Dollar no longer primary oil currency as China begins to sell oil using Yuan

[Amazon D]

Dollar no longer primary oil currency as China begins to sell oil using Yuan
Oil
September 12, 2012

http://www.examiner.com/article/dollar-no-longer-primary-oil-currency-as-china-begins-to-sell-oil-using-yuan

On Sept. 11, Pastor Lindsey Williams, former minister to the global oil companies during the building of the Alaskan pipeline, announced the most significant event to affect the U.S. dollar since its inception as a currency. For the first time since the 1970's, when Henry Kissenger forged a trade agreement with the Royal house of Saud to sell oil using only U.S. dollars, China announced its intention to bypass the dollar for global oil customers and began selling the commodity using their own currency.

[SarahM777]

It was due to happen. The roosters are coming home to roost and in a bad way.

[Amazon D]

It was due to happen. The roosters are coming home to roost and in a bad way.

Its about time we get taken off our pedastle and learn to use what we have verses creating money thru false means..

[tekla]

Doesn't matter.  It only matters what the producers (and China is a consumer, not a producer of oil) use to price it.

[SarahM777]

What will hurt is the exchange rate. If the dollar falls to much in comparison to the Yuan it could be very bad. And I stress could,it may not.

[tekla]

If the dollar falls to much in comparison to the Yuan it could be very bad.

In what alternate universe would that be true?  If the dollar fell against the Yuan it would be a total financial windfall for the US Government as we would be paying back the money we borrowed from China to invade the oil field in much cheaper dollars, it would raise the cost of items from China, thus negating some of their market advantage and improving balance of trade statistics, and it would rock for my kid who is teaching at a Chinese university and get's paid in Yuan, making him a lot more money in US terms.

[SarahM777]

If the dollar falls to much in comparison to the Yuan it could be very bad.

In what alternate universe would that be true?  If the dollar fell against the Yuan it would be a total financial windfall for the US Government as we would be paying back the money we borrowed from China to invade the oil field in much cheaper dollars, it would raise the cost of items from China, thus negating some of their market advantage and improving balance of trade statistics, and it would rock for my kid who is teaching at a Chinese university and get's paid in Yuan, making him a lot more money in US terms.

It's a trade off as the cost of energy here would go up along with our cost of living all across the board. It would not hurt the government but it would hit the lower and middle classes very hard.

It's also a misnomer that most of our debt is in foreign hands. It's a little over 4.5 trillion dollars of Treasury notes that are in foreign hands. Of that only about 26% is owned by the Chinese. It puts it at a little over 1.1 trillion dollars which doesn't help all that much when the debt is over 15 trillion dollars. 

[SarahM777]

It becomes more apparent when you know who the US debt is owed to. it's about 53% that is owed within the US. When you break that down it's even worse. 7% is owned by individuals
held privately. The biggest single holder of the US debt is the SOCIAL SECURITY TRUST FUND it's about 19%. The next biggest is the Federal reserve which holds about 11%. After that you have mutual funds,State,Federal and Local retirement funds,State and Local ,Governments, Commercial Banks and private pension funds which combined hold almost 16% of the Federal debt.

Who are the ones who would be hurt the most? Is it the ones above or is it the Chinese?

[tekla]

Well the cost of energy is going up. (Period)  Declining production in tandem with increased demand (mostly China and India) pretty much assure cost increases so long as other market forces remain unchanged.

And I never said anything about 'all our debt' or whatever.  I said that if the dollar falls in comparison to the Yuan it makes it cheaper to pay off the money we borrowed from them.   It's a specific case example.  But in any currency situation inflation/devaluation always favor the borrower and work against the creditor. 

It also works out extremely well for US manufacturing, lowing the cost of US goods in China, while raising the cost of goods produced in China and sold in American markets.  It would suck to be WallMart, but I'm OK with that.

Overall, for average people (the non-Mitts among us) a relativity weak dollar is better than a strong one because it lowers the cost of US goods in the global market.

But all of that is just a sidebar bit of blowback, what this really is all about it Iran.

