Have We Been On An "Oil Standard" For the Last 40 Years

[Patrick1000]

I asked this question in another thread but really did not get a response, at least the last time I checked I did not see one.

So it occurs to me that when we went off of the gold standard in the 70s with Nixon, we in the very same era developed a special relationship with OPEC. Importantly, OPEC oil would be priced and sold in US dollars.

As such, it seems to me we lost the "gold standard", but with the special OPEC arrangement, we have something even better, at least temporarily for the US monetary system. Our dollar is pegged to a given quantity of the most valuable commodity in the world, OIL. This gives the dollar its unique and undeniable pop. Does it not???????

[Brian-M]

If the US currency were on an "oil standard", the price per barrel of oil would be fixed and unchanging. But the price of oil (in US dollars) varies considerably.

So no, the US has not been on an oil standard.

ETA:

If the US currency were on an "oil standard", a graph of oil-price in US dollars would be a straight horizontal line. But an actual graph of oil-price shows otherwise...

http://www.mongabay.com/images/commo...crude_oil.html

[kevsta]

the USD is on a PHD economist (money printing) standard.

[Patrick1000]

Originally Posted by Brian-M

If the US currency were on an "oil standard", the price per barrel of oil would be fixed and unchanging. But the price of oil (in US dollars) varies considerably.

So no, the US has not been on an oil standard.

ETA:

If the US currency were on an "oil standard", a graph of oil-price in US dollars would be a straight horizontal line. But an actual graph of oil-price shows otherwise...

http://www.mongabay.com/images/commo...crude_oil.html

"Standard" not the best term, but.......the dollar seems to be 'backed" in a sense by oil. Say the OPEC guys pulled the plug on this relationship OIL/DOLLARS, see what I mean now??????

[Patrick1000]

Originally Posted by kevsta

the USD is on a PHD economist (money printing) standard.

The Chinese buy our bonds why?????

If OPEC said from now on it is OIL/EUROS, then what? See what I mean?

[kevsta]

Originally Posted by Patrick1000

The Chinese buy our bonds why?????

you know what vendor financing is, surely?

Originally Posted by Patrick1000

If OPEC said from now on it is OIL/EUROS, then what? See what I mean?

err... ... then it would get bombed "regime changed" like everybody else who mentioned the idea? but yes I know exactly what you mean Patrick.

but you know that makes me a conspiracy theorist the same as you round here don't you.

[Patrick1000]

Originally Posted by kevsta

you know what vendor financing is, surely?



err... ... then it would get bombed "regime changed" like everybody else who mentioned the idea? but yes I know exactly what you mean Patrick.

but you know that makes me a conspiracy theorist the same as you round here don't you.

tell me buddie, what?

[kevsta]

well, it would be pretty much the beginning of the end of the US hegemony wouldn't it.

if people didn't need dollars to buy oil, that would be the end of the US reserve currency advantage of swapping worthless green paper for real things.

so yes, the dollar could be said to be on an oil standard, because without the tie to oil, the dollar would be heading towards worthless pretty fast?

im not sure what else the US could use to pay for their oil addiction.

is that what you mean? otherwise correct me.

[Patrick1000]

Originally Posted by kevsta

well, it would be pretty much the beginning of the end of the US hegemony wouldn't it.

if people didn't need dollars to buy oil, that would be the end of the US reserve currency advantage of swapping worthless green paper for real things.

so yes, the dollar could be said to be on an oil standard, because without the tie to oil, the dollar would be heading towards worthless pretty fast?

im not sure what else the US could use to pay for their oil addiction.

is that what you mean? otherwise correct me.

Yes that is what I meant exactly.... We still have the bombs, the nukes...

Interesting thought kevsta, English is the international language, why? Nukes......historically we threatened people with them and the irony is they honor our threat of vaporizing the world by learning our language.... INSANE!!!!!

[kevsta]

I do still think this will get moved to the CT section though..

[mhaze]

Originally Posted by Patrick1000

....Our dollar is pegged to a given quantity of the most valuable commodity in the world, OIL. This gives the dollar its unique and undeniable pop. Does it not???????

no, it is not, and it does not.

