The Petrodollar & Crude Oil Geopolitics

Posted December 22, 2014

By www.chuckcoppes.com

“What is happening is a nightmare that we could not even have imagined a year ago.”

- Sergei Shvetsov, Russian Central Bank Vice-Chairman

“The drop in crude oil prices are a positive for the US economy.”

- Janet Yellen, Fed Chairman, December 17, 2014

“Lower oil prices are a phenomenon that’s making everybody better off.”

- Stanley Fischer, Fed Vice-Chairman

“I’m more concerned about the return of my money, than the return on my money”

- Will Rogers, Political Satirist

“The resulting level of malinvestment and market distortions will soon come to an end

when we again have realistic price discovery.”

- David Stockman, author of The Great Deformation

Year End Greetings to Everyone,

The following is fairly urgent as we finish 2014 and I will do my best to address the complexity

of crude oil geopolitics and the implications for the US petrodollar dynamics. As we all know,

gas prices are falling but what is causing this? Is it falling demand? Over capacity? Financial

warfare? Is this a good thing? A bad thing? Is it really a “positive” for the US economy? Will

it be good for you? These are questions that are being debated and there is considerable confusion

as to who the winners and losers will be as we go into 2015. One things is for sure, the current

trajectory cannot continue without huge geopolitical implications, perhaps even war as suggested

by some analysts. The official narrative is that crude oil demand has slowed, but you will notice

in the chart above and chart below that this started in September – keep this in mind for later:

Is The Oil Implosion Supply Or Demand

Driven? Here Is the Very Simple Answer,

Thanks To Saudi Arabia

Submitted by Tyler Durden on 12/18/2014

There has been much debate whether the crude price implosion has been due to excess supply or

not enough demand. Here, courtesy of the Saudi oil minister is the answer:

NAIMI SAYS DEMAND FOR OIL SLOWED MORE THAN EXPECTED

NAIMI SAYS GLOBAL ECONOMY SLOWDOWN LARGELY BEHIND MKT

Which to anyone with rudimentary charting skills, should not come as any surprise.

As seen above, there is some correlation to crude oil prices, global GDP estimates and rig counts

and this seems to suggest a weaker economy as also indicated in this recent article:

The Oil Black Swan Is No Longer a Sighting investmentresearchdynamics.com / Dave Kranzler / December 10, 2014

I got news for all the analysts and investors who want to believe that the U.S. economy is fine and

the rest of the world is in trouble: the U.S. is BY FAR the world’s largest oil consuming country

- EIA link – consuming nearly twice as much oil as #2 China. If oil demand is weak, it’s because

end-user demand is weak. That means demand from U.S. companies and consumers is weak. That

means the U.S. economy is much weaker than the narrative being vomited out by Wall Street,

Obama and the Federal Reserve with Janet Yellen……………….READ MORE

According to Janet Yellen and Stanley Fischer over at the Fed lower prices at the pump is a

positive for the US economy and this phenomenon is “making everybody better off” just in time

for the holidays, right? Not so fast jolly banksters. According to the AAA Auto Club and

research by Clearview Energy Partners gas prices below $3.00 are the lowest in five years, but

this only translates to an annual savings of $380.00 for the average American household – hardly

a windfall to stimulate the US economy. The real story for lower gas prices is not in the US, but

Russia as they are feeling the pressure from a severe drop in crude oil and international sanctions

led by the US and some NATO allies. These dominos may eventually catch up with the US:

A Full-Blown Economic Crisis in Russia! theeconomiccollapseblog.com / By Michael Snyder on December 16th, 2014

The 8th largest economy on the entire planet is in a state of turmoil right now. The shocking

collapse of the price of oil has hit a lot of countries really hard, but very few nations are as

dependent on energy production as Russia is. Sales of oil and natural gas account for

approximately two-thirds of all Russian exports and approximately 50 percent of all government

revenue. So it should be no surprise that the fact that the price of oil has declined by almost 50

percent since June is absolutely catastrophic for the Russian economy. And when you throw in

international sanctions, wild money printing by the Central Bank of Russia and unprecedented

capital flight, you get the ingredients for an almost perfect storm. But those of us living in the

western world should not be too smug about what is happening in Russia, because the nightmare

that is unfolding over there is just a preview of the economic chaos that will soon envelop the

whole world [more on this later]. So far this year, the Russian ruble has fallen nearly 50 percent

against the U.S. dollar. That is a monumental shift. And as the collapse of the ruble has accelerated

in recent days, we are seeing scenes in Russia that are reminiscent of the Weimar Republic. For

example, just consider the following excerpt from an article that just appeared in the New York

Times… Scenes that Russians hoped had receded into the past reappeared on the streets: Currency

exchange signs blinked ever-changing digits, and Russians rushed to appliance stores to buy

washing machines or televisions to unload rubles. “We are seeing an economic crisis,” Natalia V.

