Asian Crisis Redux?

[coolhand]

Re: Asian Crisis Redux?

Problematic for the structure of the IMS...? and capital inflow based accounting.

The only way the US can become oil independent given geological realities in the US (growth in production has largely come from Bakken & Eagleford shales exclusively) is for the int'l trade value of the dollar to drop meaningfully, such that:

a) Oil remains expensive enough in the US as to make extracting shale oil profitable (ie at least $80+, & likely now closer to $100+ for the marginal barrel.)

b) Oil remains expensive enough in the US as to discourage US consumption of that oil, thereby freeing that oil up for export to other nations.

c) Other nations' currencies strengthen relative to the USD such that oil that is too expensive for us to use is cheap enough for them to use (think Nigeria, or think Argentina in 2001, when the 2nd biggest corn exporter in the world was exporting corn even as its own citizens starved b/c their currency was so weak as to make bidding for their own corn against foreign currencies impractical.)

So how could foreign creditor nations possibly strengthen their currencies so as to weaken the dollar enough to turn America into a marginal oil supplier to them? Hmmmm....take a look at Chinese & Russian & Brazilian & Indian & German gold activities guys...

All it takes is for China to announce on one Sunday night, a la Nixon: "Gentlemen - the yuan used to be pegged to the dollar. It is now pegged to gold. Good night."

The next morning, foreign (& American) oil will be very, very cheap to China (& anyone else with gold) & very, very expensive to Americans. It has been said that this was part of the calculus that led Nixon to close the gold window. It was common knowledge that:

a) the Mideast was the cheapest producer of oil by far.
b) at current prices, the Mideast would soon be the sole oil supplier of the US, a bad strategic move.
c) the US had plenty of oil reserves at much higher prices - if only the US could drive oil prices higher somehow.
d) Certain oil interests in the Mideast liked gold.
e) The dollar was tied to gold.

If the US could simply ditch gold, then the price of oil in dollars would skyrocket & make theretofore uneconomic US (& allies) oil reserves economic (Prudhoe Bay, UK North Sea anyone??)

So the US ditched gold, the dollar tanked v. gold & v. oil, & the US oil production picked back up...

I think it is very likely they are preparing to run some version of the same playbook...

[shiny!]

Re: Asian Crisis Redux?

Since asset and land prices had been going up in China for like the past 20 years. I guess they have not come to a stage whereby they need to handle foreclosures.

But one thing I'm quite sure of is there's no concept of debt forgiveness in the Chinese mentality. In fact, the traditional thinking is that if a family member owes a debt, the parents and children must also pay for it. In the not so distant past, even in Hong Kong and Taiwan, people sold their children into prostitution to pay off debt. I believe this practice still exists in the inland provinces of China.

http://www.taipeitimes.com/News/taiw.../21/2003434282

I never imagined such a thing. It just shows the very different mindset between the Chinese and the United States. Over here we cannibalize our young with their own debt.

[BadJuju]

Re: Asian Crisis Redux?

I think it is very likely they are preparing to run some version of the same playbook...

Interesting theory, Mr. coolhand.

[GRG55]

Re: Asian Crisis Redux?

The only way the US can become oil independent given geological realities in the US (growth in production has largely come from Bakken & Eagleford shales exclusively) is for the int'l trade value of the dollar to drop meaningfully, such that:

a) Oil remains expensive enough in the US as to make extracting shale oil profitable (ie at least $80+, & likely now closer to $100+ for the marginal barrel.)

b) Oil remains expensive enough in the US as to discourage US consumption of that oil, thereby freeing that oil up for export to other nations.

c) Other nations' currencies strengthen relative to the USD such that oil that is too expensive for us to use is cheap enough for them to use (think Nigeria, or think Argentina in 2001, when the 2nd biggest corn exporter in the world was exporting corn even as its own citizens starved b/c their currency was so weak as to make bidding for their own corn against foreign currencies impractical.)

So how could foreign creditor nations possibly strengthen their currencies so as to weaken the dollar enough to turn America into a marginal oil supplier to them? Hmmmm....take a look at Chinese & Russian & Brazilian & Indian & German gold activities guys...

All it takes is for China to announce on one Sunday night, a la Nixon: "Gentlemen - the yuan used to be pegged to the dollar. It is now pegged to gold. Good night."

