The end of petrodollars

[Ciro Pabón]

I'm sorry, guys, for this odd thread, but I'm amazed at how accurate we were...

F1Technical forum, December 19, 2006

Things are getting urgent: sub-prime market goes down. I wish I had dollars to change them for gold. I doubted if this should go in the politics thread, but it seemed insolent... I pray fervently to be mistaken or naive.

http://www.informationliberation.com/index.php?id=20982 Stocks Plummet on Subprime Lender Woes

http://www.informationliberation.com/in ... b85c02986f Velkomin to the United States of Foreclosure

Do you have any money? Do you live in USA? Do you depend on USA economy somehow? Read it. The ripples could be huge.

I'm smiling while I read the answers I received back then:

You people are like the religious folk who knock on my door each and every Sunday to tell me the world is going to end each and every following Monday . . .

I confess I've almost doubled my modest capital because of that prediction, which has been painfully precise.

This isn't the only "futurology" thread that has been "amazingly accurate", for example, End of oil and F1, April, 2006, long time before the oil peaked.

So, I wonder if somebody is interested in what will happen when petrodollars explode, something that hasn't happened yet but that seems plausible now. How will this affect the design of our cars?

Of course, I might be wrong. I'm the kind of guy who still thinks that Massa has a chance...

[mx_tifoso]

Of course, I might be wrong. I'm the kind of guy who still thinks that Massa has a chance...

I'm right there with you Ciro!!!

[Belatti]

Massa has the same chance to win the WDC as Hamilton to suffer a stroke.

About the petrodollar stuff?

Watch the part of Zeitgueist where they talk about the man behind the curtain: the crisis in the 30s and blablablabla... was all made to make money, more money.
Now the US seems to be in bankrupt, but they are buying European banks for the price of a hotdog

Ooooops, they did it again!

[flynfrog]

Massa has the same chance to win the WDC as Hamilton to suffer a stroke.

About the petrodollar stuff?

Watch the part of Zeitgueist where they talk about the man behind the curtain: the crisis in the 30s and blablablabla... was all made to make money, more money.
Now the US seems to be in bankrupt, but they are buying European banks for the price of a hotdog

Ooooops, they did it again!

go team america!!

its really kinda silly to consider the economy as belonging to each country we are all so interlinked any more

[jon-mullen]

The timing on this is incredible, isn't it? The top American corporations are cleaning off their balance sheets before the Oil Regime leaves office.

[Ciro Pabón]

Well, guys, thanks for your responses. What worries me is a technicality (which I discussed somehow with Carlos, on a PM).

I copy a small part of my answer to him. Notice that's an scenario imagined last year:

Interest rates fall to 2% or lower. Energy prices fall dramatically (oil to $60 per barrel, natural gas below $15)... Meanwhile, the US Trade Balance is totally out of control, rising to $80B on a monthly basis... Asian central banks start to worry about the underlying soundness of the US economy, and start to buy EUR and sell USD in big quantities. Middle East oil profits are then diversified into EUR or CYR instead of USD, once the subprime crisis subside."

If you want to predict the future of the USD, check the TIC data closely. If the TICs data readings come in at $50B or less for two consecutive months, or if it is lower than $30B in any one month, get ready for some serious USD selling.

For those not familiar with TIC, I give Ciro's version of it : it's the "Treasury International Capital". That is, how much foreign (and american) money is invested in Treasury bonds and certificates. Up to this date, this money is what allows the Feds to "float" the trade imbalance. It has hovered at 100 billion dollars a month, give or take. Now, check this:

TIC net flow: http://www.ustreas.gov/tic/ticpress.shtml

April/08: 105.7
May/08: 109.7
June/08: 62.7
July/08: -25.6 (WTF?)

Data for August is due October 16 (next Thursday). I bet my pants that this indicator is what put the Feds into emergency mode, and not Lehman, etc. Of course, it's going to get better for September/October, but I guess I'm not the only one looking at it for November/December.

For the love of Pete, please notice I'm just interested in what will happen to cars. Forex trading is a high risk activity.

[WhiteBlue]

I agree with you Ciro that the unreasonable investment of big parts of the international capital in treasuries will be undermined by the continuing trade deficit. fundamentally the US should have never got away with it but they always managed to get away with things no other country could. this time around it could be different as the sub prime crisis shows how the american banking system screwed a lot of foreighn investors. it cannot have helped the rating of the good old US of A. Anyway it will not be such a big problem as oil and gaz vendors will m igrate to € and other currencies. what goes round will come round as they say. the global money market cannot be duped forever.