Akindinova, a professor at the Higher School of Economics, said in a telephone interview. “We

are seeing a sharp devaluation of the ruble at a time when the central bank doesn’t have the reserves

to influence the market, as it did in the past crises.”……………READ MORE

As seen here, since June oil has dropped from $107 to below $60 along with the Russian ruble

falling more than 50% on world markets. This scenario has been a bit of a nightmare for the

Russian economy as the central bank has raised the key interest rate from 10% to 17% to attract

foreign capital and stabilize the ruble. Are depositors convinced? Not exactly. The Russian

people are scrambling to exchange rubles for expensive cars, electronics and anything else of

value. Lexus sales are up 63%, Porsche sales are up 55% along with Nissan and Mercedes Benz

dealers. The central bank is now considering adding $6.5 billion from their sovereign wealth fund.

According to Yuval Weber, Associate Professor of Economics and International Affairs at the

Higher School of Economics in Moscow, if rate hikes and intervention does not stabilize the ruble

the central bank may be forced to enact capital controls on the Russian people.

“The next option, and sort of the nuclear option in finance, is to impose capital controls.

That would be any combination of withdrawal limits on the amount of money people can

take from their bank accounts, transfer limits of how much people can convert into

other currencies, and how much people can send abroad.”

Will Russia enact capital exchange controls? We shall see, but please note here what this means

for the ordinary depositor of a bank – any bank – once controls are imposed! We will discuss

this more in a moment. It should also be noted that some central banks in the EU have exposure

to Russia’s currency crisis as seen here. Like dominos, counterparty risk is everywhere:

So what is this all about you ask? Is the crash in oil prices market driven? Is it all about weak

economies in the world? Are people really driving less? Do we accept the official narrative in the

media? The answer is no, no, no and no. What is happening is geopolitical economic warfare

against Russia and being led by the US along with Saudi Arabia. In March of 2014, the US led

sanctions against Russia and most recently on December 4th the US Congress passed HR758 by

a vote of 411-10 which is almost a declaration of war! You can read the text here. In a recent

article by Larry Elliot in the UK Guardian titled “Stakes Are High as US Plays the Oil Card

Against Iran and Russia,” he notes how the “unanticipated drop” in crude oil was engineered by

the US State Dept. and Saudi regime. “John Kerry, the US secretary of state, allegedly struck a

deal with King Abdullah in September under which the Saudis would sell crude at below the

prevailing market price. That would help explain why the price has been falling at a time when,

given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.

According to Middle East specialists, the Saudis want to put pressure on Iran and to force Moscow

to weaken its support for the Assad regime in Syria.” So there you have it! And again note the

fact that all of this decline began in September of this year as the leader of OPEC flooded the

market with cheap oil to influence Middle East politics and assist US leverage against Russia.

Will this geopolitical chess game go according to plan by the US and Saudi interests? It is a risky

venture and I seriously doubt it will force regime change in Syria or do significant damage to

Russia. In fact, our belligerent US foreign policy could cause a “nightmare scenario” for the

huge commodity derivatives market in the US as it is related to the oil fracking boom and credit

default swaps (CDS) held by the Wall Street banksters (not that we love the banksters). Junk

energy bonds are estimated to be around $550 billion and the counterparty risk for Wall Street is

a staggering $3.9 trillion as indicated in the following reports. We should also be reminded that

CDS contracts held by AIG led to their default in 2008 and the collapse of Lehman with the sub-

prime mortgage scandal. The financial dominos are catching up with the US:

Plummeting Oil Prices Could Destroy the

Banks That Are Holding Trillions In

Commodity Derivatives By Michael Snyder, on December 3rd, 2014

Could rapidly falling oil prices trigger a nightmare scenario for the commodity derivatives

market? The big Wall Street banks did not expect plunging home prices to cause a mortgage-

backed securities implosion back in 2008, and their models did not anticipate a decline in the price

of oil by more than 40 dollars in less than six months this time either. If the price of oil stays at

this level or goes down even more, someone out there is going to have to absorb some absolutely

massive losses. In some cases, the losses will be absorbed by oil producers, but many of the big

players in the industry have already locked in high prices for their oil next year through derivatives

contracts. The companies enter into these derivatives contracts for a couple of reasons. Number

one, many lenders do not want to give them any money unless they can show that they have locked

in a price for their oil that is higher than the cost of production. Secondly, derivatives contracts

protect the profits of oil producers from dramatic swings in the marketplace. These dramatic

swings rarely happen, but when they do they can be absolutely crippling. So the oil companies

that have locked in high prices for their oil in 2015 and 2016 are feeling pretty good right about

now. But who is on the other end of those contracts? In many cases, it is the big Wall Street

banks, and if the price of oil does not rebound substantially they could be facing absolutely colossal

losses. It has been estimated that the six largest “too big to fail” banks control $3.9 trillion

in commodity derivatives contracts. And a very large chunk of that amount is made up of

oil derivatives. By the middle of next year, we could be facing a situation where many of these

oil producers have locked in a price of 90 or 100 dollars a barrel on their oil but the price has fallen

to about 50 dollars a barrel. In such a case, the losses for those on the wrong end of the derivatives

contracts would be astronomical. At this point, some of the biggest players in the shale oil

industry have already locked in high prices for most of their oil for the coming year.

