[1cvmask]

The petro dollar is enforced by might and invasions.

Nixon created it when he decided to leave the gold standard after France demanded physical gold as payments.

Iran and other countries under US sanctions use alternatives including barter. Bitcoin can just be one of those tools. But bitcoin mining is more a function of cheap electricity and high bitcoin prices. Electricity is cheap in Iran. 4.5 percent of bitcoin mining is negligible given the context of the sanctions. One would expect it to be at say 20 percent as their is an American embargo on the country.

This just seems to be more of a click bait article for self promotion or company promotion.

[sleavey]

> The petro dollar is enforced by might and invasions. Nixon created it when he decided to leave the gold standard after France demanded physical gold as payments.

This aspect was not clear to me until I read The Bitcoin Standard by Saifedean Ammous, the first two thirds of which is more of a history of money than pro-Bitcoin propaganda. There he argues that moving off the gold standard was a bad idea in many ways apparently unrelated to money.

And of course there's this famous website: https://wtfhappenedin1971.com/. For reference, 1971 was when Nixon decoupled the US dollar from gold.

[throw0101a]

> There he argues that moving off the gold standard was a bad idea in many ways apparently unrelated to money.

See Money: The True Story of a Made-Up Thing by Jacob Goldstein (of NPR's Planet Money):

* https://bookshop.org/books/money-the-true-story-of-a-made-up...

* https://en.wikipedia.org/wiki/Jacob_Goldstein

From what I've read on the topic, gold (and 'hard money' in general) is generally not a good in most circumstances. Yes, if your mint/central bank takes orders from the government to create more money it can lead to bad things, but generally that disaster only needs to happen once before everyone realizes how bad an idea it is and probably never does it again.

Recommend the book. Debt: The First 5,000 Years is also worth checking out:

* https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

[logicchains]

Did you read the link the person you're replying to posted? The empirical evidence there suggests that moving away from hard money has been terrible for the average American, and the shrinking middle class is exactly what's predicted by proponents of sound money.

>but generally that disaster only needs to happen once before everyone realizes how bad an idea it is and probably never does it again.

That clearly isn't the case or else no country would have experienced hyperinflation after the fall of Rome.

[simias]

It's one of these situations where the correlation seems obvious, but the causation seems very hard to establish. How world changed so drastically over the past century that it always seems a bit strange to pin our current woes on one single factor, "empirical evidence" be damned.

[sleavey]

It's good to keep an open mind, but just look at the sheer number of different metrics on that website that show some kind of change at or soon after 1971. With enough correlation you can make a hypothesis, hopefully a testable one. Unfortunately there are no countries that use a gold-backed currency left where you could perform an experiment.

[chii]

> moving away from hard money has been terrible for the average American

i think outsourcing is the cause, not moving off the gold standard.

[throw0101a]

> The empirical evidence there suggests that moving away from hard money has been terrible for the average American, and the shrinking middle class is exactly what's predicted by proponents of sound money.

The shrinking middle class, especially in the US, has mostly occurred post-1980s (see Reagan and Thatcher). This can be stopped and probably reversed with redistributive tax policy. See Piketty:

* https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

> That clearly isn't the case or else no country would have experienced hyperinflation after the fall of Rome.

How may countries have actually experienced this?

> Re-arranging the Hanke-Krus list highlights something however: barring three outliers (France, 1795-1796, North Korea 2012, and Venezuela 2016-) there have actually been only five hyperinflation “events”, each associated with particular large, long-term global processes (involving war, decolonization, regime change, foreign denominated debt/currency pegs). The spatial and temporal clustering of these events is perhaps best expressed visually (Chile and Zimbabwe are temporal outliers within their cluster)

* https://clintballinger.wordpress.com/2019/05/24/the-autocorr...

Hyperinflation is generally not caused by printing money, rather the printing of money is the effect of something else:

> In this paper I will argue why the common misconception that “inflation is always and everywhere a monetary phenomenon” cannot be used to explain most historical hyperinflations. I will argue that “money printing” is often the response to exogenous and unusual events and not the direct cause of the hyperinflation.

