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In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans [were] confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong.
These plans to unseat the now fickle US dollar as the benchmark currency for trading in petroleum will considerably reduce demand for the US dollar and, hence, lower its value. That will reduce the price of US exports, but it will make oil, among many imported commodities, more expensive, presumably for rather a long time. Given our tattered "safety net" and unwillingness to tax the wealthy or regulate big bidness, that may have a disproportionate impact on the poor and middle classes.
I can’t imagine what factors might have set these countries to worrying about the long term value of the dollar. Unless it has something to do with our unrestrained financial system that values asset-less creatures of investment bank super-computers as AAA investments; budget deficits that would make St. Ronnie squirm; crumbling infrastructure; manufacturing CEO’s who relocate their jobs to China faster than they pay themselves bonuses; and a public health system that leaves as many citizens untreated as there are citizens in most European countries and whose holes make it a threat to containment of global pandemics.
As a wild guess, background issues that could have influenced this decision might include the US treatment of the Middle East, two wars and noises for a third, a military that refuses to rein in generals that tout their "crusade" against Islam (not to mention a ham-tongued former president who implied the same), and racially-based visitor and visa policies that discriminate against all but a few largely white Western European countries.
This is a coordinated move, and US criticism and ire may focus publicly on Arab producing states, but everyone’s eyes will be on China. It holds the largest dollar reserves outside the US, is our prime economic partner and competitor, and is likely to be the greatest buyer of oil over the next century.
"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."
I’ll leave it to our resident economists to comment about what this coordinated move away from the dollar really means, both for our long term economic outlook and for our short term "jobless" recovery. The UK’s Independent took note of one reaction the last time an Arab state priced its oil in a non-dollar currency:
Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
How obtuse. Everyone knows our invasion of Iraq – and the incessant Village rumblings that we do "the same" to Iran (whatever that is; they must think we achieved victory) – knows that we did so to enhance the world’s freedom from fear and to maintain the purity of our precious bodily fluids. It had nothing whatever to do with oil.
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Two background stories on what this change in benchmark currency for oil sales might mean:
The end of the dollar spells the rise of a new order; and China will overtake America, the only question is when. Both from the Independent.
And this, from the NYT: Stocks and Gold Gain as Investors Shun the Dollar.
EOH, I hadn’t tracked this item today, but when I spotted this item earlier at Financial Times, I knew something unnerving was in the offing.
When gold reaches a record high above $1,040 a troy ounce, something wonky is working its way around the background noise.
I commented over at Naked Capitalism about this. I see it as diversification of risk and the take home is that these players see risk in the world economy such that they want to hedge against it. Normally this would result in a flight to the dollar but this move suggests a vote of no-confidence in Team Obama and all its green shoots/recovery crapola. As a major critic of the Administration’s economic and financial policies, this comes as no surprise. Just because no one in the Obama Administration or the Congress (both parties) does the math, doesn’t preclude others from doing so.
Thanks for the FT article. Its emphasis on Australian interest rate rises and its pairing them with the rise of gold prices – in dollars – makes it seem as if they two are related. The size of the Australian economy makes that nonsensical. What the FT found nonsensical – perhaps in a tiff at being scooped by the Independent on a major int’l issue – was the likelihood that oil would be priced in anything but US dollars:
That the once worldly FT describes the likelihood of such a momentous move in credulous, school boyish terms is a testament to how much the Masters of the Universe don’t want us to know what’s going on. To repeat the quote the Independent garnered from a Chinese banker in Hongkong:
The FT let slip an important consequence that a sustained fall in the dollar and its replacement as the benchmark currency for oil might have: increasing prices for other globally traded commodities.
The unspoken fear is that other commodities largely produced or extracted outside the US might follow oil and be priced in non-dollars, making the dollar snowball roll faster and farther downhill.
Ostensibly talking about the fall of the dollar and the uptick in the price of gold, the FT describes reports that oil will be priced in non-dollars as a conspiracy theory, though it is careful to ascribe that characterization to another source:
I thought markets were perfect and that bubbles were a thing of the past. Never mind. Let’s see if that forecast from the FT is any better than the English weatherman’s.
I wonder which way Goldman Scratch is betting on the price of gold and the pricing of oil in dollars or a basket of foreign currency.
Thanks EoH – excellent diary
Youre right
Just skimmed through this so I don’t know if you mentioned it, but iirc they set up their own private exchange to trade in oil prices
If I have time to dig up the link I’ll find it. PS I think it was GS
While these links don’t have a relation specifically to oil being traded in dollars (and what is REALLY being talked about is how to transition from the dollar as the worlds reserve currency to another mechanism as a ‘reserve currency’), it should give others a look into what the future probably holds (unfortunately, there will more sorrow before any joy occurs):
So much for the ‘beautyrest night’.
