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2006-07-12 08:51:19
=OBS= EstebanRey
Member
+256|6583|Oxford, England, UK, EU, Earth
First of all, this thread is not solely about the war in Iraq so please try and stay on the topic of the petrodollar and the way in which it is traded (even though a lot of what I'm about to say does support the 'war for oil' argument'.

After watching Robert Newman's history of oil and reading up on this subject it lead me to a shocking truth, without oil, the US is actually quite poor and has debts it cannot pay.  I advise anyone to watch Newman's show (40mins) as it is actually very informative and all the facts can be backed up.......(http://video.google.com/videoplay?docid … 2978336967).

If you can't be arsed to watch it, I'll briefly explain......

All the OPEC countries export and import their oil in dollars regardless of whether the US is involved in the transaction or not.  So, if Sweden want to buy oil from Iran, they have to purchase dollars first to do the deal with.  This means that the dollar is always in demand, regardless of the state of the US economy, and ensures America can run up huge international trade debts because their creditors require dollars to buy oil, so they offset their owings against the petrodollars they sell.

Without this system the US would be screwed because it simply can not afford to pay back its trade deficits.  This debt was $804 Billion last year (http://news.bbc.co.uk/1/hi/business/4805982.stm) an astonishing amount that no country could survive living with if it wasn't for the "blank cheque book" that is petrodollars.  In short, should the current system fail, the US would go through massive recession and they're are two major factors that could and will end the "petrodollar"

1)  The Euro - Before its introduction, there was no competition to the dollar, but now the Euro could overtake the dollar as the no 1 trading currency for oil.  Many of the Middle-Eastern countries have inquired or suggested they plan to move over to using the Euro.  In fact the first three countries were Iraq, Iran and North Korea (unsuprisingly these three were also named as the axis of evil by Bush afterwards, I wonder why?) and the new president of Venezuala has just said he wants to move to the Euro too.  Read this for a better explanation of what I've just said http://observer.guardian.co.uk/business … 7,00.html.

2) Running out! - We are aleady past "peak production" and we are defintely in the "when" zone with oil now.

So I guess my questions are these.....

1)  Would you support the US blocking moves to convert to the Euro (if is they weren't moral and in-line with being a good World leader)

2)  Are you worried or concerned about this?

3)  What postitives/negatives do you think America would suffer in reality when the luxury of petrodollars become a thing of the past

4)  Has this made you think about the war in Iraq question again? (yes or no rather than debating the primary reason for the invasion)
2006-07-12 09:12:48
CameronPoe
Member
+2,925|6588
It's true - Iran and Iraq are/were both motioning towards trading oil in euros - financially destuctive for the US. Yet another insipid reason they decided to grab control of an unbelievably distant nation which posed no realistic military threat to them. Iran need to grab some nukes asap or they're next. The local populace in Iran will be a lot less amenable to US intervention there however and the US would be horribly overstretched so fingers crossed the US don't go on a persian-crushing crusade.
2006-07-12 09:16:47
Agent_Dung_Bomb
Member
+302|6768|Salt Lake City

Well, I don't fully understand how currency from different countries creates inflation/deflation when they compare it against the US dollar.  However, I do know the Euro is currently worth more, and we have some of the highest trade deficits in this country's history.  This may be why they want to do it, but their could be some politics behind the move.  If doing this would in fact screw the US economy, they may be using it as leverage.

As for peaked oil production, we should probably define that.  If you mean by sweet crude that is easily accessible, yes we have tapped the majority of that oil.  There is still a lot of oil out there, it just isn't as easy to get to.  Canada has a desposit of oil sands about the size of Florida.  At current consumption levels that supply could support the global demand for oil for nearly 100 years.  However, it is more expensive to extract the oil from the sands, so it does cost more.  There are also large deposits of oil in ocean areas, but you have to build drilling rigs, and drilling for oil that deep can be pretty difficult, thus increasing costs.  So defining peak production should only mean the cheap, easily accessible deposits that we know about.
2006-07-12 09:24:47
Colfax
PR Only
+70|6676|United States - Illinois
Why change to the Euro in the first place?  If you change to the Euro and the U.S. goes into a rescission your not only hurting the United States your hurting the world economy.  Because like it or not we import a lot of shit and if our economy is no good then we won't be spending money.  So by hurting us they hurt you (world). 

