[Daryl]

$this->bbcode_second_pass_quote('Scion', ' ')In USA without big militarycomplex there would not be
current level R&D paid by the taxpayers, would it ?

Or can you as American please then explain to me
why has the infrastucture repairs (preservation of capital)
and efficiency improvements neglected for decades ?

[MrBill]

Finland is an excellent example of a small country with a traditional, resource based economy who has successfully made some drastic changes. Good for them. Here is another story about Norway.


$this->bbcode_second_pass_quote('', 'O')SLO/HELSINKI (Reuters) - Shipbuilder Aker Yards has won the biggest ever commercial ship order, clinching a 900 million euros ($1.1 billion) order from U.S.-Norwegian Royal Caribbean Cruises (RCL.OL: Quote, Profile, Research) for a huge new cruise ship, it said on Monday.

[LadyRuby]

Petrodollars heighten risk from global imbalances: IMF report

$this->bbcode_second_pass_quote('', 'P')etrodollars have returned to the world stage, and could play a potentially destabilizing role in the U.S. and global trade imbalances, according to a new report from the International Monetary Fund released Thursday.

...

In the 1970s, these funds were deposited in big Western banks. This time around, it is more complicated. Petrodollars are being recycled through international capital markets and offshore accounts, partially because of the post 9/11 Patriot Act reporting requirements, the IMF said.

But these investments have kept U.S. interest rates low, allowing the U.S. trade imbalance to persist, because there has been no pain from running large trade deficits.

This only adding to the risk of an eventual sharp drop in the dollar, a spike in U.S. interest rates, and a recession, according to the IMF report. The report was one of the chapters of the IMF's World Economic Outlook released Thursday.

"Global current account imbalances are likely to remain at elevated levels for longer than would otherwise have been the case, heightening the risk of a sudden disorderly adjustment," the IMF said in the report, the World Economic Outlook.

And the U.S. has not had to adjust as much as it did in the past because inflation has remained subdued in face of high oil prices and petrodollars have kept interest rates low.

...

The IMF said that much of the $30 per barrel increase in oil prices since 2002 is likely to be permanent. ...

The higher fuel bill has accounted for one-half of the deterioration in the U.S. current account deficit over the last two years, the agency estimated.

...
The IMF said that oil-exporting countries should boost spending in education and infrastructure projects to have a permanent positive effect on their living standards. This would lower the surpluses.
Oil consuming countries should not shield their citizens from paying the world oil prices, which would reduce oil consumption.

[ubercynicmeister]

That's IMF talk for "Oh My God We're Facing A Complete Petrodollar Collapse"

Yeah, ho hum. IMF, please tell us something we don't know.

The OTHER bit they don't talk about is those deposits in the hedge funds since the 1970's. Wanna know where they came from? That's right: the first Oil Shock, in the early 1970's.

[SoothSayer]

I find this whole petrodollar concept tricky. Does it work like this?

1. The world some years back decided that all oil sales from producing countries MUST be paid for in in US dollars.

2. An oil producing country "creates" a barrel of oil out of the ground.

3. The producer agrees to sell this "new" barrel of oil for, say, $70 to say, Germany.

4. Germany needs to find the $70 ... so it sells some goods, services or other currency to the USA.

5. The USA prints $70 in banknotes and passes them to Germany.

6. Germany passes the $70 to the producer, and gets the barrel of oil in return.


7. The net result is:

a: Germany directly or indirectly provides $70 of goods or services or foreign currency to the USA in order to obtain 70 US dollars.

b: Germany then sends the $70 to the producer.

c: The producer gets $70 for a barrel of black gunk God left in their back yard.

d: The USA gets $70 worth of goods or services or foreign currency - simply for printing $70 worth of banknotes.

e: The new $70 get a life of their own, wandering around the world being used to purchase oil from the producers or being used in general trade.

f: The USA can keep printing new dollar notes because more and more "new" oil is being created and needs paying for.

I am however confused about a few points:

1. If the USA did NOT print new dollars, would the world run out of dollars to pay for the never ending (?) supply of oil ... or would the value of each dollar simply increase due to the shortage? If this is the case, why print new dollars?

