The world would be a somewhat better place if …
The policy makers gathered in Washington this weekend listened to Martin Wolf's advice. And skimmed his powerpoints.
Everyone with authority in the global economy read Gian Maria Milesi-Ferretti's box on global imbalances in the first chapter of the WEO (charts here, and here). My translation from IMFese: The US current account deficit is only sustainable if everyone continues to dump money into the US when they would have gotten a better return if they joined Americans in investing outside the US. Since the US is running a big deficit, it needs a lot of financing. But to keep the US net debt from going up, US markets have to do much worse than foreign markets. Like the IMF, I don't think that combination is very likely to last for a long time. And yes, the dollar does need to fall against both East Asia and the oil exporters.
The Wall Street Journal replaced its appallingly bad Moody's economy.com data feed in its global economic snapshot with data from the IMF WEO's statistical appendix. That way the Journal's readers would know that China's 2006 current account surplus will be close to 7% of its GDP, not 2.3% as economy.com seems to think.
More articles were written pointing out that Asia's current account surplus hasn't fallen even as the oil exporters' surplus has exploded. In 2004, Asia (Japan, NICs and emerging Asia in the IMF data) ran a surplus of $356. It went up to $405 billion in 2005. Fuel exporter's surplus went from $189 billion to $347 billion. If the surpluses of the two surplus regions (one oil exporting and one oil importing) of the global economy go up by $200 billion, the global current account can only balance if either there is a huge swing in Europe's balance or the US goes deeper into deficit. The euro zone's surplus did fall. But the US deficit widened even more.
More people took note of the fact — judging from the WEO data — that the real exchange rate of the major oil producing countries in the Gulf has depreciated significantly since 2002, despite the run-up in oil prices. No wonder their imports haven't increased more.
Economic journalists started to use the WEO statistical appendix to fact check their articles.
Right now, US economic journalists - including really, really good journalists - consistently write articles indicating that France isn't growing when, in fact, it has grown faster than its major continental counterparts (Germany, Italy) over the past ten years, it grew faster in both 2004 and 2005, and the IMF forecasts that it will grow faster than Germany and Italy in 2006 as well. And France is growing on the back of domestic demand. After you adjust for the fact that France has lower population growth than the US, there isn't a huge difference between the IMF's forecast for 2006 demand growth in the US (3.2%) and in France (2.6%).
Of course, even though France has outpaced Germany and Italy over the past few years, but it certainly hasn't kept pace with Spain or the US. And there is no doubt that France has a high unemployment rate, a relatively low labor force participation rate and, at least recently, subdued job creation.
But I think it is also true that France had relatively strong job growth at the end of the 1990s (see Ceteris Paribus; you don't need to read much French to follow his graphs) and that France's labor force participation rate has trended up over the past few years (despite its rigidities) while the US labor force participation rate has trended down (despite the United States' flexibility). See page 6 of this OECD report. It only goes through 2004, and 2005 helps the US and hurts France. But from 2000 to 2004, labor force participation was up slightly in France and down somewhat in the US. I continue to think the "if France could only reform, it could join America in creating tons of jobs" story line oversimplifies. The story line that seems to best fit the data, best I can tell, is that a housing boom has supported domestic demand in both the US and France, and in both the US and France recent job growth has been somewhat disappointing, despite different labor market institutions.
Geostrategists learned a thing or two about "current account deficits" and "current account surpluses" and checked the IMF statistical appendix to see if a country has a current account deficit before they claim that a country desperately needs foreign investment.
Iran happens to have a current account surplus. Which means it saves more than it invests. Unlike say the US, Iran could invest more without getting any financing from abroad by drawing on its own savings. So Iran doesn't really depend on the world for financing, Fred Kaplan (and a host of others, including Ken Pollack) to the contrary:
"Western Europe, Russia, and China may depend on Iran for oil, but Iran depends at least as much on them for capital investment."
Now it may be true that for Iran to develop some oil and gas fields while massively increasing other forms of spending it would need access to foreign (read Chinese) financing. And Iran may need foreign technology, which it can only get if it also accepts foreign investment. But with oil stays at $70, Iran has a ton of cash. Basically, it can use its current oil earnings to finance investment in its future oil production.
I still like Kaplan's approach. It seems worth trying. But I also think the fact that Iran can self-finance with oil at $70 (but not with oil at $40) is a real complication.
