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Forex blog!
Hey guys, hate to spam, but I have recently started a forex trading blog, which fills from feeds that I personally selected to be prevalent and well written. If you can check it out, that'd be awesome. I am also very open to suggestions and improvements etc!
The site is forexbillion.com
thanks in advance for helping out!
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Crude has an ETF now too (USO) and board is here:
http://www.investorshub.com/boards/board.asp?board_id=5547
Long time no post:
Here is an observation.
Since around July 2005 until today light crude traded in a band between roughly $60 to $70.
In the same time EUR/USD also traded in a range between roughly 1.1800 to 1.2300.
The interesting thing is, that the moves inside those bands are extraordinarily well correlated. (More than historically shown) It's almost identical.
Does somebody have a good explanation for that?
It seems strange for me since Euro is not a commodity. It should fundamentally trade completely different imo.
Public Announcement of the People's Bank of China on Reforming the RMB Exchange Rate Regime
July 21, 2005
With a view to establish and improve the socialist market economic system in China, enable the market to fully play its role in resource allocation as well as to put in place and further strengthen the managed floating exchange rate regime based on market supply and demand, the People's Bank of China, with authorization of the State Council, is hereby making the following announcements regarding reforming the RMB exchange rate regime:
1. Starting from July 21, 2005, China will reform the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. RMB will no longer be pegged to the US dollar and the RMB exchange rate regime will be improved with greater flexibility.
2. The People's Bank of China will announce the closing price of a foreign currency such as the US dollar traded against the RMB in the inter-bank foreign exchange market after the closing of the market on each working day, and will make it the central parity for the trading against the RMB on the following working day.
3. The exchange rate of the US dollar against the RMB will be adjusted to 8.11 yuan per US dollar at the time of 19:00 hours of July 21, 2005. The foreign exchange designated banks may since adjust quotations of foreign currencies to their customers.
4. The daily trading price of the US dollar against the RMB in the inter-bank foreign exchange market will continue to be allowed to float within a band of ��0.3 percent around the central parity published by the People's Bank of China, while the trading prices of the non-US dollar currencies against the RMB will be allowed to move within a certain band announced by the People's Bank of China.
The People's Bank of China will make adjustment of the RMB exchange rate band when necessary according to market development as well as the economic and financial situation. The RMB exchange rate will be more flexible based on market condition with reference to a basket of currencies. The People's Bank of China is responsible for maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level, so as to promote the basic equilibrium of the balance of payments and safeguard macroeconomic and financial stability.
Submit Date:2005-7-21 19:01:00
http://www.pbc.gov.cn/english/detail.asp?col=6400&id=542
Yeah, my Internet live had a looooong christmas break.
How is your trading doing? Most of the stocks I watch have been in a horrible state since the beginning of this year. No Januar effect, no nothing, just wandering around in nirvana...
Hmmh, maybe I just have to watch different stocks...
Hey, Steak
Glad to see you.
Fred
trying to delay the pain ...
DJ China Regulator Issues Notice On Foreign Bk FX Borrowing
02/21/2005
Dow Jones News Services
(Copyright © 2005 Dow Jones & Company, Inc.)
SHANGHAI (Dow Jones)--China's foreign exchange regulator has outlined the process for foreign banks to apply for quotas for their short-term borrowing in foreign currency this year.
The quota system is aimed at improving the regulator's oversight of foreign exchange borrowing of foreign banks in China, the State Administration of Foreign Exchange said in a notice posted on its Web Site late Monday.
"These quotas for short-term foreign debt of foreign banks should meet the needs of foreign banks for their normal business development and also effectively control the total size of short-term foreign debt of foreign banks," the notice said.
In June 2004, regulators said they would cap the amount of U.S. dollar borrowing overseas by branches of foreign banks operating in China. The regulator also signaled that proceeds of U.S. dollar loans in China can only be used for legitimate goods trade.
Borrowing in U.S. dollars has been one way for speculators to bet that China's authorities will allow the yuan to rise in value against the U.S. currency.
China's yuan is only fully convertible on the trade account but even then daily trading is kept in a very narrow band relative to the dollar. On the capital account, the country maintains strict controls on outflows of yuan to prevent an exodus from its financial system to more stable markets offshore.
According to Monday's statement, foreign banks should submit their quota applications to SAFE within ten working days of receiving notices from the regulator. If the banks don't respond in this period, SAFE will assign the banks the same quota they had in 2004.
In determining the quotas, SAFE said its branches should consider the 2005 business development plans of foreign banks, and the balance of foreign exchange loans of foreign banks in the previous two years, especially the second half of 2004.
Some info on the Dollar Index traded on the FOREX
(downloaded December 6th, 2004)
What is the US Dollar Index®?
Just as the Dow Jones Industrial Average provides a general indication of the value of the US stock market, the US Dollar Index (USDX®) provides a general indication of the international value of the US Dollar. Similar in many respects to the Federals Reserve Board's trade-weighted index, the USDX does this by averaging the exchange rates between the US Dollar and six major world currencies.
USDX = 50.14348112
× EUR USD -0.576
× USD JPY 0.136
× GBP USD -0.119
× USD CAD 0.091
× USD SEK 0.042
× USD CHF 0.036
Asian currencies to rise in tandem with China’s yuan
December 17, 2004
Asian currencies are expected to appreciate over the next five years following an appreciation in the Chinese yuan.
Citigroup's head of Asia-Pacific economics and market analysis, Don Hanna, expects the yuan to appreciate from 8.28 against the US dollar to 8.11 next year, and to rise to 6.27 to the greenback by 2009.
His forecast is that the Indian rupee, Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, new Taiwan dollar and Thai baht will all appreciate from next year onwards.
He also forecast that the Hong Kong dollar would maintain its fixed exchange rate to the US dollar.
On the ringgit, Hanna expects the currency to appreciate to RM3.16 to the dollar in 2009.
He anticipates China would record a gross domestic product (GDP) growth of 8.5% next year, while the Asian newly industrialised economies comprising Hong Kong, Singapore, South Korea and Taiwan would post an average growth rate of 3.8%.
Among the economies of South-East Asia, Indonesia, Malaysia, the Philippines, Thailand and Vietnam are expected to grow by 5.1%.
Although inventories of electronics are building up, Hanna said the slowdown in the tech sector next year would be shorter and shallower than in 2001.
He said electronics still accounted for a big portion of total exports for countries such as the Philippines, Singapore and Malaysia, but noted that electronics exports as a percentage of GDP were falling.
“US investment in 2005 is going to re-accelerate as the US corporate sector is cash-rich for the first time since 1976,' he said.
He does not think that the United States will be able to reduce its current account deficit to below 5.5% to 6% of GDP.
http://biz.thestar.com.my/news/story.asp?file=/2004/12/17/business/9686603&sec=business
14:05 US GOVTS: TIC Data Showed Slower Fgn Investment in Oct ($48.1B)] Boston,
Dec 15-- According to the Treasury International Capital (TIC) report foreigners
made a $48.1 bln net purchase of US securities in October, down from a revised
$59.9 bln in September (prev. $63.4 bln). There was a rise in foreign appetite
for Treasuries but it was well shy of its highs of earlier in the year. There
was a rebound in agency purchases as well as equities.
On average inflows are still sufficient enough overall to cover the current
account deficit but the market will keep a watchful eye as the USD remains weak.
At their October pace net investment is insufficient to support the USD.
Foreign net purchases of US Treasuries totaled $18.3 bln in October, up from
$15.8 bln in September. Purchases by foreign official institutions rose by more
than 50% to $14.8 bln from $9.8 bln in September. Other foreigners purchases
fell to $3.0 bln from $6.7 bln. Foreign official holdings totaled $1.125 trn in
October, up from $1.115 trn in September. The rise was a result of increased
investment in Treasury coupons. Overall foreigners hold a little less than 48%
of all marketable Treasury debt outstanding. Foreign central bank holdings of
notes and bonds account for about 33.5% of all notes and bonds outstanding.
It"s not hard to see why the market remains preoccupied with foreign
sponsorship.
In the 12 months ending in October, foreign investors made a $374.9 bln net
purchase of Treasuries, up from $368.4 bln in September. It was just the second
time that the 12-month purchase had risen in the past six months. Foreign
official accounts made a $207 bln net purchase of Treasuries over the year
ending in October. This year alone that purchase has totaled $176.7 bln
compared with a total net purchase of Treasuries of $109.3 bln in all of last
year. So far this year total marketable Treasuries outstanding increased by
$325.3 bln, and note and bonds have increased by only $175.7 bln. The degree of
sponsorship by foreign investors is one reason why rates have stayed low even as
the budget deficit has soared.
Of the major foreign holders of Treasuries, the composition changed. Japan
and trimmed their holdings for a second straight month while the UK increased
theirs by just over $6 bln. China"s holdings were little changed. Since
peaking in August Japan has decreased their holdings of Treasuries by $7 bln
through the end of October. The Japanese held $715.2 bln in Treasuries as of
October 31, down from $720.3 in September and $722.2 bln in August. Their
holdings equate to about 18% of total marketable Treasuries outstanding.
China"s stake was $174.6 bln in October, ups lightly from $174.3 bln in
September. The UK increased their holdings to $140.9 bln from $134.7 bln. This
looks to be a new high. Holdings of Treasuries by Caribbean Banking Centers-- a
fair proxy for hedge funds-- fell by just over $3 bln in October to $85.2 bln.
Foreigners made a $22.0 bln purchase of agency securities, the strongest
purchase since April. This occurred after the dust settled following the OFHEO"s
investigation of FNMA manipulating its earnings. Fed custody holdings suggest
that agency investment by foreign central banks has stayed strong.
In October there was a $19.1 bln purchase of corporate bonds, down sharply
from $43.9 bln in September. There was a $3.76 bln net purchase of US equities
following a $3 bln net sale in September. At the same time US investors sold a
net $12 bln in foreign stocks and a $3.2 bln in foreign bonds.
Complete details can be found on the Treasury"s website at:
http://www.treas.gov/tic/.
The report reinforces rhe importance of foreign investors to the US Treasury
market suggests that the twin deficits -- the budget deficit and the current
account-- will be of utmost important in the coming year. The current account
is approaching a record 5.5% of the GDP and if it continues to deteriorate
foreign inflows may slow. This would spell trouble for the US markets, as well
as the economy. --Jennifer.Rossum@thomson.com
[TIC YEAR-TO-DATE SUMMARY, mlns$]
------Foreign investment in-------------
Treasury Gov't U.S. U.S. TOTAL
Bonds & Agency Corp. Corp. NET FGN
Notes Bonds Bonds Stocks INVESTMENT
2004-01 48997 27377 12809 12828 91276
2004-02 36705 24247 21051 2488 84638
2004-03 60799 4004 30613 -13481 77598
2004-04 35673 31798 16559 -1922 71782
2004-05 23378 20959 19817 -7679 64974
2004-06 40575 15769 27156 1755 73007
2004-07 13250 19279 28180 9777 61066
2004-08 14427 17489 24430 -1126 54228
2004-09 15779 8095 43930 -3068 67463
2004-10 18338 22002 19154 3760 48063
TIC data down to $48.1Bn net inflows.
Thank you, Stack. It is certainly complex. There are so many variables, I don't know if I could ever master it. I appreciate the time you devoted to giving me a comprehensive response.
Fred
Fred,
it's actually not a question easy to answer. Of course, your calculations are right. The profit of 100 USD would be a loss of 110 Euros.
