Game Over?

[Burke]

This link is to a story about how the US petrodollar got its status as the world's reserve currency, how it's about to lose it, and what it means. It's also a pitch for the sale of investment advice.

http://finance.uncommonwisdomdaily.com/reports/GRH/WW3/email.php?ccode=&em=&sc=DW&ec=5492102&p=2

One can agree or disagree with their investment advice, but what I wonder is what objections you have toward its general claim that the petrodollar is about to collapse and what it means.

[gator10010]

I've brought this China and Russia oil trade agreement up before on this board and very little seem concerned with it

I think other countries, like China, have started to realize that our government is trying to inflate it's way out of debt. China is sitting on a bunch of US dollars and they know that these dollars are worthless so they are trying to get out of the US dollar but they are kind of stuck with them.

China has also been buying a lot of gold over the last couple of years. What the Chinese are doing is a good idea for China but it will hurt America. Oil being traded in the dollars creates demand for our currency around the world so the question is what happens when countries stop using the dollar to trade oil? Well all those dollars overseas will come flooding back to the US and the government wouldn't be able to hide the inflation like they currently do.

No one needs to worry though because we will go to war before we get to the death of the petro currency. Iraq should have at least taught us that. Saddam was going to do the same thing as Russia and China and we saw how that played out.

Some people say China needs the US and the Great American Consumer but this is laughable. All China would have to do is allow their currency to rise in true market value and unleash 1 billion (that's billion with a B) chinese consumers with a purchasing power like they have never before experienced.

[cocodrilo]

China is the next superpower. If I was young, I would learn the Chinese language, learn to use chop sticks, and go start a business in China (maybe a Takee Outee franchise) as a land of opportunity. My real goal would be to introduce American football there. I could become a team owner. I think I would call my team (not to be outdone by the Washington Redskins or Miami Heat) the Beijing Yellow Fever. "Chop suey!" sounds like a great cheer.

[MichiGator2002]

China isn't the next superpower, because China is in demographic purgatory due to their ignorant and evil one child policy. They have a lot of warm bodies here and now, but they have no longitudinal future in global power, just a moment in which to act to secure a better future than they might have. The real future is nonpolar, which would be a first for western civilization since -- not coincidentally -- the dark ages.

[oragator1]

I've brought this China and Russia oil trade agreement up before on this board and very little seem concerned with it

I think other countries, like China, have started to realize that our government is trying to inflate it's way out of debt. China is sitting on a bunch of US dollars and they know that these dollars are worthless so they are trying to get out of the US dollar but they are kind of stuck with them.

China has also been buying a lot of gold over the last couple of years. What the Chinese are doing is a good idea for China but it will hurt America. Oil being traded in the dollars creates demand for our currency around the world so the question is what happens when countries stop using the dollar to trade oil? Well all those dollars overseas will come flooding back to the US and the government wouldn't be able to hide the inflation like they currently do.

No one needs to worry though because we will go to war before we get to the death of the petro currency. Iraq should have at least taught us that. Saddam was going to do the same thing as Russia and China and we saw how that played out.

Some people say China needs the US and the Great American Consumer but this is laughable. All China would have to do is allow their currency to rise in true market value and unleash 1 billion (that's billion with a B) chinese consumers with a purchasing power like they have never before experienced.

If they let their currency float their economy would collapse because they are an export based economy that needs a weak currency to thrive. That's why their economic power is overstated, it is based on currency manipulation, if they had to compete straight up today they would lose, corruption is endemic and a majority of their country is poor agrarian with little to no buying power. On a per capita basis they have about a quarter the per capita income of the west.

[gator10010]

If they let their currency float their economy would collapse because they are an export based economy that needs a weak currency to thrive. That's why their economic power is overstated, it is based on currency manipulation, if they had to compete straight up today they would lose, corruption is endemic and a majority of their country is poor agrarian with little to no buying power. On a per capita basis they have about a quarter the per capita income of the west.

It would change their economy from a trade export economy to a consumption economy. Think about what would happen if 1 billion poor chinese people were unleashed on the market with some actual purchasing power.

[oragator1]

It would change their economy from a trade export economy to a consumption economy. Think about what would happen if 1 billion poor chinese people were unleashed on the market with some actual purchasing power.

