Economic question..... Am I wrong to worry about this?

[DoctorMyEyes]

I know next to nothing about economics. Maybe just enough to scare myself - so I wanted to run my latest creepy feeling past some people who know and understand economics.

Here's my worry:

I know Saddam switched from petrodolllars (greenbacks) to Euros a few years ago when everyone thought that was a really dumb monetary move. I know that several other OPEC countries have been talking up making the same move. I also know that the dollar is losing value against the euro.

My concern is that the Bush administration has done so much to alienate us from the rest of the world and our traditional friends that we're going to get to the point that everyone says "screw it" and cashes in their american dollar reserves for euros.

From what I do understand, this would tank us economically. I suspect it would also harm a lot of other nations economies.

But, what I'm wondering is if you think (cause it's what I'm starting to think...) that if Bush (God forbid!) wins in 2004 it might seem worth it to other nations to "take a hit" in order to bring us down off of our pedestal.

I mean if the worlds only remaining superpower is perceived as a threat and a bully to the rest of the world, wouldn't it only make sense to find a way to neutralize us? Even if it throws their own economies into a bind - it's cheaper than war, and the victory more guaranteed - right?

Am I way off base here? And if so, please assure me (in kindergarten language if possible) that this wouldn't happen.

[La_Serpiente]

1. You are right in your rationalization

If the US continues to go at this pace AND continue to spend this much, we would be beholden to other countries. It is blackmail, but in the perspectives of the other countries, it is righteous & rectificatory justice.

By the way, you were pretty on target. Maika'i :-)

[yella_dawg]

2. If oil transactions are switched to Euros

We become a third world country. In about a week.

[DoctorMyEyes]

3. Well shit....

That's not reassuring! LOL

I want my woobie.... (Why don't we have a thumbsucking emoticon?)

[papau]

4. switch to euro not easily done

liquidity in the world is based mostly on dollars recieved via our trade deficit.

Remember, the change over from pound to dollar did not destroy Britain.

I doubt that the 25 nation EU, even with the addition of Japan, -which is the group that has the power to do this, would do this (the rest of the world does not count - even OPEC has little real economic power).

There are advantages to being reserve currency - you can export some problems - but it is not "THAT" big a deal.

However, asset values, and wealth, will make major moves and little folk like you and I do not normally purchase the wall street products needed to minimize the change. It would be an interesting ride!

But in the end - it would not be the end of the world - or even the end of our economy - or the end of the economic power of the US.

[DoctorMyEyes]

5. One more time, please?

There are advantages to being reserve currency - you can export some problems - but it is not "THAT" big a deal.

However, asset values, and wealth, will make major moves and little folk like you and I do not normally purchase the wall street products needed to minimize the change. It would be an interesting ride!

Aside from the part about you and I being really small fish, I'm afraid the rest of that went right over my head. (kindergarten speak, remember?) :-)


I doubt that the 25 nation EU, even with the addition of Japan, -which is the group that has the power to do this, would do this (the rest of the world does not count - even OPEC has little real economic power).

Also, what makes you doubt this? Would you mind elaborating a little?

Thanks Papau - I appreciate your taking the time to "school me"!
(Economics 101 was a looong time ago - and not my best class then)

[ferg]

6. relatively minor

My understanding is that oil switching to the euro wouldn't be a huge deal.

After all, you can always switch between euros and dollars, even if the exchange rate isn't very good right now. So there might be some issues with oil becoming more expensive, but that might happen anyway even when using dollars.

I believe the main reason Japan, China, etc. are propping us up by buying dollars (for their reserves) is more related to the US being a huge export market for them. It doesn't really have to do with the dollar being the reserve currency, it's just that we buy lots of Japanese and Chinese products and they'd have a tough time if those products became too expensive in the US.

[54anickel]

7. I'll try to answer part of that, but you may want to hold out for Papau

as well.

However, asset values, and wealth, will make major moves and little folk like you and I do not normally purchase the wall street products needed to minimize the change. It would be an interesting ride!

The folks with big bucks will move their holdings around a bit on the markets. Dumping lots of their stock, especially in American companies and picking up foreign currencies, foreign stocks, perhaps a bit of gold, etc to help maintain the value of what they have. Their real estate holdings might take a dump but hey they'll be fine they got all them Euros in a German bank and maybe a Swiss bank account.
Us little fish will be in for the interesting ride!

I doubt that the 25 nation EU, even with the addition of Japan, -which is the group that has the power to do this, would do this (the rest of the world does not count - even OPEC has little real economic power).

This comes down to a personal interpretation, which probably want to wait for Papau to elaborate on. I might have a totally different take on it.

[DoctorMyEyes]

8. Thank you 54anickel!

I understand that first part better now. I think I'm too old for rides, though. "interesting ride"! LOL I hope not.....

[papau]

10. Hi 54anickel - I think you are right on point

The large players minimize risk (usually not by buying actual assets everywhere, but rather by being a counter-party to a derivative transaction - which are a lot of words that mean party A pays party B if some economic event happens). It is a bit like buying insurance against currency disaster.

It is something you and I are too small to participate in.

As to the "not likely to happen" - it is just a political call.

Economic war is war - and things get crushed and some wealth for everyone disappears - even for the winners. And even more important to today’s corporations, there is no way to predict the outcome because like poker, a bluff may win the pot (politicians folding with a good hand), while all in on a good hand may leave you leaving the table - it is just too much risk.

[papau]

9. 75% or more of World econ power is EU/Japan/USA - and USA

is about same size as expanded EU.

But US is easier to sell into.

Using dollars keeps it easy.

We can hurt folks that try to hurt the US economically.

It just does not seem like a course of action the world will take - perhaps after 4 more years of Bush and we are the number one hated country by much more than now - but just not now.

