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More Doomsayers Conversations

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PostPosted: Sat Oct 27, 2007 5:16 pm    Post subject: More Doomsayers Conversations Reply with quote

TL: The economy of the 2000's is that WE shall be giving more and more of our wealth to the oil exporting countries! WE just don't want to change our mode of operation, no matter what and no one in charge dares to say that WE must, and soon.

AE: That "wealth" is also reinvested in the U.S. (since oil is generally priced in dollars), which raises U.S. income. Also, the U.S. is the third largest oil producer, after Saudi Arabia and Russia, while U.S. oil firms have operations over much of the world.

TL: So you are saying that the more oil that we consume, and import, the better off we are? Very interesting.

AE: my reply reflects that it's not all negative, which you implied. It takes energy to produce output. So, the more the U.S. produces, the more energy it'll consume. Also, larger houses and cars require more energy. Of course, you could live in a tiny house and drive a go-cart, while unemployed, which would lower your energy consumption.

KT: When foreign companies buy oil, they purchase it on the open market with the price set in $US that is converted using prevailing exchange rates. A German firm buys Russian oil paying the Russian producer in rubles that the German firm converts from Euros. If oil is $90/bbl, the Germans pay the Russians 2,250 rubles/bbl which costs the German firm about 62 euros/bbl. However, when US companies buy oil from foreigners, they pay the foreigners in US$. Those are oil companies, stupid. They don't buy sell or sell US goods. The oil producers convert the US$ payment into their own currencies at the prevailing exchange rates. They have to pay their costs in their local currency whether its Saudi riyals or Canadian dollars.

AE: Sure, you can buy some oil from you neighbor in Germany without using dollars. However, if you wanted to buy oil from Saudi Arabia, or OPEC, or at the world price, you need dollars. Where do you get dollars? One way is to sell goods to the U.S. Of course, another way is in the foreign exchange market.

KT: No you freaking well don't.

Its just the price that is quoted in US$, you stupid *&^%. There is no need to buy US dollars to make a sale transaction.

Do you really think that for commodities that are quoted in US$ buyers are forced to buy US$ to make the transaction? That's breathtaking.

A Chinese company buys Canadian oil by converting yuan into Canadian dollars
The German company buys Saudi oil by converting Euros into riyals unless the Saudi seller agrees to accept Euros
A French company buys Norwegian oil in Euros

The US$ price is simply converted.

Just in the same way that the Saudi purchaser of gold pays for his gold in London in pounds sterling

Furthermore, a foreigner does not have to sell good to the US to get US dollars. He simply rings his currency dealer and converts his pounds, shillings, or rupees into dollars at the prevailing exchange rate.

You are seriously *&^%.

AE: Here's an article to give you a basic idea (link below). Good luck:

"A country whose currency is the predominant reserve currency benefits tremendously. In the case of the dollar, the U.S. benefits from the increased demand for the dollar that the reserve currency status creates. Other countries give the U.S. valuable goods in exchange for dollars issued by the Federal Reserve. They also lend the dollars they've accumulated back to the U.S. at low interest rates. Most significantly, the U.S. benefits from importing these goods and exporting its inflation to other countries in the form of depreciating dollars."

A.E. Here's another link to support my statements (below):

"Many websites[4] are currently peddling the theory that the United States invaded Iraq because in 2000 Saddam Hussein had switched from dollars to the euro as the medium of exchange for purchasing Iraqi oil—the invasion was largely undertaken to discourage OPEC and other oil exporting countries from following suit."

1. The United States has a great economic interest in maintaining the existing dollar based system—petrodollars eventually end up in the hands of foreign companies and governments, which in turn look for a safe place to invest them.

2. There is a natural inclination to shift dollars back to the United States, thereby avoiding any currency risk.

3. Back in the United States, the dollars flow into assets such as U.S. bonds, keeping interest rates low, or into equities thus creating stock market appreciation.

4. The United States benefits from greater availability of investment capital, which is used to fuel growth in a non-inflationary environment.

5. The great demand for the dollar (aided by the fact that oil is paid for in dollars) helps maintain its strength in international currency markets despite the rapid outflow of currency from the United States that is driven by massive current account deficits.

6. The strong dollar lessens the real costs borne by the United States in Iraq. Because countries have to hold large amounts of dollars as reserves to pay for their oil, the United States can in effect exchange the paper it prints for real goods and services, many of which ultimately wind up in places like Iraq or Afghanistan.
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