Oil's tie with the USD

In this post I am going to discuss about the relationship the USD has with oil. 70% of the oil in this world is denominated in U.S. dollars. That's several trillion USD of oil floating around That's basically a monopoly. In other words the world is letting itself get ripped off because the strong majority of oil sold passes through the USD at some point. The U.S. dollar is a middle man. For example, until last year, Russia was using U.S. dollars in oil transactions with Germany. Are you kidding me. That's like the U.S. buying oil from Canada in rubles. More and more countries are realizing the absurdity of this and cutting out the middle man (the U.S. dollar). This means there is more and more dollars floating around the world, without the ties of oil to them. The U.S. is creating a whopping $800 billion of debt a year. Asia giants and the major oil producing countries of the world are mopping up approximately $700 of America's red ink. Why do they do this? They do it to pay for all of their oil transactions that are being done in USD. Otherwise they would have chucked the greenback long ago an d

I don't know if you realize the absolute crazy amount of liquidity regarding the U.S. dollar that is in the world today. Let me try and help. Like I said 70% of the oil in the world is denominated in USD. That's several trillion dollars. More and more countries are realizing that they lose money by conducting their transactions in USD. So, what happens when that 70% drops to 40% or 30%. That's a bunch more U.S. dollars floating around the world. China holds roughy $750 billion USD denominated assets. U.S. citizens took out a record $825 billion dollars of equity out of their homes last year. And there's another several 10s of billion USD in the central banks of the world. This is all made possible because the Federal Reserve has, since 1995, consistently printed a mind boggling 10% more USD every year, and sells billions of dollars in bond on a monthly basis. We now have a national debt of 8.6 trillion dollars. Wow.

And what happens when there are more dollars in the world the people who want them. Well, we are very close to that. The Russian central bank has said they don't want USD any more and want 10% of their reserves to be denominated in gold. The central bank of China says that they are diversifying away from the USD and putting large investments into base metal/precious metal/uranium mining and oil/gas drilling programs. On Monday they started the filling their first oil reserve tanks. China imported a record 145.18 million tons of crude oil last year making them the third largest importer of oil behind the U.S. and Japan.

All this paints a crystal clear picture of downfall for the future of the USD. Let me tell you how this is all going to happen. We are going to get hit on a couple of fronts, but all of the fronts will fuel each other when they get going. Here are some of the things that are happening right now. I have already talked about some. The foreign banks of the world are diversifying away from the USD, less demand for the USD. Countries are quickly wisening up about the USD oil scam and working on conducting their transactions in their own currencies, less demand for USD. Recession hits in the U.S. and the Feds lower the interest rates but it won't work because of the current situation of the housing market. The only other solution that they know how to do is print money, more supply of USD. The 10% that they are printing now will seem small in 5 years. As simple supply and demand says, when demand decreases and supply increases, price falls. The price, or value of the USD will fall. This will cause more and more countries to seperate their oil from the USD. Foreign banks will decrease their holdings of the USD faster. Recession will deepen and more dollars will have to print. And somewhere in this mess, the U.S.'s ability to sell its bonds will cease to exist because the value of dollar is losing its value. The ability for the U.S. to sell its bonds is its last remaining life line. I've said what I came to say and you know my answer to all of this...gold.