[Doly]

About salaries in the US: the claim that average salaries haven't risen in the last 20 years applies to unskilled workers. See http://bernie.house.gov/economy/today.asp

The problem seems to be that the wage gap between rich and poor people in the US is increasing. So, Mr Bill, you may not be entirely correct in the claim that Americans are getting wealthier as a whole. But, clearly, the rich doesn't mean only the super-rich in these statistics. Middle-class families have been doing better.

[MrBill]

$this->bbcode_second_pass_quote('Doly', 'A')bout salaries in the US: the claim that average salaries haven't risen in the last 20 years applies to unskilled workers. See http://bernie.house.gov/economy/today.asp

The problem seems to be that the wage gap between rich and poor people in the US is increasing. So, Mr Bill, you may not be entirely correct in the claim that Americans are getting wealthier as a whole. But, clearly, the rich doesn't mean only the super-rich in these statistics. Middle-class families have been doing better.

[grabby]

It is our job to elect people who will punish the rich this next election.
that oughta teach us!
(course I'll loose my job)

[SoothSayer]

As the poster of the original questions, I can only say that aftre 14 replies I am still confused.

I have heard that the USA gains special leverage through all oil being sold in US dollars ... so I was looking for a Kinder-Garten explanation for morons.

Sadly I am now even more confused. I am sure that M1, M2, M3 stats etc are all vital to the world economy ... but I still don't know what the very simple "trick" behind petrodollars is.

Oh well, I'll have to order that book from Amazon ...

[Petrodollar]

SoothSayer,
Still confused by all the verbiage? No problem, I'll list 4 macroeconomic effects of petrodollar recycling (but fully explaining these issues will require more time than I have at the moment, so I'll edit this post as time permits);

I. Currency Risk/Currency Exposure (esp. when OPEC prices oil in a currency band of $22-28 - which obviously has given way in part due to Peak Oil and in part due the dollar devaluation relative to the euro and other major currencies in the wake of the 2001 tax cuts and subsequent Iraq War). What do I mean by currency risk?

Well, let's examine recent history. Americans are mostly ignorant of the dramatic effects of currency risks and the reasons for higher gasoline (or petrol) prices in Europe. Very high fuel prices in the autumn of 2000 occurred when the relatively new euro was at its historic low against the dollar (one euro was worth about 82 cents, a tremendous fall from the euro at 1.17 when it was lauched in Jan 1999).

The French, Germans, Spanish, Greeks, and related eurozone nations not only experienced an increase in fuel prices due to a dip in oil production, but they also felt the brutal effects of currency risk caused by the euro’s relatively low valuation.

The situation in Western Europe during September 2000 was in many ways reminiscent of the fuel crisis in the US of 1973–1974 and 1979-1980. Indeed, the European economy nearly ground to a halt, and there were strong civil protests over the high gasoline/petrol prices. The crisis lasted only a few days but nearly led to violence. In France, fishermen blockaded ports on the English Channel because their fuel costs had doubled, even though their fuel was already tax free. Schools were closed, hospitals were put on red alert, and supermarkets started rationing bread.

Transportation came to a near standstill in much of Western Europe. CBS News reported how events unfolded in Germany and elsewhere within the eurozone,

$this->bbcode_second_pass_quote('', 'T')housands of truckers from across Germany clogged the streets around the capital’s center Tuesday demanding relief from higher gas prices. And they got some when the government offered low-interest loans to some trucking companies. …The protest is the biggest so far in Germany, on the heels of demonstrations that halted traffic in France, Britain and Spain before easing in recent days. Elsewhere Tuesday, minor blockages continued in Spain, where markets ran out of fish, and Greek motorists fearing for shortages due to trucker strikes lined up for gas.

