the concept of "peak Oil " is blarney

[niky]

The only way to effectively store billions of dollars is to exchange them for gold or securities. Foreign governments buy trillions of dollars worth of US Treasury bonds... which is part of US external debt. It's a fair bet Saudi Arabia has tens or hundreds of billions in US Bonds.

A whole lot of China's gigantic piggy bank is stored in this denomination. Over a trillion dollars, I believe, at last count. This is a vote of confidence in the US Economy, and reinforces the dominance of the dollar as an exchange currency. A dollar isn't just a dollar. It's a security with value beyond its face value. During the 08 crisis, people started moving to Euros and Yen to find that security, but with the Euro currently sinking and the Japanese economy moribund, the US$ is still an in-demand currency.

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The problem of capital outflows... that's the name of the game. People spent $100 billion on Apple products last year, guess how much of that left the US for China to pay for production? As long as other countries can provide stuff cheaper that you want, then you'll continue to buy it. There was hope of jobs leaving China if it became prosperous enough... but it seems like Chinese growth is starting to grind down... and the billions they throw at useless infrastructure projects with no rhyme or reason is not going to stop that. China is about due for a housing crisis, as many developments are well overpriced and terribly undersold.

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All of this makes oil more problematic. Right now, the US is benefitting from Canadian tar sand, but a poor economy makes it unfeasible to start new developments there. Tar sand is cheap. Too cheap. When WTI oil (which indexes US oil and tar sand prices) goes below $80, new developments are unfeasible. Brent oil is oscillating wildly... and if it falls below $100 again, global supplies will become really tight. Deep sea oil is expensive.Those rich, "greedy" Saudis? They spent a lot of that money on high-end housing, tourism infrastructure and foreign investments because they needed to. Spending it on new oil refineries would have been foolish.

Peak oil is past. We're at the stage where it is not economically feasible to start tapping new sources of oil because people don't have enough jack to pay for it. That's why some countries have this feverish need to prop up oil supplies with subsidies and tax breaks. If oil is too cheap, there won't be enough to go around, because they can't afford to produce it. If it's too expensive, there won't be enough demand to support production, anyway.

And it's becoming too expensive, which is why prices are fluctuating so. Speculators and investors keep pumping up oil prices looking for a return on investment, because oil is as good as gold, right? But it keeps crashing back due to low demand and speculator sell-off at higher prices, which spooks other investors off and triggers a price crash. Rinse. Repeat. Can't keep the investors in it, can't fund new wells.

High growth markets like India, China and Indochina can't keep growing indefinitely on the strength of an internal consumer market... they need export to fund high growth rates. And pretty soon, there's going to be no one left to export to but each other.

[user removed]

Originally Posted by ChazInMT

What? Mech, you've clearly crossed a line here into pure politics. The issues regarding the public debt in this country are so insanely complicated it boggles the mind, religion and politics have nothing on the debt issue.

Your fast and loose utilization of numbers here make no sense whatsoever, you completely take things out of context.

I would get into it a lot further with you, but, I will not because of the wishes of the forum founders that this discussion has no place here in the ecomodder lounge as has been pointed out to us previously.

Precisely where in my original post was any line crossed into pure politics?
Since you are a World Traveller and Highly Educated, help an old man to understand his venture into the prohibited area.

If you can.

regards
Mech

[ChazInMT]

Originally Posted by Old Mechanic

Precisely where in my original post was any line crossed into pure politics?
Since you are a World Traveller and Highly Educated, help an old man to understand his venture into the prohibited area.

If you can.

regards
Mech

Since we're not supposed to get into politics, the debate ends with what you said. It was plenty. How could I improve on your wisdom? Guess I can't. Just posted this so you didn't think I was ignoring you.

[NachtRitter]

Originally Posted by ChazInMT

I choose not to concern myself with the potential negative consequences because that has no end. You could just as well buy your gas from a gas station that employs an American guy who off and decides to pull a James Holmes. How is that different than the US giving Arabs money for oil? You supported a 7-Eleven that had a guy working nights who goes nuts and kills a bunch of people. People are gonna do what they're gonna do. Freedom.

Wow. Really? You're going to compare James Holmes with an organization like Al Qaida and say there's no difference? And that there's no point in doing anything about either?

Wow.

[ChazInMT]

Originally Posted by NachtRitter

Wow. Really? You're going to compare James Holmes with an organization like Al Qaida and say there's no difference? And that there's no point in doing anything about either?

Wow.

Wow, so you're going to say there is something we can do with our spending habits that is going to make a shred of difference? If we decide to quit importing oil from Arab countries they won't have any money to buy guns. Is this your plan?

