Don’t worry, just a little bump - $70 is just around the corner. Short traders just keep making those margin calls, mortgage the house if you have to. Fortunes await you! PO is for pansies and doomers. At $70 short some more ..... it is going back to $22 .... the world is awash with oil ........ reality has nothing to do with it, its all in those charts!!!!!!!!!!
Posted: Fri Aug 25, 2006 7:17 am Post subject: Re: I can't get my head around inflation/interest rates
jaws wrote:
threadbear wrote:
Wage inflation has the potential to cause prices across the board to spike up--but that's not what we have here. We have price inflation that is eating into wages, dumbass.
You're the dumbass. There aren't multiple types of inflation. There is only inflation, which means a devaluation of the money unit.
Oil prices going up on their own isn't inflation, doesn't cause inflation, doesn't result from inflation. It'll cause an increase in the prices of everything for which oil is an input factor proportional to the increase in cost incurred, but will not affect the other prices (prior to demand substitution). Labor prices will not be affected.
If oil prices are going up, and so is gas, lumber, copper, gold, wheat, houses, everything, that is a pretty good sign that inflation is happening.
Since you are speaking in general could you site data showing that in general wages have not gone down instead of the specific government employee data. Also, are you referring to inflation adjusted wages?
Posted: Fri Aug 25, 2006 11:52 am Post subject: Re: I can't get my head around inflation/interest rates
jaws wrote:
threadbear wrote:
Wage inflation has the potential to cause prices across the board to spike up--but that's not what we have here. We have price inflation that is eating into wages, dumbass.
You're the dumbass. There aren't multiple types of inflation. There is only inflation, which means a devaluation of the money unit.
Oil prices going up on their own isn't inflation, doesn't cause inflation, doesn't result from inflation. It'll cause an increase in the prices of everything for which oil is an input factor proportional to the increase in cost incurred, but will not affect the other prices (prior to demand substitution). Labor prices will not be affected.
If oil prices are going up, and so is gas, lumber, copper, gold, wheat, houses, everything, that is a pretty good sign that inflation is happening.
Sorry Jaws, I just well up inside when I read your posts sometimes.
Remember the 10 page thread where you defended monopolies, from a "free market, neo-liberal" perspective? I feel the term "dumbass" well up inside of me and there seems to be no escape valve for the internal pressure, but to put it in print.
But I should refrain--after all this is an economics forum, not a Nyah-Nyah Nyah-cenomics forum. But if you'd like to start one, I'd post regularly!
Posted: Fri Aug 25, 2006 12:07 pm Post subject: Re: I can't get my head around inflation/interest rates
garyp wrote:
jaws wrote:
Oil prices going up on their own isn't inflation, doesn't cause inflation, doesn't result from inflation. It'll cause an increase in the prices of everything for which oil is an input factor proportional to the increase in cost incurred, but will not affect the other prices (prior to demand substitution). Labor prices will not be affected.
Maybe you have a different definition of the word inflation, but isn't prices going up a pretty good one?
The monetarism theory I've heard suggests that fuel price won't increase prices of dependent products since businesses know that if they increase prices the central banks will increase interest rates, making their debt more expensive and thus negating the effect of the price rise. A nice bit of circular reasoning, and not something that works forever anyway.
Now you can question the degree to which a doubling in oil costs will impact dependent prices. With the impact on transportation, heating/cooling, raw materials, etc. - not to mention the pressure placed on wages - I can't see it really being infinitesimal, given what has been shown with the rises up until now.
My original head scratching wasn't so much to do with inflation as to the reaction of the central banks to that inflation. High or low rates, expanded or contracted money supply? To me politics suggests low rates, but the markets and the god of economics suggest high. Which wins out (assuming you consider saying one thing and doing another to be a too transparent weeze)?
GaryP,Politicians always choose the path of least resistance, particularly in this atmosphere. They can inflate national debt away and keep people from revolting, if rates are cut.
