sourcing, the chart lacks authority.

In addition, the vertical axis would be more appropriate as a log scale. This would of course greatly diminish the drama–which is precisely the point.

I realize that the Von Mises Institute did not create this chart, but it is promoting it. The Institute would retain more credibility if it attended to issues of this kind.

Sean W. Malone August 31, 2009 at 9:29 am

Charles Platt: Scroll up. I told everyone where the data came from at the top of this thread, but more importantly – it’s very easy to find. If you really want to look it up, it’s at your fingertips. I don’t believe that the data itself is necessarily news to anyone either.

Steve Clay August 31, 2009 at 9:50 am

@mpolzkill “Imagine your great-grandfather chose to save a 20 dollar bill and it was passed on to you and it still bought a fine suit.”

It’s a sweet sentiment, but I still wouldn’t buy a monetary system based on it. I’d guess intergenerational wealth-building has much more to do with government regulation and tax policy than with currency valuation; would sound money prevent the government from taking it?

I’ll check out Higgs’ talk.

mpolzkill August 31, 2009 at 10:14 am

Steve

Yes, I’m Mr. Sweetness…rainbows and lollipops.

Wouldn’t buy it based on what, soundness? Our civilization was built on that soundness, we are living off its fumes and decaying infrastructure.

It has to do with war waged by the ultra rich against the middle class. Money being sound would prevent them from taking it so stealthily. Inflation is the modern “scientific” equivalent of coin cutting.

It’s a three hour interview he negotiates with no notes.

Gil August 31, 2009 at 10:37 am

mpolzkill:

Nope I couldn’t really imagine something someone storing wealth idly for a century or so just for a descendant to retrieve it again, except for a time traveller.

Who’s living standards are deteriotating despite having the same productivity? Why are women ‘forced’ into the market? Aren’t men ‘forced’ into the market? D’you s’pose women want to actually participate in the market alongside men? Who the say the CIA and military keeping Americans down? If anything they have been conspiring to keep poor nations down by forcing them to have crony governments so the West can seize their natural resources.

On the other hand, I repeat, why just say “let’s go back to gold coins” and be done with it? Anyone who has the power to print money is going to print some on the side for themselves and their friends.

mpolzkill August 31, 2009 at 11:38 am

You’ve got quite the imagination, Gil. Regular families holding on to wealth just like the Kennedys or the Rockefellers. Weird! This doesn’t preclude investment, sheesh.

And VERY weird: all of a sudden you sound like Noam Chomsky. How did you read that backward? I clearly said that the CIA was keeping US up, the house slaves are the Chinese girls, among others, who make us toys in exchange for IOU’s.

“Who’s living standards are deteriotating”

The average Americans are. The entire country is deteriorating where Fed money isn’t stupidly channeled. Look around. (I like that, btw, “deteriotating”, you coined a word, look for some of that “deteriotating” in the future too)

And shades of Gloria Steinem! Are you really playing a disingenuous sexist card?! Some women want to work, some don’t. Strain your awesome imagination again Gil, to a time when most women didn’t HAVE to work for their families to stay above water. What are you going to say next, they were ALL forced to stay home back then by an artificial patriarchal society?

And yes, when men want to get married, they are generally forced in to the market. They could stay at home or go on couch tour, or out on the street. Women don’t generally care for those guys too much.

Don’t accept your friends’ printed money, Gil.

Sean W. Malone August 31, 2009 at 3:41 pm

PS: You may have noticed a change in the chart reflecting the confusion over the original “+104%” and “-196%”. After a brief discussion, and looking at the earlier comments, it seems that the way that was depicted was unnecessarily confusing. The point was merely to show that we had a large increase in the value of the dollar, then we lost not only the entirety of the 1800-1900 gains in value, but still more than that.

Of course, that much is obvious visually without any confusing and strangely worded percentages. Sorry for the confusion for those who saw the first version.

Terry September 2, 2009 at 11:18 am

Jim,

“It looks like an inverse chart of the dow ..”

How right you are. When the dollar goes down against foreign currency and [given] the international nature of equity markets and the fact the dow is priced in dollars, the history of the dow is the history of inflation. There are a lot of inflation bets in the market right now.

