Rickards on the Petrodollar Agreement

Jim Rickards puts the nonsense to bed once and for all. [The Rude Awakening] June 19, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Rickards on the Petrodollar Agreement [Sean Ring] SEAN RING Dear Reader, I hope you’re enjoying your day off. Since you’re relaxing, I thought it’d be wise to leave you be. But, Jim Rickards put together a knockout commentary of the alleged expiration of the Petrodollar agreement. This excellent, short read is well worth 5 minutes of your time. Enjoy your coffee and have a restful day! [ALERT: 50 WANTED]( We recently signed a deal with the trader who’s dominating the entire industry, and who is looking for only new 50 students today. And if you do anything today… I urge you to take a few minutes to [get the details and take a brief assessment to see if this opportunity is right for you]( (no credit card needed or long sales video on that link). So if you want a chance to make 2024 the most profitable year of your life… you will lock in your spot now… before it’s too late. [Click Here To Learn More]( [Jim Rickards] JIM RICKARDS News services of dubious accuracy reported that Saudi Arabia had ended the Petrodollar Deal on June 9, 2024, after fifty years of adherence. This report was quickly followed by claims that oil would now be priced in everything from Chinese yuan to Indian rupees, Russian rubles, and other currencies without strong claims to being reserve currencies. The implication of these stories was that the U.S. dollar’s long reign as the leading global reserve currency (dating to 1914 by some measures or 1944 at the latest) was over. New reserve currencies would come to the fore, most prominently the BRICS planned currency. The crypto crowd were not far behind, shouting that the demise of the dollar proved that cryptocurrencies were the way of the future and their day had come in the global payments networks. The internet was on fire with these and other histrionic claims. Whoa. In fact, almost everything you just read is nonsense. There have been some very important developments in international finance and monetary policy in recent days, but they are far more nuanced and ultimately more important than stories grabbing the headlines. As the saying goes, it’s complicated. Let’s deconstruct what’s actually going on. A little background on the Petrodollar Deal is a good start. This deal was concluded in June 1974 under the Nixon administration by Treasury Secretary William Simon and his Deputy Gerry Parsky. It was a tense time following the Yom Kippur War and the Saudi oil embargo on exports to the U.S. I played a role in the run-up to the deal when I met at the White House with Deputy National Security Advisor Helmut Sonnenfeldt to plan an invasion of Saudi Arabia in case the Saudis did not agree to what Simon and Parsky had put on the table. The deal had four main parts: Saudi Arabia would price oil in U.S. dollars. Saudi Arabia would take the dollars earned and invest them in U.S. Treasury securities or large bank CDs. The Treasury and the banks would lend those dollars to developing economies, which would purchase equipment and agricultural products from the U.S. Finally, the U.S. offered Saudi Arabia military protections against the Soviets and regional rivals. The security agreements and the financial agreements were put in writing but have never been revealed. The Petrodollar Deal was a win-win for the participants and the world. The U.S. found a reliable prop for the dollar’s reserve currency status (since other countries would need dollars to buy their own oil), and Saudi Arabia enhanced its national security. Recycling the Saudi dollars to developing country buyers boosted world trade and commodity prices and helped pull the world out of the severe 1974 recession. At the Saudi’s request, the U.S. kept a veil of secrecy over the exact amount of Treasuries owned by Saudi Arabia; their holdings were lumped in with other OPEC members from the region and were not reported separately. Did the Saudis just end the Petrodollar Deal as reported? Not exactly. The deal was never a treaty ratified by the Senate, which would rise to the level of law. It was a non-binding executive agreement; not much more than a written handshake. It contained annual renewal provisions and could be terminated at any time by either party. The Saudis held up their end by pricing oil in dollars and buying U.S. Treasuries. The U.S. held up its end by sending troops and repelling Iraq’s invasion of Kuwait in Operations Desert Shield and Desert Storm in 1990-91. The agreement suited both sides and so it continued. The agreement never had an explicit “expiration date,” so reports that it has expired are overstated. The Saudis have notified the U.S. that they are not extending the deal, but that decision has to be considered in the context of other U.S.