Will Saudi Arabia Sell their Oil for Chinese Money?

Discussion in 'Politics, Religion, Social Issues' started by Merkava_4, Oct 15, 2012.

  1. Merkava_4 macrumors 6502a

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    #1
    The economists are saying that if Saudi Arabia starts selling their oil in exchange for the Chinese Yaun - we're done. The only thing that gives the dollar any value is it's the official ticket to buy Saudi oil. Take away it's world reserve status and it's worth zero. What's keeping the Saudis from selling their oil for other currencies I have no idea.

    FTM Daily

    FTM Daily

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  2. throAU macrumors 601

    throAU

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    #2
    Yes, if the Saudis do that then there will be big problems. Both Iraq and Iran want(ed) to sell oil in euros, and look where that got them.


    The Saudis are officially a US ally though and rely on the US for military hardware. However, perhaps they've realised that the US is stretched already in the gulf militarily, and financially and that there's an opportunity there?


    I doubt they'd do it just yet though as the Saudis own a lot of US dollar denominated debt. But on the other hand, perhaps they think the possibility of them ever being able to cash that debt in before the dollar is devalued to zero is slipping away and theyre ready to cut their losses?
     
  3. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #3
    There is a small benefit to the U.S. economy that these transactions take place using dollars, but, the idea that this is the only thing that gives the dollar value is absurd.

    Where do people come up with this stuff?
     
  4. Merkava_4 thread starter macrumors 6502a

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    #4
    What gives the dollar any value then? Nixon took us off the gold standard in 1971.
     
  5. throAU macrumors 601

    throAU

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    #5
    It's not absurd - it is reality.

    Without the requirement to have USD to buy oil, your money is simply PAPER. As above it is not backed by anything else.
     
  6. hulugu macrumors 68000

    hulugu

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    Name a currency that isn't fiat.

    Well, gold is just a heavy rock, except for the idea that it has value—which waxes and wanes as much as any other.

    Remember that other economic pressures keep people on the dollar. At the very least, it's the worst, except for all the other currencies: the Euro, the Yen, and other currencies are also struggling. So, there's very little advantage for Saudi Arabia to switch and they would cause economic chaos if they did so because so many other currencies are pinned to the dollar.

    I've yet to run into an economic case that Saudi Arabia would want to change and considering that Iran tried and failed to use the Euro, we can see that shifting for political reasons has major downsides.
     
  7. throAU macrumors 601

    throAU

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    The thing is, the amount of gold we can mine puts a hard cap on how much money can be backed by it, which prevents runaway inflation.

    it doesn't matter if it is water, oil, oxygen, gold or whatever - so long as there is some sort of constraint.


    the big thing about the USD being fiat is that it has previously been artificially inflated on the basis that EVERYONE needs it to buy oil. as soon as that isn't the case, it will crash.
     
  8. fox10078 macrumors 6502

    fox10078

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    #8
    http://www.cnbc.com/id/48806186/The_Gold_Standard_and_the_Myth_of_Price_Stability
     
  9. dukebound85 macrumors P6

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  10. hulugu macrumors 68000

    hulugu

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    It can prevent runaway inflation, but the CPI of the United States under the gold standard fluctuated rapidly, nearly 40 percent between 1920 and 1921.

    So, it creates a kind of constraint, but it doesn't protect against rapid fluctuations.

    Well, that assumes that the only leg holding up the dollar is its use as a currency for oil trading, but keep in mind that there are other reasons that the US Dollar is supported. Namely the benefits of investing in US dollars because of its stability, the large-scale ownership of US Treasury bonds, etc.
     
  11. throAU macrumors 601

    throAU

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    circular argument. the dollar is only stable BECAUSE it is backed by oil.

    take away that backing and the stability goes away.


    The intrinsic value of gold itself doesn't fluctuate wildly. Confidence in money however does, which of course alters the price of gold when measured in said currency.

    However the gold standard is another discussion. The problem here is that your dollar, backed by oil is soon to no longer necessarily be backed by oil. No backing = less/no value and the huge amount of USD (the vast majority of it in fact) outside of the US will come flooding back to your local market.

    ----------

    Yes. It is because you have a government who would rather print more money than cut spending or raise taxes as required.
     
  12. hulugu macrumors 68000

    hulugu

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    If you accept that theory, sure, there's a circular argument in place. But, that's a theory, one that which ignores the other rational reasons why the dollar may be maintained as the denomination. There's a feedback loop in place, the dollar is stable so it's used as a petrodollar, which makes it more stable.

    Which means, gold price moves so the currency that's pinned to it moves with it. This is also circular logic, BTW.
     
  13. throAU macrumors 601

    throAU

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    #13

    No. Up until the gold standard was abandoned, there was a fixed rate of exchange between USD and gold. It didn't move.

    the reason gold is currently up past $1000/ounce isn't because there's suddenly a massive demand for gold to actually use for anything.

    it is because there is no confidence in fiat money. people are worried about hyperinflation (and rightly so with the USD currently the biggest risk due to the possible trigger of oil trade in other currency). so they're buying gold as a hedge.


    If you take house prices, price them in gold and go back hundreds of years they remain fairly stable for example.
     
  14. hulugu macrumors 68000

    hulugu

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    So, why did prices fluctuate so rapidly when the US was under the gold standard?

    Sure, which tells us that the price for gold isn't tied as intrinsically to supply as you would claim. Instead, it's subject to market and emotional forces, just like the dollar.
     
