Amazing news all over the Internet: Latin America is about to dump the dollar, and so are Iran and Russia, and even China and some Gulf Arab states (also read Robert Fisk’s commentary about all this here).
Remember when Saddam did the same thing? He got himself invaded ASAP.
There are clear signs that the regime in Washington is preparing to fight in a few more regions of the world: Iran is surrounded by Imperial forces, Colombia has not become a de-facto staging post for Imperial strikes in Latin America, and the new AFRICOM paves the way for military interventions in Africa. Looks bad, for sure, but these are mostly hollow threats.
Israel in the USA will probably strike at Iran, but they will achieve little, if anything, with such an attack. In Latin America the best the Empire can do is assassinate Chavez and/or Morales, but that is unlikely to reverse the trends in the continent. In fact, such an assassination could backfire rather powerfully. Looks like even the overthrow of Zelaya in Honduras is, at best, a 50/50 right now and it might actually collapse with time.
Russia and China are both absolutely beyond Imperial reach by now. Russia, in particular, is extremely stable and solidly anti-Imperial in its polices and pro-American political forces have basically disappeared from the political map. I am not so sure about China, but I see no reasons to doubt the basic stability and power of the Chinese polity.
My sense therefore is that the USraelian Empire just does not have the means to prevent a gradual dumping of the Greenback by most of the economic key players out there. The main obstacle which everybody faces in dumping the dollar is, of course, the huge foreign exchange reserves most of these countries hold in dollars. A rapid devaluation of the dollar would have a very bad effect on such countries are China or Saudi Arabia. Others, such as Russia, Iran and Latin America will probably do much better.
Russia, in particular, was sanctioned for its victory against the Imperial proxy Georgia in 2008 by a large disinvestment campaign by the Western financial elites. Well, maybe that disinvestment will end up helping Russia in the long term.
Whatever the modalities of this will be, it appears rather clear that from now on the Greenback’s future can only be one thing: a slow-motion crash.
The Saker
Saddam Hussein was invaded well over a decade prior to his selling oil for euros. The hypothesis presented puts the cart before the horse.
Every other point cited in this essay is equally flawed either factually or logically.
I recommend familiarizing yourselves with the subject:
Is the Left Promoting War on Iran?
http://alethonews.blogspot.com/2009/10/is-left-promoting-war-on-iran.html
@atheo: have you even bothered to read what I actually wrote? Try again. Slowly. You might understand it if you try.
Good luck!
The Saker
PS: hint (just to help you a little): you are confusing the 1991 Desert Storm with the real invasion of Iraq in 2003.
I doubt it was the only factor or even the major one, but yes Saddam’s euros may have played a role. My guess is that the main reasons were Dubya finishing Daddy’s work as he saw it: direct control of Iraq’s oil and the use of Iraq as a military base from which to intimidate the rest of the Middle East out of resisting Israel. But above all to use Iraq and Afghanistan as bases from which to interdict China’s oil supply should that prove necessary. All of which spectactulary backfired and accelerated the Empire’s decline, which is poetic justice, although no consolation to the relatives of several hundred thousand dead Iraqis.
There’s a French based Euro economic analysis site which I subsribe to which has this to say on the dollar:
http://www.europe2020.org
As the US announced a federal budget deficit of USD 1,000 billion a year over the next decade11, who can
honestly believe that the rest of the world would accept nine more years being paid in funny money? Maybe those who found it impossible that Wall Street could collapse in September 2008? Or those who thought Obama would change America and the world12? Or else those who persist in thinking that the
American consumer will rise from his ashes and fuel the « impossible recovery »
Unlike last year, no panic will come to the rescue of the dollar. This time, the US currency is seen more as
a sham than as a safe haven. Indeed decoupling of the rest of the world (Asia, South America and Europe
in particular) is underway and it is precisely the reason why 2010 is such a crucial year for the Europeans.