The bad thing here is, not only is your USD profit affected by the weakening USD, but also your inital investment looses value. That is really painfull when the USD weakens 40%.
The Belgian would only invest in a US stock market, when he expects that his profits on stocks will outweight the loss he suffers from the weaking USD. So if he expects the USD do fall 40%, his stocks need to make at least 67% profits for him/her to break even. That is already bad, but it can get even worse.
Of course when the USD appreciates and the Belgian holds a loss on the stock, he could get out with a profit in Euros.
And now comes the hard part, where it is impossible to give a straight out answer. A changing currency not only changes the value of your investment but also the perception of it!!!
For example, the USD dropped 40% and foreign investors become reluctant to actually put more money into the US stock market or even start to take their money out. Therefore, your stock is going to drop even more. A deadly spiral.
On the other hand, when the USD value isn't dropping too fast/much, a weaker USD might attract more capital into the stock market, since those stocks are cheaper to buy for foreigners.
Which one actually is stronger depends on many factors being all connected to each other. E.g. inflation, earnings, interest rates, etc.
The same goes for other securities. For example bonds or treasuries where the yield is important. Yesterday the FOMC highered the interest rate to 2.25% in the US, in Europe it stands at 2%. I also believe the yields on US bonds are at the moment higher than on EURO bonds. That means US bonds are cheaper than EURO bonds. Now, normally that yield differential would immediately vanish because of arbitrage. Traders would sell EURO bonds and buy US bonds until the yield is more or less the same. Because of this a lot of money would flow into the US and the USD would appreciate. But at the moment it simply doesn't. Why?, because everybody is just so afraid to go for this arbitrage play and loose a lot of money when the USD drops further.
That leads us the next point essential for the survival in the currency market. The big momentum. It is a strong force that overrides fundamentals many times. And because of this you are actually not a sharp person when you buy US securities when the USD is weak. It probably will be even weaker in the future. You are only a sharp person when at least the medium term trend, if not the longer term trend, of the USD is strenghtening. And only then.
I am myself not the sharpest person at the moment, since I keep a small portion of my portfolio in US stocks since years.
And to your last question. A weak dollar doesn't necessarily let the EU industry suffer. Some companies are affected negativly some positively. You also cannot say the export industry is only affected negativly. First they can hedge their contracts, second they can buy cheaper resources on the world market, and third if they have a contract to sell their product over a long time period with a fix price in Euros they have nothing to worry about.
So, I hope I answered your question a little, although I have to admit the topic is actually more complex...
bye
s.
Good Morning, Stack
I have a kindergarten question. It's a kindergarten question because I've studiously avoided learning to think like an accountant (to my detriment, of course). Thus, I'm ill-equipped to think in international terms.
If, on January 2nd:
1) I lived in Belgium, where my native currency was the Euro
2) the Euro/USDollar exchange rate were 1:1
3) I bought 100 shares of JUNK (a U.S. conglomerate with great prospects, trading on NASDAQ) at $20.00/share.
I would pay 2,000 Euros for my JUNK holding
If, on July 2nd:
1) I still lived in Belgium, using Euros
2) The Euro/USDollar exchange rate were .9 Euros to the dollar
3) JUNK had appreciated to $21.00/share
Wouldn't the value of my investment have fallen to 1,890 Euros. Wouldn't my "profit" of 100 dollars actually be a loss of 110 Euros?
If this is true, why would a Belgian invest in a stock in the U. S. market? Is it some kind of play on the idea that, if the U. S. dollar is weak European industry is going to suffer?
I guess, if you are sharp enough to buy U. S. securities when the dollar is weak you have the possibility of a great return, IF the company you invest in does well AND the dollar appreciates. Sounds like one of those circus feats, where someone rides two horses with one foot on each.
Whew. Tough.
Fred
Taiwan Dollar Rises on Optimism China Ties May Thaw (Update1)
Dec. 13 (Bloomberg) -- Taiwan's currency rose after President Chen Shui-bian failed to gain a majority in parliament, limiting his ability to push through policies that may worsen relations with China.
The Taiwan dollar gained as much as 0.5 percent after the opposition Nationalist Party and its allies won 114 seats on Dec. 11, compared with 101 for Chen's Democratic Progressive Party and its backers in the 225-seat parliament. Stocks fell, led by Cathay Financial Holding Co., on concern other initiatives from Chen, such as a banking bailout, may be weakened or hampered.
Polls before the vote showed the two sides were neck and neck, raising concern Chen would be able to gather support to change the constitution and to drop ``China'' from the names of state companies. China, which sees the moves as attempts for independence, has said it may reunify the island by force.
``People are taking a breather from worrying about relations with China,'' said Albert King, who oversees the equivalent of $10 million as chief investment officer of Prophet Capital Inc. in Taipei. ``We won't have to worry about Taiwan changing its legal status until the next legislative elections'' in three years, he said.
Pending in parliament is Chen's $18 billion special military spending bill, which opposition lawmakers have vowed to cut in half. The measure seeks to buy arms from the U.S., the biggest supplier of military equipment to the island though it recognizes China in diplomatic circles. China often protests when the U.S. sells arms to Taiwan.
Markets
The Taiwan dollar gained 0.2 percent to NT$32.402 against its U.S. counterpart as of 2:39 p.m. The local currency has climbed 4.8 percent this year. The benchmark Taiex index fell 32.74, or 0.6 percent, to close at 5878.89 in Taipei.
Chen has been seeking more money from lawmakers to clean up bad loans at Taiwan's 49 banks and more than 300 local loan cooperatives. Soured assets totaled NT$651 billion ($20 billion) at the end of September. Chen originally sought NT$1 trillion. Opposition lawmakers said in October that they would pass a bill for NT$220 billion, less than a quarter.
Before the parliamentary vote, Chen, 53, also pledged to seek a referendum to change the island's constitution before his second four-year term ends in 2008. Without enough backing in parliament, he won't be able to push through the measure, which China sees as another attempt to seek independence.
China's official Communist Party newspaper People's Daily said today that the outcome of Taiwan's parliamentary election shows the island's voters reject Chen's pro-independence stance, His hopes have been ``shattered,'' the newspaper said in a commentary.
Popularity
Chen's popularity fell to a record after his party and its allies failed to gain a majority in parliament, Taiwan's United Daily News reported, citing its own survey. Chen's approval rating dipped to 34 percent, the lowest since he first took office in 2000, according to the Taipei-based newspaper, among the three biggest in Taiwan by circulation.
Chen's approval rating was down 7 percentage points from before the Dec. 11 parliamentary election, the newspaper said today. About 51 percent surveyed were dissatisfied with him, a record, it said. About 44 percent expect relations with China to improve, and 16 percent say ties may deteriorate, it said.
``Beijing will probably demonstrate more good will and confidence toward the people of Taiwan,'' said Chang Wu-ueh, a professor of China Studies at Tamkang University in Taipei. ``For now, China won't have to worry about Taiwan changing its name and writing a new constitution.''
Chen, 53, has been blamed for deteriorating relations with China, Taiwan's biggest export market. He also faces slowing growth in Asia's fifth-biggest economy, a banking system riddled with bad loans, a record budget deficit and national debt exceeding NT$3 trillion.
Flights
Taiwan Semiconductor Manufacturing Co. and other companies, with more than $100 billion invested in China, regard good relations with the mainland as critical to profit and expansion.
China and Hong Kong accounted for about 36 percent of the island's exports in November, helping fuel an economy expected to grow to $315 billion this year.
``A litmus test for China's attitude toward Taiwan is if the mainland will be willing to talk about charter flights for the Lunar New Year holidays in February,'' Chang said.
Airlines shares gained on hopes better ties with China could lead to the start of direct flights with the mainland. China Airlines, Taiwan's largest carrier, rose 1.1 percent to close at NT$18.40. Smaller rival EVA Airways Corp. climbed 2.7 percent to NT$15.10.
Direct flights would cut a five-hour trip through third countries to about 90 minutes and pare cargo costs. Chen said he would seek ``stable cross-Strait relations'' in a speech on Dec. 11 after his party failed to gain a majority in the vote.
Taiwan's 10-year bonds rose on speculation the government will need less debt as the special military spending may be cut by lawmakers. The 2.625 percent bond maturing September 2014 rose 0.2152, or NT$215.2 per NT$100,000 face amount, to 101.5901 as of 2:39 a.m. in Taipei. Its yield fell 2.5 basis point to 2.439 percent in Taipei, according to Gretai Securities Market.
http://www.bloomberg.com/apps/news?pid=10000080&sid=a7lhKSrp03z8&refer=asia
The TIC will be published Dec. 15 at 14:00 GMT / 9:00 EST.
TIC Data - Funding The US Deficit
By Kathy Lien, Chief Strategist
Published Date: December 10, 2004
On December 15th, the US is scheduled to release its monthly data on net foreign purchases of US securities, also known as the Treasury International Capital (TIC) report, which measures shifting international portfolio and capital positions. In an environment where currency values are increasingly driven by capital flows, the TIC data is a key piece of information that directly reveals cross-border transactions involving US securities. With the dollar driven lower by concerns about the current account deficit, the TIC data will be one of the most anticipated reports next week. A large and growing current account deficit in the US requires net foreign capital inflows on the order of at least $1.8 billion per day. The TIC report acts as an approximate gauge of foreign investor willingness to finance this deficit. Smaller than expected net foreign purchases offer a possible signal that the deficit may be becoming unsustainable as foreigners lose their appetite for US assets. The chart below indicates that over the past year, the gap between net foreign purchases of US securities and the trade deficit has been narrowing, explaining the market's concern over the deficit.
According to the latest TIC data, net foreign inflow for the month of September increased from an upwardly revised $59.9 billion to $63.4 billion. The data indicates that there was a sufficient influx of funds during the month of September to meet the trade deficit for the same month, which narrowed to -$51.6 billion from -$53.5 billion. However, the dollar did not rally following this report because the details also indicated that Japan was a net seller of US securities. The weaker dollar has prompted a surge in private investment of Treasuries and corporate bonds, which should have been bullish for the dollar. Unfortunately, the market feared that this might foreshadow a longer-term trend of Asian central banks reducing or even dumping their extraordinary holdings of US treasuries. Although one month can barely be used as reference for a longer-term trend, if this does becomes a reality in October's report, not only would the dollar face a deeper slide, but the US economic recovery could be threatened as Treasury prices fall and yields soar. The charts on the following page graphically display the trend of US treasury purchases by the 2 largest holders of US treasuries.
Resources: http://www.treas.gov/tic/
Source: http://www.dailyfx.com/article_rr_070.html
U.S. in precarious spot over weak dollar
By James K. Galbraith
Posted on Sun, Dec. 12, 2004
Since the election, the value of the dollar has declined more than 3 percent against the euro to an all-time low -- and it continues to fall. Today's dollar jitters are no surprise; the few Keynesians left in the economics profession have long thought them overdue. Here's why:
We have worn down our trade position in the global economy, becoming dependent for our living standard on the willingness of the rest of the world to accept dollar assets -- stocks, bonds and cash -- in return for real goods and services.
In the late 1990s, the U.S. position was held up by the glamour of the information-technology boom, which brought capital flooding in from more precarious perches in Russia, Asia and other parts of the world. But that too has turned to dust and ashes.
The concentration of our manufactured-goods trade on China and Japan means that those two countries now hold preposterous dollar reserves, and their actions substantially determine the dollar's value.
