I came across the following via a poster at Nouriel Roubini's
Venezuelan leader Hugo Chavez is directing a growing share of the country's oil profits into euros as the dollar and crude prices fall.
The dollar, down 9.5 percent against the euro this year, may face more pressure in 2007 because Venezuela and oil producers from the United Arab Emirates to Indonesia plan to funnel more money into the single European currency.
``The U.S. dollar has suffered a long process of deterioration,'' Domingo Maza Zavala, one of seven board members at the central bank of Venezuela, said in a Dec. 14 interview. ``The diversification strategy started this year.''
Banco Central de Venezuela has slashed the percentage of its $35.9 billion worth of reserves invested in dollars and gold to 80 percent from 95 percent a year ago, said Maza Zavala. The country, the world's fifth-largest oil supplier, has boosted its euro holdings to 15 percent, from less than 5 percent in the same period.
Supposedly Iran has done the same, but I can't find the link.
A few billion dollars are, it should be emphasized, small amounts of money when there are something like $3T in Japan and China. But there are reasons why this could develop into a panic: first, the prisoner's dilemma, in which no one wants to be the last to move, and second, the likelihood of significant miscalculations. Market analysts are predicting a huge rally based in part on Fed easing. The Fed is under pressure to ease interest rates because of the softening housing market. But if it eases, the number of dollars out there increases, so it's far more likely to stay steady. Oil prices have been stable or declining. But Colin Powell is saying openly that the American army is breaking. The likelihood of regional war in the Middle East is rising, and with it, the likelihood of price spikes and recession.
And meanwhile, the level of uncertainty-- about the Congress, about Bushco intentions toward Iran, about changes to the tax law, you name it-- is very, very high.