If they don’t do anything about it, the Euro will become a safe-haven currency and it will rise
until it suffocates the European economy. The Eurozone must therefore become more aggressive and discuss with the other big economic and financial players how to avoid the Euro soaring against the Yuan,
the Yen and all the other currencies of its trade partners.
On this aspect, the EU doesn’t have a choice: it cannot be lasting policy to purchase billions of USD every
day that lose value every day as a result of the increasing pace at which they are printed15. Moreover, the EU is in the strongest position to negotiate with the IMF for the suppression of the US right of veto and for sharing power with the « re-emerging » powers.
OK, I will continue to deconstruct what “you actually wrote”:
My sense therefore is that the USraelian Empire just does not have the means to prevent a gradual dumping of the Greenback by most of the economic key players out there.
This is utter nonsense.
The present situation is better described as competitive devaluation; merchantilist exporters must PREVENT their currencies from rising relative to other exporters. The US is still a major exporting nation and pins its hopes of economic recovery on a decline in the value of the dollar while the Eurozone sees the declining dollar as a threat to their competitive position.
Inflation in the value of the US dollar also reduces the real value of eventual repayment on US treasury debt.
Vineyard, did YOU read the article I linked to above?
BTW, Vineyard, I most definately do NOT confuse the 1991 and the 2003 invasions of Iraq. However I do note that the state of continual war never abated.
@atheo: The US is still a major exporting nation and pins its hopes of economic recovery on a decline in the value of the dollar while the Eurozone sees the declining dollar as a threat to their competitive position.
Oh boy, we are dealing with a real expert here… Say, you should offer your expertise to the Obama speechwriting team. LOL.
Anyway, you are probably aware that there are a few “kind of needed” items the US needs to import, and you might even now that it’s “sort of a little bit” in debt, being stuck between a totally corrupt financial system with recurrent bubbles and crashes and the longest war in US history. And that, atheo, will require some $$$. Or maybe you don’t understand that. After all, you did not notice that I spoke of the *invasion* of Iraq and not to a vague, if factual, “state of continual war”. So you seem to have somewhat of a difficulty with similar, but distinct, concepts.
I think that you and I can agree on one thing: we consider each other a total ignorant idiots. Having found that common ground, let’s is rejoice in it, and let’s not waste any more time discussing economics.
Good-bye!
The Saker
Yes Vineyard, obviously discussion is beyond your capabilities as with comprehension or interest in facts.
Ciao
As the American dollar slides inexorably downward in value relative to other major currencies, there are those heralding this development as marvellous news. Many of these cheerleaders can be found within the camp of the Federal Reserve and U.S. Treasury, despite their public protestations that they are true believers in a strong U.S. greenback. But away from the T.V. cameras and open microphones, these guardians of American finance and economics believe that a weak dollar means an improved balance of payments. American exports are helped by being cheaper for overseas customers, while imports become more expensive, dampening the American appetite for goods originating from foreign sources.
Actually, a balanced dollar is good for the American and global economy, but a weak dollar in the long-term is not such good news. True, American exports become cheaper, initially. However, commodities and value add derived from overseas sources comprise a large component of American exports, so in the long-term a weak dollar does not provide a permanent advantage in terms of cost-competitiveness.
More important than exports, the center of gravity of the American economy is foreign-sourced oil and natural gas. With more than two thirds of American oil consumption based on imports, a collapsing dollar will raise energy prices in the United States to a level that is not sustainable for many consumers. Now, Messrs Geithner, Bernanke and Summers; tell me how this benefits the U.S. economy?
PS. Atheo, consider yourself a moron.
My my, such rude ignorance. And no discussion possible with Vineyard.
Robert, who is to say that currency devaluation need be a permanent strategy? Have you no concept of shifting moves?
In fact the percentage of the negative trade balance that is due to oil imports has declined markedly and steadily for several decades.What is much more important at this point is the growing current account balance which is primarily made up of interest payments on debt.
