The Price of Oil

[ALM]

Alfred, please can you enlighten me on why a strong dollar - rather than a weak one - is key to the strength of the US economy. Not too clear on this ... as imports will increase and exports will decrease (other things being equal) - surely leading to the trade deficit increasing even more?

Although a strong/rising dollar does help reduce the trade deficit, it is the beneficial effects it has on US interest rates, consumer expenditure, capital investment and inflation that promote economic growth. See the following link for more information. URL=http://money.cnn.com/2001/08/15/economy/dollar/

[Mailman]

U.S. Treasury Secretary John Snow issued a warning recently that the U.S. Government is on the verge of collapse - as the statutory debt limit imposed by Congress of $8.184 trillion dollars would be reached in mid-February - the government would then be unable to continue its normal operations.

Can you post John Snows original quote.

Mailman

[ALM]

Ahh mailman ... glad you've reappeared! Any luck with the names of those leading economists who back your argument that the US dollar would surge upwards in the event of oil being traded in Euros?

[Skeptical]

But, throughout history, the fundamental value of a currency, is based on the economic output of a country. As China becomes the major manufacturer in the world, and the US output shrinks to almost nothing, the fundamental fact is that our currency has no real value, and we are just buying time by assuming that the Asian countries will continue to bail us out, by buying our debt.

Very true and this is the reason why it does not matter in which currency oil is traded. As long as the US economy grows faster than EU economy, money will be invested in US and not in Europe. And as long as China's insane growth continues, money will be invested in China.

[AlfredJPruffock]

Very true and this is the reason why it does not matter in which currency oil is traded. As long as the US economy grows faster than EU economy, money will be invested in US and not in Europe. And as long as China's insane growth continues, money will be invested in China.

But you see if the petrodollar is replaced then the dollar will plummet as less demand is required for the dollar due to nations no longer requiring dollar reserves to purchase Oil but rather the Euro.

Again it really does matters to the the US that Oil is traded in the petrodollar.

[Skeptical]

Indeed this is an interesting question whether the change in demand would lead to a change in exchange rate. The law of supply and demand does not always apply to currencies because the supply of money is not fixed. The government can print money or take money out of circulation. And I suspect that if Iran starts selling some oil in euros, EU will print more money and US will destroy some money to keep inflation stable, and the economies won't change because the investments won't change (US economy will keep growing due to productivity gains, and EU economy will keep stagnating due to a useless socialist government...)

[Rebecca Loos]

but surely the US can only destroy the dollars that they own.... if the Chinese and Japanese own loads and want to sell them, surely the US will have to buy them first before burning them?

Not convinced that you can just "burn money" either.....

Having said that, surely it is not in the interest of China and Japan to be the proud owners of worthless US dollars... so surely they will do what they can to sell them in a way that doesn't make it depreciate too much... oh it's too complicated - can't we just have a wee war and be done with it within a few years?

[AlfredJPruffock]

Indeed this is an interesting question whether the change in demand would lead to a change in exchange rate. The law of supply and demand does not always apply to currencies because the supply of money is not fixed. The government can print money or take money out of circulation. And I suspect that if Iran starts selling some oil in euros, EU will print more money and US will destroy some money to keep inflation stable, and the economies won't change because the investments won't change (US economy will keep growing due to productivity gains, and EU economy will keep stagnating due to a useless socialist government...)

Food for thought there Sc.

I do hope this scenario is the most likely one.

Meanwhile on a more mundane note I am impressed that the rerouting of the local bus service means I no longer have a five minute walk to my bus stop to get home as now I can board the bus outside of my work place, so my public chaffeur is now truly offering a door to door service.

I shall ponder on your remarks and join again the debate of the World of International Petroleum Trading and Currency Exchange tomorrow, it certainly brightens up an otherwise dull day at the office.

[AlfredJPruffock]

Having said that, surely it is not in the interest of China and Japan to be the proud owners of worthless US dollars... so surely they will do what they can to sell them in a way that doesn't make it depreciate too much...

Well they could always buy Gold with the dollars as the Russians have done, but you are right Rebs, lets all just go to the pub instead and forget about everything ?

[bfg]

for the love of alah, if you are going to come up with some bullsh1t timeline at least make it believeable!

Mailman

Just a few dates for you MM:

25 October 2002: US formally proposes a new resolution on disarming Iraq to the UN Security Council.

4 November 2002: Saddam Hussein says Iraq will comply with a new UN resolution as long as it does not serve as an excuse for US military action.

8 November 2002: UN Security Council unanimously passes a new resolution on Iraq's disarmament, warning of "serious consequences" for material breaches.

12 November 2002: Iraq's parliament rejects the UN resolution.

13 November 2002 Iraq's Government accepts the UN resolution.

18 November 2002: Hans Blix leads UN inspectors back to Baghdad to start their mission.