The “Petrodollar” Has No Bearing on Any Country’s Ability to Employ Its People Fully

By Jeff Epstein, Editor-in-Chief of Citizens’ Media TV, who posts on Naked Capitalism as aliteralmind; copy edited by Ben Szioli. Originally published at Citizens’ Media TV

Does it matter whether the rest of the world prices oil in dollars, in order for the U.S. to have a fiscal capacity to maintain full employment domestically, to avoid austerity? The answer is no…. It doesn’t matter whether the U.S. dollar is the “reserve currency.”

— American economist Stephanie Kelton, speaking on Real Progressives in February, 2018.

“The petrodollar” or “petrocurrency” is a not a concrete thing. It is a shorthand name, a buzzword, for the system that has been in place since June, 1974, when an agreement was made between the Nixon Administration and Saudi Arabia. The terms of the agreement dictate that Saudi Arabia will accept only the United States dollar for oil (and ensure some price stability) in exchange for military protection of their oil fields. The agreement therefore pressures other oil producers to also use only the U.S. dollar.

(The phrase petrodollars more accurately refers to the revenue derived from petroleum exports under the petrocurrency system. The agreement also has some implications and applications related to international trade and commerce that are beyond the scope of this article.)

“The petrodollar,” the petrocurrency system, is just another tool for the U.S. government and its military (the Military-Industrial Complex) to use their outsized leverage against other countries. Oil and resources – not “the petrodollar” – are very likely a significant reason why the US has military bases around the world, why they attacked Libya and Iraq, and why they are currently threatening Iran. (There may be other reasons, some of which we may never know.)

Regardless of the situation, “the petrodollar” has no direct bearing on the ability of the United States, or any other country, to provide for its people. The only thing that affects this is a country’s supply of real resources, and the fact that the country’s currency is the only one accepted for extinguishing tax obligations.

Not much. It’s irrelevant

— Australian economist Bill Mitchell, speaking on Real Progressives in February, 2018, responding to, “What do you have on the petrodollar?”

The United States is the “reserve currency” (meaning its currency is required to purchase oil) and has more resources than most (raw materials, labor, technology, and time). But neither of these things have any bearing on how well – as opposed to how “much” – it can provide for its citizens. All sovereign fiat economies (the U.S., Canada, Australia, New Zealand, Japan, and England, among others) can fully employ all their citizens with the resources at its disposal as best they can.

If a conflict were to arise because of oil or resources, or “the petrodollar,” that conflict would of course have significant consequences. Ultimately, however, none of these things have any direct impact on any country’s supply of real resources, and therefore, no direct effect on any country’s domestic economy.

As far as what specifically would happen if the world stopped using the United States dollar for oil? The answer is, “Very little.”

[The petrodollar] is entirely inconsequential. It’s just a numeraire. They could set the price in paper clips…. What you transact in is of absolutely no consequence.

— Warren Mosler, speaking on RT in 2014. Mosler is the “father” of modern money, whose insights and ideas inspired the earliest Modern Monetary Theory (MMT) economists.

The United States spends more on its military than the next seven countries combined. The U.S. military is one of the largest users of fossil fuels in the world and by far the biggest consumer of energy in the United States. The real problem is that the fossil fuel industry has too much influence on the United States government. Instead of fulfilling its original and only purpose – to protect the American People – the United States Military has now been hijacked to further enrich the very few, and to impose their power and reach across the globe.

Finally, if oil is what the United States dollar is based on or pegged to, then our ability to continue living on a warming planet is in direct conflict with the wellbeing of the United States economy. The truth, however, is that fighting climate change does not jeopardize the United States as a whole; it jeopardizes the obscene wealth of the very few who choose to enrich themselves with fossil fuels.

The world is on fire. The United States has more than enough people and resources, ready and waiting to fight climate change (and address many other critical issues). Until our politicians, however, value the lives of all American citizens (and billions of people around the world) more than the hefty donations they receive from the fossil fuel industry, these resources will continue to sit idle.

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  1. The Rev Kev

    Talking well above my pay-grade here but I thought that I read once that a net effect of the petrodollar is that the United States gets to export its inflation to other countries and that if it was abolished, all that inflation would come back to the US with some god-awful consequences.

    1. skippy

      You are aware of recent papers questioning the whole inflation fighting perspective e.g. protracted period of deflationary conditions masquerading as successful inflation management, largely contributed by quasi monetarist views.

      1. chewitup

        We import oil and export dollars. Most of those dollars sit as financial assets in foreign owned portfolios. If too many dollars are exchanged at once the dollars will depreciate. So the inflation problem is “exported”.