Also Iran, Iraq, venezuela, north Korea.  All enemies or non friendly towards who.  The U.S.  Why do this?

The dollar has worked fine till now why change?

No matter what anyone does to the United States we will come back stronger then ever.  Just face the fact that we aren't going away.

Last edited by Colfax (2006-07-12 09:27:05)

2006-07-12 09:33:55
Agent_Dung_Bomb
Member
+302|6768|Salt Lake City

Colfax wrote:

Why change to the Euro in the first place?  If you change to the Euro and the U.S. goes into a rescission your not only hurting the United States your hurting the world economy.  Because like it or not we import a lot of shit and if our economy is no good then we won't be spending money.  So by hurting us they hurt you (world). 

Also Iran, Iraq, venezuela, north Korea.  All enemies or non friendly towards who.  The U.S.  Why do this?

The dollar has worked fine till now why change?

No matter what anyone does to the United States we will come back stronger then ever.  Just face the fact that we aren't going away.
The countries in question don't care.  They have money, and they have a commodity that will be required regardless of economic conditions.  Remember, motor vehicles actually account for only a small portion of oil consumption.  Most of it is used to generate power, and create synthetic products, plastic, etc.

You have to realize that if countries want oil, and these countries want the payment in Euros, there may not be a lot that anyone could do about it but go along with it.
2006-07-12 09:34:11
rawls2
Mr. Bigglesworth
+89|6593
I think the US could go back to the Gold standard if need be.
2006-07-12 09:34:22
whittsend
PV1 Joe Snuffy
+78|6791|MA, USA
I think you misstated it a bit.  The US gains nothing from this EXCEPT that it keeps the dollar from falling.  We don't actually make any money from the fact that dollars are used for the transactions.  Furthermore, a trade deficit is not something we have to pay back.  It is simply that we import more than we export.  This isn't as big a problem as you might think, as only 9% of US GDP is from Foreign trade; the lowest of any major industrial nation.  Furthermore, the number you mentioned, ~ $800 Billion, isn't an unpayable debt either.  US GDP is $11 Trillion annually, which is approximately 20% of the world total.  $800 Billion is not quite, but almost, a trivial debt...although I'm not really certain what that figure is supposed to represent, since our trade deficit, as I noted before, is not actually owed to anyone.

In any case, the US is already facing the problems accompanying a sinking dollar, because of the fiscal irresponsibility of the Bush administration.  By allowing the Federal Budget to soar out of control, while cutting taxes, he has undermined confidence in the dollar.  This is a problem whether  we continue to trade oil in dollars or not, but it might be a bigger problem if oil starts trading in Euros.  I'm not sure it is in anyone's interests in the short term to allow the dollar to collapse, as this would start a worldwide depression - the chain of events would be: US economy collapses, the worlds largest market ceases buying, asian economies collapse when they lose 50% of their markets, followed by Europe's economy, which would be dragged down by the rest; and finally the OPEC nations would realise they shot themselves in the foot when world oil consumption drops, and their profits go down the drain.

Anyway, to answer your questions directly:

1) I support free trade.  If others wish to trade in a currency other than the dollar, that is their right: but they should be aware of the consequences.
2) I am very concerned about the decline of the dollar.
3) The question isn't really valid.  It isn't about 'petrodollars', it is about overall confidence in the dollar.
4) No.  Iraq is a tangential question.

Edit:  All figures have come from the 2006 Economist World Factbook.  The Economist  has also noted in the recent past that the opinions of Geologists vary, but most believe oil production has yet to peak, and will not do so for another 30-50 years.  They also noted that the idea that peak oil production is 30-50 years away has been believed for the past thirty years.