  15. itcheroni, Oct 16, 2012
    Last edited: Oct 16, 2012

    itcheroni macrumors 6502a

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    #15
    I think you're reading the chart wrong. The chart is saying it went up 20% in 1920 and then went down 20% in 1921. That does not mean a 40% change in prices.

    For example, start with $100. If it goes up 20%, you get $120. If it then goes down 20%, you get $120-$24=$96. So, at most the price fluctuation was $24, from $96-$120. It's similar to how a chart changes when you chart a cars velocity versus acceleration.

    Looks like 1920 was just a momentary spike in prices. If you're looking for a currency that will avoid these scenarios, I don't think you'll find one. I don't care about the gold standard, i just don't want gold taxed, which would allow everyone to be happy.
     
  16. VulchR macrumors 68020

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    I am not an economist, but O'Brian's original article states that the gold standard wasn't fully implemented until 1919 (the left point on the chart). I presume that any psychological effect of returning to the gold standard after WWI would take time, and possibly be governed by feedback processes that induce oscillations. In short, although I am agnostic about the gold standard, I doubt the chart proves anything about the effect of the gold standard. It does demonstrate what might happen in the short term if we returned to the gold standard.
     
  17. iJohnHenry macrumors P6

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    No, that is the vagaries of the marketplace.

    What it does protect against is QE without any backing whatsoever.

    Yep. :D
     
  18. 808? macrumors 6502a

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    #18
    It is Saudi Arabia's oil?

    They can sell it to whomever they want, and in what ever currency they wish.
     
  19. iJohnHenry macrumors P6

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    #19
    "Are you now, or have you ever been, a member of the Communist Party?"
    - Sen. Joseph McCarthy

    :rolleyes:
     
  20. 808? macrumors 6502a

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    Nope.

    Not even Chinese.

    I live in the freest economy on the planet - Hong Kong.
     
  21. mcrain macrumors 68000

    mcrain

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    #21
    If you have gold in a box under your bed that you bought for $1,000 and that is worth $10,000 today, why should you enjoy $9,000 of income tax free?
     
  22. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    You have made the same assertion many times, without proof. But, you do make one point in there that I agree with: every fiat currency depends on taxes for stability. If the mechanism is not in place to collect taxes (Russia, early 90's), or, people are able to avoid paying taxes without penalty (asserted about Greece - I don't know how true it is), or, the government is simply unwilling to tax, but spends at a high level (Yugoslavia 1988-91) you will get hyperinflation. Yes, this could happen in the U.S. if certain people get their way.

    Consider this alternative: why do you care whether a currency has long term value or not? Get it out of your hands and into some hard investment if you like as fast as possible: platinum, gold, silver, etc. All you really care about is converting your paycheck to jewelry as fast as possible, so, do it. No one is stopping you.

    Here is a problem, though: why should capital gains on gold be untaxed? Or, do you mean all capital gains? If all capital gains go untaxed, it gets very hard to tax the wealthy. There is a serious discussion here, though, unlike the gold standard discussion.

    Why indeed? More to the point: what is the best way to tax the wealthy and still preserve enough investment incentives for everyone?
     
  23. hulugu macrumors 68000

    hulugu

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    FFS, I know better than that.

    I agree, 1920 was freakish, but it's worth analyzing since it was a period where we had good CPI data and the US was still on the gold standard. Moreover, it's worth noting that gold can be influenced by other economic factors, so it's not the solution to our economy.

    As for taxed, I think it's only taxed at the transaction level, which makes sense since gold is just like any other investment vehicle. If you buried a Rembrandt in your backyard and a bar of gold, why should the gold remain untaxed at sale?
     
  24. itcheroni macrumors 6502a

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    #24
    We agree gold has fluctuations, but for the most part throughout the past several thousand years, gold has been steady money. The reason I don't think it should be taxed is because, if it goes from $1000 to $10,000, the nominal value has gone up 10x but the purchasing power hasn't. If $1000 provides you with two months of groceries today but ten years from now, when your gold is $10,000, if $10,000 got you still two months of groceries, you haven't really gained anything. The only thing that has happened is that the value of USD has dropped.
     
  25. itcheroni macrumors 6502a

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    #25
    If your main intention is to tax the wealthy, you may not have the best economy you could otherwise have. I think we can generally agree that on one thing, that if your tax something, you will get less of it and if you subsidize something, you will get more of it. We apply this principal with taxing cigarettes, we raise taxes on it to discourage consumption. We want to tax soda to discourage obesity. If we agree on that, then if we think about capital investment, a 15-35% tax rate on capital gains will have less capital investment than a 0% rate. 0% is what you would want if you desired the most capital investment. The second crux is the principal of having the most job opportunities available depends on the amount of capital investment. The have the most job opportunities possible, we should have the most amount of capital investment possible.

    So, although we could raise the capital gains rate and potentially increase tax revenue, we would also eliminate some capital investment that would lead to job growth and thus tax revenue growth as well.

    Then there is also a difference between taxes on gold and taxes on other capital gains. The point I was making earlier was that gold should be taxed because the increase will most likely be nominal. Gold might increase 1000%, but if you can only purchase the same amount of goods as before, you haven't really gained anything. What happened is the USD decreased in value, and that is a result. Ive made the point many times on this board but the same people seem to ask it invariably. Inflation is a tax because it takes purchasing power from you; it is not a "capital gain".
     

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