[Petrodollar]

...one more speech worth reading about this issue:

http://www.house.gov/paul/congrec/congr ... 021506.htm

$this->bbcode_second_pass_quote('', 'H')ON. RON PAUL OF TEXAS
Before the U.S. House of Representatives

February 15, 2006

The End of Dollar Hegemony

[Euric]

$this->bbcode_second_pass_quote('Petrodollar', '
')
Of course the US has long been immune to currency risk (when OPEC sold oil in a price band of $22 to $28 ), and the result to the average Joe is cheap gas prices, which we now consider an inalienable right. This segues into the 2 major effect of monopoly petrodollar recycling...

II. Taxation policies on petrol/gasoline sales with and without currency risk (US vs. the rest of the G7 or G10). Most folks don't make this connection, but their are a couple of reasons why gasoline is taxed much higher in Europe and Japan, and it has nothing to do with taxation "ideology," something to do with building mass transit with oil tax revenue, and a lot to do with the macroeconomics surrounding a vital imported product whose unit of account (price) is in dollars only - oil.

Indeed, the lack of currency risk is one of the reasons why taxes on gasoline are much lower in the United States than in most other countries. The average world price for a gallon of gasoline in 2004 was about $5, or nearly 60% higher than typical US prices. Higher gasoline taxes in the EU and elsewhere provides a cushion for that nation’s currency risks for its imported oil and energy purchases.

Without this, a country could experience wild swings in daily prices at the gas pump due to fluctuations in its domestic currency’s valuation relative to the dollar on the volatile international currency market. If oil became priced in a basket of currencies, the US government would ultimately have to do what other industrialized nations have done, increase taxes on gasoline in order to mitigate wild fluctuation in price/currency risk that would lead to societal discord. This important economic/taxation effect is often overlooked by stateside commentators when discussing the US benefits stemming from the monopoly petrodollar pricing system for global oil trade.

[MrBill]

$this->bbcode_second_pass_quote('', 'I') don't think the world price for gasoline was ever near $5.

Here is a country by country average of gasoline prices for 2000 in US$/L.

http://www.nationmaster.com/red/graph-T ... pri&int=-1

for the past few years in pdf format.

http://www.internationalfuelprices.com/


http://www.international-fuel-prices.co ... es2005.pdf

Nowhere did I see a 5 $/L cost for anyone.

[MrBill]

Not that the EU is immune from at least contemplating punitive taxes on some in the name of fairness to others. Am surprised to see countries like Slovenia lining up on that side of the debate when the CEE entrants to the EU have mainly benefited from tax friendly policies and subsequent higher growth?
$this->bbcode_second_pass_quote('', 'B')RUSSELS, May 5 (Reuters) - Big oil company profits caused a stir as EU finance ministers met in Brussels on Friday after one minister said the public seemed upset about the "big winners" of the crude price surge that has sparked inflation fears.
Several ministers, however, dismissed any idea of a windfall tax on profits of the kind announced in recent days by companies such as Exxon Mobil, Shell, Total or BP -- ranging very roughly from $500 to $1,000 per second for the first quarter of 2006.

"There seems to be a sort of irritation in public opinion," Jean-Claude Juncker, prime minister and finance minister of Luxembourg, told a late-night news conference on Thursday after chairing a working dinner with ministers from the euro zone.
The ministers' primary concern is whether the oil price rise sparks inflation, after warnings by the European Central Bank that it would not hesitate to raise interest rates further to keep such a threat at bay.
"On taxation of oil company profits, as I said we are at the beginning of a process. I can simply say we started this discussion. I can say no more than that," Juncker said.
The comments, while vague, conveyed the idea that taxing the juicy gains had crossed politicians' minds, although Juncker said on Friday there had been no proposal on a windfall tax.
"We are not really there. We were asking oil companies if they would invest in substantial refining," he said.
Slovenian Finance Minister Andrej Bajuk was enthusiastic, saying: "Absolutely, yes. It would be marvellous to have a more active tax policy ... there is a lot of income. It would be wise to take a serious look."
But others were outrightly dismissive.
"We already tax oil profits," Dutch Finance Minister Gerritt Zalm told reporters. "Why would you give higher tax for companies when they make higher profits, and what would you do if it makes lower profits?"
Austrian Finance Minister Karl-Heinz Grasser said a windfall oil profit tax was "not realistic".
"I think it's not really a proposal that has a big chance of being implemented," he said. "If it is possible to have such a tax on a worldwide basis, but I really state on a worldwide basis, then I think we could discuss it."
Exxon, the world's biggest oil company, racked up profits of roughly $1,000 a second in the first quarter, while Shell earned about $785 per second, BP more than $660 and Total roughly $550 a second.