Chinese and Japanese behavior is constrained by creditors' risk. If they sell too many dollars, the value of the remainder of their portfolio plummets and they inflict losses on themselves. This consideration prompts caution. But if one major player gets wind that others may dump, caution could end. This is exactly analogous to an old-fashioned run on the bank.
Reducing the budget deficit will not save the dollar, contrary to what many Democrats may think. A bank, hit by a panic, cannot save itself by cutting its advertising budget, raising its fees or firing its staff. And once a rush gets going, jacking up interest rates won't stop it, either.
So now we hear rumors of Russia trading dollars for euros, of India diversifying its reserves, of China contemplating the same. The Morgan Stanley economist Steven Roach apparently told clients to gird for an ``economic Armageddon.'' The dike, once solid, starts to crack; none can say just where or when it will break. But the little Dutch boy, Alan Greenspan, went to Frankfurt a few days back and plainly stated that he did not have enough fingers.
The most stunning aspect of these events has been President Bush's insouciance about them. It's almost as if he realizes the awful truth: that the dollar's decline is mainly good for his friends, and bad for those about whom he couldn't care less.
The dollar's decline immediately boosts the stock market. Multinationals have earnings in the United States and in Europe. When the dollar falls, U.S. earnings stay the same but the European earnings go up when measured in dollars. Oil prices in dollars will stay up -- at least enough to prevent the price in euros from falling. This too helps U.S. oil-company profits, measured in dollars.
Meanwhile, prices of Chinese imports won't rise much, so Wal-Mart isn't badly hurt.
The American consumer gets hit, but mainly on the oil price. Few will recognize the political roots of their problem.
Since the United States owes its debts in dollars, financial losses will fall first on China and Japan. Tough luck. Latin American debtor countries will get hit on their exports, but helped on their debt service. Those (like Mexico) that export almost exclusively to us will get squeezed; others (like Argentina) that market to Europe but pay interest in dollars will be hurt less.
An unequivocal loser is Europe, which has been hoping for an export-led fix to its own, largely self-inflicted, mass unemployment. The Europeans can forget about that.
It's possible that Federal Reserve Chairman Greenspan could change his mind, raise interest rates and inflict on us all the monumental folly of a ``dollar defense.'' Sharply rising interest rates could cure both inflation and the weak dollar -- as they did in the early 1980s. But the resulting slump would be even more disastrous than it was then, because debt levels are higher now than they were.
I don't expect it. I bet Greenspan will take a pass. That means that he will actually sit on his hands while oil and some other import prices rise. Given the alternatives, it's probably the right course of action. But let no one say, afterward and with a straight face, that our central bank takes all that seriously the bunkum it spreads about fighting inflation.
Thus the dollar could decline smoothly for a while and then, simply, stop declining. The dollar system could stay intact, so long as China and Japan remain willing to add new dollars to their depreciated hoards. A final panic could come later, set off perhaps by some new reckless military action.
But for the moment, the theater has too few exits, too few spectators. Perhaps God really does look after children, small dogs and the United States.JAMES K. GALBRAITH is a professor at the LBJ School of Public Affairs at the University of Texas at Austin and a senior scholar at the Levy Economics Institute in New York. This article first appeared in Newsday.
http://www.mercurynews.com/mld/mercurynews/news/editorial/10399568.htm
Here's a couple of articles from todays http://www.johnlothiannewsletter.com/ I'll leave it to you to take it from here.
BEWARE OF FALLING DOLLAR
Economy could suffer as greenback loses cachet next to other currencies
If the dollar keeps falling against other currencies, it could be a bad thing for the U.S. economy in the long run. Indeed, it could be even worse than that. American prosperity - our standard of living - is becoming increasingly dependent on the largesse of others.
http://www.newsday.com/news/opinion/ny-vpdol104077439dec10,0,1028949.story?coll=ny-editorials-headli...
Greek Myths Expose Achilles' Heel of Europe's Common Currency
It is when the stakes are highest that the numbers are most likely to be manipulated, and in Europe it is the governments that stand accused of manipulation.
http://www.nytimes.com/2004/12/10/business/worldbusiness/10norris.html
This board is now up to 13 boardmarks from basically none a few days ago.
It is kind of hard to find people here on IHub who posted currency posts regularly in the past or who seem to be interested in currencies. One can probably count them with two hands.
Exchange rates are basically the "price of money" of an economy looked at from the outside. Many things can be learned from that about the state and direction a specific economy is going.
So if you come across a person who might be interested in that, feel free to tell me or invite him/her over her. Thx.
S.
I agree, imho China should have floated 3 years ago. I was in China for a longer time 4-5 years ago and their economy was exploding as in the golden twenties.
This is a noteworthy quote from the article regarding timings for traders:
"There is a lag in the link between these liquidity injections, growth in money base and money supply, and finally inflation - about five months," said Jens Nystedt, senior emerging markets economist at Deutsche Bank.
I always thought the effect of liquidity injections onto inflation is greater than 6 months. Hmm, does anybody have any observation regarding this correlation?
Re: Yen
A naive person like myself could easily ask the question, why do actually all the other developed countries (Eur, Japan, etc.) dislike the weak dollar?
Of course, everybody knows it makes goods they export to the world market more expensive to sell. So what, I say, it also makes goods they import cheaper, e.g. fruits for the people, gaz for the cars and natural resources for the production. That would make a lot of people wealthier and industries had a chance to produce cheaper offsetting the negative effect on exports (since they could also sell their goods cheaper)
Unfortunately or fortunately, developed countries successfully established import barriers through taxes and subsidies, to protect their economies. For two reasons.
1. All politicians are corrupt (well, not all not yet) and they like those gifts from lobbies and bow down to organized groups.
2. They simply have to stay a "net-exporting" country to stay in the game.
So as you can see, because of this the negative effects on exports will be greater than the positive effect on imports when the dollar falls. Otherwise nobody would care so much about dollar movements here.
not an unreasonable target at all.
It feels like we see one or two more weeks of dollar correction.
I am looking for fiber (eur/usd) hiting 1.45 next year. This should help the PoG. At that point expect some intense central bank intervention. Why?, because that are resistance levels from the years 1980 and 1992. Central banks are run by economist and all they do is constantly maximize their utility. LOL. If they intervene at that level, they can hope for many traders jumping on the train. So steep correction expected.
What happens after that, could be really interesting. China floating the yuan. US deficit further skyrocking etc. So there is a chance USD turns around and blasts through 1.45 and higher with global consequences I haven't finished thinking to the end.
imo it will move to euros its just a matter of time
i tell you this if china doesnt float and the dollar continues to drop, japan is in a world of hurt
Yub, the best solution would probably be a "dual system". I am really curious if it (ever) happens, since there is a strong lobbying influence from the US.
Asien countries are also adjusting their currency reserves for some time now, buying Euros. For sure, if China floats the yuan, we will see some shockwaves imho. They try to make it smooth, but I have my doubts. And as longer they wait, as tuffer it will get.
Russia reserves reach $121bn
Friday 10 December 2004
Russia reserves reach $121bn
MOSCOW: Russia climbed a place yesterday to sixth in the league table of countries with the world's largest central bank reserves as its stock of gold and foreign exchange rose to a record $121.6 billion.
Its reserves are also the fastest-growing, up 56pc this year through to December 3, having risen $4.5bn in the last week.
Unlike Asian tigers like China, whose gaping trade surplus with the US has led it to accumulate huge dollar balances, Russia's riches are driven by booming oil exports and central bank dollar buying to keep the rouble competitive.
While the growing cash mountain should help Russia pay down its foreign debts, the currency intervention - effectively cranking up the rouble printing presses - is boosting the money supply and fuelling inflation.
"There is a lag in the link between these liquidity injections, growth in money base and money supply, and finally inflation - about five months," said Jens Nystedt, senior emerging markets economist at Deutsche Bank.
Russia will overshoot its 10pc inflation target this year, but should scrape below last year's outcome of 12pc.
But cutting inflation next year to a target of 8.5pc looks a challenge.
l Russian Finance Minister Alexei Kudrin voiced concern about the decline of the US dollar yesterday, calling the US Federal Reserve policy short-sighted.
"The weakening of the dollar leads to a loss of confidence in this reserve currency. I do not think that this is a long-sighted policy on the part of the Federal Reserve," he said at a gathering with Russian banks in capital Moscow.
http://www.gulf-daily-news.com/Story.asp?Article=98504&Sn=BUSI&IssueID=27265
Russia may change exchange reserves
December 9, 2004
US dollar volume in Russia's gold and foreign currency reserves might be reduced, Sergei Ignatyev, the chairman of Russia's central bank, said yesterday, a day after the dollar sank to a new all-time low against the euro.
"We are thinking about possibly changing the structure of the gold and hard currency reserves ... when such changes are made they will not presuppose a sharp change in the structure."
Russia's hard currency reserves have been boosted by dollar revenue from soaring oil prices. "The sharp fall of the dollar against other currencies does indeed cause concern," Ignatyev said. - AP, Moscow
http://www.busrep.co.za/index.php?fSectionId=&fArticleId=2339277
Japan's woes rise with the yen
By Kosuke Takahashi
December 11, 2004
TOKYO - Faced with a gloomy outlook for the faltering US dollar, the Japanese business and financial community has begun to seriously worry about a possible slowdown in its economic recovery. The rapid appreciation of the yen against the dollar could hurt Japan's flagship exporters' earnings at a time when the world's second-largest economy is finally getting out of its decade-long deflationary depression.
The US dollar has fallen against all other major currencies over the past month. The dollar fell to an average of 106.61 yen in November, from 110.25 yen in October. Last Thursday, it dived to a near five-year low against the yen at 101.83 in Tokyo. A rapid decline in the dollar would make it difficult for companies to hedge against currency fluctuations, a government survey said, as most companies had expected the dollar to trade above 100 yen for the fiscal year ending March 2005. The exporters surveyed said the dollar's fall below the 100 yen mark might force them to change capital investment plans and speed up shifting production overseas.
There was a slight reprieve from late Thursday, though, as the dollar edged up, buying at 104.94 yen. "Like it or not, the world has no alternative key world currency but the dollar," said Kimiyoshi Tsukasaki, an economist at the Japan Center for International Finance. "We must embrace the dollar as the key world currency for the foreseeable future."
Masayuki Kichikawa, senior economist at Mizuho Securities Co, holds similar views. He told Asia Times Online that the US, Europe and Asia need to share the burden of averting a dollar crisis. He pointed out that the US alone cannot solve the issue of its towering budget and trade deficits in a short period and that European and Asian countries would need to accept the lower dollar. "The huge US current account deficit is being financed by central bank intervention, mostly by Asian countries. To cut that deficit, the US has to make progress on fiscal deficit reduction and on the gradual strengthening of interest rates."
The US budget deficit in the fiscal year ended September hit a record $412.5 billion, while the trade deficit is a record high of $530.6 billion. President George W Bush has pledged to halve the budget deficit by fiscal 2009, but he has also promised to make massive tax cuts and is expected to seek Congressional approval of an additional $70 billion to finance military operations in Iraq and Afghanistan.
Most Japanese economists do believe the dollar is likely to break the psychologically intimidating 100 yen mark downward this spring temporarily. They hold that the dollar will eventually turn upward, supported by adequate policy measures. They are not sure what exchange rate the recovering Japanese economy can sustain. Some say it is 100 yen, others say 95. But for now, Japanese business leaders and government officials are worried about the adverse impact of the yen's rapid appreciation. Earlier this week, Hiroshi Okuda, head of the Japanese business lobby Keidanren and chairman of Toyota Motor Corp, said Japanese exporters would be shackled by the dollar's fall if it persists. This is because a strong yen hurts Japanese exporters as it raises the prices of their products in overseas markets and cuts into the value of their overseas sales when repatriated back into yen.