The following is an excerpt from a recent article by Ambrose Evans-Pritchard…

US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon

Energy have both hedged over three-quarters of their output for 2015. Pioneer Natural Resources

said it has options through 2016 covering two- thirds of its likely production. So they are protected

to a very large degree. It is those that are on the losing end of those contracts that are going to get

burned. Of course not all shale oil producers protected themselves. Those that didn’t are in danger

of going under. For example, Continental Resources cashed out approximately 4 billion dollars in

hedges about a month ago in a gamble that oil prices would go back up. Instead, they just kept

falling, so now this company is likely headed for some rough financial times…

Continental Resource, the pioneering U.S. driller that bet big on North Dakota’s Bakken shale

patch when its rivals were looking abroad, is once again flying in the face of convention: cashing

out some $4 billion worth of hedges in a huge gamble that oil prices will rebound. When things

are nice and stable, the derivatives marketplace works quite well most of the time. But when there

is a “black swan event” such as a dramatic swing in the price of oil, it can create really big winners

and really big losers. And no matter how complicated these derivatives become, and no matter

how many times you transfer risk, you can never make these bets truly safe.

The following is from a recent article by Charles Hugh Smith…

Financialization is always based on the presumption that risk can be cancelled out by hedging

bets made with counterparties. This sounds appealing, but as I have noted many times, risk cannot

be disappeared, it can only be masked or transferred to others. Relying on counterparties to pay

out cannot make risk vanish; it only masks the risk of default by transferring the risk to

counterparties, who then transfer it to still other counterparties, and so on. This illusory vanishing

act hasn’t made risk disappear: rather, it has set up a line of dominoes waiting for one domino to

topple. This one domino will proceed to take down the entire line of financial dominoes. The

35% drop in the price of oil is the first domino. All the supposedly safe, low-risk loans and bets

placed on oil, made with the supreme confidence that oil would continue to trade in a band around

$100/barrel, are now revealed as high-risk. In recent years, Wall Street has been transformed into

the largest casino in the history of the world. Most of the time the big banks are very careful to

make sure that they come out on top, but this time their house of cards may come toppling down

on top of them. I keep on saying it, and I will keep on saying it until it happens. We are heading

for a derivatives crisis unlike anything that we have ever seen. It is going to make the financial

meltdown of 2008 look like a walk in the park. Our politicians promised that they would do

something about the “too big to fail” banks and the out of control gambling on Wall Street, but

they didn’t. Now a day of reckoning is rapidly approaching, and it is going to horrify the

entire planet.

The financialization of our economy has turned Wall Street into one big casino as noted above

and a new energy derivatives crisis could be several times worse than the crisis of 2008. Crude

oil geopolitics and the demise of the US petrodollar is a huge black swan event that will only get

worse in 2015. In the following article, Dave Hodges explains the Petrodollar and how the tables

are being turned on the West with the prospects for WW III. Read it all and I will comment:

World War III is the Only Thing Left

to Save the US Economy 05 Dec, 2014 by Dave Hodges, www.the commonsenseshow.com

I despise the Federal Reserve and those who have run our economy into the ground. However,

those of you who think that abolishing the Federal Reserve is the key to eliminating the oppression

of the American people, are sadly mistaken. Right now, the only reason you have a job to go to,

a roof over your head and food is because of the Federal Reserve. Our survival depends on the

Federal Reserve and the rest of the Western banking establishments to survive in the upcoming

months. No, I have not sold out, but I would suggest reading on and thing about taking a “graduate”

course in prepping because I am not sure the West can survive what is unfolding.

The Birth of the Petrodollar

Before explaining how imperiled our economy is, I have to start at the beginning for people who

do not understand the significance of the Petrodollar. The Petrodollar is the baseline of our

economy and it is in big trouble. A novel system for monetary and exchange rates were established

in 1944. The Bretton Woods Agreement was developed at the United Nations Monetary

and Financial Conference held in Bretton Woods, New Hampshire, from July 1-22, 1944. This

conference established the US dollar as the reserve currency of the world. The banksters (e.g.

Rockefellers’) reveled in their new found fortune. As a result of the Bretton Woods Conference,

all nations desiring to purchase Middle East oil had to first purchase dollars and use these dollars

to complete the purchase of oil. Thus, the Petrodollar was born. If the Petrodollar was to ever be

successfully undermined, our currency would sink faster than a submarine with screen doors

because there is nothing backing up our money. Put on your life jackets because the ship is sinking

fast. The BRICS, led by Russia and China, are growing in influence by leaps and bounds and

they are months/years away from being able to effect a collapse of the United States economy.

Since 1944, America has become the most hated nation in the world as we have dominated every

single economy on the face of the earth, until now!

The Tables Are Being Turned On the West

The haughtiness of the West as they impose sanctions on Russia over Ukraine is almost laughable.

The sanctions are a boomerang in disguise and will come back at us to destroy the American

economy which will lead to World War III.

At the heart of the American economy and the Petrodollar is energy and Russia and China just

cemented an agreement where they do not need the dollar. The Russia –China US $400 billion

energy deal, signed in May this year will by 2018 have some 38 billion cubic meters of gas flow

through the so-called ‘Holy Grail’ pipeline from the largest gas producer, Russia, to the largest

energy user, China. This deal is many things at once: It is, of course a symbolic step in the process

of decoupling hydrocarbon trading from the dollar, as it foresees payments in local currencies,

rubles and yuan. It sidesteps the Petrodollar for hydrocarbon trading. Over one-third of the

planet just moved away from the dollar when this recent deal was cemented. This one deal

spells the end of dollar dominance on the planet.

