So that's what the 'Saudi thing' is all about ...

Posted:
in General Discussion edited January 2014
The June newsletter of the Association for the Study of Peak oil is available here. It's crucial reading, covering what the hell that 'Saudi Arabia thing' is all about and 'the hidden euro-dollar wars.'



It shows some interesting things. OPEC seems to be pegging the price of crude to the euro; as the dollar has declined, the price of crude has risen so that the euro price of crude does not change. Fascinating ... It is still -- for now -- invoiced in dollars however.



Now, why this bizarre arrangement where the US is so chummy with Saudi Arabia, even when it's blatantly a source of terror? It's because the US's mega trade debt and simultaneous budget deficit should mean the US is *Argentina.*



I mean, duh, where's the money coming from? Well:



Quote:

The oil exporters with massive surpluses, such as Saudi Arabia, were persuaded to come to a cosy arrangement whereby they converted the proceeds into US Treasury bonds, such that the payments in effect became book transactions in American banks, which themselves provided collateral for extending domestic credit.



That's how it works. The Saudi Royal family get military support and deep friendship in return.



Oh, if oil became invoiced in euros, the US would be fucked. Euroland would be incredibly strong. Now THAT is a weapon of mass destruction.



Iraq, in a completely separate point, was pricing and invoicing in euros prior the war.

Comments

  • Reply 1 of 14
    sammi josammi jo Posts: 4,634member
    Quote:

    Iraq, in a completely separate point, was pricing and invoicing in euros prior the war. [/B]



    http://ist-socrates.berkeley.edu/~pdscott/iraq.html
  • Reply 2 of 14
    andersanders Posts: 6,523member
    This is very understandable. Who wouldn´t want to stay friends with the people who provide you with your economical safety net? This is not said in irony. To distribute the blame for 3000 deaths rightfully is minor compared to the welfare of +250 millions and I doubt any president would have done otherwise.



    It does bring up a challenge though. Oil independency is something very different than making the american society independent of foreign oil. For its not the US consumption of oil that is the real dependency but the trading of oil.



    Another challenge is to tell the american people the right connexion between the economy and oil and what effect it have on saudi-american connections. IMO the government failed to tell the right reason for the war so it doesn´t have a good track record telling the hard truth.
  • Reply 3 of 14
    brussellbrussell Posts: 9,812member
    Quote:

    Originally posted by Harald

    Oh, if oil became invoiced in euros, the US would be fucked. Euroland would be incredibly strong. Now THAT is a weapon of mass destruction.



    You've mentioned this before, but I'm afraid I don't understand it. Why would it matter? Wouldn't there simply be a conversion to US dollars when US companies bought oil, like happens with every other international transaction? Can you explain why it matters whether oil is "invoiced in euros" vs. dollars?
  • Reply 4 of 14
    outsideroutsider Posts: 6,008member
    Quote:

    Originally posted by BRussell

    You've mentioned this before, but I'm afraid I don't understand it. Why would it matter? Wouldn't there simply be a conversion to US dollars when US companies bought oil, like happens with every other international transaction? Can you explain why it matters whether oil is "invoiced in euros" vs. dollars?



    Think of the money remainder scam from Office Space, but totally different.
  • Reply 5 of 14
    bungebunge Posts: 7,329member
    Quote:

    Originally posted by BRussell

    You've mentioned this before, but I'm afraid I don't understand it. Why would it matter? Wouldn't there simply be a conversion to US dollars when US companies bought oil, like happens with every other international transaction? Can you explain why it matters whether oil is "invoiced in euros" vs. dollars?



    It's all so very simple it's really scary. The dollar is currently inflated in value because all countries need the dollar to buy oil. So, Germany can't use their Euros on oil, they have to use dollars. To get dollars, they have to sell German goods to us on the cheap, and we need to buy lots of German goods, on the cheap. Then they have to horde US dollars, and the value goes up.



    If oil was traded on the Euro, we would have to dump our goods in Europe at a loss just to be able to get enough Euros to buy the oil we use.



    Estimates I've heard say the dollar is inflated 100 times what it should be worth because of this oil scam. Scary situation indeed.
  • Reply 6 of 14
    haraldharald Posts: 2,152member
    Quote:

    Originally posted by BRussell

    You've mentioned this before, but I'm afraid I don't understand it. Why would it matter? Wouldn't there simply be a conversion to US dollars when US companies bought oil, like happens with every other international transaction? Can you explain why it matters whether oil is "invoiced in euros" vs. dollars?



    Sure.



    Think of it like this: if oil is invoiced in dollars, then getting oil out of the ground -- anywhere -- is like getting money out of the bank. But only for America. The US can use this underground pile of 'petrodollars' as they're called as collateral against its massive international debts and domestic spending (nice military you got there); seamlessly in the case of Saudi Arabia. This is because oil proceeds in that country are not given as dollars but Treasury Bonds. Oil purchases are book transactions in US banks. The point isn't to ensure that oil keeps flowing into the US, just that the damn oil keeps flowing. Stability. Friendly government. Chevron doesn't have to own Iraqi oil for the war to have been a good thing.