2. If each new barrel of oil adds say $70 to the world, does this devalue the dollar? (The oil is burned or otherwise disappears, so the value is gone ... but the $70 are still floating around)

3. What proportion of the $70 actually returns to the USA, requiring the US to actually make or do something?

4. It seems that the oil is paid for TWICE ... once to the producer, and once again as a "tax" to the USA. Considering the sums involved, this means that the world is essentially working hard to keep the oil producers and the USA in a comfortable life style. This can't be a correct analysis can it?

[MrBill]

$this->bbcode_second_pass_quote('SoothSayer', 'I') find this whole petrodollar concept tricky. Does it work like this?

1
I am however confused about a few points:

1. If the USA did NOT print new dollars, would the world run out of dollars to pay for the never ending (?) supply of oil ... or would the value of each dollar simply increase due to the shortage? If this is the case, why print new dollars?

2. If each new barrel of oil adds say $70 to the world, does this devalue the dollar? (The oil is burned or otherwise disappears, so the value is gone ... but the $70 are still floating around)

3. What proportion of the $70 actually returns to the USA, requiring the US to actually make or do something?

4. It seems that the oil is paid for TWICE ... once to the producer, and once again as a "tax" to the USA. Considering the sums involved, this means that the world is essentially working hard to keep the oil producers and the USA in a comfortable life style. This can't be a correct analysis can it?

[TT]

My brain hurts now.

[TorrKing]

I may be stupid here, but how does this gain the US? Is it because of control or does it have any financial benefits for them?

I have heard something about the US gaining intrests from somewhere from the petrodollar. How is that?

Torjus Gaaren

[Doly]

Mr Bill, I understand that money rarely gets physically printed nowadays, and that "printing money" is more like a figure of speech.

But, isn't it correct that if the dollar is often used for international transactions (not just to pay for oil, but other international trade as well), this means that the US needs to create more money than they would need just for their own domestic use? And if that is the case, what are the economic implications of the existence of these extra dollars?

[MrBill]

$this->bbcode_second_pass_quote('Doly', 'M')r Bill, I understand that money rarely gets physically printed nowadays, and that "printing money" is more like a figure of speech.

But, isn't it correct that if the dollar is often used for international transactions (not just to pay for oil, but other international trade as well), this means that the US needs to create more money than they would need just for their own domestic use? And if that is the case, what are the economic implications of the existence of these extra dollars?

[bartholland]

Doly, did you find your answer somewhere in there? I didn't, but that's probably bc of my novice economical skills..

Mrbill,

supposse oilprices raise by 100% and productions stays the same.
suppose all oil is sold in dollars.
suppose all other factors stay the same

Is it possible forecast something about the value of the dollar compared to a basket of other currencies?
And is it possible at all to suggest what effect this will have in simplified terms on any financial data?

[miraculix]

Mr Bill - thank you for the elaborate discourse.

Nonetheless, I have the feeling that none of the above really addresses the initial question.

Aside from the technicalities of correspondant banking etc., the issue, the way I understood it, is as follows:

The total volume of any given currency should be backed by something tangible in exchange. Such a collateral used to be gold, until Nixon finally abandoned Bretton-Woods (1971) and turned the US dollar into a fiat currency (backed only by trust in the value of the currency rather than any intrinsic value)
Since the oil crisis of 1973 oil is denominated in US dollars.
Easing restrictions on cross border capital flows and globalization of the financial markets in the 1990s has led to what Henry C.K. Liu terms the dollar hegemony. dollar hegemony
Dollar Hegemony prevents the exporting nations from spending domestically the dollars they earn from the US trade deficit and forces them to finance the US capital account surplus, thus shipping real wealth to the US in exchange for the privilege of financing US debt to further develop the US economy.
In essence, this means that through the current account deficit, the US is issuing checks drawn on an empty account, and those checks never clear, since they are not returned as liability to that account, but in some cases as an asset iof a say T-Bond account.

