John Adams: Australia’s Approaching New 1942 National Crisis

Australians must become alert to the national consequences resulting from a challenge to the petrodollar system.

The petrodollar system, an arrangement struck initially between the United States and Saudi Arabia in 1973 and which later expanded to all OPEC nations in 1975, mandates that all crude oil supplies sold on the international market by OPEC nations are denominated in U.S. dollars in exchange for American military protection, the supply of American weapons and a stable U.S. dollar.

Under this arrangement, any country which seeks to purchase oil from OPEC nations are required to first exchange their own national currency for U.S. dollars.

This monetary trade system has been, and continues to be, essential to maintaining the economic strength of the U.S. dollar as the global reserve currency.

It is the petrodollar system which has allowed the United States to incur federal government debt of $US 20 trillion (103% of GDP) and Gross External Debt of $US 18.29 trillion (94.4% of GDP) without any major disruption of the supply of financial credit or loss of confidence from international creditors.

Strategic rivals to the United States who do not possess comparable military strength have long calculated that American economic and military power can be compromised if the petrodollar system is undermined if not dismantled.

Independent analysts have suspected that US Government military action against Saddam Hussein and Muammar Gaddafi were in part due to Hussein’s plan to sell Iraqi oil in Euros and Gaddafi’s plan to sell Libyan oil via a single gold‑backed African currency – the ‘gold dinar’.

In recent weeks, a long-planned multi-nation effort has been launched to collapse the petrodollar system as a means to undermining, if not destroying, American hegemony.

After hoarding significant amount of the world’s gold reserves over the past decade with other allied nations such as Russia, China announced that it will soon be launching a new crude oil futures contract, through the Shanghai International Energy Exchange, priced in Yuan and fully controvertible into gold.

As the world’s largest importer of crude oil, China, through this facility, would be able to buy oil from major suppliers such as Russia or Iran while simultaneously bypassing the U.S. dollar.

In addition, Venezuela, in the past fortnight, announced that it will no longer accept U.S. dollars for the sale of their oil.

Both actions will undermine the relevance and demand for the U.S. dollar in international trade and finance, placing additional pressure on its relative value which has already fallen 11% on the US Dollar Index since January 2017.

A further fall in the demand for the U.S. dollar will not only worsen America’s trade and current account deficits, but will also lower the demand and therefore the price of US Treasury Bonds, subsequently increasing the interest rate payable on US federal government debt when refinancing is required.

This in turn will further blow out America’s foreign debt as well as the U.S Government’s existing budget deficit.

At this point the U.S. Government would need to adopt severe austerity measures, including significant cuts in government spending, in order to provide confidence to creditors that existing financial obligations can be met.

The need to do so is compounded by President Trump’s intention to incur an additional $US 3 trillion in federal government debt over the coming 8 years as well as the US Federal Reserve’s current attempt to normalise their bloated balance sheet.

Given that military spending is the second largest item of Government expenditure, (projected to be $US 643 billion or 15.7% of total expenditure in FY17-18), America will struggle to financially maintain its current global military footprint.

Much like the Roman, Spanish and British empires or the Soviet Union, an over-extended government that experiences intractable financial challenges will ultimately be forced to reduce the size, geographical spread and influence of its military forces.

The sequence and speed of a withdrawal of strategic American military assets will have both direct and real national security implications for Australia.

An American withdrawal from the East Asian theatre would create a power vacuum in our region allowing rival nations to Australia to strategically flex their diplomatic, economic and military power consistent with their world view which is likely to be a radical departure from our values and institutional arrangements.

Under a scenario where rival military power was utilised for expansionist objectives, Australia, based on current capacity, would not have sufficient air defence capability to defend the mainland.

Australia would therefore face a similar existential threat as experienced in 1942 when, after the fall of Singapore, the myth of British invincibility was shattered and Japan consequently attacked Darwin.

America’s reckless and ever-growing indebtedness cannot go on forever.

Australia must prepare for the day for when we may lose American military protection. Our people must be mentally, physically and materially prepared for all possible geo-political situations.

John Adams is a former Coalition Advisor. This op-ed first appeared in the Daily Telegraph. 

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65 Responses to John Adams: Australia’s Approaching New 1942 National Crisis

  1. mh

    Our people must be mentally, physically and materially prepared for all possible geo-political situations.

    First step gay marriage. Then mandatory ‘safe schools’ programs. Then gender quotas across all of our military branches.

  2. Oh come on

    Independent analysts have suspected that US Government military action against Saddam Hussein and Muammar Gaddafi were in part due to Hussein’s plan to sell Iraqi oil in Euros and Gaddafi’s plan to sell Libyan oil via a single gold‑backed African currency – the ‘gold dinar’.

    “Independent analysts”? You mean crackpot conspiracy theorists and overcaffeinated DailyKos/Code Pink types? IIRC, they were the ones at the time who were shopping around the ridiculous conspiracy theory that Saddam was overthrown for selling the trickle of oil he was permitted to via the Oil for Food program in Euros. I’m surprised to see this pop up again after all these years.