The BRICS have set up a new development and investment bank for all of the BRICS countries.

The banks will be headquartered in Shanghai, China, with the first president of the bank will be

from India. The BRICS nations, of course, are a group of emerging economies and draws its name

from the five member countries – Brazil, Russia, India, China and South Africa. BRICS is also

considering starting a joint infrastructure fund with an initial capital infusion of around $100

billion to begin investing in each other’s transportation, water and sewage systems. This formerly

would have been funded by the World Bank with its cronies in corporation like Bechtel

Corporation swooping in to dominate countries in places like South America to construct

infrastructure with interest rates typically reserved for Mafia loans. The net effect was that these

countries (e.g. Bolivian and Chilean water systems) would enslave the governments and the local

populations to the World Bank. These days of imperial capitalism are numbered and American

corporations are going to take a major hit because of this deal. There is a serious discussion of

issuing a combined currency between the BRICS which would be used in international trading.

The scope of this deal has spread to Pakistan, Iran and Turkey. This is highly significant because

if Turkey is lured into this group, NATO will be undermined and a significant military threat to

Russia would be eliminated with regard to the coming World War III.

The BRICS See Through the Facade of International Terrorism

Sources close to the BRICS are openly stating that ISIS represents terror, Western style, and the

Washington is behind ISIS. Further, they believe that all the present conflicts in Syria and

Ukraine are part of a Western conspiracy to prevent consolidation of the BRICS collective

economic and military power. The BRICS further believe that the economic health of the

United States is terminal and America’s economy is nothing but a mere house of cards.

BRICS sources like to boldly state that the American economy consists of more than 50% of the

war and security industry and related services and industries on planet and that this not sustainable.

In other words, the “US has a GDP based mostly on destruction“. To the BRICS, the end game for

the U.S. is to start a World War with the hope that after various countries has been reduced to

rubble and its citizens massacred, that the American corporations will swoop in and rebuild what’s

left over from war. The stated goal of the BRICS is to use their collective economies to replace

the dollar as the world’s reserve currency. The dollar is viewed by these nations as an instrument

of oppression and the Federal Reserve sits at the head of the table known as imperialistic

oppression. The “military reserve note” is how the BRICS like to refer to the dollar.

American Sanctions against Russia Threatening World Peace

While our country remains fixed on the controversy involving the shootings of unarmed black men

in Ferguson and New York, the United States and its Western allies have stepped up sanctions

against Russia. The Russians are the backbone of the BRICS and crippling their economy is the

goal of these American led sanctions. The Obama administration would like to see a portion of the

Russian military tied up in a Ukrainian civil war while Russian gas exports, in which over 60%

which runs through Ukraine, needs to be disrupted in order to bring Russia to her knees.

Yesterday, RT reported that the U.S. and the EU are trying to remove Russia from SWIFT money

exchanges in an attempt to cripple their foreign trade. Russia Today has called this an ultimate act

of war and Russia will respond accordingly. This move clearly demonstrates the desperation being

felt by the Western banks. As I stated earlier, I despise their very existence and what they have

stood for which is economic enslavement and endless wars of occupation. Remember, all wars

are banker wars. However, let me repeat one point; do want a job to go to, be able to pay your

mortgage and put food on the table? If the BRICS are successful, we would have total anarchy in

this country and we are months, not years away from this possibility. All of these facts are clearly

being obfuscated by the main stream media as I would venture to state that 99% of our citizens

have never heard of these developments.

War Is the End Game

If the BRICS are successful and the dollar is going erode to the point of economic collapse, does

anyone really think that the Western banking establishment is simply going to let this system go

up in smoke? War is the end game if the Federal Reserve, the World Bank, the IMF and the

major banks of Europe cannot cripple Russia with the onslaught of sanctions. And finally,

some readers are going to write to me and ask when all of this going to happen? It is prudent to act

as if it is going to happen tomorrow. You, as an American, need to become as independent as

quickly as possible. I would not make the mistake of looking at the calendar in terms of knowing

when the end is coming for the United States. I am instead focused on watching events which

foretell the time when the West has no choice but to start a war with the BRICS.

As mentioned above, the BRICS are teaming up against the West in general and the US in

particular, and who can blame them? They are sick and tired of US dollar imperialism and I

cover this in my book as well as this special report on Petrodollar Warfare that you can download

from my website (left side). The BRICS see the US as a warfare state and they intend to challenge

the West with energy deals and currency swaps. The threat of war is not an idle threat. In the

summer of 1941, the US imposed a steel and oil embargo on Japan and by December they were

bombing Pearl Harbor! The sanctions over Ukraine is nothing less than economic warfare and

both Russia and China are coming together to trap the US dollar and “checkmate” the

petrodollar with their enormous gold reserves. I encourage you to read this important story!!

http://www.gold-eagle.com/article/grandmaster-putins-golden-trap

Russia is boycotting ALL US dollars for energy! Now China is making a play for a “Petroyuan”

as they engage in swaps with various nations to internationalize their renminbi currency (yuan).