        1. paulmeli

          So the inflation problem is “exported”.

          It’s been a long while since inflation has been a problem for most of the World.

        2. aliteralmind

          If too many dollars are exchanged at once the dollars will depreciate

          I wouldn’t really call that “exporting inflation.” Sounds more like trying to sucker other countries into a bad deal.

        3. johnnygl

          It’s an awkward comparison because of the size difference, bt a sovereign issuer like, say, NZ, suffers inflation directly, from a rise in oil prices, and potentially indirectly, from a currency depreciation as a result of the falling terms of trade (all else equal, of course, and that’s never the case).

          Oil prices going up have a tendency to push up the USD (again, with that all else equal thing). This would offset the direct inflation of rising oil prices with the capital flows from oil producing countries.

          1. johnnygl

            I think discussing petrodollars as the capital stocks and flows associated with them is important (not the pricing of the commodity). It’s a big part of what helps make USD the reserve currency…oil exporters hold a lot of usd and use it to pay for imports.

          2. Wukchumni

            An example:

            In 2000 the Argentinean peso was equal to 1 US Dollar, and now a peso is worth around 3 cents.

            As crude oil is priced in dollars, the average Argentine now has to pay 33x for gas/oil, as they did just 18 years ago.

        4. Mel

          Abstract nouns make me itch; I like to see mechanisms.
          I imagine it like:
          * Saudi Arabia agrees to sell petroleum for US$
          * Others who need petroleum therefore need US$, therefore sell their goods for US$ to earn some.
          * Anybody with an account at the FED with US$ written into the account balance (for good reasons or bad) can take those US$ around the world and bid for most things that are for sale.
          * Even without an account at the FED, anybody who holds US$ somehow can spend them most places.
          Maybe exporting inflation flows out of this, I have trouble connecting it.

        5. Yves Smith Post author

          No, foreign exchange reserves have absolutely nothing to do with the domestic economy. It’s a deadweight loss. The only use is to fight currency crisis or hold other foreign assets.

          And if oil prices go up or down, that has nada to do with the fact that they are denominated in dollars. Oil is a commodity and its price is determined first by supply and demand (which can be manipulated on the supply side by keeping it in the ground) and to some degree, commodities market manipulation).

        6. Jean


          Many of those foreign owned “assets” are treasury bonds that help finance our deficit.
          Thus the rent, on say, an Okinawan military base we taxpayers pay for, comes back to be lent to the American people, with interest.

          Someone please correct this if the observation is wrong. I’m still a econewbie.

    2. whip

      My understanding is that high inflation can occur when the amount of money stays constant but production drops off, so you have the same amount of money and nothing to buy with it. With the US having moved much of its manufacturing overseas, if it couldn’t maintain a system where the rest of the world sends the US stuff in exchange for US dollars, then the amount of available stuff would diminish and the amount of money would stay the same – leading to inflation.

      Am I right on this?

      1. aliteralmind

        If the available resources/productivity drops off and you continue to spend money despite that fact, then yes, that would be a problem. So don’t do that. Don’t be so insensitive that you don’t continue to adjust according to circumstances.

  2. nothing but the truth

    fully employ all their citizens with the resources at its disposal as best they can

    exactly. employment is a function of access to resources.

    we have a problem of distribution of resources (inequality) and shortage of resources (Malthus).

    Don’t expect money to do magic just because we own the printing press.

    1. jsn

      Right, nothing magic, just asset price inflation when you print money to give to rich people as we have for the last 8 years with QE.

      If we choose politically to distribute resources more equitably, the Fed/Treasury could use money at no cost (in dollars, real resource constraints are binding) to do so. Relatively this would inflate the balance of the economy toward where assets are now to the extent chosen for the degree of equality targeted.

      I would propose good shelter, food, water, education, healthcare & jobs for all as the baseline of equality to target. After that, do your capitalist best.

    2. PKMKII

      Quite telling that our mainstream economic news sources make big, big hay over daily stock price fluctuations and what minute changes to interest rates the fed is making or thinking about making, but the beat on raw resources is considered a wonky, obscure field that only the really specialized care about. Imagine if CNBC spent as much time talking about current raw resource reserve levels and extraction rates and estimated run-out points based on current consumption, as they do talking about how many points Apple stock moved up or down today.

    3. paulmeli

      …employment is a function of access to resources.

      Employment is a function of spending (demand).

      Production is a function of access to resources and the income required/available to clear it (among other things).

