The Dollar, The Euro & Oil: The Red-Lining Of America

mah_magic

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To what lengths would the US, China and Japan etc go to keep the US economy afloat?

If the UK where to join the Euro, this would obviously effect our special relationship! but how far would they go to prevent a domino effect of countries trading in oil Euro's instead of Dollars.

Perhaps by involving the UK so heavily in Iraq, they have prevented us doing anything. It has caused problems with our relationship with the rest of Europe, and the war could be a cause for the UK's increased deficit thus making it unlikley for the UK to join the Euro.

I think 'Stiched up like a kipper' is the relavent term!
 

Jerry_B

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It really depends on how long any country which has assets in the US thinks it's worth keeping them there. After all, there's no point staying aboard a ship if it's sinking, especially if it threatens to take others as well as yourself with it. It's basically a gamble on whether the US economy looks as if it can sustain any damage and recover. Problems may get to a certain level in which sustaining an economic interest in the US may not be at all worthwhile, especially if such an interest also starts to damage your own economy. Whilst I wouldn't be surprised if there was an effort to shore up the US economy on the part of other foreign economies, there's only so much they can do. If the US economy went into freefall and it's currency became too devalued, no-one would want to stay with it. The costs would be too great.

The US can only extend it's power in limited ways, if it doesn't want to end up bankrupting it's economy. The lesson with Iraq is that this can't be done without incurring very large costs, especially when no sizable benefits can be made from such actions. The cost of sustaining the US military infrastructure and development is already extremely expensive to US taxpayers - it's even worse of that military power is then used for any prolonged period of time and to any wide extent.

There's also not much the US could do to stop countries trading in Euros for oil. It is, after all, a free market.
 

techybloke666

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There's also not much the US could do to stop countries trading in Euros for oil. It is, after all, a free market.
that remains to be seen.

the US is the most powerful country on the planet , I,m sure they will not surrender their supremacy without a fight of some sort.
 

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techybloke666 said:
that remains to be seen.

the US is the most powerful country on the planet , I,m sure they will not surrender their supremacy without a fight of some sort.
'The sinews of war are infinite money' as Marcus Cicero said.

Difficult to wage war if you can't pay your troops or feed them or equip them.
 

Mighty_Emperor

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Jerry_B said:
There's also not much the US could do to stop countries trading in Euros for oil. It is, after all, a free market.
Except of course that the only country to start trading in Euros was invaded soon after - interestingly they switched back to dollars just before the invasion. Was it an attempt to buy them more time? I'd imagine the invasion sent rather a strong message to others thinking about trading in the Euro.

Now another country is proposing trading in Euros and they have the US breathing right down their neck. Now (as pointed out on the documentary) Iran is a different beast (twice the population, difficult terrain, etc.) and I'd think it'd be foolish to invade them but they could certianly make their lives a misery but that is a topic for a different thread ;)

Anyway the Wikipedia entry on Oil and the Euro:

The euro and oil

The Eurozone consumes more imported petroleum than the United States. This would mean that more euros than US dollars would flow into the OPEC nations, but oil is priced by those nations in US dollars only. There have been frequent discussions at OPEC about pricing oil in euros, which would have various effects, among them, requiring nations to hold stores of euros to buy oil, rather than the US dollars that they hold now. Venezuela under Hugo Chávez has been a vocal proponent of this scheme, despite selling most of its own oil to the United States. Another proponent was Saddam Hussein of Iraq, which holds the world's second largest oil reserves. Since 2000 Iraq had used the euro as oil export currency. In 2002, Iraq changed its US dollars into euro, a few months prior to the 2003 invasion of Iraq. If implemented by the OPEC, the changeover to the euro would be a transfer of a 'float' that presently subsidises the United States to subsidise the European Union instead. Another effect would be that the price of oil in the Eurozone would more closely follow the world price. When oil prices skyrocketed to almost 50 USD/barrel in August 2004, the oil price in euros didn't change nearly as much because of the concurrent rise in the exchange rate of the euro to the US dollar (to an exchange rate of EUR 1.00 = USD 1.33 in December 2004). Similarly, should oil prices lower significantly, together with the USD/EUR exchange rate, the oil price in the Eurozone would not fall as much. On the other hand, if the exchange rate and the oil price move in different directions, oil price changes are magnified. Pricing oil in euros would nullify this dependency of European oil prices on the USD/EUR exchange rate.
http://en.wikipedia.org/wiki/Euro#The_euro_and_oil

and:

Consequences

Despite the euro's rise in value, as well as the value of other major and minor currencies, the US trade deficits continue to rise. Economic theory would suggest that a fall in the dollar and a rise in the euro should lead to an improvement in US exports and a decline in US imports, as the former becomes cheaper and the latter more expensive. However, this depends to some extent on how currency costs are passed down the supply chain. Furthermore, the declining dollar makes foreign investment in the US cheaper (although also reducing the return), so that continuing foreign investment may underpin the dollar to some extent.

The role of the dollar as the world's de facto reserve currency helps support both the dollar and the US budget deficit — but it depends on the continued willingness of foreigners to finance both. Central banks and others finance the budget by acquiring newly-issued, dollar-denominated US government bonds, which they need to acquire dollars for. If at some point foreigners become unwilling to accept new bonds at the prevailing interest rate (perhaps because the falling dollar is reducing the bonds' value too much), the dollar will fall even more — or the US will have to raise interest rates, which would reduce economic growth.

There is speculation that the strength of the euro relative to the dollar might encourage the use of the euro as an alternative reserve currency; Saddam Hussein's Iraq switched its currency reserves from dollars to euros in 2000. Moves by central banks with major reserve currency holdings such as those of India or China to switch some of their reserves from dollars to euros, or even of OPEC countries to switch the currency they trade in from dollars to euros, will further reinforce the dollar's decline. In 2004, the Bank for International Settlements reported the proportion of bank deposits held in euros rising to 20%, from 12% in 2001, and it is continuously rising. The falling dollar also raises returns for US investors from investing in foreign stocks, encouraging a switch which further depresses the dollar.

The rise in the euro should dampen Eurozone exports, but there is little sign of this happening yet. The main reason is that the currencies of Euroland's major world-wide customers are also seeing their currencies rise relative to the dollar. As the current account deficits continue to rise and the US plans no austerity measures to curb foreign imports and increase exports, the situation may cause the US dollar to lose its position as a hegemonic currency replaced by either the euro or the euro and a basket of currencies.
http://en.wikipedia.org/wiki/Euro#Consequences
 

Mighty_Emperor

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That episode of Conspiracies is repeated on Sky One tonight at 1 am - worth catching. Nothing too new but they paint an interesting Big Picture.
 

Jerry_B

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techybloke666 said:
that remains to be seen.

the US is the most powerful country on the planet , I,m sure they will not surrender their supremacy without a fight of some sort.
Well, that depends. The US economy cannot sustain a continual war footing in the same way that it once did. Even if there's an invasion of Iran in order to stop the petroeuro, in the longer term it's always possible that a protracted war will cripple the US economy, which is something the petrodollar can't really remedy. The main power that the US currently has relies on it's ability to project that power - something that it won't be able to do in future if it can no longer afford to do so.
 
A

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Jerry_B said:
The main power that the US currently has relies on it's ability to project that power - something that it won't be able to do in future if it can no longer afford to do so.
Especially if certain countries stop supporting the US dollar as their currency of choice for trading their 'Texas Tea' or if they stop lending the USA money.

I read somewhere that China ("Of all the gin joints in all the towns in all the world") lent the USA money.

If that were so, it would go some way to explain why the USA is reluctant to annoy China.

I remember one US government rep arguing with a China government rep on TV.

One said to the other, surely you aren't afraid of us?

No, we have no reason to be afraid of you...

Even if I'm wrong - the USA is, like everybody else it seems, many billions of dollars in debt to somebody else.

Who are we all in debt to by the way?

Is there any country in the world with no national debt?
 

Jerry_B

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coldelephant said:
Who are we all in debt to by the way?
Each other.

Is there any country in the world with no national debt?
Not AFAIK. There are varieties of scale tho'.
 
A

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If we are all in debt to each other, and inflation results in prices for everything going up and wages going up as a consequence and prices going up with inflation as a consequence of that - surely a global economic overhaul is inevitable at some point?

Otherwise a loaf of bread will end up costing a tenner and house prices will average out at about half a million pounds or more.

That isn't sensible.
 