The Chinese are also in favor of the IMF proposal for a basket of global currencies (SDR), and

the governor of the PBOC, Zhou Xiaochuan, said last week this would help "to achieve the

objective of safeguarding global economic and financial stability.” The following article provides

a helpful historical background that has benefited US dollar hegemony for the past 50 years:

The Rise of the 'Petro-yuan' and the Slow

Erosion of Dollar Hegemony Written by Flynt Leverett and Hillary Mann Leverett , Thursday July 31, 2014

http://www.ronpaulinstitute.org

For seventy years, one of the critical foundations of American power has been the dollar’s standing

as the world’s most important currency. For the last forty years, a pillar of dollar primacy has been

the greenback’s dominant role in international energy markets. Today, China is leveraging its rise

as an economic power, and as the most important incremental market for hydrocarbon exporters

in the Persian Gulf and the former Soviet Union to circumscribe dollar dominance in global

energy—with potentially profound ramifications for America’s strategic position. Since World

War II, America’s geopolitical supremacy has rested not only on military might, but also on the

dollar’s standing as the world’s leading transactional and reserve currency. Economically, dollar

primacy extracts “seignorage”—the difference between the cost of printing money and its value—

from other countries, and minimises US firms’ exchange rate risk. Its real importance, though, is

strategic: dollar primacy lets America cover its chronic current account and fiscal deficits by

issuing more of its own currency—precisely how Washington has funded its hard power projection

for over half a century. Since the 1970s, a pillar of dollar primacy has been the greenback’s role

as the dominant currency in which oil and gas are priced, and in which international hydrocarbon

sales are invoiced and settled. This helps keep worldwide dollar demand high. It also feeds energy

producers’ accumulation of dollar surpluses that reinforce the dollar’s standing as the world’s

premier reserve asset, and that can be “recycled” into the US economy to cover American deficits.

Many assume that the dollar’s prominence in energy markets derives from its wider status as the

world’s foremost transactional and reserve currency. But the dollar’s role in these markets is

neither natural nor a function of its broader dominance. Rather, it was engineered by US

policymakers after the Bretton Woods monetary order collapsed in the early 1970s, ending the

initial version of dollar primacy (“dollar hegemony 1.0”). Linking the dollar to international

oil trading was key to creating a new version of dollar primacy (“dollar hegemony 2.0”)—and,

by extension, in financing another forty years of American hegemony, or US dollar imperialism.

Dollar Hegemony 1.0. Dollar primacy was first enshrined at the 1944 Bretton Woods conference,

where America’s non-communist allies acceded to Washington’s blueprint for a postwar

international monetary order. Britain’s delegation—headed by Lord Keynes—and virtually every

other participating country, save the United States, favoured creating a new multilateral currency

through the fledgling International Monetary Fund (IMF) as the chief source of global liquidity.

But this would have thwarted American ambitions for a dollar-centered monetary order. Even

though almost all participants preferred the multilateral option, America’s overwhelming relative

power ensured that, in the end, its preferences prevailed. So, under the Bretton Woods gold

exchange standard, the dollar was pegged to gold and other currencies were pegged to the dollar,

making it the main form of international liquidity. There was, however, a fatal contradiction in

Washington’s dollar-based vision. The only way America could diffuse enough dollars to meet

worldwide liquidity needs was by running open-ended current account deficits. As Western Europe

and Japan recovered and regained competitiveness, these deficits grew. Throw in America’s own

burgeoning demand for dollars—to fund rising consumption, welfare state expansion, and global

power projection—and the US money supply soon exceeded US gold reserves. From the 1950s,

Washington worked to persuade or coerce foreign dollar holders not to exchange greenbacks for

gold. But insolvency could be staved off for only so long: in August 1971, President Nixon

suspended dollar-gold convertibility, ending the gold exchange standard; by 1973, fixed

exchange rates were gone, too. These events raised fundamental questions about the long-term

soundness of a dollar-based monetary order. To preserve its role as chief provider of international

liquidity, the US would have to continue running current account deficits. But those deficits were

ballooning, for Washington’s abandonment of Bretton Woods intersected with two other

watershed developments: America became a net oil importer in the early 1970s; and the assertion

of market power by key members of the Organization of Petroleum Exporting Countries (OPEC)

in 1973-1974 caused a 500% increase in oil prices, exacerbating the strain on the US balance of

payments. With the link between the dollar and gold severed and exchange rates no longer fixed,

the prospect of ever-larger US deficits aggravated concerns about the dollar’s long-term value.

These concerns had special resonance for major oil producers. Oil going to international markets

has been priced in dollars, at least since the 1920s—but, for decades, sterling was used at least as

frequently as dollars in order to settle transnational oil purchases, even after the dollar had replaced

sterling as the world’s preeminent trade and reserve currency. As long as sterling was pegged to

the dollar and the dollar was “as good as gold,” this was economically viable. But, after

Washington abandoned dollar-gold convertibility and the world transitioned from fixed to floating

exchange rates, the currency regime for oil trading was up for grabs. With the end of dollar-gold

convertibility, America’s major allies in the Persian Gulf—the Shah’s Iran, Kuwait, and Saudi

Arabia—came to favour shifting OPEC’s pricing system, from denominating prices in dollars to

denominating them in a basket of currencies. In this environment, several of America’s European

allies revived the idea (first broached by Keynes at Bretton Woods) of providing international

liquidity in the form of an IMF-issued, multilaterally-governed currency—so-called “Special

Drawing Rights” (SDRs). After rising oil prices engorged their current accounts, Saudi Arabia

and other Gulf Arab allies of the United States pushed for OPEC to begin invoicing in SDRs. They

also endorsed European proposals to recycle petrodollar surpluses through the IMF, in order to

encourage its emergence as the main post-Bretton Woods provider of international liquidity. That

would have meant Washington could not continue to print as many dollars, as it wanted to support

rising consumption, mushrooming welfare expenditures, and sustained global power projection.