      Which is the problem, overpopulation/overconsumption or lack of resources?

      The Earth is the same size it’s always been. We’re burning it like a Roman candle.

  3. TiPs

    If oil is priced AND sold in USD, I would think there is at least an exchange rate impact from the petrodollar, especially for currencies of countries that are net importers of oil (Japan for one). The petro$ increases global demand for USD. No?

    1. johnnygl

      Pricing doesn’t matter…the capital stocks and flows are what matter. Most other countries don’t want oil exporters holding their currency because that would push up their exchange rate and hurt competitiveness of their exporters. Germany, Japan, China are the biggest, most relevant players here. None of them want oil exporting countries to park their money in their respective currencies (and hence their country).

      Yves has pointed out that the willingness of the US to run current account deficits with the rest of the world puts usd in their hands and helps make the usd the reserve currency of choice for the world.

      If there is a policy change and CA deficits are no longer tolerable for the US, then that is a long term game changer with regard to usd as reserve currency status.

      1. steven

        Isn’t the simplest answer to aliteralmind‘s question, at least for countries that have retained the right to print their own money, that printing the money required to absorb the inflow of dollars would drive up the price of their countries’ products and force them out of both US and world markets?

        This is indeed a huge issue but it goes well beyond technical talk about ‘stocks and flows’. My guess is that there is now a much larger ‘flow’ of US dollars and other reserve currencies to China and other developing nations that to oil producers.

        The US sits on the world’s oil reserves – and drags its feet on transitioning to renewable energy sources – for many more reasons than simply the power of the military-industrial complex. In rough numerical order:
        1. to control the world’s access to energy – THE key resource for industrial civilization (the author says this but IMHO doesn’t give it enough emphasis);
        2. to preserve the ‘economic rent’ derived from industries whose existence is tied to burning planet destroying fossil fuels, e.g. electrical utilities that continue to invest in centralized generation using fossil fuels instead of transitioning to distributed renewable energy production and storage;
        3. last but not least, to preserve the “exorbitant privilege” of US and other Western politicians of printing money to:
        a. pay for policing and extending the US Empire of Debt;
        b. the tax exemptions, Pentagon pork and ‘bridges to nowhere’ they pass out to monetarily affluent constituents (the 0.01%);
        c. to ‘pay for’ the wealth-creating potential they have off-shored so, like Donald Trump the 0.01% can continue competing with each other to run up a higher “score” (bank balance)
        4. and the list goes on…

        There has to be a better way to finance global business than relying on “the willingness of the US (or any country) to run current account deficits with the rest of the world”. What we are witnessing with an international monetary system based on the current account deficits of the US and other Western governments is debt NOT wealth creation.

  4. Wukchumni

    The only advantage to the Petrodollar is when the country producing it is also using dollars as their currency, i.e. Ecuador, and probably soon Venezuela as well.

    Otherwise payment for crude could be in Yap stones as long as it’s an agreeable exchange.

  5. Marlin

    1: It does matter, that oil is priced in dollars and not in paper clips, because
    A) countries buying oil need access to the payment system of the dollar. The US has repeatedly used the necessity for e.g. EU banks to access the dollar payment system to enforce US decisions abroad.
    B) The international exchange of raw materials in dollars strongly influences the decision in which currency to hold reserves. People make decisions to rely on certain goods and make even orders and only pay with a considerable time lag. This is essentially a form of dollar debt, that can only be hedge with dollar reserves, not with Swiss francs or Euro or Yen, which are all more stable in terms of domestic inflation. As well the Eurozone has more trade with the rest of the world than the US, so the Euro would otherwise be a much more natural reserve currency…

    2: The article (including a quote from 2014, when it might still have been relevant) is assuming, that unemployment or lack of making resources work is the biggest issue. If this were the case, the Fed wouldn’t have to raise rates to reduce inflation. Currently, there are not that many (fungible) resources idle. Especially any move to a more climate-friendly economy, that doesn’t considerably reduce the output of it, will require large investments. For this, it is absolutely beneficial to have the reserve currency and being able to import stuff from abroad without having to pay a lot for them including the possibility to borrow in one’s own currency for the payment of goods from abroad.

      1. Marlin

        Empirical evidence very strongly suggests it does in most countries most of the time. Certainly in a country like the US, where the segment of the population, that spends most of its income is at the same time heavily indebted.

