Iran Oil Bourse, I say Bring it on!

I think there are some considerations that need to be considered regarding an Oil Bourse and what it is.

The idea behind the oil bourse is that by openly trading oil to other nations or buyers in Euros, Tehran would set into motion a chain of events in which nation after nation, buyer after buyer, would line up to buy oil no longer in US dollars but in euros. That would then lead to a panic selling of dollars on world foreign-exchange markets and collapse the role of the dollar as the reserve currency.

This theory doesn't hold water.

First, it should be noted the reason the US dollar is considered the PetroDollar is because the US agreed to assume the debt by recycling dollars into the London and New York banks for currency exchange. That process of recycling is where the term "Petrodollar" came from. In order for oil to trade in Euros, the Euro would have to be printed in great quantity for the exchange.

Unfortunately for Iran, that is not possible today. In order for that to happen, the European Central Bank (ECB), which was created by the Maastricht Treaty to maintain the power of creditor banks in collecting their debts, would have to surrender its power to elected legislators of Europe. It would then have to print euros like there was no tomorrow. That is because the size of the publicly traded EU government-bond market is still tiny in comparison with the huge US Treasury market.

The reason the ECB, or even the EU, can't currently print Euro's to the levels required to support an oil bourse is because the Euro isn't backed by anything. When the ECB and other nationalized banks did not pool the gold in Europe to back the Euro, mostly because of controversies over Nazi gold and alleged wartime abuses by Germany, Switzerland, France and other European countries, the Euro was instead backed on the US dollar as a reserve currency.

However, even today, most of the world has abandoned the gold standard for backing currency, so gold wouldn't help the Euro anyway. The dollar is the reserve currency of the world because it is backed by the F-16 standard, not the gold standard, and the F-16 standard is secured with strategic relationships with Saudi Arabia and several other OPEC nations. These strategic relationships would have to be voided in order for OPEC to adopt a Euro standard for an oil bourse.

So what does this mean?

Well, if Iran does establish an oil bourse that trades in Euro's, it really depends on what Europe does. When the dollar became the reserve currency for oil in the 80s, the dollar lost value as money was printed like crazy to compensate. It led to massive inflation, and in order for the US to compensate, Jimmy Carter raised the interest rates 300% in only a few weeks, to an interest rate over 20%. This led to the global recession of 1979.

If Europe had to print massive sums of money, this would likely lead to a severe devalue of the Euro as a currency in relation to other world currencys. It would then require world banking institutions to buy Euro's and sell dollars.

One problem though, that means those banks would be putting all their chips in with Europe instead of the United States, which means now Europe must back their currency or assume the risk. In 2005, the United States backed the dollar as the worlds reserve currency to the tune of a military budget of $663 billion dollars. Europe, as a whole, backed the Euro with a combined $75 billion dollars US. Unless Europe established strategic policy to protect the investment of oil with military power, like what the US has done since the 80s, it is unlikely even the ECB would allow its creditors to trade on the PetroEuro, particularly since if they move from the US dollar to the Euro, they would be directly challanging the United States.

If the Iranian oil bourse does happen, and Europe doesn't print money for it, the price of oil will fall considerably as Iran sells oil cheaper on the world market in an effort to find buyers. I say Bring it on!

The above is exactly correct. How can eu expect to be reserve currency without the military to protect the shipping lanes?

Additionally, America has 3x the growth, higher per capita GDP, a more productive work force and lower debt burden than the eu.

Protect the shipping lanes from who exactly??

Were the oil bourse to be successful, there would be a dumping of the dollar in favor of the euro for exactly the reasons stated above - thats the concern. If not a dumping of the dollar, the idea of a testing of the viability and relative stability of the euro vs. the dollar in the current geo-political climate could easily prove true. That instability and our current "???" actions against Iran are bad for the market, and bad for investments. But I'm sure you know that since you're so well educated on the economic front right, Tiante? You went to school....where?

The very shipping lanes you are concerned with would be necessarily protected by the countries trading in the bourse. China, Russia, EU, Iran and other parties for their mutual economic benefit would have an inherent interest in keeping those shipping lanes open.

You're beyond delusion if you think that the militaries of those above nations could not protect the shipping lanes from - who?! The U.S. is the only major threat that could affect the shipping lanes effectively and even then it would lead to direct all-out war of all parties.

So what boogeyman is going to threaten these shipping lanes? Your poor deluded puff of smoke argument has no substance. What is going to be the reserve currency of the Euro if they move away from the dollar?