WATER OFF A DUCK'S BACK
Ministers from the 12-nation euro zone were joined for the second day of a regular Brussels gathering on economic policy by their counterparts from the other countries in the 25-country European Union.
On Thursday, euro zone ministers sounded a decidedly more upbeat note than usual on the region's economic outlook, saying recovery was on track after a lull late last year, and in spite of high oil prices and rising interest rates.
The ministers were joined for dinner on Thursday by ECB chief Jean-Claude Trichet, hours after saying in Frankfurt that he would have to raise official credit costs to avert inflation if growth in the region continued at the current pace.
The ECB left rates unchanged at 2.5 percent but Trichet's comments hardened market expectations of a rise in June.
Last year finished with a whimper as economic growth in the last three months slowed to a quarterly 0.3 percent, half of what it was in the third quarter.
Growth in Germany and Italy ground to a halt but now seem to be picking up and monthly surveys have shown business activity at five-year highs.
"The recovery is so strong that it probably won't matter much," Zalm, not prone to making dramatic statements, said of oil prices that recently topped $75 a barrel.
The International Monetary Fund last month forecast global economic growth of 4.9 percent this year, well above the average annual growth rate of the past 30 years, and raised its euro zone forecast to 2.0 from 1.8 percent.
Those forecasts and new ones the European Commission issues on Monday come despite the latest record in oil prices and a rise in world interest rates after years of dirt-cheap credit.
"So far the impact has not been significant. We've seen a big rise in oil prices and at the same time an improvement in the rate of growth," European Economic and Monetary Affairs Commissioner Joaquin Almunia said.
Almunia has until recently forecast 1.9 percent growth this year after a dip to 1.3 percent in 2005 from 2.0 in 2004.
Hard figures on gross domestic product for the first three months of this year are due on May 11.

[OilsNotWell]

Thank you for all of your posts Petrodollar, you are a great asset to this board!

[MrBill]

Anyone selling you simple easy to understand solutions to complex problems is doing you a disservice in helping you to understand their root causes and implications. This article on the dollar's woes is just one example of a dynamic system with many feedback loops to keep it more or less stable, but it is constantly in change.
$this->bbcode_second_pass_quote('', ' ')
11:49 05May2006 RTRS-ANALYSIS-Declining dollar opens new realm for investors

By Jeremy Gaunt, European Investment Correspondent
LONDON, May 5 (Reuters) - Glance at investment bank Citigroup's latest calculations for returns on euro zone government bonds and you will get a quick lesson in what shifting currency rates can do to an investment portfolio.
A sell-off in debt in the euro zone has produced a string of losses for investors whose wealth is in euros. In local currency terms, this has translated into a minus 2.84 percent return in the first four months of the year.
U.S. investors flush with dollars, however, saw their euro zone purchases rise in value. The euro zone debt returns were a positive 3.76 percent, reflecting the dollar's roughly 7 percent depreciation against the euro since the beginning of the year.
With the dollar weaker and widely expected to slip further against major currencies -- resuming a three-year decline that was interrupted in 2005 -- the question before investors is what this will mean to assets outside the currency realm.
At one level, the Citigroup calculations would seem to supply an answer. Investment tends to flow towards appreciating currencies and away from weakening ones, all else being equal.
"You would certainly want to avoid dollar assets if you thought your home currency was going to appreciate," said Andrew Clare, consultant financial economist with Britain's Legal & General Investment Management.
And a weaker dollar should help U.S. investors' portfolios if they are diversified into non-U.S. dollar assets.
It would imply rising demand for assets in the euro zone, Japan, Britain and the like and less fervour -- and hence lower prices -- for U.S. Treasuries and Wall Street.

