Will OPEC Dump the Dollar?

From the AP:

Iranian President Mahmoud Ahmadinejad said Sunday that OPEC's members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a "worthless piece of paper."

The hardline Iranian leader's comments also highlighted the growing challenge that Saudi Arabia, the world's largest oil producer, faces from Iran and its ally Venezuela within the Organization of Petroleum Exporting Countries.

"They get our oil and give us a worthless piece of paper," Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed U.S. President George W. Bush's policies for the decline of the dollar and its negative effect on other countries.

"All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency," Ahmadinejad said. "Some said producing countries should designate a single hard currency aside from the U.S. dollar ... to form the basis of our oil trade."

Earlier this week there was a story that Saudi Arabia had rejected a proposal to dump the dollar at OPEC's latest meeting.

I can't speak to the various political games being played within the OPEC meeting. However, Iran and Venezuela are OPEC members and neither like the US. In addition, there is a strong argument for OPEC to dump the dollar. Here is a yearly chart of the dollar.

This is a bear chart, no doubt about it. Notice the following.

1.) The dollar has been dropping in value for the last two years.

2.) The simple moving averages (SMAs) are all heading lower.

3.) The shorter SMAs are below the longer SMAs

4.) Prices are below all the SMAs.

In short, this chart says sell me.

OPEC is getting paid in a continually devaluing currency, which no one wants. In addition, as the dollar has dropped, oil has risen over about the last month partially as an inflation hedge. That means oil has been rising because the dollar is falling.

In short, OPEC has a damn good point in getting rid of the dollar. The only reason to keep the dollar is Saudi Arabia will prevent the move, not out of economic interest but out of political will.

Comments

[retarius]

The US got rich watching from the sidelines and selling arms to its imperial competitors like Germany and Britain while they got involved in expensive wars fighting each other.

The US now starts and fights all the expensive wars, while China and Russia sit on the sidelines getting rich selling oil and consumer goods. Ironic really.

The declining dollar will bring the chickens home to roost...it has to...how long will China, Japan etc sit by and watch while their dollars plummet in value? How long before they forget to turn up at the Treasury auction to earn 4% interest on a T-bill, the value of which will halve over the next few years. My guess is that we won't have to wait that long...then the fun will start in earnest, which will make this sub-prime mortgage crisis look like a storm in a teacup...and a short while after that we will see euro denominated oil.

[FogBelter]

I don't know if the Wealthy Movers and Shakers and the MultiNational Corporations realize what they may have done with their decades of ruthless, unabashed greed and international and domestic exploitation of resources and people.

The Post WWII realignment of Wealth was considered the dawn of the New World Economy. The Dollar, backed by gold, was THE currency of Earth. The United States benefited from this arrangement until in the 70's Nixon took the Dollar off the gold standard when it was recognized that the US Treasury had printed more dollars than there was gold in the US to back it. This was the beginning of the end for the Dollar. What was determined to be the offset for the Gold Standard? The PetroDollar Standard. The US Dollar strength would be sustained by it's crucial position as the instrument of International Money trading. The strength of the Dollar in this configuration continued to power the consumerism of the American Middle Class, which in turn, convinced the rest of the World, by the wealth they made off the American Consumer, that American Capitalism was a better Choice than Communism.

If OPEC decides to protect the loss of oil value by switching from the dollar to the EURO (with or without Saudi Arabia's acceptance) and Nations around the World dump their dollar reserves, the Post WWII dominance of the Dollar and by extension American Capitalism will come to an end.

To be concise ... the greed of the American Elite and MultiNational Corporations has murdered their Golden Goose ... the Dollar ... and the dominance they have enjoyed in the World as Economic Messiahs will dissipate.

[RedWhiteandBlueState]

Perhaps this generations "draft" will be 8 dollar a gallon gas. Maybe that will get us off our collective Celebrity and Sports addicted asses long enough to throw out this current corporate owned government and get some honest leadership. I mean really, why don't they just call it the Google Capitol Building, the Exxon Pentagon and the Saudi Arabian White House already.

[Dunnage]

While the Chinese have been doing business, the U.S. has been doing war. Therein lies the true long term problem for this country and incidentally its currency. The entire world knows. My god, we try to kill off, fail, and then demonize Chavez because the man took country of his countries oil fields. Remind you of the then democratic Iran in 1953? So the Chinese will build pipelines in Latin America. Now that the U.S. and Russia are too spent to fight in Angola, the Chinese will get the oil for essentially nothing. And we call them communists. They're fricking business people.

[Dunnage]

The story was that the Saudis stopped a proposal to discuss the dollar.

[castlerider]

This is a "tip of the iceberg" moment that is breathtakingly unsettling for anyone who can understand the possible consequences. Truly, the seas are dangerously hostile, deadly deep and very cold.

