Conclusion was that at 1x Debt/ GDP, Dubai was dependent on a bail-out for Abu Dhabi.

Moody’s did not look at taxing power. Though an income tax is probably not too feasible, there is a VAT implementation pending. Seems like a 5% VAT with 5% coupon sovereign debt and 1x Debt/GDP puts you in a good position to service debt.

At least if you ignore all the private debt that funded speculative real estate investments.

There’s also a somewhat erratically collected 5% tax on rental leases (but no property tax or transfer tax).

“The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.

Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.”

Yes. Most of Norway’s oil exports are to Europe rather than to the US. I remember reading that Norway once proposed a new oil bourse to trade in Euro since it was operationally more inconvenient to trade using dollars on the London exchange while the actual sale is to Euro countries. Norway being a NATO member and close US ally, this shows that petrodollar recycling has to do with the central bank reserve currency and not with the currency in which oil is priced.

and setting aside venezuela — which buys a lot of us goods — most oil exports tend to buy more goods (far more goods actually) from europe and Asia than the US.
…
but then there is a second impact — which is that a rise in oil prices tends to hurt more energy intensive economies more

Demand for the US dollar is mostly in the form of foreign demand for dollar denominated debt at low interest rates (in a credit crisis this morphs as dollar demand for servicing the dollar debts), OPEC demand resulting from petrodollar re cycling, EM central bank demand due to currency interventions and forex reserve accumulations of most foreign central banks. Compared to these factors I’m not sure demand for US dollars caused by export revenue is a significant factor.
Given the high level of deficits cooling of the domestic US economy due to higher oil prices should be dollar positive since it would probably reduce consumption and trade deficits, thereby reducing the supply of dollars in the exchange markets.

Interest Rate Expectations have a larger role in the strength or weakness of a currency like the USD and/or EURO.

Long Term Yields are a good indicator of market expectations.

Im really puzzled on how the US is going to bankroll their massive debts, deficit and loose monetary and expansionary fiscal policies.

Clearly, like bena gyerek has pointed out, this topic has been discussed here many times round, I am still not convinced that the future increase in supply of USTs is not a major issue in the face of possible weakening or diminishing demand.

And, to offset the burgeoning supply of USDs resulting from the declining Oil prices, some USD denominated assets have to rally from its current levels. US Stocks? US Property? Gold? or US Treasuries?

my point re: petrodollars is two fold.

a) in addition to the gulf states — which do tend to have a high share of their assets in dollars, tho it varies from from state to state (the saudis have a higher $ share than many others) — there are a set of oil exporters that actually buy a lot of euros. Norway for one. But also russia …

whether or not this the overall process is dollar negative or not hinges a lot on the dollar share of the Gulf’s reserves and sov funds, which isn’t known. it incidentally certainly tends to be yen and even Asia negative ..

b) while the initial effect of an anticipated rise in oil prices is more savings, over time spending and investment tends to adjust up. and setting aside venezuela — which buys a lot of us goods — most oil exports tend to buy more goods (far more goods actually) from europe and Asia than the US. the process of spending the oil surplus is clearly $ negative (see the Imf WEO chapter in 2006).

Run the process in reverse, and in the first instance the oil exporters cut into their savings (which one would think would hurt the dollar — though there is no such evidence right now) and in the second instance they cut their imports (which hurts europe and asia more than the US).

but then there is a second impact — which is that a rise in oil prices tends to hurt more energy intensive economies more, and the US is the most energy intensive economy in the g-7. ergo it slows the us, and thus hurts the $. run that in reverse and you get a dollar positive process …

Suffice to say there isn’t a clear answer