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coldelephant said:
Otherwise a loaf of bread will end up costing a tenner and house prices will average out at about half a million pounds or more.

That isn't sensible.
Well the latter part of that is not far off..... :D
 

lupinwick

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I read somewhere that China ("Of all the gin joints in all the towns in all the world") lent the USA money.

If that were so, it would go some way to explain why the USA is reluctant to annoy China.
True, the numbers are vague but between 20 and 40% of the US debt is held elsewhere.

For those interested - see the Debt Clock for the current extrapolated figure the US debt :)

Debt Clock

Although calling in the debt could be problematic as the US can't pay.
 

Bertie_Akbar

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coldelephant said:
If we are all in debt to each other, and inflation results in prices for everything going up and wages going up as a consequence and prices going up with inflation as a consequence of that - surely a global economic overhaul is inevitable at some point?

Otherwise a loaf of bread will end up costing a tenner and house prices will average out at about half a million pounds or more.

That isn't sensible.
Money = Confidence

If we are all very confident we'll be alright, so cheer up and don't worry, otherwise it'll all end in tears.
 

Jerry_B

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coldelephant said:
If we are all in debt to each other, and inflation results in prices for everything going up and wages going up as a consequence and prices going up with inflation as a consequence of that - surely a global economic overhaul is inevitable at some point?

Otherwise a loaf of bread will end up costing a tenner and house prices will average out at about half a million pounds or more.

That isn't sensible.
That depends on whether you mean that a tenner will have the same value now as it will in future but that any given product will rise in value. That's not how it tends to work ;) And inflationary price rises aren't pegged to the value of any commodity but to the value and amount of any given currency that's in circulation. If a currency becomes too devalued (i.e. via inflation), you need more of it to buy any given commodity.
 

hokum6

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Could someone explain why switching to the Euro could cause the US economy to collapse? All this economics stuff is so far over my head it's in orbit.

Electric_Monk said:
If I'm looking at the right thing, I'm quite amused. Who does the World owe $12,700,000,000,000 to? The moon? :p
I don't get it either. Can't every country just agree to drop their debt, setting everyone back to 0?
 

Jerry_B

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Debt between countries arises from various economic ties and agreements - plus the fact any country which lends money to another also makes money from interest that has to be paid. You might as well ask why any high street banks don't simply just write off all debts owed to them by everyone ;)
 

hokum6

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Well, why not? :)
 

Mighty_Emperor

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hokum6 said:
Could someone explain why switching to the Euro could cause the US economy to collapse? All this economics stuff is so far over my head it's in orbit.
The petrodollar cycle was explained thusly:

Japan wants dollars to buy oil. They sell a car to America and take the dollars and use it to buy oil. The Saudis then take the money and put it back into the US Federal Reserve. So its effectively costing them nothing.

Or something like that - I've heard a number of explanations along those lines which boil down to as long as oil is traded in dollars and the US can keep printing dollars oil (and other stuff?) basically costs them nothing.

I have to say I'm not 100% convinced by ths but....
 

Jerry_B

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Another factor is that the perceived value of the dollar as a commodity is tied into it's link to global oil prices. If the Euro were to become the standard denomination in which oil is traded, or the more dominant one, that would boost the perceived value of that currency as a commodity - to the detriment of the dollar. After all, money is as much a traded commodity as any other. This could mean that the dollar lessens in value, which in turn devalues the US economy on which it's based. Other countries may then decide not to trade in US dollars and go for the Euro, as it's worth more. If the dollar becomes devalued, it means that more dollars will have to be spent to buy imports. Likewise, US exports will be devalued and the knock-on effect from that is US-made commodities will be worth less and US comapanies will be making less money from selling them on an international market. If they make less money, they won't be able to afford as many workers, in order to sustain profits and keep things viable for any shareholders (if any are involved). This could result in larger unemployment, which in turn means less tax revenue for the State. You can hopefully see where all that could possibly lead - more and more problems.
 

techybloke666

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yep jerry that about sums it up.

plus forty percent of the US debt is tied to China !!!!!

ooooops
 
A

Anonymous

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Jerry_B said:
That depends on whether you mean that a tenner will have the same value now as it will in future but that any given product will rise in value. That's not how it tends to work ;) And inflationary price rises aren't pegged to the value of any commodity but to the value and amount of any given currency that's in circulation. If a currency becomes too devalued (i.e. via inflation), you need more of it to buy any given commodity.