I worry about a situation where the fed is caught in a dilemna where if they lower rates or maintain them, they risk losing hegemonic power and reserve currency status--but if they raise them, they retain the strength and political clout of the dollar, but reduce the US to an impoverished third world backwater, unable to fight it's way out of a deflationary spiral.
We could get the worst of both worlds, if the administration continues it's self-destructive, rapture based foreign policy--Sky high rates with a corresponding weakening of the dollar. The international community will no longer bank on America or with it.
Posted: Fri Aug 25, 2006 12:54 pm Post subject: Re: I can't get my head around inflation/interest rates
threadbear wrote:
Sorry Jaws, I just well up inside when I read your posts sometimes.
Remember the 10 page thread where you defended monopolies, from a "free market, neo-liberal" perspective? I feel the term "dumbass" well up inside of me and there seems to be no escape valve for the internal pressure, but to put it in print.
But I should refrain--after all this is an economics forum, not a Nyah-Nyah Nyah-cenomics forum. But if you'd like to start one, I'd post regularly!
I don't defend monopoly. I am in favor of abolishing all monopolies, including but not limited to professional licensing, regulation, minimum wages, subsidies, tariffs, immigration barriers, etc, etc, etc.
Posted: Fri Aug 25, 2006 2:42 pm Post subject: Re: I can't get my head around inflation/interest rates
Quote:
We could get the worst of both worlds, if the administration continues it's self-destructive, rapture based foreign policy--Sky high rates with a corresponding weakening of the dollar. The international community will no longer bank on America or with it.
I don't know if I would say it's based on the rapture. The USA is simply trying to hold onto economic imperial power that it has enjoyed for so long. I hope the rich have a good life boat built, because hordes of zombies are going to be pounding on the McMansion doors one of these days. _________________ "If humans don't control their numbers, nature will." -Pimentel
"There is not enough trash to go around for everyone," said Banrel, one of the participants in the cattle massacre.
"George W. Bush loves poor people. He keeps making more of them." -unkn
Posted: Sat Aug 26, 2006 6:27 am Post subject: Re: I can't get my head around inflation/interest rates
threadbear wrote:
GaryP,Politicians always choose the path of least resistance, particularly in this atmosphere. They can inflate national debt away and keep people from revolting, if rates are cut.
I worry about a situation where the fed is caught in a dilemna where if they lower rates or maintain them, they risk losing hegemonic power and reserve currency status--but if they raise them, they retain the strength and political clout of the dollar, but reduce the US to an impoverished third world backwater, unable to fight it's way out of a deflationary spiral.
We could get the worst of both worlds, if the administration continues it's self-destructive, rapture based foreign policy--Sky high rates with a corresponding weakening of the dollar. The international community will no longer bank on America or with it.
While I agree with you that I think the US will choose to keep interest rates low and suffer high inflation and the loss of confidence that brings, I wonder what the rest of the world will do.
Higher oil prices will be inflationary everywhere - and everywhere house price bubbles are set to burst. With the US looking to give in to the inevitable and thus lose the global position of the dollar, will Europe play a strong monetarist hand and raise interest rates to make the euro the new dominant world currency? Or maybe China will make a play?
How do the rest of the world react to those pressures? _________________ Arcane Domain
Posted: Sat Aug 26, 2006 3:51 pm Post subject: Re: I can't get my head around inflation/interest rates
Interestingly I've just come across this article on how globalisation has helped to cut the legs from under inflation by allowing companies to outsource manpower to countries with lower wage costs - and how at least one central banker thinks that may not last as high oil costs bite with no leeway left.
The bankers expect to still be able to push up interest rates to starve inflation, they still expect to be 'gods' in control - but they do begin to realise that maybe that control is limited. _________________ Arcane Domain
Posted: Mon Aug 28, 2006 10:31 am Post subject: Re: I can't get my head around inflation/interest rates
EnergyHog wrote:
jaws wrote:
threadbear wrote:
Wage inflation has the potential to cause prices across the board to spike up--but that's not what we have here. We have price inflation that is eating into wages, dumbass.
