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Originally Posted by Lurch
Terrible theory - makes no economic nor logical sense. Doesn't mean that Bush didn't believe it I guess, but here are my thoughts.
The $US is the standard for trade b/c it has been historically the biggest economy that engages in the most international trade with the most stable economy. Add to that that the US consumes something like 25% or 30% of total oil in the world, and what other sensible currency for exchange of oil is left. This is now failing, partially as a result of the war and accumulating debt. When the $US is no longer the standard of trade, we are probably in for The Greater Depression b/c the massive dumping of US dollars will collapse the global economy. Personally, I think this will be GW's legacy, rather than whether he lied to get into Iraq, etc.
Further on the "theory", how in the world does an invasion insure the $US remains the standard of oil trade. What possible relationship exists that would influence buyers and sellers to price things in $US based on the US being in Iraq. In fact, if you care to look at the broader world, I think you'd see the opposite has occurred, and quite predictably. The world has fled from holding $US, oil prices are much higher (especially in $US, but much less so for every other country in the world). For reference, look at the rush to gold as the "safe haven" currency rather than US paper. This has probably accelerated an inveitable decline of the US's economic influence in the world.
As for some of the more assertive statements, what exactly is the "direct relationship" between the $US and oil? It's no different than the relationship between the $US and Twinkies. Oil prices go up or down in accordance with the trade weighted movements in currencies, with the $US simply the means of expression.
As for keeping the $US "artificially strong", I'd love to hear how this works. IMO, what has historically kept the $US strong is that other nations and individuals have held a lot of wealth in US paper b/c of the perceived stability and the fact they are by far the biggest economy. That is gone or at least fading, thanks to the tag team efforts of Osama and GW combined with the creation of the Euro, China's emergence, etc.
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Good post . . . . . I'd agree with the gist of it, especially the "twinkie" part.
Stuff like that is obvious even if it might not be among those easily led around by the nose by conspiracy theories.
In Canada, we're used to a fairly stable relationship with the USA dollar which might cloud our view of how currency relationships more often work.
It is very easy to demonstrate the USA dollar has had frequent and dramatic moves - both positive and negative -within relatively short time frames against other major and minor currencies through the last 25 years.
As an example, the high/low difference in the USA dollar/Japanese Yen relationship between 1990 and 1996 was 98%.
The USA dollar/Swiss Franc relationship varied 20%-25% six times - up and down - between 1990 and 1996.
The British Pound/USA dollar relationship varied 30% between October 1992 and February 1993.
Some might even speculate the abrupt decline of the USA dollar a few years ago might have been a deliberate pulling of the plug to get China to float its currency versus the policy of pegging it at an artificially low value to the dollar (a conspiracy theory!!!). Certainly, European exporters trying to access the number one consuming market in the world, America, can't be too happy about a 7%-8% rise in the Euro against the dollar so far this year. But American exporters might be quite happy about it.
Regarding oil, we sometimes forget America is the number 2 or 3 oil PRODUCING nation on the planet. Combined with the power of its economy and its status a large importer, its not suprising pricing might be in that currency . . . . . although, as Lurch stated, that's fairly irrelevant. Price it in any currency you want, a liquid one preferably, and smart guys with computers engaging in arbitrage would even it out.
On deficits, there remains an argument as to whether government deficits actually matter as illustrated in this article from 2004:
http://money.cnn.com/2004/02/02/news...dget/index.htm
In the broad sense, debt does matter to America as they are surrendering some of their sovereignty when they shift a disproportionate portion of their debt burden to overseas lenders . . . . . in the early 1990's, Canada also had a disproportionate share of its debt in the hands of foreigners but we now are essentially capable of funding our own debt internally (thank the Liberals for that).
On the other hand, the American economy is an extremely dynamic thing and, unlike Germany and France as examples, can easily overcome the troubles a government might get into in terms of debt.
In the late 1980's, early 1990's, I remember pondering about The Decline Of The American Empire . . . . . and obviously, that was just before the USA economy took off for much of the rest of that decade, powering the global economy.
Its amazing what that particular economy can weather . . . . . New York City bankruptcy in 1975 and the same near thing in the late 1980's, the flattening of a major city last year, banking system failures in the past requiring massive bailouts, etc, etc. . . . .
My passing thoughts.
Cowperson