-Saudi discussions. The U.S. and Saudi Arabia are currently in negotiations on a new financial and security arrangement that will supersede the old Petrodollar Deal. The new agreement will provide that Saudi Arabia will recognize Israel as part of the broader Abraham Accords initiated during the Trump administration. The U.S. will continue to offer security protections to The Kingdom, but those will be expanded to include uranium enrichment technology. Ostensibly, this technology would be used to fuel nuclear reactors (about 20% Uranium 235) but might later be used to build nuclear weapons (about 90% Uranium 235). Saudi Arabia wants this technology because it feels threatened by Iran’s own uranium enrichment capability. On the financial side, Saudi Arabia would continue to price oil in dollars but could agree to be paid in other currencies, primarily euros, as is the case today. The Kingdom would continue to purchase Treasury securities alongside its holdings of gold. In short, not much would change from the current Petrodollar Deal except for the enhanced security guarantees. Saudi Arabia allowed the existing deal to lapse to gain leverage in the new negotiations because the old deal would be replaced by the new deal in all cases. The new deal will not be completed for six months, perhaps longer. It will be handed off from the Biden administration to the new Trump administration in January 2025. The reason for the delay is that Saudi Arabia cannot recognize Israel until the Gaza War is over. That will take a few more months at least. There’s an irony there because the Trump administration created the Abraham Accords and may be the one to complete the process by including Saudi Arabia under that umbrella. That’s a summary of what’s going on. Here’s what’s not going on: Oil will not be priced in rupees, rubles, yuan or other emerging market currencies except in very small quantities and as an accommodation. About 20% of oil purchases today are in euros and that can be expected to continue. The new arrangement between Saudi Arabia and the U.S. does not mark the end of the dollar as the world’s leading reserve currency and does not imply the collapse of the global market in U.S. Treasury securities. The oil and dollar markets will be business as usual. Ties between The Kingdom and the U.S. will be even closer because of the nuclear enrichment aspect of the new deal. This is not to say that there have not been important developments in international financial and monetary markets away from the Saudi Arabian situation. There have. In particular, major policy initiatives were announced at the St. Petersburg International Economic Forum (SPIEF), hosted by Vladimir Putin from June 5 – 8, 2024. Russia announced that it was working with other BRICS+ members to develop a global payments system that is completely independent of existing Western systems, including SWIFT, FedWire, and other clearinghouses. That’s critical because payments through Western systems are subject to seizure and interdiction, whereas payments through an independent system should be safe from Western interference. Putin also met with Dilma Rousseff, former president of Brazil, and today, president of the New Development Bank, which is a de facto central bank and development lender to the BRICS+ and other associated members. That meeting was to discuss the roll-out of the new BRICS currency. It will be called The Unit, and its value will be based on a weight of gold (40%) and a basket of BRICS+ currencies (60%). As with the NDB and the Contingent Reserve Arrangement previously established by the BRICS, the Unit will imitate the original Bretton Woods arrangements. Membership in the IMF was originally conditioned on a contribution of gold, hard currency, and local currency by the aspiring member. Later, the gold contribution requirement was dropped. BRICS+ is returning to the original IMF formula with a call for gold and local currency in exchange for access to Units. The key to the implementation of the BRICS currency plan is an expansion of the membership. A bilateral currency arrangement between two weak emerging markets will never be successful because there’s not much for the seller of goods to buy once it receives the currency. However, a currency union with 20 members or more using the Unit can be successful because the seller of goods can “go shopping” in many other markets and is likely to find goods or services that meet its needs. The success of the Euro, with 20 members and worldwide acceptance, is the model for this. The Unit will not be launched for another year or longer although some formal announcements may come at the BRICS leaders’ summit in Kazan, Russia this October. It will still take a few years to add members, build out the infrastructure and firm up some valuation issues. Still, this currency is coming. It’s important to realize that the BRICS Unit will initially be a payment currency, not a reserve currency. Payment currency arrangements are fairly straightforward. Reserve currency status is far more difficult because it requires a large, liquid bond market, good rule of law, and an infrastructure of dealers, hedging tools, repurchase agreements, auctions, and settlement procedures. That can take ten years or longer to put in place with the rule of law perhaps being the most difficult element. Even as a payment currency, the BRICS Unit could be used in a material percentage of global trade, giving the dollar a run for its money. The BRICS Unit does not mark the end of the dollar as a widely accepted currency. Still, in conjunction with Joe Biden and Janet Yellen's badly misguided weaponization of the dollar, it could mark the beginning of the end. All the best, [Jim Rickards] Jim Rickards In Case You Missed It… Government is a “Reverse ATM” [Sean Ring] SEAN RING Going cashless was always a scam. Now, the mask has finally slipped. Remember all the claims about how going cashless was the best thing since sliced bread? If you went cashless, you’d have less chance of catching a disease (a compelling reason during the Government Mandated Private Sector Shutdown of 2020-2021); the Treasury would save money by not printing paper notes and minting coins; you’d have lower risk of fraud and theft; and the consumer data generated from the cashless transactions would help businesses serve you better. Of course, The Powers That Be didn’t want you to know all the dangers surrounding The Cashless Society™. And there were more than a few. For instance, while the consumer data generated would help serve you better, the