Hmmm....dollar = propped by oil
Hmmm....euro = propped by oil

(oversimplification I know, and ignores the real assets and investments tied to the values of the currencies)

What do you think is going to happen to the 3% vs 1% growth of U.S. vs. EU when the U.S. currency is devalued by lack of reserve backing, and the E.U. is the new de-facto standard in which trade and the inherent profit and interest of the bourse gives the participating countries an increase in GDP and the inevitable increase in infrastructure, capital and investment.

You want to stick your head in a hole (take a guess which hole I think it is) and pretend this is a non-issue and impossible, but unfortunately the U.S. government and the rest of the world is under no such delusion. Hence Iraq and our soon come war in Iran.

The U.S. cannot afford to lose the strategic edge on the real assets of the world energy market, and as it pointed out in the OP the loss of market influence of the dollar in the oil trades would be a disaster.

[edit on 9-5-2006 by Violent]

You have voted darksided for the Way Above Top Secret award. You have two more votes this month.

Well written, factual and very informative. You left me as a reader believing your theory without any desire or need to seek support or credibility to your claim.

KUDOS!

[edit on 9-5-2006 by skippytjc]

Originally posted by Violent
Protect the shipping lanes from who exactly??

If Iran decides to shut down the SOH, which one of the eu members is going to go over there to bring the smack-down? Spain, Italy, France, Germany? Are they going the bring the Charles de Gaul out of dry dock?

Originally posted by skippytjc

Well written, factual and very informative. You left me as a reader believing your theory without any desire or need to seek support or credibility to your claim.

[edit on 9-5-2006 by skippytjc]

www.energybulletin.net...

Here - if you're interested in the issue I suggest you check the above link out. Below is a small excerpt but gets the point across.

In 2003 the global community witnessed a combination of petrodollar warfare and oil depletion warfare. The majority of the world’s governments – especially the E.U., Russia and China – were not amused – and neither are the U.S. soldiers who are currently stationed inside a hostile Iraq. In 2002 I wrote an award-winning online essay that asserted Saddam Hussein sealed his fate when he announced in September 2000 that Iraq was no longer going to accept dollars for oil being sold under the UN’s Oil-for-Food program, and decided to switch to the euro as Iraq’s oil export currency.[4]
oncerning Iran, recent articles have revealed active Pentagon planning for operations against its suspected nuclear facilities. While the publicly stated reasons for any such overt action will be premised as a consequence of Iran's nuclear ambitions, there are again unspoken macroeconomic drivers underlying the second stage of petrodollar warfare – Iran's upcoming oil bourse. (The word bourse refers to a stock exchange for securities trading, and is derived from the French stock exchange in Paris, the Federation Internationale des Bourses de Valeurs.)

In essence, Iran is about to commit a far greater “offense” than Saddam Hussein's conversion to the euro for Iraq’s oil exports in the fall of 2000. Beginning in March 2006, the Tehran government has plans to begin competing with New York's NYMEX and London's IPE with respect to international oil trades – using a euro-based international oil-trading mechanism.[7]

The proposed Iranian oil bourse signifies that without some sort of US intervention, the euro is going to establish a firm foothold in the international oil trade. Given U.S. debt levels and the stated neoconservative project of U.S. global domination, Tehran’s objective constitutes an obvious encroachment on dollar supremacy in the crucial international oil market.

If Iran decides to shut down the SOH, which one of the eu members is going to go over there to bring the smack-down? Spain, Italy, France, Germany? Are they going the bring the Charles de Gaul out of dry dock?

The very shipping lanes you are concerned with would be necessarily protected by the countries trading in the bourse. China, Russia, EU, Iran and other parties for their mutual economic benefit would have an inherent interest in keeping those shipping lanes open.

You're beyond delusion if you think that the militaries of those above nations could not protect the shipping lanes from - who?! The U.S. is the only major threat that could affect the shipping lanes effectively and even then it would lead to direct all-out war of all parties.

Reading comprehension FTW!

That is akin to saying who is going to bail out the U.S. if we blockaded trade in the NYSE....

[edit on 9-5-2006 by Violent]

Violent, read up a little more on the whole thing...
It'll only help


That article you posted is old and largely irrelevant as there aren't many facts in it...
Here's a more recent article
Iran sees Oil Bourse in two months

Western media and think-tanks have speculated that Iran’s oil bourse could undermine the importance of the dollar by pricing the world’s fourth biggest exports of crude in euros.

