Re: Why US dollars ?


"Jim Hawkins" <jimhawkins@xxxxxxxx> wrote in message
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"super" <MR@xxxxxxxxx> wrote in message
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"Jim Hawkins" <jimhawkins@xxxxxxxx> wrote in message
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"super" <MR@xxxxxxxxx> wrote in message
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"Jim Hawkins" <jimhawkins@xxxxxxxx> wrote in message
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How has it come about that so many of the world's major commodities
(oil,
aircraft, etc) are priced in in US dollars ?
Is it difficult to change this ?
I'm wondering why Airbus don't change to pricing their planes in
euros.


I thought that strange too, maybe Boeing sell their planes in Euros!

The US was once the world's largest economy, and thus perceived to have
the safest currency.

As the dollar's purchasing power has declined relative to other
currencies, many large dollar holders are worried that there might be a
better medium of exchange, and are concerned that their 'pieces of
paper'
won't be worth a lot. You can see the result on the price of oil. You
now
need more $ paper per barrel.

Ultimately, all currencies based on paper become worthless, or at least
as
low as the value of that piece of paper. So at some point, the owners
of
the oil and aircraft might ask for payment in something with more
worth.
(Euros, Gold etc), unless they can be 'persuaded' otherwise. Persuasion
might include an aircraft carrier on their doorstep, or other means to
ensure that confidence is not breached, if it is not already.

It's a matter of how close that dollar becomes to only being able to
buy
another similar sized piece of paper as to how long confidence in it
will
survive. The price is manipulated by the central bank increasing or
decreasing liquidity and interest rates to rein in or relax the number
of
dollars in circulation, as well as demand for the purchases and sales
of
the currency. E.G. I want to build a factory in Arizona, I need to buy
dollars, thus putting the dollar price up. I want to sell that factory
and
convert my money into Pounds/Euros etc, it has the opposite effect.

If I can't get the required transport and education I need for my
product
and workers, then this helps to reduce demand for the dollar by making
it
less likely that I would build the factory and thus need dollars in the
first place. So you can see at least one factor that might weigh
against
any currency. You can see that there is a snowball effect as the
currency
becomes worth less, then any foreign investment has a tendency to pull
out
due to lowered returns and a flight to safety, dragging the currency
down
and making other investers start to pull their money out. At some
point,
theoretically, investment in the US/dollar will become a good idea
again.

Long term, the dollar may disappear and be replaced by an alternative
(shared with Canada/Mexico maybe) currency, that same way that most of
Europes' have.




Thanks, 'super', for taking the trouble to explain things to an
economic
ignoramus.
What's stopping the Iranians carrying out their threat to set up a
Euro-traded oil bourse ?

Apart from the aforementioned Aircraft Carriers, not much. But it's not
actually in their own interest to bring the dollar down, because then so
does their income.
I think I'mADinnerJacket might get a bit of a short term kick out of such
a move, but the stuff I've read says it would be bad for Iran longer
term.
And does Iran want a shed load of Euros anyway? I doubt many Iranians
want
to buy German Sausage, although they might like the cars. If most of
their
their imports are priced in Dollars, e.g. Machinery, pharmaceuticals or
whatever, then it's all pointless. I think Russia is a big trading
partner, and probably the Chinese. What currency do THEY want/accept for
Iranian imports?

How was it that George Soros was able to wreak the havoc he did to the
pound
sterling ? Simply by selling a vast amount of sterling ? Or was there
some
other mechanism ?

Exact same situation as Northern Rock. Both were fundamentally
overvalued.
And thus vulnerable to short selling.
Let's take your house as an example. You could say it was worth £Billion.
It might well be in a number of years, so the market might go crazy and
start speculating that the trading value of the house is worth £Billion.
Then George Soros comes along and short-sells your house, because he
looks
at the fundamentals such as wages in your area etc. By the action of
short
selling, the rest of the market starts to look more closely at the
massive
trades against the item, and starts to re-evaluate things for themselves.
This is what happened to NR and the Pound. George Soros realised "The
Emporer had no clothes", in a market unprepared for the one-day 'raid'
that Soros performed. Where he really made his money was from UK
Government buying back the GBP to try to keep the exchange rate within
the
ERM limits. It was like a tug of war where the Gvt keep letting more and
more rope out, and Soros keeping taking more and more saying 'That'll do
nicely!" His anticipation of this action led to the huge profit.

In a way it's taking advantage of a price disparity, only most people
assume that it only works for rising prices. E.g. A share in a company
that has just discovered the secret of eternal youth is likely to go UP,
and you're the only person who knows this so you buy the shares going
'long', rather than the shorting that Soros did.

Could some speculator do the same to the dollar ?

Warren Buffet already has a while back, but I think his timing was out.
His was more of a long-term option than a one-day smash-and-grab, though.

Others speculators are doing it constantly. Multi-$billion hedge funds
routinely bet on small differences in value, as not all the differences
or
potential profits are on the scale that Soros saw.

The big ones make it to the headlines.You've also got to realise that
no-one is *doing* anything to the dollar, share or whatever. They're just
taking advantage of a market anomoly, i.e Over or underpriced relative to
a sane value. That said, since the Chinese own zillions of dollars, they
could ask for them all to be converted into Euros, and I have a strong
feeling that this would trash the dollar! The trouble with such a trade
is
getting rid before the price of Euros goes crazy, leaving you with lots
of
dollars now worth even less. Best way is to trickle them out, and this is
one of the factors leading to the slowly shrinking dollar. The Pound is
only doing marginally better too, against the dollar it looks good, but
not much else.

super




Sorry 'super', but I don't understand the jargon:-

Let's take your house as an example. You could say it was worth £Billion.
It might well be in a number of years, so the market might go crazy and
start speculating that the trading value of the house is worth £Billion.
Then George Soros comes along and short-sells your house, because he
looks
at the fundamentals such as wages in your area etc. By the action of
short
selling, the rest of the market starts to look more closely at the
massive
trades against the item, and starts to re-evaluate things for themselves.

What is 'short selling' ? How can someone do it to my house ? Surely
only I can sell it.

Going long is buying a share or good or currency or property and holding
onto it whilst it (hopefully) increases in value, and then selling for a
(hopefully) profit. You also get any dividend that the company pays per
share, whilst you hold the share. I.E. A share of the profits.

Going short is borrowing the share, that you sell for it's current price and
then buy back at a (hopefully) lower price before returning it to the
lender. You can't really do it with houses very easily, it was just a
hypothetical example. You would have to ask someone to move out, sell their
house for them, and then buy it back at a cheaper price, and then move them
back into their old house, and then split the profit you make. Anyone who
sells at the top of a housing market and rents until prices come down is
effectively 'going short' on the housing market.


E.g. A share in a company that has just discovered the secret of eternal
youth is likely to go UP, and you're the only person who knows this so
you
buy the shares going 'long', rather than the shorting that Soros did.

What is 'going long' ? 'shorting' ?

Jim Hawkins


You can check wikipedia or the rest of the web for exact definitions.


.

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