      2. JohnnyGL

        Most criticism I’ve seen about the tool of raising interest rates to fight inflation isn’t that it doesn’t work, eventually, but that it does more harm than good. Sort of like getting rid of the rats/mice in your house my smashing them with a sledge hammer. It’ll do the trick alright, but you’ve got some new problems to deal with. :)

        The best example of this was the 1970s and the two rounds of oil price hikes. If the US had launched a conservation and energy efficiency program to use less oil/gas instead of letting Paul Volcker smash a big chunk of the industrial base of the entire country, along with the housing/auto and durable goods market, in the early 1980s, then I suspect we’d probably have been better off as a nation.

    1. aliteralmind

      From a more educated friend:

      1 A) is bollocks the as if forex doesn’t exist for anything else lol (there’s no special access for oil) the banks are an intermediary don’t enforce anything it’s external parties making withdrawals/deposits the bank of course can facilitate the transaction at interest (which they always do) which leads into

      1B) yes the central banks will need to hold foreign reserves to maintain equilibrium and it’s an asset not a debt if they are holding the currency but depends on which way it fluctuates.

      2) more BS unless they mean that by holding a load of the created dollars offshore it would stop inflation (ergo keeping the interest rates down) well it will because your people have less to spend because there’s less in circulation but obviously you’re paying for people to do those jobs offshore accepting that unemployment for the stuff. Although I suppose it depends on whether you trade jobs at home for international slavery…

      1. Marlin

        1 A) Nowhere do I suggest, that access to the dollar is needed only for buying oil. Nevertheless, I do believe, that if the OPEC countries would switch away from oil, there is a strong likelihood, that they would as well buy e.g. aircraft etc. in a different currency. The capability to use the dollar payment system to enforce foreign policy goals would be strongly decreased, as that would more and more lead to a dumping of the dollar in transactions.
        B) What you write simply has no relation with what I wrote.

        2) You are obviously clueless, so I’m not sure if it is worth to answer, but maybe other readers have a more open mind and read this. There is no reason to assume, that you have automatically unemployment because dollars are held off-shore. If consumption + investment is larger than production, you are importing more than exporting. This is in no way in contradiction with using domestic resources including labour to their full extent. The rest of world, however, will want in exchange a promise of a payback in the future. How much is roughly defined by the real interest rate on US debt. Any need to hold dollar reserves for foreign countries means, that this rate is lower.

    2. JohnnyGL

      “B) The international exchange of raw materials in dollars strongly influences the decision in which currency to hold reserves.”

      I think this is backwards…the decision is made to hold USD because of 1) convenience/ease of use (US runs CA deficits to let rest of world run surpluses in USD and also because USA has deepest, most liquid capital markets for transactions and 2) Rest of developed world has, at various times and to various degrees screamed “get out of my currency” with things like Chinese capital controls and negative interest rates from the ECB.

      So, I think the decision to hold USD reserves (because no one else wants the reserve currency role) drives the decision to adopt the convenience of pricing in USD. This enhances the US ability to impose financial sanctions, per your point A. There’s no point in pricing things in Yen, if you’re going to continue to hold USD. You’d only want to price things in Yen if you were going to hold Yen. But, the Japanese is going to actively intervene to devalue your reserves (by pushing currency down) and charge you negative interest rates to drive the point home.

  6. Chauncey Gardiner

    Thank you for a long overdue discussion of an international monetary framework that transcends domestic U.S. considerations. Complex derivative effects, but setting aside the enormous military costs, the system does enable the U.S. to run a large current account deficit with both positive and negative economic and social effects within the U.S. Would appreciate if Jeff Epstein expanded further on his final two paragraphs, particularly given the influence fossil fuel and related interests have on both this administration and our two legacy political parties under the Supreme Court’s Citizens United decision regarding political contributions, and the reasons behind their opposition to policies that would address climate change.

  7. jefemt

    Oil has been trading in the $60 US range for a while. Venezuela is one of the biggest holders of produced and oil in reserves. I am trying to square up why they are having such dire trouble— global financial blockade? Corrupt government and pals soaking up the wealth (hardly a commie regime in the ‘sharing economics of communism in the ideal)? Creating a legitimization and rationale for a strong military/police state, one the detractors ‘enemies’ have left and there is a far smaller populace left to share the spoils, or to fight the power structure?

    Some of all of the above? Interesting times. I question that it doesn’t matte what the medium of exchange is. Lets price oil in rubles….