My point is, it does not matter what we do, there will always be people on this planet that do unspeakable horrors. So saying you want to deny trade with Arab countries because .0000000001% of the money they get might support some evil organization is no different than we shouldn't buy from company X in America because it once employed a mass murderer.

What do you suggest here? Give a real solution instead of pointing out what you see are flaws in the system, anyone can talk crap about why this or that stinks, give us a solution.

[IamIan]

Originally Posted by ChazInMT

Ian, I travel all over Europe. I'm aware of exchange rates. I think you have the concept of exchange rates for small sums of money confused with larger scale transfers.

If you have traveled as you say than you already knew your previous statement of : "US dollars are only good in the US" was incorrect... which leads me to ask .. Then why write it?

If you already know about currency exchange ... you trade __ value of US Dollars for ___ Value of a different currency ... on any scale ... then you already know that action is a value exchange of one form to another.

Originally Posted by ChazInMT

Answer me this.

What does the Saudi bank do with the US currency? With billions of dollars, they get to a point where they can't just exchange it back to Riyal in the US because of the deficit you talk about. Saudis buy less from us than we do from them. So they have more dollars than we can exchange back. (Mind you I'm using the Saudi system as an example, it could just as easily be any country)

Sure I'd be happy to try ... but first a few clarifications to your above.

#1> The exchange rate is 2 directional... they can exchange the value of foreign currency for US dollar if they choose.

#2> They are not sitting on US Dollars ... they have the value of it exchanged into the other currency ... they keep the value ... they do not have to keep the US currency itself.

#3> The deficit does not prevent exchange ... the deficit is a measure of how much more value went in one direction than the other... ie more out than in ... which directly disagrees with your previous comment about , they have to spend it in the US ... they don't... the trade deficit does effect the exchange rate ... but it does not prevent the exchange.

- - - - -

Now to answer your question:
"What does the Saudi bank do with the US currency?"

This assumes they have US currency ... and not the value of it already exchanged into a different currency ... but making that assumption ... They have options , basically two things.

#1> They can sit on it , and wait for it to depreciate.

#2> They can trade it anywhere in the world that takes that US currency ... it doesn't have to be in the US ... and the person that takes it also does not have to trade it in the US.

The irony is they can ... and large banks do ... collect fees ( potentially profit ) from both directions of the exchange ... fees collected to exchange the Saudi currency to US dollars ... fees collected to exchange the US dollar to Saudi currency.

Originally Posted by ChazInMT

It doesn't matter what country we're talking, or how many times the US$ get exchanged, generally speaking, the only place the US$ can be spent in large quantities is in the US.

Better worded this time.

It seems to me ... 'generally speaking' modifier ... is just a way of letting you exclude any specific case given that shows the 'only' statement is incorrect.

It also seems to me ... the 'large quantities' modifier ... is an effort to modify your previous statement ... in order to exclude a known example that already showed that previous statement to be incorrect.

It is a better refinement ... but there are still exceptions to it ... even if you wish to exclude them in your 'generally speaking'.

Originally Posted by ChazInMT

Dollars don't just magically transform into other currencies, or evaporate after being turned into some other money.

not magic ... currency exchange.

The value of one currency is exchanged for a value in a different currency.

Remember what gives that printed US dollar value ... there is not a set / fixed amount of US dollars ... we print it ... and usually slightly faster than it wears out... The US does not get richer from the printing of more dollars , even though it now has more printed dollars.

Originally Posted by ChazInMT

Eventually someone has a fistload of dollars and they have to come back to the US in exchange for their own currency, or a building, or a car, or a Boeing jet, or they hire US professionals to work for them, or they buy tons of building materials.

Incorrect.

You are again assuming a neutral trade ... where there is no trade deficit.

I've told you several times about this incorrect assumption.

Originally Posted by ChazInMT

Can you buy a latte in Canada with $2us? Sure, but then the shop owner has to exchange that for Canadian dollars. Try and buy a house in Canada with US$.

The fact that he can buy the $2 latte ... is the example that shows your previous statement about they have to spend it in the US is incorrect.

As for buying a house ... if the person selling the house agrees to recognize the value of the US dollar the same way that latte shop did ... then yes you can buy a house with it in Canada ... the only thing needed is for the value to be accepted.

This buying of stuff in other countries with the US dollar does happen all over the world... the US dollar does NOT have to get spent in the US.

Originally Posted by ChazInMT

You may continue to look at a little piece of the puzzle (currency exchange) and claim it covers everything if you wish I suppose.

I never claimed currency exchange 'covers everything'.

