The world is confronted with a painful detachment from the US economy in the near future.
Together with China, Russia, Japan and France, several Middle East Arab states have taken the initiative to detach the oil from the US Dollar.
They want to trade the black gold in a currency basket consisting of Japanese Yen, Chinese Yuan, Euro, Gold together with a new common currency planned established for the Middle East Gulf States.
The challenge goes much wider than the currency market alone as this expresses and end to the faith in the American economy and that the US Dollar exits the era of being the controlling currency in the world.
The problem is not only solved by the establishment of new currencies as the international trade exchange creates this situation and needs to be part of the solution for this as well.
USA has long time based their economy on a big trade deficit which grows every Year. The country imports more than it exports Abroad.
Since the beginning of 1980 the Americans have been willing to buy big amounts of products from Asia amongst others and USA has paid with Bonds in return. These State bonds represent USA loan papers to the country in question. The excess amount of dollars comes as a consequence of the trade pattern that base itself upon the fact that USA is allowed to continue with a large deficit in their trade Balance.
So far, this has been a solution everybody have been happy with as long as the Americans were willing to put themselves into debt.
The payment from USA is not anchored in Gold or any other factual Values. They are only anchored in a faith that the US Dollar will remain strong in the world Economy.
At the moment this faith is no longer there amongst the primary trade partners of USA.
The main reason is that there is no measure in US State budget to handle the bigger and bigger trade deficit that grows by the minute. Therefore main players within oil and gas begins to question whether their goods should be priced in a currency they no longer can have faith in.
The US dollar is put into the scrutiny and several G20 nations begin to question the fundamentals of the US Dollar and its future.
If these countries no longer will accept the US dollar as payment, it will collapse, simple as that. If they no longer will sell the oil and gas in US Dollar, the Americans can no longer buy as much oil and gas as before. They simply can’t afford it, as the dollar will no longer be as valuable as it was before.
This can mean that there will be a surplus of oil and gas in the market and the prices will drop, at the same time as the USA must accelerate their efforts to find alternative energy forms for their industry, residential and for transport.
The dollar is now at its weakest against the Pound in 28 years time. It plunges against several other important currencies like Euro, Japanese Yen, Chinese Yuan and Swiss Franc.
The gold also has climbed over 1000 USD pr Onze.
As said, the solution is not a new currency by itself, but a lower trade deficit in the USA and a lower trade surplus in the rest of the world.
The world has realized that USA cannot continue to live beyond what it produces of values. They have to spend according to their abilities.
A readjustment of the global trade flows will be needed, and the US dollar will drop from its artificial level today to a more sustainable level over a longer term.
Experts are of the opinion that the US Dollar should be adjusted down with around 50% from today’s level towards the main currencies in the world.
This will be the reality at the moment the trade balance out in the USA. How long time this will take, is not easy to say, however there are signals in the Obama administration that something has to be done and that is fast.
Ideally we would look at a 5% reduction pr year of the US Dollar against other key currencies. That will mean that within 10 years this should be the Fact. However it is probably too fast for the USA, as their economic challenges will be formidable during this process and any administration would need to set extraordinary measures into the economy to be able to handle this fact.
It will be a very painful change for both the USA and the reset of the world as the purchase power of the American will be low and they can not afford to import products in the rate they do today, in addition to that they have to reduce import to create a trade balance in the USA.
Especially economies relying on export to the USA will be hurt the most, and the Asian economy is very reliant upon a strong USA. The ripple effects will probably be enormous and magnitudes larger than we experienced in the recession started in 3rd quarter of 2008 and still is in effect in 3rd quarter of 2009.
Millions of workers will be out of work all over the world, and there is already high numbers many places around the globe.
Some changes have already been taken as a consequence of the financial shake down at the Moment. China has started several crisis efforts like building the infrastructure in the country to boost the domestic demand. But there is a limit how much domestic economic packages you can initiate and perform as it demands lots from the domestic state budgets as well.
The future lies in the service industry were one has to adjust to domestic needs. This means that Chinese workers producing brand products for the USA or Europe needs to change production and begin to provide primary domestic services like health care and education and so on.
By: Stig Kristoffersen
He has a background as civil engineer and geoscientist. He has worked mainly within the oil and gas industry from the mid 1980s. He has written a few fictional novels as well as being the author of some professional litterature within oil and gas sector, he is now an editor of some web sites.
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