Why do people still talk about Bretton Woods? Does Bretton Woods even matter?
The 1944 Bretton Woods meeting established a gold-backed U.S. Dollar as the new world reserve currency for the bankrupt western financial system.
Jerry Robinson, FTMdaily.com, explains ...Once you understand this 'dollars for oil' arrangement [petro-dollar system], I believe that it will provide you with a more accurate
understanding of what motivates America's foreign policy.
It should come as no surprise that the United States maintains a major military presence in much of the Persian Gulf region, including the following countries: Bahrain, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, Egypt, Israel, Jordan, and Yemen...
Jerry Robinson, FTMdaily.com gives the best layman, non-technical explanation for the system that was set up in 1971 based on the 'oil-dollar monopoly' or 'petro-dollar history'. Below are highly condensed excerpts. [Staff comments are in brackets.]
The oil-dollar monopoly set up an artificial demand for dollars and savings in the form of US Treasury Bonds. This system also paved the way for [intentional?] dischord in the post WWII era.
One way to amplify the need for U.S. weapons
is to demonize a scapegoat
. In 1973, Israel was used as a partial
petrodollar scapegoat. In other words, Saudi must first feel threatened by Israel and/or others, prior to the offer of
U.S. help
. Israel has been made an offer from the other side of the equation.
The U.S. [and Israel?] manage the threats
and make the profit in the middle?
Jerry Robinson writes:
...the 1944 Bretton Woods Conference firmly established the U.S. Dollar as the global reserve currency. In the final days
of World War II, 44 leaders from all of the Allied nations met in Bretton Woods, New Hampshire in an effort to create
a new global economic order. With much of the global economy decimated by the war, the United States emerged as the
world's new economic leader. The relatively young and economically nimble U.S. served as a refreshing replacement
to the globe's former hegemon: a debt-ridden and war-torn Great Britain...
...the historic meeting also created an international gold-backed monetary standard which relied heavily upon the U.S. Dollar.
...by the 1960's, the [credit/debt] weight of [this] system upon the United States became unbearable. [In] 1971,
President Nixon shocked the global economy when he officially ended the international convertibility from U.S.
dollars into gold, thereby bringing an official end to the Bretton Woods arrangement.
[Staff note: this dual dollar-gold Bretton Woods system worked temporarily from 1944 - 1971 because Gold was the 'honest keeper'. Gold as collateral prevents out-of-control paper money printing (debt creation). In other words, paper money must be associated with capital growth seen in manufacturing, ag and transport, which is represented in a concentrated form by gold reserves.]
In 1973, a deal [petrodollar system] was struck between Saudi Arabia and the United States in which every barrel
of oil purchased from the Saudis would be denominated in U.S. dollars. Under this new arrangement, any country that
sought to purchase oil from Saudi Arabia [OPEC] would be required to first exchange their own national currency
for U.S. dollars.
In exchange for Saudi Arabia's willingness to denominate their oil sales exclusively in U.S.
dollars, the United States offered weapons and protection of their oil fields from neighboring nations,
including Israel.
By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in
exchange for [US] weapons and military protection.
This petrodollar system, or more simply known as an 'oil for dollars' system, created an immediate artificial
demand for U.S. dollars around the globe. And of course, as global oil demand increased, so did the demand
for U.S. dollars.
...In essence, all global currencies were pegged to the U.S. Dollar...Why would all of the nations be willing to
allow the value of their currencies to be dependent upon the U.S. Dollar?...
The answer is quite simple. [Gold, the 'honest-keeper' was still at the center.]
The U.S. Dollar would be pegged at a fixed rate to gold. This made the U.S. dollar completely convertible
into gold at a fixed rate of $35 per ounce within the global economic community. This international convertibility
into gold allayed concerns about the fixed rate regime and created a sense of financial security among nations
in pegging their currency's value to the dollar. After all, the Bretton Woods arrangement provided an escape
hatch: if a particular nation no longer felt comfortable with the dollar, they could easily convert their
dollars holdings into gold...
...The Bretton Woods agreement instantly created a strong global demand for U.S. dollars as the preferred medium of
exchange...And along with this growing demand for U.S. Dollars came the need for a larger supply of dollars
...Now, before we continue this discussion, stop for a moment and ask yourself this question: Are there any obvious benefits
from creating more dollars. And if so, who benefits?...First, the creation of more dollars allows for the inflation of asset prices. In other words, more dollars in existence allows
for a rise in overall prices...
The United States government benefits from a global demand for U.S. dollars. How? It's because a global demand for
dollars gives the Federal government a 'permission slip' to print more. After all, we can't let our global
friends down, can we? If they 'need' dollars, then let's print some more dollars for them...
[Staff note: this out-of-control dollar printing unlinked from the 'gold-safety-valve' worked temporarily because there was enough significant economic growth in the nation representing the currency, the United States. In other words, economic growth was temporarily keeping pace with an increasing dollar supply.]
Read the full version by Jerry Robinson at: FTMdaily.com
Is it a coincidence that printing dollars is the U.S. government's preferred method of dealing with our
nation's economic problems? Remember, Washington only has four basic ways to solve its economic problems:
Increase income by raising taxes on the citizens
Cut spending by reducing benefits
Borrow money through the issuance of government bonds
Print money
Finally, the primary beneficiary of an increased global demand for the U.S. Dollar is America's central bank,
the Federal Reserve. If this does not make immediate sense, then pull out a dollar bill from your wallet or
purse and notice whose name is plastered right on the top of it.
Have you ever asked yourself why the U.S. Dollar is called a Federal Reserve Note?
Once again, the answer is simple. The U.S. Dollar is issued and loaned to the United
States government by the Federal Reserve.