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102

* https://www.pragcap.com/hyperinflation-its-more-than-just-a-...

China ran on paper for a century or two without issues, and only went back to hard money because the Imperial Court wanted more centralized control; this is covered in a chapter of Goldstein's Money.

[inshadows]

What's so great about Debt: The first 5000 Years? I've tried to read it but had to abandon it after first two chapters as it seemed way too emotionally pushy for my tastes. It gives many examples of poor indebted countries and demonizes money lenders, but nowhere in these lines does author elaborate how would those countries fare if they weren't offered credit in first place. OK, I get it that lenders impose harsh conditions, but why is it in any way OK to not repay the debt, and in turn not receive any credit offer in future as it becomes clear that you won't repay? People keeps recommending the book but I found its arguments overly populist and ignoring obvious counterarguments.

[throw0101a]

> but nowhere in these lines does author elaborate how would those countries fare if they weren't offered credit in first place.

For one, in many/most economics textbooks you have the story (fairy tale?) of cultures going from barter to currency (special rocks, shells, etc). There is no sociological or historical record of a culture doing this. The point is reiterated in Money.

[vlovich123]

My impression is that usury actually inhibits economic development because you’re stuck paying the interest instead of investing in your future. Lower interest rates encourages more risk taking economic activities. Sometimes those risks don’t pan out, but, if you believe that overall your economy will prosper, lower interest rates ensure that proceeds from risks stay more with those generating the activity rather than the lenders themselves. Liquidity is important but not as much value creating (if everyone loans the other person $5, there’s a lot of “economic activity”, but nothing of value has been created in that fake scenario). That’s simplistic of course and liquidity itself can be value-generating if there’s intention behind it (ie vetting that the liquidity generated is going to an enterprise that will likely yield net returns overall for some reason).

That’s also why there’s bankruptcy protection. Sucks for the lenders that their gamble didn’t pay off but generally they’re able to take a loss and their other investments can balance them out. Plus bankruptcy protections apply to them to if they overextended themselves or didn’t manage the investments.

The point is that anyone can suffer an economic hardship but that doesn’t mean society should strive to create punishing conditions if you are unlucky (or, in most payday scenarios, just start off poor). Of course some people will abuse the system. There are abuses happening by lenders too. Economic policies around this though can only work at the macro scale, so you find other ways to mitigate the problems through legal structures.

I think there’s this unhealthy association between lendees not paying and it somehow being a moral failing on their part. No. It’s the fault of the lender for not vetting their investment properly. Sure they should be allowed some attempt at recollection but there need to be strong usury protections too (if you want to allow high interest rates in your economic region, then high usury rates should be pared with much easier ability to limit recovery after some limit is collected. If you think about it, in payday scenarios, the successful “investments” on the part of the lenders (ie the people actually making good on the payments) are subsidizing the lenders loans to those that can’t pay. It’s a vicious cycle frequently for those involved because the loans aren’t actually generating economic value and are really being used just to help people get by. High interest loans really need to be restricted to risky economic investments (starting a business of some kind) or those with the resources that they could pay it back and just have a short liquidity issue. This $500 @ 30% interest to fix your car that’s your only mode of transportation to/from work or $1000 to go to the doctor seems seems like not a useful application. It’s a non-economic need that person has and there’s not really any likely realistic scenario where those loans would have a net positive impact on the economy. Forcing the area to invest in useful public transportation solutions and safety net for medical care would return far more value to the economic prosperity and social stability/welfare of the area.

[inshadows]

Thanks for long reply. But you mostly just summarized what I felt about the first 2 chapters in your own words.

You say

> I think there’s this unhealthy association between lendees not paying and it somehow being a moral failing on their part. No. It’s the fault of the lender for not vetting their investment properly.

You know what? If that's how I'm going to be treated as money lender then screw it, I'm not lending anybody. They need money to jump start their economy? Screw them. If I'm supposed to invest in detailed research with zero return, I'll be at loss in the end even if the huge risk turns out in my favor. I'm keeping my money safe, let them starve! Now obviously I'm not seriously that evil, but you get the point. When there's no protection for money lenders, when society treats them as evil (as this book does), they're not going to lend anybody, and poor economy won't have the capital to build from in first place. And then money owners will be vilified for hoarding money! You can't really win this game unless you give away money for free, can you?

