Prepare for the Death of the Petrodollar
by Addison Wiggin
DailyReckoning.com
Jun 4, 2014
“So let’s say the U.S. is really not importing much Arab oil anymore,” says Erik Townsend in a thought experiment. “Well, if that were the case, it’s really hard to see why the Arabs would continue to price their oil in dollars, especially at that point; their biggest customers would be China and Brazil and countries that have no reason to deal in dollars.”
We’re in debt to Mr. Townsend for helping us tease out the petrodollar’s endgame here. Erik parlayed the fortune from his first career as a software entrepreneur into a second career as a hedge fund manager who knows the oil futures market inside out.
Think about it, he says: Where’s the incentive to keep pricing oil in dollars and maintaining large dollar reserves if the U.S. is no longer your biggest customer?
“The petrodollar system breaking down, where oil is no longer paid for in dollars internationally, essentially would be the death knell to the U.S. dollar as the reserve currency. It means the U.S. can’t borrow with ‘exorbitant privilege’ anymore, and it means the U.S. Treasury market is set for an out-of-control interest rate spiral.”
Suddenly, the fact the U.S. needs fewer imports doesn’t matter when “the rest of the world won’t use dollars for their currency.”
The Rest…HERE
