Another Loss for the US: Japan Breaks with Western Allies, Buys Russian Oil at Prices Above Cap

if the dollars come home, what stops the fed from printing less to reduce the supply?

 

So, a key ally paying money to Putin to fund his bloodthirsty conquest in Ukraine is okay, because after all, we’re sending armaments to Ukraine? Perhaps Biden figured “our sanctions ain’t workin’ anyway, so might as well give Japan the green light. Media will have my back. It’s not me or Hunter fighting over there.”

 

and then Biden failed to buy and they blamed it on some sort of maintenance issues at two of the five storage sites.

what is missing from the whole thread is it was that lack of SPR purchases to put a floor under the price of oil that pissed KSA off and led to the cuts. Total fail by the Biden admin even though they, correctly, changed the SPR rules to allow purchases with future contracts versus the old rules that required spot price purchases.

this admin, and the congress before it, have mismanaged the SPR and failed to capitalize on the arbitrage opportunity that the SPR gives uncle sam.

Biden and the gang likely estimated that buying for the SPR would push energy prices up which would cause inflationary pressures at a time that the fed is fighting inflation. That thinking fails if the market was willing to issue long dated futures contracts at the $75 price.

from October

U.S. Officials Promised Saudis It Wouldn’t Let Oil Market Collapse | OilPrice.com
U.S. officials told Saudi Arabia prior to the OPEC+ meeting that it would help stave off a collapse in the oil market by buying oil at $75 per barrel to replenish the nation’s Strategic Petroleum Reserves, Wall Street Journal sources said on Tuesday.

In the runup to last week’s OPEC+ meeting, Wall Street Journal’s sources suggest that the rift between Saudi Arabia and the United States grew wider over oil markets.

The Wall Street Journal sources—who remain anonymous but are cited as OPEC+ delegates—paint an ugly picture of the state of relations between the two. A state of relations that might be so damaged as to be beyond repair. WSJ sources suggest that Saudi Arabia accused the United States of playing politics with oil, pinning the Biden Administration’s drive to keep oil production up on the effect it could have on mid-term elections.

from March

US preparing to start SPR refill purchases | Argus Media

"We would like to start buying within the next year, depending on the window of opportunity," said Christopher Roark, senior crude oil marketing analyst at the US Department of Energy, speaking at a meeting of the Crude Oil Quality Association.

Even though the US government is "not the fastest at things," the department could "react quickly to the market" through a competitive solicitation process to buy oil, Roark said.

"Looking at the market situation, not only do we want to get the best value for taxpayers, we also don't want to impact the markets," he said.

The government could buy 40mn-60mn bls of crude for the reserve, depending on market conditions, Roark said. The purchase amount will be dictated by the roughly $4.5bn that the government generated from selling 180mn bl from the SPR in response to the Ukraine war, he said. The department would limit light, sweet crude purchases to about 20mn bl, and the rest would likely be comprised of sour supply, he said.

 

The amount of dollars the Fed typically prints in a year is a tiny drop in the bucket compared to the amount of dollars in worldwide circulation and tied up in other assets at the moment.

 

Still playing silly, I see. So if one country (Japan) sends a token to Russia to keep their natural gas project viable, we give all sanctions up since it's all ruined. Did I do that right? Sure seems silly to me. Sigh

 

I specifically mentioned the potential geopolitical impacts and less financial leverage elsewhere. I understand that.

I think probably more significant was Trump choosing to abandon the TPP which would have been an economic and geopolitical win vs China.

 

remind me again who was potus in 2020

US Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low (imf.org)

The share of US dollar reserves held by central banks fell to 59 percent—its lowest level in 25 years—during the fourth quarter of 2020, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey. Some analysts say this partly reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies used by central banks for international transactions. If the shifts in central bank reserves are large enough, they can affect currency and bond markets.

Our Chart of the Week looks at the recent data release from a longer-term perspective. It shows that the share of US dollar assets in central bank reserves dropped by 12 percentage points—from 71 to 59 percent—since the euro was launched in 1999 (top panel), although with notable fluctuations in between (blue line). Meanwhile, the share of the euro has fluctuated around 20 percent, while the share of other currencies including the Australian dollar, Canadian dollar, and Chinese renminbi climbed to 9 percent in the fourth quarter (green line).

 

informative read here

The Innocent Greenbacks Abroad: U.S. Currency Held Internationally (stlouisfed.org)

The U.S. dollar has been the most widely used international currency since 1945.1 The dollar is the most traded currency on international financial markets, dollars comprise 60% of official reserves (i.e., foreign exchange reserves), and many traded goods, such as oil, are commonly invoiced in dollars. In addition to these commercial uses of the dollar and dollar-denominated assets, individuals in many parts of the world hold U.S. currency, i.e., paper money, both as a store of value and as a medium of exchange.2 This blog post3 explains the widespread use of U.S. currency and provides some simple, back-of-the-envelope calculations on the size of some of the benefits to Americans.

