Saudi Arabia Just Ditched The US Dollar (How This Affects You)
Summary
TLDRThe video discusses the end of the 75-year-old Petro dollar agreement between Saudi Arabia and the US, a pivotal moment in global economics. It explains the Petro dollar system's role in establishing the US dollar as the world's reserve currency and its impact on economic stability and trade. The script explores the implications of this shift, including the potential decline of the dollar's dominance and the rise of alternative currencies and assets like Bitcoin. It concludes with the presenter's personal investment strategy in response to these changes.
Takeaways
- 📅 The long-standing Petro dollar agreement between Saudi Arabia and the US expired on June 9th, 2024, marking a significant shift in global economics.
- 💡 The Petro dollar system, in place for 75 years, has been central to global finance, with oil being the key commodity priced in USD.
- 🌍 The US dollar's role as the world's reserve currency has provided the country with economic stability and the ability to control global energy resources.
- 🏦 The US has benefited from the Petro dollar system by exporting dollars and treasury bonds, fueling its growth through debt issued to other countries.
- 🔄 The end of the Petro dollar agreement is part of a trend where countries are moving away from using the dollar in international trade and oil transactions.
- 📉 The decline in the dollar's dominance could lead to higher inflation, higher interest rates, and potential economic instability in the US.
- 💼 The US's major export is not just goods and services but also dollars, which has created a global demand for the currency.
- 🌐 The potential end of the Petro dollar system could affect the US's ability to use its 'exit valve' strategy of releasing dollars to the world to manage inflation.
- 🛑 Saudi Arabia's decision not to renew the contract could be influenced by various factors, including a commitment to the BRICS alliance and a desire for more trade autonomy.
- 💡 Despite the changes, the US dollar remains a significant part of global finance, with 59% of foreign exchange reserves still held in dollars.
- 🚀 The speaker suggests a personal investment strategy focusing on diversification, including stocks, real estate, and Bitcoin, as a hedge against currency fluctuations.
Q & A
What significant economic event occurred on June 9th, 2024, as mentioned in the script?
-The long-standing Petro dollar agreement between Saudi Arabia and the US expired, marking a significant shift in global economics.
What is the Petro dollar system and why is it important?
-The Petro dollar system is an arrangement where oil is priced in US dollars, ensuring global demand for the currency and its status as the world's reserve currency. It has been crucial for the US's economic stability and dominance in global trade.
How has the role of the world's reserve currency shifted historically?
-The role has shifted from the French Libra (1720-1815), to the British pound (1815-1920), and after World War II, the US dollar became the dominant reserve currency due to the Bretton Woods agreement.
What are the two superpowers that come with a country's currency being the world reserve currency?
-The two superpowers are economic stability, allowing for international trade, and the ability to benefit from rising asset prices, including treasury bonds, as countries park their wealth in a stable currency.
How did the US dollar become the Petro dollar after it got off the gold standard?
-The Petro dollar system was established after a secret meeting between Henry Kissinger and the Saudi Arabian government, where the US was given the exclusive right to develop oil from Saudi Arabia using dollars, thus oil was priced in USD.
What is the significance of Saudi Arabia's decision not to renew the Petro dollar agreement?
-The decision signifies a move away from the US dollar in international trade and oil transactions, potentially weakening the dollar's dominance and the US's global financial influence.
What are some of the largest economies doing in response to the changing economic landscape?
-Developing nations, including some of the world's largest economies, are ditching the dollar in their bilateral trade, with Saudi Arabia reportedly asking to join BRICS, indicating a trend away from the US dollar.
How does the US export dollars and what benefits does it bring to the US economy?
-The US exports dollars by issuing treasury bonds that other countries buy, fueling US growth through debt. It also benefits from a stable economy with lower interest rates and increased liquidity in financial markets.
What could be some potential negative impacts on the US if the demand for the US dollar decreases?
-Potential impacts include higher inflation, increased interest rates, a strain on the banking system, national deficit, and federal budget, and a devaluation of the dollar which could affect international trade and retirement accounts.
What strategies might the US employ to maintain the demand for the US dollar?
