the geopolitics of world war three...,

scgnews |  The U.S. dollar is a unique currency. In fact its current design and its relationship to geopolitics is unlike any other in history. Though it has been the world reserve currency since 194 this is not what makes it unique. Many currencies have held the reserve status off and on over the centuries, but what makes the dollar unique is the fact that since the early 1970s it has been, with a few notable exceptions, the only currency used to buy and sell oil on the global market. 

Prior to 1971 the U.S. dollar was bound to the gold standard, at least officially. According to the IMF, by 1966, foreign central banks held $14 billion U.S. dollars, however the United States had only $3.2 billion in gold allocated to cover foreign holdings.

Translation: the Federal Reserve was printing more money than it could actually back.

The result was rampant inflation and a general flight from the dollar.

In 1971 in what later came to be called the "Nixon Shock" President Nixon removed the dollar from the gold standard completely. 

At this point the dollar became a pure debt based currency. With debt based currencies money is literally loaned into existence.

Approximately 70% of the money in circulation is created by ordinary banks which are allowed to loan out more than they actually have in their accounts.

The rest is created by the Federal Reserve which loans money that they don't have, mostly to government.

Kind of like writing hot checks, except it's legal, for banks. This practice which is referred to as fractional reserve banking is supposedly regulated by the Federal Reserve, an institution which just happens to be owned and controlled by a conglomerate of banks, and no agency or branch of government regulates the Federal Reserve.

Now to make things even more interesting these fractional reserve loans have interest attached, but the money to pay that interest doesn't exist in the system. As a result there is always more total debt than there is money in circulation, and in order to stay afloat the economy must grow perpetually.

This is obviously not sustainable.

Now you might be wondering how the dollar has maintained such a dominant position on the world stage for over forty years if it's really little more than an elaborate ponzi scheme.

Well this is where the dollar meets geopolitics.

In 1973 under the shadow of the artificial OPEC oil crisis, the Nixon administration began secret negotiations with the government of Saudi Arabia to establish what came to be referred to as the petrodollar recycling system. Under the arrangement the Saudis would only sell their oil in U.S. dollars, and would invest the majority of their excess oil profits into U.S. banks and Capital markets. The IMF would then use this money to facilitate loans to oil importers who were having difficulties covering the increase in oil prices. The payments and interest on these loans would of course be denominated in U.S. dollars.

This agreement was formalized in the "The U.S.-Saudi Arabian Joint Commission on Economic Cooperation" put together by Nixon's Secretary of State Henry Kissinger in 1974.

Another document released by the Congressional Research Service reveals that these negotiations had an edge to them, as U.S. officials were openly discussing the feasibility of seizing oil fields in Saudi Arabia militarily.

In the United States, the oil shocks produced inflation, new concern about foreign investment from oil producing countries, and open speculation about the advisability and feasibility of militarily seizing oil fields in Saudi Arabia or other countries. In the wake of the embargo, both Saudi and U.S. officials worked to re-anchor the bilateral relationship on the basis of shared opposition to Communism, renewed military cooperation, and through economic initiatives that promoted the recycling of Saudi petrodollars to the United States via Saudi investment in infrastructure, industrial expansion, and U.S. securities.

The system was expanded to include the rest of OPEC by 1975.

Though presented as buffer to the recessionary effects of rising oil prices, this arrangement had a hidden side effect. It removed the traditional restraints on U.S. monetary policy.

The Federal Reserve was now free to increase the money supply at will. The ever increasing demand for oil would would prevent a flight from the dollar, while distributing the inflationary consequences across the entire planet.

The dollar went from being a gold back currency to a oil backed currency. It also became America's primary export.

Did you ever wonder how the U.S. economy has been able to stay afloat while running multibillion dollar trade deficits for decades?

Did you ever wonder how it is that the U.S. holds such a disproportionate amount of the worlds wealth when 70% of the U.S. economy is consumer based? 

In the modern era, fossil fuels make the world go round. They have become integrated into every aspect of civilization: agriculture, transportation, plastics, heating, defense and medicine, and demand just keeps growing and growing. 

As long as the world needs oil, and as long as oil is only sold in U.S. dollars, there will be a demand for dollars, and that demand is what gives the dollar its value.

For the United States this is a great deal. Dollars go out, either as paper or digits in a computer system, and real tangible products and services come in. However for the rest of the world, it's a very sneaky form of exploitation.

Having global trade predominately in dollars also provides the Washington with a powerful financial weapon through sanctions. This is due to the fact that most large scale dollar transactions are forced to pass through the U.S. 

This petrodollar system stood unchallenged until September of 2000 when Saddam Hussein announced his decision to switch Iraq's oil sales off of the dollar to Euros. This was a direct attack on the dollar, and easily the most important geopolitical event of the year, but only one article in the western media even mentioned it.