[Patrick1000]

Originally Posted by mhaze

no, it is not, and it does not.

Say more bro....I am curious as to alternative perspectives and open minded...

Thanx!

[Brian-M]

Originally Posted by Patrick1000

"Standard" not the best term, but.......the dollar seems to be 'backed" in a sense by oil. Say the OPEC guys pulled the plug on this relationship OIL/DOLLARS, see what I mean now??????

I wouldn't describe it as "backed" by oil, more a case of being propped up by oil.

This arrangement does not guarantee a fixed amount of oil for a fixed amount of US dollars as would be the case if the currency were backed by oil (or on an "oil standard"). It simply means they quote the price of oil in US dollars, and usually accept US dollars as payment.

The relationship, as far as I can see, does little more than keep the value of the US dollar artificially high in the international market. (Although, I admit I don't know much about the subject.)

But the exclusive connection to US dollars could soon be coming to the end...

Originally Posted by Wikipedia

Since the beginning of 2003, Iran has required euro in payment of exports toward Asia and Europe, though prices are still expressed in US dollars. Iran is planning to open an International Oil Bourse (IOB, exchange), on the free trade zone on the island of Kish, for the express purpose of trading oil priced in other currencies, including euros.

I wonder how this will affect the value of the US dollar?

Originally Posted by Patrick1000

[...] English is the international language, why? Nukes......historically we threatened people with them and the irony is they honor our threat of vaporizing the world by learning our language.... INSANE!!!!!

Yes, it is insane for you to believe this to be the case.

English has become a defacto international language because it is in such widespread use. This has more to do with British colonization than with nuclear weapons.

English is the primary spoken language in: Anguilla, Antigua and Barbuda, Australia, the Bahamas, Barbados, Belize, Bermuda, the British Indian Ocean Territory, the British Virgin Islands, Canada, the Cayman Islands, Dominica, the Falkland Islands, Gibraltar, Grenada, Guam, Guernsey, Guyana, Ireland, the Isle of Man, Jamaica, Jersey, Montserrat, Nauru, New Zealand, Pitcairn Islands, Saint Helena, Ascension and Tristan da Cunha, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Singapore, South Georgia and the South Sandwich Islands, Trinidad and Tobago, the Turks and Caicos Islands, the United Kingdom and the United States.

And is an official language in: Botswana, Cameroon, the Federated States of Micronesia, Fiji, Gambia, Ghana, India, Kenya, Kiribati, Lesotho, Liberia, Madagascar, Malta, the Marshall Islands, Mauritius, Namibia, Nigeria, Pakistan, Palau, Papua New Guinea, the Philippines (Philippine English), Rwanda, Saint Lucia, Samoa, Seychelles, Sierra Leone, the Solomon Islands, Sri Lanka, Sudan, South Sudan, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe.

The use of English in these countries has little or nothing to do with nuclear weapons.

_{(Info from Wikipedia)}

[JoeTheJuggler]

I think it's more accurate to say our economy is oil-dependent, but not that oil is our currency or backs our currency or anything like that.

[Patrick1000]

Originally Posted by Brian-M

I wouldn't describe it as "backed" by oil, more a case of being propped up by oil.

This arrangement does not guarantee a fixed amount of oil for a fixed amount of US dollars as would be the case if the currency were backed by oil (or on an "oil standard"). It simply means they quote the price of oil in US dollars, and usually accept US dollars as payment.

The relationship, as far as I can see, does little more than keep the value of the US dollar artificially high in the international market. (Although, I admit I don't know much about the subject.)

But the exclusive connection to US dollars could soon be coming to the end...



I wonder how this will affect the value of the US dollar?



Yes, it is insane for you to believe this to be the case.

English has become a defacto international language because it is in such widespread use. This has more to do with British colonization than with nuclear weapons.

