[OPE-L:8452] Re: Re: "an oil CURRENCY war"

From: rakeshb@stanford.edu
Date: Sun Feb 09 2003 - 13:26:13 EST

I called attention to this book two years ago on this list, and four 
years ago on LBO-Talk. The US has been desisting attempts by 
some member of OPEC to accept a basket of currencies for at 
least two decades. In this book Spiro also lays out the double loan 
the US can  receive by the pricing of oil in dollars. 
Yours, Rakesh

[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 
Reading note: 

 David E Spiro, The Hidden Hand of American 
Hegemony:Petrodollar Recycling 
 and International Markets. Cornell University Press, 1999. 

  From the inside jacket: "Between 73 and 80, the cost of crude oil 
 suddently and dramatically, precipating convulsions in 
 politics. Conventional wisdom holds that international cpaial 
 adjusted automatically and ramarkably well: Enormous amounts 
of money 
 flowed into oil rich states, and efficient markets then placed tha 
 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 
 interviews and a painstaking accumulation of fragmentary 
 contradicts the accepted beliefs both in the particulars and in 
 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 
 in a substanial portion of Saudi assets being held by the US govt. 
 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 
 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 
 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 
 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 
 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 
 OPEC to a basket of currencies [note: urged by Kuwait!!!--rb] 
 intl confidence in the dollar. Having agreed to invest so much in 
 the Saudis now shared a stake in maintaining the dollar as an intl 

 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 
 [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 
 accorded the investments of any other nation, tha tled the 
Commerce Dept to 
 complain that it was unable to compile accurate data on either 
 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 
 of another govt (the US) was economically rational or motivated by 
 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 
 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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