Chump Bailey Posted October 6, 2009 Share Posted October 6, 2009 http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html The demise of the dollar In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading By Robert Fisk Tuesday, 6 October 2009 In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars. The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years. Link to comment Share on other sites More sharing options...
Chump Bailey Posted October 6, 2009 Author Share Posted October 6, 2009 double post Link to comment Share on other sites More sharing options...
kramdizzle Posted October 6, 2009 Share Posted October 6, 2009 its going to be the same amount of money anyways, sucks that it will not be in dollars but it doesnt effect us other than the fact that we will not know how much a yen is worth. Have you personally ever purchased a barrel of crude oil? Link to comment Share on other sites More sharing options...
twa Posted October 6, 2009 Share Posted October 6, 2009 Hardly a secret. You lead,follow or get out of the way...the dance goes on. Link to comment Share on other sites More sharing options...
Chump Bailey Posted October 6, 2009 Author Share Posted October 6, 2009 Have you personally ever purchased a barrel of crude oil? All the time Link to comment Share on other sites More sharing options...
Hubbs Posted October 6, 2009 Share Posted October 6, 2009 its going to be the same amount of money anyways. No, it's not. The oil trade being the relatively exclusive domain of the dollar has helped to artificially prop up its value. Link to comment Share on other sites More sharing options...
The 12th Commandment Posted October 6, 2009 Share Posted October 6, 2009 No, it's not. The oil trade being the relatively exclusive domain of the dollar has helped to artificially prop up its value. So why would they want to change that? Link to comment Share on other sites More sharing options...
mjah Posted October 6, 2009 Share Posted October 6, 2009 So why would they want to change that? Propped up the dollar, not the oil. Link to comment Share on other sites More sharing options...
The 12th Commandment Posted October 6, 2009 Share Posted October 6, 2009 Propped up the dollar, not the oil. ooops. Never mind. Link to comment Share on other sites More sharing options...
SnyderShrugged Posted October 6, 2009 Share Posted October 6, 2009 there is a somewhat silver lining in this mess. The Federal reserve wont be able to fire up the presses as easy if a new reserve currency takes root. I noticed that the article stated something about a gold/silver backed currency is under consideration. Imagine that. Link to comment Share on other sites More sharing options...
Brad_Edwards_Fan Posted October 6, 2009 Share Posted October 6, 2009 My only question in all this is that there are a lot of US dollar debt that would be devalued if that happens. Why would these countries (mainly China) chose to make an asset of theirs lose money. Would what they be gaining by doing this? My, uninformed, gut is that this is a move by China to try to fire a warning shot telling us we had better pay attention to our fiscal policies Link to comment Share on other sites More sharing options...
JohnLockesGhost Posted October 6, 2009 Share Posted October 6, 2009 My only question in all this is that there are a lot of US dollar debt that would be devalued if that happens. Why would these countries (mainly China) chose to make an asset of theirs lose money. Would what they be gaining by doing this?My, uninformed, gut is that this is a move by China to try to fire a warning shot telling us we had better pay attention to our fiscal policies Maybe. But also maybe they're just sick of it, willing to bite the bullet now and move on. None of these countries wants to be the last holding a bag of devalued dollars, so a secret, orchestrated effort to move away from the dollar doesn't seemed contrived at all. In fact, it seems downright logical. Link to comment Share on other sites More sharing options...
Brad_Edwards_Fan Posted October 6, 2009 Share Posted October 6, 2009 Maybe. But also maybe they're just sick of it, willing to bite the bullet now and move on. None of these countries wants to be the last holding a bag of devalued dollars, so a secret, orchestrated effort to move away from the dollar doesn't seemed contrived at all. In fact, it seems downright logical. So it would be more of a "cutting losses" with this... i can see that line of thought. My other question is around the trade policies...dont the chinese benefit from their currency being low compared to the dollar, isnt that one of the contrinuting factors to the trade imbalance. Link to comment Share on other sites More sharing options...
PeterMP Posted October 6, 2009 Share Posted October 6, 2009 So it would be more of a "cutting losses" with this... i can see that line of thought. My other question is around the trade policies...dont the chinese benefit from their currency being low compared to the dollar, isnt that one of the contrinuting factors to the trade imbalance. Yes, and the fact of the matter is if the Chinese were serious about doing something like this, they could easily do so by moving to the yen or the euro pretty much immediately. The fact of the matter is that China doesn't want the dollar to get to low practically because it is a double edged sword for them. Their holding lose value, and the trade imbalance that currently runs their economy goes away. IF this is real, it is AT BEST a hedge by them in case we don't recover well from the current economic situation and only will apply to a small amount of oil if it is ever put into pracitice. Please, note, I don't think this will always the case. At some point in time, it is likely that China will decide they the benefit for the issues it will cause to our economy is worth the pain it will cause them, but that isn't now. They are having HUGE issues themselves with the global economic slow down. The LAST thing they need is for their countries largest trading partner's curency to gone down the tubes, especially considering that same currency makes up a huge part of their investment. Link to comment Share on other sites More sharing options...
