Prepare for the Death of the Petrodollar!

• Prepare for the Death of the Petrodollar! 
  by Addison Wiggin, http://dailyreckoning.com/
  [Part I of this essay, The US Energy Boom Will End the Dollar’s World Reserve Status, was published in yesterday’s Daily Reckoning]
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  “So let’s say the U.S. is really not importing much Arab oil anymore,” says Erik Townsend in a thought experiment. “Well, if that were the case, it’s really hard to see why the Arabs would continue to price their oil in dollars, especially at that point; their biggest customers would be China and Brazil and countries that have no reason to deal in dollars.”
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  We’re in debt to Mr. Townsend for helping us tease out the petrodollar’s endgame here. Erik parlayed the fortune from his first career as a software entrepreneur into a second career as a hedge fund manager who knows the oil futures market inside out.
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  Think about it, he says: Where’s the incentive to keep pricing oil in dollars and maintaining large dollar reserves if the U.S. is no longer your biggest customer?
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  “The petrodollar system breaking down, where oil is no longer paid for in dollars internationally, essentially would be the death knell to the U.S. dollar as the reserve currency. It means the U.S. can’t borrow with ‘exorbitant privilege’ anymore, and it means the U.S. Treasury market is set for an out-of-control interest rate spiral.”
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  Suddenly, the fact the U.S. needs fewer imports doesn’t matter when “the rest of the world won’t use dollars for their currency.”
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  As it is, the Arab oil sheiks have more dollars than they know what to do with. In the three decades before 2000, total energy export revenue from the Middle East totaled $3.5 trillion. In the 13 years since, the total has swelled to more than $8 trillion. By one expert estimate, some $8–10 trillion in currency balances lie in Middle Eastern hands, much of it in dollars.
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  read more!

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