So why is America an economic 'Empire'?

[KrazyHorse]

[DanS]

And why is that?

Because other available energy sources (coal, natural gas, nuke, hydro, solar, wind) are predominately domestically-produced. Our trade deficit would decrease, our balance of payments would increase, and therefore the dollar probably would become stronger.

[BeBMan]

You know what I like about KH? I like how, when he felt the time was right, he didn't just rock me hard like a throw away skut. He gracefully took my innocence with all the charm and romance of a true gentleman.

That's how we know him

[KrazyHorse]

I'd rather be Omar or McNulty than Bunk, though.

[Felch]

I'm glad you recognized the source.

It was actually in Homocide the book. If you get a chance to read it, you really should. Lots of little anecdotes found their way to the Wire.

[KrazyHorse]

Read the book. Homicide was/is my favourite TV show.

Don't remember that passage from the book. Was a long time ago.

[RGBVideo]

If they didn't want to be called one then they should have reconsidered the design of the monuments and gov't buildings in DC. It has to be a conscious imitation of Rome.

The Vietnam thing is really nice. Lincoln memorial is good too. Everything else is sort of overblown.

The ideals of US were in the Roman Republic, not in the Roman Empire, since historical consensus attributed the decline of Rome to the long-lost virtues of the Republic during the heydays of Age of Enlightenment.

[Felch]

I think it's right near the end, but it was a couple years ago when I read it. The exchange stuck out because I remembered it from Bunk and McNulty. I loaned my copy to a Puerto Rican, and never saw it again.

[Aeson]

[a) The day that USD/EUR become unconvertible we are pretty much all ****ed anyway

Of course. (Though unless it's all out nuclear warfare as the cause/result, some will be ****ed more than others even in that case.) I wasn't talking about unconvertibility, but rather spikes in the exchanges.

b) You're begging the question. Why would demand for the exchange currency spike in an emergency any more than demand for any other reserve currency? As long as FX markets operate liquidly (doesn't matter WHAT the rate goes to, as long as the spread isn't too high) the denomination currency doesn't matter

It's not inconceivable that the liquidity in FX markets could be disrupted. The likelihood that they would be disrupted is also likely to be cases where oil is also most in demand. If at a time when a nation needs oil and doesn't have dollars, they need someone to give them dollars (in trade for something else). If the need is great, and others are in the same situation, the cost of dollars will rise, at a time when the cost of oil in dollars (and everything else, though not necessarily 1:1) is also likely to rise.

c) I think you might be confusing transactions costs and exchange rate risk.

No. With "transaction costs" (or rather, "exchange cost") in my first post in this thread I was simply referring to the spread (and/or any other (if any) direct, known, costs that might be involved in the exchange of one currency for the other.) Even a minimal spread is a loss, especially if you convert from USD->X and then from X->USD as would be the case in the hypothetical "all commodities". Since you used the term "completely independent", I felt it was important to point out that there is a cost, even if it is minimal. (Which I expressly noted in my post on the subject.)

There has to be a reason to exchange currency. The default is to hold the currency the transaction was completed in. That is all I was applying "exchange costs" towards.

This post you quoted here was not about "exchange costs" at all, but rather "exchange rate risk".

As an example, take USD and CAD. CAD tends to appreciate against USD when oil goes up, because our terms of trade improve. This means that the price volatility of oil in CAD is lower than the price volatility of oil in USD. Doesn't matter whether oil's denominated in USD or CAD (or EUR for that matter); the volatility of oil against each of these currencies remains the same independent of denomination currency. Assuming that you're going to want to buy oil (and other commodities) with your reserves then this would argue for you to hold CAD....even though nobody trades these commodities in CAD!

Again, so long as CAD is readily exchangeable for USD.

d) The best thing to do would be to hold some sort of commodity derivative.

Assuming the derivatives and/or the insurance on them would be be honored. The type of crisis that would lead to illiquid FX markets is very likely to affect other (almost exclusively much less liquid) markets as well.

---------------------

I understand you don't think these occurances (illiquid FX, or systematic derivatives/insurance defaults without bailout) are likely at all. I would agree that they are exceedingly slim. I would also agree that it's not really useful to "plan" for those occurences either, as I stated in our discussion about CDS on US Treasuries. But it still is a consideration for many people and possibly even governments to plan for doomsday scenarios. As in our discussion about CDS on US Treasuries... there are people buying this stuff, so it does affect the economy even though the reasoning may be illogical or even bat**** insane.

I don't see why it's a stretch to think that some hold US currency in part to ensure they can procure oil in an emergency from sources who have declared they only accept US currency in exchange. That we bothered to procure this agreement at all speaks volumes about the possibility of governments placing a value upon such a thing.

[KrazyHorse]

I think it speaks volumes about how economically illiterate governments are.

[Aeson]

But their illiteracy certain can affect aggregate demand wouldn't you say?

[KrazyHorse]

Look, I don't argue with the fact that having your currency mentioned constantly is a nice advertisement. But the effects of such advertising are unlikely to be measurable, let alone significant.

[Aeson]

I agree it (not just "advertisement" value though) is not likely to be measurable. (Perhaps using "measurable" in a different sense than you proffered it though.) It's significance (or lack thereof) is uncertain, not being measurable and all.

The dollar is the world's major reserve currency. It's good for us... I don't know how much of that is due to the dollar being OPEC's currency of choice for oil transactions, probably not a whole lot, but it certainly has the potential to influence the choices of major actors. It has been a factor in our foreign policy in at least one historical example. (And what we exchanged for it has definitely been significant.) I don't think it's safe to assume there could be no significant economic impacts of it based on similar "economic illiteracy" on the part of governments.