on what makes this so big
This was written by The Foundation for the Economics of Sustainability (FEASTA) of Dublin, Ireland in January 2003.
<snip>
Since so many foreign-owned dollars are not spent on American goods and services, the US is able to run a huge trade deficit year after year without apparently any major economic consequences. The most recently published figures, for example, show that in November of last year US imports were worth 48% more than US exports. No other country can run such a large trade deficit with impunity. The financial media tell us the US is acting as the ‘consumer of last resort’ and the implication is that we should be thankful, but a more enlightening description of this state of affairs would be to say that it is getting a massive interest-free loan from the rest of the world.
<snip>
This (conversion from dollars to euros for oil currency) however would be a disaster for the US. Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. As countries and businesses converted their dollar assets into euro assets, the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble, as it is currently openly considering doing, because, without lots of eager foreigners prepared to mop them up, a serious inflation would result which, in turn, would make foreigners even more reluctant to hold the US currency and thus heighten the crisis.
There is though one major obstacle to this happening: oil. Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If you don’t have oil, you have to buy it. And if you want to buy oil on the international markets, you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. So long as this remained the case, the euro was unlikely to become the major reserve currency: there is not a lot of point in stockpiling euros if every time you need to buy oil you have to change them into dollars. This arrangement also meant that the US effectively part-controlled the entire world oil market: you could only buy oil if you had dollars, and only one country had the right to print dollars - the US.
If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidiser of the US because it holds so many dollar investments). The US on the other hand, being the world's largest oil importer would have, to run a trade surplus to acquire euros. The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. It would be a very painful conversion.
more:
http://www.feasta.org/documents/papers/oil1.htmFeasta’s Mission is to identify the economic characteristics that Irish society must have in order to be economically, environmentally and culturally sustainable and to share this analysis with the widest audience possible. We also endeavour to engage mainstream society by promoting our vision and by communicating with and educating others in relation to sustainable economics. (from the website: www.feasta.org)
The paper also talks about how Iraq went from the dollar to euro in November 2000. They say Iran and Venezuela (under Hugo Chavez’s rule) have talked about switching and that Venezuela established barter deals for oil with South and Central American countries, which eliminates the dollar from the deals.
In re-reading the FEASTA paper for this post I was struck by the last paragraph (emphasis is mine):
<snip>
All of this is bad news for the US economy and the dollar. The fear for Washington will be that not only will the future price of oil not be right, but the currency might not be right either.
Which perhaps helps explain why the US is increasingly turning to its second major tool for dominating world affairs: military force.<snip>
I wonder how much the fear of total economic collapse helped garner support for PNAC's push for total military dominance.
FWIW, here is an article from Radio Free Europe from November 2000 that discusses Baghdad's move from the dollar to the euro for oil currency. I find it interesting to look at the move from an earlier perspective.
Link:
http://www.rferl.org/nca/features/2000/11/01112000160846.asp
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