You're the dumbass. There aren't multiple types of inflation. There is only inflation, which means a devaluation of the money unit.
Oil prices going up on their own isn't inflation, doesn't cause inflation, doesn't result from inflation. It'll cause an increase in the prices of everything for which oil is an input factor proportional to the increase in cost incurred, but will not affect the other prices (prior to demand substitution). Labor prices will not be affected.
If oil prices are going up, and so is gas, lumber, copper, gold, wheat, houses, everything, that is a pretty good sign that inflation is happening.
Since you are speaking in general could you site data showing that in general wages have not gone down instead of the specific government employee data. Also, are you referring to inflation adjusted wages?
Ok, I'll answer my own question...
Report: Most not seeing real wage gains
Employee pay lowest share of GDP since 1947, when government started tracking data. Corporate profits highest share of GDP since the 1960s.
Joined: Nov 11, 2004 Posts: 977 Location: Heart of Canada's Oil Country
Posted: Mon Aug 28, 2006 11:47 am Post subject: Re: I can't get my head around inflation/interest rates
garyp wrote:
threadbear wrote:
GaryP,Politicians always choose the path of least resistance, particularly in this atmosphere. They can inflate national debt away and keep people from revolting, if rates are cut.
I worry about a situation where the fed is caught in a dilemna where if they lower rates or maintain them, they risk losing hegemonic power and reserve currency status--but if they raise them, they retain the strength and political clout of the dollar, but reduce the US to an impoverished third world backwater, unable to fight it's way out of a deflationary spiral.
We could get the worst of both worlds, if the administration continues it's self-destructive, rapture based foreign policy--Sky high rates with a corresponding weakening of the dollar. The international community will no longer bank on America or with it.
While I agree with you that I think the US will choose to keep interest rates low and suffer high inflation and the loss of confidence that brings, I wonder what the rest of the world will do.
I just don't know how you can come to that conclusion.
Keeping interest rates low in a very inflationary environment is suicide for the Fed.
Rampant inflation will destroy the investments of the rich. Maybe this will be the first time in history that the rich sit idly by? I doubt it.
Rampant inflation will also terminate foreign investment. The US is in such a deep hole it must have that foreign investment. _________________ Do not underestimate the difficulties of surviving the transition of peak oil, nor the dangers of global warming. We must embrace nuclear energy and renewables.
Posted: Thu Aug 31, 2006 9:44 am Post subject: Re: I can't get my head around inflation/interest rates
garyp wrote:
Quote:
Higher oil prices will be inflationary everywhere - and everywhere house price bubbles are set to burst. With the US looking to give in to the inevitable and thus lose the global position of the dollar, will Europe play a strong monetarist hand and raise interest rates to make the euro the new dominant world currency? Or maybe China will make a play?
How do the rest of the world react to those pressures?
Well, I'll preface my answer with a couple of observations and I'll need to give some historical backdrop along the way. I should note that I am going to side-step the massive housing bubble and interest rate issues re ARMs, etc. in this particular post, but it is an important issue for another post.
First, since the end of WWII, we have seen a correlation between high oil prices and economic recessions. This is no secret, and there is a limit to the amount of pain that the world community will withstand from a depreciating dollar and corresponding increase in oil prices. My guess is the tipping point is the $85-$100 per barrel range, at which point OPEC, Russia and some the G7 nations will likely become quite vocal in their angst at these oil prices and subsequent petrodollar holdings.
Remember, OPEC agreed in 2000 to price oil in price band of $20-$28 per barrel. At the time the US had a strong dollar due in part to US macroecomomic policy of the 1990s - beginning with G.H. Bush (Sr.) slight tax raise in 1990 to reduce the growth of the US deficit.
However, fiscal sanity went out the window in Jan 2001 with the ushering in of the GW Bush administration. Following their "faith-based" economic mythology, passed the irresponsible and now quite treacherous tax cuts of May 2001. Even more insane, the rigidly ideological Republican Congress passed more tax cuts in May 2003 - which appears to be the first time in modern history that a nation state actually reduced taxes while engaged in a foreign war.
