Tuesday, July 17

wondering no longer: war with Iran

A few days ago I was posting that I wondered what the largest military power in the world would do in the face of the continuous depreciation of their currency.

I wonder no longer, as I have just found a brief analysis offering an answer that fits like a glove:
With the US the US current accounts deficit approaching $800 billion for 2007 and the dollar continuing to fall against other currencies (for example, a Canadian dollar is worth $0.951 US dollars at this writing), the US cannot afford for international demand for the dollar to fall.

One guaranteed source of demand for dollar denominated assets is the petrodollar system, under which anyone buying oil from an OPEC member must buy it using US dollars.

This creates a guaranteed market for dollars and allows the US to run current accounts deficits (i.e. to import more than it exports every year). In fact, rising oil prices allow the US to run larger deficits, since oil importing countries must spend more on the oil they buy.

Into this milieu, Iran is escalating its dollar counter-hegemony by reducing its dollar reserves and asking Japanese buyers to start paying for its oil in yen instead of dollars.

The answer is obvious: err ... fight the terrorists of Iran! I mean ... spreading democracy in Iran?
err ... remove their weapons of mass destruction?

Well ... whatever the excuse of the day is, it amounts to the current movement in the US for attacking Iran.

I said it before: it's not personal, it's economical!

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