The dropping dollar and the price of oil

As I mentioned yesterday, the Dollar is still dropping. Here, from Daily Kos, we get another element of the dollar weakness.

[Source: Reuters]:
CARACAS (Reuters) - OPEC is likely to discuss creating a basket of currencies for oil pricing at its next summit due to the steady decline in the dollar, Venezuela's Energy Minister Rafael Ramirez said on Friday.
"The need to establish a basket of currencies ... will probably be a point of discussion in the next OPEC summit," Ramirez told reporters during an evening event in the presidential palace.
"The dollar as a benchmark currency has been weakening quite a lot and it creates distortions in oil markets."

While disturbing, it wouldn't mean much except for the fact that this is merely the latest step in a trend away from the dollar by OPEC nations. For example:

* UAE central bank diversifies away from dollars

* Kuwait unhooks the currency peg to the dollar

* Syria (not an OPEC nation) unhooks currency peg to the dollar

* Saudi Arabia refuses to cut interest rates with Federal Reserve

* Iran sells oil in Euros

* Venezuela currency peg is in danger, and plans to sell oil priced in Euros

The U.S. economy has moved way past the set of problems that caused the meltdown of the Argentine economy in the late 90's. The only thing that has kept the U.S. from suffering a similar meltdown has been 1. the fact that the dollar has been the international reserve currency and 2. that the U.S. economy has been a massive source of international markets as long as other nations would loan the U.S. enough money to be able to buy those goods.

Other nations want the market that is the U.S. economy keep buying their products because that props up their economies, but that will only last as long as the international lenders think they can get back to money they are lending the Americans - with interest. The trend away from the dollar by OPEC nations places that ability to repay in real question.

So unless the trends change the U.S. is on the tracks for an Argentine-style meltdown. But larger. The question is how soon, and this is the kind of thing where bankers go to bed one night thinking the next day will be just like the one just finished, and then they wake up to a whole new economic world. The disaster last Summer in the international credit markets set off by the collapse of the U.S. housing bubble and its associated security backed investment vehicles is only a prelude to the financial problems the U.S. is moving towards.

The movement of OPEC nations away from the dollar is another set of dead canaries in the mine.

[h/t to Emptywheel.]