SnyderShrugged Posted October 6, 2009 Share Posted October 6, 2009 Yes, and the fact of the matter is if the Chinese were serious about doing something like this, they could easily do so by moving to the yen or the euro pretty much immediately.The fact of the matter is that China doesn't want the dollar to get to low practically because it is a double edged sword for them. Their holding lose value, and the trade imbalance that currently runs their economy goes away. IF this is real, it is AT BEST a hedge by them in case we don't recover well from the current economic situation. Please, note, I don't think this will always the case. At some point in time, it is likely that China will decide they the benefit for the issues it will cause to our economy is worth the pain it will cause them, but that isn't now. They are having HUGE issues themselves with the global economic slow down. There could be some form of behind the scenes oil deal that would allow them to mitigate the losses possibly. Link to comment Share on other sites More sharing options...
PeterMP Posted October 6, 2009 Share Posted October 6, 2009 There could be some form of behind the scenes oil deal that would allow them to mitigate the losses possibly. Sure. Maybe Saudi Arabia has decided to give away its oil. Link to comment Share on other sites More sharing options...
SnyderShrugged Posted October 6, 2009 Share Posted October 6, 2009 Sure. Maybe Saudi Arabia has decided to give away its oil. no, not give away, but couldnt there easily be some form of mutually beneficial exchange involved that would inspire China to bite the bullet one time for aspirations of future gains? Link to comment Share on other sites More sharing options...
PeterMP Posted October 6, 2009 Share Posted October 6, 2009 no, not give away, but couldnt there easily be some form of mutually beneficial exchange involved that would inspire China to bite the bullet one time for aspirations of future gains? What is China going to give Saudi Arabia? I will point out the Saudi's also have an interest in keeping us in our current position too. If the Iranians go nuclear, who do you think is going to be there to help defend Saudi Arabia. Who is going to act in a manner in the region to limit Iranian influence? The Chinese (who people doubt could actually successfully mount an invasion of Taiwan)? (Not to mention they are also holding a lot of our debt as an investment, also decreasing the value of their investment.) A lot of countries may not like us. Many on an emotional level may not mind the idea of us falling a few notches, but to many of them at least for now are dependent on the status quo. Link to comment Share on other sites More sharing options...
SkinInsite Posted October 6, 2009 Share Posted October 6, 2009 We'll just accidentally bomb another Chinese embassy. Link to comment Share on other sites More sharing options...
SnyderShrugged Posted October 6, 2009 Share Posted October 6, 2009 What is China going to give Saudi Arabia?I will point out the Saudi's also have an interest in keeping us in our current position too. If the Iranians go nuclear, who do you think is going to be there to help defend Saudi Arabia. Who is going to act in a manner in the region to limit Iranian influence? The Chinese (who people doubt could actually successfully mount an invasion of Taiwan)? (Not to mention they are also holding a lot of our debt as an investment, also decreasing the value of their investment.) A lot of countries may not like us. Many on an emotional level may not mind the idea of us falling a few notches, but to many of them at least for now are dependent on the status quo. well, for one, China and Saudi Arabia have already been working in close cooperation regarding the oil trade. In 2006, they signed something like five agreements, including one on "oil, natural gas and mineral cooperation," and another on economic, trade and technical cooperation. Agreements were also signed to "avoid dual taxation", that allowed for a Saudi loan to improve infrastructure in China’s northwestern cities. China is one of the most important markets for oil and Saudi oil is one of the most important sources of energy for China. Link to comment Share on other sites More sharing options...