Last edited by whittsend (2006-07-12 09:37:46)

2006-07-12 09:35:48
Agent_Dung_Bomb
Member
+302|6768|Salt Lake City

rawls2 wrote:

I think the US could go back to the Gold standard if need be.
The gold standard was dropped so long ago that we have nowhere near the reserves to back our monitary system with it.
2006-07-12 09:45:55
elite
Member
+89|6747|Sheffield, England
your dammed if you do, and your dammed if you dont!
2006-07-12 09:48:47
Darth_Fleder
Mod from the Church of the Painful Truth
+533|6839|Orlando, FL - Age 43

whittsend wrote:

I think you misstated it a bit.  The US gains nothing from this EXCEPT that it keeps the dollar from falling.  We don't actually make any money from the fact that dollars are used for the transactions.  Furthermore, a trade deficit is not something we have to pay back.  It is simply that we import more than we export.  This isn't as big a problem as you might think, as only 9% of US GDP is from Foreign trade; the lowest of any major industrial nation.  Furthermore, the number you mentioned, ~ $800 Billion, isn't an unpayable debt either.  US GDP is $11 Trillion annually, which is approximately 20% of the world total.  $800 Billion is not quite, but almost, a trivial debt...although I'm not really certain what that figure is supposed to represent, since our trade deficit, as I noted before, is not actually owed to anyone.

In any case, the US is already facing the problems accompanying a sinking dollar, because of the fiscal irresponsibility of the Bush administration.  By allowing the Federal Budget to soar out of control, while cutting taxes, he has undermined confidence in the dollar.  This is a problem whether  we continue to trade oil in dollars or not, but it might be a bigger problem if oil starts trading in Euros.  I'm not sure it is in anyone's interests in the short term to allow the dollar to collapse, as this would start a worldwide depression - the chain of events would be: US economy collapses, the worlds largest market ceases buying, asian economies collapse when they lose 50% of their markets, followed by Europe's economy, which would be dragged down by the rest; and finally the OPEC nations would realise they shot themselves in the foot when world oil consumption drops, and their profits go down the drain.

Anyway, to answer your questions directly:

1) I support free trade.  If others wish to trade in a currency other than the dollar, that is their right: but they should be aware of the consequences.
2) I am very concerned about the decline of the dollar.
3) The question isn't really valid.  It isn't about 'petrodollars', it is about overall confidence in the dollar.
4) No.  Iraq is a tangential question.

Edit:  All figures have come from the 2006 Economist World Factbook.  The Economist  has also noted in the recent past that the opinions of Geologists vary, but most believe oil production has yet to peak, and will not do so for another 30-50 years.  They also noted that the idea that peak oil production is 30-50 years away has been believed for the past thirty years.
QFE

One note though about your concern for a falling dollar is that it makes our products more attractive outside the U.S.
2006-07-12 09:50:25
Colfax
PR Only
+70|6676|United States - Illinois
75% of our oil DOESN'T come from the middle east anyways. 

And like i've said and whittsend has said if the U.S. economy collaspes so does the world's.  Face it you need us.
2006-07-12 09:58:47
herrr_smity
Member
+156|6660|space command ur anus

Colfax wrote:

75% of our oil DOESN'T come from the middle east anyways. 

And like i've said and whittsend has said if the U.S. economy collaspes so does the world's.  Face it you need us.
take away the other 25% and see how it goes.

Last edited by herrr_smity (2006-07-12 10:07:11)

2006-07-12 10:00:18
taxi2you
Member
+22|6677|Missouri
I think that before the US fell into a major crisis they would buy huge amounts of Euro bonds and own a major part in that corner of the market.  What do you think China is trying to do with buying so many us dollars and the locking it's "dollar" prices?  It is simple economics and it wouldn't phase the US much.  Americans will buy euros inflating the price of them that it will counter act in deflation in the US dollar.
2006-07-12 10:11:03
jdjoubert
Member
+5|6540|South Africa Cape Town

Colfax wrote:

And like i've said and whittsend has said if the U.S. economy collaspes so does the world's.  Face it you need us.
Hey.... Just a throwing a stone here (like the native people of my country). The only thing I need from the US is the DisneyWorld to take my kids to on holliday.....   thats id dude  !
2006-07-12 10:14:57
whittsend
PV1 Joe Snuffy
+78|6791|MA, USA

Darth_Fleder wrote:

One note though about your concern for a falling dollar is that it makes our products more attractive outside the U.S.
Yes.  Many economic problems are actually self-correcting.  This is how a weak currency corrects itself: Weak currency increases Purchasing Power Parity of other countries vs. the dollar, and makes US goods and services more attractive.  Economy strengthens, currency strengthens with it.