Mohammad Javad Asemipour, adviser to Iran’s oil minister and head of the bourse project, has previously dismissed such suggestions as “propaganda” and rejected reports that the bourse was intended to rival exchanges being set up in Dubai and Qatar.

He has said switching to crude sales would have to be phased in gradually and depends on the success of the petrochemicals trading.

I'm not as knowledgeable in economics as darksided but its my understanding that if there is a shortage of a currency the value of that currency goes up. This would be the first effect of large quantities of Iranian oil with Euro only price tags.

If Europe doesn't like a highly valued currency it can...
1. Cut interest rates.
2. Print more money like the U.S did.

The secret must be to keep track of the total Euro value of extra Euros printed. The equivalent of the Euro M3 figure would be vital for this (it just so happens the U.S fed no longer produces this figure for dollars). Should the European banks find they have printed too many Euros for what the market demands they can always withdraw them. And this should cost less than the money gained by printing the damn things in the first place (after all the whole point in withdrawing them would be because the currency value would have fallen to much since you issued them onto the currency market).

Europe simply needs to be...
1. Open and honest about how much extra currency it produces to meet world Euro demand. (Maintains investor confidence).
2. Clear about how many of these Euros it has withdrawn from the market place should too much be printed-issued at once
3. Able to use small but not big interest rate changes to keep this process just right

However what you said about the euro itself being backed by the dollar was very interesting. Even with the best currency management in the world the Euro value would (or at least should) become very unstable. That said the U.S dollar is in theory already worth next to nothing, and that realisation has not taken hold yet.

Personally I think if Europe backs its currency with dollars and with gold there will be no problem. And that would be no problem. Europe’s banks already have tonnes of gold sitting in volts doing nothing because they dare not flood the market with it. I also think any currency backed up with the gold standard would be very desirable if anything bad happens economically in U.S. After all the one great thing about the gold standard is that's its real.
However if Europe wants to back up their currency with anything else I would look to other investments. This would prevent them putting too many eggs in one basket. And if Europe starts issuing extra Euros then they will have lots of extra money that could go into such other investments. Most of it would have to be in reserve though because they will need this Euro money available for withdraw should the currency fall more than expected because of its introduction.

Basically providing Europe can find something else other than the dollar to pack up its currency things should work out ok. The Euro will simply become an even bigger currency, whilst billions of surplus oil dollars would need to be withdrawn by the fed to prevent the currency collapsing even worse. Trouble is because they no longer produce the M3 figure they could have a hard time winning investors over about how many Euros are in circulation.
But darksided is defiantly right that its not the end of the dollar providing U.S friendly Arab states continue to accept dollars. It's still a hell of a lot of trouble for the dollar though.

The task facing the Euro would be a lot less if Iran decided to go less political and accept just about any world currency other than the dollar for its oil price barrel tags. In fact Iran could do a lot to hold their value hostage simply by saying "we don't accept this or that currency anymore". But the effect would get weaker the more currencies Iran decides to trade in.

Should the Euro fail to find an alternative base to the U.S dollar then both currencies face big problems. Espically if Iran said "we don't trade in Euros only anymore instead its now Yen".
1. This would leave the U.S with too many unwanted dollars in circulation.
2. The Euro with a greatly devalued backer
3. And for a short while the Euro would also have too many devalued Euros in circulation, unwanted like dollars because they can't by Iranian oil.

Fortunately Iran isn't the world’s only exporter so the effect can only go so far.

AM I WRONG? If so where or what on?
I'm sure that if I’m making mistakes it would also help correct many others peoples knowledge as well.


[edit on 090705 by Liberal1984]

Originally posted by Violent

If Iran decides to shut down the SOH, which one of the eu members is going to go over there to bring the smack-down? Spain, Italy, France, Germany? Are they going the bring the Charles de Gaul out of dry dock?

The very shipping lanes you are concerned with would be necessarily protected by the countries trading in the bourse. China, Russia, EU, Iran and other parties for their mutual economic benefit would have an inherent interest in keeping those shipping lanes open.

You're beyond delusion if you think that the militaries of those above nations could not protect the shipping lanes from - who?! The U.S. is the only major threat that could affect the shipping lanes effectively and even then it would lead to direct all-out war of all parties.

Reading comprehension FTW!

That is akin to saying who is going to bail out the U.S. if we blockaded trade in the NYSE....

