Friday, December 22, 2006
Hope that never happens. One nasty financial jolt could irritate the house-of-cards that maintains the American suburban-build-out economy.
Here in Phoenix, one in every three local economic dollars is generated by the housing industry. I don't think commuters from Goodyear truly understand their fragile situation.
My guess is that it's less political than our press seems to think. Oil is often sold as a contract for future delivery. If a currency is expected to undergo serious revaluation, the producer is assuming a currency risk. Sure, he can hedge against it, but it gets complicated. Plus, we burned the Iranians on their US-held assets 25 years ago and they probably don't want any funds held where the US could seize them. And we pulled a coup on Chavez, so he has no reason to trust the USG.
In the larger sense, the use of the Euro is more of a loss of prestige than anything practical. It's one more statement that we are no longer an exceptional economic power. It may, however, exert a small downward pressure on the dollar, since people who buy oil will want to keep Euros rather than dollars in their "checking account." Since the total number of dollars in actual circulation is near a trillion, a few tens of billions won't be a major deal.
But, yeah, the house of cards is waiting for a puff of wind. If Clinton were in charge, I wouldn't worry. These bozos... I worry.
Depends what you mean by "immediate impact". FUBAR @ Needlenose generally covered the bases on this subject in this post:
... in April of this year.
Several links in that article re. the cascading affects of moving oil transactions from Wall Street, among other things, are very real influences. Simeoultaneous events... realignment of global economics as a consequence of GWB's policies have resulted in the US entirely losing Cental/South American economic influence. Oil/Nat. Gas development... refining & marketing contracts that, for decades involved US interests/companies, now are going elsewhere. Much of this activity involves Iran, not just in domestic oil sales, but also in various aspects of developing foriegn oil production.
This activity (eg: Iran's oil Bourse), global economic realignment, and China's emerging clout are all interconnected. Krugman, in May '05 wrote:
Here's what I think will happen if and when China changes its currency policy, and those cheap loans are no longer available. U.S. interest rates will rise; the housing bubble will probably burst; construction employment and consumer spending will both fall; falling home prices may lead to a wave of bankruptcies. And we'll suddenly wonder why anyone thought financing the budget deficit was easy.
In other words, we've developed an addiction to Chinese dollar purchases, and will suffer painful withdrawal symptoms when they come to an end.
Respectfully, I disagree w/your statement that Iran's shift to Euro is mostly symbolic. Rather, looks to me like it's symptomatic of very significant course corrections in global economics.
I think Fubar did a nice job of it. I may be so favorable because he came to the same conclusion that I did: Iran probably wants to do this for the purpose of hedging against currency shifts. And, in the end, so do you, calling the shift to Euros "symptomatic," meaning that there's a larger problem. That problem is the decay of other "soft power" through abuse of hard power.
I don't want to minimize what a shift to the Euro as a reserve currency means. It is part of the decline of the US as a power. But shrimplate is hitting closer to the main problems: extreme bad faith by the Republicans on taking care of all of us, which leads to national division and drift, and the rise of China, which regards the US as primarily an interloper-- a particularly dangerous one because of the US-Japan...um... alliance.
One can estimate impact by the size of the change in dollar flows. If Iran and Venezuela shift to euros, very roughly 10 billion dollars will become unnecessary. In and of itself, the bourse is not a major event. But, as you say, it's symptomatic.
More blogs about politics.