    The difference between pricing and invoicing is this (to use a real example): think of a unit of oil. That unit is priced in a currency, and if there are changes in exchange rates, the unit will remain a constant price, related to the currency in which it is priced. If any other currency weakens, it will have to pay more in order to get that unit. This is the case with regard to oil currently. An OPEC unit of oil has remained the same euro price for 3 years, but as the dollar has weakend has increased in dollar price.



    That's pricing. May (*MAY*) be seen a prelude to invoicing. In a nutshell, that's when you actually need to stump up a particular currency to get your hands on the black stuff.



    This is all much more scary because some time around 2010 oil will start getting a lot less economical to produce and the game will change.
  • Reply 7 of 14
    formerlurkerformerlurker Posts: 2,686member
    PetroEuros

    a new world order indeed

    gives one lots to think about, thanks for the thread
  • Reply 8 of 14
    andersanders Posts: 6,523member
    Hmm. Perhaps its time for EU to give financial support and military advice for some middle eastern revolutionars? After all som here do want EU to become a real superpower
  • Reply 9 of 14
    marcukmarcuk Posts: 4,442member
    Quote:

    Originally posted by FormerLurker

    PetroEuros

    a new world order indeed

    gives one lots to think about, thanks for the thread




    Yep, its all in the book of revelations! here comes mystery babylon!
  • Reply 10 of 14
    trumptmantrumptman Posts: 16,454member
    Can someone provide a couple well informed links with more than just the repetition of this theory?



    I read both links above. They mention the falling dollar and the fact that OPEC countries charge more when the dollar falls. That solicits a collective DUH from me and appears to contradict any sort of conspiracy. If the dollar were part of a conspiracy, Bush would have supported the strong dollar policy and the dollars charged by OPEC countries would have remained unchanged, even while the dollar is falling. But it appears the dollars followed normal currency fluctuations which to me would indicate no foul play.



    Understand that this is just me sort of thinking out loud. Telling you what I understand in hopes any links might clarify what I mention here. I'm not trying to politicize the thread. You can post links to strong vs weak/floating dollars without me caring who initiated what policy etc.



    Also the links seem to bring a sort of odd tone to the fact that the U.S. government issues bonds to fund its debt. This is what all governments do. Also Europe and Japan, like the U.S. also have massive debts and even more massive pension and retirement commitments as well.



    Again, I'm just mentioning places where I need to see differences to account for something outside currency fluctuations. I tell people all the time that money isn't real. They seldom believe me. Perhaps delving into this will help them start to understand that as well.



    Nick
  • Reply 11 of 14
    haraldharald Posts: 2,152member
    Quote:

    Originally posted by trumptman

    Can someone provide a couple well informed links with more than just the repetition of this theory?Also the links seem to bring a sort of odd tone to the fact that the U.S. government issues bonds to fund its debt. This is what all governments do. Also Europe and Japan, like the U.S. also have massive debts and even more massive pension and retirement commitments as well.



    Again, I'm just mentioning places where I need to see differences to account for something outside currency fluctuations. I tell people all the time that money isn't real. They seldom believe me. Perhaps delving into this will help them start to understand that as well.



    Nick




    No-one is talking conspiracy.



    You can find plenty of links if you look; this should be self-evident.



    Ask yourself; how can it be that the US can support its trade deficit and budget deficit without hyperinflation? How can it do it? Just how is the US so 'wealthy?'



    Where does the money come from?



    I assume you understand what a petrodollar is?



    I assume you understand that our economies would disintegrate were it not for an abundant energy source with a net positive energetic cost of exploitation?



    I assume you understand that if oil is invoiced in dollars the whole world needs them for the above reason ... and seeing as only the US makes US dollars, I assume you understand the simple mechanism by which the rest of the world comes by them? How this means the dollar is the world's reserve currency?



    I assume you understand the benefit to the US of the dollar's status as reserve currency?



    I assume you can understand what would happen if oil were to be priced in euros?



    Really, this isn't rocket science. It's simple economics. Let me know which bit you don't understand and I'll talk you through it. Pick one of my assumptions above.
  • Reply 12 of 14
    trumptmantrumptman Posts: 16,454member
    Quote:

    Originally posted by Harald

    No-one is talking conspiracy.



    You can find plenty of links if you look; this should be self-evident.



    Ask yourself; how can it be that the US can support its trade deficit and budget deficit without hyperinflation? How can it do it? Just how is the US so 'wealthy?'



    Where does the money come from?



    I assume you understand what a petrodollar is?



