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Offlinepattern
multiplayer

Registered: 07/19/02
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Euros vs Dollars?
    #1316857 - 02/18/03 02:21 PM (14 years, 7 months ago)

Recently I've noticed a new conspiracy theory coming out of the woodworks. This one is a little more rational than the oil/terrorist/zionist conspiracies. Basically it proposes the US is afraid of OPEC and Middle Eastern countries selling oil for Euros, thereby stripping America of economic world dominance. What do you guys think?


First Casualty of an Iraq War
Will Be the U.S. Dollar
by Edward Spannaus

February 7, 2003 issue of Executive Intelligence Review.
http://www.larouchepub.com/other/2003/3005us_dollar.html

While President George W. Bush thinks he's going to war in the Middle East, he's being warned that the U.S. economy may not come back. U.S. forces may return, but the dollar won't. This is the admonition that has been directed at the United States from a number of sources recently.

The threat to the dollar results, of course, from a long-term process, reflecting what Lyndon LaRouche has identified as the 35-year transformation of the United States from a producer society to a consumer society. The dollar's decline has accelerated in recent months, and it is now in its worst fall against European currencies since 1987. The point that is being made to the President, is that if he marches off to war in defiance of the rest of the world, he will face a sharply-increased capital flight out of U.S. markets, and should not expect much help in bailing out the dollar when it crashes.

While a unilateral U.S. attack on Iraq could detonate a precipitous fall of the dollar, the attack would not be the cause of the problem. While market commentators have their excuse-of-the-day as to why the markets continue to collapse, David Coxe, the chairman and chief strategist for the Bank of Montreal's Harris Investment Management in Chicago, says correctly that one can't blame all of the financial markets' current problems on nervousness over an Iraq war. "Iraq is the excuse everyone is using," Coxe said. "But I would assign it no more than a 10% weighting of what is really wrong with our economy and our stock market."

Living Off the Rest of the World

The U.S. current-account deficit?what the United States owes the rest of the world because of trade and financial imbalances?is the largest in world history. It is officially estimated at least $500 billion for 2002, and is anticipated to rise to $600 billion in 2003. (EIR regards these official estimates as grossly understated.) Presently, financing this deficit requires a capital inflow of at least $1.9 billion every trading day.

Prior to the scuttling of the Bretton Woods monetary system in 1971-72, no country was permitted to run up such a huge imbalance; a much smaller imbalance would trigger what was then called a "balance of payments" crisis, and the offending country would have to settle up. But since the dollar is no longer linked to gold, nor pegged to a fixed exchange rate, the United States has been free to run up a massive deficit and flood the world with dollars.

The physical reality underlying this, is that the post-industrial United States economy produces far less?in real terms?than it used to. About 80% of the current-account deficit consists of the trade deficit, the excess of imports over exports. What we used to manufacture, we now import. We have been living off the rest of the world, much of which produces the things that we consume, under slave-labor conditions. And American consumers have been paying for this flood of imports, with the greatest consumer debt bubble ever created. Now, the day of reckoning is rapidly approaching.

A fitting metaphor for this mess?as well as a demonstration of the absurdity of President Bush's so-called "stimulus" program?was what happened when he was scheduled to give a speech at a warehouse in St. Louis on Jan. 22, touting the supposed job-creating benefits of his tax cuts. The President's remarks were to be delivered against a backdrop of a huge stack of cartons, as befitting a warehouse. But before the television cameras could be turned on, someone had to put tape on all the boxes, to cover over the "Made in China" markings.

Now, let's look at recent developments. The dollar is down, by some estimates, about 20% when measured against a basket of currencies over the past year. (It is far more, if properly measured against hard commodities, and about 30% against gold.) For foreign investors, this depreciation magnifies their losses in the U.S. stock market; for example, while the Dow is down about 18% over the past year in dollar terms, that represents a loss of 27% in Japanese yen, and 35% in euros.

