Petrodollars

The US sits in the cat bird seat when it comes to global economics for two main reasons. First is productivity. The US leads all major countries in GDP per capita. The US has the most efficient manufacturing, the most creative research and development and the best higher education system. The second reason is the way the economic system is designed. In 1944 countries from around the world met at Brenton Woods, NH to decide the rules regarding world commerce. The war had left the US mostly unscathed from bombing and countries had purchased war materials from the US with gold. The US held 70% of the world’s gold supply at the end of WW 2. It was therefore decided that the US dollar would be the world’s currency. The price of gold had been set at $35 per ounce but in 1971 that changed. The US needed money to pay for new benefits which came from the Great Society (Medicare and Medicaid) and the Vietnam War, so the dollar was taken off the gold standard so the US could print more money. Then in 1973 the Yom Kipper War broke out when Egypt and Syria launched an attack on Israel and when the US sent weapons to Israel, Saudi Arabia instituted an oil embargo. The US then negotiated a deal with the Saudis, agreeing to protect the Saudi oil industry from foreign attack, if the Saudis agreed to sell oil only in dollars. These then became known as petrodollars and that is still the case today. So how does that help the US. Japan is a country that needs oil and they buy it from the Saudis but they must pay for it with dollars so they purchase US bonds and use that to pay for the oil. Japan currently owns $1.2 trillion in US debt. The US, unlike any other country, can print dollars and still have a market for them.