government having a backdoor through those private systems would deter even the most open, pious citizen. (I’m especially cross about this, as I’m one of those weird ones who like it when my thoughts appear as advertisements on my phone. If it were anyone but Zuckerberg, I probably wouldn’t mind.) And, of course, they never talked about hacking. Hacking is a menace neither the private sector nor governments can solve. Because if those bureaucrats were as good as the hackers, they’d be hackers. If you - or someone you know - got caught in the Ashley Madison hack, you know what I mean. However, the big bugaboo is that the people who are the most hurt are the poor. Let’s not go as far as New York Governor Kathy Hochul, who said, “Right now, we have young black kids growing up in the Bronx who don't even know what the word 'computer' is. They don't know these things.” That’s as absurd as it sounds. However, there is much truth in that most poor people don’t have Apple Wallets. Or even an Android wallet. Or even a cell phone. Governments literally “de-bank” the poor when they go cashless. Incidentally, one of Bitcoin’s claims is its inclusivity. How they get the poor to understand Blockchain and Bitcoin is beyond me, but there you go. But maybe they don’t need to. There won't be any questions if there’s no inflation in the Bitcoin supply. [pub] Credit: [The Wall Street Journal]( If you want further proof of how important cash is to the poor, take this inadvertently honest paragraph from a Wall Street Journal article titled, “[Paper Money Diehards Refuse to Fold]( Actual cash changes hands in only around 15% of transactions in the U.K., pushed out by the speed and convenience of using a card or phone. In parts of London, cash has become something akin to a prison currency like ramen noodles or cigarettes, circulated among panhandlers or those on the margins of society. But let’s not get bogged down in the theory. There is plenty of empirical evidence that going completely cashless sucks. To wit, Iowa Michael and Paradigm Grand Poobah Matt Insley sent me the same Zero Hedge article titled, “[It's Just Not Right": Major Venues Now Punishing People For Using Cash Vs. Plastic]( When two of the most intelligent people I know send me the same article, my antennae go up. [Biden Admin Furious Over This New “Alternative” Currency]( [James Altucher]( Take a close look at this photo: [What you see here is a new “alternative” currency that’s taking America by storm…]( One which could ruin Biden’s CBDC plans. It’s already popping across the nation… including Utah, New Hampshire and Nevada. [If you’re worried about Biden Bucks then you must watch this short 2-minute video that breaks down how this “alternative” currency works…]( [Click Here To Learn More]( The New Yankee Stadium I haven’t been there yet. I’m in no rush, as Citi Field is supposed to be much better. But the Yanks are up to their old tricks again. This time, instead of watering down already watered-down Bud, they charge customers for the pleasure of paying cash. From another article in [The Journal]( When Noa Khamallah recently tried to pay cash for popcorn and soda at Yankee Stadium, his almighty dollars struck out. The stadium’s concession stands no longer take cash. An employee directed him to a kiosk that could convert his greenbacks into plastic. Khamallah, 41 years old, fed $200 into the reverse ATM, which subtracted a $3.50 fee and spat out a debit card with a balance of $196.50. Paying for anything in New York is expensive already, said Khamallah, who lives in the city. “If you add on top of that extra fees for being able to pay for food, that’s not right,” he said. Paying with cash used to be a way to get a discount. These days it can often cost an extra $1 to $6—the sort of transaction fees once limited to swiping a credit card or using an out-of-network ATM. I certainly sympathize. You Wanna Pay Rome? One of my favorite sayings is, “A German will always pay his income tax out of civic duty. An Italian never will, for the same reason.” Italians know anything they send to Rome may as well be burned in their fireplaces. It’s part of the reason why I love this country so much. The owner of a construction company working on my house in Northern Italy said, “I can create an invoice for you, but then I have to charge you 10% VAT [value-added tax]. If you don’t want the money to go to Rome, you pay cash and get a 10% discount.” You can guess what I did. If there were “reverse ATMs” in Italy that charged you money to convert your cash, like in Yankee Stadium, there would be riots. The Real Problem Let’s just come out with it: Government is a “reverse ATM.” You put your hard-earned cash in and get no services worthy of the name. How are those folks in Maui doing? You spend a trillion dollars on that winged embarrassment known as the F-35, and you get a plane that can’t get off the ground in time for combat. And, of course, lunatics like Harvard economist Ken Rogoff want to implement negative interest rates. The only way to do that is by eliminating cash. Your money would be “streaming” like Netflix. Imagine watching your balance slowly decline like on a progress bar…without spending any! Talk about “use it or lose it…” Wrap Up I’m not against cashless transactions as a means of payment by choice, but I am against eliminating cash. Between hurting the poor, having our data stolen, and implementing dreadful negative interest rates, we’d be the boiling frog in the pot. We’d be cooked before we could jump out. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. Please read our [Privacy Statement.]( If you are having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by [whitelisting Rude Awakening.](