I think I have now gotten a set of accumulated irritants off my chest.
brad hits the key that unlocks the green doors to many forex puzzles :
“foreign technology, which it can only get
if it also accepts foreign investment ”
especially if u add the second key
“and only strong export possibilty
lures FIers to bring in their FTs “
I think the policy makers in Washington have heard the same arguments you and others make for the need to adjust. They listen and don’t want to act. China clearly likes things the way they are. Their economy is growing 10% a year and they’re piling up loads of US debt. Bush only cares about making it through 2008 and I think the discussion is too academic for him to take interest anyway. He would defer to his republican appointees and they’re clearly pro free market at this point, so I doubt Bush will really push for reform.
glad to see
that second r in the last name
of the future head of research
at tcfi
transparent
cap flow instiutute
“Gian Maria Milesi-Ferretti ”
t’wasn’t there in earlier posts
surely she deserves both her r’s brad
Hey it’s ceterIs paribus, not ceterus paribus :).
Why are economists still using unemployment as a measure for anything? Employment/population for 25-54 looks so close for all countries and it avoids prison, handicap, welfare, studies, retirement and other state-sponsored ways to lower unemployment as defined.
Interesting article in ATO on rapid growth in China’s domestic retail market:
http://www.atimes.com/atimes/China_Business/HD21Cb05.html
Maybe they won’t need the US market indefinitely. Just in time perhaps as the U.S. home ATMs close down.
Many thanks for the link. And I agree that a lot of common journalistic mistakes could be avoided with just a little bit of fact-checking.
BTW, the (biannual) OECD Economic Outlook is a very good source too. All the more so since the statistical annex is available in convenient Excel format.
http://www.oecd.org/document/61/0,2340,en_2825_293564_2483901_1_1_1_1,00.html
Ceteris it is. And apologies for not getting Mr. Milesi-Ferretti’s name right the first time. I never remember which consonsants to double up where. But I am very confident Dr. Milesi-Ferretti is a he, not a she.
Charlie. You right. Everyone has been warned, many a time. Even Dubya. I used an easy rethorical device. But at some point, why bother even trying when you know what the outcome will be?
Brad,
Some time back I asked about euros. Now, I’ll ask about OPEC dollars. As you know, the linkage between oil and the US dollar now appears to be inverted. Krugman’s model, when extended to China, suggests this may be due to China’s fixed exchange rate. In your opinion, what happens if petrodollars don’t recycle through London and back to New York, but start going to Asia, particularly China?
That the dollar must depreciate substantially is beyond doubt. However, there are a few important issues.
1) How much? Probably about 30% or more in real effective term.
2) Against which currency? This is complicated. Although the dollar should depreciate most against the renminbi and oil producers’s currencies, they are virtually fixed to the dollar and tightly controled by their governments. So, the dollar is likely to depreciate most against floating currencies like the euro and the yen.
3) When? At any time. But, since the euro economy and the Japanese economy are likely to grow slower than the US economy for the time being, dollar depreciation, even if started now, may be slow and protracted.
4) How the global imbalances evolve in the next few years? The US current account deficit may continue to increase though at a much slower pace, while the euro area’s and Japan’s current account surplus will decrease significantly. Economic growth in the US, the euro area, and Japan will slow down, while high growth in oil producing countries and China will continue and their current account surplus will further increase.
All of this shows that unless oil prices decline sharply and the renminbi appreciates significantly against the dollar, the global imabalances will not be reduced. Of course, if the US tightens fiscal policy and successfully increases household savings, the global imbalances may be reduced, but such adjustment would be painful for the US economy as well as the global economy, unles supported by oil price reduction and renminbi appreciation.
What happens when the petrodollars start to go to Asia? Snide answer one — they already are. Didn’t Abu Dhabi or Kuwait take a stake in a Chinese state bank? Snide answer two — China’s reserves go up even more (more capital inflows).
I talked about this a bit earlier during the DPW controversy. The basic problem is that the oil exporters cannot finance, in aggregate, another region with a current account surplus. Either inflows into Asia have to induce a deficit (as Bernanke argues happens in the US), or Asia recycles the inflows into treasuries and mortgage backed securities and intermediates between the middle east and the US. Letting your exchange rate appreciate in the face of capital inflows, though, is a big part of how inflows induce a deficit — and so far China hasn’t been willing to let that happen.
