Black Wednesday

[wasp]

DOW JONES NEWSWIRES

The sudden fall in sterling could force a realignment of Britain's economic relationship with the eurozone, resulting in potentially painful consequences for both it and the 15-country bloc, the Financial Times reported on its Web site Monday.

Since November, the pound has fallen by almost 9% against the euro - a rate of decline not far off that seen during sterling's enforced exit from the European exchange rate mechanism in 1992, when it fell 11% against Germany's D-Mark.

It is "astonishing how quickly (sterling) has gone down", said Ben Broadbent, of Goldman Sachs. The drop is rekindling memories of "Black Wednesday" in 1992, which helped bury the then Conservative government's reputation for economic competence. Symbolically troubling, the currency's weakness makes France's economy larger than that of Britain for the first time since 1999.

The pound's fall will add to the difficulties already created by the slowdown in the U.S. and the continuing global credit squeeze. "It is another source of potential weakness for the eurozone economy - and there is no shortage of them," said Ken Wattret of BNP Paribas.

Newspaper Web site: http://www.ft.com

 

[grantx]

Wasp,

One way of looking at it is, like the US, we could possibly export ourselves out of any difficulties. The net exporting EU can’t (and ignoring the benefit importing lower inflation). Who needs to realign? The EU cannot realign itself. What’s the betting we’ll see calls for the UK to join the EU? Whither the former Soviet satellites and US hegemony, Mr Trichet? End of rant.

Grant.

 

[Atilla]

Wasp,

One way of looking at it is, like the US, we could possibly export ourselves out of any difficulties. The net exporting EU can’t (and ignoring the benefit importing lower inflation). Who needs to realign? The EU cannot realign itself. What’s the betting we’ll see calls for the UK to join the EU? Whither the former Soviet satellites and US hegemony, Mr Trichet? End of rant.

Grant.

Sterling has a win win scenario here.

Oil is purchased in dollars and sterling has appreciated against the dollar nullifying the effects of the oil price increases.

Trade balance is also shifting where European trade is now greater than US I believe. Hence a fall in sterling should help our exports in Euro and else where and fall in dollar v sterling with purchase of oil.

The problem is if the oil producing countries start demanding payment in Euros instead of dollars then there would be a big advantage in joining to Euro to benefit from stable and probably cheaper oil prices as Euro strengthens.

 

[grantx]

Atilla,

“if the oil producing countries start demanding payment in Euros”.

Some of the Russian gas and oil companies recently mentioned the possibility of payments in Roubles. Given the size of their resources there may be something in it.

“joining to Euro to benefit from stable and probably cheaper oil prices as Euro strengthens”. But consider this. Russia and Iran already supplies natural gas to Turkey (expected to increase due to electricity agreements and co-operation with Bulgaria, Georgia and Greece and back to Iran, which also supplies Greece with gas, and is looking to supply Bulgaria, Romania. The Austrian’s have made agreements with Russia to establish a large gas storage facility near Salzburg. And Gazprom will supply Austria with gas from 2012 to 2027. Is any aspect of the EU coherent?

Grant.

 

[Atilla]

Atilla,

“if the oil producing countries start demanding payment in Euros”.

Some of the Russian gas and oil companies recently mentioned the possibility of payments in Roubles. Given the size of their resources there may be something in it.

“joining to Euro to benefit from stable and probably cheaper oil prices as Euro strengthens”. But consider this. Russia and Iran already supplies natural gas to Turkey (expected to increase due to electricity agreements and co-operation with Bulgaria, Georgia and Greece and back to Iran, which also supplies Greece with gas, and is looking to supply Bulgaria, Romania. The Austrian’s have made agreements with Russia to establish a large gas storage facility near Salzburg. And Gazprom will supply Austria with gas from 2012 to 2027. Is any aspect of the EU coherent?

Grant.

I hear what you saying about energy resources / reserves but gas is just one alternative with oil, nuclear, gas and even coal maybe considered.

I think European trading bloc would dwarf Russia and Iran combined. We may possibly have a dual Euro/Dollar standard going forward perphaps.

I think whether we align our selves with the US or Europeans is a 50/50 call at the moment. In fact I would probably stick my neck out and say I see greater advantage in the European connection as US is fast becoming a liability and a failing partner. Going back 10 years or so I was on the side of Geoffrey Howe and Michael Heseltine with the Westland Helicopter deal and European connection. Mrs Thatcher went handbag in hand arm in arm with Ragean at the time. Since then the European connection and trades has increased whilst the US connection and trade deteriated. Even in the Falklands war the we got more help from the French than we did from the US.

Must confess since Brown eased off on the Bush enthusiasm, both Mrs Merkel and Sarkozy has warmed up to the US trying to improve relations. Shame the US don't make us feel special when we tell'em straight...

