US Dollar Will Save America from Bankruptcy
American Currency Seen as Safe Haven for Cash from Mideast Oil
Feb 2, 2009
The world economy is in a mess, with America on the leading edge of financial chaos. For the last 20 years, the US has been dumped on from all sides around the globe.
Yet the value of the US dollar keeps going up. The American greenback is the one commodity that the rest of the world wants.
Why? One reason is that American dollars are still the world’s safe-haven currency. This can be observed in the increased demand and prices for US currency whenever a crisis breaks out in the Middle East.
American Economy Down but Not Out
Just in the past few days, the US trade deficit reached US$63 billion. The White House has projected America’s annual budget deficit for 2009 to hit US$480 billion. US national debt is over $10.6 trillion dollars and growing by the minute.
While Barack Obama is serious-minded in his approach to America’s debt problem, he has good reason to be optimistic about the future in face of crushing liabilities.
The key is where OPEC countries park money generated from their oil exports.
Bank for OPEC Money
Daily, 90% of OPEC oil money is deposited into the United States financial system. Iran is the only OPEC nation that converts oil revenues to the Euro, and that’s only because of political issues with America.
To give some perspective on how much money flows in from OPEC oil money, consider that OPEC countries export an average of 60 million barrels of oil each day.
Even at today’s depressed crude prices of around $40 per barrel, multiplying 60 million barrels of oil times the $40 price results in well over $2 billion in US dollar deposits to America daily. That’s about a trillion US dollars annually at $40 per barrel, enough fresh money to make American leaders confident that they can make interest payments even on their extraordinary debts.
Can Other Countries Manage OPEC Money?
The only country that can absorb OPEC’s gargantuan daily money deposits is the United States of America.
About 40 years ago, OPEC first proposed to park money with Bank of England, which said no. England was deeply concerned because too much OPEC money would lead to hyperinflation. That is, too much money in the system chasing too few goods. Swiss banks said no because their economy is relatively small and the flood of OPEC oil money would bankrupt that nation. Germany simply said no.
America is still the world leader in overall capital, which makes the US uniquely qualified to manage fresh money from wealthy OPEC countries. That’s why today’s oil prices are quoted in US dollars and not some Middle Eastern currency.
More Demand for US Dollars to Fund Infrastructure Projects
So, the USA isn’t afraid of its $10.6 trillion debt, its $63 billion trade deficit, and its projected annual budgetary shortfall of $480,000 this year. American leaders know more fresh money is coming in from Middle East oil daily. America continues to use some of that money to pay off a part of their interest on their debt.
Of course, extraordinary borrowing can’t continue forever. Debt and interest payments eventually grow to levels where foreign lenders will no longer allow the US to borrow any more funds at all. If the U.S. isn’t able to make its debt payments, well, that’s called bankruptcy.
But more fresh US dollars continue to come in. Even if oil prices go up, that will just expand the size of US dollar deposits from Mideast oil.
At this point, Barack Obama is encouraging more demand for US dollars and inviting more capital to keep flowing into the United States of America. This money will be used to pay for infrastructure projects and other stimulus packages from the Obama administration.
This will be even more important when US soldiers come home from Iraq and Afghanistan, and will need jobs from the infrastructure projects to generate income.
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