Oil producers shun dollar

FT ^ | December 10, 2006 | Haig Simonian, Javier Blas, Carola Hoyos

[GodGunsGuts]

This post is for all those who seem to think the budget deficit and trade/current account deficit doesn't matter.

[kinoxi]

Russia and the members of the Organisation of the Petroleum Exporting Countries, the oil cartel, cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second.

I guess shunning must be some form of 'newspeak' that resembles hedging.

[GodGunsGuts]

You are right. Hedging for now. But down the road, unless we fix our massive deficits, it could turn into a full-fledged route.

[Toddsterpatriot]

That's terrible, why do I care?

[prov1813man]

When the value of the dollar goes down, everything costs more.

[Toddsterpatriot]

So, is that bad?

[kinoxi]

The depreciation of the dollar actually lowers our deficit in 'real value' comparatively. If someone owed you ten dollars ten years ago it would be worth more then (ten years ago) in real value due to inflation for instance. I don't approve of this numbers game BTW but it happens to be true.

The Euro's appreciation (dollars depreciation) has lowered any debt incurred at the beginning (strong dollar portion) of the cycle by a proportionate amount. A lower dollar also increases American manufacturer's competitiveness globally on average. It's kind of a double edged sword and historically speaking the Euro is too young of a currency to say whether this is normal or not.

[the invisib1e hand]

You are right. Hedging for now. But down the road, unless we fix our massive deficits, ...

funny, a lower dollar is perfect for that.

[FreedomCalls]

So, is that bad?

Yes.

[Toddsterpatriot]

Why?

[GodGunsGuts]

How about cutting government spending instead? The last thing we need is for all those international US dollars to come marching home.

[Petronski]

...it could turn into a full-fledged route.

Maybe even a rout!

[GodGunsGuts]

Not to mention what will happen if all those dollars come marching home.

[the invisib1e hand]

It's kind of a double edged sword and historically speaking the Euro is too young of a currency to say whether this is normal or not.

Right. However, europe has been around plenty long enough to judge its relative value as an engine of economic growth. It has none.

Europe is monetizing its dollar denominated assets. Brilliant scheme. It will be countered.

[Toddsterpatriot]

The last thing we need is for all those international US dollars to come marching home.

I thought the current account deficit was bad? You said so yourself.

[Toddsterpatriot]

Maybe he meant a NAFTA highway, losing our sovereignty route?

[GSlob]

Remember the old prayer: "The strength to change what I could, the fortitude to endure what I have to, and the wisdom to distingush between the two?" Ditto here. Not much one could do about it, besides piling into Janus Overseas mutual fund [TM]. Up 45%YTD.

[kinoxi]

I wouldn't be surprised to see a few countries opt out of the Euro in the next decade or so.

[GodGunsGuts]

The problem is, by shifting our debt burden to the world, we are screwing our trading partners and threatening the status of the USD as the world's reserve currency. We receive innumerable benefits from this privilege. And if the world turns its back on the greenback, they will have no choice but to dump their worthless dollars into US assets, which will cause domestic prices to skyrocket.