English is the primary spoken language in: Anguilla, Antigua and Barbuda, Australia, the Bahamas, Barbados, Belize, Bermuda, the British Indian Ocean Territory, the British Virgin Islands, Canada, the Cayman Islands, Dominica, the Falkland Islands, Gibraltar, Grenada, Guam, Guernsey, Guyana, Ireland, the Isle of Man, Jamaica, Jersey, Montserrat, Nauru, New Zealand, Pitcairn Islands, Saint Helena, Ascension and Tristan da Cunha, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Singapore, South Georgia and the South Sandwich Islands, Trinidad and Tobago, the Turks and Caicos Islands, the United Kingdom and the United States.

And is an official language in: Botswana, Cameroon, the Federated States of Micronesia, Fiji, Gambia, Ghana, India, Kenya, Kiribati, Lesotho, Liberia, Madagascar, Malta, the Marshall Islands, Mauritius, Namibia, Nigeria, Pakistan, Palau, Papua New Guinea, the Philippines (Philippine English), Rwanda, Saint Lucia, Samoa, Seychelles, Sierra Leone, the Solomon Islands, Sri Lanka, Sudan, South Sudan, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe.

The use of English in these countries has little or nothing to do with nuclear weapons.

_{(Info from Wikipedia)}

I agree with everything you said except the part about English. If the Nazi's won WWII, we'd all be practicing our ders, dieees and dasses. The Russians were primarily responsible for clipping Adolf's 'stache. 4/5 of the Wehrmacht's attention and resources were directed eastward 'til the Ruskies finally turned the tables, broke the Reich's back and helped themselves to a frau or two. The British were proud and their efforts in the war were tremendous. That said, half the world was western European in the wake of the war primarily because of American efforts, American industrial might, American technological know how and 2 oceans that insulated us from the carnage.

Take away the nukes, the threat, and people would have taken up something altogether different. The British had no geopolitical/strategic influence, not much anyway post WWII. A bit sad, but they had their day.

"Everybody" in the Philippines speaks English and speaks it well for the most part because of the American threat. Sure the Americans were there early on, but had WWII turned out differently, those cute Pinays would be sporting Kimonos instead of jeans.

[Patrick1000]

Originally Posted by JoeTheJuggler

I think it's more accurate to say our economy is oil-dependent, but not that oil is our currency or backs our currency or anything like that.

OIL in exchange for a UNIQUE currency creates a "favoring" of this currency as with respect to all things commodified, apart from food and water, the later not yet fully commodified, oil is by far the most valuable material good on the planet with regard to its usefulness in a modern fully industrialized community. NOTHING COMES CLOSE. AND, given the need for oil to transport food and water, and the need for oil to create food, one could argue that even food and water may not be as valuable in some selective sense of the term.

[Brian-M]

Originally Posted by Patrick1000

I agree with everything you said except the part about English. If the Nazi's won WWII, we'd all be practicing our ders, dieees and dasses.

Only because if the Germans had conquered Europe, they would have made German the official language of their empire (the same way that Rome made Latin the official language of their empire a couple of thousand years before). This would have made learning German advantageous to those seeking to learn a new language, because it would allow effective communication in a wide variety of locations, which is exactly the same benefit that learning English provides people from non-English speaking countries.

Originally Posted by Patrick1000

The British were proud and their efforts in the war were tremendous, that said, half the world was western European in the wake of the war primarily because of American efforts,

I don't understand. Germany is a Western European country. If Germany had won, those countries would still be Western European in culture. On the other hand, most of the countries invaded by Japan are still not Western European in culture, despite America's triumph.

Originally Posted by Patrick1000

Take away the nukes, the threat, and people would have taken up something altogether.

Nuclear weapons had no role in defeating Germany. In Japan, they merely shortened the conflict, they didn't change the outcome.

Originally Posted by Patrick1000

"Everybody" in the Philippines speaks English and speaks it well for the most part because of the American threat.

America conquered the Phillippines in 1902. Before the fighting was even finished, America had sent over more than five hundred people to teach them English.

The inhabitants of the Philippines were already speaking English long before WWII broke out. Nuclear weapons had nothing to do with it.