Now, consider again the $1.9 billion needed every day to finance the U.S. economy's profligacy. Where is it going to come from? Europeans have become net sellers of U.S. securities over the past year. Taking note of this phenomenon, the Wall Street Journal ran a major story on Jan. 20 entitled, "Sliding Dollar's Fate May Be Decided in Asia." The Journal noted that Japanese, Chinese, and other Asians have now become the largest overseas investors in U.S. securities, in terms of net new money pumped into U.S. stocks and bonds. Last year, Asians accounted for 40% of the foreign-investment flows into the United States, somewhat counterbalancing Europe's pullback.

The question asked by the Journal is, how much longer can this Asian support for the dollar last? Asian central bankers are beginning to move into other currencies, especially the euro, and also into gold, whose price has jumped by 31% since Sept. 11, 2001. "If Asians pull back from investing in the U.S., there isn't much else to support the dollar," warned an economist at Morgan Stanley investment bank.

Russian, Chinese, Other Warnings

Meanwhile, omninous signs for the future of the dollar have come out in statements by both the Russian and Chinese central banks.

On Jan. 25, the Russian Central Bank announced that it now has "no less than 50%" of its reserves?which amount to almost $50 billion?invested in dollar assets. But this is going to change: The Central Bank said that it will cut its share of dollar-denominated assets, and instead buy euros, British pounds, or Swiss francs.

Two days earlier, Zhu Min, general manager of the Bank of China?one of the world's top 30 banks, with $400 billion in assets?warned that the purchase of dollar-denominated investments on a large scale, by China and the nations of Asia, may not be sustainable.

Because of its huge trade surplus with the United States, China is paid for its American exports in dollars, and then normally buys U.S. Treasury securities (and other instruments), bringing the dollars back into the United States. China has become one of the world's five largest holders of U.S. Treasury securities.

Speaking at the World Economic Forum in Davos, Switzerland, Zhu explained that "Asia has been exporting to the U.S. and buying U.S. Treasury bills, and so far everybody has been happy. But I don't think it [the U.S. current account deficit] is sustainable. Dependence on Asian flows to sustain the deficit is not healthy."

"I think this year the foreign exchange regime will be very much volatile," he added.

A City of London financial source told EIR that the Russian and Chinese statements were not statements of intent, but announcements of ongoing operations; he called this is a chief reason for the dollar's dive. "The dollar will continue to weaken," the source said. "There are central bank sellers about. My reading, is that what we heard the other day from the Russian Central Bank, is not something for the future, but was a statement made, after they have begun to move out of the dollar. That is probably one of the reasons for the dollar loss in respect to the euro. The Russians know the Iraq war is brewing, and, by doing this, they can exert some pressure, while making moves to ensure that their holdings are not hostage to an American action in event of war. All this suggests that the Russians are taking a harder line respecting [war in] Iraq than some had thought. The same goes for the Chinese."

The Danger for President Bush

This brings us to the recent warnings about the effect that a unilateral U.S. launching of war on Iraq, will have on the dollar's fortunes. This point was made with particular force in the Jan. 26 Sunday Observer of London, by its senior commentator Will Hutton. Because of the weakness of the U.S. economy and the threat to the dollar, the United States needs multilateral support for an Iraq war even more economically than militarily and diplomatically, Hutton wrote. "The United States' military capacity may allow unilateralism; its soft economic underbelly ... does not." He argued, that "The multilateralism that Bush scorns is, in truth, an economic necessity," and noted that while the United States may be a military superpower, "it is a strategic position built on economic sand."

Hutton noted the massive U.S. indebtedness to the rest of the world, citing net liabilities of more than $2.7 trillion?nearly 30% of GDP?which puts the United States at a Latin American, basket-case level. Pointing out, as we have shown above, that this makes the United States dependent on a substantial flow of foreign capital into American markets, Hutton noted with some irony: "The Old Europe that Donald Rumsfeld mocked last week has been helping to prop up the U.S. economy."

Hutton's commentary concluded that if the United States and Britain go to war without support of key members of the UN Security Council like France and China, the flow of dollars from abroad into America will slow down dramatically, and there will be a stampede of foreigners trying to sell. If the war is prolonged, or the post-war situation unstable, the pressure on Wall Street and the dollar would be severe, and "Bush might even have to turn to his despised European allies to ask for a multibillion-euro support package for the dollar, because they hold the only currency capable of shouldering the burden."