    Oil economy— oil = power, accepted denomination for trade = power. This can’t end well …

    1. RBHoughton

      I suspect Venezuela’s position is solely due to its socialist policies. If a government considers it a duty to look after its people, other governments might emulate them and you risk the domino effect that made us go to war in Vietnam. Secondly, Venezuela is a victim of the clubby nature of our form of capitalism. You will not find an oil major out of lock-step with the rest. Its the same with the banks. And in Venezuela’s case there is a well-funded fifth column within the country examining and criticising everything the government does. The situation is a bit like two men with their heads in a barrel of water seeing who can outlast the other.

  8. Louis Fyne

    —The United States has more than enough people and resources, ready and waiting to fight climate change (and address many other critical issues). —

    how? without using more nuclear fission, and/or taxing gasoline-diesel to $9/gallon, and/or a 100%+ surcharge on electricity and/or more wind turbines off of Martha’s Vineyard

    Current wind-solar tech are not magic bullets. hopefully soon it’ll be different.

    As a practical matter, it’s an easy thermodynamics problem, you just need to find enough BTU/cut enough CO2.

    The politics behind it, that’s the issue.

    1. aliteralmind

      In the 1930s the civilian conservation Corps (CCC), a federal job guarantee-like program, planted more than 200 billion trees in just a few years. I would call that an excellent example in utilizing our resources and fighting climate change, that is not happening because of money in politics.

      Not to mention incredible army of people that could be utilized to cleaning up the mess of plastics and pollution that has been left from the past hundred plus years. A non-profitable job that is clearly for the greater good. Just how many of those “naturally unemployed” Americans would jump at the chance for a job like this?

      1. paulmeli

        Human resources. No shortage there for useful things we could accomplish if we just had the money. If only…

        Human resources get short shrift.

      2. Wukchumni

        200 billion trees?

        That’s widely off the usually mentioned 3 billion trees planted by the CCC, why the discrepancy?

          1. Edward E

            Probably should do something with the kudzu and such first while we’re planting the trees. First they kill the trees and are so widespread they partially offset emissions reductions from fossil fuel combustion.

            The ‘plant that ate the South’ makes soil puke carbon


            Clemson scientists: Kudzu can release soil carbon, accelerate global warming


            “Climate change is causing massive range expansion of many exotic and invasive plant species. As the climate warms, kudzu will continue to invade northern ecosystems, and its impact on carbon emissions will grow,” Tharayil said.

    2. paulmeli

      The politics behind it, that’s the issue.

      There you have it. We have the human resources and we can afford to mobilize and solve virtually any problem.

      What we don’t have is the collective will… our World is run by and for the Gods of profit. If someone can’t get obscenely wealthy and powerful from it it won’t happen.

      1. aliteralmind

        “What we don’t have is the collective will.”

        I know what you mean, and of course you’re basically correct. The following is not directed at you personally but I hear this kind of thing all of the time.

        Saying “not having the will” to do the right thing implies that they WANT to do the right thing. We ascribe way too much positive intention onto our in politicians. “They want to do the right thing, but they are inadvertently and mistakenly are not doing it. It’s an HONEST MISTAKE. They just need to learn the errors of their ways and SURELY they’ll do better next time.”

        It is my strong opinion that this is just not true. They are intentionally choosing to do (and not do) exactly what they are doing (and not doing). They’re paid to it. Their lives would be destroyed if they tried otherwise

        It is honestly not far off from an abused housewife saying, “He didn’t mean to beat me.” It is another reason of why the people don’t stand up to their government.

        1. paulmeli

          Saying “not having the will” to do the right thing implies that they WANT to do the right thing.

          Saying “not having the will” to do the right thing MAY imply

          …but clearly didn’t in this case.

          And no, I didn’t take it personally but you may have over-reached a bit.

          1. aliteralmind

            I do think many ascribe innocence and positive intentions onto the Democratic Party in particular (they WANT to give us health care, they really do, they just need to learn better…).

            Perhaps not so much in what you specifically said here. Apologies if that’s the case.

    3. dutch

      Its not just thermodynamics. Wind and solar are intermittent and require stand-by nuclear or fossil plants to maintain baseload for when the wind don’t blow and the sun don’t shine.

  9. Newton Finn

    I find it interesting–and frustrating–that the simple axioms of Modern Monetary Theory, spelled out so clearly, for example, in Stephanie Kelton’s “Angry Birds” video, seem unable to penetrate many otherwise intelligent minds. I suspect that the barrier lies not in the inability to comprehend but in the inability to imagine.

