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Well, the influx of foreign students or the rise in exports would be a logical consequence of a lower USD: US colleges or US made products would appear cheaper to us, furriners...

My main point was: I'm not sure that oil products becoming suddenly much, much more expensive to a nation where cheap energy is a god given right -- and whose very lifestyle depends on it -- would go down any gracefully, energy independence be damned.

That would be more than a mere "shock" and I'm afraid that the pent-up anger displayed by the tea-baggers during the health care "debates" would look like an afternoon stroll in the park by comparison.

Some major adjustments would be needed too: there are industries (I can name semiconductors and aerospace, but oil does qualify too) where all business around the world is done in USD: a shrinking greenback is a major catastrophe for EU aerospace or microelectronics industries. Something's got to give...

by Bernard on Tue Sep 29th, 2009 at 04:11:02 PM EST
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Bernard:
Some major adjustments would be needed too: there are industries (I can name semiconductors and aerospace, but oil does qualify too) where all business around the world is done in USD: a shrinking greenback is a major catastrophe for EU aerospace or microelectronics industries. Something's got to give...

Would it be catastrophe because the market is in the US or because of the falling dollar value in itself? In the second case why not raise prices in USD or trade in euro?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Sep 30th, 2009 at 06:03:51 AM EST
[ Parent ]
The US market is only 30% of the WW semiconductors market; the bulk is now in Asia-Pac. Same for civilian aircrafts, BTW.

Asian manufacturers whose home currency is de facto pegged to the USD are all too happy to see their EU based competitors being slaughtered by the falling greenback. Whether you like it or not, major business in this region is in USD. Same for oil.

The real question: what would it take for these businesses (especially for oil) to stop trading in dollars and switch to - what? A basket of currencies?

by Bernard on Wed Sep 30th, 2009 at 09:55:24 AM EST
[ Parent ]
I thought one premise for the scenario was that the asian countries de facto un-pegged from the USD, and that was one reason it was falling vs the euro in the first place?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Sep 30th, 2009 at 10:09:43 AM EST
[ Parent ]
The scenario only assumed an "un-peg" of the exchange rate of local currencies vis a vis the USD.

Changing the trading currency from the USD to XYZ is another step altogether, that may be the next move after the currency un-peg.

by Bernard on Wed Sep 30th, 2009 at 12:52:08 PM EST
[ Parent ]
Now I am officially dense, but would not then the asian manufacturers also get slaughtered if the prices stays fixed in USD and their local currencies increase against it?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Sep 30th, 2009 at 07:12:46 PM EST
[ Parent ]
Yes, which is why the latter would most likely be the unavoidable consequence of the former.
by Bernard on Thu Oct 1st, 2009 at 12:01:19 PM EST
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... being denominated in a currency and prices being fixed in a currency.

If Asian manufacturers found that they are exposed to more supply price risk in prices fixed in dollars than demand competition, the benefit of a moderately lower dollar might well offset the damage.

A drop in the relative terms of trade faced by the US would both make resources originating from the US (and North America in general) less expensive, as well as reduce competition from the US in markets like international markets for crude oil.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Oct 6th, 2009 at 06:47:06 PM EST
[ Parent ]
^_^

Yes, the point is that the pegged countries stop propping up the US$, so when it comes under serious pressure (the vague "controversy with the Fed"), its subject to falling against currencies across the board.

The premise in China sneaking out of a dollar peg ... which under the Singapore peg they can do, after all, if there is a period of relative stability in foreign exchange markets ... is that they hold the yuan/US$ exchange rate fairly steady, and attention is not focused on the means by which they are doing it.

Of course, blogging about it undermines the premise to a tiny extent, but for the sake of the fiction, I'll just assume that some blog somewhere blathering on about it is lost in the broader din, with a large number of mutually self-contradictory explanations about what is going on.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 30th, 2009 at 04:29:52 PM EST
[ Parent ]
... with contracts priced against some (rather arbitrary) benchmark price, the trading currency is not so critical. It is long term contracts and hedging against a fixed nominal price where the trading currency matters more.

The above scenario would do it, fast on the heels of the abandonment of stable US$ exchange rates among the pegged neo-mercentalists would come a demand for a shift to a currency with a more stable exchange rate to reduce exposure to FX risk.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 30th, 2009 at 04:35:57 PM EST
[ Parent ]

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