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What the Petro-Yuan Means for the U.S.

November 10, 2017

The U.S. dollar has long dominated the global economy and has been the primary reserve currency for most nations. It has also been the main currency used in the nearly $2 trillion annual global oil & natural gas market. That may all be about to change.

The Petro-Dollar

The value of the dollar is strongly tied to oil and the world economy is strongly influenced by the price of oil.  

The unsustainable level of America's national debt, its ongoing political instability and destabilizing military interventions have compelled many countries to seek an alternative to the dollar for trading oil but until recently few have actually been willing to follow through. Those who have tried in the past have paid a heavy price.

Many claim that the United States launched its devastating attack on Iraq not because of non-existent weapons of mass destruction but because Saddam Hussein had started selling oil in Euros, not dollars.

Libya was attacked shortly after Ghadaffi made moves to introduce the gold dinar and started encouraging African and Muslim nations to switch to the gold dinar and trade oil in it and not the U.S. dollar.

One of the reasons that the United States continually beats the war drums against Iran is its repeated intentions to stop selling oil and gas in dollars.

Not long after Venezuela announced that it would no longer sell oil in dollars, the U.S. suggested that a military invasion might be a possibility but it has yet to make any overt moves towards an invasion. However, it is using covert tactics to destabilize the country.

The U.S. is now concentrating its war machinery in the west Pacific, supposedly to threaten North Korea but it may in reality be sending a warning to China about its soon to be launched petro-yuan.

As the world's largest oil importer, China's decision to start buying oil in its own currency could be a massive game changer.

The Petro-Yuan

To provide an alternative to the U.S. dollar for trading oil, China is launching the petro-yuan, a crude oil futures contract priced in yuan on the Shanghai International Energy Exchange and convertible into gold. China has been stockpiling gold for several years and has more than sufficient reserves to back up its petro-yuan.

It has been suggested that the petro-yuan will be launched in 2017 but no official launch date has been given by the Chinese government.

At 8 to 9 million barrels per day, China is the world's largest oil importer and will need a large oil exporter or several smaller ones to accept petro-yuan for oil for its scheme to work.  It may already have this in Russia, the world's largest oil exporter.

For the last few days, Russia has been promoting the petro-yuan and Russia's support of it through its primary English propaganda organ, RT.com.

Russia may not be the only oil exporter to support the petro-yuan. Iran, Venezuela and Indonesia are likely to participate as well.

Due to America's failure to unseat Syria's dictator Assad through proxy Islamic terrorist militias and its willingness to allow a civil suit for Saudi Arabia's role in the attacks of 9/11, Saudi Arabia has recently started pivoting away from the United States and towards Russia and China.

Even though the U.S. is no longer a significant buyer of Saudi oil, the Saudis could use the petro-yuan as a way to apply pressure to the U.S. to stop the 9/11 suits.

If Russia starts selling oil in yuan then Saudi Arabia might also and other OPEC members would likely soon follow. None of them would want to be stuck with a lot of dollars that are declining in value.

Russia has also been building up its gold reserves in anticipation of a collapse of the dollar, the de-coupling of oil to the dollar and realignment of the world's currency and energy markets.

Russia and China are joined by many other nations eager to get off the dollar and onto a more secure currency.  In 2011 even the World Bank published a report predicting the demise of the US dollar as the major reserve currency by 2025.

Whereas China's yuan to be used for oil will be backed by gold,  the U.S. dollar is a house of cards sustained by a delusion of value entangled in massive debt.

Trading oil in yuan is logical. China is the most populated nation, is rapidly surpassing the United States as the world's economic leader and is well positioned for continued growth. The U.S. has massive unsustainable debt, has depleted many of its resources, lost its manufacturing capacity and is in a state of general decline.

As the world's largest manufacturer, China has the additional advantage in that the yuan that China uses to pay for oil can be used to purchase Chinese goods without having to be converted from another currency. Because China controls the value of its currency, it can maintain a value that is favorable to trade.

The End of the American Empire

The United States has been in a state of decline since it whole-heartedly embraced globalism, started to rely on China for its manufacturing and shipped its best jobs overseas.

With the demise of its manufacturing base, the U.S. switched to consumerism and debt. With the decline of consumerism, it put more emphasis on its war industry and the U.S. is currently sustained by a debtfueled war economy.

Donald Trump's promises to make America great again has not translated into any meaningful action. Instead, he has caused destruction of what was once great about the country, piled on more debt and given vastly more power to the war industry and large criminal corporations.

War for the sake of war is the last refuge for a declining empire and is the precursor to collapse.

The U.S. federal government and most state governments no longer serve the needs of the people but instead serve primarily corporate interests for short-term profits at the expense of long-term sustainability.