Either way if we manage our relationships with both acting as a bridge we can maximise our gains.

 

[PKFFW]

......The problem is if the oil producing countries start demanding payment in Euros instead of dollars then there would be a big advantage in joining to Euro to benefit from stable and probably cheaper oil prices as Euro strengthens.

Surely the invasion of Iraq and the rhetoric regarding Iran has shown the oil producing countries what will happen to the next country that has the temerity to suggest such a thing as demanding payment for oil in Euros?? Saddam wasn't a big enough problem to be bothered with until he started seriously suggesting selling oil in Euros and then all of a sudden he was a bad bad man and had to be dealt with for the sake of the poor Iraqi people.

If the middle east hasn't got the picture now it will only take another invasion or two and they soon will so I wouldn't worry about that happening anytime soon.

Cheers,
PKFFW

 

[grantx]

Atilla,

“European trade is now greater than US...European trading bloc would dwarf Russia and Iran combined”.

That may be significant if the EU was a single country but given the EU consists of independent and separate entities with little in common and no coherent economic or fiscal policies it means little. I doubt the Yanks are too worried. Merkel and Sarkozy are more than hedging their bets.

If oil is priced in Euros and consumption continues to grow, the demand for Euros will grow, the rate will increase and Europe will not be able to export itself out of a paper bag.

PKFFW,

The US is too dependent on oil imports to maintain its inventories to dictate currencies. Wtf is it going to do – invade an oil producing country, producing a (temporary but extended) oil shortage, the price oil goes to $200, and the world goes into recession because it cannot afford the fuel to run its industries? This will strengthen further the economic clout and influence of the Russians and its allies. See how uncle Joe takes care of his own while uncle George lets children starve. An invasion will provide a pretext for a few of the middle-eastern countries to let-rip on Israel.

Correct me if I’m wrong but didn’t Hussein sell oil for Euros to avoid the international markets and circumvent the “oil for food” imposition?

Grant.

 

[Atilla]

That may be significant if the EU was a single country but given the EU consists of independent and separate entities with little in common and no coherent economic or fiscal policies it means little. I doubt the Yanks are too worried. Merkel and Sarkozy are more than hedging their bets.

If oil is priced in Euros and consumption continues to grow, the demand for Euros will grow, the rate will increase and Europe will not be able to export itself out of a paper bag.

You are assuming political strife will weaken the Euro. Not the case so far.

You are assuming an inability to compete. What's to stop European businesses to buy foreign companies cheaply using the strong Euros and move production to low cost countries.

Multinationals and globalisation is precisely this and so well managed by many American companies as an example. European giants can do likewise as they already are...

Essentially you manage other countries factors of production whilst reaping the rewards of strong currency and cheap production.

I beg to differ with your point of view. If the US ever loses it's dollar the repurcussions on its super power status will be devestating. Wait till they convert their dollars to Euros to buy oil. That'll be funny watching them in their over sized cars and trucks. Maybe they'll get out and walk to burn off their big fat bellies. :cheesy:

The move into Afghanistan and Iraq is precisely such a move to head off shortages due in the next 30 years but it seems miscalculations were significant with their abilities.



PKFFW

The US has the ability to destory but not the ability to build. In it's super power status it has destroyed Iraq. Iran would be a much bigger and harder fish to swallow. Not sure it has the budget to take on another war or open up a new front line. This is despite Russia and China not interfering. US has lost it's clout to the point Iranian gun boats are challenging US frigates.



Anyway, coming back to black Wednesday, I feel the ECB will be much hard and tighter on inflationary pressures than the US and so dollar will continue to fall and any reduction in US rates likely to deteriate US finances - twin defecits further.

Remember Yen carry trades and possible impact of removing the spread between Japaneese and US rates on the dollar. Tough call.

Does anybody care where the dollar ends up in the US? No I don't think so. :whistling

 

[PKFFW]

PKFFW,

The US is too dependent on oil imports to maintain its inventories to dictate currencies. Wtf is it going to do – invade an oil producing country, producing a (temporary but extended) oil shortage, the price oil goes to $200, and the world goes into recession because it cannot afford the fuel to run its industries? This will strengthen further the economic clout and influence of the Russians and its allies. See how uncle Joe takes care of his own while uncle George lets children starve. An invasion will provide a pretext for a few of the middle-eastern countries to let-rip on Israel.

Correct me if I’m wrong but didn’t Hussein sell oil for Euros to avoid the international markets and circumvent the “oil for food” imposition?

Grant.

Lesser of two evils.

If the US dollar losses its' defacto world standard position the great depression will look like the roaring twenties in comparison to what will happen to the US then.