HK
Oil is priced in dollars. Let’s assume that the Chinese will let renminbi appreciate in value gradually over time. An undervalued renminbi ceteris paribus would act to damper Chinese domestic demand, moderate inflation and allow the CCB to do less intermediation.
It seems that a sharp appreciation of the renminbi would make Chinese energy planning all that more difficult for macro planning. And I’m curious if this would lead to a push by the petro sheiks to value oil in euros or some other currency that promises not to demolish the value of their investments.
Dollar Diversification In Sweden: The Riksbank revealed that it had cut the proportion of dollars in its reserves from 37 to 20 per cent, as well as selling off all its holdings of yen, which previously amounted to 8 per cent of its reserves.
China Blamed for Asian Foreign Exchange Distortions: Fred Bergsten, co-author and head of the Washington-based Institute of International Economics, told reporters the dollar “needs to depreciate by an additional 25 to 30 percent” against the world’s floating currencies in order to reduce global imbalances to a sustainable level.
Lex: Reserve diversification - The Riksbank has adopted a more efficient investment approach based on generating good long-term risk-adjusted returns. This implies greater diversification and less emphasis on liquidity concerns, which have tended to produce an over-representation of dollars in reserves.
U.S. Firms Feel Loss of Arab Spending - Attention has focused on Arab investors’ waning interest in the U.S., but a drop in Middle Eastern spending has also hit sectors such as tourism and education, triggering business-strategy shifts across the country.
Dave C — The US Fed has been destroying M1, not creating it, for some time now. We are well into a tightening cycle.
If you must use addiction and syringe metaphors to describe the US economy’s relationship to debt-based consumption, it is no longer the US Fed with its thumb on the plunger.
I think it is unhelpful to use these metaphors, because they lead to facile stories, like putting all the blame on China, which you very rightly criticize. But just as one can’t ignore the US budget deficit, one can’t ignore the role of central-bank driven world capital flows, at least not without playing fast and loose with the facts. How we got here is complicated, with blame to go ’round. But we must at least describe where we are accurately, if we are to resolve anything.
A golden opportunity for pursuing reforms Economic outlook 2 decks: The world owes today’s strong expansion to the decisions taken in the 1980s and 1990s. These gave us the monetary stability and open trade we now enjoy. With the global economy set for its fourth consecutive year of 4 per cent plus growth, policymakers enjoy a splendid opportunity to tackle today’s unresolved challenges.
China’s false alarms: Claims that labour shortages and rising cost pressures are seriously imperilling China’s manufacturing competitiveness have become a hardy perennial in recent years. This spring has produced another crop. Just like earlier ones, they will almost certainly turn out to be greatly overblown.
Reply to Steve Waldman,
The Federal Reserve is absolutely NOT destroying M1, or taking any significant measures to reduce money supply growth. In fact, Total Fed Credit shot up by $6.4 billion, last week alone. With the current insanely low fractional-reserve ratio of the banks set by the Fed (literally zero for new deposits), this means that the banks can create 64 billion dollars out of thin air, all of which devalues the rest of the dollars already in existence. It should also come as no surprise that the U.S. Treasury gross public debt has ballooned to an obscene $8.402 trillion, up $31 billion in just the last 10 days, and up $232 billion since January 1, 2006.
Regards,
Stephen Jen: The Dollar to Depreciate Gradually This Year - While support for protectionism may still be entrenched on Capitol Hill, the CNY debate will most likely not intensify, and the pendulum may actually start to swing in the other direction. What this means for CNY is that Beijing will be able to guide it stronger at its own pace, without the political pressures from the US.
Andy Xie: The Stir-fried World - The global asset overvaluation (property, stocks, bonds, antiques, arts, gold, etc.) to GDP ratio is probably 50% above its norm, which puts this bubble at around US$20 trillion, by far the biggest to date in absolute and relative terms.
Dave C,
I would agree with Steve Waldman there. The Fed has held the line on M1, if you check the latest data. It is up less than 1% over the past 12 months (via prelimiary March figures), which is consistent with tight monetary policy.
Regards,
“Fred Bergsten, co-author and head of the Washington-based Institute of International Economics, told reporters the dollar “needs to depreciate by an additional 25 to 30 percent” against the world’s floating currencies in order to reduce global imbalances to a sustainable level.”
If the USD falls against the EUR the only effect will be a shifting of the deficit side of the world’s imbalances, not a sustainable solution.
