A long while back I reported on a theory that said the US was poised on the point of fiscal disaster if the oil producing nations started pricing their oil in euros instead of dollars. This would cause countries like Russia, Japan and China to liquidate their dollar reserves and start buying euros so that are not exposed to dollar currency fluctuations. Today the dollar took a hit after Russia hinted it had too many dollars and hence might need to switch to euros.

This was just a hint - no actually move. The problem is this is one of those things that will happen precipitously, like a catastrophic change in the earths weather patterns. As soon as it is percieved that the dollar is significantly at risk then it will begin to tumble out of control and the other countries will rapidly have to dump their dollars to avoid being burned. The cost of oil will leap up as the oil producing nations reprice to account for the devalued dollar since they don't buy all their products from the USA. The effect on the US economy will be bad, very bad - the US will have to hike interest rates way high to attract investment to fill the huge void left by foreign diversification. Remember about 50% of the US debt is financed by overseas countries, primarily Japan.

So clearly Russia is flexing its muscle and firing a few warning shots over the US bows - first it was joining Kyoto and now its economic body blows. What next? How long before the USA declares Russia and the entire Euro trading block a mortal enemy of the US? Why is Russia doing this? Well its clearly passing judgement on our unilateralist policies and giving us warning that a country that has only 5% of the worlds population can no longer be the big bully on the block it is used to being.

I'll give us no more than four more years to continue to avoid the economic judgement day, remember folks - shit happens!

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