Unfortunately, in the case of the US, a weakening dollar probably won't be able to revive itself in this way alone.  Our government must help it to do so by spending less.
2006-07-12 10:19:18
=OBS= EstebanRey
Member
+256|6583|Oxford, England, UK, EU, Earth

whittsend wrote:

I think you misstated it a bit.  The US gains nothing from this EXCEPT that it keeps the dollar from falling.  We don't actually make any money from the fact that dollars are used for the transactions.  Furthermore, a trade deficit is not something we have to pay back.  It is simply that we import more than we export.
from the Guardian,

"Dollarisation of the oil markets is one of the key drivers for this, alongside, in recent years, the performance of the US economy. The majority of countries that require oil imports require dollars to pay for their fuel. Oil exporters similarly hold, as their currency reserve, billions in the currency in which they are paid. Investing these petrodollars straight back into the US economy is possible at zero currency risk.

So the US can carry on printing money - effectively IOUs - to fund tax cuts, increased military spending, and consumer spending on imports without fear of inflation or that these loans will be called in. As keeper of the global currency there is always the last-ditch resort to devaluation, which forces other countries' exporters to pay for US economic distress. It's probably the nearest thing to a 'free lunch' in global economics."

Trade deficit is only non-payable at the moment because of the system in place.  Without that system, the countires you owe 800bn could call in the debt to be paid.  To say trade deficict isn't money you owe anyone is wrong.

whittsend wrote:

This isn't as big a problem as you might think, as only 9% of US GDP is from Foreign trade; the lowest of any major industrial nation.  Furthermore, the number you mentioned, ~ $800 Billion, isn't an unpayable debt either.  US GDP is $11 Trillion annually, which is approximately 20% of the world total.
800bn would cause a massive impact on America and would almost certainly cause a massive recession in the USA.  I invite you to research this as it is a well known fact amongst economists.

whittsend wrote:

US economy collapses, the worlds largest market ceases buying, asian economies collapse when they lose 50% of their markets, followed by Europe's economy, which would be dragged down by the rest; and finally the OPEC nations would realise they shot themselves in the foot when world oil consumption drops, and their profits go down the drain.
The World's largest market is China (1 billion people) so I assume you mean richest market.  However, your version of events wouldn't happen in reality because the reverse happened in 1945 (which is why the US are the superpower).  Europe was ravaged by war, both physically and economically and the US basically said "we'll help rebuild Europe in exchange for deals and favours from Europe, one of which being the begining of the petrodollar system."

Should OPEC countries favour Euros, and America hits an economic crisis, the EU (who would now be in possesion of that open cheque book) would bank roll the US to stability.  Or more likely, the debts the country owes would be paid back in dribs and drabs.
2006-07-12 10:25:28
Darth_Fleder
Mod from the Church of the Painful Truth
+533|6839|Orlando, FL - Age 43

whittsend wrote:

Unfortunately, in the case of the US, a weakening dollar probably won't be able to revive itself in this way alone.  Our government must help it to do so by spending less.
I can't disagree with that.
2006-07-12 10:39:23
whittsend
PV1 Joe Snuffy
+78|6791|MA, USA

=OBS= EstebanRey wrote:

from the Guardian,

"Dollarisation of the oil markets is one of the key drivers for this, alongside, in recent years, the performance of the US economy. The majority of countries that require oil imports require dollars to pay for their fuel. Oil exporters similarly hold, as their currency reserve, billions in the currency in which they are paid. Investing these petrodollars straight back into the US economy is possible at zero currency risk.

So the US can carry on printing money - effectively IOUs - to fund tax cuts, increased military spending, and consumer spending on imports without fear of inflation or that these loans will be called in. As keeper of the global currency there is always the last-ditch resort to devaluation, which forces other countries' exporters to pay for US economic distress. It's probably the nearest thing to a 'free lunch' in global economics."
Great...so what?  This effectively says what I said with a few embellishments.  The benefit for the US is a steady currency, and, in addition to what I said, built in investment.

Edit:  Let me see if I can make this more clear:  You are saying the US is printing dollars to fill the need for them because of the Oil trade.  If demand for dollars collapses, it is a currency collapse (i.e. hyper inflation) not a LOAN which will cause collapse of the dollar.  The US doesn't OWE anyone anything here, except for the piper who will have to be paid if confidence (and thus demand) for the dollar collapses.  But, I have already said this, you have just been misled by the term, "loan."  There is no loan.

