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Gulf War II: This time it’s for the economy



Gulf War II: This time it’s for the economy

Feb 07, 03 at 7:38 am.
Gulf War II: This time it’s for the economy art


Dollars, Euros and Oil. Excellent article by Ciln Nunan: "Oil, Currency and the War on Iraq". It seems to have disappeared from the site, so I'll include it at the bottom as well. Fascinating explanation of some major economic mechanisms involving dollars and euros and oil. A very big reason that the United States is such an economically and militarily dominating country is apparently that U.S. dollar is the de facto world reserve currency. Lots of things are counted in dollars and some goods are only sold for dolars. That means that foreign governments and corporations and banks are keeping large dollar reserves. That essentially amounts to a huge loan the rest of the world is giving to the United States, which will subsidize the U.S. economy. In order to acquire those dollars, the rest of the world has to provide goods and services for those dollars. That allows the U.S. to have a huge import/export imbalance. Last November, 48% more imports than exports. It would be untennable for any other country to run such a deficit.Next major point is that one of the reasons everybody has to have dollars is that the OPEC oil producting countries only accept dollars for oil. Well, not all of them. The only one that does something different is Iraq, which only accepts Euros for their oil, since 2000. And Iran is considering it as well. And the thing is that it might just as well be Euros that everybody used as a reserve currency. It would apparently be a better choice in many ways, because the European economies are more balanced, and the OPEC countries would end up getting more value for their oil. So, now, what would happen if Euros became the only choice for buying oil? Most likely the U.S. economy would plunge, because it would no longer be subsidized in that manner. And EU would probably be quite happy being subsidized in its place. Anybody thinks all this might have something to do with the great urgency to take over Iraq? And why would Britain support it? more > [Ming the Mechanic] Well now... isn't this interesting. I found it worth reading the whole article to get a clearer understanding of the economics (not a subject I have a strong grasp on). If the economic beans make five then this is by far the most credible rationale I've heardfor America & Britaingoing to war with Iraq. Presumably an American puppet state in Iraq would swiftly switch back tothe mighty $$ for oil deals. Also with a large US presence next door Iran might think twice about undermining the US economy. From my perspective I would like to see the UK join the Euro. Presumably at that point we'd join France and Germany in opposing the war. Doubtless we would claim more honourable "pacificsm" related reasons than just not caring about the US economy any more. However what this does show is that Bush has his eye squarely on the domestic economy. He realises that, if Opec drops the dollar, the US is probably boned. Here is my summary of the article: The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. In addition, all IMF loans are denominated in dollars. But the more dollars there are circulating outside the US, or invested by foreign owners in American assets, the more the rest of the world has had to provide the US with goods and services in exchange for these dollars. The dollars cost the US next to nothing to produce, so the fact that the world uses the currency in this way means that the US is importing vast quantities of goods and services virtually for free. Since so many foreign-owned dollars are not spent on American goods and services, the US is able to run a huge trade deficit year after year without apparently any major economic consequences. One of the stated economic objectives, and perhaps the primary objective, when setting up the euro was to turn it into a reserve currency to challenge the dollar so that Europe too could get something for nothing. Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. There is though one major obstacle to this happening: oil. Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidiser of the US because it holds so many dollar investments). The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. There is little doubt that this was a deliberate attempt by Saddam to strike back at the US, but in economic terms it has also turned out to have been a huge success: at the time of Iraq's conversion the euro was worth around 83 US cents but it is now worth over $1.05. As oil production is now in decline in most oil producing countries, the importance of the remaining large oil producers, particularly those of the Middle East, is going to grow and grow in years to come. ... ..." " target="blank rel="nofollow"> ...Full Story




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