Tuesday, July 31, 2007

The Saudis don't need the cash?

Why are we sending these guys $20 billion?

Oil and Global adjustment

"The current account surplus of the world’s major oil exporting economies – defined as the IMF’s fuel-exporting emerging economies plus Norway – increased from $110b to about $500b between 2002 and 2006. In 2006, the current account surplus of the Gulf Cooperation Council (GCC) countries (population 40-45 million) rivaled the currentaccount surplus of China (population 1,300 million). A fall in the external surplus of oilexporting economies – whether from a fall in the price of oil or a rise in domesticspending and investment -- is consequently a necessary condition for global adjustment.

The initial response of the oil exporting economies to the surge in oil prices from roughly$25 a barrel in 2002 to an average of close to $65 a barrel in 2006 was quite onservative. Government spending did not increase immediately. Even once the government spending did begin to move up, the overall increase was more subdued than in previous oil booms. The initial increase in oil prices also coincided with a sharp fall in the dollar, reducing the external purchasing power of the currencies of those oil exporters that pegged to thedollar. In 2003, 2004 and 2005 a very large share of the increase in oil export revenues was saved rather than spent. Up to three quarters of the oil windfall went toward building up the external assets of the oil-exporting economies.

If, as is likely, oil exporting economies held the majority of their assets in dollars, the rapid growth in their dollar holdings helped to finance the deterioration of the US external account deficit. The oil exporting economies – setting Mexico and Venezuela aside – tend to be far more inclined to hold US dollars in their reserve portfolio than to buy US goods."

--- Brad Setser

The immutable by-laws of business:

The Arabs have taken billions of dollars out of this country, and now they must put it back. It is ebb and flow, tidal gravity, it is ecological balance! You are an old man who thinks in terms of nations and peoples. There are no nations! There are no peoples! There are no Russians. There are no Arabs! There are no third worlds! There is no West! There is only one holistic system of systems, one vast and immane, interwoven, interacting, multi-variate, multi-national dominion of dollars! petro-dollars, electro-dollars, multi-dollars!, Reichmarks, rubles, rin, pounds and shekels! It is the international system of currency that determines the totality of life on this planet! That is the natural order of things today! That is the atomic, subatomic and galactic structure of things today!

There is only IBM and ITT and A T and T and Dupont, Dow, Union Carbide and Exxon. Those are the nations of the world today. What do you think the Russians talk about in their councils of state -- Karl Marx? They pull out their linear programming charts, statistical decision theories and minimax solutions and compute the price-cost probabilities of their transactions and investments just like we do. We no longer live in a world of nations and ideologies . . .

The world is a college of corporations, inexorably deter- mined by the immutable by-laws of business. The world is a business . . . It has been since man crawled out of the slime, and our children, Mr. Beale, will live to see that perfect world in which there is no war and famine, oppression and brutality -- one vast and ecumenical holding company, for whom all men will work to serve a common profit, in which all men will hold a share of stock, all necessities provided, all anxieties tranquilized, all boredom amused."

- - - Paddy Chayefsky


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