[edit on 9-5-2006 by Violent]

Again with what Navy? The sum of all those countries navies doesn’t equal the USN. The sum of the ENTIRE WORLD'S navies doesn’t equal the USN.

The only thing the eu wants to spend money is social programs. They can barely scratch out 1% growth and have a shrinking, aging population. Where are they going to find the money to build a global, blue water navy?

Originally posted by darksided

This theory doesn't hold water.

If the Iranian oil bourse does happen, and Europe doesn't print money for it, the price of oil will fall considerably as Iran sells oil cheaper on the world market in an effort to find buyers.

You forgot to include the pre-war situation in Iraq. In 2000, under Hussein's
administration, Iraq started to trade their oil in Euro's (the Iraqi Oil Bourse), which was the main reason to invade Iraq.

At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind.
When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order.

In the short term, Bush invaded Iraq in order to seize Iraqi oil fields. However, in the long term he invaded Iraq in order to defend the American empire from starting to collapse.
The WMDs, of which Bush claimed they would be there, have never been found. As soon as it became clear Bush wouldn't get any support from his major European allies (except the UK, which is like the US, also going down with the sinking ship).

It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.


History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have gone into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished-he had successfully defended the U.S. dollar, and thus the American Empire.



[edit on 9-5-2006 by Mdv2]

I love this stuff, and I am reading up on it. That article you used to refute the dated source I pulled brings up the point that Iran is not intending to compete directly and aggressively with current Dubai and Qatar exchanges. It was REALLLLLY short on facts and content - do you have any other links to help me read up on this?

I am fascinated by the current trends on the global political arena and the interplay of politics, military and idealogies that are currently mixing it up on the world stage, I don't for a second think I understand all the intricacies involved infallibly. My main point of disagreement is with those that for some reason refuse to take into account that the world is dynamic and current world powers are not guranteed their place in the power structure solely because they are there at the moment.

Mohammad Javad Asemipour, adviser to Iran’s oil minister and head of the bourse project, has previously dismissed such suggestions as “propaganda” and rejected reports that the bourse was intended to rival exchanges being set up in Dubai and Qatar.

He has said switching to crude sales would have to be phased in gradually and depends on the success of the petrochemicals trading.

What this fails to answer is the future 'what if' and plausible effects of a switch to the Euro, or other currency of trade, in the oil market on U.S. supremacy, and both the U.S. and global economies. My concern is that if what the analysts and think tanks predict, then it could lead to erosion of the valuation of the dollar and a strengthening of other currencies.

Which isn't to say that it would be DOOM AND GLOOM OMGZ NOES! but I feel it could very well spark a trend that could lead to something much more serious without action on the part of those wishing to protect the status quo of the dollar.

Here, from November 2005
english.aljazeera.net...

Found western media information supporting your point:
news.yahoo.com...

For starters, Iran is not a very attractive site for a market, given the volatile nature of its politics, the U.S. sanctions against it and the lack of a fair legal system. Moreover, there is no indication that the
European Union is interested in vying to become the world's central bank, which requires a willingness to run large currency deficits, he said. For the U.S., that has meant allowing cheap imports to undermine the strength of some major industries, including textiles, autos and electronics manufacturing.

PFC Energy oil analyst Jamal Qureshi said the fears stirred up by a hypothetical euro-denominated oil market in Iran or anywhere else are overblown, not least because the oil trade is just a small component of the overall global economy.

See? I'm not deadset in my opinions, and give credit to the main points of the above source. Iran is not a dreamland for investment, the EU has no insinuations of wanting the mantle of Central World Bank, and most importantly and accurately "the oil trade is just a small component of the overall global economy."

The U.S. does not even get its majority oil imports from Iran - the importance of this move would be in the interplay of international economies moving off the petrodollar standard. THAT'S the concern as it pertains to other markets and aspects of the greater economic picture. My point is that if the bourse began a trend to move away from the dollar, it would potentially have far ranging effects above and beyond Iran, oil, and the value of the dollar vs. foreign currencies.

Tiante- if you can't see how ludricrous the point is you are trying to make then I can't help you. Hop back on the shortbus, I'm sure the kids will let you sit in the back.

[edit on 9-5-2006 by Violent]

Originally posted by Liberal1984
But darksided is defiantly right that its not the end of the dollar providing U.S friendly Arab states continue to accept dollars. It's still a hell of a lot of trouble for the dollar though.

Couple of points.