Apart from worries about a slowdown in exports, a weaker dollar could also trigger a surge in imports of cheaper products into Japan, especially from China, whose currency is pegged to the dollar. "The inflow of cheap goods could prevent Japan from breaking out of the deflationary spiral," said Tsukasaki.
Though Prime Minister Junichiro Koizumi said on Thursday that exchange rates should be left to the market, Finance Minister Sadakazu Tanigaki earlier went on record as saying he was keeping a close watch on exchange rates. "Recent moves have been very rapid. We need caution, and if necessary, we'll take appropriate steps against excessive moves," Tanigaki told reporters earlier this week. The current consensus, however, is that the Japanese monetary authorities will refrain from intervention, largely because Washington has criticized Tokyo for keeping the yen artificially low to maintain the competitiveness of Japanese exports.
In 2003 and early 2004, Japan kept on selling yen and buying dollar to halt the yen's appreciation, drawing sharp criticism from US manufacturers. Thus mid-March onward, the Japanese authorities have kept away from the market. In any case, if the Japanese monetary authorities were to intervene in the exchange market, it would be more out of concern for the plunge in the stock market that a surging yen has triggered. The yen's rapid rise, if it goes on any longer, may derail the economic recovery by throwing cold water on exports.
Kosuke Takahashi is a former staff writer at the Asahi Shimbun and is currently a freelance correspondent based in Tokyo. He can be contacted at kosuke_everonward@ybb.ne.jp.
http://www.atimes.com/atimes/Japan/FL11Dh02.html
$usd up big last night and this am with only a token drop in POG. looks like a buyable turn in the gold miners is at hand. chart series to see what im talking about
http://www.investorshub.com/boards/read_msg.asp?message_id=2507983
there are rumblings that russia will swith to euros and that alone would probably lead to petroeuros in short order ending the long standing petrodollars. this would lead to an acceleration of the dollars drop imo
Yes, the USD is going through a correction at the moment.
I personally think this can bring the eur/usd down to 3000-3050, gbp/usd 8900, usd/cad 2400-2600, etc
After that the USD selloff could resume.
All just my t/a based opinion. So as always, go with the flow.
Gold prices tumble as dollar rebounds
Other metals plunge as speculation eases
BLOOMBERG NEWS and ASSOCIATED PRESS
December 9, 2004
The price of gold and other metals plunged yesterday as a rebound in the dollar eroded the appeal of the commodities as an alternative to U.S. stocks and bonds.
Gold for February delivery fell $15, or 3.3 percent, to $438.70 an ounce, its biggest decline in seven months, on the Comex division of the New York Mercantile Exchange. Silver fell 74 cents, or 9.4 percent, to $7.145 an ounce in its biggest decline since April 21. Platinum and palladium declined, and copper dropped to a five-week low.
Speculator buying, fueled by concern the dollar might continue to slide because of the U.S. trade and budget deficits, had helped boost gold prices as much as 22 percent since mid-May.
"The dollar is a major factor in determining the price for these dollar-denominated commodities," said Scott Morrison, who manages $70 million at SAM Capital LLC in New York. "When everyone decides to head for the exit door, there's not enough room for everybody to get through."
The dollar's strength yesterday came amid concerns about possible currency intervention by Japanese financial authorities after the government there released weak economic growth data.
Adopting a new method of calculating output, the government revised third-quarter growth to an annual 0.2 percent from a previous 0.3 percent. The new method is intended to eliminate distortions caused by rapidly falling prices of high-technology items, like cell phones and computers.
Using the new calculation, the government also said the economy shrank in the second quarter, declining an annual 0.6 percent instead of rising 1.1 percent as previously reported.
The revised figures were weaker than economists expected and well off the 6 percent pace of the first quarter. The data sent the yen sharply lower, hitting a low of 104.99, from 102.97 on Tuesday. But later in New York, the yen appeared to have recovered, trading at 102.89.
The revised numbers were consistent with a string of recent economic figures showing Japan's recovery has lost momentum, dogged by slowing export growth and weak consumption.
"We haven't seen any evidence of things turning around yet," said Peter Morgan, an economist at HSBC Securities (Japan) Ltd.
The dollar also strengthened yesterday against the euro, which on Tuesday hit an all-time high of $1.3470. In late trading in New York, the euro traded at $1.3335, down from $1.3432 late Tuesday but above its intraday low of $1.3193.
Traders are squaring up on short dollar positions as they weigh the possibility of a coordinated intervention by Japanese and European officials, said Michael Woolfolk, senior currency strategist at Bank of New York. A short dollar position represents a bet the currency will fall.
Currency markets have also been mollified a bit by the recent decline in oil prices, which have eased off record highs due to rising inventories, particularly heating oil.
Yesterday's dollar rally is likely just a brief correction in a larger weakening trend, Woolfolk said.
"This is the market realizing it's gotten a little ahead of itself," he said, noting that he expects the euro to rise to $1.45 by the end of next year, with the potential of climbing as high as $1.60.
Gold's drop was the biggest since April 28. Prices have fallen 4.4 percent since reaching a high of $458.70 on Dec. 2.
Gold's decline accelerated as prices fell below $452 and $450, triggering selling by speculators who follow charts and graphs, said William O'Neill, a partner at Logic Advisors LLC, a commodity consulting company in Upper Saddle River, N.J.
"When the dollar came in with a strong move up today, that was enough to kick off technical selling," O'Neill said. "Gold was looking a bit shaky technically in recent sessions."
Although the pullback was sharp, a London-based hedge fund manager said the sell-off was probably a short-term move.
"One day's price action will not have a long-term impact on the funds' positions. . . . We don't change from long to short overnight."
The New York Times News Service and Reuters contributed to this report.
http://www.signonsandiego.com/uniontrib/20041209/news_1b9metals.html
I am also reposting that older message of yours, since it is still very important, contains great backround information and has a nice source list. A weekend read:
-------------
Unfortunately, neo-conservatives such as George Bush, Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and Richard Perle fail to grasp that Newton's Law applies equally to both physics and the geo-political sphere as well: "For every action there is an equal but opposite reaction."
During the 1990s the world viewed the U.S. as a rather self-absorbed but essentially benevolent superpower. Military actions in Iraq (1990-91 & 1998), Serbia and Kosovo (1999) were undertaken with both U.N. and NATO cooperation and thus afforded international legitimacy. President Clinton also worked to reduce tensions in Northern Ireland and attempted to negotiate a resolution to the Israeli-Palestinian conflict. Our superpower status was viewed as benign.
However, in both the pre and post 9/11 intervals, the `America first' policies of the Bush administration, with its unwillingness to honor International Treaties, along with their aggressive militarisation of foreign policy, has significantly damaged our reputation abroad. Following 9/11, it appears that President Bush's `warmongering rhetoric' has created global tensions -- as we are now viewed as a belligerent superpower willing to apply unilateral military force without U.N. approval. Moreover, this administrations failure to actively engage in negotiations regarding the Israeli/Palestinian conflict is unfortunate. Lamentably, the tremendous amount of international sympathy we witnessed in the immediate aftermath of the September 11th tragedy has been replaced with fear and anger at our government. This administration's bellicosity has changed the worldview, and `anti-Americanism' is proliferating even among our closest allies. [11]
Even more alarming, and completely unreported in the US media, are significant monetary shifts in the reserve funds of foreign governments away from the dollar with movements towards the euro. [10][10a][10b] It appears that the world community lacks faith in the Bush administration's economic policies, and along with OPEC, seems poised to respond with economic retribution if the U.S. government is regarded as an uncontrollable and dangerous superpower. Despite the media censorship, the plausibility of abandoning the dollar standard for the euro is growing. An interesting U.K. article by Hazel Henderson outlines the dynamics and the potential outcomes:
"The most likely end to US hegemony may come about through a combination of high oil prices (brought about by US foreign policies toward the Middle East) and deeper devaluation of the US dollar (expected by many economists). Some elements of this scenario:
1. US global over-reach in the `war on terrorism' already leading to deficits as far as the eye can see -- combined with historically-high US trade deficits -- lead to a further run on the dollar. This and the stock market doldrums make the US less attractive to the world's capital.
2. More developing countries follow the lead of Venezuela and China in diversifying their currency reserves away from dollars and balanced with euros. Such a shift in dollar-euro holdings in Latin America and Asia could keep the dollar and euro close to parity.
3. OPEC could act on some of its internal discussions and decide (after concerted buying of euros in the open market) to announce at a future meeting in Vienna that OPEC's oil will be re-denominated in euros, or even a new oil-backed currency of their own. A US attack on Iraq sends oil to ¤ 40 (euros) per barrel.
4. The Bush Administration's efforts to control the domestic political agenda backfires. Damage over the intelligence failures prior to 9/11 and warnings of imminent new terrorist attacks precipitate a further stock market slide.
5. All efforts by Democrats and the 57% of the US public to shift energy policy toward renewables, efficiency, standards, higher gas taxes, etc. are blocked by the Bush Administration and its fossils fuel industry supporters. Thus, the USA remains vulnerable to energy supply and price shocks.
6. The EU recognizes its own economic and political power as the euro rises further and becomes the world's other reserve currency. The G-8 pegs the euro and dollar into a trading band -- removing these two powerful currencies from speculators trading screens (a "win-win" for everyone!). Tony Blair persuades Brits of this larger reason for the UK to join the euro.
7. Developing countries lacking dollars or "hard" currencies follow Venezuela's lead and begin bartering their undervalued commodities directly with each other in computerized swaps and counter trade deals. President Chavez has inked 13 such country barter deals on its oil, e.g., with Cuba in exchange for Cuban health paramedics who are setting up clinics in rural Venezuelan villages.
The result of this scenario? The USA could no longer run its huge current account trade deficits or continue to wage open-ended global war on terrorism or evil. The USA ceases pursuing unilateralist policies. A new US administration begins to return to its multilateralist tradition, ceases its obstruction and rejoins the UN and pursues more realistic international cooperation." [13]
As for the events currently taking place in Venezuela, items #2 and #7 on the above list may allude to why the Bush administration quickly endorsed the failed military-led coup of Hugo Chavez in April 2002. Although the coup collapsed after 2 days, various reports suggest the CIA and a rather embarrassed Bush administration approved and may have been actively involved with the civilian/military coup plotters.
"George W. Bush's administration was the failed coup's primary loser, underscoring its bankrupt hemispheric policy. Now it is slowly filtering out that in recent months White House officials met with key coup figures, including Carmona. Although the administration insists that it explicitly objected to any extra-constitutional action to remove Chavez, comments by senior U.S. officials did little to convey this. . . .
"The CIA's role in a 1971 Chilean strike could have served as the working model for generating economic and social instability in order to topple Chavez. In the truckers' strike of that year, the agency secretly orchestrated and financed the artificial prolongation of a contrived work stoppage in order to economically asphyxiate the leftist Salvador Allende government.
