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Thread: the scariest financial news heard this week ...

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    Banned Melonie's Avatar
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    Default the scariest financial news heard this week ...

    ... if you understand what's at stake !

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    Sitri
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    Default Re: the scariest financial news heard this week ...

    Looks like I should be buying Euros.

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    Default Re: the scariest financial news heard this week ...

    ...somewhere someone has run world economic computer simulations of this senerio. I'd be curious to see the outcome. Melonie, do have any links to sites that run simulations? ?
    "Peter, did you take Stewie to a strip-club? He smells like sweat and fear." - Lois and Stewie (Family Guy) ... "Through early morning fog I see, Visions of the things to be, The pains that are withheld for me, I realize and I can see..."

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    Veteran Member Lurker's Avatar
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    Default Re: the scariest financial news heard this week ...

    Oil already IS priced in euros. It's just that the traders who care to trade oil in euros have an FX trade to do on the back of their dollar trade. Changing the currency of the contract is pretty meaningless, except to lazy financial journalists.

    CB reserves shifting from dollars to euros IS meaningful, however, but not incredibly so. The Fed suggests that maybe a 25 bp rise in interest rates would result from a 20% shift out of dollars into other currencies by global CBs in their FX reserves.

    Of course, the actual currency movements could be far larger. But I don't think the big "twin deficit" problem in the US is likely to result in some kind of dramatic collapse of the global economy. I WOULD say buy foreign currencies for anyone who has that luxury! Not so much the Euro, but Mr. Kudrin's currency for example.
    "All this time you were pretending
    So much for my happy ending."
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    Banned Melonie's Avatar
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    Default Re: the scariest financial news heard this week ...

    Just an opinion, but world commodities like oil, gold, copper etc. actually seem to be 'priced' in a basket of currencies - a basket where the weighted average attributed to the US dollar is pretty large. Additionally, dollar traded commodities like oil are a simple transaction, whereas purchasing oil in euros first involves an actual exchange of currency with associated fees and premiums that people using US dollars don't have to pay.

    If and when the US dollar loses its 'reserve currency' status, the weighted average attributed to the US dollar in that basket of currencies will drop - immediately translating into higher US dollar denominated prices for world commodities. On top of that, there will be new costs for people using US dollars to purchase world commodities in the future if those dollars must be converted into Euros or Yuan before the purchase can take place.

    Of even more importance is the end of PetroDollars ... meaning that the Saudis, Kuwaitis etc. are taking in huge number of US dollars as long as their oil is being sold in dollars. If and when that oil starts to be sold in Euros, they'll be taking in piles of Euros instead. When faced with the prospect of banking/investing/purchasing things with the surplus oil revenue, right now investing in the USA is 'free' while investing in Europe involves a potential double currency conversion expense (convert once to invest in a Euro denominated bond, convert again when cashing it in). This currency conversion effectively lowers the rate of return on the investment. But if oil starts being traded in Euros instead of Dollars, and if the shieks have billions of Euros to invest instead of Dollars, then investing in European bonds is 'free' while US bonds now involve a potential double currency conversion expense. So in order to continue financing our deficits by continued bond sales to foreign investors (which we must do to the tune of something like 3 billion dollars a day), US interest rates paid to foreign bond investors must increase enough to cover the currency conversion.

    This will directly translate into higher prices for imported goods and higher US interest rates.

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    Default Re: the scariest financial news heard this week ...

    Dumping the US dollar would be a avoidable mistake, and any realist in investment banking or central banks knows that there is no replacement for the US dollar on the world economy.

    While it might happen gradually in twenty years, an abrupt "dump" would cause a world recession. Not going to happen, because this one can be forseen and avoided by the world bankers.

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    Banned Melonie's Avatar
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    Default Re: the scariest financial news heard this week ...

    While it might happen gradually in twenty years, an abrupt "dump" would cause a world recession. Not going to happen, because this one can be forseen and avoided by the world bankers.
    ... unless it happened to be in the strategic interest of a particular country (or group of countries) to create a world recession .... think about it !

