Threatening Petroeuro?

[jsiv]

Considering that Canada is the #1 source for oil imported into the U.S. (and Mexico is #2), I can't see how a Petro-whatever currency would be of much help.

It's not a different currency though, it's just a fancy word Oliver has taken a liking to. A petrodollar is the same thing as a dollar, and a petroeuro is the same thing as a euro. It's a made-up word that's used in some settings to denote a dollar earned from oil trade. Every dollar Canada makes from selling oil is a "petrodollar." Similarily, you could say that every dollar you make from selling fish is a fishdollar.

It'd only complicate things - instead of merely converting Canadian and American dollars from one to the other, you'd first have to convert Canadian or American dollars to this petro currency, then convert that petro currency into Canadian or American dollars again.

Uh, where's the benefit exactly?

Well, using a common currency (generally the dollar) probably simplifies things on the international market where lots of countries sell oil to lots of other countries.

 

[Flo]

It's not a different currency though, it's just a fancy word Oliver has taken a liking to. A petrodollar is the same thing as a dollar, and a petroeuro is the same thing as a euro. It's a made-up word that's used in some settings to denote a dollar earned from oil trade. Every dollar Canada makes from selling oil is a "petrodollar." Similarily, you could say that every dollar you make from selling fish is a fishdollar.

Wouldn't that rather be a fishydollar ?

 

[Puppycow]

BTW, China's option of calling in their treasury notes would have disastrous consequences for them. Who the hell does China sell it's products to? The option only has validity when considered in a vacuum. International trade doesn't happen in a vacuum. That's the part simplistic morons don't consider (by moron I was referring to the author of the article and not Oliver. Oliver's ignorance of international trade doesn't by itself make Oliver a moron.).

Excellent point. The US congress is always making noises about how they want China to raise the value of its currency, which is pegged to the dollar. So if the dollar fell, either the yuan would fall right along with it, or they would have to unpeg it. China's rapid economic growth is fueled by exports, mainly to the US. The US is the goose that lays the golden eggs for China. A lower dollar would mean more jobs and higher pay for US workers, a lower trade deficiet or perhaps a surplus, and a competitive advantage for US-based companies.

 

[egslim]

A lower dollar would mean more jobs and higher pay for US workers, a lower trade deficiet or perhaps a surplus, and a competitive advantage for US-based companies.

Doubtful. This link shows the dollar has been declining against the Swiss Franc, Japanese Yen, German Mark and recently the Euro for the best part of the last 35 years: http://mwhodges.home.att.net/exchange_rate.htm

While this link show the booming US trade deficit during much of the same period: http://mwhodges.home.att.net/reserves.htm

 

[Beerina]

Would you honestly consider the answer?

I've never seen a willingness on your part Oliver to accept reasoned argument. When bested on an argument you simply stop posting. You seem to me to have a deep sense of schadenfreude for America and delight in any and all possible misfortunes that might come our way. This explains your daily threads about America's woes.

That's fine. I just don't take you seriously. If I do respond to you it will actually be to communicate to others.

Cheers,

RandFan

Could he even follow an argument?

For most countries, their currency is of worth only internally, to that country. If you, an external entity, sell into that country, congrats! You now have a handful of their currency.

Now what? Well, you can either spend it in that country, or trade it for another country's currency so you can spend it somewhere else.

Most of the time, people want it back out. That means they also have to find people who want to buy into that country, if they have non-trivial amounts of cash. If they can't, they hold onto it, or keep dropping the rate they'll pay for exchange, which also hurts them.

But if everyone trades in the Special Currency, they don't have to worry about it. If the Special Currency is also a gigantic country, where you prolly'd want to ultimately invest your money anyway, all the better!

Now throw into the mix that the US is deliberately depressing their dollar on the exchange rate. Why? Makes foreign products more expensive in the US (takes more dollars to buy any foreign currency, which most companies want to do to get spending money back home to themselves, the above paragraph notwithstanding.)

