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What will China's decision to bypass the American dollar when trading oil mean?
It all starts with this article: http://www.examiner.com/article/dollar-no-longer-primary-oil-currency-as-china-begins-to-sell-oil-using-yuan
"For the first time since the 1970's, when Henry Kissenger forged a trade agreement with the Royal house of Saud to sell oil using only U.S. dollars, China announced its intention to bypass the dollar for global oil customers and began selling the commodity using their own currency."
What does this action by China mean? How will it affect people across the world and especially people in America? Will this escalate the tension between America and China? How will this affect the current world currency or the whole global economy for that matter? [Researched and sourced answers are preferable.]
peter lindsay 30+
Ken brown 30+
Wade Crum
Lindsay Newland Bowker 50+
http://www.zerohedge.com/news/china-and-iran-bypass-dollar-plan-oil-barter-system-and-deeper-dive-iranian-oil-bourse
"China has decided to commence an barter system in which Iranian oil is exchanged directly for Chinese exports. The net result: not only a slap for the US Dollar, but implicitly for all fiat intermediaries, as Iran and China are about to prove that when it comes to exchanging hard resources for critical Chinese goods and services, the world's so called reserve currency is completely irrelevant. The implications of this are momentous, especially for US debt, whose indomitability is only predicated upon the continued acceptance of the currency it backs as a global reserve. If China is now openly admitting to the world that it does not need US monetary intermediation, and by implication, the "debt" backing said intermediation, what then? And who will follow China next?"
the $US as settlement currency for all oil transactions is one of the factors that has kept the $us artifically viable
Libya and Iraq's plans to settle oil exports in its own gold back currency some say was a factor in our intervention in those two countries I( and of of course their moves toward nationalization of all their oil and other resources)
Chinas unsustainable 7% growth rate makes its consumption of any goods services and resources a driver oof prices, availability and terms.across the board.
Disaster for theUS and long time coming//no surprise
And maybe no answer form the $us that will make a differece.t
Ed Schulte 50+
USA is in deep debt to China $$ wise so it is VERY unlikely they will move fast in this shift....but it will be a controlled sift like a cat practices hunting with the mouse it has just caught.
Call this a "disaster" if you wish but lets face reality....it this shift has been occurring for at least 10 years now.A good example is with the crime world ....drug payment are in Euro not $$UAS$$ same with $$hoarding$$
From here, North of the boarder, we are experiencing the buying in by China and my direct experience is that they are FAR better managers of the operations ...such as Oil sands and refineries then their USA counterparts. IOW less wasteful and better fiscal planners. This results in less ups and downs not to mention accountability.
Bottom line is China is not USA's problem...USA is USA's problem...their own Maga Companies will not spring that Enormous mountain of cash they are sitting on because THEY have no faith in the the Political Situation (( and who can blame them)) and they didn't lend USA $$ sooo that puts them in a better place then China's foreign lenders right now.
It will be interesting to see when those Mountains of Cash start their conversion to Chinese currency !!!! Nothing personal...just Business!!! they will say.
Lindsay Newland Bowker 50+
So nice to see you here and of course as a wise man and an oil industry insider..what you say carries a great deal of weight with me.
I agree with your every point.
I think you are rightthat with Chnai holding so much of our debt as its investment it does't want to upset the apple cart for us in a way that would comprose their holdings..perhaps that's why they did this deal as abter deal insteda of a currency deal?
I don't think they will be buying a lot more of our debt though or looking for any kind of greater co entanglement with the future of the $us.
I know what ou are saying of hte Canad/China good relations is true and a further warning to the US. If Canada isn't with us in blocking trade with Chia on things like meat and grains..we are not in good shape.
Do you see our problem as amonetray policy problem mainly or a political leadership problem?
Ed Schulte 50+
It is a matter of taking responsibility first and foremost...Individually.
There is no other way out but the realization that "us against them" has got to go....all countries are "neighbours" to all other countries ....that maybe a hard pill to swallow and the old guard doesn't die easily but they are dying off.