Yeah - but you and I both know that every year prices go up and they always have done, at least as far back as you or I will be likely to remember.

Thing is - that will ultimately probably have to lead to a crisis of some sort, and things will have to be revalued.

If things become so expensive that money becomes worth less than the paper it's printed on (and this has happened in some countries before); then something will need to be done.
 

rynner2

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Frantic day's trading sends dollar into freefall

Ashley Seager
Saturday November 25, 2006
The Guardian

The pound rose to its highest level in nearly two years yesterday against a broadly falling dollar, threatening to choke off British exports just as firms had been reporting strong demand from abroad.
In frantic morning trading, sterling came close to a two-year high, hitting $1.935 and promising cheap holidays in the United States for bargain-hungry Britons. Dealers said the reason was not inherent strength in the pound but that the dollar was in freefall against many major currencies. The greenback fell to a 19-month low of $1.31 to the euro during the trading session.

Howard Archer, economist at research firm Global Insight, said: "The dollar has been hurt recently by some softer US economic activity and inflation data, which have raised expectations that the Federal Reserve could start to trim interest rates in the first half of 2007. Thin trading over the US Thanksgiving break has also probably helped the euro to appreciate strongly at the end of the week."
Derek Halpenny, currency economist at the far eastern bank BTM-UFJ, said the market was sensing the potential for a big move in the dollar before the end of the year. "I think the market is happy to build or extend dollar short positions with the potential for a big move ... We could easily see the market not really looking at fundamentals and just pushing the dollar weaker now that we've broken $1.30."

Julian Jessop, analyst at consultancy Capital Economics, said the dollar may also have been undermined by a report that the Chinese, who have kept the yuan artificially low by buying dollars, could be considering selling them instead. But he added: "The fact that the dollar appears to have been undermined by such flimsy arguments is an indication of a much more fundamental lack of support for the currency. The bottom line is that the US's huge current account deficit leaves the dollar vulnerable to all sorts of scare stories," he said.

All of which would mean that the dollar may soon breach $2 to a pound, last seen fleetingly in the early 1990s.

Separately, the Office for National Statistics left its estimate of economic growth in Britain for the third quarter steady at 0.7% compared with the second quarter, a rate now seen for four quarters in a row. The data showed stronger business investment spending was compensating for weaker consumer spending, pointing to a long-awaited rebalancing of the economy.

http://business.guardian.co.uk/story/0,,1956683,00.html
 

many_angled_one

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And so it begins...

Dollar dropped in Iran asset move

The move could have implications for the oil market
Iran is to shift its foreign currency reserves from dollar to euro and use the euro for oil deals in response to US-led pressure on its economy.
In a widely expected move, Tehran said it would use the euro for all future commercial transactions overseas.

The US, which accuses Tehran of supporting terrorism and trying to obtain nuclear weapons, has sought to limit the flow of dollars into Iran.

It wants the United Nations Security Council to impose sanctions on Iran.

Dollar squeeze

Analysts said Tehran had been steadily shifting its foreign-held assets out of dollars since 2003 and that Monday's announcement was unlikely to affect the value of the dollar, which has weakened significantly in recent months.

There will be no reliance on dollars

Gholam-Hussein Elham, Iranian spokesman

An Iranian spokesman said all its foreign exchange transactions would be conducted in euros and its national budget would also be calculated in euros as well as its own currency.

"There will be no reliance on dollars," said Gholam-Hussein Elham.

"This change is already being made in the currency reserves abroad."

The currency move will apply to oil sales although it is expected that Iran, the world's fourth largest oil producer, will still accept oil payments in dollars.

Nuclear trigger

Washington has sought to exert financial pressure on Iran, which it accuses of flouting international law by trying to acquire nuclear weapons.

Tehran denies this, saying its nuclear research is for purely geared towards civilian uses.

Most international banks have stopped dollar transactions with Iran and some firms have ceased trading with Iran altogether in anticipation of possible future sanctions.

The dollar slipped slightly against the euro in New York trading although analysts said they did not expect the reaction to be too severe.

