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

[Rakesh Bhandari <rakeshb@xxxxxxxxxxxx>]

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
 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