Is that a big deal?
Some people think so. Some say it’s just another incremental step towards a gradual shift in global economic power. Some say it means nothing.
Most people have no idea it’s happening … and even if they do, have no idea if it has any impact on them.
But think about this …
If you pay attention and nothing happens, you’ll probably learn some things about the eco-system you invest in. That’s not a big win, but it’s not a big lose.
But what if you don’t pay attention and something big happens?
That’s what happened to all the people who downplayed sub-prime mortgage problems in 2007.
So stick with us for a few minutes and we’ll share our reasons for thinking this is development worth paying attention to …
… even if you’re a nose-to-the-grindstone real estate investor who doesn’t care what happens in stocks, bonds, currencies, or commodities.
In this case, we’re talking about oil … and in that regard, China’s kind of a big deal. After all, China has surpassed the U.S. as the world’s largest importer of oil.
That means China is the most important customer to countries who sell oil … including Russia, Saudi Arabia, Venezuela, Iraq, and Iran.
Hmmm … Funny how the U.S. doesn’t get along with most of those folks, but that’s probably just a coincidence, so put your tinfoil hat away.
The point is … China has leverage with major oil producers to pressure them to do business in yuan … and not U.S. dollars.
THAT’S why some say this latest development is important.
What’s the big deal?
It starts back in August 1971 when President Richard Nixon shocked the world by defaulting on the gold-backing of the U.S. dollar.
That’s right. Up until 1971, foreign holders of U.S. dollars could turn them into Uncle Sam and take home cold, hard gold.
The problem is the U.S. printed too many dollars and foreigners (being prodded by France) got worried … and started trading dollars in for gold.
And as demand for the dollar dropped, so did its value.
So then it took more dollars to buy the same things (inflation). Gold went from $42 to $850, oil quadrupled, and consumer prices were rising double-digits.
It wasn’t as bad Venezuela today, but bad enough that Nixon prohibited private businesses from increasing prices or giving pay raises.
Yes, that really happened in the land of the free. It’s important to remember … governments do crazy things when they’re desperate.
Here’s where oil comes into the picture …
To re-create global demand for dollars after they were no longer as good as gold, Uncle Sam made a deal with Saudi Arabia.
At the time, the U.S. was the world’s No. 1 producer of oil. Saudi Arabia was No. 2 and the de facto leader of OPEC, the Middle Eastern oil cartel founded in 1960.
In exchange for military support from the U.S., Saudi Arabia agreed to sell oil in dollars. The other OPEC members tagged along.
So now, if Germany, for example, wanted to buy oil from Saudi Arabia, they had to buy dollars first. Even though the U.S. had nothing to do with the deal.
This created immediate global demand for dollars and the “petro-dollar” system was born … replacing the Bretton Woods “gold–dollar” system that Nixon defaulted on.
Many financial historians believe this was the single most important move the U.S. made to save the dollar.
Of course, other tactics were used, including jacking up interest rates and opening trade relations with China. But the petro-dollar system was (and is) a big deal and the focus of today’s discussion.
Oil’s not well with the dollar …
Since the mid-70s, the petro-dollar system has been central to creating global demand for the dollar. And the U.S. has been pretty protective of it.
But China’s been systematically cutting into that action. And the yuan-denominated oil contract is the latest, and perhaps most substantial step.
Of course, we’re just a couple real estate radio talk show hosts, so don’t take our word for it. Here’s just a few of the MANY news reports …
China has grand ambitions to dethrone the dollar – CNBC October 24, 2017
China’s launch of ‘petro-yuan’ in two months sounds death knell for dollar’s dominance – RT, October 25, 2017
China Will Launch Yuan-Based Oil Futures Contract, Set to Shake Up Global Market – Fox Business News, December 20, 2017
China Set To Launch Yuan-Prices Oil Futures Next Month – Oilprice.com, February 9, 2018
Yes, we know many pundits and officials contend it’s no big deal. But that doesn’t mean they’re right.
Here’s a couple of relatively recent examples of bad calls by two highly notable guys …
Bernanke Believes Housing Mess Contained – Forbes, May 17, 2007
Art Laffer bets Peter Schiff there won’t be a financial crisis – June 13, 2006
Funny today. But not so funny if you were on the wrong end of the joke.
It’s good to have a Plan B …
The dollar’s been falling for over 100 years, so it’s not the downward trend that freaks people out. You can get rich simply by leveraging real assets with long term debt as the dollar falls. That’s real estate investing economics 101.
The bigger concern is a sudden move, like when Nixon defaulted on the gold-backing. Or when the subprime crisis suddenly seized up the entire financial system.
That’s like having a fire at your home or business. It’s best to have a plan in place BEFORE the crisis … or you’re likely to panic, run in circles, and end up hurt.
That’s why we’re getting our big-brained friends in a room for a two-day mega-mastermind on April 6-7 we’re calling The Future of Money and Wealth.
We’ve got Robert Kiyosaki, Peter Schiff, Doug Duncan (chief economist for Fannie Mae), Chris Martenson, Brien Lundin, G. Edward Griffin, and MANY others …
We’re going to talk tax reform, the dollar, oil, gold, crypto, banking, and of course, real estate.
And most importantly … what an investor can do to prepare to avoid losses and reap big profits … and how to know what moves to make as things unfold.
The future of money and wealth is changing … whether you’re paying attention or not. But if you read this far, now you know.
The big question is what to do next …
There’s still time to join us in Fort Lauderdale April 6-7. They might just be two of most important days of your year.
To your success!
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