Econopundit posted this:

Financial Times reports:

China indicated on Thursday it could begin to diversify its rapidly growing foreign exchange reserves away from the US dollar and government bonds -- a potential shift with significant implications for global financial and commodity markets.

Economists estimate that more that 70 per cent of the reserves are invested in US dollar assets, which has helped to sustain the recent large US deficits. If China were to stop acquiring such a large proportion of dollars with its reserves -- currently accumulating at about $15bn/mo...it could put heavy downward pressure on the greenback....

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It could get really messy there soon.

"foreign capital flight from the US"

Why? Our debt to GNP ratio and economy will still be the best in the world. Won't high oil prices hurt China also?

We're at the point right now where even at $50 a barrel, the number of drilling areas that were previously non-viable that now are is still significantly higher than 3-4 years ago. As the new sources come on line that will increase the downward pressure on oil prices, barring some outside circumstance such as a major terrorist attack on oil production facilities in a key area or Hugo Chavez getting his panties in a wad and suddenly shutting down all production in Venezuela.

Sandy: diversifying rapidly growing reserves is not the same thing as capital flight. If you've got time, click on the last link in the Econopundit article (it's a pdf so it'll take awhile to download.)

How'd you do that cross out thing?

Sandy:

Here's the question such folks never ask themselves: what other reserve is safe?

Look, let's stop kidding around and drill ANWAR.Especially if $100.00 oil is possibly in the cards. If the Republicans can't push it through the Democrats will when they get into power, the @#@$%&* hypocrites.

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Hope Despair reality springs eternal.
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I told you already OJ, by the end of 2006.

That's a strike tag: [strike] text [/strike]. Does not work in comments.

I know that, OJ, and love telling the Euros where else is the world going to put their money?

the Magic Kingdom?

Africa?

Central/South Americas?

Europe?

No place else to go.

What's even better is the Euros will really, really be depressed cos there's no one else to "counter-balance" US.

There could very well be a terrorist attack on production facilities (still disgracefully underprotected), and Hugo Chavez' panties could also easily get wadded, especially now that he has a new running buddy in Bolivia. I know Bolivia has no oil, but Hugo's bound to feel emboldened with a new Socialist pal and ready to poke us with a stick just to see us jump.

And no, the Dems won't drill ANWR. We'll continue to look for alternative energy sources, and oil sources that aren't in such vulnerable areas.

I only agree with Thomas Friedman sporadically, but his column in today's NY Times addresses the energy issue, and he makes several excellent points.

Yes. There's the rub. Where will they put their billions? Hmm.

That was my first thought when reading the intro. Seems odd that economists and financial writers never seem to ask that question.

Jim, if the strike tag doesn't work in the preview, does it work in the post?

erp

No it will not post to the comment area at all. Only in the original post.

Of course, unlike the OPEC folks in the 1970s, one of the problems Chavez has if he decides to get into a snit and shut off the spigot is the Venenzuelan government's investment in both refining and distributuion facilities in the United States, through their purchase of Citgo several years ago. If Hugo cuts off the oil, he cuts off his own company's access, and the profits his government gets from that.

It doesn't mean he won't do it, but unlike his hero Fidel, who faced minimal financial losses from a clash with the evil capitalists to the north, Hugo will have to take a big hit in his own national pocketbook if he decides to use his oil as an economic weapon.

Chavez shuts down production, he is going to be killed. So, he won't do that.

Bob:

Yes, high oil prices hurt China much more than they hurt the U.S.:

China Rationing Gasoline And Diesel Fuel

Aug 09, 2005 China's most prosperous city of Guangzhou has begun rationing gasoline and diesel to cope with a fuel shortage. Guangzhou experienced a monthly shortfall of approximately 12,200 barrels per day of oil products, Xie Zhaowei, secretary of Guangzhou's Petroleum Industry Association, said. China National Petroleum officials said soaring oil prices and a refinery-imposed supply crunch led to a shortage in the consumer market. China's growing energy consumption is also a factor.

"Asia's largest oil refiner Sinopec relies on imports for much of its crude for refining, so the surging crude prices on the world market have greatly hurt the oil giant's refining business, when the central government still controls the price of domestic refined oil to stabilize the market," a CNPC official was quoted by the China Daily.

Robert Duquette:

Outside the US, more than 50% of oil is consumed for stationary, non-transportation purposes such as electricity production, where it is relatively easy to substitute natural gas for oil.

Therefore, the higher the cost of oil, the lower the demand - with a few months' lag.