The Euro vs Dollar Conspiracy Theory: part II - "The P

[jimmoyer]

RE: The Euro vs Dollar Conspiracy Theory: part II - "T

It can't get any easier, right? They already trade oil in Europe, so why not switch from dollars to euros?

I mean, if that's all it took to switch the global reserve currency, why wouldn't the Europeans do it themselves?

Or maybe its because the theory is not plausible.

-----------------------------Toro---------------------


Good point.

And you wonder why the Europeans get so upset
if the Dollars falls too rapidly to the Euro ?

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Jimmoyer:

The european union can not change the benchmark currency as they wish. The currency is set by the country who sells it, just like if you sell stuff in your store, you can decide how much and how you will sell it; not the client. This is why it is the OPEC (organization which the USA and europeans are not members) decides which currency they use as a benchmark. Since iraq sells oil, it is also why they could change to euro in 2000.

All the european can do is used political influence, just like the USA did to force iraq to revert back to dollar, would have had to kick their asses, since the they do not decide for iraq (not anymore ).

meanwhile, check this story from CNN money from today: we will see tomorrow how it affects our topic.

Ciao!


http://money.cnn.com/2006/02/10/news/economy/trade/index.htm?cnn=yes

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

The european union can not change the benchmark currency as they wish. The currency is set by the country who sells it, just like if you sell stuff in your store, you can decide how much and how you will sell it; not the client.

This is incorrect.

If Europeans want to trade oil in euros, they can. Its simple. Just change all the contract terms to euros from dollars. Most trades in the futures markets do not end in the delivery of the commodity. They're financial transactions. Thus, it can be in any currency one wants.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

If the oil selling country sells it's oil in dollars, it must be converted to euros from the benchmark, even if contracts are in euros. This incurs the conversion problems which are avoided by buying directly in the market currency. This is the whole point, the dollar is the reference point and the use of any other currency must incur a conversion.

 

[Toro]

RE: The Euro vs Dollar Co

Any transaction does not actually have to be sold in dollars Huck. The dollar is merely the benchmark. The seller can sell it for whatever he wants, be it dollars, euros, pounds, gold, wheat, or whatever. That's the point.

The mechanics would look like this.

If oil is trading at $60, and €1=$1.20, all that would have to happen is for the oil producer to sell into the euro futures for €50 ($60/$1.20). Its the same price. They would then deposit the euros into their own central bank. No dollars change hands.

In fact, real markets are even more simple. If the price is €50, they don't have to sell it at that price. They can sell it lower, for say €49, and be damned what the dollar price is. Oil traders will will hit that offer all day, since they'll arbitrage that barrel to the €50 price, making €1. Even the American traders will do that. Or should I say, especially the American traders will do that. I know I would.

 

[Toro]

RE: The Euro vs Dollar Co

As an extreme example, at various times the Soviet Union would occassionally trade with client states in kind because those countries would sometimes run short ofhard exchange needed to pay for the oil. For example, the Cubans would trade sugar for oil.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Toro, your reasoning is sound and right. But there is one simple thing you dont consider:

There IS a conversion happening. Lets use a negative value currency such as the canadian dollar for a more obvious example:

If oil trades at 60 USD; well, for me to buy it in canadian dollars it will cost me 69.17 CAD. If my salary is the same as yours, then i have a diminished buying power. Even whorse, every time the canadian dollar fluctuates, my oil can cost me even more! (i.e., when the dollar was 63 cents, it would have cost me somewhere around 82$ CAD, while for you it stays the same price). If i maintain US dollars, i can then pay it the necessary 60 USD, and the price wont change with canadian dollar fluctuations.