The U.S. is entirely lacking in intelligent and well-meaning leadership and management and is firmly under the control of some very sinister forces who are not patriots or loyal to the United States.

In other words, there is no one in charge or in control of the U.S. federal government that has the best interests of the country.

The democratic process in America is fatally broken by design and there is no possibility to fix a system that is so thoroughly broken. It can only collapse and be replaced by something else.

America’s Fate in the Hands of China & Russia?

As the largest oil buyer and seller, and largest countries by size and population, China and Russia together have the power to create rapid and drastic change in the world economy.

With annual expenditures on oil and gas of almost $200 billion, China's petro-yuan could hasten the collapse of the dollar by causing a rapid devaluation, if China dumps enough dollars on the market.

China could choose to hold onto it surplus dollars or it could use them as a weapon. While $200 billion spread out over a year may not cause a substantial devaluation, as more countries sell oil in yuan there will be more dollars on the open market than it can absorb and the value of the dollar will plummet unless someone can buy up all of those surplus dollars or take them out of circulation in some other way.

China has already substantially reduced its dollar reserves but has done so gradually so as to not devalue them too much but it still holds enough dollars that it could cause its rapid devaluation.

Russia has repeatedly tried to have a good relationship with the EU and United States but has been consistently labeled and treated as an enemy and suffered the consequences of sanctions and loss of prestige. After 18 years of having his extended hand of friendship slapped away, Putin is now increasingly willing to act as the West's enemy and secure Russia's position as a super-power by contributing to America's economic collapse. But doing so could be very dangerous with someone as unpredictable as Trump in the White House. 

The Risk of Fiat Currency

Up until 1971, the U.S. dollar was tied to the value of gold. President Richard Nixon ordered the cancellation of the direct convertibility of the dollar to gold and the dollar officially became a fiat currency and has remained so since.

A fiat currency is one that can't be officially converted into something tangible. You can buy gold or silver with dollars but can't go to a bank and redeem dollars for anything but other currency, most of which is fiat as well. Prior to 1971, the dollar was backed by gold and could theoretically be exchanged for gold.

Once the dollar was taken off the gold standard, the value of gold soared.

With the exponential growth of fiat currency the world economy was able to grow rapidly, but only by collective agreements on the value of the money.  Fiat currencies only have value as long as people believe that they have value and are willing to act as though they have value.

With the U.S. dollar more money is created through debt as banks loan money they don't actually have on deposit.

When fewer people are willing to believe in the value of a fiat currency such as the dollar then its value declines and can collapse if the decline is too great and panic selling ensues.

The United States has to borrow money just to pay interest on its massive debt and its ability to do so depends upon the faith of investors that the dollar will not depreciate significantly in value.

If investors see the dollar declining in value and that a collapse is possible not only will they stop buying American debt but there will be a rush to exit the debt they already hold.

In the recent past, the Federal Reserve has purchased its own debt to sustain the value of the dollar, but that won't work on a large scale or for an extended period.

One of the other things that puts the dollar at risk is the fact that there are simply too many of them. About a third of the world's available money supply is in dollars and if fewer dollars are needed because oil starts being traded in yuan instead of dollars then the value of the dollar can only shrink unless the surplus dollars can somehow be removed.

The economic retraction from the engineered subprime mortgage crisis did serve the purpose of making vast numbers of dollars vanish, but the Federal Reserve created new debt to replace much of it. 

There is even greater risk from the dollar-based derivatives market which is estimated by some to be over $1 quadrillion. What this means is that there is a massive tsunami of dollar based debt that was created from nothing and backed by nothing but agreements.

According to the secretive Bank of International Settlements, which is the international banker's bank, the derivatives market is now better managed and the risks are sufficiently covered, but only if the dollar doesn't devalue substantially or collapse. 

A collapse in the value of the dollar could trigger a massive global economic collapse as derivatives fail to ensure the risk they were intended for and one large company after another files for bankruptcy.

What this all means is that the U.S. dollar is highly vulnerable to market forces and the world economy is at substantial risk from a collapsing dollar.

A global economic Armageddon is now a distinct possibility.

America's Risk Management Options Limited

Some of the risk of a declining dollar was previously mitigated by the World Bank and International Monetary Fund by forcing dollar loans onto developing countries to be used to pay politically connected contractors and suppliers, but that mechanism is no longer as effective as it once was.

The World Bank and IMF are being eclipsed by the China-led Asian Infrastructure Investment Bank (AIIB), which has been growing rapidly as more nations rely on it for financing that doesn't require them to give up their sovereignty or subscribe to a predatory program of austerity and privatization. The AIIB's first loan was in yuan, not dollars.

Using military force to sustain the dollar is also not going to continue to work. Where small countries such as Libya, Iran and Iraq failed to gain independence of the U.S. dollar, China can certainly succeed, especially if it is supported by Russia. Together they certainly have the financial and military strength to pull it off. There will be no successful NATO military attacks to stop them. 

