One other thing - history is rife with examples of fiat money that has had virtually no value. The fiat of the government does not determine the value of a currency. This is just an historical fact. The willingness of others to accept it as payment, and, ultimately, its purchasing power (if it is at all accepted) determines its value. If I remember correctly, Chile in the, er, um, 'eighties is a prime example of this. That might not be correct. I’ll look it up if you make me.
Faust, I appreciate your good arguments. When someone makes a good argument, than I can respond with an argument. It was not possible to trade oil in Euro’s until Saddam got permission to do so from the UN. Saddam started something, that is not good for the US economy. I think the only argument we have is, I think when the US looses control of the oil trade, it will devastate the value of the dollar and evidently you don’t. The future is not a fact and we will have to wait and see. However, the past is fact, I find it more believable that Bush and Cheney wanted to maintain control over the oil trade, than they believed Saddam was close to making nuclear weapons.
What do you think will happen if the world decides the Euro is better than the dollar?
Athena - make the case. You think it will be harmful. Why? Who wrote this article you quote? Are they economists? Did they talk to any economists? Are the cause-and-effect relationships between the facts they present valid? Are you claiming that a 20% dip in the rate between the dollar and another currency is unprecedented (it’s not)?
Saddam got permission from the UN. So what? What’s not good for the US economy is to spend billions to “control” oil that we now buy at market rates, when we could have bought it before all this at market rates from Saddam. Without spending billions to invade his country. It is now, including the cost of the war, the most expensive oil in the history of the world, by several orders of magnitude.
I agree with you that we invaded over oil. But we screwed up - it cost us much more than the oil was worth. Saddam started this because we imposed stupid and counterproductive economic sanctions on him. We could have simply bought the oil on the open market. Saddam didn’t start this - George Senior and B. Clinton started it.
The real question I have is this - on what basis are we to think that the value of the dollar will be devastated. That some people think so? Where is the economic model?
Thank you for asking an intelligent question. Sincerely, thank you.
The first person I know to make such an argument is my dear friend Walter Youngquist. He worked for the oil companies as a geologist, and then taught geology at the U of O. When he retired, he wrote “Mineral Resoucres and the Destinies of Nations”. This book was published by a text book company and never made it into popular book stores for the general public, so his information didn’t get into the population. Later, he wrote “GeoDestinies” and got the Geological Association award for this book, but that doesn’t put it on the best seller list either. However, the award made it possible for me to convince a local editor to read the book, and just before our recent oil crisis of sky rocketing oil prices, the editor did an editorial announcing Walter was right. It took me several years to win the editor over, so he was not careless in saying Walter and the geologist saying the same thing, are right.
Walter endured a lot of depression because no one was listening to him. Now that we are paying around $3 a gallon for gas, people are listening.
The problem is not just oil. The US is having to import a lot of minerals to keep its industry going. States are loosing the revenue they once recieved from mineral resouces extracted from their soil. When states loose revenue from mineral resources, they must tax the people to make up for the lost revenue. The more people are taxed, the worse the economy gets.
Our industrial economy is becoming a service economy, and India is competing with us for service jobs. What do you think we are going to sell the world? Please, I would love to be wrong! I am really torn over the Iraqi war issue. I think the invasion of Iraq was totally immoral, but I also think the US is screwed if it doesn’t win the war and maintian control of trading oil in dollars. If you can prove me wrong, please do so, because I would be very glad to be wrong. I very much want to believe my children and grandchildren will not experience an economic collapse worse than the Great Depression. Please convince me.
PS my relatonship with Walter began when I wrote a letter to the editor quoting from a 1920’s newspaper. Walter read it and contacted me. He seemed very releaved to find someone who saw the problem as he did. I was very happy to find someone who knew more about it than I did.
“Given our known oil supplies and rate of consumption, we are headed for economic disaster and possibly war.” I wrote this quote in a letter to the editor, because of the 1970 recession that was devasting to our community. People lost their homes and businesses. Because Reagan scapegoated the poor for our economic problems, we refused two parent families assistance, forcing men to desert their families and go to the hills. I was cheating the scales to sell plasma and provide for homeless teenagers who had no chance of getting jobs, and I put my son in the military service for his survival when things were very bad, despit my Vietnam era sentiments against the military. It was ugly. I never imaged how bad things to could be. This recession was caused by a shortage in oil, not by needy people who were not needy people before the recession took away their jobs. The quote was from a 1920’s paper, but it applied to the 1970 recession and following wars.
