Russia, Oil, Euros Question...

[chiburb]

I posted this question in GD, and while there is lots of speculation, maybe someone here can offer some light. Thanks in advance...]

A Serious Question Re Russian Oil/Euros...

Edited on Fri Oct-10-03 10:39 AM by chiburb
There have been several threads lately in LBN and GD re Russia's apparent decision to price their oil in Euros (from the $).
I understand the basic concept of this devaluing the $, leading to inflation, etc. I see no good from this happening.
But here is what puzzles me:
Bush just met with Putin. Either Bush knew about this and said nothing to us about it, or Putin pulled a shockeroo on Bush. I doubt that Putin (The Smart Bush) would pull a stunt of this magnitude on his soulmate, so my take is that Bushco is in on this scam.
My question is WHY?
I can understand Bushco wanting to destroy the middle class in this country (the poor don't count, the rich are...well, the rich), but why would he do it before the 04's?
Is there an obvious answer that I just haven't seen yet?
On edit: WHAT IS IN IT FOR BUSHCO?

[ramapo]

1. Doubtful soulmates

The US cannot be defeated militarily but we are very vulnerable economically. I don't think that Putin would've confided his plans to go Euro to Bush.

Remember that the US drained the lifeblood out of the USSR through the arms race and the war in Afghanistan. Don't think that Putin has forgotten or forgiven this.

Now we're the country hemorroughing resources. Pissing away billions in Iraq and elsewhere. In hock above the eyeballs to most of the world. We are extremely dependent on the rest of the world to keep our economy from tanking. The move to the Euro evens the playing field just a tiny bit more.

Iraq's move to the Euro provided just one more reason for BushCo to invade and put a stop to it. They don't have that option with Russia.

[kalian]

2. Bullshit....

Pardon my french...but that is 100% USDA bullshit.
Which part...? The part where you state that the US cannot be defeated
militarilly...
Please...do enlighten us WHERE this is demonstrated. WHOM have the US fought that bestows upon the US the "best" military on the face of the planet...? WHO?
Somalia...? Haiti...? Bosnia...?
Afghanistan...? Iraq...?

Hmmm...third and fourth world countries that barely can get their shit together. Wow...amazing.... :eyes:

Get your head out of your crack.

As for the US's economic condition: we agree. :P

[ramapo]

7. No country is going to attack us with their military

There is that better? To do so would be the apex of stupidity because we would blow them up. Especially with the current administration. No matter what the consequence.

Russia is not going to lob some ICBMs at us. They no longer have the capacity to project military power. What country has the ability to seriously threaten the US with their military? China? Those millions of soldiers are a long way from our borders.

Yes the US military is vulnerable in certain situations, especially those where guerilla tactics give the "enemy" the upper hand. The five countries you mention cannot now threaten the US economically. (Perhaps Iraq's move to the Euro was a minor threat but the invasion was not about that.) They could not, and do not, threaten us militarily (especially Iraq). This doesn't mean American soldiers will not die in these places due to political decisions that send them there.

The point is that Russia can do damage to the US economically, without risking the consequences of military action. After all, the the USSR fell without a NATO invasion. They got spent to death. That can happen here. If Russia were to act in concert with the rest of Europe, or maybe China, it would take a lot of the wind out of our sails.

Finally, I don't appreciate the reference to the location of my head. If you want to disagree that's fine.

[knowledgeispower]

8. I just don't understand the Bush admin's plan

Are they trying to make the U.S. economy collapse?

Here we are losing jobs and consequently tax revenue, and what is the Bush administration's plan? Cut taxes?! Start a long and expensive war?! Pile up on the deficit?!

It just doesn't make any sense. To a layman such as myself it looks like they are intentionally bringing this country down.

The only other thing I can figure is that the Bush admin is relying on the notion that the United States, as the leader of the global market, cannot fall because it would lead to a worldwide depression. According to this train of thought, other nations will always be willing to keep us afloat because they have to.

But if that is what they are relying on, it is both stupid and arrogant. Oh wait...that perfectly describes Bush CO!

[ramapo]

10. Not the country, just the government

A central idea of the conservatives is their hate of government, especially that created under FDR-LBJ. A bankrupt government, in their eyes, isn;t a bad thing because it will force the dismantling of the programs that they hate.

Government has been made the bad guy in our society. But what other entity will build schools, roads, protect the environment, etc? So everyone wants but nobody wants to pay.

What a mess...

[Petrodollar Warfare]

12. Do not underestimate the Iraq/Iran/OPEC euro issues...

<<<Perhaps Iraq's move to the Euro was a minor threat but the invasion was not about that.>>>

The Iraq war was half geostrategy, grab the last unclaimed Persian Gulf oil fields before the onset of Peak Oil (predicted to occur around 2010). Had Dr. Blix completed his inspections, Iraq would have been declared free of WMD, the UN sanction lifted, and France, Russia, and China would now be spending billions of dollars to explore Iraq's oil. We did not want the sactions lifted (just like we wish we had access to Iran's oil too) - so we went to war.

