Is Hyperinflation in Our Near Future? Recent Developments Suggest It May Well Be

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Op-Ed News – by Richard Clark

“The decline of the dollar is almost assured, as not only the international community but Americans themselves, question the merits of holding a fiat currency with ever diminishing purchasing power.”

–Forbes Magazine  

Ron Paul chimes in, saying that “we’re on the brink of a massivefinancial crisis infinitely worse than the crisis of 2008. And that’s because it won’t just be a banking and mortgage problem… but a full-blown “currency crisis,” the likes of which we’ve never experienced in this country.

“The savings of millions of people could be wiped out, overnight. The stock market could crash by 50% or more. The way of life we’ve enjoyed as Americans for fifty years could come to an end. It’s not a question of “if” this will happen, but “when.”

We’ve heard all this before from a variety of sources

Could it this time be true? If so, how and why would all this come to pass?

It’s the ultimate irony: The recent American energy boom started as a “renaissance,” a “rebirth,” even an “economic revival.” Trillions of gallons of fuel, billions in profits, dirt-cheap gasoline, and landowners turned into millionaires overnight. However, while America cheers its status as the new oil superpower, the rest of the oil-producing world has been getting angry.

Saudi Arabia. Iran. China. Venezuela. Russia. These countries enjoyed huge profit margins from oil for years. It’s sustained their economies. And made their leaders some of the richest in the world. But now, with our greatly ramped up production of oil, the US has begun grabbing ever more of their business and profits.

Over the past two years, the US has slashed our oil imports from Saudi Arabia. In December 2013, we were importing some 1.5 million barrels a day. A year later, we cut that number nearly in half. What’s worse, the increase in American oil production has led to a 62% collapse in global oil prices. This obliterated Saudi profit margins.

So what are the Saudis and the Russians going to do about it?

A Saudi-led coalition has developed what it calls an “oil weapon” that it plans to unleash on the US. By this means they plan to recapture their position as the world’s preeminent oil profiteers, while knocking the US down a peg or two in the process.

“Saudi Arabia and OPEC may have just launched an Oil War,” reports one award-winning journalist. “It’s a matter of national defense. OPEC wants to punish US Oil,” says Richard Kovacevich, the former CEO of Wells Fargo.

This Saudi-initiated oil weapon is very likely going to negatively affect the US economy, the stock market, and, most importantly, our currency.

• Particular stock sectors are likely to be hit very hard. For example, many US oil and energy companies, already reelingfrom falling oil prices, could crumble another 50%, for a second straight year. Dozens will be forced out of business.

• Interest rates will likely skyrocket, and inflation too, with a corresponding crater in many widely held bonds.

• As inflation soars, real estate may well go through another crisis. Think 2007 to 2008, but worse.

• Unemployment could also soar to the 10%-plus rates we last saw in 1982 and October of 2009.

One Russian billionaire recently called the much-expanded OPEC game plan “a major strike against the US market” which couldENSURE certain destruction of many US assets. He continued: “The Saudi-led ploy to unleash its oil weapon will take down the US dollar.”

We were given a preview of the coming crisis during a series of remarkable events that began in 1971, and that will provide the background for helping us understand what is to come next, and why.

How the “Nixon Shock” Brought us the Petrodollar and Changed the World

On August 15, 1971, President Richard Nixon shocked the world when he killed the international gold standard. It was a time of global instability, fueled by the Vietnam War. Foreign nations were starting to challenge the gold holdings that supposedly backed every US dollar. President Nixon knew the US had run up so much debt that it couldn’t pay any of it off with the yellow metal in the event that the US was asked for that kind of payment. He knew it would be disastrous if other countries panicked and started, en masse, a kind of bank run on the US Treasury, which seemed inevitable if the country stayed on the gold standard. So he addressed the nation — his speech came to be known as “The Nixon Shock” — and announced that the dollar was no longer backed by gold.