But what if there's another, gigantic market? It's still not as desirable as the US, thanks to all the massive regulation dragging business like a lazy, 400-lb. househusband eating bon-bons on the sofa watching hour after hour of TiVo'd Big Brother After Dark on Showtime, with an Oprah, After Oprah, and Dr. Phil chaser.

But it's there, and the currency is not depressed, which means it exchanges well. The market is gigantic, meaning many people want to buy their dollars Euros both to invest and just to hold since they are confident other people will buy them on a steady basis.


Is that what you're driving at, Oliver?

 

[Puppycow]

Doubtful. This link shows the dollar has been declining against the Swiss Franc, Japanese Yen, German Mark and recently the Euro for the best part of the last 35 years: http://mwhodges.home.att.net/exchange_rate.htm

While this link show the booming US trade deficit during much of the same period: http://mwhodges.home.att.net/reserves.htm

Ha!
If you believe that, I'd like to offer to sell you a tinfoil hat. This a few cherry-picked currencies and it doesn't account for other factors like changes in tariff policies and other protectionist measures, as well as supply and demand.

If everything else was kept the same and only the exchange rate was changed, the effect on balance of payments would be clear, but that doesn't happen in the real world because everything is constantly changing.

 

[RandFan]

Doubtful. This link shows the dollar has been declining against the Swiss Franc, Japanese Yen, German Mark and recently the Euro for the best part of the last 35 years: http://mwhodges.home.att.net/exchange_rate.htm

While this link show the booming US trade deficit during much of the same period: http://mwhodges.home.att.net/reserves.htm

Please don't get me wrong. I DON'T take the postion that there is zero worry about the US dollar.

That said, you are looking at one part of the equation. In effect you are like the blind guys examining an elephant. It's not an accurate picture. Economics is not an equation where only bad comes from a devalued currency.

If the the market is healthy and the change is but a small part of the overall picture then the sky is not falling.

Your links are selective of the over all economic condition.

 

[egslim]

This a few cherry-picked currencies and it doesn't account for other factors like changes in tariff policies and other protectionist measures, as well as supply and demand.

During most of the graphed 35 year period Germany, Japan and the US were probably the world's largest exporters (China emerged relatively recently). That's not cherry-picked.

What protectionist measures are you talking about? From what I know, in Europe protectionism peaked shortly after WWII, then steadily decreased.

If everything else was kept the same and only the exchange rate was changed, the effect on balance of payments would be clear.

In simplified economic theory, yes.
In practice no good is perfectly elastic with respect to price, some are rather inelastic. So if the dollar declines prices increase more than demand decreases. Hence the dollar value of imports increases.

Exports depend mainly on manufacturing base - services are often hard to export.
Foreign importers use much of the decling dollar to increase their margins, instead of lowering prices. Their profits increase, but it benefits US exports little. Proof: Consumerprices for IT goods in the EU.
To increase US exports significantly would require expansion of the manufacturing base, but capital investments in cheaper countries like China and India are often far more attractive. So exports increase slightly, but not enough to make up for the increased imports.

 

[egslim]

Please don't get me wrong. I DON'T take the postion that there is zero worry about the US dollar.

My point was that a declining dollar is unlikely to benefit the US balance of trade, since it hasn't done so during the past 35 years. So I disagree with those who claim that China dumping its dollars would benefit the US.

If China dumps dollars the US balance of trade would worsen, and some of the poorest people would go bankrupt because they are no longer able to afford imported necessities (like fuel, for truckers). That hurts lenders. And wether the whole thing would fizzle out or snowball depends on how fast the dollar declines, which in turn depends on how many dollars China dumps and how fast.

How much all this would hurt China depends on the proportion of China's economy devoted to exports for the US. Keep in mind China has a potentially huge home market. Also, some exports would continue because they are essential goods. And some can be diverted to other countries.
The loss of dollar reserves is unimportant to China, because a) the dollar is declining slowly and b) money you can't spend is useless anyway.

At the moment I think the danger is insignificant, because too much of China's economy depends on exports to the US and US allies in Europe and Japan have enough reserves to cushen the dollars' fall if necessary. But ten or twenty years from now the story will be different.