The Federal Reserve and large private and institutional investors could temporarily prop up a weak dollar by buying up surplus dollars, and will likely try to do so, but they can only absorb so many dollars. There are simply too many dollars in circulation and on the books to absorb in significant enough quantities if the largest holders divest.

A Very Dangerous Situation

China is known for taking very careful and measured strategic steps. It has mature and intelligent leadership that acts collectively in the best interests of the Communist Party and China.

Russia is also very careful, has generally intelligent leadership and thinks long-term but is certainly willing to take bold actions to protect its interests.

The wild card is the United States, Donald Trump and those in control of the U.S. federal government.

America is currently under the control of mostly unintelligent sociopaths, psychopaths, corrupt politicians, criminal corporations and others who lack the experience, intelligence, skills or even intent to govern wisely. Most of them have no loyalty to the people of the United States and are actively trying to undermine the country and subvert its Constitution, all to enrich themselves.

What is most alarming is that Donald Trump is in charge of America's mighty military and has already demonstrated blind military aggression.

In his first 8 months in power Trump has already killed more innocent civilians through drone strikes than Obama did in his entire 8 years as President.

Trump's needless and utter destruction of the Syrian city of Raqqa by carpet bombing in which 2,000 civilians were killed, demonstrates the actions of a mad-man.

Contrary to American propaganda, the U.S. had allowed many of the ISIS fighters to leave Raqqa before the bombing started and was not even targeting remaining terrorist groups but was instead bombing Raqqa’s infrastructure in an effort to destroy the city and make it harder to rebuild.

It appears that Donald Trump and the men he has put in charge of the Pentagon and CIA get off on killing people. Trump openly bragged during his campaign that he would kill the families of suspected terrorists and since taking power has indeed been killing the wives and children of people who might merely oppose the U.S., in addition to just random civilians.

Trump's Director of the CIA, Mike Pompeo, recently stated:

"We're going to become a much more vicious agency...."

Trump put retired Marine General James "Mad-Dog" Mattis in charge of America's military, even though he was legally ineligible to be Secretary of Defense because he had not yet had the mandatory 7 years of retirement from the military.

Mattis doesn't hide his thoughts and feelings. 

"You go into Afghanistan, you got guys who slap women around for five years because they didn’t wear a veil. You know, guys like that ain’t got no manhood left anyway. So it’s a hell of a lot of fun to shoot them. Actually, it’s quite fun to fight them, you know. It’s a hell of a hoot. It’s fun to shoot some people. I’ll be right up there with you. I like brawling."

"Be polite, be professional, but have a plan to kill everybody you meet."

Credible sources claim that Secretary Mattis has threatened to kill anyone who calls him "Mad Dog" and prefers to be referred to as "Chaos" or "Death Star".

The past actions of Mattis support the nickname of "Mad Dog".  One example is when he was a Major and  attacked a wedding party in Iraq that killed 42 people, including 11 women and 14 children, merely because the wedding party was being held in the desert too far from a town and he felt it was therefore suspicious. He refused to accept the definitive proof that the gathering was strictly a wedding.

Mattis' history shows that he has no hesitation in committing war crimes. Now he and Trump have their sights set on North Korea.

North Korea is not Iraq or Afghanistan and the American military can't satisfy its blood lust there without serious consequences.

Some believe that Trump's threats against North Korea are just his usual bluster. Trump's tactic in business negotiations has been to take an extreme position and overact. In doing so, he believes that he is projecting strength. However, in this case, Trump's behavior is a bit different. He has toned down some of his overt threats and made it pretty clear that he will indeed attack North Korea if he doesn't get what he wants — which is for North Korea to give up its nuclear weapons.

North Korea is not going to give up its nukes, because it sees them as the only way to defend itself against an eventual attack by the U.S.

Since the first Bush presidency, the U.S. has consistently rejected opportunities for peace with North Korea and has used the conflict as an excuse to maintain a heavy military presence close to China.

While North Korea has every reason to feel threatened by the U.S., their nuclear program is also about keeping Kim Jong-un in power.

Trump could easily resolve the North Korea issue by simply leaving the country alone and ending the frequent war games and drills that they find so disturbing and which drives their determination to defend themselves at all costs.

Instead, Trump is positioning much of America's war machinery to engage in an attack and has rallied Australia, South Korea and Japan to do the same.

Even if Trump's ego allows him to back down and not attack North Korea, he has shown the world that he is a menace and that the current American government poses a serious threat to the world and needs to be dealt with in a way that reduces the threat.

The safest way to reduce the threat is to dis-empower America economically. It can't sustain its massive military and continue to menace the world if the dollar collapses.