"This scenario would have had CIA operatives acting in liaison with the Venezuelan military, as well as with opposition business and labor leaders, to convert a relatively minor afternoon-long work stoppage by senior management into a nearly successful coup de grâce." [14]
Interestingly, according to an article by Michael Ruppert, Venezuelan's ambassador Francisco Mieres-Lopez apparently floated the idea of switching to the euro as their oil currency standard approximately one year before the failed coup attempt. Furthermore, there is evidence that the CIA is still active in its attempts to overthrow the democratically elected Chavez administration. In fact, this past December a Uruguayan government official exposed the ongoing covert CIA operations in Venezuela:
"Uruguayan EP-FA congressman Jose Nayardi says he has information that far-reaching plan have been put into place by the CIA and other North American intelligence agencies to overthrow Venezuelan President Hugo Chavez Frias within the next 72 hours. . . .
Nayardi says he has received copies of top-secret communications between the Bush administration in Washington and the government of Uruguay requesting the latter's cooperation to support white collar executives and trade union activists to `break down levels of intransigence within the Chavez Frias administration.'" [15]
Venezuela is the fourth largest producer of oil, and the corporate elites whose political power runs unfettered in the Bush/Cheney oligarchy appear interested in privatizing Venezuela's oil industry. Furthermore, the establishment might be concerned that Chavez's `barter deals' with 12 Latin American countries and Cuba are effectively cutting the U.S. dollar out of the vital oil transaction currency cycle. Commodities are being traded among these countries in exchange for Venezuela's oil, thereby reducing reliance on fiat dollars. If these unique oil transactions proliferate, they could create more devaluation pressure on the dollar. Continuing attempts by the CIA to remove Hugo Chavez appear likely.
The U.S. economy has acquired significant structural imbalances, including our record-high trade account deficit (now almost 5% of GDP), a $6.3 trillion dollar deficit (60% of GDP), and the recent return to annual budget deficits in the hundreds of billions. These factors would devalue the currency of any nation under the `old rules.' Why is the dollar still predominant despite these structural imbalances? While many Americans assume the strength of the U.S. dollar merely rests on our economic output (i.e. GDP), the ruling elites understand that the dollarÅfs strength is based on two fundamentally unique advantages relative to all other hard currencies
The reality is that the strength of the U.S. dollar since 1945 rests on it being the international reserve currency. Thus it assumes the role of fiat currency for global oil transactions (ie. `petro-dollar'). The U.S. prints hundreds of billions of these fiat petro-dollars, which are then used by nation states to purchase oil/energy from OPEC producers (except Iraq, to some degree Venezuela, and perhaps Iran in the near future). These petro-dollars are then re-cycled from OPEC back into the U.S. via Treasury Bills or other dollar-denominated assets such as U.S. stocks, real estate, etc. In essence, global oil consumption provides a subsidy to the U.S. economy. Hence, the Europeans created the euro to compete with the dollar as an alternative international reserve currency. Obviously the E.U. would like oil priced in euros as well
The `old rules' for valuation of the U.S. dollar currency and economic power were based on our flexible market, free flow of trade goods, high per worker productivity, manufacturing output/ trade surpluses, government oversight of accounting methodologies (ie. SEC), developed infrastructure, education system, and of course total cash flow and profitability. Our superior military power afforded some additional confidence in the dollar. While many of these factors remain present, over the last two decades we have diluted some of the `safe harbor' economic fundamentals. Despite vast imbalances and structural problems that are escalating within the U.S. economy, the dollar as the fiat oil currency created `new rules'. The following excerpts from an Asia Times article discusses the virtues of our fiat oil currency and dollar hegemony (or vices from the perspective of developing nations, whose debt is denominated in dollars).
"Ever since 1971, when US president Richard Nixon took the dollar off the gold standard (at $35 per ounce) that had been agreed to at the Bretton Woods Conference at the end of World War II, the dollar has been a global monetary instrument that the United States, and only the United States, can produce by fiat. The dollar, now a fiat currency, is at a 16-year trade-weighted high despite record US current-account deficits and the status of the US as the leading debtor nation. The US national debt as of April 4 was $6.021 trillion against a gross domestic product (GDP) of $9 trillion.
"World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.
"By definition, dollar reserves must be invested in US assets, creating a capital-accounts surplus for the US economy. Even after a year of sharp correction, US stock valuation is still at a 25-year high and trading at a 56 percent premium compared with emerging markets.
". . . The US capital-account surplus in turn finances the US trade deficit. Moreover, any asset, regardless of location, that is denominated in dollars is a US asset in essence. When oil is denominated in dollars through US state action and the dollar is a fiat currency, the US essentially owns the world's oil for free. And the more the US prints greenbacks, the higher the price of US assets will rise. Thus a strong-dollar policy gives the US a double win." [16]
This unique geo-political agreement with Saudi Arabia in 1973 has worked to our favor for the past 30 years, as this arrangement has eliminated our currency risk for oil, raised the entire asset value of all dollar denominated assets/properties, and allowed the Federal Reserve to create a truly massive debt and credit expansion (or `credit bubble' in the view of some economists). These structural imbalances in the U.S. economy are sustainable as long as:
1) nations continue to demand and purchase oil for their energy/survival needs, and
2) the fiat reserve currency for global oil transactions remain the U.S. dollar (& dollar only).
These underlying factors, along with the `safe harbor' reputation of U.S. investments afforded by the dollar's reserve currency status propelled the U.S. to economic and military hegemony in the post-World War II period. However, the introduction of the euro is a significant new factor, and appears to be the primary threat to U.S. economic hegemony. Moreover, in December 2002 ten additional countries were approved for full membership into the E.U. In 2004 this will result in an aggregate GDP of $9.6 trillion and 450 million people, directly competing with the U.S. economy ($10.5 trillion GDP, 280 million people).
Especially interesting is a speech given by Mr Javad Yarjani, the Head of OPEC's Petroleum Market Analysis Department, in a visit to Spain in April 2002. His speech dealt entirely with the subject of OPEC oil transaction currency standard with respect to both the dollar and the euro. The following excerpts from this OPEC executive provide insights into the conditions that would create momentum for an OPEC currency switch to the euro. Indeed, his candid analysis warrants careful consideration given that two of the requisite variables he outlines for the switch have taken place since this speech in Spring 2002. These vital stories about the euro and its potential to purchase oil are discussed in the European media, but have been completely censored by the U.S. mass media.
". . . The question that comes to mind is whether the euro will establish itself in world financial markets, thus challenging the supremacy of the US dollar, and consequently trigger a change in the dollar's dominance in oil markets. As we all know, the mighty dollar has reigned supreme since 1945, and in the last few years has even gained more ground with the economic dominance of the United States, a situation that may not change in the near future. By the late 90s, more than four-fifths of all foreign exchange transactions, and half of all world exports, were denominated in dollars. In addition, the US currency accounts for about two thirds of all official exchange reserves. The world's dependency on US dollars to pay for trade has seen countries bound to dollar reserves, which are disproportionably higher than America's share in global output. The share of the dollar in the denomination of world trade is also much higher than the share of the US in world trade.
"Having said that, it is worthwhile to note that in the long run the euro is not at such a disadvantage versus the dollar when one compares the relative sizes of the economies involved, especially given the EU enlargement plans. Moreover, the Euro-zone has a bigger share of global trade than the US and while the US has a huge current account deficit, the euro area has a more, or balanced, external accounts position. One of the more compelling arguments for keeping oil pricing and payments in dollars has been that the US remains a large importer of oil, despite being a substantial crude producer itself. However, looking at the statistics of crude oil exports, one notes that the Euro-zone is an even larger importer of oil and petroleum products than the US. . . .
". . . From the EU's point of view, it is clear that Europe would prefer to see payments for oil shift from the dollar to the euro, which effectively removed the currency risk. It would also increase demand for the euro and thus help raise its value. Moreover, since oil is such an important commodity in global trade, in term of value, if pricing were to shift to the euro, it could provide a boost to the global acceptability of the single currency. There is also very strong trade links between OPEC Member Countries (MCs) and the Euro-zone, with more than 45 percent of total merchandise imports of OPEC MCs coming from the countries of the Euro-zone, while OPEC MCs are main suppliers of oil and crude oil products to Europe. . . .
"Of major importance to the ultimate success of the euro, in terms of the oil pricing, will be if Europe's two major oil producers -- the United Kingdom and Norway join the single currency. Naturally, the future integration of these two countries into the Euro-zone and Europe will be important considering they are the region's two major oil producers in the North Sea, which is home to the international crude oil benchmark, Brent. This might create a momentum to shift the oil pricing system to euros. . . .
"In the short-term, OPEC MCs, with possibly a few exceptions, are expected to continue to accept payment in dollars. Nevertheless, I believe that OPEC will not discount entirely the possibility of adopting euro pricing and payments in the future. The Organization, like many other financial houses at present, is also assessing how the euro will settle into its life as a new currency. The critical question for market players is the overall value and stability of the euro, and whether other countries within the Union will adopt the single currency.
"It is quite possible that as the bilateral trade increases between the Middle East and the European Union, it could be feasible to price oil in euros considering Europe is the main economic partner of that region. This would foster further ties between these trading blocs by increasing commercial exchange, and by helping attract much-needed European investment to the Middle East.
"In the long-term, perhaps one question that comes to mind is could a dual system operate simultaneously? Could one pricing system apply to the Western Hemisphere in dollars and for the rest of the world in euros? This will remain the test for the euro, should the currency gain ground in the market of oil transactions
". . . Should the euro challenge the dollar in strength, which essentially could include it in the denomination of the oil bill, it could be that a system may emerge which benefits more countries in the long-term. Perhaps with increased European integration and a strong European economy, this may become a reality. Time may be on your side. I wish the euro every success." [17]
Based on this important speech, momentum for OPEC to consider switching to the euro will grow once the E.U. expands in May 2004 to 450 million people with the inclusion of 10 additional member states. The aggregate GDP will increase from $7 trillion to $9.6 trillion. This enlarged European Union (EU) will be an oil consuming purchasing population 33% larger than the U.S., and over half of OPEC crude oil will be sold to the EU as of mid-2004. This does not include other potential E.U./euro entrants such as the U.K., Norway, Denmark and Sweden. It should be noted that since late 2002, the euro has been trading at parity or above the dollar, and analysts predict the dollar will continue its downward trending in 2003 relative to the euro.
It appears the final two pivotal items that would create the OPEC transition to euros will be based on (1) if and when Norway's Brent crude is re-dominated in euros and (2) when the U.K. adopts the euro. Regarding the later, Tony Blair is lobbying heavily for the U.K. to adopt the euro, and their adoption would seem imminent within this decade. If and when the U.K. adopts the euro currency I suspect a concerted effort will be quickly mounted to establish the euro as an international reserve currency. Again, I offer the following information from an astute macroeconomist who analyzes these international monetary matters very carefully:
"The pivotal vote will probably be Sweden, where approval this next autumn of adopting the euro also would give momentum to the Danish government's strong desire to follow suit. Polls in Denmark now indicate that the euro would pass with a comfortable margin and Norwegian polls show a growing majority in favor of EU membership. Indeed, with Norway having already integrated most EU economic directives through the EEA partnership and with their strongly appreciated currency, their accession to the euro would not only be effortless, but of great economic benefit.
"As go the Swedes, so probably will go the Danes & Norwegians. It's the British who are the real obstacle to building momentum for the euro as international transaction & reserve currency. So long as the United Kingdom remains apart from the euro, reducing exchange rate costs between the euro and the British pound remains their obvious priority. British adoption (a near-given in the long run) would mount significant pressure toward repegging the Brent crude benchmark -- which is traded on the International Petroleum Exchange in London -- and the Norwegians would certainly have no objection whatsoever that I can think of, whether or not they join the European Union.
