Forget Russia Dumping U.S. Treasuries … Here’s the REAL Economic Threat

Russia Could Crush the Petrodollar

Russia threatened to dump its U.S. treasuries if America imposed sanctions regarding Putin’s action in the Crimea.

Zero Hedge argues that Russia has already done so.

But veteran investor Jim Sinclair argues that Russia has a much scarier financial attack which it can use against the U.S.

Specifically, Sinclair says that if Russia accepts payment for oil and gas in any currency other than the dollar – whether it’s gold, the Euro, the Ruble, the Rupee, or anything else – then the U.S. petrodollar system will collapse:

Indeed, one of the main pillars for U.S. power is the petrodollar, and the U.S. is desperate for the dollar to maintain reserve status.  Some wise commentators have argued that recent U.S. wars have really been about keeping the rest of the world on the petrodollar standard.

The theory is that – after Nixon took the U.S. off the gold standard, which had made the dollar the world’s reserve currency – America salvaged that role by adopting the petrodollar.   Specifically, the U.S. and Saudi Arabia agreed that all oil and gas would be priced in dollars, so the rest of the world had to use dollars for most transactions.

But Reuters notes that Russia may be mere months away from signing a bilateral trade deal with China, where China would buy huge quantities of Russian oil and gas.

Zero Hedge argues:

Add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China’s largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

As we noted last year:

The average life expectancy for a fiat currency is less than 40 years.

But what about “reserve currencies”, like the U.S. dollar?

JP Morgan noted last year that “reserve currencies” have a limited shelf-life:

As the table shows, U.S. reserve status has already lasted as long as Portugal and the Netherland’s reigns.  It won’t happen tomorrow, or next week … but the end of the dollar’s rein is coming nonetheless, and China and many other countries are calling for a new reserve currency.

Remember, China is entering into more and more major deals with other countries to settle trades in Yuans, instead of dollars.  This includes the European Union (the world’s largest economy) [and also Russia].

And China is quietly becoming a gold superpower

Given that China has surpassed the U.S. as the world’s largest importer of oil, Saudi Arabia is moving away from the U.S. … and towards China. (Some even argue that the world will switch from the petrodollar to the petroYUAN. We’re not convinced that will happen.)

In any event, a switch to pricing petroleum in anything other than dollars exclusively – whether a single alternative currency, gold, or even a mix of currencies or commodities – would spell the end of the dollar as the world’s reserve currency.

For that reason, Sinclair – no fan of either Russia or Putin – urges American leaders to back away from an economic confrontation with Russia, arguing that the U.S. would be the loser.

This entry was posted in Business / Economics, Politics / World News. Bookmark the permalink.
  • 5ds

    cockaroaches are better than the dc dollar.

  • mmckinl

    Russia dumping the dollar as payment won’t crush the dollar but it is a huge nail in the coffin and worse what could be a “jailbreak” from dollar hegemony. Other countries may follow suit en masse and trade bilaterally in common currencies.

    But the dollar is still by far the easiest fastest trade vehicle. And the US has, through the IMF, World Bank and commercial loans encumbered the world in debt payable only in dollars thereby creating a demand for dollars.

    Should the privately owned Federal Reserve even think that the dollar is imminently threatened it will cause a crash and all those loans denominated in dollars become onerous indeed. What we will see is the world on an “IMF austerity” overnight … social and economic chaos ensuing …

    • mmckinl

      The most imminent threat to the dollar and to every nation is peak oil. All reserve currencies are based on growth, future return on investment. Once the world hits resource depletion in oil and even water the entire cost basis of capitalism becomes unsustainable and collapses as does the complexity of economic models necessitating a crash to sustainable energy and food inputs.

      In fact what we are seeing now is the stress of food and fuel prices combined with neoliberal economic wealth disparity cause world wide destabilization. Even politicians and economists that know this truth are caught in a trap whereby they can not tell the truth or be quickly marginalized. The propaganda of unlimited growth has been deeply internalized. The move to a sustainable will require an entirely new , less complex, economic model.

      • mmckinl

        Ukraine, Russia and the nonexistent U.S. oil and natural gas “weapon”
        “But, there’s one very big problem with this view. The United States is still a net importer of both oil and natural gas. The economics of natural gas exports beyond Mexico and Canada–which are both integrated into a North American pipeline system–suggest that such exports will be very limited if they ever come at all. And, there is no reasonable prospect that the United States will ever become a net exporter of oil.”