EIDT: I agree that usury is evil. Obviously investor protection should go only so far, but shifting all blame for failed projects on money lenders is just wrong. Contracts should be obeyed.

[vlovich123]

Then don’t lend? I’m not sure why you’re getting so triggered. Why are you treating it as a moral obligation that you have to lend? Sure there can be positive social results to certain kinds of lending. If you’re investing for that purpose though (to improve someone’s situation), why are you looking to be punitive and enforce that you get a return? Now maybe you’re not seeing efficacy or maybe you’re primarily motivated by your personal returns. Then invest accordingly. It seems though like you want to hold power over people as a result of lending out money & that to me seems like an unhealthy motivation for everyone involved.

And as for contracts being obeyed, I’m not sure where you ever got that. Contracts can be broken for all sorts of reasons.

As a counter to your “bitch better have my money” perspective. I invest money in startups and they fail. Is it a moral failing on their part or mine that that happened? Sometimes they don’t fail. Is that due to our morals? It’s a bet on an outcome and people. Sometimes the bet doesn’t go my way. Sometimes it does. Why read morals into what is in a lot of ways a game of chance? I’ve also been a landlord & had people try to screw me out of rent checks. Sure that’s shitty of them to do and it frustrates me but everyone has their struggles.

EDIT: And I didn’t shift all blame on lenders. I just said that usury like payday loans should be way more regulated than it is in the US.

[discreteevent]

In "The Economics of Belonging" Martin Sandbu makes the argument that it should be more like venture capitalism. You provide a loan and get some of the upside if it works out but if it doesn't then you share the loss. It would at least keep people more honest.

[vlovich123]

I don’t think one approach or the other works. Interest-based loans are the equivalent of hedging your risk in a financial investment. That’s like saying you should remove financial instruments that allow for that when you make stock investments. That is a position one could take, but I feel like allowing for hedging is smart (& besides there’s all sorts of ways people can create contracts to hedge risks that are impossible to regulate anyway).

For many investments, interest-based investments seem to make more sense to me. For example, investing in a restaurant is not an investment that works out in favor of the VC model unless you want to be inundated with low-cost generic options that can scale to every market even more than we are today. That’s also why you have collateral in such investments so that the lender has ways to recoup their investment even with uncooperative lendees. I think the world is complex & we have different investment models to account for that complexity. I’m skeptical that any one hammer will somehow solve all problems. It’s all trade offs in the end, no?

[PKop]

What gold is good for is a neutral settlement asset between nations with imbalanced trade. But not at a fixed currency price by weight, rather floating in fiat price, which forces nations to re-balance to more consumption or more production depending on if they have large trade surpluses or large trade deficits. Thus the pitfalls of either extreme can be re-balanced by covering trade imbalances with gold reserves which also devalue currencies and force domestic production, or increase them and force consumption.

Keynes's Bancor[1] was essentially this idea, but Bretton Woods conference rejected this proposal. Oil exporting and general surplus nations, like Russia and China, have been moving in this direction by reserving more gold in recent years (look up various European nation increasing gold purchases since 2008) likely to move towards a more multilateral system of settling trade imbalances with a neutral settlement asset, rather than stockpiling fiat currency or fiat currency debt "assets" created in unrestricted supply by one nation, who forces world to then use this inflating currency to purchase energy... which equals future inflation for these nations that can't print it themselves.

It is also useful as a personal "store of value" to avoid "saving" in a depreciating fiat currency, along with other "hard" assets.

But gold or hard money cannot be the unit of account or medium of exchange for national commerce. Credit/fiat is better for this.

This is why some have argued that there's always been and probably always will be a need for "two monies". Bimetallism was an embodiment of this principle. Here is a very thorough discussion of this concept[0]. Ctrl+F "two monies" for specifics, but the whole article is insightful.

