War in Iran

[Rukas]

Regardless of the US election outcome, does anybody think the War in Iran is avoidable if they decide to trade their oil in other currencies excluding the US dollar?

Keeping in mind this would totally crush the US economy and a similar situation lead to the first Gulf War.

Right now it doesn't look good. For those that dont know, Iran was set to begin trading oil in different currencies, eliminating the worlds dependency on the US dollar, but a week before it was set to happen all of the countries communications systems were coincidently cut, all at once, by accident.

The US is saying that it was caused by earthquakes and ship anchors cutting ALL of Iran's underwater wires at the same time by accident. Yet there were no earthquakes or ships in the region at that time. Go figure .

I highly doubt this is being reported in mainstream US media though, it sure hasnt in the Australian (US controlled) media, not even Iran wanting to trade under other currencies, which is a pretty big deal.

So my question is, if Iran decides to continue with its plans, does anybody actually think the US wont go to war with them?

 

[Devious]

well i guess it depends. does the US have the resources to go to war again? the majority of their forces are tied up in Iraq and Afghanistan, and unless they wrap up both situations and send all the troops home literally overnight, i don't see how they would have the resources to mount any kind of offensive against any country. that's not to say they won't threaten Iran with the possibility of war, but at this point i highly doubt a war with Iran would be feasible under any circumstances.

 

[PuffnScruff]

people have been speculating a war with iran for a few years now. sy hersh writes a new article every 6 months it seems like for the past 3 years claiming to have the inside scoop from some unnamed person

it is really hard to say. it would be hard with so many troops tied up, but i do believe the u.s. would dominate the air space which is a key to wars right now. if history has shown us anything u.s troops would have problems in iran on the ground, at least they did a few decades ago. a draft would have to be brought back, which imho after hearing charles rangel's reasons for trying to bring the draft back countless of times in the past few years i actually agree with him, but that is another topic.

as far as the whole oil thing goes, if congress would approve of drilling in our country we could tap into these reserves in montana, south and north dakota, and parts of canada that is said to be able to compete with the oil fields in the middle east. if we could do that, we could stick the middle finger up at the middle east. the dollar would probably get stronger even.

but...i don't remember seeing iran popping up in any articles about the cut cable, not any that is saw anyways. i did see india and UAE mentioned. then again there were like 3 or 4 cables that had problems.

 

[AmerikazMost]

Sorry to burst everyone's bubble, but Iran cannot put a dent in the U.S. dollar. No state--or the EU--has the power to hurt the dollar right now except the U.S., and we're doing a mighty fine job of that.

Anybody who tells you otherwise is just greasing your wheels.

 

[Rukas]

Sorry to burst everyone's bubble, but Iran cannot put a dent in the U.S. dollar. No state--or the EU--has the power to hurt the dollar right now except the U.S., and we're doing a mighty fine job of that.

Anybody who tells you otherwise is just greasing your wheels.

Of course they do. If Japan for example began buying its oil using the Yen or even the Euro it would no longer need the US dollar to be strong to buy cheaper oil and thus not only stop buying greenbacks but demand that the US pay back all the money it has borrowed from Japan over the years.

For example.

 

[The.Menace]

The point is.....why shouldn't they? .. I mean the Dollar is so weak right now and it keeps gettin weaker cause of the politicans in the US and their decisions..... they make the dollar weak 2 boost their economy (after the war and some crises did a lol of damage)..... but well, why should someone else 'pay' for their mistakes? Does someone else, in that case Iran, have ANY commitments? I don't think so. Of course with Iran - US there are also other political issues for that move.....but still, the question remains the same. The US only cares about them self, their economy and all..... why should other countries not act the same way?

 

[AmerikazMost]

Of course they do. If Japan for example began buying its oil using the Yen or even the Euro it would no longer need the US dollar to be strong to buy cheaper oil and thus not only stop buying greenbacks but demand that the US pay back all the money it has borrowed from Japan over the years.

For example.

It doesn't NEED the dollar to buy oil anyway. Whether they pay for it in $1 or 99.78 Yen doesn't make any difference to them if the exchange rates were stable. People don't trade in the American dollar because it has a strong exchange rate, they trade it in because that's how the system came about in the Bretton Woods agreements and other arrangements since.

