oil and value of the dollar

This is vitally important information, especially to the citizens of the US.
For thousands of years, gold was behind all currencies. Today the dollar has taken the place of gold, and the value of dollar is tied to oil. That is the value of the US dollar is backed by oil, not gold. The US economy is so strong, because if a nation has dollars, it is like having gold backing its currency, and gold for trading around the world. However, the Euro, the name of currency used in Europe, now threatens the dollar. The US bombed Iraq when Saddam began selling oil in Euro’s. If the world starts trading oil in Euro’s, the dollar will no longer be like having gold. The dollar will in fact become almost as worthless as the paper it is printed on in the international market and this will crash value of the dollar in the US.

From “Mineral Resources and the Destinies of Nations” by Walter Younguist.

buildingteamforecast.com/art … 59099.html

Five Main Determinants of Currency Value
A nation’s currency depends on many complicated interactions, but some of the chief determining factors are:

real Gross Domestic Product (GDP) growth rate versus other countries;
level of interest rates relative to other countries;
level of price inflation relative to other countries;
the state of government finances (deficits or surpluses);
goods and services balance of trade;
and the nation’s status as a resource-based economy (i.e., net exporter, self-sufficient or dependent). …

Current weakness in the value of the U.S. dollar is primarily a function of two factors — a large goods trade deficit and little upward movement in interest rates at a time when many other nations are raising policy-setting rates to combat overheating in their economies…

you have swallowed rep. paul’s hook,

house.gov/paul/congrec/congr … 021506.htm

but you failed to understand his whole spiel…

"…Our whole economic system depends on continuing the current monetary arrangement, which means recycling the dollar is crucial. Currently, we borrow over $700 billion every year from our gracious benefactors, who work hard and take our paper for their goods. Then we borrow all the money we need to secure the empire (DOD budget $450 billion) plus more. The military might we enjoy becomes the “backing” of our currency. There are no other countries that can challenge our military superiority, and therefore they have little choice but to accept the dollars we declare are today’s “gold.” This is why countries that challenge the system-- like Iraq, Iran and Venezuela-- become targets of our plans for regime change.

Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar. As long as foreign recipients take our dollars for real goods and are willing to finance our extravagant consumption and militarism, the status quo will continue regardless of how huge our foreign debt and current account deficit become…

The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros. The sooner the better."

as soon as the oil producers have the power to counter the american military machine, they can change the mode of exchange…

might makes right.

-Imp

I could just as easily argue that the dollar is tied to housing prices and consumer confidence.

The only thing that the dollar is really tied to is “in God we trust.”

In other words, the dollar is not tied to a damned thing.

naw… the dollar is tied to the american military… the dollar is worth a dollar because if you don’t think it is, we’ll kill ya…

-Imp

No.

That is what backs up the valuation of the dollar. The hammer of God, if you will.

If anything determines the value of the dollar, it is still labor.

the labor of soldiers pulling triggers or the labor of american mothers producing soldiers?

blair has pounded his way out of the building…

[/bad puns]

-Imp

As a natural resource with limited supply, oil is a hedge against currency devaluation.

Gold however is still the inflation hedge par excellence (although central banks and Rotshilds et al have tried to keep a lid on it by selling holdings). In fact, I believe Rotschild et al also own a large percentage of the gold miners (to the best of my knowledge). Surely another way to manipulate gold prices…

In any case, gold is at multi year highs against all currencies. I rest my case. :unamused:

“Helicopter Ben” Bernanke

If i could print money from nothing i could buy everything, this is just how it is. Take everything from me but leave me the right to print more money and the next day i will buy it all back.

Then i would yearn for a single world currency, the NWO.

Do you really think you or your country even comes into the equation?

Sargent Imp and private Smears begin slaghtering anyone who gets in my way, foreign or domestic.

Gold would be the best backing of currancy imo. Oil is a finite resource, so it wouldn’t work well.

Actually gold has a limited stock, so it may not be the best for a currency backing. Silver, for example, would be better me thinks.

A quite interesting interview on geopolitics and commodities:

http://iamthewitness.com/audio/TFC.2007.09.19.Wed.Rafeeq.mp3

I am now understanding the intense depression of Walter Younguist who wrote “Mineral Resources and the Destiny of Nations” and “GeoDestinies”.

There is an important difference between housing prices and the dollar being the currency that backs the currency of other nations, and used for international trade. A huge difference.

But housing prices (indirectly) do affect the relative value of currencies. What really affects them is interest rates, as Imp has stated. But those rates are affected by prices (really by demand, of which price is a function). But it is also true that the movement of housing prices affects tha value of a currency where foreign nationals can purchase real estate. I don’t think this effect is very large, but m.o.l.'s point does (barely) stand, I suppose.

Consumer confidence is a larger factor, as this affects the purchase of goods, many of which are manufactured outside the U. S. This, again, ties to Imp’s point about balance of trade, and also to inflation and interest rates.

The Chinese buy dollars because they have to.

It is really the pits to be in my position. If you all are working with these facts, please assure me of that.

The dollar is a fiat currency. Didn’t you, Athena, earlier state that the dollar is backed by oil? That its value is tied to oil? It can’t be, and be a fiat currency at the same time.

Have I misunderstood you?

The value of the dollar is tied to oil for many reasons. One reason is fiat money is tied to gross national product which is tied to oil. Another reason is the tie to interest, and the tie to interest returns to the tie with oil. This thread is about how petro currencies (the dollar) is backing the currency of many countries and that if oil were traded in Euros instead of dollars, this would collapse the value of the dollar. This is a complex subject and I am put in a defensive position, instead of an informative position. This is very unpleasant for me, but I will do my best to work with it.