    It is the petrodollar system which has allowed the United States to incur federal government debt of $US 20 trillion (103% of GDP) and Gross External Debt of $US 18.29 trillion (94.4% of GDP) without any major disruption of the supply of financial credit or loss of confidence from international creditors.

    Geez I wonder how numerous countries with much higher (and more rapidly growing) levels of indebtedness as a percentage of their GDPs manage to incur these debts without any major disruption of the blah blah blah.

    This is the second crank-ish John Adams op-ed posted here on the trot. Something is certainly losing relevance at remarkable speed, although I don’t think it’s the USD.

  3. RobK

    Then there’s the derivatives market, grain, various ores, gold etc. I think it will be sometime before the yanky dollar meets it’s demise. That said, I’m not sure how much it matters, you have to barter with some common chip. As far as QE goes, they’ve all been having a crack at it. The US is still the largest economy and with the right guidance it will stay that way a while yet. China, Russia and Germany have issues of their own.

  4. miltonf

    In the 90s I used to think the euro would eclipse the $US. How wrong I was.

  5. RobK

    “Australia must prepare for the day for when we may lose American military protection.”
    Culturally, politically, historically, militarily, economically we are close to the US. It makes sense to acknowledge that and I think everyone does.
    If the US goes down militarily, economically or culturally we won’t come out unscathed. We need to look after ourselves as best we can but there are massive synergies aligning with like-minded.

  6. Chris M

    China announced that it will soon be launching… priced in Yuan and fully controvertible into gold.

    Great, where can I invest in this? Haha it just sound so…. dependable. Backed by Chinese banks, NK and real gold! Definitely the end of the US dollar.

  7. RobK

    Australia would therefore face a similar existential threat as experienced in 1942
    This has been Australia’s position the whole time, the only way around it is to tool-up with nukes as so many others have. Or we can remain the lamb for the slaughter.

  8. Leo G

    “Independent analysts”? You mean crackpot conspiracy theorists and overcaffeinated DailyKos/Code Pink types? IIRC, they were the ones at the time who were shopping around the ridiculous conspiracy theory that Saddam was overthrown for selling the trickle of oil he was permitted to via the Oil for Food program in Euros.

    The US State Department was quite clearly alarmed at the time by the scope of negotiations involving Saddam, his ambassador Abbas Khalaf and Saddam’s former KGB handler Yevgeny Primakov. The Russians were apparently egging on the Iraqi leader, facilitating development of defences against US attack, but without any genuine intent to prevent an invasion by US-led forces.

    Hindsight suggests the US and its allies were misled about the likelihood of substantial Russian military support for Hussein and associated political and economic realignments.

  9. Infidel Tiger 2.0 (Premium Content Subscribers Only)

    In addition, Venezuela, in the past fortnight, announced that it will no longer accept U.S. dollars for the sale of their oil.

    Bwahahahaha!

  10. JC

    This monetary trade system has been, and continues to be, essential to maintaining the economic strength of the U.S. dollar as the global reserve currency.

    This isn’t correct, John. The transaction itself doesn’t create demand for US Dollars. Reserve status along with the desire to hold US Dollars because it has relative value and the US government is unlikely to confiscate assets unless you really really piss them off… like ransacking their embassy and taking Americans hostage.

    Australian oil importers buying US Dollars against the Aussie and then handing it an oil producer doesn’t create demand for USD. What does is the producer holding the loot as USD.

  11. jupes

    John Adams is a former Coalition Arthur Sinodinos Advisor.

    Own it John.

  12. Mitchell Porter

    I appreciate the opportunity to discuss this topic.

    I agree with “Oh come on” that Iraq and Libya were not sacrificed to preserve the petrodollar. Saddam wanted to create an Arab superpower, Gaddafi wanted to create an African superpower. Saddam was fatally at odds with America long before he talked about a petro-euro. Gaddafi might have survived longer, but the West thought that 2011 was 1989 for the Arab world, and sided with his opponents. An African petro-dinar was just one of his many big dreams that never came to pass.

    I also do not believe that China and Russia have just launched a plan to “collapse the petrodollar system”. But I do believe they are laying the foundations for an alternative, in a process that has already been underway for many years.

    Here we should note that in some ways, the G-7 powers themselves have been part of this process – as when G-20 replaced G-7 as the world economic summit, or when the yuan was added to the IMF’s reserve currencies.

    All the great powers have contingency plans which run a spectrum from cooperation to confrontation. It seems inevitable that oil and gas will increasingly be denominated in currencies other than the US dollar. But whether that will come about through inter-bloc economic warfare, and how much this shift will matter for America, depends on many other factors.

    It is certainly alarming to see America’s debt double every ten years. That certainly can’t go on forever. Maybe they will pay it down in an orderly fashion, but shrink its real value by devaluing the dollar. Maybe the government will repudiate part of it, with some geopolitical excuse. Maybe there will be a popular anti-debt revolution *within* America, that will lead to some repudiation of foreign debts too.