I don't see how this does anything but help the dollar, because we are not talking about investment, we are talking about banking and world economies of currency. Investors are skittish, they are scared of anything and prove it as the price of oil goes up everytime Iran wags the dog and how the price of oil comes down everytime Iran gives the impression of peace.

Lets say somehow Europe jumps all the political hurdles and starts printing Euros, how will they back it? Seriously, is Europe going to somehow convince the Gulf states they can protect them better than the US, or probably more relivent, FROM the US?

Second, and I didn't have enough room to point this out in the earlier post because of length, but if Europe starts printing Euro's to support an Iranian Oil Bourse, it could void the North American Treaty Organization because by definition in the treaty, it could be considered a direct and intentional attack on the currency of a member country. Would any European country void NATO in favor of Iran? Do people seriously believe that is even a remote possibility?

Finally, the British will oppose the Iranian Oil Bourse. While both London's International Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX) are owned by American corporations, the bank of London makes an enormous fortune in exchange fees supporting the London International Petroleum Exchange. They could potentially lose tens of billions with the Euro competing with the dollar, because dollars wouldn't have to be converted, they could simply be used in New York.

Remember, banks make money on exchange fees, without exchanges, there are no fees to make money on.

Ultimately, what is the most extreame result? If Europe somehow betrays the US, blows up the NATO treaties, joins Iran, and the world starts trading in Euros to compete with the US, what happens if the US economy starts to collapse?

Well, the US Government will have no choice but to back the dollar, and the dollar is backed by the F-16. That will result in war against Iran, most likely an invasion, and ultimately removing the oil bourse and converting Iranian petro back into dollars. Europe would have to either fight the US militarily on the side of Iran, or watch all the money they invested into Iran's oil bourse swirl down the drain. If Europe didn't go to war for Iran after propping up the oil bourse with Euro's, it would likely lead to a great depression in Europe.

I don't see any scenario where Europe would risk the NATO treaty, or create a military confrontation with the United States, but that is just about the only long term scenario of Europe propping up an Iranian Oil Bourse.

Without Europe propping it up, the iranian oil bourse in Euros without Euro bankers backing it leads to cash only transactions, which means cheaper oil, which means decline in oil prices worldwide, and major loss of revenue for Iran.

Remember how Iraq did its oil bourse in 2000? It failed, miserably, because Europe never supported it with the Euro. So what happened? The price of gas went down, despite the flow of oil being very low out of Iraq in 2000, and despite all the corruption via UN for food.

This is global economics 101 from a world banking perspective, your only going to get sucked into the boogy man theories if you look at it from an investor perspective, but investors are jittery by nature, bankers however can't afford to be jittery, there is way too much money at stake.

Originally posted by darksided
Well, the US Government will have no choice but to back the dollar, and the dollar is backed by the F-16. That will result in war against Iran, most likely an invasion, and ultimately removing the oil bourse and converting Iranian petro back into dollars. Europe would have to either fight the US militarily on the side of Iran, or watch all the money they invested into Iran's oil bourse swirl down the drain. If Europe didn't go to war for Iran after propping up the oil bourse with Euro's, it would likely lead to a great depression in Europe.

Its specifically this brinksmanship that is the cause of dead serious concern. You are discounting Russia and China and any other nation that is concerned with its longterm sovereignity in the face of energized American imperialism. My concern is that the move for an oil bourse is a domino - ignore the actual outcome of whether it would succeed or not, you DO make very good points as to why it could fail with Europe refusing to support it.

And you make my most important point for me, F-16 economic policy is going to force the hand of Iran and anyone else that is concerned with NOT becoming further under the influence of U.S. international economic and political policy. Could my nation beat up your nation? (nyah nyah!) Yep - I'm going to put my chips on the U.S. in an ultimate showdown ala WWIII and would probably personally enlist if it came down to it.

But Dear God - who WANTS that?? ANYONE advocating the military confrontation between Iran and US and thinking it will be confined to those 2 nations is naive. It would become a neo-Vietnam worse than even Iraq. The Iranian army is not completley insignificant and anyone that feels China and Russia would not throw their support, at least covertly, behind Iran in the conflict is also not paying attention to world events.

So really - Iranian oil bourse - bring it on?? I'll meet you at the recruiting office - which armed service are you going to back up your rhetoric with?

