5.10.2006

Oil and the Dollar

The dollar is the currency used to purchase oil and illegal narcotics around the world. Regarding oil, if Iran decides to sell its oil in a currency other than oil, then there will be less global demand for the dollar to use to buy it.

If there is less demand for the dollar, then its value will decrease. If the value of the dollar decreases, to the U.S. consumer that means that prices will go up, massive importers like WalMart and Target will have their prices rise. Right now, it possible to get a lot of stuff cheap overseas because the dollar is strong, and sell it here to you for a low prices in terms of the dollar. That will fuel inflation in the U.S.

If the dollar decreases, it also means that U.S. exported goods will be cheaper, so it will help our exports. And suddenly, coming to the U.S. for vacation will be cheaper, so the tourism business will improve.

A falling dollar will have big ramifications for other nations whose currency is pegged to the dollar. Their currencies will fall in value, as well. So it is rather a big threat on Iran's part.

Threats seem to be a Middle East specialty.

7 comments:

HomeImprovementNinja said...

Not really. The "Dollar Premium" (the portion of value that is attributed to it's being held as a reserve currency) is only about 10% of the value of the dollar. We will be in much bigger trouble when China stops buying US Treasury Bonds and subsidizing our feckless wars and irresponsible political giveaways.

The Lazy Iguana said...

So what you are saying is that if I am going to go to Europe I better just do it this summer huh???

If I wait, it could get a lot more expensive to buy Euros.

d said...

Did you mean 'in a currency other than the dollar?'

Econo-Girl said...

D,

Yes, I did. Good catch.

Tony said...

Aren't North Korea only buying in the Euro right now?

Didn't Bill Clinton allow Saddam to change selling oil in dollars to selling in Euros?

Didn't Venezuela try to follow suit in 2000, just before that failed coup?

Didn't Iran try it too?

Anybody see anything?

AXIS of EVIL?

Anonymous said...

Well, lazy iguana, if you've saved up for a vacation, then, sure, go soon. After all, you might not be alive next year. But if you're just going to put it on a credit card that you can't pay off, then don't go -- the interest on the card is likely to be more than any extra cost from the dollar being weaker.

sister ray said...

Following on from Tony : I don't think Bill Clinton 'allowed' Saddam to sell oil in Euros - but it is nonetheless likely that Saddam's intention to switch from dollars to Euros was one of the triggers for Gulf War II.