Brilliant, MUST READ! The Poisoned Well of Arab Oil

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

[Iris7]

I like your opinion of economists. "Certurus parabus" (boy, my Latin stinks!), that is "all else being equal", is so dumb I am still amazed. What imaginary world do they live in?

They think they are being "scientific" because they try to model using Calculus. I keep thinking about how to make a mathematical proof that they are inheirently wrong, but no success yet!!!

(Lately been banging away at finite but very large number of dimensions vector spaces, and am way over my head!!) (Just now, talking with you, had an idea about logs to get around floating point exponent limits limits without writing in C, which I have resisted learning for years!! Like I said, over my head!!)

[Iris7]

There is a rational and concerted effort by many central banks to increase liquidity throughout the first and second worlds in a very major, but hopefully managed way. The highish Euro is putting great pressure on German exports, and liquidity increase is seen there as the only way out. Gotta preserve that good old "safety net"!!!

This "liquidity" increase is the same as inflation, conducted on a world wide basis. The central banks are using the CPI and equally erroneous representations of reality as a surrogate for inflation, and so are hoping the inflation they are causing will not have unbearable political consequences. The idea is to leave no safe investor haven, and so control international cash flows, while inflating like crazy. (You wouldn't believe what is going on in East Asia!!!)

[Iris7]

As the used to say in the idiotic '60s and '70s, Right On!!!!

[Iris7]

Agreed.

"Now look at the mess you've got us into, Olly!) - Hardy of "Oliver and Hardy".

[SAJ]

Yes, indeed -- arguably the most unpopular national tax measure of the 20th century. As I recall (sorry, had I more time, I'd look it up), the surcharge only lasted for 4/5 years. A huge political albatross.

[BabsC]

You're two administrations too late. LBJ's insistence on prosecuting the Vietnam war WITHOUT a corresponding tax increase

Didn't he also open up ths social security funds to the general accounts to pay for the escalation?

[DoctorMichael]

Interesting-insight Bump.

[neverdem]

"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."

Pardon me, but my response was not intended to generate hostility. Personally, I detest LBJ because from the facts it seems to me he commited an army of a half of a million not to victory but as a cover so that he could get his Great Society legislation through Congress. I was just trying to check my memory. IIRC, the Viet-Nam war was assessed as costing $150 billion in the dollars of the time. How much his surcharge ultimately cost, paid for hostilities and how much it hurt the economy are subjects for doctoral dissertations.

[neverdem]

"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."

Pardon me, but my response was not intended to generate hostility. Personally, I detest LBJ because from the facts it seems to me he commited an army of a half of a million not to victory but as a cover so that he could get his Great Society legislation through Congress. I was just trying to check my memory. IIRC, the Viet-Nam war was assessed as costing $150 billion in the dollars of the time. How much his surcharge ultimately cost, paid for hostilities and how much it hurt the economy are subjects for doctoral dissertations.

[neverdem]

"Didn't he also open up ths social security funds to the general accounts to pay for the escalation?"

He most certainly did so. And currently the gov't can do nothing more than invest those funds in Treasury IOUs, lest they influence the market.

Just consider what would happen if the gov't invested in the free market selectively.

[neverdem]

"Didn't he also open up ths social security funds to the general accounts to pay for the escalation?"

He most certainly did so. And currently the gov't can do nothing more than invest those funds in Treasury IOUs, lest they influence the market.

Just consider what would happen if the gov't invested in the free market selectively.

[okie01]

"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."

Add another adverse effect attributable to LBJ. According to him, "currently, the federal government receives tax money and pays it into two pots. But, if we put all the money that's coming into the government into one pot, we can afford to wage both wars -- in Viet Nam and on Poverty. See? When we consolidate these accounts, the deficit in this one goes away".

And, thus was the federal government's operating budget and the Social Security Fund consolidated...into "one pot".

So, who was the worst of last three Democrat presidents? Clinton, Carter or LBJ? It is the stuff of great arguments.

[St.Chuck]

Very interesting read. Thanks for posting it.

[Orangedog]

Just consider what would happen if the gov't invested in the free market selectively.

Possibly the worst outcome imaginable. Imagine congress being able buy controlling interest, RJ Reynolds of Phillip Moris and all other publicly traded tobacco companies and dismantle them. Then they move on to other politically incorrect industries. It's better that they don't have enough money to do any of that, or the retirement Ponzi scheme.

[Orangedog]

My question is this: Which currency is going to be more stable in the long term?

There is 6000 years of recorded history showing that whenever paper currencies get into trouble, the masses run to gold. For the purpose of disclosure, I do classify myself as a "gold bug" but I do not see gold as an investment. I see it as insurance against the major nations of the world engaging in competitive currency devaluations, which we appear to be on the brink of.

We have been through dollar devaluation before, as noted in this thread. I was just a kid during the 1970's, but I do remember that it really blew. Take a look at the percentages of the price increases of gasoline that occured. Think about what would happen today of the price of oil went up over 100% within a relatively short period of time. It took several years until the economy to get back on track, and we didn't have a national debt of over $7 trillion dollars to service then.