"It is something they have been saying they are going to do for quite a long time now, so I wouldn't expect any market reaction," said Ian Stannard, an economist with BNP Paribas.

The BBC's Tehran correspondent Frances Harrison said Iranian businessmen were complaining about delays in securing letters of credit and saw current conditions as a prelude to the imposition of sanctions.

Tehran has urged Iranian businesses to open letters of credit in euros in the future.


http://news.bbc.co.uk/1/hi/business/6190865.stm
 

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http://news.bbc.co.uk/1/hi/business/6202791.stm

Venezuela has expressed interest in an Iranian move to ask buyers to pay for oil in euros rather than US dollars.

The oil-rich nation said it planned to see if a similar scheme could be introduced to its crude exports.

Iran, the world's fourth-biggest oil producer, has already asked customers to pay for its oil in euros because of the current weakness of the dollar.

Although the dollar is the currency in which oil is usually traded, it has been falling in value against the euro.

Strained relations

The US currency tumbled to 20-month lows against the single European currency earlier this month.

Iran still prices its oil in dollars, but currently receives payment for 57% of its crude exports in euros, according to the National Iranian Oil Company.

Venezuela's energy minister Rafael Ramirez described the Iranian scheme as "very interesting".

Venezuela and Iran, which have strained political relations with Washington, are both members of oil producers' cartel Opec.


(C) BBC '06
 

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Fears of dollar collapse as Saudis take fright
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 7:29pm BST 19/09/2007

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

The Fed's dramatic half point cut to 4.75pc yesterday has already caused a plunge in the world dollar index to a fifteen year low, touching with weakest level ever against the mighty euro at just under $1.40.

There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.

The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit -- expected to reach $850bn this year, or 6.5pc of GDP.

Mr Redeker said foreign investors have been gradually pulling out of the long-term US debt markets, leaving the dollar dependent on short-term funding. Foreigners have funded 25pc to 30pc of America's credit and short-term paper markets over the last two years.

"They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008," he said.

"This is nothing like the situation in 1998 when the crisis was in Asia, but the US was booming. This time the US itself is the problem," he said.

Mr Redeker said the biggest danger for the dollar is that falling US rates will at some point trigger a reversal yen "carry trade", causing massive flows from the US back to Japan.

Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.

The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.

"If Ben Bernanke starts running those printing presses even faster than he's already doing, we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems," he said.

The Federal Reserve, however, clearly calculates the risk of a sudden downturn is now so great that the it outweighs dangers of a dollar slide.

Former Fed chief Alan Greenspan said this week that house prices may fall by "double digits" as the subprime crisis bites harder, prompting households to cut back sharply on spending.

For Saudi Arabia, the dollar peg has clearly become a liability. Inflation has risen to 4pc and the M3 broad money supply is surging at 22pc.

The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc.

Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth.

http://tinyurl.com/2q29tq

rynner's beanbag philosophy of economics vindicated
- what goes around, comes around
- you win some, you lose some
- etc, etc
 

lopaka

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Quite impressive, really, how in four years this managed to go from the fringe at blackcommentator.com to The Telegraph to mainstream economic analysis at Bloomberg (not to mention, in the wonderfully circular way the world can work, to being expressed in hip-hop videos).

American Gangster's Wad of Euros Signals Losing U.S. Confidence

2007-11-14 00:14 ( New York )

By James G. Neuger and Simon Kennedy

Nov. 14 (Bloomberg) -- ``It may be our currency, but it's

your problem'' was Treasury Secretary John Connally's taunt when

the U.S. unhooked the dollar from the gold standard in 1971,

unilaterally rewriting the rules of world business in America 's

favor.

Now the world is taunting back. Almost four decades after

the U.S. tore up the monetary arrangements that governed the

post-World War II international economy, the dollar's fall from

grace amounts to a tectonic shift in the global hierarchy. This

time, the U.S. currency and the capitalism it represents are on

the losing side.


After declining in five of the last six years, the weakest

dollar in the era of floating currencies reflects a period of

diminished U.S. political and economic hegemony. Whoever wins

the White House next year will confront two unpopular choices:

Accept the fall in U.S. clout and the rise of new rivals, or

rein in record public and consumer debt that the rest of the

world no longer wants to bankroll.



