Originally posted by: Genx87
Originally posted by: Thump553
The day that OPEC changes its main currency from the dollar to the euro will be, officially, the first day of USA becoming a second rate power.
Of course they will. Nevermind they have the largest GDP of any country in the world. And the EU requires a 50% larger population to generate 16% more GDP.
2nd rate status will probably hit the US about Christmas is my guess.
Actually the Eurozone GDP is larger than the US' GDP. However the US still has a much stronger economy because of the dollar, the international trade currency. The Euro could take a big chunk out of that if it succeeds in becoming accepted for oil trade.
The BoJ (Bank of Japan), Russia and China have already begun moving funds towards the Euro. These countries have also expressed the need for the Euro as another international trade currency. China, Japan and the other East Asian economies just recently formed a trading pact that will eventually look towards creating a common currency much like the Euro. There are also certain OPEC countries that are chafing under the dollar yoke.
China joins ASEAN
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On Monday the 10-member Association of Southeast Asian Nations (ASEAN) signed an accord with China that will create an open market of 2 billion people by 2010 to compete with Europe and the United States. The pact aims to drop most tariffs over the next five years in a move some analysts have said is a sign Beijing may be moving to undercut America's vast economic influence over the region.
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The weak dollar policy attempts, as one of it's core aims, to subjugate the euro into yet another subservient currency that serves the dollar on dollar terms.
The euro, if the US gets its way, will be used to support the US economy like the Yen and the Yuan. The dollar has to weaken now but if the euro adds it support the dollar will be set for future strength. However the onus for that strength will be added to the Eurozone economy just like what is already happening in Asia. The same trap is set for the euro. If the Eurozone has an export surplus to the US and earn dollars from the transactions the cost for supporting those dollars then falls to the Eurozone and drains the Eurozone economy (see Japan).
What is going on now is a game of chicken. The US is saying: "Fine you want your own upstart currency, we'll give you your upstart currency - and the US starts to strengthen the euro to painful levels for the euro economy. The EU is saying: "Take care of your own problems, don't show your debts on us - we refuse to pay for your debts."
So the US is strengthening the euro while the EU is letting the dollar slide. There may be a tacit agreement between non dollar currencies to let the dollar slide. The US wants a measured slide of the dollar but if the foreign central banks refuse to support the dollar, and they do not want to support it, the measured slide could turn into a rout.
The Guardian: Danger - dollar falling
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The European Central Bank's response has been to consider an increase in interest rates to beat the inflation threat from higher oil prices, a barmy move that would make the euro even more attractive to foreign investors
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Pound peaks as US dollar falls
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Tom Hougaard, strategist at City Index, said: "This is momentous. It is really frightening, it is an indicator that the big foreign investors are pulling the plug on the US."
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Now why would the ECB make such a 'barmy' move, contrary to conventional economic wisdom which calls for support of the dollar? Such a move would strengthen the euro faster but also weaken the dollar faster. Maybe the EU, China, Japan and Russia are acting together on this one.