[Ray]

It's not just the US that is having problems. The source of ALL of this trouble stems from banks in every country creating money. The US isn't the only one, all world banks create money out of nothing. What our brain-dead politicians, or very smarter ones if you look at it from another angle, are trying to cover debt with more debt. You don't borrow money to pay back others. This is a WORLD CRISIS. Not because of the Dollar, but because of creating money. We are all going to pay for it, the world will have one currency and socialism will be on a world scale. I for one will hide in the mountains somewhere with lots of guns and stored food. Call me crazy, but it's coming. One World Government is knocking at everyones' door, and no one will benefit but the very few pulling the strings.

Socialism is a failure. Not everyone wants the same thing and government has no right to dictate to me what doctor I go to, what car I drive, or what education my kids get. I hate socialism, it destroys societies.

[Ciro Pabón]

Well, WB, the problem would be that if oil vendors migrate to euros, as they are doing gradually, then US will have not enough money to buy the oil it uses. This has deep implications about cars using gasoline: US could be forced to change to other sources of energy.

Ray, this kind of predictions are like Y2K predictions: as WB and others point out, people adapts. I don't have a gun (heck, I don't know how to shoot a gun! ), so if bad comes to worse, please, save me a place in your hide out. We will discuss about the good ole times of F1 racing, while we shoot down a few muskrats for lunch and skin a deer with stone age tools for dinner... I can build you an aqueduct and fence the "compound" with my eyes closed, WB can build us a self-warming house and you (and many other members!) surely can keep the generators running. I'm afraid we will run into a primitive socialist utopia (if you use the guns to allow us to vote!).

The idea is simple: US sells little green papers to the world. The present value of the US dollar, unjustified on economic grounds, is maintained by political arrangements, and the main one is to ensure that all OPEC oil purchases will continue to be denominated in US dollars. Everyone accepts dollars because dollars can buy oil.

So, in the end, cars are the motive that sustain a, perhaps, unjustified economy. Allow me one quote:

"We trade little pieces of paper (our currency, in the form of a trade deficit) for Asia's amazing array of products and services. We are smart enough to know this is a patently unfair deal unless we offer something of great value along with those little pieces of paper. That product is a strong US Pacific Fleet, which squares the transaction nicely." -- Prof. Thomas Barnett, US Naval War College --

Now, the Islamic countries of the world are less likely to appreciate the "great value" of a threatening US presence. Some people are exploring paths whereby America's oil and financial vulnerabilities can be diminished without continuing down the road to Armageddon. "The demand is simple: Stop this war before it starts and immediately establish a sane national energy security strategy." -- Ralph Nader --

Who could have guessed, years ago, when starting a career (or choosing a hobby, like F1) that the source of energy for engines could have such global implications for economy?

The world might be forced to adopt a smarter approach -- perhaps accelerating the development of alternative energy technologies which would reduce the EU's reliance on oil for energy and produce goods it could trade for euros -- shifting the world trade balance.

Now that would be a very positive outcome for everyone. The alternative is country by country "isolation-ism".

So, do you want to change the world? Then help to develop cars that can run on local energy, cars that somehow, don't compete with food for that energy. If Europe is unable to do so, it could end creating another 100 years of dependency on "farming countries", able to produce ethanol or other form of "farming energy". In times of global warming this will become harder and harder to achieve.

And definitely, Formula One could play an important role in these goals. At least FIA is going to limit power output of engines.

Having said all that, it's sad (for me) that the brightest minds in the mechanical engineering world are not devoted full time to renewable energy powered cars that can travel at 320 kph. It's not that hard, I think. In the end, we will be forced to develop them... or start watching horse racing. All because of the end of petrodollars.

[WhiteBlue]

Ciro, it has been true 30 years ago when I was studying and it is still true. The biggest source of useable energy for our economy and every day needs is eliminating waste.

The Asian growth countries, South America and Africa have the same right to use fossile energies that Europe, Japan and North Amerika have held as their birth right. Thinking along this line it is instantly clear that the use of fossile fuel per capita in the old oil sink economies has to be reduced to come to a balance.