``What we're seeing is a very broad rebalancing of economic

and political power in the world,'' says Jeffrey Garten, a Yale

School of Business professor who was the Commerce Department's

undersecretary for international trade in the Clinton

administration. ``The scales are moving, and they're moving

quite fast.''


The dollar blues have migrated from the halls of central

banks to images of rap musicians.


In a video for the movie ``American Gangster,'' hip-hop

maestro Jay-Z thumbs through a wad of 500-euro notes on a night

of cruising through the concrete canyons of New York , a city

where the euro isn't legal tender.



Nixon Genesis



The latest tailspin was triggered by the ascendance of

China and India , growing confidence in Europe 's common currency,

record American debt and trade gaps, London 's challenge to New

York as a financial center and a two-year housing recession in

the U.S. For the first time, economists are raising the once-

improbable specter that the dollar's monopoly as the world's

dominant reserve currency is under threat.


Like the British pound, its predecessor as the world

currency, the dollar has fallen victim to widening burdens

overseas and economic stresses at home. The slippage began in

1971 when President Richard Nixon, in a stopgap move to cope

with the inflationary financing of the Vietnam War, halted the

exchange of dollars for gold.


Since then, currency markets have ebbed and flowed. High

Federal Reserve interest rates and a flood of Japanese capital

to finance Ronald Reagan's deficits bred the ``superdollar'' of

the mid-1980s. The Internet-led productivity boom lured

investment to the U.S. in the late 1990s. The most recent period

reflects a world awash in other options.



Permanent Depreciation



``Part of the depreciation is permanent,'' says Harvard

University professor Kenneth Froot, who has been a consultant to

the Fed. ``There is no doubt that the dollar must sink against

periphery currencies to reflect their increase in

competitiveness and productivity.''


The Fed's trade-weighted major currency index bottomed at

71.11 on Nov. 7, the lowest since the era of free-floating

currencies started in 1971. Against the yen and European

currencies, the dollar is now worth about a third of what it was

in the days of fixed rates.


One of the main U.S. exports since then has been the dollar

itself, in exchange for foreign capital to finance trade

deficits and a national debt of more than $9 trillion. While the

current-account deficit is narrowing from last year's record

$811.5 billion, the U.S. still requires $2.1 billion a day of

other people's money.



`Unstable Situation'



``We're getting into a very unstable situation,'' says

Richard Duncan, a partner at Blackhorse Asset Management in

Singapore and author of the 2005 book ``The Dollar Crisis:

Causes, Consequences, Cures.''


Such a prospect unsettles U.S. allies, and concerns are

mounting that the flight from the dollar is feeding on itself

and threatening a crisis of confidence that the next president

will have to address.


Kuwait , freed by the U.S. from Saddam Hussein's army in

1991, unhinged its currency from the dollar in May, and pressure

is building for Gulf Arab neighbors to follow suit. Qatar 's

prime minister, Sheikh Hamad bin Jasim bin Jaber al-Thani,

complained Nov. 11 that the dollar's drop is cutting oil and gas

income, leaving less to invest abroad. The United Arab Emirates

may drop the dirham's peg to the dollar, analysts said.


The central bank in Iraq , a country the U.S. military has

occupied since 2003, last month said it, too, wants to diversify

reserves away from mostly dollars.



Korean Shipbuilders



Korea 's central bank this week urged shipbuilders to issue

invoices in won, the Korean currency, and take out more hedging

policies to guard against a weakened dollar.


The dollar's share of global central banks' currency

portfolios slid to 64.8 percent in the second quarter from 71

percent in 1999, the year the euro debuted, the International

Monetary Fund says. The euro, used in 13 countries, now accounts

for 25.6 percent.


``The global reserve system is fraying; it's falling

apart,'' said Joseph Stiglitz, a Nobel-laureate economist at

Columbia University , at a Bloomberg seminar last month in Tokyo .

``The change in mindset about the use of the dollar in reserves

and the movement of the dollar out of reserves will continue to

exert downward pressure.''



Economic Dry Spell



To be sure, the latest slump -- 6.6 percent against the

euro since the end of August, 4.7 percent against the yen --

partly reflects an economic dry spell. Credit-market turmoil led

banks to cut consumer lending, bruising the U.S. economy's main

engine.


