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Would $100 oil slam the global economy?
Stanley Reed, Business Week
Analysts say costlier crude could put the brakes on U.S. growth
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Economists have been surprised how little the current high price of oil has damaged the U.S. and world economies. After all, prices have already soared by 300% since 1999, yet nearly all regions of the world continue to chug along. That’s a big contrast to the oil crises of the 1970s and 1980s, which sent economies into major funks.
What would happen, though, if the price of a barrel of oil topped the psychologically significant level of $100? The answer varies by region, with the worst likely impact in Asia and the least impact in Europe. But no question, oil prices one-third higher than they are now would sting everywhere.
(27 July 2006)
Michael Ruppert’s economic forecast (transcript)
Jamey Hecht, From The Wilderness
JH: …I’m wondering what is your outlook for the U.S. dollar in this turbulent period. Where do you expect it to go?
MR: I think I and most other savvy financial experts, people with much longer resumes that I have, are all uniformly of the opinion that the dollar is going to crash and tank. The question is, how severely and how soon. There are enormously clear trends around the globe, from Russia, to China, to India, to Norway, to Iran, that countries which have held U.S. dollars as reserve currencies, are moving out of dollars. They’re also beginning, as is the case with Shanghai Cooperation Organization, another organization in Southeast Asia, to move to establish regional currency.
JH:…Do you think peak oil, and indeed environmental derivation, will crash the Chinese economy before China becomes wealthy enough to purchase its own goods rather than export them?
MR: By and large, yes, I do. And I think China understands this pretty well. China, from all of my years of research on peak oil, and I should mention that our website From The Wilderness has published more original reporting on peak oil than any other site on the web, over the course of the last five years, is that China is very, very aware of peak oil; China is planning for peak oil. China is aware that one point three billion Chinese are never going to be living at the same standards of living that Americans currently are or think they are.
(31 July 2006)
Bankers Fear World Economic Meltdown
Gabriel Kolko, CounterPunch
There has been a profound and fundamental change in the world economy over the past decade. The very triumph of financial liberalization and deregulation, one of the keystones of the “Washington consensus” that the U.S. government, International Monetary Fund (IMF), and World Bank have persistently and successfully attempted over the past decades to implement, have also produced a deepening crisis that its advocates scarcely expected.
The global financial structure is today far less transparent than ever. There are many fewer reporting demands imposed on those who operate in it. Financial adventurers are constantly creating new “products” that defy both nation-states and international banks. The IMF’s managing director, Rodrigo de Rato, at the end of May 2006 deplored these new risks – risks that the weakness of the U.S. dollar and its mounting trade deficits have magnified greatly.
(26 July 2006)
Oil Exporters, With $311 Billion Excess, May Pressure U.S. Debt
Michael Sesit, Bloomberg
Oil-producing nations are challenging Asian central banks as the biggest source of cash in world financial markets. One result may be higher U.S. borrowing costs.
The current account surplus of countries such as Kuwait and Norway is projected to widen to $311 billion this year from $242 billion in 2005, according to an International Monetary Fund report in April. Asia’s surplus will be $253 billion, down from $263 billion, the IMF said…
Asian central banks tend to invest their surpluses in U.S. Treasury securities, helping to finance the U.S. current account deficit. The world’s new heavy hitters, on the other hand, also buy real estate and stakes in corporations, allocate cash to private-equity funds, place money with hedge funds and invest in emerging markets, according to George Magnus, senior economic adviser to UBS AG.
“We see a trend particularly away from riskless assets, like U.S. Treasuries,” said Emanuele Ravano, the London-based head of portfolio management in Europe for Pacific Investment Management Co., which manages $600 billion. “At the margin, this is an evolution of a system that means that the U.S. has to pay more for its financing.”
Motivated by a desire to keep their currencies weak and exports competitive, Asian central banks generally use the revenue received from selling goods to the U.S. to buy low- yielding, dollar-denominated Treasuries, he said.
By selling their own currencies to buy dollars, Asian central banks keep the U.S. currency stronger than it would be otherwise, fueling more purchases of Asian goods. The purchases of Treasuries help keep U.S. interest rates low…
The U.S. must import $1.72 million of capital every minute to finance its current-account deficit, according to Paul Donovan, an economist at UBS AG in London. “The days of cheap and reliable financing of U.S. consumption in excess of income are coming to an end,” he said. “The cost of deficit financing is rising as the world’s new savers demand higher returns.”
Geopolitics also may upset the flow of capital to the U.S., if Arab-U.S. relations become sufficiently strained — or if the U.S. interferes with oil-exporters’ acquisitions of American companies. U.S. politicians this year forced Dubai’s government- owned DP World to seek an American buyer for terminal operations at six U.S. ports.
(30 July 2006)
The article cites anecdotal evidence that the oil exporters are buying up US real estate. -AF
