The Dollar – Part III
By Barrio Bee
Shortly after Nixon took the world off the gold standard,
OPEC agreed to price oil in U.S. dollars exclusively.
This gave the dollar a special place among world currencies;
In essence… The dollar was backed with oil.
In return, the U.S. promised protection of the oil-rich Persian Gulf kingdoms,
This ignited the radical Islamic resentment of U.S. influence in that region.
It also gave the dollar artificial strength and tremendous financial benefits;
The U.S. was able export its monetary inflation by buying oil at a discount.
Alas… We have the advent of a “black gold” standard…
Although the “black gold” standard was helpful,
It was not nearly as stable as the pseudo-gold standard of the 20th century.
It certainly was less stable than the gold standard of the late 19th century.
During the 1970s, the dollar nearly collapsed;
As oil prices surged and gold skyrocketed.
Pressure on the dollar in the 1970s also reflected:
The reckless budget deficits and monetary inflation of the 1960s.
By 1979, interest rates of 21% were required to rescue the system…
Alas… We have the advent of inflation…
Once again the dollar was rescued–
With true dollar domination lasting from the early 1980s to the present.
The tremendous cooperation from central and international banks,
Allowed the dollar to be accepted as if it were gold.
These banks flooded the market with gold;
Even while declining gold prices raised questions about such a policy.
Even though these banks would never admit to gold price fixing,
They believed if gold price fell it would convey confidence to the market–
Confidence in that they achieve success in turning paper into gold.
Alas… We have the advent of a fiat dollar standard…
Increasing gold prices are viewed as distrust in paper currency. Not much different from the U.S. selling gold at a fixed $35 an ounce in the 1960s. Even during the Depression, FDR’s first act was to remove free market gold pricing; By making it illegal for American citizens to own gold. Economic law eventually limited the effort of a fiat standard: From 1980–2000, the efforts to fool the market as to the true value of the dollar failed; The dollar was devalued in terms of gold by more than 50% during the 2000’s. Alas… You just can't fool all the people all the time, even with the power of the mighty printing press...
Next month… The Dollar – Part IV…