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I didn't think we'd be in phase three so early but here we are just this Sunday one of the biggest economic deals of the century just came to an end the long-standing Petro dollar agreement between Saudi Arabia and the US just expired on June 9th 2024 now this system which has been in place for 75 years marks a huge shift in global economics so in today's video I want to help explain exactly what's happening why it's happening and how this will affect us and our future Generations so with that said let's get into it hi my name is Andre J hope you're doing well come for the finance and stay for another boring macroeconomics video Phase 2 so initiate the storytelling and dramatic music so when most people think about global trade they're probably thinking about Commodities and when they think about Commodities they're mostly thinking of things like corn or wheat but there's one commodity to rule them all and that is oil now at the center of this intricate web of global Finance the Petro dollar system is at its core that's why when most people around the world think about what money actually is they're probably thinking about the US dollar but it wasn't always like that though between 1720 to 185 if you asked someone to name a currency they would have probably said the French Libra because it was France that held the reserve status from 1720 to 1815 but then if you ask someone to name a currency between 1815 to 1920 you would have probably heard the British pound now after World War II everything changed with the creation of the bretan woods agreement because after that point most people would have probably said the US dollar now this happened because the US was pretty much the only standing superpower after World War II but this system wasn't about one thing it wasn't about Commodities it was about cementing the Dollar's role as the world Reserve currency because being the one money to ruled them all gave that country access to two specific superpowers and one of them was economic stability stability allows for things like International Trade to happen if you want countries to trade you need a common value and a common money that everyone agrees to and the second superpower is the country whose currency becomes the one benefits from rising asset prices including treasury bonds which is seen as safe so countries Park their wealth into money that is seen as stable to preserve their wealth against inflation and all the other currencies that's why countries like Japan China and the UK are some of the biggest holders of us assets through foreign exchange reserves roughly 7 to8 trillion worth but then in secret another superpower was made for the US dollar and that was the ability to control the world's energy the standard of living of all Americans can be traced back to here the vast oilr deserts of Saudi Arabia our house is your house there's an Arab saying the Sands are blowing and I submit to you King Fahad that if the sands of time give us any hint of the future it is that in the days ahead the friendship between the Saudi Arabian and American people will be a strong vital force in the world now after the dollar got off the gold standard it became the super Petro dollar and it replaced Gold by what some people like to call Black Gold AKA oil now how this happened is one of the most interesting stories that has ever happened throughout history the Petro dollar was actually a device invented by Kissinger and Nixon US president Richard Nixon sent his secretary of state and National Security adviser Henry Kissinger to Saudi Arabia for a secret meeting that meeting took place on a battleship called the USS Quincy and very few records were kept of that meeting but Roosevelt promised the king of Saudi Arabia weapons and protection in exchange for the United States to have the exclusive right to develop oil from Saudi Arabia using dollars meaning if countries wanted to trade the most important commodity of all oil they needed to get their hands on dollars and from that that point on oil would be priced in USD and if a country tried to get their hands on oil without using dollars that country historically needed more freedom in their lives and it's this Arrangement between the US and Saudi Arabia that helps the US with dominance over global trade and helping preserve the US dollar as the world's Reserve currency for over 75 years now but just this Sunday the prince of Saudi Arabia announced that he would not renew this contract and this decision is part of of a much bigger Trend where countries are ditching dollars in international trade and oil transactions the dollar looks like they're dumping it the world's largest oil producer Saudi Arabia is reportedly asking to join bricks as more and more developing nations including some of the world's largest economies decide to ditch the dollar in their bilateral trade voices of concern and even despair of being heard in the US over the looming end of America's Global Financial dominance but the question is what does all of this actually mean ask yourself this question what is the US famous for exporting that the world is buying I'll give you some examples China is famous for being the world's Factory it makes and exports everything Germany is known for its engineering and highquality Manufacturing BMW Porsche Mercedes Japan is a major exporter of electronics cars Toyota Honda and the best anime in the in the world South Korea famous for semiconductors smartphones Samsung Hyundai Kia and some of the best skincare products in the world Saudi Arabia famous for its oil it's one of the biggest exporters of crude oil in the world Russia famous for its natural resources it's gas it's oil it's coal it's other minerals Brazil is known for its agriculture one of the biggest exporters of soybeans coffee sugar and beef India is a major exporter of software services Tech and pharmaceuticals Australia is also rich in natural resources it's the leading exporter of iron ore coal natural gas and black opal Canada is also a huge exporter of Natural Resources including Timber minerals and some of the nicest people I've ever met France is arguably the biggest exporter of luxury goods and fashion in the entire world Italy is also known for fashion and luxury Ferrari Lamborghini wine pasta the Netherlands famous for happiness flowers dairy products vegetables height Switzerland famous for financial services it's the world's biggest bank Pharmaceuticals Rolex the United States famous for the Kardashians Hollywood now there's actually a lot of things the US produces that the world consumes including culture but also Tech we've made the biggest companies in the world we export the biggest military in the world but arguably the biggest export that the United States has by far are US Dollars we Aid a lot of countries with a lot of money by Design design we are the world's biggest money exports so the question is how does being able to export dollars help the US economy and the answer is it helps in every single way imaginable because having the Petro dollar system has created a demand around the world for other countries to buy our dollars and our treasury bonds because that's how the US fuels its growth by issuing this debt these treasury bonds that other people buy it's also created a stable economy lower interest rates and liquidity and financial markets and this has been hugely beneficial for the US Stock Market through higher stock prices and investment flows without the ability to export dollars that would mean bad things let me show you an