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Oil basic price is now expressed in U.S. dollar amounts which is very benefical to the U.S. economy. Now China is fast rising on the horizon with the possibility of a basic oil price now being expressed in Yaun which would be very, very bad for the U.S. economy. Very bad.....
"The largest oil exporter in the Middle East has teamed up with the second largest consumer of oil in the world (China) to build a gigantic new oil refinery and the mainstream media in the United States has barely even noticed it. This mammoth new refinery is scheduled to be fully operational in the Red Sea port city of Yanbu by 2014. Over the past several years, China has sought to aggressively expand trade with Saudi Arabia, and China now actually imports more oil from Saudi Arabia than the United States does. In February, China imported 1.39 million barrels of oil per day from Saudi Arabia. That was 39 percent higher than last February. So why is this important? Well, back in 1973 the United States and Saudi Arabia agreed that all oil sold by Saudi Arabia would be denominated in U.S. dollars. This petrodollar system was adopted by almost the entire world and it has had great benefits for the U.S. economy. But if China becomes Saudi Arabia's most important trading partner, then why should Saudi Arabia continue to only sell oil in U.S. dollars? And if the petrodollar system collapses, what is that going to mean for the U.S. economy?"
The Yuan is the US Dollar. Unless China stops pegging its currency to the dollar this won't have any effect at all. It's like all oil being bought in $5 bills instead of $10. Yeah, it's different, but just a different denomination.
People are idiots, what can you say? Try to each them economics and they still believe incorrect myths and if you argue against them they just say you are in denial.
Once again denomination of price means NOTHING! Say if I owned a store and to be cute and unique I put on my windows "All Prices in Shekels!" What's the first thing people are going to ask in my store? How much is this in dollars. Because shekel pricing would cause hassles and turn people off since virtually no one in my city knows the value of a shekel, the idea just won't catch on. Doesn't make the shekel any less valuable, it just makes it impractical and hence a drag on commerce.
Because the first thing a majority of buyers of oil are going to ask is how much is this in dollars they price it in dollars. But they could just as easily price it in any currency they wanted. If you are European and you bought Saudi oil they would send you a bill with a dollar price. You can pay in dollars or you can pay in Euros, the Saudis would take your money and at market rates. They price in one currency because its easy facilitation of commerce, nothing more. When they receive your money their bank sends them statements telling them how much they have in their accounts in the currency they choose to look at it in. If that is in dollars the simple math is done based on the exchange rate at the time the statement is issued.
The petro dollar inflates the worth of the dollar because everyone needs to hold dollars to buy oil. You can't pay in Euros, that's the point of the petro dollar. You can pay only in dollars. That creates some demand to hold dollars that wouldn't otherwise exist, although I think the degree of it is generally vastly overblown. Plus, a weaker dollar would probably help our economy in the long run. Weaker dollar might help balance out our current account deficit... We have a greater current account deficit than the rest of the world combined.
Trust me you can pay it in any currency you'd like as long as its convertible. It creates minimal holding demand because transactions at the levels of the oil business are all done electronically with instant denomination conversion when necessary. Where currency could create issues is if it was priced in something that was not easily convertible or was a managed or fixed currency. Then short term demand for that currency could cause huge issues. Using the dollar or any other world currency alleviates this one risk. But if you are a French oil company and buy your oil from the Saudis they send you a bill and its says you owe us $2 million. The French oil company calls it bank and tells them take the money out of my account and pay the Saudi's the equivalent of $2 million. The bank then electronically makes the transfer of $2 million, but takes out whatever the current amount of Euros that is from their account. The Saudi's bank says you have $2 million, but if the Saudi's want to tell their government how much they have they can give it in rials or dollars or any other currency they choose. Once again its electronic and part of the system of international exchange. Sure there have to be some dollars around, but if $100 million is sent one way and $98 million is sent the other over the course of a day, the $198 million in "commerce" really requires the movement of just $2 million. And since banks deal with huge amounts of reserves and can borrow overnight on a whim, they really don't even need to have that $2 million in hand.