” Washington has no one to blame but itself for this predicament. The combination of chronic budget deficits and a negative personal saving rate has all but obliterated the saving capacity of the US economy. To blame China for this is the height of hypocrisy. America’s saving shortage is an outgrowth of America’s wrong-footed policies — not China’s. US fiscal authorities have squandered the budget surplus of the early 1990s, and the monetary authorities have condoned a series of asset bubbles that have encouraged wealth-dependent American consumers to abandon time-honored income-based saving strategies. We even have a new Federal Reserve chairman who all but dismisses the US saving problem as an innocent outgrowth of a “global saving glut.” And we also have a president who continues to pound the table on making temporary tax cuts permanent. America is going nowhere on its saving agenda and, therefore, nowhere in reducing the macro pressures that virtually guarantee large current-account and trade deficits. China bashing — like the Japan bashing of 20 years ago — is apparently much easier than getting your own house in order. ”
- Stephen Roach
http://www.morganstanley.com/GEFdata/digests/latest-digest.html#anchor6
Interesting, reserve growth over the past 12 month is 38B or close to 5% but M1 moved up by less than 1%. Anyone knows what this means? Dollar supply is up but they are somehow locked inside Treasury/Fed/bank vaults, which are not included in M1. Strange.
Weekly data are too noisy to say anything meaningful, BTW. YOY comparison is better.
David C:
Your comments won’t have any credibility until you start offering criticisms of China as well as the West. Until then, you are just another Communist drone. Here in the West, criticism of the sitting government is allowed.
Oil price over $75 today! Just reporting.
Dave C — I think I stand corrected. The monetary base data is ambiguous, but the Fed’s tightening cycle shows up far more gently in monetary aggregate and base statistics than I had thought. (Last time I looked, maybe a year ago, I did see more pronounced changes, but those turned out to be blips that I’d assumed, wrongly, had continued as a trend over the tightening cycle. M1 did fall last year, but it’s back on the rise. As Nathan points out, its growth has been quite restrained, but not negative. Total reserves have fallen, adjusted or not adjusted for changes in reserve requirements, but the overall US monetary base has been heading north. Presumably this is due to the increase in circulating currency dramatically outstripping diminishing reserves. I don’t think I’d have characterized the Fed as destroying M1 in this cycle if I had looked at the more recent data. Relative to nominal GDP growth, one can argue that the monetary base has been tight, which helps to account for the restrained M1 growth and the forcing up of short rates. But in absolute terms, M0 and M1 are being created, not destroyed.
Oil at 75:
Another interesting conundrum. As Any Xie pointed out, crude stock is at a high right now (no shortage of crude), but gasoline stock is low. Investors control a huge amount of oil stock. Seems to me non-integrated refiners may not be too willing to buy crude at the current price but investors are betting they will turn around as gas price move up as stock is drawn down.
To Brad Setser,
While Chalmers Johnson may be the most outspoken about former Treasury Secretary Robert Rubin’s personal connections with Wall Street Hedge Funds that coordinated their financial attacks on Asian currencies in 1997, Nobel Economist Joseph Stiglitz has also written numerous commentaries on the “Neo-liberal gangster capitalism” promoted by high ranking Clinton Administration officials.
Joseph Stiglitz draws our attention to the numerous ex- I.M.F. and U.S. Treasury Department officials who have taken ludicrously lucrative positions in the very financial firms that profited most from their exploitative policies. One would have to be naïve indeed, he implies, to think that this “revolving door” between government and Wall Street has absolutely no effects on Clinton Administration policy making.
” (M)any of its key personnel came from the financial community, and many of its key personnel, having served these interests well, left to well-paying jobs in the financial community. Stan Fischer, the deputy managing director who played such a role in the episodes described in this book, went directly from the IMF to become a vice chairman at Citigroup, the vast financial firm that includes Citibank. A chairman of Citigroup (chairman of t
Guest — There’s nothing wrong with having a pure partisan take part in the debate. Though I think Dave C’s perspective is unbalanced in condemning one element of a big, ugly puzzle, he does do that forcefully, and brings interesting things to the table. He just fact-checked my pitoutie, and I’ll bet I’m not the only one surprised to find that in the middle of a “tightening cycle”, it’s not so clear whether the Fed is contributing to or restraining liquidity. I’m embarrassed, but glad that he embarrassed me. Lots of people have a strong identification with country, party, or ideology. That doesn’t make them any kind of “drones”. Sometimes strong partisans come across as intellectually inflexible, bitter, or embattled, and that’s probably not so helpful. But being called a Communist drone is hardly likely to encourage one to take a relaxed and friendly attitude in a debate.