When the danger was first mentioned in the 1920’s, all industrial economies collapsed and the world went to war. Since then new technologies increased the oil we could recover from the ground, and increased the use of every barrel of oil 100X, so we had we a repreve for many years. Oil was our greatest export, providing the most national revenue, compared to all other exports. But we remained on the path of economic disaster and war. Industrialize the rest of the world, was insane considering this has increased the demand for oil. Like competing with India and China populations for oil isn’t good for us is it? The increase in the price of a barrel of oil is not good for us when we have to import it. Our trade deficit is not a good thing. We have gone from being the world’s supply of oil, to a transfer of wealth to oil countries and national debt. Not a good thing.
I will provide more information if that is what is wanted, but I am not interested in arguing for the sake of argument.
Couple of things - while I would not doubt the sincerity of your friend, he is not an economist.
Also - the economy is rockin’ and has been for many years. Walter knows that those minerals are still around, but that the price to extract them is higher than elsewhere. There are many reasons for that - some purely political. Other factors are the price of labor, environmental laws, land values, and the fact that oil is so cheap that we can import stuff that we have in-country, and still save money. You read that right - because oil is so cheap. How else could we?
We sell the world hamburgers. And fried chicken. And telecom stuff. The stuff we sell the world is so much more “value-added” than raw steel that it makes no sense to sell them raw steel.
The fact is that the global economy is nothing new. Google “mercantilism”.
The Greatest Generation is still alive. We remember the extreme economic hegemony that the destruction of european industry brought to us. We should also recall that we made great efforts to rebuild that industry - because it was in our best interest to do so.
We buy the stuff we buy the cheapest way we can - even if that means it’s from outside our borders. 'Twas ever thus - except for a couple of decades when no one else was making anything. Welath is measured in purchasing power.
Wealth is measured in purchasing power.
Wealth is measured in purchasing power. It doesn’t matter how much money we make - it matters how much we can buy. So what difference does it make that we don’t make stuff? Japanese carmakers make cars here, and we make televisions in China. It’s a red herring. GM owns half of Toyota, anyway.
The US economy has been, over the last cenury, the most vibrant in the world. The Great Depression wasn’t caused by a trade deficit - it was caused by bad economic, monetary and fiscal policy.
We manufacture capitalism. We manufacture marketing. And we spend all our money. We manufacture credit and debt. It’s scary, but it’s the american way. It’s not the product that made us great - it’s the system. We were already the biggest and best economy in the world at the turn of the 20th century - before the auto industry, before the oil industry, before the “global economy”.
It’s the system. No one else does it like us. It’s the system itself that manufactures wealth. Alway was.
Yes, we are in complete agreement with what you said here. THAT IS THE PROBLEM! If we loose control of the oil trading, our fiat money will become as worthless as the paper it is written on. It will loose its value as the world currency.
I could cry. Are you arguing there is no such thing as finite reality and mineral resources have nothing to do with economic growth?
This is not possible without mineral wealth. Not possible.
I have been reading for more information. Like, I am using a book and can’t post the whole thing. Finding a short explanation isn’t easy, but here is another try.
I don’t mean to be disrespectful, but are you saying as long as we buy a lot of oil, everything will be just fine? Like, the transfer of wealth from the US to oil countries and the growing the deficit isn’t a problem?
Does this mean as long as I am using credit to buy things, it doesn’t matter what my income is? I think my banker would disagree with this statement, so I must be misunderstanding what you said. You seem to be explaining what went wrong with the housing industry. No one has to worry about income, because the credit is available. My daughter believes this too. I pulled her out of trouble with my credit on the condition she pay it off, and she turned around and made 3 pay day loans, so I am paying off the charges on the credit without help, and she is in rapidly growing financial trouble. Are you sure income doesn’t matter?
Are you saying the 1920 quote from a newspaper, “Given our known oil supply and rate of consumption, we are headed for economic disaster and possible war” had nothing to do with the collapse of all industrial economies and war? And that increases in our ability to access oil and increases in the use of every barrel, had nothing to do with our economic growth?
If that is what you are saying, we are stalemated, because I can not accept your understanding of reality and you can not accept mine. I hope things look better after a night’s sleep. Maybe the problem just is, I don’t have enough energy for thinking things threw and am mistanding you.
