Monday, April 07, 2008

Abdullah's Widget Machine


Iranian President Mahmoud Ahmadinejad is urging OPEC members to form a joint bank and stop pricing oil trades in U.S. dollars.

According to the Iranian government's Web site, Ahmadinejad told OPEC Secretary General Abdalla Salem el-Badri the cartel "should establish a joint bank as well as having joint currency."

Oil is priced in U.S. dollars on the world market, and the currency's depreciation has concerned producers because it has contributed to rising crude prices and eroded the value of their dollar reserves.

Iran has repeatedly urged OPEC members to shift sales away from dollar. But Iran's proposal to trade oil in a basket of currencies is not supported by enough OPEC members, which include staunch U.S. allies such as leading producer Saudi Arabia.

Remember, as a direct threat to the dollar, this is also an impediment to the Fed's ability to reflate the economy and periodically intervene on behalf of Wall Street firms in trouble. It exacerbates the already-inflationary effects of Fed policy and throws a monkey wrench into the wheels of Bailout Nation. That's unacceptable. In February, Director of National Intelligence Mike McConnell included dollar abandonment by major oil producers on his list of the most serious threats to U.S. national security (pg. 42). He specifically named Iran.

No, it's not about a long-since discontinued nuclear weapons program.


Anonymous Anonymous said...

Not to worry, the Saudi's are staying with dollar pricing. They are and have been America's partner since 74 and that isn't going to change. Even as inflation rages there and in the rest of the Middle East.

It should be noted that just because oil is quoted and priced in dollars that doesn't mean that it has to be traded in dollars.

It isn't just oil, it is everything that has to remain dollar based. All exporters to us have to continue to accept dollars. They will.

Here is the deal. China takes our dollars for their stuff, like Chen's Widgets. Chen goes to the bank and exchanges them for RMB's which the Central Bank gladly prints up and takes the dollars. Then the Chinese central bank takes those dollars and buys US Treasuries and FNM paper.

Note something odd here.

$1 in

100 RMB out (or the equivalent at that days exchange rate)
$1 out.

It's a miracle. Many of those dollars leaving our shore become two dollar, in effect. And the ultra beauty part is the dollar itself comes back and buys our debt. Greeny and Benny by the way call all those dollars 'savings'. Haahhhhaaaaahhhhaa

4/07/2008 6:40 PM  
Anonymous Anonymous said...

Oil is priced is US $ but the current oil price reflects the dollar vis-avis the ERUO so we have oil trading as defacto ERO pricing

4/08/2008 10:28 AM  

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