To avert this, American policymakers had to find new ways to incentivise foreigners to continue

holding ever-larger surpluses of what were now fiat dollars being issued by our central bank.

Dollar Hegemony 2.0. To this end, US administrations from the mid-1970s devised two

strategies. One was to maximise demand for dollars as a transactional currency. The other was to

reverse Bretton Woods’ restrictions on transnational capital flows; with financial liberalisation,

America could leverage the breadth and depth of its capital markets, and it could cover its chronic

current account and fiscal deficits by attracting foreign capital at relatively low cost. Forging strong

links between hydrocarbon sales and the dollar proved critical on both fronts.

To forge such links, Washington effectively extorted its Gulf Arab allies, quietly conditioning US

guarantees of their security to their willingness to financially help the United States. While Saudi

Arabia and other major energy producers now accept payment for their oil exports in other major

currencies, the larger share of the world’s hydrocarbon sales continue to be settled in dollars,

perpetuating the greenback’s status as the world’s top transactional currency. Saudi Arabia and

other Gulf Arab producers have supplemented their support for the oil-dollar nexus with ample

purchases of advanced US weapons; a commitment which senior Saudi officials describe as

“strategic.” While the dollar’s share of global reserves has dropped, Gulf Arab petrodollar

recycling helps keep it the world’s leading reserve currency.

The China Challenge. Still, history and logic caution that current practices are not set in stone.

With the rise of the “petroyuan,” movement towards a less dollar-centric currency regime in

international energy markets—with potentially serious implications for the dollar’s broader

standing—is already underway. As China has emerged as a major player on the global energy

scene, it has also embarked on an extended campaign to internationalise its currency. A rising

share of China’s external trade is being denominated and settled in renminbi; issuance of

renminbi-denominated financial instruments is growing. China is pursuing a protracted process

of capital account liberalisation essential to full renminbi internationalisation, and is allowing more

exchange rate flexibility for the yuan. The People’s Bank of China (PBOC) now has swap

arrangements with over thirty other central banks—meaning that renminbi already effectively

functions as a reserve currency. Chinese policymakers appreciate the “advantages of incumbency”

the dollar enjoys; their aim is not for renminbi to replace dollars, but to position the yuan

alongside the greenback as a transactional and reserve currency (as in the SDR). Besides economic

benefits (e.g., lowering Chinese businesses’ foreign exchange costs), Beijing wants—for strategic

reasons—to slow further growth of its enormous dollar reserves. China has watched America’s

increasing propensity to cut off countries from the US financial system as a foreign policy tool,

and worries about Washington trying to leverage it this way; renminbi internationalisation can

mitigate such vulnerability. More broadly, Beijing understands the importance of dollar dominance

to American power; by chipping away at it, China can contain excessive US unilateralism.

China has long incorporated financial instruments into its efforts to access foreign hydrocarbons.

Now Beijing wants major energy producers to accept renminbi as a transactional currency—

including to settle Chinese hydrocarbon purchases—and incorporate renminbi in their central

bank reserves. China is, for the vastly foreseeable future, the main incremental market for

hydrocarbon producers in the Persian Gulf and former Soviet Union.

By now it should be clear that the US has enjoyed an enormous privilege (seignorage) from having

the reserve currency of the world and how recycling petrodollars has solely benefited the US.

Will US dollar hegemony last much longer? Not if the BRICS (Russia and China in particular)

have anything to do with it – and they do! Low crude oil prices are intended to hurt Russia in

the geopolitical chess game, but Venezuela is being pushed over the brink. As a member of

OPEC, Venezuela is the fifth largest producer of oil in the world and the recent “oil war” is

collapsing their bond market. This past week, Fitch downgraded them to “CCC” with a 95%

chance of a sovereign debt default – just look at this chart! Venezuela has suffered from years

of fiscal mismanagement (typical Communists), and now they face a financial reckoning day.