        • Pravda01

          I agree the so called energy boom by fracking in North-America is a scam. Those who know about the details will agree. USA is also the World largest consumer of oil – just look up the oil use of the US military.

          • ludyboodie

            I’m not sure that’s correct. I believe that China is the largest importer of oil and oil products. Maybe we both need to check that to be sure.

          • shawn

            why is it a scam? if it produces oil end of discussion.

      • shawn

        I don’t think “peak oil” is real, just like diamonds being artificially rare. Harold Hamm, american oil billionaire has discovered tons of new oil.

    • marki

      but the biggest borrowings and offshore holdings are american banks/funds,.. they would need to get out before pulling another crash

      • mmckinl

        The biggest banks just crashed in 2008. And guess what? The Privately owned and operated Federal Reserve just bailed them out. In the EU they imposed austerity on all debtor countries which is why the EU is in trouble now …

        • shawn

          Really? Austerity imposed on Greece caused trouble for US

  • jadan

    Everyone loves a graph. Why, just look how reserve currencies don’t prevail for long! At a glance, we can see the vaunted superpower’s rule is about to go the way of the Dodo bird and the Hula hoop, and by golly that’s just history! That’s just the facts! And history tells us also that fiat currencies last about 40 years. Yes, it is reassuring that we know the facts! We do know our history. Only problem is, history is no help anymore. History is kaput because it has no predictive value any longer. We live in the land of Neverbefore, and it’s a terrifying place to be because there are no certainties that these graphs seem to imply. Mr. Sinclair sees the end of his predictable investor’s world and he’s scared because he thinks a global reserve currency is necessary, as it was once believed that gold was necessary as a global standard. There has never before been a multipolar world, so he can’t imagine it. All he can see is chaos. The US will adapt to this multipolar world or perish of its own stupidity. The world doesn’t need a reserve currency anymore than it needs a bullying, lying superpower. We just think it does because in the history we know that’s the way it’s always been. Times they are a changin’……

    • Pravda01

      I might add – we live in a land where the fascist smile and call murderous acts as necessary to protect national security.

      • Bill Seils

        Which land is that, “TRUTH01″….the US or Russia?

  • wunsacon

    Dear sirs, I propose you combine the British and US bars together. It is one empire. The Anglo Empire.

    It’s easier to conduct business with people who speak your language. Once you’re in business together, you craft military treaties and don’t want to break them. When your largest customers are at risk of losing a war and not paying you back, you come to their aid even if they’re the bigger bully. As your policies become intertwined, you share your resources even when their crony capitalist chickenhawks are in the wrong.

    The Roman Empire had Constantinople and Rome. The Anglo Empire has London, NYC, and D.C. Sometimes, they play good-cop/bad-cop, with one sitting out one fight while the other “stays neutral”. Sometimes, they put up their dukes simultaneously. But, relative to the rest of the world, they’re pretty coordinated. Depending on the type or scale of analysis, their actions are probably better explained by looking at them as a whole than by looking at them as separate entities.

  • wunsacon

    Dear sirs, I propose you combine the British and US bars together. It is one empire. The Anglo Empire.

    It’s easier to conduct business with people who speak your language. Once you’re in business together, you craft military treaties and don’t want to break them. When your largest customers are at risk of losing a war and not paying you back, you come to their aid even if they’re the bigger bully. As your policies become intertwined, you share your resources even when their crony capitalist chickenhawks are in the wrong.

    The Roman Empire had Constantinople and Rome. The Anglo Empire has London, NYC, and D.C. Sometimes, they play good-cop/bad-cop, with one sitting out one fight while the other “stays neutral”. Sometimes, they put up their dukes simultaneously. But, relative to the rest of the world, they’re pretty coordinated. Depending on the type or scale of analysis, their actions are probably better explained by looking at them as a whole than by looking at them as separate entities.

    • shawn

      well said – Bravo!!!

  • cesca_nz

    The reason why the Ukraine and the Crimea are in chaos right now is because Russia wants to sell its oil in any currency except the US dollar and the USA is doing everything it can to prevent that. If oil is sold in other currencies and NOT
    in US$$, then the USA will collapse economically.

