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

rynner2

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The demise of the dollar
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
By Robert Fisk
Tuesday, 6 October 2009

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

etc...

http://www.independent.co.uk/news/busin ... 98175.html
 

rynner2

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QE2 risks currency wars and the end of dollar hegemony
As the US Federal Reserve meets today to decide whether its next blast of quantitative easing should be $1 trillion or a more cautious $500bn, it does so knowing that China and the emerging world view the policy as an attempt to drive down the dollar.
By Ambrose Evans-Pritchard, International Business Editor
Published: 9:56PM GMT 01 Nov 2010

The Fed's "QE2" risks accelerating the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard, or a multi-metal "bancor" along lines proposed by John Maynard Keynes in the 1940s.

China's commerce ministry fired an irate broadside against Washington on Monday. "The continued and drastic US dollar depreciation recently has led countries including Japan, South Korea, and Thailand to intervene in the currency market, intensifying a 'currency war'. In the mid-term, the US dollar will continue to weaken and gaming between major currencies will escalate," it said.

David Bloom, currency chief at HSBC, said the root problem is lack of underlying demand in the global economy, leaving Western economies trapped near stalling speed. "There are no policy levers left. Countries are having to tighten fiscal policy, and interest rates are already near zero. The last resort is a weaker currency, so everybody is trying to do it," he said.

Pious words from G20 summit of finance ministers last month calling for the world to "refrain" from pursuing trade advantage through devaluation seem most honoured in the breach.

Taiwan intervened on Monday to cap the rise of its currency, while Korea's central bank chief said his country is eyeing capital controls as part of its "toolkit" to stem the flood of Fed-created money leaking out of the US and sloshing into Asia. Brazil has just imposed a 2pc tax on inflows into both bonds and equities – understandably, since the real has risen by 35pc against the dollar this year and the country has a current account deficit.

"It is becoming harder to mop up the liquidity flowing into these countries," said Neil Mellor, of the Bank of New York Mellon. "We fully expect more central banks to impose capital controls over the next couple of months. That is the world we live in," he said. Globalisation is unravelling before our eyes.

etc...

http://www.telegraph.co.uk/finance/curr ... emony.html
 

rynner2

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This is very worrying:

Arctic scientist who exposed climate threat to polar bear is suspended
US government conducts 'integrity inquiry' on federal biologist amid lobbying by oil firms for Arctic permits
Suzanne Goldenberg, US environment correspondent guardian.co.uk, Thursday 28 July 2011 20.43 BST

It was seen as one of the most distressing effects of climate change ever recorded: polar bears dying of exhaustion after being stranded between melting patches of Arctic sea ice.
But now the government scientist who first warned of the threat to polar bears in a warming Arctic has been suspended and his work put under official investigation for possible scientific misconduct.

Charles Monnett, a wildlife biologist, oversaw much of the scientific work for the government agency that has been examining drilling in the Arctic. He managed about $50m (£30.5m) in research projects.
Some question why Monnett, employed by the US Bureau of Ocean Energy Management, Regulation and Enforcement, has been suspended at this moment. The Obama administration has been accused of hounding the scientist so it can open up the fragile region to drilling by Shell and other big oil companies.

"You have to wonder: this is the guy in charge of all the science in the Arctic and he is being suspended just now as an arm of the interior department is getting ready to make its decision on offshore drilling in the Arctic seas," said Jeff Ruch, president of the group Public Employees for Environmental Responsibility. "This is a cautionary tale with a deeply chilling message for any federal scientist who dares to publish groundbreaking research on conditions in the Arctic."

The group filed an official complaint on Monnett's behalf on Thursday, accusing the government of persecuting the (PDF) scientist and interfering with his work. It seeks his reinstatement and a public apology.

Monnett was on a research flight tracking bowhead whales, in 2004, when he and his colleagues spotted four dead polar bears floating in the water after a storm. The scientists concluded the bears, though typically strong swimmers, had grown exhausted and drowned due to the long distances between patches of solid sea ice. It was the first time scientists had drawn a link between melting Arctic sea ice and a threat to the bears' survival.

Two years later, Monnett and a colleague published an article in the science journal Polar Biology, writing: "Drowning-related deaths of polar bears may increase in the future if the observed trend of regression of pack ice and/or longer open water periods continues."

The paper quickly heightened public concern for the polar bear. Al Gore, citing the paper, used polar bear footage in his film Inconvenient Truth. Campaigners focused on the bears to push George Bush to act on climate change, and in 2008, the government designated the animal a threatened species.
It was the first animal to be classed as a victim of climate change.

