A Thought On US-China Decoupling

[Tet]

Re: A Thought On US-China Decoupling

Originally Posted by jk i think that most analysts see the accumulation of dollars by, e.g., the chinese, as being non-price-sensitive. that is, their interest is economic, but not financial- they are not investing in dollar assets to see their investments generate a return, but for other reasons- i.e. to support their export oriented industries. your argument, tet, seems to be that the fewer transactions there are in dollars, the smaller the monetary base and the smaller the money supply. thus, the lower the demand for dollars for transactions like buying oil, the more valuable the dollar becomes. i think the money supply is being expanded in other ways, via derivatives, and there is no lack of liquidity bar a daisy-chain debt crisis. more broadly, you seem to think that the lower the demand for dollars, the stronger the dollar must become. i think supply and demand works the other way.

Tet,

I think jk raised a reasonable point with regard to the issue of supply and demand, perhaps you missed seeing it. I wonder how you would counter the way supply and demand presumably affects markets as it pertains to the bonar/d0llar and your proposition as you put forth above?

My read on derivatives is a net zero effect, the bets either direction seem to cancel each other out. This is like saying Las Vegas is going to go broke because everyone is betting on the Bears. I don't view the hegemon as functioning in a supply demand relationship, there is no other alternative and from what I've read and understood of monopolistic pricing practices, supply and demand isn't a factor to the degree it is when there is competition. Once there are alternative currencies, Ruble, Yuan, and whatever South America uses this summer there is competition and once there is competition there will be lower pricing. Once the pricing for a commodity is lower because of the other bourses, the d0llar will in effect purchase more and that by definition is a stronger d0llar.

The world is actively challenging the hegemony of the d0llar, this is the statement that I think you should agree with or disagree with. Obviously it's in the rest of the world's best interest for the d0llar to be stronger, I don't think this can really be subject to debate. Actions that the world is taking is to accomplish a stronger d0llar and actions that Washington, Wall Street, London and the Federal Reserve are taking is to create a weaker d0llar. Now I'm sure there is a case that you could make that would state the Federal Reserve wins, I just don't see it happening at the moment.

[jk]

Re: A Thought On US-China Decoupling

once there is competition there will be lower pricing. Once the pricing for a commodity is lower because of the other bourses, the d0llar will in effect purchase more and that by definition is a stronger d0llar.

the competition is with the dollar. the commodity that gets priced lower is the dollar. so the dollar purchases less of other commodities.

The world is actively challenging the hegemony of the d0llar, this is the statement that I think you should agree with or disagree with. Obviously it's in the rest of the world's best interest for the d0llar to be stronger, I don't think this can really be subject to debate.

i think there are many around the world who would be quite happy to see the u.s. less powerful. a weaker dollar accomplishes that. i would think that the putin and hu and many other leaders would say that a weaker dollar in the long run is in their nations' best interests, in spite of the hit they would take on their bond portfolios.

[Tet]

Re: A Thought On US-China Decoupling

the competition is with the dollar. the commodity that gets priced lower is the dollar. so the dollar purchases less of other commodities.

If you only require $50 to purchase a barrel of oil as opposed to $70
you have a stronger d0llar, it's that simple. The oil hasn't changed. That's how the central banks of the world view the d0llar, it's what you are forced to have in order to purchase oil and if you don't want to live in a third world cesspool you have to have oil. Russia says they've collected enough green pieces of paper, unfortunately they are surrounded by countries that don't allow them to sell their oil for anything but d0llars. What is Russia going to do with d0llars? Buy Boeing Jets? Shitty stocks? Crappy cars? Shitty military gear? What can Russia do with a d0llar? Now if they received Yuan for oil they could purchase flat screen TV's, inexpensive cars, computers, cell phones and anything a consumer society might want to purchase. Russia gives China a better deal for oil then China can get on the market. The market would like to have some of China's business so the market lowers the price of crude.

i think there are many around the world who would be quite happy to see the u.s. less powerful. a weaker dollar accomplishes that. i would think that the putin and hu and many other leaders would say that a weaker dollar in the long run is in their nations' best interests, in spite of the hit they would take on their bond portfolios.

A weaker d0llar forces those in the world to accummulate more of them in order to purchase oil. Oil going from $20 to $70 required countries to give the US 250% more labor or 250% more of their natural resources to get the amount of D0llars required to purchase oil, this is very inflationary to the rest of the world. This is real labor and real resources that are being traded for the same green piece of paper.

