Brilliant, MUST READ! The Poisoned Well of Arab Oil

The New York Times | October 17, 2003 | Fouad Ajami

[the_greatest_country_ever]

...In the desert domains locusts were a common source of protein......
You can still find places that serve a wicked four course grasshopper meal if you know where to go.

[Alberta's Child]

It is my understanding that the 1973 "oil embargo" is largely a myth that has survived for three decades.

OPEC did not actually refuse to export oil to the U.S. -- it refused to sell oil on the world market for U.S. dollars. OPEC nations were smart enough to figure out that the U.S. was about to embark on a period of deliberate inflation of the U.S. dollar, thereby serving as a disincentive for foreign exporters to accept dollars as payment for their products.

. . . the Organization of Petroleum Exporting Countries raised the price of oil to more than $5 a barrel from $3 a barrel . . . he secured the consent of the other oil-producing nations for yet another price increase, to $11.65 a barrel.

The primary theme of this article is meaningless unless the author first puts these numbers into context. How much of the increase in oil prices was attributable to the production cuts, and how much was attributable to the declline of the U.S. dollar against other world currencies?

[Orangedog]

OPEC did not actually refuse to export oil to the U.S. -- it refused to sell oil on the world market for U.S. dollars. OPEC nations were smart enough to figure out that the U.S. was about to embark on a period of deliberate inflation of the U.S. dollar, thereby serving as a disincentive for foreign exporters to accept dollars as payment for their products.

You might be interested in this thread

But if you try and warn people that this happened once and is likely to happen again (and soon), you get jumped on and called a commie liberal Bush-hater...and those are the more polite names ;)

[Alberta's Child]

I suspect that this is one of the primary reasons why the U.S. has refused to ratify Kyoto. The U.S. will continue to exert an enormous amount of leverage on the oil/currency scene as long as we are the world's largest consumer of this commodity.

Putin is no fool -- he's been to Texas enough time to realize that there is no future in selling oil to Europeans who work 35 hours a week, bathe once a month, and drive around in cars made out of popsicle sticks and aluminum foil.

If nothing else, I would hope that this discussion will drive the U.S. government to clean up its finances in a big way.

[LiteKeeper]

INTREP

[elbucko]

OPEC nations were smart enough to figure out that the U.S. was about to embark on a period of deliberate inflation of the U.S. dollar,...

I don't think the inflation of this time was deliberate. It was stupid, yes. But I don't think it was a deliberate policy of the Treasury to cheapen the dollar. Gerald Ford's administration fought inflation, timidly to be sure, and "stagflation" brought Carter's administration into the cross hairs of Reaganomics.I believe the inflation of the 70's was caused more by ignorance and hubris, than by design.

Economists remind me of aeronautical engineers that do not have pilots licenses, because they are afraid to fly. They can, with some authority, explain flight, but they can't and don't fly themselves. They shouldn't be allowed on the flight deck of Air Force One, but we allow their economic equivalent on the flight deck of government.

[jokar]

Bttt

[Alberta's Child]

I may be wrong about this, but I was always under the impression that the U.S. basically paid off the enormous cost of the Vietnam War by inflating our currency in the 1970s.

[Orangedog]

Putin is no fool -- he's been to Texas enough time to realize that there is no future in selling oil to Europeans who work 35 hours a week, bathe once a month, and drive around in cars made out of popsicle sticks and aluminum foil.

Agreed, Putin is no fool, which is why I think he might actually be serious about switching to euro-based oil sales. Think about it...the dollar has lost 20% against the euro in the past several months. That means that the $30 they were getting for a barrel of Rusky crude only has $24 of purchasing power. From the looks of things, the Fed wants to see the dollar weaken even more, maybe twice as much as it has already. That would make that same $30 worth $20. One of two things has to give...either they start demanding more dollars per barrel (a lot more), or they start pricing oil in a currency that isn't being inflated.

[SAJ]

You're two administrations too late. LBJ's insistence on prosecuting the Vietnam war WITHOUT a corresponding tax increase (1st time in history, btw) AND fund his idiotic Great Society scheme (''...we can have both guns and butter...'') was the ignition to both the US breaking off the Bretton Woods quasi-gold standard in 1971 and to the subsequent grotesque inflation of the 1970s. The oil sheikhs early on made the sensible ECONOMIC decision to raise the dollar-denominated price of oil because, when gold and dollars became infungible by Nixon's decree (effectively), they saw the handwriting on the wall that the dollar would begin a rapid decline.

[Orangedog]

The fecal matter hit the oscillating blades when Nixon closed the gold window on foreign holders of dollars, cutting the last tie that the US dollar had to gold. At the time there were a lot of "smart" people in global finance who thought that this would cause the price of gold to fall through the floor because they actually thought that the only reason gold had any value was because it was tied to the dollar. At the time, gold was pegged at about $35/ounce. In 1980 gold topped out at over $800.

[Alberta's Child]

In the short term, you are correct. My question is this: Which currency is going to be more stable in the long term?

In my opinion, the current strength of the euro cannot be maintained. A few years ago one of the leading Danish economists wrote an extensive article in which he predicted that Europe is going to experience a decades-long economic malaise along the lines of what we've seen in Japan. And the roots of this malaise will be the same as Japan's -- stagnant population growth, coupled with enormous government pension liabilities.

As strange as this may seem, the porous southern border of the United States is precisely what is going to keep the U.S. from experiencing a similar spiral.

[neverdem]

IIRC, the beloved LBJ added a 5% surcharge to the income tax, no?

[katya8]

Aha! So THAT's why France got rid of its old people, last summer!

[born yesterday]

Gee, I'm glad to hear you speak advantage of Mexican invasion. Our low birthrate necessitates this draconian solution. (An upward change in native American birthrate appears very unlikely).

[elbucko]

You're two administrations too late.

I am aware of LBJ's policies and the subsequent inflation of both the war in Vietnam and "Poverty". I kept my remarks to the 70's for simplicities sake. However, I stand by the drift at the end of my post that I don't believe anybody really knows what is actually true and what is merely theory in economics. If the Oil Sheiks really did foresee the inflation of the 70's, they missed some other economic indicators of the 80's and 90's. In short, I believe economics is, at all levels of human experience and at all levels of expertise, essentially a crap shoot. Economists, are no more than "handicappers" with diplomas.

[TopQuark]

How can you do that? Suppose it's true: you pay off the cost of the past war, but now you are stuch with higher prices to purchase anything the day after the war ends.

[Utah Girl]

Interesting article

[nutmeg]

read later bump

[Iris7]

You said, "Putin is no fool", and I say, boy, are you right.

You also said, "If nothing else, I would hope that this discussion will drive the U.S. government to clean up its finances in a big way." I see this hope as utterly vain. Maybe if the real GDP per capita of the USA is reduced to, say, Ecuadorian levels, then maybe.

There was a pretty good novel in the 70's called _The Sheep Look Up_. Sentimentally lefty and green, as was the fashion, and hopelessly optimistic about "the masses" being able to see reality. That is why the 3rd International people called themselves the "Worker's Vanguard". Not that they were seeing reality, not at all, just a bunch of self deluding fools. Humans are like that.