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Message Subject Human survivability with supply chain disruptions and its effect on populations
Poster Handle Anonymous Coward
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The value of money is about stability, generating wealth, and trust

(Digressing to explain why currency collapse is a big deal...)

Currently in order for most oil trades to occur, the buyer of the oil must purchase dollars first. Then they exchange dollars for the oil. This is what is known as a petrodollar transaction. Many nations don't like the fact that the dollar is the basis for oil exchanges since there's such high deficit spending in the USA. In many cases, the major players have been working on direct trades of their own currency to purchase oil, and thereby reducing the need for dollars and a subsequent lowered demand for dollars likely translates into a lower value for dollars versus other world currencies.

It's a system that was set up to create an exchange between Middle Eastern nations like Saudi Arabia and the USA. They wanted to sell their oil to develop their nation. We wanted to sell our T-bills, Notes, and Long term Bonds and things were relatively stable, and they and most nations invested in US government debt instruments.

As long as someone will loan us money (these debt instruments) then we can deficit spend. Who purchases our debt? China for one. They want us to continue as a nation, for the time being at least. We purchase their products, and as long as their currency is worth less than the US dollar, then their produces are cheaper than another nation's products. They can then export to us in a favorable way.

The value of money, that is not backed by a resource standard of limited availability (like gold), is entirely based upon the stability of a nation, their ability to generate wealth, and trust.

If a nation is unstable, the ability to generate wealth (products, services, and natural resources) is hampered or flat or declining, and there's little trust...then the money value falls. It can fall a lot even plummet.

With lowered real estate values, no great new product or service on the horizon, no resources to exploit, then there's a loss of wealth. Worse, many people are not generating wealth since they're unemployed. If the government decides to artificially create money to pay them (which is what food stamps and unemployment insurance is), and spends far and above what the bonds can bring in, then the cumulative effect is a plummeting amount of wealth.

This is why I believe a collapse of the petrodollar is inevitable baring a new currency for the US to supplant the dollar. That could only happen if there was a new resource of some kind to create stability, create wealth, and restore trust.

A new currency would likely be a verifiable resource within the US, and the most likely resource is little know oil reserves. Since oil reserves can be estimated, the appraisal of those reserves can be used to place a figure on the value of any currency that is supported by that resource.

Vast new oil reserves (hypothetical) should cause a drop in oil prices, for there's an increase in supply. However with oil, there's a huge demand in places like China that's boosting demand as well.

If the US had enough oil for itself, and could even export oil, then would there be any reason to purchase Middle Eastern oil? Given things like the Muslim Brotherhood, and the instability in that region, both now and historically, wouldn't that negate the power of their oil reserves. I think it would.
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