[Patrick1000]

Originally Posted by Brian-M

Only because if the Germans had conquered Europe, they would have made German the official language of their empire (the same way that Rome made Latin the official language of their empire a couple of thousand years before). This would have made learning German advantageous to those seeking to learn a new language, because it would allow effective communication in a wide variety of locations, which is exactly the same benefit that learning English provides people from non-English speaking countries.



I don't understand. Germany is a Western European country. If Germany had won, those countries would still be Western European in culture. On the other hand, most of the countries invaded by Japan are still not Western European in culture, despite America's triumph.



Nuclear weapons had no role in defeating Germany. In Japan, they merely shortened the conflict, they didn't change the outcome.



America conquered the Phillippines in 1902. Before the fighting was even finished, America had sent over more than five hundred people to teach them English.

The inhabitants of the Philippines were already speaking English long before WWII broke out. Nuclear weapons had nothing to do with it.

The nuclear threat was/is a post war threat.....

In a very real sense, Hiroshima and Nagasaki were nuked to send a big fat message to Uncle Joe.......

[Brian-M]

Originally Posted by Patrick1000

The nuclear threat was/is a post war threat.....

In a very real sense, Hiroshima and Nagasaki were nuked to send a big fat message to Uncle Joe.......

I don't see how this address any of my responses to your statements.

[Patrick1000]

Originally Posted by brian-m

i don't see how this address any of my responses to your statements.

You said nukes played no role in defeating the Germans and I agreed....

[mhaze]

Originally Posted by Patrick1000

Say more bro....I am curious as to alternative perspectives and open minded...

Thanx!

There's nothing more to be said. The dollar is not "propped up by oil".

Large number of dollars MOVE to oil producing countries because we buy oil.

That's called a transfer of wealth. It makes us weaker, not stronger.

[Patrick1000]

Originally Posted by mhaze

There's nothing more to be said. The dollar is not "propped up by oil".

Large number of dollars MOVE to oil producing countries because we buy oil.

That's called a transfer of wealth. It makes us weaker, not stronger.

What about when Saddam sold his oil for euros? Didn't that tick off people? Important people?

The point here is that wealth is transferred regardless, OK, but the transfer in terms of dollars is better for us than it would be if we "lost" the money in terms of euros, or RMB or pesos. And dollars means oil, something valuable and tangible.

We import 9 to 12 million barrels a day, give or take. This, whether we buy from the Saudis or from Mexico. In a year we import something like 3.6 billion barrels give or take.

At 100 dollars a barrel that is $360,000,000,000 dollars that move from us to petroleum exporters. Our GDP is 14.5 trillion bucks give or take, so that puts our oil purchases from exporters at 2.5% of our GDP. BIG! number, approaching the official US defense budget which is a little less than twice that.

World oil consumption is on the order of 28 billion barrels a year. So that's 2.8 trillion dollars spent a year on oil at 100 dollars a barrel. That is the equivalent of 19.3% of US GDP spent on oil a year.

Do you mean to argue mhaze, and I don't mean to say you are wrong, but do you mean to say that we do not benefit from that? Is that true? If everybody bought oil in Chinese RMB instead of dollars, would there really be no difference?

One could argue when people buy oil , they buy dollars and so make dollars more valuable. You buy what you value, do you not???????

[mhaze]

Originally Posted by Patrick1000

What about when Saddam sold his oil for euros? Didn't that tick off people? Important people?

The point here is that wealth is transferred regardless, OK, but the transfer in terms of dollars is better for us than it would be if we "lost" the money in terms of euros, or RMB or pesos. And dollars means oil, something valuable and tangible.

We import 9 to 12 million barrels a day, give or take. This, whether we buy from the Saudis or from Mexico. In a year we import something like 3.6 billion barrels give or take.

At 100 dollars a barrel that is $360,000,000,000 dollars that move from us to petroleum exporters. Our GDP is 14.5 trillion bucks give or take, so that puts our oil purchases from exporters at 2.5% of our GDP. BIG! number, approaching the official US defense budget which is a little less than twice that.

World oil consumption is on the order of 28 billion barrels a year. So that's 2.8 trillion dollars spent a year on oil at 100 dollars a barrel. That is the equivalent of 19.3% of US GDP spent on oil a year.