"Finally, the maneuvers toward reducing the global dominance of the dollar are already well underway and have only reason to accelerate so far as I can see. An OPEC pricing shift would seem rather unlikely prior 2004 -- barring political motivations (ie. from anxious OPEC members) or a disorderly collapse of the dollar (ie. Japanese bank collapse due to high oil prices following a prolonged Iraq conflict) but appears quite viable to take place before the end of the decade."
In other words, around 2005/2006, from a purely economic and monetary perspective, it will become logical for several OPEC producers to transition to the euro for oil pricing. Of course that will devalue the dollar, and hurt the US economy unless it begins making structural and monetary changes right away -- or use its massive military power to force events upon OPECÅc
Facing these potentialities, I hypothesize that President Bush intends to topple Saddam in 2003 in a pre-emptive attempt to initiate massive Iraqi oil production in far excess of OPEC quotas, to reduce global oil prices, and thereby dismantle OPEC's price controls. The end-goal of the neo-conservatives is incredibly bold yet simple in purpose, to use the `war on terror' as the premise continue
to finally dissolve OPEC's decision-making process, thus ultimately preventing the cartel's inevitable switch to pricing oil in euros. How would the Bush administration break-up the OPEC cartel's price controls in a post-Saddam Iraq? First, the newly installed regime (apparently a U.S. General) will convert Iraq back to the dollar standard. Next, with the U.S. military protecting the oil fields, the new ruling junta will undertake the necessary steps to rapidly increase production of Iraq oil -- well beyond OPEC's 2 million barrel per day quota.
Dr. Nayyer Ali offers a succinct analysis of how Iraq's underutilized oil reserves will not be a `profit-maker' for the U.S. government, but will fulfill the more important geostrategic goal of providing the crucial economic instrument to leverage and dissolve OPEC's price controls, thus fulfilling the long sought-after goal of the neo-conservatives to disband the OPEC cartel:
". . . Despite this vast pool of oil, Iraq has never produced at a level proportionate to the reserve base. Since the Gulf War, Iraq's production has been limited by sanctions and allowed sales under the oil for food program (by which Iraq has sold 60 billion dollars worth of oil over the last 5 years) and what else can be smuggled out. This amounts to less than 1 billion barrels per year. If Iraq were reintegrated into the world economy, it could allow massive investment in its oil sector and boost output to 2.5 billion barrels per year, or about 7 million barrels a day.
"Total world oil production is about 75 million barrels, and OPEC combined produces about 25 million barrels.
"What would be the consequences of this? There are two obvious things.
"First would be the collapse of OPEC, whose strategy of limiting production to maximize price will have finally reached its limit. An Iraq that can produce that much oil will want to do so, and will not allow OPEC to limit it to 2 million barrels per day. If Iraq busts its quota, then who in OPEC will give up 5 million barrels of production? No one could afford to, and OPEC would die. This would lead to the second major consequence, which is a collapse in the price of oil to the 10-dollar range per barrel. The world currently uses 25 billion barrels per year, so a 15-dollar drop will save oil-consuming nations 375 billion dollars in crude oil costs every year.
". . . The Iraq war is not a moneymaker. But it could be an OPEC breaker. That however is a long-term outcome that will require Iraq to be successfully reconstituted into a functioning state in which massive oil sector investment can take place." [18]
The American people are largely oblivious to the economic risks regarding President Bush's upcoming war. Not only is Japan's weakened economy at grave risk from a spike in oil prices, but additional risks relate to Iran and Venezuela as well, either of whom could move to the euros, thus providing further momentum for OPEC to act on their `internal discussions' and switch to the euro as their new oil currency. The Bush administration believes that by toppling Saddam they will remove the juggernaut, thus allowing the US to control Iraqi's huge oil reserves, and finally break-up and dissolve the 10 remaining countries in OPEC.
This last issue is undoubtedly a significant gamble even in the best-case scenario of a relatively quick and painless war that topples Saddam and leaves Iraq's oil fields intact. Undoubtedly, the OPEC cartel could feel threatened by the goal of the neo-conservatives to break-up OPEC's price controls ($22-$28 per barrel). Perhaps the Bush administration's ambitious goal of flooding the oil market with Iraqi crude may work, but I have doubts. Will OPEC simply tolerate quota-busting Iraqi oil production, thus delivering to them a lesson in self-inflicted hara-kiri (suicide)? Contrarily, OPEC could meet in Vienna and in an act of self-preservation re-denominate the oil currency to the euro. Such a decision would mark the end of U.S. dollar hegemony, and thus the end of our precarious economic superpower status. Again, I offer the astute analysis of my expert friend regarding the colossal gamble this administration is about to undertake:
"One of the dirty little secrets of today's international order is that the rest of the globe could topple the United States from its hegemonic status whenever they so choose with a concerted abandonment of the dollar standard. This is America's preeminent, inescapable Achilles Heel for now and the foreseeable future.
"That such a course hasn't been pursued to date bears more relation to the fact that other Westernized, highly developed nations haven't any interest to undergo the great disruptions which would follow -- but it could assuredly take place in the event that the consensus view coalesces of the United States as any sort of `rogue' nation In other words, if the dangers of American global hegemony are ever perceived as a greater liability than the dangers of toppling the international order. The Bush administration and the neo-conservative movement has set out on a multiple-front course to ensure that this cannot take place, in brief by a graduated assertion of military hegemony atop the existent economic hegemony.
"The paradox I've illustrated with this one narrow scenario is that the quixotic course itself may very well bring about the feared outcome that it means to preempt. We shall see!"
Regrettably, under this administration we have returned to massive deficit spending, and the lack of strong SEC enforcement has further eroded investor confidence. Indeed, the flawed economic and tax policies and of the Bush administration resulting in years of projected deficits may be exacerbating the weakness of the dollar, if not outright accelerating some countries to diversify their central bank reserve funds with euros as an alternative to the dollar From a foreign policy perspective, the terminations of numerous international treaties and disdain for international cooperation via the U.N. and NATO have angered even our closest allies.
Synopsis:
It would appear that any attempt by OPEC member states in the Middle East or Latin America to transition to the euro as their oil transaction currency standard shall be met with either overt U.S. military actions or covert U.S. intelligence agency interventions. Under the guise of the perpetual `war on terror' the Bush administration is manipulating the American people about the unspoken but very real macroeconomic reasons for this upcoming war with Iraq. This war in Iraq will not be based on any threat from Saddam's old WMD program, or from terrorism. This war will be over the global currency of oil. A war intended to prevent oil from being priced in euros.
Sadly, the U.S. has become largely ignorant and complacent. Too many of us are willing to be ruled by fear and lies, rather than by persuasion and truth. Will we allow our government to initiate the dangerous `pre-emptive doctrine' by waging an unpopular war in Iraq, while we refuse to acknowledge that Saddam does not pose an imminent threat to the United States? Furthermore, we seem unable to address the structural weakness of our economy due to massive debt manipulation, unaffordable 2001 tax cuts, record levels of trade deficits, unsustainable credit expansion, corporate accounting abuses, near zero personal savings, record personal indebtedness, and our reliance and over consumption of Middle Eastern oil.
Regardless of whatever Dr. Blix finds or doesn't find in Iraq regarding WMD, it appears that President Bush is determined to pursue his `pre-emptive' imperialist war to secure a large portion of the earth's remaining hydrocarbons, and then use Iraq's underutilized oil to destroy the OPEC cartel. Will this gamble work? That remains to be seen. However, the history of warfare is replete with unintended consequences. It is quite plausible that our nation may suffer not only from increased Al-Qaeda sponsored terrorism, but economic retribution from the international community or OPEC members as well. Will we sit idle and watch CNN, as our government becomes an international pariah by discarding international law while waging a unilateral war in Iraq? Will we forfeit any pretense of practicing free-market capitalism while we enforce a command economy for global oil transactions? Lastly, how can we effectively thwart the threat of international Al Qaeda terrorism if we alienate so many of our European allies?
We must ask ourselves this fundamental question: Is it morally defensible to deploy our brave but na_ve young soldiers around the globe to enforce U.S. dollar hegemony for global oil transactions via the barrels of their guns? Will we allow imperialist conquest of the Middle East to feed our excessive oil consumption, while ignoring the duplicitous overthrowing of a democratically elected government in Latin America? Is it acceptable for a U.S. President to threaten military force upon OPEC nation state(s) because of their sovereign choice of currency regarding their oil exports? I concur with Dr. Peter Dale ScottÅfs sentiments on this question:
"…hopefully decent Americans will protest the notion that it is appropriate to rain missiles and bombs upon civilians of another country, who have had little or nothing to do with this (financial) crisis of America's own making."
"A multilateral approach to these core problems is the only way to proceed. The US is strong enough to dominate the world militarily. Economically it is in decline, less and less competitive, and increasingly in debt. The Bush peoples' intention appears to be to override economic realities with military ones, as if there were no risk of economic retribution. They should be mindful of Britain's humiliating retreat from Suez in 1956, a retreat forced on it by the United States as a condition for propping up the failing British pound. [19]
Paradoxically, this administrationÅfs belligerent policies may bring about the very outcome they hope to prevent -- an OPEC currency switch to euros. Informed patriots realize that militant imperialist over-reach is not only detrimental to our international status, but may also in turn create severe damage to our economic stability. Thus, remaining silent is not only misguided, but false patriotism. We must not stand silent and watch our country become a `rogue' superpower, relying on brute force, thereby forcing the developed nations or OPEC to abandon the dollar standard -- and with the mere stroke of a pen -- slay the U.S. Empire.
This need not be our fate. When will we demand that our government begin the long and difficult journey towards energy conservation, the development of renewable energy sources, and sustained balanced budgets to allow real deficit reduction? When will we repeal the unaffordable 2001 tax cuts to create a balanced budget, enforce corporate accounting laws, and substantially reinvest in our manufacturing and export sectors to gradually but earnestly move our economy from a trade account deficit position back into a trade account surplus position? Undoubtedly, we must make these and many more difficult structural changes to our economy if we are to restore and maintain our international "safe harborÅh investment status.
Furthermore, it would seem imperative that our government begins discussions with the G-8 nations to reform the global monetary system. We must adopt our economy to accommodate the inevitable competition from the euro as an alternative international reserve currency. I concur with those enlightened economists who recommend that the U.S. begin the process of convening the next ÅgBretton Woods Conference.Åh The U.S. government should agree to the euro becoming the next international reserve currency, and advocate that the dollar and euro be placed into an Åeexchange bandÅf with reserve status parity. This would facilitate the vital creation of a dual OPEC oil transaction standard. It would also seem prudent to investigate a third ÅeAsia blocÅf of the Yen/Yuan as reserve currency options to give balance to the global monetary system. Regrettably, the Bush administration's entrenched political ideology appears quite incompatible with these necessary economic reforms. Ultimately We the People must demand a new administration. We need responsible leaders who are willing to return to balanced budgets, conservative fiscal policies, and to our traditions of engaging in multilateral foreign policies while seeking broad international cooperation.
Equally important, we must bear in mind the wisdom of founding fathers like Thomas Jefferson who insisted that a free press is vital, as it is our best, and often the only mechanism to protect democracy. The American people are not aware of the issues discussed in this essay because the U.S. mass media has been reduced to a handful of consumption/entertainment and profit-oriented conglomerates that filter the flow of information within the U.S. Sadly, part of today's dilemma lays within these U.S. media conglomerates that have failed in their responsibilities to inform the People. Our Congress must enact reforms, as this is a legitimate threat to our democracy. The Internet should not be our only source of real, unfiltered news.