This entire deal has a huge backstory going back to to the Islamic Revolution in Iran who were behind a move to change the pricing of oil in dollars.  (Note: Pricing oil in dollars keeps US currency strong, as, in effect, US Dollars are not back by gold, but rather by oil - you can always use them anywhere on the globe to change to oil.  Traditionally the reason oil was priced in dollars was because only the US Dollar had enough money circulation to cover the mind-blowing amounts of oil traded everyday.)  At the time they wanted to shift to the Euro, but the other OPEC nations didn't (correctly it now seems) think the Euro was stable enough.  That and the US basically threatened Iran, and they backed down.  Now China is an importer of oil, (second only to the US) they export very little as what oil fields they have are old and in decline, and mostly what they buy is Iranian oil as they don't care about international sanctions, so they are about the only people who will buy it.  Iran is taking this opportunity to try again to - in effect declare war on the dollar because basically they hate the US Government, for a couple of pretty legitimate reasons by the way - move away from American money.  If it's only the Iranian Oil Bourse that does it, it's not a big deal, if other follow like Saudi Arabia then it could be problematic, but since the Saudi's are a) heavily invested in US Dollars they are not likely to want it to decline, and B) the only place that worries more about Iran getting nukes than Israel does is Saudi Arabia, it lacks plausibility.

What's most disturbing about it is that it looks like Iran is getting ready for war, and that's bad for everyone.

[SarahM777]

Well the cost of energy is going up. (Period)  Declining production in tandem with increased demand (mostly China and India) pretty much assure cost increases so long as other market forces remain unchanged.

Agreed and that is most likely not going to change in our lifetimes.

And I never said anything about 'all our debt' or whatever.  I said that if the dollar falls in comparison to the Yuan it makes it cheaper to pay off the money we borrowed from them.   It's a specific case example.  But in any currency situation inflation/devaluation always favor the borrower and work against the creditor. 

That is true but it will have an effect on others as well,which is the point I was trying to make.

Overall, for average people (the non-Mitts among us) a relativity weak dollar is better than a strong one because it lowers the cost of US goods in the global market.

That does work for me as I do export out of the US.

What's most disturbing about it is that it looks like Iran is getting ready for war, and that's bad for everyone.

The wild card is what is Israel going to do and how is the US going to react to it? If I was a betting girl I would lay odds that Israel will take them on by themselves if they feel the need to. I would not at all be surprised if they do so before the end of the year. Not that they will.

[Sara Thomas]

Not saying this isn't true... but I see no credible sources for it.

[Elsa]

If the Yuan goes up against the Dollar or the Dollar falls against the Yuan,

its very bad news for a LOT of countries not just the USA.

among the top would be:

India
Japan
Taiwan

These three countries have been on the People's Republic of China's  list of countries to invade for the last 20-30 years and would not like it at all if Yuan rose increasing China's ability to ruin them financially, economically, militarily and politically.

After that the next countries to be in deep trouble would be

USA
Europe
Australia
Israel - but only because of its very close ties to the above three countries.

largely because of the sheer volume of trade to/from and debt owed to China.

If China ever decides to invade all its neighbours after ruining everyone financially and buying off all the oil they can get their hands on.
All anyone can do is sit back and watch. In fact if they decided to buy a few countries they probably could

[peky]

If the dollar falls to much in comparison to the Yuan it could be very bad.

In what alternate universe would that be true?  If the dollar fell against the Yuan it would be a total financial windfall for the US Government as we would be paying back the money we borrowed from China to invade the oil field in much cheaper dollars, it would raise the cost of items from China, thus negating some of their market advantage and improving balance of trade statistics, and it would rock for my kid who is teaching at a Chinese university and get's paid in Yuan, making him a lot more money in US terms.

Not to mention that the Chinese communist party keeps the value of the yuan artificially low. 

[Elsa]

^ sorry meant - all countries in Europe - perhaps with the exception of Germany which exports a lot of cars to China as well has having several German companies setting up car factories catering only to China in China itself.

[peky]

So, why was that Germany lost WWII? Was it because their tanks, planes, submarines were inferior to the Americans.English ones? NO!

Part of the reason was that their Industrial production was unable to keep up with the American and Soviet production!

So, where does the American Industrial production go? To China!

Why? Because the CEO's of those companies responsibility end at the shareholders (THE 1%) bottom line, MONEY

So, now that we own 1 trillion to China, the red dragon is beginning to exercise its might by dictating the financial terms.

What do you think they are going to dictate next?

[Amazon D]

The red dragon / asians etc etc demand that the USA show what actual resources we have before they give us value equal to the value we say we have.

PS: Evey citzen is a resource and so are our homes and farms and animals etc etc

[Elsa]

The red dragon / asians etc etc demand that the USA show what actual resources we have before they give us value equal to the value we say we have.