I'm sure there are millions if not billions of people in the world that would like the US to have a weaker d0llar. Fortunately none of these people work for any of the Central Banks in the rest of the world, or for that matter in any leadership positions in the governments in the rest of the world because all the CB's want to do is purchase more oil with the d0llars that they already have.

[jk]

Re: A Thought On US-China Decoupling

on the weekly chart of the futures, the high for oil was the week of 7/10/06, when oil closed at 77, it is now 55.4. meanwhile, the euro has gone a bit higher in dollars. so, for a purchaser using euros, the price at the peak was 77/1.27533 = 60.38 euros. now it's 55.4/1.2938 = 42.82 euros. so while the dollar price has dropped by 28%, the euro price has dropped by 31%. the weaker dollar appears to have helped the euro purchaser.

as the dollar weakens the price of oil rises in dollars. the oil value of dollar reserves indeed drops, but the oil value of foreign domestic currencies rises. seems to me worth paying attention to both compenents.

[Tet]

Re: A Thought On US-China Decoupling

on the weekly chart of the futures, the high for oil was the week of 7/10/06, when oil closed at 77, it is now 55.4. meanwhile, the euro has gone a bit higher in dollars. so, for a purchaser using euros, the price at the peak was 77/1.27533 = 60.38 euros. now it's 55.4/1.2938 = 42.82 euros. so while the dollar price has dropped by 28%, the euro price has dropped by 31%. the weaker dollar appears to have helped the euro purchaser.

as the dollar weakens the price of oil rises in dollars. the oil value of dollar reserves indeed drops, but the oil value of foreign domestic currencies rises. seems to me worth paying attention to both compenents.

Not many places you can shop for oil using the Euro though, Iraq took them first thing the US did when they invaded was change it back to the d0llar. Sudan takes them and Russia would take them if Poland, Ukraine or Georgia would let them. You've got to purchase TURD$ in order to buy oil and you can only purchase TURD$ on the London or Wall Street bourses. Oil is bought for the most part on the spot market, not a very effective way to purchase a very valuable commodity unless you happen to be Wall Street or London.

[jk]

Re: A Thought On US-China Decoupling

the only thing more frangible than oil is money. euro holders are still doing better because of the drop in the dollar.

[Tet]

Re: A Thought On US-China Decoupling

the only thing more frangible than oil is money. euro holders are still doing better because of the drop in the dollar.

The Euro is just the tails side of the Imperial Coin, nobody wants it either. Oil trading for Yuan and oil this summer trading for Pesos, who would have ever guessed.

[Jeff]

Re: A Thought On US-China Decoupling

My read on derivatives is a net zero effect, the bets either direction seem to cancel each other out. This is like saying Las Vegas is going to go broke because everyone is betting on the Bears.

Tet- You use a clever analogy to illustrate a concern I have that leads to some gigantic nastiness. If $100 billion is wagered on the Bears winning, and that bet is available with 99% leverage, then, yes you would take down the casino and possibly the town. Roughly $1 trillion hedge fund controls roughly $100 trillion in might-as-well-be-sports-wagers. What would the effect on the bonar/D^llar if US$99 trillion showed up for it's cash?

Excellent thread and great contribution, Tet.

[Tet]

Re: A Thought On US-China Decoupling

Tet- You use a clever analogy to illustrate a concern I have that leads to some gigantic nastiness. If $100 billion is wagered on the Bears winning, and that bet is available with 99% leverage, then, yes you would take down the casino and possibly the town. Roughly $1 trillion hedge fund controls roughly $100 trillion in might-as-well-be-sports-wagers. What would the effect on the bonar/D^llar if US$99 trillion showed up for it's cash?

Excellent thread and great contribution, Tet.

Vegas isn't one sports book, but many. Wall Street isn't one brokerage firm but many. Derivitives are spread around, however the Street wants to spread them around. In the 1928 market crash you could just as easily lost your ass being short as being long, the counter party that you placed your short bet has to remain standing in order to get paid, there were many examples of the bet being correct yet no profit was made because there was no one there to pay you. These were leveraged plays.

A $99 trillion d0llar loss like that would quickly find it's way to one loser and that one loser would simply state, they don't have the money. One sports book would take the entire hit and probably a little while later you would hear about the other sports books that paid the guy on the side for doing so. Net effect the leveraged player loses.