The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets
Between 1973 and 1980, the cost of crude oil rose suddenly and dramatically, precipitating convulsions in international politics. Conventional wisdom holds that international capital markets adjusted automatically and remarkably well: Enormous amounts of money flowed into oil-rich states, and efficient markets then placed that new money in cash-poor Third World economies. This massive reallocation of wealth is labeled petrodollar recycling.
David Spiro has followed the money trail, and the story he tells, based on interviews and a painstaking accumulation of fragmentary evidence, contradicts the accepted beliefs both in the particulars and in broad outline. Most of the sudden flush of new oil wealth did not go to poor oil-importing countries around the globe. Instead the United States made a deal with Saudi Arabia to sell it U.S. securities in secret, a deal resulting in a substantial portion of Saudi assets being held by the U.S. government. With this arrangement, the U.S. government violated its agreements with allies in the developed world. Spiro argues that American policy makers took this action to prop up otherwise intolerable levels of U.S. public debt. In effect, recycled OPEC wealth subsidized the debt-happy policies of the U.S. government as well as the debt-happy consumerism of its citizenry.
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actions add-on arrangement advanced industrialized agency agreement allocation American anarchy Arab assets balance of payments balance-of-payments adjustment financing bankers beggar-thy-neighbor bilateral billion borrowing Bretton Woods Bretton Woods system commission competitive cooperation countries David Mulford debt deposits distribution dollars ernment Eurobanks Eurocurrency exchange Federal Reserve financial markets foreign global hegemonic incentives increased industrialized nations interest International Economic international financial international institutions international monetary system international political economy intersubjective Interview kets Kissinger LDCs legitimacy legitimate lending liberal institutionalism loans market forces ment multilateral NICs norms OECD oil exporters oil importers oil prices oil shock oligopsony OPEC capital percent petrodollar recycling policy makers portfolio power outcome price of oil problem quota rates recy recycling petrodollars regimes response Riyadh Safety Saudi Arabia Saudi investment Simon social stability ternational theory tion tional trade deficit Treasury Department U.S. banks U.S. Congress U.S. government U.S. policy U.S. Treasury unilateral United Witteveen York Fed