This dynamic also presents itself in debates about crypto currencies purpose to function as a high throughput transaction currency or a more inert store of value. Because of the inefficiencies of blockchain and Bitcoin's finite quantity, it cannot function as a unit of account or high volume transactions currency; fiat and fiat derivative platforms (Cash App, Paypal, credit cards, etc) are much better at serving this function. Trying to shoe-horn hard money into soft money use cases (or vice versa, saving in fiat) doesn't work. One form of "money" can't satisfy these two distinct functions.

[0] http://fofoa.blogspot.com/2011/05/return-to-honest-money.htm...

[1] https://en.wikipedia.org/wiki/Bancor

[lifty]

This is a very astute point and it's how I've always thought about Bitcoin and other crypto assets. I never understood why people have to debate whether it will take over currencies like the USD or EUR, which it will probably never do. Crypto assets can have utily for trading among enemies or situations where normal fiat currency cannot be used. Think about places with dysfunctional institutions, escaping inflation in places like Venezuela or fleeing war. And then there's the programability aspect which is a totally novel use case which I'm not going to go into.

[throw0101a]

> Crypto assets can have utily for trading among enemies or situations where normal fiat currency cannot be used.

Maybe crypto will get there eventually, like tech crashed in 2000-2001 (AMZN down 90%) and things have 'stabilized' now, but it's been over ten years already since Satoshi published and this is where we are:

> So. Bitcoin fell 53% in five weeks, and then it rallied 35% in four hours. Two observations for now: 1) Nobody in their [right] mind would enter into a transaction denominated in bitcoin; 2) It's too early to say the bubble's burst (or to say this is a new bull market).

* https://twitter.com/johnauthers/status/1395067576334655489

When your currency (?) is more volatile than the goods/services you're using to it buy, I'm not sure how useful of a 'currency' it is. Or a store of value, or a unit of account.

Is Bitcoin or other crypto more or less volatile than the price of a barrel of oil or frozen concentrated orange juice futures?

[robk]

This feels like how Cuba had their own two currency market with the CUP and CUC.

[ItsMonkk]

Gold is not good because it is naturally deflationary. Our current system is not good because it is inflationary.

What you want is for the increase in the money supply to match the increase in productivity. What we care about is a stable M2V.

[notduncansmith]

For reference, 1971 was when Nixon first coined the term “war on drugs” (after passing the Controlled Substances Act and related legislation a year prior). People love to bring up that website when the gold standard is mentioned, but it’s actually showing a broader trend of the government apparatus being weaponized against the middle and lower classes.

Here’s a quote that summarizes the effect of the time period nicely:

“The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar left and black people. You understand what I'm saying? We knew we couldn't make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.”

— John Ehrlichman, to Dan Baum for Harper's Magazine in 1994, about President Richard Nixon's war on drugs, declared in 1971.

That’s what the fuck happened in 1971. Then, notice how many graphs actually show an inflection point around 1981 when Reagan started as president, employing Nixon’s Southern Strategy to get elected and then serving those voters with policies that attacked the lower and middle classes (slashing spending on federal aid programs, raising income taxes while lowering capital gains taxes, freezing the minimum wage, raising military spending which is essentially a cash transfer to rich arms dealers, etc). Then throw the Cold War in there, and you have a US government that is in an adversarial position with everyone but the 1%.

[lifty]

Indeed, the petro dollar has had all kinds of side effects, good and bad. Like any imperial rule, some get crushed by it, but peace and prosperity can be a direct outcome of it as well, and I think this was the case with the American "empire" after the WW2. You can google for "Pax Americana" for more info about the concept.

ps: I say this as a non-American.

[sig-reduction]

I've always wanted to understand the geopolitics of oil and gas. Despite much interested reading, I can never quite figure out what's going on.

One of the more interesting quote's I've encountered along the way, "The foreign tax rates of U.S. oil multinationals fell significantly after the first Gulf War, during which the United States intervened to protect Kuwait, a major oil producer. Although it is not possible to know for sure what caused this decline, a possible interpretation of the fall in taxes collected by oil-producing countries is that they reflect a return on military protection granted by the United States to oil-producing States."

