Trade argument moved from the presidential poll thread

[KrazyHorse]

Originally posted by Kidicious
I beat you like a red-headed step child.

[Kidlicious]

Originally posted by snoopy369


Wait, so in order to prove your point you're making an assumption that most certainly does not hold?

You went to Princeton, didn't you.

What are you talking about? The supply curve is based on the cost of production. And you are saying that it most certainly doesn't hold? That's insane.

[snoopy369]

You just said you were assuming it for your theory. I'm saying you're incorrect to assume it.

Oil doesn't follow supply and demand curves particularly well, because it has a low cost of production, a highly inelastic demand, is heavily speculated on by investors who artificially affect the price (ie, the people who sell oil don't really set its price), it has an effective monopoly as a producer... I could go on and on.

[KrazyHorse]

Yeah, Kid. Everybody else is insane. You're the only one who knows what he's talking about.

[Kidlicious]

Originally posted by snoopy369
Oil doesn't follow supply and demand curves particularly well,

So you are saying that oil producers regularly produce oil where the marginal cost is greater than the price?

because it has a low cost of production

So when producers have a low cost of production they regularly produce their product when their marginal cost is greater than the price?

, a highly inelastic demand,

What does this have to do with the law of supply?

is heavily speculated on by investors who artificially affect the price (ie, the people who sell oil don't really set its price),

What do speculators do that makes producers produce at a higher marginal cost than the price?

it has an effective monopoly as a producer...

No it doesn't. But if it did, why would a monopoly producer produce at a higher marginal cost than the price?

[Victor Galis]

Originally posted by Kidicious


I was arguing that if the dollar falls in value that producers would tend to produce less, ceterus parabus.

Why? If the dollar has fallen in value, there's no relation to oil at all. Now if the dollar price of oil stays constant as the dollar falls, then yes, but that's different.

What are you talking about? The supply curve is based on the cost of production. And you are saying that it most certainly doesn't hold? That's insane.

Maybe in the medium-long term, but in the short term oil production has a fairly strict upper limit for technical reasons. It also has a different potential upper limit due to OPEC machinations.

The typical marginal analysis based on revenue and cost isn't straight forward when there's different cost curves over different intervals of time.

[Kidlicious]

Originally posted by Victor Galis
Why? If the dollar has fallen in value, there's no relation to oil at all. Now if the dollar price of oil stays constant as the dollar falls, then yes, but that's different.

It depends on what demand is. If you have an expanding economy (nominal price increases) then demand is increasing and a fall in the dollar isn't going to affect production as much. If the economy is stagnant or growth is negative then producers will cut back. Of course they will cut back anyway if the economy isn't growing, but my point is that when the dollar falls in value it discourages growth.

[Kidlicious]

Originally posted by Victor Galis
Maybe in the medium-long term, but in the short term oil production has a fairly strict upper limit for technical reasons. It also has a different potential upper limit due to OPEC machinations.

The typical marginal analysis based on revenue and cost isn't straight forward when there's different cost curves over different intervals of time.

Expectation has a lot to do with their decision also. If the dollar started falling and people thought China was selling off it's currency reserves oil production would slow in anticipation of the effects.

[Kidlicious]

It appears that I'm an Austrian School Economist now.

I guess neo-liberals don't believe that the fall in the value of the dollar hurts oil production.

Monetary inflation
The Austrian School of economics holds that price inflation derives from monetary inflation, and its advocates, such as the Ludwig von Mises Institute and congressman Ron Paul, argue that loose monetary policy from the Federal Reserve and other central banks is a major contributor to the increase in oil prices, and the cause of both commodity speculation and dollar devaluation.[57][58]

The price of oil is closely tied to the value of the U.S. dollar because oil is traded in dollars. This has led to concern among some economists that the principal earned from the sale of oil may lose value in the long run if the U.S. dollar loses real value.[citation needed]

In discussing the effect of the changing value of the U.S. dollar on the real price of oil, however, it is important to include a calculation of effective exchange rates of the currencies in question, to separate the real and nominal values of those currencies. This method accounts for the amount that a dollar can buy (of electronics or food for example) compared to the amount another currency, such as a Euro or pound sterling, can purchase. While the U.S. dollar has lost nominal value to other major currencies from 2001 to 2007, its change in real value has not differed significantly from other currencies.[59]

In addition, by comparing the price of oil in various currencies to the fluctuations in the exchange rates of those currencies it is clear that oil price is no more significantly correlated to the value of the dollar than to any other currency. This also holds true in a comparison of oil price to gold price.[60] Similarly, since the early 1970s, the price of oil has been negatively correlated to the value of the dollar, suggesting that the price of oil has more of an effect on the value of the dollar than vice versa. As developed economies depend heavily on oil for transportation, petrochemical feedstock, and industrial agriculture, this correlation would affect most currency values.[61]

Some analysts believe that as much as $25 of the June 2008 prices around $140 are due to dollar devaluation.[62]

http://en.wikipedia.org/wiki/Oil_pri...nd_2005#Supply

[KrazyHorse]

No, it simply appears that you have absolutely no understanding why a fall in the value of the dollar will increase the quantity of oil demanded by Euros at a given price in dollars and thus the price of oil in dollars.

[Kidlicious]

Originally posted by KrazyHorse
No, it simply appears that you have absolutely no understanding why a fall in the value of the dollar will increase the quantity of oil demanded by Euros at a given price in dollars and thus the price of oil in dollars.

No. It's that you don't understand that demand in Europe doesn't equal world demand.

[KrazyHorse]

If oil price remains constant in dollars while dollar decreases against all other currencies then net world quantity demanded increases. That is the simplest way I can say it. There will therefore be an increase in the price of oil in dollars without need to postulate a decrease in supply (and since oil supply is actually even less elastic than demand is in the short term, we can and should ignore supply issues to a first approximation).

[KrazyHorse]

In short term US consumers see oil price in dollars. Euro consumers see oil price in Euros. Australians see oil price in AUD. Japanese people see oil price in Yen, etc. When the dollar declines relative to other currencies, people who are paid in these other currencies maintain the demand curve in their native currency, meaning that they shift the demand curve in USD upward (assuming downward sloping demand curves). Which once more proves that it doesn't make a difference what unit of currency you choose to mark oil in, be it USD, EUR, potato chips, gold, fresh urine,...

[Victor Galis]

Of course they will cut back anyway if the economy isn't growing, but my point is that when the dollar falls in value it discourages growth.

Your argument is backwards. Lower dollar = export growth and cutbacks in imports.

Expectation has a lot to do with their decision also. If the dollar started falling and people thought China was selling off it's currency reserves oil production would slow in anticipation of the effects.

Yes, but that would have more to do with the fact that the US was about to go into depression as a result rather than due to currency movements themselves.

[KrazyHorse]

Given N currencies and X commodities there are N+X-1 exchange rates/prices to be set. All other relative prices are easily gotten through the no-arbitrage principle. It doesn't matter whether I price everything in USD or gold, or even oil. As long as the commodities are liquid, fungible and transportable this holds. It fails badly when you apply to labour and certain retail prices, which are not fungible, transportable, and do not respond quickly to changes in the underlying value of the price denominator.

Your currency fetishism is a sad reminder of how little understanding you have of the crap that you spew, Kid.