The Yuan fluctuated last February, and the reaction was the first major tremors of what we are now seeing as a quite cataclysmic event... This is the first instance when banks began declining to buy loans from each other, culminating in the disasters of this last summer, where now banks have lost Billions upon billions but what the media does not detail is that much of this revenue represents the bread of hard working families, and the cutoff of a better life that is now further from their reach.

What is the way out of this tragic doom that is so seemingly unavoidable?

One excellent first step would be for Uncle Sam to stop showing his ASS, bent over and consumed with cleaning an unforgiving mess in the Middle East with Bush's failed policies and occupation of Iraq.

It's time for Unscle Sam to stand up straight, pull his tools up on his shoulder, while he cuts his losses and approaches other powerful nations to earnestly ask for their help and support in restoring basic infrastructure so the soveriegn nation of Iraq can get back to work; let them now know we are leaving so this insurgency can get over itself stop killing and dying, while we stop throwing billions away EVERY DAY in this failed policy, bring our soldiers home, revamp and restore our own infrastructure, giving our citizens more work, lift interest rates slightly and cautiously so more revenue will come INTO our our economy.

Damn- why is that so impossible for our leaders to see?
Because they are not leaders at all, with Bush being the most amateur and miserable failure of all. He and Cheney are scammers and criminals, and need to be removed immediately- even some Rethuglicans are beginning to finally realize this, although most unfortunately, it's starting to look like it's too late.

[Novista]

I wish I had some of the stuff that Paulson smokes when he yaps about "the strong dollar".

As the US dollar continues to decline, note that China's profit on exports diminishes. And if the 'experts' are already suggesting protectionist measures, expect a Smoot-Hawley Redux. Which, as in the New Deal, did not solve America's problems, only exacerbated them.

A tariff war resulted and US exports declined. Imports rose in cost, again to the detriment of the consumer.

Eventually, China will decide there's no profit in trying to sell a plasma TV home theatre for every room. As their economy is actually growing at 10% per annum and the workers are gaining, China has become the leading market for luxury goods.

I predict their export push will be more to Europe and other places with better currency.

Let's face it: when Starbucks sees a downturn, the End is Nigh! :-)

[Richardhead]

Lets hope they do stop taking dollars; then gas will cost $7.00 a gallon and it will make it easier to cause unrest with the "workers" of this capitalist country and we can impliment our beloved socialist eutopia.... Good job news media and environmental groups who stopped ANWAR! We can manipulate the idiot masses since they are pretty stupid with our propiganda about Global Warming and denegrate the USA as a enemy of the planet and all so called free people who have been raped by the imperialist Bush administration will turn on us and hopefully sue us in the world court for making the world such a horrible place to live..

[SRegnet]

"If you owe your bank a hundred pounds, you have a problem. But if you owe your bank a million pounds, it has." - John Maynard Keynes

"If you owe your bank a billion pounds everybody has a problem." - The Economist

http://www.imf.org/external/np/exr/center/mm/eng/mm_dt_01.htm

---------

So what about when it's a trillion (dollars, not pounds)? Does it go back to being *our* problem?

Fortunately, our 'foreign friends' will happily come to our rescue once (twice?) again.

Right?

[wldnswmmr]

Maybe the USA could convert its monetary system from dollars to bananas. We could pay for oil with bananas, which hold their value for several days, unlike the dollar, and are more appropriate to the kind of republic we've become.

[Wilburrr]

Can anybody tell me what is holding up the dollar (even as low as it is)besides the link to petroleum?

[olephart]

My only question is how will the Federal Reserve, BLS, Hank Paulson and the talking heads on CNBC be able to report that inflation is running at 2.7% when oil is priced in Euros per barrel and the conversion rate is measured in barrels of dollars per Euro?

Here's a tip: convert your gold into buttons, color them appropriately, sew them onto your clothes and wear them out of the country past the guards. They will confiscate your gold otherwise.

[oldpotsmuggler]

The world desperately needs consumers right now, and no one consumes quite like the United States. Because of this, for the rest of the world to help bail us out of current economic bad spot bails tham out of the one staring them in the face form a very short distance away. There's enough uncertainty out there that caution would dictate not placing any bets on changes in reserve currencies in the near future.

The problem with oil prices is of substantial duration. The declining value of the dollar is a situation that we're two years into, and we're really less than one year into the foreclosure/subprime crisis. Add the three things together and the entire world economy seems challenged in unprecedented ways. Wrong headed moves by OPEC, or anybody else, might tip things in a direction that we would all come to regret.

[peterg76]

Of course they will. Little George devalued the dollar and crippled the US military - soon no-one will hold on to dollars.

[timeforachangenow]

well..they succeeded in raising the price of oil...

now do you think they can raise the value of the dollar???

somebody tell me...


is it TimeforachangeNOW...yet???