Because our dollars are loaned to our government by the Federal Reserve, which is a private central
banking cartel, the dollars must be paid back. And not only must the dollars be paid back to the
Federal Reserve. They must be paid back with interest!
By 1971, as America's trade deficits increased and its domestic spending soared, the perceived economic
stability of Washington was being publicly challenged by many nations around the globe. Foreign nations
could sense the severe economic difficulties mounting in Washington as the United States was under
financial pressure at home and abroad.
...According to most estimates, the Vietnam War had a price tag
in excess of $200 billion. This mounting debt, plus other debts incurred through a series of poor
fiscal and monetary policies, was highly problematic given America's global monetary role.
But it was not America's financial issues that most concerned the international economic community.
Instead, it was the growing imbalance of U.S. gold reserves to debt levels that was most alarming.
...The United States had accumulated large amounts of new debt but did not have the money to pay for them. Making
matters worse, U.S. gold reserves were at all-time lows as nation after nation began requesting gold in exchange
for their dollar holdings. It was almost as if foreign nations could see the writing on the wall for the end
of the Bretton Woods arrangement....
One would have expected that the large and growing demand by foreign nations for gold instead of dollars would have
been a strong indicator to the United States to get its fiscal house in order.
Instead, America did exactly the
opposite. As Washington continued racking up enormous debts to fund its imperial pursuits and its over-consumption,
foreign nations sped up their demand for more U.S. gold and fewer U.S. dollars. Washington was caught in its
own trap and was required to supply real money (gold) in return for the inflows of their fake paper money
(U.S. dollars)....They had been hamstrung by their own imperialistic policies.
Soon the United States was bleeding gold. Washington knew that the system was no longer viable, and certainly not
sustainable. But what could they do to stem the crisis? There were only two options....
The first option would require that Washington immediately reduce its massive spending and dramatically reduce its
existing debts. This option could possibly restore confidence in the long-term viability of the U.S. economy. The
second option would be to increase the dollar price of gold to accurately reflect the new economic realities.
There was an inherent flaw in both of these options that made them unacceptable to the United States at the time?
they both required fiscal restraint and economic responsibility...
On August 15, 1971, under the leadership of President Richard M. Nixon, Washington chose to maintain its reckless
consumption and debt patterns by detaching the U.S. Dollar from its convertibility into gold. By 'closing the gold
window,' Nixon destroyed the final vestiges of the international gold standard. Nixon's decision effectively
ended the practice of exchanging dollars for gold, as directed under the Bretton Woods agreement.
One major concern that Washington had was regarding the potential shift in global demand for the U.S. dollar. With
the dollar no longer convertible into gold, would demand for the dollar by foreign nations remain the same, or would
it fall?
In part two of this four part series, I will continue this article with an in-depth look at the solution that
President Nixon and his Secretary of State, Henry Kissinger, developed to prevent a continual decrease in global
dollar demand. The ingenuity of this plan is breathtaking in scope. It is known as the Petrodollar system.
...It is unfair, however, to say that the Washington elites were blind to the deep economic issues confronting
it in the late 1960's and early 1970's. Washington knew that the 'dollars for gold' had become completely
unsustainable. But instead of seeking solutions to the global economic imbalances that had been created by
America's excessive deficits, Washington's primary concern was how to gain an even greater stranglehold
on the global economy.
In order to ensure their economic hegemony, and thereby preserve an increasing demand for the dollar, the Washington
elites needed a plan. In order for this plan to succeed, it would require that the artificial dollar demand that had
been lost in the wake of the Bretton Woods collapse be replaced through some other mechanism?.
According to John Perkins, the author of Confessions of an Economic Hit Man: The Shocking Story of How America
Really Took Over the World, that plan came in the form of the petrodollar system.
But what exactly is the petrodollar system?...A petrodollar is a U.S. dollar that is received by an oil producer in exchange
for selling oil, and that is then deposited into Western banks [as US Treasury Bonds]. Despite the seeming simplicity of this arrangement of
'dollars for oil,' the petrodollar system is actually highly complex and one with many moving parts. It is this
complexity that prevents the petrodollar system from being properly understood by the American public.
In a series of meetings, the United States - represented by then U.S. Secretary of State Henry Kissinger - and the
Saudi royal family, made a powerful agreement. (Several authors have worked to compile data on the origins of the
petrodollar system, some exhaustively, including Richard Duncan, William R. Clark, David E. Spiro, Charles Goyette
and F. William Engdahl).
According to the agreement, the United States would offer military protection for Saudi Arabia's oil fields. The U.S.
also agreed to provide the Saudis with weapons, and perhaps most importantly, guaranteed protection from Israel....
The Saudi royal family knew a good deal when they saw one. They were more than happy to accept American weapons and a
U.S. guarantee to restrain attacks from neighboring Israel.
...What exactly did the United States want in exchange for their weapons and military protection?....
The Americans laid out their terms. They were simple and two-fold.
The Saudis must agree to price all of their oil sales in U.S. dollars only. (In other words, the Saudis were to refuse all other currencies except the U.S. dollar as payment for their oil exports.)
The Saudis would be open to investing their surplus oil proceeds in U.S. debt securities [i.e. US Treasury Bonds].
...Fast forward to 1974 when the petrodollar system was fully operational in Saudi Arabia...
And just as the United States had cleverly calculated, it did not take long before other oil-producing nations
wanted in on the deal...By 1975, all of the oil-producing nations of OPEC had agreed to price their oil in dollars
and to hold their surplus oil proceeds in U.S. government debt securities in exchange for the generous offers by
the U.S.
And from the perspective of empire, this new 'dollars for oil' system was much more preferred over the former
'dollars for gold' system as its economic requirements were much less stringent. Without the constraints imposed
by a rigid gold standard, the U.S. monetary base could be grown at exponential rates.
Read the full version by Jerry Robinson at: FTMdaily.com