PeterMP Posted October 6, 2009 Share Posted October 6, 2009 well, for one, China and Saudi Arabia have already been working in close cooperation regarding the oil trade. In 2006, they signed something likefive agreements, including one on "oil, natural gas and mineral cooperation," and another on economic, trade and technical cooperation. Agreements were also signed to "avoid dual taxation", that allowed for a Saudi loan to improve infrastructure in China’s northwestern cities. China is one of the most important markets for oil and Saudi oil is one of the most important sources of energy for China. Sure, but that isn't a reason for either one of them to try and cut out the US, and it doesn't start to give you a mechanism by which either one will continue to flourish if the US economy tanks. It makes sense for the Saudis to help the Chinese develop becaue they then use more oil, but just because it makes sense for A and B to cooperate doesn't create a mechanism by which it sense for A and B to cooperate in a manner that hurts C. More roads in China is good for the Saudis. China wants to become more developed. That makes sense. The Saudis make money by selling oil. The Chinese need oil. That makes sense. Those aren't reasons to bring the US down. China loses a huge trade partner and decreases much of its investment if the dollar tanks. The Saudis hurt a huge trade partner (our oil consumption decreases as our economy falls), cause a decrease in investments, and hurt their most able and fierce protector. The Saudis COULD give China oil. What is China going to do for the Saudis? They can't stop buying Saudi oil so that isn't even a credibile threat (and I will point out that such a threat isn't likely to move the Saudis. Why join forces w/ a country that is already moving you through threats when the country you are moving against hasn't?) I'm big on wars starting due to actions that in 20/20 hindsight don't seem logical, but there is also has to be a reasonable rational, and the more people/countries involved the more reasonable the rational has to be. Currently, it is hard to piece together a reason it is rational for one of them to make this move (in a manner that will really damage the dollar), much less both of them. Link to comment Share on other sites More sharing options...
techboy Posted October 6, 2009 Share Posted October 6, 2009 No, it's not. The oil trade being the relatively exclusive domain of the dollar has helped to artificially prop up its value. Yes and no. If this is really just these countries using another currency instead of the dollar for pricing, then it is indeed meaningless. This is not a new issue, and Dr. James Hamilton wrote about it in his excellent economics blog a while ago: Venezuelan President Hugo Chavez also offered his thoughts on the value of the dollar:"The empire of the dollar is crashing.... we had a chance to talk about it in Tehran [on Nov. 19], creating together a sort of currency, a basket of currencies. So instead of carrying out transactions only in dollars, including in that basket the euro, the yen, the yuan and why not the (Venezuelan) bolivar?" I can't improve on Mish's analysis: "Before continuing, it is clear that this basket of currencies deserves a name. I propose we call it the WHISIT. This stands for "What the Hell Is It?" But the name does not really matter. If you have a better one, please send it my way. Regardless of what the basket is called, politics is ruling over sanity. No one ever buys anything in a basket of currencies. For example, go to the store and try and buy a loaf of bread in WHISITs. It can't be done. Nor can one buy gas in WHISITs, or for that matter anything else. The same holds true in Europe. I defy anyone to buy anything anywhere in a basket of currencies regardless of what that basket is called. The only way it can be done is by exchanging everything in the basket to the local (favored) currency. What a headache for those walking around with Swiss Francs in their pocket trying to buy a loaf of bread in the US." The currency in which oil exporters hold their assets matters a great deal. The currency in which the price of oil is quoted matters substantially less. And the latest economic insights offered to the world press by Ahmadinejad and Chavez are to me worth substantially less than those much-maligned pieces of green paper with George Washington's picture on them. Emphasis mine. If, on the other hand, China and others were to move their currency holdings to some other currency, that would have profound effects. Link to comment Share on other sites More sharing options...
twa Posted October 8, 2009 Share Posted October 8, 2009 Maybe. But also maybe they're just sick of it, willing to bite the bullet now and move on. None of these countries wants to be the last holding a bag of devalued dollars, so a secret, orchestrated effort to move away from the dollar doesn't seemed contrived at all. In fact, it seems downright logical. If I were holding dollars this would certainly be distressing. http://www.atimes.com/atimes/Global_Economy/KJ06Dj04.html Federal Reserve monetization of government debt, 2009 Fed purchases of treasuries (annualized, in $US billions) First quarter $88.9 Second quarter $647.4 Third quarter est $676.1 among all the other issues Spengler mentions. Link to comment Share on other sites More sharing options...
PeterMP Posted October 8, 2009 Share Posted October 8, 2009 I've thought about this and the only half way reasonable thing that makes this likely to be true in a manner that would actually really damage the dollar (noting techboy's post above) is if the Saudi's think the Chinese have credibile evidence of something that will permanantly damage the US-Saudi relationship and are using it as blackmail. I will note it is possible that the evidence isn't REALLY credibile and/or that the evidence won't REALLY damage the US-Saudi relationship so it is possible in 20/20 hindsight that the action will appear illogical, while being reasonable to the Saudi's based on their current state. (I'll also point out that is possible that some in the government know the information, but it would affect US public opinion if made public, and also that I believe blackmail long term is a poor motivator and so would still question the long term success of this "plot".) Link to comment Share on other sites More sharing options...
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