Trading in the American dollar is advantageous because America is a stable country with outstanding defense and strong economic capacity. In other words, people are confident in America's ability to back up the dollar (and we would do so with more American dollars, so our default risk is zero).

The reason countries are diversifying away from the American dollar is not because of a lack of demand, but because of poor fiscal policy on the part of this government. There has been no significant decrease in the demand for dollars--it's been a substantial increase in the supply as we have flooded other countries with dollars in order to finance our budget deficit, which has been huge.

The dollar has dropped in value because there are so many of them, they're really not that hard to get--not because people don't want them anymore (except for Iran, which has nothing to do with economics and all to do with politics). If we started balancing our budget, which I hope to God the next president will, then you will see a steady appreciation of the dollar in the world markets.

And really, even if other countries started trading in the financial markets with euros instead of dollars, what's the big deal? What does America lose? That accounts for like 1% of our GDP.

Not that this would ever happen, because Europe has it's own problems with confidence in the state's abilities to promote strong fiscal policies.

 

[Rukas]

... it's been a substantial increase in the supply as we have flooded other countries with dollars in order to finance our budget deficit, which has been huge...

... The dollar has dropped in value because there are so many of them, they're really not that hard to get--not because people don't want them anymore ...

Ok so the dollar has dropped in value because there are so many of them, and the US has flooded the world with them to finance the budget deficit.

So what happens if things change and people dont want them anymore, you're saying that isnt the case right now, but what if it becomes the case? What if everybody begins trading oil in other currencies and nobody wants the US dollar anymore? What happens then?

The US dollar will drastically fall because a) there will be no demand for it and b) the US dollars in circulation right now will be sold off and just sit there so there will be even MORE out there pushing the price down even further like a stock crash when people panic and sell.

That cant be good for the US.

And please remember, the when Iraq tried to do this in 1990, it was invaded by the US within a week. While Im not saying this was the reason the US went to war with Iraq, Im sure it put extra strain on the situation and didnt help things.

 

[AmerikazMost]

Ok so the dollar has dropped in value because there are so many of them, and the US has flooded the world with them to finance the budget deficit.

So what happens if things change and people dont want them anymore, you're saying that isnt the case right now, but what if it becomes the case? What if everybody begins trading oil in other currencies and nobody wants the US dollar anymore? What happens then?

The US dollar will drastically fall because a) there will be no demand for it and b) the US dollars in circulation right now will be sold off and just sit there so there will be even MORE out there pushing the price down even further like a stock crash when people panic and sell.

That cant be good for the US.

And please remember, the when Iraq tried to do this in 1990, it was invaded by the US within a week. While Im not saying this was the reason the US went to war with Iraq, Im sure it put extra strain on the situation and didnt help things.

So what if people stop denominating their exchanges in dollars? Once the dollars are outside of the country, the flow of those bills don't matter to America anymore. The only way America benefits is when those transactions run through an American bank and we earn some sort of transaction or tax fee from it.

Dollars are demand for two reasons: (1) to purchase American goods and assets, and (2) to hedge against risk of their own or other currencies (hence, reserve currency). Other countries hold dollars in reserves because they are widely accepted and generally reliable when their own currency may not be, which is basically the same reason why business leaders in Japan learn English--in order to trade easily in the world market. Do you think that most business will not be done in English anymore because the American economy has hit a hiccup?

And by reliable, I mean that no country thinks America will ever go under, and by go under I mean Zimbabwe or Sudan. The chances are practically zero, and that confidence makes the dollar valuable--not because of its ability to exchange 1 for 1 with the euro.

If everyone starts trading for oil in other currencies, then the ability to finance the budget deficit takes a small hit, probably about 0.1% of U.S. GDP. That's all. There's no massive plunge of the dollar because it would still be desired for other exchanges. I don't see the British Pound fighting to keep its head above water right now.

What's the difference between the pound and the dollar? It's not the reserve currency status of the Pound (which it doesn't have)--it's that Britain is more fiscally sound right now. Both countries have valuable, stable assets that foreigners want a part of. One country has a more responsible government.

As long as America has valuable assets, the dollar will be demanded. Considering our exports are actually holding up pretty well right now, I'd say there's not much to worry about there.






Think of it like food. Sure, there are movements and fads to eat in certain ways, but overall, consumption preferences don't change all that much on the whole for staple goods. Some people might go on the Atkins diet or the Subway diet, but there's a ton of people out there who still want steak for dinner.

