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When he took office, Donald Trump did a complete about-face regarding his foreign policy with the middle east. Notably, he went from condemning Saudi Arabia to tacitly praising them. The US's commitment to regime change and meddling in the middle east makes little sense on the surface. There is no obvious strategic or economic value to these actions. The 'humanitarian' concerns are clearly a pretext. So what is the real reason for all of this? The answer is the petrodollar, and the maintenance of US economic supremacy. Saudi Arabia demands US dollars in exchange for oil. That's what truly gives the US dollar its value. That's what allows the US to have enormous trade deficits with other countries. For example, China sends its goods to the US in exchange for USD which can be spent on Saudi oil instead of US goods and services, creating a trade deficit advantageous to the US economy and its people. The rest of the world exports goods, the US exports dollars. In return, Saudi Arabia gets the support of the world's strongest military and an incredible amount of leverage with which to direct it. If the Saudis chose a different exchange currency, the US economy would quickly collapse. Without Saudi oil to back it, the US dollar would inflate wildly. The US would not be able to sustain it's huge trade deficits, and the people would suffer. The Saudi government is also in trouble. A huge proportion of Saudis rely on welfare, without that, a revolution from the underclass would be inevitable. The massive Saudi welfare state is sustained only by its oil exports. The Saudis have plenty of reasons to destabilize their middle eastern rivals and assert control over the region and its oil. Because of a largely useless populace, controlling and exporting more oil is the primary way that Saudi Arabia can expand its power and improve its economic situation. The world's largest importer of oil, China, would obviously rather trade in Yuan. China has made agreements with Russia for the trade of oil, at the expense of Saudi Arabia. Unless the Saudis accept Yuan, they will lose a great deal of China's oil trade to Russia. China is poised to take international economic supremacy from the US, and they will if the Saudis accept Yuan. To avoid this, the US must appease and assist Saudi Arabia against its rivals. Syrian insurgents are funded and supported by Saudi Arabia and the US in order to take control of more oil in the region. To maintain its precarious economic position, the US cannot allow China and Russia to control more of the world's oil and price it in Yuan. Failure means a devastating economic collapse for the US including hyper-inflation and a severe reduction in imports. The US would be unable to fund its incredibly expensive military, and the US would lose its position as the world's foremost superpower. Donald Trump has to make the difficult decision between catastrophic warfare and economic collapse, and it looks like he has already made his choice. https://tradingeconomics.com/united-states/balance-of-trade https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret https://www.cnbc.com/2017/10/11/china-will-compel-saudi-arabia-to-trade-oil-in-yuan--and-thats-going-to-affect-the-us-dollar.html https://www.huffingtonpost.com/daniel-wagner/saudi-arabias-dark-role-i_b_3402447.html

Recently on Freedomain Radio, Stefan Molyneux interviewed Mike Maloney about the imminent collapse of the US dollar. Maloney predicted that within a year or two, we should see the US dollar collapse and a global financial crisis that will make the 2008 crisis seem like a joke. His evidence for this the "artificially low interest rates" being pushed by the Federal Reserve, and the inevitable bubble that must pop from the Fed allowing money into the financial system too cheaply. These predictions are based on absolute economic illiteracy on the side of Mike Maloney, and Stefan's agreement shows economic illiteracy from his side as well. In this video, Dylan Moore of the Volitional Science Network and Nima Mahjour of economicsjunkie.com go break down point by point the inaccuracies of the FDR video and why the US dollar isn't showing any signs of collapse. Some of the points covered: 1. Why the Federal Reserve is NOT a private bank The Federal Reserve Anyone who has read The Creature from Jekyll Island by G. Edward Griffin or spoken with any fan of Ron Paul, they will likely let you know that the Federal Reserve is a private bank owned by private individuals that are paid private profits from the interest paid on national debt by taxpayers. This is simply false. The Federal Reserve is designed like a corporation, and member banks are required to own stock in the Fed in order to be a member (or a bank at all), however 98% of the profits earned by the Fed go straight to the US Treasury. That's ninety-eight percent. I don't know of any private organizations that give 98% of their profits straight to the federal government. 