Figure 2 on page 20 has the discontinuity.

https://gabriel-zucman.eu/files/WrightZucman2018.pdf

[DSingularity]

I think that is an important point but tangential IMO. The question here is geopolitics of the dollar. Notice, when the us had deep music-gonna-stop level problems in its economy it prints a shit-ton of dollars. Which other country in the world can do this? Nobody. And it will stay this way until someone has a navy as powerful as the US.

[simonh]

I think this is backwards. The USSR had a navy toe-to-toe competitive with the US, but never had a fraction of the economic weight. The economic power of the US isn't a product of it's navy, rather it's economic power is just another weapon it uses alongside military force.

Let's look at how the petrodollar came about. The first step with the run on gold in 1971 which broke the Breton Woods system. The value of the dollar went through the floor. Having a big navy didn't make any difference. This hurt oil exporters because now their dollar earning weren't worth as much, but they didn't abandon dollars. There was no credible alternative, and there was no military dimension to that fact.

Then in 1973 US support for Israel lead to the OPEC oil embargo. Oil prices quadrupled. You could say it was American military aid that caused this, well maybe but no actual projection of force by the US was involved. Military aid to Israel was no different in character from Soviet aid to Arab regimes. The reasons the embargo mattered and had an effect were economic reasons, not military ones.

When the United States-Saudi Arabian Joint Commission on Economic Cooperation was established in 1979 the US hadn't invaded any Middle Eastern nation, hadn't blockaded any Middle Eastern ports, hadn't established any bases in the Middle East. The total of their interference was support for Israel, a small state a long way from any of the actual oil.

All three of those milestones were entirely economic in character. Military power projection played no part in them. The US has and uses economic power anyway, regardless of how effective it's navy or army is. It was a military midget, but economic powerhouse in 1941 when Japan attacked Pearl Harbour. It parlayed that economic power into military might, not the other way around. By the end of the war the US was launching 2 aircraft carriers per month due to sheer economic muscle.

US military intervention in the Middle East long post-dates the establishment of the petro-dollar. Those claiming the petro-dollar is a result of military power have it exactly the wrong way around.

[DSingularity]

Haven’t established any bases in the Middle East? Are you kidding? Building bases in the Middle East was first order of business after world war 2.

https://en.m.wikipedia.org/wiki/Prince_Sultan_Air_Base

[simonh]

I was very clearly referring to the situation in 1979 when the petrodollar system was formalised, which itself was long after dollars became the standard currency for trading oil.

That base was exclusively a Saudi air force base until the first Gulf War, which occurred long after the dollar became the standard currency for trading oil.

[lotsofpulp]

> And it will stay this way until someone has a navy as powerful as the US.

Armed force superiority is a requisite for maintaining order, which is a valuable good in and of itself, but the country also needs to produce goods themselves (such as research, medicines, technology, media) which is greatly enabled by a large population that has a higher than average level of trust between each other.

I would even assume the latter is far more difficult to create than the armed forces, and only arises from a perfect storm situation. And it feels like it’s in a downward trajectory, but hopefully that is not true or will reverse.

[DSingularity]

It’s all intertwined. When you can print billions and use it to fund research while other countries can’t — well this will also reenforce your lead.

[imtringued]

>Notice, when the us had deep music-gonna-stop level problems in its economy it prints a shit-ton of dollars. Which other country in the world can do this? Nobody. And it will stay this way until someone has a navy as powerful as the US.

The Eurozone can do so as well. Actually, it must do so to prevent the collapse of the euro. It's the same with the USD, foreign nations keep "stealing" USD and take them out of the US and therefore the US must replace the lost USD just to stay still.

Also, the fact that no money is being printed is one of the biggest problems. Yes, you can increase the money supply without printing. For every USD you create, you also create an obligation to return it which is called debt. When the newly created USD are allocated to otherwise idle resources you may unlock value equivalent or higher than the debt you took on. The excess value you have created in the process is called economic growth. It turns out, fiat creation is highly deflationary and deflationary forces from other sources are extremely high as well. However, debt is inaccessible to the vast majority of the population. I personally still get 4% interest rates on private loans. The borrowed money never ends up in the real economy indicated by low inflation rates.