    “John Adams” also asks us to think about what Australia would do if there was a hasty withdrawal of American military presence in this part of the world. But again, I think the scenario is being posed in unrealistic terms. America is not going to implode economically and suddenly abandon all its bases around the world.

    As with the world economic system, there is already a process of evolution from within, that consists of acceding to changing realities. Look at the developing ties between India and Japan. That would be happening even if America completely retreated to the western hemisphere, because it’s about China. In any case, America is not presently in retreat, but it is always adjusting its grand strategy in response to the rise of new powers.

    Australia is part of America’s inner circle, if our membership in the “Five Eyes” is anything to judge by. So if and when there is a genuine reduction in American presence in this region, we probably wouldn’t be part of that.

    Here is what I think we need to think about: An alternative, Asian pole of power is emerging in the world. America’s relationship to it *could* be adversarial; or, we *could* see an entente among the great powers, in which American, Chinese, Russian… nationalism negotiate terms of coexistence. How can we acquire the strategic flexibility needed to be ready for *either* situation?

  13. Elizabeth (Lizzie) Beare

    Under a scenario where rival military power was utilised for expansionist objectives, Australia, based on current capacity, would not have sufficient air defence capability to defend the mainland.

    We’ve always known that. That’s why we are such a friendly mob.
    That’s our strategy. Be nice, make alliances, and hope for the best.
    Someone will be along sometime for our gas and uranium reserves.
    I hope we have plan. We could call it the Brisbane line.
    Shame that most of the spoils are above it this time.

  14. Dave

    I have longed shared the authors concerns. Whether China and Russia can set up a viable near term alternative or not, the fact remains that the USA debt is completely unsustainable. This has repercussions.

    Most people casually assume that Great Britain was no longer a great military power post world war 2. I suggest looking at pictures of the Queens Coronation Fleet Review at Spithead. Endless rows of battleships and carriers. This itself was only a portion of the Royal Navy too.

    Britain retained an incredibly powerful fleet, but as witnessed just 3 years later, they had no financial ability to maintain this. Humiliated by the USA at Suez. I foresee something similar in future with the USA and China.

    Of course, the Trump factor is something new that gives some cause for optimism. However I am yet to hear him address the debt as President which is worrying.

    At the very least, Australia should have contingencies in place for such a scenario – plans that should include a lot more than just 12 submarines. This is Australia though, and as we all know, our politicians can’t think beyond renewables and homosexual marriage.

    Ps, Long time lurker, but first time commenting. Fantastic website and some seriously switched on people here

  15. RobK

    Mitch,
    “How can we acquire the strategic flexibility needed to be ready for *either* situation?”
    I agree with you comment. For Australia to adapt to the former more desirable outcome is really just to do as it is doing: free up trade etc. The challenge is when things start to turn nasty. I think a good strategy could include powerful submarines, such as what we could lease cheaply off the US and fit them with clever deliverable devices which we are capable of developing. Same strategy for air. Nukes would mean we are dinkum. Our army is proving versatile and I am not familiar enough to suggest any improvement but the general thrust should be powerful platforms with smart consumables that we can enhance for our purpose. I think that is where we can make a difference.

  16. RobK

    As an example swarms of autonomous/semi autonomous drones delivered by sleeping torpedoes or jet fighter could prove formidable in both defence or attack.

  17. Howard Hill

    An American withdrawal from the East Asian theatre would create a power vacuum in our region allowing rival nations to Australia to strategically flex their diplomatic, economic and military power consistent with their world view which is likely to be a radical departure from our values and institutional arrangements.

    Couldn’t be any worse than the commies running this shit show at the moment. Could even be an improvement?

  18. JC

    I also do not believe that China and Russia have just launched a plan to “collapse the petrodollar system”. But I do believe they are laying the foundations for an alternative, in a process that has already been underway for many years.

    Here we should note that in some ways, the G-7 powers themselves have been part of this process – as when G-20 replaced G-7 as the world economic summit, or when the yuan was added to the IMF’s reserve currencies.

    Two things bestow reserve status.

    1. The reserve status holder has the biggest fucking gun in the street.

    2. There’s a decent chance that if you want to take your money and exchange it for something else, it won’t be confiscated.

    Here’s a chart showing US dollar balances held by the rest of the world.Its been remarkably stable. The Russians and Chicoms can talk all they want about creating an alternative to the greenback, but it’s not going to happen….It’s not going to happen THIS CENTURY (in my humble prediction).

  19. JC

    An American withdrawal from the East Asian theatre would create a power vacuum in our region allowing rival nations to Australia to strategically flex their diplomatic, economic and military power consistent with their world view which is likely to be a radical departure from our values and institutional arrangements.

    And that would create less demand for US Dollars? How? In fact if this were to occur it could create more demand for the Greenback due to uncertainty.

  20. struth

    Hasn’t John Adams embarrassed himself here already?