(here's an example of what future historians will surely ponder: How & why the leaders of the US Congress became so completely ideological and irrational at the beginning of the 21st century? Note: These words were spoken on March 12, 2003 - just a week before the invasion of Iraq....)
Quote:
“Meanwhile, Majority Leader DeLay today brushed aside arguments that the Bush administration should hold off plans to attack Iraq until it has secured approval from the United Nations, saying the international body has become irrelevant and outlived its useful life. ‘They can talk until they're blue in the face over at the U.N.,’ DeLay told an America's Community Bankers meeting today. ‘I think the days of the United Nations have come to an end ... because they can't do anything.’ DeLay also said it was Congress' duty in a time of war to significantly cut taxes. ‘Nothing is more important in the face of a war than cutting taxes,’ he said.”
So, with that kind of entrenched "quasi-mystical economic theory," the dollar stands little-to-no chance of reaching parity again relative to the euro into the foreseeable future, and discussions within OPEC about a petroeuro pricing option became very serious circa 2004 & 2005 - especially given that half of trade imports into the Middle East OPEC countries comes from the eurozone, whereas US trade imports into that area are less than 10%. Here's a Canadian story from January 2004 {I note that the US corporate/fascist media did not dare report this important news.}
Quote:
OPEC is considering a move away from using the US dollar — and to the euro — to set its price targets for crude oil, the highest-profile manifestation of the debilitating effect of depreciation on the greenback’s standing as the currency of international commerce.
Several members of the Organization of Petroleum Exporting Countries are seeking formal talks on using the euro, as well as the US dollar, when determining price targets for crude, a senior oil minister within the cartel said Monday. ‘There are countries that are proposing this,’ Venezuela’s Oil Minister Rafael Ramirez said in Caracas. ‘It’s out there, under discussion.’
Mr. Ramirez did not specify which OPEC members are pushing the proposal, but much of the impetus is believed to come from Persian Gulf producers
Indeed, after mid-2003 OPEC basically threw in the towel and completely abandoned the $20-$28 price band and went for a $40-$50 price band, due in part to the "risk premium" of the Iraq War, the lack of global spare capacity and of course - an ever depreciating dollar thanks to another round of tax cuts in 2003 and huge borrowing required for the illegal war raging inside Iraq (costing $5.8 billion per month).
The result? today's high oil prices of 2003-2006 have re-ignited the same debate that took place in 1973-1974 and again in 1977-1978 - should oil be priced in a basket of currencies? Germany and Japan were at the forefront of asking OPEC to price oil in a basket of currencies when the price of oil went from $3 to $12 per barrel - especially since the German mark and Japanese yen had appreciated 40% against the dollar (or more accurately, the dollar lost 40% against those and other major currencies).
Back in 1973-1974 the G-10 nations wanted to reduce their currency risk due to dollar's plummeting value (which was due in part to the 1971 break with the gold link - and the ongoing massive expenses/debts of the Vietnam War - sound familiar?). Of course Henry Kissinger & William Simon of the US Treasury told the Germans and Japanese that they would not interfere with these OPEC deliberations about oil pricing and transactions...but in reality Simon flew to Saudi Arabia (arriving completely drunk, btw) to arrange some secret agreements with the Saudis - so secret that Congress and even the CIA was kept in the dark until it was a done deal - a fait accompli.
In 1975 the rest of OPEC went along with the Saudi agreement to price and transact oil trades only in the dollar...but by 1978 Kuwait proposed oil sales in 3 currencies (dollar, yen and mark), but once again, the Secretary of the Treasury (at this time Michael Blumenthal) flew out to Saudi Arabia for another round of secretive negotiations to squash this proposal by Kuwait. Here's an except from a de-classified US Treasury memo of his "talking points," circa 1978:
Quote:
"...confidence in the dollar remains fragile. Recent and more frequent news reports regarding OPEC's growing disenchantment with use of [the] dollar for oil pricing further disturb the market. If OPEC changed the unit of accounting for oil pricing it could precipitate a major market reaction which would be in the interest neither of the Saudis, other OPEC members, nor the US."