    MMT is essentially a description of human agency long thought, by intellectuals and ordinary people alike, as having been crushed by the seemingly-omnipotent neoliberal world order. Thus, when MMT demonstrates that currency-creating countries can still shape domestic policy to provide full employment at a living wage, provide adequate health care for all, ameliorate student loan and other debilitating debt, offer free higher education, begin to halt and repair massive environmental damage, etc., what stops so many from rejoicing in this good news is the diminished capacity to believe it, no matter how convincingly the case for it is made.

    The most dreadful power of neoliberalism lies in its TINA conditioning of the human mind and spirit to instinctively reject as “too good to be true” any suggestion that life can be other than a cutthroat Darwinian death struggle between winners and losers. This means that the mortal enemy of neoliberalism is not an opposing materialistic ideology but rather an idealistic worldview. And this is where Albert Schweitzer’s “reverence for life” comes into its own, as the most viable and inclusive form of idealism put on our table, the elemental and universal principle which is the polar opposite of neoliberalism.

    1. Susan the other

      The best way to temper idealism is with real-time reality. We have the technology to do that now. Each and every agreement for trade, for military cooperation, for social progress can be monitored to establish its effectiveness. We got the petrodollar after Bretton Woods when we insisted on the dollar as the international currency. It gave us political control, which we would have had anyway, but more so. In 1974 Nixon agonized about “inflation” and Conally (Sec T.) said “It’s not our problem, it’s their problem.” He was right because we had an economy that was and still is a power house. We had the ability to be the buyer of last resort and we bought the world into this hot mess. There’s no reason at all why we cannot now buy the world into a cool calm. It’s only money.

  10. Scott1

    I am pleased as hell that you published this statement from Warren Mosler. It is entirely perfect and even more justifies my statements that he is the man to watch. That is for his willingness to run for Elective Office. He is not just an economist but a fully capable Financial Engineer in an era of Class war & Economic Warfare unexcelled & under appreciated as changed since the 30s with nation shopping jets setters allowed passports of convince and all other tricks of parasitical pirates united in their world of Finance.
    The place of fossil fuels in the economics and financials for the USVI puts him in the hot seat. It is a big deal in this century he is willing to work at becoming elected as USVI Governor. I put any talent I have towards his service.

  11. Adam Eran

    RE: Inflation worries:

    Stephanie Kelton summarizes a Cato study of 56 hyperinflationary period throughout human history “Not a single one of … 56 cases [of historic hyperinflation documented by a recent Cato study] were caused by a central bank that ran amok. In virtually every case, the inflation was not caused by too much money but too few goods.”

    In the most famous of often-cited hyperinflations, farming collapsed in Zimbabwe as Rhodesian farmers left, and France annexed the industrial Ruhr depriving Weimar Germany of goods while it had foreign currency-denominated reparations.

    “Inflation is overwhelmingly driven by cost-push variables… Printing money just doesn’t do it. If it did, Japan would have exploded decades ago, because they’ve been trying quantitative easing for nearly 20 years, and they can’t move the needle on inflation. We’ve been trying it here in the U.S. for about five years, and Bernanke can’t even hit his 2% [inflation] target.”

    A more technical follow-up on the inflation discussions from

    1. Seamus Padraig

      “Inflation is overwhelmingly driven by cost-push variables… Printing money just doesn’t do it … We’ve been trying it here in the U.S. for about five years, and Bernanke can’t even hit his 2% [inflation] target.”

      It also hinges on how that newly printed money is distributed. If it were being widely disseminated to the masses–i.e., the people who really need it–there would indeed be at least some risk of ‘demand-pull’ inflation. However, in our society at present, the money is really only being showered on the top 10%, which tends to cause asset price inflation (real-estate, stocks, etc.) rather than wage and CPI inflation. For some reason, none of that gets counted as inflation for official purposes, even if it does drive up the cost of living for most.

  12. RBHoughton

    My recollection of 1974 was OPEC demanding a fair deal for oil/gas. Nixon had left the gold standard with that cute phrase that signaled the worsening of our troubles “the USD is as good as gold” and the global expectation was eternal inflation.

    Sheikh Yamani represented OPEC whose members all expected a stitch-up and agreed a deal that put a US Treasury man in Arabia counting barrels and crediting Saudi accounts with the Fed. So far as America selling protection, I am unsure whether that was before or after negotiations.

    Since then we have all debauched our currencies and maintain our exchange rates by concerted central bank acts rather than the magic market.

  13. TheScream

    It seems obvious to me that if commodities switch to Euros, then it would mean that the US is no longer a reserve currency or THE reserve currency. So using petrodollars (a term coined by an old professor of mine, by the way) in isolation is hardly an interesting intellectual discussion.

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