When the pipeline problems go away and Europe dodges another credit crisis bullet, the oil market once again will focus on the dollar and the euro. You should not be surprise because all along the dramatic moves in the price of oil has been, in large part, a currency game. Oil prices have been pushed up and down as the risk trade has come on and the risk trade has come off. It has tanked as worries in Europe raise fears of demand destruction and a flight to safety in the dollar and then soared when some bankrupt European nation gets its latest printed cash infusion.
Oil has found new life on quantitative easing and renewed vigor as the global infusions of cash have improved economic numbers and oil demand expectations. The dollar, the global currency of all commodities that really matter, has been quite the center of conversation, especially as President Obama welcomes China's Hu Jintao, leader of China and proud manipulator of its local currency the yuan or renminbi.
Mr. Hu Jintao was proud to say that the global currency system was a thing of the past. The Chinese, who were aghast that our Federal Reserve would print more money without their approval because as they say it weakens dollars at the expense of other countries' exports, have no qualms against manipulating its own currency, sucking the lifeblood out of the global economy. Mr. Hu Jintao says that, "The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level."
Well if our currency system is such a thing of the past then why does it upset him so? When China wants to manipulate their currency, it is ok because when they do it they say they are a developing nation. Yet the United States is developed, and therefore we should allow the Chinese to steal from us and the rest of the world I guess. Hu Jintao tells us that China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development, but making the RMB an international currency will be a fairly long process. Like until they stifle all competition.
But what makes him really angry is how QE2 and Ben Bernanke one upped him on his quest to manipulate his currency to economic nirvana. QE2 was the answer sending a strong message to the currency manipulative Chinese that two can play the currency manipulation game. QE2 exported inflation to China and helped rebalance a post recovery global economy that was tilted decidedly in China's favor. The Chinese now must focus internally on cooling down its overheating economy, and that may mean more dramatic steps to raise interest rates or even allow their caged RMB tiger to float.
The Chinese at this time lack the courage to be a real economic leader by allowing the market to determine the real value of their currency. Hu Jintao can bash the dollar (or should I say debase it) all he wants, but it was his country's peg to the dollar that allowed it to emerge from the economic dark ages.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.