Oil's rise undermines the Petro Dollar Status

The bears had long foresee the dollar's decline ever since Irag war. The side effects is the so called petro dollar is diminishing its role as the world reserve currency status.

You see, petro dollar is a transitional agreement to prolong the deteriorating empire financial status after the breakup of brettonwoods. Ever since then, the dollar has been through ups and downs in a general downward trend.

As oil rises from now on to 2015 for its all time high. The soverign debt collapse will then be dominate forces.
Gold to oil ratio, will still keep in sync.At $200 oil, the gold may be at 15 * $200 = $3,000 where 15 is the historical average berrals of oil that one troy oz of gold will buy with uplimit at 25 barrels (25 * $200 = $5,000). Nothing prohibits oil rises to $300 but, a huge but, it will have positive effects and near term negative effects on US economy. Also, oil rise also symbolizes the link between oil and USD is broken that USD can not keep the constent purchasing power as petro dollar status originally designed for.

The negative effects on economy is the entire industrial cost structure is built on low oil price. Higher oil price will of course derail any FED QE based recovery efforts. Instead, the inflation will eat through every fabric of this nation as all commodity rises in sync. Expect lower living standard and of course, real estate at lower parts of totem pole (as much as it is a real tangible asset class).

The positive effects of high oil price is that it will stimilate transition to alternative energy based economy, as long as it takes. In the process, the disposable income will decline for average citizens where their doniment currency being debased.

Obviously, China is in attempts to avoid drastical living standard decline due to USD debasement. It is why the bilateral trade settlement is being pushed toward RMB based.settlement. RMB will one day become one of trading currency, or at least a significant part of world currency system. The uptrend of RMB appreciation will be mostly evident after soverign debt crisis breakout in 2012-2015. RMB appreciation is in up trend channel 2016 and beyond.

The significance of RMB as a trading currency is that surplus liquidity will be absorbed by trade partners as Chinese RMB based bank accounts are spreading. It will have a deflationary effect and make the RMB to be a stronger currency.

For na sayers, just wait and watch the development of RMB.

It is mostly facinating since we are witness a world of transitions from one global reserve currency into some thing entirely new.