I will bring way more details tomorrow on this, but Europe does not have this entire same motivation as the rest of the world. As i said, for canadians and other currencies, buying in USD is advantageous, but not necessary for the euro (especially with a positive conversion rate). But their gain is different, they mainly wish to get the same "free ride" the USA enjoy with the reserve currency (yes i know, there are other factors too, we will see them tomorrow). But by "sharing" the reserve currency status, europe would gain the free money advantage of printing the money and having other countries stock on it buy exporting goods, for 'free'. It is exactly this mechanism that allows the USA to maintain an almost 1 trillion USD trade deficit and still be a strong currency (again, other factors influence such as china buying us bonds, we can see this tomorrow, but it is also another topic).


I is pure speculation, but it could explain why the US were so eager to go to iraq, while europe was on the other position. Europe was gaining with the change, the US had much to lose... (again, there are many other factors that inflence such as the world bank, etc., i will describe them tomorrow, so consider this an oversimplification for the moment, i will be back on this)

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

There IS a conversion happening. Lets use a negative value currency such as the canadian dollar for a more obvious example:

If oil trades at 60 USD; well, for me to buy it in canadian dollars it will cost me 69.17 CAD. If my salary is the same as yours, then i have a diminished buying power. Even whorse, every time the canadian dollar fluctuates, my oil can cost me even more! (i.e., when the dollar was 63 cents, it would have cost me somewhere around 82$ CAD, while for you it stays the same price). If i maintain US dollars, i can then pay it the necessary 60 USD, and the price wont change with canadian dollar fluctuations.

Aah, but that's assuming the price of oil actually stays at $60 since the intrinsic value of the dollar is stable. Its not. Let's look at the purest form of money - gold - which used to be the world's reserve currency. In the past five years, oil has risen from $30 to $60. Yet, the price of a barrel of oil is roughly the same price in gold as it was five years ago, at about 0.12 ounces. So the price of oil in dollars has doubled, but the price of gold has been constant. So in fact, the US dollar is fluctuating in value. Now that relationship between gold and oil won't always hold because the prices of commodities are dependent on their own individual production profiles (the price of oil in gold has risen over the past 3 years for example) which is effected by the marginal costs of producing each commodity and will be different for each. But the point is that the value of each commodity in dollars is fluctuating, which is in part due to the value of the dollar itself.

See, there's an axiom in economics that is absolutely critical, and if I can get everyone to understand one thing, its this:

You can control the price of something, you can control the supply of something, but you cannot control both.

The volume of dollars created has exploded the past five years, which is one reason why oil has gone up, as well as gold, copper, zinc, nickle, sugar, real estate, bonds, stocks, etc. That's why I stated earlier that even though the conclusion was wrong, the facts the theorists used to get to the incorrect conclusion aren't.

But as interesting (or boring) as this all is, its moot to the mechanics of the conversion to the euro and the operations of central banks around the world. Rather, it shows the incentives why central banks would want to go to another reserve currency.

I will bring way more details tomorrow on this, but Europe does not have this entire same motivation as the rest of the world. As i said, for canadians and other currencies, buying in USD is advantageous, but not necessary for the euro (especially with a positive conversion rate). But their gain is different, they mainly wish to get the same "free ride" the USA enjoy with the reserve currency (yes i know, there are other factors too, we will see them tomorrow). But by "sharing" the reserve currency status, europe would gain the free money advantage of printing the money and having other countries stock on it buy exporting goods, for 'free'. It is exactly this mechanism that allows the USA to maintain an almost 1 trillion USD trade deficit and still be a strong currency (again, other factors influence such as china buying us bonds, we can see this tomorrow, but it is also another topic).

The argument you gave is one of purchasing power. Europe would gain from the euro being a more prominent currency because more countries would buy European bonds, which lowers the cost of borrowing and definitely benefits the European economies. That's why they would have incentive for opening a futures pit in euro dominated oil.

But as for this link to the trade deficit, this is also incorrect. The reason is simple - there is no deficit in the world. Every outflow must be matched with an inflow. The accounts must balance. In economics, the balance is between what are known as the current (trade) account and the capital (investment) account. If a country is running a trade deficit, it must be running a capital surplus. It has too. What this means is that if China is running a trade surplus with the US, it invests those dollars and those dollars flow back into America as investments - in China's case, they invest primarily in US government bonds. Like an accounting ledger, the two must balance. Otherwise the world runs a trade deficit with itself, which is impossible. I'll post an article about the trade deficit below.

