Ruh, roh. Iran seeks euro-denominated oil market

[NNN0LHI]

http://www.khaleejtimes.com/DisplayArticle.asp?xfile=data/middleeast/2006/May/middleeast_May121.xml§ion=middleeast

TEHERAN - Iran’s oil ministry took a step toward establishing an oil trading market denominated in euros, rather than the US dollar, by granting a license for the bourse, state-run television reported on Friday.

Just who would trade on the market wasn’t immediately apparent. Iranian television did not mention trading firms or governments willing to market or purchase products on the bourse, nor did it say when it would open for business.

“Iran has registered an oil bourse on the Persian Gulf island of Kish in which oil would be sold in euros. The market will be the fifth oil market after New York, London, Singapore and Tokyo,” the broadcast said.

Oil trading on those markets is conducted in dollars.

[hamerfan]

1. If this were to happen,

then the dollar is dead meat. Anyone able to afford gold at recent prices?
dumpbush

[PDJane]

2. China

has been advising smaller countries to diversify their international currency holdings too, which I find ominous.

[Canuckistanian]

5. Yup, China will be in there, for sure

And with the recent criticism Dead-eye Dick gave the Russians, I'm sure Russia wouldn't be opposed to buying from the Iranians, either.

[bleedingheart]

3. someone explain all this to an economic scatterbrain like me..

I wanna know what this means for the average person....

[acmejack]

6. The dollar is shedding it's value rapidly

Which is why gold is going up so quickly. So anyone holding dollars is seeing their bank account shrinking, which is bad. They want to get into a more stable currency, such as Euros, which will keep it's value.

In the long run, gas will get expensive , everything imported will become much more expensive, it will take a lot of dollars to buy anything. Think of mexico a decade ago, or Argentina right after the Falkland War when they had the terrible economic mess.

[bleedingheart]

7. so if you were me....and you were opening a ROTH IRA..

is it a bad idea???
should I invest exclusively in European/International???

I have no pension...I would really like to make sure that I am not throwing my retirement funds away...

note:...I am in my 30's...and am trying to make sure I am not eating kitty litter in my old age...

I feel dumb enough with regard to investments and now with all this going on...I am concerned that I may be throwing money away...

[hamerfan]

8. No idea about Roth IRA's,

but do you have a 401(k) at work? I'd suggest at least 40% of that in global securities with the balance in a stock equity/real estate/money market mix. Good luck to us all, I lived through the 70s-80s and never thought I'd see it worse than it was then. Now is worse.
dumpbush

[bleedingheart]

9. I am shedding some company stock I was awarded...it made a

record profit...but I want to get rid of it while it is high and put that money into something a bit more stable...

While I am at least trying to pay attention there are loads of folks who will see their funds plummet without having a clue as to what they may have been able to do to help themselves...

[enid602]

13. diversification.

I'm 45% international (hard currencies), 10% CD, 45% $US. Of the 90% that is in $US and non-dollar funds, 60% is in mutual bond funds, and 40% in mutual stock funds.

[acmejack]

12. I am not the person to ask about these things

Honestly, I am simply fascinated by the dynamics of the economy. The economics forum has some very sharp folks who would be happy to give you some guidance that would *actually*help* you.

[ProfessorGAC]

10. I Hope I Can Help

It's a meaningless excercise in geoeconomic warfare. There is not a single shred of data in the history of modern economics that would lead to any reasonable conclusion that the currency used to purchase a commodity has an effect on a country's macroeconomy.

In addition, in this current global environment, economies are inextricably linked. So, it would be just as bad for the Europeans,or the Chinese, or anybody else, for the dollar to tank as it would be for us. The economic interrelationships are far too strong and, i would surmise, permanent.

