Decline of Petrodollar

[powayseller]

Does anyone here know how the decline of the US petrodollar will affect the US dollar?

Russia’s newspapers are full of the news that starting 6/3, they will sell oil to Europe in either rubles or euros. Only marketwatch in the US carried this story.

Iran plans to sell oil in euros.

Some commentators note this will cause a financial acopalypse. I don’t want to be so negative.

I expect Bush to take a hard stance against Russia now, as he has done with Iran. This certainly won’t be good for our economy, as billions of dollars will be returned to us, as they are no longer needed to buy oil.

Any thoughts about this? Should we be concerned?

[Anonymous]

I don’t want to be accused of wearing the tin foil hat, but way back when (2000 or so, I believe) Iraq switched to Euros for oil contracts. And we know what happened to them….

Because most oil buyers must use USD, they typically need to keep a large reserve to cover futures contracts. And those reserves are usually in the form of US treasuries. A flood of treasuries on the market would force the price to plummet and the yield to skyrocket, which of course would drive up the interest rate of fixed-rate mortgages.

Of course, as long as Saudia Arabia continues to trade in USD, we will be OK for as long as they have oil to sell. But if enough other oil producing nations switch to Euros or their own currency, we could see problems.

(Btw, soon after the 2003 invasion we switched the Iraq oil trading currency back to USD)

[powayseller]

So the timing of the proclaimed possible war in Iraq has more to do with oil bourses than their plans to make nuclear power? (And by the way, is there evidence they are making nuclear weapons? And if they are, why should only the US have nuclear weapons? The US is the one country which should NOT have nuclear weapons – Bush is the one touting about all options are on the table, and he is likely to use them to continue his Overthrow agenda.)

http://www.energybulletin.net/16110.html

[4plexowner]

Opening oil markets that trade in non-USD is just one example of how the international players are rejecting the US dollar as the world’s reserve currency.

Whether it is Iraq, Iran or Russia, it is not good for the US dollar.

The US has become loathed by most of the non-English speaking countries of the world (thank you, Mr. Bush). Since they can’t compete with us militarily they will attempt to destroy us financially.

Unfortunately, because of the financial games the US has been playing for decades, the US dollar and US economy are at a very vulnerable point.

Our enemies know that the US dollar is America’s achilles heal and they are attacking it.

[PD]

President Bush is not solely responsible for people hating the US. Perhaps it is “because of the financial games the US has been playing for decades.”

[Lickitysplit]

WSJ yesterday: Revisionist History – Antiwar myths about Iraq, debunked

also, since this forum has been talking about commodities, international trade, etc:

A reminder about the biggest fraud in world history

For the little it is worth, this reader would prefer the bashing on this board to remain directed towards exotic lending.

[powayseller]

That is one journalist’s opinion – If Bush went into Iraq to get WMD, sincerely believing they were there, and there were none, why didn’t he just leave? Why are our allies not behind us in this war, if it is such a good idea? Maybe it is – I don’t follow politics, other than to know our foreign policy is not popular around the world. Now why is that?

Anyway, sorry to get off on the tangent.

[lindismith]

There’s a very good book about the marriage of Big Oil and Big Politics, by Linda McQuaig, entitled “It’s The Crude Dude.” I’m quite certain our right-leaning participants on Piggington won’t like it, but for the rest of us, it puts a lot of the pieces together on how we got there, and why we’re staying there (in Iraq). If you like non-fiction, it’s completely absorbing.

As for the decline of the petrodollar, it’s not good for us at all. It’ll be interesting to see how it all plays out. I suspect it will only take one big player like Russia for many, many others to follow, including Chavez in Venezuela, and right behind him, France.

It’s not only our economy that can take a hit from something like this, it’s our role in the world, and how the rest of the world views us.

[Anonymous]

My comments about the invasion of Iraq were in jest. But as 4plexowner points out, it is an attack on the US dollar. Given the tremendous foreign ownership of US treasuries and cash, the impact on the economy (including the housing market) is huge.

[powayseller]

Licketysplit, with all due respect, I cannot abide by your request to bash only exotic lending. Housing and lending don’t coexist in a vacuum. To understand the housing market, to predict its effect on our economy, you must look to the credit markets, global trade, oil, war. At times, even war affects housing.

For example, if Iran’s threat to trade oil in euros could lead to a recession, wouldn’t that it a reason for Bush to go to war? Wouldn’t that be, to him, just as good a reason as WMD? Wouldn’t the threat of an Iraqi oil bourse be the same good reason to him? He would feel he’s saving the American economy and people.

Bush would not publicly proclaim he is using nuclear weapons to attack Iran’s underground facilites to avoid the fall of the petrodollar, so he finds another reason. He says we must stop Iran’s buildup of nuclear weapons. Possible? I’m just wondering, if Iran is such a threat, why aren’t our allies all over it? Why is the US consistently the most aggressive country, even though we are geographically the furthest away. What is Bush afraid of in Iran, and why do China and Russia not share that fear?

Anyone who is a Bush supporter and feels offended by these questions, you have the choice to skip this thread. (I assume that a Bush supporter feels defensive by questions about his policies.) For anyone else, who knows, or who sees the relationship between politics and the economy, I appreciate any insight anyone has.

[Lickitysplit]

Powayseller, there are answers available for these questions, and I’d be happy to share my thoughts on them with you, but I hold that the discussion, and the board, will degrade quickly if we begin to discuss war politics. There are just too many emotion-driven opinions, too little fact-checking, a general reluctance to consider that one’s strongly held feelings might not match the facts… a scenario not unlike that which has fed the RE bubble. You may reach me via devin at badgers dotcom, I welcome a respectful discussion.

[powayseller]

? What is the website or email address? badgers.com or http://www.badgersdotcom? Couldn’t find you on google. If you have a site I’ll check it out. I don’t want to converse on politics – I already get my head filled with it from my brother. But I will read browse over any site you may recommend.

[Lickitysplit]

badgers.com… it is a “vanity” email address that forwards to my google account. I don’t keep a website or blog these days. I like the WSJ editorial page as a starting point, I also like Power Line and Michelle Malkin for blog commentary. I like the WSJ editorials not only because I agree with many of its policy preferences, but also there’s a bit of a personal connection.

The current WSJ editor, Paul Gigot, went to the same small midwestern elementary and high school as I did, and my folks know his folks. I’ve dated the niece of his predecessor, Robert Bartley, for the last few years, and had the pleasure of spending last New Years with his widow Edi and daughters in Brooklyn Heights. I like Bob’s writing better than Paul’s, but Bob did have 30 yrs in the saddle to draw from. The OpinionJournal website was Bob’s idea and makes availible the articles and letters to the editor from the page for free, plus some additional exclusive content.

[lostkitty]

It is probably too late preserve any good opinion the rest of the world had for us. That ship has sailed.

I will definitely go check out this book at the library (no more Borders or Barnes&Noble for me – I am in a new mode of cash conservation). If they dont have it at the library – I dont read it – same for movies. Luckily our libraries are amazing here in NY. All the “new release” movies are always sitting right there on the shelf for free.

[Author]

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