Another version of the same scenario was posed in a Jan. 25 Dow Jones story, which warned that a prolonged Iraq war could set off a vicious downward spiral in the markets, in which foreign investors liquidate their dollar holdings. The story noted the fact that Russian and Asian central banks are already beginning to dump dollars.

Business Week Online on Jan. 31 predicted that the biggest danger facing the U.S. economy "is that war could turn the dollar decline into a rout." It noted that the economy "is extremely vulnerable to a dollar decline, since America has never been so dependent on foreign capital," and added, "The threat that war may spark a run on the dollar is the largest macroeconomic threat to the economy."

President Bush, take heed.




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Offlinepattern
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Re: Euros vs Dollars? [Re: pattern]
    #1316858 - 02/18/03 02:22 PM (14 years, 7 months ago)

http://www.rumormillnews.com/cgi-bin/forum.cgi?noframes;read=28796

The big problem now that is making Rice so adamant about going into Iraq is three arab nations have shifted to euros only

They want to be paid in euros for oil ? NOT dollars!!!

This would mean that all of the money that American oil firms make off these deals would vanish!

The reason Germany and France don't want a war is this Euro deal helps them more than anyone else!

China also has a big bite of euros ? they have bought a lot of them ? Sort of as economic blackmail against the US! Not just by China, but by many nations who would like to see the US come down a peg or two.

The US could force the NEW Iraqi government to accept US dollar$$ ? THAT'S the reason for war at this time!!

If you think about it, this goes hand in hand with the major purchases of gold ? Like you have been saying for years, the euro has some gold backing ? Germany is one of the gold holders of the euro!

Iraq shifted out of dollars in 97 or 98 ? the would not accept dollars for oil after that ? the US has been buying oil from European brokers ? as a result of having to pay for it in Euros, what was once a 10B deal now costs 15 ? 18B in Euros!

If all OPEC companies refuse to accept dollars for oil ? then NO ONE will want dollars and there will be a run on the banks! The dollars will be worthless ? the US will have to change ? maybe to script. No one wants an Argentine dollar! And that's about what the US dollar will be at this point!

Within next six months ? Greenspan will be fired by Bush, or resign. Why? Because Greenspan helped the change to Euros ? He will try to make trouble on the way out because he doesn?t like Bush. When he goes, a man named Knight - (I think his first name is Bob) will also go. Knight is the head of the law firm that handles Citi Bank. He is the former money man of DIA and a good friend of Greenspan's.

If war does NOT go off, the FED will no longer exist.

There is the possibility that Iraq has weapons that would deter US forces ? The US does not want half million men to die. If Bush did this he would doom the Republican Party forever. He knows this and won't do it if he is convinced of their ability to inflict damage of our troops.

We are probably too late already to do anything about these weapons.

It also looks like US can?t use nukes. World opinion will not allow this!

If the US can?t go to war, this means they won't be able to put their own man in place who they can force Iraq to use dollars.

If Saddam steps down and allows Tariq Aziz to become President in a democratically held election, one with UN ballot watchers... then the US is finished because Aziz will continue the policy of Euros and not dollars.

This means that the US dollar is finished for good!! This also mean the FEDERAL RESERVE BANKING SYSTEM IS FINISHED FOR GOOD!!

Don't you wonder if maybe this has been the plan all along?



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Offlinepattern
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Re: Euros vs Dollars? [Re: pattern]
    #1316862 - 02/18/03 02:23 PM (14 years, 7 months ago)

More Links:

UK's Euro Delay Poses Risk to 'Investment'
http://www.nytimes.com/financialtimes/international/FT1045510816173.html

The Real Reasons for the Upcoming War With Iraq
http://www.ratical.org/ratville/CAH/RRiraqWar.html


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OfflineMushyMay
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Re: Euros vs Dollars? [Re: pattern]
    #1316915 - 02/18/03 02:43 PM (14 years, 7 months ago)

Heavy.