I agree they would become a consumption economy, my point is that they don't have the underlying infrastructure to do that. 10's of millions of people there would be out of work tomorrow if they floated the yen. The wealthy class, many of whom have wealth based on the idea of cheap prices for their products to export would be out of luck too. They need to build a self sustaining domestic market comparable to the west before it's feasible.

[gatorev12]

It would change their economy from a trade export economy to a consumption economy. Think about what would happen if 1 billion poor chinese people were unleashed on the market with some actual purchasing power.

...which is exactly the long-term goal of the Chinese government.

But it's long-term because they aren't there yet and they're still a long ways away. They've lifted millions out of poverty in the last generation--but when you have a population of over a billion, it'll take awhile to spread to everyone else.

The Chinese still don't have a domestic market that can support the vast majority of the consumer goods they manufacture--which is mostly tailored to Western consumer needs, not Chinese domestic needs.

[gator10010]

I agree they would become a consumption economy, my point is that they don't have the underlying infrastructure to do that. 10's of millions of people there would be out of work tomorrow if they floated the yen. The wealthy class, many of whom have wealth based on the idea of cheap prices for their products to export would be out of luck too. They need to build a self sustaining domestic market comparable to the west before it's feasible.

The misconception that the poor chinese people need the US consumer to buy their products is wrong. As I already mentioned China would have plenty of consumers in their own country to buy the products the chinese manufacturers are making. The manufacturers wouldn't quit making stuff, if anything they would sell more stuff.

[gator10010]

I guess my question is, what infrastructure is needed to have a factory worker make the same amount of money in his paycheck but the same paycheck can all of the sudden buy more products than it used to?

[oragator1]

I guess my question is, what infrastructure is needed to have a factory worker make the same amount of money in his paycheck but the same paycheck can all of the sudden buy more products than it used to?

Demand.
Let's say the normalized tomorrow....domestically prices don't change for their made goods but they change everywhere else in the world. So all of those domestic consumers won't change their habits, other than to buy more international goods and less domestically. But they would lose several times the domestic middle-class buying power from markets around the world.
If you are a maker of jeans for example, prices domestically stay the same. Whoever is buying your jeans in china is still going to pay the same price (unless you import fabric to make them). But you lose Europe, the rest of Asia, North and South America. Additionally, international goods are now more price competitive with your product because your buying power is up domestically, so you lose internationally and domestically in sales. Now multiply that by all of the things China exports, which is the focal point of their economy and why they have a surplus, both government wise and among their middle class.
You need to be market leaders in skilled labor and innovation to counteract the loss, which as Rev said China is slowly working towards. Japan and now SK followed a similar model successfully but it takes decades and decades. China isn't there yet and probably won't be for a while.

[wargunfan]

China isn't the next superpower, because China is in demographic purgatory due to their ignorant and evil one child policy. They have a lot of warm bodies here and now, but they have no longitudinal future in global power, just a moment in which to act to secure a better future than they might have. The real future is nonpolar, which would be a first for western civilization since -- not coincidentally -- the dark ages.

We are witnessing the gradual end of borders in the northern hemisphere. The United States, Mexico and Canada may become, defacto, one nation; at least economically if not politically. This economic power will be unrivaled in the world. The oil resources alone will insure first rank status. Combine that with the food growing capacity of the US and Canada along with their water resources and you have an unbeatable competitor. The trick will be to get Mexico sorted out in the next generation or two. The political corruption and drug wars in Mexico cannot be allowed to stand in the way of the future.

[gatorev12]

The misconception that the poor chinese people need the US consumer to buy their products is wrong. As I already mentioned China would have plenty of consumers in their own country to buy the products the chinese manufacturers are making. The manufacturers wouldn't quit making stuff, if anything they would sell more stuff.

When they get there, yes. They aren't there yet now--and, as such, they absolutely need the US consumer market.

Additionally, Chinese manufacturers primarily make goods for Western consumers. Not Chinese consumers. Some factories could easily shift to domestic consumer tastes, others not as easily.

[surfn1080]

It would change their economy from a trade export economy to a consumption economy. Think about what would happen if 1 billion poor chinese people were unleashed on the market with some actual purchasing power.

Most of their population is to poor to become a consumption economy and the gov. Knows how much money and education it would take to become as such.