Thursday, November 22, 2007

OPEC may dop dollar in pricing oil; bonds can be affected


The Washington Times, this Thanksgiving Day, has a financially scary story (front page, A1) by Patrice Hill, "Oil Greasing dollar's skid: OPEC's move adds to woes of currency, economy," link here.

Left-wing Venezuelan president Hugo Chavez, along with new member Ecuador, helped push OPEC to consider a policy of pricing oil on a currency other than the dollar, possibily the more stable Euro. Wednesday, the price of oil went over $99 a barrel briefly before settling down to about $97. That would be more like about 65 Euros. Chavez has said that oil could rise to $200 a barrel if the US precipitates further military action in the Middle East.

The US dollar has lost value because of oil imports and the subprime mortgage crisis, but most of all because of the expense of the war in Iraq, without tax increases (presumably on the rich, at least as demanded by the Left) to pay for it, leading to huge budget deficits.

That can, according to the Washington Times article, lead to a run on US Treasury Bills held by Persian Gulf states, and could make formerly stable bonds less stable. It could also lead to 70s style increases in interest rates.

Still, the biggest problem is the dependence on foreign oil and on carbon-emitting technologies, competing with other societies that want to raise their standards of living, which can cause individual Americans to appear to be immoral materialists and hedonists in the eyes of some parts of the world.

Update: Nov. 24, 2007

Related to all this is the story in the Business Section, D1, Sat. Nov. 24, The Washington Post, by Tomoeh Mukakami Tse "Crunch May Hit Insurers of Bonds: Downgrading Weighed for 8 Leading Firms", here
When a bond insurer is downgraded, the bonds that it has certified as risk-free may themselves become less valuable. This would seem to make bonds seem less safe than they have been. All of this is related to war-related federal deficits and to the subprime crisis, all of which suggests that American consumers live beyond their means in the largest sense.

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