In 2010 the Obama administration began an investigation into his work. The scientist was suspended with pay on 18 July. He is said to be under a gagging order and forbidden from communicating with his colleagues. The employee group's complaint alleges that the investigation is a thinly veiled attempt to disrupt scientific work on the Arctic.

Oil firms, which want to drill in the pristine environment of the Chukchi and Beaufort seas, have been complaining of delays caused by environmental reviews. This month Obama issued an order to speed up Arctic drilling permits.

etc...

http://www.guardian.co.uk/world/2011/ju ... r-bear-oil
 

rynner2

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The sun is setting on dollar supremacy, and with it, American power
A serious alternative to the dollar is still a long way off, but the latest shenanigans on Capitol Hill have given the search for them renewed momentum
By Jeremy Warner, Assistant Editor
8:18PM BST 14 Oct 2013

All great empires – from the Greek, to the Roman, the Spanish and the British - have at their heart a dominant means of exchange which is very much part of their political and social hegemony. Once upon a time, it was Roman coinage which was the world's pre-eminent currency. In more recent times it was the British pound. Today, it's the US dollar to which international investors flock as a safe haven for their money. Highly liquid and apparently reliable – until recently at least – nothing else comes even remotely close to the greenback's dominant position in the international monetary system.

That this position – what Giscard d'Estaing referred to as America's "exorbitant privilege" – could so casually be put at risk by politicians on Capitol Hill is an extraordinary spectacle that may be indicative of a great power already seriously on the wane.

With the pound, the fall from grace was swift. Britain emerged from the devastation of the First World War an irreparably damaged economic and military power, with crushing debts and a deeply impaired manufacturing sector.

The dollar was able quickly to usurp the pound's position. Final defeat for sterling came with Britain's decision to leave the gold standard in 1931 – an economically sensible decision but a psychological turning point for sterling from which it never recovered.

Lack of any credible alternative means it won't happen so quickly with the dollar. For all the progress of the last 30 years, China for now remains a much smaller economy than the US and in any case is nowhere near ready financially to assume such a role. As for the euro, the dollar needn't trouble itself much about this one-time pretender to the throne.

Yet rarely before has international dissatisfaction with the dollar's role as reserve currency to the world been as great as it is now. The most visible anger comes from China, with more than $3 trillion of dollar foreign exchange reserves, $1.3 trillion of them held in US Treasuries. For ordinary Chinese, it has come as a revelation to discover they own so much American debt. That they own it in a country which because of political brinkmanship may actually default has provoked understandable fury.
"It is perhaps a good time for the befuddled world to start considering building a de-Americanised world", China's official government news agency has said.

A steady erosion of trust which began with the financial crisis five years ago has reached apparent breaking point with the pantomime antics on Capitol Hill. The search for long-term alternatives to the dollar is on as never before. Regrettably, there aren't any, or not for the time being in any case. Everyone can only look on in horror as the US commits apparent economic suicide.

Such is the dollar's dominance that, to begin with at least, investors might simply have to take default on the chin. More than 60pc of global foreign exchange reserves are held in US dollars, which also account for more than 80 per cent of global foreign exchange trading.

So important is dollar liquidity in global trade that if, for instance, you wanted to sell Singapore dollars and buy South African rand, your forex dealer would first typically buy US dollars with your Singapore dollars and then use them to buy the South African rand. The dollar is the middle currency in the vast bulk of international transactions.

By the same token, US Treasuries are the very backbone of the global financial system. They are the supposed "risk-free asset" against which everything else is benchmarked, and as such are the collateral of choice in a huge array of financial market transactions. The dollar is also the currency used to price most commodities, from oil to gold.

The dollar's hegemony is all pervasive. This has given the greenback a degree of leverage unmatched by any other reserve currency in history. If China starts to sell dollar assets, it will only weaken the dollar, undermining Chinese exports and reducing the value of its remaining portfolio of dollar assets.

I'd been part of the received wisdom that any act of US default would set off a devastating chain reaction of bankruptcies that would provoke a second global financial crisis. But David Bloom, chief currency strategist at HSBC, has convinced me that dollar hegemony might perversely act in the opposite way, at least initially.

Unlike a generalised credit event, where all instruments default at the same time, the US would initially engage in a series of little, self contained defaults, or "selective defaults", whose individual impact would probably not be that great.

Each bond has a life and coupon of its own. The missed coupon payment might therefore be regarded as not so bad – especially as this is a case of "won't pay", rather than "can't pay".

