Trade argument moved from the presidential poll thread

[Kidlicious]

Originally posted by 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).

Even if the nominal price of oil increases the real price of oil is going to decrease if there is no increase in demand except for the increase in demand attributed to the change in currency value.

[KrazyHorse]

the real price of oil is going to decrease

What real price of oil are you talking about? Denominated in what?

[KrazyHorse]

By the way, I'm glad to see that you've now accepted that oil supply does not have to fall in order to increase the price of oil in USD.

Are you also willing to take another step and admit that it doesn't matter what currency oil is priced in, beyond the necessity to hold a small supply of USD to cover transactions?

[Kidlicious]

Originally posted by Victor Galis
Your argument is backwards. Lower dollar = export growth and cutbacks in imports.

I meant growth in oil production, which is almost the same thing as saying economic growth though.

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.

But both factors would be considered by producers.

[Kidlicious]

Originally posted by KrazyHorse

the real price of oil is going to decrease

What real price of oil are you talking about? Denominated in what?

When oil producers get dollars for oil after the value of the dollar decreases they get less for those dollars. That's what I mean. That's why they will tend to stop producing the costliest oil.

[KrazyHorse]

Kiddy, you're trying to run before you can walk. You need to gain the ability to think incisively about a single issue before you start to spin some grand hypothesis about aggregate world demand and currency flows.

Anybody who believes that the denomination of oil in dollars matters a great deal is instantly disqualified from saying anything intelligible about international trade.

[Kidlicious]

Originally posted by KrazyHorse
By the way, I'm glad to see that you've now accepted that oil supply does not have to fall in order to increase the price of oil in USD.

Look at the graph that I posted. I never said that the oil supply can't increase when the value of the dollar drops.

Are you also willing to take another step and admit that it doesn't matter what currency oil is priced in, beyond the necessity to hold a small supply of USD to cover transactions?

No. It does matter to producers. Producers would rather denominate their oil in a currency that doesn't make huge drops in value.

[KrazyHorse]

Originally posted by Kidicious


When oil producers get dollars for oil after the value of the dollar decreases they get less for those dollars. That's what I mean. That's why they will tend to stop producing the costliest oil.

Less for those dollars...in what currency? In the numerous gulf currencies which are pegged to the US dollar at a fixed exchange rate? In those currencies they actually get MORE.

Not to mention the fact that as I've already stated, in the short term the oil supply is almost perfectly inelastic. In the long term, it is much less elastic than demand. Focusing on supply is precisely the wrong approach. In the short term you can take it as given.

[Kidlicious]

Originally posted by KrazyHorse
Less for those dollars...in what currency? In the numerous gulf currencies which are pegged to the US dollar at a fixed exchange rate? In those currencies they actually get MORE.

In currencies that aren't pegged to the dollar obviously. Also their reserves are going to be worth less so they aren't going to be too excited to accumulate more.

Not to mention the fact that as I've already stated, in the short term the oil supply is almost perfectly inelastic. In the long term, it is much less elastic than demand. Focusing on supply is precisely the wrong approach. In the short term you can take it as given.

If China starts selling off it's reserve USD the decline in the dollar is going to be long term.

[KrazyHorse]

Originally posted by Kidicious

In currencies that aren't pegged to the dollar obviously

Why does that matter?

[Victor Galis]

Originally posted by Kidicious

I meant growth in oil production, which is almost the same thing as saying economic growth though.

But if the US economy grows, there's more oil demand. The dollar price of oil is pushed up by both demand and the falling dollar in that scenario.

But both factors would be considered by producers.

One would dwarf the other.

[KrazyHorse]

Kid, come on over to the side that has logic. What makes the USD special? Why does it matter that exchanges quote the price of oil in USD and not EUR? I'm fascinated by your answer. Or are you willing to admit that any statement which contains "because oil is denominated in USD" is almost certainly false?

[KrazyHorse]

There is a propensity to hold USD as a reserve currency. If net world propensity to hold USD as a reserve currency drops then some of the little green pieces of papaer will come back to the US. If China sells them and somebody else decides to keep them then there will be no change as far as the US is concerned.

When the US needs to buy back its debt (which are in this case in the form of little green pieces of paper) that is when the US is hurt. If that never happens then the US is not hurt. Period. There is no way around it...

[Kidlicious]

Originally posted by KrazyHorse
Why does that matter?

Because they can only buy less with the same amount of USD.

[Kidlicious]

Originally posted by Victor Galis
But if the US economy grows, there's more oil demand. The dollar price of oil is pushed up by both demand and the falling dollar in that scenario.

But the production of oil would be limited by the dollars value.

One would dwarf the other.

Not really. The value of the dollar can make a big difference in the price of oil. If the dollar was more stable the price of oil would be a lot less.