I is pure speculation, but it could explain why the US were so eager to go to iraq, while europe was on the other position. Europe was gaining with the change, the US had much to lose... (again, there are many other factors that inflence such as the world bank, etc., i will describe them tomorrow, so consider this an oversimplification for the moment, i will be back on this)

But when you say "Europe", you mean Germany and France mainly, but others as well. The UK, Denmark, Holland, Italy, Spain, Poland and Romania all supported the war. They're in Europe too.

The war was supported and opposed by European nations for reasons which had nothing to do with the euro. In fact, if it were about the currency, they would have encouraged the US (but not given much support) since war tends to be inflationary and often relies on deficit financing (like W did) which would undermine the status of the dollar as the reserve currency.

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Stop Worrying About the Trade Deficit
By Donald Boudreaux : BIO | 10 Feb 2006

America's trade deficit -- in December reaching a near-record $64.7 billion -- is unfortunate, right?

Wrong. Contrary to popular opinion, this so-called "deficit" is a blessing.

Consider that if Americans export lumber, sheetrock, and architectural blueprints to China so that people build a factory there, we're gleeful. "Wonderful!" we proclaim. "Exports are up and our trade deficit is down!"

But if those very same building materials are assembled by Americans into a factory situated and operated in, say, Utah and then bought by Chinese investors, we complain -- led today by the likes of Senators Charles Schumer and Lindsey Graham -- that "Something's wrong! Our trade deficit is higher!"

Truth is, though, that nothing economically important separates the first scenario from the second. In each case the world's stock of productive capital grows as Americans produce things for sale to foreigners. Those cases appear different from each other only because of the conventions of international commercial accounting, which records investments separately from imports and exports.

This accounting convention creates the false impression that an excess of imports over exports -- called a "trade deficit" -- is an ominous imbalance requiring corrective action. In fact, America's trade deficit is evidence, not of any imbalance, but of the happy fact that our economy is so strong and stable that foreigners invest here eagerly.

When foreigners sell things to Americans they earn dollars. If foreigners then spend all of those dollars on American exports, trade is "balanced." There's no trade deficit or surplus. But if foreigners instead invest some of those dollars in dollar-denominated assets -- say, by purchasing that factory in Utah, houses in Hawaii, or shares of Google -- they obviously must buy fewer American exports. So the trade deficit grows as investment in the U.S. rises.

Although dollars spent by foreigners on investments are not spent on items classified as U.S. exports, these dollars nevertheless are spent in the U.S. They raise the value of American corporations and real-estate, and improve American workers' productivity. In turn, those increases in asset values and productivity enhance Americans' current ability to buy goods and services -- perhaps the same goods and services that foreigners would have bought had they not invested their dollars here.

Isn't it better, though, if Americans do the investing and foreigners the consuming? No. What's important is to have lots of investment to increase worker productivity, which ultimately is the only way to raise our living standards. The nationality of investors is insignificant.

Because savings and investment are indeed so beneficial, we should welcome rather than regret foreign savings invested in our country. If we applaud the guy across the street who forgoes that vacation in Las Vegas in order to save and invest more in the U.S. economy, we should applaud also the guy across the ocean who does the same.

But doesn't a higher trade deficit mean that Americans are sinking more deeply into debt? Not at all. A trade deficit isn't debt. My young son, for example, received for Christmas several Chinese-made toys. These were bought with cash. If the Chinese toymakers invest their newly earned dollars in, say, that factory in Utah, the U.S. trade deficit rises but no debt is created. Neither I nor any other American owes any foreigner anything as a result of my purchase of toys from China and the corresponding Chinese purchase of equity in a company located in America.

More generally, whenever foreigners buy American real-estate or equity, or when they simply hold dollars in their portfolios, our trade deficit rises without creating debt.

