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Warning, my layman's understanding: The United States maintains global hegemony, props up the value of its currency, and reduces the cost of imports for its ci
by dangrossman 10y ago
Warning, my layman's understanding:
The United States maintains global hegemony, props up the value of its currency, and reduces the cost of imports for its citizens, in some significant part due to the "petrodollar". That's the agreements the US formed with oil producing nations like Saudi Arabia to only sell oil denominated in US dollars.
Forcing all oil trade be done in USD requires nearly every nation carry large USD reserves, increasing demand for and the strength of the US dollar, increasing the currency's stability, and increasing other nations' reliance on relations with the US.
A weaker Saudi Arabia, and a weaker oil market, is also a weaker US dollar, and weaker US power internationally. This pits environmental concerns against economic and political ones at a very high level. While the subsidies may be small enough that they're eventually dropped, this is my understanding of why the US maintains such close ties to S.A. even when our goals are not otherwise aligned.
- toomuchtodo 10y agoWould you say that the United States disclosing the Saudi's amount of US treasury holdings is indicative of that support being walked back ever so slightly? http://www.bloomberg.com/news/articles/2016-05-16/u-s-discloses-saudi-arabia-s-treasuries-holdings-for-first-time http://www.bloomberg.com/news/articles/2016-05-16/u-s-disclo...
- Retric 10y agoUS taxes back up the US dollars as does debt in USD. Petrodollar does not mean much as dollars gained must be exchanged by them to purchase other goods.
- enugu 10y agoHere's a good counterargument against reserve currency status as a positive thing and listing the negative effects. http://blog.mpettis.com/2016/05/the-titillating-and-terrifying-collapse-of-the-dollar-again/ http://blog.mpettis.com/2016/05/the-titillating-and-terrifyi.... It's a long article, start from 'The effects of reserve currency status' The positive effects like seignorage are outweighed by other effects. Japan discouraged an attempt by China to hold the yen. Similarly Europe and China have opposed purchase by foreign central banks. > It turns out that foreign investment is only good for an economy if it brings needed technological or managerial innovation, or if the recipient country has productive investment needs that cannot otherwise be funded. If neither of these two conditions hold, foreign investment must always lead either to a higher debt burden or to higher unemployment. Put differently, foreign investment must result in some combination of only three things: higher productive investment, a higher debt burden, or higher unemployment, and if it does not cause a rise in productive investment, it must cause one of the other two.