``I don't think this is a lasting phenomenon, but it will

come to a halt especially when America in a few months or at the

start of next year gets over the financial crisis,'' says Theo

Waigel, Germany's finance minister in the 1990s and an architect

of the euro.


For now, the U.S. economy is a drag on the rest of the

world. When the IMF last month trimmed its global growth

prediction for 2008 to 4.8 percent from 5.2 percent, it blamed

the U.S. , whose forecast was cut to 1.9 percent from 2.8

percent.


Two Fed rate cuts, to 4.5 percent, have tilted the trading

odds against the dollar in the near term. While the European

Central Bank has put a planned increase in its benchmark 4

percent rate on hold, investors still see European rates going

up and U.S. rates going down.



Asia Diversifies



``I wouldn't bet against the U.S. as the world's reserve

currency,'' says former Treasury Secretary John Snow, now

chairman of Cerberus Capital Management in New York . ``The

dollar markets are so deep and so liquid and the American

economy is so fundamentally advanced.''


Central banks in Asia are hedging that bet. Buoyed by the

fastest growth of any major economy and putting tight limits on

the appreciation of its exchange rate, China has piled up the

world's biggest stash of foreign currencies, worth $1.4 trillion

at the end of September.


Cash-rich governments are discovering the profit motive,

adding to pressure on the dollar as they comb the world's

markets for investments that pay more than the current 4.25

percent return on 10-year U.S. Treasury bonds.


Economists at Merrill Lynch & Co. estimate as much as $1.2

trillion in dollar holdings will shift to other currencies in

the next five years.


A warning by Cheng Siwei, vice chairman of the National

People's Congress, that China will invest in stronger currencies

triggered a recent stampede out of the dollar. China doesn't

have to dump dollars to depress the U.S. currency, economists at

UBS AG say. Accumulating them at a slower pace will have the

same effect.



G-7 Action



Ultimately, if the dollar's swoon depresses U.S. stocks or

threatens global growth, Group of Seven major industrial nations

may have to do more than issue communiqu‚s.


The last concerted international maneuver to rearrange

currency rates was in September 2000, when the G-7 sold dollars

to prop up the then-stumbling euro in a U.S. presidential

election year.


For the moment, policy makers are just talking. ECB

President Jean-Claude Trichet last week called the euro's

record-setting rise ``brutal.''


Treasury Secretary Henry Paulson trotted out the 1990s

mantra that a ``strong dollar is in our nation's interest'' --

as long as markets determine its rate. For the first time,

Paulson had to rebut concerns about the dollar's supremacy as a

reserve currency.


``At this moment I don't think that the Americans are very

disturbed,'' says former Dutch Finance Minister Gerrit Zalm, one

of the euro's founding fathers. ``Until now, the developments

are gradual with little effect on the stock exchange or long

term capital-market rates.''


``There is a loss of confidence in both the dollar and the

U.S.,'' said Riordan Roett, a professor at Johns Hopkins

University in Baltimore . ``It may only reflect the widespread

dismay with the Bush administration, but it is obvious that the

next administration, of either party, will have a steep uphill

struggle.''



--With reporting by Kim Kyoungwha in Seoul , Kevin Carmichael in

Washington, Kathleen Hays in New York , Massoud A. Derhally and

Will McSheehy in Dubai , and Stanley White and Kazumi Miura in

Tokyo. Editor: Murray (djm/rls)



To contact the reporters on this story:

James G. Neuger in Brussels at +32-2-285-4300, or

[email protected];

Simon Kennedy in Paris at +33-1-5530-6290 or

[email protected]



To contact the editors responsible for this story:

Riad Hamade at +49-69-92041-214, or [email protected];

Eddie Buckle at +49-30-700106-225, or [email protected].
 

rynner2

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Dollars no good for the Taj Mahal
By Jyotsna Singh
BBC News, Delhi

Foreign tourists to many of India's most famous landmarks will no longer be able to pay the entrance fee in dollars, the government says.

The ruling is aimed at safeguarding tourism revenues following the recent falls in the dollar.

Until now, foreign tourists to sites such at the Taj Mahal have had the option of paying in dollars or rupees.

The ruling will affect nearly 120 sites of interest run by the Archaeological Survey of India (ASI).

Of these, at least 27 are World Heritage sites, including the Taj Mahal.