For the second time in 5 years, the US had to leverage its "special relationship" with Saudi Arabia to squash these proposals by Kuwait and other OPEC members, and Washigton used its "special relationship" with the City of London to channel the petrodollar flows from various eurobond loans back to US debt instruments in an effort fund the emerging US trade account deficit (which first appeared in 1971, and have become permanent since 1976).
Fast forward to 2006, and petrodollar flows are now funding at least 45% of the US current deficit according to calculations by Paul Donovan at USB of London...which translate to about $1 billion per day. Ergo, due to the US twin deficits of $1.1+ trillion, the role of the petrodollar hegemony should not be underestimated:
Quote:
“It is crucial to the dollar's dominant role as a reserve currency that dollar pricing of oil should continue,” said Stephen Lewis, economist at London-based Monument Securities, in a recent analysis of the currency.
How do the rest of the world react to those pressures?
As far as oil prices are concerned, a concerted effort is slowly underway to move global oil transactions to a basket of currencies, to include the dollar, euro, ruble and ultimately an Asian currency. This is being driven by both economic forces (depreciating dollar) and in some cases geopolitical tensions (Iran, Venezuela, Syria and to a lesser degree, Russia). All of this is being undertaken without directly antagonizing the US/UK military-industrial-petroleum-banking conglomerates, but these obfuscated maneuvers are apparent if one takes the time to research and knows where to look...
Bottomline: US economic supremacy, and by extension, dollar hegemony - which is underpined by 1) dollar commodity pricing, esp. oil trades, 2) the $2+ trilllion per year in petrodollar recycling that funds approx. half of the US current account deficit and 3) the IMF/World Bank institutions (in which loans are denominated and settled in dollars) - is slowly eroding just as the hegemony of the British Sterling pound started to unwind during the 1920s & 1930s. Of course today's events are more complicated and dangerous due to the imminent arrival of Peak Oil and the militant/feverish neoconservative imperialists hiding out in Washington with unrealistic dreams of a global Pax Americana Well, here are 3 topics covered in my upcoming essay on these broad macroeconomic and geopolitical trends:
1) The Kish International Oil, Gas and Petrochemical Bourse will use a euro-based oil Persian Gulf oil marker, or price benchmark. After several delays, it is scheduled to open in "late September 2006" - and it may be delayed again - hard to tell.
However, the elites in Washington are not taking any chances and are trying desperately to undermine this Iranian bourse by imposing economic sanctions outside the UN by barring "dollar, euro, pound, and yen financial transactions with Iran." Yes, that would be illegal, but that has not stopped the neoconservatives in the slightest ever since taking office...
Quote:
At a meeting of finance ministers of the Group of Eight major industrial powers in Russia last Friday, Treasury Secretary John W. Snow asked Japan to consider sanctions, including barring financial institutions from conducting transactions in Iran. Japan's finance minister, Sadakazu Tanigaki, replied that any such move would first need to be discussed "more broadly with Europe and others."
....Initial sanctions under consideration against Iran would largely spare the global trade in Iranian crude oil. But the most severe sanctions -- including cutting Tehran off from access to the dollar, euro, British pound and yen -- would be a step "potentially imperiling European and Japanese trade, including the oil trade," according to a Treasury Department task force report on the measures' likely international impact.
Privately, Japanese officials have said they intend to set a high bar for any action. "We would not do anything without the full support of the international community," a senior Japanese government official said, speaking on condition of anonymity because of the issue's sensitivity. "For example, we would need a vote of the U.N. Security Council or a similar measure that would have to include China and Russia. Otherwise, Japan might end up moving out of Iran only to see someone else's oil companies rush in."