Is it monitory ? yes! Is it Political? yes ...but Globally, and time to cut the "Figure pointing" because it is the it is the "Finger Pointers" who are the ones in the biggest mess...they give themselves way with that finger of their ...the USA and their buddy Britain are comical examples of this.
The Banking systems are the "killer" merging point between "Monitory and Politics" with out proper Bank system and Monitoring as Canada has long suggested and demonstrated the word "money" isn't going to mean anything!!!
If you haven't heard ...Italy is now discovering that the loan their local governments took out were generated by Illegal loan set-up by British/USA/ European banks. Some of the European banks have now admitted this and voided the loads. Very interesting!!! lets see how far this one will go .....and how deep,
walter crockett
Mats Kaarbö 10+
Gail . 50+
re: economy unsustainable: No, I meant that the economic model is a ponzi sheme that cannot be sustained in the absence of consumers.
re: automation: Humans have been on this planet for tens of thousands of years. Automation for little over 100. It has transformed our lives, but it will eventually put all people out of work. Thus, I suggest that we begin educating ourselves about alternative social models that will better serve us. This is our only chance of a controlled crash vs. an uncontrolled crasy.
Yes, there are mnay companies who are making huge profits - the biggest of them all - Goldman Sachs, that is replacing analyists with computers who are far more efficient and less expensive. Trading stocks at near the speed of light, nano-minute by nano-minute, is not building anything meaningful. I'
Robert Winner 50+
The ratio of the US dollar to the Chinese Yuan Renminbi is 0.158300 even though the US is in decline the Chinese wish to enter world level politics and economics. As Hugo has expressed the problem is not the economics of China it is their leadership. Their focus and desire to achieve a leadership position in the world has blinded their need to invest and develop internally.
I would think on a world level that for the present the dollar will stand. There is much at stake in the next election. The esclation of the US debit and even more stimulas packages and by the white houses own estimate an additional 3 trillion will be added to the US debit in next year alone. Lack of foreign policy is currently in the forefront of the news both here and abroad. The fight between the President and Secretary of state Clinton have added to the problem. Obama's announcement that he accepts Jersulum as the Capital of Isreal not Tel Aviv has irritated one of our long standing allies.
The world is seeing shifting ideas, policies, and philosophies from the US administration that leaves a unclear picture of what the US supports or not. Many of our closest allies went to the conference in Iran, what does that signal.
If the US "falls off" the "fiscial cliff" that is in our near future our world position is a thing of history. That is change you can believe in. The US rating is currently Aaa and set to fall yet again.
China does not have to pursue world leadership the US is handing it to them.
I am proud to be American but am deeply troubled with probems that were of our own making. The sad part is that we refuse to learn from our own errors. We continue to throw money at the problem.
Bob.
Yuguo Zhang 100+
I'm not sure about the tension between America and China since China has most of exchange reserve in dollars and America owes a big debt to China, but surely the action will only provide China with a reprieve until its economy growth just halts, unless China starts thinking about tackling the real problem in ways of education and many other things.
Peter Law 30+
John Moonstroller 20+
David Hamilton 50+
What perfect just desserts that would be. They sold the western world on socialism, moved all their money to China... and then, during it's economic "turmoil"... China seizes their assets, and we all get to start all over again, in a capitalist society, without rich people : p
It's fun to dream.
John Moonstroller 20+
You could always move your money to Holland. It's always hard for me to figure out how the money exchange thing works for some reason. Take programming for instance. I can write a program in any programing language you want, understand programming logic to a very complex level but I can't use a cellphone without deleting the call or something else. :)
I guess I should add that you don't leave your money in the Chinese banks, you just want to exchange your dollars for their Yuan. Once you get the Yuan, you could use an Iranian bank :)
John Moonstroller 20+
http://seekingalpha.com/article/315952-why-investments-in-china-will-eventually-be-worthless
Gail . 50+
but do understand that our economy is currently unsustainable. Take population growth and combine it with automation (not just in manufacturing, but in so many jobs where the computer itself has put people out of work), and you have a growing economy (which is really just devaluation of currency) combined with an absence of consumers who are no longer earning $ to buy goods, and the value of money is quickly coming to naught.
this is something that we should all be preparing for. No one will be there to save us when our $$$ has zero perceived value. The value of our money has decreased by 97% since the inception of the fed. It survives by faith alone - a faith that is being eroded.
