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December 06, 2006
It begins
Iran, the world's fourth-largest oil exporter, plans to reduce its use of the U.S. dollar in world trade and increase use of the euro, two Tehran-based newspapers reported.
The Tehran Times said today Iran has started substituting euros for dollars in oil sales, citing an unidentified person at the Oil Ministry. Iran Daily reported Iran wants to cut its dollar-based transactions to a minimum, citing Minister of Economy Davoud Danesh-Ja'fari.
According to Bloomberg, Iran has added a clause to its oil contracts allowing it to demand payment in the euro and other currencies since the US decided last September to block Saderat Bank (one of Iran’s biggest state-owned lenders) from doing business in the US as punishment for the Bank’s support of Hezbollah and Hamas.
The timing on this is critical, as the dollar touched a 20-month low against the euro this week, and central banks in the Middle East including the United Arab Emirates have plans to convert some of their dollar reserves into euros.
and... EU-Iran-oil
A spokesperson for the European Commission declined Wednesday to comment on media reports that Iran has started replacing dollar with euro in majority of its crude oil exchanges in the last several months.
"I have no comment. This would be a free decision for a government or company to use a particular currency than its own for invoicing the products that it sells," said EU spokesperson for economic affairs Amelia Torres.
"It is not something we encourage or discourage. We leave it to the markets and the forces in the market," added Torres.
If the dollar drops (and it has been dropping) the Chinese – who hold more dollars than almost anyone else – are losing lots of money. That's not a bad thing, since it should encourage them to stop buying dollars and start selling them; and allow their currency to rise relative to the dollar.
That's all well and good, but if the dollar gets dumped, if it drops too far and too fast, everything we buy from the rest of the world is going to start costing a lot more. That's going to push inflation up and the only way we can continue to finance our budget deficit is to push up our interest rates.
This is called stagflation – inflation combined with no or negative growth. Wall Street ain't gonna like that.
Don't kid yourself or be mislead by the MSM. This is economic warfare, pure and simple.
Posted by LindaSoG at December 6, 2006 02:06 PM
Comments
Stagflation and Jimmy Carter back in the news?? Man, this is Retro. Maybe we can get him back into office.
Posted by: Gordon at December 6, 2006 08:48 PM
Won't the Euro be affected too? Since it's the global economy?
Posted by: sandy at December 6, 2006 11:21 PM
Overall since Bush has become President by what percent has the dollar fallen?
Didn't it used to be worth 15% more than the euro ? And now it is 1/3 less than the euro ?
Posted by: John Ryan at December 6, 2006 11:46 PM
Gordon, We all remember the carter years, double digit inflation and interest rates. if we don't learn from history, we are doomed to repeat it.
Sandy, yes, of course the euro will be effected. Its value will rise against the dollar, as will other currencies. That means we will have to spend more dollars.
John, yes the dollar has falled overall since Bush has become President. Small fluctuations are not always a bad thing. The countries who loan us money to support our debt are losing money now.
Let's say you loaned us $100 in 2004 and the interest was at 10%. If the dollar is down 15% from 2004, you have lost 5% on the deal.
Now, multiply that by billions. If you loaned us billions, you are losing an awful lot of money. What would you do? Maybe dump the debt before the dollar goes down further?
But that's not all. We need to borrow more moeny to keep the country going. Would you loan us more money?
This is why interest rates go up when the dollar goes down.
The effect on the average American? Well, if the dollar has taken a 15% dive, you've taken a 15% hit in your income. Interest rates have gone up fairly steady. Gas is up, everything is up at least a little. So, now the democrats are gonna raise minimum wage. That's going to have an effect on prices too.
I should say that I'm not an economist, I read a lot and I follow the markets. What I see scares me.
Posted by: LindaSoG at December 7, 2006 06:41 AM
You are still talking in restrained, logical terms. You indicate adjustments, even strong ones but still adjustments. Such as the actions of the Chinese and their adjusting their dollar holdings. If they adjust their holdings and sell off dollars we are cooked, frazzled, incinerated.
We won't have time to buy anything if the dollar drops. Once it starts it will crash. Goods won't be "more expensive" they will be prohibitive. and as the rest of the world economies they won't have enough money to buy our goods however cheap they are - and we won't have the cash flows to manufacture anyway.
Possibly some 200 million American people in deep trouble - out of work, hungry, finally desperate enough to rob. The government will neither be able to help them out nor will there be soup kitchens for the multitudes as in the 1929 era.
It's far worse than your conventional assessment allows you to go.
Posted by: Peter at December 7, 2006 07:44 AM
John Ryan: the euro debuted at about .97 for 1 dollar, now it is at about .80 USD to 1 euro. I hope the dollar falls more, it wont effect domestic US much at all, but will have a drastic effect on the rest of the world on how they do business.
Posted by: DAT at December 7, 2006 07:50 AM