Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
If one is going to pshaw a daily removal of oil dollars taken out of the Forex equation, then one must consider the daily reduction of China's holdings; that is lot of 1/2 percent daily drops. Two months is a quarter trillion dollars.

Referencing the daily dollar value of oil purchases is misleading. However, assuming that the yearly draw-down in Chinese dollar reserves would be equal to the yearly purchase of dollar denominated oil is also misleading. It would assume that China would either cease or greatly reduce its inflow of US dollars. I have no doubt they would like to reduce their holdings of a currency they know is going to depreciate, but were they to demand currencies other than the US$ for their exports, the US demand for those exports would quickly dry up.  This could be very good news for Mexico, Hati, etc. but it would be a disaster for the Chinese economy.

The policies the US has followed have been flawed, but the USA is hardly the only nation that finds itself in a bind as a consequence. Parts of the US financial sector are the only ones in the USA who have benefited at this point. Only time will tell if they can hang on to their gains. Right now Goldman and Morgan seem to be the big winners, but at the cost of poisoning the water in which they swim.      

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 8th, 2009 at 12:42:06 PM EST
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