Petrodollars Heighten Risk from Global Imbalances: IMF Report

Market Watch ^ | 4/13/2006 | Greg Robb, MarketWatch

[ex-Texan]

WASHINGTON (MarketWatch) - Petrodollars have returned to the world stage, and could play a potentially destabilizing role in the U.S. and global trade imbalances, according to a new report from the International Monetary Fund released Thursday.

Petrodollars, just as much a part of the 1970s as bell bottoms and platform shoes, are dollars paid to oil-producing countries and then re-invested in major financial markets.

In the 1970s, these funds were deposited in big Western banks. This time around, it is more complicated. Petrodollars are being recycled through international capital markets and offshore accounts, partially because of the post 9/11 Patriot Act reporting requirements, the IMF said.

But these investments have kept U.S. interest rates low, allowing the U.S. trade imbalance to persist, because there has been no pain from running large trade deficits. This only adding to the risk of an eventual sharp drop in the dollar, a spike in U.S. interest rates, and a recession, according to the IMF report. The report was one of the chapters of the IMF's World Economic Outlook released Thursday. [Globalization Helped World Economy Thrive].

"Global current account imbalances are likely to remain at elevated levels for longer than would otherwise have been the case, heightening the risk of a sudden disorderly adjustment," the IMF said in the report, the World Economic Outlook.

And the U.S. has not had to adjust as much as it did in the past because inflation has remained subdued in face of high oil prices and petrodollars have kept interest rates low.

The IMF estimates that capital inflows have depressed yields on government bonds by perhaps 3/4 of a percentage point.

The IMF said that much of the $30 per barrel increase in oil prices since 2002 is likely to be permanent. The value of oil exports has more than doubled to nearly $800 billion in 2005.

The higher fuel bill has accounted for one-half of the deterioration in the U.S. current account deficit over the last two years, the agency estimated.

Another reason that current account imbalances will persist longer than in the 1970s because oil producers are not spending their money quickly. As a result, their current account surpluses will take more time to revert.

The IMF said that oil-exporting countries should boost spending in education and infrastructure projects to have a permanent positive effect on their living standards. This would lower the surpluses.

Oil consuming countries should not shield their citizens from paying the world oil prices, which would reduce oil consumption. End of Story

[ex-Texan]

Oil producing nations are becoming richer at the expense of Americans. China, India and Mexico are becoming more wealthy because the U.S. corporations have shifted more and more manufacturing and production to these countries. In the meantime, Greenspan was quoted as saying recently "global economy faces asset price fall.". Meaning the one man most responsible for "asset bubbles" now is predicting the bursting of the housing bubble. "What is going on here?," you ask. I know. But do you?

"Nothing to see here. Time to move on. You know the drill." Watch My KEY WORDS explode as cowardly idiots take cheap shots while hiding behind their anonymous screen names.

[KSApplePie_two]

PING!!!

[Malesherbes]

Bernanke has said (when he was still a professor) that given the choice of recession or inflation he would be willing to "throw dollars out of a helicopter." I fully expect us to face major inflation which will be the prescribed "cure" for all the debt we've accumulated.

[ex-Texan]

Bernanke style inflation has already be built into the U.S. economy. Think about that fact for a few minutes. It has already happened. Which explains why the Fed decided to stop publishing M3 statistics. With all these hyper-inflated real estate prices (i.e. median priced homes in Los Angeles County @ $ 600,000) M3 is obsolete. Privately, economists are talking about M4 and M5 today. By the time Bernanke decides to drop bales of greenbacks from helicopters real estate signs will be multiplying on foreclosures nationwide.

[Mase]

that given the choice of recession or inflation he would be willing to "throw dollars out of a helicopter

I thought his helicopter comments were in response to how he would deal with deflation. Do you have a link to his statement regarding throwing dollars from a helicopter to deal with a recession?

[KSApplePie_two]

And all this great news (NOT!!!)is coming out when the stock market is closed. LOL. How convenient. And in the meantime the majority of American people have no clue what is about to happen. Put on your seatbelt, things might get a little bumpy. Read the story below. Yee-Haw. And watch the gold and silver markets.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/04/14/cnus14.xml

[ex-Texan]

How very astute of you, ApplePie2 ! By the way, I love home made apple pie and peach cobbler . . . my favorites. Especially hot out of the oven, splashed with fresh milk or cream. Yummy . . . !

What is this guy grinning about? I have a clue and so does ApplePie2. Do you?

[the invisib1e hand]

So the IMF is holy writ? I highly doubt it. Cause for consideration? Perhaps. Cause to break out the conspiracy chatter (again)? puhleeze.

[M. Espinola]

As always you are right on target!. If oil prices continue elevating the U.S. and interconnected global economy shall be enveloped in a petrol fueled inflationary spiral (hyper inflation).

The two probable factors likely to catapult oil prices at least 50% from the current level of ($70), will be a combination of the market jolting Iranian counter nuclear showdown taking place right in the middle of the Persian Gulf super-tanker sea-lanes, and the around-the-corner potential destructive hurricane season.

In addition to Florida and the Gulf of Mexico being slammed again, the National Weather Service has issued reports concerning the Northeast being flooded out by a repeat of the 1938 style mega-hurricane, which most people today are not even aware ever happened.

1938 hurricane

September 21st, 1938.

[M. Espinola]

That Telegraph link is an eye opener. The bulls are in control of the US 10-year bond market.

Teh wise money is on bonds, T-bills, gold/silver/platinum/palladium when oil soars, inflation returns and stocks turn bearish. History repeated once again.

This trending is already underway, prior to a major war with Iran, which could go nuclear, along with summer's tropical storm season. Orange juice will also be bullish.

[KSApplePie_two]

Just another interesting story. I keep reading articles that have this nice little phrase in them "fears of a collpse in the U.S. currency".

_____________________________________________
China economist proposes steps to slow FX reserves


http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-04-10T071842Z_01_PEK333879_RTRIDST_0_ECONOMY-CHINA-RESERVES-UPDATE-2.XML

[KSApplePie_two]

One more.
________________________________________________

Market Insight: Dollar faces punishment for US's economic imbalances

http://biz.yahoo.com/ft/060410/fto041020061305303994.html?.v=1

[KSApplePie_two]

PING!!!