When Donald Trump says repeatedly, “There is no global currency,” and when he tells the Saudis they must pay for their own defense, he is really telling the world the petrodollar system is going away.
Since 1975, the petrodollar has been the primary factor conveying value to the U.S. dollar overseas. It is the reason countries around the world use U.S. dollars for international trade, even when the U.S. is not involved. And to obtain enough dollars to buy OPEC oil, those countries are forced to sell America a lot of cheap stuff. It’s a form of enslavement. And the only reason the Saudis, or any other OPEC nation (Iran and Venezuela the exceptions), price their oil in dollars is that as part of that agreement, the U.S. pledges to protect those nations from foreign aggressors.
But if, as Trump has publicly urged now many times, the Saudis and other OPEC nations eventually protect themselves, they won’t need U.S. dollars except for what they buy from America. That means America would need stuff to sell them. That is why Trump wants these countries to depend on U.S. military equipment as the foundation for their defense, rather than Russia or China. Trump wants them buying American, in every respect; military is just one.
The world is entering a currency transition period. Trump is getting the horse in front of the cart for that time. There will be winners and losers in this transition. Those who have been the winners in the past, Wall Street banks, will be the losers. The American people and the peoples of the world who embrace a truly free market will be the winners.
Wall Street banks will lose because, as part of the Petrodollar agreement, OPEC nations agree to bank on Wall Street. That relationship sets up a sort of “circle of loot” and creates a foundation for virtually unlimited currency creation by those same banks.
The banks receive OPEC oil revenue deposits which increase their reserves. Since banks are allowed to create currency according to the amounts of reserves on deposit, and since the Republican Congress and President Bill Clinton repealed the Glass-Steagall Act of 1933, Wall Street banks can also create dollars out of thin air and invest them in stocks and other financial assets. Can you say, “bubble?”
Trump is telling Wall Street and the world’s central bankers that as the petrodollar system goes away, so will their cash cow, therein lies the rub with those Federal Reserve banks. They stand to lose a major source of reserve deposits and the ability to issue mere paper to purchase real assets on the world market.
Some people believe Trump will push a gold standard. Not so. Trump knows that there is not enough gold in anyone’s coffers to cover not only the amount of currency already issued into the world economy, from every country, but also the currency that might conceivably be issued over time.
Think about it. Were the U.S. to back each dollar with gold, and were a major war to happen, rightly or wrongly, or a national calamity of major proportion to happen, the government would not have enough gold to back the creation of currency necessary to pay the cost. And a growing economy requires currency growth to precede it. If there is only so much gold, there can only be so much currency. And what I describe was the reason for the Great Depression.
It took devaluing the currency with respect to gold to generate enough to pay for Roosevelt’s New Deal programs. To satisfy the banks, Roosevelt confiscated all the gold and used it as collateral to borrow more currency. The gold standard bankrupted the U.S. government in 1933. None of that was necessary, but Roosevelt did not have the stomach to war against the bankers. Trump does.
After World War II, the nations of the world signed an agreement at Bretton Woods, New Hampshire. That agreement pegged the price of gold at $35 an ounce. Nixon threw that agreement overboard in 1971 when he closed the gold window to other countries. Bretton Woods is gone for good.
Trump is heading toward eliminating the Federal Reserve and restoring a national sovereign currency system. The value of currencies around the world would be determined by a free market. Imagine that. The U.S. dollar would be backed by the goods and services in the American economy that the dollar could buy. And that is one reason Trump is working feverishly to return manufacturing industries back to America. Without goods to sell, the dollar would be worthless. The manufacturing base of the American economy will ultimately convey value to the U.S. dollar. People want to see a free market, that is what this is. And that is where Trump is taking us.
Trump never tells you what he is going to do until he does it. He sends signs and signals. But sometimes those are to throw off enemies. He may give lip service concerning returning to a world gold standard. But that won’t happen. When Trump says, “There is no global currency,” he means it. And he knows that if he does not replace the present global currency system with a nationally-based system, that system will eventually implode. Trump’s goal is to circumvent a world economic disaster and place all the world’s nations competing in its first truly free market.
A free market depends upon a medium of exchange that also varies according to the market. That is where the world is heading. Get ready for a bumpy ride.
Hank Sullivan is a Forsyth County resident, businessman, author and speaker on American history, economics and geopolitics.