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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: sea_biscuit who wrote (46521)	2/15/2006 4:11:26 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

I think you are missing the point entirely. It may be true that 1% of US trade is with the mideast in oil (not verified it myself, but will assume it is so), but that is not relevant. What is relevant is -- 100% of the world oil trades are in USD. And what % of world trade is that? And of that% how much is already held in euros? You see it is 100% irrelevant if Japan sells YEN to Buy Dollars so that Iran sells Dollars to buy Euros or if Japan buys oil in YEN and Iran sells YEN to buy Euros. It makes ZERO difference if the conversion takes place in Japan before hand or Iran after hand. NONE. Furthermore it is likely that Iran (or whoever) keeps some YEN in their reserves on account of overall trade with Japan. So the stupid irony might be that all this nonsense is gone thru just to get Iran to convert some of those Euros back to YEN. That is of course if any of the above nonsense that I described happens at all. I bet Japan buys oil in YEN right now even though the price is in $. Even IF I am wrong about that, countries will keep reserves based on TRADE patterns so not all of that (and perhaps NONE of it) will cause countries to hold different reserves than they do now. Besides, very little % of the overall world's trade in in ME oil, in the first place. You are probably making a horribly fatal assumption that just because something is priced in $US$ that it actually HAS to trade in US$. Proof of how silly that idea is is the ability for anyone to go into any gold shop in the world and buy gold in the local currency. For example, anyone in the UK can go buy gold in pounds. They do not have to run to their local back, trade pounds for dollars, just to buy gold. So point blank right of the top this pricing BS is just that: BS. But assuming that something had to be traded in the currency it was priced in then we are still dealing with a very tiny subset of trade. And of that subset of trade a smaller subset is ME oil. And of that smaller subset of ME oil is that fact that oil producers will likely keep reserves based on overall trade patterns. Given that Iran does not trade with the US, nothing will change. Iran would likely continue holding the reserves in YEN and pounds that it holds now. You see, no matter how you twist and turn the argument that pricing unit matters if totally flawed for numbers of reasons. My arguments are bulletproof. Mish