NEWS: U.S Foreign Currency Addiction Could Result In Major Economic Problems

The United States economy currently depends on foreigners purchasing $2 billion of U.S dollar denominated assets, per day, just to keep the dollar stable. If the foreign currency stopped for any reason, or a major purchaser of U.S dollars stopped trading the U.S economy would plummet until a much lower, new equilibrium was reached. Foreigners bought $1.01 trillion dollars in U.S securities for the 12 month period ending September 2005. That is up from $866.6 billion for the same period in 2004.



This story caught my eye because it high lights the fact that corporate main stream media are making noises about the U.S' economic reliance on foreign currency. It also underscores the relative vulnerability to foreign manipulation the U.S economy is currently faced with.

If the likes of Iran and Venezuela were to suddenly stop trading their oil in American dollars, and switch to Euros it would end the daily trade of $280 million in American dollars (Iran: $152,500,000 & Venezuela: $128,100,000, based on $61/barrel). That equates to about 15% of the foreign currency required to keep the U.S stable.

What's stopping Chavez and Ahmadinejad from switching to Euros in a petro-dollar warfare?

Don't give them any suggestions Subz the situation is already bad enough. As I'm sure you are aware, China has stated its intention of ceasing to purchase large quantities of U.S. T-Bills and that will indeed hurt the U.S. economy. Of course it will also hurt the Chinese economy, but not as much. As more and more oil producing countries switch to a so-called "basket of currencies" and away from the dollar in their petro dealings, the U.S. economy will inevitably degrade. The simple fact is the U.S. is funding its massive deficits through the sale of T-Bills and as the purchases of those bills decline the deficits will begin to negatively impact the U.S.

Certainly the U.S. could cease running such deficits, but the likelihood of that happening in the near-term is vanishingly small. By far, the largest purchaser of T-Bills is Japan. Our two economies are very closely intwined.

[edit on 11-12-2005 by Astronomer68]

Its scary but im sure they are already well aware of the power they have Astronomer. Im sure it gives Chavez immense amusement to know that he could spark a major economic downturn in the US. Especially if he teamed up with Ahmadinejad, who im sure has no qualms with engaging the United States in petro-dollar warfare.

As you mentioned, China is poised to engage the United States in economic warfare too. Much the same way the United States engaged in economic warfare against Communism. Supression of technology sales from the United States to places such as the USSR were a form of economic warfare and had no basis in economic logic. It's really going to come back and bite the United States on the arse.

Iran is already working on an oil excange for trading oil in Euro's.

Yes, it's meant to be in February 2006 I think (not 100% certain).

Well, it is not quite as simple as we make it out to be here. The law of unintended consequences tends to bite everyone in the arse. All the nations economies are linked nowdays, some more closely than others. The real losers in a petro dollar war would be the small and the very poor countries--precisely the ones we, as humanitarians, ought to be trying to nurture and protect.

[edit on 11-12-2005 by Astronomer68]

Yes but its not as costly to these countries as it would be to the United States, especially Iran. After all what do the Iranians care about the United States economy? They've faced US sanctions since 1979. Any fall out from their petro-dollar warfare would be secondary and easily offset due to 80% of their exports being oil any way.

Venezuela is the same. Yep, I cant really see any downside for this move by both Venezuela or Iran. February will be a very interesting month indeed.

[edit on 13/12/05 by subz]