-The US could raise the Federal fund rate or interest rate to attract more money. However, this strategy has limits as raising rates too high could negatively affect the US economy.
What is the current status of the US dollar in global foreign exchange reserves and transactions?
-The US dollar still holds a significant portion of global foreign exchange reserves at around 59% and is used in 88% of foreign exchange transactions, indicating its continued importance.
What is the speaker's personal view on the future of the US dollar and alternative investments?
-The speaker believes that while the US dollar will continue to play a less central role in global trade, it will not be replaced by another currency in their lifetime. They advocate for a diversified investment approach, including stocks, real estate, and Bitcoin.
Outlines
🌏 End of the Petro Dollar Era
The video discusses the expiration of the 75-year-old Petro dollar agreement between Saudi Arabia and the US on June 9th, 2024, marking a significant shift in global economics. The Petro dollar system, which cemented the US dollar's role as the world's reserve currency, was established post-World War II and allowed the US to control global energy and benefit from economic stability and rising asset prices. The video aims to explain the implications of this change for current and future generations.
💵 The Impact of Ditch Dollars on Global Trade
This paragraph delves into the consequences of countries moving away from using the US dollar in international trade and oil transactions. It highlights the concerns in the US over the potential end of its global financial dominance. The narrator contrasts the US's reliance on exporting dollars with the export strengths of other major economies. The paragraph also explores the benefits the US has enjoyed from the Petro dollar system, such as demand for its currency and treasury bonds, and the potential economic challenges if the US loses its ability to export dollars.
📉 Economic Ramifications of a Dollar Crisis
The narrator explains the potential economic fallout if the US dollar loses its global dominance, including inflation, higher interest rates, and the strain on the banking system and national deficit. The paragraph uses analogies and real-world examples, such as Greece's financial crisis and hyperinflation in Argentina and South Sudan, to illustrate the dangers of an uncontrolled money supply and the importance of the dollar's role in global trade and energy purchases.
🛑 The Future of the US Dollar and Personal Strategies
In the final paragraph, the narrator discusses the potential strategies the US might employ to maintain the dollar's status, such as raising interest rates, and the limitations of these strategies. The paragraph also presents data showing the continued strength of the US dollar in global reserves and foreign exchange transactions. The narrator shares personal views and investment strategies, including a diversified approach with stocks, real estate, and Bitcoin, as a hedge against currency instability.
Mindmap
Keywords
💡Petro dollar agreement
💡Global trade
💡Reserve currency
💡Bretton Woods Agreement
💡Economic stability
💡Treasury bonds
💡Inflation
💡Federal fund rate
💡BRICS alliance
💡Diversification
💡Bitcoin
Highlights
The Petro dollar agreement between Saudi Arabia and the US expired on June 9th, 2024, marking a 75-year-long system's end and a significant shift in global economics.
The US dollar's role as the world's reserve currency was established post-World War II, especially after the Bretton Woods agreement.
The Petro dollar system was a strategic move by the US to control global energy and maintain economic stability through oil pricing in USD.
The US benefits from the Petro dollar system by exporting dollars, which fuels its growth through treasury bonds purchased by other countries.
The end of the Petro dollar agreement could signify a move away from the US dollar in international trade and oil transactions.
Saudi Arabia's decision not to renew the agreement is part of a trend where countries are seeking alternatives to the US dollar in trade.
Countries like China and Russia have been reducing their dependence on the US dollar, impacting its status as a reserve currency.
The US dollar's global dominance is challenged as more nations, including large economies, look to diversify from USD in bilateral trade.
The US's ability to export dollars has created demand worldwide, supporting its economy through lower interest rates and financial market liquidity.
Inflation and the value of the dollar could be negatively impacted if other countries no longer need USD for international transactions.
The US might raise interest rates to attract money, but this has limitations and could affect the domestic economy.
Despite challenges, the US dollar remains the most held currency in foreign exchange reserves and transactions globally.
The speaker suggests a personal investment strategy focusing on broad market index funds, dividend reinvestment, and Bitcoin as a hedge.
Bitcoin is posited as a potential world reserve asset and a hedge against inflationary currencies.