There was a time when an equity investment was pegged to the value the issuer company would bring to it’s customer base and performance was measured as a function of revenues resulting from improved, or added, value. Now, stock bets have little to do with the issuer’s competitiveness. Stocks are bet because the the sucker that bought the stock is betting a bigger fool will give him more money for his shares than he paid for them.

Exploit the stock market by investing in options and the lame wane of stock investor sentiment. See my URL.

Tim Bruce September 2, 2009 at 2:08 pm

Yes, I’m also trying to figure all this stuff out so I can tell others we are getting shafted by the by present system. However, just hearing about dollars and missing wealth and on and on I think we get lost in the woods. Part of the rottenness of the present system is we forgot (or we were never educated) that humans are more than creatures designed to make money. In other words all the wealth in the world won’t make you happy if you don’t have a spiritual development to really connect with life.

Bill Jones September 2, 2009 at 2:49 pm

I found a bunch of interesting data, including the source for this chart here:
http://www.measuringworth.com/aboutus.html

(It’s probably a damning indictment of one’s life that this stuff is interesting)

Artisan September 2, 2009 at 2:55 pm

There’s a spiritual background to it: it’s called free will. The best idea humans (?) have had so far…

Jon Hansen September 12, 2009 at 11:59 am

What would the equivalent of $500 in 1924 be in today’s world (i.e. if I earned $500 in 1924, what would I have to earn today to achieve the same value)?

Thank you.

Sean W. Malone September 19, 2009 at 6:41 pm

$500 in 1924 would be about $6244.60 in 2008 – a little more today.

I answer other questions & provide some other thoughts, especially on seeing the forest above the trees and why this stuff translates directly to real human concerns, here: http://seanwmalone.blogspot.com/2009/09/money-spirituality-worth-inflation.html

Nalliah Thayabharan September 14, 2011 at 7:04 am

In July 1944 an agreement was reached at the United Nations Monetary and Financial Conference which pegged the value of gold at US$35 per ounce and the whole world looked on US$ as the gold standard in purchases. But in 1971, US President Nixon took the US$ off the gold standard after his administration realized that the US no longer had enough gold to buy back every dollar that foreign governments were handing in.

In 1973, US President Nixon asked King Faisal of Saudi Arabia to accept only the US$ in payment for oil, and to buy US Treasury bonds, notes and bills with their excess profits, so that USA can continue spending money and not pay it back. In return, the USA pledged to protect Saudi Arabian oil fields from seizure by USSR and other nations including Iraq and Iran.

The 1973 Arab-Israeli War upset this agreement and caused the Great Oil Embargo of 1974. By 1975 the Great Oil Embargo was over and all members of Organisation of Petroleum Exporting Countries (OPEC) accepted to sell their oil only in US$. Every nation was saving their surpluses in US$ since every country needed US$ to buy oil. The OPEC oil sales supported the US$.

Since only the US Federal Reserve can print the US$, the US control the flow of oil. The US essentially owns the world’s oil for free because oil is denominated in US$ and the US$ is the only fiat currency for trading in oil.

So long as almost three quarter of world trade is done in US$, the US$ is the currency which central banks accumulate as reserves. But central banks, whether China or Japan or Brazil or Russia, do not simply stack US$ in their vaults. Currencies have one advantage over gold. A central bank can use it to buy the state bonds of the issuer, the USA. Most countries around the world are forced to control trade deficits or face currency collapse, but not the USA. This is because of the US$’s reserve currency role and the underpinning of the reserve role is the petrodollar. Every nation needs to get US$ to import oil, some more than others. This means their trade targets US$ countries.

Because oil is an essential commodity for every nation, the Petrodollar system, which exists to the present, demands the buildup of huge trade surpluses in order to accumulate US$ surpluses. This is the case for every country but one — the USA which controls the US$ and prints it at will or fiat. Because today the majority of all international trade is done in US$, countries must go abroad to get the means of payment they cannot themselves issue. The entire global trade structure today works around this dynamic, from Russia to China, from Brazil to South Korea and Japan. Every country aims to maximize US$ surpluses from their export trade. Currently over $1.3 trillion of newly printed US$ is flooding into international commodity markets each year.

