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I not convinced oil is that big a deal these days. The US kind of owns huge swathes of the world economy - tech - facebook, google apple etc, fast food and drink - coke, pepsi, McD, places to stay - Hilton, Sheraton, airbnb and so on. Typed in Bangkok on an Apple while drinking coffee paid for on MasterCard while waiting to fly on a Boeing.

So people will lend to the US as it had a lot of income, assets and a reputation for paying. Compare that to the country with the world largest oil reserves, Venezuela.

Oddly enough in society the relevance of a resource and its cost are often quite detached. Imagine Facebook/Google/Apple/Coke/etc all shut their doors, never to open again, tomorrow. There'd be no particularly dramatic change in society.

By contrast, imagine all oil producing nations suddenly stopped exporting any oil tomorrow. Once domestic reserves of countries ran out the entire world would grind to an incredibly rapid halt. Electricity, transportation, shipping, and everything would stutter and then come to a near complete stop. And society itself would likely break down in very short order. It's not about the dollar value of oil, but about its relevance to society. You'd think those two would be strongly correlated, but they're not.

This is why oil and the petro-dollar have so much inherent value. Without oil society collapses, and USD is the gateway to oil. That 'is' may be changing to 'was.'

But oil is the infrastructure of all of this. Oil in the US has that structural role plus the good (financial) reputation of its country.

Don't underestimate oil, about 20% of the fortune 500 is oil related: http://fortune.com/global500/list/filtered?sector=Energy

You may be correct on all the other points but increasing the monetary base by 400% happened at the same time all broader metrics of money (M2, M3, etc.) would have have rapidly fallen and collapsed.

The entire world economy was deleveraging at an enormous rate and essentially destroying tons of money in the process. Fractional reserve banking essentially lets banks create money; when everyone is busy running for the exits of course the Fed can increase the base by 400% and we would merely be treading water.

I have been wondering this myself and oil seems like a good explanation.

What is the explanation for Japan? They don't have oil and they have greater debt than the us (relatively), yet they haven't been met with anything worse than stagnation.

One major difference there is that Japanese debt is mostly held by Japanese institutions. By contrast countries like Greece (and the US) have most of their debt in foreign hands. This dramatically changes the calculus there. Greece could not 'print' euros to pay off its debt, even if it wanted to. Japan can. And as a consequence of their 'nationalization' of debt, they also pay much lower interest - comparable to what we do, in fact.

Even then, I think you have keep things in perspective. 'Just stagnation' understates the situation here. In the late 80s many thought Japan was literally going to take over the world economically. Their GDP today is now lower than it was 2 decades ago. And ultimately there is still no clear path for them out of this decline.

>But China recently has been making huge strides in getting nations to swap to the yuan for oil. Rather than give any links go search for 'china oil yuan' and you'll get countless articles all within the past couple of months about what China has been doing.

Until people around the world can speculate freely on the yuan, and yuan denominated futures like people can with QA and CL, I don't see this having much impact.

Speculators will make up most of the daily volumes, and most never want to take physical delivery of the "gold convertibility" yuan denominated oil futures on expiry, and most certainly want to be able to take their profits out of the yuan to whatever asset of their choosing. Without the the yuan floating, this will be a relatively non liquid market.

>In particular China is attempting to even get Saudi Arabia to start pegging their oil to the Yuan, which would be an enormous blow to the US.

Yeah, I don't see the Saudi's buying Chinese weapons and US weapons without the US giving it's approval [0], because they certainly don't have the same capacity as the US for their citizens buying Chinese goods.

If the EU was actually serious about more trade with China, they should drop a lot of the anti dumping restrictions they have now on trade ;)

[0] https://foreignpolicy.com/2014/01/30/why-did-saudi-arabia-bu...

I've been watching petro$ developments closely, as they're likely to presage certain world events, and there's definitely been some rumblings. The yuan recently received inclusion into the IMF SDR basket, and I wonder if that's given it some more cachet as a reserve currency.

> but I want to keep this brief.

Feel free to elaborate

One of the big benefits, indirectly already mentioned, is inflationary controls. Imagine the USD becomes worth less due to an influx of USD into the economy through some economic decision or another. The nice thing about this is that that means it requires more USD to purchase oil. And so countries and end up spending a greater percent of their reserves for the same amount of oil, and also end up taking on even greater amounts of USD to maintain balance.

Currency inflates due to inflated supply -> foreign countries take more of the currency out of supply -> inflation decreases. And it doesn't end there. The additional revenues from the oil producing nations are then invested into US securities and taken completely out of circulation. The vast majority of money is not brought into circulation through printing, but leaving the specifics of creation aside, this -in part- helps buffer any harm caused by the excessive 'printing' of money.

Thanks. Quite interesting. Wish I knew more about macroeconomics.