[MrBill]

$this->bbcode_second_pass_quote('bartholland', 'D')oly, did you find your answer somewhere in there? I didn't, but that's probably bc of my novice economical skills..

Mrbill,

supposse oilprices raise by 100% and productions stays the same.
suppose all oil is sold in dollars.
suppose all other factors stay the same

Is it possible forecast something about the value of the dollar compared to a basket of other currencies?
And is it possible at all to suggest what effect this will have in simplified terms on any financial data?

[MOCKBA]

$this->bbcode_second_pass_quote('miraculix', '
')The total volume of any given currency should be backed by something tangible in exchange.

[MOCKBA]

$this->bbcode_second_pass_quote('MrBill', '
')The USA is bad off because they need to pay twice as much for energy imports, so they have less discretionary spending. And as they run a current account deficit that gap has to be closed by a) higher taxes, b) less imports, c) borrowing from abroad, which might mean, d) higher interest rates, and/or e) a weaker dollar.

[MOCKBA]

$this->bbcode_second_pass_quote('MrBill', '
')And, as I have been boning-up on currency risk, and have read William R. Clark's 'Petrodollar Warfare', I know it is too risky to keep all of that $10 in US denominated assets, so I hedge my bets and put $5 into Citibank & GE shares and 4 euros into Deutschebank & Siemens shares.

[Stelmsind2]

OK, I think most of the above makes sense, and I'm sure what doesn't will come by thinking about it a little more

The one thing that puzzles me is, why doesn't all the dollars that the US issues end up back in circulation and end up devaluing it? (more dollars competing to buy the same amount of "stuff"). Why aren't countries trading between themselves in dollars, rather than holding it back in foreign reserves?

The answer to this seems to be: "To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold."
- http://www.atimes.com/global-econ/DD11Dj01.html

How does this work? How does holding a reserve of dollars prevent currency devaluation?

[UIUCstudent01]

$this->bbcode_second_pass_quote('Stelmsind2', 'T')he one thing that puzzles me is, why doesn't all the dollars that the US issues end up back in circulation and end up devaluing it? (more dollars competing to buy the same amount of "stuff").

[MrBill]

$this->bbcode_second_pass_quote('Stelmsind2', 'O')K, I think most of the above makes sense, and I'm sure what doesn't will come by thinking about it a little more

The one thing that puzzles me is, why doesn't all the dollars that the US issues end up back in circulation and end up devaluing it? (more dollars competing to buy the same amount of "stuff"). Why aren't countries trading between themselves in dollars, rather than holding it back in foreign reserves?

The answer to this seems to be: "To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold."
- http://www.atimes.com/global-econ/DD11Dj01.html

How does this work? How does holding a reserve of dollars prevent currency devaluation?

[MrBill]

$this->bbcode_second_pass_quote('', '[')quote="UIUCstudent01]
This sentence made me have an idea. Some people say that the average wage hasn't increased almost at all for some 20 years or so in the U.S. or something to that effect..

That means (lets assume population is constant or that the increase in population corresponded to an increase in goods - (this is a pretty shaky assumption, I know)) that there was the same flow of money chasing after goods.

Now, corporation profits (and CEO compensation) have increased dramatically. Does the flow of some money actually have less effect on inflation because it isn't actually used to buy ten tons of cheeseburgers from Burger King or 10 million barrels of gasoline. But rather, it is just kept and passed around to people who are used to dealing with large amounts of money and that require large amounts of money? (Let's say a football star decides to buy and hold $60 million stocks in microsoft for 50 years or so (passing it to his heirs). That money won't be chasing goods for daily living (gasoline, food). The money will go on to employ people who will be consuming gasoline and food, but it won't be buying $60 million dollars worth of these goods.

So is there some money that doesn't actually raise the price of goods all that much? The M3 money line was supposedly an indicator for inflation (some time back), but if a great deal of this money doesn't actually change the price of the majority of common goods, than the money doesn't actually contribute to inflation as would more immediate and liquid money (M1 line)?

I guess what I'm saying is that the M3 line not being reported might actually be because it is useless? Where does the M3 money-line come into play exactly in all this?