The Petrodollar system nearly broke down during the US President Carter’s tenure, mainly due to double digit inflation. But US President Reagan removed all controls on oil and fuel prices and all restrictions on oil drilling to restore the stability of the US$. Oil flooded the market, prices fell, and petrodollars became more valuable. These were some of the most prosperous years that the US had. But the danger remained, because the US continued to spend more US$ than it earned. The high US$ allowed the US to buy imported goods at a massive discount, a kind of subsidy for US consumers at the expense of the rest of the world. The high consumption of imports, however, hit US manufacturing very hard. The overvalued US$ was a major component of the bubble economy of the late 90′s.

The reality is that the value of the US$ is determined by the fact that oil is sold in US$. If the denomination changes to another currency, such as the euro, many countries would sell US$and cause the banks to shift their reserves, as they would no longer need US$ to buy oil. This would thus weaken the US$ relative to the euro. The USA propagates war to protect its oil supplies, but even more importantly, to safeguard the strength of the US$. The fundamental underlying motive of the US in the Iraq war, even more than the control of the oil itself, is an attempt to preserve the US$ as the leading oil trading currency. The fear of the consequences of a weaker US$, particularly higher oil prices is seen as underlying and explaining many aspects of the US foreign policy, including the Iraq and Libyan War.

Until November 2000, no OPEC country dared violate the US$ price rule. So long as the US$ was the strongest currency, there was little reason to as well. But November 2000 was when France and other EU members finally convinced Iraq’s Saddam Hussein to defy the USA by selling Iraq’s oil-for-food not in US$, but only in euros. Few months before the US moved into Iraq to take down Saddam Hussein, Iraq had made the move to accept Euros instead of US$ for oil, and this became a threat to the global dominance of the US$ as the reserve currency, and its dominion as the petrodollar. The euros were on deposit in a special UN account of a French bank, BNP Paribas.

If this Iraq move to defy the US$ in favor of the euro were to spread, especially at a point the US$ was already weakening, it could create a panic selloff of US$ by foreign central banks and OPEC oil producers. In the months before the latest Iraq war, hints in this direction were heard from Russia, Iran, Indonesia and even Venezuela. In April 2002 at the invitation of the EU, in Oviedo Spain, Iranian OPEC representative Javad Yarjani delivered a detailed analysis of how OPEC at some future point might sell its oil to the EU for euros not US$.

All indications are that the Iraq war was seized on as the easiest way to deliver a deadly pre-emptive warning to OPEC and others, not to flirt with abandoning the Petro-dollar system in favor of one based on the euro. The Iraq move was a declaration of war against the US$. As soon as it was clear that the UK and the US had taken down Saddam Hussein’s regime, a great sigh of relief was heard in the UK Banks.

After considerable delay, Iran opened an oil bourse which does not accept US$. Many fear that the move will give added reason for the USA to overthrow the Iranian regime as a means to close the bourse and revert Iran’s oil transaction currency to US$. In 2006 Venezuela indicated support of Iran’s decision to offer global oil trade in euro.

Muammar Qaddafi made a similarly bold move, by initiating a movement to refuse the US$ and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Muammar Qaddafi suggested establishing a united African Union , with its 200 million people using this single currency. The initiative was viewed negatively by the USA and the European Union (EU), with French president Nicolas Sarkozy calling Libya a threat to the financial security of mankind. But Muammar Qaddafi continued his push for the creation of a united Africa.

Muammar Gaddafi’s recent proposal to introduce a gold dinar for Africa revived the notion of an Islamic gold dinar floated in 2003 by Malaysian Prime Minister Mahathir Mohamad, as well as by some Islamist movements. The notion, which contravenes IMF rules and is designed to bypass them, had had trouble getting started. But today Iran, China, Russia, and India are stocking more and more gold rather than US$.

If Muammar Qaddafi were to succeed in creating an African Union backed by Libya’s currency and gold reserves, France, still the predominant economic power in most of its former Central African colonies, would be the chief loser. The plans to spark the Benghazi rebellion were initiated by French intelligence services in November 2010.

The cost of wars are not nearly as big as they are made out to be. The cost of not going to war would be horrendous for the US unless there were another way of protecting the US$’s world trade dominance. The US paid for the wars by printing more US$.