Do you mean to argue mhaze, and I don't mean to say you are wrong, but do you mean to say that we do not benefit from that? Is that true? If everybody bought oil in Chinese RMB instead of dollars, would there really be no difference?

One could argue when people buy oil , they buy dollars and so make dollars more valuable. You buy what you value, do you not???????

Well, you are launching into some fairly abstract concepts here. Assume that some dollars were printed, and they floated overseas and were used for some transactions.

Those dollars were traded for something, likely a foreign currency, at the moment they left our shores. Big circles of currency move around like that.
They zero each other out.

Any dumping of a currency, such as a flight from Euros, or USD, whatever, would put an excess of that currency in the market. But the effect of that in turn is not so straightforward. You have to look at the export/import ratio. For example the argument used (which I thought was bogus propaganda, if not an outright lie) to justify the "stimulus" that diluting the pool of USD by printing some, would weaken the USD, thus stimulating exports because our goods would be cheaper to the world.

A currency, and a commodity, in this case oil, do not have cause and effect value relations. At least, I cannot think of any off hand.

Maybe someone else here can think of one historically.

[Brian-M]

The way I see it...

If they're using US dollars to buy oil on a more or less continuous basis, then effectively there will be a certain amount of US currency no longer in circulation in the US. (By the time the nation selling the oil trades the currency back to the US, buyers have traded with the US for more US dollars.)

If the price of oil and/or demand for oil is rising, more US dollars are needed, increasing the amount of currency removed from circulation in the US economy, countering inflation (keeping the value of the US dollar high).

But if people stop using US currency to buy oil, then the currency ends up being dumped back into the US economy, causing inflation (lowering the value of the US dollar).

[mhaze]

Originally Posted by Brian-M

The way I see it...

If they're using US dollars to buy oil on a more or less continuous basis, then effectively there will be a certain amount of US currency no longer in circulation in the US. (By the time the nation selling the oil trades the currency back to the US, buyers have traded with the US for more US dollars.)

If the price of oil and/or demand for oil is rising, more US dollars are needed, increasing the amount of currency removed from circulation in the US economy, countering inflation (keeping the value of the US dollar high).

But if people stop using US currency to buy oil, then the currency ends up being dumped back into the US economy, causing inflation (lowering the value of the US dollar).

How can a currency be dumped? It must be traded for something of value. That equalizes.

It has been noted that there are serious consequences to people stopping buying T bills. But there is no relation between that and the subject at hand, it would seem.

Unrelated, but destructive of the OP:

US becoming net fuels exporter.

[Brian-M]

Originally Posted by mhaze

How can a currency be dumped? It must be traded for something of value. That equalizes.

What do you mean "equalizes"?

If money that wasn't in circulation in the US economy (due to being used for oil) is used to purchase goods from the US without an equal amount of money being removed, you have more money (and possibly fewer goods) in circulation in the US economy than before, resulting in inflation.

And a currency can be dumped on the international money market, greatly reducing it's exchange value.

[mhaze]

Originally Posted by Brian-M

What do you mean "equalizes"?

If money that wasn't in circulation in the US economy (due to being used for oil) is used to purchase goods from the US without an equal amount of money being removed, you have more money (and possibly fewer goods) in circulation in the US economy than before, resulting in inflation.

And a currency can be dumped on the international money market, greatly reducing it's exchange value.

Nope. That's a static analysis, with the starting and ending points chosen in such a way as to make the conclusion "true".

step through it...

A. Trade of Dollars for Oil. Received by Saudi, USD. Received by US, oil.

B. Saudi trades USD for whatever goods they need in various currencies.

OR.....

A1. Trade of Currency X for Oil. Received by Saudi, Currency X. US trades dollars for Currency X, and receives oil.

B1. Recievers of USD trade for whatever goods they need in various currencies.

end result is the same....

Like I said before, in the world market of commodities, currencies are only yet one more commodity.

IF the demand for Tbills drops precipitously, that is very serious. And it's probably only a matter of time. But oil for dollars or oil for currency x, doesn't have a material effect.