    This is John Perkins and the Economic Hit men still going on…If you have not done so – you all need to read the book by John Perkins called The Economic Hit men. This has been going on for many years and it is still happening.

    Those Economic Hitmen are probably the agent provocateurs agitating to start the chaos and riots in the Ukraine – anything to stop Russia selling its oil!!! .

    • redpigeons

      Perkins’ book seems to be largely a figment of his imagination. Look up what the critics say. E.g. from wiki: ” sources, including articles in The New York Times and Boston Magazine as well as a press release issued by the United States Department of State, have referred to a lack of documentary or testimonial evidence to corroborate the claim that the NSA was involved in his hiring to Chas T. Main. In addition, the author of the State Department release states that the NSA “is a cryptological (codemaking and codebreaking) organization, not an economic organization” and that its missions do not involve “anything remotely resembling placing economists at private companies in order to increase the debt of foreign countries”.[8] Economic historian Niall Ferguson writes in his book The Ascent of Money that Perkins’s contention that the leaders of Ecuador (President Jaime Roldós Aguilera) and Panama (General Omar Torrijos) were assassinated by US agents for opposing the interests of the owners of their countries’ foreign debt “seems a little odd” in light of the fact that in the 1970s the amount of money that the US had lent to Ecuador and Panama accounted for less than 0.4% of the total US grants and loans, while in 1990 the exports from the US to those countries accounted for approximately 0.4% of the total US exports (approximately $8 billion). According to Ferguson, those “do not seem like figures worth killing for”

  • Voice of Reason

    The bible on this issue is Michael Hudson’s “Super
    Imperialism” (SI), written shortly after the demise of the post-WWII
    Bretton Woods International Monetary System.
    SI was written to explain to the powers that be the implications of the US abandoning
    the nominal backing of the US dollar with gold.
    current emphasis on “debts that can’t be repaid (and) won’t be” (DTCBRAWB)
    is, in a way, just a continuing development of this theme. But I wish he would tackle it more
    directly. (I would appreciate a
    reference to someone who has if anyone has one?)

    The whole post-Bretton Woods international economic order –
    and particularly financial ‘globalization’ – is based upon the ability of Wall
    Street and Washington DC to get the rest of the world to continue
    accepting DTCBRAWB. As Hudson explains, “The product of Wall
    Street is debt.” No one should need
    to explain that Wall Street and the government in Washington are in the same business – or
    that both have been VERY, VERY successful.

    In SI Hudson attributes part of this success to European Old
    Money fear of Communism or at least the Russian (Soviet) Bear. Add in the political embarrassment if the
    constituents of Europe’s political leadership
    ever discovered the policies of their leaders had left their countries hold the
    bag of DTCBRAWB and you have two very
    good reasons for continuing to exchange the “NOTHING of money for the
    SOMETHING of (their) real wealth”.
    Take a look at Frederick Soddy’s “Wealth, Virtual Wealth and
    Debt” (2nd edition if you can get it).

    The basic problem here is that the only real value of money
    for those who have more than they immediately need is its ability to earn more
    money. Just being able to ‘store value’
    with that money should be enough for the 0.001% – as it is for most of us who
    live in the Main Street
    economy. But since the prospects – and
    even the necessity – of ever cashing in all that stored value are remote, the
    only real use of money remains “keeping score” (highest number wins).

    So money is ultimately debt.
    And if you have converted all the wealth bequeathed to you by your
    ancestors to money, particularly money denominated in the currency of a nation
    that has run up DTCBRAWB – e.g. Wall Street ‘toxic waste’ and “the full
    faith and credit of the United States – you are in trouble.

  • lawrencebaker

    American Empire was an unknown concept 40 years ago. We had the Free
    Enterprise System, Competitive Markets and Fair Trade with protection
    from evil corporate monopoly with our Democratic Representative
    Republic (government of, for and by the People). This is how we grew
    as the richest nation in the World. This industrial and small
    business American Nation was built on the concepts of Self
    Determination and the Great American Dream!

    Those concepts have been overthrown, and yes, the Free Enterprise System
    and Gold Standard economy that built this once great nation is also
    gone: overthrown by American Empire Fascist!

    You know GW, that these bastards get away with their shit with the use of
    lies, stonewalling and delaying information and TIME. Yes, TIME to
    slime around the issues!

