On June 8, 1974, President Richard Nixon dispatched Treasury Secretary William Simon and his deputy to Saudi Arabia in an attempt to strike one of the most critical—and secretive—economic deals in modern history. Three years earlier, in August 1971, Nixon had severed the final link between the US dollar and gold, officially ending the Bretton Woods system. That meant foreign governments could no longer redeem their dollars for gold, effectively turning the dollar into a pure fiat currency backed by nothing but political promises. After Nixon’s move, the US could effectively ‘print’ and spend as much money as it wanted—something that Congress enthusiastically embraced. Inflation soared, confidence in the dollar plummeted, and foreign countries began dumping dollars as a result. So Washington hatched a plan. The mission to Riyadh was a covert, high-stakes operation to engineer artificial demand for the dollar. They went to convince Saudi Arabia— the world’s largest oil producer— to sell its oil exports exclusively in US dollars. In return, the US would offer military protection, political support, and access to sophisticated weaponry. It was the birth of the petrodollar. Pretty much every country on earth was buying oil from Saudi Arabia. And if Saudi Arabia was only selling oil in US dollars, it meant that every country on earth had to continue to own US dollars... and by extension, continue buying US government bonds. This arrangement has continued for half a century and allowed the US to run massive deficits, ‘print’ money at will, and export inflation around the globe—all while maintaining an illusion of monetary stability. Today, there is once again grumbling around the world about reliance on the US and its currency. Even allies like France and Germany are actively working on diversifying out of the US dollar and investing their savings at home, rather than buying more US government bonds. In response, the Trump administration seems intent on resetting the global financial system and almost forcing foreign countries to continue holding US debt; insiders within the administration refer to it as the ‘Mar-a-Lago Accord’, and given the ongoing tariff announcements, it appears they are actually putting the idea into action. I wrote about this earlier in the week: this is an extremely high-risk gamble. But there’s one thing the US has going for it... a way to ‘engineer’ demand for US dollars and encourage foreigners to buy US government debt. Back in the 1970s, the need for oil forced foreign nations to continue owning US dollars. The oil of today is technology. And foreign nations will most likely line up to get their hands on US technology. The US is still the leader in advancements like AI and high performance computing, quantum, other advanced semi-conductor technologies, robotics, small scale nuclear, and more. Obviously other countries possess some of this technology; China still leads in supercomputing and has plenty of its own AI. But much of the core infrastructure— especially advanced semiconductors— is dominated by the United States. This is potentially an advantage that the US government might exploit (through export controls and more) in order to force foreigners to continue owning dollars... and Treasury bonds. This is the topic of our podcast today— and we also discuss: How the Mar-A-Lago Accord is an enormous gamble What happens to the US dollar if the gamble doesn’t pay off How they’re also might plan on dismantling Federal Reserve independence A 1960s-era economist’s view on why the reserve currency is doomed Peter Schiff’s father Irwin, and his testimony to Congress in 1968 And the right way to solve America’s debt problems You can listen in here. https://www.youtube.com/watch?v=N1E5Wkyr_HA (Podcast transcript can be downloaded here.)