We are basically experiencing the great depression again but to a milder degree, therefore we should do our best to prevent it from becoming a problem in the first place. The fact that the US hit inflation goals because of a pandemic is pathetic. What if they were not blessed with a natural disaster that spurred politicians to act (it wasn't enough to get trump to act)?

Hitting inflation goals and moderate interest rates quickly is absolutely necessary to keep the economy stable. With every year of low interest and low inflation the imbalance keeps growing but the correction will happen in a flash, therefore we must ensure that any imbalance is as small as possible before we run into the crash.

It's like extinguishing wild fires as soon as they happen while the fire is still under control. At some point you can no longer contain the fire but the consequences have become unbearable.

It's better to crash small today, than crash big tomorrow. Unfortunately, today is many years too late.

[woodpanel]

* it prints a shit-ton of dollars. Which other country in the world can do this?*

Currently, there isn't a country that isn't doing this.

But I agree, when the music is gonna stop globally the US can print the longest.

[himlion]

There is a significant difference, those countries print their own currency, but only the USA can print US dollars.

[refurb]

I mean Canada has expanded its money supplier to a larger degree than the US as a percentage of its GDP.

+50% since 2016, +20% since pandemic started.

https://tradingeconomics.com/canada/money-supply-m2

[seibelj]

And their housing price increases are even more absurd than the US. The middle class is trying to hold on to anything they can to protect their savings from inflation and there are very few options remaining for the average person.

[ChuckNorris89]

Same in Western Europe. Housing is almost unaffordable now after the ECB money printer sprint and free loans from he local banks.

[lifty]

At least Japan and the EU have higher debt to GDP ratio's, but the currencies of those places definitely enjoy a high level of trust in the world.

[elcritch]

The US’es navy is arguably much more of a result of our economy than the other way around. Of course there are synchronistic effects. The petro-dollar is what let’s the Fed print money with abandon beyond what other nations could. The petro-dollar is protected by American naval power. So it’s a feedback cycle.

In a fashion, the US printing dollars lowers the value of a dollar which effectively taxes the rest of the world by lowering the value of their dollar denominated assets. Particularly oil. Still it’s an odd system as the US is ultimately on the hook for that debt, to US federal debt holders who are still majority Americans.

It’ll be interesting to see how post-oil world economy will handle it. Possibly more serious large scale wars between regional powers.

[imtringued]

>In a fashion, the US printing dollars lowers the value of a dollar which effectively taxes the rest of the world by lowering the value of their dollar denominated assets.

Those foreign nations take USD out of circulation and buy US treasuries. They are expressing a desire that the US invests the USD they spend on the bonds. When you buy US treasures you do so because you think the US government can spend your money better than you can spend it yourself. If the US decides to not borrow your money it is basically saying you should put your money elsewhere but these foreign nations refuse to do so.

Because the US government doesn't spend the money inside the US the obvious result is unemployment. There is no way to increase the investment rate to account for the increased savings rate. Instead, the domestic savings rate of US citizens must go down to compensate for the increased foreign savings rate. How does it go down? Someone who is unemployed or underemployed must consume more than they earn. Income inequality becomes mandatory to just keep the economy alive. It's increasingly unsustainable for everyone including foreign owners of treasuries.

Of course the US has a nice president right now that wants to let the damn savers save by increasing the investment rate through infrastructure spending. It's a win-win for everyone. The underemployed get jobs, the savers get a nice investment that will not suddenly collapse one day.

[fnord77]

the US pays 0 or close to 0 interest on that debt.

[elcritch]

The first link on Google says the 2021 interest payments will be $378 billion on $27 trillion in debt. That’s about a 1.4% rate. Not a bad rate, but still it’s interest.

1: https://www.thebalance.com/interest-on-the-national-debt-411...

[patrickk]

https://www.bloomberg.com/news/features/2016-05-30/the-untol...

This article explains the link between Saudi Arabia and the US. It explains a lot about the relationship that exists despite so much chaos and turmoil. As they say, money talks and bullshit walks.

[ultrastable]

You should check out Carbon Democracy by Timothy Mitchell if you haven't yet