    Also, unilaterally, there is absolutely nothing that the USA can do to avoid bringing on a US recession itself if it tries to defend the dollar ... because the only 'tool' at their disposal is raising fed funds rates to whatever high levels are necessary to pursuade foreigners that US dollar denominated investments have a good enough ROI versus risk.

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    Default Re: the scariest financial news heard this week ...

    The dollar is running on the inertia generated from the 70's and 80's.

    If we continue being the worlds largest debtor nation with the largest trade deficit in history... why would anyone want that currency?

    We need to get our act together before it catches up with us.

    When we finally get around to sanctioning Iran and then Iran decides to sanction the world with reduced oil output - there will be countries who wish to neuter the US and that will be by our dollar.

    When Iran says "Hey - F you guys" is Russia going to step in with production? And are they going to want dollars or rubles... or something inbetween like Euros?

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    Default Re: the scariest financial news heard this week ...

    When Iran says "Hey - F you guys" is Russia going to step in with production? And are they going to want dollars or rubles... or something inbetween like Euros?
    yup, and that's only the 'oil' half of the equation. The Iranians are also sitting on tens of billions in dollar denominated investments around the world, which they could instantly yank out and reinvest in a European or Asian currency. The Iranians recently moved a relatively small amount of US dollar assets into Euros, which promptly sent the US dollar exchange rate down and the price of oil up ! Same potentially goes for the Saudi's, the UAE (who the US did such a wonderful job of befriending lately by killing their ports deal, while saying nothing about our Chinese run ports !) on a much grander scale.

    IMHO The only thing that has really stopped Arab PetroDollars from leaving the US already has been the fact that the Saudi royal family and certain other middle eastern leaders have looked to the USA to keep their oil infrastructures protected and their regimes in power versus would-be islamic fundamentalist elements in their own countries. However, if Iran successfully defies the UN/entire world with impunity, this will be a clear signal to the islamic fundamentalist elements that the current rulers in Saudi, the UAE etc. are as vulnerable as the Shah was ! Switching from the dollar to the Euro would then offer Saudi, UAE etc. ruling elite a new 'guarantor' who isn't as deeply hated (or as joined at the hip to their arch-enemy, Israel) as America.

    As to Russian oil and gas, they're ALREADY talking about pricing future sales to western Europe in Euros not dollars. The russian finance minister brought this up again at the G7.

    And then there's China, with an economy that is growing too fast to control, with citizens just starting to climb up the ladder from easily dominated 'slave labor' to think for themselves 'consumers', and with no love for the USA's unconditional support of Taiwan ... who is also sitting on the world's largest pile of US dollars, and facing the world's largest risk of exchange rate losses if they continue to hold hundreds of billions in dollar reserves and the dollar declines big time.

    actually, it looks like the 'fallout' is already starting ...



    and this wouldn't be the first time such a thing has happened ...


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    Last edited by Melonie; 04-29-2006 at 10:36 AM.

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    Default Re: the scariest financial news heard this week ...

    Looks like we want to nuke Iran for not trading oil for Dollers and tradingf for Euros

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    Veteran Member NoCoverLover's Avatar
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    Default Re: the scariest financial news heard this week ...

    Quote Originally Posted by trainfinder22
    Looks like we want to nuke Iran for not trading oil for Dollers and tradingf for Euros
    Where on earth did that come from??

    That whole freakin' mess just gives Iran yet another reason to dump the US$, as Melonie aluded to earlier...

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    Default Re: the scariest financial news heard this week ...

    Quote Originally Posted by NoCoverLover
    Where on earth did that come from??

    That whole freakin' mess just gives Iran yet another reason to dump the US$, as Melonie aluded to earlier...
    It also gives the world market oil traders more reason to bid up the price of oil futures, based on the possibility of a future 'disruption' in Iranian oil exports. On top of that, it also gives the world market currency traders more reason to bid down the price of US dollar futures (which lowers the US$ exchange rate) based on speculation that huge piles of future US dollars will wind up being spent on military action in Iran.

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