Under the rubric of the ussaudi forum of the 1970s us

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Unformatted text preview: lly, a shift away from the oil economy, no matter how highly desirable from an energy security perspective, will serve to further destabilize the Middle East, the Caucasus, even South America without some proactive approach to those oil-propped regions. Depriving the underdeveloped countries of vital oil incomes will only serve to exacerbate tensions and resentments, and fuel an already well-stoked terrorist fervor around the globe. Thus, an inclusive strategy is imperative; without it, we may gain in energy security only to lose in national security. 172 Oil DDW 2012 1 Low Prices Bad – Dollar 173 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Saudi Oil revenues are key to cycle money into US bonds that support the dollar Momani, Associate Professor in the department of Political Science at the University of Waterloo and the Balsillie School of International Affairs, 08 Bessma Momani, Associate Professor in the department of Political Science at the University of Waterloo and the Balsillie School of International Affairs, 9-08, [“Gulf Cooperation Council Oil Exporters and the Future of the Dollar,” New Political Economy, Vol. 13, No. 3, September 2008, relooney.fatcow.com/0_New_6432.pdf] E. Liu Since oil is priced in dollars and GCC oil exporting companies are primarily stateowned, the Gulf states have a significant amount of petrodollars to invest and recycle. Since the 1970s, Gulf states have recycled their petrodollars in dollarbased assets and securities, particularly in US Treasury Bills, which has invariably supported the dollar. In light of recent congressional and public anxieties over Gulf investment in the United States, this section examines the question whether the Gulf will continue to invest their petrodollars in US securities and investments. Under the rubric of the US–Saudi forum of the 1970s, US Treasury Secretary William Simon made a secret agreement where the Saudis could buy US Treasury bills not yet publicly auctioned to help finance the growing US debt.49A dominant view of petrodollar recycling describes the 1970s as a period when OPEC financial wealth was deposited into commercial banks and then, in turn, lent or recycled to developing oil-consuming countries. Instead, David Spiro demonstrates how the United States and the Saudis negotiated the recycling of Saudi oil dollars into the US bond market . Spiro argues that the United States had believed that the inter-bank market was failing and there was little faith in the international capital markets’ ability to recycle OPEC oil wealth efficiently. The US government decided to unilaterally guide this recycling by selling US government debt to the Saudis.50The Saudis agreed to conditionally purchase US securities as long as the amount purchased was kept confidential.51 The petrodollar influx into US government bonds had kept interest rates low and promoted American consumption, thereby keeping Americans content and stimulating non-inflationary growth. Moreover, despite the high number of dollars in circulation outside of the United States, international faith in the US dollar had remained high . Subsequently,...
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This note was uploaded on 01/30/2013 for the course ECON 101 taught by Professor Burke during the Spring '13 term at Southern Arkansas University.

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