What goes up must come down (OR Obama gets hoisted on his own petard about peoples 401K’s,etc.)
Californiacation (and people thought Iceland and Ireland have troubles (and the shoe has yet to truly drop on the Eastern European countries)
As Lenin said ““The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”
Seems to be working so far.
Goldman is one of the principal reasons that oil isn’t trading at $35/bbl. If oil goes up, they are almost certainly involved.
That the supposed players are denying the story shows how political considerations continues to trump any moves away from the dollar.
The basket for pricing oil described in the Independent does not seem to include the dollar. If it does, it’s a small part of the calculation.
I suspect Hugh has it right. While possibly momentous, moves such as this are the predictable consequences of routine international risk analysis.
The move away from the dollar is risk related. It is, too, a recognition of the rising power of the states from which essential commodities come, like Russia and the Arab Gulf states, and the rise in power of buyers like China.
It is a belated recognition that the United States is determined not to play well with others. The unruly methods beloved by Dick Cheney are not being rejected or even investigated. Obama is institutionalizing them.
His military and national security industries’ designs on the Middle East seem only mildly less predatory. Our unwillingness to confront our contribution to global insecurity is exceeded only by our collective unwillingness to address insecurity at home. That includes our failing infrastructure, such as roads, bridges and schools. It also includes our precarious and wildly expensive health care system.
Those imply a growing poverty and security and a lessening of opportunities for the population at large, as does the permanently lower prospects for high-quality employment for workers and middle managers, if not Wall Street’s welfare queens.
Such vulnerabilities break down the social ties and increase prospects for social unrest. Making matters worse, the consequences of the permanent decline in high-quality jobs aren’t limited to former UAW workers or automotive middle managers. Whole towns and states will change character. The economic landscape of SE Michigan, NE Ohio, much of Pennsylvania and Northern Indiana, and now California will be permanently altered.
Unrest means unpredictability, the variable that every spreadsheet seeks to avoid. Whoever relies on the US for a product, service or political commitment has less assurance that it will be delivered than was true ten or twenty years ago. That uncertainty will increase for the foreseeable future. The world has alternate sources of supply and determinants of value than the US and its currency. It will use them, that’s what markets do.
Bahma & Rahma’s insistence that they have matters under control, as do Summers and Geithner, and that nothing fundamental needs altering, is wholly unconvincing to the international community. As it should be to us.
The last price I saw today was $70-72/bl.
The WSJ tells us about the non-existent basket of currencies:
It’s that last one that is a bit scary. It has no productive economy behind it, only oil and sovereign wealth funds.
If we all weren’t suckers, idiots, and fools we wouldn’t be addicted to Foreign oil, and what it’s traded in wouldn’t matter as much. We have given the wealth of this nation away to people who don’t really like us, because we refuse to change fuels, and keep burning oil and our dollars. When the inevidable oil crisis comes, all will be crying, and no sympathy will be there. The Lord said He will help those that help themselves. If we are such fools to continue, the things that are ruining the Country, we won’t even be able to look to Him for help.
The yen and euro are viable. Gold less so. There are problems with convertability of the yuan. And a new currency is distinctly problematic. A currency has to have a certain size to it to be used in international trading. It would make more sense if the dollar was part of the basket.
First:
EOH, one of the best and most SIGNIFICANT posts I’ve ever read.
The ramifications of the dollar being shunted aside in petrotrading are deep, and deadly for us all.
Never mind the denials, conspiracy spinning done by USA.
It’s obvious to any but the insane what this all means.
Second: The comments thru #14 so far, are some of the most insightful and informative comments I’ve ever read on this subject. Most of you folks should be writing BOOKS about this stuff.
I have not enough words to thank you all, for your input, info and insights.
This thread, at only 14 comments so far, is a PRIMER on the subject at hand.
By gawd I’m humbled by FDL, Seminal, and you contributors. And I thank you all.
This is huge, and changes the quality of life for anyone expecting 20 more good years of life into their 70’s or 80’s.
How our leaders respond/don’t respond, will determine how bad it really gets for us all.
Could the states break up, over this? Stay tuned.
*bowstoall*
As I understand it, a “currency basket” is an artificial, weighted average of various currencies. Wouldn’t the magic be in the weights assigned to real currencies, how the calculation is made – fixed, floating, how frequently calculated – and who decides.
I presume that whatever the formula and however devised, it would have to be publicly available and readily calculable by traders or else trading would cease.
I presume it’s the math that’s important, not the virtual existence of the basket. Clearing, however, would have to be in real currency. So the exchange rate mechanism would be key. If buyers have dollars, they’ll pay in dollars, or Euros, whatever. I gather that the weighting formula makes the price more or less volatile, depending on the actual currency used in payment.
I can see, though, how adding Gulf state currencies to it would be problematic because self-referential.
