A Good Thing

Drudge has made this his overnight headline. Sounds so scary, but it confirms for me what many Americans already believe - namely, that economic education as it relates to the global economy today is just terrible.

In the most profound financial change in recent Middle East history, Gulf Arabs are planning - along with China, Russia, Japan and France - to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Apparently these folks don't know their own history. These same people traded the Gold Standard for the F-16 Standard over 30 years ago, and uhm, every change has only made that decision stronger. I hate to say it, because it sounds like a conspiracy theory, but I think someone in our government has figured out a clever way out of our economic debt without inflation.

A simple example that an Ivy League Keynesian economist should easily understand:

Which currency can support the Arab oil baron looking for a loan to transport his $200 million super tanker to China through the Strait of Hormuz while Israel is bombing Iran? You see, someone in a bank someplace is going to have to make a loan in order for that business to happen, and that banker isn't going to be risking his $200 million credit investment on anything except dollars, because the US is the only country that can protect his investment with military power.

Give it a bit of thought, you'll eventually figure out why the US isn't scared of this move at all, and why our British allies would be sitting very pretty with their pound, instead of the Euro. I think a new unified currency will be promoted, because I don't see the Chinese or Japanese risking their currency with this scheme. The issue? When shit happens, inflation for someone will rise, assuming the currency that replaces the dollar holds any value at all in its time of need.

This was, and has always been, the problem with the oil bourse theory. It should be clear to oil bourse promoters as evidence of the global economic crisis that when you exclude banking from global economic theory (which the oil bourse theory does), you have failed to account for one of the key economic influences of the global economy.

If you are suggesting that a massive regional conflict in the Middle East is good for the US should the US dollar be replaced as the oil currency, you would be right. Cynical, yes... but true.