In before the ZOT?
Posted on 09/26/2005 3:45:47 PM PDT by chaos theory
Can Iraq's Policy Affect the US$ and Euro? Iraq decided to no longer accept dollars for oil... what do you think will be the effect on the greenback and on the Euro?"
The burning question in cyber-space today is "Will this policy be limited to just Iraq?"
In my opinion, we will see the dollar having to bid for Euro's instead of oil directly. That will reverse the current Euro-Dollar relationship. It will create a high demand for Euro's causing a higher Euro valuation; the dollar will significantly devalue against the Euro by 30% or more. Also, since the Euro is market-aligned with gold, which represents 15% of its current value, the price of gold will also rise in dollars and Euro's, but much more so in dollars -- probably above $600+ per ounce or more. As gold changes in value, so too will the Euro. Gold will become a proportionately higher (or lower, since gold is marked to market value against the Euro quarterly) percentage of backing for the Euro as gold rises (or lowers).
The current Goldgate derivatives fiasco in paper gold contracts (see www.gata.org) has the potential to blow the roof off of the gold price. Were that to happen, the Euro, because of its market tie-in with gold prices and low external debt, would find itself strongly backed by gold and when marked to the market price of gold would strongly devalue the dollar to a potentially devastating 50% or less of its current value. Combining these two factors, you have a replacement world reserve currency in the making.
It is possible that other oil countries could follow Iraq's lead by allowing payment in Dollars or Euro's for oil. This dual payment system would, of course, be too attractive for European countries to pass up and would therefore open the door to significant dollar holdings being converted to Euro's. Eventually, this would lead to the Euro as becoming the preferred choice in oil payment currency because the currency value is earmarked to gold's market value and would represent a less inflationary and stronger long-term value to the oil interests.
All the pieces would seem to be in place for this seemingly minor payment acceptance decision, yet the impact on the Euro, gold, oil, and dollar prices would rock the world. It would cause a rush to the exits away from the dollar to the Euro. No wonder, then, the Bank of England, the ESF, and bullion banks want to keep a lid on the price of gold (see GATA link above). For a significant rise in the price of gold or oil in dollar terms would only tend to exacerbate this significant shift in currencies -- it would become just too good (for oil interests) to pass up.
This would also reverse the trade deficit for the US, as a devalued currency would make US-made products much more attractive in world Euro-based markets. Its effects in the US would be to cause a rush to Euro-based investments and obviously cause the US stock market bubble to create a whooshing sound as dollars are moved into Euro-based stock markets and precious metals too. Just look currently at how the recent Intel and Kodak profit announcements have effected the higher Price/Earning ratios of these two companies -- a one-hour 30% downward adjustment. The US equity markets are just too high in their average P/E's and we would see a quick erosion of the average PE to a more traditional and conservative level but not before an overswing occurred in the opposite direction. It is easy to see why the US has held a strong-dollar policy and would appear to be pulling the stops out in order to protect that policy.
It is gold's hidden agenda as a currency that has caused the gold investors plight of late. [It is true -- all currencies are based on the price of gold, especially the dollar (and now the Euro). This is not a G7 official position but one would have to lack intelligence to not see the relationship gold holds with all world currencies. It is the only commodity held in quantity by world central banks -- 32,000 tons to be more precise. This reservoir of gold is much like a holding tank or overflow tank in a closed liquid system with big leaks. The banks can use their stash to stabilize the system until the loss of gold is too rapid and the system needs more gold because the reservoir can't (or won't) keep up -- such is the case today]. The dollar-based countries (either by backing or by trade) have had to protect the dollar by holding back the price of gold, especially since the Euro is market bound to gold. Any strong rise in the price of gold would make the Euro a very strong and desirable currency. It seems that this chess match is much too far along and the dollar is now trapped in playing it until the end, but has lost far too many pieces and is now in a defensive game with apparently no way out.