This news of moving away from the dollar to other currency in oil trading was floated (trial balloon style) on NPR when Dubya was still president.
I think the neocons have it right. The US can surely bomb every other country into bending to its will. USA is Number One. Who are the French to say that US Mint printing presses crank out trillions of units of worthless paper? /s
Worth a good chuckle.
Well.. at least a falling US dollar means a few more good manufacturing jobs will stay at home. That’s been the quiet news over the last year – some companies who were planning on offshoring are reassessing their plans. Other than that, I’m not sure this actually means that much, at least immediately. I’m much more concerned about continuing US recalcitrance and inaction over Kyoto and climate change talks than I am in what currency China chooses to buy oil or Russia and Saudi Arabia to sell it.
Countries want to match their current and capital account flows, and to minimize exchange risks in going about their international business. If I sell manufactuered goods and services to the Middle East and buy their oil, of course I would prefer to do so with my own currency. This represents a loss of prestige for the US but it’s not really a game changer.. at least in the short term. China already, by the way, denominates trade with a few southeast Asian countries like Malaysia in RMB and has established full convertability with those partners. It is negotiating similar conversion facilities with quite a few Latin America. countries, including Brazil. Again, this is only natural as it’s trade grows and it’s currency moves inexorably toward a euro-RMB facility (full convertability and an offshore market for it).
Concider this was a great Country when we had all the oil, and everybody bought everything we made, and had for sale. We no longer have hardly anything to offer, and can’t compete when we gave away everything we had. What little we can now sell the world will never be enough to sustain ourselves now or in the future. The new world order that says we are part of a global community, means we now order everything from the world. Those factories that are staying here are probably buying their raw materials from overseas.
we still make and sell really awesome weapons! /s
And food.
Great weapons because Barbara Bush owns alot of the munitions business but the news media never mentions that. She’s way richer than Daddy Bush. Why do you think the whole family kowtows to Her.
On the food, go to the grocery store and look at alot of what’s on the shelves. Even if It’s made here, what’s in it came from somewhere else.
“”It’s the tolling of the bell,” said Michael Power from Investec Asset Management. “We are only beginning to grasp the enormity and historical significance of what has happened.”
It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports – since denied – that China, France, Japan, Russia, and Gulf states were plotting to replace the Greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.
What matters is where OPEC oil producers and rising export powers choose to invest their surpluses. If they cease to rotate this wealth into US Treasuries, mortgage bonds, and other US assets, the dollar must weaken over time.
“Everybody in the world is massively overweight the US dollar,” said David Bloom, currency chief at HSBC. “As they invest a little here and little there in other currencies, or gold, it slowly erodes the dollar. It is like sterling after World War One. Everybody can see it’s happening.”
“In the US they have near zero rates, external deficits, and public debt sky-rocketing to 100pc of GDP, and on top of that they are printing money. It is the perfect storm for the dollar,” he said. “
http://www.telegraph.co.uk/fin…..mony.html#
Thank you for the very insightful article. But what I would like to see is how someone like me, a middle-class wife of an auto worker should proceed to secure her financial future. Should I empty my money market into euros? What about my 401K? I don’t think I can purchase other currencies with it unless I move it out, and then I take a hit. I would like to see an article on FDL that can give me some advice on what to do and how soon? By reading the blogs and so forth, I was able to protect my 401K from major losses rooting from the financial crisis, (how experts claim they didn’t see it coming was pure BS) but how does one prepare for this sort of thing?
The horizon for this project seems to be 2018. But there are pressures on the dollar that are ripening before that.
Once I was told by a professor in the 1980s that WWII had not formally ended, rather WWII ended after the fall of the Soviet Union and the end of the Cold War.
Well, the Cold War is not yet over either. The US has not changed its military posture to reflect the lack of a counterveiling superpower. Nor has it changed its economic posture, with the basic framework of Bretton Woods regime, tweaked a few times, still governing.
What we are seeing now is the other shoe dropping which will formally end the era of the Cold War.
2018 is a long time off, and there are more pressing crises which will lead to the dollar most likely falling off of a cliff long before then. As the world emerges from the side effects of US MBS-instigated economic slump, the US will still be mired in the substance of the toxic sludge. With interest rates down near zero, the only reason why creditor nations are recycling their dollars into Treasuries is because there is no competing option. Once we see recovery begin abroad, which is all but guaranteed to happen before the US, we will see a flight from Treasuries into quality assets that pay a more attractive return.
The Federal Reserve is already taking extraordinary measures to prop up the greenback. The Fed’s program of “Quantative Easing,” or monetization of the debt, is tantamount to the central bank printing money to purchase government debt. This ponzi scheme is not sustainable. Observers also have indicated that it is quite likely that the elites are propping up the dollar via circuitous purchases of dollar debt. None of this is sustainable.