Unless we accept high prices for fuels and invest the the taxes in technologies for renewable enrgies and energy saving we will never make ends meet.

Hoping for fusion energy for transportation, heating, domestic appliances, entertainment and and air conditioning is unrealistic. At an average efficiency of 30% there are vast reserves in efficiency improvements by heat recovery and hybrid technologies. In the next years we will soon see the use of combined heat and power equipment for home heating and power in the northern hemisphere. Every new home will have a combustion engine for electricity generation when the heating is working in winter and every new car will have HERS and KERS.

This is why I support the HERS and KERS policies of the FIA. These technologies need urgent improvements. If we want a race for development and performance it should be a race for the most energy saving technology. So F1 needs to go on a fuel diat. I is right to fix primary ICE power and allow performance improvement to come only from energy recovery and improved efficiency.

[WhiteBlue]

Ciro, it has been true 30 years ago when I was studying and it is still true. The biggest source of useable energy for our economy and every day needs is eliminating waste.

The Asian growth countries, South America and Africa have the same right to use fossile energies that Europe, Japan and North Amerika have held as their birth right. Thinking along this line it is instantly clear that the use of fossile fuel per capita in the old oil sink economies has to be reduced to come to a balance.

Unless we accept high prices for fuels and invest the the taxes in technologies for renewable enrgies and energy saving we will never make ends meet.

Hoping for fusion energy for transportation, heating, domestic appliances, entertainment and and air conditioning is unrealistic. At an average efficiency of 30% there are vast reserves in efficiency improvements by heat recovery and hybrid technologies. In the next years we will soon see the use of combined heat and power equipment for home heating and power in the northern hemisphere. Every new home will have a combustion engine for electricity generation when the heating is working in winter and every new car will have HERS and KERS.

This is why I support the HERS and KERS policies of the FIA. These technologies need urgent improvements. If we want a race for development and performance it should be a race for the most energy saving technology. So F1 needs to go on a fuel diat. I is right to fix primary ICE power and allow performance improvement to come only from energy recovery and improved efficiency.

[zac510]

F1 has survived quite well without tobacco dollars so I can't see why it won't survive without petrodollars.

If anything, as F1 gets bigger and bigger with more international coverage (disregard the shun of North America temporarily) and a greater demographic coverage (ie more than just car enthusiasts) then the appeal to more day-to-day sponsors like Coca Cola, Red Bull, banks, airlines, etc will increase.

Of course we've always had these sponsors on a smaller scale but for one to become the major sponsor, deciding the vehicle colour scheme and so forth will probably become more prominent.

[jon-mullen]

It's not just the US that is having problems. The source of ALL of this trouble stems from banks in every country creating money. The US isn't the only one, all world banks create money out of nothing. What our brain-dead politicians, or very smarter ones if you look at it from another angle, are trying to cover debt with more debt. You don't borrow money to pay back others. This is a WORLD CRISIS. Not because of the Dollar, but because of creating money. We are all going to pay for it, the world will have one currency and socialism will be on a world scale.

Creating money is what treasuries do. They create money based on their own outstanding debt. If countries were to completely pay down their debt, there would be no money. For how vulgar you're making the word "socialism" sound, it seems like what you're really complaining about is capital's ability to beget capital, which is the foundation of...capitalism! Over the last few years we've seen that capitalism is totally unable to set an agenda for society that guarantees longevity. Consider:

Capitalism is supposed to set housing prices. It rigged them too high, mortgages are overvalued, everyone admits that houses were not worth what capitalism said they were worth.

Capitalism is supposed to select the best fuel and automobile. One hundred American auto companies became three, and GM has lost more money than it ever made. We're forced to go to war to continue a lifestyle that a modicum of economic/social planning could've told you was unsustainable.

Capitalism is supposed to get the best workers the highest pay and the most job options. Manufacturing jobs and even design jobs have gone overseas where workers are paid less and unable to organize or unionize.

So I hope you agree that we're losing this battle. Housing crashed, automobile crashed, jobs crashed, the only thing that's going up is our ridiculous unsustainable standard of living. For how much longer?

[Ray]

Creating money is what treasuries do. They create money based on their own outstanding debt.