Saying Iran is going to get states to stop demanding dollars is like saying vegans will get people to stop eating steak.

 

[ARon]

The biggest threat to them using other currency is the Federal Reserve won't have that constant unlimited "credit card" to keep pumping out money. Oil helps keep the value of the dollar, if it isn't there then the dollar declines drastically. I'm pretty sure we wouldn't hesitate to stop that from happening no matter the cost, hopefully it isn't a war.

There are a bunch of sites that I used to have bookmarked that talk about this but I got rid of em, I remember them talking about it in a documentary called Freedom to Facism, which was ok. They go into pretty good detail about this, the other parts of the vid are so so.

 

[AmerikazMost]

The biggest threat to them using other currency is the Federal Reserve won't have that constant unlimited "credit card" to keep pumping out money. Oil helps keep the value of the dollar, if it isn't there then the dollar declines drastically. I'm pretty sure we wouldn't hesitate to stop that from happening no matter the cost, hopefully it isn't a war.

There are a bunch of sites that I used to have bookmarked that talk about this but I got rid of em, I remember them talking about it in a documentary called Freedom to Facism, which was ok. They go into pretty good detail about this, the other parts of the vid are so so.

The impact of the oil trade on the value of the dollar is grossly overstated. The only way the international community kills the dollar is if they stop demanding it for all reasons--not just some of the sales of one commodity.

See this:

1. For a number of technical reasons OPEC is unlikely to shift markets to euro-priced oil. There would be costs and inefficiencies involved, with no real significant benefits gained. The same applies to the buyers of oil.

2. There is good reason to believe that the euro's current appreciation vis-à-vis the dollar will not be sustained—the currency will have a hard time maintaining its current parity with the dollar. The euro's current strong value is taking a toll on euroland economic performance.

3. Even if the euro were to maintain its parity with the dollar, this would not cause the dollar to cease to be the international reserve currency. A two international reserve currency system is more unstable[24] than one dominated by a single currency. Markets will move toward stability—and a currency with a historical track record.

4. The fate of the dollar and hence its use as an international reserve currency is largely in the hands of the United States—budget and trade deficits and low savings pose a greater threat to the use of the dollar as a reserve currency than any actions the EU or OPEC could undertake with regard to oil pricing.

5. Even though the United States may derive some economic benefit from having its currency serve as the dominant international reserve currency, the gains are not nearly as great as is often assumed—around 0.5% of GDP at best, much of which is offset by lost manufacturing exports and jobs associated with the strong dollar.

http://www.ccc.nps.navy.mil/si/nov03/middleEast.asp


If everyone stopped using the dollar for all of their exchanges, then yes, as Rukas proposed, the dollar would drop drastically and the U.S. would become a closed economy. But that's not reality. Reality is that the United States has the strongest infrastructure and highest potential economic capacity, and other countries want in on that, either by buying our assets or shipping us their goods. A weak dollar hurts other countries because their exports become more expensive in their number one market.

Things are bad right now, but bad relative to U.S. standards. It won't last forever, and pretty soon the dollar will start appreciating again and no one will be talking about petroeuros anymore--except maybe Iran.

 

[The.Menace]

Intersting read, intersting thread. I agree with Rukas said in his last post and even though AmerikazMost got good points, I think you do overestimate the Dollar. Everything you said is true for the past, but it doesn't have to be in the future. Fact is the US economie isn't as strong as now as it has been for a long time. Fact is that the Euro is very strong and more and more popular/liked in the world..... I'm not sayin the US and the Dollar is done right now but I do believe that underestimating the danger - like u do right now - could really cause serious problems. If there is another major crises in the US economie (like we had last year or a week ago) and the Dollar loses even more ground, it could very well happen that people turn their back completly on it. What I try 2 say is....

If everyone stopped using the dollar for all of their exchanges, then yes, as Rukas proposed, the dollar would drop drastically and the U.S. would become a closed economy. But that's not reality. Reality is that the United States has the strongest infrastructure and highest potential economic capacity

no, it's not reality right now but to dismiss the idea it could become reality (and spend money on wars, press dolllar a major way, etc etc) ... it could become reality! The highest potential economic capacity? Been like that for years I agree, but that's a new age. I'd say China or India, these countries have the highest potential economic capacity! Plus don't underestimate the EU and the large economic capacity it is - it's constanly growing and in 10 years from know it might be stronger that the US economic capacity.