    Guess what, as Obama is playing golf, his shit and time has ran out. Now
    real TIME is catching up to the Empire Fascist with no time to sleaze
    out! Ha. Ha.

    • shawn

      And what? He is prepared for EVERY contingency! So, if there is an economic collapse, massive demonstrations, even a massive armed uprising, he’s ready!!! And, those events probably move the Agenda forward the way they ultimately want. Certainly not unprepared for. Even if WW3 happens, or Yellowstone blows up massive volcano, they are ready with 100s of Deep Underground Military Bases DUMB).

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  • John

    Everything now had to be PUBLISHED ONLINE ?

  • Z54

    Ever since 1992 the US has been scared to death that Russia might succeed in becoming an integral part of the European Union. Had that happened the US never would have been able to put their radar in the Czech republic or their Aegis missiles in Romania! Yes, yes, Presidents Shrub and Slick Oily said it was to protect Europe from Iranian missiles. But everybody including the Russians new they were there as a threat to the Russian Federation. The US government is full of very unstable people in charge of some very dangerous toys. It’s time to put the adults back in charge!

    • Bill Seils

      Interesting. Explain to me how a DEFENSIVE missile system is an OFFENSIVE threat to Russia.

      • shawn

        Just invert the two and you have your answer. Reagan was lying when he said they were strictly “defensive.” I mean could he realistically say anything else? If you can knock out command and control in Moscow in 10 minutes its over because they don’t have time to get any missiles off to retaliate against a first strike. In the alternative, if their missiles can be shot down effectively, they also have no defense to our first strike (preemptive war like Iraq).

        • Bill Seils

          You should do some more research, my friend. The size of the warheads on these systems makes them impractical as offensive weapons.

    • Move to Russia then if you think the USA is so wrong and has so many unstable people? Where do you come from you are obviously not an American. Your probably from some country that was so horrific to live in and you wanted to come to America where it is safe, organized nice place to live make money go out and have a good time. Now you think that the USA is all wrong because Russia wants to take over Ukraine and China wants to steal the south China sea.

    • GGbox

      Adults such as ………….?

    • redpigeons

      Those missiles are short to mid-range anti-missiles rockets. Russia has quite similar ones S-300 deployed in Kaliningrad region (look it up on the map). I can’t see why Russia is complaining.

      Russia has also extended the service of their longest in the world range ICBM Satan to 2026. So who’s aggressor here? I think one can call them both equally potentially aggressive but would we trust Putin’s puppet government more than we can trust Obama’s government where senate can veto anything? I don’t think so.

  • miki

    Its about time the dollar went to history.

    • Scott274

      Chinese Yuan FTW!

      • miki

        Every scenario puts China at #1 spot in the next 100 years.

  • Martin Luther

    This would mean all out war, do you really think the United States would simply sit idly by and watch this happen. We would mobilize our entire force until they either agreed or nuclear war happened.

  • AWillis

    I know this is old but well they’re right to say Russia dumping its treasuries is not the problem considering the fact that we owe Russia next to nothing 150 billion last I checked. Russia did sign an agreement with china the amount of oil that they signed for is small in comparison to what we have been supplying them with. Due to the economic sanctions the US, EU, and Japan have placed on Russia there economy is tanking at an alarming rate, slowing there progress. What I’m getting at is that the dollar will most likely fail, but it’s going to be long and drawn out. I’m not saying don’t prepare for the inevitable, but don’t give up on what you already have either.

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  • Phenix Rising

    … war… money… it’s all-ways the same thing… just different scenery… here I AM and it’s Nov. 4, 2014… and I am wondering what you are all doing now? have you kept up on this subject at all over the past few months since coming here? have you forgot about it? well look at where it is right now, and see, you were at the head of the class… and among the few that can catch the signs of the times… etc. because they signed the deal, recently, don’t’cha know? ” ) cheers!

  • soulassssns

    Nothing lasts forever but it is not like it would lead to an apocalypse.

  • This is really informative post.

  • redpigeons

    Somehow, people miss the meaning of “reserve” in the description. That is one of the main functions of a stable currency like the dollar. As long as the US economy keeps promising safer-better (perceived or real) returns on investment than any other economy, the dollar will remain the reserve currency, irrespective of what’s going to happen to the degree of polarity of the world.

  • WinChll

    Ever consider the plan is to dump the dollar?


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