The best way for China and Russia to dis-empower the United States while ultimately empowering themselves is to unseat the petro-dollar by unleashing the petroyuan.

Once China's oil market goes live it won't take long for many major oil sellers to consider if they want the certainty of a gold-backed currency from a strong, growing country with stable leadership or a debtbacked currency vulnerable to collapse.

While China and Russia have decreased their dollar reserves, both still hold enough dollars that they may not want to cause the dollar's collapse. But, the continued aggression from the United States may force them to act before they had originally planned.

China will not tolerate a significant attack on North Korea and risk losing its buffer against the United States and it does want to push the U.S. military out of the west Pacific.  So, a measured military conflict combined with decisive economic actions could ultimately be in China's best interests. 

China has grown powerful enough that it no longer has to tolerate the U.S. menace on its front doorstep and the hated Trump presidency presents an opportunity for widespread support for action against the U.S.

With Russia's support, there is no question of America's military defeat. The question is how foolish Donald Trump really is and if his cabinet is willing to stop him from starting a war that America will lose.

Trump has shown that he is willing to listen to his advisors and change his mind but he also chooses advisors who think like him and most of the more sane and intelligent advisors have left or were booted out.

With Mad-Dog Mattis in charge of the Pentagon and Mike Pompeo in charge of the CIA there may be no effective buffer to stop a fatal military misstep.

The lunatics may be firmly in charge of the Washington asylum and China and Russia may do what is necessary to protect their interests. If they do, we can only hope that they won't be as vicious as Americans.

Potential Outcomes

The future may hinge on Donald Trump and whether or not he will attack North Korea, and if he will use nuclear weapons in an attack.

If there is no attack on North Korea then the chance that the U.S. dollar collapses is greatly diminished and there could merely be a controlled devaluation. A  devaluation of some sort is highly likely if and when China launches its petro-yuan.

If Trump does attack North Korea but doesn't use nukes then the chance of the dollar collapsing increases.

If nuclear weapons come into play then it could mean World War III and mass annihilation and the U.S. dollar won't be relevant anyway.

We should also consider the oligarchs, who may be secretly orchestrating events to get what they want.  Just because Trump was appointed President doesn't mean that he is really in power at the deepest levels.

We can all hope for the best but some may want to plan for the worst, or at least the most likely worst case scenario.

Many countries have experienced economic and political collapse and have bounced back better than ever. Russia and its satellites survived the collapse of the Soviet Union, Argentina survived their currency's collapse. Germany survived two world wars and the splitting of Berlin.

An economic collapse doesn't have to be the end of the world and can ultimately be a healthy experience for a nation.

America has indeed lost its way and needs an economic, political and social makeover on a fundamental level. The collapse of the dollar and defeat in a major war — provided that the war is not nuclear, could be what it takes to bring about the changes needed.

A weaker dollar could have some benefits to the United States in the short-term in regards to making American exports cheaper and therefore boosting exports, but it will also mean higher costs for imported goods, inflation and higher labor costs.

When a currency collapses it can take the central government with it and dis-empower the ruling oligarchy, which could be a good thing if enough sane and intelligent Americans were willing to step forward and ensure that their interests were met by a new government and not allow the oligarchs to use the collapse as a way to totally dominate the country.

A collapse could also open the potential for a North American Union and the Amero currency that was previously planned to replace the dollar.

A collapse of the dollar and replacement with a new currency could wipe out America's debt and give the economy a chance to restart and thrive.

America needs Mexican labor and Canadian resources. Together the three countries would be in a better position to compete with China and potentially offer the world an alternative to China's no-longer- communist totalitarianism and Russia's FSB fueled strong-arm oligarchy. 

Surviving a Collapse

In an economic collapse, the essentials for life of food, water, shelter and transportation are the most valuable commodities. You can't eat guns, ammo or gold or use them to build the means for growing food or filtering water.

When one looks at regions after a natural, economic and political disaster, such as Puerto Rico, the priorities are pretty clear.

Almost 6 weeks after hurricane Maria decimated Puerto Rico there is still no power for 70-80% of the population and many people still lack shelter, food and water. Yet, people aren't attacking each other. There are no zombie hordes to fight off and no roving gangs trying to steal supplies and rape each other's women.

What Puerto Ricans still need most includes:

1. Potable water

2. Food

3. Shelter

4. Power

5. Communications

6. Tools and building supplies

7. Friends to help share the work load with

8. Medical supplies and expertise

Puerto Ricans have learned that they can't fully rely on the federal or local government agencies and must become more self-reliant.

Communities disrupted by radical change in an economy or government need local leadership and the means to organize recovery efforts. This is something that many U.S. communities are  lacking and need to develop.

Even without the threat of the petro-yuan, Americans face a challenging future and should take steps to confront those challenges now, while there is still time.