=OBS= EstebanRey wrote:

Trade deficit is only non-payable at the moment because of the system in place.  Without that system, the countires you owe 800bn could call in the debt to be paid.  To say trade deficict isn't money you owe anyone is wrong.
A trade deficit is simply the difference between that which is sold overseas and that which is bought overseas.  For this to be so, the money used to purchase the goods in question must be either on hand and spent, or borrowed and spent on the goods; foreign countries, for the most part, do not give the US goods on credit.  They expect goods to be paid for upon delivery.  In any case if the money is on hand, there is no debt.  If the money is borrowed, the debt is to the entity from which the money was borrowed, not to the foreign trade partner.  Any inability to pay is an issue of credit, not one of trade.  How do you figure that the trade deficit could possibly be turned into a debt which can be called in on the US government?  It makes no sense.

=OBS= EstebanRey wrote:

800bn would cause a massive impact on America and would almost certainly cause a massive recession in the USA.  I invite you to research this as it is a well known fact amongst economists.
The US government spent $500 Billion ($200 Bn on Katrina Relief, and $300 Bn on Iraq) in extraordinary expenditures (that is, unexpected, and unbudgeted spending) in the course of a single year (last year).  The Economy did react negatively, and continues to do so.  But it is a slow and measured reaction, not the 'massive impact' you predict.  And no, $300 Bn more would NOT be the straw that would break the camel's back.  Any Economists who believed that an additional debt in the range of hundreds of billions of dollars will cripple the US economy are currently adjusting thier theories to account for reality.  My understanding is that few economists view this expenditure the way you believe they do.

=OBS= EstebanRey wrote:

The World's largest market is China (1 billion people) so I assume you mean richest market.  However, your version of events wouldn't happen in reality because the reverse happened in 1945 (which is why the US are the superpower).  Europe was ravaged by war, both physically and economically and the US basically said "we'll help rebuild Europe in exchange for deals and favours from Europe, one of which being the begining of the petrodollar system."
Wrong.  The US is the worlds largest  market; China is the worlds largest potential market.  FAR more goods and services are sold in and to the US than in and/or to any other country.  Until China can make that statement, it isn't the world's largest market.  As far as the 'deal' you mention...I doubt it.

=OBS= EstebanRey wrote:

Should OPEC countries favour Euros, and America hits an economic crisis, the EU (who would now be in possesion of that open cheque book) would bank roll the US to stability.  Or more likely, the debts the country owes would be paid back in dribs and drabs.
It is possible that Europe would act to insure US stability, as would many Asian countries (which have already acted to prevent the slide of the dollar in the recent past).  Still...what debt are you talking about?  Debts must be owed to someone for something.  "The Trade Deficit" is not, and cannot be, a debt.  The problem we are discussing is one of currency, and thus market collapse.  There is no phantom creditor calling in a debt.

Last edited by whittsend (2006-07-12 10:59:04)

2006-07-12 10:40:30
SpyHunterUK
Member
+2|6751
With regards to real money there's plenty of things like the Liberty Dollar and Hour in circulation in the US, currency that does not depreciate according to inflation, being silver and gold with far more uses than simply money, unlike banknotes (but I suppose if you stitched enough together it might be good insulation).

The reasoning you've presented gives more of an economic reason for the invasion of Iraq - considering US/UK/etc costs have been $400billion+ (not 100% sure on this), there really didn't seem to be much worth having there, especially considering the scrutiny under which Iraq's oil prices and transaction are under.

Search on Wikipedia for more info re. Liberty Dollar/Ithaca Hour.
2006-07-12 10:45:25
SoC./Omega
Member
+122|6573|Omaha, Nebraska!
STOP creating american crap threads my god WORRY ABOUT UR OWN COUNTRY WE CAN TAKE CARE OF OURSELVES!
2006-07-12 10:56:37
=OBS= EstebanRey
Member
+256|6583|Oxford, England, UK, EU, Earth

whittsend wrote:

=OBS= EstebanRey wrote:

from the Guardian,

"Dollarisation of the oil markets is one of the key drivers for this, alongside, in recent years, the performance of the US economy. The majority of countries that require oil imports require dollars to pay for their fuel. Oil exporters similarly hold, as their currency reserve, billions in the currency in which they are paid. Investing these petrodollars straight back into the US economy is possible at zero currency risk.

