As you and I worry about how war and inflation will impact our families and nations, bond traders are fixated on the numbers on their screens, calculating what might happen to seemingly arcane financial instruments.
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Their job is to protect the treasure of the wealthy. For the past 50 years, the relative stability of the U.S. dollar — above all as embodied in U.S. Treasury securities — has rested in part on what is called the “petrodollar” system.
When petroleum prices are relatively stable, the costs of production and transport are more predictable, inflation is easier to contain, and the prices of bonds and other financial assets are less likely to swing wildly. In such conditions, the wealthy can multiply their paper wealth with greater confidence.
Despite the existence of the Organisation of the Petroleum Exporting Countries (OPEC) oil cartel since 1960, the United States continues to shape the terms on which much of the world’s petroleum is shipped, priced, and paid for through its monopoly on violence — by securing key chokepoints and client states with its bases and fleets and by using sanctions to make oil sales involving targeted states or firms harder to insure, finance, transport and settle financially.
Coups and wars also serve to discipline states that seek too much control over their own resources or wish to move outside this dollar-centred order.
Inflation — a sustained increase in prices over a period of time — is the enemy of financial wealth, as it depreciates the purchasing power of financial assets.
Since the world economy is dependent on energy derived from oil, a rise in oil prices leads to a rise in the price of all other commodities and the overall cost of production and transport, lowering the value of bonds and other financial assets that depend on low inflation.
Holders of financial wealth therefore tend to favour policies that curb inflation through austerity, restrictive fiscal policy, and by keeping the prices of oil — and therefore costs of production, including wages – down. The wealthy prefer holding assets that are stable relative to the prices of commodities and wages, which is why the U.S. dollar has been their currency of preference for holding wealth and denominating major debts and contracts.
Source: Global Research