Markets see such defaults differently, with missed payments expected to be made up eventually once a political resolution is found. It's also very likely that the Federal Reserve would attempt to counter the damage in financial markets with more QE, buying up the Treasuries that investors dumped.

Furthermore, the financial uncertainty created by default would likely drive investors towards past safe havens of choice – in particular, US dollar assets. Alternative safe havens, such as Japan and Switzerland, have been rendered defunct by central bank money printing. Ironically, emerging markets are likely be more damaged by default than the US itself, with further capital flight.

Such is the degree of "exorbitant privilege" enjoyed by the dollar that it might therefore be the first currency in history to see an asset price rally on the back of a default. However, if there were repeated selective defaults, a second, less benign phase would eventually set in. Spooked markets would begin to sell off the dollar.

The consequent stronger euro and pound would have powerfully deflationary consequences for Europe. Internal demand in the US would also collapse as a result of the wrenching fiscal squeeze that would result from federal government attempts to match expenditures with tax revenues.

Dollar hegemony has long been a destabilising force at the centre of the international monetary system; it's a major part of the sharp build-up in global current account imbalances and cross border capital flows that have been at the heart of so many of the problems in the world economy. The unprecedented accumulation of dollar foreign exchange reserves has in turn caused new challenges for the US, making it more difficult to maintain fiscal and financial stability within its own borders.

Policies that may or may not be good for the US are in all probability bad for everyone else. Loose monetary policy in the US since the crisis began has induced unwanted demand and asset bubbles elsewhere in the world.

Serious alternatives to the dollar, such as a global reserve currency, are still a long way off, but the latest shenanigans on Capitol Hill have given the search for them renewed and added momentum. The US is wrecklessly throwing away its future.

http://www.telegraph.co.uk/finance/comm ... power.html
 

Pietro_Mercurios

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The US and the World, step back from the brink.
http://www.huffingtonpost.com/2013/10/16/government-shutdown-debt-ceiling_n_4111483.html

Government Shutdown: Obama Signs Bill To Reopen Government, End Debt Standoff (UPDATE)

Huffington Post. Michael McAuliff & Sabrina Siddiqui. 16 -17.October.2013

WASHINGTON -- The government shutdown is dead. Obamacare is alive.

The Senate voted 81 to 18 Wednesday night to reopen the federal government and raise the nation's borrowing limit, hours before the Treasury Department faced the possibility of being unable to pay all of America's bills for the first time in modern history.

The House followed suit, voting 285-144, to end the latest damaging battle of divided government in a polarized Congress.

President Barack Obama signed the legislation early Thursday. He said he would reopen the government immediately to "lift this cloud of uncertainty and unease" that settled on the nation and start fixing the damage.

"There is a lot of work ahead of us, including our need to earn back the trust of the American people that has been lost over the last few weeks," Obama said in a brief speech at the White House.

The standoff began over the summer, when tea party Republicans, led by Texas Sen. Ted Cruz, demanded that the House of Representatives lock government funding in a chokehold unless Democrats and Obama defunded the Affordable Care Act.

House Speaker John Boehner (R-Ohio) said no, at first. But he later gave in, ignoring the advice of other Republicans, from Mitt Romney to John McCain (Ariz.) and Tom Coburn (Okla.).

Democrats opted for defend over defund, with Obama declaring he would not negotiate over his signature law, the budget or the debt while Republicans were holding hostages.

It set up 16 days of furloughed federal workers, closed parks, halted safety inspections, and the estimated loss of $24 billion in economic activity. The ugly headlines overshadowed the bumpy rollout of Obamacare.

Boehner and the tea party were finally forced to release their grip Wednesday by a bipartisan coalition in the U.S. Senate that said enough is enough, and the looming deadline of potential default starting Thursday.

“The House has fought with everything it has to convince the president of the United States to engage in bipartisan negotiations aimed at addressing our country's debt and providing fairness for the American people under ObamaCare," Boehner said after he finally waved the white flag. "That fight will continue. But blocking the bipartisan agreement reached today by the members of the Senate will not be a tactic for us."

All that Republicans got for the bruising battle was a fig leaf provision on Obamacare and record low approval ratings.

The bill agreed upon by Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) will fund the government through Jan. 15 and extend the $16.7 trillion debt ceiling through Feb. 7. It also includes back pay for unpaid and furloughed federal workers and an agreement that both chambers would open a budget conference committee for the first time in years.