So the US can carry on printing money - effectively IOUs - to fund tax cuts, increased military spending, and consumer spending on imports without fear of inflation or that these loans will be called in. As keeper of the global currency there is always the last-ditch resort to devaluation, which forces other countries' exporters to pay for US economic distress. It's probably the nearest thing to a 'free lunch' in global economics."
Great...so what?  This effectively says what I said with a few embellishments.  The benefit for the US is a steady currency, and, in addition to what I said, built in investment.

Edit:  Let me see if I can make this more clear:  You are saying the US is printing dollars to fill the need for them because of the Oil trade.  If demand for dollars collapses, it is a currency collapse (i.e. hyper inflation) not a LOAN which will cause collapse of the dollar.  The US doesn't OWE anyone anything here, except for the piper who will have to be paid if confidence (and thus demand) for the dollar collapses.  But, I have already said this, you have just been misled by the term, "loan."  There is no loan.

=OBS= EstebanRey wrote:

Trade deficit is only non-payable at the moment because of the system in place.  Without that system, the countires you owe 800bn could call in the debt to be paid.  To say trade deficict isn't money you owe anyone is wrong.
A trade deficit is simply the difference between that which is sold overseas and that which is bought overseas.  For this to be so, the money used to purchase the goods in question must be either on hand and spent, or borrowed and spent on the goods; foreign countries, for the most part, do not give the US goods on credit.  They expect goods to be paid for upon delivery.  In any case if the money is on hand, there is no debt.  If the money is borrowed, the debt is to the entity from which the money was borrowed, not to the foreign trade partner.  Any inability to pay is an issue of credit, not one of trade.  How do you figure that the trade deficit could possibly be turned into a debt which can be called in?  It makes no sense.

=OBS= EstebanRey wrote:

800bn would cause a massive impact on America and would almost certainly cause a massive recession in the USA.  I invite you to research this as it is a well known fact amongst economists.
The US government spent $500 Billion ($200 Bn on Katrina Relief, and $300 Bn on Iraq) in extraordinary expenditures (that is, unexpected, and unbudgeted spending) in the course of a single year (last year).  The Economy did react negatively, and continues to do so.  But it is a slow and measured reaction, not the 'massive impact' you predict.  And no, $300 Bn more would NOT be the straw that would break the camel's back.

=OBS= EstebanRey wrote:

The World's largest market is China (1 billion people) so I assume you mean richest market.  However, your version of events wouldn't happen in reality because the reverse happened in 1945 (which is why the US are the superpower).  Europe was ravaged by war, both physically and economically and the US basically said "we'll help rebuild Europe in exchange for deals and favours from Europe, one of which being the begining of the petrodollar system."
Wrong.  The US is the worlds largest  market; China is the worlds largest potential market.  FAR more goods and services are sold in and to the US than in and/or to any other country.  Until China can make that statement, it isn't the world's largest market.  As far as the 'deal' you mention...I doubt it.

=OBS= EstebanRey wrote:

Should OPEC countries favour Euros, and America hits an economic crisis, the EU (who would now be in possesion of that open cheque book) would bank roll the US to stability.  Or more likely, the debts the country owes would be paid back in dribs and drabs.
It is possible that Europe would act to insure US stability, as would many Asian countries (which have already acted to prevent the slide of the dollar in the recent past).  Still...what debt are you talking about?  Debts must be owed to someone for something.  "The Trade Deficit" is not, and cannot be, a debt.
Okay maybe I haven't explained this properly so here goes.....

At present, approximately two thirds of world trade is conducted in dollars and two thirds of central banks' currency reserves are held in the American currency which remains the sole currency used by international institutions such as the IMF. This confers on the US a major economic advantage: the ability to run a trade deficit year after year. It can do this because foreign countries need dollars to repay their debts to the IMF, to conduct international trade and to build up their currency reserves. The US provides the world with these dollars by buying goods and services produced by foreign countries, but since it does not have a corresponding need for foreign currency, it sells far fewer goods and services in return, i.e. the US always spends more than it earns, whereas the rest of the world always earns more than it spends. This US trade deficit has now reached extraordinary levels, with the US importing 50% more goods and services than it exports. So long as the dollar remains the dominant international currency the US can continue consuming more than it produces and, for example, build up its military strength while simultaneously affording tax cuts.