While inflation is a concern, that is, too many dollars in the US chasing a limited amount of goods, the real problem facing the US is the elimination of the dollar as the world reserve currency.
The dollar as reserve currency means that the US has been able to import all sorts of reasonably priced goods and raw materials because we print the money that the world uses to arbitrate price. The US consumes and pays creditor nations with dollars. These export earned dollars pile up in their central banks and one of two things can happen. Either the creditor nation ups the value of their currency, making their exports less attractive and threatening the cycle, or they recycle their dollars into US treasury notes.
So when the dollar evaporates as reserve currency, and the US can no longer just print up hard currency, we Americans are going to need to generate exchange based on actual economic transactions that generate value for others rather than the financial fantasy land that was the hallmark of Fukayama’s “End of History.”
We will have to pay real money for petroleum. What will that do to the price of gasoline? Of home heating oil? How about raw materials for what little is left of the manufacturing base? Will this cause environmental protections to be tossed out the window (drill, baby drill) in search of an economic fix?
If petroleum is not exchanged in dollars, then there is no incentive for anyone to recycle their surpluses into a giant ponzi scheme.
And what would the social costs be of this transition? How long will it take between the time the dollar falls off of a cliff and the imposition of martial law?
Of course, the good news about the demise of the dollar is that we will see the end of asymmetrical warfare (terrorism) against the US.
Once the US has to exchange goods of economic value for hard currency, it will not be able to print money to fund the military, to impose petrodictators on the southwest Asian oil patch, or to fund a nuclear Israel which commits racist war crimes against Palestinian Arab Moslems.
It is a lie that the Islamic fundamentalists hate us for our freedoms, rather they hate us because we interfere in their region in a way that shows violent contempt for them. When we can’t print dollars, we will not be able to antagonize them and they will have no political basis to secure support from populations in their regions for attack.
The military is one of the greatest stumbling blocks to the end of the dollar, as the Euros and BRIC kinda like that we’re living like serfs because the military is keeping commerce flowing through the world’s “trouble spots.”
Why do people continue to pay attention to, and quote the same kinds of experts that somehow missed the dot com bubble, the mortgage mess, the cost of the various wars, and world economy busting cost of not dealing with climate change?
The harder it is to understand, the more likely it’s just bull.
The movement away from the dollar will be hard to control. But once a mega-commodity like oil is no longer priced in dollars, others will follow, owing to international pressure, convenience, and legitimate fears of increasing instability and inability to produce or pay. That will drive down the value of the dollar in a series of slopes and cliffs.
Wall Street will make a killing: like any broker, it wins on trades, not when someone makes money, though its denizens can do that too, for their own account. All but the very poor, already at rope’s end, and the very rich – who make laws and direct governments – will be buffeted wildly.
The end of empire is always ugly, as was empire. The Brits took decades to come to terms with the decline of theirs. Milestones include the Boer War and Gandhi’s civil disobedience in South Africa and India. Decline picked up speed after the First World War, leading to greater oppression in hopes of stopping it. It accelerated wildly after the Second World War broke the British bank and after the horrors of war and the horrors of state sanctioned mass murder and oppression. It remained controversial throughout the 1960’s. Remnants survive today, such as the inability of Gurkhas to emigrate to the UK after military service to the crown.
The point is that the US will stand as the cultural icon of imperialism and oppression of non-Christians and non-whites long after the sun sets on the last tank in the deserts of Iraq or the mountains of Afghanistan (or the golf courses in Seoul, the tea houses in Tokyo and the Brauhause in Bavaria). That will make us a continuing target for terror.
Protecting us from that potential harm is important work. More important is doing it in such a way that we do not give up our system of laws or government, a loss that the likes of Bush, Obama, DiFi and Holy Joe seem happy to accelerate. Once we’ve devoted our last resources and restraint to our police and army, to our banks and profit insurers, who will protect us from them?
What do you mean “miss?” These people CAUSED these “problems” and were exactly where they needed to be to get in early and get out before the houses of cards crashed with a bundle of cash.
Here’s more from The Independent: China’s push for power is irresistible (emphasis added).
Once dismissed as fabulous, these descriptions are becoming more and more accurate. It is more likely to be a drawn out affair, with ups as well as downs in the graph, but I see little in our current management of political and economic affairs that would credibly chart another outcome.
David Prosser of The Independent describes why this move against the dollar is unlikely to be short-term or temporary:
He concludes not with the FT’s overblown denial, common in the financial press, but with this observation:
The main problem with this analysis is that it ignores the peak oil thesis, that we’ve already taken more than one half of petroleum reserves, the easy, cheap stuff, and that the second half will cost incrementally more for each unit extracted.
The earth is not an infinite source nor an infinite sink. The commodities will dry up sooner than later, and without low hanging fruit, a continuous growth economy will crash globally.