    Apologies if I’m wrong.

    His analyse has an underlying lack of confidence in free market capitalism, and it’s true power.
    He is looking for other reasons for America’s success and power.
    Last post here also had that same lack of belief, and therefore totally suited to the Liberal party.
    Petro dollars is a sideshow, Hillary would have killed the States.

    When tax breaks are given to business to return, as they are doing, and a president understands private enterprise and it’s roll in wealth creation, with cheaper power and not tied to Climate scam, and the fact that lack of government intervention gives people confidence in the U.S. dollar, I believe this to be a non issue.
    If Hillary was in, it would be just one of the many issues to bring the country down.

  21. John Constantine

    The Australian left are wishing with their breaths held, to have the chance to sign the most craven and complete capitulation document that ever surrendered a once-free country.

    Can’t have a war if one side can’t fight.

    Surrender, Comrades, it is racist to hold out against History.

  22. the only way around it is to tool-up with nukes

    Yeah, good idea. South Australia has heaps of uranium and considerable experience in manufacturing high quality cars and submarines. Lets build it there!!

  23. JC

    I’m posting responses to the piece as I have time.

    This monetary trade system has been, and continues to be, essential to maintaining the economic strength of the U.S. dollar as the global reserve currency.

    I’ve already mentioned why I think that was incorrect.

    This also deserves a response.

    It is the petrodollar system which has allowed the United States to incur federal government debt of $US 20 trillion (103% of GDP) and Gross External Debt of $US 18.29 trillion (94.4% of GDP) without any major disruption of the supply of financial credit or loss of confidence from international creditors.

    It is not true that the petrodollar system holds up the US debt. If this was true then how would anyone explain Japanese outstanding debt and the ability for Japan to borrow at rates below US benchmarks. True, Japan’s outstanding debt is mostly domestically funded, but so what? If the global financial system were different there is no evidence the US could not carry the same debt level or even as high as Japan’s. In fact evidence from Japan totally disproves this thesis.

  24. JC

    Here.

    US 10 year benchmark bond , currently trading at 2.35%

    Japan 10 year benchmark. 0.07%.

    Japan outstanding debt 250% of GDP.
    US federal debt 106%

    The petrodollar angle simply doesn’t hold any water.

  25. We could call it the Brisbane line.

    I would prefer a line in south, which offers up Tasmania and South Australia to the Enemy. If that’s not enough, give them Victoria too.

    Maybe that’s just wishful thinking.

  26. TFX

    How did this article get posted on catallaxy? I thought you had standards.

    I have seen the comments by JC, as an example, and my only response to him is that he is far too polite on rebutting the ludicrous analysis presented by John Adams. He(JA) obviously has zero understanding of how markets work, especially financial and foreign exchange markets.

    My next question would be how could this person be a ministerial adviser to an economics minister in the government?

  27. herodotus

    Yes Jannie – we could call it the Mexican (or Mehican) Line, the Mendicant Line, or the Deplorables Line.

  28. DM OF WA

    T

    FX
    #2512611, posted on October 2, 2017 at 4:46 pm
    How did this article get posted on catallaxy? I thought you had standards.

    Apparently not.

  29. Bill

    Thank God this coot is a “former” coalition adviser.

    They have enough problems already.

  30. Trader Perth

    I wouldn’t read any blog that had standards to high for me to participate in.

  31. John Adams

    Isn’t it a nice place to sit for people on the Cat to be anonymous and to hurl cheap abuse at people who publish positions for consideration in the public square???

    Re Saddam Hussein, consider the following from RT:

    “In 2000, Saddam Hussein announced Iraqi oil would be traded in euros, not dollars. Some say sanctions and an invasion followed because the Americans were desperate to prevent OPEC from transferring oil trading in all its member countries to the euro.”

    https://www.rt.com/news/economy-oil-gold-libya/

    Re Gaddafi:

    “The most renegade of the lot could be Libya and Iraq, the two that have actually been attacked. Kenneth Schortgen Jr, writing on Examiner.com, noted that ‘[s]ix months before the US moved into Iraq to take down Saddam Hussein, the oil nation had made the move to accept euros instead of dollars for oil, and this became a threat to the global dominance of the dollar as the reserve currency, and its dominion as the petrodollar.’ According to a Russian article titled ‘Bombing of Libya – Punishment for Gaddafi for His Attempt to Refuse US Dollar’, Gaddafi made a similarly bold move: he initiated a movement to refuse the dollar and the euro, and called on Arab and African nations to use a new currency instead, the gold dinar. Gaddafi suggested establishing a united African continent, with its 200 million people using this single currency. During the past year, the idea was approved by many Arab countries and most African countries. The only opponents were the Republic of South Africa and the head of the League of Arab States. The initiative was viewed negatively by the US and the European Union, with French President Nicolas Sarkozy calling Libya a threat to the financial security of mankind; but Gaddafi was not swayed and continued his push for the creation of a united Africa. […]”

    https://www.theguardian.com/commentisfree/cifamerica/2011/apr/21/libya-muammar-gaddafi

  32. JC

    John Adams

    I’m not abusing you. I just believe you’re wrong. I also believe you’re wrong about Iraq’s departure from the the Dollar and to the Euro as a reason for the war. It just isn’t true and borders on being a third rate conspiracy theory.

