The Galloping Beaver
Methinks you have hit the nail squarely on the target, Dave.
Well Done ! ! ! !
There are a lot of people who like you believe that it is a big deal that oil is priced in dollars. I don't think I am going to convince you otherwise, but it just isn't so. Literally trillions of dollars are exchanged for other currencies every day. You don't have to hold dollars in order to purchase dollar-denominated items, and for a large company like an oil company, the costs involved in converting the dollars back and forth into euros or yen in order to purchase oil are negligible.
You are completely correct that if people stop wanting to hold dollar reserves it could be a problem, but reserves in the main reserve holding countries are either much larger than needed to buy oil (China, Brazil for example) or are held by oil-exporters who don't need to buy oil anyway. So not pricing oil in dollars isn't likely to have much effect on that.
I believe that all US policies toward Iraq are strongly affected by oil, but not by the currency it is priced in.
For more on this see http://globaleconomicanalysis.bl...-it-
matter.html
I don't actually agree with Shedlock a lot of the time, but on this issue he is correct.
Matt, I don't agree with Shedlock on this either. If I'm a country having to buy oil and the oil producers don't take US dollars, the portion of my forex reserve held to provide petroleum security needs to be in something else.
That will change the mix of fiat currencies I hold and not in favour of the US dollar.
I agree that Iran isn't going to have a huge impact on the US dollar. Yet. When net oil importers with large forex reserves see no need to retain huge amounts of US dollars, what happens to the dollar? Can US industrial and agricultural output support it? I don't think so.
If there is no demand for US dollars to buy global commodities then the only way to support the thing is to devalue it and increase interest rates.
So, no, you haven't convince me. 
The Bush administration's major concern about Iran using a non-dollar currency is the establishment of a new oil marker. The existing markers (West Texas Intermediate, North Sea Brent Crude and Dubai Crude) are all in dollars and as such the major oil commodity exchanges, one each in NY and London, operate in dollars.
If Iran can create a new marker in euros (or yen or yuan or rubles or whatever) the that will compel the exchanges to begin to operate in non-dollar currencies. Thus, other oil (i.e. non-Iranian) could begin to be sold in non-dollars.
This scenario is Armageddon for the American economy, as it relies 100% on petrodollar recycling.
BTW, it is not only Iran that has made moves away from the dollar. Kuwait, and the UAE have begun to make the first steps too. If OPEC ever adopts a 'basket of currencies' the world financial situation will be rocked.
Dave said:
"I agree that Iran isn't going to have a huge impact on the US dollar. Yet. When net oil importers with large forex reserves see no need to retain huge amounts of US dollars, what happens to the dollar? Can US industrial and agricultural output support it? I don't think so.
If there is no demand for US dollars to buy global commodities then the only way to support the thing is to devalue it and increase interest rates."
Good points, all. But since at least 2006 other countries have been at least making noise about changing how many dollars they have (not terribly surprising given the price of oil vs. the value of the dollar), by itself this isn't a reasonable cassus belli.
Assuming BushCo. attacked Iraq (and now maybe Iran) just for this reason, could they simply have been wrong (as they have been about so many things) and are about to repeat the mistake again? It's possible; however, since the shift away from the dollar is happening in many places, does this mean a sudden "mad-dog" assault on most of the planet just to keep people using dollars? Unlikely.
The theory about Iraq's shift away from dollars causing the attack has to find more basis than a simple post hoc reasoning.
http://www.lexpress.mu/display_n...p?
news_id=60103
http://mailman.lbo-talk.org/2006...uly/
013616.html
http://www.bloomberg.com/apps/ne...tRhU&
refer=home
(Listen to some of the commentary on the Bloomberg page.)
Personally, given that the people who appeared in the news as US enemies are also the people who thumbed their noses at the US by refusing to accept dollars, I think this story is just one accidentally concocted by the media.
But since at least 2006 other countries have been at least making noise about changing how many dollars they have (not terribly surprising given the price of oil vs. the value of the dollar), by itself this isn't a reasonable cassus belli.
I don't dispute that at all. If I wasn't clear, my point is that there was never a casus belli.
I think this story is just one accidentally concocted by the media.
I don't think the media has ever hung their hat on this one. I didn't get it from there.
It's not exclusive either. I think there is an imperialist mindset at PNAC which drove the train, but there was an economic force as well.
On the other hand, maybe the Bush administration just isn't smart enough to have gone that far in their self-justifying machinations. Perhaps I'm actually giving them too much credit.
"If I wasn't clear, my point is that there was never a casus belli."
OK, it looked like that was what was being described.
"I think there is an imperialist mindset at PNAC which drove the train, but there was an economic force as well."
Imperialist mindset, definitely, but what do you mean by "economic force"? An (exclusively) economic rationale?
"Perhaps I'm actually giving them too much credit."
This is something I've seen here and there re. BushCo., and there might be something to it. How much of this evil stuff is Their Nibs bullshitting themselves (and consequently, everyone else) into disaster.
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