2) In July the Russia Trading System (RTS) was opened, and it is designed to reduce petrodollar hegemony by offering ruble-based oil trades, perhaps even a ruble-based oil marker/price in 2007 or thereafter...but I suspect Russia is quite interested in a euro-based oil pricing option via the Iranian bourse should that effort become operational 2006-7. This summer Putin candidly stated:
Quote:
“The ruble must become a more widespread means of international transactions,” Putin said. “To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in rubles."
Currently, the central banks around the world carry large stockpiles of dollars to use in their purchases of oil. This gives the US a virtual monopoly on oil transactions. It also forces reluctant nations to continue using the dollar even though it is currently underwritten by $8.4 trillion national debt.
...and here's what a possible successor to Putin said this summer...
Quote:
Russian Deputy Prime Minister Dmitry Medvedev, who is often viewed as one of President Putin’s possible successors, said on Tuesday, June 13, that the modern world needs a new stable financial system, in which there will be no dominating currencies. Medvedev was speaking at the 10th Economic forum in St. Petersburg.
At present, dramatic fluctuations of the exchange rates of world currencies put in jeopardy not only the economies of individual countries, but also the world order in general, Medvedev said. In his opinion, the situation cannot remain like that forever. New leaders of world development with their new, stable currencies are coming to the limelight, which will inevitably bring about changes in the financial system too, Medvedev continued. “This is for the coming generations to decide whether or not a new international currency will be created,” he said, quoted by the Itar-Tass agency.
The Russian official did not rule out a possibility of the Russian ruble becoming such currency. “Along with the growth of the demand for rubles, our currency could be one of the reserve currencies,” Medvedev said.
3) This month China re-opened the Shanghai Petroleum Exchange after a 12 year haitus (they closed this oil bourse back in 1994 - coincidentally, that same year China pegged its currency, the RNB, to the dollar at 8.48 to 1). One article noted that China is interested in influencing the price of oil, which also implies leverage regarding petro-currency...
Quote:
Insiders say two overseas oil giants have set up branches in China to trade on the Shanghai Petroleum Exchange but their identities have not been disclosed.
With the increasing participation of international petroleum groups, China is getting more prepared to fix oil prices on its own, said Ma Weifeng, a researcher at Shanghai-based Tongji University.
Athough sometype of monetary union for an Asia Reserve currency is several years away...it is under serious consideration...and the next financial/monetary crisis may provide the requisite impetus for such an option (perhaps a Asian Currency Unit {ACU} in a basket of petrocurrencies sometime in the next decade?)
Quote:
HYDERABAD, India, May 4 — Finance ministers from China, Japan and South Korea announced tentative steps on Thursday to coordinate their currencies in ways that could ultimately produce a common regional currency like the euro.
South Korea, Japan and China will "immediately launch discussions on the road map for the system to coordinate foreign exchange policy," the ministers said in a joint statement. "We agreed on further study of related issues, including the usefulness of regional currency units."
Although an Asian monetary union is a distant goal, the Asian Development Bank has been pushing the idea of an Asian currency unit, or A.C.U., over the past year. The unit's value would be set by an index of participating currencies.
The development bank's Japanese president, Haruhiko Kuroda, a supporter of an Asian monetary union, had pledged to propose the creation of an A.C.U. at the meeting in Hyderabad, but reportedly held back in light of opposition from Washington.
"From the Americans there was an outcry, seeing it as a danger to the dollar," Volker Ducklau, the Asian Development Bank's executive director for Germany and Britain, told Emerging Markets, a newsletter published during bank meetings.
The United States and Japan are the two largest shareholders in the bank, each with a 12.85 percent stake.
Senior Treasury officials denied that the United States had expressed concern about Asian currency linkage.
"We don't oppose it,"' said Timothy D. Adams, the Treasury under secretary for international affairs. "I have no concerns about this issue." {somehow I am not convinced...}
There's a lot more to this complicated issue, but I hope that info helped tie together some of these disparate but very important issues. I hope to finish my essay on these matters by next week...
