[HN Gopher] U.S.-Saudi petrodollar pact ends after 50 years
___________________________________________________________________
U.S.-Saudi petrodollar pact ends after 50 years
Author : westcort
Score : 170 points
Date : 2024-06-13 19:28 UTC (3 hours ago)
(HTM) web link (www.nasdaq.com)
(TXT) w3m dump (www.nasdaq.com)
| GenerWork wrote:
| 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.
| wazoox wrote:
| 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).
| malfist wrote:
| > Also notice that the interests on US debt come dangerously
| close to the whole of US government revenue.
|
| That is no where close to true, interest on debt last year
| was 985b, tax revenue was 3.29t
| supplied_demand wrote:
| ==Also notice that the interests on US debt come dangerously
| close to the whole of US government revenue.==
|
| This is not true. Revenue was $4.44 trillion in 2023 [0] and
| debt interest was $650 billion [1].
|
| [0] https://fiscaldata.treasury.gov/americas-finance-
| guide/gover...
|
| [1] https://www.crfb.org/blogs/2023-interest-costs-
| reach-659-bil...
| iamthirsty wrote:
| > 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.
|
| [0]: https://www.statista.com/statistics/216928/us-
| government-rev....
| ReptileMan wrote:
| 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.
| drivebyhooting wrote:
| 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.
| iamthirsty wrote:
| 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.
| drivebyhooting wrote:
| So you mean 800B includes the principal repayment?
| tekla wrote:
| Why do people lie about trivially disprovable things?
| wazoox wrote:
| Because you never make mistakes or misremember, I suppose?
| How graceful of you.
| JumpCrisscross wrote:
| > _Saudi Arabia and China significantly reduced their
| investment in US bonds lately_
|
| They're both massively deficit spending.
| westcort wrote:
| Made this change
| samspenc wrote:
| 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.
| vel0city wrote:
| _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.
| rickydroll wrote:
| I would not be surprised if this became an "October surprise"
| to weaken Biden and the Democrats further.
| vel0city wrote:
| Right? Its a card in the Saudi Royal Family's pocket to be
| played when it suits them. Not something to just throw down
| all willy-nilly.
| bequanna wrote:
| I don't follow.
|
| By pretty much every measure, Biden appears to be the
| establishment candidate. Who is out to get him?
| consumer451 wrote:
| > 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.
| JumpCrisscross wrote:
| > _the fossil fuel establishment, one of the strongest
| forces on the planet, would always prefer a GOP candidate
| over a Dem_
|
| Then Riyadh would prefer Biden. American fossil fuel
| producers are their competition.
|
| (Not claiming knowledge about MBS's preferences. Just
| underlining this isn't as simple as implied.)
| consumer451 wrote:
| Since we repealed the law forbidding oil export, it's a
| global market.
|
| Riyadh and Houston have always been on great terms as
| they have common goals and common enemies.
|
| The Dems propose moving to a green economy, this is
| terrible for all fossil fuel extractors.
| mrighele wrote:
| Riyadh would prefer the one willing to sell secrets for a
| couple of million dollars.
| coldtea wrote:
| > _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.
| consumer451 wrote:
| Really? "Both sides."
|
| > 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
|
| https://www.washingtonpost.com/politics/2024/05/09/trump-
| oil...
| coldtea wrote:
| Consider the source.
|
| And the same deals Dems have been making for decades too.
| consumer451 wrote:
| > Consider the source.
|
| 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.
| bbarnett wrote:
| As a Canuck, I don't get why the US us trying to elect
| candidates, older than a pope typically is.
|
| Both candidates are ancient.
|
| Some want different candidates. On both sides.
| bdcravens wrote:
| 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.
| mejutoco wrote:
| If we are going to think bigger I suggest more than 2
| viable parties.
| jonathankoren wrote:
| 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.
| winphone1974 wrote:
| 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"
| jfengel wrote:
| 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.
| scottyah wrote:
| hah, I see Unions/forced votes and bought naive 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.
| MisterBastahrd wrote:
| 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.
| doctor_eval wrote:
| 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.
| jfengel wrote:
| 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.
| creato wrote:
| 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...).
| xanthor wrote:
| The candidates are chosen by donors.
| nonrandomstring wrote:
| > Its not like Saudi Arabia was eagerly awaiting to burn some
| major bridges with the US.
|
| Bridges aren't typically their target.
|
| https://en.wikipedia.org/wiki/Alleged_Saudi_role_in_the_Sept.
| ..
| fshbbdssbbgdd wrote:
| The allegations here, if I got it right:
|
| 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.
| nonrandomstring wrote:
| Why are you asking me if yoou read it?
| fshbbdssbbgdd wrote:
| 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.
| riffic wrote:
| allegation or open secret
| seaourfreed wrote:
| > 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.
| adventured wrote:
| 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.
| JumpCrisscross wrote:
| > _US is now the world 's largest energy producer, oil and
| natural gas_
|
| And Iran finds itself emboldened by renewed ties to Russia.
| ryandrake wrote:
| 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.
| doctor_eval wrote:
| 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!
| 0cf8612b2e1e wrote:
| I too was primed for the Bill Gates (?) quote about
| change in a year vs a decade.
| alexwasserman wrote:
| Land Rover beats Mercedes?
| Glawen wrote:
| These type of event cannot be evaluated just days after. The
| outcome will be clearer in the coming years.
|
| Look at COVID crisis, we are yet to fully understand the
| consequences of the government monetary actions
| drivebyhooting wrote:
| Why is this downvoted?
| JumpCrisscross wrote:
| 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.
| aylmao wrote:
| 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.
| JumpCrisscross wrote:
| > _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).
|
| [1] https://guides.loc.gov/us-trade-with-china
|
| [2] https://en.m.wikipedia.org/wiki/United_States_energy_
| indepen...
| aylmao wrote:
| 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.
| JumpCrisscross wrote:
| > _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-a-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.
| elzbardico wrote:
| 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.
| aylmao wrote:
| +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.
| elzbardico wrote:
| 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.
| netsharc wrote:
| 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...
| A4ET8a8uTh0 wrote:
| 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.
| coldtea wrote:
| > _but now that it is happened ... looks like nothing changed?
| Oil prices, the US dollar and the markets seem stable?_
|
| It's not a falling meteor, it's an trade/agreement/commercial
| change.
|
| The impact of this takes months or even years to fully develop,
| and cascades with other factors.
| jandrewrogers wrote:
| 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.
| elzbardico wrote:
| 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.
| DrFalkyn wrote:
| Sure they can accept whatever currency they want
|
| Which they will then trade for USD and stash in banks or
| buy stuff from the US
| cjensen wrote:
| 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.
| aylmao wrote:
| 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.
| ben_w wrote:
| 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.
| aylmao wrote:
| 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.
| dragonelite wrote:
| 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.
| ur-whale wrote:
| > much ado about nothing Did you seriously expect this to have
| an impact over a timespan weeks ?
|
| Geopolitical stuff, with some exceptions, tends to unravel over
| years or decades.
|
| This is a sizable event, and it will likely have quite an
| impact, but unless they renegotiate it , it's going to be a
| decades long thing.
| daedrdev wrote:
| 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
| taylodl wrote:
| 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.
| woodruffw wrote:
| Do you have a source for this? I couldn't find one with some
| quick searching.
|
| (Not that I don't believe you, I hadn't heard it before.)
| vel0city wrote:
| 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??
| causal wrote:
| 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.
|
| https://www.eia.gov/todayinenergy/detail.php?id=54199
| blackhawkC17 wrote:
| 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.
| DrFalkyn wrote:
| Yes they could build them, but currently there's no
| economic reason to do so.
|
| If SHTF and oil companies were barred from exporting,
| then that changes very quickly
| localfirst wrote:
| Canada routinely sends oil to US for refinement and buys it
| back at a higher price.
| AnAfrican wrote:
| 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.
| redleader55 wrote:
| 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.
| grumple wrote:
| 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.
| thsksbd wrote:
| 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.
| daedrdev wrote:
| 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.
| moralestapia wrote:
| People who make a big fuzz about this haven't truly done the math
| on the scale of it vs. the US dollar worldwide.
|
| Saudi Arabia oil exports are 200B USD/year, give or take. The
| world has a GDP of ~100T USD, how much of that is traded in US
| dollars? We could put an estimate based on total currency
| reserves, of which USD is about half of that. 200B out of 50T is
| "merely" 0.05% ...
|
| Sure, they may be one of the single major traders of USD, but at
| 0.05% what this tells you is that the USD is _extremely_
| diversified, and that 's good!
|
| (Also, this is implying Saudi Arabia bins the whole deal
| overnight, which is very unlikely to happen)
| shortsunblack wrote:
| Oil, as any energy, has multiplier effects. That 200B USD is
| responsible for major part of the 100T USD.
| JumpCrisscross wrote:
| > _That 200B USD is responsible for major part of the 100T
| USD_
|
| We are the world's largest oil producer [1].
|
| [1] https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_
| pro...
| thsksbd wrote:
| We don't (net) sell it. In fact we don't sell very much the
| world wants
| JumpCrisscross wrote:
| > _We don 't (net) sell it_
|
| We export a metric fuck tonne of it; half as much as
| Saudi Arabia [1].
|
| > _we don 't sell very much the world wants_
|
| We're the world's second-largest exporter [2].
|
| [1] https://en.m.wikipedia.org/wiki/List_of_countries_by_
| oil_exp...
|
| [2] https://en.m.wikipedia.org/wiki/List_of_countries_by_
| exports
| thsksbd wrote:
| Geez.
|
| US oil is fracked, which means that to get out of the
| microscopic fissures in the rocks only the lighter stuff
| comes out.
|
| This makes excellent gasoline. By the way, this is also
| why we've become a CH4 power house.
|
| Unfortunately, the US runs on diesel. We don't produce
| much heavy oil so we import it.
|
| _net_ it basically cancels out depending on interest
| rates, price of oil and who 's in charge in DC.
|
| Fracking, anyway, is an economic mirage enabled by cheap
| credit and expensive oil. Fracking sucks because the
| wells don't produce much.
| JumpCrisscross wrote:
| > _US oil is fracked_
|
| About two thirds [1].
|
| > _the US runs on diesel. We don 't produce much heavy
| oil so we import it_
|
| Diesel is a medium-weight distillate; we can turn light
| oil into it fine. We refine most of our diesel and import
| the balance from Canada [2].
|
| > _Fracking, anyway, is an economic mirage enabled by
| cheap credit and expensive oil_
|
| Our production costs mirror Russia's [3][4]. (They're
| dwarfed by Saudi Arabia's fiscal break even.)
|
| Consider citing your comments. I've sometimes started
| writing something as riddled with errors as yours, only
| to find myself corrected when searching for citations.
|
| [1] https://www.eia.gov/tools/faqs/faq.php?id=847&t=6
|
| [2] https://www.eia.gov/energyexplained/diesel-
| fuel/where-our-di...
|
| [3] https://www.statista.com/statistics/748207/breakeven-
| prices-...
|
| [4] https://oilprice.com/Energy/Crude-Oil/At-What-Level-
| Will-Sau...
| karagenit wrote:
| In terms of total petroleum products (including crude,
| gasoline, and diesel) the US has become a net exporter in
| the last few years.
|
| > In 2020, the United States became a net exporter of
| petroleum for the first time since at least 1949. In
| 2022, total petroleum exports were about 9.52 million
| barrels per day (b/d) and total petroleum imports were
| about 8.33 million b/d, making the United States an
| annual net total petroleum exporter for the third year in
| a row.
|
| https://www.eia.gov/energyexplained/oil-and-petroleum-
| produc...
| taylodl wrote:
| Looks like the US is going to have to finally start paying its
| bills. That is going to be a shock to Americans. Easy credit may
| be a thing of the past as well. I'd really hate to see the
| financial turmoil of the 70s come back - it was tough enough
| living through it the first time.
|
| What if gasoline prices start soaring in the US, putting US
| prices on parity with the rest of the world? Remember the
| financial collapse of 2008? That didn't happen overnight either -
| it took a couple of years for everything to unfold and collapse.
| georgeecollins wrote:
| The US is the largest producer of oil in the world. If the
| price of oil went way up a lot of things would happen including
| the US would start producing more oil as marginal projects
| would start to make economic sense.
|
| The second thing that would happen is people would start buying
| more hybrid and electric cars.
|
| I have no idea what will happen to the price of oil. I do think
| that in general people who say things like "finally the US will
| start paying its bills!" are often not very sophisticated
| investors. They don't have finance degrees, work on wall
| street, or have long history as investors. Not that that
| precludes them from being right! But they could also just be
| people with an axe to grind and little to lose.
| matthewdgreen wrote:
| Oil demand is set to peak by 2030, mostly due to massive
| buildouts of renewables (with China taking the lead.) Oil isn't
| going away, but anyone taking the "oil prices are going to soar
| long term" side of the bet is making an incredibly stupid bet
| that will end in tragedy. (Anyone making the "US oil prices
| will soar in the short term" bet has to deal with record US
| shale production.)
|
| The losers here are the middle eastern countries that didn't
| sufficiently diversify.
| graeme wrote:
| This really shouldn't be the top comment. USD is very
| convenient and desirable to use and no other currency comes
| close as a replacement reserve currency.
|
| If the agreement was extremely inconvenient the Saudis would
| surely have found a way around it. Rare is the economic
| agreement that stands against efficiency.
|
| There's a meme going around certain circles that the USD is
| doomed and everyone is going to use....Yuan, Rubles? The Euro?
| Yen?
|
| It simply isn't plausible. The USD wins out because it is very
| useful. I write this as a non-American who transacts business
| mostly in USD, including with non-American contractors and
| companies.
|
| The US may or may not have to pay its debts but this pact does
| not seem very relevant.
| blackhawkC17 wrote:
| > There's a meme going around certain circles that the USD is
| doomed and everyone is going to use....Yuan, Rubles? The
| Euro? Yen?
|
| Many people (usually envious ones) want the USD dominance to
| go and repeat the meme/lie to the point of believing it
| themselves.
|
| It's just a new way of ranting, and this topic is very common
| with conspiracy theorists.
| tw04 wrote:
| >What if gasoline prices start soaring in the US
|
| Then all of the fracking fields that are already permitted
| would be fired back up and there would be low-skill/no-skill
| workers making 6-figure salaries again in the fields in the
| Dakota's.
| elzbardico wrote:
| Gasoline prices, the price of oil itself is not the biggest
| issue here. What is important is that any reduction on the
| global demand for dollars and USD denominated treasury bonds
| can have a chilling effect on the ability of the US to maintain
| its gigantic trade deficits year over year as well as re-
| financing government debt.
| gbr4 wrote:
| 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.
| toomuchtodo wrote:
| OPEC is desperate. 20% of vehicles sold globally last year were
| EVs and hybrids (to a lesser extent). The world is getting off of
| oil and the sandbox is not prepared for life after. A petrodollar
| was always to become irrelevant if climate goals were to be met.
|
| https://www.cnbc.com/2024/06/13/opec-calls-for-more-fossil-f...
|
| https://www.iea.org/news/slowing-demand-growth-and-surging-s...
|
| https://about.bnef.com/blog/electric-cars-have-dented-fuel-d...
| jerry1979 wrote:
| The other side of this argument is that the world is not
| getting off oil. We will need the oil if we want to get every
| nation up to a Euro/US standard of living.
| toomuchtodo wrote:
| BYD would like to have a word. They now employ twice as many
| workers as Toyota.
|
| https://www.statista.com/chart/30754/byd-passenger-car-
| sales...
|
| https://electrek.co/2024/05/29/byds-workforce-nearly-
| doubles...
|
| https://electrek.co/2024/05/15/byd-just-hit-new-weekly-ev-
| sa...
| JumpCrisscross wrote:
| > _the world is not getting off oil_
|
| It's destroying demand at a massive clip, if the IEA is to be
| believed [1]. With Riyadh's elevated break-even price [2]
| that doesn't leave them a lot of time.
|
| [1] https://www.axios.com/2024/06/12/oil-peak-demand-iea-
| project...
|
| [2] https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD
| toomuchtodo wrote:
| Excellent call outs, the price of oil doesn't have to go to
| zero, it must simply be held below what middle eastern
| countries need to pacify their populations. Failing that,
| all hell breaks loose, potentially impairing their
| petroleum supply chains (depending on intensity of turmoil
| that occurs).
| moralestapia wrote:
| The industry runs on oil (and gas) and that's not going to
| be phased away as easily as cars.
|
| It would be nice to see something like Tesla but for
| heavy/industrial machinery, though. I think I saw something
| somewhere, but can't find the source at this time.
| elzbardico wrote:
| The IEA is not to be believed.
| ssijak wrote:
| https://www.statista.com/statistics/271823/global-crude-oil-...
| paulddraper wrote:
| Automobiles are a quarter of U.S. petroleum consumption.
|
| And the _average_ age of U.S. automobiles is 13 years.
|
| EV/hybrid's effect on current oil consumption is 2% at the
| very, very most.
| philipkglass wrote:
| https://www.eia.gov/energyexplained/oil-and-petroleum-
| produc...
|
| _Gasoline is the most-consumed petroleum product in the
| United States. In 2022, consumption of finished motor
| gasoline averaged about 8.78 million b /d (369 million
| gallons per day), which was about 43% of total U.S. petroleum
| consumption._
| coldtea wrote:
| Yeah, not really. Both US and global oil consumption is at
| record highs:
|
| https://www.ceicdata.com/en/indicator/united-states/oil-cons...
|
| and expected to get higher:
|
| https://www.statista.com/statistics/271823/global-crude-oil-...
|
| (the dip is Covid)
|
| Meanwhile:
|
| https://eu.usatoday.com/story/money/personalfinance/2023/11/...
|
| https://nymag.com/intelligencer/article/a-once-unthinkable-q...
|
| https://edition.cnn.com/2024/04/02/business/tesla-sales/inde...
|
| https://www.business-standard.com/economy/news/ev-sales-decl...
| shin_lao wrote:
| Less than 15% of oil is used for personal cars. The OPEC is
| fine.
| aylmao wrote:
| > The world is getting off of oil
|
| This is true, but also misleading. The fact we're getting off
| of oil, doesn't mean we're doing it fast enough, or that less
| oil is being consumed today than in the past. At least when
| measured in TWh of oil consumption per year, we're still up and
| to the right [1].
|
| [1] https://ourworldindata.org/grapher/oil-consumption-by-
| countr...
|
| Consumer vehicles are increasingly electrifying, but that
| shouldn't be used as a metric to assume oil consumption is
| decreasing. At least 4 reasons why the correlation isn't that
| strong:
|
| - Consumer vehicles are only a percentage of the transportation
| sector. A lot of oil is used by the transportation industry.
| Electric trucks are still not widely available. Electric trains
| for cargo aren't growing quickly enough. Electric planes and
| ships are still not viable for transport.
|
| - Electricity can be generated from oil. Assuming that more
| electric vehicles means less petrol consumption ignores the
| fact the increased electricity demand could be covered by
| petrol. What's correct here is to both grow electric vehicle
| usage, and production with renewables.
|
| - The economy and population keep growing. If half of cars sold
| are electric, but you're selling twice the number of cars total
| vs 10 years ago, you're selling the same amount of petrol cars.
|
| - There's plenty of demand for oil not as a source of energy,
| but as a material (for plastics, asphalt, other chemicals, etc)
| carlosjobim wrote:
| Oil consumption is higher than it has ever been. Coal and gas
| consumption as well. Looking at new car sales to the richest
| class of people is probably not telling all. Oil is a great
| energy source. If it's not used by commuters, it will be used
| for other things.
| havefunbesafe wrote:
| Other things specifically being pretty much everything around
| you. Clothes, packaging, the case on your phone, etc.
| elzbardico wrote:
| Cars are a percentage of the global Oil usage. And meanwhile,
| consumers are getting increasingly cold-footed about EVs.
| bananaflag wrote:
| Any serious source on this?
| JumpCrisscross wrote:
| Yawn. Wake me up when Saudi Arabia floats its currency and unpegs
| from the dollar [1]. (Which, to be clear, I think they should do
| if they're serious about diversifying their economy. It would be
| difficult, however, as it would likely de-value domestic assets
| which hurts the elite,)
|
| [1] https://www.arabnews.com/node/1682011
| localfirst wrote:
| Unlikely as SA depends on US for security
|
| And unlike other regions, quantity is just not possible due to
| environmental constraints so they must rely on Western high
| tech
|
| The Saudi's want nothing to change but people think EV sales is
| a threat (couldn't be further from the truth).
| JumpCrisscross wrote:
| Agree. Just saying it would be good for their economy. (And
| if done properly, could be supported by the U.S.)
| lyu07282 wrote:
| Yeah it's just a piece of paper at the end of the day, the US
| just invades/coups anyone who seriously threatens the us dollar
| anyway.
|
| https://en.wikipedia.org/wiki/United_States_involvement_in_r...
| janandonly wrote:
| 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".
|
| Also, for context: https://news.ycombinator.com/item?id=40674426
| JumpCrisscross wrote:
| > _usually nasdaq is a highly regarded_
|
| It's a TipRanks article syndicated by Nasdaq. Sort of like what
| Fortune did to its brand.
| hackandthink wrote:
| Always bet on Javascript and the dollar.
|
| https://www.nakedcapitalism.com/2024/06/dollar-doomsters-hav...
| aylmao wrote:
| I mean, the conclusion of this post isn't precisely claiming a
| USD victory:
|
| > So at this point, the most likely next regime is of
| fragmentation, of multiple major currencies used for trade and
| investment rather than a dominant currency. [...] So this
| remains an unsettled area. Stay tuned.
|
| And I agree. I don't think the Renminbi will necessarily take
| over, but I also don't think the dollar will maintain the
| strong dominance it has on global trade and as a reserve
| currency.
| pkaye wrote:
| There is a another agreement long in the works that involves a
| defense treaty but also involves normalization with Israel and
| path to Palestinian state. But it will probably risk getting
| dragged into another conflict given the Houthis are their
| neighbors. Also Saudi Arabia has human rights issues. So in the
| end I don't know how Congress will vote on this. Would having a
| Palestinian state resolve all tensions in that region?
| AnimalMuppet wrote:
| _All_? No. There would still be Sunni vs. Shiite, at a minimum.
| I think Saudi vs. Houthi has an element of that, though I 'm
| not sure.
| FrustratedMonky wrote:
| Any theories if this is beginning of the end of Dollar, and thus
| US?
|
| This dollar=oil relationship has been used as the argument for US
| dominance for a long time. Or, used to explain how the US
| maintains dominance. And consequently, this is also used as the
| boogie man in many theories about a US collapse.
|
| So doom scenario would be Saudi, Russia, China forming some new
| Oil market that does not use US Dollars.
| JumpCrisscross wrote:
| > _dollar=oil relationship has been used as the argument for US
| dominance for a long time_
|
| The dollar's dominance was won at Bretton Woods (decades before
| the petrodollar) on the back of WWII.
|
| The petrodollar _was_ a contributor to dollar hegemony from the
| 1970s through the 2000s. But the combination of the USSR
| falling and American energy independence thoroughly ruined it
| as an explanatory factor for dollar and Treasury pricing and
| utilisation in the post-crisis landscape.
| elzbardico wrote:
| 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.
| scrubs wrote:
| 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?
| elzbardico wrote:
| 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.
| tootie wrote:
| 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.
| elzbardico wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| treflop wrote:
| These agreements are just agreements.
|
| 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.
| tcbawo wrote:
| Don't forget strong property rights, fairly impartial justice
| system wrt foreign representation, and a large body of
| corporate case law with predictable outcomes
| User23 wrote:
| And, perhaps most of all, a willingness to run massive
| deficits to accommodate foreigners' desire to hold those
| debts as an asset.
| epicureanideal wrote:
| > fairly impartial justice system
|
| Seems like that's crumbling, to the point it's concerning
| even to me.
| outop wrote:
| > 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.
| elzbardico wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| elzbardico wrote:
| 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.
| DiggyJohnson wrote:
| The C in BRICS is for China though.
| chiefalchemist wrote:
| > 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.
| wslh wrote:
| 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.
|
| [1]
| https://en.wikipedia.org/wiki/List_of_countries_by_stock_mar...
|
| [2] https://www.icmagroup.org/market-practice-and-regulatory-
| pol...
| asdasdsddd wrote:
| > 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
| manquer wrote:
| 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
| JumpCrisscross wrote:
| > _they aren't buying a lot of new American bonds_
|
| Because they're deficit spending.
| elzbardico wrote:
| 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.
| epicureanideal wrote:
| If they would at least use most of the deficit spending for
| things with positive ROI that would be reasonably ok..
| consumer451 wrote:
| > Nobody is going to start frenetically doing oil business in
| Yuan just because this agreement has expired.
|
| I am highly uneducated in this realm, but would this be even
| possible as the Yuan is a nonconvertible currency?
| elzbardico wrote:
| 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.
| sroussey wrote:
| It's the beginning of the end. The end is always super slow,
| then suddenly fast.
| ramesh31 wrote:
| >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.
| pphysch wrote:
| > 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?
| bparsons wrote:
| This could have been a cataclysm 30 years ago, but the global
| energy picture has shifted a lot.
|
| US/Canada produce way more oil and gas than Saudi Arabia and are
| now exporting significant amounts of energy.
|
| With China now shrinking, we are likely somewhere around (or
| past) peak global gasoline demand, with strong, but slowly
| diminishing demand into the mid-2030s.
|
| The Saudis will remain a supplier of cheap oil to their trading
| partners, but they are sitting atop an asset that can be thought
| of as a perishable good as the world moves toward greater
| electrification.
|
| The size and shape of the global economy is very, very different
| than the 1970s. GE, GM, Aramco and Exxon have been replaced by
| Amazon, Google and NVIDIA. These companies are global
| juggernauts, and will ensure healthy demand for US currency well
| into the future.
| dexzod wrote:
| I think this will have some interesting consequences. The US
| dollar used to be backed by gold, then Nixon ended that and then
| it got tied to oil, so in effect it was still backed by something
| tangible. The rest of the world currencies being somewhat linked
| to dollar were also indirectly tied to oil. Now the dollar is
| backed by nothing and by extension the rest of the currencies. In
| that sense dollar is now just a digital currency.
| advisedwang wrote:
| The price of oil varies, so the petrodollar is nothing like the
| gold standard, where a dollar was pegged to a specific amount
| of gold.
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