USA – A country where even to go to a nearby shopping mall which is just a stone’s throw away, you take out your private vehicle! A country whose public transport system is pathetic and owning a car is a necessity, not a luxury! A country where petroleum is taken to be granted, and has always to be very cheap, since the whole country runs on it.

USA – A country whose imports are more than double of its exports. A country whose people are worst savers and over spenders, who prefer to buy today and pay tomorrow! A country which runs huge trade deficits every year, even huge than most of the underdeveloped countries, exports very little compared to its imports! A country which completely relies on the world wide acceptance of its currency – the US Dollar.

Again, the same USA – whose economy will collapse like a pack of cards if ever the world wide acceptance of its dollar should come down!

Now back to the basics of economics. How on earth can I keep spending 10 times more than what I earn, and continue to do so for decades together! This was the problem which US faced back in the 1970s. Till then it was the world’s leading oil producer and simply used to export its oil to feed its hungry consumer society. But once huge reserves of oil were discovered in the gulf region, the American domination started to come down.

So what next?

If the newly emerged oil exporting countries in the Gulf started to export oil in their own currency, then the global value of US dollar would come down, since other oil importing countries will no more need US dollars, and then US wont be able to feed its hungry consumers by running huge trade deficits because no country would want to take US dollar in return for their exports!

Paper currencies are worth nothing more than their paper if they are not backed by some valuable substance. Before 1970s it was the Gold that backed the US dollar. Only other alternative to back the US dollar after Gold was taken out was OIL.

America entered into a secret deal with Saudi Arabia, the country which emerged as the world’s leading oil producer in the 1970s. Saudi Arabia had to sell all its oil only in US dollars and in return the US arms would reach Saudi Arabia without any restrictions. Once Saudi Arabia started selling its oil in US dollars, all other oil exporting countries followed suit.

The result of this deal was that dollar became the default global currency. Every country needs to import oil, and since OPEC (organization of oil exporting countries) accepts only US dollars to sell oil, all oil importing countries of the world need to continuously maintain a reasonable amount of US dollars in their foreign exchange reserves so that they can continue to buy the petroleum required to run their country day after day. This forces every country to export whatever they can to US so that they can earn US dollars, which in turn can be used to buy oil later. This also has made US dollar the preferred currency when even other countries trade between themselves. This has made US dollar more important than gold! This is the only reason why every country wants to have US dollars in its reserves.

And see how US gains from this. Even if they export very little compared to the amount of goods and raw materials they import from around the world, inspite of running huge trade deficit worth billions of dollars every year, US economy will not collapse because US can simply print more dollars and pay for its imports, since US dollar is accepted world wide! The world wide acceptance of US dollar ensures that countries compete amongst themselves to export goods to US at lowest possible price, and to maintain their competence many countries heavily devaluate their currencies against US dollar (this is what India did in 1990s, and China continues to do this even today by pegging its currency with US dollar)! This competition amongst countries ensures that US gets things imported at cheapest possible price, and hence there is very little inflation in US economy which is why even today things in US cost almost the same as what they used to cost few decades back!

In other words, if not for the world wide acceptance of US dollar, the US economy would have collapsed long back because of its inability to sustain a huge trade deficit and because of its inability to feed its hungry consumers who consume anything and everything from the entire world. Even the cost of petroleum in US is so cheap because it can simply print more dollars to pay for importing the required oil. The moment a competing currency emerges to buy oil, that signals the beginning of trouble for US economy. And this was EXACTLY the reason why US went for war on Iraq.

Saddam Hussein had started accepting the newly emerged currency-Euros instead of US dollars for selling oil from Iraq. This lead to ultimately the invasion of Iraq on the pretext of Saddam’s regime being an evil regime possessing WMDs! The real WMD which Saddam had was Oil, and Iraq accepting Euros meant Saddam was using his weapon! This posed a major threat to the US economy because if other oil exporting countries start following suit of accepting Euros instead of dollars, then oil importing countries will also get an option to store euros instead of dollars in their reserves, which in turn means these countries will instead export their products to Europen Union, which in turn means US consumers will face a shortage of the much needed imports, leading to inflation in US and the prices will rise in US like anything because of the huge trade deficit and acceptance of dollar worldwide comes down too! Imported goods which cost 1$ today can cost as high as 40$ if the worldwide recognition of US dollar were to come down. And the only reason US dollar is recognized world wide is because it is the default currency to import petroleum oil worldwide!