It has been said that all wars are fought over resources or ideology/religion. It appears that the Bush administration may soon add `oil currency war' as a third paradigm. However, I fear that the world community will not tolerate an imperialist U.S. Empire that uses its military power to conquer sovereign nations who decide to sell their oil products in euros instead of dollars. Likewise, if President Bush pursues an essentially unilateral and unprovoked war against Iraq, I doubt the historians will be kind to him or his administration. Their agenda is clear to the world community, but when will U.S. patriots become cognizant of their modus operandi?
"If you tell a lie big enough and keep repeating it, people will eventually come to believe it."
"The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State."
-- Joseph Goebbels, German Minister of Propaganda, 1933-1945
Background Information on Hydrocarbons:
To understand hydrocarbons and how we got to this desperate place in Iraq, I have listed four articles in the Reference Section from Michael Ruppert's controversial website: From the Wilderness. Although some of Ruppert's articles are overwrought from time to time, their research detailing the issues of hydrocarbons, and the interplay between energy and BushÅfs perpetual `war on terror' is quite informative. The following will briefly discuss Geostrategic issues regarding IraqÅfs oil reserves.
Other than the core driver of the dollar versus euro currency threat, the other issue related to the upcoming war with Iraq appears related to some disappointing geological findings regarding the Caspian Sea region. Since the mid-late 1990s the Caspian Sea region of Central Asia was thought to hold approximately 200 billion barrels of untapped oil (the later would be comparable to Saudi Arabia's reserve base)." [20] Based on an early feasibility study by Enron, the easiest and cheapest way to bring this oil to market would be a pipeline from Kazakhstan, through Afghanistan to the Pakistan border at Malta. In 1998 then CEO of Halliburton, Dick Cheney, expressed much interest in building that pipeline.
In fact, these oil reserves were a central component of Cheney's energy plan released in May 2001. According to his report, the U.S. will import 90% of its oil by 2020, and thus tapping into the reserves in the Caspian Sea region was viewed as a strategic goal that would help meet our growing energy demand, and also reduce our dependence on oil from the Middle East." [21]
According to the French book, The Forbidden Truth, [22] the Bush administration ignored the U.N. sanctions that had been imposed upon the Taliban and entered into negotiations with the supposedly `rogue regime' from February 2, 2001 to August 6, 2001. According to this book, the Taliban were apparently not very cooperative based on the statements of Pakistan's former ambassador, Mr. Naik. He reports that the U.S. threatened a `military option' in the summer of 2001 if the Taliban did not acquiesce to our demands. Fortuitous for the Bush administration and Cheney's energy plan, Bin Laden delivered to us 9/11. The pre-positioned U.S. military, along with the CIA providing cash to the Northern Alliance leaders, led the invasion of Afghanistan and the Taliban were routed. The pro-western Karzai government was ushered in. The pipeline project was now back on track in early 2002, well, sort of . . .
After three exploratory wells were built and analyzed, it was reported that the Caspian region holds only approximately 10 to 20 billion barrels of oil (although it does have a lot of natural gas)." [20] The oil is also of poor quality, with high sulfur content. Subsequently, several major companies have now dropped their plans for the pipeline citing the massive project was no longer profitable. Unfortunately, this recent realization about the Caspian Sea region has serious implications for the U.S., India, China, Asia and Europe, as the amount of available hydrocarbons for industrialized and developing nations has been decreased downward by 20%. (Global estimates reduced from 1.2 trillion barrels to approximately 1 trillion) [20][23]. The Bush administration quickly turned its attention to a known quantity, Iraq, with its proven reserves totaling 11% of the world's proven oil reserves (112 billion barrels). However, no geological surveys have been conducted in Iraq since the 1970s. Russian, French, and U.S. oil companies are eager to lease IraqÅfs unexplored fields, which may contain up to 200 billion barrels [24]. Our greatest nemesis, Bin Laden, was quickly replaced with our new public enemy #1, Saddam Hussein
For those who would like to review the impact of depleting hydrocarbon reserves from the geo-political perspective, and the potential ramifications to how these developments may erode our civil liberties and democratic processes, retired U.S. Special Forces officer Stan Goff offers a sobering analysis in his essay: `The Infinite War and Its Roots'. [25] Likewise, for those who wish to review some of the unspeakable evidence surrounding the September 11th tragedy, the controversial essay `The Enemy Within' by the Gore Vidal offers a thorough introduction. Although this essay was published in Italy and The [UK] Observer, you will not find it printed in the U.S. media. Vidal's latest book, Dreaming War features this as the opening essay. [26] Finally, The War on Freedom: How and Why America was Attacked, September 11, 2001 by British political scientist Nafeez Mosaddeq Ahmed presents fundamentally disconcerting questions about the 9/11 tragedy. [27]
References:
1. Rangwala, Glen, ‘Claims and evaluations of Iraq's proscribed weapons' (February 25, 2003) http://middleeastreference.org.uk/iraqweapons.html
2. FAIR Fairness & Accuracy, ‘Media Advisory: Star Witness On Iraq Said Weapons Were Destroyed.' (February 27, 2003) http://www.fair.org/press-releases/kamel.html
(Official UNSCOM/IAEA Document) http://www.fair.org/press-releases/kamel.pdf
3. London, Heidi Kingstone, "Middle East: Trouble in the House of Saud," The Jerusalem Report (January 13, 2003)
http://www.jrep.com/Mideast/Article-0.html
4. Recknagel, Charles, "Iraq: Baghdad Moves to Euro," Radio Free Europe (November 1, 2000)
http://www.rferl.org/nca/features/2000/11/01112000160846.asp
5. Islam, Faisal, "Iraq nets handsome profit by dumping dollar for euro," The Observer, (February 16, 2003) http://politics.guardian.co.uk/Print/0,3858,4606565,00.html
6. "Economics Drive Iran Euro Oil Plan, Politics Also Key," IranExpert (August 23, 2002)
http://www.iranexpert.com/2002/economicsdriveiraneurooil23august.htm
7. "Forex Fund Shifting to Euro," Iran Financial News, (August 25, 2002)
http://www.payvand.com/news/02/aug/1080.html
8. Gutman, Roy & Barry, John, "Beyond Baghdad: Expanding Target List: Washington looks at overhauling the Islamic and Arab world," Newsweek (August 11, 2002)
http://www.unansweredquestions.net/timeline/2002/newsweek081102.html
9. Costello, Tom, "Japan's Economy at Risk of Collapse," MSNBC News (December 11, 2002)
http://www.msnbc.com/news/845708.asp
10. Gluck, Caroline, "North Korea embraces the euro," BBC News (December 1, 2002)
http://news.bbc.co.uk/1/hi/world/asia-pacific/2531833.stm
11. "What the World Thinks in 2002 -- How Global Publics View: Their Lives, Their Countries, The World, America," The Pew Research Center For The People & The Press (December 4, 2002)
http://people-press.org/reports/display.php3?ReportID=165
12. "Euro continues to extend its global influence" (January 7, 2002)
http://www.europartnership.com/news/02jan07.htm
12b. Garnaut, John, "US Dollar Losing Its Position As Asia's Reserve Currency," (July 17, 2002) http://www.rense.com/general27/rec.htm
continue
Hey Amaunet,
great to have you on board.
The reality is that the strength of the U.S. dollar since 1945 rests on it being the international reserve currency. Thus it assumes the role of fiat currency for global oil transactions (ie. `petro-dollar'). The U.S. prints hundreds of billions of these fiat petro-dollars, which are then used by nation states to purchase oil/energy from OPEC producers (except Iraq, to some degree Venezuela, and perhaps Iran in the near future). These petro-dollars are then re-cycled from OPEC back into the U.S. via Treasury Bills or other dollar-denominated assets such as U.S. stocks, real estate, etc. In essence, global oil consumption provides a subsidy to the U.S. economy. #msg-994080
Indeed, and who is paying the subsidy is hardly ever mentioned. Just to consider: What happens with the oil after a country imports it? It evaporates into nothing after it's used. Sure it increases the efficiency and productivity of an economy, but it still is burned away.
So what do countries have to do to keep on importing? They have to export goods continously for the exchange of paper called USD.
That provides a neverending stream of goods and wealth into the US. Is it good for all the other countries? No, there are only 2 solutions for them.
1. Be more productive and efficient than the average country to export your way out of that misery (e.g. Germany)
2. Sell natural resources like crude, copper etc. (e.g. Canada)
If a country neither has 1 or 2, it has a problem. It will be called third world country or developing country. But it is not poor because it's people are extremely stupid, bad or don't take a shower 3 times a day, but simply because of the system. Some call it the "Modern form of slavery". If the squeeze gets too strong, the IMF or other institutions step in and relief the pain a bit to keep the system from falling down.
The USD in it's form as the "petro-dollar" is maybe the biggest and longest pyramid-scam the world has ever seen. But it will come to an end, at last when there is no crude left to trade or when supply gets too tight or when the world doesn't want to be slave anymore.
We might live long enough to see that happen or not.
Until then, good trading. Take a piece from the cake and don't let a few on top have everything.
S.
DJ China Yuan Ends Flat; Mkt Shrugs Off Premier's Comments
12/09/2004
Dow Jones News Services
(Copyright © 2004 Dow Jones & Company, Inc.)
SHANGHAI (Dow Jones)--China's yuan ended flat against the U.S. dollar Thursday, with the market shrugging off Premier Wen Jiabao's comments on exchange rate reform, dealers said.
The dollar closed unchanged at CNY8.2764, and traded narrowly between CNY8.2764 and CNY8.2765 for the fourth session running.
Prebon Yamane was quoting a bid-offer discount of 4350-4200 points on the one-year dollar-yuan non-deliverable forwards late Thursday afternoon, compared with 4250-4150 points Wednesday.
Dealers said trade-related flows continued to dominate the onshore market and few paid much attention to remarks by Wen in Europe reiterating China's long-term view on its foreign exchange policy.
Speaking in The Hague, Wen said China is considering both local and global economic conditions as it assesses yuan exchange-rate reform.
He reiterated China's goal of a more flexible currency regime, but said that getting there will be a "complex and gradual process" with no definite timetable.
(MORE) Dow Jones Newswires
12-09-04 0322ET
Russia Approves 'Gas for Goods'
Bartering can affect U.S. currency in that it bypasses the use of petro-dollars.
12.07.2004 Tuesday
Critical decisions that favor Turkey have emerged from the negotiations between Turkey and Russia that took place during Russian President Vladimir Putin's historic visit to Ankara.
The off-set system that was included in a 1984 natural gas agreement but neglected since 1994, has been made operational via negotiations between energy delegates from both countries. Energy bureaucrats convinced the Russians to guarantee signatures on exports in exchange for a $1 billion part of bought natural gas. The two nations will cooperate in order to reduce the effect of exceedingly increasing oil prices on natural gas prices to a minimum. Within this framework, Turkey will re-negotiate with Russia to curb natural gas prices starting in 2005. Russia claimed that it was not the addressee of the 1984 natural gas agreement, but that it was signed by the former Union of Soviet Socialist Republics and said Russia started to receive hot money for natural gas that it sold since 1994. Russia rejected Turkey's concerns on the issue by saying "There is no exchange practice or barter in international trade." An agreement was reached during yesterday's negotiations to allow recognition of the 1984 natural gas agreement and its operation and of the 3rd Article making barter between the two countries possible. This has paved the way first of all for Turkey to export to Russia for $1 billion. According to the agreement reached yesterday, the amount of $ 1billion, the equivalent to a portion of natural gas Turkey once purchased from Russia, will be held in Russia's Central Bank. The amount will be paid out to Turkish companies for exports to Russia.