The only thing keeping the US afloat at all right now, imho, is the fact that countries need USD to buy oil. This makes the USD strong(ish). It also means that countries with cash to spare and want a safe(ish) haven for it, often put it into US bonds and the like. This investment is about the only thing that artificially offsets the trade deficit of the US. If the USD plummets after oil starts being sold widespread in Euros then those countries with bonds/USD reserves will be wanting to cash them in before they loose too much value. It will be the mother of all "runs on the bank". The US would have no way of paying them off and would end up going bankrupt(again). That's bad for them and for the rest of the world.

A milder depression due to an oil shortage looks pretty good in comparison. At least to the US.

My 2 cents and I freely admit I'm not the worlds greatest analyst when it comes to the fundamental macro-economic side of things.

Cheers,
PKFFW

 

[PKFFW]

PKFFW

The US has the ability to destory but not the ability to build. In it's super power status it has destroyed Iraq. Iran would be a much bigger and harder fish to swallow. Not sure it has the budget to take on another war or open up a new front line. This is despite Russia and China not interfering. US has lost it's clout to the point Iranian gun boats are challenging US frigates.

You got to look at it from the US viewpoint. They destroyed Iraq but during all that destroying and the looting after Baghdad was invaded they sure put alot of effort into protecting the Ministry for Oil buildings and infrastructure. If need be, they could do so with Iran.

It simply isn't necessary right now though. Why open another front and take on another battle when the need isn't there. Do you think all this rhetoric about Iran is actually about their nuclear weapons capabilities? Of course not. It is simply a platform being built so that should the need for an invasion arise in the future, they have a reason. There wont be a need for that invasion unless Iran goes ahead with its oil in Euros plans. Iran could set off and test a nuclear bomb and so long as they still sell oil in USD I reckon the US would decide to look for a diplomatic resolution to the "incident" rather than invade. They'd be happy to keep being diplomatic until right about the time that Iran stopped selling oil in USD and changed to Euros. Then the threat of "nuclear war" would suddenly become too much and they'd go in to put a stop to it. At least that's my reckoning. On the other hand Iran could continue to deny any nuclear weapons plans. The CIA and other intelligence organisations could attest that they have no weapons(as they have). The US would still find it necessary to invade if their oil supplies started being sold in Euros.

By the time all that happens the US would have had time to recoup(somewhat) and you'd find that Iran's gunboats wouldn't be much of a challenge to US frigates any longer.

Cynical? Yeah I suppose so but that's certainly how it looks to me and I'm no conspiracy nut.

Cheers,
PKFFW

 

[grantx]

PKFFW,

Your view of the US seems to be derived from John Wayne films (I’m pro-US, by the way).

If you are correct re protection of the Iraqi Oil Ministry, do you think that it could be that it was the only viable enterprise/reliable source of income?

Where did you get this idea of “oil in Euros” as pretext for war? Sounds like a load of ********, to me. Can you provide the source?

“you'd find that Iran's gunboats wouldn't be much of a challenge to US frigates any longer”.

In the US in August 2002 the military’s Joint Forces Command sponsored a $250 million computer simulated war game. The US navy consisted of aircraft carriers, cruisers and amphibious vehicles. The enemy (an unidentified Gulf country) utilised speedboats in swarm tactics. To cut it short, the US was defeated – it “was over in 5, maybe 10 minutes” , said ex-marine corp Lt Gen Paul Van Riper, who commanded the enemy in the exercise. He used a force of speed boats armed with machine guns and rockets, and loaded with explosives to detonate alongside US warships; they were reinforced with cruise missiles launched from land and air. Source, International Herald Tribune, 12-13 January 2008.

Grant.

 

[Atilla]

Where did you get this idea of “oil in Euros” as pretext for war? Sounds like a load of ********, to me. Can you provide the source?

I concur with PKFFW's view on this. I did come across a number of papers and sites and I think CrapBudhist posted several links too. I thought it was general knowledge to be honest.

I also agree the nuclear issues are false pretence. Even Israel intelligence does not believe Iran has and even if it did would launch an attack based on their own analysis. Bear in mind it was the US who advised Iran start on this nuclear road in the first place.

Anyhow, conversion to a Euro standard is very real. In fact all the developments in Dubai is precisely moving towards a financial central hub to be located there imo. A petrol bourse will be setup and they will dictate the tunes.

As for US claiming Iraq oil fields as oil runs out Russia and China will stir. Only a matter of time. Perhaps a bold swift move by the US to claim oil fields but a premature action with $1000bn wasted monies imo not to mention secondary pain and suffering of all the marines returning home.

Time will tell all.

 

[jonnyy40]

Well if they've had 6 years to prepare for that contingency I suspect they've come up with counter-measures? If they were going to attack Iran I'm sure they'd cluster bomb any gatherings of speedboats? For a mass attack to be successfull,the speedboats would have to rendezvous at a location as timing arrival at a moving target (the US fleet) from different departure points would be too difficult to achieve imo.They'd either be destroyed pre-emptively in port or at the rendezvous point at sea.