    I assume you understand that our economies would disintegrate were it not for an abundant energy source with a net positive energetic cost of exploitation?



    I assume you understand that if oil is invoiced in dollars the whole world needs them for the above reason ... and seeing as only the US makes US dollars, I assume you understand the simple mechanism by which the rest of the world comes by them? How this means the dollar is the world's reserve currency?



    I assume you understand the benefit to the US of the dollar's status as reserve currency?



    I assume you can understand what would happen if oil were to be priced in euros?



    Really, this isn't rocket science. It's simple economics. Let me know which bit you don't understand and I'll talk you through it. Pick one of my assumptions above.




    Hyperinflation, I've maintained it is likely one of the tools that I believe governments will use to get themselves out of their pension and debt obligations. I believe this most of all with our own U.S. government, but also with other Western governments as well.



    But on to the main point, you seem to think I am questioning your assumptions or even definitions when I am not. Dollars as world reserve currency, holding dollars to protect your own currency, printing paper (basically nothing) to exchange for true goods in other economies, petrodollars, etc.



    But my point, and perhaps this is why I used the word conspiracy is that you indicated this somehow changed when Saudi Arabia was concerned. These surpluses, as you mentioned have to be reinvested in the United States. You have to hold dollars, bonds, U.S. treasurary notes, etc. That basically forces these countries to keep U.S. interests in mind and causes them not to attempt to do anything that would harm or undermine the U.S. economy since it would also undermine their stake in it and the dollars they hold. I fully understand how this works worldwide, but do not see how Saudi Arabia is somehow an exception. They have traded oil today for promises in the future. (bonds and so forth) Worse yet, in a conflict the U.S. can simply choose to freeze those assets held in the United States. The U.S. has even done this with Iran, Iraq and Libya.



    But your tone seems to indicate that Saudi Arabia is different somehow.



    Let's take your own quote.



    Quote:

    The oil exporters with massive surpluses, such as Saudi Arabia, were persuaded to come to a cosy arrangement whereby they converted the proceeds into US Treasury bonds, such that the payments in effect became book transactions in American banks, which themselves provided collateral for extending domestic credit.



    The arrangement is cozy for the U.S. They got the oil for basically paper promises. Those paper promises were used to reinvest in foreign governments which now are dependent on U.S. dollars as well.



    But your conclusion is what confuses me. You claim that if the oil were billed in Euro's then the U.S. would be fucked. But the U.S. already had the oil. It was traded for paper promises. How does Saudi Arabia benefit from this? If Saudi Arabia does something that destroys the value of these paper promises, who is harmed? The United States? They already have the goods. It would be Saudi Arabia who is harmed. They have taken their wealth, and traded it for promises. Promises that in a major conflict could be frozen or taken away.



    I just don't see how that is a "benefit" to Saudi Arabia, which is what you seemed to indicate. But the reality is that in order for Saudi Arabia to make the U.S. Argentina, they would have to make themselves the Phillipines.



    So I guess I am just trying to see your point.



    Nick
  • Reply 13 of 14
    haraldharald Posts: 2,152member
    Ah, I getcha.



    It's like this; if your collateral against your loan (unexploited petrodollars) vanishes (those unexploited petrodollars magic themselves into unexploited petroeuros) then when the bank / your creditors / your staff ask for their interest / their money / their wages, you can't pay.



    And if your overdraft is absolutely enormous (the largest the world has ever seen) you are not just fucked, but totally, utterly and entirely fucked.
  • Reply 14 of 14
    trumptmantrumptman Posts: 16,454member
    Quote:

    Originally posted by Harald

    Ah, I getcha.



    It's like this; if your collateral against your loan (unexploited petrodollars) vanishes (those unexploited petrodollars magic themselves into unexploited petroeuros) then when the bank / your creditors / your staff ask for their interest / their money / their wages, you can't pay.



    And if your overdraft is absolutely enormous (the largest the world has ever seen) you are not just fucked, but totally, utterly and entirely fucked.




    Ah, I see ya. Perhaps this is where our views are different. You see it as a loan. I see it as a trade. A trade that even afterwards the United States still controls.



    How do you change U.S bonds and so forth into Euros without selling them and converting them? It is a trade because they gave oil for paper. You are right in the loan view of thinking of it as unsecured, but the point is that all money nowadays is based on confidence so it is secured with confidence and nothing more.



    They couldn't repossess the oil. It is gone already. They can take what they own, sell it off and attempt to purchase bonds and other securities being sold by other governments. But again it is the same scenario.



    While you see it as a loan, I see it as more like a stock trade. The stock has paper value. That value can go down to nothing. Additionally while you own part of the company, you don't really control it and in fact the company can even work against your own desires. (The U.S. could still seize or freeze the accounts which hold the excess petrodollars) To get out of the stock, you have to sell it and buy another.



    Nick
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