The lone change to Obamacare was minimal, and Democrats said they liked it. It involves putting tighter restrictions on income verification standards for people receiving subsidies in the Affordable Care Act's new insurance marketplaces. It was a far cry from defunding or delaying the law, as many Republicans conceded the strategy to focus the fight on Obamacare had been wrong from the start.

Republicans did notch a significant victory in the final deal. It funds the government until mid-January at the sequestration levels specified by the 2011 Budget Control Act that ended the last debt showdown. But Republicans had won that concession from Democrats weeks before the House set out on its doomed effort to strangle Obamacare.

"The sad truth is, we ended up where we started," said Sen. Chuck Schumer (D-N.Y.). "We achieved our goal, but at a cost. It never should have been this way."

Cruz grabbed one final moment in the spotlight, railing on the Senate floor against letting the Treasury Department pay the debts Congress has run up and putting federal workers back on the job.

"This is a terrible deal," Cruz said. "This deal embodies everything about the Washington establishment that frustrates the American people."

But even as Cruz spoke, he conceded defeat by accurately predicting the bill would pass "by a big margin," and accused his Senate colleagues of abandoning House Republicans in the fight against Obamacare.

"I ask you to imagine a world in which Senate Republicans united to support House Republicans," Cruz said. "It is heartbreaking to the American people that Senate Republicans divided as they did and decided to direct their criticism, direct their attention, direct their cannon fire at House Republicans and at those standing with the American people."

"They became the Air Force bombing our own troops -- bombing House Republicans, bombing conservatives," Cruz said.

One of Cruz's top GOP critics, Sen. John McCain (R-Ariz.), countered later that the Texan's strategy is what did the damage to their party.

"The one thing that politicians want is approval from the people. They strongly disapprove of all of us -- they just disapprove of the Republicans more," McCain said. "So hopefully we learned the lesson not to do this. This is a hard blow to the Republican Party. We've got a real task ahead of us to dig ourselves out."

Sen. Tom Coburn (R-Okla.) voted with Cruz, but nevertheless said he thought the fiasco had been entirely predictable because it was obvious Democrats and the president would never end Obamacare, and they control two of the three relevant parts of government. He had a tart piece of advice for Cruz and others: "Have a coordinated strategy that's based on reality rather than one that's not."

Obama promised to keep his pledge to negotiate once the crisis ended, and focused on the budget conference as the opportunity. "We now have an opportunity to focus on a sensible budget that is responsible, that is fair, and that helps hardworking people all across this country," he said.

Rep. Hal Rogers (R-Ky.), the House Appropriations Committee chair and a veteran lawmaker who has long bemoaned the abandonment of regular legislative procedures, sounded nearly as eager as Obama for the budget conference, which he has sought within his own conference.

"It's time to take the threat of default off the table," Rogers said before the measure passed in the House. "It's time to restore some sanity to this place, to do this we all have to give a little."

This article has been updated with the House vote and with Obama's signature.
Must admit, I was beginning to experience a sense of vertigo. Just how nuts were the Tea Party caucus?
 

Mythopoeika

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Phew.


For now.
 

Yithian

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Here's a very interesting perspective (from Glen Beck!) on how fracking and the subsequent boost in U.S. oil production has suppressed the fluctuations in the price of oil and sent Saudi Arabia and OPEC on a darker financial trajectory that is breeding instability in the region. The dance continues, however, as the petrodollar helps sustain the dollar hegemony that in turn sustains the U.S. spending power that itself sustains the world economy.

Jump to 2:28 for the heavier stuff.

 

Mythopoeika

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Hmmm. It's looking like a war in the Middle East is inevitable.
Grim times.
 

Analogue Boy

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I still don’t think you’ll get a sharper analysis than Rob Newman’s History of Oil. The whole thing is well worth a watch.

Here’s a clip...

 

INT21

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As this is a conspiracy thread, The following may not be too far out of line.

As we all know, the general consensus, at least in America, is 'Iran done it'. (targeted the Saudi oil facility). This is even though the Houti Rebels claim responsibility. Not ISIS, which makes a change.

But the press don't seem very quick to ask the obvious question....

Why did no one see TEN drones (or cruise missiles) coming ?

Maybe they did, but not from where they expected.

It took a long time to start putting a 'positive' identification on Iran.

INT21.
 

Yithian

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I still don’t think you’ll get a sharper analysis than Rob Newman’s History of Oil. The whole thing is well worth a watch.

Here’s a clip...

I saw that on tour a number of years ago and it was dazzlingly brilliant.
 
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