And this comment about the stewardship of Bahma & Rahma and their team of “experts” seconded from Goldman Scratch:
I don’t think these developments ignore the argument about “peak oil” – though obviously oil supplies are finite. How oil is priced is a separate discussion from how much there is and how high the demand for it goes. The latter will depend on consumption and available alternatives. China’s growth increases the demand considerably. It is acting to meet its own needs.
If anything, China’s willingness to exercise its growing strength – orchestrating a move away from the dollar, replacing the US as the prime investor in oil-rich lands (through negotiations, not guns) – with a governmental intensity and focus more Japanese or Russian than American (actually, it’s Chinese), worsens the US’ predicament.
If reports are correct that Bahma & Rahma are using “benign neglect” to allow the dollar to fall, in order to reduce the need for added stimulus and to speed recovery (however they define that), his administration is recognizing the inevitability of this. Whether he’ll be more effective at managing this than he is in managing the reform of health insurance is an open question. Anyway, why ask Bahma & Rahma? Go to the horse’s
assmouth and ask Goldman Scratch.Given all the financial pundits indicating that Asia needs to create internal consumption so as to properly value their currencies, given the demographics related to aging populations and that effect on government policies,given that the U.S. model of consumption has been shown to be a ‘house built upon sand’, given that it would take 7 earth’s for all countries to have a consumptive model like the U.S., I’ll venture the guess that NO ONE knows what the hell is coming ‘down the road’.
and so they try to recreate that which has failed.
I’ll bet that the dinosaurs had a longer period of dominance over this planet than homo sapiens will have.
I agree with bluebutterfly and Hugh, mostly. What currency we use to pay for oil is not a big issue. What currency we use for the world reserve currency is not a big issue either in the long run. The transition may be rocky if the US fiscal situation is a mess (so, it will be rocky if it happnes quickly within the next decade or so).
The US will lose some financing freebies, but whenever we have GOP government since Nixon/Ford, we have just used those freebies to harm others in the short run and harm ourselves in the long run. So, probably best not to have them.
I agree that it looks like the perfect storm for the dollar. But I do not think there is one currency that is ‘big enough’ to replace it. Because of fragmented fiscal and monetary policy in Europe, people have similar doubts about stability of the Euro. Everyone is stuck between a rock and a hard place. But so what, the current world reserve currency and the most promising new contender both look like lousy investments. The dollar won’t be dislodged by market forces since it still seems the safest, and countries with huge dollar reserves are just as worried about safety as they are about getting returns.
Best to plan to replace the dollar as reserve currency, rather than let it happen willy nilly, and sit back and enjoy Bachmann crowd yell about conspiracies. The IMF’s SDR (which is really a market basked of currencies) was once proposed for a replacement of the dollar as a world currency, but for quite awhile the idea seemed dead. Now it, or something like it, has gained steam again. Not sure whether the IMF can reform itself to be trusted with designing and managing such a replacement any better than the US.
The mismanagement of US financial markets and fiscal policy will produce lasting effects, and one of them will be moves to replace the current world monetary system.
Below is a short article on progress on new reserve currency.
New Reserve Currency Could Come Quickly – Stiglitz
The system could be phased in within 12 months. `Realistically, I don`t think it`ll happen that fast,` Stiglitz said.
http://www.javno.com/en-econom…..itz_246275
Here is a Wasngington Post column by Stiglitz on US fiscal policy and reserve currency issue:
Thanks to the Deficit, the Buck Stops Here
By Joseph E. Stiglitz
Sunday, August 30, 2009
http://www.washingtonpost.com/…..02111.html
And finally, if dollar is not longer used to pay for oil means that oil might cost more, in the long run that is good thing. The US is finding it very hard to kick its destructive oil addiction.
There may be a lot of unknown unknowns, to coin a phrase, but there are a lot of known knowns, too, with predictable consequences. The movement away from the dollar is one of them.
I was referring to the notion that China can continue to grow at its current pace given that petroleum will become more expensive in real terms over that horizon which will crimp Chinese GDP growth.
My read on USG posture towards the value of the USD is that they are a ship asea in a terrible storm, and they’re using anything and everything to bail out water they’re taking on. There are so many conflicting moving parts that there are no good policy choices, all choices have equally negative and positive outcomes. You let the value of the dollar fall, then nobody buys treasuries. You raise interest rates to make dollar debt more attractive, and the domestic economy tanks and housing prices fall further.
I partially agree about China, but I think its relative position of strength continues to grow, as will its relative rate of economic growth. That will both increase and make less necessary its military might.
Over the long term, China will grow at a rate faster than that of the US, which is all that really counts.
Military always works best when it is not deployed.
The Chinese just entered a large (in the billions) deal to buy an oil sands production facility in Northern Alberta Canada.