Nor is it true that a higher trade deficit means that Americans are selling off assets. Whenever, for example, IKEA builds a new store in the U.S., a new asset is created. No Americans had to part with assets as a pre-condition for this Swedish investment in America.

Of course, part or all of the trade deficit can become debt. This happens whenever Americans borrow dollars from foreigners. As it happens, the most prodigious borrower today is Uncle Sam. But despite self-righteous accusations leveled at foreigners by the likes of Senators Schumer and Graham, the fact remains that U.S. government indebtedness is not caused by foreigners buying Uncle Sam's bonds, but by Congress spending beyond its means. If government debt is a problem, then Congress should stop borrowing. Complaints about the trade deficit are a red herring.

We Americans have many real problems confronting us. The trade deficit isn't one of them.

The author is Chairman, Department of Economics, George Mason University.

http://www.tcsdaily.com/article.aspx?id=021006G

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

EXACTLY!!!!

thats the whole point, this guy is 100% right!!!

but what he omits to talk about is that this situation is sustainable because the world keeps stocking up on US dollars for oil and debt repayment (all in USD). This situation maintains the "bubble" of the trade deficit going, just like said in the article above becasue the debt of the US keeps growing and with world dollar stocking, does not yet affect its value (in fact, as said in the article, it still attracts investments).

But, if the dollar loses some of its reserve currency status, other countries will not need US dollars as much and will try to buy US goods with it, and inversely, the US will need more of the new currency being the reserve. The imbalance will need to become a trade surplus, like every other country in the world, becasue you can not spend more that you gain. No normal economy can sustain a trade deficit. So what you posted above is right: at the condition that nothing changes for the reserve currency status that provides "super human powers" to your country.

This is eaxctly the machanism I will try to prove tomorrow.

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

"Normal" economies can sustain a trade deficit. That was the point of the article I posted, and its one of the many reasons why the argument breaks down. As long as countries are willing to invest back into the nation sustaining the trade deficit, then the country can run a trade deficit forever.

The theory is based on this idea that a country can only have a trade deficit if its the reserve currency. That's incorrect. Here are OECD countries currently running trade deficits.

Mexico
USA
Australia
New Zeland
Belgium
Czech Rep
France
Greece
Hungary
Ireland
Italy
Poland
Portugal
Slovakia
Spain
Turkey
UK

In aggregate, the euro area runs a current account deficit

http://www.oecd.org/dataoecd/56/0/18625402.pdf

And that's just OECD countries.

Some countries run trade deficits, some trade surpluses. Neither is good nor bad in isolation.

This idea that the US must have the reserve currency or it must run trade surpluses is simply false in economics. What the reserve currency does is lower the interest rate paid. But there is no economic reason why a trade deficit must be financed with the reserve currency. Otherwise, all the nations above could not run trade deficits.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

yes, this is true for reasonable trade deficits. But the USA are maintaining a way too big trade deficit. Combined with the very high debt, it is begining to ring bells in the minds of the investors.

A small trade deficit is acceptable, as investors know a good country will not collapse as they keep producing goods. If their currency falls, then their goods becomes more cheaper and interresting and their exports will pick up. But the USA have a TD of close to 60% (where does this money come from that you dont have? the hegemony). this is HUGE! plus the massive debt, this makes people nervous (and there a re plenty of investor journal publications on that, such as the one i sent yessterday from CNN money). even whorse, if the euro becomes the main reserve currency, then the would will convert to euros, flooding the USA with these stocked dollars. THe value will dramatically decrease. If this happens too fast, this can cause a major crash. In any case, the US economy will be dramatically affected, as no more buying for free. All this in the precarious situation we know, and the wars could casue the economy to crash.


This is the key word: The USA is running a supernatural economy. But is sustainable becasue even if the country would normally shake investors trust, the strong dollar (maintained strong by the world) keeps them investing. If the dollar stop being held strong in the world (the hegemony), then investors will begin to consider the USA economy for what it is, just like they would in every other country: dnagerous.


is it so hard to admit that machanism toro? I mean, you must be able to recognise risk, or how do you invest?


