4 ms·

That is partly because of the petrodollar BTW.

by yuhong 8y ago

jsoc815 8y ago
As I understand it, the USD's strength is a function of the petrodollar. The petrodollar is supposedly a function of the U.S. military power. IIRC a old PBS doc about Saudi Arabia explained that the Saudi's were made and offer that [they] couldn't refuse to 1) price in and accept USD; and 2) supply @ at price levels deemed reasonable by the U.S. Obviously, they've lost some ability to control price w/the advent of the technology and the futures exchanges, but still...
JumpCrisscross 8y ago
> That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.
- yuhong 8y ago
  Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.
  - JumpCrisscross 8y ago
    > it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 The U.S. dollar was put at the centre of the Bretton Woods system in 1944 [1] because the United States, at the end of WWII, (a) held a global nuclear monopoly and (b) was the sole industrial power not bombed to the turn of the century. The dollar thus took its central place in global trade. That, in turn, led to oil being priced and traded in dollars. [1] https://en.wikipedia.org/wiki/Bretton_Woods_Conference https://en.wikipedia.org/wiki/Bretton_Woods_Conference
- lrajlich 8y ago
  Foreign demand for USD does in effect lower US govt borrowing costs given our situation of having a fairly large trade deficit as well. Petroleum is one example of foreign USD demand (china buys oil with USD, for example), as are central bank reserve holdings, real estate transactions in Argentina, and I'm sure there are other examples as well. These foreign demands for USD in effect lower our borrowing cost as it prevents the USD from being dumped, eg, prevent a devaluation of the USD by foreign holders of USD, which allows us to keep interest rates low and thus finance a large deficit cheaply (so the govt keeps doing it).
  - JumpCrisscross 8y ago
    > Foreign demand for USD does in effect lower US govt borrowing costs This is correct. But petroleum trading in dollars is an effect of the dollar's hegemony, not a cause. Every dollar transaction contributes to the dollar's network effects. But petroleum's contribution is small and overstated. Petrodollar hypotheses are closer to conspiracy theories than useful models. The U.S. dollar is underwritten, ultimately, by American consumption. About 15% of American imports are petroleum [1][2], so it's a significant factor. But it's not special in any particular regard. [1] https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-s-imports/ https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-... [2] https://wits.worldbank.org/CountrySnapshot/en/USA/textview https://wits.worldbank.org/CountrySnapshot/en/USA/textview
adventured 8y ago
You're inverting cause and effect. The petro link to the dollar is because the US was the first major oil nation, it had a relatively dependable currency, and it developed the world's largest market economy. The dollar didn't become standard due to oil, oil (and most every other commodity) became priced in dollars because of the might of the US economy. Japan's debt being overwhelmingly domestic, priced in yen, is also not due to the petroyen (which doesn't exist).

That is partly because of the petrodollar BTW.

by yuhong 8y ago

That is partly because of the petrodollar BTW.

As I understand it, the USD's strength is a function of the petrodollar. The petrodollar is supposedly a function of the U.S. military power. IIRC a old PBS doc about Saudi Arabia explained that the Saudi's were made and offer that [they] couldn't refuse to 1) price in and accept USD; and 2) supply @ at price levels deemed reasonable by the U.S. Obviously, they've lost some ability to control price w/the advent of the technology and the futures exchanges, but still...

JumpCrisscross 8y ago

> That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.

yuhong 8y ago
Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.
- JumpCrisscross 8y ago
  > it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 The U.S. dollar was put at the centre of the Bretton Woods system in 1944 [1] because the United States, at the end of WWII, (a) held a global nuclear monopoly and (b) was the sole industrial power not bombed to the turn of the century. The dollar thus took its central place in global trade. That, in turn, led to oil being priced and traded in dollars. [1] https://en.wikipedia.org/wiki/Bretton_Woods_Conference https://en.wikipedia.org/wiki/Bretton_Woods_Conference
lrajlich 8y ago
Foreign demand for USD does in effect lower US govt borrowing costs given our situation of having a fairly large trade deficit as well. Petroleum is one example of foreign USD demand (china buys oil with USD, for example), as are central bank reserve holdings, real estate transactions in Argentina, and I'm sure there are other examples as well. These foreign demands for USD in effect lower our borrowing cost as it prevents the USD from being dumped, eg, prevent a devaluation of the USD by foreign holders of USD, which allows us to keep interest rates low and thus finance a large deficit cheaply (so the govt keeps doing it).
- JumpCrisscross 8y ago
  > Foreign demand for USD does in effect lower US govt borrowing costs This is correct. But petroleum trading in dollars is an effect of the dollar's hegemony, not a cause. Every dollar transaction contributes to the dollar's network effects. But petroleum's contribution is small and overstated. Petrodollar hypotheses are closer to conspiracy theories than useful models. The U.S. dollar is underwritten, ultimately, by American consumption. About 15% of American imports are petroleum [1][2], so it's a significant factor. But it's not special in any particular regard. [1] https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-s-imports/ https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-... [2] https://wits.worldbank.org/CountrySnapshot/en/USA/textview https://wits.worldbank.org/CountrySnapshot/en/USA/textview

adventured 8y ago

You're inverting cause and effect. The petro link to the dollar is because the US was the first major oil nation, it had a relatively dependable currency, and it developed the world's largest market economy. The dollar didn't become standard due to oil, oil (and most every other commodity) became priced in dollars because of the might of the US economy. Japan's debt being overwhelmingly domestic, priced in yen, is also not due to the petroyen (which doesn't exist).