'International practices'

The ruling is due to be implemented next week. Entrance fees to the sites in question will be either 250 rupees ($6.35) or 100 rupees ($2.54).


"These rates have been fixed in line with international practices, and in order to take care of the fluctuation in the dollar rates," a spokesman for the Ministry of Tourism told the BBC.

Officials say the ministry wanted to act fast so that the revenues are not hit.

Indians only pay 20 or 10 rupees to enter ASI sites, a difference often questioned by foreign tourists.

But officials say there is nothing wrong with this because most Indians earn far less than the foreign visitors.

"The uniform rate applied by most foreign countries are often too high for most Indians anyway," the tourism ministry official told the BBC .

However, the Indian government has also decided that nationals from the regional South Asian Association for Regional Co-operation will not have to pay the higher rate.

Nor will people holding a government-issued People of Indian Origin (PIO) card.

India earned more than $6.5m in foreign exchange from more than four million foreign tourists to the country last year.

http://news.bbc.co.uk/1/hi/world/south_asia/7098370.stm
 

Pietro_Mercurios

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Saudi Arabia tightens its grip on America's nuts?
http://news.bbc.co.uk/2/hi/middle_east/7308509.stm

Cheney in oil talks with Saudis

BBC News Online. 22 March 2008

US Vice-President Dick Cheney has met Saudi Arabia's King Abdullah to discuss ways of stabilising the oil market.

US officials said there was "a lot of commonality" in the talks in Riyadh on the way to move forward in the global energy market.

Oil prices have risen about 16% this year, but the oil producers' cartel, Opec, has declined to raise output.

On Thursday, Mr Cheney held talks with Afghan President Hamid Karzai in Kabul, urging greater Nato commitment.

Mr Cheney's Middle East tour also took him to the Iraqi capital, Baghdad, five years after the US-led invasion.

He will also visit Israel, the West Bank and Turkey before returning to Washington.

Market volatility

In meetings that also included Saudi Oil Minister Ali al-Naimi, US officials said there was a "very thorough" discussion of short, medium and long-term goals for the oil market.

"There was I think a lot of commonality in their assessment about the structural problems confronted by the global energy market now and some discussion of probably the way forward," a senior US official said.

King Abdullah had earlier welcomed Mr Cheney to his al-Jenadriya horse farm.

"Mr vice-president, we've been friends a long time," the king said.

Oil prices have risen in recent weeks to record highs above $100 as investors have purchased commodities as the value of the dollar has fallen.

Mr Cheney's national security adviser John Hannah said before the talks that they would build on the discussions begun by President George W Bush on his visit to Saudi Arabia in January, when he called on Opec to increase oil exports and warned high energy prices were hurting US consumers.

At the time, Mr Naimi insisted the kingdom would boost production only if the market justified it.

Mr Bush said he hoped King Abdullah would "listen very carefully" to US concerns, while White House spokeswoman Dana Perino said the president hoped to "see an increase in production".

Other issues on the agenda of the meetings in Saudi Arabia included concerns about the potential nuclear threat posed by Iran to the region, military and political progress in Iraq, as well as Syria and Lebanon, US officials said.
By 'nuts,' I mean Vice Prezident Dick Cheney, Prezident W., Condoleeza Rice and the rest of the Scare Bear (Stearns) Bunch, of course. ;)
 

rynner2

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China's yuan 'set to usurp US dollar' as world's reserve currency
The Chinese yuan is preparing to overtake the US dollar as the world's reserve currency, economist Nouriel Roubini has warned.
By James Quinn, Wall Street Correspondent
Last Updated: 8:14PM BST 14 May 2009

Professor Roubini, of New York University's Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan's ascendance.

Known as "Dr Doom" for his negative stance, Prof Roubini argues that China is better placed than the US to provide a reserve currency for the 21st century because it has a large current account surplus, focused government and few of the economic worries the US faces.

In a column in the New York Times, Prof Roubini warns that with the proposal for a new international reserve currency via the International Monetary Fund, Beijing has already begun to take steps to usurp the greenback.

China will soon want to see the yuan included in the International Monetary Fund's special drawing rights "basket", he warns, as well as seeing it "used as a means of payment in bilateral trade."

...

http://www.telegraph.co.uk/finance/fina ... rency.html
 
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