Also, right now, another factor is that China is massively investing in the USA to artificially boost that economy, mainly becasue this new money, americans will spend them back on chinese goods (toys, electronics, clothes, etc.) which in turns bossts the chinese economy and development. They are basically, buying out the USA with your own money. But when china eventually stops investing, this will make a big hole that makes investors nervous...

 

[earth_as_one]

RE: The Euro vs Dollar Co

My understanding of how the US profits from OPEC use of the American dollar is that it forces oil consuming nations to maintain a reserve of American dollars. As the American dollar declines in value, so does the value of these reserves. The lost "wealth" in effect is a wealth transfer to the American government.

This article descibes the size of these dollar reserves and forecasts a move to the Euro which is likely well under way.

India, China and the Asian axis of oil
New Sino-Indian partnership in oil and gas could serve as the foundation for an Asian Energy Union.
by Siddharth Varadarajan
January 24, 2006

...Trade is conducted in dollars, which effectively ensures that countries around the world hold their foreign reserves primarily as greenbacks. And prices are set on the basis of Western benchmark crudes like West Texas Intermediate and Brent, neither of which represent anything but a small fraction of the oil that is extracted and traded internationally. So strong is the monopsonist power of the U.S. and Europe that oil exported to Asia from the Persian Gulf costs as much as $2 a barrel more. This is the so-called Asian oil premium....

...Linked to an Asian oil market is the billion euro question of non-dollar denominated energy trade. Asian countries collectively hold more than two trillion dollars worth of foreign reserves, the overwhelming share of which is in dollar-denominated instruments. Prudential norms suggest the diversification of the Asian reserve portfolio is overdue. In China, the State Administration of Foreign Exchange (SAFE has signalled its intention to explore the more ?efficient use? of the country?s forex reserves and in India, commentators like S. Venkitramanan have suggested the RBI start thinking along similar lines....Global Research

If enough nations move off the dollar, OPEC will have no choice to follow.

 

[darkbeaver]

RE: The Euro vs Dollar Co

The US trade deficit is routinely underemphasised by the Empire.

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

yes, this is true for reasonable trade deficits. But the USA are maintaining a way too big trade deficit. Combined with the very high debt, it is begining to ring bells in the minds of the investors.

But we dont' know what is "too high". The flip side is that investment flowing back into the US is "too high". Is this possible? Maybe, but there's no evidence that this is the case.

The explosion in the trade deficit can be linked to the ultra-low interest rates Americans experienced recently, and the large fiscal deficits. However, its also a reflection of weakness elsewhere in the world. Why? Well, the European economy has been weak. Thus demand from Europe has been weak, and that includes demand for American products. Thus, Europeans aren't buying as much American goods. The American economy, however, has been strong. Demand from America has been strong, including demand from Europe. Thus Americans are buying more European stuff. Because of this dynamic, there is a trade deficit because Europeans are buying less American stuff because their economy is weak while Americans are buying more European stuff because their economy is strong.

However, France's trade deficit recently hit an all-time high as well.

But in other grim news for France’s economy, its trade deficit hit a record €26.4bn last year, as high oil prices increased the cost of imported energy and buoyant consumers bought more imported products, offsetting an increase in exports.

Link

Where are the theories about France going to war over the trade deficit, because, after all, the euro is the second most held currency amongst central banks.

As for very high debt, you may have a point, but I'll emphasize "may". Why? Because at the end of the third quarter, the total net assets of US households was $51 trillion dollars.

Link

"Net" assets means the value of all assets less all household debt.

The net debt of the US government is about 45% of GDP. So that's a little under $6 trillion. Add that back, and total net assets of the United States is $45 trillion.

Too high debt? Perhaps. And I do worry about it. Will it presage an recession? Possibly. How about a collapse? Nope. Not when you are worth $45 trillion. Debt in and of itself isn't a problem (though I prefer to have less than more). Its the ability to service the debt is what matters.

Oddly enough, the people who should be most concerned about an impending economic collapse don't seem to be all that worried. On Thursday, the US resumed its 30 year T-bond auction, with the 30 year yielding around 4.50%. If there was a coming economic collapse, this bond would be yielding 14.50%, not 4.50%.

Link

A small trade deficit is acceptable, as investors know a good country will not collapse as they keep producing goods. If their currency falls, then their goods becomes more cheaper and interresting and their exports will pick up. But the USA have a TD of close to 60% (where does this money come from that you dont have? the hegemony). this is HUGE! plus the massive debt, this makes people nervous (and there a re plenty of investor journal publications on that, such as the one i sent yessterday from CNN money). even whorse, if the euro becomes the main reserve currency, then the would will convert to euros, flooding the USA with these stocked dollars. THe value will dramatically decrease. If this happens too fast, this can cause a major crash. In any case, the US economy will be dramatically affected, as no more buying for free. All this in the precarious situation we know, and the wars could casue the economy to crash.

So, if wars could cause the economy to crash, why would they go to war then?

First, I read all sorts of economic research on the state of the economy almost every day. The explosion of money growth is why I have owned gold, metals, energy and other assets for several years now. And I'll point out again that the conspiracy theorists are correct in identifying the problem because I agree with the criticisms that the world is imbalanced. But they draw the incorrect conclusion because the wars themselves undermine the dollar standard.

Second, the US attracts more capital than anywhere on the planet. Who are the biggest private investors? Why, the Europeans in fact!

Red tape 'turning best firms away from Europe'
By David Rennie in Brussels
(Filed: 21/01/2006)

Europe's most successful companies are turning their backs on EU markets because of red tape, a high-level report said yesterday.

The companies that Europe needed to survive were instead investing more money than ever in the United States and Asia, concluded the report, presented to the European Commission in Brussels.

The lack of investment was so dire that it threatened Europe's "comfortable" way of life. "Europe has to act before it's too late," said the report's author, Esko Aho, the former prime minister of Finland.

Link

How can this be if the US is not a "normal economy"? How can this be if the US is on the verge of collapse? Are you saying that all these people, who control hundreds of billions of euros of capital are wrong while the conspiracy theorists are right? If the US dollar standard is that shaky, ready to collapse on an edifice of debt and the euro about to take its place, why are European corporations sending their money to America? See, another part of the problem with this argument is that the world is just dieing to invest in the euro. Well, except the Europeans themselves, apparently.

Finally, again, most of the world's reserves are held in the West, Japan and China. For this grand shift to happen, it must happen here, not in economically marginal countries like Iran, Iraq and Venezuela.

This is the key word: The USA is running a supernatural economy. But is sustainable becasue even if the country would normally shake investors trust, the strong dollar (maintained strong by the world) keeps them investing. If the dollar stop being held strong in the world (the hegemony), then investors will begin to consider the USA economy for what it is, just like they would in every other country: dnagerous.

And I have some sympathy for this argument. However, investors are still putting money into the US despite a weaker currency.

But Europe and Japan have doing what I thought they would after the US flooded the world with dollars. They too cranked up the printing presses to match US devaluation as both their economies were too weak to sustain an American devaluation. That's why the price of gold in euros and yen has risen. That's why the price of oil in euros has risen. And that's why the Saudi energy minister, who was the first to float the idea of benchmarking oil in euros no longer talks about it.

is it so hard to admit that machanism toro? I mean, you must be able to recognise risk, or how do you invest?

No, its hard after spending more than a decade being deeply immersed in this stuff and actually doing it for a living understanding how anyone serious could buy this argument.

Also, right now, another factor is that China is massively investing in the USA to artificially boost that economy, mainly becasue this new money, americans will spend them back on chinese goods (toys, electronics, clothes, etc.) which in turns bossts the chinese economy and development. They are basically, buying out the USA with your own money. But when china eventually stops investing, this will make a big hole that makes investors nervous...

Yup, its what makes me lose sleep at night. And perhaps we'll have a sharp recession one day if this dynamic unwinds. But that still is a long way off from proving any sort of invasion.

 

[Toro]

Re: RE: The Euro vs Dollar Co

My understanding of how the US profits from OPEC use of the American dollar is that it forces oil consuming nations to maintain a reserve of American dollars. As the American dollar declines in value, so does the value of these reserves. The lost "wealth" in effect is a wealth transfer to the American government.

Yes, this absolutely true. And its why countries should diversify their reserve base. And central banks want to do so. But having anemic economies lessens the desire to use euros and yen. The Europeans resistance to changing their social market model inhibits this shift.

India, China and the Asian axis of oil
New Sino-Indian partnership in oil and gas could serve as the foundation for an Asian Energy Union.
by Siddharth Varadarajan
January 24, 2006

...Trade is conducted in dollars, which effectively ensures that countries around the world hold their foreign reserves primarily as greenbacks. And prices are set on the basis of Western benchmark crudes like West Texas Intermediate and Brent, neither of which represent anything but a small fraction of the oil that is extracted and traded internationally. So strong is the monopsonist power of the U.S. and Europe that oil exported to Asia from the Persian Gulf costs as much as $2 a barrel more. This is the so-called Asian oil premium....

...Linked to an Asian oil market is the billion euro question of non-dollar denominated energy trade. Asian countries collectively hold more than two trillion dollars worth of foreign reserves, the overwhelming share of which is in dollar-denominated instruments. Prudential norms suggest the diversification of the Asian reserve portfolio is overdue. In China, the State Administration of Foreign Exchange (SAFE has signalled its intention to explore the more ?efficient use? of the country?s forex reserves and in India, commentators like S. Venkitramanan have suggested the RBI start thinking along similar lines....Global Research

Absolutely true. Those $2 trillion are held almost entirely by China and Japan though, and Japan has much more than China. So for this dynamic to work, it will be decided in Tokyo and Beijing, not Tehran or Baghdad.

quIf enough nations move off the dollar, OPEC will have no choice to follow.

But that's a reaction, not an action, isn't it? Its OPEC following the lead of China and Japan, not the other way around. Thus, invading Iraq or Iran to enforce the dollar standard doesn't make any sense, does it?

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

So much for not participating. :?

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

So much for not participating. :?

Yeah, thanks for being there, its really fun. Allow me a little time, im preparing something that should help us clarify it all.

In anycase, its a pelasure to discuss with you. we ARE making true progress

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

The conspiracy theorists like to talk about how this all about oil. But oil is a minor part of total trade, and thus a minor part of total capital flows. So, even though oil is an important product to the economy, its not relative to capital flows. And since capital flows will ultimately determine the amount of reserves held by a central bank, OPEC isn't much of a player.

Here is the latest trade figures released this week.

a goods and services deficit of $65.7 billion ...

Deficits were recorded, in billions of dollars, with China $16.3, Europe $11.8, the European Union $10.1, Canada $8.0, OPEC $7.6, Japan $6.8, Mexico $4.3, Korea $1.1, Taiwan $1.1 ($1.4), and Brazil $0.6.

Link

So, OPEC accounts for 11.5% of America's trade deficit. Heck, its not even the top region. China, Europe and Canada run higher trade surpluses.

And remember, this $7.6 billion trade deficit in oil is in the context of $1 trillion of GDP created in the US economy in December, or 0.76%.

So we're to believe that America's actions to invade are spurred by a region of the world which runs a trade surplus worth 0.76% of the US economy.

 

[Toro]

RE: The Euro vs Dollar Co

As you can see in Exhibit 9, total petroleum imports were $251.6 billion. The total US economy in 2005 was $12.7 trillion.

Link

Thus total petroleum imports - which includes from all sources including non-OPEC countries such as Canada, Mexico, Russia, etc. accounts for 2% of GDP.