Original Channel: Nate Hagens – The Great Simplification

Original Video Title: Luke Gromen: “Peak Cheap Oil and the Global Reserve Currency” | The Great Simplification #91

Published Date: 2023-10-04T12:00:36Z

Video Title: Luke Gromen: “Peak Cheap Oil and the Global Reserve Currency” | The Great Simplification #91

Published Date: 2023-10-04T12:00:36Z

The political power has been held by debt merchants, particularly Washington and Wall Street, who have benefited from the debt-based fiat currency system. However, this system is reaching exhaustion due to peak cheap oil, and major systemic change is necessary. Energy importing US creditor nations (such as China, Europe, and Japan) and energy exporting US creditors (such as OPEC and Russia) are also affected by this problem. Peak cheap oil means that treasuries are no longer a reliable store of wealth in terms of purchasing power for oil, leading to countries like China cutting out the middleman and making energy deals directly with commodity producers. The US has also experienced Dutch disease, where the focus on the dollar and treasury market has led to the decline of other industries. Dutch disease refers to a situation in which a country’s focus on developing and commercializing a natural resource wealth leads to the decline of other industries. In the case of the United States, it is argued that the country’s reliance on the dollar and treasury market has led to an erosion of its manufacturing sector and defense industrial base. This has implications for national security, as dollars cannot be used to wage wars or address the need for local supply chains and self-sufficiency in producing goods. The rise of China and the BRICS countries, along with their efforts to establish alternative currency systems and trade arrangements, is seen as a challenge to the dominance of the dollar and could lead to currency reform. While the potential for global conflict exists, the recognition of mutually assured destruction and interdependency among nations makes it unlikely. However, the State Department’s approach to these issues is viewed with caution, as their perspective may not fully appreciate the risks and implications of the current situation. Despite the challenges posed by the dollar’s dominance, the availability of abundant energy resources in the United States gives it some advantage compared to other countries reliant on energy imports. However, the shift towards a multi-currency energy system, driven by peak cheap oil, could potentially impact the dollar’s role in the future. The speaker is discussing the potential consequences of peak cheap oil on the US dollar and global currency systems. They acknowledge that the current state of the dollar and US standards of living is concerning, but also highlight the fact that the US is 90% energy independent and has abundant coal, natural gas, and renewable energy sources. They argue that unless another currency tied to biophysical assets like gold, land, or energy emerges, the US dollar will continue to be the dominant currency. They mention that countries like Russia and China have been rearranging their surpluses, moving away from sovereign debt and investing in gold and hard assets. The speaker explains that as global energy trade gradually shifts away from the dollar and towards other currencies, the supply of dollars will decrease, leading to a higher demand for dollars and potentially driving up the value of the dollar against other currencies. They also note that the US has been increasing its debt and will likely have to print more money to pay for its deficits, which could weaken the dollar in the long run. The speaker suggests that gold is a biophysical asset with a direct tie to energy purchasing power and is being increasingly used as a reserve asset by central banks. They argue that the expansion of paper gold derivatives has allowed policymakers to manage the price of gold, but peak cheap oil will force a change in the monetary system by tying physical oil to physical gold and reducing the stock-to-flow ratio of gold. The speaker also mentions the possibility of the US and the West trying to vilify and restrict the use of gold, similar to what was done in the 1930s, but notes that it may be in the US’s interest for the price of gold to rise. The breaking of the unallocated gold market is seen as a forcing function due to the decline of cheap oil and the debt-backed fiat currency system. As peak cheap oil declines, countries may shift their reserves from sovereign debt to gold, specifically physical gold. The increasing importance of gold as a reserve asset for countries like Russia and China raises the question of whether the US and the West will vilify gold and restrict its use, similar to what happened in the 1930s and is currently happening with cryptocurrencies. However, there are interests in Washington that understand the need for a neutral reserve asset and the potential benefits of a higher gold price. If no energy productivity miracle occurs in the future, it is likely that global capital costs, including interest rates, will rise dramatically. This could lead to a period of high inflation and negative real interest rates for several years, eroding the real value of debt. The financialized economy may shrink relative to the real economy, with red states producing essential goods while blue states remain highly financialized. There may also be a need to shorten global supply chains, especially for key goods. The control of oil can have a significant impact on the value of the reserve asset and the dollar, as seen in Russia’s case. Overall, the future economic outlook for the US and the world depends on factors such as energy productivity, capital controls, and the control of critical resources like oil. The passage discusses the potential impact of oil control on reserve assets and the value of the dollar. It suggests that if a country were to control oil and set a different value for gold compared to London and New York, it could manipulate the global market. The passage also argues that leaders need to implement industrial policies to build resilience and anti-fragility in supply chains. Additionally, it mentions the potential negative effects of inflation on the middle and lower classes and the importance of personal relationships and health. Finally, it highlights the dangers of leverage in a volatile financial market.