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OfflineSkikid16
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Re: Euros vs Dollars? [Re: pattern]
    #1317403 - 02/18/03 06:03 PM (14 years, 7 months ago)

I have a feeling the Euro will crash in the not so distant future. It is a flawed idea.


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OfflineGazzBut
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Re: Euros vs Dollars? [Re: Skikid16]
    #1317991 - 02/19/03 01:14 AM (14 years, 7 months ago)

like to expand on that a little??


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Invisibleluvdemshrooms
Two inch dick..but it spins!?


Registered: 11/29/01
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Re: Euros vs Dollars? [Re: GazzBut]
    #1319158 - 02/19/03 11:47 AM (14 years, 7 months ago)

I realize you didn't ask me, but.....

There are too many countries with different wants and needs for the European Union to survive. IMO anyway.

No European Union = no Euro.


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You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for that my dear friend is the beginning of the end of any nation. You cannot multiply wealth by dividing it. ~ Adrian Rogers


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OfflineGazzBut
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Re: Euros vs Dollars? [Re: luvdemshrooms]
    #1320756 - 02/20/03 01:01 AM (14 years, 7 months ago)

I think theres a good chance it can come off. Its just a shame it will be corrupt and greedy. I think the US are terrified of a strong EU.


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OfflineRonoS
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Re: Euros vs Dollars? [Re: pattern]
    #1321046 - 02/20/03 05:52 AM (14 years, 7 months ago)

"In the midst of this debate around the continuance of NAFTA and the proposed FTAA. There are a couple of factors that have been largely missed.

First, there is good reason to believe that the LOW CANADIAN $ has been one of the things that has kept us as Canadians from being wiped out altogether. That combined with our lower worker medical care costs has kept a lot of manufacturing here especially since the FTA effectively nullified the Auto Pact.

The issue that no one is paying much attention to is, why the low dollar? The conventional business wisdom is that Canada is just second rate compared to the US and Britain(?) and France and Japan (?) and of course Germany. But is that so.

1) The US is massively in debt to the rest of the world especially Japan, China and Taiwan.

2) The Government is running a large and growing deficit

3) It's trade balance is seriously negative. They import $1.43 for every $1.00 they export.

4) Their resource base relative to the population is much lower than Canada's while the consumption is higher.

5) Finally much of their manufacturing is now done off shore - mainly in the far east, especially in China. Even Taiwan money is making a massive move on to the main land because of the low wage rates and lack of real regulation combined with their new industrial infrastructure. (I can
foresee the friction declining there and Taiwan moving into China's diplomatic orbit as well as her commercial orbit.)

Any third world country would be up against the scrutiny of the IMF with this record. The reason this is not happening (yet) has more to do with the role of the US dollar in international finance than with the intrinsic strength of the US economy or the policies of the their government in the
last few years.

Since 1944 the US dollar has been the sole international reserve currency. What that means - among other things;

I) is that most countries are holding US dollars - to their own
detriment. Over half the total US currency is held out side the
country. This constitutes an INTEREST FREE loan to the United States. To get those dollars other countries citizens had to sell real goods and services. But instead of cashing them in and getting real goods and services from the US in return they hold the dollars and use them as an internal alternate currency. This was made official by Argentina and is unofficially the case in Russia and many other economies,
II) when the US runs a trade deficit they can simply cover it with paper because the selling countries will hold the dollars and not demand real value in return, In 1999 this all changed although most people didn't realize it at the time (and still don't apparently). On January 1 the euro came into circulation. By 2000 it had dropped nearly %30 against the US dollar. But
since that time it has climbed %17 against the dollar again. Why is this so significant?

I) The economy of the euro block has about the same GDP as the US.

II) This block is not running huge government deficits.

III) It has a favourable balance of trade.

IV) It has - or at least is perceived to have - an independent central bank
- one much less subject to political pressure than the US Federal Reserve Board.

What all this means is that the euro can be an alternative international reserve currency. Now investors and bond holders can hedge their bets by diversifying into euro based accounts. More to the point those countries that are angry at the US (and as we know there are quite a few these days)
can shift their assets and trade currency out of the dollar an into the euro as a way of punishing the US - and maybe make a bit of money on the shift in the bargain as the euro continues to appreciate.

This brings us to another little understood aspect of the middle eastern situation. In 2000 Iraq became the first of the major oil producers to demand all payment in euros - even though it cost them millions of dollars in currency conversion costs. They also demanded that the $10 billion dollar escrow account held by the UN be converted and threatened to with
hold oil shipments when the UN first refused.

(2)Recknagel, Charles, 'Iraq: Baghdad Moves to Euro' (November 1, 2000)


Since then, an apparently irrational move has paid off but we can be fairly sure that after the US invasion Iraq's oil payments will revert to dollars. Of course, seeing Iraq benefit from the switch over the long run, Iran has been chomping at the bit to switch to the euro as well. They of
course are also looking for ways to punish the US - as is the government of Venezuela.

(4)'Economics Drive Iran Euro Oil Plan, Politics Also Key' (August 2002)


Even the Saudis have been making quiet noises about switching to the euro apparently - to punish the US' total support of Israel. According some reports Russia and some other east European countries headed down the euro
track as well - in their case hoping gain new trade and investment opportunities as well.

If all these moves were carried out in the current situation the US dollar would tank in very short order. Once the herd mentality took over among bond holders and other investors the stampede out of the dollar and into the euro would be on.

What is important to realize is that even if Iraq's oil payments are switched back to the dollar and most of the other OPEC countries stay with the dollar for now the SLIDE TOWARD THE EURO IS INEVITABLE over the longer run. The weaknesses in the US economy combined with the military burdens of empire will ensure that. On top of that the Bush administration so far is unwilling to make the necessary adjustments. (The recent tax cuts contributed enormously to the US government debt and deficit. It seems to be a case of paying off his backers at the expense of the American people.)

Now the important thing for Canadians to realize is that once the US dollar drops our manufacturing and service sector becomes incredibly vulnerable. There will an irresistible urge on the part of US politicians to make us pay for the economic disaster that they are headed for. Once the auto sector, already hit by enormous over capacity, heads south the
engine of Ontario's economy will be gone. The same will be true for many other economic sectors.

If we cannot protect our own market we will be reduced to the status of a third world country in very short order. That means that we have to get out of NAFTA BEFORE the proverbial fertilizer hits the fan on the reserve currency front and not after. It's important to realize that a review of the past is not all we need now. We have in fact survived NAFTA and the FTA due to external factors. Those factors are about to be turned against us."

Stewart Sinclair

Toronto-Danforth PC Party executive



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"Life has never been weird enough for my liking"


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OfflineRonoS
DSYSB since '01
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Re: Euros vs Dollars? [Re: Rono]
    #1321064 - 02/20/03 06:03 AM (14 years, 7 months ago)

As a side note Bush may be stupid, but the financiers behind him are not. Prior to 9-11 the US economy was due for a total meltdown. Just like the miraculous Bin Laden message tapes that appear when needed, the WTC demolition, just happened in time to divert the worlds and US concerns from a 1930's type depression to a war based nationalist furor, which leaves no room for anything else.

If there was no war in place they would have to create one anyway. The economy still has not recovered, and the financiers know this. That is why there has been such a run on cash conversions and execs pulling every penny they can get their hands on. The only thing that was keeping the economy afloat was the .com fiasco, where fortunes were being built on air.

Now without a war, people will start looking at the economy and asking hard questions. My God, we cant have that!!! Off to Iraq we go! I think there are a multitude of reasons for the war, Oil is the biggest I think, the euro may be part, the economy is another, civil rights dissolution, and so on. Like any good tool, it has multiple uses in the right hands. The wielders of power are skilled enough (or we collectively are stupid enough) that they may just be able to pull this one off.




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"Life has never been weird enough for my liking"


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Offlinepattern
multiplayer

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Re: Euros vs Dollars? [Re: Rono]
    #1321067 - 02/20/03 06:05 AM (14 years, 7 months ago)

Woah.  Very interesting!  Lets make bets on the Euro.  :smile: 


What will Happen to the Euro after the Iraq War?
Crash
No effect
Skyrocket



If I had money I'd be investing in some Euros! :tongue: 


Votes accepted from (12/31/69 07:00 PM) to (No end specified)
View the results of this poll



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Offlinepattern
multiplayer

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Re: Euros vs Dollars? [Re: Rono]
    #1321095 - 02/20/03 06:19 AM (14 years, 7 months ago)

Quote:

I think there are a multitude of reasons for the war, Oil is the biggest I think, the euro may be part, the economy is another, civil rights dissolution, and so on.




I think you're right. The two biggest reasons, I think, are the combination of oil and euro. "The Euro-Oil threat". The US is very scared of losing global domination, the kneejerk reaction is perpetual war. I dont think that strategy will work in the long run. After Iraq is obliterated, most of the world will be united against the States. The US can bomb/invade more of the Middle East but they cant destroy everyone, unless they start nuking. Regardless, Bush is signing a death warrant for the American dollar by attacking Iraq.

I predict mass changeover to the Euro by the Middle East, followed by Europe and Asia.





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InvisibleEvolving
Resident Cynic

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Re: Euros vs Dollars? [Re: Rono]
    #1321294 - 02/20/03 07:40 AM (14 years, 7 months ago)

Quote:

The issue that no one is paying much attention to is, why the low dollar?



He forgot one other reason, the Fed has been massively increasing the money supply since before Y2K, all these dollars had to go somewhere so they went into speculation and created the stock market bubble. Unfortunately, stock prices weren't based on fundamentals (like profits) but on the expectation of increased prices in the stocks. The bubble burst and now we're seeing a run up in the price of real estate and commodities and a drop in the value of the dollar as more dollars chase an excess of goods (such as computers and automobiles). Things will not improve until business practices and production adjust to the market, lowering interest rates won't help (it hasn't helped Japan in the last decade) but will only act to delay necessary hard choices. We are beginning to suffer a hangover from central bank policies coupled with the business cycle and the initial frantic economic disruption of entering the information age with industrial age government and business structures.

This is not something that will be over in a couple of months, we are in a transition period of great proportions, the silicon chip is as important as the steam engine in changing the economic structure of society. Never before in human history has so much potential power been available to individuals, previously it has only been available to governments and large corporations. Right now, I'd say all bets are off.


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To call humans 'rational beings' does injustice to the term, 'rational.'  Humans are capable of rational thought, but it is not their essence.  Humans are animals, beasts with complex brains.  Humans, more often than not, utilize their cerebrum to rationalize what their primal instincts, their preconceived notions, and their emotional desires have presented as goals - humans are rationalizing beings.


Edited by Evolving (02/20/03 07:41 AM)


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OfflineSkikid16
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Re: Euros vs Dollars? [Re: GazzBut]
    #1321713 - 02/20/03 10:28 AM (14 years, 7 months ago)

Sorry for not replying to you sooner, it slipped my mind.

I don't think the Euro will last all that long because like Luv said, it is too hard to be under one currency and have many different economies. For instance, if England and Germany are doing good economically speaking, they will carry the weight for lets say Spain. The longer they carry the weight for Spain, the more resentful the successful countries will grow, until finally, the elites will act much like cartman and proclaim "Screw you guys, I'm going home" , that way they can let their means of production, tax system, efficiency of economy help determine the value of their currency.

Its like if all of your grades were based on group projects, well lets say you, me, luv, alex, and Inny were in a group (ahhhhh, that would be great), well you and Inny do all your work that is required, Luv, alex and I don't do shit, regardless of how hard you and Inny worked, you will still recieve a lower grade than you deserved, and alex, luv, and myself would reap the benefits that we did not deserve.


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Offlinepattern
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Re: Euros vs Dollars? [Re: pattern]
    #1322273 - 02/20/03 01:55 PM (14 years, 7 months ago)

http://ming.tv/flemming2.php/__show_article/_a000010-000538/


C?il?n Nunan: Oil, Currency and the War on Iraq
...

One of the stated economic objectives, and perhaps the primary objective, when setting up the euro was to turn it into a reserve currency to challenge the dollar so that Europe too could get something for nothing.

This however would be a disaster for the US. Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. As countries and businesses converted their dollar assets into euro assets, the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble, as it is currently openly considering doing, because, without lots of eager foreigners prepared to mop them up, a serious inflation would result which, in turn, would make foreigners even more reluctant to hold the US currency and thus heighten the crisis.

There is though one major obstacle to this happening: oil. Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If you don?t have oil, you have to buy it. And if you want to buy oil on the international markets, you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. So long as this remained the case, the euro was unlikely to become the major reserve currency: there is not a lot of point in stockpiling euros if every time you need to buy oil you have to change them into dollars. This arrangement also meant that the US effectively part-controlled the entire world oil market: you could only buy oil if you had dollars, and only one country had the right to print dollars - the US.

If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidiser of the US because it holds so many dollar investments). The US on the other hand, being the world's largest oil importer would have, to run a trade surplus to acquire euros. The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. It would be a very painful conversion.

The purely economic arguments for OPEC converting to the euro, at least for a while, seem very strong. The Euro-zone does not run a huge trade deficit nor is it heavily endebted to the rest of the world like the US and interest rates in the Euro-zone are also significantly higher. The Euro-zone has a larger share of world trade than the US and is the Middle East?s main trading partner. And nearly everything you can buy for dollars you can also buy for euros - apart, of course, from oil. Furthermore, if OPEC were to convert their dollar assets to euro assets and then require payment for oil in Euros, their assets would immediately increase in value, since oil importing countries would be forced to also convert part of their assets, driving the prices up. For OPEC, backing the euro would be a self-fulfilling prophesy. They could then at some later date move to some other currency, perhaps back to the dollar, and again make huge profits.

But of course it is not a purely economic decision.

So far only one OPEC country has dared switch to the euro: Iraq, in November 2000. There is little doubt that this was a deliberate attempt by Saddam to strike back at the US, but in economic terms it has also turned out to have been a huge success: at the time of Iraq's conversion the euro was worth around 83 US cents but it is now worth over $1.05. There may however be other consequences to this decision.

One other OPEC country has been talking publicly about possible conversion to the euro since 1999: Iran, a country which has since been included in the George W. Bush?s ?axis of evil?.

A third OPEC country which has recently fallen out with the US government is Venezuela and it too has been showing disloyalty to the dollar. Under Hugo Chavez?s rule, Venezuela has established barter deals for trading its oil with 12 Latin American countries as well as Cuba. This means that the US is missing out on its usual subsidy and might help explain the American wish to see the back of Chavez. At the OPEC summit in September 2000, Chavez delivered to the OPEC heads of state the report of the 'Interrnational Seminar on the Future of Energy?, a conference called by Chavez earlier that year to examine the future supplies of both fossil and renewable energies. One of the two key recommendations of the report was that ?OPEC take advantage of high-tech electronic barter and bi-lateral exchanges of its oil with its developing country customers?, i.e. OPEC should avoid using both the dollar and the euro for many transactions.

And last April, a senior OPEC representative gave a public speech in Spain during Spain?s presidency of the EU during which he made clear that though OPEC had as yet no plans to make oil available for euros, it was an option that was being considered and which could well be of economic benefit to many OPEC countries, particularly those of the Middle East.

As oil production is now in decline in most oil producing countries, the importance of the remaining large oil producers, particularly those of the Middle East, is going to grow and grow in years to come.

Iraq, whose oil production has been severely curtailed by sanctions, is one of a very small number of countries which can help ease this looming oil shortage. Europe, like most of the rest of the world, wishes to see a peaceful resolution of the current US-Iraqi tensions and a gradual lifting of the sanctions - this would certainly serve its interests best. But as Iraqi oil is denominated in euros, allowing it to become more widely available at present could loosen the dollar stranglehold and possibly do more damage than good to US economic health.

All of this is bad news for the US economy and the dollar. The fear for Washington will be that not only will the future price of oil not be right, but the currency might not be right either. Which perhaps helps explain why the US is increasingly turning to its second major tool for dominating world affairs: military force.


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man = monkey + mushroom


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