Actually, what I’d really like is a good non-risky investment denominated in pounds sterling or Aussie dollars.
I’d be betting that the Congress couldn’t possibly get its act together. Sound like a bad bet?
“Asian central bankers” may sound flippant, but it’s not. We’re talking here specifically Japan, South Korea, and China - plus others, all of which have economies that depend to some extent on how much stuff they can sell us Americans.
A couple of months ago there was a rumor that lasted for a matter of minutes that the central bank of South Korea was going to start diversifying its portfolio, stop buying so many T-bills, and start buying some non-dollar-denominated paper instead.
In that brief period, currency values fluctuated wildly on world markets. The mighty dollar flinched.
[quote]endgamer711 wrote:
hedo wrote:
Still in college? Just curious.
…
Oil is a world commodity and the US the largest buyer of this commodity. It only makes sense that it is bought and sold in dollars since the major US commodity markets are denominated in dollars.
If I was still on Wall St. I would trade you for all the Euro’s you have in a straight arbitrage. Been reading the paper lately?
Nah, I am far from college, and the last time I was there I studied anatomy, not econ.
Anyhow, yes that’s right: dollars are just a numeraire of convenience for oil because historically most of the oil has wanted to be bought for dollars.
You missed the point. I don’t want to sell you Euros for dollars, thanks. I’d rather sell you dollars for Euros, and then sell them back to you for more dollars than I bought them for next month.
Arbitrage is nothing but very short term trading across markets. It take advantage of minor value differences across different markets. As such, it unites those markets. Arbitrage is the reason that when the value of the dollar falls, the price of an oil contract climbs.[/quote]
Well if that’s your understanding of global trading I sure wish you were on a trading desk when I was working…we would have done a lot of business with you…until your managing director pulled the plug on your phone.
Take care.
[quote]endgamer711 wrote:
“Asian central bankers” may sound flippant, but it’s not. We’re talking here specifically Japan, South Korea, and China - plus others, all of which have economies that depend to some extent on how much stuff they can sell us Americans.
A couple of months ago there was a rumor that lasted for a matter of minutes that the central bank of South Korea was going to start diversifying its portfolio, stop buying so many T-bills, and start buying some non-dollar-denominated paper instead.
In that brief period, currency values fluctuated wildly on world markets. The mighty dollar flinched.[/quote]
It sounds conspirital actually but no matter.
I do not recall this rumor but I am no longer in the business. I can tell you one thing if that actually happened. People made money on both the long and the short side of the move. It also points out why Sadaam wanting to sell his oil for Euro’s is a non event.
By the way rumors like that are more often then not started by traders looking to make a profit on the movement of ,not the investment in ,a commodity. I wasn’t in trading, I was on the banking side of the house but did international work so was pretty familiar with how it ran.
You have interesting persepctive but one I cannot agree with.
I still see nothing that links the use of dollars or euros to oil, and any negative effect on America. Conversions mean nothing, and they can be done on the fly electronically. The dollar is only used as the measure of the worth of the oil. It doesn’t mean you can only buy it with dollars, just that you will need to know what your money is worth in dollars.
It is correct that the supply of money is influenced by monetary policy, and in fact it has intentionally been relaxed, and the value of the dollar intentionally reduced to help stimulate the US economy. It makes more money available for investing, and reduces the cost of US products helping stimulate trade.
Before the dollar was worth a lot against foreign currency, then the trend changed to where the dollar is worth less, and it will change again. The economists are already talking of the euro dropping because of the problems with the EU constitution.
The value of money has to do with a lot of things, the peg of oil to the dollar being of little significance. The economy of America, the strength of the US government, and monetary policy of the Federal Reserve being high on that list.
Also regardless of what the money traders do, there is a trend to push money to it’s true value, just like everything else. When it is overvalued, it will eventually drop, and when undervalued it will climb. The traders that do not understand this will lose money. Any success will be short term luck.
Again this is an old conspiracy theory, along with the list of countries we are supposed to invade because we need oil, or the countless number of unsubstantiated theories out there.
[quote]hedo wrote:
Marmadogg wrote:
I posted this assertion to see what type of responses I would get.
The resident right wingnuts on this board did not try to thoughtfully debunk this assertion.
The only thoughtful response was from hedo but the point was missed. Selling oil in Euros vs. US dollars has nothing to do with embargos, blockades, nor invading Saudi Arabia like Nixon threated.
Can anyone debunk this without resorting to sarcasm?
Marmadog
Debunk what?
Both the dollar and euro are convertible on a worldwide basis and a ready, liquid market exists for both overseen by central banks. The effect of selling in “euro’s only” would effect the seller more then the buyer.
Regardless, it would be impossible and financially foolish for a minor producer to try and dictate payment terms to a major consumer and producer.
I wouldn’t doubt Sadaam would have liked to sell his oil in Euro’s but as to it being meaningful, the answer is no. Therefore I don’t think it was an underlying reason for the invasion.
[/quote]
Hedo came up with the correct answer.
[quote]hedo wrote:
Well if that’s your understanding of global trading I sure wish you were on a trading desk when I was working…we would have done a lot of business with you…until your managing director pulled the plug on your phone.
