Are We Waging "War" On Iran? Oil Bourse & Cables Cut = Fishy Shit

Ebizzie wrote:

Maybe I'm just an idiot but....


Wouldn't China and other nations choosing to buy oil with Euros right now be the equivalent of an American choosing to take an extravagant trip to Europe right now? In other words, isn't this the absolute BEST time to be buying oil with dollars, due to its weakness, and the absolute WORST time to be doing so with Euros? Unless it's an even-steven deal where the current cost in dollars is translated to that same amount in euros which, even then, except out of spite for the dollar, I don't understand the advantages for any country except Iran? Drop some knowledge on me, please.

i may very well be wrong but i would think the simple approach is that:

iran does not want US dollars because it isn't worth as much so they sell their oil in euros ... countries like china and russia who want that oil from iran will then need euros to buy that oil ... so, now they no longer need to bank us dollars in order to buy iranian oil ...

DriftingByTheStorm wrote:

Ebizzle,
it is simple really.

The dollar, increasingly in the gobal communities opinion, is coming to be viewed as a DEPRECIATING asset.

It is LOSING value.

Oil has been denominated and sold exclusively in dollars since the mid 1970s.

The last person to try and take oil off the dollar was Sadam Hussein ... just around the time Bush was coming in to office. look where that got him! Look it up, its true.

The benefit is not one sided.
Iran gets the exlusive position of being the only country to offer this dollar-free trading service, and purchasing countries receive the benefit of no longer having to horde large quantities of an asset of dubious quality and declining value (the dollar) ...

it isn't really about exchange rates or the euro ... it is about the dollar and its questionable stability. Exchange rates are never a problem, unless you are trying to exchange inflated currency into less-inflated currency (dollars in to euros) and then spend those euros in their native market where price stability exists.

In otherwords, even if you had exchanged your dollars in to euros ... as long as you were spending those euros in America, you would witness no loss of purchasing power ... however, if you take those euros over to europe, you have lost purchasing power, because their prices are set and weighted for european inflation and conditions.

Making since?

Remember inflation has NOTHING to do with rising prices.
Prices rise because the value of the currency chasing those goods has FALLEN, because the amount of that currency in circulation has increased!

There are, by ratio, many more dollars chasing goods in America, than there are Euros chasing goods in Europe. So the dollar is, by ratio, worth less than the Euro.

Yeah, I get all that, and that was kind of my point. It's a ridiculously expensive time for China to be liquidating dollars to exchange them for euros to buy oil. Unless the chinese already have a huge amount of euros in reserve, they're having to "buy" them to purchase the oil. Why would they choose now to do that? I understand the dollar is weak but, unless the chinese are 100% convinced the dollar is set to collapse, why in the hell would they be selling them now at such a loss when they could just buy from another supplier, say Saudi, using the dollars they already own? And, if they were 100% convinced, they should be selling everything they have American, TBonds, Dollars, you name it. They aren't. Something just isn't adding up here....or maybe this is one of those deals where if we were sitting behind a couple of beers it'd be easy to explain vice typing on a computer. I have a decent understanding of econ, but far from an expert. I'm probably missing something.

Is Iran offering some perk for buying with Euros, a reduced price or something? Isn't this operating outside the guidelines of OPEC?

How China Could Crash the U.S. Dollar on a Whim
October 15th, 2007
By Adam Kritzer

Over the last 30 years, China’s economy has grown at an average annualized rate of nearly 10%. While this statistic alone is jaw-dropping, what is more impressive is the extent to which the nominally Communist country’s economy has become intertwined in the global economy. China now exerts enormous influence over the economies of virtually every country in the world, and a slight change in its domestic economic policy has the potential to send shockwaves rippling throughout the world. Nowhere is this more apparent-and frightening-then in China’s economic relationship with the United States, which is very much at the mercy of China when it comes to prices, wages, interest rates, most importantly, the value of the Dollar.

The precariousness of this relationship is already the subject of significant publicity, redolent of the Japanaphobia of the 1980’s that saw American economists scare-mongering about Japanese control of the US economy. [Of course this later turned out to be unfounded, but that is beyond the scope of our discussion.] With regard to China, most of the analysis is focused on its growing foreign exchange reserves, the majority of which are held in Dollar-denominated assets. This article will go beyond forex reserves and discuss several other facets of China’s economy. From US house prices to global commodity prices, from interest rates to inflation rates, we will explore how China could cripple the US economy, both willfully and unintentionally, if so desired.

Forex Reserve Diversification

Let’s begin with an examination of China’s forex reserves, which is probably China’s biggest bargaining chip in its economic relationship with the US. Up until two years ago, China’s currency, the RMB or Yuan, was pegged to the Dollar. As with any peg, there often develops a discrepancy between the fixed value of the currency and the value that the market would assign if the currency were permitted to float. As China’s economy surged ahead, especially over the last five to ten years, tremendous pressure began to build under the RMB. In order to maintain the peg and hold down the value of the RMB, China began accumulating foreign exchange reserves by withdrawing foreign currency from circulation. Today, China’s foreign exchange reserves are massive, at $1.4 trillion as of September 2007.

In the eyes of American policy-makers, this presents a problem because the majority of these reserves are held in Dollar-denominated assets, namely in the form of US Treasury securities. The US government theoretically could not be happier that foreign Central Banks are willing to finance its perennial budget deficits. However, this borrowing has reached a point where foreigners now control over 40% of the US national debt. Moreover, long-term US interest rates are market-driven, based on the buying and selling of US government bonds. In other words, the US has gradually ceded control of its long-term interest rates to foreign Central Banks, namely China and Japan.

As the Dollar has depreciated over the last five years, many Central Banks have begun “diversifying” their forex reserves, by switching from Dollar assets to assets denominated in other currencies. This is problematic for the Dollar for two reasons. First, switching from US assets to European assets, for example, directly causes the Dollar to depreciate. Second, the bulk sale of US treasury securities (whether or not they are replaced with other US-assets) causes US bond prices to decline and hence, yields to increase. Thus, if China suddenly decided to diversify its reserves, for economic and/or political reasons, it could potentially crash the Dollar and send US long-term interest rates skyward. Since mortgage rates are tied directly to government bond yields, a rise in interest rates would probably also affect US real estate prices. Higher interest rates would make borrowing for a home more difficult, which would lower the demand for houses and thus, the value of American real estate.

In fact, China recently created the China Investment Co. Ltd., capitalized with almost $300 Billion, charged with investing its vast forex reserves in higher-yielding assets. However, the company’s inaugural investment was a stock purchase in the Blackstone group, an American private equity firm. Thus, while it seems likely that China will gradually discard some of its stock of US Treasury Securities, the affect on the value of the Dollar will be minimal. Besides, while China would certainly punish US businesses and consumers by unloading US Treasuries on the market, it would punish itself even more, since the value of the government bonds that it didn’t sell would decline. In short, it seems China will probably hold off on exercising its “nuclear option” for the time being.

Currency Manipulation

The second aspect of the China-US economic relationship which China could wield to its advantage is the RMB, itself. American public officials enjoy criticizing China for failing to allow its currency to appreciate more quickly. In fact, there is a bill that has been lying dormant in the US Congress, which threatens to slap a massive across-the-board tariff on all Chinese imports if China fails to allow the RMB to appreciate adequately against the Dollar. What policymakers don’t realize is that a rapid appreciation in the RMB would actually harm the US economy.

Coupled with its growing role as the world’s factory, China’s cheap currency has made Americans wealthier, by increasing their purchasing power. As production of labor-intensive goods was outsourced to China over the last decade, prices for finished products began to fall both in real terms and in nominal terms. While the effect on US employment trends is debatable, its effect on prices has been unambiguous. Thus, even while the American economy boomed, inflation remained relatively modest by historical standards. This allowed the Federal Reserve Board to hold interest rates down and foment economic growth.

As the RMB appreciates, Chinese producers will become ever-more forced to pass along some of the price increase to consumers. Now, if China was to suddenly revalue its currency by the 25%-30% that western policy-makers are demanding, prices on a whole host of Chinese products would jump up overnight. This would adversely affect American purchasing power and limit consumption to such an extent that the US would be in danger of slipping into recession. While the trade deficit that is the bane of American politicians’ existence might decrease in the long-term, it would skyrocket in the short-term. Besides, as many analysts have been quick to point out, there is not much overlap between Chinese and American production. Thus, a more expensive Yuan would send production to other parts of Asia, rather than back to America. While the US-China trade deficit might narrow, it would be offset by increased imbalance with the rest of Asia. Just like with the case of its foreign exchange reserves, however, China is unlikely to exercise this option because it would deal equal harm to itself. China’s ruling Communist party derives most of its legitimacy from the strength of its economy, and especially exports. If a more expensive Yuan forced producers to relocate to other parts of Asia, it would certainly spell trouble for the CCP!

Direct Competition with US Exporters

A more potent (and plausible) weapon would be to compete more directly with US exporters, by expanding into high-technology products. Currently, China specializes in manufacturing labor-intensive products, which have long since been manufactured outside of the United States. As previously stated, a revaluation of the Chinese Yuan would surely not return production to the US. However, if China were to expand into capital-intensive and/or high-technology products, it could easily steal marketshare and jobs from the US.

Limiting the Importation of US Products

Of course, there is also the imports side of the trade equation. China is quickly becoming one of the United States’ largest export markets; limiting the importation of US goods and services would certainly be felt in the US. In fact, China already requires multinational companies in many industries to form joint ventures with Chinese companies in order to produce and/or sell their wares in China. Other anti-competitive measures include tariffs, import taxes, quotas, or a simple ban on the importation of certain types of products. Each would have a devastating impact on the US trade deficit with China and would probably result in retaliatory sanctions by the US.

Wage Pressure

Next, there is the impact that China has exerted on global wages. When Deng XiaoPing’s famous tour of the South in 1979 ignited three decades of dizzying growth, hundreds of millions of Chinese were added to the global labor pool overnight. Yet, the majority of China’s population remains concentrated in rural areas. In fact, there are perhaps 500 million Chinese peasants that have yet to join the modern labor force, which means the full effect of China’s economic explosion has yet to be fully realized by the rest of the world. Already, there is no hope of unskilled work that has already been outsourced returning to the US. If/when China begins to expand into the production of high-technology goods and more complex services, it will encroach on the territory of American businesses. Unfortunately for the US, China will likely make these undercapitalized sectors of its economy more of a priority in its next five year plan.

One popular method for estimating GDP is the income approach, which as its name suggests, represents a summation of the reported incomes of a given country’s domestic population. Logic dictates that downward pressure on the wages of skilled American workers would negatively impact US GDP, and at the very least, would curtail the purchasing power of American consumers. This would also limit US exports to China, since Chinese would have homegrown alternatives to choose from.

Raw Material Pricing

In addition, there is the impact that China’s economic growth has exerted on global raw material prices. It has been said that 25% of the world’s construction cranes are currently located in China, to support the country’s building boom. These massive development and infrastructure projects require proportionally massive quantities of raw materials, namely cement and steel. Unfortunately, China is especially inefficient at converting raw materials into finished products. Combined with the CCP’s emphasis on the near-term (which inherently prioritizes low cost over efficiency), this is placing a tremendous strain on global energy supplies, driving prices skyward.

Competition for Energy

The global prices for oil and coal are already at record highs and China only consumes 1/15 the amount of per-capita energy as the US! Chinese energy companies are becoming increasingly visible, scouring the globe for stable supplies of energy and often coming head-to-head with American energy companies. Conveniently, China does not recognize the ethical issues which arise from purchasing energy from dictatorships and corrupt regimes, whereas US companies are limited from doing business in these places. From Sudan to Myanmar to Kazakhstan, Chinese companies have set up join ventures where US companies could not. While energy prices have certainly risen in the US, they have not kept pace with global energy prices. In this way, China is able to ensure that its citizens and its businesses have the oil, coal, and natural gas that they require, while their American counterparts may be forced to conserve.

Two years ago, the Chinese National Offshore Oil Company (CNOOC) attempted to purchase an American energy company, Unocal, for over $18 Billion. However, the deal was blocked by the US Congress, which feared Unocal’s energy reserves would be supplied to China at the expense of Americans. It did not help CNOOC’s case that 70% of the Company was effectively owned by the CCP. Needless to say, Chinese government officials were not happy with the outcome; (Unocal was ultimately sold to Chevron for a lower price). China has already shown its willingness to use extreme tactics to secure an adequate energy supply. It seems reasonable to expect its energy policy will continue to oppose and inconvenience the US.

Conclusion

In short, China has several economic “weapons” at its disposal for countering the US, ranging from the manipulation of its currency to the diversification of its burgeoning stock of forex reserves. It also has several less blunt options to choose from, such as enabling Chinese companies to compete more directly and effectively with US companies, and opposing the US in securing a domestic energy supply. On all of these fronts, the US is essentially being held hostage, since it has become so dependent on China as the world’s factory. Ultimately, it seems unlikely that China will deliberately butt heads with the US unless it is first provoked, but America should nonetheless be on its guard, since its economy hangs in the balance.

DriftingByTheStorm wrote:

Hey. Careful with the unsourced allegations, buddy.


5th undersea cable cut fuels allegations of isolating Iran ... i like the part where none of the sources wished to go on record because this was "sensitive".

Also that the Egyptians have satellite "evidence" that there were no ships in the vicinity +\- 12 hours of cable outages is a bit disturbing.

Your right, they got immunity.

jlew24asu wrote:

so tell me, how did america pull this one off? you only read what you want to hear...

why not post this section of the article?

Cables are normally laid in proximity to each other and an accident in one cable can result in severing many cables at a time.

A cable-laying company has to undertake an expensive marine survey which costs anywhere between Rs 40 crore and Rs 120 crore, depending on the terrain. To cut costs, some cable companies skip the marine survey





just admit you dont know what the fuck happened. you make it too easy to make fun of you.

We may be on seporate sides of the political spectrum but I am with you as to the question why this conspiracy theory just will not fade away.

It is very easy to blame the US, the last 7 years has shown the US Government has become inafective at everything it does. Except wasiting billions of dollars buying WMDs. But really this is not the fault of the US even if it was, it is just another example of a goverment that has no clue as to how to operate anymore.