[Carlhole]

Stable dollar rests on sand - F.William Engdahl:
The new Current Concerns is out and it features several articles by F. William Engdahl, the author of "A Century of War: Anglo-American Oil Geopolitics and the New World Order".

All the commentary at Current Concerns is good stuff such as this month's "America’s “War on Terror: A Prescription for Perpetual War" by Ph.D. Stephen J. Sniegoski, Historian and Journalist, Washington D.C.
$this->bbcode_second_pass_quote('source', '[')b]Stable dollar rests on sand By F. Willam Engdahl:
I have written several times in recent months in these pages about the danger of an imminent dollar collapse and, with it, a danger of the collapse of the largest bubble in financial history-the US real estate bubble. Yet the dollar has been remarkably stable, this, despite the incredible devastation of hurricane Katrina and Hurricane Rita and the huge cost in lives and materiel of the Iraq war. Why has this been so?

Today, to make matters more precarious, the US has a de facto 'lame-duck' President. It is undergoing a wave of major corporate Chapter 11 bankruptcy filings from United Air to Delphi, the US' largest auto parts supplier. The US economy has not been able to create new jobs of any significance. The average disposable income is stagnating, and personal debt levels are going through the stratosphere, as people desperately borrow money at very low interest rates to buy vastly over-valued houses. The Federal budget deficit again recorded a near record size of over $318 billion.
Why would anyone in their right mind want to own dollars? That's a very good question.

[Euric]

$this->bbcode_second_pass_quote('Carlhole', 'T')he new Current Concerns is out and it features several articles by F. William Engdahl, the author of "A Century of War: Anglo-American Oil Geopolitics and the New World Order".

All the commentary at Current Concerns is good stuff such as this month's "America’s “War on Terror: A Prescription for Perpetual War" by Ph.D. Stephen J. Sniegoski, Historian and Journalist, Washington D.C.

$this->bbcode_second_pass_quote('source', 'S')table dollar rests on sand
By F. Willam Engdahl

I have written several times in recent months in these pages about the danger of an imminent dollar collapse and, with it, a danger of the collapse of the largest bubble in financial history-the US real estate bubble. Yet the dollar has been remarkably stable, this, despite the incredible devastation of hurricane Katrina and Hurricane Rita and the huge cost in lives and materiel of the Iraq war. Why has this been so?

Today, to make matters more precarious, the US has a de facto 'lame-duck' President. It is undergoing a wave of major corporate Chapter 11 bankruptcy filings from United Air to Delphi, the US' largest auto parts supplier. The US economy has not been able to create new jobs of any significance. The average disposable income is stagnating, and personal debt levels are going through the stratosphere, as people desperately borrow money at very low interest rates to buy vastly over-valued houses. The Federal budget deficit again recorded a near record size of over $318 billion.

Why would anyone in their right mind want to own dollars? That's a very good question.

[Euric]

$this->bbcode_second_pass_quote('Carlhole', 'T')he new Current Concerns is out and it features several articles by F. William Engdahl, the author of "A Century of War: Anglo-American Oil Geopolitics and the New World Order".

All the commentary at Current Concerns is good stuff such as this month's "America’s “War on Terror: A Prescription for Perpetual War" by Ph.D. Stephen J. Sniegoski, Historian and Journalist, Washington D.C.

$this->bbcode_second_pass_quote('source', 'S')table dollar rests on sand
By F. Willam Engdahl

I have written several times in recent months in these pages about the danger of an imminent dollar collapse and, with it, a danger of the collapse of the largest bubble in financial history-the US real estate bubble. Yet the dollar has been remarkably stable, this, despite the incredible devastation of hurricane Katrina and Hurricane Rita and the huge cost in lives and materiel of the Iraq war. Why has this been so?

Today, to make matters more precarious, the US has a de facto 'lame-duck' President. It is undergoing a wave of major corporate Chapter 11 bankruptcy filings from United Air to Delphi, the US' largest auto parts supplier. The US economy has not been able to create new jobs of any significance. The average disposable income is stagnating, and personal debt levels are going through the stratosphere, as people desperately borrow money at very low interest rates to buy vastly over-valued houses. The Federal budget deficit again recorded a near record size of over $318 billion.

