Part of the whole "sweetheart deal" arrangement with the Saudis was that, in exchange for extracting their oil, that US companies like Halliburton would build their cities to modern standards. Now, they did a good job, no doubt about that; the quality of the construction is excellent. But the whole arrangement, top to bottom, was oriented around using American companies to provide as many services as possible. We extracted their oil, we provided financial services, we did their construction, we absorbed their investment money into Wall Street. Saudi Arabia, more than any other country in the world, is the creation of the US oil elite.
I didn't read about this on the Web, so I don't have a direct link for you. My primary source is Tales of an Economic Hitman, which was an amazing book. Conservatives hate it, and savage it mercilessly, but I've done my own research on many of his claims, and I found excellent backing for his belief that we have, by and large, used debt as a weapon to assimilate poor countries worldwide.
In country after country throughout the world, we promised too much economic growth, and overbuilt their infrastructure, knowingly putting them into debt that their economies couldn't service. This eventually destroyed their middle class, throwing most of the population into permanent poverty, and putting a hyper-elite into permanent power. This gives us immense leverage over these countries; in exchange for some debt relief, we can get amazing rates on new resource deals. Further, we can also get them to do nearly anything we want, including voting the way we wish in the U.N.
When you look at resource-rich countries all over the world, if the US has been deeply involved there, it's very rare for the population to be doing at all well. There will almost always be a hyper-wealthy, corrupt elite, and a huge population of, essentially, chattel.
The Saudis, being so much richer than the other resource countries, couldn't be put into debt the same way, but we nonetheless arranged things so that a very few people had direct control over the immense oil revenues, and the typical corruption and nepotism took over there as it has almost everywhere else.
This is part of why I'm so terrified of what's happening with the national budget in this country; I believe that the same primary weapon (lack of understanding of the toxicity of long-term government debt) is being turned by the same corporations that benefited in the third world against the American people that birthed them.
Read Tales of an Economic Hitman, and do your own research. I think you'll find it holds up exceedingly well.
posted by Malor at 9:19 AM on March 1 [37 favorites]
Fed staff members, such as Brian Sack, the New York Fed official in charge of carrying out the bond buying, have argued the total amount, or stock, of securities the Fed has announced it will make has more impact on longer-term interest rates than the timing of those purchases. That’s a view now held by several members on the Federal Open Market Committee, including the chairman.
“We learned in the first quarter of last year, when we ended our previous program, that the markets had anticipated that adequately, and we didn’t see any major impact on interest rates,” Fed Chairman Ben S. Bernanke told the Senate Banking Committee during his March 1 semiannual monetary-policy testimony. “It’s really the total amount of holdings, rather than the flow of new purchases, that affects the level of interest rates.”
Fed Vice Chairman Janet Yellen supported that perspective, saying at a monetary policy forum in New York last week that “the stock view won out over the flow view.”
The idea that Brian Sack, a 40-year-old economist with a PhD from MIT, is winning the day in the argument of "stocks over flows" is somewhat troubling to me. MIT is a quantitative shop, home to some very brilliant people, but how markets will actually respond is another specialty altogether, one that requires a bit of on-the-street experience. Markets have a bad habit of not being logical, not fitting neatly into tidy formulas, and ignoring things like 'stocks and flows.'
I'll go even further. I'll take the other side of that bet and opine that the flows are much more important than the stocks, because it is the flows that support the continued budget deficits of the US government — which, it should be noted, will still be with us each and every month long after June 2011. Those deficits are baked into the cake and will require in excess of $125 billion in new Treasury sales each and every month.
Who will buy all the Treasury bonds after the Fed steps aside? That is unclear. If there are not enough buyers at these artificially inflated prices, then the price will have to fall until sufficient buyers can be found. Falling bond prices are at the other side of the financial see-saw from rising bond yields; one goes down while the other goes up, and the Fed has been pressing firmly down on yields for a while via the QE II program. When that's over, pressure will be reduced and yields will rise.
So what to do? For those concerned enough about this possible scenario to consider taking action, please see Part II of this article (free executive summary; paid enrollment required to access). In it, I predict the extent to which stocks, commodities, Treasury bonds and precious metals prices may be impacted in the near term. I also detail the key indicators to look out for in order to determine if and when this scenario is unfolding - as well as recommended strategies to preserve capital during this corrective phase.
Click here to access Part II.
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