Diversification in investments, including real estate and a mix of stocks and bonds, is recommended as a risk management strategy.
The speaker predicts that while the dollar's role may diminish, it will not be replaced by another currency within their lifetime.
The video concludes with an encouragement for viewers to focus on controllable aspects of their financial future rather than uncertainties.
Transcripts
I didn't think we'd be in phase three so
early but here we are just this Sunday
one of the biggest economic deals of the
century just came to an end the
long-standing Petro dollar agreement
between Saudi Arabia and the US just
expired on June 9th 2024 now this system
which has been in place for 75 years
marks a huge shift in global economics
so in today's video I want to help
explain exactly what's happening why
it's happening and how this will affect
us and our future Generations so with
that said let's get into it hi my name
is Andre J hope you're doing well come
for the finance and stay for another
boring macroeconomics video Phase 2 so
initiate the storytelling and dramatic
music so when most people think about
global trade they're probably thinking
about Commodities and when they think
about Commodities they're mostly
thinking of things like corn or wheat
but there's one commodity to rule them
all and that is oil now at the center of
this intricate web of global Finance
the Petro dollar system is at its core
that's why when most people around the
world think about what money actually is
they're probably thinking about the US
dollar but it wasn't always like that
though between 1720 to 185 if you asked
someone to name a currency they would
have probably said the French Libra
because it was France that held the
reserve status from 1720 to 1815 but
then if you ask someone to name a
currency between 1815 to 1920 you would
have probably heard the British pound
now after World War II everything
changed with the creation of the bretan
woods agreement because after that point
most people would have probably said the
US dollar now this happened because the
US was pretty much the only standing
superpower after World War II but this
system wasn't about one thing it wasn't
about Commodities it was about cementing
the Dollar's role as the world Reserve
currency because being the one money to
ruled them all gave that country access
to two specific superpowers and one of
them was economic stability stability
allows for things like International
Trade to happen if you want countries to
trade you need a common value and a
common money that everyone agrees to and
the second superpower is the country
whose currency becomes the one benefits
from rising asset prices including
treasury bonds which is seen as safe so
countries Park their wealth into money
that is seen as stable to preserve their
wealth against inflation and all the
other currencies that's why countries
like Japan China and the UK are some of
the biggest holders of us assets through
foreign exchange reserves roughly 7 to8
trillion worth but then in secret
another superpower was made for the US
dollar and that was the ability to
control the world's energy
the standard of living of all Americans
can be traced back to here the vast oilr
deserts of Saudi Arabia our
house is your house there's an Arab
saying the Sands are blowing and I
submit to you King Fahad that if the
sands of time give us any hint of the
future it is that in the days ahead the
friendship between the Saudi Arabian and
American people will be a strong vital
force in the world now after the dollar
got off the gold standard it became the
super Petro dollar and it replaced Gold
by what some people like to call Black
Gold AKA oil now how this happened is
one of the most interesting stories that
has ever happened throughout history the
Petro dollar was actually a device
invented by Kissinger and Nixon US
president Richard Nixon sent his
secretary of state and National Security
adviser Henry Kissinger to Saudi Arabia
for a secret meeting that meeting took
place on a battleship called the USS
Quincy and very few records were kept of
that meeting but Roosevelt promised the
king of Saudi Arabia weapons and
protection in exchange for the United
States to have the exclusive right to
develop oil from Saudi Arabia using
dollars meaning if countries wanted to
trade the most important commodity of
all oil they needed to get their hands
on dollars and from that that point on
oil would be priced in USD and if a
country tried to get their hands on oil
without using dollars that country
historically needed more freedom in
their lives and it's this Arrangement
between the US and Saudi Arabia that
helps the US with dominance over global
trade and helping preserve the US dollar
as the world's Reserve currency for over
75 years now but just this Sunday the
prince of Saudi Arabia announced that he
would not renew this contract and this
decision is part of of a much bigger
Trend where countries are ditching
dollars in international trade and oil
transactions the dollar looks like
they're dumping it the world's largest
oil producer Saudi Arabia is reportedly
asking to join bricks as more and more
developing nations including some of the