Oil War Pushes Venezuela over the Brink By Wolf Richter • December 2, 2014

http://wolfstreet.com/2014/12/02/oil-slams-venezuela-probability-of-default-soars-to-84/

So what have we learned so far? That low, or slow, demand for crude oil is a sham. The US

and Saudi Arabia are behind this “phenomenon” and it will not be “positive” for the US economy

as the financial dominos slam the CDS exposure in the Wall Street casino. Are we really this

stupid? This arrogant? This desperate? The BRICS are using economic leverage of a different

kind as they move in position to exploit our true economic weakness and our unsustainable debt

pyramid. According to this link our national debt has become impossible to ever pay down:

http://www.zerohedge.com/news/2014-12-12/paying-down-debt-now-almost-

mathematically-impossible

The US cannot “grow itself” out of the hole we are in. Just like Venezuela, Greece and other

indebted nations, default has become our only option. As noted in this story, this means that the

US will default to our creditors (China), citizens (Welfare State) and “every human being alive

who holds US dollars.” Put simply, we are facing a financial reckoning day and the following

link provides ten (10) reasons why we will experience another systemic financial crisis like 2008.

http://www.forbes.com/sites/robertlenzner/2014/12/08/the-ten-reasons-why-

there-will-be-another-systemic-financial-crisis/

Chief among the reasons for a looming financial meltdown is derivatives exposure and too much

central planning by the banksters! Now the latest G-20 Meeting in Australia has reinforced the

idea of massive “bail-ins” for “Globally Systemically Important Banks” (G-SIB). In other

words, the banksters are preparing for collapse, and so should you! Here is an excerpt:

Derivatives and Mass Financial Destruction goldmoney.com / By Alasdair Macleod / 19 December 2014

Globally Systemically Important Banks (G-SIBs in the language of the Financial Stability

Board) are to be bailed-in if they fail, moving the cost from governments to the depositors,

bondholders and shareholders. There are exceptions to this rule, principally, small depositors

who are protected by government schemes, and also derivatives, so the bail-in is partial and bail-

out in these respects still applies. With oil prices having halved in the last six months, together

with the attendant currency destabilisation, there have been significant transfers of value through

derivative positions, so large that financial instability may result. Derivatives are important,

because their gross nominal value amounted to $691 trillion at the end of last June, about nine

times the global GDP! Furthermore, the vast bulk of them have G-SIBs as counterparties. The

concentration of derivative business in the G-SIBs is readily apparent in the US, where the top 25

holding companies (banks and their affiliated businesses) held a notional $305.2 trillion of

derivatives, of which just five banks held 95% between them…!…………..READ MORE

Folks, you can’t make this up. Warren Buffet famously referred to derivatives as “weapons of

mass financial destruction” because the counterparty risk is global and it is systemic. But look

at the concentration of risk in the US alone – just five banks have nearly $300 trillion on the

books. Now we learn that the recent “omnibus” $1.1 trillion spending bill (1600 pages!) contained

a provision to repeal an amendment in the Dodd-Frank Bill to protect taxpayers from bankster

bail-ins. Who did this and why? JP Morgan (Jamie Demon) and Citigroup both conspired to

insert this language and the implications are clear – they fear a G-SIB derivatives implosion.

Liberals like Elizabeth Warren (D-MA) made some fiery speeches, but this was mostly aimed at

provisions to raise lobbyist contributions by tenfold – but just business as usual in the District of

Criminals. According to the General Accountability Office, Citigroup has $63 trillion in

derivatives and JP Morgan tops out at $72 trillion. So what does this mean for you? It means

that your bank savings are not safe from a future bail-in and you will become an “unsecured

creditor” or become a shareholder in a failed bank like the people in Cyprus. It’s coming.

Did you notice the risk pyramid above? At the foundation is gold. And is it any wonder why

countries are repatriating their gold from the US?? Look at the surge of gold imports in India:

Why are Countries Repatriating their Gold? goldsilverbitcoin.com / 8 DEC , 2014

Many countries are asking for their gold back from the United States. Is this a symptom of a

declining empire or merely a matter of convenience for those nations asking for their gold back?

The United States has held onto much of Europe’s gold since the post-World War II period due to

perceived stability on the North American continent. But in recent years some countries have

asked for their gold back. On November 21 the Netherlands requested her gold back. Belgium,

also, is investigating repatriating its gold reserves, as is France, Germany….READ MORE

Gold Imports ‘Phenomenal’ In India – 571

Percent Surge to 150 Tonnes in November goldcore.com / By admin / December 16, 2014

India’s gold imports were over a staggering 150 tonnes in November and have seen a

“phenomenal” rise in India according to India’s Trade Secretary, Rajeev Kher.

The import restrictions on gold that were imposed on Indians in August of 2013 were lifted at the

end of November. Despite the fact that the restrictions were still in place gold importation in

November surged an incredible 571% relative to the same month last year at over 151.58 tonnes.

This was an increase of 38 percent from 109.55 tonnes a month earlier…....READ MORE

Nations are repatriating, importing and buying as much physical gold as they can get their hands

on. So what is the US doing? We are net exporters! Yep. And the beat goes on. Ever hear about

this in the presstitute financial media? Not so much. Let’s consider the outlook for silver below.

Crude Oil Plunges, So what’s next for Gold,

Silver & Oil? kingworldnews.com / December 10, 2014

With oil plunging near the $60 level and the Dow Jones taking on more risk, today an acclaimed

money manager spoke with King World News about the historic trading in the gold, silver, and

oil markets. Stephen Leeb also discussed what is next for gold, silver, and oil.