[DoctorMyEyes]

11. Papau, and everyone else - thanks

For taking the time to explain why you don't think this is too likely.

I'll try to worry less about this. It's not like I could do anything about it one way or the other anyway.

I'll just keep trying to register more dems for 2004!

[RainDog]

15. some more questions, papau

we have something like a 20 trillion? dollar economy?

...but how much of that is made up of "tangible" goods?

how much of our economy consists of other nations buying our debt?

since Bush and his neo-con wing have consistently tried to insult and undermine the EU nations which did not line up behind them for the invasion of Iraq, and since they are now talking about creating another (non-US) defense based upon EU economic and Russian military capability, could it be in their interests to weaken the U.S. in order to demonstrate they can "flex their muscle" too?

...esp. since the Bush crew has shown that's the only thing they understand?

also, does it seem true, as I read recently, that our economy is dependent on our ability to consume cheaply made products in China, etc. and our corporations (not us everyday citizens) are at a point where they want to capitalize on those poorer nations' increasingly literate but still politically under-represented people who can and will work for much less?

...so that our economy, for them is outside of their interests at this time?

...and with a weak dollar, those American corporate "made" products can be exported to the EU, etc for their profit, but not for ours?

...and this creates a cycle in which the weaker nations' people eventually grow stronger and are able to demand better wages, which would then make it seem feasible for these corporations to return to the U.S. because unemployment or "service" jobs with "service" wages will have served to drive down employee costs?

and so begins round two?

[Code_Name_D]

16. There is no "inteligence" driving down the dollar.

If US policy was to be respected, the dollar would continue to rise. It's in W's interest to see it rise.

Wealth is the basic building blocks of an economic system, and we tend to measure wealth in currencies. So we have three basic standards to measure this wealth as. 1) The Gold Standard. In theory, gold in fact remains at a constant value, neither appreciating, no deprecating. This is because it is seen as having something called "natural value" because man kind wants it regardless of economics or the form it takes. Its supply is also constant. So in theory, if supply is constant, and demand is constant, value is constant as well. 2) There is the dollar standard, AKA the dominant currency. All value is measured in dollars. But to do this, we have to assume that the value of the dollar is some what constant. But usually, we consider value of the dollar against wealth to be relative. And 3) is something called "the basket o currencies." This is where you take an average of all currencies, minus the dominant currency, and use it as a reference point.

When we track the value of a currency, we do so by comparing it against all three. Against the dollar, against gold, and against the basket. If a currency such as the Tilands Bot falls, we would see each Bot fall against all three. But if we see the Bot fall only against the dollar, and not against the basket, or against gold, the Bot is in fact NOT falling, and we know something else is going on. And this goes for the dollar as well. When we see it fall against both the basket, and against gold, we know that it’s the dollar that falling, and not the Euro that is rising.

What is forcing down the dollar is actually very simple supply and demand rules. If the supply of dollars falls short, than demand for dollar's rise, and so too dose its value. But we are seeing supply of dollars shoot up as our budget deffist shoots up. And as supply goes up, the value of the dollar must go down.

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/====Demand====\
/ Value | Supply \
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Value = Demand / Supply

The weak dollar policy is a direct result of uncontrolled spending. Plus, as supply runs away, we are seeing a new effect come into play. Its becoming difficult for other countries to even absorb all of these new dollars. In effect, the US debt has become too big to save. But this results in the opposite effect taking place against the other currencies. As they are locked up in dollar debt, there supply begins to fall short of demand.

[yella_dawg]

12. I guess I should expand on my "third world country" comment.

A number of the comments I've read on this thread are accurate in their predictions, as far as they go. But the true impact of switching the petro-dollar to a petro-euro lies in some of the more subtle effects of the situation.

First, and I suspect most importantly, oil trade in dollars lets us control fuel costs in the US as a function of the strength of the dollar. That sounds weird, but if I buy a gallon of gas for a dollar, the cost of the gas is a function of the value of that dollar. If I also control the value of the dollar, that gives me a real edge in purchasing fuel. I don't want to pay as much for gas, I just force up the value of the dollar and it doesn't take as many of them to buy gas.

The second, and more obfuscated function of of petro-dollar economics is the concept of fiat currency. Which gets back to the idea above, which is "it's a dollar because I say it's a dollar". Because the dollar is a fiat currency, the US Treasury has control over how the dollar is converted to other forms of wealth. Say a Saudi prince wants to trade in a billion dollars. The Treasury says "Sure, have some nice US Securities". The prince gets a certificate and the Treasury gets a billion smackers to squirrel away as liquid assets. Which of course explains how the US can float such amazing federal debt loads.

So effectively, our economy uses the petro-dollar as a price-fixing mechanism, atrtificially forcing up our standard of living. Our government uses the fiat nature of the currency to float itself humongous loans, to float folks like the Israelis humongous loans, and so on. Should the oil economy suddenly shift to euros, this all comes crashing down like a house of cards. Which sure puts recent events in Russia and Georia into a different light. And that's why I think that changing Iraqi oil sales to the Euro is what got Saddam whacked. It wasn't the oil, it wasn't WMD. It was CMD, currency of mass destruction.

[54anickel]

13. Ah yes, the benefits of being the worlds superpower and having the

worlds reserve currency yours.
Why would Shrub want to mess that all up by being the Military super power of the world and ruler of an empire as defined by PNAC?
The boy-king is such a stupid, selfish little man.

[DoctorMyEyes]

14. I don't know much

but I remember thinking when I heard the news about Saddam switching to the euro - "he's toast!"

And that's why I think that changing Iraqi oil sales to the Euro is what got Saddam whacked. It wasn't the oil, it wasn't WMD. It was CMD, currency of mass destruction.

Yup...