Why would anyone in their right mind want to own dollars? That's a very good question.

[MrBill]

$this->bbcode_second_pass_quote('', 'T')he dollar is benefitting from higher U.S. interest rates and corporate inflows, while the steady performance of the world's biggest economy will support the U.S. currency, Saudi Arabia's central bank governor said.

Speaking to Reuters lare on Sunday, Hamad Saud al-Sayyari, governor of the Saudi Arabian Moneatry Authority, said the oil-irch country is building up foreign exchange reserves with increased dollar reveues from high oil prices. "If the U.S. economy continues to perform well, it will be reflectedd on the market perception of the currency especially if other major economies do not perform well."

Despite the dollar's strength, speculation is rife oil-rich Middle Easstern central banks are diversifying their FX reserves into the euro as high oil prices boost their dollar-based revenues.

"Central banks have built up reserves and they are diversifying as well. But they are not the movers, maybe the contributors." he said.

[aldente]

Here a remarkable audio to this topic:

http://www.financialsense.com/Experts/2005/Engdahl.html

[DantesPeak]

So far the petrodollar recylcing system is still functioning, but the repartiation of over $100 billion in US dollars this year by US multinationals is finsihed.

$this->bbcode_second_pass_quote('', 'O')nward and Upward, for Now
by Charles Mackay, Sunday November 06 2005
Copyright (c) 2005 The Wall Street Examiner. All rights reserved.

The US trade deficit is still growing larger, with the help of recycled 'petrodollars'.

While the International Energy Administration rescued the US from possible nationwide gasoline shortages after Hurricane Katrina struck (IEA and Oil Supply Disruption), there is a price that must be paid for these increased energy imports- namely, the creation of more 'petrodollars' at a faster pace (see also Petrodollar Warfare).

The issue of petrodollars, which itself is part of the larger ad-hoc Breton Woods II*, worldwide US dollar regime, helps explain how the US economy manages to shrug off repeated energy price shocks and escalating military/disaster expenses. As long as all those 'petrodollars' that are created to pay for the huge trade deficit are recycled back into U S dollars, the US economic system can usually function fairly well. Now that OPEC is earning larger quantities of petrodollars again, like in the early 70s, it is becoming more important that those petrodollars be recycled. Interest rates alone aren't enough to attract the very huge amount of money needed to finance the current account deficit (the current account is the trade deficit plus net interest/dividend payments on prior international transactions). It appears that most OPEC members are operating under an implied quid pro quo system of dollar reinvestment in exchange for military security, and possibly, political security (with the notable exception of Iran and Venezuela).

[Euric]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('', '
')
Central bankers were net sellers of US treasuries last week, but the dollar remains well bid against the euro and the yen. Euro weakness on the back of higher than expected deficits predicted in Germany as well as a weak coalitioni government which is unlikely to push through tough reforms; on Italy's budget woes; and of course on street violence that have gripped France for the past 12-days. Not to mention recent anti-Israeli and anti-market rhetoric from the President of Iran have effectively derailed any thoughts of a Iranian backed oil bourse at anytime in the near future. It ain't gonna happen.

[FoxV]

so when does it all fall apart?

after iran?
after more interest rate increases?
after the winter heating bills?

I can't stand to hear about ever increasing levels of insanity yet everything is fine.

I tell ya if we end up with a November rally I'm going to lose it

[MrBill]

$this->bbcode_second_pass_quote('Euric', '')$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('', '
')
Central bankers were net sellers of US treasuries last week, but the dollar remains well bid against the euro and the yen. Euro weakness on the back of higher than expected deficits predicted in Germany as well as a weak coalitioni government which is unlikely to push through tough reforms; on Italy's budget woes; and of course on street violence that have gripped France for the past 12-days. Not to mention recent anti-Israeli and anti-market rhetoric from the President of Iran have effectively derailed any thoughts of a Iranian backed oil bourse at anytime in the near future. It ain't gonna happen.

