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April 5, 2006

Strong Dollar

Maybe I should have been an economist, I just love this stuff.

Anyway, via iTulip.com, this article from Asia Times is not 100% kosher, but I did like this paragraph, explaining to me what is meant by a "strong dollar" policy by the U.S.;

"World trade under dollar hegemony is a game in which the US produces paper dollars and the rest of the world produces real things that paper dollars can buy. The world's interlinked economies no longer trade to capture comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies in foreign-exchange markets. To prevent speculative and manipulative attacks on their currencies in deregulated markets, the world's central banks must acquire and hold dollar reserves in corresponding amounts to market pressure on their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces all central banks to acquire and hold more dollar reserves, making it stronger. This anomalous phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The denomination of oil in dollars and the recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973."


1 Comment

Sam, I am so impressed with your avocation for economical date. I can just grasp the gist (grisp the gist?)of the paragraph. So petro dollars are real and oil is still the controlling element in world trade. How 20th Century. How absolutely terrifying, or sweet as you said.