Bill says the whole (too long) report is nonsense.
I mostly agree, BUT with a caveat.
If switching to petro Euros has no affect on foreign investment
into the US, then I'd agree the report is useless.
However, if the switch to Euros, or the war in Iraq, or
a feeling that US assets are overpriced, or it's the anniversary
of the internet bubble bursting ... or for any reason, a
significant amount of current foreign investment dries up,
there could, indeed, be significant US econ impacts.
I note, for example, the huge number of advertisements to
refinance your home; converting home equity into debt.
What happens if there is house price bubble
pop and a 10-20% drop in home asset values?
Please educate me Bill, how big a decrease in foreign investment
would there have to be before it was, in your view, a
significant problem?
Thanks,
Tom Grey
PS.
I wish there had been a link posted, and just a few quotes from the
article. Here are a couple I extracted:
start
Otherwise, the effect of an OPEC switch to the euro would be that oil-consuming
nations would have to flush dollars out of their (central bank) reserve funds and
replace these with euros. The dollar would crash anywhere from 20-40% in value and the
consequences would be those one could expect from any currency collapse and massive
inflation (think Argentina currency crisis, for example). You'd have foreign funds
stream out of the U.S. stock markets and dollar denominated assets, there'd surely be
a run on the banks much like the 1930s, the current account deficit would become
unserviceable, the budget deficit would go into default, and so on. Your basic 3rd
world economic crisis scenario.
...
By definition, dollar reserves must be invested in US assets, creating a
capital-accounts surplus for the US economy. Even after a year of sharp correction, US
stock valuation is still at a 25-year high and trading at a 56 percent premium
compared with emerging markets.
The US capital-account surplus in turn finances the US trade deficit. Moreover, any
asset, regardless of location, that is denominated in dollars is a US asset in
essence. When oil is denominated in dollars through US state action and the dollar is
a fiat currency, the US essentially owns the world's oil for free. And the more the US
prints greenbacks, the higher the price of US assets will rise. Thus a strong-dollar
policy gives the US a double win.
end of exerts
So, mostly hysterical leftist anti-war hodge-podge (dollar denomination
does NOT make it a US asset!); but I do think
the capital account surplus finances the US trade deficit.
And the Mid East money might be looking elsewhere.
-Original Message-
From: William Dickens [mailto:[EMAIL PROTECTED]]
Utter and complete nonsense. The reason the press doesn't discuss the
issue is because it is a non-issue. The only necessary harm
done to the
US by the Euro becoming the world's primary reserve currency
(or sharing
the status with the Euro) is a loss of a few hundred million
in revenue
for the Fed.
Should OPEC set oil prices in Euros and hold their cash reserves in
Euros what would be the real consequences for the US? 1. A
tiny increase
in risk wrt oil prices (we know its tiny because the cost of currency
hedging is minimal). 2. A tiny loss of income for the Fed from being
able to print cash and create reserves as cash is repatriated and
foreign banks accounts in dollars are reduced. 3. Some
tendency for the
dollar to depreciate which can be completely offset by slower money
growth (this and 2 are really the same thing). Perhaps slightly more
foreign exchange risk for companies doing business with
countries that
cease to peg to the dollar.
- - Bill Dickens