The changes which have to happen to the Chinese mindset and financial apparatus to have a world reserve currency status are beyond their capabilities for at least a generation. China is as addicted to selling their resources and their production capabilities for pieces of foreign paper as much as the US is addicted to selling those pieces of paper for current products. While some who don't grasp this concept may hate the idea of a country being in debt or having a budget deficit, most who really think about it and explore what it means would see giving people pieces of paper for products you can use now is a really good deal while selling your production for promises to pay from a country you really don't control is not a very sustainable practice.
China will continue to overshadow us. Get used to it. America doesn't care. We could easily prevent it with an import tariff, but we don't want to. We don't care if our industries get exported to China and they become the major economic power. We will be second to China. Get over it.
Oil basic price is now expressed in U.S. dollar amounts which is very benefical to the U.S. economy. Now China is fast rising on the horizon with the possibility of a basic oil price now being expressed in Yaun which would be very, very bad for the U.S. economy. Very bad.....
"The largest oil exporter in the Middle East has teamed up with the second largest consumer of oil in the world (China) to build a gigantic new oil refinery and the mainstream media in the United States has barely even noticed it. This mammoth new refinery is scheduled to be fully operational in the Red Sea port city of Yanbu by 2014. Over the past several years, China has sought to aggressively expand trade with Saudi Arabia, and China now actually imports more oil from Saudi Arabia than the United States does. In February, China imported 1.39 million barrels of oil per day from Saudi Arabia. That was 39 percent higher than last February. So why is this important? Well, back in 1973 the United States and Saudi Arabia agreed that all oil sold by Saudi Arabia would be denominated in U.S. dollars. This petrodollar system was adopted by almost the entire world and it has had great benefits for the U.S. economy. But if China becomes Saudi Arabia's most important trading partner, then why should Saudi Arabia continue to only sell oil in U.S. dollars? And if the petrodollar system collapses, what is that going to mean for the U.S. economy?"
First, the Chinese are running into major, major structural problems of their own, ones that make any financial problems the U.S. has look like a minor hiccup in comparison. Take any and all issues you have with the value of the dollar and use a similar criterion for the yuan, and you have big problems. The amount of public moneys spent on large public service projects without any conceivable return, the wholesale cooking of the books, and the enormous demographic challenges looming ahead all are in place to create wholesale economic disasters that are far more worrisome than a repeat of Japan in 1989. Add to that the fact that the United States now gets roughly 85% of its petroleum from North America and our dependence on Saudi oil just isn't that high.
Back to China. Let's begin with the massive glut of real estate in China at the moment. At the height of the U.S. real estate bubble, there was an oversupply of 14 months of real estate inventory. In major cities such as Shanghai and Beijing, the oversupply ranges from 8 to 11 years. And when you realize that construction is roughly 50% of the Chinese GDP, that's about as disquieting as it gets. In short, they need to stop building but they can't stop building. This won't end well.
Second, at this very moment in history, China has as many people of working age as it ever will. Think about that. According to the United Nations, China is facing a very large drop-off in its number of workers due to the extremely rapid aging of its population, beginning in the year 2014. By the end of the 21st Century, the same study shows that the United States will almost have as many workers as China. That signals an enormous diversion of national resources into taking care of the old and sick, particularly since China has no mature pension system and virtually non-existent retirement savings. When you realize that, besides construction, the Chinese economy hinges on cheap labor as its main bargaining chip, that spells big, big trouble. What's more, roughly 95% of every tech product China makes is simply the assembly of parts made elsewhere. That's it. So if wages rise due to a smaller pool of labor, then tech companies simply pick up and move their factories elsewhere. India. Indonesia. Brazil. South Africa. Anywhere the labor is relatively cheap. And that spells trouble, because China is not technologically mature enough to compete on the international stage. It has gotten to this point through sheer brute force and economies of scale, not finesse or technical prowess.
The upshot? China is having a good run of it, but a great deal of their current success is based on the contradictions that have been built into a rigged and artificial system. I would be very cautious before thinking that we'll see a permanent geopolitical shift across the Pacific. The long-term numbers are simply not there.
Last edited by cpg35223; 03-27-2012 at 12:43 PM..
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