When looked at in this perspective, one cannot blame the dollar camp for its strong dollar policy and all the alleged manipulations and shenanigans in the gold market -- the soft landing of the stock market seems to be but a small piece of a larger looming landslide of derived-dollar problems as they pertain to gold and to a strong competitive currency: the Euro. A strong dollar and a gold price above $290 cannot exist in the same Universe, much like the famed question and answer in the "Hitchhiker's Guide to the Galaxy" series by Douglas Adams. As in the series, should the question and answer or in this case, strong gold and strong dollar, find themselves in the same Universe, this would cause major havoc. It is an impossible formula and no matter how much a goldbug or Euro-watcher would want it, one or the other must give first. For now, gold is loosing the battle. Yet, the mere existence of a Euro currency backed by 11-strong nations, creates a major conduit for funds that seems quite compelling for oil sellers and purchasers. A dual oil payment system is such an easy policy change to make, but one with major ramifications. When looked at in this perspective, one must admire (but not necessarily like) the beauty of moves that has brought us to here. Like it or not, it sure does explain a whole lot, eh?
Steve Hickel
29 September 2000
Since Saddam was in power he never had the chance to build an oil enterprise like Saudi Arabia.
His oil embargo would have been lifted in 2003 when the Euro dollar was already worth more than the USD.
We had to take Saddam out of power to save our economy and secondly the Saudi Royal Family.
What we all must realize though, is why others in the world would disagree with this theory and would want to fight our interests to the end.
This is Neo-Conservatism.
Economic Assassins.
**Sniff**
This theory fails when it is noted that the Saudi Royal family was and is against our liberation of Iraq.
Iraq not accepting dollars was a reaction, not a strategy.
Take the neo-con boogeymen crap back to DU.
He was wrong in all his predictions. Gold is not at $600+, there isn't a stock-market bubble, the strong-dollar policy has been abandoned, and the US trade-deficit is bigger than ever.
Neo Conservatives are actually Human Rights Advocates of the Democratic Party except unlike Democrats they believe in the use of miitary force to change the world. The problem with this approach is we needed a large military to carry out such a world policy. That is my only critique of the GWB foreign policy, you cannot fight a 2.5 war strategy with a 1.5 war military.
Umm, shouldn't this kind of tin-foil stuff (read: ungrounded in reality) be more the purview of DU ?
Empty talk. The Euro is much sicker than the dollar.
I smell ozone.
In before the ZOT?
You, nor the author, understand what the hell you're talking about.
If Saddam was in power, his country would be under control and spewing out more oil than any other country.
Well who was in power for the last 30 years? What was stopping him from spewing out more oil than any other country?
Iraq's economy was devastated and there was no investment in oil exploration and extraction. The only people who can do this are the oil companies and they were barred from going in. The security council would never have lifted the sanctions on Iraq with Saddam in power.
You are an idiot.
No, your the idiot if your jumping to such conclusions so quickly.
Iraq sanctions were due to expire in 2003. Are you saying that is inaccurate?
By the way, no kidding it was Saddam's fault he wasn't a big contender.
First he was a tyrant in the 70's.
Second he was in an american supported war with Iran.
Then third he was under UN sanction that were set to expire in 2003.
Because guess what, the UN WMD inspection was inconclusive!
No, your the idiot if your jumping to such conclusions so quickly.
Iraq sanctions were due to expire in 2003. Are you saying that is inaccurate?
By the way, no kidding it was Saddam's fault he wasn't a big contender.
First he was a tyrant in the 70's.
Second he was in an american supported war with Iran.
Then third he was under UN sanction that were set to expire in 2003.
Because guess what, the UN WMD inspection was inconclusive!
True, gold is not soaring that high, but it has increased this year, and is rising sharply. Of course, this is partly due to the commodities cycle - it has been down a long time - must move up. My own belief is that gold will rise, and might be $500 by the end of the year.
Yes but it has taken 5 years to reach $460 and it fell today and what about the trade-deficit shrinking as the dollar falls? Complete BS.
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