Zdenek Smith 100+
US economy is unsustainable? Are you rather referring to US debt and spending?
Automation is a good thing and it was around for over a century. What has to happen however is that people continue to learn new skills and acquire knowledge as we continue to move toward knowledge based economy.
There are many people and companies in the US that are making enormous profits so we need to ensure companies and wealthy individuals get taxed fairly.
Gail . 50+
re: economy unsustainable: No, I meant that the economic model is a ponzi sheme that cannot be sustained in the absence of consumers.
re: automation: Humans have been on this planet for tens of thousands of years. Automation for little over 100. It has transformed our lives, but it will eventually put all people out of work. Thus, I suggest that we begin educating ourselves about alternative social models that will better serve us. This is our only chance of a controlled crash vs. an uncontrolled crasH.
Yes, there are many companies who are making huge profits - the biggest of them all - Goldman Sachs, that is replacing analysts with computers who are far more efficient and less expensive. Trading stocks at near the speed of light, nano-minute by nano-minute, is not building anything meaningful into a GDP that is being artificially sustained by such practices.
Better to cap top incomes than to add more hidden taxes to the products & services that you already can't really afford.
Zdenek Smith 100+
That is not necessary the case. For example, large corporations like Google, Apple and Amazon are using tax loopholes to pay low tax rates. At the same time they accumulate billions of dollars in their cash reserves. They can pay their fair share of taxes instead of accumulating so much?
In addition due to competition companies usually can't just pass the taxes to the consumer but rather look at how to make things more cost effective. Or they can stop paying excessive salaries for their CEOs.
"Automation for little over 100. It has transformed our lives, but it will eventually put all people out of work. "
I think this will not be the case for the next few decades. Automation is currently happening in manufacturing and low level jobs. That does not mean we don't have large number of jobs in service sector, research and development, IT etc. Because machines still can't think people that are willing to upgrade their skills can always find a job. I agree that people that do not want to upgrade will have harder time to find work.
Another trend I see is that there are fewer people that are working. Many people start to retire early or work PT instead of full time in order to have better life-work balance.
"Goldman Sachs.... is not building anything meaningful"
I agree on this point =)
Cheers
Gail . 50+
You know, if we were to cap top incomes, and better regulate how much $$$ a corporation or a person can hold in reserves (don't know the number any more or even if there is one, but when I owned a business 10 years ago, it was a quarter of a million for corporations), we could go a long way to fixing the problems.
If a company is tax-free, and if caps are installed, then the price of goods and services goes down - where it can be properly taxed to you directly - through a national sales tax.
The USA had a revolution because King George wanted the colonies to pay the equivalent of 1.7% in exchange for military security from the Indians.
I think that if ALL taxes were out in the open, that there wouldn't be nearly so much complacency as we see our futures being flushed down the toilet.
Zdenek Smith 100+
Yes I completely agree. I think this would solve most problems and make the system fair. Adding artificial limits might be counter-productive but more transparency would allow anyone to question why certain individuals or corporations don't pay their shares?
cheers
Wade Crum
Zdenek Smith 100+
I would not place any artificial limits on how much corporations can accumulate but at the same time they need to contribute back to the society in terms of taxes, payment of damage made to the environment through their actions etc.
Transparency might be the answer where employees can then ask for company's investment in their re-education and government can ensure it receives fair tax revenues in order to support research and innovation?
george lockwood 20+
pat gilbert 50+
Of course I could be wrong but that is the way I see it.
Aja Bogdanoff 20+