In retrospect, it would have been the perfect time for America to recognize that we needed to get our fiscal house in order, that we were spending ever more than we actually had. But that never happened. Rather, the dollar was established as a “fiat currency,”. i.e. a currency whose value is based solely on the world’s faith in the sponsoring government. As a result, the US continued printing dollars, no longer with any restrictions in the form of gold requirements.

Billions were needed to pay for the ever-expanding war in Southeast Asia. And that was on top of ballooning costs from Lyndon Johnson’s “Great Society” government expansion. Sure enough, with freshly printed dollars flooding the markets, Nixon began to worry about the weakening of the dollar. So, love him or hate him, Nixon and his staff came up with what most agree was a brilliant way to (temporarily) sidestep the problem.

Nixon’s secretary of state, Henry Kissinger, made a “Faustian deal” with Saudi Arabia’s royal family, represented by King Faisal. It was a deal that would dramatically impact the global economy for the next 42-plus years.Essentially, they agreed to replace America’s gold-backed dollars with oil-backed dollars.

Best of all, the backing would not even be oil that the US owned! And in March of 1973, the plot was put into effect with this promise: Kissinger and Nixon offered military protection for Saudi Arabia’s oil fields from any enemy (the most likely candidate being the Soviet Union). In return, Saudi Arabia would price all of its future oil sales in US dollars only, and would then invest those US dollars in US Treasury bonds.It was a win-win by all appearances. Saudi Arabia would provide plentiful oil to its biggest customer (the USA). America would protect Saudi borders. And in exchange, the Saudis would prop up the US dollar by buying mucho Treasury bonds.

The Saudis readily agreed to the arrangement, and the “petrodollar” — the oil-backed dollar — was born. And by 1975, all the members of OPEC had joined the petrodollar system. That included Iran, Iraq, Kuwait and Venezuela, plus Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria and Ecuador. Therefore, pretty much anyone buying oil anywhere in the world, now had to pay for that oil with US dollars. This established the US dollar as the de facto reserve currency of the world, and instantly handed America three huge financial benefits.

First, it increased demand for the dollar, thereby boosting the dollar’s value all around the world. This rising tide in turn lifted the value of all kinds of America’s in-house assets, i.e. housing, businesses, and stocks. And it not only gave the country a feel-good sense of prosperity (albeit an impermanent one, as you’ll see), but it also provided a big advantage in international trade.

Second, the new petrodollar standard meant increased global demand for US Treasury bonds. Foreign governments needed to keep big reserves of dollars on hand to buy oil. But naturally, they figured they might as well earn interest on those dollars while they were holding them. So, when the cash wasn’t actually being used, they would simply put as much of it as possible into US Treasury bonds. With trillions of foreign dollars positioned to buy up our Treasury bonds (thereby cheaply financing our growing indebtedness and by that means allowing most Americans to live way beyond the means they would otherwise have), the Fed could pump unlimited money into our economy, and it ended up doing that for what turned out to be a period of four happy decades.

Third, the petrodollar meant that the energy-dependent United States could buy all the imported oil it needed — with dollars that it could simply print at will!

The petrodollar was also a boom for the Saudis. Saudi Arabia and OPEC pump obscenely large amounts of oil — 30 million barrels a day — about half of the total world production. From this they collected huge profit margins — as much as $45 profit for each of those 30 million barrels of oil.

Over the past five decades, oil has been the main income source of some of the wealthiest people in the world. And of course, the outrageous OPEC oil wealth is not just limited to individuals. For example, Saudi Arabia’s foreign currency reserves not long ago rocketed up to $736 billion. Other OPEC nations have also built up multibillion-dollar reserves. Even lowly Algeria, for example, had more than $200 billion in the bank. In a nutshell, members of OPEC became very wealthy, thanks to “The Nixon Shock.”

But 42 years after the dawn of the petrodollar, OPEC’s gravy train is coming to an end

And here’s where the story got really interesting for American investors. No one would have expected that American oil might end up becoming OPEC’s deathblow. Solar? No way. Perhaps nuclear? Maybe. But certainly not American oil or gas, which seemed to have gone virtually dry decades ago. However, in the early 2000s, advances in oil and gas-well technology (in particular, fracking) made petroleum recovery far more efficient, and much cheaper, than ever before.

