It's the oil burse, stupid!

Excellent Commentary
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Another question would be what is the rational logic of moving to a relatively non attractive currency....namely the Euro ?

The countries that underpin the economics of the Euro are not economically strong...

France for example....has a better than 20% unemployment rate for its young future workforce...ages 18 to 26....What if the US had this problem today ?

Italy demographics do not favor future strength...and on balance ...the per annum economic spending capabilities for the other member countries are far below US numbers...
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If I were Iran....I would want to start a bourse representing the currencies of the rising economic stars....not the fallen angels....
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Also what exactly were the negative ramifications to Great Britain when oil purchases shifted over to dollars ?

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It seems as though Switzerland holds the most admirable record for currency stability and world wide respect for how its country is managed.....
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I do not agree with the structure of the Euro....Each country has its own indigenous issues that are better resolved by its own government.....
 
totally agree but this is not about rational logic... otherwise the euro wld already have broken 1.15 or lower as we speak... this is more about geopolitics than about economics... i would think even for the US its not a bad thing if the Eur takes up some slack and establishes itself as a second-best reserve currency... and because of the structural and institutional inefficiencies you are referring to, which wont go away anytime soon because of ingrained cultural preferences, thats about all what the Eur can aspire to really, 20% of the flows at best...
 
Quote from FireWalker:

I think what your saying is: If Iran changes their transaction currency, the dollar will drop, raising the price of oil for the US. Possibly pricing the US out. So why would they want to open a bourse that would do this?

Maybe:
- Iran isn't interested in maximizing profits and would rather hurt the infidels.
- or maybe... they want to force out a major customer, drop the demand for oil, thereby extending the longevity of their supplies.
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Officially at least, the USA has had a total trade embargo against Iran since the hostage crisis way back when. Any Iranian oil that arrives on US shores is illegal. (This is not to say that I believe that the embargo is being enforced).

Seeing that Iran sells the vast majority of its oil to europe, and seeing that Europe is their major trade partner it probably makes economic sense to "get rid of the middleman".

Interestingly, Russia appears to have the same predicament...
 
Quote from FireWalker:

The USD became an oil-backed currency after we defaulted on our gold-backed currency in the 70s. Remove that oil backing, and what stands behind the value of each dollar?
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I agree with your hypothesis. The major difference is that the USA doesn't actually own any of the oil that backs the USD. The power of the largest military the world has ever seen actually backs the value of the USD. When Al Capone did it, they called it a protection racket.
 

It seems as though Switzerland holds the most admirable record for currency stability and world wide respect for how its country is managed.....

Not even close to "bezant" which circulated during Byzantine Empire. Didn't lose value for cca 800 years. Amazing
 
Quote from libertad:

Excellent Commentary........
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What is particularly interesting is just exactly how and exactly who decides what is a fair price in any currency....

One is really trading euros for dollars anyway....

The demand for US oil usage will temper the price of oil....too high for US consumers...then too high for the world...

It does not matter about the currency...it is the price to current demand...

The US uses and pays for the majority...
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This is also the reason that a US specific full blown and seriously moneyed approach to alternative non fossil fuels...will make the OIL Welfare countries bow very quickly to low pricing....

Here again this is specific to US demand alone...
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If the US just simply simulated what poor countries do today.....use small motorcycles...and diesel powered cars....this alone would bring oil prices literally crashing down...
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This is why the US government leadership is so important....Big money has to jump start the alternative energy industry as if it were a war against oil...not for it...

Alternatives have to be able to survive in a $25 oil market....
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The Bush Cheney debacle has only created a monstrous debt picture which did nothing for the US alternative energy picture....
This has set back the real prospect of getting alternative energy cost down anytime soon...They might as well have tacked on 20 to 25 years...
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Also the EURO is no pillar of strength....France's youth from ages 18 to 26 has an unemployment rate of over 20%....The rest of Europe is not so hot either...and if the US falls...they fall as well...

Keep in mind that the OIL rich smaller countries have average incomes less than $300 per month...Chinas even less...
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Everything shifts down...

However...when the US can show a true energy self sufficiency effort backed by big money....the dollar will move up...

All the dollar has to do to bring the EURO down is to increase interest rates.........
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Can it be done....absolutely...with proper leadership....
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I'm a little late in responding...

thanks for the comments, and I will share that thanks with the preceeding commentators too, just in case it was meant for all of us.

Its comments like yours that justify the thesis of the thread:

http://elitetrader.com/vb/showthread.php?threadid=66669

As traders, I learned from some excellent corporate traders, who had hundreds of millions of dollars entrusted to them, and they shared an important psychological lesson with us traders,

that lesson went something like this:

As traders, we can not afford to take or have a political spin to our decision making. We have to be able to go long, hedge or short any position either with or against a political trend happening in the news. Hence, have nor express any political opinion and you will remain objective and capable of being a highly profitable trader, who takes advantage of all news events.

So, regarding this oil matter, it does overlap with politics, however, we have addressed these issues from the economic perspective.

don't think for one moment that I wont do hedging long oil and oil futures against airlines or otherwise, whether or not I dispise paying $3.25 for gasoline.
 
thats very helpful advice. i see myself increasingly rationalizing inflation protection with politically unpopular ideals like honest money and conservative fiscal policy. it's even tempting to consider my desired outcomes for humanity alongside technical justifications for the trade. possibly a large looming mistake. does hedging your personal emotional stake in geopolitical outcomes have value, or is it a risky priority?

thanks a lot for sharing that. flexibility sounds like a better priority
 
Quote from 2cents:

totally agree but this is not about rational logic... otherwise the euro wld already have broken 1.15 or lower as we speak... this is more about geopolitics than about economics... i would think even for the US its not a bad thing if the Eur takes up some slack and establishes itself as a second-best reserve currency... and because of the structural and institutional inefficiencies you are referring to, which wont go away anytime soon because of ingrained cultural preferences, thats about all what the Eur can aspire to really, 20% of the flows at best...
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Agreed, sounds like good market share for a newcomer.
The euro, despite its (surprisingly huge value, given member states) actual economic underpinning is a valuable commodity, a worthwhile, if not solid hedging mechanism.


Thats all their is to it, i dont see anyone rushing out and buying rubles, dinars, reals, yuan or ..........swiss franc or us dollars, its the best of whats left.

When you consider, that every country in the last 50-60 years that has proposed selling oil in something other than us dollars, has been invaded, its difficult to claim its not about the respective cash flows of petro dollars, theres no denying that.
 
Quote from originalskunk:

The The power of the largest military the world has ever seen actually backs the value of the USD. When Al Capone did it, they called it a protection racket.
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Excellent point OS.
In fact I went to the Bank the other day to organise a loan for around 4 Billion.
On the application form there is a space requiring you to write out fully the purpose of the loan.

I wrote that I want to buy a Battle Carrier Group firstly to ensure that I never repay the loan or interest and secondly so I could steal assets from a 2nd party and onsell them to a 3rd party without bearing the "cost of goods" ( eats into your profits)

The Bank informs me that my application is being processed and will be approved just as soon as they can find some witless fool to purchase the discounted paper from them.
 
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