Interest was mentioned so I will provide information about this…

from Mineral Resources and the Destinies of Nations, by Walter Youngquist

There is so much we need to learn, including myself, but right now all I want to do is establish the facts about how the value of the dollar is connected to oil. I am not stating opinions but facts. If the Arab countries were to take ther money out of US banks, US banks would not have money for loans. We can not continue to lower interest rates to boost our own economy, because this could drive Arab money out of our banks. As the Euro gets stronger, so does its banking system. The US is skating on thin ice.

Okay - but singling oil out necessarily ignores all other trade, and all other commodities.

Sure, you’re on the defensive - you’re being asked to defend your position. That’s what we do here.

Your example points out that the oil producers got a bunch of cash, and that they gave it right back. And it wasn’t just money-market accounts. They borrowed from US banks - heavily. Very heavily. Those US banks made a ton of money. In the US. I’m still not sure what your point is.

If the citizens of the US took all their money out of banks, there would be no money to lend out. It’s not all Arab money.

The dollar is connected to oil, but also to everything else, precisely because it is currency. The embargo years didn’t change that - and besides, those conditions are no longer extant. It’s history.

You still haven’t established how the dollar would collapse if oil were traded in Euros. I will admit, I wouldn’t want to see that happen, but you seem to be overstating your case.

By the way, do you suppose that it is in the oil producers best interest to put the US in dire straits? Do you think they are stupid? We’d still have enough oil to bomb them into oblivion.

Is all this just some justification for invading Iraq? If we hadn’t embargoed their oil in the first place, they’d have sold it on the open market, in dollars, and we could have gotten it much more cheaply than we now do. You forget that we made them the enemy - do you really expect that they’d play ball with us under those circumstances?

The fact is that Iraq didn’t need dollars - it couldn’t have spent them. That was our own political decision - it was bad economics. We are paying heavily for that now.

I could accept all this if this guy you keep quoting says (and maybe he does) that we screwed up, royally, and we are now paying the price. But the money we could have saved by allowing Saddam to stay in power - without those economic sanctions, would go a long way towards cushioning any blow suffered by a switch to euros. Which isn’t happening, anyway.

This smacks of neo-con apologetics. The neo-cons have so far demonstrated no economic know-how. I’m not sure why we should use them as a guiding light on the economy. Maybe you should just fess up and tell us the political agenda behind all this “economics”.

If would be great if all I were defending is an argument about the importance of oil to the value of the dollar. I have been told I am condensending and a snob, and told that I am posting opinion and not facts. I am not well accepted on these forums, and fear before I have a chance to fully argue my position, I will be banned. All this is very different from the exchange of thoughts you and I have been having. Any way…

Oil is the only commodity on the world market priced in dollars. This is what makes oil more important than any other commodity.

Oil is also different from other commodities because industry depends on it for the production of everything else. When the price of oil goes up, so does the cost of production and transporting the products to market. Oil is even a main ingredient in fertilizer, and that is more important to us than oil being a subsance in material used for clothing. I hate to distracted from the main point with all these ways oil is, different from other commodities. The most important point of this thread, is because oil is sold in dollars, that made dollars the global currency. Instead of countries holding gold to back their currency, they are holding US dollars, and using US dollars as a global currency. I will look for another way to get this point across.

I beg to differ, Athena. It is possible for oil to be traded in euros, as you have said. This would not diminish its importance. It is not important because of the currency it is traded in - it is important for the same reasons that grain and clean water are. Locally, the latter two are more important in some places.

But to your main thesis - again, I beg to differ. You’ve got the cart before the horse. Oil is traded in dollars because the dollar is the global currency - not the other way round. There are many reasons to hold dollars. That the US economy is the most stable in the world is one. That so much debt is issued by american banks is another. In all, it is much more complex than you describe. And, in fact, the situation is not so static as you say - the currency market fluctuates for many reasons - again, Imp has outlined the most important ones.

Sometimes it’s good for a foreign entity to hold dollars and sometimes it’s not. There are many ways to use money, and just like an individual investor’s money may be allocated differently over time, so may a central bank’s, or a nation’s, or a dictatorship’s money. The Saudi’s hold much in US-denominated assets - yet they have enough oil. They are not holding dollars to buy oil. They own a lot of US real estate, for instance - these assets are bought and sold in dollars. The Brits own billions and billions in US assets - having nothing to do with oil. But these assets must be held in US dollars. When they sell them - they get US dollars.

It is also true that an “unfavorable” exchange rate may not be unfavorable at all. If dollars are cheap, foreigners buy them in order to spend them here - they are cheap only to the foreigners. The exchange rate is only one measure of a currency’s worth. If the dollar is weak against the euro but strong against the yen, we may have a very happy circumstance, since we buy relatively little from europe, anyway. If that is a short-term situation, then no one notices. If it’s long-term - then we will start buying chinese cheese insteasd of french.

That’s the barest thumbnail I can give you. The world economy is not so simple as you state. I think your boy there, whoever he is that you are quoting, is speaking to those who have little knowledge of the fundamentals of economics.

Here is another link, explaining why trading oil in dollars is important. A different one is the tread about patriotism. I hope sooner or later the connection between oil and the value of the dollar is made.

Athena - before I tear this very poor economic model apart, I want to point something out: while it may be a fact that “some speculate [that the value of the dollar may decrease by] between 20-40 percent” - that doesn’t make it a fact that it will. Two unanswered questions - who is doing this speculating? and the value will decrease compared to what?