MACRO MOVES
All this, however, assumes investment flows driven by unhedged currency trends alone. In reality, the impact of a weaker dollar will be far more complex.
At least some U.S. equities, for example, would be expected to benefit from a weaker dollar. L&G's Clare suggests one trade would be to favour U.S. exporters over European and Japanese counterparts.
Many investments will also be hedged, negating the currency impact.
But the main impact of the dollar's return to its downward path -- if that is what is happening -- would be macroeconomic, impacting on inflation and interest rate expectations.
Christel Rendu de Lint, senior fixed income manager with Switzerland's Pictet Asset Management, reckons a stronger euro would cool the European Central Bank's desire to raise rates.
A strong euro would dampen inflationary pressures by making foreign goods cheaper while higher interest rates would risk driving the currency even higher.
"The stronger the appreciation, the less rate hikes you will get," she said, pointing to short-term euro-zone debt as a likely beneficiary.
The U.S. Federal Reserve, by contrast, might be tempted to keep tightening rates if it thought a weaker dollar was threatening to increase inflation.
That would recreate the very interest rate differential that led to the dollar's strength against major currencies throughout most of last year.
Adding to the mix, dollar-denominated energy would become cheaper in non-dollar countries, a boost for non-U.S. equities.
"With the weaker dollar, the cost of energy for the larger part of the world economy tends to decline and hence profits tend to improve," said Giorgio Radaelli, chief strategist at Switzerland-based wealth manager BSI.

LIMITED FALL?
Such mixed results from a weaker dollar may go some way towards explaining why there has only been minimal impact on U.S. financial markets so far despite the 6 percent dollar fall against a basket of major currencies <=USD>.
The broad S&P 500 stock index <.SPX> has underperformed globally but is still up more than 5 percent in the year to date. U.S. Treasury yields, meanwhile, are up, but so are yields in the euro zone, Japan and Britain.
Another explanation may be that while investors expect the dollar to decline as U.S. rate rises come to an end and the country's large current account deficit comes into play, they are not expecting a meltdown.
One poll of 10 leading investors conducted by Reuters last week suggested they expect the dollar at $1.28 to the euro <EUR=> at year-end while another Reuters survey of more than 50 currency strategists came up with the same number in 12 months.
That would be a rise of less than 2 percent for the euro from current levels and would be quite some way from the $1.35 level seen at the end of 2004.

[gigacannon]

I like to think about it in terms of shifting debt around. Arabs sell say $100 of oil to Germany. Germany, thus, owes $100 of stuff to Arabia. But if Germany sells France $100 of stuff, Germany is essentially 'passing the buck' to France. France in turn sells its crap to other people. The transaction might have been made in dollars, but those dollars have no root, necessarily, in American commodity.

The real value of the oil sold originally is weighed against the useful work and material products generated by its sale. But until the Arabs decide to use that money, essentially what people are doing is shifting that $100 of debt around and diluting it through all the world's economies.

There are two reasons I suspect oil is traded in dollars. First, it allows people to more easily analyse the value of that oil. If you have trades going on in ten or so different currencies, you have to do more research and arithmatic to mentally calculate its value. Secondly, by forcing everyone to trade in dollars, it prevents scams. For example, if it were acceptable to trade in the currency of, say, Liberia, someone could just buy the oil then overthrow the Liberian government again and massively devalue the worth of the currency, making the debt larger.

Although the USA has, I think, used its political muscle to ensure that all oil is traded in dollars, I also think that within the oil industry itself, there is a general consensus that trading with the dollar is a good idea.

[SoothSayer]

>> Oh well, I'll have to order that book from Amazon ...