Leeb: “Recently silver has been trading stronger than gold and commodities across the board

were pretty firm yesterday. But the interesting thing about silver is that it not only has the

industrial uses, but it’s also a safe haven purchase for many investors and you can see that in the

U.S. Mint record sales of silver eagles. Continue reading the Leeb interview…. READ MORE

As mentioned earlier, Russia and China are buying gold as a hedge and many are suggesting that

they intend to back their currencies with gold (perhaps in the BRICS). However, as emphasized

by commodity expert Stephen Leeb, silver has been in stronger demand ever since 2008, and the

trend continues as seen in this chart below. Another record year at the US Mint:

Sales of Silver American Eagles Rise to

Record High for Second Consecutive Year truthingold.com / Dave in Denver / December 10, 2014 at 10:38

As you know from my past newsletters, I have written extensively about manipulation, market

rigging and metals suppression by the London LBMA and the NY Comex (Crimex). Metals are

trading below the cost of production and the gold/silver ratio is 75:1, which is a loud buy signal

from an historical perspective. Gold will do fine, but silver has the potential to be explosive to

the upside in the New Year as indicated at this link below – read it to the end:

http://kingworldnews.com/silver-will-smash-golds-performance-2015/

So why are metals trading below production cost? We could ask the same for the crude oil prices.

None of this is market driven, and today (the 22nd) Crimex is adopting Rule 589 to prevent

“sharp moves” in the market and block traders. You can do a Google search on this. What does

this mean? It would seem to indicate, or anticipate, what this link is saying above.

I conclude with one final observation on metals, and this story comes out of Switzerland.

Gunvor, the world’s fifth largest metals trader has outright stopped trading in gold. The reason?

According to this link below management has expressed concern that commercial gold bars cannot

be properly documented for ownership through intermediaries. In other words, gold bars from

central banks have been resold (rehypothocated) so many times that original owners may

demand delivery and there are no clear records. This is a strong indication that the banksters are

running a shell game and actually bluffing with how much they really own. What a mess!

Commodity Trading Giant Exits Physical

Gold Due To "Lack of Physical with A

Documented Origin" By Tyler Durden, Created 12/16/2014 - 22:35, http://www.zerohedge.com/print/499206

Commenting on this story above, one analyst has predicted not only delivery problems but

delivery defaults as physical demand outstrips the warehouses in NY and London. In that day we

will have “realistic price discovery” for gold and silver as mentioned by David Stockman:

http://kingworldnews.com/will-nightmare-scenario-send-silver-500-gold-10000/

Finally, as we go into 2015, there is a great deal of uncertainty and my gut instinct is that things

are really going to go critical in financial markets. There is way too much distortion,

malinvestment and structural imbalances. Crude oil geopolitics is going to get stressful and it is

only a matter of time before the financial dominos come tipping down. Nothing was ever fixed

in 2008. We have merely papered over the crisis and now we are more vulnerable than ever. The

banksters know this and are making preparations. You need to lower your exposure to the

banking system and diversify in precious metals at these artificially low, low prices.

http://kingworldnews.com/2015-2016-will-among-critical-years-western-civilization/

If I can assist you with pure gold and silver bullion products please let me know. In the

meantime, this is my last newsletter for 2014 and I want to thank all of your for your business,

support and loyal readership. I appreciate each and every one of you and your comments!

I also want to wish you all a Merry Christmas – the Happy New Year I’m not so sure about, but

we can be assured of a bright future someday by placing our faith in Jesus Christ whom we

celebrate this time of year. The winter solstice is the darkest day of the year, but Jesus is the

light of the world (Jn. 8:12). The world is full of strife, misery and conflict; but Jesus offers love,

joy, help, hope, purpose and new lives! Jesus is our greatest gift and I leave you with this classic

poem that I love to send along each year. Jesus is better than Santa Claus!

Until Next Time, God Bless & Keep You, Your Messenger from Pinetop

www.idpconsultinggroup.com

_______________________________________________________________

Why Jesus is Better than Santa Claus!

Santa lives at the North Pole...

JESUS is everywhere.

Santa rides in a sleigh...

JESUS rides on the wind and walks on the water.

Santa comes but once a year...

JESUS is an ever present help.

Santa fills your stockings with goodies...

JESUS supplies all your needs.

Santa comes down your chimney uninvited...

JESUS stands at your door and knocks, and then enters your heart when

invited.

You have to wait in line to see Santa...

JESUS is as close as the mention of His name.

Santa lets you sit on his lap...

JESUS lets you rest in His arms.

Santa doesn't know your name, all he can say is "Hi little boy or girl, what's your

name?"...

JESUS knew our name before we were born. Not only does He know our

name, He knows our address too. He knows our history and future and He

even knows how many hairs are on our heads.

Santa has a belly like a bowl full of jelly...

JESUS has a heart full of love

All Santa can offer is HO HO HO...

JESUS offers health, help and hope.

Santa says "You better not cry"...

JESUS says "Cast all your cares on me for I care for you."

Santa's little helpers make toys...

JESUS makes new life, mends wounded hearts, repairs broken homes and

builds mansions.

Santa may make you chuckle but...

JESUS gives you joy that is your strength.

While Santa puts gifts under your tree...

JESUS became our gift and died on a tree...the cross.

We need to put Christ back in CHRISTMAS, Jesus is still the reason for the

season!

"For God so loved the world, that He gave His only begotten Son, that whosoever

believeth in Him should not perish, but have everlasting life" (John 3:16)

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