The Art Neuro Weblog

Oil For Dollars
We're very sensitive here on this blog to energy policy as it impacts heavily on the viability of civilization. In that light I bring to you today's post...
Loyal reader Pleiades sent in this link which leads to this link. The Latter is probably more 'mainstream'.

The US strategy for using oil to finance its deficit is, of course, brilliant. America's elected officials knew that at some point those independent foreign central banks would start getting edgy about buying more dollars to pay for the United States' war and deficits. The $650 billion trade deficit is breathing down the dollar's neck. So which central banks can the US continue to use as the fall guys to buy the dollar?

Why not the Persian Gulf oil states - but where would they get the dollars to buy US Treasuries? Well, with the Chinese piling up dollars and growing like crazy, at some point the oil market had to tighten. It was only a matter of time before the Chinese would start bidding up the price of oil. The Asians, therefore, are hung out to dry when the price of oil rises because they have to spend more of their dollars on oil. As the price of oil goes up, extra money floods into the Gulf kingdoms. With the US secretary of defense putting troops all over the ground in the Middle East, and those nimble aircraft carriers nearby and ready to deliver the "shock and awe of sudden
democracy" to the Gulf monarchs, it's a sure bet that America's OPEC buddies will stash their newly found Asian lucky bucks into good old American Treasury notes.

With such a simple policy to fund its deficit for another year, it's no wonder the United States can get by without any brain power at the Treasury Department. In effect, the US and its Gulf Arab allies just pulled off the biggest central-bank heist in the history of the world. The price of oil just went up 60% or more, which really cuts down to size that $3.4 trillion of net foreign holdings of US financial assets. As a loyal American, one would like to cheer one's government's deft move to pick the pockets of our trading and financing partners. Moreover, the US gets the Arabs to fund a large share of our deficit, subsidize our interest rates, and help keep our taxes low for another year. Surely I can afford to buy another gas-guzzling sport-ute, get a rifle,
and wave a flag.

If America continues to manipulate the flow of oil 'strategically' as it calls it, there are going to be a lot of nations chafing at this control. Echoes of the events that led to the attack on Pearl Harbour anybody? I wonder how the Chinese are going to feel about this? Surely they're not going to sit back and let their economy shudder to a halt... or are they?
Well, I'm uncomfortable with all of this.

- Art Neuro