Last edited by Petrodollar on Fri Sep 01, 2006 10:13 am; edited 16 times in total
Posted: Thu Aug 31, 2006 10:20 am Post subject: Re: I can't get my head around inflation/interest rates
Quote:
There's a lot more to this complicated issue, but I hope that info helped tie together some of these disparate but very important issues. I hope to finish my essay on these matters by next week...
Posted: Thu Aug 31, 2006 10:53 am Post subject: Re: I can't get my head around inflation/interest rates
Petrodollar wrote:
Well, I'll preface my answer with a couple of observations and I'll need to give some historical backdrop along the way. I should note that I am going to side-step the massive housing bubble and interest rate issues re ARMs, etc. in this particular post, but it is an important issue for another post.
A huge, masterful and detailed post which (I think) suggests a move to multiple reserve currencies at a point when the US is weakened and cannot react badly???
I await with interest your observations on the housing bubble and its interaction with peak oil / inflation. Despite fatheroftwo's belief that high inflation and high interest rates will go together in the US, I tend to stick to my view that a shock in the price of oil will eventually result in low rates to keep families afloat - and help devalue the dollar debt. When you have rioters on the streets and senator strung up from the nearest lamppost, I tend to believe politicans will do what's necessary to survive. Oil shock + housing crash has a massive impact on the feeling of the US economy.
However I also think that most other countries/regions will be looking for that reserve currency status (always fighting the last war) and with petrolum taxes already high in europe, with higher efficiency vehicles, the proportionate impact is lower. I expect that quite a number of others will look towards high inflation/high interest rate - to be a strong currency of refuge.
The interesting consequence of that would be the majority of the initial impact of peak oil would be on the US, crippling the economy and creating demand destruction of the largest consumer - helping to provide a temporary respite from spiralling oil costs.
It would be interesting to determine if countries and regions were looking to decouple their economies from the US one to lessen the impact of the crash. _________________ Arcane Domain
Posted: Fri Sep 08, 2006 4:48 am Post subject: Re: I can't get my head around inflation/interest rates
PetroEuro wrote:
Quote:
Germany and Japan were at the forefront of asking OPEC to price oil in a basket of currencies when the price of oil went from $3 to $12 per barrel - especially since the German mark and Japanese yen had appreciated 40% against the dollar (or more accurately, the dollar lost 40% against those and other major currencies).
You never mention the times when the dollar climbs in value against other foreign currencies. You would have made one lousy foreign exchange trader! ; - )
Why would Japan or Germany be concerned about oil priced in dollars if their currencies were appreciating against the dollar making oil priced in dollars cheaper in yen and deutschmarks?
Ironically, US military spending during the post war period freed up a lot of German and Japanese engineers from the military-defense complex to work in manufacturing and export industries. Got any secret memos of how this benefited the USA?
Quote:
Athough sometype of monetary union for an Asia Reserve currency is several years away...it is under serious consideration...and the next financial/monetary crisis may provide the requisite impetus for such an option (perhaps a Asian Currency Unit {ACU} in a basket of petrocurrencies sometime in the next decade?)
If Asians central bankers are worried about the value of the dollar and the dollar's dominant role in international trade why do they not let their currencies freely float against the dollar, letting them appreciate, so that they reduce their current account surpluses against the US current account deficit? Instead of actively intervening in FX markets to keep their local currencies down in value against the dollar (and the euro too) to stimulate exports, while at the same time quasi-capital controls, and lack of interest bearing assets denominated in local currency, practically guarantee that trade receipts find their way back into dollar denominated interest bearing assets? The so-called informal Bretton Woods II agreement that benefits Asian manufacturing and exports at the expense of a deteriorating US trade balance?
As one country's current account surplus HAS to EQUAL another country's current account deficit (it is a fact) whether crude oil is denominated in dollars, euros, yen, yuan or a basket of currencies, its value will still be determined by world supply and global demand regardless of in which currency it is priced. In effect with freely convertible currencies trading ag
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Well, here are 3 topics covered in my upcoming essay on these broad macroeconomic and geopolitical trends:
