Any correlation to the US economy today? Your opinion ?

Hobo

 

since i have no idea what you are referring to, nope no opinion at all.

 

In another category, here on the FTE board, the comment was made about the cost of trucks going up. I said the value of the USD was going down and the price of trucks was not really going up. A comment was made that it was tied to the "petrodollar"... Because long ago oil was traded in USD's world wide, or something to that effect. Now oil is traded in Chinese yen, Russian ruble, etc. I was hoping someone could equate US oil to the USD. So, I brought the topic over here so as to not be in violation of the Rules.

Hobo

 

It's a complicated topic that most people weren't aware of. The first thing is to understand what a "petrodollar" is.

The US dollar was made the world's "reserve currency" as part of the Bretton Woods agreement during World War II. In those days the dollar was defined as 1/20th of an ounce of gold, or 1/35th of an ounce after FDR got done with it. It was actually illegal for Americans to own monetary gold. Contracts, particularly long term 99 year lease contracts and government bonds were defaulted.

Anyhoo, foreign central banks "pegged" their currency to the US dollar, and indirectly, to gold. They could buy or sell dollars for gold and vice versa, at the US Treasury "window". Eventually though, this arrangement fell apart, Ft. Knox started running out of gold, and foreign central bank convertibility of dollars to gold was halted. Currencies were allowed to "float".

However, part of the legacy of the Bretton Woods era was that oil contracts were always quoted and denominated in USD around the world That is, if say, Albania, wanted to buy oil from Russia, or Greece, they had to use US dollars to buy it.

This is significant, because it meant a huge demand for US dollars, that circulated outside the US, and importantly, would never circulate in the US. This had the effect of allowing monetary inflation to be "exported" to some degree. One treasury secretary remarked at the time in the 1970s "It's our dollar, but it's your problem." The dollar devaluations meant oil prices doubled, tripled, quadrupled in quick fashion, and interest rates skyrocketed.

The US dollar retains its status (somewhat) as the world's reserve currency, although it is no longer based on a fixed standard of gold (or anything else). Don't worry though, your elected representatives are hard at work on this.

 

Thank you for that explanation.....@Tedster9

I will ponder and return with any question.

Hobo

 

You never let that stop you before Tom.

 

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There's always a FIRST..... Give Hobo credit........... LOL

Hobo

 

i just realized why i had no idea.
i misread the title of this thread to read the same as the one that got deleted. pertodollars.

 

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Hobo