High oil prices

[damir00]

Quote from izeickl:

Why did Saddam accept Euros instead of USD?

maybe because the oil was being sold to europeans?

why has Russia considered it?

there's nothing to consider: you can buy all the oil you want from russia using Euros. no dollars required.

no nation would accept $28 pb for an extended time when the USD is 30%+ down.

of course they would, as long as the currency is easily convertible. it takes 30 seconds to convert it, the risk inherint in the conversion process will be reflected in the price they're willing to play.

 

[illiquid]

Quote from damir00:

this is simply not true. you can buy oil using *any* freely convertible, widely available currency. you guys are talking about 19th century levels of sophistication...

Convertibility is not the issue, it's the eventual value of the relative currencies that's at hand.

Why do you think 2/3 of world currency reserves are in dollars? How do you think US manages to have its enormous debt financed by other nations? A shift in pricing of oil from dollars to euros would force a huge reallocation of reserve holdings. Sure it's easy to sell dollars for euros -- but what would happen if every nation wanted to reallocate at same time? The only way to find willing buyers for such a huge amount would be a far lower exchange rate.

 

[illiquid]

Quote from pspr:

I don't think that is correct. Oil is PRICED in dollars but can be purchased with other currencies at the exchange rate to the dollar. That's how I see it.

I don't think the middle east accepts yen for oil -- I believe they leave the exchange risk to the purchasing nation and only take dollars. International trade is just easier using a single "reserve" currency without having to pay the bid/ask spread to some bank for every transaction, at least for the oil sellers.

 

[BVM88]

Spot on illiquid.

If Greenspan continues to print dollars like they were toilet paper then the US dollar will eventually become toilet paper, so at the end of the day who would want to exchange their valuable resources for toilet paper?
Were do you guys (damir00, The Student) think interest rates (along with the economy) will be if demand for dollars plummets? Have any of you actually looked at the extent to which the US money supply has expanded over recent years?
How much longer can Asian governments (who have recklessly been propping up the $) maintain their stupidity?

 

[pspr]

Well, OK. I haven't bot a barrel from the Saudis since the feds made me dismantle my still. It was making the shine taste funny for about a month after running the oil through it anyway. I don't understand why. I always used lite sweet crude.

Quote from illiquid:

I don't think the middle east accepts yen for oil -- I believe they leave the exchange risk to the purchasing nation and only take dollars. International trade is just easier using a single "reserve" currency without having to pay the bid/ask spread to some bank for every transaction, at least for the oil sellers.

 

[damir00]

Quote from illiquid:

Convertibility is not the issue, it's the eventual value of the relative currencies that's at hand.

that is equally true for *all* trade. it is not specific to oil.

Why do you think 2/3 of world currency reserves are in dollars?

because the US is the largest net importer of goods, by far, and has been for a long time.

How do you think US manages to have its enormous debt financed by other nations?

the vast majority of US governmental debt is held by americans, not by foreigners.

there are issues with enormous amounts of US dollars swashling about, for sure, but it is as related to oil as it is related to importing Nikes from indonesia. that said, it's equally true that those wishing to believing this story are going to believe it regardless of anything being discussed as it is the Conspiracy Du Jour - much as the stories of impending doom in the US economy due to rising gold prices and the infamously mythical JP Morgan gold carry trade were hot and endlessly circulated two years ago.

so with that i bid you adieu, and good luck in the markets tomorrow.

ciao!

PS almost forgot: you can indeed buy either mid east or russian oil with Yen.

 

[waggie945]

"The vast majority of U.S. debt is held by Americans?"

You've got to be kidding?
Can you say China?
Can you say Japan?

Who do you think shows up to our huge quarterly Treasury auctions and buys up 40% of the entire debt offering, quarter after quarter?

 

[pspr]

Actually, Waggs, only about 40% of U.S. Treasuries are foreign owned. Check the right hand data on this page.

http://home.golden.net/~pjponzo/US-debt.htm

Quote from waggie945:

"The vast majority of U.S. debt is held by Americans?"

You've got to be kidding?
Can you say China?
Can you say Japan?

Who do you think shows up to our huge quarterly Treasury auctions and buys up 40% of the entire debt offering, quarter after quarter?

 

[izeickl]

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Why do you think 2/3 of world currency reserves are in dollars?
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because the US is the largest net importer of goods, by far, and has been for a long time.

That is only true when looked at on a individual country basis, however if you take a look at all nations using Euros then the picture is very different.

Imports (billions $) - Exports (billions $)

US 1 165 - 687
Euro Nations 1 893 - 2 084

Source CIA worldfactbook. 2002 Est.

This will increase even further with other nations joining the Euro.

 

[FireWalker]

Ok, I think I'm beginning to understand.

The Fed increases the money supply sparking hyper-inflation. This devalues the dollar to the point where our currently massive debt load is manageable.

In the meantime:
- asset prices (stocks and RE) explode.
- real wages decline rapidly making our labor force competitive with the rest of the world

It seems like something has to give though.