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

To: NOW who wrote (66650)	7/15/2007 9:31:21 AM
From: skinowski	Read Replies (1) \| Respond to of 116555

D., as you know I do some TA, but I'm not an economist (economists don't seem to agree on these things either). you think it matters naught that the US dollar is the currency of all oil transactions? Long term current and potential problems with the USD are not relevant for the purposes of this discussion, which - I thought - was obvious all along. But I'll try to answer your question - to an extent. Imagine a situation when all economic powers agree that from now on all international trade in oil - and everything else - will be conducted in a newly established monetary unit, called "dOILlars". What would happen to the USD or any other national currency? Answer - nothing. For the purposes of international trade their money would get instantly converted into "doillars" in accordance with the current exchange rate. The reality is that we actually do have precisely this system. What we have is in fact a great pool of liquidity out there in which national currencies keep converting into each other with the speed of light, as need arises. For the purposes of oil trade, traditionally this liquidity is measured in Dollars - but this does not necessarily mean that all of this liquidity are actual Dollars which were issued by the US government. I am aware that things are more complicated, and that the US Gov is damaging the USD, etc. But the above concept, imo, is important. You can be a Russian, or Chinese - but when you whip out your credit card in Toronto to pay for your beer, the payment will occur in CAD's - no matter what currency you keep in your account.