  33. John Adams

    Re Petro Dollar…

    With US Government spending increasing dramatically in the late 1960s with the Vietnam War and the LBJs “War on Poverty”… America’s gold was being drained.. hence Nixon ended the gold standard in 1971.

    With the value of the US dollar falling, the US needed a new system to keep the value of the dollar stable … hence the petro dollar system was born!

    If people dispute the importance of this system, one only has to look at the major arms deal that Trump struck with the Saudis earlier this year with all of the Sunni Muslim oil producing countries. Why would Trump give weapons to countries that the CIA knows is supporting ISIS if it wasn’t linked to ongoing support of the US dollar?

  34. Trader Perth

    John Adams

    #2512724, posted on October 2, 2017 at 6:52 pm
    Libya was also invaded because Gaddafi reneged on oil field lease to BP and sold the leases to Italy. The French Total oil , joined in the invasion because they thought they might have oil leases curtailed .

  35. Trader Perth

    Remember Tony Blair released the ‘Libyan bomber’? to secure those oil field leases and the Brits could not afford to lose them to Italy.

  36. JC

    With the value of the US dollar falling, the US needed a new system to keep the value of the dollar stable … hence the petro dollar system was born!

    Ummm, the US went off what was called the gold exchange standard. Rather than being somewhat tied to gold it simply floated against other currencies. There is no suh thing and was never any such thing as a petro dollar standard – even indirectly.

    If people dispute the importance of this system, one only has to look at the major arms deal that Trump struck with the Saudis earlier this year with all of the Sunni Muslim oil producing countries. Why would Trump give weapons to countries that the CIA knows is supporting ISIS if it wasn’t linked to ongoing support of the US dollar?

    John

    Around 11% of US oil imports come from Saudi. In other words the US doesn’t give a comparative shit about Saudi oil.

    The US plays the Saudi card as a bulwark against Iran. Nothing really to do with oil.

  37. John Adams

    Re Japan…. A few things to note:

    1) The Japanese Yen is not a global reserve currency, it is a national currency. The Yen plays a different role in the global economy and monetary system relative to the US dollar.

    Also, there is more US dollars in the global monetary system relative to Japanese Yen.

    2) While Japan has a high level of public sector debt, their non-government is quite healthy with high rates of domestic savings, high rates of productivity (especially in manufacturing), trade and current account surpluses.

    Japanese Government Debt is largely funded by the Bank of Japan (money printing) and domestic savers
    (which can’t be said about the US Government re domestic savers (US households and corporations are highly leveraged)).

    It is the actions of the Bank of Japan which has resulted in the low yields which people on the Cat are referencing.

    3) Look at the value of Japanese Yen relative to Gold. An ounce of gold is currently 143,749 Japanese yen which is near a record high. So QE and negative interest rates by the Bank of Japan have done significant damage to the purchasing power of the Japanese Yen.

    The Japanese people have been rushing into gold and bitcoin to escape the theft of their money by their own government.

  38. Trader Perth

    [ Why would Trump give weapons to countries that the CIA knows is supporting ISIS if it wasn’t linked to ongoing support of the US dollar?]
    John , good point , but if the US can sell two F22’s at a inflated price to the Saudi’s they can build a third one and sell it cheaper to the US military. That way the US can build up its military and get back its ‘petro dollars’.

  39. John Adams

    For those interested… people should watch this episode of the Keiser report….

  40. Trader Perth

    85% of world trade is in US dollars..thats a shit load of money.

  41. JC

    John

    Kaiser is a freaking lunatic. He has as much credence as Humphrey B Bear.

  42. JC

    1) The Japanese Yen is not a global reserve currency, it is a national currency. The Yen plays a different role in the global economy and monetary system relative to the US dollar.

    Actually that isn’t quite true. The Yen does have a minimum status as a reserve currency. Reserve status means central banks of other nations hold your currency in reserve. This also occurs with japan, although at a tiny fraction to the Greenback. Furthermore the Yen is freely traded and there are no impediments to nations holding the Yen in reserve.

    Also, there is more US dollars in the global monetary system relative to Japanese Yen.

    It makes no difference to being able to trade in a currency and the quantity of that currency that is supply. No one needs to hold a currency in reserve to transact an oil shipment.

    All that happens is this. Exxon Australia Ltd buys a shipment of oil for the Australian market denominated in US dollars. It then buys x amount of US dollars from a bank and sells the agreed amount of Australian dollars. There is no reserve status required to conduct this transaction. Everyone could use NZ Dollars if they wanted to and the Bank of NZ would not have to increase the money supply buy a single NZ dollar.

    You are confusing reserve status with transactions.