Wrong. The US Treasury does not create the money. The Federal Reserve does. The Fed doesn't create it on the amount of debt they have, they create it based on what the Treasury is asked by Congress to finance. Congress, and your current Presidential candidates talk about tax cuts to make the average joe feel better. But here's the thing. They don't pay for the things the sign into law with tax revenue, they do it through the Federal Reserve. And every time they ask the Fed for money, you and I get hit in the wallet through inflation. Bailing out failing companies is killing the US dollar and it is making it harder and harder for a family to even live, much less buy --- they can't afford.

If countries were to completely pay down their debt, there would be no money.

Wrong. If people paid their debts off the BANKS wouldn't have any money. And if the banks had no money, the governments of the world would have to tax their citizens at a rate they wouldn't tolerate. They couldn't start wars. Or finance projects that the people don't want or need. Banks NEED debt to keep the doors open, they make their money by screwing their customers and loaning money they don't have. You need to read a book by the name of The Creature from Jekyll Island. Or if you want it in audiobook type format you can get it here. It would teach you just exactly how money works and the scam that the Federal Reserve is pulling on the middle class.

Capitalism is supposed to set housing prices. It rigged them too high, mortgages are overvalued, everyone admits that houses were not worth what capitalism said they were worth.

Wrong. Capitalism does not set home prices. The free market is supposed to. The free market went out the window with the Community Reinvestment Act. That in turn required banks to lend money to people that couldn't afford the loan they took out. With the market seeing that everyone could get any loan amount they requested they had to raise prices, because if you gave everyone a million dollars the value would go down and prices for goods will have to increase because of inflation. What we are seeing now is the true value of homes. Not a decline. All of this was brought on by government interference, not capitalism. Same with gasoline. The US Government, and the EPA among many other restrict our ability to producing it here, forcing us to buy it elsewhere at the sellers demands. I'm not all for just drilling anywhere, I would like it to be thought out and planned to reduce the effects of the surrounding environment. Now you could say that's what the US Government and the EPA and all those guys are doing, but you'd be wrong. Going all the way back to NIXON, this is what they were saying. Why we don't have an energy source that is produced here in the US is precisely because of their involvement, or delays as I call it. Government is the problem not the solution.

Capitalism is supposed to select the best fuel and automobile. One hundred American auto companies became three, and GM has lost more money than it ever made. We're forced to go to war to continue a lifestyle that a modicum of economic/social planning could've told you was unsustainable.

Wrong. The free market is supposed to decide. Why is GM doing so badly? Because they decided that they were going to build bigger more fuel inefficient vehicles, now people are flocking to little cars that are fuel efficient. Honda, Toyota, and other car companies realized this and stuck to the plan. I love GM cars and trucks, but I say let them fail. The longer you provide a company that is failing a lifeline to continue operating the harder the fall is going to be. It's like giving a dope addict one more fix, the longer you do it, the more painful his/her detox is going to be. Possibly fatal.

We aren't going to war to continue this "lifestyle". It's to make money. ALL war has been about money and power. Nothing more, nothing less. We, the US, are in so many countries meddling in other peoples affairs we are reaping what we sow. As an Iraq war veteran I dispise the war. We shouldn't be there or anywhere else. We are trying to finance our empire with what is basically monopoly money. We don't need military bases in Japan, Okinawa, South Korea, Germany or any other country. This is costing us massively. They are financing this illegal and unjust empire with fiat money. Not real. When inflation gets so bad we can't even buy a loaf of bread with a wheelbarrow full of dollars you'll see what I'm talking about. Look at Zimbabwe. We are headed that way, and very soon if we don't clean up our act.

For how vulgar you're making the word "socialism" sound, it seems like what you're really complaining about is capital's ability to beget capital, which is the foundation of...capitalism!

You think we aren't experiencing Socialism? Where have you been the past year? Our Congress just asked the Fed to 'loan' the financial sector almost a trillion dollars to help them stay afloat. If that isn't Socialism I don't know what is. Socialize the losses, privatize the gains. Maybe you can tell me what exactly these 'bailouts' are going back from Chrysler asking for money to today. Barack Obama has been criticizing the free markets for causing families to lose their retirements yet voted in favor of bailing out the very institutions that caused them, the Democrats in control of Congress voted in favor of the bailouts and it isn't working, they voted in favor of the stimulus plan and are currently talking about another one and the first one failed. The Republicans are no better, they voted in favor of all those too. Explain to me how everything the Government has done has failed on an epic scale, and yet the people of this country fight tooth and nail to try and act like the other side is the fault of all this.