One factor holding the US in check-mate against military action against Iran to force the oil-market to trade primarily in Dollars (as in Iraq), is that Iranian oil makes up around 15% of China's total oil imports, and China now holds the second greatest share of US Dollar deficit. To put it simply, in order to protect their own supply, China could very easily threaten to dump a large percentage of it's Dollar holdings, so forcing a market devaluation for the currency and creating economic chaos
Central banks dump Dollar for Euro
China and the thirst for oil

What this fails to answer is the future 'what if' and plausible effects of a switch to the Euro, or other currency of trade, in the oil market on U.S. supremacy, and both the U.S. and global economies. My concern is that if what the analysts and think tanks predict, then it could lead to erosion of the valuation of the dollar and a strengthening of other currencies.

Which isn't to say that it would be DOOM AND GLOOM OMGZ NOES! but I feel it could very well spark a trend that could lead to something much more serious without action on the part of those wishing to protect the status quo of the dollar.

Well the dollar is not just the main currancy for trading oil, it's the main currancy for trading just about everything. And devaluation of the dollar would hurt not just the US but many countries (as the US is the largest buyer for a ton of countries - including China). That's why I'm not so sure other countries are going to be so quick to buy into this bourse thing. If they do, it'll no doubt be very slow and gradual.

Originally posted by Taikonaut
One factor holding the US in check-mate against military action against Iran to force the oil-market to trade primarily in Dollars (as in Iraq), is that Iranian oil makes up around 15% of China's total oil imports, and China now holds the second greatest share of US Dollar deficit. To put it simply, in order to protect their own supply, China could very easily threaten to dump a large percentage of it's Dollar holdings, so forcing a market devaluation for the currency and creating economic chaos

China would only hurt itself.
US = China's largest trading partner. Their largest trading partner goes broke, then what? Europe can't pick up the slack....

Originally posted by Violent
But Dear God - who WANTS that?? ANYONE advocating the military confrontation between Iran and US and thinking it will be confined to those 2 nations is naive.

I'm not advocating war at all, I am pointing out how far things would have to go to meet the conditions to require war. Europe would have to violate the NATO agreement, support Iran, etc... This stuff isn't just likely not to happen, it is never going to happen.

The only legitimate result I see is lower oil prices, so I say bring it on Iran, throw your 150 billion GDP around like a tough nation if you think it will help, and watch it bounce of the world economy like a spitwad against a supertanker. The US defense budget alone is over 3x the entire GDP of Iran, and somehow Iran is going to break the buck? That is rediculous.

As for the China side, the one thing you won't hear anyone (except very smart liberals who created the China/US trade agreement in the 90s) talk about is how the US is holding up the Yuan.

Rapid Chinese productivity growth and large foreign investment inflows should cause the yuan to appreciate. However, Beijing sees the exchange rate as a critical development tool, and consistently sells yuan for dollars to severely limit the appreciation of the yuan against the dollar.

The China - US trade situation is more complicated than a simple trade deficit. There is a reason for the trade deficit, and it has everything to do with cheap goods for China in exchange for a modernized China. At some point the bubble will burst on China, as it has for all nations that devalued their currency for long periods of time for fast economic gain. See Japan in the 80s and 90s, and how the Japanese mercantilist assault on European and North American durable goods industries by purposely undervaluing the yen.

The US allows this to happen, on purpose, intentionally. If the US wanted, the country could stop buying Yuan, and pay off the debt in less than 5 years, but why end the good times earlier than either side wants to? With the US GDP of 12 trillion dollars, 800 billion dollars debt is not alot. That is basically the cost of wars since 2003, not including the costs of Katrina, 9/11, and who knows what else, meaning if there was no war for 5 years, even with natural disasters and terrorist attacks the US could pay the notes off in full in a single presidential term.

We are moving beyond economics 101, but I think we have kept the discussion pretty easy to follow though. Thanks for the replys all.

i believe this has been discussed here...www.abovetopsecret.com...

dark...your arguements seem to be coming from this article...

Why Iran's Oil Bourse can't break the Buck quote????


[edit on 9/5/06 by SpanishFly]

Originally posted by SpanishFly
i believe this has been discussed here...www.abovetopsecret.com...

dark...your arguements seem to be coming from this article...

Why Iran's Oil Bourse can't break the Buck

First time I have read this in whole, I have read portions of it, thanks a million for the article.

Interesting analysis after it too.

Other countries have already started dumping dollars (and rather quickly) since the Iranian bourse started. I think doing away with the MP3 was in anticipation of the dollar falling. The USSR did the same thing when they were going under. IMHO, I don't think the dollar is looking so good.