    2) While Japan has a high level of public sector debt, their non-government is quite healthy with high rates of domestic savings, high rates of productivity (especially in manufacturing), trade and current account surpluses.

    So what?
    1. Japan has the highest rate of debt in the western world.
    2. Having a high rate of domestic savings is either good nor bad on it’s own. You also have to ask why that is the case before you can suggest it’s healthy.
    3. Japan has low productivity growth. It’s been appalling for the past decade.
    4. Having a trade and current account surplus also suggests the country doesn’t have a high marginal return on capital, or at least there are higher rates of return to be captured overseas. It doesn’t mean its a good thing.

    Japanese Government Debt is largely funded by the Bank of Japan (money printing) and domestic savers
    (which can’t be said about the US Government re domestic savers (US households and corporations are highly leveraged)).

    US corps are not highly leveraged bu they are more so than Japan’s. But so what?

    It is the actions of the Bank of Japan which has resulted in the low yields which people on the Cat are referencing.

    and?

    3) Look at the value of Japanese Yen relative to Gold. An ounce of gold is currently 143,749 Japanese yen which is near a record high. So QE and negative interest rates by the Bank of Japan have done significant damage to the purchasing power of the Japanese Yen.

    If they didn’t QE they would be looking at a serious depression.

    The Japanese people have been rushing into gold and bitcoin to escape the theft of their money by their own government.

    Whatever.

    Gotta go and watch Curb Your Enthusiasm.

  43. rickw

    Australia must prepare for the day for when we may lose American military protection. Our people must be mentally, physically and materially prepared for all possible geo-political situations.

    Not beyond Australians, but completely beyond Australian Politicians.

  44. Richter

    Hey leave Humphrey B Bear out of this discussion..that’s hitting below the belt.

  45. Tezza

    I’m with JC in all of this. John Adams’ contribution is real tin foil hat stuff, replete with gross misconstructions of the history of the international financial system.

    Tezza

  46. Oh come on

    Seriously? Russia Today is your fallback?

    John, the premises you’re basing your analysis on are either crank conspiracy theories or simply flat-out wrong.

  47. John Adams

    JC… you can’t make the distinction between public and private sector debt… Japan has the most government debt in the world on a proportional basis, but not non-government sector debt or economy wide debt to GDP

  48. John Adams

    Tezza… if I told you that in August 2001 that two planes would crash in the WTC… you could call me a crank…

    Discussing future events is not a crank activity… you or “Oh come on” can’t tell me what I have got wrong…

  49. marcus classis

    Slow clap.

    It’s only been fifteen years since these same points were raised at King Hall Conferences and papers emanating from Defence.

    No-one listened.

  50. John Adams

    Marcus Classis… can you give more context/background detail to your comments? What are the King Hall Conferences?

  51. Oh come on

    In all honesty, I do appreciate you returning to fight your corner, John. However, both your hypothesis and the premises you base it on are not especially convincing or original.

    Innumerable commentators have used all sorts of rationales to argue for Australia to adopt a more independent foreign policy stance.

  52. Paul Farmer

    For people bagging John, this has been put up as an opinion piece. Its certainly worthy of thought in today’s world. I don’t agree with all the points but its not a crackpot piece as some are implying. The influence of petro dollar trade and its effect on the US currency valuation has reduced significantly in recent times , though the comments in part still have some validity.

    Part of the reason the US sought to control the world petro trade by denomination in US dollars was to reduce risks to their own economy, both inflation and balance of payments wise from the growing power of OPEC in the early 1970’s.. When the oil crisis hit in the 1970’s OPEC was over 70 % of global production, it is now less than 40 % thanks to growing North American, Eastern Europe and Latin American shares in recent decades ( all non opec areas).

    The yanks are much more self reliant in oil now thanks to their shale oil gas developments in the last decade , a good graph of this is here ;
    https://www.forbes.com/sites/mikepatton/2016/04/20/u-s-dependence-on-foreign-oil-hits-30-year-low/#6e70f2d3ff33.

    America is now the second largest producer in the world and close to the Saudi’s. The American currency is therefore not as exposed to devaluation risk from significant changes in the currency in which oil is traded. Furthermore the Saudi’s will always comply with US wishes as they look to America to protection from a rapidly nuclearizing Iran. Given the rift and hatred between sunni and shia has been going on for the better part of 1400 years, the length of time the islamic religion itself has been around, I suspect the world will run out of oil well before this rift heals over so any risk the Saudis are tempted to trade oil in anything other than USD is in my view very remote. This is even despite America’s ongoing support of Israel.

    That leaves the major producers of the Iranians, the Chinese and the Russians who will trade more and more oil outside the US dollar but this is unlikely to faze the US nor significantly devalue the greenback. Within the next 20-30 years, the price of oil is going to devalue significantly anyway due to the uptake of electric cars , so gross dollar petro trade worldwide is about to hit a major inflection point in the next decade and start a long spiral downwards . If Petro trade was so important to America’s long term currency valuation as this article implies, the US government would be trying to put the brakes on the electric car industry because this is the biggest thing by far that is going to wipe out the fortunes of OPEC and world petro dollar trade. It isnt however because they would be crazy too as America is no longer bending over and taking it from OPEC countries and the Yanks know give it another 30 years, OPEC as a force is probably extinct. There will be more oil left in the world then we will ever need.

