Things are beginning to hot up. First there was the Russian-Chinese deal to settle massive hydrocarbon deals in both Yuan & Rubles.
Now China is forging currency arrangements with two unlikely suitors - Canada and Qatar.
The petro-dollar system is the heart and soul of America's domination over the global reserve currency, and their right to make all nations have to purchase U.S. dollars to be able to buy oil in the open market. Bound through an agreement with Saudi Arabia and OPEC in 1973, this de facto standard has lasted for over 41 years and has been the driving force behind America's economic, political, and military power.
But on Nov. 3 a new chink in the petro-dollar system was forged as China signed an agreement with Qatar to begin direct currency swaps between the two nations using the Yuan, and establishing the foundation for new direct trade with the OPEC nation in the very heart of the petro-dollar system.
While this new agreement between China and Qatar is only for the equivalent of $5.7 billion over the next three years, Qatar becomes the 24th nation to open its Forex market to the Chinese currency, and solidifies acceptance of the Yuan as a viable option for the future in the Middle East.
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools - Douglas Adams.
Then can you explain why the dollar continues it rapid rise against other currencies? I thought the end of the petrol dollar was supposed to crash its value.
PS_RalphW wrote:Then can you explain why the dollar continues it rapid rise against other currencies? I thought the end of the petrol dollar was supposed to crash its value.
In the short term, the petrodollar rises or falls on the basis of mindless fear/greed with incredibly short time horizons. Also, I think the markets' belief in the brutal and indefatigable will of the Yanks to pull whatever rabbit out of the hat that is necessary is such that they will continue to support the dollar right up to the wire. In other words, collapse, if and when it comes, will be swift and "unexpected".
PS_RalphW wrote:Then can you explain why the dollar continues it rapid rise against other currencies? I thought the end of the petrol dollar was supposed to crash its value.
In the short term, the petrodollar rises or falls on the basis of mindless fear/greed with incredibly short time horizons. Also, I think the markets' belief in the brutal and indefatigable will of the Yanks to pull whatever rabbit out of the hat that is necessary is such that they will continue to support the dollar right up to the wire. In other words, collapse, if and when it comes, will be swift and "unexpected".
Don't forget that there is also systemic fraud that is associated with market activities.
Ilargi, at The Automatic Earth, has described the US Dollar as the best looking horse in the glue factory. This is extremely apt as there are currencies that are in far worse shape - namely the Yen (the Japanese have a 20 year head start on the others) Sterling and the Euro.
However it is naïve to expect that the US Dollar will continue unscathed. It will be ultimately usurped as the world's reserve currency (quite probably by a basket of currencies - not a single currency) although the US will certainly not give up without a fight.
Which is why we should keep an eye out for Qatar and not be surprised if there is a military coup there
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools - Douglas Adams.
Brazil and Uruguay have switched to settling bilateral trade with local currency to stimulate turnover, bypassing the US dollar.
The Eurasian Economic Union (EEU) which also includes Belarus and Kazakhstan is planning to create a single market for financial services by 2025 which will simplify switching to dollar-free trading.
I experience pleasure and pains, and pursue goals in service of them, so I cannot reasonably deny the right of other sentient agents to do the same - Steven Pinker
Correa has long warned the continued use of the dollar is holding back the economy, once describing it as a “straight jacket.”
In July, Ecuadorean legislators approved a law paving the way for the use of a parallel electronic currency for domestic use.
Replacing the Dollar with a localised version of Bitcoin??
Is Max Keiser advising him???
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools - Douglas Adams.
Back to the declining state of the Petrodollar - another sign of distress is the fact that there is a shortfall in them being "recycled" into markets:
Mike Whitney wrote:Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.
This year, however, the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations:
‘At its peak, about $500 billion a year was being recycled back into financial markets. This will be the first year in a long time that energy exporters will be sucking capital out,’ said David Spegel, global head of emerging market sovereign and corporate Research at BNP.
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools - Douglas Adams.
Is this a jargon laden way of saying that for the first time in years, oil companies are making a loss and not a profit? If they sell oil for more than it costs to extract, they have excess money that is recycled through divdends etc., into the financial system. If they make a loss, they borrow money which is all spent paying employees and suppliers, and disappears from the investment pool.
I have always said that the cost of oil extraction was a bigger factor on the global economy than the price it sold for.
PS_RalphW wrote:
I have always said that the cost of oil extraction was a bigger factor on the global economy than the price it sold for.
Exactly so - which is why the current low price should not be seen as good news by those who hope for business as usual.
That is because we are in a DEFLATIONARY spiral at the moment - the clueless dunderheads that front MSM don't know/understand this/have been given clear direction not to mention this*
Given the highly leveraged state of the oil cos and that a lot of foreign companies have DOLLAR dominated debt to finance their operations - any rate rise by the Fed would have serous consequences for this sector. Which could, counter-intuitively actually hasten the demise Petrodollar.
Personally, I remain sceptical that the Fed will raise rates
* delete as applicable
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools - Douglas Adams.
This is a big development and one that has been coming for some time now. This gives an outlet for countries that are barred from using SWIFT (Iran springs readily to mind) and will lessen the impact of Western/US backed sanctions on them
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools - Douglas Adams.
Very interesting discussion involving gold price, the fake state of the markets, the AIIB, geopolitics, Greece, and the Euro
A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools - Douglas Adams.
Very interesting interview RB, I have some of my pension fund in a gold and silver fund which is not doing particularly well over the last 3 years - fortunately I chose to buy into it when it had already dropped well down compared to the high gold prices of 2011. So I have lost very little so far.
That interview has convinced me to transfer another 20% of my pension fund out of bonds and into gold.
Even if gold was only to go back to the previous high levels of 2011, it would dramatically increase my pension fund. I am nearing the new golden age of 55, so providing things hold out till then, my bets are on gold rising.
snow hope wrote:Very interesting interview RB, I have some of my pension fund in a gold and silver fund which is not doing particularly well over the last 3 years - fortunately I chose to buy into it when it had already dropped well down compared to the high gold prices of 2011. So I have lost very little so far.
That interview has convinced me to transfer another 20% of my pension fund out of bonds and into gold.
Even if gold was only to go back to the previous high levels of 2011, it would dramatically increase my pension fund. I am nearing the new golden age of 55, so providing things hold out till then, my bets are on gold rising.
SH, forget using a 'gold and silver fund', I'd suggest you buy 'physical gold' at this late stage of the game.
