Internetworkers: http://www.ibiblio.org/internetworkers/

["Dan Wilson" <sipacate AT hotmail.com>]

Some guy on Craigslist called me a wacko and basically asked me what size tin foil hat I wear. I added sources for the things I suggested. This wasn't intended for anyone on this list, but maybe some will find it interesting.

 

American Currency is a real economic issue. I don't suggest that the world is going to hell and we all need to move into bomb shelters in Montana, rather press the politicos to make headway on the issue. Warren Buffet made headlines earlier this year when he invested in foreign currency, a first for him, this year.

 

 

 

http://moneycentral.msn.com/content/P76789.asp

 

 Buffett has become even more bearish on the dollar in the last year. In 2002, for the first time in his investing career, Buffett took Berkshire Hathaway into the foreign currency market with a bet that the dollar would weaken further against a basket of five currencies that included the euro, yen and pound.

 

Berkshire Hathaway increased that foreign currency position in 2003. By the end of the year, the company owned $12 billion in foreign currency contracts, and it owned $1 billion in euro-denominated junk bonds. Total pretax realized and unrealized gains from the inception of these foreign currency contracts in 2002 is about $1.1 billion, Morgan Stanley calculates. The pretax rate of return is about 10%, which, Morgan Stanley points out, helped offset the low yields on the company’s cash position.

 

 
Fact # 1. oil is denominated in Dollars.

 

Quote # 1.

 

<em>

 

Now let us turn to two main issues.  One relates to the denomination of crude oil pricing in dollars and the other to the choice of currency for the oil bill.  Oil is a globally traded commodity and the present pricing system is one in which OPEC crude oil prices are calculated based on formulas derived from marker crudes like Brent, WTI or Dubai, all of which are denominated in dollars in international oil markets.  The whole system of global oil trading and hedging is built around the dollar, and there appears to be little chance of change to another currency in the near future.  </em>

 

Source # 1.  <a href="http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueSpainApr14.htm">http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueSpainApr14.htm</a>

 

 

 

Fact 2: Vast reserved of dollars are held by foreign entities.

 

Quote 2:

 

<em>Q. How could the euro change the dollar’s use as

 

an international currency by the private sector?

 

A. The dollar is used by the private sector in a variety

 

of ways. The dollar is the primary transaction

 

currency in international trade. Presently, the dollar

 

plays a dominant role in invoicing around the world,

 

especially for primary commodities like oil. In1998, it

 

was estimated that the dollar served as the payment

 

currency for about 48 percent of world trade, although

 

the U.S. share of world trade was about 18 percent.

 

This provides an incentive for companies engaged in

 

international trade to maintain working balances in

 

dollars. In the EU’s view, the use of the euro in trade

 

invoicing (not counting intra-euro area trade) is likely

 

to exceed the sum of the currencies that have been

 

replaced by the euro. This is due in part to economies

 

of scale in the use of currencies leading to lower

 

transaction costs and better availability of hedging

 

instruments.</em>

 

Source 2: <a href="http://www.gao.gov/special.pubs/g400105.pdf">http://www.gao.gov/special.pubs/g400105.pdf</a>

 

 

 

Fact 3: Reduced demand for the dollar would result in diminished value for the dollar.

 

Quote 3: <em>The dollar exchange rate adjusts in response to changes in foreign investors' demand for dollar assets and in trade flows, helping to keep the two consistent. For example, when the demand for goods and services in the United States rises above national income--that is, when the nation is running a current-account deficit and requires foreign financing--the dollar generally has to fall to persuade foreign investors to hold more dollar assets. On the other hand, when foreign demand for dollar assets falls, the dollar exchange rate generally falls, discouraging U.S. demand for imports and stimulating foreign demand for exports. </em>

 

Source 3:  <a href="http://www.cbo.gov/showdoc.cfm?index=5722&sequence=0">http://www.cbo.gov/showdoc.cfm?index=5722&sequence=0</a>

 

Fact 4: The value of the dollar has great impact on the US economy

 

 

 

Quote4:

 

<em>

 

A decline in U.S. real long-term interest rates and an appreciation of the dollar exchange rate in the late 1990s indicate that the demand for dollar assets surged, boosting capital inflows to the United States (see Figure 2). The real interest rate on the 10-year Treasury note, for example, fell about a percentage point in 1998 and by almost another percentage point in 1999 and stayed low in 2000. The real dollar exchange rate appreciated 19 percent from January 1997 through December 2000 (see Figure 3).(6) Had foreign demand for dollar assets not been rising during that time, the persistent current-account deficit generally would have lowered the exchange value of the dollar and raised interest rates.

 

........

 

The general decline in gross capital inflows since 2000 and the overall depreciation of the dollar since early 2002 suggest that foreign demand for dollar assets has receded. It fell in part because expected rates of return in the United States fell as the U.S. stock market dropped in 2000 and as the Federal Reserve eased interest rates in the face of the recession in 2001 and the weak recovery thereafter. Improving prospects for investment in foreign economies also may have reduced the relative attractiveness of U.S. investments. Although there is no firm evidence, some foreign investors also may have been concerned about the increase in the risk of a sizable depreciation of the dollar as the large current-account deficit persisted and net foreign claims on U.S. assets rose.

 

</em>

 

source 4: <a href="http://www.cbo.gov/showdoc.cfm?index=5722&sequence=0">http://www.cbo.gov/showdoc.cfm?index=5722&sequence=0</a>

 

 

 

Fact 5: The national debt is rising and large portions of the national debt is held by foreign interests.  "Why?", you might ask?  See Fact #1 and fact #2.

 

Quote: <em>The survey measured foreign holdings of U.S. long-term securities of $3,558 billion as of March

 

31, 2000, up dramatically from the $1,244 billion measured as of year-end 1994, the date of the

 

preceding survey (table 1). The increase in holdings reflects both substantial net purchases of

 

U.S. securities by foreigners and sizable gains in the value of U.S. equities over the period. (For

 

a breakdown of net purchases and estimated valuation changes during the period, see table 10.)</em>

 

 

 

Source: <a href="http://www.treasury.gov/tic/shl2000r.pdf">http://www.treasury.gov/tic/shl2000r.pdf</a>

 

This PDF has great charts and such illustrating the situation.

 

 

 

Fact 5: Hussein decided to sell oil in Euros, not dollars.

 

Quote 5: <em>UNITED NATIONS (Reuters) -- A U.N. panel on Monday approved Iraq's plan to receive oil-export payments in Europe's single currency after Baghdad decided to move the start date back a week. </em>

 

 

 

Source 5:  <a href="http://archives.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/">http://archives.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/</a>