    The likely course of events is the reduction in petro trade will put some devaluation pressure on the US in coming years but it wont collapse the US currency as this article is implying. China itself is a bubble economy and most Chinese will take US treasury holdings everyday over their own dodgy currency.

    Japan too will remain a major investor in US securities as their diminishing population combined with continued trade surpluses will leave their interest rates likely near zero for still many years to come and they have hitched their fortunes to the USA a long time ago as the only country that will stop the Chinese from having ultimate hegemony in Asia. The Saudi’s will also continue to pump their assets into USD’s and this is likely to increase as the Oil price wanes in coming years.

    So yes at the margins, the US dollar could depreciate from less petro trade in the coming years but I wouldn’t be losing any sleep over this . Any USD currency valuation is likely to be more than offset by higher domestic interest rates in future years necessary to keep the foreign capital from exiting and will naturally emerge as the US Fed unwinds QE and supply side restraints are wound back if Trump can push through sensible tax reforms. . This could be a trigger to a major correction on wall street though ………. as equities for the first time in many wont be the only game in town to earn decent returns on invested capital.

    John’s ultimate point but is worthy of consideration. Australia needs to spend more on defence and be more willing to make a bigger contribution to the existing US Alliance but also further alliances with other countries that can act also a counter balance to China. For mine that Country should be India being a democratic, non Islamic power with nuclear capabilities. However as it stands we can barely sell them some coal without a handful of green activists almost derailing it. As a nation we seem incapable of long term strategic thought.

  53. JC

    JC… you can’t make the distinction between public and private sector debt… Japan has the most government debt in the world on a proportional basis, but not non-government sector debt or economy wide debt to GDP

    Why are you frightened of debt ,John . I really don’t get it?

  54. JC

    Paul Farmer.

    You also seem to be confused about the meaning of a petro currency and what it actually suggests. You seem to believe that commodity denomination in US offers the US an advantage – at least more so than because of currency exchange commissions and fees other countries have to absorb. It’s not much.

    Here’s the thing. We live in a fiat currency regime. This means that for every private seller of a currency there has to be a private buyer. There is no need for reserve status.

    As for the US enjoying no adversity from a currency devaluation…. Bullshit. If the US central bank pursues an inflationary policy, commodity producers ratchet up prices in US dollars.

    There’s no free lunch.

  55. Mitch

    Bring on fracking and nuclear, and the downfall of the arab dictators.

  56. RobK

    I agree with Paul’s comments on India in particular.

  57. J.H.

    Don’t quote RT, Russia Today…. It is a Russian funded State propaganda organization and quite rabidly so. There will be nothing in its news that isn’t narrated to have an anti American stance…. True, it might be more informative than CNN, MSNBC, ABC and most Western News outlets…. But that is more an ill reflection of the sick state of journalism as a whole, than of the accuracy of Russian State funded anti American propaganda.

    Sure you can use it…. But I’d wash the maggots off it first.

  58. Tel

    As for the US enjoying no adversity from a currency devaluation…. Bullshit. If the US central bank pursues an inflationary policy, commodity producers ratchet up prices in US dollars.

    Sure, that’s the theory… but if you look at the past 10 years or so of commodity prices in US dollars, it’s been fairly flat.

    https://fred.stlouisfed.org/series/PPIACO

    That means the Fed are being careful not allow the US dollar to devalue too much. Yellen is turning out to be much more balanced about this than a lot of Austrians (like me) expected her to be.

  59. Tel

    Yeah, good idea. South Australia has heaps of uranium and considerable experience in manufacturing high quality cars and submarines. Lets build it there!!

    Need to figure out how to get the bad guys to invade South Australia first.

    Start the rumour there’s a lot of oil and gold in those hills. If anyone asks for details just clam up and make excuses.

  60. Ray

    Somebody forgot to read any economics in their economics degree. At the very least, Adams has absolutely no understanding of international economics.

    The currency in which a commodity is traded has no affect on the strength of the US dollar or the status of the US dollar as a reserve currency. On the contrary, most commodities, including oil, have traditionally been traded in US dollars because it was, in effect, the global reserve currency. It was the ease with which the dollar could be traded that made the USD so attractive in the trading of commodities. Today, most major currencies can be traded freely and so the need to trade commodities in USD is markedly reduced.

    What has always made the USD the defacto reserve currency was the strength of the US economy and its size relative to the rest of the world. That meant that the US was a ready haven for the holding of securities and thus the significant build up of USD debt over recent decades.