Just one thing to remember: The dunces who brought you PNAC, secret energy task forces, and the war in Iraq, believe that we must prevent oil from being bought in Euros. So, showing concern over the consequences of such a move by Iran puts us in the same boat as idiots like Cheney, Rumsfeld, Kristol, Bolton, and Perle.
The Professor

[hamerfan]

11. Hi Professor,

Glad you jumped in on this because I do respect your opinions in your posts.I have to wonder when you say this, though. "There is not a single shred of data in the history of modern economics that would lead to any reasonable conclusion that the currency used to purchase a commodity has an effect on a country's macroeconomy."
It just seems common sense that if the dollar were no longer used for the oil currency, the great dumping of the dollar would lead to total devaluation of it, causing hyperinflation. Is this correct? Thanks,
dumpbush

[ProfessorGAC]

14. Sorry, No

There is a fatal flaw in your premise, and is at the root of the whole oil bourse "controversy". You say it's common sense that if it's no longer the currency of oil, there would be a great dumping of dollars. Yet, you provide no reason as to why that would happen.

The United States would still need oil, no?

We don't print euros. Right? We print dollars.

We would buy the oil with euros bought with dollars. Now those dollars are in the hands of the european union who has to do something with them. Like exchange them for euros to buy oil.

And, since 99.9% of all commodity transactions occur electronically, then the money is essentially a phantom commodity that has NO nationality at all. There just electrons whizzing around cyberspace.

The velocity of the dollar would remain unchanged, in that somewhere, somebody still needs to spend those dollars, whether it's on oil, or some other common commodity.

The global economy doesn't work in the way your supposition presumes. Hence, the fatal flaw. Common sense would prevail in the way you suggest if the global economy worked in a two dimensional (X therefore Y) fashion. But, so many things are autocorrelated, that among the handful of supereconomies (U.S., EU, Japan, China, et al), no one factor can impact one currency or macroeconomy, without impacting all of them. The degrees of impact may be slightly, though measurably, different. But, the net effect would be directionally identical.

Lastly, dumping of dollars would not cause hyperinflation. The dollars available in the world are far below the total GDP value, even as measured at the final point of commerce. Those dollars have already changed hands 12 - 18 times before we buy at retail. The velocity is so high that there are barely enough dollars to maintain the economic transactions. The only thing that allows us to run an M1 or M2 as low as we keep it, is the technology i mentioned earlier. That way, the actual exchange of a piece of currency is irrelevant. It's all just digital transfers, and 0's and 1's aren't dollars, yen, euros, or anything else with a country's promise on it.

The Professor

[hamerfan]

15. Thank you for the lesson,

Professor, but I'm still having a problem. You say,
"We would buy the oil with euros bought with dollars. Now those dollars are in the hands of the european union who has to do something with them. Like exchange them for euros to buy oil.
And, since 99.9% of all commodity transactions occur electronically, then the money is essentially a phantom commodity that has NO nationality at all. There just electrons whizzing around cyberspace."

Unfortunately, humans don't think like this. They think, Jeez, with the euro now being used for oil, we better dump our dollars! Then the major dumping starts and devalues the dollar. We don't have the mindset of currency as electrons, just look at energy futures.
Hoping you are right and I am wrong. You state your case eloquently as always. Thanks again!
dumpbush

[ProfessorGAC]

17. You're Comparing Apples To Oranges

Energy futures on our markets are already all in dollars. There is a zero currency mindset. So, that isn't a good example

Also, you are presuming two things:

First, that people would find a way to dump dollars. There will be NO EXCESS DOLLARS, so there would be no place to dump them. Just because someone might hyperventilate and want to dump dollars doesn't mean they'll find a buyer.

Secondly, the mindset is unnecessary. The only thing that would cause the dollar to devalue would be a PRIOR dramatic drop in the U.S. economy. Currency values don't lead the economic condition. They follow it. So, no matter how irrational a dollar holder may be, there would simply be no market upon which to dump dollars when the U.S. economy is still the largest, and will be so on a per capita basis, for decades.