[Southack]

"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."

...Only in Europe.

Yes, the Dollar has dropped 20% versus the Euro recently, and yes, the Russians get paid in Dollars for each of their barrels of oil exports, and yes, that Dollar has dropped versus the Euro...but that Dollar still buys the same amount in the U.S.

So the Russians can either use those Dollars to purchase fewer European goods, or else they can use them to purchase the same amount of U.S. goods.

They're smart people over there. They'll figure out how and where to get the most value for their Dollars.

[Happy2BMe]

You Ain't Seen Nuthin! Yet!

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E-Mail Address - sauduction@sauduction.com

[Happy2BMe]

"So the Russians can either use those Dollars to purchase fewer European goods, or else they can use them to purchase the same amount of U.S. goods."

Wish I could back you up on this one, but America produces fewer domestic goods now than ever before in our entire history (those produced and used here or exported).

The Chinese are the ones laughing all the way to the bank!

[Southack]

"Wish I could back you up on this one, but America produces fewer domestic goods now than ever before in our entire history (those produced and used here or exported)."

Don't speak gibberish, boy.

General Motors alone produces more in a single month today than the whole U.S. produced in 1866.

In fact, GM makes more cars than all the combined auto manufacturers of any other nation.

And behind GM, the world's second leading producer of automobiles is Ford.

Nor does anyone build more aircraft than Boeing and Lockheed, much less more than Piper, Gulfstream, Lear, Bonanza, Cessna, and Mooney.

The U.S. produces roughly 30% of the world's goods and services even though we only have 4% of the world's population.

In fact, about the only area in which the U.S. is outproduced is in consumer trinkets of the types sold at Wal-Mart and such.

[Happy2BMe]

(AP) The U.S. trade deficit widened in March to $43.5 billion, the second highest on record, as imports of foreign-made industrial supplies, including crude oil, rose to an all-time monthly high.

The Commerce Department reported Tuesday that the trade gap grew by 7.6 percent in March from February's deficit of $40.4 billion.

Although exports went up for the third month in a row in March, imports rose nearly five times faster, leading to a bloated trade deficit that was second only to the record deficit of $44.9 billion produced in December.

Economists were expecting the deficit to get bigger in March but not as much as it did. Economists were forecasting the trade imbalance to reach $41 billion.

To combat the trade deficit, the Bush administration says the United States should seek to boost American exports by attacking foreign trade barriers, rather than raising barriers to imports coming into the country.

Trade critics, including labor unions, say the deficit is evidence that President Bush's free-trade policies are not working and are contributing to hefty job losses in manufacturing.

In March, imports of goods and services increased by 2.9 percent from the previous month, to $126.3 billion, the second-highest level of imports ever recorded for a month.

Imports of a wide variety of industrial supplies, including crude oil and plastics, rose to a record $28.3 billion in March.

America's bill for imported crude oil hit a record of $9.1 billion in March. That reflected an increase in the amount of imported crude oil. The price of crude oil dipped to $30.27 a barrel in March, from $30.46 in February, which marked a 20-year high.

Although the United States economy is struggling to get back to full speed, its economic health is still better than many other countries' that have been mired in a worldwide economic slump.

Exports of goods and services grew by 0.6 percent in March from the previous month to $82.8 billion. Private economists say the weaker U.S. dollar, which has lost altitude over the past year, is helping out exports at a time of lackluster global demand. Weak growth abroad, however, will continue to be a challenge for U.S. exporters, economists say.

In March, exports of industrial supplies, including cotton and chemicals, rose to $14.3 billion, the highest level since February 2001.

A weaker dollar makes U.S.-made products more competitive on foreign markets and less expensive for overseas buyers.

The U.S. dollar fell to a new four-year low against the euro Monday. The decline came one day after Treasury Secretary John Snow said a weaker dollar would help U.S. exports a view that private economists and U.S. manufacturers share.

However, traders viewed the remarks as signaling a retreat from the long-standing position of the Bush administration and the previous Clinton administration in support of a strong dollar.

Treasury Department spokesman Rob Nichols on Monday said Snow's remarks on Sunday were not meant to signal a shift away from a strong dollar policy.

Nichols pointed out that in another TV appearance, on “Fox News Sunday,” Snow expressed his support for a strong dollar. “We have a well articulated and long-held view on the dollar that I've articulated a number of times,” Snow said on Fox. “We believe in a strong dollar.”

Tuesday's trade report also showed that the United States' deficit with Mexico reached a record of $3.9 billion in March. The U.S. trade shortfall with Canada widened to $5.2 billion in March, the highest level since January 2001.

The U.S. deficit with oil-producing nations, including Saudi Arabia and Venezuela, grew to an all-time monthly high of $5 billion in March.

The United States' politically sensitive trade deficit with China grew to $7.7 billion in March, from $7.6 billion in February. In a bright spot, though, exports to the country rose to a record $2.4 billion in March.

The United States' trade gap with Japan widened to $5.8 billion in March, from $5.3 billion in February.