Issues under discussion between Russia and Turkey were clarified. Important steps in building cooperation between the two nations were taken, specifically on energy. According to reports, a memorandum of understanding was signed between Botas and Gazprom in Ankara as a supplement to the Mixed Economy Protocol signed in Russia earlier. Botas and Gazprom decided to make joint investments in natural gas. Another critical element of the negotiations was the possibility to construct alternative pipelines thereby ending use of the Straits. The "Samsun-Ceyhan" pipeline project is focused on this issue. The Trans-Thrace pipeline was also a topic of discussion. The two sides also reached a consensus on joint investment in Liquefied Natural Gas (LNG). Experts working for Botas and Gazprom will cooperate on the construction of an LNG terminal in Ceyhan in the next step and Turkey's underground gas storage potential will be researched, primarily in the area beneath Lake Salina in Central Anatolia.
12.07.2004
Ramazan Solak
Ankara
http://www.zaman.com/?bl=international&alt=&trh=20041207&hn=14524
The reality is that the strength of the U.S. dollar since 1945 rests on it being the international reserve currency. Thus it assumes the role of fiat currency for global oil transactions (ie. `petro-dollar'). The U.S. prints hundreds of billions of these fiat petro-dollars, which are then used by nation states to purchase oil/energy from OPEC producers (except Iraq, to some degree Venezuela, and perhaps Iran in the near future). These petro-dollars are then re-cycled from OPEC back into the U.S. via Treasury Bills or other dollar-denominated assets such as U.S. stocks, real estate, etc. In essence, global oil consumption provides a subsidy to the U.S. economy. #msg-994080
Hi, stack, congrats on your board. I have you marked.
-Am
I posted the following message on the "Currency Central" board. Since it's character is kind of a summary (of a few trades I posted there during the days) I think it's good to post it here too:
Flat now, this was an exceptionally great day for me. Around 700% return on capital since I used the locked in profits to open new position. Of course as any trader I also have loosing trades! Nobody can always win.
I posted a couple of trades today. Maybe somebody finds them useful. Of course one can trade completely different.
For example scalp the market by selling every bounce on a downtrend for 20-50 pips. Or one can avoid moving s/l with the price at all playing the market for the longer term. And so on... I do change my style depending on the market.
There are many different ways of trading and many opportunities every day to make or loose money. so keep your stops tight. Cut your losses short and let your profits run. Remember preserving capital is more important than having a profit. Believe me, I have been completely wiped out by the currency market before I understood that. And that was no fun!!!
I hope more people will post their trades. And also the loosing ones. I know it hurts to do that, but it's a great way to learn for everybody if you share your mistakes. And that is what we are here for, right? The currency market is too big as that this board here can move the market in any way or screw anybody.
If you only paper trade, post them anyway and tell us why they were good or why not...
That said, I will grab a beer to relax and go to bed.
greets
s.
crude jan below $42 and dropping.
will watch if this has a strengthening effect on the USD in the short term
This news might trigger a midterm usd/cad correction from it's move down 1.4000 to 1.1700.
usd/cad has now room to go to 1.2280-1.2600 area. Will watch this closely.
look at the daily chart.
DJ Bank Of Canada Keeps Overnight Rate Tgt Steady At 2.50%
Expected was increase to 2.75%
W.House: Borrowing to Help Fund Social Security Plan
Mon Dec 6, 3:00 PM ET
Top Stories - Reuters
By Adam Entous
WASHINGTON (Reuters) - The White House said on Monday for the first time that President Bush (news - web sites)'s plan to add personal retirement accounts to Social Security (news - web sites) would be financed in part by new government borrowing that could top $1 trillion.
Bush has made reform of the U.S. retirement program a top priority in his second term and will push for creating private accounts in a meeting later in the day with top congressional leaders.
Bush's economic advisers have been analyzing financing options for more than a year. But the White House, until now, had declined to say that borrowing would be used to cover the transition costs. Experts say Bush has few other options because of record federal budget deficits. The president has ruled out tax increases.
"There will be some upfront transition financing that will be needed to move toward a better system that will allow younger workers to invest a small portion of their own money into personal savings accounts," White House spokesman Scott McClellan said.
Asked if transition costs, estimated at between $1 trillion to $2 trillion, would be financed by government borrowing, he added: "That's what you're looking at doing as part of the transition to a better Social Security system."
McClellan declined to say how much borrowing would be needed. "I'm not committing to any cost estimate at this point, because that's based on the plan that the president endorses," he said.
Bush's economic advisers believe a short-term increase in borrowing is economically feasible, and that the cost of doing nothing would be far greater in the long term. While the nation's debt load would increase initially, it would fall as the reforms are phased in, advocates say.
Democrats have vowed to protect Social Security from "privatization" by Bush and his Republican allies in the U.S. Congress. They warn that the nation's mounting debt load could become a drag on economic growth.
McClellan countered: "The Social Security system is unsustainable. It needs to be fixed."
He said it would cost $10 trillion "if we do nothing... It will lead to either massive tax increases or massive benefit cuts for younger workers."
A recent analysis by the White House Council of Economic Advisers found that tapping the bond markets to pay for private accounts would increase the nation's debt-to-GDP (news - web sites) ratio by 23.6 percentage points by 2036.
Under this scenario, the debt held by the public would increase by as much as $4.7 trillion. But the new government bonds would be repaid 20 years later, eliminating Social Security's unfunded liability while reducing the tax burden in the long term, advocates said.
"The president, at this point, has not endorsed a specific plan," McClellan said.
But Republicans say the Bush administration favors a plan that would allow workers to voluntarily redirect 4 percent of their payroll taxes up to $1,000 annually to a personal account.
Under this scenario, bond proceeds would make up for diverted payroll tax funds and shore up the Social Security system. The bonds would be gradually paid off using future savings from Social Security as benefits growth slowed, officials said.
Bush opposes raising taxes or making changes for those at or near retirement, the White House said.
The White House had once hoped that budget surpluses, projected in 2000 at $5.6 trillion over 10 years, would fund the transition period. But those surpluses have vanished.
The federal budget deficit hit a record of $412 billion in the 2004 fiscal year that ended Sept. 30, and the Congressional Budget Office (news - web sites) has projected $2.3 trillion in accumulated deficits over the next decade.
http://story.news.yahoo.com/news?tmpl=story&cid=564&ncid=564&e=2&u=/nm/20041206/ts_n...
Intervention watch
DJ Chile Peso Ends Weaker On Brazil Forex Intervention
12/06/2004
Dow Jones News Services
SANTIAGO (Dow Jones)--The Chilean peso closed weaker against the dollar Monday, in reaction to the Brazilian central bank's intervention in the currency market, according to traders.
The currency closed at CLP581.75 to the dollar, weaker than its CLP579.60 close Friday, after trading in a broad CLP577.50-583.20 range.
The peso opened stronger, at CLP579.00, and quickly weakened on a European bank's dollar purchases. It then continued sliding after the Brazilian monetary authority made a "modest," by traders' estimates, greenback buy.
The Andean currency often trades in sync with its Brazilian counterpart. The real also often plays a key role in peso trading as the Brazilian currency is an important short-term indicator of investor confidence in Latin America.
In addition, the peso reacted to copper prices falling for the fifth-consecutive session. Chile is world's largest copper producer, accounting for 30% of global output. Falling copper prices reduce export revenue inflows to the local currency market, traders said.
In the local bond market, the benchmark peso-denominated, inflation-indexed, eight-year PRC closed at a yield of 2.76%, compared with 2.67% Friday.
Rates rose in line with market expectations of a central bank 25-basis-point interest rate hike, to 2.50%, at its monthly monetary policy meeting scheduled for Thursday.
The 20-year PRC closed at a yield of 3.32%, compared with 3.30% Friday.
"The first thing Trichet needs is support from his colleagues -- if only the head of the ECB says he doesn't welcome this, it's not enough," she said. "We have to have a choir of all the ECB talking together, and only if this doesn't work will we have an intervention."
I expect a joint intervention by FED, ECB and maybe some asian banks not before the EUR/USD is at 1.45. That was the price of the "calculated-back-then-Euro" in 1980 and 1992. At least that would give them the advantage of moving with technical players. So keep an eye on that level.
sylvester
Gold is a good hedge, however, lately the Euro starts to act as a refugee camp for global currency players. Just recently asian countries increased their Euro holdings. While I am not really excited about the Euro economy, the ECB does everything to keep the Euro as hard as possible. Too many old man being afraid of inflation. Imho partially the wrong policy...
NEWS: Dollar Continues Decline Against Euro
Monday December 6, 7:11 am ET
By David Rising, Associated Press Writer
Dollar Shows No Signs of Recovery Against Euro As Deficits Continue to Weigh on Currency
http://biz.yahoo.com/ap/041206/dollar_5.html
BERLIN (AP) -- The euro hovered near the $1.35 mark Monday as concerns over the U.S. trade and budget deficits and worse-than-expected U.S. employment data continued to weigh on the currency.
The euro was at $1.3453 in morning trading, above the $1.3452 it traded at in New York late Friday after it pushed as high as $1.3460.
Since September, the shared European currency has spiked from around $1.20 over persistent concerns about the U.S. trade and budget deficits, and signals from the Bush administration that it would not step in to support the dollar.
It broke the $1.34 mark for the first time Friday when U.S. employment data came in weaker than expected, and the strength on Monday seems to be the continued effect of that news combined with an overall negative sentiment toward the dollar, said DZ Bank economist Dorothea Huttanus in Frankfurt.
"The trend is your friend, that's the only force that drives markets," she said. "We really don't need any further incentive for the euro to climb higher. It's for the most part sentiment-driven and, of course, the bad numbers from Friday are still at work."
The dollar also continued its drop against other currencies, including the Japanese yen, and was trading at as little as 101.93 yen to the dollar, down from 102.09 yen late Friday.
The 12-nation euro initially fell against the dollar after its 1999 debut, but it has risen some 63 percent since bottoming out at 82 U.S. cents in October 2000.
Dollar weakness has been bringing short-term benefits to the United States, making American exports cheaper in the rest of the world. That has given President Bush little incentive to step in, although the administration still says it has a "strong dollar policy."
It has the opposite effect to European exports, making products like German sports cars or French wines more expensive for the American consumer, or cutting in to producers' profits as they try to hold the prices steady.
European leaders have started to fret that the rapid rise of the euro will hurt their fragile export-driven economic recovery, and European Central Bank President Jean-Claude Trichet has called the currency's steep climb "brutal" and "unwelcome."
Huttanus said she would expect more so-called "verbal intervention" from Trichet before he makes any kind of move to try and prop up the U.S. currency by buying dollars.
"The first thing Trichet needs is support from his colleagues -- if only the head of the ECB says he doesn't welcome this, it's not enough," she said. "We have to have a choir of all the ECB talking together, and only if this doesn't work will we have an intervention."
GBP/USD - what a run lately. All other USD crosses looked kind of stuck compared to this.
Looks like it was kind of caused by extreme EUR outflow into GBP...
The market feels like a small USD correction this week. I wouldn't be surprised to see EUR-USD down to between 1.2750-1.2800 until the buck resumes it's downtrend. But what do I know...
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