2. Why the Fed DOES NOT "print money". In an earlier article I wrote about how Quantitative Easing is Not Money Printing that details this. This is a general confusion about the fiscal function that the Federal Reserve plays in exchanging reserves (i.e. cash) for bonds. When the Federal Reserve engages in quantitative easing and purchases treasury bonds for reserves it created out of nowhere, it is a mistake to consider this "printing money". The difference between a reserve and a treasury bond is matter of interest paid, similar to a checking and savings account at a bank. A checking account pays no or little interest, and a savings account does pay interest. Likewise, reserves pay little or no interest, and treasury bonds do. The proper way to think about reserves and treasury bonds is that they're both money. They are readily exchangeable for the other, the only difference being the interest rate paid. So when the Fed engages in Quantitative Easing, all they're doing is money large amounts of money from savings to checking accounts. It's not printing money, and it's not going to cause hyperinflation. In fact, it's so benign, one has to wonder what the hell the Fed thinks it's going to accomplish by doing it. 3. Why interest rates are not a useful metric for predicting economic stability or lack thereof. The classical/Austrian viewpoint behind interest rates is that, due to the fractional reserve nature of lending (which is another myth), when the Fed lowers interest rates, it makes access to money cheaper and creates a bubble. This is known as the "business cycle". Thus lowering interest rates is supposed to encourage economic growth. In reality, interest rates have very little to do with how much money enters the economic system. Loans are made when banks encounter ready and able borrowers, not when they have a certain amount of reserves available (more on this below). The useful predictor of economic health is net private sector savings, which is the total amount of money left over to the private sector after all the financial assets and liabilities have been summed up. More details about this are gone over in the video. 4. Why the Fed can only "push" interest rates UP, not down The interest rate chosen by the Fed has nothing to do with market forces. It is an arbitrary policy decision. Because the interbank lending rate for reserves uses the Fed rate as a "floor", the interbank lending market on reserves would naturally fall to 0%. Thus if the Fed gets out of the way and let's the "market forces" do their job, the rate would actually be ZERO. Thus the Fed can only manipulate the rates upward, not downward. 5. The myth of fractional reserve banking Fractional reserve banking is simply something that doesn't exist. Loans are made when banks encounter ready and able borrowers, not when they have a certain amount of reserves available (more on this below). There is no banker that sits around looking at a computer screen to keep track of how much money in reserves the bank has in order to make loans. The actual causality is backwards. The bank makes loans--and of course, these "loans" are money created out of nowhere, a power it is granted by license of the federal government--and THEN finds reserves to meet regulatory requirements. These reserves can be found by depositors, and if there are not enough deposits, the bank simply goes to the interbank lending market to find the reserves it needs to meet requirements. As a matter of last resort, the every bank has an account at the Federal Reserve which they can draw from in order to meet their reserve requirements. Thus there is never a shortage of reserves for banks to meet their reserve requirements, and thus the reserves act in no way as a bottle neck for making loans, which is why lowering interest rates doesn't do much to affect banks lending capacity. 6. The myth of the barter theory of money There is no historical evidence of any size economy relying on a system of barter. All evidence, both historical and modern day study of tribal societies, points to a state origin of money. The implications of this are not academic. The general story taught by the Austrian camp is that societies created money by discovering the most barter-able item in their community, which eventually became precious metals like gold and silver due to their function utility being useful as money (they don't rust, they're malleable, easily dividable, interchangeable, etc.). At some point, someone came along calling themselves the King or the chief or the state with a group of thugs or soldiers and demanded this currency as tax payments, then used this money to do public sector activities, mainly feeding their soldiers and keeping them in fighting condition. The real story looks more like this: societies used systems of credit to keep track of resources ("I did you a favor last time, so you do me a favor this time"), and at one point the tribal leader had the great idea to demand taxes in arbitrary units that only he can create. This causes his subjects to become unemployed, as they need to do something to get these arbitrary units (I'll call them "tax tokens") in order to pay their taxes. This is diabolically brilliant. Instead of the King haven't to use his soldiers to take things by force, his subjects (the "private sector") are now willing to bring him goods and services in exchange for his arbitrary tax tokens. Why this is important: What this means, is that if the King or the state doesn't create the tax tokens, then there is no money in the system to work with. Nima and I explore the implications of this further in the video. 7. Why the Fed is not causing inflation As was pointed out above, because the Fed isn't actually "printing money", it follows they can't be expanding the money supply that would be required to cause the inflation. 8. Why the evidence points to US dollar NOT CRASHING Economic crashes are set off by a drop in net private sector savings. Every single US crash (6 depressions and 1 recession) were preceded by federal government surpluses, which caused the net private sector savings to drop to levels that required the private sector to become indebted to itself, which eventually has to be paid back. At some point it cannot be paid back, and the private money extension institutions snap back like a rubber band.