Atehna - you’re just not getting it. Dollars are not backed by oil. We’re not running out of oil. The price of oil didn’t cause WWI, nor the destruction of the european economy. Your daughter’s misunderstanding of adjustable rate mortgages isn’t relevant to the discussion.
I can’t give you an entire education in economics. And I have already answered some of your most recent points.
Cut-and-paste argumentation is boring - and it makes me believe that the reason you don’t present an actual argument of your own is that you don’t have full command of the issues.
Perhaps I have thrown too much at you.
Good morning,
I am reading a 2005 text on economics, and have learned what we believed in 1970 is not true. Sure enough, this text explains “The decline in natural resources over time seems to provide evidence that the world is not running out of natural resources.” I guess that means there is no such thing as peak oil, and oil has nothing to do with economic swings, like the Great Depression and recession in the 1970’s, and what we are spending on wars in the mid east. I am so happy. You win.
I wish I were cutting and pasting. I am quoting from a book that I consider much more of an authority than I am, and that means putting each letter in with my own fingers. It doesn’t matter, you win, oil has nothing to do with our economy, on to the next subject.
edit: I made a post here, but was afraid it would be taken the wrong way. Never mind.
The EU has been working for decades to undo the hegemony of the $US and it looks like they are about to succeed.
This would not be happening except for the reckless fiscal policy the US is currently following and that is exactly what the EU policy was about, insulating the EU economy from reckless US fiscal policy.
For the first time, the EU economy is somewhat insulated from the US. While oil prices in the US have risen substantially they have barely budged in the EU. Before the Euro, this was impossible,
You won this debate. Now you can argue with Greenspan in the thread Greenspan is wrong. It appears he is in serious need of your understanding of economics.
my point was to compare oil to houses as if a commodity determined the value of the dollar.
After reading this thread, I must conclude that none of you understand the floating rate international currency system and the fact that the dollar is not tied to anything, AT ALL, as I already stated.
Rates are the main driver.
But… the entities raising and lowering of rates can appear to have a ‘hidden’ hand. Consider Japan for example.
So to say that there is sound ‘reason’ behind the method is not always true. There is belief, but belief can be and often is wrong. Especcialy with prices.
I’ve no formal educational background(which should give me the upper hand) but I would say the ‘system’ seems to have foreseen an event where by the price oil were used as a weapon. The USD can and seems to be being used as a shield.
TradeState warefare at it’s finest!
I understand your point. But if oil sold only in dollars, that would make the dollar International currency, because countries would want dollars to buy oil, so they would trade with the US on US conditions to get dollars. Doesn’t that effectively tie the value of the dollar to oil? However, when oil is traded in Euros and Yin and oil money goes into Arab banks instead of US banks, then the tie between oil and the value of dollar is broken. If US dollars are no longer wanted as International money, the value of the dollar collapses.
This would be tragic for the small countries whose currency is pegged to the dollar. Now if these countries peg their currency to the Euro, that devalues the dollar, right?
Americans are not saving their money. US banks had money to loan because of oil money. Without that oil money our banks don’t have as much money to loan. However, by lowering interest rates and encouraging house loans, this is suppose to generate money for banks. Now if there is a recession like the 1970 oil shortage recession, people loose their homes and businesses, and the banks don’t get their money. If banks aren’t getting money, they don’t have money to loan, and this stalls the economy, right? If this happens, the value of the dollar on the international market falles, right? Doesn’t this banking fact, sort of tie the value of the dollar to oil?
More or less - you are ignoring supply and demand, and the reasons for demand.
What you say is correct, but only in a very limited sense. The value of a currency is not a random thing. Yes, the dollar floats, but its movement is determined by supply and demand - by the market for dollars. This market is usually a complicated thing.
The market for commodities such as oil can affect inflation (but not every measure of it - the CPI doesn’t account for oil), which affects interest rates. Those rates may affect demand for dollars - in the bond market, for instance. The demand for dollars, in turn, affects the price.
I understand floating exchange rates. You don’t seem to understand the market.
The market for the dollar is being destroyed. That is the whole point of this thread.
PS. If banks are charging low interest rates, they must also pay low interest rates, and this discourages savings, and foriegn money from coming into our banks, like oil money. Oil money made our banks flush and this is not no longer true.