The issue of the petrodollar recycling vs. petroeuro recycling is of major importance from a macroeconmic perspective. Iraq (11% of world's oil reserves) + Iran (9% of world's reserves) = 20% of the world market of oil being sold in euros, which would have a very adverse effect on the dollar and our ability to finance our "twin deficits." Add Venezuela and now Russia to the mix, and things get real problematic for the US - real fast.

Anyhow, the overarching threat from the euro as an alternative oil transaction currency and thus defacto World Reserve Currecny, along with the desire to prevent further momentum by OPEC towards the euro necessisitated the Iraq invasion and subsequent permanent installation of the a large US military force. BTW, the neocons got it wrong, as Iran made the switch anyway..I guess they see that the US is overextended in Iraq. Bottom line, the euro is not a 'minor' threat to the dollar, it is the *major* threat to the dollar....

********
(PS: this guy uses some rather flawed logic like an oil transaction currency switch equates to an "oil embargo" - which is absurd as the oil would still be freely available on the market, but he is correct about the potential US economic reprecussions of such an event.)

Oil, the Dollar, and US Prosperity
August 11, 2003

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=25491

"In the real world (which is a long way from Hollywood and the Liberal Media), the one factor underpinning American prosperity is keeping the dollar the World Reserve Currency. This can only be done if the oil producing states keep oil priced in dollars, and all their currency reserves in dollar assets. If anything put the final nail in Saddam Hussein’s coffin, it was his move to start selling oil for Euros."

......"Governments have secrets. If politicians always told the truth, there wouldn’t be any secrets. So, if governments are to keep secrets, how can you fault a politician for not telling the whole truth? We would assert that the President failed to present the real case for Iraq, which is: 1) prosperity for America based on controlling Middle East oil, and on maintaining the Dollar as the World Reserve Currency, and 2) peace and stability, which the guaranteed access to oil brings to the world.

We believe that the US Treasury deficit, and the US Trade deficits, are massive stock and credit bubbles, courtesy of the Federal Reserve. These deficits will cause significant disruption to the value of the Dollar and to US prosperity, all on their own. We do not need to give up de facto control over Middle East Oil, which in turn underpins the Dollar as the World Reserve Currency. Such action, which may be welcomed by the Liberal Media, would quickly end America’s role as an economic super power and lead to the sudden and permanent demise of our prosperity.

If foreign central banks could no longer believe that holding Dollars guarantees access to oil, there would be no real reason to hold Dollars. With the US running deficits of 5% for budget and trade, in the real world the Dollar would collapse, along with our bond market, stock market, real estate market, and economic way of life."

[rapier]

3. notes

Putin met Bush, yes. They agreed on nothing. It was a nothing meeting. Nothing came of it. They are not 'soulmates'. I'm not sure what they are.

The demand of Russia to be paid in Euros is not a scam but it is power politics. If done by Russia alone it will be mostly symbolic. If others do the same then it would be a significant but not gigantic change. Just one more chink in King Dollars crown.

It would be mostly symbolic because we don't buy much if any oil from Russia. While the Europeans might like the idea of paying with Euros I suspect they like spending their excess dollars on oil.

Whatever the effect of oil sales in non dollar currencies is will be impossible to predict. I'm sure 1000 economists will have 999 opinions. One thing is certain is that it will bring change. It will destabilize the current system to some degree. By system I mean the worlds financial system. A system already under terrible stress, below the surface of rising stocks and rampant bullishness and complacency.

[JewelDigger]

4. May I suggest

that you go visit a few 'second hand bookstores' and read what some of the 'then' tin-foil-hatters suggested (go back about 8-10 years) ...if you get your hands on the 'right' books, it starts making some sense.

Sorry to be so cryptic....Godspeed.

[rapier]

5. notes

Anybody can make a prediction. I can spin several. All having to do with the dollar exchange rate. I admit any way you look at it this would weaken the dollar. However there are so many other factors and things going on now that to point to this as some sort of tipping point is probably nonsense.

The oil trade seems huge, until one looks at the volume of dollars flying around the world every day trading financial assets, ie. stocks, bonds and all the myriad flavors of debt based derivatives. That financial world now dwarfs the real world economic activity. For instance the dollar volume of stocks alone has been as much as 5 times greater than the daily transactions in the real US economy. A significant part of all that trading is purely speculative and there are enourmous inbalances and lots of risk involved. That is why I say a shift in dollar flows thru the oil market would be significant but probably not a prime determinant of the dollars fate. The dollars fate is more closely tied to the willingness of foreingers to continue to buy and hold US based financial asets.