Capitalism is the economic system in which the means of production are distributed to openly competing profit-seeking private persons and where investments, distribution, income, production and pricing of goods and services are predominantly determined through the operation of a market economy in which anyone can participate in supply and demand and form contracts with each other, rather than by central economic planning.

Where in there does it say that the Government asks a central bank to provide money to a company or companies to keep the lights on? Nowhere. That is not capitalism. Notice the last 6 words in that sentence. 'Rather than by central economic planning'. I've heard 'central banks' on every news outlet in print, radio, and television use those words talking about the world economic problems. Do you see the connection with 'central economic planning' and 'central banks'? The banks and the politicians are the ones causing all this, not the free market they keep blaming.

Capitalism is supposed to get the best workers the highest pay and the most job options. Manufacturing jobs and even design jobs have gone overseas where workers are paid less and unable to organize or unionize.

Wrong. The free market is supposed to decide. You could possibly guess, or other members of this forum could, that I am posting this early because I might have lost my job. I was laid off from the 'manufacturing job' not because of jobs being sent overseas, though it is definitely true that has been happening for a number of years, but because the US is quickly losing it's ability to compete in the world market. The engine shop I worked at cut jobs because they weren't getting any work. The world economy is so bad right now they had to. Central banks the world over are failing at an alarming rate. RBS, AIG, Bank of America, ING to name a few. And yet while all of these banks are having problems they are sponsoring Formula 1! Why in the hell are they unloading so much money in sponsorship if they can't even keep there heads above water?! They shouldn't be out having fun if they can't be responsible at home. Bad decisions deserve a punishment, and that punishment should be closing the doors and going out of business.

I wasn't alive in the 60's and 70's, but can you take a crack at why a 12 ounce coke costs a nickle back then but costs a dollar or more today? Or why you could buy a 1970 Chevelle SS 454 for a shade over 4 grand yet a shitty family car will cost you over 10 grand now? Inflation. Government intervention. The printing of money. Need I go on?

You seem to totally miss the point I made about debt doesn't repay debt. The world cannot continue to allow the creation of currency by the stroke of a pen or computer key. If you read your history in every country and every empire the creation of a currency led to their ultimate demise. A country simply cannot survive by creating money, it's never worked and will never work.

Sorry for the rant.

One more thing. Read this article. Very interesting.

[jon-mullen]

Ray, I think we agree on more things than it seems.

First, when I say that "Capitalism is supposed to..." I am referring to the "free market." Now, if you want to say that forcing bank to give loans to underqualified minorities, regulations on oil production, or government subsidies to corporations undermines the premise of a free market, I'm inclined to agree. However, I think that it's the nature of the "free market" system to redistribute income to the top.

Wikipedia's definition of capitalism is quite flattering, considering the term was coined by Marx. "...means of production are distributed..."? Really? As far as I can tell there are a couple hundred million hardworking people in this country who sell their time to companies to get wages while the companies retain the means of production and do not allow the workers to share in real wealth.

As for the bailout I wouldn't call it socialism. A government doesn't just change its economic structure overnight. Granted, they nationalized banks and investment firms, but it's more in a bid to save capitalism than it is to move us towards socialism. They're really just using our money to double down and hope the gamble pays off. The banks should've been allowed to fail.

I'd like to see government actually get smaller but the workers in this system do need protection from the capitalists. People lost their lives fighting for the eight hour work day, and we can't allow that and other worker protections to be rolled back in the hopes that it would stimulate economic growth.

Like I said, I think there's more that we agree on than it would appear. Certainly it's a broken system when we can't employ our veterans. I think the fact that 50% of Americans don't bother to vote points to the fact that there is a platform out there that many of us would agree on. But we'll never get it. The two-party system will only ever give you nominal reform, and even then they're looking for ways to keep the moneyed interests happy.

(end of rant)

That WSJ article was interesting. I was surprised they specifically pointed to Jefferson as being a strict constitutionalist. That's what he said, but where in the Constitution does it say you can buy land that isn't even another country's to sell? Or that you can fight undeclared wars in Tripoli? The system of checks and balances is totally out of whack and will stay that way without a real uproar by the American people.

On a lighter note, who do you like for the WDC tomorrow?