Tension over dollar-weakness boils over at OPEC summit (Roundup)
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Nov 18, 2007, 0:26 GMT
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So why can't we break the world oil $ monopoly and trade oil in the stronger and more stable Euro?
Oh no you say!, well I'll give you one GREAT great reason why we should switch to Euro's.
US. NATIONAL DEBT CLOCK.
(well worth a read, but look at the figures closely).
The World Loses Confidence in America
The U.S. dollar has fallen in value more than 40% during the past few years relative to the Eurodollar. The decline continues and international investors who hold $4.6 trillion in U.S. treasury bills, corporate bonds and stocks are starting to panic. The massive U.S. Federal deficit and the equally massive U.S. trade deficit both conspire toward even lower value for the U.S. dollar.
Bush's own reputation and policies overseas, I believe, are causing overseas respect of the U.S. itself to deteriorate. The GDP of India-China combined will be ahead of the U.S. by mid-century, based on current rates of growth. China is cutting more and more deals with Iran for energy, which screws up our own Iran policy.
The correction in the dollar's value has been a long time coming, and currencies pegged to the dollar take a hit as well, perhaps bringing up the issue of de-linking. While it benefits U.S. exports and makes our imports more expensive (including gasoline), that can be seen by some as an economic benefit to the U.S.
That said, too much of ANYTHING is not good, and the continuing drop in the dollar cannot be maintained, while keeping investment in Treasuries attractive to those who can invest elsewhere - the aforementioned sovereign funds in my first post. Those investments are welcome, because it's 'patient' money that won't jump around to other places. The U.S. Treasury is of course viewed as 'safest', but the switch from a book-surplus in 2000 to the current deficits, and accompanying growth in the National Debt ... PLUS the future expenses tied to Iraq and Afghanistan, many of which are NOT funded such as veterans's health care ... are starting to make foreign investors seek to diversify.
Bush's best appointment was the CURRENT Treasury Secretary after a few second-raters (O'Neil and Snow come to mind), and the next President likewise needs to find someone with great esteem, as well as experience in dealing with foreign governments, to replace him. Bush has this continuing habit of only nominating people who agree with his policies, which is a good way to learn absolutely nothing new from them. It's also no guarantee of loyalty.
en.wikipedia.org/wiki/The_Price_of_Loyalty
The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill, a 2004 book, described the Bush administration during Paul O'Neill's tenure as Secretary of the Treasury. Written by former Wall Street Journal reporter Ron Suskind, the book says Bush's economic policies were irresponsible, Bush was unquestioning and uncurious, and the war in Iraq was planned from the first National Security Council meeting, soon after the administration took office. The book was based on extensive interviews with O'Neill and numerous documents O'Neill received during his job as Treasury Secretary.
O'Neill harshly criticizes the President, blasting his economic policies and alleged 'detachment' from the cabinet process. He described Bush's behavior at cabinet meetings as being like 'a blind man in a roomful of deaf people. There is no discernable connection.'
O'Neill was frustrated about what he perceived to be a lack of vigorous debate between administration officials and the formation of sound, coherent policy on the important issues. He longed for the return of the 'Brandeis briefs' that were used in the Nixon and Ford administrations in which he had previously worked.
The book also claims that the U.S.-led invasion of Iraq was not a reaction to the attacks of September 11, but was instead a campaign in the planning stages ever since Bush took office, with potential oil spoils charted in early documents.
www.reuters.com/article/reutersEdge/idUSN1739991420071118
(Reuters) - U.S. officials have thrown a rhetorical lifeline to the downtrodden dollar by expressing faith in the economy's long-term 'fundamental' prospects. But the effort may only brake the greenback's slide as long as financial markets expect U.S. interest rates to move lower.
Treasury Secretary Henry Paulson's tweaking of Washington's strong-dollar mantra to stress the U.S. economy's fundamental strength appears to be an effort to talk the dollar up, or at least ensure a decline that has taken it to a record low against a basket of major currencies does not become a rout.
'A strong dollar is very much in our nation's interest,' he said on Thursday, reiterating a long-standing currency mantra ahead of a weekend meeting of finance ministers from the Group of 20 industrialized and emerging market economic powers.
But, in a new flourish to this well-honed phrase, Paulson added: 'Our economy, like any other, goes through ups and downs but I believe the U.S. economy is going to continue to grow and its fundamental long-term strength is going to be reflected in currency markets.'
Your economic illiteracy is amusing PB.
At least this time you spared us the B.S. for padding. M&C's tech support thanks you.
www.businessweek.com/magazine/content/07_46/b4058058.htm
Here's a combination the global financial Establishment better get used to: a seemingly limitless pool of capital overseen by Western-trained managers. U.S. officials have been fretting about China Investment and other so-called sovereign wealth funds, calling on such outfits to provide greater insight into their operations. But there's little the West can do. Russia, the Persian Gulf states, China, and others have amassed fortunes from exports of gas, oil, or manufactured goods, and now they're looking to supercharge the returns they're getting from that money. All told, these funds today control more cash than the world's hedge funds combined: $2.8 trillion vs. $1.7 trillion, according to Morgan Stanley. By 2011 that figure may hit $8 trillion or more.
For Americans and Europeans, the big worry is what sovereign fund managers plan to do with their huge pots of cash. Because their interests don't always match those of the West, the looming question is whether they'll simply go for maximum profit, or also pursue more ominous political goals. The increasing economic clout of undemocratic governments could mean that 'our markets will be less transparent, less yielding to outside law enforcement,' Christopher Cox, chairman of the Securities & Exchange Commission, said in a speech at Harvard University on Oct. 24.
If Western officials are worried about the funds, they have only themselves to blame. The insatiable appetite of Americans and Europeans for oil and cheap manufactured goods has flooded developing countries with foreign currency. Western policymakers have spent years pushing to open global capital markets, creating the conditions that allow sovereign wealth funds to thrive. And as U.S. credit markets limp through the subprime mortgage crisis, the sovereigns may be the best place to go for financing. 'The U.S. is going to have to import large amounts of capital from the rest of the world as long as there's a big imbalance between what we save and what we spend,' says Robert D. Hormats, vice-chairman of Goldman Sachs (International).
(same link)
Saudi Arabia, China, and other countries have traditionally plowed their reserves into U.S. government bonds earning perhaps 5% annually, but they're no longer satisfied with such paltry returns.
During the past year, investment operations controlled by the emirate of Dubai have bought New York high-end clothing retailer Barney's and German industrial-packaging maker Mauser, and have taken 3% stakes in both Airbus parent EADS and ICICI, India's No. 2 bank. Singapore's Government Investment Corp. owns some $80 billion worth of real estate assets worldwide, including such trophies as the 60-story AT&T Corporate Center in Chicago, Shiodome City Center in Tokyo, and Merrill Lynch's European headquarters in London. And Gao's China Investment Corp. in May agreed to pay $3 billion for a 9.9% stake in private equity firm Blackstone Group (although the shares have lost 18% of their value).
Investment banks and asset managers love the sovereigns. While such funds are still only about an eighth the total size of the world's pension funds (which have $21.6 trillion in assets), they're becoming increasingly important customers for investment banks. Bankers from the world over have set up shop in Dubai, aiming to serve the Gulf region's sovereign funds and other deep-pocketed investors. Norway uses more than 50 outside firms to help manage its $367 billion fund, handing out $73 million in performance bonuses last year to the likes of Lehman Brothers and Morgan Stanley. All told, the sovereigns are likely to fork over fees of $4 billion to $8 billion to asset managers worldwide over the next five years, Merrill Lynch estimates. 'The big investment banks are salivating at the prospect of [doing business with] these funds,' says Kenneth S. Rogoff, a professor at Harvard and former chief economist at the International Monetary Fund.
Many economists argue that the sovereigns make global capital markets safer. The funds don't have to worry about panicky investors withdrawing money when markets tank, and most don't have to make regular payments the way pension funds do. That means they can take the long view, helping stabilize the prices of stocks and bonds they own.
Western policymakers fret that, as with hedge funds, no one knows for sure what most sovereign funds are up to. Without reliable information about their investment strategies and holdings, rumormongering takes over, which can create turmoil in the markets.
(same link)
One of the biggest victims of the rising power of the sovereigns could well be the dollar. As the funds shift their enormous assets away from U.S. Treasury bills, for instance, one of the greenback's biggest pillars of support could start to crumble. And with the funds showing a strong preference for emerging markets, the dollar could suffer even more. 'Why would you want assets denominated in a declining currency?' asks Merrill Lynch economist Alex Patelis.
So far, the sovereign funds' track record suggests they will move carefully to avoid provoking major opposition. When Dubai was ready to seal its deal with Nasdaq, for instance, it spent big money on Washington lobbyists and carefully briefed key legislators. 'It's not our country,' says Soud Ba'alawy, executive chairman of Dubai Group, an investment fund controlled by the emirate's ruler. 'Whether we like it or not, we have to adapt.'
Good point. try www.parapundit.com/archives/004619.html
That's a good analysis, covering a number of points.
We are growing more and more dependent on foreign funding sources, and moreso with the current liquidity crises due to the mortgage mess, CDO's, and other uncertainties. We have entire classes of instruments out there with uncertain backing (I'm being polite), and even the tranches supposedly holding only high-class debts are not readily marketable. Banks have this stuff on the books, and are inventing market values for it. Insurance companies and others, likewise. It's a partly-popped bubble, and homeowners are looking for relief from the incremental rises in mortgages. I can't believe that the lenders really want to own these properties through foreclosures.
Add to that the increase in the National Debt requiring interest payments, and the undeclared after-costs of Iraq and Afghanistan, and the U.S. public is not being fully informed re the future debt load. The drop in productivity estimates means that GDP growth will not meet earlier expectations ... we are NOT going to grow out of this mess, and now we cannot import our way out of it, either, by using cheap components. The higher prices for imported components (including auto parts) have to either decrease profit margins, or be offset by price hikes, which will be net-inflationary.
American companies are selling off pieces of themselves to sovereign funds, which represent foreign governments. The buyers have learned to influence Congress and to give a good impression, avoiding the former port-control fiasco. So long as petroleum prices remain high, and we keep increasing demand, our money will flow to those sovereign funds, which will continue to buy up not only U.S. companies, but major producers in other areas of the world. With a weaker dollar, investors are looking for alternatives to Treasuries for part of their portfolio.
www.reuters.com/article/ousivMolt/idUSL1831058620071118
(excerpts of multipage article, excluding the political stuff from South America. No one wants to really touch this problem.)
Saudi Arabia and key Gulf producers the UAE and Kuwait price all of their oil in dollars. They supply around 16 percent of the world's oil. Anything that weakens the dollar will also hurt the region's massive dollar-weighted investments. Most of the world's oil is priced in dollars. The world's largest oil futures exchanges the New York Mercantile Exchange (NYMEX) and the InterContinental Exchange (ICE) both price oil in dollars. Most international oil contracts use dollar benchmarks for pricing.
QATAR'S ENERGY MINISTER
'Today we feel concerned because of the very large decline in the value of the dollar. This has a very big impact on oil-exporting countries,' Abdullah bin Hamad al-Attiyah said. Qatar's 'purchasing power has fallen considerably,' he said.
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Arab oil states have reserves in dollarsNov 18th, 2007 - 07:16:46
'But Saudi Foreign Minister Saud al-Faisal warned that it could lead to a 'collapse' in the US currency.'
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The oil-producing countries have massive dollar reserves and investments, and a fall in the dollar only hurts them, as well as U.S. purchasing power for their oil. Chavez is unbalanced, to put it kindly, and the Arabs are smart enough to see him as such. Indeed, the $100 price is lower than the equivalent price of the 1980's.
The U.S. does not save enough, and relies on those foreign funds for servicing our own debt. The U.S. won't lose a military conflict, but the economic conflict is another matter. Read up on 'sovereign funds' and the investing that other countries do, buying up chunks of U.S. businesses as well as businesses in other countries. The 5% yield on Treasuries is not enough for them.
today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=200 7-11-13T183200Z_01_N13488227_RTRIDST_0_FUND-SOVEREIGN-TRANSPARENCY-FACTBOX. XML
NEW YORK, Nov 13 (Reuters) - Sovereign wealth funds, on the hunt for higher returns, have stirred concerns that they may take control of strategic parts of developed economies. Political leaders in major industrial countries are calling for more openness and transparency from these state-investment vehicles. Of the 10 largest sovereign wealth funds, holding up to $2 trillion in assets, only four publish detailed annual financial statements.
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