It's all about the Dollar vs. the Euro-- all the bloodshed in Iraq

and soon to be Iran and elsewhere.

http://zmagsite.zmag.org/Feb2004/sharma0204.html
http://www.dailykos.com/story/2005/2/5/16147/25317
http://www.thirdworldtraveler.com/Iraq/Iraq_dollar_vs_euro.html
http://www.moneyweek.com/article/139/investing/currencies/will-the-euro-usurp-the-dollar.html

This explains A LOT. I could never fit econ courses into my college curriculum schedule but it makes sense now. I've always wondered how we could be racking up multi-trillion dollar debts with nary a peep of concern from major economists (since it was in part such debt that destroyed the British Empire after WWII). The reason is that once Nixon separated the dollar from the gold standard, Kissinger negotiated that treaty with the Saudis in the 1970s (to denominate oil sales only in dollars), with the rest of OPEC following suit. The result being of course that countries have to get dollars to buy oil and other goods, making the dollar a worldwide reserve currency and allowing the US Mint to print up dollars with virtual impunity (no inflationary spiral)-- in effect a no-interest loan, as one writer indicated.

This is how the US has been able to afford the virtual "free ride" we've had for the past couple decades, and why the Asian Central Banks have been saving our bacon. But the freebies are over b/c of the Euro. Iran has been moving in the direction of pricing its oil in Euros for a while, perhaps explaining the rush to invade. But even if Iran is taken down, Russia is moving to the Euro (at least partially), along with Libya, and Venezuela, and Indonesia, and Malaysia. There's no way, in short, that we can stop the shift to the Euro as reserve currency, what with other countries having lost their trust in us with our mounting debts. And when the shift does occur in earnest it could be ugly, a sort of vicious cycle where our debt imperils us further, decreasing the value of the dollar, and so on. Don't jump ship yet, but diversify your assets; as Sy Hersh suggested in January, take a good hard look at buying up that plot of land in Milan or in Munich.

the stability of the US (you want your reserve currency to be something that dosen't fluctuate wildly, and thus it makes sense to invest in a big, powerful country that you can count on being there in the future.) Thus the sheer importance of the US over the past 50 years has pretty much insured it's status as a reserve currency. Of course the current government's complete disregard of both the trade and budget deficits helps to push down the dollar, and gives foreign countries which want to protect the value of their monetary reserves a strong incentive to diversify. Thus Bush, and the nation may wind up shooting themselves in the foot.

At this point the dollar is largely being propped up by Asian countries which are buying US debt in an attempt to peg their currencies to the $ (if they don't their goods become more expensive in the US and their economies suffer.) However if any of these countries stop--and South Korea announced it was diversifying it's currency holdings a few days ago-- it could spark a big dollar selloff, raise the price of foreign manufactures in the US, drive up interest rates, and cause quite a bit of trouble to the world economy.