Done! You can now retire on the proceeds petrodollar

(Actually, is there any money in writing books petrodollar?)

[inquiry]

Hi,

I'd like to know from informed users of this forum how you people think the PetroDollar and American Hemegony will soon / or eventually play out.

On one hand, as long as America can militarily control of the OPEC nations and force them to export oil in petrodollars, the dollar will always likely remain stable, 'con'-fident, and the global default currency no matter how high of a deficit the US runs up, because of peak oil, the value and price of oil will always necessarily go up exponentially. Thus, as long as OPEC is exporting in Dollars, the EURO will never have as much power and will never be as much a threat to the dollar as must would like to believe.

On the other hand, China, Japan, India, all these counties really have to do is STOP BUYING, or START BUYING LESS of USA Debt and the US is screwed over night literally. They don't even have to sell a single dollar, since its obvious that the US needs these foriegn nations to purchase more and more of its debt each and every day just to 'survive'.

But I do realize that it is not in China's or Japan's best interest to stop trading with the US or stop buying the US debt...

However there soon will and must come to a point when the Global Pyramid Ponzi Scheme of Capitalistic Infinite Growth Machine must come to a halt and topple over as we reach negative EROEI and slide down olduvia gorge.

So given all these, my question is how long do you guys think America can effectively remain dictator of the chained world and kept these clandestine illegal taxation of every other nation in this world through its petrodollar fiat currency manipulation and 'inflation' to get something for nothing?

Thanks in advance

[dukey]

the situtation is weird, and frankly i dont fully understand it, even though i have studied economics to a reasonable level.

From what i understand china has been manipulating the price of the dollar to keep it expensive compared to the chinese currency. Makes chinese exports more competetive, but is that really needed now ? China now holds 1 trillion US dollars, it is quite rediculous really. If the dollar starts to lose its value china wont want to keep those dollars, yet at the same time dumping them could cause havoc. I don't know how this will play out.

American debt is also spiralling out of control, at both person and government level.

[inquiry]

Another thing I forget to mention was that as long as America can force OPEC and other important oil exporting nations to sell in petrodollars, the US effectively gets all the oil it wants for free. There is no point in physically 'stealing' the oil when you can do it in a much more secretive, efficient, and low profile way. America doesn't need to 'steal' a drop of Iraq's oil as long as its exporting in USD, it all belongs to America anyway... Even if the Iraqis later decide not to sell it to America, since its exporting in dollar currency, any nation that buys oil from OPEC is effectively buying it from the US!

Am I correct in assuming this? Since OPEC is exporting oil in dollars, all Uncle Sam really has to do to get that oil is have the Fed's print money out like crazy and drop it down from helicopters right?

But we all know is this madness, so my question is how long will it last?

It would be ridiculous to assume the Chinese leaders don't know about this that we are talking about... So if it turns out that what Chinese is doing is actually NOT good for it in the long run (ie destroying your nations raw resources and environment for a trillion potentially WORTHLESS USD) why would the Chinese government we allowing such a thing?

The more I think about this the less it makes sense to me...

[Zac]

I think part of the reason China continues to play along is that it is a very unstable "nation," with a long history of breaking up into competing fiefdoms. This means they absolutely need to keep their populace fed, clothed, housed, and most of all employed, or civil strife will ensue. If the dollar tanks, there goes China's export market and all those factory jobs. Instant civil war.

[AirlinePilot]

Whats Hemegony?

[Bas]

$this->bbcode_second_pass_quote('AirlinePilot', 'W')hats Hemegony?

[Bas]

$this->bbcode_second_pass_quote('Zac', 'I') think part of the reason China continues to play along is that it is a very unstable "nation," with a long history of breaking up into competing fiefdoms. This means they absolutely need to keep their populace fed, clothed, housed, and most of all employed, or civil strife will ensue. If the dollar tanks, there goes China's export market and all those factory jobs. Instant civil war.