 

[PKFFW]

PKFFW,

Your view of the US seems to be derived from John Wayne films (I’m pro-US, by the way).

If you are correct re protection of the Iraqi Oil Ministry, do you think that it could be that it was the only viable enterprise/reliable source of income?

Where did you get this idea of “oil in Euros” as pretext for war? Sounds like a load of ********, to me. Can you provide the source?

“you'd find that Iran's gunboats wouldn't be much of a challenge to US frigates any longer”.

In the US in August 2002 the military’s Joint Forces Command sponsored a $250 million computer simulated war game. The US navy consisted of aircraft carriers, cruisers and amphibious vehicles. The enemy (an unidentified Gulf country) utilised speedboats in swarm tactics. To cut it short, the US was defeated – it “was over in 5, maybe 10 minutes” , said ex-marine corp Lt Gen Paul Van Riper, who commanded the enemy in the exercise. He used a force of speed boats armed with machine guns and rockets, and loaded with explosives to detonate alongside US warships; they were reinforced with cruise missiles launched from land and air. Source, International Herald Tribune, 12-13 January 2008.

Grant.

As Atilla said, I thought it was common knowledge that Oil played a very big deciding factor in the Iraq war. I'm not going to bother with links as they are all over the net and many from very reputable news/analyst sites not just "conspiracy nut job" sites.

As for protecting the Ministry for Oil, I remember seeing/hearing about that on the news at the time and it stuck in my head. Couldn't give a definitive source though. Sure it is probably only because it is a viable source of income. I just found it odd that a country supposedly invading another to ensure the poor down trodden people would live free and peacefully under democratic rule didn't see the need to put too much effort into actually protecting the people or any infrastructure that might help those people such as electricity, gas and water. Their concern was more for the source of income than for what would benefit the people they were supposedly freeing.

As for war games, having served in the military myself I can attest to the fact that supposedly the Australian army could whip the USA and hold them out of Australia. Many wargames and scenarios have showed this to be the case. Do you actually think Australia(population 20mil, armed forces totaling about 80K last I checked, armed combat ready forces less than 5K) could actually repel the USA in real life? Very doubtful. Many war game scenarios are come up with only as a means of scaring the people who control the money into spending more money on defence!

Not only that but the "USA navy" consists of 12 "battle groups". Each battle group alone has more firepower than any other navy in the world. Even if they were stupid enough to stand toe to toe with a fleet of suicidal speedboats on kamakaze raids and lost an entire battle fleet, they would simply learn from that scenario and not take the next fleet in there. They would sit further out in the ocean, launch their planes and bomb the bejesus out of the coutry until there was no one left to pilot the speedboats!

Having said all that, it may surprise you to know I am actually a US citizen, having been born and lived some time there. I actually believe that if the USA lived up to its talk it could once again be a guiding light for the world. It has done alot of good and often cops alot of unfair flak. However, anyone with an unbiased mind should see that their foreign policy of late has not lived up to their purported ideals. In fact, in many respects it is the exact opposite of what they claim. For that, they do deserve the criticism.

Cheers,
PKFFW

 

[grantx]

Atilla,

I don’t doubt leanings toward converting to Euros (many of the Gulf states are facing massive hikes in inflation due to dollar pegs and may have to re-value – from Bloomberg today) but consent or coercion doesn’t enter the debate.

Jonny,

The US may well have had six years. However, isn’t every country always conducting war games to cover every possible eventuality? I know the Russians are keen on this (been doing simulations for over a hundred years) and I wouldn’t be surprised if they’ve advised the Iranians.

I think a speedboat attack could be successful if a diversionary tactic was used. Whilst distracted the speedboats could just let rip willy-nilly and the US ships could do little about it. I’m presuming they would have the speed; currently the Sri Lankan navy speedboats achieve 70 knots.

Grant.

 

[Atilla]

I think a speedboat attack could be successful if a diversionary tactic was used. Whilst distracted the speedboats could just let rip willy-nilly and the US ships could do little about it. I’m presuming they would have the speed; currently the Sri Lankan navy speedboats achieve 70 knots.

Grant.

Ofcourse this is all assuming the Americans are telling the truth.

I think the Iranians denied the incident.

However, I do agree that probing the enemies defences is normal practice. Protocol is to scramble some response give warnings and turn back. Days work done. Everybody is happy...

It seems the Americans don't have much humour anymore. When I heard it on the news it was like a you tube movie - bit of cheek that's all.

What's the big deal? It is the Americans 000s of miles in other countries territories. Anybody think the yanks own the planet...