    It should be noted that the trading of currencies in USD does not, and never has entailed the holding of USD denominated securities. This is simply because selling oil in dollars can easily be followed by the sale of those USD in riyals or any other currency. The trading of the commodities is irrelevant, the holding of USD is all that is important with regard to reserve currency status.

    To be fair, the status of the USD has weakened over recent decades but this is not due to the trading of commodities. It has everything to do with the relative strength of the US economy due to the growth of China, Europe, Japan and others, as well as the low savings rate in the US, compounded by chronic budget deficits and a Current Account which is out of control.

    We need to understand the causes of global economic instability before we can tackle these problems. Commentary such as this from Adams certainly fails to advance our understanding in any way.

  61. struth

    To be fair, the status of the USD has weakened over recent decades but this is not due to the trading of commodities. It has everything to do with the relative strength of the US economy due to the growth of China, Europe, Japan and others, as well as the low savings rate in the US, compounded by chronic budget deficits and a Current Account which is out of control.

    I’m just an average Joe, but there is a reason the USA currency became the reserve currency “of choice” in the first place.
    That has been only weakened by socialist leaning successive governments.
    Get away from socialists economics and bring back the governance that was responsible for allowing the USA to become a superpower in the first place, to be able to do the deals, to have the market, the production, and this is a side issue.
    Can somebody show me the growth in Europe?

    All other countries and regions quoted, especially China, have their own socialist based problems and corruption and to not take this into account, against a Trump led U.S. recovery, betrays a lack of belief in the power of a free market, unencumbered by socialist regulation (as is the case here) in the mind of John Adams.
    It may seem that I am over simplifying things, but it’s better than the reverse to try to get to the result required.
    Basically Trump getting out of the Paris agreement, cheap power, encouraging production back to the country, cutting regulation, is what will keep the U.S.D. the reserve currency of choice.

  62. bollux

    Interesting conversation, but in the end Australians just need to say ‘I surrender” in 7 different languages. We are giving up most of our freedoms easily, so it shouldn’t be too difficult. Just put the SSM agenda aside for a bit, and make surrendering a talking point at uni’s and football matches.

  63. John Comnenus

    There is only one aspect of our future I am looking forward to, the way the totalitarians fascists that the Left puts in charge will deal with the radicals who put them in office.

    I don’t pretend to understand the ins and outs of reserve currency & petro dollars, but in such a volatile geo political situation we need to be spending more than 2% of GDP on Defence & shouldn’t be buying any capability that takes 50 yrs to deliver.

    We need to be ready for a US collapse now given that so many in the US Left are willing to happen. They will win power again and we need to be ready for the outcome of their suicidal policies.

    Obama was worse than Clinton. The next US Dem POTUS is quite likely to be Obama on steroids with the full backing of the US intelligence and policy communities backed by internationalist big business. If they can hobble or remove Trump the whole world is just as likely to burn as regional strategic competition is unleashed on a level not seen for some time in the vacuum of a US withdrawal of power.

  64. Indigo

    Bad luck then on our stupid submarine decision.

  65. John Adams

    A few comments to make here based on the comments made above:

    1) I am not an advocate for RT or any other media outlet, but all I can go on is the comments made by Max Keiser who has worked at both the BBC and RT. Max said that he is given full freedom to say what he wants on RT and that he was heavily censored at the BBC. I think this speaks volumes about whether a media outlet is pushing a particular narrative or not.

    2) Ray’s statement that: “The currency in which a commodity is traded has no affect on the strength of the US dollar or the status of the US dollar as a reserve currency ” is ridiculous.. has he ever heard of demand and supply?

    3) JC asks why I am frightened of debt? World economic and political history shows that countries/empires which become too indebted become financially weak and therefore are unable to project diplomatic and military power.

    Australia has massive economic problems with structural debt imbalances generating the biggest household and foreign debt bubbles in the country’s history. We are culturally fat, dumb and lazy and ill prepared for many of the challenges which will we will face in the 21st century.

    Our ‘she’ll be right attitude’, means that we are watching shit TV while our greater protector is flushing itself down the toilet. There is no appreciation in Australian public discourse regarding the economic and cultural problems in America and what this means in terms of American decline and by consequence the implications for Australia.

    We need to wake up and realise that the next 70 years will not be the same as the last 70 years. We have made no preparation as to the potential geo-political landscape facing our region in the coming decades.

    4) Re Paul Farmer – I never said that a challenge to the Petro Dollar system would collapse the US dollar as a unit of currency or the US as a country.

    Great Britain still exists today, but is no where near its former self in economic or military terms. According to one book I read, the height of British economic power was actually in 1899 where they dominated 9.8% (I recall) of global trade.

    So WW1 and WW2 smashed the economic power of the British Pound and economy and by consequence, its global empire (and global military footprint).

    Is it a stretch to call out the warning signs of what is happening with the Americans?

    5) ‘Oh Come On’ – I never claimed my article to be original. The opinion piece is my attempt to sound the warning alarm to the Australian people, given that I don’t see we are headed in the right direction. We need to put pressure on the political class to steer the nation in the right direction.

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