Last example, and then i'll get off the soapbox. When the dollar became the world's dominant currency, over the British Pound, it didn't happen because people liked dollars better. It happened because the U.S. was the dominant economy. And, the switch to dollars in commodity after commodity did not cause any subsequent collapse in the British economy. So, with that simple example, you can see that when the Pound got blown off the stage in world markets, the British economy didn't tank, they didn't see a massive devalution, and there was no hyperinflation. If it were common sense, as you earlier suggested, all those things should have happened. No?
The Professor
The Professor

[hamerfan]

19. That's why I like DU

Any time I can learn something, I like it. Reading these posts are a learning experience, which is always good. Thanks to all, and perhaps I'll check out the economics forum.
dumpbush

[Bandit]

18. So buying gold is a useless endeavor?

I don't buy your argument. Like you said we print dollars and we no longer have to report on how many we print. Dollars are losing their value and that is a fact. Canadian dollars are now at 90% of American dollars. When Bush* came to power Canadian dollars were at 60%. The dollar has dropped against the Yen every bit as much. We are in for some rough financial times and almost every country in the world is aware of this. A lot of countries are diversifying from US dollars or US Treasury Bonds to Euros. They are not stupid people. Talk alone will not prop up the US dollar. When the dollar falls in value everything else in the world increases in value. Best investment in these times is titanium or gold or something else of substantial worth. The world recognizes what truly has value and the dollar is losing respect.

[ProfessorGAC]

21. I Disagree

I don't agree that the markets as they exist recognize the intrinsic value of anything. The gold is only worth the amount of a set currency value on a given day. So, the strength of a currency and the value of gold are autocorrelated.

Besides, i don't get the "talk alone" thing. When did talk alone every have any impact on the value of any currency. The currency is backed by the strength of macroeconomy, in every country, in every way. So, that seems an argument in search of a point.

And at this point, as stagnant as it is, and as weak as the dollar is right now, there is nothing to suggest that the U.S. economy is still not the most dominant single country economy in the world. When that status falls, then i would agree with you.

The tough financial times are decades away and there is plenty of time for sound fiscal and monetary policy decisions to correct the course.

I would suggest you would have felt this same way in 1990. Not that i would blame you, the economy was poor, the deficits were ridiculous, the debt had gone up at record rates during Reagan and 41, and yet: The 90's were a strong economic period due to sound fiscal and monetary policies. And, i don't accept that the "respect" for the dollar has anything to do with anything.

It's all business. Sentiment (even among speculators) is a marginal factor. If there's money to be made, the investors will make it. They couldn't care any less what currency they're making it in.

Last point: As i said in my original post, if you wish to hitch your wagon to the PNAC folks, who agree with you, be my guest. But, me: They've been wrong about everything else, so since i already disagreed with them in theory, i will continue to disagree with the theories of the gang that can't shoot straight.
The Professor

[Jawja]

20. Well said, Professor.

Thanks for the insight. :hi:

[yodermon]

24. Then here's my question:

Why do the PNACers believe that oil must stay dollar-demoniated? What is their logic? Are they simply employing the argument that you just debunked, or do they have some other sort of Evil Plot brewing?

[Hubert Flottz]

4. Katy Bar The Door...

"This aggression shall not stand" revisited? The Iron Chimp will blow a gasket until he's delivering more shock and awe! ATOMIC Shock and Awe?

[madrchsod]

16. two largest consumers of oil

china-usa. china has all our wally bucks and they are going to buy oil with our money. no one is going to convert to euro`s when the euro is in trouble.

[hamerfan]

22. Call me simpleminded,

but this quote makes the most sense to me:

"china has all our wally bucks and they are going to buy oil with our money".

This I understand, even though The Professor has it right in that investors will always do what is best for their investments. If the dollar falls so far that investors lose money sitting on their dollars as compared to the eoro, then what?
dumpbush

[redqueen]

23. Combine that news with these stories:

about our economic situation

http://economistsview.typepad.com/economistsview/2006/04/paul_krugman_cs.html
http://www.kansascity.com/mld/kansascity/news/opinion/14434445.htm
http://www.charleston.net/stories/?newsID=84520§ion=commentary

and you've a recipe for a Democratic congress in 06. There seems to be very good reason for these folks to be bailing on the dollar. Can you say Enron-ed US Economy?


Another story on the subject you posted about.
http://www.dissidentvoice.org/May06/Whitney03.htm