The next morning, foreign (& American) oil will be very, very cheap to China (& anyone else with gold) & very, very expensive to Americans. It has been said that this was part of the calculus that led Nixon to close the gold window. It was common knowledge that:

a) the Mideast was the cheapest producer of oil by far.
b) at current prices, the Mideast would soon be the sole oil supplier of the US, a bad strategic move.
c) the US had plenty of oil reserves at much higher prices - if only the US could drive oil prices higher somehow.
d) Certain oil interests in the Mideast liked gold.
e) The dollar was tied to gold.

If the US could simply ditch gold, then the price of oil in dollars would skyrocket & make theretofore uneconomic US (& allies) oil reserves economic (Prudhoe Bay, UK North Sea anyone??)

So the US ditched gold, the dollar tanked v. gold & v. oil, & the US oil production picked back up...

I think it is very likely they are preparing to run some version of the same playbook...

Preparing? They have been running this play book at least since the tech bubble+Y2K+9/11 aftermath combo. The US $ has been on an "oil standard" for some time, and it's been discussed at length on various threads (including some of EJ's posts) for years.

There is no doubt that one of the critical markers the Federal Reserve has been using to gauge the success of its repeated reflation efforts (since at least 2000) is the US$ price of oil. You are correct that the Fed cannot afford a significantly falling oil price...that is deflationary and there is nothing the Fed fears more.

That is why I think the "success" of the domestic shale oil play scares the hell out of them. An abundance of oil in a world awash in the stuff will crater the US$ price similar to what shale gas did to the price of natural gas.

As for the Chinese referencing their currency to gold...I seriously doubt a nation so dependent on external trade and inward capital investment flows is going to do that. If China engineers a strong currency who will buy their lead paint and melamine laced baby formula?

[lektrode]

Re: Asian Crisis Redux?

...
That is why I think the "success" of the domestic shale oil play scares the hell out of them. An abundance of oil in a world awash in the stuff will crater the US$ price similar to what shale gas did to the price of natural gas.....

also kinda pokes at a(nother) question: like whois backing this ?? (movie)

[touchring]

Re: Asian Crisis Redux?

That is why I think the "success" of the domestic shale oil play scares the hell out of them. An abundance of oil in a world awash in the stuff will crater the US$ price similar to what shale gas did to the price of natural gas.

I've haven't given much thought to this but how would falling oil prices be detrimental to the US? Of course, it will be detrimental to the likes of Saudi Arabia, and those of the Axis powers, Iran, Russia, the reason why they are asking Assad to stir up trouble using gases I guess?

Lower oil prices will reduce the trade deficit, reduces the cost of production of everything, encourages driving, air travel, and boost consumer purchases.

[Slimprofits]

Re: Asian Crisis Redux?

http://www.cnbc.com/id/100992171

Companies such as Whirlpool of India say they can't plan more than a couple of months ahead as a fast-falling rupee drives up the cost of imports, forcing them to raise prices even while consumer spending crumbles.

"We are now planning for a month or three months at best, unlike six months or a year," said Shantanu Dasgupta, vice president for corporate affairs and strategy at Whirlpool of India, a division of Whirlpool, the world's largest maker of home appliances.

"A week back in our office we were working at [a rupee exchange rate of] 62, and now it's at 64 and looks like soon it will fall more and hit 67, said H.S. Bhatia, head of the enterprise business at television maker Videocon Industries, in an Aug. 21 interview. "How can a business operate when the currency is in free fall?"

"Growth has come to a grinding halt, but that's not the only bad part," Whirlpool's Dassgupta said. "Demand is not likely to improve anytime soon, and that's more worrying."

[ProdigyofZen]

Re: Asian Crisis Redux?

I've haven't given much thought to this but how would falling oil prices be detrimental to the US? Of course, it will be detrimental to the likes of Saudi Arabia, and those of the Axis powers, Iran, Russia, the reason why they are asking Assad to stir up trouble using gases I guess?

Lower oil prices will reduce the trade deficit, reduces the cost of production of everything, encourages driving, air travel, and boost consumer purchases.

Because lower oil prices crushes shale oil investment and production. The operators already went bust over shale gas collapsing the natgas price, if the same thing happens to oil the industry will be decimated. Thats just one reason.