The grey, damp dawn of July 1974 mirrored the mood aboard the 8am flight departing Andrews Air Force Base. William Simon, America’s new Treasury Secretary, and his deputy, Gerry Parsky, carried the weight of a nation in crisis.
The official story spoke of economic diplomacy, a standard tour through Europe and the Middle East – handshakes and banquets masking the grim reality. But beneath the diplomatic veneer pulsed a secret, urgent mission, known only to President Nixon’s innermost circle. The oil weapon, wielded by Arab nations in retaliation for the Yom Kippur War, had crippled the US. Prices quadrupled, inflation raged, markets tumbled, and the economy spiralled. Simon’s carefully orchestrated European stops were merely a prelude.
The real objective lay hidden within a four-day pause in the Saudi coastal city of Jeddah. There, far from public view, Simon faced a task veiled in uncertainty: to somehow defang the oil threat and convince a kingdom, flush with petrodollars yet wary of America, to fund its staggering deficit. The stakes were immense, the outcome anything but certain.
The Birth of the Petrodollar
Against all odds, the United States struck a transformative deal with Saudi Arabia. In exchange for security guarantees and military support, the Saudis agreed to sell oil exclusively in U.S. dollars.
This masterstroke, later expanded across OPEC, forced every nation needing energy (read: everyone) to acquire and hold dollars. And where did they park those dollars? Conveniently, in US Treasury debt. Thus, the petrodollar was born, and with it, a new era of American financial supremacy.
It created an artificial, insatiable demand for US paper, allowing Washington to run up tabs that would make a Roman emperor blush. They called it an “exorbitant privilege”; I call it building a financial empire on IOUs, a gilded cage trapping the world in dollar dependency.
A Debt-Fueled Empire
Think about it: America essentially made the world finance its consumption and deficits. They bought goods, sent paper dollars overseas, and those same dollars flowed right back to buy US government debt. Federal debt ballooned from ~$533 billion in 1975 to over $34 trillion today. That’s not growth; that’s a debt spiral fueled by a system demanding the world hold onto depreciating paper assets. Every dollar printed or borrowed further diluted the value, a slow-motion heist from savers worldwide.
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