Dollar Hegemony

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rkassian's picture
Status: Member (Offline)
Joined: Oct 27 2008
Posts: 3
Dollar Hegemony

I finished the crash course and found it to be a clear explanation of many of the economic realities we are currently facing.

 One criticism however, is that it really focused on the US, and seemed to ignore the reality that the US is one country in the international system. This system has its own structures and dynamics that impact the constiuent parts

 One example I've been reading about recently is Dollar Hegemony. The basic summary is that at some point the US convinced OPEC to price oil in dollars. This gave the US a hegemonic position within the system. Since everyone does and will continue to consume oil, the demand for dollars with not decline as long as people buy oil.

 Basically the US buys oil, and gives its printed fiat money, other countries hand over oil. This money is then taken as used to buy american goods, further stimulating the US economy.

This constant demand of dollars basically limits inflation and allows the for unlimited production of US currency. It accounts for much of the wealth in the US. No other country could get away with creating as much money as they want becuase it would suffer inflation. That is why the US current account does not matter. As long as oil is priced in dollars, then dollars will be in demand.

Now apparently, Saddam demanded Euros for his Oil, and was subsequently invaded. Now Iran has proposed an International Oil Bourse, with Oil being priced in Euros. Obviosuly Iran is challenging America's dominant position in the system by attacking its achilles heel. We all know what the recent rhetoric has been towards Iran.

 In the long term, this could mean that the real challenge and eventual eventual downfall of American dominance might be coming from Europe. And it makes sense, Europe created the Economic Union because they wanted to challenge America's position. I'm not saying this is bad, perhaps Europe should step and and take some responsibility for the world.

The point of all of this is, as long as Oil is priced in Dollars, America can create all of the money it wants, with no risk to itself. As far as I can see, it will defend this right to the bitter end.

 For more information search Dollar Hegemony, and take a look at this speech by a US Representative.

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