Our federal minister of finance just advised Canadian Business to look outside of the USA for markets for their products.
Thanks for that. The Chinese have also been very busy in Africa and South America, filling the relationship, money and opportunity gap increasingly left in their wake by both US government and private businesses.
I think there’s a historical analogy here with the Japanese victory over the Russians in 1904. More so than the stalemate the Boers won fighting the Brits in South Africa a few years earlier, the Japanese victory over imperial Russian tore the cloak of invincibility off the West’s shoulders – in the eyes of imperial subjects as well as Western governments.
After George Bush and Iraq, the world now sees the US in a permanently different light.
I remember when prices of gas started inexplicably shooting up in the summer of 2000 and Bush campaigned on his having the ears of members of the cartel that is OPEC, promising to get ‘em on the phone and see what’s up.
Then, after Bush got elected, the prices just kept going up, and stayed up, until just before Obama took office.
Of course, the real culprit wasn’t OPEC at all.
I also remember the righties getting enraged when Saddam tried to switch from the dollar to the Euro.
The result of Bush’s policies is this, the world abandoning us and the US dollar.
If I were one of those righties, I’d be saying: “Well, Bush, thanks for f&^*ing us on yet another score.”
Why did the world not see the U.S. differently after VN?
I have friends who trade daily, and they say it’s a scam to mark up gold pricing.
I don’t buy it, I buy the reality that the USA has been targeted, and is gonna suffer, from it’s policies across the board from military to financial, and it’s desire to control world wide financials.
I think our 2% has run up against the world’s 2%.
And there’s a fight on to see who wins.
Love your post, I see USA fallin, hard. In a myraid of ways.
Mostly, for lack of jobs and income at home.
And all them taxes that would produce.
And wasted wars abroad that won’t get us CRAP.
We can’t GET the resources, or distribution routes, if we wage war on the countries who HOLD them thangs.
We should be partners and help others develop, and take a fair share, rather than trying to dominate and keep it all for corporate feudalists.
To dominate it all, invites retaliation.
Love your post, hate our policy’s as is.
Sigh.
In so many words, well said.
Spoken for me.
The elite govern, plunder, and take us to our doom.
Never thought I’d see it, in my lifetime.
Shoulda seen it coming, long ago.
I hated the systems in place, and the leaders who plunged us into a corporate wasteland, back in the Vietnam War Protests (bombs, weapons, MIC, yadda yadday).
Oh well. Got a ticket, forced to take the ride.
THANKS EOH, for all you’ve put forth, and others, also.
We don’t NEED a bigger currency to replace us, to destroy us.
We are destroying ourselves, ergo, US Dollar will suffer, and suffer, and suffer.
And so will we.
Don’t overthink it.
This is a case of USA being the boss, and losing it all, as the rest of the planet tires of our bossiness.
And while that’s happening, we the people are tiring of losing what we had.
And NOTHING in the USA short of the people, is targeting to fix those simple, final, fatales.
Nothing. We are a failing and falling empire, headed to the toilet.
Keep it simple. Address the big picture. Show me how we get outta this?
We don’t, at present. We DON’T get outta this fall, this failure.
When do the states break up? As USSR? Within 10 years? OR less?
Oh, they saw us differently.
They still feared our nukes, and our general military inclinations, and our 2% wealth controls, but they saw us differently.
They saw our failure to dominate and rule and control abroad.
For the first time.
And we’ve done NOTHING since, to change that.
Because we STILL try to dominate, rule, and control, abroad.
We are proven losers at that. Plain for the world to see.
I have seen some discussions in which it is said thatthe loss of the dollar as the world trading currency for oil could devastate the nation. I don’t know if this is true- but if it is- this is a very scary situation. It would make the loss of the public option look academic. We may be talking a walk to third world status.
Some have suspected that it was this issue that led Cheney to invade Iraq.
I think they did, but we and the world were at a very different place in our relative trajectories.
We were still on the uptick then. We had lost abjectly in Vietnam and failed to admit it. We were still deeply divided at home, post-1968, but after the demise of Nixon, we seemed to be on the mend and were still a necessary counterweight to Russia.
The EU was more aspiration than substance (compared to today), the non-aligned movement players were less powerful and not taken seriously. Asian Tigers had four legs then, not rapidly expanding economies. South Africa was still in the midst of apartheid and the rest of Sub-Saharan Africa was still finding its post-colonial feet. Idi Amin was in power, and the Rwandan genocide was yet to come.
The US’ economic power and its relative dominance remained unshaken. Television production had notoriously gone Asian, but automotive and other manufacturing remained strong. Computers, semi-conductors, other high-tech and then the Internet were ahead of us. The middle class was still vibrant. Labor’s share of GDP had only recently flatlined (and has remained so, unlike CEO’s pay). Ronald Reagan, too, was yet to come, with his comfortable, familiar advocacy of American greatness, though his programs were built on greed, division and flouting the law (environmental, Iran-Contra).
