[OPE-L:6031] hidden hand of american hegemony: petrodollar recycling and international market

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Mon Oct 01 2001 - 02:54:01 EDT

I had sent this message to Doug Henwood to forward to his Left Business 
OBserver discussion group on 10/23/99. Henwood did forward it, and later 
interviewed Spiro on his talk show, though he did not share my sense of the 
importance of what spiro is getting at vis a vis the bases and nature of 
american power in the world market. in fact henwood later regretted that he had 
interviewed spiro for a full half hour. i would however again recommend the 
entire book to this list.  

Reading note: 

 David E Spiro, The Hidden Hand of American Hegemony:Petrodollar Recycling 
 and International Markets. Cornell University Press, 1999. [the same series 
 in which Gregory Nowell's book appears] 

  From the inside jacket: "Between 73 and 80, the cost of crude oil rose 
 suddently and dramatically, precipating convulsions in international 
 politics. Conventional wisdom holds that international cpaial markets 
 adjusted automatically and ramarkably well: Enormous amounts of money 
 flowed into oil rich states, and efficient markets then placed tha tnew 
 money in cash third wolrd eocnomies. THis massive rellocation of wealth is 
 labeled 'petrodollar recycling.' 

 "Spiro has floolwed the money trail, and the story he tells, based on 
 interviews and a painstaking accumulation of fragmentary evidence, 
 contradicts the accepted beliefs both in the particulars and in broad 
 outline. MOst of the sudden flush of new oil wealth did not go to poor oil 
 importing countries around the globe. Instead, the United States made a 
 deal with Saudi Arabia to sell it US securities in secret, a deal resulting 
 in a substanial portion of Saudi assets being held by the US govt. With 
 this arrangement, the US govt violated agreements with its allies in the 
 developed world. Spiro argues that American policy makers took this action 
 to prop up otherwise intolerable levels of US public debt. In effect, 
 recycled OPEC wealth subsidized the debt happy policies of the US govt as 
 well as the debt happy consumerism of its citzenry. 

 "Petrodollars were recycled not by the hidden hand of market forces but by 
 the hidden hand of American hegemony..." 
 >From this remarkable book: 

 "So long as OPEC oil was priced in US dollars, and so long as OPEC invested 
 the dollars in US govt instruments, the US govt enjoyed a double loan. THe 
 first part of the loan was for oil.The govt could print dollars to pay for 
 oil, and the American economy did not have to produce goods and services in 
 exchange for the oil until OPEC used the dollars for goods and services. 
 Obviously, the strategy could not work if dollars were not not a means of 
 exchange for oil. 

 "The second part of the loan was from all other economies that had to pay 
 dollars for oil but could not print currency. Those economies had to trade 
 their goods and services for dollars in order to pay OPEC. Again, so long 
 as OPEC held the dollars rather than spending them, the US received a loan. 
 It was therefore important to keep OPEC oil priced in dollars at the same 
 time that the govt officials continued to recruit Arab funds... 

 "The Saudis...had the greatest proportion of dollar denominated reserves in 
 OPEC. This meant that their reserves were diminished by the [post 
 12/77-rb]depreciation of the dollar (compared to the basket of their 
 imports)> But it also meant that they had the most to lose if a shift by 
 OPEC to a basket of currencies [note: urged by Kuwait!!!--rb] threatened 
 intl confidence in the dollar. Having agreed to invest so much in dollars, 
 the Saudis now shared a stake in maintaining the dollar as an intl reserve 

 Oil is still priced in dollars." pp. 121-4 
 Just to take another remarkable passage: 

 "In an attempt to continue the recruitment of Saudi funds, and in 
 competition with other industrial powers, the State and Treasury Depts went 
 to extraordinary lengths to prevent the Congress from gathering infomration 
 [on the Saudi purchase of T-bills and various other instruments--rb]. The 
 secretary of the treasury even went to the trouble 
 of making sure the CIA remained secretive [!]. It was this secrecy not 
 accorded the investments of any other nation, tha tled the Commerce Dept to 
 complain that it was unable to compile accurate data on either foreign 
 investment in the US or its balance of payments." p. 126. 
 And a good question: "We do not know for instance whether the investment of 
 billions of dollars by one govt (Saudi Arabia) in the treasury obligations 
 of another govt (the US) was economically rational or motivated by non 
 monetary considerations [provision of security umbrella?rb]. Should this 
 exchange of value be called a market or political deal." p. 76 

 Spiro includes a statistically rigorous analysis of how the adjustments 
 from the oil price hikes were imposed on the LDCs (except for a few newly 
 industrializing ones). 

 I could not recommend this book more highly. I had been hoping that a 
 Marxist would have written such an analysis long ago, though the late Eqbal 
 Ahmad made many suggestions in this direction. 

 Yours, Rakesh 

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