Take care.[/quote]
Hedo, the frightening thing is that we’re past currency swings now, we’re looking at currency trends. Ordinarily, as you say, nobody should think of taking a currency position, except for arbitrage. But the dollar situation has gotten way out of whack. When taking a long term position in a foreign currecy becomes an arguable investment plan, we’re in big trouble. But on aggregate I think we can only expect further sliding from the dollar this year.
[quote]The Mage wrote:
It is correct that the supply of money is influenced by monetary policy, and in fact it has intentionally been relaxed, and the value of the dollar intentionally reduced to help stimulate the US economy.[/quote]
Yeah, they reduced interest rates to give the economy a shot in the arm. They were happy to see a small slide in the dollar for the same reason: stimulate American exports. But nothing seems to control our imports. There are too many dollars being created by all the borrowing being done in this country, and especially by the government. The balance of trade is out of control, beyond anyone’s intention, and this is why the dollar is going to continue to slide for a while relative to other currencies. The current valuations are being artificially sustained.
[quote]hedo wrote:
By the way rumors like that are more often then not started by traders looking to make a profit on the movement of ,not the investment in ,a commodity.
[/quote]
Well of course they do, and maybe somebody did in this case too. But that’s not the point. The point is how the markets reacted, and what happened briefly to the dollar as a result.
[quote]endgamer711 wrote:
hedo wrote:
By the way rumors like that are more often then not started by traders looking to make a profit on the movement of ,not the investment in ,a commodity.
Well of course they do, and maybe somebody did in this case too. But that’s not the point. The point is how the markets reacted, and what happened briefly to the dollar as a result.[/quote]
That is something Soros would do.
Here’s an interesting thread on economics, the trade deficit and the dollar:
And another,older one, specifically on the dollar:
If the US dollar was strong and equal to the Euro (1 US dollar = 1 Euro) then oil would be trading in the low forty dollar range ($40-$45) per barrel.
[quote]BostonBarrister wrote:
Here’s an interesting thread on economics, the trade deficit and the dollar:
And another,older one, specifically on the dollar:
http://www.danieldrezner.com/archives/001912.html[/quote]
Ha ha! He blames it all on a “global savings glut”. That must read well for folks here who mostly don’t even remember what a savings accout is. Some sample comments following the article:
Also: [quote]
As Drezner is an offshoring advocate, I suppose he would argue that the fact that it’s hard to buy anything at our largest retailers which is “Made in the U.S.A.” has absolutely no connection our current account deficit.
Yeah right! [/quote]
I would say the housing bubble has probably been a huge factor in weakened saving here in the US. In general however everybody has been happy the consumer is keeping the economy on the air. Well the other side of that coin is the consumer isn’t saving very much.
I see Mr. Drezner is also not very sure about the stability of the current dollar situation.
The trade deficit is crap. Last I knew it didn’t take everything into account, and really is nothing to worry about. People think it is something to worry about when in fact it is total bs.
We should be worried about consumer debt and government debt, but not the trade deficit. A trade deficit just means we got more stuff then they got.
[quote]
BostonBarrister wrote:
Here’s an interesting thread on economics, the trade deficit and the dollar:
And another,older one, specifically on the dollar:
endgamer711 wrote:
Ha ha! He blames it all on a “global savings glut”. That must read well for folks here who mostly don’t even remember what a savings accout is. Some sample comments following the article:
Why, though, would you have a global savings glut at a point in time where large and relatively underdeveloped economies (China, India) have reached the takeoff point and need lots of capital investment internally? Isn’t it rather bizarre that every spare $ China has isn’t being spent on capital equipment rather than being invested in treasuries? [/quote]
W/r/t the comment, I’ve seen a couple theories floated. THe scariest one is that China’s economic numbers are actually inflated by anywhere from 20-30% due to people up and down the chain fudging to meet their superiors’ expectations, and the fact that there is nothing like a serious accounting audit enforcement policy over there.
THe second theory I’ve seen is that a lot of people outside China and India still view those countries as relatively higher risk, so it’s not comparing apples to apples in terms of investments – people looking among what they consider “low risk” investments aren’t even considering China, India et al, so the comparisons are really with Europe and Japan.
[quote]endgamer711 wrote:
Also:
As Drezner is an offshoring advocate, I suppose he would argue that the fact that it’s hard to buy anything at our largest retailers which is “Made in the U.S.A.” has absolutely no connection our current account deficit.
Yeah right!
I would say the housing bubble has probably been a huge factor in weakened saving here in the US. In general however everybody has been happy the consumer is keeping the economy on the air. Well the other side of that coin is the consumer isn’t saving very much.
I see Mr. Drezner is also not very sure about the stability of the current dollar situation.[/quote]
You’re right, he’s not sure about it – I’d say most people aren’t sure of much of anything concerning the currency markets. Historically, they’ve been just as prone – if not moreso – to collapses as other markets.
The “made in the U.S.” thing is a strawman as Drezner didn’t say it - and I don’t think he would either. I don’t care if I can’t find a single shirt in a store made in the U.S.A. if we’re increasing our market share in something else, like drugs, in which we have an advantage.
The key, as you’ve said, is that savings rate – though I’m not certain how it’s figured. If it’s only counting bank-account savings, then I don’t much care. But if it’s counting investments too, then I think it’s much more problematic – and of course the housing bubble is problematic just because it shows an economy that has a huge diversification problem.