We’re now politically exhausted, after eight years of Cheney/Bush, two wars, and a flat economy. A good bit of our economy we went to great lengths to send offshore. Wall Street’s financial predation now affects the whole world, not just the domestic economy, your mortgage or my credit card. The prospects of union and middle America are bleak. Mao has gone from supreme leader to a figurehead no longer on the prow of the economic and political ship of the Chinese state.
The world smells what the US Congress and Obama are desperate to avoid recognizing. It smells exhaustion, fear, and growing dislocation. There are credible, alternate centers of both power and political will. It will gravitate toward them.
What the world can’t do without is the US market-we buy more shit than anyone.
As Digby (@ 6.00pm) says here, Ian Welsh at Crooks and Liars unpacks a lot of what this means in What Not Being Able To Buy Oil In Dollars Means,. Digby:
You read it first at FDL.
I think this sums it up; it’s a comment at the Daily Banter:
1. The second word in your post was ’stunning’. Not really. I wouldn’t even call it news. In 11/2005, Forbes published a similar article “Dollar’s Oil Role May Erode”. 2. People made the argument back then too saying “oooh, watch out, the Euro’s going to replace the dollar, and the US is going to invade Iran.” Now we’re going to attack both Iran and Pakistan? 3. Iran already began switching its reserves from dollars to euros… in Spring 2003. Iran’s economy shrank more than the US last year, and the political atmosphere permeating from this year’s elections will preclude the Iranian government from rocking the boat any further. 4. France as a country is not in a position to dictate terms for two reasons: It is only one of 15 member countries participating in the Euro, and isn’t even the largest economy at that. Also, now that the Treaty of Lisbon is virtually assured with last weekend’s Irish vote, France has lost just that much more of its economic autonomy. 5. The supposed oil-trading currency basket will never include the Yuan which is already a basket of 8 currencies, and is artificially manipulated by the government. 6. The Khaleeji, the common currency of the GCC (Cooperation Council for the Arab States of the Gulf) is not expected to be adopted until 2013. And it won’t even include 2/6 member countries (UAE and Oman) 7. In January of this year, OPEC reaffirmed it’s commitment to the dollar. 8. Within hours of the Independent’s report, Saudi Arabia’s central bank chief Muhammad al-Jasser denied such a meeting took place.
Read the rest here.
For how long? Ian Welsh suggest we have a 12-16 year time horizon, while the Chinese economy grows and gradually becomes more consumer oriented.
Among his many good points, two jump out, and I think they’re important to how we in the US debate health care reform and the future of the middle class.
One, the US is devolving into a renter’s economy: it’s milking the cash cow of the American consumer until they’re sent off to the knacker’s yard. Consider this as you wonder how to pay for health insurance, let alone health care, or after you’ve just seen the latest new fees on your credit card:
Two, compare the wet noodle Democrats – in control of Congress and the White House – and the quietude of our slowly depopulating suburbia with the reactions Welsh observes from the Chinese (emphasis mine):
Ben Cohen’s short original post in the Daily Banter is worth a read. The comment he posts from a reader here, excerpted in and linked @53, above, is not.
A few reasons why. France’s economic power is not limited by the Irish approval of the EU’s Lisbon Treaty. A more politically coordinated EU complements France’s political and economic power, so far as the US is concerned. It doesn’t detract from it.
The Chinese currency may not be readily exchangeable for all purposes – now – but it can still be used as a benchmark in a basket of currencies used to price a global commodity. The basket itself is virtual; like any average, it’s an arithmetic construct. Its value lies in generating a ready calculation to determine price, in this case, of oil. Trades would clear in other currencies, just not universally in dollars. The basket’s value would rise and fall independently of changes in the dollar’s value. That’s the point of uncoupling the dollar from the price of oil.
The common currency that selected Gulf States are considering adopting may not be implemented until 2013, but the basket to be used as the benchmark for oil is not intended only to start until 2018.
The leak about this basket is foreshadowing and a shot across the bow to the US, telling it to get its act together. The inept Democrats need such reminders.
As for the Saudi government officially denying “rumors” about uncoupling oil and the dollar, that’s what foreign ministries do. We officially said the Iraq war was not about oil, that we wish Venezuela the best of success, and deny that our CIA engages in murder and abduction.
In Mao’s China, no policy was considered real until it was officially denied. That style is hard to forego. I repeat The Independent’s quote from a Chinese banker in Hongkong:
With so many areas of the world involved and no firm hand on inflation it would only be a few weeks before they would each (except the oil-rich countries) decide to ‘print’ more of their currencies, so they can hoard more oil.