Originally Posted by ChazInMT

Your "transfer of wealth" statement still sounds to me like you resent foreigners from having stuff. I still contend it's just the way it goes when we trade dollars for oil, they're going to have our money, we have their oil, it is a trade, we aren't just throwing the money away.

Weather you trust your ability to read minds more than you trust me to know my own opinion is up to you ... I personally don't think your psychic ... I do not resent foreigners for having stuff.

I agree there was an trade ... and we did get that oil or other stuff ... the money was not thrown away ... but that does nullify the existence of 'the transfer of wealth'.

It is not the trade itself that causes a transfer of wealth ... it is the unbalanced trade ... If total Import value was = to Total export value every year ... and long term ... then there would not be a transfer of wealth , because the trade was even ... but that is not the case ... we buy more than we sell ... do the math... this has effects.

[NeilBlanchard]

The fact that most oil *must* be traded using US dollars is a HUGE advantage to us. It means that the dollar is worth much more in the world's economy. And countries like Saudi Arabia buy a lot of military hardware from the US, using all the US dollars they have.

Remember the so-called "Axis of Evil"? The three countries on that list were Iran, Iraq, and North Korea -- they refused to use the US dollar and were trading oil in their own currencies. That was just about the only thing that all three had in common...

Here's a video called "Robert Newman's History of Oil" that you might find helpful:

Robert Newmans History of Oil

[ChazInMT]

Currency Issues in China Article
Read this. Tell me it's just a matter of going to the currency exchange window at the airport with your trillion dollars.

My reason for posting the cited article is that I feel it backs up my position, the paragraph "What does China do with all of its foreign exchange reserves?" in particular points out that they can't simply wash it all out in the currency market, they had to buy US T-Bills. The same is true for any country stuck with surplus dollars, eventually, they end up back here. So as has been my main 2 points all along, US dollars eventually come back, and at the end of the day, someone else owns more of America.

Again I say at the end of the day, it is a natural occurence that the "Transfer of Wealth" is going to occur. We are a large and powerful country, in the 1930's the Saudi's et. al. were nomads with camels. They traded something they had which was worthless to them, oil, for dollars. So they got wealthy. What is your hang up on that? At the same time, our country continued to grow and does so today. At the time we started buying the Oil in the 60's our GDP was below $1 Trillion per year, Now we're at $17 Trillion. This energy was vital to fuel our growth. It is only fair to me that others in the world who helped us to attain this get their fair amount.

BTW try to use the "," key more, the "..." is good in small dose's for effect, but is wearisome in the long run when used 53 times in a post.

[jamesqf]

Originally Posted by ChazInMT

Currency Issues in China Article Attitudes like this are what cause wars.

Wrong. A bit of time spent studying the history of the last 14 centuries would be well invested.

But back to the economics. Things become much easier to understand if you simplify down to the bone. Take money out of the picture, and look at it as a simple barter transaction. A has oil, B has the capability to make goods (including the machinery needed to discover & extract A's oil, but let's not get into that). A says he'll trade a barrel of oil for some of B's stuff. So what happens is that B is busting his butt making stuff, just so he can get that barrel of oil. If he then proceeds to waste that oil, seems to me the appropriate word to describe him is "fool".

If some of the stuff B sends to A happens to be guns and ammunition, when B knows that A has been saying for years that he plans to come over and enslave B someday... Well, I don't think "fool" is quite strong enough, do you?

[user removed]

Last I read it cost $2 per barrel for the Saudi's to extract the oil, but they need to sell it for $85 to cover their economic goals and commitments. When their oil is gone they have no alternative source of income. It's a one time proposition and they must contimue to exist on the investments they made with those dollars or whatever they have.

I look at oil somewhat differently. The US policy of buying from outside the country preserves some of our resources, and we can grow food to feed Saudi Arabia and the rest of the OPEC countries that cannot produce enough to support their populations.

I would much rather buy goods from overseas than send them foreign aid. At least they are earning the money instead of getting it for free. In that process we also help to improve the standard of living, but we do not have enough resources to bring the whole planet up to anything approaching our living standards. They can protect their own national security.

All of this peak oil discussion is really smoke and mirrors. The real debate should be about peak efficiency and the best utilization of every BTU of energy we use regrdless of the source. The oil age will pass and alternatives will replace oil as the prime fuel of transportation. Regardless of which source or sources that may be, the real stupidity is when people let agendas control their thought processes and ignore potential solutions to the efficiecny of transportation. Those solutions exist today and more will exist with technological development, but they must be cost effective as well as cleaner than the status quo.

regards
Mech