US Barreling Into Recession
Washington, Feb 3 (Prensa Latina) Oil has placed a critical role in the US current economic downfall and will continue to drain the nation for years to come, writes Michael T. Klare, professor of Peace and World Security Studies at Hampshire Collage.
The author of Resource Wars and Blood and Oil says the great economic mega-bubble arose in the late 1990s, when oil was cheap, times were good, and millions of middle-class families aspired to realize the "American dream" of buying a house in the exurban areas..
At the same time, cheap oil and changing consumer tastes -- pushed along by relentless advertising campaigns -- led many of the same Americans to trade in their smaller, lighter cars for heavy SUVs or pickup trucks.
US reliance on imported petroleum crossed the 50% threshold in 1998 and has been rising ever since, while the cost of imported oil hit the $100 per barrel mark this January 2 for the first time, an all-time record.
In 1998, the United States paid approximately $45 billion for its imported oil; in 2007, that bill is likely to have reached $400 billion or more. That constitutes the single largest contribution to America's balance-of-payments deficit , writes Klare.
This, in turn, helped weaken the value of the dollar in relation to key foreign currencies, especially the euro and the Japanese yen, boosting the cost of other imported foreign goods and so threatening to fuel inflation at home.
As the oil import bill kept rising, the value of the dollar kept falling, and inflationary pressures kept building, the country's central bankers responded in classic fashion by raising interest rates. This naturally resulted in substantially higher monthly payments for homeowners with variable-rate mortgages
On top of that, a large share of the money spent in fuel inefficient cars is deposited in so-called sovereign-wealth funds (SWFs) which stands for giant pools of wealth that are under the control of government agencies like the Kuwait Investment Authority and the Abu Dhabi Investment Authority, explains Klare.
These SWFs have been buying choice assets in the US and now control approximately $3 trillion in assets, and, with more petrodollars pouring into the petro-states every day, they are projected to hit the $12 trillion mark by 2015.
The Kuwait Investment Authority, for example, recently took a $12 billion stake in Citigroup and a $6.5 billion share in Merrill Lynch; the Abu Dhabi Investment Authority acquired a $7.5 billion stake in Citigroup; and Mubadala Development of Abu Dhabi purchased a $1.5 billion share in the privately-held Carlyle Group.
Nothing better occurred to President George W. Bush than to ask or practically beg Saudi King Abdullah to increase that country s oil output of crude oil in order to lower the domestic price of gasoline, criticized the profesor whose most recent book, Rising Powers, Shrinking Planet: The New Geopolitics of Energy, will be published by Metropolitan Books in April 2008.