OK how much attention have you been paying to geopolitical events, here goes.
Which of these represents the biggest challenge to U.S. ability to affect world events.
A. Climate Change (John Kerry’s pick)
B. Lack of U.S. production of computer chips
C. Political polarization of Congress/Senate, especially caucuses which can prevent an overall outcome
D. None of the above
Not sure, okay here is a clue. Why did the U.S. intervene in the Iraq invasion of Kuwait?
The correct answer is D, none of the above. The reason is that 20% of the world oil that is bought and sold is no longer in U.S. dollars. The answer to the Kuwait question is not exactly jobs as then President George H. Bush put it, instead preserving the U.S. Dollar as the world reserve currency.
20% of the world oil bought and sold is now conducted in currencies other than the U.S. Dollar. We invaded Kuwait to stop Saddam Hussein from taking that oil supply and conducting trade in Euros which is what he wanted to do. We always suggest reading this column completely but once you do, in Wikipedia consult Bretton Woods Agreement and Asian Infrastructure Investment Bank. Seriously if you live in the Permian Basin this is an economics degree in itself.
The Allied Powers gathered in Bretton Woods New Jersey in 1944. The reason was to agree on a new world reserve currency. Two World Wars had exhausted the British Pound in that regard. The U.S. Dollar became the new coin of the realm. This meant world transactions would be in dollars. And this meant that once Richard Nixon took the U.S. off the gold reserve August 15, 1971, we had a fiat money system, the Dollar is worth what we say because we say so.
His idea does not sit well with the new Axis, Iran, Russia, and China, as well as a few others. India and the UAE, India and China have agreed to oil deals in their respective currencies. The poppy-cock notion of Modern Monetary Theory is that we can print all the money we want which only works as long as the U.S. Dollar is the reserve currency. If other countries say nyet, we have to exchange Dollars for their currency and there is a very real limit to that.
It is becoming a petri dish for a new geopolitical trend — endless tests of America’s will and credibility by its adversaries and their proxies.
Defense Secretary Lloyd Austin warned the Houthis last week to cease attacking shipping in the Red Sea. The result is the above comment as the Houthis unleashed rockets, drones, you name it on shipping and the U.S. Navy. The world has read the timber of Team Biden and finds nothing to fear. As mentioned last week, it is amazing oil is still around $75. That may be the new floor price.
