Discussion in 'Economics' started by crgarcia, Apr 23, 2008.
Is this the main reason?
1. I doubt that's a significant part. Conventional wisdom is that they've used the petrodollars to buy US Treasuries. If they were to unload them, should put upward pressure on interest rates. Of course, they could simply exchange their dollars for other currency as soon as they are paid for their oil.
2. The real reasons the $USD is weaker are primarily,
Fed is doing the money-pump on steroids. It's inflationary and dilutive to money already in circulation.
The US Gummint has been spending 20% or so more than it takes in tax revenues... annual defict spending. This too is inflationary and dilutive.
The world recognizes the Boomers are going to make large demands on our American financial system, and there is no money for it. Therefore, it is highly likely the Gummint and Fed will print more money. Again, inflationary and dilutive.
And of immediate concern... bailouts of one form or another will end up being funded with print-money... more inflation, more dilution.
Until and unless there are significant changes in how business is done in the US, look for th $USD to weaken further... a LOT further. And no matter how much they crow about how "a weak dollar is good for exporters, good for the people, good for America"... it's NOT. Bad for all of us citizens.
Not YET, LOL.
Just imagine when these other countries wake up to the fact that the debt they are holding is being devalued much faster than the interest rate being paid on it.
When they figure it out, do you think they'll be happy to lend us another $2 to $3 billion EACH day at low rates, or not based on some other more stable currency or store of value, like gold?
It would be nice if everyone else started selling too. Including the chinese and japanese.
once the USD can be exchanged for a roll of toilet paper, then oil producing nations would be forced to move to another peg. Let the Americans pay for their own follies for electing incompetent leaders. Currently they're getting off too easily by exporting the inflation using the peg.
When the peg is removed, crude futures trading volume would probably shift away from the NYMEX to another more sane exchange ( probably the one being set up in Dubai) that actually requires sane levels of margin.
Oil prices at these levels actually hurt the oil producers, the entire world is beginning to shift to alternative resources. A few more years, and alternative energy sources will have become permanent competitors. There goes their oil profits.
IMO, it will eventually devolve to a game of everyone unload US dollars while pretending to support it, and once they've sufficiently depegged, exited or hedged their positions, it will be allowed to fall further, without regard to its consequences for the US. I'd expect this will be done over a period of a few years, and end in a hyperinflationary dollar dumping panic, where anyone left holding them will be very, very sorry.
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