But I guess a moron might not think in the present tense much less the future tense so I understand your befuddlement.
Much better to simply swallow the warmongering propaganda of the new “Arab oil shock”. That will get less trouble right?
@Robert: commodities and value add derived from overseas sources comprise a large component of American exports
Correct, and that is a point which is all too often overlooked.
As for dampening the American appetite for foreign goods, that assumes that there is a domestic alternative for the imported good. That is no longer the case in a vast majority of what is consumed here. So the cheerleaders for a weaker dollar are really lying to the people if when they say that this will help exports or reduce imports. The sad reality is that a large section of the former middle class, now impoverished “new poor” depend on Walmart and the Dollar Store to survive. Shut these down and you will see a *real* panic.
The argument that a weaker curreny helps is true in many cases, but the USA has gone way too far down the road of outsourcing, speculation, debt, dependence on foreign goods and money markets, deficts etc. There can be no more hope for quickfix.
Atheo might well be a moron – he probably is – but the folks whose nonsense he is parroting are not morons, they are very smart crooks who are constantly lying deceive the American public about the so-called “Obama recovery” which is utter bull.
interest payment on debt to foreigners yes – and how does the falling dollar help Uncle Sam sell treasury bonds? Answers on a postcard…
The whole argument don’t worry be happy assumes that the rest of the world won’t be able to cooperate effectively enough to extricate themselves from the dollar system.
Look out when they do.
Yes Robert, credit is not extended to parties that find themselves in default. Yet for innumerable reasons defaults occur endlessly. The ultimate consequence of excessive access to credit is really quite predictable.
Of course there are some such as Vineyard here who would expect the Walmart purchasing to continue forever.
Peter Schiff has is it right on this. This administration wants to borrow a trillion a year for the next 10 years, and they have China penciled in for about 5 trillion of that- They already own between 1 and 2 trillion, and the dollar is dropping like a stone. No way are they going to buy US govt paper in that volume. They need an alternative. Gold or some regional market basket of currencies Yuan centered. Chinese are actually issuing debt denominated in the Renminbi, not because the
need to borrow, cause they most certainly don’t, but to establish their currency as an alternative to the dollar. If oil were not priced in dollars, the dollar would already be dead. To buy oil now, the world largely needs to buy dollars cause that’s the currency of oil exchange, but the oil producing countries are taking bath as the dollar
sinks, and aren’t going to take it much longer. They own so many dollars they don’t want the dollar to crash, but they definitely want out gracefully if possible.
This is now inevitable, There is nothing we could do about this now even if we wanted to. It’s too late. If the dollar starts to sink there are two alternatives.
1) raise interest rates and hope this encourages savings in the us, and makes dollar purchases more attractive.
2) refuse to raise rates- or curb the trillion dollar a year budgets- in which case we are in for hyperinflation like Germany or Argentina.
1) is unlikely because the Keynesian jackasses think they can re-inflate the bubble economy. We did this in the 70’s and it worked but today, the problem is much to big
for that. So it’s number 2) They will try to monetize the debt. print money. The fed will buy the treasury notes and the treasury will still appear to have money, but
the cheap crap at wall mart will skyrocket in cost, Your savings will get wiped out by inflation. Your safe and secure T-bills will probably not default, but they won’t
buy anything.
3) The final act- how countries get out of hyper-inflation. like Germany did- is to default on your debt. Issue a New Dollar, You then can burn your T-bills. All the will save you is buried gold in the back yard then.
Headrick,
“the oil producing countries are taking bath as the dollar
sinks”
This is the central error in your analysis. This assumption is predicated on the popular notion that Arabs are too stupid to exchange their earnings into the currency of their choosing. The real world is not so. Electronic banking and exchange allows currencies to be traded in a fraction of a second. Nobody holds dollars unless they choose to. The currency of transaction is almost entirely irrelevant.
Paul Craig Roberts explains this at the link I provided at the top of this thread.
@atheo: This assumption is predicated on the popular notion that Arabs are too stupid to exchange their earnings into the currency of their choosing.
Nope, it is predicated on the notion that being paid in dollars and then off-loading these same dollars right back unto the market in exchange for other currencies would result in a weakening of the dollar, thereby decreasing the amount of other currencies you could obtain for it. Your hypothesis also assumes that oil rich countries (not just “Arabs”) would find somebody willing to accept their dollars. That, in turn, begs the question of what the folks accepting dollars would do with them. You *correctly* write that nobody holds dollars unless they choose to but somehow you forget to ask yourself in what circumstances holding dollars would be attractive…
Atheo – you make no sense whatsoever. Just go a preach your economic nonsense somewhere else. I frankly don’t mind weird ideas discussed on my blog, but your combination of arrogance and ignorance is just not something I welcome here. Surely you undertand that you are unlikely to convince anyone of anything around here (think of us as a bunch of ignorant idiots, if that helps), and just find another audience, ok?
The Saker
Vineyard,
I thought that you were opposed to discussion?
Why then do you address my engagement with Headrick, who did, by the way visit the Paul Craig Roberts debunking of the eccentric theory you are disseminating here.
Vineyard, you may wish that you never have to defend mistakes that you have made but sometimes you don’t get your wishes.
The fact that oil exporters exchange their dollars for the currency of their choice is not necessarily dollar negative but dollar neutral. Use your head!
As far as there being no way to offload dollars, you seem to be ignorant of the fact that foreign exchange of dollars is the world’s most liquid transaction amounting to over three trillion daily. Again, nations hold dollars only to the degree that they choose to. Of course there are exceptions such as North Korea and Iran who have been forced out of standard banking by Zionist measures.
I do concur with your final analysis anyway.
@atheo: I tried to convince you twice to stop posting your nonsense here. clearly, you choose to ignore it. Fine. Don’t expect me to delete your posts or do anything else. If you get some sense of satisfaction by imposing your presence – it’s your choice. You already made yourself look like a clown, you might as well for the “obnoxious clown” status :-)
Cheers!
Vineyard,
If you can’t handle having your posts critiqued you should not have a blog with a comments option.
Get real.
What a complete fool you have made of yourself!
Hint: try posting only content that you have some familiarity with and can defend, or at least refrain from engaging commentators in such an immature manner.
Altheo:If you have lots of dollars, you can’t sell them at a whim in whatever amounts you choose without causing the value to crash with all those sell orders. Thats why the Chinese and everybody else holding dollars has to move carefully or their hoard of dollars will be worth much less overnight. That does not mean they don’t want to carefully extricate themselves from a dollars tied to a fed reserve that just prints more if people won’t buy dollar denominated debt. The oil countries have the same problem. They can’t dump the dollar overnight but they would if they could. There are geopolitical reasons too why they don’t just demand gold for oil for future purchases from the US, but for now, if you want to buy a barrel of oil from Saudi Arabia, you need to do the transaction in dollars, and this means oil customers need to buy dollars on the international money market, and this is what is saving the dollar now. There is precious little else the US makes, and sells that requires the buyer to get dollars. We don’t make oil but we have arranged for oil to be pegged to the dollar through the reserve currency stature for the dollar that has served in the past. Soon, people will find a way to back out of that.
Alteo: Maybe you are used to thinking in terms of small ebay purchases or something where the denomination of the currency of the transaction seems like simple arithmetic at posted exchange rates. If you are doing huge transactions or contracts, the exchange rate tables react instantly to some intent to sell or acquire some currency or the other. This concept is not normally controversial.
@headrick: atheo is too full of himself to listen. Not *once* since this thread started did he/she understand what was written (heck – he/she did not even understand the original post!). If you have the inclination and patience, you are welcome to try explain things to him, but don’t hold your breath :-))
The oil countries have the same problem. They can’t dump the dollar overnight but they would if they could. There are geopolitical reasons too why they don’t just demand gold for oil for future purchases from the US, but for now, if you want to buy a barrel of oil from Saudi Arabia, you need to do the transaction in dollars, and this means oil customers need to buy dollars on the international money market, and this is what is saving the dollar now
Exactly, headrick. This gets back to the original post – can the US continue to bully the Saudis and others to continue selling in dollars by threatning them with military attack or a coup if they don’t comply? I’m not convinced that preserving the oil dollar was the main reason for attacking Iraq in 2003 but it may well be the main reason for the continuing US military presence in the Middle East now.
If the Gulf states were led by patriots rather than the pathetic collection of US sponsored princes and dictators things would get interesting.
Headrick,
There are two major problems in your contention:
1) You erroneously attribute the amassed reserves to the currency of transaction. This goes back to the point I made earlier, to follow this logic one would have to assume that the oil exporter has no access to currency markets. In fact the reserves’ components are what they are for various reasons: return/expected rate of inflation, current account/dollar denominated debt instruments, settlement of trade accounts/ payment for services. Commodities make up a relatively small fraction of this last category, well behind services and manufactured goods.
2) Even if the above were a problem for your contention, the fact remains that the U.S. is also still the #3 exporter.
In any event your riposte fails to establish that use of a currency for transaction, which amounts to holding it for literally seconds is relevant. Prior to the transaction the buyer invests freely. Once exporters complete their transactions they invest freely.
@Robert: I’m not convinced that preserving the oil dollar was the main reason for attacking Iraq in 2003
Me neither. I think that this was a clever ploy by the Zionists to get the USA to eleminate Saddam and then turn on a “surrounded Iran”. But, as you say, now that the USA is there, and in deep trouble, I would add, the oil argument can be used by the Zionists to justify an attack on Iran. The main objective here is to put as many arguments out there which conceal the fact that Israel is, and was, at the real core center of US decision-making. Furthermore, the Israel Lobby can quietly now “blame” the US oil interests for this war and claim “hey – we were far more concerned about Iran from day one”. It does not matter that this is not quite true (though it has some truth in it), as long as it serves to hide the role of the Israel lobby in unleashing the war against Iraq in the past and against Iran in the future.
Robert,
You have erroneously attributed Saudi investment decisions to the currency of oil trades. In fact, if the Saudi’s were paid in euros, they would still exchange them for dollars after the settlement of the commodity trade and purchase US arms or treasuries. The US pressure on them to invest in the US is entirely independent of the currency of oil transaction settlement.
There really is no basis whatsoever for this crackpot theory put forward by the Zionist Robert Fisk and posted by Vineyard.
The only purpose of this type of media theater is to falsely assign blame for the dollar’s demise on “a cabal of Arab oil traders”. What a slick character this Fisk guy is eh?
atheo. Last word from me on the subject: If you buy oil in dollars, and then the Saudis instantly buy gold with the dollars, the dollar gold exchange ratio will not change- that’s true. If the Saudis keep the dollars, because they already have lots of dollars and they don’t want to sell dollars to protect the dollar value of their dollar denominated holdings, the value of the dollar goes up with respect to, say gold. Exchange rates would be immaterial except for
1_ Interest rates paid for dollar denominated us government paper are so low.
2_ people are afraid the fed will print dollars so the value of foreign accounts in dollars will drop as more people want to sell than to buy.
Yes Headrick, the currency of transaction is irrelevant to the factors that you cite. Exchange markets operate around the clock. The exchange rate changes little over a few seconds. For transactions that settle at a later date the parties can and do hedge against risk of exchange rate movements. There really is nothing at all to the Zio-hype on offer here.
atheo: Ok just one more. It’s not true that the currency of the transaction is not important, because if buying oil is dollars is mandated, but selling dollars is a hardship because the Saudi’s have lots of non liquid dollar denominated assets that will drop in value if they sell dollars, that’t a trap that would not exist if oil could be purchased directly in say Yuan or Gold directly. There is a differential pressure to keep the dollar high cause dollars are needed to buy oil. It’s the liquidity issue on existing Saudi investments in dollar denominated debt that makes it hard for them to just sell off dollars any time they want to. They are not being anti american or anything. In fact, it’s our pressure on them that keeps this one way dollar investment train into oil states going on. They don’t have all dollar denominated assets in liquid form. So there is a one way dollar buying effect from making these people buy oil in dollars.