So after all I do believe that there is a danger and it turns into a real and big danger 'cause people in charge like GW don't realize it and get lost in their arrogance. The US will not be on the top of the world forever. No empire has been, they all fall apart sooner or later. And I believe losin touch with reality, delusions of grandeur is the first step for it. I'd really suggest they should take this issue serious insteat of just pressin' $$$...... believe me, I travel a lot and the Euro is just as liked and known around the world than the Dollar these days.

 

[AmerikazMost]

This is the problem in the world of mass media and the blog--everything is overblown. The good is made to seem like things are utopian, and the bad are made to seem like it's the end of the world.

The problems that the U.S. is facing is not even as bad as some of the other recessions we've face in the past few decades, though it has the potential to be pretty bad (but again, that's relative to what we had in the 1990's).

People will not turn their back on the dollar for two reasons: 1) there is not viable alternative, and 2) most believe that the dollar will rebound, because it more than likely will.

First, the euro has it's own problems. The reason everyone keeps using that as the comparison to the dollar has more to do with the fascination with the EU (and Western countries in general) than it does with its viability. For one, it's volume in world trade isn't even close to that of the dollar, and it would take years for it to compete even if everyone decided tomorrow that the dollar would not recover any time soon.

Also, EU countries have problems living up to their fiscal responsibilities. I think Germany is the only country who ever had a realistic shot at meeting its requirements under the Maastricht Treaty, and even they ran budget deficits recently. France just admitted that it won't be able to balance its budget by the time it promised. It faced billions in fines for its illegally high deficit, but the EU backed down and let them off the hook. A Google search of this brings up tons of news articles about EU countries lagging in meeting these goals.

To me, not meeting requirements, regressing to the point of risking penalties, and then not having the fortitude to uphold your own regulations does not breed a whole lot of confidence. I'm not saying the U.S. is any better right now--because it's obviously not--but the EU has it's own problems that people don't seem to like to talk about.


Second, anyone who thinks the dollar won't rebound from its record low against other currencies is living in an anti-American fantasy. Since this depreciation has more to do with fiscal policy and less to do with production capabilities, it's easy to see that a new, more responsible bureaucracy can help fix the problems. Knowing this, if countries were to dump their dollars, they would experience a tremendous capital loss when the dollar does recover and everyone can trade on the world stage except them. That's a big part of why countries are hesitant to lower their dollar reserves. Even Russia won't trade in petroeuros.



The dollar is not going to recover this year, and it may not recover next year, but it will recover in the near future. Even if the new American policymakers turn out to be idiots and don't understand the economics, then they will have no other choice when consumers can't afford to buy those cheap imports anymore and start complaining.



Also, don't forget that a large part of this housing crisis has to do with foreign investment. Subprime mortgages were given out in a large part because foreign investors needed new investment opportunities in the United States after the speculative bubble burst on tech stocks at the end of the century. The point is that there is a foreign demand for U.S. assets even during hard times, and I see no reason why that will all of a sudden change.

 

[Bhuddahhoodlum]

Right now it doesn't look good. For those that dont know, Iran was set to begin trading oil in different currencies, eliminating the worlds dependency on the US dollar, but a week before it was set to happen all of the countries communications systems were coincidently cut, all at once, by accident.

The US is saying that it was caused by earthquakes and ship anchors cutting ALL of Iran's underwater wires at the same time by accident. Yet there were no earthquakes or ships in the region at that time. Go figure .

wow. that's some of that Sam Fisher, COD 4, solid snake, James Bond type shit.

 

[the_pharmacist]

I don't think so. At least not in this decade. I think that if such an attack was to occur the US would attack Iran through Israel, aided by the US' Arab allies, such as Egypt, Jordan and Saudi Arabia, all of which see Iran as the biggest threat to date. However, those countries are doing their best to solve the "Iranian threat" diplomatically as they fear retaliation, which they know is certain, and most importantly, fierce. It's a question of whether they are willing to the risk of either having their rapidly growing economies (specially Egypt and Saudi Arabia) go down the drain for a chance of regional dominance and stability.