In February 2011, Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), has called for a new world currency that would challenge the dominance of the US$ and protect against future financial instability. In May 2011 a 32 year old maid, Nafissatou Diallo, working at the Sofitel New York Hotel, alleged that Strauss-Kahn had sexually assaulted her after she entered his suite, causing him to quit his job on May 18, 2011

Accepting Chinese renminbi (RMB), also known popularly as the yuan for oil, Iran and Venzuelathey have constantly been threatened by the US. If euros, yens, yuans or rubles were generally accepted for oil, the US$ would quickly become irrelevant and worthless paper. This petro dollar arrangement is enforced by the U.S. military.

Venezuela reportedly has the largest oil reserves in the world. Venezuelan President Hugo Chavez has been a strong proponent for tighter Latin America integration – which is a move away from the power of the US banking cartels.

Venezuelan President Hugo Chavez formed oil export agreements with Cuba, directly bypassing the Petrodollar System. Cuba was among those countries that were later added to the “Axis of Evil” by the USA. On Aug 18 2011, Venezuelan President Hugo Chavez announced a plan to pull Gold reserves from US and European Banks. On Aug 24, 2011 a 7 magnitude earthquake occured in Northern Peru bordering Venezuela which doesn’t use the Petrodollar system and Brazil which has been engaged in discussions to end US$ denominated oil transactions.

Venezuelan President Hugo Chavez has accused the US of using HAARP (High Frequency Active Auroral Research Program) based weapons to create earthquakes. HAARP is an ionospheric research program that is jointly funded by the US Air Force, the US Navy, the University of Alaska and the Defense Advanced Research Projects Agency. The HAARP program operates a major Arctic facility, known as the HAARP Research Station, located on an US Air Force owned site near Gakona, Alaska.

HAARP has the ability to manipulate weather and produce earthquakes, since it is capable of directing almost 4 Mega Watts powerful radio waves in the 3 to 10 MHz region of the HF band up into the ionosphere. This energy can be bounced off of the ionosphere and permeate the earth and subsequently cause strong intense oscillations along fault lines of targeted areas to produce earthquakes. Using HAARP, depending on the frequency, focusing, wave shape, adversaries can induce at a distant aiming point, a variety anomalous weather phenomena such as hurricanes, flooding, or drought.

Already several countries including Russia, China and Venezuela have suggested that a HAARP type technology weapon is capable of such and attack, been used against several countries causing severe destructions in Haiti, Japan, Russia, China, Iran, Chile, New Zealand, Afghanistan, Turkey etc. Any naturally-occurring earthquake has a ‘pulse-wave’ and several recent earthquakes did not have a pulse effect, indicating to seismologists that they could not have been caused naturally.

If any country attempt to eliminate the Petrodollar system and dump surplus US$ into the international and US financial markets to cause the quick collapse of the US$ may be attacked with HAARP to destabilize its economy and currency and to prevent a move away from the US$ and the Petrodollar system.

The credit crunch initiated in 2007 in the subprime mortgage market in the US had devastating spill-over effects for China’s exports. The scarcity of US$, due to the repatriation and deleveraging flows into the American financial system caused a sudden plunge in the external demand for goods manufactured by China and triggered the consequent lay-off of several millions of workers in China. This experience encouraged China to use its own currency in trade.

The US may have averted a debt default by compromising on how to cut the US budget deficit, but underlying problems remain and those economic woes are driving a global search for an alternative reserve currency. The US now needs a net inflow of several billions US$ a day to cover its deficit.

In 2011 Russia began selling its oil to China in rubles. The US debt crisis adds new urgency to the China’s efforts to promote its currency renminbi as an alternative reserve currency. China has already signed bilateral currency swap agreements with several countries ranging from Indonesia to Belarus and Argentina to promote the renminbi as a means of settlement in international trade. China’s growing trade and financial links with the rest of the world will make the renminbi more acceptable. If countries continue to lose their willingness to hold the US$ the impact to the US$ and the collapse of the US$ could be very dramatic.

Sabrina October 20, 2011 at 11:47 am

What will happen if oil will be gold for currency exchange

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