Aside from us, who would trust any of those countries to really control their currencies? It’s a risky affair to be sure.
If only we had followed Pres. Carter’s advice and gotten off our oil addiction about 25 years ago. Maybe now some people will find batteries more interesting.
more oarsmen and the bucket brigade!
Come On! This is never going to happen. This is a republican meme used by them to sell gold. You guys are better than this.
A nation must have a large middle class with enough money left over at the end of the month after the bills are paid to save some money and spend some money buying new stuff. Our country used to be that way, but when wages stagnated loosing the race to keep up with inflation, both spouses had to work keep from losing ground. When that didn’t work, people started borrowing against home equity and running up credit card debt. We know what happened next and I can’t help but feel that the financial destruction of the middle class didn’t happen by accident.
The problem is that the middle class consumer has been the engine driving the US and the world economy and its destruction is equivalent to killing the goose that laid the golden egg. China can produce gobs of goods for export, but what good does it accomplish if they can’t sell them?
So, who killed the middle class and why did they do it?
The mega rich who own our corporations killed the middle class in Congress by deregulation and permitting corporations to outsource jobs.
Why? asked the frog to the scorpion in the ancient Sufi story.
And the scorpion said to the frog after accepting a ride to safety across a flooding river and stinging him in midstream assuring both their deaths, “It’s in my nature.”
Our economy can’t recover without jobs and our government isn’t interested in prohibiting banks from gambling in the Wall Street and commodities markets and trading exotic, but worthless paper promises, which banks will continue to do instead of lending money. Since new jobs aren’t going to happen unless banks start lending, we can forget about a recovery.
The dollar will hang in there until other economies pass us and buy more than we do. Then we can all say buh-bye to the dollar.
I hate to say this, but I fear the only way to avoid plunging over the falls into oblivion is violent armed and bloody revolution because, as the world can plainly see, Obama does not intend to rock the boat, much less change course, and our government could care less what we citizens think.
The critical question is how can we regain control of our insane bought-and-paid-for government without resorting to violent revolution? That is the only question that really matters. All the rest is mere commentary.
Hillel would agree with Gandhi that the worst possible path to achieve sustainable change is violent confrontation. It does not empower those who turn to violence out of desperation: it empowers their oppressors and justifies their violence. It’s what they expect because it’s what they do. They know the violence they do to our pocketbooks, to our health and job security. The police overreaction in Pittsburgh was a crumb of the banquet they’re preparing for.
Hillel might repeat his advice to the impatient questioner who wanted to be taught the Torah while standing on one foot:
He would tell us to do the same when searching for how to regain some measure of political influence and security in our own democracy. We’ve seen in Iraq how successful it is attempting to impose “peace and freedom” through violent means. Peaceful means are not passive; they are non-violent.
We need to think outside the box, as the Nobel jury did in deciding to award its literature prize to Herta Mueller.
Oddly, the Nobel committee agrees with me.
Unlike its award to Herta Mueller, the award of the Peace Prize to Barack Obama is for work not yet written, commitments not yet met, peace not yet obtained – or even credibly striven for.
We went into gold last spring, and it has been a fabulous investment, almost making up for the losses of the previous year.
Earl, gotta disagree with the staggering deficits comment. Have you checked Japan’s deficit lately? And, remember we’re in a recession (maybe not technically but unemployment is very high) when safety nets kick in, as well as the stimulus.
Bill
Not enough stimulus, tattered safety net and deficits matter according to our ability and political will to repay them. Reagan and Cheney claimed they didn’t matter at all, but even Reagan accepted reality and imposed higher taxes when it became necessary.
Ian Welsh’s comments accurately on the demise of American capitalism. Japan and China are still inventing and reinvesting in themselves. We’re investing abroad and exhausting ourselves at home.
Under Bush, the US was profligate in spending and mindless about how it would pay for it. That reflected both George Bush’s lifetime behavior and a political choice to spend middle class tax dollars on the elite’s policies.
Mr. Obama and his Democratic Congress don’t seem ready to pick up the check either. Nor have they shown the political will or rhetorical skill to make it clear to the American public that it was George Bush’s party and his trash we’re being asked to pay for and pick up. Can’t do the first without doing the second, so they do neither.
Alan Grayson understands.
He understands that words matter. He understands that the Democrats’ message has to be simpler and more direct. Churchill did, too, and renamed his government’s Second World War “Local Defense Volunteers” the Home Guard.
Mr. Grayson understands that politics is partisan and that you can’t negotiate with a party that tries to stop the government bus by laying down in the middle of the road and saying, “No. You shall not pass.”
In the words of the fictional American President that Mr. Grayson and Mr. Obama must both have studied, but whom only Mr. Grayson is willing to model:
Indeed. Carter’s energy program was the best thing he did. And the worst thing that Clinton did was not to re-institute that program when he took over.