 

[WildCat]

My point was that a declining dollar is unlikely to benefit the US balance of trade, since it hasn't done so during the past 35 years.

I suggest you go to your local community college and take some basic economics courses.

 

[Gurdur]

I suggest you go to your local community college and take some basic economics courses.

WildCat, I suggest you should actually learn to look at evidence, especially begfore you hand out ignorant recommendations. Egslim's main point is quite correct -- declining USA dollar periods have done little at all to help the USA manufacturing and export sectors. Not much reason at all to think they will do so in the near future, either.

 

[RandFan]

My point was that a declining dollar is unlikely to benefit the US balance of trade, since it hasn't done so during the past 35 years.

I don't accept this premise is only bad for America. In any event, you miss the point. If America, a duck that lays golden eggs for china, can't buy China's exports then that will significantly hurt China.

 

[Gurdur]

I don't accept this premise is only bad for America. In any event, you miss the point. If America, a duck that lays golden eggs for china, can't buy China's exports then that will significantly hurt China.

A point, but not such a big one; actually China buys more from the USA than vice versa, at this time, IIRC; and replacement of markets is hardly difficult.

 

[RandFan]

A point, but not such a big one; actually China buys more from the USA than vice versa, at this time, IIRC; and replacement of markets is hardly difficult.

It's not as if there is this market out there that China has put off in favor of America. China will, right now, trade with anyone who can or will trade with China.

Further, it makes little difference who buys more and who sells more. In the end there is capital in the form of money or goods and services. Trade deficits are rhetorical bogeymen. If I sell more to you than you do to me I have more of your money. If I buy more of your stuff than you sell to me I have more of your stuff.

If I give you money to build me a house you have my money but I have a real asset, a home.

If I give you money to improve my business production you have my money but I have increased business production.

Little needs to be said if I have your money, assuming your economy is stable.

Trade between two parties is not necassarily a zero sum game whereby the person with the most money OR the most real assets wins.

Caveat: This isn't so relevant for individuals. Spending all of one's money on consumables might make one's life better in the short run but in the long run he or she might not be able to afford his or her lifestyle.

This is certainly possible, to some extent, for nations but you must look to other economic factors.

 

[Puppycow]

Trade between two parties is not necassarily a zero sum game whereby the person with the most money OR the most real assets wins.

"Not necessarily" concedes too much. In fact, it is almost always a win-win situation that benefits both parties because they get more marginal utility out of whatever it is that they traded for. (Exceptions for cases with assymetrical information such as if I sell you a lemon or a bogus 'cure' for something).

 

[WildCat]

WildCat, I suggest you should actually learn to look at evidence, especially begfore you hand out ignorant recommendations. Egslim's main point is quite correct -- declining USA dollar periods have done little at all to help the USA manufacturing and export sectors. Not much reason at all to think they will do so in the near future, either.

His point is not supported with evidence, unless you think correlation is causation. It is not!

Economists use the phrase ceteris paribus a lot, meaning "all other things being equal" - which they are not in the real world! What is generally agreed upon is that lowering the value of a currency relative to others will result in more exports and less imports, ceteris paribus. Now if you want to argue that making foreign goods relatively more expensive and domestic goods relatively cheap does not encourage more exports and fewer imports feel free, but you'll have a hard time making a case that makes sense if you make another assumption common in economics - that people act rationally.

 

[RandFan]

"Not necessarily" concedes too much. In fact, it is almost always a win-win situation that benefits both parties because they get more marginal utility out of whatever it is that they traded for. (Exceptions for cases with assymetrical information such as if I sell you a lemon or a bogus 'cure' for something).

Fair criticism. I was trying to not be absolute and didn't think it through.

Beads for pelts comes to mind but in the end the Indians wanted beads. Never mind they could have traded the pelts for more money and bought the beads cheaper but that is the nature of trade. Ironically some of those beads are actually worth more than pelts today (unless this is all popular myth).