Back to the Future

So Hu Jintao is in Washington. He's come to be lectured by a declining superpower about human rights, threatening moves toward Taiwan, jumping on board with US policies toward "rogue states" and, of course, economics. The big problem is that the US buys more stuff from China than vice versa so everyday its deficit is growing alongside the debt. China is criticized by Washington for causing this situation because of the low value of its currency. The Americans argue that it is kept artificially low versus the US dollar which means that it's easy to sell Chinese crap in the Walmarts of the US. They probably have something there.

But as usual, let's not focus on the splinter in their eye but the log in ours. The US's currency has its own dirty little currency secret. For the longest time, the US was top dog and its stable currency became the international unit of trade. When a South Korean wanted to sell a semi-conductor to someone in Argentina they usually did the deal in US dollars. This means that everyone is always buying US dollars which makes them desirable and keeps their value high.

Then there's oil. Oil is almost always traded in US dollars. When oil sells for $70 dollars a barrel that's a lot of US dollars being bought and traded. Americans may complain about gas prices but given their trade deficit they need the price to go higher and higher and hope that no one decides to start selling oil in any other currency.

And if they do, you take them out quickly. Did you know that Saddam Hussein had started to sell oil in euros just before he was ousted by the mighty Coalition of the Willing? All those WMDs we were so scared of came to nothing. But Saddam Hussein did present a serious threat by challenging the supremacy of the US dollar; we just never got told that one. Should people die over money? Apparently yes.

The euro is the only other global currency that has the same stability as the greenback. So oil-laden (sounds like bin Laden) "enemies" of the US are attracted to it for its ability to undermine the strong US dollar. Squarely in the sights of the sole superpower, Iran is accused of a clandestine nuclear program. However another story is sliding under the radar. Iran is planning to follow Iraq's lead and sell some of its oil in euros. So is the real threat nuclear or economic?

Either way Tehran should be a crater before long. Then we'll have $100 a barrel oil. Let the good times roll!