world's largest economies decide to
ditch the dollar in their bilateral
trade voices of concern and even despair
of being heard in the US over the
looming end of America's Global
Financial dominance
but the question is what does all of
this actually mean ask yourself this
question what is the US famous for
exporting that the world is buying I'll
give you some examples China is famous
for being the world's Factory it makes
and exports everything Germany is known
for its engineering and highquality
Manufacturing BMW Porsche Mercedes Japan
is a major exporter of electronics cars
Toyota Honda and the best anime in the
in the world South Korea famous for
semiconductors smartphones Samsung
Hyundai Kia and some of the best
skincare products in the world Saudi
Arabia famous for its oil it's one of
the biggest exporters of crude oil in
the world Russia famous for its natural
resources it's gas it's oil it's coal
it's other minerals Brazil is known for
its agriculture one of the biggest
exporters of soybeans coffee sugar and
beef India is a major exporter of
software services Tech and
pharmaceuticals Australia is also rich
in natural resources it's the leading
exporter of iron ore coal natural gas
and black opal Canada is also a huge
exporter of Natural Resources including
Timber minerals and some of the nicest
people I've ever met France is arguably
the biggest exporter of luxury goods and
fashion in the entire world Italy is
also known for fashion and luxury
Ferrari Lamborghini wine pasta the
Netherlands famous for happiness flowers
dairy products vegetables height
Switzerland famous for financial
services it's the world's biggest bank
Pharmaceuticals Rolex the United States
famous
for the Kardashians Hollywood now
there's actually a lot of things the US
produces that the world consumes
including culture but also Tech we've
made the biggest companies in the world
we export the biggest military in the
world but arguably the biggest export
that the United States has by far are US
Dollars we Aid a lot of countries with a
lot of money by Design design we are the
world's biggest money exports so the
question is how does being able to
export dollars help the US economy and
the answer is it helps in every single
way imaginable because having the Petro
dollar system has created a demand
around the world for other countries to
buy our dollars and our treasury bonds
because that's how the US fuels its
growth by issuing this debt these
treasury bonds that other people buy
it's also created a stable economy lower
interest rates and liquidity and
financial markets and this has been
hugely beneficial for the US Stock
Market through higher stock prices and
investment flows without the ability to
export dollars that would mean bad
things let me show you an analogy using
a balloon because this is the US economy
in its normal State and whenever there's
a problem we can just pump the balloon
full of money to solve the problem which
also creates inflation and it looks like
this
now if I pump this balloon with enough
inflation eventually those Rising prices
would cause the economy to break because
consumers wouldn't be able to afford
anything So eventually with enough air
with enough money the economy would
break now lucky for us we have an exit
valve right
here that means we can release the
pressure and the dollars to the rest of
the world and the world would actually
absorb it because it also needs those
dollars to buy its energy but what
happens when you have a balloon that
keeps on expanding and doesn't have an
exit valve eventually that balloon would
pop now that's just an analogy but what
does it really mean Believe It or Not
we've seen what it means because it's
happened to other countries Greece is on
the verge of default tonight hours from
what many believe is a near certainty
scenes like this are playing out across
the country the UN says food prices
tripled last year and estimates four and
five syrians now live below the poverty
line since 2019 the Lebanese pound has
lost more than 90% of its value basic
commodity prices have almost doubled
Argentina's annual inflation reached
more than 100% in February this is the
first time since 1991 it's been in
triple digits so his costs go up
whenever the value of the South Sudanese
pound Falls against the US dollar
higher inflation means higher interest
rates to fight inflation and higher
interest rates also means it's more
expensive to borrow money which means
expensive mortgages and rents more
expensive auto loans higher student
loans and higher interest rates on
credit cards higher interest rates also
puts a strain on the banking system
which we've seen with the smaller bank
failures it puts a strain on the
national deficit which we've also seen
and of course the federal budget which
also means in order to fight that we
might have to raise our taxes to pay for
those higher interest payments another
problem would be the value of the dollar
itself would be affected because it
would no longer be needed by other
countries that makes traveling overseas
a lot more expensive it makes buying
things that are made in other countries
more expensive and it becomes harder to
retire because those retirement accounts
those IAS and 401ks would be negatively