[FoxV]

$this->bbcode_second_pass_quote('FoxV', 's')o when does it all fall apart?

[MrBill]

$this->bbcode_second_pass_quote('FoxV', '')$this->bbcode_second_pass_quote('FoxV', 's')o when does it all fall apart?

[FoxV]

well you've certainly been able to put reasonable doubt about Iran's oil bourse (A link to the Iran focus article would be nice, but such a long post was not neccessary).

So not to digress this into a discussion of Iran, lets stike that part from my post.

Any comments about the rest of it, particularly that'll it'll be this winter's Natural gas prices that will be the last straw on the US's camel

[Petrodollar]

Mr Bill,
I agree that recent comments by the conservative/hardline leader of Iran has created a lot of consternation within various international relations. UN Sec Gen Kofi Annan's recent decision to cancel a planned visit to Iran is indicative of current sentiments.

Unfortunately, and it is argueble, but the outcome of the June election in Iran may have been in part due to belligerent US talk of invading Iran since early 2003. The Bush administration has repeatedly stated "regime change is official policy" - even when a reformer was the president. That was a mistake. Based on historical analysis, when countries feel they are at risk of being attacked from a foriegn power, hardliners/authoritarians usually some to power. (Hilter and the Reichstag fire being the infamous case study from the 20th century)

However, you continue to draw some large generalizations without any supporting facts or evidence re the oil bourse. (ie. "It ain't gonna happen." It "won't change things one iota."). That is pure conjecture - it is clear you are very euro-skeptic - and that seems to color your statements. I am requesting some facts. Do you have any recent articles about the oil bourse that I have not read? If so, please enlighten me.

(BTW, you stated that traders are not likely willing to relocate to Tehran to participate in the bourse, due in part to domestic conditions. That may be true - but I can tell you have not done your homework. The oil bourse will operate kind-of-like NASDAQ - an electronic market/secure Internet transactions. This format negates "floor traders" like the NYMEX and IPE. I believe a German software company developed the IT infastructure, and it will likely be a distibuted system, etc.)

Moreoever, you also carefully and completely omit other issues that pretain to this issue. For example, you stated:
$this->bbcode_second_pass_quote('', '
')S. Arabia, Dubai, Canada, Norway, the UK, Mexico and other OPEC and non-OPEC producers have no incentive to switch from pricing oil in dollars to pricing oil in euros. They certainly do not look to Iran or Venezuela for leadership on this issue.

[DantesPeak]

Excellent summary, Petrodollar.

The US is accumulating monetary debt at roughly a $1 trillion annual rate. I believe that is very near the practical limit of just how much capital the rest of the world has to offer yearly. Or in other words, the US dollar regime is about as efficient as it may ever get. Any event, market disruption, or even a tiny shift in market psychology, may reduce the flow of incoming dollars.

Most likely, we will get a warning of sorts from OPEC that all petrodollars will not be returning. The Iran oil bourse is about as clear as a warning that may come. Probably, signs of dollar stress would be a weakening exchange value of a dollar, which we don't have right now. But, as it was said further above, out of a clear blue sky we may find one day that dollar recycling has suddenly stopped - and the standard of living within the US will suddenly fall.

[Euric]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('Euric', '')$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('', '
')

That is right. And in April 2006 you will tell me that Iran didn't open the euro oil bourse because the USA/Israel threatened to nuke them, and when the euro is still not any stronger than it is today, it will be because of another conspiracy between London & New York. Nevermind that the interest rate differentials and higher growth are supporting the dollar at the moment, and that the EU13 have their own serious budget, unemployment and growth problems. I am not hear to wave the flag. Go off to your bunker and believe only what gets filtered through to you by the anti-American doomer Press. There are real problems in the world that do affect me. Worrying that the dollar will collapse in 2006 is not one of them

But let's talk again in April so I can hear your excuses again.

