Oil Shock!

It’s time for a quick look back at the US dollar’s slide, since we expect there is another steep drop immediately ahead.

Based on the Consumer Price Index, the adjacent graph represents the loss of the dollar’s purchasing power since 1972 when the US abandoned the gold standard.  It is that collapse that is responsible for things like the disappearance of a nickel candy bar, the 10 cent coke, and the 25 cent a gallon gasoline.

As you can see the descent was precipitous immediately after the delinking from gold.  That was the so-called Stagflation Decade, an era that featured double-digit inflation and a brutal recession.

The plunge during the period was to be expected.  The gold-backed dollar imposed discipline on Washington’s money printing.  Although dollar holders here and abroad had been promised that their paper money would always be redeemable in gold, the Deep State Money Manipulators at the Federal Reserve were serving the politicians by printing more dollars than there was gold to redeem them all.  It was classic crooked government flim-flam!

The evidence suggests we are in for another precipitous drop.

Why?  Just as the repudiation of gold in 1972 sowed distrust in the dollar, now we are in for another round.  There was another component of the 1972 dollar devaluation that is here again:  an oil price shock!

The 1973 Arab oil embargo saw the price of oil quadruple, from $3 per barrel to $12 per barrel.

Already the interruption of the flow of oil to the world’s energy-thirsty economies has import-dependent countries in Asia implementing or planning rationing measures. Rationing has a suppressive effect on economic growth, while higher energy prices are like taxes that have the same impact.

Gold journalist Alasdair Macleod writes in his Substack letter, “So far, the Iran war has only led to a 60% rise [in the price of oil], but it is changing hands in Asia at more than double and doubtless there’s more to come.

“The 1973 crisis led to the combined economic slump and inflation shock, peaking at 11.1% in 1974 in the US, 24.2% in the UK in 1975, 13.7% in France in 1974, and 23.2% in Japan in 1974. Why should it be different this time?”

The answer is that it won’t be different this time, unless it is much worse. Just as trust in the dollar took a big hit in 1972, the Iran war is delivering another big hit today as it fractures long-standing alliances with the US. China’s yuan is the go-to currency in passage through the Strait. It’s global usage will spread faster as a result. The war means as well costly infrastructure demands on Gulf states that are now forced to double down on domestic needs and rebuilding, which in turn means fewer petro dollars to the US, a flow of capital that has been so significant for decades in funding Washington’s deficit spending.

Everything is about to change. Prepare yourself!