The Opinionated Bastard

You were right, at least partly for sure. We could buy the oil … The Iraq war was about protecting US currency. Still a very short sighted plan, because now the trouble will really start.

I’ve never found that Euro vs. $ argument convincing. Look for “Eurodollar” on my blog to find out why.

The article you linked to is just wrong, Bretton Woods basically subsidized the rebuilding of Europe after WWII.

It seems to me that the article is only describing aspects of Bretton Woods, and not it’s general purpose. I read your “Eurodollar” post, and found it to be interesting. Wouldn’t the disaster of (rather suddenly) not having a strong dollar be in fact the US economy would go into free-fall? It’s not that we necessarily want a strong dollar, but our economy is propped up by loans from Asia. The mass dumping of those holdings would radically alter the US economy. A weak dollar in exchange for a Eurodollar would cause a disaster in the US. Sure imports would become cheaper, but who would buy them with the economy crashing down around them?

Er, Exports would be cheaper, imports more expensive.

Adam Smith wrote about this in 1776…

It’s all very complicated anyways, the world economies are so linked its hard to say really, but its not really clear that a “strong” dollar really helps anything but our pride. A number of people have written about whether the Euro could become the “exchange” currency and most figured that its not worth the bother. Digging into the Euro, it turns out that the Euro has problems of its own. Some people think the Euro will self-destruct…

Er, right, but what would the US export? Harsh language? The economy currently enjoys cheap imports. It doesn’t change the fact that a weak dollar would be disasterous for the US. That’s not what I was focused on anyways. My interest is whether or not part of the motivation to invade Iraq was based on fears of the economy collapsing due to a retreat from the dollar.

Euro, self-destruct? Ultimately anything is possible. Some people may end up with their heads up their ass. However last year China (2nd largest dollar holder after Japan) began to dump dollar for Euro

Wikipedia has a good article on all this here. Without the hysteria, they seem to think that its inevitable, just because the Eurozone countries import more oil then the US:

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.

On March 20, 2006, Iran is planning to open an International Oil Bourse (IOB, exchange) for the express purpose of trading oil priced in other currencies, including euros.

Here’s an entry about the Iran thing.

My other problem all of this theory stuff is that I know from my companies investments in Valero that the oil price on the news is for a barrell of oil that doesn’t exist…refineries don’t buy oil on that market they buy directly from the fields under long term contracts.

Wikipedia also has a good “on the other hand” under petrodollar:

On the other hand, the demand for petrodollars is a significant factor in increasing the US’ trade deficit in the first place, and it also increases inflation. Given the general tendency for crude oil prices to rise and become more volatile in recent years, it may even be argued that crude oil trading may, in the long term, a significant liability for the stability of the currency in which the trade is conducted.

Yes, the petrodollar point is envitable true. Barring some radical jump in technology, or, I would imagine, rather large war. At this point those are the only cases, I would imagine this:

“Similarly, should oil prices lower significantly, together with the USD/EUR exchange rate, the oil price in the eurozone would not fall as much. “

to be accurate. However, this all given a long period of time. In the short term, due to peak oil we are only likely to see a rise in oil prices, if not indeed, a spike. I don’t see how that changes anything in regards to US concern over loss of the petrodollar. Wouldn’t that make it even worse? The US having to meet it’s burgeoning oil needs with US dollars against a Euro that is overvalued vis a vis oil?

It also seems likely that the economy will be fine for at least a little over a year. The conversion to Eurodollars could be very damaging in the short term. Enough time for the US economy to go into free-fall. As the US is internationally, of the industrialized nations, one of the least prepared to deal with a post-oil economy. People care.

Lastly, I don’t fully understand your faith in the dollar. People who know far more than I do aren’t in dollars. We can’t pay back our national debt. Foreign nations should be getting out of the dollar. I figure the oil bourse might be the death knell.

This is very relevant.

Part of my faith in the dollar comes from this article in Foreign Affairs.

The other is that while a “weak” currency sounds bad, it actually helps with inflation, which would mean lower interest rates from the fed, which would help growth.

Again, Adam Smith, Wealth of Nations, 1776.

I’m going through that article you sent me. So far, I think I’ve found one rather fundemental problem with it’s assumptions. They talk about the NIIP, or foreign direct investment. I think a flaw in that analysis is that they exclude the fact that American credit card debt is considered a direct investment. If we were putting the direct investment into things like railroads, then there would be return on the investment. However, we won’t be good for the SUV payments.