[MonteQuest]

$this->bbcode_second_pass_quote('Euric', 'N')ow that I have read his article I feel that his belief that the repatriation of Corporate overseas dollars is what has kept the dollar stable may be a plausible explanation if one isn't aware or doesn't put much into the power of the petrodollar.

[MrBill]

What is it with you people and Iran?

Mr. Clarke please do not attribute fabricated remarks. Quote me if you must. And, then refute my point. It makes little sense to refute remarks I have not made.

I have already written that Gazprom currently has contracts with Germany denominated in euros. So you telling me that, FYI, makes you look like you know something I do not or not?

As for Mr. Putin and Mr. Fudin. I do not know Mr. Putin.

I have not ignored Russia at all. I write about them in my other forum, A Survey of the World Economy, I don't feel compelled to write the same things over and over again. This post dealt with Iran.

As for the Russians. They don't really care one way or the other. Oil in Russia has replaced defense as the main lever of power. The Kremlin has used the oil industry as a lesson to the rest of the oligarchs to get into line. For many who see oil as a critical commodity, it is not surprising that in a country with as few means of effective control as Russia that the Kremlin is using the oil & gas industry as well as its direct control over key producers to exercise control over the general economy. But, as I work for a Russian company I am very careful about any comments I might make.

Interestingly enough when the dollar started to lose some of its value the Russians were quick to switch to posting international currency unit (ICU) prices in shops from dollars to euros. However, it is illegal to pay for anything in Russia in anything, but rubles. But, when they switched from dollars to euro ICUs many prices increased 25% overnight. This is a sign of an emerging economy. Russia is not quite as developed as the United States or the Eurozone as I am sure you can appreciate. They are undergoing many reforms, which is why I do not consider them a price maker for oil, but rather a price taker based on where other OPEC and non-OPEC producers set their prices. Urals blends trade at a quality and price discount to other blends such as Brent.

I am sorry, but Norway is not part of the EU and they are not planning to join. Why should I provide you with a link? Please provide me with a link saying that Norway is planning to join the EU? Membership in the ERM could only take place after membership in the EU as many new EU members in CEE know.

Yes, there is resistance in the UK & Sweden to join the euro. Support is waning. Yes, France and the Netherlands recently voted against a EU constitution that would have required ever closer economic and political union. Someday this drive for a federalist Europe may be revived, but that is not seriously being considered at the moment.

I am not a euro skeptic as you assume. I object to people saying that the dollar is ONLY supported through its being a) the main reserve currency, b) because the majority of world trade is done in dollars, and c) because oil is priced in dollars. The value of the US dollar is also determined by the combined productive assets of the United States; relative growth rates; inflation and interest rates; trade; and of course its debts & deficits (which are pledges on future earnings). No where in any of my posts will you find me downplaying the seriousness of America's massive twin current account and budget deficits. I have called repeatedly for the US to raise taxes, cut spending, eliminate the deficit and reduce the debt as being the only way to unwind their serious external and domestic imbalances.

On the otherhand. I have pointed out some problems with the EU13's own debts & deficits as well as growth which compells me to counter arguments to the effect that while the US faces imminent collapse (perhaps not you, but some of your shrillest supporters), while Europe is so much more balanced. Strip away tax rate differentials and you can easily see that the US has more long-term ability to pay its debts, but that at the moment it is the political will that is lacking as well as a backlash from the electorate. Well, guess what, European governments are already cash strapped and straining against the Maasstricht Criteria, and their electorates are in some cases violently resisting structural changes to their social contract, too.

It is not so much that I do not understand Europe or dislike the euro. Afterall I have lived here for almost 14-years now. I just dislike paying the taxes to be honest. I have predicted that it will make-up 35% of international reserves in the next 5-years. The second most important reeserve currency. I have never stated that the US' position is immutable. In fact, I have written that poor laws in the form of capital controls passed in the 1970's lead to the eurodollar market and London becoming the largest financial center in the world.


