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Oil Prices And The Effects On US Economy. ... Until that time, oil prices will
continue to have a significant impact on the US economy.
Oil In Us Economy. The reality is that the "safe harbor" status of the US dollar
since 1945 rests on it being the international reserve currency. ...
... While 1970's the labor and oil intensive US economy started to struggle with the
great effects of oil crisis. Which is we can still see the effects. ...
... This could be a negative effect to the US economy in the long run if we ... According
to the trend, oil price has increased dramatically since the past few years. ...
... bigger than Standard Oil, owned by John D. Rockefeller. In 1910 Mr. Rockefeller's
net worth was equal to nearly 2.5% of the whole US economy, the equivalent of ...
Submitted by himmler1 on June 4, 2008
Category: Business
Words: 3138 | Pages: 13
Views: 60
Popularity Rank: 109,415
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The reality is that the "safe harbor" status of the U.S. dollar since 1945 rests on it being the international reserve currency. Thus it has assumed the role of sole currency for global oil transactions (ie. `petrodollar'). The U.S. prints hundreds of billions of fiat dollars, which U.S. consumers provide to other nations via the purchase of imported goods. These dollars become "petro-dollars" when are then used by those nation states to purchase oil/energy from OPEC producers (except Iraq, to some degree Venezuela, and perhaps Iran in the near future). Approximately $600 to $800 billion `petrodollars' are annually from OPEC and invested back into the U.S. via Treasury Bills or other dollar-denominated assets such as U.S. stocks, bonds, real estate, etc. This recycling bolsters the dollar's international liquidity value.
In 1974 the Nixon administration negotiated assurances from Saudi Arabia to price oil in dollars only, and invest their surplus oil proceeds in U.S. Treasury Bills. In return the U.S. would protect the Saudi regime. These agreements created the phenomenon known as "petrodollar recycling." In effect, global oil consumption via OPEC provides a healthy subsidy to the U.S. economy. Hence, the Europeans created the euro to compete with the dollar as an alternative international reserve currency. Obviously the E.U. would also like oil priced in euros as well, as this would reduce or eliminate their currency risk for oil purchases.
The `old rules' for valuation of the U.S. dollar currency and economic power were based on its flexible market, free flow of trade goods, high per worker productivity, manufacturing output/ trade surpluses, government oversight of accounting methodologies (ie. SEC), developed infrastructure, education system, and of course total cash flow and profitability. It’s superior military power afforded some additional confidence in the dollar. While many of these factors remain present, over the last two decades U.S...
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