The rest of the world holds a great deal of U.S. currency, i.e., cash. Although the amount can’t be precisely tracked, the Federal Reserve Board of Governors recently estimated that foreigners held $950 billion in U.S. banknotes at the end of the first quarter of 2021, or about 45% of all Federal Reserve notes outstanding, including two-thirds of all $100 bills. Overall holdings of U.S. currency have grown rapidly, however, and overseas holdings of Federal Reserve notes would now be worth closer to $1.1 trillion if such holdings are still half of all U.S. currency.
...............................
Foreign holdings of U.S. cash also benefits Americans because those foreign users must get that currency by selling U.S. residents labor, goods or services. If the cash never comes back to the U.S., then Americans have just exchanged pieces of green paper—which cost almost nothing to print—for valuable goods. This is a good trade for Americans. If the foreigner eventually uses the cash to buy goods and services from an American in the future—say in 10 years—then the foreigner has given America an interest-free loan for 10 years. This is also a good deal for Americans.

The benefits to Americans—the trade of goods and services for green paper—accrue directly to the Federal Reserve System, to which Congress has given the authority to create money, but indirectly to the U.S. government, to which the Federal Reserve System returns its earnings, net of expenses and dividends, and ultimately to the U.S. taxpayer. That is, foreigners’ holdings of U.S. currency allow the U.S. government to either increase spending or reduce taxes or borrowing.

Because foreign holdings of U.S. currency amount to an interest-free loan to the U.S. government, one can do a back-of-the-envelope estimate of the benefit to Americans of such foreign cash holdings. The quantity of foreign cash holdings is the annual size of the interest-free loan while the interest rate that the U.S. government debt typically pays would approximate the interest saved on that loan amount.

The U.S. currency supply has increased rapidly in recent years to about $2.28 trillion in September 2022.4 If 45% of that is held abroad, foreigners are currently giving the U.S. government an interest-free loan of $1.03 trillion each year.

 

If you haven’t figured it out yet, there’s a lot of duplicity going on with regard to sanctions and Russia. This is just one example. There are many others. If pointing out doing business with Russia is a bad thing makes me silly, you can safely put me in the silly camp.

 

More like Japan and the EU were forced to accept the situation. Japan is going to do what is best for their economy regardless of acceptance by the EU and US. To save face with Japan and not muddy the waters even further it is better to let Japan do what they believe is necessary because losing Japan entirely over the matter would be a huge misjudgement in political affairs.

 

Oh, so now you’ve had an epiphany and it’s a bad thing, because it happened when Trump was president, lol.

 

Why hasn’t it already lead to inflation?. The percent has been decreasing for many years?

 

I totally agree with this, but this also underscores the fecklessness of the policy to begin with.

 

Why are you being such an asshole about this? I made a one sentence statement about economic impacts and you reply with a paragraph non sensical wall of text about how it is off topic followed by a bunch of name calling drivel that clearly indicates you don’t have a clue what you are talking about.

Ive seen your type for years, ranting and raving about deficits, trade deficits, reserve currencies and gold standards. The one thing these wannabe economists have in common is they are consistently wrong.

You continue to disappoint as a potential right leaning poster who can actually engage in an interesting and informative conversation. I keep hoping one comes around. You’re definitely not it.

 

Are we not currently blasting rates into outer space to quell an inflation problem? When you devalue the dollar to such a degree as we have been doing for the past 15 years, yes it will be used less and be in lesser demand in the global marketplace.

 

So you are saying the current inflation is due to lower use of the dollar? Not Covid supply issues? Not massive gift stimulus? The Us percent has been decreasing probably 10-20 years. Why only inflation now?

 

The post you’re replying to here was a reply to a 7 paragraph dissertation you tried to give about the economic impacts of the dollar’s use worldwide (or lack thereof). It wasn’t one sentence.

The OP even went out of his way to thank me. You would be the asshole here, hijacking the thread and turning it into a completely different discussion, all because you don’t want to acknowledge how weak Biden truly is as a world leader. And you’re still doing your damndest to make it about the dollar and not about the fact that Biden is a flimsy leader.

 

It is one contributing factor, yes. I’m honestly stunned that you don’t understand the very simple concept of if nobody else is using the dollar to trade or do business around the world, that it would make the dollar much less valuable here at home.

 

a dropping dollar is a contributing factor but not necessarily a modestly decreasing dollar share of reserves. You act as if the world money supply of dollars is fixed, and if Saudi Arabia and China don’t trade oil in dollars, then there are going to be plane loads of c-notes brought to the US and helicoptered in the streets causing inflation. That isn’t how it works.

You have cause and effect reversed.

 

Fail, you are the one blaming Biden for bad while ignoring the reality. I didn't say it was good or bad, just pointing out your partisan hypocracy