analogy using a balloon because this is the US economy in its normal State and whenever there's a problem we can just pump the balloon full of money to solve the problem which also creates inflation and it looks like this now if I pump this balloon with enough inflation eventually those Rising prices would cause the economy to break because consumers wouldn't be able to afford anything So eventually with enough air with enough money the economy would break now lucky for us we have an exit valve right here that means we can release the pressure and the dollars to the rest of the world and the world would actually absorb it because it also needs those dollars to buy its energy but what happens when you have a balloon that keeps on expanding and doesn't have an exit valve eventually that balloon would pop now that's just an analogy but what does it really mean Believe It or Not we've seen what it means because it's happened to other countries Greece is on the verge of default tonight hours from what many believe is a near certainty scenes like this are playing out across the country the UN says food prices tripled last year and estimates four and five syrians now live below the poverty line since 2019 the Lebanese pound has lost more than 90% of its value basic commodity prices have almost doubled Argentina's annual inflation reached more than 100% in February this is the first time since 1991 it's been in triple digits so his costs go up whenever the value of the South Sudanese pound Falls against the US dollar higher inflation means higher interest rates to fight inflation and higher interest rates also means it's more expensive to borrow money which means expensive mortgages and rents more expensive auto loans higher student loans and higher interest rates on credit cards higher interest rates also puts a strain on the banking system which we've seen with the smaller bank failures it puts a strain on the national deficit which we've also seen and of course the federal budget which also means in order to fight that we might have to raise our taxes to pay for those higher interest payments another problem would be the value of the dollar itself would be affected because it would no longer be needed by other countries that makes traveling overseas a lot more expensive it makes buying things that are made in other countries more expensive and it becomes harder to retire because those retirement accounts those IAS and 401ks would be negatively affected remember less foreign dollars buying assets equals slower growth question is why is Saudi Arabia doing this some people blame us leadership in congress for creating the situation some people say they're doing this because they can because it makes sense for a country to trade how they choose and to sell their Assets in the currency they want but it's also because of their commitment to the brics alliance that's Brazil Russia India China and South Africa countries like China and Russia for example have been reducing their dependence on the dollar for a while now which is why China recently dumped a bunch of US Treasury bonds and it's also why the dollar as a reserve currency has reached a 14-year low so how can the US fight this then now short of declaring freedom on a country the US can also raise its Federal fund rate or the interest rate to attract more money to be parked here and we have but the US can only raise the interest rate so far before it starts to affect the US economy consumers small Banks and the ability for us to borrow money so unfortunately there's really not a lot the US can do which doesn't sound like good news but I also want to show you data that argues the effects of all of this I did this in another video but if you didn't watch that video I think it's important to remind yourself just how powerful the US's number one export still actually is because the world holds roughly 59% of its foreign exchange reserves in dollars in comparison to only 20% of that in euros and only 3% for the Chinese remede and the dollar is used in 88% of Foreign Exchange transactions ing to the Atlantic Council and for the Chinese Yuan which a lot of people reference as a competitor to the dollar just had 73 central banks abandon it in favor for buying more gold and US dollars in fact in a survey of global money managers when they were asked what they wanted to do over the next 1 to two years with their currency here's what they said 18% of them said they would be adding to their US dollar which is three times High higher than what it was last year and the dollar is also backed by the world's biggest most advanced and Powerful militaries in the entire world now how long that's going to last is not something I can answer all I've shown you is just the data and the facts about what's really going on today so I don't know none of this was my opinion but if you made it this far here's what I personally think I didn't even know this agreement was coming to an end until a couple days ago when someone left a comment on my video so thank you for bringing it to my attention I do read and respond to a lot of your comments but I'll reiterate what I said in that video the world has been becoming less dependent on the dollar for a long long time now and it makes perfect sense why it would want that for itself to me but it's been happening extremely slowly and I can see in my lifetime how the dollar will continue to play less of a central role in global trade but do I think it's going to be replaced by another currency not in my lifetime even with this agreement coming to an end now rather than just saving my money and worrying about the end of the world about something that is completely outside of my control I focus on what I can control which is just investing into the stock market into lowcost broad market index funds and reinvesting all of my dividend income back into my dividend stocks and as an insurance policy I also like to buy some Bitcoin now I don't think that Bitcoin will ever become a currency but Bitcoin has what I like to call a lot of attack vector s for preserving and creating wealth for example I think the generational wealth transfer from our parents alone will make Bitcoin out grow the size of gold I think we'll see more countries with high inflation adopt the Bitcoin standard we'll see more Pension funds join Bitcoin it'll be added to mutual funds inside of people's retirement accounts like 401ks and IRAs I think Bitcoin will eventually become a world Reserve asset a store of value especially for currencies that get printed out of thin air now it's not just a hedge against the dollar it's also a hedge or a bet against any other currency that may or may not replace it now I also hold some real estate because they can't print more of that I have some stocks I have some bonds I have some dividend stocks as well now if I'm wrong on any one of them which I could be hopefully if I'm right somewhere else then I'll be all right that's just my Approach with that there's a lot of risk and of course mistakes which are made public but I still hope that you get some value and insight anyway I'd love to hear what you think and what you're doing let me know what I might have missed as always I hope you have a wonderful rest of your day smash the like button subscribe if you haven't already don't forget to grab your free stocks links are down below and to go track them automatically with a spreadsheet link Down Below in my patreon thank you so much for watching this video I'd love to see you back here on Monday and Friday sometimes a Wednesday I'll see you soon bye-bye