 

[the_pharmacist]

The US dollar will drastically fall because a) there will be no demand for it and b) the US dollars in circulation right now will be sold off and just sit there so there will be even MORE out there pushing the price down even further like a stock crash when people panic and sell.

That cant be good for the US.

And please remember, the when Iraq tried to do this in 1990, it was invaded by the US within a week. While I'm not saying this was the reason the US went to war with Iraq, I'm sure it put extra strain on the situation and didn't help things.

Couldn't have said it better myself, but one more thing I'd like to add is the fact that oil prices were stable back then, and now they are stuck at over $100 a barrel.
But it's not only not good for the US, it's not for the rest of the world, specially countries whose whole economies can collapse if prices of oil remain at this level, like Japan, Germany and most importantly, China and India, whose impressive economic growth over the years is being greatly affected by the instability of oil prices.

 

[the_pharmacist]

This is the problem in the world of mass media and the blog--everything is overblown. The good is made to seem like things are utopian, and the bad are made to seem like it's the end of the world.

The problems that the U.S. is facing is not even as bad as some of the other recessions we've face in the past few decades, though it has the potential to be pretty bad (but again, that's relative to what we had in the 1990's).

People will not turn their back on the dollar for two reasons: 1) there is not viable alternative, and 2) most believe that the dollar will rebound, because it more than likely will.
First, the euro has it's own problems. The reason everyone keeps using that as the comparison to the dollar has more to do with the fascination with the EU (and Western countries in general) than it does with its viability. For one, it's volume in world trade isn't even close to that of the dollar, and it would take years for it to compete even if everyone decided tomorrow that the dollar would not recover any time soon.

Also, EU countries have problems living up to their fiscal responsibilities. I think Germany is the only country who ever had a realistic shot at meeting its requirements under the Maastricht Treaty, and even they ran budget deficits recently. France just admitted that it won't be able to balance its budget by the time it promised. It faced billions in fines for its illegally high deficit, but the EU backed down and let them off the hook. A Google search of this brings up tons of news articles about EU countries lagging in meeting these goals.

To me, not meeting requirements, regressing to the point of risking penalties, and then not having the fortitude to uphold your own regulations does not breed a whole lot of confidence. I'm not saying the U.S. is any better right now--because it's obviously not--but the EU has it's own problems that people don't seem to like to talk about.


Second, anyone who thinks the dollar won't rebound from its record low against other currencies is living in an anti-American fantasy. Since this depreciation has more to do with fiscal policy and less to do with production capabilities, it's easy to see that a new, more responsible bureaucracy can help fix the problems. Knowing this, if countries were to dump their dollars, they would experience a tremendous capital loss when the dollar does recover and everyone can trade on the world stage except them. That's a big part of why countries are hesitant to lower their dollar reserves. Even Russia won't trade in petroeuros.



The dollar is not going to recover this year, and it may not recover next year, but it will recover in the near future. Even if the new American policymakers turn out to be idiots and don't understand the economics, then they will have no other choice when consumers can't afford to buy those cheap imports anymore and start complaining.



Also, don't forget that a large part of this housing crisis has to do with foreign investment. Subprime mortgages were given out in a large part because foreign investors needed new investment opportunities in the United States after the speculative bubble burst on tech stocks at the end of the century. The point is that there is a foreign demand for U.S. assets even during hard times, and I see no reason why that will all of a sudden change.

Ofcourse it will rebound, it is only natural that it does. The market is only correcting itself after the unprecedented boom in real estate prices over the years and the mighty US economy will rise once again, but by then the gap between the US and China will be narrower than ever and the EU, having already surpassed the US as the strongest economy in the world will benefit from the switch some countries will make after they lose their confidence in the dollar. This already happening, as in the case with Kuwait, whose currency is no longer pegged to the dollar, but to a basket of currencies.
Regardless of the problems the EU may have, it has as much to gain as the US has to lose. After what happened in the US recently, Saudi Arabians, for instance, have withdrawn billions and billions of dollars worth of investments from the US, to be invested in other countries such as Brazil, China, the EU and other Arabic countries.
Whatever "tremendous losses" any investors may suffer if they pull out their investments might as well just pay off in other places by the time the US recovers, and when it does, it would be safe to put the money back in the country again, but leaving your investment to devalue while you wait for the dollar to recover is a very big risk to take. Either way, only time will tell.