Devaluing the dollar is sheer stupidity

Jun 2011
10,624
3,247
In a better place than u
...cool musings....

"...those countries who exported oil had a lower demand for dollars than the countries that imported oil had a demand for oil. As with many supply and demand curves, it isn't a nice even line, but instead curves upwards sharply at the end, in no small part because the next marginal barrel of oil is much more expensive than the last one – from Saudi $8/barrel up to tar sands that are close to $30. And each step up the chain yields fewer barrels, and because it is marginal production with heavy capital outlays, the people who sell it need to take into account that they could be out of business at any time. They need to make hay now.

So that means that increase in demand for oil means a much larger step up in the price.

The other hole in the "devaluation isn't driving oil prices" argument is that it lies about the purpose of devaluation: to create jobs, which is to say demand. Devaluation works in creating demand – the supply of dollars does not just mean that oil producers need to charge more, but also that they can charge more. They have pricing power.

So the result of devaluation, is to send money to resource producers, at the cost of labor and capital. In China, this is leading to good old fashioned macro-inflation. In the US and the developed world, it leads to the red queen's race: our rich fall behind their rich, so our rich demand lower taxes and corporate welfare, in the form of bank bail outs and so on, to keep up with their rich. Devaluation creates demand, and that gets sucked right up to the top of society. No point in devaluing just to make the rich richer.

To say it simply: saying that oil went up because demand went up, is the same thing as saying that oil went up because the supply of dollars went up, which is the same thing as saying that oil went up, because the dollar went down. The two parts: pricing power of resource elites, and the flooding of dollars producing demand, reinforced each other. There was more demand, because more people had dollars to buy the oil, and because currencies such as the Yuan, which were previously play money, became strong enough to buy oil. But they became strong enough, because of the flood of dollars.

The problem with the devaluation tactic is that resource producers can unilaterally raise prices, and no one can stop them. The failure of the Iraq invasion to free up the flow of oil from their fields is a demonstration world wide that the US cannot exercise fiat over oil producing areas. The whole Bush gamble was to devalue, invade, occupy, and pump. The neo-conservative idea, was that if Iraq became a consumer society, it would have to pump oil as fast as possible, driving the global price down.

>>>>Excerpted/Edited>>>>>

So...strengthen the dollar? No.

No, because let's look at the few strong dollar plays: recently, when there were even attempts to strengthen the dollar, say early in 2008 when oil inflation was choking the economy, demand dropped very quickly. Holders of dollars could just sit. This has made it so that much of the trading has been to park in bonds, rush to stuff, and then back to bonds. The "landing" we are in, with virtually no job growth, has cut the price of oil substantially, at the cost of economic stagnation.

That is a policy bind: damned if you do the weaker dollar, damned equally so if you do the stronger dollar.

The root cause of the problem is the inability to tax. Under normal circumstances, by which I mean the now over post-World War II period, the game was to do macro-economic policy, fiscal policy, and then tax those that did too well. The assumption was that if someone was making a killing, he or she was killing the economy. This is how to smooth over, for example, inflation: stimulate, and then tax those parts of the economy doing really well, and give it to the others.

>>>>>Excerpted edited>>>>

This is why the evidence indicates that there needs to be a generation of global conflict, including some outright wars, but not driven by them, which leads to a complete catastrophe. If there is one lesson of 2008-2010, it is that mere economic disaster is not enough to pry the developed world of its course, or the developing world off of its course. Only at a peace conference with a devastated world will there be the kind of far reaching and international consensus required to put a system in place, and the people to run it, that have a mandate for "never again." That is what the post-war era was: the results of a peace in a shattered world.

Since disaster after disaster has not been enough, only catastrophe will be enough.
"

The Sorcerer's Apprentice

I encourage anyone reading this to go to the link and read the whole article.
 
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michaelr

Former Staff
Dec 2006
89,668
6,643
FEMA Region 10
What a joke.

First of all increasing dollars does not increase a demand for the. Secondly the global economy is still contracting, there is no large demand for oil.
 
Jun 2011
10,624
3,247
In a better place than u
You did not read the OP, you are here solely for the purpose of fucking with the guy that regualrly calls you on your nonsense.
You're transparent.
Leave this thread for people who are serious posters that want to actually discuss the issue.
Stop shitting on peoples' threads because you feel anger at being shown up. That's immature and disruptive.
You're a mod...ACT LIKE ONE.
 

michaelr

Former Staff
Dec 2006
89,668
6,643
FEMA Region 10
First of all, you don't know what your talking about, neither does the author of this comedy piece.

Increasing the dollar makes people shun it, it does not increase a demand for it. Oil is backed in dollars, there is an old saying, you might of heard it, if your gunna use toilet paper to buy oil, you best bring a lot.

The demand for oil has decreased month after month.

Those are facts, deal with them.