affected remember less foreign dollars
buying assets equals slower growth
question is why is Saudi Arabia doing
this some people blame us leadership in
congress for creating the situation some
people say they're doing this because
they can because it makes sense for a
country to trade how they choose and to
sell their Assets in the currency they
want but it's also because of their
commitment to the brics alliance that's
Brazil Russia India China and South
Africa countries like China and Russia
for example have been reducing their
dependence on the dollar for a while now
which is why China recently dumped a
bunch of US Treasury bonds and it's also
why the dollar as a reserve currency has
reached a 14-year low so how can the US
fight this then now short of declaring
freedom on a country the US can also
raise its Federal fund rate or the
interest rate to attract more money to
be parked here and we have but the US
can only raise the interest rate so far
before it starts to affect the US
economy consumers small Banks and the
ability for us to borrow money so
unfortunately there's really not a lot
the US can do which doesn't sound like
good news but I also want to show you
data that argues the effects of all of
this I did this in another video but if
you didn't watch that video I think it's
important to remind yourself just how
powerful the US's number one export
still actually is because the world
holds roughly 59% of its foreign
exchange reserves in dollars in
comparison to only 20% of that in euros
and only 3% for the Chinese remede and
the dollar is used in 88% of Foreign
Exchange transactions according to the
Atlantic Council and for the Chinese
Yuan which a lot of people reference as
a competitor to the dollar just had 73
central banks abandon it in favor for
buying more gold and US dollars in fact
in a survey of global money managers
when they were asked what they wanted to
do over the next 1 to two years with
their currency here's what they said 18%
of them said they would be adding to
their US dollar which is three times
High higher than what it was last year
and the dollar is also backed by the
world's biggest most advanced and
Powerful militaries in the entire world
now how long that's going to last is not
something I can answer all I've shown
you is just the data and the facts about
what's really going on today so I don't
know none of this was my opinion but if
you made it this far here's what I
personally think I didn't even know this
agreement was coming to an end until a
couple days ago when someone left a
comment on my video so thank you for
bringing it to my attention I do read
and respond to a lot of your comments
but I'll reiterate what I said in that
video the world has been becoming less
dependent on the dollar for a long long
time now and it makes perfect sense why
it would want that for itself to me but
it's been happening extremely slowly and
I can see in my lifetime how the dollar
will continue to play less of a central
role in global trade but do I think it's
going to be replaced by another currency
not in my lifetime even with this
agreement coming to an end now rather
than just saving my money and worrying
about the end of the world about
something that is completely outside of
my control I focus on what I can control
which is just investing into the stock
market into lowcost broad market index
funds and reinvesting all of my dividend
income back into my dividend stocks and
as an insurance policy I also like to
buy some Bitcoin now I don't think that
Bitcoin will ever become a currency but
Bitcoin has what I like to call a lot of
attack vector s for preserving and
creating wealth for example I think the
generational wealth transfer from our
parents alone will make Bitcoin out grow
the size of gold I think we'll see more
countries with high inflation adopt the
Bitcoin standard we'll see more Pension
funds join Bitcoin it'll be added to
mutual funds inside of people's
retirement accounts like 401ks and IRAs
I think Bitcoin will eventually become a
world Reserve asset a store of value
especially for currencies that get
printed out of thin air now it's not
just a hedge against the dollar it's
also a hedge or a bet against any other
currency that may or may not replace it
now I also hold some real estate because
they can't print more of that I have
some stocks I have some bonds I have
some dividend stocks as well now if I'm
wrong on any one of them which I could
be hopefully if I'm right somewhere else
then I'll be all right that's just my
Approach with that there's a lot of risk
and of course mistakes which are made
public but I still hope that you get
some value and insight anyway I'd love
to hear what you think and what you're
doing let me know what I might have
missed as always I hope you have a
wonderful rest of your day smash the
like button subscribe if you haven't
already don't forget to grab your free
stocks links are down below and to go
track them automatically with a
spreadsheet link Down Below in my
patreon thank you so much for watching
this video I'd love to see you back here
on Monday and Friday sometimes a
Wednesday I'll see you soon bye-bye
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