Getting a share of this economic free lunch has been one of the motivations, and perhaps the main motivation, behind setting up the euro2 . Were the euro to become a reserve currency equal to, or perhaps even instead of, the dollar, countries would reduce their dollar holdings while building up their euro savings. Another way of putting this would be to say that Eurozone countries would be able to reduce their subsidy to American consumption and would find that other countries were now subsidising Eurozone consumption instead.

A move away from the dollar towards the euro could, on the other hand, have a disastrous effect on the US economy as the US would no longer be able to spend beyond its means. Worse still, the US would have to become a net currency importer as foreigners would probably seek to spend back in the US a large proportion of the estimated three trillion dollars which they currently own. In other words, the US would have to run a trade surplus, providing the rest of the world with more goods and services than it was receiving in return.

So, in short; if you're earning $1000 a week in wages and spending $1500.  It won't be long before the bank wants its money back.  Hence a sudden shift to the Euro would cause a massive change in America.
2006-07-12 11:11:10
whittsend
PV1 Joe Snuffy
+78|6791|MA, USA

=OBS= EstebanRey wrote:

So, in short; if you're earning $1000 a week in wages and spending $1500.  It won't be long before the bank wants its money back.  Hence a sudden shift to the Euro would cause a massive change in America.
Most of what you said is fine...and it is virtually identical to (except possibly in greater detail than) what I have said.

But, you still have a few points which are exaggerated:

You said the US imports 50% more than it exports.  I don't know if that is correct, but I will accept it for the sake of argument.    Foreign trade (that is, profit from sales overseas) accounts for 9% of US GDP.  So, given your numbers, we may assume the trade deficit is 4.5% of GDP.  This is the equivalent of earning $1000 and spending $1045.  Anyone with a mortgage has a cash flow along these lines (noting, of course, that the extraordinary expenditure is front-loaded in a mortgage), and it is quite sustainable for VERY long periods of time (my own mortgage is 4.5 times my annual income, and I do fine, thanks).

Furthermore, this is expenditure by private entities: Not the US government.   Not to say that this means the US economy is off the hook, but is still not a case of foreign governments coming to Uncle Sam and saying, "Pay up."  The major problem for the US as a whole woud still be Hyper-inflation, and, again, this would be a world issue, not just an American one.  It is a simple fact that US spending is the engine of world growth at the moment.  If that spending ceases, so does the growth, and we all will be in hot water.

Last edited by whittsend (2006-07-12 11:15:44)

2006-07-12 11:20:40
Horseman 77
Banned
+160|6870
" The USA is soon to expire ! " the first time I heard that was 1971, when we were all worried about the coming " Ice Age "

Get back to me in 40 years. We have buried better people. My bet is we will be doing fine.

Last edited by Horseman 77 (2006-07-12 11:22:31)

2006-07-12 11:27:52
alpinestar
Member
+304|6629|New York City baby.
Well everything he said is pretty much accurate only thing that makes you think is how america is gonna pull it off
2006-07-12 11:42:57
kr@cker
Bringin' Sexy Back!
+581|6582|Southeastern USA
so.......what difference would it make? How would it be any different if they traded in clamshells? is it breaking the US to buy euro made cars? cuz I sure see an assload of them on the road. It would just go through an exchange, a barrel would still be a barrel, would the value (careful, not cost) of each bbl rise? I personally don't care, you're all screwing yourselves plotting against the planets economic center,after all, if things are as bad as you say, the fact that the middle east is running out, and you switch to the rupee, are going to be the two biggest reasons for the US to start tapping it's own supplies, just one field alone is estimated to hold more than 3 times the amount in the middle east, not to mention Canada's and Mexico's massive fields, and it would be awful hard for them to justify trading in a different continents standard when they are just shipping it across the border. 

Your thinly veiled hatred for anyone more successful than you is pathetic, I don't have anything against anyone from another country, so I've been holding back this comment for a long time, but I just gotta say that it's a sad statement on your condition when dozens of other nations have to band together and actively seek the destruction of another's economy because they can't do the shit right on their own, after all, if you can't outrun your competition, you can always push them into the wall.

 

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