PS: Evey citzen is a resource and so are our homes and farms and animals etc etc

I would not club PRC and other Asian countries together, largely because countries like India, Japan, South Korea, Taiwan have a lot to loose if China goes on a rampage or if either the European Union or USA starts having problems.

A lot of Indians still remember the Indo-China war and the fact that there is still Indian territory occupied by Chinese forces and not to mention Tibet. India for years has supported Tibet as free nation. As well as Maoist militants being trained and well as supplied by PRC is a huge problem in certain parts of the country. Not to mention Pakistan is now being resupplied by the PRC and the PRC are now manning former Pakistani outposts across its border with India. Not to mention Pakistan has nukes and is one of the three main countries responsible for providing them to Iran.
http://en.wikipedia.org/wiki/Sino-Indian_War
http://en.wikipedia.org/wiki/Abdul_Qadeer_Khan

Japan is till date - even a few weeks ago facing the threat of Chinese aggression and nationalism and just a few days/weeks ago faced issues regarding it:
http://topics.nytimes.com/top/news/international/countriesandterritories/china/territorial-disputes/index.html

South Korea would loose if North Korea gains power and influence by being resupplied by the PRC. Not to mention both North Korea and China have been actively but secretly developing long range nuclear missiles for years and are also in part responsible for Iran (an anti-Israel nation that opposes the very existence of Israel) acquiring nukes.

Taiwan still has a large number of PRC missiles silos and military bases stationed with the main purpose of attacking Taiwan and its manufacturing facilities in the event of a war.

Israel a large number of countries that oppose its very existence are allied to the PRC and are actively being resupplied and provided nukes by China.

[justmeinoz]

i would be more worried by the small news item missed by most commentators a few weeks ago.  Apparently the US is just going to print more money. Germany tried that in the 1920's and we know what that did to their own economy during the Great Depression.

Karen.

[MaidofOrleans]

China isn't invading anybody and if they did it would ruin them no matter how downtrodden they are.

This isn't the middle ages, war is infinitely more complicated and harder to wage these days. Modern communication and weapons allows even the poorest of farmers to be a serious threat to an invading army. Just look at how long the US military has been fighting militia and peasants in Afghanistan. The difference with China invading a country like Japan would be their army wound be stuck on an island with a bunch of angry Japanese while all of Japan's big western allies harass the hell out of them. Not to mention the China has one of the worst military records in history against foreign powers from the Golden Horde to Imperial Japan.

[tekla]

Nuclear weapons are a 70 year old technology, one that no one in the US ought to bitch about anyone else having - EVER.  We developed them - against a lot of advice to the contrary - and so far we're the only people to use them.  TWICE.  So our international protests fall on deaf ears - as it should.  And, to date, no one has been able to be stopped from obtaining them once they became willing to pay the price for developing them.  So with Iran it's not a question of if - look if North Korea can make them, and they can't make pencils in a factory correctly, so it can't be all that hard anymore - but when.  And Iran is rich enough to be well able to afford to buy what they need.

And who exactly is going to do what to stop them?  Will Israel fly some jets over and bomb the facilities?  HIGHLY UNLIKELY.  First, in order to do that Israel would have to violate the airspace of two, or three, other nations, and that's an act of war.  (no matter how much the Saudi's might not-so-secretly want that to happen, as they are far more afraid of Iran having nukes than Israel is)  Next those facilities are - by any and all sources - well underground, and heavily fortified, so - at best - it would take multiple sorties all of which would have to have pinpoint accuracy.  And since this has been telegraphed, one would have to assume that Iran has air defenses ready to go.

That leaves us, and we're not going to attack Iran.  Iran's best defense is not it's air defenses or army, it's the Silkworm missiles they have deployed at the Straits of Hormuz.  All they have to do is take out one big tanker and that's it.  And even if they can't sink it in such a way as to block the straights, attacking and sinking it would trigger Lloyds of London raise rates, or cancel policies, thus making shipping oil prohibitively expensive due to sky-high insurance costs.  That put's a stop to about 1/3 of the oil in the world, and overnight financial chaos would result.  So that's not going to happen either.


Hey if you want something really scary about China how 'bout this.  China now holds about 95% of the world-wide patents on high-speed rail.  In the long run stuff like that is far more devastating than any threat of the Red Army going all helter-skelter on Taiwan or Japan.  The overall level of debt owed (China holds about 5%, not a lot) is small enough to prevent control, but large enough to make sure that overall interests continue to move in a direction of mutual self-interest.  Why attack when you can just buy?