[Petrodollar Warfare]

14. Considering petrodollar recycling in brief...

<<<<That is why I say a shift in dollar flows thru the oil market would be significant but probably not a prime determinant of the dollars fate. The dollars fate is more closely tied to the willingness of foreingers to continue to buy and hold US based financial asets.>>>

One of reasons foreigners continue to hold and buy US financial assets is that all industrialized and developing nations need dollars in oreder to purchase oil - It's a circular argument in a sense in that they are recycling dollars from OPEC and by default invested back into US financial instruments. We print a fiat bill, trade it with China (or whomever) to receive an imported product, China gives that same dollar bill over to an OPEC country, which in turn gives China some oil, and then the OPEC country *has* to invest that original dollar in a US financial instrument. Typically a T-bill. If oil is sold in euros as an alternative, then 'petroeuro' recylcing takes place, and those OPEC/Russian or Norweigan euros get recycled into EU based euro bonds, etc, - not back into the US thus preventign is from paying our deficit(s). Petroeuros would create lots of credit expansion for the EU, and eliminate their currency risk for oil, but that would reduce the critical subsidy that we need to sustain our deficits, HumVees, and our massive military apparatus.

As it stands since 1974, the US has gotten a double-loan (or "double subsidy" from the EU's perspective). We get our energy essentially free with our fiat dollars, and OPEC invests all that surplus revenue back in US based financial assets. Remember, all 191 countries require oil for their energy/survival needs. We and Saudi Arabia just happen to split the spoils via dollar monopoly.

Here's a serious question: How many foreign central banks would continue to purchase large amounts of US assets with our massive twin deficits? (and staggering national debt?) if the dollar did not guarantee them access to their monthly oil/energy/survial bill? It's a circular relationship, and Saddam broke the link in Nov 2000 - so we took him out in 2003. We tried to take out Chavez last year for similar reasons, but now with Iran and Russia moving towards a petroeuro, latin America style coups or an operation "Iraqi Freedom" probably ain't gonna work in Iran or Russia. My suggestion? We should negotiate and compromise with the EU re a dollar/euro exchange band with both at parity valuation, and a dual-OPEC oil transaction currency standard (ie. barrel of oil is $25 dollar or 25 euros). Perhaps then the US and EU could become allies again, and Russia could live with that arrangement too...

[LibertyorDeath]

6. Putin has nothing but contempt for the idiot son from Texas.

Russia is hitching its wagon to Europe with the move to the Euro for oil because America & the $ are in decline. The pound sterling was once king, then the $ for last 60 years or so. Now comes the Euro.

You didn't think Germany, France, & Russia were going to take it up
the ass indefinitely did you. The idiot son has caused more damage to
the USA in the past 3 years than all other Presidents in their collective History. The magnitude of the fuck up is just beginning to show. When OPEC goes to the Euro & it will as soon as the gain outweighs the risk. It will be game set & match.

[rapier]

9. notes

While calling for the end of King Dollar is a safe call the idea that the Euro will be the new king is unlikely.

THe devil of analyzing the floating currencies is that all currencies are being debased to one degree or another. While the fiscal and trade balances of the US are abysmal, fitting a third world nation, Europes is really not all that great either. Japan is simply in a class of its own in terms of willfully debasing its currency.

It's all well and good to declare King Dollar dead but the thing is there is no particularly better alternative. At least the Euro central bankers often mouth the traditional concerns of central bankers unlike Easy Al and company who gleefully proclaim that a flood of money creation and easy credit forever is the key to heaven. This has been considered heresy for central bankers since John Law.

I have a nacent theory that currencies are becomming obsolete, and are being replaced by stocks as the core measure of value. This fits in perfectly with the rise of corpratism as corporations superceed government itself. It goes without saying that when it come to corporations and them being instuments of government the US comes in first and therefore by this new measure the US will still be king.

That all is higly debateable but trying to figure our which currency is or should be the standard is I think a fools errand.

[German-Lefty]

13. Stocks as Currency

I have a nacent theory that currencies are becomming obsolete, and are being replaced by stocks as the core measure of value.

I used to think this too, but during the boom times. I thought hey cool people will own a fraction of Das Kapital, with stocks. Now I know how easy investors can get screwed.

Inflation almost forces them to invest, though they can do it in land or gold.

[German-Lefty]

11. Who wins when your currency looses

1) Exporters - Manufacturing Bosses and sometimes the Unions get more money. Sometimes this brings jobs.

2) People competing with importers.

3) People that borrowed money. However they may have a hard time borrowing more money. This is why devaluation is bad for the debt.

If the dollar crashes, Bush's oil and other industry buddies` oil will still buy as many Euros. If they buy more dollars, that's an extra perk.

On one side you can see it as a giant rip off between rich people who own gold, land, and diversified portfolios and those with a regular bank account.