Headrick,
The sale of dollars by the oil exporter can not be classified as a hardship. The currency of transaction in the sale of the oil IS a wash in regard to the dollar.
Most countries allow their currencies to float, the aggregate balance or imbalance of their current account has an immediate impact on value. In regard to the US dollar the net effect of the oil transaction is non-existent.
atheo: ok try to look at it this way. There is a gap between the real value of the dollar and the value it deserves to be given the expectation of they world trying to dump dollars. This gap, leaving the dollar higher, leave the dollar nominally above that which a true market appraisal would put it. The buying of dollars due to oil contracts denominated in dollars, is not offset by a selling of dollars commensurate with the true market value of the dollars for now. The holders of dollar denominated assets don’t want to take their haircut for now. You could argue that the true value of the dollar building in the desire of people to get out is not reflected for now in the nominal value because people want to defer the pain of selling all those semi illiquid dollar assets. The inflow of dollars for oil contracts defers the pain of the dollar truly falling to its real value.
Headrick,
Whatever ones view of the future value of the dollar is is beside the point. The seller of oil would have the very same dilemma that you describe regardless of the currency of settlement that the oil sale is conducted in. For example if the Saudis are concerned about the future value of their dollar reserves and they are paid in euros for their oil, they could still exchange the euros for dollars in order to support the value of their reserves. No difference at all.
The meme that you have been exposed to really is just a complete fabrication. From every angle it is nonsense, there is not even an argument that the US elite actually want a strong dollar anyhow. Oil trade settlements are relatively insignificant as well. The meme is only for the economic illiterate, just as the “war for oil” meme is for people that will accept it uncritically and who have little background knowledge.
atheo:
The Saudis are not interested in supporting the value of their dollar denominated reserves for any longer than it takes to sell them for some other currency . The fact that you are forced to buy dollars to buy old, but selling dollars is much harder makes a free market dislocation. Its to the benefit of the US, not the Saudis. The price of the dollar is determined by the balance of buyers and sellers, and if the buyers buy at the point of a gun, and the sellers have trouble finding free buyers, this is the point we are making.
Headrick you are simply wrong. Selling dollars is no problem at all. In fact they happen to be the easiest thing that there is in the world to sell. As I pointed out earlier $3 trillion US dollars are exchanged for other currencies daily making it far and away the most liquid asset.
ath4o: Suppose I invented my own currency, the dodo. and I bought my own island dodoland. I did not sell anything anybody wanted denominated in dodo’s .No dodo bonds that paid interest. no dodo realestate that paid rent. no dodo defense products- no computer software from dodoland. Why would anybody ever convert any currency to dodo’s? There was nothing you could do with them. However suppose I was clever and arranged it so that all oil contracts required dodo’s to buy a barrel of oil. People would need to traffic in dodo’s, buy them just so they could buy the oil. The value of dodo’s is that people can buy oil with them, something people want. Suddenly, with no other support, people would be buying dodo’s cause they were useful. You can buy oil with them. They would have additional (more than 0) value if I could get the world to agree to settle oil contracts in dodo’s. Do you see the value in strong arming people to settle oil contracts in dodo’s? If I issued dodo paper that paid interst, maybe the dodo would rise more, but only with the oil contract bargain, I would have a valuable currency.
headrick,
As I have already pointed out, the US is the world’s #3 exporter and oil settlements are a pittance relative to other currency transactions.
At some point you are going to have to give up repeating the mantra and face reality. You have been lied to and taken for a fool.