This is itself inconsequential. Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired.
While it is true that the will probably slowly shift during the coming decades to some degree of de-dolarization, it is not going to happen overnight and neither is the expiration of this agreement a prime mover of that. Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow.
But all those upcoming powers like China, India have a vested interest in the continued survival of the dollar, as they hold (both the states and private companies) vast amounts of assets tied to the dollar. They may try to reduce their exposure a bit, but they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth.
Things will keep running as today probably for the next 20 years. Meanwhile the US will have the chance to re-industrialize itself as the dollar gradually weakens.
And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base.
The dollar has been the reserve currency for a long time because (1) the US has been a big promoter of liberalization and world trade, but really most importantly, (2) despite various conflicts, the US currency has been consistent and stable for decades, and everyone who values stability is going to want to park their value in a currency that continues to be boring. So far, the US has been able to scratch that itch because it’s been the same government that has been predictably the same for nearly 250 years.
Now it doesn’t mean the world’s reserve currency won’t change over time but if it does, it’s because some other country or group of people have managed to establish themselves as equally boring for decades. And by the time that happens, the world will have already changed significantly already.
Really, the reason the US Dollar has held for so long is because the rest of the world has had a lot of instability (think world wars, governance changes, unions of countries formed or abolished, etc.). The US hasn’t even had a change in states in 60 years.
> So far, the US has been able to scratch that itch because it’s been the same government that has been predictably the same for nearly 250 years.
This is an exaggeration. There have been at least 3 drastic shocks to the United States currency in that time. The secession of the southern states, who adopted their own currency. Leaving the silver standard for the gold standard. And devaluing the dollar then leaving the gold standard unilaterally in the 1970s.
No you’re right. I neglected to mention them because I think it goes both ways and it acts as a test.
In the end, after the shock, it went back to business as usual.
It’s like despite the Jan 6 riots, everything still is business as usual.
It’s like the old adage about investing in the S&P 500 over any 10 year period… you will make money, but it doesn’t mean it will have made money the entire time during those 10 years. But if you expect that you will be around at least 10 years, then it makes sense.
This. The US Dollar could have crises and be flaky because Sterling was the global reserve currency (and everyone on the gold standard, obviously).
It'll be interesting to see what happens now. I suspect the Russians will play silly buggers because they seem to enjoy that. And they have significant oil to play silly buggers with.
Don’t forget strong property rights, fairly impartial justice system wrt foreign representation, and a large body of corporate case law with predictable outcomes
What is the argument that makes the US special in this regard, in light of their seizure of Russian assets? Assets which might well end up being tagged for use waging war with Russia and supporting Russia's target?
It is hard to see the US system seizing its own assets to donate to the targets of US aggression in a comparable way. But for the sake of argument - impartial it may be, but it doesn't seem like the type of impartiality that is appealing to foreigners. If China goes for Taiwan they'll lose all their US assets for example; I doubt that sits well with them.
Business doesn't like things like wars of conquest where the legal system your factories operate under, your workers and the factories all seized by force or blown up when someone artillery strikes the town they're in to the ground.
The whole point of being a reserve currency is to be stable and a key part of that is also enforcing stability - which the US does through things like it's naval supremacy.
"Don't invade fellow democracies" is a pretty easy set of rules to play by, and is appealing to every country which would like not to be invaded - which is to say, economically doing business with the US is a very good deal if it means the US has your back if someone does look like they want to invade you.
This entire concept is one of the ideas currently being used to try and keep China in check, and it was presumed in Europe that this was what would keep Russia in check (and the failure of that assumption is now the cause of the huge uptick in orders for US military equipment - so even there, the US is doing well out of the policy).
It's a spectrum, not a binary distinction. The answer would be don't go to war with the explicit notion of overturning the very system that maintains the security of those assets. Any system that is totally impartial to enemies that seek to exploit it's rules against itself is doomed to failure; Ergo there will be ALWAYS be the distinction between "insiders" and "outsiders".
But the US is a conglemeration of interests, and if you are businessman, an investor, a Capitalist, your interests are the US interests. If you actually understand what guides US foreign policy it's actually very easy to align yourself with US interests in a beneficial way without much costs. To become an "insider". There is no such thing as "unprovoked US aggression", it's all quite predictable decades ahead from certain actions performed today. The US is predictable, and that makes it easy to invest in.
China, Iran, Russia, NK, Cuba etc instead are still guided by nationalist impulses, which unfortunately can result in irrational decisions (Ukraine, Taiwan) that are unalignable with business interests. It's a matter of pride really, and that's a big no-no for the investor. It's unpredictable, we don't know if China will really invade Taiwan or not, and that's going to put a major cost in investing. As for other places like India or the EU, their economies aren't large enough and have good enough returns yet, but even if they did, they would likely operate in a similar manner as the US.
China are, in a disturbingly literal sense, doing dress rehearsals for a Taiwan invasion. As far as I know (not speaking Chinese) their rhetoric has been quite clear that they see military invasion as an option on this topic. They're probably going to be a US-calibre military superpower in short order given their economic and manufacturing foundations.
I doubt your answer will make a compelling case to their ears.
> There is no such thing as "unprovoked US aggression", it's all quite predictable decades ahead
That is suspect:
* It almost rejects the entire concept of unprovoked aggression. Although de-facto it is, damaging or obstructing the US's commercial interests isn't supposed to be considered a military provocation.
* It is at odds with a country like the US that is continuously in a state of conflict because of their commercial interests. On balance they're probably the most militarily aggressive country in existence right now. That is a lot of implicit provocation!
> China, Iran, Russia, NK, Cuba etc instead are still guided by nationalist impulses, which unfortunately can result in irrational decisions (Ukraine, Taiwan)
I can't resist a jab at this one. Thank goodness the rationalists prevailed on topics like Iraq and Afghanistan, leading to glorious success, prosperity and other good outcomes!
China is responding to provocative actions of the US in Taiwan, the same way russia responded in Ukraine.
"The others are irrational actors, crazies. We are the normal ones" If you can't smell the propaganda you've been fed to believe this irrational racist statements probably you will enjoy the draft.
No country should be subjugated to the desires of another. Ukraine wanted to join the EU, that was their provocation?
Several paramilitary groups in its home soil have been funded by Russia, Russia took over Crimea, Russia has invaded them. Only then was NATO ever on the table.
> Ukraine wanted to join the EU, that was their provocation?
Hello, 2014 American sponsored, Nuland-designed Maidan coup which got rid of an elected President whose election had been formally and successfully vetted by EU observers, following which a fifth of Ukraine's ethnic Russian regions rebelled.
Remember - Nuland was so personally involved that she was handing over food and drinks to "protestors". If this had been a U.S. ally, there would have been howls of foreign interference 24x7 on TV.
Ukraine even put joining NATO as a constitutional guideline and part of their National Security Strategy in 2020-21!
Imagine Mexico as a member of a military Anti-USA coalition - you can bet that there would an American invasion the next year for "regime change".
> No country should be subjugated to the desires of another.
Remove U.S. military bases from Cuba, Iraq and Syria - and then talk about "subjugation" to the desires of another nation. The sanctimonious hypocrisy of Americans always astonishes non-NATO citizens.
Hello, there was no "Nuland-designed Maidan coup", and no, there was no indigenous violent rebellion in the Eastern regions.
Nuland was so personally involved that she was handing over food and drinks to "protestors"
And still she had no effect on the actual course of events. The whole Nuland story exists entirely in the lefty/peacenik blogosphere; but it's a complete non-story within Ukraine. You will literally not find a single educated person who gives any credence to it (outside the usual 5 percent of population who are ready to go off and believe anything).
I see Americans will disgustingly continue to put their head into the sands regarding the extreme culpability of the U.S. statement department in the coup of Ukraine despite any level of evidence. There are any number of decade-old videos you can find of Nuland joyfully co-mingled with Maidan protestors. She traveled several times to Ukraine to participate in the protest. (Many of explicitly clear ones where she cracks jokes regarding the President while handing out cookies have disappeared over the years, thanks to take-downs)
In the famous Nuland-Pyatt leaked call, Nuland and Pyatt discussed who should or should not be in Ukraine's new government. This was happening even before the President Yanukovych was kicked out! She even said "No" to Vitaly Klitschko as a replacement. He was far too moderate, you see. She explicitly mentioned anti-Russian extremist Yatsenyuk as her choice. And LO - the heavens agreed with her choice. He became the leader of the post-coup government.
And that lead directly to the rebellion. It was the equivalent of a Nazi taking charge of a nation with a large number of Jewish districts. Obviously, you would have a rebellion after the coup. And obviously the rebels would ask for Russian help and receive it. Israel gets hardcore military support halfway across the world from U.S anytime it needs it. Why wouldn't Russia assist rebelling ethnic Russian regions terrified by the coup ? Remember - this was a LAWFULLY elected President - VETTED by the EU overthrown in a coup! With the U.S. State Department Shining Star in full support.
(There was another interview with a frightened EU minister who talked about the U.S. involvement in the coup and her fear of the future. Can't find this since its been a decade now)
Nuland immediately became the lead U.S. point person for Ukraine's "Revolution of Dignity" and also established loan guarantees to Ukraine's new government, including a $1 billion loan guarantee in 2014.
You appear to need an absolute, extraordinary threshold of evidence - which is simply impossible without waiting for 2064 where this stuff will be hopefully de-classified, unless the U.S. President at the time postpones de-classification. Yet, the U.S. has gone to war on the basis of circumstantial evidence time and time again.
Nuland giving out cakes and comingling with protestors represents major culpability in a coup?
So those protestors didn't riot because Yanukovych killed the EU association agreement a day before signing?
An agreement that he ran his election platform on and replaced it with a customs union with Belarus and Russia.
Btw it was Yanukovych who proposed making Yatsenyuk as prime minister on Jan 25.
FSB thug Igor Girkin himself said that he and his men started the Donbas conflict when they occupied Sloviansk.
The first prime minister of Donetsk Alexander Borodai once said in a phone call that his loyalty was to one and one nation only, the Russian Federation.
You try to justify an invasion of Ukraine by explaining what Russia perceived as problems. Dude, we know Russia’s position on the matter: we don’t believe it is enough. Giving water to protestors, and the existence of Gunatanamo do not make Putin correct.
Hey, did the man in the telly ever tell you about how messy the process of setting Ukraine's borders was back in 1990? Independent countries had to be carved out from the corpse of the USSR, and how does one set their borders? Well, one convenient way would be to use some existing administrative boundary, and this Ukraine was created within the borders of the Ukrainian SSR...
Except that it wasn't that easy. Even back then there as debate over what status Crimea should have. The region already was an autonomy, and even held elections and elected a president. And then got attached to Ukraine anyway and had its independence obliterated.
Sure, because there is not 100% consensus on the political situation of Crimea, that gives the right of Russia to invade Ukraine and kill people as much as it wants.
There is a mechanism to resolve those matters: referendums. Once again your arguments are left wanting. Messy and difficult internal politics surrounding fundamental issues does not allow the invasion of a neighbour.
Crimea didn't need daddy Russia to forcibly integrate it into the Russian state. It could have done that all its own if it had wanted. The fact Russia has to lower itself to violence to integrate territory illustrates how poor its logic is.
It wasn't ignored -- it got a lot of attention all right.
But then 2014 happened, and everything changed. Once you choose to ally yourself with a foreign power that is aggressively attacking the larger nation you are attempting to secede from -- as the political establishment of the ASSR did at the time -- your moral claim to independence (a key being always an assurance that you will never do harm to that nation) is instantly invalidated.
And when that foreign power you are seeking to ally with also happens to be the one that genocided a large chunk of your indigenous population -- not centuries ago; but in living memory -- that claim is nullified even further.
> "The others are irrational actors, crazies. We are the normal ones"
Everyone believes this, not just those on "our" side. Geopolitics is currently best described as a forcefield, where a myriad of interests vie for influence at any cost. To believe that "the other side" is simply responding to the nefarious, expansionist ambitions of the west is not smelling the propaganda too.
The good side is but one, the side that seeks to replace destructive, imperialist, selfish policies from all sides with cooperation and the rule of international law. That is unfortunately a fledgling position to take ATM.
which was started via China's provocations in the southern china seas. Not to mention the de-democratization of hong kong.
As for russia, their "response" is due to the fact that they don't want ukraine to lean westwards, regardless of the desire of the populous. I personally don't believe russia should have any say in how ukraine leans, and if their populous wants to lean westwards, russia have no right to intervene.
The availability of US treasuries is also a big appeal of the dollar. There really aren’t many places where you can safely park a few billion or even a few ten billion in USD equivalent. The US government is basically a debtor of last resort.
> Really, the reason the US Dollar has held for so long is because the rest of the world has had a lot of instability (think world wars, governance changes, unions of countries formed or abolished, etc.). The US hasn’t even had a change in states in 60 years.
Yes and no. What you're not comsidering is the obligation of The US Federal Reserve (aka The Fed). While dollars are international, The Fed's only concern is the US and US citizens. That is, often enough The Fed makes decisions that achieve this ends, but screws the rest of the world. Such decisions become self-serving to the USA's power, influence, etc. That decision undermines other countries, economies, etc.
So yeah, the USD is stabler, and The Fed helps to see to that.
Perhaps. I'm simply pointing out the "flaw" in metaphorical breaking someone's kneecaps and then staring down your nose over the top of your glasses, waving a finger, and mocking them for not being able to walk, not able to help themselves, etc.
The Fed and petrodollars have made the US stronger and plenty of others weaker, is the US leadership - gov and private - prepared for a shift in that balance of power? And might there be some looking for revenge, so to speak?
Hint: Correct answers are no and yes, in that order.
I would say that the freezing of Russian assets has changed this equation considerably for almost every non-western country.
People seem to think we are still living in the past, where the US alone accounted for more than 40% of the global GDP and was the single most important trade partner of every country outside the former communist block.
It is a different world now. The BRICS GDP in Purchase Power Parity terms has surpassed the G-7, their growth rate is also bigger.
Yeah. it is not the end of the world. Things won't change everyday, zero-hedge doomers are a bunch of crazy scammers shorted as fuck. But the situation is dynamic and requires attention.
> BRICS GDP in Purchase Power Parity terms has surpassed the G-7, their growth rate is also bigger
Yes, random arrangement of countries beats another in a stat.
Two of the BRICS are increasing military tensions with each other. One just saw a massive change in government, and with it, possible geopolitical alignment. Another is in the shitter.
The dollar should wane in importance alongside China’s rise. But BRICS sure as hell won’t have anything to do with it.
>all the while believing all the FUD from the press that overvalues the disagreements between China and India.
Either I must have slept through the Indo-Sino (Sino-Indo?) Peace Treaty Negotiations & Signing Ceremony or "disagreements" is doing some heavy lifting in the above quote.
Correct. For the avoidance of doubt, India and China have signed no peace treaty. They're increasingly militarising their disputed borders, which have never actually been agreed upon, and India is now joining mulitple U.S.-involved security arrangements.
America's superpower is in trade and diplomacy. Agreements. We don't win because we can blow stuff up bigger. (Though we can.) We win because we're uniquely competent at knitting together alliances. I believe that directly draws from our commercial culture--it encourages cutting deals over face-saving Pyrrhic victory.
This is the most laughable thing I have ever read.
The United States are a bully that has proven time over time that are completely agreement incapable and that has resorted to force more than any other country in modern story. It is not loyal even to its friends, except for Israel.
Conduct between nations is sovereign, and outside of any enforceable jurisdiction or legal system. So there will always be the need for a a strong dominant nation to set and establish the rules of conduct and enFORCE them as has been the role of the US since WW2.
Its a dirty job keeping this world order in some semblance of functional, and the Dominant enforcer of that order will always take a cut for their imperfect pursuit of the same. All-volunteer police forces are less common than the compensated type.
Perhaps CRINK (China, Russia, Iran and NoKo) will deal you and your peoples a better hand than the US has?
Yes, unlike Russia, China and Iran, our paragons of peace.
> has proven time over time that are completely agreement incapable
Yes, the Allies in WWI and WWII as well as NATO were ineffective. (As are AUKUS and the Quad to-day. I'll ignore the United Nations, IMF, World Bank, WTO, G-20, G-7, OECD, et cetera out of respect.)
> has resorted to force more than any other country in modern story
Superpowers be superpowering. News at 11.
Can't believe I took your other comments in good faith...
Yeah. You can see things like that and call the BRICS a random arragement of countries and ignore that it is evolving into a more formal and integrated coalition, all the while believing all the FUD from the press that overvalues the disagreements between China and India.
I also wouldn't call the government changes in India a masssive government change. Neither china is in the shitter. Stock and Financial market shenanigans are not as critical in China as they are in the US because they are heavily regulated, they are not as critical for capital financing as in the US, and chinese citizens wealth and retirement are not tied as strongly to stocks.
Or you can just see things in another way and realize that most former colonial countries have developed a lot, and that the US and Europe are no longer the former titans compared to what people sometimes call the global south.
BRICS+ is all talk, no action. Russia, China, and India all have diametrically opposed interests on core issues and none will ever agree to a total realignment of the global financial system lest one of the other two gain an advantage. South Africa is a failed state with a crashing economy.
The US has frozen national assets before, most notable Iran but the big difference this time is that the US is now openly considering confiscating those assets and giving them to another country just because it has the ability to do so. Even Iran, who for decades was considered part of the "Axis of Evil" had its frozen assets kept in reserve until they were eventually given back. It really feels like the powers that be are now people who have no consideration for anything they can't see past the horizon and have unwavering faith that "it'll all just work out in the end somehow". They're becoming reckless on so many levels and unfortunately the public, or at least the loudest voices, are happy to cheer them on.
Even if the US ultimately doesn't turn over Russian assets to Ukraine, just making the threat to do so is globally destructive to faith in the current system that greatly benefits the United States.
I disagree. If things had moved in the same trajectory as the last decades a decline of the current system seemed inevitable. So why not use that power while you still have it.
Also considering the state of most BRICS countries, it does not seem so certain that there will be viable alternatives to the current system.
Its not genocide when I say it isnt is not convincing anyone, all we see is the once mighty uncle sam groveling at the feet of some small country that just happens to control the entire us government.
People mistakenly think it is about Palestinans or Israelies.
Almost all small to medium countries started efforts to create or find alternatives to SWIFT should be a clue.
The efforts started after weaponizing dollar.
Pan-African Payment and Settlement System, ASEAN QR settlement, Direct currency settlement. Even mBridge for settlement between BRICS was launched just a couple days before the end of petrodollar agreement.
Current SWIFT settlement is not going anywhere but everyone is starting to wait and see.
Not sure how the US would freeze gold in a Moscow bank. It can freeze dollars because it controls SWIFT and how dollars move. The dollars it froze were not a huge pile of physical bills in Russia but electronic chits.
Well, exactly. Is the US's influence over swift tied to the dollar or to the fact it's a superpower and has forged these relationships? If we used other currencies wouldn't that be the same situation or are you saying that the dollar's stability is tied directly to swift?
Said another way, if there is a backlash to these frozen accounts, shouldn't it be against swift and for swift alternatives instead of against the dollar?
So what is the alternative to park your money?
Rubles, Yuan, Rupees.....?
So don't invade and annex your neighbors if you want your assets to be safe. Quite frankly I am not sure if that is a net positive or negative in the long run.
This is how it will play out in the next 20-30 years you are thinking about
> They can't do a firesale of US bonds
they aren’t buying a lot of new American bonds and keeping the bond market strong with private buyers. It is why the fed buying treasury bills in the quantities they do is troubling.
Interest rates aren’t going to back zero, they will drop from the current highs but interest will remain positive.
The debt to GDP ratio has jumped massively in last 40 years from 30 % to 60% in 2000s and now 120%, that is an impressive amount of spending considering how large the US economy is . [1]
At some point the either spending on programs have to be cut or taxation has to increased, or inflation has to be allowed to increase significantly to service it.
The policy paralysis in Washington almost by design will not allow for either of the first two solutions to happen which would be internal to the country, so likely in next 20-30 years we are looking at runaway inflation .
At the point dominoes will be too late to control, if dollar no longer is a strong reserve currency , interest rates will go up , either we default or massively rebalance the economy after getting a bail out (! No country or institution like IMF is large enough to remotely even attempt bailing out America ) .
The pain will be global of course , but nobody will be able to do anything about it.
[1] In itself the ratio is not a problem, In OECD countries high numbers can work for long while, Japan holds 250% + of debt to GDP ratio famously , but now after 30 years of weird economics they are slowly being forced to raise interest rates positive or face the yen falling and it will be costly either way
> In itself the ratio is not a problem, In OECD countries high numbers can work for long while, Japan holds 250% + of debt to GDP ratio famously
One of my missions-for-fun on HN is to figure out why anyone cares about Japan's debt:GDP ratio. The country is a net creditor [0]. The US is the worlds largest debtor by an order of magnitude in absolute terms, and up there with just outside the beyond-hopeless tier of debtors. Superficially the two countries seem to be incomparable. Japan's credit position is almost an anti-US on net, relative to GDP. Why would we look at a creditor to figure out how a debtor's default would work?
When you print the world's reserve currency, and currency can only be issued as debt, if the world economy grows faster than currency expansion, you'll have real goods/services deflation. It's a weird catch 22, the only way for the $ to remain the reserve currency is for it to continue being issued at a global growth rate, faster than a mature economy like the US can grow. International debts in $ can only be paid back in the same and that's part of the reason for rehypothecation, central bank swaps, and all sorts of other shenanigans. In turn that keeps US long rates artificially low.
The old adage holds true though, it's your problem when you owe the bank a little money. It's the banks problem, if you owe a lot of money. The same is true of inward investment into the US (or Russia or China). Who will end up owning that investment, if relations go south? The country where it exists not the investor, but debt is a negative investment. The Treasury can start issuing unsterilized currency (the trillion $ coin) and debase the currency any time there's a big enough issue, or simply not repay certain bonds. By the time that happens though, the international economy will already be a shambles. Markets end run this sort of stuff.
If it really happens quickly, owning lead (or uranium) will be more important than owning gold. Hopefully, it's gradual and we eek through another few decades of global growth before it does.
It was a footnote, to illustrate that even countries like Japan which are on the other end of spectrum are not immune to ratio affecting them , not a direct comparison
Perhaps I should have elaborated, this was not a technical presentation of the argument, just a picture everyone can understand.
This is irrelevant for this. They are deficit spending in their local currency. Their US dollars are going to a massive frenzy of commodities import. They are just diversifying their reserves, less US bonds, more physical goods like copper, coal, gold, etc.
> is irrelevant for this. They are deficit spending in their local currency
It's incredibly relevant for balance of payments [1]! This is international banking 101.
If they want a stable currency while deficit spending and maintaining monetary sovereignty, they need to sell assets and/or clamp down on capital flows [2].
If selling, it will mostly be dollars, because that's what folks want and what they have. That's what they're doing.
> They are just diversifying their reserves
No, their reserves are going down. They are also diversifying. But anything other than them net selling dollar assets would be incrediby weird.
Of course they're net reducing the dollar assets they hold. But you don't have to sell your bonds to do that. You can just let your current bonds mature and not roll them. That way there's no big selloff to spook the market.
> you don't have to sell your bonds to do that. You can just let your current bonds mature and not roll them
They're selling like $18bn a month [1]. That is 2% of the daily trading volume [2]. Until recently, the Fed was running off 4x as much [3]. (It's still, at $40bn per month, $25bn of which are Treasuries, running off more than China is selling.)
China is diversifying. But they're doing so about as cautiously as one could.
Another doomerism that will fail to materialize, I suspect. Sometimes too many people are almost eager for the other shoe to drop. But if America is too big and powerful to bail out, then maybe they won't need to get bailed out on...wait for it...debt denominated in their own currency. Fiat is powerful that way.
No, I think the way to continued prosperity are the old principles: Free Markets, Liberal governance, Property Rights, Fighting corruption, and Ensuring robust multilevel competition in the marketplace.
> I think the way to continued prosperity are the old principles: Free Markets, Liberal governance, Property Rights, Fighting corruption, and Ensuring robust multilevel competition in the marketplace.
Don't forget accepting immigrants and makin babies.
In terms of economic policy not much , increased deficit spending is the platform for both parties , whether by tax cuts or welfare is just about who gets the benefits of the spending.
Spending itself is not going to change between both parties
The world won’t fail , but the impacts are real when economic systems change .
We are already facing that , asset inflation is already run away , generational wealth is only way millennials can buy a house , the economic prosperity of boomers is long gone .
The cost of having children has gone up , that is changing demographics today.
It is not black and white between economic collapse and we go to trading cigarettes or everything is awesome , it is spectrum and we already feeling the real economic pain and nothing is indicating it will get better just worse
Of course it has. The slow but certain financialization of the economy since the 70’s has lead to all of this, including the deindustrialization you mention.
Sidebar and perhaps slightly off topic. One of the trigger moments in the Nazi's rise to power was the USA's stockmarket crash, and how the side effects of that ripped a nasty hole in the German economy.
In watching the Netflix doc on the eise of the Nazis, it enlightening how many actions (and inactions) of the USA contributed to the rise of the Nazis. No doubt Hilter & Co were an evil bunch but in terms of popular support and rising to power, they did not do it alone. They had plenty of help.
> they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth.
Wealth and power are hard to distinguish at this scale. Suppose PRC were to a) instigate a global crash of USA Treasury assets and b) offer to swap USA debt for PRC debt for preferred clients. Rather than watch their UST holdings evaporate, most global wealth managers would take the deal. And then RMB does become #1 reserve currency overnight...
Yes it would be terribly "expensive" for PRC in nominal terms, but what is the price of global financial hegemony?
China probably doesn’t want the RMB to become the world reserve currency. The advantages are not a free lunch. Look up the net investment position of the USA and how it degraded after 1970s. All these printed and circulating dollars are a debt to the “US economy”.
Those aren't necessary outcomes, those were policy decisions made by the US/Western elite. They chose to deregulate and let global capitalists do whatever they wanted.
USD has been primary global reserve currency since more or less the 1970s (end of Bretton Woods period), but the tendency for plutocracy goes much deeper and has not abated in the last half-century.
China has a lot more tradition and experience running a long-term civilization that doesn't rely on endless conquest and growth, and they have fresh memory of how USA/Britain fumbled the bag. Expect them to repeat the same mistakes at your own peril.
I am talking informally. The Yuan is not fully convertible, but yet, it can and it is used for trading goods and services. It is not attractive as a reserve currency or as an investment, but on bi-lateral and tri-lateral trade it is perfectly usable. And as china is the biggest manufacturer in the world, for a lot of countries it may make sense to trade in yuans. Sell some copper to China in Yuans, buy some SU-35s from Russia using Yuans, then Russia buys chips from China with those Yuans.
They created a convertible market in hong kong. The currencies are the same but can be de-pegged (CNY and CNH). Overall, I think china will prefer to do managed big deal one-on-one with other countries. This might not cover all of their trade but probably a large (50%+) of it.
As far as I am aware, the Yuan (essentially a unit quantity of currency) is fully convertible and can be traded, but the Renminbi (the currency itself) is not. It's a bit weird that these are not the same thing. It may not be possible to use the Yuan for everything you need without also moving some Renminbi around. However, you can use the Yuan as the unit on which the trade balance of a country is counted - $1 billion Yuan of oil against $1 billion of silicon chip for example - without any Renminbi changing hands.
The point of US dollars is that there are more people who accept US dollars for their trades, and therefore settling in US dollars is safe - you will always find someone else to trade with holding US dollars.
Barter, on the other hand, even if using yuan as the unit of accounting, has the drawback that you can only trade with people who accept yuan and is willing to barter with you (or you find a willing set of trade partners to chain barter with).
Transferring and settling balances are different. You can also transfer Yuan without settling in Renminbi. This is very confusing to deal with, but think about transferring balances as bank account numbers and settling as moving cash. You can do a lot more than just barter without using cash.
> Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired.
But the Europeans would prefer the Euro and the Japanese the Yen,[1] because it is beneficial for their own economies.
In the past period of energy price inflaction one could observe quite for awhile that the exchange rates favoured the US-dollar over the euro although inflation in the USA was higher than in the EU. The best explanation I came across for this phenomenon was the petrodollar: Importers from the EU needed to exchange a lot of euro into dollars to pay for oil. As a result, the exchange rate shifted increasingly against the euro, which made energy costs within the EU even more expensive, which gave the USA a competitive advantage.
Importing countries therefore have a great incentive to conduct oil transactions in their own currency. This will not lead to the dollar losing its supremacy in oil trading overnight. But I expect its share of trading volume to gradually decline.
This just strikes me as sharp elbowed negotiation by the Saudis. I bet good odds that this particular story about the Saudi treaty expiring will have proven to be a nothingburger a year from now (even if de-dollarization and multi-polarity in general continues to be a story).
It is also good to check with number examples about the interest of operating in USD, it is like the interest of using USB Type C or other standard plugs instead of a custom one. The US stocks market cap is USD ~54T [1]. The China one is less of 1/4 of the US one. The bond market capitalization [2] is different but 62% is composed by US, China, and Japan.
>Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow.
How, exactly? We have spent the last two years building a watertight legal justification for doing so. Nothing was arbitrarily taken, and they are still earning interest on that balance. But if you break international law, you will face international legal consequences, under due process of the law that you agreed to abide by through taking part in our system.
Well, you could be right and yet, the economic consequences would be the same. Contrary to what you say, the freezing of said assets and their confiscation is on legally murky waters, and even if it was clearly allowed by Charter of the United Nations, of course it would require a voting on the security council or at least on the general assembly not just a gentleman agreement between the NATO countries, bypassing the only real source of international law: the UN.
The thing is. Does it matter? Can the US and its partners really enforce it? How do you expect other countries that are not in the western club to react? As I said in other comments, we no longer live in the world where the US is the single biggest commercial partner of every country in the world, we don't live anymore in a world where the US alone is 40% of the global GDP. Those days are over.
There is no “international law”. It’s just some term western politicians made to give them legitimacy. The world also doesn’t care since all countries have border disputes and potential conflicts. Freezing/seizing the money is seen as a serious risk now.
>"There is no “international law”. It’s just some term western politicians made to give them legitimacy."
Indeed all law is just some terms made up by politicians. Yet it is given power by those who enter into contracts willingly to abide by them, as you do when transacting business with the west. They knew the rules, and decided that deliberately breaking them was worth the consequences. We will see if that pans out for them.
That is cool and all; but if the US is going to seize assets after building a watertight legal case then countries can't just by default leave their sovereign assets in places where the US can seize them. A country's bankers are not interested in taking that sort of risk needlessly, there needs to be something in it for them.
Of course the international finance system is complicated so maybe there still is enough of a payoff to holding US dollars, we're seeing something of an exploratory process here as China, Russia and probably India start testing the system. It might hold.
There is. The Fed's 5% rate (along with 3% inflation) is the envy of the entire world right now. Where else on earth are you going to get that, with the only stipulation being "don't violently invade your neighboring countries"? There's simply no alternative, unless you trust China more than the US Government.
It also seems the Fed can just absorb whatever it needs to. And it's not like Japan needed to be a global reserve currency to sustain massive debt. De-dolarization seems unlikely to cost much aside from prestige.
Japan is a massive exporter, while the US is a massive net importer. American industrial production depends heavily on global supply chains, and thus, american prosperity requires a healthy global demand of US dollars.
Absolutely no, Japan imports far more than they export.
>Total exports reached 100.88 trillion yen ($680 billion) last year, up 2.8% from 2022.
>Total imports stood at 110.17 trillion yen last year, down 7%, due to lower oil and gas prices, resulting in an annual trade deficit of 9.29 trillion yen. The deficit declined from 20 trillion yen in 2022.
> american prosperity requires a healthy global demand of US dollars
The supply chains create the international demand for dollars and dollar-denominated assets. That then reinforces the supply chains. But causation starts with America being a massive producer and consumer.
We're the second-largest exporter in the world [1]. (But yes, more consumer.)
> And no, the biggest driver for the US Dollars demand nowadays it is status as the global currency of trade
Who do you think does most of the trading? If America weren't the world's largest importer and second-largest exporter, the dollar wouldn't be the global currency of trade.
You're correct that our financial system reinforces that relationship. But it's reinforcing, not underwriting. (China isn't challenging us in our financial services, it's challenging us on trade.)
> And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base.
Also the US can leverage another countries reserves against them
Do you agree this is yet another tactical or strategic setback meaning it's only more critical to get our debt spending in order since we can less depend on outside investing on t bills?
Of course!
Not only is essential that the US starts tackling its debt, but also it needs to be aware that the massive trade debt days where the US imports the industrial output of the world in exchange for treasure YOUs will someday come to an end.
Re-shoring industry is essential for the US to keep itself as a major player in the future multi-polar world.
Fine/cool - my question was rhetorical. And I see nothing on the horizon that dc has got the message. Apparently the in-the-know ppl don't talk to dc and kick their butt around.
Finance influencers and online forums have been abuzz with this news the past few days but now that it is happened ... looks like nothing changed? Oil prices, the US dollar and the markets seem stable?
Is this one of those events that turn out to have been "much ado about nothing"? I'm not an expert in this area, curious if anyone has more insights into this.
Brexit is one of the biggest "shock" events to have happened in recent history, but little really changed in the short term for Britain. An average brit who wasn't in the import/export business probably didn't notice anything the day of, or the day after Brexit.
It's been slow, and one can argue, visible now in the long term "in the graphs". Recovery from COVID was slow. There's a creeping cost-of-living crisis, productivity has been stagnant, investment low, etc. Some might attribute this at least in part to Brexit, some may not, but the truth is, wether Brexit played a role or not, this is how it would surface— slowly, and in the charts.
Brexit also had a 10% shift in currency value as soon as the markets could react to the news.
I don't know how big a deal this news is on the markets, especially given everyone's already trying to shift to renewables. And it might have been predicted in advance, unlike Brexit where the markets expected Remain.
I think Brexit was also more obvious. The effects and timelines were more clear, there were stronger, and well-publicized opinions, and so it was easier to predict what would happen and hedge accordingly. This time of predictability also creates a self-fulfilling prophecy environment. Having people bet against makes things harder.
These news on the other hand seem more abstract. There's no deal now, but the Saudis could change little in the way they do business. They could also change a lot. Other players have cards in the game too— China could start pushing a petroyuan, it could be well-received, or maybe not. There's a lot of actors in the world trade of oil, and the global use of the dollar— plus the latter depends on much more than just oil trade.
With so many questions in the air, I'm not surprised nobody is making strong bets on what will happen. And perhaps this even leads to little happening in the short term. I guess time will tell.
If this causes major shifts, I don't imagine they'll be apparent on day 1. Its not like Saudi Arabia was eagerly awaiting to burn some major bridges with the US. Check back on day 365, or day 3650.
There's that quote, which always seems to get misattributed to a different vaguely-middle-eastern public figure every time it's repeated:
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel."
Whether or not anyone actually said it, it seems to be more and more likely as oil verrrry slowly becomes less and less relevant.
I thought you were going to say a different quote, along the lines that: change always takes more time than we expect, and has more impact than we imagine.
Having primed myself so, I had to reread the camel quote a few times before I understood it!
The US is now the world's largest energy producer, oil and natural gas. Saudi Arabia's security context is anything but solid. I'd question whether they have much room to play with in terms of messing with the US (maybe at the edges, nothing fundamental). I suppose they could sign a large strategic guarantee with China as a form of diversification of security.
1. One guy who worked for Saudi intelligence knew about the attacks (disputed).
2. 15 of 19 attackers were Saudi nationals (dubious relevance, generally we don’t blame a whole country for crimes committed by individuals from that country).
3. Bin Laden family has close ties to the Saudi royal family, and Al Queda got funded by the Bin Laden family.
My surface-level takeaway is that Saudi royals deserve criticism for associating with the supporters of terrorism. However, I don’t see evidence the Saudi state conspired to commit the 9/11 attacks.
> One guy who worked for Saudi intelligence knew about the attacks (disputed)
Not disputed. You didn't go far enough.
Saudi intelligence agent met a set of the attackers in L.A. at the airport. He drove them, and had their first apartment setup. They started using computers in that apartment using Flight Sim software, for them to start training flying. He gave them cash. They scheduled enrolling in their classes in the Florida flight school from that apartment at that time.
Probably referring to Omar al-Bayoumi. It has been widely reported in connection to a lawsuit against the Saudi Arabian government. (I don't know whether the allegations are true.)
My feeling is that discussion of this issue includes a lot of people implying things, making vague accusations. I feel it’s useful to get specific about the claims so readers can understand them.
Fair enough. And I'm glad you did, because it turned what was a
sardonic throwaway comment by myself - "Oh they like burning
skyscrapers not bridges" - into some real reflection, for a few of us,
me included, researching and thinking a bit more deeply about it.
9/11 is a turning point in world history. Even today, much of what's
going on in the digital world around cybersecurity, digital rights and
software design is reverberating from what happened two decades ago. I
have people close to me still living with the PTSD.
I think for some of the current generation who cannot directly
remember it but live in the shadow, it's what WW2 was to mine.
For them it's important to keep clarity, and not give in to myths,
convenient narratives and conspiracy theories. And that takes constant
courage.
Looking back at it, it's beyond insane. We waged two theatres of war
against completely the wrong countries, killed millions and wrecked
our own culture, waged disinformation psyops on our own people to
maintain a lie, for what?
And despite shooting Bin Laden - which was never a trial or any kind
of real justice by our standards of civilisation, I can't help
thinking the bad guys just got away with it all.
And there they are, still talking about "petrodollars" while the
climate fails and the planet burns.
> By pretty much every measure, Biden appears to be the establishment candidate. Who is out to get him?
Certainly the fossil fuel establishment, one of the strongest forces on the planet, would always prefer a GOP candidate over a Dem.
Other parties out to get Biden are likely corporate lobbying groups as the Dems have been showing some backbone with regard to regulations in recent times.
>Certainly the fossil fuel establishment, one of the strongest forces on the planet, would always prefer a GOP candidate over a Dem. Is this not common knowledge?
Yes, since Dems always worked just fine for them too.
> You all are wealthy enough, he (Trump) said, that you should raise $1 billion to return me to the White House. At the dinner, he vowed to immediately reverse dozens of President Biden’s environmental rules and policies and stop new ones from being enacted
The source is a paper run by an ex-News Corp employee.
> And the same deals Dems have been making for decades too.
This is extremely hand-wavy. To get down to specifics, look at the history of the opening of drilling in the Arctic Wildlife Refuge. GOP opens it, Dems close it.
Look at EPA fuel efficiency regulations, which party increases them?
I understand being frustrated by how corporate-friendly both parties in the USA are, but to just throw your hands up in the air while stating "both sides" is ignoring reality and surrendering your agency.
> The source is a paper run by an ex-News Corp employee.
So someone who's used to being owned by a billionaire and pushing their agenda, and good at it, and presumably doing the same thing now under another billionaire? What point were you trying to make?
My point, while admittedly weak, was that the WP is not as institutionally anti-Trump as is often bandied about. Though I now realize that was a useless thing to raise in this context.
For the most part, the mechanics of the current bipartisan system.
In the current election system of primaries (in place since 1972), an incumbent has never lost. They haven't even lost a state in 44 years. So basically the incumbent has a defacto first right of refusal when it comes to their party's nomination.
The other party has been shaped by a political movement with a lot of power and momentum, and the founder of that movement more or less has the same defacto first right of refusal.
I think the parent comment is commenting on presidential candidate ages, which has had two consecutive new records in age and incumbency didn't seem to factor.
Prompt: list of us presidents and their year of birth and age when elected
You will see a list with few year of birth regressions and most ages in 50-60. Two years of 70+ is an outlier.
One side is currently run like a cult, and the other has an incumbent with a massive fundraising apparatus behind him. Just because some people complain on the internet doesn't mean that there are enough of them to make a meaningful difference when it comes to selecting candidates.
A large part seems to also be the insane first past the post voting system. A presidential vote, as I understand it, is only counted against a single candidate (unlike preferential voting for example). This makes the risk of a third candidate much greater and really funnels the system into just two real candidates.
You’re going to have to eliminate first past the post for that to work. Both parties are essentially coallitions. Christian nationalists and big business, and their apologists on one side, and everyone else on the other.
This obviously isn't true unless you think half the population is "evil". It doesn't help anyone's cause when you try and position it as "us vs. Them, and they're wrong"
They may or may not be wrong, or evil, but they are almost certainly not going to take your opinion into account if they win.
An election is fundamentally binary: it has one winner and everyone else is equally a loser. There are other structures that don't fall prey to that, such as multi member districts or party lists. As long as the election has a unique outcome, everyone else is equivalently irrelevant.
hah, I see Unions/forced votes and bought naïve votes (anyone falling for "free" healthcare, student loan cancellation, $10k for a house, etc) on one side, everyone else on the other. That has changed in the last few years for sure.
Sure. Everyone prefers someone else. These are the candidates who are the least worst for a majority. There is no single candidate widely preferred by either party.
The fact that they're both elderly is kind of a coincidence. It is true that older candidates are the ones with the longest track record of accomplishments and the most extensive alliances.
But the GOP candidate had little government experience and somewhat dubious business experience. He is nonetheless popular for his style and positions.
Both parties are very diverse and it's difficult to find someone tolerable to all. Many actively despise their party's candidate but the alternative to the consensus risks losing entirely. It is generally thought to be better to vote for a suboptimal candidate than a pessimal one, though some vocally disagree.
A young, charismatic candidate could come up next time around, but to be honest neither party seems to have one getting ready.
I think social media has greatly thinned the pipeline for leaders. Political leaders are either old and developed their political career before social media was a big influence, or are dogmatic uncompromising idealogues seemingly produced by social media bubbles (or both...).
I don't think it's popular media, I think it's the boomer generation (not the whole generation but those in positions of power). In my estimation and experience, there has been a severe lack of training the next generation and handing off the reins of power. Be it a middle management position, a leadership position in local government, or leadership positions in political parties. We have had a generation of leaders who took the reins and then either never trained their replacement or they did but held onto the reins for so long that replacement has aged out or left for another opportunity/path.
So here we stand, with our leaders entering the high positions of power well after they should have retired. In the president's case, his first run for the presidency was 32 years before he eventually won it in 2020. That spacing is the bulk of most people's working life.
There were several in 2020; Pete Buttigieg, Cory Booker, Kamala Harris etc. None of them got much traction, and once Biden got momentum after South Carolina, everyone coalesced around him because the main goal for Democrats was "Beat Trump."
In 2028 both parties will really have to figure something out. At least (hopefully) neither Trump nor Biden will be eligible to run.
Right - I guess technically Biden would be eligible, but for goodness sake, I think even he would admit at that point that it wouldn't be the best move for the party for him to run at age 85.
I'm a firm believer in meritocracy and equal opportunity, so if a candidate can perform the duties of the office then why does being older by itself matter? That's ageism.
We have Biden and Trump because neither party agrees on a direction for the future. Democrats are like the German stoplight coalition under the hood. It includes everyone from the Chamber of Commerce set who would rather have Liz Cheney or Nikki Haley, to educated identitarians who love Kamala Harris, to culturally conservative populists who like RFK Jr. to culturally liberal populists who like AOC.
I don’t get the comparison. Who’d be Indian Malcom X? I think of Nikki Haley as Indian Liz Cheney. Jindal is Indian Mike Pence. Kamala Harris is, of course, Indian Dan Quayle.
You’re missing the point, and taking it too literally - the context of the original was Wayne Brady being more “assimilated” (not necessarily freer) than Bryant Gumbel, from someone who famously had thought long and hard about the subject [1]
Kshama Sawant is basically white. Socialist,[1] divorced and remarried to a white guy, childless, socially liberal, etc. By contrast, writing "finish them" on a artillery shell seems like a pretty Indian thing to do these days: https://timesofindia.indiatimes.com/india/thanks-to-pm-modi-....
[1] Although India loves socialism, it's like cricket and biscuits--stuff we inherited from white people.
The monetary actions don't seem that important compared to fiscal, rate changes are normal and people are still buying things and making investments. But the gov't could have practically bought Dubya another Iraq war with all the money that was given away, much of it to fraudsters or people who otherwise have no need of welfare assistance.
It’s misinformed on scale of effects, like saying Apple changing the preferences typeface on iMac is going to have massive effects down the road. Like, sure, maybe. But that’s true of literally anything.
It would take some serious changes in the global economy to make this news impactful. At which point we might as well call out the possibility of the Teton Pass collapse influencing the odds of China invading Taiwan.
I don't think what you say is the case. The petrodollar isn't something minor. The role of both oil and the currency used internationally for trade can hardly be understated in history.
It won't lead to much in the short term, that's certain. A boat as big as the global economy doesn't steer quickly. But in the long term it very well could. Or it could not, if the USA makes sure to keep the dollar in the center of world trade in other ways.
> petrodollar isn't something minor. The role of both oil and the currency used internationally for trade can hardly be understated in history
In history. Not today. Remember, in 1974 the U.S. didn’t trade with China [1], the USSR or the Soviet-aligned world. (We were also a massive energy importer [2].)
There is a reason the term petrodollar only shows up in fringe blogs, and never in monetary policy discussions (since at least Greenspan).
It's important to consider though that it isn't all about the USA's energy imports. The petrodollar is also about making sure the dollar remains the world's reserve currency.
The fact that China, Korea or India for example have to buy oil in USD rather than in Saudi Riyal or their local currencies, helps the USD.
I also want to point out "petrodollar" isn't a fringe topic. It wasn't when it was first coined, and even if it's spoken-of little nowadays, that's not a measure of its importance. Few people spoke about CDOs before the 2008 crisis. They were about to play a central role in what was to unfold, but people just weren't paying attention to them.
Again, I'm not saying the USD's dominance is about to end tomorrow. I'm just saying it's an error to dismiss this event as unimportant, in this case on the basis that the USA doesn't import as much energy, or that nobody is talking about the petrodollar. It might not be that important, or it might turn out to be. If we do see effects though, I'd expect them to be in the long-term anyway. Geopolitics are slow. The global economy doesn't change course in a day or a year.
> fact that China, Korea or India for example have to buy oil in USD rather than in Saudi Riyal or their local currencies, helps the USD
It is entirely dwarfed by the volume of their non-oil trade.
> Few people spoke about CDOs before the 2008 crisis
Everybody in mortgages, leveraged finance and structured finance was. That’s the point. The experts aren’t talking about the petrodollar; it’s bloggers and commenters.
> wasn't when it was first coined, and even if it's spoken-of little nowadays, that's not a measure of its importance
It was very real in 1974. Post 2008, it’s a fringe element.
> it's an error to dismiss this event as unimportant
Their currency is pegged to the dollar. Nobody from the U.S. seriously pushed to renew the pact; it also limits American diplomacy vis-à-vis Riyadh.
To the degree it’s important it’s in America signalling that to Riyadh that it is disposable, that America’s military and political protection cannot be taken for granted.
Oil is what matters less here.
And the event itself is not that important in isolation.
But as part of a larger trend of events it is completely different story.
The US can’t finance its debt neither keep their massive trade debts without a healthy global appetite for the dollar.
American companies can’t achieve their massive competitive advantages by outsourcing a lot of production to China and paying with green YOUs unless the world keeps trading between themselves using those green YOUs.
This won’t happen overnight because the major exporters in the world are sitting on mountains of USD denominated treasury bonds and it is not on their interests to see those mountains of assets turning into dust.
But the trend is clear.
+1. I think the term petrodollar makes it seem it's all about the oil. The oil is important, but the most important part of it is the guarantee that the casino chips the USA issues can (and in fact have) to be used to buy things around the world, even when the USA isn't involved in the trade at all (for example, when India buys oil from Saudi Arabia).
The overall fate of the USD as the world's reserve currency depends on a lot of factors beyond this event, but I think we also shouldn't mistake this event as unimportant. I might or might not have important consequences, but it's also a data point that's telling on other diplomatic and geopolitical trends going on in the world.
> the term petrodollar makes it seem it's all about the oil. The oil is important, but the most important part of it is the guarantee that the casino chips the USA issues can (and in fact have) to be used to buy things around the world
This isn't the petrodollar. It's the post-Bretton Woods international order. (And a reflection of the depth and openness of the American financial system.)
Petrodollar refers to a specific aspect of that arrangement in which America mandated certain oil exporters only trade their oil for dollars and then reïnvest those dollars into U.S. Treasuries in exchange for military and political support. That's done.
On the good side, despite all diplomatic posturing, the system have been working really well for everybody, all those countries have massive USD reservers, and nobody really wants the dollar to crash. The appetite of american consumers have been serving the world really well, nobody wants the party to end.
But american foreign police need to have some serious re-calibration if washington wants the party to go on. The times for pushing and shoving other countries are probably over.
For the US not much will change in the short or medium term because the pact was about exclusive dollar payment for energy deal. But this will open up the road for Saudis and OPEC to speed up dedollarisation and diverse their currency reserves(ruble, dollar and Yuan), they already made the steps by accepting Yuan some year ago. Russian Central back also today announced that Yuan will be the main foreign trade currency instead of the Euro and dollar. That pretty much means China has free flow access to energy, food and maybe weapons/shells if needed for a war.
Saudi Arabia lives in the same trap China does with respect to the dollar: they own so much dollar-denominated wealth that they have no interest in intentionally destroying the dollar. They may sensibly diversify going forward, but diversification is a long way from the kind of everything-must-go selloff of dollar assets that would be required to harm the value of the dollar.
I guess we have to go back to the basics. Is USD considered a safe haven compared to other currencies/commodities? If yes, nothing will likely change. If no, they might.
It is possible that this is one of those few scenarios, where it is a 'good thing' that world is distracted by Ukraine/Russia war and Israel/Palestine; oh and elections.
Full disclosure: I asked uncensored llama, but its predictions seemed off to me.
This is a vestige of the 1970s, it isn't particularly relevant in a world where the US is an oil and gas producing juggernaut. The geopolitics of oil are very different than they once were. The conspiracy theories around the petrodollar have always been a bit overwrought.
It is no different than China divesting US treasuries. There were people that asserted this would be apocalyptic but there was nothing substantive behind those fears. And then it actually happened and no one noticed.
Oil is what matters less here.
The point is that the ability of the US to refinance its debt and support the massive consumption levels of the American people through cheap imports and massive trade deficits rely on a healthy global demand for the USD.
The Us is now a massive producer of oil, but it is not a massive net exporter of it, because it consumes a lot. So, when the big net exporters of oil decide to accept other things in payment in lieu of the USD it inevitably has a depressing effect on the global demand for the dollar.
I said net exporter, not just merely exporter. And NO, the US is not a net exporter of oil.
Yes, the US export around 3.6M bbl/d in 2022. But, it imported around 6.3M bbl/day in the same year. So, it was a net importer.
The reason why this happens I leave as an exercise for the reader that is so gung-ho in calling others wrong.
> Yes, the US export around 3.6M bbl/d in 2022. But, it imported around 6.3M bbl/day in the same year
You’re wrong, as the other comment points out. But these numbers are so wildly wrong that I’m curious for your source.
(8.5mm b/d in vs 10.15mm b.d out [1] in 2023. If we limit ourselves to crude oil, it's 4.1mm b/d out [2] vs hundreds of thousands in [3]. A literal order of magnitude.)
Yes, oh, the US got a small superavit in 2023. It is still not a relevant net exporter and won't be for the simple reason investments in the development of new fields have basically stopped with the Democrat government. So, the production will inevitably fall in the following years.
Note that this is a "net imports" graph where values below 0 indicate net exports. The graph shows that the last year where the US was a net importer was 2019.
My thoughts as someone who reads too much news (but probably not enough to be knowledgeable):
I could imagine negotiations going on behind closed doors. The USA is still a gorilla with firepower that can be used as leverage. But MBS is an unstable egomaniac who probably doesn't respond well to threats... My guess is China is trying to woo him, although China doesn't seem to do "diplomacy by aircraft carrier", at least not outside its own seas. I wonder if Putin has any influence, at the moment he can only be China's little brother, and besides, he's friends with Iran and S.A. and Iran aren't friends...
I am very confused now because usually nasdaq is a highly regarded and well informed source of information.
But here there are some glaring mistakes and omissions in the article:
1. Saudi Arabia has already been trading oil in other currencies for some years now. Have they been violating their own protection deal?
2. Or was the deal never put on paper and more of a “gentleman’s agreement” to begin with?
3. The suggestion is made that the end of this deal will mean a declining US dollar. The fact is that the dollar has been declining for a while already and this hasn’t sped up after the end of this “deal”.
These types of geopolitical shifts are not ones that will unfold over a matter of weeks, but rather over years or even decades. The intricate and multifaceted discussions around energy and economic interests between the BRICS nations and the West will play a crucial role in shaping this long-term transition.
The title should say "50 year old petrodollar pact between Saudi Arabia and US expires." Anyways, I'm curious to see what happens next. I can't see Saudi Arabia ditching the dollar overnight.
Nobody's ditching the dollar. However Saudi Arabia and China significantly reduced their investment in US bonds lately. Also notice that the interests on US debt come dangerously close to the whole of US discretionary government revenue.
"May you live in interesting times" as the (apocryphal) Chinese malediction says.
edit : added missing "discretionary". My mistake (you know, a simple honest error, not a "lie" or whatever).
> Nobody's ditching the dollar. However Saudi Arabia and China significantly reduced their investment in US bonds lately. Also notice that the interests on US debt come dangerously close to the whole of US government revenue.
Revenue for 2023 was $4.4T[0], debt servicing cost was $624B. This year it's projected to be in the ~800s.
I'll bite - how much of this 4.4T revenue is non discretionary spending and how much is the discretionary? Because I think that roughly 25% of USG income was discretionary. Which is quite close to the 800 figure.
Does the debt servicing include repaying the principal of maturing treasuries or just the interest?
I haven’t been able to figure out if the principal is not counted in these numbers because it is getting refinanced by rolling over to new treasuries.
If so, it’s like continuously rolling over an Interest Only loan and taking more and more out over time to refinance the ballooning principal.
It's both, although an extremely low percentage of people, IIRC, actually "cash out", most just roll the funds into a new bond once the previous one matures.
A key thing is that the US is now the biggest oil producer, so the exact agreement is less important since the US uses more of its own oil, with the money never having left the US in the first place
The petrodollar was never about access to Saudi oil. Even when we imported large amounts of oil, we also produced a lot and we had very many different suppliers.
The petrodollar was about creating a massive market for USD despite us having a massive trade deficit. Every country that wanted to buy oil had to hold USD and US treasuries to buy the oil.
This cemented the USD as the world currency therefore financing our budgetary (as opposed to trade) deficit with cheap interest rates.
Why do you guys insist on presenting as an educated authority but get such basic verifiable facts wrong? Among other things, the US was absolutely worried about maintaining access to Saudi oil. And the us-saudi "oil for protection" scheme stated in the 40s when the US was the world's factory.
Its not even the wrong facts, it's that you could just Google it and still present as this authority you want to be, but actually be correct.
I guess my point is that the USD has many other reasons for being the world currency, (firstly the lack of alternatives) and the money that was spent on Saudi Oil and would partly come back due to the petrodollar now stays in the US on US oil so its not like the US has lost any value.
The US is unable to refine the oil it produces. We're setup to refine Saudi oil and no, they're not the same thing. Also no, you can't just change the refinery without a significant capital investment. That money has to come from somewhere.
As someone who lived down the street from a significant number of refineries which refined US oil, you're pretty wrong about this.
Most oil produced in the US is refined and used in the US. For a long time US oil couldn't be sold overseas. I don't know who would have been refining that oil if not for the US, given they literally couldn't sell it internationally.
The US produces around 12 million barrels of oil a day. The US exports under 4 million barrels a day. What do we do with the other 8 million barrels??
Not only is it wrong, it's backwards: the US has some of the only refineries capable of processing heavier crudes, and so other countries depend on us to refine it, especially Canada. US is a net energy exporter, and ship out a lot of light crudes.
Edit: Maybe GP comment means we don't have as much capacity to refine light sweet crude? That's probably true, but wouldn't be financially advantageous to do so.
Even if the US lacked refinement capacity (which is obviously not true), significant capital investment as implied by the OP is not something the U.S. lacks.
This for sure. Its far easier to rework a refinery designed for heavy, sour oil and make it ready to process light & sweet. And WTI is very light & sweet. More and more refineries in the US have moved to processing more and more light/sweet crude oil as the level of imports lessened.
This is just entirely factually incorrect. The US can and does refine light, sweet crude. It wouldn't be a massive effort for more US refineries currently set to handle heavier and more sour crude to switch to it. More and more refineries have been making the switch especially since the time WTI went so low it went negative.
Most of the rest of the world has a harder time processing heavier and more sour oils. The US led the world in refining technologies, so we have the knowledge and equipment to refine it. This is partially due to the US being so involved in Venezuela's oil industry growth, the US essentially built the refining technology to make Venezuela's oil filds useful and why they were so crushed when relations with the US went bad. Few other refiners are set up to process Venezuela's oil.
So, it makes sense we buy the cheaper stuff we can easily process and sell the easy to process more expensive stuff on the world market. Cheaper refined products for us and we make more profit selling the easier stuff.
You're still just wrong stating "The US is unable to refine the oil it produces". It wasn't until the Obama administration that the US could export oil on the world market. Have you ever stopped to wonder what we were doing with all that oil we were generating for so many decades?[0]
Have you stopped to consider what we're doing with those 8 million barrels we produce every day that don't get exported today?
> Okay - we're unable to refine most of the oil we produce. Is that better?
The US produces ~12 million barrels a day. We export less than 4.
12 - 4 = 8.
Which is bigger, 8/12 or 4/12? Which one is bigger than 1/2?
Or are you saying we just dump 8 million barrels a day into the oceans or something? Have you ever stopped to wonder where that goes?
And you still have no answer for what we did with all the oil we generated form the 70s until the 2015. Were we unable to refine most of that oil as well? Where did we put it all?
So no, even saying "we're unable to refine most of the oil we produce" is still just factually incorrect.
> The point is Americans believe the United States is energy dependent, and we are not. Not by a long shot.
Sure, if all global oil trade stopped today refined products would get a lot more expensive overnight. Refineries would have to retool a bit. But overall, the US refines more oil than refined products we consume, so it would be a temporary thing.
Looking at these figures, it appears the US is importing nearly 42% of the oil it needs to satisfy domestic demand and exporting nearly 50% of the oil it produces.
The important takeaway still stands - the US is nowhere close to being energy independent.
I'm not sure why the EIA has these two different numbers between your source and mine. Probably because yours are a much wider term of just "petroleum" whereas mine are more directly "crude oil". So if we're talking refining, we should talk crude oil, so that's why I went with the numbers I did.
Either way though, both data sets points to your statement of "we're unable to refine most of the oil we produce" is wrong. It points to your statement of "The US is unable to refine the oil it produces" as wrong. So we know you're definitely wrong about 2 out of your 3 claims so far.
> the US is nowhere close to being energy independent.
Consumption and production are about equal. Its trivial to convert a refinery from heavy sour to light sweet. It wouldn't be some massive long term extremely expensive change to swap. It just makes more sense to process and consume the cheap stuff and sell the expensive stuff while we've got the cheap stuff equipment still plugged in.
Given that you didn't even know the US could refine domestic oil I think you'll understand why I don't exactly take your opinions on how difficult it would be to change a refinery over. Instead, I'll take the opinions of the people I know who design and worked in the oil refining industry for decades, and the knowledge I've gained by talking with them pretty in depth in how refineries work over the past 20+ years or so.
So once again, if tomorrow global oil trade just stopped, then yeah we'd have a short-term problem. It would be a bad year for oil consumers (practically all of us). It wouldn't be some big death sentence oil-wise, because consumption and production are about equal, some consumption would die down due to higher costs, and it wouldn't take too long to retool the US refineries to only US produced oil. And most of that oil being exported goes out at ports also receiving oil, so retooling things to get the oil that was going out to go to the refineries originally designed for imports wouldn't be some massive task either.
It is nowhere near 42% if you're thinking just crude instead of all petroleum products, which our discussion is about refining crude oil. According to numbers from the EIA which I provided above. 13 - 4 == ???
> As far as your thinking that it's not difficult to change a refinery over, do some research.
I have a pretty long history of knowing about oil refining. Reading patents about cracking heavy crude was literally childhood reading material for me, as a son of an IP lawyer for Exxon working out of the Baytown plant in South Houston. Let me share with you how refining works at a high level, and then you'll hopefully better understand. It is probably literally in my blood, as I grew up less than 10 miles from some of the densest area of refineries on the planet and groundwater contamination is a thing. Over half of my family friends growing up worked at the refineries, the others mostly worked at NASA. Many of my close friends work in the O&G industry.
Start off with the basics. Light, sweet crude. This stuff is trivial to process, we've been doing it for over a hundred years. All you need is a regular distillation tower setup and condensers. Heat it up at the bottom, manage the pressure in the column, and it all separates out into different grades. It is pretty much all shorter chain petroleum products (light), it flows easily, and doesn't have a lot of contaminates (sweet).
Ok, so let's move on to light, but sour. This means the oil has some chemical contaminates, usually sulfur is the big one. So we need to first take this light and sour oil and send it to systems that react with the sulfur compounds but don't react with the rest of the oil to foul it all up. Now we have light and sweet oil, which hey we just mentioned we already know and have equipment to process. Its then the exact same stuff that we had before.
What about heavy? Heavy means it has a lot more long-chain petroleum products in it. Stuff like tar and what not. So now we need to heat this up and have stronger pumps to move it around, so that makes it a lot more complicated even just receiving it. We need to send it to special "crackers", which have lots of fancy catalysts and tightly controlled reaction chambers which break these longer chain petroleum molecules into...lighter, shorter petroleum molecules. What do you know, after we crack it, we're back to having light oil again. And we send that along to the same equipment that we used in the first example.
But what about heavy and sour you ask? Well, that means we need to first crack it, then process the sulfur, and then hey what do you know we're back to working with light and sweet. That thing we already talked about being easy to process.
So what does it mean to take a refinery designed for heavy and sour and change to light and sweet? It means you redo some plumbing to bypass your cracker and sulfur reactors, and just use the regular distillation column you already had. It is massively expensive to go from light and sweet to heavy and sour, but it is pretty trivial to go from heavy and sour to light and sweet. You always have to have the equipment to process light and sweet, but the equipment to handle heavy is kind of rare and very expensive. Literally billions to go one way, and maybe several hundred thousand to go the other way if they didn't leave the valves and plumbing in place to send stuff straight to the columns. The biggest hit to capital is the write down from all the billions of dollars worth of equipment you're no longer using.
The oil industry has already been converting many refineries to process only light and sweet. They're not spending billions in new capex these days what with the uncertain future of oil demand. What does that tell you about the costs?
The US refines 20% of global oil. This is the most of any nation. We buy cheap crude and sell the higher quality stuff because that makes us more money. My understanding is that we could switch to refining light sweet if we ever needed to, and this would be easier than other nations doing the opposite (refining heavy sour).
The US is clearly the heavyweight globally in terms of both oil production and refining.
The US crude is "sweet", the easiest oil to be refined. US is the main source of technology for the "sour" oils - Russia, Saudi, Venezuela, etc.
Regarding currency, US will be fine pretty much whatever happens - there is no other currency that is not controlled, in large supply, and globally accepted.
I’m pretty sure US refeneries are not setup to refine Saudi oil.
I remember it being the case with Venezuelan oil and that fact being a boon for West African oil producers when things were sour between the US and Venezuela.
This is also largely true. Saudi oil is generally pretty light but sour. The fact the US has a lot of refineries set up to process heavy oil means its literally not set up to process Saudi oil. Another good example of how taylodl really has no clue about what they're talking about.
While it is true that the will probably slowly shift during the coming decades to some degree of de-dolarization, it is not going to happen overnight and neither is the expiration of this agreement a prime mover of that. Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow.
But all those upcoming powers like China, India have a vested interest in the continued survival of the dollar, as they hold (both the states and private companies) vast amounts of assets tied to the dollar. They may try to reduce their exposure a bit, but they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth.
Things will keep running as today probably for the next 20 years. Meanwhile the US will have the chance to re-industrialize itself as the dollar gradually weakens.
And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base.