Have you ever heard this - believe it or not.The "world economy" revolves around the "US" DOLLAR. OPEC, especially Iran and Iraq were out to change the economy for how oil is purchased. They wanted to change from US Dollars to "Euro" Dollars, which would shut down the US' economy in VERY SHORT ORDER.
I have. I still had the an article saved for a couple years ago.
The real war - euro versus dollar
By George Rauch
April 10, 2003
The bear market rally has investors wondering if it's time to jump back aboard. Has the bear market run out of steam, and is this the beginning of a new bull market?.
The market has a mind of its own and it will do what it wants, when it wants. At this moment, with the war in Iraq going well, the market is undergoing a bear market rally based strictly upon emotions. There are no available mathematical conclusions to support the rally. But the market is logical over the long term, and the market opines that this war is a struggle between the euro and the dollar. As long as the war goes well, the market concludes the dollar will come out on top.
If the U.S. perseveres in this war, the euro, like the yen, will be put in its place behind the dollar. The dollar will regain its dominance until our government creates the next monetary crisis by continuing its profligate spending and unchecked creation of money out of thin air. Lest this seems like too much of a stretch, let's took at the facts leading up to this war and see if we can conclude this war is really a contest between the euro, to become a viable world currency, and the dollar, to remain as the world's dominant trading currency.
1. Background - The world's currencies collapsed during World War II. The U.S. "saved" world monetary integrity by making the dollar the world's supreme trading currency at the Bretton Woods Agreement in New Hampshire in 1944. After World War II the world was happy to take the only available currency to rebuild a destroyed Japan and a destroyed Europe through the Truman and Marshall plans. The huge buildup of dollars overseas became part of other countries' central bank reserves, essentially replacing gold as a standard of value. The dollar became a trading currency just as gold had been for the past several-thousand years. The world's economies are literally driven by petrol-chemicals, and the dollar became the legal standard for the purchase and sale of oil. In 1971, France had accumulated so many dollars that France demanded the U.S. Federal Reserve System redeem its pool of dollars in gold. Redemption of dollars for gold at $38.50 per ounce (1971-fixed gold price) would inspire other countries holding excess dollar reserves to make the same request. The U.S., realizing such redemption would claim all of our gold reserves, "closed the gold window." The U.S. compromised by "allowing" the price of gold to fluctuate freely in world markets. The effect was twofold: 1. Gold went up, so all nations' reserves of gold increased in value, thereby increasing the value of all of the world's currency reserves; and 2. It solidified the credibility of the dollar as the world's only trading currency and insured continued U.S. monopoly of the oil trade (literally, liquid gold).
2. Iraq as a threat to world peace - The U.S. government has inundated us with the following claims concerning why Iraq should be neutralized: a threat to world peace by sponsoring terrorism; creation of mass chemical and biological weapons; and sophisticated delivery systems for those weapons. In fact, it is our ally, Saudi Arabia, that is sponsoring terrorism; we haven't found any chemical or biological manufacturing facilities; and Iraqi rockets to deliver such weapons are obsolete and have proven to be impotent.
3. Economics of European Economic Community (EEU) - The EEU was created to compete with America, and the euro was created to compete with the dollar. France and Germany, Europe's leading economies and leading users of oil, saw an opportunity to purchase oil from Iraq and pay for the oil with either euros or dollars. As the dollar went down against the euro, Iraq was happy to price their oil in euros instead of dollars. Iraq could use the euro as a trading currency with other countries and get more for their money. This puts Europe and any other country using the euro in a more competitive position vis-a'-vis any country purchasing oil with dollars, a currency decreasing in value. The euro has become Iraq's trading currency instead of the dollar, which is why Europe is not solidly behind the U.S. war with Iraq. A continuing buildup of euros in Iraq, a country with the world's second largest proven recoverable oil reserves, threatens to undermine the supremacy of the dollar as the world's only currency trading in oil. In world markets oil is paid for and priced in dollars. If the euro establishes a foothold as a currency for the payment of oil, the result will be a large buildup of surplus euros in countries that are suppliers of oil like Russia, Venezuela and other Middle Eastern oil producers. The dollar, down more than 20% against the euro the last year, will be further undermined. With huge U.S. indebtedness, which continues to increase at the rate of 8% annually, a solid competing currency could cause a dollar collapse. This would result in a realignment of the value of world currencies, throwing the U.S. economy into utter chaos at a time when the U.S. economy is already in trouble.
4. Status of world's dollar currency reserves - During the Bretton Woods Agreement of 1944, the dollar was the world's only viable currency. And the dollar was supported by 75% of the world's monetary gold stock. Today the dollar represents 76% of the world's central banks monetary reserves, having replaced gold as a standard of value. As gold is no longer a viable, convertible trading currency, the continued value of the dollar is supported by the power of the U.S. economy, the projection of U.S. military might, the control of the world's sea lanes, and the ability of the U.S. to control the flow and pricing of oil (liquid gold) in a world where all advanced, and advancing, economies are completely dependant upon oil.
5. U.S. Resolution - The U.S. is establishing a strong military presence in Iraq, which is centrally located in the Middle East hotbed. By taking over Iraq the U.S. can sell Iraqi oil in dollars, instead of euros. The U.S. puts Iran, Indonesia, Venezuela and other contentious, large oil-producing countries on notice, while establishing a huge military presence in the center of the "largest problem." Not only is the euro contained as a growing world currency, but by placing the world's second largest oil reserves under American power, we assure ourselves of a me-first use of those reserves in a world where demand for oil is increasing in geometric proportions.
Conclusion
This is the boldest grab for power by America since World War II. Is Saddam Hussein a bad guy? Absolutely - he was a nasty man 20 years ago when he was our friend and ally. However, by neutralizing Iraq first, and controlling its oil reserves, we can neutralize European power and turn our attention to smaller thorns in our side like North Korea (a much larger military threat than Iraq) and Venezuela, the world's fourth-largest producer of oil in our own backyard.
The market is aware of these benefits. The short-term surge, however, lifting the market above its 200-day moving average, is likely to be short-lived. Dow theory is based upon values. There is no value in this market. Real GDP growth is less than 1%, not enough to create new jobs to absorb young people coming into labor markets. Government deficits are more than 50% over estimates, and this excludes the cost of the war, which is currently un-funded. The cost of keeping a large military presence in the Middle East is not budgeted. Most importantly, the S & P 500 is selling at 32 times earnings and yielding a measly 1.8%, hardly exciting territory or a base from which to commence a new bull market. The market is currently trading at a bull-market top, not a bear-market bottom, when compared to the 1949, 1972 and 1980 bear market bottoms. Price earnings ratios were 5.4, 7.5 and 6.8 times earnings, respectively, during those bottoms, and yields were 7.6%, 5.1% and 5.7% on the S & P 500. While nobody knows when those bear-market bottom values will be revisited, this market remains highly volatile and extremely dangerous to trade. The signs of a bear market continue. The old adage on Wall Street correctly claims "in a bear market, if you're long, you're wrong."
Caveat emptor!
George Rauch, Longboat Key, is chief executive officer of Bradenton-based General Propeller and a former Wall Street investment banker
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Just think about Jenna Jameson bro. Now take a deep breathe. Better now. JJ just thought I might calm ya from your rant somethings never change.