Reply to Guest,
The overwhelming news coverage by the mainstream American news media has been negative press coverage of Chinese affairs. Unfortunately, the New York based Neo-liberal media always manages to place a negative slant coverage pertaining to Chinese. For over two years, New York Times editor Thomas Friedman who was closely tied with the Clinton Administration, slammed Taiwan-born Wen Ho Lee as a Communist spy for China. As a result of slanted and biased news coverage, Wen Ho Lee spent 9 months in solitary confinement convicted by the New York Times and Wall Street Journal witch hunt media. For the record, Wen Ho Lee was found “not guilty” of espionage in a Federal court of law. In fact, the Federal judge apologised for Wen Ho Lee’s mistreatment. But since the New York based news media had already convicted Wen Ho Lee, a news coverage blackout was imposed by top New York news media editors on the court verdict. The Chinese-American community has demanded, but never received an apology from the New York Times for slanted and biased coverage.
Regards,
this joker writes
“.. the dollar “needs to depreciate
by an additional 25 to 30 percent”
against the world’s floating currencies
in order to reduce global imbalances
to a sustainable level”
world’s floating currencies ????
whats this europe
and who else worth to hazel nuts ???
madness
why par example
make the poor demand starved job folks
suffering
inside the euro zone take it in the neck here ?????
nope
the asian/oiler pegs must go pop !!!!!
this is not a problem
the north countries can settle among themselves
people forget
even plaza accord to work
reguired
the oilers to watch
as their crude price slowly sunk over the horizon
and todays imbalance american style
is way the bigger side of bad
Let me suggest the attached as a partial antidote to the interesting but, as it fails to disaggregate, flawed ATO article.
Using data from the Chinese Acad. of Social Sciences (CASS), Mingi Li, York University, provides a better picture of social and economic class structure in China, and potential world system problems: http://www.networkideas.org/featart/mar2004/Rise_of_China.pdf
NB not an attack on China but a small attempt to push beyond the decades of ‘it’s a giant market’ rhetoric and typically associated linear projections.
Brad,
Given the results of the Krugman model, couldn’t oil be the trigger for the Roubini-Setser Scenario?
Anonymous — well, if the oil exporters diversified away from dollars, you could get the R-S scenario. I haven’t yet found good evidence that is about to happen though. So far, higher oil has worked against the R-S scenario. The oil exporters not only save more, but they — in part because many peg to the dollar — end up investing a lot in the US. No guarantee this will continue, but it certainly cannot be ruled out.
p.s. note that I cannot back up my argument that the oil exporters have helped finance the US with solid data, since it seems a lot of the flows go through london custodians.
Brad,
What about this? OPEC and China currencies are de facto pegged. Euroland floats. Euroland has North Sea energy, China and US must import. China, relative to US and Euroland, is energy intensive. No goods substitution. China makes stuff and US buys it. Both are competing for energy, Euroland close to OK because of North Sea oil. Price of energy rises. US shows deficit, China shows surplus, dollar goes down, euro goes up. Marginal players, like Sweden, Switzerland, watch oil action. They think: low dollar, high euro good for energy policy. Buy euros. Central banks, from marginal to principle, start to blink. How’s this for a trigger scenario? Then add, UK converts to euro, prices North Sea in euros.
Also, let’s not forget our OPEC friends in Riyadh and elsewhere, who are peering at their FX terminals through a haze of cigarette smoke at this very moment. They have a lot more savvy than their predecessors and know full well what $90 oil and Bretton Woods II is going to do to their dollar reserves. I bet their fingers are just itching to hit the sell button.
To Steve Waldman -
It’s not productive to engage in relaxed friendly debates with totalitarians. They must be challenged and denied at every opportunity.
Who’s totalitarian right now ?
Who’s moving out of democracy at home (who muddles election with gerry mandering, tons of polimercials, and lost chads ? who writes the patriot act ?)
Who’s moving towards democracy at home ?
Even if little freedom of expression, much more than in the 70’s ?
Who is a danger for the world right now ? Planners ? Or partisans of the free unabriged markets ?
I say priests of the Gold Veal must be challenged and denied at every opportunity.
Nathan I think you have completely misunderstood what’s at stake.