It is that as a trader I look at all the variables and resist drawing conclusions based on only a few. If interest rates in the US were one percent and the dollar was at 0.8200 versus the euro I might have said the dollar was oversold, but I would have failed to see what would change that. Once the FED started raising rates and US interest rate differentials started to favor the dollar over the euro, it was easier to make the case for a stronger dollar. If the ECB raises rates and EU governments can reform their own economies, and reduce their deficits while maintaining positive growth, then I might call for the euro/dollar higher. However, if US interest rates are 5% and the ECB is at 2.5% in mid-2006, and if growth is higher in the US, then I would not expect the euro/dollar higher than right now either.

Iran will not open an oil bourse in 2006. However, as I have also written if they did and if the NYMEX or the IPE felt that this would undermine their own market share then they would be quick to launch their own euro denominated euro contract in parallel with their dollar contracts. If they did not, then Deutsche Bourse Clearing/EUREX or some other electronic exchange would fill this role. I think I quite clearly laid-out my opposition to an Iranian exchange and that evidence becomes clearer by the day. Even if it is an electronic exchange the health and reputation of the exchange depends on the financial integrity of the clearing house. An Iranian clearing house would not be an acceptable counterpart for most western banks and financial institutions. The SEC and the FSA are simply better regulators and no one would rely on an Iranian legal system to resolve commercial contract disputes.

So if it helps you to sell books to demonize me then I am happy to play this role, so long as I am allowed to freely voice my own opinion. In another post you wrote the whole reason behind your book was to advocate that we live within our means both with regards to oil and financialll (paraphrased sorry)? I agree.

As for the hardcore peak oilers who hate the system. They aren't looking for a solution to the geological effects peak oil, they are looking for an umbrella concept from which to vent their collective rage. With them I cannot agree.

[DantesPeak]

I don't share Mr. Bill's optimism that just relative interest rates will maintain the value of the dollar. As interest rates rise relatively faster in
the US, the total current account deficit increases relatively faster on the accumulated $9 trillion in debt instruments. In other words, there is essentially a self reinforcing cycle where the current account deficit grows higher to maintain the US standard of living (substantially becuase of higher energy prices) - but to keep dollars flowing in interest rates are raised. This creates an even larger current account deficit, which forces rates even higher, and so on. When does it end? When the world can't or will not provide further money to the US.

The original POers expected what was happening now years ago. It is not a philosophy of doom, but of reality. Those that fail to see the present system is both physically and monetarily unsustainable, which is most of the world, will be most surprised about what is to come. No one event is important, the dollar regime may begin its downfall over our breakfast tommorow without a single noteworthy event in the world. Fortunately most here will at least realize that day has come when it arrives.

[MrBill]

$this->bbcode_second_pass_quote('DantesPeak', 'I') don't share Mr. Bill's optimism that just relative interest rates will maintain the value of the dollar. As interest rates rise relatively faster in
the US, the total current account deficit increases relatively faster on the accumulated $9 trillion in debt instruments. In other words, there is essentially a self reinforcing cycle where the current account deficit grows higher to maintain the US standard of living (substantially becuase of higher energy prices) - but to keep dollars flowing in interest rates are raised. This creates an even larger current account deficit, which forces rates even higher, and so on. When does it end? When the world can't or will not provide further money to the US.

The original POers expected what was happening now years ago. It is not a philosophy of doom, but of reality. Those that fail to see the present system is both physically and monetarily unsustainable, which is most of the world, will be most surprised about what is to come. No one event is important, the dollar regime may begin its downfall over our breakfast tommorow without a single noteworthy event in the world. Fortunately most here will at least realize that day has come when it arrives.

[Euric]

$this->bbcode_second_pass_quote('Petrodollar', 'M')r Bill,

Anyhow, I'm probably wasting my time given your intrinsic euro-skeptism, desire for "status quo" despite the evidence of a techtonic shift towards the euro, a disdain for reading the history of petrorecycling using the typical defense mechanism of "conspiracy theory", along with a subsequent failure to comprehend how this phenomenon continues to impart major macroecononic effects on the global economy.

So, I will leave you to ponder these five quotes... (My guess is that you fall into the camp of the 2nd quote, but I think the 1st, 3rd, 4th and 5th quotes are likely to prevail by 2010)