Demystifying the Petrodollar Scheme with Alex Gladstein (WiM082)

Check out the “What is Money Show” episode page here

Key Takeaways

  • For the first time in history, a debtor nation controlled the world’s reserve currency.
  • On August 15, 1971, Richard Nixon “rug-pulled” the world by taking the dollar off of the gold standard. 
  • “Fiat incentivizes theft and rent-seeking” – Breedlove. 
  • History reveals the incentives for “helping” less prosperous countries were profit-related. 
  • Bitcoin provides a solution to monetary policy AND is the only way for humans to establish true sovereignty. 

Key Products Mentioned

Intro

  • Host of The “What is Money Show” Robert Breedlove talks with Alex Gladstein, Chief Strategy Officer of @HRF and  @OsloFF.
  • This is a dense, historical conversation about how the dollar emerged as the world reserve currency. 
  • After discussing the emergence of the dollar, they discuss how Bitcoin is a superior technology and the implications it may soon have.

Timeline

  • 1913 – 1918 Inflation – German Mark went from 17 billion to 66 Billion. British Pound – 1 billion pounds to 2.4 billion pounds. 
  • 1922 – Gold Exchange standard in Genoa. Paper currencies were exchanged for gold then. 
  • 4/5/1933 – FDR made executive order 6102. This made it a felony to own gold. 
  • 1944 Bretton Woods Agreement- The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments.
  • Between the 1950s-60s, the US system weakened, as we fought the Korean War and Vietnam wars. 
  • 1961 – The London Gold Pool – Price fixing scheme for gold. The biggest gold producers were South Africa and the Soviet Union. Enemies of the US.
  • 1964- The US could no longer pay off the outstanding dollar balances in gold. 
  •  1969 – SDRs were issued. SDRs are “paper gold” The French were the only country to take advantage and withdraw gold. 
  • August 15th, 1971 – Nixon announces the end of the gold standard. Dollar bills went from “IOUs to IOU nothings”. 

How the US Found Power

  • After WWI the US became the largest creditor nation. The US avoided conflict in the homeland and shipped weapons to Europe. They had a thriving agricultural industry and sold goods to help Europe recover. They amassed the most gold.
  • For the first time in history, the US demanded reparations from their allies for WWI (traditionally it would be a cost of war and debt would be forgiven). The US raised tariffs making American exports more favorable, which actually prevented the Europeans from selling the goods they’d need to pay the US back. 
  • The US, despite the great depression, managed to hold on to most of its gold. Rich people from Britain and France, brought their capital to the US which helped lift the US out of the depression. 
  • By the end of the 40s, the US had the most gold in the world. 

Leaving the Gold Standard

  • By the late 1960s, it was clear the US could not provide the gold to back up their currency. 
  • The Trap:  On August 15, 1971, Richard Nixon  “rug-pulled” the world by taking America completely off the gold standard.  This left foreign nations with no way to redeem their gold. Countries could use the currency to invest in the US and buy their exports. 
  • Triffin Dilemma- the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, leading to a trade deficit.

The Birth of the Petro Dollar

  • In 1973 the price of oil skyrocketed from $2 to $11-$12 per barrel. It made the Saudis suddenly rich.
  • With the new oil money, the Saudis made a deal to price oil in dollars and take those earnings and cycle them back into US securities. 
  • In exchange, they got protection from the US and bought weapons from the US.
  • If you need oil, you need dollars. In essence, the US could print oil. 
  • According to Gladstein, the Saudis radicalized the Islamic world after their newfound riches.  

How and Why Gold was “Defeated”

  • Gold was captured, looted, centralized, and didn’t work for day-to-day commerce.
  • There was an organic demand for something that was not gold. Paper notes were issued that were redeemable for gold. 

US Imperialism with a Debt-Based Economy

  • Through the new standard, the US was able to get other governments to finance our wars. 
  • “Never before had a bankrupt nation imposed its bankruptcy on the world as the standard that we live in” – Gladstein. 
  • Fiat incentivizes debt.   E.g. borrowing against a house. 
  • The US dollar was weaponized. The military force has been used to create demand for the dollars internationally. 
  • The system also made for the largest wealth gap in 100 years. Early 1950s dominant capital firm had a profit stream 5000x the income of an average worker. In the 1990s it was 25,000x.  Extreme political polarization results from inequalities. 
  • Historians do not have a clear answer for why the US waged war in the Middle East, but a large suspected reason was the US incentive to keep the existing monetary policy. The Petro Euro ended within 30 days of the invasion.  
  • “Fiat incentivizes theft and rent-seeking” – Breedlove. 
  • The benefits of dollar primacy accrue to financial institutions and big businesses. The costs are worn by the worker. 
  • Breedlove quoted Kissinger – “ Who controls the food supply controls the people, who controls the energy can control whole continents, who controls the money controls the world”. – basically the US Strategy.
  • The debt-based system was used to enslave other nations. Gladstein provides examples of America’s for-profit humanitarian initiatives in other countries. 
  • In 1971, Hudson claims the US stopped publishing data showing that foreign aid was generating a transfer of dollars from foreign countries to the U.S. He says he got a response from the government at the time and said “we used to publish that data, but some joker published a report showing that the U.S. actually made money off the countries we were aiding.”

Bitcoin and Peace Theory

  • If most of the bitcoin is held by people, not by governments, the confiscation becomes really hard and war will be incredibly difficult to fund. 
  • Breedlove – “This is the Core point of bitcoin” and why he is passionate about Bitcoin. His recent thought experiment – The more expensive it is to violate property, the more robust a civilization we can create. Bitcoin is very difficult to violate 
  • “Without property rights, no other rights are possible.” Human rights are derivatives of property. 
  • Bitcoin can be used as a medium of exchange, unlike gold. Bitcoin enables us to trust individual self-interest. 
  • If nobody can make an exception on the bitcoin ledger, this enables people to be Sovereign. Nobody has the power to lie and get away with it. 
  • Thiers Law states that good money drives out the bad. This is happening in hyper-inflating countries. People want the US dollar. Once people want Bitcoin more than the dollar, it wins. 

Closing Thoughts

– Gladstein is bullish on America and thinks that the Bitcoin standard will be great for America. He’s also bullish on El Salvador, the Navajo, and Nigerian people who are adopting bitcoin and taking control of their monetary future. 

-Breedlove hopes the conversation shifts towards Bitcoin being the ultimate American money and is the only way to truly establish self-sovereignty.

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Notes By Paul Keating

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