Making Sense of the Ports Deal

What you have in front of you is a map showing the proximity of the United Arab Emirates to Iran. The same market futures website I quote in my petrodollar post goes on to offer a plausible rationale for Bush's insistence on the Ports deal, against massive opposition: quid pro quo. Dubai Ports Worldwide gets the ports, we get to use the UAE as a staging ground for operations in Iran. Take a look. It makes a lot of sense to me.

Iran, Petrodollars, and the Ides of March

So what's all the fuss on the net about Iran's Oil Bourse? In a nutshell, Iran is planning to convert its oil money into Euros in mid-March, which may cause the US dollar to take a dive. According to a market forecast website,

When Iran starts accepting only Euros for oil, those who have been holding Dollars, or Dollar denominated U.S. financial instruments with the intent to exchange them for oil, will upset the global currency markets by suddenly exchanging them for Euros. Foreign demand for Euros will increase and demand for Dollars will decrease. 49 percent of the U.S. debt is owned by foreign interests. As that U.S. debt is exchanged for oil, via Euros, somebody is going to have to buy excess U.S. debt instruments. That someone will have to be the Fed. They will have to print a ton of Dollars to buy these U.S. debt instruments which will no doubt be unloaded by foreign interests to acquire Euros and Oil. Those excess Dollars will then be exchanged for Euros, driving the value of Dollars down and Euros up.

It looks like the US government has good reason to worry. In a worst case scenario, Iran's move would set the US dollar on a disatrous slide into devaluation.


Interestingly, many heads at the Federal Reserve are stepping down. Are they abandoning ship? Also, as of mid-March, the Fed will no longer publish information about how much currency is in circulation. The lingo for this information is "M-3." Here's the futures website again:

The Fed has to hide M-3, the most widely followed and reliable measure of money supply out there, because they may have to create so much money out of thin air to buy so many financial debt instruments - and possibly equities - in order to keep prices from crashing. Why does M-3 matter, as opposed to another measure for money such as M-2? Because unlike M-2, M-3 includes what Dollar reserves are held by foreigners and major financial institutions, as well as Repurchase Agreements, where the Fed's Open Market Money creation activities show up (they buy securities held by large financial institutions in exchange for money they electronically printed out of thin air).