| > the petrodollar Petrodollar hypotheses get the dollar's hegemony in international trade backwards. Petrodollars (i.e. oil producers' surplus revenues invested in U.S. dollar denominated instruments [1]) don't cause the hegemony. The United States being (a) the only advanced economy not bombed to the 19th century post-WWII and (b) the world's largest single consumer market [2] created and create international holders of U.S. dollars. (In the initial case, thanks to Bretton Woods. In the recurring case, since Americans pay with U.S. dollars.) Those holders, in turn, drive demand for dollar-denominated investments. The interaction between these processes, international consumption by Americans and the reinvestment of international dollars, drives economies of scale in the American financial system. (It is why, until very recently, it was cheaper and faster to send U.S. dollars between two European capitals than initiate a Euro-denominated transfer.) TL; DR Every watt the U.S. generates from solar is a watt of (a) cheap, domestic energy and (b) petroleum the U.S. has the choice to export. Cheap and plentiful energy drives economies; economies, ultimately, drive demand for their currencies. [1] https://en.wikipedia.org/wiki/Petrocurrency [2] https://en.wikipedia.org/wiki/List_of_largest_consumer_marke... |
My other favorite: the failure to understand how a rising or falling dollar value is what has been triggering the commodity boom cycles, rather than primarily demand or magic animal spirits. The 1990s saw incredible global economic growth, and oil (gold etc) got cheaper and cheaper as the USD gained value toward the end of the decade. The global economy expanded dramatically from 1980 to 2000, yet the price of oil collapsed, despite demand going through the roof. It of course wasn't supply/demand that caused oil to go from $20 to $120 inflation adjusted, from ~1973 to 1980, it was a debased dollar; and it wasn't supply/demand that then caused oil to implode from $120 to under $20 (again, inflation adjusted) by 1999-2000. Similarly the GW Bush wars and economic policies + Fed policies heavily debased the USD, which sent oil, gold etc soaring and other nation GDPs soaring when priced in dollars. And then when a stronger dollar returned in 2014, post QE, oil plunged accordingly (and that was incorrectly blamed on oversupply of oil, when in fact oil had been in oversupply for years prior to it crashing). And again most recently, oil began climbing again, exactly when the dollar began falling from its highs (eg 100+ on the dollar index).
Modern 'economists' get these relationships entirely backwards. They also comically miss the way the US has been able to restrain Russia by using the USD to crash oil (their achilles heel), which was done in the Reagan years and toppled the USSR by bankrupting its finances (it wasn't military spending that did them in), and again immediately after the Ukraine invasion (brutally punishing their economy and making it difficult for Putin to continue to fund his foreign adventures).