If Saddam had not started accepting euros instead of US dollars, then his regime would NOT have come down. So the Iraqi invasion has NOTHING to do with liberating the people of Iraq, instead it was done to liberate the US economy. The US companies which have taken over the Iraqi oil today, the new Iraqi government, all have switched back to accepting to US dollars instead of euros for Iraqi oil. The first thing the american troops did after they seized Iraq was to take over the oil fields of Iraq. They are not even bothered about Iraqi civilian lives. Even today we hear of a large number of Iraqi civilian casualties in terrorist attacks, but little damages to Iraqi oil fields. Thats because the oil fields are protected and guarded by american led military forces, and very little is being done to protect Iraqi civilians. Iraq has entered into a state of anarchy today.

Contrary to what the general public believes, American military might has never been there to establish the people’s rule or democracy on the planet. It has been only used to maintain the might of the American dollar. There are dozens of other countries whose people are oppressed by its dictatorial rulers. Why hasnt American military entered those countries? Simple, because there is no OIL or any other equally valuable commodities in those countries :)

The reason Iran was added to the list of evil regimes is also because of the same petroleum-dollar relationship. The new Irani regime wants to start accepting euros instead of dollars! Hence the US administration wants to get rid of that regime!

But its not just Iran or Iraq that are moving away from dollar. Russia which used to have 90% of its foreign exchange reserves in dollars today has only 45% in dollars, and 45% in Euros! Russia is also a big oil exporter! India took a recent step away from dollar after the Indian Rupee became about 11% stronger against dollar in just a year! Indian tourism department has STOPPED accepting money in dollars, foreign tourists going forward will have to pay only in Indian rupees, US dollars wont be accepted anymore in India by the tourism department! At the same time because of a stronger rupee against dollar, touring India has become much more expensive for American tourists to India, so much that even Indian hotels have stopped accepting dollars!

Oil exporting countries dont want to pile up all the dollars that they earn because its of no use to them, instead they use these dollars to invest in businesses, real estate, properties etc in US and Europe, which is why you can see a lot of properties in US and Europe being owned by the gulf countries, especially Saudi Arabia. China today holds one of the largest reserves of American dollars and every time the value of dollar goes down, so does the value of Chinese foreign exchange reserves. Still China continues to hold dollars in its reserves as it can use this as a potential negotiating factor while discussing things with the US. China can virtually bring down the US economy to its knees if it releases all the billions of dollars it has piled up in its reserves! Its like an economic nuclear weapon which China has, and China knows very well how to use it. By simply saying that it will use it, China can influence the US policies to its advantage :)

“Borrowing hundreds of billions of dollars from China and OPEC puts not only our future economy, but also our national security, at risk. It is critical that we ensure that countries that control our debt do not control our future,” says Senator George Voinovich of Ohio. US dollar is also weakening because the currencies of countries like India whose economies have boomed due to the outsourcing and offshoring success have not pegged their currencies to dollar and have instead allowed the market to decide the value of rupee (Unlike China which has artificially maintained a weaker Yuan). What all this means is that if US wants to retain its dollar supremacy by military force then it will have to wage a war on the entire rest of the world :)

So what does a weakening dollar mean to US? Inflation… in simple terms a rise in the prices. Already the US debt today stands at an amazing 30000 $ per person! Only a stronger dollar hid the negative effects of this on the US economy. But a weaker dollar will leave the US economy completely exposed. The US national debt today is about 9.1 trillion dollars! Its increasing at the rate of $1 million every minute! Whats interesting to note here is that the national debt was $5.7 trillion when Bush took over as President in 2001, and will be about $10 trillion by the time he quits in 2009. In other words, the war policy of Bush has cost too much to the US economy, almost doubling its national debt during this period. Ever since Bush took over, the American dollar’s value has gone down by 35%! Stanley Collender, a former congressional budget analysis said, “The day Chinese or Japanese or Saudis say that we’ve bought enough of your paper (dollars), then the debt – whatever level it is at that point – becomes unmanageable”

Also America is facing the same problem which China is facing. Over the next two decades the population of people aged above 65 will be much much more than the working population, in both US and China! On the other hand India today has over 60% of its youth below 25 years of age, and over the next two decades there will be about 70% of the population which is below 25. This according to me is the greatest advantage of India, and India should use this huge youth population to its greatest advantage by giving proper guidance to its youth. Even today the number of Indians below 25 is twice the number of total american population! An aged population being in majority means the country earns less than what it spends in terms of retirement benefits to its aged population, and that is not good economics.

All the Americans can do is to hope that the future government that takes over does not mix up economics and idelogy, and concentrates on the welfare of its people, instead of trying to maintain its superpower status by bullying the rest of the world.

Watch the Petro Dollar Story below: