Yingwai Suchaovanich. Fri, November 12, Home » life » The real reason America has declare Follow us! Related News. Eight Thai league games set to thrill football fans this weekend Published : Nov 12, Buri Ram primed to host its next marathon on Jan 22 Published : Nov 12, But the intelligent investor does not listen to adversaries with emotions, but logic and rationale.
It is a minority position currently, but as history and logic will explain, it is something that deserves attention for all dollar-denominated investors. The date was when Richard Nixon announced that America would not be able to meet their obligations and ended the dollars backing by gold. In more simplistic terms, America defaulted and the value of the dollar came under substantial pressure.
With equities real values being desecrated, GDP plummeting, unemployment and the general cost of living increasing as wages declined, a term was forged to describe America — stagflation. Stagflation is a condition of slow economic growth and relatively high unemployment — a time of stagnation — accompanied by a rise in prices, or inflation. With the dollar weakening against other currencies now free-floating, something had to be done to bring back demand for the ever-increasing supply of dollars.
Enter with then-Secretary of State Henry Kissinger. Kissinger charismatically and strategically persuaded the Saudi Arabian King to exclusively sell oil globally in dollars only. The demand for US dollars was now deemed irresistible, a complete turn of sentiment from only a couple years earlier. The US could now run its massive trade deficits since America has never ran a trade surplus without worry of their dollar demand declining.
A short series of events went as followed: countries needed oil for their economies. Nations would export goods to the United States for the dollars. The decreased borrowing costs along with increased funds ready to buy American debt i. Investors should have no problem connecting recent history of American military action in the Middle East to the petrodollar deal with Saudi Arabia.
Heck, where does one think they received those weapons of mass destruction in the first place? Mubarak that we had supported years prior. Third was Libya where we helped topple former ally Muammar Gaddafi. There are many speculations of why America was bombing the same Libyan military that the US-trained and funded.
But one can conclude it was in American, Israeli and Saudi Arabian national interest. Now and currently it is Syria that The Land of the Free is dealing with. The Saudi Arabian King was very vocal about the bombings that were called off in against the Syrian dictator, Bashar al-Assad.
For Saudi Arabia, Syria had become a focal frontline with regards to gain regional influence with Iran, Mr. Now the US, under the agreement made in , is doing what it can to bring down Assad or risk losing the dollars prestige of the petrodollar. The US and Saudi Arabia are even supplying arms, funding, and training to the Syrian rebels that are turning right around and using them against the Western influences with terrorist groups such as al Qaeda, Hezbollah, and the new and dangerous ISIS.
The US and Iran have had warming ties with one another. Saudi Arabia and Iran are enemies. This is not something that the Saudis agreed upon with the Petrodollar deal and is causing strain between the two long-time allies. Investors should see that the Syrian regimes backers i. Russia and Iran are suffering with the lower oil prices. Five out of the ten fastest-growing economies in the USA are oil-producing states.
In fact, it would be safe to claim that the entire growth since the recession has been from the energy sector. American fracking and shale oil wells are marginal and high-cost producers unlike the conventional oil producers in Saudi Arabia. Investors need to critically think and ask themselves questions. Is Saudi Arabia purposely hindering the US energy boom in fears that if America becomes oil independent they can disband protecting Saudi interest?
Or are America and Saudi Arabia working together to temporarily kill their profits all in the ambition to hurt Russia and Iran? With the petro-yuan a reality now, China is, in effect, making a claim to global oil reserves. Globally, if you needed oil you definitely needed to have dollar reserves. These reserves would always land back in American economy through the banking system. Again, the same dollar would have to be competed for globally by offering goods and services to American consumers as the world is in perpetual need of oil for most of its energy needs.
That means that all the economies of the world have to be constantly running for dollar while the US could print at ease in the name of national and foreign debt. Russia is already on board along with Iran and Venezuela. A more significant development was Russia agreeing to some yuan-based oil trade in Angered by US sanctions, the Russians began undermining the petrodollar by settling more oil contracts in Asian currencies, especially the Chinese yuan, the Hong Kong dollar and Singapore dollar.
China is now trying to persuade Saudi Arabia to start accepting the petro-yuan for its crude oil. If the Chinese succeed, other oil exporters could follow suit. Saudi Arabia exported currently sells on average 1. Russia is still the top supplier to China, exporting 1. In fact, Russia has been taking market share away from Saudi Arabia in China. If Riyadh wants to avoid losing more ground, it may have to agree to petro-yuan sales.
For Saudi Arabia, it will find itself between a rock and a hard place — lose the Chinese market or spark the ire of Washington. Saudi Arabia might end up accepting the petro-yuan for crude oil exported to China and the Asia-Pacific countries, the Euro for its exports to the European Union EU and the petrodollar for exports to the United States. For China, there is a lot of upsides to this gambit. An oil futures market based in petro-yuan will stimulate demand for the Chinese currency, which China believes will lend it strategic clout.
That money is also more likely to be recycled back into the Chinese economy. The US has been able to run huge budget deficits, borrowing money at extremely low rates because of the demand for its currency.
Petrodollars continuously flow back into the US economy, creating investment and economic growth that might not otherwise occur.
The dollar has also long been one of the premier safe havens for investors around the world. China would like to emulate that dynamic. Indiscriminate US sanctions against countries whom the United States wants to punish for one reason or another are undermining the petrodollar and enhancing the petro-yuan. But these countries are fighting back and very successfully. The latest cosying up of China and Iran is hugely undermining both US sanctions and the petrodollar.
China has become Iran's most important commercial partner after the two countries signed a year strategic partnership last week. It is not entirely unfathomable that every time the US imposes sanctions against an oil producing country, the sanctioned country may welcome it heartily.
Who would have known that being obliged to China through a massive yuan debt, may be the most pragmatic egress out of US sanctions? Other than Iran, a string of energy-rich economies appear to be moving closer into China's orbit, expanding economic ties and potentially fuelling the rise of the petro-yuan. It would be a policy goal for both China and those Arab Gulf States to be able to use an alternative to the petrodollar. If they do use the petro-yuan, the currency would become more important as part of the global financial system.
China is the biggest importer of Saudi crude. It could pay for its Saudi crude imports in petro-yuan while Saudi Arabia will buy better yielding bonds. The petrodollar's advantage as a reserve currency might be starting to wane amid US sanctions on multiple countries, with regional trade partners or foreign production companies seeking to limit risk exposure to the dollar and dollar-centric monetary system.
The petro-yuan could emerge as an attractive alternative, allowing business to be exclusively conducted in the Chinese currency to safeguard finances from US foreign policy and sanctions. China and Russia have already been forging rouble-yuan deals to ditch the US dollar and use local currencies in international trade. Another way to assure de-dollarization is better cooperation in the banking sector. Chinese banks are present on the Russian market, but their share is quite low at the moment.
Saudi Aramco said last month it would make sure that China's energy security is its highest priority for the next 50 years. This statement does indicate that the petro-yuan is likely to be used for the payment of Saudi oil exports to China. If that happens, more oil trading will be using the petro-yuan. But there are still a number of obstacles, including restrictions on the yuan's convertibility and the tricky relationship with the US.
It's unlikely that we will see Saudi Arabia move away from the dollar given that this would only hurt the relationship between the two countries. While there is the potential to see some Saudi flows to China transacted in petro-yuan, the petrodollar will remain for the time being the preferred currency of choice for the Saudis.
0コメント