Date: Sat, 23 Oct 1999 03:19:07 -0400 (EDT) From: bhandari at Princeton.EDU (Rakesh Bhandari (bhandari at Princeton.EDU))
Doug, would you kindly forward this to the list? All the best, Rakesh ps thanks to Doug, Angela, John M, and Michael Pollak for their concern. All is well. _______________________ 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..."
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>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 currency...
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