As a result, since 2007, America has experienced an energy resurgence nobody saw coming. Shale oil productionmore than doubled, to 2,800 barrels per day, from just 1,200 barrels/day. Plus, our natural gas reserves ballooned to over 350 trillion cubic feet in 2013, from 225 trillion cubic feet in 2007, an increase of more than 55%.

Not surprisingly then, in 2013, the US overtook Russia as the world’s leading energy producer. Then, in 2014, America actually surged past Saudi Arabia as the world’s biggest producer of crude oil!

So who has America’s energy renaissance hit the hardest? Russia and Saudi Arabia.

No two nations in the world have seen their GDP hit harder, because of the global oil glut, than Russia and Saudi Arabia. Just look what happens to these two countries when oil prices drop like a rock. The value of Russia’s ruble has been cut in half. Its stock market is down by a third since 2011. Russia is flat-out running out of money. It MUST do something. And fast. And what it plans to do, with Saudi and Chinese help, is cut America — and the petrodollar — out of the global economic picture. President Vladimir Putin expects to see the petrodollar die, admitting publicly, “the dollar monopoly in the energy trade is killing Russia’s economy.”

Russia has held secret talks with China to devise a plan for striking back at the US. It’s held talks with Iran, too, as it looks for new alliances. Without Saudi Arabia joining them though, Russia and China would find it difficult to cut the US out. But now, as already stated, Saudi Arabia and its OPEC partners are having their fair share of troubles too. Their profit margins have plummeted 22.6% since 2011. In fact, Standard & Poor’s (S&P) recently lowered its Saudi Arabia credit rating from ‘positive’ in mid-2014, to ‘neutral’ in late 2014. to negative in 2015. “The outlook reflects our view that Saudi Arabia’s general government fiscal position is weakening,” said S&P.

For the time being, however, Saudi Arabia refuses to cut production and give up market share to the Americans. And that means a glut of oil on the market, which results in falling gasoline prices, and smaller profits for all oil companies.

Saudi Oil Minister Ali al-Naimi couldn’t hide his frustration with the US when he publicly stated, “Whether it (the price of a barrel of oil) goes down to $20, $40, $50, $60, it is irrelevant. It is not in the interest of OPEC producers to cut their production, whatever the price.”

Increasingly, therefore, we’re seeing Saudi Arabia lash back at America. It doesn’t appreciate being hampered by still having to trade with US dollars, when all the while the US is flooding world markets with her own cheap oil.

Until now, Saudi Arabia has maintained a very close relationship with the US — NOT ONCE since 1973 has it been willing to fullyretaliate against America. After all, the US has long been its biggest customer and fierce military protector. But as we’ve seen, the US is now producing enough energy within its own borders that it doesn’t need much Saudi oil anymore. In fact, US oil imports from Saudi Arabia fell off by more than ONE-THIRD over a four-month period in 2014 alone.

So, we’re no longer Saudi Arabia’s biggest customer — China is. And on top of that, we’re crushing Saudi profit margins with 50% lower oil prices. “Saudi Arabia is hurting as much as Russia,” saidSaudi Prince Alwaleed bin Talal recently . He continued, “Now, we don’t show it because of our big reserves. But I’ll tell you: Saudi Arabia and Russia are now in bed together, because both are being hurt by the USA.”

This isn’t coming from a crackpot conspiracy theorist or someone in the US State Department. It’s coming directly from a Saudi billionaire. He’s cluing us in on what’s really going on, which is that for the first time ever, the Saudis are considering striking back at the US by cutting off their “special petrodollar relationship” with America.

Read the rest here: http://www.opednews.com/articles/4/Is-Hyperinflation-in-Our-N-by-Richard-Clark-OPEC_Yuan-150418-194.html