If the Fed was following Bernanke’s famous speach. It would be doubling M1 every year until it makes up about 50% of M4, it would be keeping that M4 at the same level through very high levels of fractional reserve, prudential ratios and all the administrative measure you can invent, in short it would be crowding the banks out of money creation.
By doing this the Fed would restore a healthy inflaiton and slowly reduce the alarming high debt/GDP ratio.
But what does in do instead ? Keep M1 low and blow on M3 an 4, encourage banks to lend foolishly to all overindebted actors, especially households. It is acting with the cycle and not against it. Such policy is simply suicidal. I’ll live to see the tower of babel of debt crash as a hammer on the heads of all the free market lovers.
df
very shrewd comments
thinking on sino american relations
needs rebalancing in a lot of areas
hell for one
as much as i rail against
the present
belowest possible yuan policy
i know
the trans nats are majority partners
in the rig job
its the jobsters here i want to save
from
this trans pacific co prosperity stream
but
beyond trade and finance
theres what else
culture kampf
and uncle sam’ strikingly
self righteous poses
is offensive to me
and ultimately dangerous to regular americans
particularly
since these belligerent morally superior poses
are
not really for export
they’re rin fact
overwhelmingly aimed
at the credulous plebs
here at home
all this intoxicating ritheous rage gas
is for mass consumption
by us jacksoniam yahoos
yup
lets all get on an angrry high
here in the land of liberty
Brad,
I take the R-S ‘petrodollar’ recycle scenario to be correct on the basis of its logic, which in my understanding includes:
(i) the great degree of financial globalization, so also the greater facility transferring via third parties (ii) most oil exporting nations’ overaccumulating of money capital, i.e. revenues well in excess of what can be used domestically, a strong ‘push’ factor (iii) the U.S. evidently the largest ‘pull’.
Might note as well that in ‘The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets’, 1999, David E. Spiro argues the same dynamic for the 1970s although rather than various third party intermediaries a direct, but secret*, negotiation between the UST and Saudi Arabia.
Other than for the real economy, hardly a minor thing, the recycle as constituted seems unproblematic, but shouldn’t it be considered that the crude oil price run and associated revenue increases has a large specultive aspect, creating a ‘we know it will happen, but not when’ unwinding of which would very much disrupt?
A perverse situation, then, as high oil prices are required to facilitate debt sales while these same high prices run counter to needed real economy improvement or at least stability.
(* “secret” as a consequence of promises re. cost sharing made to other industrialized nations)
DF,
Move to China then.
juan — i don’t think the current us-saudi relationship is as close as the relationship in the 1970s, by any measure. no secret deals this time. and I think i am a bit more keen on the petrodollar recycling as an impediment to global rebalancing story than Roubini — tis more a setser argument than a roubini-setser argument.
the hard question is what would happen if oil prices fell –
I am not sure the immediate impact would be instability though. the US import bill falls, as do the bills of other oil importers. the US gets less financing from the middle east, but east asia should have a much bigger current account surplus, and much more capacity to finance the uS. If the US deficit goes down a bit and east asian financing goes up a bit, the game continues.
the R-S scenario comes when those with surpluses — and those attracting big capital inflows — are no longer willing to finance the US. And specifically, when central banks are no longer willing to finance the US. one scenario with lower oil prices just shifts global reserve growth from the gulf, Russia and China back to China, Japan and the rest of East Asia.
In another, something reduces the Asia’s willingness to finance the US even as the Gulf’s abiltiy to finance the US falls. then watch out!
Thanks Brad,
Did not mean to imply that US-Saudi relationships were same as the 1970s but that rather than secret and direct, a mediated relation/flow which contributes to the invisibility. Which is to agree with your contention re. funding via mediation of third parties such as British, Caribbean,,private banks, and is also to say that the standard nation-centric categories must fail to capture the real size and direction of international flows. As the secret deal financing to the US during the 1970s may not have fully appeared, same with the through-third party financing of the present.
juan — good point; we agree.
What if the oil pricing regime inverts? Oil goes up and the dollar goes down?
Or, what if liquidity driven speculation in paper barrels was contained via a ‘Tobin tax’ or even controls limiting trades to those who actually deal with/take delivery of the physical crudes.
Price of WTI has become much more volatile since ‘83 (particularly since ‘85) — ‘83 happens to be the year crude contracts began trading on the Merc.