Euro vs the Dollar

[nodoodahs]

My case for the Euro begins and ends with oil. As one united buyer of oil, the E.U. would rival the U.S. for volume. If they can break OPEC into accepting Euros, or even get enough non-OPEC countries to accept Euros for oil, it will snap the stranglehold that the U.S.$ has as an international reserve currency, and there will be a "correction." If the E.U. disintegrates, the world will continue to search for a U.S.$ replacement simply because our government continues to rip them off with dollar devaluation - a devaluation made possible because OPEC (currently) only accepts dollars as payment for oil and made necessary by our huge current account deficits.

Other possibilities are the Yen (unlikely IMO since they are very much in our pocket), the Yuan (more likely IMO because of the high volume Chinese oil demand and the possiblity of exchange for oil in former USSR states), and the yet-to-be-formed gold-backed currency that mid-eastern nations occasionally talk about.

My case against the dollar is detailed in several other posts. As fiat currencies go, the dollar is one of the better looking shotgun shacks in a row of shotgun shacks. For investors of my size (small) it's logistically difficult to have large direct exposure to foreign currency, so it's the shotgun shack I live in.

A little history:

In order to pay for the costly, rapidly escalating Vietnam war, the U.S. government inflated the currency and spent in massive deficits. However, since we had obligations to exchange dollars for 1/35 ounces of gold (not to U.S. citizens, no, only to foreign governments), our devaluation of the dollar had ... consequences. When France (ironic, since they were in Vietnam before we were) came calling for their gold, the U.S. government ... defaulted. Nixon defaulted on our obligation to exchange dollars for gold, in front of God and everybody, in clear violation of international law. This was the end of Bretton Woods.

However, we instituted a system that would allow us to continue devaluing the dollar without foreign governments dropping them for other currencies. From 1971 on, OPEC has agreed to sell oil only for dollars. This is in return for our providing them with huge loans from the World Bank and lots of military assistance and base presences, the net result of which is propping up (and enriching) their unpopular governments (like Iran and the Shah, Saudi Arabia and the House of Saud, etc.) in return for an assurance that the dollar remains the reserve currency of the world.